Latimer and Others v Commissioner of Inland Revenue
| Jurisdiction | UK Non-devolved |
| Judge | Lord Millett |
| Judgment Date | 25 February 2004 |
| Neutral Citation | [2004] UKPC 13 |
| Court | Privy Council |
| Docket Number | Appeal No. 90 of 2002 |
| Date | 25 February 2004 |
and others – Trustees for the Crown Forestry Rental Trust
[2004] UKPC 13
Present at the hearing:-
Lord Nicholls of Birkenhead
Lord Millett
Lord Walker of Gestingthorpe
Sir Martin Nourse
Sir Kenneth Keith
Privy Council
The issue in this appeal is whether or not investment income of the trustees of the Crown Forestry Rental Trust ("the Trust") arising in the tax years 1994-96 is exempt from income tax. This ultimately turns on the construction of the relevant statutory provision (section 61(25) of the Income Tax Act 1976, replaced in almost identical terms by section CB 4(1)(c) of the Income Tax Act 1994) and of the trust instrument, that is the trust deed dated 30 April 1990 ("the trust deed") setting up the Trust. But the circumstances in which the Trust was established are of a very unusual character, and give rise to an issue which, so far as their Lordships are aware, has not previously been considered by the courts either in New Zealand or in England. The arguments have ranged far and wide and have varied from time to time during the course of the proceedings, but the ground upon which their Lordships propose to dispose of the appeal surfaced at a very late stage and after the conclusion of oral argument before the Board. The parties were of course informed of this development and availed themselves of the opportunity they were given to make full written submissions on the question.
Waitangi is on the shore of the Bay of Islands in the northernmost part of the North Island. The Treaty of Waitangi ("the Treaty") was entered into on 6 February 1840, in the sense that it was then first signed by Captain Hobson, the newly-appointed Lieutenant-Governor, and by many of the Maori chiefs in the northern part of the North Island. Other signatures were later obtained from chiefs from other parts of the country, making in all 512 signatures of men and women chiefs. The Treaty was a very important event in New Zealand's history. It was hurriedly translated into the Maori language shortly before it was debated by the chiefs, and there have been difficulties in reconciling the two texts. Even apart from translation difficulties, the English text of the Second Article could be recognised as likely to lead to disputes. A retranslation of the Maori text of the whole Treaty is conveniently contained in the judgment of Cooke P in New Zealand Maori Council v Attorney General [1987] 1 NZLR 641, 662-3.
The acquisition of land and other actions which followed the introduction of British rule led to armed conflict especially in the 1860s, to generations of grievances, agitation, negotiations, inquiries and some settlements, and ultimately to the Treaty of Waitangi Act 1975 which established the Waitangi Tribunal. The Tribunal entertains claims by Maori that they have been prejudicially affected by conduct on the part of the Crown which was inconsistent with the principles of the Waitangi Treaty and may make recommendations for remedial action. The Tribunal has played, and continues to play, a very important part in public life in New Zealand.
During the 1980s the New Zealand government adopted a policy of corporatisation, that is of divesting central government of assets and undertakings which were not regarded as core activities. Some of these assets were to be transferred to new corporate entities (called state enterprises) including the Land Corporation and the Forestry Corporation. The assets involved included about 14 million hectares (just over half of the land surface of New Zealand) previously administered by the Department of Lands and Survey and the New Zealand Forest Service. For these and similar purposes a Bill entitled the State-Owned Enterprises Bill was introduced into the House of Representatives on 30 September 1986.
The Tribunal then made an interim report on a series of claims by five Maori tribes. The report expressed concern that the proposed legislation would make it impossible for the Crown to return land to Maori in accordance with any recommendation made by the Tribunal. That led to legal proceedings by the New Zealand Maori Council. The upshot was the Waitangi (State Enterprises) Bill introduced into the House of Representatives on 8 December 1987.
The scope of the state enterprises legislation, and the extent of the Tribunal's statutory remit, were by no means limited to Crown forests. They went much wider. But it was the proposals affecting Crown forests which particularly concerned the Maori Council and led to further litigation. Much of these forests consisted, not of long-lived native hardwoods, but of exotic softwoods which reached maturity in about 40 years, and yielded a good commercial return. The government proposed to sell the Crown's commercial forest assets, including growing trees and the right to fell and remove them, while retaining ownership of the land. Concern was expressed that this would prejudice Maori claims to these assets. After interlocutory proceedings had reached the Court of Appeal negotiations took place to reach a settlement.
The outcome of the negotiations was a written agreement dated 20 July 1989 ("the Compromise Agreement") between the Crown on the one side and the Maori Council and the Federation of Maori Authorities Incorporated on the other. This provided for, and for present purposes was replaced by, the trust deed; it was not contended that the trust deed failed to give effect to the Compromise Agreement; and it is common ground that in the event of any inconsistency the trust deed must prevail. The only relevance of the Compromise Agreement is as evidence that the trust deed originated as part of a negotiated settlement of a potentially serious constitutional dispute.
Under the Compromise Agreement the Crown was to sell the existing tree crop and other forestry assets with a licence for the purchaser to use the land for a period sufficiently long to make his investment commercially feasible. The consideration was to include an annual rental for the use of the land. Where land was subject to Treaty claims, the parties agreed
"that they will jointly use their best endeavours to enable the Waitangi Tribunal to identify and process all claims relating to forestry lands and to make recommendations within the shortest reasonable period."
When the Tribunal made a recommendation determining Treaty claims, the ownership of the Crown or the claimants as the case might be would be confirmed. The Crown would make any necessary transfers to successful claimants and would pay compensation for the fact that the land was being returned subject to encumbrances. From the time of the Tribunal's recommendation for the return of his land a successful claimant was to be entitled to rental payments under existing licences; to resume possession as and when the tree crop was felled; and to payment of an amount equal to all past rental payments for the land.
The Compromise Agreement provided
"The provisions of this agreement are to be reflected and embodied where appropriate in draft legislation and in any event in a trust deed and consent order, the terms of each of which are to be agreed by the parties, in accordance with this agreement."
Legislation for this purpose was duly enacted as the Crown Forest Assets Act 1989 ("the 1989 Act"), section 34 of which also provided for the responsible Ministers, on behalf of the Crown, to "establish by deed a forestry rental trust".
The trust deed was made by the Crown and executed by Her Majesty The Queen in right of New Zealand acting by her Ministers. The trust deed recited the Compromise Agreement and section 34 of the 1989 Act. It contained (in Clause 1) a number of definitions including "Claimants" (Treaty claimants recognised by the trustees); "Beneficiaries" (the Crown, the Claimants and any other person who registered a claim to Crown forest land); "Confirmed Beneficiaries" ("those Beneficiaries who attain a vested interest in the Trust by virtue of Clause 11"); and "Rental Proceeds" (basically rental or licence fees payable under the licences of forest land to be granted by the Crown). Clause 2. 1 and 2.2 must be set out in full:
"2.1 A trust is hereby established under this Deed, to be a forestry rental trust referred to in section 34 of the Crown Forest Assets Act 1989, to be known as the 'Crown Forestry Rental Trust'. The Trust is established to:
(a) receive the Rental Proceeds from Licences; and
(b) make the interest, earned from investment of those Rental Proceeds, available to assist Maori in the preparation, presentation and negotiation of claims before the Waitangi Tribunal which involve, or could involve, Licensed Land.
2.2 Upon the execution of each Licence the Crown shall then hold the interest of the Crown in all Rental Proceeds, payable to the Crown under that Licence, on behalf of the Trustees. The Crown shall pay the Rental Proceeds to the Trustees, after deduction of Goods and Services Tax or any other tax payable on the Rental Proceeds by the Crown as licensor, within 10 working days after the Crown receives them."
Clause 4 provided for an eighty-year perpetuity period and for the Trust to terminate, at the latest, at the end of that period. It is common ground that at its inception all parties expected or at least hoped that the duration of the Trust would be very much shorter. Other Clauses related to the number, the appointment, the administrative powers and duties and the liability of the trustees. There were normally to be six trustees, three appointed by the Minister of Finance and three by the Maori authorities.
Clause 9 set out the trusts on which the forestry...
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