Wolff v Wolff
| Jurisdiction | England & Wales |
| Judgment Date | 06 September 2004 |
| Neutral Citation | [2004] EWHC 2110 (Ch) |
| Docket Number | Case No: HC04C02374 |
| Court | Chancery Division |
| Date | 06 September 2004 |
[2004] EWHC 2110 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London WC2A 2LL
The Honourable Mr Justice Mann
Case No: HC04C02374
Mr David Brownbill (instructed by Bircham Dyson Bell) for the claimants
Mr Michael Nield (instructed by Bircham Dyson Bell) for the fourth to sixth defendants (by their litigation friends)
Hearing date: 2 September 2004
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.
Introduction
This is an application to set aside a reversionary lease granted by the claimants to their children (the first two defendants) as part of an inheritance tax saving scheme, a declaration as to whether that lease is held on the trusts of a certain settlement, and, insofar as may be necessary, an order setting aside that settlement, There was originally a claim for a declaration as to the effect of an ancillary letter of consent, but that claim was abandoned, The basis of the application to set aside those documents is that they were voluntary transactions of which the Wolffs had insufficient understanding, or alternatively that they laboured under a serious mistake as to their effect.
Procedure
, This application comes before me as a part 8 application. The defendants have all indicated that they do not intend to defend this action. Its progress through these courts has been accelerated because of the illness of one of the defendants. The claimants have supported their claim with witness statements and the first three defendants have also provided witness statements which tend to be supportive of the claim. Only one class (the grandchildren of the claimants, entitled under the settlement referred to above) was represented. There was no application to cross-examine on any of the witness statements. Accordingly none of the statements have been tested.
There are potential inheritance tax implications of my decision. That, I think, is why all aspects of the matter (save for one that was withdrawn) have been argued before me and not dealt with by consent. The Inland Revenue has indicated that it is content to be bound by my decision provided that certain authorities are drawn to my attention. All those authorities have been duly referred to.
The facts
Mr and Mrs Wolff, the claimants, are the freehold owners of 19 Rudall Crescent, London NW3. He is a company director, running a business selling tropical plants. Mrs Wolff is in business with one of her daughters, running a flower shop. At the end of 1996 a friend of theirs, Ms Sabina Comberti, told them about an inheritance tax saving scheme which she had entered into with the assistance of Mr E Kingshill (a solicitor) and some accountants. She gave them a copy of her scheme documents, or at least one of them. Mr and Mrs Wolff are now unable to tell me what they understood of the scheme at this stage but they did understand that it involved giving away their house to their daughters but still remaining entitled to live in it. They tell me that they are unable to recall anything else that was said at that point. However, they were apparently sufficiently attracted to the idea to make an appointment to see Mr Kingshill so that they could have such a scheme for themselves, and Mr Wolff rang him for that purpose on 17 December 1996. Mr Kingshill's attendance note records that Mr Wolff said that they "would like to make a trust deed and grant a lease in the same way as" Ms Comberti had done. He records himself as saying that he would prepare the documents but could not guarantee it would work. His note records that Mr Wolff was taken aback by that, but thought it was worth risking �500 to perform the exercise. An appointment was made "to talk about the details" on 13 January 1997. From this I infer that Mr Wolff had some idea of the structure of the scheme �more than he now recalls having. I do not think it likely he would be expressing such keenness for a scheme of which he had the limited understanding that he professes in his witness statement. I confess to finding it surprising that he cannot give any further indication of what he thought the scheme was at that stage. One would have thought that he would have had a greater understanding of the sort of thing the scheme involved if he was to bother himself with taking it further, and I think that the thrust of the attendance note of the telephone conversation with Mr Kingshill tends to support that. However, that is what he says.
On 13 January 1997 they attended Mr Kingshill. Mr and Mrs Wolff each say that they cannot recall much about the meeting. They cannot recall any explanation of the scheme; they cannot recall any specific advice being given about the scheme other than that there was no guarantee it would operate. They both seem to have understood that there would be a lease of their house for the benefit of their daughters, and Mr Wolff understood it would be a lease which would not come into operation for 20 years. He says that Mr Kingshill did not explain what the effect of the lease was or what would happen when it came into operation. Mr Wolff says they assumed it would be a "paper exercise" (his words) only and that in practice nothing would change �they would be able to live in the property for as long as they wished, paying a "peppercorn rent of �1 per year". Neither of them knew that the effect of the lease, when granted, would be that they would have no right to remain in the property and that they would be receiving, not paying, the peppercorn rent. Mrs Wolff professes not to have known what a trust and a lease really were.
Mr Kingshill prepared an attendance note of that meeting. The Wolffs do not dispute that it is an accurate record of the meeting, at least so far as it goes. He records that at the date of the meeting Mr Wolff was 61 and his wife was 60. He was given details of existing charges over the house, and he records that Mrs Wolff owned the freehold of another building which was leased to herself and her daughter for the purposes of their business as a flower shop. Then it records that the Wolffs have a copy of Ms Comberti's trust deed and "you therefore know what is involved." They had not consulted the accountant involved and did not propose to do so. Warnings were given that the scheme might not work, and that it was not necessary to go to tax counsel. The Wolffs are recorded as saying that they wanted to have the documents prepared fairly soon in case there was any change after the forthcoming general election. After some further immaterial material (that is to say, immaterial for the purposes of this application) Mr Kingshill then records that he would consider the advisability of including Mrs Wolff's property in the trust deed and he said this would be fairly simple. I infer that this suggestion came from one or other of the Wolffs. Then the note says:
"I would let you have drafts of the Trust Deed and Lease and explained to you again briefly the implications. You would retain the freehold of 19 Rudall Crescent and you would grant a Lease to start in 20 years' time. I explained that it would be necessary for this to become effective in less than 21 years' time to comply with the provisions of the Law of Property Act 1925."
Quite what Mr Kingshill did explain at the meeting remains a matter of some doubt. However, I think that some of the material in that note is at odds with the professions of ignorance currently made by Mr and Mrs Wolff. Mrs Wolff professes to have been ignorant of what a lease really was (whatever that may mean); yet she herself had already granted and received the benefit of a lease of her shop, and the overall concept is not very difficult. They both profess ignorance of what the trust involved; yet they were apparently proposing the addition of other properties to it. The thrust of their evidence is that they went into the meeting not really knowing what the scheme was, and they came out of it not knowing much more; yet they had an opportunity to correct Mr Kingshill when he said (as he seems to have done) that they knew what was involved (or they may even have said it themselves). All this, and later correspondence to which I will briefly refer, leads me to treat their protestations of ignorance with some caution, although I bear firmly in mind that I did not see either of them in the witness box and none of this evidence was subjected to the scrutiny of cross-examination.
The scheme documents were then prepared by Mr Kingshill. They were twofold. First, there was a reversionary lease of the house in Rudall Avenue, in favour of the two daughters (the first and second defendants). It is dated 4 June 1997 and is for a term of 125 years starting on 4 June 2017 at the yearly rent of a peppercorn (if demanded). Other than that, it is in a fairly standard form. The trust deed, however, is not what one might expect. It, too, is dated 4 June 1997, and is between the Wolffs as settlors, the Wolffs and Mr David Grace (the third defendant) as trustees, and two mortgagees (Northern Rock Building Society and Barclays Bank). It recites that the settlors desired to make a settlement in favour of the daughters and had transferred to the trustees �1,000 and the lease of Rudall Crescent. In clause 2 it declared trusts which gave the income to the daughters "in their lifetime" and "subject...
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