Alway Sheet Metal Ltd v Capco Trust Jersey Ltd

Rectification is an exceptional remedy requiring convincing proof of the parties’ actual intention at the time an instrument was executed. The court will not grant rectification merely because the parties later agree that the instrument should have had a different effect, or because a later deed expresses a desirable tax result. The form and wording of the original deed are powerful evidence of the parties’ intention. Where an employee benefit trust is deliberately framed to permit benefits to employees, substantial evidence is required to establish that the parties originally intended otherwise.

Alway Sheet Metal Ltd established an employee benefits trust in 1998 with Capco Trust Jersey Ltd as trustee. The trust deed permitted benefits to be paid to employees and their families. After the decision in MacDonald v Dextra Accessories Ltd [2005] UKHL 47, the parties executed a 2005 deed purporting to rectify the 1998 deed retrospectively so as to prevent payments from constituting emoluments or potential emoluments and to exclude employees from the beneficiary class.

The claimant sought rectification of the 1998 deed in accordance with the 2005 deed. The defendant admitted the claim and did not appear. The issue was whether the limited evidence established, to the required standard, that the parties’ actual intention in 1998 was the intention recorded in the 2005 deed.

1. Claim dismissed. Rectification could not be granted by consent or in default. The court had to be persuaded by convincing proof of the parties’ actual intention when the original deed was executed. This reflected the cautious approach described in Whiteside v Whiteside [1950] 1 Ch 65 and the requirement for convincing proof identified in Thomas Bates & Son Ltd v Wyndham’s (Lingerie) Ltd [1981] 1 All ER 1077.
2. The 1998 deed’s title, recital and definition of beneficiaries gave an overwhelming inference that the trust was intended to be available to provide benefits to employees and their families. The form of the executed deed was therefore powerful evidence against the alleged retrospective intention.
3. Applying MacDonald v Dextra Accessories Ltd [2005] UKHL 47, a fund held under terms allowing a realistic possibility that it could be used to provide remuneration to employees would constitute potential emoluments. A trust under which the whole fund could be used for employee remuneration therefore appeared to fall within that reasoning.
4. The 2005 deed showed that the parties later wished to obtain a favourable corporation tax result. It did not establish that this was their actual intention in 1998. The statement of truth and bare admissions supplied no sufficient factual evidence of that original intention. The claim for rectification was accordingly dismissed.