RBC Trustees (CI) Ltd & ors v Stubbs & ors [2018] WTLR 1399

Analysis

The claim was brought to rectify two deeds of revocation and appointment made in 2008 and 2014, or alternatively to rescind them on the grounds of mistake.

Each of the settlor’s adult children had an interest in possession in a one sixth share of the trust fund. In 2004, in order to ensure that no inheritance tax was payable upon their one sixth share of the trust fund as a result of their deaths, the trustees appointed successive life interests for the spouses of two of these children, Michael and Joanna. Unfortunately, both Michael and Joanna’s marriages ended in divorce. The trustees therefore sought to revoke the successive life interests that the ex-spouses’ had in the trust fund, and deeds of revocation were prepared to this effect. However, these deeds actually effected a revocation and reappointment of the trusts relating to Michael and Joanna. This error had potentially ‘catastrophic’ fiscal consequences.

The claimants therefore sought to rectify the 2008 and 2014 deeds to reflect the actual intention behind the deeds, or alternatively sought that they be rescinded due to the mistake.

Considering the authorities, the court set out four closely related criteria that need to be satisfied in order to rectify a written document:

1. a) clear evidence of the true intention to which effect has not been given in the instrument, and to counteract the evidence of a different intention represented by the document itself;
2. b) a flaw in the written document such that it does not give effect to the parties’/donor’s agreement/intention, as opposed to the parties/donor merely being mistaken as to the consequences of what they have agreed/intended;
3. c) the specific intention of the parties/donor must be shown, with some degree of precision;
4. d) there must be an issue capable of being contested between the parties 
notwithstanding that all relevant parties consent to the rectification of the 
document.

Held:

1. 1) All of the above criteria were satisfied, and the deeds ought to be rectified. The evidence showed that the intention of the trustees and the settlor was only to revoke the successive life interests of the ex-spouses, not to revoke Joanna and Michael’s interests and then re-appoint them.
2. 2) The deeds were flawed because they made changes to the arrangements that were not intended, wanted nor needed. The mistake was not just about the fiscal consequences of what the deeds achieved but about the scope of the changes. The mismatch between the trustees’ intention and the effect of the deeds exists independently of the fiscal consequences even though the motivation in seeking the remedy from the court is based on those consequences.
3. 3) It was very clear that the specific intention of the trustees was that the ex-spouses’ successive life interests be removed: this was sufficiently different to what was actually done.
4. 4) A change to the date of the governing document is a material change that creates a contestable issue. In this case a number of non-fiscal issues based on whether the interests of Michael and Joanna and their children and remoter issue arose under a deed made in 2004 or under the contested 2008 and 2014 deeds.

JUDGMENT ROSE J: Background [1] This is an application for rectification or rescission brought by the trustees of a settlement created by the first defendant Mrs Janatha Stubbs. The claim relates to two deeds of revocation and appointment dated 11 November 2008 and 22 April 2014. Each of the deeds effects a revocation and reappointment …

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