The Companies (Consolidation) Act, 1908 ; and the Irish Provident Assurance Company Ltd; and Johanna Bradley

• Jurisdiction: Ireland
• Judge: Appeal.
• Judgment Date: 01 April 1913
• Court: Court of Appeal (Ireland)
• Date: 01 April 1913

In the Matter of the Companies (Consolidation) Act, 1908;

And In the Matter of the Irish Provident Assurance Company, Limited;

And In the Matter of Johanna Bradley (1).

Appeal.

CASES

DETERMINED BY

THE CHANCERY DIVISION

OF

THE HIGH COURT OF JUSTICE IN IRELAND

AND BY

THE IRISH LAND COMMISSION,

AND ON APPEAL THEREFROM IN

THE COURT OF APPEAL.

1913.

Company — Winding up — Companies (Consolidation) Act, 1908 (8 Edw. 7, c. 69), section 215 — Misfeasance — Company purchasing its own shares — Compromise of managing director's claims — Ultra vires — Loss to company — Breach of trust — Statute of Limitations — Conversion — Trustee Act, 1888 (51 & 52 Vict. c. 59), section 8(1).

Held, by Palles, C.B., affirming the decision of Barton, J., that this was a conversion within section 8, sub-section 1, of the Trustee Act of 1888, which would prevent the policy-holder, a director, from setting up the Statute of Limitations as a defence.

A bona fide transaction with a company impeachable only on the ground of being ultra vires, will be set aside only on the terms that both parties be restored to their original rights.

Appeal by F. C. Norman and Edwin Cooper, from an order of Barton, J., dated the 14th November, 1912, whereby it was,

amongst other things, ordered that the said F. C. Norman and Edwin Cooper were respectively liable to contribute to the assets of the company the respective sums in said order afterwards mentioned with interest as thereinafter mentioned, being the amounts respectively paid by the company, and received by them respectively on foot of certain single premium policies, which payments were ultra vires the memorandum and articles of association of the company, that is to say, F. C. Norman, the sum of £242, with interest at 4 per cent. per annum from the 7th August, 1901, until date of payment, and the said Edwin Cooper the sum of £220, with interest at 4 per cent. per annum till date of payment; and that the said F. C. Norman is liable to contribute to the assets of the company the amount actually received by him on foot of a dividend paid on the preference shares on the 18th May, 1904, namely £49 10s., with 4 per cent. interest from the 18th May, 1904, until payment; and that the said F. C. Norman is liable to contribute to the assets of the company the sum of £686 as compensation for his misfeasance and breach of trust in receiving a sum of £686 on the 20th January, 1905, in part payment of a present, bonus, or compensation, inasmuch as such payment was ultra vires the powers of the company and contrary to law, and represents capital of the company appropriated by the said F. C. Norman without authority, and that the said F. C. Norman be at liberty to apply in the liquidation matter for a return of certain shares in the said company, and that pending said application no proceedings be taken to compel payment of said sum of £686, such application to be made within six weeks of the entry of the order, and to pay to the liquidator the costs incidental to the claim of the company in respect of a sum of £2000 mentioned in paragraph No. 5 of the notice of motion, of which the said sum of £686 formed part.

The company was registered in Ireland on the 6th December, 1900. Its primary objects, as appearing by the Memorandum of Association of that date, being, inter alia, to carry on and develop all kinds of Insurance business, excepting the issue of policies of insurance upon, or in any way relating to, human life. The memorandum did not empower the company to purchase its own shares. The first directors were Frederick Charles Norman (who was subsequently at the first ordinary general meeting, held on the 4th April, 1901, appointed Chairman and Managing Director), Arthur J. Hardy, and Cæsar H. Woodhead. For many years before the formation of the company F. C. Norman had been manager of a Friendly Society called the Irish Provident Friendly Society, which did a large and successful business, subject to the limits of the Acts controlling it; and it was mainly to expand the business of this society that the present company was formed.

Early in 1901 the company commenced business, utilizing the agents and organizations of the Friendly Society. The principal classes of business which they carried on were house purchase, fire insurance, third party and seamen's effects insurance, and the insurance in one of the forms of Endowment Assurance known as bond investment. By bond policies, the company, in consideration of annual premiums, agreed to pay the assured a capital sum at the expiration of a fixed period from the date of the policy, or, in case the assured should die during the period, a certain percentage of the premiums should be repayable to the representatives of the assured. The main difference between a bond policy and an ordinary endowment policy is, that under the former a percentage of the premiums only is repayable to the representatives in case of the insured dying during the specified period, while in the latter the whole capital sum or part thereof is repayable. By means of rather complicated transactions, unnecessary to be stated in detail, the company at the start of its activity took over all the business of the Friendly Society as to these bond policies, and all the assets of the society, together with all the society's liabilities in respect thereof. This turned out extremely profitable, and from a table prepared by the liquidator, Mr. John Gordon, it appeared that during nine years up to 31st December, 1910, £518,404 9s. l1d. was received in premiums, and £180,741 7s. 11 d. was paid in claims. The company did not deposit £20,000 with the Accountant-General of the Court of Chancery, as required by the Life Assurance Companies Act, 1870. In an action of Flood v. Irish Provident Assurance Co. (1) the Court of Appeal held on the 27th July, 1910, reversing the decision of Meredith, M.R., that

the bond policies were ultra vires, unauthorized by the Memorandum of Association, incapable of ratification, and that the premiums paid were repayable to the policy-holders on the ground of a total failure of consideration. The English Court of Appeal subsequently arrived at a decision to the same effect. An appeal to the House of Lords was taken by the Company in Flood'sCase (1), but withdrawn to allow of a winding-up with a view to the transfer of the business of the company.

On the 9th February, 1898, F. C. Norman and his wife, in consideration of two sums of £100 each paid by Norman to the Friendly Society (then in existence), obtained from the society two bond policies, Nos. 2 and 4, on their respective lives, whereby the society secured payment of £150 each to Norman and his wife, Alice M. Norman, respectively, at the end of eight years. On the 7th August, 1901, the company paid Norman £242, the surrender value of these policies, and took an assignment of them to a trustee for the company. No cash was paid, but the company issued shares of the value of £242 taken at par, it being alleged that this was in pursuance of the company's contract with the society for the taking over of the society's assets and liabilities. A precisely similar transaction took place on the same date between the company and Edwin Cooper, then a director of the company, and his wife, Elizabeth Cooper, in respect of two bond policies issued to them by the society, Nos. 13072 and 13073, on their respective lives, £220 being paid to them in shares in the company as the surrender value.

By indenture, dated the 20th January, 1905, between the said F. C. Norman of the one part, and the company of the other part, reciting an agreement, dated 20th April, 1904, between the company and Norman, whereby Norman was appointed managing director for twenty-five years at the salary therein mentioned (2), with the stipulation that if, before the expiration of twelve years,

the company should be wound up, or if, for any reason other than Norman's death or resignation, his tenure of the office should be determined, the company should pay him £10,000 as liquidated damages, and that it was declared (by the agreement of 1904) that this figure was fixed, having regard to Norman's instrumentality in building up the business of the company, and capacity for further advancing the company's interests; and reciting that Norman was owner of 686 fully paid up £1 shares in the company, and was also manager of the Irish Provident Friendly Assurance Society, which was an adjunct to, and carried on in connexion with, the company, and that differences had arisen between Norman and certain of his co-directors of the company with reference to his conduct as managing director in reference to the affairs of the company, and that actions were pending in England and Ireland brought by these parties and the company against Norman, and that it had been agreed that these differences should be settled, and the proceedings in the actions stayed on the terms therein set forth, including the payment theretofore previously made by the company to Norman of £2000, it was agreed—

(a) That Norman should resign his position of managing director of the company, and manager of the society, and of director of both.

(b) That he should hand over to the company all books of accounts, registers, &c., and all documents, property, or effects in his possession, custody, or power belonging to the company or the society.

(c) That he would, without further payment, transfer to the company all shares in the company of which he was then possessed, or legally or equitably entitled to.

(d) The company agreed to stay the actions, each party bearing his or its own costs.

(e) Norman released the company from the £10,000 mentioned in the agreement of the 20th April, 1904, and every part thereof, and from all claims and demands under said agreement.

(f) Norman covenanted with the company and with the society not to circularize, solicit, or transact assurance business of any kind or description...