ROYAL COURT
(Samedi Division)
23 February 1999
Before: FC Hamon Esq Deputy Bailiff and
Jurats Herbert and Le Breton
In the matter of the Representation of Terence Augustine Le Sueur
and Raleigh Nominees Limited
and
In the matter of the Joseph Eagle 1989 Settlement
dated 16 February 1989
Application by the Representors for leave to rectify the Settlement
Advocate MHD Taylor as guardian ad litem for James Mark Joseph Eagle and as representing the future born issue of Mr Eagle
Advocate DJ Banks for the Representors
JUDGMENT
THE DEPUTY BAILIFF: This is an application of Terence Augustine Le Sueur and Raleigh Nominees Limited. The representors are the present trustees of a settlement made between Mr Joseph Eagle as settlor and themselves as trustees on 16 February 1989. The settlement is known as the Joseph Eagle 1989 Settlement. The settlement was made in Jersey and the Royal Court is the sole forum for the administration of the settlement. The beneficiaries of the settlement are the settlor and any issue of Mr Eagle living at the date of the settlement or born thereafter. It appears that Mr Eagle has one son, James Mark Joseph Eagle born on 29 June 1979 and he is nineteen years old. Advocate Taylor represents the minor beneficiaries and any other beneficiaries to be born in the future but he had only favourable comment to make on the application. Mr Eagle is resident in the United Kingdom.
We have before us several affidavits because this is a representation seeking the leave of the Court to rectify the 1989 settlement.
The affidavit of Robin Charles Rowe shows that he is a certified accountant and partner in the well-known firm of Grant Thornton. He specializes in taxation and has been a certified accountant for fifteen years. It was he who advised Mr Joseph Eagle to establish an offshore trust with trustees resident outside the United Kingdom who would administer a trust there. He wrote him a letter of advice because the establishment of the settlement would offer significant Capital Gains Tax advantages to Mr Eagle, particularly under the provisions of the Taxation of Chargeable Gains Act 1992 - (it is not necessary to set these provisions out for the purposes of this short judgment).
Clearly, Mr Rowe intended that the settlement would be drafted as flexibly as was possible. His letter to Mr Eagle, whom he was advising on a US management buy out of a company called Physicians World Communications is very detailed but on page 3 of that letter, Mr Rowe set out three important powers that the trustees should have. What he said on that point is this:-
"The trustees will have power to
(a)pay capital to you
(b)over-ride the life interest and transfer assets to specified discretionary beneficiaries
(c)extend the list of specified discretionary beneficiaries."
Before he sent the letter to Mr Eagle, Mr Rowe contacted an English solicitor called Maureen Solomon of a firm in Sussex. He gave initial taxation advice and the structure to be established to this solicitor and because he was not an expert in legal drafting, he left the matter to her.
Turning now to her affidavit, she affirms that she agreed to arrange for the drafting of a suitable trust and that she would contact Jersey lawyers. There appeared to be some urgency in the matter because she contacted Mourant du Feu & Jeune and they confirmed that they would prepare a settlement "along the lines indicated" at short notice. Mrs Solomon set the wheels in motion and when she had the letter from Mr Rowe of 30 January before her, she telephoned a Mr Greenstreet of Mourant du Feu & Jeune and instructed him to proceed with the drafting of the Jersey law settlement. It passes belief that anyone could have given instructions for the drafting of a settlement which involved some £32M by telephone, but that is the way that this solicitor proceeded. Her telephone call was on 7 February and she says that "on or after 8th February 1989" she received a letter from Mourant du Feu & Jeune including a copy of the trust, an engrossment of which they had sent direct to Mr Eagle. Mrs Solomon wrote to Mr Eagle on 22 February. Mrs Solomon sent to Mr Rowe what she called "a brief report on the principal clauses" that she had prepared. It is quite clear that Mrs Solomon had missed the important point of the settlement because she notes that Clause 8 of the settlement confers a life interest on the settlor, but does not note that there is no power in the trustees to over-ride that life interest and transfer assets to other discretionary beneficiaries. There is power of appointment on the trustees but it is clear that that can only be exercised on the death of Mr Eagle "the life tenant" and not prior to that time. Nothing of any matter arose out of the terms of the settlement until 7 December 1998 when Mrs Eagle was added to the class of beneficiaries. She is a US citizen and domiciled outside the United Kingdom. It was advantageous to make a capital distribution to Mrs Eagle of some £2.25M which of course could have been made free of Capital Gains Tax. It was then that the problems became apparent.
We now have to consider whether we can rectify the settlement to add this clause:-
"Notwithstanding the trusts powers and provisions declared above the Trustees may at any time or times during the Trust Period in their absolute discretion pay transfer apply or deal with the whole or any part or parts of the capital of the Trust Fund to or in any manner generally which is for the benefit of all or any one or more of the Beneficiaries exclusive of the others."
Now, what we have here is a discretionary remedy in the sense that even if all the other conditions are satisfied, we may still refuse to order rectification if we do not consider it just to do so. But I have to say that there is no rule that we know of in England or in Jersey where a Court would refuse to rectify a deed where the effect of rectification would be to save tax.
There is a passage in Snells Principles of Equity (29th Ed’n) at page 632 which reads as follows:
"Burden of proof:
He who seeks rectification must establish his case by strong irrefragable evidence, which means something more than the highest degree of probability. There must be evidence of the clearest and most satisfactory description that will establish the mistake with a high degree of conviction and leave no fear and reasonable doubt upon the mind, that the deed does not embody the final intention of the parties. In the modern phrase, there must be convincing proof of the mistake on the part of all parties. This heavy burden of proof becomes even more difficult to discharge with the passage of years".
Of course, there is a period of time from the Settlements being brought into being, and the mistake’s being realized for the first time.
We need to read from the judgment of the learned Bailiff in In re Moody Jersey "A" Settlement (7th December, 1987) Jersey Unreported; (1990) JLR 264 which in our view summarizes the matter very neatly.
The principles were set out in even more detail in re Slococks Will Trusts [1979] 1 All ER at 363, and I think I ought to read them in extenso, because they may be of assistance in helping this Court in subsequent applications, of which I have no doubt, there will be a considerable number. In that case Graham J set out the governing principles of how the Court should approach such an application, and we think they are very succinct and as I say could well be used by this Court to assist it in future applications and I read the whole passage from letter (b):
"the true principles governing these matters I conceive to be as follows: (I) The Court has a discretion to rectify where it is satisfied that the document does not carry out the intention of the parties. This is the basic principle. (2) Parties are entitled to enter into any transaction which is legal, and, in particular, are entitled to arrange their affairs to avoid payment of tax if they legitimately can. The Finance Acts 1969 and 1975 tell them explicitly how they can do so in the case of estate duty and capital transfer tax. (3) If a mistake is made in a document legitimately designed to avoid the payment of tax, there is no reason why it should not be corrected. The Crown is in no privileged position qua such a document. It would not be a correct exercise of the discretion in such circumstances to refuse rectification merely because the Crown would thereby be deprived of an accidental and unexpected windfall. (4) As counsel for the trustees submitted, neither Whiteside -v- Whiteside nor any other case contains anything which compels the court to the conclusion that rectification of a document should be refused where the sole purpose of seeking it is to enable the parties to obtain a legitimate fiscal advantage which it was their common intention to obtain at the time of the execution of the document."
We are satisfied, having read particularly the letter that was sent to the Sussex Solicitors by Mr Rowe, that the whole purpose of the Settlement was frustrated by the incorrect drafting and particularly the drafting of the clauses to which we have referred.
The affidavits are full and frank, and in our discretion, despite the lapse of time since the settlement was implemented we will order rectification - and do so.The rectification will operate retrospectively in the usual way.
Authorities
Snells Equity (29th Ed’n): Part VII: Equitable Remedies - Rectification. p632
In re Moody Jersey "A" Settlement (1990) JLR 264. (7 December 1987) Jersey Unreported
In re Cansolt Trustees Ltd (16 May 1994) Jersey Unreported
Re Slococks Will Trusts [1979] 1 All ER at p363