Equity’s Magic Wand?
If only three out of four trustees execute a deed, and the trust requires unanimity, the deed is invalid. Or is it?
I was fortunate enough to have a walk-on part in English v. Keats, Re Thunder’s Trusts. Marcus Flavin did the heavy lifting, while Justin Holmes put the arguments to the contrary.
Alan Thunder and June Thunder each settled three trusts, each discretionary but with one of their children as a prime beneficiary. Alan and three professionals were trustees of his trusts; June and the same three professionals were trustees of her trusts. The trustees decided to appoint life interests to the prime beneficiaries. By an oversight, only the professional trustees executed the necessary deeds. Alan and June did not.
The mistake in Alan’s trusts was discovered before his death, and he executed a deed to ratify the earlier appointment. The mistake in June’s trusts was not discovered until after her death.
The proceedings initially started with a claim for rectification and a claim for relief under an equitable jurisdiction to remedy the defective exercise of a power of appointment. At trial, the claim for rectification was abandoned and substituted for a claim for relief pursuant to a proprietary estoppel.
Each of the grounds faced an uphill struggle. A series of cases involving pension trusts have held that proprietary estoppel can’t bind the participants in the fund, plus it was difficult to show that the supposed life tenants had suffered any detriment. The equitable jurisdiction had last been successfully invoked in 1908 and a 2005 case had suggested that it was best consigned to history.
But in the end the equitable ground succeeded. The Judge found that it is still good law in England that equity will intervene to perfect a defective appointment where:
- There was an intention by the person with the power to exercise it;
- There had been an attempt to exercise the power, rather than a failure to exercise it at all;
- The defect was formal rather than one of substance;
- The purported exercise must have been a proper exercise of the power; and
- The claimant must be a purchaser for value, a creditor, a charity or a person for whom the appointor is under a natural or moral obligation to provide.
There had been some argument about whether it mattered that not all of the trustees were under any moral or natural obligation to provide for Alan and June’s children. However, the Judge decided that equity could operate on the basis that June had been a trustee and was under such an obligation.
Interestingly, the Judge left open the possibility that the categories of claimant might be capable of expansion.
Overall, this is a useful revival of a venerable jurisdiction. Accidents can happen and it is not always possible or desirable to obtain redress from the trustees, whether through lapse of time or due to family ties. In a case in which all the parties had happily assumed for many years that the deed had been effective, it would have been a further misfortune if the court had not been able to correct the original mistake. It would also be strange if the court were able to use the rectification jurisdiction to correct substantive mistakes in formally valid documents, but had no jurisdiction to correct errors of formality where the parties were all agreed as to the substance.