Lord President

Lord Hamilton

Lord Macfadyen


P143/03; P844/05; P1010/05


delivered by LORD HAMILTON












Act: McNeill, Q.C.; (1) Bennett & Robertson, (2) Maclay Murray & Spens, (3) Maclay Murray & Spens (Petitioners)

23 November 2005

[1]These petitions for directions have each been presented by the executor nominate or executors nominate of individuals who, for certain periods prior to their respective deaths, were underwriting members of Lloyd's of London ("names"). The directions sought concern the distribution of the estates of the respective deceased in circumstances where it is possible that claims might arise in respect of such underwriting business. Following in each case a remit to a reporter, issues have arisen which it is appropriate for this court to resolve. At the close of a hearing, at which all the petitioners were represented by Mr. McNeill, Q.C., we intimated that we would give, in each petition, a direction in terms of the first question posed (as amended). We indicated that we would in due course give our reasons in writing. This we now do.

[2]In Neilson's Executors, Petitioners 2002 S.L.T. 1100 an Extra Division had before it a petition for directions presented, according to the report, by "the executors" of a deceased name. In para. [4] of the opinion of the court it is stated that the petitioners had paid all the legacies "due in terms of the deceased's trust disposition and settlement and relative codicil and informal writing, all as varied by a deed of variation after his death". The court entertained the petition and gave certain directions sought by the petitioners.

[3]The reporter (Mr. Howie, Q.C.) to whom the court remitted the first of the petitions before us has raised, among other issues, the question whether procedure by way of petition for directions is available to "pure executors". In that petition the petitioner is described as the executor of the deceased, the latter having died leaving a "Last Will and Settlement ... and Codicil", by which he nominated two persons, including the petitioner, as his executors. The other person so nominated declined so to act; the petitioner was subsequently confirmed as the sole executor of the deceased. The relative testamentary deed makes provision for payment of debts and expenses and for certain bequests and legacies, the entire residue being, in the events which have occurred, payable to a particular individual. In the second petition the petitioners are described as the executors of the deceased, the latter having died leaving a "Settlement" (with relative codicil), by which he assigned and disponed his estate at the time of his death to three named individuals and the acceptors and acceptor, survivors and survivor of them "as Trustees and Trustee for the purposes aftermentioned" and nominated and appointed his Trustees to be his Executors. One of these persons declined to act; the other two, being the petitioners, were subsequently confirmed as executors of the deceased. In the events which have happened, there are no continuing trust purposes, the balance of the estate, after payment of debts and expenses, being divisible equally between the petitioners as residuary beneficiaries. In the case of the third petition the petitioners are described as the executors of the deceased, the latter having died leaving a "Will" by which she appointed three named persons to be "my executors and trustees". One of the persons so nominated declined to act; the other two, being the petitioners, were subsequently confirmed as executors of the deceased. The Will confers on the executors and trustees discretionary trust powers over the deceased's estate (in respect both of capital and of income) exercisable within a period not exceeding two years following her death, any residue not so dealt with being payable to her children or the issue of predeceasing children per stirpes. While the two year period has not yet expired, the matter giving rise to the petition for directions has implications for the petitioners not only as trustees for the time-limited trust but also more generally as executors of the deceased.

[4]Procedure by way of petition for directions was provided for by the Administration of Justice (Scotland) Act 1933. Section 16 of that Act provided:-

"The Court shall have power by Act of Sederunt -

(a)to regulate and prescribe the procedure and practice to be followed in

various categories of causes in the Court ... ".

Section 17 provided:-

"With a view to securing that causes coming before the Court may be heard and determined with as little delay as possible, and to the simplifying of procedure and the reduction of expense in causes before the Court, the Court shall, in the exercise of the powers conferred on them by the last foregoing section, provide by Act of Sederunt:-


(vi)for enabling trustees under any trust deed to obtain the direction of the

Court on questions relating to the investment, distribution, management or administration of the trust estate, or the exercise of any power vested in, or the performance of any duty imposed on, the trustees notwithstanding that such direction may affect contingent interests in the trust estate, whether of persons in existence at, or of persons who may be born after, the date of the direction".

These provisions have been repealed and re-enacted as sections 5 and 6 of the Court of Session Act 1988.

[5]The 1933 Act did not define "trustees" or "trust deed"; nor does its successor, the 1988 Act. Part II of Chapter 63 of the Rules of Court (which Part is concerned with procedure in respect of petitions for directions) does not, in its present form, define either of those terms.

[6]The offices of testamentary trustee and of executor are distinct (Menzies on Trustees at pages 849-54). However, in certain respects statute has innovated on that position. The Executors (Scotland) Act 1900, section 2 provides:-

"All executors nominate shall, unless the contrary be expressly provided in the trust deed, have the whole powers, privileges, and immunities, and be subject to all the limitations and restrictions, which from time to time gratuitous trustees have, or are subject to, under the Trusts (Scotland) Acts, 1861 to 1898, or this Act, or any Act amending the same, and otherwise under the statute and common law of Scotland".

In Allan's Executor v Allan 1908 S.C. 807, Lord Kinnear at page 812 (when dealing with a point about the existence or otherwise of a power of selection) noted that under the 1900 Act an executor had all the powers of a trustee. The Trusts (Scotland) Act 1921 by section 2 defined "trustee" as including, inter alios, an executor nominate.

[7]Section 16 of the 1933 Act conferred a wide power on the court to regulate and prescribe the procedure and practice to be followed in business before it. Section 17, with a view to the reduction of delay, simplifying of procedure and reduction of expense, provided that the court "shall, in the exercise of the powers conferred on them by the last foregoing section," provide by Act of Sederunt for, among other things, the matter referred to in para. (vi). The equivalent statutory provisions appear in the 1988 Act.

[8]Having regard to the statutory history of extension of the powers of executors and to the purposes of and interrelationship between section 16 and 17 of the 1933 Act (now sections 5 and 6 of the 1988 Act), we are satisfied that the expression "trustees", as used in section 6(vi) of the latter statute and in the relative Rule of Court, can properly be read as including executors nominate. We are also satisfied that the deed by which such executors are nominated, together with any associated testamentary writing and the relative confirmation of such executors, can properly be regarded as a "trust deed" for the purposes of section 6(vi), notwithstanding that such deeds may not make provision for any continuing purposes. This approach to construction is consistent, in our view, with the observation made by Lord President Normand (with the concurrence of the judges of both Divisions) in Peel's Trustees v Drummond 1936 S.C. 786 at page 794 that "the rules applicable to petitions for directions should receive a liberal construction". We are accordingly satisfied that each of the petitions before us can competently be entertained.

[9]Although section 20 of the Succession (Scotland) Act 1964 confers on executors dative the powers of a trustee, it is unnecessary for the purposes of the present proceedings to decide whether an executor dative can competently present a petition for directions. As different considerations may apply to such an office holder and as we have heard no argument on this issue, we reserve our opinion on it.

[10]Mr. Howie in his report also raised a question as to whether, in light of the authorities, the court could properly give the directions sought. In particular, while noting what the court had done in Neilson's Executors, Petitioners he drew attention to the circumstance

"that in the past the Court has set its face against the notion that trustees can distribute to beneficiaries when contingent creditors who have not abandoned, or acted so as to cause the trustees reasonably to believe them to have abandoned, their claims are known by the trustees to exist, save at the peril of incurring personal liability to those creditors for the debts owed to them".

Reference was made to, among other decisions, Lamond's Trustees v Croom (1871) 9 Macph. 862 and Heritable Securities Investment Association Limited v Miller's Trustees (1893) 20 R. 675. Having heard Mr. McNeill on this matter, we are satisfied that the decision in Neilson's Executors, Petitioners, in so far as it held that the court could properly grant relief to personal representatives in the position of the petitioners, does not require reconsideration by a larger court. (We shall have something later to say about the precise form of that relief). The decisions referred to were considered and analysed by the court in Neilson's Executors, Petitioners and we see no sufficient ground for taking a different view of them. We would only note additionally that, while in Heritable Securities Investment Association Limited trenchant views were expressed by the majority (Lord McLaren strongly dissenting) about "the paying away of the trust estate to beneficiaries, creditors being unpaid", that was in the context of such payments being made when there was a specific debt (the balance of a loan) outstanding to a known creditor. The circumstances in Neilson's Executors, Petitioners and in the present petitions are very different.

[11]In Neilson's Executors, Petitioners the deceased's estate had no actual or contingent liability except in relation to a syndicate for the year of account 1982 (para. [1]). As noted at para [2], in 1996 Lloyd's produced what was known as a reconstruction and renewal plan, which provided for reinsurance by a company known as Equitas for all liabilities of names in respect of 1992 and prior years of account. In relation to the first petition before us liabilities for the deceased's years of account 1992 and before were in due course reinsured into Equitas. The deceased also had underwriting activity in the year 1993. Liability for that account is not covered by Equitas but by different arrangements, discussed below. In relation to the second petition, the deceased's years of account 1992 and before were again in due course reinsured into Equitas. The deceased also had underwriting activities in 1994, 1995 and 1996. Liabilities on these accounts were likewise covered not by Equitas but by different arrangements. In relation to the third petition, the deceased's last year of account with Lloyd's was 1991. Liabilities on accounts for that year, in so far as not otherwise finalised or settled, were in due course reinsured into Equitas.

[12]In relation to years of account subsequent to 1992 the liabilities of the two deceased who had underwriting activities in any of those years were reinsured to close with succeeding Lloyd's syndicates. On the basis of information ingathered by the respective reporters there is no reason to believe that the reinsuring syndicates will not meet their obligations. Moreover, arrangements are in place that in the event of any of these syndicates failing to meet any such obligations, the financial burden will be assumed by the Central Fund at Lloyds. We are satisfied, on the basis of the whole information placed before us, that, these reinsurance arrangements being in place, the risk of any of the petitioners being sued for liabilities which might contingently arise through the respective deceased's underwriting activities at Lloyd's is so remote that a reasonable man would, for all practical purposes, discard it.

[13]In these circumstances we are persuaded that directions may be given to the respective petitioners. The questions posed in the first petition before us were, as presented, in the following terms:

"(1)Whether the Petitioner as Executor may distribute the deceased's estate without retention or further provision to meet any potential claim or claims which might otherwise be made against him in respect of any contracts of insurance or reinsurance underwritten by the deceased in the course of his business as an underwriting member of Lloyd's of London.

(2)Whether the Petitioner as Executor is entitled to seek from the Court an order relieving him from personal liability for any such potential claims or for distributing the estate in accordance with the direction of the Court".

The questions in the other petitions were, with some minor variants, the same. In the course of the discussion Mr. McNeill moved the court to allow the word "properly" to be inserted after the word "may" in the first line of the first question in the first petition and for equivalent insertions to be made in the other petitions. We allowed these amendments and stated that we would give affirmative directions in terms of these first questions as so amended. We declined to give a direction in terms of the second question in each petition. In our view an affirmative answer to the first question gives to the respective petitioners the reassurance that, after consideration, the court has held that they may properly (which includes lawfully) distribute the estate as proposed. In the very unlikely event of a claim being made against them, they will be in a position to rely upon that judicial sanction. We do not, in the absence from the process of any person who might come to have a contrary interest, think it appropriate to make an order in terms relieving the petitioners from any personal liability.

[14]A number of other issues may be dealt with briefly.

[15]Service of the petitions was in each case sought and effected upon Lloyd's of London but not upon any beneficiary having an interest in the deceased's estate. We are satisfied that in petitions of this kind service on the beneficiaries is unnecessary. None of them can have a contrary interest to the trustees. The questions in the present petitions appear to be of the type contemplated by Lord President Normand in Peel's Trustees v Drummond at page 794 as being suitable to be dealt with in the absence of parties other than the trustees.

[16]In the first petition the trustees have already made payment to the respective beneficiaries of one of the specific legacies provided for by the deceased; they retain the remainder of the estate. Notwithstanding that petitions for directions will ordinarily be concerned solely with prospective action (and not with the sanctioning of past action), we are satisfied that, in the circumstances of this case, the propriety of the distribution referred to in the first question may be taken to extend to the payment already made.

[17]In November 2002 a Practice Note (No. 2 of 2002) was issued with respect to petitions relating to distribution of estates of deceased names. The procedure with which that Practice Note was according to its terms concerned was restricted to cases where all liabilities had been reinsured (whether directly or indirectly) with Equitas. In the light of developments (including the different arrangements for reinsuring years of account after 1992) consideration will no doubt require to be given to amendment of that Practice Note (for the current English position see the Practice Note reported at [2001] 3 All E.R. 765).

[18]Experience of petitions of the present kind may also inform what in the future is appropriate by way of inquiry by a reporter to whom a remit is made by the court in a case of that kind. We are obliged to Mr. Howie for his care and thoroughness, which is evident from the terms of his report to us. It has properly brought to the court's attention certain issues which require to be resolved in a form which gives guidance when future petitions of this kind (of which we are informed there are a number already outstanding) are under consideration. However, these issues now having been resolved, it should be possible for the court, in the interests of expedition and economy, to direct in most cases a more restricted form of inquiry. In particular, while it will always be for the court, in making in any case a remit to a reporter, to identify the scope of the remit and to nominate a suitable reporter against the particular circumstances of that case, it will in the future in general be sufficient, in our view, that the remit covers (i) identification of the business undertaken by the deceased name, (ii) confirmation from documentation produced by the petitioners of the reinsurance cover undertaken, (iii), where relevant, an assessment of the current position of Equitas from the most recently available reports and (iv), where relevant, confirmation in documentary form that the Lloyd's Central Fund remains available to meet prospectively valid claims by a relevant policy holder.