Scottish Court of Session Decisions

The trustees of the late James Bell, letterpress printer, Dublin, were creditors in two ground-annuals of £248, 16s. 2d. and £68, 7s., respectively due out of two properties in Glasgow belonging to J. Copeland & Company, and James Copeland and Lawson Forsyth as trustees for that firm. The contracts of ground-annual were in common form, and consisted of (1) a disposition of the lands by the original creditor in the ground-annual to the original debtor under the real lien and burden of the respective amounts of the ground-annuals payable half-yearly; (2) a personal obligation by the debtors to pay the ground-annuals; and (3 a disposition in security of the personal obligation of ( a) the ground-annuals, and ( b) the lands themselves. The dispositions to the debtors were under declaration that the debtors should have power at any time within ten years from the term of Whit Sunday 1865 to redeem the ground-annuals upon making payment of a capital sun equal to twenty-one years' purchase thereof.

At Whitsunday 1895 neither of the half yearly payments due under the contract of ground-annual were paid.

On 27th June the estates of J. Copeland & Company and James Copeland & Lawson Forsyth, sole partners of that firm, as such partners and as individuals, were sequestrated by the Sheriff of Lanarkshire, and John Gourlay, chartered accountant, Glasgow, was appointed trustee.

The Bankruptcy (Scotland) Act, sec. 118, provides—“No poinding of the ground which has not been carried into execution by sale of the effects sixty days before the date of the sequestration … shall (except to the extent hereinafter provided) be available in any question with the trustee; provided that no creditor who holds a security over the heritable estate preferable to the right of the trustee shall be prevented from executing a poinding of the ground … after the sequestration, but such poinding … shall, in competition with the trustee, be available only for the interest on the debt for the current half-yearly term, and for the arrears of interest for one year immediately before the commencement of such term.”

This enactment was repealed by the Conveyancing and Land Transfer (Scotland) Act 1874 (37 and 38 Vict. cap. 94), sec. 55, but it was re-enacted by the Conveyancing (Scotland) Act 1874 Amendment Act 1879.

On 3rd October the trustees of James Bell brought an action of poinding of the ground in the Sheriff Court at Glasgow against Copeland & Company, and the partners of that firm, and Mr Gourlay, as trustee on their sequestrated estates, craving warrant to poind the moveables on the ground of the lands disponed in the contracts of ground-annual above mentioned. The defenders admitted that the amounts of ground-annual due at Whitsunday were unpaid, but explained, as follows—“The defender John Gourlay, as trustee foresaid, is, and has been ready, and offers to pay any interest on the pursuers' debt ( i.e., upon his groundannuals) up to Martinmas 1895, in terms of section 3 of the Conveyancing (Scotland) 1874 Amendment Act 1879, and sec. 2 of the Conveyancing (Scotland) Acts 1874 and 1879 Amendment Act 1887.”

The defenders pleaded—“(1) Decree of absolvitor ought to be pronounced, in respect the Bankruptcy (Scotland) Act 1856, section 102, confers a preferable right to the moveables upon the defender John Gourlay, as trustee upon the sequestrated estates, subject only to the payment of the interest which has been tendered, and for which alone the pursuers could poind the ground.”

By interlocutor dated 9th December 1895 the Sheriff-Substitute Balfour) repelled the defences and decerned in favour of the pursuers, adding the following note:—

Note.—“The pursuers are holders of two ground-annuals over certain heritable properties belonging to the defenders J. Copeland & Company. The estate of these defenders was sequestrated on 27th June 1895, and the defender John Gourlay appointed trustee in the sequestration.

This is an action of poinding of the ground, and warrant is craved to poind the moveables upon the premises in satisfaction of the ground-annuals due to the pursuers at the term of Whitsunday 1895 for the

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half-year preceding. There are two different subjects over which the ground-annuals exist, and there are two separate contracts of ground-annual, which are in the usual terms. The security known as a groundannual is substantially the same as a feuduty. There are certain well-known distinctions between the two rights. In the case of the contract of ground-annual there is no relation of superior and vassal, and it was either in order to get quit of the prohibition by superiors against subinfeudation, or prior to the Conveyancing Act of 1874 in the case of lands held by burgage tenure, that parties transacted by way of ground-annual. The contract of ground—annual is a complex document; but, generally speaking, it consists in the seller disponing the lands in consideration of a certain ground-annual, which is made a real burden, and the purchaser binds himself to pay the ground-annual and redispones to the seller in security of the ground-annual not only a ground-annual of the specified amount to be uplifted out of the lands, but also the lands themselves. The ground-annuals are therefore annual payments created real burdens on lands on the same principle as real burdens are created for capital sums. The amount of the ground-annual is ascertained by taking the value of the lands generally at a certain price per square yard, and converting the capital sum at a certain rate of interest into an annual payment, but the contract of ground-annual does not contain these details; it merely stipulates for payment of the ground-annual. The ground-annual is postponed to the feu-duty, but as a debuum fundi it forms the foundation of poinding the ground. The defenders defend this action on the strength of a certain clause (the 118th) which appeared in the Bankruptcy Act of 1856. That clause was repealed by the Conveyancing Act of 1874, but it was restored by the Conveyancing Amendment Act of 1879, and an addition was made to it by the further amending Act of 1887. The clause is as follows—[ The Sheriff-Substitute quoted the section.]

It will be noticed that this clause provides that no creditor who holds a security over the heritable estate of the bankrupts, preferable to the right of the trustee, shall be prevented executing a poinding of the ground after the sequestration, but such poinding shall, in competition with the trustee, be available only for the interest on the debt for the current half-yearly term, and for the arrears of interest for one year immediately before the commencement of such term. The present poinding is alleged to be for the interest on a debt for the current half-yearly term, but the defenders say that a ground-annual is not interest on a debt at all, but that it is a perpetual annuity having no reference to any principal sum or debt. This, however, seems to me to be a very narrow reading of the clause of the statute. The result of this reading would be that a superior would have a preference over the trustee for his feu-duties, because the superior's rights are reserved by the Bankruptcy Acts, and a bondholder could have the statutory preference over the trustee for his interest, but the holder of a ground-annual, who is preferable to a bondholder, would have no preference at all. It is contended that a ground-annual is not interest on a debt in the same way as interest on the principal sum contained in an heritable bond. But I hold that it is an annual payment which has been fixed by taking a certain rate of interest on a principal sum, viz., the price of the lands, and there is no principle whatever in holding that the statutory preference applies to a bond and not to a groundannual. The argument appears to me to be founded upon a constrained reading of the expression ‘interest on debt.’ All the other elements which go to confer the preference exist in the person of the pursuers, inasmuch as (1st) they hold a security over the bankrupt's heritable estate; (2nd) this security is preferable to the right of the trustee; and (3rd) they are entitled to execute a poinding of the ground after the sequestration.

This is not a case which, in my opinion, falls to be determined by nice inquiries as to what the meaning of the ground-annual is, and as to whether it is not tantamount to interest and annual rent. It falls to be dealt with on a broader basis, viz., whether in the sense of the statute a ground-annual is not really an annuity determined by the price of the lands, and whether it may not from that point of view be fairly described as interest on debt. There is no reason whatever, that I can see, for a holder of a ground-annual being deprived of the preference under the statute, and for the holder of an heritable debt, which is an inferior burden, being preferred to him.

I am therefore of opinion that the holder of a ground-annual is entitled to the statutory preference, and that this poinding is competent.”

The defenders appealed to the Court of Session, and argued—After sequestration poinding of the ground was only available in competition with the trustee for “interest on a debt” secured over heritable estate (Bankruptcy (Scotland) Act 1856, sec. 118, as re-enacted by the Conveyancing (Scotland) Act 1874 Amendment Act 1879, sec. 3). The sum due annually under a contract of ground-annual was not interest on a debt. There was no principal sum on which it was interest, but only a right to an annual payment, and the security was for the annual payment only.

Argued for the pursuers and respondents—If the defenders' contention were correct the highly anomalous result would be that a heritable creditor in virtue of a bond could poind the ground after sequestration, but the creditor in a ground-annual, whose debt was preferable to that of such a bondholder, could not. This could not be assumed to be the intention of the Legislature. But the debt in a ground-annual was not the payment for any one year. A ground—annual was a right to an annual payment in perpetuity. Such a right could be capitalised, and the capitalised

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value was the amount of the debt. This appeared from the power of redemption in the contracts. The sum due annually was just interest on the amount of the capitalised value. A ground-annual was an “annual-rent,” and that expression was in the institutional writers used as equivalent to interest—Ersk. Inst. iv. 1, 11.