HL Deb 30 June 1958 vol 210 cc372-83

5.9 p.m.

Order of the Day for the House to be put into Committee read.

Moved, That the House do now resolve itself into Committee.—(Lord Cones ford.)

On Question, Motion agreed to.

House in Committee accordingly.

[The LORD TERRINGTON in the Chair.]

Clause 1:

Jurisdiction of courts to vary trusts

1.—(l) Where property, whether real or personal, is held on trusts arising, whether before or after the passing of this Act, under any will, settlement or other disposition, the court may if it thinks fit by order approve on behalf of—

  1. (a) any person having, directly or indirectly, an interest, whether vested or contingent, under the trusts who by reason of infancy or other incapacity is incapable of assenting, or
  2. (b) any person who may become entitled directly or indirectly, to an interest under the trusts as being at a future date a person of any specified description or a member of any specified class of persons, so however that this paragraph shall not include any person who would be of that description, or a member of that class, as the case may be, if the said date had fallen at the date of the application to the court, or
  3. (c) any person unborn,
any arrangement (by whomsoever proposed, and whether or not there is any other person beneficially interested who is capable of assenting thereto) varying or revoking all or any of the trusts, or enlarging the powers of the trustees of managing or administering any of the property subject to the trusts, being an arrangement such that the carrying out thereof would be for the benefit of that person.

(2) Where property is held on trusts being or including protective trusts, and the interest of the principal beneficiary has not failed or determined, the court shall have power under the foregoing subsection to approve an arrangement on behalf of the owner of any discretionary interest without regard to the question whether the arrangement is for the benefit of the owner as such.

LORD COHEN had given Notice of several Amendments, the first being in subsection (1) (b), after "person", where that word first occurs, to insert: "whether ascertained or not". The noble and learned Lord said: There are. I am afraid, a number of Amendments standing in my name, but with one exception they are all formal and are merely intended to prevent any misconception as to what the true meaning of the clause may be. This is a drafting Amendment to put it beyond doubt that paragraph (b) of subsection (1) of Clause 1 of the Bill covers unascertained persons. The purpose of paragraph (b) is to enable the Court to approve an arrangement on behalf of a beneficiary where the obtaining of his consent is prevented not by any disability but by uncertainty as to his identity. This may arise in one of two ways. Both are illustrated by the following example. Property is held upon trust for A for life, with remainder to his widow for life, with remainder to his children, and on failure of the earlier trusts with an ultimate remainder to the people who would be the settlor's next of kin were he to die on the failure of the earlier trusts.

At the time when the arrangement falls to be made A is still a bachelor. The only way of binding the possible interest of a future wife is for the court to approve the arrangement as respects that interest; for the wife is so far unascertained in that A might marry anyone. Apart from persons unborn (who are dealt with by paragraph (c) of the subsection) the people who would be the settlor's next of kin if he died on the failure of the prior trusts are not in this sense unascertained as a class; but at the time of the application to the Court it is not possible to predicate which members of the class are relevant because it cannot be foreseen how many of them will have died by the time the prior trusts fail, if they do. I hope your Lordships will see your way to adopt the Amendment.

Amendment moved— Page 1, line 13, after (" person ") insert (" whether ascertained or not.")—Lord Cohen.)

LORD CONESFORD

I welcome this Amendment which improves the language in the clause and puts the matter beyond doubt.

On Question, Amendment agreed to.

LORD COHEN

This Amendment is even more elementary, if may so put it: again it is a drafting Amendment. As the Bill stands, paragraph (b) of subsection (1) of Clause 1 refers to persons becoming entitled as beng "at a future date" either of a specified description or members of a specified class. While the words "at a future date" are apt to some of the contingencies which may be contemplated by settlements, other contingencies are better described as the happening of an event, rather than the falling of a, date. I beg to move.

Amendment moved— Page 1, line 15, after (" date ") insert (" or on the happening of a future event ")—(Lord Cohen.)

LORD CONESFORD

I have much pleasure in accepting this Amendment.

On Question, Amendment agreed to.

LORD COHEN

This Amendment is purely consequential on the Amendment which the Committee have already adopted.

Amendment moved— Page 1, line 19, after (" fallen ") insert (" or the said event had happened ")—(Lord Cohen.)

On Question, Amendment agreed to.

LORD COHEN moved in subsection one, at the end of paragraph (c) to insert or (d) any person in respect of any discretionary interest of his under protective trusts where the interest of the principal beneficiary has not failed or determined,".

The noble and learned Lord said: This Amendment is not purely a drafting Amendment but it is within the intention of the Report of the Committee over which Lord Justice Jenkins presided and it was always intended to be the basis of this Bill. The Amendment, together with the Amendments to page 2, line 5, page 2, line 8 and page 2, line 22, deal with potential beneficiaries under protective trusts—or rather the clause as drafted so does. These are trusts which give a life interest to a beneficiary but provide that in the event of anything such as bankruptcy happening, whereby apart from the protective trust the life interest would vest in somebody other than the beneficiary to whom it was given, it shall come to an end and be replaced by a discretion in the trustees to distribute the income among a class of people of whom the original beneficiary would normally be one, and his wife, children and relations would be the others.

The Amendments, like subsection (2) of Clause 1 of the Bill as it stands, deal only with the state of affairs where nothing has happened to determine the original life interest. Subsection (2) of the Bill provides that in these circumstances the Court, in exercising its powers under subsection (1), need not consider whether the proposed arrangement is for the benefit of the people who might be interested under the discretionary trust if the principal beneficiary's original life interest were brought to an end by bankruptcy, et cetera. But subsection (2) does not enable the Court otherwise to go outside the bounds of subsection (1). Thus if a person potentially interested under the discretionary trusts is ascertained and of full age, the Court, quite apart from any question whether the arrangement would be for his benefit, would have no power to approve the arrangement on his behalf; and it therefore could not be carried out unless he could be persuaded to give his consent.

The Bill as it stands, therefore, goes less far than the Law Reform Committee recommended in paragraph 19 of their Report. As they pointed out, where property is held on a protective trust—and I quote their words here: … very comprehensive classes of persons are commonly included as objects of the discretionary trusts on which the property is directed to be held in the event of the failure of the interest of the principal beneficiary. It has been the practice of the Court, in sanctioning modifications under its existing powers, to treat the objects of the discretionary trust as being interested in the property and therefore entitled to receive some benefit in return for exclusion from any of their potential future rights.… Where a discretionary trust has become exercisable it seems reasonable that all its objects should be treated in this way. But we think that where the trust has not yet become exercisable, the interests (if such they can be called) of potential objects of the trust may be of a nature too shadowy to deserve consideration; and that in these cases the Court should he free to consider only the benefit to the other persons interested in the trust property and should have a discretion to disregard entirely the interests of those who would be the potential objects of the trust if and when it ever becomes exercisable.

I would stress that the effect of these Amendments is to enact not only the letter but the spirit of what the Committee were recommending in paragraph 19. If the Amendments are made, it will not be possible for a potential beneficiary whose interest, as the Committee put it, may be of a nature too shadowy to deserve consideration, to obstruct from good or bad motives the carrying out of an arrangement which is for the benefit of everyone really concerned. It will be remembered that the Bill merely confers a discretionary power on the Court. In any case where it seemed that the interest of the potential beneficiary was a real one, it would be open to the Court to refuse to approve the arrangement on his behalf, with a view to his personal consent being required. In those circumstances I venture to recommend to your Lordships that this is a wise Amendment to adopt, and I beg to move.

Amendment moved Page 1, line 21, at end insert the said paragraph.—(Lord Cohen.)

LORD CONESFORD

I advise the Committee to accept this Amendment. If it is embodied in the Bill it will more accurately carry out the intentions expressed by the Law Reform Committee.

On Question, Amendment agreed to.

LORD COHEN

This Amendment is purely consequential. I beg to move.

Amendment moved—

Page 2, line 5, leave out (" being an arrangement such that ") and insert— ("Provided that except by virtue of paragraph (d) of this subsection the court shall not approve an arrangement on behalf of any person unless ").—(Lord Cohen.)

On Question, Amendment agreed to.

LORD COHEN

This Amendment also is purely consequential. I beg to move.

Amendment moved— Page 2, line 8, leave out subsection (1) and (2).—(Lord Cohen.)

On Question, Amendment agreed to.

LORD COHEN

This Amendment is also consequential. I beg to move.

Amendment moved— Page 2, line 22, leave out "subsections (1) and t2)" and insert "subsection (1)".—(Lord Cohen.)

On Question, Amendment agreed to.

5.31 p.m.

VISCOUNT SIMONDS moved to add to the clause: (8) It shall not be an objection to the exercise by the court of the jurisdiction conferred by this section that a main purpose or consequence of its exercise is or may be to avoid the exigibility of tax which would otherwise be exigible. The noble Viscount said: In putting down the Amendment which stands in my name I have been animated by a motive which must appeal to anybody who has spent fifty years or more, if there be any besides myself in your Lordships' House, in the practice and the administration of the law that is to say, I deem it important that, so far as possible, there should be clarity in legislation and certainty in the law. We are very far from reaching either of these ideals.

The relevance of these principles in this matter is this. I think that everybody knows that one of the main reasons which have animated those who want a change in the law, so that a new and wide jurisdiction should be given to the Courts, was the desire to get through schemes or family arrangements which had as their object (and I do not use the word in any sinister sense) the avoidance of tax. I think there is no doubt about that. It is an object from which I, for one, do not dissent in any way. But could I say, as I read this Bill, that it was quite certain that everybody would take the view that a scheme which had that object would commend itself to all the Judges of the Chancery Division before whom such schemes would come for sanction? I felt grave doubts about that, and accordingly I thought that it would be better, in the interests of certainty, that this should be made clear on the face of the Bill, so that it would be impossible that a scheme brought before Mr. Justice A should receive the sanction of the court and an exactly parallel scheme brought before Mr. Justice B should not receive sanction, because they took different views of the propriety of invoking the jurisdiction of the Court on tax avoidance or tax evasion schemes.

If that is the policy of Her Majesty's Government, if it is right that the jurisdiction of the Court should be exercised in this way, it seems to me right that that intention should be made clear on the face of the Bill. As I understand the answer to that point which was made in Second Reading, it was simply this: any body would know that jurisdiction would be exercised; no Judge in the Chancery Division would be so foolish as to do anything else. I wish that I could be satisfied of that. If I could, then I should be content, but I cannot be but aware that some people at least hold a different view about tax evasion schemes.

During the debate on Second Reading of the Bill I ventured to cite to your Lordships what the late Lord Simon, a man greatly honoured in the law and whose name will be remembered when our names are forgotten, had said upon what I deemed to be a parallel case. I was met as to that by my noble and learned friend Lord Conesford, and it was echoed by the noble and learned Viscount the Lord Chancellor, who said that it was a very different sort of thing he contemplated. I was not much convinced by that argument, because nobody can say whether it was a different scheme until we have one of these schemes brought before the Court for sanction: the schemes will be infinitely various, some simple, some exceedingly complicated. Therefore, that argument did not move me much. By coincidence (and this made a forcible impression upon me), at the very time this matter came before your Lordships for consideration I was engaged in hearing an appeal in the Judicial Committee of the Privy Council, in which we were considering the drastic provisions of Australian legislation, which had their counterpart in New Zealand legislation., which made all arrangements for avoidance of tax void as against the Commissioners of Taxes. Therefore, it was clear that in a large part of the world this sort of scheme of avoidance was not the sort of thing that universally commended itself. Accordingly, I could not but feel that it was not impossible that Chancery Judges would take the same view.

This further consideration moved me. I felt that when Personal Bills which had as an object, partly at least, tax avoidance, came before your Lordships' House, a very unfavourable impression was created. That moved me also to think that we cannot predicate that all Judges will take the same view. Lastly, there is this point—and I say it with the greatest deference to the noble and learned Viscount the Lord Chancellor. Maybe I did not understand him, or maybe I did not hear him very clearly, but certainly it seemed to me that, when I asked him to say unequivocally that this was a form of scheme that would obtain the sanction of the court, he did not willingly reply that it was just what was wanted. I do not know—maybe I misunderstood him. If the noble and learned Viscount will now say that I am quite wrong, and that he knows that this is what is intended by the legislation, which I understand Her Majesty's Government support, and that in his view no Chancery Judge who knows his business would refuse sanction on the ground that the purpose of the scheme was tax avoidance, I shall be satisfied. Perhaps I am old-fashioned and wrong about this and that no Chancery Judge could take that view. I really feel that if we want this to get through and want to have justice administered equally and upon a certain important principle, it should be made clear upon the face of the Bill.

I venture to ask: why not? Why run this risk, if it can be averted by putting in a dozen words? If we do so, the risk will be averted; there will be equal justice to all. The principle of the Bill, as I understand it, will be accomplished by putting in a few words saying: It shall not be an objection to the exercise by the court of the jurisdiction conferred by this section that a main purpose or consequence of its exercise is or may be to avoid the exigibility of tax which would otherwise be exigible.

I am well aware of course that this matter has to some extent been dealt with in the Report of the learned Committee which dealt with the subject. If I may say so, with the greatest respect, it is dealt with in the least satisfactory part of the Report, because they seek an analogy in what was done by Parliament in removing what was called "restraint on anticipation". I think that it was the least satisfactory part of a Report which in many respects was admirable. Anyway, how can we predicate that a Judge to-day or to-morrow will have read that Report? I am quite sure that many of them have not, and I do not suppose that they will.

I would ask my noble friend Lord Conesford to consider this point: we are not legislating only for settlements made in the past; we are legislating for settlements made yesterday, to-day and to-morrow. Therefore, we are legislating for cases of a settlement, not where something unexpected happens, but where the settlor knows perfectly well that if his trusts are carried out according to his direction, then heavy duties will be paid. It seems to me that the Court might well then say: "Why should we alter this settlement when just that happens which the settlor, dealing with his own money, knew would happen?" That is a matter which the Court might take into consideration, and I should like to have it made plain on the face of the Bill. However, if the noble and learned Viscount, the Lord Chancellor, with all the authority of a member of the Government and as titular head of the Chancery Division, says that I am quite wrong and that no Chancery Judge who really knew his business would refuse on the ground that the main purpose of the exercise of the jurisdiction was to avoid the exigibility of tax, I shall be happy to withdraw the Amendment. I beg to move.

Amendment moved— Page 2, line 44, at end insert the said subsection.(Viscount Simonds.)

5.31 p.m.

THE LORD CHANCELLOR

I am always anxious to try to help, and everyone in this Committee appreciates the authority and experience with which my noble and learned friend Lord Simonds speaks. I hope he will take what I say as from the heart. I am sorry that in the course of the Second Reading debate, when I was dealing with a number of aspects of the Bill, I did not reply to his point. The last thing I would intend would be not to reply to a point which my noble and learned friend raised. I assure him that I shall come as straightly as I can to that point. But I want to make it clear that I recognise that the subsection is couched in wide terms, and that if it becomes law the Court would have jurisdiction to sanction an arrangement notwithstanding that a main purpose or consequence of the scheme would be to avoid the exigibility of tax.

My noble and learned friend has emphasised the difficulty of applying to this situation a discretionary jurisdiction, and that there may be different results from different Judges; and he wishes to remove the risk of a difference of opinion by forbidding the Judges to consider the tax effect of the scheme. I am unable to support that solution, but I hope that a statement I shall make in a moment will be of some help to my noble and learned friend. I would remind the Committee that the Bill was introduced and passed in another place as being a Bill to give effect to the Sixth Report of the Law Reform Committee, presided over by Lord Justice Jenkins. That was a unanimous Report, and it dealt in paragraphs 15 and 16, as my noble and learned friend has pointed out, with the very point raised by this Amendment. If those of your Lordships who have the Report would look at it, you will see these words in paragraph 15: ' Nor is it likely that any Judge of the Chancery Division would give his sanction on behalf of infants or potential beneficiaries under a settlement to any scheme of a kind which, as a citizen and a taxpayer, he would not think it right to enter into with regard to his own property. The fact that some adults enter into 'tax avoidance ' schemes of questionable character is no ground for refusing the Court jurisdiction to sanction on behalf of infants dispositions of their property which are beneficial to them and are morally unobjectionable. Then, paragraph 16 says:

We would add that, so far as concerns those cases where the object of a variation is to lessen the impact of taxes or death duties, we can see no valid reason why the Court should not be able to do on behalf of persons who are not sui juris or are not ascertained what the law allows to be done by persons who are sui juris. It appears to us that the Legislature, while taking great care to prevent anyone from escaping the payment of taxes or duties by methods of which it disapproves, has shown no intention of adopting a policy of preventing the freer circulation of money and its division between the members of a family rather than its concentration in the hands of a few, so long as this is done by methods which are riot forbidden by Statute. They then draw attention to remarks of my predecessor, the late Lord Jowitt, on the Married Women (Restraint upon Anticipation) Act, 1949. I hope my noble and learned friend will forgive me for quoting so much, but it leads to the point he mentioned as to the argument of the Committee. The late Lord Jowitt said: The effect of this Bill on the Exchequer is purely incidental. If a man or woman, not subject to restraint, spends or gives away half his or her property, there is, of course, less property to be taxed. The Commissioners of Inland Revenue cannot and do not complain of this; they continue on their way, taxing what they find and not taxing what is not there … To single out one particular class of married women and to restrain them from doing what they wish with their property, for the sole purpose of being able to tax it. Would be most unfair. That is not part of the policy of His Majesty's Government … "— that was the Government of our predecessors, the Government that was in office from 1945 to 1950. The Report goes on: Similar words were used by the Attorney-General (Sir Hartley Shawcross, Q.C.) in the House of Commons. We see no justification for treating an infant more harshly than a married woman and no indication that the Legislature intended to do so. They then say that they are fortified by the views expressed by the Royal Commission on Taxation of Profits and Income, which I read to your Lordships last time. They also quote two decisions in the Court of Appeal which they say support that view. Speaking as Lord Chancellor, with, I hope, a full sense of the responsible anxiety of my noble and learned friend Lord Simonds, I agree with the words of the Committee: We see no justification for treating an infant more harshly than a married woman and no indication that the Legislature intended to do so. I can, therefore, see no objection to the Chancery Judges to-day applying the same reasoning to the cases covered by this Bill. In other words, the fact that the result was, or indeed that the purpose might be, to avoid exigibility of tax ought not to be a bar to their doing so. This must, however, be subject to the limitations which are included in paragraph 15 of the Report, which I have just read and which, indeed, has often been quoted. I hope that that, which is as straight a statement as I can make, will do something, it is stated, and its object is to assist the doubts of my noble and learned friend. I hope that in the circumstances I have made it as clear as I can and that he will not press his Amendment to-day.

VISCOUNT SIMONDS

I could have wished for something a little better, and, in particular, I could have wished that the noble and learned Viscount had not pursued the analogy of the Married Women (Restraint upon Anticipation) Act, 1949, because that was a bad analogy on the part of the Committee that sat on this matter. However, I cannot resist an appeal from the noble and learned Viscount, the Lord Chancellor—in fact, I never can resist an appeal from him—and I will not press the Amendment.

Amendment, by leave, withdrawn.

Clause 1, as amended, agreed to.

Remaining clauses agreed to.

House resumed.