Analysis
The first and second claimants had four children, three of whom were the defendants. The third defendant suffered a serious brain injury while playing polo and was left unable to walk unaided. The first and second claimants purchased two contiguous flats in London, one for themselves and the other for the third defendant. They also sought a house in the countryside which would serve both as a retirement home for themselves and as a place for their children and potential future grandchildren to visit, with an area designed to meet the needs of the third defendant. In February 2011 they identified the property they wished to purchase; Medstead Grange, Near Alton (property). On advice from Taylor Wessing, the first claimant set up a disabled person ‘s trust known as the Stefan Rogge Discretionary Trust on 31 March 2011 (trust), the trustees of whom were the first and second claimants and the first and second defendants (trustees). The class of beneficiaries included the third defendant (as principal beneficiary) and his children or remoter issue, the children and remoter issue of the first claimant and such other persons as may be added pursuant to a power contained in the trust. Excluded from benefit were both the first claimant (as settlor) and the second claimant (as his spouse). The first claimant then settled £4.1m (initial transfer) into the trust which the trustees used to purchase the property. Thereafter considerable additional sums were settled to enable construction and other works to be carried out to the property, including a total of £8.1m by the second claimant (additional transfers). When the property was fit for use, in order to prevent the gift with a reservation of benefit rules having an adverse impact, the first and second claimants took a lease from the trustees with effect from 1 September 2015 at an annual rent of £102,000. Subsequently, they issued a part 8 claim seeking an order by consent setting aside all transfers into the trust made prior to 27 November 2015 and a declaration that sums transferred to the trust after 27 November 2015 were held on resulting trust (consent order).
Held (declining to make the consent order)
The claimants ‘ evidence as to their intentions in respect of the property, corroborated by its size and value with or without alterations, was accepted. It was not necessarily inconsistent with the contrary understanding of Taylor Wessing that their intentions were for the property to become the home of the third defendant and that their visits would only be occasional and, at least in the case of the second claimant, for the purpose of caring for the third defendant. On the basis of this evidence, there was ample scope for finding there was a misunderstanding as to the nature of the claimants‘ intentions in respect of the property by reason of a failure clearly to have articulated them or otherwise. At the time of the initial transfer into the trust and the purchase of the property, the claimants were mistaken in two respects:
- (i) In thinking that they could have minimised the risk of the gift with a reservation of benefit rules applying by paying for their enjoyment of the property only in respect of the periods when they were present otherwise than in their roles as carers for the third defendant; and
- (ii) In thinking that, given that they were expressly excluded from benefit under the Trust, they would not have to pay for their occupation of the property otherwise than in their capacities as carers for the third defendant.
Both were distinct mistakes or tacit assumptions as distinguished from mere ignorance or inadvertence, causative within the meaning of the rule in Pitt v Holt. It was evident that had the claimants known that they would have to pay a full market rent in order for them to use the property and avoid the gift with reservation of benefit rules, the first claimant would not have made the initial transfer for the purchase of the property and the second claimant would not have made the additional transfers for improvements to the property. Those mistakes were sufficiently grave as to make it unconscionable, absent a relevant change of circumstances, for the recipients to retain the money. Of subsequent payments made into the trust by the second claimant, most of these were not susceptible to being set aside for mistake and accordingly became trust assets which the trustees could spend in accordance with the terms of the trust. Other payments which the first claimant made for the payment of contractors were no longer held by the trustees and could not be treated as being held on resulting trust for the first claimant. Overall it would be just, fair and reasonable, and effect practical justice, to set aside the initial transfer and the additional transfers if the position could be achieved whereby, applying legitimate and appropriate conditions and requirements for counter restitution:
- (i) the claimants were able to recover property and, insofar as could be achieved by way of set off, the benefits obtained by the trustees therefrom (ie the net rents with interest thereon);
- (ii) the claimants provide counter restitution to the trustees of the amounts spent by then on improvements to the property out of non-voidable payments and other sources which were not susceptible to tracing claims plus interest thereon; and
- (iii) the rescission gave rise to no outstanding possible personal or other proprietary claims against the trustees and the first claimant makes no claim against them in respect to the payments made to the contractors. This proposed order should be in conditional form and contain the conditions and requirements for counter restitution (unless incorporated as unconditional undertakings if the claimants were willing to give them) and, in the absence of further agreement between the claimants and the trustees as to the conditions and counter restitution, they will have to be the subject matter of inquiries before a master before the orders for rescission and transfer of the property becomes unconditional.
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