Scottish Court of Session Decisions

This was an action at the instance of Messrs Welsh & Forbes, law-agents and conveyancers, Edinburgh, against James Wilson Johnston, 22 Great King Street, Edinburgh, and George Harvey Johnston, 22 Garscube Terrace, there, sole partners of and as trustees for the dissolved Firm of W. & A. K. Johnston, Engravers and Publishers in London, Edinburgh, and Glasgow, and the said Firm of W. & A. K. Johnston, Edina Works, Easter Road, Edinburgh. The summons concluded for payment of the sum of £601, 12s. 6d., the balance which the pursuers alleged to be due on a current account between them and the defenders.

Prior to the raising of the action the defenders J. W. Johnston and G. H. Johnston, then the sole partners of the Firm of W. & A. K. Johnston, having resolved to sell the business to a limited company to be formed for the purpose of its acquisition, instructed the pursuers to act as their agents in regard to the formation and flotation of the company. As a pre liminary to the formation of the company a minute of agreement, dated December 1900, giving the terms and conditions of sale, was entered into between the defenders, first parties, and Thomas Scott Welsh (one of the partners of the firm of Welsh & Forbes) for and on behalf of the proposed company, second party, by which it was, inter alia, provided — “( Tenth) The first parties shall pay all the costs of and incidental to the preparation and execution of this agreement, and of the memorandum and articles of association of the company, and of the registration thereof, and of all stamp duties, fees, and legal expenses incident to the formation of the company and the issue of its capital, including a commission to the agents of the company at such rates as are charged by Messrs Davidson & Syme, Writers to the Signet, Edinburgh, or by other legal firms of like standing in the formation of limited liability companies, and in general all preliminary expenses whatever incurred in relation to the company up to and including the allotment of the shares thereof.… ( Twelfth) In respect these presents are entered into by the second party for and on behalf of the company, the same shall not be binding on him personally, and shall only be binding on the first parties if and so far as the same may be adopted by the company after its incorporation.”

The Company having been formed, a minute of agreement dated January 1901 was entered into between the Firm of the first part and the company of the second part, which proceeded! on the narrative that the preliminary agreement had been made, that the company had agreed to adopt it, and that for that purpose, in order that the terms and conditions of sale might be binding on it, it had agreed to execute the present agreement. This “adopting” agreement gave the full terms and conditions of sale and, inter alia, provided—“( Tenth) The first parties shall pay all the costs of and incidental to the formation of the company and the issue of its capital, and in general all preliminary expenses whatever incurred in relation to the company up to and including the allotment of the shares thereof.”

Messrs Welsh & Forbes, the present pursuers, were not a party to or named in either of the agreements. In regard, however, to the provision in the preliminary agreement quoted above they averred—“The special stipulation contained in this agreement as to the remuneration of the agents was inserted therein at the request and for behoof of the pursuers, and was agreed to by the defenders in view of the nature of the duties and responsibilities which the pursuers would be called on to perform and undertake in connection with

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the matters referred to. The said stipulation was made for the following reasons, viz.—( a) In order that the pursuers might he remunerated on an appropriate footing, having regard to the fact that their services would not be merely ordinary professional services, but would involve work and responsibility of a character which made it proper that special terms of remuneration should be provided for; and ( b) because the rate in the table of fees is indefinite, and it was desired to adopt the rates which were charged by the first class firms referred to in the agreement as being reasonable and appropriate in the circumstances.… It is usual for solicitors and their clients to make special agreements as to the rate or mode of remuneration, or to fix a slump sum for similar services in connection with the formation and flotation of companies. All this was explained to the defenders, and in full knowledge of the circumstances they consented to the stipulation as being proper and reasonable.”

The pursuers had duly carried through the formation and flotation of the company, which was registered under the Companies Acts on 24th December 1900.

The pursuers pleaded—“(1) The pursuers having, on the employment of the defenders, made the disbursements and rendered the services set forth in the condescendence, on the terms agreed to by the parties and embodied in the minute of agreement narrated in the condescendence, are entitled to decree in terms of the conclusions of the summons. Separatim, the charges and commissions being reasonable and proper, having regard to the special services and responsibilities rendered and undertaken by the pursuers on the employment of the defenders, the same ought to be sustained. (2) The stipulation agreed to by the parties and embodied in the minute of agreement of December 1900, referred to in the condescendence, regarding the method of determining the remuneration payable to the pursuers, is reasonable in the circumstances, and is binding on the defenders.”

The defenders pleaded—“The pursuers' business accounts ought to be remitted for taxation as between agent and client, and all excessive or illegal charges and commissions for work done ought to be excluded therefrom.”

On 25th February 1903 the Lord Ordinary ( Kincairney), before further answer, remitted the account sued on to the Auditor to tax and to report.

In a note to the interlocutor making the remit his Lordship stated—“… I understood the pursuers to desire that their account might be remitted to Davidson & Syme that they might fix their commission, or that, if a remit were made to the Auditor, it should be with instructions that he in his audit should adopt rates similar to those allowed by Davidson & Syme or similar agents.

“Several questions appear to arise in reference to the clause in question—(1) Is it binding, seeing that it has not been adopted by the company? (2) Are the pursuers in a position to plead it as jus qucesitum tertio, or was the preliminary contract a contract between the parties to it only, in which the pursuers had no right? (3) If these points were determined in favour of the pursuers, is it a contract which can be enforced between agent and client? And (4) what does it mean, and to what part of the account does it relate?

“If these questions have to be solved, it may be that that cannot be done without some inquiry.

“But it seems natural to think that if the ordinary course were followed and this law agent's account were remitted simpliciter to the Auditor, his audit might satisfy both parties, so that no question would arise at all, or, if not, the questions might be raised in a clearer and more definite form by objections to the repor t. I shall therefore, before answer, remit to the Auditor to audit and tax the account, and I suppose that the vouchers of the pursuers' outlays may be produced before him.…”

In his report, dated 16th June 1904, the Auditor stated—“…The professional charges contained in the account-current remitted to the Auditor may be divided iuto three groups— A, Charges for which detailed business accounts have been produced in ordinary course, and miscellaneous charges; B, Charges entered in subsiduary accounts, the balances on which are carried into the principal account-current; and C, Fees in respect of which no detailed accounts have been produced. The following are the details of these several groups and the amounts at which they have been sustained by the Auditor:—…”

In Group A item 10 was—“ Mar. 13, 1901. To agents' commission on flotation of company at 1 per cent. on capital, including all charges for meetings, correspondence, &c., and all work preliminary to allocation of shares, £1075 restricted to £686, 12s.” It was dealt with thus—

“Amount debited.	Taxed off.	Amount as taxed.
£686 12 0	£180 14 10	£505 17 2”

In Group B item 2 was—“ Dec. 31, 1900. To agreed-on fee in respect of personal guarantee by Mr Welsh to British Linen ompany Bank, £210.” It was dealt with thus—

“Amount debited.	Taxed off.	Amount as taxed.
£210 0 0	£172 10 0	£37 10 0”

In Group C the items were—“(1) Dec. 14, 1900. To agency negotiating terms of sale, preparation and adjustment of agreement of purchase, &c., at 1 2 per cent. as per table of fees (£107,500) £537,10s.” “(2) To agents' fee preparing and adjusting prospectus, the proposed arrangements having been repeatedly altered and modified, and its adjustment having been extended over a period of nearly two years, and revising proofs, &c., £105;” and “(3) Nov. 6, 1901. To agents' commission as against new company payable by Messrs Johnston in terms of adopting agreement, including commission on shares subscribed for through agents, the stockbrokers selected by directors having withdrawn immediately before prospectus advertised; agents' intromissions with company's capital, settlement of purchase price, payments to Messrs

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Johnston, &c., £537, 10s.” Of these three items the Auditor had disallowed entirely 1 and 3 and had dealt with 2 thus—

“Amount debited.	Taxed off.	Amount as taxed.
£105 0 0	£94 10 0	£10 10 0”

The Auditor stated his reasons for dealing with a number of the professional charges in the manner reported, and, inter alia, with the above stated charges, viz.—

Group A, item 10—“A commission on flotation of the company being, in the Auditor's opinion, inappropriate in the circumstances, he has allowed in lieu thereof the account of detailed business performed by the pursuers, amounting as taxed to the sum of £505, 17s. 2d.”

Group B, item 2—“It appears to the Auditor that this is not a kind of service that any charge is usually made for by a law-agent. It is to be presumed that Mr Welsh undertook this obligation because he was so familiar with the whole position of the parties concerned that in point of fact he was running no risk in doing so, but no doubt the guarantee was an accommodation to Messrs Johnston, and if the Lord Ordinary should be of opinion that in equity some remuneration should be allowed for it, the Auditor thinks that £37, 10s. would be a fair allowance, being 1 2 per cent. on the amount of the overdraft.

Group C—“(1) The charge of £537, 10s. is not in the circumstances a proper one. There was no other negotiation by the pursuers than is disclosed in their business accounts, the charges in which, as taxed, form the proper remuneration for the work in connection with the sale. (2) There is no warrant in the table of fees or in practice for a random charge such as the pursuers have stated, viz., £105 for preparing and adjusting a prospectus. The work actually done will be very fully remunerated by the fee of £10, 10s. fixed by the Auditor. (3) There is nothing to justify the commission of £537, 10s. charged against the new company. The pursuers will be properly remunerated by the charges relative to the business contained in their business accounts.”

In support of the method in which they had made the charges objected to by the Auditor, Welsh & Forbes produced a copy of a letter written by Mr White Millar, 8.S.C., dated 14th October 1876, the arbiter in a reference as to the charges for the flotation of the Straiton Estate Company, which was in the following terms:—

“Messrs Tods, Murray, & Jamieson, W.S. Straiton.

Dear Sirs,—I have considered the matter referred to me by you and Messrs Keegan & Welsh. I understand I have nothing to do with the latter's charges against the new company, but only with those which I think should be payable by Brash's trustees. I am of opinion that Messrs Keegan & Welsh are entitled to the following charges:—

Commission for making the sale, as per table of fees	£182	10	0
This charge is strictly confined to making the sale.
But Messrs Keegan & Welsh had also not only to find a purchaser, but in effect to create one by getting up a company to purchase, and for this I think they are entitled to one per cent. on the £68,000, or	£680	0	0
I think they are further entitled to the ad valorem fees of drawing the missives of sale, in so far as no deed follows thereon on which an ad valorem, fee is chargeable. They will have an ad valorem fee on £40,000 for preparing the disposition to the heritage. I therefore think they are entitled to an ad valorem on the £28,000. This by the old table would have been £49, 17s. 6d., but by the new table is only £10, 10s., and as I understand the transaction took place since the new table of fees came into operation, I propose to allow them the	10	10	0
	£873	0	0

“As I have indicated above, I think Messrs Keegan & Welsh will be entitled to an additional commission from the company in connection with its formation, but I think they are entitled to the above sum from Brash's trustees.—Yours faithfy.” Objections and answers to the Auditor's report having been lodged, the Lord Ordinary ( Kincairney) after hearing counsel for the parties, by interlocutor of 22nd December 1904 assoilzied the defenders.

Opinion.—… [ After narrating the nature of the previous steps in the action, supra] … “The pursuers' objections do not cover the whole of the audit. The Auditor has struck off several sums to the deduction of which the pursuers have not objected. The sums so struck of without objection amount according to my calculation to £74, 9s. lid., which falls to be deducted, in the first place, from the balance of £601, 12s. 6d, sued for, reducing that balance to £527, 2s. 7d.

“The pursuers' objections to the audit are, I think, five in number, and are these—

1. 1. To a deduction of £180, 14s. lOd. from a charge of £686 under date 13th March 1901, for agent's commission on flotation.

2. 2. A deduction of £172,10s. from a charge under date in the Auditor's report 31st December 1900 of £210, said to be a fee agreed on in respect of a personal guarantee by Mr Welsh to The British Linen Company Bank.

3. 3. A total disallowance of a charge under date 14th December 1900 for £537, 10s. of commission at i per cent. on the whole price for ‘Agency negotiating terms of sale and adjustment of agreement for purchase.'

4. 4. A deduction of £94, 10s. from a charge of £105 as agent's fee for preparing and adjusting prospectus; and

5. 5. A total disallowance of £537, 10s. charged under date 6th November 1901 as agents' commission as against the new company, payable by Messrs Johnston in terms of adopting agreement, including commission on shares subscribed

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   for through agents and for other particulars mentioned.

The Auditor has stated his reasons for that apparently somewhat stringent audit. On considering these reasons, with the pursuers' objections, and the oral argument, I have come to doubt whether it would be safe to sustain the audit in reference to the first three of these items without inquiry into the pursuers' allegations that the defenders had agreed to them, and into the grounds for the charges.

But it appears to me that the case is different with regard to the fourth and fifth items of the audit. The fourth is a charge of £105 for preparing the prospectus. Now that is a charge which seems to me to fall properly within the Auditor's functions and his ordinary duties as auditor. I do not think it is justified by any allegations of agreement, and I can find no sufficient grounds for overruling the Auditor's decision on this point. With regard to the fifth objection, which refers to a total disallowance of £537, 10s., being in fact i per cent. on the capital, I can find no ground for questioning the Auditor's decision, and no relevant averments on the subject. I am of opinion that the Auditor's award on this point must be allowed to stand.

Assuming that to be so, then the balance of the pursuers' account will be wholly wiped out, and the defenders will be entitled to absolvitor, whatever judgment were come to in regard to the first, second, and third items. Is it necessary or worth while to order a proof upon these items? For the purposes of this case I may assume them all to be decided in favour of the pursuers. But that would not bring out a balance in their favour on the account sued for, nor disentitle the defenders to a judgment of absolvitor. I think that, therefore, I ought to decide the case on that footing.

The pursuers complain that the Auditor has dealt with them very severely. But I think the nature of the transaction has to be considered. Because, after all, it was only a financial operation. It was not a real sale, and there seem (so far as appears) to have been no conflicting interests. The account runs from July 1899 to March 1902, and amounts, I think, to about £3000 or more, which, even when strictly audited, seems to amount to adequate and liberal remuneration.”

The pursuers reclaimed.

In the Inner House the defenders amended by adding, inter alia, the following additional plea-in-law—“(5) In making the business charges contained in the account … the pursuers are not entitled to found on the tenth article of the minute of agreement, … in respect …( b) The pursuers are not parties to it.”

Argued for the pursuers and reclaimers—The provision in the agreement as to the pursuers' remuneration ought to be given effect to. The table of fees did not apply to such work as the formation and flotation of companies. That being so, a law-agent was entitled to make such an agreement as that in question — Galloway v. Ranken, June 11 1864, 2 Macph. 1199. The agreement was a nominate contract though unusual in its terms, and therefore might be proved pro ut de jure — Scotland v. Henry, July 19, 1865, 3 Macph. 1125; Forbes v. Caird, July 20, 1877, 4 R. 1141, 14 S.L.R. 672; Moscrip v. O'Hara, Spence, & Company, October 23, 1880, 8 R. 36, 18 S.L.R. 12; Jacobs v. M'Millan, November 8, 1899, 2 F. 79, 37 S.L.R. 58. In any event the charges made being outwith the table of fees were not ruled by it— Galloway v. Ranken, cit. sup.—and were proper for the work done. A proof as to the customary remuneration should be allowed, or otherwise a remit to a man of business. The Lord Ordinary was in error in supporting the findings of the Auditor. The Auditor had no special knowledge as to the usual and proper charges in connection with the flotation of companies. Reference was also made to the table of fees, secs, ix., xii., and xx, and to the general notes appended thereto—notes 6 and 8 ( vide P.H. Book, part G, pp. 11, 14, 21, 22).

Argued for respondents—The Auditor was right in disallowing the items referred to. The charge made for adjusting the prospectus was excessive, as the Auditor had allowed separate charges for meetings in connection therewith. This was not a case of company promoting; it was purely a transfer of the firm's business to a company in order to extend the capital of the business. The work done by the pursuers was usual work for law agents to do, and they were entitled to payment according to the table of fees (cit. supra). A client was entitled to have his agent's account taxed— Cockburn v. Clark, March 3, 1885, 12 R. 707, 22 S.L.R. 475. A law-agent was not entitled to more than the table of fees allowed or to bargain with his client for a higher rate of remuneration—Begg on Law Agents, 131; Tyrrell v. Bank of London, February 1862, 10 Clark's H. L. C. 26; O'Brien v. Lewis, January 30, 1863, 32 L.J. (n.s.) Ch. 569, at p. 572; Jacobs v. M'Millan (cit. supra); Johnstone v. Thorburn, February 19, 1901, 3 F. 497, 38 S.L.R. 343. In any event the defenders could not be charged with the share of expenses falling to be paid by the new company— in re Empress Engineering Company, July 21, 1880, L.R., 16 Ch.Div. 125.

At advising—