Womble Bond Dickinson (Trust Corporation) Ltd & Ors v Glenn & Ors

The rule in Hancock v Watson is a rule of construction concerned with the settlor’s intention when the trust is created. It may apply even where the engrafted trusts are exhaustive and have not failed. An absolute capital interest remains an interest in capital although it is defeasible by a later event. For the purposes of section 32 of the Trustee Act 1925, a “prior” interest is determined by the order in which trust property is enjoyed. Beneficiaries whose interests arise subsequently do not have prior interests, although trustees must consider those interests in exercising their fiduciary powers. Court approval of a momentous trustee decision is discretionary and depends on proper consideration of relevant matters and a rational outcome.

The trustees applied under Part 8 for directions concerning a power of advancement under section 32 of the Trustee Act 1925, as varied by the trust deed. They wished to advance capital to ten grandchildren in order to bring the trust to an end and avoid future administration costs and inheritance tax charges.

The issues were whether the grandchildren held capital interests, whether the interests of unborn descendants were prior interests requiring consent, whether consent could be dispensed with, and whether the proposed advances should receive category 2 approval under Public Trustee v Cooper. The central questions concerned the construction of the trust deed and the meaning of “prior” in section 32(c).

1. Construction of the trust deed. The rule in Hancock v Watson was a rule of construction directed to the settlor’s intention when the trust was declared. Later failure of the engrafted trusts was not a prerequisite to its application. The separate initial gift, the structure of the deed, the use of “share” and “Allotted Share”, and the contrast with provisions creating life interests indicated that clause 10 engrafted trusts on the absolute gift in clause 9. The fact that the subsequent trusts were exhaustive, and that the ultimate gift was to the same grandchild, did not prevent the rule applying.
2. Capital interest. The grandchildren therefore had absolute, though defeasible, interests in capital. The possibility that an interest might be defeated by the birth of a child did not prevent it being an interest in capital to which section 32 applied.
3. Prior interests. “Prior” in section 32(c) referred to the order in which the trust property was enjoyed. If a son were born, the grandchild’s interest would become a prior life interest and the son’s interest would be subsequent. The unborn descendants therefore did not have prior interests requiring consent. The trustees nevertheless had to consider their interests as fiduciaries and make a balanced decision.
4. Approval. Category 2 approval under Public Trustee v Cooper was discretionary. The court had to consider whether the trustees had formed the relevant opinion, whether a properly instructed reasonable body of trustees could reach it, and both the process and outcome of the decision. The proposed advances would materially benefit the grandchildren and avoid erosion of the funds. Approval was granted.