IAIN PAUL BARKER v CONFIÀNCE LTD [2018] EWHC 2965 (Ch)

[2018] EWHC 2965 (Ch)Case No HC-2017-001868IN THE HIGH COURT OF JUSTICEBUSINESS AND PROPERTY COURTS OF ENGLANDAND WALESPROPERTY TRUSTS AND PROBATE LIST (ChD)Venue Royal Courts of Justice, Rolls Building, Fetter Lane, London, EC4A 1NLDate 08/11/2018
Before
MR JUSTICE MORGAN
Between
IAIN PAUL BARKERClaimant(1) CONFIÀNCE LTDDefendants(2) EUAN BARKER (a child by his litigation friend DEBORAH BARKER)Defendant(3) STUART BROWNDefendant(4) JOAN BARKERDefendant(5) INGRID HEYWOODDefendant(6) MARGOT WHITEDefendant(7) TOM BARKER (a child by his litigation friend SUSAN MARY GLOVER)Applicants(8) FREYA BARKER (a child by her litigation friend SUSAN MARY GLOVER)Applicant
Stephen Moverley Smith QC and Adam Cloherty (instructed by Memery Crystal LLP) for ClaimantElspeth Talbot Rice QC and Emer Murphy (instructed by Reynolds Porter Chamberlain LLP) for First DefendantJonathan Seitler QC and Stephen Hackett (instructed by Mishcon de Reya LLP) for ApplicantsHearing Hearing dates: 3 October 2017, 30 and 31 July 2018 and 5 October 2018
Judgment ApprovedThe Hon Mr Justice Morgan:Introduction
[1]This is an application by Tom and Freya Barker for an order pursuant to CPR 19.7(7) to the effect that the court should direct that an earlier order of the court, made by Asplin J on 25 July 2014, is not binding on them.[2]The facts, or some of them, which form the background to this application, have been considered by the courts on earlier occasions. Some of the relevant background was considered in detail in the context of a professional negligence claim which was tried by Roth J. He gave his judgment, dismissing the claim, on 23 March 2016: see Barker v Baxendale Walker Solicitors [2016] EWHC 664 (Ch). Some more of the background facts were the subject of proceedings which were determined by Marcus Smith J on 19 June 2017: see Twin Benefits Ltd v Barker [2017] EWHC 1412 (Ch). Then, an appeal to the Court of Appeal from the judgment of Roth J was allowed on 8 December 2017: see Barker v Baxendale Walker Solicitors [2018] 1 WLR 1905.[3]On the present application, I was taken in detail to the facts, or the alleged facts, which are said to be relevant and I heard extensive submissions from counsel for three parties, namely, Tom and Freya Barker, Mr Barker and Confiànce Ltd. For reasons which I need not explain, the hearing of this application went part heard from October 2017 to July 2018 and then to October 2018. During the period that this matter was adjourned part heard, the submissions made by the parties, in particular, the submissions made on behalf of Tom and Freya Barker have changed somewhat, possibly as a result of the Court of Appeal giving its judgment in the professional negligence proceedings on 8 December 2017 and the Supreme Court, on 31 July 2018, dismissing a petition by Mr Baxendale-Walker for permission to appeal against the decision of the Court of Appeal.[4]Although the detailed facts, or alleged facts, which are said to be relevant to this application are very extensive and although the submissions of the parties were wide ranging, I will attempt to give my reasons for my decision by referring to matters of facts as concisely as possible and referring only to those submissions which in the end are material to the outcome.[5]The application which was made to me had been foreshadowed in some of the submissions made to Marcus Smith J in the Twin Benefits proceedings to which I have referred. The learned judge summarised the background facts for the purposes of giving his judgment and, at any rate in relation to some of the relevant facts, I will base my own statement on that earlier summary, for which I am grateful. I will need to supplement that earlier summary in the light of further material which I was shown but which was not available to Marcus Smith J.

The facts

[6]Mr. Barker, set up a business called "121 Consulting" in 1991. 121 Consulting delivered management consultancy and project services, and was very successful. The business developed into a set of trading companies under a group holding company, Team 121 Holdings Limited ("Team 121 Holdings").[7]By the spring or summer of 1998, Mr. Barker, who had a majority shareholding in Team 121 Holdings, was looking to sell. Since the group was considered to be worth £30m to £40m, the impact of capital gains tax on any such sale would be considerable. Mr. Barker therefore sought tax planning advice from, amongst others, a firm of solicitors called Baxendale Walker Solicitors. Mr. Paul Baxendale-Walker was the principal partner in that firm, and was involved in providing tax planning advice to Mr. Barker.[8]As a result of the advice received, Mr. Barker set up a tax avoidance scheme which was based on the establishment of an employee benefit trust ("EBT"). Had the scheme been successful, it would have avoided a very significant liability to capital gains tax and, eventually, inheritance tax.[9]On 6 October 1998, Team 121 Holdings entered into a trust deed (the "Trust Deed") with an offshore trust company based in Jersey, Matheson Trust Co. (Jersey) Ltd ("Matheson"). By the Trust Deed, Team 121 Holdings constituted a trust (the "Trust") by settling the sum of £100 on trust for beneficiaries defined as being present, past and future employees of the Team 121 group, and the families of those employees, but expressly excluding specified "Excluded Persons", defined in Schedule 3 of the Trust Deed. The definition of Excluded Persons in Schedule 3 to the Trust Deed was based upon the wording of section 28(4) of the Inheritance Tax Act 1984 (“IHTA”), and was critical to the working of the tax avoidance scheme. Clause 11 of the Trust Deed contained a power of variation in wide terms which permitted alterations and additions to the provisions of the Trust Deed. Paragraph 1.2.18 of Schedule 1 to the Trust Deed conferred on the Trustee power to appoint any part or all of the Trust Fund on the trusts of any other existing settlement or to declare any new settlement.[10]Mr. Barker, and a Mr. Speksnyder, were appointed protectors of the Trust. Mr. Speksnyder subsequently ceased to be a protector (on 28 September 1999), and from then on Mr. Barker was the sole protector of the Trust.[11]On 15 October 1998, Mr. Barker as grantor executed a deed declaring that he held all his shares in Team 121 Holdings (the "Shares") on trust for the EBT (the "Deed of Gift"). This gift of the beneficial interest in the Shares was, however, expressed to be conditional. The condition was that: "… in the event that the Inland Revenue determines in writing to the Grantor that, in respect of this transfer of the equitable interest in the Shares to the [EBT], the trusts of the [EBT] do not satisfy the conditions for exemptions from inheritance tax set out in Section 28 Inheritance Tax Act 1984 or do not satisfy the conditions for a no gain/no loss of disposal for the purposes of capital gains tax set out in Section 239 Taxation of Chargeable Gains Act 1992; then…the Trustees shall hold the Shares and any income arising to the Shares and any capital proceeds of disposal of the Shares and any income arising from such capital proceeds upon trusts absolutely for the Grantor".[12]On 23 March 1999, Matheson as trustee of the Trust declared a sub-trust (the "Sub-Trust"). The beneficiaries of the Sub-Trust were termed the "Principal Beneficiaries", which term was defined as follows:
"…the widow, children and remoter descendants and the mother and sisters of Iain Paul Barker who shall be living after his death…"
[13]The beneficiaries of the EBT included former employees of the Team 121 group and their children. The beneficiaries of the Sub-Trust comprised the Principal Beneficiaries. Essentially, these were: i) Mr. Barker's children and any unborn descendants; Mr. Barker had five children by three women: a) at around the time when the tax scheme was being considered, Mr. Baxendale-Walker introduced Mr. Barker to a Ms. Susan Glover, with whom Mr. Barker formed a personal relationship, resulting in the birth of twin children, Tom and Freya Barker, in 2001; Mr. Baxendale-Walker is the godfather of Tom and Freya; Mr. Barker and Ms. Glover's relationship subsequently broke down; b) In 2004, Euan Barker was born (by Ms. Deborah Siddoway, also known as Deborah Barker); c) In 2004, Lauren Chadwick was born (by Ms. Julie Chadwick); d) In 2006, Rowan Barker was born (by Ms. Siddoway, also known as Deborah Barker); ii) Mr. Barker's mother, Ms. Joan Barker; iii) Mr. Barker's two sisters, Ms. Ingrid Heywood and Ms. Margot White.[14]The Shares were sold in mid-1999 for a substantial consideration. I understand that the Sub-Trust received the Shares and/or their proceeds.[15]Her Majesty's Revenue and Customs ("HMRC") began investigating the EBT in 2005 and, in 2010, HMRC issued three Notices of Assessment to Mr. Barker, asserting a liability to tax on the income and gains arising via the Trust and Sub-Trust. Mr. Barker sought to appeal against the Notices of Assessment to the First-tier Tribunal. However, during the course of that appeal, Mr. Barker reached a settlement with HMRC, which concluded in April 2013 and which involved Mr. Barker paying £11.3m to HMRC.[16]The settlement with HMRC was made on the basis that Mr. Barker had failed effectively to give away the Shares, and that he could be taxed on their capital gains. Nevertheless, the proceeds of sale of the Shares remained in the Sub-Trust, of which Mr. Barker was not a beneficiary. Mr. Barker accordingly sought to wind up the Trust and the Sub-Trust, thereby avoiding on-going trustees' costs and (more to the point) securing the return to him of as much of the assets held by the Trust and the Sub-Trust as possible.[17]It is necessary to refer to some of the steps taken by Mr Barker before he commenced proceedings to undo the Trust and the Sub-Trust. He consulted Farrer & Co who instructed counsel. By January or February 2014, Mr Barker’s legal team had prepared draft court proceedings and a draft witness statement to be made by Mr Barker. It seems that Mr Barker’s wish was to negotiate terms of settlement with the trustee and the beneficiaries before issuing proceedings and following the issue of proceedings, an application was to be made to the court for its approval to the proposed terms of settlement.[18]It appears that in January and February 2014 Mr Barker’s legal team presented his claim to the trustee, who was by this time Confiànce. Confiànce instructed counsel, Mr Goy QC and Mr Le Poidevin QC who in due course prepared a Joint Opinion advising Confiànce in relation to Mr Barker’s claim. I will refer to that Joint Opinion later in this judgment.[19]Mr Barker obviously received legal advice as to the form of the proceedings he should bring and who should be made parties to those proceedings. As Mr Barker’s claim was that Confiànce held the relevant assets on a bare trust for him and/or that the Trust and the Sub-Trust should be set aside on the ground of mistake, it would have sufficed if Mr Barker had proceeded against Confiànce alone but, as will be seen, the intended proceedings and the later actual proceedings did not take that form. The form of proceedings which was settled upon was to join the beneficiaries or representatives of the beneficiaries as parties to the claim. I infer that the reason why Mr Barker did not sue only Confiànce was that it was recognised that any potential dispute would be between the rival claimants to the trust assets, being Mr Barker on the one hand and the beneficiaries under the Trust and the Sub-Trust on the other. Further, it is likely to have been recognised that Confiànce would be unlikely to agree a settlement with Mr Barker unless Confiànce had the approval of the court to that course. In particular, it was decided to join one of Mr Barker’s children as a party with the intention that the selected child would be made a representative party to represent the interests of all of his children and also unborn and unascertained family members. The child who was chosen was Euan Barker, whose mother was Deborah Barker who, it seems likely, was supportive of Mr Barker’s wishes to bring the Trust and the Sub-Trust to an end.[20]Mr Barker’s legal team obviously considered how matters should proceed in relation to the joinder of Euan Barker as a party to the intended proceedings. The intention was that Euan Barker should have a litigation friend and that litigation friend should take advice on the proceedings and any proposed settlement of those proceedings. In the event, it seems that Ms Alison Meek was approached to establish if she would act as litigation friend for Euan Barker. Ms Meek was a solicitor and a partner in Harcus Sinclair. On or before 17 February 2014, Ms Meek agreed to act as litigation friend to Euan Barker. On that date, she wrote to Farrer & Co stating that she would act as litigation friend to all five of Mr Barker’s children, including Tom and Freya Barker. That was not a wholly accurate statement of the position. It seems that the intention was that only Euan Barker would be a party to the proceedings and so only Euan Barker would have a litigation friend. As against that, it was envisaged that Euan Barker would be a representative party and the persons represented would include the other four children of Mr Barker, including Tom and Freya Barker. Ms Meek also stated to Farrer & Co that there seemed to be no reason for the claim to be contentious.[21]On 17 February 2014, Ms Meek prepared instructions to counsel, Mr Francis Barlow QC. These instructions referred to, and enclosed, draft proceedings to be brought by Mr Barker and a draft of a witness statement to be made by him. Ms Meek stated in these instructions that she was the litigation friend for all five children of Mr Barker, including Tom and Freya Barker. I do not know when Ms Meek sent her instructions to counsel. However, by April 2014, she had instructed Mr Barlow QC and Mr Dew of counsel.[22]Mr Goy QC and Mr Le Poidevin QC, who had been instructed to advise Confiànce, prepared a Joint Opinion dated 3 April 2014. In their Joint Opinion, counsel stated that the Joint Opinion was to be disclosed to the representatives of the two groups of beneficiaries under the Trust and the Sub-Trust, namely, the employees and the family members but the Joint Opinion was not to be disclosed to Mr Barker.[23]The Joint Opinion explained the position in relation to the Trust, the Deed of Gift and the Sub-Trust and the claim being made by Mr Barker. Counsel agreed with Mr Barker’s contention as to the true construction of the condition in the Deed of Gift. They then considered the meaning and effect of IHTA section 28(4) and the identity of the persons who were beneficiaries under the Trust and the Sub-Trust. They thought that the position in relation to section 28(4) was not clear. The Joint Opinion then stated: “29. It is inherent in what is said in [Mr Barker’s] Particulars of Claim that he is assuming both that the terms of section 28(4) would not be satisfied, if connected persons can benefit after connection has ceased, and that the Trust Deed does in fact permit such benefits so that section 28 could not apply. We accept that a reasonable argument can be made out to that effect. Certainly the original trustee and [Mr Barker] appeared to have assumed that the benefits could be provided to [Mr Barker’s] family after [Mr Barker’s] death. If there is a discrepancy to what is permitted and what is provided for then clearly the requirements of section 28(4) would not be met. Nevertheless on balance we consider this to be a less likely outcome than for there to be a consistent interpretation. 30. So the relevant scenarios appear to be four:(1) HMRC are incorrect in their approach and thus, on this point, the Trust Deed meets the conditions in section 28(4). In these circumstances there is no ground, at least as regards the point in question, for impugning the availability of the relief and the gift into settlement.(2) HMRC are correct in their view but the Trust Deed must be interpreted in the same way as section 28(4). In those circumstances the gift into settlement would apparently be valid subject to [Mr Barker’s] contention as to mistake.(3) HMRC is correct in its view but the Trust Deed is to be interpreted as allowing benefits to be provided for persons who have ceased to be connected. If this is the correct view section 28(4) would not be satisfied and the gift into settlement would not have been effective.(4) HMRC is wrong in its approach but the Trust Deed nonetheless did not permit benefits to persons who had ceased to be connected persons. In such a case, if the gift of shares is to be impugned that is likely to have to be on the grounds of mistake, as with scenario (2). 31. In the circumstances we consider that the most likely scenarios are (2) and (3). Scenario (1) is a possibility, but on balance we consider HMRC to be correct in its view of section 28. Scenario (4) seems to us so remote as to be negligible. As regards scenario (2), we consider that a serious argument can be put that that scenario is correct and that the terms of section 28(4) and the Trust Deed should be interpreted consistently, bearing in mind that the like ambiguity in drafting arises in respect of both provisions. If that is correct, [Mr Barker’s] claim for mistake is highly relevant as to his claim to be entitled to the Trust Fund.” (1) HMRC are incorrect in their approach and thus, on this point, the Trust Deed meets the conditions in section 28(4). In these circumstances there is no ground, at least as regards the point in question, for impugning the availability of the relief and the gift into settlement. (2) HMRC are correct in their view but the Trust Deed must be interpreted in the same way as section 28(4). In those circumstances the gift into settlement would apparently be valid subject to [Mr Barker’s] contention as to mistake. (3) HMRC is correct in its view but the Trust Deed is to be interpreted as allowing benefits to be provided for persons who have ceased to be connected. If this is the correct view section 28(4) would not be satisfied and the gift into settlement would not have been effective. (4) HMRC is wrong in its approach but the Trust Deed nonetheless did not permit benefits to persons who had ceased to be connected persons. In such a case, if the gift of shares is to be impugned that is likely to have to be on the grounds of mistake, as with scenario (2).[24]Later in the Joint Opinion, counsel considered the relevance of clause 11 of, and paragraph 1.2.18 of schedule 1 to, the Trust Deed and expressed the view that the powers conferred by these provisions could be fatal to the availability of relief under section 28, but they discussed possible arguments which might be used to avoid that result. The Joint Opinion then considered Mr Barker’s case based on mistake and concluded that the case was a strong one if it were not possible to confer benefits on family members under the Trust and the Sub-Trust. The Joint Opinion then expressed the following conclusions:
“Form of compromise 59. The working assumption at present is that the representatives of the two groups of express beneficiaries of the Trust will negotiate with [Mr Barker] to agree a division of the trust fund, so that part will be returned to [Mr Barker] and the remainder will continue to be held on trust for the two groups of beneficiaries. We assume, though it is a matter for them, that each group will require its own fund. 60. The appropriate proportion of the trust fund to be retained by the express beneficiaries, and the appropriate division between the two groups, are matters for their representatives to consider. We make no recommendation. 61. Any agreement reached will need to be approved by the court, since it will affect the interests of minor, unborn and unascertained beneficiaries. Confiànce as trustee will need to be satisfied that the interests of any of those beneficiaries not actually parties to the proceedings for approval are adequately catered for in any agreement. 62. The proper stance of Confiànce in the negotiation is otherwise to remain neutral.”
[25]On 8 April 2014, Ms Meek sent to Mr Barlow QC and Mr Dew a copy of the Joint Opinion obtained by Confiànce. On 9 April 2014, Ms Meek emailed Mr Barlow and Mr Dew and suggested that the settlement for the children ought to be at the rate of £500,000 per child, i.e. a total for the five children of £2.5 million.[26]On 20 June 2014, Mr Barlow and Mr Dew advised Ms Meek over the telephone. They told her that they had spoken to Mr Rajah QC, leading counsel for Mr Barker, that the room for negotiation was very limited and the most the children would be offered in settlement would be £1 million. Mr Barlow stated that he would write an opinion recommending the settlement on behalf of the five children.[27]In July 2014, there were emails between Ms Meek and Deborah Barker, the mother of Euan, in which Ms Meek discussed with Deborah Barker the progress which was being made in relation to the settlement of the intended proceedings. On 3 July 2014, Ms Meek wrote to Deborah Barker stating that she had looked to her as the client as she had “effectively instructed” Ms Meek.[28]It is clear from the documents on Ms Meek’s file that neither Ms Glover, the mother of Tom and Freya, nor Tom and Freya themselves, were told of the proposed claim by Mr Barker nor about the proposed settlement. They were not told that Euan was to be appointed as a representative for Tom and Freya and that Euan’s litigation friend would be advised by counsel as to the suitability of the proposed settlement. It is also clear from those documents, that the omission to inform Ms Glover or Tom and Freya was deliberate. The decision not to inform her seems to have reflected the wishes of Mr Barker and Deborah Barker. Ms Meek, Mr Barlow and Mr Dew knew that Ms Glover and Tom and Freya had not been informed of what was happening and either supported the decision to keep them in the dark or did not oppose the implementation of that decision. It is also clear that Ms Glover and Tom and Freya were not informed of what was happening because it was foreseen that Ms Glover would “cause problems”, to quote an email from Mr Dew to Ms Meek and Mr Barlow on 9 April 2014. On 20 June 2014, Ms Meek expressed the view to Mr Barlow and Mr Dew that Ms Glover, if she was aware of what was proposed, might create a “degree of contention”.[29]In the present application, I was provided with a witness statement of Mr Rands, a solicitor acting for Mr Barker. Mr Rands did not act for Mr Barker at the time of the claim to recover the assets of the Trust and the Sub-Trust. However, Mr Rands sought to explain why Euan had been chosen to be the only child who was made a party to the proceedings. Mr Rands suggested that there were a number of reasons for this choice and included the explanation that, at the time of the proceedings and since, Ms Glover harboured considerable animosity against Mr Barker and if Tom and Freya had been involved in the proceedings, Ms Glover would have tried to become their litigation friend and possibly litigation friend for all the children. Mr Rands suggested that Ms Glover would not have been suitable as a litigation friend as she would have been influenced by her personal feelings towards Mr Barker rather than a desire to act in the best interests of the absent family beneficiaries.[30]At some point, steps were taken to involve the representatives of the employees in discussion of the claim and negotiation with Mr Barker. It seems that the representatives of the employees took legal advice although I was not shown what advice they received. It seems that by April 2014, the representatives of the employees had instructed Ms Susannah Meadway of counsel to advise in relation to what was proposed. The proposed settlement involved Mr Barker providing £500,000 to be held on trust for employee beneficiaries.[31]On 14 July 2014, Mr. Barker issued proceedings seeking relief in relation to the Trust and the Sub-Trust. Confiànce was named as a defendant in the proceedings. In addition to the trustee (Confiànce), the beneficiaries of the Trust and of the Sub-Trust were joined as defendants or were to be represented by a defendant.[32]The following were defendants in these proceedings: i) Confiànce (as trustee); ii) Euan Barker; Ms. Alison Meek, a solicitor of Harcus Sinclair, was appointed as litigation friend to Euan Barker, since he was a minor; Euan was joined for the purposes of representing all of Mr. Barker's children; iii) Mr. Stuart Brown; Mr. Brown was joined as a representative of beneficiaries of the Trust (that is, former employees of the Team 121 group and their families); iv) Mr. Barker's mother, Ms. Joan Barker; v) Mr. Barker's two sisters, Ms. Heywood and Ms. White.[33]In his Particulars of Claim in these proceedings, Mr Barker put forward two contentions. The first contention relied upon the condition expressed in the Deed of Gift. The Particulars of Claim explained Mr Barker’s case as to how that condition was to be construed. In effect, he contended that the condition required the gift to be an exempt transfer for inheritance tax purposes pursuant to IHTA 1984, section 28 and a disposal which would be treated for capital gains tax purposes as having been made for a consideration which involved neither a gain nor a loss pursuant to TCGA 1992, section 239. The pleading then contended that this condition was not satisfied at the date of the Deed of Gift because the terms of the EBT did not satisfy IHTA section 28(4). In this respect, the pleading stated that the trust did allow benefits to be conferred on persons connected with Mr Barker and the pleading also relied upon the powers contained in clause 11 of and paragraph 1.2.18 of schedule 1 to, the Trust Deed. The pleaded result of the foregoing was said to be that the gift contemplated by the Deed of Gift failed so that the proceeds of sale of the Shares were held by Confiànce on a bare trust for Mr Barker.[34]The second contention put forward in the Particulars of Claim in the trust proceedings was that the Deed of Gift had been made by Mr Barker in the mistaken belief that members of his family would be capable of benefitting from the trusts of the EBT after his death. He sought an order from the court setting aside the Deed of Gift on the ground of mistake.[35]In the trust proceedings, Mr Barker sought an order that Euan be appointed pursuant to CPR 19.7(2)(d) to represent all living unborn and unascertained persons who may be or become members of the class of Principal Beneficiaries other than the mother and sisters of Mr Barker who were, of course, adults.[36]Mr Barker filed a witness statement in the trust proceedings. This witness statement stated that, indirectly, the trustee of the Trust had loaned him some £17 million which he was not in a position to repay. He also stated that the value of the Trust Fund was £30 million. His witness statement contained evidence to support the claim that the Deed of Gift should be set aside on the grounds of mistake.[37]On 18 July 2014, Mr Barlow QC and Mr Dew provided a Joint Opinion in relation to the proceedings and the proposed settlement of Mr Barker’s claim. Mr Barlow and Mr Dew advised that certain provisions in the Trust Deed, in particular, clause 11 of and paragraph 1.2.18 of schedule 1 to the Trust Deed were fatal to any claim that the Trust satisfied IHTA section 28. They went on to consider the views expressed by HMRC and by Mr Goy and Mr Le Poidevin as to the relevant time for considering whether the children of Mr Barker were connected persons for the purposes of section 28(4). There were arguments in favour of the relevant time being either the date of the gift or the date of a benefit being conferred on the beneficiary. They thought this point was “academic” in view of their earlier conclusions as to the effect of clause 11 of and paragraph 1.2.18 of schedule 1 to the Trust Deed. This Joint Opinion also advised as follows:
“Conclusion on the section 28 issue 27. For the reasons outlined above we consider that prospects of establishing that the 1998 EBT is an employee benefit trust complying with the conditions specified in section 28 are remote. Accordingly we consider that the condition in the 1998 Deed of Gift was not satisfied and the trust assets are held on a bare trust for Mr Barker. … Benefit for our Beneficiaries 30. It is not enough only to show that the requirements of section 28 are met so that the 1998 Deed of Gift is valid. It must also be shown that the Euan and the Family Beneficiaries will be within the class of beneficiaries of the trust thereby created. We consider that there are at least two outcomes in this litigation where the trust could be declared valid but in such a way that those persons will receive no benefit: (1) If (contrary to our view) it were to be found that section 28 does not permit ‘connected persons’ to receive benefit even after the death of the Founder then on the face of it the trust does not comply with section 28. However, the Joint Opinion suggests the possibility of the trust being construed so as to be consistent with section 28. That result would mean that the trust was valid but that those beneficiaries who we have been asked to advise would not receive any benefit. (2) The expression “Death Beneficiaries” is defined in clause 1.5 of the 1998 EBT so as to include the children and remoter issue of a “Beneficiary”
. Since the definition of “the Beneficiaries” in clause 1.4 excludes Excluded Persons, a term defined so as to exclude participators, and since Mr Barker was unquestionably a participator in the Company and accordingly not a Beneficiary as defined, his children, issue and other dependants arguably do not qualify as Death Beneficiaries. This is a point not identified by any party so far in these proceedings but is certainly one that could emerge during the course of them.” Benefit for our Beneficiaries (1) If (contrary to our view) it were to be found that section 28 does not permit ‘connected persons’ to receive benefit even after the death of the Founder then on the face of it the trust does not comply with section 28. However, the Joint Opinion suggests the possibility of the trust being construed so as to be consistent with section 28. That result would mean that the trust was valid but that those beneficiaries who we have been asked to advise would not receive any benefit. (2) The expression “Death Beneficiaries” is defined in clause 1.5 of the 1998 EBT so as to include the children and remoter issue of a “Beneficiary”. Since the definition of “the Beneficiaries” in clause 1.4 excludes Excluded Persons, a term defined so as to exclude participators, and since Mr Barker was unquestionably a participator in the Company and accordingly not a Beneficiary as defined, his children, issue and other dependants arguably do not qualify as Death Beneficiaries. This is a point not identified by any party so far in these proceedings but is certainly one that could emerge during the course of them.”

Benefit for our Beneficiaries

[38]Mr Barlow and Mr Dew also advised that if Mr Barker failed on his primary case as to the condition of the Deed of Gift and IHTA section 28, then he was likely to succeed on his secondary case to set aside the Deed of Gift on the ground of mistake. This Joint Opinion then concluded: “Proposed compromise 35. It is proposed that these proceedings should be compromised on terms, briefly stated,(i) that the sum of £1 million net of all tax and other deductions should be set aside out of the funds currently held by Confiànce as trustee of the 1998 EBT and the 1999 Declaration of Trust and settled on discretionary trusts for the benefit of Euan and the beneficiaries he is to be appointed to represent,(ii) that the net sum of £500,000 should be set aside on discretionary trusts for the benefit of the employee beneficiaries and(iii) that the balance of such funds after payment thereout of all taxes, costs and expenses should be held on trust for Mr Barker. 36. The sum being paid to those persons whom Ms Meek will represent is relatively small compared to the overall value of the fund. It therefore represents a significant reduction from what they might have received had they succeeded at trial. 37. Nevertheless, in our view that proposal should be accepted with both hands: (1) The likelihood of being able to establish that the 1998 EBT satisfied the requirements of section 28 is remote. (2) There is a possibility, albeit a remote possibility, that if the 1998 EBT were to be upheld as a valid employee benefit trust within section 28, it would only be upheld on the basis that Mr Barker’s children, remoter issue and other dependants were excluded from benefit. (3) There is also the possibility, referred to above, that those persons we are asked to advise are in fact not within the class of persons who can benefit from the trust. (4) Even if we succeeded on all those issues Mr Barker might succeed in having the trust set aside on the grounds of mistake. (5) The likelihood of succeeding at trial is very small. … 39. In conclusion, the proposal now on offer is plainly very beneficial indeed to Euan and the class of beneficiaries he represents. We therefore advise Alison Meek that she may properly support and should support on behalf of Euan and the beneficiaries whom he represents, the adoption of the proposed terms of compromise.” (1) The likelihood of being able to establish that the 1998 EBT satisfied the requirements of section 28 is remote. (2) There is a possibility, albeit a remote possibility, that if the 1998 EBT were to be upheld as a valid employee benefit trust within section 28, it would only be upheld on the basis that Mr Barker’s children, remoter issue and other dependants were excluded from benefit. (3) There is also the possibility, referred to above, that those persons we are asked to advise are in fact not within the class of persons who can benefit from the trust. (4) Even if we succeeded on all those issues Mr Barker might succeed in having the trust set aside on the grounds of mistake. (5) The likelihood of succeeding at trial is very small.[39]On 21 July 2014, Ms Meek signed a witness statement stating that she was the solicitor for Deborah Barker, the mother of Euan. She stated that Euan Barker and the persons defined as the absent family beneficiaries in the claim had the same interests in the claim. She said that she had been advised by Mr Barlow and Mr Dew who had been instructed to represent Euan and the absent family beneficiaries and she asked the court to approve the proposed settlement.[40]I will now summarise the terms of the proposed settlement: i) the settlement defined two classes of beneficiary, the "Family Beneficiaries" (defined in clause 1(k)) and the "Employee Beneficiaries" (defined in clause 1(l)); essentially, the identity of the Family Beneficiaries broadly tracked the definition of Principal Beneficiaries in the Sub-Trust deed, whilst the definition of Employee Beneficiaries tracked the definition of beneficiaries in the Trust Deed; ii) as part of the settlement, each of these classes had settled upon it on trust a sum of money; in the case of the Family Beneficiaries, this was £1 million; in the case of the Employee Beneficiaries, this was £500,000; these monies were set aside and paid out of the Trust (including any assets held by the Sub-Trust); iii) the balance of the funds held on trust were to be held by Confiànce: a) on trust to pay and discharge the costs of the Confiànce Proceedings and the costs occasioned in establishing the trusts for the Family Beneficiaries and the Employee Beneficiaries; b) subject to the payment of these costs, any remaining monies on trust for Mr. Barker for his own use and benefit absolutely; iv) clause 5 of the settlement released Confiànce from any Claims relating to the administration of the Trust by it or by any of its predecessor trustees. "Claims" were broadly defined in clause 1(o) as "all and any actions proceedings accounts costs claims and demands of whatsoever nature and howsoever arising and whether made directly or indirectly".[41]The stage was now set for an application to the court for the approval of the court to the proposed settlement of the proceedings. A hearing of the application was fixed to take place on 25 July 2014. On 21 July 2014, Mr Dew told Ms Meek that he thought it would not be a long hearing.[42]The application for the approval of the compromise was heard by Asplin J. Mr Rajah QC appeared on behalf of Mr Barker, Mr Le Poidevin QC appeared on behalf of Confiànce, Mr Barlow QC and Mr Dew appeared on behalf of Euan instructed by his litigation friend Ms Meek. Ms Meadway appeared on behalf of Mr Brown. Mr Barker’s mother and sisters did not appear as they had agreed to the compromise in advance. There were three parts to the hearing. At the first part of the hearing, all represented parties were present. For the second part of the hearing, Mr Rajah and Mr Le Poidevin were not in court so that they could not hear what was then discussed. For the third part of the hearing, Mr Rajah and Mr Le Poidevin returned to court. I was provided with transcripts of all three parts of the hearing.[43]During the first part of the hearing, Mr Rajah opened matters to Asplin J. He took the judge through the Trust Deed, the Deed of Gift and the Sub-Trust and explained Mr Barker’s case. He explained the draft order which he asked the court to make and the terms of compromise. Mr Le Poidevin then told the court that Confiànce was stepping to one side in relation to the dispute and was leaving it to the properly appointed (or to be appointed) representatives of the beneficiaries to negotiate and settle with Mr Barker. He explained that Confiànce was content with the terms of the settlement which applied to it. He referred to the Joint Opinion of himself and Mr Goy QC.[44]During the second part of the hearing, the judge was addressed by Mr Barlow and Ms Meadway. Mr Barlow explained the advice which he and Mr Dew had given to Ms Meek. As to whether the Trust complied with IHTA section 28, he explained the position in relation to paragraph 1.2.18 of schedule 1 to the Trust Deed and in relation to clause 11 of the Trust Deed. He said these provisions were fatal to the suggestion that the Trust complied with section 28. He also referred to the different views about the time at which one judged whether persons were connected to Mr Barker but he suggested the judge did not need to engage with that point. He also questioned whether Mr Barker’s children were beneficiaries, assuming the various trusts were valid. The judge then expressed her view that it was appropriate for Euan to be appointed as a representative of the relevant class. She also expressed the view that the proposed settlement was for the benefit of that class. Mr Barlow commented that the decision was “a bit of a no brainer” and it was not a case where Ms Meek could hope to obtain a pre-emptive costs order to run “a pretty hopeless” defence.[45]The judge was then addressed by Ms Meadway on behalf of the representative employee and the judge expressed the view that the compromise was for the benefit of the employees. Mr Barlow addressed the court again and referred to the course of the negotiations as to the £1 million to be the subject of the new trust for the Family Beneficiaries. He said that the payment represented a sum for the “nuisance value” represented by any opposition from those beneficiaries.[46]During the third part of the hearing, the judge stated that she was satisfied with the proposed representation orders and that the compromise was for the benefit of the represented classes.[47]The judge then made an order to give effect to her decisions. The order provided that: i) Euan Barker was appointed to represent for the purposes of the proceedings the interests of all living unborn and unascertained persons who may be or become members of the class defined as the Principal Beneficiaries in the Sub-Trust and who were not parties to the proceedings; ii) Mr. Brown was appointed to represent for the purposes of the proceedings the interests of all living unborn and unascertained persons who may be or become members of the class defined as the "Beneficiaries" under the Trust; iii) the terms of the proposed settlement were approved: "AND THE COURT being satisfied that the terms of compromise are for the benefit of the Second Defendant and the absent family beneficiaries and the absent employee beneficiaries HEREBY APPROVES the terms of the compromise on behalf of the Second Defendant and the absent family beneficiaries and the absent employee beneficiaries AND HEREBY DIRECTS that the terms of compromise shall be binding on them and that the First Defendant or other the trustees or trustee for the time being of the 1999 Declaration of Trust do carry the terms of compromise into effect.” iv) the trust proceedings were to be stayed; there was liberty to apply for the purposes of carrying the terms of compromise into effect.[48]Following the order of 25 July 2014, the terms of the compromise were implemented. A trust was set up of the £1 million for the Family Beneficiaries and, indeed, that trust has been administered.[49]It is now necessary to refer to the proceedings which were described as “the Twin Benefits proceedings”. The Twin Benefits proceedings were originally brought by Mr. Baxendale-Walker as Claimant against Mr. Barker (as First Defendant) and Confiànce (as Second Defendant). The Claim Form was subsequently amended to substitute Twin Benefits Limited ("Twin Benefits") as Claimant. Both Mr. Baxendale-Walker and Twin Benefits brought the claim as the relevant assignee of the claims of Tom and Freya Barker. The Particulars of Claim pleaded, in paragraph 2, that Twin Benefits was owned legally and beneficially by Ms Glover who was its sole director. It was also pleaded that Twin Benefits "holds any proceeds of the causes of action pleaded herein upon trust absolutely for Ms. Glover and her children Tom and Freya." The Particulars of Claim set out the history of the Trust and the Sub-Trust, the Confiànce Proceedings and the settlement of those proceedings. Claims were advanced against both Mr. Barker and Confiànce.[50]In the Twin Benefits proceedings, it was alleged that Confiànce had acted in breach of trust in relation to its decisions as to the investment of trust assets, as to the making of loans to Mr Barker and in failing to ensure that Tom’s and Freya’s interests were adequately represented in the settlement of the earlier proceedings. The claim against Confiànce was struck out by order of Deputy Master Lloyd on 16 February 2017 by reason of Twin Benefits' failure to comply with an "unless" order of the Court dated 1 December 2016 that Twin Benefits provide security for Confiànce's costs by 5 January 2017. Twin Benefits were ordered to pay Confiànce costs. I was told that Confiànce was entitled to £180,000 in respect of its costs but this sum has not been paid.[51]The claim against Mr Barker was based on an alleged breach of fiduciary duty and in restitution.[52]In the Twin Benefits proceedings, it was claimed that the order of 25 July 2014 should be held to be not binding upon Tom and Freya and/or should be varied or revoked to achieve the same outcome. It was explained that Twin Benefits wished to be put in the position where Mr Barker’s claims in the earlier proceedings could be re-litigated with Tom and Freya being able to put their arguments against the relief he sought.[53]In his judgment given on 19 June 2017, Marcus Smith J described the allegations made in relation to the order of 25 July 2014 as follows:
“48 In particular, therefore, I note the facts pleaded by Twin Benefits … . They can be summarised as follows: i) The terms of the Confiànce Settlement were negotiated before the Court had made any order that Euan Barker could represent Tom and Freya. No effort was made to consult Tom or Freya (or their mother, Ms. Glover) or make them aware of the Confiànce Proceedings. ii) At the time of the Confiànce Settlement, Mr. Barker's relationship with Ms. Glover was very poor, whereas his relationship with his ex-wife Deborah Barker (and her son Euan) was good. iii) Mr. Barker chose to issue the Confiànce Proceedings against only Principal Beneficiaries with whom he was on good terms and whom he anticipated would be amenable to a settlement favourable to him. iv) Asplin J. had before her little or no evidence as to Tom and Freya or Ms. Glover's knowledge of or views on the Confiànce Settlement or whether it was appropriate for Euan Barker to represent the twins. … ” i) The terms of the Confiànce Settlement were negotiated before the Court had made any order that Euan Barker could represent Tom and Freya. No effort was made to consult Tom or Freya (or their mother, Ms. Glover) or make them aware of the Confiànce Proceedings. ii) At the time of the Confiànce Settlement, Mr. Barker's relationship with Ms. Glover was very poor, whereas his relationship with his ex-wife Deborah Barker (and her son Euan) was good. iii) Mr. Barker chose to issue the Confiànce Proceedings against only Principal Beneficiaries with whom he was on good terms and whom he anticipated would be amenable to a settlement favourable to him. iv) Asplin J. had before her little or no evidence as to Tom and Freya or Ms. Glover's knowledge of or views on the Confiànce Settlement or whether it was appropriate for Euan Barker to represent the twins. … ”
[54]Marcus Smith J dealt with these allegations later in his judgment, as follows: “87 In this regard, I stress that I proceed on the basis that the factual allegations pleaded in the Particulars of Claim are true. In particular, I proceed on the basis that the interests of Tom and Freya were either inadequately represented before Asplin J. or not represented at all. 88 If that is right, then the representation orders made in the Asplin J. Order may have been obtained on a false basis. That, as it seems to me, is what the Particulars of Claim aver, and that is what (for the purposes of determining this application only) I must accept is the case. 89 However, unless and until these representation orders are varied or revoked or successfully appealed, they stand and they bind Tom and Freya and Tom and Freya's successors in title (namely, Mr. Baxendale-Walker and Twin Benefits). 90 In paragraph 82 of the Particulars of Claim, Twin Benefits sought an order under CPR 19.7(7) to the effect that the Asplin J. Order "does not bind Tom and Freya". CPR Part 19.7(7) provides as follows: "Unless the court otherwise directs, any judgement or order given in a claim which a party is acting as a representative under this rule –(a) is binding on all persons represented in the claim; but(b) may only be enforced by law against a person who is not a party to the claim with the permission of the court." 91 It was Twin Benefits' case that the right to make an application to the court under CPR Part 19.7(7) that the court should "otherwise direct" was a matter that could be pressed before me in proceedings altogether separate from those in which the representation order was made. In effect, it was Twin Benefits' position that the right to apply under CPR Part 19.7(7) was a right that: i) Could be asserted in separate proceedings, ii) By a party other than the person by whom the application would ordinarily be made, presumably because the right to make the application had been transferred to that person. 92 Twin Benefits' assertion of a right to apply under CPR Part 19.7(7) amounted to an assertion that this was a right of action (i.e. a species of chose in action) capable of being asserted in other proceedings by an assignee of the original holder of the right of action. 93 I do not consider that a right to apply under CPR Part 19.7 amounts to a right of action capable of being asserted in other proceedings, nor is it property capable of transfer. In Re. Marley Laboratory Limited [1952] 1 All E.R. 1057, Lord Evershed M.R. in the Court of Appeal said this about the suggestion that the right to make an application for costs was a chose in action (at 1058): "… I think that the applicant's argument is erroneous and that it rests on the hypothesis (which is also erroneous) that a chose in action includes the right of a party to an action to make an application to the judge for order for costs which the judge may or may not direct, and, therefore, I do not think that the applicant's application was correctly made." 94 I consider that, as a general proposition, the "right" to apply to the court under the Civil Procedure Rules is a right entirely governed by those rules and by (to the extent applicable) the court's inherent jurisdiction. Such "rights" are not private law rights subsisting between two parties. They are not capable of assertion or vindication by way of a separate cause of action. Nor are they rights capable of alienation or of transfer to another by the party who could have made the application. 95 I reject, as unarguable, the proposition that an application under CPR Part 19.7(7) in respect of the Asplin J. Order could be made in proceedings other than the Confiànce Proceedings.” "Unless the court otherwise directs, any judgement or order given in a claim which a party is acting as a representative under this rule – (a) is binding on all persons represented in the claim; but (b) may only be enforced by law against a person who is not a party to the claim with the permission of the court." i) Could be asserted in separate proceedings, ii) By a party other than the person by whom the application would ordinarily be made, presumably because the right to make the application had been transferred to that person. "… I think that the applicant's argument is erroneous and that it rests on the hypothesis (which is also erroneous) that a chose in action includes the right of a party to an action to make an application to the judge for order for costs which the judge may or may not direct, and, therefore, I do not think that the applicant's application was correctly made."[55]In relation to the claim which Twin Benefits made against Mr Barker for alleged breach of fiduciary duty, Marcus Smith J held that there was no serious issue to be tried in relation to that claim. He further held that unless the compromise was set aside, there could be no claim in restitution against Mr Barker.[56]Marcus Smith J ordered Twin Benefits to pay Mr Barker his costs of the Twin Benefits proceedings. Twin Benefits was a shell company with no assets and did not pay these costs. Later, Twin Benefits was wound up. Mr Barker applied for an order that Mr Baxendale-Walker pay Mr Barker’s costs. That application came before Birss J on 25 October 2017 and he made a non-party costs order against Mr Baxendale-Walker on the ground that he had funded and controlled the Twin Benefits proceedings; he was also ordered to pay the costs of the application for the non-party costs order. Birss J held that Twin Benefits was set up in an attempt to insulate Mr Baxendale-Walker from a potential costs liability in relation to those proceedings. In view of the order made by Birss J, that attempt failed. Mr Baxendale-Walker was made bankrupt by the order of ICC Judge Briggs (Chief Registrar) on 10 July 2018. The petition debt included the liability to pay costs as ordered by Birss J. I understand that the costs payable to Mr Barker are in excess of £260,000.[57]I also need to refer to further proceedings involving the Trust. Mr Barker sued Mr Baxendale-Walker for alleged negligence in relation to the advice he had given, or failed to give, to Mr Barker in relation to setting up the EBT. Those proceedings were tried by Roth J who dismissed them in a judgment given on 23 March 2016: see [2016] EWHC 664 (Ch). This judgment sets out in detail many factual matters which could potentially become relevant in this case including findings relating to causation as to what Mr Barker would have done if he had been given different advice by Mr Baxendale-Walker. Those findings of fact are not binding on Tom and Freya in relation to any proceedings which might ensue between them and Confiànce and Mr Barker but I can take into account the fact that those findings have been made when I come to consider what might happen in relation to any such proceedings brought by Tom and Freya.[58]Mr Barker appealed the decision of Roth J and his appeal was allowed by the Court of Appeal (Patten, Henderson and Asplin LJJ) on 8 December 2017: see [2018] 1 WLR 1905. On 31 July 2018, the Supreme Court dismissed a petition for permission to appeal against the decision of the Court of Appeal. The ultimate question for the Court of Appeal was whether Mr Baxendale-Walker had been negligent in relation to the advice he had given, or failed to give, to Mr Barker when he set up the Trust. The answer to that question is not of direct relevance in the present application. However, the Court of Appeal did have to consider the arguments put to it as to whether the Trust satisfied the requirements of IHTA section 28. The court considered those arguments for the purpose of assessing the extent of the risk that the Trust did not satisfy the requirements of section 28. Accordingly, the court did not have to make a final determination as to the meaning of section 28 and its application to the facts of the case. Nonetheless, section 28 was fully considered and each member of the court expressed a view as to the likely interpretation which would be given to that section and the likely application of that interpretation to the facts of the case. The focus of the argument in the Court of Appeal was on the fact that, on one interpretation of the trusts, the family of Mr Barker could benefit after his death. It was held that it was likely that a court would hold that the Trust did not satisfy the requirements of section 28 in those circumstances.[59]For some reason, the Court of Appeal did not address the further questions which had been raised by the two Joint Opinions to which I have earlier referred as to whether clause 11 of, and paragraph 1.2.18 of schedule 1 to, the Trust Deed and, indeed, other powers in the Trust Deed meant that the Trust did not in any event conform to IHTA section 28.[60]One member of the Court of Appeal, Henderson LJ considered whether the family members could be beneficiaries under the Trust and whether the Sub-Trust was valid. On those points, he said:
“87 Finally, although this question was barely touched upon in argument, I think it is worth pausing to consider whether the terms of the EBT trust deed, as executed on 6 October 1998, may have succeeded in complying with section 28(4) construed in the way I have outlined, even though it was of course the intention of Mr Baxendale-Walker and his firm that the trust property could safely be applied for the benefit of persons connected with Mr Barker during his lifetime after his death. Clause 1.4 of the trust deed defined “the beneficiaries” in terms wide enough to include Mr Barker and his immediate family, but subject to a proviso that “no excluded person shall be a beneficiary”
. Excluded persons were then listed in Schedule 3 as follows:
“1. Each and every ‘participator’ (as defined in the Act) in the founder [i e Team 121 Holdings Ltd]. “2. Each and every person who has been a ‘participator’ (as defined in the Act) in the founder within the ten year period preceding the date of this deed. “3. Each and every person who is ‘connected’ with any such ‘participator’ (whether current [or] former) for the purposes of the Act. “In this Schedule, references to ‘the Act’ mean the Inheritance Tax Act 1984 and any statutory modification, amendment or consolidation of the same.” 88 It seems reasonably clear that this language was intended, at least in general terms, to reproduce the effect (if not the precise wording) of paragraphs (a), (c) and (d) of section 28(4). If, however, that is the correct construction of Schedule 3, a question which fortunately we do not have to decide, and if section 28(4) has the meaning which I would attribute to it, it would then seem to follow that Mr Barker would indeed have been entitled to exemption from inheritance tax on his transfer of shares, but the settlement would never have been capable of operating in the way which he hoped, and on the strength of which he had paid an enormous fee for the tax avoidance advice given to him by Mr Baxendale-Walker. Indeed, it would seem to follow that the sub-trust established soon after, on 23 March 1999, was itself invalid because it was made for the benefit of excluded beneficiaries. 89 In those circumstances, Mr Baxendale-Walker and his firm would be impaled on the horns of an uncomfortable dilemma. Assuming HMRC's construction of section 28(4) to be correct, he should have given Mr Barker a clear specific warning to that effect; and he could not save the day by arguing that the trusts of the EBT were in fact drawn in a manner which would secure exemption, because the settlement would then fail to achieve the very objective which had induced Mr Barker to make the transfer, and on the strength of which the scheme had been sold to him. Either way, Mr Baxendale-Walker and his firm were clearly negligent.” “1. Each and every ‘participator’ (as defined in the Act) in the founder [i e Team 121 Holdings Ltd]. “2. Each and every person who has been a ‘participator’ (as defined in the Act) in the founder within the ten year period preceding the date of this deed. “3. Each and every person who is ‘connected’ with any such ‘participator’ (whether current [or] former) for the purposes of the Act. “In this Schedule, references to ‘the Act’ mean the Inheritance Tax Act 1984 and any statutory modification, amendment or consolidation of the same.”

The application

[61]On 27 June 2017, Tom and Freya, acting by their litigation friend, their mother Ms Glover, issued the present application by which they sought orders: i) adding them as parties to these proceedings; ii) lifting a stay of these proceedings ordered on 25 July 2014; iii) revoking or varying the order of 25 July 2014 or, in the alternative, declaring that that order was not binding on Tom and Freya.[62]At the first hearing on this application on 3 October 2017 Mr Seitler QC, who appears with Mr Hackett for Tom and Freya, explained that it was sufficient for his purposes that the court declared that the order of 25 July 2014 was not binding on Tom and Freya.[63]The part of the order of 25 July 2014 which appointed Euan to represent others, including Tom and Freya, was made pursuant to CPR 19.7. Rule 19.7(5) provides that the court’s approval is required to settle a claim in which a party is acting as a representative under rule 19.7. Rule 19.7(6) provides that a court may approve such a settlement where it is satisfied that the settlement is for the benefit of all the represented persons.[64]Rule 19.7(7) provides:
“Unless the court otherwise directs, any judgment or order given in a claim in which a party is acting as a representative under this rule – (a) is binding on all persons represented in the claim; but (b) may only be enforced by or against a person who is not a party to the claim with the permission of the court.”
(emphasis added) (a) is binding on all persons represented in the claim; but (b) may only be enforced by or against a person who is not a party to the claim with the permission of the court.” (emphasis added)[65]Mr Seitler QC seeks a direction pursuant to rule 19.7 (7)(a) that part of the Order of 25 July 2014 should not be binding on Tom and Freya. The relevant part of the Order was the approval of the settlement of the proceedings. Mr Seitler explained that if the approval of the settlement was not binding on Tom and Freya then they would not be bound by the release (contained in the settlement) of all claims against Confiànce. Tom and Freya would then be able to bring claims against Confiànce. Tom and Freya recognise that the settlement between Mr Barker and Confiànce has happened and they do not seek to have that settlement rescinded; accordingly, the result would remain that the Trust and the Sub-Trust no longer have effect. However, Mr Seitler submits that Tom and Freya would be able to pursue claims against Confiànce under two principal heads. The first head would be a claim for breach of trust as a result of Confiànce making loans to Mr Barker prior to the order of 25 July 2014. The second head of claim would be that Confiànce acted in breach of trust in agreeing the compromise with Mr Barker and, more particularly, allowing the compromise to go before the court for approval without the interests of Tom and Freya being properly protected. If Tom and Freya established that Confiànce had committed a breach of trust in parting with the trust assets to Mr Barker, then Tom and Freya would seek to follow or trace those trust assets and/or claim against Mr Barker by reason of his receipt of those assets.[66]Mr Seitler strongly attacked the way in which the compromise was proposed, the way in which Euan was selected to be the representative party, the way in which the figure of £1 million was negotiated and, above all else, the collusion (as he described it) which occurred when Ms Glover and Tom and Freya were excluded from all of these steps and were deliberately kept in the dark. He submitted that if Ms Glover and/or Tom and Freya had known anything about the proposed compromise in advance of the hearing on 25 July 2014, matters would have turned out radically differently. He says that Ms Glover would have sought to protect the interests of Tom and Freya. Ms Glover would not have agreed to the appointment of Euan as a representative party. She would have made sure that there was real opposition to the claim put forward by Mr Barker. She would have argued matters which were never argued in opposition to that claim. When it came to negotiating a settlement, she would have engaged in real and effective negotiations and if there had been a settlement of Mr Barker’s claim the amount which would have been made available for the children, and in particular Tom and Freya, would have been greater than £1 million.[67]Mr Seitler submitted that I should declare that the relevant part of the order was not binding on Tom and Freya and leave matters to take their course. He submitted that I should not attempt to form any view as to the strength of the potential claims which Tom and Freya have identified that they wish to make against Confiànce and Mr Barker. He submitted that the appropriate time for him to formulate those claims and for them to be appraised was in future proceedings. He said that he did not have to spell out the nature and the detail of those claims at this stage.[68]Mr Seitler also submitted that as Tom and Freya were wrongly shut out from the hearing on 25 July 2014, it should simply be held that what happened at that hearing is not binding upon them. It would be inappropriate to ask what would have happened if they had been represented at that hearing and they had submitted at that time that approval to the compromise should not have been given. Alternatively, if the court did pose the question as to what would have happened if Tom and Freya had opposed the grant of approval, that exercise should be carried out by reference to the facts which were known on 25 July 2014 and not by reference to later events, such as the decision of the Court of Appeal in the negligence proceedings brought by Mr Barker.[69]Ms Talbot-Rice QC and Ms Murphy on behalf of Confiànce, and Mr Cloherty on behalf of Mr Barker, invited me to consider two matters. Their first submission was that I should consider whether Tom and Freya would gain anything worthwhile by the court declaring that the approval of the compromise was not binding upon them; it was submitted that it was now wholly clear that Tom and Freya had no possible claim for breach of trust against Confiànce. The second submission was that, if I considered that it was not appropriate that Tom and Freya should be bound by the result of the hearing on 25 July 2014, when they had been excluded from that hearing, the right response was to conduct a hearing at which Tom and Freya did participate and having considered the submissions from all sides, I should myself make up my mind whether it was appropriate for the court to approve the compromise.[70]Before I consider these two submissions, I will refer to two further points which were considered in the course of argument. The first was as to the test I should apply for the purpose of the present application under CPR 19.7(7)(a). The second was whether, if I were minded to accede to Tom and Freya’s application under CPR 19.7(7)(a), I should impose a condition that they should only be released from the effect of the previous order if they paid to Confiànce and Mr Barker the costs which those two parties had incurred in relation to the Twin Benefits proceedings and which they had not been paid notwithstanding orders for costs in their favour. I will return to these submissions later in this judgment but, first, I will consider the two submissions made on behalf of Confiànce and Mr Barker and then decide what I should do.

The suggested claims against Confiànce

[71]If Tom and Freya are to sue Confiànce for breach of trust, they will have to plead and establish that they were beneficiaries under a relevant trust of which Confiànce was the trustee. I understand that they will seek to argue that they were beneficiaries under the Trust and the Sub-Trust. That allegation will give rise to a number of issues, including the following: i) did the Trust comply with IHTA section 28? ii) did the Deed of Gift fail because the condition in clauses 1 and 2 of the Deed of Gift was not satisfied? iii) was Mr Barker entitled to set aside the Trust by reason of mistake?[72]In relation to the question whether the Trust complied with IHTA section 28, the history of the matter shows that a number of points have been raised and considered. There is the important point of statutory interpretation as to the date which is relevant when considering whether the members of Mr Barker’s family are connected persons. Then there were points which turned upon the effect of certain provisions in the Trust Deed and those points give rise to further issues as to how the provisions ought to be construed.[73]In relation to the correct interpretation of section 28 and the relevant date point, I now have the benefit of the decision of the Court of Appeal in Barker v Baxendale Walker Solicitors. Mr Seitler submits, correctly, that the Court of Appeal did not finally determine the effect of section 28 because it did not need to do so. Instead, the Court of Appeal confined itself to saying what it thought was the most likely interpretation of the section. However, the Court of Appeal heard full submissions on that point and dealt with all of the arguments which had been raised. It identified what it considered was the most likely construction of the section and gave several cumulative reasons for its conclusion. Mr Seitler submitted that I should take the view that the correct construction of section 28 would be looked at afresh in the proceedings which Tom and Freya wish to bring against Confiànce and Mr Barker and I should not attempt to predict the decision which a future court would make in that respect. I do not take that view. I consider that, in the light of the clarity and cogency of the reasoning of the Court of Appeal judgment, a future court will apply that reasoning and decide that section 28 is to be construed in the way which the Court of Appeal considered was the most likely way. Further, for the purposes of the application before me, it is open to me to make my own decision as to the meaning of section 28. My decision is that section 28 is to be construed in the way identified by the Court of Appeal.[74]This conclusion makes it unnecessary to consider whether certain provisions of the Trust Deed, such as clause 11 and paragraph 1.2.18 of schedule 1, produced the result that the Trust did not comply with section 28. Mr Barlow and Mr Dew advised that those provisions were fatal to the claim that the Trust complied with section 28. However, I recognise that there are arguments to the effect that those provisions may not be used to confer benefits on Excluded Persons and so those provisions would not have the effect that the Trust did not comply with section 28. If these points were the only suggested reasons as to why the Trust did not comply with section 28, I would hold that Tom and Freya would have a difficult case to pursue in these respects but their case would not be hopeless. However, as I have explained, the Trust did not comply with section 28 for the separate reasons explained by the Court of Appeal.[75]The next question therefore is whether the Deed of Gift failed because the condition in clauses 1 and 2 was not satisfied. If the condition were construed in the way contended for by Mr Barker, namely that the condition was only fulfilled if the Trust complied with section 28, then it would follow that the condition was not fulfilled. The advice given in the two Joint Opinions to which I have referred was that Mr Barker’s construction of the condition was correct. However, I recognise that there is scope for the contrary argument in view of the fact that the condition is very badly drafted. I am prepared to assume in favour of Tom and Freya that although the condition in the Deed of Gift may well defeat their claim that there was an effective Deed of Gift, the position is unclear and they might after all succeed on this point.[76]I therefore need to consider whether Mr Barker would have succeeded in claiming that the Trust or the Deed of Gift should be set aside for mistake. This point arises on the assumed basis that the Trust and the Deed of Gift were otherwise effective. If so, what was their effect? There are only two possibilities. Either, the family beneficiaries were excluded from benefitting at any time and the Trust complied with section 28 or the family beneficiaries were not excluded from benefitting with the consequence that the Trust did not comply with section 28 and Mr Barker did not gain the intended tax advantages. In view of the Court of Appeal’s views as to the correct interpretation of section 28, Mr Barker had failed to achieve what he wanted to achieve which was that the Trust did comply with section 28 and he obtained the various tax advantages and the family beneficiaries were capable of benefitting after his death. It is therefore plain that Mr Barker had made a mistake as to the effect of what he had done. The nature of the mistake would have entitled him to an order rescinding the Trust Deed and Deed of Gift ab initio. There were no identified defences to such a claim. I consider that the position in that respect is clear beyond argument.[77]The reasoning so far produces the result that if Tom and Freya sued Confiànce for breach of trust (and sued Mr Barker in connection with the benefits he received as a result of the breach of trust), they would fail on the ground that Mr Barker was entitled to rescission of the Trust Deed and the Deed of Gift.[78]In his submissions in reply, Mr Seitler came up with two new points. His first point was that if I were persuaded to hold that the Trust was effective but the children were within the definition of Excluded Persons and so were not beneficiaries under any express trust, nonetheless “there were mechanisms” by which Tom and Freya “could have been gifted assets from the EBT”. This led Mr Seitler to submit that the court would impose a constructive trust on the trustee and Tom and Freya would be beneficiaries under that constructive trust. I do not begin to see how that could be the case. Mr Seitler’s first hypothesis is that the Trust is effective. If so, the terms of the Trust will identify the trusts and the persons who are potential beneficiaries. Mr Seitler’s second hypothesis is that Tom and Freya are excluded by the terms of the Trust from being beneficiaries. If his two hypotheses are right, I do not see how the court can impose on the trustee different trusts under which Tom and Freya become beneficiaries. Mr Seitler submitted that the decision in Pennington v Waine [2002] 1 WLR 2075 gave the court power to impose such a constructive trust. That decision considered the rule that the court did not have power to perfect an imperfect gift or that a court of equity will not assist a volunteer: see Milroy v Lord (1862) 4 De GF & J 264. In Pennington v Waine, it was held that a donor of shares had taken steps whereby he constituted himself a constructive trustee of the shares in favour of the donee so that title to the shares had passed in equity though not at law. I cannot see anything in that case which provides any support for Mr Seitler’s submission that Tom and Freya are beneficiaries under a constructive trust binding Confiànce.[79]Mr Seitler’s second new point challenged Mr Barker’s claim that he had made a mistake. It was said that the trustee could have used powers in the trusts to pay sums to the children as Mr Barker’s income. It was then said if those powers existed, they would not produce the result that the EBT did not conform to IHTA section 28 by reason of the exemption in section 28(6) in relation to taxable income. I am not clear that there were provisions in the Trust Deed which allowed the trustee to pay sums by way of income to Mr Barker. But even if there were and even if section 28(6) applied to those provisions, the Trust still failed to conform to section 28 by reason of other provisions which it contained. I do not see this argument as to section 28(6), even if it were correct, as detracting from Mr Barker’s case on mistake. Further, the ability of the trustee to pay income to Mr Barker which would allow him if he wished to make payments out of that income to his children (or to direct the trustee to make those payments direct to his children) does not give the children a beneficial interest under the trust. At most they would receive gifts from Mr Barker out of his income.[80]The result of the above reasoning is that Tom and Freya would not be able to show that they were beneficiaries under a trust binding Confiànce. In those circumstances, I do not need to consider whether they have any arguable claim that Confiànce acted in breach of trust. I was not addressed as to the circumstances in which Confiànce made loans to Mr Barker and I cannot usefully comment on Tom and Freya’s complaint that Confiànce thereby committed a breach of trust. As regards the allegation that Confiànce acted in breach of trust by failing to protect the interests of Tom and Freya in relation to the trust proceedings and the application for approval of the compromise, I think it most unlikely that Confiànce is open to any legitimate criticism in that regard. Confiànce was faced with an allegation that it held the trust assets on a bare trust for Mr Barker. It was therefore caught in the middle in a dispute as to who were the beneficiaries in relation to the trust assets; did it hold the trust assets for Mr Barker on a bare trust or for employees and family members under the Trust and the Sub-Trust? It was advised by Mr Goy and Mr Le Poidevin that the real dispute was between the rival groups of beneficiaries. On the information which I was shown, Confiànce was told that the family beneficiaries (who were not adults) were represented by one of the children, Euan, who had a litigation friend and who was being advised by Mr Barlow and Mr Dew on the basis that all of the children had the same interest. Without more material to go on, those facts do not suggest a breach of trust by Confiànce.[81]The result of the above reasoning is that it is apparent that a claim by Tom and Freya against Confiànce would fail. Similarly, there would be no case for following or tracing trust assets into the hands of Mr Barker nor of him being liable for assets received in breach of trust. I therefore accept the submissions for Confiànce and Mr Barker that Tom and Freya do not gain anything of advantage by the order which is sought to the effect that they are not bound by the court’s earlier approval of the settlement.

Would I have approved the settlement?

[82]I will now address the second submission which invites me to consider what I would do if I was hearing an application for approval of the settlement. Having considered all of the arguments as to IHTA section 28, the condition in the Deed of Gift and the claim to rescission on the ground of mistake, I have no hesitation in reaching the view that the settlement which had been proposed prior to 25 July 2014 was in the best interests of Tom and Freya. I certainly take that view if I take account of all of the matters which have emerged up to the present time. The principal such matter is the decision of the Court of Appeal which was, of course, not available on 25 July 2014. Mr Seitler submits that because that decision was not available on 25 July 2014, I should leave it out of account and I should instead reflect the fact that the two Joint Opinions which were then available expressed conflicting views on the point which was later considered by the Court of Appeal. I am not persuaded that I should leave out of account the later decision of the Court of Appeal. I have been invited to form a view as to whether the settlement was in the best interests of the beneficiaries in order to help me decide what to do on the present application by Tom and Freya. If I felt that Tom and Freya had suffered an injustice, then that might affect the outcome of their application. But if I felt that, particularly as matters have turned out, the settlement was beneficial to them, that would help me to decide that I should not now open up the approval of the settlement which the court gave on 25 July 2014.[83]Even if I left the later decision of the Court of Appeal out of account, there were still powerful reasons why it would probably have been right for the court to approve the settlement. When I consider the combination of the points which were available to Mr Barker, as to the meaning and effect of section 28, as to the effect of particular provisions in the Trust Deed, as to the condition in the Deed of Gift and as to the alleged mistake, I find that he undoubtedly had a very strong case overall. If his case prevailed, the beneficiaries under the Trust would get nothing. Under the settlement, the family beneficiaries would have the benefit of £1 million settled on a new effective trust. Even if I had held that Euan should not represent Tom and Freya and even if I had heard on behalf of Tom and Freya all of the arguments which were put on their behalf at the hearing of the present application, I would probably have approved the settlement. It should be remembered that the proposed settlement was a global settlement with everyone potentially interested. I could not approve the settlement so as to bind some beneficiaries and not Tom and Freya. If I withheld approval of the settlement, the result would be that all the beneficiaries would lose the benefit of the £1 million settlement offer.

My decision

[84]I have now reached three conclusions, as follows:(1) if I made the order sought by Tom and Freya, I would not thereby give them anything of value as they would still have no arguable claim for breach of trust against Confiànce and Mr Barker;(2) the settlement was in the best interests of Tom and Freya; and(3) if I had been asked to approve the settlement in the light of all of the arguments I have now heard, I would have done so. In the light of the first of these conclusions, I do not see how it could be appropriate or fair or just to anyone to declare that the Order of 25 July 2014 is not binding on Tom and Freya. This view is powerfully supported by the other two conclusions set out above.[85]I mentioned earlier that I heard detailed submissions as to the legal test which I should apply on an application under CPR 19.7(7)(a). The submissions on behalf of Confiànce and Mr Barker were that I could only make the order sought under that rule if I were satisfied that the relevant order had been obtained by collusion or fraud or that the court had been cheated into believing that the case had been fairly fought or that Tom and Freya had been fairly represented. This formulation was taken, rather literally, from the way in which the matter had been described in one case, namely, Commissioners of Sewers of the City of London v Gellatly (1876) 3 Ch D 610 at 615 per Jessel MR. Mr Seitler submitted that he could demonstrate that that test was satisfied on the facts of this case by reason of the deliberate action to keep Tom and Freya and Ms Glover in the dark as to what was happening. However, I draw attention to the fact that the relevant part of CPR 19.7(7)(a) simply says “unless the court otherwise directs” and lays down no guidance as to when it is appropriate to give such a direction. That would suggest that the court should show its usual concern for fairness and justice, efficiency of court procedures and the need for finality in litigation in deciding what to do on such an application.[86]I have already expressed the conclusion that it would not be appropriate or fair or just to anyone to declare that the Order of 25 July 2014 was not binding on Tom and Freya. I therefore consider that it is inevitable that I should not accede to their application under CPR 19.7(7)(a). If I apply a test which depends on my assessment of fairness and justice, efficiency and the need for finality, then that result follows. However, even if I applied the test drawn from the Gellatly case and even if I further held that the other parties adopted a procedure which was potentially unfair to Tom and Freya, I would still not accede to the application where my overall assessment is that to do so would not be appropriate or fair or just to anyone.[87]Other matters were put forward as to why I should not give a direction under CPR 19.7(7)(a). These included the delay in making the present application and various changes of position which had occurred in reliance on the Order of 25 July 2014. In view of my earlier conclusions, I need not consider these further matters.[88]It was submitted that if I were otherwise minded to give a direction under CPR 19.7(7)(a), I should only do so on the condition that Tom and Freya do first pay Confiànce’s and Mr Barker’s costs of successfully resisting the Twin Benefits proceedings.[89]It was submitted that I should take the view that it would be an abuse of process for Tom and Freya to be released from the order of 25 July 2014 to enable them to start new proceedings without first paying the costs which Confiànce and Mr Barker incurred in defending the Twin Benefits proceedings. It was said that by analogy with the power conferred by CPR 3.4(4) and on the authority of Investment Invoice Financing Ltd v Limehouse Board Mills Ltd [2006] 1 WLR 985, such an order would be appropriate. Having regard to the facts that: i) Tom and Freya had assigned their claims against Confiànce and Mr Barker to Mr Baxendale-Walker who assigned them to Twin Benefits; ii) The Twin Benefits claim was brought for the benefit of Tom and Freya; iii) Twin Benefits has re-assigned the relevant claims to Tom and Freya; iv) The overlap in the allegations made in the Twin Benefits proceedings, the allegations made in the present application and the suggested allegations which Tom and Freya say they wish to be free to make against Mr Barker and Confiànce; I consider that it would be an abuse of process for Tom and Freya to bring proceedings against Confiànce without paying to Confiànce its costs of successfully defending the Twin Benefits proceedings and, similarly, it would be an abuse of process for Tom and Freya to bring proceedings against Mr Barker without paying to Mr Barker his costs of successfully defending the Twin Benefits proceedings.[90]In those circumstances, if I had been prepared to give a direction under CPR 19.7(7)(a), I would have imposed the condition that the direction should only take effect if Tom and Freya paid the costs incurred by Confiànce and Mr Barker of successfully resisting the Twin Benefits proceedings.

Cited in 2 later judgments