FIRST DIVISION, INNER HOUSE, COURT OF SESSION

Lord President Lord Osborne Lord Wheatley

[2007] CSIH 3 A59/03 A60/03   OPINION OF THE LORD PRESIDENT   In   RECLAIMING MOTION   In the causes   (1) ANGELIKA ILONA, the DOWAGER COUNTESS OF CAWDOR and ANOTHER, Trustees of the Cawdor Estates No. 2 Pension Scheme Pursuers and Respondents;   against   THE RIGHT HONOURABLE COLIN ROBERT VAUGHAN, SEVENTH EARL OF CAWDOR and ANOTHER, Trustees of the Cawdor Estates Pension Scheme Defenders and Reclaimers;   and   (2) ANGELIKA ILONA, the DOWAGER COUNTESS OF CAWDOR, as an individual and as executrix of the late THE RIGHT HONOURABLE HUGH JOHN VAUGHAN CAMPBELL, SIXTH EARL OF CAWDOR Pursuer and Respondent;   against   THE RIGHT HONOURABLE COLIN ROBERT VAUGHAN, SEVENTH EARL OF CAWDOR and ANOTHER, Trustees of the Cawdor Estates Pension Scheme Defenders and Reclaimers:   _______

Act: Johnston, Q.C.; Maclay Murray & Spens (Pursuers and Respondents)

Alt: McNeill, Q.C.; Shepherd & Wedderburn (Defenders and Reclaimers)

 

10 January 2007

 

Introduction

[1] Prior to 12 March 1993 the Sixth Earl of Cawdor and his wife, the then Countess, were members of the Cawdor Estates Pension Scheme ("the No. 1 Scheme"), a scheme constituted in the form of a trust and under which various employees of certain Cawdor Estates companies were entitled to certain benefits, including retirement benefits. By separate requests in writing, each dated 7 April 1993, Lord Cawdor and Lady Cawdor requested the trustees acting under the No. 1 Scheme and all the employers participating in that scheme to exercise their powers to alter the eligibility conditions in such a way that retirement benefits would cease to accrue in respect of them with effect from 12 March 1993; each gave his or her consent in anticipation of the addressees acceding to the requests. By contemporaneous requests in writing to the trustees of the No. 1 Scheme Lord and Lady Cawdor each requested the trustees to transfer an equitable share of the No. 1 Scheme's assets, representing his or her own and his or her spouse's benefit entitlement to the trustees of another Cawdor Estates Pension Scheme ("the No. 2 Scheme") so that rights could be acquired by the Earl and Countess respectively thereunder. The requests continued that the Earl and Countess agreed that the receipt of the trustees of the No. 2 Scheme for the share of the estates transferred to them would discharge the No. 1 Scheme trustees from all liability to provide benefits under that scheme in respect of the Earl and Countess respectively, except in relation to certain death in service benefits.

[2] The trustees of the No. 1 Scheme addressed these requests at a meeting of the trustees held at Cawdor Castle on 7 April 1993. Present at the meeting were two of the trustees, a Mr. Bradstock and a Mr. Hartwell. In attendance were Lord Cawdor, who had shortly earlier resigned as a trustee and, for part only of the meeting, Lady Cawdor who remained a trustee but absented herself from such part of the meeting as concerned her own personal position. Also in attendance were Mrs. Susan Thomas-Green, a solicitor from the firm of solicitors which acted for the Cawdor Estate companies, and two representatives of the firm (Anthony Gibbs Consulting Group) which provided financial and actuarial advice to the trustees.

[3] Before the meeting was an undated letter from a director of Anthony Gibbs Consulting Group in which the author set out the basis which he recommended should be used to calculate the transfer values to be paid from the No. 1 Scheme in respect of Lord and Lady Cawdor in the event of such a transfer being made. The letter referred to a valuation which had been undertaken as at 1 May 1992 and which disclosed that the liabilities of the fund to active members, to pensioners and to paid-up pensioners as at that date exceeded its assets. Having set aside the full reserve on the funding basis in respect of the pensioners and paid-up pensioners, the author stated that the value of the assets backing the liabilities in respect of the active members represented 72.9% of the total assets. Having then brought into account the proportion of active members' liability attributable to each of Lord and Lady Cawdor respectively, the author then calculated the "share of the fund" attributable to them, discounted to the extent of the shortfall in assets.

[4] The proceedings at the meeting were recorded in a minute subsequently signed by Lady Cawdor and Mr. Hartwell. The second paragraph of that minute reads:

"Mrs. Thomas-Green explained that Lord and Lady Cawdor and the participating employers wish to amend the Pension Scheme's provisions by removing Lord and Lady Cawdor from retirement benefit eligibility while continuing cover for them for 'death in service' lump sum and spouse's pension. This proposal was being made in connection with three other developments. First, Lord and Lady Cawdor had, with effect from 12 March 1993, become members of a new pension scheme established by the trustees of the Scottish Settlement Trust - the Cawdor Estates No. 2 Pension Scheme. Second, Lord and Lady Cawdor wished to have transfer payments made to the Cawdor Estates No. 2 Pension Scheme in respect of each of them. Third, there was a level of underfunding in the Pension Scheme and the Principal Employer was concerned about this and intended shortly to make proposals relating to this".

[5] At paragraph 3 it was noted that one of the trustees enquired about legal advice and that Mrs. Thomas-Green explained that her firm were lawyers to the Cawdor Estates rather than to the trustees of the No. 1 Scheme; she had added, however, that it was in the interests of the Estates that any and all decisions made by the trustees were properly made and that they could as an alternative to taking independent legal advice rely on her advice. It appears that the trustees decided to follow the latter course.

[6] Paragraph 4 sets out various matters which were noted by the trustees. These included that the trustees had express powers to make transfer payments under two separate Rules of the No. 1 Scheme but that Mrs. Thomas-Green advised that any transfer be made under Rule 14E. That Rule provides:

"The Trustees may transfer assets to another occupational pension scheme or a personal pension scheme so that benefits will be provided under the other scheme for any person or persons who would otherwise receive benefits under the Scheme.

The Trustees will calculate the amount of the transfer payment after considering actuarial advice. The receiving scheme must be of a type specified in (b) of Rule 10C. Receipt of the accepting trustees or managers will discharge the Trustees from liability to provide benefits under the Scheme in relation to the transferred assets for or in respect of the persons concerned. The Trustees will inform the accepting trustees or managers of the amount of any Member's contributions and any restrictions on their refund.

In exercise of their powers under this Rule, the Trustees will comply with any undertakings they give to the Inland Revenue.

The consent of the Member or other person in respect of whom assets are being transferred must be obtained, unless this consent is not required under the Preservation and Transfer Value Laws. Where a Member's consent is not obtained the Trustees must be reasonably satisfied that the transfer payment is at least equal in value to the Member's entitlement under the Rules".

[7] After recording sundry other matters and procedural steps taken the minute continues:

"7. Mr. Bradstock and Mr. Hartwell after due consideration decided that they would comply with Lord and Lady Cawdor's requests for transfer payments in respect of their total pensionable service calculated in accordance with Antony (sic) Gibbs' advice. As it was unclear which of the statutory and two express powers was most appropriate the Trustees decided to make the transfer payment in exercise of their discretion to do so under Rule 14E".

[8] Paragraph 8 then records that, after due consideration, the trustees decided that the transfer payments should be made in the form of the conveyance of certain heritable property, together with sufficient other investments or cash to satisfy the amounts to be transferred.

[9] Shortly after this meeting, and before any assets had been transferred, Lord Cawdor died. There were certain discussion as to how matters should then proceed. At a meeting held on 15 July 1993 the then trustees, the Dowager Countess and the Seventh Earl, signed certain property transfers as a result of which the heritable properties were conveyed to the No. 2 Trustees. No further assets have been transferred.

[10] These actions are concerned, by different routes, to achieve the result of assets to the value of the balance being transferred to the No. 2 Scheme trustees. In action 59 ("the trustees' action") the trustees of the No. 2 Scheme seek an order of specific implement against the trustees of the No. 1 Scheme to transfer to them certain units in a named trust fund (representing that balance) or for payment of the value of these units. In action 60 ("the Countess's action") the Dowager Countess, as an individual and as executrix of the Sixth Earl, seeks count and reckoning for the intromissions of the No. 1 Scheme trustees with the No. 1 Scheme and for payment to her and to the No. 2 Scheme trustees of the balance found due to the pursuer of the share of the assets of the No. 1 Scheme representing the transfer value of the pursuer's benefit entitlement under the No. 1 Scheme (or otherwise for a particular sum of money).

[11] Before the Lord Ordinary a number of issues were discussed. These were issues of (1) title and interest to sue, (2) prescription, including the construction of paragraph (e) of Schedule 3 to the Prescription and Limitation (Scotland) Act 1973, and the construction and application in the circumstances of section 10(1)(b) of that Act, and (3) "conditionality" (being whether any obligation undertaken by the trustees at their meeting on 7 April 1993 had been relevantly averred as being subject to a condition which had not been satisfied). The Lord Ordinary found on these issues in favour of the pursuers in each of the actions. It was, however, recognised that both actions could not proceed to final decree. Before the pursuers were finally put to their election as to which action should proceed, this reclaiming motion was marked.

 

Relevancy/title to sue

[12] Although Mr. McNeill for the reclaimers opened his submissions with a challenge to the Lord Ordinary's reasoning on the issue of title to sue, it became clear in the course of the discussion that a prior, though related issue, required to be addressed, namely, whether the pursuers had relevantly averred that a legal obligation had been undertaken by the No. 1 Scheme trustees at the meeting of 7 April 1993 which could found their claims. This prior issue was not, it seems, drawn to the attention of the Lord Ordinary. Moreover, the defenders in their pleadings in each action admit that "in exercise of their discretion under Rule 14E the then trustees undertook to make a transfer payment to the Cawdor No. 2 Scheme". However, that admission is capable of being construed as being one short of an admission of a legal obligation and I so construe it. Although Mr. Johnston for the respondents drew our attention to this pleading, he did not suggest that an argument on relevancy was not open to the reclaimers and himself presented an argument in support of the relevancy of the pursuers' claims.

[13] Mr. McNeill submitted that, taking the terms of the minute pro veritatae as a narrative of what the trustees had done on 7 April 1993, they had not then undertaken any legal obligation in respect of the requests made. What they had done was to determine to exercise their power to transfer to the No. 2 Scheme. Given the death of the Earl before the transfers were fully implemented, it would have been a fraud on that power to effect the transfer; retirement benefits could not by the transfer be provided to the Earl who had died before his retirement age. The power under Rule 14A was exercised only upon transfer of assets. What had gone before was a voluntary and gratuitous act of determining to use the power; it did not give rise to a legal obligation or to any legal tie. It was in effect a declaration of an intention to make a transfer in ordinary course. The concept of ius quaesitum tertio referred to by the Lord Ordinary had arisen in the course of discussion, though not relied on by either party as a foundation for submission. It had no application here, where there was no contractual nexus. Reference was made to Gloag and Henderson - Introduction to the Law of Scotland (11th edition) at paras. 12.04-.05 and to Mercedes- Benz Finance Limited v Clydesdale Bank plc 1997 SLT 905, per Lord Penrose at page 912J-L.

[14] On this aspect of the case Mr. Johnston stated that he did not rely upon the concept of ius quaesitum tertio. The basis of the pursuers' claims was that the No. 1 Scheme trustees had at the meeting of 7 April 1993 made a unilateral promise in favour of the No. 2 Scheme trustees which the latter were entitled to enforce. It was immaterial that the No. 2 Scheme trustees had not been present nor represented at the meeting nor that there had been no communication with them. Reference was made to the Stair Memorial Encyclopaedia volume 15, paras. 613-618. The meeting of the trustees had been formal. At it the trustees had taken professional advice from legal and valuation advisers. That had been followed by a letter dated 14 April in which the legal adviser had confirmed her advice. What the trustees had done had met the description of an enforceable promise suggested by Lord Neaves in Macfarlane v Johnston and Others (1864) 2 Macph. p. 210 at page 1214, namely, the "delivered expression of the serious engagement by the person promising that he will do the thing promised" and "a serious declaration by which the person pledges his faith that he will do a certain thing". As such it was not revocable. The resolution was intended to change the rights of the affected members of the No. 1 Scheme. All that was left was a matter of mechanics. There had been a partial implementation (involving the transfer of particular properties), albeit the Sixth Earl had died in the meantime. What had happened was consistent with the exercise by the trustees of their power under Rule 14E.

[15] It is undoubted that the law of Scotland will recognise as obligatory a promise duly made. Delivery to or acceptance by the promisee is not necessary to the constitution of a promise (Stair - Institutions of the Law of Scotland I.10.4), though, in my view, the presence or absence of communication to the other party may be an adminicle of evidence in the question whether the statement amounts to a promise in law. Stair (op. cit.) I.10.2 distinguishes three acts of the will, namely, "desire, resolution and engagement". Only the third is obligatory. Having dealt with desire, Stair continues:

"Neither is resolution (which is a determinate purpose to do that which is desired) efficacious, because, whatever is resolved or purposed, may be without fault altered, unless by accident the matter be necessary, or that the resolution be holden forth to assure others";

Neither of the two exceptions mentioned applies here. In my view, although this was a formal meeting at which the trustees proceeded on the basis of professional advice, they went no further than the stage of "resolution" referred to by Stair. They "decided" that they "would comply" with Lord and Lady Cawdor's requests for a transfer payment. That decision was made with reference to, but was not itself the exercise of, the power conferred by Rule 14E to transfer, a power exercised only by the requisite act of transference - conveyance, assignation or payment. The words used in paragraph 7 of the Minute do not, in my opinion, suggest a promise made to any other person but rather an intention, in the light of the advice received, to make in due course a transfer of the kind mentioned. The circumstance that the meeting was not followed by a communication with the No. 2 Scheme trustees tends also to support the proposition that it was not intended that the decision taken at the meeting should of itself give rise to an obligation to them. To apply the description used by Lord Neaves in Macfarlane v Johnston and Others the trustees' decision, although seriously taken, was not an "engagement" by them "promising to do" anything; nor was it a "declaration" by which the trustees "pledge[d] [their] faith that [they] would do" a certain thing. The fact that certain properties were in fact transferred did not translate a non-obligatory decision into an obligation.

[16] No reference was made in the course of the discussion to the evidential requirements for the constitution of a gratuitous unilateral obligation. Section 1(2) of the Requirements of Writing (Scotland) Act 1995 provides that a written document complying with section 2 of the Act (subscription by the granter) is required for the constitution of such an obligation, unless undertaken in the course of a business. The minute was signed by the two trustees of the No. 1 Scheme but those signatures appear in the circumstances to be designed more to acknowledge the accuracy of the minute rather than to point to the granting by the signatories of an obligation.

[17] In these circumstances the actings of the trustees on 7 April 1993 gave rise, in my view, to no prestable obligation either to the No. 2 Scheme trustees or to either of Lord or Lady Cawdor. The action at the instance of the No. 2 Trustees is accordingly irrelevant and should be dismissed on that basis. As regards the action at the instance of the Countess, while she, at least as an individual, has a right as a beneficiary to an accounting from the No. 1 Scheme trustees for their actings as trustees with the funds under their charge, it is clear that this action is directed to the single issue of an accounting for the balance of the trust funds which the trustees decided to transfer. As the claim which underpins this cause of action is for the above reasons irrelevant, this action ought, in my view, also to be dismissed as irrelevant.

[18] In these circumstances the other issues argued before us do not arise for decision. It is, however, appropriate that I express my opinion on them.

 

Prescription

[19] Section 6 of the Prescription and Limitation (Scotland) Act 1973 provides that Schedule 1 to the Act shall have effect for defining the obligations to which that section (quinquennial prescription) applies. Schedule 1, paragraph 2(h) excludes from such application any obligation specified in Schedule 3 to the Act as an imprescriptible obligation. Schedule 3 specifies, among other obligations:

"(e) any obligation of a trustee -

(i) to produce accounts of the trustee's intromissions with any

property of the trust;

(ii) to make reparation or restitution in respect of any fraudulent

breach of trust to which the trustee was a party or was privy;

(iii) to make forthcoming to any person entitled thereto any trust

property, or the proceeds of any such property, in the possession of the trustee, or to make good the value of any such property previously received by the trustee and appropriated to his own use".

[20] Before us both counsel accepted, as they had before the Lord Ordinary, the correctness of certain observations made by Mr. Johnston in his book - Prescription and Limitation at paragraphs 3.40 and 3.41. These were to the effect that, despite the broad wording of paragraph (e) of Schedule 3, the obligations in question, including that in subparagraph (iii), were to be read as referring only to obligations of trustees in a fiduciary capacity. The Lord Ordinary appears (paragraph [25] of his Opinion) to have been somewhat hesitant about accepting these observations, describing them as a "gloss". But I have no difficulty in accepting that, as a matter of the interpretation of paragraph (e) of the Schedule as a whole and regard being had to the evident statutory purpose of holding immune from prescription obligations owed by trustees in a fiduciary capacity as opposed to those owed to third parties, these observations are soundly made. However, applying them I am of the view that, on the assumption that what emerged from the meeting of 7 April 1993 was a promise made by the No. 1 Scheme trustees to the No. 2 Scheme trustees, that obligation was not an imprescriptible obligation. Although undertaken in the course of administration of the trust, it was not an act in furtherance of the trustees' fiduciary duties but a straightforward obligation undertaken to a third party following a request by a beneficiary. As such it fell, in my view, within paragraph 1(g) of Schedule 1 to the Act and section 6 accordingly applies to it.

[21] It is not suggested that any relevant claim was made within the quinquennial period so as to interrupt the running of prescription. Accordingly, so far as the trustees' action is concerned any obligation has been extinguished unless there was, as is claimed, a relevant acknowledgement within the meaning of section 10.

[22] As regards the Countess's action, it is not disputed that, if she has a relevant claim, she is entitled as an individual to an accounting. On the other hand, I am not persuaded that the Countess as executrix is entitled to an accounting in respect of the funds decided to be transferred. Upon his death prior to retirement the right to these funds did not pass to the Earl's estate. The right to an accounting is vested in the class comprising the whole surviving members of the No. 1 Scheme, including the Countess.

 

Acknowledgement

[23] Section 10 of the Prescription and Limitation (Scotland) Act 1973 provides that the subsistence of an obligation shall be regarded for the purposes of section 6 of the Act as having been relevantly acknowledged

"if, and only if, either of the following conditions is satisfied, namely -

...

(b) that there has been made by or on behalf of the debtor to the creditor or

his agent an unequivocal written admission clearly acknowledging that the obligation still subsists".

[24] Mr. McNeill stated that, having regard to the pursuers' pleadings, he was prepared for the purposes of his argument to proceed on the basis that the communications upon which the pursuers founded had been made (1) "by or on behalf of the debtor" and (2) "to the creditor or his agent". He contended, however, that on these hypotheses they did not constitute "an unequivocal written admission clearly acknowledging that the obligation still subsists".

[25] I seriously doubt whether it is possible to reach a confident view on this matter without it having first been admitted or proved that the communications in question were made by or on behalf of the debtor to the creditor or his agent. The character of a statement may well be influenced by the relationship of the maker of it to the person to whom it is made.

[26] A number of communications are referred to in the pleadings. Only the last three of these are dated within a five year period prior to the raising of the actions. Mr. McNeill, however, accepted that these communications had to be read in the context of earlier communings (Richardson v Quercus Limited 1999 SC 278). The Lord Ordinary had erred in proceeding upon the basis that a mutual understanding was sufficient. What was required was an admission or acknowledgement, not a mere assumption.

[27] I do not find it necessary to set out the terms of the communings relied on. These are to be found in the Lord Ordinary's Opinion. Had this issue been live, I would have allowed a proof before answer. The communings, if read in isolation, might be insufficient singly or cumulatively to amount to an unequivocal admission but they require to be read in the context of other communings and of proof of the capacity in which they were sent and received. It cannot, in my view, be said at this stage that the pursuers would inevitably fail after proof to establish that an unequivocal admission of the kind referred to in section 10(1)(b) had been made out.

 

Conditionality

[28] The Lord Ordinary also addressed the relevancy of certain averments made by the defenders in both actions. These were that any obligation undertaken by the trustees was conditional upon payment to the defenders, as trustees of the No. 1 scheme, by the Principal Employer under that scheme of the deficit in the funds of the scheme or upon the principal or other scheme employers giving to the defenders a binding undertaking to that effect. The Lord Ordinary held that these averments were irrelevant. He did so on the basis that there was nothing in the defenders' averments sufficient to instruct a case that the obligation undertaken on 7 April 1993 (assumed to be unconditional) had been varied by agreement so as to render it conditional.

[29] Mr. McNeill did not contend before us that there were any relevant averments of a variation. He did, however, contend that any obligation undertaken by the trustees on 7 April 1993 was conditional in the respects averred.

[30] Proceeding upon the assumption that the minutes accurately record what occurred at the trustees' meeting on 7 April and that a legally binding obligation can be spelt out of what was then done, I am unable to find that any condition was imported into the obligation then undertaken. It is necessary to bear in mind that the amount to be transferred had been discounted to take account of the deficit in the fund. Although there was then and subsequently discussion as to how that deficit might be eliminated, I can find no sufficient basis in the materials to which we were directed on which to found the contention that any promise or undertaking was other than unqualified.

 

Disposal

[31] In the whole circumstances I move your Lordships in each action to allow the reclaiming motion and to recall the Lord Ordinary's interlocutors, both of 14 December 2005; and thereafter in the trustees' action to sustain the fifth plea in law for the defenders and dismiss that action and in the Countess's action to sustain the fourth plea in law for the defenders and likewise dismiss that action.

 

FIRST DIVISION, INNER HOUSE, COURT OF SESSION

Lord President Lord Osborne Lord Wheatley

[2007] CSIH 3 A59/03 A60/03   OPINION OF LORD OSBORNE   In   RECLAIMING MOTION   In the causes   (1) ANGELIKA ILONA, the DOWAGER COUNTESS OF CAWDOR and ANOTHER, Trustees of the Cawdor Estates No. 2 Pension Scheme Pursuers and Respondents;   against   THE RIGHT HONOURABLE COLIN ROBERT VAUGHAN, SEVENTH EARL OF CAWDOR and ANOTHER, Trustees of the Cawdor Estates Pension Scheme Defenders and Reclaimers;   and   (2) ANGELIKA ILONA, the DOWAGER COUNTESS OF CAWDOR, as an individual and as executrix of the late THE RIGHT HONOURABLE HUGH JOHN VAUGHAN CAMPBELL, SIXTH EARL OF CAWDOR Pursuer and Respondent;   against   THE RIGHT HONOURABLE COLIN ROBERT VAUGHAN, SEVENTH EARL OF CAWDOR and ANOTHER, Trustees of the Cawdor Estates Pension Scheme Defenders and Reclaimers:   _______

Act: Johnston, Q.C.; Maclay Murray & Spens (Pursuers and Respondents)

Alt: McNeill, Q.C.; Shepherd & Wedderburn (Defenders and Reclaimers)

 

10 January 2007

 

[32] I have had the opportunity of reading the Opinion of your Lordship in the Chair, with which I am in complete agreement. I also agree with the disposal of these cases proposed by your Lordship. There is nothing which I can usefully add.

 

 

FIRST DIVISION, INNER HOUSE, COURT OF SESSION

Lord President Lord Osborne Lord Wheatley

[2007] CSIH 3 A59/03 A60/03   OPINION OF LORD WHEATLEY   In   RECLAIMING MOTION   In the causes   (1) ANGELIKA ILONA, the DOWAGER COUNTESS OF CAWDOR and ANOTHER, Trustees of the Cawdor Estates No. 2 Pension Scheme Pursuers and Respondents;   against   THE RIGHT HONOURABLE COLIN ROBERT VAUGHAN, SEVENTH EARL OF CAWDOR and ANOTHER, Trustees of the Cawdor Estates Pension Scheme Defenders and Reclaimers;   and   (2) ANGELIKA ILONA, the DOWAGER COUNTESS OF CAWDOR, as an individual and as executrix of the late THE RIGHT HONOURABLE HUGH JOHN VAUGHAN CAMPBELL, SIXTH EARL OF CAWDOR Pursuer and Respondent;   against   THE RIGHT HONOURABLE COLIN ROBERT VAUGHAN, SEVENTH EARL OF CAWDOR and ANOTHER, Trustees of the Cawdor Estates Pension Scheme Defenders and Reclaimers:   _______

 

Act: Johnston, Q.C.; Maclay Murray & Spens (Pursuers and Respondents)

Alt: McNeill, Q.C.; Shepherd & Wedderburn (Defenders and Reclaimers)

 

10 January 2007

 

[33] I agree with your Lordship in the chair and have nothing to add.