Rogge & Anor v Rogge & Ors

Rescission of a voluntary disposition for mistake requires a distinct causative mistake sufficiently grave to make it unjust, unfair or unconscionable for the recipient to retain the property. The assessment is objective and fact-sensitive.

In applying that test, the court may consider the practical effect of rescission, including conditions and counter-restitution. The contractual rules on affirmation, change of position and complete restitution do not apply with absolute rigour. Relief must not, however, be used as a disguised form of rectification or quasi-rectification.

The claimants sought rescission of transfers made to a disabled persons discretionary trust established for their injured son. The trust acquired and developed a substantial country property which the claimants intended to use as a family home.

They alleged mistakes concerning the need to pay market rent, the gift-with-reservation-of-benefit rules and inheritance tax consequences. They also sought declarations concerning later payments made directly to contractors and proposed orders requiring property and money to be settled on a new trust.

The court had to determine which payments were affected by a causative mistake, whether rescission was available, what conditions or counter-restitution were appropriate, and whether the later contractor payments were held on resulting trust.

1. The court applied the test in Pitt v Holt, [2013] UKSC 26. A relevant mistake must be distinct from mere ignorance, inadvertence or misprediction, although those matters may produce a legally recognised false belief or assumption. Carelessness does not necessarily prevent relief unless the donor deliberately, or is taken to have deliberately, run the risk of being wrong.

2. The claimants were mistaken in believing that, apart from avoiding the gift-with-reservation-of-benefit rules, they would not have to pay for their occupation of the property. They were also mistaken in believing that the risk under those rules could be minimised by paying rent only for periods when they were physically present. Those mistakes were causative and sufficiently grave to make retention of the relevant transfers unconscionable.

3. The initial transfer of £4.1 million and additional mistaken payments totalling £10,370,780 were therefore capable of being rescinded. Payments made on and after 7 August 2015 were not made under a causative mistake because the claimants then knew that substantial rent would be required. Those payments were not set aside.

4. The court rejected the proposed use of undertakings to fund a new trust as a condition of rescission. That would amount in substance to rectification by the back door. Undertakings may, however, be relevant to protecting recipients and beneficiaries, and to conditions or counter-restitution arising from the property and the transactions.

5. In voluntary dispositions, affirmation, change of position and complete or near-complete restitution are not absolute bars. The court must assess in the round whether leaving the disposition in place, or granting rescission on particular terms, would be unjust, unfair or unconscionable. Rescission may be conditional and may require repayment of trust funds spent on improvements, adjustment for rents and interest, and protection against personal or proprietary claims.

6. The contractor payments made directly by the First Claimant were not held by the trustees and could not be subject to a resulting trust. The contractors received them as bona fide third parties for full consideration.

7. The court indicated a conditional order setting aside the initial and additional mistaken payments and requiring transfer of the property to the claimants, subject to agreed or inquired conditions concerning rents, benefits, interest, counter-restitution and the trustees’ protection from unrecoverable liabilities.