UK's Court's Equitable Jurisdiction in Inheritance Tax Matters - Essay Example

? UK’s Court’s Equitable Jurisdiction in Inheritance Tax Matters- An Analysis Introduction This research essay will be analysing the concept of equitable jurisdiction which permits a court to turn down an intentional disposal of assets where an executor demonstrates that the disposition of property was under the mistake of facts. In UK, the courts will apply an equitable jurisdiction which permits it to annul a deliberate disposition where a donor or an executor demonstrates that he bequeathed disposition due to grave mistake which became unjust on the side of the donee to enjoy the asset gifted to him. This research essay will be analysing the court’s equitable jurisdiction in reversing a gift made already under the mistake of facts with specific reference to Re Griffith’s case. Analysis Equitable Jurisdiction Since the medieval period, the equity principles in UK have emerged poignantly through the process of chains of various forms of the writ, conceived by the Lords Chancellor. UK courts have applied equitable jurisdiction through the forms of rescission, injunctions, specific performance and through rectification or reversion. An equitable remedy can be explained as a relief or remedy by recognising a loss suffered by an infringement of duty and demanding the fiduciary to make an order for compensation for the loss suffered as held in Target Holdings v Redferns.1 The court can order to pay monetary damages which are known as “equitable compensation.”(Hudson 2009:1138). The fundamental principle of the equitable jurisdiction is the concept that it functions or acts in personam. The meaning of in personam can be explained how the Court of Equity is more worried to stop any given individual from functioning unconscionably. Thus, a Court of Equity is therefore giving a verdict, footed on the veracity of the facts unreasonably or not knowingly. If the defendant does not stop or carryout the court orders, then such person would be held as committed a contempt of court. (Hudson2009:22). In East v Pantiles Plant Hire Ltd2 , the court was asked to consider the background on which reversion or overhaul can be ordered as regards to a deed. In this case, Brightman J observed it is obvious on the officials that an error in a written deed, could, in some scenarios, be ordered to be corrected as an issue of drafting without applying for an order from a court for an order of rectification. To be eligible under this rule, it is necessary to fulfil the following two stipulations namely there should be an apparent and obvious error on the face of the deed, and it must be obvious what rectification has to be made so as to rectify the error. As a matter of construction, if the above two conditions are fulfilled, then such rectification is made. (Marshall2007: 90). Mistake of Fact In “Ogden, v Trustees of the RHS Griffiths 2003 Settlement”3, the trustees were delegated with revisionary interests in certain shares by the deceased grantor. When executing the deed, the grantor was of the opinion that his health was good and hence, he had a reasonable opportunity for living for at least seven years. As under Inheritance Tax Act 1984, if a gift is made, the grantor should live at least for seven years from the date of granting the gift. It is to be noted that after the expiry of seven years, there will be no inheritance tax on the assets so gifted to family members. However, Griffith was actually diagnosed with lung cancer and died after one year after the execution of the gift. Executors contended that a mistake was committed by the deceased in assessing his state of health and prayed for equity intervention. Agreeing with the executors, Lewison J set aside the transfer or gift under the mistake of fact. (Hacker 2008:117). Griffith’s case has permitted tax payers in UK as part of their tax planning to have just and to annul gifts they have made under the mistake of facts. As per s 3A of the Inheritance Tax Act 1984, if a grantor lives for seven years immediately after executing a gift to somebody, there will be an exemption from gift tax for such gifts and there is no limitation on the value of the gifts so made. It is to be noted that if a grantor makes a will that his estate should devolve to a civil partner or a spouse who has their permanent residence in England or if any gift is made to a civil partner or a spouse, then the grantor’s estate doesn’t owe any inheritance tax on such arrangement even if it exceeds the maximum exemption threshold fixed by the Act. Thus, as a tax avoidance measure, giving away the properties can be designed by way of gift, which could be regarded as an effective tax planning, or it may end in a catastrophe decision reckoning upon the specific scenario. In Griffith’s case, as he failed to live for a period of seven years immediately after the gift, and as he died 14 months later, trustees were asked to pay inheritance tax on the value of the gift made by him. Further, if no gift is made by Griffith at all, Griffith’s widow would have automatically inherited Griffith’s property and under spouse exemption under Inheritance Tax Act, full exemption from payment of inheritance of tax by Griffith’s widow would have been available. In the majority of cases, once a gift is made, it is not possible to undo such a gift. Griffith was aware that he had to survive for at least seven years for the exemption to be availed from inheritance tax. When the gift was made, Griffith did not aware that he had a chronic lung cancer, and his life days were numbered. It was argued by the trustees that had Griffith was aware that he would live only 14 months after his gift, he would not have made such a gift. In Griffith’s case, the courts employed its discretion and ordered for the reversal of the gift. Due to this, the inheritance tax payable on Griffith’s estate was considerably minimised. In Griffith’s case, the main argument by the executors was that at the time of making the gift, Griffith was not aware that he will die soon due to lung cancer. Had he known the fact, he would not have made the gift at all. In Griffith’s case, Lewison J referred the remarks made by Eve J in Lady Hood of Avalon v Mackinnon4 where Lady Hood bequeathed some money so that all her daughters would divide the same equally. However, Lady Hood had forgotten the fact that some years ago, she had already made provisions from her estate to her elder daughter. In this case, Eve J deliberated in detail about the disregarding a present fact could tantamount to a mistake and found that it was a mistake of fact. (Birks 1989:154). In Ogilvie v Littleboy, it was observed that a donor is entitled to receive back the property which he had gifted early by demonstrating that “he was under wrong impression or mistake of so grave in nature so as to make it on the side of done to be unjust to have the property gifted to him. This case was also cited by Lewison J in Griffith’s case”. (Johnston2002:52). In Wolff v Wolff5, a complex and intricate tax planning was carried out by taxpayers which they really did not understand, and that would have made them homeless. The court of appeal chancery division held that voluntary transactions were eligible to be set aside as the Wolffs’ had not adequate understanding, or they had been contrived under a grave mistake. (High-court-justice.vlex.co.uk 2004). One should not confuse the mistake of fact with that of a mistake of law as to the outcome of a transaction which is known as Hastings-Bass jurisdiction. Lloyd LJ in Sieff v Fox reassessed the cases and found that Hastings –Bass relief had expanded diversely from the litigations on relief for mistakes and found that there exists an identifiable common idea of limiting the scenarios in which an ostensible valid disposition can be reverted or set aside. In Shantaben Durgashanker Bhatt v Hasmita Durgashanker Bhatt & Seven Others6, an intentional disposition executed on the mistaken assumption ended in the cancelling of a deed of trust supposed to allocate the beneficial interest in asset, and the trust created by the trustor on the mistaken presumption that it would offer substantial relief of inheritance tax. The plaintiff (settlor) was found to have limited capacity to speak and read English and her lack of knowledge of specific legal provisions as to inheritance tax provisions, and this acted as a persuasive factor in the decision for cancelling a deed of trust on the ground of mistake of fact. There is a general conception that equitable privileges and reliefs are governed by the court as per with the lex fori. If there exists jurisdiction, the court can order the parties to adhere with the court’s equitable norms since equity functions in personam and on the conscience of the parties. (Panagopoulos 2000:58). Conclusion In following cases namely “Ogden v Trustees of the RHS Griffiths 2003 Settlement, Lady Hood of Avalon v Mackinnon. Ogilvie v Littleboy, Wolff v Wolff, Shantaben Durgashanker Bhatt v Hasmita Durgashanker Bhatt & Seven Other’s, we can find that there is an inclination on the side of UK courts to use the remedial measure equity and to interfere to annul voluntary disposition already made by settlors as it had been made on the ground of mistake of facts. Thus, when a settlor of a trust makes a basic mistake of fact, and the nature of this fact is such that it destabilises the fundamental of a trust, then the disposition under such trust can be set aside by a court on equitable jurisdiction. Thus, mistake of law and mistake of fact are diverse from each other and the former will have no impact on a trust or on a contract. Mistake of fact is a good defence in inheritance tax law, trust laws and in criminal laws and not act as a good defence in tort laws also. (Rossini 1998:19). Griffiths’ case seems to adhere to the general tendency of cases that have emanated from the Hasting-Bass verdict of permitting what was obviously done to be set right, but rests on well-known norms of equity. It is to be witnessed whether Griffith’s case, which facilitated individual donees’ as contrasted to trustees to annul actions that they did not mean to have the impact they did, will unlock the gates to other identical claims in the near future also. (Archer 2009:67). However, the recent verdicts given by the Court of Appeals have reversed the relief given by the English courts under equitable jurisdiction and under the mistake of fact in the leading case Ogden v Trustees of the RHS Griffiths 2003 Settlement and other cases. In Futter v Futter, and in Pitt v Holt, the Court of Appeal turned down on March 2011 wholly the known concept namely “the verdict in Re Hastings-Bass.” In Pitt v Holt, the trial judge gave a verdict that he would not cancel the transactions on the footing of a mistake but would set aside the same on the footing of Hastings-Bass rule. However, the Court of Appeal turned down the both claims. In Futter v Futter, the trial judge was of opinion that he would order that the transactions be annulled on the ground “the rule” so that he was not required to judge that the same were also invalidated on the ground of mistake. However, in this case also, the Court of Appeal turned down both claims. We have to wait and see how the House of Lords is going to give their verdict on these cases if appealed and whether English Courts will be giving relief in the near future under the equitable jurisdiction to rectify a gift under the mistake of fact in case of Inheritance Tax Issues is to be seen.( Richard 2011). List of References Archer P. (2009). Doctrine of Mistake. [online] available from [accessed 13 August 2011] Birks, P. (1989). An Introduction to the Law of Restitution. Oxford: Oxford University Press. Hacker B. (2008). Consequences of Impaired Consent Transfers: A Structural Comparison of... London: Mohr Siebeck. High-court-justice.vlex.co.uk. (2009). Wolff v Wolff, Court of Appeal [online] available from [accessed 13 August 2011] Hudson A. (2009). Equity and Trust London: Taylor& Francis Johnston, D. (2002). Unjustified Enrichment: Key Issues in Comparative Perspective. Cambridge: Cambridge University Press. Marshall H. (2007). EGLR 2007, Volume 1. London: Taylor& Francis Panagopoulos G. (2000). Restitution in Private International Law. London: Hart Publishing. Richard. (2011). The End of ‘the rule in Re Hastings-Base’? [online] available from Read More