Scottish Court of Session Decisions

On 26th January 1905 the Asphaltic Limestone Concrete Company, Limited, then in liquidation, and E. M. Sharp as liquidator thereof, raised an action against the

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Corporation of Glasgow, in which they sued for £1172, 19s., in respect of certain paving work done by them in King's Drive and other streets in Glasgow, under a contract entered into between the Corporation and the company in May 1903. A counter action at the instance of the Corporation against the company and Mr Sharp was raised on 22nd February 1905, in which the Corporation sought decree for £2967, 6s., in respect of the company's alleged failure to fulfil (1) a term of the contract above mentioned; and (2) a previous contract between the same parties entered into in June 1902, under which the company were bound to pave and maintain for a specified period certain other streets in the city. Both actions were heard and decided together.

The facts as brought out at the proof and the effect of the correspondence are fully stated in the following portion of the opinion of the Lord Ordinary ( Ardwall):—“There are two actions to be considered, the one at the instance of the Asphaltic Limestone Concrete Company, Limited, whom I shall call the company, and its liquidator Mr Sharp, against the Corporation of the City of Glasgow, whom I shall call the Corporation, and the other action at the instance of the Corporation against the company and its liquidator. The actions have not been conjoined, but the parties agreed that they should be tried together, and that the evidence in the one action should be held to be the evidence in the other.

The company, which is one of over thirty years standing, having got into difficulties, Mr Sharp was, on the petition of debenture-holders, appointed receiver for the debenture-holders and manager of the company by the High Court of Justice, Chancery Division, on 26th August 1903. By special resolution of the shareholders, dated 1st September 1903, it was resolved that the company should be wound-up voluntarily, and Mr Sharp was appointed liquidator. His work as receiver and manager practically terminated on 25th June 1904, but he did not obtain his discharge from the Court till 25th October 1904. After 25th June 1904 he commenced to act as liquidator, and took over the assets and management of the company at that date. It was a creditor's liquidation throughout, there being no surplus for the shareholders. Mr Sharp sent a formal notice of his appointment as receiver and manager to the Corporation and received an acknowledgment thereof. The liquidation of the company was published as usual in the Gazette. Therefore neither the Corporation nor their officials are entitled to plead, as they endeavour to do, that they did not know about the position of Mr Sharp and the company. At 1st September 1903 there were two subsisting contracts between the company and the Corporation.

The first contract had been entered into in June 1902, and by it the company became bound to pave with asphalt certain portions of the following streets, and the work of paving the streets was completed on the dates respectively put opposite their names:—Ingram Street, East, August 1902; Brunswick Street, September 1902; Hutcheson Street, October 1902; Queen Street, November 1902.

It was provided by the specification, which is quoted in article 3 of the condescendence for the pursuers in the Corporation's action that the company should maintain the surface of the asphalt in a thoroughly good condition, to the satisfaction of the Master of Works of the Corporation, for a period of ten years from the completion of the work. It was also provided that 80 per cent. of the contract sum, as ascertained by measurement, should be paid on completion of the work to the satisfaction of the Master of Works, 10 per cent. on the expiry of five years from the completion of the work, and the balance on the expiry of the period of upkeep. Accordingly the period within which the company were bound to maintain the said streets does not expire till 1912.

The second contract was entered into in May 1903, and by it the company agreed to pave with asphalt certain portions of the streets known as King's Drive (Glasgow Green), and King's Bridge, along which tramway lines were to be laid. The company's offer, with a statement of the prices, contains the following clause:—‘These prices include a free maintenance for five years; all the other conditions in your specification are hereby agreed to. For the maintenance and surface repairs during the succeeding five years our price will be sixpence per yard super. per annum upon the total surface.’

The contract further provides, inter alia, that 80 per cent. of the contract sum, as ascertained by measurement, should be paid on completion of the work, 10 per cent. on the expiry of three years, and the balance on the expiry of the five years, on the certificate of the Master of Works when the work had been completed and maintained in a satisfactory manner.

Mr Sharp, after looking into matters, made up his mind that it would be for the advantage of the creditors to adopt the latter contract and to let the Corporation rank in the liquidation for any claims they might have on the former. The two contracts were quite distinct from each other. Mr Sharp accordingly proceeded with the work under the second contract, and expended monies in his hand in completing it to the extent of £1191, 15s. 7d. He had given instructions that the best material should be used and the greatest care taken in laying it. I may note at this stage that, notwithstanding certain allegations on record, there is no question at present raised as to the quality of the work by the Corporation, nor do the company at present raise any question as to the sufficiency of the concrete foundation for the asphalt laid by the Corporation. On 10th October 1903 Mr Reid, the company's representative in Glasgow, wrote as follows to Mr Nisbet, the Corporation's Master of Works:—

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King's Drive.

Dear Sir,—Referring to yours of 5th, I beg to state that I forwarded same to my principals, and now send you herewith their reply.

Copy Letter above referred to.

James Reid, Esq. London, Oct. 9, 1903.

1 Robertson Street, Glasgow.

Dear Sir,—We return you herewith the letter that you received from Mr Nisbet the other day, after having written to the liquidator of the Asphalt Company regarding same, and the following is his reply:—

I am receiver and liquidator of this company, and the Court enables me to carry out any contracts entered into by the company.

The Glasgow Corporation contract will be finished by me, and to the officials' satisfaction.'

Please advise Mr Nisbet to this effect. — Yours faithfully,

Rowland, Carr, & Co.”‚

“In reply to this letter, which it is clear dealt only with the second contract, which was then in course of being carried out, the Master of Works merely stated that he would submit the matter to his committee at its first meeting. It may be explained that James Reid was the company's representative in Glasgow, and Rowland, Carr, & Company were the company's agents in London, who up to the appointment of a receiver had all along acted for them in connection with these contracts.

On these letters there followed what I cannot describe otherwise than as a most unsatisfactory correspondence, which finally landed the parties in the present actions. The strange character of the correspondence is, however, so far explained by the positions which each of the parties took up. Mr Sharp, on the one hand, having as receiver and liquidator adopted and completed the work under the second contract, considered that he was personally liable, as he says in the evidence, to complete it both as regarded work and maintenance, and he says that he would either have retained sufficient money belonging to the company to enable him to implement the maintenance obligation, or paid some other contractor money down to undertake the obligation for him. The latter course would have required the consent of the Corporation. He says further that he did not distinctly say all this in so many words in his later letter, because it was apparent on the face of the letter above quoted, and of what he had done, (and he assumed the Corporation knew) that they had him bound as liquidator for the fulfilment of the second contract. Mr Sharp, however, was anxious throughout to get some other company to take over both contracts with the consent of the Corporation, so as to free himself from all future liability, and enable him to get the liquidation closed. This view led in the correspondence to some confusion, for it tended to mix up the two contracts, whereas Mr Sharp considered that his legal position under the one was totally different from his legal position under the other. On the other hand Mr Nisbet, the Corporation's Master of Works, in whose hands the management of the whole business seems to have been left, says this in his evidence, that on 2nd September 1903 Mr Sharp for the first time intimated to him that he had himself done any part of the contract work. He further says—‘I never gave any consent to Mr Sharp doing the work. I knew nothing at all about Mr Sharp till the work was completed.’ He further says — ‘When we found that the company had gone into liquidation the Corporation at once took up the position that they were not bound to pay the balance of the 80 per cent. (that is, on the second contract) or anything else, till the Asphaltic Company had made provision for the due carrying out of all their contracts.’ This I think defines accurately the position of the Corporation. In my opinion it was not a position which they were entitled to take up. The two contracts were wholly distinct and separate. Mr Sharp might if he pleased have taken up neither of the contracts, but allowed the Corporation to rank for damages for breach of contract in the liquidation of the company. Instead of that Mr Sharp, who all along held the character of liquidator of the company, although he was acting as receiver and manager for some time under an order of Court, after due notice to the Corporation that he had been appointed receiver and manager, proceeded to complete the work under the second contract. He did this, it must be held, with the full knowledge and consent of the Corporation, and the Corporation ought to have known perfectly well that, having taken up the contract Mr Sharp was personally liable for the whole fulfilment thereof, and would have been personally responsible if he had parted with any of the funds of the liquidation to creditors or shareholders before making provision for its completion.

Parties having taken up these respective positions, it appears that on October 20th Mr Sharp wrote Mr Nisbet, the Corporation's Master of Works, a letter offering to make an appointment for the measurement of the work. This letter was written by Mr Sharp in the first person, and as receiver and manager on the company's estate. Some more letters passed on the subject, with the result that the work was measured by a certified measurer appointed by the Corporation in the presence of Mr Morris, the company's manager, on behalf of Mr Sharp, and as is shown by the measurement which is produced, the total sum due in respect of the work done came to £2466, 3s. 9d., which, after deducting a payment of £800 which had already been made to account, and the 20 per cent. which was to be retained by the Corporation in security of the obligation of maintenance, left a sum of £1172, 19s. immediately payable to Mr Sharp under the contract, and this is the sum sued for in the action at the company's instance. Mr Sharp applied again and again for payment of this sum, but payment was always refused on the ground, as we now learn

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from Mr Nisbet, that the Corporation would pay nothing till security over and above the retention of the 20 per cent. was provided for the fulfilment of the maintenance obligation in both contracts. In the meantime, owing as it would appear to the severe effects of the traffic as concentrated by the tramway lines, the asphalted roadway in King's Drive and King's Bridge required repairs, and in reply to a letter from Mr Nisbet requesting that immediate steps should be taken by Mr Sharp to repair the roadway, Mr Sharp wrote that he was sending the foreman to inspect the roadway, and that if Mr Nisbet would let him have the money due to him as provided by the contract, and which he admitted had been passed, he would do the repairs, and he adds—‘It is unreasonable to ask for the repairs to be done before I have been paid the money now due to me.’ Mr Sharp maintained this attitude throughout, and offered again and again to do the repairs necessary to the streets embraced by the second contract provided the Corporation would pay him the money which admittedly was due under it. This the Corporation consistently refused to do, and the result was that after patching the streets themselves for some time they proceeded to take in tenders for the maintenance of all the streets embraced in both contracts for the contract period, and finally accepted the tender of the Alcatraz Agency to undertake the obligations for the sum of £2904, and it is this sum, with the addition of £33, 6s. of temporary repairs, which is sued for in the action at the instance of the Corporation.”

With reference to their claim under the 1903 contract, the company and the liquidator (pursuers) pleaded—“(2) The sum sued for being due in respect of work done by the liquidator of the said company subsequent to the liquidation thereof, the defenders are not entitled to set off against the same any debts contingently due by the said company to the defenders as at the date of the liquidation.”

The Corporation (defenders) pleaded—“(3) The pursuers are barred from recovering the balance due in respect ( a) they have not implemented the contracts between the said Asphaltic Company and the defenders, and ( b) the liquidation of the company, and separatim their refusal to make provision for the due fulfilment of their obligation to repair and maintain the said streets in terms of the contracts, operated as a breach of the contracts libelled.” In their counter action the Corporation (pursuers) pleaded—“(1) The defenders having broken the contracts libelled for the maintenance and repair of the streets therein specified, are liable in reparation to the pursuers. (2) The sum of £2967, 6s., being the amount of the loss and expense sustained by the pursuers through the breach of contract libelled, they are entitled to decree in terms of the conclusions of the summons with expenses.”

The defenders pleaded—“(2) The pursuers being in breach of their contract are barred from suing the present action. (3) Separatim, the defenders not having broken said contract are not liable as for breach to the pursuers.”

On 20th July 1905 the Lord Ordinary ( Ardwall) pronounced the following interlocutor :—(1) In the action at the instance of the company and the liquidator —

Decerns and ordains the defenders to make payment to the pursuers the Asphaltic Limestone Concrete Company, Limited, and Elkanah Mackintosh Sharp as liquidator of the said company, of the sum of £1172, 19s., with interest thereon at the rate of 5 per cent. per annum from 17th May 1903 until payment,” &c.

In the action at the instance of the Corporation—“Finds that the defenders the Asphaltic Limestone Concrete Company, Limited, are liable to the pursuers in the sum of £96, 2s. in name of damages for non-fulfilment of a contract entered into in June 1902 for the paving with asphalt of Queen Street, … all within the city of Glasgow : And decerns and ordains the defender E. M. Sharp, as liquidator of the said company, to rank the pursuers for the said sum in the liquidation of the said company, and to pay them any dividend that may be due in repect of said ranking : Quoad ultra dismisses the action,” &c.

Note.—“For the grounds of the above judgment I refer to the opinion delivered in this action and in the action at the instance of the present defenders against the present pursuers. The sum now found due is brought out as follows:—

Sum claimed in respect of the maintenance—

( a) Removing defective asphalt,&c.	£	50	0	0
( b) Maintaining.	600	0	0
£	650	0	0
These figures are contained in the offer by the Alcatraz Agency.		From this falls to be deducted the retention money, which, according to the report by the Corporation's Master of Works, is …	553	18	0
Leaving a balance, for which the Corporation are entitled to a ranking, of ….	£	96	2	0”

Opinion.—[ After narrating the facts above quoted]—“Several points of law were argued upon this state of the facts. The first question is whether Mr Sharp, as liquidator of the company, and for a time manager thereof, was entitled after the liquidation to take up and carry on the second contract. I have no doubt that he was. By section 95 of the Companies Act 1862 the liquidator has power to carry on the business of the company so far as it may be necessary for the beneficial winding-up of the same. Mr Sharp thought that to take up this contract was beneficial for the company, because the company had material and men on the spot, and he considered the price a fair one. In this respect a liquidator under the Companies Acts is in much the same position as a trustee

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under the Bankruptcy Acts in Scotland. I am further of opinion that this was not a contract in which there was such delectus personœ in favour of the company as to disentitle the liquidator from carrying it out— See British Waggon Co. v. Lea & Co., 1880, 5 QBD 149—and liquidation does not of itself constitute a breach of contract—See Agra Bank, ex parte Tondeur, 1867, L.R., 5 Eq. 165. I am accordingly of opinion that Mr Sharp as liquidator of the company was entitled to take up and carry out the second contract. This he did, and having completed the work to the satisfaction of the Corporation, and the same having been measured in terms of the contract by measurers appointed by the Corporation, the Corporation thereupon became bound to pay him forthwith 80 per cent. of the contract price of the work as so measured. This they refused to do, and the grounds of their refusal must now be examined. In the first place, they say that Mr Sharp never undertook to carry out the obligation of maintenance in the second contract. To this it seems sufficient answer to say (first) that apart from the demand for security for performance of the maintenance obligation under both contracts, which demand I shall hereafter deal with, Mr Sharp was never asked specifically to give any undertaking to carry out the maintenance clause of the second contract. This, however, seems of little importance, because he was certainly bound as a liquidator, and as having taken up the second contract, to see it carried out in its entirety, and he would have been personally liable if he had failed to do so. But further, the only way to carry out the maintenance obligation was by making repairs on the streets whenever required, and Mr Sharp again and again expressed his willingness to do this if the Corporation would pay him for the work he had already done, but, very properly as it seems to me, he refused to spend more of the creditors' money in the liquidation until the Corporation had paid him what was already long overdue under the contract, and in these circumstances it cannot be held that he either refused or failed to carry out the obligation of maintenance under the second contract. But the position taken up by the Corporation on the other hand, as appears from the correspondence and from Mr Nisbet's evidence, was that they refused to make the payment they were bound to make under the second contract till the Asphaltic Company had given security for the due carrying out of both their contracts. This position seems to involve some propositions which appear to me to be untenable in law. In the first place it involves the proposition that the liquidator was not entitled to take up one contract and leave the other. In my opinion he was so entitled, and I may refer to the case of Gray's Trustees v. The Benhar Coal Company, 1881, 9 R. 225, as an authority for this. In the next place, their claim to retain money due to the liquidator under the second contract in security for the obligation under the first contract, involves the proposition that they are entitled to set off against a debt due at, and prior to the date of the liquidation, a sum that became due by them to the liquidator for work done by them during the liquidation, thus obtaining for themselves a preference in the liquidation. This, I think, is against the law—see The Ince Hall Rolling Mills Company, Limited, 1882, 10 Q.B.D. 179; Alloway v. Steer, 1882, 10 Q.B.D. 22; Bell's Commentaries, ii, 122–123. The object of a liquidation is to make an equal distribution of the assets of the company among its creditors, and this would be defeated could debts contracted after the liquidation, such as the present claim for work done under the second contract, be set off against debts which became due at or before the liquidation—as in this case the sum necessary to cover the obligation for maintenance under the first contract. Counsel for the Corporation quoted the case of Mitchell's Trustees v. Galloway's Trustees, 5 F. 612, as an authority in his favour, but that case was decided on the ground that a letter by a superior to the vassal, modifying a term in the feu-charter could not be viewed as a separate contract, but must be taken as part of the contract constituted by the feu-charter, and that the trustee in bankruptcy was not entitled to take benefit from the letter without fulfilling all the obligations in the feu-charter, which he was not prepared to do, and that case proceeded on the assumption that, if the feu-charter and the letter could have been viewed as containing two separate contracts, the trustee would have been entitled to adopt the one and reject the other; to that extent it is an authority in the company's favour. I have accordingly come to be of opinion that the Corporation were not entitled to take up the position they did, and that their entering into the contract with the Alcatraz Agency to become liable for maintenance under the second contract was, so far as the Asphaltic Company were concerned, an entirely unnecessary act on the part of the Corporation, and one in respect of which they have no claim whatever against the company. So far, however, as the first contract is concerned, I am of opinion that the Corporation were entitled to enter on a contract for fulfilment of the obligation of maintenance under it, and that they are entitled to a ranking for the amount of that contract under deduction of the 20 per cent. retained in security of the obligation of maintenance. The result of the foregoing judgment is, that I shall pronounce decree in the action at the instance of the company for the whole sum therein claimed, and in the other action I shall grant decree against the company only for the amount above referred to due under the first contract, in order that they may rank for that sum in the liquidation.”

The Corporation reclaimed in both actions. Lord M'Laren in his opinion indicates the chief points taken in the argument in the Inner House.

The following authorities were cited by the reclaimers—Bell's Com. ii, 122; Smith v. Harrison & Co.'s Trustee, December 22, 1893, 21 R. 330, 31 S.L.R. 245;

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in re Asphaltic Wood Pavement Co. ( Lee & Chapman's case), 1884, 26 Ch. D. 624, 1885, 30 Ch. D. 216; Ogdens, Limited v. Nelson, [1904] 2 KB 410, aff. [1905] AC 109; Lord Elphinstone v. Monkland Iron and Coal Company, Limited, June 29, 1886, 13 R. (H.L.) 98, 23 S.L.R. 870: Ross v. M'Farlane, January 19, 1894, 21 R. 396, 31 S.L.R. 305, per Lord Rutherfurd Clark; Mersey Steel and Iron Company v. Naylor, L.R., 9 QBD 648, aff. L.R., 9 A.C. 434; Asphaltic Wood Pavement Company ( cit. supra); in re Marriage, Neave, & Company, [1896] 2 Ch 663.

The following authorities were cited by the respondents :— Agra Bank, L.R., 5 Eq. 160; Palmer's Company Precedents, 9th ed. vol. iii, 428; Gardner v. London, Chatham, and Dover Railway Company, 1866, L.R., 2 Ch. App. 201; Boyle v. Bettws Llantwit Colliery Company, 1876, L.R., 2 Ch. D. 726; Bell's Com. ii, 122; Buckley on the Companies Acts, 8th ed., pp. 198, 408; Addison on Contracts, 10th. ed., p. 246; Thorneloe v. M'Donald & Company, February 17, 1892, 29 S.L.R. 409.

At advising—