Scottish Court of Session Decisions

On August 8, 1904, Isabella Train, residing in Eskbank, brought an action of reduction, count, reckoning, and payment against, inter alios, Alan Ernest Clapperton, writer, Glasgow, and others, the trustees and executors of Hugh Buchanan, sometime wine and spirit merchant, Dumbarton Road, Glasgow. Train was assignee, in respect of a bond and assignation in security for £650, of Andrew Buchanan, 65 Yorkhill Street, Glasgow, the next-of-kin and heir-at-law of the said Hugh Buchanan, his brother. She sought to reduce Hugh's trust-disposition, or alternatively to obtain a count, reckoning, and payment with regard to the provision therein in Andrew's favour, but on learning of a prior unrevoked will she dropped the reductive conclusion.

The provision in Hugh Buchanan's trust-disposition in favour of Andrew Buchanan was—“( Third) I direct my trustees to set aside and invest in their own names, as trustees, a sum of £5000, and to pay to my brother Andrew Buchanan, during his lifetime, either the whole or only a portion of the annual revenue thereof, and that subject to such conditions and restrictions, all as my trustees in their sole and absolute discretion think fit: And after the decease of my said brother I direct my trustees to hold and apply, pay and make over, said sum of £5000, with any revenue accrued thereon that has not been paid to my said brother, less the expenses of administering and dividing said funds, to or for behoof of the whole lawful children of my said brother equally among them: … And in the event of my said brother Andrew dying without leaving lawful issue who shall take a vested interest as aforesaid, said sum of £5000 and accumulations of revenue, if any, less expenses of administration as aforesaid, shall fall into and form part of the residue of my estate.”

Hugh Buchanan, the testator, died on 25th June 1899, and his trustees had since paid to Andrew Buchanan certain small sums which together came to about £24.

The pursuer, inter alia, pleaded — “(6) The defenders not having exercised their discretion as to the amount of income to be paid, within a reasonable time, are barred from exercising it now to the prejudice of pursuer; or otherwise, the defenders are bound to exercise their discretion annually, and as they have not hitherto done so, the whole annual income of Andrew Buchanan's provision up to the present date is due to him or to pursuer as his assignee, and available for the payment of pursuer's claim.”

The defenders, inter alia, pleaded—“(7) In any view any claim to the revenue of the said provision competent to the pursuer as assignee of the said Andrew Buchanan is subject to the discretionary powers conferred on the defenders by the testator.”

The facts with regard to the defenders' administration of the trust estate are given in the opinion of the Lord Ordinary ( Salvesen), who on 19th January 1906 pronounced an interlocutor, inter alia, finding “that the pursuer is entitled to the whole free revenue under deduction only of the sum of £24 of the capital sum of £2865, 3s. 6d., being the amount available to meet the provision of £5000 in favour of Andrew Buchanan, and that from 25th June 1899 to 2nd June 1904,” &c.

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Opinion.—“In this action the pursuer, who is the assignee of Andrew Buchanan under a bond and assignation in security granted by him in her favour, sues the trustees acting under the trust-disposition and settlement of the late Hugh Buchanan, who died on 25th June 1899. The summons contains reductive conclusions which have now been abandoned, and the only conclusion insisted in is one of count and reckoning in respect of the income of a provision made by the testator in favour of his brother Andrew Buchanan of a sum of £5000. In a previous action, to which neither the pursuer nor her author was a party, the amount in the defenders' hands available to meet the provision of £5000 was found to be £2865, 3s. 6d., and the pursuer accepts this for the purposes of the action as accurate. She says, however, that the trustees have not accounted for any but a small part of the income due to Andrew Buchanan of his provision, and that as his assignee she is now entitled to have that income paid over to her…. [ His Lordship here dealt with certain objections to the accounts lodged by defenders.]

The result of sustaining the objections which I have held to be well founded will obviously be to increase the income which had accrued upon the share set apart for Andrew Buchanan by a relatively large amount, and this has a material bearing upon the next question which was argued, namely, whether the pursuer has a title to sue at all. The trustees' contention is based on the special terms of the third purpose of the trust-disposition and settlement, under which they are directed—… [ Quotes first clause of purpose supra]. The defenders contended that under this clause they had the absolute right of paying Andrew Buchanan only such portion of the annual revenue as they may think fit, and that the sum of £24, which is all that they have in fact paid him over a period of five years, is all that he or his assignee is entitled to demand.

I do not doubt that under this clause the trustees have very wide powers, but I think the plain intention of the testator was that these powers were conferred by him upon his trustees for the benefit of his brother Andrew Buchanan, and that it was the duty of the trustees year by year as revenue accrued to exercise their discretion in the way of limiting the amount of the annual revenue to be paid or the conditions under which they should pay it. I apprehend that under this clause they are not entitled after five years have elapsed to say that they have paid a sum of £24 only, and that they in their absolute discretion now choose to treat this as the whole amount which Andrew Buchanan is to receive at their hands for that period. The discretion which falls to be exercised is something different from caprice. It must be a judicial discretion, and it must be bona fide exercised in the presumed interests of the legatee. The testator when he conferred the powers was dealing with the income of a sum of £5000 which might be presumed to yield anything between £150 to £200 a year. It is obvious that he intended this income to be devoted to the maintenance of his brother, and there might be circumstances in which it would be for the brother's advantage that an annual payment of so considerable an amount should be restricted, but it could scarcely have entered his mind that the trustees would exercise the discretion which he conferred upon them by giving his brother a sum of only £5 a year. If the trustees had professed to exercise their discretion in such an outrageous fashion, I do not doubt that there would have been ways by which this exercise might have been controlled.

To do them justice, however, I do not think the trustees until 2nd June 1904 ever considered that in making payments to Andrew Buchanan they were limiting him to these payments in terms of the clause above quoted. The defenders had a very difficult trust to administer. The principal asset of the testator was the goodwill and stock-in-trade of a public-house which he had tenanted, and which the trustees were unable to realise for some considerable time. They had accordingly to carry on the business, with the result that the second year of their trading resulted in a heavy loss. Until this asset was realised they could not say what the capital of the trust was likely to be. Scarcely had they completed the realisation by April 1901 when an action of count, reckoning, and payment was raised against them at the instance of the other legatees, which depended in Court until 29th November 1904, when decree of absolvitor was pronounced in their favour. The present action of reduction and accounting had in the meantime been raised. All this procedure more or less paralysed the administration of the trust, although it is difficult to understand why the trustees did not at an early period invest at least the greater part of the provision liferented by Andrew Buchanan in some permanent form of investment instead of being content with deposit-receipt interest at the rate of one or one and a-half per cent.

This being the position of the trust, it is not surprising that when the trustees were asked for payment of his share of the income by Andrew Buchanan they were not in a position to deal with the matter except by making him small payments towards the relief of his immediate necessities. By their minute of 3rd November 1901 the trustees instructed their agent ‘in respect of the necessitous circumstances of the legatee Andrew Buchanan to pay him the sum of £18 to account of his interest in the trust-estate.’ The minute dated 18th April 1902 further records the following—‘The agent explained that on Andrew Buchanan's arrival from abroad he had paid him £8 to account of revenue on the strength of Mr Buchanan's assertion that he was really destitute. The trustees approved.’ The minute of 1st May 1902 contains the engrossment of a letter written by agents on behalf of Andrew Buchanan asking them to pay over to him the income

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of a fund of about £3000 or so in their hands. They enumerate the reasons which made it impossible for them to accede to the request, and conclude their minute as follows—‘The trustees could not tell what sum might ultimately be available out of revenue from which payment may be made at their discretion to Mr Andrew Buchanan, and that in the meantime they proposed making him an alimentary allowance of £1 a-month. No such payment was ever made, but in the minute of 30th October 1903 the trustees record that they instructed the agent to make Andrew Buchanan a temporary allowance of £1 a-month proposed in the minute of 1st May 1902, provided he signs a minute of concurrence in and acceptance of the provisions in his brother's will. This minute has not been acted upon, nor has any payment been made under two subsequent resolutions of the trustees recorded in the minutes of 2nd June 1904 and 29th May 1905. In the former of these minutes the trustees resolved to pay Mr Andrew Buchanan the sum of £40 out of income for his alimentary use only, not affectable by his debts or deeds; and they further instructed the law-agents to raise an action of multiplepoinding to decide the rights of parties to that sum.’ In the minute of 29th May 1905 the trustees record their opinion ‘that they were not under any obligation to account to Mr Andrew Buchanan's creditors or assignees, and that to make payment, either directly or indirectly, to them would be actually to defeat the very object the testator had in view in framing as he did the terms of the bequest in favour of his brother.’ They also resolved to cancel the previous resolutions regarding payments which had not been implemented, and in the meantime to “pay Mr Andrew Buchanan the sum of 15s. per week as from the term of Whitsunday 1905 as a strictly alimentary allowance. The alimentary allowance in each of the latter cases amounted substantially to the whole income of the provision after making the deductions which the trustees considered they were entitled to make. In this action the pursuer has no interest to challenge the last resolution, and as regards that of 2nd June 1904 her interest must be very slight seeing that it only affects some two months of the period the income of which she claims.

The trustees founded on the case of White ( 23 R. 836) as an authority in their favour. In my opinion it has no application. The question there related not to the income but to the capital of a share of residue which the trustees were empowered to withhold payment of even after the residuary legatee had attained the age of twenty-five, as they should from time to time determine. The residuary legatee died two years after he had attained the age of twenty-five without having claimed payment of his share, and it was held that, in a question with his representatives, the trustees were entitled to exercise their discretion to withhold payment of the capital. There was, however, a provision that the interest should meanwhile be paid. The case is therefore entirely different from the present, where the discretionary power relates to the income which ought to be paid year by year, and does not give any sanction to the notion that after the trustees have failed to account for the income and the liferenter has incurred debt on the faith of his right to the income, the trustees can defeat, for the benefit of the fiars, the rights of the liferenter and his assignees to receive any portion of the accrued income. Still less does it support the view that when payments to account of income have been made at a time when the rights of the beneficiary were still unascertained, and when the trustees were wholly ignorant of the amount which would be available under the bequest, such payments are to be treated as in exercise of the discretionary powers and as excluding the beneficiary's right to income that has since been ascertained to be available. The case of Chambers v. Chambers' Trustees ( 5 R. (H.L.) 151) does not advance the argument except that it supports the view that the trustees may exercise their discretion notwithstanding that the interests of the legatee's creditors have meanwhile emerged.”

On 17th March 1906 the Lord Ordinary pronounced a further interlocutor finding the sum of available income due to the pursuer amounted to £246, and giving decree for that sum against the defenders as trustees and executors.

The defender Clapperton, as sole trustee, his co-trustees having resigned, reclaimed, and argued—The Lord Ordinary was wrong. The trustees had an absolute discretion to pay or not to pay. and when and how to pay. The gift here was one “subject to a power reserved to trustees to be exercised, paramount to the beneficiary, and in his despite” — Chambers' Trustees v. Smith, April 15, 1878, 5 R. (H.L.) 151, Lord Blackburn at p. 162, 15 S.L.R. 541. The discretion thus conferred could be exercised at any time. It was unnecessary, nay, even contrary to their power, that the trustees should annually or at any particular time consider the year's income and resolve how much was and how much was not to be paid, and record a minute to that effect. When they did not pay they were to be presumed, unless the contrary were proved, to be exercising their discretion— White's Trustees v. White, June 20, 1896, 23 R. 836, 33 S.L.R. 660. There was nothing to show that the trustees had not, hampered as they were by the nature of the trust estate and litigation, duly exercised their discretion and the beneficiary was in part himself to blame for not receiving more. It was only gross dereliction from duty or a misconception of it which would justify the interference of the Court— Douglas v. Douglas's Trustees, July 6, 1872, 10 Macph. 943, Lord Deas at p. 946, 9 S.L.R. 600. No distinction could be taken between the income of a year and the accumulations of income. The accumulations were available for the exercise of the trustees' discretion at any time when required— Edwards v. Grove, 2 De G. F. and J. 210, Lord Chancellor

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(Campbell) at pp. 219 and 220. The effect of the Lord Ordinary's view was to make the beneficiary a liferenter, and because he refused to take part of the income to give him the whole of it.

Argued for the respondent — The Lord Ordinary was right. The gift here was of the whole annual income to the beneficiary. No doubt that gift was subject to a certain discretionary power to trustees, but the initial gift was of the whole annual income, and the testator's intention was that the beneficiary should in ordinary course have that income. It therefore vested in him unless something were done by the trustees to the contrary. The trustees had done nothing to the contrary; indeed, they had never attempted to exercise the discretion conferred upon them, and it was too late to do so now. The discretion given was a power which required to be exercised and could not be waived— Weller v. Ker, March 2, 1866, 4 Macph. (H.L.) 8, 1 S.L.R. 188. But if it were held competent for the trustees still to exercise the discretion, yet they could not resist the present claim. The gift was intended for the maintenance of the beneficiary, and he had received nothing, practically, for his maintenance. To a claim for maintenance the trustees could not merely table their discretion. The Court would if necessary intervene— in re Sanderson's Trust (1857), 3 K. & J. 497 at p. 507.

At advising—