Citizens and Graziers' Life Assurance Co Ltd v Commonwealth Life (Amalgamated) Assurances Ltd
51 CLR 4221934 - 0802A - HCA
(Decision by: STARKE J)
Citizens and Graziers' Life Assurance Co Ltd
v Commonwealth Life (Amalgamated) Assurances Ltd
Judges:
Gavan Duffy CJ
Rich J
Starke JDixon J
McTiernan J
Subject References:
Corporations
Amalgamation
Agreement under seal
Uncalled capital of old companies
Validity of provisions
Life assurance
Statutory restriction
Legislative References:
The Life Assurance Companies Act 1901 (Qld) (1 Edw VII No 20) - the Act
The Insurance Act 1923 (Qld) (14 Geo V No 29) - s 2(2)
Judgment date: 2 August 1934
SYDNEY
Decision by:
STARKE J
This was a suit on the part of the Commonwealth Life (Amalgamated) Assurances Ltd (called the Amalgamated Co ) and the Commonwealth Life Assurance Society Ltd (called the C.L.A. Society) and the Citizens and Graziers' Life Assurance Co 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 shareholders. 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 incorporated 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 Amalgamated 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 C. 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 all times continue to be carried on by it under its sole control as theretofore, and as if the agreement had not been made, and that the Amalgamated Co should not, so long as the then Life Assurance Acts of Queensland remained in operation, commence to transact life assurance business in Queensland, or carry on such business within that State. Provision was made for the price to be paid, but the C.L.A. Society and the C. and G. Co undertook and agreed to invest the whole of the moneys received as purchase money in the Amalgamated Co in contributing shares which should be paid to the full amount of PD1 each. In addition, the Amalgamated Co agreed to purchase the right to the future profits of the C. and G. Co, arising from its life assurance business in Queensland and divisible amongst its shareholders, for a price to be fixed by named persons, and payable in an equivalent number of shares in the Amalgamated Co of PD1 each fully paid up issued to nominees of the C. and G. Co It was declared that the shares should be held upon trust to pay all dividends received to the C. and G. Co so long as it carried on life assurance business in Queensland, and in the event of its ceasing so to do, upon trust to sell and to hold the proceeds for the Amalgamated Co The C.L.A. Society and the C. and G. Co agreed to transfer and assign all the assets and business so sold which the Amalgamated Co required, in its name, other than uncalled capital. The agreement also stipulated that the C.L.A. Society and the C. and G. Co might make such calls as were considered necessary to provide certain costs, and to pay off any liability not taken over by the Amalgamated Co The Amalgamated Co, it was also stipulated, was to be at liberty from time to time as considered necessary to call on the C.L.A. Society and the C. and G. Co to make such call or calls on their uncalled capital as might be determined, and that the net sum realized should be transferred to the Amalgamated Co, and fully paid shares issued by it in respect of all moneys so received. The agreement is declared to be provisional only, and is subject to the sanction of the Court in any State in which sanction is necessary or advisable. The form of the agreement was no doubt dictated by The Insurance Act of 1923 of Queensland. It provided (s. 2 (2)):
"From and after the date of the passing of `The Insurance Act of 1923' no company shall commence to transact life assurance business within Queensland or carry on such business within Queensland unless such company is a company in which the net profits from time to time earned by the company are by the constitution of the company exclusively divisible amongst the policy holders of the company."
The agreement was, in fact, sanctioned in all the States in which sanction is necessary or desirable, other than in the State of Queensland.
In my opinion, the words of the agreement operate as an assignment of the uncalled capital of both the C.L.A. Society and the C. and G. Co True, both these companies are given a sort of floating power over it for the purpose of meeting certain liabilities, but the Amalgamated Co may insist upon its being called up for its benefit whenever it chooses so to do. But the C. and G. Co contends that the agreement, so far as it operates as an assignment of uncalled capital, is beyond its capacity and power, and in any case is illegal or unenforceable, because the sanction required by the law of Queensland has not been given to the agreement.
The objects for which the C. and G. Co was established are very wide. They include powers to lease, sell, dispose of or otherwise deal with, all or any property of the company, to sell any real or personal estate or property and the undertaking of the company for such consideration as the company may think fit, to take or otherwise to hold shares in any other company having objects altogether or in part similar to those of the company, and to borrow, raise or secure payment of money in such manner as the company shall think fit, and to do all such other things as are incidental or conducive to the attainment of the objects of the company or any of them. But the cases of In re Streatham and General Estates Co, [F1] In re Pyle Works, [F2] and In re Russian Spratts Patent Ltd.; Johnson v Russian Spratts Patent Ltd, [F3] are decisive, as it seems to me, that the sale or assignment of uncalled capital is not justified or warranted by any of these powers. There is, however, another power: to amalgamate with any other company having objects altogether or in part similar to those of this company. Amalgamation has no definite legal meaning: it is a commercial and not a legal term, "and even as a commercial term bears no definite meaning" (In re South African Supply and Cold Storage Co; [F4] Lindley on Companies, 6th ed. (1902), vol. II., p. 1200; Palmer's Company Precedents, 11th ed. (1912), p. 1481). "It is perhaps generally understood to express or imply a transfer by one or more companies of their assets and liabilities either to a new company formed to take them, or to an already existing company in consideration of shares in such company which are given, or at least offered to the members of the transferring companies" (Lindley on Companies, 6th ed. (1902), vol. II., p. 1200). The strictest sense of the term implies that every shareholder in the transferring companies becomes a shareholder in the company taking over the assets and liabilities. (See Cocker's Case) [F5] But that is not essential:
"A power to amalgamate would probably be held to authorize a purchase of the assets and liabilities of another company" (Lindley on Companies, 6th ed. (1902), vol. II., p. 1200).
And in Rivington's Case [F6] and Doman's Case, [F7] Cairns L.C., James L.J., and Baggallay J.A. were inclined to the view that an amalgamation took place on the transfer of the assets and business liabilities from one company to another, on terms that the proprietors or shareholders in the transferring company making over their shares to trustees of the other company should receive a sum in cash, or at their election shares in the other company wholly or in part paid up. Again, it is not essential to an amalgamation that the whole of the undertaking or business of a company should pass or be transferred to another company (Wall v London and Northern Assets Corporation; [F8] In re South African Supply and Cold Storage Co [F9] ). No doubt, as Buckley J. said in the South African Co 's Case, [F10] "an amalgamation may take place... either by the transfer of undertakings A. and B. to a new corporation, C., or by the continuance of A. and B. by B., upon terms that the shareholders of A. shall become shareholders in B. It is not necessary that you should have a new company. You may have a continuance of one of the two companies upon the terms that the undertakings of both corporations shall substantially be merged in one corporation only." Palmer's Company Precedents, 11th ed. (1912), p. 1481, is to the same effect. Further, an amalgamation may take place though the term "amalgamation" be not used. It is the substance of the transaction and not the mere form that governs its character. (See Palmer's Company Precedents, 11th ed. (1912), p. 1489, and note Form 793, at pp. 1488 and following)
Now in the present case we have two companies setting over their undertakings, business and assets to a new company. It is true that the life assurance business of the C. and G. Co in Queensland is excepted, but other stipulations set over, for a consideration, even the profits of the business so excepted to a new company. It is true also that the C.L.A. Society and the C. and G. Co may use their uncalled capital for certain purposes until it is called up by the new company. In my opinion, neither of these exceptional provisions destroys the real substance of the transaction, namely, the taking over by the new company of the undertakings and business of the transferring companies. The scheme, however, does not provide that the shareholders in the transferring companies shall become shareholders in the new company, nor does it contain any provision conferring any rights upon members of the transferring companies to become members in the new company. In substance, however, the transfer is for shares in the new company. The price for the property transferred is fixed by auditors, and the whole of the moneys received as purchase money shall, it is agreed, be invested in shares of the new company in the names of the transferring companies, or in the names of not less than two, nor more than seven, nominees of each of them. The individual corporators in the old company are not corporators in the new company. But is that essential to amalgamation? I do not think it is. It is uniting in whole or in part the undertakings and business of two or more companies in a new company or in one of the old companies, so that those undertakings and businesses may in future be carried on as one business, that is the essence of amalgamation. The fact that the corporators are the same is evidence of the character of the transaction, but the shareholding of the transferring companies is quite as strong in that direction as is the fact that the individual corporators in the transferring companies are corporators in the new company; it shows that the persons beneficially interested in the business now carried on by the new company are in substance the same as those who were interested in the business carried on by the old companies. Rivington's Case [F11] and Doman's Case [F12] support, I think, this conclusion. James L.J. said in Doman's Case:
"I do not think we ought to be astute to find grounds for upsetting amalgamations; because, if the thing is really done honestly, the amalgamation of two weak companies is far from being a prejudice to the person who claims. It is like putting together two weak hives to make a strong one, and the company consisting of two weak companies might be a very strong company, and capable of carrying on its business at a profit when the two separately might come to an end. I do not think we ought to seek reasons that it was ultra vires or that it was a fraud". [F13]
This is particularly true of the transferring companies in this case; alone, it may be doubted whether they could have continued in business, united they may succeed. The name given to the new company, The Commonwealth Life (Amalgamated) Assurances Ltd, indicates, to some extent, what those who united the business of the two companies would call the transaction from a business standpoint. And so does the evidence given by George Frederick Stack and E. H. Higgs. After all, "amalgamation" is a business term, which has no definite meaning. Latitude in arrangement is therefore necessary, and not undesirable. In my opinion, the agreement of 14th December 1926 is within the power of the C. and G. Co to amalgamate with any other company having objects altogether or in part similar to those of the C. and G. Co
But it is contended that the agreement is contrary to the policy of the Queensland Life Assurance Companies Act of 1901, s. 30 (5):
"No company shall amalgamate with another company, or transfer its business to another company, unless such amalgamation or transfer is sanctioned by the Court in accordance with this section."
The interpretation section (s. 4) provides that "unless the context otherwise indicates the following terms have the meanings set against them respectively, that is to say"; among these terms is "Company," whose meaning is given as "any person, or persons, corporate or unincorporate, not being registered under the laws in force for the time being relating to friendly societies, who issues or issue or is or are liable under policies of assurance upon human life within Queensland." There is nothing in the context of the Act that indicates that the word "company" in s. 30 (5) should be interpreted otherwise than in accordance with the meaning prescribed by s. 4. The context of s. 30 itself limits its application to life assurance companies. A further limitation is necessary if the section is not to transcend the territorial jurisdiction of the Queensland Legislature, and that limitation is prescribed by, or is found in, s. 4. But the term being so limited, this case falls outside the prohibition of s. 30 (5). The C.L.A. Society, it is admitted, never issued, nor was it liable under, policies of assurance upon human life within Queensland. The Amalgamated Co does not issue and is not liable under policies of assurance upon human life within Queensland. Indeed, The Insurance Act of 1923, s. 2 (2), already referred to, prohibits it transacting life assurance business within Queensland. Consequently, the C. and G. Co has not amalgamated with another company, or transferred its business to another company that "issues or issue or is or are liable under policies of assurance upon human life within Queensland." Subject to the consideration of one further argument, it seems to me, as it did to Harvey A.C.J. of the Supreme Court of New South Wales, that when the Amalgamated Co called upon the C. and G. Co under the agreement of the 14th December to make a call upon its uncalled capital, then the C. and G. Co was bound, pursuant to the terms of that agreement, to make the call and account to the Amalgamated Co for net proceeds realized.
It was argued, however, that such a call would be inconsistent with the fiduciary duty which the directors of the C. and G. Co owed to their shareholders. But there is nothing inconsistent with their fiduciary duty to their members in carrying out and performing the stipulations of a valid agreement into which they entered for the benefit and advantage of the company.
In my opinion, the appeal should be dismissed.