Scottish Court of Session Decisions

In February 1889 the Edinburgh Northern Tramways Company brought an action against Mr William Hamilton Beattie, architect, Edinburgh, and Mr George Mann, S.S.C., concluding, inter alia, for an accounting by them in regard to all moneys, shares, or debentures received by either of them as promoters of the Tramways Company or in virtue of a certain agreement. The defenders were the engineer and solicitor of the company respectively.

The Lord Ordinary ( Trayner) on 16th July 1890 pronounced an interlocutor by which he found that the defenders were bound to account as desired, and “appointed the defenders to lodge in process an account of all sums of money received by them, as also an account or accounts of all sums which they claim respectively to be entitled to set off against the before-mentioned sums.”

The defenders reclaimed against this interlocutor, which was affirmed by the First Division and by the House of Lords. The accounts were duly lodged by the defenders, and the case having come before Lord Kincairney, various objections were lodged thereto by the pursuers. In particular, it was maintained on behalf of the pursuers that the defenders were not entitled to remuneration for their services as law-agent and engineer in preparing and obtaining the company's Act of Parliament,

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but only to repayment of their outlays, including sums paid to other professional men who assisted them in these proceedings.

The defenders maintained that they were entitled to payment for their professional services, and founded upon the 78th section of the Northern Tramways Companies Act 1884, which provides that “the company shall pay all costs, charges, and expenses of and incident to the preparing for, obtaining, and passing of this Act or otherwise in relation thereto.”

By an interlocutor dated 20th December 1893 the Lord Ordinary found that the defenders “are not barred from charging the pursuers for professional services rendered by them incident to the preparing for, obtaining, and passing of the pursuers' Act or otherwise in relation thereto by reason that they were promoters of the said Act at the time when such services were rendered, and remitted to various men of skill to tax and report on the accounts.”

“ Opinion.—Messrs Mann and Beattie have now, in compliance with Lord Trayner's interlocutor of 18th July 1890, lodged an account of the sums of money, shares, and debentures which they claim to be entitled to set against the considerations received by them from the Patent Cable Tramways Corporation, Limited, under the agreement dated 25th October 1884, but disallowed as promotion money by that interlocutor. The Tramway Company have lodged objections to these accounts, and parties have been heard in the procedure roll on the objections. Parties were agreed that the greater number of these objections cannot be disposed of without inquiry.

There is, however, one main objection on which both parties desired a judgment in the belief that the point of law involved could be determined without inquiry, and that the decision of it would materially affect all the other objections.

The objection is the first, and is this, that Mann and Beattie are not entitled to take credit for their accounts for professional services rendered in obtaining the Act incorporating the Edinburgh Northern Tramways Company. Each of these gentlemen has lodged a professional account for services rendered during the promotion of the company, and I am asked to negative absolutely their claims for these accounts, on the ground that, although the services may have been rendered, and may have been beneficial to the company, the accounts cannot be recovered, because Mann and Beattie were promoters of the company when the services were rendered.

There is no need to make any attempt to define the term ‘promoter,’ because whatever limitations may be put on the meaning of the term, there can be no doubt that Mann and Beattie were promoters of the company. They do not dispute it, and the payment to them of £17,000 stipulated to be made to them by the Cable Corporation under the agreement of 25th October 1884 was disallowed just because it was promotion money.

Messrs Mann and Beattie rest their claim on the 78th section of the Northern Tramways Companies Act, whereby it is provided that ‘the company shall pay all costs, charges, and expenses of and incident to the preparing for, obtaining, and passing of this Act, or otherwise in relation thereto.’

The argument of the objectors is that a promoter of a company is in law a trustee for the company which he is bringing into existence, and that the whole principles of the law of trust applicable to the relations between the trustee and the trust-estate apply to him, and that it is an elementary principle in the law of trust, not only that a trustee cannot make a secret profit at the expense of the trust-estate, but also that he cannot be auctor in rem suam, cannot make a traffic of his trust, and cannot charge for any professional services rendered by him to the trust-estate of which he is trustee.

That these are elementary principles of trust-law cannot be questioned, and there can be no doubt that the accounts of Messrs Mann and Beattie must be disallowed if their position as promoters was precisely that of trustees, and if their charges are not authorised by the 78th section of the Act above quoted.

The application of these principles of the law of trust to a promoter of a company was considered in the leading case of The Huntingdon Copper Company v. Henderson, 12th January 1877, 4 R. 294, aff. 29th November 1877, 5 R. (H.L.) 1. There a director of a company, who had been a promoter, was held bound to pay to the company £10,000, which during the course of the promotion of the company had been paid to him by the vendors of the concern for the purchase of which the company was promoted and incorporated. He was considered to be a trustee, and therefore not entitled to make a profit at the cost of the company, and it was considered that the £10,000 was truly paid by the company to the vendors and by the vendors to the promoters. Lord Young, who was Lord Ordinary, put his judgment on the general principle that a trustee shall not, without the knowledge and consent of his constituent, make a profit of his office, or take any benefit from the execution of it, or (expressing the doctrine with still greater generality) ‘that a man who is charged with the duty of attending to the interests of another shall not bring his own interest in competition with his duty.’ In the Inner House reference was made, particularly by Lord Mure, to the principle that a trustee could not charge for professional services rendered to the trust-estate, and his Lordship clearly indicated his opinion that that rule of trust law was applicable to the case of a promoter which was then under consideration, and I think the objectors are entitled to found on Lord Mure's opinion. But I do not think that the point now raised, viz., whether a promoter is entitled to credit for professional charges was decided in the Court of Session in the case of the The Huntingdon Copper Company. Neither do I think that any distinct opinion

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on the point was expressed in the House of Lords. The case of The Huntingdon Copper Company seems to leave the point now made open, although there were certainly observations made on the bench to which the objectors are entitled to refer.

The objectors referred also to The Emma Silver Mining Company v. Grant, 1878, 11 Ch. Div. 918; and Lydney & Wigpool Iron Ore Company v. Bird, 1886, 33 L. J. Oh. Div. 85, in which promoters were held bound to account for promotion money, but were allowed to take credit, and that on a liberal footing, for their outlays in promoting the company, so that they were held hound to account for their net profits only. The objectors founded on these cases because nothing but outlay was allowed, and nothing was allowed for services rendered. But it does not appear that in either of these cases any services of the kind had been rendered.

No clause authorising payment of the costs, charges, and expenses of promotion was founded on in any of these cases, and there seems to have been no such clause.

Had a claim for services been advanced in any of these cases, it seems that it would have been open to the further answer that such services must have been rendered without any contract, because until a company is incorporated, there is no one with whom a promoter can contract, and therefore no claim for such services in such a case could have been rested on contract. But this difficulty is obviated by the 78th section of the pursuers' Act, a clause which is usual in such statutes, and the object of which appears to be to meet this difficulty.

The previous judgments in this case leave the present question undecided, although opinions were expressed in the course of the proceedings which certainly appear to be favourable to the objection.

In these circumstances it is with no little mistrust that I have come to the conclusion that I cannot sustain the objection.

I think that the analogy between a trustee and a promoter is defective, and that all the principles and practice applicable to a trustee cannot be applied to a promoter. Mann and Beattie were not in a strict sense trustees when they were engaged in promoting the company. They could not be, because they had no constituent or beneficiary. They were creating the trust, and even the strictest law applicable to trusts does not bar an agent from making professional charges for framing the trust-dee4 by which he is made a trustee. Again, a promoter may lawfully promote a company for the purpose of selling to it his own property, and a sale by a promoter of his own estate to the company which he promoted might be unobjectionable. To use the language of Lindley, 5th ed. 349, ‘It is unsafe to say that any particular person was a promoter of a particular company, and to infer from thence that he is liable to account to it, as if he had been its trustee.’ It cannot be affirmed that during the whole time when a promoter is concerned with the promotion of a company he is under the disabilities of a trustee. It seems to he a question of circumstances in each particular case when such disabilities begin to attach.

There is no doubt that a promoter cannot make secret profits, and that all promotion money is illegal. But I cannot affirm that his duties towards the company which he promotes are the same as the duties of a trustee towards the trust-estate, or towards the beneficiaries under the trust law, and I think that it is stretching the analogy of trust law too far to affirm that a promoter can never be paid for his professional services in virtue of a clause which requires the company to pay the costs, charges, and expenses incident to the obtaining of the Act.

That clause is a clause in favour of promoters chiefly or solely, and it has been decided in England that it is not a clause for the protection of those who render services on the employment of promoters, but of those who have no one to look to except the company when it is brought into existence, that is to say, of promoters— Wyatt v. Metropolitan Board of Works, 1862, 11 C.B. (N. S.) 744; Skegness and St Leonard's Tramways Company, 1888, 41 Ch. Div. 215.

I think that the words ‘costs, charges, and expenses’ ought to be read as extending beyond outlays. For, according to the cases of The Emma Silver Mining Company and Lydney, supra, outlays would be allowed without the sanction of any such clause, and unless the words go beyond outlays, they are ineffectual. The case of Shaw's claim in re Brampton & Langtown Railway Company, 1875, 10 Ch. 177, appears to be in point. In that case a claim of a solicitor, who was promoting a railway company, for professional services rendered by him was allowed against the company. A similar claim was disallowed in Wyatt v. The Metropolitan Board of Works, supra, but there the person making the claim was not the promoter, and it was held that his recourse was against the promoter.

The right of a promoter to make professional charges under this clause appears distinctly recognised by Lindley, J., who says that in Wyatt v. The Metropolitan Board of Works it was in effect decided ‘that only those persons can sue the company upon a clause in the usual form who have incurred expense or bestowed time and trouble in forming the company and in getting its Acts passed, and who have no other paymasters. For example, solicitors or Parliamentary agents who have thus acted, and who have not been employed by other people who are liable to them, can sue the company on such clauses’—Lindley on Company Law, 5th ed. p. 147.

On the whole, I come to the conclusion that there is no sufficient authority for applying to the case of a promoter the rule that a trustee cannot be allowed his professional charges, and that such charges may be allowed under the words ‘cost, charges and expenses’ in the 78th section of the pursuers’ Act.

There are some of the objections which apparently cannot be disposed of without

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proof or further admissions. Of these, with, as I understand, the assent of the parties, I have reserved consideration. I understand that this interlocutor will be submitted to review, and in that view it may be more convenient that I should not name the accountant or the civil engineer to whom it will be necessary to remit several of the objections.”

The pursuers reclaimed, and the First Division, holding it inexpedient to pronounce general findings on the rights of the defenders till the accounts had been taxed, recalled the interlocutor of the Lord Ordinary, hoc statu, in so far as it referred to the defenders not being barred.

Objections were lodged by the pursuers to the defenders' accounts, calling in question various articles therein. Objection XI. was in the following terms:—“The pursuers claim that the account of William Hamilton Beattie be remitted to a competent party for taxation. The defenders are called upon to produce the diaries of the said W. H. Beattie, and all memoranda, drawings, plans, specifications or other writings prepared by him, and also receipts for all outlays, so that the said account may be properly instructed.” In Objection XV. the pursuers objected to a charge of £1070 as commission for procuring the necessary Parliamentary deposit in connection with the Bill. The Lord Ordinary ( Kincairney) on 20th March 1896 pronounced the following interlocutor:—“Of consent, remits” to John Wilson Brodie, C.A., to report on the pursuers' objections, “and remits also to C. W. Campion, Taxing Master of the House of Commons, to report on Objection XI., with instructions to distinguish in the latter case any charges not incident to the promotion of the pursuer's Act.”

In addition to his account the defender Beattie submitted to Mr Campion a detailed statement of particulars of the work performed by him, and counsel were heard by Mr Campion thereon.

Mr Campion having reported and taxed Mr Beattie's account at £2494, 1s. 6d. plus £62, 10s. as costs of taxation, the Lord Ordinary on 12th March 1895 allowed objections to be lodged.

Mr Brodie also presented his report in which, inter alia, he left for the decision of the Court the question whether the defenders were entitled to a commission for procuring the necessary Parliamentary deposit.

Objections and answers to both reports having been lodged, the Lord Ordinary on 20th March 1896 pronounced the following interlocutor:—“Remits to Mr C. W. Campion to consider and report on the objections by the pursuers to his report;” with regard to Mr Brodie's report, “sustains the objection of the pursuers to the charge of £1070 for procuring the Parliamentary deposit, and disallows said charge.”

Opinion.—…“The pursuers' objections to the report and the answers consist of statements and counter-statements as to the allowance or disallowance by Mr Campion of various charges. Of course nobody but Mr Campion can tell whether the pursuers or the defenders state the more correctly his mode of dealing with the defenders' account; and I confess I think that it is desirable to know what charges of the character objected to Mr Campion has allowed or disallowed, and also his reason for doing the one or the other. Now, the only mode in which this can possibly be ascertained appears to me to be by remitting the defenders' account back to Mr Campion, with the pursuers' objections and the defenders' answers, and asking him to report on the objections and answers…. This course may no doubt involve a good deal of trouble and expense, but it seems essential for the disposal of the cause.” …

The pursuers reclaimed against the interlocutors of 20th December 1893 and 20th March 1896.

Argued for reclaimers—(1) As to bar—Promoters were in a fiduciary relation to a company, and accordingly were barred from claiming remuneration for services to the company floated by them. They might get their outlay like a trustee out of a trust-estate, but no profits. The principles on which this rule was held to govern trustees were laid down in Lord Gray v. Dundas & Wilson, November 12, 1856, 19 D. 1, and were to the effect that as a matter of prudence the Court would not allow a trustee to be the judge of how much work required to be done if he were paid for doing it himself, since it would be to his interest to magnify the work, and that a trustee could not be auctor in rem suam. These grounds applied equally to the case of a company promoter. The positions of a trustee and promoter were assimilated by Lord Mure in the case of Huntingdon Copper Company v. Henderson, January 12, 1877, 4 R. 294; November 29, 1877, 5 R. (H. of L.) 1. Nothing but outlay was allowed in the cases of The Emma Silver Mining Company v. Grant, 1878, 11 Ch. Div. 918; and Lydney & Wigpool Iron Ore Company v. Bird, 1886, 33 L.J., Ch. Div. 85. In none of the English cases had remuneration beyond this been allowed except in that of Shaws (quoted by Lord Ordinary), and there the claim was opposed, not by the company, but by certain contributories, and it was held that the contract averred was not between the promoter and the company, but between the promoter and each contributor, and that accordingly the objection was bad. The Lord Ordinary was right as to the commission of £1070. (2) Mr Campion had allowed expenses not incidental to the promotion of the Act, or at all events he had not set out in detail the precise nature of the defenders' charges. With regard to the charge for commission in connection with the Parliamentary deposit, the defenders were no doubt entitled to take credit for the amount of commission actually charged by the bank which had advanced the money, but they were not entitled to a procuratorial commission at the rate of twenty per cent. for themselves.

Argued for respondents—(1) They did not deny that if they were in the position

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of trustees, as in the case of Lord Gray, the rules there laid down would apply, but the present case was as though the charge for making the trust-deed had been objected to. The respondents were not in a strict sense trustees when they were engaged in promoting the company, for they had no constituent or beneficiary. They were creating the trust, and the strictest law applicable to trusts did not bar an agent from making charges for framing the trust-deed by which he was made a trustee. The clause of indemnity was one in favour of promoters chiefly if not solely, and was intended to protect those who had no one to look to for remuneration for their services except the company. The case of Shaws, supra, was directly in point, and the Lord Ordinary's reasoning on that and the other cases was sound. The Lord Ordinary was wrong with regard to the commission of £1070. (2) The defender's arguments with regard to Mr Campion's report, and the charge for commission, appears sufficiently from Lord M'Laren's opinion.

At advising—