Guild (Executor Nominate of the late James Young Russell)
(Appellant) v. Commissioners of Inland Revenue (Respondents)
(Scotland)
JUDGMENT
Die Jovis 27° Februarii 1992
Upon Report from the Appellate Committee to whom was
referred the Cause Guild (Executor Nominate of the late James
Young Russell) against the Commissioners of Inland Revenue,
That the Committee had heard Counsel as well on Monday the
27tn as on Tuesday the 28th days of January last upon the
Petition and Appeal of David James Guild W.S. of 5 Rutland
Square, Edinburgh, praying that the matter of the
Interlocutors set forth in the Schedule thereto, namely
Interlocutors of the Lords of Session in Scotland of the First
Division of the 15th day of March 1991, might be reviewed
before Her Majesty the Queen in Her Court of Parliament and
that the said Interlocutors might be reversed, varied or
altered or that the Petitioner might have such other relief in
the premises as to Her Majesty the Queen in Her Court of
Parliament might seem meet; as upon the case of the
Commissioners of Inland Revenue lodged in answer to the said
Appeal; and due consideration had this day of what was offered
on either side in this Cause:
It is Ordered and Adjudged, by the Lords Spiritual and
Temporal in the Court of Parliament of Her Majesty the Queen
assembled, That the said Interlocutors of the 15th day of
March 1991 complained of in the said Appeal be, and the same
are hereby, Recalled and that the determination of the
Commissioners of Inland Revenue of the 8th day of June 1990 be
Set Aside: And it is further Ordered, That the said Cause be
and the same is hereby remitted back to the Court of Session
in Scotland to proceed as accords: And it is further Ordered,
That the Respondents do pay or cause to be paid to the said
Appellant the Expenses incurred by him in respect of the
Action in the Court of Session and also the Costs incurred by
him in respect of the said Appeal to this House, the amount of
such last-mentioned Costs to be certified by the Clerk of the
Parliaments if not agreed between the parties: And is is also
further Ordered, That unless the Costs certified as aforesaid
shall be paid to the Appellant entitled to the same within one
calendar month from the date of the Certificate thereof the
Cause shall be, and the same is hereby, remitted back to the
Court of Session in Scotland or to the Judge acting as
Vacation Judge to issue such Summary Process or Diligence for
the recovery of such Costs as shall be lawful and necessary.
Cler: Parliamentor:
Judgment: 27 February 1992
HOUSE OF LORDS
GUILD
(EXECUTOR NOMINATE OF THE LATE JAMES YOUNG RUSSELL)
(APPELLANT)
v.
COMMISSIONERS OF INLAND REVENUE
(RESPONDENTS)
(SCOTLAND)
Lord Keith of Kinkel
Lord Roskill
Lord Griffiths
Lord Jauncey of Tullichettle
Lord Lowry
LORD KEITH OF KINKEL
My Lords,
The late James Young Russell (“the testator”), who resided
in North Berwick, died on 11 September 1982 leaving a will dated
7 April 1971 in which, after bequeathing a number of pecuniary
legacies he provided as follows:
“And I leave the whole, rest, residue and remainder of my
said means and estate to the Town Council of North
Berwick for the use in connection with the Sports Centre in
North Berwick or some similar purpose in connection with
sport and the receipt of the Treasurer for the time being of
the Burgh of North Berwick shall be a sufficient receipt and
discharge for my Executor.”
At the time of the testator’s death the town council of
North Berwick had ceased to exist as a result of the coming into
force on 16 May 1975 of section 1(5) of the Local Government
(Scotland) Act 1973. The provision of sporting and recreational
facilities in North Berwick and the surrounding area became the
responsibility of East Lothian District Council, set up under the
Act. The Sports Centre in North Berwick had been the property
of the Town Council and as a result of the Act it became vested
in the District Council, which undertook its operation and
management.
In these circumstances the present appellant, who is
executor nominate under the testator’s will, raised an action of
multiplepoinding and exoneration in the Court of Session, in the
course of which he lodged an administrative claim to be ranked
and preferred to the fund in medio, being the residue of the
testator’s estate, for the purpose of applying to the court for
approval of a cy-pres scheme. Claims were also lodged by the
testator’s heirs on intestacy and the appellant’s administrative
claim was supported by East Lothian District Council. By
interlocutor dated 5 April 1986 the Lord Ordinary, Lord Jauncey,
ranked and preferred the appellant to the fund in medio in terms
of his administrative claim, holding that the terms of the bequest
of residue evinced a general charitable intention, and that there
was nothing to indicate that the selection of the Town Council to
administer the bequest involved delectus personae (Russell’s
Executor v. Balden, 1989 S.L.T. 177). “
The appellant then presented a petition to the Inner House
for approval of a cy-pres scheme for the future administration of
the bequest, and approval was duly granted on 14 June 1988.
Nothing now turns on the terms of the cy-pres scheme so
approved.
Some time later, on 8 June 1990, the Commissioners of
Inland Revenue, the present respondents, sent to the appellant a
notice of determination to the effect that the transfer of value
involved in the testator’s bequest of residue was not an exempt
transfer for the purposes of paragraph 10 of Schedule 6 to the
Finance Act 1975. That was the Act, in force at the testator’s
death, which introduced capital transfer tax. There is no need for
present purposes to consider the main provisions of the Act, since
this appeal is concerned only with the exemption from the tax
afforded to property which is given to charities. The exemption is
contained in paragraph 10 of Schedule 6 to the Act, which
provided so far as material:
“(1) Subject to the provisions of Part II of this Schedule,
transfers of value are exempt to the extent that the values
transferred by them-
(a) are attributable to property which is given to
charities; and
-
-
-
so far as made on or within one year of the death
of the transferor, do not exceed £250,000.
-
-
. . .
(3) For the purposes of this paragraph property is given to
charities if it becomes the property of charities or is held
on trust for charitable purposes only.”
Under section 51 of the Act “charity” and “charitable” are stated
to have the same meanings as in the Income Tax Acts. Section
360(3) of the Income and Corporation Taxes Act 1970 provides:
“In this section “charity” means any body of persons or trust
established for charitable purposes only.”
The appellant appealed against the respondent’s
determination to the First Division of the Court of Session as the
Court of Exchequer in Scotland, under paragraph 7(3) of Schedule 4
to the Act of 1975. On 15 March 1991 that court by a majority
(Lord President Hope and Lord Mayfield, Lord McCluskey
dissenting) refused the appeal and affirmed the determination. The
appellant now appeals to your Lordships’ House.
– 2 –
At one time it was being contended on behalf of the Crown
that for the purpose of determining whether or not the exemption
from tax of charitable bequests was available it was appropriate to
have regard, not to the terms of the original bequest, but to the
terms of the cy-pres scheme approved by the court. That
contention, if correct, would have resolved the issue in favour of
the Crown, since it is conceded that the purposes of the cy-pres
scheme are not, strangely enough, charitable purposes only. The
contention has, however, now been departed from. Before the First
Division one of the arguments for the Crown was that during the
period between the testator’s death and the date when the cy-pres
scheme became operative the residue of his estate was not “held
on trust” within the meaning of paragraph 10(3) of Schedule 6 to
the Act of 1975. That argument was unanimously rejected by
their Lordships of the First Division and was not renewed before
your Lordships’ House. Counsel for the respondents did, however,
argue another point upon which they were unsuccessful in the First
Division, namely that the first part of the bequest failed to pass
the requisite test since the purposes of the Sports Centre in North
Berwick were not charitable purposes only. Counsel for the
appellant, for their part, sought to overturn the decision of the
First Division upon the point upon which they had, by a majority,
failed there, namely whether or not the second part of the
bequest, by its reference to “some similar purpose in connection
with sport,” was of such width as to admit the possibility of the
funds being applied to provide some benefit of a non-charitable
nature.
A Scottish court, when faced with the task of construing
and applying the words “charity” and “charitable” in a United
Kingdom tax statute, must do so in accordance with the technical
meaning of these words in English law: Commissioners for Special
Purposes of the Income Tax v. Pemsel [1891] AC 531; I.R.C. v.
City of Glasgow Police Athletic Association [1953] AC 380. For
tax purposes, and for them alone, the English law of charity is to
be regarded as part of the law of Scotland. Lord Jauncey’s
decision in the action of multiplepoinding proceeded upon the
general law of Scotland as regards charities, and, as the Glasgow
Police Athletic case shows, the decision under the corresponding
English common law rules would have been different. However,
the Glasgow Police Athletic case and that of I.R.C. v. Baddeley
[1955] AC 572 led to the Recreational Charities Act 1958, and it
is that Act which the appellant invokes in his claim to the
charitable exemption from capital transfer tax.
Section 1 of the Act provides:
“(1) Subject to the provisions of this Act, it shall be and be
deemed always to have been charitable to provide, or assist
in the provision of, facilities for recreation or other leisure-
time occupation, if the facilities are provided in the
interests of social welfare:
Provided that nothing in this section shall be taken to
derogate from the principle that a trust or institution
to be charitable must be for the public benefit.
(2) The requirements of the foregoing subsection that the
facilities are provided in the interests of social welfare shall
not be treated as satisfied unless-
– 3 –
(a) the facilities are provided with the object of
improving the conditions of life for the persons for
whom the facilities are primarily intended; arid
(b) either-
(i) those persons have need of such facilities as
aforesaid by reasons of their youth, age,
infirmity or diablement, poverty or social and
economic circumstances, or
(ii) the facilities are to be available to the
members or female members of the public at
large.
(3) Subject to the said requirement, subsection (1) of this
section applies in particular to the provision of facilities at
village halls, community centres and women’s institutes, and
to the provision and maintenance of grounds and building to
be used for purposes of recreation or leisure-time
occupation, and extends to the provision of facilities for
those purposes by the organising of any activity.”
In the course of his argument in relation to the first branch
of the bequest counsel for the respondents accepted that it
assisted in the provision of facilities for recreation or other leisure
time occupation within the meaning of subsection (1) of section 1
of the Act, and also that the requirement of public benefit in the
proviso to the subsection was satisfied. It was further accepted
that the facilities of the Sports Centre were available to the
public at large so that the condition of subsection (2)(b)(ii) was
satisfied. It was maintained, however, that these facilities were
not provided “in the interests of social welfare” as required by
subsection (1), because they did not meet the condition laid down
in subsection (2)(a), namely that they should be “provided with the
object of improving the conditions of life for the persons for
whom the facilities are primarily intended.” The reason why it
was said that this condition was not met was that on a proper
construction it involved that the facilities should be provided with
the object of meeting a need for such facilities in people who
suffered from a position of relative social disadvantage. Reliance
was placed on a passage from the judgment of Walton J. in I.R.C.
v. McMullen [1978] 1 W.L.R. 664. That was a case where the
Football Association had set up a trust to provide facilities to
encourage pupils of schools and universities in the United Kingdom
to play association football and other games and sports. Walton J.
held that the trust was not valid as one for the advancement of
education nor did it satisfy section 1 of the Act of 1958. He said
at p. 675, in relation to the words “social welfare” in subsection
(1):
“In my view, however, these words in themselves indicate
that there is some sort of deprivation – not, of course, by
any means necessarily of money – which falls to be
alleviated; and I think that this is made even clearer by the
terms of subsection (2)(a). The facilities must be provided
with the object of improving the conditions of life for
persons for whom the facilities are primarily intended. In
– 4 –
other words, they must be to some extent and in some way
deprived persons”
When the case went to the Court of Appeal ([1979] 1 W.L.R. 130)
the majority (Stamp and Orr L.JJ.) affirmed the judgment of
Walton J. on both points, but Bridge L.J. dissented. As regards
the Recreational Charities Act point he said at p. 142:
“I turn therefore to consider whether the object defined by
clause 3(a) is charitable under the express terms of section
1 of the Recreational Charities Act 1958. Are the facilities
for recreation contemplated in this clause to be ‘provided in
the interests of social welfare’ under section 1(1)? If this
phrase stood without further statutory elaboration, I should
not hesitate to decide that sporting facilities for persons
undergoing any formal process of education are provided in
the interests of social welfare. Save in the sense that the
interest of social welfare can only be served by the meeting
of some social need, I cannot accept the judge’s view that
the interests of social welfare can only be served in relation
to some ‘deprived’ class. The judge found this view
reinforced by the requirement of subsection (2)(a) of section
1 that the facilities must be provided ‘with the object of
improving the conditions of life for the persons for whom
the facilities are primarily intended; . . . ‘ Here again I
can see no reason to conclude that only the deprived can
have their conditions of life improved. Hyde Park improves
the conditions of life for residents in Mayfair and Belgravia
as much as for those in Pimlico or the Portobello Road, and
the village hall may improve the conditions of life for the
squire and his family as well as for the cottagers. The
persons for whom the facilities here are primarily intended
are pupils of schools and universities, as defined in the trust
deed, and these facilities are in my judgment unquestionably
to be provided with the object of improving their conditions
of life. Accordingly the ultimate question on which the
application of the statute to this trust depends, is whether
the requirements of section l(2)(b)(i) are satisfied on the
ground that such pupils as a class have need of facilities for
games or sports which will promote their physical education
and development by reason either of their youth or of their
social and economic circumstances, or both. The
overwhelming majority of pupils within the definition are
young persons and the tiny minority of mature students can
be ignored as de minimis. There cannot surely be any doubt
that young persons as part of their education do need
facilities for organised games and sports both by reason of
their youth and by reason of their social and economic
circumstances. They cannot provide such facilities for
themselves but are dependent on what is provided for them.”
In the House of Lords the case was decided against the Crown
upon the ground that the trust was one for the advancement of
education, opinion being reserved on the point under the
Recreational Charities Act. Lord Hailsham of St. Marylebone L.C.
said ([1981] AC 1 at p. 11):
“I do not wish my absence of decision on the third or fourth
points to be interpreted as an indorsement of the majority
– 5 –
judgments in the Court of Appeal nor as necessarily
dissenting from the contrary views contained in the minority
judgment of Bridge L.J.”
Reference was also made to the speech of Lord Denning in
National Deposit Friendly Society Trustees v. Skegness U.D.C.
[1959] A.C. 293, a case concerned with the meaning of “the
advancement of … social welfare” in section 2(1)(a) of the
Rating and Valuation (Miscellaneous Provisions) Act 1955. Lord
Denning said at pp. 322-323:
“A person is commonly said to be engaged in ‘social
welfare’ when he is engaged in doing good for others who
are in need – in the sense that he does it, not for personal
or private reasons – not because they are relatives or
friends of his – but because they are members of the
Community or of a portion of it who need help … If a
person is engaged in improving the conditions of life of
others who are so placed as to be in need, he is engaged in
‘social welfare”‘.
Counsel for the appellant, for his part, relied on part of the
judgment of Lord MacDermott L.C.J. in Commissioner of Valuation
for Northern Ireland v. Lurgan Borough Council [1968] N.I. 104. A
local authority which was owner and occupier of an indoor
swimming pool claimed exemption from rates in respect of it
under section 2 of the Valuation (Ireland) Amendment Act 1854 on
the ground inter alia that it was used exclusively for the purposes
of a recreational charity under the Act of 1958. A majority of
the Court of Appeal held that this ground of exemption was
established. Lord MacDermott said at p. 126, having referred to
section 1 of the Act:
“Here, I think, there can be no doubt that in the
construction, equipment and running of this hereditament the
Council has provided facilities for recreation. The big
question is – have these facilities been provided ‘in the
interests of social welfare’? ‘Social welfare’ is a somewhat
vague and uncertain expression. Taken by itself I still
incline to the view I expressed in National Deposit Friendly
Society Trustees v. Skegness Urban District Council, that it
signifies something more than ‘social well-being’. In the
present context, however, I do not think it necessary to
speculate as to the precise distinction to be drawn between
these two expressions as subsection (2) of section 1, though
not exactly a definition, provides in effect, in my opinion,
the essential elements which must be present if a state of
social well-being is to amount to ‘social welfare’ as that
expression is used in the section. These elements are to be
drawn from paragraphs (a) and (b) of subsection (2). By (a)
the facilities must be provided with the object of improving
the conditions of life for the persons for whom the facilities
are primarily intended. To my mind the provision of the
hereditament satisfies that requirement. The primary
object, even if confined to the phraseology of the preamble
to the Act of 1846, was clearly to improve the conditions
of life of the inhabitants of the Borough of Lurgan and if,
as I have held, this was done in a manner which enured for
the benefit of the public at large, paragraph (a) would still
– 6 –
be complied with. It is clear from the terms of the case
stated that the hereditament was not only provided to
improve the conditions of life for those for whom it was
primarily intended, but that in fact it has done so. The full
use which has been made of the hereditament since its
inauguration is, I think, cogent evidence that it has filled a
need in the life of the community and has added to the
enjoyment of its members.
“The second requirement to be satisfied is one or other of
the subparagraphs of paragraph (b). Of these alternatives I
am of opinion that subparagraph (i) does not apply so as to
support the Council’s case. There is nothing in the case
stated that I can see which shows that those benefited have
need of the facilities provided by reason of any of the
specific factors mentioned, ie. youth, age, infirmity or
disablement, poverty or social and economic circumstances.
But subparagraph (ii), on the views I have already expressed,
is applicable for the facilities of the hereditament are
available to the public at large.”
In this passage Lord MacDermott makes the point that
section 1(2) of the Act does not exactly contain a definition but
that it does state the essential elements which must be present if
the requirement that the facilities should be provided in the
interests of social welfare is to be met. It is difficult to envisage
a case where, although these essential elements are present, yet
the facilities are not provided in the interests of social welfare.
Nor do I consider that the reference to social welfare in
subsection (1) can properly be held to colour subsection (2)(a) to
the effect that the persons for whom the facilities are primarily
intended must be confined to those persons who suffer from some
form of social deprivation. That this is not so seems to me to
follow from the alternative conditions expressed in subsection
(2)(b). If it suffices that the facilities are to be available to the
members of the public at large, as subparagraph (ii) provides, it
must necessarily be inferred that the persons for whom the
facilities are primarily intended are not to be confined to those
who have need of them by reason of one of the forms of social
deprivation mentioned in subparagraph (i).
The fact is that persons in ail walks of life and all kinds of
social circumstances may have their conditions of life improved by
the provision of recreational facilities of suitable character. The
proviso requiring public benefit excludes facilities of an undesirable
nature. In my opinion the view expressed by Bridge L.J., as he
then was, in I.R.C. v. McMullen is clearly correct and that of
Walton J. in the same case is incorrect. Lord MacDermott in the
Lurgan case plainly did not consider that the category of persons
for whom the facilities were primarily intended was subject to any
restriction. The observations of Lord Denning in the Skegness case
are not relevant in the present context. I would therefore reject
the argument that the facilities are not provided in the interests
of social welfare unless they are provided with the object of
improving the conditions of life for persons who suffer from some
form of social disadvantage. It suffices if they are provided with
the object of improving the conditions of life for members of the
community generally. The Lord President, whose opinion contains
a description of the facilities available at the Sports Centre which
– 7 –
it is unnecessary to repeat, took the view that they were so
provided. I respectfully agree, and indeed the contrary was not
seriously maintained.
It remains to consider the point upon which the appellant
was unsuccessful before the First Division, namely whether or not
the second branch of the bequest of residue, referring to “some
similar purpose in connection with sport”, is so widely expressed as
to admit of the funds being applied in some manner which falls
outside the requirements of section 1 of the Act of 1958. Counsel
for the appellant invited your Lordships, in construing this part of
the bequest, to adopt the benignant approach which has regularly
been favoured in the interpretation of trust deeds capable of being
regarded as evincing a charitable intention. That approach is
appropriate where the language used is susceptible of two
constructions one of which would make it void and the other
effectual. (I.R.C. v. McMullen [1981] AC 1, per Lord Hailsham
of St. Marylebone at p. 14; Weir v. Crum-Brown [1908] AC 162,
per Lord Loreburn L.C. at p. 167). It was argued for the
respondents that the benignant approach was not apt in the present
case, since the question was not whether the trust was valid or
invalid, but whether it qualified for exemption from tax by virtue
of the Act of 1958. But the importation into Scots law, for tax
purposes, of the technical English law of charities involves that a
Scottish judge should approach any question of construction arising
out of the language used in the relevant instrument in the same
manner as would an English judge who had to consider its validity
as a charitable gift. The English judge would adopt the benignant
approach in setting about that task, and so the Scottish judge
dealing with the tax consequences should do likewise.
The matter for decision turns upon the ascertainment of the
intention of the testator in using the words he did. The adjective
“similar” connotes that there are points of resemblance between
one thing and another. The points of resemblance here with the
Sports Centre cannot be related only to location in North Berwick
or to connection with sport. The first of these is plainly to be
implied from the fact of the gift being to the Town Council of
North Berwick and the second is expressly stated in the words
under construction. So the resemblance to the Sports Centre
which the testator had in mind must be ascertained by reference
to some other characteristics possessed by it. The leading
characteristics of the Sports Centre lie in the nature of the
facilities which are provided there and the fact that those
facilities are available to the public at large. These are the
characteristics which enable it to satisfy section 1 of the Act of
1958. Adopting so far as necessary a benignant construction, I
infer that the intention of the testator was that any other purpose
to which the Town Council might apply the bequest or any part of
it should also display those characteristics. In the result I am of
opinion, the first part of the bequest having been found to be
charitable within the meaning of section 1 of the Act of 1958,
that the same is true of the second part, so that the funds in
question qualify for exemption from capital transfer tax.
My Lords, for these reasons I would allow the appeal and
set aside the determination of the respondents. I would allow the
appellant his costs here and his expenses before the Court of
Session.
– 8 –
LORD ROSKILL
My Lords,
I have had the advantage of reading in draft the speech
prepared by my noble and learned friend, Lord Keith of Kinkel,
and for the reasons which he gives I would allow the appeal.
LORD GRIFFITHS
My Lords,
I have had the advantage of reading the speech of my noble
and learned friend, Lord Keith of Kinkel, and for the reasons
which he gives I, too, would allow the appeal.
LORD JAUNCEY OF TULLICHETTLE
My Lords,
I have had the advantage of reading in draft the speech of
my noble and learned friend, Lord Keith of Kinkel, and for the
reasons which he gives I, too, would allow the appeal.
LORD LOWRY
My Lords,
I have had the advantage of reading in draft the speech of
my noble and learned friend, Lord Keith of Kinkel, and for the
reasons which he gives I, too, would allow the appeal.
– 9 –
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