Scottish Court of Session Decisions

The “Edinburgh Oil Gas Light Company” was established by the act 5 Geo. IV. c. 76, and it was thereby declared (§ 1.) that by that name it “shall and may sue or be sued.” It was provided by the 45th section that no person should be qualified to be elected or to serve as a director or member of the committee of management of the company, who should be “a shareholder or proprietor in any other gas company in Edinburgh, or within ten miles thereof.” The 57th section provided for calls being made upon proprietors by the committee of management, and in the event of any person neglecting or refusing to pay the calls so to be made, the committee were empowered to sue for and recover the same. By the following section it was enacted, “that in all actions brought by the said company against any proprietor or proprietors of any share or shares in the said undertaking, to recover any sum or sums of money due and payable to the said company for or by reason of any call or calls made by virtue of this act, it shall be sufficient for the said company to declare and allege, that the defender or defenders, being a proprietor or proprietors of such or so many share or shares in the said undertaking, is or are indebted to the said company in such sum or sums of money as the call or calls in arrear shall amount to, for such and so many call or calls of such and so many sum or sums of money upon such or so many share or shares belonging to the said defender or defenders (as the case may happen to be), whereby an action hath accrued to the said company by virtue of this act, without setting forth the special matter; and in such action it shall only be necessary to prove that the defender or defenders at the time of making such call or calls was or were a proprietor or proprietors of some share or shares in the said undertaking, and such call or calls was or were in fact made, and that such notice thereof was given as is directed by this act.”

At the commencement of the undertaking, the late Mr Clyne, S. S. C., became a proprietor of fifty-two shares of the capital stock. In the subsequent years, various calls were made upon the proprietors. The seventh call of 10 per cent upon the capital stock was declared at a meeting of the committee of management in July, 1827, and made payable in August thereafter; and the eighth call of £2, 2s. per share was declared at a meeting of the committee on 16th June, 1829, and made payable on 15th July thereafter. The two last calls were not paid by Mr Clyne. Previous to their dates, the Oil Gas Company, while continuing to exist as a company, had found it necessary to discontinue the manufacture of gas. After various schemes had been proposed for altering their constitution, they entered into a treaty with the Edinburgh Coal Gas Company, which resulted in an agreement (8th March, 1828), “that the Oil Gas Company should make over to the Coal Gas Company their whole property of every description, real and personal, excepting the sums due for calls made or to be made upon their proprietors and accounts due by their customers, they becoming bound to dissolve their company, when required by the Coal Gas Company to do so;—in consideration whereof the Coal Gas Company should admit the Oil Gas Company as proprietors of 1000 shares of the Coal Gas Company to be distributed among the proprietors of the Oil Gas Company in proportion to the shares therein held by them.”

At a meeting of the proprietors of the Oil Gas Company on 27th March, 1828, called by advertisement in the newspapers, at which Clyne was not present, it was unanimously resolved to confirm the above agreement, and to remit to the directors with full powers to take all measures and sign all deeds necessary for carrying the same into execution. The agreement having accordingly been formally concluded, at Whitsunday 1828 the Coal Gas Company commenced supplying the customers of the Oil Gas Company with coal gas.

At a general committee meeting of the Oil Gas Company directors on 4th November, 1835, proceedings were directed to be taken against the trustees of Mr Clyne, who had in the interim died, to obtain payment of the sum unpaid on the two last calls upon the proprietors.

The Oil Gas Company accordingly, designating themselves as “The Edinburgh Oil Gas Light Company, incorporated by Act of Parliament 5 Geo. IV. c. 76,” raised action against the trustees, setting forth that the seventh and eighth calls above-mentioned had been made “in terms of the statute,” but had never been paid by Clyne, and concluding for payment of the amount thereof.

At the date of raising this action, a process at the instance of the trustees against the company for repayment of the amount of instalments formerly paid up by Clyne was in dependence in the First Division of the Court, having been remitted from the House of Lords.

In defence against the present action the trustees maintained, inter alia;

1. The process has been incompetently brought in name of the company, instead of the committee of directors.

2. The rights and privileges of the directors, by whom the action is alleged to have been authorized, ceased by the discontinuance of the course of trade contemplated by the statute, and they were disqualified from enforcing the calls libelled on by holding shares in a coal gas company.

3. The action has been raised exclusively under the statute, and looking to the circumstances of the case with relation to the provisions of the statute, the pursuers are not entitled to recover the sums concluded for.

The Lord Ordinary repelled the defences, and decerned in terms of the libel with expenses, adding to his interlocutor the subjoined note. ^*

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¹“There were only two of the preliminary defences insisted on at the debate,—one, that the action was incompetently brought in the name of the Oil Gas Company, instead of that of the committee of directors; and the other, that the calls, to enforce which it was brought, or at least one of them, wag incompetently made by directors who were disqualified by holding shares in a Coal Gas Company.

“To the first, it seems a sufficient answer that the statute expressly provides that the Company shall ‘sue and be sued’ in that very name. The directors are, indeed, also authorized to sue for past due calls; but it is thought to be clear that they could only sue correctly in name of the Company, and it is in this way accordingly that the present action originated, as it appears from the recorded minutes of 4th November, 1835, that the resolution and authority to institute it was given at a meeting of the general committee of directors, of that date,—the summons itself being dated and signeted on the 10th of that month.

“To the other preliminary defence there are two answers, either of which appears to be conclusive. 1st, That the clause prohibiting a director from holding shares in a coal gas company was evidently introduced for the protection of the general body of partners, who were assumed to hold no such shares, and to prevent the possibility of their interests, as manufacturers of oil gas, being sacrificed to that of a rival manufactory, and that it necessarily ceased to be operative, from the moment the manufacture of oil gas was altogether abandoned, and the company itself had sold or exchanged all their property for coal gas shares. The second answer is, that at the date even of the last call, no one director had actually become the holder of any coal gas share, the whole being still retained in the hands of the company itself, and no provision made till afterwards for distributing them among such of the partners as might wish to receive them, and make the necessary application.

“Another defence was slightly noticed, which seemed also to be of a preliminary nature, viz., that the action in the company's name was incompetent, because the company had been dissolved several years before it was raised. But to this also there are two conclusive answers, first, That even if the company had been formally dissolved, or come to a termination as to future transactions, it must still have subsisted for the purpose of winding up its affairs, and particularly for ingathering past due calls from its members, for the purpose of paying its debts; and, second, That in a strict and legal sense it was not actually dissolved, but had merely discontinued business, and disposed of its stock on finding the concern attended with nothing but loss. There is accordingly no act, advertisement, or declaration of dissolution up to the present hour; but, on the contrary, the statutory annual meetings have all along been regularly called, and the necessary office-bearers appointed, by whom many most important transactions for collecting the funds and liquidating the debts, have been recently entered into in the most formal manner, as officers of an existing corporation. Neither the statute nor any resolution of the body has limited the duration of the company to any definite period, and therefore it appears to the Lord Ordinary, that though now in a state of abeyance, its corporate capacity and privileges are still substantially existing, and might be resumed, if any circumstances should occur which made it advantageous to enter again upon the exercise of them.

“Upon the merits generally, the judgment rests upon this plain principle, that it is in the power of a majority of such a company, especially by an unanimous vote passed at a general meeting regularly assembled, to discontinue a business which they conceive to be ruinous and hopeless, and to dispose of their property in any way which they may think most for their advantage; and that no individual partner, neglecting to attend such meeting, or to take any steps to interpel or prevent the execution of such resolutions by legal authority, can afterwards be entitled to maintain that they were null or illegal, for want of his positive concurrence, and still less to resist payment of past, due calls, or of any other liquid debts due by him to the company, on pretence of such illegality, or on the ground of any illiquid claim of damage or accounting which he may allege to have arisen to him from such proceedings.

“Now this is truly, and in substance, all that has been done in the present case. Very soon after the formation of the company, it became apparent to all its members (with the single exception (perhaps) of Mr Clyne, the constituent of the defenders) that the manufacture of oil gas was, and must necessarily be, a losing concern; and after various unsuccessful attempts to get rid of the restriction in the statute which confined them to that manufacture exclusively, they came to the resolution entirely to abandon it, as at Whitsunday 1828, and to dispose of their stock and premises at that term to the Coal Gas Company. These resolutions, and the state of affairs which led to them, had been fully explained and discussed at various general meetings, at one of which, at least, the late Mr Clyne was present; and at last a special general meeting was called, in terms of the statute, by public advertisements, and met on the 27th March 1828, when the above resolution was unanimously adopted, and Mr Clyne and all the absent members informed of it by circular letters, addressed and sent to them by the clerk on the 1st of April thereafter. The defenders do not deny that such an intimation was made to Mr Clyne, and only do not admit that his family was afterwards supplied with coal gas, instead of oil gas, from the premises of the pursuers. He took no protest, however, brought no action, and applied for no interdict, to prevent the completion of the transaction. It was accordingly carried into full execution at Whitsunday thereafter, and recognised and acted upon at two general meetings thereafter, without the slightest hint of disapprobation from Mr Clyne or any other person, till, after receiving notice of the last of the calls now pursued for, he thought fit, in October, 1829, to raise an action, concluding for a very large sum of money, as what he said would (or might) have been the worth of his shares, but for the misconduct of the pursuers in the above and other particulars. The Lord Ordinary gives no opinion on the merits of this claim of damages or accounting, which has now been in dependence for upwards of seven years, and is not yet decided. But; for the present purpose, it is enough to observe, 1st, That it is confessedly illiquid; and, 2 d, That the defenders themselves have all along declined founding upon it as a set-off against the present action; and accordingly have not only made no motion for having the cases conjoined, but have, on this record, complained of the pursuers for taking any notice of that other action, which they say is altogether ‘distinct from the present, and has no reference whatever to it. The principle upon which the Lord Ordinary has, in those circumstances, decerned for payment of the calls in dispute, seems well illustrated in the cases of the Dairy Company against Mollison, 30th May, 1833 (11 Shaw, 669), and the same company against Campbell, 4th February, 1834, (12 S., 394).”

“The defenders, indeed, seemed at last pretty much to admit, that if the business had been finally given up by an unanimous vote of a general meeting, and the stock and premises publicly sold for money, without any interpellation on the part of Mr Clyne or others, it would have been difficult for them to have resisted the present claim, on the ground that such proceedings were illegal, and unwarranted by the statute of incorporation. But they say the premises were not set up to public auction or sold for money at all, but were privately transferred to the Coal Gas Company, in consideration of a corresponding transfer of 1000 shares in the stock of that Company. The first answer to this is, that even if these things were irregular or improper, still, having been sanctioned by an unanimous vote of a general meeting, and carried into complete effect without interpellation from any quarter, the only remedy would be an action of damages (such as has been actually raised), and not by refusing to pay up a liquid debt, constituted by a regular call for a balance of subscribed stock from a partner. But even if the propriety of the transaction could be legally considered in this action, the Lord Ordinary is satisfied that the pursuers would be under no difficulty in justifying it. Their stock and premises consisted entirely in apparatus for the manufacture of gas—retorts, receivers, and condensers, pipes for its conveyance under the ground, and gasometers at the dwellings of the consumers—articles, in short, for which there could be no competition; and, in substance, no purchaser, except another Gas Company. There was but one such Company, however, in the place, and therefore it seems obvious that the Oil Company acted quite properly and judiciously, when they omitted the idle formality of a public auction, and made the best bargain they could with the only party to whom their property could be of any value. And as to their taking payment in coal-gas shares, rather than in sterling money, there might have been more plausibility in the objection, if they had now been insisting on paying the value of Mr Clyne's shares in that currency, or on the defenders becoming partners of the Coal Gas Company against their will. It will be observed, however, that this is by no means the case. They have offered all along to pay that value in money, and how much money they ought to pay on that account is the very question at issue in the separate process still in dependence at the instance of the defenders, and which they deprecate all idea of mixing up with the present action. The reason why the purchasers preferred paying in shares to coming down with the value in money is obvious enough; and it is not possible to doubt that the pursuers' only reason for agreeing to this was, that they considered the market value of these shares at the time as a fair price for their property, or at all events, as a better price than they had any hope of getting in any other shape. But, at all events, if there was any risk in taking that price in shares instead of money, they have never pretended to shift that risk from themselves to the defenders. They have tendered the defenders the market-price of the coal shares, for which Mr Clyne was entitled to have applied in 1839. The present market-price is understood to be considerably higher, and the defenders may make good, if they can, in their own action, their claim to the subsequent rise. But in the mean-time they must pay up the share of stock which Mr Clyne became bound to pay, by subscribing the contract of the Oil Gas Company, and by and through his right to which alone he can ever have right to any portion of the value obtained for the whole stock, when sold by an unanimous and unchallenged vote of the whole partners of that Company.”

The trustees reclaimed.