Analysis
By a lifetime settlement dated 7 December 2005 two sisters settled property on trust as to income for their father during his lifetime and as to capital for themselves if living at the end of the trust period, or their issue if not. The trustees also had a power of appointment in favour of a class of beneficiaries which included the settlors.
However, clause 13 provided that “No discretion or power conferred on the Trustees or any other person by this Deed or by law shall be exercised, and no provision of this Deed shall operate directly or indirectly, so as to cause or permit any part of the capital or income of the Trust Fund to become in any way payable to or applicable for the benefit of the Settlor… or the spouse for the time being of the Settlor”.
There was an ultimate default gift to charity in the event of “the failure or determination of the above trusts”.
The trustees by Part 8 claim form sought an order for either:
A. the construction of the settlement so that clause 13 was either of no effect, or there was no bar to the settlors or their spouses receiving a benefit from the fund or act of the trustees; or:
B. the rectification of the instrument by the deletion clause 13.
All of the current members of the beneficial class, and the Attorney-General on behalf of charity, consented to such an order being made. The claimants elected not to seek representation orders for possible future spouses of the settlors, who would therefore not be bound by any order.
Held, determining the matter on the papers alone
- 1) The presumption at section 2 of the Perpetuities and Accumulations Act 1964 that a woman over the age of 55 cannot have further children, is limited to questions arising on the rule against perpetuities and is not of general application. Although the court could authorise trustees to administer the trust on the basis that no further children would be born, such an order would not bind such future children in the absence of a representation order – Re Westminster Bank Ltd’s Declaration of Trusts [1963] 1 WLR 820. Potential future spouses were in the same position.
- 2) Proceeding on that basis, the court approaches the construction of lifetime settlements by applying the same principles applicable to contracts and to wills following Investors Compensation Scheme v West Bromwich Building Society [1998] 1 WLR 896 and Marley v Rawlings [2015] AC 129.
- 3) Applying those principles, clause 13 could not stand with the rest of the terms of the trust instrument. If clause 13 were applied, then the ultimate default gift to charity would never come into effect – Re Abbott [1893] 1 Ch 54 applied. The consequence would therefore be a resulting trust back to the settlors, despite clause 13. That was a powerful indication that clause 13 should be ignored. Accordingly, the instrument should be construed disregarding clause 13 in all respects.
- 4) Had it not reached the conclusion above, the Court would have been minded to order rectification of the trust instrument. Giles v Royal National Institute for the Blind [2014] EWHC 1373 applied.
- 5) Per curiam such applications should be served on HMRC, to provide an opportunity for HMRC to make submissions, and evidence of such service should be filed. Unless joined, the revenue would not be bound by the outcome of the claim.
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