EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
Lord Carloway Lord Bonomy Lord Osborne	[2012] CSIH 29 A1767/03 OPINION OF THE COURT delivered by LORD CARLOWAY in the reclaiming motion by JOAN PENTLAND-CLARK, Judicial Factor on the Executory Estate of James Clark Pursuer and Reclaimer against ANNE MELDRUM ALISON KENNEDY or CLARK or MACLEHOSE and others Defenders and Respondents _______

Pursuer and Reclaimer: Party

First Defender: J.D. Campbell, Q.C.; Thorntons

Third and Fourth Defenders: Barne; Balfour + Manson LLP

27 March 2012

Background

[1] This is a further leg in a series of litigations stretching back almost two decades (eg Clark v Clark's Executors 1989 SLT 665; Sarris v Clark 1995 SLT 44; Pentland-Clark v Clark's Estate's Judicial Factor, unreported, Lord Hardie, 21 May 2004; Pentland Clark v Wilson [2009] CSIH 48). It is of some import to note at the outset that the manner of pursuit of the case is extraordinary. The action was raised by the original judicial factor, who had been appointed upon the petition of the pursuer for sequestration of the executry estate of her former husband in 1999. The judicial factor was a solicitor, who had investigated the administration of the estate and prepared a report on that subject. Unfortunately, he died in 2006. On 13 March 2007 the pursuer was allowed by the court to replace him as judicial factor, notwithstanding that, in her personal capacity, she appeared to have interests adverse to the estate. Since then, and especially since the failure of her own action (Pentland Clark v Wilson (supra)), she has pursued the action as a party litigant.

[2] The pursuer brought in new defenders, including the first defender. She introduced new claims, including reduction of deeds, which the professional judicial factor had not had in contemplation. The pleadings for the pursuer became both prolix and repetitive. They do not adhere to the well established practices on how averments ought to be framed. They are far from succinct and very often do not aver fact at all. There is indiscriminate incorporation of documents and averment of both law and sources of evidence. There is a lack of coherent structure. Not surprisingly, therefore, the record extends to over 100 pages, largely consisting of the averments of the pursuer and those of her three children. The latter were allowed to enter the process by means of "Answers" by an interlocutor dated 29 June 2010, even although they do not appear to resist the pursuer's conclusions. They are described in the Closed Record as "third party respondents/defenders". Exactly what their status may be is entirely unclear, as is that of their pleadings. However, the Lord Ordinary excised most of their averments and the children have not reclaimed.

[3] The action has already been the subject of two debates on the Procedure Roll. The first, which took place after substantial amendment of the record had been permitted in March 2008, culminated in an Opinion of a Temporary Judge dated 19 November 2009 and her decision of 18 February 2010. That decision involved sustaining a plea of prescription in respect of the actings of the first defender, who had been introduced into the action more than 20 years after her resignation as executrix. It also resulted in the dismissal of the action against three defenders (second, fifth and sixth) but the allowance of a proof before answer on very restricted averments in respect of the first, third and fourth defenders. The Temporary Judge's decision was the subject of a reclaiming motion by the remaining, including the first, defenders. This was refused on 14 May 2010. However, no Opinions were issued by the Extra Division and the parties were unable to explain what the basis for the refusal had been. The absence of documented reasoning has left this court with a conundrum since, subsequent to the refusal of the reclaiming motion, the whole case against the first defender was dismissed by the Lord Ordinary following further debate (infra).

[4] After the action returned to the Outer House, the pursuer was allowed to amend once more. In framing her new averments, she appears to have seized upon a remark of the Temporary Judge (at para [86]) that her case against the first defender "would only be imprescribable (sic) if those actings represented a fraudulent breach of trust". The pursuer therefore re-introduced averments of fact which had formerly been excluded and recast them into a different case based, over twenty years from the relevant events, on "fraudulent breach of trust". It is these new pleadings which were scrutinised by the Lord Ordinary, who determined their relevancy in an Opinion dated 4 August 2011. The Lord Ordinary, in large measure, reached the same decision as had been made by the Temporary Judge in so far as the relevancy of the claims was concerned, albeit for different reasons, and went further in one respect by dismissing the action against the first defender. It is against that decision that the pursuer has reclaimed.

[5] The primary difficulty faced by the court in reviewing the decision of the Lord Ordinary stems from the manner in which the pursuer's pleadings have been framed. The averments do not serve to identify, with any reasonable degree of ease or clarity, the nature of the case against the defenders even if, at an early stage, the phrase "fraudulent breach of trust" is apparent. Rather the articles of condescendence serve to obscure the case in a morass of irrelevancy and repetition. The effect of this has been that, each time judges have been required to adjudicate on the issues, he, she or they have required to spend many hours, and sometimes days, poring over the pleadings and productions in an attempt to get to grips with just what the pursuer's complaint may be. That would not have been required had the pleadings been professionally drafted. What follows is another such attempt, designed to extract from the Closed Record the essence of the action and to determine whether, out of all the many averments, soundly based or otherwise, there is a relevant case fit for proof against the defenders or one or other of them. As always, the court is conscious that it is only if the pursuer is bound to fail, notwithstanding proof of all her averments, that her case should be withheld from enquiry, except in so far as proof has already been allowed by the Temporary Judge against the third and fourth defenders. In this context, the court has ultimately proceeded on the basis that the pleadings under scrutiny require reconsideration almost in their entirety and that nothing turns upon the previous decisions of the Temporary Judge and the Extra Division to allow part of a case against the first defender to proceed to proof.

The Death of the Deceased

[6] The pursuer was the first wife of the late James Clark ("the deceased"). They had three children. In November 1982 the deceased married the first defender. She was living with him at his farm in Nether Pitlochie, Fife, when he died on 5 December 1985. Shortly before his death, the deceased executed a will, dated 20 November 1985, in which he bequeathed his estate in four equal quarters to his wife and the children.

[7] The first defender and a solicitor, namely John S Wilson (of Messrs J & G Wilson, Kinross) were nominated executors under the will. The third defender, who is also a solicitor, was assumed as a further executor by Deed dated 13 December 1985. The first defender resigned as executrix by Minute dated 25 August 1986. The fourth defender, who is again a solicitor (of Messrs Pagan, Osborne, Cupar), was assumed as an executor by Deed dated 13 and 21 June 1991 following upon the death of Mr Wilson.

[8] The deceased owned a group of farms at Nether Pitlochie, Upper Pitlochie and at Leckiebank. The farmland extended to some 1,100 acres. On the day before he died, the deceased entered into a contract of co-partnery with the first defender in relation to the farmland. This provided for the subscription of capital to the firm, to be shown in a balance sheet as at 29 November 1985. In terms of clause NINTH, the death of one of the parties would result in the business vesting in the survivor, with that survivor being liable to pay only the sum standing to the credit of the deceased in the balance sheet.

[9] The pursuer's second article of condescendence contains a numbered sub‑paragraph (2.1(a)(i)) in which the initial averments are not of fact but references to the views of the former judicial factor. If they were to be treated as averments of fact they would read:

"At the outset the conduct of the administration of the Executry was unsatisfactory. The Executors failed to act in a proper and equitable manner. ...The Executors should not have taken any steps to attempt to alter the status quo following the death of [the deceased] as any alteration in favour of [the first defender] as tenant would prejudice the children as beneficiaries".

Since there is thus far no mention of any tenancy in the pleadings, the court must look at the next sub-paragraph (2.1(b)) to see what is involved. In this regard, it is not now disputed that, also on the day before his death, the deceased entered into a lease of the farmland to the partnership at an annual rent of £55,000. Apparently, therefore, from the deceased being the owner of an extensive acreage of prime farmland some 24 hours or thereby before his death, he became the landlord of a partnership tenanting the farmland under what was to be regarded as a valid agricultural lease, the rights to which, on death, came to vest in the first defender alone.

[10] In addition to the contract of co-partnery and the lease, the deceased, at about the same time, executed a disposition of 95 acres at Nether and Westfield of Pitlochie in favour of trustees who were to hold these subjects for the benefit of the deceased's son.

[11] Some (Leckiebank and Pitlochie), but not all, of the total acreage of farmland was encumbered by two securities in favour of predecessors of the Clydesdale Bank. In accordance with the practice at the time, the security subjects were conveyed to the Bank in terms of ex facie absolute dispositions, subject to declarations by the Bank relative to the true nature of the transactions. The deceased also executed an undertaking in favour of the Bank that he would not grant any leases over at least part of the farmland (Leckiebank) held in security without the consent of the Bank in writing. That consent had not been requested, far less granted, at the date of death of the deceased.

The Administration of the Executry Estate

[12] The pursuer avers (article 2.1) that, in relation to the contract of co-partnery, the first defender required to pay to the deceased's estate £185,529 to acquire the business assets of the farm. It is said that the first, third and fourth defenders knew, or ought to have known, this. The averments continue, after reference to the content of the Judicial Factor's report already noted, in a single sentence as follows (2(1)(a)(i)):

"... the First Defender and the Third Defender (together with the late J.S. Wilson) fraudulently agreed to credit the First Defender with £476,300 on their knowingly false assertion that they required to pay compensation to the First Defender for the relinquishing of her 'tenancy' (£140,000 in respect of the Leckiebank group in March 1986 and £336,300 in respect of the Pitlochie group in August 1986) which knowingly false assertion was founded upon their false pretence that they had no other means of obtaining a sale of the heritage with 'vacant possession' despite well knowing that the Bank had threatened to have the lease declared void, which action they ought to have supported had they been acting in the interests of the estate and thus used this threat as leverage to negotiate a minimal nuisance 'compensation' payment with the first defender to obtain 'vacant possession' (as specified in the detailed averments of their fraudulent conduct in condescendence 2.2 below)".

The averments in article 2.2 commence with another lengthy sentence, this time in the following terms:

"... there was a deliberate refusal and delay in providing information ... 'to Dundas & Wilson who represented 3/4 of the beneficial interest (two of whom were minors at the time). ... the First and Third Defenders (and J.S. Wilson) acting as executors ... secretly, improperly and inequitably conspired to alter the status quo at the outset of the administration (i.e. specifically between the date of death on 5^th December 1985 and 11^th March 1986) in favour of the First Defender as an individual by contriving to create the illusion that the First Defender had a secure agricultural tenancy, and entered into an agreement with the First Defender as tenant, to attribute a value to those pretended rights as tenant of some 40% of the gross heritable property on 11^th March 1986; thereby causing a directly corresponding and permanent financial loss to the executry estate and those with an interest in the executry estate by reducing the estate's interest in the value of said heritable property by some 40%".

The essence of the claim is then that there was some form of fraudulent scheme whereby the first defender's tenancy, as transmitted to her through the lease and contract of co‑partnery, was regarded as a valid one by the executors whereas, it is contended, it was not so valid because the Bank had not given its consent. This contention is repeated in other scattered parts of the condescendence (e.g. 2.1(b) in the sentence commencing "The Pursuers' (sic) principle (sic) case ...").

[13] The way in which the executors had proceeded, according to the averments in article 2.2, was that they:

"acting eadem personam cum defunto (sic), enquired whether the Bank, as the infeft holder of the 'real rights' in the property would retrospectively consent to the creation of any rights of occupancy or tenancy under the Lease. The Bank in writing stated that it did not consent, and at no time consented".

In particular:

"The Executors collectively acted for the First Defender's personal interest, without independent advice (prior to April 1986, which advice was always infected by the Executor's perpetual concealment of the essential fact of the Banks (sic) refusal to consent to the Lease), whilst concealing the true circumstances from the excluded interested parties, fraudulently misrepresenting the circumstances to the excluded interested parties (and subsequent professional advisors), whilst they entered into a bargain to create a gratuitous fraudulent claim for the First Defender's personal gain (in the absence of any formal claim having been presented by her) that was clearly to the prejudice of the excluded interested parties and the purposes of the trust estate".

It is averred that the executors ought to have compromised the matter by negotiating a deed of family arrangement or that they should have proceeded by way of multiplepoinding.

[14] Although not always clear from the pleadings, without reference to the many documents indiscriminately said to be incorporated into the pleadings, what occurred was that the executors proceeded upon the basis that, although there had been no consent from the Bank, the first defender held a valid agricultural lease in respect of the farmland. By March 1986, the executors had received an offer of £330,000 from a third party for Leckiebank, with vacant possession. They had been advised that this was a good offer, but took the view that the sale could not proceed without the first defender's consent. In order to obtain that consent, they required to compensate her for her loss of rights as a tenant. They agreed that she should receive 40% of the "net proceeds", after adjustments for rent and other sums due were made. This agreement, which is also reflected in the values inserted in the Inventory used for Confirmation, is averred to constitute a conspiracy in respect that it assumed a valid lease, which the pursuer maintains did not exist standing the absence of the Bank's consent. The presentation of this position to the beneficiaries' solicitors is said to have been fraudulent in its deliberate concealment of the true position. This approach is said to be confirmed by an entry in a manuscript note by Mr Wilson dated 7 December 1985, probably as preparatory material for a meeting with the beneficiaries, which is averred to read "Better to confuse them with main facts".

[15] The false pretence is averred to be that:

"to reduce the borrowing (a liability against the residue of the estate) it was an unavoidable and prudent act of administration to negotiate an agreement to pay compensation to the First Defender (at some 38-40% of the gross value) so as to obtain her consent to relinquishing her purported 'secure' tenant's rights and that this was a prudent act in the interests of the estate; which entire hypothesis was founded upon the fiction that the Executors could not have achieved the sale of any of the heritage on a with 'vacant possession' basis without first obtaining the First Defender's voluntary agreement to renunciate her pretended tenant's rights".

The pretence was founded upon the proposition that, were the farmland to be sold whilst burdened with a tenancy, it would have realised only one half of its value, or thereby, with vacant possession, if it could have been sold at all. This proposition, which resulted in a payment to the first defender of £476,300, was:

"irrefutably known to the First and Third Defenders to be a wholly false pretence at the material time ... Accordingly, the tenancy compensation agreement was manifestly a fraud against the Executry estate for the personal dishonest gain of the First Defender".

It is averred that the continued pursuit of this line in the defences constitutes an "abuse of process".

[16] At the risk of committing the same error of repetition as is manifest in the pleadings, the averments continue by claiming that the executors were deliberately creating an illusion that the first defender's rights as tenants were superior to those of the Bank as security holders, by maintaining that the farmland could not be sold without securing the first defender's consent to vacant possession whilst at the same time stating that such a sale was required to clear the Bank overdraft. The borrowings stood at in excess of £563,000 at the date of the deceased's death. On 24 December 1985, the local branch of the Bank had written to the executors stating that the Bank, as heritable creditors, had not consented to the lease. The Bank's law department had followed this up by a letter dated 8 January 1986, which sought repayment of sums due from the estate, acknowledged the existence of the lease, but stated that the Bank did not, and do not now, consent to the lease. The executors had replied on 9 January seeking consent to the lease on the basis that the first defender would waive any tenancy rights in favour of payment of the overdraft. The aggregate value of the farmland was said to be worth about £1.5M at that time and thus sufficient to meet the Bank's demands, if it could be sold.

[17] As part of what the pursuer contends to be a fraudulent scheme, and in the face of what is described as a threat by the Bank to void the lease, the third defender wrote a personal letter dated 10 January 1986 to the chairman of the Bank which reads as follows:

"[The first defender] would guarantee to sell the farms we need to sell to clear the Bank overdraft on a 'vacant possession' basis ... any land which has to be sold would be sold with vacant possession in spite of the lease, and/or partnership and that all the money would come to your Bank to get the overdraft drastically reduced or, if possible, clear it altogether and start again with what land we have left".

On this basis, the Bank's law department subsequently wrote that they would consent to the lease on the basis that the first defender wrote a letter undertaking that she would grant vacant possession to a purchaser, notwithstanding the terms of the lease.

[18] The repeated contention for the pursuer is that the executors knew that the Bank could reduce the lease and, by virtue of that fact, there was no valid agricultural tenancy. The executors could have asked the Bank to proceed to a reduction and to eject the tenant, thus increasing the value of the estate for the beneficiaries. Alternatively, they could have negotiated a settlement. Instead, they fraudulently misrepresented to the beneficiaries that a secure tenancy existed.

[19] In the midst of all of this, there is reference to three opinions obtained from senior counsel. The first of these, dated 22 April 1986, is from John Murray QC. This proceeded upon a Memorial from the executors which explained that, consequent upon the various deeds executed by the deceased, the executors took the view that the estate's interest in the partnership assets had passed to the first defender and that, for that practical reason as well as the survivorship clause in the lease, the first defender should be allowed to continue to carry on the farming business, through a manager, and to occupy the land as an agricultural tenant. The Memorial stated that the Bank "as principal creditors" had "agreed not to object to [the first defender's] interest as tenant in consideration of her signing a letter" as described above in the correspondence with the law department. The overdraft was said to be secured over the farmland. The 40% figure was stated as the value of the first defender's interest. The Memorial explained that the beneficiaries and the pursuer had continued to question the validity of the lease and counsel's opinion was accordingly sought on that matter. The Opinion received was that the lease was valid and effective to grant the first defender a right of agricultural tenancy.

[20] A second Opinion, dated 26 May 1986, from Brian Gill QC was sought by the first defender. The Memorial, which narrated the terms of the various deeds but made no mention of the Bank, asked if the lease was valid. The answer was that the lease was valid and that the first defender should intimate a formal claim to that effect. Yet a third Opinion, dated 4 June 1986, was sought, this time by the beneficiaries, from JAD Hope QC. This also stated that the lease was valid, but it is averred that the Bank's lack of consent was not intimated in the Memorial.

[21] The executors did have the first defender's tenancy valued by Messrs Bell Ingram, but in doing so the executors disclosed that they had already agreed upon 40% in respect of at least part of the farmland. Messrs Bell Ingram suggested offering one third but increasing that to 40% in order to secure vacant possession. Initially, missives for the sale of Leckiebank, with vacant possession, were entered into with the third parties. This transaction fell through and, instead, the purchaser's rights under the missives were assigned to the first defender. It was this assignation that was reduced in the court action ending in 1989 (supra). Later that year, the executors entered into an Agreement (called the Letter of Waygoing) with the first defender to enable the executors to sell Leckiebank with vacant possession. The first defender agreed to vacate on the basis of payment of £140,000 for Leckiebank and £336,300 for Upper and Nether Pitlochie. The sum of £185,529, representing the business assets of the farm, was to be paid by her to the estate in terms of the contract of co-partnery. There were also sundry adjustments for interest, but no sums for rent were paid at that time. The farmland was eventually sold to different third parties for in excess of £1.8M. The Bank overdraft was paid off in its entirety.

The Essence of the Pursuer's Case

[22] The pursuer's averments proceed to a "summary" on about the sixteenth page of article 2.2 as follows:

"... the Executors, the First and Third Defenders and the late JS Wilson WS Fraudulently and in Breach of their Trust duties owed to all the interests in the estate and in bad faith, conspired in creating, and acted in fulfilment of, a fraudulent scheme to create a dishonest gain solely for the First Defender, their co-executor and co-conspirator by making agreements to compensate her for giving up her pretend secure agricultural tenancy rights for the sums of £476,300 to the prejudice of the lawful interests in the estate and the beneficial interest as averred above when they well knew that the tenancy was voidable at the instance of the Bank and viewed in light of those true circumstances, of which the First and Third Defenders (and J.A. Wilson) were well aware, could never be capable of honestly being credited with a value of 40% of the gross heritable estate. Accordingly, on any fair reading and when taken as a whole, the above manifestly amounted to collusion between the First and Third Defenders at the outset, manifestly in fraudulent breach of trust in prejudice of the lawful interests in the estate from whom facts were materially concealed so as to enable the creation of a dishonest gain for the personal benefit of the First Defender, the Pursuer craves that the Court grant Declarator against the First Defender as third concluded for, de plano; and that the Court grant Declarator against the Third Defender as fourth concluded for, de plano ...".

The case against the fourth defender is set out in article 2.3 of condescendence. It is that, having become an executor in 1991, he failed to "ingather" the losses created by the fraudulent breach of trust by the first and third defenders. It is said that he breached his duty "to ascertain the true circumstances and extent of the estate" and "thus acted in breach of his duty to act in the best interests of the estate when he maintained the above false averment of his predecessors". Accordingly, it is said, he should be ordered "to make good the losses arising from those failures to act in the interests of the estate by failing to ingather the estate as second concluded for".

[23] The conclusions, which are now numbered 2.(B) and 3, 4, 5 and 7, reflect what is said in the articles. The first (2.(B)) is for payment by the three defenders of a very large sum (£2.57M) to the executry estate. The conclusion specifically states that this is in respect of their "several breaches of trust, improper motivation, wrongful gratuitous and voluntary acts in breach of trust whereby they alienated part of the Executry estate to a person not in right to receive it". The numbered third and fourth conclusions seek declarators respectively against the first and third defenders of "fraudulent breach of trust". The fifth conclusion for reduction of the lease was not insisted upon and the seventh, for reduction of a compromise agreement dated October 1997, is the subject matter upon which a proof has been allowed.

[24] The pursuer's pleas-in-law are numbered 3 to 11, 14 to 17 and 19. The third and fourth numbered pleas are directed towards the first defender's fraudulent actings in breach of trust and seek decree in terms of the third conclusion and reparation in terms of the first (2.(B)) conclusion. The fifth and sixth pleas essentially do the same as regards the third defender and the relative fourth and first (2.(B)) conclusions. The eighth and ninth pleas are directed towards the fourth defender's breach of fiduciary duty and the need for him to "make good" the losses caused by his negligent actings in maintaining the false averment and not ingathering the estate. The seventh and eleventh pleas seems to be drawn in anticipation of a plea of prescription and the tenth attacks the relevancy of the defences. The fourteenth relates to the reasonableness of the sum in the first (2.(B)) conclusion. The fifteenth to seventeenth pleas relate to the validity of the lease and were not insisted upon. The nineteenth is concerned with the compromise agreement and is not affected by the reclaiming motion.

The Lord Ordinary's Opinion and Submissions
(a) THE OPINION

[25] The Lord Ordinary allowed the pursuer considerable latitude in the manner in which she presented her case. He had been dealing also with a challenge to the lease itself. That part of the claim is not now insisted upon. In relation to the remainder, the Lord Ordinary held that the claim based upon fraudulent breach of trust was irrelevant. In a succinct Opinion he states:

"[41] ... Once the executors were faced with what they, in December 1985, saw as a valid lease they had to fulfil the wishes of the deceased. They would have been wrong to have sided with the early position of the Clydesdale Bank against the widow, especially as their (correct) preliminary view of the lease was soon confirmed by counsel and the Bank's first position quickly changed".

He concluded that none of the actings of the executors at the time could be regarded as fraudulent. He therefore excluded that case from probation.

(b) THE PURSUER'S SUBMISSIONS

[26] The pursuer presented a concise and clear written submission, which she amplified in oral argument. This narrative is only a summary. Her case "put short" was that the first defender's tenancy was never capable of honestly being given a value of 40% of the gross value of the heritage and that the executors acted in fraudulent breach of trust by gratuitously giving it this value, especially without having obtained a professional valuation from a person who knew all the facts. The executors had concealed the true material facts relating to the Bank's position and had voluntarily liquidated the farmland to give effect to the false presence. There were five core facts: the equal distribution of the estate in the will; the absence of a warrandice clause in the lease; the exclusion of the heritage from the assets of the partnership; the requirement to pay for the farm assets; and the Bank's significant "prior 'real' rights".

[27] The executors had secretly altered the "status quo" to improve the first defender's position by persuading the Bank to alter its "non-consent" to the tenancy without seeking any reciprocal deal with the first defender. They had then liquidated the entire heritable estate on a pretence that it was "borderline insolvent", deducting 40% for the tenancy and pretending that only the 60% was secure for the Bank. This had been the executors intention from the start given the note to "confuse" the beneficiaries "with main facts". This was a record of the executors' fraudulent intention. Reference was made to Nocton v Ashburton [1914] AC 932 (Lord Dunedin at 965).

[28] The case turned on whether the Bank had waived its superior rights or whether the tenant's rights were subordinate to those of the Bank. The Bank had not waived its rights. The Lord Ordinary had erred in holding that the executors had given the relevant information to the beneficiaries. Their agents were kept in the dark about the Bank's position and presented with a false assertion that the executors required to negotiate with the tenant. The true value of the "subordinate and postponed tenancy" was "zero" because any compensation was entirely conditional upon early termination by the landlords. The entire early administration of the estate was founded upon the fundamental false representation to the beneficiaries that the tenancy ranked in preference to the Bank's infeft title together with the pretence of the need to liquidate the entire heritage.

[29] The fraud was, from the outset, carried out with the deliberate intention of giving the first defender a capital credit, thereby enabling her to escape the burdensome obligation of being a tenant of the family (the heirs under the will) as devised by the testator. The exclusion of the heritage from the partnership assets indicated an expression by the deceased that the first defender's tenancy should remain a personal burden on the estate. By creating the credit, the debts in terms of rent and payment for the business assets were "set off", thus avoiding the need to pay the money to the estate. The facts spoke for themselves and decree of declarator ought to be granted de plano with proof restricted to quantum of damage.

(b) THE FIRST DEFENDER

[30] The first defender lodged a Note of Argument which focussed initially upon the treatment of the pursuer's original averments by the Temporary Judge. Although ultimately the third and fourth defenders had been content that part of the case, relating to a mediated settlement in 1997, proceed to proof, the first defender had not been so content. She had argued for dismissal of the case against her and had succeeded in achieving that result before the Lord Ordinary. The Lord Ordinary had been correct to dismiss the action against her.

[31] The term "fraudulent breach of trust" is contained in schedule 3, paragraph (e) of the Prescription and Limitation (Scotland) Act 1973. It meant that what had to be proved was dishonesty (Armitage v Nurse [1998] Ch 241, Millett LJ at 250-1). The term was not to be equated with common law fraud (Ross v Davy 1996 SCLR 369, Lord Penrose at 388; Johnston: Prescription and Limitation para 3.36). The mechanism of the fraud required to be clearly specified (Leslie v Lumsden (1856) 18 D 1046; Royal Bank of Scotland v Holmes 1999 SLT 563) and this had not been done. There required to be a machination or contrivance to deceive (Johnston (supra) at para 6.116, under reference to Erskine: Institute (8^th ed) III, i, 16).

[32] The executors' duty had been to the estate. As the Lord Ordinary had found, they were bound to proceed on the basis that there was a bona fide lease. They had counsel's opinion to that effect. The court had to identify, in the pursuer's averments, a sequence of events which pointed to something requiring an explanation. What had to be demonstrated was a connivance or dishonesty, not mere general epithet or innuendo. The pursuer had to aver what it was that she alleges the first defender did. She had not done so and the action against the first defender ought to remain dismissed in terms of the Lord Ordinary's interlocutor.

(c) THIRD AND FOURTH DEFENDERS

[33] The Note of Argument for the third and fourth defenders, having also looked at the history of the case, concentrated on the pursuer's case as disclosed in the grounds of appeal. It continued by stating that the pursuer's case was periled upon the proposition that the executors should have taken steps to challenge the lease or, at least, they should not have taken steps to give effect to the lease. However, having regard to the fact that the executor is eadem persona cum defuncto, the executors would only be under a duty to challenge the lease if it had been impetrated by fraud against the deceased. There was no relevant basis for imposing upon the executors some sort of duty to conclude that there had been fraud or to take steps to reduce the lease.

[34] If, as the pursuer maintained, this was a fraud from the outset, she required to identify the fraud and each act committed by each of the defenders in its execution (Leslie v Lumsden (supra), Lord Ivory at 1063, Lord Deas at 1065, Lord Ardmillan at 1070; Royal Bank of Scotland v Holmes (supra) and Wright v Cotias Investments 2001 SLT 353). The pursuer had not done so. As the Lord Ordinary had determined, once it was accepted that the lease was valid, everything flowed from that. The executors had no basis for concluding anything other than that the tenancy had been created by the deceased as part of the arrangements which he wished to make for the benefit of his wife and that it was a valid and secure agricultural tenancy.

[35] The destination in the contract of co-partnery was effective. The lease ceased to be voidable once consent had been obtained and the executors then had to deal with that. The suspensive condition had been purified. The undertaking not to grant a lease was a personal one. In relation to the first defender, it was res inter alios acta. It did not make the lease void ab initio. The executors could not sell the farmland other than with a sitting tenant. As far as the executors were concerned, there was a lease. If the executors had acted otherwise, the first defender could have sued them for the value of the tenancy. It was in the interests of the estate to sell the farmland at market value and not in a forced sale by a creditor. This was achieved by the first defender's undertaking to the Bank, which was also in the Bank's interests.

[36] The Bank did not have security over all of the farmland. There was no need to obtain the Bank's consent in respect of all of the farmland. In order to succeed, the pursuer required to say what the Bank would have done. There were no averments that the Bank challenged the lease or the first defender's rights under it. The executors did not alter the status quo. The first defender had done that by granting a waiver in favour of the Bank relative to their security. The Bank were content to accept the lease on the basis of the undertaking given by the first defender qua tenant (not executor) relative to vacant possession.

[37] In the event, the first defender had not received 40% of the realised value of the farmland. The value of the farmland, after deduction of the Bank overdraft, had been about £1.33M. The first defender had been paid £476,00 (from which the £185,529 was deducted).

[38] The pursuer required to specify what duty there was upon the executors to disclose matters to the beneficiaries. There was no duty to disclose the first defender's waiver (Cancer Research Campaign v Ernest Brown [1998] PNLR 592, Harman J at 607-610, 613). The executors' duty was a factorial one to ingather and distribute the estate (Wilson & Duncan: Trusts, Trustees and Executors (2^nd ed) para 31-11; Menzies: Trustees (2^nd ed) 849, 853). There was no basis upon which they could have challenged the lease. As eadem persona cum defuncto, they would have been barred from doing so. The inventory which was submitted had been correct.

[39] The pursuer's case was that the 40% attributable to the first defender's tenancy was fraudulent, not because it was worthless but because it was too high a percentage standing the problems surrounding the lease. Yet there was no case on record of negligent valuation. Even if there had been an overvaluation, it was not explained why that was fraudulent. In order to establish the loss which was being claimed, the pursuer had to specify what the value of the lease was. She had not done so. This part of the case was therefore irrelevant.

[40] In summary, there was a valid tenancy. The Bank's security only related to part of the subjects. The executors had no option but to recognise the validity of the tenancy. The Bank did not seek to enforce the security and thus there was no basis for averring that it was a false pretence that the executors required to buy out the tenancy. There was no basis for any allegation of breach of trust far less a fraudulent breach. There were no relevant averments of duty, breach of duty or fraudulent breach. There were no relevant averments of loss.

Decision

[41] The duty of an executor is one of factory. He requires to ingather the deceased's estate, to pay the debts due by the deceased and thereafter to distribute the ingathered estate to the beneficiaries in accordance with the wishes of the deceased as disclosed by any will. He represents the deceased; that is to say, in questions with third parties, he is the same person as the deceased (eadem persona cum defuncto). The title which he holds is subject to all pleas that could have been taken against the deceased (see generally Wilson & Duncan: Trusts, Trustees and Executors (2^nd ed) paras 31-09 to 31-11; 34-01 to 34-07). It is these straightforward and well known principles that provide the answer to the issues raised by the pursuer.

[42] As at the date of death, the deceased was the owner of the farmland. However, he had entered into a lease of these lands with the partnership which he had also, in part, created with the first defender by virtue of the contract of co-partnery. The validity of the lease and the contract are no longer subject to challenge. The lease vested solely in the first defender upon the death by virtue of the terms of the contract of co-partnery. As at the date of death, the executors became entitled to the farmland but, in accordance with the above principles, they did so subject to the tenancy of the first defender.

[43] The executors' title was also subject to the security which the deceased had created in favour of the Bank. The deceased had bound himself to the Bank not to grant leases of the security subjects. Thus, had the Bank elected to do so, it could have sought reduction of the lease on the basis that it was voidable at the instance of the Bank. The important point to keep in mind, however, is that the undertaking not to create a lease was to the Bank. Only the Bank would have been entitled to proceed to a reduction and that reduction would only have served to protect whatever interest the Bank had. Otherwise, the lease was a valid one, good against anyone else, including any purchaser of the farmland, but especially against the executors, whose title was identical to that of the deceased.

[44] The Bank's interest in the undertaking not to create leases was limited to that of its security for the overdraft. Were that overdraft to be paid off at any time, whether by the deceased in his lifetime or the executors after death, the Bank would have had no right or interest to reduce the lease. It was part of the executors' duties to pay off the debts of the deceased prior to distribution of the estate. Such payment would inevitably have ended any prospect of a reduction. The critical error in the pursuer's assessment of the situation is the proposition that the executors could, after the death, have disowned the lease on the basis of a third party's title to avoid it. This is simply wrong in law. It is the misconception upon which the whole action proceeds. The executors, standing in place of the deceased, could not seek to avoid what was effectively their own deed (ie. the lease). They were bound by it and it would not have been open to them to do other than proceed upon the basis of its validity, in the absence of material demonstrating that it had not been properly executed by the deceased. In this respect, the court does not agree with the comment of the original judicial factor, founded upon by the pursuer, that by accepting, and ultimately promoting, the lease's validity the executors were attempting to alter the status quo in favour of the first defender as tenant and to the prejudice of the children as beneficiaries. The status quo was that the executors' title to the land was subject to a valid agricultural tenancy. That tenancy might have been reduced by the Bank, but were the Bank's overdraft to be paid off, whether before or after reduction, the lease would still have been valid in questions with others including the beneficiaries.

[45] It follows from the above, that, far from acting in a fraudulent manner, what the executors did was precisely what they were bound to do in fulfilment of their duties. They set about realising the estate with a view to distribution. It was inevitable that this could not be done without repayment of the overdraft. In order to do that, the farmland, or at least a substantial portion of it, would require to be sold. The executors could not sell the land without organising repayment of the overdraft, nor could they sell it to a third party, who would have had no title to reduce the lease, unless that third party were prepared to take the lands subject to the tenancy. The solution devised was an entirely normal and proper one. The executors determined the value of the first defender's tenancy rights. It is not disputed that, if the tenancy were a valid one and not subject to any avoidance at the Bank's instance, it might be worth 40% of the total (gross) land value. That was not a figure which prompted any negative criticism from John Murray QC or Messrs Bell Ingram. It would have been within the general knowledge of a solicitor practising in an agricultural area and, even with its limited expertise in such matters, does not come as any surprise to the court. It is worthy of passing comment also that the executors had informed Mr Murray of the Bank's security and he would have been aware that the Bank could have objected to the lease, since he was told that they had agreed not to do so.

[46] On the basis that the first defender's interest was correctly valued at 40%, the executors then proposed that this should be what the first defender be paid, at least in general terms. Clearly that was acceptable to the first defender. It was then a practical problem of how to market the farmland on the basis that there would be vacant possession, thereby securing a reasonable price for the farmland from which the Bank, the first defender and the beneficiaries could be paid. The court does not consider that there was anything unusual in the executors proceeding in this way. Indeed, it is difficult to conceive of other steps which might reasonably have been taken and would have secured such a favourable result to the estate, on the assumption, which the executors were bound to make, that the farmland was subject to a valid agricultural tenancy. It is of some note that the executors settled with the first defender at figures which transpired to be well below 40% of the eventual sale price (ie. the land value with vacant possession).

[47] The court can understand why a beneficiary might be suspicious of what happened as a result of the creation of the partnership and the lease on the eve of the deceased's death. It is also able to follow the pursuer's reasoning in claiming that the executors, who of course included the first defender at the earlier stages, might be seen as favouring the first defender over the remaining beneficiaries. But the act of favour stems not from a fraudulent breach of trust, but from the simple proposition of law that the executors were bound to accept the effects of valid deeds executed by the deceased, most notably the lease. Once they did that, it was inevitable that the first defender would be entitled to the value of the agricultural lease as well as her legacy under the will. The pursuer attempts, as judicial factor on the estate, to impugn the lease because the Bank might have avoided it. But it is that action which is illegitimate because the deceased's estate is not entitled, as a matter of law, to challenge these deeds on the basis of an undertaking to a third party. If it were to do so, the estate would effectively be seeking to undermine its own actings. The court disagrees with the pursuer's proposition that the executors ought to have prompted the Bank into reducing the lease. It also disagrees that the executors ought to have taken a neutral stance on that matter standing the author of the lease. It would have been quite wrong of the executors to enter negotiations with the first defender on the premise that the deed could be avoided, not by them, but by a third party (i.e. the Bank).

[48] The pursuer complains that there was a dearth of accurate information being provided by the executors to the beneficiaries. The court, however, does not agree. The information being provided included the existence of the lease. There was no requirement to disclose the lack of consent from the Bank, that being a matter between the Bank and the estate and not something which the beneficiaries had any title to pursue. There was no illusion being created by the executors relative to the lease. It was a reality.

[49] For these reasons, the court agrees with the essential conclusion reached by the Lord Ordinary that the pursuer's case, in so far as based on fraudulent breach of trust by the first and third defenders, is irrelevant. That case, as attempted to be transmitted to the fourth defender, is equally irrelevant. Any case against the first defender, other than that based upon fraudulent breach of trust, had prescribed before she was brought into the action. The court will accordingly refuse the reclaiming motion and adhere to the interlocutor of the Lord Ordinary.