Scottish Court of Session Decisions

The Local Authorities Loans (Scotland) Act 1891 (54 and 55 Vict. cap. 34) provides—Section 44 (1)—“Trustees or other persons for the time being authorised to invest money in the mortgages, debentures, or debenture stock of any railway or other company, shall, unless the contrary is provided by the instrument authorising the investment, have the same power of investing money in stock issued under the provisions of this Act (other than stock for the time being represented by a stock certificate to bearer) as they have of investing it in the mortgages, debentures, or debenture stock aforesaid. (2) Provided that when two or more persons are successively interested in money left subject to a trust, no investment thereof shall be made in stock at a price exceeding the redemption value of the stock, unless the instrument creating the trust shall otherwise expressly provide.”

The late James Adamson Beveridge, of Brucefield, Dunfermline, died at Edinburgh on 16th November 1887, leaving a trust-disposition and settlement, dated 20th April 1883, and, with two relative codicils, dated respectively 13th September 1883 and 10th October 1884, registered in the Books of Council and Session on the 8th December 1887. By his said trust-disposition and settlement and first codicil the deceased conveyed his whole estate and effects, heritable and moveable, to Charles Grey Wotherspoon, John Landale, James Beveridge, and Robert Methven Heron, as trustees for the purposes therein mentioned. By his said trust-disposition and settlement the testator directed his trustees to convey the residue of his means and estate to his sister Elizabeth Mary Beveridge, wife of Dr Alexander Watt Beveridge, residing in Edinburgh. By his second codicil the testator left to Robert Methven Heron, Mrs Mary Heron, and Jessie Campbell Heron, and the survivors and survivor of them, the liferent of a sum of £20,000 free of legacy duty, and directed his trustees “to set aside and invest in their names, for behoof of the said Robert Methven Heron, Mrs Mary Heron, and Jessie Campbell Heron, and the survivors and survivor of them, for liferent use only, the said sum of £20,000 on the securities authorised by the Acts of Parliament relating to the investment of trust funds,” and he gave directions that on the death of the survivor the capital sum of £20,000 was to revert to and form part of the residue of his means and estate. All the trustees nominated by the truster accepted office, and entered on the administration of the trust, with the exception of Mr Wotherspoon, who declined. Mr Landale died on 21st December 1893, and the surviving trustees assumed Erskine Beveridge of Brucefield as a new trustee. Mr James Beveridge died on 14th February 1903, and Mr Heron on 23rd June 1906. Upon the truster's death his trustees duly set aside and invested the sum of £20,000, as directed by the second codicil. Mrs Mary Heron, one of the three liferenters, predeceased the testator, and the liferent was shared equally by the survivors, Robert Methven Heron and Jessie Campbell Heron, until the latter's death on 2nd September 1896, when the sole right to the liferent vested in Robert Methven Heron. In view of the repayment at Whitsunday 1897 of part of the liferented sum of £20,000, which was invested on heritable security, it became necessary to find a new investment for the sum of £9650. A meeting of trustees was accordingly held on 2nd March 1897, at which all the trustees, viz., James Beveridge, Robert Methven Heron, and Erskine Beveridge, were present, and at which their factor and law agent (Mr William Simpson, solicitor and town clerk, Dunfermline) submitted a list of investments, including certain redeemable 3 per cent. stock about to be issued by the burgh of Dunfermline. After considering the matter the trustees decided to negotiate with Mrs Beveridge as residuary legatee, and endeavour to come to some arrangement whereby the uninvested funds might be paid over to her, and failing such an arrangement the trustees decided to apply for £9650 at par of the Dunfermline Corporation Stock. Subsequent meetings of trustees were held on 23rd March and 13th April 1897. Sundry negotiations took place with Mrs Beveridge, but the trustees failed to come to an arrangement with her. The factor and law agent of the trustees then, by letter dated 19th April 1897, submitted to her a prospectus of the Dunfermline Corporation Stock, and asked whether she would consent to the investment of the trust funds in the stock at the issue price of 102 per cent. Mrs Beveridge, however, declined through her law agents to consent to the proposed investment. A further meeting of the trustees was held on 20th April 1897, at which the trustees present were James Beveridge and Erskine Beveridge. The factor and law agent

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informed the trustees that the minimum price of issue of the Dunfermline Corporation Stock had been fixed at £102 per cent., and gave certain advice with regard thereto, and the trustees decided to purchase £9460 of the stock, at the price of £9649, 4s. (being at the said rate of £102 per cent.), subject to an arrangement with Mr Heron which was set forth in the minutes and bore his docquet of approval, and which was also embodied in the following letter of guarantee signed by him:—

“To the Trustees of the late James Adamson Beveridge, Esquire of Brucefield.

Gentlemen—I, Robert Methven Heron, sole surviving liferenter of the fund of £20,000 directed by the late Mr Beveridge, the truster, to be held in trust for the liferent use of me and the late Mrs Mary Heron and Miss Jessie Campbell Heron, my mother and sister, and the survivors and survivor of us, approve of your proposal to invest the sum of £9649, 4s., part of the capital of the said fund, in the purchase, at the price of £102 per cent. (that being the minimum price of issue), of £9460 of the redeemable three per cent. stock about to be issued by the Corporation of Dunfermline; and I further agree to accept interest on the said sum of £9460 at the rate of two and three quarters per cent. per annum—the difference between such interest and the interest payable by the Corporation to be set aside by you as a sinking fund to meet the premium of £189, 4s., being the difference between the amount payable for the stock and the par value at which the same is redeemable, or such proportion thereof as may be lost when the said stock falls to be realised, or has been redeemed by the Corporation, such sinking fund, in the event of the said stock not being realised at a loss, to be payable to me or my heirs: And in the event of the said sinking fund not being sufficient to meet any loss that may be made on the realisation or redemption of the stock, I hereby agree and declare that the deficiency shall form a charge against my estate.”

The £9460 of Dunfermline Corporation Stock was purchased by the trustees at Whitsunday 1897 at 102 per cent., the whole price being paid out of the trust funds, and the dividends received (less the deduction referred to) were regularly remitted to Mr Heron by the factor and law agent of the trustees, accompanied by a statement showing the details thereof. These remittances continued to be made up to the term of Whitsunday 1906, being the last half-yearly term before Mr Heron's death. From each half-yearly remittance of the dividends, 1 4 per cent. was deducted and retained by the factor and law agent, in accordance with the terms of the guarantee. At the date of Mr Heron's death the sinking fund accumulated from such deductions amounted to £213, 18s. 11d., including bank deposit interest, a sum more than sufficient to meet the premium of 2 per cent. originally paid on the stock, which amounted to £189, 4s. The stock was issued by the Burgh of Dunfermline under and in terms of the Local Authorities Loans (Scotland) Act 1891. The dividends were secured upon rates or taxes levied by the Corporation under authority of Act of Parliament, and the stock itself was redeemable at par on 15th May 1947, or in the option of the Corporation, at the term of Whitsunday 1917, or any term of Whitsunday or Martinmas thereafter, on three months' notice to the holder. The whole stock fell to be redeemed on or before Whitsunday 1947. Since the date when the investment was made, it fell in value in common with other corporation stocks. At Mr Heron's death the market price was 89 1 2.

Upon Mr Heron's death questions in connection with the stock arose between Mrs Beveridge and Erskine Beveridge, sole surviving trustee of James Beveridge, and also between the latter and the trustees of the deceased Mr Heron.

A Special Case was presented to the Court, to which Erskine Beveridge, sole surviving trustee of James Adamson Beveridge, was the first party, the executors of the deceased James Beveridge the second parties, the trustees of Mr Heron the third parties, and Mrs Beveridge the fourth party.

At the date of the Special Case the market price of the stock was 88 1 8, making a depreciation on the price originally paid of £1123, 7s. 6d., or deducting the amount of the original premium, £934, 3s. 6d.

The following passages excerpted from the Special Case sufficiently indicate the contentions and arguments of the various parties:—“In consequence of the death of the said Robert Methven Heron, the capital of the said sum of £20,000, liferented by him, now falls to be paid over to the fourth party as residuary legatee of the said deceased James Adamson Beveridge. In the circumstances above set forth she has intimated that she holds the first party, as trustee of the said deceased James Adamson Beveridge, and the second and third parties, as representatives of deceased trustees of the said James Adamson Beveridge, liable for the whole of the depreciation on the said Dunfermline Corporation Stock; the first, second, and third parties agree to pay to the fourth party the premium of 2 per cent. originally paid on the stock, amounting to £189, 4s., but they refuse to pay the rest of the amount by which the stock has depreciated, and questions have in consequence arisen as to whether, in the circumstances, the trustees incurred personal liability for the whole depreciation on the said stock through making the said investment, and if so, whether the third parties are, in terms of the letter of guarantee by the said deceased Robert Methven Heron, bound to relieve the first and second parties of such liability.

The first and second parties primarily maintain that, in respect that the premium on the purchase price of the stock issued by the Corporation of Dunfermline was paid by the liferenter, the said stock was purchased by them at a price not exceeding the redemption value thereof. The investment was accordingly one which the trustees

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were entitled to make, and does not fall within the prohibition imposed by the Local Authorities Loans (Scotland) Act 1891 (54 and 55 Vict. cap. 34), sec. 44 (2). There is therefore no liability on the trustees to make good the depreciation in value which the said stock has suffered. In any event, these parties maintain that the said investment was one which it was within their powers to make under said second codicil or in virtue of the Trusts (Scotland) Amendment Acts of 1884 and 1898, and particularly of section 3 (6) of the said Act of 1884 and section 3 ( a) of the said Act of 1898. The first and second parties further maintain that, if they are primarily liable to make good to the fourth party the amount of the depreciation on the realisation of the said stock, they are entitled to be reimbursed therefor by the third parties, in respect of the obligation undertaken by the said Robert Methven Heron in terms of the said minute of meeting of the trustees held on 20th April 1897, and relative holograph docquet, and of the said letter of guarantee granted to them by the said Robert Methven Heron, dated 21st April 1897.

With regard to the general question of liability for the depreciation on the stock, the third parties maintain that the stock was within the trustees' powers of investment under the said second codicil or within the general powers of investment conferred on trustees by the Trusts (Scotland) Amendment Acts 1884 and 1898, and that the Act of 1898 repealed the proviso contained in section 44 of the Local Authorities Loans Act 1891. In any case, they maintain that on a sound construction of the said proviso it simply prohibited the payment of a higher price than par for the stocks therein referred to as a trust investment; that it created no liability except for the excess of the price paid above par value; and that it is accordingly inapplicable to such a transaction as the present, where provision was duly made for such excess being replaced. With regard to the question of indemnification, the third parties maintain that it is incompetent, in construing the letter of guarantee granted by Mr Heron, to look beyond the instrument itself, and that, on a sound construction thereof, it covers no more than the difference between the par value of the stock and the price at which it was purchased.

The fourth party maintains that the first, second, and third parties are jointly and severally liable to make good to the trust estate the whole depreciation on the Dunfermline Corporation Stock purchased by the trustees with the trust funds as above set forth. The only authority which the trustees possessed for investing in said stock was derived from section 44 of the Local Authorities Loans (Scotland) Act 1891, and sub-section 2 of that section is as follows:—( v. sup.). The trust funds were, at the time of the investment in question, funds in which two persons were successively interested, and the said stock was purchased at a price exceeding the redemption value of the stock, without any authority to that effect in the testamentary writings under which the trustees act. The investment in said stock was accordingly one which it was ultra vires of the trustees to make, and the first, second, and third parties are bound to restore to the trust estate the whole amount of the depreciation thereon.”

The following questions were submitted to the Court:—“1. Are the first, second, and third parties jointly and severally liable to make good to the fourth party the difference between the redemption value of the said Dunfermline Corporation Stock and the amount which it yields on realisation? 2. In the event of the first question being answered in the affirmative, are the third parties bound to relieve the first and second parties of such liability?”

The third party cited Bell's Prin., secs. 251, 285; Baird v. Corbett and Others, November 21, 1835, 14 S. 41; Napier v. Bruce, February 11, 1840, 2 D. 556, 1 Bell App. 78 (guarantees to be construed where possible in favour of guarantor).

The fourth party, in addition to the contention already set forth, argued that the Trusts Act 1898, sec. 3 ( a), could not be founded on by the trustees, as that Act had not been passed at the date of the purchase.

At advising—