OUTER

1925.

Lord Blackburn. The pursuers are the entered into by the company. On 24th HOUSE. Abram Steamship Co., now in liquidation, with September 1919 they contracted with the Abram Mr. A. M. Gourlay the liquidator. The de- Dublin Shipbuilders Ltd. for the construction Steamship fender, Captain Henry Abram, was a manager of a coasting steamer, which is referred to in the Co. Ltd. (in or director of the company. The resolution to proof as No. 17" or the "Kylebeg." Kylebeg." This Liquida- wind up the company voluntarily was adopted ship was to be of dimensions as specified suitable tion) and the on 17th September 1921, and under this resolu- for their business. The price fixed was £40,000 Liquidator tion Mr James M'Leish, the auditor of the payable in five instalments of £8000 at certain v. Abram. company, was appointed liquidator. In the stages of construction. The first instalment February 18, subsequent petition to the Court for a super- due on laying the keel was paid on 6th February vision order Mr Gourlay was, on 26th November 1920. Immediately thereafter the company 1921, appointed liquidator in his place. The sold the ship to the Westville Shipping Co., pursuers sue for payment of £14,000, being the Cardiff, at the price of £58,700. The purchasers difference between the price paid by the com- assumed liability for the four unpaid instalments pany for a ship sold to them by the defender on and paid to the Abram Co. the balance of the 22nd June 1921, viz. £32,500, and the actual price, viz. £26,700. On 5th November 1920 value of the ship at that date, viz. £18,500. the Westville Co. raised an action in the Court of Session to reduce this contract of sale on the ground that it had been entered into under essential error induced by the misrepresentations of the Abram Co. On 27th November, shortly after the raising of that action, the shipbuilders demanded payment of the second instalment of £8000 payable on completion of framing. Both the Abram Co. and the Westville Co. declined to pay the instalment, and accordingly, on 25th January 1921, the shipbuilders put the vessel up for sale by public roup at Glasgow. Thereupon the defender bought the vessel for £32,500, paying £8500 of the price in cash and undertaking liability for the remaining three instalments of £8000 payable under the original contract between the shipbuilders and the Abram Steamship Co. This purchase was concluded by the defender in his own name as an individual, although he borrowed from the Abram Co. the £8500 required to pay the shipbuilders. In his evidence he insists that the purchase was made for the company. It may be that his intention in making the purchase was to protect the interests of, and ultimately to benefit, the company; but I have no doubt that in this action he must be held to have made the purchase on his own account and not as a trustee for the company. In the action of reduction by the Westville Co., the defenders, the Abram Co., pleaded that the action should be dismissed in respect that restitutio in integrum by the pursuers was impossible. This plea was supported on the ground that the property in the vessel had passed from the Westville Co. to Captain Abram as an individual and not to the Abram Co. (see Appendix in House of Lords case, p. 27 C-D). In giving evidence in that case Mr Henry Abram, who was the only manager of the company to be examined, said:

The defender carried on business in Glasgow as a shipowner until 1915, when he retired on account of his health. In 1919 his three sons, who had been serving in the war, returned home. Of these sons the eldest, Henry, had had some experience of shipping business prior to the war, while the other two, Norman and Robert, had had practically none. Being anxious to start his sons in business the defender entered into a partnership with them as shipbrokers under the firm name of Henry Abram & Sons. At the same time, or immediately thereafter, the Abram Steamship Co. Ltd. was formed, of which company the defender and his three sons were the sole managers or directors. At a later date the defender and his two younger sons retired from the firm leaving that business in the hands of the eldest son Henry alone. The share capital of the company was £50,000, and the shares issued were entirely held by the defender and the other members of his family. The defender himself contributed the whole of the paid-up capital, but he only kept sufficient shares in his own name to give him a controlling vote at the company's meetings. It is part of the defender's case that he took a very small share in the management of the company. It may be that his health, which is bad, prevented him giving as close a supervision of the business of the company as he would otherwise have done, but looking to his financial stake in the company, to his relationship to his co-directors, and to the fact that he alone supplied the experience required for the business, it is difficult to believe that he did not take a more active part in the management than he professes to have done. At all events, he maintained in his evidence that a contract, which I shall refer to immediately and which had been completed by him in his own name without consulting his co-directors or obtaining their authority, had, in fact, been concluded by him on behalf of the company.

What led eventually to the question now at issue was one of the first business transactions

That boat was purchased by my father on his own account as a private individual. (Q.) Not on account of the firm? (4.) Not in any way" (House of Lords case, p. 97 F). It is, in my opinion, immaterial that in giving evidence in

and he recognised his liability and paid the OUTER balance due.

as at

HOUSE.

Liquida

tion) and

1925.

the present case the defender's two younger sons, who live in family with him, state that after the purchase had been completed by the de- It is the sale of this ship by the defender to Abram fender he informed them that it had been made the Abram Co. which is challenged by the Steamship for the company, but that they were not to reveal pursuers in the present action. They maintain Co.Ltd. (in the fact to their brother Henry. Nor is it, in my that the market value of the "Kylebeg opinion, material that the plea put forward in 22nd June 1921 did not exceed £18,500, and the the Westville action was repelled on the ground accordingly that in paying the defender £32,500 Liquidator that restitutio in integrum could have been made for the vessel the company made a gratuitous v. Abram. by that company at the date when they declared alienation to him of £14,000. They further February 18, their intention to rescind the contract with maintain that at that date the company was, the Abram Co. The defender, as one of the in fact, insolvent, apart from the effect of the managers of the Abram Co., was himself a party transaction entered into which involved them to the plea put forward and responsible for the in a further liability for £16,000. They accordevidence by which it was supported, and under ingly plead that they are entitled to decree these circumstances it is, in my opinion, idle for either at common law or under the statute of him to maintain in this case that the purchase 1621, cap. 18, in respect that the parties to the was made by him on behalf of the company. contract were confident persons. They further Another instalment payable to the shipbuilders plead that the defender being a manager of the became due on 16th June 1921 and was paid by company and having failed to observe the conthe defender, who again borrowed the money ditions of Article 20 of the articles of associafrom his company. On the previous day tion, under which alone a manager of the com(15th June 1921) Lord Hunter had given judg-pany was entitled to enter into a contract with ment in the Westville case in favour of that the company, has committed a breach of trust company, rescinding the agreement of sale and misapplied the funds of the company to the between that company and the Abram Steam-extent of the sum sued for. ship Co., and decerning against the latter company for payment of a sum of £26,700 and expenses. This judgment was affirmed by the First Division (1922 S.C. 571) and by the House of Lords (1923 S.C. (H.L.) 68). A week after Lord Hunter's interlocutor had been issued, namely, on 22nd June 1921, the defender completed a transaction with the Abram Steamship Co., by which he purported to sell to them the said vessel for £32,500. No cash changed hands, but the Abram Co. wrote off the debt of £16,500 due to them by the defender in respect of the two sums of £8500 and £8000 which he had borrowed from them, and relieved him of the primary liability for the two remaining instalments of £8000 each, still payable to the shipbuilders. An averment by the defender that this agreement was really entered into on the 16th June when he borrowed the £8000 required to pay the third instalment to the shipbuilders, again appears to me to be quite immaterial. There is one other incident in connection with the subsequent history of this ship which emphasises that in purchasing the ship the defender was not acting as trustee but on his own account. The Abram Co. failed to make payment of the fourth instalment, which fell due shortly after June 1921. Thereupon the shipbuilders sold the vessel for the third time, in November 1921. The price realised was only £14,750, being £1250 less than the total amount of the two unpaid instalments. The shipbuilders being unable to recover this difference from the Abram Co. demanded payment from the defender in virtue of their contract with him,

66

The question whether the transaction between the defender and the company was gratuitous depends upon the value of the Kylebeg" as at 22nd June 1921. The question of the solvency of the company at that date also depends upon the value of another ship-the "Kylebahn or No. 79"-which was being constructed for the company by the Larne Shipbuilding Co., then in liquidation, and which formed part of their assets. Accordingly, the basis on which the true value of a ship under construction falls to be ascertained at any given point of time is a matter of vital importance to the questions raised in this case.

[His Lordship then proceeded to deal with the evidence led to prove the value of the “Kylebeg," and continued]:

I accept the figure of £18,500 spoken to by the pursuers' witnesses as being the market value, and accordingly am of opinion that the transaction between the company and the defender was gratuitous to the extent of the £14,000 sued for.

The solvency of the Abram Co. as at 22nd June 1921 depends, as I have said, on the value to be placed on the other vessel-the "Kylebahn "--which was under construction for the Abram Co. by the Larne Shipbuilding Co.

[His Lordship then proceeded to deal with the evidence led to prove the value of the "Kylebahn," and continued]:

But these three alternatives between them appear to me to exhaust every proper method of arriving at the fair value of the ship at that date, and in each case the result is that the

tion) and

I

OUTER company was insolvent on 22nd June 1921
HOUSE. before they completed the purchase of the
Abram "Kylebeg from the defender. But I am
Steamship further of opinion that in considering the
Co. Ltd. (in question or the company's solvency at that date
Liquida- the immediate effect of the transaction they
the were entering into must be taken into account.
Liquidator It was argued for the defender that the effect
v. Abram. of the transaction had no bearing on the
February 18, solvency of the company at the time, and I was
1925. referred to a statement to that effect by Lord
MacLaren in the case of M'Lay v. M'Queen (1 F.
at p. 811). The learned judge there says:
do not think that a debtor is to be held insolvent
either in the sense of the statute of 1621 or in
the other sense merely because, being solvent,
he enters upon obligations or disposes of his
property for onerous causes which will have the
effect of diminishing his estate and reducing
it below the point of solvency. Solvency must
always be estimated as at the moment when the
deed is executed." This dictum was purely
obiter to the case under consideration, and I do
not think it can have been intended to apply
to a case where a solvent debtor has entered
into an onerous transaction which has the im-
mediate effect of rendering his estate insolvent.
It appears to me to refer to insolvency arising
in the future as the result of the transaction, and
if that is so the dictum is unimpeachable. But
if the construction which the defender seeks to
put upon it is justified, the dictum is unsupported
by any authority and is contrary to the law as
laid down in a series of decisions which were not
under review in the case of M'Lay v. M'Queen,
and which apparently have never been over-
ruled. I refer to the cases of Borthwick v.
Goldilands, 1629, M. 914; Garthland, 1632, M.
915; Meldrum v. Kinneir, 1717, M. 928; and
Queensberry v. Mouswell, 1677 M. 961; see also
Goudy on Bankruptcy (3rd ed., p. 56; 4th ed.,
p. 51). The immediate effect of the transaction
in this case was to increase the liabilities of an
already insolvent concern. The company parted
with £16,500 in cash and acquired an asset of
the market value of £18,300, a price, however,
which could only have been obtained subject
to payment by them of the two instalments due
to the builders amounting to £16,000.

As, in my opinion, it is proved that the com-
pany was, in fact, insolvent at the date when this
transaction was entered into, it is perhaps
immaterial to consider whether the effect of the
transaction on the financial position of the
should be taken into account or not.
company
But there is no doubt that its result was to put
the company immediately into a hopelessly
insolvent position, and in my opinion this
cannot be overlooked. It is not as if the com-
pany were carrying on a going trade which held
out any prospect of their meeting the liability

|

they had incurred. The evidence reveals that the only ship the company ever possessed for trading purposes was the William Mason," which they bought in September 1919 and sold in March 1920. From that date onward they never appear to have owned a completed ship, and the assets of the company consisting of investments must represent largely the profits earned by the sale of the "William Mason" and of the "Kylebeg" to the Westville Co. under the contract afterwards rescinded.

The conclusions I have reached so far make it immaterial to consider whether the pursuers require to found upon the Act of 1621, cap. 18. They have, in my opinion, proved the gratuitous nature of the transaction and the insolvency of the company at 22nd June 1921, and are entitled to decree at common law. But I should perhaps say a word on the defender's pleas, which are directed against the pursuers' case both under the Act of 1621 and at common law. It was argued for him in support of his first plea in law that the pursuers had raised the action without the consent of the prior creditors, and therefore were not entitled to found upon the Act. The pursuers aver in Condescendence 1 that the action has been raised by the liquidator as representing, inter alios, the whole creditors of the company, and in Condescendence 3 that the Westville Co.are the principal creditors under a decree pronounced on 15th June 1921. Both these averments are admitted, and establish that the action is raised in the interest of, inter alios, a prior creditor. Next it was argued that a liquidator in a voluntary liquidation had no title to raise an action of this sort although admittedly a trustee in bankruptcy might have done so. There is no plea or averment on record to support this argument, and I think that to refute it I need only refer to the opinion of Lord Shand in Clark v. West Calder Oil Co. (9 R. at p. 1030), where the powers of a liquidator in a voluntary liquidation are fully dealt with (see also Lord Chancellor Westbury in Waterhouse v. Jamieson, 8 M. (H.L.) at p. 98). It was also argued as a ground for exclusion of the Act 1621, cap. 18, that the pursuers have failed to aver that the parties to the transaction under challenge were conjunct as well as "confident " persons. In my opinion the statement on record that the relationship between the contracting parties was that of father and sons is in itself a sufficient averment that they were conjunct within the meaning of the Act (Edmond v. Grant, 15 D. 703).

The only other matter which I need refer to is that raised by the pursuers' third plea in law. Article 20 of the articles of association of the company, which gives a manager or director of the company power to contract with the company, provides that "the nature of his interest

and that in the current year, 1924-25, he had made a further reduction of 25 per cent., enter

which included right of trout fishing and deer stalk-ing Forsinard shooting at £130 and Bighouse ing and a house-Scarcity of grouse owing to disease shooting at £127, being the entries appealed -Gross rents received insufficient to pay keeper's against. The Assessor also pointed out that wages and other deductions-Proprietor contending from the Valuation Rolls it would be seen that that nominal figure should be entered on the Roll-in 1915 Forsinard shooting appeared in the Valuation Committee making a deduction of 25 per Valuation Roll at £479 and Bighouse at £588, and reduced owing to war conditions by