English & ors v Keats & ors [2018] WTLR 91

Analysis

Deeds of appointment were signed by trustees in respect of three discretionary settlements on 8 March 1999 purporting to appoint interests in possession on the three children of the settlor. There were four trustees of each settlement. However,  only three of the four trustees signed the deeds of appointment, rendering those appointments ineffective. This error was not discovered until after the death of the trustee, June Thunder (June), who had not signed the settlements.

The claimants were beneficiaries to whom interests in possession were purportedly appointed under the defective deeds of appointment. They sought an order that the deeds be treated as having been executed by June pursuant to the principle that equity will remedy the defective exercise of a power of appointment.

The claimants also applied to amend the claim form to replace a claim for rectification with a claim for a declaration that there was a proprietary estoppel binding the trustees to act consistently with the effective execution of the deeds. It was claimed that the trustees had both proceeded and allowed the claimants to proceed on the basis that that the deeds had been properly executed; that amounted to a representation to the claimants; the claimants had paid taxes on the basis that they had an interest in possession under the respective settlements and thus acted to their detriment. Accordingly, the claimants claimed that there was an estoppel binding the trustees from acting inconsistently with the intended amendment to the trusts.

Held:

1. 1)It was not in dispute that proprietary estoppel could apply in the context of a trust. The alleged estoppel also did not operate to circumvent s1(3) of the Law of Property (Miscellaneous Provisions) Act 1989 which provided that an instrument is validly executed as a deed by an individual if and only if it is signed by him or at his direction. The deeds were defective because the trustees had not acted unanimously, not because of a breach of s1(3).
2. 2)The claim to an estoppel failed because of a lack of evidence as to detriment and because the claimants were claiming an estoppel which would bind all parties, including strangers to the trust.
3. 3) The claimants had suffered no detriment in reliance on the valid execution of the deeds. The point of the proposed amendments to the settlements was to benefit the claimants since it was to their financial benefit to pay income tax on income personally received by them as interest in possession beneficiaries, rather than receiving income net of income tax paid by the trustees of discretionary trusts. It was, therefore, reasonable to infer that overall, so far, the claimants were now better off. There was no suggestion, in a letter from HMRC that, if the execution of the deeds were not retrospectively validated, the claimants would have to pay more tax than would have been paid had the deeds never been drawn up. There was no evidence about the need to obtain expert help regarding any liability for tax or how much this might cost.
4. 4)An estoppel could not operate so as to bind non-claimant beneficiaries under a trust, to whom no representation was made, in a way that could only be to their detriment. Nor could it bind the way in which HMRC had taxed, and would tax, the trust fund and the claimants. The estoppel would have the effect of rectifying the trust, or could be looked at as a claim in rem.
5. 5)The conditions for the equity to remedy the defective execution of a power are as summarised by the Royal Court (Samedi) of Jersey in Bas Trust Corporation Ltd v MF [2012] JRC 081:

1. 1. i) an intention by the person with the power to exercise it;
   2. ii) there must have been an attempted execution of the power – there is no jurisdiction to remedy a failure to exercise the power at all or to exercise it in time;
   3. iii) the defect must be formal rather than going to the substance of the power;
   4. iv) the purported exercise must have been a proper exercise of the power – the court will not assist where there would be a fraud on the power or a breach of trust;
   5. v) the doctrine will only operate in favour of certain categories of persons who stand in a particular relationship to the donee, and not the creator of the power: –

1. 1. 1. a) Purchasers for value;
      2. b) Creditors;
      3. c) Charities; and
      4. d) Persons for whom the appointor is under a natural or moral obligation to provide. Relief may be granted in favour of persons under this head unless the appointor is under an equal obligation to provide for the persons entitled in default of appointment who are unprovided for. Under this head, relief may be granted for the defective exercise of a power intended as a provision for a wife and child, even in favour of a volunteer, and the court will not enquire into the quantum of the provision for the wife or child. However, equity will not grant relief in favour of persons for whom the appointor is under no obligation to provide, such as a husband, grandchild, natural child or cousin, nephew or niece or mere volunteer, even if he is the creator of the power.

1. 6) The above conditions were satisfied. There had been an attempted, but defective, exercise of the power of appointment, rather than a failure to exercise the power at all. All four trustees intended to exercise a power they were entitled to exercise to amend the settlements. All four purported to do so by the signatures of three of them. That qualified as an attempted exercise by the trustees of their power. The failure of June to sign rendered the trustees’ attempt defective.
2. 7) As to condition v), the exercise of the power was intended as a provision for children of two of the appointors. It made no difference that they were not the children of the other two appointors. Two of the trustees were the claimants’ parents and the defect was associated with June’s failure to sign. She was the claimants’ mother. In addition, the Royal Court in Bas Trust Corporation was of the view that the principle regarding the categories of persons in favour of which the doctrine may be invoked was now out of date. The Jersey Court doubted that even under English law the principle would exclude from its scope beneficiaries such as husbands and illegitimate children, since under Jersey law the principle may operate in favour of any person for whom the donee of the power is under a natural or moral obligation to provide. The law in England and Wales may now be similar.

JUDGMENT HACON J: Introduction [1] This action raises two points of law concerning defectively executed deeds of appointment. The facts were not in dispute. Background facts [2] Before his death, Alan Thunder ran a newspaper distributor in southern England called Thunder & Clayden Limited. He had inherited the company from his father, the founder of …

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