The perils of disorganisation – who's the winner?

A recent High Court case¹ highlights the dangers of trying to arrange your affairs in a tax efficient way, but then failing to stick by those plans.

Mr Dines was a 'shrewd' (in the judge's words) businessman but 'hopelessly disorganised' with his paperwork – leading to a bitter fight between his children and second wife in Court over properties worth more than £1m.

Background

Graham Dines had two children, Louise and Elliot, with his first wife. Graham had several affairs and, in 1992, met Helen, who became his second wife.

Graham ran a property investment business, Provincial Equity Finance Limited ('PEF').  PEF purchased flats in Bath and Bournemouth, which it then let or sold.  Initially, these flats were bought in PEF's name but in the late 2000s, Graham decided to buy properties in his own, Helen's and/or Elliott's names. It appears he thought that if a vendor knew that the purchaser was a company, the vendor would assume it was a property business (which it was!) and demand a higher price. PEF paid tax on the rental income and included the properties in its accounts.

Graham had three bank accounts which he used for business and personal purposes - PEF did not have its own bank account.

In 2008, Graham gave instructions for a new Will (his fourth in five years).  He named Elliot, Louise, Mr Arad and his previous business partner, Mr Young, as executors. He wanted Helen to have their home, £100,000 and his pension rights.   He left Elliot and Louise his shareholding in PEF, some other property investments and residue.  

Graham told his solicitor that Helen had properties in her name which she held on trust for PEF – but he said that there weren't any documents to support this. He said that PEF paid for the flats and they were in Helen's name simply for tax reasons.

In April 2016, Graham and Helen went on a cruise from Florida to Southampton. While on a stop in Lisbon, Graham had a fall and fell into a coma.

Ten days later, Helen transferred £130,000 from one of Graham's bank accounts to herself.

Graham passed away on 5 June 2016.

PEF (now controlled by Louise and Elliot) claimed that it owned 12 flats which were registered in Helen's name (or Helen's and Graham's joint names). It also wanted Helen to account for the £130,000 withdrawal.  

Do the flats and money belong to PEF?

PEF's only argument was that it paid for the properties, so Helen held them on resulting trust for the company.²

To make out its case, PEF had to show that the money in the accounts was PEF's, not Graham's.

The judge found that Graham used all three accounts freely for personal and business expenses and there was no way to identify which part of the money was his and which was PEF's³- even though there were transactions from the bank accounts in PEF's company accounts and rent from PEF's other properties was paid into the accounts. Graham could have opened a business account for PEF but didn't.  

PEF put forward evidence of Graham's intentions that the properties were PEF's and that they would go to Elliot and Louise. The judge said this was irrelevant.

The claim to the properties failed. So Helen ended up with everything Graham had intended and the 12 properties.

PEF's claim to the £130,000 that Helen transferred to herself shortly before Graham's death also failed – on the basis that the judge had already decided the money in the account was Graham's, not PEF's (even though the judge did say he considered Helen's 'explanation for the transfer of the £130,000 was untruthful').

Conclusion

The judge was not impressed by Helen – she was 'not a satisfactory witness', at times her position was 'not credible' and she was 'keener to advance her case than…provide the court with a reliable account of the facts'. But he also seemed to have little sympathy for Graham's attempt (seemingly led by his accountant) to use PEF as a tax vehicle when the lines between his business and personal dealings were so blurred.  So, despite the judge's views on Helen as a witness, PEF (and ultimately Elliot and Louise) lost out.

It is not unusual to see judges exercising some flexibility (within reason) to achieve what they feel that the deceased wanted. But here, the judge felt he couldn't do this – he concluded 'Elliott and Louise…may feel that it is not the outcome of the case that Graham would have wished for'. But he put the blame firmly at Graham's door – for his 'hopeless disorganisation'.

It is not clear why PEF limited itself to a resulting trust claim, when it seemed to have evidence on Graham's intentions that could have supported a wider constructive trust, agreement or estoppel argument.  We don't know what happened before the trial but this might have been the result of a narrow pleading and further evidence later emerging.

Despite the judge making clear that Graham was responsible for the confusion, PEF (and not Graham's estate) was ordered to pay Louise's costs.