Scottish Court of Session Decisions

OUTER HOUSE, COURT OF SESSION
	[2014] CSOH 56
A83/10	OPINION OF LORD GLENNIE in the cause ANDREW DE FAZIO Pursuer; against (FIRST) RAYMOND DE FAZIO; and (SECOND) PAULINE WESTGATE Defenders: ________________

Pursuer: McShane; Morisons LLP

First Defender: Stalker; Lindsays WS

Second Defender: no represented

21 March 2014

Introduction

[1] The pursuer ("the pursuer" or "Andrew") and the first defender ("the defender" or "Raymond") are brothers. Their father and mother ("Mr and Mrs De Fazio") died respectively on 11 December 1975 and 17 March 1989. Andrew is a retired hairdresser and is now 66. Raymond is 60. He describes himself as a "restaurateur". He has been involved, with mixed fortunes, in bars and restaurants both in Glasgow and London.

[2] In January 1974, nearly two years before his death, Mr De Fazio executed a Testamentary Trust Disposition and Settlement, the principal purposes of which were: (i) the payment of his debts and funeral expenses; (ii) the payment of £500 to his sister; (iii) the granting to Mrs De Fazio of the liferent of the revenues and use of certain heritable subjects, namely shop premises at 476 and 478 Great Western Road, Glasgow and adjacent residential property at 2 Belmont Street, or, in the event of their sale, the payment to her of £10,000 and a liferent of the balance of the proceeds; (iv) the holding of a shop and business, or the investments from the proceeds thereof if sold, for behoof of Andrew and Raymond equally, payable to them when and to the extent that the same were not set freed by the termination of the liferent and on their respectively attaining the age of 40 years; and (v) the payment to Mrs De Fazio of the residue of the estate. The business carried out from the shop premises was a ladies' and gentlemen's hairdressing salon and boutique. After the execution of the trust but before his death, Mr De Fazio disponed to Mrs De Fazio the residential property at 2 Belmont Street, so that on his death this was no longer subject to the trust.

[3] Mrs De Fazio was one of the original trustees and executors of Mr De Fazio's estate. In January 1977, upon the resignation of the other trustees and executors, Andrew and Raymond were assumed as trustees and executors in their place, alongside Mrs De Fazio. After Mrs De Fazio's death in 1989, Andrew and Raymond were the sole surviving trustees until February 2006 when, in an order made of consent in a petition (P401/01) raised by Andrew for his removal, the court removed Raymond from the office of trustee and executor and appointed the second defender to be a trustee in his place. She has played no part in these proceedings (when I refer to "the defender" I mean to refer only to Raymond). During the years with which this dispute is concerned, 1979 and 1980, Mrs De Fazio, Andrew and Raymond were the only trustees and the only beneficiaries.

[4] On 5 October 1978 the Sheriff Principal of Glasgow and Strathkelvin confirmed all three to the property listed in the inventory. The net value of Mr De Fazio's estate when he died in 1975 was stated at £22,880.64.

[5] In 1979 the trust sold the property at 478 Great Western Road ("478") for £15,000. In June 1980 missives were entered into for the sale of 476 Great Western Road ("476") for an agreed purchase price of £14,000 but, although agents for the intended purchasers forwarded the sum of £12,000 to the solicitors acting for the trust, retaining only £2000, for some reason which was never explained that sale did not proceed. At the same time, also in June 1980, an agreement was entered into with the prospective tenant of 476 for the purchase by her of the contents thereof, for which she paid £5,000 to the solicitors acting for the trust.

The dispute

[6] This dispute centres on loans made to Raymond from the trust estate in 1979 and 1980. There is no doubt that loans were indeed made to Raymond from the trust. He admits this, although there is a difference between the parties as to whether the amount of the loans was £37,000 (which Raymond admits) or £42,000 (as Andrew contends). For reasons which I shall explain later, I consider that the correct figure is £42,000.

[7] The loans were recorded in documents bearing to be minutes of meetings of the trustees (generally "minutes") signed by all three trustees, including Andrew. I shall look at this in more detail later. On behalf of Andrew it was averred on record that his apparent agreement to the minutes and certain other documents had been obtained through facility and circumvention and/or undue influence and was therefore voidable. He concluded for production and reduction of a number of such documents. As the evidence was led, however, it became apparent that Andrew and Raymond had never had anything in common and that, at least from the time of their father's death, they had actively disliked each other. Certainly there was no trust between them. In those circumstances Mr McShane, who acted for the pursuer, candidly recognised in his final submissions that a claim premised upon facility and circumvention and/or undue influence could not succeed. The required factual underpinning of a relationship of trust and reliance was wholly absent. This concession was, in my view, inevitable. But the importance of this absence of trust does not rest there. To my mind it casts an important light on the probabilities attaching to the evidence of both Andrew and Raymond concerning the events giving rise to the loans and the signing of the various minutes and other documents.

[8] The alternative case put forward by the pursuer, the only case still insisted on, is in many ways more straightforward. He contends that Raymond's borrowings were in breach of trust. The terms of the trust contained no power to make loans to trustees other than Mrs De Fazio. In the absence of such a power, the loans to Raymond as a trustee were absolutely prohibited. They amounted to a breach of trust. Further, Raymond, as a trustee, owed duties of good faith not only to the beneficiaries of the trust but also to his fellow trustees. Andrew was both a beneficiary and a fellow trustee. His consent to the loans was obtained by "fraud", within the extended meaning of that word as used in the context of trusts. In those circumstances Andrew, as trustee, was entitled to sue for the loss suffered by the trust. In practice, as a beneficiary entitled to one half of the trust estate, Andrew was entitled to payment of one half of that loss. Further, he was entitled to interest on that sum at the judicial rate, compounded with monthly or annual rests, from the date of the transactions in 1979 and 1980 to date. The sting in the tail, of course, lies there; the principal amount sued for is relatively small, but the claim for compound interest at the judicial rate would take it well over the million pound mark.

[9] The defender denied any breach of trust. He contended that the loans were made with the consent of all of the trustees and beneficiaries as evidenced by the signed minutes and other documents. There was no fraud or deception. The consent was obtained openly and legitimately. And in any event, any obligation to make reparation for the alleged breach of trust had prescribed long ago.

Relationship and credibility

[10] Before turning to discuss in more detail the oral and documentary evidence, I should say something about Andrew and Raymond as individuals and the relationship between them. This is important to a determination of the probabilities of what took place, as well as to the issues of reliability and credibility.

[11] Andrew and Raymond gave very similar evidence about their relationship or lack of it. Andrew is now 66. He is the elder by six years. At a young age he was sent to boarding school but left at the age of 12. At about the time Andrew came back home, Raymond was sent to boarding school. So there was little contact between them at that stage. They were like two ships that passed in the night, as Raymond put it. Raymond said in evidence that Andrew chose not to take up his education opportunities. Whether or not it was a matter of choice, the fact is that when Andrew left school he went straight into his father's hairdressing business. Andrew explained that he worked with his hands, not his head. He trained as a hairdresser. His father offered him a share in the business but he did not want that. He wanted his father to sell the business and give him the money to enable him to open a nightclub. When his father refused, Andrew left home for a while. Raymond, by contrast, was quite academic. Andrew described him as moving in younger and more intelligent circles than him. He stayed at school until he was 18 and went on to university. He had an entrepreneurial spirit and some business acumen. He opened a bar in Glasgow (Nico's), and was involved in that until sometime in 1980. At the same time was involved in running a menswear shop, Royalle Fashions, or from 476. His involvement in each of those ventures was ultimately unsuccessful, for different reasons, but for present purposes that is beside the point. The two brothers were like chalk and cheese. Asked in evidence to describe their relationship, each of them was emphatic that there was no relationship. They had not really grown up together and had nothing in common.

[12] Such relationship as there was deteriorated further at the time of their father's death. Raymond described an incident on, I think, the night his father died. He was staying with his mother in Belmont Street and Andrew was in the flat below with his wife. When a phone call came through about his father dying, Raymond went to his brother's flat to get him. There was a party going on and people were drinking. Andrew said that he would come when he was ready. Raymond insisted that they go there and then, and picked up the car keys. According to Raymond, Andrew ran at him and struck him on the face with an unopened beer can, leaving him with blood on his face and an open wound. From having a non‑relationship, that, according to Raymond, took it beyond the pale. Thereafter they had an estranged relationship. They were not on good terms. They did not socialise. They did not speak much. They only spoke when they had to, about things to do with the trust, and the sale of the family houses etc. It was put to Andrew in cross‑-examination that he had assaulted Raymond on the day that his father had died with a beer can. Andrew said he had no recollection of anything like that. Ultimately, however, the details of the incident, if it happened, do not really matter. Andrew agreed that they had no relationship. At times in his evidence he agreed that he actively disliked his brother. At other times he said that he did not dislike him, but he accepted that they never spoke apart from when they had to for business purposes. As he put it: "I did not know the man, we did not spend time together". The only material difference between them, so it seemed to me, was whether there had been a particular incident causing the relationship to deteriorate, or whether it had always been bad.

[13] The relevant events took place over 30 years ago. Apart from the minutes themselves and other signed documents, the circumstances surrounding which were the subject of dispute, there was little other documentation shedding light upon the all-important question of whether Andrew's apparent consent to the loans was obtained by deception or whether it was obtained on an open and informed basis. I did not find Andrew's evidence to be wholly satisfactory. It seemed to me that he understated the number of times when documents were signed in the presence of solicitors; and I did not believe his evidence that he was persuaded to sign a document in blank (i.e. signing a blank piece of paper to be filled in by Raymond in due course), or to sign a completed document without either reading it or having it explained to him. Although he did not persevere with his schooling, he was by no means stupid. He said in evidence, in relation to some of the documents he signed, that the contents were really quite straightforward and easily understood. To sign blank pieces of paper, or to sign completed documents without reading them, might readily be understood without the need for detailed explanation in the case of someone with no education, but not in Andrew's case. Andrew did not appear to me to have any coherent explanation for why he should be willing to sign on this basis, given that there was clearly neither love lost nor trust between him and his brother. The theme running through his evidence was that he did not understand anything about the trust, that he regarded Raymond as the "Chief Executor" (rather like the Chief Executive of a company) and that he saw his role as being to do whatever was necessary to support the Chief Executor in the decisions he made concerning the trust. Although, despite their differences, Andrew retained some respect for Raymond's business and intellectual capabilities, I do not consider that this account is consistent with the animosity and lack of trust which existed in their relationship. It is, to my mind, simply not credible that against that background Andrew would willingly have signed documents without reading them through or without requiring any necessary explanation, still less that he would sign documents in blank. Raymond gave his evidence more confidently, but I consider that this may well have been simply a reflection of his better education and, more importantly, his relative success and confidence in life. I was not persuaded that I could necessarily accept at face value everything that either of them said in evidence, not because I considered that they were deliberately lying but rather because I considered that each of them had, to some extent, over time persuaded themselves of the narrative to which they each subscribed.

[14] I should briefly refer to certain other matters which are potentially relevant to an assessment of the evidence given by Andrew and Raymond. Andrew took his father's death the very badly. He started drinking heavily, and was drinking heavily in the period (1979 and 1980) with which this action is concerned. However, it does not appear that this affected his ability to think straight and carry out his work. In 1979 and for a year or two after that he worked for Raymond in his menswear shop in Mitchell Street. Raymond said that he gave Andrew a job because requested to do so by his mother at the time when she waived her entitlement to the sum of £10,000 on the sale of 478. Andrew accepted that it was possible that it had been at his mother's request that Raymond had given him the job. At all events, he was able to carry out the work satisfactorily despite his excessive use of alcohol. Raymond described him as a good salesman. Andrew's drinking during this period was not put forward by him in his evidence as a reason why he might have signed blank pieces of paper or have signed completed documents without reading them. Accordingly, I need say no more about it.

[15] In the late 1970s there were subsidence problems affecting the building of which 476 and 478 and also the Belmont Street property were part. That problem was effectively beyond repair and led, in due course, to a compulsory purchase order being made by the council. That problem affected the value of the properties. On a date before 1979, the pursuer moved into a property at 1 Westbank Quadrant. His mother stayed there with him for much or all of the period with which this action is concerned. This is of some relevance because it is difficult to accept that Andrew and his mother did not speak from time to time. Given that each of the documents signed by Andrew was also signed by his mother, and that his mother also signed a document agreeing to renounce her right to the £10,000 at a time when she was living there with him, it is all the more difficult to accept Andrew's evidence that he knew nothing about any of the matters of which he now complains.

[16] Finally, in this context, I should mention that Raymond was sequestrated on 1 March 1984. He avers on record that he was discharged from bankruptcy on 28 August 1986, though this was not the subject of evidence. This provides some evidence that his business ventures were not entirely successful. But it has no legal effect on the claim made against him. Assuming his discharge from bankruptcy to have been automatic in terms of the transitional provisions of sections 74 and 54 of the Bankruptcy (Scotland) Act 1985, acts of fraud and breach of trust are specifically excepted from the discharge: see section 55(2). In any event, no defence based on his discharge from bankruptcy was raised by Raymond on record.

[17] In addition to evidence from Andrew and Raymond, I also heard evidence from Mr Marr, a solicitor with Messrs Boyds who took over the handling of trust matters from Dorman Jeffrey & Co in 1980 and was involved in the preparation of some of the disputed minutes. He was able to speak to relevant events by virtue of his own personal involvement and was able to do so by reference to the "handover notes" prepared for him by Mr Cuthbertson of Dorman Jeffrey as well as to some items of his correspondence. I had no doubt that he was endeavouring to do his best to help the court, but these were events of over 30 years ago and inevitably his evidence, though based in part upon direct recollection, was perhaps based more on his reconstruction from what he would generally have done as a matter of practice.

[18] In those circumstances it seemed to me to be safer to start with the documents and to be cautious about accepting any evidence from Andrew or Raymond, or even from Mr Marr, which did not appear to fit in with those documents.

The terms of the trust

[19] The Trust Disposition and Settlement is dated 6 January 1976. It appointed Mrs De Fazio and two solicitors as trustees over Mr F's estate at the time of his death, to hold them in trust for the purposes which I have already mentioned. The provision concerning Mrs De Fazio's liferent was in the following terms:

"IN THE FOURTH PLACE, I direct my Trustees to make payment to my wife ... of the whole free income or annual produce or otherwise allow her the liferent use and enjoyment of the heritable property at Four hundred and seventy six to Four hundred and seventy eight Great Western Road, and Two Belmont Street, Glasgow, belonging to me or in the event of the sale thereof, I direct my Trustees to pay the sum of Ten thousand pounds (£10,000) to my said wife from the free proceeds of the sale as soon as convenient to my Trustees after my death free of all government death duty but without interest and to make payment to my wife of the whole free income or annual produce or otherwise to allow her the liferent use and enjoyment of the remainder of the proceeds which shall be invested by my Trustees and that during all the days and years of her life and at such times as may be convenient to my Trustees and her; Declaring (First) that such an liferent shall be strictly alimentary and not assignable by my said wife or affectable by her debts or deeds or attachable by the diligence or execution of her creditors (Second) that is no apportionment shall be made in respect of income accrued but unpaid at the date of commencement or termination (for whatever reason and to whatever extent) of the said liferent or at the date of acquisition or disposal of any income-bearing property or investments by my Trustees (Third) that notwithstanding the alimentary nature of the foregoing liferent my said wife shall have power should she desire to do so at any time and from time to time give up, renounce and discharge such liferent right as regards whole or any part of the said property in order that the fee or capital thereof may thereupon be paid or conveyed or otherwise be retained by my Trustees in terms of the provisions hereinafter written ...; AND IN THE FIFTH PLACE I direct my Trustees subject to the foregoing provisions to hold the said shop and business or the investments from the proceeds thereof for behoof of my sons, Andrew Raymond F and Raymond Alexander F equally ... Declaring (One) that the shares in the property or investments of the proceeds of sale thereof shall only invest in and be payable to my children or their issue as and when and to the extent to which the same shall be set free by my own death or by the expiry, termination of failure for whatever reason of the foregoing liferent provision in favour of my said wife and on their respectively attaining the age of Forty years ... And I specially authorise and empower my Trustees in their sole discretion to invest the trust funds or any part thereof in loans to my said wife and to accept her IOUs as sufficient evidence and security thereof and I provide and declare that no liability shall attach to my Trustees in respect of or on account of any said loan or any loss resulting therefrom ..."

It was pointed out on behalf of the pursuer, Andrew, that there was a specific provision for making a loan or loans to Mrs De Fazio from the trust estate but no similar provision for making loans to either Andrew or Raymond. In those circumstances it was contended that there was no room for any implication to the effect that the trustees could advance money by way of loan to one of their own number. That was not challenged by the defender, Raymond, and I accept that.

The loans from trust funds

[20] It is averred by the pursuer on record that "by July 1980 the first defender had taken or had had the benefit of funds belonging to the estate to the value of at least £42,000". Reference is made thereafter to the fact (i) that in March 1979 the property at 478 was sold for £15,000; (ii) that in February 1979 Mrs De Fazio executed a minute renouncing her rights under the will in the event of the sale of the heritable property; (iii) that in April 1979 a Standard Security was granted by the trustees over trust property in favour of Georgian Finance Company Ltd ("Georgian Finance") in respect of the sum of £7,000 borrowed ultimately by Raymond for his own use or that of one of his business ventures; (iv) that in July 1979 Raymond executed a Bond binding himself to pay £20,000 to the trustees in respect of his borrowings to date from trust funds; (v) that in October 1979 a Standard Security was granted over trust property in favour of Lynpark Finance Ltd ("Lynpark") and that "the proceeds of that loan, amounting to £5,000, fell into trust funds and that Raymond borrowed further from trust funds for his own use or that of one of his business ventures"; and (vi) that in June 1980, in connection with the sale or proposed sale and/or lease of 476 and the sale of some of the furnishings and equipment therein, Raymond received a further £17,000 which he applied to his own use or that of business ventures in which he was interested. In the answers, the defender admits borrowing from trust funds. Specifically, he admits the matters referred to in points (i) - (v) above. Although no admission is made about the borrowing of the further £17,000 referred to in point (vi) above, Mr Stalker, on Raymond's behalf, in his final submissions, did not dispute that the sum had in fact been borrowed. The evidence established that it had.

[21] It is not entirely clear whether the £20,000 referred to in point (iv) above covers the entirety of Raymond's borrowings from trust funds to July 1979, nor how it ties in as a matter of arithmetic with the £15,000 realised on the sale of 478 (all or at least part of which, as I understood it, was borrowed by Raymond) and the £7,000 borrowed ultimately by Raymond from Georgian Finance. But this does not matter, since in respect of the period up to and including July 1979 the claim against Raymond is limited to the borrowings totalling £20,000. Thereafter, the only live issue relates to the £5,000 borrowed against the Standard Security in favour of Lynpark. As it stands in the pleadings, Raymond admits that the Standard Security in favour of Lynpark resulted in a loan of £5,000 falling into trust funds. He also admits that he borrowed further from trust funds, the inference being that he did so on the basis of this further loan from Lynpark. However, in his closing submissions, Mr Stalker submitted that it was in fact open to doubt whether the sum of £5,000 was actually lent to Raymond by the trust. In terms of the documentation, the borrowing from Lynpark was borrowing by Raymond, not by the trust. The role of the trust was only to guarantee that borrowing and grant a Standard Security in favour of Lynpark for that sum over its own property at 476. In return Raymond entered into a personal bond in favour of the trust for payment to the trust on demand of the sum of £5,000. Mr Stalker's point is simply this: on the evidence, Raymond appears to have borrowed the £5,000 direct from Lynpark, and although the trust guaranteed that borrowing and gave a Standard Security in respect of that guarantee, there is no evidence that it was required to pay Lynpark anything under the guarantee or to discharge the Standard Security. On that basis, Mr Stalker sought to withdraw the admission in the Answers that the proceeds of the loan from Lynpark fell into trust funds. That was opposed by Mr McShane. I indicated that I would give my decision on the point when giving judgment. Having considered the matter I do not think that it would be right at this stage, when all the evidence has been led, to allow that admission to be withdrawn. I cannot say that there would have been relevant evidence on this particular matter which could have been led had there not been an admission on record; there may well not have been. But there are a number of areas where the documentation is incomplete and there is uncertainty as to precisely what occurred. It may be, as noted above in relation to the £20,000, that Raymond has to some extent benefited from this uncertainty, though again I do not know whether that is the case or not. However, in the circumstances of this case, I think it would be unfortunate, and potentially unfair, to allow an admission as to one of the primary facts in issue, namely the amounts borrowed by Raymond from trust funds, which has stood on record for some considerable time, now to be withdrawn after all the evidence has been heard.

[22] In those circumstances I am satisfied that the pursuer has established, on balance of probabilities, that, in the period up to mid‑1980, Raymond borrowed from trust funds sums of at least £20,000, £5,000 and £17,000, amounting to at least £42,000.

Documentation relating to the loans

[23] The principal issue of fact in this case is as to whether Andrew gave his informed consent to Raymond borrowing these sums from the trust. Mrs De Fazio's consent is also relevant, of course, but no issue is raised in these proceedings as to the validity of her consent. The starting point, therefore, is to consider the documents directly relating to the transactions in which these sums were agreed to be lent. It is not necessary to recite in great detail the whole narrative of events and correspondence surrounding the sale of trust properties, save to put these key matters in context. I shall therefore deal briefly with those parts of the narrative.

[24] The documentation relating to the sale of 478 begins in January 1979. At that time the affairs of the trust were being handled by Mr Cuthbertson of Messrs Boyds, solicitors. The sale of the property was being handled by estate agents. On 24 January 1979 agents for potential purchasers wrote to the estate agents with a formal offer to purchase for £15,000. That offer was passed on to Mr Cuthbertson who, on 26 January, wrote to Raymond, in terms which make it clear that Mr Cuthbertson and Raymond had had a discussion about the matter. Mr Cuthbertson enclosed not only a copy of the offer received for the property but also a copy of his qualified acceptance "following on our meeting this morning". He added that he would let Raymond have a letter shortly for signature by Mrs De Fazio to the effect that she would waive her right to payment of £10,000 due to her so that the monies could be applied "towards redemption of the loan arranged for the benefit of the Trustees". This I understood to be a reference to the Georgian Finance loan (see below). In terms of the Trust Disposition and Settlement, the right to payment of £10,000 arose in the event of the sale of one or more of the heritable properties. Raymond gave evidence, which was not challenged, that his mother was prepared to lend him that sum of £10,000 to support him in establishing a business venture in Glasgow (either "Nico's", in Sauchiehall Street, or the menswear business then run from 476 and later from Mitchell Street). He agreed, in return, to aliment her for the remainder of her life. However, if Mrs De Fazio renounced her right to receive the £10,000, that sum would simply go into the trust fund. It would require the consent of the other trustees/beneficiaries for that money to be lent to Raymond.

[25] Raymond gave evidence that the events of this time were so long ago that he could not remember them in great detail. That does not surprise me. However, he did accept that it was probably he who had first mooted the idea of selling 478 coupled with his mother renouncing her right to receive that sum. He thought that he mentioned it for the first time when everyone (i.e. his mother, his brother and himself) was together, probably at his mother's house at 1 West Bank Quadrant, where Andrew was then living too. He said it felt like a family loan.

[26] There was no clear evidence about the course of discussions between the three trustees thereafter. However, it is clear that the sale proceeded and Mrs De Fazio did indeed agree to renounce her right to receive the £10,000. A number of points should be noted.

[27] First, in all correspondence relating to the sale of 478, Mr Cuthbertson, who was acting on behalf of the trust, wrote to Raymond and not to the other trustees. There is nothing wrong in this, provided that Raymond had the authority of the other trustees to act in this matter on their behalf. I have already referred to the letter of 26 January 1979 from Mr Cuthbertson to Raymond. The qualified acceptance sent by him to the agents for the potential purchasers was also dated 26 January 1979. That qualified acceptance was accepted on 30 January 1979 and the bargain was thereby concluded. On 1 February 1979, Mr Cuthbertson wrote to Raymond enclosing: (i) a Deed to be signed by his mother waiving her right to receive the payment of £10,000 from the trust following the sale; and (ii) a mandate by all of the trustees authorising Mr Cuthbertson to act on their behalf with regard to the sale of the property. He asked Raymond to have these documents signed and witnessed and returned to him in early course. Clearly Mr Cuthbertson considered that Raymond was acting on behalf of the trustees and with their approval.

[28] The second point to notice is that these two deeds were both signed and witnessed at the offices of Boyds. This was done on 12 February 1979. That this was done at the solicitors' offices is to be inferred from the fact that the two witnesses to the signatures on the deeds were employees of Boyds. There is a letter from Mr Cuthbertson to Raymond dated 14 February 1979, at the end of which he says that he would be grateful if he, Raymond, would return the mandates (as he called both documents) to him, thus suggesting that he was expecting them to be sent to him by post rather than signed in his office. There is a PS to that letter saying "Mandates received". There may be any number of explanations for that. It may be, for example, that Mr Cuthbertson was out of the office at the time of dictating the letter and did not realise that the deeds had in fact been signed in his office. I do not know. In the absence of other evidence, however, I do not think that I should allow speculation about this letter to deter me from drawing the inference that the two deeds were indeed signed in the solicitors' office.

[29] That is of some importance. It fixes Andrew with knowledge of the sale of 478 and the involvement in that sale of Boyds. At times in his evidence Andrew denied all knowledge of the sale of 478. It was not discussed with him. He had no knowledge of it happening. He had no knowledge of Boyds being instructed. He was not aware of the proposal to sell the property or of any offer to purchase it. He did not know about the document signed by his mother waiving her entitlement to the £10,000. However, he did accept that he had once attended the solicitors' office to sign documents and he appeared to accept that the mandate dated 12 February 1979 must have been the document which he signed there. But he was insistent that he did not read it and indeed that he was not aware of the contents of any documents signed on that day. This is consistent with evidence given by him in respect of subsequent documents. It formed a constant refrain which I found hard to credit. I also found it hard to accept that he would be unaware of his mother signing a separate document on that same occasion; and that he and his mother would not have discussed these matters.

[30] Soon after the sale of 478, on 26 March 1979 (the date appears from the Standard Security referred to below) Raymond entered into a loan agreement with Georgian Finance in terms of which he took a loan of £7,000. The loan agreement itself was not lodged in process. By a deed dated 4 April 1979 the trustees undertook to pay Georgian Finance all sums due and to become due by Raymond to it in terms of that loan agreement, and granted a Standard Security in favour of Georgian Finance over the premises at 476. The deed was signed by all three trustees, including Andrew, and their signatures were witnessed by two witnesses, one of whom was Mr Cuthbertson. In his evidence Andrew said that he did not recognise that document. He did not dispute that it was his signature, but he did not recollect being at the solicitors' office. He said that he did not read the document and may have signed it in ignorance of its contents. I was not persuaded that this evidence was to be relied on. Whatever might be the position in respect of a deed signed in the presence of two junior employees of the solicitors, I find it difficult to conceive of Mr Cuthbertson himself being present and allowing a document of this sort to be signed without any explanation of or discussion about its contents.

[31] The next document of importance bears to be a minute of a meeting of the trustees in July 1979. The precise date is left blank. The document is signed by all three trustees though their signatures are not witnessed - the space for the witnesses to sign is left blank. The first three paragraphs of the minute record that Dorman Jeffrey were now instructed instead of Boyds. Mr Cuthbertson had left Boyds and joined Dorman Jeffrey. Paragraph 4 of the minute referred to the £7,000 loan with Georgian Finance and confirmed that that loan, "presently secured over 476 Great Western Road" should continue in full force and effect. I should quote paragraph 5 in full:

"It was further confirmed that [Raymond] had not been gifted either the whole or part of either the proceeds of the said sale of 478 Great Western Road, Glasgow or of the said loan from [Georgian Finance] but that the sum of £20,000 had been lent to him for his own use and purposes whatsoever. It was further agreed and confirmed that the said [Raymond] would forthwith enter into a formal document of debt with the Trustees stating the amount of the loan and specifying the terms of repayment, namely that repayment would be made by him on demand but without any interest being levied or charged on the principal whatsoever."

Paragraph 6 confirmed that Mrs De Fazio had renounced her right to payment of the sum of £10,000 due under the trust as evidenced in a formal document previously executed by her. Finally, in paragraph 7, it was agreed that Dorman Jeffrey should be instructed to prepare a personal bond to be executed by Raymond in favour of the trustees. This minute is the basis of the figure of £20,000 as the amount borrowed up to that date by Raymond from the trust. It is possible that more had been borrowed, having regard to the proceeds of sale of 478 Great Western Road (£15,000) and the loan from Georgian Finance (£7,000) - but I am not concerned with that.

[32] This document too was signed by Andrew. He said in evidence that there had not been such a meeting of the trustees. He was never told there would be a meeting and they never sat down as trustees in a meeting to discuss this or any other trust business. It is possible that this part of his evidence is correct. It is by no means unusual, and I think Mr Marr's evidence supported this, for a "Minute" to be drawn up to reflect agreements reached or other matters which it is thought important to place on record, without there having in fact been a meeting. I will return later to the question of whether this matters for the purposes of this dispute. For the present, however, I should record that Andrew went on to say that he was never consulted about using Boyds or Dorman Jeffrey and that he had no knowledge of Georgian Finance until starting this action. There was no meeting to discuss the £20,000 loan. He made it clear that he did not regard the contents of this minute as technical or difficult to understand. He would have understood it if he had read it, but he did not read it until 1994. He suggested that he might have signed a blank piece of paper presented to him by his brother Raymond. I do not regard this last suggestion as credible. Given the relations between them, particularly after their father's death, I do not accept that Andrew would have been willing to sign a blank piece of paper presented to him by his brother. Nor do I accept the alternative case that he would willingly have signed the completed document without reading it. In my judgement he must have read it before he signed it, and he would have understood it. He would have known from this document about the £20,000 loan to Raymond as well as the loan from Georgian Finance and the waiver by his mother of her right to the £10,000 on the sale of 478. When he saw these matters raised in this document, he would have recognised that he had already signed a document relating to certain of these matters and been aware of the others; otherwise he would have asked what on earth was going on and protested, but there is no evidence that he did that.

[33] On 17 July 1979, Raymond gave a personal bond binding himself to pay the trustees on demand the sum of £20,000 with no interest or other charges falling due thereon. This is referred to in a document bearing to be a minute of a meeting of the trustees, undated apart from the year 1979, signed by the three trustees (including Andrew). The minute refers to the personal bond for £20,000. It notes that it was agreed that Raymond would grant the trustees security over his shares in Royalle Fashions Ltd. That was done in an undated deed, signed by Raymond in front of two witnesses, granting security to the trustees over his shares in Royalle Fashions as security for the borrowings of £20,000.

[34] Later in 1979 Raymond wished to raise a further sum of £5,000. It appears to have been intended at first that this be added to the loan from Georgian Finance, on the basis that the Standard Security executed by the trustees in favour of Georgian Finance for the existing loan of £7000 would be sufficient security also for that additional sum. However, in the end the money was borrowed from Lynpark. I have already referred to this loan. The matter is referred to in two versions of what bears to be a minute of a meeting of the trustees, both undated but probably taking place (if it took place) in September or October 1979. The differences between the two versions are not material, though it is curious that there are two versions each of which is signed by all three trustees, including Andrew. Paragraph 1 of each version refers to the agreement of the trustees that the sum of £5,000 would be borrowed from Georgian Finance, from Lynpark or from some other finance company, and that if it was a company other than Georgian Finance this would involve a second Standard Security. At the end of paragraph 1 of each version it is stated that:

"It was further agreed that [Raymond] would be entitled to the exclusive benefit of said monies."

In paragraph 4 it was decided that another personal bond for this further borrowing of £5,000 should be obtained. At about the same time the three trustees, including Andrew, subscribed a deed in the following terms:

"... CONSIDERING That I [Raymond] as an individual have had the benefit of Seven Thousand Pounds obtained by way of loan from [Georgian Finance] and secured over subjects at 476 Great Western Road, Glasgow by Standard Security by us the said Trustees ... and FURTHER CONSIDERING THAT I the said [Raymond] and desirous of obtaining further funds WE [the Trustees] hereby AGREE and AUTHORISE SUMS further to the extent of £5,000 to be obtained from the said [Georgian Finance] pursuant to said Standard Security and as with the said sum of £7,000 to be used for the exclusive benefit of the said [Raymond] alone."

This deed is undated, but it is signed by all three trustees, though the signatures are not witnessed.

[35] In accordance with the scheme outlined in those documents, a loan agreement dated 16 September 1979 was entered into between Raymond and Lynpark. A personal bond in favour of the trustees was given by Raymond on 16 October 1979. On 26 October 1979 the trustees entered into a Deed guaranteeing the borrowing from Lynpark and granting a Standard Security in favour of Lynpark over the property at 476. That deed was signed by all three trustees, including Andrew, in front of two witnesses. In his evidence Andrew said that he had no knowledge of any of these matters.

[36] Moving forward in time, I should note that there was lodged in process an undated document bearing to be a minute of a meeting of the trustees held in January 1980 dealing with certain shareholdings held within the trust estate. The contents do not matter. Of importance for present purposes is the fact that this document is also signed by all three trustees, including Andrew, though not witnessed. In his evidence Andrew suggested that this too had been signed by him in blank. Asked why he would have done this, he said that his brother Raymond was educated and that "we trusted him". For reasons set out earlier, I find this hard to credit.

[37] Sometime in early to mid‑1980 Mr Cuthbertson passed the file over to Mr Marr, a former colleague of his at Boyds who had started his own firm, JE Marr & Co. Mr Marr dealt with the negotiations surrounding the attempted sale and/or lease of 476. In a document bearing to be minutes of a meeting of the trustees on 12 June 1980, signed by all three trustees, including Andrew, though not witnessed, it was agreed to authorise and instruct JE Marr & Co to act on behalf of the trustees in these matters. Paragraph 3 of the minutes provides as follows:

"It was further unanimously agreed that any sums received in respect of the sale of shop fittings to Mrs Kettlewell and the proceeds of sale of the heritable property at 476 Great Western Road be made available to [Raymond] for his exclusive use in such manner as he might determine. The Trustees agreed that no security would be taken from [Raymond] in respect of the said funds but that if required by the Trustees [Raymond] would grant a Personal Bond in their favour for the said proceeds of sale."

Andrew said that he was never made aware that Mr Marr was to act for the trustees. There was no proposal to appoint him. There was no meeting to discuss the sale or lease of 476 Great Western Road. There was no discussion at which the trustees were advised of the financial risk to the trust from lending money to Raymond. If there had been any such discussion, he would not have agreed to it. He knew nothing of any of this. I shall come back to consider the point about the absence of advice, but, for the reasons given earlier, I do not accept the constant refrain in Andrew's evidence that he knew nothing about documents which he did in fact sign. Since I do not accept that he signed blank pieces of paper at the request of his brother whom he did not like and did not trust, and do not accept that he signed documents without reading them simply because he was asked to do so by that same brother, I cannot accept that he was unaware of the contents of this or any other document to which he appended his signature.

[38] At a meeting on 18 June 1980, Mr Marr handed Raymond a cheque for £17,000 representing the payment to account for 476 of £12,000 and the payment by Mrs Kettlewell of £5,000 in respect of trade fixtures and fittings in the premises. This was in accordance with the agreement recorded in the minutes referred to above. In his letter to Raymond of 19 June 1980 confirming this, Mr Marr indicated that he would soon be seeking a cheque for £1,170.02 from Raymond to settle outstanding rates and accrued interest and Sheriff Officers charges. He also indicated that when the sale of 476 finally settled, he would require to discharge the Standard Securities over it in the sum of £12,000. This was the aggregate of the loans from Georgian Finance and Lynpark, though it omits any interest and legal expenses. Normally, he said, a sum would be set aside from the proceeds of sale to discharge those Standard Securities. However, he noted that Raymond had identified an alternative source of finance for discharging them in the form of the proceeds of sale of another property. Mr Marr addressed the complications in such arrangements and urged that these be addressed without undue delay.

[39] The evidence on what happened from this point onwards in relation to 476 is unsatisfactory. For whatever reason, the sale on which agreement had been reached and in respect of which £12,000 had been advanced by the potential purchaser did not proceed. The Standard Securities over the property were not discharged by Raymond, whether by the use of the £17,000 or by the proceeds of sale of the other property. The net result is that Raymond should be regarded as having received for his own use the whole of the sum of £17,000 paid to him by Mr Marr on 18 June 1980.

Did Andrew agree to Raymond borrowing these sums from the trust fund?

[40] There is no doubt that the documents relating to the various transactions (which resulted in borrowings by Raymond from the trust estate) bear on their face to show that both Andrew and Mrs De Fazio, the two other trustees and beneficiaries, agreed to the arrangements and agreed that the money could be used by Raymond as a loan to him for his own purposes.

[41] Andrew's evidence was that whatever the documents might suggest, he did not in fact give his consent and did not in fact know anything about either the loans or the wider transactions, including the sale of properties, in the context of which they arose. In going through the relevant documentation bearing Andrew's signature, I have endeavoured to set out his evidence and to explain why I find that evidence difficult to accept. But I should say something more about it at this stage.

[42] I have already outlined in some detail the relationship or lack of it between Andrew and Raymond. Of course, the fact that the brothers did not like each other - and even disliked each other ­- does not necessarily mean that Andrew would not do what Raymond told him to do. There is a difference between affection and trust, dislike and lack of trust. Andrew's evidence was that he regarded Raymond as the "Chief Executor", who was in charge of the body of trustees; his decisions were to be followed. That was wrong, but it is possible to conceive of that frame of mind - Raymond was the cleverer of the two, had had a much better education and had some business experience. To that extent Andrew may have "trusted" him, not because of any affection between them but because he thought Raymond was knowledgeable, competent and capable of dealing with trust matters. His evidence was that he thought that everything was being done to build up the trust funds, and that his role was to support decisions taken to this end by his brother.

[43] As I have said, I can accept that such a relationship, combining dislike which reliance, antipathy with trust, is possible. But having seen both Andrew and Raymond in the witness box, albeit 33 years on from the events with which this action is concerned, it did not seem to me that that reflected the true relationship between them. It did not seem to me that Andrew's attitude to Raymond was as nuanced as that. He may well have regarded Raymond as the one who knew about business and could deal with trust matters, but in my judgement his dislike of Raymond would not have allowed him simply to sign blank pieces of paper or to sign completed documents without reading them or asking about their contents. Had he done so once, in special circumstances, that might be one thing; but it is quite another thing to do so on numerous occasions. It is particularly difficult to accept that he knew nothing about the documents which he signed in the presence of solicitors or at their offices.

[44] Much of the day‑to‑day correspondence lodged in process is between the solicitor (whether Mr Cuthbertson or Mr Marr) and Raymond, the assumption of the solicitor being that Raymond is speaking with the approval and authority of his co-trustees. In some cases the solicitor sends documents to Raymond so that he will obtain signatures, suitably witnessed, from the other trustees. I have no reason to doubt that this was what the solicitors intended and understood was happening. Nor have I any reason to doubt that Raymond did in fact obtain the informed consent of his co-trustees. Had Raymond wished to keep his co-trustees away from the solicitors, for example because he was hoping to obtain their signatures to documents without giving them a chance to read them, then it is difficult to see why he did not always obtain the signatures himself and send the completed documents back to the solicitor. Yet on a number of occasions, particularly in connection with the sale of 478, despite this course being suggested to him by Mr Cuthbertson, Raymond in fact arranged that the documents be signed at the solicitors' office. That is puzzling if Raymond was trying to keep the other trustees in the dark about what was going on.

[45] When Mr Marr came to give evidence he had not seen his files for some 30 years. He was giving evidence by reference to his own recollection of events that happened a long time ago. Such recollection as he had was necessarily influenced by what he would expect to have done in the course of his practice. Nonetheless, he was to my mind a candid witness who was doing his best to assist. He thought that when he first took over the case from Mr Cuthbertson in the first part of 1980, he met both Raymond and Andrew together. That is contrary to Andrew's evidence, which was to the effect that he had no idea that Mr Marr was becoming involved at all. On this issue I prefer the evidence of Mr Marr. Mr Marr said that he did not recall meeting the three trustees as a group and did not think that they attended his offices as a group. But he was certain that he met both Andrew and Raymond. He met them together at the first meeting. After that, he could not be certain whether he met them together or separately. But the importance of his evidence on this point is that it is in direct contradiction of Andrew's evidence. To my mind, Andrew's version of events, in which he was wholly unaware of Mr Marr's involvement, cannot be accepted.

[46] Andrew made the point in his evidence that in many cases he did not think that there had been a meeting of the trustees at all. I accept that that is probably correct. A case in point is the minute of 12 June 1980. The first paragraph of that minute records that it was unanimously agreed to accept an offer to purchase 476 at a price of £14,000. In fact, the offer to purchase that property for that price had been accepted by Mr Marr on behalf of the trustees on 5 June 1980, some seven days before the date of the alleged meeting. That was a qualified acceptance which was in turn accepted on behalf of the purchaser on 11 June 1980. The bargain was thereby concluded. On that basis, the minute of 12 June comes too late. But Mr Marr explained what was going on in a manner which I found entirely satisfactory. He would have obtained instructions from the trustees by phone. Whether that came through Raymond or by speaking to one of the other trustees he could not say, but he accepted that it was well‑established that Raymond took the lead in relaying instructions and liaising with the other trustees. He drafted a minute to record formally the instructions which he had been given. He had in fact sent a draft of the minute to Raymond on 5 June 1980 when he gave the qualified acceptance of the offer. The minute was signed by the three trustees and the date of 12 June 1980 added in manuscript after the bargain was concluded. But this did not matter, since he was in no doubt about his instructions. There is, to my mind, nothing untoward or suspicious about this. I accept Mr Marr's evidence that this is a normal way in which instructions can be recorded. There is no reason why the solicitor should not act on the oral instructions given earlier and then seek to have them recorded in a document such as a minute of this sort.

[47] I should mention two further points. The first is that on one occasion in connection with signing one of the documents, Raymond said to Andrew: "if this is a success, you will get some of it". This is averred by Andrew on record and accepted by Raymond. Whatever else might be taken from this, it is evidence that Raymond was talking about a situation where he was using the money for his own purposes and promising Andrew some benefit if things went well. It does not fit well with Andrew's account that he did not know that Raymond was going to be borrowing money from the trust.

[48] The second matter relates to Mrs De Fazio's agreement to waive her entitlement to the £10,000 in the event of the sale of one of the properties. Raymond's evidence was that he went to the other trustees, his mother and his brother, asking for a loan for his business. This was to do with opening up a new shop. His mother agreed to lend money on the condition that he, Raymond, employed Andrew in the shop. There is no doubt on the evidence that Raymond did employ Andrew. He said he was a good salesman. Andrew accepted that he worked for Raymond. This provides some support for Raymond's account and, again, suggests that Andrew's evidence that he knew nothing about what was going on cannot be relied upon.

[49] For all these reasons I am persuaded that Andrew knew full well what was going on and knew both what he was signing and the effect of what he was signing. It follows that I find it to be proved that Andrew (and his mother) knew of and agreed to Raymond borrowing from the trust amounts totalling £42,000.

The loans were never repaid
[50] It is a necessary part of the pursuer's claim in this case that the sums borrowed by Raymond from the trust were not in fact repaid by him. Except for the point concerning the £5,000 borrowed from Lynpark (which raised the question of whether the trust had ever borrowed the money or been called upon to pay out in respect of Raymond's borrowings), this was not in dispute and, for the avoidance of doubt, I find it to be established.

The effect of this in law

[51] In presenting his submissions on behalf of the pursuer, Mr McShane indicated that his primary motion was that the court should sustain the pursuer's sixth plea in law, repel the defender's second to seventh pleas in law, and grant decree in terms of the second conclusion (a conclusion for payment). His alternative motion was that the court should sustain the pursuer's fourth plea in law, repel the defender's pleas in law and grant an order for accounts to be rendered.

[52] I mention this simply to identify a measure of uncertainty in the way in which the claim is put. The second conclusion is for payment by the first defender to the pursuer of the sum of £21,000, together with interest thereon at the judicial rate prevailing from time to time since 14 January 1977 compound it with annual or monthly rests from that date, or in the alternative with simple interest thereon at the judicial rate prevailing from time to time. The sum of £21,000 represents one half of the total amount which the pursuer says was loaned, in breach of trust, to the first defender. In other words, the second conclusion is framed on the basis that the action is by the pursuer as beneficiary. Had he been suing as trustee, he would have sought to recover for the trust the full amount of the sums loaned, and not merely one half thereof. However, the pursuer's sixth plea in law states that "the pursuer as a Trustee of the Trust on behalf of which he brings this action and as an individual, having suffered loss through the first defender's breach of Trust, is entitled to reparation therefor from him". That appears to instruct a case brought by the pursuer as trustee, albeit possibly also as a beneficiary ("as an individual").

[53] Ultimately this uncertainty does not matter. Had I been minded in principle to find in favour of the pursuer, I would not have allowed this uncertainty to stand in the way of his succeeding. It would be unnecessarily cumbersome to grant decree in favour of him as trustee, acting on behalf of the trust, for payment to the trust of a sum which, when received, would then be divided equally between the pursuer and the defender - much better simply to grant decree in favour of the pursuer for payment of one half of the sum loaned to the defender. There is, of course, no difficulty in a beneficiary bringing an action against a trustee in his own name and on his own behalf for his share: see, for example, Raes v Meek (1889) 16R (HL) 31 and Croskery v Gilmour's Trs (1890) 17R 697.

[54] The form of the action does, however, highlight the true nature of the pursuer's claim in this case. Although he can (and possibly does) sue as a trustee on behalf of the trust, complaining about the allegedly wrongful acts of a co-trustee, his real claim is as a beneficiary who has lost out as a result of those allegedly wrongful acts.

[55] Mr McShane made a number of submissions about the duties of trustees. Under reference to Gloag and Henderson (13^th Ed) at para 41.09, he submitted that their primary duties were to ingather the estate, administer it and distribute it in accordance with the truster's wishes. He went on to submit that none of the trust estate was distributed to the pursuer, whether in accordance with the truster's wishes or at all. The reason for that was that it was denuded by loans made to the defender which were never repaid. He submitted that unless there was a power to make a loan to a trustee contained in the trust deed itself - and there was no such power so far as concerned Raymond, the only express power being to advance a loan to Mrs De Fazio and there being in consequence no scope for any implied power to advance to the other trustees - loans to trustees were prohibited, even where the trustee receiving the loan gave security. The prohibition was absolute. That was made clear in Perston v Perston's Trs (1863) 1Macph 245 and later in the Opinion of the Lord President in Croskery v Gilmour's Trs at p.700:

"The lending of trust money by trustees to one of their own number is unquestionably an illegal proceeding. It is much more than a mere breach of trust in the ordinary sense ... But to lend trust money to one of their own number is an absolutely illegal proceeding. ...

It is therefore fixed in our law that it is absolutely illegal for trustees to lend trust funds to any of their own number. No circumstances will justify such a proceeding, as it is quite ultra vires of any body of trustees so to act. ...

That being so, the question comes to be whether the parties who are guilty of such a proceeding are not jointly and severally liable, and in solidum, as having committed an act of the nature of a delict, and I am of opinion very clearly that they are. It is not a question of breach of contract at all. It is not a question as to whether there is a violation of any particular article of a contract or of any particular provision in the trust-settlement, nor is it a question of circumstances whether the security offered is sufficient. It stands upon the common law principle that such a loan is absolutely illegal, and that anyone acting contrary to it is committing a delict, or, as it is sometimes called, a quasi-delict, not, indeed, involving the doer in criminal responsibility, but only in serious civil liabilities."

Lord Shand gave a concurring opinion (at p.701) emphasising that in such a case there was "a violation of the duty which they owe to the beneficiaries". This is because of the long established rule that a trustee must not be auctor in rem suam, i.e. does not place himself in a situation in which his interest as an individual may conflict with his duty as a trustee: Gloag and Henderson (13^th Ed) at para 41.15.

[56] I have no difficulty in accepting that general proposition. However, those cases do not say anything about a case where the loan to a trustee is sanctioned by the beneficiaries. I agree with Mr Stalker that that additional factor makes all the difference. As Lord Shand said in Croskery, the duty is owed to the beneficiaries. If all the beneficiaries consent to trust money being loaned to one of the trustees, then they cannot subsequently claim that the trustee has acted in breach of a duty owed to them. That is made clear in the decision of the House of Lords in Raes v Meek. That case concerned a marriage contract empowering the trustees, who included the two spouses, Mr and Mrs Rae, to lend trust money on heritable securities or personal securities or obligations, with a provision that the trustees should not be answerable for errors, omissions, negligence, insufficiency of securities or insolvency of debtors. The trustees loaned money on the security of buildings in the course of erection which were part of a speculation which ultimately failed completely. The sums loaned on that security were lost to the trust. As well as being trustees, Mr and Mrs Rae were beneficiaries of the trust while, during their lifetime, their children had a contingent interest therein. The children sued the law agent to the trust, but it was held that they had no claim against him - there was no direct relationship, contractual or otherwise, between him as law agent and the beneficiaries (as opposed to the trustees). They also sued Mr Meek, one of the trustees who had sanctioned the loan, for breach of duty in handling the affairs of the trust. That claim succeeded. In delivering judgment, Lord Herschell considered the position of Mr and Mrs Rae, if they (both as trustees participating in the decision to lend and as beneficiaries affected by the breach of trust) had sued Mr Meek. He observed (at p.33) that:

"It is clear that neither Mr nor Mrs Rae could obtain any relief against the defender Meek, for if there has been a violation of duty they were as much parties to it as he was. They cannot claim to have sums lost replaced, to be held on the trusts of the marriage-contract so far as those trusts are for their benefit."

That was because they as trustees had been party to the decision to lend the money. Because of that they had no claim. That case, therefore, supports the proposition that if a beneficiary consents to a trustee taking a particular course of action, then he cannot subsequently complain that what has been done with his consent amounts to a breach of duty.

[57] Raes v Meek is cited in Wilson and Duncan, Trusts, Trustees and Executors (2^nd Ed) at para 28-10 for the proposition that:

"Beneficiaries who, as trustees, were parties to the breach of trust cannot hold their co-trustees liable."

Gloag and Henderson (13^th Ed) at para 41.15 express much the same view. In the context of discussing the rule that a trustee must not be auctor in rem suam, they add:

"The trust deed or the beneficiaries may, however, authorise acts in breach of the auctor in rem suam rule." (emphasis added)

One explanation for that is that if the act is done with the consent of all the beneficiaries (or of all the beneficiaries and trustees together) no breach of trust is committed. Another is that there is a breach of trust, but that makes the transaction not void but voidable at the instance of interested beneficiaries (or of the trustees, seeking to protect trust assets for the benefit of the beneficiaries): see Callander v Callander 1975 SC 183, Colquhoun's Trs v Marchioness of Lorne's Trs 1990 SLT 34. Another way of looking at the problem is by way of personal bar; see Reid and Blackie, Personal Bar at para 9-22, who discuss the position of individual beneficiaries, clearly contemplating the possibility that in some circumstances each and every one of the beneficiaries might be barred and that therefore the trustees could not be held to account for what would otherwise have been a breach of trust.

[58] Ultimately I do not think that it matters which route one takes: all roads lead to Rome. In Callander v Callander at p.191-2, Lord Maxwell expressed the principle in this way:

"On general principles by our law a beneficiary's right is a mere right in personam against the trustee (Mackenzie Stuart Trusts 1.) of which he can deprive himself by consenting to breach of trust (Gray v. Gray's Trustees 1877 4 R 378, Lord Gifford at 383, Earl of Lindsay v. Shaw and Others 1959 S.L.T. (Notes) 13, Mackenzie Stuart op. cit . 187). For these purposes a donee of a power is a trustee as regards the exercise of the power (Mackenzie Stuart op. cit . 35). In a case such as the present it matters not whether one looks at it as a consent by a beneficiary to the breach by the donee or a consent to the distribution by the trustee in pursuance of a fraudulent exercise of his power. On either approach the beneficiary's consent precludes his challenge. Counsel put the matter in, as it were, two stages. He said that, first, the consent by the pursuer precluded his challenge and, second, in any event, since it is now apparent, the two children having survived, that all possible beneficiaries have consented, the breach of trust is "ratified" on the view that, if all possible beneficiaries consent "the Court will not interfere to prevent the sole and unlimited proprietors doing what they like with their own." (Gray v Gray's Trustees sup. cit., Lord Gifford). I do not think that there is any need to make this distinction into two stages, the principle being in my opinion no more than this, that if one beneficiary consents he cannot challenge and therefore if all beneficiaries consent no one can challenge.

The pursuer's counsel did not counter the general proposition that a beneficiary consenting to a breach of trust cannot afterwards challenge it and I do not see how that proposition could be challenged. Inter alia it is the whole basis of trust variation procedure under the Trusts (Scotland) Act 1961. (Re Cohen's Settlement [1965] 1 WLR 1229 , Stamp J at 1234, Re Suffert's Settlement [1961] Ch 1). Pursuer's counsel however submitted, first, a broad argument that the principle did not apply in the case of a "fraudulent" exercise of a power at least where the "fraud" consisted of a benefit to the donee of the power and, second, a narrower argument that in any event the principle did not apply where the fraud on the power arose out of a bargain between parent and child by which the parent, the donee of the power, obtained a benefit at the expense of the child, the object of the power. He maintained that in the first, and in any event the second class of case the law would treat the transaction as a nullity and wholly disregard it, so that consent is of no significance. Indeed as regards the second and narrower class of case, if his proposition is right, consent cannot restore what would otherwise be null since, the "bargain" which, he says, the law will not recognise necessarily involves consent of the child. If there is no such consent there is no bargain.

In my opinion neither of the contentions of counsel for the pursuer is in accordance with the law of Scotland."

Lord Maxwell's decision was upheld in the Inner House and his exposition of the law clearly approved. I need cite only from the opinion of Lord Cameron at pp.211‑213:

"The pursuer however maintained that assuming against his principal argument, a fraud of the type with which this case was concerned was not per se void, the consent of all beneficiaries concerned would be necessary to validate it. In my opinion this is not so and certainly not so in the present case having regard to the conclusions on which the action is now based. The pursuer here claims nothing but damages, that is, reparation for the loss which he avers that he himself has personally sustained. His claim is therefore essentially personal, and that element in the case is pointed by the fact that he does not seek to have the deed set aside or the transaction itself reversed. If then his claim is purely personal, I can see no reason in principle why such a personal claim may not be successfully and relevantly met by a plea founded upon the pursuer's own consent to the transaction allegedly giving rise to his loss, if the consent were given freely and in full knowledge of those facts and circumstances which should have been available to him at the time of his decision."

Here, of course, we are not concerned merely with consent by one of the beneficiaries barring a claim by him, though that would be sufficient to defeat the pursuer's claim in this case. Rather we are concerned with the transactions having been approved by all three beneficiaries. That, to use Lord Cameron's language, not only bars the claim but "validates" the transactions.

[59] There is some discussion in the books about the different concepts of, on the one hand, consent and, on the other, of homologation or personal bar: see Reid and Blackie, Personal Bar at para 9-24 and 9-25, McLaren, The Law of Wills and Succession (3^rd Ed) at para 1843. That distinction is said to be important from the point of view of what is required to be shown, though in the reported cases the two concepts are often run together: see e.g. Taylor v Hillhouse's Trs (1901) 9 SLT 31, Callander v Callander 1975 SC 183. Reid and Blackie, Personal Bar say at para 9-25 that where it is alleged that express consent has been given, "issues of fairness and knowledge on the part of the consenting party are relevant only to consideration of whether the consent was vitiated as a result of error or through being obtained by inappropriate behaviour, such as undue influence." On that basis, since the conclusion for reduction of the minutes signed by Andrew, supported by the pursuer's third plea in law to the effect that they were infiltrated by facility and circumvention or undue influence, is no longer insisted upon, I agree with Mr Stalker that the consent evidenced by those documents must stand.

[60] It seems to me that that is the correct way of looking at the matter. In each case there is sufficient evidence of consent having been given in advance of the loans having been made. That is certainly the case as regards the loan of £17,000 in June 1980, where the relevant minute was, on any view, signed prior to the cheque being handed over by Mr Marr to Raymond. But it is also the case, on my assessment of the evidence, in respect of the two earlier loans. The minute evidencing the agreement that Raymond would have the benefit of the £7,000 borrowed ultimately from Lynpark is couched in terms which make it clear that at that time it was still uncertain whether the money would come from Lynpark or from Georgian Finance or from some of the lender. It clearly predated the actual loan from Lynpark and the agreement therefore predated the receipt of the money. The issue of the £20,000 loan is less clear‑cut. It appears from the minute of July 1979 that that was merely a consolidation of sums borrowed before that time. Two in particular were the £10,000 or £15,000 advanced after the sale of 478 and the £7,000 borrowed via the loan agreement with Georgian Finance. While there was no specific evidence of the co-trustees having agreed to lend Raymond those sums prior to them having been borrowed by him, the terms of the July minute do not suggest that it had only just been discovered that the £20,000 had been borrowed by Raymond or that the other trustees were reluctantly agreeing to something which had already taken place without their consent. Standing the remainder of the evidence in this case and standing the terms of the minute of July 1979 confirming that the £20,000 could properly be borrowed by him, I infer that there were discussions prior to the loans being made in which Mrs De Fazio and Andrew, both as co-trustees and co-beneficiaries, consented to Raymond borrowing those sums.

[61] On that basis the issue is one of consent rather than personal bar. However, even if the proper analysis was one of personal bar or homologation, it is still my view that the evidence demonstrates that the pursuer homologated the loans with full knowledge of all relevant circumstances and is personally barred from now complaining that they amounted to a breach of trust. I have come to this view without any great reluctance on the evidence. As I have already made clear, I do not accept the pursuer's evidence that he was wholly ignorant of the terms of the trust or what it entailed. It is well-established that a person who undertakes the role of trustee is bound to know what his duty requires: see, for example, Ferguson v Paterson (1900) 2F (HL) 37, 40 (per Lord Halsbury LC). Andrew was a trustee. What is relevant here, of course, in the context of consent is his role as a beneficiary, but it is artificial in the extreme to try to separate out his knowledge as a trustee from his knowledge as a beneficiary. I see no reason to doubt that he was aware of his duties as trustee and his rights as a beneficiary. Nor, as I have already indicated, do I have any reason to doubt that he knew full well that he was agreeing to loans from the trust estate being made available to Raymond. He would have understood that any loan involved the risk that it would not be repaid, whether through wilful refusal to repay or, perhaps more likely, because of financial difficulties or insolvency. I see no reason to doubt that he had the relevant knowledge so as to justify the conclusion that he is barred from now complaining that the loans to Raymond were made in breach of trust.

[62] Earlier in this opinion I noted a complaint made by the pursuer that the minutes signed by him were not minutes of actual meetings - he says that the trustees never sat down as a body, with an agenda, to discuss trust matters or any of the matters covered by the minutes. I accept that in certain circumstances that may be important. But the minutes here are not relied on to show generally that the trustees conducted trust business in a particular manner, holding periodic meetings to discuss matters which had been notified in advance by circulation of an agenda or the like. They are relied on only to show that the pursuer appended his signature to documents recording the agreement of the trustees to a number of matters, including the loans to Raymond under discussion here. By signing the documents, Andrew has indicated clearly that he agrees to such matters, including the loans. The conclusion for reduction of those documents is no longer insisted upon. In those circumstances the documents stand as evidence of his agreement. So too do the deeds in favour of Georgian finance and Lynpark, signed by all three trustees, in terms of which they all agreed to guarantee Raymond's borrowings and provide security therefore. There never was any conclusion for reduction of those deeds. Taking these matters as a whole, they constitute written agreement by Andrew to trust funds being lent to Raymond. Absent reduction, that agreement stands and is effective to bar Andrew from contending that Raymond has acted in breach of trust.

[63] Mr Stalker pointed out that if Raymond was in breach of trust by making a loan to himself, so also was Andrew in agreeing, as trustee, that such a loan could be made. That is, of course, correct: see, for example, Croskery v Gilmore's Trs. On the assumption that both trustees are liable, then the obligation to make good the shortfall to the trust lies on both. An equal apportionment of that liability would result in both being liable to make good one half of the sums loaned. They would both then be entitled to receive from the trust one half of the replenished estate. On that basis the action would fail, in principle at least - both would get out what they were obliged to pay in, and neither would be better off. However, I do not think that that would be the right way of approaching this matter. It begs a number of questions. It assumes that the apportionment of liability would be on an equal basis, whereas in circumstances where the loans were made wholly for the benefit of Raymond a court might not regard that as the fair way of resolving that issue. So I do not decide the case on this basis.

Other matters
[64] Having come to the view that the defender cannot be held liable to the pursuer for breach of trust, that makes it unnecessary for me to decide certain other matters which are argued. I should simply mention them in case the case goes further. The first was as to the calculation of the loss. I do not see a problem with this. The starting point is that £42,000 was borrowed from the trust assets and not returned. The loss suffered by the trust is prima facie £42,000, and the loss suffered by the pursuer is prima facie half of that sum. It is irrelevant to consider what would have happened had the trust had that money in it until the date of vesting in the beneficiaries. I see no reason not to suppose that the loss is properly calculated at that sum.

[65] The question of interest was raised. The pursuer sought compound interest at the judicial rate with either annual or monthly rests. It seemed to me, as I think I told parties at the time, that this question would be more appropriately addressed

at a hearing after I had given judgment in this case. The basis of a finding of liability would be relevant to the exercise of discretion. In addition, the court would wish to be informed of how the judicial rate compared from time to time with the bank rate or lending rate available to small borrowers. Whilst it may be that the judicial rate is the appropriate rate to use where one is considering an award of simple interest (c.f. Farstad Supply AS v Enviroco Ltd 2013 SC 302), it does not follow that that is the appropriate rate for the award of compound interest.

[66] The question of prescription was argued before me. I propose to say nothing about this. Nor do I propose to say anything about the plea of mora, taciturnity and acquiescence which was also argued.

Disposal
[67] For all the reasons set out above, I shall assoilzie the defender from the conclusions of the summons. I shall reserve all questions of expenses.