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OUTER HOUSE, COURT OF SESSION

[2006] CSOH 141

P1744/03

OPINION OF LORD EASSIE

in the Petition of

THE RIGHT HONOURABLE COLIN ROBERT VAUGHAN, 7^TH EARL CAWDOR AND OTHERS

Petitioners;

for

Removal of a Trustee

________________

Petitioners: Tyre, Q.C.; Turcan Connell, W.S.

Respondents: Stewart, Q.C.; Drummond; Brodies, W.S.

13 September 2006

Introductory

[1] This petition seeks the removal of one of three trustees of a trust known as the "Cawdor Maintenance Trust". The trustee whose removal is sought is the Dowager Countess Cawdor. She and her fellow trustees have lodged answers to the petition. The first petitioner is the seventh Earl Cawdor. The second petitioners are the trustees currently acting under another trust, created in 1964 by the fifth Earl Cawdor, and known as the Cawdor Scottish Discretionary Trust.

[2 ] The Cawdor Maintenance Trust - "the Trust" - was created by a deed of trust executed by the sixth Earl Cawdor - the late husband of the Dowager Countess - on 15 March 1984. The Trust was set up as a building maintenance trust under section 93 of the Finance Act 1982, the first trustees being the sixth Earl Cawdor (the truster) and two other individuals. The truster made over to the trustees inter alia a number of heritable properties which are listed in schedules to the deed of trust. Clause (Third)(i) of the deed of trust directs the trustees to -

"...apply the income, accumulations of income or the capital or such part thereof as they in their absolute discretion shall consider appropriate and necessary at any time and from time to time for any one or more of the following purposes:

(a) the maintenance, repair or preservation of, or making provision for public access to, Cawdor Castle in the County of Nairn and such other land, buildings and objects as have been and may from time to time be designated as relative to this Trust by the Treasury under any of the enactments mentioned in Section 94(2)(a) of the Finance Act 1982 or under Section 94(3) of that Act, but that only for so long as Cawdor Castle and such other land, buildings and objects are recognised by the Treasury as qualifying within the meaning of Section 94(2) of the Finance Act 1982;

(b) The maintenance, repair or preservation of property forming part of the Trust Fund;

(c) Such improvement of property forming part of the Trust Fund as is reasonable having regard to the purposes of this Trust; and

(d) Defraying of the expenses of the Trustees in relation to any property forming part of the Trust Fund."

[3 ] Subclause (ii) of Clause (Third) empowers the trustees, for a period of 21 years, to accumulate any income not applied for the purposes of subclause (i) and directs that the accumulated income shall be applied for

"the benefit of a body mentioned in Paragraph 12 of Schedule 6 to the Finance Act 1975 or of a qualifying charity as defined in Section 94(4) of the Finance Act 1982 to the intent that no part of the income of the Trust Fund may at any time be applied except as mentioned in Section 93(3)(a)(i) or Section 93(3)(a)(ii) of the Finance Act 1982."

[4 ] As respects capital, subclauses (iii) and (iv)(A) of Clause (Third) put in place the restrictions on the application of capital during the first six years of the Trust which were required for conformity with the relevant provisions of the Finance Act 1982. On the expiry of that period the trustees were given power to terminate the Trust in whole or in part and to pay the trust fund or any part of it to any of:

(a) the proprietor of Cawdor Castle;

(b) the trustees of the Cawdor Scottish Discretionary Trust;

(d) any issue of the fifth Earl Cawdor;

(e) any person presumptively entitled to succeed to the earldom, or the earl, or the wife of either; and

(f) any of the bodies or charities to whom the accumulated, or non-applied, income might be paid in terms of subclause (ii).

[5 ] The current fiscal provisions on maintenance funds for historic buildings are contained in the statute now known as the Inheritance Tax Act 1984. Such trust funds give certain fiscal advantages in return for, inter alia, public access to the historic building in question. The Trust has, at all times, had the necessary approvals of the fiscal authorities. Maintenance fund status depends upon approval being given to the trust purposes; the trust funds; and the trustees of the Trust. It is, I think, unnecessary to set out the terms of the tax legislation in any detail save perhaps to note that paragraph 7 of schedule 4 gives the Treasury (now, I was told, HMRC) power to enforce the trust purposes and gives to it the rights and powers of a beneficiary as respects the appointment, removal and retirement of trustees.

[6 ] Cawdor Castle was not included in the properties conveyed by the sixth Earl to the Trust. It remained in his ownership and on his death, which occurred on 20 June 1993, it passed to his spouse, the Dowager Countess, who continues to own the Castle. She is thus the owner, by bequest from the truster, of the primary object of the Trust.

[7 ] Prior to his death the sixth Earl granted a lease of Cawdor Castle to a limited liability company incorporated as "Cawdor Castle (Tourism) Ltd", which, it is averred and not disputed, carried on a trading activity of exploiting the tourism benefits of Cawdor Castle and its surrounding gardens. Of the seven issued shares in the company, two are held by the Dowager Countess, two by the first petitioner (the seventh Earl) and three by the marriage settlement trustees. It is averred and admitted that until 10 October 2002 the Countess was the managing director of Cawdor Castle (Tourism) Ltd. The lease of Cawdor Castle held by Cawdor Castle (Tourism) Ltd was terminated on 28 May 2003. Since then the tourism activity at Cawdor Castle has been carried on by a different company - "Cawdor Castle Ltd" - which it is averred, and I understand not disputed, is "owned and directed" by the Dowager Countess.

[8 ] The Dowager Countess was assumed as a trustee of the Trust on 16 August 1996. As required by the tax legislation, her assumption received prior approval from the Inland Revenue. The firm of solicitors advising the trustees (of whom one of the second petitioners was then a partner) advised that the Dowager Countess' involvement "as owner of the Castle etc would clearly be very relevant to obtaining approval".

The parties' pleas-in-law

[9 ] The bases upon which the petitioners ask the court to remove the Dowager Countess from her office as trustee of the Trust are stated in the first two pleas-in-law for the petitioners in these terms:

"(1) The Dowager Countess Cawdor having been and continuing to be auctor in rem suam with regard to transactions between the Trust and Cawdor Castle Ltd should be removed as a Trustee of the Trust.

(2) Separatim, the Dowager Countess Cawdor having utilised her position as a Trustee in furtherance of her personal interest at the expense of the Trust, and the Petitioners being reasonably apprehensive that she will continue to do so, she should be removed as a Trustee of the Trust."

As I understood it, these two pleas reflect separate bases upon which it is contended on behalf of the petitioners that the Dowager Countess should be removed from office on the basis of a conflict of interest. The first basis was what was described in the debate as the "institutional" argument, which turns on an alleged conflict in principle between the position of the Dowager Countess as trustee and her ownership of the Castle and her membership of the company carrying out the tourism activity. The second basis proceeds on allegations of particular instances of expenditure of Trust income which, put shortly, are averred to indicate some improper influence brought to bear by the Dowager Countess on her co-trustees of the Trust.

[10 ] In their pleas-in-law the respondents inter alia dispute the relevancy of the case made in the petition and the title of the petitioners to sue. The respondents also plead that the petitioners have acquiesced in the actings complained of and are thereby barred from stating objection. The respondents' pleas also include a plea of "all parties not called" but in the course of the debate Mr Stewart, who appeared for the respondents, intimated that he no longer insisted on that plea.

[11 ] For their part, the petitioners have a plea (plea-in-law 4) directed to the relevancy of the answers and a plea (plea-in-law 3) challenging the title and interest of the trustees of the Trust other than the Countess to oppose the petition.

[12 ] Although counsel for the respondents advanced his plea of no title to sue at the start of his submissions, I find it convenient first to consider the nature and substance of the petitioners' complaint, which was the subject of argument on relevancy, that argument falling into two chapters, the first being the "institutional" argument.

Relevancy: the institutional arrangement

[13 ] As already indicated, the first contention for the petitioners is that there is what was described in the debate as an institutional conflict of interest between the position of the Dowager Countess as trustee and her personal interest as the owner of the Castle and a director and shareholder in what are termed in the pleadings "the two tourism companies". It is, I think, unnecessary to set out in detail the averments made on behalf of the petitioners on this aspect, save to say that it is averred that the practice of the trustees had been to pay a substantial part of the income of the Trust to Cawdor Castle (Tourism) Ltd by way or reimbursement of certain costs incurred in maintaining the Castle and in the payment of wages to gardeners and other employees engaged in the upkeep of the Castle.

[14 ] In submitting that the petitioners' contention of a conflict of interest warranting judicial removal of the Dowager Countess from office was irrelevant, counsel for the respondents pointed out that a maintenance fund trust inevitably has in contemplation as the beneficiary of the trust the owner of the historic building in question. Counsel referred to Glasgow Trades House v IRC 1970 SC 101 in which it was held that trust income directed to be applied for the maintenance of the building was to be treated, under the then tax legislation, as the income of the building owner: see also Raikes v Lygon [1988] 1 W.L.R. 281, 289E. The position of the Inland Revenue was important since its approval of the trustees was required and only reimbursement of qualifying expenditure could be made. It was thus accepted by counsel for the respondents that the Dowager Countess was a beneficiary of the income of the Trust. That was necessarily implicit in the terms of the Trust deed which contemplated relieving the owner of the Castle of maintenance costs. It made no difference that for practical and Value Added Tax reasons the reimbursement of the qualifying expenditure was channelled through the "tourism company".

[15 ] Counsel for the respondents went on to submit that, properly understood, the rule against the trustee acting as auctor in rem suam applied only where the trustee, by transacting privately with the Trust assets, put himself, by that action, into a position of conflict. Counsel referred to Aberdeen Railway Company v Blaikie Brothers (1853) 1 MacQ. 461 and founded particularly on the Lord Chancellor's formulation of the fiduciary duty as barring the entering into of engagements with which the agent had, or could have, a personal interest conflicting, or which possibly might conflict, with the interests of those whom he is bound to protect. Thus the conflict had to be between personal interest, arising from some transaction or external position, and the interest of another or others whose interest the fiduciary had to protect. Reference was also made to Wright v Morgan [1926] AC 788, 797. The rule thus did not apply where there was simply a co-incidence between being a trustee and a beneficiary.

[16] In what appeared to be in some ways a corollary to that submission, counsel for the respondents continued by saying that the rule did not apply where the trustee had not put himself into a position of conflict but found himself in a situation of possible conflict by reason of the express or implied terms of the trust. It did not apply where the truster had set up or approved arrangements which envisage potentially conflicting situations; Goodsir and Others v Carruthers and Others (1858) 20D 1141, 1146-7; Sabris v Clerk 1995 S.L.T. 44, 47C-D; Maclean, Petitioner (1895) 22R. 872, 875ff.

[17 ] Mr Stewart submitted that it was a necessary inference from the Trust deed and the surrounding circumstances (including the fiscal legislation) that the truster contemplated and authorised the assumption of the owner of the heritage property as a trustee. Firstly, the truster constituted the Trust for tax reasons, and the maintenance and public access purposes were incapable of fulfilment except by undertakings given by the owner to the Treasury and with the consent and active co-operation of the owner. Secondly, the truster had appointed himself as trustee and remained so until his death. It must therefore have been in contemplation of the truster that the surviving trustees would consider it appropriate for the succeeding owner of the Castle (his widow) to share in the function of the trustees in fulfilling the maintenance trust. And fourthly, he conferred the fullest power of assumption of trustees but subject to the condition that the exercise of that power be approved by the Treasury.

[18 ] It was not essential (to avoid being auctor in rem suam) that a trustee who was also a beneficiary should have been appointed by the truster. A beneficiary might be assumed as a trustee. Such was the position in Tempest v Lord Camoys (1888) 58 L.T. (N.S.) 221. In this connection counsel also referred to Edge v Pensions Ombudsman [1998] Ch. 512, 533, 539-40. The institutional conflict now claimed by the petitioners was known at the time of the assumption of the Dowager Countess, but it was not said by the petitioners that the appointment was invalid or an inappropriate and challengeable exercise of discretion on the part of the surviving trustee.

[19 ] Counsel for the respondents further submitted that the rule against auctor in rem suam did not apply where the beneficiary or beneficiaries affected by the conflict have consented. It was not in dispute that the Treasury had the powers of the beneficiary and had consented to the appointment. The Treasury was the other beneficiary interested in the application of the income from the Trust.

[20 ] In relation to this chapter of the debate, Mr Tyre, for the petitioners, began by stressing the absolute nature of the principle of auctor in rem suam. A trustee might not place himself or allow himself to be put in a position of conflict between his personal interest and his fiduciary duty and the mere possibility of conflict was sufficient. Counsel referred to Aberdeen Railway Company v Blaikie, sup.cit., 471, 472; Hamilton v Wright (1842) Bell's App Cas 574; Menzies on Trustees, para.451, 459; Mackenzie Stewart on Trusts p.177ff and Wilson and Duncan on Trusts, Trustees and Executors (2^nd ed.) para.26-01ff.

[21 ] Counsel for the petitioners thereafter turned to the situation where the possibility of conflict was recognised by, or known to, the truster. He accepted that there was much authority for the proposition that a beneficiary might be appointed as a trustee, notwithstanding any conflict of interest between his status as beneficiary and status as trustee. However, what was important was that the conflict had been created by the truster. In the present case the respondents' argument had to go further, since the Dowager Countess' late husband had not made her a trustee. A person might have a relationship with the trust in question which would prevent his accepting office as trustee. Counsel referred to Inglis v Inglis 1983 SC 8. Counsel did however accept that Tempest v Lord Camoys would also apply in Scots law. It should make no difference whether the conflict arose during trusteeship or before the trusteeship commenced. Counsel instanced the assumption of a trustee who was carrying on business in conflict with the business being carried on by the trust into which he was assumed. The general principle against auctor in rem suam would apply to that purported assumption.

[22 ] Counsel for the petitioners went on to explore the application of the general principle to building maintenance trusts. He accepted that such trusts contemplated benefit to the owner of the building and that the owner could be taken to be the beneficiary. But, said counsel, there will have to be decisions on how to spend the money and there may therefore be a conflict as between expenditure of long term benefit to the building and more immediate benefit to the owner, if say the owner were carrying on a business. The interests of the owner may not equate with what is best for the property.

[23 ] Accordingly, argued counsel, the position of the Dowager Countess as shareholder in a company created in itself a situation of auctor in rem suam and since the averments relating to her ownership of the Castle and the shareholding were admitted by the respondents there was no relevant defence to this branch of the argument for the petitioners.

[24 ] In approaching the competing submissions on this chapter of the debate, I observe at the outset that there was no dispute, first, that in a building maintenance trust the owner of the building is the human, or corporate, beneficiary of the trust purposes directed towards the maintenance of that building. That result necessarily follows from the necessity that a trust purpose under a private trust ultimately have a natural or juristic person as its beneficiary. Secondly it is not disputed that, at least generally speaking, there is no bar to a beneficiary holding appointment as a trustee (see, for example, Wilson and Duncan para.18-28). Counsel for the petitioners submitted early in the debate that the latter was only the case where the appointment was made by the truster. However, I am not persuaded that the authorities vouch such a strict approach and that a beneficiary may not be assumed as a trustee. As counsel for the respondents pointed out in the course of his response, in discussing the assumption of trustees Wilson and Duncan do not make that distinction (cf. para.19-08ff). Counsel for the petitioners accepted that Tempest v Lord Camoys was also authoritative in Scots law. That case was concerned with the assumption of a beneficiary as a trustee, not an original appointment, and the court approved of such an appointment. It is apparent from the passages in Lewin on Trusts 17^th ed. para.14-34 and Thomas and Hudson on The Law of Trusts, para.22.64, to which I was also referred by Mr Stewart in his reply, that the fact that a proposed appointee is also a beneficiary is not per se an objection to his appointment. Counsel for the petitioners invoked Inglis v Inglis in support of his proposition that a beneficiary might only be appointed as trustee by the truster, but I agree with counsel for the respondents that the case is only authority for the proposition that by becoming an executor dative, the person granted that office then becomes subject to the obligation of gratuitous trustees not to enter into transactions involving a conflict of interest.

[25 ] Indeed, as the debate progressed I understood counsel for the petitioners to accept that, in principle, a beneficiary might appropriately be assumed as a trustee and that (essentially for the reasons listed in para.[17] supra) the assumption of the owner of the heritage building as a trustee need not be objectionable. Ultimately, as I understood him, the objection which Mr Tyre sought to advance was that the Dowager Countess had outwith her ownership of the Castle some additional "non-beneficiary" capacity in the shape of her interest in the tourism companies and it was this which rendered her position as trustee unacceptable. In my view this distinction is not of any materiality. Within the pleadings for the petitioners one finds an equiparation of the two positions (for example page 14A-B of the Record) and I understood the initial position of counsel for the petitioners to be that the interposition of a company, as the mechanism for transmission of the reimbursement of the costs of maintaining the Castle, was immaterial in the identification of the personal benefit to the Dowager Countess as owner of the heritage property. The owner of any property subject to a maintenance fund trust may, of course, make economic use of it, subject, in the case of a qualifying maintenance fund trust, to any restriction required to meet the requirements of the tax legislation. Thus the owner may choose to let it out; to occupy it himself and save on other accommodation costs; or to draw economic benefit from the public access which the legislation and the trust purposes contemplate. I accordingly do not accept the contention that by reason of the interposing of a company, which does not perform in the Castle any activity which the Dowager Countess, as an individual, could not perform, the Dowager Countess' interests in the interposed company give her a conflicting interest which she would not possess as owner simpliciter. In these circumstances I have reached the conclusion that neither her ownership of the Castle nor any shareholding in the "tourism companies" place the Countess in the position of having conflicting interest warranting her removal from office.

Acquiescence
[26 ] On the assumption that, contrary to the conclusion which I have just reached, there were such a conflict of interest, counsel for the respondents further submitted that the rule relating to auctor in rem suam did not apply where the complaining beneficiary had acquiesced in or condoned the transaction in question. I have already touched on that submission. Counsel identified the transaction complained of as being the reimbursement, via the company, of certain costs incurred by the company (Record, p.8). During the whole of the period following the assumption of the Dowager Countess as trustee, the first petitioner had been a director of Cawdor Castle (Tourism) Ltd. The second petitioners are the same individuals who constituted the marriage contract trustees, who were shareholders in that company (although not a matter of averment, I understood this not to be disputed). Thus all of the petitioners had knowledge of the arrangement with Cawdor Castle (Tourism) Ltd at the time of the Countess' assumption as trustee, but raised no objection and accepted her assumption as such a trustee. Reference was made to Callander v Callander 1975 S.C. 183.

[27 ] Although the second petitioners, in their capacity as the trustees of the Cawdor Scottish Discretionary Trust were not shareholders in Cawdor Castle (Tourism) Ltd, as just mentioned I did not understand it to be in dispute that in fact they were also the trustees under the marriage contract trust (who were shareholders) and thus had knowledge at the time of the assumption of the Dowager Countess as trustee under the Trust, of her relationship to the ownership of the Castle and her shareholding in Cawdor Castle (Tourism) Ltd. It is clear that until the presentation of this petition in 2004 they took no objection to the supposed institutional problem of which complaint is now made.

[28 ] I understood counsel for the petitioners to accept that as respects past transactions between the Trust and Cawdor Castle (Tourism) Ltd acquiescence would apply and reduction of those transactions or claims for repetition would be barred by reason of such acquiescence. However, said counsel, the petitioners were not barred as respects the future, particularly in the circumstances that since 2003 the tourism activity had been conducted by a company in which the first petitioner had no interest.

[29 ] In the case of continuing relationships the question whether acquiescence in past actions may bar for the future can present difficulties. It is no doubt the case that acquiescence in one breach of contract may not provide licence to commit a future breach. Similarly, in the context of trusts, I accept that where a beneficiary consents to, or acquiesces in, a particular transaction where the trustee transacts personally with the other trustees respecting an item of trust property such acquiescence will not prevent the beneficiary from objecting to a future transaction. But, insofar as this chapter of the argument is concerned, I think the present case is rather different. What is under consideration in this chapter of the debate relates to two continuing capacities of the Dowager Countess, namely her position as trustee and her position as owner of the Castle and a member of the tourism companies. The petitioners were aware of the latter capacity at the time when the Dowager Countess was assumed as a trustee. The objection advanced under this chapter is essentially to her having been assumed as a trustee. As Mr Stewart put it, if the petitioners can advance this objection now, they could have advanced it at the time at which the Dowager Countess became a trustee or it was proposed that she should become a trustee. In my opinion, therefore, the argument that the petitioners have acquiesced in the appointment of the Dowager Countess as a trustee while yet being owner of the Castle and a member of the tourism companies is to be preferred. I appreciate that, as counsel for the petitioners pointed out, the current company is not the same as that of which the Dowager Countess was a member when she was assumed. But the objection in principle which the petitioners seek to advance is not, in my view, affected by the fact that the Dowager Countess may now have a larger stake in the tourist company than previously.

[30 ] Accordingly, insofar as the petition proceeds upon the institutional arrangements, I consider that the argument for the respondents should prevail.

Misuse of influence
[31 ] Separately from the case based upon the institutional arrangements the petitioners, in Statement V of the petition, make averments respecting certain actings of the trustees of the Trust in expending trust income which are alleged to have been instigated by the Dowager Countess and to demonstrate the exertion by her of improper influence or pressure on her fellow trustees.

[32 ] The first instance relates to Lochindorb Castle. In short, it is averred that the Trust made an interest free loan to the Cawdor Heritage Trust to carry out work on Lochindorb Castle, which is averred to be owned by the Dowager Countess (but which, it was not disputed, is a ruin). The first petitioner is, I was told, a trustee of the Cawdor Heritage Trust which received the loan. The petitioners admit in their pleadings that the Dowager Countess received legal advice that it was lawful for the trustees to make this loan to the Cawdor Heritage Trust. The Cawdor Heritage Trust is a charitable organisation within the scope of clause (Third) (ii) of the Trust deed. In the event, counsel for the petitioners accepted that the payment in respect of Lochindorb Castle did not involve any breach of trust and was a legitimate and appropriate transaction, and that the averments respecting it added nothing to the institutional case which the petitioners had sought to make in Statement IV of the petition.

[33 ] The second complaint of the petitioners concerns a decision to expend money on the repair of a bridge which, it is averred by the petitioners, was undertaken for the purpose of providing the Dowager Countess with a shorter vehicular route from her home to the Castle. However, having made that averment, the pleadings for the petitioners later admit that the decision to incur expenditure on the bridge in question was taken prior to the assumption of the Dowager Countess as a trustee. Mr Tyre rightly accepted that this matter was not relevant.

[34 ] The third matter of which complaint is made relates to expenditure on refurbishment within a part of Cawdor Castle described as the "private area". As counsel for the respondents pointed out, the Trust's purposes envisage maintenance of the whole of Cawdor Castle and it was not averred that these works involved any breach of those trust purposes. As I understood him, counsel for the petitioners accepted that the expenditure in question was within the powers of the trustees under the Trust deed and, as with the averments respecting Lochindorb Castle, added nothing to the matters averred in Statement IV of the petition.

[35 ] The next particular matter to be considered relates to payment of rent by the trustees of the Trust to the second petitioners for a cottage owned by the second petitioners which was to be occupied by a Mr Cowan who, it is averred by the petitioners, was the tenant of two farms, one of which was owned by the Trust and the other by the Dowager Countess. The object of the Trust's paying rent to the second petitioners for the cottage for Mr Cowan's occupation was to enable vacant possession of the agricultural subjects to be obtained. The complaint is that the Dowager Countess indirectly benefited by Mr Cowan's vacating both of the agricultural properties.

[36 ] Although the averments for the petitioners refer to two farms, one of which was owned by the Dowager Countess, the answer for the respondents (page 34) provides some further detail. According to them, Mr Cowan leased a farm, with steading and farmhouse, extending to 76.71 hectare from the Trust. He also leased an area of rough grazing, 18.18 hectare, from the Dowager Countess. The tenant, Mr Cowan, wished to surrender his lease but yet continue to have accommodation in the farmhouse. The arrangement arrived at between the Trust, Mr Cowan and the second petitioners was that Mr Cowan take occupation of the cottage at a reduced rent with the Trust making a contribution respecting the amount whereby the rent of the cottage was reduced. In challenging the relevancy of the averments made in support of this complaint, Mr Stewart pointed out that the petitioners did not aver that either of the tenancies in question was created after the assumption of the Dowager Countess as trustee. It was thus not suggested that she had, by such a transaction, put herself into a position of conflict. It was not relevant, said counsel, that some benefit might accrue to the Dowager Countess when Mr Cowan surrendered the tenancies. In response, Mr Tyre suggested that this was an instance of trust funds having been spent in a way which had some indirect benefit for the Dowager Countess without the Trust having exacted recoupment from her.

[37 ] As respects this particular transaction I have come to the view that it contains an element of the Dowager Countess having acted as auctor in rem suam. It perhaps matters little whether the land in question in the ownership of the Dowager Countess is grazing land or a farm. The land is however, as I understand it, not part of the qualifying property constituting Cawdor Castle for the purposes of clause (Third) (i)(a) of the Trust deed. So any benefit accruing to the Dowager Countess does not accrue to her in her capacity as the "beneficiary" of the Trust. Rather, the transaction with Mr Cowan and the second petitioners to which the Dowager Countess was party in her capacity as trustee, while no doubt advantageous to the Trust in that it increased the value of the land belonging to the Trust, was also one of patrimonial interest to the Dowager Countess and one from which she might be advantaged in a capacity other than as a beneficiary. In other words, this instance is a transaction case, not a beneficiary case. That said, it is accepted by the petitioners in their pleadings that negotiations have been ongoing about the amount which the Countess should contribute to the shortfall in the rent payable to the second petitioners.

[38 ] A further item relates to expenditure on the repair of a fishing bothy, which the petitioners aver was restored for the benefit of the Dowager Countess' fishing tenants. The rather brief averments for the petitioners (Record page 23C-D; 27B) are met by a rather fuller explanation in the pleadings for the respondents (Record page 35A-36E). There is a dispute concerning the ownership of the bothy. The respondents' position is that it, and an adjacent farmhouse, are owned by the Trust, the house being let to fishing parties who pay a rent to the Trust for the house and rent to the Dowager Countess for the separate right of fishing. The petitioners on the other hand aver that the bothy is owned by the marriage contract trustees.

[39 ] The question of the ownership of the bothy cannot of course be settled in these proceedings. But it is not averred by the petitioners that in repairing the bothy the trustees of the Trust acted other than in good faith believing the bothy to be owned by the Trust (as it may indeed be) and hence a proper object for expenditure of the income of the Trust. Counsel for the petitioners suggested that, nonetheless, the refurbishment of the bothy might increase the rental value of the fishings owned by the Dowager Countess. However, that is by no means self-evident and it is noticeable that there is no averment to that effect, despite the respondents' averment that the restoration has not altered the level of rent charged for the fishings. If only on that account, the challenge to the relevancy of what is averred in respect of this matter seems to me to be well-founded.

[40 ] The next matter alluded to by the petitioners relates to Auchindoune Gardens, the averments (Record page 23E-25A) being not susceptible of ready comprehension of the particular complaint. Counsel for the respondents criticised them on that account. The respondents' position is plainly stated as being that the Trust has not incurred any expenditure on Auchindoune Gardens and their call for proper specification of the respects in which the petitioners might be claiming such to be the case is effectively unanswered. I did not understand counsel for the petitioners to be able significantly to resist that criticism.

[41 ] There are certain other inspecific criticisms of the Dowager Countess in the petitioners' pleadings such as the averment at Record 25C-D that the trustees have - on unspecified occasions and in respect of unspecified transactions - employed the same firm of chartered surveyors as are employed by the Dowager Countess respecting her private interest. Counsel for the petitioners, I think rightly, did not invoke or seek support for his case in those averments.

[42 ] Apart from the scrutiny given to the individual matters contained in the averments in Statement V of the petition, counsel for the respondents advanced, as respects those averments, three general propositions. The first was that the court's power at common law to remove a trustee is used sparingly and only where there is plain malversation of office or a persistent refusal by the trustee in question to discharge his responsibilities. The power would not be used to provide certain beneficiaries with a body of trustees more to their liking. In support of this counsel referred to Menzies, 2^nd ed., paras.565-573; Wilson and Duncan, pages 354-356; Neilson v Neilson's Trustees 12R 860. The second proposition was that, as regards the process of taking a decision on the expenditure of income, the test was akin to "Wednesbury" unreasonableness. In that connection counsel referred to Dundee General Hospital v Bell's Trustee 1952 SC (HL) 78, 92; Edge v Pensions Ombudsman [1998] Ch 512, 533ff and [2000] Ch 602, 627D, 636D. Thirdly, in respect of this Trust deed, the test was fraud because the Trust deed provided that:

"Whenever it shall be necessary in connection with the affairs of the Trust hereby created for the trustees to exercise any discretionary power, whatever decision or resolution they may act upon, shall be final and binding and all parties in dispute either directly or indirectly and the actings of the trustees shall not be liable to be called in question upon any ground whatever except fraud."

[43] I did not understand counsel for the petitioners to quarrel significantly those general propositions but he observed that the decision in Brown v Burt (1848) 11D 338 was indeed an example of a single past transaction warranting removal. Mr Tyre also observed, but in a different context, that the clause restricting challenge of the trustees' actings to fraud, would not override an institutional conflict of interest. In my view the latter observation is sound. And since the clause bears to relate to the exercise of a discretionary power it seems to me that it likewise would not apply to a transaction with trust assets involving breach of the auctor in rem suam rule. I would add that the circumstances of Brown v Burt were that a trustee in a sequestration of the estates of a bankrupt arranged for the purchase of the bankrupt's heritable estate purportedly through his 16 year old son, and resigned when proceedings were taken. I find the decision of limited assistance.

[44 ] In light of the foregoing it appears to me that the question which I have to address is whether, following the discussion before me and its scrutiny of the averments in Statement V, the matters advanced in that Statement in the petition yet provide grounds for taking the step of exercising the court's common law power of removing a trustee from office. I accept Mr Stewart's submission that the power is to be exercised sparingly and is not lightly to be invoked. As may be apparent from my earlier summary of the complaints averred in Statement V of the Dowager Countess having acted improperly, and the response of counsel for the petitioners to the criticisms advanced by counsel for the respondents, the one matter of possible substance relates to the transactions respecting Mr Cowan's tenancy. But the arrangements were for the benefit of the Trust and circumstances surrounding it may not have given rise to an immediate appreciation of the conflict on interest. It is a matter of admission that negotiations have been underway to address the question of the Dowager Countess making a contribution to the rent payable by the trustees. I take the view this matter is not of sufficient seriousness to justify the conclusion that there is risk to the future administration of the Trust. Accordingly, I do not consider that there is, within the particular matters raised in Statement V, ground for the court's taking the relatively exceptional step of removing a trustee in the exercise of its power at common law.

[45 ] While that conclusion, taken with that expressed in para.[29] supra is sufficient for the disposal of the petition, there remains the respondents' plea relating to the petitioners' title to sue and to that I now turn.

Title to sue
[46 ] As already indicated, counsel for the respondents presented his submissions in support of his plea of title to sue early in the course of his argument. The submission so advanced in respect of that plea was stated shortly. It was that the petitioners' interest under the Trust was that of potential beneficiaries of a discretion regarding the eventual distribution of the capital of the Trust. The petitioners had no interest - discretionary or otherwise - in the application of the income received by the Trust. They therefore had no title or interest to question how the trustees decided to expend the Trust income. The response of counsel for the petitioners was to the effect that the petitioners had some interest in the expenditure of the income of the Trust since that expenditure might ultimately affect the amount of capital available on a distribution of the capital held by the Trust. Counsel instance expenditure on internal refurbishment or redecoration of the Castle as contributing to a short term improvement, whereas expenditure on the roof of the Castle might produce longer lasting benefit.

[47 ] The submissions on title to sue were not extensive and I was not referred to any authorities in respect of this branch of the debate. The initial submission by counsel for the respondents appeared to be to the effect that a beneficiary whose only interest was in the capital of the trust estate had no interest to challenge any actings of the trustees respecting the income. Put as such a generality, I would not accept that submission. It seems to me to be clear that, in principle, a beneficiary entitled to capital may have cause for complaint if the trustees' treatment of the income accruing prior to his entitlement to payment of the capital will, or may, affect the amount available to him on that capital distribution. In replying to the speech by Mr Tyre, however, counsel for the respondents adopted a more nuanced approach. He explained that he did not contend for a universal rule that a capital beneficiary had no interest in what occurred respecting the income. He accepted that, hypothetically, mis-spending of revenue could affect capital; but that was simply a hypothetical possibility and there was nothing said in the petitioners' pleadings to advance the hypothetical possibility as being a reasonable or likely one. Gratuitous trustees should not be troubled by capital beneficiaries' complaints respecting their decisions on the expenditure of income unless it was averred that the decision in question had potential patrimonial consequences for their capital entitlement.

[48 ] So put, the argument on title to sue came to be one of the making of a relevant averment of actions on the part of the Dowager Countess or at least the trustees, which might affect the petitioners' interests as capital beneficiaries.

[49 ] I have no difficulty with the proposition, which counsel for the respondents recognised, that it cannot be said as a matter of principle that a capital beneficiary has no title to question the administration of the income of the fund. Clearly, a distribution of income to a source not within the contemplation of the trust deed which might affect the amount of capital available to the eventual capital beneficiary ought to be open to challenge by the capital beneficiary concerned. (Thus I would accept the petitioners' title to sue, in appropriate proceedings, for breach of trust - no doubt innocent - were it the case that the fishing bothy be ultimately established not to have been owned by the Trust). But on the other hand, where trustees may choose between different objects of the application of income, both within the trust purposes, it is hard to see why the capital beneficiary should be entitled to question the exercise of the trustees' discretion.

[50 ] In these circumstances the question appears to be not whether in principle a capital beneficiary may challenge the actings of the trustees in respect of the disposal of income but whether in the particular circumstances the capital beneficiary can aver and demonstrate that the trustees' decision has a potential effect upon his ultimate entitlement.

[51 ] In the present case it is noticeable that the petitioners do not make any averment that any of the decisions of the trustees referred to in Statement V of the petition have any material effect upon their potential capital entitlement. It is not, for example, said that the trustees have applied income to objects outwith the purview of the trust purposes with the result that this has diminished the fund available to the ultimate capital beneficiaries. The high point of the petitioners' averments as respects their title to sue comes at Record 25D which is in these terms:

"The petitioners are further apprehensive that the Dowager Countess Cawdor will not make decisions with regard to the distribution of the capital of the Trust objectively, and that she will exert influence upon the other trustees."

Counsel for the respondents submitted that the averments which preceded that averment gave no foundation for such an apprehension. There was nothing in those averments which remotely suggested that if it ever came to distributing capital, the trustees would not perform their duty properly; and there was no suggestion of such a distribution arising now or in the near future. The law relating to the removal of a trustee did not support the view that such an apprehension would justify removal. And, importantly, the averment did not address the issue whether the transactions complained of have any material or possible effect upon the interests of the (discretionary) capital beneficiaries.

[52 ] I think there is some force in that submission. Moreover, it is noticeable that the instances mentioned by counsel for the petitioners as exemplifying the possibility of effect on the petitioners' ultimate capital prospects were decisions on the expenditure on the Castle. He thus instanced a decision to expend money on interior decoration rather than on refurbishment of the roof of the Castle. However this instance assumes that Cawdor Castle was part of the Trust assets. But it is not. So whether money is expended on refurbishing the "private part" or other parts of the Castle is irrelevant to the petitioners, who have no prospective entitlement to the Castle, which belongs to the Dowager Countess.

[53 ] However, that said, there are within Statement V the averments relating to (i) Mr Cowan's subsidised rent and the obligation of the Dowager Countess to contribute to that; and (ii) a possible breach of trust respecting the renovation of the fishing bothy. Neither of these relates to the exercise of an intra trust purpose discretionary decision, but the questions are not, and cannot be, the proper subject of focus in these proceedings. I have not found the question of title to sue easily resoluble. Had it been necessary for me to do so, I would not have upheld the plea on the basis that the matters just mentioned gave the petitioners sufficient interest.

The respondents' collective title to defend

[54 ] As noted in para.[11] supra the petitioners plead that the respondents other than the Dowager Countess have no title or interest to oppose the petition. Since the petitioners naturally accept the title and interest of the Dowager Countess to oppose the petition, and since the answers for the respondents do not advance any distinct interest on the part of the other trustees, the point taken is entirely technical and without any practical consequences.

[55 ] Quantum valeat, given that no practical issue arises, I would say that I see nothing intrinsically objectionable in the trustees as a body opposing an attempt to remove one of their number. The trustee in question may have particular qualities which his fellow trustees wish to have available and since the allegations of impropriety may involve aspersions on the other trustees, they should be entitled to defend. I do not regard the petitioners' third plea-in-law as being one which I should uphold.

Disposal
[56 ] For the foregoing reasons I shall dismiss the petition.