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Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Lawries v. Lawrie's Trustees [1892] ScotLR 29_525 (17 March 1892)
URL: http://www.bailii.org/scot/cases/ScotCS/1892/29SLR0525.html
Cite as: [1892] ScotLR 29_525, [1892] SLR 29_525
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SCOTTISH_SLR_Court_of_Session
Page: 525↓
Court of Session Inner House First Division.
[
v.
Facts:
By trust-disposition and settlement in favour of his children a truster nominated three persons to be his trustees, with power to carry on any business in which he might be engaged at the time of his death, or to continue his interest in any business in which he might be a partner at his death. One of the three trustees was his brother, who for several years had managed two of his businesses, receiving in return half of the profits of one them. There was no writing instructing a partnership. The trustees after deliberation, and having taken legal advice, continued to carry on these businesses for some years under the same arrangement as to management and remuneration as before, with great benefit to the trust-estate.
In an action of count, reckoning, and payment at the instance of some of the beneficiaries against the trustees for the purpose of having the share of profits paid to the truster's brother replaced to the credit of the trust funds, it was held, after a proof—chiefly parole, and at which the principal witnesses were the trustees and their law-agent,—that the truster's brother was at the time of the truster's death a partner with him in the business from which he had drawn half the profits, and that the continued payment of these to him was not in the circumstances open to challenge.
Opinion per Lord Kyllachy, but reserved by the Judges of the Inner House, that even if the truster's brother were not held to have been a partner, the arrangement with him was in the circumstances a proper act of trust administration.
The late John Lawrie, wine and spirit merchant in Rothesay and Glasgow, died in May 1876, leaving a trust-disposition and settlement, dated 1870, in favour of his children, by which he appointed his brother James Wilson Lawrie, David Lawrie his brother's son, and James Birrell to be his trustees. Among the special powers conferred upon the trustees in carrying out the purposes of the settlement was a power to carry on for the estate, for such time as they might think proper, any business in which the testator might be engaged at his death, or to continue for such time as they may think proper, his interest in any business in which he might be a partner at his death.
At the time of his death the truster had a wine and spirit business in Bath Street, Glasgow, and another in Queen Street, Glasgow. He resided chiefly at Rothesay, and since 1868 both his Glasgow businesses had been managed by his brother James Wilson Lawrie, to whom, after a year of gratuitous management, he had annually paid half of the profits of the Queen Street business. There was no writing instructing a partnership, but there was no other partnership of which the truster was a member. The trustees accepted office, and after consultation with Dr David Murray, partner in the firm of Messrs Maclay, Murray, & Spens, writers, Glasgow, agreed, in the interest of the truster's children, to carry on the Glasgow businesses under the management as before of J. W. Lawrie, one of their number, who was to continue to receive half the profits of the business in Queen Street. This arrangement, which was throughout beneficial to the trust-estate,
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continued until 1886, when the businesses were sold. At that date J. W. Lawrie claimed half the sum obtained for the goodwill of the Queen Street business, but upon the request of his son he abandoned that claim, and the whole proceeds were credited by the trustees to the trust-estate. In March 1891 the children of John Lawrie, eight in number, having all attained majority, the trustees began to consider how the trust might be brought to end, but in November 1891 the elder son, John Morton Lawrie, and four of his sisters, brought an action of count, reckoning, and payment against the trustees for the purpose of having the sums paid to J. W. Lawrie from the profits of the Queen Street business replaced.
The pursuers pleaded—“(2) The defenders not having been entitled to make payment to the said James Wilson Lawrie of any portion of the sums paid to him by them, the pursuers are entitled to declarator, count, reckoning, and payment as concluded for.”
The defenders pleaded—“(3) The defender James Wilson Lawrie having a right to a half of the profits of the Queen Street business, the defenders were entitled to make payment of the same to him. (4) Separatim, The defenders were entitled to entrust the said James Wilson Lawrie with the management of the businesses, and to pay him half the profits of the Queen Street shop as remuneration. (5) The trust-estate not having suffered loss or damage through the actings of the defenders, they are entitled to be assoilzied from the conclusion for damages.”
The Lord Ordinary ( Kyllachy) allowed a proof at which, inter alios, J. W. Lawrie (76) deponed—“About the end of October or beginning of November 1869, about the end of the first year after I had been taking charge, the businesses were improving, and my brother came up and stayed with me all night. Next morning we walked over to the shops and had a look over. He was pleased with the progress they were making, and said, ‘James, you have had a good deal of trouble with the job, and I think it would be fair for me to give you half of the profit of the Queen Street business, and desides a share in the goodwill if it comes to be sold.’ I accepted that arrangement and took up the business. He did not say what was to be the exact share of the goodwill, just a share, but I understood it to be a half. He did not say it was to be a half. I was not to have any interest in the Bath Street shop. I was to manage it as well. I did not ask for any remuneration—he volunteered it. From that time on I continued to manage both businesses until his death…. The position I stood in in reference to the Queen Street business was laid before the law-agent of the trust, and after considering matters there was a minute prepared to the effect that we should go on with the business. I continued to act in connection with them after my brother's death just in the same way as I had done during his life, down to the time when they were sold in 1886… . When the shops were sold I made a claim for a share of the goodwill of the Queen Street shop, which I considered I was entitled to. I claimed a half of the amount received for goodwill, and I held to that to the last. My view was that I was entitled to a half. I insisted upon my claim at first, but there was a scruple about it, and I said I would rather give them the benefit of it and take nothing, than have it considered that I was exorbitant.” “ Cross.—(Q) Did your brother speak to you several times about giving you payment for the work you were doing?—(A) Not to begin with, but after that it was understood. (Q) And the way in which you were to be paid was by your getting half the profits of the Queen Street shop?—(A) Yes, and a share of the goodwill, which I understood was one half. (Q) You were to be paid for your work by getting those two things?—(A) Yes. There was no one present at the meeting between me and my brother when that arrangement was made. I have no entry in any books about the arrangement.”
Mr Alexander (48) deponed—“I am a writer in Rothesay. I was well acquainted with the deceased Mr John Lawrie… . He frequently consulted me on matters of business. He mentioned to me an arrangement that he had with his brother Mr James W. Lawrie as to the management of his Glasgow shops… . He said he had given him a half-share in the Queen Street shop. As far as I recollect, that was a phrase he used, and my recollection is helped by a letter which I wrote soon after his death. I did not say anything about goodwill; he entered into no particulars.” “ Cross.—I just remember the general terms of the conversation. (Q) In fact, anything he said to you might be quite consistent with Mr James Lawrie managing the business and getting half the profits as salary?—(A) No, there was nothing said about that; he distinctly led me to understand his brother was a partner to the extent of one-half in the business.”
Dr David Murray deponed—“It was explained to me that the importance of carrying on the business was because the income otherwise would he short. There were a number of children, and it was stated that the family could not be maintained and educated without the assistance of the business, and the sole effort was to see whether or not the business could be carried on as before, to provide additional income for the benefit of the family. I put myself into communication with Mr Alexander, writer, Rothesay…. It was by one of the defenders that I was referred to Mr Alexander, and wrote to him… . After I received Mr Alexander's letter and had considered it and the other information I had got, and had made up my mind, I advised Mr David Lawrie, and through him, I understood, the trustees as a whole, that Mr James Lawrie was entitled to this share of the business, and that the trustees could carry on on the same footing as before… . The arrangement that had subsisted between Mr James Lawrie and
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Upon 11th December 1891 the Lord Ordinary pronounced the following interlocutor:—“Having considered the cause, Finds that the payment of profits to Mr J. W. Lawrie is not in the circumstances open to challenge: Repels the second plea-in-law for the pursuers, and decerns.” …
“ Opinion.—This is an action of accounting brought by beneficiaries against trustees, but the only question which I require to decide has reference to the profits of a certain public-house business in Glasgow, which profits were, after the truster's death and until the business was sold some years afterwards, divided between the trust estate and one of the trustees, the defender Mr J. W. Lawrie. The present pursuers are some of the children of the truster. They challenge the action of the trustees in dividing or permitting the division of the profits, alleging that the business belonged to the truster, and that it was illegal for the trustees to make any arrangement, whether with respect to its management or otherwise, which involved making or continuing payments out of the profits to one of their own number.
The action belongs to a class where there is always more or less delicacy, and where it is necessary for the Court to be, on the one hand, jealous of any attempt to get behind the salutary rule that a trustee must not make a profit out of his trust, and, on the other hand, to take care that this rule is not applied in circumstances to which it is not properly applicable. In the present case the whole facts have now been ascertained by a proof, and the result has been to satisfy me that the action of the trustees was not inconsistent with the strictest principles of trust law.
I do not think it necessary to recapitulate the facts, but I think the division of the profits complained of was legitimate upon two grounds, either of which would in my view have been sufficient.
In the first place, I am satisfied upon the evidence that the defender J. W. Lawrie is speaking the truth when he states that during the truster's life, and shortly after he (the defender) took the oversight of the truster's two shops, it was agreed between them that he (the defender) should, in consideration of his doing so, have a joint interest in the profits and goodwill of one of the shops, viz., the shop now in question. The agreement was no doubt verbal, but it was natural and probable in itself. It was acted on for years, and up to the truster's death, and its terms are not only spoken to by Mr Lawrie himself, but also by Mr Alexander, the truster's agent in Rothesay, to whom the truster communicated the arrangement he had made with his brother. I saw no reason to doubt the evidence of either of those witnesses. They both impressed me as speaking the truth, and Mr Alexander, besides being a quite impartial witness, has this also in his favour, that on being applied to at the time of the truster's death he made to the agents of the truster by letter exactly the same statement as he made in the witness-box. It is not enough, I think, to detract from this direct and positive evidence that the precise share of the goodwill was not expressed, or that J. W. Lawrie, while insisting on his right to half of the business, waived at his son's request his claim to a half of the goodwill when sold. One is always disposed to be critical of explanations given ex post facto in such matters, but I am bound to say that on the whole I see no reason for distrusting this part of the defender's evidence.
If this be so—that is to say, if Mr J. W. Lawrie had a joint interest in the business in question—there is of course an end of the case. So long as the business was carried on, and the trustees had power to carry it on, Mr J. W. Lawrie was entitled to one-half of the profits, and his co-trustees in continuing the arrangement which had been in force up to the truster's death made no concession and did nothing which they could help doing if they were to carry on the business at all.
But, in the second place, I am not prepared to reject the alternative argument also submitted by the defender. Supposing it to be held that the evidence is insufficient to prove the alleged joint-interest in the business, the fact still remains that J. W. Lawrie claimed that interest, and pressed his claim, and did so on at least reasonable grounds, and in entire good faith. What in these circumstances were the trustees to do? Were they bound to litigate the question,
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The pursuers reclaimed, and argued—The evidence failed entirely to show that J. W. Lawrie was a partner with his brother when that brother died. There was no documentary evidence to that effect, and the only oral testimony was that of the law agent of the trustees and of the trustees themselves, which did not prove the fact of partnership, but only showed their belief as to the relation of the parties. There was no sharing of losses. That was quite insufficient to establish a partnership. The real relationship was that of a manager, remunerated by a share of the profits of one of the shops. That being so, the trustees had no right to make the payments to one of their number which they had made here, and they were accordingly bound to account. A trustee must not make profit out of the trust. He must not be auctor in rem suam—M'Laren on Trusts, i. 212, &c., and cases there cited; Crosskill v. Bower, 1863, 32 Bea v. 86, M.R. Romilly, p. 98, foot; Barrett v. Hartley, 1866, L.R., 2 Eq. 789 and 796; Mackie's Trustees v. Mackie, &c., January 15, 1875, 2 R. 312.
Argued for the respondents—(1) Looking to the whole evidence partnership had been proved. The right to share profits constituted prima facie a partnership— Pooley v. Driver, 1876, L.R., 5 Ch. Div. 458, M. R. Jessel, pp. 470, 474. The maxim that a trustee must not be auctor in rem suam was not impugned. J. W. Lawrie was a partner to the extent of half before he became trustee, and he had simply continued the partnership—the only partnership in which his brother was interested—by virtue of the clause in the trust-deed, authorising that to be done if found advisable. In Mackie's case it was attempted to increase the interest of a trustee. Here Lawrie had taken less than his legal rights. (2) Even if partnership had not been proved, the arrangement made for continuing J. W. Lawrie as manager with half the profits of one shop was most beneficial in the interests of the children, and was competently entered into by the trustees. Was the only course open to the trustees, although antagonistic to the interests of the trust, to wind up the business, or at least to make the claim and position of one of their number the subject of a lawsuit? The truster's children had reaped great benefit from the arrangement made, and could not now challenge it.
At advising—
The case of the pursuers consisted of an attempt to make out that the true position of Mr J. W. Lawrie was that of a manager, paid by a share in profits; and if this were so, he would have been disqualified from taking such remuneration for his services from the trust-estate while he acted as trustee. The evidence, however, does not seem to support the pursuers. When the truster died, Messrs Maclay, Murray, & Spens, who had prepared his settlement, and were acting for his trustees, applied to Mr Alexander, a writer in Rothesay, who had been on intimate terms with the deceased, to inform them of what he knew of the arrangement between the deceased and Mr J. W. Lawrie as to the Glasgow shops. Mr Alexander replied that the deceased had more than once mentioned the arrangement in general terms, and that he had given Mr J. W. Lawrie a half-interest in the Queen Street business. Mr Alexander is examined in this case; he is a witness of unquestioned credit and impartiality, and he says the deceased told him he had given his brother James a-half share of the Queen Street shop. In cross-examination, the pursuer's counsel put to Mr Alexander the theory of the arrangement which they now contend for, and he explicitly negatives it. “(Q) In fact anything he said to you might be quite consistent with Mr James Lawrie managing the business and getting half the profits as salary?—(A) No, there was nothing said about that; he distinctly led me to understand his brother was a partner to the extent of one-half in the business.”
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The pursuers, however, have fastened upon certain expressions in the evidence of Mr James Lawrie, in giving his account of the interview at which the arrangement between him and his brother was made, as supporting their theory. Applying to one part of his deposition a rather strict construction, they say that he represents his brother as having agreed to give him one-half of the profits and a share of the proceeds of the goodwill when sold. It is pretty plain that if what was given was a half share of profits and a share of the goodwill, the pursuers' case would be most arduous; for on that state of facts Mr James Lawrie could hardly have escaped liability to third parties as a partner. But if Mr James Lawrie's evidence be read as a whole (and he is 76 years of age) it is plain enough that in the passage in which they occur, the words “if it comes to be sold” are not meant to qualify the words “besides a share in the goodwill,” but rather point to the event in which his share in the goodwill would sound in money. Indeed, the pursuers themselves have helped to clear his meaning by their cross-examination, for when they asked him, “And the way you were to be paid was by your getting half the profits of the Queen Street shop?” he replied “Yes, and a share of the goodwill, which I understand was one-half.”
Such is the direct evidence of the agreement between the brothers. Mr James Lawrie and his son David Lawrie seem to have acted frankly and above board in placing the facts before Mr Murray, the experienced and able adviser of the deceased and of his trustees; he made independent inquiry, as already stated, and Mr James Lawrie's position as a partner was recognised till the business was sold, the trustees having elected to exercise the powers expressly conferred by the truster to continue for such time as they might think proper, his interest in any business in which he might be a partner at his death. He was a partner in none if not in this; and this provision has, in the result, proved admirably advantageous to the truster's children, some of whom are now challenging the actings of the trustees in this regard. The pursuers have made several points on the actings of the parties in the administration of the trust as bearing against the existence of a partnership. Only two of these require notice—(1) that the trust-estate bore certain losses in the Queen Street business, and that Mr James Lawrie did not bear his share; (2) that he did not claim any part of the proceeds of the goodwill when it was sold. The same explanation answers both points. An arrangement was come to by which Mr James Lawrie waived his claim to a share of the goodwill, and the estate bore the loss. As the loss was only £57 and the goodwill even for inventory purposes was valued at some £200, it is not surprising that the point about the losses was not put in cross-examination to Mr James Lawrie.
My opinion is that James Lawrie was a partner of his brother in the Queen Street business; and this entitles the defenders to the judgment which the Lord Ordinary has pronounced.
It is right to add that I do not adopt the alternative ground of judgment stated by the Lord Ordinary. His Lordship speaks of the trustees compounding or transacting or making a settlement. In fact, the defenders did none of these things. What they did was, they simply admitted the claim on the footing that it was well founded. I think that the claim was well founded, and therefore that they were right. I am not called on therefore to decide whether three trustees, father, son, and son-in-law, could in law defend their admission of a claim by the father on any ground short of this. Still less is it necessary to do more than express a reservation of my opinion as to the conditions under which the compromise of such claim by trustees so situated could be successfully defended.
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The Court adhered.
Counsel for Pursuers and Reclaimers— D.-F. Balfour, Q.C.— Dundas— Christie. Agents— Simpson & Marwick, W.S.
Counsel for Defenders and Respondents— Asher, Q.C.— Jameson— Wallace. Agents— J. & J. Ross, W.S.