Rogge & Anor v Rogge & Ors

This is my judgment on a Part 8 Claim seeking an order setting aside all transfers by the Claimants prior to 27^th November 2015 to the trust known as the Stefan Rogge

The First Claimant is a 72 year old retired businessman of German nationality, who has been resident in the UK since 1978. He had built up a substantial business, Rogge Global Partners PLC, specializing in fixed income investment, prior to the sale of his majority interest in it in 1988. He continued to run the business after 1998 but reduced his commitment in 2016 to non-executive chairman, which role came to an end on 3 June, 2017.

The Second Claimant, who is 61 years old, is the wife of the First Claimant.

The First and Second Claimants have four children: Sophia, born on 7 September, 1982, who is the First Defendant; Ralph, born on 22 August, 1985, who is the Second Defendant; Stefan, born on 18 October, 1990, who has been joined as the Third Defendant; and Isabella, born on 28 May, 1992.

The First and Second Defendants are two of the four trustees of the Trust. The other two trustees are the First and Second Claimants. The Trust was created by a deed dated 31 March 2011 made between the First Claimant as settlor and the four trustees.

On 5 April, 2009 Stefan, who was then 18 years old, suffered a very serious brain injury (a traumatic external brain injury stage three) while playing polo. Stefan is unable to walk unaided as he has no balance and has problems with sight and speech as well as severe memory problems.

After 15 months’ residential treatment in a variety of hospitals and clinics, Stefan and returned to his parents' home in London in July 2010. That property was not suitable to his needs. The First and Second Claimants sold it and purchased two contiguous flats in

In 2010 the First and Second Claimants were looking for a house to purchase in the countryside which would serve as both a retirement home for them, and a place for their children and possible future grandchildren to visit, with an area designed to meet the needs of Stefan.

In February 2011 the First and Second Claimants identified the property they wished to purchase: Medstead Grange, near Alton (“the Property”).

On advice, the First Claimant created the Trust. The First Claimant settled £4.1 million into the Trust which the Trustees used to purchase the Property.

From the time of purchase of the Property down to 27^th November 2015 the trustees spent £11,600,780 on construction and other works to the Property. From 27^th November 2015 to 30^th November 2016 a further £1,326,563 was spent. The funds for the expenditure down to 27^th November 2015 were provided by or through the Second Claimant because the Claimants thought that by providing them in that way the payments would be more

The claim to set aside the payments is made under the principle authoritatively expounded by the Supreme Court in Pitt v Holt [2013] UKSC 26, [2013] 2 AC 108 under which the court may set aside a voluntary transaction for mistake where the transaction has been effected pursuant to a causative mistake of such gravity as to make it unconscionable for the donee to retain the property.

In paragraphs 14 to 16 of the Particulars of Claim the Claimants aver that the payments, at least down to some time in August to November 2015, were made on the basis of three mistakes:

In paragraph 19 of the Particulars of Claim the Claimants identify some additional mistakes which they aver they made in making the transfers. Those are:

In order to for them to be able to use the Property without the GWROB rules having an adverse impact, on 8^th December 2016 the First and Second Defendants took a lease of the Property from the trustees with effect from 1^st September 2015 at an annual rent of £102,000, subject to a 20% discount for the period down to 30^th November 2016 and to future review. This rent is taxable at 45% in the hands of the trustees.

The Claimants do not seek to set aside the Trust. They seek an order setting aside the transfers by them of sums into the Trust and a declaration that sums paid by the First Claimant to the trustees after 27^th November 2015 are held on resulting trust for him. As their case developed, they also came to seek an order requiring the trustees to transfer the Property to them. Accordingly the claim comes within the scope of CPR 19.7A as a claim which “may be brought” “against trustees” “without adding as parties any persons who have a beneficial interest in the trust” (“the beneficiaries”). By CPR 19.7A(2) any judgment or order given or made in a claim within the rule is binding on the beneficiaries unless the court orders otherwise in the same or other proceedings. CPR 19.7A(2) may be invoked by an interested beneficiary who can show that the trustees did not in fact represent him.

Initially the Part 8 Claim was supported by the following witness statements:

In the bundles for the initial hearing there were also copies of:

Subsequently there were filed:

At the hearing on 28^th November 2018 the then Defendants (two of the four trustees of the Trust) were represented by Mr Waldegrave of counsel.

At some date before 28^th November 2018 the Claimants and the then Defendants had signed a draft consent order. This draft consent order provided that the parties had agreed its terms and that by consent it was to be ordered as follows:

I was not asked to approve the trustees’ agreement to the consent order. I was asked to make an order in its terms. Both counsel submitted that in order to make the order setting aside the payments, the Claimants needed to prove to the court’s satisfaction that the relief sought ought to be granted.

Mr Conolly submitted that because rescission was not necessarily an all or nothing remedy, and the remedy awarded was fact sensitive, and permitted what was practically just, it was within the power of the court to set aside the transfers on the basis that alternative provision was made for Stefan in accordance with the terms of the draft consent order. In support of this submission Mr Conolly referred me to the decision of Master Matthews in Bainbridge v Bainbridge [2016] EWHC 898 (Ch), and in particular

The issues in Bainbridge v Bainbridge [2016] EWHC 898 (Ch), and in the cases referred to by Master Matthews at paragraph 21 of his judgment in that case were very different from the issue raised by the draft consent order in the present case. In Bainbridge the relevant issues were (i) whether there could be rescission of part only of a transaction on the grounds of voluntary mistake and (ii) whether, where a third party had acquired part of the property which had been voluntarily transferred to trustees, the mistaken donors, although barred from recovering against the third party, could trace and recover from the donee trustees the price paid by the third party. Master Matthews held that both those things could be done. In contrast, in the present case in substance what the draft consent order seeks to achieve is a quasi-rectification or purchase of rescission by funding the proposed New Trust, for the benefit of some or all of the beneficiaries of the Trust in exchange for the trustees’ consent to rescission.

Point (ii) in Bainbridge is relevant to the analysis of what order I might make if and to the extent that there is a prima facie case for setting aside the payments made into the Trust. That is because, taking the original £4.1 million payment as an example, the payment was used to purchase the Property, so, as contemplated by the originally proposed draft consent order, in addition to setting aside the payment, I might make an order for the transfer of the Property to the Claimants.

I was and remain concerned that quasi-rectification or “purchase” of rescission could not be made as proposed by the draft consent order, or at least that I did not have jurisdiction to make the orders sought requiring the Claimants to settle property onto the New Trust as a condition of granting rescission. In the light of these concerns the parties modified their position by:

Mr Waldegrave stated in his skeleton argument that the parties had agreed to settle the proceedings on the terms of a draft consent order and that on that basis the then Defendants were not contesting the proceedings. Mr Waldegrave did (i) assist the court by outlining some possible arguments against the Claimants’ case and (ii) explain why his clients considered that it was in the interests of the beneficiaries of the trust for the proposed consent order to be made.

As regards Mr Waldegrave’s (i): Mr Waldegrave did not attempt to explore by way of cross-examination the doubts or ambiguities which he raised on questions of fact.

As regards Mr Waldegrave’s (ii): the position of Stefan has been overtaken by my joinder of him and his representation by a litigation friend as explained below. As regards the

By the end of the hearing time on 28^th November 2018 I had indicated various concerns as to Stefan’s and Isabella’s positions; as to certain aspects of the evidence; and as to the difficulty in dealing with the claim in the absence of any substantive opposition to the relief sought or challenge to the evidence. In the light of those concerns, on 28^th November 2018 I made the following order:

I have not seen such a written consent from Isabella. However, she was present at the hearing on 28^th November 2018, and must have known from that that the claim was not bound to succeed. There is no reason for me to suppose that she was not at least offered the advice of independent counsel as per the undertaking of 28^th November 2018. She has not chosen to apply to be joined. I consider Stefan’s position below.

The adjourned hearing was listed for and took place on 15^th January 2019. By then certain things had changed. In particular:

What the First Claimant said in response to HMRC’s reference to the Olaf Rogge Discretionary Trust and the FTT decision in relation to it was that the Olaf Rogge Discretionary Trust was set up in 1985 and was an offshore discretionary trust which was dissolved in 2008. He said that he and his family were discretionary beneficiaries and that the trust was set up to hold assets outside of the UK. It held (a) quoted investments and (b) cash with a combined approximate value of £3 million. He says that it was an “excluded property” trust which he understood to mean that it was outside the scope of IHT altogether and did not give rise to any of the issues which have arisen the present case. As regards the part of paragraph 12 of his earlier statement quoted above, the First Claimant said:

“What I meant at paragraph 12 of my First Witness Statement dated 20 December

2017 is that I had never been involved in setting up a UK trust let alone a Disabled Person’s Trust before and I did not know how these types of trust operated or the potential tax consequences involved.”

Neither HMRC nor the Defendants nor any of the other persons who has known of these proceedings have chosen to challenge the Claimants’ evidence by way of their own evidence or by way of cross-examination. In the absence of any such challenge, I cannot disregard the Claimants’ evidence. Nor, generally, should I treat it as inaccurate.

By an order dated 15^th January 2019 I ordered, amongst other things, that:

By a letter from the parties’ solicitors dated 6^th February 2019 they complied with the last-mentioned order and informed the court, amongst other things, that:

The letter of 6^th February 2019 enclosed a consent to the terms of the originally proposed consent order. I repeat that I have not been asked to approve the trustees’ agreement to the consent order. Nor have I been asked to approve any consent order as a compromise involving Stefan. No attempt has been made to comply with the requirements of CPR 23.10.

One of the assumptions on which the alternative undertakings specified in the 6^th February 2019 letter were given was that in the event that I was to find that there were some transfers or payments which should neither be set aside for mistake nor give rise to a resulting or constructive trust, then the trustees would become liable to “repay the payments made for rent under the terms of the lease”. I have not been asked to set aside the lease or the payments of rent either for mistake or otherwise. It is not apparent on what ground I might make a free-standing order for the repayment of the rents. However, as explained below, I might require an allowance in respect of the rents received as part of any condition or requirement for counter-restitution which I might impose as a condition of granting rescission.

Appropriate undertakings by the Claimants might be relevant for the purpose of restricting the impact of any order for rescission on the recipients or third parties in terms of the proprietary or personal remedies against them which rescission would give rise to, and hence on whether I should order rescission.

Undertakings offered by the Claimants might also form or form part of the consideration for a bargain between the Claimants and the trustees under which, amongst other things, the trustees agreed to consent to the orders sought by the Claimants. If there was such a bargain, then the consent of the trustees to the orders for rescission might avoid the need for the court to protect the trustees and their beneficiaries by way of conditions and requirements for counter-restitution.

I reject the concept that the existence of the particular undertakings proposed in the present case should have a more general impact on whether or not I should order rescission. If such an impact was made by the undertakings, I consider that I would in substance be allowing rectification or something approaching it in circumstances where a case for rectification did not exist. That is something which in a case such as the present the law does not allow. The point was decided by Sir Andrew Park in Smithson v Hamilton [2007] EWHC 2900 (Ch) at paragraphs 61 – 80. This decision was not affected by the subsequent compromise of that case effected with the assistance of the Court of Appeal ([2008] EWCA Civ 996)_. At paragraph 61 Sir Andrew Park summarised his view as follows:

“The key points which I make in this part of my judgment are the following. The nature of the mistake in rule 3.5.2.1 was such that it could only be corrected by changing the rule, as opposed to nullifying it. The only way to change the rule retrospectively was by an order of rectification. That could only be achieved if the circumstances of the case qualified for rectification, but they did not. Where the rule in Hastings-Bass applies the effect is not to change something that trustees have done, but rather to set it aside altogether. But in this case rule 3.5.2.1 needed to be changed, not set aside. The claimants seek to navigate round this obstacle by their undertaking that, if the court sets the rule aside, they will make an amendment which introduces a new rule 3.5.2.1 that does not suffer from the mistake contained in the present one.

This is rectification by the back door, and in my judgment it is not an acceptable way for the court to proceed.”

In Pitt v Holt [2013] UKSC 26 [2013] 2 AC 108, the Supreme Court held that the equitable jurisdiction to set aside a voluntary disposition on the ground of mistake was exercisable whenever there was a causative mistake which was so grave that it would be unconscionable to refuse relief; that the test would normally be satisfied only when there was a mistake either as to the legal character or nature of the transaction, or as to some matter of fact or law which was basic to the transaction; that a causative mistake differed from inadvertence, misprediction or mere ignorance, but forgetfulness, inadvertence or ignorance, although not as such a mistake, could lead to a false belief or assumption which the law would recognise as a mistake; that the gravity of the mistake had to be assessed by a close examination of the facts, including the circumstances of the mistake, its centrality to the transaction in question and the seriousness of its consequences, including tax consequences, for the disponor, and the court then had to make an objective evaluative judgment as to whether it would be unconscionable, or unjust, to leave the mistake uncorrected.

The various aspects of the test set out by Lord Walker in Pitt v Holt and were summarised as follows by Sir Terence Etherton C in Kennedy v Kennedy [2014] EWHC 4129 (Ch) at paragraph 36 as follows:

The Trust was created by a Settlement deed dated 31^st March 2011 and made between the First Claimant as “the Settlor” and the First Claimant, the Second Claimant and the first two Defendants as Trustees.

The initial trust property was £10.

The Settlement contains, amongst others, recitals to the following effect:

The last of those recitals represents what, in the circumstances as they actually existed, was a substantially hopeless suggestion that the payments into the Trust might be justified as payments in favour of a dependant relative which were reasonable provision for his care or maintenance.

The Discretionary Beneficiaries are defined as meaning (a) the Principal Beneficiary (Stefan), (b) the children and remoter issue of Stefan; (c) the children and remoter issue of the First Claimant; (d) such other persons as may be added as a Discretionary Beneficiary under a power in that regard contained in clause 3 of the Settlement.

Clause 4 of Part 1 contains a wide power of appointment exercisable in favour of the Discretionary Beneficiaries in respect of capital and income. The exercise of this power is restricted by clause 5 which provides that any appointment under the clause which takes effect during Stefan’s lifetime shall comply with the provisions of clause 16 and, in particular, taking account of any previous exercise of the powers contained in clauses 4 and/or 7, shall secure that not less than half of the Trust Fund which is applied during the lifetime of Stefan is applied for his benefit.

Clause 16 of Part 1 contains a catch all provision barring any exercise of a power or provision of the deed operating directly or indirectly so as to prevent the operation of s.89

Clause 6 of Part 1 contains a default discretionary trust of income in favour of the Discretionary Beneficiaries, subject to a power to accumulate.

Clause 7 of Part 1 contains a power of advancement in favour of Stefan.

Clause 17 of Part 1 excludes the Settlor (the First Claimant) and his spouse (the Second Claimant) or civil partner from benefit.

Part 2 contains various administrative provisions, including at clause 10 of Part 2, power to permit any Beneficiary to occupy, reside in or upon any real or immovable property and to have the enjoyment and use of chattels or other movable property for the time being comprised in the Trust Fund.

When it was created the Trust was a trust for disabled persons within the meaning of the then provisions of s.89 IHT Act 1984. The then requirements of s.89 IHT Act 1984 were that the trusts should be such that (a) during the life of a disabled person, no interest in possession in the settled property subsisted, and (b) they secured that not less than half of the settled property which was applied during his life was applied for his benefit.

The relevant effects from an IHT perspective of s.89 IHT Act 1984 applying to the Trust were that by s.89(2) Stefan was treated as beneficially entitled to an interest in possession in the settled property. In consequence:

The conditions which a trust had to satisfy in order to qualify under s.89 IHT Act 1984 were changed by the Finance Act 2013 in respect of property transferred into a settlement on or after 8^th April 2013. In respect of such property the requirement as to securing that not less than half of the settled property which was applied during the disabled person’s life was applied for his benefit was replaced by a requirement that any of the settled property or its income applied during the lifetime of the disabled person should be applied for his benefit. However, this change does not apply where property is added to a settlement (such as the Trust) which was created before 8^th April 2013, the trusts of which have not been altered on or after that date (paragraphs 6 and 20 of Schedule 44 to the Finance Act 2013).

At a very elementary level, broadly IHT is charged, subject to various exceptions and exemptions, in the following circumstances:

The GWROB rules were put as being central to the case based on mistake. I focus on them as they existed in 2010 to 2011, though so far as this case is concerned they were no less stringent in subsequent years. The GWROB rules are contained in ss.102 - 107 Finance Act 1986 as supplemented by Schedule 20 to that Act and regulations.

Under s.102(1) Finance Act 1986, the rules apply where an individual disposes of any property by way of gift after 17 March 1986 and: (a) possession and enjoyment of the property is not bona fide assumed by the donee at or before the beginning of “the relevant period”, or (b) at any time during “the relevant period” the property is not enjoyed to the entire exclusion, or virtually to the entire exclusion, of the donor (limb 1) and of any benefit to him by contract or otherwise (limb 2).

"The relevant period" means a period ending at the donor’s death and beginning seven years before the death or, if it is later, on the date of the gift. Under s.102(2) property within subs.(1)(a) or (b) is referred to as “property subject to a reservation”. Whether there is any such property has to be decided by looking back from the donor’s death to the beginning of “the relevant period”.

When there is a reservation of benefit in gifted property at the date of death, that property is treated for IHT purposes as property to which the donor was beneficially entitled at his death. Where the reservation ceases at any time during the donor’s life, he is treated as making a potentially exempt transfer at that time.

There is no “safe period” after which benefits can be taken in gifted property. The example given in Dymond’s Capital Taxes at 5A-201 is that a gift might have been made in 1987 and the donor wholly excluded from all benefit until 2015 (when he resumed the occupation of—say—a gifted house). On these facts if the donor were to die in 2016 the conditions of s.102(3) would be met and the property would be taxed as part of his estate. The fact that the donor survived seven years from the date of the gift would be irrelevant: for reservation of benefit purposes the question of whether there is a reserved benefit is judged in the seven years prior to the donor’s death.

Paragraphs 2 and 5 of Schedule 20 to the Finance Act 1986 essentially provide that in the circumstances of the present case the property which represented the gifts of money made by the Claimants was itself property in respect of which a reservation of benefit to the Claimants might exist.

So, in the present case, if the Claimants’ use or occupation of the property which was purchased by the Trust with the money gifted by them to the Trust amounted to a reservation of benefit within 7 years before their deaths; IHT would be charged on the

By paragraph 6 of Schedule 20 to the Finance Act 1986, in determining whether any property which is disposed of by way of gift is enjoyed to the entire exclusion, or virtually to the entire exclusion, of the donor and of any benefit to him by contract or otherwise, in the case of property which is an interest in land or a chattel, retention or assumption by the donor of actual occupation of the land or actual enjoyment of an incorporeal right over the land, or actual possession of the chattel shall be disregarded if it is for full consideration in money or money's worth.

So, in the present case the Claimants entered into the lease of the property so as to avoid their occupation or enjoyment of its constituting a reservation of benefit.

I have already summarised the background.

After Stefan’s accident the Claimants were concerned as to how his needs might be met after the Claimants were no longer around to assist him.

In July 2009 the First Claimant’s accountant, Mr Broom, advised that the appropriate vehicle for making provision for Stefan was a “Disabled Trust”. In an email dated 31^st July 2009 to the First Defendant, Mr Broom explained, amongst other things, that sums paid into a Disabled Trust would be treated as a potentially exempt transfer (“a PET”) for IHT purposes, “so that no IHT would be paid provided the Donor survives 7 years from the date of the gift”. Mr Broom advised that the field of Disabled Trusts was a narrow specialised area. He suggested using the firm of Wrigleys LLP in Sheffield.

At that time the First Claimant was still hoping that Stefan would make a full recovery and he did not contact Wrigleys.

In or around May 2010 the First Claimant was introduced by one of his corporate lawyers at Taylor Wessing LLP to Mr Mark Buzzoni of that firm, with a view to obtaining advice on his will and estate planning in the light of Stefan’s accident. One of the First Claimant’s concerns was that he and the Second Claimant should transmit their wealth to their children in a tax efficient manner.

At a meeting between the First Claimant and Mr Buzzoni on or about 17^th May 2010, the First Claimant indicated that he had in mind that Stefan might get about 40% of his wealth, with his other three children getting 20% each. Mr Buzzoni floated the idea of establishing a disabled trust for Stefan, with a view “either to organising that the transfer was exempt or a PET”. The quoted words come from Mr Buzzoni’s attendance note of the meeting. At that time there was no question of the acquisition of a residential property.

In around mid-2010 the First Claimant and the SCL resumed their search for a country house. They found Medstead Grange. Its site lent itself to building an entirely new house which could be designed to meet Stefan’s needs as well as the Claimants and those of the family as a whole. The intention was to develop the property into a substantial family home which all family members could stay in, but that a wing be specially designed to cater for Stefan’s needs.

It was always the Claimants’ intention that the property would not be for Stefan’s exclusive use, but for the family as a whole to enjoy. This intention is expanded upon by the Second Claimant in her statement. In particular she says:

The Claimants say that it was made clear to Mr Buzzoni that they intended to spend a considerable amount of time at the property, increasing as the First Claimant wound down into full retirement.

In contrast in Taylor Wessing’s letter to the parties’ solicitors dated 12^th April 2017, which was written in answer to a letter of claim, it is said that Mr Buzzoni’s understanding at the time his initial advice was given in 2010 was that the house that was to be purchased outside of London was intended to be a home for Stefan but that the Claimants would spend some time there, so that they and in particular the Second

The First Claimant says that Mr Buzzoni advised that the property not be acquired by the Claimants as they had intended, but by a trust. The evidence does not explain exactly when this advice was given, and there does not appear to be a document recording it, though subsequent documents emanating from Mr Buzzoni make it clear that he had in mind that the property would be acquired by a trust.

By a memorandum from Mr Marsh of Taylor Wessing to Mr Buzzoni dated 28^th January

Mr Marsh’s memorandum also states that the First Claimant “basically wanted Stefan to have this property”. The First Claimant says that he did not wish Stefan to have the whole interest in the property, either directly, or through a trust, which (says the First Claimant) would have been excessive.

On 31^st January or 1^st February 2011 the First Claimant met with Mr Buzzoni. In their Defence to the professional negligence claim Taylor Wessing allege that at this meeting the gist of the instructions and advice given included:

After this meeting Mr Buzzoni sent the First Claimant an email dated 1^st February 2011. The important part of this for present purposes was Mr Buzzoni’s point 2, as to which he said:

“Even though you and your wife will not need to be beneficiaries of the trust we are going to need to show that there is an agreement with the trustees that you are entitled to be at the property in order to care for Stefan. Although this agreement is going to need some careful thought, I think it should be possible to show that you are not

Mr Buzzoni’s idea that the Claimants would only occupy the property as Stefan’s carers (“the carer idea”) might have worked to avoid the GWROB rules for IHT in a particular case, but in reality it was never going to work in the circumstances of Medstead Grange and the Claimants’ intended use of it as now stated by them. The property and the Claimants intended use of it was inconsistent with the carer idea.

The First Claimant says that he cannot recall giving any thought to the point raised by Mr

On 7^th March 2011 Mr Buzzoni’s secretary sent an email on his behalf to the First Claimant. This email explained that the usual 20% IHT entry charge for a gift into trust might be avoided “if the trust complies with certain rules”. Those were the rules concerning disabled trusts. This email contained the sentence:

“The trust will clearly be intended to provide a home for Stefan and will provide that during Stefan’s lifetime, not less than half of any distributions from the trust must be made to Stefan or for his benefit …”

It is debateable whether it was even literally correct that the trust was to provide a home for Stefan, as opposed to somewhere he might go when he was not in London. Be that as it may, the possible implication that the trust and therefore the property was only to be used to provide a home for Stefan was contrary to what the Claimants state were their intentions.

On 17^th March 2011 Mr Buzzoni sent the First Claimant a letter of advice enclosing a draft settlement deed. The Claimants say that it was in reliance on this letter and the email of 7 March 2011 that they and the Defendants signed the Trust Deed on 31^st March 2011.

The 17^th March 2011 letter explained, amongst other things, that:

Taylor Wessing’s Defence to the professional negligence claim; Mr Buzzoni’s emails of

The Claimants have not been cross-examined as to their intentions. Taylor Wessing’s

My acceptance of the Claimants’ evidence as to their intentions in respect of the property in the period leading up to execution of the Trust in 2011 is not necessarily inconsistent with Mr Buzzoni’s and Mr Marsh’s contrary understandings as to the Claimants’ intentions at that time. Mr Buzzoni and Mr Marsh may simply have misunderstood what the Claimants’ intentions were, whether by reason of a failure by the Claimants sufficiently or clearly to have articulated them or otherwise.

As regards the advice in the 17^th March 2011 letter that the assets of the Trust would be considered to form part of Stefan’s estate upon his death: the First Claimant says in his first statement that he was not advised that this would give rise to an IHT charge on

The Second Claimant relied on what she was told by the First Claimant in relation to the creation and funding of the Trust. She says she understood that the Trust would be a “tax efficient way to deal with our Estate to benefit our children in the future.” In my

At paragraph 30.1 of her statement the Second Claimant says that she “mistakenly did not appreciate that when I made transfers into the Trust there would be IHT to pay if Stefan died.” In my judgment this statement and that quoted from paragraph 27 of the Second Claimant’s statement show, and I find, that her evidence, like that of her husband’s, and contrary to such inference as might otherwise be drawn from paragraph 25 of her statement, is to the negative effect that she neither was positively mistaken, nor made a tacit assumption as to there being no IHT payable on Stefan’s death.

In my judgment the position in that regard is not changed, but overall is confirmed by the other references which are made to this point in the evidence. Thus:

As regards the advice in respect of the possibility that there was a gift with reservation, the First Claimant says that the advice “was highly unclear in this regard”. The First Claimant quoted the relevant passage of the 17^th March 2011 letter in his first statement and then expressed the view that, on re-reading it, it was extremely unclear to him exactly what it stated. The lack of clarity is debateable, but if the advice on a particular point was unclear to the First Claimant, as he says, but he went ahead nevertheless, in my judgment the First Claimant would have been deliberately running a risk or must be taken to have run the risk of being wrong as to that point. If the advice was unclear to him, then in order to avoid a risk as to the point at which the advice was aimed the First Claimant should have sought clarification of the point, rather than going ahead without knowing what the position was.

My conclusion at the end of the immediately foregoing paragraph based on the First Claimant’s general complaint about the alleged lack of clarity in the advice given to him is potentially fatal to the Claimants’ case based on mistake. Similarly, if and insofar as it was or should have been apparent to the First Claimant that Mr Buzzoni’s advice was based on a misunderstanding as to the Claimants’ intentions in respect of the property. If and so far as the First Claimant realised that Mr Buzzoni’s advice was based on a false assumption as to the Claimants’ intentions, the First Claimant would not have been mistaken in relying on that advice, but would have knowingly taken the risk that the advice was incorrect because of its false foundations. However, those potential fatalities

In his first statement the First Claimant particularises his criticisms of the advice in terms which in my view show that he was mistaken and not taking a risk in relation to at least one aspect of the proposal. The First Claimant’s particularisation and my views on its impact on the case for mistake are as follows:

Claimants could avoid the application of the GWROB rules by virtue of being

“carers” had no prospect of success. In the circumstances I agree. However in my view the fact that the Claimants knew they were not carers meant that so far as they were concerned the advice was at least unclear as to how the carer idea would work, and that they took the risk that it might not.

At the end of the paragraph of his first statement in which the First Claimant makes the above complaints, he says with reference to the 17^th March 2011 letter and those complaints: “Had it contained this information I would not have agreed to the proposal.” It is unclear as a matter of grammar whether the First Claimant is referring only to the last of the matters referred to (IHT on Stefan’s death) or to all of them or to any one of them. In order for the rule in Pitt v Holt to apply a mistake must be causative of the transaction. Having regard to the Claimants’ intended use of the property and the very substantial impact of their having to pay a full market rent to be able to enjoy the property and avoid the GWROB rules, I would have inferred that had the Claimants not been mistaken as to the need to pay a full market rent, they would not have agreed to the Trust proposal. That inference is unnecessary because later in his statement the First Claimant says expressly that the fact that he and his wife face a lifetime expenditure of in excess of £3m in rent in order to live in a home financed by them, giving rise to very significant tax charges on the Trust is also to his mind “a separate and decisive objection to this course of action”. The “course of action” referred to is the settling of substantial amounts of money into the Trust.

The First Claimant makes essentially the same point in paragraphs 12 - 15 of his supplemental statement where, under the heading “My understanding in February/March 2011”. At paragraph 12 he referred to Mr Buzzoni’s point 2 of his email of 1^st February

At paragraph 13 of his supplemental statement the First Claimant says that he “would have read” the 17^th March 2011 letter, but that he does not have a specific recollection of his reaction to its contents at the time it was received. He says that his understanding was that Taylor Wessing, who were his trusted lawyers of long standing were recommending that a Disabled Persons Trust should be set up and he relied upon their advice.

At paragraph 15 of his Supplemental statement the First Claimant says:

“… I understood that an agreement had to be put in place to avoid problems but I did not consider this matter any further but relied upon their [Taylor Wessing’s] advice. I never understood the GWROB issues and the fact that my wife and I would have to pay full market rent to occupy Medstead Grange for the rest of our lives, a property which we had purchased. If I had understood this I would never have agreed to Medstead Grange being transferred into the trust. As I have already said I had no objection to a trust being set up for Stefan.”

The Settlement Deed creating the Trust was executed on 31^st March 2011. The initial

What the Particulars of Claim, the Claimants’ evidence and Mr Conolly’s skeleton and submissions only touched upon was the fundamental question of how, leaving aside GWROB rules and other tax considerations, it was contemplated that the Claimants could have enjoyed rights to occupy the property. The Claimants were expressly excluded from benefit under the Trust. Stefan could have been permitted to occupy the property, but not with a view to allowing the Claimants to enjoy a benefit from his occupation. The nature of the property was such that it was intended to be occupied and used substantially, as to at least the greater part of it by the Claimants for their own benefit. I have already said that I accept the Claimants’ evidence as to their intentions in respect of the property and have referred to the estate agent’s Sale Particulars. The practical position is explained by the Second Claimant in her statement where she says at paragraphs 15 and 16:

“15.

… We intended to develop the property by building an entirely new family home on the site, which all family members could stay in, but with a wing specifically adapted to cater for Stefan’s needs, and a lift to allow Stefan access to all parts of the house. Having been forced to move from Upper Phillimore Gardens to a London property better suited to Stefan’s immediate needs, Medstead Grange offered my husband and I the ability to create a home suited to our long-planned retirement needs, which could also allow us to involve Stefan in family life as closely as possible.

16.

It was always our intention that my husband and I would spend an increasing amount of time at the property as he eased into retirement, and that the property would be available to the family as a whole to enjoy, including grandchildren as they came along, and also for Stefan’s friends and other family friends to visit. It was never the intention of my husband and myself that the property would be for Stefan’s exclusive use as I understand from my husband that TW [Taylor Wessing] seem to suggest. In fact it remains obvious now as it was in 2010 that most of Stefan’s time would be spent in London close to the best care facilities, which he continues to need.”

I fully accept that evidence of the Second Claimant.

In the course of argument I suggested to Mr Conolly that the Claimants were mistaken in thinking that when they enjoyed the property otherwise than in their capacities as Stefan’s carers they could have done so without paying for that enjoyment, and that in itself, leaving aside the possible GWROB consequences of their occupying the property, constituted a serious mistake. Mr Conolly agreed. In my judgment, subject possibly to two points, that was the position. As I have just explained, the Claimants were expressly excluded from benefit under the Trust. Stefan could have been permitted to occupy the property, but not with a view to allowing the Claimants to enjoy a benefit from his occupation. The nature of the property was such that it was intended to be and was used substantially and as to far the greater part of it by the Claimants for their own benefit.

The first of the possible two points is that part of an email dated 5^th February 2016 from Mr Broom to Mr Buzzoni, copied to the First Claimant, might be taken as showing that the First Claimant was not mistaken about the ability of the Claimants to enjoy the property without paying for it. In that Mr Broom says, amongst other things:

“Olaf’s [the First Claimant’s] original understanding was that whilst he could not benefit from the Trust Kristina was to be able to benefit, but all along Medstead was to be their “country retreat” but not their “principal residence” for CGT.”

In my judgment that statement is not inconsistent with (i) the First Claimant’s belief as to his possibly needing to have to pay for his occupation of the property being only for the purpose of minimising the GWROB rules and (ii) as to his belief or tacit assumption that he would not have to pay for that occupation for other reasons.

The second of the possible “two points” is whether the Claimants knew or took a risk as to whether they would have to pay for their use of the property even in respect of times when they were not there. As regards the First Claimant: his understanding at the time of the purchase of the Property was, at most, as explained above, that if the GWROB rules did apply, and necessitate rental payments, that would only be for days which the Claimants actually spent there. The advice he had received was that in order to minimise the risk of the GWROB rules applying the First Claimant should enter into an arms length agreement with the trustees which provided that he would pay a market rent for his deemed use of the property when staying there overnight otherwise than in the capacity of Stefan’s carer. This advice was not only incorrect so far as the GWROB rules were concerned, but also was incorrect as regards the underlying law of trusts and property. As regards the Second Claimant: it appears from her statement that until mid-January 2015 she did not think that any rent would need to be paid in respect of the Claimants’ occupation of the property.

Mr Buzzoni’s letter dated 17^th March 2011 states under the heading “Capital Gains Tax and Income Tax” that “You [the First Claimant] and Katerina [the Second Claimant] are both excluded from being beneficiaries of the settlement so that any income and gains of the settlement are assessed on the Trustees of the Settlement, rather than on you personally.” That advice was given in the context of possible the CGT and income tax liabilities, it does not advise clearly that the Claimants could not occupy or benefit from the property at all, otherwise than on fully commercial terms.

I infer from (i) the belief that the Claimants had (in the case of the Second Claimant, through the First Claimant) that in order to minimise the risk of the GWROB rules applying the First Claimant should enter into an arms length agreement with the trustees which provided that he would pay a market rent for his deemed use of the property when staying there overnight otherwise than in the capacity of Stefan’s carer and (ii) the absence of any clear advice about the impact of the exclusion of settlor from benefit provision in the Settlement so far as the use and enjoyment of the property was concerned, that the Claimants mistakenly believed that otherwise than for the purpose of minimising the GWROB rules, they would not have to pay for their occupation of the property.

The time that the Claimants intended to spend at the property and the things they intended to do there were inconsistent with the bulk of their occupation being explicable under the carer theory. The property was clearly intended and in the event has been built and maintained substantially for the benefit of the Claimants. At times when the Claimants would not be at the property, substantial parts of it would be available for and be being maintained primarily for their use. It would not have made sense for the Claimants to have entered into the Settlement and acquire the property through the Settlement if they had thought that, tax considerations aside, they would have to pay substantial sums in the way of rent to make use of it.

It follows that in my judgment, at the time of the creation of the Trust, the payment into the Trust of the first 4.1 million by the First Claimant and the purchase of the property, the Claimants were mistaken in the two respects I have adverted to:

In my judgment those were distinct mistakes or tacit assumptions as distinguished from mere ignorance or inadvertence.

In my judgment those mistakes were also causative within the meaning of the rule in

In my judgment those mistakes were sufficiently grave as to make it unconscionable, absent a relevant change of circumstances, for the recipient (the Trustees and the beneficiaries and potential beneficiaries of the Trust) to retain the gift of the £4.1 million. The mistake had a very serious impact on the Claimants. It is only necessary in that regard to contrast very briefly the situation they thought they were creating, with that which eventuated to see the grave nature of the mistakes. The Claimants thought they were acquiring the property through the Trust and would be able to use it themselves, though possibly paying a rent by reference to the days when they were physically present at the property. In the event, in order to be able to use the property and avoid the GWROB rules they had to take a lease of the property from the Trustees at a rent of £102,000, subject to a 20% discount for the period down to 30^th November 2016 and to future review. This rent is taxable at 45% in the hands of the trustees.

If the question of setting aside the initial transfer of £4.1 million had arisen immediately after the acquisition of the property, there would have been no relevant change of circumstances and nothing except possibly the costs and expenses of purchase, in respect of which counter-restitution might be required. The transfer of the £4.1 million could have been set aside; the £4.1 million less the costs of purchase and associated administrative costs and expenses of the Trust, could have been traced into the property and the property could have been ordered to be transferred to the First Claimant. There would have been no material change of position or expenditure on the property by the trustees or their beneficiaries or potential beneficiaries and no third party rights would have arisen. Whether there has been a change of circumstances or expenditure which impacts on the conscionability of setting aside the initial transfer of £4.1 million or whether any and if so what counter-restitution should be ordered requires some examination of what was done after the initial transfer and purchase.

I have already explained why in my judgment the other alleged mistakes (i.e. the mistakes other than those summarised at paragraph 113 above) were not mistakes within the rule in Pitt v Holt. Whether or not I am correct in that regard, in my judgment those other alleged mistakes would not be so grave as to make it inequitable for the trustees and their beneficiaries or potential beneficiaries to retain the transferred sums or the property that they now represent, and the third requirement for the Pitt v Holt principle to apply would not be satisfied.

All the other alleged mistakes relate to things at one remove from the Claimants and their transfers of money into the Trust. They all relate either to the IHT which would be payable on the Trust Fund on Stefan’s death; or to the IHT which would potentially be payable if payments or applications out of the Trust Fund were made to or for the benefit of Stefan’s siblings, and Stefan did not survive those payments out or applications by 7 years; or to the reduction of the availability of CGT private residence relief on future sales of the property and possible fragmentation of ownership of the property; all of which would make it more difficult or impossible for the Claimants to achieve one of their goals; that is to make substantial provision for Stefan’s siblings.

In my judgment the matters mentioned in the immediately foregoing paragraph do not come within the category of rare cases where the mistake is not as to the nature or legal effect of the transaction itself or as to some matter of fact or law which is basic to the transaction, but is as to its consequences, and yet still within the Pitt v Holt principle. The rarity of this category of case was described by Lord Walker in Pitt v Holt at paragraph 122:

“But I can see no reason why a mistake of law which is basic to the transaction (but is not a mistake as to the transaction's legal character or nature) should not also be included, even though such cases would probably be rare. If the Gibbon v Mitchell test is further widened in that way it is questionable whether it adds anything significant to the Ogilvie v Littleboy test. I would provisionally conclude that the true requirement is simply for there to be a causative mistake of sufficient gravity; and, as additional guidance to judges in finding and evaluating the facts of any particular case, that the test will normally be satisfied only when there is a mistake either as to the legal character or nature of a transaction, or as to some matter of fact or law which is basic to the transaction.

Of the various authorities cited to me, the nearest on its facts to the position in respect of the other alleged mistakes is Wright v National Westminster Bank plc [2014] EWHC 3158 (Ch) (Norris J). There the applicant husband and wife (H and W) applied to set aside a discretionary settlement nominally made by H on the first respondent bank's advice. H had created a discretionary trust of which the bank was the trustee. The beneficiaries were defined as H's widow, his four children, who were the second to fifth respondents, and his remoter issue. The settlement specified that the bank's power to apply income for the benefit of the beneficiaries could not be exercised so as to cause any part of the fund's income to be applied for the benefit of H or his wife. Along with the settlement, H provided a letter of wishes for the bank's guidance as trustee. The letter explained that H's aim in establishing the trust was to provide for his family in a taxefficient manner, and that his intention was that the income from the settlement would be applied for the benefit of both his wife and children. W subsequently executed a deed of gift which was expressed to transfer investments to H for him to add to the trust fund, but in the event most of such investments were passed directly into the trust fund and in respect of which W accordingly became the settlor. Attached to the deed of gift was a schedule specifying that W was transferring "324,999 cash / investments" to the fund. H argued that he would not have executed the settlement if he had realised that its effect would be to deprive W of any income from the fund during his lifetime. W submitted that in executing the deed of gift she had not intended to transfer property to the fund directly so that she became settlor in respect of that property and was thereby deprived under the settlement's terms from ever receiving income from it. The respondents did not oppose H's application to set aside. Norris J set the settlement aside. Unlike the other alleged mistakes in the present case, the impact of the questioned transaction in Wright v National Westminster Bank was immediate. From the moment the settlement was executed and the funds added to it, W was unable to receive income from it or the added property. One of the main objects of the transaction failed. Put at its highest one of the main objects in the present case was to make provision for Stefan and his siblings in a tax efficient manner. The initial and immediate stage of creating the settlement and adding funds to it achieved that object; the arrangements only potentially ceased to be tax efficient in the various sets of circumstances mentioned. In my judgment those sets of circumstances and their possible consequences are substantially more remote to the transaction than was the impact of the arrangements on W in Wright v National Westminster Bank plc.

In the present case the persons who will suffer from the consequences of the alleged additional mistakes are not the First Claimant or the Second Claimant who provided the funds for the Trust, but potentially some of the beneficiaries or potential beneficiaries of the Trust who the Claimants had intended to benefit. In my judgment, looked at objectively, as required by Pitt v Holt, those beneficiaries or potential beneficiaries would not be acting unconscionably in relation to the alleged additional mistakes if they said that they would prefer to stick with such rights or interests as the Trust gave them in the settled funds and the property, rather than effectively letting it all go back to the Claimants for them to deal with under an undertaking to the court or, perhaps otherwise as they saw fit.

Over the period 10^th May 2012 to 1^st December 2014 the Second Claimant transferred a total of £8,700,000 to the Trust. I refer to these transfers as “the First Additional Mistaken Transfers”. The Claimants’ evidence is that these transfers were made by the

Except for relatively small amounts which were spent on the costs of management and administration, the funds transferred by the First Additional Mistaken Transfers were spent on works of building, improvement and maintenance at the property.

The position from early-December 2014 down to 27^th November 2015 is less straightforward. During this period the following payments were made by the Second Claimant to the trustees on the following dates:

Following a meeting between the First Claimant and Mr Buzzoni in December 2014, Mr Buzzoni sent the First Claimant an email dated 12^th December 2014. In this email, amongst other things:

The effect of this advice was that the First Claimant then knew that a full market rental valuation would be needed. The First Claimant confirms this in his first statement. The email of 12^th December 2014 left open the possibility that the market rental might only extend to a particular part of the property which would be occupied by the Claimants. The Claimants knew that they were going to be occupying a very substantial part of the property and hence in the light of that advice the First Claimant must have known that even on a proportionate basis the required rent was potentially going to be very substantial if the Claimants were going to avoid the GWROB rules.

On 9^th January 2015 the Second Claimant settled a further £400,000 onto the Trust. The implication from the Second Claimant’s evidence is that at this stage she did not know what in my judgment the First Claimant knew as a result of the 12^th December 2012 email, that is that even on a proportionate basis the required rent was potentially going to be very substantial if the Claimants were going to avoid the GWROB rules. Even if she had, that would only have gone towards the correction of one of the two mistakes which I have identified. It would have left the other in existence, that is to say the mistake of thinking that otherwise than for the purpose of minimising the GWROB rules the Claimants would not have to pay for their occupation of the property. The £400,000 was paid on the basis of that mistake and in my judgment that payment falls within the same category, with the same consequences as the earlier payments which I have referred to as the First Additional Mistaken Transfers.

On 16^th January 2015 the First Claimant, Mr Buzzoni and Mr Broom had a meeting. During this meeting Mr Buzzoni advised that the running costs of the property, which were to be met by the First Claimant, could be set off against any rent which had to be paid in relation to the occupation of the property, and in all probability eliminated altogether. The First Claimant’s evidence in this regard is corroborated by Mr Broom who, in his statement, says:

“Once the construction works were well advanced and Olaf and his wife were looking to occupy the property in the near future, Olaf arranged a meeting with Mr Buzzoni on 16 January 2015 at which I was in attendance. This was the first time I had met

Mr Buzzoni. At this meeting the gift with reservations of benefit (“GWROB”) provisions were discussed. Mr Buzzoni assured Olaf that, although he and his wife would need to pay rent to the Trust for the occupation of the property, the running costs could be offset against the rent payments. I was surprised by this as I had never heard of this before and I questioned how the rent could be eliminated by running costs but Mr Buzzoni said that this was quite common for properties of this kind and that there were property agents that should be able to assist in achieving this goal. This led myself and Olaf to believe that there would be no rent to pay for Olaf and his wife’s occupation of the property as this would be eliminated altogether by the running costs.”

The effect of that advice was in substance to reinstate in slightly varied form the mistake of thinking that to minimise the risk of the GWROB rules applying the Claimants would only have to pay a small amount for their use of the property. It did not affect the other mistake, that is to say the mistake of thinking that otherwise than for the purpose of minimising the GWROB rules the Claimants would not have to pay for their occupation of the property.

The evidence is fairly vague as to what happened between the 16^th January 2015 meeting and early August 2015. In May 2015 Mr Broom’s firm submitted an election for

“special income tax treatment” so that the Trust income would be treated for income tax purposes as arising to Stefan instead of the trustees. This was rejected by HMRC because the Trust did not meet the test of being a disabled person’s trust for income tax purposes because the rules changed in 2013. Mr Broom informed Mr Buzzoni that the election had been rejected. This prompted an exchange of emails between Mr Broom and Mr Buzzoni in August 2015. The exhibited copy emails for this period start with two on 5^th August 2015. They are focussed on the income tax treatment of the trust, though in the second of them, being an email from Mr Broom to Mr Buzzoni, Mr Broom asked: (1) “does this mean that from an IHT point of view the current trust works and there is no IHT liability; and (2) will the Trust also be exempt from any 10 year anniversary charge?

Mr Buzzoni responded by an email to Mr Broom dated 6^th August 2015, timed at

As between Mr Buzzoni and Mr Broom, it was now clear that a substantial rent was going to have to be paid by the First Claimant. At least £100,000 per annum. It remains unclear whether this was generally or only so as to avoid the application of the GWROB rules. The fact that the First Claimant had earlier asked Mr Seligman to advise on the rental position indicates that the First Claimant was aware that some rent might be payable, but that does not take the matter much further.

Before looking at the position on and from 7^th August 2015, I consider the position from January 2015 down to the payment on 10^th July 2015. The instruction of Mr Seligman by the First Claimant during this period indicates that some doubts may have been creeping into the First Claimant’s mind as to how much rent would be payable; but there is nothing more to indicate that Mr Buzzoni’s optimistic advice of January 2015 was not still operative on the Claimants’ minds, and on balance I consider that the payments made during this period were made on the basis of a mistake within the principle of Pitt v Holt. Accordingly the payments made to the Trust in this period and in my judgment that payment fall within the same category, with the same consequences as the earlier payments which I have referred to as the First Additional Mistaken Transfers.

By an email headed, amongst other things “Sent: Friday, August 07, 2015 05:10 PM”, Mr Broom forwarded the emails of 5^th and 6^th August 2015 to the First Claimant. Mr

The First Claimant responded to Mr Broom by an email headed, amongst other things

“Sent: 07 August 2015 17:06”. Mr Broom’s and the First Claimant’s computer, server or email service provider’s computer clocks appear from these timings to have been unsynchronised, because the time quoted in the immediately foregoing paragraph for Mr Broom’s email to the First Claimant appears to be after the time quoted in this paragraph for Mr First Claimant’s response. This apparent discrepancy is not expressly explained in the evidence. In his supplementary statement the First Claimant says Mr Broom forwarded Mr Buzzoni’s email to him at 5.10 p.m. He also says there with reference to his response that “as my email was sent in response to Mr Broom’s after 5.10 p.m. GMT…”. That reference to GMT does not explain the discrepancy. If Mr Broom’s

email was sent at 05:10 P.M. GMT, that would be 06:10 p.m. BST. On the other hand if it was the First Claimant’s computer which was still set on GMT, then that would explain the discrepancy. His email in response would have been sent at 18:06 BST.

The First Claimant’s email of 7^th August 2015 reads: “That is absolutely awful !

In his first statement the First Claimant focusses on his surprise to find that there would be an IHT charge on Stefan’s death. I have explained above, why I consider that that does not give rise to a mistake within the principle of Pitt v Holt. More materially to the relevant mistakes, he says that he was not warned that he and the Second Claimant, if she survived him, would have to pay an enormous rent, which would reduce the funds available in due course not just for Stefan but also for their other children.

In his first statement the First Claimant says that the amounts which he contributed to the Trust after November 2015, “when I realised that the Trust was problematic”, he initially understood to be loans.

In his supplemental statement the First Claimant says that he only became aware that full market rent was going to have to be paid for his and the Second Claimant’s occupation of the property when he received Mr Broom’s email of 7^th August 2015.

The Second Claimant does not deal in her evidence with the timing of the events in August 2015 down to the grant of the lease on 8^th December 2016. The Second Claimant says that it was a shock to her to learn that rent would be payable at a rate of about £100,000 pa for as long as the First Claimant or she continued to live at the property, but she does not say when she learned that this was the position.

Mr Broom says that on 15^th August 2015 he had lunch with the First Claimant when they discussed the emails and the First Claimant told him that had he known that the Trust fund would be deemed to be in Stefan’s estate on his death and would give rise to a 40% IHT charge on his death, he would never have agreed to the Trust being set up.

In my judgment the evidence is insufficient to justify a finding that on the balance of probabilities, after 7^th August 2015, the Claimants continued to be mistaken as to the need for one reason or another to pay a substantial rent (more than £100,000 p.a.) for their occupation of the property. The First Claimant knew that the rent was going to be “well north of £100,000 per annum”. The Second Claimant does not explain when she learnt of this, but having regard to what the First Claimant says in his email of 7^th August 2015 as to the payments to the Trust having been made “vis Kristina” which I read as “via Kristina”, in my judgment it is unreal to suppose that when the Second Claimant made payments into the Trust she did not first discuss the situation with the First Claimant. Accordingly in my judgment after 7^th August 2015 the payments were not made in the mistaken belief that no substantial rent would have to be paid for the Claimants’ occupation and use of the property.

In respect of this period (7^th August 2015 onwards) the evidence does not distinguish between the two reasons why a substantial rent would be payable. In my judgment the focus probably remained on avoiding the GWROB rules. However, in my judgment, this and the lack of attention in the evidence as to the requirements of the terms of the Trust means that when once it was understood that a substantial rent would need to be paid in order to avoid the GWROB rules, the second reason for the mistake as to the need to pay a substantial rent (i.e. the terms of the Trust) ceased to be causative of the making of payments into the Trust. That the Claimants perceived a need to pay such a rent is evidenced by the fact that in due course they took the lease. Put slightly differently: once it had been realised by the Claimants that a substantial rent (more than £100,000 p.a.) would need to be paid for their occupation and use of the property, they ceased to be mistaken in thinking that, for whatever reason, they would not need to pay a substantial rent for their use and occupation of the property. Accordingly in my judgment, after 7^th August 2015 the Claimants were not labouring under a mistake which was capable of bringing the principle of Pitt v Holt into operation in relation to payments made by them.

It follows that in my judgment the payments made into the Trust by the Second Claimant on and after 9^th September 2015 are not susceptible to being set aside for mistake.

The payment of £265,000 made on 7^th August 2015 requires special consideration. Specifically, was it made before or after the Second Claimant became aware of the fact that a substantial rent (more than £100,000 p.a.) would need to be paid for their occupation and use of the property which the First Claimant was informed of by the attachments to Mr Broom’s email timed at 05.30 pm on 7^th August 2015?

The exhibited copy of the draft balance sheet and statement of receipts and payments for the Trust for the year ended 5^th April 2016 shows an addition of capital of £265,000 on 7^th August 2015. The only evidence before me as to the timing of this relative to the receipt of Mr Broom’s email of 7^th August 2015 is paragraph 22 of the First Claimant’s supplemental statement where he says the following:

“There was a payment made into the trust of £265,000.00 on 7 August 2015 which was before the email forwarded to me by Mr Broom at 5.10 p.m. on that day which was the email from Mr Buzzoni. This was, in fact, a payment made to the trust by my wife and not by me. As my email was sent in response to Mr Broom’s after 5.10 p.m. GMT, if the payment of £265,000.00 had been made after this, it would not have been credited to the trust account until the following day so it would be showing as having been made on 8 August 2015. Therefore, the payment must have been sent prior to my receipt of Mr Broom’s email.”

By reason of the evidence being given by the First Claimant, whilst the payment was made by the Second Claimant, and in the absence of any express statement as to the source of the First Claimant’s belief in that regard, I read the first sentence of that paragraph as merely representing the First Claimant’s deduction from what he says in the remainder of the paragraph. Given the potential importance of this evidence which was raised at the hearing on 28^th November 2018 and the opportunity which my order of that date gave as to the filing of further evidence, I would have expected this point to be dealt with more satisfactorily in the evidence. Given the hypothesis on which the First Claimant’s deduction is based, I would agree with him. What is far less clear is the accuracy of the hypothesis that an instruction received after 5.10 in the evening would not be actioned until the following day or, in the case of a Friday, which 7^th August 2015 was, until the following Monday. With electronic and remote banking, it is quite possible for a payment to be instructed and effected outside normal banking hours. In the circumstances I am not satisfied on the balance of probabilities that the instructions for the payment of £265,000 were given before the Claimants know that the rent they needed to pay would be £100,000 or more.

The upshot of that is that the payments made by or through the Second Claimant to the Trust from 9^th January 2015 down to and including the payment made on 10^th July 2015 were made on the basis of a causative mistake within the rule in Pitt v Holt. These payments therefore fall into the same category, with the same consequences as the earlier payments which I have referred to as the First Additional Mistaken Transfers.

The payments made by or through the Second Claimant to the Trust on and after 7^th August 2015 were not made on the basis of a causative mistake within the rule in Pitt v Holt. This conclusion is accepted by Mr Conolly in paragraph 16 of his Supplementary skeleton argument (though not in respect of the payment on 7^th August 2015). These payments total £1,235,000. These payments were paid to the trustees to be added to the trust fund. I will not set them aside. I refer to them as “the Non-voidable Payments”. They became assets of the Trust which the trustees could spend in accordance with the terms of the Trust.

It is apparent from the draft balance sheet and statement of receipts and payments for the Trust for the year ended 5^th April 2016 that at least the greater proportion of the Nonvoidable Payments were spent on building or related works to the property. That statement shows the total of the payments made out of the Trust for that year, all under the heading “PROPERTY Additions at cost” to be £2,645,652.67. The statement shows a balance left at the end of the period of £23,953.23 cash at the bank. The “Additions” include £125,904.72 paid to Strutt & Parker and £12,360.20 paid to Taylor Wessing. Strutt & Parker are estate agents; Taylor Wessing were solicitors. I do not understand

On 26^th October 2015 the First Claimant started to pay many bills relating to the property. The evidence as to the way in which he did this has changed over time:

I consider that the First Claimant’s last version of events describes what occurred. It fits with the schedules of bills paid which are contained within the exhibits. Mr Conolly submitted that these payments totalled £2,405,000. The schedules of bills show that the First Claimant paid at least £2.1 million of bills. If the detailed sum needs to be worked out, that can be done by agreement or on an inquiry. I refer to these payments by the First Claimant as “the First Claimant’s Bill Payments”.

In the light of the First Claimant’s evidence in his supplementary statement and the terms of the exhibited schedules of payments made by the First Claimant, it appears, and I find, that the First Claimant made the First Claimant Bill payments directly to the relevant contractor. Whether a relevant contractor’s contract was with the trustees or with the First Claimant is not something which the evidence reveals. I assume that in some cases it was the one, and in other cases it was the other.

As with the Non-voidable Payments, whether and to what extent the works to which the First Claimant’s Bill Payments related added to the value of the property is not something which the evidence deals with.

The Claim Form and Particulars of Claim seek a declaration that the First Claimant Bill Payments are held on resulting trust for the First Claimant. Similarly the draft consent order and the orders proposed in the parties’ solicitors’ letter dated 6^th February 2019 provide for a declaration that the sums transferred to the Trust (either by way of transfers into the Trust or by discharging the liabilities of the Trustees) by the First Claimant after 27^th November 2015 are held by the trustees on resulting trust for the First Claimant. Such a resulting trust cannot exist. The First Claimant Bill Payments went to pay contractors in satisfaction of what was due to them under their contracts. The First Claimant Bill Payments are no longer held by the trustees. I cannot and will not make a declaration that the First Claimant Bill payments are held on resulting trust for the First Claimant.

There is no reason to think that the contractors obtained the payments due to them and paid out of the First Claimant Bill Payments otherwise than as bona fide third parties for full consideration. Accordingly the contractors took the sums paid to them by the First Claimant free from any trusts which might have effected them and did not and do not hold the payments on resulting trust for the First Claimant.

Taking stock. The payments in relation to which relief is sought fall into the following categories:

The initial payment of £4.1 million and the Additional Mistaken Payments are within the principle of Pitt v Holt and can be set aside subject only to the questions of whether rescission is possible and what, if any, conditions I should impose or counter-restitution I should order.

The First Claimant Bill Payments are not held by the trustees on resulting trust for the Claimants.

My decision as to the payments which can and can not be set aside and as to the suggested resulting trust of the First Claimant Bill Payments mean that I will not make an order in the form or to the effect sought in the draft consent order or as mentioned in the letter from the parties’ solicitors dated 6^th February 2019.

I consider that some of what might be termed the ancillary rules as to rescission in the context of the rescission of contracts only carry across in a more or less modified form to rescission of voluntary transactions for mistake under the principle in Pitt v Holt. Specifically I consider that in the case of a voluntary disposition the rules as to affirmation, change of position, and the possibility of complete or near complete or equivalent restitution and counter-restitution are not absolute. They are all matters which can be taken into account in an overall assessment of whether it would be unjust, unfair or unconscionable to leave the mistaken disposition in place.

I consider that the fourth requirement for the principle of Pitt v Holt to apply, that is that it must be unjust, unfair or unconscionable to leave the mistaken disposition in place includes within it a requirement to assess the impact of setting aside the transaction on the terms and conditions on which it might be set aside. Thus if a particular order would operate unfairly on a voluntary recipient, that would be an important and frequently a conclusive factor in deciding that it would not be unjust, unfair or unconscionable to leave the mistaken disposition in place. However, I consider that the impact of any relief and of the terms of any condition or counter-restitution which might be required also needs to be considered as a separate matter with a view to ensuring that in all the circumstances the order would operate justly and fairly. This follows as a matter of principle and authority.

As a matter of principle:

As a matter of authority, the decision in Pitt v Holt itself is authority for the proposition that rescission of a voluntary transaction may be ordered, notwithstanding that complete restitution is impossible. Very briefly, for present purposes the relevant facts of Pitt v Holt were that by mistake some £800,000 worth of assets had been put into a “Special Needs Trust”, referred to as a “SNT”. By the time the mistake was realised and an application was made to set aside the SNT and the transfers into it, there were only a few thousand ponds left in the SNT. The bulk of the fund had been spent by the trustees in accordance with the terms of the SNT. In particular in paying for care for the principal beneficiary.

The decision in Pitt v Holt is also authority for affirmation not necessarily preventing rescission. Thus, in Pitt v Holt, after the mistake was discovered, the SNT continued to be administered and Mrs Pitt in her capacity as the receiver of the beneficiary of it continued to receive and apply payments from the SNT, but that did not prevent the SNT and the transfers onto its trusts from being set aside. No argument was addressed to me about affirmation in the present case. If there was affirmation by the Claimants, I

The decision of Sir Terence Etherton C in Kennedy v Kennedy [2014] EWHC 4129 (Ch) is further authority that the rules applicable to rescission in a contractual context do not always apply or may not apply with their full rigour in the context of the setting aside of voluntary dispositions. There cannot be partial rescission of a contract, but the Chancellor held that there could be partial rescission of a voluntary disposition. In Kennedy v Kennedy the voluntary disposition was an appointment effected by a deed of appointment. The Chancellor only set aside one clause of it. At paragraph 46 he said: “Returning to rescission, I consider that the claimants are entitled to the last alternative head of relief claimed in the amended Particulars of Claim, namely an order setting aside clause 2.1(c) of the October 2008 Appointment. Mr and Mrs Kennedy and Mr Sturrock have all given evidence that, if they had been aware of their mistake, they would have omitted clause 2.1(c) from the October 2008 Appointment. That is a self-contained and severable provision in the deed. There is authority that there cannot be partial rescission of a contract; it must be set aside as a whole and not only as to part: see De Molestina v Ponton [2002] 1 LL Rep 70 , 286–289 and the cases cited there. That limitation makes sense in a contractual context and as preventing the court in effect imposing a different contract to the one the parties actually made. I see no reason, however, why that limitation should apply to a selfcontained and severable part of a non-contractual voluntary transaction. In such a situation the allied principle that rescission can only be granted if both sides can substantially be restored to their pre-contractual positions is irrelevant. Again, no authority was cited to me on this point one way or the other. In the absence of authority to the contrary, I can see no reason in principle why, on the facts of the present case, clause 2.1(c) should not be set aside for mistake pursuant to the principles in Pitt v Holt .”

The possibility of rescission in relation to part only of the property voluntarily transferred subject to a vitiating factor was considered and effected by Master Matthews in Bainbridge v Bainbridge [2016] EWHC 898 (Ch).

The test of justness and fairness fits with Lord Walker’s approach in Pitt v Holt.

At paragraph 127 of Lord Walker’s judgment in Pitt v Holt he said:

“… Other findings of fact may also have to be made in relation to change of position or other matters relevant to the exercise of the court’s discretion. Justice Paul Finn wrote in a paper, Equitable Doctrines and Discretion in Remedies published in Restitution: Past, Present and Future (eds WR Cornish, Richard Nolan, Janet O’Sullivan and Graham Virgo) (1998), p 260:

the courts quite consciously now are propounding what are acceptable standards of conduct to be exhibited in our relationships and dealings with others . . . A clear consequence of this emphasis on standards (and not on rules) is a far more instance-specific evaluation of conduct.

The injustice (or unfairness or unconscionableness) of leaving a mistaken disposition uncorrected must be evaluated objectively, but with an intense focus (in Lord Steyn’s well-known phrase in In re S (A Child) [2005] 1 AC 593, para 17) on the facts of the particular case.”

At paragraphs 136 et seq. Lord Walker considered the application of the point to the facts of Pitt v Holt. Lord Walker summarised and disposed of an argument raised by HMRC against rescission as follows:

“136.

Mr Jones's second new point was that Mrs Pitt should be refused relief because the granting of relief would serve no practical purpose, other than saving inheritance tax…

137.

The fund subject to the SNT had many calls on its resources, with heavy professional costs and expenses as well as making provision for the welfare and care of Mr Pitt and the maintenance of his wife. On his death on 25 September 2007 there was only £6,259 in the trust (the deputy judge added, [2010] 1 WLR 1199, para 15, that that was “on Mrs Pitt's case” but he had earlier stated, para 4, that the material facts were not in dispute at all). On Mr Pitt's death this sum, subject to any outstanding liabilities, vested in his personal representatives under clause 3 of the SNT. Any remaining value in the fund was therefore in the same beneficial ownership as if the SNT had been set aside by the court.

138.

On 22 November 2011, after this court had granted permission for Mrs Pitt to appeal from the Court of Appeal's decision, her solicitors wrote to the Solicitor's Office of the Revenue drawing attention to a submission in the Revenue's skeleton argument before the Court of Appeal, para 105: “But, in any event, the settlement should not be set aside after this period of time, especially when the court does not know what proprietary claim would vest in the estate against third parties.” Apparently with a view to avoiding any doubt on this point, Mrs Pitt's solicitors set out the factual position as it was at that time and stated in the last paragraph of their letter:

“Please note that Mrs Pitt and Mr Shores [her co-executor] have irrevocably instructed us to indicate, that if the Supreme Court orders that Mr Pitt's settlement is set aside, no further claim (to moneys or other relief), will be made by them in their capacity as Mr Pitt's personal representatives, or by Mrs Pitt in her capacity as sole beneficiary of his estate, whether against the trustees (from time to time) of Mr Pitt's settlement or the recipients of distributions or other payments from the trustees. Our clients will be satisfied with the effect of section 150 IHTA 1984 (consequent on the order setting aside Mr Pitt's settlement).”

139.

In these circumstances Mr Jones has submitted that it would be pointless, and so contrary to equity's practical approach, to grant relief that would achieve nothing, apart from a tax advantage to Mrs Pitt…

….

141.

Until the solicitor's letter of 22 November 2011 there was at least a possibility of third party claims arising, and the Revenue placed reliance on that as a reason for refusing relief. But for the letter, the court might, if minded to grant relief, have required an undertaking to the same effect as the one that Mrs Pitt and Mr Shores have volunteered. Moreover the Revenue's argument ignores the fact that unless and until the SNT is set aside, there are potentially contestable issues between the Revenue and any persons who, not being purchasers for value without notice, have received distributions from the SNT. The statutory charge under section 257 of the Inheritance Tax Act 1984 would prima facie give the Revenue a proprietary claim against such third parties. For these reasons I would reject the Revenue's second new point also.”

The important point for present purposes is that made by Lord Walker at paragraph

A requirement to make an order on rescission which produces a just and fair result or what “is practically just” is reinforced by reference to the contractual rescission cases.

More recently in the contractual case of O’Sullivan v Management Agency and Music

In something of a reprise of what I have said above about the terms proposed in the draft consent order, I note that, at least in a contractual context, the conditions imposed by a court in relation to a proposed rescission and the terms as to counter-restitution must be such conditions and terms as are necessary to ensure restitutio in integrum (TSB Bank Plc v Camfield [1995] 1 WLR 430 (CA)). I have already indicated that restitutio in integrum is not an absolute requirement in relation to rescission for mistake under the principle in Pitt v Holt. However, any terms and conditions imposed on an order for rescission should at least so far as possible be aimed at putting the parties against whom rescission is ordered substantially into the positions they would have been in if the mistaken transaction had not taken place. In my judgment this follows from (i) the very meaning of the word “rescission” as a setting aside; (ii) analogy with the contractual rescission cases; (iii) the impermissibility of allowing rectification in disguise; (iv) the need for there to be some practical control on the scope of the terms and conditions imposed and (v) the need to do that which is just and equitable.

If I simply set aside (rescinded) the original payment of the £4.1 million and the Additional Mistaken payments without imposing any conditions or requirements for counter-restitution, the position would be that:

Overall I consider that it would be just fair and reasonable and would effect practical justice to set aside the original £4.1 million payment and the Additional Mistaken Payments if a position can properly be achieved under my order whereby, applying legitimate and appropriate conditions and requirements for counter-restitution:

I refer to the order which would achieve that result as “my Proposed Order”.

My Proposed Order would give the property to (or back to) the Claimants as it would have been if they had not mistakenly made the original £4.1 million payment and the Additional Mistaken Payments to the trustees, but had used them to buy and improve the property for themselves; adjusted so as (i) to allow for some or all of the tax paid on the rents being irrecoverable from HMRC; (ii) to enable the Non-Voidable Payments and any other sources for the Trust Fund to be held, as intended, on the terms of the Trust.

I consider that imposing the conditions and counter-restitution necessary to create that result would be within the scope of what is legitimate as ancillary to an order for rescission. All the conditions and counter-restitution arise out of payments or arrangements which concern the property and its improvement and might be affected by the order for rescission.

I consider that in the circumstances it would be unjust, unfair and unconscionable if as a result of the order for rescission the trustees were left with potential personal liabilities which they could not reimburse themselves for from the Trust Eund because it was not sufficiently large for the purpose or otherwise.

I have held that the Non-Voidable Payments to the trustees should not be set aside for mistake. It follows that they and funds from any other sources of the Trust Fund which are not susceptible or potentially susceptible to tracing claims by the Claimants were intended to be held on the terms of the Trust. They were also intended to be spent, at least in part, on improvements to the property for the benefit of the Trust and its beneficiaries. I consider it just fair and conscionable that in setting aside the original £4.1 million payment and the Additional Mistaken Payments, counter-restitution should be made in respect of those intended benefits to the Trust. The more difficult question is whether that counter-restitution should be in respect of (i) the amounts of the NonVoidable Payments and funds from any other sources of the Trust Fund which are not susceptible or potentially susceptible to tracing claims by the Claimants, possibly plus interest, or (ii) the amount by which their expenditure increased or has increased the value of the property. I consider that it should be the former.

If the property had always been owned beneficially by the Claimants it is almost certain that the Non-Voidable Payments and funds from any other sources of the Trust Fund which are not susceptible or potentially susceptible to tracing claims by the Claimants would never have become assets of the Trust at all because on the hypothesis under consideration the Trust would not have come into existence or at least money would not have been out into it for the purpose of expenditure on the property. However, the payments were made and were intended to be held on the terms of the Trust. Hypothetical trustees having those funds in their hands and knowing that the property was or would become vested beneficially in the Claimants would not have spent the funds on the property and would have retained or used them for Trust or other Trust purposes. In my judgment that means that in unravelling what has occurred the full amounts of the expenditure of those funds should be provided to the trustees by way of counterrestitution, not the increase in the value of the property attributable to their expenditure.

It is necessary to consider the effect of the First Claimant Bill Payments a little further because an order for rescission may have an impact them and the First Claimant’s rights arising out of them.

Perhaps at a time before he realised that as a matter of fact the First Claimant Bill Payments were paid directly by the First Claimant to the contractors, Mr Conolly submitted that by reason of the payments having been made to the trustees without donative intent they were held on resulting trust for the First Claimant. That submission must fall away by reason of the payments not having been made to the trustees. Even if they had been, in my judgment they would not have been held on resulting trust for the First Claimant. That is because they would have been paid by the Claimant for the purpose of paying off the contractors, which purpose was achieved.

If and insofar as the First Claimant Bill Payments were made by the First Claimant paying off liabilities owed by the trustees to the contractors, he would be subrogated to the contractors’ rights to be paid by the trustees. In my judgment in those circumstances the First Claimant would not obtain any interest in the property merely by reason of the payments. There is no evidence that any of the contractors had an interest in the property to which the First Claimant might be subrogated. There is no evidence that the trustees agreed that the First Claimant should obtain an interest in the property as a result of the payments. The fact that the trustees did not agree to treat the payments as a loan mitigates against that possibility.

If and insofar as the First Claimant Bill Payments were made by the First Claimant paying off liabilities owed by the trustees to the contractors, the trustees’ expenditure to which those First Claimant Bill Payments related would have been expenditure on property which, in consequence of my setting aside of the original payment of £4.1 million and the Additional Mistaken Payments was property which would belong and be treated as having belonged beneficially to the First Claimant or to the First Claimant and the Second Claimant. In ordering rescission of the original payment and restitution of the product of that payment (i.e. the property), one possibility is that I could make it a condition of my order that the trustees were fairly compensated for their expenditure. Depending on the circumstances, that might involve an allowance either for the amount of the trustees’ expenditure or for the amount by which that expenditure had enhanced the value of the property. In my judgment in the case of the First Claimant Bill Payments which were made in payment of the trustees’ liabilities, for the reasons given above in relation to the Non-Voidable Payments, the fair counter-restitution would be of the amount of the payments. On that basis, the First Claimant’s right to recover the amounts of First Claimant Bill Payments of that kind from the trustees would be exactly cancelled out by the trustees’ right to counter-restitution in respect of the expenditure to which those First Claimant Bill Payments related. Looked at broadly and equitably: essentially the First Claimant would have been paying bills for expenditure on what, by reason of my order, would, retrospectively, have been his own property, and there is no reason why the trustees or the Trust should gain or lose as a result. On the contrary, fairness and equity would require that they did not.

If and insofar as the First Claimant Bill Payments were made in respect of contracts entered into by the First Claimant in his personal capacity and not by the trustees as such, the First Claimant would have been paying for work to be done to property which, at the time the work was done, belonged to another; namely the trustees as trustees of the Trust. However, if I was to order rescission of the original payment and restitution of the product of that payment (i.e. the property), the First Claimant would have been spending his money on his own property or on property owned by him and the Second Claimant, and whether or not that gave rise to a proprietary claim would not matter as between him and the trustees.

The amount or value of the aggregate of the net rents and other benefits received by the trustees from the property plus interest should be substantially less than the amount of the Non-Voidable Payments plus interest; so that under my Proposed Order the net rents and other benefits plus interest could be set off against the of the Non-Voidable Payments plus interest so that no liability was imposed on the trustees.

Where an order for rescission imposes conditions and requirements as to counterrestitution on the applicant, the order usually takes the form of a conditional order for rescission, the condition being as to the satisfaction of the specified conditions and requirements as to counter restitution.

My decision as to the payments which may be set aside and conditions and requirements as to counter-restitution which I would impose do not exactly match the proposal in the draft consent order or in the Claimants’ solicitors’ letter dated 6^th February 2019. Accordingly, subject to what I say next, it would be appropriate for my Proposed Order to be in conditional form.

In the absence of further agreement between the Claimants and the trustees as to the conditions and counter-restitution, if the amounts of the net rents, the value to the trustees of their use of the property and the appropriate interest rates applicable to the conditions, set off and counter-restitution cannot be agreed, they will have to be the subject matter of inquiries before a Master before the orders for rescission and transfer of the property becomes unconditional.

My Proposed Order does not differ very greatly from one version of the order suggested in the Claimants’ solicitors’ letter dated 8^th February 2019. It may well be that against the background of my Proposed Order, the Claimants, and the trustees will be able to agree conditions or undertakings in an alternative form and to an alternative effect to those which I specify in my Proposed Order. In my judgment that would be acceptable at this stage, even if the alternatives went beyond the scope of the conditions and counterrestitution which I can impose. However:

My Proposed Order should be in conditional form and contain the conditions and requirements for counter-restitution required by me; though some or all of those conditions or requirements might be incorporated as unconditional undertakings if the Claimants are willing to give them. The order should (not necessarily in this order):