Leeds LS1 3BG
B e f o r e :
| TIMOTHY KEITH HERRING
CLAIRE LOUISE HARTLEY
|- and -
|SHORTS FINANCIAL SERVICES LLP
Scott Allen (instructed by Clyde & Co LLP) for the Defendant
Hearing dates: April 26 27 2016
Crown Copyright ©
2. The facts
The people involved
Mr Sully first dealt with Mrs Shemwell in October 2000 and had regular contact with her. He would visit her approximately every 2 months to give financial advice and there would be telephone calls between these times. He described the relationship as close. From time to time he woul23. d assist her with tasks such as changing lightbulbs. There is no doubt that she trusted him in relation to the giving of financial advice.
The 2005 trusts, the 2006 Will and the 2007 trusts.
The 2011 trusts
As [Mrs Shemwell] does not need an income it was my recommendation that we should just use a normal discretionary trust for £175,000. For the balance of £125,000 I recommend that we should place this in a loan trust to at least get the growth on the asset will be outside the estate.
She identified two relatively removed relations to receive the funds on her death in equal proportions, which are Tim Herring and Claire Hartley who are known to us.
It was agreed that her solicitor [Mr Woodhead] would contact me as we will need to discuss what is in trust and for whom so he can amend her Will to meet her needs.
A Loan Trust allows you to access the capital while any growth on it is outside your estate. The client makes an interest free loan to the trustees which they then invest. The loan is usually repaid through regular payments to the client but repayments can also be made as lump sums. Regular or lump sum payments do not have to be made if these are not required
Investment growth generated outside the client's estate.
The Loan Trust written as a discretionary trust the beneficiaries do not have the right to the trust fund. Trustees can make payments to beneficiaries at their discretion.
I had explained clearly what a loan trust was and had explained that only the growth on the loan trust would fall outside the estate for IHT purposes. I have no doubt in my mind that [Mrs Shemwell] understood during this meeting what a loan trust was and how it operated.
The meeting on 21 October 2011
Instructions to attend
Joyce rang me a relatively short time later, to ask me if I could bring her an up to date valuation of her investments. She told me that she needed these because she wanted to discuss her Will with her solicitor, Mr Woodhead. My recollection is that this was a very short telephone call. I am sure that Joyce did not provide me with any further information or tell me what exactly she wanted to discuss with Mr Woodhead. She certainly did not discuss her Will with me, or what changes (if any) she wished to make to it.
The aide memoire
|ALAN TERRY||£254,583||(£99,533 May 12, £34,418 Nov 12 £120,633 May 2014)|
|TIM HERRING||£146,472||(£85,445 Aug 2018)|
|CLAIRE HARTLEY||£146,472||(£85,445 Aug 2018)|
|£1,025,511||OUT TRUSTS PLUS VALUE OF PROPERTY (Somerfield Rd 2 properties)|
Discussions in the presence of Mr Sully
Mrs Shemwell has already made some lifetime gifts out of her estate, the beneficiaries of those lifetime gifts are Tim Herring and Claire Hartley (£146k each) an Alan Terry (£250k)
9. Mr Sully proceeded to explain, in broad terms, the level of Mrs Shemwell's current investments. Mr Sully indicated that Mrs Shemwell had investments slightly in excess of £1,000,000. In addition to this she owned 23 Longedge Lane and two other rental properties being 33 and 35 Summerfield Road, Chesterfield.
10. Mr Sully explained to me that Mrs Shemwell had already established trusts for the benefit of her friend Alan Terry ("Mr Terry"), her late husband's great nephew Timothy Herring ("Mr Herring") and her late husband's great niece Claire Hartley ("Mrs Hartley"). Mr Sully stated that the value of the monies currently held in trust for Alan Terry was slightly in excess of £250,000. The value of the investments held in trust for the Claimants was slightly in excess of £146,000 each.
Discussions after Mr Sully left
Mrs Shemwell stated that as Mr Herring and Mrs Hartley already had approximately £146,000 each from the trust fund established by Mr Sully, she wished to bequeath them a further £29,000 so that they would receive approximately £175,000 each.
The preparation of the 2011 will
Her reasoning for this figure was that as they both had approximately £146,000 each in a trust fund for their benefit, then a legacy of £54,000 through the Will would mean they would receive approximately £200,000 each upon Mrs Shemwell's death.
3. Findings of fact
1. I am satisfied that Mr Sully explained the workings of a loan trust accurately to Mrs Shemwell at the meeting on 27 July 2011. I am satisfied he explained that only the growth was outside her estate and that the amount loaned was not.
2. I am not satisfied that Mr Sully ever used the expression "lifetime gifts" in the presence of Mr Woodhead to describe the trusts in favour of the Claimants. I do, however, accept that he used the expression "in trust for" them. In other words I accept the evidence in paragraphs 9 and 10 of Mr Woodhead's witness statement. In so far as Mr Woodhead's typed file note is accurate the expression "lifetime gifts" must have been used by Mrs Shemwell or assumed by him.
3. I am not in a position to make any finding as to whether Mr Sully gave Mr Woodhead the valuation he had shown Mrs Shemwell. The valuation was not disclosed by anyone and the position is unclear. Fortunately nothing turns on it.
4. At the meeting on 21 October 2011 Mr Sully was in a position to explain the trusts to Mr Woodhead. However he was not asked to do so and was asked by Mrs Shemwell, his client to leave before he could do so.
5. Mr Sully had no knowledge of the terms of Mrs Shemwell's will or any intended bequests.
6. Mr Sully's poor advice in July and August 2012 did not occur because he did not understand the working of a loan trust. It occurred because he failed to check the trust documents and had forgotten about the loan trust.
4. The law
This is not a case in which the solicitors were instructed to advise in relation to an inter vivos transaction which was independent of the will-making process. On a proper analysis, the service of a notice of severance was part of the will-making process To refuse to treat the plaintiff as an intended beneficiary who (as the solicitors could reasonably foresee) might, as a result of their negligence in carrying out the testatrix's testamentary instructions, be deprived of the legacy which she was intended to enjoy on the ground that the negligence lay in failing to get in the asset rather than to provide for its disposition would, in my view, properly be regarded as bizarre. (at page 335-336)
"I reject this argument. The origins of the principle undoubtedly lie in the proper discharge of a retainer to make a will. But the implications of White v Jones are being explored case by case (per Peter Gibson L.J. in Richards v Hughes  EWCA Civ 266;  PNLR 35 at ). In Carr-Glynn v Frearsons (supra) the principle was extended beyond pure will-making to cover the failure to advise the testator of the need to serve a notice of severance so as to render the property capable of disposition by the will. In Gorham v British Telecommunications Plc  1 W.L.R. 2129 negligent advice by an insurance company to a customer could be sued upon by the customer's family. In Richards v Hughes (supra) the Court of Appeal was concerned with the situation in which A contracted with B for B to perform professional services in connection with the establishment of a trust for the benefit of C. The Court of Appeal refused to strike out a case brought in tort by C against B, notwithstanding that it involved an inter vivos gift (which White v Jones had suggested would not be actionable) because the case was
" [p]lainly one where the relevant area of law is still subject to some uncertainty and developing and where it is highly desirable that the facts should be found so that any development of the law should be on the basis of actual and not hypothetical facts" "
4 The parties were agreed that the authorities disclose three tests which have been used in deciding whether a defendant sued as causing pure economic loss to a claimant owed him a duty of care in tort. The first is whether the defendant assumed responsibility for what he said and did vis- -vis the claimant, or is to be treated by the law as having done so. The second is commonly known as the threefold test: whether loss to the claimant was a reasonably foreseeable consequence of what the defendant did or failed to do; whether the relationship between the parties was one of sufficient proximity; and whether in all the circumstances it is fair, just and reasonable to impose a duty of care on the defendant towards the claimant *190 (what Kirby J in Perre v Apand Pty Ltd (1999) 198 CLR 180 , para 259, succinctly labelled "policy"). Third is the incremental test, based on the observation of Brennan J in Sutherland Shire Council v Heyman (1985) 157 CLR 424 , 481, approved by Lord Bridge of Harwich in Caparo Industries plc v Dickman  2 AC 605 , 618, that:
"It is preferable, in my view, that the law should develop novel categories of negligence incrementally and by analogy with established categories, rather than by a massive extension of a prima facie duty of care restrained only by indefinable 'considerations which ought to negative, or to reduce or limit the scope of the duty or the class of person to whom it is owed'."
Mr Brindle for the bank contended that the assumption of responsibility test was most appropriately applied to this case, and that if applied it showed that the bank owed no duty of care to the commissioners on the present facts. But if it was appropriate to apply either of the other tests the same result was achieved. Mr Sales for the commissioners submitted that the threefold test was appropriate here, and that if applied it showed that a duty of care was owed. But if it was appropriate to apply either of the other tests they showed the same thing. In support of their competing submissions counsel made detailed reference to the leading authorities including Hedley Byrne & Co Ltd v Heller & Partners Ltd  AC 465 ; Ministry of Housing and Local Government v Sharp  2 QB 223 ; Smith v Eric S Bush  1 AC 831 ; Caparo Industries plc v Dickman  2 AC 605 ; Henderson v Merrett Syndicates Ltd  2 AC 145 ; White v Jones  2 AC 207 ; Spring v Guardian Assurance plc  2 AC 296 ; Williams v Natural Life Health Foods Ltd  1 WLR 830 ; and Phelps v Hillingdon London Borough Council  2 AC 619 . These authorities yield many valuable insights, but they contain statements which cannot readily be reconciled. I intend no discourtesy to counsel in declining to embark on yet another exegesis of these well-known texts. I content myself at this stage with five general observations. First, there are cases in which one party can accurately be said to have assumed responsibility for what is said or done to another, the paradigm situation being a relationship having all the indicia of contract save consideration. Hedley Byrne would, but for the express disclaimer, have been such a case. White v Jones and Henderson v Merrett Syndicates Ltd , although the relationship was more remote, can be seen as analogous. Thus, like Colman J (whose methodology was commended by Paul Mitchell and Charles Mitchell, "Negligence Liability for Pure Economic Loss (2005) 121 LQR 194 , 199), I think it is correct to regard an assumption of responsibility as a sufficient but not a necessary condition of liability, a first test which, if answered positively, may obviate the need for further inquiry. If answered negatively, further consideration is called for.
5 Secondly, however, it is clear that the assumption of responsibility test is to be applied objectively ( Henderson v Merrett Syndicates Ltd  2 AC 145 , 181) and is not answered by consideration of what the defendant thought or intended. Thus Lord Griffiths said in Smith v Eric S Bush  1 AC 831 , 862, that:
"The phrase 'assumption of responsibility' can only have any real meaning if it is understood as referring to the circumstances in which the *191 law will deem the maker of the statement to have assumed responsibility to the person who acts upon the advice."
Lord Oliver of Aylmerton, in Caparo Industries plc v Dickman  2 AC 605 , 637, thought "voluntary assumption of responsibility"
"a convenient phrase but it is clear that it was not intended to be a test for the existence of the duty for, on analysis, it means no more than that the act of the defendant in making the statement or tendering the advice was voluntary and that the law attributes to it an assumption of responsibility if the statement or advice is inaccurate and is acted upon. It tells us nothing about the circumstances from which such attribution arises."
In similar vein, Lord Slynn of Hadley in Phelps v Hillingdon London Borough Council  2 AC 619 , 654, observed:
"It is sometimes said that there has to be an assumption of responsibility by the person concerned. That phrase can be misleading in that it can suggest that the professional person must knowingly and deliberately accept responsibility. It is, however, clear that the test is an objective one: Henderson v Merrett Syndicates Ltd  2 AC 145 , 181. The phrase means simply that the law recognises that there is a duty of care. It is not so much that responsibility is assumed as that it is recognised or imposed by law."
The problem here is, as I see it, that the further this test is removed from the actions and intentions of the actual defendant, and the more notional the assumption of responsibility becomes, the less difference there is between this test and the threefold test.
6 Thirdly, the threefold test itself provides no straightforward answer to the vexed question whether or not, in a novel situation, a party owes a duty of care. In Caparo Industries plc v Dickman  2 AC 605 , 618, Lord Bridge, having set out the ingredients of the threefold test, acknowledged as much:
"But it is implicit in the passages referred to that the concepts of proximity and fairness embodied in these additional ingredients are not susceptible of any such precise definition as would be necessary to give them utility as practical tests, but amount in effect to little more than convenient labels to attach to the features of different specific situations which, on a detailed examination of all the circumstances, the law recognises pragmatically as giving rise to a duty of care of a given scope. Whilst recognising, of course, the importance of the underlying general principles common to the whole field of negligence, I think the law has now moved in the direction of attaching greater significance to the more traditional categorisation of distinct and recognisable situations as guides to the existence, the scope and the limits of the varied duties of care which the law imposes."
Lord Roskill made the same point in the same case, at p 628:
"I agree with your Lordships that it has now to be accepted that there is no simple formula or touchstone to which recourse can be had in order to provide in every case a ready answer to the questions whether, given *192 certain facts, the law will or will not impose liability for negligence or in cases where such liability can be shown to exist, determine the extent of that liability. Phrases such as 'foreseeability', 'proximity', 'neighbourhood', 'just and reasonable', 'fairness', 'voluntary acceptance of risk', or 'voluntary assumption of responsibility' will be found used from time to time in the different cases. But, as your Lordships have said, such phrases are not precise definitions. At best they are but labels or phrases descriptive of the very different factual situations which can exist in particular cases and which must be carefully examined in each case before it can be pragmatically determined whether a duty of care exists and, if so, what is the scope and extent of that duty. If this conclusion involves a return to the traditional categorisation of cases as pointing to the existence and scope of any duty of care, as my noble and learned friend, Lord Bridge of Harwich, suggests, I think this is infinitely preferable to recourse to somewhat wide generalisations which leave their practical application matters of difficulty and uncertainty."
7 Fourthly, I incline to agree with the view expressed by the Messrs Mitchell in their article cited above, p 199, that the incremental test is of little value as a test in itself, and is only helpful when used in combination with a test or principle which identifies the legally significant features of a situation. The closer the facts of the case in issue to those of a case in which a duty of care has been held to exist, the readier a court will be, on the approach of Brennan J adopted in Caparo Industries plc v Dickman , to find that there has been an assumption of responsibility or that the proximity and policy conditions of the threefold test are satisfied. The converse is also true.
8 Fifthly, it seems to me that the outcomes (or majority outcomes) of the leading cases cited above are in every or almost every instance sensible and just, irrespective of the test applied to achieve that outcome. This is not to disparage the value of and need for a test of liability in tortious negligence, which any law of tort must propound if it is not to become a morass of single instances. But it does in my opinion concentrate attention on the detailed circumstances of the particular case and the particular relationship between the parties in the context of their legal and factual situation as a whole.
5. Discussion and Conclusions
1. Mrs Shemwell did not rely on Mr Sully in relation to the making of the will. She never discussed the terms of her will with him, she never asked for advice in relation to the will. Mr Sully was instructed to attend the meeting to provide a valuation of Mrs Shemwell's assets. He provided that valuation. Whilst Mr Sully knew that the Claimants were beneficiaries under the 2011 trusts he did not know that she intended to benefit them further under her will or the extent of the intended bequest.
2. Mr O'Sullivan submits that the aide memoire was misleading. I do not accept that description. I accept that it was not a complete document and was possibly open to more than one interpretation but I do not think that makes it "misleading". It refers to £146,472 being in trust in the column next to each of the Claimants. It does not attempt to set out their rights under the trusts. It does not specify that they will be beneficially entitled to the whole of that money on the death of Mrs Shemwell. Furthermore reference to the right hand column of the aide memoire shows that only £85,445 of the £146,472 would ever fall outside the estate. The £146,472 was comprised in a trust of which the Claimants were the only named beneficiaries. It does not follow from that the Claimants would necessarily inherit the whole of the trust funds on the death of Mrs Shemwell. As noted above it is difficult to see how Mr Woodhead's interpretation of the aide memoire is consistent with the total of the trust moneys within the estate (£547,527). Similar comments can be made about the short conversation before Mr Sully left the meeting.
3. Mrs Shemwell asked Mr Sully to leave within 5 minutes of the start of the meeting and before there were any discussions about the will. Contrary to the submission of Mr O'Sullivan Mr Sully was in no sense part of the will making process. He was asked to leave before he could explain the nature of the trusts. If he had been asked he could and would have explained. If he had been contacted by Mr Woodhead before he drafted the will, he (Mr Sully) would have provided the explanation but Mr Woodhead did not contact him at all.
4. It is difficult to resist the conclusion that Mr Woodhead was in breach of his duty to Mrs Shemwell and to the Claimants. In my view he should have made sufficient enquiries to satisfy himself that the relevant trust moneys would in fact pass to the Claimants on Mrs Shemwell's death. Alternatively he should have devised a form of words to ensure that the Claimants each received £200,000 after taking into account any moneys they received under the two trusts. In my view it was negligent to draft the will based solely on the material in the aide memoire and the short conversation. This is not therefore a case where the Claimants have no claim against anyone. I agree with Mr Allen that the fact that they have chosen to compromise that claim cannot affect the question of whether there was a duty of care owed by Mr Sully.
5. This case is not on all fours with any of the decided cases. It is plainly distinguishable from White v Jones and Carr-Glynn. Mr Sully was not instructed in the will making process. He did not know the identity of the beneficiaries or the amount intended to be left to them. It would in my view involve a considerable extension to the principle in White v Jones to impose a duty of care in this case. As Lord Bingham explained in paragraph 7 of the judgment cited above this makes the court less ready to find that there has been an assumption of responsibility or that the proximity and policy conditions of the threefold test are satisfied.