Scarfe and another v Matthews and others: ChD (Mr N Strauss QC (sitting as a deputy judge)): 5 September 2012
The instant proceedings concerned the administration of the will of the late Mr Bernard Matthews (BM), the founder of a very successful turkey farming and food production business.
In November 2010, BM died, survived by his wife (J), their three adopted children, who were the third to fifth defendants (the adopted children), and the first defendant (G) being BM’s son by Cornelia Elgershuizen. BM had been separated from J for nearly 30 years by the time of his death. For about 20 years, BM had been living with the second defendant (O). BM and O had lived together in England and in a villa in France (the villa).
BM had left three wills: two French wills and one English will and codicil. The English will included within its provisions a bequest free of tax of £1m to O and a gift of BM’s residuary estate on trust for G. Moreover, clauses four and five of the English will provided that the claimants, BM’s executors, in their capacity as executors, should pay all tax arising in consequence of his death, including French tax. One French will left all moveable property in France to O and the other French will bequeathed the villa, outright, to O. In leaving the villa to O, BM had been aware that, by French law, his children were entitled to 75% of the villa on his death, and that would leave only 25% of it to O.
BM had hoped that his children would not exercise their rights, and left a letter to that effect. Only G respected those wishes, the adopted children did not. The result was that O could only inherit 43.75%. The executors sought determination of the adopted children’s liability for French inheritance tax.
The matter that fell to be determined was whether, by exercising their rights under French law to the total share of 56.25% of the villa, the adopted children were entitled, pursuant to clauses four and five of BM’s English will, to have their resulting liability for French inheritance tax discharged by the executors out of BM’s English estate.
The court ruled: It was clear from the terms of the will that what BM wanted had been to ensure, so far as he could, that O inherited the villa free of tax. It was inconceivable that BM, who had been fully aware of the risk of his children exercising their French law inheritance rights, could have intended that, if they did so contrary to his wishes, they should also be paid the tax, for which they alone were liable, out of his estate. BM wanted O to have the villa and to be indemnified for the tax payable on it in consequence of his death for which she had been liable.
He had not wanted to benefit his adopted children, unless the residuary gift in the English will would have failed, and he had not wanted anybody to take away from O any share in the villa. It was clear that, for whatever reason, BM could not have thought through the tax position which would arise under the will if his children or any of them disregarded his wishes. Had BM done so, the only possible answer he could have arrived at, consistently with the rest of the English will, was that clauses four and five would not apply to tax payable by any of his children who exercised their inheritance rights over the villa. The tax provision had been to protect the beneficiaries under the will.
That was what the reasonable observer would have taken BM to have meant. Therefore, the correct construction of clauses four and five was that they applied to tax payable as a consequence of BM’s death by the executors or by beneficiaries under the will.
The adopted children would have no right under the English will to have their tax liability discharged, or to be reimbursed if they had paid it. The executors were not required or empowered to pay the tax due by the adopted children to the French tax authorities, or to pay an equivalent amount to the adopted children.
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