Clarke v Clarke's Trustees
| Jurisdiction | Scotland |
| Judgment Date | 16 June 1925 |
| Date | 16 June 1925 |
| Docket Number | No. 82. |
| Court | Court of Session |
Lord Blackburn, Lord President (Clyde), Lord Cullen, Lord Sands.
TrustAdministrationInvestmentPower in trust deed to hold truster's investmentsPersonal liability of trusteesImmunity clauseReliefTrusts (Scotland) Act, 1921 (11 and 12 Geo. V. cap. 58), sec. 32 (1).
TrustAdministrationDuty to investDeposit-receiptPower in trust deed to lodge funds on depositPersonal liability of trustees for higher interestReliefTrusts (Scotland) Act, 1921 (11 and 12 Geo. V. cap. 58), sec. 32 (1).
Trustees, acting under a trust-disposition and settlement which authorised the retention of securities held by the testator at the date of his death and declared that the trustees should not be liable for any loss that might arise in respect of such securities, retained for a period of years certain shares which the testator had held in an industrial company. During this period the shares gradually depreciated in value and finally became worthless, but the propriety of continuing to hold the shares was not reconsidered by the trustees.
The trustees also kept in bank on deposit-receipt for a period of two and a half years a sum of 16,500, which was divisible among the residuary legatees subject to provision being made for an annuity to the testator's widow, for which purpose a sum of 5000 invested in trust securities would have been sufficient. The trust deed authorised the trustees to invest the trust funds in certain classes of investments, or to deposit the funds at interest with banks, or to retain them in bank.
In an action of count, reckoning, and payment at the instance of the residuary legatees, held, after a proof (dub. Lord Sands, rev. judgment of Lord Blackburn) (1) that, by their failure to reconsider the policy of retaining the industrial shares, the trustees had been guilty of negligence amounting to breach of trust inferring personal liability for the loss thereby sustained, against which the immunity clause in the settlement afforded them no protection; (2) that, although, as the trust was one for distribution, the trustees were not bound to have invested the whole of the sum of 16,500 in permanent investments, it was their duty to have set aside and invested the amount required to produce the widow's annuity, and, accordingly, that they were personally liable to the pursuers for the loss of income caused by the retention of that amount in bank on deposit-receipt; and (3) that the trustees were not entitled to be relieved from personal liability for their breaches of trust under section 32 (1) of the Trusts (Scotland) Act, 1921, in respect that, while they had acted honestly, they had not acted reasonably, and, accordingly, were not fairly entitled to be excused, notwithstanding the fact that under their management the value of the trust-estate had increased from 10,000 to 50,000.
George Granville Clarke, tenant of the farm of Eriboll, Sutherlandshire, died on 26th June 1904. He had been married three times, and he was survived by his third wife, Mrs Alice Gibson or Clarke, and also by three children of his first marriage, viz., George Granville Clarke, John Charles Clarke, and Mrs Elizabeth Jane Mackenzie Clarke or Cooper, and by two children of his third marriage, viz., Rupert Clarke (who died on 3rd June 1920), and Reay Clarke.
Mr Clarke left a trust-disposition and settlement, dated 6th November 1901, and registered in the Books of Council and Session on 7th July 1904, whereby he conveyed to Mrs Alice Gibson or Clarke, his widow, George Granville Clarke, and John Charles Clarke, his sons by his first marriage, and to Charles Mackenzie, agent for the British Linen Bank at Tain, as trustees for the purposes therein set forth, his whole estate, heritable and moveable, and also, with the consent of the proprietor, his lease of the farm of Eriboll.
By the first purpose of the trust-disposition and settlement the trustees were directed to pay the testator's debts; by the second purpose the testator directed a sum of 2400 to be divided equally among the three children of his first marriage; by the third purpose he directed his trustees to make payment to his widow of an annuity of 300 per annum, under deduction of a sum equivalent to 4 per cent per annum on whatever sum she might receive out of two policies of assurance on his life which he had assigned to her, the annuity being restrictible to 150 per annum in the event of her entering into a second marriage; by the fourth purpose the testator directed his trustees to allow his widow to occupy the farmhouse of Eriboll, and to have the use of the household plenishings; by the fifth purpose he gave certain directions for the distribution of the surplus income among his children. The sixth purpose was in the following terms:In the sixth place and lastly on the expiry of the said lease of Eriboll or when my trustees shall cease to carry on said farm I direct and appoint my trustees to realise my means and estate including the sheep and other stock crop and implements of husbandry on the farm and after having fulfilled or provided for the several foregoing purposes of trust, to hold apply pay and convey the whole rest residue and remainder of my means and estate heritable and moveable real and personal and the interest and other annual produce thereof including the principal sum or sums which may be set apart to meet the annuity hereinbefore provided when and as the same may in whole or in part be set free by the death of the said Mrs Alice Gibson or Clarke or in part by her second marriage as aforesaid, to and for behoof of my lawful children and the issue of such of them as may predecease the term of payment thereof payable in such proportions at such times on such conditions and under such restrictions as I may direct by any writing under my hand, and which writing I direct my trustees to observe and implement although not formally executed provided it is signed by me and clearly expresses my intention and failing any such writing then to and for behoof of and equally among all my lawful children. The trust-disposition and settlement also con-contained the following provisions: as it is my wish that the said farm of Eriboll presently tenanted by me should be carried on after my death for behoof of my family till the expiry of the lease thereof I hereby authorise empower and request my trustees to carry on the said farm and to appoint a suitable person who may be one of themselves to carry on the practical working of the farm including the selling and purchasing of stock cattle and produce. And I provide and declare that my trustees shall be entitled to the fullest powers privileges and exemptions usually conferred in similar cases according to the most liberal interpretation of the law whether statutory or common and in particular I authorise and empower my trustees to retain any securities standing in my name at the time of my death also to realise and sell my estate whether heritable or moveable by public roup or private bargain in such manner as they may think proper, as also if necessary for the administration of the trust my trustees shall have power to borrow upon the security of the estate and change investments and to lend out the proceeds of the whole or any part of the trust-estate on heritable security or to any company or corporation empowered to borrow money by Act of Parliament or on the debentures of dividend paying railways or other companies or to invest the same in the Government funds or in the purchase of heritable property feu-duties ground annuals or other heritages or of debentures or guaranteed or preference stock of dividend paying railways or other incorporated companies in which the liability of each shareholder is limited to the value of the stock held by himself or to deposit the same at interest with foreign Colonial or other banks carrying on business or receiving money on deposit in Great Britain or to retain the same in bank in Great Britain and generally to invest in terms of the Trust Acts now in force or which may be in force at the time. And I provide and declare that my trustees shall not be liable for omissions nor for each other but each for his own actual intromissions only, nor shall my trustees be liable for any loss that may arise in respect of the carrying on of said farm to the termination of the lease or in respect of the sufficiency of the investments of the trust funds or estate provided any securities taken or purchases made by them were reputed sufficient and satisfactory at the time, or were left in my name at the time of my death and retained by them.
The trustees all accepted office, but John Charles Clarke, who resided in Rhodesia, never acted as a trustee, and resigned in 1909. George Granville Clarke continued to act until 1918, but in 1919 he was certified as insane, and thereafter took no part in the trustmanagement.
On 12th January 1924 an action of count, reckoning, and payment was brought against the trustees at the instance of George Granville Clarke, John Charles Clarke, and Mrs Elizabeth Jane Mackenzie Clarke or Cooper (who subsequently died, and whose executor, George John Strickland, solicitor, London, was sisted in her place) concluding, inter alia, for decree against the defenders conjunctly and severally, or severally, and as individuals, according to their respective liabilities, for the sum of 20,000 sterling.
The following narrative of the circumstances of the case is taken from the opinion of the Lord Ordinary:
In January 1924 an action of count, reckoning, and payment was raised against the trustees in the names of the three children of the first marriage, and the record was closed on 10th June 1924. Subsequently to the raising of the action Mrs Cooper died, and her executor has been sisted in her place. Accounts were ordered, the record on the accounts and objections was closed on 21st October 1924, and a proof was allowed. One...
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