Scottish Court of Session Decisions

The Burghs Gas Supply (Scotland) Act 1876, by section 41, enacts—“The commissioners shall from time to time fix the price to be paid for gas to be supplied during any succeeding year or half-year, and, until such price be altered by the commissioners the price so fixed shall remain in force, provided that the price shall be such as will, as nearly as can be estimated, raise sufficient income to discharge all the costs and expenses of and incident to the manufacture and distribution of the gas made, together with the interest on all money borrowed in respect of the works, and to provide the sinking fund required by this Act, and to provide for a depreciation and renewal fund sufficient to maintain the works in perpetuity, and for all charges incident to the occupation of such works, and the moneys received in respect of and incident to the manufacture and distribution of gas shall be applied to such purposes only, and any balance at the termination of any year shall be carried to the debit or credit of the succeeding year.” The same Act by sec. 38 provides—“It shall be lawful for the commissioners, and they are hereby required from time to time to fix, impose, and levy such a rate, to be termed ‘The Gas Contingent Guarantee Rate,’ as may be required to pay any annuities and any interest due thereon, and the interest of money borrowed or to be borrowed under the provisions and for the purposes of this Act.” And by sec. 39 it provides—“The gas contingent guarantee rate shall be imposed, levied, and collected on property situated within the burgh, on the requisition of the commissioners, by the authority in the burgh empowered by law to levy any assessment for police purposes therein, along with and in the same manner in all respects and from the same descriptions of persons and property as such assessment for police purposes, and the amount of such rate, when imposed, levied, and collected by such authority, shall be paid over to the commissioners for the purposes of this Act.”

The Police Commissioners of the burgh of Lockerbie, being also the Gas Commissioners of the burgh, met upon 9th October 1893 and fixed the gas rate for the year from May 1893 to May 1894 at 6s. 3d. per 1000 cubic feet, and as the estimates showed that there would be an apparent deficiency of about £320, they at the same time imposed a gas contingent guarantee rate of 5d. per £ for the current year ending 15th May 1894, to meet the interest due upon mortgage.

In January 1894 Thomas Milne and other four ratepayers in the burgh of Lockerbie raised an action against the Commissioners of the said burgh, to have it found and declared, “ Primo, that the defenders, in fixing the price of gas to be supplied by them to consumers thereof during any succeeding year or half-year, are bound to fix the price of such gas at such a rate as will, as nearly as can be estimated, raise sufficient income to discharge all the costs and expenses of and incident to the manufacture and distribution of the gas made, together with the interest on all money borrowed in respect of the works, and to provide the sinking fund and other charges specified in section 41 of the said Act; and further, and in particular, in such a way, as nearly as can be estimated, as will prevent them, when fixing the price of gas as aforesaid, from designedly fixing the price so as to create a deficiency in such income, to be provided for out of the gas contingent guarantee rate under said statute, or otherwise than out of the price of gas to be estimated as aforesaid; Secundo, that it is illegal and ultra uires of the defenders to fix, impose, and levy upon and from the pursuers and all others, ratepayers in the burgh of Lockerbie, ‘The Gas Contingent Guarantee Rate’ specified in the 38th section of the said Act, unless the same is or may be required by the defenders to pay annuities and interest thereon, and interest on money borrowed by them in terms thereof by reason of a deficiency arising during any year or half-year succeeding their estimate, after the price of gas has been fixed, as nearly as can be estimated, at such a figure as will pay all the annual charges as aforesaid.” They also sought to have the minute of the meeting of 9th October 1893 reduced, and the defenders interdicted from enforcing the gas contingent guarantee rate of 5d. per £ then fixed.

The pursuers averred—“In fixing the said price of gas at 6s. 8d. per 1000 cubic feet for the year to 15th May 1892, the defenders were aware that the necessary result upon that year's working, after allowing for the cost of making the gas, and all interest to become due upon the said mortgage during such period, would be a deficit of at least £45. Such an estimate as that upon which the said statement of accounts for the year to 15th May 1892 was based, was illegal and ultra vires

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of the defenders, and in violation of the 41st section of the said statute. The defenders were bound in making their estimate to fix the price of gas at such a rate as would meet all annual charges, including mortgage interest, and obviate the creation by them of any apparent deficiency upon their annual workings. Instead, however, of doing so, the defenders at their meeting on 12th October 1891, simultaneously with their having fixed the price of gas at 6s. 8d. per 1000 cubic feet, resolved, as in pretended exercise of their right under the 38th section of the said statute, to fix, levy, and impose upon the pursuers and other ratepayers, as occupiers of lands and heritages within the burgh, an assessment termed the gas contingent guarantee rate of 1d. per £ according to the rental of the property occupied by them within the burgh.” That in October 1892 and October 1893 they had adopted the same illegal course, having at their last meeting reduced the ordinary gas rate by 5d. and increased the gas contingent guarantee rate to 5d. per £.

The pursuers pleaded—“(2) The defenders, upon a sound construction of the statute libelled, being bound in their yearly estimate to fix the price of gas at such a rate as will discharge all the costs and expenses of and incident to the manufacture and distribution of the gas made, together with the interest due by them on money borrowed in respect of the works, without creating any apparent deficiency, the pursuers are entitled to decree of declarator to that effect, as craved. (3) The defenders not being entitled to impose the said gas contingent guarantee rate, unless in the event of a deficiency arising after the price of gas has been fixed by them as aforesaid, decree of declarator ought to be pronounced to that effect as craved. (4) The imposition of the gas contingent guarantee rate of 5d. per £ being illegal, and ultra vires of the defenders, their resolution of 9th October 1893 should be reduced as craved, and the defenders should also be interdicted from levying the same from the pursuers, all as craved, with expenses.”

The defenders explained—“The whole actings of the defenders have been strictly in accordance with the terms of the statute, under which they are empowered to levy an assessment under section 38, to the extent of the amount of the interest upon said mortgage. During the three years in which the assessment has been levied, it has been imposed at a rate which was calculated never to produce more than the respective amounts of interest due in each year.” And pleaded—“(1) The pursuers' averments are irrelevant.”

Upon 7th June 1894 the Lord Ordinary ( Low) pronounced this interlocutor—“Sustains the second and third pleas-in-law for the pursuers, and finds, decerns, and declares in terms of the first and second conclusions of the summons: Appoints the cause to be enrolled for further procedure: Reserves all questions of expenses, and grants leave to reclaim.

“ Opinion.—The first question in this case is as to the true construction of the 41st section of the Burghs Gas Supply (Scotland) Act 1876. Reading that section alone 1 do not think that it is ambiguous. It makes it imperative upon the Gas Commissioners to fix the price to be paid for gas at such an amount as will, as nearly as can be estimated, raise sufficient income to discharge all the charges mentioned in the section, including the interest on all money borrowed in respect of the works.

Prima facie, the defenders have not adhered to the provisions of the section, because they have deliberately and intentionally fixed the price at an amount not capable of raising a sufficient income to pay the interest upon money which they have borrowed as well as the other charges specified in the section. The position taken up by the defenders is this—They say that the price which they have fixed is that which is calculated to bring in the largest possible income, because if they made the price higher many people would not use gas and the income would fall. They have, they contend, a discretion in the matter, and the words, ‘as nearly as can be estimated, must be read as meaning ‘as nearly as can be estimated consistently with the prudent and profitable management of the undertaking.’ That construction, they argue, must be put upon the 41st section when it is read in connection with the 38th section.

When read alone it does not appear to me that the 41st section gives any discretion to the Commissioners, or that the words ‘as nearly as can be estimated’ admit of the construction for which the defenders contend. It is therefore necessary to consider the terms of the 38th section.

That section occurs in the part of the statute (from the 27th to the 40th sections, both inclusive), which deals with the ‘borrowing powers of commissioners.’ The 27th section authorises the commissioners to borrow on mortgage any money which may be necessary for the purchase or erection of gas works, and to grant mortgages of any rates or charges leviable by them under the provisions of the Act in security of the payment of the money so borrowed and interest thereon. Provision is then made by sections 28th to 37th for the form of mortgages and interest warrants for the appointment of a judicial factor in the event of annuities or interest on borrowed money falling into arrear for the application of borrowed money and kindred matters. Then the 38th section provides—‘It shall be lawful for the commissioners, and they are hereby required from time to time to fix, impose, and levy such a rate, to be termed “The Gas Contingent Guarantee Rate,” as may be required to pay any annuities and any interest due thereon, and the interest of money borrowed or to be borrowed under the provisions, and for the purposes of this Act.’

That section appears to me to be designed for the security of mortgagees and

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annuitants. If the price of the gas fixed in terms of the provisions of the 41st section does not produce a sufficient income to meet the interest of borrowed money as well as the other charges laid upon the income, then, and not till then, the Commissioners are authorised and required to levy the ‘Gas Contingent Guarantee Rate.’ I arrive at that conclusion because, in the first place, the provisions of the 41st section as to the basis upon which the price of gas is to be fixed are imperative; and in the second place, the terms in which the 38th section is expressed, and the rate thereby authorised described, appears to me to show that the rate was only to be levied when required to meet a contingency, the contingency, namely, of the income derived from the sale of the gas not being sufficient to meet the interest upon money borrowed.

I am therefore of opinion that the defenders in designedly fixing the price of gas from year to year at an amount lower than that which they estimated would be required to provide an income sufficient to meet all the charges specified in section 41 acted illegally, and that the pursuers are entitled to have decree in terms of the leading declaratory conclusions of the summons.”

The defenders reclaimed, and argued—There was no suggestion made that they had not carefully considered the matter. They had taken a business-like view of their duty, and had acted for the best in the interests of all concerned. Raising the price would not necessarily increase the amount of money received for the consumption of gas; it might have the very opposite effect by materially decreasing the number of consumers. They had to fix a price so as to raise the largest amount of money possible, looking to all the circumstances of the case. This they had done, and the levying of a gas contingent guarantee rate had been found necessary to meet the interest due upon mortgage.

Argued for the respondents—The Commissioners had no right by anticipation to meet a probable deficit by the levying of a contingent guarantee rate. If they foresaw a deficit they were bound to raise the price of gas to meet it, and were only entitled to levy the guarantee rate if after having done so an unforeseen deficit remained at the end of the year. They did not aver that by raising the price they would have decreased the number of consumers. They should at least have tried the effect of raising the price. They were endeavouring to impose a heavy burden on the ratepayers, whether consumers of gas or not, in the interests of and for the relief of the gas consumers.

At advising—