Inheritance rights - Statutory next of kin - Adopted children - Human rights

Re Erskine Trust, Gregg and another v Pigott and others: ChD (Mr Mark Herbert QC (sitting as a deputy judge of the Chancery Division)): 29 March 2012

Section 46 of the Administration of Estates Act 1925 provides, so far as material: (1) (v) If the intestate leaves no husband or wife and no issue… then the residuary estate of the intestate shall be held on trust…’

Section 50(1) of the Administration of Estates Act 1925, so far as material, provides: ‘References to any statutes of distribution in an instrument inter vivos made or in a will coming into operation after the commencement of this act, shall be construed as references to this part of this act; and references in such an instrument or will to statutory next of kin shall be construed, unless the context otherwise requires, as referring to the persons who would take beneficially on an intestacy under the foregoing provisions of this part of this act.’

The issue raised in the instant case was the construction of the phrase ‘statutory next of kin’ in an English settlement made in 1948 and the possible effect of the European Convention on Human Rights on that construction. In 1948, the deceased, DM, made a settlement in respect of which a trust fund worth about £3.2m was set up (the trust). The beneficiary of the trust was DM’s daughter, L. L had a sister, D, who had no biological children. D died during L’s lifetime leaving her two adopted sons, the first and second defendants, C and S.

The third defendant, M, was DM’s niece. Clause 1(4) of the trust provided that ‘if the beneficiary shall have no child who or whose issue shall attain a vested interest in the trust fund or any part thereof under the trust’s powers and provisions hereinbefore declared the trustees shall hold the trust fund or the residue thereof in trust for D… the sister of the beneficiary absolutely provided she has married or attained the age of 30 years’. Clause 1(5) provided that ‘if the said D… shall die in the lifetime of the beneficiary or before attaining the age of 30 years or previously marrying the trustees shall hold the trust fund or the residue thereof upon trust for the statutory next of kin of the beneficiary at the date of her death on the footing that she died a spinster’. As D had died during L’s lifetime, the whole of the trust fund vested in L’s statutory next of kin. L died and, at the time of her death, she had no parents, siblings or children. The trustees issued the instant proceedings to determine who should benefit from the trust.

Issues arose as to: (i) the meaning of ‘statutory next of kin’ and whether, as a matter of construction, C and S, the adopted sons of D, were entitled to the trust fund; (ii) whether the European Convention on Human Rights, which became part of English law in 2000, had retrospective effect on the law governing intestacy, namely the Administration of Estates Act 1925 (the 1925 act), which was enacted almost 75 years before the convention, and whether the convention could have effect on the construction of a private settlement. It was common ground that, if C and S were not entitled to the trust fund, it would be vested in a number of cousins including M. It was submitted on behalf of C and S that, notwithstanding that they were D’s adopted children, they were the statutory next of kin.

The court ought to construe the settlement in line with article 8 (right to respect family life) and article 14 (prohibition of discrimination) of the convention and ought not to discriminate against adopted children. On behalf of the trustees it was submitted that the phrase ‘statutory next of kin’ and the word ‘issue’ in sections 46(1)(v) and 47(1)(i) of the 1925 act did not include adopted children and as such they were excluded from the intestacy rules. Consideration was given to section 5 of the Adoption of Children Act 1926 (the 1926 act) and to Pla v Andorra [2006] 42 ECHR 52.

The court ruled: It was a general principle of settled law that beneficiaries were to be ascertained according to the law which applied at the date of the death of the testator (see [16]-[19] of the judgment). In the instant case, the phrase ‘statutory next of kin’ used in the 1948 settlement had a statutory definition. It meant the persons who qualified under the intestacy provisions in the 1925 act itself.

By the time of the 1948 settlement, the legal framework for the adoption of children had been established by the 1926 act, and section 5 of that statute had expressly enacted that adoption had no effect to confer inheritance rights on adopted children unless a contrary intention appeared. That was the state of English law when the settlement had been made in 1948. Seeing that there was no express contrary provision in that settlement, it followed that the use of the defined phrase ‘statutory next of kin’ did not include adopted children (see [21], [53], [54] of the judgment).

(2) In principle, the convention becoming part of English law could have an effect on the construction and effect of an existing trust, if that could be achieved without unfairness. The new construction derived from the convention would operate only from 2 October 1998. It would, from that date, alter beneficial interests under a settlement. It was settled law that the convention might operate retrospectively but only if that was fair in the individual case. Three points of guidance could be derived from Pla: (i) the court had to avoid a decision which was unreasonable, arbitrary or blatantly inconsistent with the prohibition of discrimination established by article 14 of the convention; (ii) the court had to not put words into the settlor’s mouth and should construe the disposition in a way which corresponded to national law and the convention; and (iii) if the disposition, as worded by the settlor, did make a distinction between biological and adopted children, effect had to be given to that distinction (see [29], [50], [54] of the judgment).

In the instant case, it was possible to contemplate and to find a retrospective application of the principle of non-discrimination. A number of special features were present. First, the settlement itself contained no explicit exclusion of adopted children. Second, the way in which the relevant statutes had effect under English law, to exclude adopted children was itself discriminatory and contrary to the prohibition embodied in article 14 of the convention.

Third, a trust for a person’s next of kin could be regarded as unique. It did not, by definition create vested or contingent interests until the death of the person whose next of kin the beneficiaries eventually become. It created expectancy only. Fourth, there was no evidence of an assignment of an expectancy. Fifth, the contest was between relatively distant cousins on the one hand and the children of L’s only sibling on the other; children who had been full members of the family for some 60 years. Sixth, the settlement had come to an end, and there would be no continuing problem for the trustees or the court to identify future beneficiaries. Because of those special features, the settlement should be construed in such a way as to eliminate the discrimination against adopted children (see [54]-[56] of the judgment). A declaration would be made that the trust fund vested in C and S (see [56],[61] of the judgment).

Edward Hewitt (instructed by Veale Wasbrough Vizards) for the trustees; David Rowell (instructed by Veale Wasbrough Vizards) for C and S; Charles Holbeach (instructed by Veale Wasbrough Vizards) for M.