Scottish Court of Session Decisions

David Carruthers, manufacturer in Bervie, died on 7th April 1879 leaving a trust-disposition and settlement, whereby he conveyed his whole estate to five trustees, of whom three—James Glegg, William Jarvis, and Hector Forbes resided in Bervie, one, the truster's brother William Carruthers, in Glasgow, and the fifth, Hall Grigor, the truster's agent, in Inverkeithing. The trustees were directed to pay the liferent of the residue of the estate to the truster's daughter, and the fee to her children. The deed contained the following clause:— “With full power to my said trustees to appoint factors, either of their own number or other fit persons, for uplifting the rents and interest of my said estate, and to hold him liable to them for all omissions, errors, or neglect of management, and for his own personal intromissions with my said estate; and I do hereby direct my said trustees under this settlement annually, within one month after the 31st day of December in each year during their administration, to cause their factor to make up an account of the intromissions had by him by virtue hereof in the course of the year ending on that date, and to lay the same, with the whole vouchers thereof, before them, to be by them examined, audited, and (if found to be correct) approved of; and in the event of my said trustees being dissatisfied with the management of my said estate by the said factor whom they may appoint, I hereby authorise them to appoint a new factor in his place, either of their own number or other fit person as aforesaid, who shall be responsible to them as above mentioned.”

All the trustees nominated accepted office. No special appointment of Mr Grigor as agent or factor for the trustees was made, but he acted in that capacity.

The truster's debts exceeded his personal estate, and a pro indiviso share of the lands of Cobbinshaw, consisting partly of minerals and partly of a farm, formed the bulk of the trust-estate. It was heavily burdened, and the greater part of the rents were exhausted in payment of interest on bonds, taxes, and expenses. The rents and royalties were not drawn directly by Mr Grigor, but the shares of them effeiring to the trust were from time to time paid to him by the agents of the other co-proprietors.

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In December 1891 Mr Grigor became bankrupt and absconded, and his estates were sequestrated on 19th January 1892, when it was found that he had misappropriated to his own use £381, 12s. of trust money.

In June 1894 Miss Carruthers, the liferentrix, raised an action of count, reckoning, and payment against her father's trustees, to have them ordained to replace the sum lost to the trust by Grigor's defalcations. She averred that the loss to the trust-estate had been caused by the failure of the trustees to audit the factor's accounts at the end of each year as required by the trust-deed; and pleaded—“(3) The defenders having been guilty of a contravention of the trust-deed, and, separatim, of gross breach of trust and neglect of duty, whereby a portion of the trust-estate has been lost, are bound to make good said loss to the trust-estate.”

Defences were lodged for William Carruthers, James Glegg, and Hector Forbes. They denied that they had failed in their duty as trustees.

Proof was allowed. The evidence showed that the factor's accounts for the first two years of the trustees' administration were formally rendered and docquetted in 1881 and 1882. The third account, and the last entered in the sederunt-book, was for the years from 15th May 1882 to 29th February 1888, and showed a small balance in favour of Mr Grigor. A fourth account not engrossed in the sederunt-book was brought down to 1st June 1890. It was not docquetted, but had been laid before the trustees and was admitted to be correct. It showed arrears of interest due by the trust amounting to about £130, and a balance of above £60 in favour of Mr Grigor. After 1st June 1890 no further account was rendered by Mr Grigor. The funds which he had misappropriated had come into his hands after that date—£165 in the latter part of 1890, and the balance in 1891.

The evidence also showed that down to the date of Grigor's disappearance the trustees had had no doubts of his honesty.

It further appeared that in September 1890 the widow of the testator had raised an action against the trustees for payment of terce and jus relictæ; that in regard to this action differences had arisen between the three trustees resident at Bervie on the one hand, and Grigor and Carruthers on the other; that on 4th December 1890 Grigor and Carruthers had presented a petition for the removal of Jarvis, and that this petition had resulted in the resignation of Jarvis in March 1891, and of the other two Bervie trustees in the autumn of the same year.

On 9th February 1895 the Lord Ordinary ( Kincairney) pronounced the following interlocutor:—“Finds that it has not been proved that any of the defenders, William Carruthers, James Glegg, William Jarvis, or Hector Forbes have been guilty of gross neglect of duty as trustees acting under the trust-deed of the late David Carruthers, manufacturer in Bervie, whereby a portion of that estate has been lost: Therefore assoilzies the said defenders from the conclusions of the summons, and decerns: Finds no expenses due by or to any of the parties.

Note.—[ After narrating the facts]— No objection has been taken to the pursuer's title to conclude for the replacement into the trust—estate of the money which had been lost. The only questions which have been raised are as to the liability of the trustees — questions about which I felt and feel great difficulty. There is perhaps no great difficulty about the law. In regard to questions of this kind, where it is sought to make trustees liable for losses to the estate, certain general principles appear to have been settled. I think it settled as a general rule that where the conduct of trustees has been so faulty as to amount to culpa lata, or crassa negligentia, they will be liable for the loss occasioned by that fault, whether the fault be a fault of omission or commission, and that they are not protected in that case by the clause in the Trusts Act of 1861, which exempts them from liability for omissions. On the other hand, I think that as a general rule where the trustees are in fault, but where the fault is not so great as to be justly described as culpa lata, they will not be liable.

In this case there can be no doubt that the defenders are chargeable with great neglect of duty. Between 1882 and 1888 they seem to have known very little about the trust, and I think that their negligence during that time amounted to culpa lata, and that it would have inferred liability for loss if it had resulted in loss. But it is certain that it did not result in loss, because down to June 1890 there had been no defalcations and no loss. In cases of this sort it must appear not only that there has been fault, but also loss resulting from that fault, of which obvious principle Binnie v. Binnie's Trustees, February 10, 1888, 15 R, 417, is an instructive example. Hence the neglect of the trustees prior to June 1890 is, if not quite, yet almost, out of the case; and the case has to be considered as if the trustees had not been in fault till then, with this qualification, that their prior conduct might throw light on what followed. The question, then, I consider, is—Are the trustees liable for fault committed after 1st June 1890?

In considering that question the nature of the trust-estate is to be kept in view. It did not consist to any extent of capital. Nothing was entrusted to the factor except the revenue. The precautionary directions of the truster in order to the safety of that revenue require attention, for they were not calculated nor intended to protect it altogether, and they left the whole annual revenue from the date when the accounts were to be rendered, in the hands of the factor, at least so far as the trustees were concerned. The loss of a year's revenue by the defalcations of the factor was not provided against. This arose, not from any defect in the truster's direction, but from the nature of the ease. In such a case the safety of the annual revenue is not dependent

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on the care of the trustees, but on the honesty of the factor. I do not see that it was or could be the duty of the trustees to secure against that danger.

Further, it is to be kept in view that this case regards the omissions of the trustees, not their intromissions. They are not called on to account on the footing that they received the money. They did not.

A broad distinction seems recognised between the liability of trustees for intromissions, actual or constructive, and their liability for omissions— Seton v. Dawson, December 18, 1811, 4 D. 310; Knox v. M'Kinnon, November 2, 1886, 11 R. 22, and 7th August 1888, 15 R. (H.L.) 83; and Raes v. Meek, July 19, 1888, 15 R. 1033, and 8th August 1889, 16 R. (H.L.) 31, are probably the leading cases of the former class; and Ainslie v. Henderson's Trustees, February 6, 1835, 13 S. 117; Thomson, July 16, 1838, 16 S. 560; Home v. Pringle, December 1, 1837, 16 S. 112, affirmed 22nd January 1811, 2 Rob. 384; and Gordon's Trustees v. Gordon, March 18, 1882, 19 S.L.R. 519, are cases of the latter class. The responsibility of trustees is less stringent in the latter class of cases.

The pursuer maintains that, apart from ail question as to culpa lata or negligence of any kind, the defenders are liable because they disregarded the truster's direction to cause their factor to furnish annual accounts within one month after 31st December in each year. The direction is quite explicit, and it is certain that it was not obeyed. But I do not think that the trustees can be made liable in respect of their non-compliance with the truster's direction except as an element to be taken into account in considering the question of negligence. When a trustee undertakes a trust containing such a direction, he does not enter into a contract that he will fulfil that direction, and he will not be liable for breach of contract if he fails to do so. His obligation is that of a trustee, not of a contractor, and in the obligation of a trustee there is an element of discretion which is not present in a contractual obligation. A trustee may justify non-compliance with such a direction on grounds of expediency; he may excuse it on strong grounds of convenience. It was argued that there were grounds of excuse in this case. It was said that as accounts had been rendered in September or October, coming down to 1st June, it was unreasonable to insist on additional accounts in January. Further, it was said that the trust was at the beginning of 1891 involved in difficulties and brought to a deadlock by the difference between the two sections of the trustees.

I must say that I am not satisfied with these reasons, and think that the trustees have not justified their failure to comply with the directions of the truster, although in considering their liability the position in which they were placed may be considered.

But admitting that the trustees were in the wrong in not calling for the accounts as directed by the trust-deed, their liability is not a necessary consequence. For it is not every fault which is so punished, but only culpa lata, and I am not aware of any case, not involving a question as to the powers of trustees, where they have been held liable for failure to comply with the truster's directions where they were not chargeable with culpa lata, or not directly accountable for their own intromissions. It appears to me that the question must still be, has there been culpa lata?

Still further, the loss of the trust-estate must be the result of the fault averred. It is maintained that that is not so in this case. Had Mr Grigor's accounts been called for in January or February 1891, they would, if fairly rendered, have shown that he had then above £100 in his hands, and that arrears of interest had not been paid. But that—apart from the question of whether it was put in bank for the trust or not—could not in the circumstances have been regarded as illegitimate or suspicious, because at that time the law expenses in regard to Mrs Carruthers' action had not been paid, and the petition for the removal of Mr Jarvis was still in Court: law expenses had been incurred in it, and more might be incurred, so that it was apparently legitimate and expedient, and perhaps necessary, that the factor should be in funds to meet these claims. I think, therefore, that it does not appear that had the truster's directions been complied with any default of Grigor would have been detected or the loss averted.

But then it is said that the obligation of the trustees to comply with the truster's direction was a continuing obligation, and that, if they did not call for accounts in January or February, it was all the more incumbent on them to insist on them in March or April. This argument appears plausible, but it seems to me illegitimate, in support of the plea that the defenders are liable for mere breach of the instructions of the truster apart from negligence. It all really enters into the question as to the culpa lata of the trustees, and I think that is the true question in this case.

Now, that is a question depending on the specialties of the case, and it seems to come to this—Grigor had been the truster's agent; for above ten years the trustees had had experience of him as agent in the trust, and had not had reason to suspect his honesty or his financial stability. That, I think, is the fair result of the evidence. They knew that up to 1st June 1890 there was nothing wrong with his accounts, and that there were sums to pay to himself and to creditors of the trust. A somewhat pronounced difference had arisen between two sections of the trustees. In that position of matters they failed to call for his accounts until his sequestration. In failing to do so they are undoubtedly chargeable with negligence and fault, but the question is, whether, keeping in view the directions of the truster, that negligence was so great as to lead to liability for the loss which has befallen the trust-estate. I am disposed to answer that question in the negative.

I am not aware of any ease where the liability of gratuitous trustees for omissions has been carried so far. The cases

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most in point appear to be Ainslie v. Henderson's Trustees and Home v. Pringle, which show that the Court discriminates between degrees of fault. The latter case is of the highest authority. In the former case it may be that more weight is given to clauses of immunity than would now be given. Still I am not aware that it has ever been doubted. I must say that I think there was more fault in the conduct of the trustees in that case than has been proved against the defenders in this case, since the accounts down to 1st June 1800 were rendered.

Whether trustees are chargeable with culpa, lata or not is a question of impression, difficult in a case like this, to bring to any definite test, and my impression, formed certainly with much hesitation, is that the trustees in this case are not liable.…

While I assoilzie the trustees, I do not consider that they are entitled to expenses.

No appearance has been made for Grigor, but I suppose no decree against him is desired.”

The pursuer reclaimed, and argued—The defenders had been guilty of breach of trust, and were therefore responsible for the loss sustained by the trust-estate. They had failed to obey specific instructions of the testator. Further, they had at common-law been guilty of gross neglect of duty. No accounts had been called for, nor had there been any supervision of the factor. It was for the trustees in these circumstances to show that the loss which had admittedly been sustained would not have been incurred if they had done their duty. This the trustees had failed to show, and they had been guilty of gross negligence and want of due care, and were accordingly bound to make good the loss which the trust-estate had sustained— Sym v. Charles, May 13, 1830, 8 S. 741; Kilbee v. Sneyd, 1828, 2 Molloy's Reps. 1886; opinion of Willes, J., in Grill v. General Iron Screw Collier Company, 1866, L.R., 1 C.P. 612; in re Brogden, 1888, L.R., 38 C.D. 546; Gordon's Trustees v. Scott, March 18, 1882, 19 S.L.R. 549.

Argued for the defenders—The judgment of the Lord Ordinary was sound and should be upheld. The trust-estate had not been lost by reason of culpa lata on the part of the trustees. The trustees had, no doubt, omitted to get accounts presented to them by the factor on the 31st of December of each year, but such omission did not in the circumstances of this case amount to gross neglect.— Home v. Pringle, November 30, 1837, 16 8. 142, aff. June 22, 1841, 2 Rob. App. 384; Thomson v. Campbell, February 16, 1838, 16 S. 560. Nor was the loss to the trust-estate due to the trustees' failure to call for accounts.

At advising—