Scottish Court of Session Decisions

The estates of C. & A. Christie, coal and ironmasters, and of the individual partners of the firm, as such partners and as individuals, were sequestrated in April 1871, and Mr T. S. Lindsay, C.A., was confirmed trustee thereon. Three commissioners were appointed, of whom one became bankrupt in 1876 and was disqualified, and the other two died in 1878. At the date of this petition the sole commissioner was Mr R. F. Todd, who was appointed on 28th May 1878. At their statutory meetings on 18th August (three present), and 15th December 1871 (three present), and 6th June 1872 (two present), the commissioners fixed the trustee's commission at 5 per cent. on the sums received by him. On 20th December 1872 they (two present) fixed his commission at 5 per cent. on the sums received by him or entered in the charge side of his account, in addition to clerk's writings, and the like commission on the sums recovered under an arrangement with Lord Wemyss as to Wallyford Colliery. On 20th March 1873 (two present) they fixed his commission at 5 per cent. On 19th December 1873 (two present), taking into consideration the time, labour, and responsibility incurred by the trustee, and the saving of legal expense to the estate arising therefrom, they fixed the trustee's commission and remuneration at 6 1 2 per cent. on the amount of the charge in the trustee's accounts, and authorised the trustee to take credit for that amount in his accounts with the estate after deducting payments on account.

On Mr Lindsay presenting his petition for discharge in 1879 objections were lodged by Mr Hendrie, tobacco manufacturer, who was a creditor on the estate for £49, 17s. 8d. He objected, inter alia, (1) to the trustee's charge of £1886, 2s. 6d. as commission, being at the rate of 6 1 2 per cent. on £29, 344, 0s. 11d., the amount of charge on the trustee's accounts; and (2) to a charge of £82, 3s. 10d. for clerks’ writings.

On 31st July 1879 the Lord Ordinary on the Bills ( Ormidale) before answer remitted to the Accountant in Bankruptcy to hear parties, examine, and report.

The Accountant lodged a report, from which it appeared that at the date of the sequestration the company estate consisted of (1) the Gladsmuir Iron Works, (2) the Gladsmuir Brick and Tile Works, (3) the Spilmersford Lime Quarry, (4) the Wallyford Colliery and Brick and Tile Works, (5) the Penstone Mines and Garlton Haematite Mines. That in managing these businesses and winding them up and disposing of their assets the trustee had very great difficulties owing to the lands and minerals being held by the bankrupts under different proprietors and under several leases. Owing to the rents and royalties being in arrear, the landlords had in a number of instances taken out sequestration for rent. They also made large claims for compensation, damages, &c., which the trustee had great trouble in investigating, and which he succeeded in reducing materially. It further appeared that in the course of the two first years after sequestration the estate was realised, with the exception of one complicated claim at the instance of a landlord, which led to cross actions, and which was finally settled in 1878 by the landlord paying £237, 15s. 8d. to the estate.

On 23d April 1880 the Lord Ordinary on the Bills ( Shand) having heard counsel and considered the record and productions, and the report by the Accountant in Bankruptcy, refused in hoc statu to grant decree of exoneration and discharge as craved. His Lordship added this note:—

Note.—This application raises a question of considerable importance with reference to the practice which ought to be followed under the Bankruptcy Statute in fixing the commission payable to the trustee in the sequestration. The amount in dispute is upwards of £450; and as the question will probably be submitted for the consideration of the First Division of the Court, where I should have an opportunity of reconsidering my present opinion after further argument, and with the benefit of consultation with my brethern, I should have preferred to report the whole matter to the Court for decision. As, however, it appears to be doubtful whether that course is competent under the statute, I have thought it better to refuse the application in hoc statu, and the cause may now be taken to review, should the petitioner desire it, before any further procedure takes place in the petition or in the sequestration.

The Accountant in Bankruptcy, in compliance with the interlocutor of 31st July last, has presented an able and exhaustive report on the proceedings in the sequestration, and as to the general considerations which in practice determine the rate of the trustee's commission in the winding-up of bankrupt estates; and with this report in process I do not think it necessary to recapitulate matters of detail. There can be no doubt that owing to the various important and involved undertakings in which the bankrupts were engaged, the trustee had delicate and difficult duties to perform, and that there was some measure of personal responsibility in carrying on for a time the operations in certain of the businesses in which the bankrupts were engaged. But keeping all this in view, I am of opinion that if the question of the amount of commission payable to the trustee is not to be held to be foreclosed by the proceedings of the commissioners sanctioning a charge of 6 1 2 per cent. on the whole items of charge in the trustee's accounts, and by the resolution of the creditors at the meeting of 20th February 1879, by which the majority present sanctioned what the commissioners had done, the Accountant in Bankruptcy is right in thinking that commission to the amount of £1463, 13s. 7d., being at the rate of 5 per cent. on the gross receipts by the trustee, would be proper and adequate remuneration.

There is no absolute rule that 5 per cent. is the maximum commission to be allowed for the

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winding-up of bankrupt estates, even where the amount involved is, as in the present case, about £30,000. Where the estate is large it is clear that, according to the practice of the Court enforced in the cases of Boaz v. Craig's Trustees, 3d December 1829, 8 S. p. 175, and Thomson v. Wight, 31st May 1834, 12 S. p. 660, and which has been apparently invariably followed in later years, as appears from the concluding part of the Accountant's report, 5 per cent. is considered a suitable commission even where the trustee has had to deal with questions involving very considerable difficulty and trouble and some responsibility. It must be observed that the Accountant in this case, in reporting 5 per cent. as a reasonable rate of commission, includes in the sums liable to the charge the gross receipts of the trustee, including large sums payable to preferable creditors, and items of considerable amount which he thinks are properly of the nature of cross entries. It is obvious that a commission of 5 per cent. on such sums, where the trustee is merely realising a preferable security and paying over the amount to the secured creditor, is much higher than ought to be allowed, or than is in practice allowed; and having this circumstance in view, it is clear that the sum already mentioned, which the Accountant has reported to be in his opinion adequate, would really give the trustee a much higher rate than 5 per cent. on the receipts divisible among the unsecured creditors. The circumstance and the long-continued practice in cases of bankruptcy seem to show that if the question were open, or if one or more of the creditors had timeously brought under review the deliverance of the commissioners allowing the higher rate now complained of, the Court would have restricted the amount of the commission for which the trustee has taken credit to the rate of 5 per cent.

The question of difficulty in the case is, whether the deliverance of the commissioners of 19th December 1873, by which they ‘fix the trustee's commission and remuneration at the rate of 6 1 2 per cent. on the amount of the charge’ on his accounts is conclusive and binding on the objector, particularly after the resolution of the creditors at their meeting on 20th February 1879? On this question my opinion is adverse to the trustee. If the commissioners in the ordinary course of the sequestration had from time to time fixed the trustee's remuneration at 6 1 2 per cent. even on the gross receipts, and the deliverances had not been appealed from under the 169th section of the statute, probably the Court could not have interfered with what had been done. And, again, if the intromissions of the trustee during any one statutory period had been, in the opinion of the commissioners, attended with extraordinary trouble or responsibility, and a commission at the rate of 6 1 2 per cent. on these particular intromissions had been fixed in the succeeding audit and adjustment of the trustee's accounts, this would not, I think, have been disturbed by the Court even on appeal, particularly if approved of by the majority of the creditors. But the proceedings in this case were very different. The estate had been practically realised prior to the 20th of December 1872, and, indeed, had been almost entirely appropriated to the payment of a dividend of 2s. in the pound authorised by the minute of that date. And the trustee's commission was the subject of five different resolutions of the commissioners, viz., on 18th August and 15th December 1871 respectively, 6th June and 20th December 1872 respectively, and 20th March 1873, on all of which occasions the commissioners ‘fixed’ the commission on the trustee's intromissions by allowing him at the rate of 5 per cent. on all sums entered on the charge side of his account. Notwithstanding this, on 19th December 1873 the commissioners, at one of the statutory dates, when they formally resolved to postpone the declaration of any further dividend, by resolution again fixed the commission, not as applicable to the period subsequent to 20th March 1873, but as applicable to the whole period from the beginning of the sequestration, and already dealt with by the prior resolutions, at the increased rate of 6 1 2 per cent., with the result that on 14th March 1875 the trustee took credit in his accounts for a sum of about £450 of additional commission for the same intromissions and actings which had been in the view of the commissioners when the previous resolutions were passed.

It appears to me that this proceeding is unauthorised by the statute, and that the commissioners were not entitled to enlarge the commission already fixed as they did. The statute, sections 125, 130, and 132, directs the commissioners, in the view of the payment of dividends at certain statutory periods, to audit the trustees' accounts ‘and settle the amount of his commission, and authorise him to take credit for such commission in his accounts with the estate;’ and provides that ‘they shall certify, by a writing under their hands, engrossed or copied in the sederunt book, the balance due to or by the trustee in his account with the estate.’ The obvious intention of the statute is, that at each statutory period the commissioners shall determine the amount to which the trustee is entitled as commission for the trouble and responsibility he has had up to that time, and the balance for division amongst the creditors; and the commissioners therefore performed their statutory duty properly in this instance in fixing the trustee's commission from time to time at 5 per cent. with reference to his intromissions during the statutory period immediately preceding the date of the deliverances. Each deliverance was subject to appeal to the Sheriff or the Lord Ordinary on the bills, either at the instance of the trustee or of any creditor, but if not appealed against within fourteen days the deliverance became final.

This being so, I am of opinion that the deliverance of 19th December 1873, raising the trustee's commission to 6 1 2 per cent., was beyond the powers of the two commissioners by whom it was made. It may possibly be competent under the statute to ‘settle’ a rate of commission ad interim by a deliverance expressly to that effect, and which reserves power to add to the amount on a later audit. But if that course be competent, and be intended to be followed by the commissioners, I think it must appear distinctly on the face of the deliverance. In the present case the commission was fixed absolutely. In several instances it was fixed by three commissioners, while the deliverance of 19th December 1873, although dealing to a considerable extent with the commission which had been already disposed of by the whole body, was made by two of

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their number only. If this proceeding was competent, the same thing might have been done by a new body of commissioners, if those originally elected had resigned or become disqualified. In this way a rate of commission fixed by commissioners who knew all the facts personally regarding the trustee's intromissions and the trouble attending them might be subsequently altered by commissioners not possessed of the same advantages.

If it could be shown that the deliverance of 19th December related to intromissions or trouble in the management of the estate during the immediately preceding statutory period of four months, and that the rate of 6 1 2 per cent. on the whole charge of the accounts was intended to cover trouble or responsibility during that period only, the deliverance would be unobjectionable in substance although wrong in point of form. But no case of this kind can be presented by the trustee. The sederunt book shows that the intromissions between 20th March and 19th December 1873 were of comparatively small amount, and 5 per cent. commission would be ample remuneration for these. The estate was substantially in the same position on the 19th of December as it had been on the 20th of March. It has not been said or suggested that the commissioners had any elements or considerations before them in December which did not equally present themselves when the previous deliverances were pronounced, and particularly when the payment of the dividend was authorised.

Having regard to the terms of the statute and the commissioners' deliverances, I think the creditors were warranted in holding that from time to time prior to 19th December 1873 the trustee's commission had been finally fixed with reference to all previous intromissions. It would be difficult to maintain as against the trustee that the commissioners could thereafter have reduced his commission for these services below the sum they had already allowed. On the other hand, it appears to me that the creditors, having found from the earlier deliverances and the accounts that the commission had been fixed, could not suppose that at such statutory period thereafter, when the commissioners resolved from time to time to postpone the payment of any further dividends, the whole question of commission from the outset was liable to be opened up for reconsideration. If, as I think, the creditors were entitled to regard the rates of commission as having been finally settled, they were thereafter relieved from the necessity of constantly observing the proceedings in the sequestration, so as to make themselves acquainted with the deliverances of the commissioners, of which they receive no notice in case they desired to appeal within the time allowed by the statute, and to which their attention would not naturally be directed unless an additional dividend were declared, in which case each creditor receives a special notice.

It appears to me further, on the grounds stated by the Accountant in Bankruptcy, that the charge for clerks’ writings in addition to commission is not sanctioned by the statute, and cannot be allowed by the trustee. In a case where an unusual amount of writing occurs this ought to be taken into account in fixing the commission, and I think that a door might be opened which would lead to abuses under the statute if any different rule were followed. There seems to be no good reason, if the charges in respect of a copying clerk are allowed, why similar charges should not be admitted for work done by other clerks.

In regard to the proceedings at the meeting of creditors on the 20th of February 1879, I have only to observe that if the view already stated be sound, the creditors had no power to sanction the proceedings of the commissioners at their meeting on 19th December 1873. And, moreover, it appears to me that although no doubt it would have been proper that the objector should have appealed against the resolution of that meeting, yet he is entitled to have the resolution of the creditors considered by the Court in the present proceedings. See the case of Thomson v. Wight, already noticed.

Should the view I have stated be acquiesced in or affirmed by the Court, the parties will be heard as to the further procedure necessary before the trustee can obtain his discharge. In that case it would probably be arranged that the trustee should receive commission at 5 per cent. on his intromissions to the close of the sequestration. But if he is to claim a larger amount, it will be for consideration whether it will be necessary to have additional commissioners appointed, and the subject again considered by them and the creditors, before fixing the sum which will remain for the payment of a final dividend.”

The petitioner reclaimed, and argued—The action of the commissioners had been both competent and judicious. The rate of the trustee's commission was left by the statute to their discretion; they were the best judges as to it; and they might competently have fixed it at an even higher rate than they had here done. There was nothing in the statute to prevent them from authorising an additional rate of commission on sums already dealt with if circumstances should in their opinion warrant such a course. In any view, it was incompetent for a creditor now to object to the commission so fixed; his remedy was to have appealed (under section 169) within fourteen days—the deliverance of 19th December 1873 had now become final. Though no notice of the additional allowance had been given directly to the creditors, yet the fact was entered in the sederunt book, which was open to their inspection, nor did the statute provide for any such notice being given. The charge for clerk's writings had been specially allowed by the commissioners on 20th December 1872, and such allowance was both customary and reasonable.

Replied for the objector—The commissioners had acted beyond their statutory powers in going back on past periods and allowing additional commission on sums already dealt with. In any view, 6 1 2 per cent. was too high a rate in the circumstances; and the whole estate having been practically realised in two years, any additional allowance was clearly uncalled for. It was competent to object at this stage, the whole proceedings relative to the trustee's discharge being before the Court under section 152. An appeal had not been taken within the fourteen days because no notice of the commissioners' doings had been sent to the creditors. The charge for clerks’ writings was practically an

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additional charge for commission, and was excessive and illegal.

Authorities— Bruce v. Davenport & Company, July 7, 1825, 4 S. 151; Boaz v. Craig's Creditors, Dec. 3, 1829, 8 S. 175; Thomson v. Wight, May 31, 1834, 12 S. 660; Russell v. Taylor & Nicholson, Nov. 26, 1869, 8 Macph. 219; Milne v. M'Callum, Jan. 22, 1878, 5 R. 546.

At advising—