by León Carmona Fontaine, PhD Student at Edinburgh Law School*
If there was a Scottish case from the 1620s in which a Scottish court had decided that there was a sham trust, it would be surprising and significant for both historical and comparative reasons. For a start, Scots lawyers usually consider that a distinct institution known as a trust appeared in Scotland in the late 17th century, and more decisively in the 18th century.[1] Second, sham trusts are usually seen as a recent English legal development. The term ‘sham’ gained a defined legal meaning in England between the late 19th century and the second half of the 20th century (Snook v London and West Riding Investments Ltd [1967] 2 QB 786, 802),[2] and the first case in which an English court found a declaration of trust to be a sham dates from the last decade of the 20th century (Midland Bank plc v Wyatt [1997] 1 BCLC 242). Finally, Scottish courts have occasionally applied the doctrine of sham transactions, but usually by reference to modern English authorities rather than Scottish ones.
Yet, Kinghorn v Wood (1626) Mor. 5072 seems to suggest that both trusts and sham trusts existed in Scotland as early as the early 17th century. Naturally, the trust in question did not go by the name of ‘trust’, and the ‘sham’ was not yet named ‘sham’. The word ‘trust’ started to be used in Scotland only in the course of the 17th century,[3] and the word ‘sham’ had not yet originated in the English-speaking world.[4] In substance, however, the court found an arrangement that we would nowadays call a trust to be a sham as that term has come to be understood.
1. Gifts of escheat
Before examining the decision in Kinghorn v Wood, some context is needed. In early modern Scots law, a ‘confiscation’ was the conveyance and transmission of all kinds of rights from private parties to either the Lord of Regality or the Crown (Stair, III. 3. 1). One specific type of confiscation was the ‘single escheat’, which occurred when the moveable estate of a party was confiscated as punishment for certain crimes, or for nonpayment of a civil debt after the party had been ordered to pay. This took place through letters of horning executed and denounced according to the formalities and terms the law then prescribed (Stair, III. 3. 2-15, Bankton, III. 3. 2-3). Having failed to comply with the order contained in the letter of horning, the party was named a ‘rebel’ and all his or her movable goods were confiscated. Stair also mentions that the rebel ‘hath not personam standi in judicio’ (Stair, III. 3. 15), meaning that he lacked capacity to stand before a court either as a pursuer or defender.
While the Crown could take escheats for itself, more often the Treasurer granted escheats to persons who would apply to them. These grants were termed ‘gifts of escheat’ (Stair, III. 3. 1-17, Bankton, III. 3. 23), and the person receiving the gift of escheat was called the ‘donatar’. Once the gift was granted to the donatar, the transmission of property to the donatar was completed by a ‘general declarator of escheat’ or simply a ‘declarator of escheat’, which resulted from a proceeding pursued by the donatar. During this proceeding the court summoned the rebel and declared that the horning, the escheat and the gift were duly ordered and carried out (Stair, III. 3. 22-23, Bankton, III. 3. 24). This declarator, in turn, gave the donatar title to petition for a ‘special declarator of escheat’ in relation to specific movables among the escheat goods (Stair, III. 3. 25). It would appear that sometimes the Treasurer granted the same escheat to different persons. The reasons for that are not entirely clear but it is possible that the Treasurer simply did not keep meticulous records of all gifts. Whatever the reason might be, these successive gifts to different persons gave rise to competition or conflicts between donatars of the same escheat. The rules were more complex than this, but it suffices here to mention that the interest of the donatar who had had first obtained the declarator of escheat was preferred (Stair, III. 3. 17).
There is a final contextual remark to make. A difficult question raised by gifts of escheat was the extent to which the escheat goods were burdened with the debts of the rebel. The answer to the question changed over time. At first, the Treasurer and the donatar were only liable to pay the debt or debts mentioned in the letter of horning (1579/10/28; Stair III. 3. 16). Subsequently, ‘all intromitters with any man’s escheat by gift, assignation or otherwise’ were considered liable for the payment of these debts (1592/4/85). Finally, by the early 17th century, it became the Treasurer’s practice to ask the donatar to give a back-bond ‘for the good of the rebel’s creditors’. The donatar then became accountable to them (Kinghorn v Wood (1626) Mor. 5072; Murray v the Commissary of Dunkeld (1630) Mor. 7834; and Hume v Bowmaker (1632) Mor. 15156). Finally, we read in Treasurer v La. Aytoun (1672) Mor. 5102, that by acts of 1661 and 1663 the Treasurer made the giving of back-bonds by the donatar a mandatory condition for granting any gift of escheat. With this context established, let us take a look at Kinghorn v Wood.
2. The case
The case concerns a conflict between two donatars competing for the same gift. In particular, in a declarator of escheat pursued by the Earl of Kinghorn, one Mr Wood objected that he had already obtained a declarator upon a prior gift of the same escheat, and that consequently he should have a preferred claim to the debtor’s property. Mr Wood had indeed obtained a prior gift of the escheat, and had given a back-bond to the Treasurer, according to which he was obliged to use the gift ‘to the effect that no creditor of the rebel should be prejudged’. The Lords initially preferred Mr Wood over the Earl of Kinghorn, holding that Mr Wood had ‘good right to the rebel’s goods, as long as there was not a creditor of the rebel’s to claim the benefit thereof’, and that the position of creditors ‘was not found to be competent to another donatar [namely the Earl of Kinghorn], who could never have right by virtue of the second gift, he not being a creditor’. The effect of this decision was that Mr Wood’s claim to the escheat took priority of that of the Earl of Kinghorn. He could enforce it entirely to the exclusion of the Earl. The Earl was not treated as a creditor of the debtor merely because of the Treasurer’s subsequent gift of the same escheat to him.
Not content with that decision, the Earl of Kinghorn replied that despite the back-bond that Mr Wood had given to the Treasurer, the gift to Mr Wood ‘was taken to the behoof of the rebel’, who had therefore remained in possession of the escheat goods. Moreover, it was proven that the gift that Mr Wood had obtained had been ‘upon the travels and expenses of the rebel himself’, meaning that the gift was procured by the rebel’s means. In light of these new allegations and evidence, the Lords ultimately found that the prior gift to Mr Wood had been taken ‘to the behoof of the rebel, to infer simulation’. They therefore preferred the subsequent gift to the Earl of Kinghorn. In other words, they decided that Mr Wood’s gift was null, and consequently the Earl of Kinghorn obtained the declarator of escheat he had pursued.
3. Did Mr Wood’s gift embody a trust?
Leaving aside for now the fact that the court inferred ‘simulation’ in the gift granted to Mr Wood, one cannot but notice that the gift of escheat granted to Mr Wood resembles a trust in the modern sense of the word. Mr Wood’s gift contained an obligation that i) looks like a trust, ii) was created like a trust, and iii), operated like a trust.
i) Mr Wood’s gift clearly looks like a trust because he owned property (the escheat goods) bounded by an obligation towards a purpose (the good of creditors), for the benefit of beneficiaries who were defined with sufficient certainty (the rebel’s creditors), and to whom he was accountable.
ii) This obligation toward creditors was created through the granting of a back-bond, which was the formality by which many trusts were created in Scotland until at least the late 19th[5] An ordinary example of the creation of a trust in early times in Scotland is one where a disponer granted an ex facie absolute right to a disponee, who in return granted a back-bond qualifying his or her absolute right (Bell’s Dictionary, absolute disposition). The decision in Lady Stanipath v Her Son’s Relict, and Bairns (1624) Mor. 16877 suggests that by 1624 it was already common to create trusts through back-bonds, and in 1696 a statute (1696/9/143) required the existence of a ‘declaration or back-bond of trust’ to sustain any action of declarator of trust. In the case of a gift of escheat the circumstances in which the trust was created were more complex since it resulted from the confiscation of the rebel’s property. However, the difference is not substantial for the purposes discussed here. The gift of escheat was an ex-facie absolute disposition, for which the donatar gave a back-bond qualifying his or her right in favour of the rebel’s creditors.
iii) This obligation towards the rebel’s creditors operated like a trust. The sources are often obscure and the information they give scant, but they show that the escheat specifically operated in a manner akin to a patrimony separate from the donatar’s personal patrimony, and that this patrimony was composed not only of the escheat goods but also some of the rebel’s debts. Naturally, the escheat was not yet conceptualised as a separate patrimony. Yet, it operated very much like one. In first place, in accordance with a statute already mentioned (1592/4/85), not only the donatar but also the assignee of an escheat and any intromitter was obliged to pay the debt mentioned in the horn. This suggests that this obligation was attached to the escheat goods, and not to a person. Then, in The Laird of Corsbie v Home, Acheson, & c. (1631) 1 Bro. Sup. 188, the Lords found that ‘the back-bond given to the treasurer should be a part of the gift: and that it was all one as if the gift had been granted with that condition’. Likewise, in Mackie Graham, George Irving’s Relict, v John Maxwell (1629) 1 Bro. Sup. 284 the court concluded that a person who had intromitted with the escheat before the gift, and therefore who was ‘countable to the treasurer’, became countable to the donatar after the gift, ‘seeing she [the donatar] was become in the treasurer’s place’. And Stair seems to suggest that the escheat consisted in a separate patrimony, for when he discussed the fate of the rebel’s creditors he asked ‘how far the same [the esecheat] is burdened, or affected with the denounced’s debts’ (Stair III. 3. 15) and then ‘[h]ow far lawful creditors […] may thereby affect the escheat goods? (Stair III. 3. 16). Stair did not ask whether the Treasurer or the donatar acquired these obligations. Finally, some decades later, in Dame Jean Leslie, v Mr David Ramsay (1704) 4 Bro. Sup. 579 it was held that the trustee was not personally liable but only liable to assign the escheat for the benefit of a creditor.
Although at the time the term ‘trustee’ was not always used in a technical sense, it is interesting to note that some decades later, donatars of escheat where sometimes seen as trustees. So in Dame Jean Leslie v Mr David Ramsay, to give only one example, a creditor contended that ‘by the tenor of your back-bond, you [the donatar] became my trustee, and could do nothing to deteriorate my condition’.
4. Civilian trust?: Back-bonds, contre-lettres and simulation
Two observations to conclude. The cases referred to here show that Mr Wood’s gift was only one out of many other similar gifts granted at that time in Scotland. All of this took place before the English occupation of Scotland in 1650s during the civil war, and the Union in 1707. This is significant for if already in the 1620s these gifts created a trust, it is more likely that the Scottish trust emerged in a separate stream from the English one.
An obvious question is whether this trust had a ‘civilian’ origin. The literature often mentions the Roman fideicommissum as a possible antecedent of the Scottish trust.[6] However, gifts of escheat have very little in common with the Roman fideicommissum.[7] They have some resemblance with the fiducia cum creditore, although these were private agreements. It may therefore be simply a Scottish originality. But it is also true that Mr Wood’s gift and the widespread use in Scotland of back-bonds point toward the French ‘contre-lettre’ or counter-letter. However, I will leave this point, and the fact that Mr Wood’s gift embodied a sham, for another entry.
* I would like to thank Professors Alexandra Braun, David Fox, George Gretton and Hector MacQueen, and Susanna Macdonald-Mulvihill and Colin Liburn for their helpful comments on an earlier draft of this post.
[1] George Gretton ‘Trusts’in Kenneth Reid and Reinhard Zimmermann (eds), A History of Private Law in Scotland Vol 1 (OUP 2000) 480.
[2] This is not to deny that there might be earlier English cases concerning declarations of trust that from the perspective of a contemporary observer may be regarded as shams. See M Macnair ‘Sham: Early uses and related and unrelated doctrines’ in Simpson and Steward (eds), Sham Transactions (OUP 2013) 29.
[3] Gretton (n 2) 486.
[4] Macnair (n 1).
[5] John M’Laren, Trusts, entails, powers, and executry, Vol II (3rd edn, Sweet & Maxwell 1894) 1055.
[6] Gretton (n 2) 490.
[7] David Johnston, ‘Trusts and Trust-like Devices in Roman Law’ in Richard Helmholz and Reinhard Zimmermann (eds), Itinera Fiduciae: Trust and Treuhand in Historical Perspective (Duncker & Humblot 2013) 45.
