§ 5.17 p.m.
§ Order of the Day for the Second Reading read.
§ LORD CONESFORD
My Lords, the purpose of this Bill is to carry out the recommendation of the Sixth Report of the Law Reform Committee. That Committee under the chairmanship of Lord Justice Jenkins reported in November of last year on the matter which my noble and learned friend the Lord Chancellor had referred to them. They had been invited to consider whether any alteration was desirable in the powers of the Court to sanction a variation in the trusts of a settlement in the interests of beneficiaries under disability and unborn persons, with particular reference to the decision in Chapman v. Chapman [l954] A.C. 429.
The Report of the Law Reform Committee states the case for reform so clearly and convincingly that those who have read it will certainly not require further argument from me. I believe I shall best meet the wishes of the House if I indicate briefly the anomalies which the Bill seeks to remedy and the effect of its clauses.
All noble Lords, whether lawyers or laymen, recognise that it is sometimes necessary to vary the provisions of a trust to the advantage of all concerned, if a trust designed to preserve the settled properly is not to have precisely the opposite effect. If all the beneficiaries are adults they can of course make such arrangements as they choose, but nearly always some beneficiaries are infants and other potential beneficiaries are unborn or unascertained. In that event, 834 the only way in which the trust can be varied is to ask the court to sanction on behalf of infants and such beneficiaries a rearrangement of the provisions of the settlement which would be for their benefit as well as for the benefit of the adults, and to which, if they were well advised, they would agree if they could.
Applications of this nature to the Court have become fairly common and variations of trust have frequently been sanctioned by the Chancery Division of the High Court. But, in 1934, the House of Lords decided in Chapman v. Chapman that the Chancery Division had no inherent jurisdiction to sanction such variations of trust. It is the purpose and effect of this Bill to confer the necessary powers upon the Court, for the state of the law revealed by that decision was clearly anomalous and unjust. In some cases the Court could give relief; in others, equally deserving, it could not.
Let me give examples of cases in which the Court, even without this Bill, can vary the trust. I will give three examples. If the trust affects land, the Court possesses wide powers under Section 64 of the Settled Land Act, 1925, and Section 57 of the Trustee Act, 1925. Secondly, in cases in which the rights of the beneficiaries are in dispute, the Court can be asked to sanction a compromise. My third example is this: the Divorce Court has power to vary a marriage settlement under Section 25 of the Matrimonial Causes Act, 1950. In order to show how anomalous and illogical the resulting state of the law is I do not think I can do better than to quote a few sentences from paragraphs 12, 13 and 14 of the Law Reform Committee's Report. I quote first the beginning of paragraph 12.The position therefore, to-day is that so far as the terms of the settlement in question are ambiguous or so far as it comprises land, whether settled or held on trust for sale, or the proceeds of sale of land held on trust for sale, the Court will probably be able to approve on behalf of infant or potential beneficiaries a variation of the trusts which is agreed to by the adult beneficiaries and which can be shown to be for the advantage of the infant or potential beneficiaries; but that, on the other hand, if the terms of the settlement in question are free from ambiguity and the settlement consists entirely of personalty (not being proceeds of land held on trust for sale) the Court will have no power to approve a variation of the trusts, however desirable it 835 may be in the interests of the infant and potential beneficiaries that they should be varied.I go on to paragraph 13:We think it is clear that the present situation is unsatisfactory. It cannot be right that the question whether the Court can sanction changes in trusts on behalf of infants or potential beneficiaries should depend on the entirely irrelevant considerations upon which it depends to-day. In our view the only satisfactory solution of the problem is to give the Court the unlimited jurisdiction to sanction such changes which it in fact exercised in the years immediately preceding the decision in Chapman v. Chapman.Then I pass to paragraph 14, which I propose to read in full, because it is the simplest statement of the case for this Bill.Nor is the matter simply one of logic. Justice alone, in our view, demands that the Court should have an unlimited jurisdiction. In the case of lunatics the Court of Protection has jurisdiction to sanction any disposition of the patient's property which the Court considers that the patient, if of sound mind and well advised, would make himself, including dispositions designed to lessen fiscal burdens … Similarly, if a husband and wife are divorced, the Divorce Court can sanction variations in their marriage settlement which are designed to prevent the trust fund being diminished by taxes or death duties … Why should an infant whose parents are happily married be in a worse position than a lunatic, or an infant whose parents are divorced? Why should an infant who is interested in land be better off than one who is interested in personalty? Why should it not be possible to arrange the affairs of all infants to their best advantage? Why should anyone be prevented from arranging his affairs to his best advantage by reason of some potential beneficiary who (if he ever acquires an interest) would be equally benefited by the arrangement?My Lords, that is the case for this Bill.
If I may now turn to the clauses, the important operative clause is Clause 1, and subsection (1) of Clause 1 enables the Court to assent to any variation or revocation of trusts or to any alteration of the administrative powers of the trustees which the Court considers would be for the benefit of (a) any beneficiary who is incapable of assenting by reason of infancy or other incapacity; (b) any person who may become entitled to an interest if he fulfils a specified requirement at a future date—but not a person in whose case the requirement would be fulfilled if the determining event had happened at the date of the application to the court; and (c) any unborn beneficiary.
836 The general principle of the Bill is that the Court should have power to assent to a variation on behalf of persons who are incapable of doing so for themselves, but that persons of full age and capacity should be left to exercise their own discretion. Thus, as regards unascertainable persons, the effect of the Bill is that so far as possible the powers of the Court should be invoked only where the person concerned is not sui juris and able to assent on his own behalf. A person may be unascertainable because he cannot be traced, or because the disposition is made in favour of persons of a specified description or class and the identity of such persons can be established only on the happening of an event which has not yet occurred. The Bill does not enable the Court to interfere in the case of persons whose identity is established but who cannot be traced. In the case of persons whose identity cannot be established, paragraph (b) of subsection (1) in effect provides that persons of the specified description or class who are sui juris and would take if the determining event had happened at the time of the application to vary must agree to the variation, but that the Court can act on behalf of any other persons.
Subsection (2) of Clause 1 deals with the case of property held on what are known as protective trusts. Under an arrangement of this kind the principal beneficiary is entitled to the property until he charges or alienates or otherwise deals with his interest in such a way as to cause a forfeiture of it, in which event the trustees are directed to hold the property on trust for the maintenance or support of the principal beneficiary and of a number of other persons specified in the trust instrument, who commonly include very comprehensive classes whom the creator of the trust has no practical intention of benefiting. The Law Reform Committee recommended that the Court, in considering whether the proposed variation of trusts is for the benefit of any beneficiary, ought not to be required to have regard to the interest of persons entitled under a discretionary trust which has not yet come into operation. It is for this that provision is made by subsection (2) of the clause.
My Lords, I could explain the remaining subsections, but I think that they are all reasonably clear and that the House 837 will forgive me, unless anybody wishes to raise a point, if I do not deal with the remaining subsections of Clause 1. I ought to mention, so as not to be accused of concealing anything from the House, that a frequent ground on which it will be sought to vary the trusts is to avoid or diminish tax liability. Should it be thought in any quarter that there is anything improper about that, I would draw the attention of the House to what is said in paragraph 16 of the Law Reform Committee's Report—namely:We would add that, as far as concerns those cases where the object of a variation is to lessen the impact of taxes or death duties, we can see no valid reason why the Court should not be able to do on behalf of persons who are not sui juris or are not ascertained what the law allows to be done by persons who are sui furls."I think that puts the case in a nutshell. The paragraph goes on to quote relevant observations of the late noble and learned Earl, Lord Jowitt, and the more recent remarks of the Royal Commission on Taxation of Profits and Income. I mention this matter only because tax avoidance is certainly one of the important reasons why these questions of variation frequently come before the Court. I thought it right to mention it to the House.
It only remains for me to say that in another place this Bill was welcomed from both sides of the House; it was supported on behalf of Her Majesty's Government by my right honourable and learned friend the Solicitor General, and it was brought in because my learned friend Mr. Crowder had good fortune in the ballot for Private Members' Bills. He holds the position of Parliamentary Private Secretary to the Attorney General. Perhaps there is some appropriateness in my introducing it in this House, because for some years I served in that post when my noble and learned friend Lord Somervell of Harrow was Attorney General. But, like Mr. Crowder, I venture with the greatest hesitation into the field of Chancery and Equity. It is not the branch of the law in which I practised. On the rare occasions on which I went into Chancery Courts it was with the greatest trepidation—trepidation by no means diminished on one occasion when I found that my opponent was Lord Cohen. But I feel less fear than I might otherwise this 838 afternoon for two reasons: the first is that my noble and learned friends the Law Lords have all indicated to me that they support the Second Reading of this measure; and the second reason is that if they do put difficult questions, whatever they suspect, they will never discover that I do not know the answers, because the answers will be given, with his usual skill and courtesy, by my noble and learned friend upon the Woolsack. My Lords, I beg to move that this Bill be now read a second time.
§ Moved, That the Bill be now read 2a.—(Lord Conesford.)
§ 5.34 p.m.
§ LORD MILNER OF LEEDS
My Lords, the noble Lord, Lord Conesford, has dealt with his subject in such detail that I do not think it necessary for me to traverse all that he has said. The matters dealt with in the Bill are certainly somewhat technical, but, in my view, the main object can be stated in a few words. That object is to make it clear that the courts of law have a general power to vary trusts, arising either before or after the passing of the Bill, affecting infants or other persons under some legal incapacity, if the court is satisfied that such variation is to the benefit of the infant or other person.
As the noble Lord, Lord Conesford, has told your Lordships, this Bill arises from the decision of your Lordships' House in the case of Chapman v. Chapman which decided that the courts had not the general powers which this Bill seeks to provide. Whereas, having regard to the Bill which is before your Lordships, and which I have no doubt will be approved, there is now no necessity to argue the question whether that decision of the Law Lords was right or wrong, I hope that I shall not he thought to be presumptuous, as a member of the lower branch of the profession, and in the presence of Law Lords who may perhaps contribute to our debate, if I tell your Lordships that as I understand it the general view, even in legal circles, prior to the decision in Chapman v. Chapman, was that the Court had the power to vary trusts on behalf of persons under disability, and that in fact orders have been made for, I believe, approaching 300 years in many such cases—usually, let me say, in Chambers—hence the fact that 839 they have not been subject to the publicity and the recorded reports and precedents which a hearing in open court would have provided. Moreover, in many special cases undoubtedly the Court has jurisdiction, and has exercised that jurisdiction, to settle the disposition of a property, or property concerned in a divorce suit, and probably also has jurisdiction over infants where matters of land are concerned and are in dispute.
It is therefore a little difficult to understand why there is not a similar jurisdiction in the case of infants having an interest in personality, however desirable the proposed variation might have been in the interests of the infant. As was said in one of the judgments (I believe that of the noble and learned Lord, Lord Denning), it would appear that the Chancery Court, which is the natural and the legal protector of infants, would become their enemies if the judgment in Chapman v. Chapman were to prevail. In any event, the present position is clearly unsatisfactory. The interests of simple justice make an alteration necessary, and the present Bill puts the matter beyond peradventure. Opinions are still divided, I gather, as to whether applications to vary trusts should in future be heard in open court or should continue to be heard in Chambers. But I think the majority view nowadays would be in favour of a hearing in open court. If I am not imposing on the noble and learned Viscount on the Woolsack, I would ask him whether he could indicate whether, in the event of this Bill being passed, it would be proposed to alter the Rules of Court so that applications to vary are heard in open court rather than in Chambers, unless in special circumstances the Judge orders otherwise. My Lords, I support the Bill.
§ 5.39 p.m.
§ VISCOUNT SIMONDS
My Lords, I rise to support this Bill. As I have spent a large part of my working life in the Chancery Division of the High Court of Justice, and was privileged at one time to be the senior Judge in that Division, your Lordships might think it somewhat improper if I did not say a word either in support of or in opposition to this Bill. What I say is in support. First, I should like to congratulate my 840 noble friend Lord Conesford on the nimble way in which he has pursued his path through the intricacies of Chancery law: I am sure that if he had held to that path he would indeed have been a formidable advocate, and I do not know to what eminence he might have risen.
I do not propose to follow the noble Lord, Lord Milner of Leeds. I do not think it is presumptuous of him in the least to challenge the validity of the decision of this House in Chapman v. Chapman. I would only remind him that it was first of all the decision of the experienced Judge in the Chancery Division who decided that there was no jurisdiction; then the decision of two out of three members of the Court of Appeal, and (though I say it with the greatest hesitation in the presence of the third of them), they were the two Judges who had been brought up in the Chancery Division and had, I suppose, an unrivalled experience. The matter then came before this House. Three of the learned Lords who took part had had unrivalled experience in equity matters; the fourth was a most able Judge, Lord Asquith of Bishopstone; and the fifth was Lord Oaksey, who agreed but doubted. In the face of that, I think we will not argue whether the decision of the House was right or wrong. At any rate, it is the law unless it is altered by this Bill.
I do not propose to say very much about the Bill. There are one or two features of it which I do not much like. Although I recognise the validity of the argument about the so-called "dead hand", I do not much like the idea that, while the settlor, whose money it is you are dealing with, is alive, the disposition he has made should be altered by the Court without his consent. But the matter was considered by the Committee, a very good Committee who came to the opposite conclusion; and I am content to submit to their decision. But there is one matter of great importance.
As the noble Lord has said—he speaks, I suppose, from hearsay, as I do—it is undoubted that this question has assumed great importance in these days, owing to the desire of beneficiaries to obtain the sanction of the court to what are called "tax avoidance schemes". I think there is nothing more important in the law than that, so far as the difficulties of language 841 and the infinite complexities of human affairs admit, there should be certainty in the law. It is an ideal impossible of attainment; but so far as we can attain it, we should strive to do so. I am very sure that there is grave danger, unless it is made clear upon the face of the Bill, I hat the law will be uncertain in the administration of this particular branch of justice; for I am sure that one Judge will refuse an application which another Judge will grant, where it is based simply upon the desire to avoid tax.
Let me read what a great lawyer said in regard to this—he was speaking of people who promote this sort of scheme:There is no doubt, of course, that they are within their legal rights, but that is no reason why their efforts, or those of the professional gentlemen who assist them in the matter, should be regarded as a commendable exercise of ingenuity or as a discharge of the duties of good citizenship. On the contrary, one result of such methods, if they succeed, is of course to increase pro tanto the load of tax on the shoulders of the great body of good citizens who do not desire, or do not know how, to adopt these manœuvres.That is a point of view which is tenable; it is a point of view which is widely held; it is a point of view which may influence the mind of the learned Judge who is invited to exercise the jurisdiction of Flier Majesty's court. I think it must appear obvious to all your Lordships that one Judge may take one view upon this, and another may take another. If so, and it your Lordships think that it is a proper exercise of the jurisdiction of Her Majesty's courts—if you think it should be invoked in order to permit or sanction tax avoidance schemes—then I beg that it should be made clear upon the face of the Bill.
That, obviously, is not a matter upon which I can invite the noble Lord who introduced the Bill to say anything, but I can invite the Lord Chancellor, who is not only a member of the Government but also the titular head of the Chancery Division and there is a Court, called "The Lord Chancellor's Court", which awaits his occupation, if he thinks fit, in the Law Courts in the Strand. I can, therefore, ask the Lord Chancellor to say unequivocally whether he is in favour of this jurisdiction being exercised when the purpose of the scheme is wholly, or mainly (because there may be some fringe), to avoid tax.
I would go further, because it does not follow that the Judges in the Chancery 842 Division will read what is in Hansard, and I would suggest that he should consider that it should be made quite clear on the face of the Bill, by appropriate words, whether or not it is to be an objection to the jurisdiction that the main or only purpose of the action is to avoid tax. If we think it should be, lot us say so. because I am convinced that justice will not be meted out if it is not made clear, with the result that one Judge will say one thing and another will say another. That is something contrary to the rule of law. That is one point, and I am sure that the Lord Chancellor will deal with it unequivocally, and I hope he will also say that he will make it clear upon the face of the Bill, by an appropriate Amendment in Committee.
The other point about this Bill that exercises my mind—it is a rather more difficult problem, a more complicated problem—is this. In these days one of the things that exercises alike the minds of trustees and of beneficiaries (perhaps more of beneficiaries), is the question of the investment of trust funds. Let me remind your Lordships of two sentences, if I may, on what the position is to-day. In a trust instrument, whether a will or settlement inter virus, if there is no provision in regard to the investment of trust funds the law itself provides the range of investment by the Trustee Act of 1925. It has always been so. The Legislature itself has provided for the investment of trust funds. Of course that does not apply in every case. In many, indeed most, trust instruments there is a provision as to the investment of trust funds. Sometimes it baldly follows the Trustee Act: in others, it is a little wider; in others wider still; and in others, as wide as it can be made. But there is a vast number of trust funds, a great number of trust instruments, in which there is not that width of investment which the trustees, and sometimes the beneficiaries, demand.
What is to be done? I think it is not quite clear what the present law is. I am not quite clear how far Section 57 of the Trustee Act goes in regard to something which is now very widely demanded, the substitution of a wide investment clause authorising investment in what are, horribly, called "equities". I am not sure how far that is justified by the law as it stands. But it is clear that, under the terms of this Bill as it stands, 843 it will be open to trustees, and beneficiaries, to apply to the court for a wide investment clause to be substituted for a narrow investment clause. That prospect causes me great apprehension. Not only will there be a flood of applications, but the courts will again be put into precisely the same difficulties. The Judge in the Chancery Division is not an expert in investment. How is he to know what is the proper scope of investment? How is he to decide between on the one hand, trusts where the trustees are perhaps a trust company or the branch of a hank, expert in investment, and, on the other hand. individuals who may or may not be wise and careful in investment? He is given a quite impossible task.
Not only that. Just as one Judge will give one answer and another Judge another in regard to the point I have mentioned, the same thing will apply to investment. It is not right that this should be left to the Courts to determine. I can quite see that in particular cases, as happens now, it may be desirable that a particular investment should be retained—where, for example, trust funds are in an old family business—or funds invested in a particular way. In such cases a particular transaction can be, and often is, sanctioned. But I am dealing with the much larger question of the substitution of one range of investment for another. It is not right that this matter should be dealt with by this Bill. It should be dealt with as investment in the past has been dealt with, by the Legislature. If it is desired that trust funds should find a wider scope of investment, that should be dealt with by an amendment of the Trustee Act. That is the other matter which I wished to throw into the pool and invite the noble and learned Viscount the Lord Chancellor to consider. It seems to me to be of great importance.
There is one other point in this connection. There must be tens of millions of pounds in regard to which such applications may, and probably will be, made, do not forget that the noble Lord to whose words on economics we always listened with the greatest respect, said, referring to a kindred matter, that it would be a breach of trust for a trustee to invest in a trustee investment. That is a little cynical and paradoxical, but it shows the 844 attitude which more and more is being held towards investment trust funds. I would only add (I am afraid that I am taking too long, but it is a not unimportant subject) that while this Bill deals—as I believe it is meant to deal, though its language is not very clear and perhaps the noble and learned Viscount will elucidate this—only with private trusts, it will surely be followed by a similar suggestion in regard to the investment of charity funds; and so the volume of money which will fly from fixed interest-bearing securities to so-called equities will grow larger and larger. That is a matter of which I should have thought Her Majesty's Government, and in particular the Treasury, would take some notice.
There is one other thing that I want to say. I must recall to your Lordships' memory that on more than one occasion what is called a Personal Bill—a Bill in respect of which individuals have sought some rearrangement of their properties, which they could not do without an Act of Parliament—has come before this House; and the Personal Bills Committee, I think with the general approval of Parliament, have thrown out the Bill as the simple purpose of it appeared to be tax avoidance. Your Lordships may take a different view from that of the Personal Bills Committee, but that is a matter which I would invite the noble and learned Viscount to take into consideration. That is all I would say, because I am not going to argue with the noble Lord, Lord Milner of Leeds, about the point he raised. These are the two suggestions I throw into the pool: that we should make it abundantly clear that the tax avoidance scheme is not to be rejected by the Court because it is a tax avoidance scheme, and that we should invite the consideration of Her Majesty's Government to the large question of whether the investment of trust funds should not be the subject of an amendment of the Trustee Act rather than of a flow of applications to a Court which is not really the proper Court to deal with a matter of this kind.
§ 5.56 p.m.
My Lords, I was a party to the judgment in Chapman v. Chapman and on that occasion I agreed with my noble and learned friend Lord Simonds in the conclusion, but not with the whole of the reasons, and I find myself in somewhat the same position 845 to-day. I entirely agree with him in commending this Bill, but while I have not reached the final conclusion I am not sure that I share his views on the two points with which he has asked the noble and learned Viscount the Lord Chancellor to deal. First, as to tax avoidance, my recollection is that the observations of the noble and learned Lord to which he called attention were delivered in a case dealing with something different from the main point which my noble friend Lord Conesford has in mind. As I read this Bill, it is directed, so far as tax avoidance is concerned, primarily to this sort of point: A and B being adults, one being entitled for life and the other for the remainder, they can put an end to a trust and divide the money and nobody would suggest that that was an improper thing to do; but if A or B is an infant, then that becomes impossible. I do not believe that the noble and learned Lord to whom my noble friend Lord Simonds referred would have expressed any disapproval of that type of scheme. If my noble and learned friend will forgive me, I do not propose to follow the matter further for the moment, but I propose to think it over again and see if an Amendment may be necessary to deal with it.
§ VISCOUNT SIMONDS
My Lords, my noble and learned friend cannot be so innocent as to suppose that this is the only form of tax avoidance scheme. There are schemes of the most intricate character dealing with the avoidance of income tax and estate duty.
My Lords, I have not suggested that this is the only form of tax avoidance scheme, but, in my experience, it is the most common form of scheme which, before Chapman v. Chapman, it was thought could be dealt with under the ordinary Chancery jurisdiction in Chambers. I have no objection to the insertion of this clause in the Bill; but I did not want it to be thought, and I am sure that my noble friend Lord Conesford does not want it to be thought, that this Bill is intended to legalise the sort of schemes which the noble and learned Viscount referred to in the passage cited.
The other question is with regard to the investment clause. As my noble friend said, it is very desirable that that should be dealt with on a generally uniform 846 basis, and I think that this Bill is necessary because up till now Judges have taken different views about their powers under Section 57. Some have considered that it justified investment in equities while others have thought that they have no power, at any rate unless a general compromise is involved, to do so. I agree that it is desirable to put this matter beyond doubt, as the Bill does. I do not feel that this is a power which would be embarrassing to Chancery Judges to exercise. Obviously they are not themselves experts, but they never act in these cases (and I have had some experience—as a litigant, not as a Judge) without advice from bankers, stockbrokers and others, and the Court requires full evidence to satisfy itself that this is desirable. Incidentally, the Court usually makes it a condition that not more than a certain proportion of the funds should be invested in equities. I do not myself regard it as a dangerous power to give to the Chancery Division, and I do not think that if my noble and learned friend were back in the Chancery Division he would have any great difficulty in exercising it. That is all I want to say on that point.
The other point he raised was as to the position of settlors who were still alive and found their settlements being varied in order to comply with these powers. This, I think, is covered by the recommendation to be found in the Report of the Committee: that a settlor should be entitled to be heard on application under the Act. There is no provision to that effect in the Bill, but I think the reason is (the noble Lord will correct me if I am wrong) that that is the sort of thing that is dealt with by alteration in the Rules and not by a provision in the Bill.
I am glad to hear that the noble Lord agrees with me. Those are the three points on which I desired to say something. At this hour I do not propose to raise one or two other points I had intended to raise, because they are really drafting Amendments about which I have told my noble friend Lord Conesford and which may lead me to put down one or two minor Amendments on the Committee stage. I should like to conclude by expressing complete agreement with my noble and learned friend and supporting the Bill.
§ 6.11 p.m.
§ LORD DENNING
My Lords, this would appear a very technical matter, but might I tell your Lordships of the Chapman case itself? Sir Robert and Lady Chapman were very well known people in the North and had done a lot of public service.
§ LORD DENNING
They made, I think, three separate settlements of £80,000 on behalf of their grandchildren. The solicitor put in the settlements a provision that the trustees could arrange the maintenance for those grandchildren in their discretion; that is to say, they could give some grandchildren, if the parents were needy, more than others, and vary it up and down. After those settlements were made the legal advisers and the accountants advised Sir Robert and Lady Chapman: "If the settlements are in that form the estate will have to pay estate duties of £30,000 when you. Sir Robert and Lady Chapman, die. On the other hand, if the trustees have to treat each grandchild alike, so that each grandchild takes the same as the other, all well and good, and there will not be any estate duties at all." So Sir Robert and Lady Chapman said: "Our solicitor seems to have made a mistake. Please get it varied."
They were advised: "As long as people are of full age they can agree among themselves, but these grandchildren are only eight or nine years old, and there may be other grandchildren unborn coming along. You must get the sanction of the Court to this, because the Court of Chancery are the protectors of infants, and they can give sanction for the infants when it is for their benefit." So application was made to the Court by Sir Robert and Lady Chapman, applying for consent of the Court of Chancery. According to the practice for twenty or thirty years, there was good hope of its going through; but in fact some Judges of the Chancery Division took one view and some took another view, and eventually it did not go through. It astonished the Lincoln's Inn and the profession, and as a result this Bill is before the House.
I would suggest to your Lordships that it is an excellent thing, and no one really could condemn Sir Robert and Lady Chapman or say that there was any wrongful tax avoidance in what was suggested. 848 But I should like to endorse what the noble Lord, Lord Milner of Leeds, indicated. A lot of the trouble was due to the fact that these applications were made in Chambers; they were never reported and people did not know what the Courts were doing or what their jurisdiction was. If they had been reported over the twenty years, people could have seen what the jurisdiction was. This is not the only case. Another instance that occurs to me is that people do not know how Judges will act when they want a divorce in the first three years of marriage. The Judge has a discretion as to that; it is never reported, but is in Chambers, and people have no guide as to how the Judges will act.
As my noble and learned friend Lord Simonds has mentioned, if this Bill is passed you will find one Judge deciding one way and another Judge deciding another. All the more reason, therefore, why there should be proceedings in open court or some statement of principle to guide the profession about it. For myself, I should always come down on the side of publicity for judicial proceedings as one of the surest safeguards of the rule of law. It should never be left aside, except where necessary for the sake of doing justice. In every other case it is of cardinal importance to our liberties that every court of justice should be open to every subject of the Queen. I support the Bill.
§ 6.18 p.m.
§ LORD DOUGLAS OF BARLOCH
My Lords, the noble and learned Viscount, Lord Simonds, has touched upon the two most important matters which arise out of this Bill. I personally do not feel particularly shocked at the idea of the Court being invoked to alter the positions of trusts so as to reduce the liability to taxation. A great many of us who follow the profession of law are engaged day to day in advising people how to manage their affairs so as to produce that result. I think it ought to be remembered that there are quite a number of trusts in existence which were created before the incidence of taxation became what it is to-day, and indeed, before many provisions affecting the incidence of taxation were in existence, and by the accident of time alone the settlors were unable to provide for events which settlors of the present day can provide for. There is, therefore, a certain element of inequity in that, 849 As to the other point, I sympathise with the view of the noble and learned Viscount, Lord Simonds, that there is a case for enacting a new Trustee Act which would give much wider powers of investment, and that would quite properly have effect for the future after the Act had been passed. But so far as trusts already created are concerned, I should not favour the passage of an Act which simply allowed the trustees to invest to the widest possible extent, because investment involves the wisdom and discretion of the trustees, and it does not follow that every settlor has provided that there shall be trustees of a settlement who have got the wisdom and discretion to exercise such a power wisely. Those cases, as this Bill provides, ought to be judged by the Court of Chancery upon their individual merits. I therefore venture, with all respect to the noble Viscount, to support the Bill as it stands.
§ 6.20 p.m.
§ THE LORD CHANCELLOR
My Lords, your Lordships must be thinking at this stage in the afternoon that one of the most horrifying features of a "lawyers' holiday" such as we have to-day enjoyed is the fact that it has involved nearly a dozen speeches from myself. For that I apologise profoundly; but on reflection your Lordships may also consider that it has been my duty, if your sorrow, that I should enter into these discussions. Certainly in regard to this Bill which has been unanimously approved, I would not have trespassed further upon your Lordships' time were it not that my noble and learned friend Lord Simonds, who stated his point of view, if he will allow me to say so, with great moderation, charm and force, has asked me to deal with certain points, and, as your Lordships know, I should never refuse a request from him.
The noble and learned Viscount has asked me especially in regard to the attitudes to be adopted by the courts on applications under the Bill, when it becomes law, where one of the purposes of the application is to reduce the tax liability of the beneficiaries concerned. This was, of course, one of the matters which was canvassed when the Bill was before another place, but it was also fully considered by the Law Reform Committee in their Sixth Report to which this Bill seeks to give effect. I am sure that my noble and learned friend has 850 already considered the arguments set out in paragraphs 15 and 16 of the Report. As is well known to all of us lawyers, though some of the lay Members of your Lordships' House may not be aware of it, the members of this Committee included Lord Justice Jenkins, Lord Justice Parker, Lord Justice Pearce, Mr. Justice Donovan, Mr. Justice Diplock; in the academic sphere, Professor Goodhart, Sir David Hughes Parry, Professor Wade and many other notable names. They considered this point specifically.
But, lest the weight of the utterances of my noble and learned friend should give it too much prominence. I should like to remind your Lordships that the Committee went on in paragraph 17 to say:It must also be borne in mind that the present state of the law causes real hardship to beneficiaries under settlements in cases where the question of relief from taxation either does not arise at all or is a minor consideration. Nor does the problem arise only in cases where the property settlement is of large value. There are many cases of settlements involving quite small sums in which it would be beneficial to all the beneficiaries to be enabled to spend capital but they are unable to obtain leave of the Court to do so, with the result that parents have an income insufficient for the needs of themselves and their children, and the children are unable to be given education and training such as would enable them in the future to provide for their own needs.I believe it is important that we should keep that matter in proportion, but that does not mean that I am going to avoid dealing with the point that has been put to me. The underlying object of the Bill and its very raison d'être is to put beneficiaries who are infants or under some form of disability in the same position, as nearly as may be, as beneficiaries who are of full age and capacity. That is the main object of the Bill, and it is not primarily designed to allow infant beneficiaries to obtain the Court's approval of tax avoidance schemes. I do not deny, however, that the Court may be asked to approve of a scheme which will result in less tax being paid if it considers it to be for the benefit of the infant beneficiaries.
As I understood my noble and learned friend, he said that it was wrong that Judges of the Chancery Division should be put in this position; and he also contended that it was unsatisfactory that the result should depend upon the chance of the views of the various Judges. The answer to this objection, in my view, is 851 that which is given by the Law Reform Committee, who said that they could see no valid reason why the Court should not be able to do on behalf of persons who are not ascertained what the law allows to be done by persons who are sui juris. My noble and learned friend has reminded your Lordships of the views of the late Lord Simon on the undesirability of Parliament legislating in such a way as to enable those who can afford to do so to seek ways and means of avoiding the tax to which they would otherwise be subject. My noble and learned friend, Lord Cohen, has rightly said that that statement was made in an entirely different context. But surely the short answer is that it is far more undesirable that in seeking the right solution to a problem of this kind, Parliament should perpetuate injustices as between one taxpayer and another because of some rigid theory that nothing should be done which might conceivably injure the Revenue.
In the debates in your Lordships' House on the Bill which became the Married Women (Restraint upon Anticipation) Act, 1949, Lord Simon was answered by Lord Jowitt when that late noble and learned Earl said [OFFICIAL REPORT, Vol. 164, col. 184]:It is to my mind an absolutely novel doctrine that you must crib, cabin and confine the taxpayer to a certain state of circumstances in order that the Revenue may extract more money out of him. It cannot be right.That was what the noble and learned Earl, Lord Jowitt, said, speaking with all the responsibility of holding my office in a Labour Government. Whatever may have been the politics of the noble and learned Earl, they are views with which I profoundly agree.
I would also remind your Lordships of the words used by the Royal Commission on Taxation of Profits and Income, a Commission presided over by my noble and learned friend Lord Radcliffe, which are quoted by the Law Reform Committee in their Report. The Commission said:The treatment of tax avoidance in the United Kingdom would present much less difficulty if it were possible to assert as a matter of general principle that a man owes a duty not to alter the disposition of his affairs so as to reduce his existing liability to tax or, alternatively, for the purpose or for the main purpose or partly for the purpose of bringing this result about. But there is no 852 such general principle, and we are satisfied that it neither could nor ought to be introduced.With these matters in mind I do not believe that the Courts will feel the difficulties envisaged by my noble and learned friend Lord Simonds in dealing with the applications he has in mind. I respectfully adopt the view which my noble and learned friend Lord Cohen adumbrated, although he wished to give the matter further thought.
§ VISCOUNT SIMONDS
My Lords, may I intervene again for one moment? The noble and learned Viscount does not need to convince me; I am not against these schemes. I am only anxious that there should be certainty. I venture to ask the noble and learned Viscount whether, if I put down an Amendment to the effect that it shall not be an objection to the exercise of the jurisdiction of the Court that the main purpose of the proposal is tax avoidance I shall have the support of Her Majesty's Government. To make the matter quite clear, would the noble and learned Viscount answer that point?
§ THE LORD CHANCELLOR
My Lords, I will give the answer when I see the Amendment, but I am making clear my views. I am afraid that I am far too old a ministerial hand to commit myself to accepting an Amendment until I have seen it on paper and have seen the context of the Bill in which it is made. My noble and learned friend is perfectly right to throw his fish but I am rather an old salmon to take that bait. I want to make it quite clear what my view is. I do not think I have left that in any doubt.
I was proceeding to deal with the other point which the noble and learned Viscount raised. Of course it is true that one Judge may form a view of a particular application which would not be shared by another Judge. But, of course, that is no new thing; it is a matter of constant occurrence whenever judicial discretion is involved; and long may it continue! A system of law in which judicial discretion is going to be confined and will not result in differences may be admirable on the Continent of Europe, but it is completely out of accord with the traditions of English justice and English legal development; therefore that is something which one has to put up with, and indeed welcome. I 853 see no reason why that should militate against the justice which is done by this Bill.
My noble and learned friend then went on to the much wider question of whether the only way in which a testator's or settlor's word should be affected in this connection is by enlarging the list of trustee securities. That is, in putting the perfectly reasonable case that the settlor or testator is saying, "I make this settlement according to my wishes and subject only to alterations in the Statute Law, not to views that may be formed by a Judge in the Court." With the very greatest respect—and I know the sincerity with which my noble and learned friend holds these views—I again think they are too rigid. I am not going into all the possibilities, but I have done my best to consider them, and I have found many changes in circumstances where I think it is far nearer approximation to justice that the matter should go to the Court rather than wait for legislation.
The other point which my noble and learned friend raised was with regard to Personal. Bills, I have not checked my recollection on this point, but it is that the Personal Bills Committee laid down in the case of a Personal Bill promoted by one Member of your Lordships' House (I am not sure which name of two is the correct one, and therefore I do not want to quote it) a principle which dealt with that position and which has since been used as a working principle by all parties concerned with Personal Bills. I am quite sure that there is that effective principle, and I am sure that my noble and learned friend will remember it. It is an Earldom beginning with "S", but I should not like to charge my memory to say which at this time. It is a well-known principle and has been applied and used to deal with the difficulty he mentions.
The noble Lord, Lord Milner of Leeds, raised the question of publicity, and my noble and learned friend Lord Denning also raised that point. It may well be desirable, as was suggested not only by them but in another place, that a due measure of publicity should be afforded to the decisions of the Court in cases arising under the Bill so that the legal profession and the public at large should 854 know the lines on which cases are being decided. I put this point to the noble Lord, Lord Milner of Leeds, and I ask him to consider it. In cases of this kind one has to strike a balance between the advantages of full publicity, on the one hand, and the harm that can easily be done, on the other, by the' disclosure of full details of a family nature in individual cases. I discussed this point with some of my colleagues in the Chancery Division and they said that it was a serious point. I entirely agree. I am satisfied that the consideration of publicity is one which the Judges of the Chancery Division have very much in mind, and that they will take steps to ensure that a proper measure of publicity is afforded to their decisions. I should like (and I hope that the noble Lord, Lord Milner of Leeds, will agree with me in this), to give these plans an opportunity of working out, and if there is any dissatisfaction I will willingly consider the matter again. But my brethren are well seized of the matter: they appreciate the problem and will try to get the best and fairest solution.
My Lords, the overwhelming justification for this Bill is, to my mind, the fact that it remedies a clear injustice. At the present time beneficiaries of full age can agree among themselves to re-write the trusts of a settlement to their mutual advantage. But as my noble and learned friend Lord Conesford pointed out, the existing position is made even more unsatisfactory by the fact that in certain fields the Court itself already has a limited jurisdiction to intervene on behalf of beneficiaries under disability, and, as he says, it can do so in cases of land; it can do so in cases of lunacy; the Court of Protection can sanction any disposition, and the Divorce Court has already power to vary the marriage settlements of parties to divorce proceedings. Nothing that has been said—not even the powerful words of my noble and learned friend Lord Simonds—has answered the simple question of the Law Reform Committee:Why should an infant whose parents are happily married be in a worse position than a lunatic or an infant whose parents are divorced? Why should an infant who is interested in land be better off than one who is interested in personalty? Why should it not be possible to arrange the affairs of all infants to their best advantage?855 No one can give any answer to that question. I believe that if Lord Eldon himself were to re-visit your Lordships' House he could give no other answer than that the present position is so glaring an injustice that it must be remedied. That is why I commend this Bill to your Lordships' House.
§ LORD CONESFORD
My Lords, I rise only to thank most sincerely all those who have taken part in this debate.
§ On Question, Bill read 2a, and committed to a Committee of the Whole House.
§ House adjourned at half past six o'clock.