Mackay v Wesley [2020] WTLR 1359

WTLR Issue: Winter 2020 #181





The appellant was appointed a trustee of the Ellen Morris 1990 Settlement (settlement) by a deed of appointment and retirement of trustees dated 19 March 2003. Her co-trustees were her father, the defendant, and Browne Jacobson Trustees Ltd (BJTL). Previously, a decision had been taken to embark on a ‘round the world’ capital gains tax avoidance scheme in relation to the settlement. This involved appointing Mauritian trustees and realising offshore gains where there was no capital gains tax, distributing the proceeds and then appointing UK-resident trustees in the same tax year of assessment. As a result, the value of the trust assets dwindled from about £3.6m to about £61,000. The appellant had not understood the effect of what she was signing and, in fact, was acting under undue influence exerted by the defendant.

In the event, the ‘round the world’ arrangement was challenged by HMRC which sought capital gains tax on the disposal amounting to £1.6m. Although the disposal triggering the capital gains tax was prior to the appellant’s appointment, the effect of s65 of the Taxation and Chargeable Gains Act 1992 was that she was liable. The defendant was impecunious and BJTL went into liquidation and was then dissolved. The appellant therefore applied to have her appointment as trustee set aside. The Master, however, dismissed the application on the basis that the appellant’s appointment was a unilateral act by the outgoing Mauritian trustees and her acceptance was unnecessary to constitute her a trustee, partial rescission was not possible in circumstances where the appellant sought to set aside only her appointment and undue influence could not be relied upon. Even if the requirements for rescission had been established, the Master would not have ordered it because he was not satisfied that the order would operate justly and fairly.

Held (allowing the appeal):

Even if the Master’s analysis were wholly correct, there was no reason in principle why it should stand in the way of the appellant seeking to set aside her acceptance, a unilateral act by her, which was the result of undue influence, so that she could then disclaim the appointment. The Master had been wrong to apply the reasoning of the Chancellor in Kennedy v Kennedy in the context of a partial rescission of contracts to the appellant’s trusteeship, as he had made it plain that he saw no reason why that limitation, in a contractual context, should apply to a self-contained and severable part of a non-contractual voluntary transaction. It followed that the appellant’s appointment or, strictly speaking, her acceptance of it, was a self-contained and severable part of the deed of appointment and liable to be rescinded for undue influence if the other requirements were satisfied, as they were in this case. The Master had held that there was no unfairness or injustice to the defendant though was not quite satisfied that there was none to BJTL. If the dissolution of BJTL had been before the Master, it would have tipped the balance for him had he needed to decide fairness as a conclusive issue and, in any event, the points relied on in their totality made clear that rescission was fair. Accordingly, an order would be made setting aside for undue influence the appellant’s acceptance of her appointment as trustee of the settlement.

JUDGMENT MEADE J: Introduction [1] This is my judgment on the appeal by the appellant (the claimant) against the decision of Deputy Master Henderson (the master) of 18 May 2020 (the decision). References in this judgment to paragraph numbers in square brackets are references to those paragraphs in the decision unless the context otherwise indicates. …
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Counsel Details

Nicholas Le Poidevin QC (New Square Chambers, 12 New Square, Lincoln’s Inn, London WC2A 3SW, tel 020 7419 8000, email and Thomas Chacko (Pump Court Tax Chambers, 16 Bedford Row, London WC1R 4EF, tel 020 7414 8080, email instructed by Charles Russell Speechlys LLP (5 Fleet Place, London EC4M 7RD, tel 020 7203 5000) for the claimant/appellant.

The defendant did not appear and was not represented.

Cases Referenced

Legislation Referenced

  • Taxation of Chargeable Gains Act 1992, s65
  • Trustee Act 1925, s36