B
e f o r e :
MR JUSTICE WARREN
____________________
Between:
|
A and others
|
Claimants
|
|
- and -
|
|
|
B and others
|
Defendants
|
____________________
Susannah Meadway (instructed
by
Hunters incorporating May, May & Merrimans) for the Claimants
Francis
Barlow
QC (instructed
by
Hunters incorporating May, May & Merrimans) for the 8th to 11th defendants
Robert Arnfield (instructed
by
Hunters incorporating May, May & Merrimans) for the 12th and 13th Defendants
Hearing dates: 16 February
2016
____________________
HTML
VERSION
OF JUDGMENT
____________________
Crown Copyright ©
Mr Justice Warren :
Introduction
- I had
before
me on 16 February
2016,
an application under the
Variation
of Trusts Act 1958 ("the
VTA")
to
vary
the trusts of the will of a testator ("the Will" and "T") and also of a settlement ("the Settlement") made
by
reference to the Will
by
T's
brother
("H"), approval
being
sought of an arrangement propounded on
behalf
of C1 and C2 ("the Arrangement"). T died many years ago; H died more recently in the 1980s. The first Claimant ("C1") and the second Claimant ("C2"), who are
beneficiaries
under the Will and the Settlement, are respectively the eldest surviving son and the eldest grandson of H. C1's elder
brother
died without issue in the 1990s. The first to eleventh Defendants, who are also
beneficiaries
under the Will and the Settlement, are all descendants of H or their respective wives or husbands. The fourth Defendant is C1's wife. The sixth Defendant ("D6") is the younger
brother
of C1; the seventh Defendant is his wife and the eighth to eleventh Defendants are their
children.
The twelfth and thirteenth Defendants are, together with C1, the trustees of the Will and the Settlement (the three of them together "the Trustees"). Ms Susannah Meadway appears for C1 and C2, Mr Francis
Barlow
QC appears for the minor Defendants (namely the eighth to eleventh Defendants) and Mr Robert Arnfield appears for the twelfth and thirteenth Defendants as Trustees. He has a particular role to advise whether or not the Arrangement is for the
benefit
of a particular class of unborn and unascertained persons, namely the descendants of C1 or of D6 and the wives, husbands widows or widowers of C1, D6 or their respective descendants (not
being
persons who are parties to these proceedings) ("the specified class")
- At the hearing on 16 February
2016,
I approved the Arrangement. The application does not, with the exception of one point, raise any matter which would warrant a written judgment rather than a
brief
oral statement of my reasons for approving the Arrangement. When I approved the Arrangement I did not give even that
brief
oral statement. Instead, I indicated that I would write a judgment, that is to say this judgment, dealing with the point just mentioned and would give a
brief
oral statement of my reasons for approving the Arrangement on the hand-down of the judgment.
The relevant trusts
- To identify the point with which this judgment is concerned, it is necessary to say something about the trusts of the Will and the Settlement as they now stand following a succession of appointments made pursuant to powers contained in them
but
prior to the Arrangement which I have already approved. It is not necessary, however, to go into a great deal of detail. The description contained in the following paragraphs 4 to 16 of this section of my judgment is sufficient.
- The trust funds of each of the Will and the Settlement are divided into a number of sub-funds. There are three relevant sub-funds under the Will: the 1983 Fund (so called
because
it derives from an appointment made in 1983), the Grandchildren's Fund (reference here
being
to the
children
of C1 and of D6) and the Appointed Fund. Under the Settlement, there are two relevant sub-funds which are held on materially the same terms as the Grandchildren's Fund and the Appointed Fund and each is administered as one with those Funds respectively.
- The Will contains a definition of "the specified period"
being
a period of lives in
being
plus 20 years from the date of T's death. It is likely to expire sometime in the 2040s or 2050s.
- The Will contains a set of trusts for the
benefit
of T's descendants. The Trustees and the holder of a particular position from time to time are given a wide power of appointment, wholly or partially to revoke those trusts. It is exercisable
by
deed or deeds revocable or irrevocable. Although no class of objects of the power is specified, T expressed non-
binding
wishes about how it was to
be
exercised, the detail of which is not relevant for present purposes.
- The Settlement was created
by
C1's father out of property which had previously
been
appointed to him from the Will. The terms of the Settlement were similar to those of the Will and made the same administrative provisions.
The 1983 Fund
- The trusts of this fund are currently contained in an appointment made in 2015. The trusts are fully discretionary during the specified period in favour of "the New Discretionary Class", namely C1 and his descendants, D6 and his descendants, and the wives, husbands, widows and widowers of any of them. The trusts are revocable, although they may only
be
revoked so as to make a new and exhaustive appointment under the power of appointment described in paragraph 6 above. The power of revocation is, however, itself subject to a power of release.
The Grandchildren's Funds
- The trusts of the Grandchildren's Funds are contained principally in a deed referred to as the Principal Grandchildren's Appointment made in December 1978 and successive supplemental deeds of revocation, appointment and release.
- Under the Principal Grandchildren's Appointment the Trustees had a wider power of appointment exercisable in favour of all or any one or more of the specified class as defined in that Appointment (namely descendants of T's father and their husbands, wives, widows and widowers).
- In 2015, the Trustees (as they were empowered to do) released that power of appointment in relation to the Grandchildren's Funds to the extent that the same might
be
or
become
exercisable in favour of any member of the specified class who was not also a member of the "new specified class" (that is to say C1 and his descendants, D6 and his descendants, and the wives, husbands, widows and widowers of any of them).
- In the deed effecting that release, the Trustees retained the power to revoke that release in relation to the whole or any part of the Grandchildren's Funds. And
by
a proviso to that power, the Trustees also had power wholly or partially to release or restrict this power of revocation.
- The result is that the Grandchildren's Funds are now held on trust for C2 for his life, with power for the Trustees
before
the end of the specified period (here called "the perpetuity date") to pay or apply capital to him or for his
benefit.
Subject to that, the Grandchildren's Funds are held for C2's
children
who attain 21 or are living under that age on the perpetuity date, provided that if on the perpetuity date C2 does not have any
children,
the Grandchildren's Funds will then
vest
in C2 absolutely. If C2 should die
before
the perpetuity date without leaving
children,
the Grandchildren's Funds would
be
held on similar trusts for his younger
brother
D3, and if he should die
before
the perpetuity date without leaving
children,
they would
be
held on similar trusts for D6's son, D8. On his death
before
the perpetuity date without leaving
children,
they would
be
held in equal shares for the
children
of C1 and D6 on similar trusts, and in the extremely remote event of these trusts failing, they would
be
held for C2 (or rather his estate) absolutely.
- These trusts are, however, subject to the powers of revocation, release and appointment which I have already mentioned. The Trustees could,
by
exercising these
various
powers, extend the class of
beneficiaries
beyond
the new specified class so as to include other descendants of T's father and their wives, husbands, widows and widowers.
The Appointed Funds
- The subsisting trusts of the Appointed Funds are contained principally in two Deeds of Revocation and New Appointment made in March 1979 and successive supplemental deeds of revocation, appointment and release in one of which a "new perpetuity date" of 13th September 2029 was introduced and in another of which yet another "new perpetuity date" which could
be
1st January 2052 was introduced.
- The Appointed Funds are currently held upon trust:
i) For C1 for his life, with power for the Trustees (
before
the perpetuity date in the case of some of the property, the new perpetuity date of 13 September 2029 in the case of other property, and the alternative new perpetuity date, possibly 1 January 2052, in the case of the rest) to pay or apply capital to him or for his
benefit.
ii) Subject to that, and provided C1 dies
before
the relevant perpetuity date, part of the Appointed Funds is held for D4 for her life, with power for the Trustees (
before
the relevant perpetuity date) to pay or apply capital to her or for her
benefit.
iii) Subject thereto, the Appointed Funds are held for C2 for his life, with power for the Trustees
before
the relevant perpetuity date to pay or apply capital to him or for his
benefit.
iv) Subject to that, the Appointed Funds are held for C2's
children
who attain 21 or are living under that age on the relevant perpetuity date, provided that if on the relevant perpetuity date C2 does not have any
children,
the Appointed Funds will then
vest
in C2 absolutely.
v)
If C2 should die
before
the perpetuity date without leaving
children,
the Appointed Funds would
be
held on similar trusts for his younger
brother
D3, and if he should die
before
the perpetuity date without leaving
children,
(and C1 has no further male issue), they would
be
held on similar trusts for D6 and his male issue, and if those trusts failed, for C2 (or rather his estate) absolutely.
vi)
The Trustees have, however, two powers of appointment which remain exercisable: first a power exercisable during C1's lifetime (and
before
the relevant perpetuity date) to re-appoint the trusts in remainder to C1's life interest; and second a power of appointment exercisable in respect of any share of the Appointed Funds in which a male descendant of C1 has an interest in possession. Each of these powers is exercisable in favour of "the narrower class" of C1 and his descendants, D6 and his descendants, and the wives, husbands, widows and widowers of any of them.
vii)
These powers were originally exercisable in favour of a wider class (as defined in the 1979 Deed mentioned above). That class comprises the descendants of C1's father and their wives, husbands, widows and widowers and
charity.
These powers were however partially released in 2015 to restrict their exercise to the narrower class. Each release was subject to a power of revocation in whole or in part. And,
by
virtue
of a proviso to each power of revocation, the Trustees have power to release or restrict each power of revocation. The Trustees could,
by
exercising these
various
powers, extend the class of
beneficiaries
beyond
the narrower class to the wider class comprising the other descendants of C1's father and their wives, husbands, widows and widowers and
charity.
The purposes of the
variation
- The principal objective of the proposed
variation
is to extend the perpetuity period applicable to the 1983 Fund, the Grandchildren's Funds and the Appointed Funds (together "the Arrangement Funds")
- As matters stood
before
I approved that Arrangement, the trust period applicable to the majority of the property in the Arrangement Funds would terminate in all likelihood in the 2040s or 2050s. There was, however, a long-stop date of 1 January 2052 in relation to some property, and a much shorter period terminating on 13 September 2029 in relation to other property. The Arrangement extends the trust period for all of the Arrangement Funds so that it will not now terminate until 1 January 2141, taking advantage of a new perpetuity period of 125 years from the date of the Order approving the Arrangement,
being
the period now prescribed
by
section 5 of the Perpetuities and Accumulations Act 2009.
- Such a
change
also enables income to
be
accumulated at any time during that new period. As part of the Arrangement, the Trustees are given power to accumulate income arising from the 1983 Fund (which is currently held on discretionary trusts), and also given power, when making appointments in respect of the other Arrangement Funds in the future, to make provision for income arising from those Funds to
be
accumulated.
Changes
of a more administrative nature are also included in the Arrangement:
i) The Trustees are authorised in the exercise of their powers of appointment over the Grandchildren's Funds or the Appointed Funds to transfer property to new settlements whose trusts, powers and provisions are authorised
by
the powers.
ii) The Trustees are authorised to take out indemnity insurance.
iii) The self-dealing provision contained in the Will is clarified to provide expressly that a trustee is entitled to self-deal not only where his other interest is personal,
but
also where it is as the trustee of some other trust, or as the director or other officer of a company.
iv) Provisions in certain of the deeds which were inserted to preserve the inheritance tax status of accumulation and maintenance trusts within section 71 of the Inheritance Tax Act 1984, provisions which are now redundant following the amendment of that section with effect from 8 April 2008, are deleted.
Mechanics of the Arrangement
- It will
be
apparent from my description of the trusts under the Will and the Settlement that there are many people who are potential
beneficiaries
under those trusts other than the parties to the applications. The persons include living individuals,
both
adult and minor, as well as unborn and unascertained persons and
charitable
entities or purposes.
Because
of the nature of the trusts involved (a matter which it is unnecessary and inappropriate to describe in this judgment), it is highly unlikely that any non-party other than members of the specified class will ever
benefit
under those trusts. The entirety of the Arrangement Funds are in practice intended to
be
applied for the
benefit
of the parties and the specified class.
- Ordinarily, that would not eliminate the need for a
variation
of the trusts affecting potential
beneficiaries
to
be
agreed to
by
adults and approved
by
the court on
behalf
of unborn and unascertained persons. However, in the light of the extremely remote interest which any non-party (other than members of the specified class) has, none of the parties, in particular the Trustees, has considered it sensible or proportionate to involve them in discussions about the future of the trusts let alone to join them as parties to the proceedings if there is some course which can properly
be
adopted to eliminate the need for such involvement. A method of eliminating the need for such involvement was identified. I was satisfied that the method was technically effective and that it could properly
be
adopted. It is to explain why I reached that conclusion that this judgment is written.
- The method operates
by
precluding any objection or
challenge
to the Arrangement
being
made
by
these potential,
but
very
remote,
beneficiaries
who are not parties to or represented in these proceedings, in effect, the issue of the T's father, their wives, husbands, widowers and widowers (who are not or do not claim through C1 or D6), and also
charities
and possibly in relation to the 1983 Fund, everyone else in the world. I say "possibly"
because
there is an argument identified
by
Ms Meadway that their consent is not required. It is not necessary to address that argument. These are people who could all
become
present
beneficiaries
of the Funds
by
appropriate exercises of available powers
by
the Trustees. It is clear from the evidence however, the Trustees would only propose to include them in the event of some family catastrophe.
- The Arrangement envisages the execution
by
the Trustees of three deeds, one in relation to each of the Arrangement Funds. Drafts of the deeds are found in three Appendices to the Arrangement; and the Arrangement only takes effect if and when the Trustees execute those deeds. Under those deeds, the Trustees release their powers (the mix of powers of appointment, revocation and release)
but
only to the extent that it deprives the members of the wider class who are not members of the narrower class (that is to say, persons who have either consented to the Arrangement or are persons in respect of whom I have approved the Arrangement) of any right which they might otherwise have to
challenge
the Arrangement.
- The extent of such a release will
be
to make the powers to
benefit
this class of person
before
the Arrangement coincident with what those powers now are (ie after the Arrangement) to the extent that they are adversely affected. It should
be
noted, however, that the powers are considerably extended in that they
become
exercisable over a much longer period of time.
- Ms Meadway suggests that another way of
viewing
this release is that it removes such persons as potential
beneficiaries
for the instant
before
the Arrangement takes effect, (so that they are not potential
beneficiaries
before
the Arrangement takes effect and hence neither their consents to the Arrangement, nor the Court's approval of it on their
behalf,
are required),
but
to reinstate them immediately after the Arrangement takes effect according to the terms of the
varied
trusts. This has its attractions and describes in practical terms the result of the release.
- A similar procedure was adopted in
Christie
Miller's Marriage Settlement Trusts [1961] 1 All ER 855 (Note). This was a decision of Wilberforce J (later Lord Wilberforce). Counsel
before
him were Mr
Brightman
(later Lord
Brightman
and appearing
before
he was even a QC), Mr Goulding (later Mr Justice Goulding) and Mr Wolfe (a well-known and established practitioner who did not
become
a judicial office holder). This array of luminaries of the
Chancery
world perhaps gives the decision particular authority. The question arose whether certain objects of a relevant power of appointment in a marriage settlement should
be
parties to the summons as
being
persons on whose
behalf
approval of the arrangement was sought. It should
be
noted that the power was not a fiduciary power
but
was a special power of appointment exercisable
by
the husband. It should also
be
noted that the
variation
sought related only to the investment provisions: there was no
change
to the
beneficial
trusts or the extension of any perpetuity period or the insertion of new powers of accumulation. The Judge was able to approve the arrangement in the light of a release
by
the husband of his power of appointment which he gave, namely "so far as necessary to make the said arrangement
binding
on [the relevant class of
beneficiaries]
who may
become
interested under any exercise of the said power".
- The Judge did not discuss how this release operated conceptually. There is no doubt that a power of this nature could
be
released altogether. If it were released altogether, the persons entitled in default of the exercise of the power would
be
entitled to
vary
the trusts or, indeed, to terminate them altogether without the agreement of any object of the power. If the persons entitled in default agree to a
variation
of the trusts (or, if minors or unborn or unascertained persons are concerned, if the court provides the necessary consent under the
VTA),
I see no reason why it should
be
necessary to release the power altogether: it can
be
released to the extent necessary to allow the
variation
to take effect. It does not seem to me to matter whether, conceptually, there is a limited release or whether there is a total release
but
subject to the reinstatement (as part of the
variation)
of the power of appointment
but
modified so as to take effect only in accordance with the
varied
trusts.
- To illustrate the point
by
reference to a
very
simple example where the settled property is held upon trust for A for life with remainder to
B
absolutely,
but
where C has a special power of appointment, subject to A's life interest, in favour of A's
children
and remoter issue. Suppose that A and
B
wish to
vary
the trusts so as to provide A's wife with an interest on A's death. C might
be
willing to allow that to happen. It is, I consider, open to C to release his power of appointment to the extent necessary to allow that
variation
to take effect. It does not matter whether that is seen as a partial release of an existing power, or whether the power is seen as
being
wholly released and then reinstated in modified form as part of the
variation.
I think that this second way of
viewing
matters is essentially the same as that which Ms Meadway has suggested as mentioned in paragraph 26 above.
- The position in the present case is different in that the powers concerned are fiduciary powers. The donee of a special power can release or restrict it at will.
But
in the present case, the Trustees can only exercise their powers of appointment, release and revocation for proper purposes. Why, it might
be
asked, should the Trustees effectively release or restrict the exercise of their powers to the detriment of the wider class other than members of the narrow class? And why, it can also
be
asked, would it not
be
a fraud on the powers for the Trustees to exercise their powers simply with a
view
to eliminating the need for additional parties to
be
joined to the application and for need for the court to consent to the Arrangement on
behalf
of the unborn and unascertained members of the wider class?
- Ms Meadway submits that such questions do not arise here, or if they do, the answers are that the Trustees are exercising their powers in a perfectly proper manner and there is no fraud on a power. The powers
being
exercised are powers to restrict the interests of remote
beneficiaries.
Since such restrictions will necessarily enhance the interests of the core
beneficiaries,
they may properly
be
regarded as powers to
benefit
the core
beneficiaries,
and since the object of the
variation
is to
benefit
the core
beneficiaries,
it cannot
be
an objection that these powers are exercised so as to facilitate it. She refers
by
way of example to Re Lansdowne's Will Trusts [1967]
Ch
603. In that case,
Buckley
J at p 608F-609B, 613B-F, 614G, held that the Court could authorise the
barring
of a minor's entail under the Trustee Act 1925 s. 53 as
being
for the
benefit
of the minor, where the
barring,
by
removing a number of remoter interests, would facilitate a
variation
under the
VTA
which was for the
benefit
of that minor. I find that a helpful analogy.
- I agree with Ms Meadway's submissions. I agree that the Trustees' powers include, or can
be
regarded as including, power to
benefit
the core
beneficiaries.
In the present case, the Trustees clearly consider that the
variation
is in the interests of the core
beneficiaries;
they do not wish to cut out the wider class from potential
benefit
(for instance, in the case of a family catastrophe as previously mentioned). For this reason, they have agreed the Arrangement on terms which preserve their powers subject to the
variations
for which the Arrangement provides. Whether that is seen as a partial release, or as a total release
but
subject to reinstatement of modified powers of appointment does not matter. On either
view,
I consider that, on the facts of the present case, it is perfectly proper for the Trustees to effect the partial releases and that no fraud on a power is involved.
- That is not a complete answer to the suggestion that the wider class should
be
represented
before
me. I have a discretion whether or not to approve an arrangement under the
VTA
and could require, as a condition of giving my approval, that representations
be
made on
behalf
of the class. I did not consider when approving the Arrangement that I should take that course. I did not consider that there was any sustainable argument that the Trustees were not acting properly in agreeing to the partial release of their powers to enable the Arrangement to take effect. Further, it is strongly arguable that the Arrangement, including the partial releases, is for the
benefit
of the wider class, preserving as it will the
very
valuable
assets for the future and the
value
to them in the remote circumstance of their ever
benefiting.
- It is for these reasons that I did not see the method of dispensing with the need for representation of the wider class as other than fully effective, as well as
being a sensible and practical approach to the application.