Lake v Lake and Others
| Jurisdiction | England & Wales |
| Judgment Date | 06 October 1989 |
| Date | 06 October 1989 |
| Court | Chancery Division |
Chancery Division.
Mervyn Davies J.
Mr. Arthur Jefferis (instructed by Brewers) for the plaintiff.
Mr. Mark Studer (instructed by Brewers) for the first four defendants.
Mr. Piers Feltham (instructed by McNeil & Co.) for the minor defendant.
The following cases were referred to in the judgment:
Butlin's Settlement, Re ELR[1976] Ch. 251.
Colebrook's Conveyances, Re; Taylor v. Taylor WLR[1972] 1 W.L.R. 1397.
Hanley v. Pearson ELR(1879) 13 Ch.D. 545.
Russell & Anor. v. I.R. Commrs. WLR[1988] 1 W.L.R. 834.
Seymour & Anor. v. Seymour TAX[1989] BTC 8043.
Sherdley v. Sherdley WLR[1986] 1 W.L.R. 732.
[1986] BTC 220. (C.A.)
[1987] BTC 273 (H.L.).
Slocock's Will Trusts, Re UNK[1979] 1 All E.R. 358.
Whiteside v. Whiteside & Ors. ELR[1950] Ch. 65.
This was an application by originating summons to rectify a deed of family arrangement varying a will within two years of the testator's death.
Mr. Lake ("the testator") was the husband of the plaintiff. He died on 28 November 1986. By his will the residue of his estate amounting to over £600,000 was given to the plaintiff for life and then in quarter shares to his four children.
No tax was payable but since the plaintiff was of advanced years and had further property of her own worth about £200,000 there was a likelihood of there soon being a claim for inheritance tax on the aggregate of the plaintiff's estate, most of which would attract tax at 60 per cent.
Accordingly it was decided to take advantage of the Inheritance Tax Act 1984 section 142Inheritance Tax Act 1984, sec. 142 and the Capital Gains Tax Act 1979 section 49Capital Gains Tax Act 1979, sec. 49. A deed of variation dated 22 February 1987 ("the first deed") was executed providing that the testator's dispositions should be varied by way of family arrangement with effect from the date of his death giving specific legacies to his children and grandchildren which were mistakenly expressed to be "free of tax".
It was supposed that with the deed executed, about £94,000 would be payable in tax. That sum was raised by using a provision in the will enabling capital sums to be advanced to the plaintiff. The plaintiff divided £94,000 in equal shares among the beneficiaries who were to take the released assets. The beneficiaries then paid the tax thought to be due on the basis that the specific legacies bore their own tax. However, it became apparent that the words in the deed of variation, "free of tax", caused the specific benefits given by the deed to be grossed up and the liability to pay the grossed up amount would fall on the plaintiff.
A second deed dated 29 September 1987 was therefore executed in the same terms as the first except that the gifts were stated to be "not free of tax".
After the decision of Knox J. in Russell & Anor. v. I.R. Commrs.TAX[1988] BTC 8041, which held in effect that a variation which merely varied an earlier variation of a will did not fall within sec. 142, the Revenue claimed tax in the sum of £239,738.
The plaintiff therefore sought an order to rectify the first deed by deleting the words "free of tax" and substituting the words "such gifts to bear their own tax" with a view to submitting the rectified deed to the capital taxes office thus achieving a reduced tax liability. A declaration was also sought that the expression in the second deed, "not free of tax" was to be interpreted as a direction that the legacies were to bear their own tax.
Held, granting rectification of the deed:
1. The evidence showed that when the first deed was executed, there was never any intention that the assets released by the deed should go to the beneficiaries free of tax. The way in which the amount of tax thought to be due was paid permitted of no other conclusion than that the assets should bear their own tax. (Re Colebrook's Conveyances;Taylor v. Taylor WLR[1972] 1 W.L.R. 1397, Re Slocock's Will Trusts UNK[1979] 1 All E.R. 358 and Seymour & Anor. v. SeymourTAX[1989] BTC 8043 followed.)
2. The absence of an adversarial issue was not a bar to rectification. (Dictum of Sir John Donaldson M.R. in Sherdley v. Sherdley TAX[1986] BTC 220 at p. 226 and Seymour & Anor. v. Seymour followed.)
3. The words "not free of tax" were to be construed as meaning that the legacies should bear their own tax.
Mervyn Davies J.: This is an originating summons seeking an order to rectify a deed of variation dated 22 February 1987. The parties to that deed are Mrs. Betty Shilson Lake of the one part and William Dale Shilson Lake, Simon Charles Lake and Elizabeth Jane Shilson Isaac ("the trustees") of the other part. Mrs. Betty Lake is the plaintiff. There are five defendants. They are the three trustees and, as well, Mr. David Lake and Mr. Michael Lake, a minor. Mrs. Betty Lake is the mother of the three trustees. David Lake is the son of W.D.S. Lake and Michael is the son of Simon Charles Lake.
The originating summons, as finally amended, seeks the following relief:
1. That the abovementioned Deed of Variation dated 22 February 1987 and made between the plaintiff of the one part and the first three named defendants of the other part may be rectified by deleting the words "free of tax" in clause 1 thereof and substituting therefor the words, "such gifts to bear their own tax", (so that the gifts in clause 1 thereof should bear their own tax).
1A. That upon the true construction of a Deed (hereinafter called "the second Deed") dated 29 September 1987 and made between the plaintiff and the first, second and third defendants and in the events which have happened it may be determined whether the expression "not free of tax", as the same is used in clause 1 of the second Deed, is to be interpreted as a direction that the legacies thereinafter referred to were to bear their own tax.
Leonard Charles Lake ("the deceased") was the plaintiff's husband and the father of the trustees. He died on 28 November 1986 leaving a will dated 29 April 1981. The will was proved in the District Probate Registry at Bristol on 30 January 1987 by the executors named therein, that is to say by his three children, the trustees. The provisions of the will so far as now material are as follows:
(2) Clause 5 is in these terms:
5. I give (free of tax) to my said son Simon Charles Lake assets up to the sum of £50,000 employed in connection with my business as an Underwriting Member of Lloyd's and whether comprising deposits or reserves established in connection with that business or otherwise together with the net profits (after deduction of any losses) of the said business payable to my estate following my death absolutely.
(3) Clauses 6 and 7 then create a trust for sale over the deceased's residue.
(4) Clauses 8 and 9 are as follows:
8. My trustees shall out of the moneys to arise from the sale calling in and conversion of or forming part of my said real and personal property pay my funeral...
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