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	Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Morrison-Low v Paterson & Anor [1999] ScotCS 220 (16 September 1999) URL: http://www.bailii.org/scot/cases/ScotCS/1999/220.html Cite as: [1999] ScotCS 220

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The pursuer is the heritable proprietor of Moonzie Farm, by Cupar, Fife. The defenders are Ian Thomas Paterson and Roy William Paterson, who are called as individuals and as executors of the late Thomas Herbert Paterson. By lease dated 26 and 28 August 1929 the pursuer's predecessors in title let Moonzie Farm to Thomas Paterson and his two sons

The lease was for a term of 14 years commencing at Martinmas 1929. Thomas Paterson and one of his sons died and the surviving son, Thomas Herbert Paterson, continued as tenant of the farm by virtue of tacit relocation under the 1929 lease. He carried on the farming business with two of his sons, namely, Ian Thomas Paterson (the first defender) and David Paterson under the business name of Thomas Paterson & Sons. The said Thomas Herbert Paterson (hereinafter referred to as "the deceased") died on 4 December 1973 survived by his widow, Agnes Paterson, and his three sons, Ian, David and Roy. He left a Trust Disposition and Settlement dated 24 December 1971 whereby he appointed his widow Agnes, his said three sons and his brother Norman Paterson to be his trustees. He made no bequest of Moonzie Farm. In April 1974 the said five trustees were confirmed as executors on the estate of the deceased. The confirmation in their favour did not include the deceased's interest as tenant of the farm under the said lease.

By his said Trust Disposition and Settlement the deceased, after making provision for debts and funeral expenses, the expenses of the trust and for the delivery to his widow Agnes of furniture, furnishings, household plenishings and his personal effects, provided as follows:

Clause (Fourth) provided for payment of a pecuniary legacy to his son Roy Paterson and Clause (Fifth) provided for distribution of the residue of the deceased's estate equally between his two elder sons, namely, Ian Paterson (the first defender) and David Paterson. The Trust Disposition and Settlement further provided as follows:

It was also provided that the deceased's trustees were to have "the fullest powers of and in regard to realisation, investment, administration, management and division as if they were beneficial owners".

The deceased's interest as tenant under the lease of 1929 formed part of the residue of his estate and would have vested in his executors for the purposes of the administration of his estate if they had confirmed to it. Had they done so, the executors would have been entitled, subject to the provisions of section 16(3) of the Succession (Scotland) Act 1964, to transfer the deceased's interest under the lease to the residuary beneficiaries, Ian and David, and they, as acquirers of the lease of an agricultural holding, would have been entitled within 21 days thereafter to give notice to the landlord in terms of section 21 of the Agricultural Holdings (Scotland) Act 1949 as amended in order that the lease might become binding on the acquirers and the landlord as from the date of acquisition. It was not at any time suggested that there were any grounds upon which the landlord could have objected successfully to receiving Ian and David as tenants under the lease. Section 16(3) of the 1964 Act provided that if the deceased's interest as tenant under the lease was not disposed of within a period of one year after the death of the deceased then either the landlord or the executor may give notice terminating the lease. In the event the executors did not confirm to the deceased's interest as tenant under the lease of 1929. During the period of one year after the death of the deceased they took no steps to dispose of his interest under the lease which should have been transferred to the residuary legatees. What happened was that after the death of the deceased his surviving partners, Ian and David, and Ian alone after David's death in January 1979, continued to farm Moonzie and paid the rent due at each term of Martinmas and Whitsunday, which was demanded and accepted by the landlord. Norman Paterson died on 28 June 1981.

In 1979 the then landlord of Moonzie Farm served a notice to quit on the deceased's executors and then raised an action in the Court of Session seeking declarator that the lease had come to an end not later than 4 December 1974 and decree of removing. It was agreed that the 1929 lease had come to an end one year after the death of the deceased on the executors' failure to assign his interest. The defenders in the action, who were Agnes Paterson, Ian Thomas Paterson and Roy Paterson, the surviving executors acting under the deceased's Trust Disposition and Settlement, pleaded that they were themselves tenants from and after 4 December 1974 on a lease for one year which had been established by the parties' actings and continued by tacit relocation. The Lord Ordinary granted the declarator sought and on a reclaiming motion by the defenders the First Division, by a majority, affirmed his interlocutor. The defenders appealed to the House of Lords who allowed the appeal, holding inter alia (1) that where a proprietor admitted someone into possession of agricultural ground and regularly accepted rent, the irresistible inference was that a tenancy had been created even though there was not a particular occasion on which a tenancy had been agreed; (2) that an agreement could have been reached for a fresh lease of the farm even though both parties wrongly believed that the previous lease had continued; (3) that the defenders' possession could not be ascribed to the 1929 lease and the parties had in fact reached agreement, albeit that they had been misled about the legal position and (4) that, on the facts established at the proof, a new lease of Moonzie Farm had come into existence on 4 December 1974 between the then landlord (the pursuer's predecessor in title) and the deceased's executors (Morrison-Low v. Paterson 1985 S.C. (H.L.) 49). In the course of his speech Lord Keith of Kinkel made the following observations (at pages 78-79):

The pursuer subsequently became the heritable proprietor of Moonzie Farm. The executors remained in occupation of the farm and paid the rent. Mrs. Agnes Paterson died on 22 February 1996. The pursuer has not served a notice to quit on the executors but in 1996 he raised the present action against them. The first two conclusions are in the following terms:

The third conclusion seeks decree of removing. The pursuer avers that the annual payments provided for in the Trust Disposition and Settlement were made to Agnes Paterson until her death on 22 February 1996, that esto any trust purposes remained to be fulfilled at that point, the only such purpose was the said annual payment to Agnes and that upon her death no trust purposes remained to be fulfilled (if indeed any still then did). In any event, no executry purpose remained to be fulfilled. Accordingly, the defenders have no right or title to remain in occupation of the farm. The defenders aver that they remain as tenants of the subjects in terms of the 1974 lease, that as executors they are obliged to preserve the trust estate under their charge and that there is a continuing trust or executry purpose in the tenancy of the subjects by the defenders. They took a plea to the relevancy of the pursuer's averments and the case came before the Lord Ordinary on Procedure Roll in January 1998. The Lord Ordinary sustained the defenders' plea to the relevancy and dismissed the action and the pursuers have reclaimed against his interlocutor of 22 January 1998 to that effect.

The Lord Ordinary observed that the sole question with which the case was concerned was whether, following the death of Agnes Paterson, there was a trust or executry purpose still to be fulfilled which justified the defenders continuing in office. The pursuer's counsel maintained that the lease did not form part of the deceased's estate since it had not come into existence until twelve months after his death. The submission made on behalf of the defenders was that it did not matter whether the lease could properly be regarded as forming part of the deceased's estate as once the executors had been accepted as tenants without qualification by the landlord an agricultural tenancy was created. The Lord Ordinary stated that both parties advanced without criticism a passage in the Law of Agricultural Holdings in Scotland (3rd edn.) by Lord Gill at pages 33-34, which is in the following terms:

The Lord Ordinary accepted that the last two sentences of that passage constituted an entirely correct statement of the law, and observed that a landlord in an agricultural tenancy would be entitled to know whether the executry had been completed or the trust purposes had been fulfilled. The Lord Ordinary stated that counsel for both parties were agreed that the effect of the House of Lords judgment was to create a constructive trust since the executors could not be auctores in rem suam; they had to hold the tenancy for the benefit of those to whom they had a duty to account in terms of the Will. Counsel for the pursuer had characterised the constructive trust as a parasitical, ancillary constructive trust. The Lord Ordinary observed that if Agnes Paterson was the last beneficiary under the trust, the submissions made on behalf of the pursuer would be well-founded but that if, on the other hand, any other beneficiary still alive could be identified, then the constructive trust still had a purpose and the tenancy continued in existence. The Lord Ordinary also stated that if the pursuer's case was well-founded, it must follow that Agnes Paterson was the sole surviving beneficiary of the constructive trust and that the net profits of the farm were accumulated just to provide payment of her annuity of £500. That contention was rejected by the Lord Ordinary who expressed the opinion that the net profits from the farming business conducted in terms of the tenancy passed under the constructive trust to the two residuary beneficiaries, and it was out of these net profits inter alia that the residuary beneficiaries were to pay the annuity, the protected tenancy being a continuing asset of value. The Lord Ordinary concluded that the surviving residuary beneficiary, Ian Paterson, who actually manages the farm, is entitled to the fruits of that asset because he is the surviving residuary beneficiary, that there therefore remains a trust purpose to be fulfilled and that the lease has not come to an end. The Lord Ordinary finally observed that, in his judgment, it will come to an end on the death of Ian Paterson.

The submissions for the pursuer and reclaimer were originally made to us under five separate heads. In the first place it was submitted that the Lord Ordinary had been led into error in analysing the situation as being a constructive trust. The tenancy, when it was acquired, became simply another part of the executry or trust estate and as such it had to be held for the purposes set out in the Trust Disposition and Settlement. It was in no different position from any other item of property which was comprised in the deceased's estate. The fact that the tenancy had been acquired after the death of the deceased did not take it outwith the scope of the express trust which was established by the Trust Disposition and Settlement. In the circumstances of the present case there was no room for the existence of a constructive trust when there was already an express trust in place and the executors had become tenants qua executors and not as individuals (Wilson and Duncan, Trusts, Trustees and Executors, (2nd edn.), pages 98-101; Magistrates of Aberdeen v. University of Aberdeen (1877) 4 R. (H.L.) 48). The existing trust covered any property, such as the lease, acquired by the executors in the course of their administration of the estate. The executors could only hold the tenancy for as long as that was sanctioned by the purposes set out in the Trust Disposition and Settlement. When the tenancy was acquired by the executors, it fell to be treated as part of the trust estate falling under their charge. Once the trust was in existence the trustees could acquire further assets to be held for the trust purposes. When there were no longer any trust purposes remaining to be fulfilled in terms of the Trust Disposition and Settlement, then the executors were no longer entitled to maintain the tenancy. As the Lord Ordinary had erred in holding that there was a constructive trust, the reasoning which followed in the remainder of his Opinion could not be maintained. Even if there was a constructive trust in this case the trust purposes were the same as those contained in the Trust Disposition and Settlement and they came to an end at the same time (cf. Beveridge v. Beveridge's Executrix 1938 S.C. 160). The Lord Ordinary had erred in attributing a wider trust purpose to the constructive trust.

We were informed that the senior counsel who had appeared on behalf of the pursuer at the Procedure Roll debate had stated that, contrary to what the Lord Ordinary said in his Opinion (at page 27D), she had not agreed that the effect of the House of Lords judgment was to create a constructive trust but had simply submitted to the Lord Ordinary that, esto there was a constructive trust, it was a parasitical, ancillary constructive trust. Counsel's submission to us was that there never had been a constructive trust and that the tenancy was part of the trust estate. If it had been conceded on behalf of the pursuer before the Lord Ordinary that there was a constructive trust, that was a concession on a point of law and counsel now sought to depart from it.

In the second place, the Lord Ordinary had erred in failing to appreciate that the tenants under the lease were the deceased's executors, as had been found by the House of Lords. The lease was created by the landlord ceding possession to the executors, accepting rent from them and permitting improvements to be made. In these circumstances the only persons who would have been entitled to take possession of the farm were the executors. However, that having been said, the pursuer now accepted that, so far as the sole question posed by the Lord Ordinary was concerned, it did not matter to the pursuer's case whether the defenders were correctly described as executors or trustees or as executors and trustees. The question is whether there are trust purposes contained in the original Trust Disposition and Settlement which still have to be carried out. It was accepted that a trust could be created, the sole purpose of which is distribution (Inland Revenue Commissioners v. Matthew's Executors 1984 S.L.T. 414). The essence of the pursuer's position is that after the death of Agnes Paterson at the latest there were no remaining trust purposes or executry purposes remaining to be fulfilled and that accordingly the tenancy could no longer be maintained. If the residuary beneficiaries had earlier granted security for payment of the sum of £500 per annum to Agnes Paterson, then the trust purposes would have come to an end at that time.

In the third place the Lord Ordinary had erred in concluding that after the death of Agnes Paterson there was a continuing trust purpose. The pursuer's case is that on her death there was no trust purpose remaining to be fulfilled. Given that there were no continuing executry or trust purposes to be fulfilled, and given that the tenancy could no longer be maintained, it was submitted that on the death of Agnes Paterson the executors were obliged, in terms of the directions contained in the Trust Disposition and Settlement, to distribute any value which might have been derived on the termination of the tenancy between the two residuary beneficiaries, namely, the first defender and the representatives of the late David Paterson, as both of these sons survived the deceased. In particular, as David had survived the deceased his share of the residue had vested irrevocably in him. It was submitted that from the date of death of Agnes Paterson the defenders were no longer entitled to maintain the tenancy, and they had no right under and in terms of the Trust Disposition and Settlement to continue to hold any assets of, or falling to, the executry or the trust estate because there were no longer any executry or trust purposes remaining to be fulfilled. The defenders had been called upon to state what remained to be done prior to winding up the executry estate but there had been no proper reply to that call. Once the trust purposes had been fulfilled the executors were bound to distribute the estate and they could be compelled to denude (McLaren, Wills and Succession, (3rd edn.), vol. II, para. 2333; Menzies on Trustees, (2nd edn.) pages 853-4). Once the trust purposes had been fulfilled it was not open to the trustees and executors to maintain the trust machinery as the preservation of the trust estate could not be an end in itself (Miller's Trustees v. Miller (1890) 18 R. 301 per Lord President Inglis at page 305; Johnston v. Macfarlane's Trustees 1986 S.C. 298). In this case the testator had set up machinery to ensure that his widow received £500 a year but on her death it was clear that the estate was to be distributed to the residuary beneficiaries. On her death there was no impediment to distribution and, indeed, it was arguable that the trustees should have distributed the estate at an earlier date. It was clear that after Agnes Paterson died there was no continuing trust purpose remaining to be fulfilled. The Lord Ordinary had been correct when he identified the sole question in the case as being whether, following the death of Agnes Paterson, there was a trust or executry purpose still to be fulfilled justifying the defenders continuing in office, and that question should have been answered in the negative. If there was no continuing trust purpose the trustees were not entitled to continue to hold the trust property and, in this case, they were not entitled to continue to maintain the tenancy against the landlord. While the trustees were given power in the Trust Disposition and Settlement to carry on the farm, that power was given to them only "for the purposes of this Trust", and in the event of a beneficiary being under 21 years of age at the time of the testator's death. That power was not applicable. In this case the lease had a limited life span (cf. MacFarlane v. Falfield Investments Limited 1998 S.C. 14). The case of Dalgety's Trustees v. Drummond 1938 S.C. 709, which was founded on by the defenders, fell to be distinguished as there was in that case a sole residuary legatee and a specific power to carry on the farm, the lease having been in existence prior to the death of the testator. There was thus an express trust created to administer the lease on behalf of the beneficiary.

In the fourth place the Lord Ordinary had erred in holding that the executors were entitled, in effect, to arrange affairs so that Ian Paterson alone, because he was the sole surviving residuary beneficiary, might acquire what the Lord Ordinary described as the fruits of that asset, namely, the benefit of the continuing tenancy. That finding could not be correct as the two residuary beneficiaries both survived the deceased. When David Paterson died in 1979 he was indefeasibly vested in his share of the residue. When the tenancy of the farm was acquired, it became an asset which had to be held for behoof of the trust to be applied in furtherance of the trust purposes as set out in the Trust Disposition and Settlement. Ultimately the tenancy, in so far as any value might be derived from it on its termination, was to be distributed to the estate of the two residuary beneficiaries who had survived the deceased, namely, the first defender and the representatives of David Paterson. In particular, the defenders as executors had a duty to account to the executors of David Paterson for his share of any benefit that might have been derived on the termination of the tenancy. The Trust Disposition and Settlement did not confer any power on the trustees to permit the executors to defer the ultimate distribution of the residue or to allow any benefit which might be derived from the termination of the tenancy to be channelled exclusively to one of the residuary beneficiaries. On the death of Agnes Paterson the executors were obliged to distribute to the residuary beneficiaries any value derived on the termination of the tenancy. The Lord Ordinary had not been justified in linking payment of the £500 annuity to the net profits of the farming business, there having been no basis for such a link in the terms of the Trust Disposition and Settlement.

In the fifth place the implication of the defenders' position was that it would be open to persons in the position of the present executors or trustees to maintain the tenancy in existence more or less in perpetuity subject only to the proviso that there were executors remaining in place. If the defenders were correct in their contention that there is a continuing trust purpose in the tenancy of the subjects by the defenders, the necessary implication would be that by maintaining executors in place, the tenancy could continue for ever. In that event, the right conferred on a landlord in terms of the Agricultural Holdings Act to terminate a tenancy on a change of tenant would effectively be excluded. However, continuation of the tenancy is not an end in itself nor is the perpetuation of the tenancy a trust purpose. Similarly, the existence of a beneficiary who may have an interest to keep the management of the trust going does not per se mean that there is a continuing trust purpose. If a continuation of the tenancy was its own justification, the executors could continue it in existence in perpetuity. The defenders appeared to be arguing that the trust continues because there is a tenancy and the tenancy continues because there is a trust, but that clearly cannot be right.

In expanding on these primary submissions, senior counsel submitted that on the death of Agnes Paterson the trust had come to an end and it therefore followed that the lease had come to an end. It had not been necessary for the landlord to serve a notice to quit on the tenants as the tenancy had come to an end on the death of Agnes Paterson. On her death the tenants had ceased to exist and a notice to quit cannot be served on tenants who no longer exist. It was her death that brought about the termination of the last remaining trust purpose and therefore the end of the trust (Parker v. Lord Advocate 1960 S.C. (H.L.) 29; Johnston v. Macfarlane's Trustees, supra, per Lord Justice Clerk Ross at pages 308-9). The trust automatically ceased to exist on Agnes Paterson's death in the same way as a partnership of fixed duration ceased to exist on the expiry of the period (MacFarlane v. Falfield Investments Limited, supra). In this connection counsel accepted that it was for the pursuer relevantly to aver that the trust had ceased to exist on Agnes Paterson's death. While the relationship between the trustees and the beneficiaries during the subsistence of the trust may be res inter alios, it was not res inter alios to determine whether the trust had come to an end as on the termination of the trust the lease ceased to exist and that was clearly a matter of interest to the landlord. If the trust comes to an end it comes to an end for all purposes. The fact that the beneficiaries may wish the lease to continue is not a trust purpose.

Counsel for the pursuer invited us to recall the Lord Ordinary's interlocutor of 22 January 1998, sustain the pursuer's first, second and fourth pleas-in-law, grant decree in terms of the first and second conclusions and remit to the Lord Ordinary to proceed as accords in relation to the pursuer's third conclusion.

Counsel for the defenders submitted that the pursuer's case was irrelevant. The House of Lords had found that a new lease, wholly independent of the 1929 lease, had been created in December 1974 by agreement between the then landlord and the defenders in the first action who were inter alia the executors of the late Thomas Herbert Paterson and who had no other entitlement to occupy the farm at the time the new lease came into existence. The tenants' interest in the new lease, not having been confirmed to and not being in existence at the date of death, was not property which was or could ever be held in the deceased's estate by his executors. Accordingly, succession to the interest in the 1974 lease was never governed by the provisions of the Succession (Scotland) Act 1964. The House of Lords decision was unaffected by the duties and obligations of the defenders as executors in relation to the lease during the period from 1974 to the date of the proof in 1982. In other words, the House of Lords was not concerned with what the defenders as executors should have done, or did do, between those dates. Counsel accepted that the 1974 lease was held by the executors in a fiduciary capacity and the preferred approach is that adopted by the Lord Ordinary, namely, that they held the lease as trustees under a separate constructive trust for behoof of the residuary beneficiaries under the Trust Disposition and Settlement (McLaren, Wills and Succession, (3rd edn.), vol. II, para. 1926; Mackenzie Stuart, The Law of Trusts, pages 37-38). Counsel accepted that it may be that the trust purposes under the Trust Disposition and Settlement and the constructive trust are the same although that was not conceded as there was a theoretical possibility that the trust purposes could be different.

The lease which the House of Lords found to have come into existence in 1974 was an agricultural lease and the executors were entitled to all the benefits, including security of tenure, and subject to all the obligations arising under the Agricultural Holdings Acts. The landlord could only terminate the tenancy in certain limited and defined circumstances set out in the legislation and, in particular, the landlord had to serve a notice to quit. It was a matter of admission in this case that no notice to quit had been served and that the pursuer has not sought to terminate the lease under the provisions of the Agricultural Holdings legislation. Accordingly, the defenders are prima facie entitled, as tenants, to continue to farm at Moonzie protected by the statutory provisions and the onus is on the pursuer to show that he is entitled to have the defenders removed from the farm without having served a formal notice to quit under section 21 of the Agricultural Holdings (Scotland) Act 1991. Before an agricultural tenancy can be brought to an end the landlord must serve a notice to quit and must have grounds for serving such a notice. It was accepted that a notice to quit is not necessary if the tenant has ceased to exist (cf. MacFarlane v. Falfield Investments Limited, supra, per Lord President Rodger at page 29). Since the decision of the House of Lords in this case, the only allegedly material event averred by the pursuer is the death of Agnes Paterson on 22 February 1996 and it is for the pursuer to demonstrate that on her death the tenants ceased to exist and the tenancy therefore came to an end. The death of Agnes Paterson is the only justification put forward by the pursuer for bringing the present action. The sole basis of the pursuer's case is the alleged expiry on her death of the annuity payments provided for in the Trust Disposition and Settlement. However, the annual sum due to Agnes Paterson was to be paid, not by the executors, but by the residuary legatees as a personal obligation and secured by them. Accordingly, the death of Agnes Paterson and the cessation of the annuity payments had no effect on the executors and, in particular, did not terminate any obligation imposed on them. In fact, the position of the executors in relation to the annuity had not changed since December 1974. In the circumstances the payments to Agnes Paterson, and her death, are not relevant and the pursuer's averments that the trust, and the lease, came to an end on her death are irrelevant.

Counsel went on to submit that, in any event, the executors were admittedly tenants of an agricultural holding and the basis on which they hold the lease is a matter between them and the beneficiaries and, so far as the landlord is concerned, is res inter alios. It is not for the landlord to enquire into the arrangements made between the trustees and executors on the one hand and the beneficiaries on the other hand. The defenders challenge the Lord Ordinary's conclusion that the lease will come to an end on the death of Ian Paterson. Where trustees are tenants under a lease, the residuary beneficiaries are entitled to authorise the trustees to keep the lease going for their benefit rather than surrender the lease and denude in their favour. Any such arrangement is res inter alios. So long as the tenants perform their obligations under the lease, the landlord has no interest in the administration of the trust estate by the trustees. In other words, the landlord cannot interfere with the running of the trust. While beneficiaries who are absolutely entitled to the trust assets will be entitled to call on the trustees to denude in their favour, they are under no obligation to do so. The lease exists as a valuable asset of the trust estate and the trustees, who have security of tenure, are entitled to continue with the lease at the request of the residuary beneficiaries (Dalgety's Trustees v. Drummond, supra). Once the landlord has accepted the executors as tenants, the trust title is res inter alios. Even if the trust purposes have apparently been fulfilled, that is of no concern to the landlord who is not entitled to interfere with the administration of the trust estate. Even if the trustees do not have power under the trust to continue to hold the lease, that again is res inter alios as far as the landlord is concerned, provided that the tenants perform their obligations under the lease. In the present case there remained a trust purpose under the constructive trust, namely, to hold the lease, which was a valuable asset, in the best interests of the beneficiaries. The pursuer has accepted that it did not make any difference whether the defenders were trustees or executors or trustees and executors. The landlord entered into the lease with the executors who, if the tenancy is not terminated under the provisions of the Agricultural Holdings (Scotland) Act, are entitled as trustees to continue to hold the lease and use it as an income producing asset in the interests of the residuary beneficiaries under the Trust Disposition and Settlement.

Senior counsel for the defenders submitted that the determining issue in the case is whether the pursuer has relevantly averred that the lease has come to an end because the tenants ceased to exist. The pursuer had submitted that on the death of Agnes Paterson the executors were obliged to distribute to the residuary beneficiaries any value that might have been derived on the termination of the lease. By making that submission the pursuer was, in effect, recognising that the executors continued in office and that, on termination of the lease, there was a waygoing claim. That was fatal to the pursuer's case. Properly analysed, the pursuer's argument depends on an assertion not that the trustees have ceased to exist but that they should cease to exist. That is a very different situation from the dissolution of a partnership (cf. MacFarlane v. Falfield Investments Limited, supra). In the present case there is still a trust purpose to be fulfilled in relation to the disposal of residue and an accounting by the trustees to the beneficiaries for their intromissions, such that they may receive exoneration and discharge. It should not be overlooked that, in a question with the beneficiaries, the trustees and executors failed to secure the transfer of the 1929 lease which formed part of the deceased's estate at the time of his death, and thereby lost a significant part of the estate. The obtaining of the new lease might be thought to go some way towards retrieving the position in that regard, and is a far more likely explanation for the executors entering into the 1974 lease than the suggestion that they did so by way of security for the £500 annuity due to Agnes Paterson. There is "no rule of law which disables a testator from creating a trust for the disposal of his estate even if the purposes of his settlement could have been carried out perfectly well by executors" (Inland Revenue Commissioners v. Matthew's Executors, supra, per Lord President Emslie at page 418). Even if there was a continuing trust purpose in the payment of the annuity to Agnes and that trust purpose has now come to an end, that does not mean that there is no further trust purpose to be fulfilled. The duty of distribution to the residuary beneficiaries is a trust purpose. If distribution has not yet been effected, the trustees continue to exist (cf. Johnston v. Macfarlane's Trustees, supra). That case was not authority for the proposition that trustees ceased to exist from the moment a liferent expired and the residuary beneficiaries had an absolute right to the capital. The circumstances of the present case are indistinguishable from those in Dalgety's Trustees v. Drummond, supra. Counsel further submitted that it was the defenders' position that, on a proper construction of the lease, they would be entitled to denude of the tenancy in favour of the residuary beneficiaries. Even if they could not pass on the lease, there was no reason why they should relinquish a valuable income producing asset (Murray's Judicial Factor v. Thomas Murray & Sons (Ice Merchants) Limited 1992 S.C. 435). In this case it is not suggested that the residuary beneficiaries wish the defenders to surrender the lease. There is no objection to a trust where the sole duty of the trustee is to hold the trust estate and hand it over to the beneficiary (Michie's Executors v. Michie (1905) 7 F. 509) and, so long as the beneficiary does not call on the trustee to hand the trust estate over, it is the duty of the trustee to deal with it in the best interests of the beneficiary. In this case, however, once it is recognised that on any view there are remaining duties to be performed by the trustees, it is impossible to say that they no longer exist.

On the whole matter counsel for the defenders invited us to refuse the reclaiming motion and adhere to the interlocutor of the Lord Ordinary dated 22 January 1998.

I have set out the submissions of the parties at some length and it will be seen that they were wide-ranging although the issue raised in the pursuer's pleadings is a relatively narrow one. The case was heard by the Lord Ordinary on Procedure Roll and, as there was no real dispute on the facts, it was not suggested by either party that a proof would be necessary. The trustees and executors of the deceased have been the same individuals and both parties accepted that it did not matter whether the defenders were referred to as executors or trustees or executors and trustees.

At the outset it is important to note exactly what case is made by the pursuer on record. Agnes Paterson died on 22 February 1996 and the present action was raised the following month. The pursuer avers that on the death of Agnes Paterson, at the latest, no trust or executry purpose remained to be fulfilled and, that being so, the tenancy came to an end. In the course of his submissions to us, senior counsel for the pursuer made it perfectly plain that the pursuer's case depended on being able to establish that, on Agnes Paterson's death, the trust purposes came to an end and the tenants ceased to exist. As the tenants no longer existed, there was no need for the pursuer to serve a notice to quit in terms of section 21 of the 1991 Act. The pursuer does not seek to make any case against the defenders on the basis that the tenancy continued after the death of Agnes Paterson. In these circumstances the issue before the court is whether the pursuer has relevantly averred that the agricultural tenancy came to an end on the death of Agnes Paterson.

It is clear that, as found by the House of Lords, a new agricultural tenancy came into existence in 1974 and that the tenants were the executors of the deceased who were also the trustees acting under the Trust Disposition and Settlement. It was at no stage suggested that the executors did not have power to enter into the lease. Since 1974 they have remained in occupation of the farm. They undertook full liability as tenants and they have paid the rent and performed their other obligations under the lease, although it appears that the pursuer has not accepted payments of rent since the death of Agnes Paterson. As the tenants of an agricultural holding the defenders have enjoyed all the rights afforded to them by the provisions of the Agricultural Holdings (Scotland) Acts and, in particular, the provisions relating to security of tenure. Section 21 of the 1991 Act provides that, subject to section 20 and subsections (6) and (7) of section 21, a tenancy of an agricultural holding shall not come to an end except by operation of a notice to quit notwithstanding any agreement or any provision in the lease to the contrary. Section 20 relates to the removal of a tenant for non-payment of rent and subsections (6) and (7) of section 21 similarly have no application in the circumstances of this case. It was agreed that no notice to quit has been served on the tenants. As I have said, the pursuer's case is that it was not necessary to serve a notice to quit after the death of Agnes Paterson as the tenants had ceased to exist and the tenancy had thus come to an end.

It was accepted that the executors held the lease of Moonzie Farm in a fiduciary capacity but whereas the pursuer contended that the tenancy was part of the deceased's estate to be administered in terms of the Trust Disposition and Settlement, the defenders submitted that a separate constructive trust had been created although their counsel accepted that in that event it may be that the trust purposes were the same as if the tenancy formed part of the deceased's estate. The lease did not come into existence until December 1974, a year after the death of the deceased, and the executors never confirmed to it. In my opinion the Lord Ordinary was correct in concluding that the tenancy was held by the executors under a constructive trust for behoof of the beneficiaries under the Trust Disposition and Settlement (Beveridge v. Beveridge's Executrix, supra). As at present advised it seems to me that whether the tenancy was held as part of the trust estate under the Trust Disposition and Settlement or under a separate constructive trust, the trust purposes were to all intents and purposes the same and, indeed, it was not contended by either party that if there was a constructive trust the trust purposes were in fact different from those contained in the Trust Disposition and Settlement.

It was accepted by the pursuer that the tenancy had continued until Agnes Paterson's death on 22 February 1996 and up until that time the pursuer accepted rent from the tenants. Moonzie had been farmed since 1974 and it is clear that it had been an income-producing asset. The critical question is whether the tenancy came to an end on Agnes Paterson's death, the basis of the pursuer's case being that on her death there were no executry or trust purposes remaining to be fulfilled. However, even if the defenders had not been entitled to maintain the tenancy after the death of Agnes, it is conceded that they would have had a waygoing claim, particularly a claim for improvements which had been made. In his Grounds of Appeal the pursuer contends (a) that it was the duty of the executors to realise the value of the lease, i.e. to make the appropriate waygoing and improvement claims and transfer the sum so received in compensation to the beneficiaries and (b) that, if the lease was held under a separate constructive trust, then upon the death of Agnes the value of the lease should have been realised and the estate distributed between the residuary beneficiaries. As the waygoing claim would have required to be made, and the proceeds of the claim paid over to the beneficiaries, after her death I am unable to see any proper basis for the contention that, on the death of Agnes, no trust purposes remained and the tenants ceased to exist. In this connection the pursuer's counsel sought to draw an analogy with the case of a lease to a limited partnership in which the landlord is the limited partner and has taken power in the partnership deed to dissolve the partnership and thereby determine the lease. On the dissolution of the partnership the tenant ceased to exist and the lease came to an end without the need for service of a notice to quit. In my opinion, however, such an analogy is far removed from the circumstances of the present case and is not helpful. The tenancy admittedly existed from December 1974 during the lifetime of Agnes Paterson and the pursuer's contention is that the event which gave rise to the termination of the lease was her death on 22 February 1996. However, she was not in the position of a liferentrix. While the Trust Disposition and Settlement provided that she was to receive an annuity of £500, it was stipulated that payment of this annual sum was to be undertaken by all the residuary beneficiaries succeeding to the residue of the deceased's estate "who shall jointly and severally grant a person obligation and such security as my Trustees shall deem necessary ......". We were not told whether or not such a personal obligation and security was given by the residuary beneficiaries but there was no suggestion that the annuity was ever paid by the executors or by the trustees acting under the Trust Disposition and Settlement. In these circumstances it is, in my opinion, difficult to see how there was any material change in the position of the executors after the lease was entered into in 1974 and, in particular, on 22 February 1996, particularly if the lease was held under a constructive trust. Even if the annual payment to Agnes Paterson constituted a continuing trust purpose, it does not follow, in my view, that on her death there was no other trust purpose remaining to be fulfilled. In my opinion there was, on any view, a continuing trust purpose after the death of Agnes Paterson, namely, the making of the appropriate waygoing and improvements claims and the distribution of the proceeds thereof to the beneficiaries entitled thereto. Accordingly I do not consider that the pursuer has relevantly averred that, on her death, there was no executry or trust purpose remaining to be fulfilled, the tenants had ceased to exist and accordingly the tenancy had come to an end. On that short ground, which is sufficient for disposal of the reclaiming motion, I consider that the pursuer's

As I have said the debate was wide-ranging and we heard argument as to (i) whether, if the tenancy has not come to an end, the defenders would be entitled to continue with the tenancy (assuming that there was no alteration in the trust purposes) for the benefit of the surviving residuary beneficiary, it being clear that the defenders have not been called on to denude and, if they would be so entitled, (ii) when the tenancy would come to an end. The Lord Ordinary expressed the opinion that Ian Paterson, the surviving residuary beneficiary, is entitled to the fruits of the lease but that it will come to an end at latest on Ian Paterson's death. Counsel for the defenders also submitted to us that the defenders would be entitled to denude of the tenancy in favour of the residuary beneficiaries. In my opinion, however, these are hypothetical questions which are not raised in the present case and it is not necessary or appropriate to express an opinion on them at this stage.

For the reasons which I have endeavoured to give I would refuse the reclaiming motion and adhere to the interlocutor of the Lord Ordinary dated 28 January 1998.

I agree with the Opinion of your Lordship in the chair and have nothing to add.

I agree that, for the reasons expressed in the Opinion of your Lordship in the Chair, this reclaiming motion should be refused. There is nothing I can usefully add.