Scottish Court of Session Decisions

This was an action at the instance of Andrew Robb, cattle and sheep dealer, residing at Flemington Farm, Newton, Lanarkshire, against Gow Brothers & Gemmell, stock and share brokers, 21 West Nile Street, Glasgow.

The action, brought in April 1004, concluded for delivery of the certificates of certain shares which the pursuer alleged had been purchased by the defenders on his instructions and on his behalf, and also for a count and reckoning in regard to the shares and the dividends thereon. Alternatively, the pursuer claimed payment of £2500 in respect of the loss sustained through the non-delivery of the shares.

The pursuer pleaded, inter alia—“(1) The defenders having purchased the said shares on behalf of the pursuer, and having received payment of the price thereof, the pursuer is entitled to delivery of the necessary share certificates as concluded for.… (3) In the event of the defenders failing to deliver the certificates for said shares to the pursuer, they are bound to account to the pursuer for the value or proceeds thereof. (4) Alternatively, the pursuer having, through the actings of the defenders, suffered loss and damage to the amount concluded for under the fifth conclusion of the summons, decree should be granted for the sum sued for.”

The defenders pleaded, inter alia—“(4) The pursuer not having suffered loss and damage through the actings of the defenders, the defenders ought to be assoilzied.… (6) The pursuer is barred by his actings, as referred to in the defenders' answers and statement of facts, from insisting on his present claim.”

A proof was allowed. The facts are given in the opinions of the Lord Ordinary and the Lord President.

On 23rd February 1905 the Lord Ordinary (Low) assoilzied the defenders from the conclusions of the summons.

Opinion.—“The pursuer is a cattle dealer and the defenders are stockbrokers in Glasgow. For a number of years prior to September 1903 one William Cook was clerk in the defenders' office. He and the pursuer were intimate, and in March 1901 Cook married the pursuer's sister. Cook asked the pursuer to employ the defenders in Stock Exchange transactions (of which the pursuer seems to have had a great number), giving as his reason that he obtained a commission upon any business which he brought to the defenders. That was not strictly true, because there does not seem to have been any agreement between Cook and the defenders that he should be entitled to a commission upon business introduced by him, but he was given to understand that his services in that way would be recognised, and in the last year during which he was in their service he received from the defenders a bonus or honorarium of £1000.

The pursuer accordingly did employ the defenders in a number of transactions between September 1901 and February 1903. In September 1903 Cook absconded, and it was then found that he had carried through a series of frauds in regard to stocks and shares which the pursuer had instructed the defenders to purchase for him. The pursuer now seeks to have the defenders made liable for the loss which he has thereby suffered.

Until Cook absconded no one seems to have suspected that he was dishonest, and he possessed the complete confidence both of the pursuer and the defenders. When the pursuer desired to give instructions for the purchase of stock he appears generally to have gone to the defenders' office, and upon these occasions he invariably saw Cook and gave his instructions to him. The pursuer says that he also sometimes communicated his instructions by telephone to the Stock Exchange. It is, of course, impossible to say who answered his call on these occasions, but it is not proved that anyone ever took instructions from him except Cook. I may here mention that Cook was one of the defenders' accredited clerks upon the Stock Exchange—that is to say, he was authorised to make bargains upon the Stock Exchange which would be binding upon the defenders.

The summons refers to nine lots of shares, the first four of which are in the same position. These are (1) one hundred shares of the British South African Company, (2) thirty shares in the same Company, (3) thirty shares in the Johannesburg

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Investment Company, and (4) thirty shares in the same company.

In regard to all these shares it is admitted that the pursuer instructed the defenders to purchase them, that the defenders did purchase them, that the pursuer duly paid the price and the defenders' commission, that transfers in favour of the pursuer were obtained, and that the respective companies sent share certificates in favour of the pursuer to the defenders. If the pursuer had obtained possession of the certificates, the transactions, so far as the defenders were concerned, would have been closed and completed. The pursuer, however, says that he never obtained the certificates, and whether he did so or not it is certain that they ultimately came into Cook's possession, because the latter sold the shares through other brokers, pocketed the price, and forged transfers in the pursuer's name. Cook could not have carried out these sales unless he had had possession of the certificates.

I think that it is established that the certificates were not sent to the pursuer by post in the ordinary way, because in that case the defenders would have got receipts for them, and they have no receipts. It was suggested that Cook might have handed the certificates to the pursuer when he was calling at the office. The pursuer, however, says that Cook did not do so, and, further, if Cook had given the certificates to the pursuer I see no reason why the latter should have handed them back to Cook. The pursuer further says that he asked Cook why he had not received the certificates, and that Cook told him the defenders had them. That answer seems to have satisfied the pursuer, because he says that he thought the certificates would be quite safe in the defenders' keeping.

The plain inference from the circumstances seems to me to be that when the certificates were sent to the defenders' office Cook took possession of them. I think that he was in a position to do so without exciting suspicion. He evidently held a good position in the office, and I suppose that every one there knew that it was through him that the pursuer had come to employ the defenders, and that he was the person whom the pursuer always saw when he came to the office, and to whom he gave his instructions. If, therefore, Cook said that he would take the certificates and deliver them to the pursuer I do not think that anyone in the office was likely to be surprised or suspicious.

The question is whether in these circumstances the defenders are liable to indemnify the pursuer for the loss which he has sustained through Cook's fraud?

I think that the rule of law applicable is that which was laid down in the case of Barwick v. English Joint Stock Bank (L.R. 2 Exch. 259). It was there held that ‘no sensible distinction can be drawn between the case of fraud and the case of any other wrong,’ and that the general rule is ‘that the master is answerable for every such wrong of the servant or agent as is committed in the course of the service and for the master's benefit.’ That rule has been repeatedly recognised and acted upon both in this Court and in England.

Now, I doubt very much whether Cook's fraud can be said to have been committed in the course of his service. No doubt it was the fact that he was in the defenders' service, which enabled him to get possession of the certificates, but he had no authority to take possession of the share certificates of any client of the firm, and to do so was entirely outside the scope of his duties. Even, however, if it should be held that Cook was acting within the scope of his employment, that is not enough to impose liability upon the defenders, because it must also be shown that when Cook committed the fraud he was doing something in furtherance of his employment and for his employers' benefit. I think that it is plain that that was not the case here. Cook was not doing anything for the defenders, nor could what he did in any circumstances have been for their benefit. I am therefore of opinion that as regards the first four lots of shares the defenders are not liable to the pursuer.

The shares referred to in the ninth place in the summons—namely, thirty shares in the East Rand Proprietary Mines—are in exactly the same position as the first four lots with which I have dealt. Cook obtained possession of the share certificate, sold the shares under a forged transfer, and embezzled the price. For the reasons which I have given I do not think that the defenders are responsible.

The shares which are referred to in the fifth place in the summons are one hundred shares of the Barnato Consolidatad Mines. The pursuer on 14th February 1902 instructed the defenders, through Cook, to purchase these shares, and they did so for settlement on the 27th February. On the 24th February, however, Cook informed the defenders that the pursuer desired that the shares should be sold, and accordingly they were sold at a loss of £35, 1s. The pursuer had not instructed Cook to have the shares sold, but intended to take them up. The defenders' books record the sale of the shares on the 24th February, but the ursuer never received a sold note. He id, however, receive an account dated 24th February bringing out a balance of £574, 1s. 6d. as due by him, and which included the price at which the hundred Barnatos had been purchased for him. That account is in Cook's handwriting. On 4th March the pursuer handed to Cook a cheque for the amount of the account (£574, 1s. 6d.), and Cook discharged the account—‘For Gow Bros. & Gemmell, W.C.’ The cheque was drawn in favour of the defenders, but it was a bearer cheque, and Cook paid it into his own bank account.

“I think that there can be no doubt that Cook intercepted the sold note which in ordinary course of business should have been sent to the pursuer, and which according to the defenders' books was sent to him. Of course, if that sold note had

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reached the pursuer, Cook's fraud would have been exposed. There can also be no doubt that the account sent to the pursuer was an account fabricated by Cook to lead the pursuer to believe that the shares had been duly purchased, and to induce him to pay the price. The account appears to have referred to other shares besides the Barnatos, and I do not know what happened in regard to them. They are not, however, included in this action.

Now, the initial step of this fraud was Cook's representation to the defenders that the pursuer did not intend to take up the shares, but desired that they should be sold. In making that representation it is plain that Cook was not acting in the course of his employment as the defenders' clerk—indeed he was not acting as their clerk at all, but ostensibly as the pursuer's agent. In regard to the subsequent steps by which the fraud was accomplished, Cook was plainly not acting within the scope of his employment when he intercepted the sold note which in ordinary course would have reached the pursuer. Then in making out an account as if for a purchase of the shares, Cook may have been acting within the scope of his employment in this sense, that he may have had authority to make out and render accounts due by clients, but he did not act in any way for the benefit of the defenders. I may here refer to two cases which illustrate very well what is meant by the proposition that to render a master liable for the fraudulent or wrongful act of his servant the latter must be acting for the benefit of the former. In the case of Clydesdale Bank v. Paul ( 4 R. 626) it was held that a stockbroker was liable for money which had been fraudulently obtained by his accredited clerk, because the money was used to pay a debt upon the stock exchange for which the master was in law liable, although it had been fraudulently incurred by the clerk acting in his name.

“The other case is Dyer v. Munday (L.R. 1895, 1 Q.B. 742). There the servant of a furniture dealer who had given out an article of furniture upon sale and return, went to recover the article from the customer (who had not implemented the terms of the agreement), and in doing so committed an assault upon him. The latter claimed reparation from the master, and the Court held that the claim was relevant, because when the servant committed the assault he was acting in his master's employment, and was seeking to recover the article of furniture for his master's benefit.

“Now, in rendering the account in question to the pursuer, Cook was not seeking to recover anything or to obtain any benefit for the defenders. That being so, the mere fact that it was Cook's position as the defenders' clerk which made it possible for him to commit the fraud is not enough to render the defenders liable for the loss which the pursuer has sustained.

“The shares referred to in the sixth place in the summons are twenty ordinary shares in Nobel's Dynamite Trust Company. These shares were purchased by the defenders for the pursuer upon the 16th September 1902 for settlement on the 26th September, but they were sold on the 22nd September. That must have been done upon Cook's representation that the pursuer wished them sold. Here again Cook appears to have prevented the fact of the re-sale coming to the pursuer's knowledge, and upon the settling day he presented an account to the pursuer, which included the price of the shares upon the footing that the purchase had been carried through, and obtained from the pursuer a bearer cheque for the amount (£341, 6s. 8d.), which he appropriated to his own use.

The circumstances in this instance therefore are practically the same as in the case of the Barnato shares, and for the reasons which I have given in the latter case I am of opinion that the defenders are not liable for the loss which the pursuer has sustained.

There are two other lots of shares included in the summons, being in both cases twenty shares in Nobel's Dynamite Trust. The defenders had nothing to do with these two lots of shares, and there is no entry relating to them in their books. What happened was this. The pursuer instructed Cook to purchase the shares. Cook did not do so, but without any purchase being made he sent bought notes to the pursuer, then upon settling day he fabricated accounts, obtained bearer cheques from the pursuer, and applied the proceeds to his own purposes.

It was argued for the pursuer that Cook having been the defenders' accredited clerk, and having accepted the pursuer's instructions to purchase the shares, the defenders thereby became bound to do so, and must either obtain the shares for the pursuer now, or indemnify him for the loss which he has sustained.

Now, Cook was only an accredited clerk of the defenders on the Stock Exchange and in regard to Stock Exchange transactions. Otherwise he was in no better position than any other clerk in the office, and it seems to me that if a client of a stockbroker chooses to give his instructions to a clerk in the office, who forgets or neglects to pass them on to his employer, the client has no claim against the stockbroker. But further, I do not think that, in relation to the pursuer, Cook can be regarded as nothing more than a clerk in the defenders' employment. The pursuer admittedly did business with the defenders in order to benefit Cook, to whom he was related, and in whom he had complete confidence, and he employed Cook as his agent to convey his instructions to the defenders. In the case of the last two lots of shares, Cook, instead of conveying to the defenders the instructions with which the pursuer had entrusted him, took advantage of the fact that he had received the instructions to perpetrate a fraud against the pursuer on his own account, and without bringing in the defenders in any way whatever. In such circumstances I think that the defenders have not incurred any liability to the pursuer.

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“I am therefore of opinion that, as regards the whole of the shares which form the subject of this action, the pursuer has failed to establish his claim.”

The pursuer reclaimed, and argued—The action was laid upon contract and not upon fraud. The conclusions of the action were for delivery conform to contract notes. It was the function of a broker to make an enforceable contract for his client— Maffett v. Stewart, March 4, 1887, 14 R. 506, at p. 517, 24 S.L.R. 402. As to Lots 1, 2, 3, 4 and 9—It had not been proved that these shares had been delivered. The pursuer was therefore entitled to decree. Quoad these shares, Cook was the defenders' and not the pursuer's agent. There was no evidence to show that the pursuer had given the shares to Cook. Esto that the pursuer gave his instructions to Cook, that did not make him his agent. Failure to deliver the scrip was due to the defenders' neglience, and they were therefore liable— Farquharson & Company v. King & Company, [1901] 2 KB 697. The certificate was not, as the respondents contended, a mere voucher; it was a document under the seal of the company, and was equivalent to a property title as between the company and the holder. It was a most important document— In re Bahia and San Francisco Railway Company, 1868, L.R. 3 Q.B. 584; Shaw v. Port Philip Gold Mining Company, 1884, L.R. 13 QBD 103; Dixon v. Kennaway & Company, [1900] 1 Ch 833. The cases cited by the respondents were based on section 31 of the Companies Act 1862. The pursuer was not barred by the notices of transfers sent by the various companies, as he never got them. In any event, the pursuer was entitled to proceed against the defenders—Addison on Torts (7th ed.), 750; Swan v. North British Australasian Company, 1863, 2 H. & C. 175. The pursuer was not barred by delay. Any delay on his part was due to his trust in the defenders. As to Lots 5 and 6—The pursuer had paid for these shares. Payment was sufficiently proved. The cheques sent by the pursuer were entered in Gow & Gemmell's account, and that implied payment to them. He had either handed them the cheque in their office or had sent it by post. If Cook got hold of it the defenders were liable. Cook was their servant, and if he was put in a position which entitled him to sign receipts, the defenders were responsible for his conduct. On the question of payment reference was made to Wilmot v. Smith, 1828, 3 C. & P. 453 (note); Barrett v. Deere, 1828, 1 M. & M. 200. As to Lots 7 and 8—These shares were in the same position as lots 5 and 6, although there was no genuine contract note. Contracts made by Cook were binding on the defenders, as he was their agent. In the whole circumstances the pursuer was entitled to delivery of his shares, or alternatively to get his money back.

Argued for respondents—The Lord Ordinary was right. The defenders had all along treated Cook as the pursuer's accredited agent. As to Lots 1, 2, 3, 4 and 9—Cook received the certificates as Robb's agent. The pursuer had been put on the register, and the defenders had therefore fulfilled their obligation to make him owner. Notices of transfers were regularly sent to the pursuer, but he had disregarded them. The pursuer had mistaken his remedy. His remedy was to have the register rectified, as forged transfers could not be recognised, and the pursuer could vindicate his right to the shares against the transferee—Lindley on Companies (6th ed.), pp. 667–671; In re Bahia and San Francisco Railway Company, cit. supra; Johnston v. Renton, 1870, L.R., 9 Equity 181; Balkis Consolidated Company v. Tomkinson, [1893] AC 396; Sheffield Corporation v. Barclay, [1903] 1 KB 1, 2 K.B. 580. rev. 1905, W.N. 118. The pursuer had sustained no damage, for he had not lost his shares—he had merely lost the voucher. He was entitled only to the expense of removing the forged transfers, probably also to damages, but not to the value of the property. Assuming the shares had been deposited with the defenders, they were in the position of a gratuitous bailee, and were not liable for theft— Giblin v. M'Mullen, 1868, L.R. 2 P.C. App. 317. The defenders had exercised reasonable care, and they were not bound to do more. The pursuer was guilty of negligence in not looking after his scrip, and he was therefore barred from suing for its recovery. As to Lots 5 and 6—Payment had not been proved. It had not been proved that payment was made to the firm, or to Cook in the firm's office. The probability was that Cook was instructed to pay, and if during the transit Cook stole the money, he did so while acting as pursuer's agent, and the defenders were not liable. In any event, a bearer cheque was not equivalent to payment until money had been got for it. As to Lots 7 and 8—The same argument applied to this group as to the preceding group. There was no contract note, and no evidence of payment. Cook must have kept the money, as the defenders never got it. There was no evidence that the money was handed to Cook in the defenders' office. The probability was that it was given to him either at Robb's house or his own.

At advising—