Mackay v Wesley

This is my judgment on a Part 7 Claim seeking an order that the appointment of the Claimant as a trustee of the Ellen Morris 1990 Settlement (“the Settlement”) pursuant to a Deed of Appointment dated 19^th March 2003 be rescinded. In the alternative, the Claimant seeks a declaration that she never became a trustee of the Settlement.

By an order dated 19^th December 2019 Master Kaye ordered that the Claimant’s application for summary judgment dated 30^th September 2019 be adjourned to be listed with the disposal hearing which she also ordered. Master Kaye ordered that the Claim, which had been started as a Part 7 Claim, be treated as if it was issued under CPR Part 8 and be listed for a disposal hearing.

That disposal hearing took place on 22^nd January 2020. This is my judgment on that disposal hearing and on the Claimant’s application for summary judgment.

I was assisted by a detailed skeleton argument from Mr Chacko for the Claimant and by his oral submissions.

The Defendant has not acknowledged service. He was not represented before me. In an email to the Claimant’s solicitors dated 2^nd December 2019 he confirmed that he had no objection to the Claimant’s application for summary judgment. He also stated in that email that he believed the Claimant’s witness statement to be a true and accurate account of events as he recalled them to the best of his knowledge.

The reason why the relief sought by the Claimant is important to her is that HMRC claim that, by reason of her trusteeship she is personally liable to pay some £1.6 million Capital Gains Tax. If the Claimant’s claim is successful, she will avoid that liability.

There was a hearing before the First-tier Tribunal (Tax Chamber) (“the FTT”) in the week before the hearing before me. It is possible that as a result of that hearing there will be no Capital Gains Tax liability on the Claimant. I was informed that as at 22^nd January 2020 the FTT had not given its decision.

HMRC is clearly interested in the outcome of the Claim. HMRC was informed of the proceedings by a letter from the Claimant’s solicitors dated 30^th July 2020. By a letter dated 7^th October 2019 HMRC, amongst other things, informed the Claimant’s solicitors that it was reviewing its position with respect to the Claim.

By a letter dated 18^th October 2019 to HMRC, the Claimant’s solicitors, amongst other things, updated HMRC on the progress of the proceedings and supplied them with copies of the application for summary judgment, the 1^st witness statement of the Claimant and related documents. The Claimant’s solicitors asked HMRC to let them know as soon as possible if HMRC intended to make any submissions for the Claimant’s solicitors to bring to the attention of the Court, or whether it intended to intervene or participate in the proceedings in any capacity.

By a letter dated 28^th November 2019 to HMRC, the Claimant’s solicitors, amongst other things, stated that they presumed that HMRC did not intend to attend the hearing of the summary judgment application, then listed for 11^th December 2019 and did not require the Claimant’s solicitors to put any submissions before the Court on its behalf.

By a 10 ½ page letter dated 3^rd December 2019 addressed to the Court, HMRC set out its case in relation to the Claim. HMRC did not apply to be joined. The concluding paragraph of the letter stated that HMRC advanced “all the above observations in the hope that they will assist the Court.” So far as I am concerned, that hope is partly fulfilled and partly not. Insofar as the letter raises legal arguments, I have found it helpful, even where I do not agree with the arguments. I have found the letter less helpful where it has made factual allegations or has attempted to question or add to the

In the absence of any opposition, I still need to be satisfied that relief ought to be granted as sought or otherwise (Wright v National Westminster Bank plc [2014] EWHC 3158 (Ch) at [10]).

The Claimant’s claim for relief is based on four overlapping grounds:

The Claim and the application were supported by two witness statements made by the

The Settlement was created by a deed dated 6^th September 1990 made between a nominee settlor and two Isle of Man companies.

The Settlement created a discretionary trust for the benefit of, or principally of, the descendants of Ellen Morris then living or born thereafter and their spouses.

Ellen Morris was the maternal grandmother of the Claimant. By 2003 the class of potential beneficiaries of the Settlement comprised, or included, the Defendant, his wife

The substantive funding of the Settlement initially came from an earlier settlement which had been founded by Ellen Morris. By 2003 the Settlement was heavy with retained gains or potential gains for UK Capital Gains Tax (“CGT”) purposes. The gross value of the trust fund was some £3.6 million. The potential CGT liability if the gains were realised or the Settlement’s assets were applied in such a way as to give rise to a liability for UK CGT was some £1 million.

By 2002 the sole trustee of the Settlement was Abacus Trust Company (Isle of Man)

After Mr Chacko had seen a draft of this judgment he suggested that the tax planning was not part of the dispute before me. I disagree. Of the grounds relied upon for setting aside the appointment of the Claimant as a trustee, the tax planning appears to me to be central to the ground of mistake and relevant to the other grounds. I need to make such findings and examine such possibilities and arguments as are directly or indirectly relevant to the claim before me. Further, the Claimant has chosen to make the claim on the grounds relied upon and the existence and nature of the scheme, or “planning” is pleaded in the Particulars of Claim. That said, I have had insufficient information or argument to determine whether or not in this particular case the Round the World Scheme worked or should have worked as planned. I do not complain about that. As between the parties and HMRC that is a matter for the FTT.

The essence of the scheme was that Mauritian trustees would be appointed. The Settlement would become Mauritian resident for tax purposes. The gains would be realised by the Mauritian trustees disposing of the relevant assets and distributing the proceeds to or for the benefit of the UK resident beneficiaries. UK resident trustees would then be appointed in place of the Mauritian trustees in the same UK tax year of assessment. In Smallwood v. HMRC [2010] EWCA Civ 778 this last step was a necessary step because the appointment of UK resident trustees within the same year of assessment would exclude the operation of s.86 Taxation of Chargeable Gains Tax Act 1992 (“TCGA”) which required the trustees to remain non-resident throughout the relevant year in order for it to apply (s.86(2)). If s.86 TCGA applied the gains would have been attributed to the Defendant as the UK settlor of the Settlement (or of the bulk of its assets) and the scheme would have failed to avoid the payment of CGT. There was no material before me to indicate that the appointment of UK resident trustees was not a necessary step in the Round the World scheme in this case and for the same reasons as in Smallwood.

I derive from Smallwood that the “magic” elements which were supposed to make Round the World schemes involving Mauritius effective were that:

The Defendant says that he did not instigate or play any part in the discussions between Abacus and PWC. He says that when the trustees decided on the steps they wanted to take he was asked if he had any objections. He says that he trusted that they had obtained the best advice possible and so confirmed that he did not object. He says that by then he was the main point of contact with the Settlement on behalf of the beneficiaries owing to his wife’s (the Claimant’s mother’s) terminal illness.

On 26^th July 2002 Abacus retired as trustee in favour of a Mauritian company called Standard Bank Trustee Company Mauritius Ltd (“Standard”) and two Mauritian resident individuals.

The Mauritian trustees realised the gains and distributed almost all of the trust fund until, by 19^th March 2003, there was only some £61,000 remaining.

The distributions which were made from the Settlement were as follows:

On 26^th February 2003 the following payments were made out of the First 2002 Trust:

By a deed dated 19^th March 2003 (“the DORA”) the appointment of new trustees was made which the Claimant seeks to have set aside or declared void. The DORA was made (or purportedly made) made between Standard and the two individual Mauritian trustees (“the Mauritian Trustees”) of the one part and the Defendant and the Claimant (“the New Trustees”) of the other part.

The recitals to the DORA included the following (with the word “Mauritian” inserted by me in square brackets for clarification):

The following were the particularly relevant clauses of the operative part of the DORA:

There are three copies of the DORA in the hearing bundle. One executed by the Mauritian Trustees; one by Browne Jacobson Trustees Limited and the third by the Defendant and the Claimant.

The signatures of the Defendant and the Claimant on the counterpart of the DORA signed by them are witnessed by the Claimant’s husband.

Browne Jacobson were an English firm of solicitors. They were undoubtedly involved in the arrangements for the execution of the DORA. However, they deny that they acted for the Defendant or the Claimant in relation to that.

On 12^th May 2013 the Claimant’s then solicitors (Fisher & Co) made an attendance note in respect of a meeting they had on that date with the Defendant. That note records, and I have no reason to doubt its accuracy, amongst other things, that:

In a letter dated 19^th March 2013 from Browne Jacobson to the Claimant’s then solicitors, Browne Jacobson say, amongst other things:

The somewhat surprising effect of the appointment of the Claimant as a trustee of the Settlement is that, if, as HMRC contend, the Round the World scheme was not effective in relation to the Settlement, then, despite having been appointed a trustee of a fund with only some £61,000 in cash in it at the time of her appointment, the Claimant is liable to HMRC for some £1.6 million CGT.

That result is said to be a consequence of the terms of s.65 Taxation of Chargeable Gains Tax Act 1992. At the material times and so far as relevant, that provided:

On the footing that the Round the World scheme failed to avoid CGT, chargeable gains accrued to the trustees of the Settlement (albeit that at the time of the disposals they accrued to the Mauritian Trustees) in the year of assessment ending 5^th April 2003. The Claimant was a trustee of the Settlement during that year of assessment and was a subsequent trustee of the Settlement. Accordingly, so HMRC contend, the Claimant was a “relevant trustee” of the Settlement and is chargeable with the full amount of the CGT attributable to the gains made by the Mauritian Trustees, being some £1.6 million.

In the course of the hearing I expressed some incredulity that that should be the result. I remain somewhat incredulous. By the time the Claimant became a trustee of the Settlement it only contained some £61,000 and there were various liabilities payable out of that £61,000. The settled property at that stage only comprised £61,000 at most.

Browne Jacobson Trustees Limited changed its name and is in liquidation. No meaningful contribution to the £1.6 million is likely to be forthcoming from it. The Defendant is now virtually penniless and no meaningful contribution to the £1.6 million is likely to be forthcoming from him. Accordingly, virtually the whole burden of the liability will fall to be borne by the Claimant.

In her first statement the Claimant says that “currently” she does not work and has no savings. Any savings she had have been spent on solicitors over the last 8 years. The Claimant explains that initially there was a standstill agreement in respect of a potential claim against Browne Jacobson, but that in September 2016 they refused to renew it; the Claimant could not afford to issue a High Court claim against them and any claim she might have had against them is now time-barred.

In her first statement the Claimant explains that she is only in a position to bring this claim as a result of assistance from family and friends. If the Claimant had no significant assets, then from a hard-nosed financial perspective it would have to be asked, both rhetorically and practically, why she did not simply become bankrupt and rid herself of the £1.6 million liability in that way. I accept that there remains a stigma attached to bankruptcy and that it could adversely affect the Claimant’s future employment prospects. Nevertheless, if the issue of the unconscionability of not setting aside the appointment of the Claimant as a trustee arises, in my judgment the fact that financially it would make no significant difference to the Claimant’s position would in my judgment be a relevant consideration. However, the Claimant does not say that she has no assets. In particular, she makes no mention of any interest she may have in the house or any assets representing it, the purchase of which was partly funded by £285,000 from the 2004 Trust as mentioned below.

I now examine more closely the circumstances surrounding the execution of the DORA on 19^th March 2003.

It is clear that the decision to appoint the Claimant as one of the New Trustees was taken fairly late in the process. The evidence is that the decision was not taken by the Claimant. Nor was she a party to it. In the circumstances it can only have been taken by the Defendant or by the Defendant in discussion with Browne Jacobson or PWC.

There is an email dated 12^th March 2003 from Lucy Worwood (“Ms Worwood”) to Ms Beatrice Fok Chow and Mr Nicholas Harries. Ms Fok Chow was one of the Mauritius Trustees and an employee of Standard. Nicholas Harries (as appears from his email address in a later email) was an employee of PWC. Ms Worwood was a solicitor employed by Browne Jacobson, and was the person at that firm who was mainly involved in the process.

In the email dated 12^th March 2003 Ms Worwood says she has “now” spoken to PWC and

“we need as least two UK trustees to be appointed.” Ms Worwood continued: “I will therefore need to amend the documents to include the proposed additional trustee or possibly trustees. I anticipate that this will be David Wesley. Subject to this change – are you happy with the documents?”

Someone has handwritten on the email “I’ll amend docs after here from Nicholas”.

In the course of the hearing I speculated that the perceived need for a third UK trustees might have arisen from the terms of the power to appoint replacement trustees contained in clause 44(a) of the Settlement. That may have been the case, but clause 44(b) permitted retirement without replacement so on the material before me I can do no more than speculate as to the reason.

The next email in the bundle is one dated 14^th March 2003 from a Ms Denne on behalf of Ms Worwood to Ms Fok Chow, copied to, amongst others, Mr Harries. In this email Ms Worwood explains that she has “now established” that the three new trustees will be Browne Jacobson Trustees Limited, the Defendant and the Claimant. She does not say how she has “established” that. She says she has amended all of the documents to reflect that. The draft documents sent with this email were a deed of appointment and retirement, a deed of indemnity and an agency agreement.

The detail of how the relevant documents were provided for signature and, indeed, how they were signed is not entirely clear. However, it appears, and I find, that so far as their execution by the Defendant and the Claimant were concerned, they were sent by Browne Jacobson to the Defendant and he procured the signature of the Claimant to them. Thus:

At the time she signed the DORA the Claimant was in an extremely distressed, shocked and vulnerable state. As recently as 18^th January 2003 the Claimant had lost her second child in very traumatic circumstances. I need not go into all the details, but in summary:

Further, as already indicated, by March 2003 the Claimant’s mother (Mrs Leslie Wesley) was nearing her death of cancer. Throughout January 2003 Mrs Leslie Wesley had become increasingly ill, and in February and April was admitted as an emergency to hospital with infections and for further in-house radiation treatment. The Defendant was reluctant to accept help and insisted on mainly keeping the provision of help within the family, leaving a lot of the care to the Claimant.

The Claimant explains that her father, the Defendant, is a forceful character and had been a successful businessman who had always made the important decisions in the family and had dealt with the family’s finances. He did not respond well when his decisions were questioned or when his requests were not answered favourably. The Claimant had grown accustomed to listening to the Defendant always, as he simply dismissed any questions she might have had as annoying interferences. In 2003 the Claimant considered that the Defendant was someone she could rely on and she had no real reason to question him.

The Claimant expands on what might be termed the overbearing nature of her father in her second witness statement. She there says, amongst other things, that the Defendant controlled most aspects of her life as she grew up and into and throughout her early twenties, including her finances and what she was allowed to have money for. She gives examples. The Claimant wasn’t encouraged to have a career. The Defendant said she wouldn’t need one as once she got married he didn’t expect her to work. Her role was to be a housewife like her mother and look after her husband.

When the Claimant did finally start working as a teacher at the age of 24, the Defendant still had a major influence over her finances and earnings. He told her to opt out of the teachers’ pension scheme, despite a financial adviser advising in the Defendant’s presence that she should keep her pension. The Claimant summarised the position in her second witness statement as follows:

“There wasn’t an option to say no, you just did what you were told, Dad knew best otherwise life was made very difficult.”

The Claimant’s evidence is that even when she had met her husband and they were buying their first house, the Defendant still had some control. The Defendant gave them a contribution towards buying their house so long as it was a house he approved of. The house they bought was 3 minutes’ walk away from the Claimant’s parents. The Defendant would tell them who had the best mortgage deal, who to insure the house with and he organised who they had their car insurance with.

In paragraph 9 of her second statement the Claimant says, amongst other things:

“My dad was such an authoritative figure who had been very successful in business, he had built up his toiletries company from nothing and I had grown up always being told he knew best, I was told I didn’t know as much so had to trust what he said. He was my father, I had no reason to think he would do anything that wasn’t in my best interests. I didn’t feel able to question my father’s advice but also didn’t have any reason to distrust him at that time, as I knew he was respected by many people as a business man.”

The Claimant’s evidence as to the overbearing nature of her father is corroborated, not only by the Defendant’s statement in his email to the Claimant’s solicitors dated 2^nd December 2019 mentioned above, where he stated that he believed the Claimant’s witness statement (her first) to be a true and accurate accounts of events as he recalled them to the best of his knowledge, but also by:

In Fishers’ attendance note of 12^th April 2013 the Defendant is recorded as saying in respect of the documents signed by the Claimant that some of them were signed at his house because the Claimant was round there a lot, but he cannot recall any discussions. He is recorded as saying that he simply asked the Claimant to sign them because that was what Browne Jacobson wanted and in his mind it was a matter of process rather than choice.

The attendance note of 12^th April 2013 concludes as follows:

“In summary Dave accepts that he did exert influence over the family and that financial matters were generally left to him. Trust documents were presented to Nicola without advice from him or Browne Jacobson. He simply asked her to sign them. In his mind, albeit that a Trust structure was in place, the money was his to do with as he wished.”

There is little evidence as to the actual execution of the DORA by the Claimant. The nearest the evidence in the witness statements in these proceedings comes to doing that is the Claimant’s evidence in paragraph 28 of her 1^st statement where she says:

“I cannot recall now the specific events which took place on the exact day I signed the deed of appointment, as this was 16 years ago, and I was not aware of the significance of this day until my discovery of the situation in 2011. I do not recall signing any specific documents. I must have signed this document in my father’s lounge on his dining table. He used the dining table as a makeshift desk and it was usually covered with lots of forms and documents. It was normal at that time for my father to ask me to sign documents as we were dealing with all sorts of paperwork regarding my mum and her terminal illness. I do not now recall exactly what these documents were but they may have included social care and private carer forms among others. I was highly preoccupied with the loss of my daughter and the illness of my mother, and I was in no state to think about or understand the complexities of anything else at the time, I was extremely vulnerable and in a deep state of depression. I never saw a full document, I only ever remember seeing the last sheet which required a signature and my father would have just asked me to sign it amongst other documents. My husband witnessed my signature on the deed itself. He did not raise any questions at the time as he was also in a precarious emotional position following the death of our daughter and trusted my father.”

There is some explanation in the Defendant’s statement dated 20^th April 2018 made in the

A letter dated 21^st November 2012 from the Claimant’s then solicitors, Napthens, to HMRC gives the following explanation: “On 19^th March 2003, Mrs Mackay was at her parents’ home, caring for her mother. Her father, Dave Wesley, presented her with the last page of a document which he informed her related to certain offshore trusts and required her to sign it. The only trust Mrs Mackay had ever heard talk about was the IOM Trust set up by her grandparents. It would appear that the document was, in fact, the deed. Mr Wesley

Those contents of the letter of 21^st November 2012 are confirmed by the Claimant in her witness statement where she says that the letter “explained the Circumstances of my appointment”.

In the Defendant’s statement dated 8^th February 2019 he says much the same thing, but adds “I gave Nicola the signature page of the documents to sign”. He also adds that at the time he himself did not appreciate the significant risks that he and the Claimant would be exposed to by becoming trustees.

There is a second document concerning the Settlement which was signed by the Claimant on 19^th March 2003. That is a deed of indemnity in favour of one of the old Isle of Man trustee of the Settlement. As with the DORA, the Defendant’s and the Claimant’s signatures to this deed are witnessed by the Claimant’s husband.

There is an agency agreement dated 26^th March 2003 (“the Agency Agreement”) executed by, amongst others, the New Trustees. The Defendant’s and the Claimant’s signatures on this document are witnessed by Mrs Leslie Wesley. By the agency agreement the New Trustees appointed the Mauritian Trustees as their agents for, amongst other things, the effecting of the transfer into the name of or under the control of the New Trustees of any part of the Trust Fund which had not yet been so transferred.

There is a written resolution of the New Trustees dated 1^st April 2003 and signed by all three of the New Trustees. By this resolution the New Trustees resolved to establish a trust bank account with Abicocash Plc in the Isle of Man and transfer the Trust Fund to it.

There is a signed resolution of the New Trustees dated 1^st April 2003 (“the 1^st April 2003 Resolution”) by which the New Trustees resolved to establish a trust bank account with Abicocash Plc in the Isle of Man and to transfer the Trust Fund to it.

Mrs Leslie Wesley died on 19^th July 2003.

There is a Deed of Indemnity dated 15^th March 2004 (“the 15^th March 2004 Indemnity”). This is made between (1) the Defendant, the Claimant and Kathryn, defined as “the Indemnifiers”, in their capacities as recipients of distributions from the Second 2002

All of the Defendant’s, the Claimant’s and Kathryn’s signatures to the 15^th March 2004 Indemnity are witnessed by the Claimant’s husband.

On 9^th March 2004 a further Isle of Man discretionary trust was created (“the 2004 Trust”). Its original objects were the descendants of Ellen Morris then living or born during the defined Trust Period; the Defendant; the spouses of the descendants; the Christie Hospital Charitable Fund. The Defendant’s second wife, Michelle was added as a beneficiary on 24^th April 2006.

The notes to the accounts for the 2004 Trust for the year ended 5^th April 2010 state that by a deed dated 9^th March 2004 the following assets were assigned to it from the First 2002 Trust:

The notes to the accounts for the 2004 Trust for the year ended 5^th April 2010 also state that

The accounts for the 2004 Trust for the year ended 5^th April 2010 themselves show in the balance sheet the assets of the 2004 Trust as comprising £1,265,000 of loans plus cash and cash equivalents of £124,284.

Note 8 to the accounts for the 2004 Trust for the year ended 5^th April 2010 shows capital distributions to the Defendant for the period 6^th April 2007 to 1^st September 2009 totalling £600,000.

The 15^th March 2004 Indemnity recites that the trustees of the Second 2002 Trust have, on that date, transferred cash of £265,000 to the Defendant, £205,000 to the Claimant and £205,000 to Kathryn.

In Fishers’ attendance note of 12^th April 2013 the Defendant is recorded as saying in respect of the indemnities that when he asked for distributions from the trustees he was told that indemnities would be requested. He understood this and “arranged for” the indemnities to be signed by the Claimant as trustee and by the Claimant and Kathryn as beneficiaries. Again (the Note records) in the Defendant’s mind he was the deemed settlor and it was his money.

In Fishers’ attendance note of 12^th April 2013 the Defendant is recorded as saying that after the Round the World scheme had been introduced and seemed to have worked, then he decided to get about £1 million out. For “unexplained reasons” he decided to split this three ways, with one third to himself and the balance to his two daughters. He is recorded as saying that the payments to his daughters were for him to draw off. They were never intended as a gift and he always expected the money to be paid back to him. However, he is recorded as going on to explain that there two exceptions to this:

That statement of the Defendant is confirmed by the Claimant and by Kathryn in their evidence. The Claimant says that she can remember receiving money in or around 20032004. When she received the money the Defendant told her it was not for her to keep, and that he would have it back. In or around 2004 the Defendant asked the Claimant to open three bank accounts with different building societies to deposit £50,000 in each of them. However, she never used the money for herself. On one occasion the Defendant told her to give him some of the money to buy a car for his second wife, Michelle. On a different occasion the Defendant asked the Claimant to pay for significant repairs on his boat. She also gave the Defendant large cheques to be paid from the money whenever he asked her to.

In 2006, due to the difficult relationship between Michelle and the rest of the Defendant’s family, in particular the Claimant, the Defendant encouraged the Claimant to move away from the area and to find another house. The Defendant offered to help the Claimant out. He arranged for her to have the £285,000 referred to above. The Claimant says that at the time this was presented to her as a gift to enable her to move. However, several years later, in 2010, this money came to be dealt with as a loan.

On 3^rd February 2010 a deed was entered into between the trustees of the 2004 Trust and the Claimant. This deed effected the transaction referred to in the notes to the 2010 accounts for the 2004 Trust whereby £285,000 was stated to be owed by the Claimant to the trustees by way of loan and was confirmed as an interest free loan repayable on one month’s notice.

There is a second deed dated 3^rd February 2010 made between the trustees of the 2004 Trust and the Claimant. This deed referred to the loan of £40,000 which was stated to have been made from the trustees of the First 2002 Trust to the Claimant, the benefit of which was assigned to the trustees of the 2004 Trust. The deed confirmed the loan arrangement as a specialty.

There is a handwritten note from the Defendant to the Claimant dated 5^th May 2011 in which he acknowledges receipt from her of a loan of £20,000, repayable on demand.

There is a similar note dated 31^st May 2011 in respect of a loan of £30,000 and one dated 20^th January 2010 in respect of a loan of £10,000.

The Claimant explains in her 1^st witness statement that she started to ask for these acknowledgments, described by her as “I owe you” notes, in or around 2010 when she became worried that the Defendant was giving all the money he had to his new wife, Michelle.

The Claimant says that apart from the loans referred to above and the sums she was told to pass on to the Defendant, she has only ever received small distributions for medical or school fees “and the like”. She says she believes that the funds in the Isle of Man trusts have largely been distributed to the Defendant at one time or another. That is borne out to a substantial extent by the 2010 accounts for the 2004 Trust and the notes to those accounts.

On 22^nd June 2005 HMRC sent the Claimant a short letter saying that they were sending her copies of two letters of the same date that they had sent to Browne Jacobson Trustees Ltd. One of those letters referred to an enquiry into the Settlement and was a notice for the production of documents pursuant to s.19A Taxes Management Act 1970. The other was in substance a covering letter in respect of the s.19A notice letter. Browne Jacobson (by Ms Worwood) responded to these letters by a letter to HMRC dated 26^th July 2005.

In her first witness statement the Claimant says she does not recall receiving the letter from HMRC to her dated 22^nd June 2005 but, she says, if she did receive it, she does not believe she would have appreciated the contents of the enclosed letters. She says that she did not have any legal or financial training and always used to pass on documents relating to the family finances to the Defendant to deal with. To a trust lawyer it can be gleaned from these documents that the Claimant is or was a trustee of the Settlement, but even if

In Fishers’ attendance note of 12^th April 2013 the Defendant is recorded as saying that he first became aware of a problem with the Round the World Scheme in September 2011 when letters from the Revenue were forwarded to him.

Around 22^nd September 2011 the Claimant opened a letter which named her as being jointly liable to pay approximately £1 million in tax. The £1,6 million figure mentioned by me above is that £1 million plus interest and, possibly, penalties.

On or soon after receipt of the 22^nd September 2011 letter the Claimant spoke to Ms

A “Round the World” scheme was challenged by HMRC up to Court of Appeal level in Smallwood v. HMRC [2010] EWCA Civ 778. The scheme failed in that case because it was held that the place of effective management of the trust had remained in the UK.

In or around 2012 the Claimant went to see the Isle of Man trustees to inquire into the trusts and her position in relation to them. She says that they did not share much relevant information.

On 23^rd November 2012 there was a meeting at Browne Jacobson’s office in Nottingham. This was attended by three individuals from Browne Jacobson, representing Browne Jacobson Trustees Ltd, including Ms Worwood, the Claimant, the Defendant, Brian Dunk of Sopher & Co, and a Mr McGillivray and a Ms Noble from HMRC. A note of this meeting was exhibited to the Claimant’s first witness statement and a copy was in the bundle. I have no reason to doubt its accuracy.

The note of the meeting of 23^rd November 2012 records, amongst other things, that:

In the letter of 21^st November 2012 Napthens put her case on the grounds of non est factum, undue influence and misrepresentation.

There were further meetings with Mr McGillivray and Ms Noble of HMRC on 18^th December 2012, in January 2013 and on 2^nd May 2013. The Claimant says that HMRC told her that she could apply to the High Court to be removed as a trustee and that if she did so HMRC would have no objection. When it became apparent that the Claimant would not have the funds to do that, she was encouraged by HMRC to explore other possibilities through solicitors, including taking legal action against Browne Jacobson.

Any possibility of action against Browne Jacobson came to an end in September 2016 when they refused to renew a standstill agreement, and the Claimant did not have the funding to risk instituting proceedings against them.

Browne Jacobson conducted an appeal against the tax assessment on the Claimant’s and the other trustees’ behalf.

A lack of communication between Browne Jacobson and the Claimant meant that by March 2017 the Claimant had lost an opportunity to ask HMRC to exercise a discretion regarding her liability. Indeed, it was not until April 2018 that the Claimant discovered that the appeal against tax liabilities had been struck out in 2016.

On about 10^th February 2017 the Claimant received a letter from HMRC demanding payment of approximately £1.6 million.

With the assistance of a barrister acting pro bono the Claimant succeeded in having the tax appeal reinstated. As already mentioned, that came on for hearing in Manchester in the week before the hearing before me.

The Claimant’s position was made worse by the fact that since 2012 she has suffered such serious ill health that she has been unable to work as a teacher.

Eventually the Claimant obtained funding from family and friends and commenced these proceedings on 30^th July 2019.

In the light of that history, I have great sympathy for the Claimant in the predicament in which she finds herself. The question is whether any legal principle is capable of applying which would result in the appointment being void or which would give the Court a discretion to set it aside. If such a discretion arose, then further questions would arise as to whether there were any bars to the exercise of that discretion and whether, absent any such bar, the Court should exercise its discretion in the Claimant’s favour.

In my judgment this is not a case of non est factum. The essential element of such a plea is missing. Even if the plea could be established, it would suffer from the same ultimate problem that I address in more detail below in relation to undue influence; that is that the appointment of the Claimant as a trustee was not effected by her, but by the Mauritian trustees.

The essential element that is missing is a belief in the Claimant that the document signed by her (the DORA) was fundamentally or radically different in character from the document she thought she was signing. The need for such a belief was made clear by the House of Lords in what is still the leading case on the subject, Saunders v Anglia Building Society [1971] A.C. 1004.

In my judgment the Claimant did not have such a belief. It is clear from the passage in the letter to HMRC dated 21^st November 2012 quoted by me above that the Claimant knew that the document she was signing “related to certain offshore trusts”. The DORA did relate to an offshore trust. The fact that the Claimant was under the “impression” that the deed was something to do with her mother being ill and she (the Claimant) was signing on her (her mother’s) behalf does not amount to a belief that the document she was signing was fundamentally different to the document which the Claimant actually signed.

Mr Chacko submitted that the Claimant believed herself to be signing documents needed to deal with her mother’s care or finances. In my judgment the evidence does not go that far.

Mr Chacko submitted that the Claimant did not realise that she was accepting liability for a large potential debt. That is clearly correct as a statement of fact, but it does not follow that the Claimant was sufficiently mistaken as to the fundamental nature or contents of the DORA for the doctrine of non est factum to be applicable. The DORA was, as the Claimant believed, a deed which related to an offshore trust. The fact that the effect of its appointing her as a trustee was to give rise to the consequence that she was potentially liable for some £1 – 1.6 million tax does not make the fundament nature of the DORA or its contents any different. They remained things which related to an offshore trust.

For that reason the effect / consequences distinction which in Pitt v Holt [2016] UKSC 26 the Supreme Court made clear did not apply to case to set aside a voluntary transaction in equity for mistake in substance must still apply in respect of the doctrine of non est factum. That is because the doctrine of non est factum is concerned with whether the document itself is the applicant’s document. It is concerned solely with the operative effect of the document, not with the consequences of that operation. So, in the present case it is concerned with the effect of the DORA in appointing the Claimant as a trustee; not with the consequences of her appointment as trustee.

Even if I was satisfied that the distinction between effect and consequences was wrong as a matter of principle in relation to the doctrine of non est factum, which, for the reasons given in the immediately foregoing paragraph I am not, I am in any event bound by authority to hold that such a distinction exists in that context. Thus, in Saunders v Anglia Building Society[1971] A.C. 1004 the House of Lords made it clear that the distinction between effect and consequences existed in respect of the doctrine of non est factum. Thus, per Lord Reid at p.1016F:

“Further, the plea cannot be available to a person whose mistake was really a mistake as to the legal effect of the document, whether that was his own mistake or that of his adviser. That has always been the law and in this branch of the law at least I see no reason for any change.”

Similarly with Viscount Dilhorne at p.1022G where he said:

“I agree with my noble and learned friend, Lord Pearson, that the difference between what a document is thought to be may be in substance or in kind. It will not suffice if the signer thought that in some respect it would have a different legal effect from what it has; nor will it suffice if in some respects it departs from what he thought it would contain. The difference, whether it be in kind or substance, must be such that the document signed is entirely—the word used by Byles J.—or fundamentally different from that which it was thought to be, so that it can be said that it was never the signer's intention to execute the document.”

And Lord Wilberforce at 1026A – B:

“How, then, ought the principle, on which a plea of non est factum is admissible, to be stated? In my opinion, a document should be held to be void (as opposed to voidable) only when the element of consent to it is totally lacking, that is, more concretely, when the transaction which the document purports to effect is essentially different in substance or in kind from the transaction intended. Many other expressions, or adjectives, could be used - "basically" or "radically" or "fundamentally."”

Even if, contrary to my findings, the Claimant had had a belief that the document she was signing was fundamentally different to the document which she actually signed, in order to establish non est factum she would need to get over a second hurdle. That is that the belief would have had to have been induced in her by some form of misleading explanation or misrepresentation as to the contents of the document and that she was not careless or negligent in accepting that explanation or misrepresentation. There was no such misleading explanation or misrepresentation. Again, the Claimant’s evidence as contained in the 21^st November 2012 letter to HMRC, the truth of which is confirmed by her in her first witness statement, is that her father informed her that the document related to certain offshore trusts. It did relate to one offshore trust.

If, contrary to my findings, the Claimant had had a belief that the document she was signing was fundamentally different to the document which the Claimant actually signed

That a misleading of the Claimant as to the contents or effect of the DORA is a necessary condition for the doctrine of non est factum to be capable of applying in the event that, contrary to my finding, she had a belief that she was signing a document the contents of which were radically or fundamentally different to the document which she actually signed follows from the speeches in Saunders v Anglia Building Society [1971] A.C. 1004. Specifically:

Mr Chacko referred me to that part of Lord Reid’s speech in Saunders v Anglia Building Society at p.1016A where he said:

“I think it [the doctrine of non est factum ] must also apply in favour of those who are permanently or temporarily unable through no fault of their own to have without explanation any real understanding of the purport of a particular document, whether that be from defective education, illness or innate incapacity.

In my judgment the evidence does not establish that the Claimant was unable to have without explanation any real understanding of the purport of the DORA. It is clear on the face of the DORA that it appoints the Claimant as a trustee of the Settlement. The

In my judgment, as expressed at the beginning of this section on non est factum, the evidence simply does not make out a case that the document executed by the Claimant (the DORA) was fundamentally different from that which she supposed it to be. The doctrine does not apply.

I have already touched on the question of the Claimant’s capacity.

If a transaction is a voluntary one entered into without capacity, the transaction will be void (Re Beaney [1978] 1 WLR 770).

If a contractual transaction entered into by a person who lacked the capacity to make it, the transaction will not be void, but will be voidable at the instance of the incapacitated party if and only if the other party to the contract knew or ought to have known that the first party lacked capacity (Imperial Loan Co Ltd v Stone [1892] 1 QB 599, as approved by the Supreme Court in Dunhill v Burgin [2014] UKSC 18, per Baroness Hale at para.25).

The DORA was not a unilateral voluntary transaction by the Claimant. It was a multiparty document which effected four things:

In my judgment the DORA was not a unilateral voluntary transaction by the Claimant. In substance it was a contract, whereby in consideration of the New Trustees being appointed, they covenanted to indemnify the Mauritian Trustees. I consider that if the covenants had not been given by the New Trustees, it is unlikely that the Mauritian Trustees would have been willing to appoint the New Trustees. There is no evidence that the Mauritian Trustees had any inkling of any suggestion of a lack of capacity in the Claimant.

Accordingly, even if the Claimant had lacked capacity to enter into the DORA, it would not be void or voidable on the ground of any such lack of capacity.

Further, in the absence of any medical evidence as to the Claimant’s capacity, I am unwilling to hold that she lacked capacity to enter into the DORA.

Section 1(2) Mental Capacity Act 2005 provides that a person must be assumed to have capacity unless it is established that he lacks capacity. By s.2(1) of the Act a person lacks capacity in relation to a matter if at the material time he is unable to make a decision for himself in relation to the matter because of an impairment of, or a disturbance in the functioning of, the mind or brain. By s.2(2) of the Act it does not matter whether the impairment or disturbance is permanent or temporary.

Thus, it is possible that by reason of her extremely distressed, shocked and vulnerable state, the Claimant was incapable of the understanding the effects of the DORA. The possibility of recent bereavement resulting in a lack of capacity was recognised by Briggs J in Re Key [2010] EWHC 408 (Ch), [2010] 1 WLR 2020 at paragraphs 95 – 101.

S.3 Mental Capacity Act 2005 sets out the Circumstances in which, for the purposes of section 2, a person is unable to make a decision for himself. The s.3 test substantially though not exactly reflects the common law test. S.3 provides:

“(1)

For the purposes of section 2, a person is unable to make a decision for himself if he is unable–

(a)

to understand the information relevant to the Decision,

(b)

to retain that information,

(c)

to use or weigh that information as part of the process of making the Decision, or

(d)

to communicate his decision (whether by talking, using sign language or any other means).

(2)

A person is not to be regarded as unable to understand the information relevant to a decision if he is able to understand an explanation of it given to him in a way that is appropriate to his circumstances (using simple language, visual aids or any other means).

(3)

The fact that a person is able to retain the information relevant to a decision for a short period only does not prevent him from being regarded as able to make the Decision.

(4)

The information relevant to a decision includes information about the reasonably foreseeable consequences of–

(a)

deciding one way or another, or

(b)

failing to make the Decision.”

The Claimant’s own evidence is that at the time she executed the DORA she was “consumed by grief and truthfully incapable of making any decisions.” I say again that I accept the Claimant’s evidence that she was consumed by grief. The Claimant was not cross-examined and I accept that she considers that by her own assessment she was incapable of making decisions at the relevant time. However, neither she, nor her sister or her husband in their evidence attempt to support and breakdown the Claimant’s

Further, in all except very clear cases expert evidence is necessary to establish a lack of capacity (see Fehily v Atkinson [2016] EWHC 3069 (Ch), [2017] Bus L R 695 per Mr Stephen Jourdan QC, sitting as a Deputy High Court Judge at paras.84 and 104). Even if

In equity a voluntary disposition can be set aside on the ground of mistake whenever there was a causative mistake which was so grave that it would be unconscionable to refuse relief ( Pitt v Holt [2013] UKSC 26, [2013] 2 AC 108). The principle was summarised by Sir Terence Etherton C in Kennedy v Kennedy [2014] EWHC 4129 (Ch), [2015] WTLR 837 at paragraph 36:

“The principles applicable to rescission of a non-contractual voluntary disposition for mistake were comprehensively set out in the judgment of Lord Walker in Pitt v Holt [2013] UKSC 26, [2013] 2 AC 108, with which the other members of the Supreme Court agreed. They may be summarised as follows.

(1)

There must be a distinct mistake as distinguished from mere ignorance or inadvertence or what unjust enrichment scholars call a “misprediction” relating to some possible future event. On the other hand, forgetfulness, inadvertence or ignorance can lead to a false belief or assumption which the Court will recognise as a legally relevant mistake. Accordingly, although mere ignorance, even if causative, is insufficient to found the cause of action, the Court, in carrying out its task of finding the facts, should not shrink from drawing the inference of conscious belief or tacit assumption when there is evidence to support such an inference.

(2)

A mistake may still be a relevant mistake even if it was due to carelessness on the part of the person making the voluntary disposition, unless the Circumstances are such as to show that he or she deliberately ran the risk, or must be taken to have run the risk, of being wrong.

(3)

The causative mistake must be sufficiently grave as to make it unconscionable on the part of the donee to retain the property. That 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. The gravity of the mistake must be assessed by a close examination of the facts, including the Circumstances of the mistake and its consequences for the person who made the vitiated disposition.

(4)

The injustice (or unfairness or unconscionableness) of leaving a mistaken disposition uncorrected must be evaluated objectively but with an intense focus on the facts of the particular case. The Court must consider in the round the existence of a distinct mistake, its degree of centrality to the transaction in question and the seriousness of its consequences, and make an evaluative judgment whether it would be unconscionable, or unjust, to leave the mistake uncorrected.

In my judgment this principle is not applicable in the Circumstances of the present case for three reasons:

As regards the first of those reasons: it raises the question of whether the acceptance of an appointment as trustee is a necessary element of the process by which a person becomes a trustee. In my judgment it is not. The terms of clause 44 of the Settlement and, similarly, the terms of s.36 Trustee Act 1925 (England and Wales) provide that in certain specified circumstances the appointor “may appoint” a new trustee. Neither clause 44 of the Settlement, nor s.36 say anything about the appointee having to accept the trusteeship. It is of course trite law that no one is bound to accept the office of trustee. The office may be disclaimed at any time before acceptance and any such disclaimer would operate with retrospective effect so that the appointee would be treated for all purposes as if she had never become a trustee. The use of the language of “disclaimer” is itself indicative that pending the disclaimer the appointment is effective. There is authority for that proposition in Mallott v Wilson [1903] 2 Ch 494, per Byrne J at p.501. The position is analogous to a transfer of property where the transfer is effective even though the transferee may know nothing about it,, but the transferee may renounce or disclaim on learning of the purported transfer. Thus, in Standing v Bowring (1885) 31 Ch D 282, per Cotton LJ at p.288:

“Now, I take the rule of law to be that where there is a transfer of property to a person, even although it carries with it some obligations which may be onerous, it vests in him at once before he knows of the transfer, subject to his right when informed of it to say, if he pleases, "I will not take it." When informed of it he may repudiate it, but it vests in him until he so repudiates.”

In many circumstances it may make little or no practical difference whether as a matter of analysis the appointee had to accept the appointment before becoming a trustee or whether she became a trustee subject to the possibility of a retrospective disclaimer. But on the question of setting aside a transaction for mistake in the appointee it is a relevant distinction. On my analysis the Claimant became a trustee by reason of the appointment made by the Mauritian Trustees whether or not her acceptance was or could be vitiated under the Pitt v Holt mistake principle or otherwise. What she could have

As regards the second of the reasons for the equitable principle not applying: the equitable principle sought to be relied upon by the Claimant is concerned with mistaken gifts or voluntary dispositions. The whole of the relevant part of Lord Walker’s judgment in Pitt v Holt is premised on that being the scope of the principle. The passage from Sir Terence Etherton C’s judgment in Kennedy v Kennedy [2014] EWHC 4129 (Ch), [2015] WTLR 837 at paragraph 36, quoted above confirms that the principle or jurisdiction is concerned with setting aside a non-contractual voluntary disposition. In the present case the Claimant did not dispose of anything. At most she undertook the liabilities of a trustee and received the trust property. This reason applies even if, contrary to my judgment, the Claimant’s acceptance was necessary in order for her to become a trustee.

Mr Chacko sought to argue that the DORA and the Claimant’s acceptance of the trusteeship effected a vesting of the trust fund in the Claimant and hence was a disposition to which the equitable principle might apply. It is debateable whether the DORA did effect such a vesting, but even if it did it was a disposition to the Claimant not a disposition by the Claimant. The equitable principle is concerned with gifts or dispositions by a person who was labouring under a relevant mistake. The disposition of the trust fund by the Mauritian trustees to the New Trustees was not a disposition by persons who were labouring under any mistake. In my judgment the vesting of the trust fund in the Claimant was not a disposition to which could trigger the operation of the equitable principle. If the appointment of the Claimant was set aside, a consequence or consequential order might involve the setting aside of the disposition to her, but that would not be a ground for setting aside the appointment of the Claimant as a trustee.

I said that it was debateable whether the DORA operated to vest the trust fund in the New Trustees. Mr Chacko submitted that clause 2 of the DORA provided for the vesting of the trust assets in the New Trustees. That is not the effect of clause 2 of the DORA. Clause 2 of the DORA provided that its parties consented to the vesting in the names of the New Trustees of the assets comprising the Trust Fund and any undistributed income thereof. Clause 2 did not purport itself to be a transfer or vesting provision. That it was considered by the parties that the DORA did not effect the vesting of the Trust Fund in the New Trustees is demonstrated by the terms of the 26^th March 2003 Agency Agreement executed by the New Trustees and the Mauritian trustees (defined in the Agency Agreement as “the Agents”). Recital (6) of the Agency Agreement recited that under the terms of the DORA “the assets comprising the trust fund of the Settlement (the

“Trust Fund”) are immediately to be transferred to or under the control of the New Trustees”. In other words the DORA (dated 19^th March 2003) did not by its terms effect the transfer. In fact the DORA did not go so far as expressly to provide for the immediate transfer of the Trust Fund, it merely contained a “consent” to the vesting of the Trust Fund in the names of the New Trustees.

Mr Chacko sought to argue that the acceptance of trusteeship includes the transfer of trust property (by virtue of s.40 Trustee Act 1925 where not provided for expressly) on terms that the new trustee accepts the responsibilities of trusteeship. In my judgment that is not necessarily the case. A person can become a trustee without having the trust property vested in her. If it was necessary to my decision, and it is not, I would hold that s.40 Trustee Act 1925 did not operate to vest the trust fund in the New Trustees. Briefly that is because:

As regards the third of the reasons for the equitable principle not applying: the Claimant gave substantial and real consideration for the appointment by giving the Mauritian Trustees the covenants of indemnity. That means that looking at the DORA as a whole, it was not purely voluntary. Accordingly looked as a whole it is outside scope of the equitable principle. In this context and in the context of the first of my reasons, it is instructive to look at the relief that is sought on the Claim Form, the Particulars of Claim, the application notice for summary judgment and in the draft order attached to that application. In all four documents what is sought is not a setting aside or rescission of the DORA, but, to quote from the prayer for relief at the end of the Particulars of Claim, “rescission of her appointment as Trustee of the Trust on 19 March 2003”. On that footing the focus would be on the appointment; not on any of the other elements of the DORA, and the first and second of my reasons would apply.

Even if the facts could otherwise be brought within the equitable principle, I consider that the Claimant’s execution of the DORA was not the result of a mistaken tacit assumption, but of causative ignorance. Mr Chacko submitted that the Claimant believed that the Defendant would not ask her to sign documents which would put her in danger. I accept and agree with that submission as a matter of fact. Mr Chacko then submitted that that amounted to a tacit assumption by the Claimant that by signing the DORA she would not be putting herself in danger, specifically not the danger of becoming liable to HMRC for £1 million to £1.6 million. Again, I agree with and accept that submission. What I have difficulty with is the last step of Mr Chacko’s submission on this point which is that that assumption was a distinct mistake within the meaning of the equitable principle as expounded by Lord Walker in Pitt v Holt and summarised by Sir Terence Etherton C in Kennedy v Kennedy, as set out above.

Mr Chacko drew my attention to Freedman v Freedman [2015] EWHC 1457 (Ch), [2015] WTLR 118 (Proudman J) at paragraph 26 as explained in Hartogs v Sequent (Schweiz) AG [2019] EWHC 1915 (Ch) (HH Judge Hodge QC) at paragraphs 21 – 23.

In Freedman v Freedman [2015] EWHC 1457 (Ch), [2015] WTLR 1187 the Claimant

In Freedman it was submitted on behalf of HMRC that Melanie’s mistake was one of ignorance or disappointed expectation, “a general feeling that everything would be all right, which does not give rise to the remedy”. Melanie trusted her father implicitly and simply did what he said.

On the facts of Freedman the Court was able to conclude that by reason of Melanie having seen Mr Fraser’s letter of 6^th November 2012, her evidence that she “broadly understood” the letter to mean that the Settlement would not have any tax consequences she needed to worry about, could be taken as evidence of a conscious belief that there would be no adverse tax consequences, with the result that the Court could and did set aside the settlement. The key passages of Proudman J’s reasoning are at paragraphs 30 and 31 where she said:

“… In the present case Mr Fraser admittedly gave wrong advice and such advice was seen by Melanie. It is therefore entirely reasonable for her to say, as she does, that based on that advice she broadly understood that there would be no adverse tax consequences for her in entering into the settlement. I do not accept Mr Slater's analysis that “saw” does not equal “read”. He did not cross-examine Melanie and on that basis it must follow that her broad understanding was based on a reading of the letter of 6 November 2012.

31.

Accordingly it seems to me that Melanie made a distinct mistake of the kind described by Lord Walker.”

The paragraph relied upon by Mr Chacko is paragraph 26. That is as follows:

“26.

Miss Stanley asked rhetorically what the distinction was between ignorance and a tacit assumption. Ignorance meant that the person simply did not think about the consequences of an action. However, a tacit assumption does not involve a thought process involving a series of steps culminating in the thought, “I believe I will be able to comply with the loan agreement”. That would be a conscious belief and there are some things that are simply taken for granted. Melanie's assumption is to be inferred because she proceeded on the basis of legal advice coupled with a belief that her father would not advise her to do something dangerous. Accordingly there was at the least a tacit assumption that entering into the settlement did not involve any impediment to compliance with her agreement to repay the loan.”

My reading of that paragraph in context, and in particular having regard to Proudman J’s ultimate finding of a conscious belief as to no adverse tax consequences, is that it is a recital or summary of the submissions of Miss Stanley QC, counsel for Melanie, and does not represent the views of Proudman J. The reference to “a belief that her father would not advise her to do something dangerous” resonates with the facts of the present case, but whether paragraph 26 of Proudman J’s judgment represents her views or merely the submissions of Melanie’s counsel, it is not there suggested that Melanie’s belief that her father would not advise her to do something dangerous by itself and uncoupled from her having proceeded on the basis of legal advice would be a mistake of a kind which could trigger the operation of the equitable principle.

Hartogs v Sequent (Schweiz) AG [2019] EWHC 1915 (Ch) was a case of conscious mistaken belief or at least of tacit assumption based on erroneous professional advice that transfers into two offshore trusts would not give rise to immediate adverse IHT charges. In that case the applicant settlor’s evidence was that his mistake in structuring his personal affairs using the trusts was that he thought that he was (as he had been advised) structuring them in the most tax-efficient way possible when, in fact, he was doing anything but that. He said that whilst he understood that his estate might have to pay IHT in relation to the assets transferred (property and classic cars) when he died, he did not believe that purchasing the property, or transferring or purchasing the classic cars through the trusts, would result in an immediate inheritance tax liability of at least £2.9 million, plus a recurring charge, levied at a rate of up to 6 per cent every ten years, and an exit charge at the same (or a similar) rate if all the assets were removed from the trusts, or that he would suffer any other adverse tax consequences.

At paragraph 21 of his extempore judgment HH Judge Hodge QC expressed the view

At paragraph 23 of his extempore judgment HH Judge Hodge QC accepted the submission of counsel that, as demonstrated by the decision of Morgan J in Van de Merwe v Goldman [2016] EWHC 790 (Ch), ignorance of a matter which gives rise to a mistaken belief is not mere ignorance for the purposes of the possible applicability of the equitable principle. If the belief is mistaken, it does not matter that the applicant was ignorant of the fact or law which caused the belief to be mistaken. I agree, but again it does not follow that a general understanding that the execution of a document would not

“be dangerous” is a sufficiently distinct belief to trigger the operation of the equitable principle.

There must be a line between what is and what is not a sufficiently distinct mistake. In my judgment it is insufficient for an applicant under the equitable principle to have a general conscious belief or to have had a tacit assumption that generally the transaction being entered into would not have any adverse effects. The belief or assumption has to be more distinct and specific than that. The line of cases, including the Freedman case and Pitt v Holt itself where the applicant had a belief that there would be no adverse tax effects or consequences from the transaction is in my judgment very close to the line between what is sufficiently distinct or specific on the one hand and what, on the other, is not. In my judgment the Claimant’s belief that her father would not ask her to sign documents that would put her in danger is on the “insufficiently distinct” side of the line. If it was not it is very difficult to see what sort of mistake would not be sufficiently distinct. Accordingly that is a fourth reason why in my judgment the equitable principle does not apply in the circumstances of the present case.

If, contrary to my judgment, the requirements for the equitable principle were satisfied, then in my judgment, subject to the question of whether rescission is an available remedy in respect of the relief sought, and to questions of delay, ratification and the interests of other parties, in my judgment it would be unconscionable, or unjust, to leave the mistake uncorrected. To my mind it is unconscionable, unjust and unfair that merely through signing a document which she did not conceive would do her harm, the Claimant should become liable for some £1 million to £1.6 million tax and interest.

Even if the equitable principle applied, there would remain the problem of what it is that is sought to be rescinded. It is apparent from the terms of the Claim Form and the Particulars of Claim, the application notice for summary judgment and the draft order attached to that application that what is sought is not a setting aside or rescission of the whole of the DORA, but only that part of it which effected the appointment of the Claimant as a trustee. That can also be inferred from the fact that neither the evidence nor the submissions made any real attempt to grapple with the possible impact of setting aside the whole of the DORA. For example, the impact of setting aside the DORA on any decisions made by the New Trustees after the DORA was executed.

I was not given any satisfactory explanation as to why a setting aside of the whole of the DORA was not being sought. I speculate that the reason for the limited relief being sought might be that if the whole of the DORA was set aside, then s.86 TCGA would apply and the Defendant would be liable for CGT on the gains realised by the Mauritian Trustees. Even though, as the evidence indicates, the Defendant is now virtually penniless, a liability imposed on him under s.86 might, by paragraph 6 of Schedule 5 to the TCGA, be recoverable from the Claimant in her capacity as trustee of the Settlement. Be that as it may, the relief sought was and remains limited to a setting aside of the appointment of the Claimant as a trustee.

There is authority that there cannot be partial rescission of a contract; it must be set aside in whole and not merely as to part because otherwise the Court would in effect be imposing a different contact to the one the parties actually made (Kennedy v Kennedy [2014] EWHC 4129, per Sir Terence Etherton C at paragraph 46). That is in substance the same point as my third reason given above. Even if that was not itself a bar to the rescission sought in the present case, the appointment of the Claimant as a trustee is not a self-contained and severable part of the transaction effected by the DORA, and the rescission sought would be barred on that ground. The rescission sought is of the same kind as, even in the case of a voluntary disposition, Sir Terence Etherton C held in Kennedy could not be granted.

In Kennedy three trustees had, by clause 2.1(c) of a Deed of Appointment, appointed the whole of “the remainder of the Trust Fund”. The remainder of the Trust Fund comprised cash and shares. The trustees were mistaken for various reasons as to the inclusion of the shares. They sought an order setting aside the transfer of the shares effected by clause 2.1(c). In the absence of a case for rectification the Chancellor held that that could not be done because it would result in a mismatch between the unrectified terms of the deed and the legal effect of the partial rescission sought. Thus, at paragraph 43 the Chancellor said:

“Mr Herbert submitted that the first head of relief should be treated as an application to set aside the transfer of the relevant shares purportedly effected by clause 2.1(c) of the October 2008 Appointment. That proposition faces the fundamental difficulty that clause 2.1(c) does not separately identify the relevant shares but effects a disposition of “the remainder of the Trust Fund”. The remainder of the trust fund included a large cash amount in addition to the relevant shares. Indeed, it is precisely because the Claimants would like clause 2.1(c) to remain valid and effective as regards the disposition of the cash sum that they seek relief which strikes down clause 2.1(c) only as regards the relevant shares. That, however, can only be achieved by rectification of clause 2.1(c) by adding words excluding the relevant shares. There would otherwise be a mismatch between the unrectified wording of clause 2.1(c) and the legal effect of partial rescission of the disposition of “the remainder of the Trust Fund”. Mr Herbert cited no authority which would support such a result.”

The Chancellor was willing to order the setting aside of the whole of clause 2.1(c) of the deed of Appointment on the basis that if they had been aware if their mistakes, the trustees would not have omitted that clause. The Chancellor held that that was a selfcontained severable part of the transaction and accordingly that it could be rescinded, but that is not the present case. The Claimant does not seek an order setting aside the appointment of all three of the New Trustees.

In the present case the appointment of the Claimant as a trustee is not a self-contained severable part of the transaction. Clause 1 of the DORA appoints “the New Trustees” to be trustees of the Settlement. If the appointment of the Claimant alone was rescinded, then there would be an impermissible mismatch between the unrectified wording of clause 1 of the DORA and the legal effect of the partial rescission sought, in the same way as rescission only in respect of the shares would have resulted in a mismatch in the Kennedy case. The nature of the relief sought is therefore a fifth reason for the equitable principle not being applied in the present case.

Bainbridge v Bainbridge [2016] EWHC 898 (Ch), [2016] WTLR 943 which Mr Chacko relied upon for the proposition that rescission is a fact-sensitive remedy allowing the Court to do what is practically just was a very different case to the present. There the applicants had made three transfers of properties to the trustees of an existing settlement. The transferors were mistaken as to the tax consequences. Master Matthews confirmed his holding at an earlier hearing that he could see no reason why in a non-contractual case relief could not be sought in relation to only part of the property transferred subject to a vitiating factor and not all of it. Although Master Matthews referred to the Chancellor’s judgment in Kennedy, he did not refer to the part of the judgment quoted by me above as to the need for the partial rescission not to result in a mismatch with the unrectified wording of the transactional document. That is not surprising because as Master Matthews explained in paragraph 23 of his judgment in Bainbridge, the transfers of the three properties in that case were all contained in separate Land Registry Forms TR1. To quote from Master Matthews at paragraph 23:

“… the transfers to the trustees of the registered estates in Seamer Grange Farm, Harker Hill and Fox Covert were all contained in separate forms TR1. Each transfer had a different transferor or transferors, because the legal ownership of each parcel was different. Each was therefore self-contained and entirely severable from the others. Each transferor could make an independent decision about whether to apply for relief from the effect of the mistake, or not.”

In contrast in the present case the appointment of the New Trustees was not severable as between the three New Trustees.

The authorities which Master Matthews relied upon for saying that the remedy awarded was “fact sensitive” and “permits what is practically just” were O’Sullivan v Management Agency and Music Ltd [1985] QB 428, 466-467, CA, and Cheese v Thomas [1994] 1 WLR 129, 137.

The point which Fox LJ was concerned with at pp.466-467 of the report in O’Sullivan v Management Agency and Music Ltd [1985] QB 428 was not the question of whether partial rescission was possible, but was the question whether complete restitution of the other party to a contact which was being rescinded to the position he would have been in but for the contract which was sought to be rescinded (“restitutio in integrum”) had to be possible in order for the remedy of rescission to be granted. Fox LJ held that complete restitution was not necessary in equity and that in that context the Court would do what “was practically just”. That was highly relevant to the second point dealt with by Master Matthews in Bainbridge, that is whether rescission was possible notwithstanding that part of one of the properties had been sold on to a bona fide third party purchaser who took free from the equity to rescind; but it is a different point from the question of whether a non-severable part of a transaction can be rescinded in a way in which Sir Terence Etherton C held in Kennedy could not be done. I therefore attach no weight to Master

Similarly with Cheese v Thomas [1994] 1 WLR 129 and with what Sir Donald Nicholls V-C said at p.137. That was an undue influence case and the issue at p.137 was whether complete restitutio in integrum was a necessary requirement before rescission was ordered.

The Claimant relies upon “presumed” undue influence. The principle in that regard is set out by Lord Nicholls in Royal Bank of Scotland Plc v Etridge (No.2) [2001] UKHL 44, [2002] 2 AC 773 at paragraph 14 of his speech in the following terms:

“Proof that the complainant placed trust and confidence in the other party in relation to the management of the complainant's financial affairs, coupled with a transaction which calls for explanation, will normally be sufficient, failing satisfactory evidence to the contrary, to discharge the burden of proof. On proof of these two matters the stage is set for the Court to infer that, in the absence of a satisfactory explanation, the transaction can only have been procured by undue influence. In other words, proof of these two facts is prima facie evidence that the defendant abused the influence he acquired in the parties' relationship. He preferred his own interests. He did not behave fairly to the other. So the evidential burden then shifts to him. It is for him to produce evidence to counter the inference which otherwise should be drawn.”

What Lord Nicholls said at paragraph 7 is also relevant:

“… The law will investigate the manner in which the intention to enter into the transaction was secured: "how the intention was produced", in the oft repeated words of Lord Eldon LC, from as long ago as 1807 ( Huguenin v Baseley 14 Ves 273, 300 ). If the intention was produced by an unacceptable means, the law will not permit the transaction to stand. The means used is regarded as an exercise of improper or "undue" influence, and hence unacceptable, whenever the consent thus procured ought not fairly to be treated as the expression of a person's free will. It is impossible to be more precise or definitive. The Circumstances in which one person acquires influence over another, and the manner in which influence may be exercised, vary too widely to permit of any more specific criterion.”

I am quite satisfied on the evidence that I have recited above that the Claimant placed trust and confidence in her father, the Defendant, in relation to the management of her financial affairs.

I am also satisfied that the transaction whereby the Claimant became a trustee “calls for an explanation”. The extraordinary result whereby, by reason of her signing a piece of paper (the DORA), the Claimant became liable for some £1 million to £1.6 million tax

Even if, subjectively, the Defendant was not aware of the risks, Mr Chacko submitted that the question whether the transaction called for an explanation had to be assessed objectively. I accept that submission.

The Claimant was not given any, let alone any independent advice about the DORA before she executed it. At the time she signed the DORA the Claimant was in an extremely distressed, shocked and vulnerable state. If the DORA was a simple bilateral transaction between the Claimant and the Defendant and an application had been made promptly to set it aside on the grounds of undue influence, I would have had no hesitation in doing so. However, the DORA was not a bilateral transaction between the Claimant and the Defendant. The Claimant is not seeking to have the DORA set aside, only the element of it that appointed her as trustee. 16 years went by before the Claimant applied to set the appointment aside during which the residue of the trust fund was paid or distributed and various other trust documents were executed by the Claimant.

I have explained above why, if the element of the DORA that appointed the Claimant as trustee is looked at in isolation, it was not a transaction to which the Claimant was a party. It follows that in terms just of the Claimant’s appointment, that appointment is not susceptible to being set aside for undue influence on Claimant or otherwise. Looked at in isolation the appointment of the Claimant was simply a unilateral action by the Mauritian Trustees, wholly untainted by any suggestion of undue influence. I have explained above why the Claimant’s “acceptance” of the trusteeship by execution of the DORA was not a necessary element of her appointment as a trustee. She was appointed by the unilateral act of the Mauritian trustees. She then had the option of disclaiming. That is not an option which she has sought to take. Therefore looking at the appointment as an isolated element the transaction is not avoidable for undue influence.

In my judgment the approach of seeking to isolate the appointment of the Claimant as trustee from the other elements of the DORA is incorrect. The DORA was a single composite document which effected a number of transactions. Be that as it may, to set aside the appointment of one only of the New Trustees only would, as discussed above, fall foul of Sir Terence Etherton C’s reasoning in Kennedy v Kennedy [2014] EWHC 4129 that the unrectified document, in this case the DORA should not be a mismatch or inconsistent with the result which would be achieved by setting aside only the appointment of the Claimant as a trustee. That is a second reason for not setting aside the appointment of the Claimant under the head of “undue influence”.

There is a final and overarching ground on which equitable relief setting aside the DORA in whole or in part might not, and in my judgment on the existing evidence should not, be granted. That is that rescission should not be granted where the order would not operate justly and fairly.

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 counterrestitution 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 relevant disposition in place. The impact of any relief and of the terms of any condition or counter-restitution which might be required needs to be considered with a view to ensuring that in all the circumstances the order would operate justly and fairly See paragraphs 162 – 175 of my judgment in Rogge v Rogge [2019] EWHC 1949 (Ch), [2019] WTLR 1305.

If the DORA was set aside as a whole, that would cause the Round the World scheme definitely to fail because of the impact of s.86 TCGA as explained above. The consequences or possible consequences of setting the DORA aside as a whole were not discussed in argument to any substantial extent nor, more importantly, were they addressed in the evidence. In the absence of both I would not be prepared to hold that an order setting aside the whole of the DORA would operate justly and fairly. But in any case, as mentioned above, that is not the relief which is being sought.

If, contrary to my judgment above, I had jurisdiction just to set aside the appointment of the Claimant as a trustee without setting aside any other elements of the DORA, then I would accept that, as pleaded in paragraph 30 of the Particulars of Claim, because there were two other trustees appointed under the deed, the setting aside of the Claimant’s appointment would not have impugned the activities under the Settlement subsequent to the DORA.

What the setting aside of the Claimant’s appointment alone would do would be to remove the availability of the Claimant as a person from whom her co-trustees might seek a contribution for their liabilities to HMRC. So far as the Defendant was concerned, that would not be unfair or unjust because it was his undue influence on the Claimant which gave rise to the Claimant’s potential liability in the first place. So far as Browne Jacobson Trustees Ltd is concerned: it is in liquidation. There is no evidence before me as to what, if any assets or creditors it has, save that on the footing that the Round the World scheme fails, HMRC must be a creditor. There is no evidence before me that Browne Jacobson Trustees Ltd has made a claim for contribution against the Claimant, and the question of whether any such claim would now be time-barred was not discussed before me. The correspondence indicates that Browne Jacobson denies responsibility for the Claimant having become a trustee. In these circumstances I would not be prepared to hold that an order setting aside just the appointment of the Claimant as a trustee would not operate unjustly or unfairly on Browne Jacobson Trustees Ltd and its creditors.

If the possible impact of rescission on Browne Jacobson Trustees Ltd and its creditors had been the only reason why I refused relief in this case I would have seriously considered adjourning the matter before making my final order, so as to give the Claimant the opportunity of putting in evidence on the point. But that is not the only reason for my refusing relief. For the reasons given above, in my judgment this case does not get as far as raising the rescission jurisdiction under any of the heads relied upon, so even if the point went in favour of the Claimant, I would still not grant any relief. Accordingly, it would be a waste of time and costs to grant such an adjournment and I do not do so.

For the reasons given I therefore dismiss the Claim and the application for summary judgment.

The Claimant has sought permission to appeal in writing and this is my judgment thereon in writing. The Claimant has also sought permission to amend her Claim Form and Particulars of Claim. I deal with these matters in writing in accordance with and for the reasons given in my direction of 23^rd March 2020 and my order of 3^rd April 2020.

The Claimant’s application for permission to appeal is supported by draft grounds of appeal, a draft of proposed amendments to the Claim Form and Particulars of Claim and a skeleton argument of Mr Nicholas Le Poidevin QC.

Permission was sought in respect of the claims in mistake and undue influence. Permission was not sought in respect of incapacity or non est factum.

In my judgment the following individual grounds or arguments sought to be relied upon when considered in isolation have a real prospect of success on appeal:

However, success on all those grounds or arguments would not, without more, result in an order setting aside the appointment or the Claimant’ acceptance of it.

No such order would be made unless the Claimant was also successful on the issue of whether her acceptance of her appointment as a trustee was a necessary element of her appointment as trustee so that a tainting of her acceptance by undue influence or mistake would enable the appointment to be set aside.

I consider that the Claimant has no real prospect of success on that issue and accordingly, without amending her pleadings, has no real prospect of success on an appeal against the dismissal of her claim.

As a matter of analysis the issue is whether the Claimant’s appointment takes effect as a result of (i) the unilateral act of the outgoing trustees in appointing the Claimant or (ii) the Claimant’s acceptance of that appointment or (iii) a combination of the two.

To some extent this issue can be confused by the terminology employed. I consider that there is no real prospect of arguing successfully that an appointment of a new trustee is not effected by the act of the appointor. In this case the old trustees. They are the appointors. They make the appointment. It is absolutely clear that a simple appointment of a trustee can be effected by a deed without the new trustee being a party to that deed.

I accept and endorse Mr Le Poidevin’s argument that it should not be possible to force the obligations of a trustee upon a person if that person is unwilling to accept them. Therefore, as Mr Le Poidevin argues, until the new trustee accepts the office she is free not to do so or to disclaim. If she disclaims, she will be treated as never having been a trustee and a matter of the general law will not be subject to the responsibilities or liabilities of a trustee. If she accepts she will be treated as having been a trustee from the time of the original appointment. In my view this in itself confirms that the appointment takes effect before the acceptance and hence the unilateral nature of an appointment of a new trustee.

I consider that that conclusion is confirmed in such a way that there is no real prospect of the contrary argument being successful by the following analysis:

Accordingly, whatever view is taken on the other points, there is no real prospect of the claim or an appeal being successful as the claim is currently formulated.

I have considered whether there is some other compelling reason for an appeal to be heard. In particular whether clarification of the nature of the mistake required to enable the equitable jurisdiction to set aside for mistake was desirable in the public interest. I consider that that is not the case. That question is very fact specific. This case in which there was no crossexamination and no argument against the relief sought would not make a satisfactory test case. In my judgment there is no other compelling reason to hear an appeal against my order.

The Claimant seeks at this very late stage to escape what I see as the inevitable conclusion from the way her case was drafted and put, by seeking permission to amend her Claim Form and Particulars of Claim to seek in the alternative a setting aside of the Claimant’s acceptance of the trusteeship and a declaration that she is thereupon at liberty to disclaim the trusteeship.

I am not willing to allow such amendments at this stage of the proceedings. Not only are the amendments sought very late, but also:

Having regard to those considerations; to the importance of finality in litigation, even one sided litigation such as this case; and applying the overriding objective and in particular the allotment