The Gazette 1977

GAZETTE

APRIL 1977

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.

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. 12 1 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.

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