Scottish Court of Session Decisions

The Companies (Consolidation) Act 1908 (8 Edw. VII, cap. 69), enacts—Section 129—“A company may be wound up by the Court—(v) if the company is unable to pay its debts; (vi) if the Court is of opinion that it is just and equitable that the company should be wound up.” Section 130—“A company shall be deemed to be unable to pay its debts—(iv) if it is proved to the satisfaction of the Court that the company is unable to pay its debts, and in determining whether a company is unable to pay its debts the Court shall take into account the contingent and prospective liabilities of the company.”

Landauer & Company, petitioners, brought a petition craving an order that W. H. Alexander & Co, Limited, respondents, be wound up by the Court under the Companies (Consolidation) Act 1908 (8 Edw. VII, cap. 69).

Answers were lodged for the respondents.

The petition set forth—“That W. H. Alexander & Company, Limited, was on 9th July 1915 registered and incorporated under the Companies (Consolidation) Act 1908, and its registered office is situated at 166 Buchanan Street, Glasgow. By the memorandum and articles of association the object for which the company was formed was declared to be, inter alia, the carrying on of the business of general merchants, commission agents, and produce brokers, with powers, inter alia, to acquire businesses of a kindred character. The company thereafter carried on business and it continues to do so. On or about 19th October 1918 the petitioners, through Messrs L. M. Fischel & Company, brokers, of 36 and 37 Mincing Lane, London, sold to the said company one hundred tons of Japanese potato starch, No. 1 quality, at the price of £82 per ton, amounting under deduction of two brokerages of 1 2 per cent. to the sum of £8118, payable against shipping documents. On or about 3rd February 1919, before the said price had become payable, at a meeting between a representative of the said company and the said L. M. Fischel & Company as representing the petitioners, the said company intimated that they were not in a position to implement their obligations under, inter alia, the said contract, and the petitioners accordingly, through the said L. M. Fischel & Company, by letter dated 4th February 1919, intimated that they would regard the said contract as broken. On or about 12th February 1919 the said goods were invoiced to the said company, but delivery was not accepted by the company, and on or about 27th February 1919 the petitioners sold thegoodsagainst thesaid contract at the price of £33 per ton, being the market price thereof at the said date. The said price, under deduction of brokerage at the rate of 1 per cent., amounted to the sum of £3267, being the net amount realised subject to certain small adjustments. The loss to the petitioners due to the said breach of contract thus amounts to about the sum of £4851, being the said sum of £8118 less the said sum of £3267 subject to adjustment as aforesaid. The said sum of £4851 is due and owing by the said company to the petitioners. Thereafter, both by correspondence and at meetings between the representatives of the parties held on 12th February and 1st March 1919, the said company admitted that they were liable for the said damages and declared that they were unable to pay the same. Further, at the said meeting of 1st March they offered, subject to certain conditions, to pay a composition upon the sums due by them to the petitioners, but the petitioners were not and are not willing to accept the said offer.”

The answers set forth—“1. Subject to the explanation hereinafter stated, the respondents deny the alleged sale by petitioners to them of 100 tons of Japanese potato starch, and further deny ( a) that petitioners have sustained the loss averred by them; ( b) that the respondents have admitted liability for damages; ( c) that the respondents have admitted inability to pay said damages; ( d) that they have offered to pay a composition to the petitioners; and ( e) that they are unable to pay their debts. The respondents received no notice by or on

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behalf of petitioners of the alleged sale of the goods by petitioners against their alleged contract with respondents, and they have no knowledge of and do not admit that sale or the price alleged to have been realised by petitioners. 2. The respondents explain that in the year 1918 they employed the firm of L. M. Fischel & Company to advise them as brokers in regard to the purchase for them of sundry lots of Japanese potato starch, and that firm, acting as brokers on behalf of the respondents, did purchase sundry lots for the respondents' account upon the terms of the printed rules of the General Produce Brokers' Association of London, the price to be payable in cash ‘against documents in London on or (at buyers' option) before arrival of vessel or vessels at port of discharge; but in no case later than the due date of sellers' draft at ninety days sight.’ 3. The said L. M. Fischel & Company did not in the case of any of the transactions entered into by them disclose to the respondents the name of the sellers of the goods, and it is believed and averred that they did not in any case disclose to the sellers the name of the purchasers. 4. The respondents have never had any communication with the petitioners, and do not know whether it is true or not, and they do not admit, that the said L. M. Fischel & Company, acting as brokers for the respondents, have on respondents' account purchased from the petitioners the lot of starch in question. 5. No tender of the shipping documents or of the goods has ever been made to the respondents by the petitioners, and no demand has ever been made by them upon the respondents for payment of the alleged contract price. The service of the petition was the first intimation which the respondents received that the petitioners claimed to be their creditors. 6. The petitioners are, inter alia, importers of potato and other starches. In the year in which the alleged contract of sale is said to have been entered into the petitioners were not entitled to sell potato starch to the respondents unless they held an importer's licence issued by the Ministry of Food under the Defence of the Realm Regulations, and subject to, inter alia, the condition that no sub-sale should be made by them at a rate of profit exceeding 5 per cent. (including selling brokerage not exceeding 1 per cent.) on the c.i.f. cost. The respondents believe and aver that the petitioners held such an importer's licence, and that if they made the alleged sale to the respondents (which is not admitted) they did so subject to the said condition. The respondents further believe and aver that if the petitioners made the alleged sale they did so at a rate of profit many times in excess of the maximum rate of 5 per cent. above referred to. On that footing the respondents submit and contend that the alleged sale, if it was actually made, was and is invalid, and that the respondents are not bound thereby, and are under no obligation or liability to accept delivery or pay damages for breach of contract in respect of non-acceptance of delivery or non-payment of the purchase price. Alternatively the respondents submit and contend that if it be that the alleged contract of sale is valid and binding upon the respondents, they are not liable to the petitioners for more than the difference between the c.i.f. cost to the petitioners plus 5 per cent. of profit and the value of the goods in this country when sold by or for the owners. 7. The respondents further explain that if the alleged sale by the petitioners to the respondents was made, it was a condition of the contract that any dispute arising under the contract should be settled by arbitration in London in the usual manner according to the rules of the General Produce Brokers' Association of London. The respondents submit and contend that if the alleged contract of sale be valid and binding upon the respondents, there is a bona fide dispute as to the extent of the respondents' liability to the petitioners, which falls to be settled by arbitration in terms of the contract.”

Argued for the petitioners—The prayer of the petition should be granted de piano. There was between the parties a debt—the fact that the petitioners were creditors was proved, in that the respondents had offered a composition, though no doubt the amount of the debt was not ascertained. The respondents' only competent defence was to deny liability, but in such circumstances as the present they must make out a strong prima facie case in favour of their freedom of liability. That they had failed to do. If, however, they were to be allowed to dispute their liability they Should be ordained to find caution before further procedure. In any event the petition should not be dismissed but should be!kept in Court and the petitioners allowed to constitute their debt. The defence founded on the Defence of the Realm Regulations was irrelevant, because the respondents did not aver any regulation affecting the petitioners. The following were referred to—The Companies (Consolidation) Act 1908 (8 Edw. VII, cap. 69), sections 129, 130, 137, and 141; W. & J. C. Pollock v. Gaeta Pioneer Mining Company, Limited, 1907 S.C. 182, 44 S.L.R. 144; in re A Company, [1894] 2 Ch 349; Cunninghame v. Walkinshaw Oil Company Limited, 1886, 14 R. 87, 24 S.L.R. 66; in re London & Paris Banking Corporation, 1874, L.R., 19 Eq. 444; re The Brighton Club and Norfolk Hotel Company, Limited, 1865, 35 Beav. 204; in re King's Cross Industrial Dwellings Company, 1870, L.R., 11 Eq. 149; re The Catholic Publishing and Bookselling Company, Limited, 1864, 2 De G. J. & S. 116; Bowes v. Directors, &c., of the Hope Life Insurance and Guarantee Company, 1865, 11 H.L. Cas. 389; in re Great Britain Mutual Life Assurance Society, 1880, 16 Ch. D. 246; in re Imperial Guardian Society, 1869, 9 Eq. 447.

Argued for the respondents—The petition should be dismissed as incompetent. Such a petition was a form of diligence to obtain satisfaction of a liquid debt. Here the debt was illiquid; payment had not been demanded from the respondents; they had no knowledge of the petitioners as creditors until the present petition was presented.

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The contract upon which they claimed was not in their favour. The alleged debt was an illiquid claim for damage, for which in an ordinary action decree could not be given de piano. The petitioners' title depended on whether there was a legal contract and that depended upon whether they were entitled to sell under the Defence of the Realm Regulations. The offer of a composition was subject to the reservation that all claims should be examined. If that had been done many of the claims might have been cut down, and since that offer the whole circumstances might have changed. Brightman & Company, Limited v. Tate, 1919, 35 T.L.R. 209; Sykes v. Bridges, Routh, & Company, 1919, 35 T.L.R. 464, were referred to.