English & Ors v Keats & Ors, Court of Appeal - Chancery Division, March 28, 2018, [2018] EWHC 673 (Ch)

Issuing Organization:Chancery Division
Actores:English & Ors v Keats & Ors
Resolution Date:March 28, 2018
 
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Case No: HC-2017-001677

Neutral Citation Number: [2018] EWHC 673 (Ch)

IN THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

CHANCERY DIVISION

PROPERTY TRUSTS AND PROBATE LIST

Royal Courts of Justice, Rolls Building

Fetter Lane, London, EC4A 1NL

Date: 28/03/2018

Before :

HIS HONOUR JUDGE HACON

(sitting as a High Court Judge)

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Between :

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Marcus Flavin (instructed by Gardner Leader LLP) for the Claimants

Josh Lewison (instructed by Preston Redman LLP) for the First to Third Defendants

Justin Holmes (instructed by Preston Redman LLP) for the Fourth Defendant

Hearing dates: 7 March 2018

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JudgmentJudge Hacon :

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 the business. Alan and his wife June owned shares in another company, Thunder Investments Limited (``Thunder Investments''). They decided to settle shares in that company on their children, Sarah, Simon and Annabel. The three children are the claimants in these proceedings.

  3. Simon's full name now consists of the single name Sanghasiha, but he was called Simon in the evidence and in submissions, so I will do likewise.

  4. On 30 April 1997 Alan and June each made three settlements of shares in Thunder Investments. Those made by Alan, referred to at the trial as Settlements 1, 2 and 3, played only a peripheral role. This action concerns the three made by June, referred to as Settlements 4, 5 and 6.

  5. There were four trustees of June's Settlements, including June herself and Alan. The third trustee was Terence Keats. He is a partner in the firm Preston Redman LLP and a longstanding friend of the Thunder family. The fourth trustee was Stephen Hall.

  6. The beneficiaries under the Settlements were the same: Sarah, Simon and Annabel, their children and remoter issue, and in addition the Salvation Army, the NSPCC, Help the Aged and Age Concern. Clause 4 of each of the Settlements provided that the trustees were to hold the capital and income of the trust fund for the benefit of such of the beneficiaries in such manner as the trustees appointed in their discretion.

  7. The only significant difference between the Settlements appeared in their clause 7. This clause provided for what should happen if, after any appointment under clause 4, anything remained of the trust fund at the end of the trust period. Clause 7 of Settlement 4 stated that in such a case the capital and income should be held on trust absolutely for Simon, or if he had died his children or remoter issue. In Settlement 5 the assets were to be held for Annabel, her children and issue. In Settlement 6 it was Sarah or her children and issue. In other words, each of the Settlements made one of June's children a prime beneficiary.

  8. Around the beginning of 1999 the Thunder family was advised that it would be advantageous from a tax point of view to give Sarah, Simon and Annabel an interest in possession under the Settlement of which he or she was prime beneficiary. The effect would be that the prime beneficiary would personally pay tax on income generated by the trust fund as opposed to tax being paid by the fund itself. This required Deeds of Appointment to be executed pursuant to clause 4 of each of the Settlements. The same was to be done for Alan's three.

  9. Six Deeds of Appointment were prepared and each was signed on 8 March 1999. Unfortunately, in each case the Deed was drafted identifying only three of the four trustees as appointers and providing for the signature of only those three trustees. It is likely that the drafter failed to recognise the distinction between a settlor and a trustee. In the case of Settlements 4, 5 and 6, June was a trustee as well as the settlor. In any event, Alan did not sign Settlements 1 to 3 and June did not sign Settlements 4 to 6. Thus, the Deeds of Appointment were all ineffective because only three out of four trustees had signed. The reasons for the mistake included a car crash, a young trainee solicitor and possibly inadequate supervision, although I certainly make no finding in this regard.

  10. By good fortune the error with regard to Settlements 1 to 3 was noticed during the course of a further transaction and was rectified by Alan before he died. Settlements 4 to 6 were not re-checked and the corresponding error in those Settlements was not discovered until it was too late, after June's death.

  11. In the present proceedings, the claimants seek to remedy the position in respect of the Deeds of Appointment under Settlements 4 to 6 (hereafter ``the Deeds'').

    The claim

  12. The first three defendants are the current trustees. Terence Keats, the first defendant, was an original trustee. The successors to Alan and June as trustees are the second and the third defendants respectively. Mr Hall retired as a trustee in November 2006 and was replaced by Grant Thornton Trust Company Limited. That company retired in November 2014 and has not been replaced, leaving three trustees.

  13. The claim form seeks two substantive heads of relief. The first is an order rectifying the Deeds so as to treat them as having been executed by June as well as the other trustees as of 8 March 1999. The claim form alternatively seeks 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.

  14. Rectification was not pursued at trial. There was instead an application notice seeking to amend the claim form to replace that head of relief with a claim for a declaration that there is a proprietary estoppel binding the trustees to act consistently with the effective execution of the Deeds. The application to amend was not opposed and at the start of the trial I gave the claimants permission to substitute the argument on estoppel for that of rectification.

    The fourth defendant

  15. The fourth defendant (``Ms English'') is Sarah's daughter. She was appointed by an order of Deputy Master Cousins dated 25 October 2017, pursuant to CPR 19.6, to represent all persons and charities who are beneficiaries under Settlements 4 to 6. By implication, the Order meant all beneficiaries excluding the claimants.

  16. Mr Holmes, who appeared for Ms English, realistically accepted that the chance of the trustees ever directing the transfer of any of the trusts' assets to anyone other than the claimants is small. There is consequently no real likelihood that the relief sought in the action would make any difference to them. Indeed, Mr Holmes did not have instructions from Ms. English to oppose the relief sought. Mr Holmes said that his role was to put before the court such arguments as there may be against those advanced by the claimants. I found it very helpful to have the benefit of the opposing arguments.

    The trustees

  17. Mr Lewison, who appeared for the trustees, supported the claimants' arguments with some useful additional points.

    Estoppel

  18. Mr Flavin, who appeared for the claimants, advanced his argument on estoppel in summary as follows. Although proprietary estoppel usually concerns land, its effect can extend further and in law could apply to a representation made by trustees to beneficiaries under the trust. In the present case the trustees had both proceeded and allowed the claimants to proceed on the basis 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 their respective settlements and thus acted to their detriment. Accordingly there was an estoppel binding the trustees from acting inconsistently with the intended amendment to the trusts.

  19. Alternatively, there had been a state of mutual consent between the trustees and the claimants that the Deeds had been executed. This gave rise to an estoppel by convention.

  20. Mr Holmes did not dispute the proposition that proprietary estoppel could apply in the context of trust. But he said that there were three reasons why it did not apply in the present case.

  21. First, the failure of one of the trustees to sign the Deeds was a breach of s.1(3) of the Law of Property (Miscellaneous Provisions) Act 1989 (``the 1989 Act''). Estoppel could not be relied to circumvent that subsection. He referred to the judgment of Newey J in Briggs v Gleeds [2014] EWHC 1178 (Ch); [2015] Ch 212, at [43]-[44].

  22. Secondly, the claimants had suffered no detriment. It was not in dispute that before the Deeds were purportedly executed the income received by the trusts was paid out, after tax, to the prime beneficiary, one of the claimants. The sole or main purpose of the intended new arrangement was...

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