, Tramways Co.

20, 1894

paying the then value (exclusive of any allowance for past or future profits of the undertaking, or any compensation for compulsory sale, or other consideration whatsoever) of the tramway, and all lands, buildings, works, material, and plant of the promoters suitable to and used by them for the purposes of their undertaking within such district," such value in the case of difference to be determined by a referee nominated by the Board of Trade.

In an action for reduction of an award pronounced by an arbiter under this section-held (aff. Lord Low-diss. Lord President) that the then value of the "tramway" meant the then value of the "tramway lines;" that in valuing the tramway lines the referee was not entitled to take into account the present profits or rental value of the undertaking; and that the proper value to be put upon the tramway lines was the cost of construction less depreciation, the referee being entitled, in estimating such cost, to take into account the fact that the tramways were successfully constructed and in complete working order.

The Edinburgh Street Tramways Company were incorporated by the Edinburgh Tramways Act 1871 (34 and 35 Vict. cap. 89), and further statutory rights were conferred upon them by subsequent special Acts. The Tramways Act 1870 was incorporated with the company's special Acts.

In exercise of the powers conferred upon them the company constructed a system of tramways in Edinburgh and the vicinity, and carried on the business for which they had been incorporated.

On 12th August 1892 the Corporation of Edinburgh served a notice upon the Tramway Company, requiring them to sell to the said Corporation, as the local authority under the Tramways Act of 1870, so much of the tramways, works, and undertaking as were within the county and city of Edinburgh (with the exception of one section of the lines), and that on the terms and conditions and in the manner provided by the 43rd section of the Tramways Act 1870. The company and the Corporation having differed as to the price to be paid by the latter, made a joint application to the Board of Trade, for the appointment of a referee, who should, in terms of the 43rd section of the said Act, determine the price or value of the subjects to be sold to the Corporation, and upon this application the Board of Trade appointed Henry Tennant as referee. Mr Tennant accepted, and appointed W. S. Haldane, Writer to the Signet, as clerk to the reference.

In the course of the proceedings before the arbiter the Tramway Company claimed that the owners' rental interest in the tramway lines falling under the statutory sale was a distinct item or part of the subjects of sale which it was the duty of the referee to take into account and value, and that the lines should be valued by capitalising the rent at which one year with another

they might in their actual state be reasonably expected to let.

After evidence had been led and parties heard, the referee issued to the parties a revised draft of his award on 27th September 1893, in which he found that "the sum of £212,979, 7s. 6d. is the value (exclusive of any allowance for past or future profits of the undertaking, or any compensation for compulsory sale or other consideration whatsoever) of so much of the tramways as are within said royal burgh, city, and county, other than as aforesaid, as were authorised by said Acts, and of all lands, buildings, works, materials, and plant of the said tramways, both suitable to and used by them for the purposes of their undertaking authorised by said Acts."

The referee stated the principle upon which he had proceeded in valuing the tramways thus-"I am of opinion that I Second, that in valuing

must assume

the tramways I am not entitled to take into account the present profits or rental value of the undertaking, but that the proper value of said tramways to be determined by me, according to my construction of the statute, is such sum as it would cost to construct and establish the same under deduction of a proper sum in respect of depreciation to their present condition, and that in estimating such cost I am entitled to take into account the fact that said tramways are now successfully constructed and in complete working condition.. Third, that I am entitled in valuing said tramways, according to the cost of construction and establishment, to make allowance both for the sums expended by said company in obtaining Parliamentary authority, in so far as I consider such expenditure necessary or proper, and also for the sum of £2500, which sum I consider was a necessary and proper expenditure by said company, to enable double lines of tramways to be laid over said North Bridge, and which double lines form part of the undertaking.'

On 13th November 1893 the company raised an action against the Corporation, Mr Tennant, the arbiter, and Mr Haldane, the clerk to the reference, in which, inter alia, they sought declarator (1) that Mr Tennant was bound to proceed with and exhaust the reference; (2) that the defender the said Henry Tennant, as referee foresaid, is not prevented by anything contained in the said Tramways Act, and the said section 43 thereof, from considering, taking into account, and valuing so much of the pursuers' lines of tramways as are the subject of the said reference according to the rental value belonging to such lines, and that by capitalising, at so many years' purchase as he may find proper, the rent at which, one year with another, such lines might in their actual state be reasonably expected to let, or by giving effect to such rental value in such other manner as he may find and determine to be just;" and (3) that he was bound to value the lines of tramways according to their rental value.

On 18th November Mr Tennant issued an

award in the terms of the revised draft above mentioned, as his final award, and two days later the Tramway Company brought an action for reduction of the same, which was conjoined with the action of declarator.

The pursuers pleaded, inter alia-" (3) The referee is not prevented by the Tramways Act 1870 from considering, taking into account, and valuing the tramway lines of the pursuers falling under the statutory sale according to their rental valuation; and in refusing such valuation as being excluded by the statute, he has acted in error and ultra vires, and has failed in his duty to proceed with and exhaust the reference, and to issue a complete and final award and determination."

The defenders pleaded, inter alia—“(3) The referee having valued the tramway lines in accordance with the provisions of the Tramways Act 1870, the defenders should be assoilzied. (4) On a true construction of the Tramways Act 1870, and especially of section 43 thereof, the defenders are not liable to pay for the rental value of the lines, and decree of absolvitor should therefore be pronounced."

Section 43 of the Tramways Act 1870 is quoted in the Lord Ordinary's opinion, and the other sections of that Act and of the company's special Act of 1871 bearing on the question between the parties are there referred to.

On 22nd February 1894 the Lord Ordinary (Low), having considered the conjoined causes, repelled the pursuers' pleas-in-law, sustained the defences, and assoilzied the defenders.

"Opinion. The question to be determined in this case depends upon the construction to be put upon the 43rd section of the Tramways Act 1870.

"The leading provisions of that Act which it is important to keep in view in construing the 43rd section are as follows

"It is in the first place provided that the local authority of any district in which it is proposed to construct a tramway, or any person, corporation, or company, with the consent of the local authority, may, subject to the conditions of the Act, obtain a provisional order and relative Act of Parliament authorising the construction of the tramway.

"By section 19 it is provided that a local authority which has completed or purchased a tramway, may by lease 'demise to any person or persons, corporation or company, the right of user of the tramway, and of taking in respect of the same the tolls and charges authorised,' but no local authority is entitled 'to place and run carriages on such tramway and take tolls and charges in respect of the use of such carriages.'

"By section 34 it is enacted that the promoters and their lessees shall have the exclusive use of their tramways for carriages for flange wheels or other wheels suitable only to run upon the prescribed line.'

"The 41st section provides that if at any time after the opening of the tramway the promoters discontinue working it, the Board of Trade may by order declare the powers of the promoters in respect of such tramways to be at an end, ‘and thereupon the said powers of the promoters shall cease and determine unless the same are purchased by the local authority in manner by this Act provided.' The manner in the Act provided, here referred to, is that set forth in the 43rd section. The 42nd section contains provisions similar to those of the 41st section in the case of the promoters becoming insolvent.

"By section 45 the promoters of a tramway are authorised to take in respect of such tramway certain tolls and charges.

"By the 57th section it is provided that notwithstanding anything in the Act contained, the promoters of any tramway shall not acquire any right other than that of user of any road along or across which they lay any tramway.

"Turning now to the 43rd section, it is there provided-'Where the promoters of a tramway in any district are not the local authority, the local authority, if, by resolution passed at a special meeting of the members constituting such local authority, they so decide, may within six months after the expiration of a period of twentyone years from the time when such promoters were empowered to construct such tramway, and within six months after the expiration of every subsequent period of seven years... by notice in writing require such promoters to sell, and thereupon such promoters shall sell to them, their undertaking, or so much of the same as is within such district, upon terms of paying the then value (exclusive of any allowance for past or future profits of the undertaking, or any compensation for compulsory sale, or other consideration whatsoever) of the tramway, and all lands, buildings, works, material, and plant of the promoters suitable to and used by them for the purposes of their undertaking within such district, such value to be in case of difference determined by an engineer or other fit person nominated as referee by the Board of Trade on the application of either party, and the expenses of the reference to be borne and paid as the referee directs. And when any such sale has been made, all the rights, powers, and authorities of such promoters in respect to the undertaking sold, shall be transferred to, vested in, and may be exercised by the authority to whom the same has been sold, in like manner as if such tramway, was constructed by such authority under the powers conferred upon them by a provisional order under this Act, and in reference to the same they shall be deemed to be the promoters.'

"Twenty-one years from the time when the Edinburgh Street Tramways Company was empowered to construct their tramways having expired, the Lord Provost and Magistrates of Edinburgh, as the local authority, exercised the right given to them by the 43rd section to purchase the

, Tramways Co., &c.

20, 1894

undertaking, and Mr Henry Tennant was appointed by the Board of Trade as referee to determine the value.

"In his award Mr Tennant states the principle upon which he has proceeded in valuing the tramways, thus-'I am of opinion that I must assume . . . that in valuing the tramways I am not entitled to take into account the present profits or rental value of the undertaking, but that the proper value of the said tramways to be determined by me, according to my construction of the statute, is such sum as it would cost to construct and establish the same, under deduction of a proper sum in respect of depreciation to their present condition, and that in estimating such cost I am entitled to take into account the fact that said tramways are now successfully constructed and in complete working condition.'

"The Tramway Company contend that the principle of valuation thus adopted by the referee is unsound, and that, in terms of the 43rd section of the statute, he was bound to value the tramway lines according to their rental value as in a voluntary sale.

"The company argued that the undertaking which the Corporation was authorised to purchase, and had purchased, included not only the tramway lines, buildings, carriages, and so forth, but the exclusive right to use the lines, and to take tolls; that the local authority were bound to pay for the whole undertaking, and not only for part of it; that according to the usual and recognised method of valuing such an undertaking the arbiter was bound to ascertain the rent at which the tramways with the exclusive right to use them, might have been let; and that the parenthetical enactment only provided that the company was not to have any allowance for past or future profits over and above the rental value, or any allowance in respect that the sale was compulsory.

"The word 'undertaking' is no doubt wide enough to include the exclusive right to use the tramway and the power to take tolls, but to say that the Corporation is bound to pay for the whole of the undertaking is really to beg the question, because the question and the only question is, whether the Legislature has not authorised the purchase upon payment of something less than the value of the whole undertaking.

"If it had been intended that the local authority was to pay for the whole undertaking, including the exclusive right to use the tramways, I think that the Act would simply have said that the promoters should sell to the local authority their undertaking at a price to be determined, in case of difference, by a referee; and it would have been very easy to add that the price was to be fixed upon the basis of a voluntary and not a compulsory sale. But that is not what the Act does. On the contrary, the terms of the 43rd section seem to me to imply that the transaction is a purely statutory one, and that while

on the one hand the whole undertaking is to be acquired by the local authority, on the other hand the value of certain specified things alone is to be paid.

...

"The words are 'The promoters shall sell the undertaking. upon terms of paying the then value (exclusive of any allowance for past or future profits of the undertaking...) of the tramway, and all lands, buildings, works, materials, and plant of the promoters.'

"The words 'upon terms of paying' appear to me to be important as showing that the Act was fixing a statutory price for a statutory sale. The promoters were to sell the undertaking, but the terms of payment were to be those specified in the Act and nothing more.

"Then the purchasers are to pay the value of the 'tramway,' and it is important to see what is meant by that word. The company contended that it must be construed according to the interpretation clause of their special Act--the Edinburgh Tramways Act 1871. By the 3rd section of that Act it is enacted that the expression 'the tramways' or 'the undertaking' shall mean 'the tramways and works and undertaking by this Act authorised.' The company therefore argued that the word 'tramway,' in the 43rd section of the Act of 1870, must be read as meaning the tramways and works and undertaking authorised by the special Act. Although the general Act is incorporated with the special Act, this case in my opinion depends upon the construction of the former Act alone. In it there is no definition of 'undertaking' or 'tramways,' and if the framers of the Act had regarded 'tramways' and 'undertaking' as synonymous terms, I cannot believe that they would have done anything so misleading as to use the word 'undertaking' when defining what was to be sold, and the word 'tramway,' along with a number of other words, when specifying what was to be paid for. Further, even if the 43rd section fell in this case to be construed as part of the special Act, I should think that the connection in which the word 'tramway' is used renders it impossible to construe it as equivalent to 'the tramways and works and undertaking by this Act authorised,' because the word 'tramway' is followed by the words 'and all lands, buildings, works, materials, and plant'-an enumeration which would have been altogether unnecessary and redundant if the word 'tramway' was used in the extended sense for which the company contend. I therefore think that the word 'tramway' in the 43rd section must be read in its ordinary sense as meaning the tramway line.

"But then the company argued that assuming that the word 'tramway' is to be construed as meaning the tramway line and nothing more, it must be valued as a tramway line which the purchasers have acquired the exclusive power to use for the purpose of earning profit. That view I think may mean one of three thingseither (1) that the company are entitled to be paid not only the cost of construc

. Tramways

tion, but also the value of the exclusive right to use the tramway; or (2) that the value of the tramway is to be ascertained upon the basis of the rent for which it could be let; or (3) that the tramway is to be valued as a completed tramway, ready and fit for immediate use.

"I assent to the company's argument to the extent of the third of these alternatives, but it seems to me that the first two are inconsistent with the provision that the value to be paid for the tramway is to be "exclusive of any allowance for past or future profits of the undertaking.'

"The first alternative is, I think, clearly inconsistent with that provision, because it is impossible to my mind to find any basis upon which the company could be paid the value of their right to use the tramway, except the profits which they had earned or might expect to earn.

"I come to the same conclusion in regard to the second alternative. If a valuator was set to fix the rental value of a subject which had been in possession of and successfully worked by the proprietor, it seems to me that the only reliable method upon which he could proceed would be to ascertain what were the profits which had been earned, and from that to estimate what rent could have been obtained if the proprietors had let the subject. But I think that that would involve the making an allowance for profits, because as the profits were larger or smaller, the rent would be greater or less.

"The company argued -and I think rightly-that what is excluded from the value by the parenthetical clause would but for that exclusion have been included. I do not, however, see how that helps the company. Supposing that there had been no parenthesis, and that the referee had proceeded to ascertain the rental value (which the company say would have been the proper way), I do not know upon what principle he could have allowed any additional sum for profits.

The

"I suppose that the company might, if they had chosen, have let the tramway instead of working it themselves. general Act does not prohibit promoters letting their tramway, and section 12 of the special Act authorises the company to enter into agreements with any other company or person for the use of the tramway, and the tolls, rates, and charges to be paid for such use. Now, suppose the company had let the tramway, the rent would have represented their whole profit, and in that case I think that a rental valuation would clearly have been one making an allowance for profits.

"I would also point out that two practical men of great eminence-Mr Tennant in this case, and Sir Frederick Bramwell in the London case (to which I shall afterwards refer), have come to the conclusion that it is impossible to value the tramway lines upon the basis of rental without making allowance for profits.

"I therefore come to the conclusion that the provision that no allowance is to be made for profits means that in valuing the

20, 1894

tramway the referee is not to take into consideration, either directly or indirectly, past or future profits.

"Something was also said as to the inequity of taking from the company the right to use the tramways without paying them for that right. Such considerations do not go far in construing an Act of Parliament, but I confess that I do not appreciate the alleged inequity. For the convenience of the public a tramway company which has obtained a provisional order is allowed to take the use of the public streets without paying anything for that use. But the Act gave to the local authority in whom the streets were vested right to acquire the undertaking of the Tramway Company at the end of twentyone years, and I do not see anything inequitable in the Legislature providing that upon condition of the local authority paying the Tramway Company for everything which had cost them money, the right of use for which the Tramway Company had paid nothing should pass to the local autherity without price.

66

The company further called in aid of their argument the 41st and 42nd sections, which provide that in the event of a tramway company discontinuing the working of the tramway, or being insolvent, the powers' of the tramway company shall, upon an order by the Board of Trade, 'cease and determine unless the same are purchased by the local authority in manner by this Act provided.' What the local authority may purchase under these sections is the powers' of the Tramway Company, and the purchase is to be made in manner provided by the 43rd section. The company therefore argued that the 43rd section must include the purchase of the 'powers' of the Tramway Company.

assume that the purchase authorised by the 43rd section does include the powers of the Tramway Company, because it is the purchase of the undertaking, but it does not necessarily follow (it depends upon the enactment) that compensation for the loss of the powers is to be included in the price. Further, although I do not think that the meaning of the 41st and 42nd sections is doubtful, it seems to me that the phraseology is unfortunate. To purchase the powers would be of little benefit to the local authority unless they could also purchase the tramways. If instead of powers' the word 'undertaking' had been used in the 41st and 42nd sections, it seems to me that the object in view would have been more clearly expressed.

"I am therefore of opinion that the pursuers are not entitled to compensation for the loss of the exclusive right to use the tramway, nor to have the value of the tramway ascertained according to its rental value. In my opinion they are only entitled to the value of the tramway as a completed tramway, ready and fit for immediate use, or (to adopt the language used in the case of Stockton and Middles borough Water Board v. Kirkleatham Local Board, 1893, L.R., App. Cas. 444, to which I shall presently refer) the value of

, Tramways Co.

20, 1894

the tramway 'regarded as plant in situ capable of earning a profit.'

"The case of Stockton and Middlesborough Water Board, to which I have just referred, arose in the following circumstances - Prior to 1876 the Stockton and Middlesborough Waterworks Company had the right to supply with water Stockton and Middlesborough, and also a number of other places, and among them Kirkleatham. In 1876 Stockton and Middlesborough Corporations Waterworks Act was passed, which upon the narrative that it was expedient that the undertaking of the Waterworks Company should be vested in the corporations of Stockton and Middlesborough, enacted that the company should 'sell to the corporations their undertaking, property, rights, powers, and privileges.' The consideration for the sale was to be perpetual annuities to the amount of the maximum statutory dividend of the company, or, in the option of the company, a sum representing twenty-five years' purchase of the dividend. The corporations were also to pay and take over the debts and liabilities of the company, and to pay the company a sum for compulsory sale, and for the prospective value of the company's undertaking.

"The Act also provided that the joint board which in terms of the Act was elected to represent the corporations, should, when so required by the sanitary authorities of certain districts, 'sell to such sanitary authorities all mains, pipes, and fittings... belonging to the joint board within that district... at a price to be fixed in default of agreement by an arbitrator, and after such sale the joint board shall cease to supply water within such district.'

"Kirkleatham was one of the districts the sanitary authority of which was entitled to require a sale by the joint board in terms of the enactment which I have quoted. The sanitary authority of Kirkleatham was, prior to 1876, under the Public Health Act 1875 (section 52), deprived of the power to construct waterworks within the limits of supply of the Stockton and Middlesborough Company if and so long as that company was willing to give a reasonable supply at the statutory rate.

"The Kirkleatham sanitary authority in 1891 required the joint board to sell to them the mains, pipes, and fittings within the district of Kirkleatham, and the question of price was referred to an arbitrator.

"Two views were submitted to the arbitrator as to the method of valuation, or rather the subject to be valued. The joint board maintained that the value of the mains, pipes, and fittings was to be ascertained not only by the cost of construction, but by the revenue which the joint board was enabled to earn by their means. The sanitary authority on the other hand contended that the board was only entitled to the value of the mains, pipes, and fittings regarded as plant in situ capable of earning a profit.

"The arbitrator adopted the former of these views, but it was held by the House

of Lords, affirming the judgment of the Appeal Court, that he was wrong in doing so, and that the basis of valuation proposed by the sanitary authority was the sound basis in terms of the Act.

"Of course the construction put upon one Act of Parliament is not an authority for the construction of another Act unless the words used are practically identical, but the principles upon which the Kirkleatham case was decided appear to me to apply to that which I am now considering. Indeed it seems to me that in some respects the considerations in favour of including in the valuation an allowance for the revenue which the joint board was enabled to earn by means of the pipes were stronger than those urged by the company for a similar allowance being made in this case. Because (1) the joint board had actually paid, when they purchased from the Water Company, for the right to supply water; and (2) the Act only said that the sanitary authority was to take over the pipes at 'a price' to be fixed by an arbitrator without providing, as the Tramway Act does, that no allowance should be made for the profits or for compulsory sale.

"No doubt the Tramways Act provides that the undertaking' shall be sold to the local authority, whereas in the Kirkleatham case the Act only provided that the 'mains, pipes, and fittings' should be sold to the sanitary authority. But, as I have already said, it appears to me that the important part of the Tramways Act is that which deals with the price which the local authority shall pay, and if the two cases are regarded from that point of view they are almost identical. In the Kirkleatham case the joint board was to be deprived of its undertaking upon receiving the price of the mains, pipes, and fittings, while under the Tramways Act the promoters are to be deprived of their undertaking upon receiving payment of the then value (exclusive of any allowance for profits) of the tramway, buildings, &c.

"It was said, however, that there was this material difference between the Kirkleatham case and the present, namely, that the Kirkleatham sanitary authority had right to supply water to the district under the Public Health Act, and therefore only required to buy the pipes, whereas here the local authority had no right of user except under the purchase, and therefore required to buy both the tramways and the right to use them. Now, assuming that the sanitary authority had power to bring in a water supply for the district, the joint board had also right to supply it with water. That right must have been worth something, especially as the joint board were in possession, had mains and pipes in situ, and were actually supplying water. Yet the statute, as construed by the House of Lords, took that right from them without any compensation whatever. Again, it is not the case that the local authority here only acquire the right to use the tramways by virtue of the purchase, because the 43rd section after providing what price is to be paid, enacts, and when any such sale has