In the matter of A re: the rectification of an erroneous instrument of appointment and…

In the matter of A re: the rectification of an erroneous instrument of appointment and retirement of trustees

In the matter of A [2011] JRC 008 concerned the rectification by the Royal Court of an error in an instrument of appointment and retirement of trustees, such error having resulted in the invalid retirement and appointment of successor trustees and compounded by the trustee who had purported to retire having subsequently been struck off.

Facts

The G Settlement was established by an instrument of settlement made by the late H as settlor and J as trustee. J purported to retire as trustee by an instrument of appointment and retirement of trustees dated 1 November 2000 (the “2000 instrument”) in favour of K. K retired as trustee in 2005 in favour of L. The business of L was taken over by the Representor in 2007. Although there was provision for one, no protector was ever appointed to the G Settlement.

Under the provisions of the G Settlement (the “Appointment Provisions”), the following persons, in order of priority, had the power to appoint a new trustee in place of a trustee wishing to resign:

"the Protector or if there shall be no Protector or if the Protector shall be unable to act:

1. the Trustees or if there shall be no trustee in existence or able to act;
2. the Royal Court of Jersey or the court of such other place which shall then be the forum for the administration of these trusts.”

As the result of a routine file review undertaken by the Representor, it came to light that the 2000 instrument contained the following errors:

1. the first page referred to three parties’, the first being defined as the Appointor, but the identity of the Appointor was left blank. The other parties were named as J, the retiring trustee, and K, the new trustee;
2. the recitals referred to there being a protector and the power to appoint new trustees being vested in the Appointor as the protector, pursuant to the Appointment Provisions;
3. the 2000 instrument then provided that the Appointor appointed K as the new trustee, in replacement of J, the retiring trustee;
4. as no protector had been appointed to the settlement, the power of appointment in fact vested in the retiring trustee, J, and there should have been no reference to the protector being the Appointor.

As a result of these errors, K was not validly appointed by the 2000 instrument, L was not subsequently validly appointed in 2005 and the acts of the trustees from November 2000 onwards were not validly undertaken.

The Court received affidavit evidence from directors of J and K at the time of the 2000 instrument which showed that in 2000 J was trustee of four settlements connected with the P family, which included the G Settlement. All four settlements were in a similar form. No protector was named in the instruments creating the settlements, but each gave the settlor the power to appoint a protector and a protector had been appointed to all of the settlements except the G Settlement.

Subsequently a decision was taken to move the trusteeships from J to K. Crill Canavan were instructed by J to prepare the draft instruments of appointment and retirement for the four trusts. The instructions to Crill Canavan were unclear as to whether a protector had been appointed to the G Settlement and Crill Canavan in their letter enclosing the drafts raised this point. However, no response was received to this letter and all four instruments of appointment and retirement were executed together in the form sent by Crill Canavan with the erroneous reference to the protector as the Appointor in relation to the G Settlement going unnoticed.

J was struck off the register of companies on 1 October 2008.

The Law

Rectification is a discretionary remedy with the following three part test:

1. the court must be satisfied that as a result of a genuine mistake the trust deed does not carry out the true intentions of the parties;
2. there must be full and frank disclosure; and
3. there should be no other practical remedy.

Decision

The Court in applying the test, was satisfied that there had been a genuine mistake and that there had been full and frank disclosure. J intended to retire as trustee of the G Settlement in favour of K and it was J that had the power to appoint new trustees. The 2000 instrument was executed by the two relevant and necessary parties, namely J, which had the power to appoint new trustees and K, which had agreed to be appointed. The reference to the protector in the draft should have been deleted and J described as the Appointor.

The Court also considered whether there were other practical remedies.

It was noted that even if J had continued as trustee from 1 November 2000 to 1 October 2008 when it was struck off the register of companies, the G Settlement would have been without a trustee from 1 October 2008 to the present time. The Court considered that the reinstatement of J was not now feasible as it would be unlicensed, without assets and it was unlikely that the former directors would wish to resume their positions.

The Court considered whether to exercise its power under the Appointment Provisions to appoint the Representor as trustee, but concluded that as this would not be retrospective the acts of the trustees over some ten years would require to be ratified.

Therefore the Court decided that rectification, which is retrospective in effect, was the only practical remedy, which should, in the exercise of its discretion, be granted.

Comment

The facts of this case are not uncommon and such errors do occur in the course of the appointment and retirement of trustees. This case is not only a reminder to trustees to consider appointment and retirement provisions carefully to ensure that the correct process is followed, but also, another example of the Royal Court’s practical application of the law.

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