Analysis
This was a Public Trustee v Cooper application by the claimants as trustees of a discretionary trust executed on 11 March 1968. The application was for a declaration that they had power to make a proposed appointment, and the court’s blessing of that appointment. The trust assets had an estimated value of £80 million. Under the terms of the settlement, the beneficiaries included the children and remoter issue of the settlor, including adopted children and issue. The settlement was silent on the position of illegitimate children. The trustees had wide powers to apply the capital for the benefit of one or more beneficiaries, and to vary the trust powers and provisions so long as no-one was capable of taking any interest or benefit thereunder except some or all of the beneficiaries.
On 29 March 1979, the trustees exercised their powers to point the fund onto certain trusts. At that date, the settlor had one child, who was unmarried and without children. She was the principal object of the trustees’ powers, subject to a power exercisable during her lifetime to appoint the whole or any part of the fund and its income on trust for one or more of her children or remoter issue born before the end of the defined trust period.
Another appointment was made on 1 October 1987. This created trusts under which the fund was held to pay the income to ‘Grandchildren’ for life, and then for such one or more of the grandchildren’s children as were living on the defined ‘Perpetuity Date’. The trustees also had over-riding powers to revoke the trusts wholly or in part so that they could appoint it onto new trusts for the benefit of one or more of the ‘Beneficiaries’. The ‘Grandchildren’ for this purpose were defined as the children of the original settlor’s daughter. ‘The Beneficiaries’ were defined as the children of the settlor’s daughter who were born or env entre sa mere before the perpetuity date and before the first of the grandchildren reached a specified age. There were no provisions concerning illegitimate or adopted children.
The first and second defendants (RS and TU) were the settlor’s grandchildren. RS had three children, the third to fifth defendants who were all minors and acted by litigation friends. TU was unmarried and had no children. V, RS’s eldest child (and the third defendant), was illegitimate, her birth predating her parents’ marriage.
The trustees proposed to execute a deed of appointment revoking the trusts created by the 1987 appointment (other than the entitlement of RS and TU to receive the income from their share of the fund), and replacing them with new trusts for a class of beneficiaries including ‘the children and remoter issue (whether legitimate, illegitimate, legitimated or adopted’ of RS and TU.
The purpose of the proposed appointment was to remove any doubt over whether V was a beneficiary, and to prevent the assets vesting in RS’s children at the age of 18 in the event of his death. It was strongly supported by RS and TU. There was also evidence that the settlor wished V to benefit from the trusts (including a letter of wishes dated December 2016 and a letter written by him on 28 February 2018, the latter expressly supporting the proposed application.
Before the claim was issued, an interim order had been made anonymising the proceedings and restricting access to the court file pending the disposal hearing. A full anonymity order was later made. The evidence in support of anonymity expressed concern that V might become aware of court reports concerning her illegitimacy out of context and feel differently or that she had been treated differently from her sisters, and that V, W, and X would become aware of financial details of the settlement.
Held (granting the application):
Was the trust governed by the rules of construction in the Family Law Reform Act 1969 and the Legitimacy Act 1976?
The 1979 and 1987 appointments could theoretically have amounted to exercises of the power to create a new settlement and might therefore have been ‘dispositions’ within the meaning of Part II Family law Reform Act 1969 and s5 Legitimacy Act 1976. However, the creation of a new settlement is not a necessary consequence of exercising such a power and was unlikely to have been the intention of the trustees. Therefore, while the 1979 and 1987 appointments were made after the Legitimacy Act 1976 came into force, the relevant ‘disposition’ was the 1968 settlement (applying re Hoff [1942] Ch 298 and re Brinkley’s Will Trusts [1968] Ch 407).
The 1979 and 1987 appointments could have expressly or impliedly incorporated the statutory rules of construction applicable at the time. However, there was no indication that this was intended. Instead, it is natural to assume, absent contrary indication, that ‘common language’ shared with the connected 1968 settlement deed was intended to have the same meaning.
While the rules of construction introduced by the 1969 and 1976 Acts were restricted to instruments executed after the relevant specified dates, if re Hand [2017] Ch 449 is correctly decided, V is arguably entitled to benefit from a future exercise of powers under the settlement on the basis that Parliament was imputed with an intention by the Human Rights Act 1998 to contradict the policy of the earlier legislation. There must, however, be doubt as to whether re Hand will be followed. The court would therefore proceed on the basis that there is ‘appreciable uncertainty’ over whether re Hand will be followed and approved in due course by the Court of Appeal.
Was the proposed appointment within the powers of the trustees?
The fact that the relevant power in the 1987 deed was to ‘appoint’ new trusts did not mean, on its proper construction, that it was confined to selecting from particular beneficiaries (distinguishing Muir v Muir [1943] AC 468, re Morris’s Settlement Trusts [1951] 2 All ER 528, and re Hunter’s Will Trusts [1963] Ch 372). The creation of new trusts through the exercise of a wide power which expressly permits the same is not an unlawful delegation of discretion (distinguishing re Hay’s Settlement Trusts [1982] 1 WLR 202). The proposed appointment was therefore within the scope of the trustees’ powers.
Was the proposed appointment a proper use of the power?
It could ‘fairly’ be said that it was for the benefit of RS to make provision for all of his children, and for TU to make provision for all of his future children legitimate or otherwise, that it was for both RS and TU’s benefit to avoid a scenario in which the children’s wealth was vested absolutely rather than managed responsibly for their long-term benefit, that it was for RS and TU’s benefit because the entire family considered it to be the right thing to do, and that both RS and TU considered the appointment to be for their benefit. This conclusion was also supported by the possibility that, if V was excluded, she might be ‘compensated’ from another family settlement at the expense of W and X, and that V’s exclusion could be a source of family dissension.
The proposed appointment was therefore a proper exercise of the trustees’ powers.
Confidentiality
The evidence in support of the confidentiality was ‘at least as strong’ as that in V v T and A [2014] EWHC 3432 (Ch). The children had limited comprehension of the family’s financial position, and RS wished to ensure that they obtained knowledge about it in a measured and careful way rather than stumbling across it on the internet or through their peers, and to protect them from other people taking advantage of them.
Any derogation from open justice was to be considered carefully, and such derogation should go no wider than necessary. The court was required to balance competing rights under articles 8 and 10 European Convention on Human Rights. This was not a case under the Variation of Trusts Act 1958 and there were no tax considerations. It was a claim to ensure that V was treated in the same way as her sisters rather than be possibly prejudiced by a common law rule of construction that did not reflect the majority’s contemporary thinking. The court was therefore entitled to take steps to prevent the risk of a label being applied to V which would differentiate her from her sisters in a way that has no actual importance.
Nothing in the decision in MN v OP [2019] EWCA Civ 679 would have compelled the court to reach a different decision.
JUDGMENT CHIEF MASTER MARSH [1] According to the common law rules of construction, a child is legitimate only if the child is born or conceived in wedlock. Section 15(1)(a) of the Family Law Reform Act 1969 came into force on 1 January 1970 and changed the law so far as it relates to dispositions made …Continue reading "PQ & anr v RS & ors [2019] WTLR 1015"