The defendant solicitors ( " Halliwells" ) were instructed to implement a proprietary tax mitigation scheme known as an Estate Protection Scheme ("EPS"). The EPS involved a trust, of which the Claimants and the deceased were trustees. Under the EPS, a property in London, SW11 owned by the deceased was intended to pass, on her death, to the first Claimant, reducing inheritance tax. However, in 2010 without the consent or knowledge of the Claimants, and in breach of trust, the deceased sold the property .She died three years later in 2013.
Halliwells were found to have acted in breach of duty by failing to restrict the deceased's ability to sell the property without the consent of the other trustees under the scheme. It was found that this could have been done by lodging a Restriction over the Property at the Land Registry and that, had this been done, the Claimants would have objected to any sale of the Property. It was accepted that the Claimants' loss was the value of the Property. The question for the Court was the date at which that value ought to be assessed.
Halliwells contended that the usual approach should be applied so that damages would have been assessed at the date the loss was suffered ie. the date of sale of the Property in 2010 when it was valued at £785,000.The Claimants suggested that the loss should be assessed at the date of trial when the property was worth in excess of £1.25 million . However, in the circumstances of the case, the court rejected both arguments and assessed the Claimants' loss at the date of the deceased's death in 2013 when it was worth £875,000 .
Despite there being no previous authority with similar facts the court assessed loss as at the date of the death of the deceased for the following reasons:
- Had the EPS taken effect in accordance with its terms, the first Claimant would not have been entitled to receive the Property until the deceased died in 2013.
- Assessing loss at the date of sale in 2010 would not recognise the rise or fall in the Property's value between the date of sale and date of death. Consequently, and importantly, it would not achieve the main objective of an award by placing the Claimants as nearly as can be achieved in the position they would have been in had the breach of duty not occurred.
The court considered the Claimants' argument that they would have rented out the Property when they became entitled to it and should therefore be entitled to a loss of rental income in addition to the loss of the value of the Property. This was rejected because the court found that the likelihood was that on acquiring the Property HMRC would have challenged the EPS and so the Property would likely have to have been sold to pay some Inheritance tax. The court also rejected the Claimants' claim for 8% interest and awarded 3.5% instead and rejected the Claimants' claim for penalty interest (Perry v Rayleys).
This decision highlights that notwithstanding that there have been no similar previous decisions the courts will carefully examine the facts and may move from the usual date for assessment of damage if it will put a Claimant as closely as possible into the position she/he/they would have been in had the wrong not occurred .
It reinforces the need to assess what damages award would on the facts of any particular case properly put the Claimant in that position and, where necessary, to adduce supporting evidence for any matters which need to be taken in to account in calculating damages as without that evidence a court is likely to make assumptions in the Claimant's favour .
For further information please contact the authors:
Laura Segger – Associate
Sheona Wood - Partner