Re The Shinorvic Trust [2012] JRC081

Analysis

The Shinorvic Trust (the trust) was established by VB (the settlor) on 19 July 1988. The trust was a discretionary trust governed by Jersey law. The original trustees of the trust were the Radcliffes Trustee Company SA (Radcliffe) and the original beneficiaries were the settlor’s sister MF and her children and remoter issue. Clause 2(3) of the trust deed conferred a power on the settlor to add beneficiaries. The power to add was exercisable by ‘instrument’ executed by the settlor. Clause 2(1)(f) of the trust deed defined an ‘instrument’ as being an instrument in writing signed by the parties thereto and witnessed and dated.

The settlor had a longstanding but unconventional relationship with Mrs B. Although he had proposed marriage to her on several occasions they had never married. Mrs B had been financially dependent on the settlor from the mid-1980s and this continued even when the settlor married a considerably older woman in 1996 and after her death in 1999. Throughout the period of their relationship the settlor maintained relationships with other women and Mrs B had a very brief marriage to another man. On 21 February 1990 the settlor purported to exercise the power to add beneficiaries by signing a deed of declaration (the 1990 deed) adding Mrs B. The 1990 deed was also executed by Radcliffe. Although provision was made in the 1990 deed for the settlor’s signature to be witnessed this was not done and appeared to have been overlooked at the time and subsequently.

On 24 April 1998 the settlor executed a further deed adding his brother to the class of beneficiaries (the 1998 deed). This deed was witnessed. The recital records it as being supplemental to the 1999 deed. Two further deeds exercising the power to add beneficiaries were executed by the settlor in 1999 and 2002, both of which were witnessed and neither of which made reference to the 1999 deed. On 18 October 2002 the settlor signed a detailed letter of wishes which stated that above all he wished Mrs B’s welfare to be the ‘paramount concern’ of the trustees of the trust. The settlor died on 18 December 2005 leaving a will dated 18 October 2002. Although this will bequeathed a pecuniary legacy to Mrs B the value of this was only £10,000 and the majority of the settlor’s assets were held in the trust at the date of his death.

At the date of the hearing the trust fund was worth approximately £1.5m. Mrs B had received regular monthly distributions of income of between £3,000 and £6,000 since the settlor’s death. She had also occasionally received lump sum distributions to defray medical expenses and legal fees and to pay tax and purchase a new car. In total she had received £400,806 from the trust. Other beneficiaries had received £735,000 and loans of £315,000 had been made to certain beneficiaries.

Radcliffe remained as trustee of the trust until 6 January 2009. It changed its name to Investec (Switzerland) Trust SA (Investec) on 30 May 2005. Mr Goyet joined Radcliffe in April 1998 and administered the trust on its behalf. He became well acquainted with the settlor. In April 2004 he left Radcliffe and joined BasTrust Corporation Ltd (BasTrust). Pursuant to clause 11(d) of the trust deed the power of appointing new or additional trustees vested in MF on the settlor’s death. In 2007 MF decided that she wished to appoint Mr Goyet as co-trustee. On 27 March MF executed a deed purportedly appointing Mr Goyet as co-trustee (the 2007 deed). The 2007 deed was unhappily drafted. MF and Mr Goyet were the only parties to the 2007 deed which incorrectly defined them as ‘the trustees’. The 2007 deed stated that in exercise of the power at 11(d) MF appoints the ‘new trustees’ to be ‘additional trustees’. The 2007 deed did not define ‘new trustees’ and the references to ‘trustees’ were incorrectly expressed in the plural. Mr Goyet was not explicitly identified as the person appointed to be additional trustee. On 6 January 2009 Investec retired as trustee and BasTrust was appointed in its place.

In May 2011 the trustees sought the advice of tax counsel. At this time it was discovered that the 1990 deed had not been witnessed. As a result the trustees were advised that there was an issue as to whether Mrs B had ever been added as a beneficiary and payments to her from the trust ceased. Two issues came before the court for decision at the hearing:

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(i) Was Mr Goyet validly appointed as a trustee of the trust in 2007?

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(ii) Was Mrs B a beneficiary of the trust?

Held:

1. (1) It was clear on the authority of East v Pantiles (Plant Hire) Ltd [1982] EGLR 111 that the court could correct a mistake in a written instrument as a matter of construction if there was a clear mistake on the face of the instrument and it was clear what the correction ought to be to cure the mistake. The two conditions were satisfied in the instant case. It was obvious that MF’s intention in executing the 2007 deed was to appoint Mr Goyet as additional trustee. That was the only reason he had been named as the second party to the deed and had executed it. Accordingly, the court had no difficulty in declaring that on its true construction the 2007 deed validly appointed Mr Goyet as an additional trustee of the trust.
2. (2) Despite the unconventional nature of the relationship between the settlor and Mrs B, the two were very close and he considered himself under a moral obligation to provide for her. This manifested itself in the letter of wishes. The settlor regarded Mrs B in a completely different light to the other women he maintained relationships with.

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3. (3) There was no doubt on the evidence that the settlor had power to add Mrs B as a beneficiary, that he intended to exercise that power by the 1990 deed and that he thought he had exercised that power. The sole problem was that there was a defect in the formality of his exercise of the power within the terms of the trust deed.

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4. (4) There was also no doubt that as a matter of English law equity would in certain circumstances aid the defective execution of a power. Although all the reported cases concerned the defective exercise of a power of appointment there was no valid reason for distinguishing the application of the principle on that basis.

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5. (5) All parties accepted that the first four conditions for the grant of relief were satisfied, namely that there was an intention by the person with the power to exercise it, there was an attempt to execute the power, the defect was formal rather than one going to the substance of the power and the purported exercise was a proper exercise of the power. The only point in issue was whether the principle may be applied in favour of a person such as Mrs B who, it was submitted, fell out with the categories of person the court has previously sought to aid in granting relief.

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6. (6) The underlying philosophy of the principle that the court would aid the defective execution of a power was that it applied for the benefit of persons towards whom the donor has some moral or natural obligation. It was highly unlikely that the English court today would restrict the operation of the principle towards a wife or legitimate child in the manner in which it had done so in the 18th and 19th century. In any case, as a matter of Jersey law it was desirable that the principle be developed to take account of modern standards and mores. Accordingly, under Jersey law the principle may operate in favour of any person for whom the donee is under a natural or moral obligation to provide.

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7. (7) The settlor was under a moral obligation to provide for Mrs B and certainly considered himself to be so. He was under a greater obligation to provide for her than any of the other beneficiaries of the trust. It would offend the court’s sense of justice if the intention of the settlor was defeated due to a mere technicality and as such Mrs B was validly added as a beneficiary of the trust from the date of the 1990 deed.

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8. (8) Although it was not strictly necessary to consider the alternative submission that in referring to the 1990 deed in the 1998 deed the settlor had by the 1998 deed exercised the power to add Mrs B the court had received detailed submissions on the point. The English authorities suggested that the principle applied where the exercise of the power was necessary for the transaction to take place. However, the Irish case of Lees v Lees (1871) IR 5 Eq 549 was authority for the proposition that an erroneous recital by the donee of a power in a later document that he has previously exercised the power is sufficient for the court to find that the power was exercised in the later document if the later document is otherwise sufficient to comply with the requirements for execution of the power. This was undoubtedly the case with the 1998 deed and that was sufficient for the court to treat the 1998 deed as a valid execution of the power in favour of Mrs B from the date of the 1998 deed. Although the authorities for this proposition were slender it was appropriate and in the interests of justice to treat the extended principle as applicable under Jersey law.

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JUDGMENT BAILIFF: [1] This is an application by the representors as trustees of the Shinorvic Trust (the trust) for a declaration as to whether the second representor is a trustee of the trust and whether a particular individual has or has not been added as a beneficiary of the trust. The second matter raises, inter …

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