Sutton & Ors v England & Ors

Under Trustee Act 1925, s 57, the court may confer administrative powers where the transaction is expedient and any effect on beneficial enjoyment is incidental. It cannot confer a power that changes the nature of beneficial interests themselves. A partition substituting interests in divided shares for interests in the income of an undivided fund is a substantive variation, not mere administration.

Trustees cannot obtain an uncontrolled discretion to determine future tax incidence where the issue involves law and fact. Nor can the statutory advancement power be used to alter contingent interests rather than apply trust property for a beneficiary’s advancement.

The trustees of the England Settlement, created by trust deeds in 1940, sought directions and additional powers. The application concerned the retrospective treatment of tax liabilities, creation of a sub-trust for beneficiaries resident in the United States, proposed powers of appropriation and partition, proposed advancements to remove cross-accruer rights, and modern administrative provisions.

The central questions were whether the court could confer the proposed powers under s 57 of the Trustee Act 1925, whether the proposed transactions were within the statutory advancement power under s 32, and whether the court should bless the trustees’ historical or future treatment of tax liabilities.

1. Tax treatment. The court directed the trustees not to revisit their historical arithmetical treatment of tax liabilities. That direction did not bless the approach for all purposes or prevent later scrutiny. The historical approach was prima facie within the bounds of reasonableness, fairness and the trustees’ powers.
2. The court refused to give the trustees an absolute discretion to determine how future inheritance tax should be borne between beneficiaries. The issue might involve law, fact and discretion. The trustees must address it when it arises and seek directions where necessary. The court indicated that a power to act on senior Chancery counsel’s opinion, after notice to adult beneficiaries or parents of minors, could be conferred under s 57.
3. Appropriation and partition. Appropriation was expedient because it might mitigate taxation, reduce currency risk and administrative conflict, and improve administration. Section 57 nevertheless could not confer a power varying beneficial interests. Incidental effects on enjoyment are permissible where the underlying trusts remain unchanged. The proposed partition would replace interests in the income of an undivided fund with interests in divided sub-funds. It was therefore outside s 57 and was refused.
4. The proposed advancement of cross-accruer rights under s 32(1) was also refused. An advancement concerns capital money or property subject to the trust, not a beneficiary’s interest under the trust. The proposed transaction would vary the trusts by eliminating contingencies.
5. Most proposed modern administrative powers were conferred under s 57. The proposed general power to pay tax liabilities not enforceable against the trustees was excluded because the justification was hypothetical. Any real difficulty could be addressed by an application for directions.

First-instance decision of the High Court (Chancery Division). No earlier appellate decision is stated in the judgment.