Scottish Court of Session Decisions

Henry Burrell, shipowner, residing at 4 Devonshire Gardens, Kelvinside, Glasgow, pursuer, brought two actions against George Burrell and William Burrell, shipowners, 54 George Square, Glasgow, and another, trustees of the deceased Mrs Isabella Guthrie or Burrell acting under her trust-disposition and settlement dated 10th December 1901, with codicils, defenders. In the one action George Burrell and his wife Mrs Anne Jane M'Caig or Burrell, as also certain steamship companies, were also called as defenders, and in the other, William Burrell and his wife Mrs Constance Mitchell or Burrell and the said steamship companies. The pursuer sought reduction of certain offers to purchase certain shares in the steamship companies which formed part of the trust estate, acceptances of the offers in the one action by Mrs George Burrell and in the other by Mrs William Burrell, transfers of the shares, and the share certificates.

The pursuer pleaded, inter alia—“ Separatim—Said shares having been transferred by the trustees to the said Mrs Burrell, who acted with the consent and concurrence and under the advice of the said George Burrell, [William Burrell] the pursuer is entitled to decree of reduction as concluded for.”

The defenders pleaded, inter alia—“(4) The shares in question having been validly sold and transferred to the defender Mrs Anne Jane M'Caig or Burrell [Mrs Constance Mitchell or Burrell], the defenders should be assoilzied from the conclusions of the summons.”

The facts are given in the opinion ( infra) of the Lord Ordinary ( Hunter), who on 11th March 1914 pronounced an interlocutor by which he repelled the pleas-in-law for the pursuer and assoilzied the defenders in both actions.

Opinion.—“… It is now maintained for the pursuer that the purchases fall to be set aside upon the ground that they were made by the wives of two of the selling trustees. There is no doubt that it is an absolute rule of law that a trustee upon a trust estate is not entitled to purchase the trust estate, and if properly challenged a purchase of that sort would be set aside without any inquiry into the question of whether full or more than full or adequate value has been given.

The ground for this rule of law is very obvious. It is simply this, that a person is not entitled to occupy a conflicting position—that is to say, a position where his interest is in conflict with his duty. If a trustee sell to himself it is manifest that while his duty as a trustee is to get the largest price he possibly can, his interest as an individual is to purchase at the lowest price. That rule applies, I think, where the trustee purchasing is only one of several selling trustees, and it also applies where the purchasing trustee is only a member of a firm, there being several other members of the purchasing firm. But it has never been held, so far as I know, in any decision either in Scotland or in England, that this absolute rule applies where the real purchaser is not a trustee but a trustee's wife.

The only case that the pursuer's counsel referred to was a case decided by an American Judge—I believe of very great distinction—Chancellor Kent. I was referred to the opinion of that Judge, which is found in the first edition of Mr Menzies' work on Trust Law, vol. i, appendix. That decision is, of course, not authoritative and not in any way binding, but the opinion is naturally entitled to very great respect. I think, however, that the circumstances

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of that case, so far as disclosed, are entirely different from the circumstances of this case, because it appears that the Judge bases his judgment upon the ground that the husband was selling and purchasing—selling as a trustee and purchasing on behalf of his wife.

In the present case the circumstances are, I think, totally different. It is proved that the trustees upon the late Mrs Burrell's estate advertised the shares belonging to the estate for sale. That was a proper course, because there was no Stock Exchange market for the shares, as the companies were of a private proprietary character. After advertisement a certain number of offers were procured by the trustees. Meantime it appears that Mrs George Burrell, who gave evidence in this case, and who is a lady of substantial independent means and interested in shipping shares, observed that there was to be a sale of these shipping shares on her mother-in-law's estate. She already had shares in these companies, which were managed by her brother and her brother-in-law. She consequently desired to purchase some of the shares. She spoke to her husband about the matter, but I am satisfied upon the evidence that it was not in any way in respect of the husband's initiative that she proposed to make the purchase. I am also satisfied that she did not make the purchase in consequence of any advice given to her by her husband, or because she was prompted or instigated in any way to make the purchase by him. All that the husband said was this—I think it was quite a proper thing for him to say—that if she wished to make a purchase of shares—he did not dissuade her from doing so—she would require to purchase at the highest price that any person was offering for the shares.

The position of Mrs William Burrell, as explained by Mr William Burrell in the witness-box, was practically similar.

What happened was this—The highest offer for the shares was made by Lord Rowallan, who offered £90 per share. The shares that had to be sold were ten shares in ten different companies, and Lord Rowallan offered the sum of £90 for five of the shares in each of the companies. A number of other people and companies offered to purchase shares, but at considerably lower figures than £90. The resolution come to by the Messrs Burrell, acting as they did not only as trustees upon the trust estate but as managers of the shipping companies, was to give Lord Rowallan two sets of shares, and to offer the other shares to the other shareholders of the company at the same price as Lord Rowallan was giving. Consequently Mrs George and Mrs William Burrell each got an offer of a set of shares at £90. That was exactly the position in which every other shareholder was put.

It turned out afterwards that two of the shareholders to whom the shares were offered did not desire to make the purchase, and these sets of shares were then taken over by the two ladies. I think there is a sufficiently good explanation of why that was done without in any way suggesting that Lord Rowallan suffered in consequence of what was done. Besides, there is no one here representing him, and it would certainly not in any way have benefited the pursuer that the shares had been sold to Lord Rowallan at the same price as they were sold to the two ladies. One of the shareholders who had refused to take the set of shares offered to him was a brother of Mrs William Burrell, and the ground on which he refused to take the shares was that he considered the price at which they were offered excessive.

The circumstances of this case appear to me to take the case entirely outwith any fair application of the rule of law whereby a transaction is set aside upon the ground that the person purchasing has acted contrary to a fiduciary duty. That being so it is sufficient for the decision of the case.…”

The pursuer reclaimed in both actions, and argued—A trustee could not purchase trust estate either on his own account or as agent for another, and if he did adequacy of the price was no defence to an action for reduction of the sale. A trustee's primary duty was to the trust, and he must not place himself in such a position that his personal interest conflicted with his duty as a trustee. Actual conflict was not required; possibility of conflict was enough— Aberdeen Railway Company v. Blaikie Brothers, July 20, 1854, 1 Macq 461, Lord Cranworth's opinion at p. 471, 17 D. (H.L.) 20, 26 Sc. Ju. 622. The relationship of husband and wife necessarily implied a perpetual possibility of conflict, for the husband was the wife's curator, and it was for the defenders to rebut the presumption that in any transaction the husband was exercising his jus administrationis— Pepperell v. Chamberlain, February 20, 1879, 27 Weekly Rep. 410, Fry, J., at p. 411; Lewin, Trusts (12th ed.), p. 575, sec. 15; Davoue v. Fanning, December 3, 1816, 2 Johnston's Ch. Rep. 252. In any event transactions between trustees and their relatives relating to trust estate were always to be regarded with strong suspicion, and it was for the defender to prove the fairness of the transaction if it was challenged. That had not been done here. Ferraby v. Hobson, June 2, 1847, 2 Phillips 255; Templeton v. Burgh of Ayr, 1912, 1 S.L.T. 421; Bennett, February 4, 1805, 10 Ves. 380; Nicol v. Magistrates of Aberdeen, December 20, 1870, 9 Macph. 306, 8 S.L.R. 231, were also referred to.

Argued for the respondents (defenders)—It was an absolute rule that a trustee could not enter into transactions with the trust either for himself or as agent for another, but the rule was strictly limited to these two cases and was not to be extended to others— Templeton v. Burgh of Ayr ( cit. sup.). In all the cases cited for the reclaimer the trustee was acting either for himself or as agent for another— Aberdeen Railway Company v. Blaikie Brothers ( cit. sup.); Hickley v. Hickley, March 14, 1876, 2 Ch. D. 190; Lewin ( op. cit.), pp. 568. Pepperell's case ( cit.) depended on the English law at the time, by which the husband of a woman who was a trustee was himself considered

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to be a trustee. Davoue's case ( cit.) was no authority for the proposition that a sale to a wife of trust estate belonging to a trust in which her husband was a trustee was ipso facto void. The husband's rights as curator were excluded in the share transfers, and as he might discharge these ante-nuptially or postnuptially he was not bound, and was not to be presumed to have exercised these rights in all cases— Laing v. Provincial Homes Investment Company, 1909 S.C. 812, 46 S.L.R. 616 ( vide opinion of Lord Kinnear). Even if the exercise of such curatorial powers were enough to vitiate the transaction, such exercise had not been proved here, and in the circumstances the onus of proof was on the reclaimer. If this case was not within the absolute rule, the only question was the adequacy of the price, and there was no evidence of inadequacy of price here.