M'Leod's Trustees v M'Leod
| Jurisdiction | Scotland |
| Judgment Date | 07 March 1916 |
| Date | 07 March 1916 |
| Docket Number | No. 60. |
| Court | Court of Session |
Lord President, Lord Mackenzie, Lord Skerrington.
SuccessionLiferent and feeApportionmentFree incomeWasting securitiesApportionment of shipping profits between liferenter and fiarPower to retain shipping investments,
A testator by his settlement bequeathed to his widow the free income of his estate, and authorised his trustees, at their discretion, to retain and dispose of certain shipping investments which he held. These investments consisted of:(1) Shares in ships owned by individuals jointly. The whole profits of these ships were distributed among the owners without any provision for depreciation; but out of these profits the testator in his books wrote off 10 per cent on the value of each investment as depreciation, and treated the balance of the receipts as income; and (2) Shares in single-ship companies, in which each shareholder had taken debenture bonds (not bearing interest) equal in value to the amount of his share subscription. The whole profits of these companies were paid to the debenture holders in extinction of the debenture debt; but the testator dealt with these payments in the same manner as the profits from the first class of investments, by writing off a 10 per cent depreciation, and treating the balance as income.
The trustees retained these investments, and received the profits therefrom for a year, but in the course of the following year they sold all these investments to a company. At the date of the sale considerable sums had been earned as profits but had not been distributed, and these undistributed profits were included in the sale to the company.
In a question between the testator's widow and his trustees,
Held (1) that the whole of the receipts from the first class of investments were payable to the widow as free income, and no portion could be retained by the trustees against depreciation of the capital; and (2) that the receipts from the second class, being payments in liquidation of the debenture debt, were capital payments, and no portion thereof fell to the widow as income.
Brown v. GalletlyELR (1867) L. R., 2 Ch. 751, distinguished.
Held also that the part of the purchase price representing undistributed profits fell to be apportioned on the same principles, viz.:that the widow was entitled to such portion thereof as represented income, but not to such portion as represented repayments of debentures.
Donaldson v. Donaldson's TrusteesUNK, (1851) 14 D. 165, and Cameron's Factor v. CameronSC, (1873) 1 R. 21, followed.
On 15th January 1915 a special case was presented for the opinion and judgment of the Court upon certain questions arising under the testamentary writings of Norman M'Leod, shipowner, Glasgow, who died on 7th January 1912, his trustees being the first parties, and the testator's widow the second party.
By his trust-disposition and settlement, dated 27th April 1905, the testator conveyed his whole estate, which consisted largely of investments in ships, to five trustees (three of whom were connected with shipping), for certain purposes. Of these the fifth purpose provided for an annuity of 100 to a sister, with a direction in any year in which the free income of my estate after making proper provision for depreciation on my shipping investments exceeds Six hundred pounds to increase the allowance to my said sister to such extent as my Trustees may think proper. The seventh purpose made certain provisions for his widow, which were dependent in any year on the amount of the free available income of his estate after providing for reasonable and proper depreciation on my shipping investments. These provisions for the widow, however, were revoked by a codicil dated 6th January 1912. By the last purpose of his settlement he gave the fee of the residue to his children, and authorised his trustees to sell all or any part or portion of my Trust Estate heritable and moveable real and personal, hereby conveyed, and that either by public roup or private bargain: As also to wind up or carry on or concur in winding up or carrying on any business or business transaction or adventure in which I may be engaged either on my own account or in conjunction with partners at the time of my decease, in such way and manner as to my Trustees shall seem best for the interest of my Trust Estate, and to enter into such arrangements as may be most suitable for that purpose: As also to hold and retain so long as my Trustees may deem expedient all investments which I may happen to hold at the time of my death, and also to accept and pay for any allotment or additional stock to which they may be entitled in virtue of their holdings: And I particularly authorise and empower my Trustees to retain my shipping investments and to dispose of these in such way and manner as my Trustees in their absolute discretion may consider most for the benefit of my estate declaring that my Trustees shall be in no way responsible for any loss which may arise to my estate in consequence of their continuing to hold my shipping or other investments after my decease.
By the codicil of 6th January 1912 the testator revoked the whole provisions contained in the seventh place in his trust-disposition and settlement, and in place of these provisions directed his trustees to hold the residue of my estate for behoof of my wife Mrs Helen Morrison Hardy or M'Leod in the event of her surviving me, and to pay her the free income thereof so long as she shall survive and remain unmarried in such way as may be found to be most convenient, as an alimentary provision which shall not be assignable by her nor attachable by the diligence of her creditors.
The testator's estate was valued at 30,000, of which 9378 consisted of interests in ships.
Of these ships seven were individually owned, the testator holding 2/64th shares in each ship. The net earnings of these ships were distributed by the managers among the owners as profits without any provision for depreciation. In his business books the testator, in respect of his interests in these ships, wrote off depreciation at the rate of 10 per cent annually on the value of the investment in each ship as it stood in his books at the end of the previous year, and treated the balance as income.
Five shipsParthenia, Athenia, Cassandra, Almora, and Saturniawere owned by single-ship companies. In the case of the ships Parthenia, Athenia, and Cassandra, the original cost was provided one-half from subscriptions on shades and one-half from the issue of debenture bonds which carried no interest, each shareholder taking bonds to an amount equal to his share subscriptions. In each of these companies, as there was cash available from accumulated earnings, the managers distributed this amongst the holders of debenture bonds pro rata, and the debentures were cancelled to the extent of the payments made. An annual balance-sheet and profit and loss account was prepared, and any profit shown therein, in so far as it was not carried forward to the following year, was shown as applied in payment and cancellation of debenture bonds held by the shareholders. In the following year's accounts the amount so applied was shown as written off the value of the ship. Although the sums were received by the testator in redemption of his debentures, he treated them in the same way as the receipts from the individually owned ships, that is, he wrote off depreciation at the rate of 10 per cent on the sum at which the investment stood in his books, and treated the balance as income.
In the case of the Saturnia, the original cost was provided one-half from subscriptions on shares and one-half from a loan advanced by a third party. This loan was made on the footing that the earnings of the ship were to be applied in repayment of the advance before any distribution was made to the shareholders. An annual balance-sheet and profit and loss account was prepared, and any profit shown therein was written off the value of the ship as depreciation, the cash available being applied in reduction of the loan. No sums accordingly were received by the testator, and the investment stood in his books, at the date of his death, at its original amount.
In the case of the Almora, which was owned by a single-ship company called the Glasgow & Newport...
To continue reading
Request your trial
-
Thomson's Trustees v Thomson
...1 Donaldson v. Donaldson's TrusteesUNK, (1851) 14 D. 165;Cameron's Factor v. CameronUNK, (1873) 1 R. 21;M'Leod's Trustees v. M'Leod, 1916 S. C. 604;Smith's Trustees v. Graham, 1952 S. L. T. (Notes) 23. 2 Forgie's Trustees v. ForgieSC, 1941 S. C. 188, Lord President Normand at p. 193. Refere......
-
Warrack's Trustees v Warrack
...Brandreth v. ColvinELR, [1896] 2 Ch. 199, North, J., at p. 203; Wentworth v. WentworthELR, [1900] A. C. 163; M'Leod's Trustees v. M'Leod, 1916 S. C. 604, at p. 607 1 Leighton v. LeightonUNK, (1867) 5 Macph. 561; Adam and Forsyth v. Forsyth's TrusteesUNK, (1867) 6 Macph. 31; Macfarlane's Tru......
-
REVIEWS
...applied by the Scottish courts nevertheless in Hay’s Trustees v. Hay (1903) 11 S.L.T. 306 (O.H.) and in M’Leod’s Trusfees v. M’Leod, 1916 S.C. 604, the court felt it appropriate to discuss the rule, although they were able to distinguish the cases before them. It appears however, from Lord ......