Scottish Court of Session Decisions

Sinclair Traill, solicitor, Blandford, Dorsetshire, and others, pursuers, brought an action against John Little Mounsey, W.S., sole surviving trustee acting under the trust-disposition of the late James Christie Traill of Rattar, defender, concluding for decree of accounting for his whole intromissions with the proceeds of the sale of the Raeburn portraits forming part of the trust estate, and for payment of the proceeds of the sale of the portraits “to the pursuers and the other creditors of James Christie Traill, under deduction only of such charges and expenses as may be found in the course of the proceedings to follow hereon to be proper charges against the said proceeds,” and, failing an accounting, for consignation in Court of £12,000, which should be held to be the balance of the proceeds of the pictures. The pictures had, with consent, been sold, and a Special Case to settle the rights of parties in the fund thereby produced had been presented to the Court. The fourth question of law in that Special Case ( Traill's Trustees v. Free Church of Scotland, 1915 S.C. 655, 52 S.L.R. 524) was—“Do the … proceeds fall to be distributed among the whole creditors, secured and unsecured, of the truster and of his ancestors or predecessors in title pari passu?” To that question an affirmative answer had been returned.

The pursuers pleaded—“1. The pursuers as creditors of the truster being entitled, along with other creditors, to have the proceeds of the said two pictures, less lawful charges thereon, divided amongst them, decree of accounting should be granted as concluded for. 2. The defender being entitled to deduct from the said proceeds before division only such charges and expenses as may be found in this process to be proper deductions therefrom, decree should be pronounced in terms of the declaratory conclusions of the summons. 3. In the event of the defender failing to lodge an account as concluded for, an order for consignation should be pronounced in terms of the last conclusion of the summons.”

The defender pleaded, inter alia—“2. The action is ill-laid and incompetent in respect that ( a) it is only competent to sue the defender as trustee under and in virtue of the said trust-deed and under and in terms of its provisions, while the pursuers propose to ignore the said deed and to set up an independent trust; and ( b) the present action proposes to select one item of a general estate for which the defender is entitled to a right of general accounting, and to treat that item as a separate fund…. 5. The defender never having refused to account for the proceeds of the portraits, the declaratory conclusion is unnecessary and should be dismissed. 6. The defender being willing to account for the whole trust estate in a proper process, and at the instance of all parties having interest in the said accounting, the action should be dismissed.”

On 24th May 1919 the Lord Ordinary ( Blackburn) assoilzied the defender.

Opinion—“(from which the facts of the case appear)—“The defender in this action is the sole surviving trustee acting under an inter vivos trust-disposition for behoof of creditors, dated 5th January 1887, granted by the late James Christie Traill of Rattar, who died on 6th February 1899. The heritable debts amounted to £179,058, secured over different estates, and there was also a number of unsecured creditors. The pursuers

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in this case are some of the unsecured creditors, and the action raises a question as to their rights in a particular sum of £18,375, being the price obtained by the defender for two Raeburn portraits sold by him in July 1911. The sale was carried out with the consent of the creditors, given at a meeting held on 3rd July, when it was formally agreed ‘that the price or prices realised by the pictures, under deduction of all expenses connected with the transaction, should be held by the trustee until the rights of all parties concerned should be definitely ascertained or agreed upon.’

“Thereafter numerous claims were lodged by creditors who maintained that they had preferential rights to the sum in question, and a Special Case was adjusted and presented to the Court, which is reported in 1915 S.C. 655. The first party was the trustee, who submitted no separate claim, but on being called on by the Court supported the claim of the seventh parties in argument. The second parties were certain creditors, who claimed a preference in respect that they were creditors of the truster's ancestors. The third party ultimately withdrew their claim. The claims of the fourth and fifth parties were based upon the fact that they were secured heritable creditors on the estate where the pictures had been situated prior to the sale. The sixth parties were other secured creditors. The seventh parties [amongst whom the whole of the present pursuers were represented] were unsecured creditors, who contended that the whole creditors, secured and unsecured, were entitled to be ranked on the proceeds of the said pictures pari passu, the secured creditors being bound to value and deduct their securities in order to rank. It was this contention of the seventh parties which was given effect to by the Court in their answers to the questions in the case. It was agreed in the case that the expenses of all creditors in connection with the questions raised should be paid out of the price of the pictures. Following on the decision in the Special Case the defender, after payment of the expenses, paid a dividend to all the creditors at the rate of 1s. 2d. in the £, which absorbed a sum of £9170, 4s. 3d. He declines meantime to pay any further dividend out of this particular fund, maintaining that it forms part of the general trust estate liable for the expenses and outgoings of the trust, which will be fully accounted for on his making a final distribution among the general creditors and obtaining a discharge of his own and the deceased trustee's intromissions. The pursuers, however, claim that the proceedings in the Special Case constituted a contract between the defender and themselves that the price of the pictures was to be treated as a special fund apart from the general funds of the trust estate, to be immediately divided among the creditors in accordance with the decision of the Court, and they accordingly in the present action ask for a declarator to this effect, and seek to have the defender ordained to account to them for the balance. They do not ask in the summons for payment, but merely for an accounting and consignation of the balance of the price in Court.

“I do not think that the question raised is altogether free from difficulty, but I am unable to give effect to the pursuers' contention. The contention of the unsuccessful parties to the Special Case was to the effect that the price of the pictures did not form part of the general trust funds, but was to be treated as a special fund over which they had a preferential claim. The seventh parties contested this, and the defender supported their argument. I do not think that one can fairly deduce from this anything of the nature of a contract between him and the seventh parties that in the event of their success the fund was in their case also to be treated as a special fund, and immediately divided up. The question of immediate division was not really raised in the case. Division might have followed had the unsuccessful parties been successful, as then the fund could not have been used for the general purposes of the trust, but it does not seem to me to be a natural sequel to the seventh parties' success. The Special Case does not bear to have been brought in place of an action of multiplepoinding, in which the pursuer could have obtained a judicial discharge, although in their opinions the Judges, for convenience, refer to the fund as the fund in medio, and I do not think it was necessary for the defender to put in a separate claim to be ranked and preferred as trustee. The case was submitted for the opinion and judgment of the Court, but no request was made by the parties that any operative decree should be embodied in the interlocutor except on the question of expenses. To this extent only judgment was pronounced, otherwise the interlocutor contents itself with answering the questions put. The agreement as to the expenses being paid out of the fund, which gave rise to the Special Case, was a reasonable arrangement to which, in my opinion, no such significance can be attached as the pursuers contend for. I shall accordingly assoilzie the defender from the conclusions of the summons.”

The pursuers reclaimed, and argued—The defender was not entitled to treat the proceeds of the pictures as part of the general trust estate, as the answers to questions 4 and 5 of the Special Case read in the light of the agreement of 3rd July constituted an agreement that the proceeds should be treated as a separate fund. The Special Case was brought to determine the rights of parties in the proceeds, and in terms of the case the proceeds were to be “distributed” without deduction of the expenses of the trust. “Distributed” meant paid away to the last penny in accordance with the answers to the question, and did not refer to ranking. The words of the contract invoked in a special case were crucial, and the parties were bound by them— Davidson's Trustees v. Davidson, 1912 S.C. 693, 49 S.L.R. 546. If the defender had meant to treat the proceeds as part of the general trust estate he

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should have claimed accordingly in the Special Case.

Counsel for the defender were not called on.