As to the question of set-off, Mr. Cotton, Q.C., and Mr. Chitty, for the Applicants : V.-C. M. 1870 GIBBS AND In the case of the winding up of an unlimited company, a creditor WEST'S CASE. who is also a contributory is entitled to set off a debt due to him from the company against calls made on him in the winding-up. There is nothing in the Companies Act, 1862, to deprive him of his right; on the contrary, the 101st section recognises it. In Grissell's Case (1), where it was decided that in the case of a limited company the contributory-creditor has not the right of set-off, Lord Chelmsford said (2) that, by the 101st section, "a set-off upon an independent contract is allowed to the member of an unlimited company against a call, although the creditors have not been paidevidently because he is liable to contribute to any amount until all the liabilities of the company are satisfied, and therefore it signifies nothing to the creditors whether a set-off is allowed or not." It is immaterial to the creditors, and as between himself and the other contributories, the creditor-contributory is entitled, according to the ordinary principles of taking partnership accounts, to be credited with the amount of his debt as a payment of calls by anticipation. In Brighton Arcade Company v. Dowling (3) it was held that, inasmuch as the 101st section does not apply to a voluntary winding up, a shareholder even in a limited company being wound up voluntarily was entitled to set off his debt against a call, on the ground that there was no statutory provision depriving him of his right under the old Statutes of Set-off. This is a company with unlimited liability as regards all creditors except policy-holders; and the fact that the policy-holders have entered into a special contract limiting the personal liability of the shareholders to them, does not make it a limited company within the meaning of the 101st section of the Act. [They also referred to In re Professional Life Assurance Company (4).] Mr. Glasse, Q.C., and Mr. Higgins, for the official liquidator :Even if this is to be treated as an unlimited company, the 101st section of the Act precludes the applicants from setting off (3) Law Rep. 3 C. P. 175. (4) Ibid. 3 Ch. 167. (1) Law Rep. 1 Ch. 528. (2) Ibid. 536. V.-C. M. 1870 GIBBS AND their debts against calls. The first part of the section gives the Court the summary power of compelling contributories to pay their debts to the company exclusive of calls made in the winding-up, WEST'S CASE. and empowers the Court in making such order, when such company is not limited, to allow, by way of set-off, debts due to the contributory from the company; but by thus expressly allowing the set-off to be made against debts due from the contributory other than calls, it implicitly prohibits the set-off against calls; and the proviso which allows the set-off of debts against calls, after all the creditors have been paid in full, implies that there can be no such set-off until the creditors have been paid. Lord Chelmsford's dictum, in Grissell's Case (1), seems to have been made under the erroneous supposition that the first part of the 101st section applied to calls made under the winding-up, which it expressly excludes. The reason which he there gives for allowing the set-off in the case of an unlimited company has no application to this company, the great majority of whose creditors are policy-holders, who, by the 56th clause of the deed of settlement, to which all persons dealing with the company are bound to look (Ernest v. Nicholls (2) ), are precluded from calling upon the shareholders to pay more than the amount of the subscribed capital. It is obvious that to allow the set-off in this case will injure the policy-holders by diminishing the only fund to which they can resort; and even if the 101st section applied to this case, and the Court had the power to allow a setoff, it would not, under these circumstances, exercise that power. Brighton Arcade Company v. Dowling (3) was the case of a voluntary winding-up; there is no injustice in allowing the right of set-off in the case of a voluntary winding-up, because the creditors can at any time apply to the Court to have a compulsory winding-up, or a winding-up under supervision. [They also referred to Calisher's Case (4).] Mr. Cotton, in reply: The 101st section assumes that the same rule will apply to calls as to other debts due by a shareholder to the company. There can be no reason for allowing a set-off against calls made before, and not against calls made after, the winding-up. SIR R. MALINS, V.C. :— V.-C. M. 1870 WEST'S CASE. The question as to Messrs. West and Gibbs, the claimants before me, being general creditors of the company, was finally settled by GIBBS AND the order of the 22nd of January last, which order remains in force. That order makes Mr. West a general creditor unsecured in respect of £300 advanced by him for the purpose of paying the rent of the company; and it makes Mr. Gibbs a general creditor unsecured for £1100, which sum, it appears, was advanced for the general purposes of the company in the month of April, 1868. The question, and the only question, which I have now to decide, is whether in the event of a call having been made in the windingup, or being hereafter made, these two gentlemen would be entitled to set off the debts so due to them against the amount of calls made or to be made. Now, if this is a limited company within the meaning of the Companies Act, 1862, there is nothing to discuss, because Grissell's Case (1), which was a decision of the full Court of Appeal, decided that in the case of a limited company-namely, Overend, Gurney, & Co., Limited Mr. Grissell being a shareholder, and also a creditor of the company to an amount much larger than any call then made or likely to be made upon him, was not entitled to set off his debt as against a call made: in other words, that in a limited company there is no right to set-off, but that the person must pay his call in full, and then come in as a creditor for any debt which may be due to him in common with the other creditors. In that there seems to be considerable reason, not only because there is the positive enactment of the statute, but also because, if there is limited liability, and a contributory who is a creditor is entitled to set off a debt due to him against calls, the effect of that would be that he would get paid in full, while the other creditors would not get so paid. But in the case of an unlimited company that reason does not apply. In the case of an individual partnership or an unlimited company, it must be presumed that they are able to pay their debts in full until the contrary is shewn. The contrary has never been shewn in the present case, and therefore I can come to no other conclusion than that the company will be able to pay the full amount of what they owe. VOL. X. (1) Law Rep. 1 Ch. 528. 2 C 2 V.-C. M. 1870 WEST'S CASE. Now the decision in Grissell's Case (1) proceeded wholly upon the ground of its being a limited company. All the reasons given GIBBS AND by Lord Chelmsford proceed upon the ground of its being a limited. company, and there are no other reasons put forward. The passage in Lord Chelmsford's judgment (2), which Mr. Higgins said was erroneous (though I confess I was unable to follow him when he said so), is in these terms: "The case of a member of a limited company is different from that of a member of a company of unlimited liability as to set-off. This is exemplified in the 101st section, where a set-off upon an independent contract is allowed to the member of an unlimited company against a call, although the creditors have not been paid, evidently because he is liable to contribute to any amount until all the liabilities of the company are satisfied, and therefore it signifies nothing to the creditors whether a set-off is allowed or not. But with respect to a member of a company with limited liability, if a set-off were allowed against a call, it would have the effect of withdrawing altogether from the creditors part of the funds applicable to the payment of their debts." The 101st section does appear to me to be perfectly distinct. [His Honour read the section except the proviso at the end, and continued:] There being, therefore, in the case of an unlimited company a clear right of set-off, unless the Court should direct the contrary, the next question is, supposing this to be an unlimited company, is this a case in which the Court ought to allow the set-off? Upon that subject I entertain no doubt whatever. These were moneys bonâ fide advanced by these directors for the purpose of supporting the company for the common benefit of all concerned, and for the purpose of preventing disastrous results to the shareholders at large; and I think that upon every principle of justice they ought to be allowed the right of set-off, if set-off is to be allowed in any case. Then, it being clear, in my opinion, that the right to set-off is one which the Court is at liberty to allow in the case of an unlimited company, and it being equally clear, in my opinion, that the circumstances of this case are such as to call upon the Court to allow that set-off, the only question that remains is, is it a (1) Law Rep. 1 Ch. 528. (2) Law Rep. 1 Ch. 536. 1870 limited or an unlimited company? Now, that it is not a limited V.-C. M. company under this Act is beyond all question. It was contended and much urged by Mr. Glasse, that all persons dealing with this GIBBS AND company were bound to know the provisions of the deed of settle- WEST'S CASE. ment of this company, and he particularly referred to the 56th clause, by which it is provided that they shall only be at liberty to issue policies charging them upon the funds of the company. We all know the provisions which the Legislature has inserted, providing that a limited company must use the word "limited" in all its papers and documents, and in all transactions; that it must also have the name over the door and on the window, and that in every place where the name of the company is used, it must be used with the addition of the word "limited," for the purpose of giving the public notice that they have not the general liability of the shareholders, but only such an extent of liability as they have contracted to be liable for by the constitution of the company. But in this case, how was anybody to know that this was a limited company? There is no notice, and there is no limited liability. No doubt as to a particular class of creditors, the policy-holders, the company have contracted a limited liability; that is to say, they have entered into a contract with the policy-holders, which says, upon the face of the contract itself, that the policy-holders are to look only to the assets of the company. But with the creditors in general there is no such contract. If the company orders furniture, or enters into any such contract, it is a contract of a general nature, and there is no limit of liability introduced. It does appear to me upon the soundest and broadest principles, that if a company contracts any debts as to which there is unlimited liability, although it may contract other debts with regard to which the liability is limited, the mere fact that it contracts some debts as to which the liability is unlimited, does make it an unlimited company, and brings it within this provision, which says that in the case of unlimited companies the right to set-off exists. If I were to make an order now, that these gentlemen are not to set off these sums, the consequence would be that they would be obliged to pay the calls, and stand as general creditors for the money which the I do not know what the circumstances of company owes them. these gentlemen are—it is not right that I should; but it might |