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Appointor; power of appointment, Beneficiaries, Beneficiary rights, Corporate trustee, Directions, Discretionary, supervision of trustees powers of the court, trust, Trust review, Trustee Act

Highly unusual – or not?

In the Matter of the Representation of Scarlett Investment Holdings Limited addresses an application for rectification by a de facto trustee in circumstances where the settlor of three trusts settled by declarations of trust dated 23 February 1982 had died and the original trustee, a BVI private company was believed to have been struck off from the register of companies.  Prior to being struck off the BVI company purported to retire in favour of another BVI company (Athol) (understood to be subsequently liquidated).  This appointment was effected by the settlor, notwithstanding that he had no power to do so.  Accordingly, as noted in the judgment “There is … a substantial question mark over the validity of Athol’s appointment.”  Athol then purported to retire in favour of Scarlett Investment Holdings Limited (Scarlett) again notwithstanding that Athol did not have the power to do so.

Scarlett purported to act as trustee and appointed each trust a beneficiary of the other, again notwithstanding that there was no power for Scarlett to do so.  Scarlett also purported to settle further property onto each trust.

Scarlett then sought rectification of the trust instruments.

Scarlett as de facto trustee was considered to have standing to make an application pursuant to Article 51 of the Trusts (Jersey) Law 1984, which has some facets of s 66 of the Trustee Act 1956 (Right of trustee to apply for directions)

At the time of the application for rectification, B was the sole default beneficiary.   The rectification sought included the appointment of a protector.  The matter is interesting as the judgment identifies the scope for correction of “clerical blunders” where there is no need for a formal order for rectification and the scope for citing “an error on the part of the settlor” to allow a properly constituted trust.

In the context of obvious mistakes the following passages from the judgment provide useful guidance:

30.      In the matter of the Representation of H1 Trust Company Limited [2013] JRC 039, the Court at paragraph 17 of the judgment said this:-

“In Re Shinorvic Trust [2012] JRC 081 at paras 36 – 38, the Court held that, as in English law, certain obvious mistakes can be corrected as a matter of construction without the need to obtain an order for rectification.  This Court adopted the principle as described by Brightman LJ in East –v- Pantiles (Plant Hire) Limited [1982] 2 EGLR 111 at 112 where he said:-

“It is clear on the authorities that a mistake in a written instrument can, in certain limited circumstances, be corrected as a matter of construction without obtaining a decree in an action for rectification.  Two conditions must be satisfied: first, there must be a clear mistake on the face of the instrument; secondly, it must be clear what correction ought to be made in order to cure the mistake.  If those conditions are satisfied, then the correction is made as a matter of construction.  If they are not satisfied then either the claimant must pursue an action for rectification or he must leave it to a court of construction to reach what answer it can on the basis that the uncorrected wording represents the manner in which the parties decided to express their intention.  In Snell’s Principles of Equity 27th Ed p 611 the principle of rectification by construction is said to apply only to obvious clerical blunders or grammatical mistakes.  I agree with that approach.  Perhaps it might be summarised by saying that the principle applies where a reader with sufficient experience of the sort of document in issue would inevitably say to himself, ‘Of course x is a mistake for y’.””

31.      And, at paragraph 22:-

“In view of our decision, it is not necessary to go on to consider alternative methods of correcting the error.  However, as at present advised, it seems to us that the principle of “imputed intention” (as described at paragraphs 59 – 65 of Re Shinovic Trust and in the article by Professor Paul Matthews entitled Nothing up my sleeve at [2011] Jersey and Guernsey Law Review 357), would be of assistance in this case.  This is because all the parties with the power to appoint H&P as new trustee (namely Warren and Elysium) were parties to the 2005 deed and intended that H&P should be appointed as a new trustee, albeit that, because of the clerical error in clause 1, they failed to exercise that power on the face of the document.  H&P and Warren have acted as joint trustees since 2005 and that can only be on the basis that Warren and Elysium should be treated as having in fact exercised the power of appointment by the 2005 deed to which they were party.”

In the case at hand, while the matter was rather more significant than a clerical blunder, a pragmatic view was taken to allow the rectification sought, the court noting at [33] that:

“This is a highly unusual set of circumstances where a trust clearly exists but it has proved impossible to find anyone connected with it or who might be interested in it other than the default beneficiary.  In the circumstances, the Court would wish to do what it can to assist and put in place a trust which clearly was the intention of the settlor when created, namely a properly constituted trust with a protector.  There is no suggestion that what has been done in the intervening period from the creation of the trust, although not valid because of a want of validity of appointment, has been wrong or other than in the interests of the trust and should not be to the extent necessary validated.”

While it could be argued the that the case should be limited to its facts, given the number of trusts in New Zealand and the vast range of drafting competencies employed, the decision may provide useful guidance more commonly that might be wished for.



2 thoughts on “Highly unusual – or not?

  1. Interesting! Potentially dangerous in its application in NZ though given, as you say, they range of competencies and possible willingness to use the principle to suit. H

    Sent from my iPhone

    Posted by Henry Brandts-Giesen | January 11, 2019, 8:44 am
  2. The settlor of my trust died. I am a trustee. Can I write a memorandum of wishes to continue the equitable guidance of future trustees after my death?

    Posted by Joe Stanley-hunt | February 18, 2021, 5:47 pm

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