Scottish Court of Session Decisions

Joseph Hardie raised an action against Alexander Herbert Brown, judicial factor on the trust estate of the late Alexander Macfarlan, concluding for (1) declarator that the pursuer was entitled in terms of the trust-disposition and settlement of the late Alexander Macfarlan to one-fourth of the income of the residue of his estate in alimentary liferent; (2) count and reckoning of the defender's intromissions with the said estate to Whitsunday 1910 and payment of £1500 as the balance due to the pursuer thereon; and (3) payment to the pursuer during his lifetime of one-fourth of the income of the residue of the said estate.

The following narrative is taken from the opinion of the Lord Ordinary ( Skerrington)—“The pursuer Joseph Hardie is a nephew of the late Alexander Macfarlan, who died on 1st July 1909 leaving a trust-disposition and settlement dated 23rd April 1909, by which he disposed mortis causa of his whole estate. The trustees having declined to accept office, the defender was appointed judicial factor on the trust estate. By the 11th or residue clause of the trust-disposition and settlement the testator directed his trustees ‘to hold the residue of my means and estate and produce and proceeds thereof for my nephews and nieces, Joseph Hardie’ (the pursuer) and three others ‘in liferent, for their liferent use allenarly, equally share and share alike, and their lawful issue per stirpes in fee.’ He further declared that ‘the whole of the alimentary provisions hereinbefore provided shall be strictly alimentary allenarly, and shall not be assignable nor attachable for the respective beneficiaries’ debts, deeds, or obligations.’ At the date of the will the pursuer was indebted to the testator in a sum of nearly £5000, being advances received by the pursuer from time to time in order to enable him to carry on his business as a

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farmer in the United States of America. There is an action in this Court at the instance of the judicial factor against Mr Hardie, in which he sues the latter for £4795, 12s. 8d., being the amount of said advances. The present action was debated upon the assumption that the judicial factor's claim was a good one, and that he held a decree for the amount.”

The defender pleaded, inter alia—“(1) The defender being justly entitled to retain the pursuer's share of the revenue of the trust estate against, and apply it towards satisfaction of, the debt due by the pursuer to the testator and interest thereon, decree of absolvitor should be pronounced with expenses. (4) In any event the sum of £300 a-year, in view of the station and circumstances of the pursuer, being a reasonable provision for his aliment, the defender is entitled to apply the pursuer's said share of the revenue of the trust estate—in so far as it exceeds said sum—in satisfaction of pursuer's indebtedness to the trust estate.”

On 19th January 1911 the Lord Ordinary pronounced the following interlocutor—“Finds that on a sound construction of the trust-disposition and settlement of the deceased Alexander Macfarlan, he directed that the share of the trust estate bequeathed to the pursuer should be held by the trustees for the purpose of alimenting him, and that it should not be made available for any other purpose: Repels the whole pleas-in-law stated for the defender, and quoad ultra continues the cause … Grants leave to reclaim.”

Opinion.—[ After the narrative above quoted]—“The question in the present case is whether the defender, the judicial factor, is entitled to operate repayment of his debt by impounding the pursuer's liferent interest under his uncle's trust. It is obvious from the averments of both parties that the judicial factor may find it difficult to recover payment of the debt by taking proceedings in the United States. The pursuer, who is 62 years of age, alleges that he retired from business three years ago, that his farm was purchased in the name of his wife and belongs to her, and that the stock belongs to his eldest son. In these circumstances the defender claims that he is entitled, on the principle of retention or of compensation, to impound either the whole of the pursuer's liferent provision or at least so much thereof as exceeds a reasonable aliment. He alleges that an allowance of £300 of aliment from the trust estate would enable the pursuer to maintain himself and his wife comfortably according to their position in life. The estate left by the testator was very considerable. The pursuer estimates his one-fourth share of the income of the residue at £1500 per annum, and the defender at £1000.

Except that it confers upon the trustees power to compromise or refer disputed claims, the trust-disposition and settlement contains no express directions as to the recovery of the testator's estate in general or of the pursuer's debt in particular. The inference is that the testator either overlooked the pursuer's debt or intentionally refrained from giving any directions in regard to it. If it were legitimate to speculate on such a matter I should think it probable that the testator knew perfectly well what he was doing, and that he had excellent reasons in his own mind for making no reference to the debt in his will either by a clause expressly remitting it or by a clause directing that it should be paid out of the pursuer's life interest. Counsel on both sides referred to the clauses above quoted as throwing light upon the testator's intention in regard to the matter in dispute. The defender's counsel founded upon the words ‘residue’ and ‘equally.’ He argued that there could be no proper residue upon which the residuary clause could operate until the pursuer had first paid his debt, and further that there would be no equality, but on the contrary inequality, among the beneficiaries unless the debt was repaid out of the pursuer's life interest. This argument is fallacious. Whether the pursuer does or does not ultimately pay his debt to the trust estate, the free estate now in the hands of the defender must be held by him for behoof of four several groups of beneficiaries according to their respective rights of liferent and fee. The only question is whether according to the wishes of the testator as expressed in his will the income from one equal fourth share of the residue now in the hands of the defender falls to be paid to the pursuer or must be applied in payment of the pursuer's debt.

The pursuer's counsel pointed to the clauses declaring the pursuer's provisions to be alimentary as impliedly excluding any right of retention or compensation on the part of the defender. But for these clauses it would have been not merely the right but also the plain duty of the defender to operate repayment out of the pursuer's share of the trust estate, but that duty would not have arisen out of any legal fiction as to the testator's intentions. The duty would have been equally imperative in the case of a debt of which the testator was wholly ignorant. The law itself casts upon trustees the duty of acting in an ordinary business-like manner, and it forbids them to expose any asset of the estate to unnecessary risk. The question is whether the terms of this particular trust sufficiently indicate that the testator did not desire his trustees to proceed according to the ordinary rules of trust management in regard to the recovery of the pursuer's debt. I am of opinion that the testator's directions are free from ambiguity. He directed that the share of the trust estate bequeathed to the pursuer should be held by the trustees for the purpose of alimenting him, and that it should not be made available for any other purpose. Although the word ‘attachable’ property refers to legal proceedings at the instance of third parties, I do not think it is possible to read the clauses as if they expressly excepted from their operation debts due by beneficiaries to the testator.

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Such a construction would amount to the insertion into the will of a direction which the testator might have been the first to repudiate if his attention had been called to the matter.

Assuming that the defender is debarred from impounding the whole of the pursuer's life interest his counsel argued that the provision was in excess of what was reasonable in the circumstances. It followed that so far as excessive the provision was not truly alimentary, and that it might be made available for payment of the pursuer's debt. Although I do not see the relevancy of this proposition, I admit that either a creditor or an assignee from the pursuer might partially defeat the testator's expressed intention and might insist upon receiving payment of so much of the pursuer's liferent as exceeded what the Court might decide to be a reasonable aliment. In defence to such an action it would be the duty of the defender to protect the pursuer against his own improvidence, and to endeavour so far as possible to carry out the wishes of the testator. It is conceivable that the defender might satisfy the Court that the provision as it stands is not in the whole circumstances excessive. The peculiarity and novelty of the present case is that no one impeaches the validity of the trust except the defender, whose duty it is to protect it. There is a difference of opinion between the defender and the testator as to what sum would form a reasonable aliment for the pursuer. I propose to follow the opinion of the testator and to direct that the trust shall be executed according to its terms. I accordingly repel the whole pleas stated for the defender and quoad ultra continue the case.”

The defender reclaimed.

Argued for the defender (reclaimer)—(1) The pursuer was bound to pay his debt to the trust estate and so increase the residue, and till he did so he could not claim anything out of that residue— in re Ackerman, [1891] 3 Ch 212; in re Cordwell's Estate, [1875] L.R., 20 Eq. 644; in re Taylor, [1894] 1 Ch 671; in re Rhodesia Goldfields, Limited, [1910] 1 Ch 239. The residue was not completed or ascertained till the pursuer's debt had been paid— Mackenzie's Trustees v. Macdowall, February 13, 1852, 14 D. 739—and before that was done the pursuer could not receive a share of the income of the residue. The nature of the pursuer's right could not be considered before completion of the fund out of which it was payable, and there was no question, therefore, of retention of an alimentary liferent. (2) In any event the provision in favour of the pursuer was in excess of what was required for his maintenance, and quoad the excess there must be retention.

Argued for the pursuer (respondent)—(1) The pursuer's provision was alimentary, and retention of any part of it was in violation of the settlement and incompetent—Bell, Com. (7th ed.), i, pp. 124–6; Reid v. Bell, November 25, 1884, 12 R. 178, 22 S.L.R. 136. The English cases cited by the defender had no application, because a declaration that a provision was alimentary was ineffectual to protect it against creditors in English law— in re Fitzgerald, [1904] 1 Ch 573, per Cozens-Hardy, L.J., at p. 589; Stirling, L.J., at p. 593. The settlement did not expressly make payment of the pursuer's debt a condition-precedent to the enjoyment of his liferent; and there would need to be very clear implication to infer it and to apply the doctrine of approbate and reprobate—Bell, Com. (7th ed.), i, p. 143. (2) Even if the provision to the pursuer was larger than was required for his maintenance, there was still no right to retain. The defender certainly could have no higher right than the other beneficiaries, and they could not be heard to say in contradiction of the settlement that the liferents were not wholly alimentary. That would be reprobating the deed under which they took.

At advising—