CHAPMAN AND OTHERS
v.
CHAPMAN AND OTHERS
25th March 1954.
Lord Chancellor
MY LORDS,
This appeal raises questions of considerable importance and for that
reason, though I have had the privilege of reading the Opinion which my
noble and learned friend. Lord Morton of Henryton, is about to deliver and
agree with it in its reasoning and conclusions. I think it desirable to make
same observations upon the main argument of the Appellants. By way
of preliminary explanation, it is only necessary to say that your Lordships
are invited to hold that a Judge of the Chancery Division of the High
Court of Justice has an inherent jurisdiction in the execution of the trusts
of a settlement to sanction on behalf of infant beneficiaries and unborn
persons a rearrangement of the trusts of that settlement for no other purpose
than to secure an adventitious benefit which may be and, in the present
case, is, that estate duty, payable in a certain event as things now stand,
will, in consequence of the rearrangement, not be payable in respect of the
trust funds.
This argument, which found favour with Lord Justice Denning, is based, as
I understand it, on two separate lines of thought which are for this purpose
blended. On the one hand it is said that the Chancellor, the Court of
Chancery and the Chancery Division of the High Court of Justice, exercising
in turn on behalf of the Sovereign as parens patriae a peculiar jurisdiction
over infants, had and has power to dispose of an infant’s property in any
manner beneficial to him in which he, if of full age. could have disposed of it ;
and, on the other hand, it is said that the same Court whose duty it has
been for some centuries to execute and administer trusts has jurisdiction to
remodel those trusts by agreeing on behalf of infants and unborn persons
to any rearrangement which it deems to be advantageous to them.
These two lines are happily united in the proposition of the learned Lord
Justice which I quote—
” He ” [that is Lord Hardwicke] ” proceeded on the broad principle
” that the Court had power to deal with the property and interests of
” infants and other persons under disability in a manner not authorised
” by the trust, whenever the Court was satisfied that what was proposed
” was most advantageous for them provided, of course, chat everyone of
” full age agreed to it. I hope to show that this is the true principle
” to-day.”
It was natural that die learned Lord Justice should, upon the basis of an
unlimited inherent jurisdiction, proceed to the conclusion that, whenever the
Court had in the past asserted a want of jurisdiction, it had of its own
motion placed limitations on its own jurisdiction and, giving as examples
of this abnegation its declared inability to remove a married woman’s restraint
on anticipation, to permit a sale of heirlooms or to sanction an unauthorised
transaction for the sake of expediency, should observe that in all these cases
the intervention of the legislature to vest these powers in the Court must
not be read as delimiting the jurisdiction of the Court, but rather as removing
limitations which the Court had imposed on itself. These statutory pro-
visions he says ” show that the Judges of the late nineteenth century made a
” mistake in tieing their own hands in these matters. We ought not to
” make the same mistake to-day.”
My Lords. I am unable to accept as accurate this view of the origin,
development and scope of the jurisdiction of the Court of Chancery. I
2
do not propose to embark on the arduous task of tracing to its sources this
peculiar jurisdiction. Many volumes have been devoted to it, and I have
refreshed my memory by reference to some of them. Nowhere can I find
any statement which would support the broad proposition for which the
Appellants contend. Moreover, the Law Reports contain many cases in
which the scope of the jurisdiction has been discussed, everyone of them a
work of supererogation if its scope was unlimited.
In my opinion, the true view that emerges from a consideration of this
jurisdiction through the centuries is not that at some unknown date it
appeared full-fledged and that from time to time timid Judges have pulled
out some of its feathers, but rather that it has been a creature of gradual
growth, though with many setbacks, and that the range of its authority
can only be determined by seeing what jurisdiction the great equity Judges
of the past assumed and how they justified that assumption. It is, in effect,
in this way that the majority of the Court of Appeal in the present case
have approached the problem and, in my opinion, it is the right way. It
may well be that the result is not logical and it may be asked why, if the
jurisdiction of the Court extended to this thing, it did not extend to that
also. But. my Lords, that question is as vain in the sphere of jurisdiction
as it is in the sphere of substantive law. We are as little justified in saying
that a Court has a certain jurisdiction, merely because we think it ought
to have it, as we should be in declaring that the substantive law is some-
thing different from what it has always been declared to be, merely because
we think it ought to be so. It is even possible that we are not wiser than
our ancestors. It is for the Legislature, which does not rest under that
disability, to determine whether there should be a change in the law and
what that change should be.
My Lords, I have indicated what is, in my view, the proper approach
to the problem and do not propose to traverse the ground which has been
so ably covered by the majority of the Court of Appeal and will be explored
again by my noble and learned friends. The major proposition I state in
the words of one of the great masters of equity. ” I decline,” said Sir George
Farwell, ” to accept any suggestion that the Court has an inherent jurisdiction
” to alter a man’s will because it thinks it beneficial. It seems to me that
” is quite impossible.” It should then be asked what are the exceptions
to this rule. They seem to me to be reasonably clearly defined. There is
no doubt that the Chancellor (whether by virtue of the paternal power or
in the execution of a trust, it matters not) had and exercised the jurisdiction
to change the nature of an infant’s property from real to personal estate
and vice versa, though this jurisdiction was generally so exercised as to
preserve rights of testamentary disposition and of succession. Equally, there
is no doubt that from an early date the Court assumed the power, sometimes
for that purpose ignoring the direction of a settlor, to provide maintenance
for an infant, and, rarely, for an adult, beneficiary. So, too, the Court had
power in the administration of trust property to direct that by way of
salvage some transaction unauthorised by the trust instrument should be
carried out. Nothing is more significant than the repeated assertions by
the Court that mere expediency was not enough to found the jurisdiction.
Lastly, and I can find no other than these four categories, the Court had
power to sanction a compromise by an infant in a suit to which that infant
was a party by next friend or guardian ad litem. This jurisdiction, it may
be noted, is exercisable alike in the Queen’s Bench Division and the Chancery
Division and whether or not the Court is in course of executing a trust.
This brings me to the question which alone presents any difficulty in this
case. It is whether this fourth category, which I may call the compromise
category, should be extended to cover cases in which there is no real dispute
as to rights and, therefore, no compromise, but it is sought by way of bargain
between the beneficiaries to rearrange the beneficial interests under the trust
instrument and to bind infants and unborn persons to the bargain by order
of the Court.
My Lords, I find myself faced at once with a difficulty which I do not
see my way to overcome. For though I am not as a rule impressed by
3
an argument about the difficulty of drawing the line since I remember the
answer of a great Judge that, though he knew not when day ended and night
began, he knew that midday was day and midnight was night, yet in the
present case it appears to me chat to accept this extension in any degree
is to concede exactly what has been denied. It is the function of the Court
to execute a trust, to see that the trustees do their duty and to protect
them if they do it, to direct them if they are in doubt and, if they do wrong,
to penalise them. It is not the function of the Court to alter a trust because
alteration is thought to be advantageous to an infant beneficiary. It was,
I thought, significant that learned counsel was driven to the admission that
since the benefit of the infant was the test, the Court had the power, though
in its discretion it might not use it, to override the wishes of a living and
expostulating settlor, if it assumed to know better than he what was beneficial
for the infant. This would appear to me a strange way for a court of
conscience to execute a trust. If then the Court has not, as I hold it has
not, power to alter or rearrange the trusts of a trust instrument, except within
the limits which I have defined, I am unable to see how that jurisdiction
can be conferred by pleading that the alteration is but a little one.
It remains to say a few words on the authorities. Counsel have not cited,
and I have not found, any case before the twentieth century in which the
Court has given to the term “compromise” a meaning which it does not
legitimately bear and sanctioned an alteration of trusts where no dispute
existed. Two cases were brought to your Lordships’ notice which occurred
in the early years of this century. One of them, re Wells, a decision of
Farwell, J., does not, I think, upon examination support the extension of
the jurisdiction. I will not anticipate what my noble and learned friend
has to say about it. I cannot think that it weighs heavily in the scales
against the emphatic views elsewhere expressed by the same learned Judge.
The other case, re Trenchard, a decision of Buckley, J., is more difficult to
explain. I should myself regard it as an isolated case in which the Court
went further than it had hitherto done in giving to the word ” compromise ”
an unnatural meaning and to itself a jurisdiction never before exercised.
After these two cases, there appears to have been no case in which the
limits of the jurisdiction have been discussed until the present case and
two others with it, which are not the subject of appeal, came before the
Court. But it seems that Judges of the Chancery Division have in recent
years entertained jurisdiction to make orders in Chambers sanctioning on
behalf of infant beneficiaries bargains or arrangements which involved the
alteration of trusts but did not arise out of any dispute as to rights which
it was expedient to compromise; just such orders, in fact, as that which
is under consideration today. In the reported cases, re Duke of Leeds in
1947 and re Lucas in the same year, there is a clear indication of its being
done and learned counsel assured us that it was done. But neither in these
cases nor in other unreported cases in which a similar course was adopted.
does there appear to have been any argument. It is, moreover, clear from
the orders made by Harman, J., in the present case and by Roxburgh, J.,
in the related cases of re Downshire and re Blackwell, that there was in
the year 1952 no generally accepted doctrine on the question. Nor, though
I am told that I myself made such an order when I was a Judge of the
High Court, would I assent of my own recollection to the view that this
jurisdiction was at any time during my life at the Bar or on the Bench
generally regarded as belonging to the Court. But this sort of recollection
is necessarily fallible, and I would rather say that there is nothing in the
reported cases of the last fifty years to show that there is now vested in
the Court a jurisdiction which it had formerly disclaimed.
This appeal must accordingly, in my view, be dismissed. Your Lordships
will think it proper that the costs of the Appellants and Respondents should
be paid out of the trust funds.
I cannot, my Lords, conclude without expressing to Mr. Buckley the
gratitude of the House for the very able argument which as amicus curioe
he addressed to us.
4
Lord Oaksey
MY LORDS,
My experience in the exercise of its jurisdiction by the Court of Chancery
in the administration of trusts is so limited that I am not prepared to differ
from the Opinion about to be expressed by my noble and learned friend,
Lord Morton of Henryton.
I must confess, however, that I only agree with the greatest hesitation.
The general rule is said to be that the Court must see that the trusts are
executed, but it is conceded that the Court has no power to insist upon
the execution of the trusts if the cancellation of the settlement is desired
by all the parties if they are sui juris and the property can then be resettled
upon altered trusts. Yet where infants are concerned the Court cannot,
it appears, sanction any alteration of the trusts under the general rule
although the interests of the infants appear to demand the alteration.
Lord Morton of Henryton
MY LORDS,
The case which is the subject of the present appeal is one of three cases
which came before Judges of the Chancery Division at the end of July in
the year 1952. The other two are re Downshire’s Settled Estates [1952] 2
A.E.R. 603 and re Blackwells Settlement [1952] 2 A.E.R. 647. These three
cases differed to some extent in their facts, but in each of them the
Court was asked to alter the trusts of a settlement, and in each of them
the reason for the application was the same. The trustees and the adult
beneficiaries realised that if the trusts of the settlement remained unaltered,
the burden of taxation would be very heavy, whereas if the trusts were altered
in certain respects that burden would or might be greatly reduced. They
therefore applied to the Court for an order sanctioning a scheme carrying
out these alterations, on the ground that the adult parties approved the scheme
and that it was for the benefit of the infant beneficiaries and of any after-born
beneficiaries.
The present case, Re Chapman, came before Harman, J. in Chambers on
the 28th July, 1952, and he dismissed the application. The learned Judge
did not deliver a formal judgment, but it is agreed that he took the view that
he had no jurisdiction to make the order which was sought.
On the same day Roxburgh. J. had to consider the case of re Downshire.
In that case the Court was asked to sanction the scheme either under its
general jurisdiction or under section 64 (1) of the Settled Land Act, 1925.
Argument was heard in Chambers, but judgment was delivered in open Court
on 30th July. The learned Judge reviewed certain authorities and concluded
as follows: —
” I hold that the transactions involved in this scheme amount in
” substance to a re-writing of the trusts, or a substantial part thereof,
” or to directions to administer the trust property on the footing that
” new trusts have been declared and old trusts have been struck out
” or varied, and the admitted purpose of the scheme is not to solve any
” administrative problem but to rearrange beneficial interests to greater
” advantage. Such proposals fall, in my judgment, outside the scope of
” the Court’s ‘ extraordinary ‘ jurisdiction.”
He held also that the proposals were outside the ambit of section 64 of
the Settled Land Act, 1925, and section 57 of the Trustee Act, 1925.
Next day Roxburgh, J. gave judgment in open Court in re Blackwell,
which had also been argued in Chambers. In that case the settlement was
of personalty, and the general jurisdiction and section 57 of the Trustee Act,
1925, were relied upon. The learned Judge said: “This scheme, in my
” judgment, proposes a much less drastic re-settlement than the scheme in
” re Downshire but my conclusions are the same.”
5
The Applicants appealed in all three cases, and as in none of the cases
was there any person or class of persons concerned to argue against the
Applicants’ contentions, the Court of Appeal thought it proper to suggest
that counsel should be instructed on behalf of the Attorney-General to assist
the Court as amicus curiae. Mr. Buckley appeared in response to that
suggestion, both in the Court of Appeal and in this House, and has rendered
very valuable assistance.
The Court of Appeal allowed the appeals in re Downshire and re Blackwell
but by a majority (the Master of the Rolls and Romer, L.J.) they dismissed
the appeal in re Chapman. Denning, L.J. would have allowed the appeal in
all three cases. The present appeal relates only to the case of re Chapman,
but I have found it convenient to state the history of all three cases, for
reasons which will appear later.
The application now before your Lordships’ House relates to three separate
settlements. The first of these settlements is dated the 15th March, 1944,
and is hereafter referred to as ” the 1944 Settlement”. The settlors were
Col. Robert Chapman and his wife (now Sir Robert and Lady Chapman).
Clauses 2, 3 and 4 of the 1944 Settlement are as follows: –
” 2. The trustees shall stand possessed of the trust premises (subject
” to clauses 3 and 4 following) for all or any the child or children of
” the settlors’ son Robert Macgowan Chapman who shall attain the
” age of twenty-one years or die under that age leaving issue and if more
” than one in equal shares as tenants in common.”
” 3. Provided always that until the youngest child of the said Robert
” Macgowan Chapman shall have attained the age of twenty-five years
” if that event shall happen within twenty-one years from the date hereof
” or until the expiration of twenty-one years from the death of the
” survivor of the settlors if the youngest surviving child of the said
” Robert Macgowan Chapman shall not then have attained the age of
” twenty-five years the trustees shall retain the trust premises and shall
” apply such part as they in their discretion shall think fit of the income
” thereof for or towards the common maintenance education or other
” benefits of the children of the said Robert Macgowan Chapman for the
” time being living whether minors or adults or for or towards the
” maintenance education or other benefit of any one or more of them
” to the exclusion of the other or others and shall (subject as hereinafter
” mentioned) accumulate the surplus of such income until the time for
” distribution by investing the same and the resulting income thereof in
” any investments hereby authorised in augmentation of the capital of
” the trust premises to be held upon the same trusts as the original
” trust premises but so that the trustees may apply the accumulations of
” any preceding year or years in or towards the maintenance education
” or benefit of all or any of the said children in the same manner as
” such accumulations might have been applied had they been income
” arising from the original trust funds in the then current year. Provided
” always that after each child of the said Robert Macgowan Chapman
” has attained his or her majority the surplus income of his share in the
” trust premises not expended by virtue of the foregoing powers of this
” clause shall not be accumulated but shall be paid to such child.”
” 4. Provided also that the trustees may at any time with the consent
” in writing of the Settlors raise any part or parts not exceeding in the
” whole one half of the then expectant or presumptive or vested share
” of any child whether minor or adult of the said Robert Macgowan
” Chapman in the trust premises under the trust hereinbefore contained
” and pay or apply the same to him or her or for his or her advance-
” ment or otherwise for his or her exclusive benefit in such manner
” as the trustees shall think fit and as to the part or parts so raised
” the maintenance and other trusts of the last preceding clause shall
” cease to be applicable and no interest on any such advance shall be
” charged to any child so advanced in the accounts of die trust.”
The remaining clauses of the Settlement were administrative and are not
relevant for the purposes of this appeal
6
By the second settlement, dated the 8th February, 1950, and hereafter
referred to as ” the 1950 Settlement”, Lady Chapman settled certain further
funds on substantially the same trusts for the benefit of Mr. Robert Macgowan
Chapman’s children as those declared by the 1944 Settlement. In particular
the provisions for common maintenance and accumulation contained in clause
3 of the 1944 Settlement were repeated by clause 4 of the 1950 Settlement
save that the reference in the former clause to the expiration of 21 years from
the death of the survivor of the settlors was altered in the latter clause to
the expiration of 21 years from the death of Lady Chapman.
By the third settlement, dated the 10th February, 1950 (hereafter referred
to as ” the Nicholas Settlement ” and made upon the marriage of Henry James
Nicholas Chapman with Anne Barbara Croft), Lady Chapman settled certain
funds upon trusts for the benefit of the children of that marriage and of the
husband and the wife or (if none of such children attained a vested interest)
then upon similar trusts for the benefit of the children of Nicholas by any
subsequent marriage, and of Nicholas and any subsequent wife, and it was
provided (clause 4) that in the event of the determination or failure of such
trusts the trustees should pay over the trust funds (subject as therein men-
tioned) to the trustees of the 1950 Settlement to be held by them upon the
trusts of that Settlement.
Mr. Robert Macgowan Chapman (who is the son of Sir Robert and Lady
Chapman) has been married once, namely, to his present wife, Barbara May
Chapman, and there have been three children of the marriage, namely, the
Defendants David Robert Macgowan Chapman, who was born on the 16th
December, 1941, Peter Stuart Chapman, who was born on the 24th August,
1944, and Elizabeth Mary Chapman, who was born on the 11th May, 1946.
There has been no issue as yet of the marriage between Mr. Henry James
Nicholas Chapman (who is also a son of Sir Robert and Lady Chapman)
and his wife Anne Barbara.
As at the 24th March, 1952. the estimated values of the funds comprised in
the three Settlements were respectively as follows:—The 1944 Settlement
£43.000, of which £27.700 was settled by Sir Robert, and £15,600 by Lady
Chapman; the 1950 Settlement £14,700; and the Nicholas Settlement
£19.600. By reason of the discretionary trusts for the common mainten-
ance of Mr. Robert Macgowan Chapman’s children contained respectively
in clause 3 of the 1944 Settlement and clause 4 of the 1950 Settlement the
trustees of those Settlements were advised that, except in certain unlikely
events, a claim for estate duty would arise in respect of the funds comprised
in the former Settlement on the death of the survivor of Sir Robert (now
aged 72) and Lady Chapman (now aged 65) and in respect of the funds
comprised in the latter Settlement upon the death of Lady Chapman.
Further, the Trustees of the Nicholas Settlement were advised that if the
substitutive limitation contained in that Settlement, and before referred to,
is valid and should become effective, a claim for estate duty will arise in
respect of their funds by reason of that limitation. If the present rates of
estate duty remain unchanged it is estimated that nearly £30,000 will be
exigible for duty in respect of the three trust funds whether Sir Robert sur-
vives or predeceases Lady Chapman.
In these circumstances a scheme of arrangement was prepared the object
of which was to avoid the expected claims for duty on the deaths of Sir Robert
and Lady Chapman. This object could only be achieved by freeing the 1944
and 1950 Settlement Funds from the provisions for common maintenance
contained in clauses 3 and 4 of those Settlements respectively. It was
accordingly proposed that the trustees of those Settlements should, with the
sanction of the Court, advance their respective funds to the trustees of a new
Settlement which was to be entered into containing similar trusts, but omitting
those provisions; and that the trustees of the Nicholas Settlement should, on
the failure of the trusts therein contained for the benefit of Nicholas Chapman
and his present and any future wife and issue similarly transfer their fund to
the trustees of the proposed new Settlement to be held upon the trusts thereof.
To the above statement of the facts (which is taken in substance from the
majority judgment in the Court of Appeal) I would add that in this House
7
counsel asked for an order in somewhat different terms, the effect being
that the trusts declared by clause 3 of the 1944 Settlement and clause 4
of the 1950 Settlement should no longer have any operation.
My Lords, the first question which arises is solely one of jurisdiction.
and may be stated thus—Had Harman, J. jurisdiction to destroy the trusts
contained in clause 3 of the 1944 settlement and the similar trusts created
by clause 4 of the 1950 settlement, if he came to the conclusion that the
elimination of these trusts would result in benefit to the infant beneficiaries
and to any after-born beneficiaries? For the sake of brevity I shall address
my observations only to the case of the 1944 Settlement, since precisely similar
considerations will apply to the 1950 Settlement.
It is common ground that the discretionary trusts contained in clause 3 of
the 1944 Settlement are in no way objectionable in themselves, but I shall
assume, for the purposes of this judgment, that their elimination would be
beneficial to all parties concerned, by reason of the relevant taxing provisions.
Mr. Neville Gray for the Appellant trustees and Mr. Russell for the
Respondents, three of whom are infants, invite your Lordships to answer the
question already posed in the affirmative. Mr. Buckley, as amicus curiae
has put forward, for the assistance of this House, certain reasons why it
should be answered in the negative. Mr. Gray first contended that the Court
of Chancery, and its successor the Chancery Division of the High Court of
Justice, has had for many years an inherent jurisdiction to make such an
order as is sought in the present case. The same argument was advanced
in the Court of Appeal and was stated in the majority judgment as follows :-
” It was the argument of the learned Counsel for all the Appellants
” (founded on Lord Chancellor Jeffreys’ case, Earl of Winchelsea v.
” Norcliffe, 1 Vernon, page 435, and other early cases, including Pierson
” v. Shore, 1 Atkyn. page 480, before Lord Chancellor Hardwicke and
” Inwood v. Twyne, Ambler, page 417. before Lord Chancellor
” Northington), that the jurisdiction of the Court to modify or vary trusts
” and to direct the trustees accordingly was unlimited provided (1) that
” all persons interested who were sui juris assented and (2) that it was
” clearly shown to be for the advantage or convenience of all persons
” interested who were not sui juris including persons unborn or not
” presently ascertainable: in other words, that the Court has unlimited
” jurisdiction in relation to the property of infants, including the bene-
” ficial interests of infants and unborn cestuisque trust under a settlement,
” and will exercise that jurisdiction so as to secure any benefit or advan-
” tage for the infants or unborn persons which they could have
” themselves secured had they been in esse and sui juris, even to the
” extent of sanctioning a departure from the beneficial trusts of the trust
” instrument from which the interests in question are derived.”
The majority rejected this argument, but Denning, L.J. accepted it. My
Lords, on this point I find myself in complete agreement with the majority.
They expressed their conclusion in the following language, which I would
desire to adopt as my own: –
” In our judgment, such a broad and general jurisdiction is
” inconsistent with the two decisions of this Court in 1901 and 1903.
” never so far as we are aware subsequently qualified or criticised,
” namely. Re New ([1901] 2 Chancery, page 534) and Re Tollemache
” (| 1903] 1 Chancery, page 457) . . . The general rule … is that the
” Court will give effect, as it requires the trustees themselves to do,
” to the intentions of a settlor as expressed in .the trust instrument
” and has not arrogated to itself any overriding power to disregard or
” re-write the trusts (See, for example, D’Eyncourt v. Gregory, 3
” Chancery Division, page 635; Johnstone v. Baber, 8 Beavan, page
” 233). There have been cases in which the Court has made Orders
” which did undoubtedly result in a departure from the trusts declared
” by the settlor; in our opinion, however, these cases did not establish
” new rules but only exceptions to the general rule.”
8
Mr. Gray contended that the cases which the Court of Appeal regarded
as exceptions were really examples of the unlimited jurisdiction which he
sought to establish. I call it ” unlimited jurisdiction “, because Mr. Gray
set no limit to it, provided only that the two elements already mentioned
are present. It is necessary, therefore, to examine these so-called examples
in some detail. Mr. Gray grouped them under four heads—
-
-
-
Cases in which the Court has effected changes in the nature of an
infant’s property, e.g. by directing investment of his personalty in the
purchase of freeholds: -
Cases in which the Court has allowed the trustees of settled
property to enter into some business transaction which was not
authorised by the settlement: -
Cases in which the Court has allowed maintenance out of income
which the settlor or testator directed to be accumulated: -
Cases in which the Court has approved a compromise on behalf
of infants and possible after-born beneficiaries.
-
-
As to head (a). In my view these cases in no way assist the argument
now under consideration. It is self-evident that a change in the nature of
property to which an infant is absolutely entitled causes no change in the
infant’s beneficial interest, and it is noteworthy that even in such cases the
Court usually so framed its order that the infant’s right to make a will during
infancy in the case of personalty, and the rights of his heir to take the realty
if the infant died under the age of 21, were carefully safeguarded. Some
earlier instances of this exercise of the Court’s paternal jurisdiction are Earl
of Winchelsea v. Norcliffe (1686) supra, Pierson v. Shore (1739) supra.
Bridges v. Bridges (1752) footnote in 12 A.C. at p. 693, Inwood v. Twyne
(1762) supra, Ashburton v. Ashburton (1801) 6 Vesey, 6.
Even this limited jurisdiction was recognised as being of an exceptional
nature in Re Jackson (1882) 21 Ch. D. 786; see also Glover v. Barlow
reported in a footnote to that case.
A similar jurisdiction was exercised in the case of lunatics.
As to head (b). The leading case under this head is Re New [1901] 2 Ch.
534. In that case the Court of Appeal authorised the trustees of three
separate trust instruments to concur in a shareholders’ scheme for the
reconstruction of a prosperous limited company, shares in which, settled
by the settlor or testator in each case, had become vested in the trustees, it
being proposed that all the shareholders in the existing company should
exchange their shares, all of which were fully paid, for more realisable
shares (fully paid) and debentures in the proposed new or reconstructed com-
pany. The evidence showed that the scheme would be greatly to the advan-
tage of all parties interested under the several trusts, including infants and
unborn persons. In one of the three cases the trustees had power, under
the trust instrument, to invest in shares or debentures of such a company
as the proposed new company. In the two other cases, as the trustees
had no such power, the Court put them on an undertaking to apply for leave
to retain the shares and debentures they would obtain under the
scheme, if they desired to retain them beyond one year from the time the
reconstruction should be carried into effect.
Romer L.J. in delivering the judgment of the Court said: ” As a rule,
” the Court has no jurisdiction to give, and will not give, its sanction to the
” performance by trustees of acts with reference to the trust estate which are
” not, on the face of the instrument creating the trust, authorised by its
” terms. The cases of In re Crawshay. decided by North J., and In re
” Morrison, decided by Buckley J., are instances where the Court was asked
” to sanction steps to be taken by trustees which it thought unjustifiable, and
” which it declared it had no jurisdiction to authorise. But in the manage-
” ment of a trust estate, and especially where that estate consists of a business
” or shares in a mercantile company, it not infrequently happens that some
” peculiar state of circumstances arises for which provision is not expressly
” made by the trust instrument, and which renders it most desirable, and it
” may be even essential, for the benefit of the estate and in the interest of all
9
” the cestuis que trust, that certain acts should be done by the trustees which
” in ordinary circumstances they would have no power to do. In a case of
” this kind, which may reasonably be supposed to be one not foreseen or
” anticipated by the author of the trust, where the trustees are embarrassed
” by the emergency that has arisen and the duty cast upon them to do
” what is best for the estate, and the consent of all the beneficiaries cannot be
” obtained by reason of some of them not being sui juris or in existence,
” then it may be right for the Court, and the Court in a proper case would
” have jurisdiction, to sanction on behalf of all concerned such acts on behalf
” of the trustees as we have above referred to. By way merely of illustration,
” we may take the case where a testator has declared that some property
” of his shall be sold at a particular time after his death, and then, owing to
” unforeseen change cf circumstances since the testator’s death, when the time
” for sale arrives it is found that to sell at that precise time would be ruinous
“Do the estate, and that it is necessary or right to postpone the sale for a
” short time in order to effect a proper sale: in such a case the Court would
” have jurisdiction to authorize, and would authorize, the trustees to postpone
” the sale for a reasonable time.
” It is a matter of common knowledge that the jurisdiction we have been
” referring to, which is only part of the general administrative jurisdiction of
” the Court, has been constantly exercised, chiefly at chambers. Of course,
” the jurisdiction is one to be exercised with great caution, and the Court will
” take care not to strain its powers. It is impossible, and no attempt ought
” to be made, to state or define all the circumstances under which, or the
” extent to which, the Court will exercise the jurisdiction ; but it need scarcely
” be said that the Court will not be justified in sanctioning every act desired
” by trustees and beneficiaries merely because it may appear beneficial to the
” estate ; and certainly the Court will not be disposed to sanction transactions
” of a speculative or risky character. But each case brought before the Court
” must be considered and dealt with according to its special circumstances.”
My Lords, surely the passage just quoted tells strongly against the argument
now under consideration. The opening sentence states the general rule in
the plainest terms and clearly recognises that even the limited and exceptional
jurisdiction to sanction transactions in the nature of ” salvage” of the trust
property must be exercised with great caution. The Court was, of course,
only dealing with a proposed investment to be made by trustees, and the
beneficial trusts were in no way altered ; but surely if the Court had had
the wide general power to alter trusts, for which counsel contend, the whole
trend of the judgment would have been different.
Two years later Kekewich, J. and the Court of Appeal had to consider the
case of Re Tollemache [1903] 1 Ch. 457. In that case the trustees sought
power to acquire a mortgage of the interests of the tenant for life. This
transaction was not within the investments authorised by the settlement,
but it was pointed out that it would increase the income of the tenant for life
and would not injure the remaindermen. Kekewich, J. refused the application
and carefully analysed the relevant authorities as to jurisdiction, including
Re New. At p. 462, after citing certain cases, he observed : ” The above are
” illustrations of the exercise by the Court, justified by the practical necessity
” of the case, of jurisdiction going beyond the mere administration of trusts
” according to the terms of the instruments creating them. Others might be
” given : the applications or rather the circumstances inducing them exhibiting
” large varieties, but those mentioned suffice to explain the scope of the
” practice of the Court. There might be added illustrations of the refusal of
” the Court to exercise this extraordinary jurisdiction, but there is no occasion.
” All the cases of refusal may be grouped under one of two classes. Either,
” notwithstanding the advantage actual and prospective of what is proposed
” to be done, there is no urgency for it, and the existing state of things may
” without great mischief be allowed to remain, or the terms on which the
” advantage can be gained are such that the Court would by accepting them
” create a new trust in lieu of that which it is administering.”
10
The judgments of the Court of Appeal are in [1903] 1 Ch. 956. They are
as follows: —
” Lord Justice Vaughan Williams: It is admitted that the Applicant
” cannot succeed unless she can bring herself within In re New. Putting
” that case shortly, it is this—that a case may arise in which, in the course
” of the administration of an estate, such an emergency may occur that
” it must be dealt with at once; but it cannot be said that there is any
” such emergency here. The appeal must, therefore, be dismissed, and
” with costs. Lord Justice Romer: I agree. In re New shews how far
” the Court will go, and beyond what point it will not go. Lord
” Justice Cozens-Hardy: I agree. I will only add that, in my opinion,
” In re New constitutes the high-water mark of the exercise by the Court
” of its extraordinary jurisdiction in relation to trusts.”
To quote again the majority judgment in the present case:
” These Judgments are, in our view, consistent and only consistent
” with the conclusion we have expressed above, and are irreconcilable
” with the broad general proposition for which Counsel for the Appel-
” lants have contended. It is to be noted that Lord Justice Romer, who
” had delivered the Judgment in Re New, was a member of the Court
” in Re Tollemache. And if, in view of the arguments now ,put forward,
” the present members of the Court of Appeal wish that he had more
” precisely stated the limits of the jurisdiction which he plainly had
” in mind, he indicated no dissent from or qualification of the other
” Judgments of the Court or the Judgment of Mr. Justice Kekewich.”
My Lords, in my view the cases just mentioned, exemplifying the excep-
tional jurisdiction which is exercised for the sake of ” salvage ” of the trust
property, far from supporting the existence of a general jurisdiction in the
Court to alter trusts, go far to negative it.
As to head (c). It is said, and said truly, that in some cases under this
head the Court’s order resulted in an alteration of beneficial interests, since
income was applied in maintaining beneficiaries, notwithstanding that the
testator or settlor had directed that it should be accumulated or applied in
reduction of incumbrances. Some instances are Revel v. Watkinson (1748)
1 Vesey Senior. 93, Cavendish v. Mercer (1776) 5 Vesey. 195, footnote,
Greenwell v. Greenwell (1800) 5 Vesey, 194. Emit v. Barlow (1807) 14 Vesey,
202. Haley v. Bannister, 4 Maddocks 279. Havelock v. Havelock (1881) 17 Ch.
D. 807. This jurisdiction is too well established to be doubted to-day. It
was explained as follows by Pearson, J. in Re Collins 32 Ch. D. 232: ” The
” ground of the decision ” —that is, the decision in Havelock—” I take to be,
” that where a testator has made a provision for a family, using that word in
” the ordinary sense in which we take the word, that is the children of a
” particular stirps in succession or otherwise, but has postponed the enjoy-
” ment, either for a particular purpose or generally for the increase of the
” estate, it is assumed that he did not intend that these children should
” be left unprovided for, or in a state of such moderate means that they
” should not be educated properly for the position and fortune which he
” designs them to have, and the Court has accordingly found from the earliest
” time that where an heir-at-law is unprovided for, maintenance ought to be
” provided for him.”
A somewhat similar explanation was given by Farwell, J. in Re Walker
[1901] 1 Oh. 879 at 885. It is clear that neither of these learned judges
regarded the maintenance cases as affording any evidence that the Court had
an inherent jurisdiction to alter beneficial trusts in any way it pleased.
To my mind they must be regarded as an exception, and I think the only real
exception, to the general rule, as stated by Romer, LJ. in Re New in the
words already quoted and by Harwell, J. in Re Walker supra when he said:
” I decline to accept any suggestion that the Court has an inherent jurisdic-
” tion to alter a man’s Will because it thinks it beneficial. It seems to me
” that is quite impossible.”
Striking instances of cases which negative the existence of the alleged
unlimited jurisdiction are Re Crawshay (1888) 60 L.T. 357, Re Morrison
(Buckley, J.) [1901] 1 Ch. 701, and Re Montagu (CA.) [1897] 2 Ch. 8. In the
11
first of these cases North, J. said ” I should not be administering the trusts
” created by the testator if I consented to this scheme. I should be altering
” his trusts and substituting something quite outside the will. On the
” assumption that the scheme would be beneficial to the estate, I cannot
” decide that I have jurisdiction to alter it.” In the last-mentioned case
the Court of Appeal held that it had no jurisdiction to allow the trustees
of a settlement to raise money by mortgage of the settled estate and to apply
it in pulling down and rebuilding some of the houses on the property.
Lindley, L.J. said: ” We none of us see our way to hold that there is
” jurisdiction to make an order in this case. It is very desirable that
” the Court should have jurisdiction to deal with such a case ; but Par-
” liament has never gone so far as to give it that jurisdiction. No doubt
” it would be a judicious thing to do what is wanted in this case, and if
” the persons interested were all ascertained and of age, “they would probably
” concur, and then it might be done; but they are not all ascertained nor of
” full age ; and unless the Court can authorise the trustees to do it, it cannot
” be done.”
Lopes, L.J. said: ” I have no doubt that what is proposed is beneficial,
” and would increase both the income and the capital value of the property.
” The question is whether the Court has jurisdiction to sanction it. There
” is no provision in the settlement which would authorise the works in ques-
” tion, nor do they fall within any of the improvements sanctioned by the
” Settled Land Acts. It is urged that the Court, having control over trust
” property, can sanction them, as it would be vastly for the benefit of the
” persons interested that it should do so. That is not enough. If the build-
” ings were falling down it would be a case of actual salvage and would stand
” differently. Even in cases of repairs the Court has been very careful in the
” exercise of its jurisdiction. In the case of In re Jackson, Kay. J., in
” dealing with a case of repairs, said: ‘ I think that this jurisdiction should be
” ‘ jealously exercised, and only in cases which amount to actual salvage.’
” The present cannot be said to be a case of actual salvage, and the learned
” judge was right in refusing to exercise a jurisdiction which he in fact did
” not possess.”
As to head (d). There are, of course, many cases to be found in the
reports in which the Court of Chancery, and its successor the Chancery
Division, have approved compromises of disputed rights on behalf of infants
interested under a will or settlement and on behalf also of possible after-
born beneficiaries. In my opinion these cases in no way support the existence
of the ” unlimited jurisdiction ” for which Mr. Gray contends. Where rights
are in dispute, and the Court approves a compromise, it is not altering the
trusts, for the trusts are, ex hypothesi, still in doubt and unascertained.
For these reasons, I would reject Mr. Gray’s contention that the Court has
the unlimited jurisdiction already described. It now becomes necessary to
examine a further argument, of far-reaching importance, which was fully
developed by Mr. Russell. This argument may be summarised as follows:-
” Let it be assumed, for the purposes of this argument, that the Court
” of Appeal rightly rejected our submission as to the general jurisdiction
” of the Court of Chancery, and its successor the Chancery Division.
” to modify or vary trusts. Even on that assumption the present
” scheme can be sanctioned as being a ‘ compromise’. There
” is no doubt that in cases where the respective rights of persons
” interested under a will or settlement were in dispute, the Court of
” Chancery down to 1873, and the Chancery Division since the passing
” of the Judicature Act, has had jurisdiction to approve a compromise
” on behalf of infants and unborn persons. There has never been any
” logical reason why this jurisdiction should not extend to alterations
” of beneficial interests under a trust, if such alterations are desired by
” the adult beneficiaries and are for the benefit of infants and any after-
‘% born beneficiaries, and it has been so extended on various occasions
” during the last fifty years. Arrangements of this kind may not be
” compromises in the strict sense, if no rights are in dispute, but they
” are compromises ‘ in the broader sense of the word ‘-—to quote the
12
” majority judgment in the Court of Appeal. The majority had no
” good reason for rejecting the arrangement in Re Chapman if they
” had jurisdiction to sanction the arrangements in Re Downshire and Re
” Blackwell. No one of them is a compromise of disputed rights ; each
” one results in an alteration or rearrangement of beneficial interests
” under a settlement, and each one is made for the same reason—the
” desire to reduce or avoid taxation.”
As this argument is based partly on the reasoning of the Master of the
Rolls and Romer, L.J. in their joint judgment, and partly upon the fact
that the Court of Appeal was unanimous in sanctioning the schemes put
forward in Downshire and Blackwell. it is necessary to set out in some detail
the course taken in the joint judgment. After rejecting the argument as to
the ” unlimited jurisdiction “, and referring to the maintenance cases as an
exception to the rule that the Court cannot alter or vary trusts, the joint
judgment proceeded as follows: —
” It must also now be taken, in our judgment (at any rate since the
” decision of Re Trenchant fifty years ago, [1902], 1 Ch. 378) that the
” Court has a further power and jurisdiction … to approve, on behalf
” of persons interested under the trust who are under a disability (particu-
” larly infants) and persons who may hereafter become interested,
” compromises proposed by or between persons beneficially interested
” under the trust who are sui juris, and to direct and protect trustees
” accordingly ; and the word ‘ compromise’ should not be narrowly
” construed so as to be confined to ‘ compromises’ of disputed rights.”
It is to be noted that it is not stated at this point how far the word
” compromise ” is to extend.
The Master of the Rolls and Romer. L.J. went on to consider Re Trenchard
and Re Wells [1903] 1 Ch. 848. I shall consider these cases later. They then
turned to a consideration of section 57 of the Trustee Act. 1925. They
thought that that section afforded the Appellants no assistance, and in this
House counsel have stated that they could not contend that that section had
any application to the present case. After making some observations on
section 64 of the Settled Land Act, 1925, the majority then considered the
case of Re Downshire and said: ” In our judgment the present scheme does
” fall fairly within the ambit of the Court’s jurisdiction to approve com-
” promises (used in the broad sense of the word) which is illustrated in Mr.
” Justice Buckley’s decision in Re Trenchard.” Later they observed:
“… we think that . . . the proposals may fairly and properly be regarded
” as constituting a compromise in the broader sense of the word in which
” it was used in Re Trenchard.” They then turned to the case now under
appeal, and expressed their views in language which must be quoted in full.
” The only possible way, therefore, as it seems to us, that the scheme could
” be brought within the inherent jurisdiction of the Court is by showing that
” it involves a compromise or composition of beneficial interests to which the
” principle exemplified in In Re Trenchard can properly be applied. We
” are unable, however, to see how any such compromise or composition
” arises. Certainly there is no question of compromise in the strict sense,
” for none of the relevant beneficial interests gives rise to any question of
” construction or is otherwise in dispute. It is suggested, however, that some-
” thing in the nature of a composition of the rights of Mr. Macgowan
” Chapman’s children is to be found in the elimination, during the lifetime
” of the settlors,”—(the last six words should, I think, read “during the
” period stated in the settlements “)—” of the expectation that each may
” have of receiving more or less than the others and in substituting equal
” rights among the class, as between themselves, in its place. We think that
” there are two objections to the acceptance of this view. First, although it
” is true that the scheme if sanctioned would have the result described we
” cannot regard that result as constituting a composition of rights in any real
” sense at all. It is nothing more than a rearrangement of beneficial interests
” which, to the extent that it might prove to be of advantage to some members
” of the class, would correspondingly operate to the prejudice of others. It
” cannot, therefore, be compared to a proposal under which, for example, the
13
” contingent interests of all of the members of a class in a fund are converted
” into vested interests in a smaller fund, for in such a case the proposal, if
” beneficial to one member of the class, would of necessity be beneficial to
” them all. Secondly, it is impossible to say, on the facts of the case, that
” the rights and interests of the children under the existing discretionary trusts
” are prejudicial to them and should therefore be eliminated. Both of the
” Settlements were executed within the last 10 years and the trusts in question
” were presumably inserted therein because the settlors thought that their
” introduction would be of advantage to the children; they may well have
” thought, for example, that some of the children might need more for
” maintenance than others and accordingly they empowered the trustees to
” provide for this if occasion should require. Nothing has since transpired
” to show that their views upon this matter were wrong. All that has
” transpired is that the manner in which the discretionary trusts were framed
” may attract an unexpected claim for death duties. The object of the
” scheme, accordingly, is not to compound the interests which the children
” have under the discretionary trust but to avoid the claim for duties; and
” such avoidance does not, and cannot, be regarded as a composition of rights
” for the purpose of the second exception to the rule. Moreover, although,
” as we have previously said, the fact that a scheme will result in the saving
” of death duties or income tax is, in itself, no ground for its rejection, the
” acceptance of the scheme now under consideration might well be followed
” by the presentation of further proposals of a similar character whenever it
” should be considered desirable in the future to avoid or mitigate the effect
” of such changes as may occur hereafter in the existing fiscal legislation. We
” would point out, therefore, that it is no part of the functions of Her
” Majesty’s Courts to recast settlements from time to time merely with a
” view to tax avoidance even if they had the power to do so which, in our
” opinion, they have not.
” It follows from what we have said that the scheme proposed is in truth
” what it appears on its face to be. namely, the destruction of trusts expressly
” declared, and that inasmuch as it cannot be brought within the first
” exception to the general rule and cannot, under the guise of a composition,
” invoke the second exception, the rule applies ; and the Court accordingly
” has no jurisdiction to authorise the trustees to carry it into effect. This
” appeal, in our judgment, must therefore fail.”
To complete the picture, I add that the majority allowed the appeal in
Re Blackwell, saying: ” In our judgment, therefore, the scheme is of a
” nature which it is competent for the Court to sanction in exercise of its
” jurisdiction to approve compromises in the wide sense of that word which
” we have already indicated.”
My Lords, I have set out this lengthy survey of the majority judgment
because I could devise no other satisfactory way of approaching the argument
addressed to your Lordships by Mr. Russell, which I have already summarised.
This argument brings one face to face with the vitally important question
–is it possible to draw a line at some point between the Court’s undoubted
jurisdiction to sanction a compromise of disputed rights, and the alleged
unlimited jurisdiction to alter beneficial interests to any extent, provided that
every person interested who is sui juris assents and the change is shown
to be for the benefit of infants and after-born beneficiaries? I confess that
I have found it impossible to draw such a line. As I have said, the Court’s
jurisdiction to sanction a compromise in the true sense, when the beneficial
interests are in dispute, is not a jurisdiction to alter these interests, for they
are still unascertained. If, however, there is no doubt as to the beneficial
interests, the Court is, to my mind, exceeding its jurisdiction if it sanctions
a scheme for their alteration, whether the scheme is called a ” compromise
“in the broader sense ” or an ” arrangement ” or is given any other name.
Mr. Russell in the course of his argument suggested that the step from the
former to the latter class of case was a short one. My Lords, it may be a
short step, but it is a step into a field of extremely wide extent. In my view
that field was not open to the Court at the beginning of the present century
and is not open now. I think that Farwell, J. (as he then was) was right
when in 1901 he used the words already quoted—” I decline to accept any
14
” suggestion that the Court has an inherent jurisdiction to alter a man’s will
” because it thinks it beneficial. It seems to me that is quite impossible “.
(Re Walker [1901] 1 Ch. 879 at p. 885.) If these words are true in the case
of a will, they are equally true in the case of a settlement, and in 1952
Roxburgh and Harman, J.J., in effect, adopted the words of Farwell. J. and
applied them to the present day. I think these two learned Judges were
right.
It follows that, in my view, the majority of the Court of Appeal were
right in dismissing this appeal, but their decisions in Re Downshire and Re
Blackwell went too far. The facts in these two cases are fully set out in
the majority judgment and need not be repeated here. Suffice it to say
that the scheme in each case involved extensive alterations of the beneficial
trusts declared in settlements dated respectively 1915 and 1933. in order
to reduce taxation, including in each case the release of part of the settled
property from a protected life interest. In neither case was there any
appeal, but I have found it necessary to express my view upon them because
counsel have cited these cases as authorities, and have submitted (rightly,
as I think) that the present case cannot be distinguished from them.
I must, however, examine the cases which were said to establish the
jurisdiction to sanction the scheme now before your Lordships.
The first such case is Re Trenchard [1902] 1 Ch. 378, and the facts must
be stated somewhat fully, in view of the argument which has been based
on this case. A testator who died in 1899 by clause 3 of his will gave to his
wife ” the use of my residence Woodville aforesaid so long as she shall
” desire to make it her permanent place of residence and shall remain my
” widow, my estate to pay all rates, taxes and outgoings in respect thereof,
” and to keep the house and grounds in tenantable repair “. The testator
gave his residuary real and personal estate to his trustees upon the usual
trusts for sale and conversion and payment of debts and legacies and directed
them to stand possessed of his residuary trust monies and the income thereof
upon certain trusts for his children and remoter issue. He directed his
trustees to postpone the sale of his Honor Oak estate (which included
Woodville House) until after the death or marriage again of his wife and
he empowered them from time to time as they should think fit to develop
the same estate, and for that purpose to use such part of his estate as they
deemed advisable.
The widow took possession of Woodville and resided there, but rinding
that it was a larger house than she required and that there were difficulties
connected with the management, repairs, outgoings and development of the
property, she asked the trustees to come to an arrangement with her.
Questions arose, and on a summons taken out by the trustees, Byrne, J.
made an order declaring that the widow had the powers of a tenant for
life under the Settled Land Acts and that she would not forfeit the benefits
conferred upon her by the directions in the will by selling or leasing the
house under those powers. All the persons interested desired that the estate,
which was freehold, should be developed for building purposes, but this
could not be done so long as the widow remained in occupation of Woodville,
and would be prevented if she sold Woodville in exercise of her powers as
tenant for life under the Settled Land Acts. The widow estimated her
interest in the rental value of Woodville, together with the rates, taxes and
outgoings, at £350 a year and offered to release her claims under clause 3
of the will to the trustees in return for a fixed payment of £320 a year.
A summons was taken out to decide whether the trustees had power,
with the sanction of the Court, to enter into an arrangement by way of
compromise for the payment to her of a fixed annual sum in satisfaction of
her claims under clause 3 of the will, and if so, that an agreement to pay
her a fixed sum of £275 per annum during widowhood by way of compromise
of the whole of her claims under clause 3 of the will might be approved
by the Court. There were infants interested in residue and they appeared
by counsel, who expressed the view that the compromise was beneficial to
them. Buckley, J. (as he then was) approved the arrangement, saying: ” It
15
” seems to me that this is a fair compromise for all parties, and I declare
” that it is within the power of the trustees to enter into it, and I sanction it
” accordingly “.
My Lords, this decision appears to me to be no more than the sanctioning
by the Court of a purchase by the trustees of the widow’s rights. It may
be that Buckley, J. stretched the jurisdiction to approve a compromise beyond
its proper limits; but I cannot regard him as claiming a new and extensive
jurisdiction, the existence whereof had so recently been denied by judges of
the Chancery Division and by the Court of Appeal.
The next case relied upon was Re Wells [1903] 1 Ch. 848. The facts of
this case are very fully stated in the majority judgment of the Court of
Appeal and need not be repeated here. I entirely accept the observations
in the majority judgment on that case—” There was no rearrangement or
” altering of any trusts. All persons interested under the trusts of the
” testator’s will, according to its terms, were sui juris and capable of determin-
” ing the trusts. The difficulty arose solely from the fact that derivative
” settlements had been made by the persons contingently entitled to the
” corpus of the estate. No alteration was required of any of the trusts of
” these settlements. What was proposed was that the trustees of the deriva-
” tive settlements should receive a present and certain subject matter instead
” of their previously existing contingent rights “. In my view, Re Wells
affords no support to the argument now under consideration. It was
decided by Farwell, J. (as he then was) and I feel sure he did not think
that in sanctioning the arrangement there proposed he was in any way
departing from the views, already quoted, which he had expressed so forcibly
in Re Walker.
So far as reported cases are concerned, there is a long gap between Re
Wells and Re Duke of Leeds [1947] 1 Ch. 525. Counsel assured us, however,
that, during the intervening 44 years, orders had been made from time to
time in Chambers which were similar in their effect to the orders asked for
in the present case, in Re Downshire, and in Re Blackwell.
My Lords, this may well have been so, but, accepting counsel’s statement.
I would make the following observations. First, when judges are exercising
an undoubted jurisdiction in Chambers, the manner in which they exercise
it may form a useful precedent; but no judge can acquire a jurisdiction
which he does not possess merely by making orders which extend beyond
that jurisdiction. Secondly, it is impossible to found any proposition upon
an unreported case without being aware of all the facts, the precise nature
of the order made, and the arguments advanced at the hearing. It may well
be that the question of jurisdiction was never brought to the minds of the
judges who dealt with these matters in Chambers. I would add this—
according to my recollection, which may be at fault, it was thought at one
time by judges sitting in Chambers that the decision in Re New, supra,
extended by section 57 of the Trustee Act, 1925, justified the making of
many orders which were later considered to have been made in excess of
jurisdiction. I agree with the comments upon Re New and upon section 57
which are contained in the majority judgment in the present case, and it is
conceded by counsel that neither that decision nor the section can possibly
justify the application now before your Lordships.
I now come to the case of Re Duke of Leeds already mentioned. In that
case freehold estates comprising a number of coal mines in Yorkshire and
the North Midlands had been settled by the will of a testator who died in
1927. By the Coal Act, 1938, these mines were compulsorily acquired by the
National Coal Commission, the vesting date being 1st July, 1942, and the
compensation therefor was duly assessed by the National Valuation Boards
of each area and paid to the trustees of the will. Questions arose as to how
the compensation monies should be dealt with as between the persons entitled
in succession under the will, and the matter came before Jenkins. J. (as
he then was). The learned Judge decided all these questions and said, at
page 556 fin: “In view of the unanimity of all parties in supporting the
” plaintiff’s contention I suggested the possibility of authorising the proposed
” commutation by way of compromise, if it could truly be shown to be for
16
” the benefit of all infant or unborn or unascertained persons interested or
” possibly interested under the settlement. It appeared, however, that this
” suggestion was not acceptable, and I was asked to decide the point one way
” or the other as a matter of construction of the Coal Act, 1938, and in
” particular paragraph 21 (2). This I have accordingly done. My decision
” against the plaintiff’s contention as a matter of legal right does not, of
” course, rule out the possibility of giving effect to it as a compromise or
” arrangement if shown to the satisfaction of the Court to fulfill the condition
” mentioned above.”
Mr. Wolfe informs us that in fact a compromise was subsequently approved
by Jenkins, J. under which, I understand, a certain lump sum was paid to
the tenant for life out of the compensation monies and the balance was
to be invested as capital and held on the trusts of the will. He also informed
us that compromises of a similar nature were sanctioned by the Court in Re
Lucas which immediately follows Re Duke of Leeds in [1947] 1 Ch.
My Lords, I should have been glad if I could have found it possible to
draw some sound distinction between the two cases just mentioned and
Downshire and Blackwell on the one hand, and the present application on
the other. The majority in the Court of Appeal, as I understand their
judgment, drew a line between schemes which involved ” a compromise or
” composition of beneficial interests”, such as the schemes in Downshire
and Blackwell, and schemes such as the Chapman scheme, where no such
compromise or composition was involved. If such a line could be drawn,
no doubt the schemes in Duke of Leeds and Lucas would fall on the right
side of it. I do not, however, feel able to draw this line. I agree that there
is a distinction in fact between the Chapman scheme and the schemes in
Downshire and Blackwell, and this is clearly pointed out in the majority
judgment. Further, I think it might be possible to find some distinction in
fact between Downshire and Blackwell on the one hand and Duke of Leeds
and Lucas on the other. Yet all the five cases do involve an alteration in
the ascertained and undisputed beneficial interests under a settlement.
For the reasons which I have set out, I fear at too great length, I am of
opinion that the Court has only claimed jurisdiction to make such an altera-
tion in the maintenance cases already mentioned, and has frequently denied
that it has such a jurisdiction in any other case. In saying this I am not
overlooking the ” salvage ” cases, but they relate to administrative acts by
trustees and not to alteration of beneficial interests.
I agree with the majority of the Court of Appeal in their rejection of the
present application, and I cannot accept Mr. Russell’s argument based on
the other cases which he has cited.
My Lords, it will already be apparent why I cannot agree with the con-
clusions of Denning, L.J. in his dissenting judgment, but I feel bound to
comment upon two passages in that judgment. Denning, L.J. quotes
the following passage from the judgment of Turner, L.J. in Brooke v. Mostyn
(1864, 2 DeG. J. & S. 373 at p. 415):-
” That this Court has power to compromise the rights and claims of
” infants and persons under disabilities, when those rights and claims are
” merely equitable, has not been and cannot be disputed. It is a power
” which has continually been exercised by the Court, and results almost
” necessarily from the jurisdiction which the Court exercises over
” trustees. In the exercise of that jurisdiction the Court may in general
” order the trustees to deal with the trust property in whatever mode
” it may consider to be for the benefit of cestuisque trust who are
” infants or under disabilities. … I have thought it right to make these
” observations, because I consider it of great importance that no doubt
” should be cast upon the power of the Court. . . . The rights of infants
” and incapacitated persons must in many cases be sacrificed if the
” power be not maintained.”
It is to be noted that Brooke v. Mostyn was a case of a true compromise
of disputed rights, and the only question for decision was whether such a
compromise could be set aside. In my view the observations just quoted,
though one sentence is couched in very general terms, must be read as
relating only to cases of true compromise where, to quote the first sentence.
17
the Court is compromising “the rights and claims of infants and persons
” under disabilities.” Denning, L.J., goes on to say: ” This jurisdiction
” is not confined to cases where there is a dispute about the extent of the
” beneficial interests, nor to cases of emergency or necessity, but extends
” wherever there is a bargain about the beneficial interests which is for
” the benefit of the infants or unborn persons.” In support of this observa-
tion he cites Re Trenchard, Re Wells, and the argument of Lord Parker, as
junior counsel, in Re New. But, as I have already said, I cannot regard
these cases as supporting the proposition.
Later, Denning, L.J., said: “The proposed scheme for the Chapman
” Settlement is more troublesome. We are told that the lawyer who drew
” up the Deed made a mistake. He did not have in mind the statutory
” definition about property passing ‘ on the death ‘ for the purpose of death
” duties: and he included a discretionary trust for common maintenance
” when he ought to have omitted it. He ought to have left the children
” to receive maintenance equally instead of giving the trustees a discretion
” to grant more to one than the others. It is a small mistake but it means
” a difference of £30,000 in death duties. The mistake cannot be remedied
” under the strict doctrine of rectification because it is not a mistake in
” expressing the settlor’s intentions but only a mistake as to the legal con-
” sequences. Nevertheless I do not myself see why the mistake should
” not be corrected by the settlors themselves.” In regard to this passage
I would say first, that counsel for all parties are agreed that the wishes
of the grandparents as settlors are entirely irrelevant on the question of
jurisdiction. By settling the property on certain trusts they have put it
out of their power to alter these trusts, however much they may wish to do so.
Secondly, it is not contended by counsel that there was any mistake, in
the true sense of the word, in the present case. The trusts contained in the
settlement are exactly the trusts upon which the settlors intended the settled
property to be held. The present application arises only by reason of
the fact that it was afterwards realised that these trusts, although perfectly
proper and sensible in themselves, would or might have unfortunate results
as regards death duties. Lastly, the question is not whether the Court ought
to have jurisdiction to alter the trusts in this case, but whether in fact it
has that jurisdiction.
I would add, in amplification of remarks by the Master of the Rolls and
Romer. L.J. already quoted, that if the court had power to approve, and
did approve, schemes such as the present scheme, the way would be open
for a most undignified game of chess between the Chancery Division and
the Legislature. The alteration of one settlement for the purpose of avoiding
taxation already imposed might well be followed by scores of successful
applications for a similar purpose by beneficiaries under other settlements.
The Legislature might then counter this move by imposing fresh taxation
upon the settlements as thus altered. The beneficiaries would then troop
back to the Chancery Division and say, ” Please alter the trusts again.
” You have the power, the adults desire it, and it is for the benefit of the
” infants to avoid this fresh taxation. The Legislature may not move again.”
So the game might go on, if the judges of the Chancery Division had the
power which the Appellants claim for them, and if they thought it right
to make the first move.
I would dismiss the appeal.
Lord Asquith of Bishopstone
MY LORDS,
In this appeal Counsel for the Appellants began by taking his stand on an
ambitious general principle of law: namely, that there resided in the Court
of Chancery an inherent jurisdiction to vary the trusts of a settlement or a
will, in every case in which two conditions were satisfied, viz.:
-
that all adults interested in the trust dispositions consented, and
-
that the variation was plainly for the benefit of all interested parties
other than adults, viz. infants and unborn persons.
18
Speaking with much less familiarity with these matters than most of my
noble friends, I cannot but think this principle is too broadly stated, and
respectfully agree with the conclusions and reasoning of my noble and
learned friends, the Lord Chancellor and Lord Morton of Henryton.
In practice, Courts of Chancery have asserted this jurisdiction mainly, if
indeed not solely, in three classes of cases:
-
-
-
Where the trust dispositions have provided for accumulations of
income in favour of an infant during his minority without providing
for his maintenance during that period: but this provision would be
stultified if the infant were not maintained while the income was
accumulating. The Court has in such cases refrained from enforcing
the letter of the trusts, and by authorising maintenance has saved the
infant from starving while the harvest designed for him was in the
course of ripening. -
Where some event or development unforeseen, perhaps unfore-
seeable, and anyhow unprovided against by the settlor or testator,
threatened to make shipwreck of his intentions: and it was imperative
that something should be saved from the impending wreck. These are
often referred to as the “salvage” cases: and many of the ” main-
” tenance ” cases which I have classified separately could properly be
subsumed under this wider class. -
Where there has been a compromise of rights (under the Settlement
or Will) which are the subject of doubt or dispute. It is then often to
the interest of all interested parties, adult or infant or unborn, to have
certainty substituted for doubt, even if the supersession of a dubious
right by an undoubted one may be doing beneficent violence to the
terms of the trust: though it is perhaps inappropriate to speak of
violence to terms to which different persons attribute a different mean-
ing. Whether there is jurisdiction to do the same in reference to rights
which are not in dispute is a point which lies near the centre of the
present appeal, and to which I will revert.
-
-
Leaving this last point for the time being aside, I would venture to record
my view that the inherent jurisdiction of the Court of Chancery in this sphere
is limited to these three classes of cases: ” maintenance ” cases. ” salvage ”
cases, and ” compromise ” cases: and that the Court’s exercise of jurisdiction
in these three spheres is limited to those spheres and is not simply the
exercise in particular circumstances of the far wider jurisdiction claimed
for the Court by Counsel for the Appellants of a jurisdiction limited only
by two conditions:
(a) consent of interested adults ;
(b) benefit to interested non-adults.
If that wider principle had been valid., a formidable volume of judicial learn-
ing and forensic argument directed to the question whether the facts of a
case bring it within the three privileged compartments must have been
expended in vain. Why this expenditure of time and erudition if the alleged
broad principle was always there, offering a short cut? Nor, speaking more
generally, does English jurisprudence start from a broad principle and decide
cases in accordance with its logical implications. It starts with a clean
slate, scored over, in course of time, with ad hoc decisions. General rules
are arrived at inductively, from the collation and comparison of these
decisions: they do not pre-exist them.
Now it is argued that even if this be so, yet the third category or compart-
ment creating jurisdiction—” compromise ” —includes rearrangements of
property rights or interests even where these are not in dispute. And certain
cases—In re Trenchard ([1902] 1 Ch. 378), In re Wells ([1903] 1 Ch. 848), two
cases under the Coal Mines Act (Re Duke of Leeds [1947] 1 Ch. 525, and Re
Lucas reported immediately after it) and the cases of Downshire and
Blackwell, decided simultaneously with the present case (though in a different
sense by the Court of Appeal) are prayed in aid as supporting this extension
of the jurisdiction from cases of ” compromise stricto sensu ” to ” quasi-
” compromise “. And it is further argued that if these cases or some of
19
them attract the jurisdiction, then so does the present case. As to this
latter point, though I can see differences, I cannot see any material distinction
between the Downshire and Blackwell cases and the present case.
But it will be observed (1) that until the 20th century the category “com-
” promise ” had been construed as strictly confined to cases of disputed
rights; (2) that in practice, once it is construed as including what I have
termed ” quasi-compromise “, there is it would seem no logical stopping point
short of the broad and loose principle which was contended for by the Appel-
lants and which, for reasons given above, seems to me untenable. None of the
decisions since 1900, relied on by the Appellants, are binding on your Lord-
ships’ House. Some of them can, I think, be distinguished on the lines indi-
cated by my noble and learned friend Lord Morton of Henryton. For
instance, the case of In re Wells, in my view, is a very special one and does
not on a true view support the Appellants’ proposition. Subject to these
considerations I would reassert the rule that a compromise in this connexion
means a compromise in the strict sense and that the attempted creation of
a category of quasi-compromise is invalid.
As to the effect more specifically of a decision in this sense on In re
Trenchard (supra). In re Wells (supra) the two cases decided under the
Coal Mines Act and the cases of Downshire and Blackwell, I have had the
advantage of reading in advance the opinion just delivered by my noble
and learned friend. Lord Morton of Henryton, and would respectfully adopt
his observations. I am of opinion that the appeal should be dismissed.
Lord Cohen
MY LORDS,
I have had the advantage of reading in print the Opinion delivered by
my noble and learned friend, Lord Morton of Henryton. I agree with him in
rejecting the main argument advanced by Mr. Gray for the Appellants.
Like him. I accept the reasons given by the majority of the Court of Appeal
for rejecting that argument. In my opinion, the cases relied on by Mr. Gray
are not examples of the unlimited jurisdiction for which he contends, but
illustrate exceptions from the general principle that the Court will give
effect, as it requires the trustees themselves to do, to the intentions of the
settlor or testator as expressed in the trust instrument.
In considering those cases I will adopt the grouping made by Mr. Gray
and already stated by the noble and learned Lord. I agree with his com-
ments on the first three groups, with the reservation that I do not think that
the maintenance cases are the only real exception to the rule that the Court
will not alter beneficial trusts. My reasons for this reservation will appear
from the observations I have to make on the scope of the exception which the
Chancery Courts have adopted as regards the sanctioning of compromises
on behalf of infants and possible after-born beneficiaries.
My Lords, like the majority of the Court of Appeal I think that this juris-
diction is not limited to compromises of disputed rights but extends to com-
promises in the wider meaning of that word, and had it not been that some
of your Lordships take a different view, I should have been content to
express my agreement with the reasoning of the Master of the Rolls and
Romer, L.J. on this point.
Lord Morton of Henryton sums up the arguments advanced against their
conclusion somewhat as follows :-
I. The Court’s sanction of a compromise in the true sense, when the
beneficial interests are in dispute, is not the exercise of a jurisdiction
to alter those interests, for they are still unascertained.
II. Re Trenchard ([1902]) 1 Ch. 378. which is the foundation of the
majority judgment of the Court of Appeal on this point, is not a case
of compromise in the broad sense but is ” no more than the sanctioning
” by the Court of a purchase by the trustees of the widow’s rights.”
20
III. It is impossible to draw a line at which the jurisdiction to sanction
a compromise in the broad sense ends or, put otherwise, it is impossible
to draw a line at some point between the Court’s undoubted jurisdiction
to sanction a compromise of disputed rights and alleged unlimited juris-
diction to alter beneficial rights to any extent provided that every person
who is sui juris consents and the change is shown to be for the benefit
of infants and after-born beneficiaries.
My Lords, I am not satisfied that the Court, in sanctioning a compromise
in the strict sense, is not exercising a jurisdiction to alter beneficial rights.
It is true that in such a case the right has not been defined, but the right of
the beneficiary is a right to that to which, upon its true construction, the
will or settlement entitles him. The very essence of a compromise is that
it may give each party something other than that which the will or settlement
would, on its true construction, confer on him.
Nor am I able to accept the view that Re Trenchard (supra) involved
nothing more than the purchase by the trustees of the widow’s interest. Under
clause 3 of the testator’s will she was entitled only (a) to the use of the
testator’s residence so long as she desired to make it her permanent place
of residence and remained the testator’s widow, and (b) during that time to
have the house and grounds kept up at the expense of the estate. If she
ceased to reside, she would forfeit those benefits, the value of the tenantable
repair provision being estimated at £350 a year. Under the arrangement
sanctioned by the Court she got £275 per annum, determinable only on
remarriage not by non-residence in the house. The arrangement, therefore,
in my opinion, clearly involved an alteration of the quality of the beneficial
interest of the widow. So far as the residuary legatees were concerned, the
primary effect was to alter the quantum of what they would receive, but I
am unable to see that it can properly be said that the only purpose and effect
of the transaction was a purchase of the widow’s interest. The summons
asked a question as to compromise (see p. 380). Buckley. J. (at p. 385)
himself described the proposal as a fair compromise for all parties. He was
not using the term ” compromise ” in the strict sense for the legal rights had
already been decided. He was, I think, sanctioning a re-arrangement of rights
as between tenant for life and remaindermen which could not be carried
out without the sanction of the Court because infants were interested. The
question of jurisdiction was argued but Buckley. J. seems to have felt no
doubt as to his jurisdiction. In cases of this kind the Court is always
under the disadvantage that as most of such cases are heard in Chambers
there are few reported precedents. There may well have been earlier
unreported cases in which the Chancery Courts had exercised their juris-
diction over trustees in a similar way. Be that as it may the decision in Re
Trenchard (supra) has stood unquestioned for 50 years and I see no reason
why your Lordships should now overrule it.
I turn, therefore, to the third argument. My Lords, a distinguished member
of this House once said, in another connection, that while he might have
difficulty in drawing a line, he had never had any difficulty in deciding on
which side of it a particular case fell. I think that a comparison of the facts
in Re Downshire and Re Blackwell on the one hand, and the facts in Re
Chapman which is now before your Lordships, illustrate where the line might
be drawn.
In Re Downshire and Re Blackwell as in Re Trenchard and. I think,
also in Re Duke of Leeds ([1947]) 1 Ch. 525, and Re Lucas (which im-
mediately follows that case) the Court was dealing with compromises in the
broad sense between tenants for life on the one hand and remaindermen on
the other hand ; they were not varying the rights inter se of parties whom the
testator had placed on an equality. In Re Chapman, on the other hand, there
was no question of compromise between tenants for life and remaindermen ;
the Court was being asked to vary the rights inter se of a class which the
Testator had directed should be treated in a particular way. As the majority
of the Court of Appeal said in the present case, what is proposed is not
” a composition of rights in any real sense at all. It is nothing more than
21
” a re-arrangement of beneficial interests which, to the extent that it might
” prove to be of advantage to some members of the class, would correspond-
” ingly operate to the prejudice of others.”
My Lords, I have, I hope, said enough to show why I think that the Court
of Appeal were right in allowing the appeals in Re Downshire and Re Black-
well and in dismissing the appeal in Re Chapman, and why, though for
different reasons, I agree that the appeal to your Lordships’ House should be
dismissed.
I cannot sit down without expressing my doubt whether there is any foun-
dation for the suggestion made by Denning, L.J. that the effect of your Lord-
ships’ decision may be that schemes sanctioned in the past could be ignored
by the Revenue and by all persons not sui juris. The High Court is a superior
Court and the control of trustees is a matter within its jurisdiction. It would
take a good deal of argument to satisfy me that its orders were a nullity
and that trustees were not fully protected by orders made by that Court in
the exercise of that trust jurisdiction even though your Lordships may, in a
later case, have said that the jurisdiction had been wrongly exercised.
Source: https://www.bailii.org/
