JTC Employer Ser Trustees Ltd v Khadem [2022] WTLR 203

Analysis

Mr Khadem’s employer established a pension plan for him, with HMRC approval, which was tailored for employees who may retire abroad. On his retirement in 2004 he remained in England as his wife continued to work as a consultant and professor. As his wife approached her retirement they discussed where they should live and decided to move to the UAE, which Mr Khadem did in March 2018.

The claimant and Mr Khadem each took tax advice on 12 December 2018. It was to the effect that the UAE only provides a tax domicile certificate covering the period up to the date of the application for the certificate. It would be necessary for the claimant to pay Mr Khadem’s pension into an escrow arrangement for him and then to apply for the certificate. The claimant and Mr Khadem executed and delivered the agreement on Christmas Eve that month, the effect of which was that his entire pension fund of over £6m was thereafter held for him. Later the same day the certificate was issued covering the period to April 2019. The advice had been wrong. However, there was no income tax to pay in the UAE and due to the terms of the double tax treaty none to pay in the UK.

Mr Khadem remained domiciled in the UAE but visited his wife who remained in the UK. On one such visit on 15 March 2020, the UAE closed its borders until June 2020 because of the Covid pandemic. When the borders reopened Mr Khadem decided not to return. It was common ground that when Mr Khadem returned to and stayed in the UK from March 2020, his residence in the UAE became temporary and so a charge arose. The charge to UK tax was 45% of the pension sum. It was the claimant’s case that had it not made a mistake of fact as to the practice of the UAE in issuing the certificate, it would not have entered into the agreement, but would have made some other arrangement. The claimant sought recission of the agreement on the grounds of mistake. Mr Khadem did not oppose the claim. HMRC did not oppose the claim but did submit a letter for the attention of the court.

Held:

1. 1) Although the application proceeded on what was effectively an unopposed basis, the court still needed to be satisfied that the claimant had proved the facts necessary for the court to exercise its jurisdiction. The exercise of the jurisdiction involved the court making discrete value judgments as to seriousness, causative effect and unconscionability. Those were matters for the judgment of the court. Wright v National Westminster Bank plc [2014] applied.
2. 2) Mr Khadem had made a distinct mistake when entering into the agreement. He had properly sought advice as to what was required in order to attract treaty relief. The advice was that a UAE residence certificate which covered the date of payment was required and would only be issued in arrears. That was a mistake about the practice of the UAE Ministry of Finance in issuing certificates.
3. 3) Assuming but not deciding that there was a requirement that the transaction needed to have a negative effect on the claimant for the principle to apply, there was no requirement that the negative impact must be financial or that such an impact was narrow in compass.
4. 4) The issues of gravity of the mistake and causation overlapped. The nature of the mistake was as to when the UAE certificate of residency would run from and to. The key element in the causation was the fact that Mr Khadem became entitled to the sum under the agreement on 24 December 2018. If there were no such entitlement to the sum then no charge would arise. The necessary degree of centrality of the mistake to the transaction in question was shown. The claimant would, but for the mistake, not have entered into the agreement.
5. 5) Unconscionability was satisfied by a number of factors:
   1. a) the size of the tax charge, even if it was limited to the interest payable on the underlying charges between the agreement and the setting aside;
   2. b) the claimant had lost the opportunity to pay Mr Khadem in tranches, some of which could have been paid while he was not UK resident;
   3. c) leaving the mistake uncorrected left the claimant potentially open to action for breach of trust, with both financial and reputational consequences; and
   4. d) at the time of the agreement the risk of Mr Khadem returning to live in the UK was not foreseeable by either party.
6. Only limited weight could be attached to the possible claim against the tax adviser given the uncertainties of seeking such an indirect remedy.

The claimant was entitled to the relief sought.

JUDGMENT HHJ JARMAN QC: Introduction [1] The claimant is the trustee of the Inmarsat Employment Company (Ramin Khadem) Pension Plan (the plan). It seeks rescission, on the grounds of mistake, of the defendant Mr Khadem’s entitlement of a sum (the sum) of over £6m under an escrow agreement (the agreement) made between him and the …

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