The Gazette 1977

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GAZETTE APRIL 1977
follows then that Mr. Justice Harman felt that the word
"premium" in Section 56 had a broader meaning than the
meaning which counsel had sought to have attached to it.
He advanced no reason whatever for his conclusion,
however. In effect he rejected, for no stated reason, an
interpretation of the word "premium" which, by his own
admission, he found attractive.
As already stated counsel's argument hinged on the
word "premium". I now propose to examine the word to
ascertain whether this argument had any validity. The
ordinary meaning of the word "premium" in the English
language is at more than original or nominal or usual
value — i.e. a value possessed by something over and
above what one would expect to be the normal value. 121
have referred to dictionary definitions which make this
clear. Counsel's argument in Head v. Ropner amounted to
the contention that the expression shares issued "at a
premium" in Section 56 means not only shares issued for
more than their nominal value. His argument was that the
expression meant (a) Shares issued for a value greater
than their nominal value, (b) When that increase in value
(over and above nominal value) is due to an increase in
the value of the assets which those shares represent. This
is, in effect, an argument for saying that the word
"premium" in Section 62 has a meaning different from its
ordinary, commonsense dictionary meaning. 1 think that
the onus should be on counsel to show what authority
exists for such a proposition. Counsel did not cite any
authority for his proposition. He merely said that "the line
must be drawn somewhere" and that the legislature can
hardly have intended to make the legislation as wide as
Section 56 proves to be if the word "premium" in that
Section is given its ordinary natural meaning. This is
hardly sufficient. Even if counsel had wished to cite any
authority for his proposition he would, it is submitted,
have had extreme difficulty in finding any authority to cite
in support of his claim. In fact such authority as there is
seems to point in the opposite direction.13 Gower
describes the phrase issuing shares at a premium as
"issuing shares at a price exceeding their nominal par
value".14
In similar vein is Palmer which states bluntly: "A
company issues shares at a premium if the consideration
it receives for them exceeds in value the nominal value of
the issued shares".13
Pennington contains the following passage: "If a
company's issued shares are saleable for more than their
nominal value they are said to be at a premium."16 Of
course it must be pointed out that those statements were
made after the Henry Head case and, therefore, to quote
them as authority for the correctness of what was decided
in that case may be begging the question to an extent.
However, the fact that there seems to be no difference in
opinion between any of them as to the meaning of
"premium" in Section 56 (our Section 62) and that there
is no hint of disagreement with the decision in Henry
Head v. Roper is significant. Henry Head is the only case
in which the word "premium" has come up for
12. See dictionary definitions cited ante. A phrase often found in the
law books is "putting a premium on fraud" (or stupidity). This
means encouraging fraud by making it worth a person's while to
be fraudulent — making fraud very valuable.
13. The Companies Acts contain no definition of the word. The
context in which the word appears in the 1948 Act, Section 56 (or
in the 1963 Act, Section 62) contains nothing from which it can
be concluded that the word should be narrowly construed. There
is, then, nothing in the Section to support counsel's argument.
14. "The Principles of Modern Company Law", 3rd ed., 1969, p.
108.
consideration in the context of Section 56 (our Section
62). There are, however, some cases where the general
meaning of the word "premium" in other contexts is
considered. These cases are not very explicit as to the
meaning of the word. Insofar as anything can be gleaned
from them, however, they seem to suggest that
"premium" generally means, simply an increase in value
over and above original value. For example in King v.
Earl Codogan,17 a property case, Warrington L.J. said:
"Premium as I understand it, used as it is frequently in
legal documents means a cash payment made to the
lessor, and representing, or supposed to represent the
capital value of the difference between the actual rent and
the best rent that might otherwise be obtained . . ."18 The
word arose for consideration in the context of "Insurance
Premium" in the case of Barrow v. Methold.19 A testator
had given to his wife by a codicil to his will the premium
of insurance on his life. Pagewood V.-C. said:
"The testator had a policy and a bonus declared on it.
To which am I to apply the words 'premium of
insurance'? It is to be observed that the word premium is
ordinarily used to denote the increased value of any
original share . . . I must hold that the bonus and no more
passes to the widow under this codicil."20
Whilst these cases are not very helpful in determining
the precise meaning of the word "premium" in Section 62
of the Companies Act, 1963, 1 think it may nevertheless
be safely said that they are certainly no authority for
saying that the word "premium" in Section 62 means
anything other than more than nominal value. As already
stated ordinary English dictionaries indicate that premium
simply means more than nominal value. The only legal
dictionary which ventures a definition of the word is
Stroud's Judicial Dictionary. There it is simply stated:
"Premium ordinarily means increased value."21
Therefore, it seems that the phrase "shares issued at a
premium" in Section 62 of the Companies Act, 1963,
means no more than shares issued for a price greater than
their nominal value. Counsel's argument represented an
attempt to define the phrase as indicating not simply an
issue for greater value than nominal value but an issue for
greater value than nominal value where the increase in
value over their nominal value had occurred for a certain
reason, i.e. that there are assets which these shares
represent and these assets have themselves increased in
value. This would give the word "premium" in Section 62
a far narrower meaning than its dictionary meaning. As
we have seen there is not a shred of authority for this
narrower meaning which counsel in Henry Head sought
to attach to the word "premium" in Section 56 (our
Section 62). It may seem difficult, then, to see why Mr.
Justice Harman felt himself "much attracted" by the
definition suggested by counsel. A possible clue emerges
from the very next sentence in his judgment where he
said: "I have every desire to reduce the effect of this
Section to what I cannot help thinking would be more
reasonable limits." Perhaps the Legislature did not intend
the Section to be quite so wide as it appears to be. It is
UContinued on page 70
15. Palmer's Company Law, 21st ed., p. 192.
16. Pennington's Company Law, 2nd ed., 1967, p. 143.
17. (1915) 3 K.B. 485.
18. At pp. 492-493.
19. (1885) 26 L.T. (o.s.) 56.
20. See also Elmdene Estates Ltd. v. White (1960) 1 AER 306. This
case was also a property case based on Section 18 (2) of the
Landlord and Tenant (Rent Control) Act, 1949.
21. Stroud's Judicial Dictionary, 4th ed., Part 4, p. 2092.
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