Rule Against Perpetuities Cases

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Air Jamaica v Charlton [1999] 1 WLR 1399

Facts: This was a case of a pension fund which provided a pension for Air Jamaica employees on retirement and for their widow and designated beneficiaries after death.

  • Employees when they joined the company joined the pension scheme and money was automatically taken out of their pay packages and put into the pension pot. Their employer, Air Jamaica, also made contributions to the pension pot too. When the employees retired the accumulated pension pot was used to proved benefits for the employee until they died, and then the benefits of the pension go to the widow until the end of their widow’s life
  • So the widow was a beneficiary of the trust and that offended the rule against perpetuity because, as the Privy Council found...

Held: The Privy Council held that each employee’s pension fund was a separate trust, established at the time that the employee joined the scheme. The power to provide benefits to widows offended against the rule against perpetuities, as it was possible for a person to marry, after the constitution of the trust, a person who had not been alive at the date of constitution.

So the Privy Council held each employee’s pension fund was a separate trust that had to comply with the rule against perpetuities

The trouble was that the power to provide benefits for a life time to the employer as well as to the widow until her death offended the rule against perpetuities because it was possible for a person to marry, after the trust had been formed, a person who was not a life in being at date trust was constituted

  • I.e. if the employer and his wife are both alive when the trust is created they are “lives in being”, and therefore the trust would be valid because the trust would only last for the remainder of their lives
  • However, if the employer is 18 when he signs the trust he will become the life in being; if his future wife is not born yet then the employer will become the life in being; the wife, who he marries later, will therefore NOT be a life in being
  • As the trust in this case is meant to be valid until the death of the widow (who is a beneficiary), it would only be possible for the trust to be valid if the widow died within 21 years of her husband’s death → remember, the rule against perpetuities would mean that the trust would have to end within a life in being plus 21 years

So because it was possible an employee could have constituted the trust before his future wife was even born (and therefore would not be a life in being), the only way the trust could be valid is if she died within 21 years of the employer’s death; as it was a possibility a widow could live longer than that, that would invalidate the trust

As a result, Lord Millett said that every single pension fund under the scheme was invalid because under the old rule pre-1964 the mere possibility was sufficient to invalidate a trust

  • Just before the change in the law the following case happened: Pilkington v Inland Revenue Commissioners [1964]

Pilkington v Inland Revenue Commissioners [1964] A.C. 612

Facts: In this case the father was a beneficiary under a trust (i.e. he was a life tenant of the trust). His daughter had a remainder in trust (i.e. she would come into the property when her father died and she had reached at least the age of 21)

The father wanted to set up a new trust for his daughter

The trustees had a power of advancement (allowing the trustees to give the property to someone who will become entitled in the future) i.e. the trust said the daughter would be entitled to the trust capital when her father died, but the power of advancement meant she could get up to half of the trust capital before he died

He was happy for the trustees to exercise this power so the money could be taken out of the trust fund to settle a new trust for his daughter’s benefit (who was 5 at the time) during her lifetime and for the benefit of her children

Held: The resettlement is fine, but there was a problem → the daughter was not born when the first trust was set up → and if you take money out of an existing trust and use it to set up a new trust the perpetuity period must come from the old trust

In other words, as property was taken out of one trust to set up a new trust the House of Lords held the perpetuity period should date from the formation of the original trust and not the new trust → So you cannot create a new trust out of the old trust to get around the perpetuity rules

As the daughter was only 5 years old, and not born when the father’s trust fund was set up, she was not a life in being so the trust failed/void for perpetuity → so the money went back to the original trust

The reason was, was that there was a possibility, or rather a probability, that the daughter would outlive her father by more than 21 years → in which case the perpetuity period, and it was his life that founded the original perpetuity period, would be exceeded

  • As the old perpetuity period applied the property would have had to have vested within 21 years after he died; however, the trust he tried to set up would have made the trust continue until the daughter died, which would may have gone beyond 21 years, thus falling foul of the rule against perpetuities

So, and it could have been a specific response to this case, in 1964 parliament passed the Perpetuities and Accumulations Act 1964 → it was in this the wait and see rule was introduced

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CONTENT

Stanley v Leigh (1732) 24 ER 917

Held: Sir Joseph Jekyll MR said that it is contrary to public economic policy that property be held in trust, unable to be bought or sold, for too long a period

  • He said you cannot render property “unalienable for a life or lives in being” and “some short or reasonable time after” (this is the old rule against perpetuity) i.e. a trust cannot last for the duration of one person’s life plus a short time after that, which has been historically 21 years
  • So a trust, under the old rule of perpetuities, could only last for the length of one person’s life plus 21 years (as this was the age of majority [majority has been 18 since 1960s] and thus become entitled to hold property absolutely)

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