Nicola Suzanne Mackay v David Stuart Wesley
| Jurisdiction | England & Wales |
| Judge | Henderson |
| Judgment Date | 18 May 2020 |
| Neutral Citation | [2020] EWHC 1215 (Ch) |
| Docket Number | CLAIM No.BL-2019-001417 |
| Court | Chancery Division |
[2020] EWHC 1215 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
BUSINESS LIST (Ch D)
Royal Courts of Justice,
Rolls Building,
Fetter Lane,
London, EC4A 1NL.
DEPUTY MASTER Henderson
CLAIM No.BL-2019-001417
Thomas Chacko (instructed by Charles Russell Speechlys) for the Claimant; no representation for the Defendant
Hearing Date: 22 nd January 2020
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 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of the Ellen Morris 1990 Settlement (“the Settlement”) pursuant to a Deed of Appointment dated 19 th March 2003 be rescinded.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 1/2 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 Claimant's evidence. If HMRC wished to do that, they should have applied to be joined as a party so that they could put in their own evidence (if any) and cross-examine the Claimant and her witnesses. In the absence of any challenge by way of cross-examination, I cannot disregard the Claimants' evidence. Nor can I treat it as untrue unless it conflicts with some other clear evidence – which it does not.
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:
13.1. Undue influence.
13.2. Mistake.
13.3. Lack of capacity.
13.4. Non est factum.
The evidence
The Claim and the application were supported by two witness statements made by the Claimant; one made by the Claimant's husband (“Mr Mackay”) and one made by the Claimant's sister. There are copies of exhibits and other documents in the hearing bundle, including two statements made by the Defendant in the Tribunal proceedings.
The facts
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 (“Mrs Leslie Wesley”), the Claimant, her husband and the Claimant's sister, Kathryn.
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) (“Abacus”). It took advice from the accountancy firm PWC in London. In the light of that advice Abacus decided to embark on what was called a “Round the World” CGT tax avoidance scheme. The arguments which were advanced before the FTT were not put to me. What follows in respect of how the scheme was intended to work from a tax perspective is my understanding based on the documents before me and the explanation of Round the World schemes in the Court of Appeal's judgment in Smallwood v. HMRC [2010] EWCA Civ 778.
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:
22.1. Mauritius did not tax capital gains.
22.2. Mauritius had entered into a double taxation agreement with...
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