- Vague assumption that nothing bad would happen insufficient (agreeing to become trustee and thereby assuming liability for tax)

"[145] [Counsel for the claimant] drew my attention to Freedman v Freedman [2015] EWHC 1457 (Ch), [2015] WTLR 118 (Proudman J) at paragraph 26 as explained in Hartogs v Sequent (Schweiz) AG [2019] EWHC 1915 (Ch) (HH Judge Hodge QC) at paragraphs 21 – 23. He submitted that the Claimant's tacit assumption that her father was not asking her to do anything dangerous was a serious mistake which could trigger the operation of the equitable principle. In my judgment it was undoubtedly a mistake, but in my judgment the tacit assumption was too wide and vague to be a relevant mistake. The submission amounts to saying that the Claimant did not believe that the DORA would have any bad effects. That appears to me to be always going to be the case when a document has unanticipated effects It is not a "distinct" mistake of the kind which is capable of triggering the operation of the equitable principle.

...

[154] There must be a line between what is and what is not a sufficiently distinct mistake. In my judgment it is insufficient for an applicant under the equitable principle to have a general conscious belief or to have had a tacit assumption that generally the transaction being entered into would not have any adverse effects. The belief or assumption has to be more distinct and specific than that. The line of cases, including the Freedman case and Pitt v Holt itself where the applicant had a belief that there would be no adverse tax effects or consequences from the transaction is in my judgment very close to the line between what is sufficiently distinct or specific on the one hand and what, on the other, is not. In my judgment the Claimant's belief that her father would not ask her to sign documents that would put her in danger is on the "insufficiently distinct" side of the line. If it was not it is very difficult to see what sort of mistake would not be sufficiently distinct. Accordingly that is a fourth reason why in my judgment the equitable principle does not apply in the circumstances of the present case." (Mackay v. Wesley [2020] EWHC 1215 (Ch), Deputy Master Henderson)

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- Not being aware of potential future tax saving opportunity may be mere ignorance

"[38] The claimant goes on to say that he understands from Linklaters that, by structuring the acquisitions and transfers of the property and the classic cars in the way that he did, he has also created a further tax disadvantage in that, if the property and the classic cars were in his own name, on death he could leave them to his wife when he dies, and they would then be exempt from UK inheritance tax, whereas the assets in the trust are chargeable when he dies, with no exemption if his wife survives him. He therefore says that following Attendus's advice has cost him the opportunity to carry out that straightforward estate-planning. It does not seem to me that that latter point, of itself, would have been enough because that would have been a case of mere ignorance. But, for the reasons I have already given, I am satisfied that the other matters did give rise to a relevant, and operative, mistake and cannot be regarded as mere ignorance." (Hartogs v. Sequent (Schweiz) AG [2019] EWHC 1915 (Ch), HHJ Hodge QC)

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Carelessness and risk taking

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- Not relevant that person was careless unless deliberately ran the risk of being wrong

"[114] Some uncontroversial points can be noted briefly. It does not matter if the mistake is due to carelessness on the part of the person making the voluntary disposition, unless the circumstances are such as to show that he deliberately ran the risk, or must be taken to have run the risk, of being wrong. (There is an illuminating discussion of this point in Lord Hoffmann's speech in Deutsche Morgan Grenfell Group plc v Inland Revenue Commissioners [2007] 1 AC 558, paras 24-30). Nor need the mistake be known to (still less induced by) the person or persons taking a benefit under the disposition..." (Pitt v. Holt [2013] UKSC 26)

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"[68] Conceptually, this probably fits best into the third limb of Lord Walker's analytical framework - the conscience test based upon Lindley LJ's dictum in Ogilvie v Littleboy. That appears from Lord Walker's comments in Pitt v Holt on the result in Re Griffiths in relation to the third (2004) settlement which was made at a time when Mr. Griffiths was found to have been under the mistaken belief that he was in good health and was unaware that he had developed lung cancer. At [110] Lord Walker expressly agreed with the observations of Lloyd LJ in the Court of Appeal at [198],
...
[69] On this basis, even if a person is operating under a mistaken belief of fact or law that is relevant to their assessment of the risks of making a gratuitous disposition, they can still be denied relief if they deliberately decide to go ahead and run the risk of being wrong." (Bhaur v. Equity First Trustees (Nevis) limited [2023] EWCA Civ 534, Snowden, Lewison, Arnold LJJJ)
 

- Mistake not excluded by risk of being ignorant of relevant legislation

"[47] HMRC also submitted that an order for rescission should be withheld because the Claimant and the First Defendant had accepted the risk that their transactions might be caught by taxing provisions of which they were unaware. That risk had come about in this case because they were unaware of the budget announcement of 22 March 2006 and they had not asked anyone to check on 24 or 27 March 2006 whether anything had changed since the earlier advice had been given in November 2005. I do not consider that this is a case where the parties did not make a mistake but instead accepted a risk that a scheme might not have its intended results in the way described by Lord Walker in Pitt v Holt at [114]. The Claimant and the First Defendant made a mistake for the purposes of the principles in Pitt v Holt because, being ignorant of the budget announcement, they wrongly believed that their transactions would not give rise to a charge to tax. In so far as HMRC relied upon the reference by Lord Walker in Pitt v Holt at [135] to a party taking a risk that a tax avoidance scheme would prove ineffective, that comment has no relevance in the present case." ​(Van der Merwe v. Goldman [2016] EWHC 790 (Ch), Morgan J)

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- Going ahead despite advice being unclear is taking the risk

"[96] As regards the advice in respect of the possibility that there was a gift with reservation, the First Claimant says that the advice "was highly unclear in this regard". The First Claimant quoted the relevant passage of the 17th March 2011 letter in his first statement and then expressed the view that, on re-reading it, it was extremely unclear to him exactly what it stated. The lack of clarity is debateable, but if the advice on a particular point was unclear to the First Claimant, as he says, but he went ahead nevertheless, in my judgment the First Claimant would have been deliberately running a risk or must be taken to have run the risk of being wrong as to that point. If the advice was unclear to him, then in order to avoid a risk as to the point at which the advice was aimed the First Claimant should have sought clarification of the point, rather than going ahead without knowing what the position was.
[97] My conclusion at the end of the immediately foregoing paragraph based on the First Claimant's general complaint about the alleged lack of clarity in the advice given to him is potentially fatal to the Claimants' case based on mistake. Similarly, if and insofar as it was or should have been apparent to the First Claimant that Mr Buzzoni's advice was based on a misunderstanding as to the Claimants' intentions in respect of the property. If and so far as the First Claimant realised that Mr Buzzoni's advice was based on a false assumption as to the Claimants' intentions, the First Claimant would not have been mistaken in relying on that advice, but would have knowingly taken the risk that the advice was incorrect because of its false foundations. However, those potential fatalities to the Claimants case are partly avoided by an examination of the detail of what was advised and what the Claimants consequently thought would be the position under the Trust proposal." (Rogge v. Rogge [2019] EWHC 1949 (Ch), Deputy Master Henderson)

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- Not taking the risk where person did not appreciate the effect of advice

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"[31] I asked Mr Wilson about that email. Mr Wilson's response was that it was clear on the evidence that the claimant had not appreciated that the change in domicile status for inheritance tax would have the effect of subjecting what became the 2014 transaction to an immediate charge to inheritance tax. Rather, the claimant had still made the same mistake about the inheritance tax consequences of the 2014 transaction. Ironically, Mr Wilson submitted, this information made it even more of a mistake. That was because the email had not spelt out, and no one had later spelt out, that there would be an immediate tax charge on the transfer of any assets into the Mercurius Settlement. Mr Wilson said that even if it had been possible for the claimant to have pieced the consequences together, there would still have been a mistake. At its worst, the claimant had been careless, because he did not appreciate the implications of the email of 7 January 2010; but such carelessness was no bar to relief and did not change the position. Again, I accept that submission. In my judgment, the 2010 email does not affect the fact that there was an operative mistake for the purposes of the Pitt v Holt jurisdiction." (Hartogs v. Sequent (Schweiz) AG [2019] EWHC 1915 (Ch), HHJ Hodge QC)

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- No tax mistake where person deliberately took the risk tax results might not be achieved

"[137] Mr Levack says that he and Mr Rhoden decided to proceed with the Remuneration Trusts immediately after leaving the meeting with Mr Baxendale Walker in early February 2010. That is before they had any opportunity to consider the documents that were provided at the meeting, or the documents that were received later, or to take advice. The failure by Mr Levack to consider the documents provided by Baxendale Walker LLP, or to obtain advice from someone who could interpret them, also demonstrates a cavalier attitude to risk. There is no evidence of any due diligence having been undertaken by Mr Levack. He was prepared to accept Mr Baxendale Walker’s views that were expressed in the course of a meeting without subsequently reading any of the documents that were provided or seeking independent advice. Were it necessary to do so I would conclude that the claimants deliberately ran the risk of the schemes not operating in the way Mr Baxendale Walker’s sales pitch had suggested.

[138] There is, equally, inadequate evidence about the attitude to risk of the board of directors of Dukeries and Riverside. The evidence comes nowhere near to demonstrating that the collective understanding of the respective boards was materially mistaken or what the board’s view was about the risks involved. In the case of Mr Levack himself, his evidence does not meet the requisite threshold.

 [139] Furthermore, the schemes are properly characterised as being artificial tax avoidance. Even if there was no actual assumption of risk, it is reasonable in this case, based upon the factors I have summarised above, to conclude that Mr Levack and the companies must be taken to have accepted the risks of the schemes failing." (Dukeries Healthcare Limited v. Bay Trust International Limited [2021] EWHC 2086 (Ch), Deputy Master Marsh)

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- Entering into evasive scheme and miscalculating the consequence if the scheme went wrong not a mistake

"[217(d)] I accept that Mr Bhaur and the Bhaur Family miscalculated in terms of the consequences to them if the Scheme went "wrong", i.e. if the tax authorities became involved. Their thinking, as I find, was that the Scheme could simply be reversed and that they could opt back into the tax regime that they had sought to evade. The only downside, to their way of thinking, was the fees that they had paid to Aston Court; and that explains why they repeatedly stressed the importance of the fee refund offered by Aston Court and accepted by them. This was undoubtedly wrong, but it was not a mistake. It was a misprediction. The Bhaur Family assumed – and, in the event, were entirely wrong in this assumption – that the downside to them if the Scheme went wrong was containable and confined to the fees paid over. They gave no thought to the point that the transactions they freely entered into were not things writ in water and reversible at will, but proper transfers of their property that could only be reversed if certain conditions were met. That, in my judgment, is not a mistake." (Bhaur v. Equity First trustees (Nevis) Limited [2021] EWHC 2581 (Ch), Marcus Smith J)

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On appeal

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"[81] I can quite see the Judge's view that in deciding to implement the Scheme, Mr. Bhaur was in essence making a prediction or judgment as to whether, if HMRC chose to challenge the Scheme, the adverse consequences could be minimised and contained by the reversal of the transactions and the Fee Guarantee offered by Aston Court.
[82] On the other hand it could, as the Appellants contend, be said that when causing Safe Investments UK to dispose of its shares in Gooch Investment, Mr. Bhaur was not predicting or exercising a judgment as to whether some future event would or would not happen. The Scheme which he was implementing either did, or did not, have the desired effect of avoiding inheritance tax; and Mr. Bhaur's error related to the legal nature and effect of the transactions forming the Scheme, which he wrongly believed were reversible at will, when they were not. Framed in that way, neither matter related to the occurrence of any future event.
[83] I do not, however, think that it is necessary to resolve this interesting point in the instant case. That is because even if the Judge was wrong and this was a case of a mistake rather than a misprediction, for the reasons that follow I would still be of the view that relief should be refused when the remainder of Lord Walker's analytical framework in Pitt v Holt is applied." (Bhaur v. Equity First Trustees (Nevis) limited [2023] EWCA Civ 534, Snowden, Lewison, Arnold LJJJ)

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- Entering into a tax scheme knowing it might not work is risk taking

"[84] In that regard, the key point is that Mr. Bhaur knew that there was a risk that the Scheme would not work – i.e. that it could be successfully challenged by HMRC. It may well be that, because they were badly advised (or indeed misled) by Aston Court, Mr. Bhaur and his family did not appreciate the full extent of the potential adverse consequences for them if the Scheme did not work. But it is implicit in the Judge's findings in [217(2)(d)] that Mr. Bhaur must at very least have appreciated that there was a risk that the financial consequences of the Scheme failing would not be entirely neutral, and indeed might be worse than the inheritance tax regime that would have applied in the absence of the Scheme. Otherwise there would have been no need for Mr. Bhaur to contemplate reversing the Scheme in order (as the Judge put it) to "opt back" into that previous tax regime. On the Judge's findings, therefore, Mr. Bhaur made a deliberate decision to implement the Scheme, knowing that there was a risk both that it might fail to achieve the desired tax benefits, and that he and his family might, unless they took certain steps to address the position, end up worse off than before.
[85] Accordingly, even if Mr. Bhaur made a relevant mistake as to his ability to reverse the relevant transactions, in my judgment the facts of this case engage the question identified by Lord Walker in Pitt v Holt which I considered in paragraphs 66-69 above. That is whether, applying the Ogilvie v Littleboy approach and depending on a close examination of the facts, it would be unconscionable or unjust for a donee to be permitted to retain the benefit of a gratuitous disposition by a person who has deliberately run the risk that the scheme of which the disposition forms part might not work. I shall return to consider that question after dealing briefly with Grounds 3 and 4." (Bhaur v. Equity First Trustees (Nevis) limited [2023] EWCA Civ 534, Snowden, Lewison, Arnold LJJJ)

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- Risk not taken where point considered and claimant not seeking to do anything risky

"[70] There is ample evidence before the court that those administering the scheme consciously considered that s.86 applied. As the summary at paragraphs 31 and 32 above sets out, communication surrounding the creation of the trusts, including in advice, assumes either (consistent with s.86) that funds held within the trusts will not be liable to inheritance tax, or that s.86 will positively apply. This assumption was carried over into the terms of the trust instruments themselves, which precluded the exercise of certain powers if the effect of such exercise would be to cause s.86 not to apply.

[71] Likewise, this evidence shows that the point was considered, before the creation of the HFBT and of the EFRBS deed, and in relation to the administration of the trusts. This shows that those determining to make the deeds of appointment did not do so taking the risk that s.86 did or might not apply. The evidence also suggests that employee benefit trusts of this kind were not seen as an aggressive form of tax planning. It also suggests, in the form of the KPMG and Ernst & Young advice, that EBTs of this kind have (putting aside the question of sub-trusts) been seen as a mainstream form of tax planning. The tenor of HMRC's objection, in accepting that s.86 would apply but for the appointments, also tends to suggest the same. This adds credibility to the evidence that neither Henderson nor the trustee were seeking to do anything risky and that the trustee accordingly would not knowingly have taken the risk of losing the protection of s.86." (JTC Employer Solutions Trustee Limited v. Garnett [2024] EWHC 3128 (Ch), Master Brightwell)

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- Possible exclusion for artificial tax avoidance

"[132] I would therefore reject the first new point as much too wide, and unsupported by principle or authority. But it is still necessary to consider whether there are some types of mistake about tax which should not attract relief. Tax mitigation or tax avoidance was the motive behind almost all of the Hastings-Bass cases that were concerned with family trusts (as opposed to pensions trusts). In Gibbon v Mitchell there was a mistake as to the legal effect of the transaction, which was to plunge the family into the trap of forfeiture under the protective trusts, rather than to achieve the immediate acceleration of the adult children's interests. But the seriousness of the consequences of the mistake was greatly enhanced by the inheritance tax implications. On the test proposed above, consequences (including tax consequences) are relevant to the gravity of a mistake, whether or not they are (in Lloyd LJ's phrase) basic to the transaction.

...

[135] ... In some cases of artificial tax avoidance the court might think it right to refuse relief, either on the ground that such claimants, acting on supposedly expert advice, must be taken to have accepted the risk that the scheme would prove ineffective, or on the ground that discretionary relief should be refused on grounds of public policy. Since the seminal decision of the House of Lords in WT Ramsay Ltd v IRC [1982] AC 300 there has been an increasingly strong and general recognition that artificial tax avoidance is a social evil which puts an unfair burden on the shoulders of those who do not adopt such measures. But it is unnecessary to consider that further on these appeals." (Pitt v. Holt [2013] UKSC 26)

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- Appointment by trustees perfectly legitimate way of conferring benefit in tax efficient manner

"[39] Lord Walker observed in Pitt v Holt at paragraph [135] that in some cases of artificial tax avoidance the court might think it right to refuse relief, either on the ground that such claimants, acting on supposedly expert advice, must be taken to have accepted the risk that the scheme would prove ineffective or on the ground that discretionary relief should be refused on grounds of public policy. The October 2008 Appointment was not an artificial tax avoidance arrangement or part of one. It was executed as a perfectly legitimate way of conferring benefit on Mr and Mrs Kennedy's children and grandchildren in a tax efficient manner that was contemplated by express provisions in FA 2006." (Kennedy v. Kennedy [2014] EWHC 4129 (Ch), Etherton J)

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"[69]  This is not a case where there has been an element of artificial tax avoidance so as to require the court to withhold relief on the grounds of public policy. I accept the claimants' submissions that these were, essentially, straightforward trust transactions and in this context, I note the attitude that was taken by HMRC in the Van der Merwe case that I have already referred to." (Smith v. Stanley [2019] EWHC 2168 (Ch) David Rees QC)

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- Settling a trust not of itself within the scope of public policy reason to refuse

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"[42] The parties' skeleton arguments in advance of the trial addressed the question whether this was a case of artificial tax avoidance where the court ought to withhold relief on the ground of public policy, a possibility which was mentioned by Lord Walker in Pitt v Holt [2013] 2 AC 108 at [135]. The parties' arguments were of considerable interest but in the course of closing submissions, HMRC accepted that it was unrealistic for them to ask a judge at first instance to give effect to Lord Walker's suggested possibility on the facts of this case. HMRC accepted that at this level of decision, in the light of recent decisions of the Supreme Court on the principle of ex turpi causa and public policy, in particular, the decision in Le Laboratoires Servier v Apotex Inc [2015] AC 430, the court could not be expected to withhold relief on this ground in this case. Having considered the arguments in the skeleton arguments, I can say that I do not think it appropriate for me to hold, on my own initiative, that it would be contrary to public policy to grant relief in this case." (Van der Merwe v. Goldman [2016] EWHC 790 (C), Morgan J)

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- Wholly artificial trust set up purely for tax avoidance reasons leading to refusal of any relief

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"[102] It also seems to me to be of considerable weight that the Scheme was, on any objective view of the facts, an entirely artificial tax avoidance scheme.
[103] As the Appellants had themselves pleaded (affirmed by a statement of truth from Mr. Bhaur) and the evidence made crystal clear, (see paragraphs 25, 28, 32 and 37-39 above), Safe Investments UK had no need whatever to set up a trust to incentivise or reward any employees, still less one of the size of the Estate that was transferred to the First Staff Remuneration Trust. At the outset the newly formed company had only three employees, who were all members of the Bhaur family and who were not intended to benefit under the trust. The company also had no business reason to employ any persons after the First Staff Remuneration Trust was established, and only did so because Aston Court advised that it would be preferable for the company to employ some non-family members for the purposes of the Scheme. But even then, Mr. and Mrs. Bhaur had no intention whatever that those non-family members should benefit in any way from the trust.
[104] It is, in the circumstances, difficult to imagine a more artificial construct than the First Staff Remuneration Trust established under the Scheme. The pleadings and evidence to which I have referred make clear that the trust had no independent business or commercial purpose and that it was brought into existence, and the Estate transferred to it via the transfer of the shares in Gooch Investment, purely and simply for the purposes of tax avoidance.
[105] I fully accept that tax avoidance is not unlawful, but I agree with Lord Walker's observations in Pitt v Holt at [135] that artificial tax avoidance is a social evil that puts an unfair burden on the shoulders of those who do not adopt such measures. In my view this is a very weighty factor against the grant of any relief.
[106] Taken together, I am firmly of the view that even on the basis that the Appellants were not complicit in the dishonesty of Aston Court, it would not be unjust or unconscionable to refuse equitable relief and to leave the consequences of the Appellants' mistaken belief uncorrected." (Bhaur v. Equity First Trustees (Nevis) limited [2023] EWCA Civ 534, Snowden, Lewison, Arnold LJJJ)​​

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- If HMRC want to argue relief should be refused on public policy grounds, they need to agree/apply to be joined

"[58] The second matter raised by HMRC in correspondence, which I consider not to be suitable to be raised in this way, is the reference to the public policy considerations mentioned by Lord Walker in Pitt v Holt at [135]. Again, the precise point sought to be made is somewhat obscure, not least because this reference is juxtaposed to the comments about Mr Markham's witness statement, about whether the order sought serves any useful purpose now, which I will consider further below.

[59] It is not obvious to me whether HMRC is contending that any of the HFBT and EFRBS and/or the appointments made under them constitute 'artificial tax avoidance', being the expression used by Lord Walker. HMRC describe the arrangements as a 'complex tax planning scheme', before referring to what he said, perhaps implying that they do wish to make that contention. I would note that the word "complex" is not a synonym for "artificial". Again, the precise point sought to be made may be known to the writer of the HMRC letter but it is, unfortunately, not known to me and the letter was written too late for any further correspondence on it to take place. HMRC seem to accept that the 'complex tax planning scheme' would have had the benefit of s.86 of the 1984 Act if it were not for the sub-trust and Members' Account appointments, and do not directly suggest that the way in which it was administered (save for those appointments) would have caused that benefit to have been lost.

...

[61] In light of these comments, it seems to me that question of whether relief should be refused on public policy grounds should await a case in which HMRC intervenes by being joined. HMRC cannot expect these points to be determined if their only involvement is by a form of shadow boxing through correspondence. I do not suggest that the points to which their letter in this claim adverted are not worthy of consideration in a suitable case and, on that note, I would refer to what Robin Vos has written..."  (JTC Employer Solutions Trustee Limited v. Garnett [2024] EWHC 3128 (Ch), Master Brightwell)

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"[42] The parties' skeleton arguments in advance of the trial addressed the question whether this was a case of artificial tax avoidance where the court ought to withhold relief on the ground of public policy, a possibility which was mentioned by Lord Walker in Pitt v Holt, at para 135. The parties' arguments were of considerable interest but in the course of closing submissions, HMRC accepted that it was unrealistic for them to ask a judge at first instance to give effect to Lord Walker's suggested possibility on the facts of this case. HMRC accepted that at this level of decision, in the light of recent decisions of the Supreme Court on the principle of ex turpi causa and public policy, in particular, the decision in Les Laboratoires Servier v Apotex Inc [2014] UKSC 55; [2015] AC 430 the court could not be expected to withhold relief on this ground in this case. Having considered the arguments in the skeleton arguments, I can say that I do not think it appropriate for me to hold, on my own initiative, that it would be contrary to public policy to grant relief in this case."  (Van der Merwe v. Goldman [2016] EWHC 790 (C), Morgan J)

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