#6744 - In Re Griffiths - Restitution of Unjust Enrichment BCL

In Re Griffiths

Facts

Mr. Ronald Griffiths had acquired a number of substantial assets. In January 2003, then aged 73, Mr Griffiths and his wife Barbara took advice about tax planning in order to mitigate what would otherwise be the effect of inheritance tax on his death. Barbara Griffiths was a year younger than her husband. Tax consultants, WJB Chiltern, produced a comprehensive report, running to more than 50 pages, on the options open to him. Most of the options involved the making of potentially exempt transfers, that is to say a transfer made more than seven years before the transferor's death.

Some of the options were:

1. So far as the shares in Iota Properties Ltd were concerned they suggested the creation of a short term discretionary trust of the shares with reverter to settlor, and a subsequent assignment of the settlor's reversionary interest to trustees.

2. The report recommended the creation of a deferred lease in favour of trustees. A deferred lease is a lease whose term is limited to begin at a future date. So the idea was that Mr and Mrs Griffiths would retain the right to continue to live in their matrimonial home, but that they would lose that right once the term of the deferred lease began to run.

But these would have been effective only if Mr. Griffiths survived for more than seven years.

Unfortunately in the autumn of 2004 Mr Griffiths was diagnosed as having lung cancer; and he died on 17 April 2005. Since Mr Griffiths had not survived for more than three years since the transfers were made all of the three transfers by Mr Griffiths are chargeable transfers for inheritance tax. The tax payable therefore exceeds 1 million. Mr Griffiths also made a will under which he left a life interest in his residuary estate to his widow. Any assets in which she takes an interest under the will do not attract inheritance tax. If, therefore, Mr Griffiths had not made the transfers, there would be no inheritance tax immediately payable.

The claimants, as Mr Griffiths' executors, now seek to set aside the transfers on the ground that they were made under a mistake and that equity will set aside a voluntary transfer in such circumstances. The relevant mistake on which they rely is that Mr Griffiths mistakenly believed, at the times of the transfers, that there was a real chance that he would survive for seven years whereas in fact at that time his state of health was such that he had no real chance of surviving for that long. Had he known that his life expectancy was so short, he would not have made the transfers and so they should be declared void or set aside.

Based on his evidence I find that Mr Griffiths did not suffer from lung cancer in April 2003. Based on Dr Thompson's evidence and the mortality tables I find that in April 2003 Mr Griffiths had a life expectancy of somewhere between 7 and 9 years. However, by the time the second set of transfers were made i.e. in February 2004, Mr. Griffiths did suffer from Lung Cancer though he was unaware of this fact.

Holding

Distinction between “effect” and “consequences” rejected

Citing Millet J in Gibbons v. Mitchell:

"In my judgment, these cases show that, wherever there is a voluntary transaction by which one party intends to confer a bounty on another, the deed will be set aside if the court is satisfied that the disponor did not intend the transaction to have the effect which it did. It will be set aside for mistake whether the mistake is a mistake of law or of fact, so long as the mistake is as to the effect of the transaction itself and not merely as to its consequences or the advantages to be gained by entering into it. The proposition that equity will never relieve against mistakes of law is clearly too widely stated."

His Lordship's distinction between the effect of the transaction and its consequences or advantages has proved a difficult one to grasp. The principal debate has been whether a mistake by an individual (as opposed to a trustee) about the fiscal consequences of entering into a transaction counts as a mistake about the effect of the transaction or a mistake about its consequences or advantages. I do not need to resolve this debate.

I do not read the formulation by Millett J as limiting the overall scope of the equitable jurisdiction to relieve against the consequences of a mistake. He said that a voluntary deed will be set aside if the court is satisfied that the disponor did not intend the transaction to have the effect which it did. He did not say that a voluntary deed will only be set aside if the court is satisfied that the disponor did not intend the transaction to have the effect which it did.

Mistake or Misprediction

So there was no mistake about its fiscal consequences. The grant of the deferred lease was intended to be a potentially exempt transfer. That is precisely what it was. There was no mistake about the immediate tax consequences of the grant. Similarly the intended effect of the transaction consisting of the transfer of Mr. Griffiths' reversionary interest in the shares was intended to be a potentially exempt transfer for the purposes of inheritance tax. Again that is precisely what it was. There was no mistake about the immediate tax consequences of that transfer either. What was unexpected was Mr Griffiths' subsequent death just over a year later. The operative mistake must, in my judgment, be a mistake which existed at the time when the transaction was entered into. The mere falsification of expectations entertained at the date of the transaction is not, in my judgment, enough.

However, the claimants' alternative argument is that there was an operative mistake of fact which Mr Griffiths made at the time of the transactions. The relevant mistake was a mistake about Mr Griffiths' state of health. That was a mistake about a fact existing at the time of the transaction, not a mistake about the effect of the transaction.

It is plain in my judgment that a mistake of fact is capable of bringing the equitable jurisdiction into play. All that is required is a mistake of a sufficiently serious nature. In my judgment a mistake about an existing or pre-existing fact if sufficiently serious is enough to bring the jurisdiction into play. If and to the extent that Millett J intended to restrict the scope of the equitable jurisdiction to a mistake about the effect of a transaction, I respectfully disagree.

Causation

It was necessary to show that had they taken all relevant considerations into account they "would have" acted differently or merely that they "might have" acted differently. He distinguished between a case in which trustees were under a duty to act and cases in which they had a discretion whether to act or not. In the former case it was sufficient to show that they might have acted differently, whereas in the latter case it was necessary to show that they would have acted differently.

“If an act by trustees is set aside, where the trustees have acted under an obligation, then the beneficiaries can require the trustees to start again, on the correct basis. It seems to me that the lower test of 'might' is appropriate in such cases. If the trustees' act was voluntary, so that they cannot be compelled to act again if the act is set aside, the more demanding test of 'would' is justified in order to decide whether the trustees' act can be set aside.”

In a case where it is an individual disposing of his own property, it seems to me that the higher test applies. Thus the claimants must show that if Mr Griffiths had been aware of the true facts he would not have acted as he did. I should add that I do not consider that it is necessary for the claimants to show what Mr Griffiths would have done if he had not made the mistake. It is...