Kennedy & Ors v Kennedy & Ors

A voluntary disposition may be rescinded in equity for a distinct, causative mistake sufficiently serious to make it unconscionable for the recipient to retain the property. Carelessness does not necessarily prevent relief unless the disposer deliberately, or is taken to have deliberately, run the risk of being wrong. A mistaken disposition is voidable in equity, not void at law. Rectification requires the document to fail to express the parties’ true intention; a mistake about external consequences will not suffice. A self-contained and severable part of a non-contractual voluntary disposition may be set aside without rescinding the entire transaction.

The trustees of a family settlement sought relief concerning an appointment under which the remainder of the trust fund was appointed absolutely to the settlor. They had intended specified shares and loan notes to remain settled, principally to avoid an unintended capital gains tax liability, but the appointment transferred them as part of the remainder.

The defendants did not oppose the claim, and HM Revenue and Customs ceased actively defending it. The trustees sought a declaration, alternatively rescission or rectification. The central issues were whether the trustees’ mistake justified equitable relief, whether the provision could be rectified, and whether it could be rescinded only in part.

1. Equitable mistake. Applying Pitt v Holt [2013] UKSC 26, [2013] 2 AC 108, the court held that each trustee had made a distinct and causative mistake. The mistake was fundamental to the tax-efficient planning, and its consequences were serious: the relevant assets passed to the settlor and the trust incurred a substantial capital gains tax liability. Taken in the round, it was unconscionable to leave the appointment uncorrected.
2. The mistake made the disposition voidable in equity, not void at law. The declaration that the relevant shares had never been appointed was therefore misconceived.
3. Rectification. Rectification was unavailable. The wording of the provision represented the trustees’ actual intention. The mistake concerned matters external to the document, namely the expected tax consequences and assumed availability of losses. Marley v Rawlings [2014] UKSC 2, [2014] 2 WLR 213 did not assist because it concerned the interpretation and application of section 20(1)(a) of the Administration of Justice Act 1982.
4. Partial rescission. The contractual rule that a contract cannot be partially rescinded, discussed in De Molestina v Ponton [2002] 1 LL Rep 70, did not necessarily apply to a self-contained and severable part of a non-contractual voluntary transaction. The related requirement of substantial restoration was also irrelevant in that context.
5. Clause 2.1(c) was self-contained and severable. It was set aside for mistake, while the remainder of the appointment remained effective.

First-instance decision. No prior appellate decision is stated in the judgment.