Kevern v Ayres

Abstract

Deed – Rectification. The Chancery Division considered the best way to progress a claim for rectification of a deed. It held that, in the circumstances, it would be appropriate to adjourn the action to enable the claimant and the Revenue to consider how best to proceed.

Summary

The judgment is available at: [2014] EWHC 165 (Ch)

The proceedings concerned the estate of RA, who died intestate in June 2008. His widow, C, was the first defendant. The first claimant, S, was his sister. RA had no children, so that under the intestacy rules, the estate would, after receipt by C of the personal chattels and the statutory legacy of £200,000, have passed to C and S in equal shares. In order to maximise the amount recoverable, S and C drafted a deed of variation. By virtue of s 142(1) of the Inheritance Tax Act 1984 (the Act), such deeds had the effect that the Act applied as if the variation had been effected by the deceased and thus would be treated as relating back to the date of death.

The general concept was that (i) the residuary estate should be divided 30/70 between S and C; (ii) S would receive immediately £312,000, the amount of the nil rate exemption; and (iii) the remainder of her share should be held in trust for a period during which the income would be paid to C and only thereafter held as to capital and income for S absolutely. The reason for a provision such as (iii) was that C’s interest in possession at the date of death (as a result of the relation back) would entitle the estate to rely on the spouse’s total exemption regarding the capital sum. That was qualified by the wording of s 142(4) of the Act, which stated that it would apply for a period of two years after the death of the deceased. Clause 5 of the deed stipulated that the trust would pay the net income to C for 24 months following the death of RA.

The second defendant Revenue and Customs Commissioners (the Revenue) argued that 24 months was 24 hours too short to escape the effect of s 142(4) of the Act. S commenced proceedings, seeking rectification of the deed. In the course of proceedings, C discontinued the proceedings save those regarding the claim for rectification (the discontinuance). None of the parties submitted that the deed failed to express their intentions.

The question was whether, when the court had not determined that the words of the written document had failed to express the parties’ intentions - and a fortiori where no party was actively submitting that such was the case - the court could order that the words should be changed. The issue arose as to whether it was appropriate for the court to indicate whether its view on rectification was negative, in which case the claimant could withdraw the claim (the rectification issue).

The court ruled:

Regarding the rectification issue, it was inappropriate to the court to give a uni-directional indication of what its judgment would or might be. The task of the court was to give a reasoned judgment on a claim. The most practical - and possibly cost-efficient - solution might be agreement by the Revenue to the revocation of the discontinuance and the hearing of the action as it had been originally structured, in which situation the active participation of the Revenue would be welcomed. Absent that, it could well be necessary to decide whether it would be right to determine all issues necessary to the resolution of the rectification claim, even if they would also arise in any appeal. If the claimant were to continue to insist that the court could or should not do so and, therefore, presented no argument addressed to those issues, the consequence could then be that the claim for rectification would fail because the claimant had not sought to establish that cl 5 of the deed meant something other than was mutually intended. In the circumstances, it would be appropriate to adjourn the action to enable the claimant and the Revenue to consider how best to proceed (see [16], [18], [19] of the judgment).

Standard Portland Cement Co Pty Ltd v Good [1982] 57 ALJR 151 considered; Frankins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407 considered.

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