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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Pemberton v Pemberton & Ors [2016] EWHC 2345 (Ch) (13 July 2016) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2016/2345.html Cite as: [2016] EWHC 2345 (Ch)

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		The Rolls Building, 7 Rolls Building, Fetter Lane, London, EC4A 1NL
		13 July 2016

1. JUDGE HODGE QC: This is my extemporary judgment on a Part 8 claim issued by Mr Richard Francis Anthony Pemberton in relation to the Pemberton Settled Estates. The settlement was originally created on 31 March 1965 by the claimant’'s grandfather, Sir Francis Wingate William Pemberton. The claimant, together with the first to third defendants, are the present trustees of the settlement. The claimant is represented by Mr Robert Venables QC leading Ms Mary Ashley. The first to third defendants are represented by Mr James Kessler QC. They are the present trustees together with the claimant, and they also have in mind the interests of unascertained and unborn beneficiaries. There are four adult defendants, defendants 4, 8, 9 and 11, who are represented by Mr Oliver Marre of counsel. Each of them has signed (or, in the case of the eleventh defendant, by his attorney has signed) letters consenting to the proposed variation. The fifth, sixth, seventh and tenth defendants are minor beneficiaries of the settlement and they are represented by Mrs Amanda Hardy QC.
2. The evidence in support of the variation is contained within the witness statement of the claimant dated 7 July 2016 together with 36 exhibits. The last of those is a detailed written opinion from Mr Robert Venables QC dated 5 July 2016. The proposed variation is set out in a scheme of arrangement varying the trusts of the settlement which appears at divider 5 of hearing bundle 2. In his witness statement Mr Richard Pemberton, the claimant, begins by exhibiting a family tree at RFAP1 and then explaining the various other documents to which he makes reference in the course of his witness statement. He verifies the accuracy and completeness of the family tree and explains that the settlement had been created by his grandfather, Sir Francis Pemberton, and that the beneficiaries with present interests in possession are the claimant himself, his father Anthony (the first defendant), his son Henry (who is the seventh defendant) and his two daughters, Jemima and Rose (the fifth and sixth defendants). He refers to Mr Venables’'s opinion which sets out the relevant history of the settlement and verifies its accuracy.
3. At paragraph 5 he sets out the proposed variation to the terms of the settlement in summary. Essentially he is proposing:

(a) to set the perpetuity period running afresh for a further 125 years beginning with the operative date;

(b) to confer on the trustees additional administrative powers, particularly investment powers, in extension of the more limited powers conferred by law and by the 1965 settlement deed (none of those powers will adversely affect the beneficial interests);

(c) whilst preserving all existing interests in possession in the settled property, to create certain reversionary life interests for the surviving “"spouses”" of Anthony, the claimant, and the claimant’'s son and two daughters (“"spouses”" in this context is defined by clause 1.3 of the scheme of arrangement as extending to any civil partner or spouse to a same-sex marriage);

(d) subject to the foregoing, to create, in substitution for the present trusts, discretionary trusts during the remainder of the trust period (defined by reference to the new perpetuity period) for the benefit (subject to certain limited exceptions, which have been inserted for tax reasons) of grandchildren and remoter issue of the settlor, their “"spouses”" (as explained), and, provided the marriage or civil partnership terminated only on the death of such issue, their former “"spouses”"; and finally

(e) to ensure that the Settle Land Act 1925 no longer applies to the settlement.

4. At paragraph 6 the claimant points out that his minor children, who currently have revocable interests in possession in certain of the settlement funds, will continue to have such interests, which will continue to be revocable by the trustees with the claimant’'s consent during his lifetime. The claimant points out that all other interests of minor, unborn or unascertained beneficiaries on whose behalf the court is being asked to approve the arrangement are mere objects of discretions, and those interests have no value as they can be destroyed by the exercise of non-fiduciary powers vested in certain beneficiaries of full age and capacity whose consent to the variation will be necessary and who are parties to these proceedings. It follows that no minor, unborn or unascertained beneficiary will be worse of as a result of the proposed variation. It is said that the proposed variation will be for the benefit of the family as a whole and thus for each member of it. Persons will continue to be objects of discretionary powers reposed in the trustees. The settlement will have undergone a much needed overhaul and its potential life will have been expanded enormously. That is said to be very important as the settlement enjoys considerable inheritance tax and capital gains tax advantages which could not be replicated in any new settlement.
5. Under the proposed arrangement the power of revoking or restricting the reversionary life interests conferred on the surviving spouse of the persons currently entitled to an interest in possession is exercisable by the trustees during the claimant’'s lifetime only with his consent, which is not to be unreasonably withheld. The claimant explains that he has no intention of unreasonably withholding his consent to any proposed exercise of the power agreed by the trustees and the claimant appreciates that he would not be entitled to do so.
6. At paragraph 10 the claimant explains that if the proposed arrangement is not approved his intention would be to exercise his existing powers to create as near as may be new trusts as near as may be to those of the proposed arrangement. In particular, he would provide that discretionary trusts would take effect subject to the existing interests in possession and to new reversionary life interests which he would create, the extended class of objects of which would be the same as under the prescribed trusts set out in the first schedule to the proposed arrangement. Whilst that would require the consent of the claimant’'s wife, Helen, having discussed the matter with her he understands that she would be willing to give that consent. The claimant points out that that would be far less satisfactory than if the arrangement were to be approved. That is because the perpetuity period would not be set running afresh, the trust would still be governed by the Settled Land Act, and neither the trustees nor the tenant for life or other persons having the powers of the tenant for life would have the proposed extended administrative powers. The claimant therefore submits that the proposed arrangement is a fit and proper one for the court to approve.
7. The position of the other trustees is set out in a witness statement from the third defendant, Mr William Robert Bartle Edwards, dated 7 July 2016. Mr Edwards exhibits a copy of the opinion of Mr James Kessler QC dated 2 June 2016. Mr Edwards states that Mr Kessler had been instructed to advise the trustees generally. He confirms that Mr Kessler’'s understanding of the trustees’' intentions is correct and that the trustees do intend, if they reasonably can, to make appointments in favour of the next generation of beneficiaries during the lifetimes of the spouses of Anthony and Richard, respectively the first defendant and the claimant. Mr Edwards records that Mr Kessler advised the trustees that this application is one that they should support; and Mr Edwards confirms that his fellow trustees and he have accepted Mr Kessler’'s advice and support the application.
8. The final witness statement before the court is from Mr Timothy James Lawson dated 6 July 2016. He is a chartered surveyor, although he is now retired; and he is the litigation friend of the infant defendants numbered 5, 6, 7 and 10. Their ages range (in the case of Jemima) from 14 to (in the case of Henry and Harriet) ten years of age. The other infant defendant, Rose, is currently twelve years of age. Mr Lawson exhibits instructions to leading counsel dated 18 June 2016 and the opinion of Mrs Amanda Hardy QC dated 4 July 2016. Mr Lawson states that he has read Mrs Hardy’'s opinion, which sets out the relevant provisions of the settlement. The opinion also sets out the terms of the variation to the perpetuity and accumulation periods and the trust provisions which have been proposed by the claimant in respect of the settlement and its supplemental deeds. He confirms the truth of matters of fact set out in the opinion. At paragraphs 5 through to 7 he sets out his professional experience, which has provided him with a sound understanding of trust and financial matters and knowledge of the financial, ethical and moral issues which can arise in relation to settlements containing substantial family wealth. He therefore believes that he can fairly and competently conduct these proceedings on behalf of the minor beneficiaries and that he has no interest in this matter adverse to their interests.
9. He summarises the proposed variations to the settlements at paragraph 8. At paragraph 9 he states that, having carefully considered Mrs Hardy’'s opinion, he is completely satisfied that the proposed variation to the settlements can properly be said to be in the interests of the minor beneficiaries. He considers that the extension to the perpetuity and accumulation periods is a significant benefit for the minor beneficiaries for two main reasons. First, it provides them with the opportunity to benefit from the trust throughout their lifetimes without any unavoidable capital gains tax exposure. Secondly (and in his opinion more importantly), it will remove considerable doubt over the validity of certain aspects of the existing trusts of which the trustees have been advised and which are said to have arisen as a result of historic drafting errors.
10. Mr Lawson states that the additional administrative powers following the variation will enable the trustees to carry out their duties with the flexibility that more modern settlements provide, and he considers that that can only benefit the minor beneficiaries. He states that it is his belief that the creation of reversionary interests in favour of the adult beneficiaries’' spouses is in the interests of the minor beneficiaries as it provides the opportunity for trust assets to pass to them, which he is informed is the trustees’' intention, potentially free of inheritance tax. What is intended is that use will be made of the facility to make potentially exempt transfers. Mr Lawson states that the inclusion of remainder interests for the minor beneficiaries’' future spouses is also in their interests as it provides the opportunity for some family assets to pass further down the family line before being subject to capital gains tax or inheritance tax.
11. The creation of discretionary trusts in remainder following the various life interests provides for the assets to remain in trust from a much longer period than is now the case, which Mr Lawson believes to be in the interests of all the beneficiaries, including the minor beneficiaries. In addition it is Mrs Hardy’'s view that the proposed variation can properly be said to be in the interests of the minor beneficiaries as the settlement will then have the flexibility afforded to more modern trust arrangements. In the course of her brief address Mrs Hardy made the point that Mr Lawson has considered really carefully each of the proposed variations and he has formed the view that it would be beneficial to the minor beneficiaries whom he represents.
12. The conclusion of Mr Lawson, on the basis of counsel’'s opinion and the other facts and matters which he sets out, is that he believes the proposed variation to be clearly for the benefit of the minor beneficiaries of the settlement, and he therefore fully supports the present application on their behalf and asks the court to make an order under the provisions of the Variation of Trusts Act 1958 in the terms sought.
13. That, together with the various exhibited opinions of counsel, comprises the evidence in the case. In addition, as I have mentioned, there are letters of consent from each of the five adult beneficiaries (defendants 1, 4, 8, 9 and 11) dated either 6 or 7 July 2016. Each of those letters makes it clear that the relevant defendant has been shown the proposed arrangement and the opinions of all three leading counsel. Each defendant has taken independent advice from counsel on the proposed arrangement in the light of those documents. Each letter sets out the writer’'s understanding of the effect of the proposed arrangement. Each letter states that the writer considers that the proposed arrangement is in the writer’'s best interests and the best interests of his or her immediate family and the wider Pemberton family. In the view of the writer, the advantages to the proposal and changes to the settlement outweigh the benefits which the writer currently enjoys under the settlement, and the writer therefore consents to the proposed arrangement and requests that the court give its approval thereto.
14. I have also had the benefit of detailed written skeleton arguments from each of Mr Venables and Mrs Hardy. Mr Kessler was content to rely upon the terms of his written opinion of 2 June 2016, which I had pre-read before coming into court. Mr Venables begins the substantive part of his skeleton argument by referring to the provisions of section 1(1) of the Variation of Trusts Act 1958. That gives a discretionary power to the court, if it thinks fit, by order to approve on behalf of (so far as material:

“"(a) any person having, directly or indirectly, an interest, whether vested or contingent, under the trusts who by reason of infancy or other incapacity is incapable of assenting, or

(b) any person (whether ascertained or not) who may become entitled, directly or indirectly, to an interest under the trusts as being at a future date or on the happening of a future event a person of any specified description or a member of any specified class of persons … or

(c) any person unborn, or

…

any arrangement … varying or revoking all or any of the trusts, or enlarging the powers of the trustees of managing or administering any of the property subject to the trusts:

Provided that … the court shall not approve an arrangement on behalf of any person unless the carrying out thereof would be for the benefit of that person.”"

15. Mr Venables has referred me to a statement at paragraph 45-072 of the current (19^th) edition of Lewin on Trusts to the effect that if an arrangement is beneficial even by the narrowest margin, the court’'s jurisdiction under the 1958 Act is founded, although the court is not required to approve an arrangement varying trusts even if benefit is shown and the court always retains a discretion in the matter. Mr Venables emphasises that, as stated at that paragraph of Lewin, the court will undertake a practical and businesslike consideration of the arrangement, including the total amounts of the advantages which the various parties obtain and their bargaining strength.
16. Mr Venables points out that it is an important feature of the arrangement that it involves revoking certain trusts which are in each case subject to a quasi-general power of appointment, exercisable in a non-fiduciary capacity by a beneficiary of full age and capacity, either Richard (the claimant) or Charles (the eighth defendant), with the consent of (in each case) their present wives (respectively the fourth and ninth defendants). All of the interests, or spes, which are overridden are thus said to be of no or of negligible value. Mr Venables accepts that the claimant must go a little further than simply showing that the non-consenting beneficiaries will not thereby suffer any detriment but must show that the carrying out of the arrangement will positively be for the benefit of each such person. But he submits that where the arrangement does not involve any real detriment to the non-consenting beneficiaries, the level of benefit which it needs to confer on them can be very modest, and the arrangement proposed is said easily to clear the required hurdle. Indeed, Mr Venables submitted that the approval of this variation was a “"no-brainer”". He points out that in the present context the bargaining strength of the non-consenting beneficiaries is nil. Their interests can be overridden by the exercise of the various quasi-general powers of appointment. He points out that the claimant and the adult beneficiaries who consent to the proposed arrangement are clearly doing so altruistically in the interests of their children and remoter issue and are deriving no personal benefit from the arrangement. Indeed, in pure financial terms, they are likely, if anything, to be worse off. So this is not a case in which the court, on behalf of the non-consenting beneficiaries, is in any position to withhold consent to the variation in the hope that it may thereby extract a better deal for them.
17. Mr Venables points out by references to paragraphs 45-091 through to 45-094 of Lewin on Trusts that benefit includes, but is not limited to, financial benefit. He distinguishes between benefits which are financial and those which are not financial or are not purely so, and he refers to the latter as moral benefits. He considers the financial and non-financial benefits in turn. First, he submits that the proposed arrangement is for the financial benefit of all of the non-consenting beneficiaries. Quasi-general powers of appointment will be completely extinguished; thus their interests under the discretionary trusts which will in future come into play on the termination, whether on death or by revocation of either the existing interests in possession or possibly those of surviving spouses of the beneficiaries currently entitled to an interest in possession, will not be (as they are at present) utterly precarious. He points out that any present hope of benefit by the non-consenting beneficiaries is entirely at the mercy of the exercise of those quasi-general powers of appointment which will be completely extinguished. Moreover, Mr Venables points out that the steps which are being taken to preserve the present tax advantages of the settlement, particularly as regards inheritance tax and capital gains tax (as set out at paragraphs 20 to 26 of Mr Venables’' opinion), will enure for the potential benefit of all the non-consenting beneficiaries. He says that those advantages cannot be replicated in any new settlement.
18. Mr Venables acknowledges that the class of discretionary beneficiaries will, by virtue of the extension of the perpetuity period, be increased so as to include persons born or ascertained after a time when the perpetuity period presently applicable to the settlement comes to an end. But he says that any potential future disadvantage to the non-consenting beneficiaries of that is enormously outweighed by the other benefits of the proposed variation. Moreover, Mr Venables points out that the additional persons who might in future benefit under the arrangement will all be children or remoter issue of non-consenting beneficiaries or their spouses or their children or remoter issue. That is said to be a huge moral benefit to the non-consenting beneficiaries. They will owe at the least a moral, and in some cases a legal, obligation to their children and spouses to ensure that they are provided for as well as possible. Mr Venables submits that it can confidently be predicted that in all probability the non-consenting beneficiaries would themselves in future recognise that they owed, at the least, such a moral obligation, and would regard it for their own benefit that it should be performed.
19. Adopting an expression to be found at paragraph 45-072 of Lewin on Trusts, Mr Venables also submits that it is clear that the purpose of the trust, as disclosed by the trust instrument, was to create an enduring settlement for the benefit of the settlor’'s family. He submits that the settlement was very much in the style of a 19^th century dynastic family settlement. It was only the constraints of the then applicable rules against perpetuities that had prevented the settlor from achieving, by the original settlement, what the arrangement now seeks to achieve.
20. For all of those reasons, Mr Venables invites the court to approve on behalf of the non-consenting minor beneficiaries the proposed variation. He points out that the only tax advantages of which it is hoped to take advantage are perfectly legitimate freedoms from tax which Parliament has offered in express terms. He summarised the advantages and benefits of the proposed variation as being: (1) that the general power of appointment will be entirely extinguished; (2) potentially highly unfortunate charges to capital gains tax and inheritance tax will be postponed to a time when the trust is in a better position financially to discharge those charges; (3) there will be non-financial benefits, in that future discretionary beneficiaries will all be descendants or spouses of the non-consenting beneficiaries and their children or remoter issue.
21. Mr Kessler for the trustees other than the claimant, and bearing in mind the interests of the unborn and unascertained beneficiaries, supported the proposed variation for the reasons given by Mr Venables. So too did Mrs Hardy. She had prepared a detailed written skeleton argument setting out her reasons why the court should, on behalf of those whom she represents, approve the proposed variation. She addressed first the proposed new perpetuity and accumulation periods. She points out that the perpetuity period in relation to the various funds comprised in the settlement is uncertain because the validity of a number of the deeds drafted on the basis of the applicable Royal lives clause perpetuity period is in doubt. If the Royal lives clause approach is valid, it would allow the trust to continue at least until about 2065. If it is not valid, the consequence would be that the perpetuity period applicable to the settlement is shorter. For example, it may continue at least until 21 years from the death of Sir Francis, that is to say, until November 2032. This uncertainty is removed by the proposed scheme of arrangement, which adopts a fresh perpetuity period for all of the trust funds which will expire in 2141. The accumulation period in relation to the settlement has already expired, and the proposed scheme of arrangement will allow accumulations during the extended trust period. The variation will also confer a wider set of administrative powers on the trustees.
22. Mrs Hardy addresses the position of the reversionary interests at paragraphs 18 through to 25 of her written skeleton. She addresses the interests in each of the constituent funds of the settlement in turn. She balances against the disadvantages of the deferral of minor beneficiaries’' discretionary interests the following factors: First, their interests in Richard and Anthony’'s funds are at present only the object of a discretion and all can be divested by the exercise of those powers in favour of one or other of Richard and Anthony or, in due course, their issue and, perhaps more significantly, by the wider general powers vested in Richard and Helen. More importantly, the trustees have made it clear, in Mr Edwards’'s witness statement, that they intend, if they reasonably can, to make appointments in favour of the next generation of beneficiaries, and in particular the minor beneficiaries, during the lifetimes of Helen and Victoria, respectively the wives of the claimant and the first defendant.
23. Finally, it is said that the spouses’' reversionary interests have a positive tax benefit. They prevent an inheritance tax charge on the death of Richard or Anthony as tenant for life of their respective funds. Whilst that merely postpones the charge until the spouses’' death and might therefore not be thought to outweigh the advantages of deferral, Mrs Hardy makes the point that if the trustees do in fact make appointments out during the lifetime of each spouse, such appointments would be potentially exempt transfers and in principle insurable. In that manner, the minor beneficiaries could benefit from the inheritance tax saving on the live tenants’' deaths without the cost of an inheritance tax charge on the spouses’' death. That is said to be uncontentious tax planning, based on clear legislation intended by Parliament, and is proper mitigation rather than tax avoidance or abuse.
24. Finally, Mrs Hardy addresses the substitution of discretionary trusts during the remainder of the extended trust period whilst preserving the existing interests in possession. One benefit of the proposed variation is that the settlement will cease to be one within the Settled Land Act. In tandem, the arrangement contemplates widening the beneficial class of these trusts. The present class does not include three further categories: first, illegitimate beneficiaries or those who inherit through them. That is because the settlement and subsequent deeds of appointment were governed by the old rule that references to “"issue”" included only legitimate issue. That rule had changed for dispositions made since 1 January 1970. Secondly, the class does not include civil partners. Thirdly and finally, it does not include spouses under a same sex marriage. That again is a position that has changed for documents made after the coming into force of section 11 of the Marriage (Same Sex Couples) Act 2013. Those three classes of beneficiaries will be included after the variation. Although there are no additional beneficiaries in those categories in existence at the present time, it is possible that the minors’' beneficial interests will be diluted by the future addition of such beneficiaries to the class. However, the claimant in his witness statement has indicated that he would use his powers to add those beneficiaries in any event; therefore they cannot be counted as a disadvantage to the minor beneficiaries.
25. Mrs Hardy recognises that the court’'s powers under the 1958 Act are limited to varying arrangements rather than effecting a resettlement, and that the powers of the court can only be exercised where the benefit requirement is met. Mrs Hardy points out that it is now clear that an extension of the perpetuity period and of the accumulation period applicable to a settlement is capable of forming the proper subject of a variation application under the 1958 Act. She has referred me to the recent decision of Mr Jeremy Cousins QC in Allfrey v Allfrey and others [2015] EWHC 1717 (Ch) where a variation incorporating a power to accumulate and extending the trust period was approved on the basis that it did not amount to a resettlement. The deputy judge was satisfied that he had jurisdiction to extend the period of the trust and that the changes did not effect a resettlement.
26. At paragraph 22 the deputy judge concluded:

“"The intention was to supplement the provisions of the existing Settlement, thereby enhancing its operation. In my judgment, the arrangement quite clearly is to be described as a variation rather than a resettlement. The parties intended to continue the existing trusts, but with modifications. Although there is no single litmus test … or bright line test … the terms of the arrangement fall very clearly on the variation side of the line, and very clearly not on the resettlement side of it.”"

27. Mrs Hardy submits that the position is exactly the same in relation to the proposed arrangement in relation to the Pemberton Settlement. The arrangement effects variations rather than resettlements.
28. She refers also to the recent decision of Sir Terence Etherton, the Chancellor of the High Court, in the case of DC v AC [2016] EWHC 477 (Ch). At paragraph 18 of his judgment in that case the Chancellor expressed himself satisfied that the court had power to approve an arrangement under the Variation of Trusts Act which effectively extended the trust period. He also expressed himself to be satisfied that the proposed arrangements did not effect what was in substance a resettlement rather than a variation of the trust property. If the proposed arrangements were implemented, the trusts of each settlement would remain substantially unaltered and the settlement would remain recognisably the same. I am satisfied that those observations apply equally to the proposed variation in the present case.
29. Mrs Hardy acknowledges that in order to obtain the court’'s consent it is also necessary to show that the extension of the accumulation and perpetuity periods of the settlement is in the interests of the minor and unborn beneficiaries. Again, the correct approach was considered by the Chancellor at paragraph 13 of his judgment in DC v AC. Adopting wording in earlier cases, the Chancellor considered that the proper approach of the court was to take a practical and businesslike consideration of each proposed arrangement - in that case there were in fact four arrangements for the court to consider, unlike in the present case - including the total amounts of the advantages which the various parties obtained and their bargaining strength, and to ask whether a prudent adult, motivated by intelligent self-interest, would be likely to accept the proposal.
30. Mrs Hardy submits that the extension of the perpetuity period will be for the benefit of the minor beneficiaries. Extending the duration of the settlement will have the effect that they, and their issue, will be in a position to benefit from hopefully increasing trust assets throughout their lifetimes as the funds will be held in trust until 2141. At present, apart from the interests in possession in Henry’'s fund and in Jemima and Rose’'s funds, all of which are to be left undisturbed by the proposed variation, any entitlement that the minor beneficiaries have is as discretionary beneficiaries; and, in addition, the interests are subject to the exercise of wide general powers of appointment. It is of benefit to the beneficiaries for the assets within the settlement to continue to be held together for the benefit of the minor beneficiaries and their issue, and this may be more readily achievable if the assets continue to be held in the existing settlement.
31. Echoing observations of the Chancellor at paragraph 14 in DC v AC, Mrs Hardy submitted that the settlement in the present case is dynastic in character and that the settlor had in mind the preservation of the settlement assets. She also points out that the capital gains tax charge that would, on the current law, occur on the termination of the settlement would be delayed. Moreover, the existing interests in possession continue to benefit, unlike any future trust, from the inheritance tax-efficient interests position that predated the changes introduced by the Finance Act 2006. She also points to the fact that the uncertainties raised by Mr Venables in his opinion in relation to the validity of a number of past deeds of appointment will be removed. She submits that it is in the circumstances entirely proper for Mr Lawson to conclude, as the minors’' litigation friend, that the proposed extension of the perpetuity period of the settlement is for the benefit of those whom he represents. Likewise, the availability of a power to accumulate allows flexibility, and Mr Lawson is entitled to conclude that that too is for the benefit of the minor beneficiaries. The additional administrative powers are for the benefit of the minor beneficiaries as they provide a modern set of administrative provisions which are standard in modern trust drafting and equip the trustees with powers suitable for the extended perpetuity period.
32. In relation to Anthony and Richard’'s funds, on balance, bearing in mind the extent of the minor beneficiaries’' current interests, the scope for inheritance tax saving, the stated intentions of the trustees, and the guidance to which I have already referred from the Chancellor in the case of DC v AC, Mrs Hardy submits that Mr Lawson can properly consider the advantages of the proposed variation in respect of the spouses’' interests to outweigh the disadvantage of deferral and to be for the overall benefit of the minor beneficiaries. The proposed addition of reversionary life interests for the surviving spouses of Jemima, Rose and Henry is properly to be considered for their benefit.
33. So far as the substitution of discretionary trusts during the remainder of the extended trust period is concerned, the removal of the application of the Settled Land Act law is said to be beneficial. The Settled Land Act is complex and difficult to apply, and Settled Land Act settlements are becoming increasingly rare, with the number of practitioners familiar with this area of law diminishing over the years. The incorporation of the wider class is said to represent the present understanding of what constitutes a family, including civil partners and same-sex spouses and illegitimate issue, and it is legitimate to take into consideration family harmony in considering what is for the benefit of the minor beneficiaries. It may be directly for their benefit for such classes to be included in the future because they may themselves have illegitimate children, enter into civil partnerships or same-sex marriages, and they may wish their children or partners to benefit from the settlement.
34. For all of those reasons Mrs Hardy invites the court to exercise its powers to approve the arrangement in the form of the agreed draft order. For the reasons unanimously advanced by Mr Venables and Mrs Hardy, with the informed support of Mr Kessler and Mr Marre, I am entirely satisfied: (1) that it is for the benefit of the minor beneficiaries, the unascertained beneficiaries and the unborn potential beneficiaries for the court to approve this arrangement, and (2) that in the exercise of its discretion, the court should do so. This is not a case where there is any attempt to take advantage of any illegitimate form of tax avoidance or evasion. Insofar as fiscal considerations are relied upon, they properly fall on the side of legitimate tax mitigation. An important consideration in the present case is the precarious nature of the minor beneficiaries’' interests to the extent that they are going to be affected by the arrangement. In that sense, the position of the minor beneficiaries will be improved; and it cannot be said that there has been any loss of any legitimate or valuable bargaining counter or chip.
35. For all of those reasons I am satisfied that this is an appropriate case to approve the variation. That then leaves only the question of costs. For the claimant, Mr Venables proposes that the costs of and incidental to this application, including the costs of and incidental to the preparation and negation of the scheme of arrangement, should be paid out of the settlement on an indemnity basis and should be apportioned amongst the several funds comprised in the settlement according to their respective values at the operative date as estimated by the settlement trustees.
36. In his written skeleton argument Mr Venables apprehended that that costs order was likely to prove controversial at the hearing, and so has proved to be the case. Mr Kessler for the defendant trustees invited the court to order that the claimant should pay the costs of the application. He did so on the basis: (1) that he is the claimant who has promoted this variation; (2) he is the principal beneficiary of the settlement; (3) he has received substantial benefits from the trust, including those under a recent appointment to himself; (4) the claimant has liquid funds to pay the costs, which the trust funds do not; (5) he is the effective head of the family; and (6) he would apparently not be too upset if an order for costs were to be made against him personally. Mrs Hardy and Mr Marre for those whom they respectively represent supported the form of costs order proposed by Mr Kessler. Mr Venables indicated that if I were minded to make a costs order at all, he would wish to address me further before I did so.
37. In normal adversary litigation the court will normally order that costs follow the event although the court retains an overriding discretion as to costs. This of course is not normal adversary litigation. All of the parties are of one mind as to what the court should do. It cannot therefore be said that any party has succeeded or that any party has failed. Normal costs principles therefore do not seem to me to apply. It seems to me that there are really two alternatives. First, as Mr Venables invites the court to do, I can order that the costs of all parties come out of the estate, namely the settlement. The justification for that approach is that all parties recognise that this litigation has been for the benefit of the settlement and those interested in it, and therefore the costs should come out of the trust fund. The normal rule in trust proceedings is that the costs of the trustees come out of the trust fund. That of course does not necessarily apply to the adult consenting defendants or to the minor beneficiaries. The other approach would be to say that as the author of the proposed variation, the claimant should bear the costs of all parties. That is the order for which all counsel other than Mr Venables and his junior contend.
38. I have not found this a particularly easy matter. The claimant has had to bring this matter to court in order to secure the variation because the court needed to give its approval under the 1958 Act. Nevertheless, the claimant is the author of the variation. He is the principal beneficiary under the settlement, and he appears to be the only person with liquid funds available to pay the costs of this litigation. In those circumstances it is difficult to see why he should not bear the costs of this litigation. Therefore I am minded, at present, to make an order that the claimant pay the costs on the indemnity basis of all parties; but I am prepared to hear further submissions from Mr Venables if he wishes to advance any.