Scottish Court of Session Decisions

On 14th April 1908 Edwin Charles Hedder-wick, Glasgow, and two others, as the registered holders of certain shares under a letter dated 10th November 1895, written by the deceased James Hedderwick, LL.D., brought an action of multiplepoinding. Claims were lodged by (1) the said Edwin Charles Hedderwick as executor-dative of Dr James Hedderwick; (2) Maxwell Hedderwick as trustee acting under the said letter of 10th November 1895; and (3) James Hedderwick & Sons, Limited.

The following narrative is taken from the judgment of Lord Johnston (Ordinary)—“The object of this multipleponding is to determine the effect, under changed circumstances, of a direction given by James Hedderwick, LL.D., in an inter vivos deed which he executed some years before his death, by which he endeavoured to make a provision for the rewarding of employees of his firm. Dr Hedderwick was the founder or one of the founders of the Glasgow Citizen newspapers, and had in the course of a long business life established or at least extended a lucrative business as a newspaper proprietor and general printer and publisher. The business began more than a century ago.…

Dr Hedderwick had four sons, Percy David Hedderwick, Edwin Charles Hedderwick, Maxwell Hedderwick, and Francis Hedderwick. … In 1892 a contract was entered into, the object of which was to give continuity to the business so far as that was possible under a private deed of copartnery. Inter alia by article 8 the capital stock of the firm was to be treated as divided into thirty equal shares, whereof fifteen were to be held as contributed by and belonging to Dr Hedderwick himself, and three, six, and six respectively to be

Page: 239↓

contributed by and belonging to his sons Percy David, Edwin Charles, and Maxwell. … By section 16 the actual management of the business was vested in Edwin Charles and Maxwell Hedderwick, and provision was made for replacing them in the event of death or retiral.

While this contract was current Dr Hedderwick on 10th November 1895 addressed a probative letter to Messrs James Hedderwick & Sons, which commences thus—‘Being desirous during my life to settle my estate among my family on a basis which would in my view and after consultation with my sons be just and equitable to all concerned, I hereby authorise and instruct you to distribute and hold the fifteen shares which are at my disposal in our business to and among my family as follows—… [ Here followed directions as to the disposal of thirteen shares.] …

Fifth. As regards the remaining two shares, I hereby authorise and instruct you to hold the same in trust in the books of the firm, also subject to my liferent, and to hold and apply the annual proceeds of these two shares for the purpose of rewarding meritorious or long-service employees of our said firm, or for any other purposes of the business, as the managers may in their discretion deem expedient, and they shall be the sole judges.’

It is under this fifth head that the question in the present case arises.

Dr Hedderwick died on 1st December 1897, and the business was continued after his death by his partners until the end of 1904, when by reason of difficulties in the conduct of business it was converted into a limited company with a capital of £150,000, divided into 50,000 preference and 100,000 ordinary shares of £1 each. The new company took over the business and assets and obligations of the old company as it stood, and allotted 90,000 of the ordinary shares among the partners of the old firm, 6000 of which was the proportion effeiring to the two shares placed in trust by Dr Hedderwick for the benefit of employees of the firm and for other purposes of the business.… After the commencement of the new company a further question arose as to how the 6000 ordinary shares of the company, which were registered in the names of Edwin Charles Hedderwick, Maxwell Hedderwick, and Percy David Hedderwick, the three surviving partners of the old firm, ‘in trust for the purposes specified in the said testamentary letter, dated 10th November 1895,’ were to be dealt with.

To obtain a decision of this question and judicial guidance this multiplepoinding was raised by Edwin Charles Hedderwick in name of himself and his two brothers, in whose names as trustees the 6000 shares of the new company had been vested.

I held the action competent, and a record has been made up in the competition.

Edwin Charles Hedderwick, as sole executor-dative of his father Dr Hedderwick, and as such entitled and bound to ingather on behalf of the next-of-kin of the deceased all moveable estate of which he had not competently disposed or which had fallen into intestacy, maintained, first, that the trust which the deceased by said letter purported to create was ab initio ineffectual and invalid in respect of the ambiguity and indefiniteness of its purposes; and second, that in any event the said trust if originally valid had ceased and determined in consequence of the said firm being no longer in existence, and of its business having been transferred to a limited company and the consequent failure of the trust purposes.

Mr Maxwell Hedderwick maintained that the said trust was valid, effectual, and continuing in respect that though the firm of James Hedderwick & Sons had been converted into a limited company at 31st December 1904, there were employees of the old firm alive who were proper objects of the benefits of the said fund, and that there were other former employees who might in course of time come to be proper recipients of its benefits.

A claim was also lodged for James Hedderwick & Sons, Limited, who maintained that the trust purposes now fell to be exercised by them, through their directors, on behalf and for the benefit of the employees and the business of the company, in terms of said letter of 10th November 1895.”

On 18th March 1909 the Lord Ordinary pronounced this interlocutor—“Repels in hoc statu the claim of Edwin Charles Hedderwick as executor-dative of Dr James Hedderwick: Repels the claim for James Hedderwick & Sons, Limited: Ranks and prefers Edwin Charles Hedderwick, Maxwell Hedderwick, and Percy David Hedderwick, trustees under the letter by the said Dr James Hedderwick, mentioned in the said closed record, in terms of the claim by the said Maxwell Hedderwick as trustee foresaid, and decerns.”

Opinion.—“… [ After the narrative above quoted] … I may first dispose of the question whether Dr Hedderwick's bequest is void from uncertainty. I quite concede to Mr Macmillan that this bequest is not a charitable bequest, and therefore not entitled to the benignant construction, whatever that means, which is accorded to charitable bequests. I concede to him also that the old firm having a separate persona, power to apply the annual proceeds of the two shares alternatively ‘for any other purposes of the business,’ if read in a wide sense apart from the context, would, as the firm was not limited by a memorandum from extending the scope of its business, simply mean to apply these annual proceeds in any way the firm or its managers might elect, and would therefore render the bequest sufficiently indefinite to void it. But I cannot read these words in a wide and general sense. I think that they are related to the primary purpose, which is declared to be that ‘of rewarding meritorious or long-service employees of our said firm,’ and that they must therefore be read as confined to other purposes ejusdem generis or of a class beneficial to the employees. Many such could be suggested, as for instance that of providing reading and recreation rooms

Page: 240↓

at the works. I must therefore repel Mr Edwin Charles Hedderwick's first contention, viz., that the bequest is void from uncertainty.

But it is not so easy to dispose of the question, what was the effect of a transfer of the firm's business to a limited company? In this connection it is necessary to observe the distinction between the doctrine of surrogatum and that of cy près. The two shares in the old private firm have been transformed into 6000 shares in the limited company. The trustees of those shares, as representing a minority interest, could not prevent the transmutation, and were bound to accept the 6000 shares of the limited company as a surrogatum for the two shares in the old firm and either to retain or realise them. Having regard to the nature of the change, the practical continuity of the business, and the truster's intentions, I think that there was nothing to prevent their continuing to retain them so far as that matter is concerned.

In arriving at this conclusion I desire to reserve my opinion on the question whether the new shares were a proper surrogatum for the old. They bear an exact and proper proportion to the shares allotted to the other parties interested in the old firm, but how far the exactitude of the equivalent is affected by the creation of additional shares, whether issued or unissued, is a subject on which I have no opinion at present, as I have not full information. It is possible that it may arise when the condescendence of the fund in medio comes to be adjusted, just as two other questions may also arise, viz., as to the propriety of the trustees having parted with some of the shares, and of the disposal after reference to Mr Ker of the unexpended balance of the share of profits of the old firm falling to the trust shares.

But it is one thing to say that the new shares may be treated as a surrogatum for the old, and another to determine how the annual proceeds of those shares are to be disposed of. I may say at once that I do not see how they are to be applied under the doctrine of cy près. It might be very reasonable that the business of the company remaining substantially identical with that of the old firm the employees of the company should be admitted to the benefit of the trust. But in the first place the doctrine of cy près to which appeal is made with this end is only applicable in the case of charities. And in the second place it cannot be applied by me in the exercise of the ordinary jurisdiction of the Court, but only by one of the Divisions in the exercise of the Court's nobile officium. Accordingly I must determine that if the old firm is at end and the new company a totally distinct persona, neither can it directly or through its managers have any claim to the administration, nor its employees any claim to the benefits, of the trust.

In the next place, assuming that the old firm, and therefore the surviving partners as representing it for the purpose of liquidation, as bare trustees properly hold the shares in trust, Dr Hedderwick committed, not to the firm, but to its managers, who were defined by the contract of copartnery to administer the trust; and it is a question whether the firm being no longer in existence, its managing body can be held to remain in existence and to have succession in terms of the old contract of copartnery for the purpose of administering this fund. I cannot say that I have any very confident opinion on this subject, but on the best consideration which I can give to the question I think that I am bound to give effect as far as possible to Dr Hedderwick's intention. Dr Hedderwick's intention was clearly to benefit meritorious and long-service employees of the firm with which he himself had been so long connected, and this intention ought not to be disappointed if it is possible to give it effect. The managers of the old firm at its dissolution were his sons Edwin Charles and Maxwell Hedderwick, and so long as they survive, the machinery for administration which he set up may be held to subsist, though I do not think that the provisions for its continuance could on their death or retirement be brought into play.

I think, therefore, that the shares of the new company as a surrogatum for those of the old firm are properly held by the surviving partners as representing the old firm in liquidation, and that the proceeds of these shares may be applied for the benefit of meritorious and long-service employees of the old firm, so long as any such exist, in their discretion by Messrs Edwin Charles and Maxwell Hedderwick as the managers of the old firm at the date of its dissolution. Should they die or refuse to act, I do not think that they could be replaced under the contract of copartnery of the old firm, and looking to the decision in Robbie's Factor, 20 R. 358, it is a question whether their place could be supplied by any interposition of the Court. I am not called on in hoc statu to determine this question. As the two shares in James Hedderwick & Sons were, strictly speaking, in hereditate jacente of the late Dr Hedderwick, subject to the burden of the trust, should the trust lapse his executor will be entitled to be preferred to the fund. I can therefore only repel the claim for Mr Edwin Charles Hedderwick as executor of his father in hoc statu; quoad ultra I shall repel the claim for James Hedderwick & Sons, Limited, and sustain that for Mr Maxwell Hedderwick. …”

The claimant Edwin Charles Hedderwick (Dr Hedderwick's executor) reclaimed, and argued—The trust was ab initio void for uncertainty. In any view the trust failed when the business was transferred to the limited company. The firm ceased to exist, the business ceased to exist, and the managers had also ceased to exist, because there could be no managers when there was no business to manage. But the managers were the persons to whom the truster had confided a discretion, and that discretion was personal to them and could not be

Page: 241↓

exercised by anybody else— Robbie's Judicial Factor v. Macrae, February 4, 1893, 20 R. 358, 30 S.L.R. 411. This was not a charitable trust, the benefit of the firm not being a benevolent purpose. Accordingly the doctrine of cy près did not apply— Young's Trustee v. Deacons of the Eight Incorporated Trades of Perth, June 9, 1893, 20 R. 778, 30 S.L.R. 704.

Argued for the respondent Maxwell Hedderwick (Dr Hedderwick's trustee)—The trust was not void for uncertainty— Macduff v. Spence's Trustees, 1909 S.C. 178, 46 S.L.R. 135. Trusts were held void for uncertainty when there was uncertainty as to the objects. Here there was no such uncertainty. The objects were (1) meritorious employees, and (2) the firm. The trust did not fail when the firm was converted into a limited company. There were still objects in existence. Although the firm had come to an end, there were still long-service employees. They were not affected by the fact that the firm had ceased to exist. Nor was there any difficulty about the exercise of discretion. This claimant was one of the managers of the firm, and was still entitled to exercise the discretion which the truster had confided to him. The reference to “managers” was merely a designation, not a qualification. What might happen on this claimant's death was not hujus loci.

Argued for the claimants James Hedderwick & Sons, Limited—The company was entitled to administer the fund through its board of directors. The objects of the trust were the employees both of the firm and of the company. The intention of the truster was to benefit the business, not the firm which carried on the business. The firm and the company were, no doubt, different personæ, but the truster did not intend to draw a distinction between them. Discretionary powers granted to trustees might transmit to trustees appointed by the Court— Macfarlane's Trustees v. Mactarlane, December 20, 1903, 6 F. 201, 41 S.L.R. 164, per Lord Kyllachy.

At advising—