Scottish Court of Session Decisions

This was a Special Case raising important and interesting questions under the succession to the estate of the late Ivie Mackie of Auchencairn, Kirkcudbrightshire, who died on 23d February 1873, survived by his wife Mrs Agnes Gladstone or Mackie and three sons, James Todd Mackie, John Gladstone Mackie, and Stuart Mackie. His eldest son James died on 5th August 1873, leaving a will, the executors under which were the fifth parties to the case. The other parties were the widow Mrs Mackie, of the fourth part, David Fulton, of the third part, and the two younger and surviving sons, of the second part. The trustees under Mr Ivie Mackie's trust-disposition and settlement were the parties of the first part.

Mr Mackie disponed his heritable and real estates to trustees for certain trust purposes, and out of this disposition and settlement there arose certain questions which formed the subject of the case presented to the Court. The first question submitted arose under the truster's provision for his widow, to whom he directed his trustees to pay “an annuity, free from all burthens, taxes, and deductions whatsoever, of £2500, during all the days of her life.” Mrs Mackie, founding upon this clause of the deed, maintained that she was entitled to receive payment of her annuity of £2500 free of income-tax; while the trustees contended that they were bound to deduct income-tax before payment.

The second question arose on a direction to the trustees contained in the sixth purpose of the trust-deed, which was as follows:—“I direct my trustees, as soon as can conveniently be done, to invest in any of the securities abovementioned (that is to say heritable security, Government stock, or railway or other debentures) the sum of £35,000, the interests or dividends on which shall be paid to the said James Tod Mackie, my son,

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yearly or half-yearly during all the days of his life, for alimentary purposes only, and to the express exclusion of his debts and deeds, and the diligence of his creditors, and such interests or dividends shall not be assignable.” The principal sum at his death he directed should be divided in certain proportions among the issue of his said son. The trustees on 23d February 1873 proceeded to realise the trust-estate, but at James' death had only been able to effect investments of the £35,000 to the extent of £14,720; and no dividends on these investments became due during James' life, nor was any dividend paid him on any part of the £35,000. His executors now demanded payment of five per cent. per annum interest on the whole sum, so far as not invested, from the date of his father's to his own death; and a proportional part of the dividends accruing on the invested portions corresponding to the periods during which James survived the dates of the respective investments. The trustees, on this point, contended that, as no time was specified by the truster for making and completing the investment, and they had not unduly delayed making them, the executors were only entitled to the proportion of dividends on the invested portions; or, if to interest on the uninvested portion, then only to the interest actually derived from it, which was, on the average, £4, 3s. 6d. per cent. per annum.

The third question had regard to the management of the business of the firm of Findlater & Mackie, Manchester, of which the truster had been a partner. The trustees had paid all bequests, &c., under his settlement, and now held the residue for the two youngest sons already mentioned, and part of this residue was made up of the capital of the truster in the firm (£15,252, 5s., which bore interest at the rate of 5 per cent. per annum), and 57–64th shares in the net profits, which for 1873 amounted to between £8000 and £9000. At the truster's death there were three other partners, one of whom was Mr Fulton, the third party in the case, and also a party as one of the trustees. The truster's share was then 39–64ths, Fulton's 7–64ths, and those of the other two partners respectively 18 64ths; but the two last dying soon after the truster, their shares fell, in terms of the co-partnery, into his, and were since held by his trustees as part of the residue. Fulton was the manager and had the sole conduct of the affairs of the firm—the trustees, who, under the trust, were partners in place of the residuary legatees until each should arrive at 25 years of age, not being able to take part therein; and both these and the residuary legatees concurred in thinking it in the interests of the firm and of the residuary estate that Fulton, who was entitled to retire at any time, and on whom the success of the firm depended, should receive such additional allowances as should amount to 24–64th shares of the net profits, on which consideration he was willing to continue in the firm and to devote his whole time to its affairs. Looking to the terms of the deed of copartnery, which made each partner's share in lieu of all allowances, the trustees doubted whether they had the power to do this, although Fulton and the residuary legatees thought they had under articles 33 and 34 of the contract of copartnery, which were as follows:—“33. That at any time thereafter it shall be lawful for the parties hereto by an entry in the books of the partnership, signed by all the parties, to vary, alter, or add to any of the provisions in these presents; and such alterations or additions shall be binding on, and conclusive against, all the parties, as if same were originally part of, and incorporated with, these presents 34. That it shall be also lawful for the said Ivie Mackie to bequeath by will his share in the partnership to any person he shall think fit; and the person to whom such share shall be bequeathed shall stand in the place and stead of the said Ivie Mackie during the remaining continuance of the partnership; and all and every deed and deeds (if any) which shall be necessary for making such legatee (who is the person hereinbefore referred to as his ‘testamentary nominee’) a partner under the provisions of these presents, shall be executed by the said Alexander Findlater, David Fulton, and Edmund Aked Gladstone, and all other proper parties; and in case the said Ivie Mackie shall not exercise and make use of this power, then his share of and in the said partnership shall descend to his executors or administrators, who shall stand in the same position as the said Ivie Mackie now holds in said partnership.” John Gladstone Mackie was now twenty, and Stuart was eighteen years of age. The questions as laid before the Court were:—(1) Whether the widow was entitled to receive her annuity free of income tax? (2) Whether the executors of James Tod Mackie were entitled to interest on the uninvested portion of the £35,000 from the period from his father's to his own death? (3) Whether, having respect to the terms of the copartnership and the trust settlement of Ivie Mackie, his trustees had power to pay out of the profits of the firm, until the youngest of the residuary legatees should arrive at twenty-five years of age, such allowances to Fulton as, taken with his 7–64th shares, should not exceed 24–64th shares of the whole net profits—he devoting himself solely to the business of the firm in the meantime? (4) Whether the trustees had power under the trust-deed to appoint Fulton to be their factor for the management of their interest in the business, and to allow him such remuneration as they should deem reasonable? And (5) Whether, in terms of the contract of copartnery the trustees had power to alter the provisions of the contract to the effect of increasing Fulton's share until the youngest residuary legatee should reach the age of 25 years?

I. On the first question, as to income tax, the following authorities were cited—5 and 6 Vict. c. 35, §§ 102, 103; 16 and 17 Vict. c. 34, §42; 35 and 36 Vict. c. 20, § 8; 36 and 37 Vict. c. 18, § 6; Blair v. Allen, Nov. 17, 1858, 21 D. 15; Turner v. Mullineux, Jan. 16, 1861, 1 Johnson & Hemming, 334; Festing v. Taylor and Duchess of Somerset, Jan. 14, 1862, 3 Best & Smith, 217, 235.

II. On the second question, as to the interest on the £35,000, it was argued for Mr James Mackie's trustees that the clause was imperative. It could not be supposed that the truster intended that his son should be left without any alimentary provision while the trustees were looking for a suitable investment. Moreover, the money was to be in full of James Tod Mackie's legal provisions.

III., IV., V. On the question of the powers of the trustees arising under queries 3, 4, and 5. it was urged by the other parties to the Special Case that a valuable part of the trust-estate was in danger, and that the trustees were bound to exercise their power to the utmost. That unless this or some similar course

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were taken, this valuable portion of the trust-estate would be lost or much diminished in value. It was expedient, advantageous, and yet quite reasonable, to adopt one of the modes suggested; and it was the truster's intention that the business should be preserved for his residuary legatees as part of the residue of his means. Any one of the courses was more reasonable than a sale; moreover, there was power given in the trust-deed to appoint a factor, the words being as follows:—“And to appoint the said William Halliday Lidderdale to be their factor and agent for the management of my estates and affairs in Scotland, and to give a reasonable allowance to him for his trouble, and on his death or resignation to appoint one of their own number, or any other person, to the same office, and on the same terms. As also, to appoint one of their own number, or any other person, to be factor for the management of my estates and affairs in England, and to give a reasonable allowance to him for his trouble.” Under the mode suggested, the trust-estate would have, besides the interest of capital invested, a larger share than the truster had originally himself.

At advising—