Hamilton v Hamilton and another
| Jurisdiction | England & Wales |
| Judge | Mr Justice Henderson |
| Judgment Date | 13 May 2016 |
| Neutral Citation | [2016] EWHC 1132 (Ch) |
| Docket Number | Case No: HC-2013-000240 |
| Court | Chancery Division |
| Date | 13 May 2016 |
[2016] EWHC 1132 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Rolls Building,
Royal Courts of Justice
Fetter Lane, London, EC4A 1 NL
Mr Justice Henderson
Case No: HC-2013-000240
Mr Steven Thompson QC and Mr Owen Curry (instructed by Suttons Solicitors) for the Claimant
Mr David Halpern QC and Mr Hamid Khanbhai (instructed by Hughes Paddison) for the First Defendant
Hearing dates: 12, 15 – 19, and 24 February 2016
Introduction and background
In January 1939 the late David Hamilton (then David Zwingerman) ("David") escaped from Nazi Germany to England as an unaccompanied child under the Kindertransport programme. He was 15 years old. His sister, Hannah, tried to go with him on the same train, but was refused permission to travel because she was over the age of 16. During the war, she and both their parents were murdered in the Holocaust. These terrible events had a deep psychological impact on David for the rest of his life. He never returned to Germany, and after forging a successful career in business in England (first in the garment trade, and then as a property investor) he died in London on 10 February 2007, aged 83.
David was survived by his widow, Laura, their two children (Alan, born in August 1947, and Carolyn, born in November 1951), and four grandchildren (Alan's son Andrew, and Carolyn's three daughters by her first marriage to David Yates which was dissolved in about 1988). Shortly after Alan's birth, David adopted the English surname of Hamilton.
Alan has made his career as a global tax accountant. He has lived and worked in New York City since 1974, and is now a partner of Hamilton & MacAvery CPA's (i.e. Certified Public Accountants), which has its office on Madison Avenue. He and his partner offer professional tax services for both corporate bodies and individuals. Earlier in his career, Alan was a partner in KPMG, again in New York. Despite his background, he has never been a specialist in domestic UK tax law. Since the 1980s, his specialism has been international taxation.
Carolyn, by contrast, has made her career in England, although in recent years it has involved much travel abroad. She is a distinguished law academic, specialising in children's rights. For many years she was a member of the Law School at the University of Essex, where she taught family law, child law and human rights. She retired in 2011, and was granted the title of Professor Emeritus. She also qualified as a barrister in 1997 and then practised part-time for about 10 years. Since leaving practice, she has held a number of senior posts in the legal world related to her areas of expertise, and has also worked extensively for the United Nations. She has been the CEO of the Children's Legal Centre since 1995, but her work is now almost entirely with the UN, where she provides technical assistance to governments of developing countries, conducts research and publishes work on children's rights.
While she was at the University of Essex, Carolyn met and married Professor James ("Jim") Gobert. This marriage broke down in 2006, and was terminated by decree absolute of divorce in December 2008. The financial settlement was agreed and finalised by consent in November 2008.
At the date of his death, David was a wealthy man. His London property portfolio alone, held by a private company (Hamilton & Ray Limited) in which he owned 39% of the shares, was worth about £12 million. By his Will dated 6 March 2006 ("the Will"), David appointed his solicitor, Douglas Smith of Tarlo Lyons, and Carolyn as his executors and trustees. Subject to various legacies, including a legacy of £500,000 to his widow and generous legacies to members of his staff, he left the residue of his Estate (defined as "all my property of every kind, wherever situate") to be held upon trusts for the primary benefit of Alan and Carolyn in equal shares. Under the trusts applicable to each share, Alan and Carolyn had a life interest in income, with remainder to their respective children. The trustees also had wide dispositive powers, including an overriding power of appointment over each fund, and power to enlarge the life interests of Alan and Carolyn into absolute interests.
I now come to a matter which lies at the heart of the present case. In December 1995 David took steps which led in February 1996 to the establishment of a foundation (or "stiftung") in Liechtenstein, called the Rainbow Foundation ("Rainbow" or "the Foundation"). It is common ground that all the necessary formalities for this purpose were complied with, and that a foundation under Liechtenstein law has separate legal personality. Under the original regulations of Rainbow, David was "solely entitled to the enjoyment of the foundation's assets and its income during his lifetime", and after his death Carolyn was to be wholly entitled. The funds which David initially placed in Rainbow were apparently the proceeds (or part of the proceeds) of sale of a clothing business in Hong Kong, previously carried on through a local subsidiary of Hamilton & Ray Limited. Later on, probably between about 1999 and 2002, further funds were added representing the proceeds of sale of certain properties in Berlin of which restitution had been made to the Hamilton family by the German government. By the date of David's death, the total value of the funds held in the Foundation, notionally converted into sterling, was approximately £3.25 million.
Rainbow's assets were originally invested and/or deposited with Union Bank of Switzerland ("UBS"). David also had personal accounts, both named and unnamed, with UBS, and he subsequently opened similar personal accounts with United Mizrahi Bank ("UMB") in Switzerland. As well as holdings in various major currencies, investments of Rainbow's assets were made in bonds and stocks and shares, including some UK shares.
In 2004, the Foundation's assets were divided into two parts, labelled A and B. Under new regulations dated 19 July 2004, David remained solely entitled to enjoyment of the whole of the assets during his lifetime. After his death, Carolyn would be solely entitled under Part A (comprising Part A of Rainbow's account at UBS) and Alan would be solely entitled under Part B (comprising Part B of Rainbow's account at UBS, together with an account opened in Rainbow's name at UMB). Further regulations were made on 8 April 2005, which may for present purposes be ignored. By the date of David's death, Part B of the UBS account was empty, and had effectively dropped out of the picture.
David was habitually secretive about his financial affairs, and he never disclosed the existence of Rainbow or his personal Swiss bank accounts to his English professional advisers. Nor did he disclose their existence to the UK tax authorities ("HMRC" or "the Revenue"), or enter any income or gains derived from them on his annual tax returns. It is important to note, however, that (until a few days before his death) David retained his German domicile of origin, and was therefore entitled to be taxed on any foreign income or gains on the remittance basis. In colloquial terms, he was a "non dom". He must have been aware, at least in general terms, of what this entailed, because he had at least one other foreign source of income (a bank account in Germany), which he did disclose, and in or about the late 1990s he remitted to one of his UK companies the proceeds of sale of one of the German properties, thereby giving rise to a lengthy enquiry by the Revenue.
The precise extent to which Alan and Carolyn knew about the existence and value of Rainbow before their father's death is in issue, but it is not in dispute that Carolyn knew a good deal more than Alan, not least because she accompanied her father on two trips to Zurich in 2004 and early 2006 and met the key personnel who managed Rainbow's accounts, Mr Roger Althaus at UBS and Mr Josef Rhein at UMB. Carolyn was also shown at UBS a statement of account, or summary statement of assets, which indicated that Rainbow's funds were held in a range of currencies and investments.
Shortly after their father's death, Alan and Carolyn decided not to divulge the existence of Rainbow to Carolyn's co-executor, Mr Smith. Mr Smith was by then a partner of Blake Morgan LLP. Within a few days of David's death, Alan and Carolyn attended a meeting at Mr Smith's offices. He handed them a sealed envelope which David had given him. Inside was a letter for each of them, stating that they were entitled to assets in Switzerland. Nothing was said by either of them to Mr Smith about the Foundation or the Swiss bank accounts, even though Mr Smith asked them standard questions for the purposes of filling in a probate questionnaire, including questions about foreign or undisclosed assets.
A few weeks later, probably on 23 March 2007, Alan and Carolyn travelled to Switzerland and went to UBS to meet Mr Althaus. They were shown into separate rooms, and were each told about their share of the assets in the Foundation. Carolyn's share amounted to approximately £2.2 million, but Alan's amounted to only some US $2.06 million, which at the then rate of conversion of $1.96 to the £ meant that it was worth about £1.05 million. In other words, her share was worth about twice as much as his.
On the way home, Alan asked Carolyn about the size of her share. She admits that she gave an untruthful answer, which was designed to give the impression that her share was somewhat smaller than his. Alan, for his part, said truthfully that he had received about $2 million. Thereafter, each of them took steps to transfer his or her share into a separate foundation in Liechtenstein, and later in 2007 Rainbow was dissolved. In May 2009,...
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