ENGLISH HIGH COURT CONSIDERS THE USE OF THE COURT’S EQUITABLE JURISDICTION TO REMEDY DEFECTIVE EXECUTION

In the recent High Court decision of English v Keats [2018] EWHC 637 (Ch), the Court confirmed that it will use its equitable jurisdiction to remedy the defective execution of a deed of appointment. The case, in certain circumstances, has arguably also widened the meaning of ‘defective execution’, to include cases where one of the appointers failed to sign the deed. The case has cemented the modern application of this doctrine which dates back to at least 1728 and the case has also provided the potential for the scope of the “categories of people” condition to be reformed and widened in the future.

Background

The claimants in this case, Sarah English, Simon Thunder and Annabel Lohmeyer were beneficiaries of six discretionary family trusts and were also the children of the two settlors of the trusts, Alan Thunder and June Thunder. There were also a number of charities who were named beneficiaries under the trust including the NSPCC, Help the Aged and Age Concern. Alan and June were two of the four trustees of the trusts, alongside Stephen Hall and a solicitor, Terence Keats.

In 1999, the trustees were advised that the family should give the three claimant beneficiaries an interest in possession under the settlement, as this would be advantageous from a tax perspective. To effect this, a deed of appointment was required for each of the six trusts, and each deed of appointment had to be signed by each of the four trustees.

Unfortunately, for each of the six deed of appointments, only three out of the four trustees signed the document. This was a result of some confusion as to the difference between a settlor and a trustee.  Whilst Alan and June had sought legal advice, they were advised predominantly by a young trainee solicitor and there was said to be ‘possibly inadequate supervision’. The end result was that Alan did not sign the deed of appointment in relation to settlements one to three and June did not sign the deed of appointment in relation to settlements four to six. Alan was fortunately able to rectify the mistake before he died, however when Alan rectified his mistake June did not rectify hers. June subsequently passed away without resolving the ineffective, and unsigned, deed of appointments. The claimants in this case applied to the Court to seek to remedy the defective execution of settlements four to six.

There were two heads to the claim –

  • Proprietary estoppel, and
  • An order that equity will remedy the defective exercise of a power of appointment.

Judgment

Proprietary Estoppel

Whilst the Court did state that proprietary estoppel can, in principle, apply in the context of a trust, it held that it did not apply on the current facts. The claim of proprietary estoppel failed for three reasons;

  • Estoppel cannot circumvent a statute, the failure to sign was a breach of section 1(3) of the Law of Property (Miscellaneous Provisions) Act 1989 – which requires for the deed of appointment to be signed, witnessed and delivered as a deed. Therefore estoppel could not be relied upon to remedy the breach of this provision;
  • The claimants could not satisfy the evidential burden that they had suffered a detriment due to their reliance on the representation made by the trustees; and
  • The trustees could also not be bound in relation to the non-claimant beneficiaries under the trusts, namely the charities that were also beneficiaries but who were the defendants in this case (Isabella English was appointed to represent all persons and charities under the trusts). Further, the claim would also bind the way HMRC taxed the trust fund. As the claim would be binding on a number of strangers to the trust, the claim of estoppel failed, estoppel is only binding between the representors and the representees.

Remedying the defective execution of a power

The alternative basis for the claim was to ask the Court to remedy the defective execution. This doctrine dates back to Tollet Tollet (1728) 2 Peere Williams 489, where it was stated that there is a difference between defective execution and non-execution. Defective execution will always be aided in equity if the defective execution results in the non-payment of a debt or leaving a wife or child unprovided for. In contrast, where a trustee simply does not execute the deed, the Court will not assist in remedying the non-execution.

The modern application of this doctrine has been questioned and is said to be ‘falling into disuse’ (Breadner v Granville-Grossman [2001] Ch 523). The Court in this case clarified the somewhat contradictory case law and summarised that the doctrine is and should still be in usage, but that its application is subject to a number of conditions.

Those conditions are:

  • There is an intention by the person with the power to exercise it;
  • There has been an attempted execution of the power;
  • The defect must be formal rather than going to the substance of the power;
  • The purported exercise must have been a proper exercise of the power (it must not be a breach of trust or be fraudulent);
  • The doctrine will only operate in favour of certain categories of people, these being –
    • Purchasers for value,
    • Creditors,
    • Charities, and
    • Persons who the appointer is under a natural or moral obligation to provide for – such a wife, child or volunteer. Though, equity will not grant relief for those who the appointer is not under an obligation to grant relief such as a husband or grandchild.

The Judge concluded that the execution was defective rather than it being a non-execution, as it was intended by all of the trustees that the deed of appointment would be validly executed, and there had been an attempt to do this by three of the trustees. The Court did not apply the fifth of these conditions strictly, as the three beneficiaries were the children of just two of the appointers, Alan and June. That being said, the defect was on the part of June, who was the mother of the claimants.

The judge noted that in the Jersey case of Jersey in Bas Trust Corporation Ltd MF [2012] JRC 081, it had been held that the fifth condition may now be out of date, and instead that the doctrine will apply to any person to whom the appointer owes a natural or moral obligation to provide for, and that the test will be applied on a case by case basis. The Judge commented that this may also be the case in England and Wales, but that this would not be discussed any further in the present case.

Comment

This case highlights that the doctrine of remedying the defective execution of a deed is still applicable, and can be used to remedy the omission of a signature by one of the trustees. Additionally, the Court implied that the doctrine may in-fact be widened in future case law by the fifth condition being revoked, and replaced as it was in Jersey. However, this case must be looked upon with some caution, given that it is not clear what approach the Court would take if there was a sole trustee. It is to be assumed, that as there would not have been other trustees who had attempted to sign the deed that the Court would not be able to exercise their discretion to remedy the non-signature in this circumstance, as it is unlikely that the court would consider this to be a defective execution, based upon the reasoning in this case, and rather it would be considered a non-execution.

Further, whilst this case may demonstrate that the Court will remedy a defective execution, the cost of litigation to resolve the defective execution means that this should not be relied on. Care must be taken to ensure that a deed of appointment is validly executed and this rule should not be relied upon as it is not clear when it will apply.

Richard Norridge
Richard Norridge
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Gareth Keillor
Gareth Keillor
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