Scottish Court of Session Decisions

The Edinburgh Corporation Stock Act 1894 (57 and 58 Vict. cap. Ivi) provides—“… Whereas it is expedient that the Corporation should be authorised to exercise their statutory borrowing powers for the time being by means of the creation and issue of Corporation stock as in this Act provided … Be it enacted … section 5 (1) Where the Corporation have for the time being any statutory borrowing power, then subject and according to the provisions of this Act the Corporation may from time to time by resolution exercise the power by creation of redeemable stock to be from time to time issued for such amount within the limit of the power at such price to bear such half-yearly or other dividends and to be so transferable … as the Corporation by the resolution for the first creation of Corporation stock direct: Provided that all Corporation stock at any time and from time to time so created shall be created on and subject to such terms and conditions as that the same shall form one and the same class of stock bearing one and the same rate of dividend, and shall become

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redeemable as hereinafter provided after the expiration of one and the same period from the first creation of Corporation stock. (3) The resolution for the first creation of Corporation stock shall provide that such stock shall be redeemable at the option of the Corporation at par after the expiration of a period to be fixed by the resolution not exceeding sixty years from the first creation of the stock …”

The Edinburgh Improvement and Tramways Act 1896 (59 and 60 Vict. cap. ccxxiv) enacts:—Section 83—“The Corporation, in addition to the powers contained in the Edinburgh Corporation Stock Act 1894, may, and they are hereby authorised at any time to create and issue a new class of stock for all or any of the purposes for which the Corporation may create and issue stock to bear any rate of dividend which the Corporation may fix, and all stock of such class shall be redeemable at the option of the Corporation at one and the same period to be fixed by the Corporation, but not exceeding sixty years from the first issue of such stock.”

The British Linen Bank as holders of £254,000 2½ per cent. redeemable stock, part of an issue of £750,000 created by a resolution passed by the Town Council of Edinburgh on 7th April 1897, in exercise of the statutory powers, brought an action against the Corporation for declarator that on a sound construction of the statutes a resolution passed in pursuance thereof and a prospectus the defenders were bound to redeem the stock immediately on the expiry of the 15th day of May 1927 on the application of the holders thereof. At the hearing in the Inner House the pursuers intimated that they did not found on the prospectus.

The resolution provided, inter alia—“ Third.—That such stock shall be redeemable at par after the expiration of a period of thirty years from 15th May 1897.”

The certificate of the stock provided, inter alia—“This is to certify that the proprietor of pounds of Edinburgh Corporation two and a half per cent. redeemable stock, subject to the Acts of Parliament relating thereto.…

Note.—Only £5 or multiples of £5 of this stock can be transferred. Redeemable at par after Whitsunday 1927 … Interest payable half-yearly on 15th May and 11th November.”

The defenders pleaded, inter alia—“(2) The pursuers' averments are irrelevant and insufficient to support the conclusions of the summons, and the action should be dismissed. (3) In respect that the stockholders, under the terms of issue of said stock, have no right to demand repayment of their loans prior to 15th May 1957, the defenders are entitled to decree of absolvitor.”

On 17th January 1911 the Lord Ordinary ( Skerrington) sustained the second plea-in-law for the defenders and dismissed the action.

Opinion.—“The pursuers are the holders of a large block of municipal stock which was allotted to them by the defenders the Corporation of the City of Edinburgh in the year 1897. The Corporation's resolution to create this stock is dated 7th April 1897, and bears to be under the authority and subject to the provisions of two private Acts of Parliament dated in 1894 and 1896 respectively. It purports to ‘create stock to be called the Edinburgh Corporation 2 1 2 per cent. redeemable stock, and to be issued to an amount which shall be sufficient for the following purposes, but not exceeding £750,000.’ It also bears ‘that such stock shall be redeemable at par after the expiration of a period of thirty years from 15th May 1897.’ In the present action the pursuers ask for declarator that on a sound construction of the statutes and resolution above referred to, and also of a certain prospectus, the defenders are bound to redeem the said stock immediately on the expiry of the 15th day of May 1927. Though the conclusion is not so expressed, the pursuers mean that the defenders must redeem the stock at par. The prospectus referred to in the conclusion represented with perfect truth that the stock would ‘be redeemable at par after 15th May 1927,’ but that representation has no bearing upon the present dispute. The defenders have in the exercise of their Parliamentary powers created a peculiar species of property, and the only point in controversy is whether the property so created does or does not possess the quality which the pursuers attribute to it, viz., that it must be redeemed on 16th May 1927. It must be clearly understood that the present action relates exclusively to what is called the new or 2 1 2 per cent. Edinburgh stock which was created and issued under the combined powers of the Acts of 1894 and 1896. It has nothing to do with the original or 3 per cent. stock which was issued under the powers of the 1894 Act alone. It will be necessary for me to express an opinion as to the meaning of the 1894 Act, but of course the rights of the 3 per cent. stockholders depend not merely on that Act but on statutory resolutions, the terms of which are not before the Court in the present action. It will also conduce to clearness if I state that counsel on both sides thought it unnecessary to debate the question whether the holders of either class of stock have a legal interest in the ‘Loans Fund’ established by the Act of 1894 for the purpose of providing for the payment of dividends and the redemption and extinction of all Corporation stock. Even if this question were answered affirmatively, it would not entitle the pursuers to the declarator for which they ask.

Prior to the year 1894 the City of Edinburgh had obtained from Parliament and had partially exercised borrowing powers of various kinds, but none of its private Acts had authorised the creation and issue of municipal stock. The defenders might probably have taken advantage of the powers conferred upon local authorities by the Local Authorities Loans (Scotland) Acts 1891 and 1893 (54 and 55 Vict. cap. 34, and 56 Vict. cap. 8), and have issued redeemable

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stock in terms of these Acts. This course might, however, have involved disputes with the creditors under the then existing city debt, and the Corporation would further have been subject to the control of the Secretary for Scotland in the management of its finances. The defenders accordingly obtained a private Act, which is an adaptation of the public Act of 1891 to the special requirements of the city of Edinburgh, and which authorises the Corporation to exercise any unexhausted statutory borrowing powers by the creation and issue of redeemable stock. It is called the Edinburgh Corporation Stock Act 1894 (57 and 58 Vict. cap. Ivi). The draftsman of the private Act had the public Act of 1891 before him. Section 5, which deals with the ‘creation of stock’ is practically the same in the two statutes, except that in the Edinburgh Act the reference to the Secretary for Scotland and all words expressly imposing an obligation on the Corporation to redeem the stock have been omitted. Nothing can be more significant than the contrast between section 5 (1) and (4) of the public Act and the corresponding clauses of the Edinburgh Act. This observation is not of course conclusive as to the construction of the Edinburgh Act, because the statute read as a whole may by necessary implication impose such an obligation on the Corporation. After carefully reading the statute, however, I have come to the conclusion that it is impossible to hold that the Corporation was impliedly bound by the Act of 1894 to redeem all stock created under the powers of that statute, though it may be that it was entitled in the statutory resolution for the creation of such stock to fix a date at which the option of redemption would be exercised.

Section 5 (1) of the Act 1894 contains a proviso requiring that all Corporation stock from time to time created under the powers of that section ‘shall form one and the same class of stock bearing one and the same rate of dividend, and shall become redeemable as hereinafter provided after the expiration of one and the same period from the first creation of Corporation stock.’ Various issues of stock were made under the powers of this section, all of which bore the same rate of dividend, viz., 3 per cent., and were redeemable at the same date, viz., 16th May 1924. It seems to have occurred to the defenders that they could borrow money on more favourable terms, and accordingly a single section was introduced into the Edinburgh Improvement and Tramways Act 1896 (59 and 60 Vict. cap. ccxxiv) authorising the issue of a new class of stock, being that with which alone the present action is concerned. Section 83 of the Act of 1896 is as follows—‘…[ quotes, v. sup.] …’ It is remarkable that the 1896 Act does not enact that the whole provisions of the 1894 Act with reference to the original stock shall apply, mutatis mutandis, to the new stock. Unless some such enactment is implied, section 83 of the later Act is unworkable. It appears from the resolution already quoted that the defenders assumed that the provisions of the 1894 Act applied to the new stock, and I think that they were right. I read section 83 of the 1896 Act as an addition to and an amendment of section 5 (1) of the 1894 Act. The result is that from 1896 onwards the defenders had power to create and issue two different kinds of stock, and that the provisions of the earlier Act apply equally to the original stock and to the new stock. Whether that is or is not the right way to get over the difficulty, I agree with the pursuers' counsel (the Dean of Faculty) in thinking that so far as the present controversy is concerned the rights of his clients fall to be determined primarily on a construction of the resolution quoted at the beginning of this opinion and of section 83 of the 1896 Act, the language of which is somewhat more favourable to his case than that of section 5 of the 1894 Act. As regards section 83, he argued that the new stock was stamped by Parliament as a redeemable stock, and that it was absurd to suppose that the Corporation had an option to convert it into a perpetual stock by simply doing nothing. He argued that the words ‘at the option of the Corporation’ as used in the section did not qualify the antecedent ‘redeemable’ but referred to what came afterwards, and were intended to make it clear that the Corporation should be entitled to fix the date of redemption at any date which they chose to select within sixty years from the first issue of the stock. He also maintained that the word ‘period’ as used in the section meant a specific date to be fixed by the Corporation. It followed that according to the intention of Parliament the stock must be redeemed within sixty years at the outside, and in the present case at the expiry of thirty years, being the date fixed by the Corporation itself. It seems to me that the Dean of Faculty's reading of the section reduces the words ‘at the option of the Corporation’ to mere surplusage. Even, however, if his reading of section 83 is accepted, the section and the relative resolution come to no more than that the stock ‘shall be redeemable’ at a particular date. The word ‘redeemable’ is a familiar one in our law, and it imports no more than that the creator of a right has a ‘power or faculty’ to re-acquire it on certain terms—Ersk., ii. 8. 2. So too it has been decided in England on the construction of a contract between a limited company and its debenture-holders that prima facie the word ‘redeemable’ means nothing more than that the debentures are ‘liable to redemption.’ Of course there is nothing to prevent a person who has reserved a power of redemption from contracting to exercise that power at a particular time and in a particular manner, and such bargains were resorted to at one time in the hope of evading the Usury Acts. Again, the Local Authorities Loans Act 1891 affords an excellent example of a statutory power to redeem ‘coupled with a duty.’ I use the phraseology of the interpretation clause of the 1891 Act which is followed in the

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corresponding clause of the Edinburgh Act of 1894. Anyone who alleges that a redeemable stock must be redeemed is bound in my opinion to show the existence of the obligation upon which he founds, and this the pursuers have failed to do. Parliament might quite well have followed the same policy in the Edinburgh Act as it adopted in the Local Authorities Loans Acts, and have made all stocks issued by the Corporation compulsorily redeemable within a certain period. But I see nothing absurd or improbable in the scheme which was actually adopted, viz., that the whole question should be left to the discretion of the Corporation. I accordingly sustain the defenders' second plea-in-law and dismiss the action.”

The pursuers reclaimed, and argued—On a sound construction of the Edinburgh Corporation Stock Act 1894 (57 and 58 Vict. cap. lvi), sec. 5, and the Edinburgh Improvement and Tramways Act 1896 (59 and 60 Vict. cap. ccxxiv), the resolution following thereon and the certificate, the words “shall be redeemable,” meant that the defenders were bound to redeem the stock at Whitsunday 1927 on the application of the holders. To interpret them as a mere faculty of redemption or option to redeem was inconsistent with the language of the statutes and more especially with the limitation provided by sixty years. It would, further, have the effect of making the loan perpetual, and this was contrary to the general practice in all local legislation. When the Legislature sanctioned borrowings they invariably set a term for repayment which corresponded with the period at which the benefit arising from the loan would be exhausted, in this case estimated at sixty years. Redeemable stock meant stock which the person who issued it was bound to redeem at the date when it was said to be redeemable. The affix “able” was of Latin origin and signified originally a power or faculty, but usage had converted this primary meaning into that of obligation or liability, e.g., the word “repayable” meant an obligation to repay— in re Tewkesbury Gas Company, [1911] 2 Ch 279. In the case in re Chicago and North-west Granaries Company, Limited, [1898] 1 Ch 263, the circumstances were different, and the context showed that a different meaning was to be attached to the word. The word “after” in the resolution was equivalent to “at,” and the words “at the option of” simply referred to the faculty which the defenders had under the statutes to advance the period at which they would be bound in any event to redeem. The private Acts were a complete code for the case, and it was incompetent to refer to the general Act founded on by the defenders, but in any event that Act did not support the defenders' contention.

Argued for the defenders—On a sound construction of the statutes, resolution, and certificate, there was no right conferred on the defenders to require repayment at any time. It was incorrect to say that the policy of the Legislature had been to sanction no borrowing by public bodies without a period for repayment. There were really three periods in the history of such borrowings, viz., (1) where a definite term for repayment is prescribed; (2) where borrowings for different purposes are consolidated into one stock and the borrower is given the option of redeeming within a certain period, at the expiry of which the loan must be repaid; (3) when the issue of the stock is sanctioned without any obligation to redeem—Report of the Select Committee on the application of Sinking Funds, June 16, 1909 (No. 193 House of Commons Papers for 1909). The position of the pursuers was the same as stockholders in a company. The reference to option in both sections of the private Acts, together with the fact that the ordinary meaning of “redeemable” signified a faculty, confirmed this view. There was an obvious distinction in the word “repayable,” which signified an obligation not only in financial speech but in common parlance. In re Chicago and North-West Granaries Company. Limited, cit. sup. was in point. A comparison of the sections in the private Acts with the corresponding clauses in section 5 of the Local Authorities Loans (Scotland) Act 1891 (54 and 55 Vict. cap. 34) showed that while the former were modelled on the latter, the latter contained words imposing an obligation to redeem which were absent in the former. The proper construction of the statutes was that the stock became redeemable at the option of the Corporation at Whitsunday 1927, and if not redeemed then became irredeemable for all time thereafter, or alternatively that this stock became redeemable at the option of the Corporation and remained redeemable at its option for all time thereafter, the sixty years being regarded not as a limit to the exercise of the option but as a period within which it must begin.

At advising—