Scottish Court of Session Decisions

Major-General James Corse Scott died on 6th March 1890, leaving a trust-disposition and settlement dated 20th March 1889, by which he conveyed to the trustees therein named his whole estate, heritable and moveable, for, inter alia, the following purposes:— “Fourth, That my trustees snail pay to my nephew Captain Alexander James Corse Scott, on the retired half-pay list of the Bengal Staff Corps, in the case of his surviving me, the sum of £5000 sterling, and shall retain and invest in their own names the sum of £5000 sterling in trust, for the liferent use allenarly of the said Captain Alexander James Corse Scott, and for the lawful issue of the body of my nephew John Scott of Sinton, in fee equally, share and share alike: Fifth, that my trustees shall pay to my nephew Major Edward Corse Scott, of Her Majesty's Sixth Royal Warwickshire Regiment, in the case of his surviving me, the sum of £5000 sterling, and shall retain and invest in their own names the sum of £5000 sterling in trust, for the liferent use allenarly of the said Major Edward Henry Corse Scott, and for the lawful issue of the body of my nephew, the said John Scott of Sinton in fee, equally, share and share alike: … Seventh, That my trustees shall retain and invest in their own names the sum of £10,000 sterling for the younger children of my nephew, the said John Scott of Sinton—that is, the whole lawful children of the said John Scott other than the child or heir who shall succeed, or be entitled to succeed, to the said estate of Sinton, and apply the income thereof for their behoof and maintenance, and convey and make over the capital of said sum of £10,000 to said younger children equally, share and share alike, on said children, if males, attaining the age of twenty-one years complete, and, if females, on their attaining said age or being married, whichever event shall first happen.”

By the last purpose the truster directed that the residue and remainder of his estate should be divided into sixty-two

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equal parts, and that his trustees should hold, pay, and apply, and convey and make over, as herein set forth, eight parts thereof for the children of his deceased nephew Major John Corse Scott (afterwards recalled and given to the lawful issue of the said John Scott of Sinton); five parts to his nephew Captain Alexander James Corse Scott; five parts to his nephew Major Edward Henry Corse Scott; twenty parts for the lawful issue of the said John Scott of Sinton; twelve parts to the said John Scott of Sinton, and his heirs succeeding him in the said estate of Sinton; five parts to Mrs Helen Wardrop, his niece, in liferent, and her children in fee; six parts for the children of the deceased George Boothby, with the exception of Mrs Louisa Bazeley, and one part for James Charles Wahab. It was further provided that the fee of none of the capital sums or shares of residue should vest in any of the beneficiaries until the said beneficiaries attained, if males, twenty-one years of age, if females twenty-one years or until they were married.

The investment clause in the said deed provided—“Also with full power to my trustees to retain the securities in and upon which the funds forming the said trust-estate are and shall be invested at the time of my decease, and to lend out and invest all or any part of my said estate in” certain securities specified, “or on the security of any of the investments before mentioned, or in or upon such other funds and securities as my trustees in their discretion shall deem fit, and from time to time to alter, change, or renew the securities as may be necessary or may seem to them expedient.” It was further provided and declared that “my said trustees shall not be liable for omissions or neglect of management, nor singuli in solidum, but each for his own acts, receipts, and intromissions only, nor shall they be liable or accountable for any banker, factor, or other person with whom or into whose hands any of the said trust funds may come or be deposited in the execution hereof, nor for the insufficiency or deficiency of any stocks, funds, or securities in or upon which any of the trust funds may be invested in pursuance of this settlement, or that the properties, stocks, or investments which may be purchased with the funds of this trust shall realise the price or prices at which the same were purchased, or for the responsibility of the debtors, purchasers, or others with whom my trustees may transact, or for any other misfortune, loss, or damage which may happen in the execution of this trust or otherwise in relation hereto, unless the same shall happen by or through their own wilful default respectively.”

By codicils dated in 1890 the truster provided certain other legacies to be invested by the trustees for the behoof of certain beneficiaries in liferent, and of other beneficiaries in fee, the fee not to be payable to the latter until they reached majority, or, in the case of females, until marriage, whichever event should happen first.

Among the trust assets at the truster's death were included about £33,000 of deposits for fixed periods in various colonial and foreign banks, whereof a sum of £9000 was deposited in three deposit-receipts for £4000, £3000, and £2000 with the English Bank of the River Plate, Limited, maturing, the first on 15th February 1893, and the last two on 11th June 1893. Under the various testamentary deeds there were left about £53,000 of legacies falling to be paid at once to the beneficiaries, and £32,000 of legacies which the trustees were directed to hold in trust for minor or other beneficiaries.

At a meeting of the trustees on 24th June 1890, the trustees, in compliance with the request of two of their number, who were also beneficiaries, John Corse Scott of Sinton and Captain Alexander James Corse Scott, resolved to realise sufficient of the trust-estate to pay the £53,000 of legacies above mentioned, and to set apart and apportion certain of the fixed deposits to meet the legacies not immediately payable. A deed of declaration of trust giving effect to this resolution was accordingly executed in Februay 1891.

This deed contained the following guarantee:—“And I, the said John Scott, now John Corse Scott, as an individual, do hereby bind and oblige myself, my heirs, executors, and representatives whomsoever, without the necessity of discussing them in their order, all jointly and severally, to warrant, free and relieve, and harmless and skaithless keep the trustees and executors of the said Major-General James Corse Scott, and their heirs, executors, and successors, of and from all loss, skaith, interest, damages, and expenses that they, or any of them, or the trust-estate of the said Major-General James Corse Scott, may sustain or incur, or may be put to in any manner of way, by continuing to hold and retain the foresaid deposit-receipts, in terms of this present declaration of trust and deed of apportionment, or of having set apart and apportioned the same for the purpose of meeting the provisions and other legacies above particularly set forth and referred to.” A guarantee in similar terms was undertaken by Captain Alexander James Corse Scott.

Among the deposits thus retained and apportioned, the deposits in the English Bank of the River Plate were apportioned as follows:—(1) The deposit-receipt for £3000, and a pro indiviso share of the deposit-receipt for £2000, were set apart and apportioned in implement of the directions in the fourth purpose of the said trust-disposition and settlement to retain and invest £5000; (2) the deposit-receipt for £4000, together with a deposit-receipt in another bank, was set apart and apportioned in implement of the directions contained in the seventh purpose of the said deed. At the date of the meeting of trustees on 24th June 1890, and of the declaration of trust, the said English Bank of the River Plate was in good repute. After the meeting of trustees on 24th June 1890, the several legacies affected by the arrangement then agreed upon were dealt

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with as separate trusts, and the income paid to the various liferenters was the net proceeds of the particular securities set apart for each individual bequest. In the month of July 1891 the English Bank of the River Plate, suspended payment, and a winding-up order was pronounced on 1st August 1891. None of the deposits made by the truster in said bank had matured when it had suspended payment. The loss on the deposits held by the trustees in the bank would, it was believed, amount to about 25 per cent.—that is to say, to about £2000.

In these circumstances questions arose as to the persons on whom the loss occasioned by the depreciation of the deposits in the English Bank of the River Plate was to fall. For the decision of this question, a special case was submitted for the opinion and judgment of the Court by (1) the trustees; (2) John Corse Scott and Captain Alexander James Corse Scott as individuals; (3) the legatees, to meet whose claims the deposit-receipts had been specifically appropriated, viz., Captain Alexander James Corse Scott and the seven children of John Corse Scott, whose ages ranged from one to thirteen years; and (4) the residuary legatees.

The questions of law were—“1. Are the beneficiaries interested as liferenters or as fiars respectively in the provisions and legacies specified in the declaration of trust and affected by the loss on the said deposits in the said English Bank of the River Plate, or either and which of them entitled to relief from such loss against ( a) the residue of the trust-estate; ( b) the trustees of Major-General James Corse Scott as individuals; (c) Mr John Corse Scott of Sinton, and Captain A. J. Corse Scott, or either of them, under the clauses of indemnity in the declaration of trust, to the extent undertaken by these parties respectively? 2. In the event of head ( a) of question 1 being answered in the affirmative, are the trustees bound to relieve the fourth parties of the loss thus occasioned them, or are the trustees or the fourth parties entitled to recover from Mr John Corse Scott and Captain Scott, under the clauses of indemnity in the declaration of trust, and to the extent undertaken by these parties respectively, the amount by which the residue is diminished by the payment of such claims? 3. In the event of head ( b) of question 1 or of the first alternative of question 2 being answered in the affirmative, are the trustees entitled, under the said clauses of indemnity, to be relieved from such claim by Mr John Corse Scott and Captain Scott to the extent undertaken by these parties respectively?”

On 1st June 1895 the Court appointed a tutor ad litem to the children of John Corse Scott, and he became one of the second parties to the case.

Argued for the trustees—The trustees were not liable to make good the loss. By the investment clause they were empowered to retain the estate invested at the date of the testator's death in the investments in which they found it— Ritchie v. Ritchie's Trustees, July 20, 1888, 15 R. 1086; Thom son's Trustees v. Henderson, October 25, 1890, 18 R. 24. They were also entitled to apportion investments for the payment of particular legacies— Robinson v. Fraser's Trustee, August 3, 1881, 8 R. (H.L.) 127. Lastly, the trustees were in any event entitled to be relieved of any loss they or the trust-estate might sustain by the second parties, in terms of the guarantee.

Argued for the second parties—The guarantee undertaken was only to indemnify the trustees for any loss they or the trust-estate might sustain. The persons indemnified were thus the trustees and not the beneficiaries under the trust, and therefore, unless the loss was one for which the trustees were personally liable, the guarantee did not apply.

Argued for third parties—(1) No doubt the trustees had a right to retain temporarily the deposit-receipts if they were covered by the words of the investment clause. But this right was subject to qualification. They could not retain a security indefinitely and without inquiry. They must keep their eyes open, so as to be able to step in and prevent loss. This was laid down in Thomson's case. But in the present case the trustees, by the deed of 1891, had placed themselves in such a position that they required to retain the deposit-receipts, however unsafe a security they might be shown to be. (2) The trustees had no power under the deed to apportion the investments to particular legacies. In this trust-deed there was no provision that any portion of the trust-estate should be “set apart” for particular legacies, as in the case of Gray v. Gray, June 4, 1835, 13 S. 866. The words in this case were “retain and invest.” The loss must therefore fall upon the trustees, or, if it were held that they were not acting ultra vires in retaining the deposits, the loss must be made good out of the residue.

Argued for the fourth parties—1. The case was ruled by Robinson's—indeed, was a fortiori of it. In Robinson's case the leading provision was merely to pay the interest on a sum of £2000 to each of two liferentrices, and the authority to separate and appropriate the estate was only to be inferred from the subsidiary power given to the trustees “to invest the foresaid legacies of £2000 and £2000 respectively.” In the present case the leading provision was that the trustees should “retain and invest, in their own names, the sum of £5000 sterling in trust.” This prima facie pointed to the £5000 being severed from the general estate and separately invested. 2. It was not necessary that specific appropriation should be expressly directed or authorised by the truster; it was quite sufficient if it was impliedly authorised, or even if it was not prohibited, and was in accordance with reasonable trust administration. 3. Specific appropriation was here clearly to be implied, because ( a) the trust-deed provided that the annual income of shares of residue directed to be retained and invested by the trustees for the liferent

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use of any party, should only commence to run from and after the date of such investment. But without payment or specific appropriation of investments to meet legacies it was impossible to ascertain the amount of residue, or to invest shares of it. If, therefore, the trustees could not appropriate investments towards such legacies, the provision as to payment of interest to persons liferenting shares of residue could not be carried out; ( b) certain of the shares of residue fell to be paid at once, but, as pointed out under ( a), this could not be done without specific appropriation. The House of Lords gave great weight to the direction to pay residue in Robinson's case. Assuming that the securities had been properly appropriated to specific legacies, the parties on whose behalf the securities were held must bear the risk of the fluctuations of the securities. Opinion of Lord Shand in Teacher's Trustees v. Teacher, January 10, 1890, 17 B. 313 and 314.

At advising—