Analysis
This was a claim for an order under the Variation of Trusts Act 1958, or alternatively a direction that the trustees of a settlement be at liberty to implement an arrangement involving the release and reimposition of certain powers. The claimants were the only trustees of the trust, and were also, respectively, the widow of the settlor, who had become the trust’s life tenant upon his death, and the settlor’s only child, who was also one of the objects of a discretionary power of appointment under the trust. They were concerned about the capital gains tax consequences that would ensue if the trust were to take effect on its then current terms, with the second claimant becoming absolutely entitled to the capital of the trust upon the death of the first claimant. Accordingly, they promoted a scheme of arrangement, which would convert the second claimant’s interest in remainder to a life interest with remainders over, so as to prevent the second claimant becoming so absolutely entitled. The proposed arrangement also extended the perpetuity period to 125 years.
The trust contained an overriding power of appointment exercisable over both income and capital in the absolute discretion of the trustees, in favour of any of the members of the ‘Appointed Class’, which included children and remoter issue of the settlor’s parents, their spouses, widows and widowers, and anyone added by the exercise of a power to that class. Trusts were imposed in default of appointment under this power, making clear that the power was a mere power (ie one which the trustees were not obliged to exercise), albeit a fiduciary one.
Since some of the discretionary objects of this power were minors and unborns, the court’s approval of the arrangement was sought under the Variation of Trusts Act 1958. Such approval was to be given only if the arrangement was for the benefit of those minors and unborns.
The court was satisfied that the arrangement was for the benefit of the minors and unborns. The only question addressed in the court’s judgment was therefore as to whether it had jurisdiction to give the needed approval under the Variation of Trusts Act 1958.
The jurisdiction to approve on behalf of unborns was clear since the Act conferred on the court the power to approve an arrangement on behalf of ‘any person unborn’. As to minors, however, a question arose from the fact that the statutory power specified that it could be exercised only on behalf of:
‘… any person having, directly or indirectly, an interest, whether vested or contingent, under the trusts who by reason of infancy or other incapacity is incapable of assenting.’
The question that arose was whether objects of a mere power of appointment had such an ‘interest’.
Held:
The court did have jurisdiction to approve the proposed arrangement on behalf of the minor objects of the power of appointment, since they had an ‘interest’ for these purposes.
The court had proceeded in a number of cases on the assumption that the object of a trust power did have an interest within the meaning of the relevant section of the Variation of Trusts Act 1958.
There was no relevant difference between a mere power and a trust power for these purposes.
It was settled law that the object of a mere (fiduciary) power, being, like the object of a trust power, someone who may benefit by the exercise of a discretion in future:
- would be identified using the same test as that used to identify the object of a trust power;
- had the same opportunity to seek disclosure from the trustee; and
- had the same ability to ‘block’ an arrangement proposed to be effected under the rule in Saunders v Vautier [1841].
By way of vindication of those rights, an object of a mere power also had the ability to seek remedies to prevent a breach of trust and to seek redress in case such a breach occurs.
In pure trust law terms, therefore, the object of a mere power had a bundle of rights which may properly be designated an ‘interest’ in the trust assets (albeit that these, like the rights of the object of a trust power, are unquantifiable), even though, as with the object of the trust power, that interest does not confer the vested right, present or future, to possession or enjoyment of any part of those assets.
Since the object of a mere power also had an unquantifiable interest in the trust assets, albeit not as powerful as that of the object of a trust power, it was hard to see why the 1958 Act should treat such an object differently for its purposes.
Moreover, the court quoted approvingly from Bernstein v Jacobson [2008] a passage maintaining that the fact that s1(1)(a) extends to an interest under a discretionary trust is confirmed by the fact that s1(1)(d) applies to ‘any person in respect of any discretionary interest of his under protective trusts where the interest of the principal beneficiary has not failed or determined’. There it was said that it would be:
‘… perverse if the Act extended to the beneficiaries of a discretionary trust under protective trusts where the interest of the principal beneficiary had not yet failed or determined, but not to those beneficiaries where the principal beneficiary’s interest had failed or determined.’
For all those reasons, the object of a mere power had an ‘interest’ for the purposes of the Act, and accordingly the court had jurisdiction to approve the proposed arrangement.
JUDGMENT HHJ PAUL MATTHEWS: Introduction [1] On 15 December 2022 I heard this CPR Part 8 Claim for (i) an order under the Variation of Trusts Act 1958, or alternatively (ii) a direction that the trustees of a settlement be at liberty to implement an arrangement involving the release and reimposition of certain powers, as …Continue reading "Harvey & anr v Van Hoorn [2023] WTLR 1323"