McPhail v Doulton, sub nom Re Baden's Deed Trusts (No 1)
| Jurisdiction | England & Wales |
| Judge | Lord Reid,Lord Hodson,Lord Guest,Viscount Dilhorne,Lord Wilberforce |
| Judgment Date | 06 May 1970 |
| Court | House of Lords |
Lord Reid
Lord Hodson
Lord Guest
Viscount Dilhorne
Lord Wilberforce
House of Lords
Upon Report from the Appellate Committee, to whom was referred the Cause McPhail and others against Doulton and others, that the Committee had heard Counsel, as well on Tuesday the 13th, as on Wednesday the 14th, Thursday the 15th, Monday the 19th, Tuesday the 20th and Wednesday the 21st, days of January last, upon the Petition and Appeal of Robert Thomas Mitchell McPhail, of Flag Lodge, The Avenue, Tadworth, in the County of Surrey, Enid May Baden (Widow) and Raymond Rostron Baden, both of 8 Astons Road, Moor Park, in the County of Hertford, 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 5th of February 1969, so far as regards the words "This Court doth Order that so much of the said Order dated 12th July 1967 as declared in answer to Question 2 of the Originating Summons in this Action that upon the true construction of the above-mentioned Deed dated 17th July 1941 the provisions of Clause 9( a) thereof constituted a power and not a trust be affirmed," 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 Peter Duke Doulton, Alexander Laing Pearson, Arthur Henry James Hoskins, Denis Edward Clancey, Arthur Frederick Smith, Matthew Hall & Co. Limited and Joseph Francis Norris, 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 5th day of February 1969, in part complained of in the said Appeal, be, and the same is hereby, Discharged except as to Costs: And it is hereby Declared, That the provisions of Clause 9( a) of the Trust Deed, of the 17th day of July 1941, constitute a Trust: 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 with a Direction to determine whether, on the basis of the Declaration made, Clause 9 of the Trust Deed is (subject to the effects of section 164 of the Law of Property Act 1925) valid or void for uncertainty: And it is also further Ordered, That the Costs incurred by the Appellants and by the Respondents in respect of the said Appeal to this House be taxed on a Common Fund basis and paid out of so much of the Trust Fund, subject to the Trust Deed of the 17th of July 1941, as was derived from Bertram Baden deceased, the amount thereof to be certified by the Clerk of the Parliaments.
My Lords,
For the reasons given by my noble and learned friend. Lord Wilberforce, I would allow this appeal and make the Order which he suggests.
My Lords,
The question under appeal is whether on its true construction the provisions of Clause 9( a) of a Deed dated 17th July, 1941, by which one Bertram Baden established a fund to provide benefits for the staff of Matthew Hall & Co. Ltd., and their relatives and dependants, constitutes a trust binding the Trustees to distribute income in accordance with its provisions or is a mere power not imposing any such duty. Clause 9 provided:
"( a) The trustees shall apply the net income of the fund in making at their absolute discretion grants … in such amounts at such times and on such conditions (if any) as they think fit.…
( b) The trustees shall not be bound to exhaust the income of any year or other period in making such grants … and any income not so applied shall be … [placed in a bank or invested].
( c) The trustees may realise any investments representing accumulations of income and apply the proceeds as though the same were income of the fund and may also … at any time prior to the liquidation of the fund realise any other part of the capital of the fund … in order to provide benefits for which the current income of the fund is insufficient."
Clause 10 provided that all benefits being at the discretion of the trustees, no person had any interest in the fund otherwise than pursuant to the exercise of that discretion.
Of the preceding clauses, Clause 6( a) provided that all moneys in the hands of the trustees and not required for the immediate service of the fund may be placed in a deposit or current account with any bank or banking house in the name of the trustees or may be invested as hereinafter provided; Clause 7 dealt with the trustees' power of investment.
The settlor died in April, 1960, and his executors, the present Appellants, claim that, the deed being wholly void, payment of the fund is due to the settlor's estate. This claim is resisted by those whose interest it is to establish that, whether there is a trust or a mere power under which they may benefit, in neither case is the provision which they seek to support void for uncertainty.
The importance to the parties of the particular question under appeal lies in the circumstance that as the law stands on the authorities it appears at least probable that the prospect of success for the Appellants upon the question whether the deed is void for uncertainty are considerably greater if the effect of Clause 9 is to constitute a trust that if, on the other hand, it only has the effect of giving to the Trustees a mere power not amounting to a trust.
At first instance Goff J. held that nothing more than a power imposing no duty was contained in the provision contained in Clause 9. On appeal the majority of the Court of Appeal sustained his judgment without being able to find any certainty in their conclusion, in view of the even balance, as it seemed to them, of the arguments presented. The majority felt able to sustain the judgment by relying on the doctrine ut res magis valeat quam pereat in order that the terms of the deed might have a chance of being effective since, without flying in the teeth of its provisions, the view of the trial judge might prevail thus giving a better opportunity to those upon whom the testator wished to confer benefit.
There is no doubt that the primary trust here is expressed in a mandatory form. True that this is not necessarily conclusive, cf. In re Hain's Settlement [1961] 1 W.L.R. 440 per Lord Evershed M.R. at page 443, but it is powerful foundation for the argument that a trust so created in its inception is not converted into a power by the mere addition in a later clause of a power to accumulate surplus income. Notwithstanding the different views expressed by the learned judges who have considered the matter in the Courts, I cannot for myself resist the conclusion reached by Russell L.J. that Clause 9 is a provision for the distribution of the whole with power to accumulate. There is a complete disposition with a primary duty to distribute, a trust for the whole period of its existence with a power to carry forward from year to year.
Clause 10 is relied upon by the Respondents as showing that no member of the class was to be entitled to benefit from the fund otherwise than by the exercise of the discretion of the Trustees. So it is said that there cannot be a trust of the income but only a power over it. I do not accept this. I agree with Russell L.J. that Clause 10 correctly recites the effect of Clause 9 viz. that all benefits are at the discretion of the Trustees. The remainder of the clause states the legal result. If this makes Clause 10 superfluous it does not justify, in my opinion, the conclusion that it produces a resulting trust to the settlor of income over which the Trustees might not exercise their discretion in the event of accumulation being no longer permissible. On the face of it, Clause 9( b) is no more than a provision for retention of monies unexpended during the lifetime of the trust and as Russell L.J. pointed out it has no other function. True that the language of Clause 9( c) using the word "accumulation" which often has a technical significance, denoting capital, followed by the permission to apply the proceeds as though the same were income and the succeeding reference to any other part of the capital of the fund suggest and lend support to the contrary conclusion. I am, I admit, unable to account for this language except on the footing of attributing to the draftsman a failure to give accurate expression to the intention of the Settlor. I am, however, satisfied after construing this deed as a whole that the Appellants are right in their first contention viz. that Clause 9( a) constitutes a trust or power coupled with a duty under which the Trustees are bound to distribute the whole estate. Clause 9( a) and ( b) together are mandatory, the latter being assisted by administrative proviso including provision for the retention and investment of unexhausted income. Clause 9( c), notwithstanding its references to capital, is concerned only with those investments which it is to be noted can be realised only with the consent of all the Trustees. This treatment is in contrast with powers given to two (or more) trustees as to the trust fund generally (see Clause 6( b)). For these reasons I am of opinion that the order of the Court of Appeal should be reversed in so far as it affirmed that part of the order of Goff J. dated 12th July, 1967, which declared that the provisions of Clause 9( a) constitute a power and not a trust. Unfortunately this does not settle the dispute between the parties.
Goff J. had in addition held that the power was valid and was not void for uncertainty, and on that footing...
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