Fine v Fine [2012] EWHC 1811 (Ch)

Case No HC11C04306

[2012] EWHC 1811 (Ch)

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

Venue Rolls Building,, Fetter Lane,

Date Monday, 21 May 2012

London EC4 1NL

Before

DAVID DONALDSON QC

(Sitting as a Deputy Judge of the High Court)

Between

FINEClaimant

FINEDefendant

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Judgment

[1]I have before me two claims for rectification of(a) two settlement trust deeds made in 1992 by Mr Anthony Ian Fine and Helen Doreen Fine, his wife and

(b) two deeds of appointment made under those trust deeds. Though I have referred to rectification of the deeds of settlement, it is the primary submission of the two settlors that the matter can be resolved by construction rather than rectification. No similar suggestion is advanced in relation to the deeds of appointment.

[2]I deal, first of all, with the question relating to the two trust deeds. At clause 1(d) of each of those deeds there is a definition of the beneficiaries as “…the following persons, whether or not such persons are now in existence or come into existence within the trust period. (i) The settlor’s children, Tracey, Mathew and Kitty, and his [or in the case of Mrs Fine, her] grandchild Maxwell, and remoter issue and the spouses, widows and widowers of such children, grandchildren and remoter issue.” The question which the settlors now wish to have clarified is the meaning of “and remoter issue”.

[3]The position in 1992 was that the only grandchild of the settlors was Maxwell. The question is whether the settlers intended also to include other grandchildren who might later come into existence. A linguistically possible construction is that the words “and remoter issue” coming immediately after the word “grandchild Maxwell” referred simply to the remoter issue of that grandchild. It is said, however, and in my view with considerable force, that it is inherently improbable that the settlors would have intended to exclude future grandchildren other than Maxwell. Moreover, it is noteworthy that sub-clause (d)(ii) also included as beneficiaries the children and remoter issue of the settlor’s brother, Jeffrey, and his sister-in-law Patricia. So the improbability becomes even greater that they would have intended to exclude their other future-born grandchildren when they had explicitly chosen to benefit the future-born grandchildren (and indeed future-born children) of Mr Fine’s brother and sister-in-law.

[4]In any event, such uncertainty as might remain notwithstanding those inherent improbabilities is really resolved by an explanatory memorandum which was prepared and signed by the solicitor to the settlors in 1992 and bears the same date as the two deeds. That memorandum says:

“The following are included as beneficiaries. The settlors’ existing children, Tracey, Mathew and Kitty and grandchild Maxwell and any others born within the trust period and their issue and the spouses of any of them.”

It seems clear from that document that what was intended was to include any other grandchildren born within the trust period. (There is perhaps a question in that explanatory memorandum as to whether it was intended to include any other children born during that period, but that would not fit into the wording of the trust deed itself.)

[5]So I conclude, as a matter of construction, that the two trust deeds do include as beneficiaries future-born grandchildren in addition to the one grandchild, Maxwell, then in existence. That being so, there is no need for rectification, though the explanatory memorandum would be more than adequate evidence to justify this course and I would have rectified it accordingly.

[6]I turn to the second matter relating to the deeds of appointment. The application is supported by a witness statement by Mr Anthony Fine, which also recorded that his wife Helen, the other claimant in this case, had read and approved the contents of the statement. In 2001 Mr Fine contacted his accountant and, as he records in a letter of 9 March 2001, he was told in a telephone call by the accountant that there were tax charges which would arise on the 10th anniversary of the trusts, and would be repeated on the 20th anniversary. To avoid this the accountant advised that the trust should be broken and the assets dealt with in some other efficient manner. Mr Fine did not however feel that it was prudent to distribute all or a major portion of the trust assets to the beneficiaries at this time. He had further contact with the accountant, in the course of which there was discussion about the distinction between discretionary trusts and interest in possession trusts, and he was obviously informed that interest in possession trusts, unlike discretionary trusts, would not incur the decennial charge. He then informed the accountant that he and his wife had now decided how the capital and income should be distributed from what he referred to in his letter as the “new interest in possession trust you propose” and he enclosed a draft of his proposals on a number of schedules, which were headed “New interest in possession trusts from 4 March 2002 to take over”, as it was put, “assets of the previous 1992 discretionary trusts”. It is clear from the content of these proposals that he understood that the touchstone of “interest in possession” was the entitlement to the income.

[7]On 7 February 2002 he wrote again to the accountant, saying he was increasingly worried about the tenth anniversary of the discretionary trust rapidly approaching and added, “I do want to ensure that the new interest in possession trusts are in place at this time.” He then contacted on 13 February 2002 some specialist solicitors in London, to whom he was referred by his accountant, and informed them that in order to avoid an unacceptable tax charge, the accountant had advised that two new interest in possession trusts formed from the assets of the previous discretionary trust should be transferred into the new interest in possession trusts, and again sent a schedule of what was proposed as to the distribution of capital and income. In his reply the solicitor in dealing with the question of whether the trustees might take into account any costs and expenses incurred by the trust each year stressed that the deduction of those items would not prejudice the existence of an interest in possession. Mr Fine’s answering letter is headed “Interest in possession trusts”, and he again refers to transferring the assets from the present discretionary trusts to the interest in possession trusts. In a subsequent letter, the solicitor refers to the grandchildren being entitled to the income as it arises, and also that the Fines might wish for the trust and the relevant bank accounts to be referred to as e.g. the “Helen Fine 2010 IIP Trust re Tracey”, etc. (“IIP” obviously being an abbreviation of “Interest in Possession”. The solicitor then prepared deeds of appointment under the trusts. Having first appointed new trustees, each of the deeds provides that:

“The trustees shall stand possessed of the capital and income of the trust fund to divide the same into three equal parts, such parts to be called ‘Tracey’s Part’, ‘Mathew’s Part’ and ‘Katie’s Part’, and after the division the trustees with the consent of [Mr or, as the case may be, Mrs, Fine] and in exercise of their powers of appointment conferred by clause 8(a) of the settlement appoint transfer and assign Tracey’s part to Tracey’s trustees, to be held on the trustees declared in the second schedule, ditto for Mathew’s part on the basis of trust set out and declared in the third schedule, and again ditto for Katie’s part for the fourth schedule.”

Clause 3.2 of the deeds then provides that the trusts set out in the original trust deeds and in the second, third and fourth schedule “shall carry the intermediate income and the statutory powers of maintenance, accumulation and advancement contained in the Trustee Act of 1925 section 31 (as amended).” The final sub-clause of the second schedule states that says:

“The settlement shall be known as the Anthony Fine 2002 IIP Trust No 1, or such other name as the trustees may assign hereto from time to time.”

The third and fourth schedules contain a similar provision.

[8]The express incorporation of the statutory powers of maintenance, accumulation and advancement contained in section 31 of the1925 Act causes no problem. The difficulty which has brought this matter before the court arises from the impact of section 31(2)(ii) of the Act, which I quote for intelligibility as part of the entire sub-section:

“During the infancy of any such person, if his interest so long continues, the trustee shall accumulate all the residue of that income by investing it, and any profits from so investing it from time to time in authorised investments, and shall hold those accumulations as follows:- (i) If any such person- (a) attains the age of eighteen years, or marries under that age, and his interest in such income during his infancy or until his marriage is a vested interest or; (b) on attaining the age of eighteen years or on marriage under that age becomes entitled to the property from which such income arose in fee simple, absolute or determinable, or absolutely, or for an entailed interest; the trustees shall hold the accumulations in trust for such person absolutely, but without any prejudice to [various other powers]. “(ii) In any other case the trustees shall, notwithstanding that such person had a vested interest in such income, hold the accumulations as an accretion to the capital of the property from which such accumulations arose, and as one fund with such capital for all purposes, and so that, if such property is settled land, such accumulations shall be held upon the same trusts as if the same were capital money arising therefrom.”

Thus, in a case where the beneficiary dies unmarried before the age of 18, any accumulations are held by the trustees as an accretion to capital and hence no longer for the benefit of the beneficiary or his estate. So the application of section 31(2)(ii) would mean that the interests of the beneficiaries cannot be interests in possession.

[9]Section 69(2) of the Trustee Act 1925 provides that:

“The powers conferred by this Act on trustees are in addition to the powers conferred by the instrument, if any, creating the trust, but those powers, unless otherwise stated, apply if and so far only as a contrary intention is not expressed in the instrument, if any, creating the trust, and have effect subject to the terms of that instrument.”

Accordingly, section 31(2) (ii) can be rendered inapplicable, if excluded by the trust instrument. As the case of Re Delamere

[1984] 1 WLR 813

makes clear, any such exclusion does not need to be stated expressly provided it is sufficiently and clearly implicit in the wording of the instrument

[10]It is true that, unless section 31(2)(ii) applies, there would be interests in possession. It is therefore tempting to argue that that in itself is sufficient to oust section 31(2)(ii). As counsel for the trustees quite properly points out, however, section 31(2)(ii) contains the words “notwithstanding that such person had a vested interest in such income”. So the mere fact that there was a vested interest in the accumulated income cannot suffice as an implicit exclusion of section 31(2)(ii).

[11]It is on that basis that the court is asked to rectify the deeds by the insertion of appropriate words of exclusion of section 31(2)(ii). For this purpose, it is necessary that those exercising the power of appointment were in mistake as to the effect of the deeds which they were executing.

[12]There is a preliminary point that the appointments have to be with the consent of the settlors. Arguably this does not mean that one is looking at the joint intention of the trustees and the settlors but merely of the trustees, but even if the matter extended to the settlors, they are Mr Fine and his wife, who are also the appointing trustees.

[13]The correspondence and evidence to which I referred earlier makes abundantly clear that the intention of Mr and Mrs Fine was to create an interest in possession and that they understood that interest in possession meant entitlement to the income. The cases draw a distinction between mistake as to the effect of a deed and a mistake as to its fiscal consequences. Of course the ultimate reason for executing the deeds of appointment was to avoid the decennial charge. But the mistake was as to the legal effect of the documents, which were intended to create interests in possession. That is not a tax concept but a legal concept, concerned with entitlement to the income. The failure to exclude section 31(2)(ii) means that in certain contingencies the absolute entitlement of the beneficiaries to the income intended by the appointors was mistakenly not achieved.

[14]I am therefore clear that this is a case which falls on the side of the line which concerns the legal effect of the document and not a mistake as to its fiscal consequence. That being so, I consider that it is right to effect the appropriate rectification to correct that mistake. __________