England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand, London, WC2A 2LL
		19/1/2007

Mr Justice Mann :

Introduction

1. This is the determination of certain preliminary issues ordered by Master Bragge on 14^th June 2006. At the heart of the issues is the question whether the word "individuals" in s.37(1)(c) of the Trustee Act 1925 is capable of extending to corporations as well as human individuals. Once that is decided, certain capital gains tax consequences have to be dealt with.

The factual background and legal context

2. The facts in this section of this judgment appear from a joint statement of facts which I am invited by both parties to take as being true. Where precise dates do not matter I identify events merely by years.
3. The settlement in this case was constituted in 1968. Major-General and Mrs Coaker were made trustees of that settlement. The trusts were discretionary trusts in favour of their children and remoter issue. The trustees were given a power of appointment over the trust assets. Clause 18 of the trust deed incorporated the statutory power of appointing new trustees. The following events then occurred in relation to the trust:

i) 1982 – by a deed of appointment, Major-General and Mrs Coaker appointed The Investment Bank of Ireland (IOM) Ltd ("IBI") and a Mr Thornton to be trustees and purported to resign. Their intention was to leave IBI and Mr Thornton as the sole trustees. The effect of this appointment is crucial to the debate in this case. It is at the heart of the claimants' case that, while this document was effective to appoint IBI and Mr Thornton to be new trustees, it was not capable of discharging Major-General and Mrs Coaker because any such discharge would have left two trustees who are not both "individuals" within s.37(1)(c).

ii) 1983 – Major-General Coaker died.

iii) 1985 – IBI and Mr Thornton purported to appoint a Mr Gisborne in place of Mr Thornton as trustee of the settlement.

iv) March 1987 – IBI and Mr Gisborne purported to appoint Mr Seeldrayers in place of Mr Gisborne as trustee of the settlement.

v) December 1987 – IBI and Mr Seeldrayers purported to appoint Island Nominees Ltd (IML), a Mr Burton and a Mr Vanderpump as trustees of the settlement and to discharge themselves, thereby leaving those last three identified people as (ostensible) trustees.

vi) December 1987 – a deed was executed purporting to discharge Mrs Coaker as trustee, doubts apparently having been raised as to the effectiveness of the 1982 document.

vii) 1988 – Mr Burton purported to retire and the (ostensible) trustees purported to appoint Mr Winearls as trustee in his place.

viii) 20^th December 1989 – Mr Thornton died.

ix) 1994 – INL, Mr Winearls and Mr Vanderpump as trustees executed a deed of appointment which postponed the vesting of an interest in possession in favour of the third claimant (Edward) ("the 1994 Resolution").

x) 14^th February 1994 – Edward attained the age of 21 (the age at which he attained a vested interest under the trusts unless the 1994 deed of appointment was valid to postpone it).

xi) 1996 – the (ostensible) trustees purported to appoint Mr Taylor in place of Mr Winearls.

xii) 1996 – the (ostensible) trustees executed a deed of appointment purporting to postpone the vesting of an interest in possession which would otherwise have vested in the fourth claimant (Venetia).

xiii) 31^st March 1996 – Venetia attained the age of 21, the age at which she would have acquired an interest in possession but for the effect (if any) of the 1996 deed of appointment.

xiv) 15^th December 1996 – Mrs Coaker died.

xv) 1997 to 2002 – further deeds of appointment relating to the interests of various beneficiaries were executed by INL, Mr Vanderpump and Mr Taylor, purportedly as trustees of the settlement. These included appointments identified as "the March 1997 Resolution", "the April 1997 Resolution" and "the December 1997 Resolution" in the issues that I have to decide.

xvi) 2002 –a remedial appointment of the first and second claimants as trustees of the settlement, made by INL, Mr Vanderpump, Mr Taylor, IBI and the first and second claimants.

4. Major-General and Mrs Coaker were resident in the UK. All the other persons listed above as having been appointed trustees were non-resident in the UK for capital gains tax purposes, other than the first and second claimants, as to whose residence no issue arises and as to which I make no finding or assumption.
5. The Inland Revenue has raised assessments against the first and second claimants for capital gains tax for each of the years 1989-90 to 1996-97 inclusive. The amounts of those assessments do not matter for present purposes, though the amounts are set out in the joint statement of facts. The amounts for each of the years up to but not including the last of those years were assessed on the basis of gains made by the settlement as a result of dealings in relation to trust property. In relation to the last year the assessment was raised partly in respect of such transactions, but also because it is said that, in the events which have happened, the trustees became non-resident in that year (by virtue of the death of Mrs Coaker), generating a charge to tax under a provision to which I will come. I am to assume that in all relevant years the trusts of the settlement were administered outside the UK.

How the issues arise in these proceedings

6. The issues arise because of concerns over the effectiveness of the 1982 deed by which Major-General and Mrs Coaker purported to resign and IBI and Mr Thornton took over the trusteeship. It is said by the claimants in these proceedings that the closing words of s.37(1)(c) of the Trustee Act 1925 (see paragraph 11 below) mean that, while the appointment was effective, the resignations were not because if they had been effective then there would be one company and one individual, as opposed to two individuals, as trustees of the settlement. Accordingly, they say, Major-General and Mrs Coaker remained trustees at that point (they were not discharged from their trust, in the wording of s.37(1)(c) of the Trustee Act 1925). That is said to have had two unintended effects – it affected the validity of the acts of the ostensible trustees thereafter, and it affected whether the trust was on shore or not for the purposes of the capital gains tax legislation.
7. As to the first, it will be apparent from the short narrative set out above that, following on the 1982 document, there was a whole series of acts done by the ostensible trustees on the footing that in 1982 IBI and Mr Thornton became the sole trustees. If they were not the sole trustees (i.e. if Major-General and Mrs Coaker were not in fact discharged in 1982) then in 1983, following the death of Major-General Coaker, Mrs Coaker remained a trustee. Since she did not participate in the appointment of Mr Gisborne, or indeed in any of the other acts until her death, then any acts which required the participation of all the trustees (ie the various appointments of new trustees and appointments in relation to beneficial interests) were invalid. The claimants say that that applies to all the various appointments.
8. The present proceedings are proceedings for professional negligence against two firms of solicitors who acted in the drawing of various documents during the period described above. They are alleged to have been negligent for not spotting that there was or might have been a problem. The details of the claim do not matter. There is a claim for damages in the amount of capital gains tax and income tax, together with interest and penalties. It was felt that the proceedings could be more expeditiously resolved if certain preliminary questions were tried. In those circumstances Master Bragge ordered the trial of the following questions:

(a) Whether, in any of the tax years 1989/90 to 1996/97 inclusive, a majority of the trustees for the time being of the Settlement were not resident or ordinarily resident in the United Kingdom.

(b) In particular, whether:

(i) On a true construction of Section 37(1)(c) of the Trustee Act (prior to its amendment by the Trusts of Land and Appointment of Trustees Act 1996) the term "individual" in that subsection included a body corporate.

(ii) Island Nominees Limited, Mr Vanderpump, Mr Winearls and Mr Taylor are to be treated as having been trustees of the Settlement for the purposes of the Capital Gains Tax Act 1979 and the Taxation of Chargeable Gains Act 1992.

(c) Whether the 1994 Resolution, the 1996 Resolution, the March 1997 Resolution, the April 1997 Resolution and/or the December 1997 Resolution were valid and effective to declare further trusts in accordance with their terms.

Issue (b)(ii) went through a couple of changes during the course of the hearing before me, principally as a result of my expressed misgivings about making a finding as to the status of the named putative trustees as trustees of the Settlement for the purposes of all the provisions of the two identified Acts. As a result of that the final form of issue (b)(ii) is as follows:

(b) In particular whether … (ii) any of Island Nominees Limited, Mr Vanderpump, Mr Winearls and Mr Taylor was a trustee of the settlement within the meaning of the term "trustees of the settlement" as used in s.52 of the Capital Gains Tax Act 1979 and s.69 the Taxation of Chargeable Gains Act 1992.

I shall determine it in that form, though as will appear below the determination of that question still involves a consideration of the use of that expression throughout the legislation.

9. These proceedings relate to the amount of tax said to be payable. The Inland Revenue is not a party to them. It has indicated in correspondence that provided the court's attention is drawn to the potential tax liabilities that will be affected by its decision, and provided that full argument has been deployed on both sides on the relevant trust law provisions, then it could not envisage any circumstances in which it would not implement, for income tax and capital gains tax purposes, the effect of this court's decision on the trust law provisions. It has been made aware of the preliminary questions that I have been asked to determine.
10. It will be convenient to take question (b)(i) first followed by (b)(ii), then (a) and finally (c).

Issue (b)(i)

11. Section 37(1)(c) provides:

"(1) On the appointment of a trustee for the whole or any part of trust property: …

(c) It shall not be obligatory, save as hereinafter provided, to appoint more than one new trustee where only one trustee was originally appointed, or to fill up the number of trustees where more than two trustees were originally appointed, but, except where only one trustee was originally appointed, and a sole trustee when appointed will be able to give valid receipts for all capital money, a trustee shall not be discharged from his trust unless there will be either a trust corporation or at least two individuals to act as trustees to perform the trust; …"

I have italicised the words which are important to the application before me. The rival contentions of the parties can be simply stated. It is the contention of the claimants that "individuals" in that provision means natural persons and does not include corporations. The defendants say that the word is capable of including corporations as well as natural persons, and should be taken to mean that in the present case. Each side relies on the legislative history of the provision, and the legal background against which the previous legislation was enacted. The claimants also emphasise the natural meaning of the word, and the defendants rely on what they say would be anomalies if the claimants were right. Both counsel (Miss Sonia Proudman QC for the claimant and Mr Keith Rowley QC for the defendants) have produced authorities which contain considerations of the word in a variety of contexts and both have industriously carried out a significant amount of legal archaeology to trace the legislative history. It will be convenient to set out this background first, though as will appear it is not my preferred starting point for a consideration of this matter.

The legislative background to and genesis of section 37(1)(c)

12. The background to the section has two strands – the status of companies as trustees, and the predecessor sections to section 37(1)(c). Although there was no theoretical bar to companies being trustees in the 19^th century, there was a practical obstacle which made corporate trusteeship less attractive. While a company could be constituted a sole trustee of personalty, a company could not be one of two or more trustees because it could not be a joint tenant with a natural person – Law Guarantee & Trust Society Ltd v The Governor of the Bank of England (1890) 24 QBD 406. It required statutory intervention to cure this, and this was provided by the Bodies Corporate (Joint Tenancy) Act 1899. The relevant part of its wording, which is significant, is as follows:

"1(1) A body corporate shall be capable of acquiring and holding any real or personal property in joint tenancy in the same manner as if it were an individual; and where a body corporate and an individual, or two or more bodies corporate, become entitled to any such property under circumstances or by virtue of any instrument which would, if the body corporate had been an individual, have created a joint tenancy, they shall be entitled to the property as joint tenants."

The use of the word "individual" is in my view significant, as will appear later. This Act opened the way to a company being a trustee with an individual – see In re Thompson's Settlement Trusts [1905] 1 Ch 229. The next year the Public Trustee Act 1906 created the office of public trustee and provided for the licensing of licensed custodian trustees.

13. That is the corporate strand of the background. Section 37(1)(c) itself did not come out of the blue. It had important antecedents in 19^th century trust legislation. In its positioning in its own Act it is clearly supplemental to the statutory power of appointing new trustees contained in section 36, and that is reflected in its legislative history.
14. A statutory power to appoint new trustees was first introduced in Lord Cranworth's Act in 1860, but I do not need to set that out here. It contained no equivalent to section 37(1)(c). That latter provision's first predecessor was in section 31(3) of the Conveyancing and Law of Property Act 1881. Section 31(1) of that Act set out a power to appoint new trustees which is effectively the equivalent of section 36(1) of the 1925 Act. It allowed the appointment of "another person or other persons" to be a new trustee. Subsection (3) read:

"(3) On an appointment of a new trustee, it shall not be obligatory to appoint more than one new trustee, where only one trustee was originally appointed, or to fill up the original number of trustees, where more than two trustees were originally appointed; but, except where only one trustee was originally appointed, a trustee shall not be discharged under this section from his trust unless there will be at least two trustees to perform the trust."

The closing words are significant for these purposes. They refer to "two trustees", not "two individuals".

15. That section would not normally be capable of allowing the appointment of a corporate trustee to act with another trustee, not because of its terms, but because of the inability of a company to be a joint tenant – see above. It might or might not have allowed a sole corporate trustee to appoint a single replacement sole corporate trustee, but I need not decide that. North J in Billing v Brogden [1888] WN 238 suggested that he had no power to appoint a company to be a trustee, but his remark is a brief one and it is not easy to see why he said it or how important his view was in the context of that case.
16. The Interpretation Act 1889 section 19 provided that:

"In this Act and in every Act passed after the commencement of this Act the expression 'person' shall, unless the contrary intention appears, include any body of persons corporate or unincorporate."

Against that background the Trustee Act 1893 was passed to consolidate various enactments relating to trusts, including the 1881 Act. Section 10(1) reproduces the statutory power to appoint new trustees, and section 10(2)(c) is in the same terms as section 31(3) of the 1881 Act. Since this Act was passed after the Interpretation Act, it became clearer that in terms of drafting there was less of an obstacle to the appointment of corporate trustees because the word "person" was taken to include a corporation. However, the obstacles imposed by the inability to hold as a joint tenancy still operated to prevent the appointment of a corporation to act as trustee with another person. That obstacle having been removed in 1899, the power was then probably capable of operating so as to allow the appointment of a corporate trustee as one of several or even one of two.

17. However, the position is perhaps not wholly clear. In In Re Thompson's Settlement (above) the question was whether an express power to appoint a new trustee, contained in the settlement, could be used to appoint a corporate trustee to act with an individual. Swinfen Eady J held it could. However, while the express power was in almost identical terms to the statutory power it contained a difference which might be significant for these purposes. The power allowed the appointment of "a new trustee or new trustees in the place of [etc]", and not the appointment of "another person or other persons to be a trustee or trustees in place of [etc]", which was the wording of the statute. Counsel for the applicant is recorded as having drawn attention to this difference, from which it might be inferred that he was suggesting that the statutory wording would not have permitted what he was seeking. Swinfen Eady J did not advert to the point. So the effect of this decision might be thought to be a little unclear. I do not need to clarify it.
18. There matters rested until the start of the legislative steps that ended with the batch of statutes comprising the 1925 property legislation. The Law of Property Act 1922 contained the form of provision which is the direct parent of the wording of section 37(1)(c). Section 107 provides that:

"(1) In all deeds, contracts, wills, orders and other instruments executed, made or coming into operation after the commencement of this act, unless a contrary intention appears - …

(b) 'Person' includes a corporation …"

Part IV contains "Amendments of the Trustee Acts". Within it is section 110. Section 110(1) contains the power to appoint which is, for present purposes, the equivalent of section 36 of the 1925 Act. It reads:

"110(1) Where a sole trustee (other than a trust corporation) is or has been originally appointed to act in a trust, or where, in the case of any trust, there are not more than three trustees (one of them being a trust corporation) either original or substituted and whether appointed by the High Court or otherwise, then and in any such case the person or persons nominated for the purpose of appointing new trustees by the instrument, if any, creating the trust, or if there is no such person, or no such person able and willing to act, then the trustee or trustees for the time being, may, by writing [appoint a new trustee or new trustees]."

The reference to a trust corporation is new. It is defined in section 188(30) as being:

"the public trustee or a corporation either appointed by the court in any particular case to be a trustee or entitled by rules made under subsection (3) of section four of the Public Trustee Act 1906 to act as custodian trustee."

Subsections (2) to (8) of subsection (10) then set out various other provisions; the word "corporation" is used in subsections (2) and (3) in the context of a "corporation" being a trustee. Then in subsection (9) one comes to the provision which introduces the wording which lies at the heart of this case. It provides:

"For the words "at least two trustees to perform the trust" in paragraph (c) of subsection (2) of section 10 of the Trustee Act 1893, the words "either a trust corporation or at least two individuals to act as trustees to perform the trust" are hereby substituted".

Thus the concept of individuals made its first appearance in this context. A corresponding amendment was proposed to section 11(1) of the 1893 Act. That Act had allowed retirement "Where there are more than two trustees, if one of them [declares a wish to retire]". Subsection 110(10) of the 1922 Act provided that in relation to that section:

"For the words "where there are more than two trustees if one of them" [in subsection 11(1) of the 1893 Act] the words "where after the execution of the deed of discharge there will be either a trust corporation or at least two individuals to act as trustees to perform the trust, if any other trustee" are hereby substituted."

That is therefore a second reference to "individuals" in the same Act in relation to the same subject matter.

19. The provisions of the 1922 Act were due to come into force on 1^st January 1925. That was postponed by a year, and then the Act was repealed before it came into force and the Trustee Act 1925 contained the trustee provisions of the 1922 Act. Section 37(1)(c) is the equivalent of section 10 of the 1893 Act as amended by the 1922 Act.
20. The Trustee Act 1925 is expressed to be a consolidating Act, and one of the provisions that was consolidated was s 110 of the 1922 Act, so (as was common ground in the proceedings before me) when it comes to ascertaining the intention of the draftsman in relation to the wording in question in this case it is necessary to consider it in the context of the 1922 Act, not the 1925 Act. The 1922 Act was an amending Act, so it is not necessary to view it with the constraints relevant to consolidating legislation:

"…the Act of 1925, though in a sense a consolidating Act, in fact consolidated Acts which themselves were amending Acts. While therefore, as Lord Romer (then Romer LJ) indicated in In re Turner's Will Trusts, in the comparable case of the Trustee Act 1925, it is incredible that the legislature intended in the Act of 1925 to make further and radical changes in the law as enacted in preceding Acts, the question is what changes had been effected in those Acts. And since they purported to be and were amending Acts, there is no principle of construction which should impose upon them an interpretation appropriate to a consolidating Act." Per Viscount Simonds in Grey v IRC [1960] AC 1 at 14-15.

Thus the end of the story is that the wording which is crucial to this case was introduced by amendment in 1922. So far as it is necessary or appropriate to look at the legislative history, that is the crucial date.

The meaning of "individuals" in section 37(1)(c)

21. Textbooks over the years have taken various stances about the meaning of the word in section 37(1)(c). Pettit on Equity and the Law of Trusts, 7^th Edition (1993) expressed the view that prima facie the word did not include corporations, but it was appropriate to give it a "slightly strained" purposive construction which included them (at page 333). Lewin, on the other hand, took the contrary view (17^th Edition p 358). The point was probably thought to have been rendered academic by the Trusts of Land and Appointment of Trustees Act 1996, which substituted the word "persons" and thereby removed the need for debate for future transactions. However, it does not have retrospective effect, and since the relevant transactions in this case precede that Act it is necessary to decide the point.
22. In my view the appropriate starting point for a consideration of this point is the natural meaning of the word "individual". There is no statutory definition in the 1925 Act. However, I consider that in a legal context the more natural meaning of the word "individual" is that it equates to a natural person, and would therefore exclude corporations. In everyday parlance that is a more natural meaning. I would not consider it natural for even a lawyer to refer to a company as an individual. Dictionaries provide little assistance on the particular issue in this case, but they do tend to support the view that the more natural use is to describe humans rather than artificial persons. Thus the Shorter Oxford English Dictionary defines individual, so far as relevant, as

"A single human being, as opp to Society, the Family etc; … a human being, a person."

That, then is the starting point. Having said that, the word when used in legislation takes its colour from its surroundings, and each side produced authority on the word "individual" when used in a various differing contexts. Mr Rowley deployed Great Northern Railway v Great Central Railway (1899) 10 Ry & Canal Traffic C 266, Société United Docks v Government of Mauritius [1895] AC 585 (a case on the Mauritian constitution) and Shah Veshi Devshi & Co Ltd v Transport Licensing Board [1971] EALR 289 (a case about the Kenyan constitution), all of which said that the word could include a corporation. Miss Proudman deployed Whitney v IRC [1926] AC 37 at 43, which said that in the tax context in question it did not. All those cases show is that the word is capable of including a corporation if the context requires it. They do not help me to decide what it means in this particular case, because the context is very different from that in any of those cases.

23. The immediate context in the present case is that of the wording of other provisions in the Act. The word "individuals" is used twice in the 1925 Act, and in the parent provisions of the 1922 Act – once in section 37(1)(c) of the 1925 Act, and once in section 39. The word "person" or "persons" is used a large number of times, and the word corporation is used as well. That suggests a deliberate use of the word "individuals" to mean something different from persons. Thus in section 36(2) there is an express reference to a corporation which suggests that the draftsman had well in mind the need to distinguish, for some purposes, corporations from natural persons. Section 36(3) contains another reference to a corporation. This compels one strongly to the conclusion that if the draftsman had intended to include corporations within the people referred to at the end of section 37(1)(c) (and section 39) he would much more naturally have used the word "persons" which was in use anyway (and which, for what it is worth, is the word used to resolve any future problems in the amendment made by the 1996 Act). Yet he did not – the word "individuals" is apparently deliberately used.
24. That impression is strengthened even further when one goes back into the legislative history. The relevant words were introduced by the 1922 Act. The technique of the draftsman was to amend the existing provision – so the words were deliberately added by amendment. The words specifically chosen for that purpose included "individuals". The words were replacing a wording that included "persons", a word capable of including corporations. In the light of that it is hard to accept that "individuals" was intended to be a synonym for "persons". A different word was apparently deliberately chosen, and it is to be assumed that a different meaning was therefore intended. This is the real legislative context of the introduction of the words, and it is particularly important.
25. Also of significance is the 1899 Act identified above. That Act was not unrelated to trustee legislation because it must have been one of the purposes of the Act to facilitate corporate trusteeships. In that context the position of a corporation was equated to that of an "individual" – an obviously carefully chosen, and appropriate, word which must mean natural person. This statutory context is much closer, in terms of parallels, than any of the legislation in the authorities cited by counsel, and also forms a significant amount of the background. It adds considerable force to the submission that "individuals" in section 37(1)(c) means natural persons.
26. So far the pointers are in favour of the claimants' case on this point. As against this Mr Rowley urged on me that if that was right then it had strange and anomalous consequences. He said that as a result of the 1899 Act, between 1899 and 1922 it would have been possible to make appointments under the statutory power which led to there being a company and an individual as trustee. This flows from the use of the word "persons" in the closing words of the relevant part of section 10 of the 1893 Act. It would be strange, he said, if having opened up this avenue for the power of appointment it was then closed by the 1922 and 1925 Acts. There was no apparently good reason for that. Accordingly, that pointed towards "individuals" meaning the same as "persons" for these purposes.
27. He backed this up with demonstrations of what he said were anomalies. As an example, he put the case of there being 2 natural persons and one corporate trustee, with one of the natural persons then dying. In that case there would be one corporate trustee and one natural person left. Those trustees could do everything that trustees can do, except that neither could obtain their discharge without there being two natural persons (or a trust corporation) among their successors. He asked rhetorically why it was acceptable for the two to act as full trustees for as long as they wanted to, but not to allow the situation of one natural person and one corporate trustee to continue if the section 36 power were exercised. He posed other examples which he said were anomalous consequences, and said it was not possible to find a policy justification for the conclusion that individuals meant natural persons only. The real distinction, he said, was between trust corporations (a new concept in the 1922 Act) and other trustees (whether corporate or not). That would explain the wording.
28. So far as other material was concerned, he pointed out that the 1927 edition of Wolstenholme and Cherry did not point out that any material change had taken place of the kind required by the claimants' case on this point (which was especially significant bearing in mind that Sir Benjamin Cherry was the draftsman of the 1922 Act). A 1904 textbook by Champernowne & Johnston contained a commentary on section 10 of the 1893 Act which pointed out that since 1899 a company could be appointed to be a trustee, so the overall point was not an obscure one which would have been overlooked.
29. I have already pointed out that Mr Rowley identified other cases in which, in other contexts, "individual" was held to include a body corporate. He accepted that they all depended on their respective contexts, but he said that the context in this case, for the reasons given above, pointed towards an extended meaning for the word in section 37(1)(c). In answer to the point that the word appeared to have been deliberately chosen in section 37(1)(c), he pointed to instances of what he said was a less than precise use of language in the same Act and in relation to the word "person". Thus, he said, one could see that the word "person" was used in sections 31 and 32 of the same Act where, because of the context in which those sections operated, only a natural person could have been referred to. Thus the word "individual" would have been more appropriate, and the use of the word "person" indicated that perhaps not quite as much consideration was given to consistency or the deliberate nature of expression as one might otherwise have thought.
30. I do not consider that any of these submissions of Mr Rowley, skilfully and thoughtfully advanced though they were, require that I should give to the word "individuals" a meaning that it does not naturally bear, particularly in the light of the fact that it seems to have been a deliberately chosen word. He is right about the curious anomalies to which the word gives rise if used in what I consider its natural sense to be. The point is strengthened by the fact that it is not easy to see what the policy would be for preventing an end result of appointments and retirements which led to there being an individual and a corporation as trustees (or even two corporations). That had been permissible, apparently, since 1899, and there is no general prohibition on such a situation arising in a trust. Furthermore, where capital moneys have to be paid to two trustees, there is no requirement that those trustees be individuals rather than companies. Given that between 1899 and 1922 the power could have been exercised so as to leave a company acting with fewer than 2 natural persons, it is indeed not easy to see what policy or other reasons lay behind any change to that. Miss Proudman suggested that the reasoning might have been associated with the introduction of the notion of the trust corporation, and that there was an intention to reinforce, or create, the need to have two individuals if the new corporate creature was not to be used. That is not wholly convincing, because there is no general bar on having fewer than two individuals as trustees. In truth I do not think that a clear and consistent policy reason for any change can be detected in the legislation.
31. However, I do not think that an inability to ascertain quite why the apparent results should have been intended is strong enough in this case to override two very significant points – first, the word individual has a natural meaning which does not include companies, and second it was apparently deliberately chosen to distinguish it from "person" in a context in which that latter word was used (section 36) and which demonstrated that the draftsman was clearly conscious that "corporations" might be trustees (both sections 36 and 37). When one adds the legislative background of the 1899 Act and its use of the word "individual" the force of those points gets even stronger. The deliberate departure from "persons" in the 1881 and 1893 Acts completes the hand.
32. I therefore conclude that "individuals" in section 37(1)(c) means natural persons. In those circumstances I answer question (b)(i) in the sense No.

Issue (b)(ii)

33. This issue arises because of my decision on issue (b)(i). The effect of my decision on issue (b)(i) is that Major-General and Mrs Coaker did not retire when they thought they had, so the subsequent appointments of trustees in which they did not participate were invalid even though those purported trustees acted as trustees and are to be taken as having acted entirely bona fide and innocently of the mistake that had been made in the chain of appointments. Those later trustees were trustees de son tort.
34. The form of this issue changed during the course of the hearing. The one which finally emerged was that set out above. The formulated question is expressed to arise in relation to section 69(1) of the CGTA (and its predecessor section), but an answer to it depends on placing that section in its legislative context and considering the meaning of the expression "trustees of the settlement" in other provisions where it is used in order to ensure that any necessary consistency of expression is given effect to. It will be apparent that addressing this issue raises some points that will also be relevant to issue (c).
35. Two Acts are relevant to different periods of the life of the trust – the Capital Gains Tax Act 1979 (as amended) and the Taxation of Chargeable Gains Act 1992. The relevant provisions (section 69 of the later Act and section 52(1) of the earlier Act) are the same, and the other provisions which bear on their interpretation are largely similar. In those circumstances I can simplify a consideration of the problem by referring only to the later Act. All statutory references hereafter (unless the contrary appears) are to that Act.
36. The question arises in the present case because the wording of section 69(1) goes to the question of the residence of the trustees. It reads as follows:

" In relation to settled property, the trustees of the settlement shall for the purposes of this Act be treated as being a single and continuing body of persons (distinct from the persons who may from time to time be the trustees), and that body shall be treated as being resident and ordinarily resident in the United Kingdom unless the general administration of the trusts is ordinarily carried on outside the United Kingdom and the trustees or a majority of them for the time being are not resident or not ordinarily resident in the United Kingdom."

In the light of my decision on issue (b)(i) Mr Rowley seeks to argue that the expression "trustees of the settlement" for these purposes means or includes the de facto trustees who are acting even if not validly appointed, and not, or not only, the actual trustees who were technically in office (for the purposes of this discussion I shall continue to use the expressions "de facto" and "actual" to distinguish between them). If he were right it would mean that throughout the whole of the relevant period with which we are concerned the majority of the trustees were offshore, with the result that capital gains tax would not be chargeable on their activities. Miss Proudman says that "trustees of the settlement" means the properly appointed trustees, with the effect that the trust went offshore in 1983 on the death of Major-General Coaker, and came back onshore in 1989 with the death of Mr Thornton and then became offshore again on the death of Mrs Coaker in December 1996 when INL was left as sole trustee. Each says that the expression has a consistent meaning throughout the Act.

37. The statutory scheme for charging trustees to CGT is as follows.

(a) Section 1(1) provides that tax is charged on "gains … accruing to a person on the disposal of assets". Section 2(1) provides for a person to be chargeable for gains "accruing to him in a year of assessment during which he is ordinarily resident in the United Kingdom". These primary charging provisions operate as against trustees, though there are specific provisions governing how the tax is charged as against them, and which appear below (so far as relevant to the point I have to decide).

(b) There are special provisions about exemptions and rates that I do not need to deal with.

(c) Section 60 is important to Miss Proudman's case. She says it provides for the true relationship between a trustee de son tort and an actual trustee, and is a key link to the Act's providing a coherent scheme under which the actual trustees are the ones that matter. It states:

"(1) In relation to assets held by a person as nominee for another person, or as trustee for another person absolutely entitled as against the trustee … this Act shall apply as if the property were vested in, and the acts of the nominee or trustee in relation to the assets were the acts of, the person or persons for whom he is the nominee or trustee …

(2) It is hereby declared that references in this Act to any asset held by a person as trustee for another person absolutely entitled as against the trustee are references to a case where that other person has the exclusive right, subject only to satisfying any outstanding charge, lien or other right of the trustees to resort to the asset for payment of duty, taxes, costs or other outgoings, to direct how that asset shall be dealt with."

(d) Section 65 provides for how the tax is to be charged.

"(1) Capital gains tax in respect of chargeable gains accruing to the trustees of a settlement … may be assessed and charged on and in the name of any one or more of those trustees …

(2) Subject to section 60 and any other express provision to the contrary chargeable gains accruing to the trustees of a settlement …, and the capital gains tax chargeable on or in the name of such trustees … shall not be regarded for the purposes of this Act as accruing to, or chargeable on, any other person, nor shall any trustee … be regarded for the purposes of this Act as an individual."

This provision therefore separates out the liability as a trustee from that person's liability as an individual.

(e) Section 69(1) is set out above. It gives the trustees a sort of corporate status for the purposes of the Act, and, with section 65(2), reinforces the notion that the tax is calculated for and in respect of the settlement, without any reference to the gains of anyone else. It also provides for the means of identifying the place of residence of this deemed-corporate body.

(f) Sections 70 and following provide for various events in the life of a settlement, other than an ordinary disposal of assets, which give rise to a charge to tax or an uplift in base values without a charge. Section 80 provides for a deemed disposal:

"if the trustees of a settlement become at any time … neither resident nor ordinarily resident in the United Kingdom."

By virtue of the other charging provisions, that deemed disposal gives rise to a charge to tax. Section 81 provides for the position where section 80 applies as a result of the death of a "trustee of the settlement" but the "trustees of the settlement" become onshore again within 6 months (the details do not matter).

38. Thus the scheme of the Act is that trustees are charged on gains in accordance with sections 1 and 2, but that the settlement is looked to, via the concept of its trustees, as a separate chargeable body by virtue of sections 69 and 65. The concept of "trustees of the settlement" is therefore an important one. It is undefined in the legislation.
39. At first sight it might be thought to be obvious who the trustees of the settlement are for the purposes of these provisions – they are those who have been properly appointed to that office. However, Mr Rowley says that it is not that simple. He says that the de facto trustees in the present case were trustees de son tort. Such persons are a species of constructive trustee, and they are of the first type in the categorisation of constructive trustees in Paragon Finance plc v D B Thakerar & Co [1999] 1 All ER 400 at 408J-409g and are therefore "real" trustees. Via that route they become trustees of the settlement for capital gains tax purposes.
40. In Paragon Millett LJ was considering constructive trusteeship in the context of limitation of actions. He referred to the equitable rule that a trustee was accountable without time limit. The passage appearing in Mr Rowley's skeleton argument was the following:

"…the expressions "constructive trust" and "constructive trustee" have been used by equity lawyers to describe two entirely different situations. The first covers those cases already mentioned, where the defendant, though not expressly appointed as trustee, has assumed the duties of a trustee by a lawful transaction which was independent of and preceded the breach of trust and is not impeached by the plaintiff. The second covers those cases where the trust obligation arises as a direct consequence of the unlawful transaction which is impeached by the plaintiff.

"A constructive trust arises by operation of law whenever the circumstances are such that it would be unconscionable for the owner of property (usually but not necessarily the legal estate) to assert his own beneficial interest in the property and deny the beneficial interest of another. In the first class of case, however, the constructive trustee really is a trustee. He does not receive the trust property in his own right but by a transaction by which both parties intend to create a trust from the outset and which is not impugned by the plaintiff. His possession of the property is coloured from the first by the trust and confidence by means of which he obtained it, and his subsequent appropriation of the property to his own use is a breach of that trust. Well known examples of such a constructive trust are McCormick v. Grogan (1869) 4 App. Cas. 82 (a case of a secret trust) and Rochefoucald v. Boustead [1897] 1 Ch 196 (where the defendant agreed to buy property for the plaintiff but the trust was imperfectly recorded). Pallant v. Morgan [1953] Ch. 43 (where the defendant sought to keep for himself property which the plaintiff trusted him to buy for both parties) is another. In these cases the plaintiff does not impugn the transaction by which the defendant obtained control of the property. He alleges that the circumstances in which the defendant obtained control make it unconscionable for him thereafter to assert a beneficial interest in the property. [The emphasis is Mr Rowley's.]

"The second class of case is different. It arises when the defendant is implicated in a fraud. Equity has always given relief against fraud by making any person sufficiently implicated in the fraud accountable in equity. In such a case he is traditionally though I think unfortunately described as a constructive trustee and said to be "liable to account as constructive trustee." Such a person is not in fact a trustee at all, even though he may be liable to account as if he were. He never assumes the position of a trustee, and if he receives the trust property at all it is adversely to the plaintiff by an unlawful transaction which is impugned by the plaintiff. In such a case the expressions "constructive trust" and "constructive trustee" are misleading, for there is no trust and usually no possibility of a proprietary remedy; they are "nothing more than a formula for equitable relief": Selangor United Rubber Estates Ltd. v. Cradock [1968] 1 W.L.R. 1555 at p. 1582 per Ungoed-Thomas J."

41. Mr Rowley's thesis was that the de facto trustees in the present case must have been constructive trustees; they were not constructive trustees in the second of Millett LJ's senses because there was no question of dishonesty or fraud in what they did. Therefore they must fall within the first of his categories. Accordingly, they fall to be treated as actual trustees, because that is what they actually are; using the words of Millett LJ in Paragon, Mr Rowley says that a constructive trustee of the first kind "really is a trustee". Therefore they are capable of being trustees for the purposes of the CGTA. In a real sense they were acting as trustees of the settlement, and should be treated as being trustees of the settlement within section 69, with the consequential result on the residence of the trust that he contends for. Millett LJ would have held that a trustee de son tort was a trustee within the meaning of the Limitation Act 1980.
42. I do not consider that this case works for Mr Rowley in the way in which he says it does. It can be accepted that a trustee de son tort is a kind of constructive trustee –Millett LJ says as much in the paragraph preceding those cited by Mr Rowley. Such a trustee does not really take the trust property in the consensual manner referred to by Millett LJ in his description of the first type, but insofar as the trustee de son tort has property which he holds in his own name he will be a trustee of that property for the ultimate beneficiaries. To that extent it can be accepted that a trustee de son tort of that kind "really is a trustee". However, the question in this case is not whether the de facto trustees are trustees; it is whether they should be treated as being trustees of the settlement. The status of a trustee de son tort is limited. He will be liable for breach of trust much as a properly appointed trustee would be but the doctrine is more about liabilities than anything else. The trustee de son tort will be obliged to hold the property for, and to account to, the beneficiaries, but on the other side of the coin will not have the powers of the trustee conferred by the settlement (see my answer to question (c) below). It would be contrary to principle to allow such a person to arrogate powers to himself by virtue of his "intermeddling", even if that intermeddling is innocent.
43. All this demonstrates that while a trustee de son tort may be described as a trustee of trust property vested in him, it is not necessarily or naturally correct to describe him as a trustee of the settlement. One would expect those words more naturally to describe the actual trustees. So if one had a body of identifiable properly appointed trustees under a settlement, and a different body of persons who have been acting as if trustees but who have not been validly appointed, and were to ask the question "Who are the trustees of the settlement", the natural answer would be that the first group are and the second group are not. Mr Rowley asked the rhetorical question – if the de facto trustees are not the trustees of the settlement then what are they trustees of? If the question is a relevant one then the answer is that they are trustees of the trust property which they happen to have vested in them; they are not trustees of the settlement. That dichotomy is the significant one. The settlement is the abstract concept; the trust property is the physical or quasi-physical subject of the settlement. The concept "trustees of the settlement" means the trustees in relation to the whole abstract concept; the concept of being trustee of property is a narrower one describing the relationship of the person to the property.
44. That, then, is the natural answer. However, the real question that arises in relation to the use of the expression "trustees of the settlement" depends on asking for what purpose and in what context does the question arise? In the present case the purpose and context is the 1992 Act. Does that context require that persons who have not been validly appointed as trustee should be treated as trustees of the settlement notwithstanding that there are others who have been validly appointed and who can more naturally bear that title?
45. At this point it is necessary to look at the scheme of the Act. At one level it might be thought to be attractive to make trustees de son tort trustees of the settlement for these purposes. In the case of actual disposals, they are the person who have done the disposing, and who are holding the gains. They would prima facie be chargeable under sections 1 and 2, like anyone else (including an actual trustee) who has disposed. So far as the charges arising on the deemed disposal are concerned, it could be said that it is as sensible to charge them as to charge the actual trustees; what the Revenue are entitled to is tax on chargeable gains in respect of a trust, and the trustees de son tort are effectively controlling the trust and can pay the tax out of the trust assets (which is what the tax scheme envisages).
46. However, that does not seem to me to be a sensible or attractive outcome. The scheme of the legislation is to charge the trust as if it were a separate entity and to view such things as residence by reference to the constituent parts of that entity. It is therefore important that there be certainty as to how that entity is made up. To allow trustees de son tort, who can come and go with no formality, to fall within that regime detracts from that certainty. I do not believe it was intended. I accept, of course, that in real terms the problem is unlikely to be a common one, but nevertheless it indicates the unattractiveness of Mr Rowley's position.
47. Nor is it necessary to allow or require trustees de son tort to be trustees of the settlement in order to make the tax regime work. Any tax chargeable on disposals by the de facto trustees would prima facie be chargeable as against them because they are the persons who made the gains for the purposes of section 1 and 2. Unless there were some mechanism for attributing those gains elsewhere they would remain the only persons chargeable. However, Miss Proudman says that at this point section 60 (the nominee provision) comes into play. She says that anyone holding property as a trustee de son tort would be obliged to transfer it to the actual trustees when called upon to do so (and, I would add, perhaps before that time too). That brings them within section 60. I find that she is right about that. While it would not be immediately natural to describe the trustee de son tort as a nominee or trustee for the actual trustee, in substance he is in the same position. He is obliged to transfer the property and only holds it for as long as the actual trustee does not call for it. Section 60(2) effectively describes the relationship between the trustee de son tort and the actual trustee. The latter has a better title. Accordingly I find that such a person is within that section. That means that the Act applies as if the assets were really vested in the actual trustees and as if the trustee de son tort's acts were the actual trustee's acts.
48. That produces a coherent scheme. Where there are actual trustees who are not in fact acting, but one or more trustees de son tort who are, then the disposals made by the latter will generate a charge to tax attributable to the former. If the actual trustees have to pay it they can get hold of the trust assets to enable them to do so. The residence provision in section 69 is not directly affected by this provision, because it does not turn on property being vested in anyone or acts needing to be attributed to anyone. But it does now occupy a sensible position in the scheme. The actual trustees are the trustees of the settlement; although they are not acting and making disposals, any acts and disposals are attributed to them; the deemed disposals are treated as being made by them; provision is made for charging them appropriately in section 65; it is the actual trustees who are considered as being the single continuing body of persons for the purposes of section 69; and the residence of the trust is ascertained by reference to them under section 69.
49. Mr Rowley said that this conclusion in relation to section 69 assumed that which it set out to prove. I do not consider that it does. It does not assume that a trustee de son tort is not a trustee. The analysis caters for the fact that he can be. What it does is ascertain who are the trustees of the settlement. It applies a natural meaning to the words, and it demonstrates that a coherent whole is created which is sensible and workable. It avoids the uncertainties and anomalies that would arise if one widened the circle of trustees of the settlement to include those who, for the time being, were acting as such even though not validly appointed, whether acting officiously or not. Nor is his case assisted by his reliance on Roome v Edwards [1982] AC 279. That case concerned the question whether, on the facts, a power of appointment had created a separate settlement or whether there was still a single settlement. Lord Wilberforce observed (at p 293):

"Since 'settlement' and 'trusts' are legal terms, which are also used by business men or laymen in a business or practical sense, I think that the question whether a particular set of facts amounts to a settlement should be approached by asking what a person, with knowledge of the legal context of the word under established doctrine and applying this knowledge in a practical and common-sense manner to the facts under conclusion, would conclude."

Relying on this, Mr Rowley says that the same approach to the assumed facts of the present case would generate the conclusion that the de facto trustees were trustees in a business or practical sense, and "really are trustees" in a legal sense. He urges on me that it follows that they should be treated as being trustees of the settlement for the purposes of the Act. I do not consider this helps him. One can accept his first two steps – indeed, I do so insofar as the de facto trustees actually had assets in their respective names. However, the third conclusion does not follow. The first two do not determine the question whether or not the de facto trustees fall to be regarded as trustees of the settlement as the Act uses that expression. In fact, if it were appropriate to apply what a businessman or layman would think, my view is that they would be more likely to view the actual trustees as being trustees of the settlement than those invalidly appointed.

50. I therefore conclude that so far as section 69 of the 1992 Act is concerned, none of INL, Mr Vanderpump, Mr Winearls and Mr Taylor was a trustee of the settlement within the meaning of that section. Section 52 of the 1979 Act is in the same terms, and a large part of the trustee charging regime is the same. There are no differences which would make it necessary or appropriate for a different conclusion to be reached in relation to that provision, so the answer is the same there too. It follows that the answer to question (b)(ii) is No.

Issue (a)

51. This falls into place once issue (b)(ii) has been answered. Once those de facto trustees are removed from the picture the answer to this question is No.

Issue (c)

52. At first sight it might be thought that the fate of this issue would be automatically determined by the fate of issue (b)(i). If, as I have held, the word "individuals" is not capable of describing a body corporate in section 37(1)(c) then the consequences for the trusteeship are that Major-General and Mrs Coaker did not successfully retire, they remained trustees to their respective deaths and the various appointments of trustees and appointments of trust property thereafter were not done by the persons who were properly constituted trustees under the settlement. On this reasoning they would be invalid.
53. Mr Rowley, however, again said it was not as simple as that. He relies on his constructive trusteeship argument here too, and said that if INL et al were not validly appointed as trustees then since they have acted as trustees de son tort they were constructive trustees and therefore trustees. He suggested that the powers could be validly exercised by people who were trustees de son tort. He relied on indications in statute and authority which supported the proposition that such trustees (ie constructive trustees) were to be equated with properly constituted trustees. In this respect he relied on the definitions in section 68(17) of the Trustee Act 1925:

"'Trust' does not include the duties incident to an estate conveyed by way of mortgage, but with this exception 'trust' and 'trustee' extend to implied and constructive trusts …"

In addition to what Millett LJ said in Paragon Finance plc v D B Thakerar & Co [1999] 1 All ER 400 at 408J-409g (above) he also relied on Pearce v Pearce (1856) 22 Beav 248 as being a case with a resemblance to the present case because it involved the liability of one who acted as trustee pursuant to a defective instrument of appointment.

54. I afraid that this argument fails too. The effect of my conclusion in relation to issue (b)(i) is that the trustees who purported to appoint the trust property were themselves invalidly appointed. They acted in the trust, and became trustees de son tort, but nevertheless were invalidly appointed. As such trustees, they might be liable for breach of trust in the same manner as a trustee validly appointed, but that is a question of liability, not powers. That was the position in Pearce v Pearce. The invalidly appointed trustee received trust assets and participated in a disposition that was a breach of trust. Having received the assets, and having consented to their disposal, she was liable as if she was a trustee. That was a case about liability and duties; it as not a case about the exercise of powers. It does not assist Mr Rowley.
55. In the present matter what the purported trustees sought to exercise was the power contained in clause 2 of the settlement which provided that the trust property should be held on such trusts "as the Trustees shall at their absolute discretion …. from time to time …. appoint". "The Trustees" is defined as the originally appointed trustees and was to "include the trustees or trustee for the time being hereof". It is clear to me that that means trustees properly appointed. Anyone improperly appointed is not appointed at all, and I fail to see how such a person can claim to exercise powers given to trustees under the deed. This conclusion is reinforced by section 38(7) of the Trustee Act 1925:

"Every new trustee appointed under this section as well before as after all the trust property becomes by law, or by assurance, or otherwise, vested in him, shall have the same powers, authorities, and discretions, and may in all respects act as if he had been originally appointed a trustee by the instrument, if any, creating the trust."

That provision does not go on to say that no-one else has those powers, but it is at least consistent with my conclusion in principle and reinforces it.

56. Paragon v Thakerar does not assist Mr Rowley to avoid this conclusion. Millett LJ was concerned there to categorise constructive trusts for the purposes of determining the application of the Limitation Acts. In saying that constructive trustees like trustees de son tort really were trustees he was not saying that they were trustees for all purposes. He was merely saying that they had the attributes of express trustees. It does not follow that they find themselves with all the trustees' powers under the settlement in question. That would be a very curious and surprising extension of the trustee de son tort principles, which are intended to define liabilities, not to clothe with powers. Indeed, there are positive indications in Millett LJ's judgment that he would agree with this. In the paragraph of his judgment immediately preceding those relied on by Mr Rowley (and set out above) he said that the historic limitation rules and principles applied to

"trustees de son tort and to directors and other fiduciaries who, though not strictly trustees, were in an analogous position and who abused the trust and confidence reposed in them to obtain their principal's property for themselves."

That is a clear acknowledgement of the limits of the application of trust principles to those persons. They were not strictly trustees. Only an analogy gets them into a position of liability. There is no reason why the analogy should carry them farther, into the realms of powers, and every reason why it should not. It is true that trustees de son tort could become trustees of trust property if they acquired the legal title to that property, and in that sense might be said to be "strictly" a trustee, but the trusteeship is limited – see above.

57. Accordingly, as a matter of principle the appointments of trust property were carried out by the wrong people, and issue (c) must be answered in the sense No.