Scottish Court of Session Decisions

Mr John Brebner, railway contractor in Aberdeen, died on 2d January 1857. At the time of his death he was possessed of a large number of railway shares. He had also entered into various railway contracts, and, among others, one for tire construction of the Alford Valley Railway. This contract, which was dated 11th January 1856, contained a clause of reference to Alexander Gibb, civil engineer in Aberdeen, as sole arbiter-of all disputes and differences between the parties regarding the meaning of the contract or the execution of the works. Shortly after the death of Mr Brebner, Mr Charles Graham Monro, writer, Stonehaven, was appointed judicial factor on his intestate estate, with tire usual powers; and he thereafter, with consent of the Alford Valley Railway Company, entered into a sub-contract with John Dean & Son, railway contractors in Aberdeen, for the construction by them of the railway and relative works which Mr Brebner had undertaken to execute. By this sub-contract Messrs Dean & Son became bound to execute the works for considerably less than Mr Monro, as representing Mr Brebner's estate, was to receive from the railway company. Mr Monro and Messrs Dean & Son also entered into a supplementary contract with the railway company for the execution of works not embraced in the original contract between Mr Brebner and the railway company. Both the subcontract and the supplementary contract contained a clause of reference to Mr Gibb, similar to that contained in the original contract.

Mr Monro, as judicial factor on Mr Brebner's estate, received the instalments payable by the railway company for the works executed by the sub-contractors, Messrs Dean & Son. The balance due by the railway company to Mr Monro and Messrs Dean & Son at the completion of the railway works was settled under a reference to Mr Alexander Gibb, who found Messrs Dean & Son entitled to £6000, with interest. That sum was accordingly paid by the railway company.

At the time the contracts above referred to were entered into, Mr Monro was the law agent and adviser of Messrs Dean & Son, and he continued to be so until after the railway was completed. He did not furnish them with any account of the sums he had received and paid on their account. In 1858, when they applied for payment out of the funds which lie had been receiving from the railway company, he represented that he had paid away all the money belonging to them in his hands. Messrs Dean & Son's own funds having become exhausted, they were unable to provide workmen and materials sufficient to carry on the works of the contract, in consequence of which the works were taken entirely out of their hands. Messrs Dean & Son alleged that at this time Mr Monro had in hand a balance of their funds amounting to upwards of £13,000, which he illegally withheld from them, and they claimed damages for the loss and injury which they thereby suffered. Various disputes also arose between Mr Monro and Messrs Dean & Son, with reference to questions of accounting under the supplementary contract. It was ultimately arranged that these disputes should be settled by arbitration; and accordingly, by submission dated 15th December 1865, and 17th, 23d, and 25th January 1866, between —Charles Graham Monro, writer in Stonehaven, as judicial factor on the estate of the now deceased John Brebner, late railway contractor in Aberdeen, on the one part., and John Dean & Son, sometime railway contractors in Aberdeen,” and the individual partners of the said firm, and the North of Scotland Banking Company, on the other part, the parties thereto submitted and referred “all demands, claims, disputes, questions, and differences depending and subsisting between them upon any account, occasion, or transaction whatever in relation to the Alford Valley Railway, and specially in relation to the railway and other works executed in connection therewith, to the amicable decision, final sentence, and decreet-arbitral to be pronounced by George Marquis, accountant in Aberdeen, as sole arbiter chosen by the said parties.” Mr Marquis accepted of this submission, and on 10th June 1868 issued a decree-arbitral, whereby he inter alia found Messrs Dean & Son entitled to damages for the loss and injury suffered by them in consequence of the retention by the judicial factor of monies due and payable to them for works executed by them, and he modified the damages to the sum of £4159, with interest at 5 per cent, from various dates.

In the meantime several claims were made against the Aberdeen Town and County Bank with reference to a large number of railway shares belonging to the factory estate, which Mr Monro had transferred to the bank for a nominal consideration, for the purpose, as was alleged, of reducing a debt due by the firm of Kinnear & Monro, of which he was a partner. On 1st December 1868 Mr Monro's appointment as judicial factor was recalled, and Mr Adam Gillies Smith, C.A., Edinburgh, appointed in his room. In consequence of the competing claims the present action of multiplepoinding and exoneration was raised by the Aberdeen Town and County Bank. On 3d July 1869 it was conjoined with a process of reduction, at the instance of Messrs Dean & Son, of certain of the claimants' grounds of debt. In the course of the competition the question was raised, whether the decree-arbitral pronounced by Mr Marquis was binding on the factory estate.

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In order to facilitate the decision of this question a joint minute was lodged in process, admitting that Mr Monro did not apply for or obtain from the Court any special powers, or any authority from the parties interested in the factory estate to enter into the submission in question, and Messrs Dean & Son also waived any right competent to them to insist in the validity of the decree-arbitral being challenged only in a process of reduction, and consented to the plea against its validity being disposed of in the same way as if a summons of reduction had been raised and held as repeated in this action. The question thus raised was debated before the Lord Ordinary ( Ormidale), who thereafter pronounced the following interlocutor:—“Finds that it was ultra vires of Mr Munro, the former judicial factor on the deceased John Brebner's estate, to enter into the submission in which the decree-arbitral upon which the right and interest of Messrs Dean & Son is alone founded and maintained in the present process was pronounced, and that said decree-arbitral is consequently invalid and insufficient to support the reduction at their instance, and their claims in the multiplepoinding.”

His Lordship in a long explanatory note, added:—“Is the Lord Ordinary right in holding that the decree-arbitral referred to is invalid? And this depends on the question whether it was or was not ultra vires of Mr Munro, the former judicial factor on the late John Brebner's estate, to enter into the submission in which the decree-arbitral was pronounced. In considering this question it is of importance to keep in view that it is not said that Mr Munro was invested by the Court or otherwise with any special or express power to enter into the submission in question. On the contrary, the proceedings show, and the parties have concurred in admitting in their joint minute, that ‘Mr Munro, the judicial factor on the deceased John Brebner's estate, was appointed with the usual powers, and, during the time he held office, did not apply for or obtain from the Court any special powers or any authority from the parties interested in the factory estate, to enter into the submission in question.’

“The question therefore very purely arises, whether a judicial factor, appointed with the usual powers, or, in other words, competently, is empowered to enter into a submission involving the interests of his factory to a large extent, as unquestionably the submission in the present instance did?

The parties opposed to Messrs Dean & Son maintained that it was ultra vires of Mr Munro to enter into such a submission, and in support of their contention they cited the case of M'Dowal v. M'Dowal, 8th July 1778, M. 4058, where it appears to have been held by the Court that a judicial factor has no power to enter into submissions.

Nor can the Lord Ordinary discover anything in the circumstances of the case of M'Dowal, to prevent it being a precedent in point for the present. There, as here, a decree-arbitral, pronounced in a submission which had been entered into by a judicial factor appointed with the usual powers merely, was, on his death, challenged and set aside at the instance of the judicial factor who succeeded him. Neither can the Lord Ordinary see that the Court in deciding that case proceeded on any speciality whatever, or that there was anything in it to distinguish it from the present. On the contrary, he finds it stated in the report of the case, ‘The Court were of opinion that, under the usual power of a judicial factor on a subject, that of referring claims is not included; and it was said by several of the Judges that the Court would not grant such a power on the application and consent of only part of the creditors; that even although there were an application from the whole of the creditors, it was not the province of the Court to grant such a power.’ And the report, in conclusion, bears ‘that the judgment was finding that the factor had no legal or sufficient powers to enter into the submission on which the decree-arbitral proceeded, and that the same was not sufficiently homologated by the creditors so as to supply said original defect.’ Nothing could be more in point, or apparently more conclusive of the question in the present case.

Just as little can the Lord Ordinary find any reason for holding that the decision in M'Dowal's case has been over-ruled or held to have been erroneously pronounced. So far from this being so, he finds that the case of M'Dowal is referred to in the work of Mr Montgomerie Bell as of standing authority (Bell on the Law of Arbitration, p. 107).

On authority, therefore, the Lord Ordinary thinks his judgment could not have been otherwise than what it is; and, on principle, he thinks it is also well founded. The duty of a judicial factor is to manage and preserve the estate falling within his charge; and he cannot, without special authority to that effect, do anything that may have a contrary effect. But it is obvious that for a judicial factor, in place of resorting, when necessary, to the established tribunals to leave or delegate a matter most materially affecting and involving the estate under his charge, to the arbitrament of a private individual, is, to say the least of it, a very hazardous proceeding—such a proceeding as appears to the Lord Ordinary to be inconsistent with the essential nature of his office and position. It was accordingly held, on principle as well as authority, in the recent case of Murray and Another v. Muir, 13th December 1867, 6 Macph. 145, that, prior to the Trusts Act of 1867, testamentary trustees, under a deed which contained no power to refer, were not entitled to refer important claims of the trust to arbitration. The opinions of the Judges in that case are very instructive as regards the present, in particular as showing the distinction between compromising and submitting claims, and between the powers in some respects of tutors and trustees or factors.

What would have been the result if the judicial factor in the present instance had entered into the submission after applying for and obtaining power to do so from the Court need not be inquired into, as no such application was made or power granted. The Lord Ordinary, however, may say, that it was at the very least the duty of the judicial factor, before entering into the submission in question, to have stated the circumstances to and applied for the authority of the Court. If he had done so, intimation of his application would have been made to the parties interested, and they would have had an opportunity of objecting or consenting to the power asked being granted.”

Messrs Dean & Son reclaimed.

Fraser and Lancaster, for the reclaimers, contended that the case of M'Dowal, relied on by the Lord Ordinary, was not decisive of the question regarding the power of a judicial factor to submit, as there were other grounds for the decision of that case; that a factor loco tutoris had power to submit, and that there was no reason for distinguishing

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between a factor loco tutoris and a judicial factor; and that Mr Monro had done rightly in submitting to Mr Marquis the claims against the factory estate.

Reclaimers' authorities— M'Dowal, M. 4058; Falconer, M. 16,380; More's Notes to Stair, p. 428; Corson, 13 S. 1093, 7 Jur. 501, 10th July, F. C. 891; Anderson, 17 D. 596; Aberdeen Bank v. Blaikie, 16 D. 470; Bryce, 6 S. 425; Esson, 18 D. 676; Lin, 5 Brown's Sup. 50; Somerville's Factor, 14 S. 451; Vere v. Dale, M. 16,389; Howie, 5 S. 77.

Watson, Shand, Birnie, and H. J. Moncreiff, for the respondents, maintained that it was ultra vires of a judicial factor to submit claims affecting the estate under his charge, and that in any case Mr Monro was not entitled to submit claims of damages arising out of his own delinquency.

Respondents' authorities— M'Dowal, ut supra; Bell on Arbitration, p. 347; Thomson, 6 Macph. 145; M'Dougal, 15 D. 776; Maconochie, 19 D. 336; Ersk. iii. 3. 39.

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