Please note this content was originally published in Trusts and Estates Law & Tax Journal, December 2021 edition.
The full article can be accessed here.
Dukeries Healthcare Ltd v Bay Trust International Ltd & ors  WTLR 809
Lessons for practitioners
The judgment serves as a reminder of a number of key issues, some of which are specific to mistake claims, and some which have wider application:
- Clearly establishing an accurate and complete picture of the factual background in a mistake claim is exceptionally important. This is because, as per Lord Walker at para 126 in Futter, "[t]he court needs to focus intensely on the facts of the particular case" and also because (at para 127 of Futter) "…the court may have to make findings as to the state of mind, at some time in the past, of a claimant with a lively personal interest in establishing that there was a serious causative mistake." Ensure that you call all relevant witnesses, and in particular a client’s tax advisers.
- The point at which you need to establish the nature of the claimant’s knowledge is when the relevant document is executed (para 124 of Futter) so, in this case, the execution of the trust deeds which settled the remuneration trusts. The claimant’s understanding before and after this point is only relevant to the extent it speaks to their knowledge at the time, and objective contemporaneous evidence will almost always be preferred to a witness’s subjective memories.
- A key element of the test for mistake is whether the claimant accepted the risk that the scheme may not work, as examined obiter in this case. In this context, the court will certainly bear in mind whether the claimant conducted sufficient due diligence, took the time to read the documentation that they were provided with in detail, and received independent advice, even if their appreciation of the position having taken these steps was still flawed.
- That the primary purpose of the document in relation to which mistake is claimed is tax avoidance is not fatal to a claim, but does in general appear to have a substantial bearing on how strictly the judge interprets the test as set out in Futter. As ever, they will be led by the law, but will also be inclined to follow their conscience.
- As tempting as it may be to use your client’s witness statement as a vehicle by which to draw attention to relevant sections of documents in evidence in the proceedings, this is very likely to backfire if your client has an unsophisticated or incomplete understanding of these documents, and will rightly be seen by the court as an attempt to misrepresent their appreciation of the evidence. This point is especially pertinent in mistake proceedings, where the entire claim is underpinned by the claimant’s actual knowledge at the time the relevant documents were executed.
- It may seem trite, but the knowledge of a company is the "collective intention" of its board of directors (para 97 of Futter), a fact which often seems to be forgotten in family companies where a patriarch, for example, has particular influence on the administration and strategic direction of the companies they have established in the course of their business. In this claim, it was not sufficient for the court to appreciate the understanding of Mr Levack alone at the time the relevant minutes were executed or deeds signed. It was also necessary to hear evidence of the state of mind of the other directors (which was not, in this case, provided).
- Extending this thought, pro-forma minutes and similar "off the shelf" documents may often be convenient and cost-effective, but when implementing unusual or complex decisions, it is always better to use tailor-made documents which demonstrate the real understanding of the parties involved. A court is highly unlikely to consider that template board minutes, for example, reflected the actual intentions and understanding of the company at the time.
- Futter remains the touchstone for mistake cases, and the facts should always be assessed with close reference to Lord Walker’s findings in that case.
If you require further information about anything covered in this briefing, please contact Rowan Cope your usual contact at the firm on +44 (0)20 3375 7000.
This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.
© Farrer & Co LLP, December 2021