Outer House judge orders proof in action by historic Aberdeen society seeking repayment of funds from members

The Shore Porters’ Society of Aberdeen, as well as three members of its Committee, raised the action against Kevin Brown, Stuart Burnett, Euan Cuthbert, Alan Davidson, and Sean Simpson. The first, fourth, and fifth defenders had previously raised separate actions challenging the validity of their expulsion from the society.

The case was heard by Lady Wolffe. The pursuers were represented by O’Brien QC, the second defender by Lindsay QC and the other four defenders by MacColl QC.

Sums wrongly allocated

The defenders were previously ‘superannuated members’ of the Society, which was first established in 1498, and thus entitled to certain benefits. In order to become superannuated members, the defenders first had to serve as ‘working members’ of the Society for a period of time, during which they were said by the Society to have been overpaid due to a miscalculation of the profits of the Society’s two distinct Departments. The Society sought repayment of these sums.

It was the Society’s case that certain sums had been wrongly retained by the Working Department and that certain expenses of the Working Department had been wrongly allocated to the Property Department, resulting in the overstatement of the Working Department’s profits at the material time. These misallocations were said to breach the rules and “long established practices of the Society”, as laid down the Rules of the Society as created in 1896.

The legal bases for the Society’s case were that the defenders were in breach of trust for retaining the monies, that they were accountable to the Society as constructive trustees of the funds, that they had retained the funds negligently, and that they were unjustifiably enriched by the funds. The aggregate sum of the funds collectively owed by the defenders to the Society was calculated at around £516,000.

The defenders challenged the relevancy of the Society’s action on a number of grounds. They argued that the Society’s rules did not prescribe the allocation of monies as between the Departments, and it was not enough to refer to “long established practice” to establish any wrongdoing on the defenders’ behalf. Further, members of an association could not be jointly and severally liable for the actions of other members, so they had no collective duty owed to the Society nor liability for any breaches of the other defenders.

It was also contended by the defenders that the majority of the Society’s claims had prescribed by virtue of short negative prescription. While an obligation of a trustee to produce an account was imprescriptible, any obligation of a trustee to make reparation for breach of trust, was only imprescriptible if it was fraudulent, which the Society did not aver.

Held qua trustees

In her decision, Lady Wolffe first considered whether the Society could be considered a trust, saying: “I have no hesitation in holding that fiduciary obligations were imposed on the members holding the positions of Deacon, Keybearer and Boxmaster from time to time, in respect of their stewardship of the Society’s property.”

She continued: “Those officeholders held the Society’s property (the trust property) qua trustees for the benefit of the Society’s members, particularly its superannuated members (being the beneficiaries), and which fell to be applied for the trust purposes being more specifically defined in the rules.”

On the defenders’ argument that the Society had not established a relevant breach, she said: “The Society’s essential case is that the effect of certain intromissions by the defenders as trustee members of the Committee was to deplete or misdirect assets belonging to the Property Department, to the loss of the superannuated members or other beneficiaries.  The Society details a variety of ways in which there were misallocations of the income and expenses, to the detriment of the superannuated members.”

She went on to say: “This level of detail is underpinned by the Society’s fundamental point case, by reason of certain types of misallocations, funds of the Society which should have been applied in accordance with its benevolent purposes and payable to the superannuated members were diverted to the working members.  Other than to contend that the Rules do not themselves contain specific rules of allocations, the defenders never engaged with this central premise of the Society’s case.”

Turning to whether the Society had sufficient averments of fault and negligence, Lady Wolffe said: “Mr O’Brien submitted that the Society’s case for breach of trust is a fortiori its case in negligence, and that they are capable of founding a case in negligence for failure in their duty to apply the funds of the Society in accordance with the Rules. I agree.”

Extended to constructive trustees

Addressing whether the Society’s claims had prescribed, as claimed by the defenders, Lady Wolffe said: “Scots law recognises that monies received in breach of trust are recoverable and that a person might become a constructive trustee in respect of funds she or he received, either gratuitously or with knowledge of breach of trust. In my view, the imprescriptible obligations of a trustee are in principle capable of extension to a constructive trustee. Accordingly, in respect of its reliance on certain imprescriptible obligations, in my view the Society has pled a relevant case.”

On whether the defenders could be held jointly and severally liable for all of the monies, she concluded: “The Society accepts that, if on the evidence one or more of the defenders was not personally in breach of trust, then he would be liable only for sums received and to which he was not entitled. This is also reflected in the Society’s conclusions, some of which are framed on a joint and several basis, and some of which are directed at individual defenders. This reinforces the Society’s approach that it seeks to impose joint and several liability on the basis that the defenders contributed to the same loss between one or more of the defenders, as a matter of principle.”

For these reasons, Lady Wolffe held that the defenders’ challenges had failed, and that the Society’s case should go to proof.