Scottish Court of Session Decisions

James P. Glendinning, Nethershiell, Mid-Calder, brought an action against John D. Hope & Company, stockbrokers, Edinburgh, and against John D. Hope, the sole partner of that firm, in which he concluded for delivery of a transfer of 100 fully-paid ordinary shares of the Globe and Phœnix Gold Mining Company, Limited.

The pursuer averred that on 19th August 1909 he instructed the defenders to purchase on his account 100 shares of the Globe and Phœnix Gold Mining Company, Limited; that on the same day the defenders sent him a contract note advising the purchase of 100 shares for settlement on 26th August 1909; and that on 26th August he duly paid the amount required to settle the transaction.

The defenders admitted these averments, but they averred that the pursuer was due to them the sum of £50, 2s. in respect of a subsequent transaction. They further averred — “Explained that it is a custom of the Edinburgh Stock Exchange, as well as of the London Stock Exchange, for stockbrokers to retain scrip, including transfers, belonging to their constituents, and which has come into their possession

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in the course of their constituents' business, as security against accounts open with them by such constituents at the time.”

The pursuer pleaded—“(2) The defenders being bound to make delivery to the pursuer of the transfer of the 100 shares referred to in their contract note of 19th August 1909, the pursuer is entitled to decree of delivery as concluded for.”

The defenders pleaded — “(2) The defenders being entitled to retain the scrip for said shares until payment of the debt due to them, should be assoilzied.”

In the course of the proceedings the transfer was delivered to the pursuer on consignation of the sum of £55.

Proof was allowed and led.

The following narrative is taken from the judgment of Lord Salvesen:—“On 19th August 1909 the pursuer instructed the defenders as his stockbrokers to purchase for him 100 shares in the Globe and Phoenix Gold Mining Company. The order was duly executed, and a contract note for the purchase of the shares in question was on the same day sent to the pursuer. The note bears that the purchase had been made subject to the rules of the Edinburgh Stock Exchange, and that the transaction was to be settled on 26th August. On that day the pursuer remitted the price and became entitled to receive a transfer of the shares. Had the transaction taken the ordinary course the transfer should have been sent to the pursuer for signature within a few days after the 26th August; and indeed as the delivery of the shares fell to be made from a lot standing in the defenders' name and subject to their control, there is no reason why the transfer should not have been sent on the same day that the money was received. On receiving it back signed it would then have been the duty of the defenders to forward the transfer, with a certificate of the shares sold, to the company, and on receiving in exchange a certificate in name of the pursuer to forward the same to him. On 1st September the pursuer instructed the defenders to purchase a further lot of 200 shares of the same company, and he received a contract note informing him that the purchase had been effected on the usual terms, and that the transaction fell to be settled on 10th September. Through some overlook or neglect on the part of the defenders' staff, the transfer of the 100 shares for which the pursuer had paid on 26th August was not sent to him for signature in due course, and had not reached him by the 8th September. This circumstance created a feeling of dissatisfaction and distrust in the pursuer's mind, and he resolved to take his business out of the defenders' hands. With this object he arranged with another firm of stockbrokers, Messrs Lawrie & Ker, to buy in the 200 shares in question when they were offered for sale by the defenders on his instructions. Having made this arrangement he wrote to the defenders instructing them to sell the shares for cash and settlement 10th September.’ Had his instructions been carried out he would have become the purchaser of his own shares through Lawrie & Ker, and would only have required to settle any difference in the price between that at which he bought and that at which the shares were sold to him by the defenders. In point of fact, the shares were not offered for sale by the defenders, and the pursuer intimated that he declined to have any responsibility for the price on the ground that his instructions had not been carried out. The defenders thereupon on 15th September sold the shares against him for settlement on the 28th at a loss of £50, 2s., and to the extent of this sum they maintained that the pursuer was indebted to them. They declined to deliver the transfer of the 100 shares already paid for on the ground that they were entitled to retain it until the pursuer settled his indebtedness to them under the second transaction. The pursuer thereupon brought the present action for delivery of the transfer.”

The evidence relating to the custom of the Edinburgh Stock Exchange was thus summarised by Lord Salvesen — “The defender Mr J. D. Hope when invited by by his own counsel to state what he knew of the alleged custom could only say in effect that he always understood that he was entitled to exercise the lien which he claimed. Such an opinion — for it is no more—is of course no evidence of a custom. It may only show that the defender has misapprehended his legal position, and that in a hypothetical case, which has never in his experience come to the test of practice. His opinion on the point is shared by Mr Watson, the chairman of the Edinburgh Stock Exchange, who says that he has frequently acted upon it. When he is pressed, however, to give an instance, he can only recollect one where he asserted the right, and when on the claim being asserted, the client paid up the balance due. Even this case is left extremely vague, and we do not know what induced the client to act as he did. It may be that he considered it better to pay up his admitted debt rather than have a contest with his stockbroker, or that he had really no interest to contest the matter. Mr Watson does not state that the client admitted the right of retention claimed, and that cannot be inferred from the mere fact that he paid up his indebtedness. Mr Soutar Sanderson, another Edinburgh stockbroker, while stating that such a custom exists, has never known of any individual case in which it has been put in force. On the other hand, the pursuer put into the box two of the partners of Messrs Lawrie & Ker. The evidence of one of these gentlemen, who had only been a year on tht Stock Exchange, cannot be regarded as weighty on a question of custom; but Mr William Lawrie was quite as much entitled to express an opinion on the point as the defender or his witnesses. Mr Lawrie deponed that he had never heard of any case in which the alleged custom had been enforced. He knew that some members of the Stock Exchange maintained that it existed, and in the event of a client defaulting, who was due a balance to him

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self, he would retain his scrip as security for such balance.”

On 17th June 1910 the Lord Ordinary ( Mackenzie) pronounced this interlocutor:—“Sustains the second plea-in-law for the defenders: Assoilzies the defenders from the conclusions of the summons, and decerns: And in respect the transfer of the shares mentioned in the summons has been delivered to the pursuer, grants warrant to the Accountant of Court to deliver the consignation receipt, and to the North of Scotland and Town and County Bank, Limited, to pay the sum contained therein with the interest accrued thereon to the defenders or their agents, and that on a certified copy of this interlocutor.”

Opinion. — [After discussing questions which are not now reported]—“The next question is whether the defender was entitled to retain the transfer of the 100 Globe & Phoenix shares bought for the settlement on 26th August, and paid for then until Mr Glendinning paid him the £50, 2s. in respect of the subsequent transaction. The right to do so is founded on the lien which stockbrokers have. I think the cases of Jones v. Peppercorn, 28 L. J. Ch. 158, and London & Globe Finance Company, 1902, Ch. 416, show that such a right exists on the London Stock Exchange. The evidence in the present case is, in my opinion, sufficient to establish that there is such a right on the Edinburgh Stock Exchange. I do not think the lien is limited to transactions for the same account. It was said, however, that the transfer was in Mr Hope's hands under circumstances which excluded his lien. His clerk admitted that as the shares were to be transferred out of a parcel standing in Mr Hope's name at the National Bank, the transfer should have been sent on 26th or 27th August. I accept his explanation that it was due to an oversight that this was not done, and do not consider that there is sufficient in the circumstances to prevent Mr Hope exercising his right of lien. There is, I think, no warrant for the suggestion that Mr Hope was holding up the transfer for the purpose of getting the benefit of the additional cover for advances from the bank.

“The result of my opinion is that an interlocutor will be pronounced granting warrant for payment of the consigned money to the defender, and finding it unnecessary to dispose of the conclusion of the summons for delivery of the transfer. The defender is entitled to expenses.”

The pursuer reclaimed, and argued—The custom alleged by the defenders had not been proved. The only evidence in support of it was that one witness had enforced it on one occasion. That was not sufficient to prove the existence of a custom of trade Hogarth & Sons v. Leith Cotton Seed Oil Company. 1909 S.C. 955, 46 S.L.R. 593. Jones v. Peppercorn, 1858, 28 L. J. Ch. 158; and in re London and Globe Finance Corporation, [1902], 2 Ch. 416, did not apply to the present case. They turned on the custom of the London Stock Exchange, and that was irrelevant when the question was as to the custom of the Edinburgh Stock Exchange. If the custom was not proved the defenders must fail, for a stockbroker had no lien at common law—Bell's Prin., secs. 1434, 1438, 1445, 1451, and 1452. Further, the transfer in the present case was not the proper subject of a lien. The only documents which could be the subject of a lien were documents of title and negotiable securities — Hamilton v. Western Bank, December 13, 1856, 19 D. 152; National Bank of Scotland v. Dickie's Trustees, June 20, 1895, 22 R. 740, 32 S.L.R. 562 ( per Lord Kyllachy). Even if the right of lien existed, the defenders were not in a position to plead such a right as against the pursuer. Under their contract it was their duty to deliver the transfer to the pursuer at a time before the question under the subsequent transaction had arisen. Their possession was thus due to their own negligence and breach of contract, and therefore they had not that lawful possession which was necessary to make a right of lien effectual—Bell's Prin. secs. 1412–14; Gloag & Irvine on Rights in Security, p. 346; Fisher v. Smith, 1878, 4 A.C. 1. A custom which gave a lien under such circumstances would be void as being unreasonable and contrary to law. [Lord Dundas referred to Bruce v. Smith, June 20, 1890, 17 R. 1000, 21 S.L.R. 785.] Meikle & Wilson v. Pollard, November 6, 1880, 8 R. 69, 18 S.L.R. 56; and Robertson v. Ross, November 17, 1887, 15 R. 67, 25 S.L.R. 62, were distinguishable. In these cases a right to retain was held to be an implied term of the contract under which possession was had. Here the contract was inconsistent with a right of retention.

Argued for the defenders—It was proved that by the custom of the Edinburgh Stock Exchange a stockbroker was entitled to retain his client's documents in security of an open account. A similar custom obtained in London, and was recognised as matter of law in the English Courts — Jones v. Peppercorn ( cit.); in re London and Globe Finance Corporation ( cit.)—and that being so slight evidence was sufficient to prove that the custom was in force in Scotland— Strong v. Phillips & Company, March 16, 1878, 5 R. 770, 15 S.L.R. 443 ( per Lord Gifford). Hogarth & Sons v. Leith Cotton Seed Oil Company ( cit.) was distinguishable, because there the merchants who were to be bound by the custom deponed that they had never heard of it. If the custom existed, it was binding on the pursuer— Scott and Horton v. Godfrey [1901], 2 K.B. 726; Robinson v. Mollett, 1875, L.R., 6 H.L. 802; Mitchell v. Newhall, 1846, 15 L. J., Ex. 292—whether he knew of it or not— Fargett v. Baxter, [1900] AC 467, at p. 479. Further, a stockbroker was a mercantile agent, and as such had a right of retention for a general balance at common law—Bell's Comm. (M'Laren's ed.), ii, 114, 115; Gloag and Irvine on Rights in Security, p. 396; Sibbald v. Gibson & Clark, December 11, 1852, 15 D. 217. Retention might be pleaded in respect of a future or contingent debt—Bell's Prin., section 1410; Ross v. Ross, March 9, 1895,

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22 R. 461, 32 S.L.R. 337 ( per Lord M'Laren). The defenders' possession was sufficient to support their right of lien. In its origin it was perfectly legal possession, because the transfer had come into the defenders' hands in the ordinary course of business. Once the defenders had legal possession, the lien subsisted until the possession de facto came to an end — Bell's Comm. (M'Laren's ed.), ii, 107.

At advising, the judgment of the Court (the Lord Justice-Clerk, Lord Ardwall, Lord Dundas, and Lord Salvesen) was delivered by