June 14, 1935

LIB

Charles Edward Bothwell

Liberal

Mr. BOTHWELL:

Possibly it would be, and we will discuss them as we come to them, but I am mentioning these points now because they may clear up some matters in my mind before we give the bill second reading, and it may save time in committee. Then I read from page 43:

The duty of investigating and determining the adequacy of such consideration, where such

[Mr. Bothwell.j

adequacy is involved in any litigation, should be placed squarely on the courts.

That has reference to section 9GB, to which the minister has referred so often, and that can be dealt with in committee. Then I read from the middle of page 44:

Moreover, creditorship securities are now occasionally issued with such designations that they convey the impression that they constitute a lien or charge on property when in fact they are merely unsecured obligations ranking with other similar unsecured debts of the company. The proposed board should prohibit this practice.

No board has been set up; under the amendments apparently the Secretary of State takes the place of the board that was suggested by the price spreads commission. Then at page 45 they say:

We therefore recommend legislation making appraisal companies liable in damages to any one suffering loss through the purchase of stock, to which purchase any such appraisal has contributed, if it can be shown that such appraisal was untrue in any material part, and that it was issued or published by the appraisal company (a) without honest belief in its accuracy, or (b) without such company having first taken all reasonable means_ to verify the accuracy of the facts or opinions contained in the appraisal.

Topic:   COMPANIES ACT, 1934, AMENDMENT CONTINUATION OF DEBATE ON THE MOTION OF MR. CAHAN FOR SECOND READING
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CON

Charles Hazlitt Cahan (Secretary of State of Canada)

Conservative (1867-1942)

Mr. CAHAN:

Is that not the law now?

Topic:   COMPANIES ACT, 1934, AMENDMENT CONTINUATION OF DEBATE ON THE MOTION OF MR. CAHAN FOR SECOND READING
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LIB

Charles Edward Bothwell

Liberal

Mr. BOTHWELL:

Pursuant to that recommendation an amendment has been drawn up providing that actions for damages are permitted, but such actions can be taken only after securing the consent of the Secretary of State.

Topic:   COMPANIES ACT, 1934, AMENDMENT CONTINUATION OF DEBATE ON THE MOTION OF MR. CAHAN FOR SECOND READING
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CON

Charles Hazlitt Cahan (Secretary of State of Canada)

Conservative (1867-1942)

Mr. CAHAN:

I do not like to interrupt, but that section does not apply to actions for damages against an appraisal company. This Companies Act does not deal with appraisals. Under the common law as it prevails in this dominion, if an appraisal company wrongfully puts out an erroneous statement it is liable to all who suffer damages by reason of that statement.

Topic:   COMPANIES ACT, 1934, AMENDMENT CONTINUATION OF DEBATE ON THE MOTION OF MR. CAHAN FOR SECOND READING
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LIB

Charles Edward Bothwell

Liberal

Mr. BOTHWELL:

Reading the report of the price spreads commission one gets the impression that the members of that commission became convinced of the fact that appraisal companies were materially assisting in-I do not think this is too strong a word- fleecing the public, by not having regard to the ordinary ethics of business in making their appraisals. So it does seem to me that if this difficulty has crept into our business practice these appraisal companies should be bonded or very severe penalties should be provided for false appraisals or false reports on appraisals made by the company. [DOT]

Companies Act-Mr. Bothwell

I should like to say just a few more words particularly in connection with sections 5, 15, 16 and 20. In section 5 I find these words:

In no case shall any shares, whether common or preferred, or whether with or without nominal or par value, be issued and allotted as fully or partly paid up for less than what may justly be deemed in all the circumstances of the case adequate consideration-

I hardly know what you can take out of those words, "what may justly be deemed in all the circumstances of the case adequate consideration," or how wide be their scope. It seems to me that a simpler expression could be used in dealing with the consideration for shares that- are being allotted. Surely the time has come in the history of this country when if men are able to form corporations and go out and sell their stock to the public, the public have a right to expect that either dollars or dollars' worth are going into the company, and not simply "what may justly be deemed in all the circumstances of the case adequate consideration." We know of cases of incorporations-they will be found in any book of company law-where assets properly purchased for a few hundred or a few thousand dollars were then sold to the company at greatly enhanced prices and yet they were called "adequate considerations."

Topic:   COMPANIES ACT, 1934, AMENDMENT CONTINUATION OF DEBATE ON THE MOTION OF MR. CAHAN FOR SECOND READING
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CON

Charles Hazlitt Cahan (Secretary of State of Canada)

Conservative (1867-1942)

Mr. CAHAN:

But I used the very words of the report.

Topic:   COMPANIES ACT, 1934, AMENDMENT CONTINUATION OF DEBATE ON THE MOTION OF MR. CAHAN FOR SECOND READING
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LIB

Charles Edward Bothwell

Liberal

Mr. BOTHWELL:

I am not staying with the report in that connection. I believe that the making of the report would be a matter of compromise between the various parties to it, and while it makes suggestions this house is in a position to improve on those suggestions if it is possible for it to do so.

Topic:   COMPANIES ACT, 1934, AMENDMENT CONTINUATION OF DEBATE ON THE MOTION OF MR. CAHAN FOR SECOND READING
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CON

Charles Hazlitt Cahan (Secretary of State of Canada)

Conservative (1867-1942)

Mr. CAHAN:

Certainly.

Topic:   COMPANIES ACT, 1934, AMENDMENT CONTINUATION OF DEBATE ON THE MOTION OF MR. CAHAN FOR SECOND READING
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LIB

Charles Edward Bothwell

Liberal

Mr. BOTHWELL:

Those words "deemed in all the circumstances of the case adequate consideration" may not mean dollars at all, but that is what the Shareholders of tlft company will expect is going into the company- dollars or dollars' worth. I think that the Secretary of State will know that in the past the courts have refused to go back of what the directors have said was adequate consideration. If they the directors say that a lot bought for a thousand dollars and turned in to the company at ten thousand dollars, was at an adequate consideration the court then says the directors having decided that, we will not interfere.

Topic:   COMPANIES ACT, 1934, AMENDMENT CONTINUATION OF DEBATE ON THE MOTION OF MR. CAHAN FOR SECOND READING
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CON

Charles Hazlitt Cahan (Secretary of State of Canada)

Conservative (1867-1942)

Mr. CAHAN:

I have read fairly well the decisions of the courts in Canada for pretty nearly fifty years, and I have never met such a case. I would like to be shown it.

Topic:   COMPANIES ACT, 1934, AMENDMENT CONTINUATION OF DEBATE ON THE MOTION OF MR. CAHAN FOR SECOND READING
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LIB

Charles Edward Bothwell

Liberal

Mr. BOTHWELL:

I do not think we shall have any difficulty in doing that before we are through. If the minister would like to see these cases I will refer him to them. I have notes of them here.

Then in section 15 of the act, 96B, we have these words again, dealing with adequate consideration for fully paid shares: "or is to receive what may justly be deemed, in all the circumstances of the case, adequate consideration therefor in cash, property or services." It does seem to me that the shareholders of the company and the public itself that is reading its reports and helping to pay for the stock in order to earn dividends for the company are entitled to know that that company is operating on a sound basis and not on watered stock. Where you see words like that I can readily anticipate what arguments will be advanced in the courts of this country, and I am very doubtful if a judge will be able, to say that dollars or dollars' worth are there.

Then it appears to me that section 16 of the bill is very weak. It says:

Subject to the provisions of any by-law of the company duly enacted under the provisions of this act, eiieh share of the capital stock of any company issued' and allotted shall, subject to the provisions of this part, carry voting rights and entitle the shareholder to one vote for each such share owned by him.

I have referred before to voting on the value of the share instead of on each share, but here it says "subject to the provisions of any by-law of the company duly enacted under the provisions of this act." Surely it is possible there for the company to do anything they like in connection with these voting rights. Then of course there is the other objection to which I have referred. Section 20 provides that certain provisions of the act-

-"shall not apply to any company to which part one of the principal act is made applicable .. . nor to any company incorporated under the principal act prior to the coming into force of this act, and every such company shall continue to be subject to the provisions of the principal act which shall, as regards such companies, be and1 be deemed to be in full force and effect in the same manner as if the foregoing sections of this act had not been enacted.

Now what the price spreads commission found was that certain abuses had crept into business through our Companies Act, and they made recommendations which they thought would tend to abolish those abuses. But some of the most effective sections of this bill are going to apply not to the companies that have been sinning in the past but only to companies incorporated after the coming into force of the act. Surely these provisions ought to be made to apply to acts

Privilege-Mr. Ralston

committed by existing companies after the coming into force of this act instead of exempting them altogether.

I am throwing out these suggestions on the second reading, before we get into committee of the whole on the bill, because personally I am very much in sympathy with the move made by the price spreads commission, although I am not in agreement with everything they said. Most of their recommendations that are of value in controlling a certain type of predatory incorporation were recommended to the minister last year when the main act was being put through. I am only expressing at this time the hope that they will be embodied in the bill and that we shall endeavour to cure the abuses which the price spreads commission found to exist.

Topic:   COMPANIES ACT, 1934, AMENDMENT CONTINUATION OF DEBATE ON THE MOTION OF MR. CAHAN FOR SECOND READING
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PRIVILEGE-MR. RALSTON

LIB

James Layton Ralston

Liberal

Hon. J. L. RALSTON (Shelburne-Yarmouth) :

Mr. Speaker, I rise to a question of privilege. This afternoon when I was not in the house I understood that the Prime Minister (Mr. Bennett) delivered an address in which he intimated that I had accepted a brief and that something was represented on the back of that brief, which only means one thing in legal parlance. The custom is among lawyers, particularly in the old country, for a solicitor to furnish a brief to counsel and on the back of that brief to endorse an amount indicating the fee. The imputation which my right hon. friend has made is absolutely unfair, unjust and wholly false, and I submit that it is unworthy of any member of the house, and particularly of the Prime Minister, who is a distinguished member of the bar. I can only think that it was done perhaps in the heat of debate. But I myself have endeavoured to observe the amenities of debate in the past. I have not hit below the belt as my right hon. friend did this afternoon. I call on him to withdraw any imputation whatever that I have been engaged in this matter professionally in any way, or that I have ever accepted or received or expected to receive or am to receive any remuneration or any consideration of any kind which would be represented by an endorsement on the back of a brief.

Topic:   PRIVILEGE-MR. RALSTON
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CON

Richard Bedford Bennett (Prime Minister; President of the Privy Council; Secretary of State for External Affairs)

Conservative (1867-1942)

Right Hon. R. B. BENNETT (Prime Minister):

Mr. Speaker, I did not make the statements that the hon. gentleman has mentioned. If he had read what I said he would have read it exactly as I said it, and that is what he should have done. I made no such imputation. I did take occasion to refer to the observations he made to conditions

with respect to my friend, and I said that they were unworthy of this house.

The imputations, if he calls them such, were not made. There were no imputations. Just what I said I said. What he said about my friend he said, and he brought about exactly the observations I made as to a distinguished member of the legal profession residing in Montreal, speaking of details with respect to matters transacted1 on the Winnipeg'grain exchange that could come to him in only one way, from information furnished either by the exchange or members thereof, by the brief that they gave him. I called it a brief because that is the term which would be used by professional men. That is what I said, if my memory serves me aright. The hon. member has the paper in front of him and he can see the exact words. I said that I should like to see what was marked on the back of it. I think that is what I said. If that is any different from what was said by him yesterday with reference to Mr. John McFarland, I want to know about it.

Topic:   PRIVILEGE-MR. RALSTON
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LIB
LIB
CON

Richard Bedford Bennett (Prime Minister; President of the Privy Council; Secretary of State for External Affairs)

Conservative (1867-1942)

Mr. BENNETT:

As to what should have been done.

Topic:   PRIVILEGE-MR. RALSTON
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LIB

James Layton Ralston

Liberal

Mr. RALSTON:

It is not necessary to

read it on the question of having a withdrawal. This is what the right hon. gentleman said:

That is the position that has been taken in this house. Again, it is very interesting to observe the discipline with which hon. gentlemen who are not well informed, accept the brief that is tendered to them and then make a speech in the House of Commons. The leading member who spoke for the opposition is a distinguished lawyer; he did not desire to make that speech; he has made his statements jmd they are well known, but he was told to speak, so he took the brief and made the statement. From whom did he get his facts that he referred to as "ifs"? Who supplied' them to him? Who gave him his brief and what does it represent on the back of it? That is the question.

My right hon. friend knows perfectly well that that means only one thing, that there is a direct endorsement on the back of the brief to the effect that the person who receives it is entitled to receive a fee. I am surprised that my right hon. friend has not referred to that at all in the lame explanation which he made. He knows perfectly well what a brief is and he knows as a counsel that what is represented on the back of a brief is the amount of the fee. I say to my right hon.

Privilege-Mr. Ralston

friend that that is the imputation which was made immediately apparent to every lawyer in tnis house and throughout the country and I ask him to withdraw it.

Topic:   PRIVILEGE-MR. RALSTON
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CON

Richard Bedford Bennett (Prime Minister; President of the Privy Council; Secretary of State for External Affairs)

Conservative (1867-1942)

Mr. BENNETT:

I repeat that after having heard it read it is little different from what I thought it was. What does it represent on the back of it, I said. Let me say what it represents on the back.

Topic:   PRIVILEGE-MR. RALSTON
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LIB

June 14, 1935