Scottish Court of Session Decisions

William John Taylor, C.A., Glasgow, was on 2nd February 1904, on the application of the testamentary trustees, appointed judicial factor on the trust estate of the late Alexander Mackinnon Browning formerly of Blantyre. The estate, inter alia, consisted of 1696 ordinary shares of £9 each in the New Zealand Loan and Mercantile Agency Company, upon each of which there was an uncalled liability of £8, 10s. Upon May 25, 1905 the judicial factor presented a note to the Junior Lord Ordinary, Lord

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Johnston, in circumstances which are fully detailed in his Lordship's opinion. In the note he, inter alia, craved his Lordship to authorise the judicial factor to continue to hold these shares for at least the space of two years and during such further period as the Accountant of Court should authorise, unless during such period the shares should become saleable.

By the following interlocutor, pronounced 1st July 1905, his Lordship reported the cause to the First Division of the Court:—“Reports the cause to the First Division of the Court to which it has been marked, and grants warrant for enrolling the same in the Inner House rolls.”

Opinion—“The late Mr Alexander Mackinnon Browning, formerly of Blantyre, died on 3rd April 1902 in Australia, during a temporary residence there, survived by his widow and an only child Miss Robina Frazer Browning. Mrs and Miss Browning have continued to reside in Australia.

“Mr Browning left a settlement under which he conveyed his whole estate to Robert Parlane, Bonhill, Dumbartonshire, and Joseph M. Taylor, LL.D., Writer, Glasgow, as trustees. Substantially the purposes of the trust were for payment to Mrs Browning of the free annual income of the estate for her alimentary liferent use only, and, in the contingency of there being only one child, to hold and convey the residue, subject to her mother's liferent, to Miss Browning, under the declaration that in the event of her predeceasing her mother, leaving issue, the fee destined to her should be held not to have vested, and should be payable to and equally among her issue. Accordingly, Mrs Browning is restricted to an alimentary liferent, while Miss Browning has a fee which at best is subject to defeasance, and which, if certain other clauses, which it is not necessary to narrate, are considered, may be not even vested subject to defeasance, but may prove to be entirely suspended. I refer to the above in order to make it clear, with reference to the question at issue, that Mrs and Miss Browning have no such rights in the estate as would enable them by their consents to empower the parties administering the estate to deviate in any way from the strict lines of trust administration, or to give any effectual indemnity to the parties administering should the necessities of the estate require them to undertake abnormal responsibilities.

“The deceased's estate may be taken as of the value of £8000, excluding from consideration one asset, which is truly not an asset except negatively, but a very grave liability. For the testator left at his death 1696 ordinary shares of £9 each, 10s. paid, in the New Zealand Loan and Mercantile Agency Company. The liability for calls on these shares at £8, 10s. per share was therefore £14,416, or nearly double the whole other estate. The circumstances of this company have long been, and still are, such that this liability for calls is a very real anxiety to those involved as shareholders. Not only are the shares unrealisable in the ordinary sense, but they could not be got rid of except on payment of a very large sum to anyone taking them with their liability. In these circumstances, although the trustees-nominate accepted the trust and confirmed, they very soon came to the conclusion that they would not take the responsibility of managing the estate, and acccordingly they applied for the appointment of a judicial factor in January 1904, in order to their own resignation. Mr William John Taylor, C.A., Glasgow, was appointed judicial factor on the estate on 2nd February 1904, and he has found caution, given up a factorial inventory, and entered on the administration of the estate.

“The factor found, on investigating into the circumstances, that at the time of his appointment he could not get rid of the New Zealand Loan and Mercantile Agency Company shares and their liability for calls, except upon a payment of £4 per share, amounting to nearly £6800, a payment which would have substantially exhausted the estate and left only about £1200 for the widow's liferent and for the daughter, or whomsoever it may ultimately concern, in fee. He has, during the last twelvemonth, continued to watch the situation, and owing to the prospects of Australasian affairs generally, and of those of the New Zealand Loan and Mercantile Agency Company in particular, having improved with a change of seasons, he has found that he could now probably get rid of the shares for a payment of £3 per share, involving the sacrifice of about £5100 of the general estate, leaving him with a balance of about £2900. He himself is of opinion that in the interests of the estate he should continue to hold the shares, but he is not unnaturally averse to undertake the very grave responsibility involved at his own hand, and he has accordingly presented a note in the factory asking the Court to authorise him to hold the shares in question ‘for at least the space of two years, and during such further period as the Accountant of Court shall authorise.’ In his report the Accountant commits himself to no opinion, but he states that he is not aware of such powers having been granted, and therefore reports the matter to the Court. I have, however, had an interview with the Accountant, and discussed the matter with him, and he has informed me that, had the factor taken the reverse course, and craved authority to apply the necessary portion of the estate in getting rid of the shares in question, and freeing the estate from the corresponding liability, he would have felt himself justified in recommending that the power craved should not be conferred, at least in hoc statu I have felt the situation to be so exceptional that I have not thought myself justified in dealing with the application without reporting it to the Inner House. I have been led to the conclusion that I ought to take this course, because, while, if I acted on my own responsibility, I should grant the application though only sub modo, the result one way or the other is of such grave importance to the estate and to those interested therein, and more particularly

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because, there being no contradictor, there would be no prospect of bringing my judgment under review.

“The point raised by the application is whether the factor is entitled to ask the Court to sanction the course which he proposes to take, so as to relieve him a priori of responsibility, or whether the factor must either act on his own responsibility or relieve himself by resigning. The question whether, should the Court entertain the application, it will sanction the course proposed, is subsidiary and depends on practical considerations.

“In determining the preliminary question, the first point for consideration is the precise relation of the Court to the judicial factor and the estate. In appointing a judicial factor on a lapsed trust—and that is virtually the position in the present case—while the factor appointed is to certain effects the officer of Court and responsible to it, the Court does not undertake the administration of the estate or make itself the trustee and treat the factor merely as its agent. I may refer to the case of Ferguson v. Murray, 15 D. 682, where in the course of administration of a lapsed trust, part of the estate being heritable property subject to a bond, the bondholders resorted to an action of maills and duties, thereby summarily dispossessing the factor, who hitherto had been managing the property. It was held that the estate was not by the appointment of the factor in manibus curiœ, so that the freedom of creditors to proceed in ordinary course of law should be in any way interfered with. I refer to the case not because its circumstances are analogous to those of the present, but only for the expression of opinion of the Court in defining the position of the factor—‘We must look to the object and nature of the appointment’ ( per Lord President Colonsay). ‘The matter depends entirely upon the nature of the appointment. There is merely a failure of the family trust, and the appointment was made to defend the interests under that trust’ ( per Lord Fullarton). ‘It appears to me quite clear that the powers of a judicial factor appointed to supply the place of trustees in a lapsed trust can never be greater than those of the party over whose estate he is appointed. The measure of a factor's power is exactly the same as that of the trustee, in whose place he comes, would have been had the trust subsisted. The factor takes the estate with all its burdens as if the trust had subsisted, and his duty is to execute the trust. The Court have always held the measure of his power to be the same as that of a trustee’ ( per Lord Ivory). These expressions are naturally limited by the subject-matter of the case which the Court had been considering, but I think that they support the view that not merely the powers but also the duties and the responsibilities of a factor appointed in lieu of trustees are the same as those of the trustees whose place he supplies. There are, it is true, superadded safeguards, in respect that the factor now reports to and is under the supervision of the Court through the Accountant of Court, but I do not think that he is in any way relieved of any of his trust functions to the effect of throwing the administration of the estate on the Court. I refer to Hutton v. Annan, 25 R. (H.L.) 23, 35 8.L.R. 416, where it was held that the passing of certain investments by the Accountant of Court at his annual audit of the accounts of a curator bonis, did not relieve the latter from responsibility for an improper investment.

“The chief difficulty which I have experienced in dealing with the case has arisen from the doubt—which I am personally satisfied is well founded—whether a judicial factor in room of trustees does not stand in a different position in relation to the Court from a curator bonis, factor loco tutoris, &c., who are more entirely the creatures of the equitable jurisdiction of the Court, and whether the former class of factors is entitled to come to the Court for instructions and powers in the same circumstances and to the same effect as are factors of the latter class, or are not bound to act on their own discretion in the same degree as the trustees whom they replace.

“The pupil or the lunatic is in a sense a ward of Court—though in Scotland Chancery terms are not used nor does the Court exercise such extensive intervention or accept such extensive responsibility as does the Court of Chancery. But a trust estate, even where a judicial factor is appointed in room of the trustees, is still a trust estate governed by the deed of the deceased. I am, of course, not referring to the case where an estate is sequestrated for any cause and placed under judicial management. Then it becomes properly in manibus curiæ.

“It is as well therefore to see what is the express provision of Mr Browning's settlement empowering his trustees in the matter of investment.

“It is this—‘That my trustees in the execution of the trust shall be entitled to the fullest powers, privileges, and immunities enjoyed by gratuitous trustees, with power to them to invest my estate in the purchase of heritable property, to borrow money on security thereof, and to appoint any one of their own number to be law-agent or factor to the trust; and my trustees shall have power of sale by public roup or private bargain, and persons transacting with them shall have no right to inquire into or see to the application of moneys paid to them, but shall be satisfied by their receipt therefor alone; and I declare that they shall not be liable for any omissions nor neglect of management so long as they act honourably and in good faith.’ Accordingly, the powers and duties of Mr Browning's trustees were of the most common law kind, and the present question is not affected one way or the other by his settlement.

“In the next place, I do not find the position of a judicial factor vice trustees declining, resigning, or otherwise failing, is to any effect defined by statute or Act of Sederunt.

“The appointment of judicial factors was originally dependent entirely on the of the Court. But though the Court was, I understand, early in use to supply the failure of trustees, it is to be noticed that the Act of Sederunt, 13th February 1730, was in terms confined to factors of the class loco tutoris, &c.

“This Act of Sederunt was virtually superseded by the Pupils' Protection Act 1849 (12 and 13 Vict. c. 51), which was also in terms confined to the same class of factors, and section 7 provides pointedly for the application by such factors for special powers, and with reason, for the powers of such factors are derived from the Court solely. They neither represent a truster nor take their powers derivatively from him in succession to his trustees-nominate. This Act established for the first time the office of Accountant of Court.

“Prior to 1856 there was no statutory provision for the appointment of judicial factors on the estates of deceased persons, whether testate or intestate, and no express provision for the regulation of such factories. By the Bankruptcy Act 1856, section 164, provision was made for the appointment of factors on the estates of deceased persons. But its object, though its terms might receive wider application, was to provide summarily for the administration only of estates left derelict and subject to claims, though not necessarily bankrupt, on the death. And realisation and division according to a scheme to be approved was all that was contemplated, not a continuing administration. The only thing which was, as I read the section, subjected to the direction of the Court, as precedent to the factor's action, was the realisation of heritage.

“It was the Trusts Act 1867 that incidentally made statutory the method of appointing, as in the present case, ‘of a judicial factor to administer the trust’ where trustees desired to resign and could not otherwise provide for the continuance of the trust after their resignation. But it does not appear that there is any special provision either in the statute or by Act of

Sederunt in any way further defining the position, functions, &c., of such factors. I think accordingly that such factors stand exactly where they were prior to the statutory enactments above referred to.

“I have further considered the few cases which have occurred where the liability of judicial factors in realising and investing factorial estates has been in question— The Accountant of Court v. Baird, 20 D. 1176; Crabbe v. White, 18 z. 1065, 28 S.L.R. 806; Cowan's Trustees (in Ferrie's Curatory), 24 R. 590, 34 S.L.R. 449: and Hutton v. Annan, supra, were all cases of factors loco tutoris or curators bonis. Guild v. Glasgow Endowment Board, 14 R. 944, 24 S.L.R, 676, was the case of a judicial factor on an executory estate.

“From these it would appear that factors loco tutoris and curators bonis, and therefore a fortiori judicial factors on trust estates, have substantially the same responsibility as trustees in the matter of investment. And I may here note that the Trusts Act 1884, widening the powers of trustees in the matter of investments, includes under the definition of ‘trustee’ all classes of judicial factors.

“Lastly, it is necessary to look at the cases in which the Court has intervened to give directions or approval regarding investments on the application of factors or otherwise.

“In the old case of Wright, 1701, M. 7429, the Court very markedly refused directions, and left a factor to act on his own discretion and on his own responsibility.

“The case of Bontine's Curator, 8 Macph. 976, 7 S.L.R. 641, was that of a curator bonis to a lunatic. And the ward being involved as partner in the lease and working of a Welsh slate quarry, which had not proved successful, the curator obtained powers to unite with the other partners in turning the business into a limited company, with a view of limiting his ward's liability, as he could not apparently extricate his estate from the adventure entirely.

“In Grainger's Curator, 3 R. 479, 13 S.L.R. 308, the curator having made certain investments on the security of local rates, the Accountant of Court required him to realise these investments, but, at the desire of the curator, requested instructions from the Lord Ordinary, and on report by the Lord Ordinary the Inner House approved the investments and instructed the Accountant to withdraw his requisition for realisation.

“In Lloyd's Curator, 5 R. 289, an investment in railway debentures was brought in the same way before the Court at the request of a curator bonis, but the Court disposed of the case by finding that debentures of railway companies were securities which the Accountant of Court may sanction as investments for funds in the hands of a curator bonis, provided he is satisfied that the special investment is a good and safe one of its class.

“In the case of Dunn v. Chambers, 25 R. 247, 35 S.L.R. 203, where the validity of the sale under direction of the Accountant of Court of the ward's shares in a mercantile company by her curator bonis was in question, it was incidentally observed by Lord M'Laren, p. 250, ‘to begin, the Accountant's opinion was not absolutely binding on the curator bonis Mr Mowat was an officer of Court, and he might have applied to the Lord Ordinary, and if necessary to the Court, for authority to hold the shares for a definite term, or until he should be able to test their value.’ It does not, however, appear that this has ever been done except in the solitary instance to be now mentioned.

“The Accountant of Court has also informed me that he finds that in the case Barr's Curator bonis in 1898 (unreported), where the ward was sole partner of a bonded warehouse business, power was given in the Outer House, on strong representations as to the absence of risk in such businesses, first to float the concern as a limited company, accepting payment

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for the ward's interest chiefly in shares, and afterwards to retain the shares for a year, and for such time thereafter as the Accountant of Court might approve. These are the only cases I have been able to find bearing on the Court's intervention in the matter of investments, and it will be observed that they are all cases of curatores bonis, between whose position and that of factors on trust-estates I conceive, as I have above indicated, that there is a difference.

“But notwithstanding that difference, I should myself be disposed to say, though the general rule is that it is the duty of judicial factors of all kinds to realise funds of the estate involved in business ventures or otherwise speculatively invested, that where such realisation involves so serious a question of responsibility, the factor, even though a factor vice trustees under a settlement, is entitled to the direction of the Court as to the course he should follow. Otherwise, for his own safety, the factor may be compelled to relieve himself by prematurely parting with the major part of the trust estate to effect the realisation of the loss upon the particular asset, against the real interest of the estate, or to be compelled to resign, in which case presumably no other satisfactory factor would be likely to accept the position.

“I should therefore be disposed to authorise the factor to retain the shares, but only in hoc statu, and for no definite term, with instructions to communicate with the Accountant of Court, not merely in his annual reports, but at any time should any change of circumstances occur.

“But, as above mentioned, I have thought it proper to report the matter to your Lordships for instructions.”

During the course of the hearing, the Court having indicated a desire for information as to the English practice in the case of such applications, a letter was produced from a firm of English solicitors of good standing who stated that they had consulted one of the masters of the Supreme Court on the subject and also the official solicitor, and summed up the result of their inquiries as follows:—“Therefore we have no hesitation in advising that the practice of the English Courts is to give ordinary trustees liberty to hold shares involving liability for uncalled capital for a limited period (to be renewed on reasons justifying the application) so long as there is kept in hand sufficient estate to meet the calls should they be made. In deciding upon similar cases the English Court invariably gives great weight to the reasonable wishes of the persons for the time being entitled to the property in question.”

Counsel for the factor argued—The applicant was entitled to the sanction of the Court as one of its officers in very special circumstances of great difficulty. In the case of Lindsay, December 9, 1848, 11 D. 232, the Court had authorised a payment by a judicial factor loco tutoris of a capital sum from the pupils' estate to transferees of shares owned by the factorial estate on which there was liability; but here, by holding, the estate would not be diminished by any such payment. The proposed operation had the consent of the persons presently in right of the trust funds. As the report of the Lord Ordinary set forth, curators had been granted very wide powers of a similar character, and the distinction between them and the present applicant was very slight. The matter for the Court chiefly to consider was the wellbeing of the trust estate, and that would be best served by granting the prayer of the note.