Case Law Update – June 2016

by Judith Rountree

08-06-2016

 

  1. An equitable mistake meant a transfer of farmland into a trust, which was then sold, could be rescinded. The recent case of Bainbridge and another v. Bainbridge [2016] EWHC 898 (decided on 22 April 2016), concerned a father and son (who farmed in partnership) who had transferred farmland into a discretionary trust. They did not realise until the land was subsequently sold by the trustees (who bought replacement land with the proceeds) that the original transfer would cause them to pay substantial capital gains tax charge. The capital gains tax liability was described as “crushing”.The reason they had transferred the land into a trust was to protect it against future possible claims from other members of the family or the possibility that it might be the subject of future divorce proceedings.As a result of the tax liabilities they were forced to make an application to the High Court to rescind the trust following a mistake. The High Court applied the case of Pitt and another v. HMRC [2013] UKSC 26. It decided that it would be unconscionable or unjust to leave the mistake uncorrected and the transfers should be rescinded for the equitable mistake regarding the tax liabilities.In addition though, as the trustees had sold the land the court had to decide whether the trustees’ sale should be set aside. It was agreed that the sale should not be set aside and that the new land should replace the sold land (that was originally held on the trust) and should be restored to their beneficial ownership as original owners of the sold land.Applications for equitable rescission following mistake are becoming more common, however the equitable tracing element to enable the new land to end up with the original beneficial owners is unusual. From a charity perspective this is an interesting case should part of an estate be held on a discretionary trust for a charity which later attracts “crushing” capital gains tax. It might be able to rescind the trust if it can prove the purpose of the discretionary trust was to avoid extortionate tax liabilities

2. Proprietary estoppel argument successfully obtains a beneficial interest in Property

In Linden v. Burton [2016] EWCA Civ 275, the Court of Appeal considered Ms Linden’s claim for a beneficial interest in her ex-partner’s property as a result of the doctrine of proprietary estoppel.

Ms Liden had moved from Sweden to the UK to live with Mr Burton in a property of which he was the sole proprietor. He said the property was expensive to run and so Ms Liden agreed to contribute £500 per month (half her pension) towards the upkeep and general maintenance of the property. This continued for almost ten years. She had always been assured by Mr Burton that her financial contributions were “towards the house”.

The Court of Appeal, following the guidance in Thorner v. Majors and others (2009) UKHL 18 held that, the oral assurances made by Mr Burton were sufficient for her to acquire a beneficial interest in the property by way of proprietary estoppel. It was held that Mr Burton had induced, encouraged or allowed Ms Liden to believe she was obtaining an interest in the property and that it would unconscionable to deny her an interest in the property.

The first instance decision had previously awarded Ms Liden a 10% interest in the property, which the Court of Appeal upheld.

To establish proprietary estoppel it is necessary to prove the following:

As couples are now living together unmarried more and more, the issue of whether a beneficial interest has been obtained is becoming more common. Often in contested probate cases, one person has died and not left a Will, or has not updated their will to include a new partner. This means the evidence may not be as clear cut as within the above case. This makes it harder for the court to decide on the parties’ true intentions and can cause costly litigation.

Should a charity become aware that a person wishes to leave a property to it in their will, it should try to make sure the full extent of the circumstances relating to the property are considered. If an occupant/new partner also lives in the property a potential claim for a beneficial interest needs to be considered, as well as the possibility that the occupant may also claim a life interest within the property. Such claims can delay the realisation of a property asset for a charity.

3. £6 million settlement claimed pursuant to the Inheritance (Provision for Family and Dependents) Act 1975 after wife left £36,000 in late husband’s Will

This case has recently made headlines as Mari Vindis, the widow of a very wealthy businessman Nigel Vindis had issued divorce proceedings two months before Nigel died. They had been married for 40 years and had two children.Nigel’s estate is worth £12 million. Within his Will (which he prepared along with a letter of wishes only months before his death) he left Mari £1 million but it was tied up in properties of which she was already the legal owner. Once the properties had been accounted for she was left with a mere £36,000. The remainder of his estate was split equally between his two children.As Nigel and Mari were still married at the time of death, the divorce proceedings will have no effect on the distribution of his estate as the terms of the Will must be implemented rather than Mari’s divorce claim.Mari has made a claim for reasonable financial provision from Nigel’s estate under the Inheritance (Provision for Family & Dependants) Act 1975. Had Mari finalised the divorce proceedings she is claiming that she would have received a settlement closer to £6 million (50% of the estate).As a starting point the court will consider the provision that she might reasonably have expected to receive if on the day the Nigel died the marriage was terminated by divorce rather than death. This is a starting point only though as the court will also take into account the £1 million in properties she has already received under the rule of survivorship, together with her own personal financial situation, her conduct prior to Nigel’s death, as well as the position of the beneficiaries and any further claims made against the estate.If Mari is successful she could be awarded one of the largest ever settlements in a case of this nature.Charities need to be wary of inheritance act claims which can still be pursued by estranged spouses who are separated but whose divorce is not yet finalised. Regardless as to whether new wills or letters of wishes have been drawn up, the deceased’s estranged spouse may still come back after death to stake a claim against the estate.Mari’s case has been adjourned so has yet to be decided once further evidence has been disclosed. It will be interesting to see how the claim is dealt with.

4. The importance of ensuring your charity is named correctly within a will

Gardner Leader has recently been involved in the reported case of Re: Harte [2015] EWHC 2351 (Ch). This case was important as it highlighted the importance of ensuring a will is clearly and properly drafted.Gardner Leader was instructed on behalf of the Trustees within this case to resolve numerous issues and inconsistencies within a will belonging to Mrs Harte. The will in question divided the residuary estate into ten shares, some of which were referred to as “one tenth” and some as “one part.” This was not the only problem though, the ten shares included numerous charities, the majority of whom had been incorrectly named within the will. For example, one charity was named as “Newbury Hospital”. There is no Newbury Hospital charity. Another was named as “West Berkshire Ambulance Hospital”. There is no hospital for ambulances either! A well drafted will should also include a clause providing the trustees with the power to enable them to distribute gifts (such as the above) to charities which serve the same purpose of those of the incorrect intended beneficiary. If this will had included such a clause the trustees may have avoided having to instruct Gardner Leader to seek an order from the High Court for rectification/construction of the will. Fortunately, Gardner Leader was able to minimise the losses to the estate in this case to as to ensure the charities received their entitlement and secured the costs of the proceedings against the solicitors who prepared the will and whose drafting resulted in the need for the application. From a charity perspective it is important that its name and registered charity number are listed correctly within a will. Charities should ensure that this information is readily available to people who may wish to leave a donation or share of their estate to it.


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