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OUTER HOUSE, COURT OF SESSION
[2006] CSOH 141
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P1744/03
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OPINION OF LORD EASSIE
in the Petition of
THE RIGHT
HONOURABLE COLIN ROBERT VAUGHAN, 7TH EARL CAWDOR AND OTHERS
Petitioners;
for
Removal of a
Trustee
ญญญญญญญญญญญญญญญญญ________________
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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;
(c) the
trustees under the ante-nuptial settlement made in contemplation of the
truster's marriage on 17 January
1957;
(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 (2nd 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 17th 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, 2nd 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.
