Public Trustee and Another v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judge | Lord Guest,Lord Morton of Henryton,Lord Upjohn,Lord Donovan,Lord Pearson |
| Judgment Date | 15 December 1965 |
| Judgment citation (vLex) | [1965] UKHL J1215-3 |
| Date | 15 December 1965 |
| Court | House of Lords |
[1965] UKHL J1215-3
House of Lords
Lord Guest
Lord Morton of Henryton
Lord Upjohn
Lord Donovan
Lord Pearson
Upon Report from the Appellate Committee, to whom was referred the Cause Public Trustee and another against Commissioners of Inland Revenue, that the Committee had heard Counsel, as well on Wednesday the 14th, as on Tuesday the 27th and Wednesday the 28th, days of July last, upon the Petition and Appeal of the Public Trustee, of the Public Trustee Office, Kingsway, London, W.C.2, and Spencer Charles Henry Hore, of 25/26 Lincoln's Inn Fields, London, W.C.2 (trustees of the Will dated the 3d May 1922 of Sir Robert Park Lyle, Baronet, deceased), 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 22d of October 1964, might be reviewed before Her Majesty the Queen, in Her Court of Parliament, and that the said Order 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 the Commissioners of Inland Revenue, 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 22d day of October 1964, complained of in the said Appeal, be, and the same is hereby, Affirmed, and that the said Petition and Appeal be, and the same is hereby, dismissed this House: And it is further Ordered, That the Appellants do pay, or cause to be paid, to the said Respondents the Costs incurred by them in respect of the said Appeal, the amount thereof to be certified by the Clerk of the Parliaments.
My Lords,
By a will made in 1922 the Testator, Sir Robert Park Lyle, divided the residue of his estate into three shares, one-third, the "Kirkwood share", being settled for the benefit of his daughter Gertrude under trusts which provided that the share was to be held on discretionary trusts for the benefit of Gertrude, her children or other issue for the time being in existence and his sons-in-law Major Kirkwood and Charles John Baker and the children or remoter issue for the time being in existence of his daughter Mary Elizabeth Baker. On the death of Gertrude the capital and income were to be divided equally among her issue, the issue of deceased children taking per stirpes.
The Testator died in 1923 and his daughter Gertrude died on 28th July, 1961, leaving three children. On 17th July, 1961, one of Gertrude's three children, John Tatton Kirkwood, entered into a "Deed of Variation" between himself and the trustees of his grandfather's will. The Deed of Variation was expressed to be supplemental to the will and contained a number of recitals. The Fifth Recital recited that the reversioner was desirous of varying the trusts of the reversioner's share. The effect of the Deed of Variation was that the reversioner assigned to the trustees under the will "the released income" which was the income of the reversioner's share during the trust period, after the death of the daughter. During the "trust period" which was expressed to be the period of seven years from the date of the Deed of Variation (17th July, 1961), or the lifetime of Mrs. Pattisson (Gertrude's married name) whichever was the longer the trustees were to hold the reversioner's share upon the same trusts as they were holding the income under the original will.
Wilberforce, J. (as he then was) held that the Deed of Variation created a new trust for the trust period which, in the events which happened, turned out to be seven years from the date of the Deed for the benefit of a single class, one member of which had died. He therefore held that there was no reason to construe the Deed of Variation as a settlement to arise at that death. He further held that the property passing after seven years from the date of the deed of variation was not a passing within the meaning of section 22 (1) ( b) of the Finance Act, 1894. He accordingly held that the reversionary interest of the son passed to the trustees before the death of his mother and that no property passed at her death and no charge to estate duty arose.
The Crown appealed and the Court of Appeal unanimously held that estate duty was payable on the reversioner's share on the death of Mrs. Pattisson. They declined to follow Wilberforce J.'s construction of the Deed of Variation, that it created one continuous trust for the trust period because ( a) during the mother's lifetime the reversioner had not power to alter or affect the trusts declared by the testator's will under which the trust income was applicable to a class of persons which included the mother; ( b) on the death of the mother the deed of variation operated to apply the income of the reversioner's share for the benefit of a class of persons which necessarily could not include the mother; and therefore ( c) on the death of the mother the original beneficial interest of the discretionary class declared by the testator's will ceased and a new interest, necessarily of a different class, arose. This constituted a passing from one class to another on the death such as to give rise to a charge to estate duty under either section 1 or section 2 (1) ( b) of the Finance Act, 1894.
Before the Court of Appeal the issue between the parties appeared to depend on whether, as Wilberforce J. (as he then was) held, there was a single new trust for a single group for a single period or whether a new trust was created by the Deed of Variation to take effect from 17th July, 1961, to 17th July, 1968, or the death of Mrs. Pattisson, whichever should be the later. The Master of the Rolls and Harman L.J. have given their reasons for thinking that there was not one continuous trust but two separate trusts, one created by the testator under the settlement and the other created by John Kirkwood under the Deed of Variation. Russell L.J. does not deal separately with this aspect. I agree with the conclusion of the Master of the Rolls and Harman L.J. and their reasons. I understand that all your Lordships are also in agreement with that construction of the two deeds. The question then arises upon the basis that there are two separate trusts, what is the effect of the two deeds on the charge for Estate Duty.
In determining whether there was a passing under section 1 or section 2 (1) ( b) of the Finance Act, 1894, the whole circumstances, including the terms of the relevant deeds, must be considered. Under the Settlement the discretionary class were entitled to the income for the period from 1922, the date of the settlement, until Mrs. Pattisson's death and on her death John Kirkwood was entitled to the reversion. If nothing further had been done, estate duty would have been payable on Mrs. Pattisson's death; the same result would have followed if the reversioner, during her life, had assigned his interest to a purchaser or by gift. This much is clear—the reversioner could not vary the original trusts of the settlement. What the reversioner purported to do by the so-called Deed of Variation was to confer on the trustees a discretionary trust for the period from 17th July, 1961, until 17th July, 1968, or until his mother's death, whichever should be the later. The Court of Appeal were plainly right that all she could assign was the income from the date of his mother's death till 17th July, 1968. The "released income" under the Deed of Variation was the income after his mother's death. He could not assign any income prior to his mother's death as this was dealt with under the Settlement. If his mother survived for seven years his rights would then be solely under the Settlement and not under the Deed of Variation at all. The objects of the discretionary trust under the Deed of Variation are expressed to be the same objects as under the Deed of Settlement. But the objects could not of course be the same; Mrs. Pattisson was a member of the first group under the Settlement. But she could not be a member of the second group by reason of her death. The two groups are therefore different. The trusts are differently constituted. The provider of the fund is different; in the case of the Settlement it is the testator, in the Deed of Variation it is the reversioner. The subject of the trust is different; in the Settlement it is the income till Mrs. Pattisson's death, in the Deed of Variation it is the income from her death until 17th July, 1968.
The Crown conceded that in the case of a single discretionary trust the dropping of one life from the object would not result in the passing under section 1 or section 2 (1) ( b) of the 1894 Act. They further conceded that the mere fact that the interest arose under different trusts was not per se conclusive as to passing. It is clear, however, that the fact that there are two trusts is not an irrelevant consideration. I quote from the judgment of Lord Evershed M.R. in In re Parkes Settlement [1956] 1 W.L.R. 397 at p. 402:
"I do not, of course, forget that, according to the rule laid down for us by the House of Lords in Inland Revenue Commissioners v. Duke of Westminster, it is the duty of the court to determine the question of liability to duty according to the legal effect of the settlement or other transaction which gives rise to the claim. The court is not entitled to decide the question by reference to the substance of the matter, if by that term is meant according to the process of treating the rights created as equivalent to rights of a well-recognisedand similar character which would or might have been created in some other...
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