PROVING THINGS 212: MISTAKE, TRUSTS & TAXATION: “IT IS CLEAR THAT HIS WITNESS STATEMENT WAS CONSTRUCTED WITH ONLY PASSING REFERENCE TO WHAT HIS EVIDENCE IN CHIEF WOULD BE IF CALLED TO GIVE ORAL EVIDENCE”
The adequacy of witness evidence was considered in detail in the judgment of Deputy Master Marsh in Dukeries Healthcare Ltd v Bay Trust International Ltd & Ors  EWHC 2086 (Ch). It shows the danger of setting out a case in a witness statement when the reality is that the witness cannot confirm it.
“It is clear that his witness statement was constructed with only passing reference to what his evidence in chief would be if called to give oral evidence.”
The claimants were seeking rectification of a number of trust deeds. HMRC was joined as a defendant because rectification had considerable tax consequences. HMRC opposed the applications.
The claimants had to establish that the trust deeds were entered into by “mistake”. The Deputy Master found that the evidence in support was insufficient.
The Master considered the evidence of the principal witness called on behalf of the claimants.
As will be clear from the summary of the Remuneration Trusts set out above, they are complex arrangements for a lay person to understand, particularly when set in the context of the tax framework. Mr Baxendale Walker described them as a “highly technical product”. Mr Levack’s principal statement, which deals with all four claims runs to 65 pages and 176 paragraphs. (His evidence in reply is relatively brief and makes submission in response to HMRC’s evidence). Mr Levack sets out extensive quotations from the Report and the Manual provided to Dukeries and Riverside and the Trust Deeds themselves for the purposes of drawing attention to particular elements of the schemes and explaining their functioning. It is implicit in Mr Levack’s evidence that he had some understanding of the detail and had read the documents he seeks to summarise and explain.
When Mr Levack was cross-examined he said:
(1) He did not remember reading the Report.
(2) He did not read the Manual.
(3) He did not remember reading the trust deeds.
(4) He read “hardly anything”.
(5) He was inundated with paperwork by Baxendale Walker LLP and could not say he “understood the what and the when”.
(6) He did not think about most of the aspects of the schemes.
(7) He did not have the knowledge to understand what was said in the Report to the Board and that it took him “ages to read a page or two”.
(8) He was not sure whether the scheme involved offshore trusts.
(9) He could recall seeing the resolution of the board of directors for Dukeries but he did not say (he was not asked) whether he or other members of the board read the document.
(10) He did not read the Q&A document that was annexed.
(11) He had no input into the list of providers sent to Baxendale Walker LLP.
(12) The 2012 trust deeds were not read by him. He said Mr Liyanage would have telephoned to say he was sending documents to be signed and Mr Levack was not to worry about it. He signed them on that basis.
(13) Where he uses expressions in his witness statement such as “It will be noted that …” or “These words were intended …” he was not able to say whether he had considered the document to which he was referring…
130. I accept that in Part 8 claims the CPR requires the claimant to provide all the evidence that is relied upon when issuing the claim and it is in the nature of many Part 8 claims that the witness evidence has an explanatory function. A view may have been taken that Mr Levack was the right person to explain his case and therefore the witness statement needed to refer in more detail to documents than would be appropriate in a witness statement prepared for a Part 7 trial. Mr Levack’s evidence was prepared long before Practice Direction 57AC came into force. However, on any view, it was entirely inappropriate for the witness statement to have given the impression that Mr Levack had read and considered the material documents in 2010. Although Mr Levack, when cross-examined, answered questions in a straightforward and candid manner, his evidence overall is unimpressive. It is clear that his witness statement was constructed with only passing reference to what his evidence in chief would be if called to give oral evidence. HMRC naturally assumed, as they were intended to, that Mr Levack had obtained some contemporaneous understanding of the Remuneration Trusts and the way they were intended to operate from the documents that Baxendale Walker LLP provided.
If a claimant brings a Part 8 claim seeking relief based upon mistake, the claimant needs to be scrupulous to ensure that the court is given a complete and accurate picture. This is due to the importance the court will attach to an “intense on the particular facts of the case”  or as Lord Walker put it in Pitt v Holt at :
“The gravity of the mistake must be assessed by a close examination of the facts, whether or not they are tested by cross-examination, including the circumstances of the mistake and its consequences for the person who made the vitiated disposition.”
A close examination of the facts clearly involves examination both of the evidence that the claimant chooses to provide and gaps in that evidence, whether or not they are explained. In this connection I note that the court has not been provided evidence from a number of witnesses who are likely to have assisted the court. I have in mind Mrs Levack, Sadie Levack and Jacqueline Brayford, as directors of Dukeries and Mr Rhoden and Mr Reason as directors of Riverside.
I conclude that I can place little if any reliance upon Mr Levack’s evidence about his understanding of way the schemes would affect his and the companies’ liability to tax and his ability to pass wealth to his family. In addition to the concerns I have already expressed:
(1) It is apparent that the evidence in Mr Levack’s statement is not the product of his recollection. It is not clear how he appears to be able to recall what Mr Baxendale Walker said to him nearly 10 years before the statement was signed.
(2) The witness statement was constructed to make a legal case rather than to provide evidence of Mr Levack’s recollection. The limits to Mr Levack’s ability to explain and to provide evidence should have been made clear.
(3) In light of Mr Levack’s evidence about his ability to understand complex matters there is little to go on about what his understanding was.
(4) The statement is misleading because the reasonable reader would infer that Mr Levack had read the documents to which he makes reference in 2010. Indeed, that is the way it was understood by HMRCs advisers which gave rise to Mr Herbert’s acceptance that there had been a relevant mistake.
(5) It is not possible to discern with sufficient certainty what his understanding of the schemes was when he signed, as a director, the minutes of the board meetings of Dukeries and Riverside in late March 2010.
(6) So far as Mr Levack’s personal Remuneration Trust is concerned, his statement cannot be accurate where he says: “I understood it to operate in exactly the same way as the companies’ remuneration trusts and assumed that the documents supplied to the companies applied to this as well” because he had not read the Manual or the Report to the Board.
I have referred earlier to the absence of evidence from witnesses who are likely to have been able to assist the court. When the court is asked to apply the doctrine of equitable mistake in the case of a company, the court must be able to establish what was the collective understanding of the board of directors. All the court has been given is a set of pro forma minutes produced by Baxendale Walker LLP signed by two directors without any evidence that the minutes reflect the collective views of the board of Dukeries and Riverside. Mr Levack’s assertion in paragraph 43 of this statement of his wife and daughter’s understanding does not suffice, even for Dukeries.
For the reasons I have already provided, the claims fail due to the inadequate evidence that has been provided about the claimants having acted under a mistake of so serious a character to render it unjust on the part of the first claimant to retain the gift.
It is strictly unnecessary to go further but I will briefly consider the elements of mistake that would be relevant on the assumption that that Mr Levack had a sufficient understanding of what the trusts were expected to achieve. Such evidence as there is points to Mr Levack being willing to run the risk of being mistaken. As Mr Herbert put it, he accepted the schemes warts and all.
Mr Levack says that he and Mr Rhoden decided to proceed with the Remuneration Trusts immediately after leaving the meeting with Mr Baxendale Walker in early February 2010. That is before they had any opportunity to consider the documents that were provided at the meeting, or the documents that were received later, or to take advice. The failure by Mr Levack to consider the documents provided by Baxendale Walker LLP, or to obtain advice from someone who could interpret them, also demonstrates a cavalier attitude to risk. There is no evidence of any due diligence having been undertaken by Mr Levack. He was prepared to accept Mr Baxendale Walker’s views that were expressed in the course of a meeting without subsequently reading any of the documents that were provided or seeking independent advice. Were it necessary to do so I would conclude that the claimants deliberately ran the risk of the schemes not operating in the way Mr Baxendale Walker’s sales pitch had suggested.
There is, equally, inadequate evidence about the attitude to risk of the board of directors of Dukeries and Riverside. The evidence comes nowhere near to demonstrating that the collective understanding of the respective boards was materially mistaken or what the board’s view was about the risks involved. In the case of Mr Levack himself, his evidence does not meet the requisite threshold.
Furthermore, the schemes are properly characterised as being artificial tax avoidance. Even if there was no actual assumption of risk, it is reasonable in this case, based upon the factors I have summarised above, to conclude that Mr Levack and the companies must be taken to have accepted the risks of the schemes failing.