Scottish Court of Session Decisions

William Don Gillies, described in this action as an iron merchant and broker in Glasgow, and who belonged to an association of brokers who deal in pig-iron on certain rules of their own, sought to have John M'Lean, spirit merchant in Glasgow, ordained to pay him the sum of £408, 14s. 6d. He averred—“(Cond. 1) In November and December 1882, and January and April 1883, pursuer, acting as an iron-broker, purchased for the defender, on his instructions, in the Glasgow pig-iron market four parcels of G.M.B. Scotch pig-iron (mixed numbers), consisting of 1000 tons, 500 tons, and 500 tons, and 500 tons respectively. On the purchases being made, intimation thereof was immediately given to the defender in the usual form.” “(Cond. 2) The said purchases of iron were made in the manner usual in said market, and were, like all other iron sold in said market, represented by certificates or warrants issued by Messrs Connal & Company, the warehouse-keepers with whom the iron dealt in in said market is stored. These warrants being blank endorsed pass as documents of title from hand to hand by mere delivery.” “(Cond. 3) When the dates for settling said purchases arrived the defender was bound to provide the pursuer with the funds required for paying for said iron. As in the interval the market price or value of the iron fell, the defender did not do so, but requested the pursuer to arrange for having the warrants continued or lent on the market in the usual way. It therefore was necessary for the pursuer to take up the said purchases, the

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defender at each settlement paying the difference in price and all charges and commission resulting from having the warrants continued. In these circumstances, and according to the custom of brokers in the said iron market, the transactions were entered in account between the pursuer and defender as a sale and purchase at the market price of the day.” He further averred that monthly accounts were rendered to the defender up to 26th November 1803, that on that date the iron was again held over at the market price of the day (44s. 5 1 2d. a-ton), and according to the practice of brokers the transaction was entered in the account between them as a sale and purchase at that price; that thereafter he frequently called on the defender to pay the difference or to take delivery of the iron warrants, or pay the price, and eventually after formal tender of the warrants on 25th April 1884 sold the warrants at the price of the day, which was 42s. 4d. a-ton. in all. This sum was less by £256, 13s. 6d. than the price at which the iron was carried over in November 1883, and to that sum there fell to be added the charges of commission and rent incurred in connection with the iron, amounting to £143; 2s., making the whole sum due by the defender, after crediting the amount of the price obtained for the iron, £408, 14s. 6d., which was the sum sued for.

The defender admitted that he employed the pursuer to buy the iron, and that he had received the intimations sent by the pursuer, and stated that he had paid the sum of £775, 5s. 8d. in name of charges for carrying over these alleged purchases. He maintained, however, that he had paid this sum on the false and fraudulent representations of the pursuer, and in the belief that the transactions had been actually entered into, and the iron actually bought and stored, and that he was paying the difference in the respective prices from time to time according to the fluctuations of the market, whereas he had now learned that the transaction had never really been entered into by the pursuer.

The defender in Stat. 4 averred as follows—“The pursuer, who was solely instructed as an agent and respectable broker for the defender, and who represented himself as such in carrying through the alleged transactions, did not at any time, or in connection with any of the alleged transactions, declare his principal to the defender, and the defender never knew, nor does he even know now, who these respective principals were, if they had an existence at all. The pursuer is now specially called upon to declare the names and addresses of each of his principals in the alleged respective transactions, from whom he bought and to whom he sold the quantities of iron referred to.” In Stat. 8 he averred that “all the transactions carried out by the pursuer in the defender's name, and especially the alleged transactions referred to in the account annexed to the petition, were not real but pretended transactions, and were simply speculations on the rise and fall of the market, and purely of the nature of gambling, and the Court therefore cannot take cognisance of them.”

To Stat. 4 the pursuer answered—“Admitted that pursuer did not declare to defender the names of the sellers or purchasers of said iron. Explained that it was unnecessary for him to do so, and that, as defender well knows, it is not the custom in the Glasgow pig-iron market for brokers to declare the names of their principals.” To Stat. 8 he answered—“Whatever defender's object in purchasing the iron may have been, pursuer simply acted as broker in the usual way of business, and had nothing to gain but his commission.”

The defender pleaded—“(2) The transactions not having been actually entered into, but only speculations on the rise and fall of the market, and being thus purely of the nature of gambling, the action should be dismissed with expenses. (3) The pursuer not having purchased the quantity and quality of iron as instructed, but fraudulently and illegally represented that he had done so, this action should be dismissed with expenses.”

Proof was led, and its import fully appears in the Sheriff-Substitute's note and the opinion of the Lord Justice-Clerk. It was mainly directed to the pursuer's allegations as to the alleged transactions. He, however, failed to produce any parole corroboration of his allegations, or any bought-and-sold notes binding any third party, whether as principal or broker, or any entries from the supposed sellers' books, or of those of the broker representing him. His own books represented him as acting as principal in the contracts of sale.

The Sheriff-Substitute ( Lees) repelled the defences and decerned against the defender as craved in the prayer of the petition.

“ Note.—The practice in the iron trade seems to be that the master or dealer stores with Messrs Connal & Co. such iron as he thinks fit, in quantities of 500 tons, and receives from Messrs Connal & Co. a warrant, framed in terms of No. 26 of process. The warrant acknowledges receipt of the iron in the person's name in certain proportions, as to quality, and binds the storekeeper to deliver it to the storer's order on endorsement, on payment of the charges noted on the warrant, and on its return such warrants may be purchased directly by one holder from another, but in general they are dealt with in the iron market through means of brokers. If the purchaser of the warrant takes up the iron he obtains the warrant, and on presentation of it to Connal & Co., can either obtain delivery of the specified quantity and quality of iron, or may get it simply transferred to his name in Connal & Co.'s books, receiving from them a new warrant in lieu of the old one. As indicated above, the purchaser of the warrant can calculate in a moment, from its date, what the charges payable to the storekeeper are.

The pursuer's case is that he was employed as broker, that it was a bona fide transaction, and that he bought the warrants, and after carrying them over for a time, eventually took them up himself. If this is true, he is entitled to decree.

The defender contends, in the first place, that it was a mere speculation for differences, and that from the way in which the pursuer dealt with him he falls to be viewed as a principal in the matter. It can hardly be disputed, I think, that there is a good deal of evidence to support the view that this was a mere speculation for differences. But that will not advance the defender's case one whit unless be can

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also establish the other proposition—that the pursuer was dealing with him as principal with principal. The law as regards such questions has been authoritatively settled both in England and Scotland; and it is this, namely, that where two parties are engaged as principals in a wagering transaction with one another, so that what one gains the other loses, then a court of law will not enforce such a transaction. But, on the other hand, where a person is employed as broker or agent only in such a transaction, and is thus not a party to gain or lose by the rise or fall of the price of the commodity in regard to which the wager is made, he is entitled to sue his principal or employer for relief from the obligations he has come under in the matter.

It is therefore essential for the defender's success that he should be able to show that the pursuer dealt with him as principal with principal. But I think the onus is on the defender. And what does his proof consist in? Only in this: That the pursuer is unable to say, or at least has not said, who the parties were with whom he dealt. It is certainly unsatisfactory that if the pursuer's case is an honest one his evidence on this point should be so meagre, but having regard to his own statements, to the entries in his books, to the bought-and-sold notes regularly sent by him to the defender, and to the payments made by the defender, I think it is only just to the pursuer to hold that the defender has not established this ground of defence.

There is another basis on which the defender contends that the pursuer falls to be viewed as a principal. But this runs into the second line of defence taken for him. That defence is the somewhat startling statement that the whole transaction is an audacious fraud on the pursuer's part, and that, spite of the entries in his books and the note sent by him to the defender, he never purchased a single warrant on the defender's behalf, or at least not before the close of 1883, by which time he had received from the defender £775, 5s. 8d. The remarks I have already made about the state of the pursuer's books, to judge from the excerpt from them put into process, apply here again. And the defender forcibly points out that whereas the pursuer is unable to give or produce, or at least has not given or produced, any information in regard to the parties with whom he dealt, the broker through whom he sold was able at once to read out from his books the names of the parties with whom he had dealt in disposing of the warrants. All, however, that the defender could do is to express his disbelief that the pursuer ever really bought the warrants, or at least before the end of 1883, and to point to the unsatisfactory meagreness of the pursuer's case on the point. But in reply to this it may be fairly urged that month after month the defender continued settling on the footing that the warrants had really been bought, and that though he has made no payment since he says he became suspicious that the warrants had not been bought, he has never taken any steps to cut down the transactions and obtain repayment of the £775, 5s. 8d. he has paid to the pursuer wrongfully, as he contends. In the next place, the defender admits that certain warrants were tendered to him on the pursuer's behalf towards the end of 1883, and while he says he was willing to have taken them if they had been for the kind of iron he wanted, he overlooks how seriously damaging to himself this admission is. As I have above stated, the defender's version of matters is that this was a mere speculation for differences, and not a bona fide purchase, as the pursuer says; if so, why was he willing to accept the warrants the pursuer offered, if of the proper kind? If they were not of the proper kind, why is it that this defence is not pleaded on record? Incidentally it leaked out that the warrants tendered were of Govan iron, and that, it would seem, is not only of the kind of iron in question, but actually iron of a higher grade. It appears to me on the whole that I cannot sustain this objection for the defender.

In the next place, he objects that he never assented to the different parcels of iron being accumulated into and dealt with as one lot; but it does not appear in what way this objection has any bearing on the case to the defender's prejudice.

He next says that he never consented to the iron being sold. But the complaint of the pursuer is that the defender latterly would neither say nor do anything. It was after due warning that the iron was sold, and it seems to have been sold with perfect fairness to the defender's interests. Now, I am not aware of any settled rule in Scotch practice that it is indispensable, though it may often be expedient, to get the sanction of the Court to a sale of disputed goods. I have repeatedly had to deal with this point, and this is the view on which for more than ten years I have acted. It is not the rule in England, and our greatest authority on the law of sale, namely, Professor Bell, declines to say it is a binding rule in Scotland. No doubt where a sale is made without judicial warrant, the matter may have to stand a closer scrutiny, but it does not invalidate the seller's rights. Here it will be noticed, as I have said, that the sale seems to have been perfectly fair so far as the defender was concerned, and it took place in accordance with the rules under which the iron was being dealt with. And apparently in the well-known case of Risk v. Auld & Guild, 8 R. 729, the Supreme Court do not seem to have felt any difficulty on this score in the matter of stock; and there is not much difference between stock and iron.. .

“I am therefore of opinion on the whole case that the pursuer has proved his case so far as that is necessary, and that the defender's pleas are not established.”

On appeal the Sheriff ( Clark) adhered.

“ Note.—That the transactions were real follows from the defender's own admission. That the figures are correctly stated is also proved by his statement. There is no reason on the evidence to suppose that the pursuer ever became a principal, or acted otherwise than as a broker in the ordinary and legitimate way. There is no ground, therefere, for the plea in defence that in so far as the pursuer was concerned the transactions were of a gambling character.”…

The defender appealed, and argued—In order to prevail the pursuer must establish (1) that he received the alleged instructions to make and take over the alleged purchases; (2) that they were real transactions; (3) that he obeyed his

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instructions. In point of fact he had failed to prove any of these things. He could not even disclose the persons from whom, as supposed principals, he had bought the warrants. He had, then, on the whole case, failed to discharge the onus which lay upon him, and was not entitled to succeed in the action.

The pursuer replied—He had produced ample proof of the existence and reality of the sales. There was no proof that the contract was one for differences— Risk v. Auld, May 27, 1871, 8 R. 729. Under rule 16 of the Scotch Pig-Iron Trade Association he was not bound to disclose his principal in the sales. The rule provided—“Where a member buys from or sells to another member, and the names of constituents are not given up by the one to the other, those members shall be to each other as merchants or principals in such transactions, with claims on each other only, and liability to each other only, and notwithstanding that it shall afterwards be shown that such members (either or both) were acting as brokers for constituents, and had given up to said constituents the other's name.” He was entitled to sell out the warrants by rule 18 of the association, which provided—“When a constituent.. . fails on the due date to provide money to pay for warrants bought for his account, or when transactions have been continued he fails to pay on the due date the difference against him, all members who have transactions open with or for said constituent may thereupon, and without instructions, close all said transactions, whether due or still outstanding, by selling out or buying in, as the case may be, through a disinterested broker, in the open market, and thus fix the balance due on his account.”