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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Turkey v Awadh & Anor [2005] EWCA Civ 382 (08 March 2005) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2005/382.html Cite as: [2005] EWCA Civ 382

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IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CENTRAL LONDON COUNTY COURT
(HIS HONOUR JUDGE COOKE)

		Royal Courts of Justice Strand London, WC2
		8 March 2005

1. LORD JUSTICE BUXTON: This is an appeal from a decision of HHJ Cooke QC sitting in the Chancery list at the Central London County Court in what the judge described, and rightly, as a bitterly fought family dispute. It concerns a long leasehold interest in a property, 141 Inverness Terrace in Bayswater, which I shall describe as "the house". I hope that it will be acceptable, because they have similar family names, to refer to the protagonists, as did the judge, simply by their first names. They are the claimant, Khalid, and the defendants, his daughter, Aziza, and her husband, Adnan.
2. In 1985 Aziza and Adnan purchased the house with the benefit of a mortgage from the Bradford & Bingley Building Society. They entered into a tenancy agreement with Khalid at a rent of £1,500 a month, and thereafter Khalid and his wife lived in the house. It is not clear (and, as I understand it, not relevant to this appeal) whether and to what extent that rent was in fact paid. Aziza and Adnan live in Saudi Arabia but they were in the habit of staying in the house on occasions when they visited the United Kingdom, as did their children -- that is, Khalid's grandchildren -- when they came to the United Kingdom for the purposes of education.
3. In 2002 Aziza became the sole registered proprietor of the property. Nothing again, as I understand it, turns on that. Before that, however, in about May 1993 Aziza and Adnan entered into a deed with Khalid which provided that the house would be transferred to Khalid or to a person at his direction, provided, firstly, that Khalid paid over the sum of 500,000 Saudi Riyals -- that is to say, at then rates of exchange, about £93,000 -- and also discharged the mortgage and other debts and obligations in respect thereof.
4. The 500,000 Riyals was to be paid immediately, which Khalid did; but he could not, under the terms of the deed, call for the transfer of the house until he discharged the mortgage. That he has now done and he seeks to enforce the deed in these proceedings. Aziza and Adnan met this claim with two defences: firstly, misrepresentation on the part of Khalid; and secondly, that the deed should be set aside on grounds of undue influence exercised by him.
5. The case was distinguished, if that is the right word, by an extensive dispute, as the judge put it, on almost every issue; and matters that one would expect to be entirely uncontroversial turned out to be highly controverted. The trial went on for 13 days, a very long period of time by modern county court standards. Not all, but most, of the witnesses gave evidence through an interpreter, some of them by means of video link from Saudi Arabia. The judge found that almost all of the witnesses, with one exception, had been to some extent unreliable; in some cases seriously so. These circumstances obviously made the case extremely difficult for him and also, I would add, difficult for counsel.
6. However, despite those difficulties the judge made careful and extensive findings of fact which have not been challenged in this court, nor could they have been. He dismissed the allegation of misrepresentation on the part of Khalid. That finding again has not been appealed; again, nor could it have been. So what is left for this court to deal with is the claim in respect of undue influence which the judge equally dismissed.
7. This was a case, as will become apparent, of presumed and not of express undue influence. The judge set the matter in context by referring to what he described as some preliminary concerns in paragraph 49 of his judgment. He said that he was not very happy about the agreement and that, whilst it was clearly an internal family arrangement, the matters that gave rise to that concern were, firstly, that Aziza was a fairly young lady of limited education and minimal experience of business. She had limited command of English. The transaction was explained to her by a solicitor -- I interpose, in respect of whom no criticism whatsoever is made -- who was not an Arabic speaker, Khalid performing the role of interpreter. She was not given independent advice. The transaction was a substantial one, involving her principal asset in England. Finally, in this category, the judge referred to a point that emerges more strongly later in the argument, that nobody on either side -- whether it was Khalid, whether it was Aziza and her husband -- appeared to have given any thought to property prices and values.
8. Against that background the judge turned to consider the law on presumed undue influence. In my judgement, this was correctly stated by him, although he set it out slightly differently from the account that I will now venture to give.
9. The first element in a successful claim is to establish that there is between the parties what is described in the authorities as a relation of trust and confidence. That will usually spring from a historic relationship between the parties of a general nature, that precedes the impugned transaction. Two very familiar examples of such a relationship of trust and confidence are those of priest and penitent, as examined in the case of Allcard v Skinner [1887] 36 Ch D 145; and that of husband and wife, as examined in Royal Bank of Scotland v Etridge (No 2) [2002] 2 AC 773, those being effectively the leading cases on undue influence.
10. There may, however, be cases where the relationship arises because of the actual circumstances of the transaction itself. Such was the recent case in this court of Macklin v Dowsett [2004] EWCA Civ 904, reported also verbatim in 34 EG 68. In that case the defendant had obtained planning permission to build a bungalow on his land with a condition that he should start construction within a period of three years. He sold the land to the claimants and they granted him in return a rent-free life tenancy. The defendant was impecunious, and entered into a further agreement with the claimants that he would surrender the life tenancy for a premium of £5,000 if he did not complete the bungalow within a period of three years. Predictably on the facts he was not able to complete the bungalow, and the claimants sought to exercise their option. The defendant claimed that he had entered into the agreement under undue influence.
11. The Court of Appeal, drawing in this respect on Etridge, emphasised that in such a claim there was no need to show either misconduct by the claimant or that the deal was disadvantageous to the defendant. The two relevant elements in that case were, firstly, a relationship of ascendancy and dependency through the known financial difficulties of the claimant; and secondly, a deal which required an explanation, an explanation that on the facts was not forthcoming. As Auld LJ put it in paragraph 30 of his judgment:

"The proper question was whether, in the circumstances, the agreement required explanation, which, in my view, it certainly did. As [counsel] observed, by signing it Mr Dowsett gave the Macklins the right to force him to surrender his right to live at the property rent free for the rest of his life for a mere payment of £5,000."

12. There was nothing in that case to explain an arrangement clearly disadvantageous to Mr Dowsett, other than the circumstances that had already established the relationship of trust and confidence that the Macklins were said to owe towards him. That is the first element, therefore, in the analysis of an alleged situation of undue influence.
13. The second element is most clearly set out in the speech of Lord Nicholls in Etridge at paragraph 14, when he said this:

"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."

14. A similar explanation was given by Lord Scott in paragraph 220 of his judgment. Referring to the label of "manifest disadvantage" a label that other cases have suggested might not be entirely helpful, Lord Scott said:

"... the expression is no more than shorthand for the proposition that the nature and ingredients of the impugned transaction are essential factors in deciding whether the evidential presumption has arisen and in determining the strength of that presumption. It is not a divining-rod by means of which the presence of undue influence in the procuring of a transaction can be identified. It is merely a description of a transaction which cannot be explained by reference to the ordinary motives by which people are accustomed to act."

15. If on the evidence the transaction cannot so be explained -- that is to say, the transaction calls for an explanation and that explanation is not forthcoming -- the burden then shifts to the claimant to show that in fact, and despite the terms and nature of the agreement, he did not in truth abuse the position that he held. He would normally discharge that burden -- as, for instance, now at least occurs in husband and wife cases -- by showing that the defendant entered into the matter with his will fully unconstrained, usually with the benefit of independent legal advice.
16. Against that background, the judge in the present case made findings as to two of the elements in the question before him, neither of which have been challenged before us. First of all, he held that the relationship between Khalid and his daughter and son-in-law had been, in relevant terms, one of trust and confidence. He rejected the argument that they had not understood the transaction, holding that there was no positive proof of that; but the elements that drove him to the conclusion were, first of all, the daughter and son-in-law's reliance on Khalid to deal with legal and property matters in England, largely because of their language problem; the fact that he had in fact previously dealt with solicitors and with the building society in connection with a problem not otherwise relevant to this appeal, with a man called Butt, who appears to have caused a great deal of difficulty in these people's affairs at an earlier stage; and also bearing in mind, as the judge made clear, the background or introductory factors that he had set out in paragraph 49, to which I have already referred.
17. To the extent that it is relevant in understanding the application of some parts of some of the authorities to these facts, it will be seen that the grounds upon which the judge held the relationship to be one of trust and confidence were somewhat of a hybrid nature. He did not rely solely on the fact that Khalid was the father of Aziza, but more upon the fact that that relationship had caused Khalid to give advice in the past. Nor did he rely solely on the way in which the transaction itself was dealt with, as in Macklin v Dowsett: he set out a series of indicia which led him to a conclusion which, as I have said, is not challenged.
18. Secondly, the judge held that if the transaction was in truth one in which the burden of establishing its validity or propriety had passed to Khalid -- that is to say, the burden to demonstrate that he had not misused his undue influence -- Khalid would not be able to discharge that burden. The judge so held in paragraph 66(d) of his judgment when he said this:

"I cannot see that if the presumption were to have arisen there would really be any satisfactory rebuttal evidence short of evidence of separate professional advice. This is not one of those cases where it might be said that the party was wrong-headedly bent on what they wanted to do and impervious to advice. There is no evidence of advice and therefore had the presumption arisen it would not have been rebutted."

19. The case therefore turns on, and only on, the other element identified by Lord Nicholls in Etridge: whether there was a sufficient explanation for the transaction so as to cause the burden not to shift to Khalid.
20. In his skeleton argument, and to some extent in oral argument before us, counsel for the appellant argued that merely because, in the words of Lord Nicholls, the transaction "called for an explanation", as the judge might be thought to have indicated that this one did, then that in itself was enough to shift the burden of denying misuse of the admitted existence of trust and confidence on to Khalid. That, I have to say, cannot be right in view of the totality of the formulation adopted by Lord Nicholls. The first issue, at least in a case such as the present, is whether the transaction, looked at as a whole, can be explained in terms other than those of undue influence. That in particular is the way in which it was put by Lord Scott of Foscote in the extract from paragraph 220 of his speech which I have ventured already to quote.
21. Only if that exercise cannot be successfully discharged does the question arise of whether the claimant actually exercised undue influence. The judge expressed the court's task in that respect correctly at the end of paragraph 52 of his judgment. He first quoted some observations of Lord Scarman in National Westminster Bank v Morgan [1985] AC 686, drawn by Lord Scarman from the observation of Lindley LJ in Allcard v Skinner, where he referred to:

"An advantage taken of the person subjected to the influence which failing proof to the contrary was explicable only on the basis that undue influence had been exercised to procure it."

22. The judge, having drawn attention to that test, continued:

"One hesitates long to put the smallest gloss on expressions of such high standing in an area where there has been so much discussion over the years, but it seems to me that what a trial judge ought to be doing is trying to exercise his common sense and assuming the necessary relationship to consider whether, given the circumstances and the nature of the transaction, it says to the unbiased observer that absent explanation it must represent the beneficiary taking advantage of his position."

23. I would respectfully endorse that approach. The judge went on to point out that the nature of some transactions of this kind is immediately obvious. That would, for instance, with be so in a straightforward case like Allcard v Skinner. It is not so in a case of a transaction such as the present, which is very different from that of a simple gift. In order to answer that question, the judge set out facts that he found which he considered are germane to his inquiry. This is to be found in paragraph 62 of his judgment.
24. He identified the following. Firstly, the central deal was that Khalid would pay the 500,000 Riyals at once, would pay the mortgage instalments regularly, and would indemnify Adnan and Aziza in respect of liabilities. If he defaulted they would retain the house and he could not demand it. Secondly, it was a family transaction affecting a home in which some of the family, including Khalid and his wife, in fact lived. Third, the deed did not propose or require any change in the existing arrangements until the mortgage was paid, so in the ordinary way completion would be delayed for about nine years: which, as the judge pointed out, was in fact what happened. Fourth, the critical background was that Adnan and Aziza could not service the mortgage and were faced with the prospect of possession proceedings and a forced sale. Five, there was no evidence of actual value. Six, nobody knew or turned their minds to what the actual value of the property was, and Khalid did not know the value of the mortgage.
25. So far as those last matters are concerned, the question of the value of the property became important in the course of the trial. No evidence was given at any stage of actual valuation. All was speculation. However, the fact that Khalid did not know the value of the property was pleaded by amendment as a result of some answers that he gave in cross-examination. The judge permitted an amendment in these terms:

"The transaction was one that calls for explanation in that [Khalid] took no, alternatively no reasonable steps to determine whether the consideration payable by him under the Agreement was fair and proper."

26. The judge made the following findings of fact in respect of that, as set out in paragraph 59, which perhaps I should quote:

"(i) what was paid was in the region of £163,000 (ii) that no thought had been given to the balance of the mortgage (iii) no account was taken of the possibility that property prices had changed since acquisition (iv) when confronted with the proposition that he was or might be getting the property well under market value Khalid's response was 'good luck to me'."

27. The judge therefore found that the allegations in the amended pleading were indeed fully made out. It was therefore argued that that was enough to establish the misuse of undue influence or, at the very least, that the transaction was sufficiently unusual, with neither side giving thought to its value, to cause the matter to call for an explanation.
28. The judge did not accept these arguments. First of all, he pointed out that the only plea that he was able to look at was the one that had been made; that is to say that no-one had turned their mind to the actual value. He did not think, contrary to the defendant's argument before him, that that self-evidently raised the presumption of exercise of undue influence. He pointed to the following elements, largely drawn from the facts that he had already found. First, this was not a normal commercial transaction but had important family elements. Two, nothing in real terms was going to change, as far as the use of property was concerned, for many years. Three, despite that, a substantial part of the consideration was being paid at once. Four, on evidence that he specifically accepted, the reason for that was that the transaction was intended to, as the judge put it, "get Adnan and Aziza out of the hole into which they had dug themselves". Five, to give proper value to either party in these circumstances would have meant an exercise more suitable for an actuary. This was not a conventional sale at market price. The judge accepted that failure to consider the value might well raise the presumption, if it was coupled with an allegation that the price paid was a serious undervalue, but that was not a plea that was made. Nor was the judge able to find on the facts that such a claim was self-evident or even established.
29. Finally, he held that to say that because the transaction was unusual, as no doubt on one view it was, that in itself called for an explanation, was to misunderstand the legal significance of the latter phrase. In this context (as, I would venture to say, the extract quoted from Lord Scott in the Etridge case clearly demonstrates) the explanation that is required is an explanation going towards the possible exercise of undue influence. No such assumption, and thus no necessary explanation, followed from the fact that the parties did not consider the value of the property.
30. The judge therefore found that the case had not been made out and that the burden of demonstrating independence of mind on the part of Adnan and Aziza had not passed to Khalid. In my respectful judgment he was well entitled to make that finding on the facts of the case. He also pointed out that the preliminary concerns that he had expressed, as set out in paragraph 49 of his judgment, were addressed much more to the first question -- whether there had been the existence of a relationship of trust, in which respect he found in favour of the defendants -- rather than on the second question, directed to the nature of the transaction itself.
31. Mr Rees complained that in the analysis of the judge just described he had fallen into the trap, indicated in the Etridge case and underlined by this court in Macklin v Dowsett, of considering whether the transaction, balancing one factor against another, was of manifest disadvantage to the defendants. The judge was well aware, because he had considered in Macklin v Dowsett -- which was reported after he had originally drawn his judgment, and in respect of which he invited further argument -- that he should not follow that course; and, fairly read, his paragraph 65 does no more than draw attention to the context of this transaction and set it against its factual background.
32. That must be the correct approach. To determine whether a transaction is explicable in terms other than undue influence, as Lord Nicholls and Lord Scott in Etridge cause us to do, it must be necessary to look at it in its context and to see what its general nature was and what it was trying to achieve for the parties. To take any other approach would, in my judgement, be completely artificial. There was a careful analysis by the judge in those terms, he having set out the law in correct -- indeed, I would respectfully say, cogent -- terms. I would dismiss this appeal.
33. LORD JUSTICE CHADWICK: I agree.
34. By his order of 12th August 2004 the judge declared that the appellant held the leasehold interest in property known as 141 Inverness Terrace, Bayswater, on trust for the respondent. He reached that conclusion on the basis of an agreement into which the parties had entered in May 1993. The appellant challenges that conclusion on the grounds that the judge erred in failing to find that that agreement had been procured by the exercise of undue influence on the part of the respondent.
35. The appellant asserts that in entering into the agreement she was not acting of her own free and informed will; but in circumstances in which her will had been overborne by the respondent. But it is not said that the respondent exercised or exerted actual influence to procure the appellant to enter into the agreement of May 1993. Rather, it is said that this is one of those cases in which the court should presume that undue influence was exercised.
36. It is important to keep in mind that what is described in the cases as presumed undue influence is, on a true analysis, no more than a label given to an evidential presumption which has the effect of shifting the burden of proof. Where the court acts on the basis of a presumption of undue influence, it is recognising that the facts which have been established raise a presumption against the party seeking to uphold the transaction that it is the exercise of improper influence that has led to the transaction; and that it is for that party to rebut that presumption. The questions in such a case are: first, whether the facts do raise such a presumption; and, second, whether that presumption has been rebutted by evidence that the other party did in fact exercise a free and informed will. That will usually, although not invariably, require the party seeking to uphold the transaction to show that the other party had informed and independent advice in relation to the transaction.
37. In the present case it is only the first of those questions which requires consideration in this court. The judge found that, if the presumption arose, it was not rebutted. There is no challenge to that finding.
38. The conditions which must be established in order to raise the evidential presumption are, first, facts which persuade the court that the party seeking to uphold the transaction (say, party A) was in a position to influence the will of the other party (party B) in relation to a transaction of the relevant nature. That requirement is often referred to as the need to establish a relationship of trust and confidence. The judge found that first condition to be satisfied in the present case; and again there is no challenge to that finding.
39. Second, facts must be established which persuade the court that the transaction in question is of such a nature that a person in the position of party B, acting in the way that such a person might ordinarily be expected to act, would not have entered into the transaction unless his or her will was overborne. As Lord Scott of Foscote put it in Royal Bank of Scotland v Etridge, [2002] 2 AC 773 at page 854, paragraph 220, the transaction must be shown to be one which cannot be explained by reference to the ordinary motives by which people are accustomed to act.
40. That was the question which the judge addressed in paragraph 65 of his judgment. He addressed that question on the basis that the only relevant allegation in this context -- that is to say, the only circumstance which was said to call for an explanation -- was that introduced by amendment in the course of the trial. The allegation was:

"The transaction was one that calls for explanation in that the respondent took no, alternatively no reasonable steps to determine whether the consideration payable [by] him under the Agreement was fair and proper."

41. It is important -- indeed, central -- to the consideration of that allegation to appreciate that it is not said that the transaction was, in fact, unduly favourable to one party rather than the other. The allegation is that the parties entered into the transaction without having inquired whether it would be favourable to one, favourable to the other or fair to each. The judge came to the view that the transaction was not such as to require an explanation from the respondent. As he put it:

"It is on the facts which I have found, explicable by the ordinary motives of the people concerned in the relationships in which they found themselves."

He was referring there to the findings that he had made in subparagraph (ii)(a) of paragraph 65. He had said this:

"Looked at as a whole, this was not a normal commercial transaction, it had important family elements in it, thus the likelihood that nothing in real terms would change as far as use of the property was concerned, the fact that completion anyway was going to be delayed for years, the fact that a substantial part of the consideration was none the less being paid at once and finally (and on the evidence which I accept) very much as the trigger and reason for what was done that the transaction was going to get [the appellant and her husband] out of the hole into which they had dug themselves with the lenders and give them cash in hand."

Given that background, the judge found that this transaction, curious as it might otherwise seem, was explicable by the ordinary motives of people in the position of the respondent and the appellant.

42. Counsel for the appellant sought to criticise the judge's approach. It was said that, in the passage to which I have just referred, the judge was seeking to balance advantage and disadvantage on each side. In my view, that criticism is misplaced. Read fairly, all that the judge was doing, in that passage, was to set the context in which this transaction had to be judged. That was a proper exercise. The conclusion which he drew from that exercise was one which, in my view, was plainly open to him.
43. I, too, would dismiss this appeal.

Order: appeal dismissed. Paragraphs 1 and 4 of HHJ Cooke's order to take effect in accordance with their terms; time 28 days, to run from today. The respondent is to have the costs of the appeal, summarily assessed at the figure in the schedule provided, £8,709.10, which includes VAT. The £15,000 that is in court pursuant to paragraph 2 of the order of 26th October 2004 to be paid out to the respondent's solicitors, with the interest accrued on it, and to be applied, first, in discharging the amount of the costs of this appeal, summarily assessed, and, as to the balance, to be set against the £34,000 which the appellant was ordered to pay within 28 days under the order of HHJ Cooke. Detailed assessment of the costs below stayed until the expiry of 28 days, or payment of the balance of that sum of £34,000 in the meantime. The respondent to have liberty to apply to the county court for a further stay on the detailed assessment of costs. The stay imposed by the order of this court of 13th October 2004 in paragraph 1 of the order is lifted. The land certificate and documents of title referred to in paragraph 2 of the order to be delivered to the respondent's solicitors within seven days of today.