Chapman v Chapman; In re Chapman’s Settlement Trusts

A court administering a trust has no general inherent jurisdiction to alter its beneficial trusts merely because all adult beneficiaries consent and the alteration would benefit infants or unborn beneficiaries. Its function is to execute the trust according to the settlor’s expressed intentions.

Departure is permitted only within established categories, including maintenance, preservation or salvage of trust property, and a genuine compromise of disputed rights. A rearrangement of clear beneficial interests cannot become a compromise merely by being described as one. The prospect of avoiding tax does not enlarge the court’s jurisdiction.

Three settlements contained discretionary maintenance trusts for children and possible future beneficiaries. The trustees and adult beneficiaries sought the court’s approval for a scheme eliminating those trusts because they were expected to attract substantial estate duty. It was assumed that the scheme would benefit everyone concerned.

Harman J dismissed the application for want of jurisdiction. The Court of Appeal, by a majority, dismissed the appeal, although Denning LJ would have allowed it. The trustees appealed to the House of Lords.

The central issue was whether the Chancery Division had inherent jurisdiction to destroy or rearrange undisputed beneficial trusts on behalf of infants and unborn persons when the adult beneficiaries consented and the change appeared beneficial.

1. The appeal was dismissed unanimously. The Lord Chancellor and Lords Morton of Henryton and Asquith of Bishopstone rejected the proposed general jurisdiction. Lord Oaksey agreed, although with hesitation. Lord Cohen reached the same result on a narrower view of the compromise jurisdiction.

2. Per the Lord Chancellor and Lord Morton, the court’s function is to execute a trust, supervise the trustees and protect the beneficiaries. It has no inherent power to rewrite a will or settlement merely because an alteration appears advantageous to infants or unborn persons. The scope of the court’s equitable jurisdiction must be found in the jurisdiction historically exercised, not inferred from what might appear desirable.

3. The recognised departures from strict execution of the trust are limited. They include changing the character of an infant’s property without changing the beneficial interest, providing maintenance despite a direction to accumulate, authorising an otherwise unauthorised administrative transaction required for the preservation or salvage of the trust estate, and approving a genuine compromise of disputed rights. Mere expediency or financial advantage is insufficient.

4. Per Lord Morton, with the Lord Chancellor, Lord Oaksey and Lord Asquith concurring, the compromise jurisdiction concerns rights whose existence or extent is genuinely disputed. Where the beneficial interests are clear, a scheme altering them exceeds the court’s jurisdiction, however it is described. The contrary Court of Appeal decisions concerning the Downshire and Blackwell settlements went too far.

5. Lord Cohen considered that the compromise jurisdiction could extend beyond disputed rights to some arrangements between life tenants and remaindermen. He nevertheless agreed that this scheme was impermissible because it altered rights within a class whom the settlors had deliberately subjected to discretionary treatment. It was not a composition of competing interests in any real sense.

6. The anticipated saving of estate duty supplied no independent jurisdiction. The settlements expressed the settlors’ intended trusts, and a later appreciation of their fiscal consequences was not a mistake capable of justifying judicial alteration. The costs of both sides were ordered to be paid from the trust funds.

• House of Lords: The appeal was dismissed unanimously. The House affirmed the Court of Appeal’s dismissal of the appeal.
• Court of Appeal: By a majority comprising the Master of the Rolls and Romer LJ, the court dismissed the appeal. Denning LJ dissented and would have allowed it.
• Chancery Division: Harman J dismissed the application in Chambers because he considered that he lacked jurisdiction to sanction the proposed scheme.