Law Reports version at: [1990] 1 W.L.R. 1304

[1989 G. No. 6666]

Alan Steinfeld Q.C. for the plaintiff.
Elizabeth Ovey for the defendants.

SOLICITORS: Reynolds Porter Chamberlain: Gregory Rowcliffe & Milners.

JUDGE: Millett J.

DATE: 1990 Feb. 20 [*1305]

By an originating summons dated 1 August 1989, the plaintiff, Henry Gibbon, sought, inter alia, (1) an order that a deed which he had executed on 4 December 1987 be rescinded, and that the trusts of and effecting a fund, as contained in the settlement executed by his parents on 11 October 1946 should take effect as though the deed of 4 December 1987 had never been executed; (2) a further order, pursuant to the Variation of Trusts Act 1958, varying the trusts of the settlement by deleting from clause 5(1) thereof the words “on protective trusts” and all the remaining words of the said clause after the words “for the period of his life.” The defendants were Jane Mary Mitchell, the plaintiff’s daughter, and David Henry Gibbon, his son, both of whom were entitled in reversion expectant upon the death of the plaintiff to the property comprising the fund as defined in the settlement of 1946, and who were the purported assignees of the plaintiff’s protected life interest pursuant to the deed of 4 December 1987, and Lionel Alfred White and Robin Bernard Jacomb Gibbon, both of whom were trustees of the settlement.

MILLETT J. This is an application by Mr. Gibbon to set aside a deed which he executed on 4 December 1987, by which he purported to surrender his protected life interest in a trust fund in favour of his two adult children, the first two defendants, whom I shall call Jane and David, and to release a power of appointment in favour of his children and remoter issue to the intent that Jane and David should take immediate beneficial interests in the capital and income of the trust fund. Unfortunately, the deed was incapable of having effect as intended and, accordingly, Mr. Gibbon now applies to have it set aside on the ground that it was entered into in error.

The facts are not in dispute. Mr. Gibbon was born on 1 August 1918. He is now therefore 71 years old. Throughout his adult life he has been a successful farmer. He carries on a farming business in partnership with Jane and David. They are his only children, born of his first marriage. Jane, the elder, was born on 30 March 1945, so that she is now almost 45 years old. She is married and has two children, aged 13 and 11. David was born on 23 March 1947, so that he is almost 43 years old. He is married and has one very young child. Mr. Gibbon’s first wife died in 1978. He remarried in the following year. There are no children of his second marriage.

On 11 October 1946, on the occasion of the marriage of Mr. Gibbon’s sister, May, his parents made a marriage settlement. By that settlement, two funds were established, May’s fund, which was settled on trusts for Mr. Gibbon’s sister May and her family, and Henry’s fund, which was settled on similar though not identical trusts for the benefit of Mr. Gibbon and his family.

As far as Henry’s fund was concerned, Mr. Gibbon was given a protected life interest, but the persons who were to be included in the discretionary class of objects of the trust which would arise in the event of forfeiture were expanded to include May and her issue. Subject to his protected life interest and a limited power to appoint up to 500 a year [*1306] to a surviving spouse, the capital of Henry’s fund was hel in trust for such of his children and remoter issue as he might by deed or deeds appoint, and in default of appointment, for his children at 21, or in the case of females at 21 or earlier marriage, in equal shares. In the event of their being no issue, there were cross-accruers between the two funds which cannot of course now take effect.

The settlement contained an express clause (clause 13) which authorised May to surrender her protected life interest so as to accelerate the interests of her children once they had become vested. No similar provision was to be found in relation to Henry’s fund.

In 1987, Mr. Gibbon consulted his accountant and instructed him to review his estate, both free and settled, with a view to advising what further steps he should take in order to reduce the possible impact of inheritance tax on his death. He had a very substantial free estate. In addition, Henry’s fund was of a value of 300,000 or thereabouts.

In July 1987 the accountant reported and recommended that Mr. Gibbon should surrender his life interest in Henry’s fund. His recommendation was expressed in terms of Mr. Gibbon surrendering his life interest in Henry’s fund, “the assets of which then pass absolutely to David and Jane.” Mr. Gibbon, thereupon consulted a well known firm of solicitors who advised the execution of an appropriate deed. They did not advise that there was any difficulty in relation to the surrender of Mr. Gibbon’s protected life interest and, in particular, they did not advise that it could not be done without incurring a forfeiture unless an order of the court was first obtained under the Variation of Trust Act 1958 which would remove the protection annexed to the life interest. It is not clear how the error arose; it is possible that the fact that clause 13 of the settlement was restricted to May’s fund was overlooked.

Mr. Gibbon’s solicitors also advised, correctly, that it was necessary for him to release the limited power of appointment in favour of his widow and, incorrectly, that he should release his special power of appointment in favour of future issue. They did so expressly on the ground that this would enable Jane and David to take absolutely in equal shares in default of appointment.

On receipt of his solicitor’s advice, Mr. Gibbon accepted their recommendations and instructed them in the following terms: “The various releases are to go ahead so that the fund passes immediately to David and Jane.” In due course the solicitors prepared the deed of 4 December 1987. It accurately recites the trusts of Henry’s fund under the 1946 settlement and, in particular, that the fund is held upon protective trusts for the benefit of Mr. Gibbon for the period of his life. Recital 4 is in these terms:

“[Mr. Gibbon] has determined to release the powers of appointment hereinbefore recited and to surrender his life interest in the settlement so that his said protected life interest vests in his two children, namely Jane and David, absolutely.”

The operative part begins by the release of the powers of appointment in favour of children and remoter issue, and in favour of the widow,

“to the intent that the said powers hereby released may henceforth be extinguished and so that [Mr. Gibbon] may henceforth be precluded from exercising the said powers.”

Clause 2 is in the following terms: [*1307]

“[Mr. Gibbon] hereby surrenders, releases and assigns to Jane and David all that his protected life interest in the Henry fund, to the intent that such interest shall merge and be extinguished and that the entire interest therein shall become immediately vested in possession in Jane and David in equal shares absolutely.”

It is manifest from the very terms of the deed itself, let alone from the advice tendered by the solicitors which preceded it, that Mr. Gibbon’s object was to vest the entire capital and income of Henry’s fund immediately in David and Jane to the exclusion of all other persons including himself. The deed did not, however, have that effect, because Mr. Gibbon’s life interest was subject to protective trusts. Accordingly its purported surrender occasioned a forfeiture and brought into operation the discretionary trusts set out in section 33 of the Trustee Act 1925. Furthermore, the release of Mr. Gibbon’s power of appointment in favour of children and remoter issue, far from vesting the reversionary interest in capital in Jane and David exclusively, vested it in all Mr. Gibbon’s children including after-born children.

The consequence of these two errors is that so long as the deed stands there is an interest in possession in favour of a class of discretionary objects which will continue during the remainder of Mr. Gibbon’s life, and on his death the capital will vest in David and Jane together with any future children born to Mr. Gibbon. Far from carrying out Mr. Gibbon’s intention to vest the capital immediately and indefeasibly in David and Jane, it has a totally different effect and one which will preclude effect being given to his intention. In those circumstances, Mr. Gibbon applies to the court to have the deed set aside.

It is not, in my view, a case for rectification, but rather for setting aside for mistake. Mr. Gibbon’s intention could not be carried into effect by this deed or any other deed executed by him. What was required was an application to the court under the Variation of Trusts Act 1958. The equitable remedy of rectification, however, is only one aspect of a much wider equitable jurisdiction to relieve from the consequences of mistake.

My attention has been drawn to a number of authorities on the circumstances in which a voluntary disposition can be rectified, reformed or set aside where it has been entered into under a mistake, contrary to the intentions of the disponer, or in excess of his instructions.

In Walker v. Armstrong (1856) 8 De G. M. & G. 531, 538, there was a series of errors – which drew the criticism of Knight Bruce L.J. expressed in colourful and memorable terms – a series of errors which culminated in the drawing of a deed by solicitors who went far beyond their authority. Their instructions were to prepare an instrument for the limited purpose of restoring, confirming or assuring a life interest in certain estates, but the deed which they drew went further and inadvertently revoked a previous testamentary appointment. The solicitors had no instructions to prepare a document which revoked that appointment. The person who executed the document did not intend to revoke the appointment and the court relieved him from the consequences by declaring that in so far as the deed as executed went beyond his intentions and instructions it should not have effect.

That was a case where the disponor’s intentions were carried out, but the document which he executed went further and had an effect which [*1308] was beyond his instructions and outside his intentions. Knight Bruce L.J. found that so far as the deed exceeded the particular and restricted purpose for which the instructions were given, it was contrary to the wishes of the executing parties, opposed to their intention and executed by them in error.

In In re Walton’s Settlement [1922] 2 Ch. 509, in the events which had happened, funds settled by a husband and wife became held after the death of the husband in trust absolutely for the wife, subject only to an obligation that she should use the fund to purchase annuities for her own benefit. Being an elderly lady she did not wish to purchase annuities. She went to a solicitor and asked him to draw up whatever deed was necessary to relieve her from the obligation of purchasing the annuities. He did not appreciate that his client, being solely entitled to the annuity when purchased, could call for a transfer for capital applicable for its purchase, and mistakenly advised her that she should revoke the trusts of the settlement. Unfortunately the effect of revoking them was to cause the trust fund to be held on a resulting trust for the settlors, and one half, therefore, revested in the husband’s estate and not as intended in the wife.

Following Walker v. Armstrong, 8 De G. M. & G. 531 Eve J. held that it was a case where the solicitor had gone beyond his instructions in ignorance of the true legal position. His instructions and his client’s intentions went no further than the revocation of the obligation to purchase annuities. Eve J. said [1922] 2 Ch. 509, 513:

“the client desirous only of putting an end to the trust for the purchase of the annuity and so instructing her adviser – the solicitor, in temporary forgetfulness of the fact that the trust could be determined by a simple instruction to the trustees, preparing a deed which not only puts an end to the particular trust but revokes all the trusts of the settlement, and allowing the client to execute it without appreciating that it does a great deal more than give effect to her instructions. Can the client, in these circumstances, be held bound by the deed?”

On the authority of Walker v. Armstrong, it was held that she could not.

In Meadows v. Meadows (1853) 16 Beav. 401 a tenant in tail, wishing to mortgage the estate in order to borrow money, joined with his father, the tenant for life, in order to bar the entail so that appropriate security could be given to the mortgagee. The solicitors were instructed to draw the appropriate documentation which would bar the entail, secure the borrowing and then resettle the estate on the former trusts. They took the opportunity to resettle the estate, cutting down the son’s interest from a tenancy in tail to a life interest and resettling the estate on his children and remoter issue.

The court set the resettlement aside. In so far as the deed resettled the estate on new trusts, it was not authorised and was executed in ignorance of its true purport and effect. Sir John Romilly M.R. stated, at p. 404; “No person should be bound by a deed, unless he knew or had a fair opportunity of understanding its nature and operation before he executed it.” He was, of course, talking about a voluntary transaction.

The present case, too, like the others is a case where the party executing the deed intended to achieve a specific purpose but through a mistake on the part of the professional advisers who drew the deed it either did not achieve it at all or achieved something else in addition. [*1309]

In Ellis v. Ellis (1909) 26 T.L.R. 166, a husband made a gift to his wife not realising that under the terms of her marriage settlement she had covenanted to settle all her after-acquired property. Warrington J., having described the mistake as a mistake of fact, held that the gift could be set aside. The mistake in fact was a mistake as to the effect of the after-acquired property clause in the marriage settlement. The husband, in evidence, said that he knew of the settlement when he made the gift and that it contained an after-acquired property clause, but did not realise what the effect of the covenant was, and thought that it meant that the wife would have to settle anything that came to her from her own relations. Warrington J. held that the gift could be set aside and stated that the requirements for setting aside a gift were not necessarily the same as those for setting aside a transaction for value.

That case is, perhaps, not very different from the present, for here the principal mistake was either as to the effect of the provisions of section 33 of the Trustee Act 1925 or, more probably, a failure to appreciate that clause 13 of the settlement of 1946 applied only to May’s fund and not to Henry's.

Finally, in Phillipson v. Kerry (1863) 32 Beav. 628 a deed of gift was set aside on evidence that it was intended to be ambulatory. The finding which justified setting aside the gift was that the consquences of the deed were not fully explained to the plaintiff and it did not carry out her intentions.

In my judgment, these cases show that, wherever there is a voluntary transaction by which one party intends to confer a bounty on another, the deed will be set aside if the court is satisfied that the disponor did not intend the transaction to have the effect which it did. It will be set aside for mistake whether the mistake is a mistake of law or of fact, so long as the mistake is as to the effect of the transaction itself and not merely as to its consequences or the advantages to be gained by entering into it. The proposition that equity will never relieve against mistakes of law is clearly too widely stated: see Stone v. Godfrey (1854) 5 De G. M. & G. 76, and Whiteside v. Whiteside [1950] Ch. 65, 74.

I am satisfied on the internal evidence of the deed itself, as well as on the evidence provided by the contemporaneous correspondence, that Mr. Gibbon executed the deed in the clear belief that it vested the entire beneficial interest in both capital and income in Jane and David immediately and indefeasibly to the exclusion of himself and everyone else. It did not; instead it brought into being a trust of income in favour of the discretionary objects mentioned in section 33 of the Trustee Act 1925 during the remainder of his life, and a trust for capital for all his children, including future born children. That was contrary to his instructions and intentions. It is true that if he were asked the narrow question whether he intended to release his protected life interest or the power of appointment in favour of his children, he must have answered “Yes,” for he was expressly advised by his solicitors that both those steps were necessary in order to achieve his object. But he did not intend to surrender his protected life interest or to release the power of appointment save for the purpose and with the effect that the beneficial interest in the capital of the fund should forthwith vest indefeasibly in Jane and David. He did not have the intention of releasing his protected life interest or the power of appointment in vacuo or for its own sake, but solely to achieve the purpose I have stated. [*1310]

Mr. Gibbon did not merely execute the deed under a mistake of law as to the legal consequences of his doing so. He executed it under a mistake as to its legal effect. The deed itself shows that to be the case.

Since its effect was not that which he intended, he is entitled to have it set aside. Equity acts on the conscience. The parties whose interest it would be to oppose the setting aside of the deed are the unborn future children of Mr. Gibbon and the objects of discretionary trust to arise on forfeiture, that is to say his grandchildren, nephews and nieces. They are all volunteers. In my judgment they could not conscionably insist upon their legal rights under the deed once they had become aware of the circumstances in which they had acquired them.

I therefore relieve Mr. Gibbon from the consequences of his mistake and set aside the deed. I also accede to the consequential application under the Variation of Trusts Act 1958 to delete the protective nature of the protected life interest. I am quite satisfied this is a proper case where I can exercise my discretion under the Act to do so.

Accordingly, Mr. Steinfeld, I give you the relief that you ask.

Order accordingly.