Scottish Court of Session Decisions

Alexander Glen, proprietor of £500 Caledonian Railway Guaranteed Stock, presented this note of suspension and interdict against the Company and Directors on 27th March 1868, craving the Court (1) “to interdict, prohibit, and discharge the respondents from declaring or paying any dividend or dividends on any of the ordinary stocks or shares of the said Caledonian Railway Company, until the sum of £968,920, 10s. 9d., being the amount whereby the capital of the said Company has been reduced or encroached upon, shall be repaid or replaced out of the nett profits earned by the said Company, after providing for the payment of the interest on debentures and other debts of the said Company and the dividends on the guaranteed and preference stocks and shares of the said Company; (2) to interdict, prohibit, and discharge the respondents from declaring or paying any dividend or dividends on the ordinary stocks or shares of the said Caledonian Railway Company for the half-year ending 31st January 1868, and from carrying any sum to the credit of the revenue of the half-year ending 31st July 1868; (3) to interdict, prohibit, and discharge the respondents from declaring or paying any dividend or dividends on any of the stocks or shares of the said Caledonian Railway Company, except out of the nett profits earned by said Company; (4) to interdict, prohibit, and discharge the respondents from applying the sums of money raised or to be raised, in virtue of the powers conferred by the Solway Junction Railway Act 1865, the Callander and Oban Railway Act 1865, and the Caledonian Railway (Forfarshire Works) Act 1867, or any part of said sums, in or towards payment of any dividend or dividends on the stocks or shares of the said Caledonian Railway Company, and from placing the said sums or any part thereof to revenue account, and from applying the said sums or any part thereof otherwise than for the purposes specified in the said several Acts respectively; and (5) to interdict, prohibit, and discharge the respondents from borrowing money on the security of the stock authorised to be issued by the said Acts or any of them, or in any other way except on mortgages granted in terms of the said Acts, and the other Acts of the said Company, and the Acts incorporated therewith, or any of them; or to do otherwise in the premises as to your Lordships shall seem proper.”

The half-yearly meeting of the Company, at which it was proposed to declare a dividend, had previously been called for 31st March. On 28th March the Lord Ordinary on the Bills ( Barcaple) pronounced this interlocutor:—

“The Lord Ordinary having heard parties' procurators on the caveat lodged by the respondents, and considered the note of suspension and interdict, with the productions—Appoints the respondents to give in answers to the note of suspension and interdict within the next ten days; meantime grants interdict against the respondents from declaring or paying any dividend or dividends on the ordinary stocks or shares of the Caledonian Railway Company for the half-year ending 31st January 1868, and from carrying any sum to the credit of the revenue of the half-year ending 31st July 1868; and also grants interdict against the respondents from applying the sums of money raised or to be raised in virtue of the powers conferred by the Solway Junction Railway Act 1865, the Callander and Oban Railway Act 1865, and the Caledonian Railway (Forfarshire) Works Act 1867, or any part of said sums in or towards payment of any dividend or dividends on the stocks or shares of the said Caledonian Railway Company, and from placing the said sums, or any part thereof, to revenue account, and from applying the said sums, or any part thereof, otherwise than for the purposes specified in the said several Acts respectively, and to be intimated.

Note.—The complainer did not press for interim interdict in terms of the first and third heads of the prayer of the note of suspension. It does not appear to the Lord Ordinary to be necessary or expedient to deal at present with the fifth head of the prayer, as regards interim interdict, while answers have not been given in. With regard to the second and third heads of the prayer, he thinks that the safest course is to give interim interdict, which will keep matters entire until parties can be fully heard after answers shall have been given in by the respondents.”

At the half-yearly meeting on 31st March, in consequence of this interdict, no dividend was declared, but an adjourned meeting was appointed to be held on 14th April. Answers were lodged; and thereafter, on 13th April, the Lord Ordinary on the Bills ( Ormidale) pronounced this interlocutor:—

“The Lord Ordinary having heard counsel for the parties, and considered the argument and proceedings—Passes the note, and recalls, hoc statu, the interdict formerly granted.

Note.—When the case was considered by Lord Barcaple, the answers for the respondents had not been lodged. It is not surprising, therefore, that, yielding so far to the very strong averments of the complainer, his Lordship should have granted the modified interdict which he did for the few days necessary to admit of the statements and pleas of the respondents, as well as of the complainer, being before the Court, especially as comparatively little or no injury or inconvenience could arise from such a course.

The respondents' case in answer to that of the complainer being now before the Court, and both parties having being fully heard, the Lord Ordinary has come to the conclusion, that while it is proper

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the note of suspension and interdict should be passed, in order to the trial and determination of the questions in dispute, there are no sufficient grounds for an immediate interdict. The complainer did not press for a more extended interdict than that granted by Lord Barcaple, but, for the reasons now to be adverted to, the Lord Ordinary has been unable to satisfy himself that any interdict at all should be granted at present.

It is not alleged by the complainer that the free earnings of the Caledonian Railway Company, during the half-year ending 31st January 1868, are not sufficient to pay the dividends declared and proposed to be paid for that half-year. And whatever may be the objections to which the allocation in former half-years of charges to capital and revenue is exposed, it is not alleged in the present note of suspension and interdict, and it was not stated in the argument which was addressed to the Lord Ordinary on behalf of the complainer, that the dividends declared, and proposed to be divided among the shareholders for the last half-year, and payment of which it was now the object of the complainer to prevent, were not in themselves composed of free earnings, fairly realised during that half-year, and that, dealing with them independently of alleged misappropriations in prior half-years, they are not properly divisible amongst the shareholders. Thus, in regard to the sum of £112,436, 9s. 3½d., referred to in articles 12 and 13 of the complainer's statement, and which appeared to be chiefly relied upon by him in argument as a misappropriation, it is clear, on his own showing, that if it is to be treated as a misappropriation at all, it was not made out of the last half-year's revenue of the company, but made so far back as July 1865, and, of course, out of earnings prior to that date. Accordingly, in both the 12th and 13th articles of his statement of facts, the complainer expressly says that the sum referred to was ‘a reduction of, or encroachment upon capital at 31st July 1865.’ And so, as regards the other encroachments upon capital, all of them not only being admitted by the complainer, but averred by him as the foundation of his case, to have been made, if made at all, not out of the revenue of the last half-year, but out of the revenue of the two-years ending 31st July 1867.

It was only, therefore, on the ground that the last and every future half-year's revenue, however fair and accurate in itself, must be retained and withheld from division among the shareholders, till all bygone misappropriations have been replaced, and the capital of the company re-adjusted, and recouped, that the demand of the complainer for immediate interdict was attempted to be supported. But while the Lord Ordinary is not to be understood as prejudging, or even expressing any opinion on the question thus raised, he cannot think he would be warranted in now—and in the summary way insisted on by the complainer, not only before the final statements of the parties have been recorded, but before any investigation has been or could be gone into—granting the interdict asked. The more especially does the Lord Ordinary think he would not be warranted in now granting any such interdict, seeing that there is no admission, but, on the contrary, a distinct denial by the respondents of the complainer's allegations of bygone misappropriations. They no doubt say. in the 13th article of their statement of facts, in reference to the sum of £112,436, 9s. 3½d., that part of it was chargeable to revenue and part to capital,” but the proportions are not mentioned; and, so far as the Lord Ordinary can see, or was informed at the debate, there are not at present before him materials for ascertaining them with anything like accuracy. Besides, it is not to be overlooked that, in the same 13th article of their statement, the respondents aver, that “Prior to 31st July 1865 greatly larger sums than those mentioned in this article had from time to time been charged against revenue which might with propriety have been debited to capital, and even after deducting the two sums of £112,436, 9s. 3½d. and £57,222, 9s. 3d. referred to in the resolutions of the general meeting of shareholders of 13th February from capital, the balance, if the whole accounts of the company from 1845 downwards were gone into and re-adjusted, would be greatly in favour of revenue.” Now, certainly it does not seem to be inequitable that if revenue had been encroached upon one year to the advantage of capital, that, to the extent of such enroachment, a deduction might be made in another year or half-year from capital, so as to place the latter on its proper footing; and even more clearly does it appear to be equitable, that if the past is to be gone back upon at all, with a view to the re-adjustment and correction of the capital and revenue accounts, and placing them on what might now be held to be strictly correct principles, such re-adjustment and correction ought to proceed with equal regard to the one account as the other; so that if capital is, on the one hand, to be recouped from revenue, when that is necessary, revenue must, on the other hand, when necessary, be recouped from capital. It is only in this way that justice could be done to all the interests involved. But it is obvious that no approximatinn even to such an adjustment and correction of accounts and interests could be gone into at present, and if so, it is thought there can be no sufficient ground for an immediate interdict.

“The only authority cited for the complainer in support of his demand for an immediate interdict was the case of Bloxam v. The Metropolitan Railway Company, 18 Law Times, p. 41, and 16 Weekly Reporter, p. 490; but when examined, that case does not appear to be in point, for there the interlocutory injunction, as it is called, which was granted, applied to misappropriations out of the then undivided half-years' earnings, leaving for determination at the ultimate hearing the misappropriations alleged to have been made out of former half-years' earnings, and which appear to have formed the subject of what may not inappropriately be termed the declaratory conclusions of the suit. The case of Bloxarn, therefore, if the Lord Ordinary be right in his view of it, is an authority favourable rather than adverse to the course he has adopted in the present instance. What may be the ultimate judgment in the present case, with or without the aid of a declaratory or other action, it is not for the Lord Ordinary to anticipate.

Although the Lord Ordinary has only as yet particularly alluded to the alleged misappropriation of the £112,436, 9s. 3½d., his observations apply with equal, and in some respects greater force, to every other misappropriation alleged by the complainer. All of them are denied by the respondents; and it is impossible at present to have the disputed facts relating to them cleared up, so as to enable the Lord Ordinary to form anything like a satisfactory opinion on the subject of them. Nor does he deem it necessary now to enter into any further explanation regarding them, for if he is right in

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his views touching the £112,436, 9s. 3½d., and if that alleged misappropriation does not afford ground sufficient for an immediate interdict, it is clear that none of the others can do so.

In regard, however, to what is called the premium account, which seems to stand in a somewhat peculiar position, the Lord Ordinary may observe that, whatever difficulty may ultimately be found to attend it, he does not think that at present any sufficient cause can be shown in connection with it for the interference of the Court as asked by the complainer. Not only are the parties at issue on material facts regarding this account, and the manner in which it has been dealt with in the past, but the prima facie aspect of the matter appears to be adverse rather than favourable to the complainer's contention. Thus, the committee of investigation, whose report is made by the complainer, in articles 8, 9, and 10 of his condescendence, the leading, if not the sole foundation of his case, unequivocally state (Report, No. 12 of process, p. 9) that they cannot concur in the objections suggested on the subject of the premium account by the two accountants employed to assist them, but, on the contrary, that they approve of the course which had been adopted by the Company, and recommend that it should not be departed from.

The only other point which occurs to the Lord Ordinary as requiring particular notice, is that arising out of the allegation of the complainer, and on which one branch of his prayer for interdict is founded, to the effect that the respondents intend to misapply the money raised, or to be raised by them, under their special acts relating to the Callander and Oban and other works referred to in article 17 of the complainer's statement. And in regard to this point, it may be sufficient to remark that there is no evidence of any such misapplication either made or intended; and it is not to be presumed, in the entire absence of anything like evidence, and in the face of their distinct denial, that the respondents intend to commit what would be an illegal act. Besides, it is important to keep in view that, while the sums which the respondents on the 5th of March last, authorised to be raised under the special acts in question, are not themselves in excess of the statutory powers, it is not alleged by the complainer that there had ever previously been raised any sums whatever under these acts. It therefore follows that if, as alleged by the complainer (stat. 18), and stated by the respondents (art. 17 of their statement), certain sums have been already advanced by them towards the formation of the works authorised to be constructed by the special Acts in question, they must have been paid by the respondents as advances out of other funds, and as the complainer does not allege that such advances were paid out of capital, the explanation of the respondents that they were paid out of revenue may, for the present at least, be taken as correct; and if so, it does not seem unreasonable to hold, at this stage of the litigation, that the sums raised or to be raised under the Company's resolutions of 5th March, may have been, and may be, legitimately applied to the replacement or recouping of the Company's revenue, to the extent of the sums previously advanced and expended out of it.

These are the leading considerations which appear to the Lord Ordinary to arise from this case in its present state, as bearing on the question whether the complainer is or is not entitled to an immediate interdict as asked by him. There may be various questions of more or less difficulty and importance to be yet determined by the Court; and, as already remarked, the Lord Ordinary is not to be understood, by anything he has now said, as prejudicing in any way their trial and ultimate decision. All he has done, or intended to do, is to explain, so far as he has considered it necessary, the reasons why he thinks he would not have been warranted in granting any immediate interdict. It is obvious that his granting such an interdict might, and probably would, give rise to great inconvenience, if not serious and irreparable injury, to the respondents, and the parties and interests represented by them; while, on the other hand, the non-granting of an interdict at present cannot possibly inconvenience the complainer, or occasion him any loss. He is only one out of about 8000 shareholders of the Caledonian Railway Company, and holds only £500 stock out of upwards of twenty millions. Not only is the stock he holds guaranteed, and therefore, in any reasonable view that can be taken of the position and prospects of the Caledonian Railway Company, perfectly safe, but the respondents have offered, in the 19th article of their statement of facts, to ‘find caution to the complainer for any loss and damage which he shall be able to instruct in consequence of the proceedings sought to be interdicted.’ The complainer, when asked through his counsel by the Lord Ordinary, if he desired that such caution should be found, declined saying that he did so—probably being quite satisfied, as he could scarcely fail to be, that it was altogether unnecessary. Although, therefore, the complainer may have a sufficient legal interest and title to insist in this note of suspension and interdict, and the Lord Ordinary does not say he has not, or that he is not actuated by proper motives, or has anything but a proper object in view, it is clear that his rights, interests, and objects, whatever they are, will, so far as fair and legitimate, be equally well served by the course which the Lord Ordinary has adopted, as by the course which he has been asked, but has refused to adopt.

The Lord Ordinary has only to add, that, in consequence of the importance of the questions, and the magnitude of the interests involved, as well as the great ability and zeal with which the respective views of the parties were maintained before him, he has thought it right to enter into a fuller exposition of the grounds on which he has proceeded in giving judgment, than he would otherwise probably have done.”

Glen reclaimed, and also presented a note craving the Lord Ordinary to prohibit the Clerk of the Bills from issuing a certificate of the recall of the interdict. The Lord Ordinary, on 16th April, refused this note, and allowed the certificate to be issued in usual form, adding this note to his interlocutor:—

“It appears to the Lord Ordinary that to grant the prayer of the complainer's note would be quite inconsistent with the views he entertains of this case, and on which he proceeded in recalling the interdict. Neither in the note of suspension and interdict nor in his present note does the complainer say that his individual interests as the holder of a small portion of guaranteed stock can suffer or be exposed to the slighest risk by payment of the dividend in question on the ordinary stock. It is not even stated by the complainer that in the event of its being ultimately held, after the necessary investigation, that there has been in bygone

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years a misappropriation of funds which must be replaced, the opportunity and means of accomplishing this will be cut off unless the immediate interdict now asked by him is granted. Indeed, having regard to the case of the National Exchange Company of Glasgow v. The Glasgow, Kilmarnock, and Ardrossan Railway Company, February 10, 1849, 11 D. 571, it may well be questioned whether a suspension and interdict is a suitable or competent process for obtaining redress against misappropriation. In that case, the Lord Justice-Clerk ( Hope) observed—‘We are now beginning entirely to lose sight of the proper object of the old Scotch remedy of interdict. It cannot be converted into a count and reckoning or a reduction of the acts of separate bodies. It is not the proper process to seek redress against misapplication of funds, which it is said the parties discovered after having become shareholders. What sort of a process would this become if shareholders were to be entitled to go over all the expenditure of the company, and to show that there were improper and incompetent items of discharge? If there is redress required, that is open to them in a count and reckoning.’ So accordingly, as the Lord Ordinary indicated in the explanatory note to his interlocutor recalling the interdict, he is inclined to think that in the present instance some additional or other form of process will not unlikely be found to be necessary in order to have a ratification of the past transactions and accounts of the company carried into effect, should that be desired and insisted for by any one having the requisite title and interest.

In the meantime, the Lord Ordinary can see no sufficient cause for granting the prayer of the complainer's note. And it is not unimportant to observe that neither now nor in his note of suspension and interdict does the complainer offer caution or in any way undertake to be answerable for the injury and damage that might be occasioned by the granting of the interdict asked by him. In the English case of Bloxam, referred to in the Lord Ordinary's former note, which was the only authority cited by the complainer at the recent debate, the Vice-Chancellor, while he granted an interlocutory injunction, added to his deliverance to that effect—‘The plaintiff to undertake damages.’—Weekly Notes, No. 6, issued 8th February, last, p. 37–8.

The Lord Ordinary may add that he has perused the additional or supplemental note lodged by the complainer, but it is obvious that he cannot deal in any way with the alleged breach of interdict therein referred to, and he is unable to see how it affects the only question which he has disposed of.”

At the adjourned meeting, held on 14th April, the proposed dividend was declared, payable on 25th April.

On 21st May counsel were heard on the reclaiming note, the prayer of which was “to recall and alter the said interlocutor of the Lord Ordinary, in so far as his Lordship has recalled the interdict formerly granted; and to remit to the Lord Ordinary to interdict, prohibit, and discharge the respondents from declaring or paying any dividend or dividends on the ordinary stocks or shares of the Caledonian Railway Company for the half-year ending 31st January 1868, and from carrying any sum to the credit of the revenue of the half-year ending 31st July 1868; and also to interdict, prohibit, and discharge the respondents from applying the sums of money raised, or to be raised, in virtue of the powers conferred by the Solway Junction Railway Act 1865, the Callander and Oban Railway Act 1865, and the Caledonian Railway Forfarshire Works Act 1867, or any part of said sums, in or towards payment of any dividend or dividends on the stocks or shares of the said Caledonian Railway Company, and from placing the said sums, or any part thereof, to revenue account, and from applying the said sums, or any part thereof, otherwise than for the purposes specified in the said several Acts respectively; or to do otherwise in the premises as to your Lordships shall seem proper.”