Der Merwe v Goldman & Ors

Whether mistake permits rescission depends on consideration, not merely on whether the transaction arose from an agreement or was executed under seal. Where a transaction confers benefits for which no consideration was given, the equitable jurisdiction applies. The relevant test is whether the donor made a sufficiently serious mistake to make it unjust for a volunteer to retain the benefit. Ignorance may constitute mistake where it produces a false belief or assumption. A tax mistake can satisfy the test, provided the claimant did not deliberately or knowingly accept the relevant risk. Relief is not futile merely because rescission removes a tax liability, and public policy will not prevent relief without a proper basis for withholding it.

The claimant and his wife transferred their Oxford home to the claimant alone, after which he created a settlement and transferred the property to himself and his wife as trustees. They were unaware of a budget announcement which retrospectively made the arrangement subject to substantial inheritance tax and ten-year charges.

The claimant sought rescission of the settlement and later transfer. The wife supported the claim. HMRC argued that the transactions were contractual or supported by consideration, so that only the narrow common-law rules for mistake applied. The court also considered, alternatively, a joint claim by the claimant and his wife to set aside all the transactions.

1. Applicable principles. The common-law rules in Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2003] QB 679 apply to contracts. The equitable rules restated in Pitt v Holt [2013] 2 AC 108 apply to gifts and other voluntary dispositions. The dividing line is whether consideration was given for the benefit which rescission would remove.
2. The claimant and his wife did not provide consideration for the benefits under the settlement. Their agreement to undertake the steps did not determine the issue. The transfer to the claimant alone was made so that he could implement their common intention, and he held the property on resulting trust pending effective declaration of the intended trusts. The transactions therefore formed a voluntary, unilateral disposition.
3. The parties were mistaken because ignorance of the budget announcement led to the false belief that the settlement would not create a charge to inheritance tax. The mistake caused the transactions, was not a deliberate assumption of risk, and was sufficiently grave given the tax and interest involved. It was unjust for the volunteer beneficiaries to resist rescission.
4. The court declined to withhold relief on public-policy grounds. HMRC accepted that, at first instance and in light of Le Laboratoires Servier v Apotex Inc [2015] AC 430, the court could not properly refuse relief on that basis. Rescission would not be futile because it would remove the tax liability.
5. The claimant and his wife were entitled to set aside the transfer of 24 March 2006, the settlement and the transfer of 27 March 2006. The court was also prepared to grant the claimant alone relief concerning the latter two transactions, but considered that setting aside all transactions was the appropriate order. The precise form of order was to be addressed after hand-down.