Sheriff Appeal Court finds son and trustee of late farmer made unjustified deductions from brother’s share of estate

About this case:

• Citation:
  [2024] SAC (Civ) 5
• Judgment:
  External link
• Court:
  Sheriff Appeal Court
• Judge:
  Sheriff Principal N A Ross

It was argued by pursuer and appellant Charles McInally that Archibald McInally Jr had misused his power as trustee of the late Archibald McInally Sr, and the sheriff had erred in his treatment of the heads of claim.

The appeal was heard by Sheriffs Principal Sean Murphy and Nigel Ross, with Appeal Sheriff Brian Mohan. Colquhoun, advocate, appeared for the appellant and MacLean, advocate, for the respondent.

Unfairly reduced

Archibald McInally Sr died on 30 October 1983, with his estate regulated by a trust disposition and settlement dated 23 October 1979. This provided for an alimentary liferent of his farm and farming business for his wife Helen McInally, who died on 11 October 2003. By this date, the respondent was the sole remaining trustee under the will. Upon the termination of the liferent, the trustees were to convey the residue of the estate equally among the deceased’s children that had reached the age of 18.

There were six residuary beneficiaries of the estate, including the appellant and the respondent. However, for reasons unexplained to the court, the respondent had continued to operate the farm business after the expiry of the liferent up until 2016 without making any final distribution of the assets to the beneficiaries. In 2016 he sold the farmhouse for £350,000 and another area of ground for £184,241 without distributing any of the proceeds to the beneficiaries, with further heritable property yet unsold.

The respondent admitted an obligation to account and lodged an account of intromissions following sundry procedure. Multiple objections were made to the account, and following proof the sheriff repelled the appellant’s objections to the executry account. The appellant appealed the interlocutor of the sheriff in relation to payments for council tax, utilities, cleaning, the recovery of sums paid to a bank in respect of a debt, payments to the farm manager, and payment of an accrued debt.

Counsel for the appellant submitted that the sheriff had erroneously treated all six items as distributions for the appellant’s benefit, rather than expenses of the estate. The result had been to unfairly reduce the appellant’s share in favour of the remaining beneficiaries, when in fact some of those payments were for the benefit of the liferentrix.

For the respondent it was submitted that on a proper construction of the trust, the trustee had wide discretionary powers on the division of the residue. He had enduring directions to hold and administer the estate over time in accordance with the liferent purpose and the residuary purpose. In doing so, he was able to realise and distribute portions of income or capital of the trust estate from time to time.

Liability on the trust

Delivering the opinion of the court, Sheriff Principal Ross began: “The appellant’s description of the respondent’s approach was that it unwarrantedly overcomplicated matters. We agree with that characterisation. The Will has a simple structure and the trust it creates is not a complex one.”

He continued: “The sheriff, in allowing these deductions to be made only from the appellant’s share of the trust estate, paid undue regard to the equitable considerations arising as a result of the payments made, and insufficient regard to the limits to the underlying powers which the respondent purported to exercise.”

Against that background, Sheriff Principal Ross said of the individual objections: “The expenses of maintaining the trust property required to be met. If these were rightfully incurred in the exercise of the trustee’s duty, these would be payable from the trust estate. They accordingly were a direct liability on the trust and for respondent as trustee to pay, not the appellant.”

He went on to say: “Even if there were an entitlement to make deductions against the appellant to reflect these expenses, the respondent led no evidence, and the sheriff made no findings, as to apportionment. Empty buildings still require services and utilities. The appellant was not a tenant. The respondent, not the appellant, was the legal occupier of the farmhouse and therefore, in the absence of agreement, liable for all bills.”

However, on whether a cattle management fee of £53,339.81 was an expense of the estate, he concluded: “The sheriff noted that, whatever the accounting treatment, no deduction of fees from the income of the liferent had been made. There were insufficient funds. The sheriff accepted evidence that it was always the intent that the fees be paid from the trust estate. That decision was in accordance with the power given under the Will, and it cannot be disputed by any party.”

The court therefore recalled the interlocutor of the sheriff and sustained the first, second, third, fifth, sixth and seventh pleas-in-law for the appellant. The case was remitted to the sheriff to proceed as accords in respect of the final net value of the estate not yet having been ascertained.