SIR PETER ANTHONY THOMPSON v. DATTENFELD LTD.

MP 1801 of 1996

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. This is an application to rectify a Deed of Trust dated 8th of June 1987 by the settlor Sir Peter Anthony Thompson.

2. Clauses 2(a) & (b) of the Trust provide:

"(a) The Trustee shall hold the Trust Fund to pay the income to the Beneficiaries in equal shares during their joint lives and upon the death of the first beneficiary to pay the income to the survivor for life

(b) on the death of the last surviving beneficiary the Trustee shall hold the Trust Fund on trust for such of the children of the Settlor and his wife as shall then be living and who attain the age of twenty-five and if more than one in equal shares absolutely."

3. However, Clause 6(i) gives the trustee "power to accumulate the income of the Trust Fund for such period as may be allowed by law by investing the same and the resulting income therefrom in any investments hereby authorised".

4. The only beneficiaries at the moment are Sir Peter and his wife Lady Thompson.

5. Sir Peter said in an affidavit made on the 1st of March 1996 that

"It was never my purpose that a Deed of Trust should contain any power of accumulation or discretionary powers."

6. He added that he was not aware of the inclusion of a power of accumulation in Clause 6(i) when he executed the Deed of Trust.

7. Dattenfeld Limited, the trustee, does not oppose this application. Indeed, Mr. Bruce William Dunlop, a certified public accountant practising in Hong Kong, and an authorised signatory of the corporate directors of Dattenfeld Limited, said in an affidavit that the finalisation and execution of the trust deed was a matter of great urgency as a general election was then imminent in the United Kingdom and in case there should be adverse fiscal changes thereafter.

8. The finalisation of the Deed of Trust was the joint effort of Sir Peter's advisors in Hong Kong and London. In London, he was advised by Grant Thorton. There is an affidavit from Mr. John Michael James Valentine of Grant Thorton. He has no personal knowledge of the matter because at the time the matter was handled by Mr. Stephen McMellon who had since left Grant Thorton. But Mr. Valentine said the papers relating to the preparation of the Deed of Trust showed that Sir Peter had intended to create a "life interest trust" and not an accumulation or discretionary trust. For example, it is stated in a file note prepared by Mr. McMellon on 29th May 1987 that it was intended that "all income be distributed to Sir Peter and his wife".

9. From the documents Mr. Valentine produced, it seems clear that the mistaken inclusion of Clause 6(i) arose from the fact that a draft deed put together by Mr. McMellon was, in part, a collation of copies from different precedent deeds. Clause 6(i) which belonged to a precedent for an accumulation or discretionary trust was inadvertently left in the draft, which was engrossed and eventually executed by the settlor.

10. A settlor seeking rectification of a voluntary trust has a heavy burden. In the words of Evershed, J. in Van der Linde v. Van der Linde [1947] Ch. 306 at 311:

"... it is very plain that the court approaches the exercise of its discretion with great caution and more cautiously in a case of a voluntary settlement sought to be rectified than in the case of a contract inter partes."

11. Even so, the evidence I have recited above has satisfied me sufficiently that the Deed did not express Sir Peter's true intention. That is sufficient for rectifiction. According to Brightman, J.:

"In other words, in the absence of an actual bargain between the settlor and the trustee,

(i) a settlor may seek rectification by proving that a settlement does not express his true intention, or the true intention of himself and any party with whom he has bargained, such as a spouse in a case of an ante-nuptial settlement;

(ii) it is not essential for him to prove that a settlement fails to express the true intention of the trustees if they have not bargained; but

(iii) the court may in its discretion decline to rectify a settlement against a protesting trustee who objects to rectification." Re Butlin's Settlement Trusts [1976] 1 Ch. 251 at 262f

12. Nor should the fact that rectification may help Sir Peter against the Revenue, make any difference. I am happy to adopt the approach of Graham, J. where he said:

"If a mistake is made in a document legitimately designed to avoid the payment of tax, there is no reason why it should not be corrected. The Crown is in no privileged position qua such a document. It would not be a correct exercise of the discretion in such circumstances to refuse rectification merely because the Crown would thereby be deprived of an accidental and unexpected windfall." Re Slococks Will Trusts [1979] 1 All ER 358 at 363f

13. For the above reasons, I grant the order sought and order rectification accordingly.

(Robert Tang)

Mr. Recorder, Q.C.