Scottish Court of Session Decisions

On 7th February 1907 James Gillespie & Sons, builders, Paisley, and James Gillespie, sole surviving partner thereof, as such partner, as an individual, and as executor of his deceased brother Thomas, who died in 1905, the only other partner of the said firm, raised an action against James Gardner, a writer in Paisley. The pursuers sought to have the defender account for his intromissions as law agent for (1) the said James Gillespie & Sons, (2) the said James Gillespie qua partner of the said firm and as an individual and executor foresaid, and (3) the said deceased Thomas Johnston Gillespie qua partner of the said firm and as an individual. The accounting went back to 1895.

Accounts were ordered and put in, and objections and answers thereto were lodged.

The pursuers' objection 2 was—“The defender's said account fails to credit the pursuers with the true value of the ground—annuals and feu-duty mentioned in Cond. 4. The true value thereof was, as stated, at least £3822, 19s. 6d., at which price they were sold by the defender, whereas the pursuers have only received credit for £3094, 10s. 3d. The pursuers are accordingly entitled to credit for the sum of £728, 7s. 3d. as from the dates of the creation of the said ground-annuals and feu-duty, with compound interest thereon at the rate of 5 per cent. per annum from said dates.”

The facts are given in the opinion ( infra) of the Lord Ordinary ( Dundas) (V. also opinion of the Lord President), who on 7th July 1908, after a proof, found, inter alia, that the transactions between the pursuer James Gillespie and his late brother Thomas J. Gillespie, and the defender, referred to in objection 2, were fairly gone about, and were understood by, and were to the interests of, the Messrs Gillespie, repelled the whole objections, and assoilzied the defender.

Opinion.—“… The pursuer's case presents several adverse features. It was not until October 1905 that he raised the principal question now in controversy, which relates to events occurring in the years 1895 to 1897. He and his brother Thomas dissolved their copartnery about 1899, and its affairs were wound up, and their accounts with the defender adjusted, upon a footing inconsistent with the pursuer's present attitude. The brother died in 1902, in full knowledge, so far as appears, of the material facts involved, without having made any complaint or claim of the nature now put forward. His executry estate was wound up by the pursuer as his executor on the footing above indicated. The pursuer is unable to give any satisfactory explanations of his long delay in raising his present contentions.

Obj.II. raises the most important point in the case. It does not seem to me to be, properly speaking, an item of accounting; but the matter has been fought out with

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immense elaboration, and should be decided. It relates to certain transactions in 1895, 1896, and 1897, between the defender on the one part, and the pursuer and his brother on the other. Where the pursuer and defender differ as to the inception and character of the transactions, I prefer the latter's account, because I regard him as by far the more trustworthy witness. The evidence of Thomas Gillespie is, unfortunately, not available, as it would have been at any time down to his death in 1902. His apparent acquiescence goes so far to support the defender, whose version of what happened seems to me more probable than the pursuer's, and also more in accordance with the subsequent actings of all concerned. Shortly put, I think the sub—stance of the matter is this:—In 1895 the two brothers were desirous of entering into building speculations which they thought would be profitable. They intended to buy land occupied by houses of an inferior class, to pull these down, and replace them with a superior order of buildings. The scheme, of course, required capital; and I think the evidence is that the Gillespies, though far from being penniless persons, were not in a position to raise any very substantial sum from their bankers, or their friends or relations. They asked the defender to finance them. He says, and I believe him, that he was unwilling to do so, such things being out of his line, and the adventure being apparently somewhat hazardous. Ultimately, however, he consented to advance money to buy the land, the title to which he was to take in his own name; and it was agreed that a ground-annual should thereafter be created in his favour, and the land reconveyed to the Gillespies under burden of it. The ground-annual was to be calculated on the basis of yielding 4 per cent. on the amount of the defender's claim, which was to include the price of the ground, cost of redeeming casualties, &c., and certain law expenses. The same modus operandi was, with some variations, agreed to in regard to each of four successive adventures during the years I have named. The defender did, in fact, treat the ground-annuals (or, as regards one instance, the feu-duty) as his own property; the half-yearly payments were regularly debited against the brothers; the defender in 1901 sold the whole of the ground-annuals and feu-duty, and in 1904 he bought them back at some loss, and still possesses them. I may say in passing that I see no reason to doubt the truth of Mr Gardner's evidence as to the circumstances under which this sale and repurchase took place; and I discard, so far as contradicting him, the testimony of his former clerk Dunlop. I think Thomas Gillespie must have known quite well that the defender was treating the ground charges as his own property, and he apparently regarded this as in accordance with the bargain. Even the pursuer admits at one part of his evidence (not, perhaps, easy to reconcile with his alleged ignorance of the state of his accounts):—‘I knew that Mr Gardner paid the half-yearly ground-annual to himself from the money lying in his own hands. I knew that that was the system all through.’ But he says that he did not understand how the ground-annuals had been made up, never having received any written statements of them—such as undoubtedly existed in the defender's books—and understood they truly belonged to him and his brother. His case accordingly is, though it is rather obscurely formulated in Obj. II., that the defender, having entered into these transactions with his clients, and having made a profit, must disgorge it to them. This profit is said to amount to over £700, and is measured by the difference between the value of the ground-annuals at twenty-five years’ purchase, as at their creation, and at thirty-one years’ purchase, as at their sale by the defender in 1901. Now it is true that the law looks with some jealousy at transactions between agent and client; but they are not null—only reducible. The question of their validity, or the reverse, is always one of circumstances; and the transaction will not be set aside if the agent can show (the burden of proof being upon him) that he gave full and fair value for what he got, that he did not withhold from the client any information he possessed, and did not conceal that he was himself the transacting party. (Begg on Law Agents, p. 253, and cases cited, especially Edwards, 1842, 2 Hare's Ghan. Rep. 60. See also M'Pherson's Trustees, 1877, 5 R. (H.L.) 9). I think the defender does sufficiently discharge the onus, and that there is no good ground for impugning the transactions. The evidence establishes to my mind that the price was a fair one,—experienced witnesses like Mr Binnie and Mr Cameron characterise it as ‘generous,'—or, in other words, that the return Mr Gardner got for his advances was at a very moderate rate. One must have regard to the whole surrounding circumstances as they stood at the time,—the financial position of the builders, the degree of risk which seemed likely to be run by the defender, and so forth. I think that the transactions, so viewed, were not injurious but beneficial to the interests of the Gillespies; and that they could not, so far as appears, have carried through their speculations on better terms by any other feasible method. Great stress was laid by the pursuer's counsel upon the fact that,—notably in the case of the first of the transactions,—the ground-annual was calculated upon a sum including not only the price of the land and the cost of redeeming casualties, etc., but also various sums, of no great amount, due to the defender by the builders, unconnected with the matter in hand, and the legal expenses incident to carrying the transaction through. The proceeding may have been unusual; but there is not, to my mind, anything illegal or improper in making such a bargain. It saved the Gillespies from paying these debts in cash, as they must otherwise have done. I believe the defender when he says that it was by their wish that the matter took this shape; and I see no reason to doubt that the pursuer, as well as his

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brother, saw and approved the document which is taken from the defender's state book. Nor do I attach any importance to the facts, on which the pursuer's counsel seemed to base indefinite but sinister suspicions, that a couple of pages appears to be missing from that book; or that the ‘State’ in reference to one of the four transactions is apparently booked out of chronological order. I need not labour this matter further. I think these transactions were honestly and fairly gone about; that the pursuer and his late brother knew about and understood them—that they did, in fact, benefit by them; and that the transactions are not assailable on any legal ground. The objection will therefore be repelled. I should add, that even if my opinion had been different I should have thought the pursuer's claim was met by the offer contained in the answer to this objection.…”

The pursuers reclaimed, and argued—The defender had obtained the ordinary law agent's remuneration in respect of the various conveyances arising through the purchase and sale of the properties and the constitution of the ground-annuals, and he was not entitled in addition to make a profit out of transactions which he must be presumed to have advised. In any case from his position as law agent the onus lay on the defender to show that the transactions were not only made without concealment, but also that the bargains were in themselves fair, i.e., such as if the lender had been a third party, the law agent would have been justified in advising. Reference was made to M'Pherson's Trustees v. Watt, December 3, 1877, 5 R. (H.L.) 9, Lord Chancellor Cairns at p. 16, Lord O'Hagan at p. 17, 15 S.L.R. 208; Clelland v. Morrison, November 9, 1878, 6 R. 156, Lord Justice-Clerk Moncreiff at 167, Lord Young at p. 172, 16 S.L.R. 90; Anstruther v. Wilkie, January 31, 1856, 18 D. 405; Tyrrell v. Bank of London and Others, 1862, 10 H.L. (Clark) 26, Lord Chancellor Westbury at p. 44; O'Brien v. Lewis, 1863, 32 L.J. Ch. 569.

Argued for the defender (respondent)—There was here no gift, and no concealment. Had the transaction been with a third party, and had the defender been consulted about it, he would have acted quite properly in advising it. There was no concealment of any sort, and the transaction was eminently a fair one looking to the risk run before any buildings were erected, and should not be regarded ex post facto. Had the pursuers become bankrupt, and the buildings never been erected, there would have been a loss. The pursuers had shown no method by which, prior to the erection of the buildings they could have obtained the money more advantageously. Reference was made to Lord M'Laren's opinion in Anderson v. Turner, April 17, 1884, reported in a footnote to Logan's Trustees v. Reid, 12 R. 1094, at p. 1097, 22 S.L.R. 744, at p. 745.