Curing defectively executed deeds of appointment: English & Ors v Keats & Ors [2018] EWHC 673 (Ch)

One of the joys, in my view, of a Chancery practice, is dusting off principles of ancient standing and applying them to solve modern problems. This case concerns defectively executed deeds that purported to exercise powers of appointment contained within three settlements.

The High Court in English & Ors v Keats & Ors [2018] EWHC 673 (Ch) revived a doctrine to save the defective deeds that, whilst it was not quite (to adopt HHJ Hacon’s phrase) “a corpse better left in peace”, was certainly in a wheezily frail condition.

The facts

The facts are very simple and concerned an attempt to exercise powers of appointment, for tax planning reasons, in three settlements – the defect was that in each case only three of the four trustees was named in each deed and consequently only three signed. This is contrary to the principle that trustees must act unanimously and therefore, on the face of matters, the deeds would be ineffective.

Alan and June Thunder had each established three settlements in favour of their children and remoter issue and charitable beneficiaries. The settlements had four trustees, Alan and June were both named as trustees together with two other individuals, and the only difference between them was that a different child, or if they had died that child’s issue, was named as the default beneficiary in respect of each settlement at the end of the trust period. For tax reasons, the family was advised to exercise the powers of appointment in the settlements, by deed of appointment, so as to give each child an interest in possession in the settlement of which he or she was the prime beneficiary.

In an error that somewhat cryptically is said in the judgment to have involved “a car crash, a young trainee solicitor and possibly inadequate supervision”, each deed named only three of the four trustees as appointers (omitting Jane from her settlements and Alan from his) and consequently only three of the four trustees signed it. The result was a metaphorical car crash – six defectively executed deeds of appointment.

The error was spotted in respect of the appointments relating to settlements created by Alan and rectified. Somehow, the error respect of the other three settlements was not spotted until after June had passed away.

The decision

A solution to this conundrum was found in a satisfyingly ancient doctrine, dated at least to Tollet v Tollet (1728) 2 Peere Williams 489. In that case, a husband was tenant of land for life by virtue of a settlement made on him by an ancestor. He attempted to bequeath his interest to his wife in his will but this should have been done by deed. The Master of the Rolls, Sir Joseph Jekyll, said:

“… where there is a defective execution of the power, be it either for payment of debts or provision for a wife, or children unprovided for, I shall equally supply any defect of this nature: the difference is betwixt a non-execution and a defective execution of a power; the latter will always be aided in equity under the circumstances mentioned, it being the duty of every man to pay his debts, and a husband or father to provide for his wife or child. But this Court will not help the non-execution of a power, since it is against the nature of a power, which is left to the free will and election of the party whether to execute or not, for which reason equity will not say he shall execute it, or do that for him which he does not think fit to do himself.”

In modern language, the rule in Tollet is that equity will provide a remedy and uphold the exercise of a power where a person has attempted to exercise a power of appointment to make provision for someone they had a duty to provide for. If they have not even tried to execute the power, equity will not supply any remedy. In Tollet, the outcome was that the trustees of the settlement, who held the legal interest in the land, were decreed to have conveyed a life interest to the wife.

HHJ Hacon heard argument that the the equitable jurisdiction identified in Tollet is now greatly confined. Park J in Breadner v Granville-Grossman [2001] Ch 523, at 548 commented on the doctrine as follows:

“A doctrine which was last applied in 1908 is falling into disuse. I believe that it was developed when family settlements, and powers exercisable in relation to trust funds, took very different forms from those which they take today. Most modern settlements are drafted in much detail and give to trustees, who are often professional trustees who charge for their services, extensive powers of many kinds. Where trustees have failed to exercise a power I do not feel an inclination to expand the circumstances where the court may intervene and hold that the trust should be administered as if they had exercised it, thereby taking away from beneficiaries property rights which had apparently vested indefeasibly.”

HHJ Hacon observed, in response to the observations of Park J [51]:

“Despite Park J’s indication that the doctrine is falling into disuse, I do not believe that the body of law comprising Tollet and subsequent judgments is now a corpse better left in peace, or that this is what Park J meant. … The questions I must attempt to resolve are the extent to which the doctrine is confined according to modern law and whether that makes it too narrow to be relied on by the Claimants”

He endorsed the following summary of the doctrine, taken from a Jersey case, Bas Trust Corporation Ltd v MF [2012] JRC 081 (also known as Re Shinorvic Trust) in which the court considered the position under English law to be as follows:

“[43] The text books and counsel are agreed that the necessary conditions for the principle to apply are:-
(i) an intention by the person with the power to exercise it;
(ii) there must have been an attempted execution of the power – there is no jurisdiction to remedy a failure to exercise the power at all or to exercise it in time;
(iii) the defect must be formal rather than going to the substance of the power;
(iv) the purported exercise must have been a proper exercise of the power – the court will not assist where there would be a fraud on the power or a breach of trust;
(v) the doctrine will only operate in favour of certain categories of persons. These are summarised in Halsbury Vol 36(2) para 362 as follows:-
 
‘362. Persons who may claim relief
Equity aids the defective execution of a power only in favour of persons who stand in a particular relationship to the done, and not the creator, of the power. … Relief will be granted where the following persons claim:-
(i) Purchasers for value …
(ii) Creditors …
(iii) Charities
(iv) Persons for whom the appointor is under a natural or moral obligation to provide. Relief may be granted in favour of persons under this head unless the appointor is under an equal obligation to provide for the persons entitled in default of appointment who are unprovided for. Under this head, relief may be granted for the defective exercise of a power intended as a provision for a wife and child, even in favour of volunteer, and the court will not enquire into the quantum of the provision for the wife or child. However, equity will not grant relief in favour of persons for whom the appointor is under no obligation to provide, such as a husband, grandchild, natural child or cousin, nephew or niece or mere volunteer, even if he is the creator of the power.'”
 
 HHJ Hacon considered that this doctrine supplied a remedy on the facts of the case before him. It did not matter that June Thunder had not attempted to sign the deeds of appointment at all. This was still a case of defective execution, rather than no attempted execution, given that all four of the trustees had intended to exercise the power and had attempted to do so by the signature of three of them. It also did not matter that not all of the appointors stood in the relationship of parent to the intended beneficiary of the appointment – it was enough that two of the trustees were the claimants’ parents and the defect was June’s failure to sign.
 
 In Bas Trust Corporation the Royal Court was of the view that the principle regarding the categories of persons in favour of which the doctrine may be invoked was now out of date. The court doubted that even under English law the principle would exclude from its scope beneficiaries such as husbands and illegitimate children (at [54]). The court held:
“… under Jersey law the principle may operate in favour of any person for whom the donee of the power is under a natural or moral obligation to provide; and that will be a matter of fact to be decided in each case.”
 
 HHJ Hacon thought that the position may be similar under the law of England and Wales, although it was not necessary for him to decide the point.
 
Learning points for practitioners:
  • This case provides a neat example of how equitable doctrines stand the test of time and come to be applied to modern problems. This doctrine was developed in a radically different social context where there was no welfare state to provide support, however meagre, to an indigent wife or child, and where a failed attempt to exercise a power of appointment could mean ruin where the intended beneficiary was a dependant of the donee. Here, the trustees, if necessary, could still have exercised the power. The issue here was not driven by a need to relieve the intended beneficiaries from financial hardship, but rather was a question of ensuring that the appointments were effective for the tax planning reasons that they had been recommended.
  • Not only does this case confirm that the doctrine in Tollet persists, it is suggested (rightly in my view) that the doctrine may be extended to any person for whom that the donee was under a moral or legal obligation to make provision. It is certainly very unlikely that the outdated view that husbands are obliged to provide for wives, but not vice versa, will any longer restrict the application of the principle, nor is it likely that illegitimate children will be excluded from its scope.
  • Together with the jurisdiction to rectify clerical mistakes in such documents, the principle is a useful one for both practitioners and their insurers to keep in mind.
  • It is a maxim of equity that equity will not, as a general rule, aid a volunteer – meaning that unless the intended beneficiary of a transaction has given consideration, equity will not compel the completion of a defective transaction. This is an example of equity tempering the harsh wind of that general rule to the shorn lamb. I find myself wondering why equity should assist in the case of defectively executed powers and not, for example, to other sorts of voluntary dispositions such as a defectively executed deed of variation? The answer may lie in the fact that most other sorts of defective attempted transactions – gifts, transfers on trust, deeds of variation etc, the result will be that the property in question remains with the settlor who can cure the defect, provided that they discover the mistake within their lifetime. Whereas, the outcome of a defective attempt to execute a power may well be that the property that the intended beneficiary was to receive will pass to the default beneficiaries who may be remote relatives or charities who would not otherwise have had any real expectation of benefit.

2 thoughts on “Curing defectively executed deeds of appointment: English & Ors v Keats & Ors [2018] EWHC 673 (Ch)

    • Charlotte John says:

      There’s something in that, Andrew! I believe donatio mortis causa, for example, emerged as a principle of Roman law.

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