Tom Bainbridge and Another v Peter Bainbridge
| Jurisdiction | England & Wales |
| Judge | Master Matthews |
| Judgment Date | 22 April 2016 |
| Neutral Citation | [2016] EWHC 898 (Ch) |
| Docket Number | Case No: HC-2015-001455 |
| Court | Chancery Division |
| Date | 22 April 2016 |
[2016] EWHC 898 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Master Matthews
Case No: HC-2015-001455
Laurent Sykes QC (instructed by Endeavour Partnership) for the Claimants
Introductory
These are the reasons for my decision in the second part of this claim, concerning land known as Harkers Hill and Fox Covert. The first part of the claim concluded with my decision, given together with oral reasons, at the hearing on 25 September 2015, to rescind (set aside) on the grounds of mistake the transfer of land known as Seamer Grange Farm to trustees of a discretionary trust created by a trust deed of 24 June 2011.
In English law, the term 'rescission' is used (together with cognate expressions) to denote a number of quite different legal processes. In this short judgment, however, I use it exclusively to refer to the equitable remedy available in appropriate circumstances to undo (or set aside) otherwise consensual transactions between two or more parties where there is a factor or element vitiating consent. Examples of such factors are misrepresentation, undue influence, duress and mistake. In this case I am concerned only with mistake. The English law in this area was recently and authoritatively stated by the Supreme Court in Pitt v Holt [2013] 2 AC 108.
The original claim
The original claim arose in this way. The Claimants, who were father and son, farmed together in partnership. They were, or may have been, concerned about a number of matters, including possible claims from the other children of the father on his death, and a possible claim from the son's wife on divorce. They say that their then solicitors advised them to create a discretionary trust of the land, and that they also advised that there would be no capital gains tax chargeable on the transfer of the partnership land into that trust. The solicitors were and are not party to the claim, and they have not been heard, either in the original or the amended claim. But certainly in correspondence they denied both giving the advice and liability at all.
The trust was created, with the Second Claimant, his son (the Defendant) and a partner in the firm of solicitors as the original trustees. The transfers of the partnership land to the trustees took place on 24 June 2011. Unfortunately for all concerned, capital gains tax was exigible on the transfers: more than £200,000, plus interest and possible penalties. The effect on the Claimants was described as "crushing".
The land at Seamer Grange Farm had been in the name of the First Claimant, but appears to have been partnership property. Both Claimants (being partners in the farming partnership) made a claim to set aside the transfer into trust. As stated, the sole Defendant was the son of the Second Claimant and the grandson of the First Claimant. He was one of the trustees, and also (since the date of the trust) a partner in the farming business. He consented to the relief sought. The solicitor trustee was not however a party. Given that the former solicitors were not involved, and that the sole Defendant consented, it was necessary to be careful. I read the considerable written evidence, and also heard oral evidence from the son. The grandson was present, although not legally represented, but did not ask any questions.
Counsel for the Claimants, Laurent Sykes QC, took me to all the relevant authorities. Even though it was an unopposed claim, it was still necessary for the Court to be satisfied that the relief sought was justified: Wright v National Westminster Bank [2014] EWHC 3158 (Ch), [10]. The test for setting aside a transfer into trust on the grounds of mistake was taken from Pitt v Holt [2013] 2 AC 108. It was summarised by the Chancellor in Kennedy v Kennedy [2014] EWHC 4129 (Ch), [36], in these terms:
"(1) There must be a distinct mistake as distinguished from mere ignorance or inadvertence or what unjust enrichment scholars call a "misprediction" relating to some possible future event. On the other hand, forgetfulness, inadvertence or ignorance can lead to a false belief or assumption which the Court will recognise as a legally relevant mistake. Accordingly, although mere ignorance, even if causative, is insufficient to found the cause of action, the Court, in carrying out its task of finding the facts, should not shrink from drawing the inference of conscious belief or tacit assumption when there is evidence to support such an inference.
(2) A mistake may still be a relevant mistake even if it was due to carelessness on the part of the person making the voluntary disposition, unless the circumstances are such as to show that he or she deliberately ran the risk, or must be taken to have run the risk, of being wrong.
(3) The causative mistake must be sufficiently grave as to make it unconscionable on the part of the donee to retain the property. That test will normally be satisfied only when there is a mistake either as to the legal character or nature of a transaction or as to some matter of fact or law which is basic to the transaction. The gravity of the mistake must be assessed by a close examination of the facts, including the circumstances of the mistake and its consequences for the person who made the vitiated disposition.
(4) The injustice (or unfairness or unconscionableness) of leaving a mistaken disposition uncorrected must be evaluated objectively but with an intense focus on the facts of the particular case. The Court must consider in the round the existence of a distinct mistake, its degree of centrality to the transaction in question and the seriousness of its consequences, and make an evaluative judgment whether it would be unconscionable, or unjust, to leave the mistake uncorrected."
At the end of the hearing I gave an extempore judgment, stating that I was satisfied on the evidence before me that there had been a distinct mistake, not just ignorance, made by both Claimants (that is, as to whether capital gains tax would be payable on the transfer), that the mistake was basic to the transaction, that the Claimants did not deliberately run the risk of being wrong, and that it would be unconscionable or unjust to leave it uncorrected. I was also satisfied that there were no effective bars to rescission. It was not for example a bar that the mistake concerned the effect of taxation, or that there would or might be a fiscal effect of any order made.
In particular, it was no bar to rescission that part of the land that had been transferred to the trust when it was set up was not in fact the subject of the original claim, so that the relief being sought at that stage was only in relation to part of the property transferred and not all of it. In that respect, I relied on the decision of the Chancellor in Kennedy v Kennedy [2014] EWHC 4129, [46], already referred to. (It is that other land which was in fact the subject of the amendments to the claim, and which now forms the second part of the claim before me.) I therefore made the order sought in relation to Seamer Grange Farm. It was sealed only on 9 November 2015. But I note that for some reason (probably an error on my part) the order bears the date of 6 November 2015, although it was actually pronounced at the hearing on 25 September 2015. The order provided that notice be given to the solicitor trustee under CPR rule 19.8A(2), so that he would be bound unless he applied to set it aside or vary it. So far as I know, he has not.
Events since the first hearing
The original claim form, issued on 16 April 2015, had claimed to set aside on the grounds of mistake only the transfer of Seamer Grange Farm. But at the hearing in September 2015, I gave permission to the Claimants to re-amend the claim form and particulars of claim so as to add an additional claim to the proceedings, making similar claims to set aside two further transfers of land into the same trust, those of Harker Hill and Fox Covert. However I could not and did not deal with the amended claim there and then.
Since that hearing, there have been a number of events which should be recorded. The principal one is the death of the First Claimant, Tom Bainbridge, on 1 November 2015. He had been ill for some time, and had not been sufficiently well to be able to attend the hearing.
As a result of the death of the First Claimant, an application was made by notice dated 20 November 2015 for an order under CPR rule 19.2(4), substituting Armstrong Watson Trustees Limited, the executor of the First Claimant's will dated 13 January 2010 (as amended by a codicil dated 21 February 2014), for him in these proceedings. The application was supported by the witness statement dated 20 November 2015 of Graham Poles, a director of Armstrong Watson Trustees Limited, and consented to by the other parties. In these circumstances there is no reason for me not to make the substitution order sought, and I do so.
A further, formal matter was that the re-amended claim form and re-amended particulars of claim were filed, to which amendments the Defendant expressly consented. This led to the next point, which was correspondence with HMRC about the amended claim. By a letter of 17 November 2015 addressed to the Court, HMRC confirmed that it did not wish to be joined to the amended claim (just as it had not wished to be joined to the original one), but set out certain views for the consideration of the Court. I will come back to these later.
Lastly, the Second Claimant made a witness statement (his third) on 14 March 2016, bringing the evidence up to date.
The amended claim
Now the second part of the (amended) claim, concerning the remainder of the land originally transferred, falls to be...
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