Scottish Court of Session Decisions

The late Mr William Millar, solicitor, Jedburgh, died in 1879, leaving a disposition of his whole estate in favour of his widow. As a result of a family arrangement between Mrs Millar and her children, she executed in 1880 a trust-deed, whereby she disponed her whole estate to trustees, who were to pay the income to her during her life, and to hold the capital for behoof of her family. The trustees, who all accepted office, were Mr Alexander Catto, teacher, Ancrum, Mr William Elliot, Sheriff-Clerk of Roxburghshire, and the Rev. William Poison, Blackfriars Church, Jedburgh. Of these Mr Catto resigned in 1883. At the commencement of the trust the trustees employed Mr James Riddoch, solicitor, Jedburgh, as law-agent therein, and he continued to act as such until 1881, after which date they had no law-agent, Mr Elliot keeping all the accounts, making the remittances, and generally doing the work of an agent for the trust. Accounts of Mr Elliot's intromissions were prepared, and these were approved by the beneficiaries, who in January 1894 executed a minute of agreement by which they agreed to dispose of the heritable property and invest the price, it being provided that “the trustees shall consult with Mrs Millar through delegates” as to the disposal of the property, the investment of the funds, and the annual amount to be paid to Mrs Millar. Mr Riddoch was appointed one of the delegates, and thereafter attended the meetings of the trustees.

In 1896 Mr Poison and Mr Elliot executed a deed of assumption in favour of certain new trustees, and thereafter resigned their office. The new trustees, on discovering that two sums of £150 and £95 had not been accounted for, raised an action against Mr Poison for payment of these amounts.

In or about November 1894 there was a large credit balance in bank on the current account of the trust apart from what had been placed on deposit. The bank account was in the joint names of the defender and Mr Elliot as Mrs Millar's trustees, and all money drawn from the bank had accordingly to be drawn by means of cheques signed and endorsed by both trustees. The trustees having resolved to transfer a further sum of £200 from the account-current to a deposit account with a view of obtaining interest on said sum, the defender, on or about 30th November 1894, at the request of his co-trustee, Mr Elliot, signed and endorsed a cheque for that amount drawn upon the trust account. He thereafter handed the cheque to Mr Elliot, who undertook to have the amount placed on four deposit-receipts of £50 each in their joint names as trustees foresaid. Instead of doing so Mr Elliot drew the whole sum of £200 from bank and placed only £50 on deposit-receipt, retaining £150 for his own personal uses and purposes. Mr Elliot's estates were sequestrated on 6th February 1896, but no dividend was likely to be payable. The sum of £95 second sued for arose out of rents of Bellevue, a heritable property in Jedburgh belonging to the trust. Mr Elliot collected for three half-years, ending successively Whitsunday 1894, Martinmas 1894, and Whitsunday 1895, the rents of this property, amounting to £95, 17s. 6d., and did not pay the same into the accounts of the trust, but retained same in his own hands and appropriated them to his own purposes. At the date of his sequestration the said William Elliot was due the sum of £95, 17s. 6d. in respect of the three half-years' rents collected by him as aforesaid.

The Lord Ordinary ( Pearson) allowed parties a proof. The nature of the evidence as to the course adopted by the defender to induce his co-trustee to repay the money retained by him is sufficiently indicated in the opinions of the Lord Ordinary, and of the Lord President, infra. As regards the financial position of Mr Elliot, it was proved that since 1893 he had been insolvent, there having been a balance of liabilities over assets ranging from £4300 at that date to £5000 at the date of his sequestration. Mr Stedman, the trustee on his sequestrated estate, deponed—“Judging from my investigations I should say Mr Elliot was hopelessly insolvent for many years during which he appeared to be in good credit. He paid pressing creditors by taking from one client to pay another.”

Mr Maclean, who had been Mr Elliot's clerk, deponed that he was unable to raise money to pay his clerks' salaries. “I was personally aware of his difficulties in money matters for many years prior to his sequestration. His difficulties became more and more acute until the time of his bankruptcy, He was not able to raise money on credit in 1894, 1895, or 1896.”

The Lord Ordinary on 19th January 1897

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assoilzied the defender from the conclusions of the summons.

Note—“Mr William Millar, solicitor, Jedburgh, died in 1879, leaving a will in favour of his wife. Shortly afterwards, the widow and children came to a family arrangement which resulted in a trust-deed under which she appointed three trustees to hold the estate substantially for herself in liferent and her children in fee. One of the three trustees resigned in 1883, and since then the other two have acted, namely, Mr William Elliot, the late Sheriff-Clerk of Roxburghshire, and the defender Mr Poison. They acted until 1890, when they resigned after having assumed the present pursuers as trustees, and the action is now directed against Mr Poison in order that certain sums of money which it is admitted disappeared from the trust during Mr Elliott's trusteeship, and liability for which I understand Mr Elliot substantially admits, should be restored to the trust-estate. Mr Elliot is living in England and is certified to be incapable of being examined as a witness. His estates were sequestrated in the beginning of 1896.

The question is, whether in the circumstances there is on the part of Mr Poison such culpa as to render him liable to make good this money, although it is certain that he did not make any gain by it, and was deceived in the matter by his co-trustee Mr Elliot. That depends upon careful consideration of the facts of the case, and the facts with reference to the first sum of money in question, namely, £150, are simple enough.

Before adverting to them, however, it is right that I should refer to an agreement which was made between the trustees and the liferentrix and beneficiaries in January 1894. The widow, who has since died, joined with the other beneficiaries in agreeing to dispose of certain heritable properties with a view to the realisation and distribution of the trust-estate, and to invest the funds securely, ‘paying the interest to Mrs Millar (the liferentrix), and if this is not sufficient for her comfortable maintenance’ that a part of the capital be set aside to augment it. The trustees shall consult with Mrs Millar and family through delegates as to the following matters,’ and among others is specified the ‘investment of the funds.’ Now, at that date, as I understand it, the widow had either occupied the house at Bellevue which belonged to the trust, or, when it was let, had drawn the rents herself; but after this minute was entered into, it became the duty of the trustees to take account of the rents of Bellevue towards her annuity, which was fixed by the agreement at £120 per annum. No delegates were named in the deed, hut it appears from the proof that three gentlemen were appointed by the beneficiaries to act in that capacity, namely, Mr William Millar, Mr Morton, and Mr James Riddoch. Mr Riddoch had been law-agent of the trust down to the year 1881, but from that date he had ceased to act as law-agent of the trust, and Mr William Elliot, one of the trustees, had apparently fulfilled all the duties of that office. But Mr Riddoch, in addition to being named as one of the three delegates through whom the trustees were to consult with the beneficiaries, did a certain amount of agency in connection with the realisation of the heritable property, and I think it may be taken on the proof that he was employed as law-agent in matters arising out of the realisation of the heritable subjects belonging to the trust. He also, it appears, was in the habit of convening the meetings of trustees subsequent to January 1894, and he himself attended all or nearly all the meetings. The other two delegates who, however, unlike himself, did not live near Jedburgh, did not attend more than one or two meetings.

That being the state of matters in 1894, it appears that in November of that year there was a considerable amount in the current account in bank belonging to the trust, and at the meeting of 19th November, convened by Mr Riddoch, and at which he was present, it was resolved to place £200 of the amount on current account on deposit-receipt. Four deposit-receipts for £50 each were to be taken, and what followed was simply this—As the bank account could be operated on only by the signatures of both trustees, a cheque for £200 was drawn and signed by the two trustees and left in the hands of Mr Elliot in order that he might fulfil the mandate of the meeting, and obtain the four deposit-receipts of £50 each. That cheque is dated 30th November, and Mr Elliot, who as it turns out, was then a long way behind the world, took one deposit for £50, and transferred the remaining £150 into his own private bank account, or otherwise appropriated it to his own purposes. The next thing that happened in regard to the bank account was that towards the middle or end of January 1895 another cheque was drawn for £50 and signed by both the trustees, and another deposit-receipt was then as I understand issued to them. There is a marked difference between the terms of the two cheques, the second cheque having been issued in such terms as to safeguard the trust-estate from the undue attention of Mr Elliot to the trust funds, the terms being ‘pay to Commercial Bank for deposit-receipt, £50.’ I understand that to be accepted by the bank as an instruction to them by the signatories of the cheque that they are not to give the money or credit to the party presenting the cheque, but are to put it on deposit-receipt and nothing else. That is an obvious safeguard when once it is pointed out, and it was not inserted in the cheque for the £200 of 30th November 1894. If it had been proved that that was an ordinary mode of safeguarding trust funds when passing through the bands of one of the trustees, I am not at all sure that it would not have been a very important point against the defender. It would have been so even if, without being a common practice, it had been the course or practice in this trust, but neither the one thing nor the other is proved in this case, and all I know is that one cheque had and the other

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had not that safeguard. Sometime after the meeting of 19th November Mr Riddoch learned that Mr Elliot had not taken out the deposit-receipts as instructed, and he communicated the fact to the defender. On this point a conflict of evidence occurs between Mr Riddoch and Mr Poison as to the date at which the intimation was made, as it undoubtedly was made at some date during the winter of 1894–95. to the effect that Mr Elliot had not put the £200 on deposit-receipt, but only £50 of it. Mr Poison asserts that the meeting at which that intimation was made to him was some weeks after November; indeed, he places it in the latter half of January 1895. Mr Riddoch, on the other hand, places it about 3rd December. If that part of the case should ultimately prove to be important, I have little hesitation in preferring the evidence of Mr Poison on that particular matter. Mr Riddoch assigns a reason for his date which certainly does not bear scrutiny, because he refers to a fact in support of it which it turns out did not happen for a year after. But in the view that I take of the case I do not think it very important whether the intimation which undoubtedly was made by Mr Riddoch to Mr Poison was made in December or in January. Certain it is that Mr Riddoch met Mr Poison and told him that only £50 of the £200 had been placed on deposit-receipt, and Mr Poison says that on getting that information he went at once, either on the same day or within a day or two, to Mr Elliot and demanded an explanation. Mr Elliot gave an explanation which seems to me to import that he not only had not fulfilled the mandate of the trustees, but was using the money himself. I regard the explanation as practically amounting to that, though in form Mr Poison says it was simply an assertion by Mr Elliot that he had invested the money at 5 per cent. I do not think Mr Poison was very careful to deny that that at all events put him on his inquiry, and I think he must be taken to have assumed that the money was not safely invested at 5 per cent., that it was not invested in conformity with the mandate of the trustees, and therefore it was a risk in the hands of his co-trustee. From that date onwards Mr Poison repeatedly—sometimes by letter and sometimes verbally—intimated to Mr Elliot that he must as soon as possible restore that money to the trust. Mr Elliot, who by this time was in very straightened circumstances, though nobody had any idea of it, except perhaps his confidential clerk, was putting off from time to time, and apparently welcomed the arrival of the summer holiday in order that the matter might be over. He writes a letter in June by which he gets the matter tided over, and when it comes up again in September he writes laying the blame of the delay on the General Election, which had intervened, and which no doubt had given him and his assistants in the Sheriff Clerk's office a great deal of work.

I have said that until June no outside person suspected that Mr Elliot was in pecuniary difficulties, but Mr Poison says that about midsummer he did come to be aware that Mr Elliot had some difficulties in money matters. He does not go at all into detail, but it must be taken as part of the facts of the case that about midsummer Mr Poison became aware that very probably the reason why Mr Elliot had not deposited the trust money was that he had used it up in payment of his own debts.

On 23rd September Mr Poison gets a letter from Mr Riddoch about this matter, in which he states that Mr Elliot admits to him that he has £100 to return, and On 28th November (Martinmas being then past, at which term Mr Elliot had renewed his promise to make good the sum to the trust-estate) Mr Poison writes to Mr Riddoch—‘I have to request you as acting for the trust to inquire without delay into this matter and report to me. Also I require you to give Mr Elliot due legal intimation that he is not henceforth to act alone in receiving any money due to the trust, and that I shall insist on signing any receipt for money and seeing that it is lodged in bank. As to the hundred pounds he has retained in his own hands since November last instead of putting the same in bank on deposit-receipt, as instructed at a meeting at which you were present, I have intimated to Mr Elliot that if that sum is not paid into bank in the name of the trustees within one month from Friday last, “legal steps” will be taken to have it done.’ When that month elapsed Mr Poison again wrote to Mr Elliot (on 16th December)—‘As the time allowed before taking legal steps to have it done is about to expire, I have to write that the sum with interest must be paid sooner or later, as I have no power as a trustee to modify the claim. Therefore the sooner the better,’ and in reply to that letter he gets a letter from Mr Elliot saying that he has just granted a trust-deed for his creditors, and that it is of no use now raising proceedings against him.

Now, I have considered very carefully whether, in the circumstances of the case, Mr Poison's conduct amounts to culpa lata so as to render Mr Poison liable to restoration of that money; and taking it, as I do, that that is a question to be determined on the circumstances of each case, I have come, though not without hesitation, to the conclusion that Mr Poison's conduct is not within the category of culpa lata. Most of the cases where culpa lata has been affirmed have had features in them which are markedly absent from this case. In the first place, the leading cases in that branch of the law have nearly all of them been cases where trustees have allowed money to get into the hands of their co-trustees or their factor, and have done nothing at all; and if a trustee does nothing at all—even for such a time as twelve months, possibly even for a shorter time—he may be held to have omitted his duty, and therefore to be liable as a man who takes no steps whatever for the recovery of what is due to the trust. Then, further, in most of the cases where the Court has affirmed liability on this ground a very much longer period of inactivity had elapsed

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than in the present case. Then another point that arises on a comparison of this case with others is that here there is no disregard of any express direction or injunction of the truster. Where there is such disregard (as in the recent case of Carruthers' Trustees), the Court will infer culpa lata, and will not closely inquire whether any loss which occurs is proved to have resulted from the omission or the culpable act. No doubt, looking back upon it, one sees that Mr Poison might have taken and ought to have taken much more stringent steps. It is suggested that he ought at once to have sued Mr Elliot. I can hardly assent to that proposition. What I think he ought to have done was to instruct an independent agent to write to Mr Elliot and demand the money as under threat of litigation. But the question whether and at what stage that should be done is to a certain extent a question of judgment or discretion, and though Mr Poison may have exercised his judgment and discretion wrongly, yet, seeing that he pressed Mr Elliot as far as he could press his co-trustee—short of instructing an independent agent to write legal letters to him—I think on the whole that he has not incurred liability on that head for this money.

The next part of the case relates to a sum of three half-years' rents. That stands on a different footing as to the facts. It is in one sense more favourable, and in another sense less favourable, to the defender than the other part of the case. On the one hand trust accounts, if they had been regularly made up and rendered, would have disclosed that the rent for the first half-year of the three now in question had not been paid over to the widow and had not entered the trust accounts, but had been kept back by Mr Elliot. But although the failure to have regular and stated trust accounts is not a circumstance in favour of a trustee, it is fair to say that it was through no departure from the ordinary course of this trust that the accounts were not made up in due time to show that Mr Elliot had kept back the first or the second of these half-years' rents. Then again, Mr Poison cannot be said to have had it brought to his actual knowledge till about Martinmas 1895 that the rent was kept back, and therefore he is in a more favourable position as to actual knowledge as to these rents than he was about the other moneys. On the whole, I think his position is stronger as to these rents than it was as to the £150, and if I am right in what I have said as to that sum, the same result will follow as to this part of the case.

The next point argued for the defender was that even if culpa lata had been proved there was no proof whatever of loss resulting to the estate from the default of the trustee, and inasmuch as this is an action practically for damages for breach of trust, no damage is qualified. In the view I have stated it becomes unnecessary to decide this point, but I must not be taken as assenting to the defender's view that if he had been otherwise liable he could in this case have escaped liability in respect of the plea that the trust-estate has not suffered any loss through his default. The plea is founded upon this undoubted fact, that for at least three years prior to his sequestration in January 1896 Mr Elliot was behind the world to the extent of about £5000, and was hopelessly insolvent all that time; and the argument urged for the defender was this, that in these circumstances pressure by Mr Poison at any time during 1894 and 1895 would have resulted either in bringing down Mr Elliot, and so depriving the estate of the possibility of getting the money back (for there is practically no dividend expected in the sequestration), or else would have produced the money by Mr Elliot getting it unduly and fraudulently from somebody else. Now, if that view were made out, that might be sufficient for the defender's case, but it seems to me that the argument as put lays a burden of proof on the beneficiaries which they are not bound to undertake. When Mr Elliot was brought to bay, and Purvis's trustees brought their action in November 1895 for £700 or £800, a relative came forward and settled the claim—it is true it was settled for 5s. per £—and the action was brought to a conclusion, and I suppose the trust-deed was granted as part of the arrangement. That shows that Mr Elliot had not come to an end of his friends' willingness to aid, and in view of that circumstance I cannot assume that if pressure had been put upon him earlier by Mr Poison the money might not have been produced otherwise than by Mr Elliot helping himself to other people's money fraudulently. Again, there are indications in the proof that Mr Elliot's business credit was not exhausted during the years of hopeless insolvency, for there were bills and advances made to him of larger amount than would have sufficed to restore this money to the trust-estate. I do not at all say that it is impossible for a trustee to make good such a plea if the facts bear it out, but it does appear to me that the burden of proving that part of the case is on him and not on the beneficiaries, and that he has not in the present case discharged that burden.

There is another part of this case on which I think parties are entitled to my opinion, and which distinguishes it, so far as I know, from any case that has happened, and that is the peculiar position held by Mr Riddoch as one of the delegates appointed in pursuance of the agreement of January 1894. That introduces a new and somewhat embarrassing element into the relations between these trustees and the beneficiaries, because it is obvious that when beneficiaries appoint delegates to communicate with the trustees, anything done by these delegates, or by one of them acting as a delegate, with the knowledge and assent of the beneficiaries, may easily slide into acquiescence on the part of the beneficiaries in all that that delegate does or omits. Now, while two of the appointees could not delegate their functions to the third, it is difficult to resist the conclusion that the beneficiaries

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must have known that he was the medium of consultation and communication with the trustees. Mr Riddoch attended the meeting of 19th November at which the instructions were given to invest the £200 on deposit-receipt, and if this had been a question of the propriety of some investment instructed at the meeting as a trust investment, there would have been little doubt that his presence there as a delegate to consult about the investment would have barred the beneficiaries from objecting to that investment as being ultra vires of the trustees. That, however, is not the position of matters here, for while Mr Riddoch must be regarded as having assented to the money being put upon deposit-receipt, it does not follow that he was bound, in the same way as the trustees were bound, to see that the instruction was carried out. If nothing more had happened, I should have said that Mr Riddoch's presence at that meeting did not commit him or the beneficiaries to anything further. But it appears from the proof that both within a few weeks after that meeting, and also repeatedly during the spring of 1895 communications were held between him and Mr Poison which render it certain that Mr Riddoch practically knew all about Mr Elliott's position as regards his money. Now, I do not say that he was the agent of the beneficiaries to all effects, but I do think that some duty lay on him to communicate to the beneficiaries this state of matters, and to inform them that part of the trust funds was at risk. The question of the rents is not much affected by the position of Mr Riddoch as delegate, but so far as regards the £150 which was appropriated in November 1894, I should have difficulty in holding that the beneficiaries have any good answer to a plea of waiver or acquiescence in respect of all that Mr Riddoch did and omitted during the year 1895. I do not think the defender put it too high when he said that there was in this matter a joint duty and joint negligence. So far as that part of the case goes, therefore, it seems to me to fall in with the view I have already expressed on the other part of the case in favour of the defender. On the whole matter I think the defender must be assoilzied with expenses.”

The pursuers reclaimed, and argued—(1) On the facts the defender had clearly failed in his duty to the trust. It was not a case of mere failure to recover a debt due in the hands of a debtor, but the defender, knowing that his co-trustee had misappropriated the trust funds, had failed to take the necessary steps for recovery of them. It was obviously his duty to put the matter in the hands of a lawyer on first hearing of it, and his failure to do so constituted a strong case of culpa lata—Lewin on Trusts (9th ed.) 217. In Forman v. Burns, February 2, 1853, 15 D. 362, the executor had a far stronger case than the defender here, but was held liable— Billing v. Brogden, 1886, L.R., 38 Chan. Div. 546; Blain v. Paterson, January 28, 1836, 14 S. 361; Styles v. Guy, 1849, 1 Macnaghten & Gordon, 422. 2. As to the defence that no benefit would have accrued to the trust had the defender prosecuted Mr Elliot, the defence might be relevant, but the onus of proof lay upon the defender, and he could not easily discharge it— Carruthers v. Carruthers, July 13, 1896 ( 23 R. (H.L.) 55, at p. 58: Dominion Bank v. Bank of Scotland, July 19, 1889, 16 R. 1081; Stiven v. Watson, January 27, 1874, 1 R. 412, at 416; Wynne v. Tempest, April 10, 1897, 13 T.L.R. 360.

Argued for respondent—1. The trust as a whole had been well managed, and the estate had increased in value. The defender had taken scrupulous care and could not have managed his own affairs better. He could not have done more than he did, the pressure he put upon Mr Elliot being of the severest kind. It was not unreasonable not to sue, regard being had to Mr Elliot's reputation, and to the knowledge which the beneficiaries had of the affair through their delegate Mr Riddoch. The time during which he had failed to take action was very short compared with the time in cases cited by the reclaimers, e.g., in Blain v. Paterson there had been a delay of nine years. In Styles v. Guy there had been six years. In Carruthers' Trustees there was a special provision in the trust-deed as to the holding of an annual audit, and naturally therefore the trustees are liable for neglecting to do so. But if it could be proved that the defender had acted reasonably according to the average standard, even if there had been an error of judgment, he was not necessarily liable— Knox v. Mackinnon, August 7, 1888, 15 R. (H.L.) 83, at p. 87. 2. But assuming neglect of duty, it had been clearly proved that no benefit would have resulted to the trust by suing Mr Elliot. If the Court were satisfied that the onus had been discharged, and that there would have been no use in suing, the defence was unquestionably good. The doctrine as to that laid down in Holiday v. Peters, 1860, 28 Beav. 603, had never been challenged. Here the defender had proved hopeless insolvency for five years, and that was enough to discharge the onus.

At advising—