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The Pamphlet Collection of Sir Robert Stout: Volume 74

T — Isaac V. Mills

page 41

T

Isaac V. Mills.

At the Supreme Court on Friday last his Honor Mr Justice Williams delivered judgment in the suit Isaac v. Mills, the text of which is is follows:—

His Honor said : The first question is as to whether interest should be allowed against the trustees in respect of moneys properly belonging to residue, but which, by the mistake of the trustees, have been paid for purposes in respect of which residue is not chargeable, and with which the trustees have accordingly now been charged by the court. The residue is held by the trustees under the will upon trust as to one-half for Mrs. Isaac for her life for her separate use, without power of anticipation, and after her death upon trust for her children. The other half is settled in a similar way upon trust for Mrs. Eccles and her children. The claim for interest is made by Mrs. Isaac alone. Mr. Cook, on behalf of the other lady having a life interest, stated expressly that she made no such claim. The trustees have pleaded the Statutes of Limitations, and the court has to determine whether any of these statutes are an answer to the claim. It was suggested that the claim was an action for a legacy, and that it was therefore barred by 8 or 4 Will. IV., section 40. I am satisfied that this is not so. The claim is made by way of surcharge, and is that the executors and trustees should replace money they have paid away in breach of an express trust and should be charged with interest upon it. As pointed out by Mr. Sim, the reasoning in the judgment in in re Jane Davis (1891, 8 Ch., 119) disposes of the defendant's argument that this is a proceeding for a legacy. As in the ease of in re Swain (1891, 3 Ch., 233), the proceedings, so far as these sums are concerned, are for relief in respect of a breach of trust. By the eighteenth section of "The Property Law Consolidation Act 1898," no claim for property held on an express trust is barred by any Statute of Limitations. If the claim for interest is barred by statute it must be under section 18 of "The Trusteo Act 1883 Amendment Act 1891" which corresponds to section 8 of the English Trustee Act 1888. Is then Mrs. Isaac's claim barred by this section? To determine this let us consider the real nature of Mrs. Isaac's claim. There was a fund in the hands of the trustees in which airs. Isaac had a life interest. This interest was for her separate use, without power of anticipation: but by subsection 1B ot the act ol 1891 this restriction against anticipation does not prevent the statute recurpng more than six years, or for the matter of that more than 20 years, Before she took proceedings the trustees had by mistake paid out of this fund several sums of money to persons or for purposes not entitled to receive them or to which the fund ought not to have been applied. Mrs. Isaac now asks that the trustees should replace these several sums, with interest upon them, from the time of their misapplication. The court has decided that the trustee must replace the capital of these page 42 sums. As, however, the infant children are parties to the suit, [unclear: a] asked that the capital should be replaced, no question as to the [unclear: Stat] of Limitations in respect of the capital arose on previous [unclear: occaa] Whether Mrs. Isaac was or was not bound by the statute so far [unclear: as] capital was concerned was immaterial, as the order to replace [unclear: the e] ital must in any event have been made at the suit of the [unclear: chil] How far, then, does the act of 1891 apply to bar Mrs. Isaac's [unclear: claim] above stated? It was contended that section 13 of the act of [unclear: 1891] not apply because by the first sub-section of section 13 the case where the proceeds of trust property are still retained by the trustee [unclear: is] cepted from the operation of the section, and that in the [unclear: con] plation of equity moneys paid away by a trustee by mistake are [unclear: i] sidered to be still retained by the trustee. The doctrine of the [unclear: co] was stated by Cotton, L. J., in the Metropolitan Bank v. Heiron [unclear: (5l] D., at p. 325), as follows :—"Where a trustee has a fund in his [unclear: p] session and wastes it by neglect of duty or by doing an act not [unclear: justil] and the cestui que trust comes to recover his money, no time [unclear: will] his suit, for it is a claim by the cestui que trust against the trustee money or property which was in the possession of the trustee for [unclear: i] benefit of the cestui que trust until the trustee discharges himself." was suggested in the latest editions of the two leading text [unclear: bo] (Lewin, 9th edition, p. 1010; Godefroi, 2nd edition, pp. 741-742) [unclear: the] the exceptions in the act did not extend to such a constructive [unclear: retail] Since the publication of these editions, several cases have been [unclear: deci] which are quite inconsistent with the exception so extending. [unclear: Fin] the case of Thornton v. Heard (1894, 1 Ch., 599) decided [unclear: expr] that the exception applied only where money was actually in the [unclear: hu] of the trustee, or under his control, at the time of the [unclear: commence] of the proceedings. It was further contended, as the payments [unclear: w] fully made by the trustees bad been made by mistake, that the [unclear: sun] only ran from the time of the discovery of the mistake. For this [unclear: p] position, Brooksbank v. Smith (2 Y. and C, Ex. p. 58) was [unclear: cr] That was, however, not the case of a mistake of law but a mistake fact. A payment had been made on the supposition that a [unclear: woman] alive, who was, in fact, dead. The law is thus laid down in [unclear: "La] on Trusts " (9th. edition, p. 987), quoting Sir T. Plumer in the [unclear: M] quis of Cholmondeley v. Lord Clinton (2 J. and W. 139):—[unclear: "in] case of a statutory bar the period limited affords an insuperable [unclear: oba] to the plaintiff's claim and no plea of poverty, ignorance, or [unclear: mis] can be of any avail." In the present case the payments were [unclear: m] not through mistakes of fact, but of law. The amounts paid [unclear: were] teredin the books of the trustees and debited to the residuary [unclear: acc] Mr. Isaac, who was one of the trustees and a skilled accountant, [unclear: c] if he had chosen to inspect the accounts, have ascertained what [unclear: sa] were debited to residue. Mrs. Isaac's evidence shows that she [unclear: tr] Mr. Isaac to look after her interests in every way and still trusts [unclear: i] There is no reason to suppose he neglected her interests, [unclear: s] through him, had the fullest opportunity of knowing how the [unclear: mm] were being applied, and if she had wanted further information [unclear: th]

page 43

is no reason to suppose it would have-been withheld. There was nothing in the nature of concealment on the part of the defendants so as to make it inequitable on their parts that they should take advantage of the statute. Nor, indeed, does the question of mistake [unclear: really] If the statute does not apply in the case of mistake, it is where [unclear: the] mistake is that of the person against whom the statute is pleaded, there was no mistake on the part of Mrs. Isaac. All that can be said is that she did not know what moneys were paid, or that any payments bents made were not in law justified. But ignorance is not mistake, and ignorance of the existence of a cause of action (even where the [unclear: ac] arises out of a breach of trust) will not prevent the statutes [unclear: tunning]. (Thorne v. Heard, 1894, I Ch, 599). Then it is said that the statute does not run because the amount of the residue could not [unclear: be] ascertained without a suit. But the proceedings in respect of these amounts are based on a breach of trust committed in respect of each of them—viz., in paying the particular amount to a wrong quarter. Bach amount so paid was ascertained and ascertainable so soon, at anyrate, as it was debited against residue in the books of the trustees, Nor has the omission by the executors to file an account any bearing upon the question. If the filed account could have given any further information upon the matter beyond that which could have been got frorn an inspection of the books, which seems to be very doubtful, it was open to any beneficiary to have taken steps to compel the filing. I agree with Mr. Chapman's contention that under the rules of 1844 and 1863 the penalty mentioned in the rules of 1844 is enforceable only where the judge, at the instance of some beneficiary, has fixed a time within which the executor is to pass his accounts, and that no [unclear: pnalty] was incurred by the executors in not filing after obtaining on their own motion an extended time for filing. I think, therefore, that the claim of Mrs. Isaac comes within sub-section 1B of section 13 of the act of 1891, which corresponds to the provision which in the cases decided under the English "Trustee Act 1888," has been held to apply where proceedings have been taken to compel trustees to replace trust moneys lost through a non-fraudulent breach of trust. The [unclear: reaches] of trust for which the trustees have been declared responsible are that they have paid away moneys belonging to residue which they tight to have retained in their hands. Each such payment was a separate and distinct breach of trust, and gave rise to a distinct cause of action. That the cause of action arose at the time of the breach of trust, and that the statute runs from the time the cause of action arose is clear from the cases of Thorne v. Heard (1894, 1 Ch., 595), and in re Somerset (Somerset v. Earl Powlett, 1894, 1 Ch., 231). Immediately therefore, after any of the wrongful payments was made a cause of action accrued to Mrs. Isaac to compel the replacement of the money paid, and as all these payments were made at dates far beyond the priod of limitation Mrr. Isaac's right to sue in respect of these is barred by the statute. If Mrs. Isaac cannot now ask that the principal money he replaced because it was lost through a breach of trust which ocurred beyond the period of limitation, it is obvious that she cannot page 44 ask that the interest on the principal money be replaced. The [unclear: intei] was lost because the principal was lost, and the principal was [unclear: in] through the original breach of trust. The loss of interest and the [unclear: l] of principal are the direct consequences of the original [unclear: wrongful] respect of which a cause of action arose at a time beyond the [unclear: period] limitation. The case of in re Somerset (Somerset v. Earl [unclear: wls] 1894, 1 Ch. 231) shows that the right of a tenant for life both [unclear: to] the replacement of principal and to claim interest may be [unclear: barred] the statute. That was the case of a marriage settlement. [unclear: Are] funds were vested in trustees upon trust to invest in specified [unclear: se] ities, and to pay the income to Mr. Somerset for life, with [unclear: uls] trusts of the fund for his children. In 1878 the trustees committed breach of trust in investing on a mortgage security of insufficient [unclear: val] Mr. Somerset received the interest on the mortgage until 1890, [unclear: at] which interest ceased to be paid. In 1892 Mr. Somerset [unclear: and] infant children brought an action against the trustees alleging [unclear: that] security on which the money was advanced in 1878 was [unclear: insufficies] and claiming a declaration that the investment was a breach of [unclear: tru] and that the trustees were liable to make good the amount [unclear: advana] and interest. The trustees in their statement of defence claimed I benefit of the statute as against Mr. Somerset. It was held that [unclear: the] was a breach of trust in 1878, and that the trustees must at the [unclear: i] stance of the infants make good the loss in terms of "The [unclear: Trn] Act 1888," but it was held that the Statute of Limitations was [unclear: acc] plete bar to the action as against Mr. Somerset. That case seems [unclear: i] the above respects to govern the present. It was further held [unclear: in] case that the future income of the suras of money to be [unclear: replaced] the trustees was not to be paid to Mr. Somerset, the tenant [unclear: for] but was to be retained by the trustees for their own use. This [unclear: res] seems to follow from subsection 5, section 13 of the act of 1891. [unclear: t] question of the disposition of the future income of any sums which [unclear: us] be replaced by the trustees in the present action has not yet come [unclear: be] the court. Until, however, these suras have been actually [unclear: replaced] invested so as to yield interest, the effect of subsection 2, section 13 certainly to prevent Mrs. Isaac recovering any interest, and the [unclear: e] above cited seems to show that she is barred from recovering all [unclear: ful] interest, even when it has been actually earned. The effect [unclear: of] statute, therefore, is to bar completely Mrs. Isaac's claim in respect breaches of trust committed beyond the statutory period, and in [unclear: re] of all losses either of principal or interest which have happened [unclear: throgh] such breaches. With respect to the interest on moneys belonging the residue and actually retained by the trustees, of course [unclear: differs] considerations apply. As to the items of costs paid out of [unclear: residue] question as to each item is whether it comes within the trust for many out of residue of testamentary expenses mentioned in the will. 1 that the expenses so referred to are limited to expenses which would have to paid by executors properly so called as if the testator had by his will [unclear: m] the trustees distinct persons from his executors. For this construction [unclear: I] Brougham v. Lord William Powlett (19 Boav., p. 119) is an [unclear: authority] page 45 This case in no way conflicts with the cases of Perry v. Meadows (4 Beav., 204), Harloe v. Harloe (20 Eq., 471), and Sharp v. Lush (10 C.D., 468) cited at the hearing. The first mentioned case decides that the expenses above named are borne by the residue, but that the costs of executing the trusts of the various estates and interests created by be will fall on the cestui que trusts, "and where some act is done irbich is mutually for the benefit of various persons interested in various parts of the estate, or in all, including both real and personal, b as the appointment of new trustees, these costs will have to be Lome by the cestui que trusts respectively in proportion to their respective interests." I now proceed to deal with the particular items. Item 1, £5 14s 8d. These were costs incurred by the executors in bbtaioing advice respecting the subject matter of property specifically kqueatned. They were incurred within the executors' year and there ? nothing to show that at the time they were incurred the executors Ld assented to the bequest. In such circumstances the costs were Eoperly an expense attending the executorship, just as the expenses of LitiDg in a specific legacy are. The item is allowed. Item 8, £66 3s W, costs of registering will against properties specifically devised. To p register the will was not the duty of the executors, but of the tostees of the various properties devised. The cost of registration of Lrtain Crown grants is also included in the above amount, but in 1860 be registration of Crown grants was not compulsory, and if registered fee cost would fall on the devisees of the land comprised in them, the item is disallowed. Item 9, £81 9s lOd, petition for appointment u Mr. Mills as managing trustee. This was for the mutual benefit of h persons interested in the estate, and, as above mentioned, should be Some rateably. The item is disallowed, and must not be apportioned. Bern 11, 13s 4d. Item 12, £58 15s 6d. These costs were actually ocurred by the executors in their capacity of trustees of Meadowbank, L the deed of submission to arbitration itself shows, and should be urged to the devisees of Meadowbank. They are part of the costs of t litigation with Mr. Bell, and fall on the property specifically tvised. The items are disallowed. Item 13, £2 5s 2d, separate Mate of married daughters. This item in the list is a mistake. It foes not appear at all as part of the bills of costs under number 171. the charge appears later as item 35, and forms part of the bill of costs Lder number 171. The item 18 is therefore struck out. Item 14, B9 18s 6d, costs of first petition. This stands on the same footing Litem 9, and must be disallowed. Item 16, £7 18s, copy will for Mr. IH.Jones. Mr. J. B. Jones was one of the executors, and if he fcanted a copy of the will I do not see why he should not have it at the tost of tbo estate. The item is allowed. Item 17, £3 8s. Item 18, [unclear: me] 4d, re Eccles's trust estate. These items clearly relate to this jirticuiar trust, only they are disallowed. Item 19, £64 9s 2d, test-Kg order. This in the first instance was in the same category as items (and 14, and should Lave been born rateably. The order of the court Lade in 1890 was, however, that these costs should be paid out of the (iids of the testator which he had specifically charged with the pay- page 46 ment of his debt. I think the order was wrong, but the trustees cannot now be charged with a breach of trust if they have obeyed it. The item is allowed. Item 20, £9 2s M, agreement as to contribution re Meadowbank. The amount is certainly not chargeable against the devisees of Meadowbank. It formed no part of the cost of litigation with Mr. Bell. It was not incurred in the interests of the devisees of Meadowbank, but to protect residue under an honest though mistakes notion of the liabilities of residue. I think the item should now he allowed. Item 22, £5 14s, Meadowbank and Mr. Bell's claim. This is chargeable against the devisees of Meadowbank. The item is disallowed. Item 25, £2 10s, registration of will, &c. This follows the part of item 8, relating to registration. The item is disallowed. Item 85. £2 5s 2d, separate estate of married daughters. As item 13 has been struck out, there is now no objection to item 35. Item 29, £21 stamp account. This was objected to by Mr. Cook on behalf of the Eccles family on the ground that the money should be apportioned, although no objection was raised on behalf of Mrs. Isaac. The sum [unclear: is] for the costs of passing the residuary accounts in the Stamp Office. [unclear: It] is clearly payable by the executors as part of the testamentary expenses. The item is allowed. With respect to the items in red ink—Short's interest, F. D. Rich's interest, discounts in excess, and Short's principal. I do not see on what principle they have not been credited to residue, and in my opinion they ought to be so credited. Nor am I satisfied that £38 9s 3d interest on probate duty was properly chargeable against residue and it must be disallowed. As to the item £415 6s 8d, entered in the trustee's accounts on June 30, 1871, as refund of sundry [unclear: ren] over-credited to beneficiaries, it should stand as of that date. So far as the persons entitled to the corpus are concerned, it is really [unclear: im-material] whether the item is credited as that date or in 1869, when the rents were originally received by the trustees and paid to the beneficiaries. So far as concerns the persons having the life interest, if the amount was paid in error in 1869, and such payment was a breach of trust, the Statutes of Limitations, for the reasons already given, prevent them from now raising the question. It is said, however, by the trustees that these rents belonged to the beneficiaries; that the payment of them in 1869 to the beneficiaries was right; that the refund in 1871 was wrong; that the residuary legatees had no right to have the sum refunded, and cannot now compel the trustees to account for it. It seems probable that these rents did belong to the beneficiaries, and that the refund ought not to have been made. However, the refund was made, and, if made by mistake, was by a mistake of law only, and was made to the trustees on behalf of the residue and as representing the persons interested in the residue. The trustees received the monej on this account, and have in their filed accounts accounted for it as having been so received. It is difficult to see how the beneficiaries could at thisdistanceof time claim to recover the money back from the trustees. At anyrate they have made no claim, and until they establish a claim the trustees are certainly bound to account for the amount refunded as part of the residue, whether it was in the first in- page 47 stance properly refunded or not. By parity of reasoning interest for a portion of the first year on the Cargill legacies, which could have been claimed by the legatee or paid by the trustees, would, until a claim is made and established, form part of the residue Tho claim is prima facie statute barred, and after the institution of the suit the trustees could not recognise it oven had a claim been made. Lastly, there is the question as to whether the trustees are chargeable with interest on moneys actually in hand and uninvested, and in connection with that the interest account has to be considered and the destination of the balance at present to tho credit of that account. Apart from what appears from tho interest account it cannot bo said that there were moneys in hand. The other accounts show that sums bad been received on account of residue and had been by mistake applied to other purposes, but the question of interest on such sums has been already disposed of. Mr. Wbitson states that on the 31st July 1883 he found £312 10s lOd to the credit of the interest account. That of this he assumed £309 8s 8d belonged to the residuary estate, and that the difference of £3 lis 2d was the first accumulation of interest upon it. I have looked through the interest account, and I confess I do not clearly understand how that conclusion was arrived at. However, Mr. Whitson is a skilled accountant and is put forward by the defendants, so that it is quite reasonable to concludo as against them that this assumption is correct and that this sum forms a part of the capital of the residue shown by the residuary account to bo due by the trustees. It is said, however, that before this date tho interest account shows that this sum of £309 was in hand uninvested, and that interest should be charged on it as from a year after the testator's death. I have been unable to satisfy myself from the accounts that this sum was in fact in hand for the whole of this period. If it was, however, it comes to this: that for some years prior to tho 31st July 1883 the trustees bad in their bands uninvested a sum of .£300 or thereabout belonging to residue. Mrs. Isaac has a life interest in one-half of the residue, the income of the half being payable to her for her separate [unclear: use] without power of anticipation, and the question is whether the trustees are liable for a breach of trust in not investing this amount, and are chargeable at the suit of Mrs. Isaac with interest upon it. Now, it in a peculiar feature in the case that Mr. Isaac from the time of the testator's death in 1869 until 1884 wns one of the trustees, aud that during the whole of that period, except during some four or four and a-half years' absence in England, which absence terminated in 1878, he took an active part in the affairs of the trust. He was a [unclear: skilled] accountant, and if he did not actually know he had every opportunity of knowing, and ought to have known exactly how things [unclear: stood]. If there was a sum in hand, it was his business equally with the other trustees to see that it was invested. Mrs. Isaac now sues Mr. Isaac, together with the other trustees, to recover in respect of this amongst other breaches of trust. Mrs. Isaac gave her evidence with complete frankness and candour. It appears from her evidence that she has had all through, and still has, complete confidence in Mr. page 48 Isaac, and that the present proceedings are being practically [unclear: cond] by him. Her understanding of the matter, however, is that [unclear: pre ceedings] are mainly directed against Mr. Mills. She says, "I [unclear: have] name anyone but Mr. Mills against whom I am proceeding to [unclear: reco] moneys." Apparently she is not aware that the action by her [unclear: in] recover money from Mr. Isaac himself equally with Mr. Mills and [unclear: the] other trustees. It is plain that the proceedings are taken by [unclear: Mr]. Isaac for the purpose of recovering for Mrs. Isaac from the [unclear: of] trustees in respect of alleged breaches of duty, to which, if they [unclear: rsitsted], Mr. Isaac himself was a party. In such circumstances the [unclear: exisistence] of a breach of duty should be very clearly established. [unclear: If] doubt where trustees have in their hands a substantial sum of [unclear: money] it is their duty to invest it, in order that it may yield interest [unclear: and] there are reasonable grounds for not doing so, and if it is not [unclear: invest] the trustees themselves are liable to pay interest for it. The [unclear: per] however, who have the life interest in the other half of the residue not make any claim because this money remained uninvested, [unclear: it] does Mrs. Isaac complain of Mr. Isaac personally for leaving it [unclear: invested]. I have no doubt that Mrs. Isaac's confidence in Mr. Isaac fully justified, and that he was active in looking after her interests the trust fund, and was competent to look after them. If there [unclear: had] been a fund in hand which ought to have been invested, and which invested would have yielded income to Mrs. Isaac, I am quite [unclear: satis] that Mr. Isaac would have insisted on it being invested. Looking all the circumstances it was quite reasonable that something [unclear: should] be kept in hand. Furthermore, the trust was to pay the income [unclear: y] by year to Mrs. Isaac. Each non-payment would be a breach trust, and would give rise to a cause of action. Proceedings for [unclear: a] recovery of such income are, I think, barred by the Trustee Act [unclear: of] six years, unless the income has been actually received and [unclear: retai] by the trustees. I think, therefore, that up to 1883 no [unclear: interest] chargeable on sums in hand. Since 1883, however, the balance to [unclear: the] credit of the interest account has increased from £312 19s 10d £640 12s 2d on the 1st February 1893. Of the £812 19s [unclear: £1d], 8s 8d was assumed to be part of the capital of residue. Mr. which has compiled an elaborate statement to show how much of the [unclear: difference] between £309 8s 8d and £640 12s 2d was actually earned by £309 3s 8d, making the amount £74 2s 10d only. However, it is [unclear: omitted] that all the cestui que trusts under the will have received [unclear: to] was due to them and it cannot be said that any of them have a [unclear: ch] on any part of this difference. The amount certainly forms [unclear: part] the trust funds held under the will, and if no other destination can found for it, it should, I think, be treated as earned by the £309 8s of residue, which stood throughout to the credit of the account. [unclear: If] that case the difference between £309 8s 9d and the am [unclear: outstanding] to the credit of the interest account would be divisible equal between Mrs. Isaac and Mrs Eccles, who are entitled to the income