Vallings v Gibbon and Another
| Jurisdiction | England & Wales |
| Judge | Mr W Trower |
| Judgment Date | 25 July 2013 |
| Neutral Citation | [2013] EWHC 2862 (Ch) |
| Date | 25 July 2013 |
| Court | Chancery Division |
| Docket Number | Claim No: HC13C0075 |
[2013] EWHC 2862 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Rolls Building,
110 Fetter Lane,
London EC4 1NL
Mr W Trower QC
Sitting as a Judge of the High Court)
Claim No: HC13C0075
Mr D Rees (instructed by Radcliffes Le Brasseur) appeared on behalf of the Claimant.
THE JUDGE:
In these proceedings, Mr Robert Ross Vallings seeks rectification of a Deed of Variation dated 26 June 1997 which was entered into between Bridget Rosamund Gibbon and Mr Vallings and Malcolm Charles Tosh. The Deed of Variation was supplemental to the will of General Sir John Gibbon and to the other documents and events specified in Schedule 1 to the Deed of Variation.
The background to the proceedings can be summarised as follows. Mr Vallings is a solicitor and former partner in the firm of Radcliffes Le Brasseur. He acted for Lady Gibbon and Sir John Gibbon prior to the death of both of them. Sir John Gibbon died on 7 May 1997 and Lady Gibbon died on 15 March 2004. The defendants to these proceedings are Sir John's son, Colonel John Gibbon, and his present wife, Katherine Margaret Gibbon. By clause 1 of Sir John's will, Mr Vallings and Mr Tosh were appointed to be his executors. Subject to certain legacies, the residue of his estate was given to Lady Gibbon absolutely. That residuary gift was exempt for inheritance tax purposes. Following Sir John's death, it was apparent to Mr Vallings that the size of his estate was such that the restriction on the gift of business assets in clause 4 of the will would not apply, and that it would be sensible to create a small discretionary trust so as to absorb the balance of Sir John's nil-rate tax band. Mr Vallings described in evidence to me how that was standard inheritance tax planning at the time, as nil-rate bands were not transferable between spouses.
In consequence of that, Mr Vallings drafted a Deed of Variation, which he explained he presented to Lady Gibbon for her consideration, the intention being that the deed would create a discretionary trust under which Lady Gibbon, Colonel Gibbon and his issue, and Sir John's brothers and sisters would all be objects. The underlying purpose was to place the balance of Sir John's nil-rate band within the trust, with the explicit intention that it would not fall within Lady Gibbon's estate on her death.
Mr Vallings exhibited to his witness statement a letter dated 23 June 1997 from himself to Lady Gibbon, in which he enclosed a copy of the draft Deed of Variation which he had produced, and advising Lady Gibbon that the effect of the deed was that the balance of Sir John's nil-rate band would be retained by the trustees, but that the income and capital would be made available to her should she need it. He also explained in that letter in the following terms:
"£215,000 less the legacies in the Will is set aside and not transferred into your absolute name during the course of the administration."
He then goes on a little later in the same paragraph:
"As I indicated to you I did suggest to Sir John that he have a clause along these lines in his Will but he was so concerned about Lloyds that nothing was done. However, I think that the worries insofar as Lloyds are concerned are receding into the background and it makes sense for a clause such as the one suggested by this Deed to be read into Sir John's Will. The sole purpose of it is to reduce the inheritance tax on your death by £86,000 being 40% of £215,000."
There are two points that come from that paragraph in Mr Vallings' letter to Lady Gibbon. The first is that it is explicit that the intention was for the sum to be retained by the trustees, and the second is that the purpose of the retention was to reduce inheritance tax on Lady Gibbon's own death by £86,000, that being expressly referable to the nil-rate band.
Mr Vallings then explained in his witness statement that, following this advice and to the best of his belief relying upon it, Lady Gibbon executed the Deed of Variation.
I am satisfied, on the basis of the surrounding circumstances and the likelihood of it being the case that, in a deed of this sort, Lady Gibbon was proceeding on the basis of the advice given to her by Mr Vallings, and she did indeed rely on that letter when she executed the Deed of Variation.
Mr Vallings then goes on and explains in his evidence that his intention and understanding at the time that the deed was executed by Lady Gibbon was that a discretionary trust would be created by the deed, which would endure during Lady Gibbon's lifetime, and it was to that end that the Deed of Variation provided for a trust period of 80 years. He said that it was not his intention, nor did he believe it to have been the intention of Lady Gibbon or Mr Tosh, that the funds the subject of the variation should revert to Lady Gibbon, as this would prevent the deed from having had its desired effect. He then continued in his evidence to me to explain that the trusts of the Deed of Variation had always been administered by the trustees on the basis that the period for the exercise of the trustee's discretions had not yet come to an end, and he exhibited to his witness statement a memorandum dated 11 January 2012 which is consistent with the intention that he asserts he had, and he asserts Lady Gibbon had, at the time the deed was originally executed.
He also explained to me how, subsequent to Lady Gibbon's death, the funds subject to the trust and the Deed of Variation were not returned as part of Lady Gibbon's estate for the purpose of calculating the inheritance tax due on her death. This evidence from Mr Vallings obviously deals with events that postdated the date of the Deed of Variation, but are consistent with the intention that he identifies as having been the intention of Lady Gibbon and himself at the time the Deed of Variation was executed.
It was only with a letter dated 15 June 2012 from the defendant's solicitors that it was brought to Mr Vallings' attention that there was what he described as an "error" in the drafting of the Deed of Variation. The error derived from the fact that, although paragraph a(v) of Schedule 2 to the Deed defines the trust period as "The period ending on the earlier of the last day of the period of 80 years from the date of my death" – that is a reference to the death of Sir John – "which period shall be the applicable perpetuity period, or such date as the trustees shall by deed at any time or times specify", there was also in paragraph a(vi) of Schedule 2 to the Deed a definition of the discretionary period, which was defined as being the period of 2 years less one day from the date of Sir John's death.
Lodders identified and drew to Mr Vallings' attention that the effect of these provisions was that at the end of the discretionary period, i.e. 2 years less one day from the date of Sir John's death, the discretionary powers conferred upon the trustees by the Deed of Variation ceased to be exercisable, and the funds subject to the trusts of the Deed of Variation vested in Lady Gibbon absolutely by virtue of...
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Melinda Giles (in her capacity as administratrix of the estate of Hilda Elsie Bolton and as executrix of Ellen Mary Bolton) v 1. The Royal National Institute for the Blind and Others
...agreed." See also Wills v Gibbs [2008] STC 808, per Rimer J (as he then was) at paragraph 25, Ashcroft v Barnsdale [2010] STC 2544, and Vallings v Gibbon [2013] EWHC 2862 (Ch). 36 I have already found that in the present case the Claimant has established what was actually intended to be the......