With reference to the question of novation, Lord Westbury, as arbi- EUROPEAN trator in the European Life Assurance Co. Arbitration, has stated his ARBITRATION. impression, subject to argument in such cases as may come before him, at present to be, that such cases must be decided with reference to the following rules: In any case of alleged novation, the transferee company must be required to prove :-First, that that company had legal power to grant new policies to the policy-holders of the transferor company upon the same terms as were contained in those policies, or to adopt and indorse the transferor company's policies, so as to make them equivalent to original policies of the transferee company; Secondly, that this power on the part of the transferee company was made known to the policy-holder, and that an offer was made to him to accept either a new policy or an indorsed policy from the transferee company; Thirdly, that the acceptance of such offer by the policy-holder is evidenced by acts which unequivocally denote his understanding and acceptance of that proposal.

His Lordship further intimated that he should consider the enactment of sect. 7 of the Life Assurance Companies Act, 1872 (v. infra), as shewing that the Legislature was satisfied that more unequivocal proof of acceptance by the policy-holder ought to be required than had been received in some of the cases decided upon this subject.

Coghlan's Case (a), the first case on novation which has in this arbitration been decided by his Lordship, was a case in which the policyholder had, after notice of the amalgamation or transfer, paid under protest his premiums to the transferee company, and had received circulars as to bonus declared by that company, but had never agreed to accept such bonus. The case was most exhaustively argued on behalf of the company, who supported the contention that under these circumstances the policy-holder had accepted the substitution of the liability of the transferee company. It was held, however, that no novation had been effected.

The importance of the case can scarcely be over-estimated, not for the decision only upon the particular evidence adduced (for parallel cases might in this respect probably be found among those noted above in the Albert Arbitration), but rather for the principles upon which, after an elaborate and exhaustive review of the previous decisions on this subject, the judgment was founded.

Lord Westbury there said: "It has been argued at the bar here, and I am sorry to say that some colour has been furnished for that argument by some of the technical decisions which have been cited, as if it were incumbent on the policy-holder to prove that he did not intend to accept by way of substitution' the liability of the transferee company. That is quite an inversion of the proper order. It is incumbent on the company which alleges the substitution or novation to prove an agreement by the policy-holder to make that novation, and to prove acts of the policy-holder, in the absence of any written declaration, which unequivocally involve the evidence of that intention on

(a) Oct. 1872, not yet reported.

Payment of premiums to new company.

the part of the policy-holder to accept the new company instead of the old" (a).

"To raise the new contract there must be, on the part of the company, a power to make it; there must be, on the part of the policyholder, a knowledge of the company's right so to contract with him; and there must be conduct on the part of the policy-holder, when it is an incomplete contract, or where there is no evidence in writing that unmistakably shews his intention to accept a new contract and to discharge the old one.”

These principles were again more fully detailed in Blundell's Case (b), where his Lordship dealt particularly with the evidence of intention on the part of the policy-holder afforded by payment of premiums to the transferee company.

The transfer of its business by company A. to company B. involves an authority to company B. to carry on that business, including the power to receive, in the case of policies granted by company A., the premiums payable on those policies. Company B. will receive those premiums by virtue of the authority impliedly given in the transfer, and if they give a receipt in their own name it is equivalent only to an attorney giving under a power of attorney a receipt in his own name without adding that he signs as attorney. Under such circumstances the receipt must be referred to the right that the attorney had to receive, and unless it can be shewn that he had some other right to receive than the delegated authority, the receipt must be referred to that authority. It follows, then, that it is by no means clear from the mere fact that a policy-holder has paid his premium to, and accepted the receipt of, company B., that he therefore paid company B. in its own right, and not in the right of company A. The bare fact of such payment and acceptance is no evidence of intention by the policyholder to accept a substitution of liability. That intention must be proved. It cannot be inferred from the heading of the receipt which the policy-holder accepted (c). "The obligation, the onus probandi, lies on the company that alleges a novation. It is a question of intent, to be evidenced in the clearest manner, and unless that intent is evidenced, the simple payment of the premiums will be referred to the old contract, and the old rule, which will be considered as still kept up by the assignee of the business, who, by virtue of the transfer, has a right to receive the premiums on old policies as the agent of the company granting those policies" (d).

"I cannot legislate to the extent of saying that I will require a writing. But I will require evidence of an intention to make a new contract as plain as if it was expressed in writing.”

It would be premature at present, even if the writer could have

(a) Contrast, in the Albert Arbiration, Kennedy's Case, 15 Sol. J. 729; 1 Reilly's Rep. 5; Lancaster's Case, 15 Sol. J. 748; Budden's Case, 16 Sol. J. 462; and other cases, supra.

(b) Nov. 5, 1872, not yet reported.

(c) Contrast Knox's Case, 16 Sol. J. 673, supra.

(d) Contrast Kennedy's Case, 15 Sol. J. 729; 1 Reilly's Rep. 5; and other cases in the Albert Arbitration, supra, p. 230.

ventured at any time to do so, to draw any general comparison between the decisions on this important question in the Albert and European Arbitrations. It may, however, perhaps be submitted that while Lord Westbury does not in principle regard the question of novation from any point of view other than that from which it has been regarded by other judges-since all have agreed that novation is a question of intention, and that intention is a question of fact-yet that in regard to that which is to be accepted as evidence of that intention there is a wide difference between the principles thus laid down and those which were acted upon in the Albert Arbitration. Lord Cairns' decisions may be said to have proceeded on the ground that the onus was on the policy-holder who had paid premiums to the transferee company to shew that a novation had not been effected, while Lord Westbury throws upon the company the onus of proving the novation which it alleges. It cannot but be anticipated that the result of such a shifting of the burden of proof will be to lead to the determination of questions of novation in this arbitration in a manner far more advantageous to the interests of policy-holders than that which obtained in the case of the Albert Company. The liability upon a policy, in respect of which it is held that no novation has been effected, attaching upon the company by which the policy was issued, there will arise a benefit both to the particular policy-holder in giving him in some instances a solvent instead of an insolvent company for his debtor, and to the policyholders of the European in diminishing the claims upon the already over-burdened assets of that company.

While it may well be a cause of rejoicing that there thus appears a prospect of more substantial satisfaction being afforded to the unfortunate policy-holders in this company than fell to the lot of their still more unfortunate brethren in the Albert Company, still the lawyer cannot but anticipate with regret a series of decisions in conflict with those in the Albert Arbitration. Such a conflict is, perhaps, unavoidable, but its practical inconvenience is obvious. In the words of Lord Westbury: "This arbitration is an anomaly; it is only to be justified by its necessity; and its necessity is a great reproach to the judicial institutions of this country."

may be sanc

159. The liquidators may, with the sanction of the General scheme Court (a), where the company is being wound up by the of liquidation Court or subject to the supervision of the Court, and with tioned. the sanction of an extraordinary resolution (8) of the company, where the company is being wound up altogether voluntarily, pay any classes of creditors in full, or make such compromise or other arrangement as the liquidators may deem expedient with creditors or persons claiming to be creditors, or persons having or alleging themselves to have any claim, present or future, certain or contingent, ascer

Voluntary winding-up.

Consent of liquidator.

Compromise.

Power to compromise.

tained or sounding only in damages against the company, or whereby the company may be rendered liable (y).

(a) Gen. Order, Nov. 1862, Rule 50.
(B) ss. 129, 139.

See notes to sect. 160.

(7) Joint Stock Companies Arrangement Act, 1870, s. 2.

A claim made against a company in voluntary liquidation was under sect. 138 submitted to the Court for adjudication. After some proceedings a compromise was entered into by the liquidator and sanctioned by an extraordinary resolution of the company. It was held that although the winding-up was altogether voluntary, it was not competent for the liquidator to enter into such a compromise without the sanction of the Court, the Court having scisin of that particular claim for the purpose of adjudication; but that the compromise having been sanctioned by a general meeting, the onus of impeaching it was thrown upon the parties who objected to it (a).

The Court has no jurisdiction to compel the liquidator to consent to a compromise with a creditor (b).

Under 19 & 20 Vict. c. 47, s. 90, and 21 & 22 Vict. c. 60, s. 19, a compromise was sanctioned whereby a creditor for unpaid purchase-money accepted half his demand, and certain contributories were taken off the list (c).

160. The liquidators may, with the sanction of the Court (a), where the company is being wound up by the Court or subject to the supervision of the Court, and with the sanction of an extraordinary resolution (B) of the company where the company is being wound up altogether voluntarily, compromise all calls and liabilities to calls, debts, and liabilities capable of resulting in debts, and all claims, whether present or future, certain or contingent, ascertained or sounding only in damages, subsisting or supposed to subsist between the company and any contributory or alleged contributory, or other debtor or person apprehending liability to the company, and all questions in any way relating to or affecting the assets of the company or the winding-up of the company, upon the receipt of such sums, payable at such times, and generally upon such terms as may be agreed upon, with power for the liquidators to take any security for the discharge of such debts or liabilities, and to give complete

(a) In re Lama Coal Co., Ex parte Miller, L. R. 2 Ch. 692.

(b) In re International Contract Co., W. N. 1872, p. 63; and see s. 160 as to

a contributory.

(c) Risca Coal and Iron Co., 30 Beav.

528.

discharges in respect of all or any such calls, debts, or liabilities (7).

(a) Gen. Order, Nov. 1862, Rule 49. (B) ss. 129, 139.

(7) Joint Stock Companies Arrangement Act, 1870, s. 2.

This section and the preceding section appear to provide that a com- Effect of pany by its official liquidators, with the sanction of the Court, shall section. have exactly the same power of compromising both with its creditors

and its debtors as an individual would have (a).

And the power of compromise is not confined to entering into a com- Compromise promise with individual creditors or contributories, but extends to with a class. making a general compromise with contributories or creditors as a class, as e.g., a general compromise with contributories, notwithstanding differences of position among them, and without inquiring closely into the means of each individual contributory.

This was held upon the construction of sects. 173 and 174 of the Indian Companies Act, No. X. of 1866 (b), which are almost verbatim the same as sects. 159 and 160 of this Act (c), and was followed by Romilly, M.R., with respect to this Act (d).

A compromise with contributories is of course pro tanto in derogation of the rights of creditors, and to this extent, therefore, it is conceived that under the Companies Act, 1862, a compromise which will prejudicially affect the creditors of the company, may be entered into by the official liquidators, with the sanction of the Court, and become binding upon the creditors, notwithstanding that they dissent and oppose the confirmation of the compromise.

As where a compromise was sanctioned under which a call of £25 per share was made payable in instalments, and discount allowed on payment of the instalments before they became due, although the assets would not be sufficient to pay the creditors in full (e).

But it is submitted that it is only in this way, indirectly, that under the Act of 1862 a minority of dissentient creditors can be compelled to accept a composition in respect of what is due to them; and, quære, whether, as in In re Commercial Bank Corporation of India and the East (d), a dissentient creditor can under the Act of 1862 be directly compelled to accept a composition of 17s. in the pound.

This point is put very clearly by James, L.J., in In re Albert Life Assurance Co. (a). The compromise which the Act authorizes is "a compromise, in the one case, between the company and its creditors who choose to accept it, and in the other between the company and its debtors who choose to accept it. There is nothing in the Act which enables one creditor to bind another creditor to accept a compromise (ƒ),