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England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> RBC Trustees (CI) Ltd & Ors v Stubbs & Ors  EWHC 180 (Ch) (07 February 2017)
Cite as:  EWHC 180 (Ch)
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Strand, London, WC2A 2LL
B e f o r e :
| (1) RBC TRUSTEES (CI) LIMITED
(2) ELIZABETH MARY LE POIDEVIN
(3) PHILIP JAMES JACKMAN LE VESCONTE
(4) RBC TRUST COMPANY (JERSEY) LIMITED
|- and -
|(1) MRS JANATHA STUBBS
(2) GEORGE MERRICK STUBBS
(3) ROHAN GEORGE LAING
(4) KIAN JOHN DANIEL LAING
(the Second to Fourth Defendants being minors, acting by their litigation friend
CONSTANCE MCDONNELL (instructed by Farrer & Co LLP) for the First Defendant
SUSANNAH MEADWAY (instructed by Charles Russell Speechlys LLP) for the Second, Third and Fourth Defendants
Hearing date: 2nd February 2017
Crown Copyright ©
Mrs Justice Rose:
a. A witness statement of James Edmondson who is a solicitor and was, at the relevant time, head of the Private Client department at Farrer & Co;
b. A witness statement of Jeremy Cline who was a member of the International Private Client team at Farrer & Co at the time of the 2008 Deed but not at the time of the 2014 Deed;
c. A witness statement of Alexandra Hollingshead who is currently an associate in the International Private Client team of Farrer & Co and who was involved in the drafting tangentially of the 2008 and more closely in relation to the 2014 deeds;
d. Two witness statements of the Second Claimant, Mrs Le Poidevin, who is a Private Client Director of the First Claimant which is a trustee of the settlement and who is also a trustee on her own account;
e. A witness statement of Mr Ian Ritchie who is an associate director of the First Claimant ('RBC Trustees') and was involved in giving instructions for the 2014 deed;
f. A witness statement of Mrs Janatha Stubbs.
a. The trustees exercised their power of revocation contained in clause 14(1) of the 1991 Deed to revoke clauses 4 and 5 of the 1991 Deed concerning Joanna's settled share and Michael's settled share and the income thereof.
b. They then appointed that they would stand possessed of Joanna's Settled Share and Michael's Settled Share upon the same trusts as set out in clause 4 of the 1991 Deed but with the addition referred to below.
c. They added a new sub-clause 4(3) which stated that subject to Michael's life interest, his Settled Share would from the date of the Deed be held upon trust to pay the income to Michael's wife Helen Stubbs during her lifetime.
d. Clause 5 stated that subject to Joanna's life interest, her Settled Share would from the date of the Deed be held upon trust to pay the income to Joanna's husband John Laing during his lifetime.
e. Clause 6 of the Deed stated that subject to the aforesaid, the trusts powers and provisions declared and contained in the Settlement would continue to apply to Michael's Settled Share and to Joanna's Settled Share and its income.
"I would suggest that the solution to this uncertainty is to revoke the 2004 Appointment in respect of either successive life interest or revoke the whole of the 2004 Appointment [and replace it] with a new appointment providing that only a widow of Michael or widower of Joanna will be entitled to a successive life interest."
"I should like to get ahead by asking you to draft a suitable deed to remove her husband John from his beneficial position as follow-on life tenant. …"
"Here is a draft Deed which removes John Laing's expectant interest in Joanna's Fund of the 1964 Settlement. Settlor consent needed. This does of course, re-expose the Fund to inheritance tax …"
"In June 2007 Jim [Edmondson] drafted a Deed of Revocation and New Appointment which removed Joanna Laing's soon to be ex-husband as the successive life tenant on her share of the Janatha Stubbs Settlement of 1964. Joanna has now decided that she wants to proceed with this and would like the Deed in place before she meets with the lawyers to discuss the divorce settlement on 6 August.
I have attached Jim's Deed which I have made some amendments to, mainly to reflect the fact that Abacus (C.I.) Limited underwent a merger and is now called RBC Trustees (CI) Ltd. Could you please have a look at the Deed to ensure it is okay to use and also confirm that it is still okay to use the terms "trustees" in listing the Deeds on page 1, now that the Trustees name has been altered from Abacus to RBC?"
"I should reiterate the point made in Jim's email of 22 June 2007 that the Deed will re-expose the Fund to inheritance tax. Liz Le Poidevin's email of 15 June 2007 refers to insurance – has anything been done in relation to this?"
"The attached letter … requests the Trustees revoke Helen Stubbs follow on interest. Given the circumstances and purpose of the Trust the Trustees would consider this in the best interests of the beneficiaries. As written confirmation from Janatha Stubbs is required during her lifetime, and presumably [she] will be party to the deed as before – is this deemed to be written consent or should the Trustees request a formal letter from her prior to proceeding"
"We are sure we do not need to remind the trustees that if they choose to exercise their power of revocation, Michael's current life interest must not be effected or altered in any way otherwise this would have adverse tax consequences particularly for Inheritance Tax."
The claim for rectification
a. First, there is an immediate charge to inheritance tax of 20% of the value of the Fund on the creation of the Deed payable out of the settled property. This is because the Fund is governed now by what is called the "relevant property" regime in Part 3 of the IHTA.
b. Once the property is in the relevant property regime, it is no longer treated as being beneficially owned by a beneficiary who has an interest in possession. Instead a charge to tax is imposed on its value every 10 years under s 64 of the IHTA.
c. If property leaves the relevant property regime in between the 10 year anniversaries, a proportionate charge is imposed under s 65 of the IHTA.
" … rectification is about putting the record straight. In the case of a voluntary settlement, rectification involves bringing the trust document into line with the true intentions of the settlor as held by him at the date when he executed the document. This can be done by the court when, owing to a mistake in the drafting of the document, it fails to record the settlor's true intentions. The mistake may, for example, consist of leaving out words that were intended to be put into the document, or putting in words that were not intended to be in the document; or through a misunderstanding by those involved about the meanings of the words or expressions that were used in the document. Mistakes of this kind have the effect that the document, as executed, is not a true record of the settlor's intentions."
(a) Convincing evidence of the subjective intention of the trustees.
"22. What is relevant in such a case is the subjective intention of the settlor. It is not a legal requirement for rectification of a voluntary settlement that there is any outward expression or objective communication of the settlor's intention equivalent to the need to show an outward expression of accord for rectification of a contract for mutual mistake. … Although, as I have said, there is no legal requirement of an outward expression or objective communication of the settlor's intention in such a case, it will plainly be difficult as a matter of evidence to discharge the burden of proving that there was a mistake in the absence of an outward expression of intention."
"My instructions to Mr Edmondson were to draft a deed to revoke John's follow-on life interest, but not to revoke Joanna's qualifying interest in possession. I would have reviewed the draft deed to check that, from a trust law perspective, it achieved the desired result of revoking John's follow-on life interest, which it did. However, I did not apply my mind to the precise mechanics of how this was to be achieved, and I do not believe that I appreciated that the deed would revoke Joanna's interest as well as John's and effect a reappointment of it. I simply assumed that the draft deed complied with the instructions. Had I appreciated that the deed revoked and reappointed Joanna's interest, I am sure that I would have queried it, if only to confirm that it would not have any wider implications from a trusts or tax perspective."
(b) Is there a flaw in the 2008 and 2014 Deeds?
"19. I am unable to accept the trustees' submission on the availability of rectification in this case. The position is that the settlor intended to execute the settlement which he in fact executed, conferring benefits on his three children. The settlement correctly records his intention to benefit them through the medium of a trust rather than the alternative of making direct gifts in their favour. I am unable to see any mistake by the settlor in the recording of his intentions in the settlement. The mistake of the settlor and his advisers was in believing that the nature of the trusts declared in the settlement for the three children created a situation in which the subsequent transfer of funds by him to the trustees would qualify as a PET and could, if he survived long enough, result in the saving of inheritance tax.
20. That sort of mistake about the potential fiscal effects of a payment following the execution of the settlement does not, in my judgment, satisfy the necessary conditions for grant of rectification. The mistake did not result in the incorrect recording of his intentions. I think that the judge put it well when he said the following in paragraph 23 of his judgment:
"23. The case is therefore one in which I find that Mr Strain [that is, the settlor] intended to execute a settlement in exactly the form that Mr Wilding [that was the solicitor] drafted. Insofar as he was labouring under any sort of mistake when he did so, his mistake was not as to the language, terms, meaning or effect of the settlement. The only mistake was that a payment of the £550,000 to it would be a potentially exempt transfer.
"24. In my judgment a mistake of that nature is not one which the court has any jurisdiction to rectify. Since, for the reasons given, Mr Strain must be assumed to have understood the meaning of the fact of the substantive trust the powers of the settlement he executed and to have intended to execute a settlement in that form and having the legal effect it did, there is no error in the drafting of the settlement or in his understanding of it that calls for correction. Mr Strain's only mistake was in relying in Mr Wilding's implicit advice that the payment of money to that settlement would be a potentially exempt transfer. That was wrong and apparently negligent advice, but in the circumstances of the case the remedy of rectification is not available to cure the damage it has caused."
21. I agree with the judge's analysis of the position. I would therefore reject the ground of appeal which asserts that the judge erred in taking too narrow a view of the law of rectification and in rejecting the claims of the trustees."
(c) The need for a specific intention to achieve something different from what was done
(d) Is there an issue capable of being contested?
"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."