Scottish Court of Session Decisions

The circumstances in which the question in dispute in this case arose are thus narrated in the opinion of Lord Adam:—“The late Mr Cowan was appointed curator bonis on the estate of Mr Ferrie. On the 8th June 1895 Mr Cowan's appointment was recalled on the ground of age and ill-health, when Mr Bringloe was appointed curator bonis in his place. In the course of auditing Mr Cowan's accounts, with a view to his discharge, it appeared that he had, in the course of his management of the curatorial estate, invested in May 1882 a sum of £300 on a mortgage by the trustees of Port-Glasgow Harbour, and two further sums of £700 and £1000 in September 1882 and May 1887 respectively on mortgages or assignments by the trustees of the Port and Harbour of Greenock. As it appeared that a considerable loss would result to the estate on realising these investments, Mr Bringloe objected to Mr Cowan receiving credit for them, on the ground that they were not within the class of securities on which a curator bonis was, at his own hand, entitled to invest the curatorial estate. Mr Cowan has since died and is now represented by his trustees, who have been sisted as petitioners in his place.”

Mr Bringloe accordingly on August 30th 1895 presented a note to the Court craving instructions for his future guidance and objecting to the former curator or his representatives being discharged.

He further lodged a minute stating the loss on the Greenock Harbour Trust bonds at £1036, exclusive of arrears of interest, and on the Port-Glasgow Harbour bond at £210.

The assignments of £700 and £1000 in favour of Mr Cowan were in these terms—“By virtue of the Greenock Port and Harbours Acts, 1866, 1867, 1872, and 1880, the trustees of the Port and Harbours of Greenock … do hereby bind themselves to pay to the said James Cowan, as curator bonis foresaid, and to his successors in office, and his or their assigns, the principal sum … together with interest on the said principal sum at the rate of four pounds per centum per annum, payable half—yearly (per coupons or interest warrants delivered herewith), or in the option of the said James Cowan or his foresaids, the said principal sum shall thereafter, in virtue hereof, remain as a loan to the said trustees until the expiry of a further term of years to be afterwards agreed on … and subject to the provisions of the said Acts, the trustees do hereby assign and make over to the said James Cowan, as curator bonis foresaid, and to his successors in office, and his or their assigns, all and sundry the rates, duties, and other revenues of the trust, payable to the trust in virtue of the said Acts, and all their right, title, and interest of, in, and to the same, to be held by the said assignee and his foresaids until the said sum, with the interest thereof, shall be fully satisfied and paid.”

The Greenock Port and Harbour Act 1880, section 69, enacts that the mortgagees may enforce payment of arrears of interest and principal, or principal and interest due on a mortgage, by the appointment of a judicial factor, provided that the amount owing to the mortgagees by whom the application for a judicial factor shall be made shall not be less than £5000 in the whole.

Section 70 enacts that the Sheriff may on any such application appoint some person to receive the whole or any competent part of the rates and duties and other revenues of the trust, until all the arrears of interest or of principal, as the case may be, then due on the outstanding mortgages, together with all costs, including the charges of receiving the said rates and duties and other revenues be fully paid. It further enacts that upon such appointment being made all such rates, duties, and other revenues shall be paid to or received by the person so appointed; and that the money so received shall be so much money received by or to the use of the mortgagees, and that so soon as the full amount of any interest or principal in arrear and costs has been so received, the power of such judicial factor shall cease. The section also provides that such judicial factor shall distribute among all the mortgagees to whom interest or principal shall be in arrear, the rates and duties and other moneys which shall come into his hands, having respect in such distribution to the priorities if any of such mortgagees.

At the time when these investments were made, the Greenock Harbour Board consisted of the Magistrates and Town Council of Greenock, and of nine persons elected by owners of or in ships to a certain extent registered in the port of Greenock, and by certain ratepayers paying rates leviable on vessels or goods.

The Trusts (Scotland) Amendment Act 1884 (47 and 48 Vict. cap. 63), sec. 3 (b) authorises a curator bonis to invest the funds of the estate in loans; (10) “on real or heritable security in Great Britain;” and (12) “on bonds, debentures, or mortgages secured on rates or taxes levied under the authority of any Act of Parliament by Municipal Corporations in Great Britain authorised to borrow money on such security.”

On 23rd July 1896 the Lord Ordinary ( Pearson) pronounced an interlocutor finding that the debentures in question were legitimate investments of curatorial funds and that the petitioners were not liable for the loss which had been incurred or might be incurred thereon.

Opinion.—… “The investments are now challenged on the ground that they are not within the classes of investment open to trustees and judicial factors. If the class of investments were legitimate, it

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is not contended that liability has been incurred by reason of their being in themselves improvident or improperly selected.

The investments are sought to be supported on three separate grounds—(1) that they are investments on heritable or real security, and so within both the common law rule and the Trusts (Scotland) Act 1884; (2) that they are analogous to investments which the Court has already recognised, and that it would be no undue extension of the rule to hold these as legitimate investments in judicial factories; and (3) that they are mortgages secured on rates or taxes levied under Act of Parliament by municipal corporations with borrowing powers, and therefore fall within the express words of sec. 3, sub-sec. 12, of the Act of 1884.

I have arrived, though with difficulty, at the conclusion that they may be supported on the first of these grounds. It is true that the terms of the assignments themselves do not expressly include the undertaking, which is largely or in great part heritable. In the Greenock Harbour assignments the trustees assign, subject to the provisions of the Acts, ‘all and sundry the rates, duties, and other revenues of the trust payable to the trust in virtue of the said Acts, and all their right, title, and interest of, in, and to the same.’ And in the case of the Port Glasgow Harbour there is assigned a proportion of the ‘rates, revenues, and other moneys’ leviable under the Act. In this respect these securities differ from the ordinary railway mortgage, which assigns ‘the said undertaking and all the tolls and sums of money arising by virtue of the Act.’ But there is here, as in the case of railways, and in terms substantially the same, a power to apply for the appointment of a judicial factor, as the prescribed mode in which the security is to be worked out, and notwithstanding the important difference in form to which I have adverted, it appears to me that in substance the security obtained is a security over the undertaking in the same sense and to the same effect as in the case of a railway. Now railway mortgages have been expressly held, in the matter of trust investments, to fall within the expression ‘investment upon real securities,' as used in an English will— Breatcliff v. Bransby's Trustees (1887) 14 R. 307.

There is a peculiarity in the case of the Greenock Harbour assignments, which might be considered to touch this point. The report of the special case discloses that in a certain class of the assignments, namely, those issued in the form prescribed by the Act of 1872, there were assigned in security not only ‘the rates, duties, and other revenues of the trust,’ but also ‘the works and property of the trust.’ The dispute there raised being between different classes of security-holders, it was contended by those who held assignments in this form that they thereby got an additional security upon which real diligence could he expede. This view was negatived, it being held that the insertion of the words ‘works and property of the trust’ was really ‘not meant to have any practical effect at all.’ Thus all were held to be on one level as regards the extent of the security, and those holding assignments in the form now in dispute declared to be in no worse position than those who had an express assignment to the works and property. Accordingly this point is rather favourable than otherwise to the view contended for by Mr Cowan's executors.

Looking to the substance of the thing, and having regard to the decision in the case of Breatcliff, I think the investments may be supported as being truly loans on real or heritable security. They were indeed a postponed class of securities, but, as I have said, no question was raised as to the propriety or judiciousness of the investments, if they are otherwise admissible. It is right I should add that no separate argument was submitted as to the Port-Glasgow Harbour Mortgage, it being assumed that this is in all material respects in the same case as the others.”

The curator bonis reclaimed, and argued—The Lord Ordinary was wrong and the Greenock Harbour bonds were not legitimate investments. (1) At common law and under the Act of Sederunt, February 13, 1730, the only investments competent as a general rule to a judicial factor or curator bonis were Government securities and heritable bonds. Robertson v. Elphinstone, May 28, 1814, F.C., and Philip, Petitioner, November 22, 1827, 6 S. 103, cited to illustrate the position of a curator bonis. That proposition was clearly established by the cases of Haldane, December 28, 1848, 11 D. 286, and Dalgleish, February 13, 1849, 11 D. 1030; see also Fraser, P. & C., 236, 475. In A B, June 29, 1854, 16 D. 1004; Robertson, 26 S. J. 547, the Court refused to approve of the accounts of a judicial factor who had invested a large portion of the funds belonging to the trust-estate in railway securities. It was quite true that the Court had power to relax the general rule and to authorise investments of another class if it thought expedient. This power had been exercised in the case of Grainger's Curator, February 23, 1876, 3 R. 479, where an investment on the security of rates leviable by a public body had been sanctioned; and in that of Lloyd's Curator, December 1, 1877, 5 R. 289, where the debentures of a railway company had been approved of. But the securities there were of a much superior type to Greenock Harbour bonds, and had been approved by the Court specifically on their merits. (2) It was contended on the other side that the Trusts Amendment Act 1884 had expressly authorised investments on real or heritable security and in debentures secured on rates and taxes leviable by a municipal corporation. Did the Greenock Harbour bonds fall within either of these heads? (a) The Act of 1884 did not in any way extend the meaning of the term “heritable security.” The basis of a heritable security was the land itself, and the conveyance of the land and subsequent infeftment were what constituted its peculiar quality—Menzies' Conveyancing, p. 804.

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It also implied the power of making the security readily available in the event of the debtor's default. In the Greenock Harbour bonds there was no conveyance of the subject itself, nor was any means afforded to the creditor of realising the security. On the contrary, unless the sum in arrear amounted to £5000, he could not apply for the appointment of a judicial factor, and even if he could, no power to sell the undertaking was conferred by the statute on the judicial factor. It was the absence of these two essential features which distinguished the present case from that of Breatcliff v. Bransby's Trustees, January 11, 1887, 14 R. 307, where, it was also to be observed, the Court was construing not a Scotch Act of Parliament but an English will. Moreover, here the powers of the judicial factor were strictly limited to receiving the revenues of the trust. He had no power of administration or management, whereas in Haldane v. Girvan and Portpatrick Junction Railway Company, March 18, 1881, 8 R. 669, and July 20, 1881, ibid. 1003, it was held that a judicial factor appointed under the Railway Companies Act 1867 had sole and exclusive power to manage the undertaking,— Gardner v. London, Chatham, and Dover Railway, 1867, L.R., 2 C.A. 201, also referred to. The terms of the assignment here were analogous to those in Dundee Union Bank v. Dundee and Newtyle Railway Company, January 25, 1844, 6 D. 521. In any event, the question had really been finally determined by the decision of the Court in the special case brought by the Greenock Harbour Trustees, January 31, 1888, 15 R. 343. (b) If the Greenock Harbour bonds were not a heritable security, no more were they a security upon rates leviable by a municipal corporation. The Harbour Trustees were not a municipal corporation, though the members of the Greenock corporation were of their number, nor were the rates and dues which they were entitled to levy for the use of the harbour the rates contemplated by the Act of 1884, which were plainly rates and taxes leviable by assessment on a community.

Argued for the petitioners, Cowan's Trustees—The Lord Ordinary was right, and Mr Cowan's representatives were entitled to take credit for the sums invested in the Greenock Harbour bonds. (1) At common law.—The idea had been expressly repudiated in Grainger's Curator, ut sup., that there was any hard and fast rule limiting a curator's investments to Government stock or heritable securities. The true view of a curator's position was this—he was entitled to invest in anything in which a trustee was entitled to invest, but if he obtained the sanction of the Court, whose servant he was, and to whom he was accountable, he might make investments never permitted to trustees. The cases cited for the curator bonis amply showed that the Court was in the habit of granting considerable latitude in investment to curators, and it must be borne in mind that the investment here in question must not be judged by results but by the test—was it an investment which the Court would have sanctioned when it was originally made? (2) Under the statute.—It might be quite true from a strict conveyancing point of view that a conveyance of the land itself was necessary to constitute a heritable security, but the words “real or heritable” in the statute must receive a more liberal interpretation. The word “real” had been construed, and that subsequently to the Act of 1884, so as to include railway debentures— Breatcliff, ut sup. Here there was an actual conveyance, if not of the harbour, at least of the fruits of the undertaking, so that there was something more than the mere personal obligation of the trustees. Besides, the judicial factor when appointed had a right to enter upon and to take personal possession of the undertaking. (b) Even if the harbour bond were not a heritable security, it was secured on the rates of a municipal corporation. The harbour was originally the harbour of a burgh of barony, and so long as it was administered by the municipality there could be no doubt as to the nature of the security. No doubt a harbour trust had been set up, but the rates levied by the trust were corporation rates none the less. There was nothing in the statute to indicate that the rates alluded to must be imposed on everyone alike. Differential rates were quite familiar and depended on the value given for them as well as on the value of property. Water rates were an example, and it would surely not be contended that they were outside the statute.

At advising—