Re City Equitable Fire Insurance Company Ltd (2)
| Jurisdiction | England & Wales |
| Judgment Date | 1925 |
| Date | 1925 |
| Year | 1925 |
| Court | Court of Appeal |
Company - Winding-up - Mutual Dealings - Treaty of Reinsurance - Deposit for specific Purpose - Surplus - Set-off -
By a treaty of reinsurance dated April 13, 1920, between two insurance companies, the reinsurer accepted a share of all insurances accepted by or renewed by the insuring company in its fire department. By Art. VIII. of the treaty the insuring company was entitled to retain and accumulate out of money due to the reinsurer a sum equal to 40 per cent. of the share of all premiums credited to the reinsurer in the first year, this sum to remain as a deposit to secure the due performance of the reinsurer's obligations. The insuring company was to be entitled to retain the deposit, or any balance remaining after satisfying any obligation in respect of which the reinsurer might make default, until the determination of the agreement, paying the reinsurer interest at 3½ per cent. per annum on any part of the deposit not used in manner aforesaid. By Art. IX. the agreement was immediately determinable by notice on the reinsurer going into liquidation. On January 31, 1922, the reinsurer presented its own winding-up petition, and on February 1, 1922, the insuring company gave notice determining the agreement. On February 14, 1922, a compulsory order was made for the winding up of the reinsurer. After all obligations under the treaty had been satisfied, there remained in the possession of the insuring company a sum of over 8000 l. out of the deposit and a sum of accrued interest. The liquidator of the reinsurer took out a summons for a declaration that the insuring company was bound to pay over the deposit and interest in full. The insuring company claimed to be entitled to set them off against sums due to it from the reinsurer under other treaties and policies of insurance and reinsurance:—
Held, (1.) that the interest was a debt due from the insuring company to the reinsurer and fell therefore within s. 31 of the Bankruptcy Act, 1914, as being one of a number of mutual credits or debts arising between the parties, and that there was therefore a right of set-off in regard to it.
(2.) (affirming Maugham J.) that the deposit being money handed over to the insuring company for a specific purpose, the balance remaining after satisfying the specific purpose continued to be excluded from the course of account between the parties and could not be the subject of a set-off.
SUMMONS.
By a treaty of reinsurance dated April 13, 1920, and made between the Liverpool and London and Globe Insurance Company, Ld. (hereinafter called “the Globe”), of the one part, and the City Equitable Fire Insurance Company, Ld. (hereinafter sometimes called “the Reinsurer”), of the other part, the Globe ceded and the Reinsurer accepted and guaranteed by way of reinsurance a share as therein stated of all surpluses on insurances and/or reinsurances accepted or renewed by the Globe in its fire department on the risks therein mentioned.
The treaty provided (inter alia) as follows:—
Art. VIII., para. 1: “The Globe shall be entitled to retain and accumulate out of any moneys due to the Reinsurer a sum equal to 40 per cent. of all premiums credited to the Reinsurer in respect of the first twelve months of this agreement. The said accumulations (hereinafter called ‘the said deposit’) shall remain in the hands of the Globe as security for the due performance of the obligations of the Reinsurer under this agreement. The said deposit shall be maintained at a sum equal to forty per cent. (40 per cent.) of the premiums credited to the Reinsurer during the twelve months preceding the date to which each subsequent quarterly account is made up, and the Globe shall be entitled to retain any premiums payable to the Reinsurer for the purpose of increasing the said deposit to the required amount.”
Para. 2: “The Globe may at any time after default by the Reinsurer in payment of any sum owing by the Reinsurer to the Globe under this agreement by notice in writing addressed to the Reinsurer require the Reinsurer to pay to the Globe the sum so owing. If the Reinsurer shall not pay such sum within seven days of the receipt of such notice, the Globe shall be entitled to take so much of the said deposit as may be required to provide the sum in respect of which default shall be made. The Reinsurer shall replace any sum so taken as aforesaid. The Globe shall pay to the Reinsurer interest at the rate of three and one half per cent. (3½ per cent.) per annum on any part of the deposit not used in manner aforesaid.”
Para. 3: “The Reinsurer shall not be entitled to the return of the said deposit or any balance thereof until the determination of this agreement and the satisfaction by the Reinsurer of all obligations (actual or contingent) hereunder.”
Para. 4: “The Globe may at its discretion, instead of taking any part of the said deposit, require the payment of any sum in respect of which default shall have been made, and it shall be no defence to any such claim that the Globe might have recourse to the said deposit.”
Art. IX., para. 1: “This agreement shall take effect on and from the fourteenth day of April One thousand nine hundred and twenty.”
Para. 2: “Either party shall at any time be at liberty to terminate this agreement by giving three months' notice in writing by registered letter to the Globe at No. 1 Dale Street, Liverpool, England, or to the Reinsurer at 3/4 Lothbury, London, E.C. 2, such notice to expire on March 31, June 30, Sept. 30, or Dec. 30, in every year.”
Para. 4: “Should at any time the Reinsurer:— (a) Lose the whole or any part of its paid up capital, or (b) go into liquidation or a receiver be appointed, or (c) be acquired or controlled by any other company or corporation, the Globe shall have the right to terminate this agreement forthwith by giving notice in writing by registered letter to the Reinsurer at the address mentioned in paragraph 2 ……”
Para. 6: “On the termination of this agreement from any cause whatever, the liability of the Reinsurer under current cessions shall continue in full force until their expiry, unless the Globe shall, within one calendar month of giving or receiving notice to determine this agreement, or within one calendar month of the event determining this agreement, elect to withdraw the existing cessions. In such event the Globe shall debit the Reinsurer with a sum equal to 35 per cent. of the amount credited to the Reinsurer for premiums under this agreement (except as regards Canadian business when the percentage shall be 47½ per cent.), as appearing in the previous four quarterly accounts which it is agreed shall be regarded as the equivalent of the Reinsurer's liability for risks unexpired at the date of such determination. No refund of commission shall be allowable on the amount so debited.”
On February 14, 1922, a compulsory winding-up order was made against the Reinsurer, on a petition presented in January, 1922, and the Senior Official Receiver was appointed liquidator. By notice in writing dated February 1, 1922, the Globe had terminated the said treaty as from that date (in accordance with para. 4 of Art. IX. of the treaty) and had also given notice that all existing cessions were cancelled and withdrawn, and that the Reinsurer was being debited in account with a sum calculated in accordance with para. 6 of Art. IX. in respect of risks unexpired at that date. After all obligations, actual or contingent, under the treaty had been satisfied, there remained in the hands of the Globe a balance of over 8000 l., representing the balance of the deposit retained and accumulated by the Globe under the treaty, and a sum of about 1800 l., representing interest accrued upon the deposit. The Globe claimed to be entitled to set off balances due from the Reinsurer under other treaties, contracts, and policies of insurance and reinsurance against the balance of the deposit and the interest: and by this summons the official receiver and liquidator asked for a declaration that upon the true construction of the treaty the Globe was bound to pay over to him in full the moneys representing the balance of the deposit and the balance of the interest accrued on the deposit after satisfying all obligations of the Reinsurer under the treaty.
C. R. Dunlop K.C. and L. W. Byrne for the official receiver. The question of law is covered by In re Mid-Kent Fruit Factory.F1 It is not suggested that there was any consent to the balance remaining in the hands of the Globe for any other purpose; it appears from the agreement that the deposit was created for the specific purpose of being a security for the due performance of the obligations of the Reinsurer under the agreement of April 13, 1920. The balance remaining after satisfaction of all obligations due from the Reinsurer to the Globe under the treaty is held in trust for the liquidator, and the contract ousts the application of s. 31 of the Bankruptcy Act, 1914. The question is whether the principle in In re Mid-Kent Fruit FactoryF2 applies. In In re H. E. Thorne & Son, Ld.F3, the law was reviewed by Astbury J. That was a special case in which the principle in In re Mid-Kent Fruit FactoryF2 was reaffirmed, but was held to be not applicable to the special facts.
Lionel Cohen K.C. and Sir Albion Richardson K.C. for the respondent company. The payment of money for a specific purpose is not part of mutual dealings, but where money is deposited as a mere security for the performance of obligations and the security is realized before the commencement of the liquidation and a surplus remains after...
To continue reading
Request your trial
- Damayanti Kantilal Doshi & 2 Ors v jigarlal Kantilal Doshi and Another
- Damayanti Kantilal Doshi and Others v Jigarlal Kantilal Doshi and Others
- Singapore Society of Accountants; Wong Kok Chin
-
Prospect Properties Ltd ((in Liquidation)) v McNeill
...1 Ch. 425, considered. (9) Cane v. Jones, [1980] 1 W.L.R. 1451; [1981] 1 All E.R. 533. (10) City Equitable Fire Ins. Co. Ltd., In re, [1925] Ch. 407; [1924] All E.R. Rep. 485, observations of Romer J. applied. (11) Dimbula Valley (Ceylon) Tea Co. Ltd. v. Laurie, [1961] Ch. 353; [1961] 1 All......
-
Guide To Directors' Duties In The Cayman Islands
...of the same matter (Viscount of the Royal Court of Jersey v Shelton [1986] 1WLR 985 following In re City Equitable Fire Insurance Co. [1925] Ch 407). The company will commonly obtain directors and officers' insurance. CONCLUSION Directors of companies must be fully aware of their powers and......
-
Directors' Duties Under Cayman Islands Law
...or where there has been wilful neglect or wilful default in the fulfilment of fiduciary duties. Re City Equitable Fire Insurance [1925] Ch 407 defined what is meant by wilful neglect or default "an act, or an omission to do an act, is wilful where the person of whom we are speaking knows wh......
-
Not Wilfully In Default: The Court Of Appeal's Judgment In Weavering
...Directors of Investment Funds, which predicted that the inferences drawn by Jones J as to the Directors' intentions were ripe for appeal. [1925] Ch 407. It is well established as a matter of Cayman Islands law that such indemnities and exculpations are effective, provided that directors may......
-
Rising Standards Of Fund Governance: Fund Directors Beware
...2010 AJJ), available athttp://clients.squareeye.net/uploads/fountain/Weavering%20CICA%20judgment%20-%2012%202%202015.pdf Supra, note 2. [1925] Ch 407 The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific...
-
Master or Servant: A Corporation's Liability for the Activities of a Ship's Master
...are carried out by that director in relation to thecompany, and (b) the general knowledge, skill and experience that that directorhas.36 [1925] Ch 407 at 428–9, CA. 37 M. Yavasi, ‘A Socio-legal and Economic Introduction to Corporate GovernanceProblems in the E’ (2001) 22(6) Company Lawyer 1......
-
Divisional Court
...in the circumstances be the duty of the director to make specific enquiries personally. In R. v. City Equitable Fire lnsurance Co. Ltd. [1925] Ch. 407, however, the court limited the occasions on which a director is justified in trusting an official (and semble another director) to perform ......
-
The Continuing Value of Relief for Directors' Breach of Duty
...they represent, they discharge theirylegal dutyto the company’ (cited with approval by Romer J in Re City Equitable Fire Insurance Co Ltd[1925] Ch 407).32 See n 79 below.33 The Companies Acts 1862 to 1900.The Modern Law Review [Vol. 66200 rThe Modern Law Review Limited power. Such liability......
-
Table of Cases
...LT 721 (PC) .........................107 THE LAW OF PARTNERSHIPS AND CORPOR ATIONS 688 City Equitable Fire Insurance Co Ltd, Re (1924), [1925] Ch 407, [1924] All ER Rep 485, 94 LJ Ch 445, 133 LT 520, 40 TLR 853, [1925] B & CR 109 (CA) ..............................................................