Scottish Court of Session Decisions

The late Mr Malcolm Lamond, a native of Scotland, died in November 1864 at Shanghai, where he had carried on business for some years. He left a trust-settlement executed in Scotland during a visit in 1863. Mr Thomas Smith, one of the trustees and executors named in the settlement, was at the time of Mr Lamond's death resident at Shanghai; the other trustees were all resident in Scotland. Mr Lamond was possessed of personal property both in China and in Scotland; he was also the proprietor of certain real subjects at Shanghai, over which he had granted a mortgage for 10,000 taels (a tael being about 6s. 8d.) in favour of Mr A. F. Croom. For the purpose of realising

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Mr Lamond's estate in China, a power of attorney in very ample terms was sent out to Mr Smith by his co-trustees, empowering him to complete any title that might be necessary either in his own name or that of the general body, to ingather the effects, and pay the debts due in China, and generally to exercise all rights in that country competent to the trustees. Mr Smith admittedly was aware of the existence of a mortgage over the real estate, though he was ignorant of the creditor's name. The value of the subjects at the time of Mr Lamond's death was estimated to be amply sufficient to cover the debt. Acting bona fide on this belief, Mr Smith paid the ordinary unsecured creditors in full out of the personal estate, and remitted the balance to the trustees in Scotland. No notice of his mortgage was given by Mr Croom either to Mr Smith or to the other trustees till October 1865, by which time the other debts had been paid in full. Meanwhile property in Shanghai rapidly deteriorated in value, and when in February 1866 Mr Croom sold the subjects in virtue of his mortgage, there was a deficiency of above £2000. The trustees in Scotland had previously made certain payments, amounting to about £55, to beneficiaries under the trust. The total balance in their hands, including the funds remitted by Mr Smith, amounted to about £471. Mr Croom now raised a multiplepoinding in name of the trustees, in which as sole claimant he was ranked for the balance of his debt. The present questions between the parties arose in the shape of objections to the statement of the fund in medio. Mr Croom objected to the trustees taking credit for the sums which had been paid to ordinary contract creditors in China, on the ground that by the law of England, which regulated the administration of Mr Lamond's estate at Shanghai, he as a “specialty creditor” was entitled to a preference over the personal estate of the deceased for any balance not covered by his security. He accordingly claimed that the sums thus paid away, amounting with interest to £986, 10s. 2d., should be replaced by the trustees in the fund in medio. In the second place, he objected to the payments made to beneficiaries. He also objected to certain charges for management, &c., by Mr Smith. A remit having been made to an accountant, the latter struck off certain items of charge, and brought out the balance in the hands of the trustees to be £539, 16s. 4 1 2d., subject to the objections in point of law by Mr Croom.

The Lord Ordinary ( Gifford) was of opinion that the determination of the first objection depended on the law of England, and ordered a case to be adjusted for the opinion of English counsel. A case was accordingly framed, in which counsel was requested to answer the following queries:—“1st, By the law of England, has the mortgagee a right of preference in virtue of the mortgage-deed above mentioned against the simple contract creditors of Mr Lamond, over the personal estate or assets left by him in China? 2d, Were the trustees, or Mr Smith as their factor, entitled in the circumstances above stated, to pay the truster's debts at Shanghai, or were they bound to retain the whole trust funds to meet the mortgage debt, or any deficiency which might arise thereon?”

The following opinion was returned by George Mellish, Esq., Q.C.:—1st, “I am of opinion that, by the law of England the mortgagee in this case, being a creditor by specialty, had a right of preference, in virtue of the mortgage-deed, over the simple contract creditors of Mr Lamond, in the administration of the personal estate and assets left by him in China. 2d, I am of opinion that the trustees, and Mr Smith as their factor, had, under the circumstances, notice of the specialty debt at the time they paid the simple contract debts, notwithstanding they did not know the name of the specialty creditor, and he had given them no express notice of his debt; and having notice of the specialty debt, they, by paying the simple contract debts in priority to the specialty debt, made themselves, to the extent of the assets so misapplied, personally liable to the specialty creditor in case it ultimately turned out that there was a deficiency of assests, and the specialty creditor could not get paid.”

The Lord Ordinary ( Mackenzie), before whom the case came to depend, found that the trustees, and Mr Smith as their factor, “had, under the circumstances, notice of the said specialty debt at the time the said simple contract debts were paid in priority to the said specialty debt, and made themselves, to the extent of the assets misapplied in such payment, personally liable to the said Alexander Frederick Croom, the specialty creditor, whose debt remains unpaid to a much larger extent than the amount of said assets; therefore finds that the payment of the said simple contract debts, with the interest thereon, amounting to £986, 10s. 2d., as appearing in the accountant's report, is not to be allowed as an item of discharge for the nominal raisers, and that the fund in medio falls to be enlarged accordingly.”

Mr Lamond's trustees reclaimed.

Strachan for Mr Smith.

Millar, Q.C., and Watson, for the other trustees.

Solicitor-General and Maclean for Mr Croom.

For the trustees it was argued that the payment of the ordinary creditors was not an act of maladministration on the part of Mr Smith, Mr Croom having given no notice of his claim, although he had an agent resident at Shanghai; and secondly, that, in any view, the other trustees were not liable, inasmuch as the employment of an agent was necessary under the circumstances, the selection of their co-trustee, Mr Smith, was a prudent one, and no reasonable precaution was omitted by them, and that consequently their liability was only to the extent of the funds realised and remitted to them by Mr Smith.

At advising—