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answers and joined issue with the liquidator in debate have agreed to be bound by our judgment in this petition. I propose therefore that we should answer the questions put to us as follows:

With regard to the slip dated 9th December 1920 referred to in Case I., we answer all the questions in Case I. in the negative; and with regard to the policies 25229/22066 and 25257/ 22034 mentioned in Case II., we answer all the questions in Case II., except the fourth, in negative, and the fourth question in the affirmative.

Lord Skerrington.-As this case was originally presented to us both in the written pleadings and also in the oral arguments, the respondents' counsel maintained that a slip or covering note in the form customary in the business of marine insurance is, in the eye of the law, an unstamped policy of marine insurance; or, alternatively, that such a slip embodies or evidences a contract which imposes upon the insurer a legally enforceable obligation either to issue a policy in accordance therewith, or to pay damages for the non-issue of such a policy, or to settle with the assured in case of a loss in the same manner as if such a policy had actually been issued. In the course of the debate, however, counsel stated (very properly, as I thought) that they had decided to abandon all these contentions as being unsound in law. They then proceeded to claim relief for their clients upon a principle for the existence of which some support is to be found in English decisions, but of which so far as appeared no trace is to be discovered in any Scottish textbook or decision. It was said that a liquidator in a voluntary winding-up is an officer of Court, and that, in the case of such officers, the Court has jurisdiction to direct or, at least, to authorise them to be "as honest as other people." It followed, according to the argument, that in the winding-up of a marine insurance business the liquidator should be directed or authorised by the Court to shew as much respect for the merely honourable obligations of the company as he would for obligations on its part which had been embodied in a stamped policy of insurance, and were, therefore, legally enforceable against it. From the decisions cited to us it appears that much difficulty has been felt by eminent judges in regard to the application of the principle to which I have referred. Opinions may differ as to whether a certain line of action on the part of an officer of Court deserves to be stigmatised as dishonourable. Even if the principle were held to form a part of the law of Scotland, it is not obvious that a liquidator acts dishonourably if he refuses to attribute to a particular contract a force and

Co. Ltd. v.


effect which the makers of it intended that it 1ST DIV. should not possess. None of the decisions cited Liquidator appeared to me to lend any support to the view of Clyde that the Court ought to authorise a liquidator Marine to admit the validity of a claim against the Insurance company which, without that admission, was Herbert not legally enforceable. While it would be Renwick rash to affirm that in novel and extraordinary & Co. circumstances this Court may not be entitled November 30, to exercise powers which are novel and extraordinary, I see no justification in the present case for the suggestion that we ought (even if we possessed the power) to authorise the liquidator to act otherwise than in accordance with the ordinary principles and practice applicable to the distribution of the assets of an insolvent. Of course if a surplus should emerge at the end of the day there is no reason why a shareholder of full age and subject to no legal incapacity should not direct the liquidator to apply his portion of the surplus towards discharging the honourable obligations of the company. On the other hand, there is every reason why the Court should refrain from converting a debt of honour into an ordinary debt at the expense of persons who, if they were consulted, might reply that they were legally unable or personally unwilling to exhibit so much generosity.

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requested the liquidator to issue in the name of the company a policy in accordance therewith." The winding-up commenced on 4th January 1921, when the company passed an extraordinary resolution to the effect that by reason of its liabilities it could not continue its business. No explanation is given in the pleadings as to how it came about that the company initialed the slip in question at a time when, as we are informed in the petition, it had ceased to accept or underwrite any further risks. In the present circumstances, so far as we know them from the statements in the petition, it would clearly be ultra vires both of the company and of its liquidator to issue a policy in accordance with the slip above referred to. While I have difficulty in figuring a change of circumstances which would justify the issue of such a policy, I think that the negative answer to Case I., question 2 (a), should be qualified so as to make it clear that it is not intended to apply to circumstances which are future and hypothetical. Subject to this

1ST DIV. qualification, the questions in Case I. should be answered in the negative.


Insurance cases


November 30, 1923.

of Clyde Case II. refers to a large number of policies Marine which were signed by the liquidator. In some a policy so signed was issued to the Co. Ltd. v. broker who asked for it, the broker being Renwick debited with the premium. In other cases & Co. the policy was not issued, but it remained and still remains in the possession of the liquidator. In these cases the premium was not either paid by or debited to the assured's broker. It is stated that the liquidator signed all these policies because he assumed that it was his duty to do so, thus implying that he did not consider the question whether this course was necessary for the beneficial winding-up of the company. No facts are stated which would justify the inference (a) that any such necessity did in fact exist, or (b) that the policies so far as not issued are held by the liquidator as trustee or agent for the assured. Nor is there any statement in the petition that the law of England differs from that of Scotland in regard to the delivery of such documents. So far as regards the two representative policies which were expressed to be in favour of the respondents La Société Anonyme de Periandros, I see no answer to the argument that both policies were ultra vires of the company and of its liquidator, and that one of the policies is open to the further objection that it was neither delivered to the respondents nor held for their behoof by the liquidator. It follows that the liquidator ought to cancel the policy which he issued to the broker for these respondents, and that the premium should be credited to the broker or refunded to the assured.

While it is probable that all the policies referred to in Case II. are in substantially the same position as the two which have been specially referred to, I think that our answers to the questions should be so framed as not to apply to persons who, so far as appears, have not agreed to be bound by the judgment to be pronounced in regard to the two representative policies. Moreover, the answer to question 2 (a) in Case II. should, I think, be qualified in the same way as our answer to question 2 (a) in Case I., so as not to apply to future and hypothetical circumstances. Subject to these qualifications, the questions in Case II. should be answered in the negative, except question 4, which should be answered in the affirmative.

Lord Cullen.-Under the Companies Acts a liquidator in a voluntary liquidation has power, without the sanction of the Court, to carry on the business of the company so far as may be necessary for the beneficial winding-up thereof. It is, however, common ground between the parties to the present application that in the

case of this particular company it cannot be predicated that the carrying on of its business is necessary for a beneficial winding-up, and that the liquidator, accordingly, is not and has not been so carrying on. This is, I think, a material element to be kept in view in considering some of the questions submitted in the application.

Turning to Case I., one finds that it has to do with a projected policy of marine insurance which had not been issued or executed when the winding-up took place, the dealings between the company and the brokers not having advanced beyond what may be called the initialed slip stage. And the first question submitted is whether the company is now under any obligation to issue the policy. I am unable to discover grounds for such a legal obligation. The ground at first advanced by the respondents, that the initialed slip is itself a policy, was afterwards expressly disclaimed by Mr Macmillan. It follows, therefore, that under the statute law the company never did enter into a legally valid contract of marine insurance, and, if it did not do so, I am unable to see how the company can be under legal obligation to issue a policy which would make for the first time a valid contract of marine insurance whereby it would be bound. Indeed, after the withdrawal of the contention as to the initialed slip being a policy, little stress was laid on this question by the respondents, Mr Macmillan stating that the case he desired to urge was raised by question 2 (b). I am of opinion that question 1 should be answered in the negative.

Assuming such a negative answer to question 1, question 2, under head (a) thereof, asks whether the liquidator may issue the policy and claim the premium if he considers that course to be in the best interests of the company's creditors and shareholders. Now, the issuing of the policy by the liquidator would mean his taking it on himself, as an incident in the winding-up, to make the company a party to a contract of marine insurance which the company while carrying on business did not legally enter into. Ex hypothesi, however, the liquidator is not carrying on the company's business in marine insurance. And if he is not, I do not see how he can otherwise derive power, in conducting the winding-up, to enter into a particular venture in marine insurance merely because he considers that it would be a favourable speculation from the company's point of view. I therefore think that head (a) of question 2 should be answered in the negative.

Under head (b) of question 2 the question asked is whether it is "the duty" of the liquidator to issue the policy without regard to the interest of the company. As already

mentioned, the assumption of the question is that the company is under no legal obligation to issue the policy. Now the result of issuing the policy, if effective, would be to create a contingent creditor capable of claiming in the winding-up, and a creditor who, without the policy, would have no legal status or ground of claim. I confess that the suggestion of such a duty on the part of the liquidator, as distinguished from an obligation incumbent on him, sounds strange to my ears. According to Scottish law and practice, I conceive that a process of distribution in a company windingup, as in a bankruptcy process outwith the Companies Acts, falls to proceed strictly in accordance with the independent legal rights of the parties claiming to be included in the class of creditors entitled to participate in it. Neither a liquidator nor a trustee in bankruptcy has any right or duty that I ever heard of to admit to competition with those having legal grounds of claim others who have none, or gratuitously to create for the benefit of the latter vouchers or grounds of claim which they do not independently possess. And I know of no jurisdiction possessed by this Court whereby it is empowered to direct or authorise a liquidator or a trustee in bankruptcy so to act. We were referred to various English cases, beginning with Ex parte James (L.R., 9 Ch. 609), which have no counterpart in our law. If these cases mean, which I doubt, that in such a case as we have now under consideration it would be in accordance with English law that the Court should direct a liquidator to issue an effective policy to a party having no legal right to obtain it, I respectfully decline to follow them. I am of opinion that head (b) of question 2 should be answered in the negative.

In accordance with the answers to questions 1 and 2 above given, question 3 in both branches should be answered in the negative.

Case II.

This part of the application has to do directly with (1) a policy in name of the compearing respondents La Société Anonyme de Periandros, which, after the winding-up, was issued by the liquidator to the brokers, and the premium on which was debited in account but has not yet been paid; and (2) a policy in name of the said respondents which, after the winding-up, was merely signed by the liquidator.

policies in question on a different footing, 1st Div.

that is to say, because he "assumed that in Liquidator accordance with marine insurance practice of Clyde and the procedure obtaining at Lloyd's, he ought Marine to" do so.



If I am right in the view I have above Co. Ltd. v. expressed as to the liquidator's want of power, Renwick then, as regards the policy which he merely & Co. subscribed, I am, on the facts stated, unable November 30, to see how he can be under legal obligation further to exceed his powers by issuing it.

As regards the other of the two policies which was not merely signed but issued by the • liquidator, the just conclusion, on the facts stated, appears to me to be that it is not an effective policy in the hands of the said respondents. Ex hypothesi of the view I have expressed, it was ultra vires of the liquidator to issue it. The only facts we are told of regarding it are that it was issued for the reason on the liquidator's part already mentioned, and that the premium was debited in account but has not yet been paid. We must take these to be all the facts relevant to the issue. So taking them, I am unable to see that they afford any sufficient ground for a plea on the respondents' part that the policy is an effective policy in their hands binding the company notwithstanding that the liquidator had no power to issue it.

It is to be noticed that the questions under Case II., as stated, are not confined in their scope to the two specified policies in name of the said compearing respondents but extend to a large number of policies, issued or subscribed, in the names of other people. Now I venture to think it objectionable that we should be asked to deal in this application with these other policies. The persons interested in them, other than the company, are not parties to the application. They are all possible claimants in the winding-up, whatever their claims may be worth, and there is nothing to evidence that they will be bound by any determinations we here arrive at. There may, perhaps, be some agreement between them and the liquidator on the subject, but we do not know as to that. I think, therefore, that the questions under Case II. should be treated as confined to the two specified policies in name of the respondents who have here compeared to join issue with the liquidator; and, so treating them, I am of opinion, in accordance with the views which I have expressed, that questions 1, 2 in both branches, and 3 should all be answered in the negative. As regards question 4, the parties were agreed that it should be answered in the affirmative.

I am of opinion that the liquidator had no power to issue or sign these policies. Ex hypothesi he had no power to carry on the business of the company and was not doing so. If he had had this power, and had been exercis- Lord Sands.-It appears in this case that the ing it, matters would have stood in a different company in liquidation had, at the date of position. As it was, he issued or signed the liquidation, initialed by way of acceptance a



ler Div. number of insurance slips which had not yet to me, to maintain that when at the date of been followed up by the issue of a policy. liquidation a company had an option of a property or stocks for which the liquidator had now a higher offer with no attendant risk, he should not exercise the option and secure the profit for the company.




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of Clyde It is common ground that this created no legal Marine obligation to issue a policy, although it imported an honourable understanding to do so. The Co. Ltd rt first and leading question in the case is whether Renwick the liquidator is now bound to issue such a I take, however, as I have indicated, a dif& Co. policy in conformity with the slip. I say bound, ferent view as regards the case where the risk November 30,. because I can find no authority in the law of was current at the date of the liquidation. A 1928. Scotland in support of the proposition that a contract of insurance is completed when a liquidator or a trustee in bankruptcy may policy is issued. But the policy is a unilateral voluntarily subject the estate which he ad- deed. No insurer can make another person a ministers to legal liabilities unless he finds that party to a policy of insurance by simply sending it would be to the advantage of the estate that him a policy. But what binds the insured? he should do so. There is authority in the law What act or writing on his part makes him a of England that in certain circumstances a party to the contract? Clearly I think the liquidator or trustee in bankruptcy must fulfil presentation of the slip. Now the question as obligations arising out of something happening to the exact nature of the quasi contract, or after his appointment which would be honour-inchoate contract, or honourable contract, ably incumbent upon a party acting in his own which is involved in the presentation and initialpersonal interest, even although he may deem ing of the slip is a matter of difficulty, but this it disadvantageous to the estate that he should I think is clear, that whatever else may be do so. There is also some authority for the involved, there is here an offer by the insured proposition that in certain cases this may which is accepted with binding effect when the extend to honourable obligations incumbent policy is issued. The insured is bound by his upon the bankrupt company or person at the offer if it is accepted. Now what does the offer date of the bankruptcy, but this has been import? It seems to me to import an offer of doubted. (Compare In re Thellusson, [1919] payment of a premium on condition that from 2 K.B. 735, with In re Wigzell, [1921] 2 K.B. the date stipulated the insured shall be held 835.) But for this latter doctrine, at all events, indemnis from losses and that the insurer shall there is no authority in the law of Scotland. issue a policy drawing back to that date. I The reports abound in hard cases in which effect figure a case theoretically possible, if commerhas been given to the contrary view. I need only cially extremely unlikely, where an insurer who refer to the cases in which it has been held that has initialed a slip intimated to the insured: the administrator of a bankrupt estate or even a 'I am not going to issue a policy until I see fiduciary executor must plead the rule that trust how this voyage turns out. I will issue one can be proved only by writ or oath, even in only if I find that the premium more than covers cases where it was not doubtful, and could have the losses." In such circumstances it appears. been abundantly proved by parole, that the to me that this would bring the matter to an estate, the title to which stood in the name of end. The insurer has not given the insured the bankrupt or the deceased, was held by him the consideration which he stipulated for in in trust, and could not honourably have been his offer, viz. the protection of an honourable appropriated by himself for his own purposes. understanding fortified by commercial credit.. He has in effect declined the insured's offer and he cannot thereafter close with it by issuing a policy. That is not exactly what has happened in the present case, but it appears to me that similar considerations apply. The insured whom the liquidator selects for the issue of a policy may reply: "My offer implied in the presentation of the slip to pay a premium was conditional upon my receiving protection during the currency of the voyage. I will prove by your own actings that I did not receive this protection and therefore I have not received the consideration which I stipulated for when I presented the slip. You would not have issued the policy if there had been a loss. The basis of my offer and of the inchoate agreement which was to be given legal validity by a policy was that the company were to indemnify me for

In the present case there was no legally enforceable obligation upon the company at the date of liquidation to issue the policy, and I am quite unable to hold that any such obligation emerged upon liquidation.

The liquidator then not being under any legal obligation to issue policies, may he issue such policies as he is satisfied would, as matters turned out, be beneficial to the company? May he pick and choose? I have formed the opinion that he may not. I exclude, however, from this conclusion policies where the risk had run off before liquidation and the liquidator is satisfied that the issue of the policy and the collection of the premium will be to the benefit of the company in liquidation. I see no reason why the company should be deprived of this benefit. It would be as reasonable, as it seems

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losses whatever happened, and you departed from that agreement.

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It may be that the foregoing considerations carry one further than the mere question of picking and choosing, and negative the right of the liquidator to issue a policy to any insurer after liquidation even though he does not discriminate. If there is no honourable obligation or sanction of commercial credit affecting the liquidator, and the issue of a policy is purely discretionary, has not the consideration failed on the understanding of which the offer was made, and is not the other party released from any honourable obligation to pay a premium or any legal liability under a policy, the issue of which he does not invite? The question, however, does not arise in that form in the present case. It may be that if it were intra vires of the liquidator to issue policies to all the holders of slips and he timeously intimated an intention of doing so, thus surrogating himself as liquidator in all respects in the commercial obligations of the company, the considerations I have indicated would be inapplicable.

This leads, however, to the question whether it is intra vires of the liquidator to issue policies against all the slips if he thinks that upon the whole, though there is no question of carrying on the business to conserve goodwill, it would be in the interest of the company to issue all the policies for which slips have been accepted and take the bad ones with the good ones. I have formed the opinion that it would be ultra vires of the liquidator to do so. The duty of the liquidator is to wind up the company and to avoid all fresh business commitments. As I have already indicated, the liquidator is under no obligation to enter into contracts of insurance by issuing policies. This view must be consistently given effect to. Accordingly, I am of opinion that the issuing of policies when the risks had not run off, or the result had not been ascertained, would be ultroneously entering into new business of a speculative character. If it be accepted that there is no legal obligation to issue the policy, I cannot distinguish this case from that of the liquidator issuing a policy for which at the date of the liquidation there was no slip embodying an inchoate arrangement or antecedent understanding if he thought that the risk was a favourable one and likely to result in a profit. That is not within the province of the liquidator. I have already cited the case of an option and indicated that, in my view, a liquidator might exercise an option when the profit was manifest and immediately realisable without risk of loss. It is the liquidator's duty to make the winding-up as favourable as possible without incurring risks, and an option of this kind is a potential asset which it is his





duty to realise. But one may figure the case 1st Div. of a company with a number of current options to purchase land. A liquidator is appointed. of Clyde He thinks the prices are such that if he Marine exercises the options he will probably make a Insurance profit. The matter is, however, speculative. Co. Ltd. v. In these circumstances, as it seems to me, it Renwick would be ultra vires of the liquidator to exercise & Co. the options and embark the company in liqui- November 30, dation in speculative new contracts. Marine insurance is a speculative business, and, in my view, it would be ultra vires of the liquidator to embark the company in a series of contracts of marine insurance where risks were still current, or the balance of profit and loss had not been ascertained. A further question in the case is whether, seeing that the liquidator has issued a number of policies under a mistaken belief that he was bound to do so, he should now cancel a certain one of these policies. In my opinion this question falls to be answered in the affirmative, if I am right in thinking that it was ultra vires of the liquidator to issue such policies. But if I were wrong in this view, and it was intra vires of the liquidator to issue the policy, then, it may well be, he cannot now cancel it on the ground that he issued it not in the exercise of a discretion but owing to an error in law. If it was intra vires of the liquidator to issue the policy on behalf of the company in the exercise of his discretion, it may be that the insured was entitled to assume that this discretion had been exercised; he had, so far as appears, no reason to know anything about an error in law as to whether it was obligatory to issue them. In such circumstances a policy, which it was intra vires of the liquidator to issue on behalf of the company, might be binding against the company.


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There is a final question as to a policy which the liquidator executed but did not issue. This is covered by the view I have already expressed as to the policies actually issued. Were it otherwise, I should have great difficulty in holding that a policy had any validity or was more than a scrap of paper until it was issued. It would be remarkable if a binding contract were completed by a unilateral document signed in the privacy of one's own chamber and entirely under one's own control. If one changed one's mind about issuing it and put it in the fire, could the other party, if apprised of the fact by a treacherous typist, bring a proving of the tenor and then sue on the document ? Fortunately this question does not arise.

I am for answering the questions in the manner proposed by the Lord President.

Counsel for Petitioner, MacGillivray, Keith; Agents, Lindsay, Howe & Co., W.S.-Counsel for Respondents, Macmillan, K.C., A. R. Brown ; Agents, Shepherd & Wedderburn, W.S. M. D.

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