Rind v Theodore Goddard
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE MORGAN,Mr Justice Morgan |
| Judgment Date | 11 March 2008 |
| Neutral Citation | [2008] EWHC 459 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: HC07C01375 |
| Date | 11 March 2008 |
[2008] EWHC 459 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Morgan
Case No: HC07C01375
Michael Soole QC (instructed by Dechert LLP) for the Claimant
Paul Parker (instructed by Reynolds Porter Chamberlain LLP) for the 1 st Defendant
Edwin Johnson QC (instructed by Williams Holden Cooklin Gibbons LLP) for the 2 nd,3 rd & 4 th Defendants
Approved Judgment
Hearing dates: 17 th, 18 th & 21 st January 2008
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.
Introduction
In these proceedings, the Claimant's claim is for damages against two firms of solicitors for alleged negligence in relation to advice given and transactions entered into in the period 1985 to 1992. The Defendant solicitors have applied for a summary determination of these proceedings and this judgment deals with the many issues which arise on their applications.
The facts
In this section of the judgment I will set out the facts which are either common ground or are to be assumed for the purposes of the application for a summary determination of the claim.
The Claimant's mother was Mrs Sylvia Rind (“Mrs Rind”). Mrs Rind had two children, the Claimant and the Claimant's sister, Mrs Barbara Maister (“Mrs Maister”).
In 1965 Mrs Rind became the freehold owner of an office building known as Little Adelphi, situated to the south of the Strand, London WC2.
On 21 st July 1986, Mrs Rind wished to make a gift of the freehold of Little Adelphi to the Claimant. The way in which the gift took effect was that Mrs Rind transferred the legal title of the property to Goddard Nominees (Jersey) Limited who held the legal title as nominee for the Claimant.
On 22 nd July 1986, the Claimant transferred his beneficial ownership of the property to St James's Properties Limited, in exchange for 5000 shares in that company. Goddard Nominees (Jersey) Limited then held the property as nominee for St James's Properties Limited.
On 19 th September 1986, the Claimant, as settlor, created a discretionary settlement known as the Phi Settlement. The potential beneficiaries under the discretionary settlement were any child of Mrs Rind (i.e. the Claimant and his sister Mrs Maister) and the spouses, widows, widowers, children and remoter issue of any child of Mrs Rind.
On 21 st September 1986, the Claimant transferred his 5000 shares in St James's Properties Limited to the trustees of the Phi Settlement. At that stage therefore the property was owned freehold by Goddard Nominees (Jersey) Limited as nominee for St James's Properties Limited and 5000 shares in St James's Properties Limited were vested in the trustees of the Phi Settlement.
The gift made on 21 st July 1986 by Mrs Rind of Little Adelphi gave rise to a Capital Gains Tax liability of a sum in excess of £2 million. This sum was payable by Mrs Rind. To enable her to pay this sum she borrowed an equivalent amount from Royal Trust Bank (Jersey) Limited (“the Bank”). The Bank's loan to Mrs Rind was secured on Mrs Rind's home in London N2 and was further secured by a charge granted by Goddard Nominees (Jersey) Limited overits freehold interest in Little Adelphi. This charge was granted in around June 1988.
In January 1989, Goddard Nominees (Jersey) Limited as freehold owner of Little Adelphi sold the property for a substantial sum. The Bank released the charge granted by Goddard Nominees (Jersey) Limited to enable the sale to take place. The Bank obviously wanted a replacement security for the charge which it had agreed to release. The replacement security was in respect of a cash deposit account held by Goddard Services SA as nominee for the trustees of the Phi Settlement. The amount of the account was equivalent to the amount of the loan then owing by Mrs Rind to the Bank. The account holder was changed to Goddard Nominees (Jersey) Limited in 1994.
Following the sale of Little Adelphi, relations between the Claimant and his sister Mrs Maister deteriorated. In 1992, the trustees of the Phi Settlement considered whether steps might be taken to restructure the Phi Settlement in the light of the differences between the Claimant and Mrs Maister. The trustees decided to divide the assets of the Phi Settlement into three equal parts. One third was to be appointed outright to a nominee for the Claimant. One third was to be appointed to the trustees of a new settlement for the benefit of the Claimant and any issue which he might have and for the benefit of the trustees of the Phi Settlement. The remaining one third would be retained within the Phi Settlement and the Claimant would be excluded from benefit in relation to that one third. Appointments to give effect to these decisions were made by deeds dated 27 th July 1992. There was also a resolution by the trustees of the Phi Settlement on the 13 th July 1992 which they confirmed in writing on the 21 st September 1992 whereby it was resolved that the appointment of one third of the assets of the Phi Settlement for the benefit of the Claimant should include the benefit of the cash account which was held as security for the loan to Mrs Rind. It seems that the validity of the documents drafted to give effect to the decisions of the trustees of the Phi Settlement were questioned by Mrs Maister and persons connected with her in litigation instigated in around July 1992. In that litigation, on 24 th July 1992, the Royal Court of Jersey granted Mrs Maister and others a Mareva injunction prohibiting any dealing with any assets of the Phi Settlement.
The Mareva injunction was modified at the end of May 1995. On the 1 st June 1995 the trustees of the Phi Settlement executed an irrevocable deed of appointment by which cash sums were appointed to a nominee for the Claimant and to Mrs Maister. The main sum appointed by the trustees of the Phi Settlement represented the balance on the cash deposit account. On 2 nd June 1995, the nominee for the Claimant and Mrs Maister repaid Mrs Rind's loan to the Bank and took an assignment of the debt secured by Mrs Rind's loan and the benefit of the security over Mrs Rind's home.
Mrs Rind died on 10 th September 2000. Her last will was a will dated 15 th September 1989. By that will, Mrs Rind made a large number of specific gifts of various kinds and left her residuary estate on trust for the Claimant and Mrs Maister equally. The executors named in the will renounced probate and the Claimant and Mrs Maister were granted letters of administration, with will annexed, on 14 th June 2001.
An IHT 200 form was completed by the Claimant and Mrs Maister and submitted to the Inland Revenue in April 2001. Certain items were omitted from the form or were insufficiently explained to the Inland Revenue.
In May 2004, BDO Stoy Hayward LLP (“BDO”) were instructed to make a full voluntary disclosure to the Inland Revenue of all matters relevant to the taxation affairs of the estate of Mrs Rind. On 12 th November 2004, BDO prepared a lengthy report which was provided to the Inland Revenue dealing with those taxation affairs. The BDO report set out a summary of the relevant transactions and considered the correct treatment for IHT purposes of the transactions relating to Little Adelphi. Although, on the face of it, Mrs Rind had transferred the freehold of Little Adelphi in July 1986, which was more than seven years before her death in 2000, BDO considered whether there had been a reservation of benefit by Mrs Rind as a result of some of the transactions to which I have referred.
BDO considered it was “arguable” that the security provided in June 1988 by Goddard Nominees (Jersey) Limited over the freehold of Little Adelphi was not a reservation of benefit by Mrs Rind. However, BDO accepted for the purpose of a settlement with the Inland Revenue that there was a sustainable argument that those circumstances created a reservation of benefit by Mrs Rind over the freehold property as contemplated by paragraph 5(3) of Schedule 20 to the Finance Act 1986. Paragraph 5(3) of Schedule 20 provides that property settled by the donee may be equated with the subject matter of the original gift.
BDO then referred to the fact that the original charge over the freehold property was replaced by a charge on the cash deposit account and they referred to the fact that the balance of the deposit account was increased in order to meet the interest liability of Mrs Rind to the Bank, on account of the fact that she did not pay this interest but it was added to the indebtedness. BDO concluded that from 1989 until 1992 Mrs Rind had a reservation of benefit over the entire assets of the Phi Settlement.
BDO then referred to the events of July 1992 and the obtaining of the Mareva injunction which prohibited any dealing with the assets of the Phi Settlement. They advised that the security provided to the Bank by the charge on the cash deposit account was ring fenced at an amount equivalent to the balance of the account at the date of the injunction. They further advised that the reservation of benefit was thereby limited to the value of the account at that point in time and any purported reservation of benefits ceased to extend to the entire assets of the Phi Settlement. The effect was that the cesser of reservation of benefit in respect of the remainder of the assets in the Phi Settlement constituted a Potentially Exempt Transfer (PET) in accordance with section 102(4) of the Finance Act 1986. As Mrs Rind died more than seven years after this PET, no IHT...
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