England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Rolls Building 7 Rolls Buildings London EC4A 1NL
		26/10/2012

His Honour Judge Birss QC :

1. This is an action by the surviving settlor seeking to rectify a deed of trust dated 4 March 2006. As executed the trust deed names the settlor's two grandchildren as the sole beneficiaries and there is no scope for adding beneficiaries or varying the entitlement under the trust. The rectification sought would have the effect of adding the settlor's children as additional potential beneficiaries and giving the trustees power to vary the entitlement between all the beneficiaries, as rectified.
2. The settlors were the claimant, Mr Sydney Lawie and his wife Pauline Lawie. They had two children, the first defendant Anthony and the second defendant Lesley. Lesley married the third defendant Roger Ely. Lesley and Roger's daughter is the fourth defendant Rebecca Ely. Anthony's son is the fifth defendant Jamie Lawie. The trustees were the claimant, Pauline Lawie, Anthony Lawie, Lesley Ely and Roger Ely. Pauline Lawie died on 11^th May 2011. All of the relevant parties are adults. In this judgment I will refer to Mr Sydney Lawie as Mr Lawie and to all the other individuals by their first names.
3. The facts are as follows. In late 2005 Mr and Mrs Lawie, then aged 81 and 76 respectively, wished to make arrangements to benefit their family. Together with their daughter and son in law, they saw Mr Tollins, a financial planner from the Norwich & Peterborough Building Society in January 2006. After discussion with him they decided that they wanted part of their savings to be held in a Legal & General Portfolio Bond, which was to be held in a flexible trust for their children and grandchildren. The sum to be put into the bond was £100,000, just under half their net assets at the time. Although the principal purpose was to benefit the grandchildren, they wanted the flexibility to be able to make changes in respect of the beneficiaries and their percentage of entitlement. Mr Lawie also felt that there may come a time when he and his wife may need to withdraw some of the moneys for their own benefit and I will return to that point below.
4. Mr Tollins prepared a report and a draft deed on a Legal & General form. The deed is entitled "Non-statutory flexible trust" and has a number of parts. Part 1 is the declaration of trust and names the grantees (in this case Mr and Mrs Lawie) and the policy to be incorporated. Part 2 names the "Current Beneficiaries" (as executed Rebecca and Jamie) and Part 3 names the "potential Future Beneficiaries". As executed this part of the form is blank. The material provisions are as follows:

I/We desire that the policies named in Part 1 (hereinafter called 'the Policy') be issued to me/us as Grantee(s) and expressed to be upon an irrevocable trust for the benefit of all or such one or more exclusively of the others or other of those named in Part 3 in such shares and in such manner as the Trustees (being at least three in number or a trust corporation) shall in their absolute discretion appoint by deed or deeds revocable or irrevocable and executed at any time or times not later than twenty four months after the date of the life assured (the date of death of the first/last to die in the case of joint lives assured) and in default of appointment or so far as no such appointment shall extend for the benefit of those named in Part 2 in equal shares absolute (unless otherwise stated).

5. Thus the trust is organised as a discretionary trust for the benefit of those named in Part 3 and in default of appointment for the benefit of those in Part 2. No doubt this is the reason it calls itself a "flexible" trust. However as executed the trust is not flexible at all. As executed, the two grandchildren Rebecca and Jamie are the sole beneficiaries in equal shares and the trustees have no power to change anything.
6. In February 2010 Mr and Mrs Lawie were considering purchasing a house. Their daughter contacted the Norwich & Peterborough and the lack of flexibility was discovered. A complaint was made to the Norwich & Peterborough. It was investigated by the complaints officer, Mr Pinchbeck. He considered the information provided on the Lawie's behalf and that provided by Mr Tollins. In a letter on 18^th October 2010 Mr Pinchbeck upheld their complaint. His findings included the following:

This desire [to invest in the medium to long term] was driven by the fact that they [Mr and Mrs Lawie] wanted to set up a trust for the benefit of their children and grandchildren and that they would not need access to the funds in any way during the rest of their lifetime.

7. Mr Pinchbeck confirmed that because Part 3 of the form had been left blank, there was no scope for the trustees to add further beneficiaries over and above the two names in Part 2 (Rebecca and Jamie). An offer to reimburse their legal expenses (up to a limit) was made, together with a payment for distress and inconvenience. They were advised to apply to court for variation or rectification.
8. The application for rectification was made under CPR Part 8 with the claim form issued on 23rd August 2011. Directions were given for evidence. The evidence consisted of witness statements from Mr Lawie, Lesley and Roger. In addition Anthony and Rebecca wrote letters to the claimant's solicitors, Terrells LLP, making clear they did not oppose the application.
9. At that stage the rectification sought was to add into Part 3 of the trust deed form the names of: Mr Lawie, Anthony, Lesley, Rebecca and Jamie. The effect of this would be that the trustees would then have the power to make any or all of those persons beneficiaries and to vary their entitlements. The rationale for the inclusion of Mr Lawie was that, at that stage and on the evidence of Mr Lawie, Lesley and Roger the settlors had intended not only that their children and grandchildren could be beneficiaries but that Mr and Mrs Lawie were to be able to benefit potentially as well.
10. The matter came before Vos J on 26^th July 2012. At that hearing it emerged that a key document was missing from the exhibits to Mr Lawie's witness statement. Exhibit SL2 was supposed to contain a copy of the personal financial report prepared for the Lawies by Mr Tollins. However the exhibit only contained the "Fact Find" document and not the report itself. It was obvious that the report was an important part of the evidence. It was supposed to have been exhibited. The matter was adjourned to allow further evidence to be produced.
11. The further evidence consisted of short statements from Mr Lawie, Lesley Ely and Roger Ely. Mr Lawie exhibited the missing report, dated 1^st March 2006. While the report firmly supports the application for rectification to add Anthony and Lesley as further potential beneficiaries under the trust, the report also undermines the application to rectify by adding Mr Sydney Lawie's name. The report repeatedly makes statements along the following lines:

You have funds available that you would like to earmark for the benefit of your Children and Grandchildren, as you do not need the funds yourselves.

12. It may be noted that this is consistent with the passage quoted above from Mr Punchbeck's letter.
13. In any event, as a result of the further evidence, the application to add Mr Lawie's name was dropped. However the application to add the names of the children, Anthony and Lesley, is maintained. The further statements of Mr Lawie, Lesley Ely and Roger Ely indicate that they do genuinely believe that Mr and Mrs Lawie intended to have access to the Trust as well as the children and grandchildren but they accept that this is not borne out by the documents. They only ever informed the court of their recollection and understanding of the instructions given to Mr Tollins and never wished to mislead the court. Mr Lawie's second witness statement explains:

Looking back I remember hearing words such as control and other jargon being used by Mr Tollins and in my mind this assured me that my intention for complete flexibility and control were understood.

14. The matter came before me on 16^th October 2012. Mr Lawie was represented by Mr Martin Collier instructed by Terrells LLP. The first, second, third and fourth defendants did not appear and were not represented but had indicated either by their witness statements or at least in the form of letters, that they did not oppose the application. The position of the fifth defendant, Jamie, was set out in a letter from his solicitors, Hodgkinsons dated 11^th October 2012, which I was shown.
15. The Hodgkinsons letter refers to the change of position by Mr Lawie and the contrast between Mr Lawie's two statements and asks two rhetorical questions: How do you now seek to justify the inclusion of the children as opposed to the grandchildren in this Trust? and Does it not show, according to your client's Mr Lawie Senior's own evidence, that the intention was for only the two grandchildren to benefit? I will address Jamie's position below.
16. I heard Mr Collier's submissions and formed a clear view that I should order rectification, with reasons to be given in writing after the hearing. These are those reasons.
17. The relevant law was as stated by Brightman J in In re Butlin's Settlement [1976] Ch 251. That case involved an application to rectify a voluntary settlement made 28 years before by introducing a power for a majority of trustees to make decisions binding upon the minority. One trustee (Lady Butlin) opposed the rectification.
18. Brightman J considered the law at p260 - F to 263-A. He held that there is no doubt that the court has power to rectify a settlement notwithstanding that it is a voluntary settlement and not the result of a bargain (judgment p260 F-G). In the case before him, Brightman J had to consider whether rectification is available not only in a case where particular words have been added, omitted or wrongly written but in a wider class of case when it was mistakenly considered they bore a different meaning from their correct meaning as a matter of true construction. He held that it was available in the wider class as well (judgment p260 H). The case before me is simpler, since the rectification relates to the omission of words said to be mistakenly left out, i.e. the names in Part 3 of the trust deed form.
19. Finally in the case before Brightman J, the question arose whether it was enough to prove that the settlor alone made a mistake or whether the intention of the other parties to the settlement was relevant (judgment p261 B to 263 A). The learned judge considered two extreme examples at p262 C-E. One involving a case in which the settlor had a clear intention but a copying mistake took place of which the trustees knew nothing and the other a case in which rectification is sought in defiance of the protests of the trustees, of a settlement executed in a legal form, e.g. to insert a power to dismiss the trustees. He held that the solution to the problem was that the remedy of rectification was a discretionary remedy. If the trustees were not party to a bargain, it was not essential to prove that the settlement fails to express their true intention but in any event the court may in its discretion decline to rectify a settlement against a protesting trustee who objects to rectification.
20. The learned judge concluded he had the jurisdiction to make the order sought. In deciding whether to exercise his discretion to do so Brightman J considered the nature of the power sought to be introduced, the nature of the trust itself, and the overall impact of the rectification. It appeared that in all likelihood Lady Butlin, the mother of three named beneficiaries, was the person against whom the majority clause was likely to be exercised. With considerable hesitation Brightman J decided to exercise his discretion to rectify. An important point was that Lady Butlin did not disclose her reasons for opposing rectification.
21. Mr Collier also referred to Gibbon v Mitchell [1990] 1 WLR 1304. However in that case Millet J explained that he regarded it as an application to set the deed aside for mistake rather than a case for rectification. I do not think it is relevant to the matter I have to decide.
22. Finally Mr Collier referred to the judgment of the Court of Appeal in Joscelyne v Nissen [1970] 2 QB 86. This is the authority for the point that a strong burden of proof lies on the shoulders of those seeking rectification and that the jurisdiction is only to be exercised upon "convincing proof" that the concluded instrument does not represent the intention of the relevant parties. I use the expression "relevant parties" because the case was concerned with the common intention of the parties to a contract whereas the matter before me is not.
23. I am satisfied that the court has jurisdiction to make the order sought. Convincing proof of the relevant intention is required before exercising the jurisdiction and in any event whether to make the order or not is a matter of discretion to be exercised in all the circumstances.
24. What was the intention of the settlors and (if different) the trustees in this case? As regards the settlors, I have the evidence of Mr Lawie himself. I have referred to his evidence already. Mrs Lawie is deceased and probate was granted on 31^st August 2011. Evidence of her intention is given by Mr Lawie, her executor Lesley and her son in law Roger. They all confirm that Mr and Mrs Lawie's intention was the same and there is no reason not to accept what they say.
25. As regards the trustees apart from the settlor, I have witness statements from Lesley and Roger. They are the people who visited Mr Tollins at the Norwich & Peterborough in 2006. Their evidence is unanimous as regards intention and supports rectification. Anthony is and has always been a trustee and, although he has not provided a witness statement, it is clear from his letter that he does not oppose the rectification.
26. What significance should I attach to the change in the claimant's case over the summer? The letter from Jamie's solicitors questions whether, as originally stated, Mr Lawie really intended his children (Lesley and Anthony) to be included as potential beneficiaries, contending that the only intention shown by Mr Lawie in his original first witness statement was one which did not include his children but only himself, his wife and the grandchildren, whereas the second witness statement states that the intention was to include both the children and grandchildren. I do not accept this characterisation of Mr Lawie's first witness statement. Taken out of context it is true that a single paragraph in the first witness statement could be read as referring only to the parents and the grandchildren and not the children. However read as a whole, the first witness statement was clearly not as narrow as that. Its final paragraph states "I refer to SL5, a draft deed which includes myself, my children and my grandchildren as potential beneficiaries. This was the flexible Trust that my wife and I intended Legal & General to make, save that we would have included my wife as a beneficiary also." Accordingly I reject the contentions put by Jamie's solicitors. The first witness statement of Mr Lawie does not show that the intention was only for the two grandchildren to benefit. The evidence as a whole does and always has justified the inclusion of the children in the trust.
27. Although the change of position in the witness statements of Mr Lawie, Lesley and Roger does not inspire confidence about their recollection of the intention of the relevant persons when the trust was set up, in my judgment the Personal Financial Report on its own, particularly when coupled with the other evidence in the case, provides solid evidence that the settlors intended that their children, Lesley and Anthony should have been included in the trust as potential beneficiaries. This is not a case in which the trust was set up pursuant to a bargain between the settlors and anyone else and in my judgment on the facts of this case no other intention apart from the settlors would be relevant. Nevertheless it is also clear that the intention expressed in the Personal Financial Report, since it was prepared as a result of the meeting held between Mr and Mrs Lawie, Lesley, Roger and Mr Tollins, also expresses the intention of four of the five original trustees. Since the fifth trustee (Anthony) does not oppose the rectification there is no reason to infer that he had a different intention.
28. In my judgment there is convincing proof that the relevant parties intended the trust to be for the benefit of the children (Lesley and Anthony) as well as the grandchildren (Rebecca and Jamie).
29. So I am left with the question of whether I ought, as a matter of discretion, make an order for rectification in this case. The important factors in this case are these. (1) The trust on its face was meant to be a discretionary trust with the trustees exercising powers of appointment in their absolute discretion for the benefit of beneficiaries in a discretionary class, with a default provision if no such power was exercised. However as executed the discretionary class has no members and the trustees' powers of appointment are emasculated. (2) The trustees are unanimous in not opposing the change. (3) It is clear that in the drawing up of the trust deed a simple drafting mistake has occurred. The report dated 1^st March states clearly that the trust is to be for the benefit of the children and grandchildren but on 4^th March the trust deed omits the children's names as beneficiaries altogether. Part 3 has been left blank, plainly in error. (4) Nevertheless, as a practical matter rectification makes a fundamental change to the effect of this trust. What is being introduced now is in effect a power on behalf of the trustees in their absolute discretion to apply the funds entirely for the benefit of individuals not originally named as the beneficiaries at all. It is highly likely that one or other or both of Rebecca and Jamie will receive less, perhaps much less, from the trust that they would otherwise have done. I note that Rebecca supports the change but Jamie does not.
30. Despite the likely impact on the beneficiaries, I have reached the conclusion that I ought to exercise my discretion in favour of rectification. The position is not dissimilar to the position in the Butlin's case. Before me Jamie (who is not a trustee, unlike Lady Butlin; but pre-rectification would have been the sole beneficiary of 50% of the trust) has not seen fit to disclose his reasons for opposing the rectification as such. His solicitor's letter challenges the evidence relating to intention and I have considered that carefully and taken it into account. However as with Lady Butlin, his position may be no more than to put the settlor to proof of his intention, and that has been done. If he had wanted to persuade the court to reject rectification as a matter of discretion then he ought to have placed evidence before the court as to his reasons and if necessary, he could have been cross-examined on it. In the absence of any such evidence I cannot tell if he has any reason to oppose rectification, once the mistake has been proved.

Conclusion

31. I will make the order sought. There will be no need to attend the handing down of this judgment.