B e f o r e :
LORD JUSTICE SINGLETON
LORD JUSTICE JENKINS
LORD JUSTICE HODSON
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COMMISSIONERS OF INLAND REVENUE
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Appellants
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and
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BROADWAY COTTAGES TRUST
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Respondents
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- and -
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COMMISSIONERS OF INLAND REVENUE
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Appellants
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and
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THE SUNNYLANDS TRUST
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Respondents.
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(Appeal of Respondents)
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(Transcript pf the Shorthand Notes of the Association of Official Shorthandwriters Ltd., Room 392, Royal Courts of Justice, and 2, New Square, Lincoln's Inn, London, W.C.2.)
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MR GEOFFREY CROSS, Q.C., MR J.H. STAMP and SIR REGINALD HILLS (instructed by the Solicitor of Inland Revenue, Somerset House, Strand, W.C.2) appeared as Counsel for the Commissioners of Inland Revenue.
MR JOHN PENNYCUICK, Q.C., and MR P.J. BRENNAN (instructed by Messrs Boxall & Boxall, 22, Chancery Lane, London, W.C.2, Agents for Messrs Wilson & Wilson, Kettering) appeared as Counsel for Broadway Cottages.Trust and The Sunnylands Trust.
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HTML VERSION OF JUDGMENT
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LORD JUSTICE SINGLETON: The judgment which Lord Justice Jenkins will deliver is the Judgment of the Court.
LORD JUSTICE JENKINS: These are appeals by two charitable institutions, known respectively as The Sunnylands Trust and Broadway Cottages Trust, from two Orders of Mr Justice Wynn-Parry both dated the 11th March, 1954, allowing appeals by the Commissioners of Inland Revenue from decisions of the Special Commissioners to the effect that The Sunnylands Trust in the one case and Broadway Cottages Trust in the other case were entitled to exemption from Income Tax for the years 1950/51 and 1951/53 under the provisions of Section 37(1)(b) of the Income Tax Act, 1918, in respect of certain sums of money received by them respectively from the Trustees of a Settlement dated the 14th July, 1950, and made between Alan Geoffrey Timpson (hereinafter called "the Settlor") of the one part and the Settlor, William Drake Lee, and Peter Thomas Matthew Wilson (hereinafter called "the Trustees") of the other part. The charitable character of the two appellant institutions and their consequent right to exemption from tax on their income under the provisions of Section 37(1)(b) are not in dispute. The sole question in each of the two appeals is whether the sums of money received by the appellant institution from the Trustees, and admittedly paid by the Trustees out of the income of the fund comprised in the Settlement, were income of such institution. The answer to that question depends wholly on the further question whether the relevant provisions of the Settlement had the effect contended for by the appellant institutions of creating a valid trust of income in favour of those institutions amongst other objects, in which case the appeals must succeed, or, As contended by the Commissioners of Inland Revenue and held by Mr Justice Wynn-Parry, created no such valid trust, in which case the appeals must fail.
The Settlement comprised a sum of £80,000 made over to the Trustees by the Settlor, and in addition to administrative clauses as to investment and so forth it included the following provisions:
"(1) In this Settlement the following expressions shall where the context so admits have the following respective meanings and shall be construed in the following manner". Then (c): "'The appointed period' means a period beginning on the date hereof and continuing until terminated under the power hereinafter contained or if not so terminated until Twenty years after the death of the last survivor now living of the issue of his late Majesty King George V. (d) 'The Beneficiaries' mean the persons specified in the schedule hereto and "'beneficiary' means one of the Beneficiaries. (4) The Trustees shall hold all such investments as aforesaid and the varied investments and property and interests in property from time to time representing the same and all other investments and property and interests in property (if any) from time to time subject to the trusts hereof (all of which are hereinafter included in the expression 'the Trust Fund') UPON TRUST for "such of the Beneficiaries as shall be living or (being a charitable trust) existing at the termination of the appointed period and if more than one in equal shares. (5) The interest to be taken under the last preceding clause hereof by any beneficiary at the termination of the Appointed Period shall be absolute interest. (6) PROVIDED ALWAYS that the Trustees at any time or times not being less than six years after the said day of Declaration . . . . if in their discretion they think fit so to do may by deed declare the appointed period to be terminated either as to the whole of the Trust Fund or as to any aliquot or specific part thereof to the intent that the Trust Fund or (as the case may be) the part thereof to which such declaration relates and the income of the same may be held upon the trusts and subject to the powers and provisions upon and subject to which the same would at the date of such declaration be held if the appointed period had then been terminated by effluxion of time and such declaration shall be effectual. (7) AND if all the beneficial trusts hereinbefore declared shall fail . . . . then the Trust Fund and the income thereof shall be held upon charitable trusts to be declared by the Trustees . . . . to the intent that neither the Donor or any Wife or Widow of his shall in any event whatsoever take any interest by way of resulting trust or otherwise in the Trust Fund or the income thereof or any accretions thereto or in any part of the same. (8) During the Appointed Period the Trustees shall hold the income of the Trust Fund from the date or respective dates from which the Trustees shall become entitled to such income UPON TRUST to apply the same for the benefit of all or any one or more of the Donor's said Wife and the beneficiaries in such shares proportions and manner as the Trustees in their discretion from time to time think fit (and so that such moneys as the Trustees may from time to time think fit to apply for the benefit of any of the Beneficiaries who shall have attained the age of twenty one years be paid to him or to her on his or her receipt which shall be a complete discharge to the Trustees). (9) PROVIDED ALWAYS that the Trustees shall have the power from time to time at their discretion to capitalise the said income or any part thereof either by investing the same and treating such investments as part of the capital of the Trust Fund or in any other mode of capitalisation which may appear to the Trustees to be expedient and pending such application as aforesaid of such income the Trustees may temporarily invest or place on deposit the same and all income thereby produced shall be treated as the income of the Trust Fund. (10) The Trustees shall also have power during the Appointed Period to apply the whole or any part of the capital of the Trust Fund in their discretion for the benefit of all or any one or more of the Beneficiaries either by way of advancement on account of his or her or their share or shares or not as the Trustees may in their discretion think fit and notwithstanding in the case of any beneficiary that the total amount so applied for the benefit of such beneficiary may exceed the share to which he or she is contingently entitled to any share in the capital of the Trust Fund. . . . (15) Every discretion hereby conferred on the Trustees shall be an absolute and uncontrolled discretion and may (if and so far as circumstances permit) be exercised from time to time."
Then there is the Schedule:
"1. All persons (other than the Settlor and any wife of his and any infant child of his) who have been in the past or (as the case may be) at the date of these presents or subsequently thereto at any time during the period ending on the 31st day of December 1980 or during the Appointed Period whichever shall be the shorter employed by:- (a) The Settlor (b) The wife of the Settlor (c)Wiliiam Timpson deceased (father of the Settlor and who died on the 20th day of January 1929) (d) Katherine Chapman Timpson deceased (mother of the Settlor and who died on the 16th day of December 1940) (e) William Timpson Limited or by any other limited company which may succeed to the business of William Timpson Limited (f) Any other limited company of which the Settlor is a Director at the date of these presents". Then paragraph 2: "The Wives and widows of any such persons as is specified in Clause 1 of this Schedule".
Then follow the further paragraphs 3 to 12, but I will not take up time by reading them in detail. They include the issue however remote of the Settlor's father and of the father of the Settlor's wife, and a number of named persons, including in some cases their spouses and issue. Finally, in paragraph 12 there is "Broadway Cottages Trust and Sunnylands Trusts (both being Charitable Foundations)".
It will be seen that the operative provisions of the Settlement as regards capital comprise (in clause 4) a trust for such of the beneficiaries as shall be living or (being a charitable trust) existing at the termination of the appointed period and if more than one in equal shapes;- (in clause 6) a power to the Trustees to declare the appointed period to be terminated as regards the whole or any part of the Trust Fund so as to bring into immediate operation the trust declared by clause 4 as if the appointed period had terminated by effluxion of time; and (in clause 10) a power to the Trustees during the Trust period to apply capital for the benefit of beneficiaries or any of them.
It is further to be observed that clause 7 which precedes the trust of income declared by clause 8 contains a gift over upon charitable trusts "if all the beneficial trusts hereinbefore declared shall fail". It is common ground that this clause, preceding as it does the trust of income during the appointed period, has no application to the failure of that trust.
It should next be noted that the only disposition of income during the settlement period (apart from the power of capitalising income contained in clause 9) consists of the trust declared by clause 8 under which the Trustees are to apply the same for the benefit of all or any one or more of the Settlor's wife and the beneficiaries in such shares, proportions and manner as the Trustees in their discretion from time to time think fit.
Lastly, it is to be remarked that the class of beneficiaries described in the Schedule includes (in paragraph 1) persons employed in the past or at the date of the Settlement or at any time thereafter during the period until the 31st December, 1980, or the end of the appointed period, whichever is the shorter, not only by the Settlor and his wife but by his father who died in 1929, his mother who died in 1940, the Company William Timpson Ltd., which according to the Stated Case is a public company forced in 1929 to take over the business of a private company of the same name formed in 1912 to take over the business founded in 1870 by the Settlor's father, any other limited company which may succeed to the business of William Timpson Ltd., or any other limited company of which the Settlor was a director at the date of the Settlement; and in paragraph 2 the wives and widows of any such persons as are specified in paragraph 1.
In view of the wide scope of paragraphs 1 and 2 of the Schedule it is conceded on the part of the Appellants that the persons who, according to the terms of the Schedule, constitute "the beneficiaries" for the purposes of the Settlement comprise an aggregate of objects which is incapable of ascertainment in the sense that it would be impossible at any given time to achieve a complete and exhaustive enumeration of all the persons then qualified for Inclusion in the class of "beneficiaries" under the terms of the Schedule.
On the other hand it is conceded on the part of the Crown that the qualifications for inclusion in the class of "beneficiaries" prescribed by the Schedule are sufficiently precise to make it possible to determine with certainty whether any particular individual is or is not a member of the class.
It must, we think, follow from the Appellants' concession to the effect that the class of ''beneficiaries" is incapable of ascertainment, and we understand them not to dispute, that the trust of the capital of the Settled Fund for all the beneficiaries living or existing at the termination of the appointed period, and if more than one in equal shares, must be void for uncertainty, inasmuch as there can be no division in equal shares amongst a class of persons unless all the members of the class are known.
We think it must also follow that a trust to divide the income of the Trust Fund during the appointed period amongst a class consisting of the Settlor's wife and all the beneficiaries for the time being living or in existence, and if more than one in equal shares, would equally have been void for uncertainty.
The trust of income during the appointed period as actually declared by clause 8 is not in those terms, but is a trust to apply such income for the benefit of all or such one or more of the Settlor's wife and the beneficiaries as the Trustees in their discretion think fit, and the question in the Case is in effect whether the power of selection thus conferred on the Trustees saves the trust from uncertainty having regard to the concession made by the Crown to the effect that while the Trustees can never discover all the beneficiaries they can always tell whether a given individual is or is not one of the beneficiaries, and can therefore with certainty confine any payments they think fit to make to persons qualified as beneficiaries according to the terms of the Schedule.
In approaching this question both sides accept the principle stated by Lord Eldon in Morice v. The Bishop of Durham, 10 Vesey, 522, at pages 539, 540, where he said:
"As it is a maxim, that the execution of a trust shall be under the control of the Court, it must be of such a nature, that it can be under that control; so that the administration of it can be reviewed by the Court; or, if the trustee dies, the Court itself can execute the trust; a trust therefore, which, in case of maladministration could be reformed; and a due administration directed; and then, unless the subject and the objects can be ascertained, upon principles, familiar in other cases, it must be decided, that the Court can neither reform maladministration, nor direct a due administration."
The principle can be concisely stated by saying that in order to be valid a trust must be one which the Court can control and execute. Mr Pennycuick for the Appellants contends that it is satisfied by the trust now before the Court. Mr Cross for the Crown contends that it is not.
The arguments in support of the Crown's claim that the trust is invalid are to this effect:
Firstly, the Court could not compel the Trustees to make any distribution of income under clause 8 of the Settlement, for that clause purports to confer on the Trustees an uncontrolled discretion to determine the person or persons falling within the class of beneficiaries to whom any distribution is to be made, and the shares in which those persons, if more than one, are to take; and it would be beyond the power of the Court to make or enforce an order upon the Trustees to exercise that discretion. Nor could the Court itself exercise the Trustees' discretion in the event of their failing or refusing to do so, for the discretion is conferred on, and exercisable by, the Trustees alone.
Secondly, if the class of beneficiaries was an ascertainable class, it would or might be possible to imply a trust in default of distribution by the Trustees for all the members of the class in equal shares, and that would be a trust which the Court could control and execute. But as the class is un-ascertainable, no such trust can be implied.
Thirdly, again, if the class was ascertainable it would or might be possible for all the beneficiaries to join in a demand for the execution of the trust by the distribution of the whole income amongst themselves in equal shares, and proper for the Court to recognise and enforce that demand as made by all the persons beneficially interested in the subject-matter of the trust. But as the class is unascertainable no such demand is possible. Short of the whole class, no beneficiary or collection of beneficiaries can claim execution of the trust, for the Trustees are under no duty to any particular beneficiary or beneficiaries, short of the whole class, to make any distribution to him or them of the whole or any part of the income; and such duty as the trust purports to impose on them towards the class as a whole is illusory, since the whole class can never be ascertained.
Fourthly, the validity of the trust must be tested by considering its terms and asking oneself whether the Court would be able to control and execute the trust if called upon to do so. That question must be answered by reference to what might happen, and not merely by reference to what would be likely to happen. That is to say, the charge of invalidity cannot be met by making the assumption (in itself reasonable enough) that trustees undertaking a trust such as this would in all probability carry it out, by distributing the income amongst persons falling within the class of beneficiaries as defined by the Settlement. On the contrary, it must be assumed that the Trustees for some reason or other might fail or refuse to make any distribution, and see whether the Court could execute the tru3t in that event. Consideration of the case on that assumption shows that the most the Court could do would be to remove the inert or recalcitrant trustees and appoint others in their place. That, however, would not be execution of the trust by the Court, but a mere substitution for one set of trustees invested with an uncontrollable discretion of another set of trustees similarly invested, who might be equally inert or recalcitrant.
Fifthly, there is a distinction between a trust for distribution amongst all or any one or more exclusively of the others or other of an unascertainable class, with no other disposition (which is this case), and a power to distribute amongst all or any one or more exclusively of the others or other of an unascertainable class with a trust in default of appointment for an ascertainable class. In the latter case (at all events if the qualification for membership of the unascertainable class is such as to make it possible to decide with certainty whether a given individual is or is not a member of it) there is a valid disposition of the beneficial interest which the Court can control and execute in the shape of the trust in default of appointment, and although the execution of the power is beyond the control of the Court except in the negative sense that it can prevent any purported exercise of the power in favour of non-objects, it will nevertheless be a valid power operating, if and so far as exercised, as a defeasance in favour of the appointee or appointees of the interests given in default of appointment. This is illustrated by the decision of Mr Justice Harman in In re Gestetner, 1953 Ch., 672 (where the class of objects of the power was comparable to the class of objects of the trust in the present case), that of Mr Justice Clauson in In re Park, 1932 1 Ch., 580 (where there was a power to appoint to anyone other than the donee of the power herself), and that of Mr Justice Vaisey in In re Jones, 1945 Ch., 105 (where there was a provision construed by Mr Justice Vaisey as a power to appoint to any natural person (as distinct from a corporation) living at the death of the donee of the power). In the former case (of which the trust now before the Court is an example) no trust which the Court can control and execute, or in other words no valid trust at all, is created, for there can be no trust in favour of the unascertainable class as a whole, no beneficial interest is conferred on any particular member or members of the class unless and until the Trustees think fit to make some distribution to him or them, and the making or withholding of any such distribution rests on the uncontrolled discretion of the Trustees, which the Court can neither exercise nor compel to be exercised. In In re Ogden, 1933 Ch., 678, Lord Justice Tomlin (as he then was) rightly took the view that it was essential to the validity of a trust for such of a given class of objects as the trustee should select that the trustee should know, or be able to ascertain, all the objects from which he was enjoined to select by the terms of the trust. The trust in that case was contained in a gift by Will of a share in the testator's residuary estate to Sir Herbert Samuel "to be by him distributed" (we quote the summary of the terms of the bequest given in the headnote)
"amongst such political federations or bodies in the united Kingdom having as their objects or one of their objects the promotion of Liberal principles in politics as he shall in his absolute discretion select and in such shares and proportions as he shall in the like discretion think fit,"
Lord Justice Tomlin, at page 682 of the Report, said this:
".... all "that I have to consider is, whether there is such uncertainty in the field of selection that it is impossible for the selector to determine from which institutions he is to select. If so, the bequest is bad on the ground of uncertainty. The question is one of degree in each case, whether, having regard to the language of the will, and the circumstances of the case, there is such uncertainty as to justify the Court in coming to the conclusion that the gift is bad. Now, it is to be observed that in the present case the field of selection is: 'political federations or associations or bodies in the United Kingdom, having as their objects or one of their objects the promotion of Liberal principles'. I have the evidence of Sir Herbert Samuel, who has referred to a number of bodies which come within the description, and who states that, in fact, he can ascertain by inquiry all the bodies that can come within that description, and I take the view that upon that evidence, and the language of the will, and having regard to the principles laid down from time to time, there is certainty here in the field of selection. It comes within the words of Lord Atkinson in Houston v. Burns, 'I do not think that this case has the slightest resemblance to those in which property is vested in trustees to be applied for the support or benefit of such institutions of a particular class as may be in existence, or in the course of creation, in any given town or area at the time at which the will speaks. There is no vagueness or uncertainty in such cases at all.' Now, it seems to me", said Mp Justice Tomlin, "that here you have a class capable of ascertainment, and in a specified area, and in my view the bequest is not void on the ground that the field is too vague. I hold that the gift is not void for uncertainty."
Sixthly, the Court cannot mend the invalidity of the trust by imposing an arbitrary distribution amongst some only of the whole unascertainable class. The line of cases referred to in argument as the "relations" cases (See Grant v. Lynam, 4 Russ:, 292, at pages 293, 294; Harding v. Glyn, 1 Atk., 469, 5 Ves. 501, cited in Grant v. Lynam supra; Salusbury v. Denton, 3 Kay & J., 529; Wilson v. Duguid, 24 CD., 244, 251; Re Scarlsbrick, 1951 Ch., 622), relied on by the Appellants, may be regarded as further illustrations of the proposition, accepted above, that a power to appoint amongst an unascertainable class may be valid, but are sui generis in so far as they decide that a trust for such of the relations of a given person as the trustee may select, while enabling the trustee to select relations in any degree, operates in default of selection as a trust for the statutory next-of-kin of the propositus, a trust for relations in every degree however remote being admittedly void for uncertainty. No comparable contraction of the class in default of selection by the Trustees is possible in the present case.
Seventhly, for these reasons the trust declared by clause 8 or the Settlement is Invalid and the most the Settlor has done by that clause is to confer on the Trustees a revocable mandate to distribute the income amongst such persons or institutions selected by the Trustees as fall within the class of beneficiaries as defined by the Settlement, including the two Appellant institutions. But payments made to either of those institutions under such revocable mandate cannot be income of that institution so as to enable it to recover the tax paid thereon any more than an uncovenanted subscription to its funds voluntarily made by the Settlor himself would be part of its income for the purposes of such recovery.
On the Appellants' side it is argued that there is no reason whatever to suppose that any difficulty would arise in practice in the implementation of the trust declared by clause 8 of the Settlement. The Trustees having undertaken the trust must be assumed to be ready and willing to carry it out, and, as it is possible to decide with certainty whether any particular person is or is not qualified as a member of the class of "beneficiaries", they can carry it out by distributing the income amongst undoubted members of the class, selected by them. So far as misfeasance by the Trustees is concerned, that is to say distribution otherwise than amongst members of the class, this could be restrained by the Court at the suit of any member of the class. So far as non-feasance on the part of the Trustees is concerned, the Court could at the suit of any such member remove the offending Trustees and appoint others in their place, and repeat the process as necessary until Trustees who would duly carry out the terms of the trust were found. The possibility that not only the original Trustees but every set of Trustees appointed in their place would fail or refuse to do this is so remote that it can for practical purposes be disregarded. If necessary the Court, acting on the analogy of the "relations" cases, could declare a trust in default of distribution by the Trustees in favour of a modified class which could be completely ascertained. Alternatively, the Court might, on the analogy of Salusbury v. Denton (supra) hold the income divisible in specified proportions by reference to the classification of objects contained in the Schedule, as for example by appropriating one share to the beneficiary or collection of beneficiaries described in each of the paragraphs of the Schedule. Even if clause 8 creates no valid trust, the Settlor has by that clause at least conferred on the Trustees an irrevocable power to distribute the income amongst such members of the class of beneficiaries (including the two appellant institutions) as they think fit, with a resulting trust in favour of the Settlor if and so far as the power is not exercised; and payments made to either of the appellant institutions in exercise of this irrevocable power are income of that institution for all purposes. In re Ogden (supra) is not, in the Appellants' submission, an authority against them. In that case the whole range of possible objects was on the evidence completely ascertained, and there was no need for the learned Judge to decide what the position would have been if the whole range of objects had not been completely ascertained, and his observations on that matter were accordingly obiter. Further, it is not clear whether the learned Judge was referring to uncertainty as regards the complete enumeration of all possible objects (which is the kind of uncertainty here in question) or to uncertainty as regards the qualification for membership of the class. If and so far as the former kind of uncertainty was meant, the view he expressed was in the Appellants' submission erroneous.
We confess to some sympathy for the Appellants' argument, which has about it an attractive air of common sense, but we do not think it can be allowed to prevail.
We think the submissions made on behalf of the Crown, to the effect that the trust is not one which the Court could control or execute, and that this objection cannot be met by urging the improbability of assistance by the Court ever becoming necessary, are well founded. We also agree with the further submission on the same side to the effect that the Court would not be executing the trust merely by ordering a change in the trusteeship. We are satisfied that the "relations" cases are in a class by themselves and provide no assistance in the present case, and that it would not be possible here for the Court to create an arbitrarily restricted trust to take effect in default of distribution by the Trustees. There is nothing in this case comparable to the two possible meanings of the term "relations".
In our view, the construction placed on behalf of the Crown on the above-quoted observations of Lord Justice Tomlin in In re Ogden (supra) is the right one, and we see no reason for questioning the correctness of those observations of that eminent Judge. On the contrary, Lord Justice Tomlin's view, which we take to be that a trust for such members of a given class of objects as the trustees shall select is void for uncertainty unless the whole range of objects eligible for selection is ascertained or capable of ascertainment, seems to us to be based on sound reasoning and we accept it accordingly.
We cannot assent to the submission made for the Appellants to the effect that the Settlor in the present case at least succeeded in conferring on the Trustees an irrevocable power (as distinct from a trust) to appoint income to any one or more of the "beneficiaries", including the two appellant institutions, so that any sums appointed to them under such power became their income for the purpose of recovering tax. We do not think a valid power is to be spelt out of an invalid trust. If the trust declared by clause 8 of the Settlement is void for uncertainty, then the Trustees do not hold the income in question upon that trust but (by way of resulting trust) in trust for the Settlor, with no power to dispose of it in any manner otherwise than by paying it be, or as directed by, the Settlor. The Settlor must be taken to have authorised any payments heretofore made by the Trustees (of whom he himself is one) in purported execution of the invalid trust, but there the matter ends.
Mr Justice Wynn-Parry, in our view rightly, held himself bound by In re Ogdon (supra) and In re Gostetner (supra) to decide the case in favour of the Crown. Mr Pennycuick for the Appellants criticised his judgment for referring to the "relations" cases as instances of powers of distribution as distinct from trusts for distribution, and therefore irrelevant to the present case. This description of the "relations" cases was perhaps not quite accurate, but for the reasons we have endeavoured to state we agree with Mr Justice Wynn-Parry that they have no application here.
We are accordingly of opinion that these appeals fail and should be dismissed.
SIR REGINALD HILLS: The appeals should be dismissed with costs?
LORD JUSTICE SINGLETON: Yes, both appeals dismissed with costs.
MR PENNYCUICK: I cannot oppose that, but I am instructed to ask for leave to appeal to the House of Lords.
LORD JUSTICE SINGLETON: Yes, we think you ought to have leave to appeal.
MR PENNYCUICK: If your Lordship pleases.
