Scottish Court of Session Decisions

On 3d July 1879 Mr James Haldane, C.A., Edinburgh, was appointed judicial factor on the undertaking of the Girvan and Portpatrick Junction Railway in terms of the fourth section of the Railway Companies Act of 1867 (30 and 31 Vict. cap. 126), and with the usual powers. The Girvan and Portpatrick line was then being worked by the Glasgow and South-Western Railway under a working agreement. Under this agreement there had since the date of Mr Haldane's appointment been a large, though to some extent diminishing, excess of expenditure over revenue. The position of the Girvan and Portpatrick Company was otherwise very embarrassed. No interest had been paid on the debentures since Martinmas 1878, and the debentures as they fell due could not be renewed. In these circumstances it appeared to the judicial factor necessary that the working agreement with the Glasgow and South-Western Company should be brought to an end. He therefore gave notice to that Company that it would not be renewed after the 31st January 1881, and this notice the working company accepted; but in consequence of difficulties as to the respective powers of the judicial factor and the directors of the Girvan and Portpatrick Company to enter into a new agreement with the working company, and generally as to the management of the Girvan Company, the factor found it necessary to present this note, in which he prayed the Court “to grant power to and authorise the judicial factor to manage the undertaking of the Girvan and Portpatrick Junction Railway Company, and whole works and property connected therewith, or otherwise to find and declare that under and by virtue of his appointment as aforesaid the sole and exclusive power of management of the said undertaking, works, and property is vested in the said judicial factor.”

The note was opposed by the Girvan and Portpatrick Railway and by two of the original petitioners for the appointment of a factor. Both sets of respondents maintained that under the Act 30 and 31 Vict. cap. 126, sec. 4, it was not competent to appoint a judicial factor to undertake the actual management of the company's undertaking, and that if it was competent to do so in some circumstances, the present was not a case in which the directors should thus be superseded by a factor. The Railway Companies (Scotland) Act (30 and 31 Vict. cap. 126), sec. 4, provides that “the engines, tenders, carriages, trucks, machinery, tools, fittings, materials, and effects constituting the rolling-stock and plant used or provided by a company for the purpose of the traffic on their railway, or of their stations and workshops, shall not, after their railway or any part thereof is open for public traffic, be liable to be attached by diligence at any time after the passing of this Act and before the 1st day of September 1868, where the decree on which diligence proceeds is obtained in an action on a contract entered into after the passing of this Act, or in an action not on contract commenced after the passing of this Act, or on a protested promissory-note or bill of exchange, or a deed containing a clause of registration registered after the passing of this Act: But the person who has obtained any such decree may obtain the appointment of a judicial factor on the undertaking of the company, on application by petition in a summary manner to the Court, and all money received by such judicial factor shall, after due provision for the working expenses of the railway and other proper outgoings in respect of the undertaking, be applied and distributed under the direction of the Court in payment of the debts of the company, and otherwise according to the rights and priorities of the persons for the time being interested therein, and on payment of the amount due to every such person who has obtained decree as aforesaid, the Court may, if it think fit, discharge such factor.”

The corresponding English Act (30 and 31 Vict. cap. 127) contains a similar provision (sec. 4), the only important difference being that instead of a “judicial factor” it authorises “the appointment of a receiver, and if necessary of a manager of the undertaking of the company.”

The 56th section of the Companies Clauses Consolidation (Scotland) Act of 1845 (8 Vict. cap. 17) provides—that “Where by the Special Act the mortgagees of the company shall be empowered to enforce the payment of arrears of interest, or the arrears of principal and interest, due on such mortgages, by the appointment of a judicial factor, then, if within thirty days after the interest accruing upon any such mortgage or bond has become payable, and after demand thereof in writing, the same be not paid, the mortgagee may, without prejudice to his right to sue for the interest so in arrear in any competent Court, require the appointment of a judicial factor by application to be made as hereinafter provided; and if within six months after the principal money owing upon any such mortgage or bond has become payable, and after demand thereof in writing the same be not paid, the mortgagee, without prejudice to his right to sue for such principal money, together with all arrears of interest in any competent Court, may, if his debt amount to the prescribed sum, alone, or if his debt does not amount to the prescribed sum, he may, in conjunction with other mortgagees whose debts, being so in arrear after demand as aforesaid, shall together with his amount to the prescribed sum, require the appointment of a judicial factor, by an application to be made as hereinafter provided.”

The 57th section of the same statute provides that “Every application for a judicial factor in the cases aforesaid shall be made to the Court of Session, and on any application so made, and after hearing the parties, it shall be lawful for the said Court, by order in writing, to appoint some

Page: 452↓

person to receive the whole or a competent part of the tolls or sums liable to the payment of such interest, or until such principal and interest, as the case may be, together with all costs, including the charges of receiving the tolls or sums aforesaid, be fully paid; and upon such appointment being made, all such tolls and sums of money as aforesaid shall be paid to and received by the person so to be appointed; and the money so to be received shall be so much money received by or to the use of the party to whom such interest, or such principal and interest, as the case may be, shall be then due, and on whose behalf such judicial factor shall have been appointed; and after such interest and costs, or such principal, interest, and costs, have been so received, the power of such judicial factor shall cease, and he shall be bound to account to the company for his intromissions or the sums received by him, and to pay over to their treasurer any balance that may be in his hands.”

The corresponding English Act (8 Vict. cap. 16, secs. 53 and 54) contains similar provisions, except that the officer to be appointed is styled “a receiver,” not “a judicial factor,” and his appointment is to be made by two justices of the peace, not by the Court of Chancery.

The Companies Clauses Act of 1863 (26 and 27 Vict. cap. 118, secs. 25 and 26), confers upon debenture holders similar privileges to those conferred by the Acts of 1845 upon mortgagees. As in that Act, the officer is, as regards Scotland, termed a judicial factor, as regards England a receiver; and in the former case the appointment is to be made by the Court of Session, in the latter by two justices. Down to the date of the decision in the present case the line of the Girvan and Portpatrick Company continued to be worked by the Glasgow and South-Western Company, but under reservation of their rights to have the contract terminated as at 31st January, in terms of the notice sent by the judicial factor.

Argued for the petitioner—The English Act of 1867 expressly conferred on the Court of Chancery the power of appointing a receiver, “and if necessary also of a manager.” That was an alteration of the common law of England, for it had been held Gardner v. London, Chatham, and Dover Railway, infra—that for the Court to appoint a manager of a railway was ultra vires. Such a decision had never been pronounced in Scotland, but it was the obvious intention of the legislation of 1867 to put the two countries on the same footing in this respect. Creditors of railways in both countries were deprived of their common rights of diligence, and that obviously in the public interest, and in return they received the remedy of a judicial factor in Scotland and of a manager, and if necessary also of a receiver in England. When then would a manager be appointed in England? Whenever there was a business to be managed, as the necessary result of appointing a receiver only on an undertaking was to stop the business— Manchester and Milford Railway, infra. There was in the present case a business to be managed; it followed therefore (unless the Scotch Act was to have a radically different effect from the English) that the judicial factor here must have the powers of a manager. The directors were by his appointment entirely superseded. The earlier Acts had obviously a different object, and probably officers appointed under them had smaller powers. This was by no means certain, however, as regards factors under the Scotch Acts— Primrose v. Caledonian Railway, infra, per Lord Fullerton.

Argued for the respondents—To decide what was meant by “factor” iu the Act of 1867 it was necessary to compare that Act with the earlier Acts. In them factor was plainly used as equivalent to the English receiver. In the Act of 1863, which applied to both countries, the words were used as synonymous. In the last of this series of legislation—the Act of 1867—judicial factor must therefore be taken as equivalent to the English receiver, not to the English receiver and manager. But even if the factor might have power to manage in some cases, that was not a necessary consequence of his appointment, and in the present case was inexpedient. He had had no experience of railway management, however excellent an accountant; indeed, the nature of his profession showed what the Court had in view when they appointed him. Against the directors’ business qualifications nothing had been alleged. They ought not therefore to be superseded.

Authorities— Gardner v. London, Chatham, and Dover Railway, L.R. 2 Chan. Apps. 201; Manchester and Milford Railway, 14th April 1880, L.R. 14 Chan. Div. 615; Midland Waggon Company, 4th Nov. 1880, 6 Q.B. Div. 36; Primrose v. Caledonian Railway, 21st June 1851, 13 D. 1214; Clover's Trustees v. City of Glasgow Union Railway, 8th Jan. 1869, 7 Macph. 338.