Scottish Court of Session Decisions

This was an action at the instance of John Ellis and John Carmichael Bennet, as trustees acting under a trust-disposition for behoof of creditors, granted by John Fleming, shipowner in Aberdeen, on 3rd June 1891, against David M'Hardy and the Aberdeen Glen Line Steamship Company, Limited.

The following narrative of the circumstances in which the action was brought is taken from the Lord Ordinary's opinion:—“Mr Fleming, who is a shipowner in Aberdeen, was in financial difficulties, and had overdrawn his account with the North of Scotland Bank to the extent of nearly £2000. The bank declined to continue the overdraft except on the guarantee of a third party, and accordingly the defender on 24th August 1887 granted to the bank a letter guaranteeing payment of all sums due, or which might at any time become due to them by Mr Fleming, to an amount not exceeding £2000, with interest. It is averred that the defender neither asked nor received from Mr Fleming any security in consideration of the obligation which he undertook by the letter of guarantee.

“In June 1888, Mr Fleming is said to have been due to the bank upwards of £3000 with interest, in addition to large liabilities to other creditors. He therefore again applied to the defender for assistance, which the defender agreed to give upon condition that Mr Fleming shonld give him security not only for any additional obligation which he might undertake, but also in respect of his liability under the letter of guarantee. It was arranged accordingly, that the bank should effect an insurance upon Mr Fleming's life for £2000, and that they should give him a further credit to the amount of £1500, upon a separate account in his name, and the defender became bound for payment of the premiums of insurance, and of interest which might become due upon the account.

In security of the obligations undertaken for him by the defender in 1887 and

Page: 484↓

1888, Mr Fleming executed in his favour, and delivered to him, a transfer dated 10th July 1888, of 1595 shares for the sum of £2, 10s. each, upon which £2 per share had been paid, of the Aberdeen Glen Line Steamship Company. Mr Fleming also delivered to the defender the certificates of the shares transferred, and further handed to him a policy of insurance upon his life for £500.

On 3rd June 1891 Mr Fleming granted a trust-deed for creditors in favour of the pursuers, and he was rendered notour bankrupt on 29th July 1891.

The defender took no steps to have the transfer in his favour registered until 3rd June 1891, when the trust-deed for creditors was granted, Mr Fleming in the interval drawing the dividends. On the day on which the trust-deed was executed, the defender wrote to the chairman of the Glen Line Company enclosing the transfer and share certificates, and intimating his wish to have the transfer completed by registration. I may mention that the defender is himself a director of the Glen Line Company. Before the transfer was registered, the pursuers intimated to the company that they claimed right to the shares, and it was accordingly arranged that nothing should be done by the directors until that question was determined.

The present action is brought for the purpose of setting aside the transfer as constituting an illegal preference in favour of the defender, and of obtaining delivery from the defender of the share certificates and the policy of insurance for £500.”

The pursuers averred, inter alia—“(Cond. 1) The pursuers are trustees for behoof of the creditors of John Fleming, shipowner, Aberdeen, acting under a trust-disposition granted by him in their favour on 3rd June 1891. By the said trust-disposition, a copy of which is produced, the truster gave, granted, assigned, disponed, and made over to and in favour of the pursuers all and sundry his whole estates and effects, heritable and moveable, real and personal, of whatever denomination and wherever situated, and power is conferred on the trustees to sue and insist in all actions, and to do every other thing that they shall consider necessary in the execution of the trust, and it is further, inter alia, provided that the truster's estate (after deduction of expenses, &c.) shall be divided among his whole just and lawful creditors at the date of the disposition according to their several rights and preferences, and that the said creditors, including any holding securities over the truster's estate, shall be ranked, and the securities valued, in the same manner and to the same effect as if at said date sequestration had been obtained under the Bankruptcy Statutes. (Cond. 4) … The said documents (the policy of insurance, the transfer, and the certificates of the shares) were delivered while the said John Fleming was in a state of insolvency, and in pursuance of a fraudulent and collusive scheme formed between him and the defender for the purpose of giving the defender a preference over Fleming's other creditors for the obligations the defender had undertaken under the said guarantee, and for which he held no security, or at least they were accepted by the defender in knowledge of Fleming's insolvency, and for the purpose of obtaining a preference or security for an unsecured obligation upon which the insolvent had already drawn to more than its full extent. It was part of the said fraudulent and collusive scheme between Mr Fleming and the defender, in order that the apparent credit and position of Mr Fleming might not be injuriously affected, and that a false and fictitious appearance of solvency might be maintained by him to the prejudice of those with whom he might transact, that no assignation of the said policy should be executed and intimated to the insurance company at that time, and that the said pretended transfer of shares should not be intimated to the said steamship company or the shares transferred to the defender's name, but that the whole transaction should remain latent, inchoate, and incomplete. In accordance with this arrangement, no assignation of the policy was ever executed, no steps to make the transfer of said shares effectual were taken until 3rd June 1891, as after mentioned, and until that date the said defender, who is himself a director of the said company, not only permitted Mr Fleming to act and draw dividends as the ostensible owner of the said shares, but further represented him as the actual owner thereof to other creditors.”

The pursuers pleaded—“(1) The policy of insurance for £500 and the 1595 shares in the Aberdeen Glen Line Steamship Company referred to not having been effectually transferred to the defender, and having been in bonis of the truster John Fleming at the date of the trust-disposition by him in favour of the pursuers, the pursuers are entitled to decree of declarator of ownership, and to decree for delivery as concluded for. (3) The said pretended transfer is further null and void and reducible at the instance of the pursuers as trustees foresaid as being in fraudem of the creditors of the said John Fleming—1st, At common law, in respect that it was granted to the defender by the said John Fleming when insolvent and in knowledge of his insolvency, and was accepted by the defender in pursuance of a fraudulent and collusive scheme between them to confer on the defender a preference for a prior debt, or at least was accepted by the defender in knowledge of the said insolvency; and 2nd, under the Act 1696, c. 5, in respect that it was granted by the said John Fleming in favour of the defender for his satisfaction or further security in preference to other creditors, and that proceedings requisite for rendering it completely effectual were not commenced until less than sixty days prior to notour bankruptcy.”

The defenders pleaded—“(1) No title to sue.”

On 16th February 1892 the Lord Ordinary ( Low) pronounced this interlocutor:—“Finds that the transfer of 1595 shares of

Page: 485↓

the Aberdeen Glen Line Steamship Company, granted by John Fleming, shipowner, Aberdeen, to the defender David M'Hardy, which was dated 10th July 1888, and delivered to the said defender on or about the same date, was not granted within sixty days of the notour bankruptcy of the said John Fleming.: Therefore repels the second branch of the third plea-in-law for the pursuers, and assoilzies the defender from the third and fourth conclusions of the summons, and decerns: Finds that the pursuers are not entitled to found upon the alleged informalities in the form and execution of the said transfer: Therefore to that extent and effect sustains the first plea-in-law for the defender, and repels the second plea-in-law for the pursuers: Further, in so far as the first plea-in-law for the defender has not been sustained as aforesaid, repels the same: Finds that the delivery of the said John Fleming of a policy of insurance for £500 with the National Provident Institution to the said defender did not confer upon the said defender right to retain the said policy against assignees for onerous causes of the said John Fleming: Before further answer, allows the pursuers a proof of their averments to the effect that the said transfer was granted by the said John Fleming when he was insolvent, and was accepted by the said defender in knowledge of Fleming's insolvency for the purpose of conferring upon the said defender a fraudulent preference over Fleming's other creditors, and to the defender a conjunct probation, and appoints the cause to be enrolled for further procedure, reserving all questions of expenses.

“ Opinion.—… The first point which I have to consider is the defender's plea of no title to sue. He contended that a trustee for behoof of creditors under a voluntary trust-deed has no title to sue a reduction of a fraudulent preference either at common law or under the statutes. The defender was unable to cite any authority in support of his contention, and in my opinion it cannot be sustained. It seems to be consistent with principle that a trustee for creditors should have a title to challenge illegal alienations or preferences, and all the authorities, including Mr Bell, appear to assume that such a right exists.” ….

On 20th February, on the motion of the pursuers, the Lord Ordinary granted them leave to reclaim.

The pursuers reclaimed, and in the course of the discussion they craved leave to amend their record by adding to condescendence 1 averments to the following effect—“All the creditors of the said John Fleming except the defender have acceded to the trust-deed, have attended meetings called by the pursuers, and have lodged claims upon the trust-estate.”

Before the hearing concluded the Court intimated the opinion that unless the defender could establish that the pursuers had no title to sue, the whole case must go to proof.

Argued for the pursuers—On the question of title—Where creditors had acceded to a private trust, the fact of accession bound the creditors to take no separate action for their own interest, and constituted a contract whereby the trustee became the representative of the creditors who had acceded. Such a trustee accordingly, as representing the creditors, had a title to sue for the reduction of illegal preferences, although the trust-deed contained no clause expressly conferring this power upon him.

Argued for the defender— On the question of title—The trustee under a private trust-deed for behoof of creditors had no title to sue for the reduction of illegal preferences either at common law or under the Statute 1696, e. 5—Bell's Comm. (7th ed.) ii. 194; Barton, i. 255–7. It was not in the power of the debtor to confer such a right, and the defect was not cured by the mere accession of the creditors. Further, the proposed amendment was incompetent. It was not competent to introduce a new pursuer in the course of an action, and it was just as incompetent for a pursuer to change his title.

At advising—