Embalmed in Rettie: The City of Glasgow Bank and the Liability of Trustees

On October 1, 1878, the doors of the City of Glasgow Bank closed at the usual hour, never to re-open. The sudden collapse of one of Scotland’s largest financial institutions was a calamity for those directly affected, as well as a serious blow to the wider Scottish economy. In the end, all depositors and creditors would be paid in full, but only because, as with all joint-stock banks in Scotland, the liability of the Bank’s shareholders was unlimited. Six out of seven shareholders were ruined by the collapse, and those who were not suffered catastrophic losses. Particular objects of pity were those who held shares, not for themselves, but in trust for others. Yet, in the distinctive nature of the Scottish trust there was hope that their liability might be confined to the trust estate, leaving unaffected their personal wealth. The issue was tested in a litigation which was fought all the way to the House of Lords: Muir versus City of Glasgow Bank. A great deal is known about this case because the arguments of counsel were taken down verbatim and later published.

This paper explores the background to the litigation, the manner in which it was conducted, both in the Court of Session and in the House of Lords, and the reasoning employed by counsel and by the judiciary. In deciding that the trustees must pay out of their own pockets, the court discounted any Scottish specialties and applied a rule which was already well-established in England. Yet within a few years, the law in Scotland was to be re-assembled in a manner which asserted the separation of trust and private liability and which led, in modern times, to the idea of the trust as a separate patrimony of assets and liabilities.