Scottish Court of Session Decisions

On 17th January 1911 the Brownrigg Coal Company, Limited, pursuers, brought an action against Robert Sneddon, coalmaster, Shotts, defender, for payment of sums of damages amounting in all to £9717.

The circumstances in which the action was brought were as follows:— The pursuers' company was incorporated as a private company on 8th July 1909. On 20th November 1909 they obtained an assignation of a certain mineral lease from Andrew Orr Bain, coalmaster, Glasgow, whereby they acquired right, with entry as at 1st July 1909, to work the seams of coal in certain lands in the parish of Shotts, which were immediately adjacent to the defender's lands. They averred that after obtaining access to a certain seam of the coal contained in their lease, in January 1910 they discovered that the defender had illegally worked a large quantity thereof. As regards operations carried on before their entry they produced assignations dated 16th March 1910 and 9th January 1911 from former proprietors assigning to the pursuers all claims of damage competent to them in respect of the abstraction of the said coal.

The defender denied the pursuers' averments and averred, inter alia—“(Ans. 1) … The nominal capital of the pursuers is £5000, in shares of £1 each. Of this capital 1600 shares in all have been issued, 800 thereof for payment in cash, and the other 800 as part of the price of the business of Mr Andrew Orr Bain after mentioned. The directors of the pursuers are a Mr Robert Osborne, the said Andrew Orr Bain, and Mr Charles Leigh Brown, chartered accountant, Glasgow, the secretary of the company. With the exception of 300 shares held by Mr Osborne, all the remaining shares issued are held by the said Andrew Orr Bain and Charles Leigh Brown, who hold 50 each, and their respective wives, who hold 750 and 450 respectively.… (Ans. 17) The defender believes and avers that the pursuers will be unable to pay the expense of the defender if successful in his defence. The total cash raised by the pursuers amounts to £800. Of this sum £300 has been paid to the said Andrew Orr Bain as vendor to the pursuers, and £25 to the said Charles Leigh Brown in terms of the sale agreement. A further sum of £150 has been paid to the Messrs Thomson in respect of the assignation of 16th March 1910. There remains a balance of £325, subject to the following charges which more than exhaust the same, viz. — The said Andrew Orr Bain's salary at £250 per annum from 1st July 1909, the said Charles Leigh Brown's salary of £25 per annum from the same date, the expenses of forming the company and relative deeds, the expenses of the workings hitherto carried on by the pursuers from which no profit has resulted, and the expenses incurred and to be incurred by the pursuers in the present litigation. The objects of the pursuers, as set out in their memorandum, contemplate extensive mining operations, for which they have no resources whatever. The defender believes and avers that one of the main objects of the pursuers' incorporation was to enable the present unfounded litigation to be carried on without liability for the expenses thereof.”

In answer to the above averments the pursuers averred—“(Cond. 1) The statements in the answer are admitted under the explanation that the price paid to Mr Andrew Orr Bain was paid in respect of his interest in the colliery concern taken over and acquired by the pursuers.… (Cond. 17) With reference to the answer, admitted that the total sum raised in cash on the formation of the company was £800, of which £300 was paid to Mr Bain and £25 to Mr Brown. Admitted that a sum of £150 was paid to Mrs Thomson. Explained that this sum was advanced to the company on loan, and that Mr Bain's salary has been paid out of revenue from the colliery. Further, explained that the balance of the said working capital has been applied in developing the colliery. The company must also be credited with the sums previously expended in connection with the work of development. The pursuers have sufficient capital to enable them to carry on their business in the meantime, and, apart from the loss, trouble, and expense caused by the defender's illegal actions, they believe and aver that they will have no difficulty in procuring whatever additional capital will be required to enable them to successfully develop the colliery. Quoad ultra the statements in the answer so far as not coinciding herewith are denied.”

The defender pleaded, inter alia—“(1) The pursuers should ante omnia be ordained to find sufficient security for the defender's expenses, and the action should be sisted until such seourity is given, in terms of section 278 of the Companies (Consolidation) Act 1908.”

On 2nd June 1911 the Lord Ordinary ( Skerrington) pronounced this interlocutor—“The Lord Ordinary, … on the motion by counsel for the defender that the pursuers should be ordained to find security for the costs of the action, and to stay all proceedings therein until the security is given, in terms of section 278 of the Companies (Consolidation) Act 1908, refuses said motion: … Grants leave to reclaim.”

The defender reclaimed, and argued—It appeared by credible testimony in the form of admissions on record that the pursuers would be unable to pay the defender's expenses if he were successful in his defence. The averments made it quite plain that the company was formed for the purpose of raising a speculative action of damages, and at the same time of shielding the members of the company from liability for expenses. There was no bona fide intention of working coal, for the company had not the requisite amount of capital for such operations. No doubt the statute entrusted

Page: 883↓

the Lord Ordinary with a discretion, and it was true that the Court would not interfere with the exercise of his discretion unless he had gone quite wrong— New Mining and Exploring Syndicate, Limited v. Chalmers & Hunter, 1909 S.C. 1390, 46 S.L.R. 1002. But the Lord Ordinary had gone wrong here. A Court of Appeal was entitled to examine into the grounds of the exercise of discretion by a Judge of first instance— Northampton Coal Company v. Midland Waggon Company, 1878, 7 Ch. D. 500, Jessel, M.R., at 502.

Argued for the pursuers — The Lord Ordinary had rightly exercised his discretion. Moreover, the Court would not reverse his judgment unless they were quite satisfied that he had obviously erred— New Mining and Exploring Syndicate, Limited v. Chalmers & Hunter ( sup. cit.). No sufficient reason had been shown for interfering with the discretion of the Lord Ordinary. The company was not in liquidation, nor averred to be insolvent. The company had been floated for the bona fide purpose of working coal. The Court could not say prima facie by admissions on record and without inquiry that it had been formed in order to make the present claims of damage. On the contrary, the record showed that it was only in January 1910, in the course of their operations—six months after the formation of the company—that the pursuers became aware of their claims of damage.