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Petitioner: WEIR'S SETTLEMENT TRUSTS MACPHERSON & WEIR (VISCOUNT) VS Respondent: INLAND REVENUE COMMISSIONERSHonorable Justice Cross
1973 P T D 201
1973 P T D 201
[Chancery Division]
Before Cross, J
In re: WEIR'S SETTLEMENT TRUSTS MACPHERSON & WEIR (VISCOUNT)
Versus
INLAND REVENUE COMMISSIONERS
(1968) 3 W. L. R. 1010, decided on 19th June 1968.
Estate duty‑-Property passing on death ‑ Trust ‑ Discre tionary trust of income distributable between two beneficiaries Whole of income to be distributed‑Whether fund or any part thereof "passed" on death of one beneficiary‑Liability to estate duty ‑"Passing" : scope of statutory definition‑Finance Act, 1894 (57 & 58 Viet. c. 30), Ss. 1, 2(1) & 7(7).
The Finance Act, 1894, relevant sections of which here inafter follow provided:
" S. 1 : In the case of every person dying after the commencement of this Part of this Act, there shall, save as hereinafter expressly provided, be levied and paid, upon the principal value ascertained as hereinafter pro vided of all property, real or personal, settled or not settled, which passes on the death of such person a duty, called 'Estate Duty', at the graduated rates hereinafter mentioned, and the existing duties mentioned in the First Schedule to this Act shall not be levied in respect of property chargeable with such estate duty.
S. 2 : (1) Property passing on the death of the deceased shall be deemed to include the property following, that is to say :‑(a) Property of which the deceased was at the time of his death competent to dispose ; (b) Property in which the deceased or any other person had an interest ceasing on the death of the deceased, to the extent to which a benefit accrues or arises by the cesser or such interest; but exclusive of property the interest in which of the deceased or other person was only an interest as holder of an office, or recipient of the benefits of a charity, or as a corporation sole ; (c) Property which would be required on the death of the deceased to be included in an account under section 38 of the Customs and Inland Revenue Act, 1881, as amended by section 11 of the Customs and Inland Revenue Act, 1889, if those sections were herein enacted and extended to real property as well as personal property, and the words 'voluntary' and 'voluntarily' and a reference to a 'volunteer' were omitted therefrom ; and (d) Any annuity or other interest purchased or provided by the deceased, either by himself alone or in concert or by arrangement with any other person, to the extent of the beneficial interest accruing or arising by survivorship or other wise on the death of the deceased.
S. 7 : (7) The value of the benefit accruing or arising from the cesser of an interest ceasing on the death of the deceased shall‑(a) if the interest extended to the whole income of the property, be the principal value of that property ; and (b) if the interest extended to less than the whole income of the property, be the principal value of an addition to the property equal to the income to which the interest extended."
In 1957 W. settled 50,000 upon trust in contemplation of his daughter's marriage to H. Under the trust the trustees were directed to pay out the whole income for the benefit of all or such one or more to the exclusion of the others or other of H., Mrs. H., or their children or remoter issue. There were no children of the marriage, and from the date of the marriage until the death of H. in 1961 the trustees paid all the income to Mrs. H. The Inland Revenue‑ Commissioners claimed estate duty on the death of H.
On the trustees summons to determine whether estate duty was payable on the trust fund or any part of It :‑
Held, (1) that on the death of H. the joint interest of H. and his wife ceased and became vested ire Mrs. H., and that, therefore, estate duty was payable.
Burrell & Kinnaird v. Attorney‑General (1937) A C 286 ; and Scott & Courts & Co. v. Inland Revenue Commissioners (1937) A C 174 fol.
(2) That the quantum of the benefit accruing to Mrs. H. on her husband's death, and on which duty was payable, was the sum of their joint Interests, i.e., the whole trust fund.
(3) That a general charge to estate duty was imposed by section 1 of the Act of 1894, and section 2 defined the precise area of that charge.
Public Trustee v. Inland Revenue Commissioners, In re: Arnholz (1960) A C 398 fol.
Per curiam : "In view of the Burrell and Scott cases I am bound to hold that duty is payable, but in view of the Arnholz and Gartside decisions I can find no satisfactory reason why it should be."
In re : Smith ((1928) 1 Ch. 915) ; In re Nelson ((1928) 1 Ch. 920) ; Attorney‑General for Ceylon v. Chettiar (No. 1) ((1957) A C 513) ; Attorney‑General v. Milne ((1914) A C 765) ; In re : Northcliffee ((1929) 1 Ch. 327) ; Christie v. Lord Advocate ((1936) A C 569) ; In re : Parkes' Settlement Trusts ((1956) 1 W L R 397) ; Inland Revenue Commissioners v. Courts & Co. ((1964) A C 1393) ; General Accident Fire & Life Insurance Co. v. Inland Revenue Commissioners ((1963) 1 W L R 1207) ; In re : Doughty's Settlement ((1964) Ch. 89) ; In re : Holmden's Settlement Trusts ((1968) A C 685) In re : Ralli's Settlements ((1966) A C 483) ; Adamson v. Attorney‑General ((1933) A C 257) ; Attorney‑General v. Lloyds Bank Ltd. ((1935) A C 382) ; In re : Hodson's Settlement ((1939) Ch. 343) ; In re: Cassel ((1927) 2 Ch. 275) ; In re: Norfolk (Duke of) Will Trusts ((1950) Ch. 467) ; In re: Weigall's Will Trusts ((1956) Ch. 424) ; In re : Tapp ((1959) Ch. 443) ; Attorney‑General v. Power ((1906) 2 Ir. R 272) ; In re: Vestey's Settlement ((1951) Ch. 209) ; In re : Allen‑Meyricks Will Trusts ((1966) 1 W L R 499); Green v. Spicer ((1830) 1 Russ. & M. 395) ; In re : Coleman ((1888) 39 Ch. D 443) ; In re : Johnston ((1894) 3 Ch. 204) ; Green v. Russell ((1959) Q B 226) ; Morgan v. Inland Revenue Commissioners ((1963) Ch. 438) ; Reg v. Special Commissioners of Income‑tax, Ex parte National Union of Railwaymen ((1957) 1 W L R 263) ; Deeble v. Robinson ((1954) 1 Q B 77) and Reg v. Bates &. Russell ((1952) W N 506) ref.
Cur. ado. vult.
ORIGINAING SUMMONS
This was a summons taken out by the trustees of a settle ment made on November 26, 1957, by William Douglas, 1st Viscount Weir, to determine whether upon the true construc tion of the settlement and of the Finance Act, 1894, and amending Acts, estate duty became payable on the death of Eustace Benyon Hoare who died on July 9, 1961, a beneficiary under the settlement, in respect of property therein comprised at the date of his death or in respect of any and what part of the property.
W. A. Bagnall Q. C. and Hector Hillaby for the Trustees.
J. A. Brightman Q. C. and P. W. E. Taylor for the Crown.
Solicitors: Currey & Co.; Inland Revenue Solicitor.
JUDGMENT
On November 26, 1957, Lord Weir settled 50,000 in con templation of the marriage of his daughter, Elspeth Marjory Jessie, then the widow of a Mr. Cartwright, to Eustace Benyon Hoare. The parties to the settlement were Lord Weir, the settlor ; Mr. Hoare (called "the husband") ; Mrs. Cartwright (called "the wife ) ; and James Kenneth Weir and Henry Edmund Sargant as trustees.
By clause 1 the settlement was declared to be made in consideration of the intended marriage, and that it should become void unless the marriage were solemnised before December 31, 1957. By clause 2, the expression the trustees" was defined as meaning "the original trustees or the survivor of them or other the trustees car trustee for the time being" of the settlement ; "the trust fund" was defined as "the said sum of 50,000... and the investments and property from time to time representing the same" ; and "the trust period" was defined as meaning "whichever is the shorter of the following periods, namely, (1) the period commencing at the date of the solemnisation of the said marriage and continuing until the expiration of a period of 80 years and (ii) the period commencing at the said date and continuing until the expiration of 21 years (less the last day) from the death of the last survivor of all the lineal descendants now living of His Late Majesty King George V." By clause 3 the trustees were directed to invest the said sum of 0,000 as therein mentioned.
Clause 4 read as follows :
"From and after the solemnisation of the said intended marriage and subject as hereinafter provided the trustees shall pay or apply the income of the trust fund during the trust period to or for the maintenance and support or other wise for the benefit of all or such one or more to the exclusion of the others or other of the husband and wife and the children or remoter issue 'of the said marriage for the time being living as the trustees (being at least two in number or a trust corporation) in their absolute discretion think fit power for the trustees to pay any income which they may decide should be applied for the maintenance or other wise for the benefit of any child or remoter issue of the said marriage to the guardian or guardians of such child or remoter issue without being bound to see to the application thereof."
By clause 5 it was provided that notwithstanding the trusts therein before contained the trustees (being at least two in number or a trust corporation) might at any time or times during the trust period with the consent in writing of Mrs. Hoare during her life and thereafter at the discretion of the trustees transfer the whole or any part of the trust fund to her or to any child or remoter issue of the said intended marriage for his or her absolute use and benefit and might with such consent or at such discretion as aforesaid by deed or deeds revoke all or any part of the trusts and appoint such new trusts of the trust fund or any part or parts thereof in favour of the said Eustace Benyon Hoare, Mrs. Hoare or any child or children or remoter issue of the said intended marriage or in the event of Mrs. Hoare marrying again in favour of any after taken husband of hers and any child or remoter issue of such subsequent marriage subject to a proviso that so long as any child or remoter issue of the said intended marriage should be living the power of revocation and new appointment in favour of any after taken husband of Mrs. Hoare or any child or remoter issue of any subsequent marriage conferred on the trustees should only extend to one moiety of the trust fund.
By clause 6, subject to the trusts and powers thereinbefore contained, the trustees were directed to bold the trust fund upon trust for such of the children of the said intended marriage as should be living at the expiration of the trust period if more than one in equal shares with a substitution of the issue then living of any child then dead in the place of such child and if There should be no child or remoter issue of the said intended marriage then living upon the like trusts mutatis mutandis for the children and remoter issue of any subsequent marriage of Mrs. Hoare.
By clause 7 it was provided that if the trusts thereinbefore declared should fail or determine then subject to the powers thereby or by law vested in the trustees and to every exercise of such powers the trustees should hold the trust fund upon trust for Elizabeth Cartwright (Mrs. Hoare's daughter by her first marriage) and any husband, child or remoter issue of Elizabeth as the trustees in their absolute discretion should at any time before the expiration of the trust period by deed or deeds appoint, "and in default of and until and subject to any such appointment upon trust for the said Elizabeth Armine Julia Cartwright absolutely".
Mr. and Mrs. Hoare were married on November 29, 1957 ; they had no children ; and Mr. Hoare died on July 9, 1961. None of the powers contained in clause 5 had been exercised. As the trustees were obliged to distribute the whole income, Mr. and Mrs. Hoare, acting together, could have directed them to deal with each accruing instalment in any way they wished, but subject to any such joint direction‑and, so far as I know, none was ever given‑it was the duty of the trustees to make up their minds within a reasonable time of the receipt of any income whether to pay it to Mr. Hoare or to Mrs. Hoare. In fact, in exercise of their discretion, they paid all the income to Mrs. Hoare during the joint lives. On Mr. Hoare's death, the trustees ceased to have any discretion to exercise, since Mrs. Hoare was the only surviving object of the trust, and since that date she has received the income as of right. The Inland Revenue Commissioners claimed estate duty on the whole of the trust fund as passing on the death of Mr. Hoare.
The facts are simple enough, but it will not surprise anyone acquainted with this branch of the law to learn that the argument lasted for over four days‑during which counsel at all events wasted no words‑‑and that some 30 authorities, many of them in the House of Lords, were referred to. The law of estate duty has indeed now attained a degree of refinement which would have gladdened the heart of Lord St. Leonards. I will begin by setting out those parts of the Finance Act, 1894, which are immediately relevant to this problem.
[His Lordship read sections 1, 2(1) and 7(7). ]
During the first 60 years of this century the theory of the relationship between section 1 and section 2 of this Act which was generally accepted by the Courts was that propounded by Lord Macanaghten in his speech in Cowley v. Inland Revenue Commissioners ((1899) A C 198). This was that the two sections were mutually exclusive ; that any property which "passed on the death" in the ordinary sense of the word‑a sense which it was left to the Courts to determine‑passed under section 1 ; and that section 2(1) was not intended to explain what was meant by the expression "property passing on the death" but was a purely "deeming" section which brought into charge to duty various items of property which could not be said to "pass on the death" in the ordinary sense of the word.
In Public Trustee v. Inland Revenue Commissioners ((1960) A C 398), the Arnholz case, the House of Lords rejected this theory. It held that the two sections were not mutually exclusive but that section 2(1) was explanatory of section 1 at least to the extent that an item of property which was chargeable under section 2(1), if the words used in the relevant sub‑paragraph were given their ordinary meaning, could not be chargeable under section 1. But the House left open the question whether the explanation of the meaning of "passing on the death" given by section 2 was exhaustive, or whether section 1 might itself catch property which did not fall under any of the sub‑paragraphs of section 2(1) but which the Courts might think could nevertheless fairly be said to "pass on the death".
I shall have to come back to this question later in this judgment, but in view of the decision in the Arnholz case, there can at least be no doubt that a Judge should first address his mind to section 2(1) and ask himself whether the property with which he is concerned falls within any of its sub‑paragraphs. In this case, of course, the only relevant sub‑paragraph is section 2(1)(b).
The question of the application of section 2(1)(b) to discre tionary trusts was considered by Maugham L. J. in Attorney General v. Burrell ((1935) 153 L T 393). There, under the will of the testator, there was a discretionary trust during the life of H., the primary beneficiary, for payment of so much of the income as the trustees thought fit to or for the benefit of H. and his wife and children‑a class, in the events which happened, of five persons and after the death of H. a similar trust during the life of the eldest son W., the next primary beneficiary, for payment of so much of the income as the trustees should think fit to or for the benefit of another class which consisted immediately after the death of H. of three persons‑W., his wife and his brother M., two of whom (namely, W. and M.) had been discretionary objects during the life of H. So far as the trustees did not distribute the income to one or other of the discretionary objects, it was payable by operation of law to the heir‑at‑law or next‑of‑kin.
Maugham L. J. asked himself first, as he thought Lord Macnaghten's theory obliged him to do, whether the trust fund "passed" under section 1 on the death of H. This he thought it could only have done if it "changed hands as a whole" on that event. Having regard to the fact that two of the discretionary objects were members of both the old class of five and the new class of three, he found it impossible to say that there had been a passing under section 1, and so he turned to consider section 2(1)(b).
His remarks on this point were as follows [(1935) 153 L T 402]:
" . I ask myself whether there has been a cesser of an interest within the meaning of section 2, subsection (1)(b), in the circumstances of the case on the death of Harry. I observe in the forefront of that problem the fact that it is immaterial to determine anything in regard to the property as a whole, since section 2, subsection (1)(b), will apply to a cesser of an interest. All that is necessary, as I see it, in order that there should be a cesser within the subsection I am considering is, first, that there should be property in which the deceased or any other person must have had an interest ceasing on the death, and, secondly, there must be a benefit accruing to someone by reason of the cesser of that interest. The section in its first line say; : Property in which the deceased or any other person had an interest. 'Person' here, of course, would include a class, and I see no objection to regarding the class of persons who during the lifetime of Harry had a discretionary right to share in the income, plus the persons ascertained upon the death of the testator, as being the persons who were the heir and the next‑of‑kin, as a composite person.
In my opinion, then, there was an interest in the whole of the Income, belonging to the composite person or composite class, which ceased on the death of Harry, since under the will, as I read it, there is in effect provision that the income of the estate during the lifetime of Harry is to be distributed in the way in which I have mentioned, and on the death of Harry, in the events which have happened, ascertained at the death of Harry, there became a trust during the life of William Reginald to divide or distribute the income according to the discretion of the trustees between William Reginald, his wife and his children, if any (he has none at the present time), and the balance to the heir‑at‑law and the next of‑kin of the original testator.
The next question which I have to ask myself is : Has a benefit accrued or arisen by reason of the cesser of such interest to someone? The section does not say to whom. In my opinion a benefit has accrued or arisen, by reason of the cesser of the interest to which I have referred, for the benefit of the new class, consisting of William Reginald, his wife, his children (if any). and possible other persons and the balance again has to go to the heir‑at‑law and the next‑of- kin of the testator. There is nothing in the subsection I am considering from which a conclusion can, I think, properly be drawn to show that the persons to whom the benefit accrues may not be to some extent persons who had an interest prior to the death of the deceased. The new class is a different class, the benefit which accrues to members of the new class, discretionary I agree, is yet a benefit which accrues to them by reason of the different trust and a different relationship to the original testator.
These considerations would no doubt lead me to say that the property passed within section 1 if it were not for the doubt I have whether it can fairly be said that the property as a whole changed hands. Under section 2, subsection (1)(b), I have not any trouble such as that which confronts me under section 1, and I say, regarding the class of beneficiaries before the death of Harry as a single composite person, their interest has ceased and a benefit has accrued to the new class of beneficiaries as a whole, so that the case comes within the words of clause (b) of subsection (1) of section 2."
Lord Hanworth agreed ((1937) A C 286) with Maugham L. J., but Romer L. J. thought that the property passed under section 1. His view of the matter was approved by the House of Lords ((1937) A C 286) and Lord Russel of Killowen, who delivered the only speech did not indicate whether, if he had not thought that section 1 applied, he would have agreed with Maugham L. J. in thinking that section 2(1)(b) could be made to fit this case.
Since the decision in the Arnhoiz case ((1960) A C 398), references in judgments to section 2 (1)(b) have naturally become more frequent than they were previously, but until the recent decision of the House of Lords in Gartside v. Inland Revenue Commis sioners ((1968) A C 553), there was not, so far as I know, any dissent expressed from Maugbam L. J.'s view that the subsection could be applied to discretionary trusts by treating all the objects as a composite class possessed of a single interest In the income of the fund which ceased on the death, which put an end to the current discretionary trust (see, for example, Russell L. J. in In re: Kirkwood ((1965) Ch. 286), and Lord Guest in the same case in the House of Lords). [1966 A C 520].
The facts in the Gartside case were that by his will a testator gave a share of his residuary estate to trustees upon trust:
"(1) to apply the income of the fund at their discretion for the maintenance or benefit of all or any of his sons, his son's wife or children (if any), and to accumulate surplus income as an addition to capital with power at any time to resort to the accumulations and to apply them as current income ; (2) after the son's death, to hold the capital, income, and accumulations upon trust for such of the son's children who being male attained 21 or being female attained that age or married, and if more than one equally; and (3) to advance at any time to the grandchildren of the testator sums of up to one‑half of the presumptive or rested share of that grandchild in the fund."
The question for decision was whether the testator's grand sons to whom advances had been made about a year before their father's death had "interests in possession" in the fund within the meaning of section 43 of the Finance Act, 1940.
In the course of discussing the nature of objects of a discretionary trust, Lord Reid commented 1968 A C 605 on what I may call the "group" theory as follows :
"There are in some of the cases indications of a view that, while each of the objects of a discretionary trust has an interest in the trust fund, this interest does not extend to the whole or any part of the interest accruing from the fund. But, on the other hand, all the objects together have a single class or group interest which does extend to the whole interest of the fund. Counsel for the respondents in the clear and well‑reasoned argument expressly declined to adopt that view and I think he was well‑advised in taking that course. Where a number of persons are members of a company or other incorporation which has a separate legal personality, the incorporation can, of course, have a single right different from the rights of any of its members. But otherwise two or more persons cannot have a single right unless they hold it jointly or in common. But clearly objects of a discretionary trust do not have that : they each have individual rights they are in competition with each other and what the trustees give to one is his alone."
Lord Morris of Borth‑y‑Gest and Lord Guest concurred in the speech of Lord Reid. Lord Wilberforce, with whose speech [1968 A C 613] Lord Hodson concurred did not say anything about the "composite class" theory, but there is nothing in his speech to indicate that he dissented in any way from Lord Reid's view. I do not think that that view was part o! the ratio decidendi of the Gartside case, but even if I disagreed with it I would hesitate to dissent from it. In fact, however, if I may say so, I agree with it entirely. The objects of a discretionary trust‑together, if there is a power of accumulation, with those interested in capital‑may no doubt be said to be collectively the persons interested in the income as it accrues before the trustees have decided how to deal with it. But they do not have concurrent interests in the income. They have separate interests in it which are individually unquantifiable, though added together they cove the whole.
In the immediately following passage [1968 A C 606] in his speech Lord Reid painted out that the considerations applying to discretionary trusts under which the trustee have to distribute all the income may not be in all respects the same as those applicable to discretionary trusts under which there is a power to add income to capital instead of distributing it. I shall have to come back to this distinction in a…
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