Timothy Keith Herring and Another v Shorts Financial Services LLP
| Jurisdiction | England & Wales |
| Judge | Judge Behrens |
| Judgment Date | 09 May 2016 |
| Judgment citation (vLex) | [2016] EWHC J0509-1 |
| Court | Queen's Bench Division (Administrative Court) |
| Date | 09 May 2016 |
| Docket Number | Case No: B03LS |
[2016] EWHC J0509-1
IN THE COUNTY COURT AT LEEDS
The Court House
Oxford Row
Leeds LS1 3BG
His Honour Judge Behrens
Case No: B03LS
Michael O'Sullivan (instructed by Irwin Mitchell LLP) for the Claimants
Scott Allen (instructed by Clyde & Co LLP) for the Defendant
Hearing dates: April 26 – 27 2016
Approved Judgment
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.
Judge Behrens Mrs Shemwell died on 2 June 2012 aged 86. She was a widow who had no children or other close relations. She was also relatively wealthy with an estate worth approximately £2 million.
On 8 November 2011 she executed a will ("the 2011 will") which was drafted for her by Mr Woodhead, the probate partner at BRM Solicitors ("BRM") a firm of solicitors in Chesterfield. Under the terms of that will she made a number of pecuniary legacies including legacies of £54,000 each in favour of the Claimants, Claire Hartley and Tim Herring, who were the children of her late husband's niece.
Mr Sully was an employee of the Defendant. He had been Mrs Shemwell's financial advisor since October 2000 and had given her financial advice regularly since that date. In April 2011 Mrs Shemwell inherited some £300,000 as a result of her sister's death.
In order to mitigate the Inheritance Tax payable on her death, acting on Mr Sully's advice Mrs Shemwell set up 2 trusts in favour of the Claimants in August 2011. One was a discretionary trust which named the Claimants as the sole discretionary objects. Mrs Shemwell invested £175,000 in this trust. £175,000 was the maximum remaining to her in respect of her nil rate IHT band. If she had paid any more there would have been an immediate IHT charge of 20% of the excess. The remaining £125,000 was invested in a loan trust which also named the Claimants as the sole discretionary beneficiaries. Under a loan trust the capital is loaned to the trustees and is repayable on demand. It is also repayable on death with the result that it falls into the estate. Any capital growth however is outside the trust and thus is available for the beneficiaries. It was plainly less effective than an outright discretionary trust as a means for saving IHT. However, it did not incur the immediate 20% charge which Mrs Shemwell was unwilling to pay. It also gave Mrs Shemwell an element of control over the £125,000.
Mr Sully explained the workings of the loan trust at a meeting on 27 July 2011 and in a letter which he sent to her on 2 August 2011. It is the Claimant's case that the explanation provided by Mr Sully was inadequate and that Mrs Shemwell did not understand that on her death the loan would form part of her estate.
Mrs Shemwell gave Mr Woodhead initial instructions in relation to the 2011 will at a meeting at her home on 21 October 2011. It is not in dispute that Mr Sully was invited to attend that meeting by Mrs Shemwell. Mr Sully says that he was invited to attend to provide a valuation of the trust assets. (In addition to the trusts set up in 2011 Mrs Shemwell had set up discounted gift trusts in 2005 and 2007 which named her late husband's business partner and her close friend, Mr Terry, as the beneficiary. These trusts accounted for the remaining £150,000 of Mrs Shemwell's nil rate band.)
It is common ground that Mr Sully was only at the meeting for a short time – less than 10 minutes. Mr Sully says that he provided Mrs Shemwell with a 5 page document which contained an up to date valuation of the assets which were the subject of the trust. After showing her the document he handed it to Mr Woodhead. He was then asked to leave by Mrs Shemwell. It is common ground that he left before there was any discussion about the proposed terms of the 2011 will.
There is a dispute as to precisely what Mr Sully said about the investments. Mr Woodhead believes that Mr Sully described "in broad terms" the level of Mrs Shemwell's investments and that he used the expression "lifetime gifts" to describe the trusts in favour of the Claimants. Mr Sully accepts that he went through the investments with Mrs Shemwell and might have done so with Mr Woodhead. He does not accept that he used the expression "lifetime gifts".
Mr Sully had prepared for himself a single sheet of paper on which he had written various details about the trusts. He described this piece of paper as an aide – memoire for his own use in case he was asked questions by Mr Woodhead at the meeting. The aide – memoire is central to the allegations in the case and it will be necessary to refer to it in detail later in the judgment. The Claimants contend that a fair reading of the aide – memoire indicated that £146,472 was held for each of them under the trusts. For a variety of reasons the Defendant does not accept that.
The figure of £146,472 includes the valuation of the assets in the loan trust. As already explained the capital loaned to that trust reverted to Mrs Shemwell's estate on her death.
In any event it is common ground that before he left Mr Sully handed the aide – memoire to Mr Woodhead.
After Mr Sully had left Mrs Shemwell gave Mr Woodhead instructions in relation to the 2011 will. Initially she said that she wished to increase the amount that Claimants would receive to £175,000. Later, on 31 October 2011, she increased this to £200,000.
Mr Woodhead made no enquiries as to the terms or the nature of the trusts. Instead he included legacies of £54,000 for each of the Claimants in the will that he drafted. Thus he did not devise a formula to ensure that they each received £200,000, and did not check that under the terms of the trusts that the moneys held on trust would pass to the Claimants on Mrs Shemwell's death.
Following Mrs Shemwell's death the Claimants did not receive the full £200,000 that Mrs Shemwell intended them to receive under her will. They did receive the £54,000 and the moneys in the discretionary trusts. They did not however receive any part of the initial capital of the loan trust as it fell into the residuary estate.
In these proceedings the Claimants seek to recover the shortfall. Initially they instituted proceedings solely against the Defendant alleging negligence by Mr Sully both in respect of the explanation given in July and August and in respect of what happened at the meeting on 21 October 2011. Later they joined BRM as additional Defendants alleging negligence by Mr Woodhead. The claim against BRM has been compromised following a mediation in December 2015.
The claim against the Defendant is pursued. It is defended on a number of grounds. In particular it is alleged that Mr Sully did not owe a duty of care to the Claimants, and that, in any event, he was not negligent. This case is distinguishable on a number of grounds from cases where solicitors or other financial advisors have been held liable to disappointed beneficiaries.
The facts
I have set out the core facts in the Introduction and I shall not repeat them. However there are a number of areas where it is necessary to provide additional details.
The people involved
Mrs Shemwell
Mrs Shemwell was born on 17 February 1926. She was married to Jack Shemwell who was a partner in a local estate agency who died in 1997. There were no children and, after the death of her sister in May 2009 no close relatives.
She is described by Mr Sully as articulate, intelligent plain speaking and really good company. He had no doubt that she was mentally alert and had a good grasp of everything they discussed. Mr Woodhead described Mrs Shemwell as "a sharp woman who came across as no fool".
Mrs Shemwell had used the services of solicitors from time to time. Until 2009 she had used Stanton and Walker. In 2009 that firm merged with BRM. The person who dealt with her affairs was Alan Borman who retired in 2010.
Mr Woodhead first had contact with Mrs Shemwell when dealing with the estate of her sister Louisa Haag. However he did not meet her until the meeting on 21 October 2011.
Mrs Shemwell suffered from a number of physical disabilities. These included arthritis which affected her mobility and diabetes.
Mr Sully first dealt with Mrs Shemwell in October 2000 and had regular contact with her. He would visit her approximately every 2 months to give financial advice and there would be telephone calls between these times. He described the relationship as close. From time to time he would assist her with tasks such as changing lightbulbs. There is no doubt that she trusted him in relation to the giving of financial advice.
She died on 2 June 2012 following a heart attack after an operation for a total hip replacement. Her death was unexpected.
Mr Woodhead
Mr Woodhead is a Director of BRM. Since 2000, he has been the head of the Wills and Probate Department at BRM and has specialised only in Wills and Probate work since this time. He has substantial Will writing experience and has written thousands of Wills over the years. He also deals with estate administrations and has extensive experience in these matters.
As already noted he took over the administration of Mrs Shemwell's sister's estate in 2010 and first met Mrs Shemwell at the meeting in October 2011.
Mr Sully
Mr Sully is a Chartered Financial Adviser employed by the Defendant. After leaving school in 1983 he worked as a commercial underwriter for 2 years, and as a consultant for Standard Life for 11 years. He joined the Defendant as a financial adviser in 1998. He works mainly with personal clients dealing with their needs in terms of investments, pensions, protection insurance...
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