Scottish Court of Session Decisions

James Smith of Olrig and another, testamentary trustees of the deceased James Sinclair of Forss ( first parties), and George Wemyss Sinclair, the testator's grandson and heir-at-law ( second party), brought a Special Case dealing with the testator's trust estate.

By trust-disposition and settlement, dated 6th March 1874, the testator, who died on 1st March 1876, conveyed his whole estate, heritable and moveable, to trustees for, inter alia, the following purposes—“( Second) That they shall make payment to my son George William Sinclair, or failing him to the heirs of his body, during the subsistence of this trust, of the annual sum of five hundred pounds, or such smaller sum as my trustees consider the rental of my estate, after payment of the interests of the debts thereon and the provisions and annuities provided or to be provided by any deed granted by me, will, having regard to my ultimate object of freeing the estate of debt, afford and admit of, and that quarterly during the subsistence of this trust.… ( Sixth) I declare that it is my wish and intention that this trust shall subsist for ten years after my death, and such further period as, having in view my ultimate object before mentioned, in so far as this may reasonably be attained, my trustees may consider it necessary and expedient to keep up the same, but in the event of the death of my said heir leaving a child before the expiry of the said ten years, or such further period as aforesaid, then this trust shall subsist until the said child succeeding shall attain majority. ( Lastly) On the purposes of this trust being fulfilled, and my trustees judging it expedient for them to denude thereof, I hereby direct and appoint them to dispone, convey, and make over my whole heritable and moveable estate above mentioned and described, except such portions thereof as may have been sold as above directed, to and in favour of my eldest surviving son George William Sinclair, a settler in Australia, and the heirs of his body … but under burden always of the heritable debts affecting my said estates and such provisions and annuities as I may have provided to my children.”

By deed of apportionment and provision, also dated 6th March 1874, the testator divided and apportioned four thousand pounds among his younger children, and directed certain liferent annuities to be paid to six of his children. These annuities were not created real burdens by the testator, but by the last purpose of his settlement he directed his trustees, on the termination of the trust, to convey his estates to his heir under burden of these annuities. At the time this case was brought three of these annuities, amounting to £190 a-year, were still payable.

The Case stated, inter alia—“When the said James Sinclair, the testator, died on 1st March 1876, his heritable estates were burdened with heritably secured debt to the extent of £62,600, with terminable rent charges amounting to £420 per annum, and with annuities created by his predecessor in the estate amounting to £200 per annum. The annual rental of the heritable estate amounted in 1876 to about £6100, and the annual income from the moveable estate to about £100, together £620000 From this there fell to be deducted approximately:—

1. Interest on heritable debt, &c.	£253200
2. Terminable rent charges.	42000
3. Public and parochial burdens, feu-duties, and fire insurance.	93500
4. Annuities.	88800
5. Improvement and repairs.	72100
6. Factor's salary, &c.	16600
		566200

Leaving a balance of £53800 available to meet the expense of carrying on the trust and providing an allowance to the heir.

“As the moveable estate of the testator was insufficient to pay his moveable debts, funeral expenses, and provisions to younger children and others, his trustees, to meet these obligations, borrowed on the security of the heritable estates in 1877 £3760, and in 1879 £2500. Further, on the expiry of the lease to the Forss Caithness Pavement Company of Achscrabster Quarries in 1883, the trustees in terms of the lease took over the tenants' plant and machinery at valuation,

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and to meet the price thereof borrowed a further sum of £3000 on the security of the estates. Further, in order to meet expenditure for improvements on the estates and claims by tenants for meliorations, &c., the trustees in 1886 borrowed a further sum of £4300. The trustees thus borrowed a total sum of £13,560 during the first ten years of the trust, and this added to £62,600 of debt affecting the estates at the time of the testator's death, brought the amount of heritable debt in 1886 up to £76,160, apart from rent charges and annuities. The trustees have since repaid out of income heritable debt to the amount of £7300, and the amount now affecting the estates is therefore £68,860. All the before-mentioned rent charges had expired by 1st October 1892, and the annuities now payable are only £190.

“Owing to the agricultural depression which set in soon after the commencement of the trust the rents of agricultural subjects have been considerably reduced, and there has also been a considerable diminution of rental through the decay of the pavement industry which has led to the Achscrabster Quarries on the estate of Forss being unlet since the year 1907. On the other hand the rents of shootings and fishings have increased to some extent. The average gross rental of the estates for the five years ending 31st December 1910 amounted to approximately £4903, and the average gross income of the trust estate from combined sources for the same

The average outgoings for the same

period were:—

1. Interest on heritable debt, &c.	£2342
2. Public and parochial burdens, feu-duties, and fire insurance	973
3. Annuities	218
4. Improvements and repairs and upkeep of mansion houses	751
5. Land Steward's salary and expenses of estate management	300
		4584

Leaving a balance of £434 available to meet payments during the period in question for compensation to farm tenants, &c., and for carrying on the trust. It is not anticipated that for some time to come the revenue will appreciably exceed the average sums above stated, but the free revenue will be increased as the annuities (which now amount to £190 per annum) lapse on the death of the annuitants.

“ As authorised by the second purpose of said trust-disposition and settlement, the trustees made payment to the second party after his father's death on 23rd July 1876 of the sum of £500 per annum, being the maximum sum authorised, but on 13th July 1885 a notarial intimation was served on the trustees of a bond and disposition and assignation in security granted by the second party in favour of Aaron Waxman of Melbourne in the Colony of Victoria in Australia, financier, for the principal sum of £14,595. Said bond purports to convey to the said Aaron Waxman the whole heritable estates in security of said sum, in terms usual in heritable bonds, and in addition it contains a special assignation of the second party's rights under the trust settlement, also in security of said sum.

[In view of the notarial intimation of the assignation of the second party's interest in the trust estate above set forth, the trustees ceased to make any further payments to the second party. The second party had, however, granted certain bonds and dispositions in security over the estate of Forss, and assignations of his whole interest in the trust estate, which had been recorded in the Register of Sasines and had been intimated to the trustees.]

“In view of the amount of heritable debt affecting the trust estates, and of the fall of the rental of the said estates since the testator's death, combined with increased taxation, the trustees do not see any prospect of clearing the estate of the debt existing at the testator's death within any period that they can specify.”

The first parties maintained that they were not bound or vested with any discretion entitling them to denude themselves of the trust estate, for the following reasons—1. That the whole trust purposes, and especially the primary purpose of the trust, to free the estate of debt had not been fulfilled. 2. That if the trust was brought to an end by their denuding, the payment of the annuities created by the trust-disposition and settlement, and still subsisting, would be endangered. 3. That their denuding in favour of the second party would under existing circumstances entirely defeat the main intention of the testator.

The second party maintained (1) that the trustees had no discretion to further continue the trust on any ground whatsoever, and that he or those in his right were entitled to an immediate conveyance of the estate. He submitted that on a sound construction of the settlement the only object for which the trustees could competently continue the trust was that of freeing the estate of the debt which existed at the truster's death, and that the power of the trustees to continue the trust had now ceased in respect that the course of the trust administration and the admission of the trustees showed that that object could not within the meaning of the sixth purpose of the trust be reasonably attained. He maintained that the additional considerations adduced by the trustees, to the effect that he had incurred debt and that it was doubtful whether, if the trustees denuded, the remaining annuities could be effectually secured, were both entirely irrelevant in answer to his claim. The trust-deed contained no prohibition against his incurring debt, and it expressly directed a conveyance to be made under burden of any subsisting annuities. Moreover, the suggestion that the annuities might be

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prejudiced was unfounded in law. His creditors' rights could not be higher than his, and if the directions to the trustees to convey under burden of the annuities was sufficient to secure the annuities in a question with the second party, it would equally secure them in a question with his creditors. If the annuities could not be secured either against the second party or his creditors, that would not warrant the trustees in refusing to convey in terms of the trust-deed. (2) On the assumption that the trustees had a discretion to continue the trust, that they had equally a discretion to end it, and were accordingly in any case entitled to denude in favour of him or those in his right. (3) In exercising such discretion the trustees were only entitled to have regard to the object of postponement expressed by the truster, viz., the clearing the estate of the original debt, and that for the reasons above stated they were not entitled to have regard to the other considerations adduced by them. The following questions of law as amended were submitted—“1. Are the first parties bound to denude in favour of the second party, provided he discharges the debts and obligations incurred by him, of which intimation has been made to the first parties, or which stand upon the record? 2. If the preceding question is answered in the negative, are the first parties entitled in the exercise of their discretion to denude in favour of the second party? 3. If the third question is answered in the affirmative,are the first parties in exercising their discretion entitled to have regard—( a) to the state of indebtedness of the second party? ( b) to any apprehended risk of failure of payment of subsisting annuities?”

The following authorities were referred to at the hearing:— White's Trustees v. Whyte, June 1, 1877, 4 R. 786, 14 S.L.R. 499; Williamson v. Begg, May 12, 1887, 14 R. 720, 24 S.L.R. 490; Cowie v. Muirden, July 20, 1893, 20 R (HL) 81, 31 S.L.R. 275; Tempest v. Lord Camoys, 1882, 21 Oh. D. 571, at p. 578; in re Courtier, 1886, 34 Oh. D. 136; Buchanan v. Eaton, 1911 S.O. (H.L.) 40, 48 S.L.R. 481.

At advising—