Green and others v Cobham and others

CHANCERY DIVISION

[2002] STC 820

HEARING-DATES: 19 January 2000

19 January 2000

CATCHWORDS:
Capital gains tax -- Non-resident trust -- Trustees -- Composite settlement -- Trustees exercising power of appointment and also appointing new trustees -- New trust and original trust constituting single composite settlement for capital gains tax purposes -- Majority of trustees of composite settlement not resident or ordinarily resident in the United Kingdom -- Trustee of new trust carrying on business which included the management of trusts resigning from business -- Majority of trustees of composite settlement therefore becoming resident or ordinarily resident in the United Kingdom -- Whether exercise of power of appointment valid -- Whether trustees in exercising power having regard to capital gains tax consequences -- Capital Gains Tax Act 1979, s 52(1), (2)

HEADNOTE:
A died in 1973. The administration of his estate took place in the British Virgin Islands where he had been domiciled and resident. His will directed his executors to pay part of his residuary estate to the trustees of a United Kingdom discretionary settlement, the beneficiaries of which included his six grandchildren. The trustees of the discretionary settlement disclaimed and renounced any interest under the will. A's executors executed a deed the true effect of which was that new trustees held the share of residue on trusts identical with those declared by the discretionary settlement not as part of the discretionary settlement but under the trusts of the will. The trust assets included all the shares in a company in which substantial reserve of retained profits had built up. At a meeting of the trustees of the will trust in 1990 it was resolved that the profits should be distributed by the company to the will trust, and that the trustees of the will trust should then distribute them to the testator's grandchildren, of whom three were under the age of 18. In the case of the minor grandchildren the trustees executed deeds of appointment by which the distribution was settled on accumulation and maintenance trusts, one for C and one for her two cousins. The trustees were not aware that the will trust and the two accumulation and maintenance settlements constituted a single composite settlement for capital gains tax purposes with a single body of trustees consisting of the trustees of the will trust and the trustees of the accumulation and maintenance settlements. Of the ten trustees of the composite settlement six were non-resident with the consequence that the will trust remained a non-resident settlement for capital gains tax purposes. Section 52(1) of the Capital Gains Tax Act 1979 provided, inter alia, that trustees of a settlement should be treated as resident and ordinarily resident in the United Kingdom, unless the general administration of the trust was ordinarily carried on outside the United Kingdom and a majority of them were not resident or ordinarily resident in the United Kingdom. Section 52(2) (Section 52(2), so far as material, provides that 'a person carrying on a business which . . . includes the management of trusts, and acting as a trustee of a trust in the course of that business, shall be treated in relation to that trust as not resident in the United Kingdom if the whole of the settled property consists of . . . property provided by a person not . . . at his death domiciled, resident or ordinarily resident in the United Kingdom . . .') provided, inter alia, that a person carrying on a business which included the management of trusts who acted as a trustee in the course of that business was to be treated as non-resident if the whole of the settled property had been provided by a non-resident. One of the trustees of C's settlement was a solicitor who acted for the trustees of the will trust. At the end of 1990 he resigned from his practice as a solicitor with the effect that whilst he remained a trustee he was no longer a non-resident trustee for capital gains tax purposes. In consequence, the majority of the trustees of the composite settlement became resident in the United Kingdom with ensuing adverse capital gains tax consequences for the settlement on its ceasing to be non-resident. The trustees sought a declaration that the 1990 deed appointing C's trustees and the trusts in her favour was made by an invalid exercise of the will trustees' power of appointment and consequently was void. They submitted that the trustees had failed to take into account the capital gains tax consequences of the appointment and that the principle that the court should interfere with the action of trustees, where they acted under a discretion given under a trust, if it was clear that they would not have acted as they did had they not failed to take into account considerations which they should have taken into account, therefore applied.

Held -- There was no room to doubt that had the then trustees of the will trust had regard to the possible capital gains tax consequences of the proposed appointment in favour of C, they would not have gone ahead with it. Had they directed their minds, as they should have done, to considerations of capital gains tax, they would not under any circumstances have made an appointment which gave rise to any significant risk that the will trust might thereafter become a United Kingdom resident trust for capital gains tax purposes. It followed that this was a clear case for the application of the principle which required the court to interfere by declaring the 1990 deed to be an invalid exercise of a trustee's power of appointment, and consequently void in its entirety. The 1990 deed would be declared to be void.

Re Hastings-Bass, Hastings-Bass v IRC [1974] STC 211 applied.

NOTES:
For the residence status of trustees, see Simon's Direct Tax Service C4.404.

For the immigration and emigration of trusts, see Simon's Direct Tax Service C4.405.

For the Capital Gains Tax Act 1979, s 52(1), (2) (now the Taxation of Chargeable Gains Act 1992, s 69(1), (2)), see Simon's Direct Tax Service, Part G3.

CASES-REF-TO:

Edge v Pensions Ombudsman [2000] Ch 602, [1999] 4 All ER 546, CA.
Harris v Shuttleworth [1994] ICR 991, [1994] IRLR 547, CA.
Hastings-Bass, Re, Hastings-Bass v IRC [1974] STC 211, [1975] Ch 25, [1974] 2 All ER 193, CA.
Lee v Showmen's Guild of Great Britain [1952] 2 QB 329, [1952] 1 All ER 1175, CA.
Mettoy Pension Trustees Ltd v Evans [1990] 1 WLR 1587, [1991] 2 All ER 513.
Pilkington v IRC [1964] AC 612, [1962] 3 All ER 622, 40 TC 416, HL.
Stannard v Fisons Pension Trust Ltd [1992] IRLR 27, CA.

INTRODUCTION:
Application

The trustees of the will of Sir Alan Cobham (the will trustees) sought a declaration that an appointment made by deed dated 12 November 1990 (the 1990 deed) by which the will trustees appointed certain funds to be held on accumulation and maintenance trusts for the benefit of C, then a minor, was invalid and void. The trustees of the 1990 deed and C supported the application. The facts and grounds of the application are set out in the judgment.

COUNSEL:
Nicholas Warren QC and Emily Campbell for the will trustees; Simon Taube for the trustees of the 1990 deed and C.

PANEL: PARKER J

JUDGMENTBY-1: PARKER J

JUDGMENT-1:
PARKER J: The claimants on this application are the present trustees of the will of the late Sir Alan Cobham. I will refer hereafter to the trust as the 'will trust', and to Sir Alan as 'the testator'.

The claimants seek a declaration that an appointment made by deed dated 12 November 1990 (the 1990 deed) is invalid and void. By the 1990 deed the then trustees of the will trust appointed certain funds to be held on accumulation and maintenance trusts for the benefit of Camilla Cobham, a granddaughter of the testator, who was at that date aged 16 (she was born on 2 October 1974).

There are five defendants to the proceedings. The first four defendants are the trustees of the 1990 deed, the fifth defendant is Camilla herself.

The claimants are represented by Mr Nicholas Warren QC and Miss Emily Campbell, the defendants by Mr Simon Taube.

The background to the application is as follows. The testator died on 21 October 1973, domiciled, resident and ordinarily resident in the British Virgin Islands for the purposes of United Kingdom capital gains tax. His will, which was dated 15 January 1973, is governed by the law of the British Virgin Islands. The administration of the testator's estate took place in the British Virgin Islands, where all the executors were domiciled, resident and ordinarily resident.

By cl 8 of his will the testator directed his executors to pay and transfer one-third of the moneys representing his residuary estate to the trustees of a settlement which the testator had made in 1966, known as the 'B settlement'. The B settlement is a United Kingdom resident settlement which is governed by English law. When the testator made the B settlement he was domiciled, resident and ordinarily resident in the United Kingdom. The B settlement is a discretionary settlement for the benefit of a wide class of beneficiaries, including the testator's six grandchildren.

By letter dated 3 November 1980 the trustees of the B settlement disclaimed and renounced any interest under the will. There is no evidence that the trustees of the B settlement had, in the meantime, taken any step which might be construed as an acceptance of the testator's bounty, and it is common ground on this application that the disclaimer was effective.

By a deed of appointment dated 25 June 1981 (the 1981 deed) the executors purported to appoint new trusts of the one-third share of residue which were similar to, but not identical with, the trusts of the B settlement. By the 1981 deed the executors also appointed the first and second claimants, Miss Jean Green and Mr Robin Gaul, and a Mr McWelling Todman QC, as trustees of the appointed fund.

Advice was in due course sought from leading counsel, (the late Mr Maurice Price QC) as to the true effect of the 1981 deed in the events which had happened. Leading counsel advised that although the 1981 deed was ineffective in so far as it purported to declare trusts which differed from the trusts of the B settlement, it was effective in so far as it appointed new trustees, and that the true position following the execution of the 1981 deed was that by the application of the maxim 'equity never wants for a trustee' the new trustees held the one-third share of residue on trusts identical with those declared by the B settlement; not as part of the B settlement but under the trusts of the will (that is to say, the will trust). It is common ground on this application, that that advice was correct.

The general administration of the will trust has at all times been carried on in the British Virgin Islands. Mr Todman died on 7 March 1996, and was replaced as trustee of the will trust by the third claimant, Wickhams Cay Trust Co Ltd, a British Virgin Islands trust company. The trustees of the will trust, including the late Mr Todman, have at all material times been domiciled, resident and ordinarily resident in the British Virgin Islands.

The assets subject to the will trust include 100% of the issued shares of a company called Falaise Investments Ltd (FIL), which in turn holds shares in companies originally established by the testator.

By 1990, FIL had built up a substantial reserve of retained profits, and the then trustees of the will trust considered various schemes for the distribution of these retained profits to the beneficiaries of the will trust in a tax-efficient way.

At a meeting of the trustees which took place on 1 August 1990 it was resolved that the retained profits should be distributed by FIL to the will trust, and that the trustees of the will trust should in turn distribute them to the testator's six grandchildren (including Camilla) by means of appointments in equal shares. Three of the six grandchildren (Jessica, Nigel and Mark) were by then of full age; three (Leona, Paul and Camilla) were still under the age of 18. It was further resolved that in the case of the three minor grandchildren the distribution should be settled on accumulation and maintenance trusts, one settlement for the benefit of Camilla and another for the benefit of Leona and Paul.

The trustees of Camilla's appointment were to be her parents (the first and second defendants), Lord Rockley (the fourth defendant) and Mr Peter Mellowes (the third defendant). Mr Mellowes was at that time a partner in the firm of Aldridge & Brownlee, solicitors. He had acted for the trustees of the will trust for many years. Camilla's parents and Lord Rockley have at all material times been resident in the United Kingdom for capital gains tax purposes. Mr Mellowes has at all times been similarly so resident, but by virtue of s 52(2) of the Capital Gains Tax Act 1979 (the 1979 Act), a provision which is now to be found in s 69(2) of the Taxation of Chargeable Gains Act 1992 (the 1992 Act), he fell to be treated as a non-resident trustee for capital gains tax purposes so long as he carried on a business which included the management of trusts and was a trustee of the will trust in the course of that business, that is to say, so long as he continued to act as the solicitor to the will trust.

The trustees of the appointment for the benefit of Leona and Paul were to be their father (who has at all material times been resident in the United Kingdom for capital gains tax purposes), and two accountants in the firm of Grant Thornton who, like Mr Mellowes, fell to be treated as non-resident trustees for capital gains tax purposes under the statutory provisions to which I have just referred.

Deeds of appointment to give effect to the resolutions of the trustees of the will trust (including the 1990 deed in favour of Camilla), were drawn up and executed by the trustees on 12 November 1990. The 1990 deed contains a power of revocation exercisable within the applicable trust period, being the 50-year trust period under the B settlement. The power of revocation is accordingly exercisable prior to the expiry of that period on 2 May 2016.

Section 52(1) of the 1979 Act, now to be found in s 69(1) of the 1992 Act, provides as follows:

'In relation to settled property, the trustees of the settlement shall for the purposes of this Act be treated as being a single and continuing body of persons (distinct from the persons who may from time to time be the trustees), and that body shall be treated as being resident and ordinarily resident in the United Kingdom unless the general administration of the trusts is ordinarily carried on outside the United Kingdom and the trustees or a majority of them for the time being are not resident or not ordinarily resident in the United Kingdom.'

It is common ground on this application that the will trust and the two accumulation and maintenance settlements (one for the benefit of Camilla contained in the 1990 deed, and the other for the benefit of Leona and Paul) constitute a single composite settlement for capital gains tax purposes with a single body of trustees consisting of the trustees of the will trust and the trustees of the accumulation and maintenance settlements.

On that footing, following the execution of the deeds of appointment, there were ten trustees of the composite settlement, of whom six were (or were to be treated as) non-resident trustees, and the remaining four of whom were resident trustees, with the consequence that the will trust remained a non-resident settlement for capital gains tax purposes.

In October 1990, however, Mr Mellowes had made known to the trustees of the will trust his intention to retire from practice at the end of 1990, with the consequence that he would not thereafter fall to be treated as a non-resident trustee for capital gains tax purposes. He duly retired from practice on 31 December 1990, but continued as a trustee of the 1990 deed. Following his retirement, therefore (and assuming for the moment that the appointment contained in the 1990 deed is a valid appointment), there were only five trustees of the composite settlement who were (or who were to be treated as) non-resident trustees, and five resident trustees, Mr Mellowes now ranking as a resident trustee. The consequence, if Camilla's appointment were valid, would be that the will trust would cease to be non-resident and would have become, as it were, an onshore settlement instead of an offshore one. The capital gains tax consequences of that would be catastrophic, in that the resident trustees would be liable for capital gains tax on disposals made not only by the will trust but also by FIL itself. The evidence is that the shareholdings held by FIL are pregnant with very substantial capital gains. Thus, according to the audited accounts of FIL for the year ended 31 July 1989, the market value of its holdings was in excess of $ US 17m as compared with an acquisition cost of some $ US 177m; and in a witness statement filed in support of the present application Mr Gaul, the second claimant, states that the accrued gains now amount to some 35m.

It is plain on the evidence that when they resolved to make the appointments in favour of the grandchildren, and when they executed the deeds containing those appointments, in particular the 1990 deed, the trustees of the will trust gave no thought to the capital gains tax consequences of these dispositions. Thus, in his witness statement Mr Gaul says:

'No consideration at all was given to the consequences of Camilla's appointment, Leona's appointment and Paul's appointment from the point of view of capital gains tax, nor did Aldridge & Brownlee suggest that advice should be taken upon such consequences prior to the appointment being made.

In particular, no consideration was given as to whether the choice of trustees of Camilla's appointment, Leona's appointment and Paul's appointment could or might foreseeably affect the residence of the body of trustees of the will trust for the purposes of capital tax gains, and it was never dreamt that the settled appointments could have the effect of bring the will trust "onshore" for the purposes of that tax. My fellow Trustees and I regarded the settled appointments as completely separate from the will trust itself. Nor did the BVI Trustees [that is a reference to the trustees of the will trust] consider that Mr. Mellowes' pending retirement from practice as a solicitor was a relevant consideration in relation to the capital gains tax treatment of the will trust.'

The exhibited documentation bears this out. It is plain from this documentation that everyone concerned proceeded throughout on the footing that the two accumulation and maintenance settlements would fall to be treated as separate settlements for capital gains tax purposes (Camilla's settlement being a United Kingdom resident settlement), and that no thought was given to the possibility that they might form part of a composite settlement which would include the will trust itself. This perhaps explains why no significance appears to have been attached to Mr Mellowes' impending retirement from practice.

It is against that factual and statutory background that Mr Warren submits that the 1990 deed is invalid. He makes that submission on two grounds.

Firstly, Mr Warren submits that had the trustees of the will trust had regard to the capital gains tax consequences of the 1990 deed they would not have made an appointment which gave rise to those consequences (a proposition with which, on the face of it, it would appear difficult to quarrel); and that in the circumstances, since it is not possible to predicate the precise course which the trustees would have taken had they appreciated the true position, the court should declare the entirety of the 1990 deed to be an invalid exercise of the trustees' discretionary power of appointment (a power which exists by reference to the trusts of the B settlement) and accordingly void.

In support of this primary submission, he relies on what Warner J, in Mettoy Pension Trustees Ltd v Evans [1990] 1 WLR 1587 at 1624, described as 'the rule in Hastings-Bass', a reference to a decision of the Court of Appeal in Re Hastings-Bass, Hastings-Bass v IRC [1974] STC 211, [1975] Ch 25.

Secondly, he submits that the 1990 deed is invalid on the ground that it purported to effect an unlawful accumulation of income. On either basis, he seeks the declaratory relief to which I referred at the outset of this judgment.

The defendants, including Camilla, support the application. However, for the assistance of the court, Mr Taube has very properly and helpfully undertaken to play the role of devil's advocate in putting forward such arguments as are, or may be, available in opposition to the relief sought. I am most grateful to him for the assistance he has given in so doing.

Since it will be sufficient for the claimants if they should succeed on either of the two grounds advanced by Mr Warren, that is to say either the Hastings-Bass point or the accumulation point, it was agreed between counsel, with a view to saving time, that I should first hear argument and deliver judgment on the Hastings-Bass point on the footing that if the claimants succeed on that point it will be unnecessary for them to argue the accumulation point. This judgment is therefore concerned only with the Hastings-Bass point.

In Hastings-Bass, the trustees of a marriage settlement, concerned to avoid a charge to estate duty on the death of a life tenant, purported to exercise the statutory power of advancement under s 32 of the Trustee Act 1925 by transferring funds out of the marriage settlement to the trustees of a subsisting settlement for the benefit of W, one of the children of the marriage, to be held on the trusts of that settlement. Under the trusts of the latter settlement W took a life interest only, with remainders over. In accordance with the decision of the House of Lords in Pilkington v IRC [1964] AC 612, the exercise of the power of advancement was ineffective to create interests in remainder, subject to W's life interest, since in purporting to create such interests it offended against the rule against perpetuities. Following the death of the life tenant the question arose whether (as the Revenue contended) the purported exercise of the statutory power of advancement was wholly void, in which event a charge to estate duty would have arisen on the life tenant's death, or whether (as the trustees contended) it was at least effective to confer a reversionary life interest on W, in which event there would be no charge to estate duty. The Court of Appeal held that the latter was the true result, on the basis that the trustees' prime consideration in making the advance was the benefit to W of an immediate and indefeasible life interest in possession, and that since the failure of the ulterior trusts did not affect that benefit there was no reason to suppose that the trustees had failed to ask themselves the right questions, or to arrive in good faith at a reasonable conclusion, and that accordingly the advance was effective to the extent of conferring a life interest on W.

Buckley LJ, giving the judgment of the court ([1974] STC 211 at 221, [1975] Ch 25 at 41), said this at the conclusion of the judgment:

'To sum up the preceding observations, in our judgment, where by the terms of a trust (as under s 32) a trustee is given a discretion as to some matter under which he acts in good faith, the court should not interfere with his action notwithstanding that it does not have the full effect which he intended, unless (1) what he has achieved is unauthorised by the power conferred on him, or (2) it is clear that he would not have acted as he did (a) had he not taken into account considerations which he should not have taken into account, or (b) had he not failed to take into account considerations which he ought to have taken into account.'

Mr Warren submits that the instant case falls within the second of the two categories of case identified by Buckley LJ, that is to say that it is a case in which it is clear that the trustees of the will trust would not have acted in the way they did had they not failed to take into account a consideration which they should have taken into account, namely the capital gains tax consequences of the appointments.

In Mettoy Pension Trustees Ltd v Evans [1990] 1 WLR 1587 Warner J transposed the Court of Appeal's observations in Re Hastings-Bass [1974] STC 211, [1975] Ch 25 from the negative to the positive sense saying ([1990] 1 WLR 1587 at 1621):

'For present purposes [the relevant principle] may be stated in these terms, which are the positive converse of a negative proposition enunciated by the Court of Appeal in In re Hastings-Bass, at p. 41: where a trustee acts under a discretion given to him by the terms of the trust, the court will interfere with his action if it is clear that he would not have acted as he did had he not failed to take into account considerations which he ought to have taken into account.'

Subsequent authorities to which I have been referred (eg Stannard v Fisons Pension Trust Ltd [1992] IRLR 27) suggest that the so-called 'rule in Hastings-Bass' may apply not only in cases where trustees would not have acted as they did had they appreciated the true position, but also in cases where they might not have done so. However, since Mr Warren is putting his case very firmly on the footing that the instant case is a 'would' case rather than a 'might' case, it is unnecessary for me to consider that question.

Finally, I was referred by Mr Warren to the Court of Appeal decision in Edge v Pensions Ombudsman [2000] Ch 602. Giving the judgment of the court, Chadwick LJ cited ([2000] Ch 602 at 628) the following passage from the judgment of Glidewell LJ in Harris v Shuttleworth [1994] ICR 991 at 999 --

'". . . the judge referred to a series of authorities, and adopted in particular the principles laid down in the decision of this court in Lee v. Showmen's Guild of Great Britain [1952] 2 Q.B. 329). These principles he expressed as follows: (a) the trustees must ask themselves the correct questions; (b) they must direct themselves correctly in law, in particular they must adopt a correct construction of the pension fund rules; and (c) they must not arrive at a perverse decision, i.e., a decision to which no reasonable body of trustees could arrive, and they must take into account all relevant but no irrelevant factors. The judge held that, if the trustees arrived at their decision acting within those limits, their decision could not be overturned by the courts. This part of his judgment is not challenged in either the appeal or the cross-appeal. In my view the judge's decision on the limits of his task and thus of his jurisdiction was entirely correct."'

Mr Warren submits that the instant case differs on its facts from Re Hastings-Bass in that in Hastings-Bass, as the Court of Appeal held, it could safely be said that had they been aware of the true impact of the rule against perpetuities, the trustees of the marriage settlement would still have given W a life interest, whereas in the instant case it cannot be predicated with any certainty what the trustees of the will trust would have done had they appreciated the capital gains tax consequences of the 1990 deed, save that they plainly would not have done anything which would or might cause the will trust itself to cease to be an offshore trust, either immediately or in the future. One possibility would have been to create beneficial interests in favour of Camilla within the will trust itself. At the other extreme, they could have executed a sub-settlement in favour of Camilla dealing exhaustively with the beneficial interest in the sub-settled fund, and containing its own administrative powers, such that (albeit a United Kingdom resident settlement) it would have constituted a separate settlement for capital gains tax purposes. A further possibility might have been to make an absolute gift to Camilla with the trustees paying the funds to her parents and taking a receipt from them.

In these circumstances, submits Mr Warren, the application of the principle formulated by the Court of Appeal at the conclusion of its judgment in Re Hastings-Bass [1974] STC 211, [1975] Ch 25-for myself, I would prefer not to refer to the principle as a 'rule'-leads ineluctably to the conclusion that the entirety of the 1990 deed should be declared to be void.

Mr Taube accepts (as he is bound to do) that, given that so long as the will trust remained an offshore trust, the capital gains of the trustees of the will trust were free of United Kingdom capital gains tax and no capital gains tax would be chargeable on distributions to a beneficiary (see ss 2(1) and 52 of the 1979 Act, and s 80 of the Finance Act 1981), and given also the evidence as to the enormous unrealised capital gains inherent in the shareholdings held by FIL, before executing the 1990 deed the trustees of the will trust ought to have taken into account the possible capital gains tax consequences of the contemplated appointment for the benefit of Camilla.

Nevertheless, Mr Taube submits there are four bases upon which it could be said that the trustees have not demonstrated that they would have acted differently had they done so.

In the first place, he submits, it is material to have regard to the fact that the funds distributed by FIL to the will trust on 12 November 1990 were income in the hands of the trustees (a proposition which the trustees accept). At the time, as the contemporary documentation shows, the trustees were concerned as to the impact of s 740 of the Income and Corporation Taxes Act 1988, taking the view that it was necessary to distribute income in advance of capital in order to minimise the impact of that provision, on the footing that distributions of capital to beneficiaries would be taxable as income in their hands so long as the trustees had in their hands 'relevant income' for the purposes of the section. True it is that the trustees were concerned about the impact of s 740, but there can be no room for doubt that their concerns in that respect would have paled into insignificance by comparison with the dire capital gains tax consequences of the contemplated appointment in favour of Camilla had the trustees applied their minds to those consequences. Moreover, the documentation indicates that the trustees' concerns about the possible impact of s 740 were raised principally in the context of a suggested scheme involving the reconstruction of the share capital of FIL, a scheme which, in the event, was not pursued.

Secondly, Mr Taube makes the point that in November 1990 Camilla was still under the age of 18, so that a trust of some description was essential. That is indeed the case, but as I have already indicated, the trustees could have transferred funds to her parents as trustees for her.

Thirdly, Mr Taube submits that the capital gains tax consequences of the appointment in favour of Camilla flowed not so much from the terms of the 1990 deed as Mr Mellowes' subsequent retirement from practice and the trustees' failure to replace him with a non-resident trustee (eg the partner in his firm who took over from him as solicitor to the will trust). In my judgment, however, this submission is not sustainable. The capital gains tax consequence flowed from the terms of the 1990 deed, notwithstanding that they did not occur immediately. The damage was done as soon as the 1990 deed was executed in the sense that, at that point, the status of the will trust as an offshore trust became, if the 1990 deed was effective, determinable by reference to the resident or non-resident status not only of the trustees of the will trust but also of the trustees of the 1990 deed. The 1990 deed, if effective, provided the potential for the will trust to become an onshore trust by reason of matters, that is to say, the composition of the trusteeship of the 1990 deed, which were outside the control of the trustees of the will trust. That potential was realised when Mr Mellowes was not replaced as a trustee of the 1990 deed. In any event, I do not find it helpful to address the question whether the trustees of the will trust would have acted differently by applying a causative analysis to the sequence of events which followed the relevant disposition. The principle in Hastings-Bass, as I understand it, does not call for such an analysis.

Fourthly, Mr Taube submits that at the time of the 1990 deed the fact that the trustees of the will trust might temporarily be treated as resident in the United Kingdom for capital gains tax purposes was not catastrophic, since there was at that time no export charge to capital gains tax when United Kingdom resident trustees were replaced by non-resident trustees. The export charge was introduced by s 3 of the Finance Act 1991, now s 80 of the 1992 Act. In my judgment, however, there are two answers to this submission. In the first place, even temporary residential status of the will trust would render the resident trustees liable for capital gains accruing during the current fiscal year 1990-91. In the second place, although the export charge was not imposed until early 1991, it is common ground that it was a matter of general speculation at the time of the 1990 deed that the imposition of such a charge was imminent.

I therefore conclude that this is a clear case for the application of the Hastings-Bass principle. In my judgment there is no real room for doubt on the evidence that had the then trustees of the will trust had regard to the possible capital gains tax consequences of the proposed appointment in favour of Camilla, they would not-and I stress would not-have gone ahead with it. What other course they might have taken is, I accept, not entirely clear. However, what is entirely clear, in my judgment, is that had the trustees directed their minds, as they should have done, to considerations of capital gains tax, they would not under any circumstances have made an appointment which gave rise to any significant risk that the will trust might thereafter become a United Kingdom resident trust for capital gains tax purposes. In this connection, I referred earlier to the substantial accrued capital gains shown in FIL's accounts for the year to 31 July 1989.

In these circumstances it follows, in my judgment, that the principle in Re Hastings-Bass applies in this case, and that the application of that principle requires that the court should interfere by declaring the 1990 deed to be an invalid exercise of a trustee's power of appointment, and consequently void in its entirely. Accordingly, I so declare.

DISPOSITION:
Order accordingly.

SOLICITORS:
Wiggin & Co, Cheltenham; Wilsons, Salisbury.