SOME PHASES OF CANADIAN COMPANY LAW

THOMAS MULVEY, K.C.

When the decision of the Judicial Committee of the Privy Council in The John Deere Plow Company v. Wharton (1) came to hand, it was thought by those who had been following the subject that substantial advances had been made to solve the difficulties in company legislation which had been under discussion since the year 1906. It soon appeared, however, that the difficulties were to be increased. The Appellate Division of the Province of Ontario refused to follow this decision, and a similar attitude was taken by the Courts of some of the Western Provinces.

Then followed the decision of the Judicial Committee of the Privy Council in the Bonanza Creek Gold Mining Company, Limited, v. The King (2). This decision upset all well-settled views regarding the capacity and character of companies created under the Dominion Companies Act and of companies under Provincial legislation when created by Letters Patent. This was accentuated when several Provinces enacted legislation declaring that all companies incorporated under their respective authority be deemed to have the general capacity which the common law attaches to corporations created by charter (3). No definition of a common law company or chartered company was given and no provision was made for engrafting the peculiarities of a common law company upon the statutory companies created by these Provinces.

Then followed the decision of the Appellate Division of Ontario holding in Edwards vs. Blackmore (4) that the directors of a company have authority to carry on any business whatsoever, notwithstanding the limitations of the purposes and objects set out in the charter. Next the decision of the same Court in Weyburn Townsite Co., Limited, vs. Honsburger, (5) that a Provincial company has no authority to carry on business outside the incorporating Province unless duly authorized by a foreign jurisdiction. Undoubtedly this view was condemned by the Supreme Court of Canada, but it may be open to state that this precise question was not raised before that Court and the decision on the subject may be obiter.

(1) 1915, A.C. 330.

(2) 1916, 1 A.C. 566.

(3) Ontario, 1916, 6 Geo. V, c. 35, s. 6. Manitoba, 1917, cap. 12. Saskatchewan, 1917, cap. 34, s. 42.

(4) 1918, 42 O.L.R. 105.

(5) 1918, 43 O.L.R. 451.

Perhaps the most disconcerting situation is raised by a direct deduction from the decision of the Judicial Committee of the Privy Council in the Insurance Case (1), where it is held that foreign companies, Extra Canada, are to be considered as aliens and exclusive jurisdiction respecting them rests with the Federal Parliament.

The result of these decisions undoubtedly is that no exact opinion can be given (1) with respect to the capacity of a Dominion company or of a Provincial company incorporated by Letters Patent or with respect to the authority of the directors of such a company; (2) with respect to the capacity of a Dominion company in any Province with the exception of Quebec and Alberta; (3) with respect to the capacity of a Provincial company carrying on business outside its incorporating Province; and (4) with respect to any foreign company carrying on business in Canada.

It may be of assistance to consider briefly the development of Company Law in Canada. A complete statement of this growth in the Dominion and all the Provinces is unnecessary, as the questions under consideration arose in Ontario or in Ontario legislation, and our attention need be directed to legislation of Ontario and the Dominion alone.

The first general legislation of the Province of Canada was enacted in 1850 (2). In preparing this legislation precedents of the United States were taken, not those of the United Kingdom. General legislation passed in the United Kingdom in 1845 (3), was the first general Act for the incorporation of joint stock companies. That this legislation was not followed in the Canadian Act of 1850 is shown by the fact that its two main features were not adhered to. Under that Act there was provisional registration, and complete incorporation was granted only after the filing of a deed of settlement. It has been suggested that the methods of the United Kingdom were followed in Canada because the proceedings for incorporation were initiated by the filing of a document. This suggestion does not go to the root of the matter. The essential difference in the two methods of incorporation is not created by the filing of a document or the issue of the so-called Letters Patent. It is created by the fact that in one case all the constating interests of the company are not public documents and in the other they are. The Act of 1850 provides for the enactment of by-laws, private documents. This is the method which has been followed throughout in the United States. Under all British legislation a memorandum of association or deed of settlement, together with articles of association, were required to be filed with a public officer.

(1) Attorney General for the Dominion vs. Attorneys Genera ifor Alberta, et al., 1916, A.C. 588.

(2) 13 and 14 Vic., c. 28.

(3) 7-8 Vic., c. 110.

A deed of settlement has been required in modern times even where a company was created by charter. The British South Africa Company was incorporated by charter dated the 28th of October, 1889, notice of which appeared in the "London Gazette" of the 20th of December, 1889 (1). The deed of settlement, dated the 3rd of February, 1891, was subsequently approved of by Order-in-Council.

It is pertinent also to note that the use of the word "limited" in the name of a company was not introduced in Canadian legislation until the year 1869. The use of this word is of no great importance in the method of incorporation or in the manner of control, but the popular imagination seems to have been moved very greatly by its use, and it is very likely that if British legislation had been taken as a precedent, the word would have been adopted immediately after the year 1862 when it was first used in the United Kingdom. For this reason it is advisable to trace in a few words the development which had taken place in the United States down to that time.

The common law company and its predecessor in trade, the regulated company, were well known to the American Colonials. Many of the Colonies owed their origin to charters granted to adventurers for trading purposes in their districts. These corporations became known in the struggle of the Colonials with the Home Government, and through the monopolies, liberties, privileges, immunities and franchises with which they were endowed. There appears to be little doubt that such corporations were not in favour with the Colonials. This is supported by the fact that no federal authority for the creation of companies is found in the Articles of Confederation or in the Constitution of the United States.

Moreover, the Colonial assemblies were prohibited from creating corporations which by any implication could carry on business beyond the limits of the respective Colonies. The authority at home, which corresponds to the existing Colonial Office, vetoed all legislation which had any extra-territorial effect (2). This policy in a limited degree still prevails, as is evidenced by a resolution passed at the recent session of the Canadian Parliament requesting an amendment to the British North America Act authorizing the extra-teritorial effect of Dominion legislation (3).

Morever, the colonials were hampered in their progress in company legislation through want of precedents for this purpose in the United Kingdom. The Bubble Act, passed in 1720, was strictly enforced, and for that reason the incorporation of com

(1) Cd. 8773, 1898 and Cd. 5918, 1890.

(2) Foreign Corporations in American Constitutional Law, pp. 22-23: C. C. Henderson, Harvard University Press, 1918.

(3) Votes and Proceedings of Parliament, Session 1920, p. 443.

panies was prohibited by law. This Act was not repealed until the year 1825, and for over a century there was no advancement whatever in company legislation or promotion in Great Britain.

The persistence of the effect of colonial fears and the colonial policy of the Home Government is apparent when the legislation and the decisions of the Courts of the States are considered. For many years after the Revolution a company which proposed to carry on business in more than one State procured similar legislation in the other States. It was not until 1811 that the first general Companies Act was passed in the State of New York and freedom of incorporation did not become general until the middle of the last century (1). It was not, in fact, until 1837 that it was held by the Supreme Court of the United States that a company could carry on business in a state other than that of its creation. (2)

Side by side with these restrictive provisions, legislation limiting and restricting the rights of companies other than those of the State were adopted. The first relative to the subject of insurance was passed by the State of New York in 1821. Legislation of this character was passed by all the States limiting foreign companies, and included companies of other States. It was brought about by the jealousies of the various States, more particularly between the North and South. This is referred to by Mr. Justice Field in Paul v. Virginia, (3) where he pointed out that if an argument adduced should prevail a State could not charter a company with purposes, however restricted, without at once opening the door to a flood of corporations from other States to engage in the same pursuit. It is pertinent to quote further from the judgment in that case to shew the prevailing views respecting companies held at that time (4):

"The corporation being the mere creation of local law, can have no legal existence beyond the limits of the sovereignty where created... Having no absolute right of recognition in other states, but depending for such recognition and the enforcement of its contracts upon their consent, it follows, as a matter of course, that such assent may be granted upon such terms and conditions as those states may think proper to impose. They may exclude the foreign corporation entirely; they may restrict its business to particular localities or they may exact such security for the performance of its contracts with their citizens as in their judgment will best promote the public interest. The whole matter rests in their discretion."

(1) Henderson, p. 37.

(2) Bank of Augusta vs. Earle, 1837, 13 Pet., 519.
(3) 1868-8, Wallace, 168.

(4) Paul vs. Virginia, 1868, 8 Wallace 168, at p. 181.

It should be pointed out that the law of the United States stood in this position at the time the British North America Act was passed and this may have had some influence upon the framers of the Confederation Act.

It is pertinent here to remark that the Father of Confederation, who perhaps had more precise ideas upon this subject than any other, namely, Sir Oliver Mowat, in his administration of the Ontario Companies Act would not permit of an Ontario company being authorized to carry on business outside the Province. It was not until after his resignation as Attorney General that an amendment of the Act was made permitting the incorporation of railways carrying on business outside of Ontario (1). Moreover the Extra-Provincial Corporation legislation was not enacted until later.

These historical references are made not for the purpose of indicating either present views or future progress in Canada, but to point out a narrow system which should be avoided. Further reference to the more recent developments in the United States will also be made.

It is necessary now to follow the growth of the company difficulties which were indicated at the outset.

The capacity of Provincial companies was raised by the question propounded by the Court in Canadian Pacific Ry. v. Ottawa Fire Insurance Co. (2), without any definite conclusion being arrived at. It was also raised in the questions propounded to the Supreme Court of Canada by the Governor General in Council and argued in what is known as the Company Case (3). A specific case raised in Bonanza Creek Gold Mining Company, Limited, v. The King (4), disposed of the subject. Although the Company Case was discussed before the Judicial Committee of the Privy Council, the decision in this case determined the matter. There is no use criticising the decision of the Judicial Committee. Undoubtedly it was contrary to the well-defined ideas of Canadian lawyers who had given the subject great consideration, and it developed a situation which was fraught with grave dangers in the advancement of company law, either by way of legislation or decisions of the Courts. Companies incorporated by Letters Patent had always been considered to be statutory companies, and the decision that they were common law companies came with a considerable shock.

The Provinces, no doubt, considered this decision a virtual victory, and in order to clinch it and to obtain what was supposed to be the greatest advantage for their companies, passed legislation to the effect that all companies provincially incorporated,

(1) 1899, 62 Vic. (2) cap. 11, s. 21.

(2) 1907, 39 S.C.R., 405.

(3) 1916, A.C. 598.

(4) 1916, A.C. 566.