Jamieson v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judge | Lord Reid,Lord Jenkins,Lord Hodson |
| Judgment Date | 20 June 1963 |
| Judgment citation (vLex) | [1963] UKHL J0620-2 |
| Date | 20 June 1963 |
| Court | House of Lords |
[1963] UKHL J0620-2
House of Lords
Lord Reid
Lord Jenkins
Lord Hodson
Lord Guest
Lord Pearce
Upon Report from the Appellate Committee, to whom was referred the Cause Commissioners of Inland Revenue against Jamieson, that the Committee had heard Counsel, as well on Monday the 6th, as on Tuesday the 7th and Wednesday the 8th, days of May last, upon the Petition and Appeal of the Commissioners of Inland Revenue, of Somerset House, Strand, London, W.C.2, praying, That the matter of the Order set forth in the Schedule thereto, namely, an Order of Her Majesty's Court of Appeal of the 27th of March 1962, so far as therein stated to be appealed against, might be reviewed before Her Majesty the Queen, in Her Court of Parliament, and that the said Order, so far as aforesaid, might be reversed, varied or altered, or that the Petitioners might have such other relief in the premises as to Her Majesty the Queen, in Her Court of Parliament, might seem meet; as also upon the Case of Major D. A. Jamieson. V.C., lodged in answer to the said Appeal; and due consideration had this day of what was offered on either side in this Cause:
It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of Her Majesty the Queen assembled, That the said Order of Her Majesty's Court of Appeal, of the 27th day of March 1962, in part complained of in the said Appeal, be, and the same is hereby, Reversed except as to Costs, and that the Order of the Honourable Mr. Justice Plowman, thereby reversed, be, and the same is hereby, Restored except as to Costs:
And it is further Ordered, That the Cause be, and the same is hereby, remitted back to the Chancery Division of the High Court of Justice, to do therein as shall be just and consistent with this Judgment.
My Lords,
This appeal relates to three assessments to surtax made on the Respondent for the years 1955-56, 1956- 57 and 1957-58. The assessments are in respect of income of funds settled by him in 1950. Under the settlement the Respondent had no interest in the settled funds and could never take any interest in them. But elaborate provisions were enacted in 1936 laying down the conditions in which income from settled funds must be treated as income of the settlor for tax purposes. Those provisions now form sections 397 to 399 of the Income Tax Act, 1952, and the question is whether those provisions apply to this case. The Special Commissioners and Plowman, J. held that they do, but the Court of Appeal has held that they do not.
The relevant part of the settlement is Clause 3, which is in these terms:—
"3. The Trustees shall stand possessed of the said sum of Ten thousand pounds and of the investments and property for the time being representing the same (hereinafter called 'the Trust Fund') and of the income thereof upon the following trusts:—
(1) In trust for all or such one or more exclusively of the others or other of the following class of persons (that is to say) the issue (including children hereafter to be born and issue more remote than children) of the Settlor and the wives husbands widows or widowers (whether or not remarried) of such issue in such shares if more than one and either absolutely or for such successive or other interests or with such trusts and provisions for their respective benefit at the discretion of the Trustees or any other persons and generally in such manner for the benefit of the said class or any of them as the Trustees shall from time to time or at any time by any deed or deeds revocable or irrevocable (with due regard to the rule against perpetuities) appoint Provided that no such appointment may be made or revoked whether wholly or in part after the perpetuity date and Provided Further that the Trustees may at any time or times by deed wholly or partially release or restrict the foregoing power of appointment.
(2) In default of and until and subject to any such appointment as aforesaid in trust for all or any of the children or child of the Settlor born before the Twentieth day of February One thousand nine hundred and seventy-five who shall either attain the age of twenty-five years or being a daughter shall marry under that age or be living on the perpetuity date and attain the age of twenty-one years or being a daughter shall marry under that age and if more than one in equal shares."
The case turns on the proper interpretation of section 399( b), but before coming to that provision I must state in outline the general scheme of this part of the Act. Section 397 provides that, where any income of a settlement is paid to or for the benefit of infant children of the settlor, that income shall be treated as income of the settlor. During the relevant period the settlor had three infant children but the income was accumulated by the Trustees, so that section does not apply to this case. Then, section 398 deals with income which will or may become payable for the benefit of a child, but such income is not to be deemed to be income of the settlor if the settlement is an irrevocable settlement. This settlement is, in fact, irrevocable but section 399 deems an irrevocable settlement not to be irrevocable in certain cases. So, if this settlement falls within the scope of this section the exception in section 398 does not apply. Section 399 is as follows:—
"399. For the purposes of this Chapter, a settlement shall not be deemed to be irrevocable if the terms thereof provide—
( a) for the payment to the settlor or, during the life of the settlor, to the wife or husband of the settlor for his or her benefit, or for the application for the benefit of the settlor or, during the life of the settlor, of the wife or husband of the settlor, of any income or assets in any circumstances whatsoever during the life of any child of the settlor to or for the benefit of whom any income, or assets representing it, is or are or may be payable or applicable by virtue or in consequence of the settlement; or
( b) for the determination of the settlement by the act or on the default of any person; or
( c) for the payment of any penalty by the settlor in the event of his failing to comply with the provisions of the settlement;
Provided that a settlement shall not be deemed to be revocable by reason only—
(i) …
(ii) that it provides for the determination of the settlement as aforesaid in such a manner that the determination will not, during the lifetime of any such child as aforesaid, benefit any person other than such a child, or the wife, husband or issue of such a child; or
(iii) …"
Before coming to the question which your Lordships have to determine I should note that proviso (ii) was amended by section 20(5) of the Finance Act, 1958, by deleting "any person other than such a child, or the wife, husband or issue of such a child" and substituting "the settlor or the wife or husband of the settlor". Apparently it was recognised that the original form was unnecessarily wide and that the new form was adequate to deal with the mischief at which these provisions were aimed. But the amendment was not made retrospective. The original form of the proviso did not exclude this settlement from the scope of section 399 because the Trustees can use their powers to benefit the husbands or wives of grandchildren as well as those who are mentioned in the proviso in its original form. But the new form of the proviso does cover the present case because the Trustees cannot use their powers to benefit the settlor or the wife of the settlor. It is apparently for that reason that this case is only concerned with the years before the passing of the 1958 Act.
The Trustees could use their power of appointment so as to appoint the whole fund absolutely to a beneficiary who had attained majority and such beneficiary might be the husband or wife of a grandchild of the settlor. The Appellants say that, therefore, the settlement provides for the determination of the settlement by the act of the Trustees. If that is right, then admittedly this appeal succeeds. But the Respondent argues, first, that the appointment of the whole trust fund is not a "determination" of the settlement within the meaning of section 399( b), and, secondly, that even if it is, the settlement does not "provide" for its determination—it merely confers power to do something which will, in fact, bring about its determination.
What then is meant by the "determination" of a settlement by the act or default of a person? It appears to me that, unless the context indicates a more limited meaning, it must include every case where the act of a person brings the settlement to an end. The Trustees are persons and therefore it must include every case where the Trustees do an act authorised by the settlement which brings it to an end. Exercising a power of appointment is the doing of an act, and if the exercise of such power vests the whole trust fund absolutely in a major beneficiary that appears to me to bring the settlement to an end. If authority be needed for that, I find it in the decision of this House in Kenmare v. Commissioners of Inland Revenue [1958] A.C. 267 [1958] A.C. 267. But it is said that an absolute appointment of the whole fund does not bring the settlement to an end because after making the appointment the Trustees have to wind up the trust estate by paying debts, etc., and then to convey the net estate to the appointee and the settlement must survive until that is done. But they would have to do that in every case where the act or default of any person, whether the settlor or a third person, is such that it makes it the duty of the Trustees under the settlement to divest themselves of the whole trust property. And where the act is an act of some person other than the Trustees it might be quite unexpected and it might take some time before the Trustees...
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