The Right Honourable Colin Robert Vaughan, 7th Earl Cawdor And Others For Removal Of A Trustee
| Jurisdiction | Scotland |
| Judge | Lord Eassie |
| Neutral Citation | [2006] CSOH 141 |
| Date | 13 September 2006 |
| Docket Number | P1744/03 |
| Court | Court of Session |
| Published date | 13 September 2006 |
| OUTER HOUSE, COURT OF SESSION [2006] CSOH 141 | |
| P1744/03 | 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 ________________ |
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...
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