Ogden v Trustees of the RHS Griffiths 2003 Settlement
| Jurisdiction | England & Wales |
| Judge | Mr Justice Lewison |
| Judgment Date | 25 January 2008 |
| Neutral Citation | [2008] EWHC 118 (Ch) |
| Docket Number | Case No: 7BM30102 |
| Court | Chancery Division |
| Date | 25 January 2008 |
[2008] EWHC 118 (Ch)
Mr Justice Lewison
Case No: 7BM30102
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
BIRMINGHAM DISTRICT REGISTRY
Birmingham District Registry
33 Bull Street
BS4 6DS
Mr. Robert Grierson (instructed by Laceys Solicitors) for the Claimants.
Mr. Paul Burton (instructed by Laceys Solicitors) for the Seventh, Eighth and Ninth Defendants.
Hearing dates: 24 th, 25 th January 2008
The late Mr Ronald Griffiths was born on 5 March 1929. During his lifetime he had acquired a number of substantial assets. These included a half share in the matrimonial home at 25 Rothesay Road Bournemouth, and a valuable shareholding in a company called Iota Properties Ltd which owned a number of investment properties. In January 2003, then aged 73, Mr Griffiths and his wife Barbara took advice about tax planning in order to mitigate what would otherwise be the effect of inheritance tax on his death. Barbara Griffiths was a year younger than her husband. Tax consultants, WJB Chiltern, produced a comprehensive report, running to more than 50 pages, on the options open to him. Most of the options involved the making of potentially exempt transfers, that is to say a transfer made more than seven years before the transferor's death. The report was carefully thought out so far as the tax consequences of the various options were concerned.
Their report dealt with the different assets of substantial value in different sections. So far as the shares in Iota Properties Ltd were concerned they suggested the creation of a short term discretionary trust of the shares with reverter to settlor, and a subsequent assignment of the settlor's reversionary interest to trustees. Although the creation of the discretionary trust would be a chargeable transfer for inheritance tax, if Mr Griffiths were to follow this advice and survive the subsequent assignment by seven years then the value of the reversionary interest in the shares transferred by the assignment would fall out of his estate for inheritance tax purposes. The report also went on to consider what would happen if Mr Griffiths failed to survive the transfers by seven years. It pointed out that a reduced rate of inheritance tax would be payable if he died within 3 to 4 years of the transfers and a still further reduced rate if he died after that but before the seven years were up. So far as 25 Rothesay Road was concerned, the report recommended the creation of a deferred lease in favour of trustees. A deferred lease is a lease whose term is limited to begin at a future date. So the idea was that Mr and Mrs Griffiths would retain the right to continue to live in their matrimonial home, but that they would lose that right once the term of the deferred lease began to run. The deferred lease would also be a potentially exempt transfer, and if Mr and Mrs Griffiths survived the grant by seven years the value of the lease would fall outside their respective estates for inheritance tax purposes.
The final recommendation of the report was that Mr and Mrs Griffiths take out seven year term insurance in relation to those ideas that relied for their effectiveness on Mr and Mrs Griffiths surviving for between three and seven years.
Mr Griffiths decided to follow up some of the recommendations. On 7 April 2003 he transferred 4,897 shares in Iota Properties into a newly created trust called the RHS Griffiths 2003 Settlement. Clause 4 of the settlement provided for discretionary trusts of the income from the shares for a period of 10 months from 7 April 2003. At the expiry of that period there was to be a reverter to the settlor. The value of this transfer was of the order of £83,000. On the following day, 8 April 2003, Mr and Mrs Griffiths jointly granted a deferred lease of their matrimonial home to themselves and their two children to be held on the terms of a trust embodied in the 25 Rothesay Road Settlement. Mr and Mrs Griffiths' two children have life interests under that settlement. The value of this transfer was of the order of £280,000. In the following year, shortly before the expiry of the discretionary trust period, on 3 February 2004 Mr Griffiths transferred his reversionary interest in the shareholding in Iota Properties to the trustees of the newly created Griffiths Family Trust. This was the most valuable of the assets transferred into the various trusts. Its value is of the order of £2,644,000.
Unfortunately in the autumn of 2004 Mr Griffiths was diagnosed as having lung cancer; and he died on 17 April 200Since Mr Griffiths had not survived for more than three years since the transfers were made all of the three transfers by Mr Griffiths are chargeable transfers for inheritance tax and subject to taxation in accordance with section 7 of the Inheritance Tax Act 1984. The tax payable therefore exceeds £1 million. Mr Griffiths also made a will under which he left a life interest in his residuary estate to his widow. Any assets in which she takes an interest under the will do not attract inheritance tax. If, therefore, Mr Griffiths had not made the transfers, there would be no inheritance tax immediately payable.
The claimants, as Mr Griffiths' executors, now seek to set aside the transfers on the ground that they were made under a mistake and that equity will set aside a voluntary transfer in such circumstances. The relevant mistake on which they rely is that Mr Griffiths mistakenly believed, at the times of the transfers, that there was a real chance that he would survive for seven years whereas in fact at that time his state of health was such that he had no real chance of surviving for that long. Had he known that his life expectancy was so short, he would not have made the transfers and so they should be declared void or set aside. There are two relevant times: first, April 2003 and second, February 2004. HM Revenue & Customs have been asked whether they wish to intervene in these proceedings in view of the large amount of tax potentially involved. They have declined to do so, but have asked for certain authorities to be brought to my attention. Mr Grierson, who appears for the executors, has complied with that request. None of the other parties opposes the relief sought. There has therefore been no adversarial argument either on the law or on the facts.
For some years before the transfers Mr Griffiths had been suffering from severe rheumatoid arthritis. It was effectively controlled by drugs, mostly immuno-suppressants and steroids. He had been a smoker, but had given up in 1992. However, in October 2004 an abnormality was discovered in his left lung. Tests were carried out and they revealed a non-small cell lung cancer. In the following month it was discovered that there were suggestions of metastasis. Dr Laurence, the consultant oncologist, thought that in view of his long-standing rheumatoid arthritis, as well as recent illness, he was not fit for any form of systemic treatment. She therefore organised a short course of palliative radiotherapy to stop the recurrence of chest infections. She added in her letter to Mr Griffiths' GP, Dr Flack:
“I have explained that any form of systemic treatment would definitely cause deterioration in his quality of life. We did not put a time-scale on his prognosis, but he is aware that the illness will be fatal in due course.”
By March 2005 the cancer was well advanced; and no further active treatment was planned.
Neither Dr Flack nor Dr Laurence have given evidence or made witness statements. However, both have expressed their views in correspondence.
In her letter of 4 May 2006 Dr Laurence said:
“I am afraid it would not be possible to estimate when the lung cancer first occurred as this is a very varying feature and depends upon the natural biology of the tumour. …I think it would be impossible to tell you when the cancer actually arose although it is likely that it arose within at least the six months prior to his diagnosis. One certainly couldn't say that it was present before this, although we do know that some cancers have a long natural history. The cancer at diagnosis was known to be in its advanced stage and treatment was palliative in nature. The average survival from diagnosis to death in a patient with this stage of disease is approximately six months. Mr Griffiths therefore fell into the average time scale from diagnosis to death. He was not felt to be terminal at diagnosis, but was not fit enough for any form of radical treatment and thus the minimum and maximum survival periods following palliative treatment tends to be of an order of weeks through to a maximum of one to two years. Only 10% of patients survive the one-year mark and a few per cent may survive to two years.”
In her letter of 10 June 2006 Dr Laurence said:
“I have already stated that it is not possible to tell you when the cancer actually arose and although it was likely that he had cancer in February 2004, it is impossible to be precise about this, or to give you a percentage likelihood.”
In her letter of 14 July 2006 Dr Laurence said:
“… it is impossible for me to comment as to whether or not Mr Griffiths had cancer present in either April 2003 or April 1999.”
In his letter of 7 August 2006 Dr Flack said:
“Having carefully examined Mr Griffiths' records, I can find no evidence that he had a chest x-ray in the period between April 1999 and 29 th...
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