KARIM MAHER ABADIR v CREDIT SUISSE TRUST LTD

A voluntary disposition may be set aside for a distinct mistake about its legal or factual consequences, including mistaken tax consequences. Carelessness does not necessarily prevent relief unless the disponer deliberately, or must be taken to have, run the risk of being wrong. The mistake must be sufficiently grave to make retention unconscionable, assessed objectively and with intense focus on the particular facts, including the mistake’s centrality and consequences. Relief is not barred merely because trust property has been distributed or because setting aside may reduce a tax liability. In a case involving ordinary, non-artificial tax planning, substantial unintended tax liabilities and no detrimental reliance, rescission may remain available.

The claimant transferred approximately $16.8 million to a Guernsey discretionary trust in 2005. He sought to set aside the transfer on the ground that it was made in the mistaken belief that the structure would not produce adverse United Kingdom tax consequences. The defendant trustee did not contest the claim and filed no evidence. HMRC had been notified and did not oppose the proceedings.

The central issues were whether there was a legally relevant and sufficiently grave mistake, whether retention of the property would be unconscionable, and whether delay, distributions, third-party rights or tax-recovery considerations barred relief.

1. Claim allowed. The transfer was set aside.
2. There was a distinct causative mistake. The claimant transferred the money believing that the offshore trust would avoid substantial United Kingdom tax liabilities. The mistake concerned the operation of the deemed-domicile rules and was legally relevant, notwithstanding that the erroneous advice resulted from carelessness by Credit Suisse.
3. The mistake was sufficiently grave to make retention unconscionable. The sole purpose of the transaction was effective estate planning; the substantial inheritance tax liabilities were inconsistent with that purpose; and, had the true tax position been understood, the trust would not have been established. The court considered that the arrangement was ordinary, non-artificial tax planning.
4. The court applied the principles summarised in Pitt v Holt [2013] 2 AC 108 and Kennedy v Kennedy [2014] EWHC 4129. The relevant assessment required an objective, fact-sensitive evaluation of the mistake, its centrality and its consequences.
5. The distribution of most trust assets did not necessarily bar rescission. Applying Wright v National Westminster Bank plc [2014] EWHC 3158 (Ch) and Bainbridge v Bainbridge [2016] EWHC 898, third-party transactions were treated as transactions imputed to the settlor, with the remedy attaching to substituted property where appropriate.
6. Laches did not arise. There was no relevant delay between discovery of the mistake and bringing the claim, and no detrimental reliance. The court also required no additional reassurance concerning recovery of tax under section 150 of the Inheritance Tax Act, given the claimant’s full and frank dealings with HMRC.