JTC Employer Solutions Trustees Ltd v Ramin Khadem
| Jurisdiction | England & Wales |
| Judge | Jarman |
| Judgment Date | 04 November 2021 |
| Neutral Citation | [2021] EWHC 2929 (Ch) |
| Docket Number | Case No: PT-2021-000276 |
| Year | 2021 |
| Court | Chancery Division |
[2021] EWHC 2929 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND
AND WALES
PROPERTY TRUSTS AND PROBATE LIST (ChD)
Rolls Building
Fetter Lane, London, EC4A 1NL
HIS HONOUR JUDGE Jarman QC
Sitting as a judge of the High Court
Case No: PT-2021-000276
Ms Harriet Brown (instructed by Farrer & Co LLP) for the claimant
The defendant appeared in person
Hearing dates: 25 October 2021
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic. The judgment was handed down remotely and deemed so at 10.30am $ November 2021
HIS HONOUR JUDGE Jarman QC
HH JUDGE Jarman QC:
Introduction
The claimant is the trustee of the Inmarsat Employment Company (Ramin Khadem) Pension Plan (the plan). It seeks rescission, on the grounds of mistake, of the defendant Mr Khadem's entitlement of a sum (the sum) of over £6 million under an escrow agreement (the agreement) made between him and the claimant's predecessor trustee, RBC Trustees (Jersey) Limited, on 24 December 2018. The claimant has been substituted in these proceedings in place of its predecessor, whom it replaced on the latter's retirement, but for ease of reference I shall refer to both as the claimant.
The company referred to in the plan (Inmarsat), a limited company, was concerned with satellite infrastructure and employed Mr Khadem as a financial officer based in London from 1981 until his retirement in 2004, by which time he had become its chief financial officer. It established the plan for Mr Khadem, with HMRC approval, as his pension plan which was tailored for those employees who may retire abroad. It made contributions into the plan throughout Mr Khadem's employment by crediting it with part of his gross salary and bonuses. He made no contributions. He was born in Iran on 24 January 1945 but raised in USA and Canada, where he also worked before coming to the UK in 1981 and where he met and married his wife.
After his retirement he remained resident here as his wife continued to work as a consultant in Great Ormond Street Hospital and as a professor at UCL. As he approached his mid-70s, and his wife approached her retirement, they discussed where they should live. Their three adult children each had families and resided in Canada, UAE and London respectively. The couple decided to move to UAE to be close to their daughter and son-in-law and family. Mr Khadem made that move in March 2018 and became resident there.
The claimant and Mr Khadem each took tax advice from RSM UK. Advice (the advice) was given in writing to the claimant on 12 December 2018. It was to the effect that UAE only provides a tax domicile certificate (the certificate) covering the period up to the date of the application for such a certificate and so it would be necessary for the claimant to pay Mr Khadem's pension into an escrow arrangement for him and then to apply for the certificate. The claimant and Mr Khadem executed and delivered the agreement on Christmas Eve that month, the effect of which was that his entire pension fund of over £6million was thereafter held for him. Later the same day, UAE issued the certificate which covered the period from April 2018 to April 2019. The issue of the certificate is timed at the equivalent of just before 6pm GMT. There is no evidence as to what time the agreement was executed but it is likely that that was before the certificate was issued.
Accordingly the advice received from RSM as to the timing of the payment to be covered by the certificate was wrong. That would not have been a problem had Mr Khadem remained resident in the UAE. There is currently no personal income tax in the UAE and upon his remaining a resident there he could have applied for relief under the UK-UAE Double Tax Convention ( SI 2016/754) so that no UK tax would be payable either.
Mr Khadem and his wife, who remained in the UK, visited one another from time to time, but his tax domicile remained in the UAE. Upon one such visit to the UK on 15 March 2020, UAE closed its borders until June 2020 because of the Covid pandemic. Even after the borders were open again however, the situation with Covid there remained such that the UK Government advised against all non-essential travel. Mr Khadem, who by then had turned 75 years of age, and who suffers from high blood pressure, decided not to return to UAE. In his first witness statement dated February 2021 filed in these proceedings, he says that due to the global situation he does not think it is likely that he will leave the UK in the near future.
This means that a large charge to UK tax, in the region of 45%, arises on the sum which is the subject of the agreement. It is the claimant's case that had it not made a mistake of fact as to the practice of the UAE in issuing the certificate, it would not have entered into the agreement, but instead would have made some other arrangement. One option would have been to make pension payments to Mr Khadem over a ten year period, leading to less tax being paid depending on his circumstances, or at least to the deferral of the payment of tax, which deferral in itself is of value.
Accordingly, it commenced these proceedings by claim form filed on 29 March 2021 under CPR Part 8. Mr Khadem does not dispute such relief, and his position in these proceedings is no different from that of the claimant. However, HMRC does dispute such relief. It has not applied to become a party to these proceedings, but it has asked that the court's attention is drawn to the contents of a letter dated 8 July 2021 and attachments, which was written by one of its senior lawyers. Accordingly at the hearing of the claim, which was conducted via video platform, Ms Brown appeared on behalf of the claimant and Mr Khadem represented himself. I heard no oral evidence. The claimant relied upon two witness statement from Rachel Pettitt, one of its customer relationship directors, and two from Mr Khadem. I admitted the second witness statement of Ms Pettitt after hearing submissions, to provide an updated version of the plan.
The procedure adopted by HMRC
The procedure which HMRC has adopted in these proceedings has been adopted in previous cases and is the subject of judicial comment. In Wright v National Westminster Bank plc [2014] EWHC 3158 (Ch). Norris J at paragraph 10 said:
“In the circumstances this application proceeds on what is effectively an unopposed basis. But even if the evidence is not challenged the court must still be satisfied that it proves the facts necessary to establish that the jurisdiction is available and that it is appropriate for the court to exercise the jurisdiction and make an order for rescission. The exercise of the jurisdiction involves the court making several discrete value judgments as to seriousness, causative effect and unconscionability. These are matters for the judgment of the court and not for the judgment of the parties. The mere fact that the application is not opposed does not mean that it can be safely assumed that an order for rescission will follow. The jurisdiction to set aside transactions, even of a voluntary nature, is not a collusive remedy.”
In Hartogs v Sequent (Schweiz) AG [2019] EWHC 1915 (Ch) HH Judge Hodge QC, sitting as a judge of the High Court, made similar observations in paragraph 4 of his judgment:
“I wish to make it clear that the court is always willing to consider anything that HMRC may wish to say about claims of this nature, even if it is only in the form of a written letter to be placed before the court by the claimant's own solicitors. In this case I have heard no representations from HMRC. That, however, does not mean that the court will not scrutinise a case of the present kind closely to ensure that the applicable legal principles have been properly addressed and considered.”
More recently the law on this point was summarised by Marcus Smith J in Bhaur and others v Equity First Trustees (Nevis) Limited and others [2021] EWHC 2581. At paragraph 107 he said:
“Even where the claimant's application to set aside a transaction is essentially unopposed, the court must still be satisfied that the claimant has proved the facts necessary to establish that the court has the jurisdiction to set aside the impugned transactions and that it is appropriate for the court to grant relief.”
The grounds upon which HMRC rely on in the present proceedings in setting out in its letter why it says the court should not grant the recission sought are in essence those alluded to by Norris J in Wright as set out above, namely the absence of the necessary factors of seriousness, causative effect and unconscionably.
I shall deal with each of the grounds in turn, but in order to understand them it is necessary to say something more about the advice given to the claimant by RSM and its effect.
The alleged mistake
The advice referred to a statutory direction (the direction) under SI70/488 Double Taxation Relief (Taxes on Income)(General) Regulations 1970, Regulation 2, which provides:
“1) The following provisions of these Regulations shall have effect where, under arrangements having effect under section 497 of the Income and Corporation Taxes Act 1972, persons resident in the territory with the government of which the arrangements are made are entitled to exemption or partial relief from United Kingdom income tax in respect of any income from which deduction of tax is authorised or required by the Income Tax Acts.
(2) Any person who pays any such income (referred to in these Regulations as “the United Kingdom payer”) to a person in the said territory who is beneficially entitled to the income (such...
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