Scottish Court of Session Decisions

By the terms of their Provisional Order 1878, the Port Seton Harbour Commissioners were authorised to levy rates (sec. 15) for the use of the harbour, and (sec. 17) for the use of any warehouses, sheds, &c., belonging to them. The property on which the harbour and works of the Commissioners were situated was held by them in feu from Lord Wemyss.

The Provisional Order contained the following enactments:—“27. The Commissioners may from time to time borrow and re-borrow at interest such money as may be required for the purposes of this order, not exceeding in the whole the sum of eleven thousand pounds, on the security of the works authorised by this order, and of the lands and property connected therewith, and of the rates and dues authorised by this order, or on the security of any one or more of these, or of any other the property of the Commissioners; or they may accept and take from any bank or banking company credit to such amount as they may deem expedient, not exceeding in the whole the said sum of eleven thousand pounds, on a cash account to be opened and kept in the name of the Commissioners, according to the usage of bankers in Scotland; and they may assign the rates and dues hereby authorised by this order, and the lands and property connected therewith, and any other lands and property belonging to them in security of the repayment of the sum or sums so borrowed, or of the amount of such credit, or of the sums advanced from time to time on such cash account, with interest thereon respectively, by bonds and assignations under their common seal, and signed by three of their members; and which bonds and assignations, and all transfers thereof, shall be in the form, or as near as may be, of Schedules (B) and (C) to The ‘Burgh Harbour's (Scotland) Act 1853,’ annexed respectively, and shall be recorded in the Division of the General Register of Sasines at Edinburgh applicable to the county of Haddington, and nave preference according to the priority of their registration therein, except in so far as a pari passu preference may by the bonds and assignations have been established among all or some of them, as being assignations of parts of one capital sum which the Commissioners may, by a resolution of a specified date, have resolved to borrow in parts. 28. Every part of the money borrowed under this order shall be applied only for the purposes authorised by this order. 29. If within two months after the interest of any bond and assignation granted by the Commissioners has become due, or after the period prescribed for the payment of the principal sum in any such bond and assignation' has expired, such interest or principal, as the case may be, shall not be paid, the holders of such bonds and assignations may, without prejudice to any rights, remedies, or security otherwise competent to or held by them, require the appointment of a judicial factor by an application to be made as hereinafter provided… . 31. The amount to authorise the application for appointment of a judicial factor shall be one thousand pounds in one or more bonds and assignations.”

It was further provided as follows by sec. 32 of the order:—“32. The Commissioners shall apply all money received by them from the rates, tolls, and duties, authorised by this order, for the purposes and in the order following, and not otherwise (that is to say)—(1) In paying the costs of and connected with the preparation, obtaining, and making of this order; (2) in paying the feu-duties and rents payable in respect of the lands and property belonging to and leased by the Commissioners, and the expenses of the reconstruction, maintenance, management, and regulation of the existing harbour and of the new works, with all accesses, roads, and conveniences, and of the lands and property connected therewith; (3) in paying year by year the interest of any money borrowed, and in payment of the principal of money borrowed; (4) in creating a sinking fund in

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manner and, in so far as the nature and circumstances of the case will admit, in the proportions specified in ‘The Commissioners Clauses Act 1847,’ and this order; (5) subject to and after answering the purposes aforesaid, the surplus revenue, if any, shall be applied by the Commissioners in the further improvement of the harbour, and for no other purpose.”

On 14th July 1881, John Brown, fisherman, Cockenzie, lent to the Commissioners the sum of £70 on deposit-receipt taken in these terms—“ Received from Mr John Brown, N. Lorimer Place, the sum of seventy pounds sterling as a fixed deposit, repayable at the end of twelve months after notice of withdrawal has been given, bearing interest payable half-yearly at the rate of five per centum per annum from the date hereof. The depositor shall not have any claim against the Commissioners personally in any manner of way in respect of said deposit. For the Port Seton Harbour Commissioners— W. T. Macdonald, Chairman, robt. ovens, Clerk.”

On 6th May 1896 Brown gave notice to the Commissioners of the withdrawal of the said sum, and on 23rd April 1807, no part thereof having been repaid, he arrested the sum of £210 at the credit of the Commissioners in the hands of the Royal Bank, on the ground that they were vergentes ad in-opiam.

On 13th May 1897 Brown raised an action against the Commissioners for payment of £70 with interest. On the 14th May he used arrestments on the dependence of the said action in the hands of the Royal Bank. No appearance was entered by the Commissioners, and decree was granted against them in terms of the conclusions of the summons on 1st June.

On 25th June 1897 Brown raised this action against the Commissioners and against the bank to make furthcoming the sum for which he had obtained decree.

He pleaded, inter alia—“The sums condescended on having been validly arrested in the hands of the arrestee, decree should be pronounced as concluded for.”

The defenders denied that any sum had been validly arrested by the pursuer. They founded on section 32 of their Provisional Order, and averred that the sums at their credit with the Royal Bank consisted of money “received by them from the rates, tolls, and duties authorised by the provisional order aforesaid, to be applied for the purposes and in the order prescribed” in the said section. They further averred that at the date of the arrestments they owed sums amounting to considerably more than the sum arrested to (1) the superior, (2) the Public Works Loan Commissioners, who had lent them money on a bond and assignation, and (3) a contractor for works executed on the harbour.

The defenders pleaded, inter alia—“(2) The Provisional Order having enacted that the money received by these defenders from the rates, taxes, and duties authorised by their Provisional Order should be applied to certain purposes in a prescribed order and the arrears of feu-duty and the expenses incurred in maintaining the harbour having exhausted the funds referred to in the summons, and all other funds belonging to these defenders, the pursuer's arrestments are illegal and inept, and have attached nothing, and the defenders should be assoilzied with expenses. (5) The pursuer is barred peraonali exceptione from maintaining that the loan in question was ultra vires of the defenders.”

The proof disclosed that at the date of the loan the pursuer had himself been one of the Harbour Commissioners, that the money arrested consisted entirely of rates, tolls, and duties levied by the Commissioners in terms of the Provisional Order; that all the money spent since the date of the loan had been expended upon the upkeep of the harbour; that the pursuer's £70 had as a matter of fact been probably paid to Messrs Morrison, contractors; and that at the date of the arrestments the Commissioners were owing to the superior in respect of arrears of feu-duty £142, to a firm of contractors for repairs on the harbour £792, to a firm of engineers £170, and to bondholders in respect of .arrears of principal and interest about £1050.

On 4th August 1898 the Lord Ordinary (Pearson) assoilzied the defenders.

Opinion.—… “At the date of the arrestment there was due by the Harbour Commissioners among other things (1) a sum of £142 of arrears of feu-duty to Lord Wemyss, (2) to Messrs Morrison, contractors, for repairs on harbour subsequent to 1894, £792, (3) to Messrs Stevenson, C.E., for work done in connection with the operations of 1881, £170. In the clause (sec. 32) providing for the application of the rates and dues, these charges came second in order, and take precedence of the payment of the annual interest and of the capital of money borrowed, which come third in order. This amounts to a statutory appropriation of the money in bank to those prior purposes, and excludes the diligence of a creditor of lower rank seeking to attach those funds even on the assumption that such diligence would have been effectual against them if none of the prior purposes had remained unsatisfied.

“The answer made by the pursuer appears to me to fail both in fact and in law. His case is that his original deposit of £70 has been in bank all along, or at least that the defenders have failed to prove that it has not, and therefore to that extent sec. 32 does not apply to the arrested fund. And he points to the fact that at 11th October in each year (the date at which the current account was annually balanced), the account shows a credit of more than £70 with the exception of 1893, when it was just about that sum, and of 1896, when £160 had been withdrawn from the account and placed on deposit-receipt. This, however, merely shows that the account stood at credit on a particular day once a year, and does not exclude the occurrence of a debit balance showing the exhaustion of the account, which in fact occurred in November 1890. It seems clear that the pursuer's £70 was paid into the bank account within two or

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three days after it was borrowed, and was thereafter paid out to the contractors along with the other subscriptions in payment of the repairs and improvements then in contemplation. The treasurer depones that all the money that was collected at that time for the repairs of the harbour was expended, and that among the capital expenditure on the harbour works between 1884 and 1886 there are payments to Messrs Morrison, the contractors, amounting to £3605.

“But the pursuer puts this alternative, that the borrowing and taking up of his £70 was ultra vires of the Commissioners, that they were wrong in paying it away as under the order, but that having done so for the benefit of the undertaking, they are now bound to make any money in their hands forthcoming to answer his debt. He relies on the cases of Blackburn Building Society, L.R., 22 Ch. Div. 61; and Lady Wenlock, L.R., 10 App. Cas. 354, and 19 Q.B.D. 155. These cases, however, seem to me to have no application to the present, for this reason if for no other, that I am not prepared to hold that the borrowing of the £70 was an ultra vires act. It was borrowed in pursuance of a resolution passed at a meeting of Commissioners on 29th March 1884 (the pursuer being, as it happens a Commissioner at the time, and present at the meeting) to the effect that £4000 should be spent on the improvement of the harbour, and that the Commissioners should receive from the community on deposit-receipt £2500, for which they will grant interest at 5 per cent. per annum for sums lodged twelve months. It is not suggested that this was in excess of their borrowing powers in point of amount, but only that it was not borrowed in exact conformity with the Provisional Order. No doubt the order contemplates borrowing by way of bonds and assignations in security. But I am not aware of any authority for holding that where a corporation has power to borrow up to a certain limit, and to pledge its property and rates in security, it is ultra vires to borrow (within the limits) without pledging its property or rates if it can obtain the money on those terms. If this argument were sound, it would result it putting the creditor in an ultra vires loan in a better position than one whose money had been advanced upon statutory security in strict conformity with the order. In the view I take it is not necessary to consider the Commissioners' fourth plea, that the pursuer is barred by having been a commissioner and member of the finance committee from maintaining that the loan was ultra vires.

“The result is that I assoilzie the defenders.” …

The pursuer reclaimed, and argued—The Lord Ordinary was wrong. (1) The arrestments were valid, and the pursuer was entitled to prevail. There was no such specific appropriation of the fund arrested as to exempt it from the operation of ordinary legal diligence. The Provisional Order expressly reserved to creditors the common legal remedies. A similar defence to that of the defenders' had been unsuccesfully set up in the case of the Mersey Dock Trustees v. Gibbs, L.R., 1 H.L.93. According to that decision a corporation could not evade liability for damages by pleading that it had no funds available to meet such a claim, the whole of its revenues being appropriated by statute to certain purposes. The principle was equally applicable to the case of a creditor. (2) Alternatively, the loan was ultra vires. The powers of a public body like the defenders depended upon their incorporating Act or order, and they must be held to have no power to do what they were not expressly empowered to do— Ashbury Railway Carriage Co. v. Riche, L.R., 7 HL 653; Blackburn Building Society v. Brooks, L.R., 22 ChD 61; Wenlock v. River Dec Co., L.R. 10 A.C. 851. If that view were sound, then the pursuer was entitled to step into the shoes of the contractor and avail himself of his preference, if any, to whom the pursuer's money had been paid away in the ordinary course of administration of the harbour. This equitable doctrine was well established by the cases of the Blackburn Building Society, ut sup., and Wenlock, ut sup and L.R., 19 Q.B.D. 155.

Argued for the defenders—(1) The arrestments were invalid, the money arrested having been specifically appropriated by the Provisional Order—Bell's Comm. ii. 71; Bell's Prin. sec. 2276; Baillie v. Naismith, 1674, M. 703; Stalker v. Aiton, 1759, M. 715; Souper v. Smith's Creditors, 1750, M. 744; 5 Brown's Sup. 308; Mackenzie v. Finlay, Oct. 29, 1868, 7 Macph. 27. To hold that the arrestments were good would be to render sec. 32 of the Provisional Order wholly nugatory. The contractors might have refused to undertake the work if they had not supposed themselves to have a statutory preference. (2) The loan was not ultra vires, and the equitable doctrine invoked by the pursuer did not apply. But in any event none of the cases on which he relied decided that a statutory preference could be displaced. (3) The pursuer was at all events barred personali exceptione from pleading that the loan was ultra vires, he having been a member of the Commission when he took the deposit receipt— York Tramways Co. v. Willows, L.R., 8 QBD 685; In re Great Oceanic Telegraph Co. ( Harward's case), L.R. 13 Eq. 30.

At advising—