Chapman v Wilson & Ors

The first instance decision in this matter has been referred to previously in this publication.  The case concerned a disposition in a testamentary trust which provided for a life interest in the “income and profits” of an estate.  The central issue which arose was whether or not that gift included “unrealized” capital gains which had been generated in the assets of the estate?  The Court of Appeal (Gotterson JA with whom Holmes JA and Applegarth J agreed) held that one of the main questions was whether or not the terms of the trust displaced the usual rule that “where the trust corpus is augmented, the augmentation accrues for the benefit of all beneficiaries and thus is to be treated as capital and not as income”.  The appellant argued that the displacing of the usual rule of construction arose from the words used to create the trust as well as the scheme of dispositions in the will.  The Court considered the various meaning of the expression “profits” as well as the concept of the derivation of profits including the meaning given in various cases where it was noted that “derivation” did not require that the profits be realized.  It was noted that the meaning given to the words “profits” and “derivation” are often dependent upon the context in which they are used and, in the case of the former, there is no universal legal meaning.  Ultimately, it was held that in order for profits to be handed over to the beneficiary they have to be realized profits and, therefore, unrealized profits would not be capable of being subject to the gift. It was further held that the scheme of the dispositions under the will did not indicate any intention to require the trustees to pay to the beneficiary an amount on account of unrealized capital gains.