In the matter of the Representation of AIB Jersey Trust Limited and in the matter of the Exeter Settlement JRC012
This judgment of the Royal Court in Jersey provides an example of circumstances in which the discretionary remedy of rectification has been granted, together with an illustration of the importance of ensuring that the three essential certainties are in place in order for a valid trust to be created.
In this case, Mr L decided to set up an insurance broking company in 1983 and consulted an English solicitor (the "Adviser"), who advised that the shares in the new company should be held by the trustees of a discretionary trust established by a non-domiciled and non-resident individual.
Mr L had a relative who was domiciled and resident in France and she agreed to establish a settlement and contribute the initial property. The Adviser advised that the settlement should be created with a charity as the only named beneficiary, with power to add, so that Mr L and his family could become beneficiaries in due course. Mr L's relative decided that the named charity should be the Royal National Lifeboat Institution.
The Adviser took the trust instrument to the relative for execution in France. The document utilised extensive schedules, for various details, including the names of the settlor, the trustees, the beneficiaries and the chosen charity. Whilst some of the schedules were completed in manuscript by the Adviser, he did not notice that the details of the chosen charity had not been entered into the relevant schedule.
The trust instrument was signed by the settlor and subsequently signed by the initial trustees, and dated. The initial trust fund was used to subscribe for the shares in the new insurance company.
The Adviser admitted that an error had been made in failing to complete the relevant schedule with the name of the chosen charity. However, the error was not noted and matters progressed: there were changes of trustees, and the trustees purported to add Mr L and members of his family to the class of beneficiaries.
The court was satisfied that there had been a genuine error and that, as a result of that error, there were no beneficiaries of the settlement at the time of its execution. Accordingly, whilst there was certainty of words (as the trust instrument made it clear what was intended), and certainty of subject matter (since the trust fund was clearly identified), this was not the case with regard to the third essential certainty: certainty of objects.
A number of arguments were put forward, however, to the effect that the settlement was nevertheless valid. None of these was accepted by the court, but the court concluded that the well-established test for rectification was satisfied. The test requires that:
- the court must be satisfied that, as a result of a genuine mistake, the trust instrument does not carry out the true intentions of the parties (and of the settlor in particular);
- there must be full and frank disclosure; and
- there should be no other practical remedy.
Whilst this is a discretionary remedy and delay can be a relevant factor, the court nevertheless felt that the delay in this case was not a bar to the exercise of discretion (and noted that everyone had acted in good faith since 1983, assuming that the settlement was valid).
The court ordered the rectification of the settlement by the insertion of the name of the settlor's chosen charity in the relevant schedule. As rectification has retrospective effect, the consequence of this order was that the settlement had been validly created in 1983, and the subsequent exercise of the power to add further beneficiaries was valid.