Patricia Marigold Bullard v William Harry Bullard and Another
| Jurisdiction | England & Wales |
| Judge | Master Matthews |
| Judgment Date | 05 January 2017 |
| Neutral Citation | [2017] EWHC 3 (Ch) |
| Court | Chancery Division |
| Date | 05 January 2017 |
| Docket Number | Case No: HC-2016-002109 |
[2017] EWHC 3 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Master Matthews
Case No: HC-2016-002109
Mathew Roper (instructed by Birketts LLP) for the Claimant
The Defendants were not present or represented
Hearing date: 14 October 2016
Judgment Approved
Introduction
This is my judgment on a claim made by claim form issued under CPR Part 8 on 19 July 2016, in substance for an order determining the true construction of clause 3 of a trust settled by the claimant on 3 September 2002, or alternatively rectification of the trust deed. The claimant is the settlor and one of the trustees of the trust. The defendants are two of the (adult) children of the settlor. They are also the other two trustees of the trust and two of the beneficiaries.
The claim is supported by a witness statement of the Claimant dated 12 July 2016, setting out the background and main facts, supplemented by a witness statement of Ian Cain, her former solicitor, dated 19 June 2016, setting out some additional facts. There are also a witness statement of Bernadette Catherine Baker, her present solicitor, dated 11 July 2016, dealing only with the position of HMRC, and two short, formal witness statements dated 12 September 2016, one from each of the two defendants, consenting to the relief sought.
As appears from the witness statement of Ms Baker, HMRC was asked if it wished to be joined as a party but before issue of the claim replied in the negative. On 5 September 2016, upon considering the letter from HMRC and the acknowledgments of service of the defendants, Deputy Master Hansen ordered that the matter be listed for disposal. The claim was argued before me on 14 October 2016, when Mathew Roper of counsel appeared for the claimant. The defendants did not appear and were not represented.
Facts
On the evidence placed before me, the following is established. In 2001 the claimant, who claims no expertise in trusts, tax or financial planning, sought advice from Eversheds LLP about mitigation of inheritance tax to be paid on her death. Unfortunately the file maintained by that firm at the time is no longer available, and the claimant had been obliged to rely on the copies of miscellaneous documents surviving on Eversheds' document management system, and such documents as she received and retained. Together with her present solicitors, and the assistance of Mr Cain, one of the team who advised her at Eversheds, she has attempted to reconstruct the advice she says she received from that firm.
Her evidence is that she was advised to enter into a so-called "double trust" arrangement in respect of her house. She understood this to mean (1) creating a life interest trust under which she reserved a life interest in the trust fund; (2) creating a second, interest in possession trust for others whom she wished to benefit; (3) sale of her house to the trustees of the first trust, leaving the purchase price outstanding; (4) assigning the resultant debt to the trustees of the second trust. She understood that if she did this there would be no charge to inheritance tax at the outset and, if she survived at least three years, inheritance tax on her death would be mitigated, and, after seven years, avoided altogether.
She makes clear that it was her intention that the second trust (referred to at step (2) above)) should be an interest in possession trust, relying on a number of the documents now available to her. Although Mr Cain is unable to recall the specific advice given to the claimant by his then firm, having reviewed the miscellaneous documents available to the claimant, he has confirmed that his advice would have been that the second trust should be an interest in possession trust, under which each of the beneficiaries should have an interest in possession in the trust fund.
The claimant established the first trust (to be known as "the Bullard Property Trust") on 16 August 2002. On the same day she entered into an agreement to sell her home, a property called "Curlews" to the trustees of that trust. Transfer was to take place on 14 days' notice being given by either side, or 20 years later, whichever was the sooner. The sale price was left outstanding, represented by a Loan Note. As already mentioned, the claimant established the second trust (to be known as "the Bullard Family Trust") on 3 September 2002. On the same day she executed a deed of gift assigning the Loan Note to the Family Trust.
The trust deed for the Family Trust states its name on the front page, accompanied by the words "(an Interest-in-Possession Settlement)". The trust fund is divided into two parts, one for each of the two branches of the family represented by the two children of the claimant. The combined effect of clauses 1.2 and 3.1 of, and the Third Schedule to, the trust deed, but subject to an overriding power of appointment in clause 4, is that the first defendant, his wife and their two children are each a Primary Beneficiary of one quarter of one half of the trust fund, and the second defendant, her husband and their three children are each a Primary Beneficiary of one fifth of the other half of the trust fund. Clause 3.2 then requires the trustees to pay to each Primary Beneficiary the income of the relevant share for life, then to the children of the Primary Beneficiary for life, and finally the income and capital to the grandchildren of the Primary Beneficiary, contingently on attaining the age of 18 years, with cross-accruers to the other shares in default.
If all the grandchildren of the claimant had been adults at the time when the Family Trust was established in 2002 there would have been no problem. Unfortunately, it appears that none of them was. As is well known, section 31 of the Trustee Act 1925, except so far as modified or excluded, has the effect of divesting a vested interest of a minor in trust property and replacing it with a contingent interest in accumulations of income not paid to or applied for the benefit of the minor beneficiary, to be held for that beneficiary contingently upon attaining the age of majority. This is a case about trust law, rather than one about tax law, especially in the absence of HMRC as a party. But it appears that such a divesting in the present case would have a significant fiscal effect. This is that the Family Trust would not be to that extent an interest in possession trust for the purposes of avoiding an immediate charge to inheritance tax.
Construction of the trust deed
It is therefore necessary to consider whether section 31 does have this effect in the present case. This is a matter of construction. For this purpose I take into account the background to the trust deed, including the fiscal aspects: cfInvestors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896, 912–913, per Lord Hoffmann. However, I must and do ignore all the evidence as to the settlor's intention adduced in the witness statements for the purposes of the alternative claim to rectification.
Section 69(2) of the Trustee Act 1925 provides that the powers conferred by the Act apply
"if and so far only as a contrary intention is not expressed in the instrument, if any, creating the trust, and have effect subject to the terms of that instrument".
It has been held on numerous occasions that section 31 confers powers capable under section 69(2) of being modified or excluded by the terms of the trust instrument: see egRe Delamere [1984] 1 WLR 813, CA.
Even more unfortunately, however, the draftsman of the Family Trust included a provision in paragraph 6 of the Second Schedule to the trust deed which expressly applies section 31, albeit in the standard enhanced form. This shows the intention of the draftsman, and, on the face of it, of the settlor, that section 31 should apply, notwithstanding (i) the description of the trust as an "interest in possession settlement" in the trust deed and elsewhere, (ii) the divesting effect on minors' interests under the trust. In relation to the interests of the Primary Beneficiaries who were adults at the time it was set up, it indeed appears to have been an interest in possession settlement.
It is nevertheless argued by Mr Roper, on behalf of the claimant, that as a matter of construction the trust deed can be interpreted so as to exclude section 31. He refers to clause 13.1, which reads:
"The Trustees shall not exercise any of the powers contained in the Second Schedule so as to conflict with the beneficial provisions of this Settlement."
This is an example of a "no-conflict" clause often found in interest in possession trusts, intended to prevent accidental loss of the fiscal advantages of such a trust by an unlikely exercise of a power conferred.
The argument in the present case is that (1) the beneficial provisions of the trust provide for interests in possession for all the Primary Beneficiaries, and (2) the clause applying an enhanced version of section 31, in paragraph 6 of the Second Schedule, is one of "the powers contained in the Second Schedule". Hence (3) that provision cannot be used in any way that would prevent the interest in possession trusts for the minors from taking effect.
The main problem with this argument is that it entirely removes the point of inserting paragraph 6 into the Second Schedule at all. There is no other way that that paragraph can operate, even minimally, except by divesting the interests in possession conferred on the minor beneficiaries. So if that paragraph is to have any meaning, it cannot be construed in that way. A judge must begin by assuming that all the provisions inserted expressly into a deed are intended...
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