Mr Olaf Rogge v Mrs Sophia Katerina Rogge
| Jurisdiction | England & Wales |
| Judge | Master Henderson |
| Judgment Date | 23 July 2019 |
| Neutral Citation | [2019] EWHC 1949 (Ch) |
| Court | Chancery Division |
| Docket Number | CLAIM No. BL-2018-000909 |
| Date | 23 July 2019 |
[2019] EWHC 1949 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Rolls Building,
Fetter Lane,
London, EC4A 1NL.
DEPUTY Master Henderson
CLAIM No. BL-2018-000909
Oliver Conolly (instructed by Pitmans LLP, subsequently BDB Pitmans LLP), counsel for the Claimants, Edward Waldegrave (instructed by Pitmans LLP), counsel for the 1 st and 2 nd Defendants on 28 th November 2018
Hearing dates: 28 th November 2018, 15 th January 2019
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
DEPUTY Master Henderson
Introduction
This is my judgment on a Part 8 Claim seeking an order setting aside all transfers by the Claimants prior to 27 th November 2015 to the trust known as the Stefan Rogge Discretionary Trust (“the Trust”) and a declaration that the sums transferred to the Trust after 27 th November 2015 are held on resulting trust.
The First Claimant is a 72 year old retired businessman of German nationality, who has been resident in the UK since 1978. He had built up a substantial business, Rogge Global Partners PLC, specializing in fixed income investment, prior to the sale of his majority interest in it in 1988. He continued to run the business after 1998 but reduced his commitment in 2016 to non-executive chairman, which role came to an end on 3 June, 2017.
The Second Claimant, who is 61 years old, is the wife of the First Claimant.
The First and Second Claimants have four children: Sophia, born on 7 September, 1982, who is the First Defendant; Ralph, born on 22 August, 1985, who is the Second Defendant; Stefan, born on 18 October, 1990, who has been joined as the Third Defendant; and Isabella, born on 28 May, 1992.
The First and Second Defendants are two of the four trustees of the Trust. The other two trustees are the First and Second Claimants. The Trust was created by a deed dated 31 March 2011 made between the First Claimant as settlor and the four trustees.
On 5 April, 2009 Stefan, who was then 18 years old, suffered a very serious brain injury (a traumatic external brain injury stage three) while playing polo. Stefan is unable to walk unaided as he has no balance and has problems with sight and speech as well as severe memory problems.
After 15 months' residential treatment in a variety of hospitals and clinics, Stefan and returned to his parents' home in London in July 2010. That property was not suitable to his needs. The First and Second Claimants sold it and purchased two contiguous flats in SW11 in September 2013. One for themselves and one for Stefan, as it was easier for Stefan to live in a flat owing to his need for a wheelchair. The First and Second Claimants moved into one of the flats in order to be available to Stefan whilst also providing him with a degree of independence.
In 2010 the First and Second Claimants were looking for a house to purchase in the countryside which would serve as both a retirement home for them, and a place for their children and possible future grandchildren to visit, with an area designed to meet the needs of Stefan.
In February 2011 the First and Second Claimants identified the property they wished to purchase: Medstead Grange, near Alton (“the Property”).
On advice, the First Claimant created the Trust. The First Claimant settled £4.1 million into the Trust which the Trustees used to purchase the Property.
From the time of purchase of the Property down to 27 th November 2015 the trustees spent £11,600,780 on construction and other works to the Property. From 27 th November 2015 to 30 th November 2016 a further £1,326,563 was spent. The funds for the expenditure down to 27 th November 2015 were provided by or through the Second Claimant because the Claimants thought that by providing them in that way the payments would be more likely to fall out of charge to Inheritance Tax (“IHT”) than if they were provided by the First Claimant.
The claim to set aside the payments is made under the principle authoritatively expounded by the Supreme Court in Pitt v Holt [2013] UKSC 26, [2013] 2 AC 108 under which the court may set aside a voluntary transaction for mistake where the transaction has been effected pursuant to a causative mistake of such gravity as to make it unconscionable for the donee to retain the property.
In paragraphs 14 to 16 of the Particulars of Claim the Claimants aver that the payments, at least down to some time in August to November 2015, were made on the basis of three mistakes:
13.1. That the Gift with Reservation of Benefit Rules (the “GWROB” rules) would not apply despite the Claimants making use of the Property.
13.2. That they did not realise that on Stefan's death an IHT charge at 40% would arise.
13.3. That they did not realise that under the law as it stood in 2011, in the event of Stefan's death there would be an IHT charge on the value of the trust fund, but no corresponding “uplift” for Capital Gains Tax (“CGT”) purposes. This effect was removed by legislation with effect from 5 th December 2013. Stefan is still alive, so this mistake has had no causative effect.
In paragraph 19 of the Particulars of Claim the Claimants identify some additional mistakes which they aver they made in making the transfers. Those are:
14.1. They were mistaken in failing to understand that they would only be able to occupy the property, as they intended, by entering into an arm's length rental agreement with the Trust for the remainder of their lives, such rental agreement having to cover the whole year.
14.2. They were mistaken in failing to understand that such a rental agreement would give rise to an estimated total lifetime expenditure on their part of £3,164,650 (assuming the rent remains constant) giving rise to tax charges on the trustees (assuming that current rates remain at 45% over the first £1,000 and at 20% up to that figure), of £1,416,592.50.
14.3. They were mistaken in failing to appreciate that payment of rent would swell even further the value of the Trust fund in favour of Stefan in a manner which is unfair to his siblings and exacerbates the IHT problem.
14.4. They were mistaken in failing to appreciate that a method of attempting to mitigate the IHT charge (of which they were unaware) by the trustees appointing 50% of trust assets to Stefan's siblings would (a) have adverse consequences (potentially) for IHT should Stefan die within seven years of those transfers (as they would be deemed to be made by him), (b) would reduce the availability of CGT principal private residence relief on future disposals of the Property, (c) would fragment ownership of the Property, (d) would not resolve the GWROB problem, and (e) would only partially mitigate the IHT problem.
In order to for them to be able to use the Property without the GWROB rules having an adverse impact, on 8 th December 2016 the First and Second Defendants took a lease of the Property from the trustees with effect from 1 st September 2015 at an annual rent of £102,000, subject to a 20% discount for the period down to 30 th November 2016 and to future review. This rent is taxable at 45% in the hands of the trustees.
Procedure and Parties
The Claimants do not seek to set aside the Trust. They seek an order setting aside the transfers by them of sums into the Trust and a declaration that sums paid by the First Claimant to the trustees after 27 th November 2015 are held on resulting trust for him. As their case developed, they also came to seek an order requiring the trustees to transfer the Property to them. Accordingly the claim comes within the scope of CPR 19.7A as a claim which “may be brought” “against trustees” “without adding as parties any persons who have a beneficial interest in the trust” (“the beneficiaries”). By CPR 19.7A(2) any judgment or order given or made in a claim within the rule is binding on the beneficiaries unless the court orders otherwise in the same or other proceedings. CPR 19.7A(2) may be invoked by an interested beneficiary who can show that the trustees did not in fact represent him.
Initially the Part 8 Claim was supported by the following witness statements:
17.1. A statement of the First Claimant dated 20 th December 2017 with substantial exhibits.
17.2. A statement of the Second Claimant dated 27 th December 2017 with exhibits.
17.3. A statement of Mr Anthony Broom dated 19 th December 2017 with exhibits. Mr Broom is a chartered accountant and had provided accountancy advice and services to the First Claimant for many years.
In the bundles for the initial hearing there were also copies of:
18.1. The property register for Flat 2, Parkgate House.
18.2. A letter of claim to Taylor Wessing dated 23 rd December 2016. Taylor Wessing was the firm which had acted for the First Claimant in relation to the creation of the Trust.
18.3. Taylor Wessing's response dated 14 th April 2017.
18.4. Letters to HMRC dated 2 nd and 14 th November 2018. The 2 nd November 2018 letter put HMRC on notice of the claim and asked them if they wished to be parties. The 14 th November 2018 letter was a chaser.
Subsequently there were filed:
19.1. A statement by Ms Collings of the Claimants' solicitors dated 14 th January 2019 dealing with Stefan's capacity, his joinder and the appointment of a litigation friend for him.
19.2. A Supplemental Statement of the First Claimant dated 9 th January 2019.
At the hearing on 28 th November 2018 the then Defendants (two of the four trustees of the Trust) were represented by Mr Waldegrave of counsel.
At some date before 28 th November 2018 the Claimants and...
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