Veering off default

The case of Gosden v Halliwell [2021] EWHC 159 has received a reasonable amount of attention in the legal press and offers a number of interesting learning points for practitioners. 

It was, essentially, a professional negligence case which arose following the failure to implement a crucial step in an estate planning scheme. Apart from the obvious point that practitioners should always ensure all steps in any estate planning are fully implemented, the case has useful lessons on the ever-expanding duty of care owed by solicitors.

It also demonstrates how the value of damages can be assessed in a negligence case and the court’s willingness to depart from the usual default position. 

Background 

The case was brought by the son and daughter-in-law of the settlor Ms Weddell (now deceased). In 2003, Ms Weddell had entered into a relatively well-known estate tax planning scheme commonly referred to as a ‘double trust scheme’. The scheme was referred to by the defendant solicitors as an ‘estate protection scheme’ (EPS). The EPS was promoted as enabling Ms Weddell to pass her valuable London property (in which she lived) to her son, Professor Christopher Gosden, and his family on her death while continuing to enjoy the property during her lifetime. 

The solicitors were instructed to carry out the necessary work by Ms Weddell. As part of the EPS, the defendant solicitors should have entered a restriction on the title of the property, so that the deceased could not sell it without the express permission or knowledge of her son – who was one of the trustees under the EPS.

The claimants sued the solicitors who established the scheme, not because of any doubts or failure of its promoted tax benefits, but for the incomplete implementation of the EPS. The solicitors who created the scheme had been negligent as they had failed to restrict Ms Weddell’s ability to sell the property without her son’s consent.

In 2010, Ms Weddell entered into a civil partnership and left the bulk of her estate to her new partner. Unfortunately, without the restriction in place preventing the sale of the property, it was subsequently sold to a third party in late 2010. 

Ms Weddell passed away in April 2013. The son did not discover that the property had been sold until 2015, when he enquired of the defendant solicitors as to the status of the property which, under the EPS, should by then have been transferred to him. 

His Honour Judge Pelling QC, sitting as a judge of the High Court, accepted the claimants’ evidence. He held that the defendant solicitors owed them a duty of care as beneficiaries and as co-trustees and that the duty had been breached. The judge held that loss was first suffered in 2003 when the EPS was initially created.

The issue of damages

Given that negligence on the part of the defendant was clearly established, it was accepted that damages to be awarded to Professor Gosden should reflect the value of the property. However, the court then had to address the question of when the date for assessment of damages should be determined. 

The usual default position in cases such as this, is that damages should be determined at the date the wrongful act occurs. In this instance, the parties could not agree when the loss crystallised: should it be the date of the mistake being made when the EPS was established in 2003; the date of the sale of the property in 2010; or the date of the deceased’s death in 2013?  

Given the recent and significant rise in property prices since 2003, the date chosen by the court would have a significant impact on the level of damages awarded. At the date of sale in 2010, the property was valued at £785,000. It was this value and date that the defendant argued should be used to determine damages. 

The claimants disagreed, citing the well-established rule that a court can and, indeed, should depart from the default position where it needs to, in order to adequately compensate the claimant.

However, the defendants argued that if there was to be a departure from the default position, then that departure should only be to the date that the deceased passed away in 2013, at which time the property was valued at £875,000. In turn the claimants argued that damages should be assessed at the date of trial.

Judge Pelling QC agreed with the claimants that in this instance it was appropriate to depart from the default position. He ruled that the date that the deceased passed away in 2013 was the correct date for assessment on the basis that it was on this date when the loss effectively crystallised.

In his judgment, the reason for departing from the default position was that the EPS was clearly intended to take effect from the date at which the deceased passed away; it was at that date that the true loss occurred. The judge also made reference to the fact that the claimant would have been under-compensated were an earlier date to have been used to assess damages and over-compensated were the date of the trial to have been used.

The court ruled that in the circumstances, loss should be assessed at the date of Ms Weddell’s death and not the date on which she sold the property or otherwise. 

Key takeaways

The judgment of the court is a clear demonstration that when appropriate to do so, the courts will depart from the usual default position. So, what should practitioners take away from this case? 

Firstly, this case reaffirms the position that a solicitor owes a duty of care towards beneficiaries under lifetime trusts, notwithstanding that in acting for the settlor to establish the trust the solicitors had no direct contact with the beneficiaries. This expands the scope of cases in which duties are held to be owed by solicitors to third parties other than their clients, outside the realm of the usual will-making cases.

In this case, the court found that a duty is owed to third party beneficiaries based on an inference of reliance, for the recovery of damages for lost benefits under the trust. This is another example of the expanding reach of the duty of care that solicitors owe to others – not only their clients. 

Secondly, while practitioners would normally be concerned when judges depart from the usual default position in relation to awarding damages; in this case the judge gave clear reasoning as to why the only way to correctly compensate the claimant was to veer from the default position.   

Based on the facts, it’s my opinion that the judge chose the correct date at which to assess the damages award. The negligent act had occurred in 2003 when the EPS was established – that is clear cut. However, this was not the date that the claimant discovered the solicitor’s error.  The error was not discovered until 2013 and that was, therefore, the appropriate date when the loss crystallised – which was the date of Ms Weddell’s death. 

Matthew Duncan is a partner at Druces druces.com