Ashcroft v Barnsdale & Ors

Rectification corrects the recording of an agreement, not the substance of the transaction or a mistaken assessment of its fiscal consequences. The distinction between a mistake as to a document’s meaning or effect and a mistake as to its consequences applies to all claims for rectification, not only voluntary transactions.

Rectification may be granted where cogent evidence establishes the parties’ specific common intention, the document fails to record that intention, and an issue remains capable of being contested between the parties. A fiscal benefit alone is insufficient. Deliberate adoption of particular words, or omission of words, does not prevent relief where the document fails to give effect to the parties’ true agreement.

The claimant sought rectification of a deed of variation to his late wife’s will. The deed exchanged farmland for part of the share portfolio but made the claimant, as residuary beneficiary, bear additional inheritance tax on a pecuniary gift to the children.

The claimant and the non-contesting defendants intended to reduce the estate’s tax liability without altering the incidence of the tax burden. A later deed of rectification had been rejected by HMRC for inheritance tax purposes unless the court ordered rectification. The central issue was whether the defective deed recorded the parties’ true agreement or merely reflected a mistaken view of its tax consequences.

1. Rectification principles. The distinction between a mistake as to the meaning or effect of a document, which may be rectified, and a mistake as to its consequences or fiscal advantages, which cannot, applies to every rectification claim. The remedy corrects the way in which a transaction was recorded; it does not change the transaction itself.
2. Relief may be available even where the parties deliberately adopted the words used. An inadvertent omission can be corrected where cogent evidence establishes the parties’ true intention. The requirement for an outward expression of accord may require a modified approach where the parties did not appreciate that particular words were needed to achieve the intended effect.
3. The court must be satisfied by cogent evidence that the document fails to give effect to the parties’ true agreement or arrangement and that an issue remains capable of being contested between the parties. It is immaterial that all parties seek or consent to rectification, or that the order would have beneficial fiscal consequences. Relief is unavailable where the parties’ rights would be unaffected and the only result would be a fiscal benefit.
4. On the evidence, the parties intended to reduce the inheritance tax payable without changing who bore it. The omission of the words “subject to inheritance tax” resulted from a mistake in recording that common intention, rather than a mere misapprehension of tax consequences. The requirements for rectification were therefore satisfied.
5. The erroneous reference to clause 6 instead of clause 5 was an obvious numbering error correctable by construction, without rectification. The claim was upheld, an appropriate order was directed to be lodged, and there was no order as to costs.