Swan & Ors v Gibbs & Ors

Factual and Procedural Background

The court considered two applications under the Variation of Trusts Act 1958 relating to the trusts of two family wills: the "Baronetcy Trust" and the "Lady Cayzer Will Trust." The applications concerned proposed variations to the trusts involving the removal of contingent future absolute interests and their replacement with life interests, alongside extending the perpetuity periods to 125 years and widening trustees' administrative powers. The applications were heard remotely on 23 April 2020, with additional trust documents and submissions provided subsequently.

There are multiple trustees involved, including the First and Second Claimants and several Defendants, with the primary beneficiaries being an adult beneficiary ("James") and his two adult daughters ("Mollie" and "Lily"), who are Defendants in the proceedings. The applications aim to vary the trusts to extend perpetuity periods, adjust beneficiary interests, and enhance trustees' powers, with consideration given to unborn and unascertained beneficiaries by a designated Defendant and counsel.

The trusts originate from wills and prior deeds dating back to 1943 and 2002, with complex provisions regarding interests in possession, contingent absolute interests, and powers of appointment. The proposed variations seek to remove certain contingent absolute interests of current principal beneficiaries and future possible beneficiaries, replacing them with life interests, while preserving the overall trust structure and extending administrative powers.

Legal Issues Presented

1. Whether the removal of contingent future absolute interests and their replacement with life interests constitute a variation of trusts within the jurisdiction of the Variation of Trusts Act 1958, rather than a resettlement for trust or tax purposes.
2. Whether the proposed arrangements, including the extension of perpetuity periods and increased administrative powers, are for the benefit of the beneficiaries, including unborn and unascertained beneficiaries.
3. Whether the proposed variations create a new settlement for taxation purposes, particularly regarding capital gains tax.
4. The extent of the court's discretion to approve the proposed variations and any conditions to be imposed on trustees' exercise of new administrative powers.

Arguments of the Parties

Claimants' Arguments

• The proposed variations extend the perpetuity periods to 125 years, allowing the trusts to continue longer without automatic vesting.
• Replacing contingent absolute interests with life interests benefits the beneficiaries by accelerating or enhancing their interests.
• The removal of contingent absolute interests of current beneficiaries and future possible beneficiaries is balanced by the flexibility and advantages of extended perpetuity and administrative powers.
• The arrangement does not amount to a resettlement but is a variation within the scope of the 1958 Act, supported by precedent cases.
• Taxation benefits arise from deferring absolute vesting, preserving family shareholdings, and avoiding disposals outside the family.
• The trustees will retain their roles, and the existing trust structures remain largely intact.
• Additional administrative powers sought will be exercised with appropriate professional advice and only if expedient for the trust as a whole.

Defendants' and Other Parties' Positions

• The First Defendant acts as a protector of unborn and unascertained beneficiaries, supporting the variation as beneficial to those beneficiaries with counsel's opinion provided.
• There is no detailed adversarial argument presented in the opinion from other Defendants, but the principal beneficiaries Mollie and Lily consent to the arrangements.

Table of Precedents Cited

Court's Reasoning and Analysis

The court carefully examined the nature of the proposed variations in the context of the existing trust structures and relevant legal principles. It considered whether the removal of contingent absolute interests and their substitution with life interests, alongside extending perpetuity periods and expanding trustees' administrative powers, constituted a permissible variation or an impermissible resettlement under the Variation of Trusts Act 1958.

The court noted that the existing trustees remain unchanged, the trusts largely retain their original structure, and administrative provisions remain consistent with prior arrangements. The court relied on established authorities, particularly Roome v Edwards and Wyndham v Baroness Egremont, to conclude that the proposed changes constitute variations rather than resettlements.

Special attention was given to the interests of unborn and unascertained beneficiaries, with the court accepting expert opinion that the variations would benefit them. The court also addressed tax implications, accepting submissions and authorities that the variations would not create new settlements for capital gains tax purposes.

Regarding the Lady Cayzer Will Trust, the court considered the nature of the 2002 Advancement Deed and concluded it did not create a new settlement, thus the proposed variation is consistent with that foundation.

Finally, the court imposed a condition on the trustees' power to add administrative powers, requiring professional advice and a determination of expediency before exercising any such added powers, reflecting concerns raised in prior cases.

Holding and Implications

The court APPROVED the proposed variations to the Baronetcy Trust and the Lady Cayzer Will Trust, subject to a condition requiring trustees to seek professional advice and confirm expediency before exercising any newly added administrative powers.

The decision permits the trusts to be varied by removing contingent absolute interests in favor of life interests, extending perpetuity periods to 125 years, and enhancing trustees’ powers, while preserving the existing trust structures and avoiding the creation of new settlements for trust or tax purposes.

The direct effect is to enable the trusts to continue with greater flexibility and potential tax benefits, safeguarding family assets and accommodating current and future beneficiaries. The court did not establish new legal precedent but applied established principles to the facts before it.