Amarjit Bhaur & Ors v Equity First Trustees (Nevis) Limited & Ors

In the equitable jurisdiction to set aside a voluntary disposition for mistake, the court applies the three-stage framework in Pitt v Holt [2013] 2 AC 108: a causative mistake of a relevant kind, sufficient gravity, and injustice or unconscionability in retaining the property. Relief may be refused where the donor knowingly ran the risk that an artificial tax-avoidance scheme might fail, even if the donor was badly advised and misunderstood the consequences. A mistaken belief in the adviser’s honesty, or expectations about later trust administration, is not a causative mistake basic to the disposition. Artificial tax avoidance is a powerful factor against equitable relief.

Following a six-day trial, Marcus Smith J dismissed claims by the appellants to set aside for mistake a disposition of company shares into an employee benefit trust forming part of an inheritance-tax scheme: [2021] EWHC 2581 (Ch). The Judge found that the appellants had made no relevant mistake, treating their belief that the scheme could be reversed if unsuccessful as a misprediction. He also found that they had tacitly assented to misleading material being presented to HMRC.

The appellants challenged the classification of their belief, the findings concerning their involvement in the scheme, and the treatment of their beliefs about the honesty of their advisers and their continuing control of the assets. The central issue was whether the disposition should be set aside under the equitable doctrine of mistake, including where the appellants were assumed to have been innocent victims and to have made a relevant mistake.

1. Appeal dismissed. Snowden LJ gave the leading judgment, with Arnold and Lewison LJJ agreeing.
2. The court adopted the framework in Pitt v Holt [2013] 2 AC 108: there must be a mistake; it must be of a legally relevant kind; and it must be sufficiently serious that it would be unjust or unconscionable for the donee to retain the property. The court did not need to decide whether the appellants’ belief that the scheme was reversible was a mistake or a misprediction. Even assuming it was a relevant mistake, relief failed on the conscience limb.
3. The appellants knew that the tax scheme might fail and that failure might leave them worse off. They deliberately proceeded despite that risk. A mistaken belief that the consequences could be contained by reversing the transactions and recovering fees did not make it unjust or unconscionable to leave the disposition uncorrected.
4. A mistaken belief that an adviser was honest or careful was not basic to the transaction and did not relate to the disposition itself. It could not justify setting aside a disposition in favour of an innocent third-party donee. Similarly, expectations about later administration of the trust, continued practical control, or access to benefits were future expectations and could not amount to a causative mistake made in 2007.
5. The consequences could be severe, but the scheme was an entirely artificial tax-avoidance arrangement with no genuine commercial or employee-benefit purpose. Following Lord Walker’s observations in Pitt v Holt, that artificiality was a very weighty factor against relief.
6. It was unnecessary to determine the challenge to the Judge’s findings of complicity in misleading HMRC. Snowden LJ nevertheless stated that findings of dishonesty required identification of the person’s subjective state of mind and assessment against the objective standard of honesty, applying Ivey v Genting Casinos [2018] AC 391. The Judge’s findings raised concern, but could not affect the result.
7. The Court also refused Mr O’Toole’s application to re-engage at the appeal stage. He was taken to admit the allegations after failing to file a defence under rule 16.5(5) of the Civil Procedure Rules 1998, had not applied to withdraw those admissions, and the proceedings and evidence would probably have taken a different course had he participated earlier.

1. Court of Appeal (Civil Division) — appeal from the High Court dismissed.
2. High Court of Justice, Business and Property Courts — after a six-day trial, Marcus Smith J refused the claim to set aside the voluntary disposition for mistake: [2021] EWHC 2581 (Ch).