Wright & anr v National Westminster Bank Plc [2014] EWHC 3158 (Ch)

Analysis

On 20 August 2012 Richard Wright signed a discretionary trust of which the National Westminster Bank was the trustee. The beneficiaries named were the widow, children and remoter issue of the settlor. There was a power to add beneficiaries but not the settlor or anyone who has previously added property to the settlement or the spouse of the settlor.

Clause 15 stated that no capital or income could be paid to the settlor, the spouse of the settlor or anyone who had added property.

At the first meeting with the bank the representative of the bank specifically told Mr Wright that he could not benefit from the income or capital of the trust but Mrs Wright could and therefore their joint income would not be affected.

The bank prepared the trust documentation and sent a long letter of recommendation to Mr and Mrs Wright. The letter stated that neither income nor capital could be returned to Mr Wright nor Mrs Wright in his lifetime.

Mr Wright stated that he read the letter but did not fully understand it as it was long and complex, but he understood that Mrs Wright would still be able to enjoy the income as his, Mr Wright’s, influence would be accepted by the bank to exercise its discretion in her favour.

At the signing meeting Mr Wright again checked that Mrs Wright could use the income and was told yes.

Mr Wright also signed a letter of wishes stating that he wanted to save IHT on his death and that following his death he wanted the trustees to apply capital and income for his widow.

In October 2012 Mr Wright had a meeting with a financial advisor Amanda Loram and told her that he was counting on the receipt of income from the trust to Mrs Wright to support their lifestyles.

The original trust fund was £10. Mrs Wright was to make a gift to Mr Wright of £324,990 so that he independently and of his own free will could add this sum to the trust fund.

Mrs Wright signed a deed of gift on 13 August 2012 stating that she wanted to give her husband ‘£324,990 cash/investments’. She agreed to transfer 1,499,426 units in a specific bank fund to Mr Wright’s portfolio. However, the bank also sold some of Mrs Wright’s investments and then paid the proceeds and cash (amounting to £301,606) within her portfolio direct to the trust.

Mr and Mrs Wright applied to rescind the trust as Mrs Wright could receive no benefit from it whilst Mr Wright lived and she could not receive income even after his death. Mr Wright stated he would not have executed the document if he had known this or that signing it would prevent their access to the same level of income they had previously enjoyed.

Mrs Wright argued that she had no proper understanding of the documentation she signed and that at no point did she intend to add property to the trust.

The living beneficiaries did not oppose the relief. The representative of the minor and unborn beneficiaries did not oppose the relief. The Bank filed a defence stating that it intended to act neutrally.

Held (disallowing the claims):

1. 1) This is an unopposed application. The court must still be satisfied that it proves the facts necessary to establish that the jurisdiction is available and that it is appropriate for the court to exercise the jurisdiction and make an order for rescission.
2. 2) This involves the court making several discrete value judgments as to seriousness, causative effect and unconscionability. These are matters for the judgement of the court and not for the judgement of the parties.
3. 3) A unilateral mistake is sufficient to make a gift voidable and it is possible for a unilateral mistake to found a proper claim for rescission of a discretionary trust. However, there must also be a causative mistake which is so grave that it would be unconscionable to refuse relief.
4. 4) The relevant mistake may be one as to the legal character or nature of the transaction or as to some matter of fact or law which was basic to the transaction. The gravity of the mistake has to be assessed by examination of the facts and the seriousness of the consequences of the mistake.
5. 5) Mr Wright made a grave mistake when he constituted the settlement. He believed that the income generated by the settlement would be paid to Mrs Wright.
6. 6) Mrs Wright made a grave mistake when she contributed directly to the settlement. This deprived her of income she was reliant on.
7. 7) It would be unconscionable to insist that the £325,000 should remain in the settlement. This was an explicit and apparent mistake as to the nature of the transaction and its effects.
8. 8) The deed of gift was ineffective to transfer generic cash or investments from Mrs Wright to Mr Wright. Therefore apart from the 1,499,426 units the deed of gift was ineffective to transfer assets.
9. 9) Mr and Mrs Wright must each give an undertaking to submit corrective tax returns to HMRC as at all times all the assets have belonged to Mr and Mrs Wright and need to be taxed accordingly.

JUDGMENT NORRIS J: [1] On 20 August 2012 Richard Frederick Wright (Mr Wright) declared a discretionary trust of which the National Westminster Bank PLC was the trustee. The beneficiaries were described in the third schedule as ‘widow of the settlor, children and remoter issue of the settlor’. There was a power to add beneficiaries to …

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