Analysis
In January 1995 Mr Donald Oatley, his wife Mrs Patricia Oatley, their three sons Andrew, Martin and Michael (the three claimants), and a solicitor, Mr Boyd, signed a deed of settlement. The beneficiaries were the spouses and issue of the claimants. Mrs Oatley died in 2002. Mr Oatley contracted cancer in 2006 and died in January 2007.
The Oatleys own a farming company with 4,333 shares owned by each claimant and 13,001 by the settlement. In 1985 Mr and Mrs Oatley created two discretionary trusts for some of their shares of the company, with the beneficiaries being their issue and the spouses of their issue.
In 1994 Mr Oatley worried about keeping the company intact, particularly if one of the claimants divorced. Therefore a further trust was set up and the assets from the 1985 trusts transferred to ensure that the value of the company was held for the Oatley family in general so that if the farm were sold all family members would benefit. They used a tax consultant, Mr Davies, for advice. Mr Boyd, a solicitor, was employed to draft the documentation.
Following an initial meeting Mr Boyd wrote in May 1994 to outline his proposal that the trust should benefit Mr and Mrs Oatley, the claimants and their families and that the 1985 trust assets should be transferred to the new trust and each son would leave their shares to the trust in their wills. Mr Oatley showed this letter to his three sons and following that date the family felt that Mr Boyd had a grip of what was intended and thereafter they did not question what was going on. Andrew specifically remembered his father stating that all three sons were beneficiaries under the 1985 trusts and that the position would be same under the new trust.
Mr Boyd stated that he felt the intention was to protect the business from the effect of divorce or bankruptcy and so he excluded the three sons and he ‘went off the rails’ trying to sew up that objective at the expense of other objectives. Mr Boyd thought that Mr Oatley had not thought the whole thing through and his intentions were not fully formed. He went on to say that he had encapsulated Mr and Mrs Oatley’s intentions. He accepted that he had no explicit instructions to exclude the claimants.
In November 1994 Mr Boyd prepared a draft of the 1995 settlement but he could not recall what he explained about the trust. Around the same time Mr Davies wrote to HMRC for advice and stated that the 1995 settlement would include the three sons.
In January 1995 the settlement was signed. The claimants were named on the title page and in the recital as settlors and the schedule on the last page put a figure of £2 next to each settlor’s name. Settlors were excluded from benefiting and the claimants were not named as beneficiaries. Andrew stated that he just signed the document, did not appreciate what a settlor was and did not pay over £2. He signed on the basis that the three of them would be beneficiaries. Martin gave very similar evidence.
The minutes of the signing meeting prepared by Mr Boyd state that the class of beneficiaries had not been expanded when compared with the 1985 settlement. Mr Boyd accepted that he was not aware of any money being paid to constitute the trust.
In November 2005 Mr Davies received a copy of the 1995 settlement while he was doing work on the ten-year charge. He contacted the company’s accountant to say that the claimants should have been beneficiaries and in January 2006 wrote to Mr Oakley to say the settlement was not in accordance with the correspondence on his file and mentioned rectification. In June 2007 Mr Davies wrote to HMRC stating that rectification was wanted as soon as possible and that the solicitor’s file was missing. In August 2007 HMRC replied to say that the writer felt Mr and Mrs Oakley were the true settlors as the claimants had not provided any bounty. In November 2007 Mr Davies prepared a report suggesting a deed of rectification but the claim form was not issued until December 2011. The claimants sought rectification so that the references to them being settlors could be deleted and they could be added as named beneficiaries. Mr Boyd’s firm of solicitors explained the delay was due to the difficulty Mr Boyd had with dealing with the matter prior to his retirement in 2009, the need to contact all family members and to appoint a litigation friend for the minor beneficiaries.
The first to ninth defendants being the current adult beneficiaries of the settlement did not wish to contest the proceedings.
The 11th defendant was appointed to represent the 11 minor beneficiaries and the unborn beneficiaries of the settlement. He put the claimants to proof of the alleged mistake, the settlors’ true intentions and their entitlement to relief. The 11th defendant felt that in the absence of any outward expression of their intentions and in the light of Mr Boyd’s evidence of the intention to protect the business there was insufficient strong proof to overcome the content of the 1995 settlement. It also took a long time to bring the matter to court and Mr Oatley seemed to do nothing on receipt of the January 2006 letter.
Held (allowing rectification):
- 1) The 1995 settlement was a unilateral transaction and so proof that the intentions of Mr and Mrs Oatley were not accurately reflected in the settlement is sufficient to permit rectification to be granted.
- 2) The evidence of the intentions of the claimants is clear. The 1995 settlement was a voluntary settlement rather than a contract between them and their parents. This means that there is no requirement to produce evidence of an outward expression of intention by Mr and Mrs Oatley.
- 3) Since rectification is an equitable remedy it is relevant to take into account any delay and the effect of that delay when determining whether to exercise the discretion.
- 4) As Mr and Mrs Oatley are both dead there can be no direct evidence of their intentions nor is there any contemporaneous documents written by them to record their thinking.
- 5) The best evidence as to their intentions is that of their professional advisors and their contemporaneous documents.
- 6) Less weight must be placed on the evidence of the claimants as rectification is sought in their favour.
- 7) This is a borderline case. There is just sufficient evidence to warrant rectification.
- 8) Although none of the professionals directed their advice to Mrs Oatley, her intentions were the same as her husband’s given the family dynamic and her willingness to be led by him in company matters.
- 9) If Mr Oatley did not wish his sons to benefit he would have told his sons at the meeting in May 1994.
- 10) Mr Boyd’s evidence is important because he received no express instructions to exclude the claimants and his minutes of the signing meeting record that the class of beneficiaries was framed in a manner which would include the claimants. He also has no recollection of explaining the £2 contributions to be made by the settlors.
- 11) Mr Boyd’s evidence is inconsistent and is not accepted. Mr Boyd has admitted that he is defensive about this matter and has had difficulty coming to terms with this matter.
- 12) The evidence of Andrew and Martin, that following their father’s assurance that they would be beneficiaries they did not read the draft before signature, is accepted. Their evidence that they did not understand the concept of settlor and did not provide the £2 is also accepted.
- 13) Mr Oatley did not respond to the January 2006 letter because he was by then less involved in the business and then became terminally ill and died. The need for a litigation friend also delayed matters.
- 14) Although there was substantial delay it was not sufficiently lengthy and unexplained to prevent rectification. It has not been suggested that the delay caused any prejudice.
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