Analysis
The claimant claimed as the administratrix of the estate of Ellen Bolton (Ellen) for rectification of a deed of variation by which she had purported to vary the will of Hilda Bolton (Hilda).
Hilda had died on 6 February 2006. Her sister, Ellen, died on 11 September 2007. By her last will Hilda had benefited Ellen in two respects: as the beneficiary of a specific devise of a particular freehold property (the property) at clause 2(a) of the will and also as the sole residuary beneficiary under clause 5 of the will. As Ellen survived Hilda these gifts took effect. The gifts were chargeable to inheritance tax (IHT) resulting in a substantial charge to tax in the estate.
By Ellen’s last will, in the events which happened, she left her residuary estate absolutely to the defendants equally. Although the gifts to the defendants in Ellen’s will were exempt from IHT owing to their charitable status, the property they received from Hilda’s estate via Ellen’s was still subject to IHT on Hilda’s death.
The claimant, who was a solicitor, wrote to the defendants suggesting that she enter into a deed of variation in Hilda’s estate in her capacity as Ellen’s executrix, by which she redirected Ellen’s entitlement under that estate to the defendants. She intimated that this would avoid the charge to IHT that would otherwise occur in Hilda’s estate.
The deed of variation was drafted by the claimant and entered into by her. The claimant then purported to appropriate the property to the defendants in part satisfaction of their shares in Hilda’s estate. The claimant’s firm contacted the revenue to seek a repayment of the tax already paid in Hilda’s estate.
Unfortunately, the deed had been wrongly drafted. It redirected only the residue of Hilda’s estate to the defendants. The gift of the property at 2(a) was unaffected. There were also two separate minor clerical errors. In the circumstances the deed of variation achieved no saving of IHT at all.
The claimant submitted that the deed of variation did not properly record her intention or that of the defendants and therefore it could and should be rectified to do so. The defendants were not represented and did not appear. The revenue were notified of the claim and requested that various authorities be put before the court but were not represented and did not appear.
The court considered the criteria in the leading case on rectification of a unilateral document, Racal Group Ltd v Ashmore [1995] STC 1151 from which it drew various principles: (1) the discretion to rectify is the be treated with caution, clear evidence of the true intention will be necessary; (2) there must be a flaw in the written document so that it does not give effect to the parties’ agreement or donor’s intention, a mistake as to the consequences of the agreement or intention is insufficient; (3) the specific and unachieved intention of the parties must be shown; (4) there must be an issue capable of being contested between the parties notwithstanding that they all consent.
Held:
- 1) The criteria were met and rectification would be ordered: (i) convincing proof of the error was shown; (ii) the error was as to the effect of the document rather than simply its consequences; (iii) the intended effect of the document had been clearly proven; (iv) the entitlements of the parties under the deed and under Ellen’s will, as well as an intimated negligence claim by the defendants against the claimant were all issues capable of being contested notwithstanding the parties’ consent to the claim.
- 2) There had been some lapse of time in approaching the Revenue but it had caused no significant prejudice of any kind.
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