Andrews & Ors v Andrews & Anor

JUDGE HODGE QC: This is my extemporary judgment in a claim by three individuals: Mr Peter David Andrews, Mrs Gillian Ruth Andrews, and Dr David Timothy Andrews (as claimants) against two defendants, Zoe Isobel Andrews (who is a child and acts by Mr Steven Anselm Fox, her litigation friend) and Mr Timothy Robson Fairclough (as defendants) – claim number 3LV30311.

By a claim form issued in the Liverpool District Registry of the Chancery Division under Part 8 of the Civil Procedure Rules on 4^th November 2013, the claimants seek to rectify a voluntary discretionary settlement (known as the Andrews Family Trust) created by an inter vivos deed dated 1^st November 2010. That deed was made between the first and second claimants, Mr and Mrs Andrews (as settlors), and the first, second and third claimants, Mr and Mrs Andrews and their son Timothy (as trustees). The settlement created a lifetime settlement in favour of the granddaughter of Mr and Mrs Andrews and the daughter of Dr Andrews. The first defendant, Zoe Isobel Andrews, who is the daughter of Dr Andrews and his wife, is a child. She is sued on behalf of herself and also any future spouse or spouses and civil partner or partners. The second defendant is sued on behalf of all unborn or unascertained discretionary beneficiaries of the Andrews Family Trust.

By clause 8 of the settlement, there is an ultimate default trust in favour of a charity, the National Society for the Prevention of Cruelty to Children, but its interest only arises in the event of a failure or determination of the prior trusts, which is a most unlikely event; so unlikely indeed that it can, for all practical purposes, be ignored. In an email dated 4^th October 2010 the solicitor involved in the drafting of the trust, Mr Edward Bennett, described clause 8 as “standard”, commenting “In reality it will not matter as the default charity is extremely unlikely to benefit”. I am satisfied that its interest is so remote that there is no need for it to be joined as a party to these proceedings.

The evidence in support of the rectification claim is contained within three witness statements (all dated 31^st October 2013) from each of the three claimants. Although there are exhibits to all three witness statements, the fullest range of exhibits is that to the witness statement of the first claimant, Mr Peter David Andrews (exhibits PA1 through to PA7). Happily, this rectification claim is not opposed by anyone. Acknowledgments of service have been filed by both the second defendant, Mr Timothy Fairclough, and also by Mr Stephen Anselm Fox, who is a remote cousin of the second claimant, Gillian Ruth Andrews, and through her of the first defendant Zoe, her granddaughter. There is also a certificate of suitability filed by Mr Fox.

Both defendants have taken legal advice. Mr Fox tells me he has taken advice from a firm of solicitors in Marlow called LGP. The second defendant has shown me a letter from solicitors he has consulted, Cripps Harries Hall, dated 7^th April 2014. In that letter Mr Fairclough has been advised that the proposed rectification is for the benefit of the beneficiaries he represents and that his position of supporting the proposed changes to the trust is entirely reasonable, given that he represents the interests of persons who stand to benefit from the proposed changes. The position of Zoe is not one whereby she will benefit from the proposed changes because the effect will be to admit other beneficiaries in competition with her, but the most immediate competing beneficiary is her younger sister, Amy. Notwithstanding that, Mr Fox, who acts on Zoe’s behalf, has been advised that he should not oppose the rectification sought now that his solicitors have seen the relevant witness statements and evidence.

Of course, it is for me, as the trial judge, to satisfy myself that the rectification claimed is something to which the claimants are entitled. The leading authority is the recent decision of the Court of Appeal in the case of Day v Day [2013] EWCA Civ 280, [2014] Ch.114. There the Court of Appeal held that in the case of a voluntary unilateral settlement, the requirement in the case of a contract for an outward expression of accord, as precondition to a decree of rectification, has no application. At paragraph [22] Sir Terence Etherton C said that what is relevant in such a case is the subjective intention of the settlor. It is not a legal requirement for the rectification of a voluntary settlement that there should be 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. The Chancellor did however go to say that although there is no legal requirement for 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.

Lord Justice Lewison, in a concurring judgment, concluded (at paragraph [50]), in agreement with the Chancellor, that in the case of a voluntary disposition it was the subjective intention of the donor or settlor that counted. Lord Justice Elias, the third member of the Court of Appeal, delivered a concurring judgment. At paragraph [21] of his judgment the Chancellor cited from the seminal judgment on rectification for unilateral mistake of a voluntary settlement of Mr Justice Brightman in the case of Re Butlin’sSettlement Trust [1976] Ch 251, at pages 260 to 261. There, Mr Justice Brightman made it clear that the equitable remedy of rectification was available, not only in a case where particular words had been added, omitted, or wrongly written, as the result of careless copying or the like; it was also available where the words of the document were purposely used, but it was mistakenly considered that they bore a different meaning from their correct meaning as a matter of true construction. In such a case, the court would rectify the wording of the document so that it expressed the true intention.

Those are the legal principles that fall to be applied in the present case. I turn then to the supporting evidence, none of which has been challenged. The three witnesses were present in court; but neither of the defendants, or in the case of Zoe, her litigation friend (who appeared as litigants in person) wished to cross-examine any of the three witnesses, and the court itself saw no need to do so. I turn then to the first, and principal, witness statement, that of the first claimant, Mr Peter David Andrews. At paragraph 6 he explains that the aim of himself and his wife, Gill, in setting up the trust, had been for their grandchildren to be able to benefit from the property and any income that it generated, whilst managing inheritance tax liability. He and his wife wished ultimately to be able to benefit all of their grandchildren equally, including any who might be born after the creation of the trust. At the time the trust was settled, he and Gill had only one grandchild, Zoe, who was the daughter of Tim, the third claimant, and his wife Helen; but they were then expecting another baby, who was born in March 2011 and is called Amy.

Having related the circumstances attending the establishment of the trust, at paragraph 12 Mr Peter Andrews states that, although not fully appreciated at the time, the trust deed that was sent to himself and his wife was significantly different from what had been discussed at earlier meetings with the relevant financial advisor, Mr Lee. The trust deed had apparently been drafted for tax reasons as a fixed life interest settlement, with Zoe, their only granddaughter at the time, as the life tenant. Only after Zoe’s death would there be a discretionary trust, and until then Zoe would be absolutely entitled to all of the trust’s capital and income. Whilst there were discretionary beneficiaries under the trust deed, there was no overriding power for the trustees to make appointments or distributions in their favour during Zoe’s lifetime.

At paragraph 13, Mr Peter Andrews addresses a letter of 2^nd September. He comments that although the letter does state that Zoe is given an absolute entitlement to income under the trust deed, Mr and Mrs Andrews did not realise that that meant that no-one other than Zoe could benefit under the trust during her lifetime. The fact that, as a result of the changes to the draft settlement, the settlors would lose the ability to benefit anyone other than Zoe during her lifetime was neither discussed with the settlors before the decision was made, or explained to them before they signed the trust deed. Sadly, the letter alone was not sufficient to alert the settlors to the extent and impact of the changes that had been made to the trust deed. I pause to observe that that letter of 2^nd September (which is exhibit PA6 to Mr Andrews’s witness statement) does begin by referring to the creation of a trust for the benefit of the settlor’s children and “grandchildren”, with grandchildren in the plural.

Returning to Mr Andrews’s witness statement, at paragraphs 14 and 15 he relates how he and his wife, together with their son Tim, came to sign the trust deed. On the birth of their second granddaughter, Amy, in March 2011 they made enquiries about her being added as a discretionary beneficiary; but it soon became apparent that that was not possible until after Zoe’s death, and that until that time Zoe alone was to be entitled to both the trust income and capital. At paragraph 16, Mr Andrews states that he and his wife had thought, in their instructions to the financial advisors, that they had been clear that they wished to be able to benefit all of their grandchildren, including any born in the future on an equal basis. Mr Andrews states: “That was certainly our intention at the time the trust was settled and we were surprised and disappointed when we were informed that in fact Zoe alone could benefit for the duration of her life.”

Mr Andrews goes on to say that he and his wife had never been consulted about changes in the final trust deed, and the ways in which it differed from what had previously been discussed at their meetings with the financial advisor. It had never been explained to them that the final choice of a fixed life interest settlement would prevent anyone other than Zoe from benefitting from the trust throughout her lifetime. Whilst the settlors were prepared to follow advice regarding the most suitable structure for the trust, so as to achieve the settlors’ aims whilst taking into account inheritance task, the settlors never contemplated or intended that they should be willing or required to sacrifice their ability to benefit all of their grandchildren equally. The settlors had always made it clear that the whole purpose of the trust had been to benefit all of their grandchildren, and they would never have signed the trust deed in its current form if they had known that it did not allow them to do that. At paragraph 18, Mr Andrews states that he and his wife settled the trust in the mistaken belief that the trust deed accurately reflected and recorded their intention that all of their grandchildren, including those born after the trust was settled, could benefit from the property under the trust.

For those reasons, Mr Andrews seeks an order for the rectification of the trust deed, so as to give the trustees overriding powers of appointment that they can exercise for the benefit of any of the discretionary beneficiaries at any time, including during Zoe’s lifetime. Mr Andrews states that he has been advised by his solicitor, and believes, that the form of rectification sought in this claim would suffice for that purpose, as the trustees could use their overriding powers to ensure that all of the settlors’ grandchildren benefit equally. To rectify the trust deed would therefore carry out, and reflect, the intention that Mr Andrews and his wife, Gill, as settlors, had when they settled the trust.

The witness statement of the second claimant, Gillian Ruth Andrews, is entirely consistent with that of her husband. At paragraph 8, she states that the intention of herself and her husband at the time they settled the trust on 1^st November 2010 had been that they should be able to benefit all of their grandchildren equally, including any that might be born in the future. She says that they were very clear that this was what they wanted in their instructions to the financial advisor. As it turned out, the trust deed, as drafted, does not allow them to achieve that. She says that they only discovered that that was the case when they made inquiries about adding Amy as a discretionary beneficiary shortly after she was born. At paragraph 9, the second claimant states that she has been advised by her solicitor, and believes, that under the trust deed as currently drafted, Zoe alone is absolutely entitled to the property, and to the income that it generates, for as long as she lives. The trustees do not have overriding powers that can be exercised in favour of the discretionary beneficiaries until after Zoe’s life interest ends.

At paragraph 10, Mrs Andrews addresses the letter of 2^nd September 2010, to which I have already made reference; and although that letter states that Zoe is absolutely entitled to the trust income, Mrs Andrews states that she and her husband did not understand at the time that that meant that they would have no discretion to benefit any of their other grandchildren during Zoe’s lifetime. That is said to have surprised the settlors, as they never gave the instructions for such a change to be made. She says that they were always very clear that they required the flexibility to benefit new grandchildren as and when they were born.

Mrs Andrews states that their intention was to be able to benefit all of their grandchildren under the trust, including those not born at the time the trust was settled. That intention is therefore not reflected or carried out by the trust deed as it was finally drafted. The choice of a fixed life interest settlement was apparently made for tax purposes. Mrs Andrews says that they were never consulted about that, nor were the consequences explained to them at any time before they settled the trust. She and her husband settled the trust in the mistaken belief that the trust deed gave them power to benefit all of their grandchildren, including those born after the trust was settled.

For those reasons, Mrs Andrews also seeks an order rectifying the trust deed so as to give the trustees overriding powers of appointment that they can use to benefit any of the discretionary beneficiaries at any time, including during Zoe’s life. She, too, is advised by her solicitor, and believes, that the form of rectification sought in the claim form would suffice for that purpose, as the trustees could use their overriding powers to ensure that all of their grandchildren benefit equally. On that footing, the rectified trust deed would reflect, and carry out, the intention that Mr and Mrs Andrews, the settlors, had when they settled the trust.

Dr Timothy Andrews refers at paragraph 7 to the present effect of the trust deed, whereby Zoe alone is entitled to the property and its income during her lifetime, and there is no power for the trustees to benefit anyone else until after her death, including Dr Timothy Andrews’s daughter, Amy, who was born after the trust was settled. At paragraph 8, Dr Andrews states that he is certain that his parents did not intend that to happen. Their intention was for the benefit of the trust to be shared equally between all of their grandchildren. The way in which the trust deed has been drafted does not carry out, or reflect, that intention. It gives the trustees no flexibility as to how the income of the trust is applied. At paragraph 9, Dr Andrews states that he does not know who made the decision to change the structure of the trust, or when it was made, but it appears to have been done for tax reasons. Whilst tax was certainly a concern of his parents in setting up the trust, their top priority is said always to have been to benefit all of their grandchildren on an equal basis, including those not born at the time the trust was settled. The trust deed is therefore inconsistent with the intention of his parents when they settled the trust.

For those reasons, Dr Andrews too seeks an order rectifying the trust deed so as to give the trustees overriding powers of appointment that they can exercise in favour of the discretionary beneficiaries at any time during the lifetime of the trust. He too has been advised by his solicitor, and believes, that the form of rectification sought in the claim form would suffice for that purpose, as the trustees could use their overriding powers to ensure that all of his parents’’ grandchildren benefit equally. The rectified trust deed would therefore reflect the intention the settlors had when they settled the trust.

That is the evidence in support of the rectification claim and it is, as I say, unchallenged. I accept that evidence. I am satisfied that, on that evidence, the claimants have established that there was indeed a mistake as to the legal effect of the trust deed of settlement into which they entered on 1^st November 2010. The mistake was that all three of them thought that the trust was capable of benefitting any child of Dr Andrews and his wife, and not just Zoe, the only then child. I am satisfied that there was a relevant mistake against which equity can grant relief by the equitable remedy of rectification. I am also satisfied, on the evidence, that the necessary conditions for equitable relief against the consequences of a mistake are satisfied. The manner in which equity should relieve against the consequences of a mistake, on the facts of the instant case, is by way of rectification. I am satisfied that the rectification sought will have the effect of giving effect to the actual intentions of the parties to the deed of settlement.

For those reasons, I will make an order in the terms of the draft sought by Mr Granby (of counsel), who appears for the claimants, and which is supported by the two defendants. I will order that the first defendant, Zoe, be appointed to represent her future spouses and civil partners. I will order that the second defendant be appointed to represent all unborn and/or unascertained discretionary beneficiaries of the Andrews Family Trust. I will declare that the Andrews family settlement, executed on 1^st November 2010 and made between the first and second claimants (as settlors) and the first, second and third claimants (as trustees), should be rectified in the manner specified in the schedule to the order; and I will order that it be rectified accordingly.

Ancillary to that, I will declare that the deed, as so rectified, ought to take effect in like manner as if the rectifications had been made in the deed at the time of its execution by the claimants. I will also order that a copy of the order be endorsed upon the deed; and that the claimants personally, and not out of the trust assets, should pay the defendants’ costs, to be assessed if not agreed.