B e f o r e :
LORD JUSTICE WARD
LORD JUSTICE KEENE
and
SIR MARTIN NOURSE
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Between:
| | Margaret Betina Hammond
| Appellant
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- and -
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| |
Susan Osborn & Anor
|
Respondent
|
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(Transcript of the Handed Down Judgment of
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Giles Harrap (instructed by Messrs Whiskers) for the Appellant
Donald McCue (instructed by Messrs Jefferies) for the Respondent
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HTML VERSION OF JUDGMENT
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Sir Martin Nourse :
Introduction
- The striking feature of this appeal has been the revelation of continuing misconceptions as to the circumstances in which gifts or other transactions will be set aside on the ground of presumed undue influence, a class of case in which, as Cotton LJ observed in Allcard v Skinner (1887) 36 Ch D 145, 171:
“the court interferes, not on the ground that any wrongful act has in fact been committed by the donee, but on the ground of public policy, and to prevent the relations which existed between the parties and the influence arising therefrom being abused.”
Here it is conceded that there was both a relationship of trust and confidence between donor and donee and a gift so large as together to give rise to the presumption. So the question is whether the presumption is rebutted by proof that the gift was “the spontaneous act of the donor acting under circumstances which enabled him to exercise an independent will and which justifies the court in holding that the gift was the result of a free exercise of the donor’s will” (per Cotton LJ, ibid), or, to put it more shortly, whether it is proved that the gift was made by the donor “only after full, free and informed thought about it”; see Zamet v Hyman [1961] 1 WLR 1442, 1446, per Evershed MR.
The background facts
- Most of the facts can be taken from the statement of Mr Justice Mackay in the court below. For reasons which will become apparent, they can be stated more briefly than they had to be stated by him. At the beginning of 1998 Dennis William Pritler, a bachelor and retired teacher then aged 72, was living alone at 56 Meadow Road, Loughton in Essex. By that time he had become dependent, so far as physical mobility was concerned, on the help of others, and it was by reason of his condition that at about Easter of that year he met the first defendant, Susan Osborn, who was then living with her husband, Edward James Osborn, at 73, Meadow Road, a short way down and across the road from no.56. They met outside the local Safeways, where Mr Pritler was holding onto the railings and was clearly in distress. The judge said:
“Like a good neighbour, she took him under her wing. She helped him to his home and their relationship expanded from that day. Initially it was confined to her doing his shopping, visiting him, talking to him, taking tea with him and the like.”
- The second defendant, Lee Francis, is Mrs Osborn’s son by an earlier marriage. He was in his late twenties and lived at Rayleigh in Essex, not far from Loughton. He worked for Barclays Bank plc; at the time of the material events as a human resources consultant. Before that, for about two years, he had been the manager of a high street branch. In March 2001 he was promoted to be head of local business management.
- In July 1998 Mr Pritler suffered an accident in his house, as a result of which Mrs Osborn found him two days later collapsed under a table in the kitchen. He was taken to Whipps Cross Hospital, Leytonstone, where he remained under observation, being discharged on 26th October 1998. The judge said:
“Mrs Osborn was a regular visitor while he was in hospital. She told me she became close to him for the first time when she found him in his distressed condition in his house. He expressed evident relief at her arrival, placing his hands together, as she showed me, in an attitude of prayer. Her fondness for him deepened. She regarded herself as standing in the position of a daughter to him.”
- The judge said that after Mr Pritler’s discharge from hospital the relationship between him and Mrs Osborn entered a new and more intense phase. She volunteered to the care authorities to be responsible for giving him two meals a day. On 26th October, at the suggestion of the care coordinator, Mr Pritler signed a third party mandate authorising Mrs Osborn to draw on his current account at the National Westminster Bank. This she used mainly when he asked her to discharge utility bills and food bills; on occasions she bought him clothes. The cheques drawn were of a relatively small amounts and no complaint is made of them.
The gift
- The judge found that it was on Mr Pritler’s return from hospital that he first raised with Mrs Osborn the question of making her a gift. He said that he had some savings and would like her to have them. She said nothing in response and the matter was dropped. On two further occasions during the period from the end of October 1998 to the beginning of September 1999 Mr Pritler returned to the question of making her a gift, but Mrs Osborn thought he was just being kind and politely said nothing.
- On 7th September 1999 Mr Pritler had another fall and was again admitted to Whipps Cross Hospital. It appears that he was suffering either from Parkinson’s disease or from hydrocephalus, probably the latter. On his admission Mrs Osborn told the care coordinator that he had been unwell over the last few weeks and that she was “concerned re memory loss, double incontinence and tremors”. However, the judge thought that he had retained a sufficient percentage of a formidable intellect to form judgments about what he wanted to do. That very evening, in conversation with Mrs Osborn, Mr Pritler reverted to the question of making her a gift. The judge said:
“Again this time, but now more specifically, Dennis said, according to her, that he had certain investments, all of which he wanted to give her. He told her the paper work for all these investments was to be found upstairs in a drawer in his bureau, and that he wanted her to cash them all in and take the money for herself. This time Mrs Osborn acted on his suggestion, and having recovered the paper work she enlisted the help of her son, Lee Francis, who worked for Barclays Bank. He came to her house and went through it with her. Together they established that a very large sum of money was involved.”
- The amount involved, as it proved, was £297,005. That was the amount transferred to Mrs Osborn by four cheques drawn on Mr Pritler’s current account between 4th and 20th October 1999 for £33,000, £39,039, £191,966 and £33,000 respectively. All four cheques were written out by Mrs Osborn and drawn in her favour, the first three being signed by Mr Pritler and the fourth by Mrs Osborn under the third party mandate. The amount for which each of the cheques was drawn matched, or nearly matched, proceeds of the realisation (conducted by Mrs Osborn and Mr Francis) of Mr Pritler’s investments credited to the account shortly beforehand. Thus on 21st September there were three credits amounting in the aggregate to £31,362.85, followed by a cheque for £33,000 drawn on 4th October. On 8th October there was a credit for £191,966.07 (see further below), followed by a cheque for £191,966 drawn on 13th October. On 13th October there was a credit for £39,039, followed by a cheque for £39,039 also drawn on 13th October. Finally, on 15th October there was a credit for £32,913.70, followed by a cheque for £33,000 drawn (and signed by Mrs Osborn) on 20th October.
- All four cheques were paid, either immediately or later, into a new 30 day savings account opened by Mrs Osborn at Barclays Bank, Ilford. Until 23rd February 2000 £292,000 remained in that account. On that date Mrs Osborn transferred £101,000 to Mr Francis and on 3rd March 2000 she transferred to him a further £5,000. For present purposes, it is unnecessary to trace the moneys further, except to say that in May 2000 Mr Francis used part of the moneys transferred to him to purchase, in his own name, a house for Mrs Osborn in Basildon. It is agreed that Mr Francis holds the house as trustee for Mrs Osborn. It is also accepted that, if Mrs Osborn is liable to refund the moneys, so too is Mr Francis to the extent that he received them.
- The effect of the transfer of the £297,005 to Mrs Osborn was that, as at 22nd October, when the final cheque was presented for payment, Mr Pritler was left with cash in his current account of £5,259.42. He also had a “Diamond” reserve account at the same bank, on which, including a transfer of the balance on his Tessa reserve account (£4,125.02) on 12th October, there was a credit balance of £22,002.11. He also owned his house valued at about £130,000, and he had an annual income of about £14,000 net, mostly from his teacher’s pension. However, it is to be noted that the £297,005 represented nearly 91.6% of his liquid assets. A further consequence of the realisation of his investments was that he became prospectively liable for charges for capital gains tax and higher rate tax amounting to £49,670.92.
- The judge found that on no occasion did Mrs Osborn specifically draw to Mr Pritler’s attention the size, even in approximate terms, of the gift he was making her. Nor did she draw his attention either to the proportion of his liquid assets that it represented or to the relatively small amount that was left to him. Nor did she discuss with him the possible fiscal consequences of the realisations. Although these important points are not in dispute, it is desirable to set out the material exchanges between the judge and Mrs Osborn during her cross-examination:
“ Q. When you asked him if [he was] sure it was what he wanted to do, did you say, “We have added it up and it amounts to £298,000, are you sure that is what you want me to have”. Did you put it like that or did you just say, “Are you sure you want me to have everything?”
A. No, I just said, “are you sure”.
Q. You did not mention a figure?
A. No.
Q. Did you say “What else do you have?” I mean, “If you give me this what are you going to live on? What will you have for the future?” Anything like that?
A. I would have taken care of him. I would not…..
Q. As far as you knew, forgive me putting it this way but I must, you might have been cleaning him out completely.
A. Yes, but he - - I knew he had, like, his accounts in his - - Natwest, I knew he had that, and I knew the house, but it would never - - I would never have done that. I would never have left him. I would have taken care of him.
Q. You knew he had accounts with the Natwest. What did you think was in them? Did you have any idea?
A. I knew he had sufficient monies in there.
Q. Did you know what was in there?
A. Yes.
Q. How much, in round figures?
A. I cannot remember now but it was quite a few thousand.
Q. What else did you know about his position? You knew he had a house?
A. His home, yes.
Q. Did you think that was paid for or was he still paying for it, or…..
A. I did not know, but I assumed, because he did say to me it had been in his family.
Q. You assumed the house was paid for?
A. Yes.
Q. What about income? Did you have a picture of what he had coming in each month or year?
A. He said that he had had, like, his teacher’s pension paid in.
Q. Right. Did you know what that was?
A. I knew it was, like, a few hundred a month.
Q. How did you feel when your son did the sums for you on the kitchen table and said, “Well, you know, he is not just giving you £5,000 or £10,000, mum, he is giving you £298,000”. What was your reaction to that?
A. Flabbergasted.”
Later Mrs Osborn confirmed that she had had no discussions about tax implications or anything like that with Mr Pritler.
Mr Pritler’s death and its consequences
- Mr Pritler died at Whipps Cross Hospital on 25th November 1999, about a month before his 74th birthday. The cause of death was bronchopneumonia, which developed after his return from an intermediate transfer to another hospital. Mrs Osborn said in evidence that she did not think he was going to die. He died intestate, leaving as his next of kin three first cousins: the claimant, Margaret Betina Hammond, Peter Brand and Anna Cherie. On 5th June 2000 letters of administration were granted to Mrs Hammond, who, on 19th July 2000, obtained a freezing order against Mrs Osborn and Mr Francis, the claim form in the action being issued in the Queen’s Bench Division on the following day. On 2nd August 2000 the freezing orders were continued, with minor modifications, until the trial.
Mrs Hammond’s primary case
- The trial took place before Mr Justice Mackay between 22nd and 24th October 2001, judgment being delivered on the afternoon of 25th October. Mrs. Hammond’s primary case was that the £297,005 had not been transferred to Mrs Osborn as a gift but in order to enable her to manage Mr Pritler’s finances on his behalf. That case was based largely on a letter dated 14th September 1999 from Mr Pritler to Royal Scandia Life Assurance Ltd. The letter was, in material respects, drafted by Mr Francis and it was typed up by Mrs Osborn. It constituted a request to surrender an executive investment bond with that company held by Mr Pritler. It included the following:
“As I am now 74 years and in ill health, after much consideration, I have decided to cash in my investments. This would make it a lot easier for me to manage. Would you please send me the relevant literature and paperwork on how to proceed with my decision.”
The letter resulted in Mr Pritler receiving the cheque for £191,966.07 above referred to.
- The question whether Mr Pritler did or did not intend to give Mrs Osborn the £297,005 was fully investigated at the trial. The judge correctly directed himself as to the convincing evidence that is necessary in order to establish any gift made by a deceased person. He dealt fully with the letter to Royal Scandia Life Assurance Ltd. Confessing that he had not found the point easy, he said:
“I have come to the view, aided by the findings of fact I will make later in this judgment, and as a matter of clear probability, that it was never the intention of Mr Pritler to cash in this or his other investments so as to enable them to be managed or looked after in any way by Mrs Osborn. It would have been an entirely irrational thing for him to have done….. the only reason for cashing this investment in would be either to spend it on himself, or to give it to someone else. He did not need or intend, as I find, to do the first of these two things. In my judgment, he did intend to give this money to Mrs Osborn.”
- In this court Mr Harrap, for Mrs Hammond, has argued that the evidence before the judge that there had been a gift was not sufficiently convincing and that his finding on this question should be set aside. He has pointed out that the only person to whom Mr Pritler directly declared his intention to make a gift was Mrs Osborn herself, whose conduct at times before Mr Pritler’s death and certainly afterwards gave grounds for suspicion. He has pointed to discrepancies between the early accounts given by Mr Francis (which supported a transfer to enable Mrs Osborn to manage Mr Pritler’s finances) on the one hand and the evidence that he gave at the trial (which supported a gift) on the other. However, these and other points were considered by the judge, who was not swayed by them. As to his acceptance of Mrs Osborn’s evidence, he said that at the end of the day, with certain exceptions noted in his judgment, he found her an essentially truthful person and witness.
- Despite Mr Harrap’s well sustained argument, it is in my judgment impossible for this court to hold that the judge’s decision on this question was not justified on the evidence. He was entitled to treat Mrs Osborn’s evidence, coupled with the probabilities of the matter (see para 14 above) as being sufficiently convincing. I therefore proceed on the footing that Mr Pritler intended to make an outright gift of the £297,005 to Mrs Osborn. It then becomes necessary to consider Mrs Hammond’s alternative case, which is that the gift ought to be set aside on the ground of Mrs Osborn’s presumed undue influence over Mr Pritler. The judge rejected that case also. He dismissed the action with costs.
- At this point it is convenient to state that the view I take of the first question makes it unnecessary to relate certain events or to examine certain questions which had to be related and examined by the judge. In particular it is unnecessary to refer at length to the part played in the affair by Mrs Osborn’s husband (see further below). Nor is it necessary to refer to the statements made by Mrs Osborn and Mr Francis to the police shortly after the freezing orders were made against them. I should, however, state that no criminal charges have been brought against any person as a result of the police investigation.
Mrs Osborn’s conduct after Mr Pritler’s death
- As a preface to the question of undue influence, it is necessary to consider certain aspects of Mrs Osborn’s conduct after Mr Pritler’s death. His funeral took place on 9th December 1999. Afterwards there was a wake, at which Mrs Osborn said nothing about Mr Pritler’s gift to her. When Mrs Hammond’s husband said that, if it transpired that Mr Pritler had made no provision for her, the family would want to do so in recognition of all she had done, Mrs Osborn made no reply.
- On 22nd December 1999 Mr Jonathan Schoop, an assistant solicitor employed by the firm acting for Mrs Hammond in the administration of Mr Pritler’s estate, went with her and her husband to 56 Meadow Road, where they were let in by Mrs Osborn. Mr Schoop’s task, as he confirmed to Mrs Osborn, was to look over the house for papers relating to the estate. The judge gave the following account of this meeting:
“[Mr Schoop] first asked Mrs Osborn whether she held any papers relating to the estate and she said, “No”, that she had only helped with his household and housekeeping chores. Mr Schoop then went through the various rooms of the house and spent an hour or so doing this. He found nothing of relevance, much to his surprise.
When he came back to the room in which the three were waiting, he said he had not been able to find any papers relating to the deceased’s assets or liabilities such as bank or building society papers, national savings, premium bonds, savings certificates or insurance policies. He enquired a second time of Mrs Osborn whether she had any papers relating to the estate and again she said she did not.”
- On 24th January 2000 Mr Schoop wrote to Mrs Osborn asking her to let him have Mr Pritler’s national savings bank book, statements relating to his National Westminster accounts, DSS pension details and his national insurance number, together with any other documents, for example share certificates or other bank accounts. On 1st February Mrs Osborn telephoned Mrs Fletcher of the solicitors’ firm, who made an attendance note which recorded Mrs Osborn as saying that she:
“Has no details of Pension or National Insurance No. believes it was paid into his bank account he had no book. thinks he had 2 accounts with National Westminster. No knowledge of National Savings account or any other accounts/shares etc.”
The true position was that Mrs Osborn had received the arrears of Mr Pritler’s pension on 22nd January 2000, before receiving Mr Schoop’s letter of 24th January and her telephone conversation with Mrs Fletcher. When Mr Schoop heard from the Benefits Agency that the arrears had been paid to her, he wrote to Mrs Osborn on 22nd February requesting a cheque for the amount concerned and a cheque was duly sent to him.
- The judge recognised that Mrs Osborn’s conduct after Mr Pritler’s death was very influential in causing Mrs Hammond and those advising her to suspect the whole transaction from the outset. He regarded their attitude of suspicion as having been entirely understandable. I agree but would go further. In my judgment it is clear that Mrs Osborn deliberately attempted to cover up both her involvement in Mr Pritler’s affairs and the gift he had made to her. As the judge himself said, she could have told Mrs Hammond direct, either in the interval between the death and the funeral, or at the funeral, that she had been the beneficiary of great generosity, particularly when Mr Hammond said at the wake that she ought to receive something from the family. Worse than that, in twice telling Mr Schoop at the meeting at 56 Meadow Road on 22nd December that she had no papers relating to the estate, she told him deliberate falsehoods. Again, she told deliberate falsehoods to Mrs Fletcher on the telephone on 1st February, not only in saying that she had no details of Mr Pritler’s pension and that she believed it was paid into his bank account, but also in saying that she had no knowledge of any accounts other than his two accounts with the National Westminster or of any “shares etc.”. The judge described Mrs Osborn’s telephone call of 1st February as not having been candid. In my judgment it was far worse than that.
- The judge continued:
“Her answer to all this is to say that soon after the death her husband had told her not to tell anybody anything about what Dennis had given her, and to ‘keep you mouth shut’. She said she was too frightened to defy him and did not know what to do. If left to herself, she said, she would have told the truth. This is an aspect of the case about which I found myself initially sceptical when I read the written evidence. I was entirely sympathetic at that stage to the Claimant’s position on this aspect of the case. Having heard and seen the First Defendant give her evidence and in the light of the judgment I have formed of her and her husband, believing she is an essentially truthful witness with the exceptions I have mentioned, I accept the explanation she has given for her silence on these highly relevant occasions.”
- While we in this court cannot go behind the judge’s finding as to Mrs Osborn’s reason, not simply for her silence but also for her deliberate falsehoods, they nevertheless have a significance which will be explained later. It is at this stage that a brief reference must be made to Mr Osborn’s part in the affair. On 5th April 2000 Mrs Osborn ceased living with him. She left 73 Meadow Road and went to live with Mr Francis for six weeks or so before moving into her new house at Basildon. On 25th April Mr Osborn took to Mrs Hammond’s solicitors papers indicating the transactions that had passed between Mr Pritler and Mrs Osborn, which he said he had only discovered the previous weekend and of which he had had no prior knowledge. On seeing those papers Mr Schoop called in the police. At the trial Mr Osborn gave evidence on behalf of Mrs Hammond, maintaining that he had been unaware of the realisation of Mr Pritler’s investments and had played no part in them. The judge rejected his evidence and found that he had been fully aware of what was going on and had been an active participant at several stages of the realisations and in the subsequent history of the matter.
Presumed undue influence
- The doctrine of presumed undue influence is now very well settled and ought to be well understood. The leading decisions are those of Lord Eldon LC in Huguenin v Baseley [1807] 14 Ves 273 and of this court in Allcard v Skinner (supra). More recently, the doctrine has been expounded in general terms in judgments in this court in Goldsworthy v Brickell [1987] Ch. 378, 400-401, and Bank of Credit and Commerce International SA v Aboody [1990] 1 QB 923, 953. Most recently and most fully, there has been the exposition of Lord Nicholls of Birkenhead in Royal Bank of Scotland plc v Etridge (No.2) [2001] 3 WLR 1021, 1029-1032. No further exposition is necessary except in so far as is required to resolve the particular issue in this case.
- As stated at the beginning of this judgment, it is conceded by the defendants that there was both a relationship of trust and confidence between Mr Pritler and Mrs Osborn and a gift so large as together to give rise to the presumption. On the facts as I have stated them, it could not be doubted that each of those concessions was correctly made. The question which remains is whether, to put it in the shorter form, the presumption is rebutted by proof that the gift was made by Mr Pritler only after full, free and informed thought about it. The judge, who posed the question in the longer form stated by Cotton LJ (see para 1 above), answered it in the affirmative. He was satisfied that Mr Pritler gave Mrs Osborn the £297,005 “spontaneously, not in response to any pressure or suggestion from her, and in the full and independent exercise of his will”.
- In the court below Mr McCue, for Mrs Osborn and Mr Francis, submitted that the addition of the epithet “informed” in the shorter test was a gloss on the true test as stated in the longer form by Cotton, LJ. It appears quite likely that that submission was accepted by the judge. It was not repeated in this court, correctly in my judgment. The two formulations have consistently been treated as expressing an identical test; see e.g. Goldsworth v Brickell (supra), at p. 408. Indeed, it could hardly be suggested that a donor would act spontaneously under circumstances which enabled him freely to exercise an independent will if he was not fully informed not only of the nature of the gift but also of its effect. That that is what is required appears clearly from the judgment of the Privy Council delivered by Lord Hailsham LC in Inche Noria v Shaik Allie Bin Omar [1929] AC 129, 135; a passage quoted by Mr Justice Mackay but not, I think, carried into his reasoning.
- The passage from the judgment in the Inche Noria case was quoted by the judge in support of the well established proposition that it is not in every case necessary to show that the donor received independent legal advice. Having made that point, Lord Hailsham said:
“It is necessary for the donee to prove that the gift was the result of the free exercise of independent will. The most obvious way to prove this is by establishing that the gift was made after the nature and effect of the transaction had been fully explained to the donor by some independent and qualified person so completely as to satisfy the Court that the donor was acting independently of any influence from the donee and with the full appreciation of what he was doing; and in cases where there are no other circumstances this may be the only means by which the donee can rebut the presumption.” (Emphases added.)
- Here Mr Pritler received no advice at all, whether independent or of any other kind. I am prepared to assume that there could be a case, perhaps there has been a case, where the nature and effect of the gift was so fully explained to the donor by the donee as to satisfy the test. But there was nothing of that sort here. Mrs Osborn did not draw Mr Pritler’s attention to the size of the gift, nor to the proportion of his liquid assets that it represented, nor to the relatively small amount that was left to him. For his part, Mr Francis, who, as a former bank manager, might have been expected to be cautious in such matters, said in cross-examination:
“I played no part in advising him, and I would have even been wrong in my role to advise him to the contrary or to do anything. He had made that decision. I was not part of that decision at all.”
Later there were the following exchanges between Mr Harrap and Mr Francis:
“Q. He should have received some advice before this, should he not, and you knew that?
A. If he has made his own decision then that is his decision.
Q. Anyway, you did not see it as your job to suggest that there should be some advice before he surrendered these various bonds and schemes and then handed them all over to your mother?
A. No. I was acting for my mum.”
- Although Mr Pritler knew that he was making a gift to Mrs Osborn and must have known that it was a substantial gift, he was never told its size, even in approximate terms. So he did not know the nature of the gift. Even more important, he was not told of its effect as set out in para 10 above. It is true that he was left with some £27,000 in cash, his house valued at about £130,000 and an annual income of about £14,000 net. But no consideration was given as to whether those assets would be sufficient to satisfy his future needs. Nor was any consideration given to the extremely serious fiscal consequences of the realisation of his investments. Had he lived, as he was expected to, he would have become liable to the Inland Revenue for nearly £50,000, with not much more than half that amount in cash to meet the liability. It was no answer for Mrs Osborn to say, as she consistently did, that she treated the money as still belonging to Mr Pritler and would never have left him in need. It is impossible to say that the gift was made by Mr Pritler only after full, free and informed thought about it
- The principal argument of Mr McCue in this court was that the presumption is rebutted if it is shown that the conduct of the donee has been unimpeachable, or at any rate that there has been nothing sinister in it. Such, he argued, had been the conduct of Mrs Osborn in this case. He sought to rely on paragraph 14 of Lord Nicholls’ speech in Royal Bank of Scotland plc v Ettridge (No.2) (supra), at p.1030, where, under the heading “Burden of proof and presumptions” his Lordship said:
“Proof that the complainant placed trust and confidence in the other party in relation to the management of the complainant’s financial affairs, coupled with a transaction which calls for explanation, will normally be sufficient, failing satisfactory evidence to the contrary, to discharge the burden of proof. On proof of these two matters the stage is set for the court to infer, that, in the absence of a satisfactory explanation, the transaction can only have been procured by undue influence. In other words, proof of these facts is prima facie evidence that the defendant abused the influence he acquired in the parties’ relationship. He preferred his own interests. He did not behave fairly to the other. So the evidential burden then shifts to him. It is for him to produce evidence to counter the inference which otherwise would be drawn.”
- Mr McCue argued that that passage showed that, in order to raise the presumption, it is necessary to prove that the donee has preferred his own interests and has not behaved fairly to the donor. That is not what Lord Nicholls said. What he said and what he meant was that once the presumption is raised it is presumed, unless and until it is rebutted, that the donee has preferred his own interests and has not behaved fairly to the donor.
- Even if it is correct to say that Mrs Osborn’s conduct was unimpeachable and that there was nothing sinister in it, that would be no answer to an application of the presumption. As Cotton LJ said in Allcard v Skinner (see para 1 above), the court does not interfere on the ground that any wrongful act has in fact been committed by the donee but on the ground of public policy, which requires it to be affirmatively established that the donor’s trust and confidence in the donee has not been betrayed or abused. In any event, I am unable to subscribe to Mr McCue’s suggested view of Mrs Osborn’s conduct. The judge’s finding that her silence and deliberate falsehoods after Mr Pritler’s death were caused by Mr Osborn ordering her to keep her mouth shut and by her fear of him, while it may to a large extent excuse her, does not make her conduct unimpeachable nor does it relieve it of its sinister appearance. What it shows is that there was still an attempted cover up, but that Mr Osborn was involved in it as well as Mrs Osborn.
- I cannot agree with the judge’s view of this question. The presumption has not been rebutted and the gift must be set aside. I would therefore allow Mrs Hammond’s appeal.
Lord Justice Keene:
- I have read both judgments in draft and agree with them. I too would allow this appeal.
Lord Justice Ward:
- This is a quite extraordinary case. The deceased parted with nearly £300,000, practically all of his free capital. He would have had to raise money to meet the tax bill which was bound to result from the improvident manner in which he had realised his investments. His health was uncertain but he did not expect to die. He needed care which is how Mrs Osborn came into his life. He may have needed more care in the future and would not have been able to afford it. As Sir Martin Nourse has set out, Mrs Osborn was distinctly less than frank in her explanations accounting for her actions and his. It is no surprise that her conduct aroused suspicion.
- The judge was mindful of the need to approach her case with scepticism. Nevertheless, he accepted that:-
“[Mrs Osborn] is not a woman of any great academic attainment, but at the end of the day, with the exceptions I have noted in this judgment, I find her an essentially truthful person and witness. This finding is of course highly relevant to and part of my earlier finding that this was a gift. I find it impossible to believe that she could, given her genuine affection and respect for Denis, have betrayed his trust in the way the claimant believed she did. The stakes were high. The sums were large. People do become corrupted by large sums of money. My judgment is that it did not happen in her case.”
- That finding was highly relevant; indeed on my reading of his judgment it formed the main basis of his decision that the deceased intended to make a gift of the monies to Mrs Osborn. His conclusion on that issue was:-
“Therefore, the only reason for cashing this investment in would be either to spend it on himself, or give it to someone else. He did not need or intend, as I find, to do the first of those two things. In my judgment he did intend to give this money to Mrs Osborn.”
- Having believed Mrs Osborn whom he had the opportunity to observe as she gave her evidence, I cannot say that his conclusion was so wrong that this court ought to interfere even if, as Mr Harrap submits, it may seem improbable that he would treat his neighbour so bounteously whatever the degree of help she had afforded him.
- Undue influence is another issue. It is common ground that the circumstances were such as to give rise to a presumption of undue influence. It is a rebuttable evidential presumption and the burden of proof is on Mrs Osborn. In the context of this case a useful guide to rebutting that presumption can be found in Snell’s Equity, 30th Edition, at p. 617, paragraph 38-20:-
“In order to rebut the presumption it is not sufficient to show that the complainant understood what he was doing and intended to do it. The problem is not lack of understanding but lack of independence.
- The judge did not misdirect himself as to the test he had to apply. He properly accepted that it was necessary to examine “how the intention to enter into a particular transaction has been produced”. He expressed the test in these terms:-
“…the exercise on which I am engaged is to discover whether the first defendant has satisfied me that Denis gave her this money as a result of the free exercise of his independent will.”
- In order, however, to appreciate fully what is involved in this exercise, I consider that it is necessary to examine the principles in a little more detail. Take the first sentence of Snell’s summary: “In order to rebut the presumption it is not sufficient to show that the complainant understood what he was doing and intended to do it”. That is important. The earlier findings made by the judge that the deceased knew what he was doing, had sufficient mental capacity to understand what he was doing and intended to make a gift of the money to Mrs Osborn rather than give it to her in order to manage the funds on his behalf are not material to the present enquiry. That emerges clearly from the earliest well-known exposition of the rule by Lord Eldon L.C. in Huguenin v Baseley (1807) 14 Ves. 273, 299:-
“Take it, that she intended to give it to him: it is by no means out of the reach of the principle. The question is, not, whether she knew what she doing, had done, or proposed to do, but how the intention was produced: whether all that care and providence was placed round her, as against those, who advised her, which, from their situation and relation with respect to her, they were bound to exert on her behalf.”
- The position is made clear in the other seminal authority, Allcard v Skinner (1887) 36 ChD 145 where, for example, Lindley L.J. makes the point at p. 183 in this way:-
“In this particular case I cannot find any proof that any gift made by the plaintiff was the result of any actual exercise of power or influence on the part of the lady superior or of Mr Nihill, apart from the influence necessarily incidental to their position in the sisterhood. Everything that the plaintiff did is in my opinion referable to her own willing submission to the vows she took and to the rules which she approved, and to her own enthusiastic devotion to the life and work of the sisterhood. … Under these circumstances it is going a long way to hold that she can invoke the doctrine of undue influence to save her from the consequences of her own acts, and to entitle her to avoid the gifts she made when in a state of mind different from that in which she now is. I am by no means insensible of the difficulty of going so far.” [The emphasis is added by me].
- Yet he did go that far. At p. 185 he said:-
“As I have already stated, I believe that in this case there was in fact no unfair or undue influence brought to bear on the plaintiff other than such as inevitably resulted from the training she had received, the promise she had made, the vows she had taken, and the rules to which she submitted herself. But her gifts were in fact made under a pressure which, whilst it lasted, the plaintiff could not resist, and were not in my opinion past recall when that pressure was removed.”
- Lindley L.J. at p. 185 also supports the second proposition advanced by Snell that “the problem is not lack of understanding but lack of independence”. He said:-
“If any independent person had explained to the Plaintiff that her promise to give all her property to the sisterhood was not legally binding upon her, and that her vows of poverty and obedience had no legal validity, and that if she gave her property away and afterwards left the sisterhood she would be unable to get her property back, it is impossible to say what she might or might not have done. In fact she never had the opportunity of considering this question.”
- It is clear that the absence of an actual exercise of power or influence over the donor by the donee does not amount to rebuttal. That is made plain from the passages I have cited. The reason for this is explained by Lindley L.J. at p. 183:-
“They [the Courts of Equity] have not shrunk from setting aside gifts made to persons in a position to exercise undue influence over the donors, although there has been no proof of the actual exercise of such influence; and the courts have done this on the avowed ground of the necessity of going this length in order to protect persons from the exercise of such influence under circumstances which render proof of it impossible. The courts have required proof of its non-exercise, and, failing that proof, have set aside gifts otherwise unimpeachable.”
- The reason for this is important. It is explained by Cotton L.J. at p. 171:-
“In the second class of cases the court interferes, not on the ground that any wrongful act has in fact been committed by the donee, but on the ground of public policy, and to prevent the relations which existed between the parties and the influence arising therefrom being abused.” [The emphasis is again added by me].
- In a lesser known passage Bowen L.J. explained the rule thus:-
“In the present case there was no duress, no incompetency, no want of mental power on the part of the donor. It seems to me that, so far as regards her rights, she had the absolute right to deal with her property as she chose. Passing next to the duties of the donee, it seems to me that, although this power of perfect disposition remains in the donor under circumstances like the present, it is plain that equity will not allow a person who exercises or enjoys a dominant religious influence over another to benefit directly or indirectly by the gifts which the donor makes under or in circumstances of such influence, unless it is shewn that the donor, at the time of making the gift, was allowed full and free opportunity for counsel and advice outside – the means of considering his or her worldly position and exercising an independent will about it. This is not a limitation placed on the action of the donor; it is a fetter placed on the conscience of the recipient of the gift, and one which arises out of public policy and fair play.”
- Moving forward a century to the latest authoritative exposition we find Lord Nicholls of Birkenhead saying in Royal Bank of Scotland plc v Etridge (No. 2) [2001] 3 WLR 1021, 1030, paragraph 14:-
“Proof that the complainant placed trust and confidence in the other party in relation to the management of the complainant’s financial affairs, coupled with a transaction which calls for explanation, will normally be sufficient, failing satisfactory evidence to the contrary, to discharge the burden of proof. On proof of these two matters the stage is set for the court to infer that, in the absence of a satisfactory explanation, the transaction can only have been procured by undue influence. In other words, proof of these two facts is prima facie evidence that the defendant abused the influence he acquired in the parties’ relationship. He preferred his own interests. He did not behave fairly to the other. So the evidential burden then shifts to him. It is for him to produce evidence to counter the inference which otherwise should be drawn.” [My emphasis, again].
- Independent advice is thus usually the crucial evidence going to the rebuttal of the presumption. That was made clear in Inche Noriah v Omar [1929] AC 127, 135 where Lord Hailsham L.C., giving the opinion of the Privy Council said:-
“The most obvious way to prove this [that the gift was the result of the free exercise of independent will] is by establishing that the gift was made after the nature and effect of the transaction had been fully explained to the donor by some independent qualified person so completely as to satisfy the court that the donor was acting independently of any influence from the donee and with full appreciation of what he was doing.”
- As Lord Hailsham made plain in that case independent legal advice is not the only way in which the presumption can be rebutted. Here not only is it a fact that no legal advice was given to the deceased but it is also a stark feature of the case is that he was given no advice whatsoever. Mrs Osborn cannot show that he had been afforded the opportunity for that independent advice to have emancipated his will from the influence which equity presumes was operating upon it. Unfortunately Mrs Osborn failed to procure advice for him. More regrettably, her son, with his experience as a bank manager, involved himself but failed to consider the deceased as well as his mother. I am not saying he was under any legal duty to the deceased but it would have been prudent advice to give his mother. In the result, as the judge accepted, there was a total absence of independent advice. Moreover, as the judge again accepted, this was “a very important factor” and one that went into the scales against Mrs Osborn. In my judgment it is a factor which tips the scales very heavily against her.
- I turn to consider, therefore, what “clear and coherent” explanation the judge held to be sufficient to discharge the burden of proof that lay on Mrs Osborn. He began by adverting to the fact he had found that:-
“the impetus for making this gift came entirely from Denis Pritler and was not in response to any suggestion, solicitation or encouragement from Susan Osborn. She did nothing to encourage him or lead him on on the three previous occasions on which she had raised the matter. It was not a gift on a sudden whim, but was something he had been thinking about for nearly a year before it was effected.”
- In taking those matters into account the judge is, it seems to me, doing no more than reiterating that the deceased knew what he was doing and did not act on any actual undue influence on the part of the first defendant. That he was not acting “on a sudden whim” adds nothing because he was at all times in the relationship with Mrs Osborn and contemplating gifts which called for explanation such as gave rise to the presumption. This is not a case where he was making a modest gift which could be explained away as a token of gratitude for the help he was receiving.
- So the judge had regard to six features of the transaction. The first “powerful point” was that “an extremely large sum of money was involved”. The judge discounted that because:-
“Even after he made it, he was left with his house, about £30,000 in cash and an income of about £14,000 per annum net.”
- He would not have been left with £30,000 for long because, as the judge observed in his fourth point, the tax implications of realising the investments were “disastrous” and the liability to tax would “have consumed the bulk of the residue of his free cash”. In fact on the information we were given it would have left him in debt. The judge correctly identified this as another “powerful point” and it is a point against Mrs Osborn. He sought to diminish the power of the point by reference to the certain income from a teacher’s pension. Unfortunately he failed to bear in mind the demands which might be made upon that limited income and the demands include affording care in the future. The judge recognised that the investments were designed to achieve growth and it is not possible to say that the investment plan was not geared to making ample provision for increased expenditure as he became more elderly and more infirm. Available resources should have been balanced against likely needs and obligations.
- The second point for the judge was that although he was satisfied that he was not told the value of the investments he was giving away nevertheless:-
“…I believe he had a good idea they were substantial assets. He had bought them not that long before. Three of the four cheques were put before him for his signature and are quite obviously for quite large round sums. It is significant that Susan Osborn had, but did not use, the power to draw these cheques herself, with one exception.”
His knowledge of the amount of money involved may establish his awareness of the nature of what he was doing but does not deal with the effect of what he was doing. On the contrary the very fact that he had bought these investments so recently made it all the more inexplicable that he should have realised them before their maturity, defeating his investment purpose of achieving growth and incurring the tax liability of which he may not have been aware. In my judgment the fact that Mrs Osborn did not use her power of attorney is of no significance whatsoever in answering the question the judge had to answer. It does not in any way touch the question at issue which is the freedom of the will of the deceased.
- The third factor was the judge’s diminishing the effect of fading memory by accepting that the deceased had not forgotten about his investments and “retained a good grasp of their importance”. The answer to this point was given by Lindley L.J. when he observed that if any independent person had given the explanation to the deceased which he deserved, it is impossible to say what he might or might not have done.
- The fourth point, as I have indicated, was the “strong point” against Mrs Osborn that a tax liability had accrued. There is no evidence that he appreciated that liability had been incurred and there is no knowing what he would have done had he been informed about it. The judge’s diminution of this point was that Mrs Osborn said in evidence:-
“That she still regards this as “Denis’ money” and she also said that she felt “honoured” to have been given it by such a man. Had he lived and had he faced a tax bill as a result of his generosity, I cannot imagine her leaving him to pay for that from his other remaining resources.”
The difficulty with that reasoning is that there is no evidence that Mrs Osborn made that promise to the deceased. It could not have acted upon his mind to alleviate that obvious source of worry. It is inconceivable to me that the deceased, who was prudently investing for his future, would have saddled himself with a debt he could not pay.
- The fifth point is this:-
“…this gift was not in any way irrational. He had a positive reason, as I find, for making it, and he thought it was a good one. His reason was that he knew that Susan Osborn, of whom he was fond and to whom he was grateful, was unhappy in her marriage, and he wanted financially to help her to leave her husband and set herself up independently. This was his way of showing gratitude to her. This intention also serves to reinforce the points I have expressed on the second point above, and shows that he had an awareness that the fund that was in contemplation was a large one, sufficient at least for her to set up a home of her own. Conversely, and without any criticism of them, the ties that bound him to his blood relations were very weak indeed.”
With respect to the judge this does not provide a satisfactory explanation for an act of generosity wholly out of proportion to the kindness shown to him. Looking at the matter objectively, it was an irrational decision, not a good one. The very scale of the gift with the disadvantageous consequences that ensued serves only, in my judgment, to heighten the anxiety which founds this presumption, namely that pressure was operating on his mind. The facts enhance the defendant’s difficulties and do not diminish them.
- Finally the judge believed that although the deceased was in a state of some mental confusion, on the totality of the evidence he nevertheless had “sufficient ability to comprehend fully what he was doing”. The problem with this reason is succinctly stated by Snell:-
“The problem is not lack of understanding but lack of independence.”
Conclusion.
- I search in vain for any fact which can satisfy me that these gifts were the product of full, free and independent volition or, which comes to the same thing, were the result of the free exercise of his independent will. The very fact that Mrs Osborn regarded the money as “Denis’ money” and would have felt duty bound to meet the tax bill is an eloquent demonstration of the reasons why equity has established this principle, namely, “It is a fetter placed upon the conscience of the recipient of the gift”, per Bowen L.J.
- If Mr Pritler had lived and had repented of his decision, as Miss Allcard did, the court would readily have concluded that this was not fair play. That is why public policy informs the doctrine. I am quite prepared to accept Mrs Osborn was not guilty of any reprehensible conduct but I am satisfied that she has failed to discharge the burden of proof which lay upon her. Accordingly I too would allow the appeal.
Order: Appeal allowed; counsel to lodge an agreed minute of order.
(Order does not form part of the approved judgment)
