Scottish Court of Session Decisions

The Finance Act 1900 (63 and 64 Vict. cap. 7), section 12 (2), is quoted supra in rubric.

The Finance Act 1907 (7 Edw. VII, cap. 13), section 16, enacts—“In the case of persons dying on or after the nineteenth day of April Nineteen hundred and seven, any settled property which would under subsection (2) of section twelve of the Finance Act 1900 be aggregated with other property so as to enhance the rate of duty to the limited extent provided in that section, shall, for the purposes of the principal Act, instead of being so aggregated, be treated as an estate by itself.”

Major Kenneth Mackenzie Drummond and Lieutenant-Colonel Julian Campbell Colquhoun, D.S.O., trustees under the indenture or deed of marriage settlement of Mr and Mrs William Lawrence Colquhoun of Clathick, Perthshire, presented a petition to the Court for recal of certain assessments made in respect of estate duty on the estate of Captain William Campbell Colquhoun, a son of the marriage.

The petition stated, inter alia—“1. That by indenture or deed of marriage settlement in the English form dated 5th April 1837, entered into between William Lawrence Colquhoun of Clathick, in the county of Perth, and Lousia Locke of Rowdeford House, in the county of Wilts, the former transferred to the trustees therein mentioned £5625 stock of the Royal Bank of Scotland, and the latter transferred £7500 3 per cent consolidated bank annuities, and also assigned all acquirenda of which she might become possessed during the subsistence of the marriage above a certain value. 2. The trusts of the said settlement provided, inter alia, (1) that the said funds should be held by the trustees to pay thereout yearly a sum of £100 ‘to such person or persons, and for such intents or purposes, as the said Louisa Locke shall from time to

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time, notwithstanding her coverture, by any writing direct or appoint,’ and failing such direction and appointment, ‘into her own hands for her sole and separate use and benefit by way of pin money, independently and exclusively of the said William Lawrence Colquhoun’; (2) that the remainder of the said income and dividends should be paid to the said William Lawrence Colquhoun during his life; and (3) that the whole income should be paid to the survivor of the spouses during his or her life. 3. It was further provided that after the death of the survivor of the spouses the trustees should hold the capital of the said trust estate ‘in trust for all and every or such one or more exclusively of the others or other of the children and child of the said William Lawrence Colquhoun by the said Louisa Locke at such age, day, or time—or respective ages, days, or times if more than one—in such parts, shares and proportions, and with such annual sums of money and limitations over for the benefit of the said children or some or one of them, and with such provisions for the maintenance and education or advancement or preferment in the world of any such children or child (either at the discretion of the said trustees or trustee for the time being, or of any other person or persons to be named or appointed in that behalf or otherwise), and upon such conditions, with such restrictions, and in such manner as the said William Lawrence Colquhoun and Louisa Locke, his intended wife, shall during their joint lives, by any deed or deeds, or instrument or instruments in writing, with or without power of revocation and new appointment, to be by them both sealed and delivered in the presence of, and to be attested by, two or more credible witnesses, jointly direct or appoint; and in default of such joint direction or appointment, and so far as no such appointment shall extend, then as the survivor of them, the said William Lawrence Colquhoun and Louisa Locke, shall by any deed or deeds, instrument or instruments in writing, with or without power of revocation and new appointment to be by him or her sealed and delivered in the presence of, and to be attested by, two or more credible witnesses, or by his or her last will and testament in writing, or any codicil or codicils in writing to be by him or her signed and published in the presence of, and to be attested by, the like number of credible witnesses, from time to time direct or appoint; and in default of any such direction or appointment as aforesaid by the said William Lawrence Colquhoun and Louisa Locke, or the survivor of them, or so far as no such direction or appointment shall extend, in trust for all and every the children and child of the said William Lawrence Colquhoun by the said Louisa Locke, who being a son or sons shall attain the age of 21 years, or being a daughter or daughters shall attain that age or marry with the consent and approbation of the said John Campbell Colquhoun, John Archibald Campbell, Francis Alexander Sydenham Locke, and Alexander Pitts Elliot Powell (being the trustees of the settlement), or the survivors or survivor of them, his executors or administrators (such consent and approbation to be testified by some writing under their or his hands or hand), to be divided between or amongst such children, if more than one, in equal shares, and if there shall be but one such child the whole to be in trust for that one child. 4. The marriage was duly solemnised, and William Lawrence Colquhoun, who was domiciled in Scotland, resided at Clathick until his death on 16th January 1861. His widow continued to live in Scotland until her death in 1897. 5. Two children were born of the marriage, viz., Captain William Campbell Colquhoun of Clathick, who died on 11th September 1916, and Miss Louisa Selina Colquhoun, afterwards Mrs James Cleland Burns, who survived her father but predeceased her mother. … 7. On 22nd March 1884 Mr William Lawrence Colquhoun's widow—being then Mrs Dunlop, wife of James Dunlop of Tollcross, now deceased—executed a … deed of appointment by which she appointed a sum of £7000 out of the investments held by the trustees of the said indenture or deed of marriage settlement to be invested for behoof of her granddaughters, the children of the said Mrs Louisa Selina Burns—who was then dead; And she further provided that the trustees ‘shall realise the whole balance of the trust funds of the trust created by the said indenture and shall invest the same … for William Campbell Colquhoun, the only son of the marriage between the said William Lawrence Colquhoun and me, in liferent, and for his children natis et nascituris equally, share, and share alike, in fee—declaring that the shares of such children shall not vest in them till they attain 21 years of age or become married, whichever shall happen first.’ …12. Captain William Campbell Colquhoun died as before mentioned on 11th September 1916, and certain questions have arisen with regard to the claims of the Commissioners of Inland Revenue for estate-duty upon his estate. In particular, the question has arisen as to whether the funds now representing the securities settled by his father William Lawrence Colquhoun under the indenture of 1837 fall to be aggregated with the rest of Captain Colquhoun's estate, or whether—in respect that his father died prior to the Finance Act of 1894—these funds fall to be treated as an ‘estate by themselves’ under the provisions of section 12 (2) of the Finance Act 1900, and section 16 of the Finance Act 1907. … 15. Captain William Campbell Colquhoun was the only person legally entitled to challenge the validity of the said deed of appointment of 22nd March 1884. He did not challenge its validity, but on the contrary accepted the liferent interest thereby conferred upon him as sufficient, and continued to do so throughout his life. 16. Upon the question which has arisen as mentioned in paragraph 12, the Inland Revenue authorities maintained that the deed of appointment executed by Mrs Dunlop in 1884 was ultra vires in so far as it purported to limit Captain William Campbell

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Colquhoun's interest in the settled funds to a mere liferent, and that he was therefore entitled to receive an absolute conveyance of the fee. They accordingly claimed estate-duty on the basis that Captain Colquhoun was the settlor of the funds and that these fell to be aggregated with the rest of his estate for the purpose of estate-duty. The petitioners, on the other hand, maintained that Captain Colquhoun's father was the real settlor of the funds, that these did not fall to be aggregated with Captain Colquhoun's own estate, and that the latter's acceptance of the said deed of appointment of 22nd March 1884 had not the effect of making him the real settlor so as to entitle the Commissioners of Inland Revenue to claim aggregation, and further, that the said Commissioners were not in titulo to question the validity of the said deed. 17. In these circumstances the petitioners, after considerable correspondence with the Commissioners of Inland Revenue, at the request of the latter sent to them an estate-duty account for assessment, inter alia, of the funds which at the date of the said Captain William Campbell Colquhoun's death represented the estate settled by the said William Lawrence Colquhoun under the said deed of marriage settlement. 18. The Commissioners duly assessed the said account on the basis of the Commissioners' contention as above set forth, and on 4th January 1918 sent to the law agents of the petitioners the relative assessment notice. 19. On 9th January 1918 the said law agents, on behalf of the petitioners, intimated an appeal against the assessments, and sent to the said Commissioners a formal letter of appeal, dated said 9th January 1918, addressed to them. 20. It having been intimated to the petitioners that the Commissioners proposed to maintain the assessment, the petitioners thereafter paid the duty upon the accounts as assessed, the same being a condition-precedent to the right of appeal.”

The petitioners craved the Court—“(1) To recal the assessment complained of; (2) to find that the deed of direction, appointment, and division by the said Mrs Louisa Locke or Colquhoun (afterwards Dunlop), dated 22nd March 1884, was in all respects a valid exercise of the power of appointment conferred upon her by the marriage contract of 5th April 1837 entered into on her marriage with the late William Lawrence Colquhoun; (3) that in any event the provisions of the said deed of direction, appointment, and division having been accepted by the deceased Captain William Campbell Colquhoun and the other beneficiaries thereunder, and thereafter acted upon, the Commissioners of Inland Revenue have no title to challenge the legal results following thereupon; (4) that the estate settled by the said William Lawrence Colquhoun in the said marriage settlement of 5th April 1837 and appointed by the said deed of direction, appointment, and division of 22nd March 1884, falls to be treated as an estate by itself under the provisions of section 12 (2) of the Finance Act 1900, as amended by section 16 of the Finance Act 1907; and (5) that the amount of the estate so settled being at the date of the death of the liferenter of said funds, the said Captain William Campbell Colquhoun, on 11th September 1916, of the value of £13,582, 17s. 2d., the rate of duty payable thereon should be five per centum, and that the duty upon the said funds comprised in the inventory of Captain William Campbell Colquhoun's estate and relative accounts (other than the said sum of £13,582, 17s. 2d.) amounting to £54,000 or thereby, should be assessed at the rate of seven per centum and no more.”

Counsel for the petitioners cited the following authorities— Crawcour v. Graham, 1844, 6 D. 589; Lennock's Trustees v. Lennock, 1880, 8 R. 14, 18 S.L.R. 36; Gillon's Trustees v. Gillon, 27 S.L.R. 338; Mackie v. Mackie's Trustees, 1914 S.C. 10, 51 S.L.R. 345; MacGillivray's Trustees v. Watson's Trustees, 1911 S.C. 1103, 48 S.L.R. 887.