A & Ors v D & Ors

Rectification of a voluntary trust instrument depends on the maker’s subjective intention. No outward communication of that intention is required. The claimant must prove, with clear and convincing evidence, a specific intention which the document failed to record. A general intention to obtain a fiscal benefit is insufficient.

Where trustees intended to create compliant 18 to 25 trusts under Inheritance Tax Act 1984 s 71D, but drafting errors meant that the deeds used “revocably” and extended the benefit to an unintended class, rectification was available. The court could distinguish a drafting mistake from a mere failure to achieve the desired tax consequence.

The trustees sought construction or, alternatively, rectification of two deeds of appointment executed in 2008 for two family settlements. The deeds were intended to convert accumulation and maintenance trusts into 18 to 25 trusts qualifying under s 71D of the Inheritance Tax Act 1984, as amended by the Finance Act 2006.

The deeds referred to interests being held “revocably” and defined the beneficiaries by reference to a class that could include unborn children. The trustees contended that these provisions failed to implement their intention that the three living children should receive fixed interests vesting at 25, subject to possible deferral through powers of advancement. The central issues were whether the deeds could be construed accordingly and, if not, whether they should be rectified.

1. Rectification granted. The deeds were rectified because the trustees proved that they intended to create new 18 to 25 trusts satisfying s 71D of the Inheritance Tax Act 1984. The use of “revocably” did not express that intention. It reflected the trustees’ understanding that entitlement might later be deferred by exercising powers of advancement.
2. For a voluntary disposition, the relevant inquiry is the subjective intention of the maker. Following Day v Day [2013] EWCA Civ 280, no outward expression or objective communication of that intention is legally required. The court was entitled to consider the trustees’ evidence about their intentions when executing the deeds.
3. The rectification principles summarised in Giles v The Royal National Institute for the Blind [2014] EWHC 1373 (Ch), analysing Racal Group Services Ltd v Ashmore (1995) STC 1151, required convincing evidence of a specific intention, a flaw in the document, and an issue capable of being contested. A mere failure to achieve a desired fiscal result was insufficient.
4. The evidence showed a settled intention to create compliant s 71D trusts for D, E and F in equal shares, with vesting at 25 and possible later deferral. The drafting failure was therefore a failure to implement a specific intention, rather than a mistake about the consequences of an arrangement. The fiscal motivation did not prevent rectification.
5. Allnutt v Wilding [2007] EWCA Civ 412 was distinguishable because it involved only a general intention to save inheritance tax and benefit children, whereas the present trustees had specific instructions for the creation of a defined type of trust.
6. It was unnecessary to decide the alternative construction claim. The court would make the rectification order after handing down judgment.