Scottish Court of Session Decisions

On 15th December 1961 the opinion of the Court was delivered by the Lord President,—

LORD PRESIDENT (Clyde).—This is a petition brought under section 1 of the Trusts (Scotland) Act, 1961, for approval and authorisation by the Court of an arrangement altering the provisions of the trust-disposition and settlement of the late David Colville (hereinafter referred to as the testator).

The testator died in 1916 survived by his widow (who died in 1932) and by two children, a son, Colonel Norman Colville, who is the petitioner, and a daughter, Lady Bilsland. Several of the earlier purposes of the testator's settlement have already been carried out, including the initial directions in the fifth purpose thereof in regard to a one-third part of the residue of the testator's estate. The present case is not concerned with this one-third part of the residue. The terms of the testator's settlement are complicated as he deals with a large number of contingencies, and, for the purpose of explaining the grounds upon which we are disposing of this petition, it is not necessary to give more than a general outline of the way in which he disposed of the remaining two thirds of residue. It is enough to say that he directed his trustees, in the latter part of the fifth purpose of his settlement, to hold the remaining two thirds of residue, after prior purposes were met, for the alimentary liferent of the testator's son and daughter equally between them, and for their respective lawful issue in fee, in such proportions and subject to such conditions and restrictions as his respective children might appoint by any writing under his or her hand, and failing issue for behoof of the other of his children or their issue on the same conditions and subject to the same restrictions as were provided with regard to their original share: declaring that, unless otherwise appointed by his son and daughter, who should have power so to appoint, the shares falling to issue were to vest at twenty-one years of age in the case of males, and, in the case of females, when they attained that age or were married, whichever event first happened. The testator further conferred certain powers of disposal by mortis causadeed on the survivor of his children in the event of the survivor dying without leaving issue, or in the event of the issue not living to take a vested right. Under the subsequent purposes of the settlement the testator directed his trustees to hold and convey the residue of his estate, in the event of the provisions in the fifth purpose not taking effect, to and for behoof of certain other persons.

The present application is concerned only with the portion of the residue liferented by the petitioner. Under powers conferred upon them by the settlement the trustees have allocated certain investments forming part of the trust estate to each of the shares of residue held for the liferent of the petitioner and his sister respectively. The trustees have lodged in the process a minute of the trustees vouching this allocation, and a letter from their brokers showing that the values have not depreciated since the allocation was made. There is no dispute as to the fairness of this allocation. The investments so allocated to the petitioner's liferented share of residue represent, therefore, the fund dealt with in this application. Hereinafter, for simplicity, it is referred to as "the fund."

I turn next to the parties who are or may be interested in this fund. The petitioner was born on 11th September 1893. He lost one son in the war, who left no issue. He has a daughter, Anne Lindsay Colville, who is over twenty-one years of age and is unmarried, and a son born in 1952, James Charles David Colville. The petitioner is married to Lady Kimberley, who is still alive. The petitioner's sister was born in 1892, is married but has no issue.

If the petitioner's liferent had not been made alimentary, and if the fee of this part of the estate had already vested indefeasibly in ascertained persons who were all over twenty-one years of age, there would, of course, have been nothing to prevent the parties making some arrangement inter se to distribute the funds otherwise than as provided by the testator. But, under our law as it stood prior to the coming into force of the 1961 Act, such a rearrangement was impossible in the present case, because, firstly, the petitioner was enjoying an alimentary liferent which he was in law disabled from renouncing, and, secondly, because the persons interested in the fee include a child under twenty-one years of age and, possibly, other children, or remoter issue, of the petitioner, yet to be born. It was to meet these obstacles, and to make it possible to surmount them, that section 1 of the 1961 Act was enacted. The main purpose of subsection (1) (a) and (c) is to enable the Court to grant on behalf of a child under twenty-one, or a child not yet born, that approval to a variation of a trust purpose which otherwise could not be obtained, and in terms of subsection (4) the Court may authorise an arrangement which involves varying or revoking an alimentary liferent and making new provisions in place of that liferent. Section 1 does not enable the Court to make a new will or a new purpose in a will which would completely supersede the old and be effective against all possible claimants. It merely affords machinery (1) for giving effective approval to a variation on the part of beneficiaries who, owing to age or incapacity, could not otherwise approve, and (2) for enabling the Court to authorise an alimentary liferenter to do something which hitherto the law has prohibited.

The proceedings are to some extent administrative, and the Court is not bound to adhere to strict rules of evidence. If essential facts are disputed, inquiry by way of remit, or even by allowing a proof, may be necessary, but this must be rare. If documents are produced to vouch material averments and actuarial or other reports are produced to support material calculations, and if these are either accepted or not disputed by the trustees and the respondents or minuters who appear in the process, they may be accepted by the Court without further proof. In the present case, the testamentary trustees are parties to the proceedings, they have lodged a minute approving of the proposed variation, and, in addition to the petitioner, we have also heard counsel on behalf of the petitioner's daughter and the curator ad litem appointed to the petitioner's son. None of the documents lodged in process has been challenged or disputed by anyone and we have been able to decide the case without either a proof or a remit. This enables delay and expense to be minimised.

It remains only to consider whether approval can be given to the variations proposed. These fall into two chapters, and the first of these is the question of the petitioner's alimentary liferent. Under the proposed variation his alimentary liferent interest in two fifths of the fund is to be enlarged into a right of fee of that two fifths, and all the purposes and provisions of the trust-disposition and settlement in relation to the remaining three fifths of the fund, and, in particular, his alimentary liferent interest therein, are to be brought to an end. The Court cannot sanction this variation unless (see proviso to subsection (4) of section 1) "it considers that the carrying out of the arrangement would be reasonable, having regard to the income of the alimentary beneficiary from all sources, and to such other factors, if any, as the Court considers material." These other factors would include, inter alia, the effect on the fiars of the liferented funds. They might be prejudiced if, for instance, the liferenter took a fee of the whole share, the alimentary liferent of which he had hitherto enjoyed.

From statements prepared by the petitioner's accountants and by his solicitors giving details of his income from all sources, it is apparent that, owing to the incidence of taxation, he derives little, if any, benefit from a large part of the alimentary liferent payable to him. Moreover, it appears that were he to die now the estate duty payable on his death would be at a rate of eighty per centum. It is, in these circumstances, quite clear that from his point of view, and from the point of view of the ultimate fiars, the proposed substitution of an interest in capital instead of revenue is advisable.

Figures have been put before us to justify actuarially the conferring upon him of a two fifths share in the capital of the fund in exchange for his right to receive the income of the whole. We are satisfied that it would be reasonable within the meaning of the proviso to subsection (4) that this variation should be effected, not by a complete discharge of the alimentary liferent and the conferring upon him of a right to the fee of two fifths of the fund, but by enlarging his alimentary interest in two fifths into a right of fee in these two fifth parts. The main, if not the only, reason for the adoption of this method is related to the heavy taxation otherwise exigible on the petitioner's death. But this seems to us none the less a perfectly legitimate reason for the adoption of this method of making the variation in preference to one which would render the estate possibly liable to a heavier rate of duty.

We have had placed before us information as to the petitioner's income from all sources, and, in the light of this information, the arrangement for the changes in his liferent interest in the fund appears reasonable. Moreover, from the point of view of the fiars, it will involve a very considerable diminution of the estate duty payable on his death, and, so far from prejudicing them, will clearly enure to their benefit. So far as this alteration is concerned therefore, we are prepared to approve it.

This only leaves the question of approval on behalf of (1) the petitioner's pupil child and (2) any further children or remoter descendants who may still be born to him. The test here is (see proviso to subsection (1)) whether we are of opinion that the carrying out of the arrangement would not be prejudicial to the beneficiary. If the variation positively benefits the person in question clearly that justifies our approval. But we can still approve where the variation puts the person in question in no worse position than before.

In the present case, the variation proposed involves, in the first place, the trustees effecting a single-premium policy of assurance to secure payment of a sum equal to the estimated death duty payable on the death of the petitioner in respect of the three fifth parts of the fund presently liferented by him. This will protect the beneficiaries from loss due to the petitioner's death within five years. After deduction of this premium, the balance of the three fifths of the fund is to be held by the trustees and divided into six parts. One sixth part is to be held for his daughter Anne Lindsay Colville, and her issue, three sixth parts are to be held for his son, a certain amount being payable on his attaining twenty-one years of age and the balance when he becomes thirty. The remaining two sixth parts are to be held for the whole children of the petitioner whether born before or after the coming into effect of the arrangement. There are, in each case, powers of appointment and destinations-over of the various parts of the fund, but it is unnecessary for present purposes to set these out in detail.

In considering whether to grant approval of this variation, it is proper to point out, in the first place, that the Court is relieved of any need to consider whether Anne Lindsay Colville is in any way prejudiced by the variation. She is over twenty-one years of age, she is therefore qualified to assent on her own behalf, and, in any event, she was represented by counsel at the hearing before us and has assented to the variation proposed.

In the second place, it appears that under the testator's settlement he conferred upon the petitioner a power to appoint the fund in question among his children in such proportions and subject to such restrictions as he chose, including a power to fix the date of vesting of the shares so appointed. It is clear that, in virtue of the variation in the trust purposes with which this petition is concerned, the petitioner has irrevocably renounced all right in the future to exercise the power to appoint so far as the fund in question is concerned. Parties were prepared, in the course of the argument before us, to incorporate in the proposed arrangement an express renunciation by the petitioner of his power to appoint over the fund in question. But, in our opinion, this is necessarily implied in the arrangement itself, and we take the view that no express renunciation is required.

But, in the third place, it is apparent from the terms of the settlement that, in the case of a minor or pupil child of the petitioner or of any future child of the petitioner, the power of appointment conferred by the testator is wide enough to entitle the petitioner, if he had chosen to exercise it, to exclude such child completely from benefiting in the fund. Under the arrangement that result is obviated in the case of the pupil child James Charles David Colville, and is not made more likely in the case of any future brothers or sisters he may have. In such circumstances, it would be difficult for this Court to hold that the arrangement is prejudicial to any of these beneficiaries from whom the testator has empowered the petitioner to divert all interest in the fund if he chose. In the circumstances, therefore, this appears to be a clear case for our granting approval of the arrangement proposed.

We are confirmed in this conclusion by a fuller consideration of the situation so far as the pupil child James Charles David Colville is concerned. He is the most directly interested of the beneficiaries on whose behalf our approval is sought. Under the settlement the petitioner might have exercised the power of appointment so as to exclude him altogether. But if his father had refrained from exercising the power of appointment, and if he had survived to take a vested right under his grandfather's settlement, the financial benefit which he could have received would have been substantially less than the benefit conferred on him under the arrangement. This was clearly brought out in figures submitted to us in the course of the hearing. And it more than satisfies the requirements of the proviso to subsection (1). It shows that not only is he not prejudiced, but that he actually stands to gain by the arrangement in question.

The only other matter to which it is necessary to refer is the form of our order. The consequence of a successful application under this section of the Act is intended to be that the variation sanctioned by the Court should be recorded in the register or registers in which the deed is recorded. This enables any person interested therein to be certiorated of the fact that a variation has been made and of the terms of that variation. The appropriate way to achieve this in the normal case is for the petition to the Court to contain an appendix setting out the variations on the analogy of a scheme in a cy prèspetition. If the prayer of the petition is granted, this appendix, as amended and authenticated by the Court, can then be registered. The variations approved by the Court will thus be as readily available for examination by persons interested therein as are the terms of the original trust deed granted by the truster. In the present case the petition contains such an appendix. In the course of the debate certain small amendments were proposed and made upon it. These have now been incorporated in it and, in the whole circumstances, the Court approves of the arrangement now proposed and grants the prayer of the petition.