Copyright protection of Art

·       Copyright protects expressions.

·       Copyright and related rights are national rights.

·       Consequently, the requirement of originality varies from jurisdiction to jurisdiction.

·       Copyright is not concerned with the originality of ideas but with the expression of thought.

·       The originality which is required relates to the expression of the thought.

·       This does not require that the expression must be in an original novel form, but that the work must not be copied from another work, i.e. that it should originate from the author.

·       Originality for the purposes of establishing copyright requires the author’s own intellectual creation, see Infopaq International A/S v Danske Dagblades Forening [2010] FSR 20.

·       No specific measure of originality is required.

·       The standard required for a work to qualify as original is low.

·       In substance what is required is that the work is the result of the author’s own intellectual creation, i.e. that it is the result of skill and labour/intellectual creation, see paragraphs 51-54 of the judgment of HHJ Birss QC in Temple Island v. New English Teas [2012].

·       While photography is a problem area, there is scope for originality where specialized techniques are used, e.g. angle shot; exposure and use of filters; the creation of a specific scene or style of subject; and merely being in the right place at the right time.

·       Copyright in the UK is solely the creature of statute.

·       The governing statute is the Copyright Designs and Patents Act 1988 [the ‘CDPA’].

·       Section 1(1) CDPA provides:

‘(1)   Copyright is a property right which subsists in accordance with this Part in the following descriptions of work—

(a)    original literary, dramatic, musical or artistic works,

(b)    sound recordings, films or broadcasts, and

(c)    the typographical arrangement of published editions.’

·       Section 4 CDPA defines a work of art as meaning;

‘(a)   a graphic work, photograph, sculpture or collage, irrespective of artistic quality,

(b)    a work of architecture being a building or a model for a building, or

(c)    a work of artistic craftsmanship. …

“building” includes any fixed structure, and a part of a building or fixed structure;

“graphic work” includes—

(a)    any painting, drawing, diagram, map, chart or plan, and

(b)    any engraving, etching, lithograph, woodcut or similar work;

photograph” means a recording of light or other radiation on any medium on which an image is produced or from which an image may by any means be produced, and which is not part of a film;

“sculpture” includes a cast or model made for purposes of sculpture.’

·       It is a question of fact in any particular case whether what is being considered is a painting.

·       No particular artistic merit is required for graphic works.

·       Section 9(1) CDPA provides:

‘(1)   In this Part “author”, in relation to a work, means the person who creates it.

(2)    That person shall be taken to be—

(aa ) in the case of a sound recording, the producer;

(ab) in the case of a film, the producer and the principal director;

(b)    in the case of a broadcast, the person making the broadcast (see section 6(3)) or, in the case of a broadcast which relays another broadcast by reception and immediate re-transmission, the person making that other broadcast;

(d)    in the case of the typographical arrangement of a published edition, the publisher.

(3)    In the case of a literary, dramatic, musical or artistic work which is computer-generated, the author shall be taken to be the person by whom the arrangements necessary for the creation of the work are undertaken.

(4)    For the purposes of this Part a work is of “unknown authorship” if the identity of the author is unknown or, in the case of a work of joint authorship, if the identity of none of the authors is known.

(5)    For the purposes of this Part the identity of an author shall be regarded as unknown if it is not possible for a person to ascertain his identity by reasonable inquiry; but if his identity is once known it shall not subsequently be regarded as unknown.’

·       In general, a work will be protected by UK copyright provided either: (a) that the author is at the material time a ‘qualifying person’ i.e. a British national or is resident or domiciled in one of the countries of the Berne Union or a country which is a party to the Universal Copyright Convention , or (b) that the work was first ‘published’ in one of these countries [Sections 156-156 CDPA].

·       Section 175 CDPA provides:

‘(1)   In this Part “publication”, in relation to a work—

(a)    means the issue of copies to the public, and

(b)    includes, in the case of a literary, dramatic, musical or artistic work, making it available to the public by means of an electronic retrieval system;

and related expressions shall be construed accordingly.

(2)    In this Part “commercial publication”, in relation to a literary, dramatic, musical or artistic work means—

(a)    issuing copies of the work to the public at a time when copies made in advance of the receipt of orders are generally available to the public, or

(b)    making the work available to the public by means of an electronic retrieval system;

and related expressions shall be construed accordingly.

(3)    In the case of a work of architecture in the form of a building, or an artistic work incorporated in a building, construction of the building shall be treated as equivalent to publication of the work.

(4)    The following do not constitute publication for the purposes of this Part and references to commercial publication shall be construed accordingly—

(a)    in the case of a literary, dramatic or musical work—

(I)     the performance of the work, or

(ii)     the communication to the public of the work (otherwise than for the purposes of an electronic retrieval system);

(b)    in the case of an artistic work—

(i)     the exhibition of the work,

(ii)     the issue to the public of copies of a graphic work representing, or of photographs of, a work of architecture in the form of a building or a model for a building, a sculpture or a work of artistic craftsmanship,

(iii)    the issue to the public of copies of a film including the work, or

(iv)   the communication to the public of the work (otherwise than for the purposes of an electronic retrieval system);

(c)    in the case of a sound recording or film—

(i)     the work being played or shown in public, or

(ii)     the communication to the public of the work].

(5)    References in this Part to publication or commercial publication do not include publication which is merely colourable and not intended to satisfy the reasonable requirements of the public.

(6)    No account shall be taken for the purposes of this section of any unauthorised act.’

·       ‘Sculpture’ is not defined by the CDPA.

·       There is no statutory requirement for ‘fixation’, however the English court has occasionally held that it is necessary – see Merchandising Corporation of America Inc v Harpbond Ltd [1983] FSR 32 (the ‘Adam Ant‘ case).

As a practising Barrister, I am developing Art and Cultural Heritage Litigation (including proceedings in the Intellectual Property Enterprise Court) and Mediation, as a niche practice area.

For more information, please visit the ‘Mediation of Art & Cultural Heritage Disputes’ page at www.ihtbar.com.

Shifting the burden of proof in a rectification claim before the FTT

Introduction

The powers of the Land Registration Division of the First-tier Tribunal (Property Chamber) [the ‘Tribunal’] are conferred by statute.

An order for rectification made by the Tribunal has the same effect as an order for rectification made by the High Court, consequently rectification relates back to the time when the instrument was executed.

Practitioners need to distinguish between:

(i)         rectification of a document under s.108(2) of the Land Registration Act 2002 [‘LRA]’; and

(ii)        alteration of the register under Schedule 4  of the LRA where the word ‘rectification’ has a specific meaning.

In a Schedule 4 case, if the Applicant persuades the Tribunal Judge that it would be ‘unjust for the alteration not to be made’ that will shift the burden of proof onto the Respondent to prove ‘exceptional circumstances’. Then, if the Respondent fails to discharge the burden of proof at the hearing, rectification must be ordered. For the legal test see Dhillon v Barclays Bank Plc & Anor [2020] below.

s.108 jurisdiction

LRA s.108 states:

‘(1)    The adjudicator [i.e. the Tribunal, see: https://www.gov.uk/government/publications/objections-and-disputes-a-guide-to-land-registry-practice-and-procedures/practice-guide-37-objections-and-disputes-a-guide-to-land-registry-practice-and-procedures]

has the following functions—

(a)    determining matters referred to him under section 73(7), and

(b)    determining appeals under paragraph 4 of Schedule 5.

(2)    Also, the adjudicator may, on application, make any order which the High Court could make for the rectification or setting aside of a document which—

(a)    effects a qualifying disposition of a registered estate or charge,

(b)    is a contract to make such a disposition, or

(c)    effects a transfer of an interest which is the subject of a notice in the register.

(3)    For the purposes of subsection (2)(a), a qualifying disposition is—

(a)    a registrable disposition, or

(b)    a disposition which creates an interest which may be the subject of a notice in the register.

(4)    The general law about the effect of an order of the High Court for the rectification or setting aside of a document shall apply to an order under this section.’

Schedule 4

Under the Land Registration Act 1925, any alteration of the Register to correct a mistake was referred to as ‘rectification’The LRA has a more limited definition of rectification. It is an alteration which involves the correction of a mistake and prejudicially affects the title of a registered proprietor.

The power of the Registrar and of the court to correct a mistake is tempered by a principle of qualified indefeasibility. Consequently, the circumstances in which the Register can be rectified against certain classes of registered proprietor are limited.

Section 58 of the LRA states:

‘(1)   If, on the entry of a person in the register as the proprietor of a legal estate, the legal estate would not otherwise be vested in him, it shall be deemed to be vested in him as a result of the registration.

(2)    Subsection (1) does not apply where the entry is made in pursuance of a registrable disposition in relation to which some other registration requirement remains to be met’. 

Therefore, a legal estate will be vested in a person upon registration as proprietor of the legal estate, even if it would not otherwise vest. 

Schedule 4 to the LRA exists to make provision for alteration of the register and to introduce the concept of ‘rectification’. 

Schedule 4 distinguishes between alteration: 

(i)        pursuant to a court order; and

(ii)      otherwise than pursuant to a court order, which in practice means by the Registrar. 

‘The registrar has no ability under Schedule 4 to the Land Registration Act 2002 to correct a mistake in a deed. Only the court, or the tribunal under section 108(2) of the Land Registration Act 2002, has such power but you should note that the tribunal’s powers relate to a more limited range of documents than the court.’ See: Practice guide 39: rectification and indemnity – GOV.UK (www.gov.uk)

Paragraph 1 of Schedule 4 states:

In this Schedule, references to rectification, in relation to alteration of the register, are to alteration which

(a)    involves the correction of a mistake, and

(b) prejudicially affects the title of a registered proprietor.’

Procedure

Typically, a reference for rectification made to the Tribunal from the Land Registry will be the result of a contested application to amend the Register. After an objection has been made, the decision about alteration of the Register is effectively made by the Tribunal Judge, who has the power to order the Registrar to allow the application. Under the LRA, Schedule 4, paragraph 1 for an alteration to also be a rectification it must:

(i)    involve the correction of a mistake; and

(ii)   prejudicially affect the title of the registered proprietor.

Consequently, rectification can only be ordered where:

(a)    the registered proprietor consents;

(b)    the registered proprietor has by fraud or lack of proper care caused or contributed to the mistake; or

(c)    it would for any other reason be unjust for the alteration not to be made.

Schedule 4 of the LRA 2002 provides:

‘Introductory

1      

In this Schedule, references to rectification, in relation to alteration of the register, are to alteration which

(a)    

involves the correction of a mistake, and

(b)    

prejudicially affects the title of a registered proprietor.

Alteration pursuant to a court order

2

(1)  

The court may make an order for alteration of the register for the purpose of

(a)    

correcting a mistake,

(b)    

bringing the register up to date, or

(c)    

giving effect to any estate, right or interest excepted from the effect of registration.

(2)    

An order under this paragraph has effect when served on the registrar to impose a duty on him to give effect to it.

3

(1)  

This paragraph applies to the power under paragraph 2, so far as relating to rectification.

(2)

If alteration affects the title of the proprietor of a registered estate in land, no order may be made under paragraph 2 without the proprietor’s consent in relation to land in his possessionunless

(a)    

he has by fraud or lack of proper care caused or substantially contributed to the mistake, or

(b)    

it would for any other reason be unjust for the alteration not to be made.

(3)    

If in any proceedings the court has power to make an order under paragraph 2, it must do so, unless there are exceptional circumstances which justify its not doing so.

(4)    

In sub-paragraph (2), the reference to the title of the proprietor of a registered estate in land includes his title to any registered estate which subsists for the benefit of the estate in land.

4      

Rules may—

(a)    

make provision about the circumstances in which there is a duty to exercise the power under paragraph 2, so far as not relating to rectification;

(b)    

make provision about the form of an order under paragraph 2;

(c)    

make provision about service of such an order.

Test of ‘exceptional circumstances’

In Dhillon v Barclays Bank Plc & Anor [2020] EWCA Civ 619 (14 May 2020) (bailii.org) Lord Justice Coulson stated:

‘6. PARAGRAPH 3(3) OF SCHEDULE 4: EXCEPTIONAL CIRCUMSTANCES

6.1 The Law

46.               The best guide to the test of “exceptional circumstances” remains the decision of Morgan J in Paton and Anor v Todd [2012] EWHC 1248 (Ch); [2012] 31 EG 48. The adjudicator had concluded that there were exceptional circumstances which justified the non-rectification of the Register. The appeal against that decision was allowed on the facts and remitted to the adjudicator to consider the practical effect for each party of both altering and not altering the Register. In addressing the relevant test, Morgan J said:

“66. Whilst the statement in the Law Commission report can be taken as accurate for most purposes, it may in some cases be necessary to analyse the position a little more closely. There is no doubt that section 82(1) of the 1925 Act conferred on the court a residual discretion as to rectification. That position is indeed repeated in para. 5 of schedule 4 to the 2002 Act where, in a case of alteration which is not rectification, the registrar has a discretion to alter the register; the statutory wording is: “the registrar may alter the register” (my emphasis). However, in a case of rectification which falls within para. 6(3) of schedule 4 to the 2002 Act, the court must adopt a more structured approachFirst of all, the paragraph imposes a duty to rectify the register. Secondly, that duty does not apply in a case where there are exceptional circumstances which justify not rectifying the register. Thus, in a case within para. 6(3), the court must ask itself two questions: (1) are there exceptional circumstances in this case? and (2) do those exceptional circumstances justify not making the alteration? The first of these questions requires one to know what is meant by “exceptional circumstances” and then to establish whether such circumstances exist as a matter of fact. Thus the process involved in the application of para. 6(3) of schedule 4 to the 2002 Act is not identical to the exercise of the discretion involved in section 82(1) of the 1925 Act.

67. “Exceptional” is an ordinary, familiar English adjective. It describes a circumstance which is such as to form an exception, which is out of the ordinary course, or unusual or special, or uncommon; to be exceptional a circumstance need not be unique or unprecedented, or very rare but it cannot be one that is regularly, or routinely, or normally encountered: see R v Kelly [2000] 1 QB 198 at 208 C-D (a decision from a very different context but nonetheless helpful as to the ordinary meaning of “exceptional circumstances”). Further, the search is not for exceptional circumstances in the abstract but those which have a bearing on the ultimate question whether such circumstances justify not rectifying the register.”

47.               The result in Paton v Todd reflects that two-stage test. Morgan J agreed with the adjudicator that the fact that the applicants did not own the relevant land was an exceptional circumstance. However, he found that, in the absence of evidence as to the effect of rectification on either party, it could not be concluded in the defendant’s favour that the exceptional circumstance justified the decision not to rectify the Register. Hence the matter was remitted. Unsurprisingly, perhaps, Mr Polli QC relied on the fact that the claimants’ lack of ownership of the relevant land had been regarded in Paton v Todd as an exceptional circumstance, because he said that precisely the same was true of Mrs Dhillon in the present case.’

Tribunal Procedure (First-tier Tribunal)(Property Chamber) Rules 2013, r.40 states:

‘Requirements directed to the registrar

40.—(1) The Tribunal must send written notice to the registrar of any direction which requires the registrar to take action.

(2)    Where the Tribunal has made a decision, that decision may include a direction to the registrar to—

(a)    give effect to the original application in whole or in part as if the objection to that original application had not been made; or

(b)    cancel the original application in whole or in part.

(3)    A direction to the registrar under paragraph (2) must be in writing, must be sent or delivered to the registrar and may include—

(a)    a condition that a specified entry be made on the register of any title affected; or

(b)    a direction to reject any future application of a specified kind by a named party to the proceedings—

(i)     unconditionally; or

(ii)     unless that party satisfies specified conditions.’

Where a disputed application is referred to the [Tribunal] it may, instead of determining the matter, direct a party to the proceedings to commence proceedings for the purpose of obtaining the court’s decision on the matter and will do so where it does not have the jurisdiction to make the relevant decision. If the [Tribunal] does not make such a decision, it must decide the case itself, and if either party wishes to withdraw from the dispute the Tribunal has a discretion whether to terminate the reference or proceed to a determination on the merits. The practice and procedure before the [Tribunal] are prescribed by rules [see below]. An appeal lies from the [Tribunal’s] decision to the Lands Chamber of the Upper Tribunal , on a point of law or fact, but permission to appeal is required.’ Megarry & Wade – The Law Of Real Property, para 6-130.

See also:

Tribunal (First-tier Tribunal) (Property Chamber) Rules 2013: The Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013 (legislation.gov.uk)

LR Practice Guides 37 & 38Practice guide 37: Objections and disputes, a guide to Land Registry practice and procedures – GOV.UK (www.gov.uk)

Updating the Land Registration Act 2002 | Law Commission

Hallman v Harkins (LAND REGISTRATION – BENEFICIAL INTERESTS, TRUSTS AND RESTRICTIONS) | [2019] UKUT 245 (LC) | Upper Tribunal (Lands Chamber) | Judgment | Law | CaseMine

PROPERTY BAR ASSOCATION CONFERENCE 2008 Workshop Session Timothy Harry and David Fox RECTIFICATION AND INDEMNITY: GENERAL PRINCIPLES

Costs & summary assessment:

The Tribunal Procedure (First-tier Tribunal) (Property Chamber) Rules 2013 No. 1169 (L. 8) (legislation.gov.uk)

Slide 1 (landmarkchambers.co.uk)

Unreasonable conduct and costs in the First-tier Tribunal – TMC Legal Services (tmcls.co.uk)

LANDS TRIBUNAL (judiciary.uk)

Will Construction – Approach of English Court

In Royal Commonwealth Society for the Blind v Beasant & Anor (2) Benjamin Ho [2021] EWHC 2315 (Ch) (17 August 2021),  Master Schuman summarised the approach of the court to the construction of legacies as follows:

·       Viscount Simon LC said in Perrin v Morgan [1943] AC 399 at 406,

“The fundamental rule in construing the language of a will is to put on the words used the meaning which, having regard to the terms of the will, the testator intended. The question is not, of course, what the testator meant to do when he made the will, but what the written word he uses mean in the particular case – what are the ‘expressed intentions’ of the testator.”

·       Wills are construed in the same way as any other document. This was confirmed by the Supreme Court in Marley v Rawlings [2014] UKSC 2. Lord Neuberger at paragraphs 19 to 22 set out the task for the court when construing a document,

“19. When interpreting a contract, the court is concerned to find the intention of the party or parties, and it does this by identifying the meaning of the relevant words, (a) in the light of (i) the natural and ordinary meaning of those words, (ii) the overall purpose of the document, (iii) any other provisions of the document, (iv) the facts known or assumed by the parties at the time that the document was executed, and (v) common sense, but (b) ignoring subjective evidence of any party’s intentions. …

20. When it comes to interpreting wills, it seems to me that the approach should be the same. Whether the document in question is a commercial contract or a will, the aim is to identify the intention of the party or parties to the document by interpreting the words used in their documentary, factual and commercial context. As Lord Hoffmann said in Kirin-Amgen Inc v Hoechst Marion Roussel Ltd [2005] 1 All ER 667, para 64, “No one has ever made an acontextual statement. There is always some context to any utterance, however meagre.” To the same effect, Sir Thomas Bingham MR said in Arbuthnott v Fagan [1995] CLC 1396, that “[c]courts will never construe words in a vacuum“.

21. Of course, a contract is agreed between a number of parties, whereas a will is made by a single party. However, that distinction is an unconvincing reason for adopting a different approach in principle to interpretation of wills: it is merely one of the contextual circumstances which has to be borne in mind when interpreting the document concerned. Thus, the court takes the same approach to interpretation of unilateral notices as it takes to interpretation of contracts – see Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 , per Lord Steyn at 770C-771D, and Lord Hoffmann at 779H- 780F”.

·       This approach had previously been confirmed by the Court of Appeal in RSPCA v Sharp [2010] EWCA Civ 1474; cited with approval in Marley v Rawlings.

·       Patten LJ at paragraphs 20 to 22 looked at how to approach the construction of the will,

“20. We have therefore to examine the language of the will in its context taking into account the will as a whole; any relevant background circumstances which inform the meaning of the words used; and giving to those words their ordinary meaning unless they are obviously used in some special or technical sense.

21. The divide in this case centres on whether the Testator intended to make a will which excluded IHT unless the Property exceeded the nil rate band in value. In this event the pecuniary legacies under clause 3 would also be eliminated. The judge largely rejected this construction on the will because he considered it incredible (as he put it) to assume that the Testator would have intended to reduce or eliminate the gifts of money to his brother and to the Sharps in the event that the combined value of the non-exempt transfers should exceed the amount of the nil rate band. But, in the absence of any extrinsic evidence about the Testator or his wishes, this is largely speculation. We know nothing about his brother’s financial circumstances; the Testator’s degree of commitment to the RSPCA; or the strength of his desire to avoid any charge to IHT on his assets. It is perfectly possible that the second and third of these elements outweighed any perceived risk that the clause 3 legacies would be reduced to nil.

22. For these reasons it is dangerous to approach the assessment of the Testator’s intentions other than through the language of his will. The first relevant consideration in my view is that the will was professionally drafted by a solicitor who has to be assumed to be competent. Although solicitors do obviously make mistakes, there needs to be something in the language of the document or its admissible background to justify that inference. More importantly, those factors must be such as to permit the court to give the words actually used a meaning which is not strictly in accordance with the usual rules of grammar or vocabulary: see Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896.”

No extrinsic evidence was admissible in that case and no claim for rectification was made. The court was therefore left to examine the language of the will in its context both as to the will as a whole and placing it into the relevant background circumstances. Patten LJ reiterated that it was dangerous to approach the testator’s intentions other than through the language of the will. The Judge had fallen into error by speculating that the testator would not have wished to reduce the amounts to be paid to his brother and the Sharps. To accept the executors’ argument would be to redraft clause 3.

·       The importance of both text and context to the process of construction is usefully summarised by Lord Hodge in Wood v Capita Insurance Services [2017] UKSC 24 and is uncontroversial. The Supreme Court was concerned with construing an indemnity clause in a share purchase agreement, but this is of general application. At paragraph 13, Lord Hodge said,

Textualism and contextualism are not conflicting paradigms in a battle for exclusive occupation of the field of contractual interpretation. Rather, the lawyer and the judge, when interpreting any contract, can use them as tools to ascertain the objective meaning of the language which the parties have chosen to express their agreement. The extent to which each tool will assist the court in its task will vary according to the circumstances of the particular agreement or agreements. Some agreements may be successfully interpreted principally by textual analysis, for example because of their sophistication and complexity and because they have been negotiated and prepared with the assistance of skilled professionals. The correct interpretation of other contracts may be achieved by a greater emphasis on the factual matrix, for example because of their informality, brevity or the absence of skilled professional assistance. But negotiators of complex formal contracts may often not achieve a logical and coherent text because of, for example, the conflicting aims of the parties, failures of communication, differing drafting practices, or deadlines which require the parties to compromise in order to reach agreement. There may often therefore be provisions in a detailed professionally drawn contract which lack clarity and the lawyer or judge in interpreting such provisions may be particularly helped by considering the factual matrix and the purpose of similar provisions in contracts of the same type. The iterative process … assists the lawyer or judge to ascertain the objective meaning of disputed provisions.”

·       As Theobald on Wills, 18th Ed, observes at paragraph 13-001, the first rule of will construction is that every will is different. Whilst it is helpful to see how Lord Neuberger and Patten LJ approached the task of construing the will before them, I must construe the will that is before this court by reference to the clause in question, looking at the natural and ordinary meaning of the words used, its overall purpose, the other provisions in the will and the facts known to or assumed by the testator at the time and with common sense. I ignore subjective evidence of the deceased’s intention. Both counsel accept that this is the task for the court.

Conclusion in this case

‘The issue concerned a nil-rate-band (NRB) gift made by the will to one of the executors, John Beasant, who had been a friend of Arkell’s.

Arkell died in August 2017, having made her final will in June 2016. Her instructions for that will were taken by a chartered legal executive and director at her solicitors, Alletsons, who also drafted the will. Probate was granted in August 2019, but the charities, led by the Royal Commonwealth Society for the Blind, challenged the executors’ interpretation of the will’s fourth clause.

The contentious clauses state: ‘4. I give the Nil-Rate sum to my Trustees on trust for my said friend John Wayland Beasant. 4.1. In this clause ‘the Nil-Rate Sum’ means the largest sum of cash which could be given on the trusts of this clause without any inheritance tax [IHT] becoming due in respect of the transfer of the value of my estate which I am deemed to make immediately before my death.’

Beasant argued that these clauses meant that a sum of GBP325,000 was due to him from the estate, in addition to several other specific legacies that Arkell left him. However, the charities interpreted clause 4.1 as nullifying the effect of the sentence that preceded it, so that the NRB legacy was not payable to Beasant. They contended that clause 4 means the legacy payable is the sum left, if any, after deduction of the value of all other legacies of the will on which IHT is charged at the nil-rate. As the value of the other legacies and devise exceeded the NRB limit, that amounted to zero.

Beasant argued that clause 4 should be construed so that there was a tax-free gift of an amount of the GBP325,000 NRB limit in force at the deceased’s death, without reference to the other gifts of the will. Sub-clause 4.1 should be disregarded as unnecessary, he said, pointing out that it contained no reference to the other gifts under the will or exempt gifts and merely said what the NRB was at the deceased’s death. He argued that it would be ‘whimsical or harsh’ to construe clause 4 as not leaving him the NRB legacy. Beasant asked the EWHC to follow the approach in Re Huntley (Deceased) (2014 EWHC 547 Ch), which construed a will by omitting a clause that had refined the meaning of the NRB sum.

However, Master Shuman in the EWHC disagreed. If Arkell had intended to gift the NRB to Beasant, the will could easily have been drawn up to do that while expressing that it was to be free of IHT, he said, noting the ‘striking similarity’ to the case of RSPCA v Sharp (2010 EWCA Civ 1474).

“Clause 4 clearly contemplates that the ‘nil rate sum’ is to be calculated by reference to the operation of IHT across the whole of the deceased’s estate and the order of the gifts in the will does not matter”, said Shuman.

The legacy left by the clause was accordingly limited to the amount left of the NRB, if any, before tax would become payable, he ruled. He duly accepted the charities’ interpretation of the clause and declared the corresponding gift to be zero.’ STEP Industry News 19.08.2021.

Financial provision claim by adult child – Miles v. Shearer [2021]

·       Statutory framework – NB s.3(1)(g) [which includes reasons for disinheriting an adult child].

·       Illot v. Blue Cross [2017] UKSC 17 – ‘There is no requirement for a moral claim as a sine qua non for all applications under the 1975 Act and Oliver J did not impose one. He meant no more, but no less, than that in the case of a claimant adult son well capable of living independently, something more than the qualifying relationship is needed to found a claim, and that in the case before him the additional something could only be a moral claim. That will be true of a number of cases. Clearly, the presence or absence of a moral claim will often be at the centre of the decision under the 1975 Act’ [Lord Hughes]; ‘the unsatisfactory state of the present law, giving as it does no guidance as to the factors to be taken into account in deciding whether an adult child is deserving or undeserving of reasonable maintenance’ [Lady Hale].

·       Miles v Shearer [2021] EWHC 1000 (Ch) – Obligations or responsibilities towards claimants at the time of T’s death? None. Claim failed.

Therefore prima facie, a claim under s.1(c) will fail if absent any other ‘moral’ claim, it is outweighed by other factors under s.3(1)(g), i.e. where the judge finds that the deceased parent did not in fact owe any obligation or responsibility to the adult child claimant at the date of his death.

The merits of each case depend up the making of a value judgement by the judge on the known facts. 

The litigation risk is that the law, gives no guidance as to the factors to be taken into account in deciding whether an adult child is deserving or undeserving of reasonable maintenance.

The unknown evidential factor is the recognition of a ‘moral’ claim,
however that is characterised, by the judge.


See also: See also: Priya-Tromans-Beware-of-issuing-‘hopeless’-Inheritance-claims-in-expectation-of-settlement.pdf (stiveschambers.co.uk)

That is why it is always better to mediate these cases rather than litigate them through the courts. 

Zoom Mediator – Contentious Probate & Trust Disputes: Zoom Mediator – Contentious Probate & Trust Disputes – Carl Islam

Statutory framework

The Inheritance (Provision for Family and Dependants) Act 1975 (the ‘Inheritance Act’) provides:

‘1     Application for financial provision from deceased’s estate.

(1)    Where after the commencement of this Act a person dies domiciled in England and Wales and is survived by any of the following persons:—

(c)    a child of the deceased;

(2)    In this Act “reasonable financial provision”—

(b)    in the case of any other application made by virtue of subsection (1) above, means such financial provision as it would be reasonable in all the circumstances of the case for the applicant to receive for his maintenance.

3      Matters to which court is to have regard in exercising powers under s. 2.

(1)    Where an application is made for an order under section 2 of this Act, the court shall, in determining whether the disposition of the deceased’s estate effected by his will or the law relating to intestacy, or the combination of his will and that law, is such as to make reasonable financial provision for the applicant and, if the court considers that reasonable financial provision has not been made, in determining whether and in what manner it shall exercise its powers under that section, have regard to the following matters, that is to say—

(a)    the financial resources and financial needs which the applicant has or is likely to have in the foreseeable future;

(b)    the financial resources and financial needs which any other applicant for an order under section 2 of this Act has or is likely to have in the foreseeable future;

(c)    the financial resources and financial needs which any beneficiary of the estate of the deceased has or is likely to have in the foreseeable future;

(d)    any obligations and responsibilities which the deceased had towards any applicant for an order under the said section 2 or towards any beneficiary of the estate of the deceased;

(e)    the size and nature of the net estate of the deceased;

(f)     any physical or mental disability of any applicant for an order under the said section 2 or any beneficiary of the estate of the deceased;

(g)    any other matter, including the conduct of the applicant or any other person, which in the circumstances of the case the court may consider relevant.

(3)    Without prejudice to the generality of paragraph (g) of subsection (1) above, where an application for an order under section 2 of this Act is made by virtue of section 1(1)(c) or 1(1)(d) of this Act, the court shall, in addition to the matters specifically mentioned in paragraphs (a) to (f) of that subsection, have regard to the manner in which the applicant was being or in which he might expect to be educated or trained, …

(5)    In considering the matters to which the court is required to have regard under this section, the court shall take into account the facts as known to the court at the date of the hearing.

(6)    In considering the financial resources of any person for the purposes of this section the court shall take into account his earning capacity and in considering the financial needs of any person for the purposes of this section the court shall take into account his financial obligations and responsibilities.

Illot v. Blue Cross [2017] UKSC

Lord Hughes stated:

’12.      The concept of “reasonable financial provision” is thus, by the closing words of section 1(1), made central to the jurisdiction to depart from the will or intestacy rules, as the case may be. … In the case of all other applicants, however, section 1(2)(b) makes clear that reasonable financial provision means such provision as it would be reasonable for the applicant to receive for maintenance.

13.          This limitation to maintenance provision represents a deliberate legislative choice and is important. Historically, when family provision was first introduced by the 1938 Act, all claims, including those of surviving unseparated spouses, were thus limited. That demonstrates the significance attached by English law to testamentary freedom. The change to the test in the case of surviving unseparated spouses was made by the 1975 Act, following a consultation and reports by the Law Commission: Law Com No 52, [1973] EWLC 52 (22 May 1973) and Law Com No 61, [1974] EWLC 61 (31 July 1974). The latter report made it clear that the recommendation was designed not to introduce, even in the case of surviving present spouses, a general power to re-write the testator’s will, but rather to bring provision for such spouses into line with the developing approach of the family court. That court had by then relatively recently acquired expanded powers to make lump sum and property adjustment orders, which were not limited to maintenance provision but increasingly recognised other factors such as the length of the marriage, the contributions to the family and so on (see section 25 Matrimonial Causes Act 1973). The mischief to which the change was directed was the risk of a surviving spouse finding herself in a worse position than if the marriage had ended by divorce rather than by death. For claims by persons other than spouses the maintenance limitation was to remain, and has done so. See in particular paras 14, 16, 19 and 24.

14.           The concept of maintenance is no doubt broad, but the distinction made by the differing paragraphs of section 1(2) shows that it cannot extend to any or every thing which it would be desirable for the claimant to have. It must import provision to meet the everyday expenses of living. In re Jennings, deceased [1994] Ch 286 was an example of a case where no need for maintenance existed. The claimant was a married adult son living with his family in comfortable circumstances, on a good income from two businesses. The proposition that it would be reasonable provision for his maintenance to pay off his mortgage was, correctly, firmly rejected – see in particular at 298F. The summary of Browne-Wilkinson J in In re Dennis, deceased [1981] 2 All ER 140 at 145-146 is helpful and has often been cited with approval:

“The applicant has to show that the will fails to make provision for his maintenance: see In re Coventry (deceased) … [1980] Ch 461. In that case both Oliver J at first instance and Goff LJ in the Court of Appeal disapproved of the decision in In re Christie (deceased) … [1979] Ch 168, in which the judge had treated maintenance as being equivalent to providing for the well-being or benefit of the applicant. The word ‘maintenance’ is not as wide as that. The court has, up until now, declined to define the exact meaning of the word ‘maintenance’ and I am certainly not going to depart from that approach. But in my judgment the word ‘maintenance’ connotes only payments which, directly or indirectly, enable the applicant in the future to discharge the cost of his daily living at whatever standard of living is appropriate to him. The provision that is to be made is to meet recurring expenses, being expenses of living of an income nature. This does not mean that the provision need be by way of income payments. The provision can be by way of a lump sum, for example, to buy a house in which the applicant can be housed, thereby relieving him pro tanto of income expenditure. Nor am I suggesting that there may not be cases in which payment of existing debts may not be appropriate as a maintenance payment; for example, to pay the debts of an applicant in order to enable a him to continue to carry on a profit-making business or profession may well be for his maintenance.”

Thus in that case a claim against a large estate by an adult son failed when it was put as a claim for a capital sum to meet the capital transfer tax payable on a sizeable gift made to the claimant by the deceased during his lifetime, which gift the former had wasted away. The judge made the assumption, perhaps generously to the claimant, that bankruptcy would be likely if such a legacy were not directed, but that did not make the suggested sum provision for maintenance; the claimant was well able to work, despite a chequered history of drifting from occupation to occupation, and even if bankrupt was well capable of maintaining himself.

15.            The level at which maintenance may be provided for is clearly flexible and falls to be assessed on the facts of each case. It is not limited to subsistence level. Nor, although maintenance is by definition the provision of income rather than capital, need it necessarily be provided for by way of periodical payments, for example under a trust. It will very often be more appropriate, as well as cheaper and more convenient for other beneficiaries and for executors, if income is provided by way of a lump sum from which both income and capital can be drawn over the years, for example on the Duxbury model familiar to family lawyers (see Duxbury v Duxbury (Note) [1992] Fam 62). Lump sum orders are expressly provided for by section 2(1)(b). There may be other cases appropriate for lump sums; the provision of a vehicle to enable the claimant to get to work might be one example and, as will be seen, the present case affords another. As Browne-Wilkinson J envisaged (obiter) in In re Dennis (above) there is no reason why the provision of housing should not be maintenance in some cases; families have for generations provided for the maintenance of relatives, and indeed for others such as former employees, by housing them. But it is necessary to remember that the statutory power is to provide for maintenance, not to confer capital on the claimant. Munby J (as he then was) rightly made this point clear in In re Myers [2004] EWHC 1944 (Fam)[2005] WTLR 851 at paras 89-90 and 99-101. He ordered, from a very large estate, provision which included housing, but he did so by way not of an outright capital sum but of a life interest in a trust fund together with power of advancement designed to cater for the possibility of care expenses in advanced old age. If housing is provided by way of maintenance, it is likely more often to be provided by such a life interest rather than by a capital sum.

16.           The condition for making an order under the 1975 Act is that the will, or the intestacy regime, as the case may be, does not “make reasonable financial provision” for the claimant (section 1(1)). Reasonable financial provision is, by section 1(2), what it is “reasonable for [the claimant] to receive”, either for maintenance or without that limitation according to the class of claimant. These are words of objective standard of financial provision, to be determined by the court. The Act does not say that the court may make an order when it judges that the deceased acted unreasonably. That too would be an objective judgment, but it would not be the one required by the Act.

17.           Nevertheless, the reasonableness of the deceased’s decisions are undoubtedly capable of being a factor for consideration within section 3(1)(g), and sometimes section 3(1)(d). Moreover, there may not always be a significant difference in outcome between applying the correct test contained in the Act, and asking the wrong question whether the deceased acted reasonably. If the will does not make reasonable financial provision for the claimant, it may often be because the deceased acted unreasonably in failing to make it. For this reason it is very easy to slip into the error of applying the wrong test. It is necessary for courts to be alert to the danger, because the two tests will by no means invariably arrive at the same answer. The deceased may have acted reasonably at the time that his will was made, but the circumstances of the claimant may have altered, for example by supervening chronic illness or incapacity, and the deceased may have been unaware of the full circumstances, or unable to make a new will in time. In re Hancock, deceased [1998] 2 FLR 346 illustrates another possibility. The deceased had acted entirely reasonably in leaving his business land to those of his children who were active in the business, but after his death part of the land acquired a development value six times its probate assessment, and, that being the case, there was a failure to make reasonable provision for another daughter who was in straitened circumstances. Thus there can be a failure to make reasonable financial provision when the deceased’s conduct cannot be said to be unreasonable. The converse situation is still clearer. The deceased may have acted unreasonably, indeed spitefully, towards a claimant, but it may not follow that his dispositions fail to make reasonable financial provision for that claimant, especially (but not only) if the latter is one whose potential claim is limited to maintenance. In In re Jennings, for example, the deceased had unreasonably failed, throughout the minority of his son, the claimant, to discharge his maintenance obligations towards him. Many might say, as indeed the trial judge did, that this failure imposed an obligation on the deceased belatedly to provide for his son. But by the time of his death many years later the son had made his own successful way in the world and stood in no need of maintenance; his claim accordingly failed, correctly, in the Court of Appeal.

18.            The right test was well set out by Oliver J in In re Coventry [1980] Ch 461 at 474-475 in a passage which has often been cited with approval since:

“It is not the purpose of the Act to provide legacies or rewards for meritorious conduct. Subject to the court’s powers under the Act and to fiscal demands, an Englishman still remains at liberty at his death to dispose of his own property in whatever way he pleases or, if he chooses to do so, to leave that disposition to be regulated by the laws of intestate succession. In order to enable the court to interfere with and reform those dispositions it must, in my judgment, be shown, not that the deceased acted unreasonably, but that, looked at objectively, his disposition or lack of disposition produces an unreasonable result in that it does not make any or any greater provision for the applicant – and that means, in the case of an applicant other than a spouse for that applicant’s maintenance. It clearly cannot be enough to say that the circumstances are such that if the deceased had made a particular provision for the applicant, that would not have been an unreasonable thing for him to do and therefore it now ought to be done. The court has no carte blanche to reform the deceased’s dispositions or those which statute makes of his estate to accord with what the court itself might have thought would be sensible if it had been in the deceased’s position.”

19.           Next, all cases which are limited to maintenance, and many others also, will turn largely upon the asserted needs of the claimant. It is important to put the matter of needs in its correct place. For current spouses and civil partners (section 1(2)(a) and (aa)), need is not the measure of reasonable provision, but if it exists will clearly be very relevant. For all other claimants, need (for maintenance rather than for anything else, and judged not by subsistence levels but by the standard appropriate to the circumstances) is a necessary but not a sufficient condition for an order. Need, plus the relevant relationship to qualify the claimant, is not always enough. In In re Coventry the passage cited above was followed almost immediately by another much-cited observation of Oliver J:

“It cannot be enough to say ‘here is a son of the deceased; he is in necessitous circumstances; there is property of the deceased which could be made available to assist him but which is not available if the deceased’s dispositions stand; therefore those dispositions do not make reasonable provision for the applicant.’ There must, as it seems to me, be established some sort of moral claim by the applicant to be maintained by the deceased or at the expense of his estate beyond the mere fact of a blood relationship, some reason why it can be said that, in the circumstances, it is unreasonable that no or no greater provision was in fact made.”

20.            Oliver J’s reference to moral claim must be understood as explained by the Court of Appeal in both In re Coventry itself and subsequently in In re Hancock, where the judge had held that there was no moral claim on the part of the claimant daughter. There is no requirement for a moral claim as a sine qua non for all applications under the 1975 Act, and Oliver J did not impose one. He meant no more, but no less, than that in the case of a claimant adult son well capable of living independently, something more than the qualifying relationship is needed to found a claim, and that in the case before him the additional something could only be a moral claim. That will be true of a number of cases. Clearly, the presence or absence of a moral claim will often be at the centre of the decision under the 1975 Act.

21.           Oliver J’s reference to necessitous circumstances not by themselves always being sufficient is illustrated by Cameron v Treasury Solicitor [1996] 2 FLR 716. The claimant was the former wife of the deceased. She had been divorced from him 19 years before his death and their matrimonial finances had been settled by a lump sum paid to her as a clean break. There had been no financial relationship between them for the next 19 years, although they had remained in touch. The fact that she was in necessitous circumstances was held not to create any obligation on him to provide for her from his estate; that there was no other claimant and his small estate passed as bona vacantia to the Crown did not alter the fact that their personal and financial relationship was long in the past. Thus cases of long estrangement may, according to the judge’s assessment of the particular facts, be an example of the proposition that needs are not always enough to justify a claim under the Act. In most cases of clean break matrimonial settlement, the family court order will these days incorporate, as often as not by consent, a direction under section 15 that neither spouse shall be entitled to make any claim under the 1975 Act from the estate of the other.

22.            Nor, if the conclusion is that reasonable financial provision has not been made, are needs necessarily the measure of the order which ought to be made. It is obvious that the competing claims of others may inhibit the practicability of wholly meeting the needs of the claimant, however reasonable. It may be less obvious, but is also true, that the circumstances of the relationship between the deceased and the claimant may affect what is the just order to make. Sometimes the relationship will have been such that the only reasonable provision is the maximum which the estate can afford; in other situations, the provision which it is reasonable to make will, because of the distance of the relationship, or perhaps because of the conduct of one or other of the parties, be to meet only part of the needs of the claimant.’

Lady Hale (with whom Lord Kerr and Lord Wilson agreed) stated:

60.   The only guidance the court is given is: (1) the threshold question is whether the estate makes reasonable financial provision for the applicant; (2) if it does not, the actual provision to be ordered is limited to what is reasonable for the claimant’s maintenance (unless the applicant is a spouse or civil partner); and (3) that in deciding both of those questions, the court has to have regard to the matters listed in section 3 (see para 11 above). These look at the actual and foreseeable financial resources and needs of the applicant, any other applicant and any beneficiary; the obligations and responsibilities of the deceased towards any applicant or beneficiary; the size and nature of the estate; any physical or mental disability of any applicant or beneficiary; and any other matter, including the conduct of the applicant or any other person, which the court may consider relevant. In the case of children, the court must also consider the manner in which the claimant has been, is being or might be expected to be educated or trained. Section 1(7) of the 1938 Act, requiring the court to have regard to any reasons given by the deceased for making or not making the dispositions in his will, has been repealed: the reasonableness or otherwise of the testator’s dispositions [and NB not T’s decision] was to be tested objectively; the Commission agreed with Michael Albery that if the testator’s reasons were “good and founded on fact” they would be relevant under “other matters”, so there was no need to mention them separately (para 3.23).

61.     As Black LJ wisely observed when this case first came before the Court of Appeal: [2011] EWCA Civ 346[2011] 2 FCR 1, para 88:

“A dispassionate study of each of the matters set out in section 3(1) will not provide the answer to the question whether the will makes reasonable financial provision for the applicant, no matter how thorough and careful it is. … [S]ection 3 provides no guidance about the relative importance to be attached to each of the relevant criteria. So between the dispassionate study and the answer to the first question lies the value judgment to which the authorities have referred. It seems to me that the jurisprudence reveals a struggle to articulate, for the benefit of the parties in the particular case and of practitioners, how that value judgment has been, or should be, made on a given set of facts.” [This is a litigation risk in an Inheritance Act Claim]

62.    How then is the court to “distinguish between the deserving and the undeserving”? It might be thought, for example, that in the case of a large estate consisting mostly of inherited property, the children ought to inherit even if they are not in need. But that would run counter to the restriction of their claims to reasonable maintenance. It would also run counter to the approach long taken in the law of inter vivos financial provision for adult children. Thus in Lord Lilford v Glynn [1979] 1 WLR 78, the judge had ordered a father, in addition to making periodical payments and providing for his daughters’ education, to make an immediate settlement upon them of £25,000 (a not inconsiderable sum in those days). The Court of Appeal held that “a father – even the richest father – ought not to be regarded as under ‘financial obligations [or] responsibilities’ to provide funds for the purpose of such settlements as are envisaged in this case on children who are under no disability and whose maintenance and education is secure” (p 85). That, of course, was a value judgment which may or may not have been based on a view that such provision ought to be “earned”. But it could be justified under the Matrimonial Causes Act 1973, because it contains age limits on the provision which may be ordered for children unless they are disabled, with the obvious aim of seeing them into adulthood and beyond that only to the end of their education. The 1975 Act contains no such age or disability related limits. So once again we are driven to ask what makes an adult child deserving or undeserving of reasonable maintenance?

63.    One factor which is not in the list, but which does feature elsewhere in family law, is the public interest in family members discharging their responsibilities towards one another so that these do not fall upon the state. In the well-known case of Hyman v Hyman [1929] AC 601, the House of Lords held that the court’s statutory powers to order a divorced husband to maintain his former wife were granted “partly in the public interest to provide a substitute for this husband’s duty of maintenance and to prevent the wife from being thrown upon the public for support” (per Lord Atkin, at p 629; see also Lord Hailsham LC, at p 608). However, while the common law recognised a husband’s duty to maintain his wife and his infant children (reluctant though it was to provide effective means of enforcing this), it did not recognise a duty to maintain adult children. Public law, similarly, has not (at most periods) imposed the intra-familial maintenance duties which are known, for example, in French law. So what, if anything, is the relevance of the fact that an applicant’s household is very largely dependent on state benefits (in this case some 75% of their income) to the threshold question, let alone to the quantification of any order to be made?

64.    For these reasons, I have every sympathy for the difficult position in which District Judge Million found himself. He was faced with the complete disinheritance of an adult child in favour of charities in which the deceased had shown little or no interest while alive. The adult child was in straitened circumstances, living in rented accommodation which was almost entirely financed by the public purse, through housing and council tax benefit. These benefits were means-tested by reference to income and to capital and would be lost if there were capital of more than £16,000. The family lived within its modest means, but these too were largely derived from the public purse, the husband’s meagre earnings being supplemented by tax credit, child tax credit and child benefit. Apart from child benefit, these were means-tested, but by reference only to income and not capital. The household goods were old and dilapidated – the family could do with another car, some furniture and carpets and white goods, and had never had a holiday, so it might be regarded as reasonable to spend money on these and thus quite quickly reduce a capital sum to below £16,000 without incurring penalties. On the other hand, mother and daughter had been estranged since the daughter left home to live with and then marry her husband, of whom the mother disapproved, three attempts at reconciliation having failed. The mother had left a letter explaining why she had disinherited her daughter, which the district judge did not find wholly “founded on truth”.

65.    So what was he to do? A respectable case could be made for at least three very different solutions:

(1)     He might have declined to make any order at all. The applicant was self-sufficient, albeit largely dependent on public funds, and had been so for many years. She had no expectation of inheriting anything from her mother. She had not looked after her mother. She had not contributed to the acquisition of her mother’s wealth. Rather than giving her mother pleasure, she had been a sad disappointment to her. The law has not, or not yet, recognised a public interest in expecting or obliging parents to support their adult children so as to save the public money. Thus it is not surprising that Eleanor King J regarded this as the reasonable result: [2009] EWHC 3114 (Fam)[2010] 1 FLR 1613. The Court of Appeal allowed the appeal on the basis that the District Judge had not erred in law and the exercise of his discretion had not been plainly wrong, so Eleanor King J should not have interfered. But Sir Nicholas Wall P commented that (as Wilson LJ had observed when giving permission to appeal) had the District Judge dismissed the claim “I doubt very much whether the appellant would have secured reversal of that dismissal on appeal” (para 59).

(2)    He might have decided to make an order which would have the dual benefits of giving the applicant what she most needed and saving the public purse the most moneyThat is in effect what the Court of Appeal did, by ordering the estate to pay enough money to enable her to buy the rented home which the housing association was willing to sell to her and a further lump sum to draw down as she saw fit. Housing is undoubtedly one of the first things that anyone needs for her maintenance, along with food and fuel. This was benefits-efficient from her point of view, because it preserved the family’s claims to means-tested income benefitsIt was benefits-efficient from the public’s point of view, because it saved the substantial sums payable in housing benefit. She would lose the benefit of the landlord’s repairing obligations, but how valuable this would be is a matter of speculation. It is difficult to reconcile the grant of an absolute interest in real property with the concept of reasonable provision for maintenance: buying the house and settling it upon her for life with reversion to the estate would be more compatible with that. But the court envisaged her being able to use the capital to provide herself with an income to meet her living costs in future.

(3)     He might have done what in fact he did for the reasons he did. He reasoned that an income of £4,000 per year would provide her with her “share” of the household’s tax credit entitlement and capitalised this in a rough and ready way, taking into account some future limited earning potential, at £50,000. He did not expressly consider, and was not presented with the information to enable him to consider, the effect that this would have on the family’s benefit entitlements, and in particular the fact that they would lose their entitlement to housing benefit until their capital was reduced below £16,000.

66.              Some might think that the best choice was between options (1) and (2). Option (1) was not, however, open to the Court of Appeal this time round and is not open to this Court now. The case for option (2) is that, if it is reasonable for the applicant to receive some support, it is reasonable for that support to be meaningful to her and her family, as well as to the public purse. Securing her accommodation is more meaningful than proving her with a capital sum which will be of little use unless she is able properly to reduce it within a relatively short time. This is not to down-play the public interest in charitable giving and the importance of legacies in the funding of charitable activities. But just as the applicant had no expectation of a legacy, neither did the charities. However, the greater the weight attached to testamentary freedom, the smaller the provision which might be thought reasonable in an unusual case such as this. It is, as Black LJ observed, a value judgment. The District Judge did not make his order on the express basis that it would enable the applicant to buy much needed household goods and have a family holiday, but that will be its beneficial effect. Hence I agree with Lord Hughes that it was entirely open to him to make the order that he did, and just as it should not have been disturbed first time round it should not have been disturbed this time either. I have written this judgment only to demonstrate what, in my view, is the unsatisfactory state of the present law, giving as it does no guidance as to the factors to be taken into account in deciding whether an adult child is deserving or undeserving of reasonable maintenance. I regret that the Law Commission did not reconsider the fundamental principles underlying such claims when last they dealt with this topic in 2011.’

Miles v Shearer [2021] – Sir Julian Flaux, Chancellor of the High Court

The Chancellor stated:

76.  The statutory framework thus involves two questions: (1) has there been a failure to make reasonable financial provision and, if so, (2) what order ought to be made? However, there is in most cases, including this one, a very large degree of overlap between the two questions, not least because, in setting out the factors to be considered by the Court, section 3(1) of the 1975 Act makes them applicable equally to both questions. The correct approach is set out by Lord Hughes JSC giving the leading judgment in the Supreme Court in Ilott v Mitson (No 2) [2017] UKSC 17[2018] AC 545 at [23]-[24]:

“23. It has become conventional to treat the consideration of a claim under the 1975 Act as a two-stage process, viz (1) has there been a failure to make reasonable financial provision and if so (2) what order ought to be made? That approach is founded to an extent on the terms of the Act, for it addresses the two questions successively in, first, section 1(1) and 1(2) and, second, section 2 . In In re Coventry [1980] Ch 461, 487 Goff LJ referred to these as distinct questions, and indeed described the first as one of value judgment and the second as one of discretion. However, there is in most cases a very large degree of overlap between the two stages. Although section 2 does not in terms enjoin the court, if it has determined that the will or intestacy does not make reasonable financial provision for the claimant, to tailor its order to what is in all the circumstances reasonable, this is clearly the objective. Section 3(1) of the Act, in introducing the factors to be considered by the court, makes them applicable equally to both stages. Thus the two questions will usually become: (1) did the will/intestacy make reasonable financial provision for the claimant and (2) if not, what reasonable financial provision ought now to be made for him?

24. There may be some cases in which it will be convenient to separate these questions, particularly if there is an issue whether there was any occasion for the deceased to make any provision for the claimant. But in many cases, exactly the same conclusions will both answer the question whether reasonable financial provision has been made for the claimant and identify what that financial provision should be. In particular, questions arising from the relationship between the deceased and the claimant, questions relating to the needs of the claimant, and issues concerning the competing claims of others, are all equally applicable to both matters. The Act plainly requires a broad-brush approach from the judge to very variable personal and family circumstances. There can be nothing wrong, in such cases, with the judge simply setting out the facts as he finds them and then addressing both questions arising under the Act without repeating them…”

77.   The 1975 Act provides in section 1(2) that reasonable financial provision is what it is “reasonable for [the applicant] to receive”, in this instance for maintenance. As Lord Hughes noted at [16] of Ilott these are words of objective standard to be determined by the Court. He cautioned at [17] that, asking whether the deceased acted reasonably is to ask the wrong question under the Act:

 “Nevertheless, the reasonableness of the deceased’s decisions are undoubtedly capable of being a factor for consideration within section 3(1)(g), and sometimes section 3(1)(d). Moreover, there may not always be a significant difference in outcome between applying the correct test contained in the Act, and asking the wrong question whether the deceased acted reasonably. If the will does not make reasonable financial provision for the claimant, it may often be because the deceased acted unreasonably in failing to make it. For this reason it is very easy to slip into the error of applying the wrong test. It is necessary for courts to be alert to the danger, because the two tests will by no means invariably arrive at the same answer. The deceased may have acted reasonably at the time that his will was made, but the circumstances of the claimant may have altered, for example by supervening chronic illness or incapacity, and the deceased may have been unaware of the full circumstances, or unable to make a new will in time.”

78.   Although all cases under the 1975 Act turn on their own facts, it is of significance that, in cases other than those of spouses or civil partners, reasonable financial provision is limited to such provision as it would be reasonable for the applicant to receive for maintenance. The significance of this limitation was emphasised by Lord Hughes JSC in [13]-[14] of Ilott:

“13. This limitation to maintenance provision represents a deliberate legislative choice and is important. Historically, when family provision was first introduced by the 1938 Act, all claims, including those of surviving unseparated spouses, were thus limited. That demonstrates the significance attached by English law to testamentary freedom. The change to the test in the case of surviving unseparated spouses was made by the 1975 Act, following a consultation and reports by the Law Commission…[He then noted the mischief to which the change in the law recommended by the Law Commission was directed] The mischief to which the change was directed was the risk of a surviving spouse finding herself in a worse position than if the marriage had ended by divorce rather than by death. For claims by persons other than spouses the maintenance limitation was to remain, and has done so.

14. The concept of maintenance is no doubt broad, but the distinction made by the differing paragraphs of section 1(2) shows that it cannot extend to any or every thing which it would be desirable for the claimant to have. It must import provision to meet the everyday expenses of living.”

79.   Lord Hughes then went on to cite the summary of Browne-Wilkinson J in In re Dennis, decd [1981] 2 All ER 140, 145-146, which, as he says: “is helpful and has often been cited with approval”:

“The applicant has to show that the will fails to make provision for his maintenance: see In re Coventry [1980] Ch 461. In that case both Oliver J at first instance and Goff LJ in the Court of Appeal disapproved of the decision in In re Christie [1979] Ch 168, in which the judge had treated maintenance as being equivalent to providing for the well-being or benefit of the applicant. The word ‘maintenance’ is not as wide as that. The court has, up until now, declined to define the exact meaning of the word ‘maintenance’ and I am certainly not going to depart from that approach. But in my judgment the word ‘maintenance’ connotes only payments which, directly or indirectly, enable the applicant in the future to discharge the cost of his daily living at whatever standard of living is appropriate to him. The provision that is to be made is to meet recurring expenses, being expenses of living of an income nature. This does not mean that the provision need be by way of income payments. The provision can be by way of a lump sum, for example, to buy a house in which the applicant can be housed, thereby relieving him pro tanto of income expenditure. Nor am I suggesting that there may not be cases in which payment of existing debts may not be appropriate as a maintenance payment; for example, to pay the debts of an applicant in order to enable him to continue to carry on a profit-making business or profession may well be for his maintenance.”

80.   The claimants are both adult children of the deceased, who had lived their own lives and made their own lifestyle decisions without any further financial assistance from Tony [the deceased Testator] after the gifts in 2008. Contrary to [Counsel’s] submissions, what is “appropriate” in their cases is not comparable with what was appropriate in the case of a partner who had shared the life of the deceased, as in the case of Negus v Bauhouse [2008] EWCA Civ 1002 ….

82.   In my judgment the crucial distinction between a case of a cohabitee like Negus and the present case is that, in that case, the deceased was maintaining the claimant in the relevant expensive lifestyle at the time of his death, whereas here neither claimant was maintained in any sense by her father for the best part of ten years before his death. Contrary to what [Counsel] seemed to be suggesting, it is not a question of a different maintenance standard being applicable to the two types of case, but of how the standard is applied in widely differing factual situations.

96.   In all the circumstances, I do not consider that either claimant can demonstrate needs for maintenance which they cannot meet, if necessary by adjustment to their lifestyle as I have indicated. However, even if they could demonstrate such needs, for reasons developed below, I consider that these are outweighed by other factors under section 3(1)(d) and (g).

102  There is no legal obligation on a parent to maintain an adult child as there is for a child under 18. Section 3(1)(d) is concerned with obligations and responsibilities which the deceased had immediately before death, not in the past. This was made clear by the decision of the Court of Appeal in In re Jennings decd. [1994] Ch 286. In that case a middle-aged adult child sought an order for provision of a lump sum towards repayment of his mortgage against the estate of his father, who had neglected to maintain him throughout his childhood. The decision of the judge to award the lump sum on the basis that section 3(1)(d) could be construed as including legal obligations and responsibilities which the deceased had but failed to discharge when the applicant was a child, was reversed on appeal.

103  At 296D-E Nourse LJ said:

“In my respectful opinion that is an impossible construction of section 3(1)(d). While it is true that it requires regard to be had to obligations and responsibilities which the deceased “had,” that cannot mean “had at any time in the past.” At all events as a general rule, that provision can only refer to obligations and responsibilities which the deceased had immediately before his death. An Act intended to facilitate the making of reasonable financial provision cannot have been intended to revive defunct obligations and responsibilities as a basis for making it. Nor, if they do not fall within a specific provision such as section 3(1)(d), can they be prayed in aid under a general provision such as section 3(1)(g).

104. Likewise, at 300E-G, Henry LJ said:

“[The judge] held that the obligations under section 3(1)(d) need not exist at the time of death. In my judgment that was wrong as a matter of law. The deceased’s freedom of action to dispose of his property must be judged at the time of death, and it is only his then current obligations and responsibilities that must be taken into account. Some undischarged responsibilities from the past may still be current – for instance a child of the deceased might have given up a university place to nurse the deceased through his long last illness and now wish to go to take up that place. The moral obligation there would be both current and clear. But where the undischarged responsibility does not amount to an obligation present at the date of death, the statute does not require it to be taken into account.”

105. It follows that, under section 3(1)(d), the question is what if any obligations or responsibilities did Tony have towards either claimant at the time of his death in 2017. [Counsel] submitted that the answer was none. He had made the gifts to them in 2008 to buy flats and made it clear at that time that they could expect no more financial assistance. On their own case, they both asked for further financial assistance thereafter which he refused. He refused to help Juliet over her first divorce by buying out Steve. It was her mother who helped financially. Lauretta, at least through her mother, seems to have sought similar financial assistance with her divorce in 2016, but Tony again refused. As [Counsel] put it, by the time of his death, whatever obligations he had taken on in the past to bail the claimants out of their financial difficulties were defunct.

107.      [Counsel] relied upon what the judge concluded at [187]: “I do not consider that, objectively, Mary owed an obligation or responsibility to Hetty arising out of her role as quasi-parent to do more than give Hetty a sound financial start in life, which she did.” She also relied upon the fact that, in the section of his judgment headed “The value judgment” dealing with the question whether, viewed objectively, the deceased’s will failed to make reasonable provision for the applicant’s maintenance, the judge referred, at [200] to [201], to the adult child’s claim in In re Dennis and commented on the striking similarity between that case and the situation of the applicant before him. In my judgment, the most that can be drawn from Baynes v Hedger. in the case of an adult child such as each of the claimants, is that, in considering the factor under section 3(1)(d), the court should consider to what extent, at the time of death, the deceased had assumed responsibility for the maintenance of the relevant applicant. If the deceased has disclaimed responsibility, as Tony did in this case, that must be a relevant factual consideration militating against Tony having any obligations and responsibilities towards the claimants at the time of his death. On the basis of the decision of the Court of Appeal in In re Jennings, any obligations or responsibilities he may have had towards them when they were teenagers or in their early twenties are irrelevant.

111. As is clear from the findings I have made, I have concluded that Tony did not have any obligations or responsibilities towards either of the claimants at the time of his death for a number of reasons, which can be summarised as follows:

(1)    Whilst the claimants may well have enjoyed an affluent lifestyle until they were in their early twenties, when their parents divorced, they were not entitled to expect that standard of living indefinitely, nor did they in fact do so, given that, as I have held, the lifestyle choices they both made in terms of marriage and family were not dependent upon their father’s financial support at the time or contingent upon his financial support in the future. The issue, as In re Jennings makes clear, is what obligations and responsibilities Tony had towards either of them at the time of his death, not any obligations or responsibilities he may have assumed towards them up until his divorce from their mother some ten years earlier.

(2)    Tony had made generous provision for both claimants with the gift of money in 2008 which they were able to invest in property. He made it clear at that time that they could not expect any further financial assistance from him (which he repeated in his letter of 30 May 2008 to Lauretta). He maintained that position consistently, declining to assist them financially with their respective divorces. As I have said, that disclaimer of responsibility militates against his having any obligations or responsibilities towards either claimant at the time of his death.

(3)    Since I am not prepared to draw an adverse inference against Pamela or conclude that she lied when she denied revoking the mirror will, this is not a case, unlike In re Goodchild, where the deceased was under some moral obligation to either claimant at the time of his death. Lauretta was in any event not a beneficiary under either of the wills and the entitlement of Juliet and her children does not arise until Pamela’s death. No entitlement arose on Tony’s death.’

Investment Fund Fraud – Jurisdiction of English court

For a highly instructive and recent investment fraud case involving offshore vehicles, see: Van Zuylen v Whiston-Dew & Anor [2021] EWHC 2219 (Ch) (04 August 2021).

Van Zuylen v Whiston-Dew & Anor [2021] EWHC 2219 (Ch) (04 August 2021) (bailii.org)

See also:

See also:

‘Mediation of Fiduciary Disputes In Islamic Banking And Finance’

Mediation of Fiduciary Disputes In Islamic Banking And Finance | LinkedIn

Islamic Trusts’: Islamic Trusts | LinkedIn

Trusts Litigation after Brexit’Trust Litigation after BREXIT | Carl’s Wealth Planning Blog

‘Carl Islam – Certified Mediator’Carl Islam – Certified Mediator | LinkedIn

Van Zuylen v Whiston-Dew & Anor [2021]

CONTENTIOUS TRUSTS: EWHC allows investor to recover trust’s assets as remedy for fraud losses

Baroness Jacqueline Van Zuylen has won her claim against investment advisor Rodney Whiston-Dew for the return of GBP2.1 million she entrusted to him in 2011 but which he placed in various trusts and companies for his own use. She has traced some of the money to a charge held by a trust against land in Essex that the England and Wales High Court (EWHC) has now agreed can be regarded as the fruits of Whiston-Dew’s disposal of her money. Whiston-Dew, who is currently serving prison time for another fraud, unsuccessfully argued that he acted properly and honestly, that he is protected by the trust’s corporate veil and that the matter should have been determined by the courts of St Kitts and Nevis (Van Zuylen v Whiston-Dew and GBT Trust, 2021 EWHC 2219 Ch).’ STEP Industry News 05.08.2021.

‘In 2011, the Claimant, Baroness Jacqueline Van Zuylen made a decision that she now deeply regrets. She entrusted over £2.1 million – effectively her entire fortune – to the stewardship of the First Defendant, Mr Rodney Whiston-Dew. Less than half of this money has been returned to her and, with one exception, she has little idea of what has happened to the rest of it. The exception is that some of it (in her submission) is currently represented by advances made on the security of identified land in Essex. By means of this case she is now seeking to make recovery of her losses against the First Defendant and against the Second Defendant, a company incorporated in the Seychelles, now called GBT Global Limited, which I will refer to as “GBT”. Since 12 April 2018, after the events giving rise to claims in this action, GBT has been separately owned and controlled by Mr John Davis. Prior to this GBT was within the ownership and control of the First Defendant and was the vehicle that he used for dealing with the monies entrusted by the Claimant. …

The Claimant has a number of options in how she chooses to use her remedies in relation to the Relevant Charge.

In Re Hallett’s Estate; Knatchbull v Hallett (1880) 13 Ch D 696, Sir George Jessel MR acknowledged that where an asset was acquired exclusively with trust money, the beneficiary could either assert equitable ownership of the asset or enforce a lien or charge over it to recover the trust money. This principle was affirmed (and clarified in relation to its application to mixed assets) by Lord Millett in Foskett v McKeown [2001] 1 AC 102 (HL), 127. The Claimant has asked for the former remedy, although in view of my further findings below, I will give her an opportunity to consider whether this is the remedy that she seeks. …

A third defence that the First Defendant has attempted to raise was based on the proposition that this court had no jurisdiction as the matters in question fell to be determined by the courts of St Kitts and Nevis under the terms applicable to the Azure Trust. The First Defendant raised this challenge to the court’s authority very late in the proceedings and it was dismissed at a previous hearing. As well as being raised late, the point was utterly without merit given that the Claimant has not made any claim for breach of the Azure Trust and has never bound herself to any foreign jurisdiction. Her principal complaints against the First Defendant were based on his deceit, breach of fiduciary duty, breach of contract and breach of the general prohibition under the FSMA. In addition, I have found that the purported second Azure Trust, was used by the First Defendant as an instrument of deceit and as such it should be ignored.

In view of her success with these multiple causes of action, there are a number of ways in which the Claimant could claim for the remainder of loss. She can recover her loss from the First Defendant or from GBT or partly from each of them. Of course, she cannot recover her loss more than once.

In terms of quantifying the Claimant’s loss, her loss includes the difference between the monies that she entrusted to the First Defendant and GBT and the amount or value that she has received back from them.’

Extracts from the judgment of Mr Nicholas Thompsell sitting as a Deputy Judge of the High Court.

Legal Analysis – Further extracts from the judgment

‘(A) The overarching case

The Claimant, in her amended Particulars of Claim, has sought redress under a number of different headings. The Claimant’s overarching case is that she has been the victim of what Mr Dale describes as a “fraudulent scam” and which I would characterise as being most likely a form of Ponzi scheme.

[A Ponzi scheme is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. The scheme leads victims to believe that profits are coming from legitimate business activity, and they remain unaware that other investors are the source of funds].

Mr Dale put it very simply. She was deceived. She paid over her money, not as a gift, and wants it and its fruits to the extent that they are traceable, or compensation for being denied the ability to profit from its investment.

The First Defendant’s general response is that the monies were vested into the Azure Trust and that the Azure Trust did invest the Claimant’s money mainly by making loans against property as was envisaged.

I do not accept the First Defendant’s case on this. I do not consider that the Azure Trust was ever properly constituted. I consider that the evidence from the ledger accounts, and the inability of the First Defendant to produce any documentation for the various secured loans that he says were made, are not compatible with the contention that these arrangements were properly operated in the interests of the Claimant.

A large element of the First Defendant’s defence has involved his seeking to distance himself by claiming that the money went into one or other of the Azure Trusts that were created and accordingly that it is subject to the jurisdiction of a foreign court. The latter point is entirely without merit.

The First Defendant claims that he has never benefited from the personal receipt of the Claimant’s money, but it is clear that acting through GBT (which at the time was entirely his creature and was his instrument for wrongdoing) he did arrange for various unexplained payments to be made, at least some of which appear to have benefited companies or trusts associated with him, and he operated with no regard to conflicts of interest.

I have found that the second defendant, GBT, received the Claimant’s money. GBT accepts that, to the extent it did receive funds from the Claimant, and still holds them in a manner that they are identifiable as the Claimant’s funds, they are held on trust for the Claimant. The extent to which GBT is also the proper target of the other heads of claim was not much discussed during the course of the trial, but I will consider it below.

The Claimant, in her amended Particulars of Claim, sought redress under a number of different headings. These included various remedies available under the Financial Services and Markets Act 2000 (“FSMA”), under the tort of deceit, in contract, for breach of trust, for breach of fiduciary duty and in restitution. These claims, insofar as they were actively pursued into the trial, are considered further below.

(B) Deceit

The head of claim which Mr Dale was most keen to emphasise during the trial was that based on the tort of deceit. In the context of what may be the imminent bankruptcy of the First Defendant, as has been discussed above, Mr Dale was aware that, unlike some other heads of claim, this head of claim may continue to be enforceable after the end of any period of bankruptcy.

To make a claim in deceit a claimant must establish that the defendant: (a) made a representation, (b) that was false, (c) knowing it was false, not believing in its truth or not caring whether it was true or false, (d) intending it to be relied on; and that (e) the claimant relied on it, thereby suffering loss.

(a) Was there a representation?

It has been said that “fraud must be distinctly alleged and as distinctly proved”. It is important that the false representation relied upon is identified.

Perhaps, on the basis that it was obvious on the facts put in front of the court, Mr Dale did not spend very much time itemising the particular false representations that were relied on for the purposes of this claim, but when pressed on the point Mr Dale cited the express representations made at the money would be looked after within the Azure Trust by FLT acting as a trustee. The very act of setting up formal trust arrangements with a professional trustee company implied that the investments would be operated in a normal business-like manner. Even if this was not expressly said, there would have been a clear implication that FLT would have stewardship of the money, ensuring that uninvested monies were being held in bank accounts under its control, and that monies invested would be properly secured, for example by ensuring that there was proper documentation of any loan made and that any security would be held by the trustee or by a responsible nominee for the trustee. Furthermore, the involvement of a professional trustee implied that investment decisions would be made by reference solely to the interests of the beneficiaries and not so as to benefit anyone else involved and that conflicts of interest would be avoided, or at least, appropriately managed in accordance with the provisions of the trust deed and applicable law.

I have no doubt that these representations were made. To the extent (if any) that they were not made expressly, they were implied. It is established law that implied representations can form the basis of an action for deceit. Also, where there is a fiduciary relationship relation between the parties (as would have been the case here since the First Defendant was making arrangements as agent on behalf of the Claimant) the fiduciary may be under a duty to reveal information so that non-disclosure would be capable of amounting to a fraud at common law (see for example Conlon v Simms (1986) 18 H.L.R.219). This point is particularly relevant to the First Defendant’s failure to inform the Claimant about the refusal of FLT to act as trustee, leading to the first Azure Trust never being constituted and its purported replacement with a new Azure Trust where GBT would be trustee.

These representations were made by the First Defendant at or before the time that the Claimant started to send money. They were not, however, made by GBT, which remained unknown to the Claimant at this point. Even at a later point, the court has not been directed to any specific representation made by GBT that is said to form the basis of an action for deceit.

Of course, there is a distinction between a statement and a promise about the future. This opens the possibility that the First Defendant could argue that, at the time he started his business relationship with the Claimant, he genuinely intended to set up proper trust arrangements operating on the basis described above, and so the statement was either a promise about the future (which cannot form the basis of an action for deceit) or at most a true representation as to his current intentions.

There are two objections to such an argument.

The first is that, viewing the pattern of conduct I consider it far more likely than not that the First Defendant never intended the original Azure Trust to be set up on a proper and above board basis. If he had meant to do this, he would have ensured, or at least attempted, the transfer of the Claimant’s funds to FLT and would have made arrangements for him or GBT to be given some official standing in relation to the management of these investments. He would not have misrepresented to the Claimant that she was a protector in relation to the Azure Trust. When the trust arrangements with FLT failed, he would have honestly discussed this with the Claimant and obtained her consent to setting up GBT as a replacement trustee. He would have also made better efforts for GBT to be properly constituted as a trustee, for example arranging some form of succession from FLT and by appointing the Claimant as its principal beneficiary.

Furthermore, had the initial Azure Trust arrangements been honestly conducted, he would not have regarded himself as being empowered to determine what payments should be made by the Trust. He would also have taken proper steps in relation to the custody of the assets, the documentation of loan terms and the holding of any security.

The second objection is that as the matter progressed there would have been continuing representations in this regard. The Claimant says that she had understood that FLT remained the Trustee throughout the period in which she was making the investments. Whilst it is possible that she did at some point become aware that GBT rather than FLT was purporting to act as trustee, given that she did see and sign documents referring to GBT as trustee, I do not believe that she was ever given a clear explanation that there had been a change of trustee and the implications of this. Even if she thought that at some stage GBT had become the trustee she would still have relied on a continuing implied representation that there would at least be an attempt to run matters run on a proper business-like basis by a trustee who would be making investment decisions for her benefit and taking the appropriate steps to secure her investments. It is clear from the facts as I have found them above that this did not happen, rendering such continuing representations false.

(b) Was the representation false?

It will be clear from my description of the arrangements that the arrangements that were made in no way matched the express or implied representations I describe above.

(c) Did the First Defendant know the representation to be false?

The First Defendant (with many years’ experience as a solicitor operating in the field of international trusts) must have understood what he told the Claimant and what were the implications of this and must have clearly understood that the way that he was arranging for the Claimant’s monies to be dealt with did not meet the position as he had represented it.

His various dealings with the Claimant indicate that he continued to seek to provide false reassurance that everything was in order through such devices as getting her to sign letters suggesting that she was the “protector” of the Azure Trust when he knew that she was not, and a letter of wishes which he had no intention of observing; by producing from time to time statements suggesting that her investments were going well. He made payments to her knowing that she would have assumed that they came from the Azure Trust but which in fact seem to have in some cases to have been funded by transfers from ledgers held by other clients of GBT.

The Claimant gave evidence that the First Defendant was adroit in controlling the meetings that he had with her so that the time spent with her was mostly wasted in small talk and any business element was left to be hurried at the end of the meeting so that she was not left with time to consider what was said or any document that was put in front of her. The fact that the First Defendant did not provide written explanations for her to keep is also consistent with an intention to deceive.

(d) Did the First Defendant rely on the representation and thereby suffer loss?

It is clear that the Claimant acted in the way that the First Defendant intended for her to do. She sent her money to the solicitors’ accounts controlled by GBT. It is fair to conclude, and I do conclude, that she was doing so in reliance on these representations. I have given consideration to the possibility that the Claimant’s naïveté in financial matters was such that she would have sent the money to GBT even if plainly told that there was to be no proper trust arrangement put in place for her but I find this unlikely.

Judged on the figures that were placed before the court, it is equally clear that the Claimant has suffered loss as a result of her reliance on these representations. There is a large shortfall between the money that she has received back and the money which she put into the control of the First Defendant. As well as losing money, she has lost the prospect of a commercial return on that money over a lengthy period.

It is, of course, possible that, even if the arrangements had been operated in accordance with the terms that had been represented to her, that she might have lost money. That is a risk that any investor takes. However, on the basis of the express or implied representations made to her she was not expecting to have the additional risk that her monies would not be properly accounted for. Neither could she have expected that, where investments were made, they would not be properly protected by means of loan agreements or security, or that the trustee that she was told would be operating the fund would not do so and instead another company, with no credentials would act as trustee would do so (and would do so otherwise than on the basis of any appointment from FLT, the person represented as being the trustee who would have custody of her funds.

The arrangements were not as falsely represented, and she has suffered as a result.

It is just possible that these losses could be largely mitigated if the Relevant Charge is transferred to her and yields a substantial profit. Nevertheless, as things stand at present the Claimant has suffered a loss and the court should look for a suitable remedy for this.

I conclude, therefore, that a remedy for deceit is available to the Claimant against the First Defendant, but not against the Second Defendant.

(C) Breach of Fiduciary Duty

The Claimant has also claimed a remedy for breach of fiduciary duty. Again not much time was spent discussing the elements of this cause of action during the course of the trial. The Claimant’s submissions in this regard are largely those set out in the skeleton arguments produced in relation to the opening of the trial.

In their skeleton argument, Mr Dale and Mr Benson reminded me of the nature of a fiduciary. A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is a duty of loyalty: a fiduciary must act in good faith, must not profit out of his trust, and may not act for his own benefit for that of a third person without the informed consent of his principal. Counsel referred me in this regard to Bristol and West Building Society v Motthew [1998] Ch 1, 18, per Millet LJ. Additionally, a person exercising a fiduciary power must not exercise it “for a purpose, or with an intention, beyond the scope of or not justified by the instrument creating the power” as was said in Vatcher v Paull [1915] 1 A.C. 372 (PC), 378, by Lord Parker.

The First Defendant clearly took on a role as acting as agent for the Claimant. He received the Claimant’s money into a bank account controlled by him via his company GBT. The Claimant reposed trust and confidence in him as her adviser. He took on the direction of the investment (or at least the disposition) of that money. He purported to deal with FLT and with others on behalf of the Claimant.

I am reminded by counsel for the Claimant that an agent owes a fiduciary duty to his principal (see for example, FHR European Ventures LLP v Cedar Capital Partners LLC [2014] UKSC 45, [5], per Lord Neuberger). Certainly (in the absence of contractual provision to the contrary), an arrangement according to which an investment manager is given exclusive control over the assets of another gives rise to fiduciary duties (for which see SPL Private Finance (PF1) IC Ltd v Arch Financial Products LLP [2014] EWHC 4268 (Comm), [174], per Walker J).

I accept that the First Defendant should be regarded as a fiduciary and held to the duties applicable to a fiduciary.

The case put forward by the Claimant is that the First Defendant breached his personal fiduciary duties by the way in which he dealt with the Claimant’s monies. Instead of arranging for these to be held on an independent trust with proper supervision, as he said that he would, he kept control of those monies himself. The use to which these monies was put has never been properly explained. Nevertheless, there is enough information within the ledgers, as discussed above, for the court to conclude that these monies were not being used in a way to benefit the Claimant and in making the types of documented, secured investment that she had expected, but rather were used for his own purposes, which may have included accommodating other clients and which appear to have included transactions for his own benefit.

I consider that this case is made out. The First Defendant was in breach of his fiduciary duties and that the Claimant has suffered loss as a result.

Except insofar as a trustee may be considered to be a type of fiduciary, or at least to have fiduciary obligations, I do not think that any case has been made that GBT was acting as a fiduciary. I consider GBT’s liabilities as trustee below.

(D) Breach of the general prohibition under the FSMA

(a) The general prohibition

The Financial Services and Markets Act 2000 (the “FSMA”) includes provisions prohibiting a person from carrying out, or purporting to carry out, a regulated activity unless that person is an authorised or exempt person. This restriction is referred to as the “general prohibition”. The regulated activities to which the general prohibition applies are defined in section 22 FSMA. Under section 22 FSMA, a regulated activity is one which is specified for the purposes of the FSMA and is carried on by way of the business.

The Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (as amended) (the “RAO”) specifies various activities, which as a result become regulated activities for the purposes of the general prohibition. The Claimant, in her amended Particulars of Claim, identified various of these specified activities which she alleged the First Defendant to have undertaken.

Two of the types of activity that were originally pleaded on behalf of the Claimant were those of “accepting deposits” and of “safeguarding and administering investments”. However those arguments were not pursued at trial and I do not consider them further.

Mr Dale did, however, make a case for redress based on two further activities specified within the RAO.

(b) Managing investments

The first of these was that of managing investments. Article 37 RAO provides as follows:

“37. Managing investments

Managing assets belonging to another person, in circumstances involving the exercise of discretion, is a specified kind of activity if—

(a) the assets consist of or include any investment which is a security, structured deposit or a contractually based investment; or

(b) the arrangements for their management are such that the assets may consist of or include such investments, and either the assets have at any time since 29th April 1988 done so, or the arrangements have at any time (whether before or after that date) been held out as arrangements under which the assets would do so.

The Claimant’s case here was that the First Defendant, through GBT or otherwise, was in broad terms managing, or at least purporting to manage, the Claimant’s investments.

It may be objected that these investments did not comprise any of the types of assets listed in paragraph (a) of article 37 RAO on the basis that the investment remit was such as to avoid shares and similar securities. The assets were held either as balances on a solicitor’s account or were unsecured loans or loans charged on property.

In answer to this objection, Mr Dale makes the case that nevertheless under the arrangements agreed with the First Defendant, the First Defendant was to have an extremely broad discretion in selecting assets including assets which could have been of the type specified in part (a) of Article 37, and furthermore that at least one of the investments purchased was a shareholding (the investment in Future Properties Limited).

I will accept, therefore, that the First Defendant was managing himself or via GBT, or was purporting to manage the investment of assets that consisted of or included, or may have consisted of or have included investments of the types specified in article 37(a) RAO.

Usually article 37 RAO will not apply when property is being managed by a trustee because the assets are not assets belonging to another person – the assets are in the legal ownership of the trustee. This will usually mean that the trustee (and any director of the trustee who actually undertakes the activities on behalf of the trustee) will not fall within article 37.

I do not consider that in this case that argument is available to the First Defendant or the Second Defendant. First, even on the First Defendant’s own case that the arrangements were originally made under the auspices of the first Azure Trust, any activity undertaken by the First Defendant or GBT cannot have been made by them as owners in any sense of the assets before GBT purported itself to become a trustee. Secondly, it is my finding that the defendants cannot rely on the terms of the Azure Trust as being applicable. To the extent that GBT was holding any assets it was doing so under a bare trust and the position of a bare trustee is not sufficient to say for the purposes of article 37 RAO that the shares “belong” to the trustee so that the bare trustee is entitled to manage them.

The RAO contains various exclusions (listed at article 39 RAO) which could apply in certain circumstances but none of them are relevant to the circumstances under consideration here. Neither do I consider that there is any argument that the First Defendant and/or GBT were not acting by way of business when they were managing, or purporting to manage, the Claimant’s investments.

Breach of the general prohibition is a criminal offence. I am not sure that I have had sufficient information and argument to conclude to the standards required by the criminal law that the First Defendant and/or GBT committed this criminal offence. It may be that the Financial Conduct Authority will wish to look into this point. However, I consider that on the standard applicable in this civil case, that of the balance of probabilities, the case is made out that the First Defendant and the Second Defendant were in breach of the general prohibition either by managing investments on behalf of the Claimant or purporting to do so without being authorised or exempt to allow them to do this.

(c) Advising on investments

Article 53 RAO specifies the following activity (which therefore becomes a regulated activity if carried on by way of business):

53. Advising on investments

Advising a person is a specified kind of activity if the advice is—

(a) given to the person in his capacity as an investor or potential investor, or in his capacity as agent for an investor or a potential investor; and

(b) advice on the merits of his doing any of the following (whether as principal or agent)—

(i) buying, selling, subscribing for, exchanging, redeeming, holding or underwriting a particular investment which is a security, structured deposit or a relevant investment, or

(ii) exercising or not exercising any right conferred by such an investment to buy, sell, subscribe for, exchange or redeem such an investment.”

The specific act that the Claimant alleges that the First Defendant undertook which falls within this specified activity was when he advised her to cash in her existing investments in order to invest her money with him. There is no doubt that these existing investments included investments falling within article 53(b)(i).

The evidence that the First Defendant advised the Claimant to cash in her investments derives from the Claimant’s witness statement and oral evidence. She said in her witness statement that:

“RWD persuaded me that he would be able to invest all of my savings on my behalf in such a way as to protect my capital and provide a monthly income for life. He said the property was much better than stocks or the share market, “especially on islands like England”. He said that he would be looking after my money. He was very convincing, and I trusted him completely”.

The Claimant elaborated on this statement during her oral evidence. She was clear that she had specifically been advised by the First Defendant that her existing investments were not appropriate for her needs and that she should sell them in order to allow him to provide better investments.

As Mr Dale points out, if this is correct, the arrangements are very similar to those that were dealt with by the court in the recent case of Adams v Options UK Personal Pensions LLP [2021] EWCA Civ 474, where the Court of Appeal (at paragraph 75) approved a dictum by Henderson J that, in drawing the line between what amounted to providing information what amounted to advice that “any element of comparison or evaluation or persuasion is likely to cross the dividing line“.

The First Defendant does not really deal with this issue in his formal defence. However, in his first witness statement he discusses these meetings, mainly in the context of how he says he was instructed to set up trust arrangements. The relevant extracts from his witness statement relating to investment advice include the following:

“During the course of meetings to discuss and determine the strategy to be engaged with regard to the proposed litigation in Guernsey the claimant requested me to review the performance of her IFA, Financial Relationships LLP. The claimant complained that, whereas Rothschild’s Trust had performed badly enough, Financial Relationships LLP had overseen far greater losses. She complained that she had experienced continual difficulties in being able to secure sufficient payments to enable her to sustain her lifestyle. She instructed me to consider taking action against all them to recover losses.

The claimant asked me to advise her [if] what was left of the Rothschild and Financial Relationships funds could be invested to recover capital and yield sufficient to meet her lifestyle requirements. She was adamant that she wanted to avoid the share market and its uncertainties. Bank deposits were out of the question as annual returns were modest to the point of nominal.…

The claimant was adamant that she wished to change the basis of the Financial Relationships LLP investments and to seek opportunities to replace them and secure greater returns for the ultimate benefit of the claimant on a tax beneficial basis.…

The claimant took time to consider her options and ultimately reverted with instructions to proceed…”

The First Defendant, therefore, appears to have accepted that he reviewed her existing investments, although he says that this was in the context of advising whether there might be a case for litigation against her advisers. He also appears to accept that he was asked to advise on how the funds currently held by his advisers could be invested and he does not suggest that he refused to provide such advice. Whilst he indicates that the impetus for changing investments came from the Claimant, rather than from him, his explanation is not inconsistent with the Claimant’s explanation that he, in the context of having reviewed her existing portfolio, advised her that she could do better by investing in property.

It is important also to the context here that it is clear that the advice that the First Defendant is said to have given cannot be regarded as generic advice. It related to the specific investments in a portfolio that he had reviewed.

Mr Dale, quite properly, discharged his duties to the court by pointing out various exclusions to the application of article 53 RAO that are set out elsewhere within the RAO. These are listed at article 55 RAO.

Of these exclusions, the only one that might fall into consideration in this case is the exclusion at article 67 which applies where advice is given in the course of carrying on any professional business which does not otherwise consist of the carrying on of regulated activities in the United Kingdom. Under article 67(2) RAO, this exclusion does not apply if the activity in question is remunerated separately from the other services but there is no evidence or suggestion that this was the case.

However, in my view this exclusion does not apply here. For this exclusion to apply, it must be the case that the activities “may reasonably be regarded as a necessary part of other services provided in the course of that other profession or business“. I cannot see how it would be a necessary part of any other business carried on by the First Defendant that he should provide investment advice to the Claimant of the type given here. The proper course for him if he had been asked to advise the Claimant on whether she should sell her existing investments was for him to say that he was not authorised to provide investment advice and that she should discuss the matter with a qualified investment adviser. There is no suggestion in the evidence before the court that this is what he did.

Once again, I am not sure that I have had sufficient information and argument to conclude to the standards required by the criminal law that the First Defendant was breaching the general prohibition, and I will leave it to Financial Conduct Authority to consider whether it wishes to look into this point. However, I consider that on the standard of balance of probabilities applicable in this civil case the case is made out that the First Defendant was in breach of the general prohibition by advising or purporting to advise her to sell her existing investment portfolio without being authorised or exempt to provide that advice. For completeness, I will mention again that I do not consider that there is any argument that the First Defendant when doing this was not acting by way of business.

(d) The civil consequences of breach of the general prohibition

The civil law consequences that flow from a breach of the general prohibition are set out in section 26 FSMA. This provides as follows:

“26. Agreements made by unauthorised persons.

(1) An agreement made by a person in the course of carrying on a regulated activity in contravention of the general prohibition is unenforceable against the other party.

(2) The other party is entitled to recover–

(a) any money or other property paid or transferred by him under the agreement; and

(b) compensation for any loss sustained by him as a result of having parted with it.

(3) “Agreement” means an agreement–

(a) made after this section comes into force; and

(b) the making or performance of which constitutes, or is part of, the regulated activity in question.

(4) This section does not apply if the regulated activity is accepting deposits.”

Accordingly, section 26 provides a separate means of recourse for the Claimant entitling her to recover any property that she has transferred and compensation for any loss she has sustained to having parted with her property.

(E) Breach of contract and rescission

The Claimant in her amended Particulars of Claim has also claimed a remedy in contract and in relation to the rescission of that contract. Very little time was spent discussing these causes of action during the course of the trial as Mr Dale on behalf of the Claimant preferred to concentrate on questions of fraudulent conduct, breach of trust, breach of duty and deceit. The Claimant’s submissions in this regard were largely confined to those set out in the skeleton arguments produced in relation to the opening of the trial.

As a result, no time was spent at trial analysing the formation or terms of any contract between the Claimant and the First Defendant. I do not think it has ever been alleged that there was a contract between the Claimant and GBT.

It may well be that a case can be made out in contract and in relation to the rescission of that contract, but that case was not sufficiently explored at trial for me to reach any meaningful decision about the matter, nor do I need to, in view of what I have found in relation to some of the other causes of action pleaded. Accordingly, I will not make any determination on this question.

(F) Restitution

A further claim made in the Claimant’s amended Particulars of Claim was a right to restitution on the grounds of unjust enrichment. Again this point was not pursued in any detail at trial and, given what I find in relation to other matters there is no need for me to make any finding in relation to this.

(G) Breach of Trust

(a) Who held assets on trust?

As noted above, for various reasons I agree with the contention made on behalf of the Claimant that the funds were never held on the terms of the so-called Azure Trust. That purported trust was an instrument of fraud and any purported transfers to it were void, with the result the purported trustee held any funds received on constructive or resulting trust for the Claimant.

The Claimant goes further and argues that, because GBT was the First Defendant’s creature and nominee, its receipt of money can be treated as the First Defendant’s receipt of money following Prest v Petrodel Resources Ltd [2013] UKSC 34 and its analysis of Gencor ACP Ltd v Dalby [2000] 2 BCLC 734 (which I deal with in more detail below).

I do not agree that these cases can be read as having this effect. It is one thing to say that, where a wholly owned company is used for the purposes of carrying out a fraud, the use of a company does not afford a defence to its owner for his own wrongdoing. It is another to seek to reassign who should be regarded as the legal owner of the property in question. The First Defendant was never an owner of the assets held by GBT and in the absence of an ownership interest it is difficult to see how he could be regarded as a trustee. He may have brought about a breach of trust by GBT, and may be liable for doing that, but it is not correct to regard him as the person holding assets on trust for the Claimant.

I do accept, however, that GBT, insofar as it held assets deriving from the Claimant was doing so as a bare trustee.

It is clear that in transferring funds into the control of GBT the Claimant was not intending to gift them to GBT, or to the First Defendant, and it must be the case that GBT held such funds as it received upon trust from the moment of their receipt into a solicitors’ account controlled by it.

(b) The nature of the trust

The precise legal analysis for the classification of this trust is not particularly important in this context. Given the Claimant’s lack of awareness about GBT it seems unlikely that the funds were being received by GBT under the terms of an express trust. The facts better fit an analysis that the arrangements be analysed as having given rise to a constructive trust or a resulting trust.

There are various ways in which a constructive trust could be said to have arisen. As noted by Lord Browne-Wilkinson in Westdeutsche Landesbank Girozentrale v Islington L.B.C. [1996] AC 669 (HL), 715, if money is paid to someone by mistake and he knows of the mistake but retains the money, he is a constructive trustee of the money for the payer.

Similarly, if a transfer is induced by a fraudulent misrepresentation, the transferee will hold the transferred funds on trust for the transferor once the transaction is rescinded, as was found in National Crime Agency v Robb [2015] Ch 520. That case is also authority for the proposition that a constructive trust will also arise where the contract begins as a legitimate transaction but is later affected by supervening fraud.

However, the principle that a constructive trust will arise only at the point of rescission is subject to an exception where the transfer is not merely induced by fraud but is itself nothing more than an instrument of fraud, as explained in Global Currency Exchange Network Ltd v Osage 1 Ltd [2019] EWHC 1375 (Comm). In that case Andrew Henshaw QC, sitting as a deputy judge of the High Court said (at [41] onwards):

“Lewin on Trusts, para 7-031 states as an exception to this principle that the rules relating to rescission are not requisite “where a contract is not merely induced by fraudulent misrepresentation but is itself the instrument of fraud and no more than a vehicle for obtaining money by false pretences”. GCEN relies on this exception. It argues that there is a real foundation for believing that Osage was operating a Ponzi scheme. If so, then investors would still own the Funds in equity without the need to rescind their investment contracts: the contract would have been merely a dishonest device to obtain money for which “it is meaningless to impose a requirement for the fraudster to be notified as ‘rescission'”: Halley v Law Society [2003] WTLR 845, para 48. The situation would be “not simply a case of a valid contract being induced by fraud; but that the fraud so infected the whole transaction that it had no legal effect at all”, i e where “The ‘agreements’ were fictitious contracts … merely part of an elaborate charade (or mechanism) by which the loser was persuaded to part with his money”: ibid, para 45. On that basis, the position would be “akin to theft” with the result that the Funds would be immediately traceable by investors: Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669, 705C–D, 715H

Given what I have found in relation to deceit, and to the non-applicability of the terms of the Azure Trust, the description given here seems highly apposite to me and I think that GBT should be regarded as having held the funds throughout as a constructive trustee under an immediately effective constructive trust.

However the effect is little different if the arrangements are instead classified as giving rise to a resulting trust.

As explained in one of the leading works on trust law, Lewin on Trusts, (20th Edition at paragraph 8-002), a resulting trust arises by operation of law if a person makes a disposition of property upon trust but no trusts are effectively declared, or if the trusts that are declared failed to exhaust the beneficial interest.

If I am wrong that the arrangements gave rise to a constructive trust, then I see a strong argument that GBT was holding the assets on a resulting trust.

Either way, GBT should be regarded as holding these assets on bare trust and should be regarded as subject to the duties of trustee.

(d) Consequences of finding a trust

GBT has, rightly, not placed any reliance on the so-called Azure Trust and has accepted that the money transferred by the Claimant to it was held on a bare trust. It follows that GBT must account for this receipt and the fruits and that the Claimant is entitled to call for the money and an account at will.

GBT accepts that, to the extent it did receive funds from the Claimant, and still holds them in a manner such that they are identifiable as the Claimant’s funds, they are held on trust for the Claimant (although it does not accept that it is still holding any such funds). However, GBT, under the stewardship of Mr Davis, has been concerned to give due consideration to any other creditors. In this, I think Mr Davis has been operating quite properly. Mr Davis and his firm can be criticised for their original involvement in allowing the First Defendant to use the firm’s client account as if it were a bank account. They will need to account for their actions in this regard to the SRA and may well suffer regulatory sanctions as a result. However, my impression has been that since taking over GBT, Mr Davis has been doing his very best to act fairly in the interests of all of those who have a claim against GBT.

Mr Dale has asserted that GBT must be regarded as acting as a bare trustee of any asset that is holding on behalf of the Claimant. I agree. If this were the only money that GBT had received that was held on trust for anybody, then it would be right that returning the money subject to the trust would take precedence over the claims of any other creditors of GBT. However, GBT denies that it is still holding any of the Claimant’s money and also it seems highly unlikely that the Claimant’s money was the only money that had been held on trust by GBT. It seems likely from what the court has seen in the various ledgers that the Claimant is not the only victim of this Ponzi-like arrangement and that others too may well claim that GBT is holding their funds on a bare trust.

The casual way in which monies were transferred from one client of GBT to another makes it extremely difficult, if not impossible, to determine how far any particular balance or asset that GBT may have held at any point should be regarded as representing funds derived from one client of GBT or another. Where funds that were held on trust become mixed with other funds held on a different trust, and the total remaining is less than the amount needed to meet claims of all beneficiaries, then the funds remaining available will need to be shared amongst all those who have a valid equitable claim.

To the extent that GBT has received the trust funds and has not accounted for them, then Mr Dale is correct in his argument that GBT cannot deny an obligation to return money because it has parted with it or mingled it, in breach of trust. However that obligation to account is an unsecured claim (except to the extent that it might be secured by a lien over the Relevant Charge, as explained below). If, as I expect will prove to be the case, GBT does not have the assets to meet all of the claims that will be made against it, it will need to go into some form of insolvency proceedings. Its liquidator or administrator will have a hugely difficult task in working out what are the valid claims made against GBT and on what trusts any assets remaining to be held by GBT are held. The Claimant’s claim will need to take its place alongside other unsecured claims – behind secured claims and after repayment of any segregated funds that are substantiated to have been held on trust for others. In anticipating this likely outcome, I can understand Mr Davis’s caution about GBT paying or transferring assets to the Claimant ahead of other potential claimants without the sanction of a court order to justify this.

(H) Tracing into the Essex Land

(a) The Claimant’s tracing claim

The Claimant claims that she should be entitled to trace her monies into the charge over the Essex Land which I have defined at paragraph 115(d) above as the “Relevant Charge”.

During the trial the court heard that the existence of this charge, and of other charges over the property, are being disputed in a separate action. I have seen the Particulars of Claim in relation to that action. This alleges further frauds on behalf of the First Defendant. It is not proper for me to comment on that action and I have been invited on behalf of the Claimant to ignore both this action, and any other purported charges over the same property for these purposes, and concentrate solely on the proposition that has been put to me that this particular charge (for whatever it is worth and on the assumption that it validly exists) is traceable as an asset of the Claimant. I am content to approach the matter on this basis.

(b) The nature of tracing

Tracing trust property or property subject to a fiduciary relationship is a well-established process which may be applied where funds or assets are transferred in breach of trust or fiduciary duty. It is based on the legal theory that the beneficial interest in the property will persist unless it is transferred to a bona fide purchaser of the legal estate without notice or until the beneficial interest is overreached. The beneficiary may claim a proprietary remedy to vindicate his beneficial interest provided that he can follow his property or trace into its proceeds.

In tracing trust money through bank accounts, the courts may encounter evidential difficulties, but this does not necessarily operate as a bar to prevent the tracing remedy being successfully pursued. This is explained in Lewin on Trusts as follows:

“Evidential difficulties may arise, however, particularly where a number of bank accounts are involved, some of which may be abroad and banking records are incomplete or not available. In such cases the court may be prepared to draw the inference that a payment into one account is attributable to a previous payment out of another account and therefore traceable where the two payments are of a similar though not identical amount and the time gap between them is reasonably short.”

One of the principal cases cited in Lewin as demonstrating the court’s willingness to draw the appropriate inferences is El Anjou v Dollar Land Holdings Plc [1993] 3 All E.R. 717, 734–736.

In El Anjou, the claimant was the victim of a fraudulent share-selling scheme perpetrated by three Canadians. The fraudulent scheme involved the transfer of money through various jurisdictions and ultimately into a London-based property development project. The first defendant in that case was not itself involved in the fraud. The claimant faced various evidential difficulties. There was no direct evidence linking the funds received into the ultimate recipient’s account to the funds the claimant had previously transferred. The claimant had transferred $1,600,000 but the funds ultimately received were only $1,541,432 and the funds were ultimately received 20 days after the claimant’s transfer.

Nonetheless, the Millett J held that the claimant could trace into the ultimate recipient’s account. He placed particular emphasis on the fact that there was “no evidence that the Canadians had any substantial funds available to them which did not represent proceeds of the fraud” (735F) and said, at 735H-736A:

“The victims of a fraud can follow their money in equity through bank accounts where it has been mixed with other moneys because equity treats the money in such accounts as charged with the repayment of their money. If the money in an account subject to such a charge is afterwards paid out of the account and into a number of different accounts, the victims can claim a similar charge over each of the recipient accounts. They are not bound to choose between them. Whatever may be the position as between the victims inter se, as against the wrongdoer his victims are not required to appropriate debits to credits in order to identify the particular account into which their money has been paid. Equity’s power to charge a mixed fund with the repayment of trust moneys (a power not shared by the common law) enables the claimants to follow the money, not because it is theirs, but because it is derived from a fund which is treated as if it were subject to a charge in their favour.”’