Citizens and Graziers' Life Assurance Company Limited v Commonwealth Life (Amalgamated) Assurances Limited [1934] HCA 22

Citizens and Graziers' Life Assurance Company Limited v Commonwealth Life (Amalgamated) Assurances Limited [1934] HCA 22 - HCA 1934 case summary — Zoe

[50]

On or about 16th July 1932 documents under the seal of the plaintiff were duly executed in the words and figures following : - "To The Commonwealth Life Assurance Society Limited and The Citizens and Graziers' Life Assurance Company Limited Whereas by agreement made on the fourteenth day of December One thousand nine hundred and twenty-six between The Commonwealth Life Assurance Society Limited of the first part The Citizens and Graziers' Life Assurance Company Limited of the second part and The Commonwealth Life (Amalgamated) Assurances Limited of the third part it was (inter alia) provided that the board of directors of The Commonwealth Life (Amalgamated) Assurances Limited should be at liberty from time to time as they might consider necessary to call on The Commonwealth Life Assurance Society Limited and The Citizens and Graziers' Life Assurance Company Limited respectively to make such call or calls on its uncalled capital respectively as might be determined and the total net sum so realised should be transferred by The Commonwealth Life Assurance Society Limited and The Citizens and Graziers' Life Assurance Company Limited respectively to The Commonwealth Life (Amalgamated) Assurances Limited and The Commonwealth Life (Amalgamated) Assurances Limited should issue fully paid £1 shares for all moneys so received by it to The Commonwealth Life Assurance Society Limited and/or The Citizens and Graziers' Life Assurance Company Limited respectively therefor and it was provided that until the total uncalled capital had been fully called up of The Commonwealth Life Assurance Society Limited and/or The Citizens and Graziers' Life Assurance Company Limited respectively the calls made on the respective shareholders of The Commonwealth Life Assurance Society Limited and The Citizens and Graziers' Life Assurance Company Limited should be of the same amount Now in exercise of such power and liberty as aforesaid the board of directors of The Commonwealth Life (Amalgamated) Assurances Limited now calls on the said The Commonwealth Life

[56]

In its defence the defendant The Citizens and Graziers' Life Assur- ance Co. Ltd. (a) submitted that the agreement of 14th December 1926 was ultra vires its own memorandum and/or articles of associa- tion and those of the plaintiff, and that the resolution referred to in par. 10 of the statement of claim was ultra vires the memorandum and articles of association of the plaintiff ; (6) refused to admit the allegations contained in pars. 3-11, 13 and 14 of the statement of claim ; (c) admitted in answer to par. 12 of the statement of claim that on 5th March 1931 it made a call of 1s. per share on its share- holders, that a large part of the call had been received by it, and that it had not paid the net amount of the call to the plaintiff com- pany but had paid and applied the money in connection with its life assurance business in Queensland referred to in par. 3 of the statement of claim ; and (d) admitted that it had not made the call referred to in par. 15 of the statement of claim and submitted that it was not liable to do so because the before-mentioned agreement was ultra vires and void. In further answer to the statement of claim this defendant said (a) that at all times material it had carried on the business of life assurance in Queensland, and submitted that it should not be called upon to hand over any portion of its capital until provision had been made for its liabilities in connection with that business ; (b) that the policies taken out in this defendant company were taken out on the faith of the representation that its capital, including its uncalled capital, was and would be available to satisfy any liabilities of the company to the policy holders; (c) that the net profits of the plaintiff company were not exclusively divisible amongst its policy holders, nor had it received a licence from the Queensland Treasurer as mentioned in sec. 2 (2) of The Insurance Act 1923 of Queensland ; and (d) that if the agreement had been rightly interpreted by the plaintiff, it was contrary to the public policy of Queensland and, therefore, should not be enforced by the Court.

[59]

Relevant objects of the Citizens and Graziers' Life Assurance Co, Ltd. are shown in the judgments of Starke J. and Dixon J. hereunder, Another object was as follows : - " (aaa) To borrow, raise or secure payment of money in such manner as the company shall think fit, and in particular by the issue of debentures or debenture stock, perpetual or otherwise, charged upon all or any of the company's property both present and future, including its uncalled capital." A special resolution passed in April 1926, and duly confirmed in May 1926, was in these terms : - '' That the directors be and they are hereby authorized to enter into and from time to time vary any arrangement which they may deem expedient for the purpose of amalgamating this company with any other company or companies they may deem it desirable to amalgamate with, and to arrange for the transfer of the undertaking and assets of this company in such manner as they deem best in the interests of the shareholders of this company, provided that this company shall obtain interests in the amalgamated undertaking in proportion to the assets transferred." Among the company's articles of association were the following : - "19. The directors may from time to time make such calls as they think fit upon the members in respect of all moneys unpaid on the shares held by them respectively . . . and each member shall pay the amount of every call so made on him to the person and at the time and places appointed by the directors." '121. The management of the business of the company shall be vested in the directors, who, in addition to the powers and authorities by these presents or otherwise expressly conferred upon them, may exercise all such powers and do all such acts and things as may be exercised or done by the company, and are not hereby or by statute expressly directed or required to be exercised or done by the company in general meeting, but subject nevertheless to the provisions of the statutes and of these presents, and to any regulations from time to time made by the company in general meeting."

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13th ed. (1927), Part IL, p. 1048). The special resolution is an additional power to have an amalgamation in all other respects, notwithstanding there may not be a taking up of shares in the new company by shareholders in the old company (Buckley on The Companies Acts, 11th ed. (1930), p. 179). The transaction was an amalgamation of the businesses. The businesses were amalgamated in a material sense, and also the companies, in that the shareholders in the old company became shareholders in the new company. The power to amalgamate is not limited by the power to sell (Wall v. London and Northern Assets Corporation (1) ). Once it is estab- lished that the appellant company had power to enter into this transaction, it follows that the directors also had that power. By the articles the whole of the powers are vested in the directors. Art. 19 is merely a grant of authority, whereas art. 121 is a grant of power by the company to its directors ; the former article does not operate to cut down the latter article. Directors are not in the position of trustees for all purposes. The agreement was executed on behalf of the appellant company by properly appointed and duly authorized persons, the directors, and bears the common seal of the company ; therefore it is the act, not merely of the directors, but of the company (British Thomson-Houston Co. v. Federated European Bank Ltd. (2) ). On the facts neither of the amalgamating companies is a " company " as defined in sec. 4 of the Life Assurance Companies Act 1901 of Queensland. The provisions of that Act were not intended to, and do not, extend to a company wherever situate, That Act cannot operate to prevent foreign companies from transferring their businesses to one another outside Queensland merely because they do some of their business within Queensland. It is not competent to forbid dealings between companies taking place abroad as to their assets abroad. The Queensland Legislature sought to fetter transfers of a life assurance business either by way of transfer or under amalgamation in Queensland. In any event there was no transfer of the life assurance business in Queensland, and no amal- gamation resulting in such a transfer. Assuming that sec. 30 of the Life Assurance Companies Act applies to the companies concerned and to this transaction, the agreement is valid everywhere except

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Ltd. (called the C. and G. Co.), praying that an agreement of 14th December 1926 between the three companies be specifically enforced, that the C. and G. Co. be ordered to pay over to the Amalgamated Co, certain moneys which it had received in respect of calls on its shares, and also to make another call of 1s. per share on its share- holders. The C.L.A. Society was incorporated in 1920 in New South Wales, and was carrying on the business of life assurance in Australia, except in the State of Queensland. The C. and G. Co. was incor- porated in New South Wales in 1921, and was also carrying on the business of life assurance throughout Australia. The Amalgamated Co. was incorporated in New South Wales in 1926, and its objects included the acquisition of businesses, and the carrying on of life assurance business, In 1926 the C.L.A. Society and the C. and G. Co. agreed to transfer and dispose of their assets and undertakings to the Amalgamated Co. This is the agreement of 14th December 1926, in respect of which specific performance is prayed. It recites that the C.L.A. Society and the C. and G. Co. have agreed (subject to the exception thereinafter contained) to sell and transfer and dispose of their assets and businesses respectively as thereinafter appearing, and their undertakings as going concerns to the Amal- gamated Co. upon the terms and conditions thereinafter appearing. By the agreement, the C.L.A. Society and the C. and G. Co. sell, and the Amalgamated Co. purchases and takes over the assets, business and undertakings (including goodwill) of the C.L.A. Society and the ©. and G. Co. respectively, both present and future, as going concerns as from 13th September 1926, and the Amalgamated Co. assumed the liabilities of the C.L.A. Society and the C. and G. Co., and indemnified them from all claims and demands whatever on policies of life endowment, industrial, accident, or other policies of assurance issued by the C.L.A. Society or the C. and G.Co. There was excepted from the sale and purchase and taking over so much of the assets, business and undertaking (including goodwill) in the State of Queensland of the C. and G. Co. as then or thereafter formed part of or related to its life assurance fund and operation in that State, or that was otherwise subject to the Acts of Parliament of that State dealing with life assurance, and it was agreed that the life assurance business in that State of the C. and G. Co. should at

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were named by the articles as the first directors, and a provision was made entitling a company whose business might be acquired by the company to nominate to its board a director or directors according to the terms of acquisition. When the new company had been registered, an agreement between it and the two pro- moting companies was prepared, the leading principles of which are (1) that the Commonwealth Society should transfer to the new company its business for a price to be fixed by valuation, and to be applied in taking up shares in the new company; (2) that the Citizens and Graziers' Co. should transfer to the new company its business, except its life business in Queensland, at a price to be fixed by valuation, and to be applied in taking up shares in the new company ; (3) that the Queensland life business of the Citizens and Graziers' Co. should continue under the conduct and control of that company, but that, for a further consideration, the new company should receive the net profits arising therefrom ; (4) that the new company's four directors should be nominated, two by the Citizens and Graziers' Co. and two by the Commonwealth Society, and of these latter, for three years, one should be chairman with a casting vote; (5) that the shares in the new company taken up by the promoting companies in satisfaction of the sums respectively payable to them by way of price should be registered either in their respective names, or in those of nominees not exceeding seven in number, who should not transfer them without the consent of all the directors nominated by the two promoting companies ; (6) that the new company should be entitled, if it should require it, to the benefit of the uncalled capital of the promoting companies, issuing to each of them its own share capital for the amount paid over. This agreement was duly executed under the seals of the three companies. The substance of the provisions contained in sec. 14 of the British Life Assurance Companies Act 1870 is in force in Western Australia, South Australia, Victoria and Queensland, but not in New South Wales. (See sec. 37 of the Life Asswrance Com- panies Act 1889 of Western Australia ; sec. 40 of the Life Assurance Companies Act 1882 of South Australia ; sec. 461 of the Companies Act 1928 of Victoria; and sec. 30 of the Life Assurance Companies

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the operation of the section to transactions between companies both of which issue or are liable under policies of assurance upon human life in the State. This ground will not, in my opinion, support the burden placed upon it. The general policy of the provision is sufficiently plain. But, at the point of dispute, namely, what territorial limit the Legislature intended to adopt in its actual application, there is little guidance to be found in the nature of the policy. What is clear is that, in framing sec. 30 (1) and (5), the draftsman relied upon the definition ; for the sub-sections use the simple word " company " to describe the persons and bodies whose conduct is regulated. Without the definition, there would be no reference to an individual and no reference to life assurance. Again the words of sub-sec. 1 are "two or more companies" and the territorial restriction contained in the definition of "company" must be treated as applying either to all or to none of the "two or more" to which the word extends. Then the English Act of 1870, upon sec. 14 of which sec. 30 of the Queensland Act is based, enacts, without providing for qualification by context, that in that Act " company " means any person or persons corporate or unincor- porate . . . who issue or are liable under policies of assurance upon human life within the United Kingdom."' The 'Queensland definition, which is simply adapted from the English, should have the same effect. It is, perhaps, worth adding that an analogous contention in relation to the application of the definition of "company" in sec. 285 of the English Companies (Consolidation) Act 1908 to sec, 192 was rejected by Eve J. in Thomas v. United Butter Companies of France Ltd. (1). The second of the reasons suggested for rejecting the definition of "company" lies in sub- sec. 6 of sec. 30 which, at first sight perhaps, seems unnecessary if the definition applies and restricts "' company " to life assurance company. But the object of sub-sec. 6 is to exclude from the opera- tion of sec. 30 transfers or amalgamations of departments of insurance other than life, although conducted by life companies.

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It thus becomes necessary to consider the defence of ultra vires. In effect, this defence is put upon the ground that so much of the agreement as purports to confer upon the plaintiff (the new company) rights in respect of the uncalled capital of the Citizens and Graziers' Co. is beyond the powers of the latter company or of its directors. Among the objects contained in the memorandum of association of the Citizens and Graziers' Co. is the familiar clause, taken from Palmer's Company Precedents, 13th ed. (1927), vol. 1., p. 499, "to amalgamate with any other company having objects altogether or in part similar to those of this company", This object, either by itself or in combination with the wide incidental powers expressly taken in the memorandum, is relied upon as a complete authority for the entire transaction. Much has been said of the vague and indefinite meaning of the word "' amalgamate" as a description of a transaction between companies. Lord Hatherley, Lord Lindley, Lord Davey, and Lord Wrenbury have confessed their inability to define it (In re Bank of Hindustan, China and Japan Ltd. ; Higg's Case (1); In re Empire Assurance Corporation; Ex parte Bagshaw (2); Wall v. London and Northern Assets Corporation (3) ; New Zealand Gold Extraction Co. (Newbery-Vautin Process) v. Peacock (4); In re the Joint Application of the Great Northern Rail- way Co. and the Great Central Railway Co. (5) ). The expression is figurative and is a commercial rather than a legal description. The general notion conveyed by "amalgamation" is the combina- tion of separate things or separate collections of things into a single uniform or homogeneous whole. In spite of the commercial origin of the use of the terms "amalgamation," " reconstruction," and "reorganization" as descriptions of company transactions, their meaning is not to be ascertained by considering the lay under- standing of the expressions, but rather by referring to text writers upon company law, who are specially conversant with the subject (per Chitty J., Hooper v. Western Counties and South Wales Tele- phone Co. (6)). "An ordinarily prudent member of the public

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In the present case, there is not even a complete amalgamation of undertakings. No doubt, the desire of the promoting companies was to give the new company as much beneficial interest as they safely could in the Queensland life business of the Citizens and Graziers' Co. To this end clause 6 provided that the new company should also purchase the right to the future profits of the Citizens and Graziers' Co. arising from its life business in Queensland, and divisible amongst its shareholders, for a sum to be fixed by two named persons, respectively directors of the promoting companies, and that the sum should be payable by the issue of fully paid up shares in the new company to nominees of the Citizens and Graziers' Co. who should hold them upon trust, (a) while that company carried on the Queensland life business, to pay it the dividends received upon the shares and, (b) if that company ceased to carry on such business, or if it became unlawful to pay over the profits, to dispose of the shares under the direction of the new company, and hold the proceeds upon trust for it. The effect of clauses 14 and 19 of the agreement is to allow the Citizens and Graziers' Co. to call up any of its capital for the time being uncalled to meet liabilities incurred in the Queensland life business, and to enable the new company, if legislative changes in Queensland permit a non-mutual company to commence the transaction there of life business, to acquire the life business of the Citizens and Graziers' Co. by increasing the price fixed under clause 6 by the amount of any calls so made together with £100, all to be satisfied in shares of the new company. But the desire to make the new company the beneficial owner of the Queensland life business was overshadowed by the fear of infringing upon Queensland law. The agreement, therefore, begins with an elaborate cautionary clause, which excepts from the purchase and taking over so much of the undertaking of the Citizens and Graziers' Co. as relates to its life assurance fund and operations in Queensland, requires that its life business shall

[261]

The primary meaning of such expressions as " property of the company," "real or personal estate," and "property and the undertaking of the company " does not extend to uncalled capital. The liability of a member holding shares not fully paid up to contribute when called upon by the directors pursuant to the articles or in the event of a winding up may constitute a right or asset of the company, but it does not form part of its undertaking or of its property, and it is not an estate (Stanley's Case (1); King v. Marshall (2); In re Sankey Brook Coal Co. [No. 2] (3); Bank of South Australia v. Abrahams (4); In re Colonial Trusts Corporation ; Ex parte Bradshaw (5); In re Streatham and General Estates Co. (6); In re Russian Spratts Patent Ltd.; Johnson v. Russian Spratts Patent Lid. (7); Re Andrew Handyside & Co. (8) ). It follows that the powers stated above which relate to the disposal of property and undertaking are in themselves insufficient authority for those parts of the agreement which deal with uncalled capital. I do not think any of the three " incidental" powers set out add enough to authorize what has been done. The subject matter of the other objects being thus fixed by definition, I do not think that the "incidental" objects do more than enlarge the capacity of the company to act in relation to that subject matter. Some clearer indication of intention to empower a disposition or other transaction affecting uncalled capital, and, consequentially, the position of contributing shareholders, appears to me to be needed. The agreement provides by clause 15 that the directors of the new company may from time to time as they consider necessary call on the promoting companies respectively pari passu to make such calls on uncalled capital as may be determined (which I take to mean determined by the new company's board). The clause proceeds to provide that the net sums realized from the calls shall be transferred to the new company which shall issue fully paid shares to the amount received.

At a glance

Court

Decision date

Before

Source

Judgment (276 paragraphs)

Cited By (2)