Herring & Anor v Shorts Financial Services Llp [2016] EW Misc B12 (CC) (09 May 2016) [2016] EW Misc B12 (CC)

EWMISC
Herring & Anor v Shorts Financial Services Llp [2016] EW Misc B12 (CC) (09 May 2016)
[2016] EW Misc B12 (CC) · 2012-06-02

Judge Behrens:

[1]Introduction Mrs Shemwell died on 2 June 2012 aged 86. She was a widow who had no children or other close relations. She was also relatively wealthy with an estate worth approximately £2 million.[2]On 8 November 2011 she executed a will ("the 2011 will") which was drafted for her by Mr Woodhead, the probate partner at BRM Solicitors ("BRM") a firm of solicitors in Chesterfield. Under the terms of that will she made a number of pecuniary legacies including legacies of £54,000 each in favour of the Claimants, Claire Hartley and Tim Herring, who were the children of her late husband's niece.[3]Mr Sully was an employee of the Defendant. He had been Mrs Shemwell's financial advisor since October 2000 and had given her financial advice regularly since that date. In April 2011 Mrs Shemwell inherited some £300,000 as a result of her sister's death.[4]In order to mitigate the Inheritance Tax payable on her death, acting on Mr Sully's advice Mrs Shemwell set up 2 trusts in favour of the Claimants in August 2011. One was a discretionary trust which named the Claimants as the sole discretionary objects. Mrs Shemwell invested £175,000 in this trust. £175,000 was the maximum remaining to her in respect of her nil rate IHT band. If she had paid any more there would have been an immediate IHT charge of 20% of the excess. The remaining £125,000 was invested in a loan trust which also named the Claimants as the sole discretionary beneficiaries. Under a loan trust the capital is loaned to the trustees and is repayable on demand. It is also repayable on death with the result that it falls into the estate. Any capital growth however is outside the trust and thus is available for the beneficiaries. It was plainly less effective than an outright discretionary trust as a means for saving IHT. However, it did not incur the immediate 20% charge which Mrs Shemwell was unwilling to pay. It also gave Mrs Shemwell an element of control over the £125,000.[5]Mr Sully explained the workings of the loan trust at a meeting on 27 July 2011 and in a letter which he sent to her on 2 August 2011. It is the Claimant's case that the explanation provided by Mr Sully was inadequate and that Mrs Shemwell did not understand that on her death the loan would form part of her estate.[6]Mrs Shemwell gave Mr Woodhead initial instructions in relation to the 2011 will at a meeting at her home on 21 October 2011. It is not in dispute that Mr Sully was invited to attend that meeting by Mrs Shemwell. Mr Sully says that he was invited to attend to provide a valuation of the trust assets. (In addition to the trusts set up in 2011 Mrs Shemwell had set up discounted gift trusts in 2005 and 2007 which named her late husband's business partner and her close friend, Mr Terry, as the beneficiary. These trusts accounted for the remaining £150,000 of Mrs Shemwell's nil rate band.)[7]It is common ground that Mr Sully was only at the meeting for a short time – less than 10 minutes. Mr Sully says that he provided Mrs Shemwell with a 5 page document which contained an up to date valuation of the assets which were the subject of the trust. After showing her the document he handed it to Mr Woodhead. He was then asked to leave by Mrs Shemwell. It is common ground that he left before there was any discussion about the proposed terms of the 2011 will.[8]There is a dispute as to precisely what Mr Sully said about the investments. Mr Woodhead believes that Mr Sully described "in broad terms" the level of Mrs Shemwell's investments and that he used the expression "lifetime gifts" to describe the trusts in favour of the Claimants. Mr Sully accepts that he went through the investments with Mrs Shemwell and might have done so with Mr Woodhead. He does not accept that he used the expression "lifetime gifts".[9]Mr Sully had prepared for himself a single sheet of paper on which he had written various details about the trusts. He described this piece of paper as an aide – memoire for his own use in case he was asked questions by Mr Woodhead at the meeting. The aide – memoire is central to the allegations in the case and it will be necessary to refer to it in detail later in the judgment. The Claimants contend that a fair reading of the aide – memoire indicated that £146,472 was held for each of them under the trusts. For a variety of reasons the Defendant does not accept that.[10]The figure of £146,472 includes the valuation of the assets in the loan trust. As already explained the capital loaned to that trust reverted to Mrs Shemwell's estate on her death.[11]In any event it is common ground that before he left Mr Sully handed the aide – memoire to Mr Woodhead.[12]After Mr Sully had left Mrs Shemwell gave Mr Woodhead instructions in relation to the 2011 will. Initially she said that she wished to increase the amount that Claimants would receive to £175,000. Later, on 31 October 2011, she increased this to £200,000.[13]Mr Woodhead made no enquiries as to the terms or the nature of the trusts. Instead he included legacies of £54,000 for each of the Claimants in the will that he drafted. Thus he did not devise a formula to ensure that they each received £200,000, and did not check that under the terms of the trusts that the moneys held on trust would pass to the Claimants on Mrs Shemwell's death.[14]Following Mrs Shemwell's death the Claimants did not receive the full £200,000 that Mrs Shemwell intended them to receive under her will. They did receive the £54,000 and the moneys in the discretionary trusts. They did not however receive any part of the initial capital of the loan trust as it fell into the residuary estate.[15]In these proceedings the Claimants seek to recover the shortfall. Initially they instituted proceedings solely against the Defendant alleging negligence by Mr Sully both in respect of the explanation given in July and August and in respect of what happened at the meeting on 21 October 2011. Later they joined BRM as additional Defendants alleging negligence by Mr Woodhead. The claim against BRM has been compromised following a mediation in December 2015.[16]The claim against the Defendant is pursued. It is defended on a number of grounds. In particular it is alleged that Mr Sully did not owe a duty of care to the Claimants, and that, in any event, he was not negligent. This case is distinguishable on a number of grounds from cases where solicitors or other financial advisors have been held liable to disappointed beneficiaries. 2. The facts[17]I have set out the core facts in the Introduction and I shall not repeat them. However there are a number of areas where it is necessary to provide additional details. The people involved Mrs Shemwell[18]Mrs Shemwell was born on 17 February 1926. She was married to Jack Shemwell who was a partner in a local estate agency who died in 1997. There were no children and, after the death of her sister in May 2009 no close relatives.[19]She is described by Mr Sully as articulate, intelligent plain speaking and really good company. He had no doubt that she was mentally alert and had a good grasp of everything they discussed. Mr Woodhead described Mrs Shemwell as "a sharp woman who came across as no fool".[20]Mrs Shemwell had used the services of solicitors from time to time. Until 2009 she had used Stanton and Walker. In 2009 that firm merged with BRM. The person who dealt with her affairs was Alan Borman who retired in 2010.[21]Mr Woodhead first had contact with Mrs Shemwell when dealing with the estate of her sister Louisa Haag. However he did not meet her until the meeting on 21 October 2011.[22]Mrs Shemwell suffered from a number of physical disabilities. These included arthritis which affected her mobility and diabetes. Mr Sully first dealt with Mrs Shemwell in October 2000 and had regular contact with her. He would visit her approximately every 2 months to give financial advice and there would be telephone calls between these times. He described the relationship as close. From time to time he woul23. d assist her with tasks such as changing lightbulbs. There is no doubt that she trusted him in relation to the giving of financial advice.[24]She died on 2 June 2012 following a heart attack after an operation for a total hip replacement. Her death was unexpected. Mr Woodhead[25]Mr Woodhead is a Director of BRM. Since 2000, he has been the head of the Wills and Probate Department at BRM and has specialised only in Wills and Probate work since this time. He has substantial Will writing experience and has written thousands of Wills over the years. He also deals with estate administrations and has extensive experience in these matters.[26]As already noted he took over the administration of Mrs Shemwell's sister's estate in 2010 and first met Mrs Shemwell at the meeting in October 2011. Mr Sully[27]Mr Sully is a Chartered Financial Adviser employed by the Defendant. After leaving school in 1983 he worked as a commercial underwriter for 2 years, and as a consultant for Standard Life for 11 years. He joined the Defendant as a financial adviser in 1998. He works mainly with personal clients dealing with their needs in terms of investments, pensions, protection insurance and IHT planning.[28]He has obtained all necessary qualifications over that time and describes himself as very keen to learn and improve. He considers himself to be well versed in IHT planning which he sees as an integral part of his job. The Claimants[29]Tim Herring and Claire Hartley are the great niece and great nephew of Jack Shemwell. In paragraphs 4 to 8 of his witness statement Tim Herring sets out in some detail the relationship between his family and Mrs Shemwell. I shall not set it out in detail. It is not in dispute that there was a close relationship, that Mrs Shemwell spent considerable time with the family and that all members of the family including Tim Herring and Claire Hartley visited Mrs Shemwell regularly and called in to help her. Alan Terry[30]Mr Terry is the senior partner in the firm of estate agents of which Jack Shemwell was a partner. He was a close friend of Mrs Shemwell. Mrs Shemwell made provision for him in settlements in 2005 and 2007. He was a beneficiary and executor under her will. The 2005 trusts, the 2006 Will and the 2007 trusts.[31]In around 2005 Mr Sully spoke to Joyce in relation to her IHT liabilities, and possible ways of reducing these. Mr Sully thought that the obvious way was to take some money out of the estate. He advised Joyce about interest in possession settlements (otherwise known as discounted gift trusts), whereby she would effectively put the capital asset invested into the trust outside of her estate for IHT purposes, but retained the right to make withdrawals of income from that asset.[32]Mrs Shemwell agreed to follow this advice and confirmed Mr Terry as the beneficiary of these trusts. In June 2005 Mrs Shemwell invested £170,000 in this way. In November 2005 she invested a further £45,000.[33]On 13 January 2006 Mrs Shemwell made a will which included legacies for Mr Terry in the sum of £180,000 and £60,000 for her solicitor – Mr Borman. The residue passed to 3 charities.[34]On 12 May 2007 Mrs Shemwell invested a further £150,000 nominating Mr Terry as the beneficiary. The deed gave her the right to regular withdrawals of £1,875 per quarter.[35]On 7 April 2008 Mrs Shemwell executed a codicil in which she reduced the sum payable to Mr Terry from £180,000 to £30,000. The reason given was that £150,000 had been given to Mr Terry in the Discounted Gift Trusts [1] .[36]At some time prior to the codicil Mr Borman rang Mr Sully to ask about the beneficiary under the trust. Mr Sully said that Mr Borman told him that Mrs Shemwell was changing her will to take account of the fact that sums had been paid into trust. The 2011 trusts[37]On 5 July 2011 Mr Sully had a meeting with Mrs Shemwell concerning the £300,000 she had received from her sister's estate and the lack of interest she was receiving from her nationwide accounts.[38]Mr Sully's file note records the three investments made in 2005, and 2007 and the fact that Mrs Shemwell would be entitled on her death to both her own nil rate band ("NRB") and that of her husband. It was recognised that there would be a significant liability to IHT. Mr Sully agreed to look into the matter.[39]There was a further short meeting on 11 July 2011. Mr Sully's file note records that Mrs Shemwell wanted the £300,000 invested for capital growth but in a potentially IHT efficient area. She liked the idea of a portfolio with a capital guarantee on death and she confirmed that she would never need the income from the £300,000 but did not wish to gift it in her lifetime.[40]Following discussions with Mr Chambers (a partner at Shorts) it was appreciated that Mrs Shemwell had available £175,000 of the NRB which could be invested in a further discretionary trust. However (as a result of changes in the 2006 Budget) any further sums invested in such a trust would incur an immediate 20% tax charge. Accordingly Mr Chambers proposed a loan trust for the £125,000. This did not incur the tax charge but the capital invested was repayable with the result that it remained in the estate.[41]Mr Sully met Mrs Shemwell again on 27 July 2011. Following the meeting he dictated a file note which extends to a full page when typed up. A number of parts of this note have been referred to: As [Mrs Shemwell] does not need an income … it was my recommendation that we should just use a normal discretionary trust for £175,000. For the balance of £125,000 I recommend that we should place this in a loan trust to at least get the growth on the asset will be outside the estate. … She identified two relatively removed relations to receive the funds on her death in equal proportions, which are Tim Herring and Claire Hartley who are known to us. … It was agreed that her solicitor [Mr Woodhead] would contact me as we will need to discuss what is in trust and for whom so he can amend her Will to meet her needs.[42]Following the meeting Mr Sully sent a 4 page letter explaining the position to Mrs Shemwell on 2 August 2011. It included a section on the Loan Trust which included: A Loan Trust allows you to access the capital while any growth on it is outside your estate. The client makes an interest free loan to the trustees which they then invest. The loan is usually repaid through regular payments to the client but repayments can also be made as lump sums. Regular or lump sum payments do not have to be made if these are not required…[43]Amongst the key benefits of the Loan Trust were Investment growth generated outside the client's estate. The Loan Trust written as a discretionary trust the beneficiaries do not have the right to the trust fund. Trustees can make payments to beneficiaries at their discretion.[44]The Claimants criticise this explanation because it does not specifically state that the capital forms part the client's estate. They point to the second of the quoted sections of Mr Sully's file note as suggesting that the whole of the funds would go to the beneficiaries when Mrs Shemwell died.[45]I reject that criticism. To my mind the file note has to be read as a whole. It makes it clear that it is the growth that is outside the estate and the quoted sentence has to be read in the light of that.[46]Furthermore it makes clear that the capital is loaned and the growth is outside the estate. It also makes it clear that the discretionary beneficiaries do not have the right to the trust funds.[47]In his witness statement and in cross-examination Mr Sully rejected the criticism. In paragraph 55 he says: I had explained clearly what a loan trust was and had explained that only the growth on the loan trust would fall outside the estate for IHT purposes. I have no doubt in my mind that [Mrs Shemwell] understood during this meeting what a loan trust was and how it operated.[48]I accept this evidence. In my view the explanation of loan trust in the meeting was adequate and cannot be criticised as negligent.[49]Mr O'Sullivan made two further submissions in relation to the meeting on 27 July 2011 and the letter of 2 August 2011. First he submitted that Mr Sully did not understand how the loan trust worked. Mr Sully accepted that this was the first time he had advised a client to invest in a loan trust. In those circumstances he submitted that it was likely that Mr Sully did not appreciate that the capital reverted to the settlor on her death if it had not been repaid earlier. I do not accept this submission. The references in the file note and the letter to which I have referred satisfy me that at the time Mrs Shemwell invested £125,000 into the loan trust Mr Sully fully understood the nature of the loan trust and that only the growth remained outside Mrs Shemwell's estate.[50]Mr O'Sullivan's second submission was that the reference to the making of the will and the contact with Mr Woodhead meant that Mr Sully was "part of the will making process". I shall return to this submission later. For the moment I simply record that the note specified that Mr Woodhead would contact Mr Sully, not the other way round. It is difficult to see what obligation was imposed on Mr Sully if there was no such contact from Mr Woodhead.[51]Mrs Shemwell decided to proceed and the £300,000 was duly invested. The meeting on 21 October 2011 Instructions to attend[52]Mr Woodhead did not get in touch with Mr Sully as had been envisaged at the meeting on 27 July 2011. According to paragraph 68 of Mr Sully's witness statement: Joyce rang me a relatively short time later, to ask me if I could bring her an up to date valuation of her investments. She told me that she needed these because she wanted to discuss her Will with her solicitor, Mr Woodhead. My recollection is that this was a very short telephone call. I am sure that Joyce did not provide me with any further information or tell me what exactly she wanted to discuss with Mr Woodhead. She certainly did not discuss her Will with me, or what changes (if any) she wished to make to it.[53]Before attending the meeting Mr Sully checked the value of Mrs Shemwell's investments and believes he printed off a copy of an up to date valuation. He also prepared, as an aide memoire, a handwritten note recording the trust elements of Joyce's investments. In order to draft this note he went back to the trust documentation to remind himself of the date of the trust, and its terms. The valuation[54]There is no copy of a valuation dated 20 or 21 October 2011 in the bundle. There is, however a copy of a valuation dated 4 October 2011 on file which would have been in the same format.[55]This is a 5 page document identifying each investment, the date it was taken out, the amount invested, the amount of withdrawals and the current value including the value of individual investments within the bond. It shows both the investments made in August 2011. The aide – memoire[56]The aide – memoire is in manuscript on a single sheet of paper. It comprises 3 columns without a heading which take the following form: ALAN TERRY £254,583 (£99,533 May 12, £34,418 Nov 12 £120,633 May 2014) TIM HERRING £146,472 (£85,445 Aug 2018) CLAIRE HARTLEY £146,472 (£85,445 Aug 2018) £547,527 IN TRUST £1,025,511 OUT TRUSTS PLUS VALUE OF PROPERTY (Somerfield Rd – 2 properties)[57]A number of points must be made about the aide – memoire.[58]Mr Sully drafted the aide – memoire for his own benefit in case he was asked questions about the sums in trust, and the sums that would fall out of Joyce's estate for IHT purposes. He did not draft the note with a view to handing it over to anyone as he expected that he would be asked any relevant questions by Mrs Shemwell or Mr Woodhead at the meeting, and would give them the answers orally. The note was therefore to remind him of the up to date valuations, and the dates upon which the various gift sums would come out of Joyce's estate for IHT purposes.[59]There are no headings to the 3 columns. Apart from the words "IN TRUST", and "OUT TRUSTS" there is no indication of the nature of the rights enjoyed by the beneficiaries.[60]The figures on the right are the sums which are due to come out of Mrs Shemwell's estate for IHT purposes, and the date upon which that is due to occur (i.e. the date 7 years after the trust was established). When Mr Woodhead was asked about this in cross-examination he said that he had appreciated this when he looked at the aide – memoire before he drafted the will. He said that he had noticed that the figure for each of the Claimants in the right hand column (£85,445) was less than the figure in the middle column (£146,472). However he had assumed that this was because the difference (£61,027) had come out of the estate as having been given more than 7 years before. However that assumption does not sit well with the total of the moneys in trust (£547,527) which is the sum of the three figures above. If the £61,027 had come out of the estate it would not have been included in this figure which plainly represents the total moneys in trust which form part of Mrs Shemwell's estate.[61]In paragraph 71 of his witness statement Mr Sully makes the point that it is obvious from a consideration of the two entries for the Claimants (£146,472 and £85,445) that he was aware the capital sum invested in the loan trust would remain part of Mrs Shemwell's estate. To my mind there is considerable force in this point.[62]It is to be noted that the sums in trust for Mr Terry were reduced significantly from the capital sums originally paid into those trusts (i.e. £170k, £45k, and £150k), because Mrs Shemwell had made significant withdrawals from those capital sums in accordance with the terms of the trusts and continued to do so. Discussions in the presence of Mr Sully[63]Mr Sully arrived at Mrs Shemwell's house shortly before Mr Woodhead. Mrs Shemwell was sitting down in the lounge. After speaking to her for a short while Mr Sully got up and handed her a copy of the print out showing the value of her investments. He then stood beside her while she sat, and went through the valuation. Mr Sully reminded Mrs Shemwell of those investments that were held in trust. He had no discussion about the terms of any trust.[64]Within 5 minutes of Mr Woodhead arriving Mrs Shemwell bluntly told Mr Sully that he should leave. There is a dispute as to what was said by Mr Sully in Mr Woodhead's presence.[65]Mr Woodhead made a handwritten note during the meeting. Shortly after the meeting (which lasted about an hour) he made a file note which was typed. There are some differences between the two.[66]In the handwritten note he records that £550k is in trust £146k each to Tim and Claire. In his typed file note he says: Mrs Shemwell has already made some lifetime gifts out of her estate, the beneficiaries of those lifetime gifts are Tim Herring and Claire Hartley (£146k each) an Alan Terry (£250k)[67]In paragraphs 9 and 10 of his witness statement Mr Woodhead did not use the expression "lifetime gifts". He put the matter in this way: 9. Mr Sully proceeded to explain, in broad terms, the level of Mrs Shemwell's current investments. Mr Sully indicated that Mrs Shemwell had investments slightly in excess of £1,000,000. In addition to this she owned 23 Longedge Lane and two other rental properties being 33 and 35 Summerfield Road, Chesterfield. 10. Mr Sully explained to me that Mrs Shemwell had already established trusts for the benefit of her friend Alan Terry (" Mr Terry "), her late husband's great nephew Timothy Herring (" Mr Herring ") and her late husband's great niece Claire Hartley (" Mrs Hartley "). Mr Sully stated that the value of the monies currently held in trust for Alan Terry was slightly in excess of £250,000. The value of the investments held in trust for the Claimants was slightly in excess of £146,000 each.[68]In cross-examination Mr Woodhead said that he was unsure whether the expression "lifetime gifts" was used by Mr Sully or Mrs Shemwell. It was possible that it was said by Mrs Shemwell at a time when Mr Sully was not present. It was possible that all that Mr Sully said was that there were assets held in trust. He did not give details of the trusts. Mr Woodhead however felt that it was apparent from what Mr Sully said that there was £146,000 in trust for each of the Claimants.[69]Mr Sully made no file note of the meeting. He cannot remember precisely what he said to Mr Woodhead. In paragraphs 76 to 78 of his witness statement he accepted paragraphs 9 and 10 of Mr Woodhead's statement. He is sure that he was not asked about the terms of the trust. If he had been asked he would have been able to do so by reference to the aide – memoire. He is also sure that he did not use the expression "lifetime gifts". It is not an expression he would have used to describe the loan trust which is not a gift.[70]Before he left he handed over the aide – memoire to Mr Woodhead. He thinks he also handed the valuation to him but Mr Woodhead did not think he received any other document.[71]It is common ground that there were no discussions about the terms of the will or any amendments intended by Mrs Shemwell before Mr Sully left. Mr Sully had no knowledge of any bequests in the existing will although he did know that Mrs Shemwell had made a will in favour of "friends, distant relatives and charities". Discussions after Mr Sully left[72]After Mr Sully left Mrs Shemwell discussed the proposed terms of the 2011 will with Mr Woodhead. According to Mr Woodhead's typed file note he took her through her existing will and noted the legacies she now wished to include. The file note lists some 16 legacies. Included amongst those legacies are legacies in favour of both Mr Woodhead and Mr Sully. Mr Woodhead was careful to advise that it was unnecessary to leave him a legacy as BRM had been paid for the services they provided.[73]The list also included legacies of £29,000 each for Tim Herring and Claire Hartley. In paragraph 13 of his witness statement Mr Woodhead explains the thinking behind these legacies: Mrs Shemwell stated that as Mr Herring and Mrs Hartley already had approximately £146,000 each from the trust fund established by Mr Sully, she wished to bequeath them a further £29,000 so that they would receive approximately £175,000 each. The preparation of the 2011 will[74]On 27 October 2011 Mr Woodhead sent a draft will to Mrs Shemwell. In the covering letter he thanked her for the legacy in his favour. As noted above in evidence he said that he had considered the aide – memoire in detail before drafting the will. The draft will included the legacies of £29,000 each for the Claimants.[75]It is common ground that Mr Woodhead made no enquiries of Mr Sully about the trusts before drafting the will. He did not ask to see the trust documents. He assumed that they would be absolutely entitled to the £146,000 referred to in the aide – memoire on the death of Mrs Shemwell. He did not draft the legacies by reference to a formula which took into account the sum they would receive from the trusts.[76]On 31 October 2011 Mrs Shemwell phoned Mr Woodhead and instructed him to increase the legacies for the Claimants to £54,000. According to Mr Woodhead: Her reasoning for this figure was that as they both had approximately £146,000 each in a trust fund for their benefit, then a legacy of £54,000 through the Will would mean they would receive approximately £200,000 each upon Mrs Shemwell's death.[77]The draft will was duly amended and executed on 8 November 2011. Mr Woodhead was careful to ensure that he did not witness the will and that Mrs Shemwell had independent advice before she executed it. Subsequent Events[78]On 22 May 2012 Mrs Shemwell executed a further will. That will was also prepared by Mr Woodhead. No change was made to the legacies in favour of the Claimants. Mr Woodhead did not have an up to date valuation of the assets when she made that will.[79]On 2 June 2012 Mrs Shemwell died unexpectedly after a hip operation.[80]In July 2012 there was a meeting between Claire Hartley and Mr Sully. In August 2012 there was another meeting between Claire Hartley, Tim Herring and Mr Sully. In each of these meetings Mr Sully stated that the Claimants were entitled to the whole of the trust funds whereas they were in fact only entitled to the sums under the ordinary discretionary trust. The sums under the loan trust reverted to the estate and passed under the residue clause.[81]In evidence Mr Sully acknowledged that he had made a mistake at these meetings. He said that he had failed to check the trust documents and had forgotten about the loan trust.[82]The mistake eventually came to light in September 2012. There is some dispute as to whether the mistake was discovered by Mr Sully or the partner Mr Chambers. There were a number of difficult meetings in September when the position was explained to the Claimants and their advisors.[83]Mr O'Sullivan submits that the meetings in July and August are relevant because they support a submission that Mr Sully never understood how a loan trust worked. However for reasons I have given I am satisfied that in July and August 2011 Mr Sully was fully aware that that only the growth in value in the loan trust fell outside the estate and that he explained this to Mrs Shemwell. 3. Findings of fact[84]I agree with Mr Allen that this is a case where there are very few factual disputes in that the majority of the facts can be obtained from the documents or are agreed. Furthermore both of the principal witnesses - Mr Woodhead and Mr Sully – were plainly honest witnesses doing their best to assist in remembering what happened. Both were experienced professionals who made careful file notes in respect of meetings with their clients. The file notes are not, of course, verbatim accounts of what happened but are in each case sufficiently full to give an account of what was discussed.[85]I make the following findings of fact: 1. I am satisfied that Mr Sully explained the workings of a loan trust accurately to Mrs Shemwell at the meeting on 27 July 2011. I am satisfied he explained that only the growth was outside her estate and that the amount loaned was not. 2. I am not satisfied that Mr Sully ever used the expression "lifetime gifts" in the presence of Mr Woodhead to describe the trusts in favour of the Claimants. I do, however, accept that he used the expression "in trust for" them. In other words I accept the evidence in paragraphs 9 and 10 of Mr Woodhead's witness statement. In so far as Mr Woodhead's typed file note is accurate the expression "lifetime gifts" must have been used by Mrs Shemwell or assumed by him. 3. I am not in a position to make any finding as to whether Mr Sully gave Mr Woodhead the valuation he had shown Mrs Shemwell. The valuation was not disclosed by anyone and the position is unclear. Fortunately nothing turns on it. 4. At the meeting on 21 October 2011 Mr Sully was in a position to explain the trusts to Mr Woodhead. However he was not asked to do so and was asked by Mrs Shemwell, his client to leave before he could do so. 5. Mr Sully had no knowledge of the terms of Mrs Shemwell's will or any intended bequests. 6. Mr Sully's poor advice in July and August 2012 did not occur because he did not understand the working of a loan trust. It occurred because he failed to check the trust documents and had forgotten about the loan trust. 4. The law[86]I start by expressing my gratitude for the extensive research and very careful and full skeleton arguments that I have received from Mr O'Sullivan and Mr Allen in this case. The skeleton arguments extend to over 25 pages each and contain extensive references and citations from over 18 authorities many of which are at the highest level.[87]In White v Jones [1995] 2 AC 207 a bare majority of the House of Lords held that a solicitor owes a duty of care to an intended and known beneficiary under a will who (as the solicitor can reasonably foresee) may as a result of the solicitor's negligence be deprived of his intended legacy. The basis of the decision is that the solicitor "assumed responsibility" for the task of preparing the will to the intended beneficiaries. It is true, as Mr Allen pointed out, that speeches refer to the lacuna in the law which would exist if there was no such liability in that the testator would suffer no loss and the beneficiaries have no claim. However I do not regard the existence of a lacuna as a necessary condition before liability can be established. Accordingly I do not accept that the existence of a potential claim against BRM necessarily bars a claim against the Defendant. It is, however, obviously a factor to be taken into account.[88]The decision in White v Jones has been considered in a number of cases to which I was referred.[89]In Carr-Glynn v Frearsons [1999] Ch 326 a solicitor was retained to draft and advise a lady (Mrs C) upon her Will. Mrs C instructed the solicitor that she wished to leave her share in a property to her niece. Mrs C owned the share on a joint tenancy with someone else and therefore, unless the joint tenancy was severed during her lifetime, Mrs C's share in the property could not be given to her niece because it would devolve automatically upon her death to her fellow joint tenant. In circumstances which it is not necessary to rehearse Mrs C died without severing the joint tenancy. The niece sued the solicitor and succeeded in the Court of Appeal which held that the solicitor should have advised Mrs C to serve a notice of severance immediately, to ensure that her testamentary wishes could be put into effect. In the course of his judgment Chadwick LJ said: This is not a case in which the solicitors were instructed to advise in relation to an inter vivos transaction which was independent of the will-making process. On a proper analysis, the service of a notice of severance was part of the will-making process… To refuse to treat the plaintiff as an intended beneficiary who (as the solicitors could reasonably foresee) might, as a result of their negligence in carrying out the testatrix's testamentary instructions, be deprived of the legacy which she was intended to enjoy on the ground that the negligence lay in failing to get in the asset rather than to provide for its disposition would, in my view, properly be regarded as bizarre. (at page 335-336)[90]Mr O'Sullivan suggests that there is an analogy between Carr-Glynn and the instant case because he submits that Mr Sully was "part of the will making process".[91]In Gorham v BT plc [2000] 1 WLR 2129 Mr Gorham had been given negligent advice that he should take out a personal pension rather than an employers' pension. Mr Gorham had made clear that his key motivation in taking out the pension was the provision for his dependents, i.e. his wife and children, and the adviser had been aware of that fact. In the circumstances it was held that the position was akin to the situation in White v Jones and that a duty of care was owed by the advisers to Mr Gorham's wife and children as well as to him.[92]Mr O'Sullivan submits that this case shows that this type of liability is not limited to claims against solicitors.[93]I was referred to a number of cases where first instance and Court of Appeal judges have refused to strike out claims where the White v Jones principle might be brought into play. I was in particular referred to paragraph 24 of the judgment of Norris J in Vinton v Fladgate Fielder [2010] EWHC 904 (Ch) :
"I reject this argument. The origins of the principle undoubtedly lie in the proper discharge of a retainer to make a will. But the implications of White v Jones are being explored case by case (per Peter Gibson L.J. in Richards v Hughes [2004] EWCA Civ 266 ; [2004] PNLR 35 at [25]). In Carr-Glynn v Frearsons (supra) the principle was extended beyond pure will-making to cover the failure to advise the testator of the need to serve a notice of severance so as to render the property capable of disposition by the will. In Gorham v British Telecommunications Plc [2000] 1 W.L.R. 2129 negligent advice by an insurance company to a customer could be sued upon by the customer's family. In Richards v Hughes (supra) the Court of Appeal was concerned with the situation in which A contracted with B for B to perform professional services in connection with the establishment of a trust for the benefit of C. The Court of Appeal refused to strike out a case brought in tort by C against B, notwithstanding that it involved an inter vivos gift (which White v Jones had suggested would not be actionable) because the case was " [p]lainly one where the relevant area of law is still subject to some uncertainty and developing and where it is highly desirable that the facts should be found so that any development of the law should be on the basis of actual and not hypothetical facts [2] " "
[94]Both Counsel referred me to the decision of Customs and Excise v Barclays [2007] 1 AC 181 as the most recent case where the House of Lords has considered the question of establishing a duty of care in cases involving negligence for pure financial loss. I was in particular referred to the masterly analysis in paragraphs 4 to 8 of the speech of Lord Bingham: 4 The parties were agreed that the authorities disclose three tests which have been used in deciding whether a defendant sued as causing pure economic loss to a claimant owed him a duty of care in tort. The first is whether the defendant assumed responsibility for what he said and did vis-…-vis the claimant, or is to be treated by the law as having done so. The second is commonly known as the threefold test: whether loss to the claimant was a reasonably foreseeable consequence of what the defendant did or failed to do; whether the relationship between the parties was one of sufficient proximity; and whether in all the circumstances it is fair, just and reasonable to impose a duty of care on the defendant towards the claimant *190 (what Kirby J in Perre v Apand Pty Ltd (1999) 198 CLR 180 , para 259, succinctly labelled "policy"). Third is the incremental test, based on the observation of Brennan J in Sutherland Shire Council v Heyman (1985) 157 CLR 424 , 481, approved by Lord Bridge of Harwich in Caparo Industries plc v Dickman [1990] 2 AC 605 , 618, that:
"It is preferable, in my view, that the law should develop novel categories of negligence incrementally and by analogy with established categories, rather than by a massive extension of a prima facie duty of care restrained only by indefinable 'considerations which ought to negative, or to reduce or limit the scope of the duty or the class of person to whom it is owed'."
Mr Brindle for the bank contended that the assumption of responsibility test was most appropriately applied to this case, and that if applied it showed that the bank owed no duty of care to the commissioners on the present facts. But if it was appropriate to apply either of the other tests the same result was achieved. Mr Sales for the commissioners submitted that the threefold test was appropriate here, and that if applied it showed that a duty of care was owed. But if it was appropriate to apply either of the other tests they showed the same thing. In support of their competing submissions counsel made detailed reference to the leading authorities including Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 ; Ministry of Housing and Local Government v Sharp [1970] 2 QB 223 ; Smith v Eric S Bush [1990] 1 AC 831 ; Caparo Industries plc v Dickman [1990] 2 AC 605 ; Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 ; White v Jones [1995] 2 AC 207 ; Spring v Guardian Assurance plc [1995] 2 AC 296 ; Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830 ; and Phelps v Hillingdon London Borough Council [2001] 2 AC 619 . These authorities yield many valuable insights, but they contain statements which cannot readily be reconciled. I intend no discourtesy to counsel in declining to embark on yet another exegesis of these well-known texts. I content myself at this stage with five general observations. First, there are cases in which one party can accurately be said to have assumed responsibility for what is said or done to another, the paradigm situation being a relationship having all the indicia of contract save consideration. Hedley Byrne would, but for the express disclaimer, have been such a case. White v Jones and Henderson v Merrett Syndicates Ltd , although the relationship was more remote, can be seen as analogous. Thus, like Colman J (whose methodology was commended by Paul Mitchell and Charles Mitchell, "Negligence Liability for Pure Economic Loss (2005) 121 LQR 194 , 199), I think it is correct to regard an assumption of responsibility as a sufficient but not a necessary condition of liability, a first test which, if answered positively, may obviate the need for further inquiry. If answered negatively, further consideration is called for. 5 Secondly, however, it is clear that the assumption of responsibility test is to be applied objectively ( Henderson v Merrett Syndicates Ltd [1994] 2 AC 145 , 181) and is not answered by consideration of what the defendant thought or intended. Thus Lord Griffiths said in Smith v Eric S Bush [1990] 1 AC 831 , 862, that:
"The phrase 'assumption of responsibility' can only have any real meaning if it is understood as referring to the circumstances in which the *191 law will deem the maker of the statement to have assumed responsibility to the person who acts upon the advice."
Lord Oliver of Aylmerton, in Caparo Industries plc v Dickman [1990] 2 AC 605 , 637, thought "voluntary assumption of responsibility" "a convenient phrase but it is clear that it was not intended to be a test for the existence of the duty for, on analysis, it means no more than that the act of the defendant in making the statement or tendering the advice was voluntary and that the law attributes to it an assumption of responsibility if the statement or advice is inaccurate and is acted upon. It tells us nothing about the circumstances from which such attribution arises." In similar vein, Lord Slynn of Hadley in Phelps v Hillingdon London Borough Council [2001] 2 AC 619 , 654, observed:
"It is sometimes said that there has to be an assumption of responsibility by the person concerned. That phrase can be misleading in that it can suggest that the professional person must knowingly and deliberately accept responsibility. It is, however, clear that the test is an objective one: Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 , 181. The phrase means simply that the law recognises that there is a duty of care. It is not so much that responsibility is assumed as that it is recognised or imposed by law."
The problem here is, as I see it, that the further this test is removed from the actions and intentions of the actual defendant, and the more notional the assumption of responsibility becomes, the less difference there is between this test and the threefold test. 6 Thirdly, the threefold test itself provides no straightforward answer to the vexed question whether or not, in a novel situation, a party owes a duty of care. In Caparo Industries plc v Dickman [1990] 2 AC 605 , 618, Lord Bridge, having set out the ingredients of the threefold test, acknowledged as much:
"But it is implicit in the passages referred to that the concepts of proximity and fairness embodied in these additional ingredients are not susceptible of any such precise definition as would be necessary to give them utility as practical tests, but amount in effect to little more than convenient labels to attach to the features of different specific situations which, on a detailed examination of all the circumstances, the law recognises pragmatically as giving rise to a duty of care of a given scope. Whilst recognising, of course, the importance of the underlying general principles common to the whole field of negligence, I think the law has now moved in the direction of attaching greater significance to the more traditional categorisation of distinct and recognisable situations as guides to the existence, the scope and the limits of the varied duties of care which the law imposes."
Lord Roskill made the same point in the same case, at p 628: "I agree with your Lordships that it has now to be accepted that there is no simple formula or touchstone to which recourse can be had in order to provide in every case a ready answer to the questions whether, given *192 certain facts, the law will or will not impose liability for negligence or in cases where such liability can be shown to exist, determine the extent of that liability. Phrases such as 'foreseeability', 'proximity', 'neighbourhood', 'just and reasonable', 'fairness', 'voluntary acceptance of risk', or 'voluntary assumption of responsibility' will be found used from time to time in the different cases. But, as your Lordships have said, such phrases are not precise definitions. At best they are but labels or phrases descriptive of the very different factual situations which can exist in particular cases and which must be carefully examined in each case before it can be pragmatically determined whether a duty of care exists and, if so, what is the scope and extent of that duty. If this conclusion involves a return to the traditional categorisation of cases as pointing to the existence and scope of any duty of care, as my noble and learned friend, Lord Bridge of Harwich, suggests, I think this is infinitely preferable to recourse to somewhat wide generalisations which leave their practical application matters of difficulty and uncertainty." 7 Fourthly, I incline to agree with the view expressed by the Messrs Mitchell in their article cited above, p 199, that the incremental test is of little value as a test in itself, and is only helpful when used in combination with a test or principle which identifies the legally significant features of a situation. The closer the facts of the case in issue to those of a case in which a duty of care has been held to exist, the readier a court will be, on the approach of Brennan J adopted in Caparo Industries plc v Dickman , to find that there has been an assumption of responsibility or that the proximity and policy conditions of the threefold test are satisfied. The converse is also true. 8 Fifthly, it seems to me that the outcomes (or majority outcomes) of the leading cases cited above are in every or almost every instance sensible and just, irrespective of the test applied to achieve that outcome. This is not to disparage the value of and need for a test of liability in tortious negligence, which any law of tort must propound if it is not to become a morass of single instances. But it does in my opinion concentrate attention on the detailed circumstances of the particular case and the particular relationship between the parties in the context of their legal and factual situation as a whole.[95]Mr O'Sullivan drew my attention to the three tests, to the fact that that there is no simple formula or touchstone to which recourse can be had and the need to pay close attention to the detailed circumstances of the case and the relationship between the parties in the context of their legal and factual situation as a whole. 5. Discussion and Conclusions[96]A number of factors strike me as being of considerable importance in determining whether Mr Sully owed a duty of care to the Claimants in relation to the making of the 2011 will. 1. Mrs Shemwell did not rely on Mr Sully in relation to the making of the will. She never discussed the terms of her will with him, she never asked for advice in relation to the will. Mr Sully was instructed to attend the meeting to provide a valuation of Mrs Shemwell's assets. He provided that valuation. Whilst Mr Sully knew that the Claimants were beneficiaries under the 2011 trusts he did not know that she intended to benefit them further under her will or the extent of the intended bequest. 2. Mr O'Sullivan submits that the aide – memoire was misleading. I do not accept that description. I accept that it was not a complete document and was possibly open to more than one interpretation but I do not think that makes it "misleading". It refers to £146,472 being in trust in the column next to each of the Claimants. It does not attempt to set out their rights under the trusts. It does not specify that they will be beneficially entitled to the whole of that money on the death of Mrs Shemwell. Furthermore reference to the right hand column of the aide – memoire shows that only £85,445 of the £146,472 would ever fall outside the estate. The £146,472 was comprised in a trust of which the Claimants were the only named beneficiaries. It does not follow from that the Claimants would necessarily inherit the whole of the trust funds on the death of Mrs Shemwell. As noted above it is difficult to see how Mr Woodhead's interpretation of the aide – memoire is consistent with the total of the trust moneys within the estate (£547,527). Similar comments can be made about the short conversation before Mr Sully left the meeting. 3. Mrs Shemwell asked Mr Sully to leave within 5 minutes of the start of the meeting and before there were any discussions about the will. Contrary to the submission of Mr O'Sullivan Mr Sully was in no sense part of the will making process. He was asked to leave before he could explain the nature of the trusts. If he had been asked he could and would have explained. If he had been contacted by Mr Woodhead before he drafted the will, he (Mr Sully) would have provided the explanation but Mr Woodhead did not contact him at all. 4. It is difficult to resist the conclusion that Mr Woodhead was in breach of his duty to Mrs Shemwell and to the Claimants. In my view he should have made sufficient enquiries to satisfy himself that the relevant trust moneys would in fact pass to the Claimants on Mrs Shemwell's death. Alternatively he should have devised a form of words to ensure that the Claimants each received £200,000 after taking into account any moneys they received under the two trusts. In my view it was negligent to draft the will based solely on the material in the aide – memoire and the short conversation. This is not therefore a case where the Claimants have no claim against anyone. I agree with Mr Allen that the fact that they have chosen to compromise that claim cannot affect the question of whether there was a duty of care owed by Mr Sully. 5. This case is not on all fours with any of the decided cases. It is plainly distinguishable from White v Jones and Carr-Glynn . Mr Sully was not instructed in the will making process. He did not know the identity of the beneficiaries or the amount intended to be left to them. It would in my view involve a considerable extension to the principle in White v Jones to impose a duty of care in this case. As Lord Bingham explained in paragraph 7 of the judgment cited above this makes the court less ready to find that there has been an assumption of responsibility or that the proximity and policy conditions of the threefold test are satisfied.[97]These factors lead me to the conclusion that no duty of care was owed by Mr Sully to the Claimants on the facts of this case. In my view Mr Sully did not assume responsibility for an unknown amount to unknown beneficiaries. In my view Mr Sully was not sufficiently proximate and in the circumstances of this case especially where Mr Sully was excluded from the meeting it would not be fair just and reasonable to impose a duty on him towards the Claimants.[98]I have therefore come to the conclusion the claim against the Defendant fails and falls to be dismissed. Note 1 It appears that no reference was made to the trusts made in 2005. [Back] Note 2 The quote from Hughes v Richards comes from para 30 of Peter Gibson L.J.’s judgment Hughes v Richards [2004] EWCA Civ 266 [Back]