ECLI:NL:RBAMS:2020:6008, Rechtbank Amsterdam, 02-12-2020, NCC 19/015 (C/13/676259)
Rechtbank Amsterdam — Uitspraak 
Datum: 2020-12-02 00:00:00.000000
Rechtsgebied: Civiel recht

Samenvatting: Donee not regarded as a charity for UK tax purposes. UK tax reliefs not applicable. Donation agreements annulled pursuant to Article 6:228 (1)(c) DCC for mutual mistake.
      
      Begiftigde stichting (ANBI) is geen liefdadigheidsinstelling volgens de Engelse belastingdienst. Fiscale aftrek voor liefdadigheidsinstellingen niet van toepassing. Schenkingsovereenkomsten vernietigd op grond van artikel 6:228 lid 1 sub c BW vanwege wederzijdse dwaling.

judgment
    AMSTERDAM DISTRICT COURT
    
    
      Netherlands Commercial Court
      NCC District Court
    
    
    
      Case reference number: NCC 19/015 (C/13/676259)
    
    
    
      
        Judgment 
      
    
    
    
      
        2 December 2020
      
    
    
    
      
        Claimants
      
    
    
  
  
    
      1 [claimant sub 1] ,
    residing in London (United Kingdom), 
    
    
      and
    
    
  
  
    
      2the company incorporated under Canadian law
    
      
        MAR LIMITED,
      
      with its address in London (United Kingdom),
      represented by [claimant sub 1] ,
      lawyer: G.A. Hogeterp, The Hague,
    
    
    
      versus
    
    
    
      
        Defendant
      
    
    
    
      the foundation established under Dutch law
      
        STICHTING WEST COAST FOUNDATION,
      with its statutory seat in Amsterdam (the Netherlands),
      lawyer: A. van der Smeede, Amsterdam.
    
    
    
      The parties are referred to below as [claimant sub 1] , Mar and SWCF respectively.
    
    
    
  
  
    
      1Procedural history
    
    
      1.1.
      
        [claimant sub 1] and Mar submitted a writ of summons on 20 November 2019. Their exhibits were submitted by separate brief on 21 November 2019.
      
    
    
      1.2.
      On 10 February 2020, SWCF filed its statement of defence, with one exhibit.
      
    
    
      1.3.
      The hearing was held via Skype for Business on 8 September 2020. The parties submitted memoranda of oral arguments in eNCC in advance of the hearing. A court record of the hearing was made.
      
    
    
      1.4.
      At the hearing, the Court granted permission to SWCF to submit an expert advice in order to provide (a) an answer to the question how the residency of [claimant sub 1] is connected to the inheritance tax to be paid by SWCF, and (b) an explanation as to how the UK tax authorities view Mar’s donations and how this relates to SWCF having to pay inheritance tax. SWCF submitted the expert advice on 23 September 2020. [claimant sub 1] , Mar and SWCF subsequently waived their right to comment on the expert advice. 
      
    
    
      1.5.
      The case was set for judgment. 
      
      
    
  
  
    
      2The facts
    
    
      2.1.
      
        
          [claimant sub 1] and the now liquidated Canadian entity Mar founded SWCF in October 2013. Before the winding-up of Mar in 2013/2014, [claimant sub 1] was Mar’s sole shareholder and member of its board.
        SWCF's object is to improve welfare and help communities by making donations to public welfare institutions in specific regions, in particular Western Scotland, the Isle of Bute and Glasgow.
      
      
    
    
      2.2.
      Prior to the establishment of SWCF, [claimant sub 1] and Mar sought (preliminary) advice from English lawyers on the UK tax position of an overseas charity. On 20 June 2013, [claimant sub 1] and Mar were informed that in order to qualify for the envisaged UK charitable tax relief - including an exemption from inheritance tax - SWCF needed to be (a) established exclusively for purposes that fall within those recognised as charitable in England and Wales; (b) subject to the control of a UK, EU Member State, Norwegian or Icelandic court in exercise of its jurisdiction with respect to charities; (c) registered with any charities regulator in its jurisdiction, if required; and (d) managed by 'fit and proper' persons. According to the English lawyers, it was not required for SWCF to have been recognised as a charity for UK tax purposes by HMRC (Her Majesty's Revenue & Customs; the UK tax authority) at the time a gift was made.
      
    
    
      2.3.
      
        [claimant sub 1] and Mar selected a Dutch foundation to establish SWCF. [claimant sub 1] and Mar were advised by Dutch lawyers that the designation by the Dutch tax authorities of SWCF as an ANBI (Algemeen Nut Beogende Instelling/Public Benefit Organisation), followed by its entry in the ANBI register, was comparable to the registration of a charity with the Charity Commission for England and Wales.
      
    
    
      2.4.
      On 16 October 2013, SWCF was set up as a foundation under Dutch law. On the same day, SWCF was entered in the Dutch ANBI register, after its designation by the Dutch tax authorities as an ANBI. 
      
    
    
      2.5.
      On 29 November 2013, Mar and [claimant sub 1] entered into a winding-up agreement. Pursuant to this agreement, Mar had resolved to wind up its affairs and agreed to transfer all of its assets to [claimant sub 1] . The effective date of the envisaged wind-up was 31 December 2013.   
      
    
    
      2.6.
      
        On 12 December 2013, Mar entered into five donation agreements with SWCF, pursuant to which Mar donated (in total) US$ 548,334.05, € 1,966,370.45, CHF 179,506.92 and a number of shares in a publicly traded company to SWCF. 
        On 29 January 2014 and 2 March 2016, [claimant sub 1] entered into three donation agreements with SWCF, pursuant to which [claimant sub 1] donated (in total) US$ 41,200,000 and GBP 10,000,000 to SWCF. The eight donation agreements were laid down in eight separate documents, governed by Dutch law, in which the parties among other things waived their right to nullify the agreements. 
      
      
    
    
      2.7.
      On 27 March 2014, Mar was dissolved and its registration struck off the companies register of the Canadian province of Nova Scotia.
      
    
    
      2.8.
      At the time SWCF was established and the donations to SWCF were made, [claimant sub 1] lived in Switzerland.
      
    
    
      2.9.
      The process of getting SWCF recognised by HMRC as a charity for UK tax purposes was initiated in June 2017. On 4 July 2017, HMRC demanded a change to SWCF's Articles of Association before being able to recognise SWCF as a charity for UK tax purposes. 
      
    
    
      2.10.
      After amendments to SWCF's Articles of Association - as required by HMRC - had been made, HMRC confirmed on 21 March 2018 that SWCF was a charity for UK tax purposes in accordance with the Finance Act 2010. The decision was expressed as taking effect as from 22 February 2018, being the date on which the new Articles of Association of SWCF were registered with the Dutch Trade Register.
      
    
    
      2.11.
      As a result, the donations [claimant sub 1] and Mar made to SWCF prior to 22 February 2018, had been made to an entity that was not a charity for UK tax purposes at the time of the gifts and would therefore not be exempt from UK inheritance tax.
      
    
    
      2.12.
      On 5 May 2018, [claimant sub 1] moved from Switzerland to the United Kingdom.
      
      
    
  
  
    
      3The claim
    
    
      3.1.
      
        
          [claimant sub 1] and Mar ask the Court to annul the eight donation agreements made between them and SWCF based on mutual mistake (wederzijdse dwaling) pursuant to Article 6:228 (1)(c) of the Dutch Civil Code (DCC). According to [claimant sub 1] and Mar, all the parties involved made incorrect assumptions about SWCF’s entitlement to UK charitable tax relief at the time of the conclusion of the donation agreements. [claimant sub 1] , Mar and SWCF relied on the professional advice provided by English and Dutch lawyers about the tax consequences of the donations and assumed that the legal requirements for SWCF to be recognised as a charity for UK tax purposes had been fulfilled at the date of the establishment of SWCF (16 October 2013). Furthermore, all the parties assumed that it was not required that SWCF was already recognised by HMRC as a charity for UK tax purposes at the time the donations were made. Contrary to these assumptions, however, HMRC ruled that SWCF was only recognised as a charity for UK tax purposes effective only as of 22 February 2018 - after amendments to SWCF's Articles of Association had been made. Consequently, the donations made to SWCF prior to that date would not be exempt from UK inheritance tax. [claimant sub 1] and Mar state that neither of the parties would have entered into the donation agreements had they been informed correctly about this beforehand.
        According to [claimant sub 1] and Mar, [claimant sub 1] is authorised to commence legal proceedings on behalf of Mar and to receive and deal with any of its donated assets pursuant to a power of attorney granted to [claimant sub 1] in the winding-up agreement of Mar (see above, sub 2.5.). [claimant sub 1] states that it is his intention to make donations to SWCF again after the annulment of the donation agreements.
      
      
    
    
      3.2.
      
        SWCF recognises that all the parties involved made incorrect assumptions about the entitlement to UK inheritance tax relief, at the time of the conclusion of the donation agreements. Furthermore, SWCF recognises that it would not have entered into the donation agreements had it known that it would have to pay inheritance tax. The exemption from inheritance tax was important for SWCF. 
        SWCF requests that the Court order [claimant sub 1] and Mar to pay the costs of these proceedings.
      
      
      
    
  
  
    
      4Discussion
    
    
      
        Jurisdiction NCC and applicable law	
      
    
    
    
      4.1.
      In Article 5.2 of the donation agreements, the parties designated the Amsterdam District Court as the forum to hear their case (choice-of-court clause). This means that the Amsterdam District Court has jurisdiction under Article 25 (1) of Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast). Furthermore, on 6 March 2019, the parties expressly agreed in writing for these proceedings to be before the NCC in English. Since all other requirements for the NCC to deal with the case, mentioned in Article 30r Dutch Code of Civil Procedure (DCCP) and Article 1.3.1 of the NCC Rules of Procedure (NCCR), are also met, the NCC is competent to hear the claim.
      
    
    
      4.2.
      Article 5.1 of the donation agreements stipulates that the agreements are governed by Dutch law. At the hearing the parties have confirmed that they have chosen Dutch law as the applicable law. Dutch law will be applied.
      
      
        
          Admissibility of Mar
        
      
      
    
    
      4.3.
      
        As Mar was dissolved and its registration as a company under the Nova Scotia Companies Act was struck off in March 2014, a few months after it had donated all of its assets to SWCF, the Court needs to assess whether Mar has locus standi and whether [claimant sub 1] is authorised to commence these legal proceedings on Mar’s behalf in which the annulment of the donation agreements is pursued. According to Article 10:118 DCC, the law of the Canadian province of Nova Scotia governs this question. 
        In this respect, reference is made to Mar’s winding-up agreement (see above sub 2.5.), that was concluded prior to its dissolution. This agreement includes the following provision:  
      
      
      
        
          The Company hereby appoints the Shareholder its true and lawful attorney in its name and on its behalf to do all acts and execute all documents which may hereafter be necessary or desirable to complete the transfer of assets hereinbefore provided for.
        
      
      
    
    
      4.4.
      In a letter to [claimant sub 1] and Mar's Dutch lawyer, dated 29 April 2019, Mr. J.K. Cruickshank, Mar’s Canadian lawyer of the law firm Stewart McKelvey, provided a legal opinion regarding the question as to whether [claimant sub 1] , as Mar’s (former) shareholder to whom Mar had granted a power of attorney, may commence legal proceedings against SWCF and receive and deal with the donations on behalf of Mar.
      
    
    
      4.5.
      This legal opinion, which is not contested by SWCF, concludes that the power of attorney granted to [claimant sub 1] was irrevocable and intended to allow [claimant sub 1] (as Mar’s sole shareholder) to deal with Mar’s assets even after Mar’s dissolution and that consequently, [claimant sub 1] has the authority to commence these legal proceedings on behalf of Mar as they concern Mar’s (donated) assets. 
      
    
    
      4.6.
      The Court sees no reason not to follow the undisputed opinion of an expert on Canadian law and therefore concludes that Mar has locus standi in this case and that [claimant sub 1] has the authority to commence these legal proceedings on behalf of Mar.
      
      
        
          On the merits 
        
      
      
    
    
      4.7.
      The claimants argue that the donation agreements have to be annulled because of mutual mistake pursuant to Article 6:228 (1)(c) DCC.
      
    
    
      4.8.
      At the hearing, SWCF abandoned its initial defence to disallow the claim. The reason for SWCF opposing [claimant sub 1] and Mar's claim at first, was the uncertainty whether [claimant sub 1] would donate again after an annulment of the agreements. SWCF is now willing to cooperate in the pursued annulment of the donation agreements in the hope of new donations in the future. The interest of SWCF is to donate as much as possible to charity. 
      
    
    
      4.9.
      According to Article 7:175 DCC, a donation is a contract by gratuitous title that purports the enrichment of one of the parties, the donee, by the other party, the donor, out of the latter’s own estate. Because it is a contract, the mutual agreement of donor and donee is essential. There may be no obligation for the donee to do something in return, since the title of the contract has to be gratuitous. 
      
    
    
      4.10.
      When both parties enter into a contract under the influence of a mistake and this contract would not have been concluded had there been a correct assessment of the facts, this contract may be annulled (vernietigd) on the basis of Article 6:228 (1)(c) DCC. Pursuant to Article 6:228 (2) DCC, such annulment may not be based on a mistake regarding a strictly future circumstance or a mistake which should remain for the party in error, given the nature of the contract, common opinion or the facts of the case.
      
    
    
      4.11.
      Both the claimants and the defendant submit that the mistake in this case was the assumption that the donations to SWCF would be exempt from payment of inheritance tax in the UK. Apparently, the parties assumed that the UK tax authorities (HMRC) would regard the donee, SWCF, as a charity for UK tax purposes and that therefore charitable UK tax relief would apply. However, in 2017 it became clear to the parties that HMRC were of a different opinion when HMRC initially refused to recognise SWCF as a charity under UK tax law. Thereupon, after some correspondence with HMRC, SWCF’s Articles of Association (statuten) were amended, based on which amendments HMRC decided to recognise SWCF as a charity for UK tax purposes as of 22 February 2018. As a consequence, only donations made after 22 February 2018 would not trigger charges to UK inheritance tax. 
      
    
    
      4.12.
      On the basis of the written statements of the parties, it was not clear to the Court why recognition of SWCF as charity by HMRC was only sought a few years after the donations had been made. From statements made by the parties at the hearing, the Court understood that [claimant sub 1] ’s residency in Switzerland had played a role in this. To clarify this issue and the question whether or not SWCF would - at all - be required to pay inheritance tax for donations made prior to 22 February 2018, SWCF was granted permission to submit an expert advice.  
      
    
    
      4.13.
      In an expert advice of 23 September 2020, Justine Markovitz of Whithers LLP writes that [claimant sub 1] was domiciled or deemed domiciled in the UK at the relevant time from a UK tax perspective, even though he resided in Switzerland for some time during this period. The dispositions at stake (the donations made by [claimant sub 1] to SWCF) reduced the value of his estate and because SWCF was not regarded as a charity prior to 22 February 2018, these dispositions were therefore regarded as chargeable transfers under UK tax law. The same applies to the donations made by Mar, since [claimant sub 1] was Mar’s sole participator and the donations reduced not only the value of Mar but also the value of [claimant sub 1] ’s estate. 
      
    
    
      4.14.
      The expert advice makes it clear that both [claimant sub 1] and SWCF are liable for UK inheritance tax and that [claimant sub 1] would be the first person responsible for the payment of inheritance tax. [claimant sub 1] is responsible due to the fact that the donations (including Mar’s donations because [claimant sub 1] was its sole participator) caused a decrease in the value of [claimant sub 1] ’s estate, which makes him the transferor of assets. The donations made in the period during which SWCF was not recognised as a charity, would therefore be regarded as chargeable transfers of value under UK inheritance tax. The Court understands that only when [claimant sub 1] as the transferor declined to pay inheritance tax - at a rate of 20% plus interest and penalties applicable for late payment - would HMRC seek to claim this tax from SWCF on the basis of section 204 (6) of the Inheritance Tax Act 1984. SWCF would then be liable for the whole amount of the inheritance tax due, regardless of whether SWCF may have already distributed the funds (by making donations to e.g. public welfare institutions). Apparently, the parties envisage that when the donation agreements entered into prior to 22 February 2018 are annulled, no UK tax liabilities will have been incurred. 
      
    
    
      4.15.
      The Court observes that all parties agree that at the time the donations were made, they all assumed that SWCF, as donee, would be regarded as a charity for UK tax purposes and that therefore UK tax relief would be applicable. This proved to be incorrect. So, when the parties entered into the eight donation agreements, they did so under the influence of a mistake, namely that the donations would be exempt from payment of certain UK taxes. Moreover, the parties claim that if they had known beforehand that this would not be the case, they would not have entered into these agreements, at least not under the same conditions. 
      
    
    
      4.16.
      On the basis of what is set out above, the Court finds that the conditions of Article 6:228 (1)(c) DCC are met. The Court does not need to assess whether the mistake, considering the gratuitous nature of the donation agreements, should remain for the account of [claimant sub 1] and Mar as donors on the basis of Article 6:228 (2) DCC; SWCF made clear during the hearing that it did not want to invoke the restrictions included in that paragraph.
      
    
    
      4.17.
      Lastly, the Court notes that in each of the donation agreements, the parties have explicitly waived their right to nullify the donation agreement. The parties also confirmed upon request during the hearing that they do not wish to invoke this contractual provision. 
      
      
        
          Conclusion 
        
      
      
    
    
      4.18.
      In light of the above, the Court will grant the claim and will annul the donation agreements pursuant to Article 6:228 DCC.  
      
    
    
      4.19.
      SWCF has requested its costs be borne by the claimants. However, as SWCF has abandoned its defence, this request has to be dismissed on the basis of Article 237 (1) Dutch Code of Civil Procedure. The claimants have not requested their costs be borne by SWCF. Therefore, the Court will order that each of the parties bear its own legal costs.
      
      
    
  
  
    
      5Decision
    
    
      The Court:
    
    
    
      5.1.
      annuls the following donation agreements based on mutual mistake:
      
      
        (I) the donation agreement entered into between SWCF and Mar Limited on 12 December 2013 with a donation of USD 11,796.57;
      
      
      
        (II) the donation agreement entered into between SWCF and Mar Limited on 12 December 2013 with a donation of CHF 179,506.92;
      
      
      
        (III) the donation agreement entered into between SWCF and Mar Limited on 12 December 2013 with a donation of EUR 1,966,370.45;
      
      
      
        (IV) the donation agreement entered into between SWCF and Mar Limited on 12 December 2013 with a donation in the form of the shares in Paris Orleans valued at EUR 443,260.60;
      
      
      
        (V) the donation agreement entered into between SWCF and Mar Limited on 12 December 2013 with a donation of USD 536,537.48;
      
      
      
        (VI) the donation agreement entered into between SWCF and [claimant sub 1] on 29 January 2014 with a donation of USD 20,000,000.00;
      
      
      
        (VII) the donation agreement entered into between SWCF and [claimant sub 1] on 29 January 2014 with a donation of USD 21,200,000.00; and
      
      
      
        (VIII) the donation agreement entered into between SWCF and [claimant sub 1] on 2 March 2016 with a donation of GBP 10,000,000.00;
      
      
    
    
      5.2.
      orders that each of the parties bear its own legal costs.
      
      
      
        Done by M.A.M. Vaessen, A.C. Bordes and D.M. Staal, Judges, assisted by A. Hut, Clerk of the Court. 
      
      
      
        Issued in public on 2 December 2020.
      
      
      
        
          APPROVED FOR DISTRIBUTION IN eNCC
        
        
          THE SIGNED ORIGINAL IS IN THE HARD COPY FILE
        
      
    
  
  
     in the context of mistake also referred to as “voided” or “avoided”