Green and Others v Cobham and Others
| Jurisdiction | England & Wales |
| Judgment Date | 19 January 2000 |
| Date | 19 January 2000 |
| Court | Chancery Division |
Chancery Division.
Jonathan Parker J.
Nicholas Warren QC and Emily Campbell (instructed by Wiggin & Co, Cheltenham) for the claimant trustees.
Simon Taube (instructed by Wilsons, Salisbury) for the defendants.
The following cases were referred to in the judgment:
Edge v Pensions Ombudsman UNK[1999] 4 All ER 546
Harris v Lord Shuttleworth ICR[1994] ICR 991
Hastings-Bass (decd), Re ELR[1975] Ch 25
Mettoy Pension Trustees Ltd v Evans WLR[1990] 1 WLR 1587
Pilkington v IR Commrs ELRTAX[1964] AC 612; (1962) 40 TC 416
Stannard v Fisons Pension Trust Ltd [1991] PLR 224
Capital gains tax - Settlement - Trustee - Power of appointment - Settlement with non-resident status because majority of trustees non-UK residents - Power of trustees to appoint certain of settlement funds to accumulation and maintenance trusts - Appointment and settlement constituted single composite settlement - Retirement of solicitor from practice led to loss of non-resident status giving rise to potential capital gains tax liability - Whether exercise of power of appointment by trustees without taking account of capital gains tax consequences valid - Capital Gains Tax Act 1979, s. 52(2) (now Taxation of Chargeable Gains Act 1992, Taxation of Chargeable Gains Act 1992 section 69 subsec-or-para 2s. 69(2)).
This was an application by the trustees of a non-resident settlement for a declaration that the exercise by deed of a power of appointment in 1990 by the then trustees was invalid and void.
By the 1990 deed part of the assets of the settlement were settled by the trustees on accumulation and maintenance trusts for the benefit of a granddaughter of the testator in the exercise of a power of appointment conferred upon them by the settlement. For capital gains tax purposes, the effect of the appointment was that the settlement and the trusts constituted a single composite settlement. The trustees as a single body consisted of the former trustees of the settlement and the trustees of the accumulation and maintenance trusts. Six of the ten trustees of the composite settlement were non-resident, the other four were resident in the UK, with the consequence that settlement was treated as non-resident. One of the trustees was treated as non-resident by virtue of s. 52(2) of the Capital Gains Tax Act 1979 as the solicitor to the settlement. Before the 1990 deed was executed, he retired from practice without retiring as a trustee of the settlement and as a result the settlement lost its non-resident status since the majority of the trustees were no longer non-resident for the purposes of capital gains tax.
The trustees argued that the then trustees had failed to take into account a material factor, i.e. the capital gains tax consequences of the exercise of the power of appointment, so that the 1990 deed was invalid in accordance with the principle in Re Hastings-Bass [1975] Ch 25.
Held, making the declaration sought:
1. The Hastings-Bass principle was that the court should not interfere with the actions of a trustee, notwithstanding that it did not have the full effect intended, unless what he had achieved was unauthorised by the power conferred on him, or it was clear that he would not have acted as he did had he not taken into account considerations which he should not have taken into account, or had he not failed to take into account considerations he ought to have taken into account.
2. This was a clear case for the application of the Hastings-Bass principle. There was no real room for doubt on the evidence that, had the then trustees of the will trust had regard to the possible capital gains tax consequences of the proposed appointment in favour of the granddaughter, they would not have gone ahead with it. In those circumstances the court would interfere by declaring the 1990 deed to be an invalid exercise of the trustees' power of appointment, and consequently void in its entirety.
Jonathan Parker J:
The claimants on this application are the present trustees of the will of the late Sir Alan Cobham. I will refer hereafter to the trust as the "will trust", and to Sir Alan as "the testator".
The claimants seek a declaration that an appointment made by deed dated 12 November 1990 ("the 1990 deed") is invalid and void. By the 1990 deed the then trustees of the will trust appointed certain funds to be held on accumulation and maintenance trusts for the benefit of Camilla Cobham, a granddaughter of the testator, who was at that date aged 16 (she was born on 2 October 1974).
There are five defendants to the proceedings. The first four defendants are the trustees of the 1990 deed, the fifth defendant is Camilla herself.
The claimants are represented by Mr Nicholas Warren QC and Miss Emily Campbell of counsel; the defendants by Mr Simon Taube of counsel.
The background to the application is as follows. The testator died on 21 October 1973, domiciled, resident and ordinarily resident in the British Virgin Islands for the purposes of UK capital gains tax. His will, which was dated 15 January 1973, is governed by the law of the British Virgin Islands. The administration of the testator's estate took place in the British Virgin Islands, where all the executors were domiciled, resident and ordinarily resident.
By cl. 8 of his will the testator directed his executors to pay and transfer one-third of the moneys representing his residuary estate to the trustees of a settlement which the testator had made in 1966, known as the "B settlement". The B settlement is a UK resident settlement which is governed by English law. When the testator made the B settlement he was domiciled, resident and ordinarily resident in the UK. The B settlement is a discretionary settlement for the benefit of a wide class of beneficiaries, including the testator's six grandchildren.
By letter dated 3 November 1980, the trustees of the B settlement disclaimed and renounced any interest under the will. There is no evidence that the trustees of the B settlement had, in the meantime, taken any step which might be construed as an acceptance of the testator's bounty, and it is common ground on this application that the disclaimer was effective.
By a deed of appointment dated 25 June 1981 ("the 1981 deed") the executors purported to appoint new trusts of the one-third share of residue which were similar to, but not identical with, the trusts of the B settlement. By the 1981 deed the executors also appointed the first and second claimants, Miss Jean Green and Mr Robin Gaul, and Mr McWelling Todman QC, as trustees of the appointed fund.
Advice was in due course sought from leading counsel, (the late Mr Maurice Price QC) as to the true effect of the 1981 deed in the events which had happened. Leading counsel advised that although the 1981 deed was ineffective in so far as it purported to declare trusts which differed from the trust of the B settlement, it was effective in so far as it appointed new trustees, and that the true position following the execution of the 1981 deed was that by the application of the maxim "equity never wants for a trustee" the new trustees held the one-third share of residue on trusts identical with those declared by the B settlement; not as part of the B settlement...
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