PETITION OF (FIRST) LORD DAVID WIGLEY NICKSON, KBE, D.L.; (SECOND) DAVID HENRY HOULDSWORTH; AND (THIRD) THE HONOURABLE FELICITY SARAH LEWIS FOR RECTIFICATION OF A DEED OF APPOINTMENT
OUTER HOUSE, COURT OF SESSION
[2016] CSOH 119
P1082/14
OPINION OF LORD TURNBULL
In the petition of
(FIRST) LORD DAVID WIGLEY NICKSON, KBE, D.L.; (SECOND) DAVID HENRY HOULDSWORTH; and (THIRD) THE HONOURABLE FELICITY SARAH LEWIS
Petitioners;
for
Rectification of a deed of appointment
Petitioners: Richardson, advocate; Brodies LLP
Respondent: MacGregor, advocate; Office of the Advocate General
10 August 2016
Introduction
[1] This petition concerns an application by the three petitioners, made under section 8 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 (“the 1985 Act”), to rectify a deed of appointment granted by them as trustees on 20 and 25 October 2012.
[2] The circumstances in which the application arises can be explained as follows. To the extent as set out in this introductory section they are either admitted or established by uncontroversial evidence. The first petitioner is Lord Nickson, whose wife Lady Nickson died on 3 September 2012. The third petitioner is their daughter and the second petitioner is a retired solicitor who had a long-standing professional relationship with the first petitioner. The second petitioner was formerly a partner and then consultant with Brodies LLP and had specialised in agricultural property law. In her will, which was executed on 9 October 2004, Lady Nickson had provided for the creation of what was called a nil rate band discretionary trust (“the Trust”) in the event that her husband survived her for more than 30 days. In a letter of the same date registered with her will Lady Nickson stated that:
“I have provided for the creation of a nil rate band discretionary trust for the benefit of my family. The principal object of the trust is to reduce the impact of inheritance tax on my family”.
[3] Given that Lord Nickson survived his wife for the specified period the Trust was duly established and the three petitioners were appointed as Lady Nickson’s executors and trustees. As provided for in her will, the trustees were to hold a discretionary fund being a sum such as would exhaust the nil rate band of inheritance tax. The income of the discretionary fund was to be made available for the benefit of any of the beneficiaries appointed under Lady Nickson’s will but the letter mentioned recorded her wish that her husband should be regarded as the principal beneficiary and should receive the net income from the Trust unless the trustees saw good reason to do otherwise.
[4] The creation of such a trust was commonplace at the time of the execution of Lady Nickson’s will as a method of reducing the impact of inheritance tax on the death of the first of a married couple. The transfer to such a trust of an amount equivalent to the deceased’s unused inheritance tax nil rate band was a chargeable transfer to use that nil rate band up. If the inheritance tax nil rate band was not used in a chargeable transfer at the time of death it was lost forever. The use of such a discretionary trust was an effective way in which to utilise the two nil rate bands held by the married couple.
[5] The Finance Act of 2008 made certain changes to the Inheritance Tax Act of 1984, the result of which is that a claim can now be made on the second death by the surviving spouse’s executors to transfer any unused nil rate band on the first death, provided that it occurred after 9 October 2007.
[6] A nil rate band discretionary trust can be wound up so as to comply with the provisions of section 144 of the Inheritance Tax Act, with the result that it can be deemed for inheritance tax purposes not to have existed. If the Trust had been wound up in this fashion, with the transfer of the Trust assets to Lord Nickson, it would be as if they had been left to him outright and thus exempt from inheritance tax and the unused portion of Lady Nickson’s nil rate band would be carried forward for use on her husband’s eventual death.
[7] On 2 October 2012, a meeting took place at the offices of Brodies LLP in Edinburgh to review Lady Nickson’s will and to discuss the administration of her estate. Advice was given concerning the change in the law which had taken place since her will was executed and a decision was taken to dismantle the Trust. This was achieved by deed of appointment appointing the Trust capital to Lord Nickson outright which was signed on 20 and 25 October 2012 and recorded in the Books of Council and Session.
[8] For the purposes of this case, the import of the decision in Frankland v IRC [1997] STC 1450, as read along with section 144 of the Inheritance Tax Act 1984, was that the Trust required to be dismantled within a period commencing no earlier than three months after the date of Lady Nickson’s death, and ending no later than two years after her death, in order to benefit from the provisions of section 144 of the Inheritance Tax Act. Accordingly, Lady Nickson’s nil rate band would only be available to her husband’s estate if the deed of appointment took effect no earlier than three months after her death. Those who provided advice to Lord Nickson at the 2 October 2012 meeting were unaware of the precise import of the case of Frankland. Various text books and academic articles on tax law described it as the “Frankland Trap”. Subsequent statutory amendments, of no application to this case, have negated the consequences of the decision.
[9] In these circumstances the question came to be whether the court could and should permit the deed of appointment to be rectified by adding the phrase: “such appointment to come into effect only on 5 December 2012 (and not before then)”
[10] If the deed of appointment was to have effect as suggested by the proposed rectification, then the Trust would have been wound up in accordance with section 144 of the Inheritance Tax Act and Lady Nickson’s inheritance tax nil rate band would be carried forward for use on her husband’s eventual death.
[11] The case called before me as a proof before answer with both the petitioners and the respondent having outstanding pleas in law attacking the relevance and specification of the respective pleadings.
Evidence
[12] On behalf of the petitioners, evidence was led from Lord Nickson, his daughter the Honourable Felicity Sarah Lewis, David Houldsworth and Alan Barr. Mr Barr is the partner with the firm of Brodies LLP who was responsible for supervising the administration of Lady Nickson’s estate. He is the head of their Personal and Family Department. The day-to-day work involved in the administration of the estate was undertaken by his then assistant Mrs Gotts.
[13] The evidence established that the provision in Lady Nickson’s will establishing the Trust was included for the sole purpose of making use of her inheritance tax nil rate band on the death of her husband. This was established by the evidence of Lord Nickson, who had a similar provision in his own previous will, from Lady Nickson’s letter of 9 October 2004 and from the evidence as to practice given by Mr Barr.
[14] The evidence as to what took place after Lady Nickson’s death is also clear. Mr Barr was not able to attend the meeting of 2 October 2012 as he was on annual leave. It was agreed that the second petitioner would attend in his place in light of his lengthy professional association with Lord Nickson and that he would be assisted by Mrs Gotts. The third petitioner did not attend that meeting as she lived in London. Prior to the meeting Mr Barr had some general discussions with Mrs Gotts concerning the estate.
[15] At the meeting of 2 October 2012 advice was given to Lord Nickson by Mr Houldsworth and by Mrs Gotts. He was informed that it had previously been necessary for spouses to put in place a nil rate band discretionary trust should they wish to benefit from their spouse’s nil rate band on the second death but that the law had now changed to introduce a transferable nil rate band between spouses. In these circumstances he was advised that the Trust may now be superfluous and there was a discussion about the effect of dismantling it. Those present concluded that the Trust could be dismantled with the assets being transferred to Lord Nickson and that on his death his estate would benefit from his own inheritance tax nil rate band and any unused part of Lady Nickson’s nil rate band. It was noted that there would be ongoing administrative costs if the Trust remained in place and a decision was taken to instruct Brodies to prepare the necessary paperwork to dismantle it. A Minute was kept of the meeting which noted that in light of the legislative changes the Trust may be superfluous and that there would be no inheritance tax consequence if it was wound up in favour of Lord Nickson.
[16] After the meeting Mr Houldsworth wrote to the third petitioner explaining what had been discussed and seeking her own approval. He also wrote to Lord Nickson stating:
“As discussed, we do not see any reason to retain the nil rate band discretionary trust in terms of clause 7 of the will. The executors can appoint the trust capital to you outright and there will be no inheritance tax consequences. Louise’s unused nil rate band can then be carried forward and applied on your death. Nicola will prepare a deed of appointment. The deed will need to be signed by myself, together with you and Felicity.”
Neither Mr Houldsworth nor Mrs Gotts was aware of the implications of the case of Frankland and no solicitor from the firm of Brodies advised any of the petitioners of its import.
[17] The third petitioner arranged to visit her father on 20 October 2012 in order to discuss matters following on from her mother’s death. In light of her impending visit arrangements were made to have a deed of appointment prepared and available for signature on that day. The deed was prepared in draft by Mrs Gotts and sent for approval to Mr Barr before being sent by him to Lord Nickson. It was based on a style deed and there was no reference within it to the deed taking effect on any particular date. The deed of appointment was duly signed by Lord Nickson and his daughter on 20 October 2012 and by the second petitioner on 25 October 2012. It had effect in law on being completed.
[18] Mr Barr is a specialist and experienced practitioner in wills, trusts and estate planning and was very well aware of the case of Frankland and its implications. He was aware of the purpose of the Trust and of the changes to the legislation which permitted the transfer of any unused nil rate band between spouses. He appreciated that if the Trust was not dismantled then Lady Nickson’s nil rate band would have been used up. He understood that the advantage of dismantling the Trust within two years of her death was that any unused portion of her nil rate band would then be available on Lord Nickson’s death. He also understood that in order to have the desired effect the Trust could not be dismantled prior to a period of three months elapsing from Lady Nickson’s death. Had he been present at the meeting of 2 October 2012 then he would have advised of the import of the Frankland case.
[19] When the proposed deed of appointment was revised by Mr Barr and sent for signature to the trustees he overlooked the fact that it was likely to be signed, and therefore have effect, at a point earlier than three months after Lady Nickson’s death. He explained that it was highly unusual for an executry to be sufficiently advanced to allow for the execution of such a deed within three months of the death and he had never previously been in such a position involving a relatively complicated executry. Had Mr Barr appreciated that matters were progressing so rapidly he would have informed the trustees of the import of the decision in the case of Frankland and advised them of the need to wait for the required period to elapse before signing the deed of appointment, which they would have done. In the course of the various discussions concerning the administration of Lady Nickson’s estate no consideration was given to the question of whether there should be any particular timetable attached to the process of dismantling the Trust.
[20] In cross examination the point was made with each of the witnesses that the intention had been for the deed of appointment to have immediate effect. Whilst, with the exception of Mr Barr, each witness acknowledged being unaware of the implication of the case of Frankland at the time the discussions were entered into, they all emphasised that there was neither a reason to expedite nor a reason to delay. The intention of each witness was that the Trust should be wound up in a manner such as would permit Lady Nickson’s unused nil rate band to be transferred to her husband and utilised by his executors on his eventual death.
[21] On behalf of the respondent, evidence was led from Ms Elaine Frew, who was a technical advisor for Her Majesty’s Revenue and Customs. Her evidence was led in support of the respondent’s fourth plea in law to the effect that it would not be equitable to grant the order sought. In the course of his submissions Mr MacGregor intimated that he was not insisting on this plea in law and in the circumstances nothing turns on the evidence of Ms Frew.
[22] In the course of Lord Nickson’s cross-examination objection was taken to a line of questioning being advanced by Mr MacGregor. I allowed the questioning under reservation. It was a line directed towards the equity of granting the order sought and in light of the final position taken by Mr MacGregor on this matter I will uphold the objection and take no account of the evidence elicited under reservation.
Submissions for petitioners
[23] Mr Richardson drew attention to the provisions of section 8 of the 1985 Act and noted that paragraphs (a) and (b) of subsection (1) each dealt with different situations. He submitted that the document under discussion in the present case fell properly to be viewed as a unilateral deed and his principal submission was addressed to subsection (1)(b), although he submitted that the petition addressed both sub-paragraphs. He submitted that the statute identified two things as being of critical importance. First, the intention of the parties or party, and second, the failure of the document to express that intention accurately. He observed that the statute was silent on the cause of failure and submitted that it directed attention to the two identified issues in an unconstrained manner.
[24] In Mr Richardson’s submission the question of whether the court could grant rectification in the manner which he sought was one of statutory interpretation. He invited me to have regard to the way in which Lord Macfadyen had approached the issue in the case of The Governor and Company of the Bank of Ireland v Bass Brewers Limited and Others (unreported, Court of Session, Outer House 1 June 2000). He submitted that on the basis of what Lord Macfadyen had said in that case the proper approach to an application directed towards section 8(1)(b) was first to ask what the grantor intended by the creation, transfer, variation or renunciation of rights. This was a question of the substance of what the grantor intended to achieve as well as the form of the document by which he intended to achieve it. Next, the court should turn its attention to the document as actually expressed and ask whether it expresses accurately the intention already identified. That, he submitted, was a question of asking whether the legal effect of the language actually used in the deed was to achieve the result that the grantor intended to bring about.
[25] Mr Richardson submitted that it was clear from the evidence that the intention of the trustees had been to secure the transfer of Lady Nickson’s unused nil rate band to her husband. Achieving that end had been the sole purpose for which the Trust had been created. It only became superfluous if that same outcome could be achieved in a different manner. The new benefit of the ability to transfer a nil rate band between spouses could not be achieved if her estate was held in trust. The deed of appointment he submitted did not succeed in permitting Lady Nickson’s unused nil rate band to be transferred for use by her husband because it took effect less than three months after her death. There was nothing in the trustees’ intention which required their decision to be implemented urgently. The only reason that their intention could not be implemented was the import of the decision in Frankland. The fact that the particular language did not bring about the legal result which the grantor intended to achieve was not fatal to an application of this sort, that had been the situation in the case of Bank of Ireland v Bass Brewers, nor was it fatal that the rectification required the insertion of words.
[26] Mr Richardson also relied on the case of Bank of Scotland v Graham’s Trustee 1992 SC 79 as an example of the wide breadth of the power available to the court under section 8(1)(b).
Submissions for the Respondent
[27] Mr MacGregor set out what he submitted was the legal issue for the court to determine, namely whether or not the deed of appointment accurately expressed the intention of the petitioners at the date on which it was executed. He submitted that it did. The intention of the petitioners was to wind up the Trust with immediate effect and that legal outcome had been achieved. He submitted that the proposed rectification would not implement the intention of the petitioners at the date of signature since at that time they had no intention of delaying the coming into effect of the deed. The proposed rectification would reword the deed to take account of the implication of the case of Frankland which the trustees were not aware of and which they did not make provision for at the time the deed was drafted.
[28] In developing his submission Mr MacGregor explained that the respondent viewed the application as one brought under section 8(1)(a) of the 1985 Act. He submitted that this was the implication of the averments to be found in statements 8.1 to 8.3 of the Record, where there was reference to what the trustees had agreed. He then made submissions concerning the circumstances in which the court could grant rectification under subparagraph (1)(a).
[29] He submitted it was important to appreciate that rectification was not a power which could permit the court to create an agreement for the parties and that the focus should be on whether the legal outcome which the parties intended was in fact achieved. The evidence demonstrated that the trustees had decided that there was no reason to retain the Trust and it had become superfluous. In this context the trustees signed the deed with the intention that immediate effect should be given to their decision. To ask the court to take account of some wider purpose which included the transfer of Lady Nickson’s nil rate band would amount to asking the court to create an agreement in order to permit the trustees to achieve their general purpose, rather than focusing on the legal consequence which the trustees had in mind in executing the deed of appointment.
[30] Mr MacGregor submitted that the failure of the deed to secure a wider purpose would not be a sufficient basis for the exercise of the power of rectification. The question would be whether the deed “expressed accurately” the intention of the grantor, or to put the matter another way, rectification is not a power to permit the court to form an agreement for the parties. It cannot be used to rewrite history. In support of these submissions Mr MacGregor relied on what had been said by Lord Macfadyen in the case of Renyana-Stahl Anstalt v MacGregor 2001 SLT 1247, what had been said by Lord Hope in the case of Bank of Scotland v Graham’s Trustee and what had been said by Lord Hoffman in the case of Bank of Scotland v Brunswick Developments (1987) Ltd 1999 SC (HL) 53.
[31] Mr MacGregor also submitted that the court had to guard against allowing itself to be placed in the position of rewriting the parties agreement. If an original agreement properly construed did not cover some particular matter so that it was un-agreed, there would be no common intention of the parties to the essential agreement in that respect and no failure to express such an intention accurately and therefore no scope for rectification in order to give effect to that intention. He submitted that the power of rectification is limited and is constrained by the need for the maintenance of certainty. Whilst there may have been a misunderstanding on the part of the trustees in the present case, that could not be described as an inadvertent error of the sort which permits rectification. In support of these submissions Mr MacGregor relied upon the cases of Norwich Union Life Insurance Society v Tanap Investments VK Ltd 2000 SC 515 and Co-Operative Wholesale Society Ltd v Ravenseft Properties Ltd and Another 2003 SCLR 509. In these circumstances he submitted that the petitioners’ application was bound to fail.
[32] In responding to the petitioner’s reliance on the case of The Governor and Company of the Bank of Ireland v Bass Brewers Ltd, Mr MacGregor reiterated that the court’s focus should be on whether the intended legal outcome was achieved. He accepted that rectification went beyond addressing clerical errors but argued that an individual was barred from seeking rectification if the document achieved the legal outcome they wished it to achieve. That, he submitted, was the case with the present deed of appointment. Whereas the petitioners wished to see the winding up of the Trust has a mere mechanism, the respondent submitted that it was of much more substance than that and that to permit the rectification sought would be to permit the petitioners to rewrite the deed and would go beyond the power of rectification.
[33] Mr MacGregor submitted that the petitioner’s case could not succeed, either because the pleadings failed to establish a relevant case in which section 8 of the 1985 Act could be applied, or had failed, since the court could not grant rectification in the circumstances established by the evidence.
Discussion
[34] I have set out my findings on the evidence in paragraphs [13] to [20] above. I am satisfied that the intention of the trustees was to wind up the Trust in a manner such as would permit Lord Nickson’s executors, in due course, to take advantage of any unused portion of Lady Nickson’s nil rate band. That intention has been defeated because of the application of the legal rule reflected in the case of Frankland. Had the Trustees been made aware of the decision I am satisfied that they would have allowed a period of three months from Lady Nickson’ death to elapse before signing the deed. In these circumstances the first question for me to determine is whether the proposed rectification is competent in terms of the statutory provisions.
[35] Section 8 of the 1985 Act provides as follows:
“8 – Rectification of defectively expressed documents.
- Subject to section 9 of this Act, if the court is satisfied, on an application made to it, that –
(a) a document intended to express or to give effect to an agreement fails to express accurately the common intention of the parties to the agreement at the date when it was made; or
(b) a document intended to create, transfer, vary or renounce a right, not being a document falling within paragraph (a) above, fails to express accurately the intention of the grantor of the document at the date when it was executed,
it may order the document to be rectified in any manner that it may specify in order to give effect to that intention.
(2) For the purposes of subsection (1) above, the court shall be entitled to have regard to all relevant evidence, whether written or oral.”
[36] In the present case nothing turns on the terms of section 9, to which it is therefore unnecessary to make further reference. The document which the court is asked to rectify was executed by the petitioners acting as the trustees of the discretionary trust established in terms of Lady Nickson’s will. The trust fund was to be held for the benefit of Lord Nickson and the other beneficiaries identified. The trustees were though given the power to hold the trust fund for the benefit of any of the beneficiaries on such terms as they thought fit. Acting under these powers the trustees resolved to appoint the whole trust fund outright to Lord Nickson and this was achieved by execution of the deed of appointment.
[37] The deed of appointment therefore has as its purpose the appointment of the trust fund to Lord Nickson. It is a deed intended to create a right in his favour, namely the right to the trust fund absolutely. In my view therefore the deed of appointment is a unilateral deed, not an agreement, and the relevant provision for the purposes of the application is section 8(1)(b) of the 1985 Act. This is consistent with the distinction which Lord Hope drew in Bank of Scotland v Graham’s Trustee in dealing with an application for rectification concerning a standard security in favour of a bank granted by a married couple. It does not seem to me to matter that in paragraphs 8.1 to 8.3 of the Record there is reference to an agreement on the part of the trustees. The deed of appointment was not a document which was intended to express or to give effect to an agreement, it was a document intended to create a right. To this extent therefore I accept the submission of Mr Richardson and I reject the contention advanced by Mr MacGregor to the effect that section 8(1)(a) is the governing provision.
[38] Much of the case law relied upon by Mr MacGregor concerned the application of section 8(1)(a). Nevertheless, it seems to me that the guidance provided in those cases may be of some assistance. For the purpose of subsection (1)(a) there must be a document which the petitioner seeks to have rectified, there must be an earlier agreement, that agreement must disclose that at the date when it was made the parties possessed a common intention and the document itself has to have been intended to express or give effect to that agreement. Rectification will be available if it is shown that the document fails to express accurately the common intention mentioned - see the opinion of Lord Macfadyen at paragraph [34] in the case of Renyana Stahl Anstalt. Accordingly, in such a case it is important to determine what the earlier agreement was and what that agreement discloses as to the common intention of the parties.
[39] In the case of Co-operative Wholesale Society Ltd v Ravenseft Properties Ltd, again considering the application of section 8(1)(a), Lord Eassie had to consider an application to rectify a document in which the question was whether an agreement accurately recorded in terms of its constitutive documents, but proceeding on a shared error of underlying fact, might be rectified by the court in order to bring about the ultimate commercial or practical result which the parties had in contemplation. The case involved a minute of variation of a commercial lease in which a so-called “keep open” clause in the lease was deleted. The minute of variation had been preceded by an exchange of communings between the solicitors acting for each party in which the existence of a second “keep open” clause had been overlooked. That second clause therefore did not feature in the minute of variation and the court was asked to exercise its power of rectification by extending the import of the minute of variation so that it deleted from the lease reference to the second “keep open” clause.
[40] Lord Eassie proceeded upon the view that had they been aware of the second clause then the parties to the minute of variation might well have agreed to delete it but held that in the end there was no discrepancy between the executed minute of variation and the agreement entered into between the solicitors. In these circumstances Lord Eassie concluded that the power of rectification did not permit him to alter elements which were constitutive as opposed to simply expressive of the initial agreement on the ground that if one or other of the parties had been alert to a particular factual circumstance the terms of the agreement would have been different.
[41] In arriving at his decision Lord Eassie declined to give effect to the submission made by counsel for the petitioner that the test under section 8(1)(a) was not whether the document which it was sought to rectify failed to express or to give effect to the agreement of the parties, but whether it failed to express the wider common intention of the parties. At paragraph [31] he said this:
“The power to allow the rectification is as a limited one. In my view it is not available to recast an initial agreement in the terms which might have been used had the parties been alert to some particular overlooked factual circumstance. That the remedy available under section 8(1)(a) of the 1985 Act is a limited one is also reflected in the concluding passages of the opinion of the Lord Ordinary in Rehman, which were viewed with approval by the Inner House in Huewind Ltd v Clydesdale Bank plc, p 375G. And, as was put in a passage in the speech of Lord Hoffmann in Governor and Company of the Bank of Scotland v Brunswick Developments (1987) Ltd, [p 32B;] p 55D to which counsel for the defenders adverted, section 8 cannot be used to ‘rewrite history’ ”.
[42] In the present case Mr Richardson did not suggest that the approach taken by Lord Eassie was wrong but sought to distinguish the application of section 8(1)(a) from the application of section 8(1)(b). He argued that there were differences in cases involving the former which might make the application of that subsection rather narrower. For his part Mr MacGregor submitted that the case principally relied on by the present petitioner of The Governor and Company of the Bank of Ireland v Bass Brewers was of no assistance to them as the approach which Lord Eassie had taken in the Co-operative Wholesale Society Ltd case was no different from that taken by Lord Macfadyen in the Bass Brewers case.
[43] The submission advanced by Mr Richardson in the present case was that the deed of appointment was the vehicle, or method, by which the intention of ensuring that Lady Nickson’s unused nil rate band would continue to be available on Lord Nickson’s eventual death was to be achieved. That submission is similar to the submission made by counsel for the petitioner in the case of Co-operative Wholesale Society Ltd v Ravenseft, to which I referred to in paragraph [41] above, and which was rejected by Lord Eassie. Accordingly it may be necessary to consider whether the scope of subsection (1)(b) of section 8 can be any broader than the scope of subsection (1)(a).
[44] Section 8 is headed “Rectification of defectively expressed documents”. It then goes on to identify in subparagraphs (a) and (b) the categories of documents which may be rectified and the circumstances in which that power may be exercised. The common requirement though must be that the document is defectively expressed. In the application of subparagraph (a) that defect will arise through a failure to accurately express the common intention of the parties to an earlier agreement, whereas in the application of subparagraph (b) that defect will arise through a failure to express accurately the intention that the grantor of the document had at the date of its execution. There is no obvious suggestion in the language used that the scope of either subsection is different.
[45] The application of subsection (1)(b) was examined by Lord Macfadyen in the Bass Brewers case. Following his approach, the first question to consider is what the grantor intended by way of the creation, transfer, variation or renunciation of a right. As Lord Macfadyen observed, the natural form of the answer to the question to which the provision invites attention is that the grantor intended to bring about a particular legal result, rather than that he intended to grant a document expressed in particular words. Once the intended legal result has been identified the court should turn its attention to the document as actually expressed and ask itself whether it expresses accurately the intention already identified. In other words, the second question becomes, has the legal effect of the language actually used in the deed to express the grantor’s intention achieved the result that the grantor intended to bring about.
[46] In the Bass Brewers case a company granted a bond and floating charge in favour of Bass which contained a so-called negative pledge, meaning that it bound itself not to create a security or charge over any part of its property without the consent of Bass. In due course a letter of consent from Bass was issued to the company consenting to it granting standard securities. The case proceeded upon the averment that the solicitors involved in the discussions surrounding the request for and grant of the letter of consent shared the belief that all that was necessary to disapply the negative pledge was to obtain a letter of consent by the holder of the floating charge containing that negative pledge. This turned out to be an incorrect understanding of the law. The court was therefore asked to permit rectification of the Bass letter of consent so that it contained an express acknowledgement that they consented to prior ranking standard securities.
[47] The legal result which was intended by the granting of the letter of consent was that the company should be able to grant a prior ranking standard security in respect of property which it intended to buy. Despite the understanding of the solicitors involved, it did not have that legal result. Lord Macfadyen held that the scope of section 8(1)(b) was wide enough to cover cases where the language used was precisely the language that the grantor intended to use but that language did not bring about the legal result that the grantor intended to achieve thereby.
[48] However, it seems to me that when Lord Macfadyen identified the need for the court to ask if the legal effect of the language actually used in the deed to express the grantor’s intention achieved the result that the grantor intended to bring about, the legal result he had in mind was the intended creation, transfer etc of a particular right, rather than some associated or consequential legal right beyond that to be effected by the document. In the Bass Brewers case the legal result which the grantor of the letter of consent intended it to create, namely the right to grant a prior ranking standard security, was not achieved by the language used. Lord Macfadyen accepted that the scope of section 8(1)(b) would permit the letter of consent to be rectified so as to achieve that intended legal result. There is nothing in Lord Macfadyen’s opinion to support the contention advanced by Mr Richardson that the court should look to the underlying purpose which the grantor of the document had in creating a right and ask itself whether that underlying purpose is also achieved by the language used in the terms of the document. Nor is there any support for this contention in the case of Norwich Union Life Insurance Society v Tanap Investments VK Ltd.
[49] I therefore agree with Mr MacGregor that it is important to focus on the legal consequence intended in the granting of the deed of appointment. If that is done it seems to me that the failure to secure some wider purpose would be no more a sufficient basis for the exercise of the power of rectification under subsection (1)(b) that it would be under subsection (1)(a).
[50] In the present case the deed of appointment was utilised as a vehicle to achieve a wider purpose, namely the transfer of Lady Nickson’s unused inheritance tax nil rate band to her husband in terms of the amendment to the law which had been brought about. In order to achieve that wider purpose the Trust required to be wound up. That legal result, the winding up of the Trust, was achieved by the deed of appointment, exactly as the trustees had intended. Despite this being achieved Lady Nickson’s nil rate band cannot be transferred because of the application of a different legal rule, namely that arising from the case of Frankland. It does not seem to me that the scope of section 8(1)(b) can permit the court to change a deed of appointment, which validly creates the legal right intended, so as to delay its effect in order to take account of an entirely separate legal rule which the grantor was unaware of at the time the intention to create, transfer, vary or renounce the right was formed.
[51] In the present case the trustees intended to create a right by executing the deed of appointment. They had no intention of delaying the creation of that right as they were unaware of any benefit in doing so. The deed of appointment expressed accurately the intention of the trustees at the date when it was executed, since their intention was to create a right to the trust fund absolutely in favour of Lord Nickson. The legal result of the deed being executed was that the trust funds were made available to him, exactly as the trustees had intended. Applying the approach identified by Lord Macfadyen of identifying what the grantor intended by way of the creation, transfer, variation or renunciation of rights and then asking whether the legal effect of the language used in the deed achieved the result that the grantor intended to bring about, leads to the conclusion that there is nothing to rectify in the deed of appointment. The fact that in bringing about their intended legal result the trustees fell into the “Frankland Trap”, and failed to achieve the underlying purpose of the whole exercise, seems to me to be a different matter and not within the scope of rectification.
[52] For the reasons which I have set out I will therefore repel the petitioners’ plea in law. I will uphold the respondent’s first plea in law, so far as directed to relevance, and I will refuse to grant the prayer of the petition. Previous questions of expenses have been reserved and remain to be addressed. I will also therefore reserve meantime the question of expenses.