© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
Rescission (general)
Rescission in the FTT
​"[75] We also agree with Underhill LJ, however, that the issue of rectification could have been raised as a defence in the Anderson proceedings without the need to seek an order for rectification. That is because equity can treat as done that which ought to be done and can treat a document as if it had been rectified to record the parties' intention accurately without the need to make a formal order for rectification. This principle applies in the civil courts, and we see no reason why it should not equally apply when an employment tribunal has to determine whether there has been an unauthorised deduction." (National Union of Rail, Maritime and Transport Workers v. Tyne and Wear Passenger Transport Executive [2024] UKSC 37)
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"[78] The question before me therefore is, having found that Mr Hymanson would be granted an order of rescission from the High Court were he to go to the High Court, should I then force him to go through that process, at the cost of significant expense and time, or should I attempt to short-cut the process.
[79] Proudman J summarises the position in Lobler , at [47] and [48] as:
“Thus although the FTT did not itself have power to order rectification, it could determine that if rectification would be granted by a court who does have jurisdiction to grant it, Mr Lobler’s tax position would follow as if such rectification had been granted.
It has never been suggested that before the effect of the availability of specific performance can be taken into account by the FTT, the appellant must go to court and actually obtain the remedy of specific performance. On the contrary, the cases show that this is not the case: see Oughtred v. IRC [1960] AC 206, Jerome v. Kelly [2004] UKHL 25, BMBF (No 24) Limited v. IRC [2002] STC 1450 and HSP Financial Planning Limited v. HMRC [2011] UKFTT 106 (TC). A tribunal such as the FTT must however take into account all the factors that the Court would in deciding whether specific performance would be available, such as whether damages would be inadequate, whether specific performance would require constant supervision, whether the appellant is ready, willing and able to perform, hardship and so on.”
[80] In this case we are not of course talking about rectification. Rectification would not be an appropriate remedy in this case because that would leave the essential elements of the transaction, ie the additional payments, intact. Nor are we considering the remedies of damages or specific performance, neither of which would be appropriate. In this case the only effective remedy would be rescission.
[81] Mr Waldegrave, for HMRC, said that HMRC believe that Lobler was wrongly decided. This may be so, but it is binding on me unless I can find sufficient distinguishing features that would lead me to a different conclusion.
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[92] I therefore come to the conclusion that Mr Hymanson would be entitled to rescission if he were to take his case to the High Court and that his tax position should therefore to be determined as if that remedy had been granted." (Hymanson v. HMRC [2018] UKFTT 667 (TC), Judge Gillett)​
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But
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"[82] In overview, we consider that (1) it is highly doubtful that the tribunal has jurisdiction to determine if a court of competent jurisdiction would order recission of the relevant contracts and, if so, to determine the appellant's tax position on that basis. The tribunal's task is to determine appeals made where the taxpayer has a statutory right to appeal to it, on the basis of the relevant law as applied to the factual position, as determined on the basis of the presented evidence. It seems to us that, in the particular circumstances of this case, it is not for the tribunal to determine the appellant's tax position, in effect, (a) on the basis of the hypothetical factual position which would apply if the taxpayer had taken action in a different court, and (b) as a necessary precursor to that, by making its own determination of what that court would decide as regards an allegation of fraudulent misrepresentation without the benefit of the full evidence and representations that may be made in that court, and (2) we do not take the decision in Lobler to dictate that the tribunal must take a different view. That decision does not establish that, in all cases, where a party argues that a contractual remedy is available to him in a different court, the tribunal must or should make its own judgement on whether that remedy would apply. Different considerations and difficulties arise in the tribunal doing so where the remedy in question is recission of a whole range of contracts." (Smart v. HMRC [2025] UKFTT 701 (TC), Judge Morgan)
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"[173] We are, nevertheless, satisfied that the FtT does not have the jurisdiction to grant the remedy of rescission, nor indeed does the FtT have jurisdiction to apply the tax legislation as if the High Court had ordered rescission. Only a court with equitable jurisdiction (i.e., the High Court) has the power to order rescission. Whether the High Court would order rescission was not a relevant consideration at the time when the Appellant's FP 2014 certificate was revoked as no such Order had been made and reg. 12 focuses on the situation as at the date of revocation. It follows that the FtT cannot treat the 5 May 2014 contribution as if it had been rescinded by the High Court since, until rescission is ordered by the High Court, it is open to the parties to the transaction to affirm that transaction.
[174] Were it open to us to treat the contribution as if it were rescinded, it would be open to the Appellant to avoid tax consequences flowing from Virgin's payment despite the payment never being removed from the Appellant's Standard Life SIPP. We find that there is considerable force in Ms Belgrano's submission that such a result would be inconsistent with the purpose of the FP 2014 legislation. The legislation requires a practical meaning to be given to "payment", "contribution...paid in respect of the individual under the arrangement by an employer...", which tests whether there has been benefit accrual. Irrespective of any possibility of rescission, the 5 May 2014 payment by Virgin meets the statutory test and it remains in the Appellant's SIPP. Furthermore, Virgin has declined a refund." (Lefort v. HMRC [2024] UKFTT 926 (TC), Judge Manyarara)
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APPLICABLE LAW​​
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- Rescission of transfer of shares is governed by the law of the situs, i.e. where Company is registered/register is kept
"[26] Because the transactions to be set aside were the transfers of shares, Advocate Kapp referred to the decision in Dervan v Concept Fiduciaries Limited (unreported, 30 November 2012) in which the Court concluded that the applicable law in relation to such dispositions is the situs of the intangible property concerned. Because the Company is registered in England and Wales, which is also where the share register is kept, I was satisfied that the applicable law for the Application was the law of England and Wales. Indeed, all the Deeds of Assignment were expressly made subject to English law. It was for this reason that I gave leave to the Applicants to rely on expert evidence relating to the English law of mistake as it applies to an application such as this, to which I will turn in more detail in due course." (Sampson v. Estera Corporate Trustees (Guernsey) Limited [2019] GRC075, Royal Court of Guernsey)
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- No equitable rescission of a contract for mistake (only common law principle applies)
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"[24] There are two quite distinct sets of rules dealing with setting aside, or declaring to be void, transactions on the ground of mistake. Later in this judgment, I will attempt to describe the two different types of case where the different rules apply. For present purposes, it is sufficient to say that one set of rules applies to contracts and the other set applies to gifts.
[25] In a case concerning a contract entered into as the result of a mistake, the relevant legal principles are those expressed in Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd ("The Great Peace") [2003] QB 679. This case established that there is no equitable jurisdiction which allows a court to order rescission of a contract for common mistake in circumstances that fall short of the circumstances in which the common law would hold the contract to be void. The grounds on which a contract could be declared void for mistake at common law are very narrow. They were described in The Great Peace at [76] as follows:
"the following elements must be present if common mistake is to avoid a contract: (i) there must be a common assumption as to the existence of a state of affairs; (ii) there must be no warranty by either party that that state of affairs exists; (iii) the non-existence of the state of affairs must not be attributable to the fault of either party; (iv) the non-existence of the state of affairs must render performance of the contract impossible; (v) the state of affairs may be the existence, or a vital attribute, of the consideration to be provided or circumstances which must subsist if performance of the contractual adventure is to be possible."
It was common ground that if the contract rules apply in this case, the Claimant cannot satisfy them." (Van der Merwe v. Goldman [2016] EWHC 790 (C), Morgan J)
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LIMIT: TRANSACTIONS NOT FOR CONSIDERATION​​
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- Distinction depends on whether consideration has been given for the benefit conferred by the transaction
"[120] I have not included in that citation the passages where Morgan J focused particularly on a mistake about the tax consequences of a transaction, this not being such a case. In Van der Merwe there was disagreement between the parties as to whether, on the facts, the case was governed by the common law rules for declaring a contract to be void by reason of mistake or the equitable rules for setting aside a gift for mistake. Having found against Elias on the issue of consideration, I consider that the latter principles do apply. As Morgan J held in Van der Merwe at §31, "the difference between the cases where the equitable rules apply and those where they do not turns on whether consideration has been given for the benefit conferred by the transaction". In the present case, I have found that Elias did not provide any consideration for the transfer. He did not pay the figure of £400,000 or any sum pursuant to the Proposal and he did not provide the consideration (or any part of it) for the original transfer to William. Accordingly, applying the principles set out above to the facts of this case, I find that the 2014 Transfer was directly caused by a sufficiently serious mistake on the part of William so as to mean it would be unconscionable for Elias to remain the owner of the Property. In doing so, I explicitly reject the submission made by Mr Winn-Smith that the circumstances are such as to show that William deliberately ran the risk, or must be taken to have run the risk, of being wrong. On that basis the 2014 Transfer is liable to rescission and William is entitled to an order that Elias transfer the Property back to him." (Fattal v. Fattal [2022] EWHC 950 (Ch), Deputy Master Hansen)
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"[31] In my judgment, the difference between the cases where the equitable rules apply and those where they do not turns on whether consideration has been given for the benefit conferred by the transaction. If the effect of rescission (or a declaration that a transaction is void) would deprive a party of a benefit for which he gave consideration, then the common law rules apply and there is no separate equitable jurisdiction to order rescission. Conversely, if the effect of rescission would deprive a party of a benefit for which he gave no consideration, then there is a separate equitable jurisdiction to order rescission, applying the principles in Pitt v Holt..." (Van der Merwe v. Goldman [2016] EWHC 790 (Ch), Morgan J)
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- OR: a broader principle that applies to contracts if there is a bounteous element
"[42] In applying this to the current case, I find that whilst there was no bounty in the sale of the A shares at the moment that they were sold (from a tax perspective), there was bounty in the future growth in Milewood which belonged to MMPT. More particularly, the agreed price for the A shares was considered to be their true value, but that formed part of the overall arrangements in which value would be passing into the MMPT for no consideration.
[43] I am satisfied that this Court need not follow the decision of Morgan J in Van der Merwe v Goldman as to do so would over simplify the distinction between commercial bargains on the one hand and 'gifts' on the other. More particularly, I agree that it is open to this Court to draw a more general distinction and to follow the approach taken by judges in England and Wales prior to 2016. This would involve looking at the more fundamental question of whether 'there is a voluntary transaction by which one party intends to confer a bounty on another' (as explained by Millett J in Gibbon v Mitchell). That bounty in this case being the future growth in Milewood.
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[67] I consider that it is correct in this case to approach the question of whether it is appropriate to apply the equitable rules by asking if this is a transaction 'by which one party intends to confer bounty on another' (to adopt the language of Millett J). I agree that it would be wholly artificial to apply the rules developed by the common law for holding commercial players to their bargains, to what is effectively a failed plan to improve tax efficiency in relation to any future growth of the business. This flexible approach will, on the facts in any case, allow justice to be done. Indeed, such approach would be consistent with the assessment of the equitable jurisdiction recently set out in Gubay v Gubay.
[68] More particularly, the question for the court is whether the 2012 disposition of the A Shares was a commercial bargain? I agree with Mrs Clough that it is not, and when looked at in the round, it is clearly a transaction which was intended to confer future bounty, namely the future growth value of Milewood – which would otherwise have accrued to the Claimants.
[69] I agree that, as set out in Mike's witness statement, there was no bounty in the sale of the A shares at the moment that they were sold, from a tax perspective; however there was clearly future bounty conferred in Mike and Simon continuing to work in the future to expand the value of the business from an equitable mistake perspective, because all of the increased value in the business belonged to the MMPT." (Smith v. Athol Administration Ltd, High Court of Justice of the Isle of Man, (2021) 15 ITELR 1 - HMRC had invited the court to apply the approach in Van der Merwe (see their letter at §66))
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- Equitable principle does not apply to transfer even if prior contract void if consideration actually given
"[31] ...Although the argument in the present case focussed on whether the Claimant and the First Defendant made a prior contract to execute the settlement and the transfer of 27 March 2006, the present issue does not turn on whether there was such a prior contract. Consideration can exist for an ante-nuptial marriage settlement even though the intended husband and wife did not make a prior binding contract. Further, to take an example suggested by section 2 of the Law of Property (Miscellaneous Provisions) Act 1989, if A and B enter into an apparent contract, which is void by reason of that section, but they nonetheless complete the intended transaction by A transferring a property to B in return for the agreed price, A could not seek to set aside that transfer in reliance on the equitable rules by pointing out that the apparent contact was void so that there was no prior contract. The transfer is itself a contract for which consideration is given by both parties." (Van der Merwe v. Goldman [2016] EWHC 790 (C), Morgan J)
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- Transfer from wife to husband to allow creation of settlement analysed as resulting trust, not consideration for informal agreement
"[35] In view of the fact that the law of resulting trusts produces a fair and rational result in this case, I am not persuaded that it is necessary or appropriate to hold that the facts also give rise to the implication of an informal contract between the Claimant and the First Defendant. In those circumstances, it is not necessary to consider the effect of section 2 on such a contract. Nor am I persuaded that the transfer of 24 March 2006 to the Claimant alone was by way of an outright gift. The First Defendant did not intend to give the property to the Claimant beneficially for him to do with as he pleased. She transferred the property to the Claimant alone so that he could carry out their common intention to create the intended settlement. When the analysis based on the law of resulting trusts was identified in the course of argument, the Claimant and the First Defendant adopted that analysis as an alternative to their submission that the transfer of 24 March 2006 was by way of gift." (Van der Merwe v. Goldman [2016] EWHC 790 (C), Morgan J)
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- Joint owners taking steps to create settlement is a unilateral transaction by them, for no consideration
"[37] Considering the transactions as a whole, the position is as follows. Before 24 March 2006, the Claimant and the First Defendant as the legal and beneficial owners of the property wished to settle the property on themselves and their children and remoter issue. By taking two steps on 24 and 27 March 2006 they implemented their intentions. The position of the two of them acting together is no different from the position of a sole legal and beneficial owner settling his property on himself and members of his family. He and the other beneficiaries do not give consideration for the settlement. Using the language of the decided cases, the case is one of a unilateral transaction and all of the beneficiaries are volunteers. I do not see how the fact that the settlors are joint owners acting together leads to any different conclusion. They do not give consideration to themselves." (Van der Merwe v. Goldman [2016] EWHC 790 (C), Morgan J)
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- Employer contribution to pension scheme was for consideration
"[170] The analysis on this ground would be that Virgin was obliged to make payment pursuant to its contract of employment with the Appellant, but Virgin made the payment later than it should have. In respect of rescission in the context of the Appellant's "late payment" ground, we are in agreement with Ms Belgrano's submissions that:
(1) Since the contribution would have been made pursuant to the Appellant's contractual agreement with Virgin, the contribution was supported by consideration and the equitable remedy of rescission is not available. Standard Life also provided consideration in return for the contributions and the Appellant's rights under the SIPP were rendered more valuable as a result of Virgin's contribution.
(2) In Van der Merwe, at [30] to [31], Morgan J held that there is no equitable jurisdiction to order rescission if the effect of rescission (or a declaration that a transaction is void) would deprive a party of the benefit for which he gave consideration. This distinction was subsequently applied in Fattal v Fattal (supra).
[171] Once again, rescission would not be granted on the evidence available." (Lefort v. HMRC [2024] UKFTT 926 (TC), Judge Manyarara)
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TYPES OF TRANSACTION
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- Deed of conveyance of land
"[66] The Court of Appeal was also plainly entitled to hold that the mistake involved was so serious as to warrant the setting aside of the 1984 deed in equity under normal circumstances, under the doctrine explained in Ogilvie v Littleboy and Pitt v Holt, and to seek to grant appropriate relief to take account of the particular circumstances of the case. The Board has heard no argument to question the conclusion of the Court of Appeal that rescission in this case was barred. The court confined its analysis to a claim by Jude in unjust enrichment at common law and it is unnecessary to consider other possibilities (cf Dominic O’Sullivan, Steven Elliott and Rafal Zakrzewski, The Law of Rescission (2nd edn, 2014), para 20.23)." (Moses v. Moses [2022] UKPC 42, Lord Sales)
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- Appointment as a trustee can be rescinded (at least on grounds of undue influence)
"[23] For reasons that I will give shortly, I disagree with elements of this analysis but even if it were correct I do not see in principle how it could stand in the way of the Appellant asking the Court to set aside her acceptance, a unilateral act by her, which was the result of undue influence, so that she would be able to disclaim the appointment, which was the position she was in just before she signed the DORA.
[24] Mr Le Poidevin makes clear that I am not asked to declare that such a disclaimer would necessarily be effective since, for example, there could be other later matters which would prevent it. By allowing the acceptance to be set aside, I would only (though it might be very important) be putting the Appellant in a position to disclaim." (Mackay v. Wesley [2020] EWHC 3400 (Ch), Meade J)
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- Query whether limited to dispositions of property
"[42] Both these concepts relate to a bilateral contract. The remedy sought with common law mistake is that the contract is void. However, I do not agree with Mr Davey that this is necessarily the case with the result that rescinding or rectifying just one part of a transaction is not possible: see the decision of Scott J in Re Cleveland plc [1991] BLC 424 and Lord Wright’s statement referring to “contract or transaction” above. It seems to me that the doctrine of mistake is not limited to the formation of the contract and a withdrawal from a life insurance policy can in principle give rise to it." (Lobler v. HMRC [2015] UKUT 152 (TC), Proudman J)
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"[139] As regards the second of the reasons for the equitable principle not applying: the equitable principle sought to be relied upon by the Claimant is concerned with mistaken gifts or voluntary dispositions. The whole of the relevant part of Lord Walker's judgment in Pitt v Holt is premised on that being the scope of the principle. The passage from Sir Terence Etherton C's judgment in Kennedy v Kennedy [2014] EWHC 4129 (Ch), [2015] WTLR 837 at paragraph 36, quoted above confirms that the principle or jurisdiction is concerned with setting aside a non-contractual voluntary disposition. In the present case the Claimant did not dispose of anything. At most she undertook the liabilities of a trustee and received the trust property. This reason applies even if, contrary to my judgment, the Claimant's acceptance was necessary in order for her to become a trustee." ​(Mackay v. Wesley [2020] EWHC 1215 (Ch), Deputy Master Henderson - overturned on appeal regarding rescission for undue influence)
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On appeal
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"[13] Mr Le Poidevin submitted at the hearing that the result would be the same if the Appellant succeeded on mistake, undue influence, or both. I agree. Since, for reasons given below, I accept the Appellant's submissions on undue influence and will allow the appeal and make an order for rescission, I am not going to decide the points which arose only on mistake. They are complex and potentially important; they would be better decided in a context where both sides are fully argued; and writing a judgment on them would slow down the provision of my decision to the Appellant." (Mackay v. Wesley [2020] EWHC 3400 (Ch), Meade J)
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- Setting aside Trustee decision to approve issue of shares and, consequentially, the issue of the shares (Jersey law)
"[17] So as a technical matter we think that if the orders are to be made in relation to the companies which are wholly owned by the Trust, then these are orders which can only be made as consequential under Article 47I(3). It was thus right that the companies should be party to these proceedings. On the facts of this case, we are satisfied that it is right to look at the actions taken by the companies as consequential upon decisions of the trustee, and accordingly, if it is right to grant relief in relation to the alleged mistake of the trustee, it is right to make consequential orders in relation to the steps taken by the companies giving effect to the trustee’s decisions.
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[35] For all those reasons we declare that the following decisions of the trustee are voidable and of no effect and consequentially we set aside as invalid and of no effect:-
(i) The special resolution passed by the Second Representor and the First Respondent on 29th March, 2017 as members of the Second Respondent, having been made ultra vires without the trustee’s instructions or authority, and that no new memorandum and articles of association were adopted and no A or B preference shares were created.
(ii) The decisions of the directors of the Second Respondent to issue and allot the A and B preference shares to the trustee, recorded in the minutes of 24th March 2017." (Re J Settlement [2019] JRC 111 - concerned Jersey legislation applying trustees rather than the equitable principle)
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- Release of a registered charge by a lender mistakenly believing there was nothing left to secure
"[26] So I am satisfied that in the present case the law does allow for a transaction of the kind that took place here to be rescinded for mistake. The question is whether that law applies to the facts of this case. The points that need to be made here are, I think, these. The first is that the claimant did not intend to make a gift of its security to its customers. On the contrary, the claimant mistakenly believed that the customer no longer owed any money to the bank and therefore it was simply discharging an unnecessary and indeed valueless incumbrance on the title of its customers. Instead, of course, what the claimant was doing was turning itself from a secured to an unsecured creditor." (Barclays Bank UK Plc v. Terry [2023] EWHC 2726 (Ch), HHJ Paul Matthews)
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"[34] In my judgment the bank in issuing the e-DS1 to the Land Registry did make a distinct mistake. It thought in so doing it was obliged to do so because the 2004 loan had been redeemed and there was nothing more to secure. It was not mere inadvertence. The mistake was induced because of the terms of the solicitors' letter which referred to the 2004 loan account number and not the 2005 loan account number, which I have found was secure on the property. It was careless of the bank not to link the two before issuing the e-DS1. That mistake however was central to that issue. Had the bank realised that the 2005 loan was still secured on the property it would not have issued the e-DS1. The consequences of so doing are serious. The bank would lose its security for the 2005 loan. Mr and Mrs Evans, having taken that loan thinking it would be secured on their property and having dealt with it as such in their respective bankruptcies would (or their respective mothers now would) be left with an unencumbered property. In my judgment it would be unconscionable to leave the mistake uncorrected." (NRAM Plc v. Evans [2015] EWHC 1543 (Ch), HHJ Jarman QC further appeal in relation to the land registry issue at [2017] EWCA Civ 1013)
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"[62] The discharge of a mortgage is not normally a unilateral or voluntary act: it is something which the mortgagee is bound in equity to do when the mortgage is redeemed (and can be compelled to do). But counsel for the trustee was correct to describe the e-DS1 in this case as "a unilateral act" precisely because by it BoS made an (unintended) gift of its security interest in No.173 when the July 2004 Loan remained outstanding.
[63] Can this mistake be corrected? I will address this question on the basis which Counsel for the trustee invited, namely, that the e-DS1 was a unilateral transaction. To invoke the equitable jurisdiction to set aside a voluntary disposition for mistake there must be mistake of sufficient gravity either as to the legal effect of the disposition or as to an existing fact which is basic to the transaction (Pitt v Holt [2011] EWCA Civ 132 at [210]). In my judgment the mistake of BoS satisfied each of these three limbs." (Garwood v. Bank of Scotland Plc [2012] EWHC 415 (Ch), Norris J)
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DELAY IN SEEKING REMEDY (LACHES)
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- Court setting aside earlier order
"[58] The rescission of an order of the court is not an identical process. There is no automatic re-vesting although the same can be achieved by subsequent orders of the court. But where there are similarities is in the effect which the order for rescission has. The order of 11th February was set aside by Moylan J and thereupon ceased to have any effect. The ability of Mrs Morris to re-new her ancillary relief claim depended upon there having been no effective exercise of the statutory powers under the 11th February order. In Jenkins v Livesey [1985] 1 AC 424 Lord Brandon said (at pages 437 and 440) that unless the court is provided with complete and up-to-date information on matters that are relevant to the exercise of its discretion under s.25 of the Matrimonial Causes Act then it cannot lawfully exercise that discretion. It must follow that there was no proper exercise of that power in this case and that by setting the 11th February order aside the court recognised it as a nullity.
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[60]... The rescission of that order restored Mrs Morris to the position she was in before the order was made which was a pre-requisite to her ability to restore her application for ancillary relief. Consistently with this, she could not, in my view, rely upon that order for the purpose of maintaining status as a bona fide purchaser for value and so treat the £1.481m as an asset of the marriage which would be taken into account for the purpose of her new application. As the dicta in Hill v Haines indicate, the effect of rescission is to set the order aside for all purposes." (Independent Trustee Services Limited v. GP Noble Trustees Limited [2012] EWCA Civ 195, Patten LJ - ancillary relief order set aside due to non-disclosure, wife not entitled to rely on that order to say she was a bona fide purchaser for value)
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[87] So, the question is whether she can establish that defence when the value that she gave at the time of receipt of the legal title to the money was given under a transaction (I use the word in a broad sense, with support from Hill v Haines [2008] Ch 412) which was voidable and has since then been avoided. It may or may not matter at whose instance it was avoided, but in the present instance it was at her initiative." (Independent Trustee Services Limited v. GP Noble Trustees Limited [2012] EWCA Civ 195, Lloyd LJ)
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- Not applied where difficult to identify correct position and, in any event, no detrimental reliance
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"[64] I have touched on the doctrine of laches. It simply does not arise in this case. I cannot begin to imagine the complexity of trying to unravel the background to this case without full disclosure and full documentation. There has been no delay between discovering the mistake and bringing the claim to court in my view. Even if I am wrong on that, then I accept the point that Mr Sykes QC makes about the need for detrimental reliance for the doctrine of laches really to bite. There is no detrimental reliance stemming from any delay and I am not satisfied, even on the factual background, that there has been any delay." (Abadir v. Credit Suisse Trust Ltd [2021] EWHC 2573 (Ch), Chief Master Shuman)
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- Query the relevance of prejudice caused to HMRC by delay
"[55] As an equitable remedy, rescission is subject to the doctrine of laches. HMRC refer to Lewin on Trusts, 20th edn at 5-089:
'A claim to rescission or rectification is not within the Limitation Act 1980 but is subject to the equitable doctrine of laches. And so delay and acquiescence may bar a claim to rescission or rectification, certainly where relief is opposed on such grounds. It has been said that the doctrine of laches applies to a party seeking relief "where it would be practically unjust to give a remedy, either because the party has, by his conduct, done that which might fairly be regarded as a waiver of it, or where by his conduct and neglect he has, though perhaps not waiving that remedy, yet put the other party in a situation in which it would not be reasonable to place him if the remedy were afterwards to be asserted, in either of these cases, lapse of time and delay are most material". There must have been some form of detrimental reliance on the part of the person relying on the defence, or a relevant third party, in order for it to succeed.'
[56] In Pitt v Holt, Lord Walker at [142] indicated that HMRC took no point on delay, despite the fact that there had been considerable delay before the claim was issued. The applicability of delay was therefore not considered. It is not self-evident to me that detrimental reliance by HMRC on delay is capable of leading to the refusal of relief on the grounds of laches, in circumstances where the delay does not affect the position as between the disponor and those who benefit or might in future benefit under the disposition. As I have noted above, I consider that the question of unconscionability is to be determined in relation to those affected in this way, separate from public policy considerations. If relief were to be refused because of prejudice to the body of taxpayers more generally, this would seem to be an argument squarely based on public policy.
[57] That issue is, however, a matter for another case in which it is properly before the court. If HMRC wish to rely on prejudice to taxpayers generally as a ground for the refusal of relief, I consider that they must become a party to the claim, and file evidence explaining their position and, of course, affording the other parties to the claim the opportunity to respond by filing evidence themselves. Writing a letter at the eleventh hour and making this sort of point in elliptical terms is not an appropriate way for it to be raised." (JTC Employer Solutions Trustee Limited v. Garnett [2024] EWHC 3128 (Ch), Master Brightwell)
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EQUITY DOES NOT ACT IN VAIN
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- Sufficient that there is an issue capable of being contested
"[140] What the Court of Appeal decided in Racal was that it is sufficient, even for the closely-guarded remedy of rectification, that there is a genuine issue capable of being contested, even if the parties decide that they will not in fact contest it. The test for rescission on the ground of mistake cannot be stricter than that." (Pitt v. Holt [2013] UKSC 26)
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See further Rectification
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- Change the trusts on which balance is held and genuine tax consequences
"[70]...Here, as I have already mentioned, they have not sought to play any role in the proceedings and I am entirely satisfied this is not a case where I need to withhold relief on public policy grounds, nor is this a case where it would be pointless or in vain in granting relief. The grant of relief will have very real consequences, it will change the trusts on which the balance of the fund was held, and it will have genuine tax consequences as well." (Smith v. Stanley [2019] EWHC 2168 (Ch) David Rees QC)
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- Removal of liability to tax may be the only consequence
"[26]...(11) it is not pointless, nor is it acting in vain, to set aside a transaction and to remove a liability to pay tax, even where that is the principal, or the only, effect of the setting aside: [136]-[141].
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[46] HMRC next submitted that the court would be acting in vain by making an order of rescission. This was on the basis that it was open to the Claimant and the First Defendant under the terms of the settlement, and without any order of the court, to vest the property in themselves beneficially. However, if they did so they would not avoid the liability of the Claimant to pay inheritance tax. A court order for rescission would remove that liability from the Claimant. In those circumstances, the court would not be acting in vain." (Van der Merwe v. Goldman [2016] EWHC 790 (Ch), Morgan J)​​
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- Alteration as to who will be liable for any tax
"[32] Similarly, the fact that the rescission sought will save tax is not a reason for not granting it. Granting the relief will restore the parties to the position which s.142 permits them to be in. I also accept that there is in this case a genuine issue capable of determination between the parties, as the effect of granting rescission will be to render Mrs Alston's estate liable to repay to the Trust the sums paid to her pursuant to the DoA." (Payne v. Tyler [2019] EWHC 2347 (Ch), Master Clark)​
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