Le Marchant & Anor v Denby & Ors

On 21^st October 1959, Ralph Batchelar Denby (“the Settlor”) by deed settled 100,000 second preference shares in Willis Faber & Dumas Limited on discretionary trusts for the benefit of a class of persons consisting of his son, Alan Timothy Denby (“Mr Denby”) and his two daughters, together with any future children of the Settlor, his remoter issue and their wives, widowers and widows.

This is a Part 8 Claim relating to a fund called the “A Fund” or “Sub-Fund A” appointed on trust for the benefit of Mr Denby, his spouse and issue, by a deed dated 29^th May 1974 (“the 1974 Deed”). Clause 4 of the Settlement conferred full discretionary powers on the trustees, including the power to make revocable appointments:

“(i)

The Trustees shall hold the capital and income of the Trust Fund upon trust for all or such one or more exclusively of the other or others of the Discretionary Objects at such age or time or respective ages or times and if more than one in such shares and either absolutely or for such period or respective periods and with such gifts over and with or subject to such discretionary trusts powers or provisions (whether relating to capital or income and whether at the discretion of the Trustees or of any one or more of the Discretionary Objects or of any other person or persons excepting the Settlor) and generally in such manner in all respects for the benefit of all or any one or more of the Discretionary Objects as the Trustees in their absolute and uncontrolled discretion (without transgressing the rules against perpetuities and excessive accumulation) may at any time or times or from time to time during the Trust Period by any deed or deeds revocable or irrevocable appoint

(ii)

The Trustees may in their absolute discretion at any time or times release the Trust Fund or any part or parts thereof from the discretionary power hereinbefore conferred upon them (without prejudice to any appointment previously made thereunder)”

The background to the 1974 Deed is, very shortly, as follows. In 1974, the trustees, having from time to time made resolutions relating to the manner in which the funds of the Settlement were to be held, were not satisfied that the resolutions were effective and determined to confirm them. This they did by the 1974 Deed. So far as the A Fund is concerned, it is convenient to set out the terms of the 1974 Deed at this stage:

“1.

In exercise of the power conferred upon them by Clause 4 of the Settlement and of every or any other power in that behalf enabling them the Trustees hereby by way of confirmation only of the matters hereinbefore recited if and so far as may be necessary do APPOINT AND DECLARE as follows:-

(a)

the investments now comprised in Sub-Fund “A” part I shall be held upon trust as to capital and income (including intermediate income) for Mr. Denby if he shall attain the age of sixty years and subject as aforesaid upon trust contingently for such of his children as reach the age of twenty one years and if more than one in equal shares (subject to the provisions of Clause 2 of this Deed)

…

2.

The Trustees or other [of] the trustees for the time being of the Settlement shall have power at any time or times by Deed or Deeds wholly or partially to revoke or otherwise vary all or any of the trusts declared in Clause 1 of this Deed and to declare such other trusts (if any) as may be authorised by Clause 4 of the Settlement

3.

In further exercise of the power conferred upon them by Clause 4 of the Settlement and every other power in that behalf enabling them and by way of confirmation as aforesaid the Trustees hereby irrevocably appoint and direct that the property comprised in Sub-Fund “A” part II (namely the entirety of Sub Fund A with the exception of the shares in that fund of Willis Faber & Dumas (Holdings) Ltd) shall be held upon trust for Mr. Denby absolutely.”

It follows, it seems to me, that the appointments of the A Fund were revocable both before and after Mr Denby’s attaining the age of 60, which occurred on 24^th August 1994.

The next event of importance is the 1976 Deed. Expressed to be a “Deed of Partial Revocation and Reappointment”, it is primarily concerned with Sub-Funds B and C, which had been directed by the 1974 Appointment to be held on trust respectively for such of the children of Mr Denby’s sisters (Mrs le Marchant and Mrs Gibson) as attained the age of 21, if more than one in equal shares. The actual reorganisation effected by this Appointment is immaterial, but it is to be noted that the provisions of the Appointment were revocable by Clause 4, which, after providing for absolute gifts free of the trusts of the Settlement of £20,000 for Mrs le Marchant and Mrs Gibson, provided by Clause 4(iii):

“Subject as aforesaid the Trustees shall stand possessed of the balance of Sub-Fund B and Sub-Fund C upon the trusts and with and subject to the powers and provisions made applicable to Sub-Fund B or Sub-Fund C (as the case may be) by the joint effect of the Settlement and the 1974 Deed including in particular the aforesaid power of revocation contained in Clause 2 of the 1974 Deed”

By Clause 9, which is on the face of it applicable to the whole fund, it provides as follows:

“9.

The Trustees hereby furthermore do APPOINT AND DECLARE that the provisions of Clauses 8 to 23 inclusive of the Settlement shall apply to each and every part of the Trust Fund for the time being held on continuing or revocable trusts as if for each reference to the Trust Fund express or implied there were substituted a reference to such part thereof and Clause 6 of the Settlement shall apply as if the words “any beneficiary hereunder” were replaced by the words “any person being or who would if over twenty five years of age be for the time being entitled to the income of the moneys so to be applied” but save as aforesaid the provisions of the Settlement shall be of no further application in respect of any part of the Trust Fund [my italics]

…

11.

Save as hereinbefore by Clause 6 hereof in respect of 1976 Fund B the provisions of this deed shall be irrevocable.”

On 8^th April 1992, before Mr Denby’s attaining the age of 60, the then trustees executed a deed of Revocation and New Appointment in respect of the A Fund. They revoked the appointments made in 1974 in their entirety and established funds for the children of Mr Denby’s first marriage. The remaining fund (referred to as the “Main Fund” in the Deed of Revocation and New Appointment) was directed to be held upon trust to pay the income thereof to Mr Denby for life, with a power to appoint capital to him and subject thereto upon trust for the members of his family. Mr Denby maintains and has consistently maintained that the appointment in 1974 of the fund to him contingently on attaining the age of 60 was either itself irrevocable or became irrevocable in consequence of what I can describe as a side effect of the 1976 Appointment.

To support his contention before me, Mr Denby appeared in person. Although unrepresented before me, he has from time to time been represented by solicitors, and to some extent the clearest formulation of his contentions is to be found in a letter of 14^th March 2002 from his then solicitors, Dawson & Co, to which I shall return. Leaving aside for one moment the suggestion that the appointment effected by the 1974 Deed is itself irrevocable, the argument turns upon the effect of Clause 9 of the 1976 Deed.

Dawson & Co’s contentions, as set out in their letter of 14^th March 2002, were as follows:

“1.

An appointment in our client’s favour was validly made (or confirmed) by the trustees in the 1974 Deed of the investments then comprised in Sub Fund “A” Part I, pursuant to the terms of the 1959 Deed. This appointment was made contingent on our client attaining age 60, and was subject in clause 2 to an express power of revocation.

2.

In the 1976 Deed (clause 9) the trustees then validly appointed and declared that the provisions of the Settlement “shall be of no further application in respect of any part of the Trust Fund” save for the administrative provisions set out in clauses 6 and 8-23. This meant then that the operative provisions of the 1959 Deed in clauses 2-5 were no longer of any effect. Under clause 11 of the 1976 Deed, the provisions of the 1976 Deed were expressly stated to be irrevocable (save in respect of the 1976 Fund “B”, as defined).

3.

Because the operative provisions of the 1959 Deed had ceased to have any effect, no further valid appointments could be made. Certainly the trustees were not entitled to make any further appointments in respect of Sub Fund “A” Part I.

4.

Since, after the date of the 1976 Deed, no further appointments could be made by the trustees, it is implicit that the trustees were equally not entitled to revoke earlier appointments, and that the power to revoke preserved by clause 2 of the 1974 Deed implicitly also ceased to be of any further application in relation to the Settlement because of the effect of clause 9 of the 1976 Deed.

5.

The 1992 Deed, which notably fails to mention the 1976 Deed, was therefore an invalid revocation and appointment by the trustees at the time, and our client is entitled to require you to hold the balance of the Trust Fund for our client absolutely on the basis that the condition to which the appointment made in the 1974 Deed was subject, namely our client reaching the age of 60, has been satisfied.”

The argument proceeds, therefore, upon the footing that on a proper construction of the 1976 Deed, the provisions of Clauses 4 and 5 of the Settlement cease to be applicable to any part of the fund, and, by reason of the limitation of the power to revoke and re-appoint contained in Clause 2 of the 1974 Deed to trusts as may be authorised by Clause 4 of the Settlement, Clause 2 was deprived of any effect. Thus Mr Denby’s contingent interest was not capable of being defeated by an exercise of the power contained in Clause 2, and he became contingently absolutely entitled and has been absolutely entitled since his 60^th birthday.

I think this fundamental contention is wrong. There are two possible ways of arriving at the same conclusion. The first, preferred by Counsel for the minor beneficiary who is entitled under deeds executed after 1992, is that the provisions of Clause 9 of the 1976 Deed cannot reasonably be interpreted to extend to removing the substratum to the power to revoke or vary contained in Clause 2 of the 1974 Deed, the more so since the 1974 Deed preserves expressly corresponding powers of revocation and variation in respect of Sub-Funds B and C. The second approach is merely to construe Clause 2 of the 1974 Deed as of its date of execution, the words “as may be authorised by Clause 4 of the Settlement” importing the words of that clause. In either event, the provisions of Clause 5 of the settlement must survive in order to accommodate any revocation of an appointment without the appointment on fresh trusts, for which purpose the default provisions of Clause 5 must necessarily continue to have effect. Whichever way one approaches the problem, the 1976 Deed does not, in my opinion, affect the subsequent exercisability of the power to revoke contained in Clause 2 of the 1974 Deed. It would be remarkable if a document expressed to effect revocation and re-appointment in respect of parts of Sub-Funds B and C should also have had the effect (by virtue of the words “make such further provision as hereinafter appear”) to destroy the power to revoke or vary contained in Clause 2 of the 1974 Deed only insofar as it affected the A Fund. Clearer words than the provisions of Clause 9 of the 1976 Deed which I have set out above would, in my view, be necessary.

It follows, it seems to me, from the preservation in Clause 4(iii) of the 1976 Deed that the contention sought to be advanced on the basis of Clause 9 of that deed is not tenable. If the provisions of Clauses 4 and 5 of the Settlement are no longer applicable to the funds, then the preservation of the power contained in Clause 2 of the 1974 Deed is as ineffective in relation to Sub-Funds B and C as it is in relation to Sub-Fund A. In my view, any contention to the contrary could not be supported. But this is contrary to the whole tenor of the 1976 Deed.

Mr Denby, in his submissions to me, which he most helpfully reduced to writing, pointed out that at the time this Settlement was made, discretionary trusts were a method of passing on his father’s hard-earned cash to his children in a tax-efficient manner. He said that the 1974 Deed was agreed between himself, Mr Graham Williams (the Settlor’s solicitor) and the accountants Baker Sutton. He considers, I think, that it was their intention to appoint the A Fund on trust to pay the income to him and that the gift of capital to him should indeed become absolute at age 60, but that this appointment was intended to be irrevocable. He places great emphasis upon the fact that Clause 2 of the 1974 document states that the trustees have power “… wholly or partially to revoke or otherwise vary all or any of the trusts declared in Clause 1.…” and, as I understand it, he considers that they accordingly had power to render the appointment in his favour irrevocable, and that they did this. He says that the trustees, advised by Speechly Bircham, considered that they had “revoked their own power to extinguish this power of revocation”. I have some difficulty in understanding this phrase, but it must be accepted, I think, that the trustees might at any time have accelerated Mr Denby’s interest in capital. But they did not do so by deed. Mr Denby relies upon the matters which I set out in the following paragraphs as showing that they did do so.

First, there is a letter from the Estate Duty Office of 22^nd October 1975, which states in the final paragraph that “… no claim for Capital Transfer Tax now arises on the transfer to [Mr Denby] of the remaining shareholdings in Willis Faber & Dumas (Holdings) Ltd….” This was in response to a letter (of 18^th August 1975) which states in terms that it is concerned with “… that part of the Capital in which Mr Denby became absolutely entitled …” as opposed to the shares in Willis Faber & Dumas (Holdings) Ltd, and asking for confirmation that the retained Capital share might safely be paid over. The letter concludes: “It is appreciated that there might well be a charge to capital transfer tax on Mr Denby’s death in respect of the shares in Willis Faber & Dumas (Holdings) Ltd”, and it is to this suggestion that the Estate Duty Office is apparently replying. But there is no suggestion in the correspondence with the Estate Duty Office that the trustees consider that Mr Denby was now absolutely indefeasibly entitled to the fund represented by the Willis Faber & Dumas (Holdings) Ltd shares, still less that they have been transferred to him.

On 5^th August 2005, recently, HM Revenue & Customs wrote to Speechly Bircham referring to the “appointments in favour of Mr A T Denby” and explaining why they had no file current in respect of the A Fund. These would obviously relate to the 1974 Appointment, which can only be described as effecting an appointment in Mr Denby’s favour.

In the accounts prepared by Baker Sutton for 1976-7, the A Fund is referred to as the “A T Denby Fund”. But the “Summary of Provisions” relating to the fund states that the power of revocation was retained, and the trusts affecting the fund are clearly summarised. There is no mention of any act by the trustees subsequent to the 1974 Appointment that might affect the position. The fact that there is no mention of the gift at age 60 being revocable means, Mr Denby submits, that it was not.

On the sale of the Willis Faber & Dumas (Holdings) Ltd shares, Mr Denby says that the proceeds were paid into a private client account called the “A T Denby Fund”. He considers that this indicates his indefeasible entitlement, perhaps because of the name of the account. This contention cannot be supported. As I believe Mr Denby himself accepts, what matters is the effect of the various deeds.

Finally, Mr Denby says that capital transfer tax or estate duty was paid in respect of the Willis Faber & Dumas (Holdings) Ltd shares, and the effect of this was to “effectively remove[] the funds out of the conditions of the Trust, whence they could not be retrieved under any circumstance. This is known as having the effect of making the ‘A’ fund irrevocable and ‘empty’.” I think that what Mr Denby means by this is that the payment of tax or duty had the effect of making him absolutely beneficially entitled to the fund, at age 60. He misunderstands how the charge to tax would arise: it might well have arisen on the release of a power of revocation. But the release of this power of revocation would not have given rise to a charge to tax, because his was an interest in possession and there was no charge to tax when a beneficiary with an interest in possession became absolutely entitled. The Revenue did not seek to contend that a charge to capital transfer tax arose as a result of the 1974 Deed. So no transaction with the Revenue throws any light on whether the power of revocation was ever released.

None of these matters, therefore, seem to me to be material. There is no doubt that the 1974 Deed appoints Sub-Fund A to Mr Denby contingently upon his attaining the age of 60 years and subject to the power of the trustees to wholly or partially revoke that appointment and to declare such other trusts as may be authorised by Clause 4 of the Settlement. Clause 2 expressly requires the revocation to be by deed or deeds, as does Clause 4(i) of the Settlement. No further deed of revocation, appointment or release of the power in relation to Sub-Fund A has been produced, and there is no evidence that such a deed was ever prepared or executed. It follows that the trusts appointed by the 1974 Deed and subject to the provisions of the 1976 Deed remained revocable at all times up to 1992.

Much of the difficulty which Mr Denby has experienced down the years is, I think, the result of an imperfect understanding of the law, in particular, a difficulty – with which I have sympathy – with the concept that a gift which is absolute may nonetheless be defeated by the exercise of a power of revocation. But Mr Denby’s activities have, during that time, cost Sub-Fund A a great deal of money. More importantly, it is plain that there has been a complete breakdown in the relationship which should subsist between the immediate beneficiary of a substantial fund (about £900,000 including a secured loan to Mr Denby) and the trustees. I saw Mr Denby in court, and it is plain that he still believes that the trustees have been dishonest over many years and that he was justified in, for example, complaining to the City of London Police. Furthermore, the “family” trustee, Mr le Marchant, wishes to retire as trustee, and Mr Kirby, who with Ms Houston is also the trustee of the B and C Funds, and who has over the years been the object of much ill-founded complaint and baseless allegation, thinks that some retained connection with the firm of Speechly Bircham, of which Mr Kirby is a partner and Ms Houston is a consultant, is desirable – the more so, perhaps, because the three funds are treated as a single settlement for Capital Gains Tax purposes. The proposal is made, and in court Mr Denby did not oppose, that a trust corporation associated with Speechly Bircham called St Andrew Trustees Limited should be substituted. That order will accordingly be made.

I will hear Mr Denby and Counsel as to the form of order to be made in the light of the foregoing, and as to costs.