“What I meant at paragraph 12 of my First Witness Statement dated20 December 2017 is that I had never been involved in setting up a UK trust let alone a Disabled Person’s Trust before and I did not know how these types of trust operated or the potential tax consequences involved.”
“The key points which I make in this part of my judgment are the following. The nature of the mistake in rule 3.5.2.1 was such that it could only be corrected by changing the rule, as opposed to nullifying it. The only way to change the rule retrospectively was by an order of rectification. That could only be achieved if the circumstances of the case qualified for rectification, but they did not. Where the rule in Hastings-Bass applies the effect is not to change something that trustees have done, but rather to set it aside altogether. But in this case rule 3.5.2.1 needed to be changed, not set aside. The claimants seek to navigate round this obstacle by their undertaking that, if the court sets the rule aside, they will make an amendment which introduces a new rule 3.5.2.1 that does not suffer from the mistake contained in the present one. This is rectification by the back door, and in my judgment it is not an acceptable way for the court to proceed.”
“The trust will clearly be intended to provide a home for Stefan and will provide that during Stefan’s lifetime, not less than half of any distributions from the trust must be made to Stefan or for his benefit …”
“Planning permission for a 15,643 sq.ft classically designed new country house with grand hall, 6 reception rooms, 8 bedroom suites, games room, billiard room, indoor swimming pool. In all about 148 acres”
“I had understood from my husband, in reliance upon the advice provided by Mr Buzzoni, that the setting up of the Trust would mean that there would be no IHT or other tax liabilities. Then in paragraph 27 of the Second Claimant’s statement she says: “My husband and I were disturbed greatly by the suggestion that IHT would be payable on Stefan’s death as his life expectancy was uncertain. Whilst I had understood from my husband that any money he and I put into the trust could be subject to IHT on our deaths within seven years, it was never suggested to me, and certainly never occurred to me, that if Stefan died within this period there could be an extra 40% liability…”
“After 7 years I thought everything would be tax free!”
“… it was not obvious to me as a lay person that a result of placing assets into the Trust Fund would be that Stefan would be deemed to be entitled on his death to the entirety of the Trust Fund, giving rise to a 40% IHT charge on the value of that fund.”
“Had it contained this information I would not have agreed to the proposal.”
“… I understood that an agreement had to be put in place to avoid problems but I did not consider this matter any further but relied upon their [Taylor Wessing’s] advice. I never understood the GWROB issues and the fact that my wife and I would have to pay full market rent to occupy Medstead Grange for the rest of our lives, a property which we had purchased. If I had understood this I would never have agreed to Medstead Grange being transferred into the trust. As I have already said I had no objection to a trust being set up for Stefan.”
“15. … We intended to develop the property by building an entirely new family home on the site, which all family members could stay in, but with a wing specifically adapted to cater for Stefan’s needs, and a lift to allow Stefan access to all parts of the house. Having been forced to move from Upper Phillimore Gardens to a London property better suited to Stefan’s immediate needs, Medstead Grange offered my husband and I the ability to create a home suited to our long-planned retirement needs, which could also allow us to involve Stefan in family life as closely as possible. 16. It was always our intention that my husband and I would spend an increasing amount of time at the property as he eased into retirement, and that the property would be available to the family as a whole to enjoy, including grandchildren as they came along, and also for Stefan’s friends and other family friends to visit. It was never the intention of my husband and myself that the property would be for Stefan’s exclusive use as I understand from my husband that TW [Taylor Wessing] seem to suggest. In fact it remains obvious now as it was in 2010 that most of Stefan’s time would be spent in London close to the best care facilities, which he continues to need.”
“Olaf’s [the First Claimant’s] original understanding was that whilst he could not benefit from the Trust Kristina was to be able to benefit, but all along Medstead was to be their “country retreat” but not their “principal residence” for CGT.”
“Once the construction works were well advanced and Olaf and his wife were looking to occupy the property in the near future, Olaf arranged a meeting with Mr Buzzoni on16 January 2015 at which I was in attendance. This was the first time I had met Mr Buzzoni. At this meeting the gift with reservations of benefit (“GWROB”) provisions were discussed. Mr Buzzoni assured Olaf that, although he and his wife would need to pay rent to the Trust for the occupation of the property, the running costs could be offset against the rent payments. I was surprised by this as I had never heard of this before and I questioned how the rent could be eliminated by running costs but Mr Buzzoni said that this was quite common for properties of this kind and that there were property agents that should be able to assist in achieving this goal. This led myself and Olaf to believe that there would be no rent to pay for Olaf and his wife’s occupation of the property as this would be eliminated altogether by the running costs.”
“So far as I am concerned, in terms of Olaf’s objectives, the trust works for IHT, but there would be tax to pay if Stefan died.”
“… At present, there is significant flexibility as to who distributions are made to. I think a decision on this should probably be made when we have a sense of the rental income and how much the net taxable income from property is going to be in future. I attach a copy of an email from Charlie Seligman at Savills who Olaf asked to advise on the rental position. The main thing he is going to need guidance on is the extent of the property which Olaf will be renting from the trust and how much can safely be excluded on the basis that Olaf and his wife won’t use it. It is clear, however, from my conversation with him that the rent that Olaf is going to need to pay will be quite significant (well north of£100,000 per annum). You will know better than I do what expenses might be capable of being set against that income.”
“That is absolutely awful ! [ … ] The whole proposal from Buzzoni seems not to have worked. 50 per cent should be for Stefan and the remaining 50 per cent should be divided between Kristina, Sophia, Ralph and Isabella in case the property will be sold one day. We have payments vis Kristina to be sure the gift tax will not apply i.e. after 7 years I thought everything would be tax free !”
“There was a payment made into the trust of£265,000.00 on7 August 2015 which was before the email forwarded to me by Mr Broom at 5.10 p.m. on that day which was the email from Mr Buzzoni. This was, in fact, a payment made to the trust by my wife and not by me. As my email was sent in response to Mr Broom’s after 5.10 p.m. GMT, if the payment of£265,000.00 had been made after this, it would not have been credited to the trust account until the following day so it would be showing as having been made on8 August 2015 . Therefore, the payment must have been sent prior to my receipt of Mr Broom’s email.”
“The amounts which I contributed to the Trust after November 2015, when I realised that the Trust was problematic, I initially understood to be loans. It is my current understanding that, as the trustees did not all agree to this, those payments cannot be classified as loans. I understand that because I did not intend to give those sums to the Trust […. ] those sums are (or the proceeds thereof) are held by the trustees on resulting trust for me.” 152.3. In Mr Conolly’s skeleton argument for28th November 2018 he submitted that the First Claimant made payments to the trustees, and discharged their liabilities in relation to construction costs, after27 November 2015 , which total£2,405,000 … A declaration is sought that these sums, and any assets representing them, are held on resulting, or in the alternative, constructive trust for [the First Claimant].” 152.4. In paragraph 23 of the First Claimant’s supplementary statement he says: “I started paying bills relating to Medstead Grange from my own account on26 October 2015 . All the transfers into the trust were made by Kristina and I did not pay any monies into the trust. All bills relating to Medstead Grange were paid directly from my own account and I would then be credited for the sums paid. […]”
“Returning to rescission, I consider that the claimants are entitled to the last alternative head of relief claimed in the amended Particulars of Claim, namely an order setting aside clause 2.1(c) of the October 2008 Appointment. Mr and Mrs Kennedy and Mr Sturrock have all given evidence that, if they had been aware of their mistake, they would have omitted clause 2.1(c) from the October 2008 Appointment. That is a self-contained and severable provision in the deed. There is authority that there cannot be partial rescission of a contract; it must be set aside as a whole and not only as to part: see De Molestina v Ponton [2002] 1 LL Rep 70 , 286–289 and the cases cited there. That limitation makes sense in a contractual context and as preventing the court in effect imposing a different contract to the one the parties actually made. I see no reason, however, why that limitation should apply to a selfcontained and severable part of a non-contractual voluntary transaction. In such a situation the allied principle that rescission can only be granted if both sides can substantially be restored to their pre-contractual positions is irrelevant. Again, no authority was cited to me on this point one way or the other. In the absence of authority to the contrary, I can see no reason in principle why, on the facts of the present case, clause 2.1(c) should not be set aside for mistake pursuant to the principles in Pitt v Holt .”
“136. Mr Jones's second new point was that Mrs Pitt should be refused relief because the granting of relief would serve no practical purpose, other than saving inheritance tax… 137. The fund subject to the SNT had many calls on its resources, with heavy professional costs and expenses as well as making provision for the welfare and care of Mr Pitt and the maintenance of his wife. On his death on25 September 2007 there was only£6,259 in the trust (the deputy judge added,[2010] 1 WLR 1199 , para 15, that that was “on Mrs Pitt's case” but he had earlier stated, para 4, that the material facts were not in dispute at all). On Mr Pitt's death this sum, subject to any outstanding liabilities, vested in his personal representatives under clause 3 of the SNT. Any remaining value in the fund was therefore in the same beneficial ownership as if the SNT had been set aside by the court. 138. On22 November 2011 , after this court had granted permission for Mrs Pitt to appeal from the Court of Appeal's decision, her solicitors wrote to the Solicitor's Office of the Revenue drawing attention to a submission in the Revenue's skeleton argument before the Court of Appeal, para 105: “But, in any event, the settlement should not be set aside after this period of time, especially when the court does not know what proprietary claim would vest in the estate against third parties.”
“Please note that Mrs Pitt and Mr Shores [her co-executor] have irrevocably instructed us to indicate, that if the Supreme Court orders that Mr Pitt's settlement is set aside, no further claim (to moneys or other relief), will be made by them in their capacity as Mr Pitt's personal representatives, or by Mrs Pitt in her capacity as sole beneficiary of his estate, whether against the trustees (from time to time) of Mr Pitt's settlement or the recipients of distributions or other payments from the trustees. Our clients will be satisfied with the effect of section 150 IHTA 1984(consequent on the order setting aside Mr Pitt's settlement).” 139. In these circumstances Mr Jones has submitted that it would be pointless, and so contrary to equity's practical approach, to grant relief that would achieve nothing, apart from a tax advantage to Mrs Pitt… …. 141. Until the solicitor's letter of22 November 2011 there was at least a possibility of third party claims arising, and the Revenue placed reliance on that as a reason for refusing relief. But for the letter, the court might, if minded to grant relief, have required an undertaking to the same effect as the one that Mrs Pitt and Mr Shores have volunteered. Moreover the Revenue's argument ignores the fact that unless and until the SNT is set aside, there are potentially contestable issues between the Revenue and any persons who, not being purchasers for value without notice, have received distributions from the SNT. The statutory charge undersection 257 of the Inheritance Tax Act 1984 would prima facie give the Revenue a proprietary claim against such third parties. For these reasons I would reject the Revenue's second new point also.” “Please note that Mrs Pitt and Mr Shores [her co-executor] have irrevocably instructed us to indicate, that if the Supreme Court orders that Mr Pitt's settlement is set aside, no further claim (to moneys or other relief), will be made by them in their capacity as Mr Pitt's personal representatives, or by Mrs Pitt in her capacity as sole beneficiary of his estate, whether against the trustees (from time to time) of Mr Pitt's settlement or the recipients of distributions or other payments from the trustees. Our clients will be satisfied with the effect of section 150 IHTA 1984(consequent on the order setting aside Mr Pitt's settlement).”
“But a Court of Equity could not give damages, and, unless it can rescind the contract, can give no relief. And, on the other hand, it can take accounts of profits, and make allowance for deterioration. And I think the practice has always been for a Court of Equity to give this relief whenever, by the exercise of its powers, it can do what is practically just, though it cannot restore the parties precisely to the state they were in before the contract. And a Court of Equity requires that those who come to it to ask its active interposition to give them relief, should use due diligence, after there has been such notice or knowledge as to make it inequitable to lie by. And any change which occurs in the position of the parties or the state of the property after such notice or knowledge should tell much more against the party in mora, than a similar change before he was in mora should do.”
“This analysis of the cases shows that the principles of restitutio in integrum is not applied with its full rigour in equity in relation to transactions entered into by persons in breach of a fiduciary relationship, and that such transactions may be set aside even though it is impossible to place the parties precisely in the position in which they were before, provided that the court can achieve practical justice between the parties by obliging the wrongdoer to give up his profits and advantages, while at the same time compensating him for any work that he has actually performed pursuant to the transaction.”