By Professor Lesley King, College of Law, London

Equitable jurisdiction and mistakes

Re Griffiths [2008] EWHC 118 (Ch) is an interesting case that, on the right facts, might be extremely useful in allowing taxpayers to escape from the consequences of their actions in certain circumstances.



The court has an equitable jurisdiction, which allows it to set aside a voluntary disposition where a donor shows that he made the disposition as a result of a mistake so serious as to render it unjust on the part of the donee to retain the property given to him. The jurisdiction is similar to the Hastings-Bass jurisdiction and was used comparatively recently in Wolff v Wolff [2004] STC 1633, where taxpayers had entered into a complex tax planning exercise which they had not understood and which would have rendered them homeless.



Mr Griffiths, aged 73, received tax planning advice, as a result of which he made three substantial Potentially Exempt Transfers (PETs), hoping to survive for seven years (or at least three years, in which case the inheritance tax due on the lifetime gifts would have been reduced by inheritance tax tapering relief). He made two transfers in April 2003 and one in February 2004. In autumn 2004, he was diagnosed as having lung cancer and, in April 2005, he died.



All three PETs became chargeable to inheritance tax and the tax payable exceeded £1 million. Mr Griffiths also made a will under which he left a life interest in his residuary estate to his widow. If, therefore, he had not made the transfers, there would be no inheritance tax immediately payable.



The executors sought to set aside the transfers on the ground that they were made under a mistake. 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 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.



The medical evidence was that Mr Griffiths was not suffering from cancer in 2003, but that he was in 2004.



Judge Lewison held that a mistake of fact is capable of bringing the equitable jurisdiction into play provided it is sufficiently serious. It was then necessary to show that, if Mr Griffiths had been aware of the true facts, he would not have acted as he did.



On the facts, there was no evidence that the transactions in 2003 were made under a mistake. Mr Griffiths was not ill at the time the gifts were made. However, the 2004 gift was different. Had he known in February 2004 that he was suffering from lung cancer, he would also have known that his chance of surviving for three years, let alone for seven years, was remote. In those circumstances he would not have acted as he did. It was appropriate to set the 2004 disposition (of £2.6m) aside.



Additional points worth noting:



(1) Quite apart from the fact that there was no mistake in relation to the 2003 dispositions, Judge Lewison said he would have refused to set aside one of them because it was a joint disposition by Mr and Mrs Griffiths, and Mrs Griffiths had not applied for it to be set aside. Counsel said that she would be happy to make such an application but she had not done so and, even if she had, it would have been necessary to show that she too made a relevant mistake.



(2) Was the disposition void or merely voidable? It made a difference because the executors had paid inheritance tax on a provisional basis. If the assignment was void, they were entitled to interest on the overpaid tax as from the date on which they made the payments (section 235 of the Inheritance Tax Act 1984), whereas if it was voidable, interest was only payable from the date when a claim to repayment was made (sections 150 and 236(3) of the 1984 act). Judge Lewison held that, as the jurisdiction is to relieve against the consequence of a mistake, unless and until the transaction is set aside (or relief is given), it has legal effect. In other words the transaction is voidable rather than void ab initio.



Note that the application was not opposed by the donees. HM Revenues & Customs was asked whether it wished to intervene in the proceedings in view of the large amount of tax potentially involved. It declined to do so, although it asked for certain authorities to be brought to the court's attention. There was, therefore, no adversarial argument either on the law or on the facts.





Inheritance claims

On the completely different topic of Inheritance Act claims, Aston v Aston [2008] WTLR 1349 is worth a look.



A widow made an application to court on the basis that her husband had not made reasonable financial provision for her. The claimant and the deceased had been married for 19 years before the deceased's death. However, the widow had left the deceased as a result of an affair, still ongoing at the date of the hearing.



The court held that, notwithstanding the length of the marriage and the fact that it was nominally still in existence at the date of death, the widow had not demonstrated that the will did not make reasonable financial provision for her. In the circumstances, the amount that she would have received on divorce played a large part in determining whether the provision made for her was reasonable.



The claimant had received a half-interest in the matrimonial home, the proceeds of a joint lives policy and the widow's pension. She would not have received as much on divorce, given that the husband had suffered from cancer for several years before death and had been unable to work.



A major item of expenditure was a horse, and the court commented that any deficiency between her income and outgoings arose almost entirely from her decision to acquire a horse after her marriage was over and at a time when it was clear that her husband would never work again.



Professor Lesley King is a principal lecturer at the College of Law