Richard David Ernest Hopes & Anor. v Kate Burton & Ors.

A voluntary disposition may be rescinded for mistake where the trustees held a distinct, causative mistake as to the transaction’s substance or effect, and the mistake is sufficiently grave that it would be unconscionable to leave the disposition uncorrected. Carelessness does not necessarily prevent relief, unless the trustees deliberately ran the risk of being wrong.

The court assesses gravity and unconscionability objectively, with intense focus on the particular facts, including the mistake’s centrality and consequences. A merely possible adverse tax consequence may suffice where the trustees believed they were entering a straightforward transaction. The court may impose terms when granting rescission, but should do so only where there is a proper evidential basis and affected beneficiaries have had a fair opportunity to address the issue.

The claimants, trustees of the Skandia Life Policy Trust, sought under Part 8 to set aside deeds of appointment made in 2013 and 2014. They alleged that the trustees had mistakenly altered existing beneficial interests, exceeded their powers, created uncertainty and failed to consider relevant matters.

The 2013 deed was intended to exclude one beneficiary and preserve the interests of three others, but instead replaced their existing interests with materially different interests. The 2014 deed subsequently appointed part of one fund on discretionary trusts. The central issues were whether the deeds resulted from operative mistakes, whether the tax consequences constituted a sufficiently serious mistake, and whether rescission should be granted on terms.

1. Rescission granted. The 2013 Appointment materially altered the interests of Kate, Adam and Lillie. Their former absolute defeasible interests in capital were replaced by life interests in income, with capital held for discretionary beneficiaries after death. A possibility that trustees might later exercise powers to recreate a similar position was only a workaround and did not preserve the beneficiaries’ original entitlements.
2. The trustees’ intention was that those interests should remain unchanged. The mistaken belief was sufficiently grave to justify rescission. The 2014 Appointment was predicated on the 2013 Appointment and was therefore also set aside.
3. The court accepted that an operative mistake as to adverse inheritance-tax consequences could independently justify relief. Applying section 52(1) of the Inheritance Tax Act 1984, the proper analysis was that the 2013 Appointment terminated the existing interests in possession and created new interests. The court rejected the argument that similarity in income entitlement prevented termination. It also held that the risk of adverse tax consequences was sufficient, particularly because the trustees believed they were entering a straightforward transaction rather than a complex dispute with HMRC.
4. The court had power to impose terms on rescission. It declined to require equivalent replacement appointments because the relevant considerations might have changed over eight or nine years, the evidence was insufficient, and the affected beneficiaries had not been given a fair opportunity to make submissions. The remaining grounds were unnecessary to decide.