Scottish Court of Session Decisions

At advising on 19th July 1939,—

LORD PRESIDENT (Normand).—The pursuers, whom I shall call the Burgh, seek to recover from the defenders, whom I shall call the County, certain sums paid under requisitions made on them under section 21 of the Local Government (Scotland) Act, 1929, on the ground that they have been requisitioned for sums for which they were not liable. The complaint is that at 15th May 1930, when the functions of the highway authority as regards classified roads were vested in the county council as reconstituted by the Act of 1929, the County's accounts relating to classified roads showed a deficit of some £35,000 which was not a legal liability of the County in respect of which they were entitled to requisition small burghs under section 21, and that the County nevertheless annually included in their estimated expenditure on classified roads proportions of this sum.

The case has twice come before this Division, and it is therefore necessary to deal with it in two chapters.

On the first occasion, the County maintained in limine that the Burgh had no title to sue, and asked us to sustain their first plea in law. Their contention was that the small burghs were mere collectors for the County. The Lord Ordinary repelled the first plea in law for the County, and in my opinion he was right in so doing. That a small burgh is not under section 21 a mere collector is plain from the fact that the amount of its contributions may be defrayed out of moneys borrowed, or out of the common good, or out of rates. At the first hearing we indicated our agreement with the Lord Ordinary that the small burghs are entitled to object to a requisition on the ground that statutory conditions have not been fulfilled. In other words I think that the small burghs are in the position of the distress committee in Town Council of Edinburgh v. Distress Committee of Edinburgh, and not in the position of a parochial board under the Education Act of 1872, which is discussed by Lord President Dunedin in the same case (at p. 163).

The question of title being out of the way, the debate at the first hearing next dealt with the County's second plea in law, which challenged the relevancy of the Burgh's averments. These averments were (condescendence 4) that the county council before 1930 did not in fact rate for deficiencies in their road account from year to year, but by under-assessment accumulated and carried forward deficiencies from one year to another, and that the deficit on the County's road accounts as at 15th May 1930 represented these accumulations. These averments were related to sections 26 and 27 of the Local Government (Scotland) Act, 1889, and in particular to section 27 (1) which provides that the county council shall annually fix the rate which will be necessary to meet the deficiency in the county fund in respect of each branch of expenditure subject to its control. The argument on the relevancy of these averments before the Lord Ordinary seems to have followed a somewhat different line from that which we heard. At all events he held that section 21 of the Act of 1929 authorises the County to levy only for such expenditure as was incurred with reference to classified roads as from the passing of the Act, and that, while such expenditure would necessarily include such charges as were necessary to defray loans raised in the past with reference to such roads, it does not include debit balances which arise from under-assessment in past years. He therefore allowed inquiry into the facts alleged. Counsel for the Burgh before us found themselves unable to support the Lord Ordinary's opinion on this point, and they conceded at the outset that the county council was entitled to carry on a deficit from one year to the next at least. After the argument developed and it was pointed out by the counsel for the County that "deficiency" in section 27 (1) of the 1889 Act means only a deficiency after taking into account borrowing powers which it is intended to exercise, counsel for the Burgh asked leave to amend. No decision was therefore given on the point of relevancy discussed at the first hearing before us, and, what has happened since has had the effect of withdrawing the point from our consideration.

The next stage was the amendment of the record, the result of which is that the averments which I have set forth were struck out. In their place the Burgh now avers that, in addition to rating powers, the old county council were empowered to borrow for road purposes subject to certain statutory conditions, but that they did not use the statutory borrowing powers to meet expenditure not met by rating, but borrowed ultra vires for that purpose, and that the accumulated deficiency as at 15th May 1930 of some £35,000 had been met by raising ultra vires loans which were not a liability of the old county council within the meaning of section 6 (2).

At the second hearing the County challenged the relevancy of the averment that, because the borrowing of the old county council had been, ultra vires, the sums borrowed were not a liability of the County under section 6 of the 1929 Act. For the purpose of this argument the averment that the borrowings were ultra vires is taken pro veritate.

Under section 6 (2) of the 1929 Act it is enacted, inter alia,that any liabilities relating to a function transferred by the Act shall be held or treated as incurred for the purposes of the function so far as relating to the whole area of the transferee authority. Now, the road functions of the old district committees were by section 2 (1) (a) transferred to the County. Accordingly, all liabilities relating to the functions of the district committees, which may be conveniently described as road administration, were by section 6 (2) after 15th May 1930 held as incurred for road purposes for the whole area of the County. Under section 21 the expenditure of the County for road purposes, including of course the expenditure necessary to meet liabilities held as incurred for road purposes of the whole County area, falls to be apportioned and allocated between small burghs and the landward area, and the County requisitions each small burgh for its share.

The decision on the argument thus presented accordingly turns on the question whether the sum borrowed by the old county council ultra vires was a liability of the old county council relating to road administration as carried on by the district committees. At this point it may be useful to recall that the district committees were not rating authorities, nor had they power to borrow. Their financial powers were merely to prepare estimates, and the county council rated for road expenditure—The Roads and Bridges (Scotland) Act, 1878,sections 49, 50 and 52, as amended by the Local Government (Scotland) Act, 1889, sections 11 (2), 16 (2) (c) and 79. Accordingly, an expenditure incurred in the course of road administration by the district committees fell to be defrayed by rates imposed by the old county council and was a county council liability. The purpose of section 6 of the 1929 Act is to secure that this liability for the expenditure on roads incurred by the old county council should be a liability which the reconstituted county council could allocate over the whole county area. The liabilities of small burghs arising out of their classified roads administration prior to 15th May 1930 were transferred to the reconstituted county council by section 6 (1) of the 1929 Act, and their functions relating to classified roads were transferred by section 2 (1) (c).

The word "liabilities" is, by section 77 (1), to have the same meaning as in the 1889 Act, and by section 105 of the 1889 Act "liability" includes, inter alia, all debts and liabilities to which any authority would be, but for the passing of the Act, liable or subject. It was agreed that the effect of this was that a liability included any sum for which the old county council could have been successfully sued.

We have therefore to decide whether the lender from whom the old county council had borrowed ultra vires a sum of money which it used to defray road expenditure already incurred could recover that sum by legal process. It has to be taken, I think, that the lender in this case knew the statute law governing the County's power to borrow, and therefore that he was aware that the transaction was ultra vires. There is apparently no Scots case in which the question has been decided whether the lender in such a transaction can recover the sum borrowed. But, in my opinion, a solution of the question is clearly indicated by our institutional writers. Stair (I, viii, 6) says:

"The other obligation of recompence is for that whereby we are enriched by another's means, without purpose of donation. … This remuneration is a most natural obligation. As Cicero saith, ‘That it is against nature for a man, of another's damage, to increase his profit’; and again, ‘Nature suffers not, that, with the spoil of others, we should augment our own riches’. And therefore this is a common exception in all positive laws, that everyone should be liable in quantum locupletior factus sit. So pupils, though they cannot oblige themselves by contract, yet if they receive that which is another's, they are liable to recompence in quantum locupletiores facti".

Stair then refers to certain passages in the Digest which are also referred to and set forth by Lord Dunedin in Sinclair v. Brougham, at p. 434. In that case Lord Dunedin says, after pointing out that there was no doctrine of ultra vires in the modern sense in the Roman law, an observation which would equally apply to the Scots law of Stair's time, "But after all the only effect of the doctrine of ultra vires is to render contracts which are ultra vires a nullity. You cannot have more than a nullity, and such a nullity was equally found in the Roman law in the case of the contracts of pupils, who were totally incapable of contracting. Now, the Roman law met the situation by recognising that there was the super-eminent equity … and proceeded to apply it, while giving full effect to the doctrine of there being no contract. The supereminent equity was expressed by the Roman jurists in the board nemo debet locupletari jactura aliena. When, therefore, the advance was made to the pupil, there was no longer, as in the case of the ordinary person, an obligation to restore—a debt taking its place along with other debts—but the pupil was bound to give up in quantum locupletior; that is to say, to give up the superfluity which he was possessing." Lord Dunedin was not professing to deal with Scots law and does not refer to Stair, but it is plain that according to Stair the doctrine explained by Lord Dunedin is part of our law. One of the passages cited from the Digest (XXVI, viii, 5) shows that the doctrine applies even when the transaction is between pupil and tutor, and it follows that the lender's knowledge that the transaction is ultra vires is no bar to his claim. In Cantiere San Rocco [1924] AC 226 , at p. 126, Lord Dunedin points out that his opinion in Sinclair v. Brougham showed how the problem of recovering money received is dealt with in systems founded on the Roman law, and there can be no doubt that he had Scots law in view. Stair is fully supported by Erskine (Inst. III, i, 11). I am of opinion, therefore, that in the present case the lender could have successfully sued the old county council for the money received by it in quantum locupletior. But, since it is common ground that the borrowing was for the purpose of meeting road liabilities properly incurred, it is obvious that the enrichment of the county council was exactly measured by the amount of the sums illegally borrowed. Counsel for the Burgh challenged the application of the doctrine of unjust enrichment because he said that ultra vires transactions were "tainted." But there is no penalty or taint other than nullity, and that is the vital distinction between an ultra vires transaction and one contra bonos mores. Counsel also raised a question about interest, and it was conceded that bank interest would not be recoverable under the principle of unjust enrichment. But then the averments for the Burgh are that the amount borrowed was the amount of the deficits and that it is this sum which was treated as a liability under section 6 (2) and was apportioned by requisitions under section 21. If any point were to be made about interest, a further amendment on the already amended record would be necessary; and no motion for leave to amend was made to us.

The problem of the rights of a lender in ultra virestransactions similar to this has been before the English Courts on several occasions. It is not necessary to discuss these cases, but it is satisfactory to find that the laws of the two countries on the matter closely agree in result, although each system has its own method of arriving at it. The English law, as I understand it, treats the illegal borrowing as a surrogatum for the liabilities discharged by the money borrowed—In re Cork and Youghal Railway Co. In re National Permanent Benefit Building Society; Blackburn Building Society v. Cunliffe, Brooks & Co.; Baroness Wenlock v. River Dee Co. Our principle is that money received under a null contract, although not recoverable under contract, is recoverable from the recipient in quantum lucratus. Accordingly, the amount of the sums borrowed was under the Act a liability of the County, and the expenditure to meet them falls to be dealt with under section 21 of the Act.

Counsel for the Burgh maintained that expenditure to meet this liability was not an expenditure which falls to be met out of rates, and he said that the effect of the borrowing was to postpone the year in which the expenditure should have been met, and that the county council could not subject to rating liability ratepayers of a subsequent year. The complaint of ultra vires borrowing to meet accumulations of deficits is directed on record solely against the county council before 15th May 1930, and if as at that date, as I have held, the reconstituted county council was fixed with a liability which is held or treated as incurred for the purposes of the function so far as relating to the whole County area (section 6 (2)), it is, I think, manifest that the expenditure to defray it is expenditure for the purpose of that function and is an expenditure which can be met out of rates, like all expenditure on the maintenance of classified roads.

A point was also taken by the Burgh that the whole liability ought to have been defrayed, and the expenditure in meeting it allocated, in the first year after 15th May 1930. But this was an afterthought of which there is no notice on record, and we cannot entertain it. The County might perhaps have been able to answer this point by saying that the Burgh paid the annual requisitions in the full knowledge that they were instalments of a large liability as at 15th May 1930.

Counsel for the County presented an alternative case based, as I understand it, on the view that the deficiencies were a liability which the district committees owed to the county fund. But I find it unnecessary to deal with it.

In my opinion, the Lord Ordinary's interlocutor should be recalled, and the action dismissed.

LORD MONCRIEFF .—I am in agreement at all points with your Lordship's opinion, which I have had the opportunity of reading. I desire to concur in that opinion, and have nothing to add.