LIMITED,

In re.

WARRING. which he is under an order of the Court to be treated as their TON J. receiver. [His Lordship stated the facts, and continued.] 1910 Under the circumstances Lloyds Bank put forward the claim to A. BOYNTON, priority above mentioned. They contend that they are creditors of the receiver in respect of a debt properly incurred by him; that HOFFMANN he is entitled to indemnity out of the assets before any costs A. BOYNTON, other than those of realization in the strict sense are paid; that under the principle of subrogation they are entitled to the benefit of his right of indemnity; and that he must pay his debts before he can take his remuneration.

v.

LIMITED.

The claim thus put forward by Lloyds Bank depends, in my judgment, on the assumption that the receiver is personally liable to them for the 500l., because, unless he is so liable, he has no right of indemnity, and there would be nothing to which the principle of subrogation could apply. Is this assumption well founded? It is true that there is no express exclusion of the personal liability, but this is not conclusive if the right inference to draw from the transaction is that he did not intend to pledge his personal credit and the bank did not rely upon it. I think this is the right inference to draw. I should not hesitate to draw that inference from the nature of the transaction alone, and this view is supported by the judgment of Cozens-Hardy L.J. in In re Glasdir Copper Mines, Ld. (1) The Lord Justice says this: "Apart from authority, I think there is great force in the argument that when the Court has taken the administration of an undertaking into its own hands by means of an officer appointed to manage the undertaking, and finds it proper to procure money in order that the undertaking may be preserved or carried on to greater advantage with a view to ultimate realization, it can make no difference whether the person who finds the money is an outsider or is a party to the action." And then comes the important part: "No personal liability to repay is contemplated in either case. The lender gets only a charge on the undertaking; and I doubt whether he can, by virtue of such a charge, stop the business. My impression is that his only right is to have repayment out of the proceeds of the undertaking as and when realized. And it might well be held that any person advancing (1) [1906] 1 Ch. 384.

TON J.

1910

LIMITED,
In re.

money under these circumstances could not deprive the officer of WARRINGthe Court of his proper demand for work done and services rendered in the course of carrying on and winding up of the business." There is a certain qualification of that to which I A. BOYNTON, will refer later. The Lord Justice's remarks as to personal liability are general in terms and were, I think, intended to be so. HOFFMANN In the present case the recitals in the charge and the terms of A. BOYNTON, the charge itself indicate that the bank were content to look to their security and to that alone, and that they were dealing with the receiver as a receiver and as an officer of the Court. The claim of the bank, therefore, to be treated as creditors of the receiver and entitled to the benefit of his right of indemnity fails.

What then is their position? They come in and take a charge upon the assets of a business which is in course of realization by the Court, and in my opinion they can take in satisfaction of their charge no more than that which is actually realized. The plaintiff has incurred his costs of the action, and the receiver has given his services, in the endeavour to realize as large a fund as possible for the benefit of the several persons having charges on it, and I think they are both entitled to be indemnified before the fund is applied in payment of these charges. The principle of In re New Zealand Midland Ry. Co. (1), in my opinion, applies, as does the latter part of the passage of the judgment of CozensHardy L.J. read above. I think, therefore, that the plaintiff's costs of action as between solicitor and client and the remuneration of the receiver must first be paid, and the balance of the fund will be paid to the bank in part discharge of their debt.

The decision I have arrived at is in accordance with the views expressed by Stirling L.J. and Cozens-Hardy L.J. in In re Glasdir Copper Mines, Ld. (2) Stirling L.J. says this: "It seems to me plain, on the face of these orders themselves,"-the deed of charge does not say so here, but I think that is the true inference from it-"that the advances were made in order that the assets might be better or more advantageously realized by the receiver and manager. Thus the first order authorizes the borrowing for the purpose of preserving the property of the (2) [1906] 1 Ch. 365, 383, 384.

(1) [1901] 2 Ch. 357. VOL. I. 1910.

LIMITED.

TON J. 1910

LIMITED,

In re. HOFFMANN

v.

LIMITED.

6

The

WARRIN G-defendant company'; the second, to employ an engineer and mining captain to superintend the working of the defendants' mine, with a view to the preparation of a report to be used in A. BOYNTON, procuring a purchaser for the said mine'; the third, for the purpose of the payment of expenses for keeping the mine free from water, payment of rent to the lessors, and for the mainA. BOYNTON, tenance of the mine'; and the fourth, for the payment of expenses for keeping the mine free from water, and for the maintenance of the mine.' Though the orders give liberty to create charges by way of security for the sums advanced, I do not think it was contemplated that those securities should be created in such a form as to confer an absolute right on the person making an advance to step in and himself realize the subjectmatter of the securities whenever he thought proper. securities created no personal liability and could not be enforced against the property charged (which was in the hands of an officer of the Court) without the leave of the Court; and it seems to me that the Court would not grant leave, unless a case was made out for putting an end to the management and realization of the property by the receiver. However, no application was made to enforce the securities, and the receiver was allowed to complete the realization of the property, which has turned out disastrously. In my opinion, the orders were made, and the securities given and taken, in the expectation of all parties that by means of the money advanced the receiver would be enabled to realize the property more advantageouslythat is to say, in such a way as not only to repay the advances but to pay something to the debenture-holders. Things have turned out very differently; but inasmuch as the receiver, in my view, acted in the realization of the assets for the benefit of every one concerned, I think that he is entitled to indemnity out of the assets in priority to those for whose benefit he was acting." It is true that the judgment of Cozens-Hardy L.J. (1) contained the following passage, which immediately follows the passage from his judgment I have already read: "But, having regard to the observations of Lord Halsbury in Strapp v. Bull, Sons & Co. (2), which were concurred in by his colleagues, I do not feel at liberty (1) [1906] 1 Ch. 384. (2) [1895] 2 Ch. 1.

TON J.

1910

LIMITED, In re. HOFFMANN

LIMITED.

to say that there is not a difference between the position of a WARRINGstranger and that of the plaintiff." In Strapp v. Bull, Sons & Co. (1) and in In re Glasdir Copper Mines, Ld. (2) the advances had been made in the one case by persons who were creditors of the A. BOYNTON, company, and in the other by the plaintiff in the action himself— but that is the meaning of the Lord Justice's observation. The observations of Lord Halsbury in Strapp v. Bull, Sons & Co. (3) A. BOYNTON, to which Cozens-Hardy L.J. referred were as follows: "It is, in my opinion, hopeless to contend that the second debentureholders, who were only brought into that position of being debenture-holders at all by this arrangement of the advance of the 5000l., can be treated in two different capacities according to Mr. Bramwell Davis's argument, and that you are to look at them at one time as bankers advancing a sum of money, in which case they would be entitled to be paid their money at once without reference to what the result of the experiment might be, and, on the other hand, to look at them as second debenture-holders only, and in that capacity to be postponed to the first debentureholders and to those who had advanced the 5000l., that is to say, themselves. It seems to me that that is an impossible contention." And this is the important passage: "The blot throughout the whole of the judgment, as it appears to me, is that it treats these persons entering into this arrangement as if they were independent bankers advancing money from the outside. That is not the fact. They were persons who were buying their position as second debenture-holders by the advance of this money, and that seems to have been the theory on which the whole thing has been conducted. Under these circumstances I think that part of Vaughan Williams J.'s order is erroneous, and ought to be discharged, and that our declaration ought to be that these managers and receivers are entitled to the indemnity which they claim out of the funds." Lindley L.J. states the facts and says: "It seems to me impossible to say that the receivers and managers were not the receivers and managers of the unsecured creditors as much as they were receivers and managers of the first debenture-holders. They were receivers and managers of everybody (2) [1906] 1 Ch. 365.

(1) [1895] 2 Ch. 1.

(3) [1895] 2 Ch. 6, 7.

TON J. 1910

In re.

v.

LIMITED.

WARRING- interested in the success of the company. If we once get to that, and if we once get the persons who advanced this 5000l. out of the category of strangers, having rights prior to the debentureA. BOYNTON, holders, and prior to the receivers and managers, it is obvious LIMITED, that the receivers and managers must be entitled to their HOFFMANN indemnity, and to their costs, charges and expenses which they A. BOYNTON, are prima facie entitled to. Here it is that we differ from Vaughan Williams J. The learned judge, who had to construe these orders to which I have referred, has construed them as leaving the persons who advanced this 5000l. in the position of strangers. I think that that is not their true position." I think by those remarks the two learned judges were doing no more than guarding themselves against being supposed to have decided more than the facts there warranted. However this may be, on the facts of this case I hold that the bank have the rights I have above expressed and no more.

Solicitors: Spyer & Sons; Eardley Holt, Lightly & Co.

W. I. C.