Unsafe Legal Rights Payments by a Judicial Factor: Revaluation, “Circular” Company Loans, and Quinquennial Prescription of Beneficiary Claims

Court: Outer House, Court of Session (Scottish Court of Session)  |  Judge: Lord Sandison  |  Citation: [2026] CSOH 60  |  Date: 23 June 2026

1) Introduction

In [2026] CSOH 60, the residuary beneficiaries of a deceased’s estate (the three pursuers) sued the court-appointed judicial factor (the defender, a solicitor) seeking substantial damages for alleged deficiencies in her actings and omissions while administering the estate and controlling two trading companies: Buckstone Roofing (Scotland) Ltd (“Roofing”) and Buckstone Scaffolding Ltd (“Scaffolding”).

The litigation arose against a fraught background: soon after the deceased’s death, a family member took de facto control, purportedly installed himself as company director, and removed/realised certain assets. The first pursuer sought a judicial factor’s appointment in the sheriff court to safeguard the estate. The defender was first appointed ad interim in November 2015 and permanently in March 2016.

The pursuers’ central complaints included: (i) delay in removing the de facto director; (ii) failures to secure, recover, and properly inventory assets; (iii) imprudent decisions concerning the companies’ governance; (iv) unsafe valuations and an overpayment of legal rights; (v) avoidable holding costs and missteps in selling a problematic heritable property; and (vi) an ill-conceived “notional dividend” strategy (including issuing R185 certificates) to neutralise director’s loan balances and bring the factory to an end.

2) Summary of the Judgment

Lord Sandison held that a judicial factor is a species of trustee and will be in breach of trust if the factor administers the estate with less diligence than would be shown by a person of ordinary prudence in their own affairs. Applying that objective standard, the court found several breaches causing actionable loss to some of the pursuers, while also sustaining significant pleas of prescription against parts of the first and (especially) second pursuers’ claims.

Key outcomes included:

  • Delay removing the de facto company controller: breach of fiduciary duty; awards to the first and third pursuers (with the second’s claim time-barred in this action).
  • Failure to recover the speedboat: breach; awards to the first and third pursuers.
  • Legal rights overpayment: breach due to reliance on unreliable company valuations and a legally erroneous “netting” approach to company loans; court carried out its own pragmatic revaluation and quantified overpayment; awards to the first and third pursuers (second time-barred in this action).
  • Oxgangs Road: breach for delaying marketing/sale leading to avoidable holding costs; award to first and third pursuers (second time-barred in this action). Additional limited award to the third pursuer re Jewsons handling.
  • Unlawful “phantom dividend” tax: only the tax paid on imaginary dividends was treated as proven loss; all pursuers entitled to a share.

Decrees (principal sums) were granted for: £30,328 to the first pursuer, £999 to the second pursuer, and £33,101 to the third pursuer, with 8% interest from 1 January 2019.

3) Analysis

3.1 Precedents Cited

A. Nature of the office: judicial factor as trustee/fiduciary

  • Lord Gray and Others, Petitioners (1856) 19 D 1: foundational authority treating the judicial factory as “eminently” fiduciary; the factor’s duties are “those of a trustee”. Lord Sandison reaffirmed that a judicial factor is a species of trustee.
  • Hutton v Annan (1898) 25 R (HL) 23: Accountant of Court supervision is a valuable check but does not relieve the factor from responsibility. This supported rejecting any suggestion that Accountant approval immunises the factor.
  • Parks of Hamilton (Holdings) Ltd v Campbell [2013] CSOH 67: caution against over-generalising fiduciary statements; fiduciary duties depend on context.
  • Rae v Meek (1889) 16 R (HL) 31, Tibbert v McColl 1994 SC 178, 1994 SLT 1227, McCormack v McKinnon [2023] CSOH 70: the objective “ordinary prudence” standard; good faith does not answer whether the standard of care was met.

B. Standard of care and “error of judgment”

  • Bartlett v Barclays Bank Trust Co Ltd [1980] Ch 515, [1980] 2 WLR 430 and Lutea Trustees Ltd v Orbis Trustees Guernsey Ltd 1997 SC 255, 1998 SLT 471: the prudent degree of risk vs hazard; courts are slow to fix liability for mere error of judgment. Lord Sandison accepted the “ordinary prudence” framework but found multiple decisions fell outside reasonable administration.

C. Causation and measure of equitable compensation for breach of trust

  • Kidd v Paull & Williamsons LLP [2017] CSOH 16, 2018 SC 193: “but for” position assessed with hindsight; foreseeability generally irrelevant; loss must flow directly from the breach.
  • AIB Group (UK) Plc v Mark Redler & Co Solicitors [2014] UKSC 58, [2015] AC 1503, [2014] 3 WLR 1367 and Target Holdings v Redferns [1996] AC 421, [1995] 3 WLR 352: reaffirm direct causation and “but for” approach; claimant/third-party conduct can interrupt causation.
  • Caffrey v Darby [(1801) 6 Ves 488] and Canson Enterprises [v Boughton & Co [1991] 3 SCR 534, 85 DLR (4th)129]: used illustratively for causation interruption and the “direct flow” requirement.

D. Legal rights as debt; valuation at death; realisation “in ordinary course”

  • Lawford v Lawford's Trs 1927 SC 360, 1927 SLT 303: legal rights are a debt-like claim exigible against the executor.
  • Cameron's Trustees v Cameron 1917 SC 416, 1917 1 SLT 226, Gilchrist v Gilchrist's Trs (1889) 16 R 1118, Russel v Attorney General 1917 SC 28, 1916 2 SLT 207, Alexander v Alexander's Trs 1954 SC 436, 1954 SLT 342: valuation is at date of death, but subsequent realisation in ordinary course can inform the true date-of-death value; later changes do not automatically re-write death-value, but can undermine confidence in earlier estimates.
  • Cumming v Brewster's Trs 1972 SLT (Notes) 76: deductible debts/expenses before calculating legal rights.
  • Macdonald v Macdonald's Exx 1932 SC (HL) 79, 1932 SLT 381: vesting on death.

E. Beneficiary title to sue and trustee duties

  • Inland Revenue Commissioners v Clark's Trustees 1939 SC 11, 1939 SLT 2: beneficiaries’ remedies include personal action of damages for breach of trust.
  • Currie v Currie's Executor [2022] CSIH 58, 2023 SC 90, 202 SLT 113: beneficiary title and remedies in executry context, distinguished from a pure “damages for personal loss” claim.

F. Consent/condonation by beneficiaries

  • Callander v Callander's Exr (No 2) 1975 SC 183, 1976 SLT 10 and De Fazio v De Fazio [2014] CSOH 56: beneficiary consent can bar subsequent complaint (subject to statutory controls such as section 31 of the 1921 Act).

G. Prescription: reparatory character and limits of “fraud” exceptions

  • Millar v Glasgow District Council 1988 SC 440, 1989 SLT 44: meaning of “reparation” as pecuniary remedy for wrong.
  • Hobday v Kirkpatrick's Trs 1985 SLT 197: beneficiary claims framed as reparation fall within quinquennial prescription.
  • English authorities King v Victor Parsons & Co [1973] 1 WLR 29, Tito v Waddell [1977] Ch 106, [1977] 2 WLR 496, and Canada Square Operations Limited v Potter [2021] EWCA Civ 339, [2022] QB 1, [2021] 3 WLR 777 were discussed to test whether “fraud” could include unconscionable concealment; the court rejected that any such exceptional route applied on these facts.

3.2 Legal Reasoning

A. Interim judicial factor: preservation does not mean “hands off” where depredation is alleged

A significant strand of the opinion is the court’s clarification of what “preservation” requires in an interim factory. Lord Sandison rejected any simplistic equation of interim appointment with maintaining the pre-appointment status quo, especially where the very reason for interim appointment is alleged ongoing dissipation. The court held that urgent stabilising steps (including neutralising unauthorised controllers) should be taken quickly; and that emergency steps may be justified even before caution is in place.

This has practical consequence: interim factors are expected to act decisively to secure keys, banking access, and control, rather than treating investigation-for-court as a reason for delay.

B. Director status, confirmation, and the consequences of “authority vacuum”

The court accepted that no grant of confirmation was ever obtained by those initially purporting to administer the estate. It followed that their purported executor powers never crystallised and were not retrospectively validated; likewise, the de facto company controller could not be treated as properly appointed director.

Against that legal reality, the factor’s prolonged tolerance of the de facto director was held to be a breach of fiduciary duty. Importantly, the breach was framed not merely as poor outcome, but as falling outside the diligence of ordinary prudence: the factor should have removed him within days and should have cut off bank access and physical access promptly.

C. “Circularity” of director’s loans: rejected as a legal and practical shortcut

One of the judgment’s most important clarifications concerns estates owning companies to which the estate also owes money (here, director’s loans). The factor treated these as effectively nettable because “the estate owned the companies”. Lord Sandison held that this was wrong in law: the companies are separate legal persons; a debt due to them is a real creditor claim and ranks ahead of legal rights.

Although the court noted that the error would have had “no practical consequences” if the share valuations were sound, the valuations were not sound—making the legal error outcome-determinative when paying legal rights from scarce cash.

D. Legal rights: date-of-death valuation is not a licence to pay on valuations you no longer can trust

The court accepted the orthodox principle that legal rights are assessed by reference to the net moveable estate at the date of death. However, it emphasised that post-death developments can undermine confidence in purported “date-of-death” valuations. Where confidence cannot reasonably be maintained—especially where valuations are explicitly dependent on unreliable accounts— a prudent fiduciary must revalue (or secure properly informed consent/directions) before paying out.

On the evidence, company accounts were known to be unreliable; the goodwill valuation approach was not robust in the circumstances; and the factor proceeded to pay legal rights nonetheless. The court therefore treated the overpayment as breach of fiduciary duty.

E. Court-led quantification: pragmatic revaluation of company shares

Notably, Lord Sandison did not merely criticise the factor’s valuation; he undertook a pragmatic revaluation on the evidence, substantially reducing goodwill and focusing on net assets, with a modest allowance for residual goodwill. This underpinned the quantified legal rights overpayment and the damages awards.

F. Oxgangs Road: breach found on avoidable holding costs rather than “undervalue sale”

The court held the factor should have marketed the problematic property much earlier (essentially “as seen”), given foreseeable lack of funds to complete compliance works and the predictable burden of mortgage interest, insurance, and council tax. Nonetheless, the court declined to find that an earlier sale would necessarily have achieved a higher price; instead it awarded a reasoned estimate of avoidable holding costs.

G. “Phantom dividends” and tax: proven loss limited to tax paid

The factor’s later strategy—issuing R185 certificates and paying tax on imaginary dividends—was strongly criticised. The court treated the payment of £2,997 tax on the fictional dividend as proven estate loss, apportioned among the pursuers. The broader critique (accuracy to HMRC and discharge narrative) featured as serious judicial disapproval, but quantification was confined to demonstrated monetary loss in the action.

H. Prescription: beneficiary personal damages claims are reparatory and largely quinquennial

The court held that the pursuers’ claims (whether labelled damages or equitable compensation) were reparatory, attracting the five-year negative prescription under the Prescription and Limitation (Scotland) Act 1973, and that Schedule 3 trust exceptions did not apply absent fraud/reckless concealment. The court then applied strict date cut-offs:

  • First pursuer: no subsisting claim for loss before 16 February 2016 (or, for later-pled heads, before 22 June 2017).
  • Second pursuer: no subsisting claim for loss before 24 September 2019.
  • Third pursuer: minority largely prevented time running; claim broadly in time.

A further practical consequence is that the court anticipated unresolved issues would need to be addressed in the sheriff court discharge process (including scheme of division adjustments), even where individual damages claims were time-barred in this action.

3.3 Impact

A. For judicial factors and private client practitioners

  • Urgency obligations at interim stage: the judgment signals that interim appointment requires immediate control measures (keys, banks, exclusion of unauthorised actors), not protracted “information gathering” while risk continues.
  • Separate corporate personality matters in executries: “estate owns the company” does not justify treating company debts as internal book entries when deciding creditor ranking and legal rights payments.
  • Valuations must remain defensible at the moment of payment: paying legal rights on “date-of-death” valuations that are known to rest on unreliable accounts risks personal liability.
  • Litigation strategy does not replace court directions: the court’s condemnation of “phantom dividends” underscores that attempting to paper over insolvency/loan issues can create fresh liabilities and undermine discharge applications.

B. For the Office of the Accountant of Court (systemic observations)

While not determinative of the defender’s liability, Lord Sandison’s criticism of the supervision provided—highlighting limited qualifications/training and a tendency toward “uncomprehending acquiescence”—is a prominent feature. It may influence how supervision is practically exercised (and scrutinised) in future factories, especially where complex corporate and tax issues arise.

C. For future litigation: prescription and framing

The decision reinforces that beneficiary claims for personal loss against a factor are generally “reparatory” and time-barred after five years, absent exceptional facts. Practitioners will likely be driven to:

  • raise proceedings earlier; and/or
  • seek relief in the supervising court’s discharge/scheme process rather than relying on late personal damages actions.

4) Complex Concepts Simplified

  • Judicial factor: a court-appointed manager (often where executors cannot/will not act properly) who gathers assets, pays debts, and distributes the estate under court supervision.
  • Bond of caution: a security bond intended to protect the estate if the factor causes loss. The court criticised the approach to reductions, but the action’s damages were effectively met via professional indemnity cover.
  • Legal rights: statutory “debt-like” entitlements of spouse/children to a share of the net moveable estate, ranking behind ordinary creditors but ahead of residue.
  • Director’s loan: money taken out of a company by a director recorded as a debt owed back to the company. Here, the estate (as successor to the deceased) owed the companies substantial sums—making the companies creditors of the estate.
  • Negative prescription (five-year): a time limit barring claims for reparation after five years from when loss and wrong concur (subject to certain statutory suspensions, including minority, and narrow fraud-type exceptions).

5) Conclusion

[2026] CSOH 60 is a substantial modern treatment of judicial factor liability at the intersection of executry administration, company law realities, and the strictures of quinquennial prescription. The court’s core messages are:

  • Interim and permanent judicial factors are trustees in substance; they must act with the diligence of ordinary prudence, especially in stabilising a threatened estate.
  • Legal rights payments demand creditor-ranking discipline and valuation discipline: where company valuations are known to be unreliable, paying out is unsafe and can found liability.
  • Estate/company “circularity” is not a legal answer: company debts remain real debts, and paper mechanisms (like “phantom dividends”) are not a substitute for directions and proper accounting.
  • Beneficiary damages actions are generally time-limited; late claims risk being redirected into discharge/scheme processes rather than personal decrees.