Ralli Bros Ltd v Commissioners of Inland Revenue ; Re Ralli's Settlements
| 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 J1215-4 |
| Date | 15 December 1965 |
| Court | House of Lords |
[1965] UKHL J1215-4
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 Ralli Brothers Limited and another against Commissioners of Inland Revenue, that the Committee had heard Counsel, as well on Tuesday the 6th, as on Wednesday the 7th, Thursday the 8th, Monday the 12th, Tuesday the 13th and Wednesday the 14th, days of July last, upon the Petition and Appeal of Ralli Brothers Limited, whose registered office is at 30, St. Paul's Churchyard, in the City of London, and Sir Godfrey Victor Ralli (Baronet) of 7, Birchin Lane, in the City of London, 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, Reversed, and that the Judgment of the Honourable Mr. Justice Buckley, of the 11th day of March 1964, thereby Discharged, be, and the same is hereby, Restored:
And it is further Ordered, That the Respondents do pay, or cause to be paid, to the said Appellants the Costs incurred by them in the Court of Appeal, and also the Costs incurred by them in respect of the said Appeal to this House, the amount of such last-mentioned Costs to be certified by the Clerk of the Parliaments:
And it is also 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,
I have had the advantage of reading in advance the speech of my noble and learned friend, Lord Upjohn. I agree with it and there is nothing I can usefully add. For the reasons given by him I would allow the appeal.
My Lords,
I, too, would allow the appeal for the reasons given by my noble and learned friend, Lord Upjohn.
My Lords,
The whole question in this appeal is whether the Commissioners of Inland Revenue can establish a claim to estate duty on certain settled funds upon the death of a Mrs. Ralli on the 24th December, 1961. Mr. Justice Buckley held that they could not establish such a claim but he was reversed by the Court of Appeal who held that they could, Lord Justice Russell dissenting. The relevant facts are simple and depend solely on the construction of certain documents and the proper interpretation of the relevant Finance Acts to those documents.
By a Marriage Settlement dated 3rd July, 1895, Mrs. Ralli became entitled to a life interest in certain funds with the usual power to appoint among issue after her death. These funds were later augmented by the operation of an after-acquired property clause and by certain supplemental settlements settling additional funds upon the trusts of the 1895 Settlement. I shall call all these funds the Settled Funds. By a Deed of Appointment dated 5th December, 1961, Mrs. Ralli, then an old lady of 85, exercised her power of appointment by irrevocably appointing the funds subject to her own life interest to two named grandchildren absolutely; both these grandchildren had attained 21 so that the only persons entitled to the trust funds thereafter were Mrs. Ralli and these two named grandchildren. By an assignment dated 6th December, 1961, these said grandchildren granted to Mrs. Ralli their interest, if any, in the income arising or accruing from the Settled Funds down to the 31st December, 1965. The grant was expressly stated to be made to the intent that the interest so granted might merge with the life interest of Mrs. Ralli in the income of the said funds and that such life interest might be enlarged into an absolute interest in the whole of the income of the funds continuing until the end of the year 1965 or the death of Mrs. Ralli whichever might be the later event. This assignment contained a power of revocation but this was released by a deed of release dated 12th December, 1961.
Mrs. Ralli died on the 24th December, 1961.
It is not in doubt of course that, apart from the 1961 assignment, upon the death of Mrs. Ralli estate duty would have been exigible upon the whole of the settled funds and so the sole question is as to the effect of that assignment.
The main argument in the courts below, and to some extent before your Lordships, was to the effect that taking the 1895 Settlement and the 1961 assignment together the legal result was to effect "an enlargement" or "aggrandisement" or a "coalescence" and reliance was also placed in the expression "running trust" used in the Kirkwood case heard by this House immediately after this case which, it was said, had the effect as though the 1961 assignment had been written in to the original Settlement of 1895 so that Mrs. Ralli had an enlarged interest in the income of the Settled Funds until her death or the 31st December, 1965, whichever event should occur later. It was said that having regard to this single interest there can have been no passing or benefit arising on her death except to the comparatively small extent which I shall notice later.
My Lords, I protest at the use of these phrases which have no precise legal meaning. They are used solely in connection with estate duty cases and are derived from the curious concession of the Inland Revenue that if a life tenant acquires a reversion expectant upon his life tenancy, his life interest is "enlarged" and no estate duty is payable upon his death notwithstanding section 43 of the Finance Act, 1940. See Dymond Death Duties 15th edition, p. 191. Cases where two beneficial interests as a strict matter of law or of equity become sublimated into one (apart from surrenders and so forth) are few. One is "merger", a precise and well understood legal phrase but there is admittedly no merger of Mrs. Ralli's life interest into the interest granted to her by the 1961 assignment; first, because having regard to the technical rules of merger that is impossible and, secondly, because if Mrs. Ralli survived the year 1965 her life interest in the Settled Funds by virtue of the 1895 Settlement would continue. Another is a "union of estate" without merger but this is highly technical and the rules for the creation of the union of two estates into one are not satisfied here. See Vol. III Preston's Conveyancing 3rd edition, p. 410. But these other phrases are meaningless and I hope no more will be heard of them.
It is a pure question of construction as to what is the legal effect of the Settlement of 1895 and the assignment of 1961. That seems to me perfectly plain. There was no enlargement, there was no running trust, no coalescence, nor any aggrandisement of any interest. Mrs. Ralli had until the moment of her death a life interest in the income of the Settled Funds under and by virtue of the 1895 Settlement. If her death should occur before the end of 1965 her estate would have an interest in the whole of the income of the Settled Funds until the end of that year derived not from the Settlement alone but by the added virtue of the 1961 assignment. As a matter of operative direction the Trustees paid the income of the Settled Funds to her under the 1895 Settlement until the moment of her death and thereafter under the 1961 assignment to her personal representatives until the end of 1965. Had Mrs. Ralli survived 1965 the 1961 assignment would have no operation in possession but that does not mean that it was altogether inoperative; on the contrary before its execution Mrs. Ralli could only enjoy and dispose of an interest in the income of the Settled Funds until the moment of her death which then hung on tenuous threads. After the execution of the 1961 assignment she could enjoy and dispose of income until 31st December, 1965, at least; she had a vested interest in income in possession until that date.
The legal effect of these documents may, I think, be accurately stated in one sentence; under and by virtue of the 1895 Settlement and the 1961 assignment Mrs. Ralli was entitled to the income of the Settled Funds during her life and thereafter until the 31st December, 1965, should she die before the expiry of that period. But her interest was not a single or enlarged interest. She had a vested interest under two titles or if you like under two trusts but for one term ending on one of two events.
In the court of appeal Denning M.R. decided the upon the argument that there was an enlargement, and rightly rejected it. In view of some concessions apparently made there that was in his Lordship's view sufficient to dispose of the appeal.
But before your Lordships alternative arguments were presented on the footing that there was no enlargement but that Mrs. Ralli's interests under the 1895 Settlement and the 1961 assignment were as I have stated them above and to these arguments I must now turn.
The Crown claims duty on Mrs. Ralli's death under four main headings:
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(1) There was a cesser and a benefit accruing under section 2 (1) ( b) of the Finance Act, 1894;
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(2) Alternatively there was a passing under section 1 of that Act independently of...
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