Trusts, mistaken dispositions and injustice: Pitt v Holt in practice (No.1)

In Futter v Futter; Pitt v Holt [2013] UKSC 26 a seven-justice panel of the Supreme Court clarified the equitable jurisdiction to rescind a voluntary disposition on the grounds of mistake.

Put briefly, equity will vitiate a gratuitous disposition (in other words a gift) when there has been a causative mistake of sufficient gravity, that renders it unjust for the donee, to retain the property given to him. When it comes to gifts we will usually be considering the settlement of property on trust. The law set out here is not concerned with contractual mistakes.

Figuring out what amounts to a causative mistake is not always straightforward. Sullivan v Sullivan & Ors [2025] EWHC 1072 (Ch) presents a compelling and relatively straightforward example of a causative mistake and resultant injustice.  Before looking at Sullivan, it is worth considering some key aspects of the jurisdiction.

What is a causative mistake?

A causative mistake is one that goes to the legal character or nature of a transaction, or to some matter of fact or law, that is fundamental to it. To identify a causative mistake, it can be helpful to consider cases where equity does not intervene, such as mispredictions, ignorance, or other inadvertent errors.  

Courts have long wrestled with the task distinguishing between mispredictions and mistakes and in Pitt, Lord Walker recognised that the distinction between the two may not be clear on the facts of a particular case. His Lordship illustrated this point by reference to Re Griffiths, deed [2009] Ch 162. In that case the settlor, believing he was in good health, decided not to take up term insurance to cover the risk of him dying within 7 years of making the disposition in issue. Subsequently, it turned out that the settlor was mistaken, at the time he made the disposition, he was in fact, suffering from lung cancer. Lewison J found - narrowly - that the settlor had been operating under a serious mistake of fact, namely as to the state of his health and had he known the truth, he would not have made the disposition, and instead would have made other arrangements, for example a will.  In Pitt Lord Walker commented on the finding of mistake:

“Had the judge not made his hair’s breadth finding about the presence of cancer in February 2004 it would have been a case of misprediction, not essentially different from a failure to predict a fatal road accident.” [113]

Injustice

Once a causative mistake has been identified the Court then must ask examine whether it is of such a serious character that it would be unjust not to correct it. Here the court’s evaluation must be objective, with an intense focus on the facts, for instance: the circumstances surrounding the mistake; the consequences for the person who made the disposition; or whether there has been any change of position. Lord Walker made it clear that this was a question of justice to be assessed on a case by case basis:

“The court cannot decide what is unconscionable by an elaborate set of rules. It must consider in the round the existence of a distinct mistake (as compared with total ignorance or disappointed expectations), its degree of centrality to the transaction in question and the seriousness of its consequences and make an evaluative judgment whether it would be unconscionable to leave the mistake uncorrected. The court may and must form a judgment about the justice of the case.”

Sullivan v Sullivan

Priscilla and Patrick were married and had two sons, Stephen and David. The couple owned two properties: Stanley Road, comprising a house, office, maisonette and builder’s yard; and a residential property known as Napier Road. 

Priscilla and Patrick separated in 1976. Patrick went on to have a relationship with Susan with whom he had two daughters, Kerrie and Hollie. 

Patrick and Priscilla did not, however, divorce and would continue to jointly own Stanley and Napier Road. It appears Priscilla continued to live in the house at Stanley Road and with Patrick operating his roofing business from the yard and offices. These arrangements continued until Priscilla’s death in 2008

Priscilla died intestate and her share of the properties was to pass to Patrick by survivorship.  At this time Patrick and Susan were making plans to marry. The situation led to a falling out between Patrick and his sons. Stephen objected to probate being administered thereby causing delays to its administration.

To resolve the issues with his sons Patrick had the idea of making a non-binding declaration of intent. He wanted to set out his plans about his estate in general and in particular that his children would inherit Stanley Road in equal shares. At this time, it was estimated that Stanley Road was worth about £1 million. Nevertheless, Patrick was clear that he did not want to make any binding commitments as to the future, his main objective was to do something to get his sons “off his back”.

At around this time Susan was working at Manches solicitors. Susan spoke to a legal executive at the firm, Oonagh Grant about Patrick’s idea for a declaration of intent and asked her:

”…Could you just draw up a draft DOI so that is obvious exactly what he [Patrick] intends and then we will draw up a proper Will as soon as we are married…”

Oonagh told Susan that the proposed declaration of intent was meaningless and “would not stand up in court” and instead prepared a declaration of trust in respect of Stanley Road and a will. Oonagh told Susan:

“…apart from the yard [Stanley Road] which is to be held on trust and then left to the four children...the rest is to go to you...I have prepared a Declaration of Trust in respect of…Stanley Road…”

Patrick executed the declaration of trust. As to the will, Oonagh stated:

”…In a nutshell the Will states…[Stanley Road]...to be divided equally between all four children…” 

Neither Oonagh nor anyone else at Manches advised Patrick about the effect of the declaration of trust nor apparently did anyone realise that there was a fundamental contradiction between the prior disposition of Stanley Road and its continuing inclusion in Patrick’s estate for the purposes of the will. 

Furthermore, no thought was given as to the tax implications of the disposition. In 2008 the IHT threshold was £312,000 and the introduction of the residence nil rate band was still some 9 years away.

There were some to-ings and fro-ings with the will. Eventually, Susan asked Ms Grant to revise the it:

“…bearing in mind the inheritance tax issue, could everything be left to me as his wife…”

The earlier disposition of course expressly undermined the spousal exemption referred to by Susan. Ms Grant did not pick up on this issue.

Patrick executed the will thereby leaving his entire estate, including Stanley Road to Susan. In the accompanying letter of wishes Patrick stated that he wanted Stanley Road to be divided between his children with a 30% share going to each of Stephen and David and 20% each to Kerrie and Hollie.

The letter of wishes must have given Stephen and David some reassurance as to their future inheritance, as the issues around probate were resolved with Stephen’s earlier objections being withdrawn. 

Once Priscilla’s interests in the properties had passed to Patrick, he and Susan implemented their plans for them: they jointly funded the conversion of parts of Stanley Road into flats, to provide them with a future source of income; and they moved out of a rental property, into Napier Road.

Patrick died in 2021. Stephen and David challenged this will. It was at this time that the declaration of trust became an issue.

Master Marsh readily identified Patrick’s mistake: 

“…He thought he was signing an informal declaration of his wishes upon death. In fact he executed a trust with the legal and fiscal consequences the Trust brings with it…”

Turning to the risk of an injustice:

The disposition left Patrick without an interest in Stanley Road: not only was this his most significant asset but would potentially have left him unable to operate his business from the yard and offices and therefore earn an income.

Patrick and Susan had relied on rental income from the Stanley Road to fund their lifestyle up until Patrick’s death. Susan and Patrick had jointly funded the flat conversions with this in mind.

Susan would be left without any provision from Patrick’s estate to meet her future living costs.

The Trust created significant tax consequences both at the time of the disposition and the clear risk of potential loss of the spousal exemption.

Comment

Patrick was mistaken as to the character of the declaration of trust; it was not a statement of intention but a document transferring the legal ownership of Stanley Road.

Patrick’s mistake as to the nature of the Trust was indeed fundamental as it went to the heart of the transaction and by executing the declaration in the conscious belief or tacit assumption that he was simply making a statement of intention he in fact caused the disposition.

Patrick’s mistake could not be put down to ignorance, as Patrick was not given any legal advice by anyone at Manches. 

Master Marsh identified the likely predicate upon which Patrick’s mistake was based:

“…It also seems very unlikely that Ms. Grant appreciated the effects of the Trust…”

There is no sense of the mistake arising out of some disappointment with the outcome of the transaction. There was no expectation linked to say some tax planning exercise.

Given that the disposition expressly contradicted Patrick’s express intention and it in someways resembles reliance on an innocent or negligent misrepresentation.

The only question that I am left with is what did Ms. Grant mean when she said the declaration of intent would not stand up in court? That suggests some sort of formal arrangement was to be put in place, but what it may have been we shall never know, not least as there were very few documents in the case.

HMRC

Given the potential tax liabilities arising out of the 2008 disposition by Patrick, HMRC were notified of the proceedings. However, the Revenue did not appear or make any submissions. It is enough to say here that it is essential that in such cases that HMRC is made aware of the proceedings.  

Ms Grant

There is a more general issue that arises in this case: that of the supervision of fee earners. Whether or not Ms. Grant was doing Susan and Patrick a favour or charging them for her work, she was clearly well out of her depth, and it appeared nobody was keeping an eye on what she was up to. This may seem harsh if one takes Sullivan v Sullivan in isolation. However, and whilst there is no suggestion that Ms Grant involved in anything nefarious whilst advising Susan and Frank, in 2011 she was found guilty of stealing from a law firm she worked for and was sentenced to two years’ imprisonment, suspended for two years. The SRA banned her from working in the legal profession. However, after changing her name by deed poll Ms Grant went on to be employed by three more law firms, where she continued her criminal behaviour. Eventually, she was caught and in February 2017 she pleaded guilty and was jailed for five years for stealing more than £500,000 during the period 2014 and 2016 from three law firms.

This post is not intended to and should not be taken as legal advice.

(c) by Liam Hemmings

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