Scottish Court of Session Decisions

This was a note presented by George Auldjo Jamieson and Francis More, chartered accountants, Edinburgh, the liquidators of the California Redwood Company (Limited), for the determination of certain questions in the liquidation, and to have the Merchant Banking Company of London (Limited), debenture-holders, prohibited from proceeding with a suit raised by them in the Courts of New York. The liquidation was a voluntary winding-up which had been placed under supervision of the Court.

The questions for determination had regard to the validity of the debentures in the hands of the Merchant Banking Company, and also those in the hands of the trustees of Mrs Sarah Wedderspoon, and the rights and liabilities attaching to these debentures. The Court after hearing argument upon these questions ordered a proof as stated in the opinion of the Lord President infra. In regard to the application by the liquidators to have the proceedings in New York restrained, the facts were these:—The Merchant Banking Company had become the holders of seventy-three debentures of the company for the amount of £14,600. These debentures were to be payable to the Scottish American Investment Company (Limited), or the bearer, upon presentation either at the office of the Bank of Scotland in London, or at the office of Falkner, Bell, & Co. in San Francisco. Upon 22d July 1885 their manager had addressed the following note to the liquidators:—“To the California Redwood Company (Limited), and Messrs Jamieson and More, the Liquidators of the said Company. Take Notice, that the Merchant Banking Company of London (Limited) claim to be creditors of the said California Redwood Company (Limited) for the sum of £14,600 principal money, and for interest on the said principal money from the date of the last payment of the same; and that they so claim in respect of 73 bonds, mortgage bonds or debentures of the said company, each for the sum of £200, and numbered respectively 28 to 99, both inclusive, and 601: And further Take Notice, that these presents are without prejudice to the rights of the said Merchant Banking Company of London (Limited), as owners of the said bonds, and their recourse in respect of the same in the United States of America or elsewhere. Dated the 22d day of July 1885.”

The liquidators had previously published in the Edinburgh Gazette, and in Scottish and English newspapers, a notice dated 23d June 1885, in these terms:—“The creditors of the above-named company are requested to lodge their claims, together with the vouchers thereof, with the undersigned within one month from this date, with a view to the claims being adjudicated upon.” They also published in Scottish and English newspapers the following notice dated 15th July 1885:—“The debenture-holders and other creditors of the above-named company are reminded that their claims should be lodged with the liquidators on or before the 23d inst.” Correspondence passed between the manager of the bank and Mr Jamieson, one of the liquidators, in regard to the bank's claim, which is referred to in the opinion of the Lord President.

On 1st May 1886 the Merchant Banking Company raised an action in the Supreme Court of New York for payment of $77,000, being the amount of the debentures they held, with interest, against the Central Trust Company of New York. Upon the back of each of the debentures there was a certificate to this effect:—“It is hereby certified that this debenture is one of a series numbered from 1 to 2500 entitled to the benefit of the indenture, assignation, declaration of trust, and agreement referred to in the foregoing debenture, dated 1st November 1883,” the certificate being signed by one of the trustees under the deed.

This indenture, assignation, declaration of trust and agreement referred to in the certificate and in the body of the deed as a security for the sum was, as stated in the respondents' answers, a deed by which, “ inter alia, upon the recital that the California Redwood Company, Limited, had resolved to issue debentures, and that it was expedient to provide security for the repayment thereof, and upon the further recital that the California Redwood Company (a company organised under the laws of the State of California) had conveyed to the Central Trust Company of New York (a company formed according to the laws of New York State, United States of America) certain real property in the State of California, by deed ex facie absolute, but truly in trust, for the purposes thereinafter declared, the said Central Trust Company of New York declared that they held the said real property in trust for the holders of the said debentures, and for payment of the principal sums and interest therein stipulated.”

The liquidators stated—“The cause of action in the said suit is the same as that already raised by the said Merchant Banking Company in the liquidation,” and that the Court of Session, as being the Court of Liquidation, was the appropriate one for disposing of the questions between the parties. They founded on section 87 of the Companies Act 1862, made applicable by section 151 to liquidations under supervision, which provides—“When an order has been made for winding-up a company under this Act, no suit, action, or other proceeding shall be proceeded with or commenced against the company, except with the leave of the Court, and subject to such terms as the Court may impose.”

The respondents stated that they were a company incorporated under the Companies Act 1862, having their registered office in London. They submitted “that the respondents are not subject to the jurisdiction of the Court; that there are no grounds for restraining the respondents from prosecuting an action against a foreign company holding real estate in a foreign

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country, the grounds of which action could not be entertained or disposed of by the Court of Session.”

Argued for the liquidators—The Court had power either under the Companies Acts or at common law to restrain the proceedings in New York, provided they had jurisdiction over the Merchant Banking Company. They had jurisdiction because of the claim lodged by the bank in the liquidation. If it had been a claim in a sequestration there could have been no doubt about the matter— Lindsay v. Paterson, July 10, 1840, 2 D. 1373; Young v. Barclay, May 27, 1846, 8 D. 774; Standard Property Investment Co., Dec. 12, 1884, 12 R. 328. But a claim in a liquidation under supervision was just in the same position. The Central Trust Company was so identified with the company in liquidation as to make the Companies Act applicable. At common law the proceedings should be restrained; everything should be disposed of in the liquidation, and the Scottish company was the proper contradictor of the Merchant Banking Company— Liquidators of the California Redwood Co. v. Walker, March 19, 1886, 13 R. 810; Liquidators of the Pacific Coast Mining Co. v. Walker, March 19, 1886, 13 R. 816.

Argued for the Merchant Banking Company—There was no jurisdiction. There had been no voluntary submission on the part of the bank to the Scottish Courts. The claim was not properly speaking a claim in the liquidation, but merely a certioration to the liquidators of the existence of the debt. The bank did not know that the liquidation was not a voluntary one. The Companies Act did not apply to restraining proceedings such as these— Oriental Inland Steam Co. ex parte Scinde Railway Co., L.R., 9 Chan. App. 557. There had always been a recognised distinction between proceedings in which a creditor was trying to secure a preference, and those in which he was only trying to make good his security. The Court would exercise their power in the one case but not in the other— Athole Hydropathic Co., March 19, 1886, 13 R. 818. There were no grounds for restraining the proceedings. The action was not truly one against the company in liquidation, but against a third party, and the question was whether the property held by that third party belonged to the company in liquidation or to the bank. If the question were to be tried in Scotland the bank would be deprived of the benefit of certain considerations of which they could only take advantage in America. Scotland was not the convenient forum. The debentures were issued in California, and referred to real property there, and they were payable in England and California—Guthrie's Savigny, 227; Jones v. Geddes, 1 Phillip's Chanc. Ca. 724; Canon Co. v. Maclaren, 5 Clark (H. of L.) 416. Even if the Scottish Court were to hold that the bonds were valid, that would not be res judicata in New York.