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United Kingdom House of Lords Decisions
You are here: BAILII >> Databases >> United Kingdom House of Lords Decisions >> British Linen Bank v. City of Edinburgh [1912] UKHL 31 (29 October 1912)
URL: http://www.bailii.org/uk/cases/UKHL/1912/50SLR0031.html
Cite as: 50 ScotLR 31, [1912] UKHL 31
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SCOTTISH_SLR_House_of_Lords
Page: 31↓
House of Lords.
Before
v.
(In the Court of Session, November 18, 1911, 49 S.L.R. 127, and 1912 S.C. 139.)
Subject_Loan — Burgh — Statute — “Redeemable” Stock — Edinburgh Improvement and Tramways Act 1896 (59 and 60 Vict. cap. ccxxiv), sec. 83.
Facts:
The Edinburgh Improvement and Tramways Act 1896, sec. 83, enacts—“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 Corporation resolved to issue under its 1894 and 1896 Acts a stock “redeemable at par after the expiration of a period of thirty years from 15th May 1897.” The certificate of such stock bore “redeemable at par after Whitsunday 1927. Interest payable half-yearly on 15th May and 11th November.”
Held ( rev. judgment of the Extra Division), on a consideration of the whole statutes, that the Corporation was not bound to redeem at Whitsunday 1927, but merely had an option so to do.
[The case is reported ante ut supra, where will be found the relevant sections of the statutes.]
The defenders the City of Edinburgh appealed to the House of Lords.
At the conclusion of the arguments—
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The pursuers in the action were the British Linen Bank, and they brought an action of declarator to have it established that when a certain period should arrive the Corporation of Edinburgh were bound to redeem the holdings of a certain stock. The stock was issued by the Corporation of Edinburgh, the appellants in this case, in 1897, under powers contained in an Act passed in the year previous. The British Linen Company were the allottees of a part of that stock which was issued under a resolution passed by the Corporation of Edinburgh pursuant to the Act to which I have referred.
Now the whole question here is whether the Corporation of Edinburgh are bound to redeem the stock which is held by the respondents after the expiration of a period of thirty years from the 15th May 1897. Lord Skerrington held that they were not and dismissed the pursuers' action. On appeal to the Extra Division of the Court of Session the learned Judges who constituted that Extra Division took a different view.
The question is really a very narrow one. It turns upon the construction of a few words in the Act of 1896, and if those words were quite clear in themselves and the Act in which they occur contained no reference to other Acts, it would be easy to deal with the question shortly. Section 83 provides that the Corporation, in addition to the powers which are contained in the previous Act of 1894, are now authorised to create and issue a new class of stock for any of their purposes—“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.” If 1 were reading these words without any obligation to have regard to anything else, I should read the words “at one and the same period to be fixed by the Corporation” as referring to the expression “all stock,” and as meaning that in whatever sections the main block of stock was issued the period of redemption was to be the same in all cases—one period for all the sections. But the great question which arises is as to the meaning of the word “redeemable.” As I interpret the word, it means redeemable at the option of the Corporation, the words which immediately follow “at the option of the Corporation” relating to the word “redeemable.”
Now that so far might be simple enough, but it ceases to be simple if you proceed to import into the meaning of the words “stock and stockholder” the relation of debtor and creditor. To my mind the fundamental fallacy of the reasoning of the Court below is this, that the learned Judges have tried this question as if it could only be a question of the relation of debtor and creditor. Of course if you get the relation of debtor and creditor, then the word “redeemable” may come to have a very different significance from what it has here. A oreditor is prima facie entitled at some time to get his money paid and his debt thus redeemed. But if the relation is not one of debtor and creditor the situation may well be very different.
The mere desire to raise money does not by any means necessarily import that you resort to the establishment of the relation of debtor and creditor. In England when the Usury Acts were in force it was legally impossible to borrow money at more than a certain rate of interest. Consequently in order to get money impecunious persons whose credit was not good were in the habit of doing what was very extensively done, namely, selling annuities. Sometimes these annuities had attached to them an option of repurchase on the part of the seller of the annuity. But although this was a device for getting round the difficulty of borrowing money, it substantially avoided anything that was really in the nature of borrowing by substituting the sale of a perpetual annuity. I observe that the Corporation of Edinburgh in the earlier days of its history resorted to the same device. The first of the Acts to which our attention had been called is the Act of 1838, the purpose of which was to extricate the Corporation of Edinburgh out of some of its financial difficulties. From this Act it appears that at that time the Corporation of Edinburgh, in order to get over the difficulties which it had with its creditors, granted a number of annuities which were to satisfy those creditors. The only sections to which I need refer are section 41 and section 44, which show that the debts and obligations were to be “compounded by granting free of all charges and deductions to all and every person in right of such debts, bonds of annuity in the manner and form hereinafter provided at the rate of 3 per cent.,” and then over the page in section 44 these are described in the form of bond as perpetual annuities. That was at anyrate one mode in which the Corporation of Edinburgh was enabled to raise money. Then under a later Act, the Act of 1879, there was conferred a power to raise money by mortgage, which shows the Corporation exercising the power of borrowing in its real form—that of borrowing by granting debtor and creditor obligations with security.
Now in that state of things the Act of 1894, which is the first of the two Acts with which we have to deal, was passed. The Act of 1894 contains several sections which throw light upon the question with which we are concerned. First of all, the preamble refers to the annuities granted in favour of the city creditors in lieu and satisfaction of their debts. Then there is a definition of “statutory borrowing power” in section 2,which shows that the expression is meant to include almost every form of raising money, whether by borrowing or by creating annuities.
Then we come to section 5, which enables the Corporation of Edinburgh to create a
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Now the reason why I read that section is because it throws light upon the situation in which the Corporation stood when the Act of 1896 was passed. It shows, to my mind, that the Corporation had powers of raising money by issuing what were, strictly speaking, perpetual annuities, redeemable in the sense of being repurchaseable upon certain terms, being the terms which I have mentioned. The relation was not one of debtor and creditor—the relation was one of seller and buyer of these annuities—and that being so, the presumptions which seem to have weighed in the minds of the learned Judges of the Extra Division do not seem to me to apply to these transactions. Reading the words quite simply, as I have stated them, they are consistent, and I think only properly consistent, with the view I have stated, which is, that “redemption” merely means optional repurchase.
The Act to which I have referred is by no means perfectly drawn, and section 21 in particular, which refers to stock “issued for the whole term limited for the continuance of any loan” or issued “for part only of that term” is a section which does not seem to fit in well with the earlier sections of the Act. But the learned counsel for the appellants drew our attention to the circumstance that this section had been jettisoned by the draughtsman out of a quite different Act—the Local Authorities Loans (Scotland) Act 1891, of which it constitutes section 22—into the middle of this one, and that the reason why it seemed to fit ill was that its language belonged properly to a statute of another structure and dealing with a different kind of security. It may, I think, be possible to give a meaning to these words by reading them as applying to a case where part of the issue (all of which is to be redeemed at one time if redeemed at all by the Corporation in the exercise of its option) has been issued late, and has not got the whole term to run. It is possible in that case that there may have to be reborrowing, and the not very happy wording of the section may be said to cover that case. But whether the section is properly worded or not, in my opinion there is nothing in the section which is sufficient to cut down what to my mind is the plain effect of the previous section—section 5—and I am confirmed in this view when I turn to section 41, which relates to the appointment of a judicial factor. In section 41 of the Act of 1894 a judicial factor is only appointed to recover the dividends—there is not a word about capital or any suggestion that it is contemplated that there should be a capital sum due to the creditor which might have to be recovered—whereas if you turn to the Act of 1879, and equally if you turn to the general Act just referred to of 1891, which regulates borrowing in Scotland by local authorities, you find the power of the judicial factor there applied to the recovery of capital.
Having said so much, it seems to me that the question resolves itself into a very simple one. When I turn to the Act of 1896, section 83, which I have already read, and on which this question turns, it becomes, in the state of things which I have indicated, quite natural that the language should be what it is, and that the appellants should be able legitimately to rely upon it in support of their contention. If the relation is not one of debtor and creditor, but one of the seller and the buyer of annuities, then the words “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, not exceeding sixty years,” would naturally import “repurchaseable at the option of the Corporation.”
I have come to the conclusion that this is the true view of the statute, and that under the circumstances the only conclusion to which I can properly come is that the view of the Lord Ordinary was the correct view, and that this action ought to have been dismissed. This appeal must therefore be allowed, and I move your Lordships accordingly.
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Their Lordships reversed the interlocutor appealed from and dismissed the action.
Counsel for the Pursuers (Respondents)— Buckmaster, K.C.— Macmillan, K.C. Agents— Mackenzie & Kermack, W.S., Edinburgh— W. A. Crump & Son, London.
Counsel for the Defenders (Appellants)— Clyde, K.C.— Cooper, K.C.— Harold Beveridge. Agents— Sir Thomas Hunter, W.S., Town-Clerk, Edinburgh— Beveridge, Greig, & Co., Westminster.