The Royal Court has been asked to rectify a blunder which led to a trustee sending a beneficiary of a trust its entire value… instead of £67,000 in cash.
The unintended consequence of the mistake was that the unnamed beneficiary was sent ‘loan receivables’, or money to be owed, and shares in a company registered in the British Virgin Islands. This had the effect of terminating the trust due to its lack of assets.
The trust was set up in 1998 and comprised of cash and loans held in the BVI company. At a recent private hearing, the Court heard that the trustee, SG Kleinwort Hambros Trust Company, had not intended for the whole of the trust fund to be given to the beneficiary, nor that the trust should therefore be terminated.
The £67,000 had intended to be only a step in the winding up of the trust, which would have involved a series of transactions, including the liquidation of the BVI company and the distribution of all other assets.
In asking its legal advisers to draft the necessary documentation for the cash distribution, the trustee mistakenly included an instruction to prepare an ‘instrument of distribution and termination’.
The Court heard that SG Kleinwort Hambros Trust Company should have instructed their lawyers to prepare an ‘instrument of appointment’ of part only, in relation to the specific cash amount.
The trustee then executed the instrument in February last year, which did not refer to a cash amount at all, instead referring to the distribution of ‘the entirety of the trust fund and the income thereof’ and transferred the cash amount to the beneficiary.
The mistake only came to light the following month, when a new manager at the trustee was reviewing documentation to completing the liquidation of the company.
The Court heard that it was clear from the tax advice received by the trustee that the appointment of the entirety of the trust fund to the beneficiary and, in particular, the appointment of the shares in the BVI company, was “a serious mistake”, that if not corrected by the Court, could result in adverse tax consequences for the beneficiary when the company was liquidated.
The Royal Court, with Commissioner Alan Binnington sitting with Jurats Kim Averty and Alison Opfermann, concluded that there was “ample evidence” that a mistake had taken place and it was “perhaps unfortunate” that email instructions from the trustee to its lawyers had not been clearer.
It added that the Court had seen no evidence that the ‘instrument of appointed’ drafted by the law firm had not been reviewed by the trustee before it was enacted.
The Court concluded: “In the circumstances, we were satisfied on the evidence put before us that the instrument did not carry out the true intention of the parties by reason of a genuine mistake. We were further satisfied that there had been full and frank disclosure and that there was no other practical remedy.”
It then ordered that the instrument be corrected retrospectively to reflect the simple cash distribution.
It also noted that “it is clear that the error would have been identified” had the trustee been clearer its it correspondence with its lawyers, reviewed the documents once drafted, and checked that the resolution for the execution of the instrument reflected the “nature and objective of the document to be signed.”