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Cite as: [1868] SLR 6_8, [1868] ScotLR 6_8

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SCOTTISH_SLR_Court_of_Session

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Court of Session First Division.

Wednesday, October 21 1868.

Lord Ardmillan Lord President

6 SLR 8

Barclay

v.

Glendronach Distillery Co.

Subject_1Bankruptcy
Subject_4Expense of Litigation by Trustee—Mandate.
Facts:

A trustee on a sequestrated estate without funds having engaged in an expensive litigation (in which he was unsuccessful) under directions from a creditor's mandatory, held (1) that the general mandate to vote and act in the sequestration did not per se authorise the mandatory to bind his constituent for the expenses, but (2) that the mandatory's authority to do so was to be inferred from the terms of certain correspondence.

Headnote:

William Barclay, trustee on the sequestrated estate of the late Andrew Johnston, spirit merchant in Banff, sued the defenders for payment of £113, 9s. 2d., being their proportion of certain expenses which he had incurred, and in which he had been found liable in a litigation in which he had engaged for the purpose of recovering funds thought
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to belong to the bankrupt estate, but in which he had been unsuccessful.

The bankrupt was sequestrated in 1852. The defenders claimed as creditors for a debt of £39, 6s. 5d. Attached to their affidavit and claim there was a mandate in favour of Mr William Coutts, dated 16th August 1862, authorising him “to act and vote at all meetings in the sequestration,” with the same powers as belonged to them. In April 1853 an interim dividend of 2s. 9d. per pound was paid to the defenders and the other creditors.

At the date of the sequestration the bankrupt seemed entitled to participate in certain succession under his father's trust-settlement, but the trust-estate was not divisible until the death of a person who liferented the whole estate. This liferenter survived until 1863, but the bankrupt having predeceased the liferenter, dying also in 1863, a question arose as to whether the bankrupt estate was not cut out by his predecease. This question depended upon whether, under the father's settlement, vesting had taken place a morte testatoris or on the liferenter's death.

In consequence of this supposed claim the sequestration was not brought to a close as it otherwise probably would have been. Betwixt 1853 and 1864 there was correspondence betwixt the defenders and Mr Coutts, from which it appeared that the bankrupt had applied for his discharge, and that the defenders had given Mr Coutts authority to oppose his application, which, if granted, “would prevent the creditors getting their just rights from Johnston's prospects.”

After the death of the liferenter, the defenders, on 16th February 1864, wrote to Mr Coutts “there is another long delayed matter, and which the death of the late James Johnston was to decide,” and asking him to push on a settlement without delay. On 23d April 1864 the pursuer issued a circular to the creditors calling a meeting for 11th May 1864, for the purpose “of instructing the trustee in regard to an action of multiplepoinding and exoneration, which has been raised against him and others in the Court of Session relative to the bankrupt's interest under his late father's trust-disposition and deed of settlement.” The defenders, when they received this circular, enclosed it to Mr Coutts by letter dated 2d May 1864, in which they said “as you have been looking to our interests in this estate, and as we presume matters are now to be finally wound up,” we have to request that “you will look after matters, and if you want a mandate for meeting at Banff on the 11th instant it will be sent to you.”

There was no evidence of any farther communication to or from the defenders on the subject. But it appeared that Mr Coutts had attended the meeting of 11th May as mandatory for the defenders and other creditors, and stated that he thought the opinion of counsel should be taken, and that if the opinion was that the bankrupt's interest had vested a morte testatoris, a claim should be lodged in the multiplepoinding, “and he was prepared for those for whom he acted to pay his share of the expense, and he moved accordingly; it being understood that if other creditors shall refuse, on being applied, to, to join in the said appearance, they should be held to give up any claim to any part of the fund that may be realised, and this proviso it is the more necessary to make, because the trustee declines, for want of funds belonging to the estate, to move or pursue the claim.” This motion was agreed to and the trustee was instructed to send an excerpt from the minutes to the creditors not represented at the meeting. The meeting was adjourned till 25th May, when the trustee was authorised to take the opinion of counsel; and at a subsequent meeting, a favourable opinion having been obtained, the trustee was directed to lodge a claim. The claim, however, was not sustained, the Lord Ordinary and the Inner-House having held that vesting did not take place a morte testatoris. The trustee was found liable in expenses, and these and his own expenses amounted to £338, 12s. 2d. The defenders' proportion was said to be £113, 9s. 2d., the amount now sued for.

The defenders denied liability, on the ground that as creditors they were not liable unless they undertook an obligation to pay the expenses; and that they had never done so, or authorised Mr Coutts to do so on their behalf.

The parties renounced probation, resting the case on the correspondence and other documents in process.

The Lord Ordinary ( Jerviswoode) held that Mr Coutts “held authority from the defenders, under and in virtue of the writings in process, to instruct and authorise the pursuer to take and follow forth the proceedings in the process of multiplepoinding.”

The defenders reclaimed.

Clark and Burnet for them argued:—Under section 67 of the Bankruptcy Act a creditor is not liable for expense incurred by a trustee, merely because he has lodged a claim and voted in the sequestration. In this case it is not said that the defenders themselves authorised this litigation to be conducted at their expense, and if Mr Coutts undertook any such obligation for them he had no authority to do so,

Shand and Maclean for the pursuer replied:—

1. The mandate granted in 1852 was sufficient to authorise Mr Coutts to do anything, not illegal, which the defenders themselves might have done.

2. The correspondence showed that the defenders meant to give their mandatory the fullest authority

The following authorities were cited—1 Bell's Com. p. 413; Morrison v. Balfour, 11 D. 653; Ewing v. Watson, 22 D. 354.

At advising—

Judgment:

Lord Ardmillan—In this case I concur in the opinion of the Lord Ordinary; and I take very much the same view of the question as that expressed by Lord Deas. It does not appear to me that there is any difference of opinion, or any ground for difference of opinion, in point of law. The action is brought by the trustee on the sequestrated estate of Andrew Johnston, now deceased, against the defenders as creditors of the estate. The conclusion is for personal liability; and it was stated at the bar, as it is also stated though not so clearly as could be wished on record, that the trustee was obliged to enforce personal liability, since there were no funds available of the sequestrated estate.

The expenses, of which the trustee thus seeks payment, were incurred in an action of multiplepoinding, in which the trustee lodged and supported a claim for behoof of the sequestrated estate to recover sums supposed to have fallen to the bankrupt by succession. In this action the trustee did not succeed; but he acted according to the advice of counsel, and for the purpose of recovering and distributing the fund. In the sequestration, William Coutts held a mandate from the

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Glendronach Distillery Company, dated 16th August 1852, authorising him “to act and vote at all meetings in the sequestration of Andrew Johnston, &c., with the same powers as belonged to” the said Company. Now, looking to the provisions of the Bankrupt Statute, it is obvious that personal liability is not involved in the sequestration procedure, and that these creditors are not liable personally to the trustee for expenses incurred by him in the action of multiplepoinding merely in respect of their appearing, voting, being ranked, and being paid a dividend in the sequestration. For such personal liability, special and separate ground must be established.

In the next place, I am of opinion that the mandate given to Coutts in 1852 to act and vote in the sequestration is not per se a sufficient authority to entitle him to enter or to instruct the trustee to enter on a separate litigation several years afterwards. But then, I am also of opinion, that these defenders, the creditors for whom Coutts acted as mandatory, could effectually extend their mandate; or, in other words, could ingraft upon the original mandate to act in the sequestration, a further mandate to Coutts, authorising him to instruct the trustee to present and support the claim in the multiplepoinding on the footing of their liability for expenses. I have read the whole correspondence, beginning in July 1852 and extending down to 1864, and I have arrived at the conclusion, 1st, that Mr Coutts, the original mandatory, did undoubtedly authorise the trustee to present and support the claim in the multiplepoinding, and to incur the expenses now sued for; 2d, that Coutts did this in the knowledge that there were no available fund 3 in the sequestration to meet these expenses, and that it was a matter beyond the sequestration—a matter, the entering on which involved personal liability for expenses; and 3d, that the partners of the Glendronaeh Distillery Company, and more particularly Walter Scott, the leading partner of the Company, did know that this procedure in the multiplepoinding involved separate personal liability, and that there were no available funds in the sequestration, and did authorise Mr Coutts to appear and act for them at the meeting for instructing the trustee in regard to the multiplepoinding. This he did accordingly. At that meeting, and subsequent meetings which Coutts attended, and in the sederunt of which he is entered as “mandatory for the Glendronaeh Distillery Company,” instructions were accordingly given to the trustee to lodge a claim in the multiplepoinding, and to conduct the proceedings in which these expenses were incurred.

The question raised now is precisely the same as if Coutts had paid these expenses, and were claiming ralief from the creditors in whose name he had acted.

In point of law, there is no doubt that in such a case Coutts must have proved his mandate, and there is as little doubt that in the present case the trustee can only enforce personal liability against these creditors in respect of Coutts' authority to him, by proving, just as Coutt's himself must have proved, a sufficient mandate by these creditors authorising Coutts to act for them. He is not bound to produce a formal mandate, but is bound to instruct authority.

On this question of fact, I have arrived at the conclusion that a sufficient mandate to Coutts has been proved; and if he were suing for relief the partners of the Glendronaeh Company, these partners could not in fairness and justice refuse to relieve him of the expenses which he had disbursed in an attempt, though unsuccessful, to bring a fund into distribution among the creditors of Johnston. Then, if they could not have refused to relieve Coutts, they must, I think, be liable in this action. Although I have the misfortune to differ, as I understand, from your Lordship in the chair, it is satisfactory to me to think that I do not differ on any point of law, but only on the question of fact, whether, by the correspondence read with reference to the facts and circumstances of the case, a sufficient mandate to Coutts has been instructed. On that point I agree with the Lord Ordinary' and Lord Deas in thinking the evidence sufficient.

The Lord President dissented. The question, he said, was no doubt one of fact, but it involved the well known and most important principle of bankruptcy law laid down by Professor Bell (1 Com. 413) that no creditor can be made to pay any expenses out of his own pocket without his concurrence. The correspondence founded on instructed, no doubt, that the defenders authorised Mr Coutts to oppose the bankrupt's application for discharge, but that was a litigation of a very limited and inexpensive kind, and not the litigation referred to in this action. So far as could be seen from the correspondence, the defenders, although they knew of the bankrupt's claim under his father's estate, never heard of the nice question in the law of vesting which arose only in 1868 on the bankrupt's death, and he could not, therefore, see how it could be held that they authorised that question to be litigated at their personal expense. The letter from the defenders of 2d May 1864 was the chief evidence founded on, but it did not prove authority to do what Mr Coutts did. Again, there were thirty-two creditors on the estate, only a few of whom were said to have authorised the litigation. Had Mr Coutts authority to undertake the expense of the whole litigation? If the decision to be pronounced was a good one, then he had; but to hold that he had such authority was not warranted by the evidence.

The Court by a majority ( Lords Deas and Ardmillan) adhered to the Lord Ordinary's interlocutor.

Counsel:

Agent for Pursuer— William Millar, S.S.C.

Agent for Defenders— Alex. Morison, S.S.C.
1869