Scottish Court of Session Decisions

Francis Gordon of Kincardine died in 1857. He left a trust-disposition and settlement whereby he appointed certain gentlemen to be his trustees, among the number being Mr Alexander Simpson, advocate in Aberdeen, and afterwards Procurator-Fiscal of Aberdeenshire. Mr Simpson acted as factor for the trust, and his firm of Simpson & Cadenhead as law-agents for the trust. Mr Gordon left a widow and a son and daughter. The latter succeeded to the entailed estate of Craig, which did not fall under the trust-deed. She afterwards married, and became Mrs Johnstone Gordon. The trust was chiefly intended for the maintenance of the son Mr James Gordon, who received under it the liferent of the estate of Kincardine. The widow had by her marriage-contract an annuity of £400. The duties of the trustees were to manage the investments of the personal estate and the estate of Kincardine. The trust-deed contained a clause declaring that the trustees “shall not be liable for omissions, errors, or neglect of management, nor singuli in solidum, nor for the solvency of those to whom they may lend the moneys under their management, further than that the person or persons to whom they may so lend are habit

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and repute responsible at the time of lending, nor for the fall in the value of Government or other securities, but that each shall be liable for his own actual intromissions only; and that they shall not further be liable for any factor or factors whom they may appoint, than that such factor or factors are habit and repute responsible at the time of appointment.” There was some difficulty as to the vesting of the residue of the estate previous to the death of the liferenter Mr James Gordon. He died in 1871 unmarried and without issue. Up to the year 1870 the trustees had received regular accounts from Mr Simpson, their factor, and these accounts were regular and formal, and no balance of trust-funds remained in his hands uninvested. Mr Simpson's accounts were until 1871 regularly sent by the trustees to an auditor to be reported on. In the end of 1871, certain questions having arisen between the beneficiaries under the trust, the trustees—Mr Milne, advocate in Aberdeen, the Rev. Mr Matheson, Mr Gordon of Parkhill, and Mr Skene of Pitlurg and Dyce—instructed their factor Mr Simpson to raise an action of multiplepoinding and exoneration for their discharge. The chief question in this process was the question whether the marriage-contract annuity of the widow was a burden on the truster's heritable estate or on his moveable estate; and that question having been decided by the Court, the multiplepoinding remained in Court until the present dispute, consequent on the insolvency of Mr Simpson, arose. In this multiplepoinding Messrs Mackenzie & Kermack, W.S., represented the beneficiaries, and after the process was brought into Court and the condescendence of the fund in medio had been prepared, there were no further meetings of trustees, and Mr Simpson corresponded directly with them. The accounts produced in process showed a balance in Mr Simpson's hands of £436, 8s. at 1st April 1872, and a balance of £763, 7s. 6d. as at 1st June 1873. On this balance Messrs Mackenzie & Kermack, writing on behalf of the beneficiaries to Messrs Richardson & Johnston, W.S., the Edinburgh agents of the trustees, on 27th June 1873, remarked as follows:—“Part of this sum should be invested, and the interest of the sums deposited should be uplifted each half-year.” A balance, however, of varying amount remained in Mr Simpson's hands down to the summer of 1880, when Mr Simpson became insolvent, and was obliged by the embarrassed state of his affairs to resign the public offices which he held and to leave the country. On his returning he was tried before the High Court of Justiciary on a charge of breach of trust, and received upon conviction a sentence of six months' imprisonment. At that time the balance in his hands amounted to £525. Interest had been paid by him at 4 per cent. on the balance thus left in his hands, and the amount of this interest was regularly entered in the half-yearly statement of accounts made by Mr Simpson to Mackenzie & Kermack in rendering to that firm an account of the sum requiring to be paid by their clients to make up the amount of the widow's annuity. The beneficiaries thus received interest at 4 per cent. on the money thus lying in Mr Simpson's hands. The trustees were not aware of this balance in their factor's hands, which had not existed during the period preceding the multiplepoinding when they had been in the active management of the trust After the death of Mr James Gordon and the raising of the multiplepoinding they confined themselves to signing such documents relating to the investing of the residue of the estate as required to be signed, and relying on the fact that they knew Mr Simpson to be in correspondence with the agents of the beneficiaries, did not require him to exhibit to them accounts of any kind.

In consequence of the loss to the estate through Mr Simpson's defalcation of the sum of £525 as above mentioned, the beneficiaries objected to the trustees being found entitled to exoneration, on the ground that by their negligence in supervising the affairs of the trust the factor had been allowed to keep a large sum uninvested and mixed up with his own funds, and that this sum had thus through the culpa lata of the trustees been lost to the beneficiaries. They likewise averred that for a considerable period, and at least from the year 1870, Simpson had been well known in Aberdeen to be in an impecunious condition, and not habit and repute responsible for the sums which had been allowed to remain in his hands.

The Lord Ordinary (Rutherford Clark), after a proof, found “that the trustees of the late Francis Gordon are personally bound to make good to the trust the sum which has been lost by the bankruptcy of Alexander Simpson, factor to the trust.”

He added this opinion—“Alexander Simpson, the factor to the trust, retained in his own hands a considerable sum of money belonging to the trust which has been lost by his bankruptcy. He became bankrupt in July 1880. The loss is admitted by the trustees, and the question is whether they are personally responsible for it. I am of opinion that they are.

“The truster died in 1857, and from that date till 27th March 1871, when his son James Gordon also died, the trustees seem to have shown great care in the administration of the trust. The several beneficiary interests created by the trust vested on the death of James Gordon. From that time forword the trustees took no further charge of the trust. This is their own statement. They considered themselves freed from all duty—1st, because they relied on the beneficiaries looking after their own interests; and 2d, because they had raised an action of multiplepoinding and exoneration on 18th January 1872.

I am of opinion that the trustees took a very wrong view of their duty. So long as they were trustees they were under all the obligations and responsibilities which attached to their office. Even if it were possible that they could relieve themselves of their duties by requiring the beneficiaries to attend to their own interests, they were bound to make very distinct intimation that they had assumed that position. No such intimation was made, nor, so far as I can see, was it ever intended that such an intimation should be made. The trustees continued to hold their office, and were to all appearance in the ordinary administration of the trust.

Nor is the fact that an action of multiplepoinding was raised any justification of the conduct of the trustees. The fund in medio remained in their hands, and they were responsible for the due care of it until it should be paid over.

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The last account which the trustees ever examined was the account which closed on 31st July 1870. At that time the balance in the factor's hands was very small. As I have already said, James Gordon died on 27th March 1871 and on the next account, which closed on 1st April 1871, the balance in the factor's hands was £438 or thereabouts. This account the trustees never saw, nor did they ever desire to see it, or subsequent accounts. It does not appear that any subsequent accounts were made up. The amount which remained in the factor's hands fluctuated from time to time, and stood at his bankruptcy at £525 or thereabouts. The money was never lodged in any separate account, but was all along mixed up with the factor's own funds.

I recognise fully the doctrine that in order to the personal responsibility of trustees they must be guilty of culpa lata. But I cannot conceive a greater neglect, and therefore greater culpa, than when trustees systematically abstain from the discharge of the duties of their office. Culpa lata consists in the failure to observe a certain amount of diligence. It must therefore exist when no diligence is shown at all.

No doubt the trustees say that at an early stage of the multiplepoinding the beneficiaries were aware that the sum of £438 was in the factor's hands; and this is true. But the beneficiaries did not know that it was not lodged in a separate account. Further, they urged that so large a sum should not remain uninvested, and it was arranged, through the agents of the trustees, that it should bear 4 per cent. Of course the trustees were ignorant of all this, because the correspondence was conducted between the agents of the beneficiaries and the Edinburgh agents of the trustees, who were in communication with the factor alone. The factor for obvious reasons was desirous of concealing from the trustees the true state of matters, and he easily gained his object, because the trustees had withdrawn from all excercise of their duties and left him to do as he pleased. Hence it was just this neglect that cansed the loss.

Another ground of liability is brought forward. But it affects two only of the three trustees. In 1872 or in 1873 at the latest, Mr Simpson, the factor was in very embarrassed circumstances and he continued to be in this condition till his bankruptcy. This was known to Mr Milne and Mr Matheson though not to Mr Skene. It seems to me that it was the duty of Mr Milne and Mr Matheson to remove Mr Simpson from his office, or at least to take the utmost care that no part of the trust funds should be lost through the intromissions of a factor on whose pecuniary responsibility they could no longer rely. But they did nothing. They excuse themselves on the ground that he held an important office (procurator-fiscal) in Aberdeenshire, that nothing was urged against his moral character, and that he continued to be largely trusted both with public and private money. How far the confidence which he continued to enjoy was due to ignorance I do not inquire; it can in my opinion form no excuse to trustees who were aware of his condition, and who abstained from the slightest supervision of him.

On this separate ground I think that liability would attach to Mr Milne and Mr Matheson. But I am of opinion that all the trustees are responsible for the loss on the more general ground to which I have already adverted.”

The trustees reclaimed, and argued—It was admitted that till the death of the liferenter in 1871 the estate was managed with the greatest care, and that no uninvested balance was left in the factor's hands. That event brought the business of the trust practically to an end though the trust continued to exist. The beneficiaries themselves then took up the case of their own interests; they had the accounts of the trust before them in a multiplepoinding; their agents saw (as the trustees did not) that the factor had a large sum in his hands, but no complaint was made by them—on the contrary, they took interest on these sums for a period of years. The trustees were entitled now to say—“If you saw all this going on, and tacitly approved of it, we were not called upon to interfere.” The beneficiaries should have called attention to the irregularity themselves. Mere knowledge that a factor had such sums in his hands, assuming it to have existed, did not necessarily fix trustees, acting under such a clause as the trustees had in this trust-deed, with responsibility. As to Simpson's position, the evidence only showed that some persons who were likely to be professionally acquainted with such a matter knew him to be impecunious, but it negatived the averment that he was well known in Aberdeen to be so. On the contrary, he had enjoyed good credit almost to the last.

Authorities— Home v. Pringle, Nov. 30, 1837, 16 S. 142, aff. June 22, 1841, 2 Rob. Ap. 384; Cowan v. Crawford, 8 Jurist 342; Ainslie v. Cheape. Feb. 6. 1835, 13 S. 417; Home v. Menzies, July 10, 1845, 7 D. 1010.

The defender Mr Skene adopted the argument of the other trustees, and urged in addition that he had no personal knowledge of Simpson's embarrassed circumstances.

Argued for the objectors (beneficiaries)—The circumstances of the case of Home v. Pringle were totally different from those of this case. The trustees were not entitled to put the responsibility of drawing the inference that something was amiss upon the beneficiaries. The beneficiaries were entitled to suppose that the trustees were supervising their factor. The trustees might trust their factor, as had been done, but it must be at their own risk. There was no stronger case of culpa lata than simple neglect to do anything at all.

Authorities— Seton v. Dawson, Dec. 18, 1841, 4 D. 310; Sym v. Charles, May 13, 1830, 8 S. 741; Blaine v. Paterson, Jan. 28, 1836, 14 S. 361; Edmond v. Blaikie and Anderson, June 29, 1866, 4 Macph. 1011.

The Court made avizandum.