Hartogs v Sequent (Schweiz) AG & Ors

A voluntary disposition may be rescinded for mistake where the donor held a causative mistake of sufficient gravity to make it unconscionable for the donee to retain the property. The mistake may concern the legal character or nature of the transaction, or a basic matter of fact or law. A conscious belief or tacit assumption may suffice; mere ignorance or a misprediction about a future event does not.

Gravity is assessed objectively and in the round, with close attention to the circumstances of the mistake, its centrality, its consequences, any change of position and other discretionary considerations. Mistakes about tax consequences are subject to the same principles as other mistakes. Relief remains subject to strict limits and is not available merely because an anticipated tax liability has arisen.

The claimant sought, under Part 8, to set aside two voluntary transactions. In 2009 he transferred funds and a company holding a residential property into the Milky Way Settlement Trust. In late 2013 and early 2014 he transferred classic cars, and funds used to acquire and restore further cars, into the Mercurius Settlement Trust.

He contended that he had acted on professional advice and mistakenly believed that the arrangements would be tax-efficient and would not create immediate inheritance tax liabilities. The trustee and corporate defendants supported the claim. The central issues were whether the claimant had made an operative and sufficiently serious mistake, and whether rescission should be granted.

1. Applicable principles. The court applied the three-stage framework adopted in Pitt v Holt [2013] UKSC 26, namely: the donor must have been mistaken; the mistake must be of a relevant type; and it must be sufficiently serious to satisfy the unconscionability test. A conscious belief or tacit assumption may constitute a mistake, whereas mere causative ignorance or a misprediction about a future event will not ordinarily suffice.
2. The relevant mistake normally concerns the legal character or nature of the transaction, or a basic matter of fact or law. Carelessness does not necessarily prevent relief unless the donor deliberately ran, or must be taken to have run, the risk of being wrong. The gravity of the mistake is assessed objectively by close examination of the facts, including its centrality, consequences, any change of position and other matters relevant to the discretion.
3. A mistake as to tax consequences is not subject to a distinct rule. The court accepted the approach in Freedman v Freeman [2015] EWHC 1457 (Ch) and Van der Merwe v Goldman [2016] EWHC 790 (Ch) that ignorance may amount to a tacit assumption where it has led to a false belief that the transaction would not produce an adverse tax charge.
4. The claimant had made an operative mistake in believing that the trust structures would not give rise to immediate inheritance tax liabilities. The mistake was causative: he would not have entered into either transaction had he known of the charges. The liabilities, approaching £1.7 million for the 2009 transaction and £1.2 million for the 2014 transaction, made it unconscionable to leave the dispositions uncorrected.
5. The 2010 email referring to the claimant’s domicile and inheritance tax status did not displace the operative mistake. Carelessness, at its highest, was no bar to relief. The fact that cash had been used to acquire assets and fund expenditure was also no bar because traceable proceeds could be recovered.
6. The court declared that both sets of transfers had been executed by mistake and ordered them set aside. The assets or traceable proceeds were to be transferred to the claimant. If necessary, an account and inquiry would be taken. There was no order as to costs.