Hamilton v Hamilton & anr [2016] EWHC 1132 (Ch)

Analysis

David Hamilton (David) died 10 February 2007. His last will dated 6 March 2006 (the will) named the first and second defendants (his solicitor and daughter respectively) as his executors and trustees. Under the terms of the will, subject to various legacies he left the residue of his estate (defined as ‘all my property of every kind, wherever situate’) to be held upon trusts for the primary benefit of his children Alan and Carolyn in equal shares. Under the trusts applicable to each share, Alan and Carolyn had a life interest in income, with remainder to their respective children. The trustees also had wide dispositive powers, including an overriding power of appointment over each fund, and power to enlarge the life interests of Alan and Carolyn into absolute interests.

In February 1996, David established a foundation in Liechtenstein, called the Rainbow Foundation (Rainbow). A foundation under Liechtenstein law has separate legal personality. Under the original regulations of Rainbow, David was ‘solely entitled to the enjoyment of the foundation’s assets and its income during his lifetime’, and after his death Carolyn was to be wholly entitled.

In 2004, Rainbow’s assets were divided into two parts, labelled A and B. Under new regulations dated 19 July 2004, David remained solely entitled to enjoyment of the whole of the assets during his lifetime. After his death, Carolyn would be solely entitled under Part A and Alan would be solely entitled under Part B.

By the date of David’s death, the total value of the funds held in Rainbow, notionally converted into sterling, was approximately £3.25m. Alan subsequently discovered that Carolyn’s share was approximately twice his share.

Following David’s death, Carolyn failed to disclose her income to the revenue. She was advised to make disclosure using the Liechtenstein Disclosure Facility (LDF). Alan later made disclosure in respect of Part B. HMRC concluded that no IHT was due from Carolyn’s or Alan’s half shares. This resulted in a loss of a very substantial potential liability as a consequence of disclosure and payment under the LDF.

Against this background, Alan claimed that the assets contained in Rainbow fell into David’s estate and passed under the will.

Held:

1. 1) David’s intention in establishing Rainbow had not been for dominant or main purpose of evading UK tax. David was strongly motivated by traumatic events of his early life which had involved persecution in the Holocaust. David had been concerned to ensure money was available to help his family and himself in the event of persecution in the future. His primary intention had been to provide a source of offshore wealth for himself and his family. This was notwithstanding that he had intended to keep the existence of Rainbow concealed from the revenue and had ‘turned a blind eye’ to the question of whether he might be liable to UK tax.
2. 2) The applicable law of the transfer of assets to Rainbow fell to be determined as if the transaction were a contract governed by the Rome Convention. The search was for the system of law most closely connected with the transfers between David and Rainbow. England was David’s country of habitual residence, and the centre of his family and business life.
3. 3) The validity of Rainbow itself was a question of Liechtenstein law. Rainbow was not void for lack of intent. David had intended to establish Rainbow as a separate legal entity. Liechtenstein law does not recognise the distinction between legal and beneficial interests which is fundamental to the English law of trusts.
4. 4) Any presumption of a resulting trust was rebutted by David’s intention to establish a valid foundation in Liechtenstein which would acquire full beneficial ownership of the assets transferred to it. It was similarly unsustainable that Rainbow holds the assets as David’s nominee (Petrodel v Prest distinguished)
5. 5) Alan’s suggestion that Rainbow was a sham failed. The formal and substantial validty of Rainbow was a matter of Liechtenstein law. In any event, the findings of fact made it impossible to contend that David and Rainbow shared a common intention to create legal rights and obligations different to those which they ostensibly created.

JUDGMENT HENDERSON J: Introduction and background [1] In January 1939 the late David Hamilton (then David Zwingerman) (David) escaped from Nazi Germany to England as an unaccompanied child under the Kindertransport programme. He was 15 years old. His sister, Hannah, tried to go with him on the same train, but was refused permission to travel …

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