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Argued for the Petitioner: (Case I.) It was now conceded by the respondents that the slip was not itself a policy of marine insurance. It followed, and this was also conceded, that there was no contract of marine insurance between the parties enforceable in law, and no legal obligation upon the liquidator to issue a policy in terms of the slip. Question 1, accordingly, fell to be answered in the negative (Home Marine Insurance Co. Ltd., [1898] 1 Q.B. 829, 2 Q.B. 351; Mackay v. Scottish Boat Insurance Co. Ltd., 1903, 40 S.L.R. 675; Genforsikkrings Aktieselskabet (Skandinavia Reinsurance Co. of Copenhagen) v. Da Costa, [1911] 1 K.B. 137; Ionides v. Pacific Insurance Co., (1871) L.R., 6 Q.B. 674, per Blackburn J. at p. 685; (1872) L.R., 7 Q.B. 517, per Kelly C.B. at p. 525, contrasting the slip with an agreement for a lease and describing the former as a mere nullity"; Fisher v. Liverpool Marine Insurance Co., (1873) L.R., 8 Q.B. 469; (1874) L.R., 9 Q.B. 418). The argument of the respondents was therefore now restricted to this, that there was an unenforceable contract of marine insurance between the parties, from which arose an obligation in honour binding the petitioner to execute and issue to the respondents a policy in terms of the slip, and that that honour obligation was enforceable upon the petitioner in the present process. That reasoning was unsound. The slip was not only "inadmissible in evidence," it was totally null and void as a contract of marine insurance or as an agreement to make such a contract. That appeared from a historical survey of the legislative enactments on the matter (Stamp Duties on Sea Insurance Act, 1795 (35 Geo. III. cap. 63), repealed by Customs and Inland Revenue Act, 1867 (30 Vict. cap. 23), sections 3, 7, and 9; Stamp Act, 1891 (54 & 55 Vict. cap. 39), sections 91, 92, 93, 95, and 97; Marine Insurance Act, 1906 (6 Edw. VII. cap. 41), sections 1, 21, 22, 23, 24, 30, 52, and 53). It happened that the Act of 1906 used the phrase inadmissible in evidence," instead of the word "invalid," but it was not to be supposed that the Legislature intended thereby to qualify or weaken the phraseology of the earlier statutes which, quoad hoc, this Act was merely repeating. Two of the cases already cited (Ionides and

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Fisher, supra), which decided that the skip was of no effect at all as constituting a contract, were cases on the statute 30 Vict. cap. 23. The Act of 1891 merely repeated the terms of the 1867 Act, but the Act of 1906 went in certain respects further. It added in section 23 to the specification necessary in the policy. So it was even possible that a policy might be good under the 1891 Act, but bad in 1906. An illustration of the degree of specification which would satisfy the one statute but not, it was submitted, the other was to be found in the case of Edwards v. Aberayron Mutual Ship Insurance Society ((1875) 1 Q.B.D. 563). Clearly, therefore, the Act of 1906 did not in any way derogate from the earlier statutes. Further, no unstamped document (which ought to be stamped) was admissible in evidence, therefore it was additionally clear that the statute meant more than it appeared in terms to say, and was enacting a peculiarity of treatment for documents in marine insurance (section 14 of the Stamp Act, 1891). The objection to the slip, therefore, went far beyond mere admissibility as evidence, it went to the root of its validity. In the result, nobody could be heard to say that there was a contract of insurance until there was executed and issued a stamped policy. After that, it was expressly enacted that the slip could be referred to in legal proceedings (section 89 of the Act of 1906). The whole position was well summed up by an expert authority in these words: But the underwriter is not legally liable to pay any loss upon a contract of insurance until the honour contract in the slip has been translated into a policy" (Commercial Laws of the World, Vol. XIII. p. 508). If there was no legal liability on the company to pay any loss which might have been incurred in the present case, the liquidator could not admit any claim for such loss to competition with legally constituted claims in the liquidation. Further, he was not carrying on the business of the company: there was no goodwill to salve. He could not, therefore, embark the assets of the company in speculative transactions by issuing policies on this or other similar slips. Further, in the absence of any contract of insurance or contract to insure which their Lordships could recognise, the Court would not instruct or advise the liquidator to issue such policies. The respondents contended that the Court would give such an instruction on the authority of a series of cases decided in England to the effect that the Court and its officers "ought to be as honest as other people" (the rule in Ex parte James (1874) L.R., 9 Ch. 609 at p. 614). The answer to that argument was threefold. (1) The rule of Ex parte James applied only to an officer of

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the Court, and the liquidator in a voluntary
liquidation was not such (Companies (Consoli-
dation) Act, 1908, sections 186 and 208; S. R.
& O., 1909, Winding-up Rules (England), No. 75;
In re Hill's Waterfall Estate and Mining Co.,
[1896] 1 Ch. 947, per Stirling J. at p. 953;
In re London County Commercial Reinsurance
Office, [1922]2 Ch. 67, per P. O. Lawrence J. at
p. 84).
(2) The doctrine of Ex parte James
was not a part of Scots law (Thoms on
Judicial Factors, p. 99, par. 50). And (3), the
present was not the kind of subject-matter to
which the doctrine had been applied in England;
on the contrary, the slip here was in the same
category as the policies in In re London County
Commercial Reinsurance Office (cit.), where
P. O. Lawrence J. refused to apply the rule.
The English cases cited in support of the rule
went no further than this, that when assets
which did not belong to a bankrupt came into
the hands of the trustee by mistake, after the
date of the bankruptcy, he would not be
directed to keep those assets. It had never
been held that the trustee must return moneys
which had come into the hands of the bankrupt
himself by mistake before his bankruptcy. The
case of In re Thellusson ([1919] 2 K.B. 735) came
nearest to that proposition, but it was sub-
mitted that the Court went too far in that case
and corrected that extension of the doctrine in
the subsequent case of In re Wigzell ([1921]
2 K.B. 835). Further, it was by no means to
be taken as clear that the liquidator would be
doing a dishonourable thing if he refused to be
bound in any way by this slip. The liquidator's
position was totally different from that of the
company before liquidation (Scranton's Tr. v.
Pearse, [1922]2 Ch. 87, per Lord Sterndale M.R.
at p. 124, and Younger L.J. at p. 132). On these
grounds Questions 2 (b) and 3 (a) and (b) ought
to be answered in the negative. Question 2 (a)
ought to be answered in the affirmative, at least
to this effect, that if the risk in the slip was
ascertained to have run off before the date of
the liquidation without loss, the liquidator was
entitled to issue a policy in terms of the slip and
claim a premium on behalf of the company.
That was merely to ingather a debt which had
been due to the company at the date of liquida-
tion. But of course the Court might hold that
even that would be carrying on the business of
the company in a sense contrary to section 184
of the Companies Act. The scope of section 193,
under which the liquidator had applied to the
Court, had been considered in Crawford v.
M'Culloch (1909 S.C. 1093).

Co. Ltd. v.

act was ultra vires and could not bind the 1ST DIV.
company or prejudice its creditors. A fortiori, Liquidator
if the policy was only executed and not issued. of Clyde
Ex hypothesi no premium had been paid or Marine
debited. In fact nothing had been done but Insurance
the signing of the policy. Some other act was Herbert
necessary to shew the intention to make the Renwick
policy an operative deed-either delivery or & Co.
some other step (Xenos v. Wickham, (1867) November 30,
L.R., 2 H.L. 296, per Lord Chelmsford L.C. at
p. 320). Besides, the familiar doctrine of the
law of Scotland as to delivery prevented such
a policy having any effect at all.

Argued for the Respondents: (Case I.) It was
admitted that the slip was not itself a policy of
marine insurance (but see Arnould on Marine
Insurance, pars. 37 and 38, p. 54 et seq., and the
case of Edwards (cit.)), and that it was not a
contract of insurance enforceable at law, but it
was contended that the slip was a contract of
insurance subject only to the disability that it
could not be produced in evidence. Apart from
that disability all the rights and obligations of
an enforceable contract flowed from the contract
of the slip. All those obligations were binding in
honour upon the liquidator, and they could be
enforced in this application by affirmative
answers to Questions 2 (b) and 3 (b). The slip
constituted an enforceable contract in all
insurances except marine insurance (e.g. fire,
Thompson v. Adams, (1889) 23 Q.B.D. 361), in
which class of insurance the disability was
imposed upon it only by a revenue statute
(Genforsikkrings, etc. v. Da Costa (cit.), [1911]
1 K.B., per Hamilton J. at p. 143). Intrinsically,
therefore, it was a contract, and subject only
to the exception already mentioned, drew after
it all the consequences of a contract (sections 1,
17, 21, and 22 of the Marine Insurance Act,
1906). Actions upon the Weights and Measures
Acts (5 Geo. IV. cap. 74, section 15, and 5 & 6
Will. IV. cap. 63, section 6) afforded a useful
analogy. Those statutes abolished local weights.
and measures, yet when the purchaser of
potatoes sold by the Scots acre refused to pay
the price, the Court, while holding that the
contract was null and void, and could not be
enforced, yet decerned against the purchaser for
the market value of the potatoes on the date
of delivery (Cuthbertson v. Lowes, 1870, 8 M..
1073). Another analogy was to be found in the
attitude of the Court to irregular sales of shares
in joint stock banking companies, that is,
transfers in which the numbers of the shares
were not set forth in the contract in terms of
section 1 of Leeman's Act (the Banking Com-
panies (Shares) Act, 1867 (30 & 31 Viet. cap.
29)). The rule of that statute was disregarded
on the Stock Exchange, and yet the Court did
not deny parties their remedy at law (Seymour
v. Bridge, (1885) 14 Q.B.D. 460; Perry v.

(Case II.) It might almost be said that the answers to the Questions in this case flowed from the answers in Case I. If the liquidator had issued a policy under a mistaken sense of duty where he ought not to have done so, his



November 30, 1928.

antecedent obligation (Erskine, III. ii. 44; Cormack v. Anderson, 1829, 7 S. 868).

Avizandum, 8th November 1923.

On 30th November 1923 the Court pronounced the following interlocutor:


With regard to the slip dated 9th December 1920, referred to in Case I. mentioned in the petition, answer all the questions therein in the negative, and with regard to the policies mentioned in Case II. answer Questions 1, 2, and 3 therein in the negative, and answer Question 4 in the affirmative.'

1ST DIV. Barnett, (1885) 15 Q.B.D. 388, per Bowen L.J. at p. 397). Similarly, the Court held that Liquidator of Clyde employment of an agent to make a bet in his Marine own name on behalf of a client might imply Insurance authority to pay the bet if it was lost, though Co. Ltd. v. of course the bet itself was a sponsio ludicra, Herbert and unenforceable (Read v. Anderson, (1884) & Co. 13 Q.B.D. 779). There was no question here of the liquidator carrying on the business of the company, or embarking the assets of the company in new speculative contracts. Such contracts would of course be £ for £. All the liquidator proposed to do, subject to the approval of the Court, was to admit to a ranking claims founded upon the old contracts of these slips. It was impossible to cut off the company's The Lord President (Clyde).-The Clyde business as with a knife on the day of liquidation. Marine Insurance Co. was incorporated in 1915 The company's affairs must be carried out to to carry on, inter alia, the business of marine their logical and proper conclusion in the insurance in all its branches. In 1921 it passed winding-up, and if the company's business con- an extraordinary resolution that by reason of sisted of dealing in these honour obligations, its liabilities it could not continue its business the liquidator must take it as he found it. In and should be wound up voluntarily. The Fisher v. Liverpool Marine Insurance Co. (cit., liquidator presents this petition under section L.R., 9 Q.B. 418) Brett J. described the agree-193 of the Companies Act, 1908 (8 Edw. VII. ment on the slip as having been "shamefully cap. 69), for the determination of certain repudiated." But with regard to the "honour" questions which have arisen in the winding-up. aspect of the present case, it was contended that The questions are addressed to us in the form the Court would follow the rule of Ex parte of two actual cases. James (cit., L.R., 9 Ch. 609, per James L.J. at p. 614) as followed and extended in a series of cases in England (Ex parte Simmonds, (1885) 16 Q.B.D. 308; In re Tyler, [1907] 1 K.B. 865, per Farwell L.J. at p. 871; In re Thellusson, [1919] 2 K.B. 735, per Warrington L.J. at p. 743; In re Wigzell, [1921] 2 K.B. 835 (where the doctrine was not applied), per Horridge J. at p. 844, Salter J. at p. 845, Lord Sterndale M.R. at p. 850; Scranton's Tr. v. Pearse, [1922] 2 Ch. 87, per Younger L.J. at p. 131). This principle was mentioned by Buckley (Companies Act, p. 365), Lindley (Companies, p. 978), Williams (Bankruptcy Practice, p. 229), and Palmer (Company Precedents, pt. ii., p. 292). (Case II.) By executing policies in terms of the slips the liquidator had supplied the only essential (assuming Case I. against the respondents) lacking to make the respondent's claim good in law. The policy executed and left in the hands of the company's clerks to be called for was as good as delivered (Arnould on Marine Insurance, section 27, p. 40). Section 52 of the Act of 1906 expressly made the payment of the premium and the issue of the policy concurrent duties. Xenos v. Wickham ((1866) L.R., 2 H.L. 296) was direct authority for the proposition that delivery was not essential (see Lord Chelmsford L.C. at p. 319), and that proposition was especially applicable to a case, such as the present, to which the doctrine of Scots law applied, that delivery was not essential of a document executed in fulfilment of an

Of these the first arises out of the fact that prior to the date of the voluntary liquidation, the company had initialed a slip presented to it by an insurance broker, and had received from the latter the usual closing slip, but had not so far executed the policy which in the ordinary course of business it would have signed and issued to the broker. The main questions under this case are whether the liquidator should now sign and issue a policy in respect of this slip; or (if not) whether he may sign and issue a policy if he thinks it would be beneficial for the interest of the creditors and shareholders to do so? A further question as to the liability of the company to pay losses which would have been covered by such policy notwithstanding that no policy was actually executed, or to pay damages in respect of the non-issue of such policy, was included in the petition; but both parties agreed that this question is not susceptible of any but a negative


The second case arises out of the fact that after the liquidation had commenced the liquidator did sign two marine insurance policies in favour of the holder of two of the company's slips, one of which was issued to such holder before any doubt as to the propriety of this course had occurred to him. The main questions under this case are (First) with regard to the signed but unissued policy, whether the liquidator should now issue it; and (if not) whether he may now issue it if he

thinks it would be beneficial to the creditors and shareholders to do so? (Second) with regard both to the policy which has been signed and issued and to that which has been signed only, whether the company is liable in payment of any losses which have occurred? and (Third) if it be held that the company is not so liable, whether the liquidator should cancel the issued policy and repay the premium?

the highest kind, and are sanctioned by the 1st Div. penalty of exclusion from professional inter- Liquidator course which brokers and underwriters alike of Clyde mete out to anyone who fails in the strict Marine observance of them. But while such exclusion Insurance may be no more unlawful than the contracting Herbert of the honourable obligations themselves, both Renwick those obligations and their sanction are wholly & Co. extra-legal.

Co. Ltd. v.

November 30,

What then ought the liquidator to do? 1923. Like the trustee in a sequestration he has, with regard to contracts made by the company prior to liquidation, the option of taking over performance of them or of submitting to a ranking in respect of damages for their breach. But this option is necessarily confined to contracts which are enforceable against the company either in performance or in damages, and the honourable obligations arising out of verbal contracts of marine insurance are not enforce

The respondents interested in the first case conceded that their slip does not constitute a marine policy within the meaning of the Marine Insurance Act, 1906 (6 Edw. VII. cap. 41). While it undoubtedly reflects a concluded verbal contract of marine insurance made between the company as insurers and the broker as representing the assured, it is inadmissible in evidence under section 22 of that Act unless and until embodied in a written marine policy. It necessarily follows from this that the slip cannot even be regarded as evidence of a con-able in either form. Again, the liquidator, tract to sign and issue such a policy. More- being a voluntary liquidator, may carry on the over, by section 93 (1) of the Stamp Act, business of the company so far as may be 1891 (54 & 55 Vict. cap. 39), contracts for sea necessary for the beneficial winding-up thereofinsurance—such as that of which the slip is a Companies Act, 1908, section 151 (1) (b), and memorandum—are invalid unless expressed in section 186 (iv.). I see no difficulty in the a policy of sea insurance. This is no new feature application of this power to a company whose of the business of insuring marine risks. In business is conducted largely through the Bell's Commentaries (7th ed., Vol. I. pp. 649, medium of honourable, as distinct from legally 650) the slip is described as "nothing more enforceable, obligations-so long as there is than the proposal of terms preliminary to the nothing unlawful about it. The business is contract: it is in the language of Scottish placed under the liquidator's administration lawyers merely an instrument of negotiation; talis qualis as the company conducted it; and, and it remains such notwithstanding that it as has been seen, the conduct of a marine may accurately reflect the whole of a concluded verbal contract of sea insurance which is perfectly possible if the clauses of the contemplated policy are settled in practice and so known to both broker and underwriter. The result is that the holders of the slip referred to in the first case are destitute of any claim enforceable at law against the company. It is nothing to the point that if the slip had been embodied in a marine policy it would have become admissible in evidence for certain purposes; for example, to fix the date at which the contract embodied in such marine policy must be deemed to have been concluded (Marine Insurance Act, 1906, section 21).

Notwithstanding all this, in the practical conduct of marine insurance business the slip plays a part of the greatest importance. It is by means of the slip that the actual business of the broker and underwriter is done; and although there is no obligation to pay the premium except against issue of the policy, or to issue the policy except against payment of the premium (section 52 of the Act), yet the honourable obligations hinc inde between underwriter and broker to carry through the piece of insurance business to which the slip refers are of

insurance business in this country necessarily involves both the undertaking and the strict performance of purely honourable obligations. If, therefore, the liquidator were to carry on the business to any extent it might become his duty to observe each and all of the honourable obligations already incurred by the company, or incurred by himself in so carrying it on; because, ex hypothesi, such carrying on of the business would be necessary for the beneficial winding-up; and if he did not do so, he might be removed. It might be said that in this way there resulted an indirect legal sanction for both the performance and the enforcement of these honourable obligations. At any rate, it is clear enough that, if the company had a goodwill to be preserved or salved, and if the business was carried on-more or less-in order to enable that goodwill to be realised, it would be a sine qua non that the liquidator should scrupulously protect the mercantile honour of the company and its business, which he could only do by compliance with the professional rules regulating the conduct of brokers and underwriters inter se. But in the present case the company admittedly has no goodwill to be preserved or salved. What is more, the

Co. Ltd. v.


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18T Div. liquidator does not profess to be carrying on Liquidator the business of the company to any extent, of Clyde or to desire to adopt that course. The question Marine put to us is whether, in liquidating the comInsurance pany's assets and liabilities, he is entitled to Herbert Pick and choose among the slips initialed by Renwick the company prior to the liquidation, issuing a & Co. marine policy in the case of those slips the risks November 30, contemplated in which can be ascertained to have run off, and repudiating all obligation to issue a marine policy in the case of those which would, or might, involve liability for loss in the event of the issue of a policy. Whatever may be thought of this leonine interpretation of the liquidator's rights and powers, it would, in my judgment, be impossible to bring such a course within the description of carrying on the business of the company to any extent whatever, no matter how much it might conduce to the beneficial winding-up thereof. If the business of the company is to be carried on to any extent, that must be done in accordance with the nature of the business as placed under the liquidator's administration; and to pick and choose among the honourable obligations incurred by the company in the ordinary course of its business -on the principle of "heads I win, tails you lose "--would be a course of proceeding totally at variance with the nature of the company's business. It would be altogether inconsistent with the principles on which alone such a business could be carried on at all.


The principle illustrated by these decisions is shortly and clearly stated by Mr Justice Salter in In re Wigzell, ex parte Hart ([1921] 2 K.B. 835 at p. 845), thus: The Court of Appeal, however, have repeatedly decided that where a bankrupt's estate is being administered by the trustee under the supervision of a Court, that Court has a discretionary jurisdiction to disregard legal right, and that such jurisdiction should be exercised wherever the enforcement of legal right would, in the opinion of the Court, be contrary to natural justice." In the present case the liquidator is a voluntary liquidator, and so far as I am aware a voluntary liquidator has never been regarded in Scotland as an officer of Court, unless the liquidation has been placed under judicial supervision. Apparently in England a trustee in bankruptcy is, regarded as being, under supervision. But I do not go upon that; because in the present case the liquidator has come to the Court under section 193 of the Companies Act, 1908, in order to ascertain what is his duty in certain matters arising out of the liquidation; and, if the aid of the Court is invoked in this manner, it seems to me difficult to say that the liquidator ought to be told to act in one way, if (had he been actually under supervision) it would have been the duty of the Court to tell him to act in another. I prefer to put my judgment on the fact that this Court has no jurisdiction of the kind described by Mr Justice Salter. Any Court will be astute to find grounds in law to bring ethics and justice into harmony, and I have sought means of doing so in the present case. But I am bound to regard my search. as being limited to the contents of the Marine Insurance Act, 1906, and the Stamp Act, 1891, and to such considerations as are consistent with their provisions. In the result I have found none.

The conclusion to which this reasoning, if sound, seems to me inevitably to lead is that the liquidator is not entitled to issue a marine policy in respect of the slip referred to in the first case. Whether that conclusion be right or wrong it is undoubtedly distasteful to be compelled to discriminate between the moral and legal qualities of obligations originally undertaken in good faith by the company and relied on With regard to the second of the two cases in good faith by the broker's clients. But the submitted to us, it appears to me, for reasons company may have creditors other than the which have been already indicated, that the broker's clients whose debts are legally enforce-liquidator had no power to sign or issue policies able debts of the ordinary kind, and it certainly with respect to either of the slips therein referred has legal creditors under issued marine policies. to, unless in pursuance of his power to carry Honour and law usually go hand in hand until an Act of Parliament, and more particularly a Revenue Act, steps in to separate them. In the present case the alternative seems clear. Either we must equiparate honour with law in spite of the Marine Insurance Act, 1906, and the Stamp Act, 1891, or we must allow the law as laid down in these statutes to take its The respondents interested in the first case pressed us strongly to take the former course, and found support in a train of English decisions beginning with Ex parte James, In re Condon ((1874) L.R., 9 Ch. 609), and ending with Scranton's Tr. v. Pearse ([1922] 2 Ch. 87).


on the business of the company. The liquidator, however, has not exercised this power to any extent; and it was therefore ultra vires of him to convert the slips into enforceable obligations. in the shape of marine policies. I see no difference in this respect between the policy which was signed and lay in the company's. office for delivery when called for, and the the policy which was actually handed to broker.

We are informed in the petition that the cases submitted to us are test cases. But we have no means of knowing whether, or how far, parties other than those who have lodged

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