Scottish Court of Session Decisions

Osbourne Smith died on 11th December 1883 survived by his wife Mrs Mary Robb Hatrick or Smith. He left a trust-disposition and settlement dated 18th September 1882, by which he conveyed his whole estate, heritable and moveable, to trustees. By the trust-deed it is provided, inter alia, “In the first place, I direct my trustees to pay all my just and lawful debts, sickbed and funeral expenses (all of which may be paid without constitution), and the expenses of every kind connected with the execution of the trust hereby created.” And in the seventh place—“I direct my trustees, after fulfilling the foregoing purposes, to hold the residue of my estate, or the proceeds thereof if converted into money, for behoof of my said wife in liferent for her liferent alimentary use allenarly during her life after my death … and I direct my trustees to pay to my said wife the free annual produce of the said residue as and when the same is received by my trustees.” Power was also conferred on the trustees to call up, realise, and change the truster's investments from time to time, and to continue any investments the truster might have made.

The trustees entered on the possession and management of the trust-estate, and all the law expenses incurred in executing the trust up to the time when the residue was fixed by them and invested were paid by the trustees out of capital.

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Thereafter two accounts were incurred by the trustees principally in changing the investments under the powers conferred on them by the deed. One of these accounts, amounting to £25, 8s. 6d., was paid by the trustees out of half-yearly payment of liferent due to Mrs Smith on 18th May 1887. The other account, amounting to £11, 9s. 4d., was similarly paid out of the half-yearly payment of liferent due to Mrs Smith on 24th April 1888.

Mrs Smith brought an action against the trustees in the Sheriff Court of Lanarkshire for recovery of the sums thus paid, with interest from the date of payment.

The pursuer pleaded—“The defenders having wrongously and in violation of the provisions of the trust-disposition and settlement retained the foresaid sums from the revenue of the estate instead of the capital, decree should be pronounced and warrant granted as craved.

The defenders pleaded, inter alia—“(2) The accounts in question being for ordinary trust management, formed proper charges against the revenue of the estate, and the defenders were justified in paying the same from revenue, and are therefore entitled to absolvitor with costs.”

On 20th March 1890 the Sheriff-Substitute ( Guthrie) pronounced the following interlocutor—“Finds that by the first purpose of the trust-disposition and settlement of the late Osbourne Smith the expenses of every kind connected with the execution of the trust are directed to be paid in the first instance by the trustees, and that the trustees are thereafter directed, in the seventh place, after fulfilling the foregoing purposes, to hold the residue of the estate or the proceeds thereof, if converted into money, for behoof of the truster's wife, the pursuer, in liferent, and to pay to her the free annual produce of the said residue at and when the same is received by them: Finds that these directions import that the residue is to be ascertained after payment of the whole expenses of the trust of every kind, including such outlays as those connected with the renewal of investments from time to time, and that the pursuer is therefore not bound to suffer deduction from her liferent of the accounts condescended on, but that the same fall to be paid from the capital held by the trustees: Therefore decerns as craved: Finds the defenders qua trustees liable to the pursuer in expenses, &c.

“ Note.—It would perhaps be more convenient as a question of accounting if the opposite view to that embodied in the interlocutor were taken. But it is not I think authorised by the terms of the trust-deed, which gives the law of the case. The pursuer is made liferentrix of the residue, and is to receive at once the free annual proceeds of it. And the residue is by the clear intention of the deed what remains ‘after fulfilling the foregoing purposes,’ one of which is payment of ‘the expenses of every kind connected with the execution of the trust hereby created.’ I can put no other meaning on these words than that the pursuer's right to the free annual proceeds of the residue is not to be burdened with the expenses of management, which are expenses connected with the execution of the trust, except in so far as the residue of the capital sum is from time to time diminished by the payment of such expenses.

“The two cases cited by both parties as bearing on this question do not appear to be decisive. In the later case— Baxter & Mitchell v. Wood, 2 Macph. 915, there is no statement of the terms of the trust, and indeed the case rather turns upon general principles applying to circumstances different from those of the present case. In the other— Pearson v. Casamajor, 2 D. 1020—principles are laid down which are referred to by Professor Montgomerie Bell (Conveyancing, 943) as ‘useful in general practice.’ But it rather seems that Professor Bell regarded them as referring to the case where the trust-deed is silent on the subject. I am not sure that in the case of Pearson the trust-deed was silent, for its terms are more fully given in the House of Lords' Report in 2 Rob. 218, than in either of the Court of Session Reports ( 15 S. and 2 D.), and seem to have been not unlike the first purpose of the deed now before me. But the clauses disposing of residue were there entirely different from the present deed, and afforded no such distinct indication of intention as we find in the terms and collocation of its directions.

“No distinction was made in argument between the various charges in the accounts in process, and I have dealt with the accounts on the footing that they apply entirely to work connected with changes in investments. According to the usual and proper practice in the management of trust-estates where the trust-deed is silent or less distinct than it is here, such expenses, as I have always understood, are charged against capital, and if that course, as explained by Professor Montgomerie Bell and the Lord Ordinary (Moncreiff) in Pearson v. Casamajor, had been followed, the pursuer would very probably have raised no question as to minor and ordinary charges if there be any such. But the trustees' directions are here so special that it would be difficult to allow even expenses of ordinary management, such as factor's commission, to be deducted from the annual proceeds of the residue in the event of that smaller question being raised.”

The defenders appealed to the Court of Session, and argued—Free annual produce meant that expenses incurred were to be taken out of gross annual produce. Clause 7 of the deed must be considered without reference to clause 1. If expense was not charged against liferent there would require to be an uninvested margin of capital. The keeping up of the trust was in the interest of the liferentrix. It was for her interest that changes were made in the investments; it was done to raise her income. The rubric in Pearson v. Casamajor, June 6, 1840, 2 D. 1020, was erroneous, and Bell in his Conveyancing, p. 943 (3rd ed. 950), followed it.

Argued for pursuer and respondent—The

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expenses were not of the nature of ordinary annual expenses, and fell naturally on the fee. There was no need for change in the investments as far as the liferentrix was concerned. No expense was incurred in merely handing over the income to a liferenter. The usual way was to authorise the liferenter to draw the income. Any question in this case was solved by the language of the trust-deed— Pearson v. casamajor, 2 D. ( per Lord Moncreiff), p. 1021; Bell's Conveyancing (3rd ed.), p. 950; Baxter & Mitchell v. Wood, March 24, 1864, 2 Macph. 915.

At advising—