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Cite as: 2004 SCLR 943, [2004] ScotCS 118

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Hope, Re Exoneration Discharge [2004] ScotCS 118 (21 May 2004)

OUTER HOUSE, COURT OF SESSION

P29/99

OPINION OF LORD BRACADALE

in the petition of

CAROLE HOPE

Petitioner;

for

Exoneration and Discharge

________________

Petitioner: Holroyd; Drummond Miller, W.S.

Respondent: Party

21 May 2004

Introduction

[1] Robert Johnston ("the Ward"), who suffered from Parkinson's disease and severe Alzheimer's disease, lived in a nursing home from 1998 until his death on 18 June 2001. He had three sons: Alexander, William and Robert Johnston. Alexander lived in the South of England and William lived in the United States of America. At the time of his death the Ward was eighty-seven years of age.

[2] The petitioner, who is a solicitor and a partner in the firm of Drummond Miller WS, was appointed as the curator bonis to the Ward on 9 July 1999. In this petition she seeks exoneration and discharge. The petition is brought against the following background.

Factual background
[3] In January 2002, following the death of the Ward, the petitioner applied to the Accountant of Court for discharge under Rule of Court 61.31. Objections to that application were received from the three sons of the Ward. In March 2002 the Accountant of Court determined that a certificate of discharge should be issued to the petitioner and the objectors appealed against that determination. Under Rule of Court 61.32 (4)(b) the Lord Ordinary ordained the petitioner to lodge a petition for discharge, which she did. Alexander Johnston lodged answers and appeared before me at the hearing.

[4] Both Alexander and Robert Johnston Junior had themselves worked in the financial business world: Alexander had been in the management of an international bank and Robert had been a manager in a building society.

[5] The main asset of the Ward was his Edinburgh flat which was sold by the petitioner on 30 September 1999 for £103, 568. Alexander Johnston was very unhappy with the way in which the sale of the house had been conducted. In addition, he had concerns about the investment of the proceeds. On 3 November 1999 Alexander Johnston wrote to the petitioner in the following terms:

"The main point of writing is to please request that none of my Father's funds should be invested in the stock market given

1. The present turbulence in the world markets.

2. The likelihood of the USA bubble bursting with knock-on effects on

London.

3. The relatively good rates given for high cash deposits viz a viz current

inflation and my father's low income tax rate. Higher still rates may be

on the way.

4. That his capital should not be put at risk bearing in mind the fees which

have to be paid to the nursing home.

5. His increasing frailty would appear to make it unlikely that he could

outlast his capital.

My brothers and I would be most grateful if the funds could be placed on deposit with first rate British banks/building societies in onshore, higher earning non-branch deposits."

The petitioner replied on 10 November 1999 in the following terms:

"I agree that, balancing up the various factors which you have outlined, high interest, onshore, bank or building society deposits seem the best investment choice for your father. I will obviously have to obtain the approval of the Accountant of Court but I do not anticipate a problem. The base rate has, of course, risen since you wrote your letter which is another good indication."

On 9 August 2000 the petitioner wrote to Alexander Johnston enclosing a copy of the curatory accounts to 31 July 2000. In this letter she wrote:

"I am holding a cash deposit of £106,986.97 on bank deposit. When the Accountant of Court completes his audit of the accounts he will give his instructions for the investment of these funds. When I receive the Accountant of Court's audit report I will write to you setting out his requirements to discuss the investments as being directed".

[6] The deposit account referred to was a Scottish Solicitors Deposit Account which would yield a low rate of interest. Alexander Johnston wrote to the petitioner suggesting that the money should have been in a high interest deposit account such as a deposit account with the Northern Rock Building Society. The petitioner wrote to Alexander Johnston on 27 September 2000 advising him that she would invest £25,000 in Capital Income Capital Bonds and £60,000 in a Northern Rock 90 day account. In the event this was not done and the funds remained on the Scottish Solicitors Deposit Account. The statement by the petitioner to the effect that the Accountant of Court would outline investment requirements was incorrect and when, on 22 November 2000, this was brought to the attention of the Accountant of Court, he advised the petitioner to seek independent financial advice. Consequently, on 30 November 2000 the petitioner sought the advice of Messrs Bell Lawrie White and Co, Stockbrokers. Their advice, which was given on 12 December 2000, was that 2 years shortfall between the income and expenditure of the Ward's estate should be held on deposit. Of the balance of around £75,000 they advised that £25,000 be invested in National Savings Income Bonds with the balance of £50,000 being split between five investment trusts. The advice given was that the investment trusts would offer greater potential for income and capital growth. The petitioner followed this advice.

[7] As already noted, on 17 January 2002 the petitioner sought discharge in respect of her actings as curator bonis. She accepted that there had been a delay in obtaining investment advice and that the money should not have lain on the deposit account for the length of time it did. With her agreement the Accountant of Court made a deduction of £600 from the petitioner's commission to reflect the delay in obtaining investment advice. On 31 January 2002 Alexander Johnston lodged a statement of objections which was adopted by his brothers Robert and William. In his determination the Accountant of Court considered each of the objections. He recognised that in terms of Rule 19(5) of the Judicial Factors Rules 1992, the Accountant of Court is required to consider the application and representations and to issue a determination on whether a certificate of discharge should be issued or refused. He noted that in determining whether the curator bonis should be issued with a certificate of discharge the Accountant of Court must consider whether the curator bonis has acted properly in relation to the management of the funds of the Ward. After considering each of the objections the Accountant of Court concluded that the petitioner had accounted to him for intromissions on the estate to his satisfaction. He went on to say:

"Having considered the objections, the Accountant of Court cannot say that the curator bonis has failed in her duties in relation to the curatory estate. There is the question of the loss incurred as a result of the delay in obtaining investment advice. A deduction was made from the curator bonis commission to reflect this. Whilst in some regards the curator bonis could be said not to have acted prudently, it is not within the power of the Accountant of Court to impose any penalty. Equally, in the Accountant of Court's view, this is not sufficient to justify recommending refusal of the application for issue of a certificate of discharge in this case."

[8] In his answers to the petition Alexander Johnston avers that when seeking independent financial advice the petitioner omitted to advise the independent financial advisor that the Ward was 87 years old; had been in a nursing home for 21/2 years; suffered from severe Alzheimer's disease and had developed Parkinson's disease; there had been a rapid deterioration in his condition and that life expectancy was therefore minimal. The significance of this is that in a letter dated 4 December 2001 Bell Lawrie White commented:

"In good faith we recommended a selection of investment trusts that we considered a good mix between income and capital growth. As we were unaware of Mr Johnston's short life expectancy our advice was based on a minimum investment period of 2 to 3 years. Our primary consideration was to provide some opportunity for capital and income growth over this minimum time period."

[9] Alexander Johnston seeks "to have the whole transaction unwound at the curator's expense". Alternatively, he seeks payment of his sum of £4,356.90 which he avers is the loss which arose as a result of the petitioner leaving the fund on the Scottish Solicitors Deposit Account for the period that she did.

The petitioner's submissions
[10] Before me Mr Holroyd, who appeared on behalf of the petitioner, said that the petitioner accepted that there had been a delay and that therefore there was a basis for the calculation of a shortfall to the estate for a period between November 1999 and November 2000. He explained to me that on 23 December 2003 the solicitor acting on behalf of the petitioner had written to Alexander Johnston offering to pay a sum of £3,750 which was based upon the calculation made in the alternative in the note of answers by Alexander Johnston. Mr Holroyd submitted that the offer made by the petitioner removed the alternative ground.

[11] Mr Holroyd submitted that the principal basis of Mr Johnston's claim was one to which the court could not give effect. He submitted that it would be not competent for the court to engage in the kind of unwinding exercise which Mr Johnston sought. The Ward died in June of 2001 and on his death the funds passed over to the executors. This included all the investments.

[12] Mr Holroyd drew my attention to the Judicial Factors Act 1849 section 6 which provides:

"If the factor shall misconduct himself, or fail in the discharge of his duty, he shall be liable to such fine, and to the forfeiture of the whole or any part of his commission, and to suspension or removal from his office as factor, and to payment of expenses, or to any one or more of such penalties, as the court in its discretion shall decide; and that over and above such further liability as he may be subject to, as accords of law, in reparation of any loss or damage sustained by the estate in consequence of such misconduct or failure."

Mr Holroyd submitted that the reference to "as accords of law" would suggest that if damages were to be sought one would expect to see a delictual action being raised. There was a question whether it would be competent to have a damages case in the context of this petition. He did however, refer me to a case where a claim was made for damages in the course of a petition for exoneration and discharge: Manners v Strong's Judicial Factor (1902) 4(F) 829. Mr Holroyd submitted that in that case it was clear that a claim for damages was made and not, as in the present case, a claim to have the whole transaction unwound.

[13] Mr Holroyd further submitted that if a proper claim could be advanced it would be necessary to look at the value of shares at the date of death and not, as was suggested by Mr Johnston, at a later date.

[14] Mr Holroyd invited me to make the order granting the prayer of the petition and gave an undertaking that the appropriate figure would be set off the commission otherwise due.

The respondent's submissions

[15] Mr Johnston described the history of the matter to me and made particular reference to the correspondence in November 1999. He was critical of the petitioner. She had been quite wrong in thinking that she required the approval of the Accountant of Court in order to invest the funds.

[16] So far as the question of transfer to the executor was concerned he said that the shares were still in the name of the petitioner and submitted that the transaction should be unwound as the investment should never have been made in the first place.

[17] He said that he had asked the petitioner to sell the shares just before the Ward died. However, by then the curatory had come to an end and she could not sell them. It took some time for the executor to be appointed. He and his brothers had decided to let the thing run its course and invite the court to unwind the whole transaction. He described the conduct of the curatory as being totally unsatisfactory from start to finish.

The petitioner's reply

[18] In reply Mr Holroyd explained that the position so far as the shares were concerned was that on death of the Ward the curatory came to an end. Although nominally in the name of the curator, the shares would truly be in the control of the executor.

Discussion and decision

[19] When a Ward dies the appointment of the curator bonis falls. He or she no longer has power to transact with the estate of the Ward but there remains a duty to account. As Lord Ivory put it in the case of The Accountant of Court v Jaffray (1851) 14R 292 at page 295:

"Jaffray's factory fell on the death of the party for whom he was factor; and although he is not relieved from the responsibilities of his office, the office itself is at an end."

The curator bonis has a duty to account to the Accountant of Court for his intromissions to the date of death and account to the executor for the estate and revenue subsequently received.

[20] As a matter of general principal it seems clear that the curator bonis is under a duty of care, skill and diligence. It is suggested in the Stair Encyclopaedia at Vol 24 in the chapter on "Trusts, Trustees and Judicial Factors" at paragraph 248 that the standard of care involved where involved the question of the profession, if any, to which the factor belongs and will no doubt be that of a reasonably competent member of that profession administering a factory estate. It is observed that the point has arisen rarely, probably because of the detailed duties and powers of factors in regards to, for example, accounts and investments and the supervisory role of the Accountant of Court on a day to day basis.

[21] In Hutton v Annan (1898) 25R (HL) 23 a curator bonis was appointed to a child. The curator bonis made an investment in bonds or debentures of the Greenock Harbour Trust. The investment was not a success. At page 26 Lord Herschel said:

"It seems to me that although that may have been an undertaking in which a person might well invest his money if he had confidence in the future of the Port, and might so have invested it without being chargeable with being a man indulging in rash or hazardous speculation, yet it is a totally different thing when he is dealing with the capital of a Ward, the safety of the investments of the provision made for whom he is bound to guard with care and diligence".

And later:

"Where provision is left for a child by a parent, and the care of the sum thus left is entrusted to a judicial factor, it is very important that the Ward, who is entirely in the hands of that factor as regards the safety of the investment, should not be allowed to be deprived of the provision made for her by want of the requisite judgement and prudence of the judicial factor."

[22] In Manners (supra) the factor died and certain beneficiaries under the trust disposition and settlement presented a petition for the appointment for a new judicial factor and for the discharge of Mr Strong. Objections to the discharge were lodged by the truster's daughter and her two children being the liferentrix and fiars respectively of a one-fifth share of the residue. Three objections were taken. First, that Mr Strong had held large sums belonging to the trust on deposit receipt for an unreasonable length of time without just cause, thereby causing a loss of income to the trust for which loss the objectors maintained he was liable. Second, that he was liable for the loss of capital caused by the investment of a sum of £3,250 belonging to the trust upon property valued at £4,150, being a loan of more than two thirds of the value of the security subjects. The objection was that the bond ought neither not to have been taken at all, or that the factor was in breach of his duty in not calling it up sooner than he did. A further objection relating to the second was advanced.

[23] The Inner House affirmed the decision of the Lord Ordinary, Lord Pearson, who had heard a proof, that the factor was not liable in relation to any of the objections. In his opinion, in relation to the first objection, Lord Pearson said:

"But the test of the factor's liability in what is really a claim of damages is not whether the course adopted by the factor was unnecessary, but whether it was unreasonable and imprudent so as to amount to a breach of duty. I am not prepared to hold that it was so in the circumstances of this case and in a matter of this kind each case must be decided according to its own circumstances."

[24] Affirming the decision of the Lord Ordinary the Lord Justice Clerk at page 834 stated:

"As regards the sums retained on deposit receipt, I agree with the Lord Ordinary in the opinion that even if there be ground for holding that the factor committed an error in judgement in what he did, there is no sufficient ground on which it can be declared that he committed a breach of duty."

He continued in relation to the other matters:

"I am satisfied that in granting the original loan the late factor was in no way in fault. He took the very best advice. But then it is said that loss was incurred through his failure to call up the bond. But the interest was being regularly paid and it is certainly not made out that there was any real ground at the time for apprehending such a fallen value as would make it a fault on the part of the factor not to have realised at a time when the loss would have been less and in the event it turned to be. The remarks of the Lord Ordinary on this matter are most pertinent and I concur in them."

[25] In my opinion the case of Manners is authority for the proposition that in considering a petition to discharge a curator bonis the court may have regard to the conduct of the curator bonis in what, as Lord Pearson put it, is really a claim for damages.

[26] The difficulty in the present case turns upon what it is that Mr Johnston seeks and the way in which he has pled his case. For the reasons stated above I am satisfied that it would not be competent for the court to engage in the exercise of unwinding the estate in the way sought by Mr Johnston.

[27] It appears that the petitioner has already recognised that there is force in one objection namely the matter relating to the deposit account. An undertaking has been given that certain money will be paid. The remaining difficulty lies in the lack of any proper and relevant focus in the pleadings of the amount of the loss said to have arisen as a result of what is averred to have been a failure in her duty of care by the petitioner in relation to the investment of the funds of the Ward. Some attempt to do this was made in a document headed Memo for Hearing on 7 January 2004 which was handed to the court at the hearing but was not addressed in the discussion. It is unfortunate that Mr Johnston did not seek legal advice prior to lodging answers. In my view a relevant issue has been raised but not properly focussed in the pleadings. The question of whether the petitioner acted without due care, skill and diligence in relation to the investment is still a live issue. For that reason I am not at this stage prepared to grant the prayer of the petition. I shall give Mr Johnston an opportunity in the light of this opinion to amend his answers. It may well be that thereafter evidence would be required to be led. I shall order that the case be put out by order for discussion of further procedure and shall meantime reserve the question of expenses.