SET-OFF BY CONTRIBUTORIES.

The Supreme Court of Canada has decided in the Maritime Bank v. Troop (a) that when calls are made under the Winding-up Act (b) upon a contributory of a Bank in New Brunswick, in respect of the double liability imposed by the Bank Act (c), a debt due to the contributory by the Bank cannot be set off against the calls.

By inserting the word "company" instead of the word "bank" in the headnote of the report, and by omitting to insert the words "within the Province of New Brunswick " after the words "winding-up proceedings," the reporter has extended the application of the judgment beyond its legitimate limits.

A construction of the Winding-up Act adopted in the case of a bank does not necessarily apply to any other kind of company, nor does a case decided in part upon New Brunswick law necessarily govern a similar case in another Province.

The Dominion Winding-up Act applies not only to banks and other companies incorporated under Dominion laws, but also to companies of provincial origin (d). Before the Maritime Bank v. Troop was decided, contributories in the Central Bank liquidation obtained, by means of the set-off allowed by the Master in Ordinary, a reduction to the extent of over $200,000, so that the right involved is of a very substantial nature.

The judgment of Mr. Justice Strong, concurred in by Taschereau and Gwynne, JJ., may be summarized as follows:

(a) 16 S. C. R. 456.

(b) R. S. C. cap. 129.

(c) R. S. C. cap. 120.

(d) Re Union Fire Ins. Co., 17 S. C. R. 265.

The debt due by a shareholder in respect of a call under the double liability clause is, in equity and in substance, a debt due, not to the bank, but to the creditors of the bank, whilst the debt which the shareholder seeks to set off, is a debt due, not from the creditors of the bank, but from the banking corporation itself; consequently they are not "mutual debts," which alone, under the law of New Brunswick (e) and by universal principle are the subjects of set-off.

In this opinion Mr. Justice Patterson also agrees, and he furthermore thinks that the provisions of the Winding-up Act respecting set-off have no reference to calls made upon contributories after the commencement of the winding up.

We thus learn that the law of set-off, which as we shall see is by the express provision of the Act" to apply to all proceedings for the recovery of debts due or accruing due to the company" cannot be invoked by contributories in New Brunswick, although their liability under the Act is "deemed a debt due to the company; " but neither of the learned Judges informs us in whose favour the law may be invoked.

The law of set-off, as administered in Ontario, is purely a creature of statute, unknown to the common law, and was introduced in England in the reign of George II (ƒ). Under these statutes "mutual debts" were allowed to be set off. In other words, there had to be a debt due from the plaintiff to the defendant in order to invoke a set-off. But this hard and fast rule was found to be not elastic enough for modern requirements, and accordingly, under the English bankruptcy laws, a debtor to the estate was and is allowed to set off against the claim of the assignee, any debt due from the bankrupt to the debtor. The debts were not "mutual" in the sense used by Mr. Justice Strong, for the assignee was not indebted to the party claiming the set-off.

A similar right prevailed in winding up proceedings under the English Joint Stock Companies Act, 1856.

(e) Con. Stat. N.B. cap. 37, sec. 71.

(ƒ) 2 George II. cap. 22, sec. 13, and 8 George II. cap. 24, secs. 4, 5.

This being the state of affairs in England when the Companies Act, 1862, was being drawn, the question naturally arose whether, in the winding up of companies, this right of set-off should or should not be retained.

The framers of the Act appear to have purposely abstained from making any clear provision on the subject, for the question was debated in Court after Court for sixteen years before it was finally decided against the right of set-off in all cases except in the case of contributories in unlimited companies.

The leading decisions and the grounds on which they were based are referred to by Mr. Justice Patterson in the case under review, and they give us a rather striking instance of judge-made law.

But as we think they establish, by implication, an opposite conclusion to that arrived at by the Supreme Court, and as they form necessary links in the chain of reasoning by which our Act must be interpreted, a brief reference to them will not be out of place.

Those who denied the right of set-off to contributories in companies relied mainly upon the 183rd section of the Companies Act, 1862, which is as follows:

"The property of the company shall be applied in satisfaction of its liabilities pari passu, and subject thereto, shall, unless it be otherwise provided by the regulations of the company, be distributed amongst the members according to their rights and interests in the company."

In Grissel's Case (g), where the winding up was under the supervision of the Court, Lord Chelmsford, in delivering judgment, said:

"To allow a set-off against the call would be contrary to the whole scope of the Act. In support of this view it will be sufficient to refer again to the 133rd section, as to satisfaction of the liabilities of the company pari passu."

But in the Brighton Arcade Co. v. Dowling (h), where the winding up was voluntary, the full Court of Common Pleas (g) I. R. 1 Ch. 528. (h) L. R. 3 C. P. 175.

held that Grissel's Case did not apply, and that set-off was allowable.

This decision seems to have been accepted as law for several years, until the question was re-opened in Re Whitehouse (i), which was also a case of voluntary winding up, and Jessel, M. R., felt himself at liberty to decide between the reasoning of Grissel's Case and that of the Brighton Arcade v. Dowling, and he followed the former.

The judgment in Re Whitehouse contains a valuable summary of the authorities, and in it we find what may perhaps have been the origin of the view taken by Mr. Justice Strong in the Maritime Bank v. Troop, that want of mutuality prevented the contributory's debt from being set off against the liquidators' claim.

In delivering judgment the learned Master of the Rolls said (p. 601):

"It appears to me there is no possible distinction when you look at those two sections between the duty of the Court, when applied to by a voluntary liquidator, and the duty of the Court when applied to by an official liquidator. If there is no debt due from the contributory to the company, how can he set off a debt due from the company to him against the contribution? It is a contribution to the assets enforceable by the liquidator, and not at all a debt." He then proceeds to shew that a strong argument against set-off was to be found by implication in the 101st section of the Companies Act, which provided :

"The Court may, at any time after making an order for winding up the company, make an order on any contributory for the time being settled on the list.

And it may, in making such order, when the company is not limited, allow to such contributory by way of set-off any moneys due to him or the estate which he represents from the company on any independent dealing or contract with the company, but not any moneys due to him as a member of the company in respect of any dividend or profit."

(i) L. R. 9 Ch. D. 595.

Commenting upon this provision the learned Judge says: "Therefore this section empowers the Court to direct payment of any debt of the company, and it may allow, where the Company is not limited, a set-off."

It is difficult to understand why the learned Master of the Rolls should have laid so much stress upon the fact that the set-off claimed by the contributory was not a debt due to him from the liquidator at all, when he admits that in the case of unlimited contributories a similar debt would be the proper subject of set-off.

What he doubtless means is that in the one case set-off is provided for by the statute, and that in the other it is

not.

This decision seems to have ended the struggle for set-off by contributories in limited companies under the English Act, and it was rendered four years before the passing of our first Winding-up Act (k).

The Canadian Parliament was then in this position. It wished to provide a general Winding-up Act suitable for all the Provinces of the Dominion.

It had, for a model, the English Companies Act, 1862, and the various decisions interpreting that Act, so that in all those respects in which the English Act commended itself its language could be adopted.

With respect to this question of set-off we note the following important departures from the English Act:

(1) The words pari passu, upon which such reliance was placed in England by those who denied the right of set-off, are omitted from the section of our statute, which is otherwise almost a transcript of section 133 of the English Act.

(2) The right of set-off is expressly introduced into our Act in the following provision:

"57. The law of set-off, as administered by the Courts, whether of law or equity, shall apply to all claims upon the estate of the company, and to all proceedings for the recovery of debts due or accruing due to the company at the commencement of the winding up, in the same manner and to the

(k) 45 Vict. cap. 23, now consolidated in R. S. C. cap. 129.