[2009]JRC025B
royal court
(Samedi Division)
16th February 2009
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Before :
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Sir Philip Bailhache, Kt., Bailiff, and
Jurats Tibbo and Bullen.
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IN THE MATTER OF THE REPRESENTATION OF
SANNE TRUST COMPANY LIMITED
Advocate R. J. MacRae for the Representor.
Advocate M. C. Goulborn, guardian ad litem of
the minor child.
judgment
the bailiff:
1.
On 25th September, 2008, the
court considered an application by Sanne Trust Company Limited (“the
Trustee”) seeking the rectification of a settlement (“the C family
settlement”) created by Declaration of Trust made on 5th July, 1999. At the conclusion of the hearing we
granted the prayer of the representation and indicated that we would give our
reasons at a later date. This we
now proceed to do. The C family
settlement is in the fairly standard form of a discretionary Jersey
trust. The submission of the
trustee was that the establishment of the settlement in this form was a
mistake, and that it should have been established as an interest in possession
settlement (“an IIP Trust”) in accordance with tax advice received
at that time.
2.
Before
turning to the merits of the application Mr MacRae for the Trustee asked us to
deal with a preliminary matter dealing with the identification of the
beneficiaries and de facto settlor of
the settlement. Counsel drew
attention to an unreported decision of this court in Re the Representation
of Saffery Champness Trust Corporation [2005] JRC
052. In that case the court had
declined to sit in private but had agreed that the identities of the
beneficiaries of the trust in question could be withheld by a redaction of the
judgement to that end. The
principles in question are important, and the court’s policy in this area
bears re-statement.
3.
The first
principle is that justice must be done in public. The principle is conveniently
encapsulated in the second paragraph of the headnote to the report of Jersey
Evening Post Limited-v-Al Thani [2002] JLR 542 at 544 in the following
terms:-
“The principle of open
justice had not yet found statutory expression in Jersey but formed part of the
law and an order for proceedings to be heard in camera was only to be granted when it was necessary to do justice in the
exceptional circumstances of the case e.g. to protect specific
individuals or prevent the destruction of the subject matter in issue. Public proceedings ordinarily deterred
inappropriate behaviour on the part of the court, maintained public confidence
in the impartial administration of justice, made uninformed and inaccurate
comment on the proceedings less likely, and could result in additional evidence
becoming available. The burden lay
with the party seeking an order for hearing in camera to prove that it was the only way in which justice could be done;
convenience, potential embarrassment and the parties’ preference were in
themselves insufficient justifications”
4.
The second
principle, which might be thought to conflict with the first, is that in this
jurisdiction, considerable importance is attached to the confidentiality of
private trusts. It is for that
reason that administrative applications under Article 51 of the Trusts (Jersey) Law 1984 are customarily heard in private.
5.
An
application for the rectification of a settlement or other trust document is
not however an administrative matter of that kind. Applications for rectification involve
the commission of a mistake by someone, and the exercise of a judicial
discretion as to whether that mistake can be put right. There is no public interest in sparing
the blushes of professional advisers who have made mistakes in or about the
drafting of trust deeds or related documents. On the contrary, there might be said to
be a public interest in ensuring that such errors are put into the public
domain so that clients can be made aware of them. Furthermore, the exercise of the
court’s discretion may affect others, particularly tax authorities; as a
matter of generality there is no justification for sitting in private to hear
an application for the rectification of a trust document, and the application
to sit in private at an earlier stage of these proceedings should not have been
made.
6.
The
reconciliation of the requirement for public justice and the need to respect
the confidentiality of private trusts is achieved by sitting in public but by
redacting the Court’s judgment so as to excise any reference to the name
of a beneficiary and/or a settlor or protector. But for the error of a professional
adviser, there would be no application to the court. The nature of confidential family
arrangements embodied in a private trust would not ordinarily see the light of
day. There seems to us no
compelling reason why the mistakes of professional advisers should involve the
public exposure of family arrangements which would otherwise have remained
entirely private.
7.
We have
therefore sat in public, but this judgment will be redacted to protect the
privacy of the family members involved.
8.
We turn
now to the application itself. The
history of the matter is that between July 1997 and October 1998 Mr C sought
advice from his English solicitors Lawrence Graham as to the mitigation of his
tax liabilities. He received advice
from Mr Robert Field of that firm that a life interest trust from which he and,
after his death, his widow would be entitled to income should be
established. This advice from Mr
Field was embodied in a letter dated 6th October, 1997, to Mr C, and stated:-
“If you can show that you
are not domiciled in the UK,
and have retained your Irish domicile of origin, then it would be possible to
place the shares received into the hands of a non-UK Trust. Any gains subsequently realised by the
Trustees would be tax free, even if the proceeds of sale are transferred to you
in the UK. ...since I would envisage setting up a
life interest trust for you, from which you are entitled to the income, the
same gains tax considerations would apply in the event of your death, when your
widow would be able to receive any gains realised by the trustees tax free.”
9.
The task
of drafting the settlement was entrusted to Miss Kelly Noel-Smith, an assistant
solicitor in the firm. Her
affidavit shows that on 19th August, 1998, she wrote to Mr C’s Irish
solicitor, Mr Eoin Kennedy, stating:-
“If the offshore trusts
to be created by Mr C while he is UK domiciled are to have his
daughters as life tenants, the transfer by Mr C of any assets, whether situated
in the UK
or not, will constitute a potentially exempt transfer made by him”.
At the end of that letter she attached a
tax planning memorandum prepared by Mr Field which referred to the tax
consequences for inheritance tax purposes as being a “PET” (a
potentially exempt transfer). This
would have been the consequence of creating an IIP Trust.
10. There was then a delay of some months while
discussions took place, inter alia,
over the identity of the trustees.
In or about April 1999, the file returned to Miss Noel-Smith, who for
reasons which are unclear, drafted a discretionary settlement instead of the
IIP Trust envisaged by Mr Field. On
15th April, 1999,
the draft deed was sent to Mr C who approved it. Miss Noel-Smith stated expressly in her
letter to Mr C that “the trust is a
discretionary one which is necessary for tax planning purposes, and this means,
as you know, your trustees have absolute discretion as to the payment of income
and capital from your trust fund to particular beneficiaries”. Mr C made no comment upon the
draft. Miss Noel-Smith has deposed
that it was clearly inappropriate to draft a discretionary trust, and she has
no idea why she did so.
11. The draft deed was engrossed and executed by
the trustee on 5th July, 1999. In 2006 the trustee was undertaking a
periodic review of the trusts under its administration, and the matter came to
light. Subsequently, it was decided
to make an application to this court for rectification by substituting for the
discretionary trust executed in 1999 an IIP trust conferring benefits on Mr and
Mrs C as described above. Counsel
laid before us a revised trust deed showing the modifications which were
sought.
12. The law to be applied is clear. The court must be satisfied of three
matters:-
(i)
It must be
satisfied by sufficient evidence that a genuine mistake has been made so that
the document does not carry out the true intention of the parties.
(ii) There must be full and frank disclosure.
(iii) There should be no other practical remedy. The remedy of rectification remains a
discretionary remedy.
We consider each of these matters in turn.
13. It seems clear to us that an error was made in
the drafting of the trust deed.
There was a significant fiscal disadvantage in creating a discretionary
trust and the intentions of Mr Field that an IIP Trust should be created is
well documented. So far as Mr C was
concerned, we are satisfied that he relied entirely upon his different advisers
to create a tax-efficient trust for his benefit during the lifetime and
thereafter for the benefit of his wife.
We were satisfied that a genuine mistake has been made by the solicitors
acting for Mr C. Secondly, we were
equally satisfied that there has been full and frank disclosure. Thirdly, we were satisfied that there
was no other practical remedy available.
14. Finally, Mr Goulborn, who was appointed as
guardian ad litem of the minor child and unascertained beneficiaries of the C
Family Settlement by the Act of Court of 28th August, 2008, told us that he had
considered carefully the skeleton argument and other papers filed on behalf of
the Trustee. He was satisfied that
a genuine mistake had been made and that it was in the interests of those whom
he represented that the relief sought by the Trustee should be granted. None of the adult beneficiaries opposed
the application. The Court was
informed of correspondence between Messrs Lawrence Graham and HMRC Capital
Taxes Office which was content to rest on the decision of this Court following
the application of the Trustees.
15. It was for all these reasons that we granted
the application of the Trustee and ordered the rectification of the C family
settlement so as to create an IIP Trust, such rectification to have
retrospective effect from 5th
July, 1999.
Authorities
Re
the Representation of Saffery Champness Trust Corporation [2005] JRC 052.
Jersey
Evening Post Limited-v-Al Thani [2002] JLR 542.
Trusts (Jersey)
Law 1984.