Scottish Court of Session Decisions

The Dundee Suburban Railway Company was incorporated by the Dundee Suburban Railway Act, which received the Royal Assent on 28th July 1884.

The Act contained, inter alia, the following clause:—“All costs, charges, and expenses of and incident to the preparing for, obtaining, and passing of this Act, or otherwise in relation thereto, shall be paid by the company.” With the exception of this section there was no authority in the Act for the expenditure of the company's funds except in the construction of the railway.

In January and May 1884 James Thomas Harris and Charles Stuart Blair, two of the promoters of the company, had lodged with the Court of Exchequer deposits amounting to £7799 and £1646, in accordance with the provisions of the Standing Orders of both Houses of Parliament and 9 and 10 Vict. cap. 20. The ultimate destination of these deposits was provided for, in a private Act obtained by the company in 1892, in the following terms:—“If the company do not, previously to the expiration of the period limited for the completion of the railway, complete the same and open it for the public conveyance of passengers, then, and in every such case, the deposit fund mentioned in section 50 of the Act of 1884 … shall, if a judicial factor has been appointed, or the company is insolvent, or the undertaking has been abandoned, be paid or transferred to such judicial factor or be applied in the discretion of the Court as part of the assets of the company, for the benefit of the creditors thereof, and, subject to such application, shall be repaid or re-transferred to the depositors.”

Prior to the incorporation of the company, negotiations had been entered into between D. W. Paterson, S.S.C., solicitor to the promoters, and Mr S. L. Mason, formerly manager of the North British Railway Company. As a result of these negotiations Mr Mason wrote to Mr Paterson the following letter, dated 21st February 1884:—“Dear Sir—The following are the terms upon which I have, at your request, been acting and am in future to act in professionally advising and aiding in the promotion of the above railway.

“As a retaining fee and as a contribution towards my travelling and personal and other expenses, I am to be paid on the 28th February 1884 the sum of fifty guineas. If the Bill be thrown out of Parliament I am to receive no further remuneration. If it pass, my fee is to be two per cent. upon the capital authorised by the Act.

I am to be general manager and adviser to the promoters, giving them the benefit of any technical and general knowledge I possess; aiding them in carrying the Bill, and in negotiating with the neighbouring Railway Companies.

You are to procure the adoption of this arrangement by the promoters, the intention being to bind the Company when incorporated and not the promoters as individuals. But the promoters, or some of them to be now named, are to be bound to deliver to me within four weeks after the Act receives the Royal Assent an agreement

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by the Company under seal adopting these terms.

If the Bill be withdrawn by agreement, compromise, or any other arrangement or understanding with the Caledonian, North British, or the Dundee and Arbroath Joint Committee, or with any one or combination of them, the payment of my fee of two per cent. is to be part of the arrangement.

Please write me confirming the above terms, and procure adoption of them by the parties or promoters who by arrangement with you are responsible for fees and outlays.”

On 23rd February 1884 Mr Paterson replied comfirming this arrangement.

At the first meeting of the directors of the company, held on 27th October 1884, an agreement between the company and Mr Mason was submitted and approved of, and Colonel Blair and Mr Couper, two of the directors, were authorised to sign it for the company. By this agreement, which was duly executed by Colonel Blair and Mr Couper, the company acknowledged that they were justly due and addebted to Mr Mason in the sum of £5000 “for professional services and assistance given by him in the promotion, preparation for, obtaining, and passing of the said Act, and for professionally advising and aiding in reference thereto, and to the undertaking thereby authorised, and in matters otherwise incident to the preparation for the obtaining and passing of the said Act, and which professional advice and services were secured and obtained for us, the said railway company, and were given by the said Samuel Lack Mason, in pursuance of an arrangement set forth in a letter dated the 21st day of February 1884 from the said Samuel Lack Mason to Duncan Wilkie Paterson, solicitor in Edinburgh, who acted on behalf of the parties afterwards incorporated as a company by the said Act.”

In 1886 Mr Mason brought an action against the company concluding for payment of the sum of £5000 with interest. On 18th June 1886 decree in absence was pronounced in this action. Mr Mason extracted the decree and charged the company upon it, but took no further steps to obtain payment, and died on 2nd March 1889.

The period for making the railway, fixed at five years by the Act obtained in 1884, was extended by subsequent private Acts, but no railway ever was built, and in 1888 the estate and effects of the company were sequestrated, and George Todd Chiene, C.A., Edinburgh, was appointed judicial factor.

The present action was initiated by a petition presented by Mrs Mason and others (Mr Mason's trustees) and William Gregory, C.E., another creditor of the company. The petition set forth the facts stated above, and prayed the Court, inter alia, “to grant warrant to authorise, decern, and ordain the Bank of Scotland to pay to the petitioners, or to the said George Todd Chiene as judicial factor foresaid, or to such other person or persons as your Lordship may appoint, the said statutory deposit fund, being the contents of the two consignation receipts above mentioned, amounting to £7799, 19s. and £1646, 5s. respectively, with all interest which has accrued or may accrue thereon; and to ordain the Queen's and Lord Treasurer's Remembrancer to deliver up the said deposit-receipts, so that said payment may be made; and in any event, to direct the said deposit fund to be applied as part of the assets of the said Railway Company—firstly, to and for the benefit pari passu of the petitioners as creditors of the said company; secondly, to and for the benefit of any other creditors of the said company; and thirdly and generally, to and for the purposes set forth in the Dundee Suburban Railway Act 1892, section 4, or in any other special Act or general Act dealing with parliamentary or statutory deposits.”

A claim was lodged in this process by Mason's trustees, who claimed to be ranked and preferred to the amount of £5009, being the sum decerned for in 1886, with expenses.

Answers and claims were lodged for the judicial factor and for other creditors of the company.

Certain claimants objected to the claim for Mason's trustees on the ground, inter alia, that the agreement above referred to was ultra vires.

After sundry procedure, in the course of which the Lord Ordinary ( Stormonth Darling) found that the undertaking had been abandoned within the meaning of the section of the Act of 1892 quoted above, and therefore that the deposited funds fell to be applied as part of the assets of the company for the benefit of its creditors, the Lord Ordinary allowed a proof with reference to the claim for Mr Mason's trustees.

Proof was accordingly led. The following excerpt from the evidence of Mr Drummond, S.S.C. explains Mr Mason's professional position:—“Mr Mason died on 2nd March 1889. He was at one time general manager of the North British Railway Company, having been appointed about 1868. I got to know him soon after his appointment. He remained general manager of the company till he retired in 1874. Previous to holding that appointment he had been in the service of the Great Northern Railway Company, and he had brothers who also held high positions in English railway companies. I know that he had very large experience in connection with parliamentary committee work and railway matters. After he left the Great Northern Company's service he carried on business as a professional expert in railway matters, not merely with regard to bills for constructing lines, but bills affecting railway policy, such as amalgamation bills, running powers, and that class of questions. He had an office in London and another in Leith for the purpose of carrying on his business. That is a well-recognised occupation; most solicitors could not move a step without such an adviser.” …

On 3rd December 1902 the Lord Ordinary pronounced an interlocutor by which he

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repelled the claim for Mr Mason's trustees.

Opinion.—[After dealing with a claim for another creditor]—“Now I pass to the claim for Mason's trustees, against which the same technical objections have been urged as against the claim of Mr Gregory. There are some minor differences with regard to the date of the service of the summons; and there is also this difference, making the case less favourable for Mason's trustees, that the decree was a decree in absence instead of being a decree in foro. But these do not seem to me to affect the technical objections themselves, and therefore, if there had been nothing else against Mr Mason's decree, I should have held these objections insufficient to impugn it. But then there is a much more serious objection to the decree in absence for £5000, which Mr Mason obtained on 18th June 1886, and that objection is that it was altogether ultra vires of this company, either of its directors or its shareholders, to make the agreement which they did with Mr Mason for the payment of that sum. It was ultra vires for this reason, that the special Act allows two purposes, and two purposes only, to which the funds of this company could be devoted. One was the construction of the line, the other was the payment of the costs, charges, and expenses incurred in obtaining the Special Act. No payment which was not made for one or other of these two purposes was within the competency of the company, and any shareholder of the company might at any time have disputed the payment upon that ground. Well now, the objection here is urged by a creditor of the company, and it is urged no doubt against a decree of this Court, but we are practically in the same position as if that creditor had brought a reduction, because this is a process for the distribution of the only remaining asset of the company, and I hold it to be perfectly competent for any creditor to attack a decree in absence upon a radical ground of this kind without the necessity of formally bringing a reduction. The mere fact that this company did not themselves defend the action which was brought against them is nothing to the purpose, because if they entered into an illegal agreement it was quite natural that they should forbear from stating a defence to an action founded upon that agreement. I hold myself therefore free to consider the matter as if there had been no decree in absence at all.

Mr Dewar for the claimants has quite candidly, and I think quite properly, admitted that the case of Mann v. Edinburgh Northern Tramways Company, House of Lords, 20 R. 7, following upon a number of cases there cited, is conclusive against him, unless he can show that this agreement to pay Mr Mason £5000 fell within the clause of the Act authorising payment of the costs of obtaining it. I therefore do not require to elaborate the principle of law upon which the case proceeded, but I think it is shortly and completely contained in a single sentence of Lord Watson's opinion at page 12, where he says that ‘it is beyond the power either of promoters or of directors or of shareholders to apply the monies of the company which are devoted by statute to special purposes to any purpose which is not sanctioned by the provisions of the Act of Incorporation.’ Well now, the agreement upon which this decree in absence was founded acknowledges on the part of the railway company that they are justly due and indebted to Samuel Lack Mason in the sum of £5000 for professional services and assistance given by him in the promotion, preparation for, obtaining, and passing of the said Act, and for professionally advising and aiding in regard thereto, and to the undertaking thereby authorised. It appears that Mr Mason was what is called a ‘railway expert,’ and that he advised the promoters with regard to their whole proceedings previous to obtaining the Act, that he used such influence as he possessed in obtaining the support of the two leading railway companies in Scotland, and that he negotiated an agreement with these companies which is scheduled to that Act. I do not doubt therefore that Mr Mason did render services to this company which were of some value, and that these services, if stated in the proper way, might have come within the definition of costs incident to the passing of the Act. But the question is whether the awarding of a lump sum for services of that kind is within the power of the directors. The security which a shareholder has is that he knows that his money can only be devoted either to the making of the line or to the payment of the costs of the Act, subject of course to taxation by a public officer; but I never heard it suggested that it would be within the power of the directors to make an agreement with, let us say, their Parliamentary solicitor, to carry through their Act for a lump sum, or that they would be entitled to say to anybody—‘We will give you £5000 if you will undertake the whole management of this business.’ For that sum there might, I do not doubt, be valuable services rendered, but it would be impossible to check them. It would be impossible to say how much really represented work done and how much represented a mere bonus to the person receiving it. Accordingly, as it seems to me, it is out of the question to maintain that a payment of this kind, not subject to either taxation or audit, because not broken up into its component parts, can fall within the costs section of the Act. This very matter was dealt with by Vice-Chancellor Kindersley in the case of Lord Shrewsbury v. North Staffordshire Railway Company, (1865), L.R., 1 Eq. at page 619. I there find that the learned Vice-Chancellor says, dealing with a lump sum of £20,000—‘It seems to me quite impossible to put that construction on the 65th section. The effect of so doing would be that every sum of money, for any purpose whatever, that the promoters might think fit to promise (however unreasonable or unrighteous such promise) in order to get their scheme passed through Parliament, would come

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within the meaning of expenses incurred in obtaining the Act, or expenses incident thereto.’ Following the same line of thought, Lord Ashbourne, in the case of the Northern Tramways Company, says—‘The appellants insist on the validity of an agreement under which they were to receive £17,000 for the costs, charges, expenses, and payments therein referred to. This sum was to be given as a bulk sum, not subject to review, account, or audit.’ It seems to me that this case is in precisely the same position, with the single exception, unfavourable to the present claimants, that the recipients of the £17,000 would be entitled to receive credit for any costs, charges, and expenses properly audited, which they could show that they had paid to other people. But here it is impossible to put any figure on the services rendered by Mr Mason. Whether these services were worth £5000 or £500, no one can possibly say. From the form of the agreement he must either get the whole sum or none at all. And accordingly it seems to me out of the question to say that he is in the same position as if he had followed the proper course by sending in his professional charges for work done in connection with obtaining the Act for this railway. Therefore it seems to me that his trustees have failed to show that he is a creditor of the company, and that their claim must be repelled.”

Mason's trustees reclaimed, and argued—(1) The sum claimed formed part of the costs, charges, and expenses incident to preparing for and obtaining the company's Act, and was therefore an expenditure which the directors were justified in incurring. A payment for professional services did not become ultra vires because it was paid in a lump sum. The evidence showed that Mr Mason held a recognised position, was able to render important services, and had in fact done necessary work. The case was unlike Mann v. Edinburgh Northern Tramways Company, June 26, 1891, 18 R. 1140, 28 S.L.R. 828, affd. November 29, 1892, 20 R. (H.L.) 7, 30 S.L.R. 140; and Caledonian and Dumbartonshire Railway Company v. Magistrates of Helensburgh, June 19, 1856, 2 Macq. 391. In these cases there was an attempt to devote the money of the companies to payments for which no services had been rendered. It would not have been ultra vires to arrange with an engineer for a lump payment conditional on the Act being obtained. (2) The reclaimers were the holders of a decree, which though in absence had become equivalent to a decree in foro under the provisions of the Court of Session Act 1868, section 24. The validity of that decree could not be questioned except in a reduction.

Argued for the respondents—The sum sued for was claimed as due under an obligation which was ultra vires of the company. The money of the company could only be applied to the purposes sanctioned by the Act, viz., constructing the railway, and paying preliminary expenses. The £5000 sued for was not a proper expense of procuring the private Act, it was really a payment for influence. That was ultra vires— Earl of Shrewsbury v. North Staffordshire Railway Company, 1865, L.R., 1 Eq. 593. (2) The decree obtained was invalid, because the company had no right to submit to a decree in absence for an ultra vires debt. An action of reduction was not necessary, because the present process was really a congeries of actions, analogous to a multiplepoinding.

At advising—