© 2024 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
Procedure.Tax
For additional search results use Google and enter:
site:procedure.tax [search term]
N2-10: Equitable principles
Rectification in the FTT
"[44] The law on First Tier Tribunal jurisdiction in this matter is most recently covered in Lobler v Revenue and Customs Commissioners [2015] UKUT 152 (TCC). The relevant passages are:
[47] Thus although the FTT did not itself have power to order rectification, it could determine that if rectification would be granted by a court who does have jurisdiction to grant it, Mr Lobler's tax position would follow as if such rectification had been granted.
[48] It has never been suggested that before the effect of the availability of specific performance can be taken into account by the FTT, the appellant must go to court and actually obtain the remedy of specific performance. On the contrary, the cases show that this is not the case: see Oughtred v IRC [1959] 3 All ER 623, [1960] AC 206, Jerome v Kelly (Inspector of Taxes) [2004] UKHL 25, [2004] STC 887, [2004] 1 WLR 1409, BMBF (No 24) Ltd v IRC [2002] EWHC 2466 (Ch), [2002] STC 1450 and HSP Financial Planning Ltd v Revenue and Customs Comrs [2011] UKFTT 106 (TC), [2011] SFTD 436.
A tribunal such as the FTT must however take into account all the factors that the court would in deciding whether specific performance would be available, such as whether damages would be inadequate, whether specific performance would require constant supervision, whether the appellant is ready, willing and able to perform, hardship and so on.
[49] I am told that the cases in this context are all specific performance cases; equity treats a specifically enforceable contract to do a thing as if it were already done: see Walsh v Lonsdale (1882) 21 Ch D 9 at 14, Oughtred v IRC [1959] 3 All ER 623 at 625, [1960] AC 206 at 227, Neville v Wilson [1996] 3 All ER 171 at 182 [1997] Ch 144 at 157.
[50] One issue is therefore whether the same principle applies to rectification as it does to specific performance, although the FTT made no direct reference to specific performance. Mr Davey said that it does not, but without to my mind giving any convincing or principled reason as to why not. As specific performance is also a discretionary remedy I agree with Mr Firth that there is no relevant distinction between specific performance and rectification for present purposes.'
[45] When considering what the High Court would consider when looking at rectification, and when it would not consider it, we were referred to a number of cases, and we give extracts below of those most relevant.
...
[76] For all the reasons above we consider that the High Court would, if asked to consider the matter, grant rectification of these documents. The major effect of this would be that the conditions for entrepreneurs' relief would then have been met." (Cooke v. HMRC [2024] UKFTT 272 (TC), Judge Allatt)
​
Rescission in the FTT
"[78] The question before me therefore is, having found that Mr Hymanson would be granted an order of rescission from the High Court were he to go to the High Court, should I then force him to go through that process, at the cost of significant expense and time, or should I attempt to short-cut the process.
[79] Proudman J summarises the position in Lobler , at [47] and [48] as:
“Thus although the FTT did not itself have power to order rectification, it could determine that if rectification would be granted by a court who does have jurisdiction to grant it, Mr Lobler’s tax position would follow as if such rectification had been granted.
It has never been suggested that before the effect of the availability of specific performance can be taken into account by the FTT, the appellant must go to court and actually obtain the remedy of specific performance. On the contrary, the cases show that this is not the case: see Oughtred v. IRC [1960] AC 206, Jerome v. Kelly [2004] UKHL 25, BMBF (No 24) Limited v. IRC [2002] STC 1450 and HSP Financial Planning Limited v. HMRC [2011] UKFTT 106 (TC). A tribunal such as the FTT must however take into account all the factors that the Court would in deciding whether specific performance would be available, such as whether damages would be inadequate, whether specific performance would require constant supervision, whether the appellant is ready, willing and able to perform, hardship and so on.”
[80] In this case we are not of course talking about rectification. Rectification would not be an appropriate remedy in this case because that would leave the essential elements of the transaction, ie the additional payments, intact. Nor are we considering the remedies of damages or specific performance, neither of which would be appropriate. In this case the only effective remedy would be rescission.
[81] Mr Waldegrave, for HMRC, said that HMRC believe that Lobler was wrongly decided. This may be so, but it is binding on me unless I can find sufficient distinguishing features that would lead me to a different conclusion.
...
[92] I therefore come to the conclusion that Mr Hymanson would be entitled to rescission if he were to take his case to the High Court and that his tax position should therefore to be determined as if that remedy had been granted." (Hymanson v. HMRC [2018] UKFTT 667 (TC), Judge Gillett)
​
Purchaser of land treated as beneficial owner before completion
"[87] In our view, the authorities in this area make it plain that, by virtue of the fact that the purchase price for the Property was paid in full when the Sale Agreement was executed, beneficial ownership of the Property passed at that time from Mrs Elborne to the trustees of the Life Settlement and therefore that Mrs Elborne was not the beneficial owner of the Property when she died.
[88] We think that the fact that the whole of the purchase price was paid up-front on execution of the Sale Agreement means that this case is readily distinguishable from the uncompleted executory contract pursuant to which none of the consideration had been paid, which was the situation being addressed by the House of Lords in Jerome.
[89] The decision in Ezair raises a different question in this area, dealing as it does with the rights which the beneficial owner under a sale agreement that has not yet been completed is entitled to create prior to completion. The basis of Patten LJ’s decision in that case, which relied on the decision of the Supreme Court in Southern Pacific and the Court of Appeal decision in Berkley, is that a contractual purchaser (such as B in Ezair) cannot create rights of a proprietary character which would take priority over other interests in land until the contractual purchaser has acquired the legal estate in the land. When applied to the facts in this case, it means that the trustees of the Life Settlement would have been unable to create proprietary rights over the Property by entering into a contract with a sub-purchaser in relation to the Property prior to acquiring the legal estate in the Property on completion.
[90] However, that is not the question which we are addressing. The fact that the trustees of the Life Settlement would have had to acquire the legal estate in the Property before they were able to create proprietary interests in the Property does not mean that the trustees were not the beneficial owners of the Property from the time that the Sale Agreement was executed or, more relevantly, that Mrs Elborne remained the beneficial owner of the Property from that time. The authorities cited by Mr Bradley and referred to in paragraphs 83 to 86 above are, in our view, compelling that the beneficial ownership of the Property when Mrs Elborne died was vested in the trustees of the Life Settlement and not with Mrs Elborne notwithstanding the fact that completion had not yet occurred." (Executors of Elborne v. HMRC [2023 UKFTT 626 (TC), Judge Beare)
​
Rectification of deed of variation to include statement re tax
​
"[42] In his witness statement, the first claimant says, in terms, that it was the intention of all parties to the Deed of Variation, and of its draftsman, Mr Evans, that it should be back-dated to the date of death for the purposes of Inheritance Tax. I accept that evidence. It is supported by the attendance note and by the whole objective that the transaction was intended to achieve. The attendance note is permeated by references to the need to achieve a particular result within two years of the date of death in order to achieve Inheritance Tax savings. The mistake was in failing to give effect to the right machinery for achieving that.
[43] I am satisfied that that is a sufficient mistake to found jurisdiction in a court of equity to rectify the relevant Deed of Variation, so far, at least, as the reading-back statement for Inheritance Tax purposes is concerned. I emphasise that this was a mistake which was not extraneous to the terms of the document itself. It was a mistake within the terms of the Deed of Variation. It went to the terms of that document.
[...]
[53] For those reasons, I will make an order in the terms sought by Mr Oughton, but with the omission of any reference to the provisions of section 62, and its relevant subsections, of the Taxation of Chargeable Gains Act 1992. There is to be no order as to costs as between the claimants and the defendants. As stated at the end of the first-named claimant''s witness statement, they are to be picked up by the insurers for the draftsman of the Deed of Variation. Such an approach is entirely consistent with the approach of the Supreme Court in Marley v Rawlings (No. 2), relating to a contested claim, which went all the way to the Supreme Court, for the rectification of a will." (Vaughan-Jones v. Vaughan Jones [2015] EWHC 1086 (Ch), HHJ Hodge)
​