Abacus Trust Company (Isle of Man) Ltd and another v National Society for the Prevention of Cruelty to Children CHANCERY DIVISION [2001] STC 1344 HEARING-DATES: 10, 17 July 2001 17 July 2001 CATCHWORDS: Settlement -- Power of appointment -- Tax planning -- Tax planning scheme involving exclusion of certain beneficiaries from benefiting under settlement and subsequent exercise of power of appointment by trustee -- Trustee advised for fiscal reasons to exercise power of appointment after 5 April -- Trustee exercising power of appointment before 5 April by oversight -- Charge to capital gains tax arising -- Whether valid exercise of power -- Whether trustee comprehending legal effect of exercise of power under duty to consider fiscal consequences of exercise of power -- Whether trustee under duty to consider consequences of exercise of power for beneficiaries excluded prior to exercise of power of appointment. HEADNOTE: Abacus was the non-resident trustee of a settlement whose beneficiaries included the settlor and his wife, who were resident in the United Kingdom and held life interests in income, and various discretionary beneficiaries including their children and remoter issue and charities. The NSPCC was the default beneficiary. The trust assets included a loan note which would mature in July 1998 and which represented the proceeds of a course of dealing in shares held by the trustee. Abacus took advice on a suitable form of tax planning to avoid a charge to capital gains tax on the maturity of the loan note. Section 86 (Section 86, so far as material, provided: '(1) This section applies where the following conditions are fulfilled as regards a settlement in a particular year of assessment-(a) the settlement is a qualifying settlement in the year; (b) the trustees of the settlement fulfil the condition as to residence specified in subsection (2) below; (c) a person who is a settlor in relation to the settlement ("the settlor") is domiciled in the United Kingdom and is . . . resident in the United Kingdom during any part of the year . . .; (d) at any time during the year the settlor has an interest in the settlement; (e) by virtue of disposals of any of the settled property originating from the settlor, there is an amount on which the trustees would be chargeable to tax for the year . . .(2) The condition as to residence is that-(a) the trustees are not resident . . . in the United Kingdom during any part of the year . . .') of the Taxation of Chargeable Gains Act 1992 (the 1992 Act) provided that chargeable gains arising by virtue of any settled property originating from the settlor should be treated as accruing to the settlor in the year of assessment in which they arose if in that year the trustees were non-resident, the settlor was domiciled and resident and at any time during the year retained an interest in the settlement. The opinion of leading counsel was obtained who advised on a scheme which would establish new United Kingdom resident trusts; the trustee would then borrow a sum charged on the trust assets, appoint that sum to the new settlements and exercise its power under the original trust to exclude the settlor and his wife as beneficiaries. Provided these steps were completed by 5 April 1998, s 86 would not apply to the gain on the maturity of the loan note. The funds released on maturity would repay the loan and the balance would be available for distribution to the NSPCC to wind up the trust. Counsel's advice warned that in no circumstances should there be a disposal of the loan note or the shares in the same year as the settlor and his family continued to be beneficiaries. The creation of the new trusts and the exercise of the power of exclusion had to take place before 6 April 1998 and the appointment to charity had to take place after that date. The appointments in favour of the new trusts and the exercise of the trustee's power of exclusion in respect of the settlor and his family duly took place. However, by an oversight, the deed of appointment in favour of the NSPCC was executed by the trustee on 3 April 1998, giving rise to a deemed disposal of the entire trust fund and producing a liability upon the settlor for capital gains tax of some £1.2m. Paragraph 6(2) (Paragraph 6, so far as material, is set out at [11], post.) of Sch 5 to the 1992 Act provided that the settlor was entitled to recover the amount of tax from the trustee. The trustee and the protector of the trust applied to the court for a declaration that the deed of appointment in favour of the NSPCC was void ab initio for failure by the trustee to take into account the interests of the beneficiaries and the consequences of its decision. The NSPCC contended that an appointment could not be avoided for failure of the trustee to take into account the fiscal consequences of its decision and that, the settlor and family having been excluded as beneficiaries, the trustee was no longer required to consider their interests in making the appointment in favour of the NSPCC. Held - (1) Trustees, when exercising powers of appointment were bound to have regard to the fiscal consequences of their action and where it could be demonstrated that a proper consideration of those matters would have led to the appointment not going ahead the court was entitled to and should treat that as an invalid exercise of power in the sense of it being void ab initio. The financial consequences for the beneficiaries of any intended exercise of a fiduciary power could not be assessed without reference to their fiscal implications. Therefore if the effect of an intended appointment was likely to be to expose the fund or its beneficiaries to a significant charge to tax that was something which the trustees had an obligation to consider when deciding whether it was proper to proceed with the appointment. Once relevance was established then a failure to take those matters into account had to vitiate the exercise of the power unless it was clear that on a proper consideration of all relevant matters the decision would still have been the same. In the instant case it was clear that the appointment made on 3 April would not have gone ahead if proper consideration had been given to the advice of leading counsel. Dicta of Buckley J in Hastings-Bass (decd), Re, Hastings v IRC [1974] STC 211 at 220-221, of Warber J in Mettoy Pension Trustees Ltd v Evans [1990] 1 WLR 1587 at 1624 and 1625 and of Jonathan Parker J in Green v Cobham (19 January 2000, unreported) applied. (2) It was unrealistic to divorce the appointment in favour of the NSPCC from the earlier steps outlined as part of the tax saving scheme. The appointment was not a necessary part of that scheme but if carried out at the wrong time it was capable of destroying the very benefit the scheme was intended to confer. In those circumstances the trustee was obliged to ensure that in making the disposition in favour of the NSPCC it did not nullify the financial and fiscal effect of the earlier dispositions made at a time when it undoubtedly did owe a fiduciary duty to the settlor and other beneficiaries. To that extent and for that reason the fiscal consequences of the appointment in favour of the NSPCC upon the earlier arrangements were a relevant consideration for the trustee to take into account in exercising its power in favour of the charity. Furthermore, the interests of the groups of beneficiaries who remained after the exercise of the power of exclusion on 3 April, although those beneficiaries were as yet unborn, were not so remote as to be of no consequence to the trustee in deciding whether steps should be taken which had the consequence of removing some £1.2m of family wealth out of the hands of the settlor. Moreover, no trustee when considering the timing of the deed of appointment could properly fail to take into account that the liability to tax created by s 86 and the right of recovery provided to the settlor under Sch 5 might well extinguish any benefit in the gift to the charity. Accordingly, the trustee failed to take relevant matters into account when considering whether to execute the deed of appointment in favour of the NSPCC which was made on 3 April 1998 and given that that the appointment would not have been made had the advice been taken into account it followed that the exercise of the power of appointment was invalid and of no effect. The declarations sought by the trustee and the protector would therefore be made. NOTES: For the exercise of powers by trustees, see 48 Halsbury's Laws (4th edn reissue) para 865. CASES-REF-TO: Green v Cobham (19 January 2000, unreported), Ch D. Hastings-Bass (decd), Re, Hastings v IRC [1974] STC 211, [1975] Ch 25, [1974] 2 All ER 193, 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 433, HL. Cases referred to in skeleton arguments AMP (UK) Ltd plc v Barker (2000) 3 ITELR 414. Breadner v Granville-Grossman [2001] Ch 523, [2000] 4 All ER 705. Gibbon v Mitchell [1990] 1 WLR 1304, [1990] 3 All ER 338. Stannard v Fisons Pension Trust Ltd [1992] IRLR 27, CA. INTRODUCTION: Application Abacus Trustee Co (Isle of Man) Ltd and Colyb Ltd (the claimants), the trustee and protector of a settlement made by deed dated 15 October 1991, made claim for a declaration that a deed of appointment executed on 3 April 1998 in favour of the National Society for the Prevention of Cruelty to Children (the NSPCC) was void ab initio in that the trustee had invalidly exercised its power of appointment in not having taken relevant matters into account in the form of the advice from leading counsel as to the date when the deed of appointment should be executed. COUNSEL: Nicholas Warren QC for the claimants; Thomas Dumont for the NSPCC. JUDGMENT-READ: Cur adv vult PANEL: PATTEN J JUDGMENTBY-1: PATTEN J JUDGMENT-1: PATTEN J: Introduction [1] This is a claim by Abacus Trustee Co (Isle of Man) Ltd (Abacus) and Colyb Ltd (the claimants), who are respectively the trustee and protector of a settlement made by deed dated 15 October 1991, for a declaration that a deed of appointment executed on 3 April 1998 in favour of the National Society for the Prevention of Cruelty to Children (NSPCC) is void ab initio. It is said that in making the appointment the claimants and each of them by their directors failed to have regard to the advice of leading counsel (Mr Nicholas Warren QC) that the appointment should not be made before 6 April 1998 and that the consequence of making the appointment before that date would be to give rise to a deemed disposal by Abacus of the entire trust fund and a liability to capital gains tax on the settlor, Mr Christopher John Oakley, by virtue of the provisions of s 86 of the Taxation of Chargeable Gains Act 1992 (the 1992 Act). [2] Although the immediate effect of the declaration sought will be to deprive the NSPCC of the benefit of the appointment which in the circumstances that I shall describe amounts to the sum of £1,000, the real purpose of these proceedings is to avoid the charge to capital gains tax created by the appointment. This is estimated to be in the region of £1.2m. The Revenue were invited by the claimants to agree that the deed of appointment should be treated as null and void for all purposes of United Kingdom tax but they have declined to give any such undertaking. They have also refused to agree to be bound by the decision of this court on this claim or to be joined as parties for the purposes of making any submissions. In these circumstances I have not had the benefit of any argument by counsel instructed by the Revenue but I am satisfied that Mr Warren for the claimants and Mr Dumont for the NSPCC have put before the court all the matters that are relevant and necessary for a proper decision in this case. The purpose of the appointment [3] The settlement (commonly referred to as the Jaylands Trust) was established by Mr Oakley as settlor at the time when he was involved in a management buyout of Ingersol Publications Ltd (IPL), a United Kingdom company which published a number of newspapers and other publications in the Midlands and other parts of the country. Mr Oakley, who has at all material times been both resident and ordinarily resident and domiciled in the United Kingdom for the purposes of United Kingdom capital gains tax, was a director and senior manager of IPL. With the support of various institutions including venture capitalists he together with some other managers in the company decided in late 1991 to participate in a management buyout of IPL. As part of these arrangements a new company called Demiblend Ltd (Demiblend) was used to acquire the issued share capital of IPL. At the same time Mr Oakley established the Jaylands Trust and provided out of his own resources the sum of £90 to Abacus as the initial capital of the settlement. On 18 October 1991 Abacus, through a nominee company, C & L Nominees Ltd, established in the Isle of Man a company limited by guarantee called Jaylands Investments Ltd (JIL). Abacus then paid to JIL the sum of £90 provided by the settlor and JIL, with Mr Oakley's agreement then subscribed for 900 10p shares (later subdivided into 9,000 1p shares) in Demiblend. The remaining shares in Demiblend were acquired by the other investors with the result that JIL came to own 15% of the management ordinary equity of Demiblend and 1.3% of the entire ordinary equity of the company. Demiblend then acquired the entire issued share capital of IPL from its various shareholders and changed the name of that company to Midland Independent Newspapers Ltd (MIN). [4] In March 1994 MIN obtained a listing on the London Stock Exchange and as a result of this flotation the value of the trustee's interest in JIL increased significantly in value. The next significant event occurred in July 1997. Mirror Group plc made a public offer for the entire issued share capital of MIN and as part of this JIL accepted a loan note issued on 28 November 1997 by Mirror Group plc in the amount of £2.7m in consideration for the transfer of its shares in MIN. The loan note had a maturity date of 15 July 1998 and for purposes of capital gains tax a disposal would occur when the loan note was redeemed or on an earlier sale. [5] The beneficiaries of the Jaylands Trust included the settlor and his wife together with various discretionary beneficiaries such as their children and remoter issue and the spouses, former spouses, widows and widowers of these persons. Also included within the class of discretionary objects was any charity within the meaning of what was then s 45(1) of the Charities Act 1960. The settlement created life interests in income in favour of the settlor and his wife. After their death the income was to be held on discretionary trusts for the benefit of the specified class of discretionary objects subject to a gift over of capital and income upon trust for the settlor's great-grandchildren then living and in default upon trust for the NSPCC at the conclusion of the trust period which was defined as a period of 80 years commencing with the date of the settlement. By cl 3 of the deed of settlement the trustees were given an overriding power of appointment exercisable during the trust period with the consent of the protector for the benefit of any one or more of the discretionary objects so defined. The settlement also contained an express power enabling the trustees to exclude any individual or corporate body from benefit under the settlement. [6] In February 1998 Abacus instructed Mr Paul Jenkins of Browne Jacobson, solicitors, to advise upon a suitable form of tax planning to deal with the imminent charge to capital gains tax that would arise when the loan note matured later that year. The trustees who were neither resident nor ordinarily resident within the United Kingdom in the relevant year of assessment were not liable to capital gains tax in respect of the chargeable gains accruing during that year. However any gains which accrued in the relevant year of assessment were treated by s 87(4) of the 1992 Act as accruing to the beneficiaries of the settlement who received capital payments from the trustees in that year or in any earlier year. This regime was amended by what is now s 86 of the 1992 Act which provides that in the case of a qualifying settlement (i e a settlement created on or after 19 March 1991: see para 9(1) of Sch 5 to the 1992 Act) chargeable gains arising by virtue of disposals of any settled property originating from the settlor shall be treated as accruing to the settlor in the year of assessment in which they arise if in that same year the trustees are not resident or ordinarily resident in the United Kingdom during any part of the year, the settlor is domiciled and is either resident or ordinarily resident in the United Kingdom during any part of the year and at any time during the year the settlor retains an interest in the settlement. [7] As of February 1998 the residence requirements in relation to both the settlor and the trustees were fulfilled and the settlor did retain an interest in the settlement both on account of his own life interest and also on account of the interests conferred upon his spouse, his children and the spouses of any such children (see para 2 of Sch 5 to the 1992 Act). If therefore nothing was done, Mr Oakley would become liable to capital gains tax on the gains which would crystallise when the loan note matured on 15 July 1998. [8] Mr Jenkins therefore proposed to adopt a form of tax planning which I am told is known as a 'flip flop' scheme. The essential elements in this were that two new United Kingdom resident settlements would be established to mirror the 85/15 division of funds within the Jaylands Trust that was created by an earlier appointment made on 29 October 1991. Nothing turns on this division for present purposes. The beneficiaries under the two new trusts would be the settlor and his wife together with other members of their family. Abacus would then borrow a sum of money from Coutts Bank charged on the shares in JIL which would correspond to the value of the trust assets. These moneys would then be appointed on an 85/15 basis to the two new settlements thereby removing any value from the existing trust fund. Abacus would also exercise its powers under the Jaylands Trust to exclude as beneficiaries the settlor and his wife together with any other persons falling within the categories of defined persons specified in para 2(3) of Sch 5 to the 1992 Act. Provided that these steps were completed by 5 April 1998, s 86 of the 1992 Act would not apply to the gain that would accrue upon the maturity of the loan note in July 1998. Funds released on that occasion could then be used to repay the loan from Coutts Bank. The balance after payment of any costs would be available for distribution to the remaining beneficiary in the form of the NSPCC or some other charity. There would be no capital payment from the settlement out of the proceeds of the loan note so as to attract a charge upon the beneficiaries under s 87 and the earlier transfer to the new trusts of the moneys borrowed from Coutts would not itself create any chargeable gain. Mr Warren advised in consultation that the scheme I have just outlined was likely to be effective to avoid a charge to capital gains tax on the part of Mr Oakley arising from the redemption of the loan note. But as part of that advice he gave a clear warning that under no circumstances should there be either a disposal of the loan note or the shares in JIL in the same year that Mr Oakley and his family continued to be beneficiaries under the Jaylands Trust. To achieve this two things were necessary. The creation of the two new trusts and the exercise of the power of exclusion had to take place before 6 April 1998 and any appointment of the JIL shares to charity had to occur after that date. The execution of the deed of appointment [9] The consultation with Mr Warren was attended by Mr Stewart Fleming, one of the directors of Abacus, who also received a note settled by counsel of the advice which was given on that occasion. Mr Jenkins of Browne Jacobson then proceeded to prepare drafts of the necessary trustee resolutions together with the various deeds of appointment. On 25 March 1998 Mr Jenkins sent to Mr Fleming the resolutions appropriating the moneys borrowed from Coutts to the two Jaylands Trust settled funds together with drafts of the two deeds appointing those moneys to the trusts of the two new settlements. He also enclosed an appropriate form of resolution to exercise the power of exclusion in respect of Mr Oakley and his family as beneficiaries under the Jaylands Trust. On 1 April 1998 Mr Jenkins faxed a draft of the deed of appointment in favour of the NSPCC which has given rise to the difficulties in this case. In a covering letter to Mr Fleming and Abacus, Mr Jenkins suggested that this deed of appointment 'be executed on Friday' which was 3 April 1998. In his witness statement Mr Fleming said about the receipt of this fax: 'I did not refer to the note of the consultation with Nicholas Warren Q.C. when I read this fax. I most probably mistakenly assumed that as the suggested appointment would not result in a disposal of the Loan Note, that there was nothing to be concerned about. In making this assumption, I was of course forgetting that the suggested appointment would result in a deemed disposal of JIL, which as I now appreciate has broadly the same tax result. As appears below in accordance with Paul Jenkins' advice, the deed was executed on 3rd April 1998. Over the years I have come to value and respect the advice of Paul Jenkins and I simply followed Paul Jerkins' advice without questioning it, particularly as I knew he had taken the advice of leading counsel.' Later in the same witness statement he says: 'I do not have a clear recollection about the actual execution of the April 1998 deed or of what was in my mind at the time. However I must have thought that we were executing the deed in the correct tax year in order for the Parallel Trust Planning to be effective. I must have failed to realise that the execution of the deed gave rise to a deemed disposal of JIL, resulting in gains of approximately £3m being attributed to the settlor; otherwise I would not have signed the deed. I have been told by my fellow signatories, Roger Breadner and Stephen Moorhouse, and believe that they would not have signed had they not also been in the same belief.' Evidence in the form of witness statements from Mr Breadner and Mr Moorhouse was placed before me which confirms what Mr Fleming has said. [10] Part of the confusion which seems to have affected Mr Fleming and the other directors stemmed from a failure to distinguish between the gains that would accrue on the maturity of the loan note and those that would arise on a deemed disposal of the trust fund comprising the shares in JIL in the event of an appointment in favour of charity, such as the NSPCC, which would then become absolutely entitled as against the trustee to that settled property within the meaning of s 71(1) of the 1992 Act. The gift to the NSPCC was intended to provide a convenient method of winding up the Jaylands Trust once the value of its assets had been extracted via the Coutts loan and paid to the two new settlements and those liabilities had been repaid via the proceeds available on redemption of the loan note. But at any time prior to the 15 July 1998 the JIL shares had real value equivalent at least to the amount payable under the loan note on redemption. The charge to capital gains tax which would arise on a deemed disposal fell to be calculated without reference to the charge in favour of Coutts Bank which merely secured a personal liability of the trustees upon the market value of the shares. Paradoxically in the circumstances which happened the making of the gift to the NSPCC on 3 April 1998 which was intended as a final piece of tidying up operated so as to undermine the entirety of the scheme. Its timing meant that the conditions specified in s 86 were satisfied for the year ended 5 April 1998 with the result that Mr Oakley has become liable to capital gains tax in a sum of approximately £1.2m calculated upon a chargeable gain of approximately £3m. Although the appointment in question was made in favour of charity it is at the very least strongly arguable and in my view probably right to suppose that the exemption granted by s 257 of the 1992 Act does not apply so as to exclude the charge. This is because by virtue of s 257(3) the deemed disposal and re-acquisition so as to secure neither a gain nor a loss which forms the basis of exemption only applies where 'no consideration is received by any person for or in connection with any transaction by virtue of which the charity or other body becomes so entitled'. It must be strongly arguable that the transaction referred to in s 257(3) would encompass the so called 'flip flop' scheme as a whole. If that is right then consideration was provided in at least three possible ways; (i) in the form of the bank loan from Coutts; (ii) in the form of the obligation of the trustees to repay the Coutts loan; (iii) by the transfer of cash borrowed from Coutts in order to fund the two new settlements. No trustee properly advised could have executed the 3 April appointment on the basis that s 257 was likely to prevent a charge arising under s 71(1) and therefore a liability to tax on the part of the settlor under s 86. [11] Although the effect of s 86 is to impose the charge to tax upon the United Kingdom resident settlor and therefore obviate any difficulties about recovering the tax against non-resident trustees, the operation of s 86 does have consequences for non-resident trustees such as Abacus. Paragraph 6(2) of Sch 5 to the 1992 Act provides that the settlor shall 'be entitled to recover the amount of the tax from any person who is a trustee of the settlement.' Although there may be obvious jurisdictional difficulties about the enforcement of this right of recovery against trustees in the Isle of Man it is not open to me on the material before the court to conclude that no right of recovery is possible. And if recovery is possible by this means Abacus would have a right of recourse against any remaining trust assets in their possession which would in effect nullify the gift to the NSPCC. The making of the appointment on 3 April was therefore ill-advised and a breach of duty on the part of Abacus even if the only interests which it had to consider were those of charity. The validity of the appointment [12] I am satisfied from the evidence before me that had Mr Fleming and his co-directors properly considered and applied the advice of Mr Warren which had been supplied to them for the purposes of the scheme and which in my judgment they were bound to consider when deciding whether and when to execute the deed of appointment in favour of the NSPCC then that appointment would not have been made before 6 April 1998. It is clear as I have already indicated that the decision to execute the deed on 3 April resulted from a failure to follow the advice given to the trustees by Mr Warren. Had the trustees applied their minds to that advice at the relevant time the deed of appointment would not have been executed on that day. [13] In these circumstances I am invited to apply to the making of this appointment what has come to be known as the principle in Re Hastings-Bass (decd), Hastings v IRC [1974] STC 211, [1975] Ch 25. In that case the Court of Appeal declined to set aside the exercise of a statutory power of advancement under s 32 of the Trustee Act 1925 in the form of a transfer of funds between two family settlements. This had the effect of creating an indefeasible life interest in possession in the funds transferred and so of avoiding estate duty on those moneys on the death of the settlor. Unfortunately as a result of the decision of the House of Lords in Pilkington v IRC [1964] AC 612, 40 TC 433 it was held that a power of advancement was a special power with the effect that any trusts created by its exercise had to be considered by reference to the instrument creating the power for the purposes of applying the rule against perpetuities. This had the consequence that all the beneficial interests created by the appointment apart from the immediate life interest were void for perpetuity. The Revenue contended successfully before the judge at first instance but unsuccessfully in the Court of Appeal that the statutory power of advancement conferred a fiduciary discretion which could only properly be exercised after giving due consideration to all relevant factors including the benefit to be conferred upon the person in whose favour the funds were advanced. Since the trustees had not taken into account that all the beneficial interests apart from the life interest would be of no effect they had not properly applied their minds to the terms upon which they were in fact exercising the power. In these circumstances that exercise was invalid. Buckley LJ (in giving the judgment of the court) dealt with that submission in this way ([1974] STC 211 at 220-221, [1975] Ch 25 at 40-41): 'Where trustees intend to make an advancement by way of sub-settlement, they must no doubt genuinely apply their minds to the question whether the sub-settlement as a whole will operate for the benefit of the person advanced; but this does not, we think, involve regarding this benefit as a benefit of a monolithic character. It is, in our opinion, more naturally and logically to be regarded as a bundle of benefits of distinct characters. Each and all of those benefits is conferred, or is intended to be conferred, by a single exercise of the discretion under s 32. If by operation of law one or more of those benefits cannot take effect, it does not seem to us to follow that those which survive should not be regarded as having been brought into being by an exercise of the discretion. If the resultant effect of the intended advancement were such that it could not reasonably be regarded as being beneficial to the person intended to be advanced, the advancement could not stand, for it would not be within the powers of the trustees under s 32. In any other case, however, the advancement should, in our judgment, be permitted to take effect in the manner and to the extent that it is capable of doing so.' A little later ([1974] STC 211 at 221, [1975] Ch 25 at 41) he set out the test for determining the validity of the exercise of a discretion in the following terms: '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 upon 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.' This is the principle which Mr Warren invites me to apply in the present case. [14] In Re Hastings-Bass that test was not satisfied. The main purpose of the appointment was to create a life interest in the transferred funds so as to avoid estate duty. The ancillary trusts and powers created by the deed were of minimal importance compared to that. Had the trustees been advised that the appointment was ineffective other than to create the life interest they would doubtless have substituted other interests in remainder which would not have infringed the rule against perpetuity. But what they would not have done was to have altered the grant of the life interest in favour of the main beneficiary which was essential to the success of the scheme. [15] In Mettoy Pension Trustees Ltd v Evans [1990] 1 WLR 1587 Warner J had to consider the decision in Re Hastings-Bass in relation to a deed of appointment of trustees under a pension scheme. After a thorough consideration of the relevant authorities Warner J said ([1990] 1 WLR 1587 at 1624): 'I have come to the conclusion that there is a principle which may be labelled "the rule in Hastings-Bass". I do not think that the application of that principle is confined, as Mr Nugee suggested, to cases where an exercise by trustees of a discretion vested in them is partially ineffective because of some rule of law or because of some limit on their discretion which they overlooked. If, as I believe, the reason for the application of the principle is the failure by the trustees to take into account considerations that they ought to have taken into account, it cannot matter whether that failure is due to their having overlooked (or to their legal advisers having overlooked) some relevant rule of law or limit on their discretion, or is due to some other cause.' It seems to me clear from that statement of principle that the factors which, if overlooked, may vitiate the exercise of the power are not limited to the legal effect or consequences of the exercise of the power in question. A little later in his judgment ([1990] 1 WLR 1587 at 1625) Warner J set out the questions which have to be answered as follows: 'In a case such as this, where it is claimed that the rule in Hastings-Bass applies, three questions arise: (1) What were the trustees under a duty to consider? (2) Did they fail to consider it? (3) If so, what would they have done if they had considered it?' It is the first of those questions which has led to the real argument before me in this case. There is no doubt that the trustees correctly understood what the legal effect would be of executing the appointment in favour of the NSPCC. What they failed to take into account were the fiscal consequences of making the appointment on 3 April 1998. Mr Dumont on behalf of the NSPCC raises two issues in relation to that. First of all he questions whether and to what extent a trustee who misjudges the fiscal consequences of his act but otherwise properly comprehends the legal effect of the transaction can thereafter, upon discovering his mistake, resort to the Hastings-Bass principle in order to avoid the charge of tax which has occurred. Secondly, he says, even if the fiscal consequences of the exercise of the power are a proper matter for the trustee to take into account at the relevant time that is only the case when those consequences have a direct effect upon the beneficiaries who are the objects of the exercise of the power or at least retain an interest under the settlement generally and are adversely affected by the charge to tax which ensues. In this way he seeks to distinguish from the case I have to consider a recent decision of Jonathan Parker J in Green v Cobham (19 January 2000, unreported) in which non-resident trustees decided to distribute some retained profits by various appointments under a will trust in favour of the testator's grandchildren. Following the execution of the deed of appointment which created two accumulation and maintenance settlements in addition to the subsisting will trust there were ten trustees who by virtue of s 69(1) of the 1992 Act fell to be treated as a single and continuing body of persons for the purposes of determining the residence of the trust. Of these ten trustees six were to be treated as non-resident and the remaining four as resident. The will trust therefore remained a non-resident settlement for capital gains tax purposes. The appointments were made on 12 November 1990. In October that year one of the non-resident trustees had made known to the trustees of the will trust his intention to retire from practice with the consequence that he would cease to be treated as a non-resident for capital gains tax purposes. He in fact retired from practice on 31 December 1990 although continuing as a trustee under the 1990 deed of appointment. The effect therefore of his retirement was to terminate the non-resident status not only of the trust created by the deed of appointment but also of the will trust itself. The capital gains consequences of this were described by the learned judge as catastrophic. The evidence was that the accrued gains amounted to some £35m. A challenge was therefore made to the validity of the 1990 deed of appointment on the grounds that the trustees of the will trust failed to give any proper thought to the capital gains tax consequences of those dispositions in particular in relation to the choice of trustees given the provisions of s 69(1) which I have referred to and to the impending retirement of one of the trustees from practice. Had those matters been fully appreciated and taken into account the 1990 deed of appointment would not have been executed in that form. Jonathan Parker J accepted those submissions. After considering the judgment of the Court of Appeal in Re Hastings-Bass and the authorities which followed, the learned judge summarised the position in these terms: '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 it 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 Hastings-Bass principle 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 entirety.' [16] That decision is clear authority that trustees, when exercising powers of appointment, are bound to have regard to the fiscal consequences of their actions and that where it can be demonstrated that a proper consideration of these matters would have led to the appointment not going ahead the court is entitled to and should treat that as an invalid exercise of power in the sense of it being void ab initio. Although the time may yet come when the limits of the Hastings-Bass principle fall to be determined by some higher court I can see no reason on the authorities as they stand for not following the decision of Jonathan Parker J in Green v Cobham. The financial consequences for the beneficiaries of any intended exercise of a fiduciary power cannot be assessed without reference to their fiscal implications. The two seem to me inseparable. Therefore if the effect of an intended appointment is likely to be to expose the fund or its beneficiaries to a significant charge to tax that is something which the trustees have an obligation to consider when deciding whether it is proper to proceed with the appointment. Once relevance is established then a failure to take those matters into account must vitiate the exercise of the power unless (as in Hastings-Bass itself) it is clear that on a proper consideration of all relevant matters the decision would still have been the same. [17] In the present case it is clear from the evidence to which I have referred that the appointment made on 3 April 1998 would not have gone ahead if proper consideration had been given to Mr Warren's advice. That leaves me to deal with Mr Dumont's real point which is that on the facts of this case liability to capital gains tax on the part of the settlor, which was the consequence of the appointment, was not a matter properly relevant to the decision to make the appointment on 3 April. That submission is based on the fact that on the very same day Mr Oakley and the other members of his family were excluded as beneficiaries of the Jaylands Trust and therefore it is said ceased to be proper objects of the trustee's concern when subsequently deciding to make the gift in favour of the NSPCC. Although Mr Dumont was right to bring those matters to my attention I cannot accept that submission. It seems to me completely unrealistic to divorce the appointment in favour of the NSPCC from the earlier steps outlined in Mr Warren's advice as part of the tax saving scheme. The appointments out in favour of the two new family settlements made on 1 April and the exclusion of the Oakley family on 3 April were made so as to avoid the charge to capital gains tax which would otherwise arise in July 1998 upon redemption of the loan note with the consequent liability to tax on Mr Oakley. At the time that those steps were taken and in exercising the powers to put that part of the scheme into effect there can be no argument but that the trustees were bound to consider the interests of Mr Oakley and the other members of his family and in particular the fiscal consequences for them of not carrying out those steps until after 6 April 1998. For the reasons which I have already explained the appointment in favour of the NSPCC was not a necessary part of that tax saving scheme. But if carried out at the wrong time it was capable of destroying the very benefit which the scheme was intended to confer. In those circumstances, although the trustees were not making an appointment in favour of Mr Oakley or any member of his family, they were none the less obliged to ensure that in making the disposition in favour of the NSPCC they did not nullify the financial and fiscal effect of the earlier dispositions made at a time when they undoubtedly did owe a fiduciary duty to the settlor and the other family beneficiaries. To that extent and for that reason the fiscal consequences of the appointment in favour of the NSPCC upon the earlier arrangements was a relevant consideration for them to take into account in exercising their power in favour of the charity. [18] What is more, Mr Dumont's argument also overlooks the adverse consequences of the appointment upon two groups of beneficiaries under the Jaylands Trust who remained after the exercise of the power of exclusion on 3 April. Mr Oakley's grandchildren and remoter issue remain beneficiaries under that trust. Although as yet unborn their interests are not in my judgment so remote as to be of no consequence to the trustees in deciding whether steps should be taken which had the consequence of removing some £1.2m of family wealth out of the hands of the settlor. Secondly and perhaps even more pertinently given the fact that the disputed appointment was made in favour of the NSPCC the liability to tax created by s 86 and the right of recovery provided to the settlor under Sch 5 could well extinguish any benefit in the gift to the charity. No trustee when considering the timing of the deed of appointment could properly fail to take these matters into account. Mr Dumont accepted there was absolutely no disadvantage for the charity in postponing the making of the appointment until after 6 April and every advantage in so doing. Conclusions [19] In these circumstances and for these reasons I am satisfied that Abacus through its directors, failed to take relevant matters into account in the form of Mr Warren's advice when considering whether to execute the deed of appointment in favour of the NSPCC which was made on 3 April 1998. Since that was highly material to their decision for the reasons which I have explained and given that the appointment would not have been made had the advice been taken into account it follows that the exercise of the power of appointment made on that day was invalid and of no effect. I shall therefore make the declarations sought by the claimants in this action. DISPOSITION: Order accordingly. SOLICITORS: Charles Russell; Hempsons.