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England and Wales High Court (Chancery Division) Decisions |
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You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Freedman v Freedman & Ors [2015] EWHC 1457 (Ch) (21 May 2015) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2015/1457.html Cite as: [2015] EWHC 1457 (Ch) |
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CHANCERY DIVISION
IN THE MATTER OF THE SETTLEMENT
KNOWN AS THE MELANIE FREEDMAN SETTLOR INTERESTED SETTLEMENT
DATED 4 FEBRUARY 2013
Strand, London, WC2A 2LL |
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B e f o r e :
____________________
MELANIE DAWN FREEDMAN |
Claimant |
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- and - |
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(1) MICHAEL FREEDMAN (2) DORIAN GRANT NINEBERG (trustees of the above named settlement) (3) BRADLEY FREEDMAN (A Child by Ruth Freedman his litigation friend) (4) ROSALIND NINEBERG (5) THE COMMISSIONERS FOR HER MAJESTY'S REVENUE AND CUSTOMS |
Defendants |
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Judith Bryant (instructed by OGR Stock Denton LLP) for the Third Defendant
Jonathan Davey (instructed by OGR Stock Denton LLP) for the Fourth Defendant
Matthew Slater (instructed by the Solicitor and General Counsel to HM Revenue and Customs) for the Fifth Defendant
The First and Second Defendants were not represented and did not appear
Hearing dates: 07 and 08/05/2015
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Crown Copyright ©
Mrs Justice Proudman :
"He was somewhat reluctant to do this [lend me the money] as he did not want me to own two houses. Therefore he was very clear that this was to be a loan which was to be repaid at least in part from the proceeds of sale of [St Leonard's Close], with any balance to be left outstanding for the foreseeable future. I agreed to this. My Father always wanted to act fairly to his children and he felt that giving me the monies for the two houses outright would have been unfair to my siblings. The purchase of [Gibbs Green] was completed in September 2012.
10. After I had bought [Gibbs Green] I still could not sell [St Leonard's Close]. In or about November 2012 my Father raised the idea with me of placing the two Properties into a trust. My Father told me that he thought such a trust would protect them. As I have said his concern was to protect my assets I held in my sole name from my former boyfriend or indeed any other man I might become involved with… As this was his idea I agreed to it as I knew he only had my best interests at heart. My trust in him was such that I was not particularly concerned about the precise details of what was involved and I did not consider that such a step might have taxation consequences or other disadvantages for me. I relied on my Father and Messrs OGR Stock Denton being the solicitors he engaged to protect my interests. I knew from my discussions with my Father that he had raised the idea of creating a trust with his solicitors before discussing it with me."
i. that the purpose of the settlement was to protect Melanie from Mr Bakir and others perceived by Melanie's family to be predatory males: see [3] and [4] of Dorian Nineberg's statement, [4] of Lynton Stock's statement and [3] of Ruth Freedman's statement,
ii. that Melanie should not be able to retain both St Leonard's Close and Gibbs Green for her own benefit: see [6] of Dorian Nineberg's statement, [4] of Lynton Stock's statement, [9] and [12] of Mr Fraser's statement and the inference from [3] of Ruth Freedman's statement,
iii. that the settlement was entered into subject to an agreement between Melanie and her father to repay the loan out of the proceeds of sale of St Leonard's Close: see [6] of Dorian Nineberg's statement, [3] of Lynton Stock's statement, [15] of Mr Fraser's statement and [2], [3] and [4] of Ruth Freedman's statement,
iv. that the loan would be enforced: see [6] of Dorian Nineberg's statement, [3] of Lynton Stock's statement and [5] of Ruth Freedman's statement, and
v. that one of the reasons why the loan was to be repaid was because Melanie's father wished to maintain equality between his children: see [7] of Dorian Nineberg's statement, [22] of Mr Fraser's statement and [3] of Ruth Freedman's statement.
"…my whole family, including my Father, were concerned that our relationship might restart and that he might persuade me to transfer my assets to him or sell my house and give him money."
And later (at [20]),
"This was not a trust which was created for tax reasons or to avoid tax but purely for family reasons. I did not intend to create a tax charge by the creation of the Settlement or prejudice my ability to pay my debt. As the only purpose behind the creation of the Settlement was to reassure my family that the Properties were safe clearly I would not have wanted to create such a Settlement if I had appreciated that it (i) would have such serious taxation consequences and (ii) would prevent me from repaying my Father his loan as agreed from the proceeds of sale of [St Leonard's Close]."
The claim
"The principles applicable to rescission of a non-contractual voluntary disposition for mistake were comprehensively set out in the judgment of Lord Walker in Pitt v. Holt…, with which the other members of the Supreme Court agreed. They may be summarised as follows:
(1) There must be a distinct mistake as distinguished from mere ignorance or inadvertence or what unjust enrichment scholars call a "misprediction" relating to some possible future event. On the other hand, forgetfulness, inadvertence or ignorance can lead to a false belief or assumption which the court will recognise as a legally relevant mistake. Accordingly, although mere ignorance, even if causative, is insufficient to found the cause of action, the court, in carrying out its task of finding the facts, should not shrink from drawing the inference of conscious belief or tacit assumption when there is evidence to support such an inference.
(2) A mistake may still be a relevant mistake even if it was due to carelessness on the part of the person making the voluntary disposition, unless the circumstances are such as to show that he or she deliberately ran the risk, or must be taken to have run the risk, of being wrong.
(3) The causative mistake must be sufficiently grave as to make it unconscionable on the part of the donee to retain the property. That test will normally be satisfied only when there is a mistake either as to the legal character or nature of a transaction or as to some matter of fact or law which is basic to the transaction. The gravity of the mistake must be assessed by a close examination of the facts, including the circumstances of the mistake and its consequences for the person who made the vitiated disposition.
(4) The injustice (or unfairness or unconscionableness) of leaving a mistaken disposition uncorrected must be evaluated objectively but with an intense focus on the facts of the particular case. The court must consider in the round the existence of a distinct mistake, its degree of centrality to the transaction in question and the seriousness of its consequences, and make an evaluative judgment whether it would be unconscionable, or unjust, to leave the mistake uncorrected."
"Lord Walker observed in Pitt v. Holt at paragraph [135] that in some cases of artificial tax avoidance the court might think it right to refuse relief, either on the ground that such claimants, acting on supposedly expert advice, must be taken to have accepted the risk that the scheme would prove ineffective or on the ground that discretionary relief should be refused on grounds of public policy."
In the passage referred to in Pitt v. Holt Lord Walker said,
"Had mistake been raised in Futter v. Futter there would have been an issue of some importance as to whether the court should assist in extricating claimants from a tax-avoidance scheme which had gone wrong."
As Lord Walker (when Sir Robert Walker) said (at p. 235) in an article in Private Client Business (2002) 4 PCB 226-40 called The Limits of the Principle in Re Hastings–Bass [1975] Ch 25,
"One's instinctive reaction…is to ask why the Chancery Division, rather than the parties' professional indemnity insurers, should have to pick up the pieces…"
HMRC's submissions
"In the absence of all circumstances of suspicion a donor can only obtain back property which he has given away by showing that he was under some mistake of so serious a character as to render it unjust on the part of the donee to retain the property given to him."
Distinct mistake
"I broadly understood the letter [which means the letter of 6 November 2012; see her second witness statement dated 30 April 2015] to mean that the Settlement would not have any tax consequences I needed to worry about."
More accurately (he submits), she says in the following passage,
"It did not occur to me at all that creating a Settlement could affect my ability to repay my father as we had agreed."
And (at [13] and [17]),
"Its taxation consequences and the effect those taxation consequences would have on my ability to repay my Father was not discussed at all…
What I did not understand because it was not mentioned to me either by my father or the solicitors was that there would be serious inheritance tax disadvantages to the creation of the Settlement and that my ability to repay the loan to my Father as we had agreed would be affected…"
"I would hold that mere ignorance, even if causative, is insufficient, but that the court, in carrying out its task of finding the facts, should not shrink from drawing the inference of conscious belief or tacit assumption when there is evidence to support such an inference."
"…it seems close to the residual category of mere causative ignorance. Had the judge not made his hair's breadth finding about the presence of cancer in February 2004 it would have been a case of misprediction, not essentially different from a failure to predict a fatal road accident. Lloyd LJ observed (para 198) [and Lord Walker plainly had sympathy with the observation] that it was strongly arguable that, having declined to follow the financial consultants' recommendation of term insurance, Mr Griffiths was taking the risk of deterioration of his health and failure to survive the statutory period."
Relevance and gravity of the mistake
"In general a mistake as to the essential nature of a transaction is likely to be more serious than a mistake as to its consequences."
And [122] where he said,
"I would provisionally conclude that the true requirement is simply for there to be a causative mistake of sufficient gravity; and, as additional guidance to judges in finding and evaluating the facts of any particular case, that the test will normally be satisfied only when there is a mistake either as to the legal character or nature of a transaction, or as to some matter of fact or law which is basic to the transaction."
"The gravity of the mistake must be assessed by a close examination of the facts, whether or not they are tested by cross-examination, including the circumstances of the mistake and its consequences for the person who made the vitiated disposition. Other findings of fact may also have to be made in relation to change of position or other matters relevant to the exercise of the court's discretion."
Would it be unconscionable for the donees to insist on their rights under the settlement?
"…consider in the round the existence of a distinct mistake (as compared with total ignorance or disappointed expectations), its degree of centrality to the transaction in question and the seriousness of its consequences, and make an evaluative judgment whether it would be unconscionable, or unjust, to leave the mistake uncorrected. The court may and must form a judgment about the justice of the case."
Again (at [126]),
"The injustice (or unfairness or unconscionableness) of leaving a mistaken disposition uncorrected must be valued objectively, but with an intense focus…on the facts of the particular case…"
Conclusion