EMMA VICTORIA SHAND AND OTHERS AGAINST LESLIE DUNCAN AND JAMES L McNAUGHTON AS EXECUTORS NOMINATE OF THE LATE GEORGE SHAND
SHERIFFDOM OF GRAMPIAN, HIGHLAND AND ISLANDS AT BANFF
[2016] SC BAN 76
A35/14
JUDGMENT OF SHERIFF PHILIP MANN
In the cause
EMMA VICTORIA SHAND AND OTHERS
Pursuers
Against
LESLIE DUNCAN AND JAMES L MCNAUGHTON AS EXECUTORS NOMINATE OF THE LATE GEORGE SHAND
Defenders
Banff, 31 October 2016
The sheriff, having resumed consideration of the cause, repels the defenders’ pleas in law numbers 2, 4, 8 and 9; Continues the cause to a procedural hearing on 2nd December 2016 at 10:00 am within the Sheriff Court House, Low Street, Banff to determine the precise terms of any further interlocutor required in light of the note annexed hereto; reserves all questions of expenses meantime.
Note
Introduction
[1] This is an action of count, reckoning and payment relating to the estate of the late George Alexander Shand (the deceased) who died on 4 November 1987. He left a will by which he appointed the individual defenders to be his trustees and executors.
[2] The deceased, by his will, left his estate in trust for payment of debts and funeral expenses etc and thereafter to pay to his widow during all the days of her life the free annual income of the residue with power to encroach on capital if necessary for her proper maintenance. Thereafter, the deceased instructed his trustees on the death of his widow to pay and make over the whole residue of his estate to the pursuers.
[3] By a deed of variation entered into on eleventh and fourteenth December 1987 and registered in the Books of Council and Session on Seventh January 1988 the deceased’s executors and the deceased’s widow agreed that the executors would wind up the deceased’s estate as if the deceased in his will had instructed the defenders to pay over the whole residue of his estate to his widow as her own absolute property.
[4] Parties are agreed that the draft deed of variation was not exhibited to the pursuers. There was no suggestion during the debate that the pursuers were aware of the deed of variation at any time prior to the death of the widow and I proceed on that basis, although it will be seen in paragraph [20] hereafter that I express the view that the state of the pursuers’ knowledge of this matter is immaterial.
[5] The pursuers now seek to have the defenders account to them for the residue of the deceased’s estate. The action is laid against them in their capacity as executors of the deceased. The defenders resist on the basis that the pursuers’ claim is time barred by operation of the long negative prescription of 20 years since the date of the deed of variation
[6] I heard a debate on 20 October 2016. The pursuers were represented by Mr Bartos, Advocate. The defenders were represented by Mr Robertson, Advocate.
The Prescription and Limitation (Scotland) Act 1973
[7] The following were the provisions of the 1973 Act referred to by parties as being relevant to the debate: -
7.— Extinction of obligations by prescriptive periods of twenty years.
(1) If, after the date when any obligation to which this section applies has become enforceable, the obligation has subsisted for a continuous period of twenty years—
(a) without any relevant claim having been made in relation to the obligation, and
(b) without the subsistence of the obligation having been relevantly acknowledged, then as from the expiration of that period the obligation shall be extinguished:
Provided that in its application to an obligation under a bill of exchange or a promissory note this subsection shall have effect as if paragraph (b) thereof were omitted.
(2) This section applies to an obligation of any kind (including an obligation to which section 6 of this Act applies), not being an obligation to which section 22A of this Act applies or an obligation specified in Schedule 3 to this Act as an imprescriptible obligation or an obligation to make reparation in respect of personal injuries within the meaning of Part II of this Act or in respect of the death of any person as a result of such injuries.
8.— Extinction of other rights relating to property by prescriptive periods of twenty years.
(1) If, after the date when any right to which this section applies has become exercisable or enforceable, the right has subsisted for a continuous period of twenty years unexercised or unenforced, and without any relevant claim in relation to it having been made, then as from the expiration of that period the right shall be extinguished.
(2) This section applies to any right relating to property, whether heritable or moveable, not being a right specified in Schedule 3 to this Act as an imprescriptible right or falling within section 6 or 7 of this Act as being a right correlative to an obligation to which either of those sections applies.
Schedule 3
The following are imprescriptible rights and obligations for the purposes of sections 7(2) and 8(2) of, and paragraph 2(h) of Schedule 1 to, this Act, namely—
(a) any real right of ownership in land;
(b) the right in land of the lessee under a recorded lease;
(c) any right exercisable as a res merae facultatis;
(d) any right to recover property extra commercium;
(e) any obligation of a trustee—
(i) to produce accounts of the trustee's intromissions with any property of the trust;
(ii) to make reparation or restitution in respect of any fraudulent breach of trust to which the trustee was a party or was privy;
(iii) to make furthcoming to any person entitled thereto any trust property, or the proceeds of any such property, in the possession of the trustee, or to make good the value of any such property previously received by the trustee and appropriated to his own use;
(f) any obligation of a third party to make furthcoming to any person entitled thereto any trust property received by the third party otherwise than in good faith and in his possession;
(g) any right to recover stolen property from the person by whom it was stolen or from any person privy to the stealing thereof;
(h) any right to be served as heir to an ancestor or to take any steps necessary for making up or completing title to any real right in land
(i) any obligation of the Keeper of the Registers of Scotland to rectify an inaccuracy in the Land Register of Scotland.
Submissions on The Deed of Variation and Prescription
[8] There was no dispute between the parties as to the law of prescription as set out in the 1973 Act. Counsel were agreed that what was in issue here was an obligation of trustees to beneficiaries to which the long negative prescription of 20 years in terms of section 7 of the Act applied. They were agreed that once the period of the long negative prescription begins to run, unlike the 5 year prescriptive period in section 6, the state of knowledge of the creditor in the obligation (the pursuers in this case) is immaterial so that if a continuous period of 20 years has elapsed without a relevant claim having been made or the obligation having been relevantly acknowledged then the obligation is extinguished. They were agreed that the obligation of a trustee to produce an account, as opposed to accounting for trust estate or for a breach of trust, is imprescriptible. In light of the foregoing, I do not intend to rehearse counsels’ submissions on the law of prescription, nor to examine the authorities to which they referred, although I have read them all. The main issues between the parties centred around the precise obligation subject to prescription, the date when prescription began to run against the pursuers and the effect of the deed of variation on that date.
[9] A copy of the will was lodged as a production by the pursuers. The deed of variation had not been produced, although it ought to have been in terms of chapter 54 of the ordinary cause rules. Neither party had taken responsibility for complying with the rule and in the end, after I insisted on being provided with a copy, a copy of the deed was handed up, though I am not sure who by. The terms of the will and the deed of variation were not incorporated into the pleadings, although the documents were referred to therein. Neither party took exception to the terms of the will and the deed of variation being looked at and discussed in the course of the debate. I have found it necessary to refer to the terms of those documents in order to resolve the present dispute between the parties.
[10] Mr Robertson, for the defenders, maintained that the deed of variation was a valid document which altered the terms of the deceased’s will and diverted the estate to the widow, having the effect that it breached the terms of the trust. It was at that moment, he said, that the defenders became unable to meet their obligation to the pursuers to make over the residue of the estate to them. Accordingly, prescription ran from that date and the defenders’ obligation to account to the pursuers for that breach of trust was extinguished by operation of the long negative prescription in terms of section 7 of the 1973 Act, regardless of the state of knowledge of the pursuers.
[11] Conversely, Mr Robertson suggested that the deed of variation gave rise to a right on the part of the pursuers to vindicate their proprietary rights in the deceased’s estate. That right, regardless of the state of knowledge of the pursuers, prescribed if unexercised for a period of 20 years in terms of section 8 of the 1973 Act. Unless the court reduced the deed of variation, which it could not do because of the operation of the long negative prescription, the estate stayed with the widow and could no longer be claimed by the pursuers
[12] Mr Bartos, for the pursuers, maintained that the deed of variation could not affect the right of the pursuers or the obligation of the defenders to them in terms of the will. This was because the pursuers were not party to the deed of variation. He maintained that, in any event, the deed of variation could not and did not vary the terms of the will. He maintained that the obligation of the defenders to account to the pursuers could only have come into effect as at the date of death of the widow and that there was no suggestion that a period of twenty years had elapsed since that date.
[13] Mr Bartos maintained that the deed of variation was invalid, or void ab initio, because it could not have the effect of altering the deceased’s will. Accordingly, the pursuers were entitled to have it produced and reduced.
[14] Mr Bartos maintained that if the relevant obligation was an obligation on the defenders to restore or restitute to the estate that which they had given away to the widow then the earliest date upon which that obligation could have come into effect was the actual date of transfer not the date of the deed of variation. At present there was no information forthcoming from the defenders as to what that date was. Mr Robertson offered no submission on that point.
Discussion and Decision in Relation to the Deed of Variation and Prescription
[15] At the outset, it has to be observed that it was the deceased’s executors, not his trustees, who entered into the deed of variation with the widow. That is understandable since the deed was entered into during the administration period of the estate for which the executors were responsible. Neither counsel sought to develop any submission on this point although I made the observation during the discussion. The point is, I think, more than merely technical, as can be seen from my remarks in paragraph [20] hereafter, even though the same individuals were appointed as both executors and trustees. It may be that the pursuers ought to amend so as to direct the action against the trustees. Mr Robertson did not argue that the action should be dismissed on the basis that it was laid against the wrong defenders and, as presently advised, I see no reason why the pursuers should not be allowed to amend subject to the usual amendment procedure.
[16] Be that as it may, the result for which Mr Robertson contends is harsh in the extreme. It would offend against anyone’s sense of morality and fairness that a person’s right to benefit from a substantial estate could be cut off because of improper actions on the part of the deceased’s trustees and executors of which he remains in complete ignorance until the time arrives for him to take that benefit. However, Mr Robertson, rightly, reminded me that the sound application of law sometimes produces harsh results which simply have to be accepted no matter how much sympathy is felt for the affected person. I accept that entirely.
[17] But, I do not accept Mr Robertson’s analysis of the situation. I see no basis for holding that the deed of variation altered the terms of the will. As the deed itself bears, it was an agreement between the deceased’s widow on the one hand and his executors on the other hand to wind up the deceased’s estate as if (my emphasis) the will had provided for the whole estate to go to the widow. It is clear from the face of the deed that it is intended to be a deed under section 142 of the Inheritance Tax Act 1984 and there is a declaration that that section is to apply to the deed. Section 142 applies where any of the dispositions “(whether effected by will, the law relating to intestacy or otherwise)” of the deceased’s estate are varied. There is a clear distinction in the section between the “dispositions” and the will. It is the dispositions, not the will, which require to be varied. It is as absurd to say that the will could be varied as it would be to suggest that the law relating to intestacy could be varied by a deed of variation. In a situation where the pursuers were not parties to the agreement there is simply no room to argue that it could have any effect on the rights of the pursuers or on the trustees’ obligations to them in terms of the will. There is no room to argue that the trustees were entitled to be relieved of their obligations to the pursuers in terms of the will simply because the executors obligated themselves in a seemingly contradictory way to the widow.
[18] The deceased’s will did not bequeath any particular assets in the estate to the pursuers. It did not require the trustees to retain any particular assets within the estate. That is clear from the powers given to the trustees to make advances out of capital to the widow for her maintenance and to sell assets. Thus, it could be said that the transfer of assets to the widow was neither here nor there provided the trustees put themselves in a position to implement the terms of the will on her death. That is just another way of saying that the pursuers’ right to claim the residue of the estate and the trustees’ obligation to account to the pursuers for that residue emerged only on the death of the widow.
[19] There is a certain illogicality inherent in Mr Robertson’s submissions relating to the effect of the deed of variation. I have struggled in vain to identify any obligations or rights created by the deed of variation as between the trustees and the pursuers. If the deed of variation did have the effect of varying the terms of the will then the trustees no longer had any obligation to the pursuers and the pursuers no longer had any proprietary rights to vindicate. Therefore, it would be incorrect to look at the question of prescription in this case as if it involved an obligation to account for trust funds or the vindication of a proprietary right.
[20] It might be said, as Mr Bartos adverted to, that upon actual transfer of the assets to the widow there arose an obligation on the executors to restore those assets or the value of those assets to the trust. Here, it is necessary to make the distinction between the capacity of the defenders as executors and their capacity as trustees in order to appreciate, as it would have been easier to do if the identity of the trustees and executors had been different, that the obligation to restore the funds would have been that of the executors whilst the corresponding right to have the funds restored would have been that of the trustees. At no time could the pursuers have acquired any right as a counterpart to the obligation to restore because at all times it was the trustees, not the pursuers, who had the right to possession of the trust estate and the consequent right to secure restoration of the funds so that they could be in a position to implement the terms of the trust on the death of the widow. That being the case, the state of the pursuers’ knowledge as to the deed of variation is irrelevant unless, perhaps, it gave rise to acquiescence or personal bar; but no argument was addressed to me on that point.
[21] We should not lose sight of the fact that what we are dealing with here are the last wishes of the deceased Mr Shand. He conferred a benefit on the pursuers. He expected that to be honoured. I simply do not accept that in the circumstances of this case the law allows the deceased’s wishes to be disregarded without the knowledge or consent of those whom the deceased intended to benefit.
[22] The conclusion that I reach on the deed of variation is that it is simply a contract between the executors and the widow. If it has binding effect it has binding effect only between those parties. It can have, and has, no binding effect as between the pursuers and the trustees. Fundamentally, it cannot have the effect of varying the terms of the deceased’s will. No issue of prescription in respect of the deed of variation arises as between the parties to this action.
[23] Nothing has been done since the date of the will that imposes any, or any new, obligation on the trustees to account to the pursuers for the residue of the estate. The only possible source of the obligation to account is the will. I do not think that it was seriously in dispute that, absent the deed of variation, the will provides that the obligation comes into existence on the date of death of the widow.
[24] It follows that the defenders’ attack on the pursuers’ pleadings based on the deed of variation and the issue of prescription falls to be repelled. Assuming for the moment that I am not precluded by prescription or otherwise from reducing the deed of variation – and I express no concluded view on that issue - that does not mean that I should grant the pursuers’ craves seeking production and reduction of the deed of variation and to declare it to be invalid. I should be slow to do so, given that I am of the view that it is a contractual document between the executors and the widow. It is a deed that creates rights and obligations as between them. No opportunity has been afforded to the representatives of the widow to make submissions on the matter. In these circumstances, I think that it would be wrong to conclude that it is invalid for all purposes although I am firmly of the view that it is ineffective for the purpose of varying the will or affecting the rights and obligations as between the pursuers and the trustees. In any event, on the view that I have taken of the deed of variation I do not see it as a bar to the pursuers insisting that the trustees be held to their obligation to account to them.
[25] In my view, the trustees of the late Mr Shand have an obligation, still, to account to the pursuers for the residue of the deceased’s estate.
Other Matters
[26] Mr Robertson maintained: -
[27] that the pursuers’ pleadings in support of their crave 2 – a crave for payment - were irrelevant and lacking in specification in that they did not disclose the basis upon which the claim was made or how the amount craved was calculated; and
[28] that it was agreed in the pleadings that the defenders had produced an account of intromissions (“an executry account”) to the pursuers after the commencement of this action and that, accordingly, the pursuers were not entitled to an order for production of an account. There was nothing to stop the pursuers, themselves, lodging the executry account and lodging objections to that account if they wished to do so and further procedure could follow thereon as appropriate.
[29] In short, Mr Bartos submitted that the defenders’ attack on the pursuers’ pleadings was met by reference to paragraphs 21.02 to 21.05 in MacPhail Sheriff Court Practice, Third Edition and to cases mentioned there.
Discussion and Decision on These Other Matters
[30] At paragraph 21.04 of MacPhail it is pointed out that the object of the alternative crave for payment is to enable the pursuer to take decree for a definite sum in the event of the defender failing to lodge a notice of intention to defend, or defending and failing to produce an account. MacPhail goes on to say that if an accounting takes place, decree will be granted for whatever sum is disclosed to be due, even if it is larger than the sum stated. It seems to me that the sum stated in the alternative crave must, of necessity, be a random figure because the true figure cannot be known until an accounting takes place. In this case the sum stated in crave 2 is the sum which parties are agreed is shown as being the sum due to the deceased’s widow in terms of the executry account prepared by the defenders. So, although the figure is most probably inaccurate there is some logic in its selection. The defenders’ attack on this part of the pursuers’ pleadings must fail.
[31] In my view, production of “an executry account” outwith the court process does not meet the pursuers’ crave for production. The court does not know the detail of the account. The court is entitled to know because, otherwise, it will be unable to judge the validity of any objections. Also, it is tolerably clear that the executry account will be an account down to the date of payment of the estate to the widow, whenever that was, and it is tolerably clear that it will be an account by the executors to the widow. What the pursuers are entitled to is an account by the trustees to them down to the date of citation, although it appears that the pursuers have misapprehended that since they aver that they seek to lodge a note of objections to the executry account. Furthermore, as is pointed out in paragraph 21.03 of MacPhail under reference to the case of Paterson v Paterson 2005 S.L.T. (Sh. Ct) 148, the order for production of the account marks the point beyond which, as a matter of generality, it is not open to a party to seek to challenge the liability to account. It is the trustees’ obligation to account. It is the actions of the defenders that have brought us to this point. It is not for the defenders to seek to place any onus on the pursuers in regard to production of the account. For all of these reasons, and given that I have decided that the trustees do, still, have a liability to account, the pursuers are entitled to an order for production of an account.
Final Matters
[32] The parties were at variance as to the correct time for resolution of the question of prescription, whether now at this first stage of the action or during the second stage of the action after production of the account. Nonetheless, parties engaged in the debate on that question – indeed it was the main focus of the debate. It seems to me that it is as well that the issue has been got out of the way at this stage.
[33] Both counsel moved that the cause be certified as suitable for the employment of junior counsel. I had no difficulty in acceding to that request. I did so in the interlocutor taking the cause to avizandum.
Further Procedure
[34] It was suggested that I should refrain from making any specific orders at this point and to put the case out for further discussion. Apart from repelling certain of the defenders’ pleas in law, I am prepared to do that. There is, in any event, a question as to the correct defenders. I have fixed a hearing on the procedure roll and, as requested, have reserved the question of expenses.