Allan's Tr v Lord Advocate [1970] UKHL 7

UKHL
Allan's Tr v Lord Advocate
[1970] UKHL 7 · 1970-12-15
LORD KEID .—My Lords, Miss Allan was a wealthy woman. When aged 77 and in failing health she was concerned about the amount of duty which would have to be paid on her death. So a scheme was devised to diminish the amount of estate duty. In her will she had provided for legacies of £20,000 each to Mrs Jeffrey and Miss Marr, free of estate duty. Miss Ramsay, who was a close friend and adviser, was residuary legatee. In pursuance of this scheme she revoked the legacies to Mrs Jeffrey and Miss Marr by codicil of 17th October 1963, and in December 1963 made a proposal to an insurance company with a view to taking an endowment policy, under which she was to be a trustee for these ladies and to have no beneficial interest in the policy or its proceeds. The arrangements were made by her solicitor, and the strange nature of the insurance is explained by the fact that the solicitor and Miss Ramsay knew that Miss Allan could not survive for long, although she herself did not know that.In a letter to the insurance company of 12th December 1963 Miss Allan said:
"I intend that the policy shall from the moment of its commencement be held upon an irrevocable trust for the benefit of the beneficiary or beneficiaries aftermentioned."
The policy was for a sum of £1,345,164, payable on the survivance of Miss Allan until 27th December 1973, the annual premium being £120,000, but in the event of her death before that date the company agreed to pay £117,000 in respect of each year's premium paid. Miss Allan died on 3rd December 1964, when only one year's premium had been paid, and the company paid to the appellants as her trustees and executors the sum of £117,000.The appellants contend that this sum should not be aggregated with Miss Allan's estate, on the ground that she never had an interest in the policy, so they must show that from the moment of its commencement she never had an interest in it. They can do that if they can show that from that moment she held it on an irrevocable trust. I think there is no doubt that that was her intention, but the respondent maintains that that is not enough—there must also be something in the nature of delivery to constitute an irrevocable trust.The policy contained a declaration that the only interest of Miss Allan under it should be as trustee. The sum assured was to be payable to Miss Allan as trustee and the receipt of the trustee for any sum payable was to be a full and sufficient discharge to the company, which should not be concerned to see to the application of any such sum. The declaration in the policy further provided that the policy should be held in trust for the benefit of Mrs Jeffrey to the extent of £20,000, of Miss Marr to the extent of £20,000, and of Miss Ramsay to the extent of the remainder.Miss Ramsay had full knowledge of the negotiations and was aware of the terms of the trust set out in the policy. But neither Mrs Jeffrey nor Miss Marr had any knowledge of this. The respondent admits that this "intimation to Miss Ramsay of the trust in her favour effected notional delivery to her of the rights conferred upon her by the said policy from the moment when these rights came into existence to the entire exclusion of the deceased." But he contends that, because there was no intimation or notional delivery to the other beneficiaries, Miss Allan could validly and effectively have caused the terms of the policy to be altered so as to deprive those other beneficiaries of any benefit under the policy. Admittedly, if she could have done that, she had an interest in the two sums of £20,000 sufficient to require aggregation of these two sums.The idea that a person can make himself a trustee of his own property is something of a novelty in the law of Scotland, and there is little authority as to whether this is possible or as to how it can be done. On such a matter we cannot seek enlightenment from the law of England, because the origin of trusts in Scotland is very different from its origin in England. Trusts were well known in Scotland by the seventeenth century, but I need not explore the early history. For present purposes it is, I think, sufficient to refer to Lord M'Laren's work on Wills and Succession (3rd ed., published in 1894), from which it appears (vol. ii, p. 824) that the institutional writers regarded trust as akin to a combination of the contracts of deposit and mandate, so that in early days the truster and trustee must have been different persons. Then Lord M'Laren says (at p. 825):
"A trust may properly be defined as an interest created by the transfer of property to a trustee, in order that he may carry out the truster's directions respecting its management and disposal. This definition includes the two essentials of a trust, viz., the conveyance or transfer of the legal estate to a trustee, and the constitution of a trust purpose."
Clearly it never occurred to him that a person could make himself a trustee for trust purposes.The earliest reference to this which counsel were able to discover is in Menzies on Trustees (2nd ed., published in 1913). That author says (at p. 30):
"The truster may himself be one of the trustees, or even the sole trustee; and in the latter case, by treating the truster qua truster as a different legal persona from the truster qua trustee, the above classification holds good."
The only authority cited is an English case which does not support this explanation. I do not see how any individual can convert himself into two different legal personae .But by 1932 there seems to have been some development. Professor Mackenzie Stuart says (Trusts, p. 8):
"Delivery may be made by a third party on the truster's instructions, or it may be by the donor as truster to himself as trustee."
He gives no authority for this. But on the next page he says:
"Where there is no delivery there must be its equivalent. This must be something done by the truster to take the subject effectually out of his control and to put it into the control of the trustee or beneficiary."
As authority for that he cites Cameron's Trustees v. Cameron . That was a case where a lender took a bond and disposition in security in favour of himself as trustee for his daughter but did not inform the daughter. The question arose on his death. The case was treated as raising a question of donation, and the rule was applied that to make a perfected donation there must be delivery from the donor to the donee. The bond and disposition in security had been registered in the Register of Sasines, but that was held to be insufficient. Lord Kinnear said (at p. 422):
"I think the father has done nothing equivalent to delivery as between himself and the children, because he has done nothing to take the deed out of his own control and put it into his children's control."
There was no suggestion that it made any difference that the father had declared himself to be a trustee. Later (at p. 12) Professor Mackenzie Stuart returned to the present question:
"Where the grantor has appointed himself sole trustee, delivery in the ordinary sense is impossible, and equivalents to it are more easily presumed than in the case of the trustees being independent of the granter. But there must be something equivalent to delivery so as to operate divestiture."
I think that we can now accept the position, as a reasonable development of the law, that a person can make himself a trustee of his own property, provided that he also does something equivalent to delivery or transfer of the trust fund. I reject the argument for the appellants that mere proved intention to make a trust coupled with the execution of a declaration of trust can suffice. If that were so, it would be easy to execute such a declaration, keep it in reserve, use it in case of bankruptcy to defeat the claims of creditors, but, if all went well and the trustee desired to regain control of the fund, simply suppress the declaration of trust.The appellants founded on Carmichael v. Carmichael's Executrix 1920 SC (HL) 195 That is in some respects a difficult case to interpret. It dealt with jus quaesitum tertio , and the appellants presented an alternative argument that here Miss Allan and the insurance company had by their contract created such rights in the beneficiaries. I have no hesitation in rejecting this alternative argument. To have a jus quaesitum tertio the third party must have been given by the contract of the contracting parties a right to get something from one or both of them. But here the proceeds of the policy were to be paid to Miss Allan. The beneficiaries were given no right against the company: on the contrary, the company, having paid Miss Allan, were freed from all liability to see that she paid the money to the beneficiaries. Any benefit to the beneficiaries flowed from the declaration of trust, not from the terms of the contract.But the appellants also founded on Carmichael's case as one where intention without more was sufficient. But that was not the question for decision. The policy there provided for the payment of the sum assured in certain events to a third party, the executors or assigns of a son of the father who made the contract with the insurance company. As Lord Dunedin pointed out (at p. 201), the real question was whether it was intended that the son's right given by the contract should be irrevocable. Normally the parties who make a contract can, if they choose, cancel or alter it. But if they have chosen to give to a third party a right which they intended to be irrevocable, then they cannot do that. The question is what they intended, and Carmichael's case deals with the means by which that intention can be proved. I do not think that Lord Dunedin meant to say that this intention to make the provision in favour of the third party irrevocable can never be established by the terms of the contract itself. Generally it cannot, and then other evidence of intention is required. But that seems to me to be very far removed from the present case, and I cannot read Carmichael's case as lending any support to the argument that there is no need for any equivalent of delivery of the trust fund to establish a trust.I shall not examine in detail the other authorities cited. They deal with donation or donatio mortis causa , and they show that fine distinctions have been made as to what in addition to intention is necessary to establish donation. None appears to question the general rule that delivery or some equivalent is necessary.So I come to the question what was the effect of intimation to Miss Ramsay—did it merely set up the gift to her, or did it bring the whole trust into operation? There are many cases, particularly where the donor reserves a liferent for himself, where a trust, though properly constituted by conveyance of the fund to trustees for specific trust purposes, is nevertheless revocable and only confers rights in the beneficiaries if unrevoked when the donor dies. That must be because on a proper interpretation of the deed it was the intention of the truster to create a revocable trust. I can well understand that in such a case intimation to one beneficiary might create a new irrevocable right in him though leaving the rest of the rights conferred subject to revocation. But this case is quite different. Here the intention was to create an irrevocable trust, but there was no operative trust at all until something equivalent to delivery occurred. I find it difficult to understand how such an inchoate trust can be set up in part. What is required to create an effective trust is some bona fide physical act of the truster equivalent to conveyance, transfer or delivery of the subject of the trust. Suppose the truster declares himself a trustee for A in liferent and B, whom failing C, in fee, and then intimates the trust to B but not to A. It seems unreal to say that he has transferred the trust fund to himself as trustee in a question with B but has made no such transfer in a question with A. If he has transferred it as regards B, then he must during the life of A hold the property in trust until it is seen whether the fiar survives to take a vested interest. So, as the property has been earmarked as trust property, I do not see why all the trust purposes should not take effect.I have already quoted the respondent's contention that intimation to Miss Ramsay effected notional delivery of the rights conferred upon her. But I think that is wrong. One cannot deliver rights. What is required is delivery of the trust property.It cannot be said that, when the trust was intimated to Miss Ramsay, that set up an irrevocable right in her but revocable rights in the other two ladies. There never was any intention to set up a revocable trust. As regards the other two ladies it must be all or nothing.There is a further difficulty if intimation only sets up that part of the trust which benefits the person to whom it has been intimated. What if there are unborn beneficiaries? The trust cannot be intimated to them. So the law would have to be that a truster can only make himself a trustee as regards persons to whom intimation can effectively be made.If we accept the position that a person can now create a valid trust by declaring himself a trustee of certain property and giving intimation to a beneficiary, I think we must follow that to its logical conclusion. That intimation is equivalent to delivery of that property and therefore brings the whole trust into operation.I would allow this appeal.LORD MORRIS OF BOETH-Y-GEST .—My Lords, I have had the advantage of reading the speech prepared by my noble and learned friend, Lord Reid, and for the reasons which he gives I would allow the appeal.LORD GUEST .—My Lords, the question in this appeal is whether Miss Allan before her death ever had an interest in the two sums of £20,000 destined respectively to Mrs Jeffrey and Miss Marr within the meaning of section 4 of the Finance Act, 1894.It was argued for the appellants that these two ladies had, under the policy, a jus quaesitum tertio to the funds. According to Scots law a third party may have the right to enforce a contract between two other parties if, but only if, the intention to confer a benefit on the third party can be gathered from the terms of the document: Gloat on Contract, (2nd ed.) pp. 68 et seq . This intention is a very relevant inquiry, as is shown by the case of Carmichael v. Carmichael's Executrix . In the present case there is no evidence contained in the policy of any intention to benefit these ladies by conferring on them a right to enforce their rights against the insurance company. The indications are all to the contrary. The terms of the policy exclude any such intention. First, the sum is assured to the proposer, Miss Allan. Second, the trustee is to have power to deal with the policy by loan, surrender or otherwise. Third, receipt by the trustee is a sufficient discharge to the company. Fourth, in case of surrender the cash is returnable to the proposer, Miss Allan. I therefore think that the majority of the Second Division were right in rejecting the argument and Lord Walker was wrong in sustaining it.I pass now to the other argument for the appellants. This was that a valid trust had been constituted by the policy, which conferred beneficial interests on Mrs Jeffrey and Miss Marr which were irrevocable. It was not maintained that the insurance company was the truster, but that Miss Allan was the truster and that she had constituted herself trustee. Trust was comparatively unknown in early Scots law and was equiparated to mandate or deposit by the institutional writers (see Stair, IV, vi, 2; Erskine, Inst., III, i, 32; Bell's Commentaries, (7th ed.) I, 30), and from the expressions used by these writers it is plain that only a trust in favour of a third party or parties was contemplated. However, wisely or unwisely, there crept into Scots law the notion, derived from English law, that a truster could constitute himself sole trustee. The first evidence of this is to be found in Menzies on Trustees, (2nd ed., 1913) p. 30, and it seems to have been fairly established by 1932, when Professor Mackenzie Stuart wrote his book on Trusts (see p. 4). But there is no case on the books where this position has actually been considered. Despite, however, this anglicisation of Scots law in this field, it is still necessary for the constitution of a trust that there should be delivery of the deed or the estate or its equivalent (Mackenzie Stuart on Trusts, pp. 8 et seq .; see also Jarvie's Trustees ).Mr Keith, for the appellants, argued that evidence of intention to make the deed irrevocable, either in the deed or dehors the deed, was sufficient. He referred to a number of authorities on donatio and also to Carmichael's Executrix , but no case was cited to the effect that intention was sufficient by itself in the case of a trust. In my opinion, Mr Keith's argument was not well founded.In the case of a truster being sole trustee delivery is impossible, so that in order to constitute a valid trust some equivalent to delivery must be sought. But I see no reason why the Court should be astute to discover some equivalent to delivery in this highly anomalous situation, which was a creation of English law, where the law of trust, as I understand it, is different. There is no hardship involved: a perfectly good trust can be constituted by appointing outside trustees.The Crown has conceded that in relation to Miss Ramsay a valid trust was constituted quoad her interest in the remainder because of the intimation to her of the provisions by Miss Allan. This concession could not have been withheld in view of the observations of Lord Kyllachy, albeit dissenting on the main issue, in Cameron's Trustees v. Cameron at p. 415. If one asks the question why this should be sufficient, the answer is simple. Intimation is the equivalent of delivery of the beneficial interest to Miss Ramsay. It might also be justified on the English doctrine that it would be unconscionable for the truster to revoke a benefit she had intimated to a beneficiary. It is now suggested, although the argument cannot have been seriously pressed in the Second Division, that intimation to Miss Ramsay of her interest was sufficient to constitute a trust in favour of Mrs Jeffrey and Miss Marr. I consider that there is no substance in this argument. This is not a case of a formal trust deed, nor, as I see it, is it the case of a unitary trust. It is a bond by the insurance company to pay certain sums to these three ladies in certain events. There are three separate benefactions. The policy was not delivered to Miss Ramsay, nor was intimation of the provisions in favour of of Mrs Jeffrey and Miss Marr made to Miss Ramsay on their behalf. There is nothing anomalous in some provisions of a deed being valid and effective and other provisions being of no effect, for example, when the Thellusson Act is brought into operation.I can see no reason in logic or in principle why intimation to one beneficiary is equivalent to intimation of the trust to the other beneficiaries. I should have thought that, if intention had any bearing on the matter, the opposite result would follow, and, because Miss Allan intimated to Miss Ramsay her interest, it showed that she did not intend the other interests to be irrevocable. If the argument be sound, it would mean that, if an illusory benefit, say, of £1, was intimated to one beneficiary, the whole complicated provisions of a trust deed would be valid and irrevocable. I consider that the interests of Mrs Jeffrey and Miss Marr were revocable, as no valid trust had been created in their favour. To hold otherwise would, in my view, strain to breaking point the Scots doctrine of trusts. The appellants argued that, if they were wrong, that would mean that the provisions of a revenue statute would have a different effect in Scotland than in England. But this is not what is meant by the doctrine, as is clearly shown in Lord Advocate v. Gunning's Trustees , per Lord President Dunedin at p. 806. It follows that, in my view, Miss Allan had an interest in the two sums of £20,000 and they fall to be aggregated.I would adhere to the decision of the majority of the judges of the Inner House and would dismiss the appeal.LORD UPJOHN .—My Lords, the late Miss Allan made a gift of £20,000 to each of her friends, Mrs Jeffrey and Miss Marr, by way of trust contained in an endowment policy of assurance (payable on her death) effected by her in December of 1963. The question is whether on her death a little less than a year later these sums should be aggregated with her estate for the purposes of estate duty or whether they should bear duty upon the footing that these were sums in which Miss Allan never had any interest. As she died a very rich woman, the difference in duty involved is considerable. But the answer to this question depends in no wise upon the construction of the relevant estate duty legislation. There is no conflict in its application to England and Scotland; it depends entirely upon the Scots law of trusts, which for all relevant purposes is entirely different from English law. The question, strange to English lawyers, is what a person, anxious to create himself a trustee of a binding irrevocable trust of his property, has to do to effect that intention in law. The history of the law of Scotland in this respect has been examined by my noble and learned friends Lord Reid and Lord Guest in their respective speeches and I shall not attempt to repeat it. It is sufficient to say that it has developed during this century, so that a person can create himself a trustee of a binding irrevocable trust of his own property provided that he does something equivalent to delivery or transfer of the trust fund to others; proved intention merely to do so is not sufficient.Applying that law to the facts of the present case, what is the position? It has given rise to much difference of opinion not only in the court below but in your Lordships' House.Miss Allan was anxious to save estate duty on her death and discussed this matter with her solicitor, who advised her to effect a policy under which she would have no interest from start to finish but would only act as a trustee. So Miss Allan revoked similar gifts in her will to the two ladies I have mentioned and made them beneficiaries under the policy of insurance, granting the residue to her close friend Miss Ramsay, who was also her residuary legatee. As Miss Ramsay used to visit her every day, she kept her closely in touch with her intentions in these matters, and Mr Robertson, her solicitor, formally told Miss Ramsay by letter on 18th December 1963 "the policy is itself a form of trust for payment of the proceeds to you, Mrs Jeffrey and Miss Marr on the lines of Miss Allan's will." After Miss Allan's death there was, of course, correspondence with the Commissioners of Inland Revenue, and upon this evidence they agreed that there had been a vesting of the property in Miss Ramsay to the entire exclusion of Miss Allan, who never had had any interest from the moment that it came into being, and it was a gift which was not aggregable for the purposes of estate duty with the estate of Miss Allan but would be assessed as an estate by itself. They refused, however, to make similar admissions as to the gifts to Mrs Jeffrey or Miss Marr. Mrs Jeffrey and Miss Marr were never themselves informed of Miss Allan's benefit to them under the policy of assurance during the latter's lifetime, and the sole question, therefore, is whether in Scots law this policy as regards them operated as a valid trust by virtue of the communication of its contents to Miss Ramsay from the moment of the trust's inception, when the policy was executed, so that Miss Allan never had any interest thereunder; or whether, whatever her intentions, it failed to be a sufficient delivery to make it an effective binding trust, at all events until Miss Allan appointed other trustees in April 1964 and herself resigned, which of course was too late.My Lords,both Lord Milligan and Lord Hunter in the Second Division were doubtful whether the Inland Revenue had been wise in making the admission they did make with regard to the gift to Miss Ramsay. But the admission, in my opinion, was rightly made and must be given its legal effect. But they also considered it a serious possibility that after the execution of the policy Miss Allan really thought that she might want to consider whether she should make the trust in favour of Mrs Jeffrey and Miss Marr an irrevocable trust or would prefer to revoke it if her circumstances changed.My Lords,I cannot think that that can be a correct inference from the facts. Miss Allan was a very rich woman and was thinking only of reducing the amount of duties payable on her death. She had, in contemplation of the execution of the policy, revoked a gift to Mrs Jeffrey and Miss Marr by her will, and I cannot really think it is within the realms of probability that she was contemplating the possibility of revoking the gift in the policy to either of them and for that reason made no communication to them in her lifetime.My Lords,this was a gift in favour of all three in one clause, £20,000 each to the two of them and the residue to the third. And it seems to me inescapable that when Miss Ramsay, Miss Allan's close confidant and daily friend, was informed that this was what she was intending to do, Miss Allan intended in law to do the equivalent of delivering the whole gift contained in the policy, that is, the trust property and the whole policy moneys. As my noble and learned friend Lord Reid has pointed out, what is required on the part of the truster is some act equivalent to conveyance, transfer or delivery of the subject-matter of the trust, that is, the trust property; one is not searching for delivery of rights to a particular beneficiary, who may be unborn.So in my opinion there was, when the policy was effected, a binding irrevocable gift to Mrs Jeffrey and Miss Marr, in which Miss Allan never had an interest. I would therefore allow this appeal.LORD DONOVAN .—My Lords, I agree with the opinion expressed by my noble and learned friend Lord Reid, and for the like reasons.