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You are here: BAILII >> Databases >> United Kingdom House of Lords Decisions >> Frederick H. Carter v. David M'Laren and Co. [1871] UKHL 2_Paterson_1916 (9 March 1871)
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Cite as: [1871] UKHL 2_Paterson_1916
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SCOTTISH_HoL
Page: 1916↓
(1871) 2 Paterson 1916
REPORTS OF SCOTCH APPEALS IN THE HOUSE OF LORDS.
No. 116
v.
Subject_Bankruptcy — Secret and Collusive Preference — Forfeiture of Claim — 19 and 20 Vict. c. 79, § 150 —
M., a creditor in a sequestration, on condition of receiving an addition of 1 s. 9 d. per pound to a dividend of 7s. 3 d., to which latter sum the other creditors had agreed, and on the understanding that the addition was not to come out of the pockets of the other creditors, agreed to withdraw all opposition to the acceptance of the offer of composition made by the bankrupts. M. did not conceal this arrangement from the other creditors, and on being informed that it was illegal refunded the additional dividend, and informed all the creditors of that fact.
Held (reversing judgment), That M. had incurred the forfeiture under the 150th clause of the Act 19 and 20 Vict. c. 79, and that proof of his ignorance of the law and bona fides did not amount to “ shewing cause to the contrary” so as to exempt him from the penalty, and that the Court had no power to mitigate the penalty. 1
This was an appeal from a decision of the First Division. The appellant had presented a petition against the respondents, praying to have it found, that the respondents had, contrary to the Bankruptcy (Scotland) Act, 1856, entered into an agreement with the view of obtaining, and under which they had obtained, a preference over the other creditors of Messrs. J. and G. Pendreigh, grain merchants, in Edinburgh, on whose sequestrated estates the respondents claimed to be ranked as creditors, and that the respondents should be amerced in the penalties attached by the Statute to such an agreement, as being secret and collusive on the part of a creditor for facilitating a bankrupt's discharge. The Lord Ordinary, after proof, found, that the respondents had not forfeited the debt claimed by them on the sequestrated estate, but had shewn good cause to the contrary. On reclaiming petition the First Division adhered. The petitioner thereupon brought the present appeal.
Sir R. Palmer Q.C., H. Lloyd Q.C., and Trayner, for the appellant.—The judgment of the Court was wrong. This agreement was within the letter and spirit of the 150th section, and the offence was committed. The Court had no discretion to remit the penalty or to dispense with the enactment. No cause was shewn to the Court in the sense intended by the Act. Ignorance of the law cannot be set up, for every man must be presumed to know the statutory enactment, and to intend the natural consequences of his acts. Nor can it be urged, that the offer was in itself illegal and void, for the offence was committed nevertheless; nor that the money was repaid, for nothing done ex post facto could alter the character of the act. The Judges misapprehended the meaning of the words “if no cause be shewn to the contrary.” Those words can only mean, that the party may shew that he had not obtained a preference at all, or that it was not obtained during the sequestration, or that it was not obtained for facilitating the discharge, etc. The Judges seemed to think it a sufficient cause, that there was no moral blame.
The Lord Advocate (Young), Jessell Q.C., and Rolland, for the respondents.—The judgment was right. The essence of the offence is its secret and collusive nature, and here it was proved that there was neither secrecy nor collusion. This was a preference not in the course of sequestration, but by way of private arrangement between all the creditors to avoid a regular sequestration. It was therefore not a case within the 150th section of the Act. But even if it be deemed a contravention of the Act, and the thing done is null and void, then, in the circumstances of the present case, the penalty prescribed should not be enforced, because the money was refunded, there was no moral blame, no secrecy, no evil has resulted. The cause shewn was therefore sufficient to justify the Court in not enforcing the penalty.
_________________ Footnote _________________
1 See previous report
8 Macph. 64;
41 Sc. Jur. 33.
S. C. L. R. 2 Sc. Ap. 120;
9 Macph. H. L. 49;
43 Sc. Jur. 381.
Page: 1917↓
Now it is very important to consider the exact meaning of this provision of the Statute before considering the facts of the case. Of course, for that purpose I shall assume the fact, that the payment has been made, to be proved, and that the payment having been so made, the offence which is struck at by the Statute has been completed. And the question for consideration then will be, in the turn which this case has taken in the Court below, whether or not, that being so, the Court is competent to do otherwise than make an order or decree upon the petition on account of the view which the Court may take of the character of the offence not being of such a description in point of moral obliquity as to lead the Court to inflict the penalty which is required by the Statute. It is admitted, that on the face of the Statute the Court had no power of mitigating the penalty. The sole question we have to determine in this case, (with perhaps the exception of one or two collateral matters, which I will notice, but which are, after all, points upon which the case has not been rested,) is, whether or not these words “if no cause be shewn to the contrary” will justify the Court, before whom the matter is brought on petition, in saying, that in their judgment no cause is shewn, if circumstances of an extenuating character are produced before them in evidence, shewing that although the offence itself has been committed it was not attended with that moral amount of delinquency which would justify them, in their opinion, in acting upon the facts proved as establishing the actual offence under the Statute, and that they had, therefore, a right to deal with that species of defence as one which, in their judgment, amounted to cause shewn, enabling them to assoilzie the person accused.
Now, it appears to me, I confess, very plain that this clause was intended to act with full and complete effect upon the offence when committed, under whatsoever circumstances, provided, of course, the offence has been committed. In the first place, the section says, that every security, payment, or other consideration, which shall have been paid shall be null and void, if it has been paid with the object of facilitating or obtaining the bankrupt's discharge, and if no actual payment has been made, then every secret or collusive consideration or agreement which has been entered into for the same purpose is also to be null and void, and this whether the bankrupt's discharge be obtained or not, or whether there be a composition or not—shewing the extreme anxiety of the Legislature, under every state of circumstance, and whether the effect of the payment made has been successful or not, to prevent any person from engaging in a transaction of this character by holding over the person disposed so to act an extreme and severe penalty. The next observation to be made upon the section is, that there is undoubtedly no power in the Court to remit or mitigate any portion of the penalty. Those two circumstances are in themselves of considerable weight to shew, that the Legislature intended finally and decisively to strike at the offence. The offence is one of no slight character, because if a creditor can be at liberty to obtain for himself an advantage by receiving a payment over and above that equal distribution of the assets which is made amongst the rest of the creditors, he is at once, by so doing, enabled to frustrate the whole policy
Page: 1918↓
Then, if that be so, and if it is important to take care that this offence of endeavouring to obtain an undue advantage over the rest of the creditors, should be wholly put a stop to, is it a priori likely that we shall find in this clause a power given to the tribunal before whom it is brought, not of saying the offence has been committed under such extenuating circumstances, that the penalty should be reduced or mitigated, but of saying, “According to our judgment, the offence has been committed, but it has been committed under circumstances which present features which in our opinion considerably modify the guilty character of the offence or contravention of the law, and on that ground we will treat these modifying circumstances as ‘cause shewn’ for our refusing to act upon the petition of the trustee?”
Now I apprehend there is nothing in the wording of this clause which will entitle us to come to that conclusion. I agree with the remark made by Sir Roundell Palmer in his argument, and I think your Lordships will also concur with me in saying, that, as far as your memories extend, and certainly as far as mine can go back—and I have been able to make search into the matter —I have never found a single instance of those words “if no cause be shewn to the contrary” being employed where the intent was, that there should be a discretionary power in the tribunal before whom the matter was brought. The expression “unless cause be shewn to the contrary,” in its ordinary meaning as applied to the vast variety of proceedings in Courts of Law, is not an expression which indicates a discretionary power in the Judge, but it directs him to consider all the matters in the cause, and, having considered the whole, to see whether, the offence being defined, there be any cause shewn why sentence should not be pronounced.
Now here the learned Judges of the Court of Session being all of opinion, that the offence has been committed, subject to some little question raised on the part of one of the learned Judges as to the words “secret and collusive,” and assuming for the purpose of the argument that the offence had been committed, (I think the Lord President was clearly of the same opinion,) came to the conclusion, that the words “if no cause be shewn” might mean “if no cause be shewn after the facts have been proved;” because their reading of the section was this: The facts which are to constitute the offence are pointed out in the section. It is supposed, therefore, that the Legislature had in their view a case, in which, a petition being presented, and the facts established, there still remained ground and room for the words “and if no cause be shewn to the contrary,” and that if cause were shewn to the contrary, then sentence was not to be pronounced.
I confess I cannot follow the learned Judges of the Court of Session in that argument. I apprehend we cannot do so unless some authority could have been produced, shewing that such words as these have been held to have any such meaning, there being nothing whatever in the terms of the Act which is not in form imperative. The power of the trustee to present a petition is optional, but everything that is required to be done by the Court is imperative, with the single exception of cause being shewn to the contrary. I apprehend, that unless some authority is cited for these words having the effect of conferring a discretion, we are bound to hold, that that in truth means no more than this: “unless due cause be shewn by the person who, when cited by means of the petition, comes before the Court and states his case, shewing due cause in answer to the petition of his adversary.” Although the matter has taken place, and the offence has been committed, nevertheless it is quite possible that he might shew, that, at the time when the petition was presented, or under the circumstances in which the petition was presented, there was no ground for proceeding to sentence, not on the ground of the offence being a slight one, or of the circumstances being extenuating, but on one or other of the several grounds which might be suggested, and some of which were suggested by your Lordships during the argument. It might be shewn, that there is a personal objection to the person presenting the petition, and that he is not competent to do so. Supposing him to be a creditor or a trustee, it is possible that some cause might be shewn to the effect that he is in such a position as not to be competent to present the petition. It might be shewn, that since the bankruptcy took place, the bankruptcy has been superseded, and the debts have been paid and satisfied. Of course in some such cases as these, cause might be shewn to the contrary. There is another case which would be going so much nearer to the verge that I should prefer the illustrations I have already given. But I am not at all prepared to say, that it might not be good cause shewn to shew, that every single creditor (the trustee who has presented the petition not being a creditor) is desirous that the petition shall be withdrawn. That might be a cause which might possibly justify the Judges in saying, that it is right and proper that the petition should be withdrawn, because I may remark, that this is not a case in which the penalty is to be sued for as a matter concerning the administration of justice, as regards the public in general, as distinguished from the parties injured by the act done. It is not imperative on the trustee to present a petition. The Act says that he may do so. I suppose that when creditors set him in motion he might probably be bound so to do. Further than that, when the penalty is inflicted, the whole of the money recovered is to be divided among the
Page: 1919↓
But further than that, the words “if no cause be shewn to the contrary” may simply mean, that upon the petition being presented there is to be a formal hearing, and that the Court is not to proceed without due proof being produced on the part of the petitioner, which may be rebutted by the person who is the respondent to the petition. Certainly that view is to a considerable degree justified in my mind by the proceeding which is to take place after the sequestration is closed, in which case, there being no trustee, the matter is thrown on the creditors generally. If they choose to pursue their remedy in that case, they can raise an action of multiplepoinding, and there is nothing said about cause being shewn or the like. The case proceeds to a regular hearing. I think the difference in the phraseology may be well accounted for in the manner that was suggested by the learned counsel at the bar, namely, that when you get into a regular action with all the usual pleadings, cause will be shewn in the regular manner, but when you present a petition, inasmuch as that is a proceeding of a summary character sanctioned by the Act, there may be cause shewn against that proceeding. So understood, it would mean no more than that the case shall be as fully argued and determined as if there were regular pleadings, and the case having been so fully heard, the Court is to ascertain whether cause has been shewn or not.
The only thing we have to look to is to see, whether or not the offence has been committed; as to the effect of which, I may say that all the Judges in the Court below, including the Lord Ordinary, came to one conclusion, because the Lord Ordinary only thought that the offence had not been committed under the very peculiar circumstances of this case, with reference to the composition deed, which in itself was an irregular deed, and a deed which afterwards was not sustained by the Court, but was reduced by the Court as being contrary to the provisions of the Bankruptcy Act.
Now the offer of composition was this: It was an offer of composition by the bankrupts of so much in the pound in respect of two estates. There were two bankruptcies of two separate trading firms intimately connected with each other, the partners in one being partners in the other. The two firms having of course separate creditors, offered a composition of 7 s. 3 d. in the pound, which was to be paid to all the creditors alike of the two firms out of the joint assets of the two firms, that is to say, they swept in the assets of the two firms and divided them pro rata among all the creditors of the two. Of course that was a very irregular and informal proceeding. You could not properly bring in the creditor of firm A. to claim on firm B., who never had anything whatever to do with them. The transaction, when it came to be fully considered, was not a composition which could stand. The Lord Ordinary, therefore, came to the conclusion that inasmuch as it could not operate to a discharge of the bankrupts, and would not be a proper composition, the offence having relation to a composition of that character ceased to be an offence within the Act, as soon as the composition itself was got rid of. But I think that in coming to that conclusion he did not advert to the strong expression in the Act to which I have alluded, whether there be a composition or not, and whether the bankrupt be discharged or not. If the object is to facilitate that discharge, the offence is committed. The Court of Session appear to have thought, that in that respect they could not concur in the view of the Lord Ordinary, and they considered that in truth the offence was made out, but they assoilzied the respondent on the grounds to which I have already adverted. Now the facts of this case are so short that I shall not detain your Lordships very long in stating them. On the 27th April there was a composition offered by the bankrupts to the creditors of 7 s. 3 d. in the pound. One of the respondents, Mr. David M'Laren, seems to have been present when this arrangement on the 27th of April was discussed. He was dissatisfied with the arrangement; he said he was of opinion, that the estate could produce something more than that which was proposed to be divided among the creditors, and that the estate, if properly managed, would produce 10 s. in the pound. He therefore refused to have anything to do with that composition. But that composition, although it ultimately failed, was undoubtedly a composition proposed with a view to obtain the discharge of the bankrupts; but this gentleman, Mr. M'Laren, and another firm which took the same view, declined to accept it on the ground of its not being sufficient. Then it was, that the course of proceeding took place with reference to procuring the concurrence (which is one of the words used in the Act) of Mr. M'Laren in this arrangement for the discharge of the bankrupts. The negotiation was begun by Mr. Weir, who appears to have approached Mr. M'Laren in order to obtain his assent to the arrangement with the creditors, in which Weir appears to have stated to him, that the bulk of the creditors (whether all or not does not distinctly appear) were very desirous that this offer should be accepted; they were very anxious, especially some firms, who were not engaged in such a large way of business as Mr. M'Laren himself, and could ill afford to be kept out of their debts, that the whole affair should be settled at once. They were therefore desirous that he should concur in making the arrangement, and
Page: 1920↓
But the Act seems to require also that it shall be “secret and collusive.” A good deal was said upon the question of secresy or collusion. It, however, is scarcely necessary to be entered into in any detail. It was argued very strongly, that the case did turn upon it, because the expressions in the petition were said to lead to that conclusion. If it did turn on whether or not there was a secret and collusive agreement, I confess I should be prepared to hold it was a secret agreement. The letter which made the offer was headed private. In the body of the letter it was stated, that it was written in strict confidence. Mr. M'Laren of course was not bound to adhere to that confidence. Nobody is bound to adhere to a confidence that he has not invited, and he might have taken the course of saying at once to all the creditors, “This proposal has been made to me; I am disposed to accept it.” Mr. M'Laren says, that in truth he would not have accepted it, if he had not been informed that unpleasant rumours were circulated about him with reference to his being disposed to interfere with the views of younger men, men not so stable and so advanced in business as himself, to whom money was an object, and that therefore he was disposed to hold out from the unworthy motive of prejudicing them in their business. He says, “that was the turning point which influenced me. I cared nothing for secresy. It was the pressure put upon me by the suggestion, that I was unfairly dealing with other creditors which was the principal consideration that influenced me.” He says,—“I told a friend, Mr. Robinson, that this proposition had been made to me.” The next meeting was to take place on the 21 st of May, and he said to him, “If you attend the meeting you may tell them everything you like about it. I do not wish to have any secresy about the matter.” Now, as I observed during the hearing, it would no doubt have been more satisfactory upon this part of the case, dealing with the question of secresy, if he had said to Mr. Robertson or anybody else, “Attend the meeting on my behalf, and inform the creditors of all that has been done, and ascertain from them, whether it is their wish or desire that the matter should proceed in the way that is proposed.” How far that might or might not have operated even then to the disadvantage of absent creditors, with reference to the earlier part of the Act which does not deal with secresy, it is not necessary to say; but by taking that course he would have got rid of the whole objection to this being a secret agreement or promise. But I hold, that if it were necessary to prove the secresy of the agreement, when you have the fact that it commenced by being entered into in secresy on the part of those who engaged in it, and that the person who accepted the money was sure that the fact would not be communicated by those who made the payment, it is incumbent upon him if he wishes to prove that it was not secret to shew, that it was duly communicated to those who were interested in the matter; otherwise I apprehend, that it would open a dangerous door to transactions of this description. Therefore, as far as that point is concerned, I do not feel at all embarrassed, whatever view we may take of the exact construction of the phraseology used in the petition.
There is only one other matter to consider with reference to the objections which suggested themselves to the minds of some of the learned Judges. One objection suggested was that by the Lord Ordinary, which I have referred to, namely, that the composition having failed the offence had failed. Another of the learned Judges—I think it was the Lord President—threw out a suggestion, but very faintly, whether the sequestration was not at an end. Clearly, at the time that this transaction took place, the sequestration was going on. A meeting was held with the view of settling with the creditors. They made a mistake in the mode of dealing with it, but as clearly as possible to my mind the intention and object was to effectuate the discharge of the bankrupts, which discharge could not have been effectuated without the concurrence of the majority of the creditors, and that was greatly facilitated by the concurrence of Mr. M'Laren in the step that was taken.
It is not for us to express any opinion upon the extenuating circumstances, if we have no power to allow weight to that opinion by discharging the respondent, or by mitigating the penalty which has been inflicted. I have no objection to say, for my own part, that from his statement I am quite willing to conceive, that he was acting with the motive, not only of facilitating the discharge
Page: 1921↓
I apprehend, that the proper course to pursue will be to reverse the interlocutors complained of, namely, that of the Lord Ordinary and of the Court of Session, and to declare, that the Court of Session ought to have found that the respondents had forfeited the debt claimed by them on the sequestrated estates, and to have ordered them to pay to the appellant double the amount of the payment made to them (the respondents) in the petition mentioned, and with this declaration to remit the case to the Court of Session to act in conformity therewith.
Mr. Daniel Smith, who was a creditor for a large amount on the estate of the bankrupts, was in favour of the composition arrangement. He was examined as a witness upon the petition, and said: “M'Laren and Co. were against the composition, and I used means to bring them round. I bought them off by paying them 1
s. 9
d. per pound on their respective debts. That was 1
s. 9
d. per pound more than the other creditors were to receive. I arranged with Mr. Weir to aid me by conveying this money to them, and that was done. Their opposition was discontinued.” The negotiation was opened by a letter from Mr. Weir to Messrs. M'Laren and Co., dated the 30th April 1869, and marked
private, in these terms:—“Referring to our conversation yesterday, I am now authorized to pay you 1
s. 9
d. per pound on the amount of your claims on Messrs. Pendreigh's estate, on condition that you withdraw all opposition, and that a settlement is effected at 7
s. 3
d. per pound with the other creditors.” At the close of the letter is this passage: “I further agree to write you a satisfactory letter, stating the circumstances under which you have been induced to entertain this offer, but in the mean time the contents of this letter must be held to be strictly private and confidential.” Messrs. M'Laren and Co. stated in answer, that they would not accept of a single penny from the creditors, but that they would withdraw their opposition, “provided Pendreighs would make up their dividend to 9s. per pound and being informed in a letter from Mr. Daniel Smith, dated 1st May 1869, that the difference between 7
s. 3
d. and 9
s. came from a near friend of the Pendreighs, and not from any creditor on their estate, Mr. M'Laren, on the 13th of May 1869, received the sum of £226 3d., being the amount of 1
s. 9
d. on the claim of £2654 10
s. 11
d. minus 2
Mr. David M'Laren, in his examination, swore that he did not imagine there was the least illegality in receiving this money. But a meeting of the creditors having been held on Friday the 21st of May for the purpose of deciding on the offer of the composition of 7 s. 3 d. in the pound, and the creditors present having unanimously agreed to accept it, Mr. M'Laren stated in his evidence that on the Saturday he heard it said, that a great many of the creditors were objecting to the conduct of his firm in having received more than the 7 s. 3 d. and considered that they have behaved unfairly; that on the 24th May he was sent for by Mr. Murdoch, of the firm of Murdoch, Boyd, and Co., his law agents, who shewed him the 150th section of the Bankruptcy Act, and said, that the arrangement he entered into was a very awkward thing, and that he was very much astonished indeed when he read it. On the 25th of May 1869 M'Laren and Co. returned the amount received from him, with 5 per cent, interest, stating in the letter enclosing the cheque for the amount, that they had ascertained that the transaction which Mr. Weir induced them to enter into was illegal under the Bankruptcy Statute, and on the 26th of May M'Laren and Co. issued a circular to the creditors, informing them what they had done. M'Laren and Co. having thus cancelled the transaction, renewed their opposition to the composition, which was finally
Page: 1922↓
It does not appear when the trustee under the sequestration became acquainted with the transaction, but on the first of June, a week after the return of the money by M'Laren and Co., he filed this petition, praying to have it found, that under the Bankruptcy (Scotland) Act they had forfeited double the amount of the sum they had so received. The Lord Ordinary was of opinion, that had the sequestration been regular, and in all respects legal and competent, M'Laren and Co. would have rendered themselves liable to all the statutory penalties, notwithstanding the apparent good faith with which they acted. But he held, that as it had been determined by the Court of Session, that the entire proceeding with respect to the offer of the composition in the form in which it was made was irregular and incompetent, there never was any statutory offer of composition for discharge, and consequently there could be no infliction of penalties for interference with an arrangement which was not sanctioned or protected by the Statute. The judgment of the Lord Ordinary having been carried by reclaiming note to the First Division of the Court of Session, that Court adhered to his interlocutor, but on totally different grounds from those on which his Lordship proceeded. All the Judges expressed their dissent from the view of the case taken by the Lord Ordinary, and thought that the statutory offence was committed by M'Laren and Co., so far as to make the transaction illegal, and null, and void in terms of the first part of the 150th section of the Bankruptcy (Scotland) Act. But on the question of the liability of M'Laren and Co. to the penalty imposed by the second part of that section, three of the Judges were of opinion, that M'Laren and Co. had, in the words of the Act, “shewn cause to the contrary” against the decree for the penalty. Lord Deas was of opinion, that the Court had a certain discretion to consider whether, although the thing prohibited by the Statute had been done, the punishment should follow. The Lord President held, “that it was in the power” (by which I understand him to mean in the discretion) “of the Court to consider, whether the party against whom the complaint is brought has any reasonable cause to shew, why the statutory penalty should not be enforced against him.” Lord Ardmillan said, “to convince us that the penalties have not been deserved by the parties against whom we are asked to award them is in my opinion to shew cause to the contrary.” And the three learned Lords decided that, as M'Laren and Co., when they entered into the arrangement for facilitating the discharge of the bankrupts, were ignorant that they were committing any offence, and as soon as they became aware that the transaction was illegal they sent back the amount which they had illegally received, the words of the second portion of the clause (to use the language of the Lord President) enabled them to give effect to the moral innocence of the party, and to the fact that the statutory offence had not been completed, so as to produce the evils contemplated by the Statute, as a good reason—a good cause shewn—against the pronouncing a decree for the penalty.
On the hearing of the appeal before your Lordships the learned counsel for the respondents, besides enforcing the ground on which the majority of the Court of Session proceeded in their judgment, objected that the petitioner was bound, by the terms of his petition, to prove, that the agreement entered into by the respondents was secret and collusive, and that the petitioner had failed to give such proofs. The second part of the 150th section inflicts the penalty on any creditor who shall have obtained any such preference, gratuity, or payment, or entered into such secret or collusive consideration or agreement ( i.e. for concurring in, facilitating, or obtaining the bankrupt's discharge). Now if a creditor actually receives a sum of money as a consideration for concurring in, facilitating, or obtaining a bankrupt's discharge, it is immaterial whether the money is received in pursuance of a secret or collusive agreement or not. The receipt of the money constitutes the offence. So if the creditor enters into a secret or collusive agreement within the meaning of the Act, the offence is complete upon the agreement itself without anything following upon it. The petition of the appellant is not founded upon an agreement having been entered into by the respondents to receive a preference, gratuity, or payment, but upon the actual receipt by them of a sum of money for facilitating the bankrupt's discharge. Now as that is a complete offence in itself, all the allegations about the secret and collusive agreement may be treated as merely a narrative introductory to the charge, and not as any part of the charge to be sustained by proof. If, however, the petitioner had been called upon for such proof I should have thought with my noble and learned friend on the woolsack, that he had satisfied the obligation by the evidence produced. The negotiation for the withdrawal of M ‘Laren and Company's opposition to the composition was commenced on behalf of Daniel Smith, one of the creditors, apparently without the knowledge of any of the others, and the first communication by his agent, Mr. Weir, to M'Laren and Company, impressed upon them, that the contents of his letter were to be held to be strictly private and confidential. Whether any of the other creditors were made acquainted with the transaction before the payment of the money to M'Laren and Company does not appear. The respondents in their case say, that it is believed the negotiation was entered into with the concurrence and approval of various other creditors. But of this there is no proof. It is proved, that after the payment of the money the correspondence between Mr. Weir and the respondents was shewn to certain creditors by name, which
Page: 1923↓
I was quite unable to follow that part of the argument of the learned counsel in which they contended, that the respondents were not within the penal provisions of the Act, because they had received the money paid to them to withdraw their opposition to the composition offered by the bankrupts, and not to facilitate or obtain their discharge. Under a sequestration there are two modes in which the final discharge of a bankrupt from his debts may be obtained, viz. with or without composition. Where a composition is offered by the bankrupt in order that it may be available to his discharge it must be approved by the Lord Ordinary or the Sheriff, and accepted by a majority in number and four fifths in value of the creditors. If the composition is accepted, a bond of caution is to be lodged, and a report made, and a deliverance pronounced approving of the composition. And upon a declaration by the bankrupt before the Lord Ordinary or the Sheriff that he has made a full and fair surrender of his estates, and of certain other particulars, the Lord Ordinary or the Sheriff shall pronounce a deliverance discharging the bankrupt of all debts, etc., and such deliverance shall operate as a complete discharge and acquittance of the bankrupt. Now, as the discharge of a bankrupt offering a composition can only be obtained by the acceptance of the composition after approval by the Lord Ordinary or the Sheriff, who may hear any objection to the offer by opposing creditors, and upon approval and acceptance, the discharge of the bankrupt follows of course. To argue, that a sum of money paid to a creditor to induce him to withdraw his opposition to a composition offered by the bankrupt is not a payment for facilitating or obtaining the bankrupt's discharge is beyond my comprehension.
Having disposed of the objections raised by the learned counsel for the respondents upon the hearing before your Lordships, I now proceed to consider the grounds upon which a majority of the Judges of the First Division determined the case. They all of them seem to have been of opinion, that the statutory offence had been committed, although the Lord President, by a subtle distinction between offence and guilt, says it is a very curious question in law, whether, in such circumstances, (that is, the respondents having not only expressed their penitence, but made restitution,) “the statutory guilt is complete, but it can hardly be questioned, that the moment the respondents received the money as the inducement to withdraw their opposition to the composition, the offence was complete, and the legal delinquency or guilt which was involved in the act was complete too. No repentance and restitution could purge the offence unless a locus pœnitentiæ is provided by the Act by which the offence is constituted. This, the Judges say, is intended to be given by committing to them a discretion in the part of the 150th section imposing the forfeiture and the penalty by these words, “if no cause be shewn to the contrary, decree shall be pronounced.” According to Lord Ardmillan, to convince the Court that the penalties have not been deserved is to shew cause to the contrary, but, with great submission, “cause to the contrary,” according to the ordinary meaning of the words, must be intended to be cause why the penalties have not been legally incurred, not proof of extenuating circumstances to shew that they ought, upon a lenient consideration, to be remitted. Certainly, if such an extraordinary discretion was intended to be given to the Judges to enable them to absolve an offending party because he had erred through ignorance, or had shewn himself in any other way morally innocent, though legally guilty, one would have expected, that such an unusual power would have been expressed in the clearest and most distinct language.
The Lord President gathers the power from the words, not because they expressly give it, but because he can find no other meaning for them. His words are, “the petition cannot be presented except in a case where the transaction is null and void.” Then how can cause be shewn to the contrary of the prayer of the petition being granted if the transaction is null and void? It certainly would not alter my opinion upon the subject if it appeared that the words “cause to the contrary” were without application. The petitioning trustee or creditor, before he can be entitled to have a decree for the penalties, must establish that the transaction was null and void under the first part of the 150th section. If he does so, of course no cause can be shewn to the contrary; if he fail, no decree can be pronounced for the penalties. The Lord President is a little inaccurate when he says the petition cannot be presented except in a case where the transaction is null and void. The petition can only be successful in such a case; but it may be presented where the trustee believes that the transaction is within the Act, although it may turn out not to be so. A case was supposed in argument where a transaction might be null and void, and yet a party petitioned against might not be liable to the penalties, as if an agent entered into an agreement prohibited by the first part of the 150th section in the name but without the authority of his principal, and I suggested the case of a creditor receiving a preference, but not as an
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I cannot help observing, that the Judges, in exercising their supposed discretion in this case, have disregarded one of the fundamental maxims of the law, ignorantia juris non excusat. Every man is presumed to know the law, and perhaps more emphatically the Statute law of the realm, and to allow asserted ignorance to be pleaded, not in extenuation, (for the Lord President held, that there could be no modification of the penalty in any sense,) but in entire discharge from all penal consequences, seems to me to be contrary to principle, and to establish a bad precedent. The fact of ignorance can only be proved by the evidence of the party alleging his ignorance, and can never be satisfactorily ascertained. And one cannot help being surprised, that commercial men like the respondents should be ignorant (which, upon Mr. David M'Laren's evidence, I assume they were) of the provisions of the Scotch Bankrupt Act with respect to compositions and creditors. At all events they knew, that the principle of these compositions is, that all the creditors should fare alike. They were of opinion, that the bankrupts’ estate ought to pay more than 7 s. 3 d.in the pound, and with this belief they stipulate for an increased payment to themselves, and having received it, they remove the obstruction they had interposed to the creditors consenting to take a composition which they believe was less than they ought to have insisted upon, and than the bankrupts’ estate would yield. I confess I am not much struck with the hardship of the case under these circumstances. But it is unnecessary further to consider the grounds upon which the Judges relieved the respondents from the penalties, because I am satisfied, that it was not within their competency to do so. The offence against the Act charged upon the respondents was committed the moment the money was paid to them in pursuance of the previous arrangement, and neither ignorance that they were breaking the law, nor restitution of the money illegally received, could prevent the penalties being recoverable under the petition presented against them.
I am of opinion that the interlocutors appealed from ought to be reversed.
I have endeavoured very much to find, if I could, some legal grounds on which I might absolve the respondents. First of all, I have endeavoured to find, that the act done must be done animo with the intent of facilitating the discharge of the bankrupt. It was represented, that these gentlemen did not consider the question of the bankrupts' discharge; but in reality their difficulty arose from the complaints of the other creditors who were injured by not receiving the composition, and that they accepted the money as a tribute paid by those, in order that they might obtain the dividend offered by the composition. We cannot for one single moment enter into the intention with which the thing was done. There are two maxims which must never be weakened in courts of justice. One is that you must ascribe to every subject a knowledge of the law, especially in cases where the law prescribes a rule of civil conduct. That is the case here, because the law deals with what ought to be regarded as a well known rule of commercial obligation, viz. that when you come to have an estate distributed among all equally, one creditor shall not in any mode obtain a peculiar predominant advantage for himself. The other rule of law that must not be weakened is this, that you must ascribe to every man a knowledge of that which is a necessary and inevitable result of an act deliberately done by him. These gentlemen deliberately accepted this composition, and the necessary consequence of that, if the offer of the composition had been a statutory one, would have been the facilitating the discharge of the bankrupt. They cannot therefore be heard to say, as they attempted to do, that they were either ignorant of the law, or that they did not intend that this particular thing, viz. the facilitating the discharge of the bankrupt, should be the consequence of that which they did. Undoubtedly, if we endeavour to excuse these parties, and much more, if we adopt the reasoning of the Court of Session, it could not be done without weakening very much the application and force of those two salutary maxims.
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It was contended very strongly, that there was here no secret or collusive agreement. The criminality of what has been done does not lie in the fact of a secret or collusive agreement, but it lies in the fact of the receipt of an undue amount in the distribution of the bankrupts' estate. The language of the Statute strikes at two things—first, it strikes at the act done, and then it strikes at an agreement to do the prohibited act. The agreement may constitute criminality, although the act agreed to be done is not done. The clause is to be read thus: “all preferences, gratuities, payments,” and so forth, “not sanctioned by this Act, granted, made, or promised;” (that is one branch of the sentence; then the other branch of the sentence is:) “all secret or collusive agreements and transactions;” and then follow words which are applicable to both the antecedent clauses, viz. for concurring in, facilitating, or obtaining the bankrupt's discharge. Now this was not merely an agreement to receive a sum of money, for the agreement had been matured into an act. The sum of money had actually been received, and it is impossible to hold that these gentlemen dealt only, or considered that they were dealing only, with the creditors, because they declined to receive the money if it came from any creditor or any number of the creditors, and they only consented to receive the money (in their own language) “provided that composition came from the Pendreighs or their friends,” that is, the bankrupts. I cannot therefore but admit, that all the conditions of a completed act, stamped by this Statute with criminality, are found in the case before us.
I was not at all inattentive to the argument which was raised upon the language of the petition. It was said, that the petition must be taken to be an indictment, and that an alleged collusive agreement forms the gravamen of the act done, and that that being so, the allegation in the petition must be supported by proof of a collusive agreement. But in reality, that is not the language of the petition, because the allegation is, that M'Laren and Co. entered into a secret and collusive agreement, whereby a preference, gratuity, or payment was granted, made, or promised. So that the offence laid in this indictment is the offence in the words of the Statute, that a payment was granted, made, or promised to them, and then it goes on to allege, that the money actually was received.
I felt some difficulty, and still feel some difficulty, but as the point has not been deemed of importance by any one else, I suppose my impression about it is a wrong one; but certainly I felt some anxiety to relieve those gentlemen from this stringent order upon the ground that the offer of composition was not a valid or effectual order, and that therefore that which was done under a transaction not warranted by the Statute fell to the ground, when the transaction was avoided by the Statute. That view was supported in my mind by a number of instances which have occurred in our own bankruptcy law, where criminal acts have been laid or at least penalties have been sought to be recovered from a party under a commission of bankruptcy. But the whole proceeding and the alleged offence were held to have fallen to the ground, if before sentence the bankruptcy was annulled, or the commission superseded. That was the state of the old law. It was held, that if there was no bankruptcy, there was no law that pronounced the offence, and if there was no law that pronounced the offence in consequence of the bankruptcy being superseded previously, there was no power of suing for penalties, no power of prosecuting the party alleged to have offended against the law. The reason was plain enough, because the facts did not warrant the application of the law. There was in reality no law, because the transaction was not one that came within the cognizance of the law, the law itself being held not to have arisen under the circumstances. There was a difficulty in applying that rule in the present case, because although the offer of composition was not warranted by the Statute, and it was therefore void, yet it was a proceeding in the sequestration, and the sequestration remained, though the offer of composition was invalid. I must confess, however, that it would have been more satisfactory to my mind if that view of the case had been examined by the Judges in the Court below, and also it it had received the attention of the learned counsel at the bar. It, however, has not been deemed of sufficient weight to have received the attention of the judicial minds of the Court below. I abstain, therefore, from any attempt to rest upon it a judgment at variance with the conclusion at which your Lordships would otherwise unanimously arrive.
Upon the whole case it is impossible not to feel that this was a very unadvised act on the part of M'Laren and Co. I give them full credit for not desiring to secure an undue advantage to themselves at the expense of others, who were their rivals in this distribution of the bankrupts’ estate. I believe that they acted simply from the reason that they themselves put forward, that they believed that the bankrupts’ estate, if worked out, would give a greater dividend than the composition that was offered, and that they accepted this sum of money, therefore, in the conviction that they received only that which was their due, and that they did it merely because the long delay which might otherwise occur in the final distribution of this estate might be injurious to the smaller creditors, who were less able to wait for the ultimate dividend than they themselves might have been. But it is important that these enactments, which are passed to secure commercial morality and fair dealing between creditors, should not be in any respect impaired, or modified, or reduced, in their wholesome application, by arriving at subtle distinctions or by indulging in views for the purpose of avoiding the operation of the Statute. It is our duty to apply these
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Upon these grounds I concur in the motion of my noble and learned friend on the woolsack.
Sir Routtdell Palmer.—Perhaps your Lordships will allow me to remind you before judgment is pronounced, that the costs have been actually paid. In the order which your Lordships will pronounce on the present occasion you will doubtless provide for that in the usual manner.
Lord Chancellor.—My Lords, the question which I have to put to your Lordships is, to reverse the interlocutors complained of, of the Lord Ordinary and of the Court of Session, and to declare, that the Court of Session ought to have found that the respondents had forfeited the debt claimed by them on the sequestrated estates, and to have ordered them to pay to the appellant double the amount of the payment made to them, the respondents in the petition mentioned. And that the costs which have been paid by the appellant ought to be repaid to him, and with this declaration to remit the cause to the Court of Session.
Sir Roundell Palmer.—As the matter will be remitted to the Court below, I presume that that would follow as a matter of course, according to the course of the Court. No doubt I should have asked for them if it were necessary.
Mr. Asher.—There is no power under the Statute to award costs.
Interlocutors reversed, with a declaration and direction as to costs, and cause remitted.
Solicitors: Appellant's Agents, Waddell and Macintosh, W.S.; Simson and Wakeford, Westminster.— Respondents' Agents, Murdoch, Boyd, and Co., S.S.C.; W. Robertson, Duke Street, Westminster.