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*244 Barnes v. Addy [1870 B. 92.] Court of Appeal in Chancery CA in Chancery Lord Selborne, L.C., Sir W. M. James and Sir G. Mellish, L. JJ. 1874 Feb. 12 Breach of Trust--Constructive Trustee--Complicity in Breach of Trust-- Solicitor, Liability of--Appointment of Sole Trustee who misapplies Funds-- Costs, adding Defendants for. A stranger who acts as the agent of a trustee in a transaction legally within his power, but which leads to a breach of trust, is not to be held responsible as a constructive trustee unless some of the property passes into his hands, or unless he is cognisant of a dishonest design on the part of the trustee. The Court discourages the practice of making solicitors or other agents who are not primarily liable for the loss of property, and who ought to be made witnesses, Defendants to a suit for the purpose of charging them with costs. A., the surviving trustee of a fund, one moiety of which was settled upon his wife and children, and the other moiety upon the wife and children of B., in exercise of a power in the settlement, appointed B. sole trustee of half the fund, taking an indemnity from him, and retained the other half in his own name. B. sold out and misapplied the moiety of the fund transferred to him, and became bankrupt. A.'s solicitor advised him against the appointment of B. as sole trustee, but prepared the deeds of appointment and indemnity, and introduced him to a broker for the purpose of selling out some of the stock to pay some costs to which it was liable, and the same broker afterwards transferred a moiety of the residue to B. B. employed another solicitor, who warned B's wife of the risk attending the proposed transaction, but settled the deed of indemnity on her behalf:-Held, (affirming the decision of Wickens, V.C.), in a suit by B.'s children, seeking to make A. and the two solicitors responsible for the fund which was lost, that as neither of the solicitors had any knowledge of, or any reason to suspect, a dishonest design in the transaction, and as the fund had not passed into their hands, the bill must be dismissed against them both with costs. THIS was an appeal from a decision of Vice-Chancellor Wickens. The Plaintiffs in the suit were the children of Henry Norman Barnes and Ann Barnes, being the grandchildren of William Addy, the testator in the suit. The Defendants were John William Addy, who died during the progress of the suit, and William Ward Duffield, and William Richard Preston, solicitors. The testator, by his will, dated the 25th of November, 1835, appointed William Crush, John Lugar, and his nephew John William Addy, to be his executors and trustees, and the guardians *245 of his infant children. He devised and bequeathed his real and personal estates to his trustees upon trust to sell and convert the same, and to invest the proceeds thereof, and after giving an annuity of £100 to his widow, he declared that the residue should be held in trust for his daughter Ann, his daughter Susan, his son William John, and his daughter Mary Myhill equally. He then settled the share or portion of his daughter Ann upon her for her life, for her sole and separate use, free from the contracts or control of her husband, and without power of anticipation, and after her death for her children as she should by deed or will appoint, and in default of any such appointment, and so far as any such should not extend, the share was to be held upon trust for such of

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her children as should attain twenty-one equally; with the usual survivorship and maintenance clauses. The testator then settled the share of his daughter Susan in like manner. The will contained a power of appointing new trustees, which was vested in his executors, without the consent of any other person. The power was in the usual form, but contained no authority to diminish the number of trustees. The testator died on the 15th of December, 1835, leaving his widow and the four children named in his will. W. Crush renounced probate, and disclaimed the trusts of the will, which was proved on the 18th of March, 1836, by J. Lugar and J. W. Addy alone. The total amount of the estate which came to the hands of J. Lugar and J. W. Addy (after appropriating £2000 to answer the annuity) was about £9000, which they invested in their names in consols. On the 7th of November, 1837, Ann Addy married H. N. Barnes, and the six Plaintiffs were their children. In 1846 Susan Addy married J. W. Addy. J. Lugar and J. W. Addy appointed George Adams Clark a trustee of the will in the place of W. Crush. J. Lugar died in 1852, and G. A. Clark died in February, 1857, leaving J. W. Addy the sole trustee of the will. Mr. James Parker acted as the solicitor of the executors and trustees of the will till 1851, when Mr. W. W. Duffield became the solicitor of J. W. Addy, in the place of Mr. Parker. *246 The shares of the testator's son William John Addy, and his daughter Mary Myhill Addy (who married John Barlow), were afterwards sold out and paid to them, and the only shares remaining subject to the trusts were the shares of Mrs. Barnes and Mrs. Addy. H. N. Barnes was not on good terms with J. W. Addy, and filed a bill against him, charging him with breaches of trust, and placed a distringas on the stock, but on the 4th of March, 1857, a meeting took place between them in the presence of Mr. Barlow and Mr. Duffield, at which it was agreed that the bill should be dismissed, and the costs of the Barnes family, who were the Plaintiffs, borne by them, and the costs of the trustees paid equally out of the shares of Mrs. Barnes, Mrs. Addy, and Mrs. Barlow. No mention was made at that meeting of the appointment of a new trustee of the fund, but it was alleged by the Plaintiffs, although the fact was not admitted by J. W. Addy, that there had been a previous arrangement that the fund should be divided, and that Barnes should be the sole trustee of Mrs. Barnes's share, and J. W. Addy of Mrs. Addy's. However when the agreement for the withdrawal of the suit had been carried out, J. W. Addy called on Mr. Duffield and told him that he had made up his mind to retire in favour of Barnes. Mr. Duffield advised him not to do so, and pointed out to him the risk there was of a misapplication of the trust fund when it was put in the power of a sole trustee. J. W. Addy told Mr. Duffield that he did not consider there was any real risk in the case, as he had no doubt that Barnes would consult the interests of his wife and children, and duly execute the trusts in their favour; and that, rather than endure a continuance of the annoyance he had experienced from the Barnes family, he was determined to take such risk. He thereupon gave Mr. Duffield positive directions to prepare at once the deeds necessary for carrying out his intention. Mr. Duffield then advised him that, at all events, he should take a deed of indemnity from Barnes; and said he would see Mr. Parker, and tell him of J. W. Addy's determination. Upon that Mr. Duffield saw Mr. Parker on the subject, and, at his request, sent him a draft deed for the appointment of a new trustee of the will, so far as regarded the share of Mrs. Barnes and her children, and of a deed of indemnity, for approval, on behalf *247 of the Barnes family. Mr. Parker soon afterwards returned the deeds to Mr. Duffield with a verbal message that he declined, for personal reasons, to approve of them. J. W. Addy was informed of Mr. Parker's

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refusal, but he still urged Mr. Duffield, in spite of his reiterated objections, to get the matter settled. He told Mr. Duffield that he wished to get rid of the expense and annoyance to which he had been so long put by the Barnes family, and said, that although he regretted acting contrary to his advice, yet his mind was made up, and he wished the business carried through and completed as speedily as possible. About the same time Barnes called on Mr. Duffield, and told him that he had just seen Mr. Parker, whereupon Mr. Duffield told Barnes that he was determined not to proceed further in the matter of the appointment, unless the drafts were perused and approved in the ordinary way by some solicitor on behalf of his wife and children. Barnes then said he had made up his mind to consult another solicitor, whom he would instruct to communicate with Mr. Duffield. Barnes then called on Mr. Preston and told him that there was a matter of business which his wife and he wished him to undertake on their behalf; that his wife was entitled to some property under her father's will; that her cousin, J. W. Addy, was the trustee of the will, but that he refused to act any longer in the trusteeship, and had finally determined to retire therefrom; and that it had been arranged by all parties that Barnes should be appointed to be the trustee in his place, and that his wife and he wished Mr. Preston to look over the deeds on their behalf. Barnes also told Mr. Preston that the whole matter had been fully discussed and arranged among the parties concerned, and that his wife had had fully explained to her and fully understood the whole business, and wished and had authorized him to instruct Mr. Preston to act on her behalf as well as his. Mr. Preston then informed Mr. Duffield of the instructions which he had received, and Mr. Duffield thereupon sent him the drafts for perusal, on behalf of Barnes and his wife and children. When Mr. Preston had received the drafts of the deeds from Mr. Duffield (together with a copy of the testator's will), he, on the 13th of March, 1857, sent the following letter to Mrs. Barnes:-"Dear Madam,--I have received from Mr. Duffield the draft *248 deed appointing Mr. Barnes (your husband) the sole trustee of the property left to you for your life under the will of William Addy, deceased, in the place and stead of Mr. John Addy, who is now himself also the only surviving trustee of Mr. William Addy's will. I believe the matter has been fully discussed as to this appointment between the parties interested, and fully explained to you before my being employed in the matter; but as I fear you are more interested than any one else both on behalf of yourself and children, whose interest you will be anxious to protect, and my instructions having in the first instance come from your husband, I am anxious to have, in writing from you, your express desire that the appointment should be made of your husband in lieu of Mr. John Addy. I think it right at the same time to inform you that as such trustee your husband will have full control of the funds, and can do as he likes with them, unless some measures are taken, such as the appointment of himself jointly with another, to prevent his doing so, and which I shall be happy to receive any instructions from you to carry out, if you desire it. I have been thus particular in the matter as I think it my duty to inform you of what the consequences of the appointment might be, and that you may act with that which I think you are entitled to, namely, a full knowledge of the facts and circumstances attending such sole appointment. Awaiting your reply, "I am, dear Madam, yours faithfully, "W. R. Preston. Mrs. Barnes wrote to Mr. Preston in reply, as follows:-14th March, 1857. "Dear Sir,--In reply to your letter to me of yesterday's date, I am fully aware of the proposed arrangement of appointment of my husband as trustee in the place of Mr. John Addy, under the will of my late father, which it is my wish and desire should be carried out.

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"I am, dear Sir, yours respectfully, "Ann Barnes." Thereupon Mr. Preston perused and approved of the draft deed of appointment on behalf of Barnes and his wife, and of the draft deed of indemnity on behalf of Barnes, and returned the drafts to *249 Mr. Duffield. Mr. Duffield sent them buck to Mr. Preston, and requested him to get them engrossed for execution. The deeds were shortly afterwards executed by Mr. and Mrs. Barnes at the office of Mr. Preston, and then taken away by Barnes, who paid Mr. Preston £25 (of which about £10 were costs out of pocket) in respect of his costs, relating to the perusal, approval, and execution of the deeds. J. W. Addy and his wife had no issue, and they had from time to time received the whole of their share of the estate. With respect to the transfer of the funds which represented the share of Mrs. Barnes and her children into the sole name of Barnes, it was proved that on the 31st of March, 1857, J. W. Addy met Mr. Duffield by appointment at his agent's, for the purpose of going to a broker's to sell out so much stock as would pay the trustees' costs of the arranged suit, and also some of Mrs. Barlow's stock which had not been paid over to her or her trustees. Barnes met them, having heard of the appointment, and insisted on accompanying them to the brokers. Mr. Duffield introduced J. W. Addy to the brokers, as the vendor oft so much of the stock only as was specifically required for the payment of the costs and the other purposes above mentioned; but in no way interfered further in the matter. J. W. Addy then completed the transfer, on his own responsibility, of the share of Mrs. Barnes and her children, viz. of the sum of £2074 17s. 8d. £3 per Cent. Consols, into the sole name of Barnes. The sum so transferred was the residue of the sum of £2140 5s. 6d. like stock, after deducting £65 7s. 10d., the one-third of the trustees' costs of the Barnes' suit, and payable out of Mrs. Barnes' share, as agreed upon at the meeting of the 4th of March, 1857. On the 1st of April, 1857, H. N. Barnes sold out the same sum of £2074 17s. 8d., and used the proceeds in his business. He became bankrupt on the 25th of February, 1858, and obtained his certificate on the 8th of February, 1859. He did not prove as trustee for the £2074 17s. 8d. consols in the bankruptcy. Some dividend was paid under the bankruptcy; but no estate was left, or recoverable in any way, when this suit was instituted. The bill prayed for a declaration that the appointment of Barnes as the sole trustee of the testator's will was a breach of *250 duty and trust on the part of J. W. Addy, and a fraud upon the power to appoint new trustees contained in the will; that such appointment should, if necessary, be declared void, and set aside; that the transfer made by J. W. Addy into the name of Barnes as such newly appointed sole trustee, was not only a breach of trust and duty on the part of J. W. Addy, but also a fraud on the part of J. W. Addy and Mr. Duffield and Mr. Preston, and that J. W. Addy and Mr. Duffield and Mr. Preston were liable and bound to answer for and make good the sum of £2140 5s. 6d. £3 per Cent. Consols, and also the amount of the dividends which would have accrued and become due upon or in respect of the same sum, in case it had not been transferred to Barnes; for all necessary and proper accounts; and that the Defendants might be respectively compelled to pay all the costs of and consequent upon this suit. J. W. Addy died on the 20th of March, 1872. His widow took out administration to his estate, and the suit was revived against her. The Vice-Chancellor dismissed the bill with costs against Mr. Duffield and Mr. Preston, but declared that J. W. Addy's estate was liable to replace the fund which had been lost, and directed that if the administratrix did not admit assets the accounts of his estate should be taken, and his assets applied in a due course of administration. From this decree, so far as it dismissed the bill against Mr. Duffield and Mr. Preston, the

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Plaintiffs appealed. Mr. Greene, Q.C., and Mr. Bilton, for the Appellants:-The only question now before the Court, is as to the liability of the two solicitors who were employed. There was a breach of trust in transferring the fund to Barnes, independently of his subsequent breach of trust in appropriating it to his own use. It was a threefold breach of trust; first, in appointing a single trustee; secondly, in transferring of the stock into his sole name; and thirdly, in dividing the fund so that there should be a separate trustee for each part. Mr. Preston, by his own letter, shews that he was alive to the danger of this course, and he ought to have declined to undertake the business rather than to assist in the perpetration of the breach of trust. Mr. Duffield's case was still worse, because he prepared the appointment of new trustees *251 and the indemnity. Although he did not know of Barnes' intended misappropriation of the fund, he assisted him to commit the breach of trust, and must be held liable for the consequences of his conduct: Lee v. Sankey [FN1]. At all events, the two solicitors ought to pay the costs of the suit which has been rendered necessary by their conduct. It is true that the Court discourages persons being made parties merely for the sake of making them pay costs; but in this case substantial relief was sought against these Defendants: Bennet v. Vade [FN2]; Fyler v. Fyler [FN3]; Bowles v. Stewart [FN4]. FN1 Law Rep. 15 Eq. 204. FN2 2 Atk. 324. FN3 3 Beav. 550. FN4 1 Sch. & Lef. 209. Mr. Lindley, Q.C., and Mr. Begg, for Mr. Duffield; and Mr. W. Pearson, Q.C., for Mr. Preston, were not called on. Mr. B. B. Rogers, for J. W. Addy's administratrix. LORD SELBORNE, L.C.:-It is equally important to maintain the doctrine of trusts which is established in this Court, and not to strain it by unreasonable construction beyond its due and proper limits. There would be no better mode of undermining the sound doctrines of equity than to make unreasonable and inequitable applications of them. Now in this case we have to deal with certain persons who are trustees, and with certain other persons who are not trustees. That is a distinction to be borne in mind throughout the case. Those who create a trust clothe the trustee with a legal power and control over the trust property, imposing on him a corresponding responsibility. That responsibility may no doubt be extended in equity to others who are not properly trustees, if they are found either making themselves trustees de son tort, or actually participating in any fraudulent conduct of the trustee to the injury of the cestui que trust. But, on the other hand, strangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers, transactions, perhaps of which a Court of Equity may disapprove, unless those agents receive and become chargeable with some part of the trust *252 property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees. Those are the principles, as it seems to me, which we must bear in mind in dealing with the facts of this case. If those principles were disregarded, I know not how any one could, in transactions admitting of doubt as to the view which a Court of Equity might take of them, safely discharge the office of solicitor, of banker, or of agent of any sort to trustees. But, on the other hand, if persons dealing honestly as agents are at liberty to rely on the legal power of the trustees, and are

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not to have the character of trustees constructively imposed upon them, then the transactions of mankind can safely be carried through; and I apprehend those who create trusts do expressly intend, in the absence of fraud and dishonesty, to exonerate such agents of all classes from the responsibilities which are expressly incumbent, by reason of the fiduciary relation, upon the trustees. Now, what is there in this case to make either of these two solicitors responsible as a constructive trustee for the breaches of trust which were in fact committed by Mr. Barnes, and for which Mr. Addy was also responsible? The facts appear to be neither more nor less than these: that Mr. Duffield had, on the part of Mr. Addy, prepared an instrument appointing Mr. Barnes to be trustee of what I may call the Barnes' share of a certain trust fund, of which Mr. Addy was at that time sole trustee, and that he afterwards introduced Mr. Addy to a broker for the purpose of the sale of a part of the trust fund which was sold for the payment of certain costs. That is the case as against Mr. Duffield. As against Mr. Preston, the case is simply that he, as the solicitor of Mr. Barnes, perused and approved the instrument by which Mr. Barnes was to be appointed a trustee of the Barnes' share of the trust property in Mr. Addy's place. To take the latter case first, what are the principles on which Mr. Preston can be held responsible for that? There is not the slightest trace whatever of knowledge or suspicion on his part of an improper or dishonest design in the transaction. There was nothing to lead him to suppose that Mr. Barnes, when he had been so appointed a trustee (assuming the appointment to be followed up by a transfer, which was after all a thing made neither more *253 easy nor less easy by what Mr. Preston did), intended to sell out the fund and put the money into his own pocket. He was called in as a solicitor to approve a form of deed which a person having the legal power proposed to execute. That was not quite a correct thing to do on the part of the person having the legal power, but no authority has been cited to shew that a solicitor would be responsible in such a case; and if we were to hold that he became a constructive trustee by the preparation of such a deed, never having at any moment of time had any part of the trust fund in his possession, and not having enabled any one, who otherwise might not have had the power, to commit a breach of trust, we should be acting not only without authority, but, as I fully believe, against authorities which might have been referred to, and making it nearly impossible for any person safely to act as a solicitor for any retiring trustee or any incoming trustee, unless he takes upon himself the office of a Court of Equity, and satisfies himself that there is nothing which can by any possibility be called in question in any part of the transaction. I am not prepared to hold that a solicitor is under any such responsibility, and as to Mr. Preston, I entirely concur with the ViceChancellor, who did not think it necessary to hear the Defendant's counsel. The case as to Mr. Duffield, when carefully examined, goes very little beyond that, and not at all, I think, beyond it in anything material to the alleged equity. In addition to the settlement for Mr. Addy, the proposed appointor, of the appointment of Mr. Barnes as a trustee, he also prepared a deed of indemnity to be executed by Barnes to Addy; and he admits that he was aware that, as a general rule, it was not a safe thing for a trustee to transfer a trust fund to a single new trustee, however regularly appointed, and therefore he advised his client against it. He says he advised against it from the beginning to the end, on that ground and that principle, not at all apprehending, and having no reason to apprehend, any dishonest purpose on the part of either Addy or Barnes, and he advised his client, if he did make a transfer, to have a deed of indemnity. I confess I cannot see how upon those grounds we could hold him a constructive trustee, and liable for a breach of trust, by either Barnes or Addy, unless we were prepared to go the length of saying that in every case in which, a doubtful transaction *254 being contemplated between trustee and cestui que trust, a deed of indemnity is provided to make the trustee safe, the solicitor who prepares the deed is himself liable; because, in every such case, the same circumstances in principle must occur; namely, that it is apparent that the transaction may not be authorized by the terms of the trust, and that a Court of Equity may hold the trustee liable; and for that reason he takes an indemnity. It would be an alarming doctrine if we were to lay down, assuming honesty of purpose and the absence of fraud, that the solicitor is in such a case made a construct-

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ive trustee; and we are not going to be the first Judges to lay down that doctrine, it certainly not having been laid down by any of our predecessors. Now, ought or ought not Mr. Duffield, (for as to Mr. Preston there is really no question), from the circumstances of the case, to be held to have been aware that something wrong was intended? There is not a scintilla of evidence that he was aware of anything of the kind. He swears positively that he was not, as does Mr. Preston, and Mr. Addy swears the same. The facts appear to be these [His Lordship then referred to the facts which are stated above, and continued]:-All these circumstances, and his own honest advice to his client, pointing out the risk and the dangers, and recommending that the transaction should not proceed, prove that he thought that was all which he, as solicitor, was bound to do. He did not think he incurred responsibility by settling the form of the deed, which, after all, did not increase the power of Mr. Addy, who was then sole trustee, to commit a breach of trust. We cannot consistently with the evidence, or with justice, or reason, disbelieve Mr. Duffield, when he says he never knew nor suspected any dishonest purpose, or believed that any actual fraud would result from what was done; and if that be a true interpretation of the facts, I certainly, for one, am unable to hold him responsible. With respect to the receipt of the money, he received nothing except two sums, one which belonged to the Barlow family, and on which nothing turns, and the other a part of the aggregate trust fund, before division, of which a third came from the Barnes' share, representing £65; and it is said he is to be charged with that (though he did not retain or use for his own benefit a single *255 shilling of that money) because the authority of the trustees to apply that money in the payment of certain costs of a previous suit, which had been compromised, was not obtained from this Court. Now the trustee, Mr. Addy, was, as I have said, at that time, beyond question, the legal owner of the fund. He and Mr. Clark, the deceased trustee, had a right, by the terms of the will, to be indemnified against all costs properly or reasonably incurred in connection with the trust. These costs had been incurred in a suit brought against them in the name of the present Plaintiffs, the Barnes children, by a next friend under the advice of Mr. Parker, the family solicitor, which suit, having proceeded to a certain extent, had been compromised on the terms that all three shares of this fund, the Barlow share, the Barnes share, and the Addy share, should bear their proportion of the trustees' costs. The trustee, Addy, authorized the sale for that purpose and that application of the money, and it was so applied; and I am most clearly of opinion, first of all, that there is nothing before us to shew that such an application was improper on the part of Mr. Addy, the trustee; but, secondly, that if it had been, the solicitor could not possibly have been held on that account responsible. Then it is said that if we do not find these gentlemen answerable for the money, we ought to charge them with costs. I repeat what I said during the argument, that I have been under the impression, and I hope the impression will go abroad, that of late years the Court has set its face against making solicitors or others, who are properly witnesses, and who are not chargeable with any part of the relief prayed, parties to suits with a view of charging them with costs alone. I know no principle on which they can be charged and made parties for that purpose, unless other and further relief might also be given against them. In this case we have held that these gentlemen are not so chargeable; and on all these grounds I am clearly of opinion that the decree of the Vice-Chancellor must be affirmed, and the appeal dismissed with costs. SIR W. M. JAMES, L.J.:-I am entirely of the same opinion. I desire to add that I most cordially concur in the general principle with which the Lord Chancellor began his judgment. I have long thought, and more *256 than once expressed my opinion from this seat, that this Court has in some cases gone to the very verge of justice in making good to cestuis que trust the consequences of the breaches of trust of their trustees at the expense of persons perfectly honest, but who have been, in some more or less degree, injudicious. I do not think it is for the good

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of cestuis que trust, or the good of the world, that those cases should be extended. With regard to what was said by the Lord Chancellor on the subject of costs, the Vice-Chancellor, in his judgment in the Court below, said that: "With a view to discouraging, as far as possible. suits of this nature against solicitors, I shall dismiss the bill against him also with costs." I entirely concur with his desire to discourage such suits. SIR G. MELLISH, L.J.:-I entirely concur. Representation Solicitor for the Plaintiffs: Mr. R. A. Westbrook. Solicitors for the Defendant Addy: Messrs. Glynes & Son. Solicitors for the Defendant Duffield: Messrs. Duffield & Bruty. Solicitor for the Defendant Preston: Mr. W. R. Preston. (c) Incorporated Council of Law Reporting For England & Wales END OF DOCUMENT

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