Scottish Court of Session Decisions

The late James Hume Sleigh, sometime Secretary and Treasurer of the Bank of Bombay, died in Edinburgh on 26th June 1899. He left a will, dated 30th October 1896, whereby he conveyed his whole estate to trustees, and a codicil, dated 1st January 1898. Mr Sleigh was survived by his three children—Edgar Hume Sleigh, Charles Hope Sleigh, and Marie Edgar Sleigh—who were all in minority. By his will the truster directed that the income of an equal share of the residue of his estate should be paid to each of his three children, the capital being settled for each child's issue. The truster also appointed his sister Miss Jane Slight, and his brother-in-law Dr Henry M. Church, as guardians of his children. Miss Slight and Dr Church accepted office as guardians. The trustees appointed by the truster having declined to act, Alexander Yeaman, W.S., Edinburgh, was on 4th November 1899 appointed judicial factor on the trust estate. On 22nd January 1907 the beneficiaries under the trust presented a petition for recal of the appointment of the judicial factor and for the appointment of new trustees. On 26th February 1907 the Lord Ordinary ( Guthrie) recalled the appointment of the judicial factor, and remitted to the Accountant of Court to examine his accounts.

A note of objections to the factor's accounts was lodged for Edgar Hume Sleigh, Charles Hope Sleigh, and Marie Edgar Sleigh. The note of objections stated,

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inter alia—“2 The factor himself undertook the law agency business of the factory, and continued to act as such agent until the recal of the factory, under the firm name of Messrs Lindsay, Howe, & Company. The net factory estate amounts approximately to £47,700, of which the factor invested approximately the sum of £43,600 in heritable bonds. Of this sum over £20,000 has been lent to the clients of his own firm. All the said bonds were prepared in the name of Messrs Lindsay, Howe, & Company as agents for the factor, but the same were truly prepared by the factor himself. The factor has been called upon to furnish a note of the fees received in name of his firm for these bonds, and to account to the beneficiaries of the said factory estate therefor, but he refuses to do so. The said fees amount to not less than £350. … The factor was paid in full for the realisation and re-investment of the whole capital estate at the rate of 1 per cent., the total sum allowed to him therefor by the Accountant being £499, 12s. By thus acting in the name of his said firm the factor received an additional and illegal payment for his services qua factor. Moreover, the factory estate was thereby deprived of independent advice in connection with the investment of the said funds and the security arising therefrom. The factor is accordingly bound to communicate to the factory estate the fees thus obtained in the name of Messrs Lindsay, Howe, & Company in connection therewith, but he refuses to account for and pay the same.

“3. During the minority of the petitioners the income of the estate was alleged to be paid to Messrs Lindsay, Howe, & Company, who in turn, it is represented, paid it over to the guardians of the beneficiaries. For this service the said firm charged the sum of £34, 2s. 6d. in name of commission and £33, 16s. 6d. in name of business charges. Said disbursement of income in the name of Messrs Lindsay, Howe, & Company was truly made by the factor, who had received full payment otherwise for his trouble in collecting and disbursing the same. The Accountant of Court has fixed the factor's fee for said services at the rate of 4 per cent., and a sum of £441, 8s. 9d. has on this basis been deducted by the factor from the funds of the estate. By making said additional charges through his firm the factor has received double remuneration for the work of the factory, and the petitioners object to the double charges thus made by him against the estate. In any event, it was improper and illegal to employ his firm to perform said duties, or at least to remunerate them therefor, and accordingly the factor is bound now to communicate to said estate the amounts of said commission and business charges.

4. After the petitioners came of age, the factor, under his firm name of Lindsay, Howe, & Company, disbursed to them the sums to which they were entitled, and charged them with similar commission. The petitioners maintain that the charges which the factor is entitled to make in respect of his disbursement to them of the income of their respective shares of the estate, are covered by the aforesaid percentage upon the income of the estate allowed by the Accountant of Court, and that he is bound to communicate to the portions of the factory estate respectively effeiring to the petitioners the sums so charged by him in name of commission. The petitioners believe that the said commissions amount approximately to the sums of £25, 16s. 6d. to Edgar Hume Sleigh, £19, 8s. to Charles Sleigh, and £2, 2s. to Miss Marie Sleigh.

5. By holograph codicil appended to the last will and testament of the late James Hume Sleigh it is provided that the sum of £2000 contained in a deposit-receipt of the National Bank of India should in the event of the truster's death ‘be the property of my children and administered as provided for in my last will and testament.’ The petitioners Edgar and Charles Sleigh requested out of the said sum payment of £300 to each. The factor realised the securities in which their shares of the £2000 were invested. Said realisation resulted in a loss to said petitioners Edgar Hume Sleigh and Charles Hume Sleigh of £51, 13s. 6d. In connection with the payment to them of the sums of £300 each, the factor represented to them that they had only a liferent in the said sum of £2000 and took bonds in security for the repayment thereof. Said bonds were alleged to be drawn by the said firm of Lindsay, Howe, & Company, but were in reality drawn by the factor. In any event, the factor being a partner of said firm is not entitled to make said charges through the said firm. The charges made by the factor under the firm name of Lindsay, Howe, & Company against the said petitioners amount to £8, 19s. 4d. The factor is not entitled to credit therefor, and is bound to communicate the same to the factory estate.”

The judicial factor lodged answers, in which he stated—“2. No fees for law agency have been charged against the factory. … The whole expenses, amounting to £295, 17s., incurred in connection with the investment of the factory funds on the said heritable securities were paid by the borrowers, against whom they were charged by Messrs Lindsay, Howe, & Company, who prepared the necessary security deeds, &c. No charge was made against the factory in connection therewith. The deeds, certificates, and other papers put before the Accountant at the time disclosed that Messrs Lindsay, Howe, & Company prepared the necessary deeds.

3. The objectors' guardians, Miss Sleigh and Dr Church, appointed Messrs Lindsay, Howe, & Company to be their agents, who in that character performed certain services for which the ordinary professional charges were made. Messrs Lindsay, Howe, & Company were not employed by the factor to do any work for the factory, and no charge against the factory was made by them. When the objectors attained majority

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the said guardians and their agents, Messrs Lindsay, Howe, & Company, were discharged, and all accounts homologated.

4. The charges referred to were not made in respect of any work pertaining to the factory, but, as the objectors are well aware, for the professional service outwith the factory altogether performed on their individual behalf and at their request. The receipts called for by the Accountant are produced herewith.

5. The objectors Edgar and Charles Sleigh having applied for an advance out of the factory estate the same was made to them by the factor. The necessary documents were prepared and charged for by Messrs Lindsay, Howe, & Company against them as individuals—no charge was made against the factory estate, and no fee was allowed to the factor by the Accountant for the realisation rendered necessary by the request.”

On 11th July 1907 the Lord Ordinary remitted to the Accountant of Court to consider the objections and to report. The Accountant of Court reported, inter alia—“(3, 4, and 5) That the late Mr Sleigh by will appointed guardians to his children, and Messrs Duncan Smith & Maclaren appear to have acted for them when the petition for a judicial factor was presented. Thereafter Messrs Lindsay, Howe, & Company appear to have acted as agents for them and for the beneficiaries after they came of age. They prepared annual accounts which were submitted to and approved of by the guardians and carried through the necessary discharges. The Accountant is of opinion that the factory had no connection with or interest in the charges for these operations.”

The objectors produced the following letters written by Miss Slight and Dr Church respectively—

Letter, Miss Slight to Duncan M'Laren, S.S.C., dated 3rd December 1907.

Dear Sir,—In answer to your question as to the factorship on my late brother's estate during the minority of my two nephews and niece, it was my impression that the appointment of factor embraced all the duties requiring to be discharged in connection with the estate, and that the appointment was made, not only to facilitate my duties as guardian, but also to avoid further expenses which would have been incurred by a law agent. I was not aware, therefore, that Messrs Lindsay, Howe, & Company were employed separately as agents on the estate, as all my transactions were through the factor himself.”

Letter, Dr Church to Charles H. Sleigh, dated 30th November 1907.

My dear Charlie,—… I wish to say that I did not appoint Messrs Lindsay, Howe, & Company as law agents on your behalf in connection with your late father's estate.”

On 12th February 1908 the Lord Ordinary sustained the objections to the judicial factor's accounts, and granted leave to reclaim.

Opinion.—“…. Objection 2—Stripped of specialities, the question in objections 2 to 5 is the same, namely, whether a judicial factor can retain sums paid to him or his firm for business done in connection with the trust. In dealing with the second objection, the Accountant indicates his view that the principle, as derived from actual decision, is limited to this, that ‘a factor cannot make profit at the expense of the estate.’ If this be the extent of the principle, then the second objection would fall to be disallowed. But the principle is based on the view that the factor must not place himself in a position of double interest. His duty is to choose the best agents for the trust. His own firm may be the best, or they may not; his membership of the firm prevents his arriving at an independent and unprejudiced judgment on that question. If this be the foundation of the principle, then the application will strike at all cases of remunerative employment by the factor of his firm whether profit be made by him and his firm directly at the expense of the estate, or whether the profit comes directly from the borrowers from the estate, but all the same through the employment of the factor's firm by him. That view has been repeatedly laid down both in Scotland and England. It may be sufficient to refer to the judgment of Lord Chancellor Lyndhurst in New v. Jones, 1 Hall & Twells, p. 632 (quoted by the Lord Justice-Clerk Hope in the Whole Court case of Lord Gray and Others, 19 D. p. 1, at page 5), and Lord Chancellor Cranworth in Broughton v. Broughton, 1856, 5 De Gex M. & G. p. 160 (also quoted by the Lord Justice-Clerk in Lord Gray's case at page 9), and to the opinions in the same case of Lord Gray and in the subsequent case of Lauder v. Millars, 21 D. 1353. The result is thus stated by Lord Cranworth in Broughton—‘The rule applicable to the subject has been treated at the bar as if one sufficiently enunciated by saying that a trustee shall not be able to make a profit of his trust; but that is not stating it so widely as it ought to be stated. The rule really is that no one who has a duty to perform shall place himself in a situation to have his interests conflicting with that duty, and a case for the application of the rule is that of a trustee himself doing acts which he might employ others to perform, and taking payment in some way for doing them.’

Objection 3—The principle deciding the second objection applies here, unless the factor could instruct his averment, contained in the answers, that his firm was employed, not by him, but independently by the objector's guardians, Miss Sleigh and Dr Church. That, however, is denied by Miss Sleigh and Dr Church in their letters. A proof on this point was not asked; and I therefore sustain this objection.

Objections 4 and 5—These objections fall to be sustained if my view is correct that it is illegal for a factor to make profit through his firm by the business of the trust. No evidence was tendered of any independent selection and employment of the factor's firm by the beneficiaries as individuals.

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This result cannot be affected by any view I may entertain of the shabbiness of the objections. In all calculations of interest I fix the rate at four per cent.”

The judicial fact or reclaimed, and argued— Second Objection—A trustee who acted as agent for the trust could not charge for his services— Robertson v. Morison, April 26, 1849, 6 Bell's App. 422; Lord Gray, November 12, 1856, 19 D. 1; Lander v. Millars, July 15, 1859, 21 D. 1353—but if he did not charge the trust estate, there was nothing illegal in his acting as agent— Lauder v. Millars, cit. per L. J.-C. Inglis. Here the fees had been paid not by the factory but by the borrowers. It followed that the factor was entitled to retain the amount of the fees. No doubt the factor was bound not to act as auctor in rem suam. That meant that the factor must not place himself in such a position that his own interests might come into conflict with those of the factory. Here there was no conflict of interest. The factor was as much interested as the factory estate in getting the best possible investment, because he was personally liable for any loss which might be sustained. The work had been done at less expense than would otherwise have been possible. The object of appointing professional men as factors was to obtain the benefit of their experience and connection in the selection of investments. No doubt if a trustee, while acting in the execution of the trust, obtained secretly an advantage for himself, he was bound to communicate that advantage to the trust estate. That principle only applied where the advantage was obtained secretly— Huntington Copper and Sulphur Company, Limited v. Henderson, January 12, 1877, 4 R. 294, 14 S.L.R. 219, affd. 5 R. (H.L.) 1, 15 S.L.R. 217; Ronaldson v. Drummond & Reid, July 15, 1881, 8 R. 956, 18 S.L.R. 690. Here the beneficiaries or their guardians knew that the factor was acting as agent, and must be held to have known that he would be paid by the borrowers in accordance with the table of fees. Neither Keech v. Sandford (Select Chan. Cases, p. 61, referred to in 1 Macq. 472), nor Broughton v. Broughton, 1855, 5 De G. M. & G. 160, had any application to the present case. Keech v. Sandford ( cit.) was a case where a trustee obtained for himself the renewal of a lease which the landlord had refused to grant to the trust. In Broughton v Broughton ( cit.) an executor who was a solicitor had been employed to do legal work for the executry estate, and was held entitled only to out-of-pocket costs. Lord Cranworth's dictum must be read with reference to the class of case with which he had to deal. Third Objection—This objection should be repelled. The firm of Lindsay, Howe & Co. had been employed by the guardians, and were entitled to deduct the amount of their charges from the sums paid over year by year. Fourth and Fifth Objections—These objections related to charges made for services rendered to the beneficiaries personally. The charges were made against the beneficiaries personally, not against the estate. Accordingly the objections should be repelled.

Argued for the objectors— Second Objection—A person occupying a fiduciary position was not entitled to make any profit out of the execution of the trust other than that which was properly incidental to his office— Robertson v. Morison, cit. sup.; Huntington Copper and Sulphur Co., Limited v. Henderson, cit. sup.—and was bound not to place himself in such a position that his interest as an individual might conflict with the interests of the trust— Keech v. Sandford, cit. sup.; Broughton v. Broughton, cit. sup.; ex parte James, 1803, 8 Vesey jun. 337; Aberdeen Railway Co. v. Blaikie Brothers, July 20, 1854, 1 Macq 461. Both of these principles applied to the present case. If the factor were allowed to retain the fees paid by the borrowers, he would clearly be making a profit out of his office over and above his fee, and he would be making a profit which he could not have made if he had not held the office. It was immaterial that the fees were not paid by the factory estate. What was struck at was not merely making a profit at the expense of the estate, but making a profit out of the execution of the trust. It was clear that there was a conflict between the interests of the factor and those of the estate. It was the duty of the factor to see that the agent for the factory made no improper charges— New v. Jones, 1833, 1 Hall & Twells 632. By acting as agent he had put it out of his power to perform that duty. The conflict of interest was still clearer where the factor acted as agent for the borrower as well as for the factory. It was the interest of the borrower to get a low rate of interest, while it was the interest of the factory to get a high rate of interest. It was immaterial that the work had been done by the factor's firm even if that were the case— Lord Gray, sup. cit.; Lauder v. Millars, sup. cit. Third, Fourth, and Fifth Objections—These objections should be sustained on the general principle that a trustee was not entitled to make a profit out of the execution of his office. If these objections were not sustained, the factor would make a profit which he could not have made if he had not held the office of factor. There was no separate employment either by the guardians or by the beneficiaries.

At advising—