Scottish Court of Session Decisions

"... with effect from that date the pursuer transferred not merely its whole insurance business and staff to Royal Insurance PLC, but all its assets and liabilities as well".

The relative balance sheet, it was averred, showed that the value of leasehold property held by the pursuer was by the same date reduced to nil, as indeed was that of its other former assets. In these circumstances, the first defenders alleged that the collateral undertakings under which the pursuers bore to sue, and the lease representing their supposed interest in the building, had ceased to be their property prior to the inception of these proceedings. They therefore called on the pursuers to condescend upon the basis on which any title or interest to insist in this action could be supported.

"Until about 1992, the pursuers carried on business as insurers in the United Kingdom and elsewhere. They did so as part of the Royal Insurance group of companies. Their staff occupied the premises. During the course of 1992, the said group reorganised their businesses. As a result, at the end of 1992, the insurance business carried on in the United Kingdom by the pursuers was transferred to another company within the group, namely Royal Insurance PLC (PLC), although until about 1996 the pursuers continued to conduct some insurance business outwith the United Kingdom. After said transfer at the end of 1992, the staff previously employed by the pursuers at the premises became employees of other Royal Insurance group companies. The pursuers employed no staff themselves in the United Kingdom from the end of 1992. The legal framework for the said business transfer was provided by an Agreement between the pursuers and PLC dated 31 December 1992. The Agreement is governed by English law. In terms thereof as construed under English law, the pursuers declared themselves to be bare trustees of the assets that they held, insofar as said assets were not required by PLC to be conveyed to them, for the benefit of PLC. The pursuers' interests in the said lease and in the undertakings ... have not been required to be conveyed to PLC and are accordingly held by the pursuers as bare trustees under an English trust for the benefit of PLC. As such, the pursuers retain title and interest to pursue this action. The pursuers remained and remain as tenants under the said lease, subject to the said tenants' obligations. They provided accommodation for employees of other Royal Insurance group companies in the premises on an informal basis. The pursuers remained and remain liable to the landlords for payment of the rent and related payments due under the said lease, but have been relieved of those charges by other Royal Insurance group companies in consideration of the fact that group employees were occupying the premises."

a. The parties were ultimately in agreement as to the powers and duties of trustees in general. Trustees always had a duty to take reasonable steps to ingather, protect and preserve the trust estate, and in that connection owed an obligation to account to the trust beneficiaries: Elgin County Road Trs. v Innes 1886 14 R. 48, esp. per LP Inglis at 51; Mackenzie Stuart, Law of Trusts, pp.200-3; Halsbury's Laws of England, 4^th ed. (re-issue), vol.48 at para.842. In a question with trust beneficiaries, trustees were not in a position to "shake off" the trust or to act as auctor in rem suam: Stair Memorial Encyclopaedia, vol.24 at paras.170, 171, 186 and 221. In seeking to vindicate trust rights and recover trust assets, trustees were at all times subject to the requirements of the trust. In that context, title and interest to raise or defend legal proceedings in relation to the trust estate were vested in the trustees alone, and (other than in highly special circumstances where the trustees' name would still require to be used) beneficiaries had no such rights: Mackenzie Stuart at p.201; Stair Memorial Encyclopaedia, vol.24 at para.49; Blair v Stirling 1894 1 S.L.T. 599; Morrison v Morrison's Exix. 1912 S.C. 892. For the same reasons trusters had no such rights either. The trustees of a foreign trust, moreover, had the ability to sue in Scotland relative to any part of the trust estate situated here: Phipps v Phipps' Tr. 1914 1 S.L.T. 239; Recognition of Trusts Act 1987, section 1(2) and article 11 of the schedule in particular.

b. Against that background, it was admittedly the trustees of the bare trust averred on Record who had title and interest to sue in respect of the collateral undertakings granted by the various defenders. Correspondingly, the pursuers qua truster had no such title and interest in their own right, nor did any such title and interest reside with Royal Insurance PLC as beneficiary of the trust.

c. There was also ultimately no dispute among the parties that before a Scottish court any rules of foreign law were matters of fact which, failing agreement, had to be proved in evidence. In the absence of averments of foreign law sufficiently relevant and specific to warrant proof in due course, Scots law and the foreign law were presumed to be the same and the rules of Scots law would therefore apply: Stuart v Potter, Choate & Prentice 1911 1 S.L.T. 377; Armour v Thyssen Edelstahlwerke AG 1989 S.L.T. 182. In the present case, while at one stage it looked as if the sufficiency of the pursuers' averments of English law relative to the 1992 trust arrangement was a contentious issue, notwithstanding the defenders' acceptance of these averments pro veritate, senior counsel for the pursuers was ultimately content that for present purposes the court could and should proceed on the footing that there was no material difference between Scots and English law, and that accordingly the requirements of Scots law for the constitution of a simple or bare trust over a person's own property should apply.

a. Under reference to Bentley v Macfarlane 1964 S.C. 76 and Donaghy v Rollo 1964 S.C. 278, a pursuer must have continuous title and interest to pursue legal proceedings from the date of their inception. If title was absent at the outset, it could not be cured pendente processu, and correspondingly an original title might be lost or invalidated at a later stage.

b. On the pursuers' new averments, taken pro veritatae, they had since 1992 been trustees under a bare trust in favour of Royal Insurance PLC. All relevant assets and liabilities were subject to that trust, including (a) the right to enforce the collateral undertakings on which the present action was founded, and (b) the leasehold rights and obligations which appeared to underpin the averments of loss.

a. As a matter of law, a party wishing to sue in a trust capacity must state that in the instance of his summons. All textbooks on Court of Session practice since 1848 (Shand, Practice of the Court of Session) contained statements to this effect, although in a footnote at p.293 of Maclaren (1916) the author said "This is the practice, although not absolutely necessary". That footnote, which was briefly echoed in Green's Encyclopaedia (1926) at vol.1 para.146, reflected obiter views expressed by Lord Justice Clerk Inglis and Lord Cowan in the case of Anderson, but significantly it was the instance which the court there allowed to be amended in the pursuer's favour. The decision in Anderson also depended on the Court of Session Act 1850, which inter alia mentioned only a party's name and designation as formal requirements for the instance. Although the equivalent Form 13.2A annexed to the present Rules of Court appeared to be in similar terms, Form 5.2 concerning caveats made it clear that the phrase "designation and address" should also include any special capacity in which a party might be sued. In any event, so far as Anderson was concerned, the Lord Justice Clerk's remarks had to be treated with some caution because the Session Cases and Scottish Jurist reports were materially different in that regard.

b. The picture in the Sheriff Court was substantially the same, although the Ordinary Cause Rules of 1993 expressly required a pursuer in the instance to design himself and state any special capacity in which he was suing.

c. The case of Hunter to which reference had been made was perhaps in the "good title at bottom" category, which would explain why the court allowed a remedial amendment. More importantly, the Lord Ordinary's criticism of the dicta in Anderson was tacitly approved on appeal, and thereafter Maclaren's qualifying footnote was omitted from all textbooks on practice. Significantly, the researches of counsel had identified no other case in which trustees bringing an action had failed to state their special capacity in the instance.

d. Plotzker v Lucas 1907 S.C. 315 was also an important case for present purposes. Five individuals had brought a passing off action, averring that they carried on business in partnership. At page 319 the court, and in particular Lord Kinnear, held that the pursuers' special capacity must nevertheless be stated in the instance although, in the event, a remedial amendment was allowed.

e. For all of these reasons the pursuers here had not set forth a proper title, since they did not have a valid instance for an action brought in their capacity as trustees. This served to confirm that the action had in fact been brought by the pursuers in a private capacity in which they had neither title nor interest to sue, and the absence of a motion to amend precluded consideration of any possible relief which the pursuers might obtain by that means.

a. Taking the pursuers' averments pro veritate, they clearly had not lost their right to enforce the collateral undertakings against the defenders. They held that right subject to the bare trust of 1992 in which they were both trusters and trustees. The trust affected only assets which were not conveyed to Royal Insurance PLC, and the pursuers expressly offered to prove that "... As such" they retained title and interest to pursue this action. Moreover, they remained as tenants of the damaged property, as the first and second defenders appeared to accept at pages 12C and 16D/E. These were the averred consequences of the express declaration of trust contained in the relevant Agreement. Importantly, there was no question of any divestiture of the critical assets in favour of any third party, nor was there any dispute as to the valid existence of a simple or bare trust in which the pursuers were the trustees.

b. As Lord Reid made clear in Allan's Trs. at page 53 while discussing the (then) novelty in Scots law of a person making "himself" trustee of "his own property", a party could have only one legal persona before the court. Similarly, in Clark Taylor, the Lord President noted that in such a situation truster and trustee were "identical" or "the same person(s)", and at page 119 discussed the divestiture of a person "in favour of himself as trustee". It was a failure properly to appreciate such considerations which lay at the heart of the defenders' mistaken approach to this case. The only legal persona involved here was the pursuers. They might be clothed with different roles or capacities, but in law the pursuers qua trustees were one and the same legal persona as the pursuers qua individual corporate entity. Even if their different roles or capacities involved different powers, duties and restrictions, that did not alter the fact that only one legal persona was involved. These propositions were entirely consistent with the latest thinking of the Scottish Law Commission in their Discussion Paper on the nature of trustees' rights in Scots law. That document explained at length why the concept of separate legal personality for trusts was rejected, and why the preferred theory was that a party acting under different roles or capacities merely enjoyed separate patrimonies. Every individual had his own private patrimony, and should such an individual become a trustee he would acquire a trust patrimony as well. Although these patrimonies would be subject to different rights and obligations, the individual's legal personality remained the same throughout. Significantly, for present purposes, the Discussion Paper treated the position of a "truster-as-trustee" along the same lines, noting the dual patrimonies which would arise on the declaration of trust becoming effective. Where no separate trustee was involved there was no possibility of a true delivery, transfer or conveyance from the truster, and all that was really happening was the "re-labelling" of the trust estate as a new patrimony held by the same legal persona alongside his private patrimony.

c. As regards the necessary "divestiture" of a truster to which the defenders attached such importance, it was difficult to define the concept in ordinary terms where, in a case like this, no delivery, transfer or conveyance was involved. Significantly, this difficulty was evident throughout Lord Reid's speech in Allan's Trs. where divestiture was discussed as a consequence of delivery or its equivalent. At pages 53-4, by reference to the earlier case of Cameron's Trs. v Cameron 1907 S.C. 407, his Lordship alluded to rights and property being taken out of the truster's control; at page 54 the attainment of irrevocability was mentioned; and at page 55 his Lordship went on to refer to assets being "earmarked" as trust property. In the same vein, the Lord President in Clark Taylor at pages 117-118 mentioned irrevocability, and also the character of the trustee's possession being "marked". Moreover, with reference to the opinion of Lord Fraser in Kerr's Tr. v IR 1974 S.L.T. 193, the Lord President went on to discuss divestiture with regard to "the beneficial right" in the estate. In Kerr's Tr., again, Lord Kissen preferred to stress loss of control on the part of the truster. In these circumstances, "divestiture" did not necessarily signify as much as the defenders claimed. Obviously it covered a state of affairs in which trust assets were no longer attachable by the personal creditors of the truster, but beyond that its primary function was to mark a transition from untrammelled control of the truster's own property. On no view, however, could it have the effect, in the present case, of converting the pursuers into two different legal personae.

d. There being no one else entitled to sue in relation to the trust property, and the pursuers as trustees having the only title and interest to do so, their position could not legitimately be challenged. To require "magic words" in the instance on a question of title was unduly technical, and in that context it was not mandatory for the pursuers to have narrated the bare trust in the instance. Such a narrative would have made no difference to the defenders, whose collateral undertakings were assignable, and it could properly be said that the trustee/beneficiary relationship was res inter alios so far as these alleged wrongdoers were concerned. As notional assignees the pursuers qua trustees might be taken to have sued in their own name as cedents, in which case there would have been no need for the instance to contain any reference to the trust.

e. The situation did not prejudice the defenders in any way. A discharge from the pursuers as trustees would be valid whether or not their trust capacity was stated in the instance. The absence of such a statement could not possibly entitle them to re-raise proceedings against discharged defenders. Similarly, on expenses, the pursuers as trustees would carry personal liability, supplemented as necessary by the liability of the trust estate, and in regulating the expenses of litigation the court was not concerned with the form of instance or conclusions: Mulholland v Macfarlane's Trs. 1928 S.LT. 251, and the cases therein cited. The pursuers' possible right to claim reimbursement of payments made by them was of no concern to the defenders:- Stair Memorial Encyclopaedia, vol.24 at paras.226 and 232-5; Merrilees v Leckie's Trs. 1908 S.C. 576. As regards compensation or set-off, no such claim was made here. As the case of Stuart confirmed, however, the defenders could set off any debt due to them by the pursuers as the owners of particular rights or property.

f. On the title issue, therefore, the defenders' challenge was misconceived. The trustees were the party having title to sue; the pursuers were the trustees, as averred in condescendence 2; and there could be no legitimate objection to their pursuing this action. The pleadings in their entirety were relevant here, and a conveyancing approach to the instance alone was inappropriate.

g. The defenders' citation of textbooks on pleading and practice did not advance matters. Authors had recently drifted, without judicial guidance, towards a mandatory requirement for special capacity to be disclosed in the instance of a summons. This drift was not borne out by the authorities commonly undernoted. Bell, Kay and Milne's Trs. all concerned the requirement for names and were distinguishable. Anderson confirmed that amendment of the instance was permissible although (on the majority view) not strictly necessary, and even Lord Benholme's dissent was based on practice rather than substantive law. Hunter was also a case in which remedial amendment was allowed, this time where the pursuer plainly had no title at the outset. The Lord Ordinary's opinion was, moreover, based on practice in the context of representative capacity (not relevant in the present case concerning trustees), and in any event the Inner House allowed amendment to cure any supposed difficulty. If the pursuers were now relying on the minority view in Anderson, and on the (overruled) Lord Ordinary in Hunter, that was a slim foundation for their argument.

h. Against that background, scrutiny of the textbooks revealed a changing picture over time. Statements favourable to the pursuers appeared after 1850 in Mackay, Maclaren and Green's Encyclopaedia. Thereafter however, Thomson & Middleton, Maxwell, Mackenzie, Macfadyen and the Parliament House Book contained indications of the mandatory rule alleged by the defenders. Such developments were unforeseen in Maclaren's day and unsupported by later authority. The same applied to the Sheriff Court works, although interestingly Lewis drew a clear distinction between title to sue, being a matter of substantive law, and the style of an instance, being a matter of procedural law.

i. Specifically none of the textbooks dealt with how a bare trust under English law should be reflected in the instance of a summons. The court should be wary of setting up a universal mandatory rule where the position was unclear, and in any event a failure of style could not deprive a party of title. In some countries, trustees were legally barred from disclosing their capacity. This applied to STAR trusts in Cayman, and to a Liechtensteiner Anstalt, and such bodies had sued in Scotland in the past. Trust entities could sue without disclosure of beneficial interests, especially where deliberately set up in a latent form for privacy, and where a single persona was involved there was even less reason for trust capacity to be spelled out. There was no reason in law, equity or common sense why litigation at the instance of such trustees should be rendered impractical, or why the validity of a claim should be jeopardised if defenders happened to discover the underlying trust status. The explanatory and permissive provisions of the Recognition of Trusts Act 1987 did not assist the defenders here. The Rules of Court were not prescriptive, Rule 1.4 in particular making it clear that the prescribed Forms could be varied as circumstances might require. The decision in Hunter was now 70 years old, and much had changed since 1938. With regard to the disclosure of any special capacity in the instance, both Maxwell and Macfadyen used the verb "should", and the latter work treated "qualification as trustees" as something different from name and designation. Yet again, the only authorities undernoted were Bell and Kay which concerned name alone. There was, moreover, no universal pleading practice, as evidenced by four petition styles where trust capacity had not been disclosed in the instance. The rules for petitions were akin to those for actions, and similar issues might arise in relation to extract, discharge or expenses. Counsel had not, however, come across any reported action other than Anderson where a pursuer's trust capacity was not stated in the instance.

j. For all of these reasons, the pursuers had had title all along; there was nothing fundamentally objectionable about the way in which the action was framed; the bare trust under English law of 1992 was clearly averred, and no need to change the instance had been made out. The defenders' challenge to title was altogether ill-founded. This was not even a case in which the pursuers had a "good title at bottom". Their title was fully valid from the start, and nothing required to be done to give them a good title now.

"The result of this analysis of the ruling authorities is that in order to bring about the successful constitution of a trust recognised as such by our law, where the truster and trustee are the same persons, there must be in existence an asset, be it corporeal or incorporeal, or even a right relating to future acquirenda; there must be a dedication of the asset or right to defined trust purposes; there must be a beneficiary or beneficiaries with defined rights in the trust estate, and there must also be delivery of the trust deed or subject of the trust or a sufficient and satisfactory equivalent to delivery, so as to achieve irrevocable divestiture of the truster and investiture of the trustee in the trust estate."

This re-investiture of the same legal persona, albeit now clothed with the character or capacity of a trustee, is in my view a critical feature of the present case to which the defenders' argument on title provides no satisfactory answer.

"The title and interest of pursuers to sue and the liability of defenders to be sued are matters regulated by the substantive law affecting the merits of each particular action. The method or style to be followed in framing the instance and the crave, so as to give effect to the legal right involved, falls within the law of procedure ...".