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United Kingdom House of Lords Decisions
You are here: BAILII >> Databases >> United Kingdom House of Lords Decisions >> Carruthers v. Carruthers' Trustees [1896] UKHL 809 (13 July 1896)
URL: http://www.bailii.org/uk/cases/UKHL/1896/33SLR0809.html
Cite as: 33 ScotLR 809, [1896] UKHL 809
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SCOTTISH_SLR_House_of_Lords
Page: 809↓
House of Lords.
(Before
v.
(Ante, vol. xxxii. p. 587, and 22 R. p. 775).
Subject_Trust — Trustee — Personal Liability — Scope of Immunity Clause — Culpa lata — Neglect to Audit Factor's Accounts in Accordance with Truster's Directions — Proof of Loss — Onus.
Facts:
Where there has been culpa lata on the part of trustees and loss to the trust-estate which it might reasonably be concluded would not have been incurred apart from the trustees' failure in duty, the onus lies upon them to show that the loss would equally have been incurred if they had performed their duty.
A truster conveyed his whole estate to trustees, who entered on office in 1879. They were empowered to appoint one of their own number or other person as factor for the trust-estate, and were directed to require the factor to lay before them within one month after 31st December in each year an account of his intromissions, “with the whole vouchers thereof, to be by them examined, audited, and (if found to be correct) approved of.” In virtue of this provision the trustees allowed one of their number to act as factor with remuneration. For two years the
Page: 810↓
accounts were annually delivered to the trustees and audited. No further account was delivered till 1888 for the period between 15th May 1882 and 29th February 1888. A fourth account was delivered on 1st June 1890, which was admitted to he correct, and which showed, as at 1st June 1890, a balance in favour of the factor of £61 odds. No further accounts were delivered to the trustees. During the remainder of 1890 sums of money were received by the factor, which, after allowing for the balance due to him, left in his hands a sum of £104, 2s. 7d. due to the trust-estate. There was at the same time interest due by the trust on certain heritable bonds affecting the lands belonging to the trust-estate which was not paid by the factor. In 1891 further sums were received by the factor on account of the trust-estate, and at the end of 1891 he absconded leaving the whole of these sums unaccounted for. In an action at the instance of a bene-ciary under the trust, held ( reversing the judgment of the Second Division) that the trustees had been guilty of culpa lata in failing to require the delivery of the accounts annually for audit in accordance with the truster's express direction, and that they were liable to make good to the trust-estate the sum of £104, 2s. 7d. which would presumably have been applied in payment of the interests due had the factor been required to deliver his accounts for audit at the end of year 1890, but not for the further sums misappropriated by him in 1891 prior to the period for delivery of the annual accounts for that year.
The case is reported ante, ut supra.
The pursuer appealed in forma pauperis.
At delivering judgment—
The trust-deed contained this provision—“With full power to my said trustees to appoint factors either of their own number or other fit persons for uplifting the rents and interest of my said estate, and to hold him liable to them for all omissions, errors, or neglect of management, and for his own personal intromissions with my said estate; and I do hereby direct my said trustees under this settlement, annually, within one month after the 31st day of December in each year, during their administration, to cause their factor to make up an account of the intromissions had by him by virtue hereof in the course of the year ending on that date, and to lay the same with the whole vouchers thereof before them, to be by them examined, audited, and (if found to be correct) approved of.” Then there is a further provision that in the event of their being dissatisfied with the management of the estate by the factor they may remove him and appoint a new factor in his place.
My Lords, nothing is said in that clause about the appointment of one of their number as the factor with the remuneration to him for his services, but I think there can be no doubt that the intention of the truster in giving the power was to enable them not only to appoint one of their own number the factor, which they could have done without any such power, but also to appoint one of their own number as factor and to pay him remuneration, which without such express power it would not have been competent for them to do. It gave them, therefore, in my opinion, that power which they would not have possessed at common law without the express provisions of the trust-deed.
But the truster whilst empowering his trustees to leave in the hands of one of their number the entire collection of the rents and the disposal of them, at the same time guarded that provision with this further one—that the other trustees should at least once in every year, within one month from the termination of the year, examine and audit the whole of the last year's accounts, require vouchers, and see that the accounts had been properly kept and that the money had been properly received and properly applied. The trustees appear to have largely disregarded this provision. The first account delivered comprised the items of account between the date of the truster's death in 1879 and the 31st of January 1881. The next account comprised the items between the 31st of January 1881 and the 15th of May 1882. No other account was delivered until February 1888, and then that included the accounts of nearly six years. In the month of June 1890 an account was made out showing the condition of the trust estate down to that period. Some controversy arose as to how far this account was seen or in the possession of, the trustees, hut it is not in my view material, and therefore I do not enter upon that conflict of view. It is enough to say that it is common ground that down to June 1890 there had been no improper dealing with the trust funds, that at that date there was a sum of £61, 5s. 3d. due to Mr Hall Grigor, and certain other accounts were outstanding. Mr Hall Grigor was not in express terms appointed factor, but he had been, by the manner of dealing with him and the manner in which the accounts were rendered, clearly appointed factor and allowed a remuneration for his services. No question is raised as to his having been a factor duly appointed under the trust-deed, and therefore there is no
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My Lords, during the year 1890 sums of money were received by Mr Hall Grigor, which, after allowing for the balance of £61 odd that had been due to him, left in his hands a sum of £104, 2s. 7d. Now, this sum of money he obviously ought to have applied in the payment of certain ground rents or the interest on heritable bonds on the land which formed part of the trust-estate, which were at that time, and had been for a considerable time, due. This sum of money never was in any way applied to trust purposes by Mr Hall Grigor. During the year 1891 he received further sums on account of the trust estate; and at the end of 1891 he absconded leaving the whole of these sums of money, due from him to the trust, unaccounted for.
Now, the first question is, whether the appellant is entitled to an order that the respondents should make good to the trust-estate the sum of £104, 2s. 7d. About the breach of duty on their part in not requiring the delivery of accounts at that date, and auditing them, there cannot be two opinions. But it is said that the trustees are protected by the clause of immunity which is now to be taken as inserted in all trust-dispositions against omissions on their part, that the non-requiring of delivery of and auditing accounts was an “omission,” that the clause of immunity protects them against it, and therefore they cannot be made liable in respect of it. My Lords, it is well settled that the clause of immunity to which I have referred does not protect in a case of culpa lata or gross negligence. The first question therefore which I proceed to consider is, whether in this case there was culpa lata on the part of the trustees.
Now, they were entrusted with a power which they had not at common law, which I have already alluded to; but the truster whilst he enabled them thus to employ one of their number as factor, insisted upon a check on the proceedings of that factor. It was the very thing which in that case he left the other trustees to do, to exercise that check by an annual audit. Nothing can be more emphatic than the terms of that provision, and it was clearly made a condition of their leaving the trust receipts and expenditure to one of their number as factor that they should exercise that supervision. My Lords, can it be said under those circumstances that where the trustees fail to exercise that check, and taking advantage of the power given them to leave the trust management to another, do not supervise the action of that other in the manner expressly directed by the truster, there has not been culpa lata on their part? I entirely concur with Lord Rutherfurd Clark in thinking that such conduct on their part constitutes culpa lata. It is admitted that if that view be correct, the immunity clause does not protect the trustees. Then what is the extent of their liability? They are liable, as it seems to me, for all the results naturally flowing from the breach of duty on their part, and I think where this culpa lata is shown, and it might be reasonably concluded that the trust would not have suffered as it did if the duty had been observed, it lies with the trustees to show, if they seek to absolve themselves on that ground, that no benefit would have accrued to the trust if they had discharged their duty, and that the loss would have been precisely the same, and must have been precisely the same, whether they did so or not. I do not think they are entitled to insist upon the Court speculating as to whether it is not possible that even if the trustees had done their duty the loss would equally have resulted. In the present case I own I have a strong impression and belief that if they had called for accounts in January 1891 or at the end of 1890, in order that they might be audited in the course of January, when they received these accounts, this £104 would have been applied in the payment of the outstanding ground rents, and that the accounts would not only have appeared upon the face of them to be perfectly proper, but would have been perfectly proper; and that £104 would have been applied in discharge of the liability of the trust, and therefore would not have been lost to the trust-estate. If that be so, then this £104 has been lost to the trust in consequence of the failure of the trustees to do their duty—a clear, obvious, and expressly imposed duty which they had failed to discharge.
My Lords, the only other question is, whether the further sums which were received by Mr Hall Grigor, the factor, in the course of 1891, and misappropriated by him, can be recovered against the trustees. The case there seems to me to be very different. If the conclusion is a probable one that the accounts delivered in 1891 would have been in order, and all would have appeared to have been properly paid, then there would be nothing to excite the suspicions of the trustees, and they would have been acting with perfect propriety if during the rest of the year 1891 they had left the matter as theretofore in the hands of Mr Hall Grigor, in which case he would have received the moneys, the time for audit would not have arrived, and he would have misappropriated them before the trustees had any opportunity of ascertaining that anything was wrong. Under those circumstances I do not see my way to hold the respondents liable for more than this sum of £104, 2s. 7d., which was in the hands of the factor prior to the termination of the year 1890. I think therefore that the proper course in the present case will be to reverse the interlocutors appealed from, and to declare that the respondents are bound to make good to the trust-estate the sum of £104, 2s. 7d. with interest from the 31st of January 1891. As regards costs, I think the appellant must receive the costs in the Inner House and also the costs in this
Page: 812↓
I am not altogether satisfied in this case that what was done or left undone by the trustees amounted to a mere “omission” on their part. They have from the outset of the trust many years ago administered it through one of their own number appointed as their factor, and remunerated for his services in that capacity out of the trust funds. At common law the trustees had no power to take that course. Under the trust they had power to do so, but subject to this very plainly expressed condition, that there should be an annual and regular audit of the factor's accounts. With that audit the trustees practically dispensed. That is said to have been a mere matter of omission, and in one view that may be taken of it, it was a mere matter of omission, but the result, and the necessary result, was that the course of their administration as actually conducted was sanctioned neither by the common law of trusts nor by the provision of the deceased's deed. I certainly am not prepared to hold that an active course of administration which cannot be defended or justified either on the ground of its being consistent with the common law, or on the ground of its being consistent with the provisions of the trust-deed, can be regarded as a mere “omission.”
But it is unnecessary in this case to go any further than the character of the act, even on the assumption that it ought to be treated as a matter of omission. The immunity clause of the Act of 1861, or a similar immunity conferred by the terms of a trust-deed, does not afford a protection to trustees against any act or omission which according to the law is regarded as constituting culpa lata. My Lords, I think the acting of the trustees in this case did amount to culpa lata. I should be very sorry to hold that the systematic disregard of a check enacted by the testator in his trust-deed—a reasonable check—and in some cases, as the experience of the present action has shown, a necessary precaution, does not constitute culpa lata.
My Lords, upon the amount of damage, I do not think it necessary to say anything. I entirely agree with the observations which have been made by the noble and learned Lord on the woolsack in regard to that part of the case.
Ordered—“That the interlocutor appealed from be reversed. That it be declared that the respondents are bound to restore and make good to the trust estate the sum of £104, 2s., 7d. with interest thereon from the 31st of January 1891. That the respondents do pay to the appellant the costs in the Inner House and the costs of the appeal to this House, such latter costs to be taxed in the manner usual in the case of appeals in forma pauperis.”
Counsel for Appellant— A. S. D. Thomson. Agents— Ranger, Burton & Frost, for Finlay & Wilson, S.S.C.
Counsel for the Respondents— Craigie. Agents— Robins, Hay, Wattis, & Lucas, for Mackenzie & Black, W.S.