Harrison-Mills v the Public Trustee & Ors

A power of appointment in a settlement must be construed with the default trusts to which it refers. The trusts may be modified only to the extent necessary to give effect to the appointment’s terms. Where an appointment is made directly to more than one child of a relevant first-generation beneficiary, the fund is treated as an original share appropriated to that parent and divided into sub-shares for the children. On failure of one such sub-share, the sub-share accruer provision applies.

Where trustees properly seek a determination of a genuine trust-construction question, the case falls within the first Buckton category. The parties’ necessary costs are ordinarily payable from the trust fund. Unreasonable conduct may justify a discrete costs qualification, but does not alone convert the matter into adversarial litigation.

The Public Trustee sought directions on the destination of part of a 1924 family settlement fund after David Lakin Harrison died without issue. A 1953 order had treated part of the fund as appointed directly to five members of the second generation. David and his brother Jeffrey were two of the appointed beneficiaries.

The appellant, a member of the wider family, contended that David held an original share which accrued to the wider default class. Jeffrey’s children contended that David held a sub-share which accrued to Jeffrey’s sub-share. Marcus Smith J accepted the latter construction in [2018] EWHC 166 (Ch) and ordered the appellant to pay the respondents’ costs. The appeal concerned both the proper construction of the settlement and the applicable costs principle.

1. Construction appeal dismissed. The court held that clause 18(ii)(B) required an appointed fund to be related to the trusts which would apply to a share appropriated, under the default trusts, to the appointed object or that object’s parent. That express link could not be disregarded merely because the appointment selected a second-generation beneficiary directly.

2. The default-trust machinery had to be modified where necessary to give effect to the appointment. Thus, a first-generation beneficiary who was passed over did not receive the life interest which would defeat the appointment. The modification went no further than necessary; it did not permit separate original shares to be deemed appropriated to each appointed child.

3. Under clause 19, one original share was treated as appropriated to James, then divided equally between Jeffrey and David. Their interests were therefore sub-shares. David’s death without issue caused his sub-share to accrue under clause 16(i) to Jeffrey’s sub-share, for the benefit of Jeffrey’s children. The construction also avoided the anomalous result that the released and appointed funds would devolve differently.

4. Costs appeal allowed. The proceedings concerned a genuine and arguable question of trust construction which the trustee needed resolved before safely distributing a substantial fund. Applying Re Buckton [1907] 2 Ch 406, the case fell within the first category: the parties’ necessary costs were incurred for the benefit of the estate. Although the appellant’s conduct could justify limiting recovery of particular wasted or improperly incurred costs, no sufficient case for an adversarial costs order had been established.

5. The court set aside the order requiring the appellant to pay the respondents’ High Court costs. Males LJ and Patten LJ agreed.

• Court of Appeal (Civil Division) — allowed the appeal on costs but dismissed the appeal on the construction of the settlement.
• High Court, Chancery Division — Marcus Smith J held that the disputed fund accrued to Jeffrey’s sub-share and ordered the appellant to pay the respondents’ costs: [2018] EWHC 166 (Ch).