Scottish Court of Session Decisions

This was an action of count, reckoning, and payment, at the instance of James Middleton Paton, merchant, Dundee, against the testamentary trustees of his father John George Paton, The Wild, Broughty Perry.

In October 1889 James Middleton Paton was rendered bankrupt in Prance, and a trustee was appointed on his estate.

In February 1891 the bankrupt granted in favour of his father a discharge of his right to claim legitim.

On 9th March 1891 John George Paton died survived by seven children, and leaving a trust-disposition and settlement whereby he directed his trustees to divide the residue of his estate equally among his children, but to hold the share falling to his son James Middleton Paton, and pay to him the revenue only as an alimentary provision during his lifetime, the fee being destined to his children.

In April 1891 James Middleton Paton's trustee in bankruptcy intimated a claim for. his share of the legitim fund of his father's estate. In reply to this claim the trustees of John George Paton founded on the discharge above referred to, and raised an action in which they sought to have it declared that that discharge was valid and excluded any claim on behalf of the grantor's creditors. The trustee in bankruptcy then raised an action of reduction of the discharge and for payment of legitim. These actions were conjoined, and judgment was given in favour of the trustee in bankruptcy in the Outer House by Lord Kyllachy, and his judgment was affirmed by the First Division, decree being pronounced for £6667, 0s., 11d.— Obers v. Paton's Trustees, March 17, 1897, 24 R. 719, 34 S.L.R. 538.

The testamentary trustees of John George Paton intimated an appeal to the House of Lords, but a settlement was arrived at whereby the trustee in bankruptcy received payment of £3446, and assigned to the testamentary trustees his claim to James Middleton Paton's share of legitim, and each side paid their own expenses. The expenses incurred by the testamentary trustees amounted to £2522, 14s. 8d.

On 12th May 1899 James Middleton Paton raised the present action against his father's testamentary trustees for an accounting, and for payment of the alimentary liferent provided to him by his father's settlement.

The defenders produced accounts, and contended that, as the pursuer had by his trustee claimed and taken his legal rights in his father's estate, he could take no benefit from the provision made in his

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father's general settlement until the estate had been compensated to the extent to which it had been diminished in consequence of that claim, that is, to the extent of the two sums specified above, viz. (1) £3446 paid to the son's trustee, and (2) £2522 the expenses of the litigation, amounting together to £5968, 14s. 8d., and that it would be many years before that sum was made good by the pursuer's alimentary liferent.

The pursuer lodged various objections to the defenders' accounts. Inter alia, he objected that the trustees were not entitled to include in the amount to be compensated out of the pursuer's liferent the expenses of the litigation between the defenders and the pursuer's trustee in bankruptcy, amounting as stated to £2522, 14s. 8d. For the purposes of this report it is not necessary to state the other objections.

On 7th November 1902 the Lord Ordinary ( Low) found, inter alia, that the expenses incurred by the defenders in their litigation with the pursuer's trustee in bankruptcy did not form a good charge against the pursuer's alimentary liferent.

In an opinion annexed to a previous interlocutor the Lord Ordinary stated as follows:— … “Now, it is not disputed that the defenders are entitled to retain the income to which the pursuer would otherwise have been entitled in order to replace the amount of the legitim. It is difficult to understand, however, upon what principle the whole expenses of the litigation should be charged against the pursuer's income. Such a course might perhaps be justified if the litigation had been conducted solely in the interest of the pursuer, but that does not appear to have been the case.

“The litigation arose in this way—The pursuer after his bankruptcy, but during is father's lifetime, had granted to the latter a discharge of his right to claim legitim. After the father's death the defenders brought an action against the pursuer's trustee, and also against the beneficiaries, including the pursuer, and against certain of the pursuer's creditors, for declarator that the discharge excluded any claim for legitim. The trustee lodged defences and brought a counter action for reduction of the discharge and for declarator that he had the sole right to claim the legitim falling to the pursuer. The action was directed against the present defenders and all the beneficiaries. The present defenders alone lodged defences, and a protracted and singularly expensive litigation ensued. It seems to me to be plain that the defenders acted in what they regarded as the interests of the beneficiaries as a body, and for the purpose of preventing the amount of the pursuer's legitim being withdrawn from the estate, which the truster had directed to be divided among all the beneficiaries.

In these circumstances it seems to me to be unjust that the pursuer should be made to bear the whole expenses of the litigation. The defenders were not found personally liable for the expenses, and as that is a matter which falls to be determined in the litigation in which the expenses are incurred, it must be taken that they are entitled to be relieved of the expenses by the trust estate. But I think that it is the whole trust estate which must be charged with the expenses, and not the pursuer's separate interest in it only. If the trust estate is charged with the expenses, the result will be that, by the amount of these expenses the estate divisible among the beneficiaries will be diminished, and in that way all the beneficiaries in whose interest the litigation was conducted will bear a share of the expenses. The pursuer will bear his own share, because the one-seventh of the estate, to the income of which he is entitled, will be diminished to the extent of one-seventh of the expenses, and the income payable to him will of course be proportionately diminished.” …

The defenders reclaimed, and argued—The principle of equitable compensation applied to all loss sustained through the claim of legal rights, and was not confined to the actual amount of the sum paid in satisfaction of the legal right— Macfarlane's Trustees v. Oliver, July 20, 1882, 9 R. 1138, 19 S.L.R. 850. Here the expenses in question were incurred in defence of the pursuer's own deed and in his interest, so as to protect him from the diligence of his creditors. They resulted in a settlement more favourable to him than if the discharge had not been defended, and although in the first place the claim fell to be paid out of the trust estate, and the interest to reduce the amount was primarily in the other beneficiaries, still the claim fell to be repaid out of the pursuer's provision and the radical interest to reduce the amount was in him. Alternatively, on the assumption that the whole interest was in the beneficiaries generally, the defenders had purchased for the benefit of the trust estate the whole claim of legitim, and they were entitled under the assignation which they had obtained to treat as legitim everything they had disbursed up to the full ascertained amount thereof.

Argued for the pursuer—The expenses in question were entirely for the benefit of the trust estate. The loss occasioned by the claim of legitim fell on the trust estate, and on the trust estate alone, until by his survivance the pursuer had enabled the defenders to operate compensation; and it was admittedly to the interest of the beneficiaries to reduce the amount of that loss. No expenses could be included as a subject for compensation which were not incurred primarily and solely for pursuer's benefit. On the alternative argument an alimentary liferent could not be retained against a contractual debt.