Impact of BREXIT on the Art Market

·      Introduction

·      Economic analysis

·      What impact will BREXIT have on art transactions?

·      Revisiting the Artist’s Resale Right Regulations 2006 through reform or abolition

·      Artist’s Resale Right (‘ARR’)

Introduction

It is an economic fallacy to suppose that by freeing the UK art market from the shackles of ARR through post-BREXIT reform, that the overall volume of art transactions in the UK will increase, thereby swelling the coffers of the treasury to fund public services.

Based upon the expert sectoral market analysis referred to below, it is evident that the opposite is likely to result, because BREXIT will result in an increased regulatory burden and higher transaction costs.

In any event transformation cannot occur during a transition period, and politically ARR is unlikely to be high on the political agenda of whichever party or coalition is in power when BREXIT is implemented.

Liberalisation of Britain’s international trade in art also overlooks the policy rationale underlying the Artist’s Resale Right Regulations 2006 (the ‘Regulations’) (outlined toward the end of the post), which is to give artists an on-going royalty stream from their work – in the same way as authors, musicians and film directors receive royalties from their work – and to enable artists to benefit from the resale of their artworks in the secondary market.

Paragraph 7.1 of the Explanatory Memorandum to the Regulations states, ‘The purpose of the Directive is to reduce distortions in competition resulting from the fact that resale right presently exists in only some Member States (and exists in different forms), while enabling artists to share in the economic success of their works.’

Therefore if ARR is abolished in the UK, art markets elsewhere in the EU will suffer a competitive disadvantage relative to London, because what will emerge will be an unequal playing field for the sale of art in Europe.

Economic analysis

‘In order for the UK to maintain its status in the global art market it must attract the highest priced art available for sale worldwide by providing the most favourable and most competitive conditions. Fine art (paintings, drawings, prints and sculpture) dominates the art market, accounting for 64% of all sales by value in the UK in 2016. The analysis of fine art sales at auction … demonstrates the significance of high value art sales to the British art market … In the UK, although 89% of the volume of all transactions in the market was accounted for by works priced at less than $50,000, they made up just 10% of the value of all sales. 90% of the overall value of the market was accounted for by individual sales of over $50,000. Works priced at over $1 million represented a 57% share, despite accounting for just under 1% of the number of individual transactions. In the market for works priced below $50,000, the US, UK and China accounted for a 67% share by value and 51% of all individual transactions. However in the market priced over $1 million, their combined share rose to 94% (by value) and 92% (by volume).For individual sales over $1 million, the UK accounted for a 22% share by value and 21% by volume of the world market. Within the EU as a whole, 81% of the number of transactions at this level in 2016 were in the UK and an 87% share by value. For individual works sold for over $10 million, the UK accounted for a 24% share by value and volume in 2016. Only 2% of the total value of auction sales over $10 million took place outside the top three markets, and just 3% of all individual transactions. Within the EU as whole, the UK accounted for 91% by value and 89% of all individual transactions above $10 million. Although HMRC’s official figures suggest that the bulk of the trade both in and out of the UK by value is with countries outside the EU, with just 16% of imports into the UK coming from within the EU, and just under 3% of exports destined to countries within the Single Market, this picture is incomplete. HMRC statistics understate the extent of intra-EU trade, because many EU sales under the VAT margin scheme are not necessarily recorded. Additional research carried out in the auction sector in 2016 showed that while the US was the most important trading partner by value, for some of the major auction houses, consignments from EU member states accounted for up to 25% of their UK sales on average, while up to 20% of their exports were destined to EU buyers. In the dealer sector also, the main dealer associations reported that on average between 10% and 22% of dealers’ purchases for subsequent sale were made in the EU, and EU purchasers accounted for 15% – 20% of all their sales. The art market contributes to the UK economy through taxes and levies paid to the Exchequer on sales, trade, incomes and profits. These amounted to an estimated £1.46 billion in 2016. It is worth noting that the fiscal contribution of the art trade has grown at more than double the rate of underlying sales since 2013: sales in the art market increased in value by 15% between 2013 and 2016, whereas the contribution made through taxation increased by 22%.

Sales in the art market are divided into those related to Fine art, which includes paintings, sculptures and works on paper (including watercolours, prints, drawings and photographs); and Decorative art, which includes furniture and decorations (in glass, wood, stone, ceramic, metal or other material), couture, jewellery, ephemera and textiles. The fine art sector dominates in terms of values and accounted for close to 64% of all sales by value in the UK in 2016. Given the significance of the fine art sector, the analysis in this section looks at the sectors that comprise the fine art market. While both dealer and auction data is used to research trends within the market and estimate total sales, precise analyses of prices and individual sales within sectors of the art market relies primarily on auction data, which provides the only large scale, global and publicly available information on individual transactions. The sectoral analysis that follows is based only on auction results In the UK fine art auction sector, Modern and Post War & Contemporary art accounted for a 75% share of sales by value in 2016, a percentage which reflects the global market as a whole. Considering both dealers and auctions, these two sectors represented just over half of the value of the UK art market in 2016. While Post War & Contemporary art remained the largest sector of the fine art market in the UK (with a share of 45%), after two years of growth from 2013 to 2015, sales declined significantly in 2016 (by 32%) to $976 million. Worldwide, sales in this sector also fell in 2016 by 18%. Sales in this sector in the UK are now 37% lower than their peak in 2008 of $1.6 billion. The UK’s share of global sales in the Post War & Contemporary sector fell 3% in 2016 to 14%, and has declined ten percentage points since its high point in 2008 of 24%. However, the UK is by far the largest Post War and Contemporary market in the EU, accounting for 65% of the value of sales and 24% of all transactions in 2016. Within the Post War & Contemporary art sector, sales of work of living artists at auction accounted for 20% of total sales in UK fine art auctions in 2016 (or 44% of the Post War and Contemporary sector by value). Sales in this sub-sector reached $434 million in 2016, a decline of 41% year-on-year (against a global decline of just 7%). The UK accounted for 19% global share of the value of living artists sales at auction in 2016, down from 30% in 2015. Within the EU, the UK accounted for the largest share of sales, with 72% by value and 30% by volume in 2016. European Old Masters dominate the Old Master sector in the UK, accounting for 94% of the value of Old Master sales in 2016, with only 6% of sales accounted for by non-European artists. The UK was the largest sales centre for European Old Master works at auction in 2016 with a share of 43% (up 4% year-on-year). Sales of European Old Masters increased in the UK by 16% in value in 2016, by far the best performing of the fine art sectors. The UK also has the highest share of sales in Europe in the sector, accounting for 71% of the value of EU sales of European Old Master works and 40% of number of lots sold.’

The British Art Market 2017 – An Economic Survey prepared for The British Art Market Federation by Arts Economics.

What impact will BREXIT have on art transactions?

In ‘Brexit: opportunity or threat for the Art industry?’ Macfarlanes LLP conclude: https://www.lexology.com/library/detail.aspx?g=8aec652d-d856-4708-abc1-ec73a6e9882b

‘It is likely that Brexit will make the movement of art between the UK and EU more burdensome and costly, but there are also certain opportunities for the UK art market to benefit from Brexit. However, such changes are unlikely to take effect for some time, particularly as the government has announced its proposal for a transitional / implementation period of “around two years” (which may ultimately be considerably longer than that). If that position can be agreed with the EU, the UK would, during such transitional period, continue to be bound by the existing structure of EU rules and regulations, which would include continued membership of the Customs Union and the Single Market.

This transitional / implementation period would be welcome in providing more much needed time to agree and implement a new trade agreement between the UK and the EU as well as to consider necessary amendments to domestic UK law and the UK’s future relations with other countries. We have in this note considered just a few potential impacts Brexit will have on the art market, but there are many others, including restitution claims for cultural property illegally removed between EU member states and the anti-money laundering regime, which will need to be considered once the position is clearer.’

Revisiting the Artist’s Resale Right Regulations 2006 through reform or abolition

A key opportunity is that Brexit gives the UK Government the opportunity to revisit the Artist’s Resale Right Regulations 2006, either through reform or abolition. The results of a survey of the PAIAM members on ARR are set out before the Appendix to the PAIAM note ‘What impact might Brexit have on the Artist’s Resale Right?’

The artists’ resale right (ARR) gives creators of original works of art (including paintings, engravings, sculpture and ceramics) a right to receive a royalty each time one of their artworks is sold on the secondary market in the UK by an art market professional (e.g. an auction house, gallery or dealer) for more than €1,000. There is an exception: no ARR is due if the seller acting in the course of business acquired the artwork directly from the artist less than 3 years before the sale and the sale price does not exceed €10,000.

ARR affects two major areas of the UK art market – Modern art and Post War & Contemporary.

However as the PAIAM Note states,

‘Despite fears that the introduction of ARR would negatively impact the UK art market and divert sales to non-ARR markets, there has been no evidence to date to support this. In 2006 when ARR came into play in the UK, The European Fine Art Federation (TEFAF) published a report that valued the UK art market at over £8.5 billion.61 Although the global art market felt the impact of the recession – contracting 41% in 2009 from its peak in 2007, by 2010 the global art market was in recovery and rose by 51% to €43 billion.

In 2011, the European Commission’s report on ARR concluded that “no clear patterns can be established to link the loss of the EU’s share in the global market for Modern and Contemporary art with the harmonisation of provisions relating to the application of the resale right in the EU on 1 January 2006.”

Looking at the recent figures in TEFAF’s latest report, the global art market in 2014 has reached its highest ever-recorded level – a total value of €51 billion worldwide and a 7% year-on-year increase from the 2007 pre-recession level.

This growth trend was also evident in the UK which grew 17% in 2014, increased its own market share by 2% and was valued at €11.4 billion (approximately £9 billion and higher than its value in 2006 when ARR was introduced). In context, the ARR royalties distributed by DACS represent just 0.1% of the total market value in 2014. Auction sales are also on the rise. According to the report, public auction sales accounted for 48% of the overall market in 2014 with total sales exceeding the peak in the market in 2007 and have recovered value by 88% since their low point in 2009.

Post War and Contemporary art sales at auctions, which make up 48% of all global fine art sales followed by modern art at 28%, have grown to record levels as well. In 2014 Post War and Contemporary sales saw an all-time high of €5.9 billion globally, which has sharply risen since its post-crash low of €1.42 billion in 2009. These two sectors are predominately responsible for ARR royalties with modern art covering artists born between 1875 and 1910 and Post War and Contemporary for artists born after 1910. In the UK Post War and Contemporary art sales represent €1.1 billion and modern art sales €753 million – both increasing on the previous year’s figures.

Compared to ARR royalties DACS collected in 2014, this represents just 0.64% of the Post War and Contemporary and Modern art sales in the UK. The royalties collected and distributed for ARR are only a minor fraction of a strong Contemporary and Modern art market. Furthermore, a survey of art dealers at the London Art Fair revealed that their biggest concerns are business rates and rents; nonetheless, 85% of those surveyed believed that the British Modern and Contemporary art market in 2016 would remain strong or fare better.

Lastly, visual arts as part of the wider UK creative industries is immensely valuable to the UK economy. For every £1 of Gross Value Added (GVA) by the arts and culture industry, an additional £1.43 of GVA is generated in the wider UK economy. Overall, visual arts contribute US $3 billion GVA to the UK economy each year and employs more than 37,000 people.’

Artist’s Resale Right (‘ARR’)

In the UK, the Regulations created an intellectual property right (“resale right”) which was previously unknown to United Kingdom law.

The Regulations implemented Directive 2001/84/EC of the European Parliament and of the Council on the resale right for the benefit of the author of an original work of art (‘the Directive’).

The Directive entered into force on 13 October 2001 and required transposition into national law by 1 January 2006.

The Directive was an internal market measure adopted under Article 95 of the EC Treaty which required Member States to introduce a harmonized right for authors of an original work of art, and their successors in title, to benefit from a share of the proceeds when the artists’ works are resold on the art market.

The Regulations introduce a new right which has not previously existed in the UK, although it has existed in several other EU Member States. The Directive has also been extended to the European Economic Area.’

Article 3 of the Regulations states,

‘3.

(1) The author of a work in which copyright subsists shall, in accordance with these Regulations, have a right (“resale right”) to a royalty on any sale of the work which is a resale subsequent to the first transfer of ownership by the author (“resale royalty”).

(2) Resale right in a work shall continue to subsist so long as copyright subsists in the work.

(3) The royalty shall be an amount based on the sale price which is calculated in accordance with Schedule 1.

(4) The sale price is the price obtained for the sale, net of the tax payable on the sale, and converted into euro at the European Central Bank reference rate prevailing at the contract date.

(5) For the purposes of paragraph (1), “transfer of ownership by the author” includes in particular—

(a)      transmission of the work from the author by testamentary disposition, or in accordance with the rules of intestate succession;

(b)      disposal of the work by the author’s personal representatives for the purposes of the administration of his estate; and

 

(c)       disposal of the work by an official receiver (or, in Northern Ireland, the Official Receiver for Northern Ireland) or a trustee in bankruptcy, for the purposes of the realisation of the author’s estate.

Regulation 9(1) further provides ‘Subject to regulation 10(2), resale right in respect of a work is transmissible as personal or moveable property by testamentary disposition or in accordance with the rules of intestate succession; and it may be further so transmitted by any person into whose hands it passes.’

Resale right may be transmitted to:

1.      a natural person (and where it is transmitted to more than one person, it shall belong to them as owners in common); or

2.      a qualifying body.

Regulation 11 further provides that nothing in Regulation 9 prevents a resale right from being held, and exercised in respect of a sale, by any person acting as trustee for the person who would otherwise be entitled to exercise the right (“the beneficiary”), or from being transferred to such a trustee, or from the trustee to the beneficiary.

ARR entitles visual artists or their heirs to receive a royalty payment each time their work is sold on the secondary market in the UK through an auction house, gallery or dealer. The royalty is calculated as a percentage of the sale price, on a sliding scale ranging from 0.25 per cent to 4 per cent, subject to exemptions and a cap of €12,500 – see Schedule 1 of the Regulations.

The right lasts for as long as the copyright in the work subsists, which is normally for 70 years after the death of the artist. It may accordingly be

inherited by the artist’s successors. Two points arise from the fact that resale right was previously unknown to United Kingdom law. The first is that, where an artist dies before the Regulations come into force, there will at that time have been no resale right to pass to a successor. In regulation 16, the Regulations accordingly make provision for which of the artist’s successors is to be regarded as holding resale right in such circumstances. The second point is that the Article 8(2) of the Directive provides a special derogation which is limited to those Member States which did not previously have resale right in their national law. Such a State may prevent the successors of a deceased artist from exercising their resale right until 1st January 2010. Regulation 17 takes advantage of that derogation.

Resale right is declared by the Directive to be inalienable, and accordingly may neither be assigned nor waived. This principle is implemented in regulations 7 and 8. The limited exceptions provided by regulation 7(3) (transfer between charities) and regulation 11 (transfers of legal title to trustees) are not in reality a derogation from that principle, as the beneficial ownership of resale right is not thereby affected.

The Regulations also impose certain nationality requirements on the enjoyment of resale right (see regulation 10) . Only an EEA national, or a national of a country specified in Schedule 2, may benefit from resale right. This reflects the fact that (leaving aside EEA nationals, who must be treated equally with United Kingdom nationals) resale right is a right enjoyed on the basis of reciprocity. Thus only the nationals of countries which make resale right available to EEA nationals may benefit from the rights given under the Directive. That principle is also applied to charitable bodies, which may benefit from resale right only where they are based in such a country.

Inquisitorial jurisdiction of Court of Protection

I have been invited to write an article for publication in the Autumn edition of the Expert Witness Journal, ahead of the Bond Solon annual international Expert Witness Conference in London on 9 November 2018, entitled, ‘The Advocate and the Expert in the Court of Protection’. The following is an extract from the first draft which was submitted to the publisher 13.02.2018, and the final draft which will take into account all cases decided in the Court of Protection up to July 2018, is scheduled for submission on 30 August.

For more information about Mental Capacity Law and Practice please visit the Court of Protection and Judicial Review Proceedings page at www.carlislam.co.uk

Inquisitorial method

In contrast to the adversarial method, which aims to get at the truth by two competing parties arguing their case and the judge deciding whose case is the strongest, the COP operates an ‘inquisitorial’ method, the aim of which is to get at the truth through extensive investigation and examination of all of the evidence. The opinions of professionals will be admitted as ‘expert’ evidence but considered alongside factual evidence from those who know the individual and will only be persuasive if the experts have been given all relevant information and applied the appropriate legal test. The starting point for assessing someone’s capacity to make a particular decision is always the assumption that the individual does have capacity.

What you are asking the judge to decide

[All] Courts make decisions on the evidence that is presented [and] to that extent, the Court is the servant of the evidence that is provided by the parties … [Whilst] the Court has an overall directing role in identifying the type and nature of evidence that it requires to make decisions, [because] ultimately those decisions must be faithful to the evidence that is capable of being accepted … It would … be illogical for the Court to arrive at a different position from that which is jointly argued for on the basis of evidence which is jointly accepted as valid.’ (Her Honour Judge Parry in MB v Surrey County Council [2017] EWCOP B27 (16 October 2017). While it is difficult for a court to take a different approach to that of the parties, the court’s jurisdiction is ultimately an inquisitorial one, and ultimately capacity is a question of fact for the court to decide itself, on the balance of probabilities, taking into account the asymmetry introduced by the presumption of capacity. An adult is presumed to have the mental capacity to make a particular decision, until the contrary is proved, Mental Capacity Act 2005 (‘MCA 2005’), Section 1(2) (the ‘Statutory Presumption’). The burden of proof rests on those asserting that the individual does not have the capacity to take the particular decision in question. In deciding whether or not someone has capacity to enter into a particular transaction or make a particular decision, the standard of proof is the civil standard, the balance of probabilities, MCA 2005, Section 2(4). In other words having decided what the facts are, and having applied the law to those facts, the judge must decide whether on balance the individual is more likely to have capacity, or more likely to lack capacity to do something.

As observed by District Judge Glentworth in SL, Re [2017] EWCOP 5 (31 March 2017):

‘In CC v. KK and STCC [2012] EWHC 2136 (COP) Mr Justice Baker set out what is required of the court when assessing capacity at paragraph 24 as follows, “… when assessing the ability of P to (a) understand the information relevant to the decision (b) retain that information, and (c) use or weigh that information as part of the process of making the decision, the court must consider all the evidence, not merely the views of the independent expert. In many cases, perhaps most cases, the opinion of the expert will be confirmed by the other evidence, but inevitably there will be cases where the court reaches a different conclusion.’

… Bailey v. Warren [2006] EWCA Civ 51 also makes it clear that the judge is best placed to consider how the nature of the particular proceedings impacts on the issue of capacity as well as the type of decisions which are likely to arise as part of the proceedings. Reference is made to the Civil Procedure Rules 1998 (CPR) and specifically to rule 21 which has now been amended to take account of the provisions of the MCA. Rule 21.2 CPR provides that a protected party must have a litigation friend to conduct proceedings on her behalf. A protected party is defined at rule 21.1 as, ‘a party or an intended party who lacks capacity to conduct the proceedings’. Rule 21.1(c) provides that the phrase ‘lacks capacity’ means lacks capacity within the MCA.’

Where having regained capacity to make decisions about his care P, refuses care resulting in loss of capacity to make decisions about care, the court has the power to make ‘contingent’ declarations and decisions in order to put in place a safety net regime.

Best interests decision-making

The defining characteristic of proceedings in the Court of Protection (‘COP’) is ‘best interests’ decision making, which requires that P’s interests are paramount. The legal framework was recently stated by Mr Justice Hayden in Abertawe Bro Morgannwg University Local Health Board v RY & Anor (Rev 1) [2017] EWCOP 2 (08 February 2017) as follows:

‘The starting point for consideration of “best interests” is s4 Mental Capacity Act 2005. In this case a number of the s4 provisions require to be highlighted:

(6)     He must consider, so far as is reasonably ascertainable—

(a)     the person’s past and present wishes and feelings (and, in particular, any relevant written statement made by him when he had capacity)

(b)     the beliefs and values that would be likely to influence his decision if he had capacity, and

(c)     the other factors that he would be likely to consider if he were able to do so.

(7)     He must take into account, if it is practicable and appropriate to consult them, the views of—

(a)     anyone named by the person as someone to be consulted on the matter in question or on matters of that kind

(b)     anyone engaged in caring for the person or interested in his welfare,

(c)     any donee of a lasting power of attorney granted by the person, and

(d)     any deputy appointed for the person by the court,

The Code of Practice to the Mental Capacity Act also require careful consideration

I note that in Wye Valley NHS Trust v B [2015] ECOP 60 Peter Jackson J was also able to identify what he termed P’s “intrinsic nature” and “core qualities” which weighed heavily in the balance when evaluating ‘best interests’.

In London Borough of Brent v NB [2017] EWCOP 34 (25 October 2017), Her Honour Judge Hilder summarised the law as follows:

Fundamental to the Court’s consideration of DY’s [the case manager] proposal is the principle set out at section 1(5) of the Mental Capacity Act 2005: an act done, or decision made, under this Act for or on behalf of a person who lacks capacity must be done or made, in his best interests.

Section 4 of the Act provides that

(1)     In determining for the purposes of this Act what is in a person’s best interests, the person making the determination must not make it merely on the basis of –

(a)     The person’s age of appearance, or

(b)     A condition of his, or an aspect of his behaviour, which might lead others to make unjustified assumptions about what might be in his best interests.

(2)     The person making the determination must consider all the relevant circumstances and, in particular, take the following steps.

(3)     He must consider –

(a)     whether it is likely that the person will at some time have capacity in relation to the matter in question, and

(b)     if it appears likely that he will, when that is likely to be.

(4)     He must, so far as is reasonably practicable, permit and encourage the person to participate, or improved his ability to participate, as fully as possible in any act done for him and any decision affecting him.

(5)     Where the determination relates to life-sustaining treatment he must not, in considering whether the treatment is in the best interests of the person concerned, be motivated by a desire to bring about his death.

(6)     He must consider, as far as is reasonably ascertainable –

(a)     the person’s past and present wishes and feelings (and, in particular, any relevant written statement made by him when he had capacity),

(b)     the beliefs and values that would be likely to influence hid decision if he had capacity, and

(c)     the other factors that he would be likely to consider if he were able to do so.

(7)     He must take into account, if it is practicable and appropriate to consult them, the views of –

(a)     anyone named by the person as someone to be consulted on the matter in question or on matters of that kind,

(b)     Anyone engaged in caring for tha person or interested in his welfare,

(c )    Any done of a lasting power of attorney granted by the person, and

(d )    Any deputy appointed for the person by the court,

as to what would be in the person’s best interests and, in particular, as to the matters mentioned in subsection (6).

In seeking to apply the provisions of section 1 and section 4 of the Act, I derive some assistance from the judgment of Munby J (as he then was) in the matter of ITW v. Z, M & Ors [2009] EWHC 2525 at paragraphs 32 – 36:

“[32] i)….the statute lays down no hierarchy as between the various factors which have to be borne in mind, beyond the overarching principle that what is determinative is the judicial evaluation of what is in P’s “best interests”.

ii)…the weight to be attached to the various factors will, inevitably, differ depending upon the individual circumstances of the particular case. A feature of factor which in one case may carry great, possibly even preponderant, weight may in another, superficially similar, case carry much less, or even very little, weight.

iii)….there may, in the particular case, be one or more features of factors which….are of “magnetic importance” in influencing or even determining the outcome….

[35] i).. P’s wishes and feelings will always be a significant factor to which the court must pay close regard:

  1. ii) …the weight to be attached to P’s wishes and feelings will always be case-specific and fact-specific… One cannot, as it were, attribute any particular a piori weight or importance to P’s wishes and feelings: it all depends, it must depend, upon the individual circumstances of the particular case. And even if one is dealing with a particular individual, the weight to be attached to their wishes and feelings must depend upon the particular context; in relation to one topic P’s wishes and feelings may carry great weight whilst at the same time carrying much less weight in relation to another topic.

iii)…in considering the weight and importance to be attached to P’s wishes and feelings the court must of course, and as required by section 4(2) of the 2005 Act, have regard to all the relevant circumstances. In this context the relevant circumstances will include, though I emphasis that they are by no means limited to, such matters as:

  1. a) The degree of P’s incapacity, for the nearer to the borderline the more weight must in principle be attached to P’s wishes and feelings…
  2. b) The strength and consistency of the views being expressed by P;
  3. c) The possible impact on P of knowledge that her wishes and feelings are not being given effect to…
  4. d) The extent to which P’s wishes and feelings are, or are not, rational, sensible, responsible and pragmatically capable of sensible implementation in the particular circumstances; and
  5. e) Crucially, the extent to which P’s wishes and feelings, if given effect to, can properly be accommodated within the court’s overall assessment of what is in her best interests.

I also have regard to the decision of the Supreme Court in Aintree University Hospitals NHS Foundation Trust v. James [2013] UKSC 67. Baroness Hale noted that the Act gives limited guidance about best interests. At [39] she said:

“The most that can be said, therefore, is that in considering the best interests of this particular patient at this particular time, decision-makers must look at his welfare in the widest sense, not just medical but social and psychological; they must consider the nature of the medical treatment in question, what it involves and its prospects of success; they must consider what the outcome of that treatment for the patient is likely to be; they must try and put themselves in the place of the individual patient and ask what his attitude to the treatment is or would be likely to be; and they must consult others who are looking after him or interested in his welfare, in particular for their view of what his attitude would be.”

As she went on [44 – 45], the purpose then of the best interests test is “to consider matters from the patient’s point of view.”

Where the protected person is able to express wishes and feelings about the decision in issue, the Court must decide what weight to give them. I have regard to the decision of Jackson J in X NHS Trust v. B (by his Litigation Friend, the Official Solicitor [2005] EWCOP 60. He concluded that Mr. B lacked capacity to make a decision concerning surgery, and went on to consider the weight to be given to his expressed wishes, in particular at paragraph 10:

“…there is no theoretical limit to the weight or lack of weight that should be given to the person’s wishes and feelings, beliefs and values. In some cases, the conclusion will be that little weight or no weight can be given; in others, very significant weight will be due.

This is not an academic issue, but a necessary protection for the rights of people with disabilities. As the Act and the European Convention make clear, a conclusion that a person lacks decision-making capacity is not an ‘off-switch’ for his rights and freedoms. To state the obvious, the wishes and feelings, beliefs and values of people with a mental disability are as important to them as they are to anyone else, and may even be more important…. For people with disabilities, the removal of such freedom of action as they have to control their own lives may be experienced as an even greater affront than it would be to others who are more fortunate.”

I have considered also the decision of the Court of Appeal in K v. A Local Authority [2012] EWCA Civ 79. The circumstances of that case included a concern that P was in an environment in which he could not articulate his own wishes, as opposed to what he believed to be the wishes of his father; and the proposal in issue was a move to supported living on a trial basis. The first instance judge had cited with approval the following passage from another case:

…it is very much the approach when dealing with incapacitated adults that the medical, educational and social authorities do their very best to nurture and facilitate any skills which the incapacitated adult may have to help them in moving, where possible, towards a greater degree of independence in the way they live their lives. Thus whilst in many cases the family may be the providers of care and nurture for such adults, there seems to me to be a philosophical and practical shift towards ensuring as great a degree of independence in living arrangements as is possible.”

In the Court of Appeal, Thorpe LJ said at paragraphs 30 and 35:

“In my judgment it is unnecessary to enter any investigation of social care policy or whether have been philosophical and practical shifts. …. The safe approach of the trial judge in Mental Capacity Act cases is to ascertain the best interests of the incapacitated adult on the application of the s 4 checklist. The judge should then ask whether the resulting conclusion amounts to a violation of art 8 rights and whether that violation is nevertheless necessary and proportionate.”’

In DM v Y City Council [2017] EWCOP 13 (15 June 2017), commenting upon the weight to be attached to P’s wishes and feelings The Honourable Mr Justice Bodey remarked:

‘A major consideration under S4 of the Act is the individual’s past and present wishes and feelings and the beliefs, values and other factors which the individual would be likely to consider if he had the capacity to do so.  Plainly the weight to be attached to those wishes and feelings is case specific and fact specific.  Everything depends on the individual circumstances of the particular person concerned and the particular case.  I have to bear in mind how near to the borderline of capacity [P] is; the nearer the line the more weight may be attached to his wishes and feelings.  I must also pay regard to the strength and consistency of the views which he has expressed about being able to drink, together with the possible adverse impact on him (anger, disappointment, frustration etc) of knowing that his wishes and feelings have not been allowed to prevail.

The purpose of the ‘best interests test’ is to look at matters from the incapacitated person’s point of view (Aintree University Hospitals NHS Foundation Trust -v- James [2013] UKSC 76).  As Munby J, as he then was, said in Local Authority X -v- MM & Another [2007] EWHC 2003 at paragraph 120: “Physical health and safety can sometimes be bought at too high a price in happiness and emotional welfare.  The emphasis must be on sensible risk appraisal, not striving to avoid all risk whatever the price, but instead seeking a proper balance and being willing to tolerate manageable or acceptable risks as the price appropriately to be paid in order to achieve some other good – in particular to achieve the vital good of the elderly or vulnerable person’s happiness.  What good is making someone safer if it merely makes them miserable?”’

Judicial review after BREXIT

  • Judicial review
  • The impact of BREXIT on the bringing of judicial review proceedings in the Administrative Court
  • Human rights law after BREXIT

Judicial Review

Judicial review is a procedure by which the High Court reviews the lawfulness of decisions made by public bodies, such as the departments of state, local authorities, and NHS bodies.

For more information please visit the Court of Protection and Judicial Review Proceedings page at www.ihtbar.com: http://newsite.carlislam.co.uk/mental-capacity-law-practice#Judicialreview

Although the three classic grounds for judicial review are:

(i)      illegality;

(ii)     irrationality (Wednesbury unreasonableness); and

(iii)    procedural impropriety,

the underlying principles are complex, multi-faceted, and continually being refined and developed by the judiciary, and include the setting aside of decisions which were ‘manifestly unjust, partial, made in bad faith or so gratuitous or oppressive that no reasonable person could think them justified.’ Kruse v Johnson [1898] 2 QB 91.

Judicial review involves scrutiny by the court of the decision-making process underlying a decision made by a public body which may be unlawful by reason of:

(i)     a breach of statutory duty;

(ii)    failure to consider relevant factors;

(iii)   consideration of irrelevant factors;

(iv)   an irrational act (i.e. the making of a decision which is absurd); and

(v)    fettering of discretion (i.e. the application of a policy so rigidly as to preclude the making of exceptions).

Permission is required from a judge to bring a judicial review case.

The impact of BREXIT on the bringing of judicial review proceedings in the Administrative Court

‘The Government has estimated that between 800 and 1000 secondary legislative measures will be required to implement the objectives of the Bill, and this figure is subject to change depending on the outcome of withdrawal negotiations and policy changes. 

… conventional challenges may be envisaged as arising from the vast mass of secondary legislation which will be needed to tear the patchwork fabric of EU law apart from our domestic law, and stitch it back as part of the domestic cloth. Quite how and where these issues will arise cannot sensibly be predicted at a stage when the final form of the necessary primary legislation has not yet emerged, and is being vigorously debated. Self-evidently, still less do we know what the mass of secondary legislation will look like. It currently remains to be seen what, if any, trade agreement will be negotiated; how the problem of the Irish border will be addressed; and how the devolution issues raised by Brexit will be accommodated. 

[It is clear that]:

  • First, there will be a vast mass of secondary legislation associated with our withdrawal from the EU.
  • Secondly, the opportunity for scrutiny of such delegated legislation will be extremely limited, both as a result of its sheer volume, and also because in practice (even in the best of times) such regulations receive relatively little parliamentary scrutiny, whether subject to affirmative or negative parliamentary approval.
  • Thirdly, at least a proportion of this legislation will involve potentially controversial policy issues, not simply mechanistic or anodyne amendments.
  • Fourthly, there will be real issues in determining the status and interpretation of an entirely novel category of law: retained EU law.
  • And finally, much of the legislation will be made pursuant to Henry VIII clauses which courts have been inclined to interpret strictly.

A wave of post-Brexit legislation may therefore readily be predicted. Legal uncertainty is a fertile breeding ground for litigation, and on any view the legal landscape after Brexit is an uncertain one… 

The impending surge in demands upon the court system in general, and the Administrative Court in particular, raises serious questions as to the capacity of the courts to cope. The system is already under severe strain.  On 2 November 2017 the Law Society suggested that a ‘no deal’ Brexit “could create a wave of litigation causing gridlock to UK courts”. But that spectre is plainly not limited to the ‘no deal’ situation, and is liable to arise in any event. This arises against the backdrop of the problem with recruitment to the judiciary in recent years, particularly acutely to the High Court Bench, to which no effective solution has yet been advanced. Already the Administrative Court is heavily dependent upon input from deputies, as review of the court list for any day will confirm. The Ministry of Justice is continuing to be subject to the most severe cuts: on 20 November 2017, justice minister Dominic Raab confirmed that the MoJ will have suffered a cumulative 40% cut in real terms in the fiscal decade ending in 2020. There is no sign of any plans being made to enable the judiciary and the Courts system to deal with the eminently predictable Brexit-related demands that will be placed upon them. It is hard to imagine even Sir Humphrey chuckling now.’ The EU Withdrawal Bill and Judicial Review: Are we ready? by Angus McCullough, Barrister, 1 Crown Office Row.

Human rights law after BREXIT

This begs a further question, namely, whether a remedy is available in judicial review proceedings when following BREXIT a decision potentially engages consideration of whether interference with a fundamental human right is justifiable?

In other words, after BREXIT, what human rights will be recognised and upheld by the courts as being sovereign under English law?

The practical consequences for business are potentially decades of ongoing uncertainty whilst industry bodies which have locus standii and deep pockets, bring JR proceeding, with leave, and within the limitation period, to test and determine the precise meaning and scope of any item of post-BREXIT legislation which affects the conduct of business and trade by its members. The actual legal consequences are unknown, and probably cannot be evaluated unless and until an impact assessment has been carried out in relation to each item of new legislation, which as part of the parliamentary process should be preceded by consultation and debate in both Houses of Parliament. Given the scale of the legislative exercise it is possible that this period of uncertainty could exceed 50 years. Is this understood by MP’s and voters?

 

 

 

 

The art of cross-examination at Christmas 2017

What is your cross-examination directed at eliciting and proving? – i.e. the existence of Santa Claus.

The aims of cross-examination are these:

(i)      To destroy the material parts of the evidence-in-chief – i.e. NASA have found no evidence of the existence of dwellings at the North Pole sufficient to accommodate a colony of Elves that is large enough to manufacture at least one toy for every child in the world – of course not as my expert witness (Mr Kris Kringle of 34th Street New York, New York) has clearly stated in his report, ‘they only exist in the dream world’ – really I thought everyone knew that!;

(ii)     To weaken the evidence where it cannot be destroyed i.e. that reindeer cannot fly – the case that I shall advance on behalf of my Client is that they only fly at night on Christmas Eve;

(iii)    To elicit new evidence, helpful to the party cross-examining i.e. the Christmas albums of Bing Crosby, Frank Sinatra, the great Nat King Cole, Andy Williams, Perry Como, Johnny Mathis; Deano, Rod Stewart, Michael Buble and Cliff – well why not it is Christmas …

(iv)    To undermine the witness (or shake his credit) by showing that he cannot be trusted to speak the truth, or that he is deposing (however honestly) to matters of which he has no real knowledge. i.e. I will demonstrate that Frosty the snowman has no peripheral vision whatsoever. I shall also prove that at all material times he was wearing woolen ear muffs.

The ideal to be aimed at is to lead the witness to admit that his evidence was untruthful or mistaken. How do you know that you saw Mummy kissing Santa Claus underneath the mistletoe? [then distract and use as an opportunity to get the witness to prove another fact i.e. that reindeer can fly].

My next question, as you no doubt correctly anticipated [i.e. flatter the witness to disarm], is that outside, the snow is falling, and friends are calling, “yoo-hoo!” – Yes? [then get the witness to gradually agree with you].

There’s a birthday party at the home of Farmer Gray – Yes?

It’ll be the perfect ending of a perfect day?

We’ll be singing the songs we love to sing without a single stop?

At the fireplace while we watch the chestnuts pop, pop, pop, pop?

There’s a happy feeling nothing in the world can buy?

When they pass around the coffee and the pumpkin pie?

It’ll nearly be like a picture print by Currier and Ives?

These wonderful things are the things we remember all through our lives?

Do you hear those sleigh bells jingling, ring-ting-tingling, too?

So reindeer fly?

In most cases, the objective is not so much to destroy the evidence outright, as to weaken it, that is to say to reduce the weight of the evidence and qualify the inferences which might be drawn from it. This objective is particularly important where the evidence is circumstantial, so that its damaging effect depends not so much on what is actually said as on what may be deduced from it. The witness may be induced to admit that other explanations are possible; or relentlessly probing into the details – as in cases where identification is in issue – may show that there is a possibility of a mistake. The eliciting of fresh evidence may lead to a new topic altogether. More often, however, the new evidence simply consists of facts which put a new colour on the evidence in chief. If this is done successfully, the result is not only to help in the building up of one’s case, but also, at the same time, to weaken the other side. Undermining – if successful – destroys the assumptions on which the reliability of the evidence depends. I.E. if Santa doesn’t exist then why was the mince pie invented? [Then extrapolate] How can you be sure that reindeer don’t like heights? After all don’t they bear an uncanny resemblance to mountain goats? – only with big red noses and antlers. Is it a coincidence that they both like carrots? What other possible explanation can there be – reindeer are an elevated species of mountain goat. QED I believe.

It does not follow that because an individual’s evidence is unreliable in some respects it is must also be unreliable in others.’ i.e. just because Gloria Estefan said that ‘all she wanted for Christmas was me’ [NB what she actually said was ‘you’ but that’s not how I heard it], it is not axiomatic that she did not also want a copy of my latest book on Contentious Probate – which incidentally is very reasonably priced at £79.95 and ordering links appear on the Publications page at www.carlislam.co.uk

Cross-examination requires the greatest ingenuity; a habit of logical thought; clearness of perception in general; infinite patience and self-control; power to read men’s minds intuitively, to judge their characters by their faces, to appreciate their motives; ability to act with force and precision; a masterful knowledge of the subject-matter itself; an extreme caution; and above all, the instinct to discover the weak point in the witness under examination. One has to deal with a prodigious variety of witnesses testifying under an infinite number of differing circumstances. It involves all shades and complexions of human morals, human passions, and human intelligence. It is a mental duel between counsel and witness. It is absurd to suppose that any witness who has sworn, positively to a certain set of facts, even if he has advertently stretched the truth, is going to be readily induced by a lawyer to alter them and acknowledge his mistake. People as a rule do not reflect upon their meagre opportunities for observing facts, and rarely suspect the frailty of their own powers of observation. They come to court, when summoned as witnesses, prepared to tell what they think they know; and in the beginning they resent an attack upon their story as they would one upon their integrity. If the cross-examiner allows the witness to suspect from his manner toward him at the start, that he distrusts his integrity, he will straighten himself in the witness chair and mentally defy him at once. If, on the other hand, the counsel’s manner is courteous and conciliatory, the witness will soon lose the fear all witnesses have of the cross-examiner, and can almost imperceptibly be induced to enter into a discussion of his testimony in a fair minded spirit, which if the cross-examiner is clever, will soon disclose the weak points in the testimony. By our manner toward a witness we may have in a measure disarmed him, or at least thrown him off his guard, while his memory and conscience are being ransacked by subtle and searching questions, the scope of which will hardly be apparent to himself; but it is only with the matter of our cross-examination that we can hope to destroy him.

Dasher, Dancer, Prancer, Vixen, Comet, Cupid, Donner, and Blitzen – are all professional dancers on ‘Strictly Come Dancing’ [which incidentally was very good this year] yes?

So you stay in on Saturday nights?

You also stay in on Sunday nights to watch the results show – don’t you!

And yet here you stand today telling us that your field of expertise includes ‘jingle bells’.

Not very likely is it?

In fact you have never been conveyed in a one horse open sleigh have you?

There are three principal techniques for undermining credibility. An advocate may suggest that a witness is:

(i)      being dishonest;

(ii)     inaccurate or inconsistent; or

(iii)    biased.

Alternatively, the advocate may seek to suggest some combination of (i) to (iii).

In cross-examination an advocate may either:

(i)       confront the witness with evidence that is inconsistent with their account;

(ii)      insinuate another version of events; or

(iii)     probe the witness’s evidence for flaws.

i.e. your childhood hero was Ebenezer Scrooge – was he not?

you worshiped his work ethic – didn’t you.

So you espouse thrift as a core value?

Your friends – if you had any, might call you ‘thrifty’ – is that not so?

Scroogle knew about Tiny Tim – didn’t he! [note I have got the fact at which my question is directed down to only 5 words].

Charity does not feature in your vocabulary – does it?

In the hierarchy of moral values – Scrooge comes first doesn’t he?

Neither of you shed a tear for poor Tiny Tim before the midnight chimes ran out through your empty house – which until then had been as quiet as a mouse. [NB not a moose!].

So why should we believe you when you say that you were visited by the Muppets at midnight on Christmas Eve?

Are you related to Kermie and Miss Piggy? – of course not – your evidence is nothing more than fantasy is it!

Confrontation, as the name indicates, consists of confronting the witness with a great mass of damaging facts which he cannot deny and which are inconsistent with his evidence. It is a destructive technique, but when it fails to destroy it may still succeed in weakening. Probing consists of inquiring thoroughly into the details of the story to discover flaws. It may be used either to weaken or destroy, or open up a lead to something new. Insinuation is a many-sided technique. In essence, it is the building-up of a different version of the evidence-in-chief, by bringing out new facts and possibilities, so that, while helping to establish a positive case in one’s own favour, at the same time it weakens the evidence-in-chief by drawing out its sting. Insinuation may take the form of quietly leading the witness on, little by little: alternatively it may be necessary to drive him. Thus there are two main forms of the technique, gentle insinuation and firm insinuation. The object of undermining is not to break down the evidence by inquiring into the facts, but to take away the foundations of the evidence by showing that either (i) the witness does not know what he is talking about, or (ii) if he does know the truth, he cannot be trusted to tell it.

Just as a party must in cross-examination challenge evidence of fact given in chief by a lay witness which is not accepted, so the opinions of an expert must be challenged if they are to be disputed. The purpose of cross-examination is to:

(i)     elicit support for your own case, and to weaken your opponent’s case; and

(ii)    put your client’s case (including as to the fact or content of documents) to the witness to afford the witness the opportunity to respond to it.

i.e. Santa Claus is also known by other names isn’t he?: for Santa anoraks please visit: https://www.wordhippo.com/what-is/the-meaning-of/swahili-word-106819fed9cd37eab541002dcf4e23899c833f98.html

[Although in Swahili Santa Claus means Santa Claus!].

The evidence is therefore overwhelming and without doubt points to only one conclusion – namely that there is a Santa Claus.

Effective cross-examination of an expert is no different than of any other witness: you must have a sound analytical approach to the witness so that you can determine whether to cross-examine and, if so, how to organize and execute the cross-examination to carry out realistically attainable goals. This approach involves the following basic considerations.

  1. Should you cross-examine? Not every witness needs to be cross-examined. If the expert has not hurt you, or if you have no effective points to make, or your own experts have been more persuasive, consider not cross-examining.
  2. How should the cross-examination be organized? All cross-examinations have two possible basic purposes: eliciting favourable testimony, and conducting a destructive cross. Eliciting favourable testimony ordinarily comes before a destructive cross. If the expert has substantially helped you by agreeing to helpful facts, consider not attempting a destructive cross at all, although you have destructive ammunition.
  3. Effective cross-examinations have a structure that starts strong, and keeps it simple. They maintain control over the witness by asking simple, leading questions and stop when the point is made.
  4. What favourable information can you elicit? Did the witness say things on direct that you can have her repeat on cross? Can the witness admit facts not yet mentioned that support your case? What must the witness admit that helps?
  5. What discrediting or destructive cross-examination can you do? Are the witness’s perception, memory, or communication skills vulnerable? Can the witness be impeached? Can you expose the witness’s bias, interest, or motive? Has she made prior inconsistent statements? Can the witness be impeached by a treatise?

A good approach to any cross-examination is to ask yourself: what will I say about this witness in closing arguments? Planning the cross-examination is then a matter of determining what facts you can realistically make the witness admit during cross-examination that support your planned closing argument.

There are besides, two rules of practice, firmly established in British courts, which must be complied with. The first is that the witness must be cross-examined on all material facts which are disputed. Otherwise the court will take it that his evidence is not contested. The second rule is that an advocate, in cross-examining must put to the witness the case he is going to set up, so far as it lies within the witness’s knowledge; such cross-examination is a necessary preliminary to the calling of contradictory evidence. A real artist will comply with the rule that he must challenge the adverse evidence not in any perfunctory and formal manner, but by using all the resources of his technique to weaken, undermine or destroy it. Likewise, instead of formally putting his case to obtain denials, he will try to insinuate it and build it up out of the witness’s own mouth. Sometimes of course, there is no scope for anything but a formal challenge.

e.g.

You better watch out

You better not cry

You better not pout

I’m telling you why

Santa Claus is coming to town

He’s making a list,

Checking it twice,

Gonna find out who’s naughty or nice.

He sees you when you’re sleeping

He knows when you’re awake

He knows if you’ve been bad or good

So be good for goodness sake

With little tin horns, little toy drums

Rooty toot toots and rummy tum tums

Santa Claus is coming to town

And curly head dolls that toddle and coo

Elephants, boats, and kiddie cars too

Santa Claus is comin’ to town

Then kids in Girls and Boy land will have a jubilee

They’re gonna build a Toyland town

all around the Christmas tree

So! You better watch out, you better not cry

Better not pout, I’m telling you why

Santa Claus is comin’ to town

[Then throw in a handful of latin phrases – whilst looking meek as if praying for the salvation of the witness’ soul]

En grege relicto

Humiles ad cunas,

Vocati pastores adproperant,

Et nos ovanti,

Gradu festinemus.

Venite, adoremus!

In general, if wishing to contest the opinion of an expert being called by our opponent, we can either contest the factual basis of the opinion, or we can contest the opinion itself. If the factual basis of the opinion is disputed, then we should be able to get the witness to agree in cross-examination that if the facts were as we contend, then his or her opinion would be different. If it is the opinion which we are contesting, on the other hand, then we will probably need to call our own expert witness.

There are six critical questions we can ask about experts:

  1. Expertise questions: How credible is E as an expert source?
  2. Field question: Is E an expert in the field that A is in?
  3. Opinion question: What did E assert that implies A?
  4. Trustworthiness question: Is E personally reliable as a source?
  5. Consistency question: Is A consistent with what other experts assert?
  6. Backup evidence question: Is E’s assertion based on evidence?

The expert’s possession of special expertise or knowledge is obviously the main foundational fact for expert opinion evidence; but it is not sufficient to prove some expertise at large. The expert witness must also be shown to be an expert in the field to which the issue about which they have been called to give evidence belongs.

i.e. I notice that your CV does not mention ‘walking in the winter wonder-land.’

You live in a picturesque chocolatebox village don’t you?

You must be very content?

So how do you know that Santa Clause ‘is not coming to town’?

An expert may be:

(i)     challenged as to credit in relation to his opinion as he may in respect of facts;

(ii)     asked to justify or deny particular opinions expressed on other occasions (including evidence given in similar cases) to cast doubt upon the opinions he has expressed in the present case;

(iii)   asked about his attitude to the parties, i.e. if it is suggested that he is biased; and

(iv)   questioned about whether he is or was not in a physical or mental state to express a proper opinion.

When cross-examining an expert witness the advocate’s aims specifically include:

(a)    limiting the witness’s apparent expertise. Narrow the extent of his or her expertise/experience by showing that it is not directly applicable to the case in question or, perhaps, by contrasting it to the experience of your expert;

(b)    showing that the witness has had less involvement/contact with the case than your expert;

(c)    showing your knowledge of the expert’s subject. Using your knowledge of the technical terms involved or the way in which any tests were carried out, the expert will be less inclined to avoid your questions. Contrast this approach with the way you may deal with an ordinary witness of fact by simplifying technical terms;

(d)     inviting the witness to define technical terms and sometimes in highly complex matters it may be necessary to invite the expert to use common language;

(e)    challenging his or her methods, for example showing that there were other tests that the expert could/should have carried out that might have produced a different result. Remember to check that the expert’s facts, calculations and methods do actually produce the results set out in his or her report and, if they do not, challenge the expert as this may undermine the confidence and credibility of the expert’s evidence;

(f)     inviting the witness to agree with the propositions that form the basis of your expert’s opinion – he or she is unlikely to disagree with everything your expert says, and you should know from your own expert those areas that are in dispute. Remember to ‘put your case’ to the expert by inviting him or her to deal with your expert’s methods/opinions/conclusions;

(g)    inviting the witness to agree that, in his or her field, legitimate differences of opinion frequently occur between qualified experts. This shows that the witness is not infallible and that his or her evidence is ‘opinion’ only; and

(h)    using hypothetical facts to test the strength of the expert’s opinion. Testing whether a different interpretation of the same facts or a slight change in those facts would affect the expert’s opinion.

Paragraph 5 of PD 35 provides,

Cross-examination of experts on the contents of their instructions will not be allowed unless the court permits it (or unless the party who gave the instructions consents). Before it gives permission the court must be satisfied that there are reasonable grounds to consider that the statement in the report of the substance of the instructions is inaccurate or incomplete. If the court is so satisfied, it will allow the cross-examination where it appears to be in the interests of justice.

Cross-examination of an expert witness is a hazardous undertaking. A witness under cross-examination does not want to agree with you. He will fight tooth and nail to confound you. He will misunderstand your questions. He will provide evasive answers. He will try to use your questions as an excuse to repeat the deadly features in his testimony which destroy your case. Unlike TV, a witness has no script which must be followed. He will try everything to wriggle out from under your questions. Every question in cross-examination is an invitation to disaster. It is an opportunity for the witness to hammer you and your case. So your first thought is don’t do it. Always start from the point of view: if I can avoid it, I will.

The advantage of a cross-examiner over even the most prepared witness is that only the cross-examiner knows which questions are going to be put next.

10 cardinal rules:

(i)      Always put your case to a witness in so far as it is relevant to that person’s evidence. Failure to do so may damage your case and may result in the witness being recalled.

(ii)     Keep your xx to what is absolutely necessary.

(iii)    Leading questions are permissible and should be used. Put propositions to a witness. Don’t give them a chance to give equivocal answers. Listen carefully to what they have to say. If a witness avoids answering the question put it again until he/she does.

(iv)    Do not ask multiple questions. Keep them short and keep a tight rein on the witness. You should be in charge.

(v)     Permissible – forceful/insistent. Impermissible – hectoring/bullying. XX does not mean being cross. Never lose your temper with a witness.

(vi)    Let the witness finish his/her answer, before proceeding to the next question. If a damaging answer has been given, pause before proceeding. Silence is golden. Let it sink in.

(vii)   Watch the judge’s pen. No matter how good the XX is, if the judge cannot record it, it may be lost. On a long trial, try to get a daily transcript if possible, it is very helpful for closing speeches.

(viii)  Never put questions on a false premise. It denudes the XX of its force and makes you look bad/ incompetent/unprepared.

(ix)    Never misrepresent a witness’s earlier answer.

(x)     Put questions, don’t make speeches/submissions. Don’t clutter the questions with comment – save that for closing.

Turkish delight and chocolate butter beans are only available in the same box as Brazil nuts in December – that is right isn’t it.

Cadbury’s selection boxes with puzzles on the back (including snakes and ladders) only appear in the shops at Christmas time don’t they?

You are not a Sainsbury’s shopper are you?

You have never heard sleigh bells in the snow have you?

In fact you were not even dreaming of a white Christmas when you gave your evidence were you?

Examine your concience.

Can you tell us truthfully whether you have you been naughty or nice this year?

Finally [the five golden rings question!]

Please turn to Bundle A, Tab 4 at page 108 – do you see what I see? – an exhibit as big as a kite? – a receipt marked ‘all items we supply have been certified as complying with Elf and Safety.’

Listen to what I say …

‘on the fifth day of Christmas DHL, who bring goodness and light, delivered –

Five golden rings!

Four calling birds,

Three French hens,

Two turtle doves,

And a partridge in a pear tree?’

What did DHL bring on the 12th day of Christmas?

You don’t know! – then either: (i) your recollection is unreliable; or (ii) [and pause for effect] You don’t believe in Santa Clause?

[Ask out loud the rhetorical question tinged with a hint of sadness for maximum emotional effect] What weight – if any – can be attached to the evidence of such a witness?

My Lord, I bring tidings of comfort and joy.

The only question you have to ask yourself is ‘do I believe?’

I submit that there is only one conclusion which can be reached on the facts in this case – and please think of the children when you deliver your ruling, silver bells, presents on the tree, and Christmastime in the City …

and that is, that Santa Clause does exist, and that he exists in the person of Kris Kringle.

So deck the halls with boughs of holly, strike the harp and join the chorus …

Merry Christmas and a Happy New Year to one and all wherever you may be.

May your days always be merry and bright!

Joyeux Noël et bonne année

Frohe Weihnachten und neues Jahr, Glückliches

Buon Natale e felice anno nuovo

Feliz Navidad, Próspero año y felicidad

Disclaimer

This is a work of fiction. Any similarity to actual persons, living or dead, or actual events, is purely coincidental.

The above is for use in training only and please do not attempt this at home either before during or after Christmas Day lunch!

For more! please visit the ‘Advocacy’ page at www.carlislam.co.uk

Parallel Breach of Fiduciary Duty Claims

Where a claimant seeks to have a will set aside on the grounds of fraudulent calumny, can a complimentary claim be brought for breach of fiduciary duty, e.g. where a residuary beneficiary in an attorney appointed under a LPA?

The underlying premise is that proof of a material non-disclosure e.g. by silence, demonstrates that the fiduciary does not have ‘clean hands’, in which case, on the wider application of general principles of equity, the fiduciary should not be permitted to gain from his dishonesty as a beneficiary under the LPA donor’s will.

In other words where there has been a parallel breach of fiduciary duty, the court should not uphold the disputed will.

As a matter of policy, this jurisdiction connects with undue influence, because fraudulent calumny is a specific type of fraudulent misrepresentation.

In my submission:

1.             the basic concept of fraudulent calumny is that if A poisoned the mind of B against C, i.e. as a natural beneficiary of B’s bounty, by casting dishonest aspersions on C’s character, then the disputed will is liable to be set aside by the court;

2.             the essence of fraudulent calumny is that A must either know that the aspersions are false or not care whether they are true or false; and

3.             ‘[So] if some person raises prejudices in the mind of the testator against those who would be the natural objects of his bounty, and by contrivance keeps him from intercourse with his relatives to the end that these impressions thus formed to their disadvantage may never be removed, such contrivance may be equivalent to positive fraud and may render invalid any will executed under false impressions so kept alive.’ Williams, Mortimer And Sunnucks, Executors, Administrators and Probate (19th Edition), paragraph 13-58. (Please note that the 21st edition is due to be published in October 2018).

Furthermore:

1.   [where] any money or property is concerned, [an attorney appointed to act under a lasting power of attorney] has a fiduciary duty to act as the donor’s agent and secure the proper management of the donor’s estate, for the benefit of the donor. The Mental Capacity Act 2005 furthermore takes the attorney into a new area of responsibility, requiring the attorney to make decisions where the donor lacks capacity, and which must be in accordance with the best interests criteria of the Act. The attorney must therefore take into account matters such as the donor’s past and present wishes and feelings, beliefs and values …’ (Paragraph 3.68 Court of Protection Practice 2017);

2.   [fraud] includes instances of deliberate misrepresentation. In Haygarth v Wearing [1871 12 L.R. Eq.320], the plaintiff…inherited a small estate worth at least £400. As she was not on very friendly terms with her brother she was not aware of this. The defendant, the brother’s friend … called on the plaintiff and informed her about the estate. But he deliberately misrepresented its value to her as £100 instead of £400) and offered to buy it at that price. The Plaintiff acting in ignorance agreed to sell it for £100. The conveyance was set aside as having been procured by fraud’, Duress, Undue Influence and Unconscionable Dealing (2006) by Nelson Enonchong, paragraph 17-023;

3.   in Christodoulides v Marcou [2017] the judge observed that because the party who made the fraudulent misrepresentations [‘A’] (which brought about the mistaken belief held by the deceased testator [‘B’] that resulted in the exclusion of her other daughter [‘C’] from her will), had failed ‘to correct what she [A] knew to be false when she [A] was a manager and trustee of [B’s] money [i.e. as a trustee of funds held in bank accounts where she was a joint account holder with the testator (i.e. her Mother [B]) – that in itself] was a [fraudulent] misrepresentation.’ As the judge put it,A’ therefore had a duty to speak because ‘silence will not do for a fiduciary’;

4.   it therefore appears that silence may constitute a breach of fiduciary duty which confers jurisdiction on the court to aside a will on the grounds of fraudulent misrepresentation;

5.   on general principles of equity, ‘[fiduciary] doctrine serves a protective function vis-à-vis non-fiduciary duties… [It] seeks to avoid situations in which a fiduciary’s personal interest conflicts with his non-fiduciary duty because there is in such situations an inherent temptation not to perform the non-fiduciary duty properly. The remedies for breach of fiduciary duties attempts to deter fiduciaries from acting in such situations, predominantly by removing any benefits that a fiduciary might obtain by acting in contravention of the fiduciary conflict principle. In other words, the remedies are the means by which fiduciary doctrine gives practical effect to its subsidiary and prophylactic protective function… Thus as Lord Chelmsford LC observed in Tate v Williamson [1866], a transaction between a fiduciary and his principal is liable to be set aside

“once it is established that there was a concealment of a material fact, which the [fiduciary] was bound to disclose”

If any material facts have not been disclosed, the principal’s consent is inadequate and the transaction can be avoided at the principal’s behest…’ Fiduciary Loyalty – Protecting the Due Performance of Non-Fiduciary Duties by Matthew Conaglen, pages 76 and 132; and

6.      ‘[if] from whatever combination of factual conditions, the parties in their relationship are so circumstanced that one is reasonably entitled to expect that the other is acting or will act in his interests, then that person should be entitled, on bare grounds of public policy, to have that expectation protected… The critical matter in the end is the role that the alleged fiduciary has, or should be taken to have, in the relationship. It must so implicate that party in the other’s affairs or so align him with the protection or advancement of that other’s interests that foundation exists for the “fiduciary expectation.” Such a role may generate an actual expectation that the other’s interests are being served.’ Fiduciary Obligations by Paul Finn 40th Anniversary Republication 2016, paragraph 161, 734, and 736.

The degree to which a claimant must satisfy the requirements in order to prove fraudulent calumny is the civil standard (i.e. the balance of probabilities). However the cogency and strength of the evidence required to prove fraud is heightened by the nature and seriousness of the allegation (Re Boyes [2013] EWHC 4027 (Ch) at paragraph 113). Therefore a high degree of proof is needed to meet that standard. The less likely an allegation is, the more convincing the evidence will have to be to prove it. Any allegation of dishonesty ought to be pleaded with the greatest particularity which is possible in the circumstances, and the court will be astute to ensure that any deficiency in the pleading does not cause prejudice to the opposite party in any fashion such as not having the opportunity to prepare or present his case as he may wish if he knew fairly what the allegation was against him.

CPR, r. 57.7(4)(c) states,

‘Any party who wishes to contend that –

(c)   the execution of a will was obtained by undue influence or fraud, must set out the contention specifically and give particulars of the facts and matters relied on.’

Furthermore, any such contention should only be made where there are reasonable grounds to support it.

Paragraphs 10.1 and 10.2 of the Chancery Guide 2016 state:

‘10.1 In addition to the matters which PD 16 requires to be set out specifically in the particulars of claim, a party must set out in any statement of case:

·      full particulars of any allegation of fraud, dishonesty, malice or illegality; and

·      where any inference of fraud or dishonesty is alleged, the facts on the basis of which the inference is alleged.

10.2 A party should not set out allegations of fraud or dishonesty unless there is credible material to support the contentions made. Setting out such matters without such material being available may result in the particular allegations being struck out and may result in wasted costs orders being made against the legal advisers responsible.’

On a personal note, may I take this opportunity to wish all readers of my posts this year a joyous Christmastime and a happy, peaceful, and prosperous New Year.

Joyeux Noël et bonne année,

Frohe Weihnachten und neues Jahr, Glückliches

Buon Natale e felice anno nuovo,

Feliz Navidad, Próspero año y felicidad.

US objects to new UK- WTO agricultural quotas schedule being established using “technical rectification”

·    Introduction

·     Requests for compensation

·     No impact assessment

·     The TRQ challenge

·     US objection

Introduction

The EU has taken the final formal step to implement the decisions taken at the Nairobi World Trade Organisation (WTO) Ministerial Conference in 2015 on eliminating farming export subsidies. In a Press Release 06.10.2017 the European Commission announced,

‘The EU today submitted its revised goods schedule to the WTO which, on top of reconfirming the elimination of export subsidies, also includes the outcome of other recent negotiations, including those linked to EU enlargements.

This will bring the commitments on things like tariffs and farming subsidies that the EU and the 28 Member States have toward our trade partners up to date under WTO rules. This is ahead of the next Ministerial Conference which will take place in Buenos Aires from 10 to 13 December 2017.

The decision to eliminate farming export subsidies was taken by Trade Ministers in December 2015 during the 10th WTO Ministerial Conference in Nairobi, Kenya. The decision, apart from eliminating farming export subsidies, also introduced new rules regarding other types of farming export support, including export credits.’

In ‘Brexit, Trade and Agriculture: Waiting for Answers’, published 04.12.2017, Joseph A McMahon, Full Professor of Commercial Law, UCD Sutherland School of Law, University College Dublin wrote,

‘In the absence of agreement on the proposed trade agreement at the end of the withdrawal negotiations, or an interim agreement, the default position will be that the UK would have to trade with the EU on World Trade Organisation (WTO) terms. These terms will also apply to the UK’s trading relationship with all other countries once it leaves the EU as it will no longer be able to benefit from trade agreements concluded between those countries and the EU…

When the UK leaves the EU, it will have been just over forty-six years since it had its own Schedules in the GATT, so a new Schedule of Commitments will be needed as will an amendment to the EU Schedule. These will be submitted to the WTO’s Director General who will inform other WTO members of the Schedules. The Director General will certify/record these unless another Member objects to certification; in this event there will be informal consultations and if these fail there will be formal negotiations under Article XXVIII GATT and if these fail, recourse can be had to the Dispute Settlement Understanding.

a. Market Access

Under Article 4.1 AoA, the market access concessions contained in Schedules relate to bindings and reductions of tariffs. In answer to the question as to level of tariffs that the UK will impose with respect to agricultural products, it should be noted that the EU Agricultural Tariff Schedule is extraordinarily complicated, so the UK might take the opportunity to reduce the level of tariffs on certain products e.g. those not produced in the UK. It must be remembered here that the UK is a net-food importing country and once it leaves the EU as it is no longer bound by the principle of Community preference, imports may come from any source.

In addition to reducing the level of tariffs, Article 4 also provides for the tariffication with Article 4.2 providing that members are not to “maintain, resort to, or revert to any measures of the kind which have been required to be converted into ordinary customs duties” which are detailed in a footnote to this provision as being:

… quantitative import restrictions, variable import levies, minimum import prices, discretionary import licensing, non-tariff measures maintained through state-trading enterprises, voluntary export restraints, and similar border measures other than ordinary customs duties, whether or not the measures are maintained under country-specific derogations from the provisions of GATT 1947, but not measures maintained under balance-of-payments provisions or under other general, non-agriculture-specific provisions of GATT 1994 or of the other Multilateral Trade Agreements in Annex 1A to the WTO Agreement.

So, these are measures that the UK will not be able to rely on post-Brexit.

To maintain the situation prevailing at the time of tariffication, the AoA provides that quantities imported before it took effect could continue to be imported, and it guaranteed that some new quantities were charged duty rates that were not prohibitive. This was realised through tariff-quotas i.e. lower tariff rates for specified quantities, with higher rates for quantities that exceed the quota. So, all of the current 87 existing EU agricultural tariff quotas have their origins in the implementation of Article 4 and in the latest EU notification concerning imports under tariff quotas for 2016, some 27 products are listed as having a fill rate of 100% and of the remaining 37 products in the notification, eleven had a fill ratio of 0%.

So, the question is; can the EU’s tariff quotas be “divided” between the UK and the EU? One starting point is to undertake a detailed examination of the existing tariff quotas in the EU Schedule to determine if the UK is the major/principal beneficiary of those quotas. If so, there is an argument that the tariff quota in the new UK Schedule should match the traditional pattern of trade for a particular product with a consequent reduction in the EU Schedule for that product. One example here is the tariff quota for Angus Beef in the Korean Schedule – maintaining this tariff quota will require the EU to agree to allocate this tariff quota to the UK and if it does not, this would require the UK to undertake negotiations with Korea to retain its existing market access for this product.10 If one Member State were to object to the allocation of this particular quota to the UK, it is unlikely that the UK will be able to demand that its current status on the Korean beef market be maintained. In answer to the question of whether the existing tariff quotas can be divided, it is not clear whether tariff quotas arising under the AoA can in fact be split. If possible, it is probable that some WTO members may object to new tariff quotas coming into existence in 2019 rather than 1995.

This has indeed happened. On 11 October the UK and the EU notified the other members of the WTO that the UK would leave the EU at the end of March 2019 by which time the UK will have notified the WTO of its own separate schedules of commitments for goods and services. Until 2019 the UK will have to respect the EU’s Common Commercial Policy. The notification went on to note:

… the EU and UK intend to maintain the existing levels of market access available to other WTO Members. To this end, we intend that the future EU’s (excluding the UK) and the UK’s (outside the EU) quantitative commitments in the form of tariff-rate quotas be obtained through an apportionment of the EU’s existing commitments, based on trade flows under each tariff-rate quota. In doing so, we propose to follow a common approach, inter alia to data and methodology, and to engage actively with WTO Members on these.

The notification concluded by committing the UK and the EU “to engaging with the WTO Membership in a spirit of cooperation, inclusiveness and openness on these matters over the course of the coming weeks and months.” It is clear that some WTO members are not happy with the proposed approach to the division of tariff quotas as even before the letter from the UK and the EU, seven WTO members had expressed their concerns.

A letter from the Geneva representatives of Argentina, Brazil, Canada, New Zealand, Thailand, the United States and Uruguay suggested that the proposed division of tariff rate quotas based on historical averages was unacceptable as it would not fully honour existing tariff quota commitments. The proposed technical rectification was deemed unacceptable with the seven arguing that negotiations were needed between the UK and the EU on the one hand and, on the other hand, “the countries which are holders of Country-Allocated Tariff Rate Quotas into the European Union market, users of Most Favoured Nation Tariff Rate Quotas as well as holders of initial negotiating rights and principal and substantial interests in several concessions.” It seems that further discussions will be necessary before a definitive answer emerges to the question of what will happen to existing EU tariff quotas.

Another problem arises as a result of the process of tariffication, namely the ability to use Article 5 AoA which offers protection against import surges, provided that the products has been designated in a Member’s Schedule with the symbol SSG. Thirty-nine WTO members have reserved the right to use Article 5, including the EU who indicated that it could be used for a total of 539 products. The latest notifications by the EU indicates that the SSG had been used 36 times in the 2015/16.14 In answer to the question whether the UK would be able to use Article 5, it is difficult to imagine other WTO members agreeing that after 24 years of not being able to use Article 5 that the UK can rely on Article 5. So, it may be unlikely that the UK will be able to invoke a special safeguard measure…

In the context of the Agreement on Agriculture, the proposed division of existing EU tariff quotas between the UK and EU has been objected to by a number of WTO members. Further discussions will be needed to ensure that the final agreement is more than a technical rectification. Whilst it is unlikely that the UK will seek to use export subsidies as the EU has already moved to implement the Nairobi decision, it is less clear what the UK’s commitment on domestic support will be. A decision on this matter will reflect the nature of UK agricultural policy post-Brexit. Discussions on this to date suggest that an ecosystems services approach will be taken to domestic support which will have to be compliant with the terms of the Green Box. However, discussion on the future shape of UK agricultural policy have not yet progressed sufficiently for the promised Agriculture Bill to emerge. Whether the Bill provides for a UK-wide policy or allows each of the devolved administration to pursue a more nuanced approach to domestic support remains an unanswered question. It entirely possible that the Agriculture Bill could provide for the transfer back to the devolved administrations of competence in agriculture if common provisions are not needed. It also far from clear what the nature of the future trading relationship between the EU and UK and whether it will be a new deep and special relationship as suggested by the UK Prime Minister. Whilst the EU (Withdrawal) Bill provides for regulatory convergence as the UK leaves the EU, regulatory divergence is bound to emerge, if for example, new rules are adopted post-Brexit by the EU or when the UK relaxes existing rules as part of trade deal post-Brexit with a third country.’

Requests for compensation

‘When a panel or the Appellate Body concludes that a measure is inconsistent with a covered agreement, it “recommends” that the member bring the measure into conformity with the agreement, and may “suggest” ways in which the member could implement the recommendation … Within thirty days of the adoption of a panel or Appellate Body report , the member must tell the DSB of its intentions as regards the implementation of the recommendation.

Compensation is voluntary. But if the member fails to comply with the recommendations and rulings within the reasonable period it must, if so requested, enter into negotiations with the other party with a view to agreeing compensation. If that cannot be agreed, any complaining party may ask the DSB to authorize it to take countermeasures (Article 3(7) and 22). Countermeasures (coyly referred to in the DSU as “retaliatory action” or “suspension of concessions”) are temporary measure available in the event that recommendations or rulings are not implemented.’ Handbook of International Law by Anthony Aust, page 357.

No impact assessment

The government has not carried out any impact assessments of leaving the EU on the UK economy, Brexit Secretary David Davis told MPs 06.12.2017.

It therefore appears that no economic impact assessment has been undertaken of the consequences of trading under WTO rules.

The TRQ challenge

‘Defining the problem

When a country joins a customs union (CU), the acceding member adopts the CU tariff schedule. Where this results in a loss of market access for third countries, because custom union tariffs are higher than the bound tariffs the acceding country had scheduled in the WTO, third countries have a right to seek compensation (for example, countries such as Australia, Argentina, Brazil, China and Uruguay submitted claims for compensation when Croatia acceded to the EU in July 2013). All contingency trade measures (antidumping, anti-subsidy and safeguards) equally apply to the acceding members.

In the case of quantitative market access commitments, such as tariff rate quotas (TRQs), these are conventionally added to those of the CU. Similarly, commitments in the areas of domestic support and export subsidies are added to those of the CU. In practice, these changes in the CU’s commitments will be reported in its annual notifications to the WTO and will not be challenged by other WTO members, even if the implicit changes to the CU’s schedule of commitments are never formally approved.

Going in the opposite direction following the exit of a CU member is not so easy, particularly when that member was a member of the EU when the current WTO commitments were agreed following the Uruguay Round in 1994. There is no evident baseline to which these commitments can be rolled back. So how to establish what the UK’s agricultural policy WTO commitments would be following a possible Brexit?

In my view, this will require a two-stage process. The first stage will be a matter for negotiation between the UK and the EU27 (here used to mean the current EU28 member states less the UK, and not the EU prior to the accession of Croatia)… [The] procedures for leaving the EU were first set out in the Treaty on European Union, whose Article 50 provides, inter alia:

The Treaties shall cease to apply to the State in question from the date of entry into force of the withdrawal agreement or, failing that, two years after the notification referred to in paragraph 2, unless the European Council, in agreement with the Member State concerned, unanimously decides to extend this period.

One of the issues in negotiating the withdrawal agreement will be to decide how some of the EU28’s WTO commitments (for example, on import access) and concessions it has obtained (for export sales) should be apportioned between the UK and the EU27. Where the latter has obtained dedicated export rights (for example, through pre-allocated quantities in a bilateral tariff rate quota (TRQ)), changing this would require the consent of the importing country which seems an unlikely expectation. In these cases, the most likely outcome is that the TRQ would remain with the EU and the UK would lose its market access under that TRQ following Brexit. However, in the case of import TRQs there is a more realistic possibility that these might be divided between the UK and the EU27 if there were a will to do this. An allocation of the EU’s current domestic support commitments would also be required.

In such situations, there would then be a second stage within the WTO where other members would have to agree to this apportionment. This should not be taken as a foregone conclusion. If some WTO members felt that the agreed division of commitments discriminated against their market access entitlements or nullified some of their expected benefits under the WTO agreement, they might seek improvements or compensation in lieu.

WTO agricultural policy commitments

Let us conduct a thought experiment to see how these two stages might play out in the case of the WTO agricultural policy commitments.

With respect to tariff bindings, the UK would most likely inherit the EU’s bound tariffs which for most tariff lines are also the EU’s applied tariffs. This is not likely to be controversial in a WTO context. The UK could of course set its future applied MFN tariffs below this level but it could not exceed them.

There might be less agreement that the UK could inherit the ability to use the special safeguard on selected imports but the UK would have a strong case that it would be entitled to these provisions if it wished to make use of them.

As noted above, tariff rate quotas (TRQs) would be a more problematic issue. Some EU import TRQs are particularly important for the UK because a significant share of in-quota imports is destined for the UK market, such as butter from New Zealand. Whether the EU would want to share these quotas would be a matter for negotiation in the withdrawal negotiations. One could envisage that a more protectionist EU might be only too delighted to offload a larger than pro-rata share of its TRQs to the UK.

Getting agreement on any TRQ divvy up at the WTO would be more difficult. This is because different countries have different dependencies on the UK vs EU27 markets. No matter what allocation key is used, some third countries are bound to be aggrieved and feel that their exports (either to the UK or EU27 markets) would now face greater market access difficulties than before. If no agreement is forthcoming at the WTO, this could lead to a formal dispute over claims for compensation. To avoid this, or to be in a better position to defend such cases, the more objective the basis for the allocation and the more consistently it is applied across all TRQs, the better the chance of a successful defence.

Note my conclusion above that, in the case of bilateral export TRQs, these would probably stay with the EU and the UK would lose its existing market access rights. At this stage, I have not investigated how many such bilateral TRQs exist and how important they are for the UK. The UK could still compete, of course, for access under WTO multilateral TRQs as a WTO member outside the EU.

The UK will also want a share of the EU’s Bound Total AMS commitments which, together with its de minimis limits of product-related and non-product-related distorting support, represent the limit on the amount of trade-distorting support it can provide. At the moment the EU28 does not make full use of its Bound Total AMS, and its Current Total AMS is well below its bound ceiling. The apportionment of the AMS is unlikely to prove contentious as the UK is not likely to want to increase its use of trade-distorting support after Brexit. Some allocation key such as the relative shares in the value of gross agricultural output is likely to be used and would not meet with objection at the WTO.

The apportionment of export subsidy entitlements will not be an issue. Following the Nairobi Ministerial Council meeting of the WTO in December last year, the EU and all other developed country members agreed to eliminate remaining scheduled export subsidy entitlements with immediate effect (with some limited exceptions which will expire in 2020). As the negotiations leading to a withdrawal agreement are very unlikely to be completed by then (in my previous post I speculated that the date for a possible Brexit would be 1 January 2021), subsidies on agricultural exports will be prohibited by the time that this happens.

Bilateral trade agreements

The most complicated set of issues relates to the extent to which the UK will inherit the rights and obligations under the EU’s bilateral and regional trade agreements (RTAs). This is simply because of the number and detail of the provisions of these agreements, compared to a single WTO agreement (albeit with many individual chapters). I assume that in all cases the UK would intend to continue these agreements after Brexit to the extent that the other partners agree.

In all cases, because these are mixed agreements (meaning that they cover provisions that fall under member state responsibility under the Treaty of Lisbon) the UK is already in a legal relationship with the partner countries having separately ratified these agreements. Nonetheless, at a very minimum, a Brexit would imply textual changes to these agreements to recognise that the agreement is now with the UK directly and not through the EU. This would imply a process of ratification both by the UK and by each of the individual partner countries.

However, more than textual changes are likely to be required. Take again the issue of TRQs. which are widely used in bilateral trade agreements to address market access for sensitive agricultural products. Through its RTAs, the EU both gives and receives TRQ access to and from its trading partners. TRQ imports are important to the supply chains for various food processing industries in the UK. The notable example is sugar where the Tate and Lyle sugar refinery depends on access to duty-free sugar imports from ACP countries for its viability.

These sugar imports enter under Economic Partnership Agreements which are the EU’s RTAs with these countries (in this specific case, the UK could continue to import sugar from the least developed ACP countries under WTO rules but it could not offer duty-free access to other ACP countries without a comprehensive RTA with these countries). Of course, without separate UK RTAs with these countries, it could lower its applied MFN duty on sugar which would then apply to all countries including Brazil. Brazil would likely take the lion’s share of UK sugar imports under that scenario.

It is unlikely that the UK’s exit would require any alteration of the TRQ quantities in existing EU RTAs even if the agreements would now be only with EU27 rather than EU28 (in the same way as enlargement of the EU does not lead to any automatic change in these TRQ quantities in existing RTAs).

There are two conceivable options. One is that the EU27 and the third countries concerned voluntarily agree to renegotiate a division of the existing TRQs (both those of the partner country giving access to EU28 exports and those of the EU28 giving access to the partner country). This strikes me as highly implausible. On the EU side, it is very unlikely to want to go through the process of re-ratifying its 33 regional trade agreements to date. Approval of trade agreements now requires a time-intensive process including impact assessments and the involvement of both the Parliament and the Council, with the risk of unexpected pitfalls along the way.

The time pressure on the EU which is already engaged in negotiating a wide range of complex new agreements also means that it has no incentive to adjust its existing RTAs just to facilitate the UK which, after all, would be the one wanting to walk away from the EU. This option is also not attractive to the partners because, by definition, it reduces their market access. A TRQ dividing into binding limits in two markets is less valuable that the same TRQ with the flexibility to switch exports between two markets. I thus cannot see an incentive on either side to pursue this option.

The other option is for the UK to negotiate its own market access arrangements for these sensitive commodities as part of a full renegotiation of bilateral RTAs with these countries. It could decide to offer an additional TRQ or even abolish the sensitive status of the import and offer duty-free access. However, this implies simultaneous negotiations with the same 50 or so partners that are party to the EU’s over 30 RTAs.

It is important to underline that the UK cannot simply offer a bilateral quota to supplier countries to ensure continued access to supplies. Bilateral quotas are only WTO-compatible if agreed within the context of an RTA and, in turn, an RTA is only WTO-compatible if it covers ‘substantially all trade’ and if it is phased in ‘within a reasonable period of time’ (often taken to mean ten years). There is thus no alternative to concluding new comprehensive RTAs with these trading partners if the market access provisions (in both directions) are to continue.

To put it mildly, this will be a difficult balancing act to be achieved under considerable time pressure during the prescribed renegotiation period for withdrawal once the UK formally announced it wished to exit. All of these new agreements would have to be in place by the time of the formal end of the exit negotiations to avoid disruption of supply chains. While countries routinely use the possibility to provisionally apply the tariff concessions contained in an RTA before all the formal ratification steps are completed, there must be a strong possibility of disruption to particular UK supply chains which are dependent on access to duty-free supplies under existing EU RTAs in the wake of a possible Brexit.

Conclusion

Advocates of a UK withdrawal from the EU argue that the WTO provides a clear alternative to EU membership. This post asks the question what would its WTO commitments be with respect to agricultural policy in the event of a Brexit, and how would WTO rules affect its current trade flows?

The answers are not likely to be controversial in the case of tariff bindings or domestic support commitments, but its WTO commitments could create difficulties in the case of imports and exports under tariff rate quotas.

Also, WTO rules on non-discrimination imply that it may not be easy to maintain the market access granted under the EU’s RTAs without full-fledged negotiations to agree parallel agreements with the 50 or so countries that have signed free trade agreements with the EU. While signing new agreements outside the EU is certainly feasible, whether these can be in place before the end of the withdrawal period from the EU is a moot point.

There must be a high risk that Brexit would lead to disruption to supply chains (in the case of imports) and to export sales. Also, the time pressure on the UK to secure agreements will leave it in a relatively weak bargaining position vis-à-vis its trade partners implying that it may have to yield more concessions than might otherwise be the case in order to secure these agreements.’

WTO dimensions of a UK ‘Brexit’ and agricultural trade by Alan Matthews 05.01.2016. http://capreform.eu/wto-dimensions-of-a-uk-brexit-and-agricultural-trade/

(Professor Emeritus of European Agricultural Policy in the Department of Economics at Trinity College, Dublin, Ireland. His major research interests are agricultural policy analysis, the impact of international trade on developing countries, and computable general equilibrium analysis of trade and agricultural policy reforms).

See also Agriculture & Horticulture Development Board (‘AHDB’) Horizon Report, ‘The WTO and its implications for agriculture’: https://ahdb.org.uk/documents/Horizon_june2017.pdf

US objection 

‘The Trump administration has joined a group of countries objecting to a deal between the UK and EU to divide valuable agricultural import quotas, in a sign of how the US and others plan to use Brexit to force the UK to further open its sensitive market for farm products. President Donald Trump has been one of the most prominent international backers of Brexit and has vowed quickly to negotiate a “beautiful trade deal” with the UK after it leaves the EU. But his administration’s objection to a preliminary plan, agreed to by Brussels and London over how to split the EU’s existing “tariff rate quotas” under World Trade Organisation rules after the UK assumes its own WTO obligations following Brexit, illustrates how Washington is likely to drive a hard bargain. It also undermines efforts by Theresa May’s government this week to portray the WTO deal with the EU as a significant win, something made doubly painful by Mr Trump’s past backing of Brexit. The risk for the UK is that as part of its post-Brexit transition in the WTO it may have to accept opening up access to agricultural goods from third countries far more than it wants — even before it agrees any new trade deals with such countries. A spokesman for Britain’s department for international trade said on Thursday that the EU-UK plans would be discussed “extensively with our partners in the WTO before proceeding”, in a reference to the UK’s desire to avoid a bruising battle in the WTO on the issue. Britain was seeking a “smooth transition which minimises the disruption to our trading relationships”, he said. But the US joined other major agricultural exporters including Argentina, Brazil and New Zealand in signing a letter sent last week to the EU and UK’s WTO ambassadors objecting to the plan to split the quotas that cover everything from New Zealand butter and lamb to US poultry and wheat. Under WTO rules, those country-specific quotas allow low-tariff imports up to a certain volume with tariffs increasing after that. As such, they are hugely valuable to countries such as Argentina and New Zealand that depend heavily on agricultural exports and the powerful farm lobby in the US. While the UK was a founding member of the WTO and one of the first signatories of its predecessor, the General Agreement on Tariffs and Trade, its membership obligations until now have been managed by the EU. The EU-UK plan calls for the existing EU quotas to be split between the EU and UK after Brexit based on historical imports and consumption patterns. The US and others, however, argue that method is unfair as it would effectively allow the EU to reduce its obligations to fellow WTO members and set a low bar for the UK as well. “Such an outcome would not be consistent with the principle of leaving other [WTO] members no worse off, nor fully honour the existing TRQ access commitments. Thus, we cannot accept such an agreement,” the countries wrote. Emily Davis, spokeswoman for Robert Lighthizer, the US trade representative, said neither the EU nor the UK had presented any written plan for how to handle the WTO quotas to Washington. But the Trump administration was “actively engaged with its trading partners on the future of UK and EU tariff rate quotas following Brexit”. “Ensuring that US exporters of food and agricultural products have the market access in Europe due to them even after Brexit is a high priority for the administration,” she said. The UK and EU are due to present their plan to other WTO members during the week of October 16 when trade negotiators descend on Geneva for what is known as agriculture week. European diplomats have emphasised the importance to both the EU and the UK of striking a deal on dividing up of TRQs.

Brussels is keen to avoid having to maintain EU TRQs at their current size after Brexit, something that would put increased pressure on its farmers once Britain leaves. For Britain, the stakes are potentially much higher, given the UK’s need to establish itself independently at the WTO in any Brexit scenario. The talks are bound up with other WTO issues that Britain needs to settle, such as what share it should take of the EU’s rights to subsidise its farmers. Among the UK’s plans is to ask that its new agricultural quotas schedule be established using a method called “technical rectification”, which would avoid having to secure approval from other WTO members. But in their letter to the EU and UK ambassadors the US and other signatories objected to that method as well. “The modification of these TRQ access arrangements cannot credibly be achieved through a technical rectification,” they wrote. “None of these arrangements should be modified without our agreement . . . In the case of substantial changes affecting the balance of concessions, the whole membership of the organisation may take an interest.” The UK redoubled its backing for the approach on Thursday. “We still believe that technical rectification remains the most appropriate procedure for introducing UK schedules into the WTO,” the UK trade department spokesman said, adding that Britain was “committed to working constructively and openly with our international partners throughout the process.”’

Trump rejects May’s post-Brexit agriculture deal with EU – US expected to drive hard bargain as UK assumes its own WTO obligations, FT, 05.10.2017.

 

 

 

 

 

 

Christodoulides v Marcou [2017] (High Court) – Fraudulent Calumny

‘The calumny must induce the change in the testator’s intentions. The challenger must prove that on the balance of probabilities. If it is possible that the calumny did induce the change, but the court is not persuaded on the balance of probabilities that it did induce the change, the challenge will fail. If there are other possibilities or other explanations and those other explanations persuade the court to find on the balance of probabilities that the calumny did not induce the change, the claim will fail.’ Christodoulides v Marcou [2017].

  • The concept of fraudulent calumny
  • The facts in Christodoulides v Marcou
  • Pleading fraudulent calumny
  • The burden of proof
  • The correct test of causation or inducement
  • Conclusion

The concept of fraudulent calumny

The basic concept of fraudulent calumny is that if ‘A’ poisons the testator’s (‘T’s’) mind against ‘B’, who would otherwise be a natural beneficiary of T’s bounty, by casting dishonest aspersions on his character, then the will is liable to be set aside.

The essence of fraudulent calumny is that the person alleged to have been poisoning T‘s mind must either know that the aspersions are false or not care whether they are true or false. If a person believes that he is telling the truth about a potential beneficiary then even if what he tells T is objectively untrue, the will is not liable to be set aside on that ground alone (Re Edwards [2007]).

The facts in Christodoulides v Marcou

In Christodoulides v Marcou [2017] (High Court) (Chancery Division) 26/10.2017, the facts were that, ‘By [her] will, [T] appointed [A] to be her executor and the trustee of the will. Under the will, after payment of any debts and expenses, the entire residuary estate was left to [A]. Clause 3 of the will contained a declaration by [T] that she had not made any provision in the will for [B]. [A] issued these proceedings [asking] the court to pronounce for the will in solemn form. [B] defended the claim by alleging that the will was procured by the fraud of [A] practised on her mother. The conventional legal phrase for such a plea is that there was a fraudulent calumny. [B] alleged that [A] committed a fraudulent calumny of her to her mother and as a result the mother made no provision for [B] in the mother’s will. [B] counterclaimed a declaration that the will was invalid and there being no other valid will that [T] had died intestate. [A] served a Reply and Defence to Counterclaim. In relation to [B’s] case that there had been a fraudulent calumny, [A’s] Reply pleaded:

“The elements of a claim in fraudulent calumny is that the person alleged to have committed fraud has poisoned the mind of the testatrix by casting untruthful aspersions about, or making untruthful allegations against, other potential beneficiaries, which caused the discretion and will of the testatrix to be overborne; and that such aspersions were made either knowing that they were false, or not caring whether they were true or false.”

In assessing [A] and [B] as witnesses the Recorder found, [A] to be a thoroughly dishonest and manipulative individual to whom integrity and truth are less important than achieving what she wants, even when she knows she is not entitled to it’, and that [B] ‘was a calm and sensible witness who dealt with all questions some of which were difficult and personal put to her in a convincing fashion. Her evidence obviously needs to be compared to the contemporaneous documents but there is nothing in that process or her evidence in general which causes me to doubt her evidence. I would observe that although [B] is able to give evidence about what she saw, much of her case must inevitably depend on what was going on between [A] and [T] which [B] did not see or hear. In this respect, evidence other than [B’s] is important.’

Pleading fraudulent calumny

In relation to the pleading of an allegation of fraudulent calumny the Recorder also observed, ‘Any allegation of dishonesty ought, in my view, to be pleaded with the greatest particularity which is possible in the circumstances. The Court must be astute to ensure that any deficiency in the pleading does not cause prejudice to the opposite party in any fashion such as not having the opportunity to prepare or present her case as she may wish if she knew fairly what the allegation is against her… The representations in a calumny case are not made to the claimant and can almost never be pleaded with the same degree of precision or particularity as would be expected in a commercial fraud case. The representee is dead and, if the claim is made good, has gone to his or her grave with the poison having done its work. In this particular case, much has been learned as the evidence emerged … I have read [B’s] pleading with care and, whilst not perfect, it is sufficient in my judgment to support the case which has been advanced. Although it is true that some of the points … were not part of [B’s] pleaded complaint, they have been introduced by [A] to explain [T’s] belief other than by reference to her fault. Both sides have freely investigated the points and the evidence has been taken without a murmur of objection. Most influentially of all, it has caused no prejudice. If the point had been pressed before closing submissions, it might (I do not put it higher) have led to an application to amend. I can think of no witness who might have been called but who was not and no line of questioning which might have been followed which was not. An objection of this kind at the stage it was raised is without substance in the circumstances of this case and I reject it.’

In refusing permission to appeal, Mr Justice Morgan stated,

[Counsel for A] submitted that the Recorder should have held [B] strictly to this pleading and he relied on what was said by Lord Millett in Three Rivers DC v Bank of England (No 3) [2003] 2 AC 1 at [183] – [190]. In that passage, Lord Millett explained what is required for a proper plea of fraud or dishonesty. He also explained what is required by way of sufficient particulars in support of such a plea. In the same case at [47], Lord Hope of Craighead explained that if the particulars support the allegation of fraud or dishonesty then the question as to whether the pleading is supported by evidence is to be determined at the trial and not at the pleading stage. Lord Hope at [50] also approved the comments in McPhilemy v Times Newspapers Ltd [1999] 3 All ER 775 at 792J-793A as to the respective roles played by pleadings and by witness statements. In his judgment at [147] – [150], the Recorder dealt with a similar point to the one I am now dealing with … I agree with the Recorder that the matter was adequately pleaded. I do not accept that the Recorder was at fault in not confining the evidence at the trial so as to exclude parts of it. In any case, counsel then appearing for [A] made no such application to the Recorder before the evidence was given. Counsel engaged with all of the evidence which was called and cross-examined all of the witnesses called for [B]. Indeed, counsel for both parties prepared a lengthy and thorough statement setting out proposed findings of fact. There were altogether some 82 proposed findings of fact. In relation to each finding, each counsel set out a full list of evidence relied upon including transcript references. All of the matters to which objection is now taken were included in the findings of fact which the Recorder was asked to make. Accordingly, the Recorder was in no way at fault in making the findings which he did …

The burden of proof

[Counsel for A] relied heavily on the decision in Re Hayward now reported at [2017] 4 WLR 32. This case was decided on 16 December 2016 which was just before counsel for the parties made their closing submissions to the Recorder in this case. I was told that counsel then appearing for [A] included a copy of the judgment in his bundle of authorities but it appears that he did not cite it. In re Hayward, the Deputy High Court Judge (now His Honour Judge Klein) had to consider the legal principles as to fraudulent calumny. In his judgment, he set out paragraph [47] from re Edwards. He commented that Lewison J may well have obtained his statement of the principles from Boyse v Rossborough (1856) 6 HL Cas 2. It is plain that the Deputy Judge considered that he should apply the principles in re Edwards. He then directed himself, at [122], by reference to the facts of the case before him as to the matters he had to decide. I will set out what he said in that paragraph but I will substitute the names of the relevant persons in this case for the names which were relevant in that case. So adapted, paragraph [122] reads as follows:

“122 It seems to me that, to succeed on this plea, [B] must satisfy the following to a sufficient degree; namely,

i) that [A] made a false representation

ii) to [T]

iii) about [B’s] character

iv) for the purpose of inducing [T] to alter [her] testamentary dispositions and

v) that [A] made such a representation knowing it to be untrue or being reckless as to its truth and

vi) that the … Will was made only because of the fraudulent calumny.”

The correct test of causation or inducement

The sixth matter, based on the formulation from re Hayward was whether [T] made her will in the terms in which she did only because of the fraudulent calumny on the part of [A]. That formulation may well have been appropriate on the facts of re Hayward but I would not regard it as a correct statement of the relevant test. The question for the court is one of causation or inducement. The calumny must induce the change in the testator’s intentions. The challenger must prove that on the balance of probabilities. If it is possible that the calumny did induce the change, but the court is not persuaded on the balance of probabilities that it did induce the change, the challenge will fail. If there are other possibilities or other explanations and those other explanations persuade the court to find on the balance of probabilities that the calumny did not induce the change, the claim will fail. Conversely, although the court is given other possible explanations, if the court is nonetheless satisfied that on the balance of probabilities that the calumny did induce the will, then the claim succeeds. That is what is meant by the references to consistent and inconsistent hypotheses in re Edwards, which is itself based on Craig v Lamoureux [1920] AC 349. However, the use of the word “only” should not be understood as requiring a finding that there must have been no other reason operating in conjunction with the effect of the fraud for the testator to change his or her intentions. The question of causation or inducement was therefore a matter of fact for the [fact finder].’

Conclusion

Where a fact finder makes a clear finding of fact on causation or inducement (i.e. that A’s fraud had induced T to change her intentions), and the evidence in support of that finding is very clear and cogent, he is not required to do any more in terms of discussing the suggested reasons for T’s decision advanced by A at trial. In any event, in this case he found that some of the suggested reasons were the consequence of T being turned against B by what she had been told by A. Therefore the judge did not consider that A had a real prospect of success in disturbing the Recorder’s findings as to causation or inducement and refused permission to appeal on that ground of appeal.

In his conclusion Mr Justice Morgan held, ‘I have now considered all of the suggested grounds of appeal. Whether the grounds are considered individually or collectively, [A] does not have a real prospect of success on appeal and I will therefore refuse permission to appeal.’

Carl Islam, Barrister TEP, Averose Chancery Chambers (www.ihtbar.com) is the author of the ‘Contentious Probate Handbook’ published by the Law Society (2016), specialises in will trust and inheritance disputes (including equitable compensation claims for breach of fiduciary duty), and is currently advising on the bringing of a fraudulent calumny claim in the Business and Property Courts. Carl is a qualified and registered Direct Access Barrister who may be instructed directly by members of the public without the involvement of a solicitor, and is one of only a small number of Barristers who have been authorised by the Bar Standards Board to conduct litigation. Prior to practising as a Barrister he practiced as a Solicitor, and remains dual qualified and on the Roll of Solicitors (as a non-practising solicitor). His forthcoming article, ‘Equitable compensation arising out of sale of a property ordered under s.14 TLATA’ is scheduled for publication in Trusts & Trustees (Oxford University Press) in December 2017: https://academic.oup.com/tandt

‘Trusts & Trustees is the leading international journal on trust law and practice. The most significant source of information in its field, the journal is essential for all trusts practitioners and lawyers … The journal is ideal for international trust lawyers working in both private practice and in-house in trust companies; trusts practitioners; and those working in trust companies. It will also be an essential source of reference for academics specializing in trusts; members of the judiciary; members of regulatory bodies; and institutional libraries.’ Oxford University Press.

Estate planning using an IPDI

  • Introduction
  • Creation
  • Termination/surrender of IPDI’s, automatic reading-back, and variations
  • Spouse-exempt gifts
  • Planning
  • Family owned companies
  • Future research and development

Introduction

‘The IPDI is an estate-IP, so the property is treated for IHT purposes as if it belonged to the life tenant. The trust property will be subject to tax on L’s death, unless the value of the estate is within the NRB, or an exemption applies. The spouse exemption will in principle apply on the death of the testator if L is the testator’s spouse. This will generally be better than:

(i)       the standard IHT trust regime of 10-year and exit charges, or

(ii)      an Age 18-to-25 trust (which suffers the 4.2% charge) …

So long as the trust endures there is no need for [CGT] hold-over relief. Also, if hold-over relief is needed, it can up to a point (for property within the NRB) be obtained by creating a short term discretionary period … IP trusts are better than discretionary trusts for [income tax] purposes.’ ‘Drafting Trusts and Will Trusts – A Modern Approach’ (13th edition), by James Kessler QC and Charlotte Ford.

Creation

  1. An Immediate Post-Death Interest Trust (‘IPDI’) exists where a will/trust provides for a tenant for life, and not for bereaved minors, or for a disabled person, and the life interest exists continuously from the Testator’s (‘T’s’) death.
  2. A trust created on death where a person becomes immediately entitled to an interest for life will be:

2.1     treated as that beneficiary’s property;

2.2     aggregated with his estate (note that the beneficiary, for example the surviving spouse (‘S’), is treated for IHT as owning the whole of the capital fund see Inland Revenue Press Notice 12 February 1976); and

2.3     if the interest is created in favour of a spouse, or passes on the death of a beneficiary to a spouse, will be a spouse exempt gift.

  1. An IPDI exists and will be taxed under s.49A IHTA 1984 where three conditions are satisfied:

3.1     the trust was effected by will or under the law relating to intestacy;

3.2     the life tenant (for example S) became beneficially entitled to the life interest on the death of T; and

3.3     the trust must not be for bereaved minors and the interest is not that of a disabled person, which requirement must have been satisfied at all times since S became beneficially entitled to the life interest.

  1. The first requirement is satisfied where:

4.1     under T’s will funds are transferred into a pre-existing life interest trust;

4.2     T’s will is varied to create a life interest trust; or

4.3     an appointment is made within 2 years of T’s death that is automatically read-back into his will under s.144.

  1. If T creates an IPDI in favour of S the gift is spouse exempt, and on her death S will be treated as owning the whole of the capital fund, which is aggregated with the rest of her chargeable estate for IHT.
  2. An IPDI can also be created within 2 years of T’s death, by trustees exercising an overriding power of appointment (which extends to both income and capital) under T’s will to give S an immediate interest in possession, resulting in the property out of which the income is appointed benefiting from the spouse exemption.
  3. An IPDI may be terminated by:

7.1     the life-tenant (a ‘surrender’);

7.2     under the express terms of the trust (for example, in the event of re-marriage); or

7.3     by the trustees (defeasance).

  1. If as a result of the termination of a life tenant’s life interest, the property in which the spouse interest subsisted becomes comprised in the estate of another absolutely, then the life tenant will be treated as having made a PET.
  2. Provided S survives for a period of 7 years after the transfer, it will not become chargeable (sections 3a, 51, 52).
  3. If the property passes on to further trusts, it will be treated as a chargeable transfer subject to the IHT gifts with reservation of benefit rules (‘GWR’), hence a tax-efficient termination can no longer be on discretionary trusts for the benefit of the life-tenant and issue.
  4. Under s.102ZA Finance Act 1986, termination of S’s life interest by;

11.1   her own act;

11.2   under the terms of the trust; or

11.3   by the exercise by trustees of overriding powers;

is treated as a gift by S for the purposes of the GWR rules.

  1. The effect of these rules is that:

12.1   S is treated as if the subject-matter of the gift was comprised in her estate at its then market value; or

12.2   if the cessation of the reservation occurred within seven years before her death, S is treated as having made a PET of its value at that time.

  1. However, the GWR rules can only apply where S continues to enjoy a benefit in some way from the property in which her interest has been lost.
  2. The POAT charge contains no equivalent rule. IPDI’s are used to determine the ultimate destination of trust property, and to preserve wealth for the benefit of, for example, T’s children from a former marriage.
  3. On S’s death the remainder interests in T’s estate may be in favour of:

15.1   absolute interests, for example for T’s adult children;

15.2   a discretionary trust, for example for T’s children who are minors or for young grand-children; or

15.3   exempt gifts, e.g. to a UK registered charity.

  1. On S’s death no further IPDI’s can be created over residue left to her on an IPDI.
  2. However a surviving spouse who is left a life interest with no right to capital is likely to have a claim under the Inheritance (Provision for Family and Dependants) Act 1975 (the ‘Inheritance Act’), therefore this strategy may not protect capital unless S remarries.
  3. Under the IHTA 1984 the pecking order between:

18.1   the bereaved minor’s trusts;

18.2   18-25 trusts; and

18.3   IPDI’s,

is: 1st a BMT; 2nd an IPDI; and 3rd an 18-25 (s.71D trust).

  1. If T by his will gives a minor ‘an immediate right to income with capital vesting at 25 this is not a s.71D trust but instead gives the child an IPDI’.
  2. Therefore s.144 can operate to destroy what appears at first sight to be a s.71D trust.
  3. Where a s.71D trust results from conversion of a discretionary trust within 2 years of T’s death, it will be read-back to the date of T’s death under s.144, in which case no exit charge will arise on the ending of the earlier relevant property trust.
  4. Whereas, if the conversion occurs more than 2 years after T’s death, a s.71D trust comes into existence on that date, resulting in an IHT exit charge arising on the ending of the relevant property trust.

Termination/surrender of IPDI’s automatic reading-back and variations

  1. If trustees exercise their power to terminate an IPDI during S’s lifetime in favour of an individual absolutely, that would cause S to make a PET.
  2. s.3A(1A) provides that,

‘Any reference in this Act to a potentially exempt transfer is also a reference to a transfer of value—

(a)     which is made by an individual on or after 22nd March 2006,

(b)     which, apart from this section, would be a chargeable transfer (or to the extent to which, apart from this section, it would be such a transfer), and

(c)     to the extent that it constitutes—

(i)       a gift to another individual,

(ii)      a gift into a disabled trust, or

(iii)     a gift into a bereaved minor’s trust on the coming to an end of an immediate post-death interest.’

  1. Following the Finance Act 2006, gifts must be made either to an individual outright, to a bare trust, to a disabled trust or, in certain circumstances, to a bereaved minor’s trust in order to qualify as a PET… Thus if A, a life tenant with a qualifying interest in possession, surrenders his qualifying interest so that the trust fund passes to his daughter B absolutely, A will have made a PET…[However] if on the termination of the qualifying interest in possession the trust fund is then held otherwise than absolutely or on bare trusts, e.g. on wide discretionary trusts, not only will the transfer not be a PET, so that A will have made an immediate transfer of value, but, in addition, special anti-avoidance rules may apply.’ (McCutcheon on Inheritance Tax).
  2. Where an IPDI is terminated during S’s lifetime the property can be retained in trust where the trust qualifies as a BMT under s.71A.
  3. Following the introduction of FA 1986, s.102ZA, the surrender or termination of an interest in possession will, from 22 March 2006, be treated for the GWR rules, as if the life tenant had made a gift.
  4. Therefore, if the former life tenant may benefit from the assets previously subject to the interest in possession, the GWR rules can apply.
  5. A PET will be made should the life tenant cease to have a reservation of benefit as at the date the reservation was released.
  6. s.102ZA FA1986 provides that the termination of a life interest will be regarded for the purposes of s.102 and Schedule 20, as a disposal by way of gift by the beneficiary entitled to the interest if the following conditions are met:

30.1   T is beneficially entitled to a life interest in settled property;

30.2   his interest is treated as part of his death estate because he became beneficially entitled to the life interest either:

30.1.1         before 22nd march 2006; or

30.1.2         on or after that date and the life interest is an IPDI or a DPT; and

30.3   the life interest comes to an end during T’s lifetime.

  1. Then T will be deemed to have made a gift of ‘the no longer possessed property’ (see s.102ZA (2) and (3)).
  2. That is the property in which his interest in possession had subsisted immediately before it came to an end, other than any of it to which T became absolutely and beneficially entitled in possession upon termination of his life interest.

 

Spouse exempt gifts

 

  1. The spouse exemption is available (provided the conditions in s.18 on domicile are satisfied) where residue is left to S on an IPDI.
  2. This is particularly useful where:

34.1   T wants to preserve capital for example for children from an earlier marriage; and

34.2   in enabling trustees to exercise overriding powers of appointment to cause PET’s to be made by the spouse.

  1. From 22.03.06 S will only be treated as making a PET (rather than an immediately chargeable transfer) where the appointment is to: 35.1 another beneficiary absolutely;

35.2   a disabled person; or

35.3   into a bereaved minor’s trust.

  1. In the case of a gift to S for life using an IPDI, she becomes entitled to a life interest on T’s death, the trust does not qualify as a BMT or as a DPT, and must not do so throughout the life of the IPDI. Most intended life interests will take effect as IPDI’s except for example where unusually a discretionary trust arises before the life interest can take effect. On S’s death, the whole of the capital fund constituted by the gift will be aggregated with her estate to calculate IHT payable on her estate.

Planning

  1. IPDI’s are used to determine the ultimate destination of trust property, and to preserve wealth for the benefit of for example, T’s children from a former marriage. They may also be tax-efficient.
  2. If a property is left into a discretionary trust, the IHT residential nil rate band (‘RNRB’) will not be available even if all beneficiaries are lineal descendants. This is because the beneficiaries are not treated as the beneficial owners of the property. ‘Generally, an IPDI will be effective in providing access to the RNRB because the beneficiary is deemed to own the asset. However, sometimes an IPDI can be set up as a discretionary trust in the first instance. It may therefore be necessary to review its terms to ensure that the RNRB is available. To use the RNRB it will be necessary to transfer part or all of the residence to the life tenant.’ (‘Bricks and mortar – the practical application of the residence nil rate band, including drafting issues and claiming the relief’ by Carl Islam and Stephanie Churchill CTA, which will be published in Taxation (www.taxation.co.uk) on 12 October 2017).
  3. The points to address when considering leaving residue to S on an IPDI include the following:

39.1    if the house is left on trust, the trustees can take the decision as to whether S’s interest should be terminated in whole or in part and PET’s made;

39.2    there may be CGT advantages in transferring the property into trust for S because future disposals that might trigger gains can be minimized;

39.3    if property is left outright to S she cannot make lifetime gifts on trust for T’s children to take effect as PET’s, and therefore such transfers will be chargeable; and

39.4    by contrast, if S is given an IPDI in the will which is then terminated so that the property becomes held on a bereaved minor’s trust during her lifetime that will be a PET.

  1. ‘… the interest in possession could have been left via a power of appointment trust (i.e. a ‘flexible’ IPDI) with the surviving spouse having the life interest, and a range of other beneficiaries, say children and grandchildren, being capable of benefiting on a trustee appointment. This would mean that if the survivor did have sufficient financial security outside of the trust, the trustees could consider making an absolute appointment of part or all of the trust fund to children. That would crystallise a PET by the survivor, which, if he survived it by seven years, would fall outside his taxable estate. As a result, he would still continue to qualify for the full transferable nil rate band on his death.’ (Financial Planning with Trusts by John Wooley).
  2. ‘On the death of a life tenant who is single, there should normally be a discretionary trust. On the death of a life tenant who is married, there is a stark choice to be made:

(i)        The trust fund may pass to the surviving spouse absolutely; or

(ii)       The trust property may continue to be held in trust.

If L’s spouse was disabled when the testator died, there is a third choice: to confer an IP on L’s spouse.

Route (i) qualifies for the IHT spouse exemption. Route (ii) does not …

Either route qualifies for the CGT uplift on the death of L. The decision must be made during the lifetime of L. It cannot be altered after L’s death. It is not necessary to make the final decision when drafting the will of the testator: it is necessary  to make a provisional decision, i.e. one which can be changed subsequently (during the lifetime of L) … The provisional decision may be changed by executing an appropriate deed of appointment during the lifetime of L to confer an absolute interest on L’s surviving spouse. The deed should normally be revocable during the lifetime of L. That is an issue which should be considered when L makes his or her own will.’ ‘Drafting Trusts and Will Trusts – A Modern Approach’ (13th edition), by James Kessler QC and Charlotte Ford.

  1. ‘… a life interest will should be drawn flexibly. The executors/trustees should be given wide, overriding powers of appointment, so that they can either appoint the capital in whole or in part to the surviving spouse absolutely and/or terminate the life interest in whole or part and appoint the capital to one or more of the other beneficiaries named or referred to in the will e.g. children or grandchildren.’ (Ray and McLaughlin’s Practical Inheritance Tax Planning’).

Family owned companies

  1. ‘The key provision is IHTA 1984 s.49(1), which provides:

“(1)      A person beneficially interested to an interest in possession in settled property shall be treated for the purposes of this Act as being beneficially entitled to the property in which the interest subsists.”

There is no mention of the interest being “qualifying” and the legislation refers to a “person” (so including a company) rather than an “individual”.

… a company can have an interest in possession which is not a qualifying interest in possession as it fails to satisfy the conditions in s.59(2). As a result the settled property will fall within the relevant property regime and yet the company may be treated as beneficially entitled to the underlying property in which the interest is possession subsists.’ (‘Trust Taxation And Estate Planning’ 4th Edition by Emma Chamberlain and Chris Whitehouse).

Future research and development

  1. Perhaps testamentary planning using an IPDI is a gateway to IHT planning strategies for a testator who held a 100% beneficial interest in a residential buy-to let property prior to his death.
  2. This is a subject I may research and discuss in a future article in 2018.

 

Publication of my Residential Nil Rate Band Article by Taxation

My article, co-authored with Stephanie Churchill CTA, ‘Bricks and mortar – the practical application of the residence nil rate band, including drafting issues and claiming the relief’ , will be published in Taxation (www.taxation.co.uk) on 12 October 2017.

My article, ‘Equitable compensation arising out of sale of a property ordered under s.14 TLATA’ is scheduled for publication in Trusts & Trustees (Oxford University Press) in December: https://academic.oup.com/tandt

‘Trusts & Trustees is the leading international journal on trust law and practice. The most significant source of information in its field, the journal is essential for all trusts practitioners and lawyers … The journal is ideal for international trust lawyers working in both private practice and in-house in trust companies; trusts practitioners; and those working in trust companies. It will also be an essential source of reference for academics specializing in trusts; members of the judiciary; members of regulatory bodies; and institutional libraries.’ Oxford University Press.

The forthcoming ACTAPS monthly Newsletter (which is global) will also contain an article I wrote last month about ‘Rectification of Wills’.

BREXIT – when economic lunatics take over the asylum!

For detailed commentary and links to published articles please visit the Brexit page at www.diplomaticlawguide.com

A two year interim period red line is not practical.

First, ‘[the] Brexit negotiations will take much longer and be far more complicated than many British politicians realise. One set of talks will cover Britain’s legal separation from the EU, the second a free trade agreement (FTA) with the EU, the third interim cover for the UK between its departure from the EU and the entry into force of the FTA, the fourth accession to full membership of the WTO [i.e. regularising the UK’s scheduled commitments as an independent member of the WTO], the fifth new FTAs to replace those that currently link the EU and 53 other countries, and the sixth co-operation on foreign, defence and security policies.’ [There is also a seventh ‘global’ dimension]. Charles Grant, Director of the Centre for European Reform, in his article ‘The Brexit negotiations: the UK government will have incentives to compromise’ published in the CER Insight.

Second, the negotiation of trade regulatory matters has not yet begun. [The] Brexit debate is currently far too focused on tariffs. All the debate was about tariffs. But tariffs are a minor aspect of doing business internationally today. The problem is on regulatory issues. The UK has to negotiate some kind of arrangement that can help to continue to ensure that UK regulatory standards will still be seen as equivalent. Without that it’s too easy for the EU to simply say ‘no, that doesn’t apply anymore’. Professor Stephen Woolcock.

Third, as negotiation of Britain’s WTO schedules could prove harder to negotiate than Brexit, and needs to be sorted out prior to the expiry of any interim period, the idea of an arbitrary two year interim period is vacuous. What work, if any, has been undertaken in relation to regularisation behind the scenes?

Note that Britain is currently a member of the WTO via the EU. Full members must deposit ‘schedules’ of tariffs, quotas, subsidies and other concessions on market access with the WTO. The UK will have to negotiate its own schedules, initially with the other 27. The tariff negotiation could be simple, if the British followed what the EU currently does. But dividing up quotas, on say New Zealand lamb imports, would be more complicated. And then the new British schedules would need the approval of all 163 WTO members, since the organisation’s decisions require consensus. So if one member (for example, Argentina or Russia) wanted to create difficulties, it could block the British schedules. British officials hope that such difficulties do not arise, but reckon that it will be hard work to sort out WTO membership within the two years of the Article 50 negotiation.

‘One of the most important questions for UK businesses and investors is whether the UK could trade under WTO rules as soon as it exits the EU. In my opinion the answer is twofold. First, the UK would most likely lose market access on goods in certain countries and face legal challenges by some WTO members unless it negotiates with both the EU and the WTO members its status as an independent member of the WTO. Second, in relation to the UK – EU trade relationship, if there is no FTA in place on the date the UK exits the EU, it is highly likely that both sides will treat each other on WTO terms (including MFN tariff rates). Due to the EU’s current trade restrictions to third countries, this is not a desirable outcome for either side…The current EU schedule of commitments is the so-called “EU-15” of 2012. The fact that this is an outdated schedule is likely to complicate matters in the UK’s future WTO negotiation because the EU schedule of concessions and commitments regarding agricultural products, domestic support and export subsidies does not reflect the enlargement of the EU (from 15 to 28 Member States). This means that the UK – EU allocation of commitments will likely lead to a series of requests by third countries seeking new compensation from the EU and the UK. How will third countries react to the UK-EU distribution of concessions is anybody’s guess. But at least one can expect the following: it is highly unlikely that WTO members will challenge the UK’s rights, concessions or commitments on industrial goods, export subsidies entitlements including those on agricultural exports or its schedule of services. The challenge, however, is likely to focus on the EU’s agricultural commitments related to tariff rate quotas (TRQ’s) to third countries such as Australia, Argentina, Brazil, China, New Zealand, Thailand, Uruguay and the U.S. TRQ’s are volumes that can be imported with a low or zero tariff. Imports above the quota quantity enter with a higher tariff rate. The UK and the EU would need to negotiate a distribution of the EU’s TRQ’s. This would be problematic to third countries. They may find the redistribution of the EU’s TRQ’s as unfair because it would reduce their access to the EU market as a result of the UK’s exit. The TRQ’s are likely to become the most contentious issue in the UK’s re-establishment of its legal status as an independent member of the WTO. Now let us assume that the UK is unable to agree on new commitments with other WTO members on the day it exits the EU…In the case of UK exports to WTO markets including the EU (in case there is no trade agreement in place yet), one would expect WTO members (including the EU) to apply MFN rates to UK products. But this raises doubts as to whether the UK can trade under MFN tariffs without having to make any concessions or commitments to WTO members. Because the UK would be trading on MFN without being forced to grant concessions and TRQ’s to the rest of the WTO members and, thus, creating an unfair scenario for the other WTO members, it is possible that the UK may be subject to MFN restrictions by other WTO members until it regularises its legal status which can only occur once it has negotiated a new schedule of commitments.

An additional uncertainty, in this case a legal one, is the legal process under the WTO rules to re-establish the UK as an independent member of the WTO, in particular with regard to the distribution of commitments. There is no provision in the WTO framework which covers the particular situation of the UK. The closest provision seems to be Article 28 of GATT which provides for the modification of schedules. Whether this provision applies to the particular case of the UK is not entirely clear. Despite these complexities, WTO members could allow the UK to trade under WTO rules on an interim basis (one or two years) without a schedule of commitments while it concludes the negotiations with all individual WTO members.

Having said all the above, it must be stressed that nothing prevents the UK negotiation in the WTO from being simple and straightforward. This will depend entirely on the political will of the WTO members on whether they want to make the UK’s life outside the EU easy or complicated.’

Brexit: Challenges for the UK in negotiating an FTA with the EU (a trade negotiator’s perspective) by Luis González García.

Fourth, the Government should have developed and agreed a principled position and negotiating strategy based upon evidence before triggering Article 50. However as far as I am aware no evidence based review was undertaken prior to triggering Article 50, or has been undertaken since. Because there is no evidence based strategy it follows that there is no consistent plan to deliver it. In other words, at present, no coherent, rational, and practical plan for negotiating Brexit, has been agreed in Cabinet and approved by Parliament.

‘To be more than an optimistic slogan, Global Britain needs to rest on a clear, evidence based strategy. And once we have the strategy, we will need a consistent plan to deliver it… [Our] strategy should not be opportunistic or reactive, but based in principles. Brexit makes it even more important for the UK to have an international trade system with rules ensuring non-discrimination, fair competition and enforcement. Alone, we will be less equipped to cope in a trade environment driven by the bilateral and power based instincts of the new US administration and China, or indeed the sheer trading weight of the future EU. That is why we should remain a strong supporter of the WTO, and resist any temptation to short-circuit rules to score quick successes…’ The Tacitus Lecture 2017 – ‘The World is Our Oyster? Britain’s Future Trade Relationships’ delivered by Sir Simon Fraser.

Trade negotiations, which are intrinsically linked to: freedom of movement; the rights of EU citizens living and working in the UK; and the Irish border, depend upon a decision being made about whether Britain stays in the single market and customs union. Until this has been decided a coherent trade model cannot be proposed to the EU. The practical real world consequences of political indecisiveness on this issue include the following:

1.        a UK-EU FTA cannot in practice be agreed and implemented;

2.        businesses in the UK cannot undertake long-term planning because they cannot know the extent to which Britain will remain integrated with the EU post Brexit (which will have a direct impact on foreign investment and jobs); and

3.        likewise, because they cannot know the extent to which the UK’s hands will be tied by the terms of a FTA with the EU, no other state (including the US, India, China, and Australia) can practically agree comprehensive terms of a FTA with the UK – which in any event, cannot be agreed and implemented until the UK-EU FTA has been implemented, which in itself may take 3-4 years post agreement on terms following the tabling of a trade model.

The Peterson Institute for International Economics who analysed how long it took the US to agree 20 bilateral trade deals concluded: (i) one and a half years, on average, and (ii) more than three and a half years to get to the implementation stage. https://www.weforum.org/agenda/2016/07/how-long-do-trade-deals-take-after-brexit/

= 5 years.

It is therefore not inconceivable that the first trade agreement with a non-EU trade agreement counter-party will be concluded and implemented sometime between 2024 and 2029/2030 (if e.g. the conclusion of a bespoke trade agreement with the EU takes e.g. 7 years from commencement of negotiations. Negotiations are unlikely to commence before October 2017 and the EU position appears to be that negotiations will only commence and take place in parallel if progress is made on the divorce settlement first, and crucially, the divorce bill.

7 years from 29 March 2017 is 29 March 2024. Add 5 years = 2029. Factor in delay in commencement = 2029/2030.

Logistically, there is also a huge gap between the scale of negotiations to be undertaken and the resources actually available to undertake them, which will take time to fill through recruitment and training:

1.        ‘The EU currently has existing PTA’s with 52 countries, and it is negotiating trade agreements with another 72 countries. In case of Brexit, the UK would therefore need to re-negotiate or start new bilateral negotiations on 124 trade agreements, plus one additional trade agreement re-defining its own trade status as a third country vis-à-vis the EU. If we limit the focus to the top-50 trade partners of the UK, who account for 92% of all UK trade, 41 of them do have some trade agreements or ongoing negotiations with the EU. 18 of the UK’s top 50 trade partners are EU countries, one (Norway) is an EEA country, one (Turkey) has a customs union agreement with the EU, eight countries have existing EU PTAs in place and 13 countries are currently negotiating EU trade agreements. This would translate into a minimum of 24 negotiations to be concluded.’ Leaving the EU would mean renegotiating more than 100 trade agreements by Pia Hüttl and Silvia Merler.

2.        124 trade agreements x 5 years each = 620 years. Hypothetically, all 124 could be negotiated within 5 years (if negotiated in parallel). How many trade negotiators does the UK need to resource this? ‘The EU typically sends 20 commission negotiators to any round of trade talks, backed up by between 25 and 40 technical experts… The UK has 40 trade negotiators, compared with the 550-strong trade department in Brussels’: https://www.theguardian.com/business/2016/aug/17/brexit-trade-deals-gruelling-challenge-taking-back-control. Assuming that each UK negotiating team will include at least around 25 negotiators (plus technical experts), 124 x 20 = 2,480 negotiators. One former EU trade negotiator Miriam Gonzalez Durantez, estimated more precisely (17 August 2016) that for the progressive negotiation of priority agreements (i.e. not all 124) the UK would need an operational cadre of least 500 negotiators. How many do we have? Lord Price, the former minister for trade and investment said that the Government had about 40 trade negotiators, compared with the 550 employed by the EU. Yet even these figures may exaggerate the number of people qualified to go into the room for Britain and agree trading deals for a post-EU era. Lee-Makiyama estimates that there cannot be more than 200 actual negotiators in the world as a whole. This shortfall will require the civil service to look far and wide, and is indicative of the kind of skills shortages Whitehall will struggle with in the years ahead. Dealmakers have to know what strategy they will use, if they will scope out the negotiation, what they will scope, and how they will do it. They must have an idea of what they want to propose, in what order, and which sections of a trade deal they want to debate first. Developing an understanding of how to do this can take years.

‘Serious multilateral negotiating experience is in short supply in Whitehall, and that is not the case in the Commission or in the Council.’ Sir Ivan Rogers.

As talks with the EU about the structure and terms of a FTA have not even commenced, and only 12 months remain in the Article 50 negotiating window (including Christmas 2017, Easter 2018, and the 2018 summer break during which MP’s do not sit in the House of Commons), it is respectfully suggested that the primary ambition of the forthcoming Conservative Party conference should be to agree a unified position on whether Britain is to stay in or leave the single market and customs union.

If this is not achieved, the likelihood is that no interim period can be agreed with the EU in which businesses can undertake planning with certainty. In which case there is likely to be an exodus.

This is a chance for the Government to demonstrate that the Conservatives are still the party of business – a vote-winning kudos which they appear to be handing to Labour on a plate.

If Britain falls over the economic cliff edge then:

1.        there appears to be a real likelihood that Labour with the support of Lib Dem votes could win the next general election, resulting in increased capital taxation (i.e. the depletion of personal wealth);

2.        that there will be less tax revenue available to fund public expenditure i.e. because of an exodus of businesses (particularly in the financial services industry); and

3.        that Britain could be bankrupted by Labour.

In which case if Theresa May and her government bring about the economic de-stabilisation of Britain what was Brexit for and all about? What did it achieve?

Carl Islam LLM (Exon) (International Business Law), Barrister, 1 Essex Court, Temple, London, is the founder of the Diplomatic Law Guide (www.diplomaticlawguide.com) which appears on page 1 of the following pages of Google:

  • ‘bilateral and regional trade agreements law’; and
  • ‘trade agreements lawyer’,

and is listed on the website of the United States ‘American Foreign Service Association’ (the ‘AFSA’) based in Washington DC underneath the heading ‘Codes of Conduct from Other Services/Countries’ (http://www.afsa.org/ethics).

Since July 2016 he has been researching and writing a new book for publication in 2018 about the ‘Structuring Drafting & Negotiation of FTA’s’.

Prior to entering private practice as a commercial solicitor and subsequently as a Barrister, Carl worked in-house for the Rolls-Royce Industrial Power Group and for Alstom (in Paris), structuring, drafting, and negotiating major contracts which were awarded in Malaysia, India, and China.

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