Jersey Unreported Judgments

Trust - the Court's reasons for approving rectification of a Deed of Appointment and Retirement.

[2023]JRC192

Royal Court

(Samedi)

21 October 2023

Before     :

M. J. Thompson, Esq., Commissioner, and Jurats Averty and Le Cornu.

In the Matter of the Representation of IQ EQ (NTC Trustees) (Jersey) Limited

And in the Matter of the Walker and Son (Hauliers) Limited

Employee Benefit and Share Trust

Advocate J. W. Angus for the Representor

judgment

the commissioner:

1.        This judgment contains the Court's reasons for approving on 12 October 2023 rectification of a Deed of Appointment and Retirement ("the DORA") dated 29 February 2008.

Background

2.        The Representation relates to the Walkers and Son (Hauliers) Limited Employee Benefit and Share Trust (the "Trust").  The Trust is a discretionary trust settled by Walker and Son (Hauliers) Limited (the "Founder") in favour, in summary, of employees of the Founder and their families.  The Trust was established pursuant to a Deed of Settlement dated 25 August 1999 between the Founder and Atlas Trust Company (Jersey) Limited ("Atlas").  Atlas was a trust company carrying on business in Jersey.  However, Atlas was dissolved on 1 October 2017.

3.        The material provision of the Trust Deed is Clause 8.1 which provides:

"The statutory power of appointing new and additional trustees hereon is varied by Schedule 1 to this Deed shall be vested in the trustees from time to time."

4.        The Founder, by Clause 8.4, was granted power "to remove any trustee from the Trusts hereof by deed and such power shall be absolute and shall not be a fiduciary power".

5.        Clause 9 provided that the Trust Deed shall be construed in accordance with the law of England.

6.        On 29 February 2008, the Founder, Atlas and Nautilus Trustees Limited ("Nautilus") entered into the DORA.  The Founder in the party section of the Deed was described as the "Appointer".

7.        Recital B of the DORA provided that "By Clause 8.1 of the Trust (Deed) the power to appoint a new trustee is vested in the appointer as the founder of the Trust".

8.        Recital D of the DORA provided that "The Appointor wishes to appoint the New Trustee as trustee of the Trust in place of the Retiring Trustee."

9.        Clause 2 of the DORA provided as follows:

"In exercise of the power conferred by the Trust and all other powers (if any), the Appointor hereby appoints the New Trustee as trustee of the Trust in place of the Retiring Trustee who hereby retires and is discharged from the trusts of the Trust."

10.      The DORA by Clause 5 was also governed by the laws of England. 

11.      On the same day, a meeting of a trust committee of Atlas took place with Mr Swindell and Mr Dove being present as directors.  The minute of the meeting contained the following:

"IT WAS NOTED that the Retiring Trustee is desirous of being discharged from the trusts of the Settlement and wishes to exercise the power of appointment of new trustees under Clause 8.1 of the Instrument of Trust dated 25 August 1999 (with the consent of the Appointor as the Founder of the Trust) to appoint the New Trustee to be the trustee of the Settlement in place of the Retiring Trustee.

After due discussion and consideration IT WAS RESOLVED to approve the signing of the Deed and to approve the fixing of the Common Seal of Atlas Trust Company (Jersey) Limited in the presence of two Directors or one Director and one Authorised Signatory. A copy of the Deed of Retirement and Appointment is attached hereto and forms an integral part of these minutes."

12.      Both Recital B and D and Clause 2 in the DORA erred in describing the power to appoint new trustees as a power vested in the Founder.  As is clear from Clause 8.1 of the Trust Deed, the power was vested in Atlas as the then trustee.  The Founder only possessed power to remove trustees by reference to Clause 8.4 of the Trust Deed.

13.      The DORA was drafted by a firm of English solicitors then called Rickerbys, and now known as Harrison Clark Rickerbys.  The Trustee's view is that the erroneous drafting of the DORA is likely to be a result of the negligence by Rickerbys as the then solicitors to Atlas.

14.      Since 2008, Nautilus Trustee Limited has continued to act as trustee of the Trust Deed.  Nautilus Trustee Limited is now known as IQ EQ (NTC) Trustees (Jersey) Limited.  We refer to this entity as Nautilus for the purposes of this judgment. 

15.      The drafting error in the DORA was identified in June 2021 by Preston Legal who had been instructed by the Representor in relation to an intended transfer of trusteeship at that time. 

Discussion and Decision

16.      We firstly address the question of jurisdiction.  We agree that we have jurisdiction to consider the application because Nautilus is a Jersey resident trustee and, as trustee de son tort, has been administering the Trust in Jersey since 2008.  This is notwithstanding that the Trust Deed is governed by English law.  

17.      Advocate Angus contended, and we agree, that the Royal Court can grant relief in respect of trusts administered in Jersey but which are not governed by Jersey law.  He drew to our attention a recent example in Re Mileham [2020] JRC 045 where the Royal Court was asked to set aside an English law remuneration trust on the grounds of mistake.  In Mileham, the Court expressed concern at not having been provided with evidence of the English law position regarding the mistake.

18.      No such issue arises in this case as Nautilus, quite correctly, sought advice from James Poole, English counsel, in relation to the defects in the DORA and the position under English law for which we are grateful and which was extremely helpful to us.  Counsel's advice was summarised at paragraph 9 of an opinion dated 14 July 2022 as follows:

"9. For the reasons set out more fully below, is my opinion that:

a. The DORA did not validly appoint Nautilus as trustee of the Trust;

b. As a result, any actions taken by Nautilus or IQEQ as trustee are unlikely to have been valid, but they may be exposed to liability for those actions as a trustee de son tort;

c. There may also be a potential claim by the beneficiaries to recover any sums paid to Nautilus or IQEQ;

d. The most sensible way to remedy this situation would be to bring a claim which seeks rectification of the DORA, and alternatively the appointment of a new trustee under s.41 of the Trustee Act 1925 or the Court's inherent jurisdiction; and

e. Thought will also need to be given to the impact of the invalid appointment on any steps taken as trustee by Nautilus or IQEQ."

19.      The effects of Nautilus not having been validly appointed were explained at paragraphs 11 and 12 of his opinion as follows:

"11. The invalidity of the DORA has two types of effects, which can be categorised as "past effects", and "current/future effects". In terms of past effects, Atlas remained in law the trustee of the Trust until it was dissolved, and since their dissolution there has been no de facto trustee of the Trust. Nautilus (and subsequently IQEQ) could not have been acting as trustee, but if they took actions believing themselves to be trustees, this could potentially expose them to liability as trustees de son tort: see Jasmine Trustees v Wells & Hind [2008] Ch 194 at [42]. It may also call into question any fees that have been charged at a time when Nautilus or IQEQ were acting as trustees de son tort, as they would not fall within the class of persons entitled to remuneration under clauses 3.3 or 4.3 of Schedule 1 of the Settlement. The beneficiaries may potentially be able to bring a claim to recover any fees paid to Nautilus or IQEQ since the DORA was executed.

12. In terms of current/future effects, there is currently no trustee of the Trust so there is no- one to administer the Trust on behalf of the beneficiaries. This is plainly a matter that needs remedying."

20.      As to how to address this problem, counsel advised that the best way to address the past and future issues was to seek rectification of the DORA.  The rectification sought in the DORA was as follows:

"15. In my opinion the rectification in this case should be along the following lines:

a. In Party (1) the words in brackets are deleted;

b. In Recital (B) the words "Appointor as the Founder of the Trust" are deleted and replaced by "Retiring Trustee";

c. In Recital (D) the word "Appointor" is deleted and replaced by "Retiring Trustee"; and

d. In paragraph 2, the word "Appointor" is deleted and replaced by "Retiring Trustee"."

21.      He then set out in paragraph 16 the relevant test applicable for rectification under English law by Barling J in Giles v Royal National Institute for the Blind [2014] EWHC 1373 as follows:

""(1) While equity has power to rectify a written instrument so that it accords with the true intention of its maker, as a discretionary remedy rectification is to be treated with caution. One aspect of that caution is that the claimant's case should be established by clear evidence of the true intention to which effect has not been given in the instrument. Such proof is on the civil standard of balance of probability. But as the alleged true intention of necessity contradicts the written instrument, there must be convincing proof to counteract the evidence of a different intention represented by the document itself (Racal 1154h-1155b);

(2) There must be a flaw in the written document such that it does not give effect to the parties'/donor's agreement/intention, as opposed to the parties/donor merely being mistaken as to the consequences of what they have agreed/intended; for example it is not sufficient merely that the document fails to achieve the desired fiscal objective (Racal 1158f-g);

(3) The specific intention of the parties/donor must be shown; it is not sufficient to show that the parties did not intend what was recorded; they also have to show what they did intend, with some degree of precision (Racal 1158g-j);

(4) There must be an issue capable of being contested between the parties notwithstanding that all relevant parties consent, This criterion has been much criticised: the purpose of it, and its actual content and scope, are by no means clear. In Racal Peter Gibson LJ expressly approved the following summary of the principle by Vinelott J in the same case. Vinelott J stated that the court must be satisfied: 'that there is an issue capable of being contested, between the parties or between a covenantor or a grantor and the person he intended to benefit, it being irrelevant first that rectification of the document is sought or consented to by them all, and second that rectification is desired because it has beneficial fiscal consequences. On the other hand, the court will not order rectification of a document as between the parties or as between a grantor or covenantor and an intended beneficiary, if their rights will be unaffected and if the only effect of the order will be to secure a fiscal benefit.' (Racal 1155c-1158b)." (emphasis added)"

22.      This is the test we have applied.

23.      Advocate Angus rightly drew to our attention that this test was slightly different from the test applicable in Jersey.  The difference between the two jurisdictions appears to be that under English law there must be an issue capable of being contested between the parties, notwithstanding that all relevant parties' consent to the application to rectification. 

24.      At paragraph 26 of his advice, Mr Poole expressed the view that a court (which we take to mean an English Court) would be satisfied that there was an issue or issues capable of being contested, in particular who the trustee of the Trust should be and any potential claims that the beneficiaries might have against Nautilus or its parent company.  We agree with that conclusion.

25.      Nautilus has also taken the prudent step of notifying the ascertainable class of the beneficiaries, with the assistance of the Founder, to advise them of the present proceedings and that they could apply to intervene.  The beneficiaries were also notified of the final hearing date of this application.  No one has appeared on behalf of the beneficiaries.

26.      We also concluded in this case it was not necessary to appoint a representative for the beneficiaries because if rectification is granted their rights and interests under the Trust will not be affected with the Trust being administered in the same way save that Nautilus, with whom all parties including the beneficiaries assume to be invalidly appointed, will have been held to have been so appointed.  Nautilus contended in that regard that it was necessary in the interests of the beneficiaries as a whole that their appointment be rectified. 

27.      Finally the Founder was also convened to the application and was also supportive of the application as set out in the affidavits filed by Mr Truscott for Nautilus.  The Founder had also searched its records to see if any other material could be found to explain why a mistake had been made but nothing was found beyond the material we have referred to in this judgment.

28.      By reference to the test set out by Mr Poole, we are satisfied that there is clear evidence of the true intention.  The Founder wanted to appoint Nautilus.  Nautilus wanted to act as trustee and Atlas wished to retire.  This is clear from the minute of Atlas acting as trustee of the Trust.

29.      Secondly, there is clearly a flaw in the DORA because, on the face of the document, it refers to the Founder (defined as the Appointor) exercising the power, whereas it should have referred to Atlas.

30.      The intention of the Founder and Nautilus is therefore clear.  While we have no current evidence from Atlas because it has ceased to exist, by signing the DORA it clearly intended to retire and for Nautilus to become trustee.  Had Atlas been asked to appoint Nautilus, we have no doubt that it would have done so.

31.      There are also clearly issues capable of being contested, namely a challenge to whether or not Nautilus has been appointed, claims to recover fees because Nautilus is only a trustee de son tort, and possible challenges to other exercises of discretion by Nautilus on the basis they had not been validly appointed.  This is not a case where the only effect of the order is to secure a fiscal benefit.

32.      Advocate Angus also addressed the question of delay which was also covered by Mr Truscott in his first affidavit.  We are satisfied with the explanation we have received and have concluded that the time taken between the issue being identified and the final hearing did not operate as any form of bar to the relief sought being granted. 

33.      We were therefore prepared to grant the application and to rectify the DORA.

34.      The other approach we were invited to consider was that we could construe the DORA so as to correct an obvious mistake.  Given that rectification is clearly available, strictly speaking it is not necessary to for us to consider this other ground, but nevertheless we do out of deference to the submissions made. 

35.      Firstly, Mr Poole's preference was for rectification.  He does not provide in his opinion evidence that the DORA as a matter of English law could be construed to correct the obvious mistake.  We would have needed such evidence in order to construe the DORA as it is an English law document.

36.      Advocate Angus fairly accepted that the extent to which a defect in a document can be construed to give meaning to that document depends fundamentally on the extent of the error or mistake within it and that there was a line between when documents could be construed and given a meaning and when a document needed to be rectified. 

37.      In ICM Computer Groups Limited v Stribley [2013] Pension Law Reports 409 (HC), the English High Court stated at paragraph 16:

"Rectification is the jurisdiction that enables the Court in an appropriate case to cure a mistake in a document by rewriting the document so that it accurately reflects the parties' intentions. By contrast the process of interpretation is more limited. It is confined to ascertaining the meaning of the document."

38.      In our judgment, while the mistake is obvious, to correct it requires a re-writing of the document by making the alterations suggested by Mr Poole.  This is more than a process of interpretation as the DORA on its face clearly says that the Founder was appointing a new trustee.  No construction can get round this clear statement.  Rather what had occurred was a clear mistake and what was required was rectification to correct that mistake. 

39.      In Trico v Buckingham [2020] JCA 067, the Court of Appeal, quoting from Commissioner Page in Re Internine Trust [2005] JLR 236 at paragraph 26, including the following on the principles of interpretation applicable in this jurisdiction:

"The aim is to establish the presumed intention of the parties from the words used; but the words used must be construed against the background of the surrounding circumstances, which means the circumstances that must be taken to have been known to the [parties] at the time. These circumstances include anything that would have affected the way in which the language would have been understood by a reasonable man, except that evidence of subjective intention is ordinarily inadmissible. The words must also be read in the context of the document as a whole, and should so far as possible be given their ordinary meanings; but a different meaning may have to be given to them if a reading of the document as a whole and common sense so require."

40.      However, giving a different meaning does not allow the Court to replace words expressly used which are clear with other words to correct a mistake. 

41.      For all these reasons we granted the application and ordered rectification as English Counsel advised. 

42.      We also ordered that Nautilus has at all times been validly appointed as trustee of the Trust from time to time in accordance with the terms of the Trust Deed and that no actions taken by those trustees of the Trust from time to time have been invalid for want of valid appointment.  To be clear this order does not prevent any other challenge being made to any act or decision of Nautilus since 2008.  It simply prevents a challenge being made that Nautilus had no authority to make any such decision.  

43.      Finally, Nautilus was allowed to recover the costs of its application out of the assets of the Trust.  In doing so we followed the approach taken in Re Abacus (C.I.) Ltd 2004 JRC 219 at paragraph 30 as follows

"Finally we consider the question of costs. It is often the case that errors which require rectification arise by reason of the actions of professional advisors. In those circumstances it is not usually appropriate to order that the costs of applying for the rectification be borne out of the trust fund, because that means that they will in fact be borne by the beneficiaries.  In this case we are satisfied for the reasons that we have given that the errors were those of the professional advisors and in one sense the normal consequence should follow.  However, the present trustee has brought this representation and incurred the costs.  We think, therefore, that it is right to allow the trustee its costs out of the trust fund and we make it clear that the trustee must give consideration as to whether these should be recovered from one or more of the advisors.  It will need to do that in order to fulfil its duty to the beneficiaries."

44.      In the same way we indicated to Nautilus that it should consider, with appropriate advice, whether it should take steps to recover its costs including seeking Beddoe's relief, if that was thought appropriate.  We also ordered, notwithstanding this decision being public, that any privileged advice obtained by Nautilus from its Jersey and/or English Legal advisers in relation to any such claims remained privileged. 

Authorities

Re Mileham [2020] JRC 045. 

Giles v Royal National Institute for the Blind [2014] EWHC 1373. 

ICM Computer Groups Limited v Stribley [2013] Pension Law Reports 409 (HC). 

Trico v Buckingham [2020] JCA 067.  

Re Internine Trust [2005] JLR 236. 

Re Abacus (C.I.) Ltd [2004] JRC 219.