Haworth v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judgment Date | 19 June 1974 |
| Date | 19 June 1974 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
Surtax - Special charge - Settlement - Rule against perpetuities - Gift to such of settlor's children as should attain 25, provided that children who should attain 21 of child dying under that age should take parent's presumptive share - Intermediate income to be divided among children living when it was received - Whether gift void for remoteness.
By a settlement made by the Appellant on 2nd May 1957 the trustees were directed to hold a fund on trust for such of "the beneficiaries" as should attain 25, and if more than one in equal shares, absolutely, provided that, in the event of any beneficiary dying under 25 leaving a child or children who should attain 21, such child or children should take the share which such beneficiary would have taken had he or she survived to 25. "The beneficiaries" was defined as the settlor's two existing children (then aged 12 and 8) and all his children born thereafter before 28th February 1970 (when the first child would be 25). The settlement also provided that those trusts should carry the intermediate income, and that for the purpose of exercising the trustees' powers under s. 31, Trustee Act 1925, such income as and when received by the trustees should be divided equally among the beneficiaries then living (to the exclusion of any unborn), whether subsequently applied or accumulated for their benefit, the surviving children of a deceased beneficiary to stand in the place of such beneficiary.
The Appellant was assessed to surtax for the years 1966-67 and 1967-68 and to the special charge on the footing that the settlement was void and the trust fund was held on a resulting trust for him. On appeal, it was common ground that by virtue of s.163, Law of Property Act 1925, the references to the children attaining 25 must be construed as references to their attaining 21, and that if there was a single gift to a class comprising the settlor's children and grandchildren it was void for perpetuity. For the Appellant it was contended that there was a primary gift to the settlor's children the validity of which was not affected by the substitutional gift to grandchildren, that primary gift being a vested gift liable to be divested on the death of a child under 21, either (a) under the rule in Phipps v. Ackers (1842) 9 Cl. & F. 583 or (b) as a gift carrying the intermediate income, under the rule in Fox v. Fox (1875) L.R. 19 Eq. 286. For the Crown it was contended that there was a single contingent gift to a class comprising the children and grandchildren as distinct from a gift taking effect on a contingency, and that the rules of construction relied on by the Appellant did not apply to advance the vesting of a gift where it was an integral part of the description of the donees that they should have attained a specified age. The Special Commissioners held that there was a single contingent gift which was void for remoteness.
Held, that the whole gift was void for remoteness, because there was a single contingent gift to the class of children and grandchildren and the rules of construction in Phipps v. Ackers and Fox v. Fox did not extend to overcome the contingent quality of a trust in favour of such members only of a class as satisfied a future condition.
In re Lord's Settlement [1947] 2 All E.R. 685 and In re Hooper's Settlement Trusts [1948] Ch. 586 followed as to the indivisibility of the gift; those cases and Festing v. Allen (1843) 12 M. & W. 279, In re Astor [1922] 1 Ch. 364 and In re Hume [1912] 1 Ch. 693 followed as to the inapplicability of the rules favouring early vesting.
Stated under the Taxes Management Act 1970, s. 56, by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the High Court of Justice.
1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 30th and 31st July 1973 Michael Goodier Haworth (hereinafter called "the Appellant") appealed against the following assessments to surtax and special charge:
Surtax 1966-67 |
£3,448 |
Surtax 1967-68 |
£2,258 |
Special charge |
£4,144 |
2. Shortly stated, the question for our decision was whether the provisions of a settlement made by the Appellant were void for perpetuity.
3. The following documents were proved or admitted before us:
(a) A settlement dated 2nd May 1957 (hereinafter referred to as "the settlement") made between the Appellant and the District Bank Ltd.
(b) A memorandum dated 11th September 1961 whereby it was recorded that certain shares had been added to the funds of the settlement.
Copies of the above are annexed hereto as exhibits A and B respectively(1).
4. As a result of the evidence, both oral and documentary, adduced before us we find the following facts proved or admitted:
(a) The settlement recites that the settlor (the Appellant), being absolutely entitled to the investment specified in the schedule thereto, and desirous of making an irrevocable settlement thereof as thereinafter contained for the benefit of his children Penelope Jane (who was then aged 12) and Amanda Susan (who was then aged 8) and such other children of his as might be born thereafter, had transferred the said investment to the trustee to hold upon the trusts thereinafter expressed.
(b) By clause 1(b) of the settlement, the expression "the Beneficiaries" means Penelope Jane and Amanda Susan and all the children of the settlor who may thereafter be born to him before 28th February 1970 (on which date Penelope Jane attained 25), and "Beneficiary" has a corresponding meaning to "Beneficiaries".
(c) By clause 2 of the settlement the trustee is to hold the settled shares and additions thereto, thereinafter called "the Trust Fund", and may retain or realise the same and invest moneys in investments authorised by the settlement.
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(d) Clauses 3, 4 and 5 of the settlement are as follows:
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(2) The Trustees shall stand possessed of the Trust Fund in trust for such of the Beneficiaries as shall attain the age of twenty five years and if more than one in equal shares absolutely Provided Always that in the event of any Beneficiary dying before attaining the age of twenty five years leaving a child or children who shall attain the age of twenty one years such child or children shall take the share in the Trust Fund which such Beneficiary would have taken had he or she survived to attain the age of twenty five years and if more than one in equal shares absolutely.
(3) Any reference in this Clause to "the share of the Trust Fund" shall mean and include the whole of the Trust Fund if under the foregoing provisions the whole of the Trust Fund shall in the events which happen for the time being be held in trust (whether absolutely or contingently) for one Beneficiary alone.
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4. (a) The aforesaid trusts in favour of the Beneficiaries shall for the purposes of Section 31 of the Trustee Act, 1925 carry the intermediate income of the Trust Fund and accordingly the provisions of that Section (as hereinafter varied) shall apply. (b) For the purpose of exercising the powers and discretions conferred upon them by Section 31 aforesaid all income received by the Trustees from time to time shall be divided equally between such of the Beneficiaries as shall be living at the date when such income is actually received by the Trustees (whether such income shall subsequently be paid or applied by the Trustees for the maintenance education or benefit of such Beneficiaries or shall be accumulated on their behalf) and no Beneficiary shall be entitled to any share in any income of the Trust Fund which shall actually have been received by the Trustees prior to the birth of such Beneficiary And for the purposes of this Clause the surviving child or children for the time being living of a deceased Beneficiary as the case may be shall stand in the place of such deceased Beneficiary.
5. (a) Section 31 of the Trustee Act, 1925 shall apply to these presents as if the words "may in all the circumstances be reasonable" had been omitted from paragraph (i) of subsection (1) thereof and in substitution there had been inserted the words "the Trustees may in their absolute discretion think fit" and as if the proviso at the end of subsection (1) had been omitted therefrom. (b) The power of advancement conferred by Section 32 of the Trustee Act, 1925 shall extend to the whole of the presumptive share of each Beneficiary in the Trust Fund and proviso (a) of sub-clause (1) of that Section shall not apply to the intent that the whole of the capital of the presumptive share of each Beneficiary may be used by the Trustees for any purpose which the Trustees may in their absolute discretion consider to be for the benefit including if thought fit the mere maintenance and education of such Beneficiary.
(e) By clause 6 of the settlement the trustee is given power to appropriate the trust fund or any part thereof, without consents, as if it were a personal representative acting under s. 41 of the Administration of Estates Act 1925. Clause 7 contains the trustee's powers of investment, and clause 8 gives it power to charge for its services. By clause 10 the settlor has power to appoint new trustees.
(f) On 11th September 1961 the Appellant transferred further shares to the trustee to be held as an addition to the trust fund and executed a duly stamped memorandum recording the same.
(g) It was common ground that, if the proviso to clause 3(1) (which was expressed to take effect if any beneficiary were to die under the age of 25 leaving children) is treated as part of a single gift to a composite class comprising children and grandchildren of the settlor, then clause 3(1) is perpetuitous and there is a resulting trust to the Appellant; but if there is a primary trust for the children of the settlor...
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