Scottish Court of Session Decisions

The North British Building Society was established in Glasgow in 1868 under the provisions of the Act 6 and 7 Will. IV. cap. 32. The rules under which it was originally constituted were rescinded at a meeting of shareholders on 27th December 1872, and at the same meeting a new code of rules was approved, which, as altered to some extent at a meeting held on 5th July 1877, was in force until the Society went into liquidation.

Early in 1882 the directors, owing to the numerous notices of withdrawal by the non-borrowing members of the Society, and to the depreciation in the Society's securities, felt it their duty to take measures to prevent the shareholders being prejudiced by the withdrawal of those members. Accordingly they issued a circular, dated 13th May 1882, to all the shareholders, inviting them to give notice of withdrawal.

Various questions having arisen as to the rights and liabilities of the members, a Special Case was presented on 26th February 1884 for the opinion of the Court upon these questions by the trustees of the Society, with consent of its directors, and by certain of its members. The Court doubted the competency of the case, but allowed it to stand over until the Society was put into liquidation.

On 19th July 1884, upon a petition under the Companies Acts 1862 to 1883, the Court pronounced a liquidation order, and appointed James Landells Selkirk, official liquidator. Thereafter the liquidator sisted himself as a party to the Special Case.

Judgment in the Special Case was given on 10th July 1885, reported ante, vol. xxii. p. 833, and 12 R. 1271. An appeal was taken to the House of Lords, and judgment on the appeal was given by the House of Lords on 30th July 1886, reported supra, p. 128, and 14 R. (H.L.) 6. By these judgments it was, inter alia, determined that the liquidation of the Society commenced on 13th May 1882, the date of the circular, and that the rights and liabilities of members, inter se, fell to be determined as at that date.

Thereafter the liquidator presented a note on March 1887, in which he, inter alia, craved the Court to settle a list of contributories in the liquidation of the Society in conformity with a scheme which he had prepared, giving effect to the judgments of the Court of Session and the House of Lords in the Special Case. This scheme consisted of four sections, which he described as follows:—

“Section A embraces the names of those members who had completed or withdrawn their shares prior to the commencement of the liquidation, and shows the sums due to each respectively. In accordance with the judgment of the Court of Session, members in this section are entitled to be paid out in the order of the priority of the completion or withdrawal of their shares, and preferably to all the other members of the Society, borrowing or non-borrowing. The liquidator has therefore ranked the members in this section in the order of date of their completion or withdrawal, and he proposes to pay them out from time to time as the funds in his hands permit.

“Section B of the list embraces the names of non-borrowing members who had not withdrawn or completed their shares prior to the commencement of the liquidation. The liquidator proposes to pay out these members pari passu after the members whose names are included in Section A have been paid out.

“Section C of the list embraces the names of those borrowing members who gave due notice prior to the commencement of the liquidation of their intention to redeem their securities and renounce their shares.

“Section D of the list embraces the names of the remaining borrowing members. The liquidator proposes to deal with these members in accordance with the judgment of the House of Lords, as having impliedly given due notice of their intention to redeem, and as being bound to redeem their securities at Martinmas 1882.”

To this scheme a number of members lodged answers, and these answers raised in all five separate questions.

I. Bank Interest.—Messrs Taylor and others, being shareholders holding completed shares in the Society, were entered in Section A of the list

Page: 602↓

of contributories. In a note to Section A the liquidator stated that “… the contributories who hold completed shares will be entitled to ‘bank’ interest in terms of Rule XIII. The liquidator understands the term ‘bank’ interest to mean the rate allowed by Scotch banks on sums at the credit of current accounts kept with them, and will act accordingly.”

Rule XIII. provided—“Any member holding any share in respect of which no advance has been made, which, by the subscriptions paid, and the profits thereon, shall have accumulated to twenty-five pounds (the amount of said share), shall be entitled to receive the amount thereof, with bank interest from the date of completion, and his connection with the Society in respect of the same shall cease.”

Messrs Taylor maintained that they were entitled to interest at deposit-receipt rates, on the ground that while the Society had a bank account the bulk of the money was lent out to the borrowing members.

It was argued for the liquidator that in the absence of any special stipulation “bank” interest must be taken to mean current account rates. Besides, it was necessary to keep in view the mode of conducting the Society's business, according to which the funds were paid in and out in numerous small sums from day to day.

II. Advanced and Unadvanced Shares.—David Gordon M'Lellan was a borrowing member and at the same time an investing member. On 11th September 1876 he subscribed for forty shares, and obtained a pass-book in which these shares were entered as numbering 7525 to 7564 inclusive, each share being of the nominal value of £25. On 26th September 1877 he obtained from the Society an advance of £500, and granted in favour of the Society a bond and disposition in security therefor over heritable property belonging to him in Duke Street, Glasgow. He paid the interest regularly up to Whitsunday 1882; on 13th May 1882 he gave notice of withdrawal, and on 23d May 1883, without prejudice to said notice of withdrawal, he gave the Society notice, in the terms required by Rule XXVII. (quoted infra), of his intention “at Martinmas 1883 to redeem his property by renouncing said forty shares and paying any balance that might be due to the Society after deducting the instalments paid in respect of said shares and interest thereon” The liquidator placed his name in Schedule B in respect of twenty of the shares, in respect of which, as he alleged, no advance had been made, and in Schedule D in respect of the shares held by him as representing the advance made to him.

M'Lellan maintained that the advance of £500 was made in respect of the whole of the shares; that the instalments paid on these shares had extinguished pro tanto the advance of £500, and that the liquidator was not entitled to treat half the shares as advanced, and half as unadvanced, to the effect of converting half of the shares expost facto from borrowing to non-borrowing shares, and so render him liable for a share in the losses of the Society.

It was maintained for the liquidator that shares were either advanced or not advanced. There could be no such thing as partial payment. An advance was really a payment by anticipation to the member of the amount of his shares, and accordingly that M'Lellan's name was rightly placed in Schedule B in respect of those shares which were unadvanced. This view was supported (1) by the words of the Act, 6 and 7 Will. IV. c. 32, sect. 1, in terms of which the Society was founded; (2) by Rules XVI. XXVI. and XXVII. Rule XVI. provides that “Any member who has been granted an advance may, with the consent of the directors, transfer his or her right and interest therein to any other person, along with the shares representing the same, provided all arrears of principal, interest, and penalties be paid, on payment of a transfer fee of two shillings and sixpence for every share so transferred.” Rule XXVI. provides that “Any member who has received an advance from the Society upon the security of any property, may, with the consent of the directors, transfer his other right and interest in the same to any other person, along with the shares representing the same, provided all arrears of principal, interest, and penalties due thereon are paid; and the purchaser thereof shall become a member of the Society, and subject to all the rules and entitled to all the privileges thereof; and shall pay on entry a transfer fee of two shillings and sixpence for each share represented by the property so transferred.” Rule XXVII. provides that “Any member who has given any property in security to the Society may, on giving three months’ notice prior to the term of Martinmas or Whitsunday in any year, redeem the same by renouncing the shares representing the advance made thereon, and paying the amount of said advance, under deduction of the instalments paid in respect of the same, and interest thereon, and his interest in said Society, so far as said shares are concerned, shall cease; or any member who has given any property in security to the Society, may redeem the same as above by payment of the whole sum borrowed and other dues thereon, and retain his shares in the same manner as if no advance had been made in respect of said shares, and he shall be entitled to have the same readvanced to him in terms of Rule XXVI., or transfer the same to any other party without the payment of any further premium, but subject to the payment of the difference of interest between the bank and the Society rate until readvanced, and thereafter the regular rate of interest thereon. Any member redeeming his property by either of the plans aforesaid, shall pay a fee of two shillings and sixpence for each share representing the advance so redeemed; or when the subscriptions, with the share of profits, of any member who has received an advance, are equal to the amount of said advance, then the payments of said member in respect of said shares on which the advance has been made shall cease, and his connection with the Society in respect of the same shall terminate.” And (3) by the interpretation of those rules in the House of Lords’ judgment in the Special Case, Tosh v. North British Building Society, July 30 1886, supra, pp. 128, 131.

The same arguments applied to the case of William M'Geoch junior.

III. Fines.—By Rule III. it was provided that—“The capital of the Society shall be raised in shares of twenty-five pounds each, payable by fortnightly instalments of one shilling and threepence per share, and by interest arising

Page: 603↓

therefrom. Any member in arrears two fortnightly instalments shall pay at the rate of one penny per share per fortnight for each and every fortnightly subscription in arrears, and should said member continue in arrears until the fines incurred thereon shall equal all the subscriptions actually paid, said member shall then cease to be a shareholder, and shall forfeit all interest therein. But in case of bad health, poverty, or other casualties, the directors shall have power to suspend payment of past and future subscriptions and future fines, on application by the member or any of his or her family, but all suspended payments shall be charged interest at the rate of five per cent. per annum.”

In applying this rule the liquidator stated that he had “charged completed shareholders who were in arrear of their instalments with fines up to the dates of completion, the withdrawn shareholders in the same position with fines up till Martinmas 1882, being the date when their implied notice to redeem took effect, and the date up to which they were bound to continue paying their instalments; and that in imposing fines he had in no case gone back beyond the last payment made by any member, holding that if fines previously incurred were not imposed when that payment was made he was precluded from opening up the question. He further admitted that in practice the rule had not been enforced, and that no fines were shown in the account for 1881, the liabilities and rights of parties not being ascertainable while the Special Case was undecided.

It was stated for William M'Geoch junior and others that the rule had never been enforced, and that the instalments had never been regularly exacted, but had been paid at irregular intervals, and that in these circumstances the Liquidator was not entitled to open up their accounts and levy fines.

IV. Non-timeous Withdrawal of Shares.—Rule XII. provided that “Any member may transfer any shares held by him or her on which they have received no advance, provided all arrears of principal, interest, and penalties be paid up, and on payment by the new members of a transfer fee of one shilling per share so transferred; and any member holding shares on which no advance has been made may, on giving one month's notice in writing to the manager, withdraw his or her subscriptions paid thereon, with interest at the rate of three per cent for first and second years, three and one-half per cent for third and fourth years, and four per cent. thereafter, and the same shall be paid as soon after the expiry of the month's notice as the funds will permit.” In respect of this rule the liquidator placed the names of John Caldwell, Charles G. M'Lellan, and Jane Semple, all non-borrowing members, in section B, on the ground that they all gave notice less than a month prior to the 13th May 1882, the date of the liquidation; and in support of his view referred to the Special Case, 12 R. 1286, and to The Blackburn and District Benefit Building Society, July 6, 1883, L.R., 24 Ch. Div. 421— affd. Nov. 28, 1884, 9 App. Ca. 857.

M'Lellan gave notice of withdrawal on 27th April, Caldwell on 3d May, and Semple on 4th May, all in the year 1882. It was argued for them that the Blackburn case was no authority. It decided that notice was effectual to give withdrawing members priority if the periodof notice had expired I before the winding-up. Here there was no question as to the period of notice having expired at the date of the winding-up order. There were always two dates to be considered, that of insolvency and that of winding up. There could be no innovation after the first date, but notice did not cease to run. The fact of the conclusion of the business was a notice to all the members to withdraw.

V. Interest.—Rule XV. provided that “Any member who has been granted an advance shall, from the date of granting the same, become liable for such a rate of interest as along with the interest allowed by the bank will amount to five per cent. until said member has received said advance, when he shall pay to the Society interest thereon at the rate of five per cent. on the full amount of said advance; and all interest shall be payable at the terms of Martinmas and Whitsunday, and members failing to pay the same within fourteen days thereafter shall be charged interest thereon at five per cent. from the term of payment.” In respect of this rule the liquidator maintained that he was entitled to charge interest on the balances due by borrowing members from and after Martinmas 1882, and on each half-yearly payment of interest in arrear he maintained that he was entitled to charge interest, limited as in terms of the bonds and dispositions in security. He conceded that the judgment of the House of Lords in the Special Case decided that on payment of the balance of the debt due under their bonds at Martinmas 1882 these borrowing members were entitled to be free of the Society. But they did not consign or tender the amount of their debts, and hence he maintained that the usual rule must be applied, and that interest under the bond was payable from the date when the debt and interest became due till payment.

D. G. M'Lellan and others maintained that in respect of the House of Lords’ judgment a balance was to be struck as at Martinmas 1882, and that on payment of that balance they were to be free. This balance the bondholders tendered to the Society prior to the House of Lords’ judgment, but the Society refused to give credit for more than the balance after deducting their share of loss. Any delay that arose was thus attributable to the Society itself, and accordingly interest was not exigible since that date.

At advising—

The opinion of the Court (the Lord President, Lord Mure, Lord Shand, and Lord Adam) was delivered by