Scottish Court of Session Decisions

In July 1907 the County Council of Argyll brought an action against R. S. Walker, solicitor, Greenock, for payment of £34, 14s. 9d., being the amount of assessments for the year 1906–1907 due by Peter Nicolson in respect of the ownership of certain heritable subjects within the county—Walker having in virtue of a decree of maills and duties collected the rents due to Nicolson from the said subjects.

The following narrative is taken from the opinion of the Lord President:—“Peter Nicolson, feuar, Bannockburn Buildings, Tarbert, was entered in the valuation roll of the county of Argyll for the year 1906–7 as the proprietor of two tenements, and in respect of his ownership of these properties was assessed in the sum of £34, 14s. 9d. Demand notes were duly served upon Nicolson in terms of the Local Government Act of 1889, but he failed to pay, and on 12th March 1907 he granted a trust deed in favour of a chartered accountant in Glasgow. Oh 7th March 1907 Nicolson's name was included in a summary warrant granted by the Sheriff of Argyllshire, but beyond this the County Council took no steps for payment of the rates.

There was a bond and disposition in security over Nicolson's properties in Tarbert in favour of Walker, and on 25th February 1907 the heritable creditor presented a petition and obtained a decree of maills and duties. No rents were due at that date, so that the creditor could not then get payment, but at the following Whitsunday term he collected the rents in virtue of his decree. These rents exceeded the amount of the rates due in respect of Nicolson's properties.

The present action was brought by the County Council against the heritable creditor in July 1907, and the conclusion of the summons is for payment of the amount of these rates.”

The pursuers pleaded, inter alia—“(3) The rates sued for are public burdens imposed by statutory authority upon said heritable properties, and are preferable to the said bond and disposition in security, and defender having refused to pay pursuers, this action has been rendered necessary, and the defender should be found liable to pay the sum sued for with expenses. (4) The said Peter Nicolson being insolvent, the rates imposed by pursuers are preferable to the said bond and disposition in security, which is a debt of a private nature, and decree should be granted in favour of pursuers with expenses.”

The defender pleaded, inter alia—“(2) The action is incompetent.”

On 7th November 1907 the Sheriff-Substitute ( Penney) decerned against the defender as craved.

Note.—“Apart from the preliminary pleas the parties seem to be practically at one upon the facts, and I have therefore disposed of the case by final judgment. I am of opinion that this case is ruled by that of the North British Property Investment Company, Limited v. Paterson, July 12, 1888, 15 R. 885. In that case the late Lord Moncreiff said—‘We are not in the category of competing creditors at all. The property must pay the rates, no matter into whose hands it may happen to pass’—and I think the same may be said here.

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There the collector of rates, having failed to obtain payment thereof, did diligence by poinding, although certain heritable creditors had already obtained decree in an action of poinding of the ground, and was held entitled to carry out his diligence. Here a County Council having failed to obtain payment of rates with respect to certain properties from the person whose name stands on the valuation roll, sues the heritable creditor who has obtained a decree of maills and duties entitling him to draw the rents of these properties.

The concluding words of section 62 of the Local Government (Scotland) Act 1889 (52 and 53 Vict. c. 50) enact that ‘all rates imposed under any powers transferred or conferred by this Act (as the rates here in question admittedly are) shall, in the case of bankruptcy or insolvency or liquidation, be preferable to all debts of a private nature due by the parties assessed,’ but I very much doubt whether, having regard to Lord Moncreiff's judgment, bankruptcy, insolvency, or liquidation is necessary. If it is, then I am prepared to hold that there is insolvency here of the person assessed evidenced by his failure to pay the rates due when required, and by his granting a trust deed upon the narrative that it was granted ‘in consequence of his being unable to pay the several debts due by him to his creditors.’

I have no difficulty in repelling the argument that debts due to a heritable creditor if published by registration in a public register are not private debts. I have always regarded the distinction between private debts and public ones to be that the former whether, published or not, are due to a private or personal creditor, whereas the latter are those due to the Crown, a burgh, a county council, or other public authority levying taxes or rates under anthority of an Act of Parliament. This opinion is explicitly expressed by Sheriff Erskine Murray in the case of the Commercial Bank of Scotland, Limited v. Lyle, November 13, 1896, 13 Sheriff Court Reports 70, and is undoubtedly implicitly that of Judges of the Supreme Court as may be gathered from the way they speak of debts of a public character. Really the only questions of difficulty here are, I think, whether the defender comes under the description of ‘one into whose hands the property has happened to pass,'and whether his liability (if any) is to pay the rates in whole or only in part.

There can, in my opinion, be no doubt that if the properties in question had been sold by the heritable creditor under a power of sale contained in his bond, and the proceeds had formed a fund in medio (as in the cases of Lyle ( supra), and of the Edinburgh Parish Council v. Forsyth's Trustees, March 6, 1907, reported in Poor Law Magazine for August 1907, p. 225), or if the whole rents derived from the properties were such a fund, and sufficient to pay all the rates effeiring to them, the pursuers would require to be paid out of it in preference to a heritable creditor such as the defender. To the extent therefore to which the defender has ingathered the rents of such properties he must clearly pay the rates effeiring to each property respectively. This disposes of the claim with regard to Otterburn Buildings, because the defender admits having collected rent from them greater in amount than the rates due in respect of such buildings. In regard to Bannockburn Buildings, on the other hand, the rates sued for amount to £19, 0s. 6 1 2d., whereas the defender only admits collecting rent to the amount of £12, 7s. But I do not think the amount of rent actually received is the measure of the defender's liability.

He chose to enter into possession of the subjects under a decree of maills and duties. He need not have done so, but by doing so I think he became liable for the rates effeiring to the properties of which by his decree he was entitled to draw the rents.

I may add a few words upon the three cases in the Court of Session which were referred to.

In that of the Athole Hydropathic Company, Limited v. Scottish Provincial Assurance Company, March 19, 1886, 13 R. 818, there is a dictum by Lord President Inglis relied on by the pursuers, viz.—‘A poinding of the ground is a proceeding … analogous to those other remedies open to heritable creditors, such as adjudication, or sale, or maills and duties.’ If maills and duties is analogous to a poinding of the ground, they say, and if, in the North British Property Investment Company's case, a poinding of the ground did not prevent the collector getting his rates, neither will an action of maills and duties, and this argument I think sound.

Another dictum in the same case is found in the words immediately succeeding those just quoted, and is as follows:—‘These are all diligences open to a heritable creditor to give effect to his preference which has already been secured to him. He has a preference against all the world, no one can compete with him …’ Therefore, says the defender, here the pursuers cannot compete with me.

But it was pointed out in argument in the case of the North British Property Investment Company that the Lord President was not there speaking of public debts. That is evident, and this view was undoubtedly taken by the Court in that case.

The case of the Greenock Board of Police v. Liquidator of the Greenock Property Investment Society, March 13, 1885, 12 R. 832, turned upon the construction of a special Act of Parliament, but so far as it has any bearing upon the present case it seems to me corroborative of the views I have expressed.”

The defender appealed to the Sheriff ( M'Clure), who on 30th January 1908 recalled his Substitute's interlocutor and allowed a proof before answer.

Note.—“I regret I do not see my way to decide this case merely upon the record, for if my opinion (which I express now) be well founded, that the pursuer's debt in the event of the debtor's bankruptcy or insolvency

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is preferable to that of the defender—there is probably very little of substance left in the case.

My view of the case shortly is this—It is provided, inter alia, by section 62 of the Local Government (Scotland) Act 1889 that ‘All rates imposed under any powers transferred or conferred by this Act shall in the case of bankruptcy, insolvency, or liquidation, be preferable to all debts of a private nature due by the parties assessed.’ The words of the section, it will be observed, make no distinction between private debts, for which the creditor holds heritable security, and private debts which are unsecured. The preference of the rates to all private debts is absolute if the party assessed is bankrupt or insolvent, and (although the contrary was argued) there is no doubt that the debt due to the defender is a debt of a private nature. Publication by recording of the security does not affect the quality of the debt as a private debt. In my opinion accordingly the only open question upon the terms of the section is whether or not the debtor Nicolson is bankrupt or insolvent. Upon this crucial matter the parties unfortunately are at variance. The pursuers on record affirm insolvency; the defender denies it. At the debate the parties maintained the same position. It was, however, asserted that the trust deed referred to on record contains in gremio Nicolson's admission of insolvency. This circumstance per se is obviously insufficient to prove the fact in the face of the defender's constant denial, but even so the document is not produced. I think therefore that pursuers must prove insolvency to establish the preferable character of their debt.

I think I should add that if insolvency on the part of the debtor be established, it is my opinion that the rents of the'subjects, so far as ingathered or recoverable under defender's decree of maills and duties, would be answerable for the pursuers' rates as a first charge. I do not think (as was suggested) that a larger claim could be made on the defender by reason of his having entered into possession, for the preferable creditor, if himself in possession, could not get more than the yield of the subjects. But in this case, where the security under the bond consists of two rent-bearing subjects, I think the rates would not be chargeable upon the rents severally, but that the total rents collected (£46, 2s.) would be chargeable with the total rates (£34, 14s. 9d,) affecting the security-subjects as a whole. The question therefore is academic so far as the present case is concerned.”

On 28th February 1908 the defender lodged a minute admitting that, at the date when the action was raised, Nicolson was insolvent, and thereafter on 9th March 1908 the Sheriff decerned against the defender as craved.

The defender appealed, and argued—The County Council had mistaken their remedy. They should have arrested the rents, for if they had done so their diligence would have been preferable to the appellant's decree of maills and duties—Bell's Com. ii. 51; Goudy on Bankruptcy (3rd ed.), 563, 589; Court of Exchequer (Scotland) Act 1856 (19 and 20 Vict. cap. 56), section 30. Not having done so they had lost their remedy. A creditor who had duly completed his diligence and carried off the subject would not be compelled to hand it over to a preferential creditor who had failed to make his preference effective—Preferential Payment in Bankruptcy Act 1888 (51 and 52 Vict. cap. 62), sec. 1; Athole Hydropathic Company, Limited (in liquidation) v. Scottish Provincial Assurance Company, March 19, 1886, 13 R. 818, 23 S.L.R. 570. The Local Government (Scotland) Act 1889 (52 and 53 Vict. cap. 50), sec. 62, relied on by the respondents, gave no security over any specific portion of the debtor's estate— Allan v. Cowan, November 15, 1892, 20 R. 36 ( per Lord Kinnear at p. 41), 30 S.L.R. 114. The case of the North British Property Investment Company, Limited v. Paterson, July 12, 1888, 15 R. 885, 25 S.L.R. 641, on which the respondents founded, was inapplicable, for the enactment there in question created a good real security over the goods of the ratepayer. There was no such enactment with reference to the rent of land. Taxes and rates were personal debts, not debita fundi—Bell's Com. i., 739; Macfarlane v. Monk—lands Railway Company, January 29, 1864, 2 Macph. 519 ( per L. J.-C. Inglis at p. 532; Local Government (Scotland) Act 1889 ( cit. supra), sec. 27 (1) and (2). They were recoverable by poinding in accordance with statutory provisions—Local Government (Scotland) Act 1889 ( cit. supra), sec. 62; Taxes Management Act 1880 (43 and 44 Vict. cap. 19), sec. 97. The appellant was not in the valuation roll. He had neither been assessed nor had he received notice that the assessments were unpaid.

Argued for respondents—The rates in question were preferable debts—Local Government (Scotland) Act 1889 ( cit. supra), sec, 62; North British Property Investment Co. Limited v. Paterson cit. sup. There was no other course open to the County Council, for the rents were not payable till Whitsunday 1907. The appellant had due notice that he would be held liable for the rates, and was therefore barred from founding on technical objections.

At advising—