Scottish Court of Session Decisions

This was an appeal at the instance of the Phosphate Sewage Company (Limited), London, in the sequestration of Peter Lawson & Son, London and Edinburgh, against a deliverance of the respondent, as trustee on the bankrupt estate, refusing to rank the appellants as creditors on the estate for a claim amounting to £70,529, 9s. The appellants asked that the present process should be sisted until the issue of a Chancery suit at their instance against a number of different parties, including the respondent, as trustee on the bankrupt estate, in which suit they seek to have it declared that the defendants to that suit, other than the respondent, and the several members of the firm of Peter Lawson & Son, acted fraudulently as therein stated, and as stated in the present record. In that suit, also, the appellants ask that they “may be at liberty to proceed against the estate of Messrs Peter Lawson & Sons” for the sums here claimed, they (the appellants) “being willing and hereby offering to account in such manner as this Court may direct for the profit (if any) made by them from the working of the Island of Alto Vela since its transfer to the Company;” and the bill of complaint in other branches of its prayer asks for decree for various different sums against the other defendants to the suit. In his answer to that suit the respondent pleads, inter alia, that the Court of Chancery has no jurisdiction so far as he is concerned, and that the matters in dispute ought to be settled in the sequestration, and, if necessary, in the Supreme Courts of Scotland. The appellants urged that the sisting of this appeal until the issue of the Chancery suit, in which the case would be presented with greater advantage and less expense against all the defendants, at one time, would save considerable expense. The respondent, however, stated that until the present appeal shall have been disposed of, a sum of about £8000, belonging to the bankrupt estate, must be retained by the trustee to meet the appellants' claim; and the trustee and the general body of creditors, it was further stated, are desirous to have the claim disposed of without any delay that can be avoided, and the proceedings in the sequestration wound up. The respondent contended that an action such as the appellants' suit in the English Court of Chancery would be incompetent in this Court, and that even if the English Court were to sustain its jurisdiction any decree that might be pronounced there would be ineffectual as against him in his administration as trustee of the estate under the Bankruptcy Statute; and that even if this were otherwise the appellants had

Page: 360↓

shown no good reason for sisting this process, and thereby probably causing considerable delay, in place of having the appeal at once proceeded with and brought to a close in this Court.

The Lord Ordinary pronounced the following interlocutor:—

“ Edinburgh, 13 th February 1874.—The Lord Ordinary having considered the cause, Repels the first and second pleas in law for the appellants: Allows the parties a proof of their respective averments, and appoints the proof to be taken before the Lord Ordinary on a day to be afterwards fixed: Finds the appellants liable in expenses since the date of closing the record; Allows an account thereof to be given in, and remits the same when lodged to the auditor to tax and to report.

Note.—The Lord Ordinary understands that until the present appeal shall have been disposed of a sum of about £8000 belonging to the bankrupt estate must be retained to meet the appellants' claim, and the trustee and the general body of creditors are desirous to have the claim disposed of and the proceedings in the sequestration wound up without any delay that can be avoided.

The appellants ask that the present process should be sisted until the issue of the Chancery suit referred to on the record, and that dividends effeiring to their claim should be laid aside to await the issue of that suit. The Lord Ordinary is of opinion that the appellants have not shown any sufficient reason for this course being taken, and that the respondent, on behalf of the creditors, is entitled to have the question raised by the appeal now disposed of in this process.

The estates of the bankrupts Peter Lawson & Son were sequestrated on 11th February 1873. On 14th March thereafter the appellants lodged a claim for the sum of £65,000 of principal, and £5529, 9s. of interest, making in all £70,529, 9s. The Chancery proceedings referred to by the appellants were not begun until 19th April thereafter, when the bill in Chancery was filed. On 24th June 1873. immediately before the first period fixed by the Bankrupt Statute for the trustee adjudicating on the claims lodged with him, the appellants withdrew their claim, obviously and admittedly for the purpose of avoiding its being adjudicated on by the trustee; but four days afterwards, viz. on 28 June, the present claim, which was the same in terms with that which had been withdrawn, was lodged. It has been duly adjudicated on by the respondent, who, for the reasons stated in his deliverance, printed in Condescendence 28, has rejected the claim as being unfounded on its merits. He has, however, laid aside dividends corresponding with the amounts claimed, and must continue to lay aside future dividends in the same way.

The ground on which the appellants asked to have the proceedings under their appeal sisted was that they had adopted proceedings in the English Court directed against a number of different parties, including the respondent as trustee on the bankrupts’ estate. The bill of complaint and the respondent's answer are produced; and it appears from these documents that the appellants seek in the Court of Chancery in England to have it declared that the defendants in the English suit, other than the respondent, and that the several members of the firm of Peter Lawson & Son, acted fraudulently as therein stated, and as stated in the present record, and praying that they ‘may be at liberty to prove against the estate of Messrs Peter Lawson & Sons,’ for the sums claimed in the affidavit lodged with the respondent,—the appellants, as stated in the bill of complaint, ‘being willing, and hereby offering, to account in such manner as this Court may direct for the profit (if any) made by them from the working the said Island of Alto Vela since the transfer thereof to the Company.’ The bill of complaint, in other branches of its prayer, asks for decree for various different sums against the other defendants to the suit. The respondent in his answer to the bill pleads, inter alia, that the Court of Chancery has no jurisdiction so far as he is concerned, and that the matters in dispute ought to be settled in the sequestration, and, if necessary, in the Supreme Courts of Scotland. The state of the proceedings in the Court of Chancery is, that after considerable delay answers have now been filed by the different parties called as respondents. The appellants urge, as a reason for sisting the present proceedings, that the trial of the questions raised in the action will be attended with considerable expense; and that as the other parties implicated in the alleged fraud reside in England, the cause will be tried there not only at less expense, but with greater advantage, as the case will be presented against all the defenders at one time.

The respondent contends that even if the Court in England were to sustain its jurisdiction, any decree that might be there pronounced would be ineffectual as against him in his administration as trustee of the estate under the Bankruptcy Statute; and that even if this were otherwise the appellants have shown no good reason for sisting this process, and thereby probably causing considerable delay in place of having the appeal at once proceeded with and brought to a close in this Court.

It is contended by the respondent, under reference to sections 126, 127, and 169 of the Bankrupt Statute, that an action such as the appellants' suit in the Court of Chancery in England would be incompetent in this Court; and that even if the suit should be proceeded with in England any decree pronounced in it could receive no effect, because the respondent in administering the estate under the Bankrupt Statute is bound to adjudicate on the claims of the different creditors lodged with him (as he has done in the present instance), and the only remedy which creditors have under the statute to enable them to obtain a share of the bankrupt estate is an appeal against the trustee's deliverance if the creditor's claim has been rejected.

Having regard to the provisions of section 50th of the Statute the Lord Ordinary is not prepared to hold that circumstances might not occur in which an action would be sustained as competent against the trustee on a sequestrated estate in order to constitute a claim by a creditor with a view to ranking. He holds it to be clear, however, that very special circumstances alone would justify such a proceeding. If a trustee in disposing of a claim should decline in hoc statu to rank, but set apart a dividend expressly in order to give the creditor time for establishing his debt according to law, and should thus invite the creditor to have the question settled by judicial proceedings in the form of an action, or should the trustee arrange with a creditor that the question as to his right to rank should be tried in this form as convenient for both parties, it appears to the Lord Ordinary that in such circumstances an action would be entertained by the Court. Thus, if a claim were made

Page: 361↓

against the bankrupt estate of a manufacturing or mining company for damages on account of injury sustained in their service, the question might by arrangement be conveniently enough tried in this way, and the Lord Ordinary is not prepared to hold that the Court would refuse to entertain such an action. But unless by arrangement or on the call of the trustee, acceded to by the creditor, the Lord Ordinary is of opinion that an action by a creditor against the trustee to have his claim constituted in order to a ranking, is incompetent and excluded by the provisions of the statute which have directed the mode in which claims are to be made and disposed of. The statutory mode of procedure enjoined is, that the creditor shall lodge his claim, that the trustee shall adjudicate upon it, exercising a quasi judicial function in so doing; that his deliverance shall be appealed to the Court if the creditor be dissatisfied with it, and that a record shall if necessary be made up, and a trial take place under the appeal. Under the Statute the trustee is bound to divide the funds amongst the creditors who have lodged claims, and if a creditor of the bankrupt seeks to rank on the funds he must lodge his claim. If a claim be lodged, the trustee is bound to dispose of it, and his deliverance is final if not appealed against within fourteen days. If appealed against the appeal is the proper process for the determination of the question; and in practice it has been found that the proceedings under the Statute are convenient and suitable, and admit of being carried out expeditiously, and often with a saving of expense. In the view which he takes of the Statute, it appears to the Lord Ordinary that a separate action, not entered into by arrangement with the trustee, or rendered necessary or sanctioned by special deliverance issued by him, is incompetent. It is evidently the policy of the Statute, and it is of importance that it should receive effect, that the estate should not be involved in legal proceedings in the form of separate actions at the instance of different creditors to establish their claims to rank on the funds.

On these grounds, the Lord Ordinary has come to the conclusion that the English suit at the appellants' instance would have been incompetent in this Court, and that any decree therefore which might be pronounced in that suit would not receive effect under the bankrupt statute. The respondent's deliverance on the appellants' claim must be disposed of under the present appeal. If this Court, from any peculiarity in the case, as that the matter in question raised a point of purely English law, should be induced to refer the question at issue to the determination of the Court in England, the reference would still be a proceeding in the appeal. This is not however what is proposed, and there are no sufficient grounds for suggesting that such a course should be adopted in this case. What the appellants propose is, that because a separate and independent action in England at their instance, of a kind which according to the view of the Lord Ordinary would be incompetent in this Court, and which cannot result in a decree to receive effect in the sequestration, should form the ground of sisting the present competent and proper process, and (as it appears to the Lord Ordinary) the only proper and competent process under the Statute for determining the question which has arisen—viz., the right of the appellants to share in the bankrupt estate.

The Lord Ordinary is not aware of any express decision as to the effect of the clauses of the bankrupt statute above mentioned as absolutely excluding all action at the creditor's instance, but he has formed the opinion that such action is excluded, except in such special circumstances as have been already referred to. The appellants referred to the case of Rutherford v. Dawson, 1844, 7 D. 162; and to the cases of Roy v. Campbell, 12 D., 1028; and Roy v. Kirkland, 16 D. 51; but although it may be argued from these cases that an action of constitution against a sequestrated bankrupt may in special circumstances be competent, they give no countenance to the argument that an action against the trustee on a sequestrated estate for the purpose of securing a ranking is a competent proceeding, if objected to by the trustee. Indeed, notwithstanding what was said in these cases, the Lord Ordinary has great difficulty in seeing any good reason for an action of constitution even against a bankrupt after his estates have been sequestrated. The case of Roy is not one showing the utility of such a proceeding when regard is had to what occured at the second stage of it.

Apart from the ground now stated, the Lord Ordinary is further of opinion that no sufficient reason exists for sisting the present proceedings. The appellants must show strong grounds in order to induce this Court to stop the process prescribed by the statute for having the claims of the creditors disposed of and the sequestration rapidly brought to a close; and it is not in the opinion of the Lord Ordinary enough to say that it will be more convenient and less expensive for the creditor to have the case determined in England. The appellants' claim was lodged in the sequestration a month before the English suit commenced. The fact that their proceedings were thus first begun in this country appears to be a good reason for declining to stop them because of legal proceedings afterwards adopted in England; and it is a circumstance not to be lost sight of that the respondent has stated a plea against the jurisdiction of the English Courts which is not said to have been stated otherwise than in bona fide. This circumstance, taken with the fact that there are a number of other defendants in the suit, and that a more complicated injury must be entered into in England in reference to the different branches of the appellants' claim against the different defendants than may be necessary in the present appeal, leads to the reasonable inference that delay might occur in the English proceedings which need not take place here; and this is a further reason against adopting the course of sisting the present proceedings.”

The appellants reclaimed, and pleaded:—

“(1) The present proceedings should be sisted until the issue of the Chancery suit referred to, as in the said suit the same questions are raised as in this process, and will fall to be determined in a case in which the present respondent is a compearing party. (2) The amount of the foresaid first dividend, and of any subsequent dividends effeiring to the appellants' claim, ought to be set aside to meet the issue of the said suit in Chancery, and an order should be pronounced upon the respondent to that effect. (3) The deliverance complained of ought to be recalled, and the trustee should be ordained to allow the appellants proof of their claim, or at least the said proof should be allowed them in this process. (4) The sale of the concession in question having been fraudulently made to the appellants' Company by

Page: 362↓

the said firm of Peter Lawson & Son, and individual partners thereof, for the purpose and in the circumstances condescended on, and the same having been annulled, the appellants are entitled to be reimbursed the sum paid therefor, with interest, all as contained in the appellants' claim; and the respondent should be ordained to admit the said claim accordingly. (5) The said concession having, to the knowledge of the said Peter Lawson & Son, and individual partners, been at the date of the said sale liable to be forfeited, and having been subsequently declared void in respect of what had occurred prior to the said sale, the appellants are entitled to have repetition of the purchase price paid by them, and they ought to be admitted as creditors accordingly for the same on the estates of the said Peter Lawson & Son, and individual partners. (6) The claim of the appellants against the sequestrated estates of Messrs Lawson, and the individual partners thereof, being well founded in fact and law, the deliverance complained of should be recalled, and the respondent be ordained to rank the appellants in terms of their claim, and be found liable in expenses.”

The respondent pleaded:—

“(1) The averments of the appellants are irrelevant and insufficient to support their claim. (2) The averments of the appellants being unfounded in fact, their claim has been properly rejected. (3) The Court of Chancery having no jurisdiction in the matter of the present claim; and separatim, the appellants having claimed in the sequestration prior to the commencement of the Chancery suit, the question raised falls to be decided in the sequestration, and the present appeal should be allowed to proceed in common form.”

Authorities for appellants— Cathcart v. Wilkie, Nov. 19, 1870, 9 Macph., 168; Bankrupt Act, 19 and 20 Vict., cap. 79, 49, 50, 126, 127; A. B. v. Tunnock's Trustees, Nov. 25, 1865, 4 Macph. 83; Bell's Comm. (M'Laren), ii. 324; Stuart v. Crichton's Trustees, March 31, 1866, 4 Macph., 689; Rutherford v. Dawson, Nov. 28, 1844, 7 D., 162; Roy v. Campbell, June 14, 1850, 12 D., 1028; Roy v. Kirkland, Nov. 16, 1853, 16 D., 51; 2 Will. IV., cap. 33; 4 and 5 Will. IV., cap. 82.

The respondents were not called upon.

At advising—