Scottish Court of Session Decisions

On 10th July 1876 John Thomas North obtained from the Municipal Council of Pisagua, Peru, by deed of agreement, a concession of the exclusive right to supply the port of Pisagua with drinkable water by pipe-conduit from the interior. The deed provided that the works were to be completed in three years, and that the concession should endure for thirty years..

By minute of agreement dated 13th October, 1877 North and William Speedie, engineer, Mollendo, Peru, entered into a joint-adventure for the execution of the necessary works in terms of the concession. By the first article, Speedie undertook to pay North £5000 at the ensuing term of Martinmas, in return for which obligation North assigned the concession to himself and his partner. By the second article it was provided that the capital stock of the joint concern was to be £50,000 in equal shares, and that “such portion of said sum as may be required to meet payments in Great Britain in connection with said works, but not exceeding £20,000,” should be raised upon securities belonging to Speedie, to be placed in the hands of Mr John Welsh, S.S.C., Edinburgh. The fifth article provided that

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“neither of the parties shall have any concern in similar works or undertakings whereby they may be prevented from devoting their whole time and attention to the interests of the company.”

By another minute of agreement of the same date between North and Speedie on the one part, and Mr John Cockburn, wine merchant, Edinburgh, on the other, the latter was admitted to one-tenth share in the joint-adventure. By the first article he was taken bound “to contribute towards the expenses which have already been incurred in obtaining the said concession, and otherwise in beginning the said works, the sum of £1000 when demanded, and further, to contribute such further sums, not exceeding in all one-tenth part of the total sum which may be required for carrying on and completing the said works, and that in such sums and at such times as may be demanded by John Welsh, S.S.C., who is hereby authorised and empowered to demand and receive payment of the same.” The second article provided that North and Speedie should have the exclusive right to manage the said works, and to purchase plant and materials therefor without being interfered with by Cockburn in any manner of way.

The facts proved in regard to what Cockburn did in implement of his obligations are sufficiently stated in the opening of the Lord Ordinary's note.

Certain purchases of plant were made, and certain engineering operations were undertaken, for the purpose of carrying out the pipe scheme, but beyond that it was not persevered in.

On 18th May 1878, North, who had gone to South America in March, entered into a contract in his own name for a lease or location of the business carried on by the Tarapaca Water Company, which consisted in supplying Pisagua and three other ports with fresh water by means of steamers plying along the coast.

On 7th June 1878 Speedie wrote to Mr Welsh, who represented the absent joint-adventurers in this country, in virtue of a factory and commission dated 13th October 1877, in the following terms—“ Water Scheme.—You won't require to provide any funds for this for some time, as we have made other arrangements, which I hope will give us an income' are investing any more.”

By minute of agreement, dated 9th July 1878, North took Speedie into partnership for the working of the Tarapaca Water Company, giving him an equal share in the enterprise.

The fifth article provided—“As the present contract is intimately connected with that for the supply of drinking water to the Port of Pisagua, for the works of which the contracting parties have also formed a partnership, the deed of partnership relating to which continues in force, Mr Speedie recognises or binds himself to pay to Mr North £5000 sterling for the share of expenses incurred in obtaining that the Municipal Council of Pisagua should award to him the construction of the work with a privilege.”

On 18th July 1878 Speedie wrote to Welsh—“North won't go on with the pipes, he having by a bold stroke of diplomacy frightened the existing water company into handing us over all their stock and steamers North will go home I expect next month, when he will explain all to you. The funds he has drawn for traction engine he will refund, and as I stated before you will not require to make any further payments to him. He will also make the arrangements necessary with Mr Cockburn, either to hold over until the pipes are laid or pay him out. That I will leave to you and North.”

On 5th October 1878 North wrote to Welsh in these terms—“We are now in partnership in another water concern as well as the one in which we are at present working together. We have not yet decided what we are going to do with the other concession, but as Mr Speedie will be here in about a month's time, when I shall come to Edinburgh to see him and yourself respecting our Peruvian interests; besides, we have to arrange with Mr Cockburn as to his share in the business, and this cannot be done until Mr Speedie's arrival.”

On 21st December 1878 North wrote to Cockburn—“I may tell you, though we have not carried out our scheme, we have made all preparations for doing so, but on Mr Speedie's return I think we shall give you the choice of going on with us or without your money, but when I see you will explain more fully.”

Shortly afterwards war broke out between Chili and Peru, which brought the working of the water company's business to a standstill, water being declared contraband of war, and Pisagua being nearly destroyed by bombardment. In consequence the location contract was held by an award of arbitrators, dated 22nd September 1879, to have come to an end “by reason of the matter located having been partly destroyed.”

In 1881, after peace had been restored, the Tarapaca Water Company was wound up, and its assets and business were sold to North, who carried on the concern till 1888, when he sold it to a limited company for £100,000.

North had dissolved his partnership with Speedie in 1882. The deed of dissolution bore that “by virtue of this contract, and particularly by the extension of the society on 9th July 1878 [referring to the location contract] Mr North pays to Mr Speedie, &c.”

On 27th February 1884 Cockburn wrote to North—“I write to inquire when I may have an interview with you, and thereby learn what has become of the Bolivian Water Scheme, &c., &c.”; and on 31st March 1884 to the same effect—“I again write to inquire if you are now prepared to square up the Bolivian Water Scheme transaction?”

On 17th April North replied as follows—“I am sorry to inform you that the project for bringing down the water was like the ‘Straiton Oil Company,’ a failure. On

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account of heavy losses through the war, &c., the concern was put into liquidation years ago. A great deal of expense, however, was incurred, and borne by Mr Speedie and myself. I have written out to the coast for detailed a/cs., and on receipt of same will further communicate with you as to the proportion of the loss accruing to yourself.… I need not tell you that the £250 in B shares of the Straiton Oil Company cost me £750.”

These were the only communications that passed on the subject between 1878 and the date of the action.

Robert Stewart, farmer, Elibank, near Peebles, acquired Cockburn's right and interest in the joint-adventure by assignation from the trustee on Cockburn's sequestrated estate dated 13th and 14th April 1887, and brought this action of accounting against North in May 1887 having used arrestments ad fundandam jurisdictionem. He averred (Cond. 7)—“In entering into the said transaction ( i.e., the location contract), and in carrying on the said business Messrs North and Speedie were acting for behoof of the said joint-adventure. The transaction was in the line and within the scope of the said joint-adventure… . Moreover, in their negotiations for the purchase of the said water-works, and for supplying water to Pisagua, Messrs North and Speedie availed themselves of their connection with and control of the said joint-adventure, and of the rights and privileges conferred by the said concession.” (Cond. 11) “The whole of the transactions and arrangements before narrated subsequent to the date when the defender went to Peru in 1878 were negotiated … for the benefit of the joint-adventure.”

The defender answered—“To this contract” ( i.e., the location), “of which the object, considerations, and liabilities were wholly different, and which were outside the scope of the joint-adventure foresaid, Cockburn was no party, and had no interest therein.” He also averred that the joint-adventure had come to an end, and the pipe scheme had been abandoned for want of the necessary capital, that this abandonment was known to and acquiesced in by Cockburn, and that he had failed to implement his part of the joint-adventure by contributing his share of capital.

The pursuer pleaded—“(3) The business carried on by the defender and Mr Speedie having been for behoof of the joint-adventure the pursuer is entitled to credit for a share of the profits thereof. In any view, the said business being in the line and within the scope of the agreements of 13th October 1877, the defender and Mr Speedie were not entitled to carry it on except for their joint behoof, and the defender being in right of the assets and responsible for the liabilities is accountable to the pursuer for the profits thereof.”

The defender pleaded, inter alia—“(6) The said John Cockburn having abandoned whatever claims were competent to him in respect of his interest in the joint-adventure under the minute of 13th October 1877, the pursuer is not entitled to demand a count and reckoning as concluded for.”

There was also a plea to the validity of the arrestments, which was sustained by the Lord Ordinary ( Kinnear), but repelled by the First Division by interlocutor dated 14th June 1889. The judgment was affirmed by the House of Lords on 14th July 1890–17 R., H. of L., 60.

At a proof taken before the Lord Ordinary ( Stormonth Darling) on 24th November 1891, pursuer's counsel put in the documents and letters above referred to amongst others, and stated that they did not propose to lead oral evidence. The defender's proof consisted mainly of a lengthy examination and cross of the defender himself. He deponed—“(Referred to letter from Mr Speedie to Mr Welsh, dated 7th June 1878)—In that letter Mr Speedie says—‘You won't require to provide any funds for this for some time as we have made other arrangements, which I hope will give us an income ‘ere investing any more.’ In regard to that paragraph I should understand that Mr Speedie knew Mr Welsh had got no money, and that there was no use bothering him any more. (Q) The words ‘You won't require to provide any funds for this’ refer to the joint-adventure in the water scheme?—(A) Yes; the joint-adventure between North and Speedie. No funds were required for the farming business. (Q) He goes on to say, ‘as we have made other arrangements, which I hope will give us an income ere investing any more?’—(A) This would give an income by the profit we made—the farming business. In the meantime, as they could not get money for the pipes, it was left in abeyance. (Q) You have no doubt he refers there to the location which you had got from the company?—(A) The contract from the company… . (Referred to fifth article of defender's contract with Mr Speedie)—(Q) What was the intimate connection there referred to?—(A) Mr Speedie had not paid anything towards the expense that I was out of pocket in the preliminary work of the pipe scheme. (Q) Do you say that that is the connection you refer to?—(A) Yes. (Q) Was not the intimate connection this—that you were a member of two partnerships for doing the same thing?—(A) No. We could have brought water down with the pipes. (Q) Was not the intimate connection this—that both the partnerships had for their object the supply of water to Pisagua?—(A) Yes, the farming or leasing was to bring the water down as it was brought before; it was to continue what it was doing before… . (Shown letter by Mr Speedie to Mr Welsh, dated 18th July 1878)—(Q) In that letter he speaks about your diplomacy in having frightened the existing water company into handing over all their stock to you; do you know what he refers to there?—(A) No; but perhaps they thought I was going into opposition. (Q) You had in your pocket this concession from the municipality for a monopoly of the supply of water by pipes to Pisagua?—(A) Yes. (Q) Did that give you the whip hand of the company?—(A)

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It would have its effect in their trying to avoid opposition. As regards Pisagua, there is a railway there, and we could not have driven them out of the field. (Q) In negotiating with the Tarapaca Water Company for the location you made use of your powers which you had got under the concession as an aid in making a bargain?—(A) To help us. They didn't know that we hadn't got capital, and we took good care not to let them know. It was quite well understood between me and Mr Speedie in July 1878 that Mr Cockburn had a subsisting interest in the matter of the supply of water to Pisagua. We found that the supplying of water to Pisagua under the contract we had got was a profitable affair at first.”

On 16th March 1892 the Lord Ordinary ( Stormonth Darling) assoilzied the defender from the conclusions of the action, and found the pursuer liable in expenses.

“ Opinion.—[After narrating the substance of the agreements]—What actually happened was this—At the time when the joint-adventure was entered into, Cockburn contributed £125 by transferring to the defender 1000 B shares in the Straiton Oil Company, on each of which half-a-crown had been paid. The transfer proved a disastrous one to the defender, for the company soon afterwards went into liquidation, and the defender had to pay up the balance of £875. I notice this only because it may help to account for Cockburn's subsequent conduct in not asserting any partnership rights. But the transaction, notwithstanding its unfortunate result, must be held to have constituted a payment by Cockburn to the extent of £125. There is evidence in the letters of Mr Welsh that Cockburn was repeatedly asked to make further payments, and that owing to financial difficulties he could not pay more than a sum of £300 in June 1878. The letters of Welsh are not of course by themselves evidence of the reason why no more was paid, but they corroborate the defender's account of the matter, and as neither Welsh nor Cockburn were examined, I must assume that Cockburn's failure to make the stipulated contributions in full was due to inability, and not to the absence of demand.

From the same source, and also from the evidence of the defender, it appears that shortly after October 1887 Speedie's property in this country became so depreciated in value that it was found impossible to raise money on the security of it as provided in the agreement, and that the only plant ever ordered for the water-works was an engine and boiler at a cost of £834, which sum seems afterwards to have been repaid by the defender to Speedie. Except this sum, and the two payments made by Cockburn, the only money spent in connection with the joint-adventure consisted of outlays by the defender in obtaining the concession and making preparations for the work, which he estimates at more than £5000.

These being the facts, the question arises, whether in entering into his contract with the water company the defender was justified in treating the joint-adventure as at an end, or whether he must be held to have made the contract for behoof of the joint-adventure.

I do not doubt the soundness of the legal propositions which the pursuer maintains, and which have been embodied in sections 29 and 30 of the Partnership Act 1890. I refer to these sections, not as in terms ruling the present case, for that would be to make the statute retrospective, but as containing a convenient and authoritative summary of the law which had previously been settled both in England and Scotland. Section 29 is in these terms—‘Every partner must account to the firm for any benefit derived by him, without consent of the other partners, from any transaction concerning the partnership, or from any use by him of the partnership property, name, or business connection.’ And section 30 is as follows—‘If a partner, without the consent of the other partners, carries on any business of the same nature as and competing with that of the firm, he must account for and pay over to the firm all profits made by him in that business.’

If the pursuer's author Cockburn had implemented his part of the joint-adventure, I do not think that the defender would have been entitled, without his consent, to abandon the pipe scheme, and enter into the contract with the Water Company. The operations of the latter were not confined to Pisagua, and the mode of supply was different, but its business was, inter alia, to do the very thing which the joint-adventure was to do, viz., to supply Pisagua with water. Cockburn, in the case supposed, might have declined to go into it, and might have claimed back his money, but if profits had been made, and he had chosen to claim a share of them, I think he would have been within his right. I do not know whether the case would have fallen under the rule compelling a partner to account for the profits of a business carried on in competition with the business of the firm, for probably the rule implies that the two businesses are actually in operation at the same time, but I think it is clear that in negotiating his contract with the Water Company the defender made use of the concession of 1876, which had become partnership property. He admits that it gave him a lever in making terms with the company, for he did not disclose to them that his attempt to raise capital for the pipe scheme had failed.

It would have been, I think, a much more difficult question whether Cockburn or those in his right would have been entitled to follow the defender over the gap which occurred between the termination of what has been called the ‘farming contract’ in 1879 and the purchase of the Water Company's business in 1881, for it does not appear that the concession was of any use in enabling the defender to cheapen the purchase price, and indeed it hardly could be, because the three years allowed

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for completing the works had run out in 1879. Moreover, there had been so complete a change caused by the war and the partial destruction of the town that it is difficult to see how even the fact of having held the abandoned ‘farming contract’ gave the defender any appreciable advantage in purchasing the business of the company. Undoubtedly also the lapse of time and the silence of Cockburn would have formed serious obstacles to the success of a claim to share in profits.

But it seems to me unnecessary to consider these questions, for the fatal objection to the pursuer's case in my view is, that Cockburn, in whose right he stands, failed to implement his part of the joint-adventure. The failure was not Cockburn's alone, for there was a complete breakdown of the arrangements for raising money in this country, by which, according to the contracts, the payments for plant, &c. (not exceeding £20,000 and estimated at £16,000), were intended to be made. I think it must have been partly the consciousness of this which prevented Cockburn from pressing any claim to be regarded as a partner in the subsequent undertakings. He did write two letters to the defender, one on 27th February 1884, and the other on March 31st of the same year. In the first he asked what had become of ‘the Bolivian Water Scheme,’ and in the second (having received no answer to the first) he said—‘Knowing your good intentions and sense of honour when we last parted at The Laurels, I again write to inquire if you are now prepared to square up the Bolivian Water Scheme transaction.’ These letters do not indicate a very active or intelligent interest in the matter, for the scene of operations was not Bolivia but Peru. However, he got a reply from the defender dated 17th April 1884, which was either not very candid or singularly inaccurate, for it bore that ‘the project for bringing down the water’ had been ‘like the Straiton Oil Coy., a failure,’ and that on account of heavy losses through the war, &c., the concern had been ‘put into liquidation years ago.’ It was of course quite inaccurate to say either that the joint-adventure (which was the scheme referred to) had suffered losses through the war or had been put into liquidation. In the witness-box the defender was quite unable to give any satisfactory explanation of this letter, and perhaps his best excuse was given to his own counsel in reexamination, when he said that by the time he wrote the letter his papers relative to the pipe scheme had all been destroyed. But the important fact is that to this letter Cockburn made no reply. Perhaps he was scared by the mention of heavy losses, and by the defender's proposal to ascertain the proportion of these losses accruing to himself. At all events, he seems never to have renewed his demand for a settlement of accounts.

It was strongly urged for the pursuer that the proper inference from the defender's letter of 17th April 1884 was that he regarded Cockburn as having an interest in the ‘farming contract,’ but I think it must be read in connection with an earlier letter from the defender to Cockburn on 21st December 1878, in which he said that ‘on Mr Speedie's return I think we should give you the choice of going on with us or without your money.’ The defender says that he recognised a certain claim on Cockburn's part to have the option of joining in the ‘farming contract’ provided he paid his share of the expenses already incurred, just as Speedie did. But that is a very different thing from having an absolute right to an accounting without making any contribution.

It was also urged that Cockburn was not bound to make any payments towards the expenses of the joint-adventure except such as were demanded by Mr Welsh, and that there was no evidence of any demand except for the two sums which were paid, but I cannot assent to the view that Welsh had any power to relieve Cockburn from payment of any part of the sum of £1000, which was his stipulated contribution to the expenses already incurred. He had only power to regulate the time when payments should be made, and I must conclude, in the absence of Welsh's evidence, that the reason for the full amount not being paid was either that Cockburn could not pay, or that everybody recognised that the scheme had proved abortive for want of the necessary capital.

I am of opinion therefore that the pursuer has failed to make out his case for an accounting.”

The pursuer reclaimed, and argued—Cockburn contributed £550 to the joint-adventure, and the pursuer as his assignee was at least entitled to know what had become of it. The subject-matter of the contracts entered into by the defender fell within the scope of the joint-adventure or competed with it; in either case, he must communicate the benefits, for though a joint-adventure is a limited partnership, yet once its scope is determined, the same rules apply as in partnership. There was no evidence to support the Lord Ordinary's view that the joint-adventure collapsed for want of funds; no demand was made on Cockburn for more than he paid. In fact, no more capital was required for the pipe scheme, because the location contract was followed out instead of it; the accounting should therefore include the working of the location. By the purchase in 1881 the defender acquired the permanent right in the Water Company's business in place of his temporary right under the location. He again made use of the concession to negotiate favourable terms with the company. There was no ground for the suggestion that the concession had lapsed; the Municipality had never challenged it, and there was no right surely in one of the socii to raise that question, and it was recognised as existing in the dissolution of the partnership between North and Speedie. The accounting should therefore embrace the rights acquired under the contract of 1881, and extend down to the sale of the business in 1888—Lindley on Partnership, pp. 303–305; Bell's Comm. ii. 632 (5th ed.); Ersk. iii.

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3, 20; Pender v. Henderson, July 20, 1864, 2 Macph. 1428; M'Niven v. Peffers December 2, 1868, 7 Macph. 181; Dean v. Macdowell, 1878, L.R., 8 Ch. Div. 345; Partnership Act 1890, secs. 29 and 30.

The defender argued—There was nothing in the record to cover the limited accounting now sought. There was no real proof that the possession of the concession was the means of procuring the location, and still less the purchase of the Water Company's business, for it was a lapsed privilege at the latter date, and if it had been so used, the pursuer could not claim an accounting as for a share of partnership profits; the proper conclusion would be for damages. Joint-adventure being a limited partnership, the rules of partnership as to communicating benefits arising from any other enterprise in pari materia did not apply; joint-adventurers usually had many schemes on hand, and some might overlap. In any view, the pursuer was barred from claiming a share in the profits by his having lain by so many years— Davie v. Buchanan, December 17, 1880, 8 R. 319; Clegg v. Edmondson, 1857, 8 De Gex, M'N. & G. 787; Miller v. Walker, December 10, 1875, 3 R. 242; Featherstonhaugh v. Fenwick, 1810, 17 Vesey, 298; Lindley on Partnership, p. 467–8.

At advising—