Scottish Court of Session Decisions

The following narrative of the facts in this case is in substance taken from the opinion of the Lord President:—The Lanemark Coal Company, whose mineral field was situated in Ayrshire, was desirous to obtain a connection with the Caledonian Railway Company, in addition to the connection with the Glasgow and South-Western Railway which it already possessed, and in 1893 Mr Charles Forman, C.E., an experienced engineer, was consulted on the subject. After visiting the locality, he thought that the scheme was a promising one, and advised that Messrs Keydens, Strang, & Girvan, writers in Glasgow, who had experience in these matters, should be consulted. On 6th November 1894 a meeting of persons interested in the scheme was held, and it was decided that Mr Forman and Mr Dron, the engineer of the Lane mark Coal Company, should survey the proposed line with a view to the preparation and deposit of Parliamentary plans. This was done, and at a meeting held shortly afterwards it was decided to proceed with the scheme, Messrs Forman and Dron being appointed engineers, and Messrs Keydens, Strang, & Girvan, solicitors for it. The bill was introduced in 1895, and came before a committee of the House of Commons, who held the preamble proved, notwithstanding the opposition of

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the Glasgow and South-Western Railway Company. In consequence, however, of Parliament having been dissolved, no further progress was made with the bill in that session, but in the following session (1896) it was reintroduced, passed both Houses of Parliament, and received the Royal Assent on 2nd July 1896.

By the Act thus obtained Sir John Muir, Baronet, of Deanston, Mr Howatson, of Glenbuck, Mr Somervell, of Sorn, Mr Granger, and three persons to be nominated by them, were declared to be the first directors of the company. These four gentlemen and Mr A. M. Brown, who was nominated a director by the others, made the Parliamentary deposit of £26,094, under a special arrangement with the Clydesdale Bank. Mr Andrew, one of the partners of Messrs Mitchells, Johnston, & Company, writers, Glasgow, was appointed solicitor to the company in succession to Messrs Keydens, and Mr Forman was instructed to stake out the line, but no share capital was issued to the public, and the line was never made. Efforts were, however, made to raise the necessary capital through financiers and capitalists, and negotiations were carried on with the Caledonian Railway Company for a working agreement, and in these and the general business of the company Messrs Mitchells, Johnston, & Company, writers in Glasgow, and others, were employed by the directors named in the Act, who continued to act on behalf of the company, although they were only appointed till the first ordinary meeting of the shareholders, which was directed to be held six months after the passing of the Act. There were no shareholders, and no such meeting was held. Part of the work done on the instructions of the directors by Messrs Mitchells, Johnston, & Company was instructed and done after the expiry of the six months. Mr A. M. Brown was the only person nominated as a director by the persons originally named in the Act as directors. No shares being issued, none of the directors ever acquired any shares in the company. The negotiations for making and working the line were not successful. The failure of the scheme apparently was not due to any defect in it, but to the injudicious action of some of the promoters.

In 1900 Sir John Muir, Mr Howatson, and Mr Brown promoted a bill in Parliament for the abandonment of the undertaking, and on 6th August 1900 it received the Royal Assent.

By section 33 of the Muirkirk, Mauchline, and Dalmellington Railways Act 1896, it was enacted that the first directors should be Sir John Muir, Baronet, and James Somervell, William Granger, and Charles Howatson, Esquires, and three others to be nominated by them, and that these directors should hold office till the first ordinary meeting of shareholders, which, by section 28, was directed to be held six months after passing of the Act (2nd July 1896). The board was never filled up, and as there were no shareholders there was no ordinary meeting then or at any time thereafter. By section 31 it was provided that the qualification of a director was a holding of 50 shares of the company in his own name, and for his own benefit.

Section 44 of the said Act enacts as follows:— … “Be it enacted that, notwithstanding anything contained in the said Act” ( i.e., the Parliamentary Deposits Act 1846), “the deposit-fund shall not be paid or transferred to or on the application of the person or persons, or the majority of the persons, named in the warrant or order issued in pursuance of the said Act, or the survivors or survivor of them (which persons, survivors, or survivor are or is in this Act referred to as the depositors), unless the company shall previously to the expiration of the period limited by this Act for completion of the railways Nos. 1, 2, 3, 4, and 5, open the same for the public conveyance of passengers, and in respect of the railways Nos. 6, 7, 8, 9, 10, and 11, open the same for public traffic; and if the company shall make default in so opening the railways the deposit-fund shall be applicable and shall be applied as provided by the next following section.”

Sections 45 and 67 of the said Act are quoted in the rubric.

The preamble of the Muirkirk, Mauchline, and Dalmellington Railway Abandonment Act 1900 was, inter alia, as follows—… “And whereas no part of the capital of the company has been issued, and no notices to treat for the purchase of lands have been served, and it is expedient that the railways and other works be abandoned, the affairs of the company wound up and the company dissolved: And whereas the deposit fund in section 44 of the Act of 1896 mentioned was provided by Sir John Muir, Baronet, James Somervell, Charles Howatson, and William Granger, since deceased, and it is expedient to provide for the immediate payment of the same to the depositors: And whereas the purposes of this Act cannot be effected without the authority of Parliament.”

Section 5 of the said last mentioned Act is quoted in the rubric.

Section 6 provided that the company should “forthwith proceed to wind up their affairs, and should pay, satisfy, and discharge all their debts”; and section 7 provided that only when all their debts were paid should the company be dissolved and the Act of 1896 repealed.

Section 1, sub-section 2, of the Parliamentary Deposits and Bonds Acts 1892, enacts as follows:—“The High Court may, if a receiver has been appointed, or the undertaking has been abandoned order that the deposit fund, or any part thereof, be paid or transferred to the receiver, or to the liquidator of the company, or be applied as part of the assets of the company for the benefit of the creditors thereof.” In the application of the last mentioned Act to Scotland, the expression “High Court” is to mean the Court of Session in either Division thereof.

In November 1900 Sir John Muir, Mr Howatson, and Mr Brown presented a petition in exchequer for warrant to uplift the deposit-fund.

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Answers and claims for payment out of the deposit-fund were lodged (1) by Mr Forman, engineer for the railway, whose trustees were sisted after his death; (2) by Philip Grierson Keyden and David Reid, the surviving partners of the firm of Keydens, Strang, & Girvan, writers, Glasgow; (3) by Messrs Martin & Leslie, Parliamentary solicitors; (4) by Messrs Blyth & Westland, engineers; (5) by Messrs Mitchells, Johnston, & Company, writers; and also by others. These claimants claimed as creditors of the company entitled to be paid out of the deposit-fund for professional services rendered by them.

There were no claims by landowners for compensation out of the deposit-fund.

In reply to the claims made by the respondents and claimants the petitioners maintained that none of the claimants were “creditors of the company” within the meaning of the special Acts: that they were either persons who had been employed by persons other than the company, or were themselves the real promoters of the undertaking; and that either they had no claim against the company or no claim against the deposit-fund; or separatism, no claim which the Court, in the discretion conferred upon it by the Act of 1896, should recognise; that Mr Forman and Messrs Keydens were the real promoters of the undertaking and were not entitled in a question with the petitioners to payment out of the deposit-fund; that Messrs Martin & Leslie and Messrs Blyth & Westland were employed by Messrs Keydens or Mr Forman and not by the company; and that Messrs Mitchells, Johnston, & Company were employed by persons who had no authority to bind the company.

The Lord Ordinary ( Stormonth Darling) on 3rd June 1902 issued this interlocutor—“Finds that all the respondents are entitled to be ranked pari passu on the deposit-fund for the amount of their claims, as the same may be audited; continues the cause in order that the necessary remits may be made; grants leave to reclaim.”

Opinion.—[after narrating the facts]—“The present question, therefore, depends on the true construction of sec. 45 of the Act of 1896, which, the Abandonment Act declares, shall take immediate effect although the period limited for the completion of the works had not expired when the Abandonment Act was passed. Now, we are not concerned with the first portion of sec. 45, which provides for the compensation to landowners, because no such compensation has, after due advertisement, been claimed. The only material part of the clause is that which provides that if the undertaking has been abandoned (which is the case here), the deposit-fund shall ‘be applied in the discretion of the Court as part of the assets of the company for the benefit of the creditors thereof, and, subject to such application, shall be repaid or retransferred to the depositors.’ These words are the same as those in the Parliamentary Deposits Act of 1892, except that the latter does not contain any express reference to the ‘discretion of the Court,’ although probably the same result is attained by its using the word ‘may’ instead of ‘shall’ when authorising the Court to order the deposit-fund to be applied for the benefit of creditors. Accordingly I proceed to inquire (1) whether the present claimants are creditors of the company; and (2) whether, if so, there is any special reason why they or any of them should be held disentitled to recover their debts out of this deposit-fund as part, and now the only part, of the assets of the company.

On the first of these questions we start with the fact that the special Act contains a clause (sec. 67) providing that ‘all costs, charges, and expenses of and incident to the preparing for, obtaining, and passing of this Act, or otherwise in relation thereto shall be paid by the company.’ Now, the two leading claims in this process are those of (1) Forman's trustees, amounting to £12,260, for professional services rendered by Forman as engineer for the proposed line; and (2) the surviving partners of the dissolved firm of Keydens, Strang, & Girvan amounting to £3078 for professional services rendered by the late firm as solicitors for the Bill. The petitioners' case against Forman and the Keydens is that they were themselves the real promoters of the undertaking. Accordingly as against them the petitioners can take no benefit from such cases as Wyatt v. Metropolitan Board of Works, 11 C.B. (N. S.) 744, or In re Skegness and St Leonards Tramways Company, 41 Ch. Div. 215, for the result of these cases is to show that the persons who are entitled to take advantage of clauses like sec. 67 of the special Act are precisely those in the position of Forman and the Keydens who have done work in the expectation of the company coming into existence, and who have no other paymaster to look to. I shall presently consider whether the petitioners have a good answer to these claimants on other grounds. All I say at present is that the mere fact of being a promoter will not bar a man from receiving remuneration for professional services rendered by him in connection with obtaining a company's special Act. In Edinburgh Northern Tramways Company v. Mann, 23 R. 1056, the persons claiming for such services were admittedly promoters, and yet the claim succeeded.

It is rather as against other and smaller claimants that the petitioners found on the cases of Wyatt and Skegness. These claimants are (1) Messrs Blyth & Westland, C.E., whose bill amounts to £440 for engineering advice and evidence given before the Parliamentary Committees; (2) R. W. Dron, whose bill for engineering work done in conjunction with Mr Forman is £698; (3) William Robertson (£151) for evidence as a mining engineer; (4) John D. Boswell (£76) for evidence as representing local landowners; (5) John Lawson (£39) for Parliamentary land estimates; (6) Lake & Sison (£146) for printing work done in London during the passage of the Bill

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through Committee; (7) Aird & Coghill (£216) for printing the book of reference and similar work in Glasgow; (8) Allan Stevenson (£140) for land estimates and giving evidence; (9) John Pringle (£100) for giving evidence as factor to Lord Home; and (10) John L. Murray (£36), also, I think, for giving evidence as a land agent. I do not include among the claimants against whom the plea of ‘another paymaster’ is urged, D. Cunningham's claim of £8, 10s. for providing the seal of the company, because it is perfectly clear that he received the order direct from the chairman and secretary of the company after the passing of the Act, To this small claim therefore I see no answer at all. Lastly, there is in the same category with the ten claims I have mentioned a large claim for £4094 by Martin & Leslie, Parliamentary solicitors, for carrying through the special Act, and for opposing other Bills in the interests of the promoters.

As regards all these claims it is urged that the claimants were employed by Forman and Messrs Keydens, or one or other of them, and must look to them for payment. In one or two instances, it is said alternatively, that claimants who gave evidence were deputed to do so by public meetings held in the district. It seem to me that this plea fails on the facts. For example, in the case of Mr Blyth, of Blyth & Westland, he was undoubtedly asked to give evidence by Forman, but he entirely disclaims the idea of his ever having looked to Forman for payment of his account. The claimants Lawson and Stevenson agreed with Messrs Keydens that, as regards their land estimates, they were only to charge outlays ‘in the event of the lines not being gone on with.’ But that, I think, meant ‘in the event of the Bill not passing.’ In all these cases, as I read the evidence, the claimants, though called in by the engineer or solicitors for the promoters, looked to the company, if and when it came into existence, as their true debtor. The character in which Forman or the Keydens employed them was known to be purely representative, and I do not think that any of them, with the doubtful exception of the printers (who were not examined, and as to whose view of the matter there is therefore no direct evidence), believed that they had any claim against either the engineer or the solicitors personally. Certainly none of them acted on that view. It is true that, as Lord Bowen explains in the Skegness case, down to the time when a railway company's special Act passes the company is not formed, and nobody can be said in a strict sense to be employed for it or on its behalf. It may not therefore be possible to dispose of the petitioners' plea by the short and simple answer that these claimants (Martin & Leslie, for example) were acting for disclosed principals. But then Lord Bowen goes on to say that the object of a clause making costs a charge against the company is to place such persons ‘in the same position after the Act comes into existence as if they had been employed by the company from the first.’ Indeed, the judgment in that case seems to me to affect not liability but procedure. It rules that the proper persons to sue or claim under these clauses are those who have been acting directly for the company which is to be formed, chiefly on the ground that otherwise there might be an undue multiplication of claims. But it does not rule that indirect claims are not ultimately to fall on the assets of the company, for Lord Lindley, at the end of his opinion, says that the proper solution of the difficulty is to hold that the claimants in that case must look to their employer, and that he must look for his indemnity to the funds of the company. If this be so, and if Forman and the Keydens, as the alleged employers, are not themselves barred from claiming on this fund, the plea founded on the Skegness case becomes of no practical importance.

The next claim to be considered is that of Messrs Mitchells, Johnston, & Company, writers, Glasgow, for £221, in respect of professional services and outlays after the formation of the company, chiefly in connection with opposing a Bill in Parliament and negotiating various agreements with contractors and others. To this the petitioners have a different kind of answer. It is an answer which affects parts of some of the other claims, and notably that of Forman's trustees, but I can most conveniently deal with it in connection with this claim by Messrs Mitchells & Company. The answer is that, inasmuch as sec. 28 of the special Act requires the first ordinary meeting of the company to be held within six months after the passing of the Act, and no such meeting was held; and as by sec. 33 the first board of directors was to continue in office until the first ordinary meeting, and a new body of directors was then to be elected, there was, after 2nd January 1897, no board legally qualified to act for or bind the company. Accordingly, it is said, work done or outlays made after that date on the instructions of the original board could not found any debt against the company. The employment of Messrs Mitchells & Company began within the six months, because Mr Andrew, one of the partners, was, at a meeting of the board on 24th November 1896, appointed interim solicitor to the company. But, as I understand the argument, the petitioners draw a line at 2nd January 1897, and say that after that date no work could be done for which the company is bound. I cannot assent to this argument. It may be that if the first board had ceased to act, and if the seal of the company had been used without any kind of warrant, there would have been no one qualified to bind the company. But the first board was duly constituted by force of the statute, and it regularly met. The statute contemplates that after six months this board shall be superseded by a new one. It does not say that if no new board be elected the first board shall cease to act, and so to hold would mean that, in any case where it had been found impossible within the six months to issue share capital, the company

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must ipso facto die a natural death. That such was not the policy of the Legislature appears, I think, from the terms of sec. 87 of the Companies Clauses Act, even if that section be not directly applicable to a case where no ordinary meeting of shareholders and no adjournment are held. I do not say that a first board would be excused for remaining in office without reappointment after the prescribed time if a body of shareholders had come into existence competent to hold an ordinary meeting of the company. But in a case like the present, where no such body existed, and where the original board continued to act for the purpose of setting the company on its legs, I should be slow to hold that its whole proceedings were null and void.

The very object of naming a board of directors in a special Act is to enable the company to be set agoing, if possible within six months, but above all to be set agoing, and so to fulfil the purposes for which Parliament has called it into being. I am not aware of any case which has construed the directory provisions of a statute creating a company in a manner so rigorous as that for which the petitioners contend.

Accordingly, I come to the conclusion that all the claimants are creditors of the company, that is to say, that if the company had been a going concern with a share capital, all the claimants would have had a good right of action against the company for the true amount of their debts.

I now pass to the question whether, owing to the only available asset of the company being this deposit-fund, the claimants, or any of them, are disentitled to recover, although they might have recovered out of the normal assets of the company. This question arises mainly in connection with the claims of Forman's trustees and the Keydens.

The policy of Parliament with regard to deposit-funds has wavered considerably during the last half-century. The idea of requiring promoters to make a deposit of money or securities as a condition of the passing of special Acts for the construction of railways and similar undertakings undoubtedly had its origin in the Standing Orders of Parliament. Its first statutory recognition was in the Parliamentary Deposits Act of 1846, which allowed a deposit to be returned to the depositors on the termination of the Parliamentary session in which it had been made whether the Bill had passed or had been rejected or withdrawn. Then arose the practice of inserting in private Bills special clauses about the deposit-fund, in which there generally appeared a declaration of forfeiture to the Crown in the event of the undertaking proving abortive, either with or without an alternative in favour of creditors. So far as public statutes are concerned, I rather think that the Railways Construction Facilities Act of 1864 (by sec. 41) was the first to contain a provision for forfeiture to the Crown in case of non-completion. Meanwhile the Board of Trade had been authorised by the Abandonment of Railways Act of 1850 to grant warrants for abandonment, and had been in the habit of attaching conditions to their warrants. It was usually one of these conditions that the deposit-fund should be applied as part of the assets of the company. Recognising this practice, the Abandonment of Railways Act of 1869 provided (by sec. 5) that if the warrant contained this condition, the Court might, if it thought fit, direct that the fund should not be applicable for debts which, ‘regard being had to what was fair and reasonable as between ail the parties interested,’ appeared to have been ‘incurred on account of the promotion of the company.’ This provision has no application to the present case, or indeed to any case which is likely now to arise, for the Act of 1869 applied only to railways authorised to be made by Acts passed before the Parliamentary session of 1867. As time went on it became more and more common to insert clauses in special Acts similar to sec. 45 of the special Act here, making the deposit-fund, in the event of insolvency or abandonment, divisible among creditors of the company, without any provision for forfeiture to the Crown. At last, in 1892, was passed the Parliamentary Deposits and Bonds Act, to which I have already referred.

I have noticed the course of legislation in this matter because it is necessary to have regard to it in reading the decisions. The earliest case in which, so far as I know, any distinction was drawn as against creditors whose debts were connected with the promotion of a company was that of Brampton and Longtown Railway Company in 1870 (L.R. 10 Eq. 613). This distinction afterwards came to be known as one between ‘meritorious’ and ‘non-meritorious'creditors. Vice-Chancellor Bacon in deciding the Brampton case does not use that expression, but he means the thing which it denotes. He was dealing with an undertaking under the Railways Abandonment Act of 1869, and what he had to do was to construe sec. 5 of that Act, the substance of which I have given above. He had to consider whether the Bill of the Parliamentary solicitor was ‘a debt incurred on account of the promotion of the company,’ and there being really no doubt about that, he had to say whether it was fair and reasonable, in the sense of the statute, that the deposit-fund should be applicable for the payment of such a debt. He held that it was not.

The same thing happened in 1876 in the Barry Railway Company case ( 4 Ch. Div. 315). That was a case of the strongest possible kind on the facts, because a land-owner who was responsible for the deposit had lost about £12,000 in attempting to float the undertaking, and the solicitor who claimed against him had already received about £6000 for his services. He now claimed £2600 more, and the Court, being directed by the Act of 1869 to inquire whether it was fair and reasonable that a promotion debt of this kind should be charged against the deposit-fund, had no difficulty in answering that question in the negative.

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Earlier in the same year a case was decided ( Bradford Tramways Company, 4 Ch. Div. 18) which was not under the Act of 1869. But in the special Act incorporating the company it had been provided that, in the event of the undertaking proving abortive the deposit-fund should be forfeited to the Crown, or in the discretion of the Court applied wholly or in part for the benefit of the creditors. The actual point decided was that the deposit was to be resorted to only so far as necessary for paying creditors, and that no order could be made for treating it as an asset of the company until it was ascertained that there were debts that could not be paid by means of calls on the shareholders. This decision was based mainly on the view that prima facie the deposit was to go to the Crown, and that the Court had no discretion to apply it for creditors unless it appeared that there were debts which could not otherwise be paid. The decision, therefore, was not in favour of the depositors but of the Crown, and its only interest with reference to the present question is that in the opinion of Lord Bramwell (then L. J.) there first appeared the phrase about ‘meritorious’ creditors, whom he defined as those who were not responsible for the failure of the scheme.

Next came the case, in 1877, of the Lowestoft Tramways Company, 6 Ch. Div. 484. The company had obtained a provisional order, and a deposit had been made in terms of Board of Trade rules, which provided that in the event of noncompletion of the tramway the deposit should either be forfeited to the Crown or in the discretion of the Court applied for the benefit of creditors. Sir George Jessel exercised his discretion, as the Court of Appeal had done in the Bradford case, holding that neither the Parliamentary solicitors nor the persons who had become responsible for the deposit were meritorious creditors in a question with the Crown. This, therefore, like the Bradford case, was a decision in favour of the Crown and not of the depositors.

Then came in 1885 the judgment of the late Lord Justice (then Mr Justice) Chitty in the case of Birmingham and Lichfield Railway Company, 28 Ch. Div. 652. That again was a case where under the special Act the deposit-fund was either to be forfeited to the Crown or in the discretion of the Court applied for the benefit of creditors. The solicitor for the Treasury appeared and stated that he did not offer any opposition to the exercise by the Court of its discretion in favour of bona fide and ‘meritorious’ creditors of the company. The learned Judge reviewed the former decisions, and stated their effect to be that the claims of persons engaged in the promotion of a company were not to be considered, in the exercise of discretion reposed in the Court, as ‘meritorious,’ notwithstanding they would rank as debts of the company in a winding-up. Accordingly, he found that no part of the deposit-fund ought to be applied in payment of the claims of the Parliamentary agent, or of three directors who had been promoters and had made certain payments for obtaining the company's special Act. He did not doubt that the Parliamentary agent was a creditor of the company, and he did not hold that the depositors were to be preferred to him. But he held that the claims of the Crown, whether it was to be regarded as a fine or as compensation to the public for the public injury done by the failure to make a railway, were preferable to that of the Parliamentary agent.

Accordingly, it will be seen that all the cases in which a distinction was drawn between ‘meritorious’ and ‘non-meritorious’ creditors were either cases arising under section 5 of the Abandonment Act of 1869 or cases where the declaration of forfeiture to the Crown was held to imply something of the nature of punishment to all who could be regarded as having promoted an abortive undertaking, whether these were promoters in the strict sense or were engineers or solicitors or depositors. None of the cases were decisions in favour of depositors, except the two which arose under the very special terms of the Act of 1869. It therefore becomes necessary to consider whether the ratio of these judgments applies to a case like the present, which is not affected by the Act of 1869, and in which there is no clause of forfeiture to the Crown. The. Parliamentary Deposits Act of 1892 seems to mark a material change in the policy of the Legislature, for it provides that ‘notwithstanding any provisions for forfeiture to the Crown, the Court may order that the deposit-fund shall be applied as part of the assets of the company.

The question whether the Act of 1892 marks such a change has been considered by two English Judges in cases which are not binding on this Court, but which are entitled to considerable weight. One of them was in re Hull and Barnsley and West Riding Junction Railway Co., shortly reported in W.N. (1893), 83, in which Mr Justice Chitty, who had decided the case of the Birmingham and Lichfield Railway Co. in 1885, expressed the opinion that since the passing of the Act of 1892 all distinction between ‘meritorious’ and ‘non-meritorious’ creditors had ceased to exist. The other case was ex parte Bradford and District Tramways Co. (1893), 3 Ch. Div. 463, in which Mr (now Lord) Justice Stirling expressed the same opinion. The contest was between persons who would have been considered ‘meritorious’ creditors under the old law, viz., debenture-holders, on the one hand, and those who would have been considered ‘non-meritorious’ creditors on the other hand, viz., persons who had lent the money for the deposit-fund, and the solicitors of the company, whose claim was chiefly for unpaid costs incurred in obtaining an abortive extension order. Lord Justice Stirling held that all the three classes of creditors were entitled to have the deposit-fund divided among them pari passu. The dissent from this view recently expressed by Cozens-Hardy, L.-J., seems to have been

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confined to a subsidiary point, and not to have touched the main ruling as to the abolition of all distinction between ‘meritorious’ and non-meritorious’ creditors.

I agree with the view of these learned Judges. I am not insensible to the equitable considerations which led the Court in the two cases of Brampton and Barry under the Act of 1869 to treat the depositors and the Parliamentary solicitors as (to use the words of Lord Justice James) ‘substantially in the same boat.’ But then the Judges in these cases were exercising a discretion by which Parliament had expressly permitted—and in effect directed—them to disallow promotion expenses. The discretion which I have to exercise contains no such express permission, and I must exercise it in the light of the fact that the permission has been (I must assume intentionally) omitted. Anyone who consented to become liable for the deposit-fund under this special Act must be taken to have known that in the event of the undertaking being abandoned the fund must be applied as part of the assets of the company for the benefit of its creditors, and could only be repaid to the depositors subject to such application. The reference to judicial discretion in section 45 of the special Act means really no more, I think, than the use of the word ‘may’ in the Public Act of 1892, and the use of that word did not apparently affect the minds of Lord Justices Chitty and Stirling in the opinions which they expressed of the meaning of the public Act. I cannot therefore disallow the claims of Forman's trustees and Messrs Keydens on the ground that they are ‘non-meritorious’ creditors.

That being so, I do not find it necessary to say much on the question of fact, which was keenly contested, whether the late Mr Forman, Mr Reid, and the late Mr Strang Watkins were the active promoters of the undertaking. That they were promoters, not in the strict Parliamentary sense in which the petitioners were, but in a very real and true sense, I do not doubt. Their professional position was high enough to save them from the imputation of being mere speculators, or of promoting a certain scheme without believing in the probability of its practical success. They were not even the persons who conceived the idea of the scheme. It was suggested to them by others, but they took it up and prosecuted it with great zeal and vigour, and they were certainly much more the moving spirits of the enterprise than any of the petitioners. For the purposes of my judgment, therefore, I regard them as promoters, who gave their professional services in the expectation of being remunerated out of the assets of the company.

I must shortly notice yet another ground on which their claim is resisted. It is of the nature of personal bar, and is founded mainly on a letter addressed by the secretary of the company to Mr Howatson, dated 22nd April 1896, and on a minute of meeting of the promoters held at the Westminster Palace Hotel on the same day. The letter was in these terms:—‘With reference to your responsibility in connection with the promotion of this bill, and your responsibility in connection with the security for the parliamentary deposit with the Clydesdale Bank, it is understood and agreed that you are not to have any further responsibility for the expenses of promoting the bill beyond what you have already agreed to guarantee.’ The minute bore ‘Mr Granger and Mr Howatson signed the bank cheque for the deposit in addition to Sir John Muir and Mr Somervell, on the understanding that they should not be held liable for further expenses.’ In the case of the petitioner Mr A. M. Brown, there is also a receipt by the secretary, dated 25th March 1896, acknowledging his share of the commission due to the bank for the deposit with the addition of the words ‘which payment relieves him from further liability in connection with the promotion of the Muirkirk, Mauchline, and Dalmellington Railway Bill.’ There is, further, some rather loose evidence about oral representations made by the secretary and Mr Strang Watkins to Mr Howatson and Mr Brown when they signed the cheque for the deposit, to the effect that the deposit was a mere formality, and would involve them in no pecuniary liability. I am not sure that Mr Howatson does not also found on a letter from Messrs Keydens, dated 9th January 1895, saying ‘it is quite understood by the promoters and others interested in this railway that the liability of Mr Howatson of Glenbuck for the expenses of promoting this bill is limited to the subscription of £100 which he has agreed to give towards the expense incurred in connection with this matter.’ This letter, of course, referred merely to his liability as a subscriber towards the fund which had been raised to meet the case of the bill not passing; it did not and could not refer to his liability as a depositor. The secretary's letter of 22nd April 1896 did profess to refer to that; but no letter from the secretary of a company could possibly relieve a depositor from the statutory consequences of his act in making the deposit, and I see nothing in the evidence to connect either Mr Forman or Messrs Keydens with such an extraordinary representation. I do not doubt that there were vague assurances made by Mr Strang Watkins and others that the deposit was a mere matter of form, because everybody at that time hoped that the share capital would be raised, and that the scheme would prove a success. Nor do I doubt the belief of Mr Howatson and Mr Brown that the depositors would never he called upon to pay. The pity is that they acted upon this belief without making any inquiry as to the legal liability which they incurred by becoming depositors. If they had done so they must have been told that no random assurances could possibly bind the general creditors of the company; and that, even as regards individuals who had probable claims on the funds, the proper plan was to get from these persons definite undertakings that they would not in any case hold the deposit

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fund liable for their own debts. Nothing under the hands of Messrs Keyden, and certainly nothing under the hand of Mr Forman, amounted in my opinion to that.

There remains, I think, only the plea that this was a ‘paper company.’ I venture to deprecate the use of metaphors of this kind in legal language, for I am not quite sure that I know what is said to be the effect in law of calling a company a ‘paper company.’ It can hardly mean that no company which fails to carry out its undertaking can ever have any legal debts; because in that case all the provisions for making a deposit fund available when an undertaking has been abandoned would be entirely nugatory. If it be founded on the opinion of Mr Justice Kekewich ( In re Manchester, Middleton, and District Tramways Company, 1893, 2 Ch. Div. 638), then I suppose it means that parliamentary agents and others who have been instrumental in obtaining an Act which never results in any practical good to the public are to be disabled from getting payment of their accounts out of the deposit fund. I observe in passing that the learned judge's opinion (at p. 646) is entirely in favour of the view which I have expressed as to the Act of 1892 having abolished all distinction between ‘meritorious’ and ‘non-meritorious’ creditors. But then, if I understand him aright, he goes on to hold that where certain persons are all equally responsible for bringing into existence a bogus company, they must all—solicitors, parliamentary agents, and depositors—be debarred from recovering anything out of the deposit fund. I am not sure that I quite follow the reasoning, but so far as I do I cannot regard it as applicable to the present case. This may have been a ‘paper company’ in the sense that it never succeeded in making its line, but not, I think, in any other sense. It was started with substantial and independent local support. It went very near to securing contracts with responsible people for the construction of the line and an agreement with the Caledonian Railway for working it. Indeed, so far as one can judge, it was only through an injudicious haggling over terms on the part of the board that these agreements were wrecked. It seems to me that it would be a little hard on the engineer and solicitors who did their part of the work efficiently, and carried it to a successful issue by the passing of the Act, to punish them for having called into existence a ‘paper company,’ when its failure to carry out its undertaking was really due to the action of a board over which they had no control, and which, indeed, in the case of the solicitors, had at a very early period dispensed with their services. I am ready to believe that the present petitioners (who were also directors) had personally very little to do with the collapse of the company. I feel that the conclusion to which I have come is a hard one for them, and I am sorry for it. But I am afraid that it is the inexorable result of statutory provisions which they failed to examine before undertaking the liability of depositors.

I shall find that all the respondents are entitled to be ranked pari passu on the deposit fund for the amount of their claims as duly audited, and I shall continue the case in order that the appropriate remits may be made.”

The petitioners reclaimed, and argued—(1) The claimants who had acted prior to the incorporation of the company were not entitled to rank on this fund. It had been created by statute, and was to be disposed of without relation to common law rules save as invoked by the statute. But the only direction in the statute was that it should be distributed in the discretion of the Court, and that meant equitably— Gardner v. Jay, 29 Ch. Div. 50, at p. 58; Knowles v. Roberts, 38 Ch. Div. 263, at p. 271; Barry Railway Company, 4 Ch. Div. 315. The Lord Ordinary had erred in not giving effect to equitable considerations, but had dealt with the matter as if the statute had given a definite right. It was inequitable that these claimants should get payment out of this fund, because they were themselves the real promoters who should not be paid at the expense of co-promoters, or they had been employed by such promoters and had no right to be ranked save through them— Skegness and St Leonards Tramways Company, 41 Ch. Div. 215; Kent Tramways Company, 12 Ch. Div. 312; Wyatt v. Metropolitan Board of Works, 1862, 11 C.B. (N.S.), 744. There was a long series of cases going to show that the Court in its discretion would not rank upon the deposit-fund claimants of this character— Brampton and Longtown Railway Company, L.R., 10 Eq. 613; Brampton and Longtown Railway Company ( Shaw's Claim), L.R., 10 Ch. App. 177; Kensington Station Act, L.R., 20 Eq. 197; Bradford Tramways Company, 4 Ch. Div. 18; Barry Railway Company, 4 Ch. Div. 315; Lowestoft Tramway Company, 6 Ch. Div. 484; Birmingham and Lichfield Junction Railway Company, 28 Ch. Div. 652; Colchester Tramways Company, 1893, 1 Ch. 309; Manchester, Middleton, and District Tramways Company, L.R. 1893, 2 Ch. 638. While it might not be possible to establish two definite classes of “meritorious” and “nonmeritorious” creditors, the true character of a claimant fell to be considered— Bradford and District Tramways Company, 1893, 3 Ch. 466, Turpin, Weekly Notes, 1900, p. 94. It was also inequitable that these claimants should be ranked, looking to their general actings, and that it would enable them to obtain indirectly what they could not have obtained directly, as they could not have sued the petitioners. (2) The claimants who had acted after the incorporation of the company were not entitled to rank upon this fund. The board of directors had never been filled up according to the Act of Parliament, and consequently there was no one entitled to bind the company— Skegness and St Leonards Tramways Company, 41 Ch. Div. 215; Kirk v. Bell, 16 Q.B. 290; Alma Spinning Company, 16 Ch. Div. 681. The

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expenses here sought were not expenses of obtaining the Act, and consequently were not made a charge upon its assets.

Argued for the respondents—(1) Claims for services rendered in the promotion of the company were good against this fund. The Act said such expenses were to be paid out of the assets of the company, and declared this fund to be an asset. Having been a promoter did not invalidate a claim for professional services rendered— Edinburgh Northern Tramways Company v. Mann, July 15, 1896, 23 R. 1056, 33 S.L.R. 752, and no distinction could be drawn between different classes of creditors. All were alike. The cases cited in support of that contention turned upon the Act of Parliament in question at the time, and only showed that the policy of the Legislature in dealing with a deposit-fund had varied. Where any disqualification had been upheld that had always been in favour of the Crown and not of the depositors, but here there was no question of forfeit to the Crown. The cases cited also showed that such claims had been admitted where there was no specialty to exclude. In the winding-up of a company the claim of the solicitor who had acted in the formation of the company was a recognised equitable debt against it— Terrell v. Button, 4 H.L. Cases, 1091. (2) The claims for services rendered after the passing of the Act were also good. These individuals were appointed by the Act directors until the first meeting of shareholders, and as the company was never in a position to hold such a meeting they continued to form the Board and effectually bound thecompany—Deas on Railways, p. 69; Scottish Petroleum Company, 23 Ch. Div. 413; Thames-Haven Dock and Railway Company, 4 Man. & G. 552; Colonial Bank of Australasia v. Willan, L.R., 5 Privy App. 417; Bonnelli's Telegraph Company, L.R., 12 Eq. 246; Livingston v. Proudfoot, 6 Bell's App. 469; M'Gregor v. Cox, July 20, 1898, 25 R. 1216, 35 S.L.R. 273; County of Gloucester Banking Company, 1895, 1 Ch. 629; Mahony v. E. Holyford Mining Company, L.R. 1875, 7 H.L. 869, at p. 893; Owen and Ashworth's Claim, 1901, 1 Ch. 115; Duck v. Tower Galvanizing Company, 1901, 2 K.B. 341. But even if the contract was had owing to the irregular constitution of the board of directors, still the claims would be good as being for recompense for work actually done for the benefit of the company— Pinkerton v. Addie, June 22, 1864, 2 Macph. 1270.

At advising