Scottish Court of Session Decisions

The Local Government (Scotland) Act 1889 (52 and 53 Vict. c. 50), enacts—Sec. 50 — “ Adjustment of Property and Liabilities—(1) Any councils and other authorities

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affected by this Act, or by any order or other thing made or done in pursuance of this Act, may, from time to time make agreements for the purpose of adjusting any property, income, debts, liabilities, and expenses of the parties to the agreement so far as affected by this Act, or such order or thing, and the agreement and any other agreement authorised by this Act to be made for the purpose of the adjustment of any property, debts, liabilities, or financial relations, may provide for the transfer or retention of any property, debts, and liabilities, with or without any conditions, and for the joint use of any property, and for the transfer of any duties, and for payment by either party to the agreement in respect of property, debts, duties, and liabilities so transferred or retained, or of such joint use, and in respect of the salary, remuneration, or compensation payable to any officer or person, and that either by way of a capital sum or of an annual payment. (2) In default of an agreement as to any matter requiring adjustment for the purposes of this Act, then, if no other mode of making such adjustment is provided by this Act, such adjustment may be made or determined by the Commissioners. (3) The Commissioners when making an adjustment under this Act shall be deemed to be a single arbiter within the meaning of the Lands Clauses Consolidation (Scotland) Act 1845, and the Acts amending the same, and the provisions of those Acts with respect to an arbitration shall apply accordingly, and further, the Commissioners may state a special case on any question of law for the opinion of either Division of the Inner House of the Court of Session, who are hereby authorised finally to determine the same along with any question of expenses.…”

The Burgh Police (Scotland) Act 1903 (3 Edw. VII, c. 33) enacts — Sec. 96 — “ Adjustment with County in case of New Burghs or Extension of Boundaries — On the formation of any new burgh or extension of the boundaries of any existing burgh, section 50 of the Local Government (Scotland) Act 1889, relating to the adjustment of property and liabilities consequential on an alteration of boundaries, shall apply as if in lieu of that Act, and the Boundary Commissioners, the Burgh Police Acts, and the Sheriff (not being a Sheriff-Substitute) were respectively mentioned therein: Provided that nothing herein contained shall require the Sheriff to entertain any application made after the expiry of one year from the date when such formation or extension takes effect.”

The Musselburgh Corporation (Extension of Boundaries, &c.) Order Confirmation Act 1909 (9 Edw. VII, c. xcviii), enacts — Sec. 18—“ Adjustment of Indebtedness between Town Council and County Council.—Section 50 of the Local Government (Scotland) Act 1889, as applied by section 96 of the Burgh Police (Scotland) Act 1903, shall apply and have effect on the extension of the boundaries of the burgh by this order.”

This was a Special Case stated by the Sheriff of the Lothians and Peebles ( Maconochie), as arbiter under the Musselburgh Corporation (Extension of Boundaries, &c.) Order Confirmation Act 1909.

The Case, which was the sequel of an action (afterwards conjoined with it) at the instance of the County Council of Mid-Lothian against the Magistrates of the Burgh of Musselburgh, was as follows — “In April 1909 the boundaries of the burgh of Musselburgh were extended so as to include a portion of the county of Mid-Lothian, situated within the Lasswade district of the county, conform to Provisional Order confirmed by the Musselburgh Corporation (Extension of Boundaries, &c.) Order Confirmation Act 1909. The annexed area extended to about 200 acres of the annual value of £6414, 9s., the area of the whole county being 220,652 acres of the annual value of £770,501, 2s. 11d., and the area of the said Lasswade district being 52,304 acres of the annual value of £197,830, 11s. 3d.… The Burgh of Musselburgh and the County Council of Mid-Lothian not having come to any agreement with regard to the adjustment of claims arising out of the extension, the latter on 17th March 1910 presented an initial writ to me craving decree for payment by the said burgh of the sum of £539, 11s. 10d. Thereafter on 12th April 1910 the County Council lodged a condescendence, and on 26th April 1910 the said burgh lodged defences, and the record on the initial writ, condescendence, and defences was closed on 9th May 1910. The record and interlocutor pronounced by me in the proceedings are printed in the appendix hereto and are held part of this Special Case. Of the said sum of £539, 11s. 10d., £539, 10s. 3d. is a sum bearing the same proportion to the total of various loans raised by the Council Council, so far as outstanding at the date of the extension, as the rental of the annexed area bears to the rental of the county or district of the county for the purposes of which the sums were borrowed. These purposes include general county purposes (including loan for building the county buildings); police purposes (chiefly incurred for police stations); public health purposes (chiefly incurred for hospitals); roads (consisting of loans for bridges and roadmen's houses in the Lasswade district of the county); and two small loans for Inveresk Special Lighting District and Inveresk Special Water District, of which districts the area of the county annexed to Musselburgh formed a part. There were no public buildings or works within the area annexed of which the cost had been defrayed out of the said loans, excepting to the trifling extent for which the burgh admitted liability. The balance of 1s. 7d. is interest. When borrowing the principal sums (repayable principal and interest by annual instalments) the County Council granted bonds or mortgages which assigned in security to the lenders the assessments leviable by the County Council on said county and district respectively, and they maintained that the area annexed to Musselburgh was

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liable at the date of annexation for the pro rata share of the said loans now claimed from the burgh. The burgh contended, on the other hand, that the debts were not pro rata debts of the area annexed, and that no adjustment of the debts required to be made excepting so far as they admitted liability as before mentioned, and that no part of the property or works in respect of which the loans were raised was included in the area annexed to the burgh except to the extent for which they admitted liability. The question whether the County Council were entitled to recover the said sum was debated before me on 30th May 1910, and at the debate it was suggested that in view of the importance of the case and of the somewhat varying decisions in other Sheriff Courts I should before giving judgment state a Special Case for the opinion of the Court of Session. I thought it right, however, to give judgment before stating a case, and this I did on the 2nd June 1910. In my interlocutor I assoilzied the defenders from the pursuers' claim so far as the same was not admitted by the defenders, granted decree for the admitted sums, and found the defenders entitled to expenses. Thereafter at the request of the unsuccessful party, namely, the County Council, I agreed, on the 14th June 1910, to state this case. My opinion on the question at issue between the parties is given at length in the note appended to my interlocutor of the 2nd June 1910.…”

The question of law was—“Whether on a sound construction of the relative statutes the Mid-Lothian County Council having, prior to the date of annexation, raised loans for the purposes of the said county and of the Lasswade district thereof respectively, and having assigned in security of these loans the rates of the said county and district respectively, are entitled on the annexation by the said burgh of an area forming part of the said county and district to payment from the said burgh of a proportion of the unpaid balance of the said loans corresponding to the proportion which the valuation of the area annexed bears to the valuation of the total original area of the said county and district.”

With reference to the loans for which liability was disputed, viz.—those for general county purposes, police purposes, public health purposes, and road—the defender made on record the following averments — “(Ans. 4) The loans raised by the pursuers for general purposes amounted in cumulo to £33,885, 19s. 11d., whereof £6724, 2s. 6d. have been paid off, of which amount the area disjoined from the county and added to the burgh has paid its full share. It is not suggested that the burgh of Musselburgh should retain any share, right, or interest in the county buildings. These buildings are not more than sufficient for the county purposes. In less than twenty years they will be free of debt and they will last for a very long period thereafter. The defenders could only be held liable in a proportion of the cost of the county buildings if they were to retain a share and interest in them. The pursuers' claim under this head is denied. (Ans. 5) The loans raised by the pursuers for police purposes are understood to be exclusively for police stations. None of such stations iS within the area disjoined from the county and annexed to the burgh, and the burgh has no right share or interest in them. The burgh police force is a separate or independent force from the county—at all events as regards finances. The police force of the burgh and the county is consolidated in terms of certain agreements under the Police Acts. The burgh will, from the date of passing the order, be responsible for the whole policing of the area added to the burgh, the population of which is rapidly increasing, and the county are thereby relieved of the expenses of policing said area, and there is no part of the debts which affects in any way the said disjoined area. Although the largest of the police debts was borrowed so recently as 25th June 1909, and no part of it has been paid off, one-fourth of the whole police debts has been paid off and the county authorities have had the benefit of the contributions towards these payments by the area disjoined from the county. The liability of the defenders for any part of this debt is denied. (Ans. 6) The purposes for which loans were raised by the pursuers for public health purposes within the Lasswade district of the county are understood to be entirely for hospitals and a disenfector. Since the passing of the Extension Order the county have been entirely relieved from treating cases of infectious diseases from the area annexed to the burgh, and as the population in said district is rapidly increasing, its inclusion in the burgh boundary is of manifest advantage to the county. The defenders deny all liability for any proportion of the debt outstanding for public health purposes. (Ans. 7) The principal loan for road purposes within the Lasswade district of the county is a sum of £4022, raised ten years ago for the purpose of erecting or re-erecting a bridge called ‘Shank's Bridge’ in a remote district of the county, and the sum of £1139, 11s. 4d. has been paid towards the amount of the loan, of which the area annexed to the burgh has borne its full proportion. The other road loans are understood to be for roadmen's houses, none of which are in or even in near proximity to the area disjoined from the county. These houses are necessary for the districts in which they are situated, but could be of no benefit or advantage to the area annexed to the burgh. Liability for the whole of the claim under this head is denied by the defenders.”

The pursuers pleaded—“(1) In terms of the statutes above libelled, the defenders are liable in payment to the pursuers of the various sums above condescended on. (2) The defenders being justly indebted and resting-owing to the pursuers the sum sued for, the pursuers are entitled to decree therefor with interest and expenses as craved.”

The defenders pleaded—“(1) On a sound construction of the statutes libelled, the defenders are not liable in payment of

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the sums sued for except so far as admitted, and they should be assoilzied, with expenses.”

On 2nd June 1910 the Sheriff assoilzied the defenders from the conclusions of the action in so far as the sums therein sued for were not admitted, and quoad ultra granted decree as craved.

Note.—“This case raises a question of the interpretation of section 50 of the Local Government (Scotland) Act 1889, which has never been directly decided. There are, however, dicta in two cases, one in the Court of Session and one in the House of Lords, where the section of the English Local Government Act 1888 corresponding to and in my opinion, so far as this question is concerned, indistinguishable from the 50th section of the Scots Act was under consideration to which I shall have to allude afterwards. Meanwhile it is necessary to state shortly the nature of the claim made by the pursuers. In 1909, in virtue of the Musselburgh Corporation Extension of Boundaries Provisional Order a portion of ground amounting to about 200 acres was disjoined from the county and annexed to the burgh. By section 18 of the Order, section 50 of the Local Government Act 1889, as applied by section 96 of the Burgh Police (Scotland) Act 1903, was declared to apply to the extension of the boundaries of the burgh under the Order. The parties having failed to come to an agreement as to the adjustment of property, debts, liabilities, and financial relations between them, the County Council have craved me as arbiter acting under the above Acts to adjust the claims between them and the burgh. The parties are agreed that the figures given in the condescendence annexed to the initial writ and the statement of the various loans raised by the pursuers are correct, so I do not require to do more than to explain generally the nature of the claims advanced. The pursuers aver that they have in past years raised loans (1) for general county purposes; (2) for county police purposes; (3) for public health purposes; and (4) for roads in the Lasswade district; that on these loans, which are repayable at definite dates, there is a balance outstanding, and that the proportion of these balances outstanding which are applicable to the area annexed amount to the four sums with which I deal in the first branch of the interlocutor.

The pursuers further claim four small sums, but as liability for these was not disputed (or more correctly as the defenders have agreed to pay these sums) I need not allude to them further.

In these circumstances the pursuers claim payment of the whole of the sums sued for, while the defenders deny liability altogether. There is no question raised (as is fully explained in the pleadings) as to adjustment of the cost of buildings such as hospitals, police offices, and so on which the burgh might get along with the area of land under the Extension Order or in which it retains any right of use though situated outside the annexed area, there being in point of fact no such buildings on the annexed area. The sole question for determination thus is whether the County Council having raised loans relying on the area taken being assessable for payment of its share of the debts according to rental, they are entitled to payment from the burgh of the unpaid balance of the annexed area's share. Stated in that way it certainly seems hard that the county having raised loans which it considered necessary in the interests of an undivided whole, and presumably having expended part of these loans on the area now taken from it, should have to repay the unpaid balance of the whole loan out of assessments levied on a restricted area, but the area having been taken under the sanction of Parliament only such adjustment of financial relations as is sanctioned by the Legislature can be made. It is common ground between the parties that the loss of part of a rate-producing area cannot in itself support a claim for an adjustment of property, income, debts, liabilities, &c., on the ground that if the division of the area had not been made the annexed portion would have been in future available for assessment to the undivided area from which it was taken. As pointed out by Lord Halsbury, L.C., in Caterham Urban Council v. Godstone Rural Council, [1904] AC 171, the word ‘adjustment’ as distinguished from ‘compensation’ means a division of existing assets, while ‘compensation’ would quite rightly be interpreted to mean the loss of some right to obtain income by rating or of some area which would furnish the right to get income. The question then is—Is such an adjustment as the County Council claim here in truth an attempt to get compensation for the loss of an assessable area, or is it a bona fide adjustment on division of existing assets? In answering that question I think that certain dicta of Lord Mackenzie in the case of Inverness County Council v. Inverness Burgh, 1909 S.C. 86, 46 S.L.R. 305 (which appear to have met with the approval of their Lordships who decided the case in the Inner House) are very valuable. The actual decision in that case does not touch the present case, but Lord Mackenzie points out that it was there argued that certain burdens, viz., loans such as we have here for general county, police, and public health purposes, ‘were inherent in the transferred area.’ In answer to that argument his Lordship said — ‘The loans in question were effected by the pursuers upon the security of the rates leviable by them within the area comprised for the time being within the county, and no real security affecting any part of the transferred area was constituted by any of the mortgages or bonds and assignations in security above referred to. An examination of the statute makes this clear.’ The result of this and of the examination of the statutes which his Lordship proceeded to make would appear to be that the liability for repayment of the loans in question is not a liability inherent to the area taken by Musselburgh, but a liability of the appropriate rates of the county

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taken as a whole, and that the security which the lenders agreed to take was not the security of each individual rateable subject in the county as it existed at the date when the loan was granted, but the security of the assessments which might be made yearly under the sanction of Parliament on an area which Parliament had the power to restrict at any time. If that be so, it seems to me necessarily to follow that what the County Council are asking for is, to use the words of Lord Davey in the Caterham case regarding the claim of Godstone, not an adjustment in the ordinary sense of that word of ‘common property or liabilities, or of any reciprocal liabilities,’ of the two parties to that case, but compensation for a loss which they ( Godstone Rural Council) apprehend they will suffer.’ The County Council here apprehend that they will lose the power of raising assessments during the remaining years during which repayment falls to be made, and what they ask seems to me to be practically compensation for that future loss, and such compensation it is not permissible for me to give. Stress was laid by the Solicitor-General on behalf of the County Council on certain dicta of their Lordships in the House of Lords in the Caterham case. It is no doubt said there that where there are ‘existing liabilities’ and where previously the two areas—the area which is annexing property and the area which is losing it — ‘possessed property,’ there must be some method of adjusting the division of the liabilities and property which each possessed prior to the separation, but after carefully reading the judgment of their Lordships I think that what they alluded to was in Lord Davey's words ‘common property or liabilities or any reciprocal liabilities,’ and as the Lord Chancellor said in speaking of the division of the property of the parties, ‘the buildings for example, the workhouses for the administration of the poor law,’ and I might add as further examples police offices and hospitals. The allocation of the value of rights in these if one party lost and the other gained an exclusive or partial right of use of them would be a proper subject for adjustment, as would be the liability for the loans which were raised for their building and maintenance, but as I have said there is no case made for such adjustment in the present case. Whether if a road had been made entirely within the annexed area, and expense had been incurred in clearing away houses and so on, the road could be looked upon as property, the cost of which should be ‘adjusted,’ there is no need for me to consider, as no such case is made on record. On these grounds I have come to the conclusion, though not without difficulty, that the defenders must be assoilzied from such of the claims of the pursuers as have not been admitted.”

The Special Case and the action were heard together on 13th and 14th December 1910.

Argued for the County Council (pursuers)—(1) As to Competency—The case was competent, for the arbiter was entitled to state a case for the opinion of the Court—Local Government (Scotland) Act 1889 (52 and 53 Vict. c. 50), sec. 50. Similar cases had been entertained in England — e.g., Buckinghamshire County Council and Hertfordshire County Council, [1899] 1 QB 515; in re Rochdale Union and Haslingden Union, [1899] 1 QB 540. The reason why an action in ordinary form had been raised was that both parties wished a decerniture, and the only way they could obtain such a decree was by initial writ—Sheriff Courts (Scotland) Act 1907 (7 Edw. VII, c. 51), secs. 3 ( k), 39, and First Schedule, Rule 1. See also Magistrates of Portobello v. Magistrates of Edinburgh, November 9, 1882, 10 R. 130, 20 S.L.R. 92. (2) On the Merits—The pursuers were entitled to an adjustment of financial liabilities existing at the date of severance. The Sheriff had misapplied the case of Caterham Urban Council v. Godstone Rural Council, [1904] AC 171. That case was inapplicable, as the question there was whether the county was entitled to compensation for the loss of assessable area, and not, as here, to an adjustment of existing financial relations. Nor was that case an authority for the Sheriff's view that where no property was taken over no adjustment of liability fell to be made—See Lord Davey's opinion at pp. 174–5. The liabilities sought to be adjusted were such as the Act contemplated — West Hartlepool Corporation v. Durham County Council, [1907] A C 246; County Council of Stirlingshire v. Magistrates of Grangemouth (1906), 22 S.L. Rev. 215. The dicta of Lord Mackenzie (Ordinary) in Inverness County Council v. Inverness Burgh, 1909 S.C. 386, 46 S.L.R. 305, relied on by the Sheriff, were not in point. The case ought therefore to be sent back to the Sheriff to make the adjustment craved.

Argued for the Burgh of Musselburgh (defenders)—(1) The case was incompetent, for the process was either an arbitration, in which case the arbiter having pronounced judgment was final, or it was an ordinary petitory action in which review was by way of appeal. (2) The Sheriff was right in holding that there were no liabilities before him for adjustment, for those in question were not such as the Act contemplated, and there could be no claim for the loss of assessable area— Caterham case ( cit. sup.); Inverness case ( cit. sup.) The annexed area was in future to be subject to the liabilities of the burgh, and ought not to be made subject to those of the county as well.

At advising—