1925.

1ST DIV. a new lease. But the late heir having died without discharging his obligation I am of opinion that the Campbel- present heir of entail (the objector) is only bound town Coal as to the duration of the lease by the terms of the Co. Ltd. v. Duke of principal lease alone. I reach this conclusion ex Argyll. facie of the documents before us. Accordingly, I come to the conclusion that the termination of this November 14, lease is at Whitsunday 1927, and not in the year 1938 as the applicants contend. Accordingly, the proposition we have to deal with is this-whether it is in the national interest that the powers the applicants ask for should be granted in view of the fact that they have less than two years of the lease to run, and that it appears pretty certain that at the termination of that period they will be turned out, and that they may be ejected sooner if it is decided that they have incurred an irritancy of the lease. Well, I am quite unable, on the evidence that has been led, to reach the conclusion that there is any such risk within such a short time; and, accordingly, my opinion on the whole matter is that this is not a case in which the application that is before us should be granted.

The other Commissioners (Mr Tindal Atkinson, K.C., and Sir Lewis Coward, K.C.) concurred, on the assumption that the tenancy of the applicants expired in 1927.

The applicants appealed to the First Division of the Court of Session, and the case was heard on 3rd and 4th November 1925.

Argued for the Appellants: The decision of the ex-officio Commissioner that the appellants' lease terminated in 1927 was wrong. The agreement of 1905 had been acted on by both parties although there had been no renunciation and no new lease. An agreement for a lease, followed by possession, is equivalent to a lease and is binding on an heir of entail. The appellants' lease, therefore, endured till 1938. The order of the Commission was pronounced on the assumption that the ex-officio Commissioner's decision in law was correct, and therefore it should be recalled.

Argued for the Respondent: An heir of entail had no power to grant a lease beyond his own lifetime except under statute. As to minerals, he was limited to a period of thirty-one years. If the agreement of 1905 were regarded as the lease, it was beyond the power of the heir of entail to grant it, for it was a lease for thirty-three years (Kerr v. Redhead, 1794, 3 Pat. App. 309; Earl of Galloway v. Duke of Bedford, 4 F. 851, per the Lord President at p. 859, and Lord Kinnear at pp. 863 and 868). A lease granted by an heir of entail can only bind his successor in so far as it does not contravene the entail (Gillespie v. Riddell, 1908 S.C. 628). The agreement, therefore, might be regarded as the lease except as regards duration, where it contravened the entail. In any case the appellants' possession was attributable, not to the agreement, but to the lease of 1900 as modified by the agreement. The

appellants had a right to demand a new lease, but that right was personal and fell in 1914 on the death of the late heir of entail.

On 14th November 1925 the Court recalled the order.

The Lord President (Clyde) [after narrating the circumstances under which the appeal was taken, and summarising the grounds of appeal]. -Turning, in the first place, to the point of law, the substance of the decision turns on the familiar principle that a mere personal obligation to grant a lease is not binding on a singular successor of the granter; and an heir of entail, as such, is a singular successor. The obligation to accept a renunciation of an old lease and to grant a new one, given by the heir of entail in possession in 1905, came into force at the date when the light railway was completed or working. At that date it is agreed that the granter of the obligation was still in possession of the estate, and remained so until 1914, when the present heir succeeded him. It is clear from the judgment of the ex-officio Commissioner that if, in or after 1907 and before 1914, a formal renunciation had been made by the company, and a formal lease had been granted by the heir of entail on which the company had entered into possession, such new lease would have been regarded by him as binding on the next heir; and no doubt rightly so-the company having made their right a real one by entering into possession before the granter's decease. I purposely omit any reference to the specialty introduced by section 9 of the Entail Act, 1882. But a renunciation may be implied as well as express, and the substitution of a new tenancy for an old one is one of the ways in which a renunciation may be implied. An implied renunciation is just as effective as an express one; and an heir of entail has, so far as I know, no privilege to avoid the effect of a renunciation where the actings of lessor and lessee set it up by implication. Moreover, a new tenancy may be constituted by a written obligation to grant a lease followed by actings (such, for example, as the payment of an increased rent), provided these are sufficient to establish rei interventus; and, if the tenant has taken possession, the new tenancy is none the worse because it is not supported by a formal document. I know of nothing to limit an heir of entail to procedure in strict formal shape in granting a lease, or to entitle his successor to repudiate an informal contract, supported by rei interventus, and followed by possession during his predecessor's lifetime. An heir of entail is just a fee-simple proprietor, except in so far as the entail puts him in fetters. Now, it was all along part of the company's case that they were tenants in possession of the mineral field upon a contract

Societe 8. In the whole circumstances, and especially Anonyme having regard to the fact that the composition

1925.

v. Glen offered to the said creditors exceeds the possible Glove and dividend payable to them in the event of liquidation, Hosiery the respondents humbly submit that an order for Co. Ltd. winding-up would be neither just and equitable November 7, nor in the interests of the petitioners, nor in accordance with the wishes of the majority of the creditors and shareholders. Accordingly, the respondents respectfully crave that they be afforded an opportunity (of which they undertake to avail themselves without delay) of submitting for approval of the Court a scheme of arrangement upon the basis of the terms set forth in the said minute of agreement. The respondents' directors are most anxious (as stated in the said letter dated 26th May 1925) that the respondents' factory be carried on so as to prevent unemployment. Not only would many wage-earners suffer, but the respondents' prospects would be seriously hurt by the pronouncing of the order sought by the petitioners.

The respondents pleaded, inter alia:

"1. The petitioners' averments being irrelevant and insufficient in law to support the prayer of the petition, the petition should be dismissed.

"2. The petition being premature and unnecessary should be dismissed.

"3. The compulsory order for winding-up craved by the petitioners, being unjust and inequitable, should be refused.

On 11th July the Court granted a sist in hoc

statu.

On 16th July the respondent company presented a petition for authority to call and hold meetings and for sanction of a scheme of arrangement. The Court ordered meetings of the company and of its creditors, and appointed the chairman thereof to report, which he did. La Lainière de Roubaix Société Anonyme and William Archibald Son & Co. Ltd., Strude Mills, Alva, lodged objections (which were afterwards amended) to the report.

The amended objections set forth:

2. Objection is taken to said report on the ground that the creditors should have voted in different classes, i.e. Class I., creditors partly secured and partly guaranteed; Class II., trade creditors who under the scheme are to receive 5s. per £; Class III., creditors who are to receive deposits of 6s. 8d. per £. Had this been done it is averred that there would not have been the requisite majorities in the various classes. The voting would have been as follows:

3. Objection is also taken to the chairman's ruling against certain proxies of creditors on the ground that these had not been timeously lodged at the registered office of the company. Although repeatedly pressed to state his authority for so ruling, the chairman refused to state it, and it is averred that no such authority exists in the Companies Acts, or elsewhere.

4. Objection is also taken to the scheme on its merits in respect that a liquidation would furnish the creditors with a far larger dividend than that offered under the scheme of arrangement.

5. The proposed scheme of arrangement, which contemplates a transference of the petitioners' undertaking as a going concern to Mr W. Watt Hepburn, is not supported by any full and correct statement of the company's affairs, nor has any independent valuation of its assets been submitted to its members or creditors. The petitioners at various times have purported to assign and convey to the Royal Bank of Scotland, Aberdeen, or to petitioners' own directors as guarantors to said bank, the greater part of their property, heritable and moveable. For many months prior to the presentation of the petition for winding-up by the Court, the petitioners have been trading in commercial co-operation with, and under the direction of, the said bank. The objectors maintain that the alleged transfers of assets to the said bank are invalid and inoperative as against the objectors and other trade creditors. If such assets be included in the assets of the petitioners, there would be sufficient to pay the petitioners' creditors a dividend substantially larger than any composition proposed by the

petitioners.

6. For many months prior to the said petition for winding-up order, the present petitioners have also from time to time purported to divest themselves of a large part of their assets to individual directors in connection with guarantees undertaken by them on behalf of the petitioners. The objectors maintain that these alleged transfers are also invalid, and are inoperative as against the objectors and other trade creditors, and that the assets available for distribution among creditors accordingly fall to be largely increased in amount.

Class I. Creditors partly secured and partly guaranteed.

Total amount present at meeting

Of which there voted for the scheme

8. The said circular letter was accompanied by an approximate statement of affairs," which shewed, by estimates but not by valuations, available assets to the extent of about 3s. per £ only, and referred to an independent valuation of certain assets which was in the course of being made. Even on the figures in said valuation, which was signed by Mr Hepburn, who is now the prospective purchaser, the available assets are far greater in amount, and when placed against the said approximate statement of affairs shew assets available for the payment of at least 12s. per £ to creditors. All explanation of the discrepancy has been consistently denied to the objectors and other creditors. Special reference is directed to the last sentence of the valuation, "No note is taken of the manufactured goods stored by the railway company." It is believed and averred that the manufactured goods stored with the railway company at the date of the said valuation exceeded the value of £10,000. It is further pointed out that the valuation states that no allowance has

66

been allowed for woollen yarns or cotton yarns still to be uplifted." It is believed and averred that the value of said yarns was at said date at least £4000. The objectors believe and aver that there is a substantial fund of assets available for and liable to satisfaction of their debts, and that the effect of the proposed scheme of arrangement would be unjustly to deprive them of these. By approval of the said proposed scheme the objectors would further be precluded from obtaining the necessary independent enquiry into, and decision of, the foregoing matters.

9. The said report, on pp. 17 to 19 thereof, contains a list of "mandates from creditors," which were utilised to support the scheme, amounting in all to £9959, 16s. 74d. The principal item of these is a claim for £7700 by the said bank. It is disclosed by Article Fifth of the minute of agreement between (a) the petitioners, (b) Mr M'Robert and others, and (c) Mr Hepburn, that the debit, if any, of said bank is fully provided for, and that they are to obtain payment of 20s. per £. This vote was, notwithstanding, classed with trade creditors, and was employed to compel the objectors to acceptance of the suggested dividend of 5s. per £.

10. The objectors respectfully submit that the proposed scheme of arrangement is not fair or reasonable or genuinely to the advantage of the petitioners' creditors, and that it is not such as should receive judicial approval.

11. Further, and without prejudice to the foregoing, objection is taken generally to the procedure both prior to and at the said meeting of creditors, and particularly to the refusal of the chairman to furnish any information as to the company's financial position.

different classes of creditors, and stated that Class It is denied for the petitioners that there were I. is invented by the objectors, and comprises only that part of the claim against the company by the Royal Bank of Scotland which is not secured by assets of the company, and that the attempted division into Classes II. and III. has been made in disregard of the terms of the scheme, Articles 2 and 3.

The reporter has come to the conclusion that there is no warrant for this division of creditors, and that Articles 2 and 3 of the proposed scheme dispose of

the objectors' contention.

3. Objection is taken to the chairman's ruling against certain proxies of creditors being refused as these had not been timeously lodged.

The petitioners' answer is that these were not

lodged at any time, but even if they had been lodged they would not have affected the result of the voting, of the officers of the company that they had no and the reporter is prepared to accept the statement opportunity of examining the proxies in question, and that their absence did not alter the result of the voting.

in respect that a liquidation would furnish the

4. Objection is taken to the scheme on its merits

under the scheme of arrangement. [Here the creditors with a far larger dividend than that offered reporter dealt with the different contentions.]

In the whole circumstances the reporter finds that the procedure has been regular and proper, that it is in the best interests of all concerned that the company should be continued under the agreement and amended objections for La Lainière de Roubaix with William Watt Hepburn; that the objections and William Archibald Son & Co. should be repelled, and the scheme of arrangement sanctioned.

The parties were heard on the petitions, answers, objections, and reports on 27th October

1925.

Argued for William Archibald Son & Co. Ltd. The scheme propounded by the company had not received the necessary statutory approval, without which the Court could not have regard to the scheme. This was a case in which the creditors ought to have voted in different classes, as each class had a different interest from the other (Sovereign Life Assurance Co. v. Dodd, [1892] 2 Q.B. 573 at p. 579). Had there been different classes a majority vote

November 7