Jose Manuel Pitta De Lacerda Aroso v. Coutts & Company [2001] EWHC Ch 443 (30th March, 2001)

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Mr William V.W. Norris (instructed by R E Redrup & Co) appeared on behalf of the Claimant.
Mr Richard Walford (instructed by Farrer & Co) appeared on behalf of the Defendant.

1. The claimant is one of five surviving children of the late Manuel Maria de Lacerda de Sousa Aroso ("the deceased"). He claims that a joint investment account held at Coutts & Co. ("the bank") in the names of the deceased and his nephew Sr Pedro Champalimaud ("Sr Champalimuad") was in the sole beneficial ownership of the deceased, and that about 5 months after his death the bank wrongfully paid money or transferred assets out of the account at the direction of Sr Champalimaud.

2. The deceased was born in Portugal but worked for several years in Mozambique at a cement factory owned by a distant relative. Sr Champalimaud was a nephew of that relative. The Champalimaud family is on the evidence a wealthy family, prominent in Portugal. In this case Sr Champalimaud is referred to as a nephew of the deceased in accordance with the Portuguese practice, although in fact he was the son of a distant cousin.

3. The deceased and his wife, Maria Aroso, had six children: Margarida (born in 1956), Pedro (1957), Isabel (1959), Jose (the claimant in these proceedings) (1960), Teresa (1961), and Miguel (1964). For reasons of which there is only a hint in the evidence, Sra Aroso was not able to bring up the children, and they were all brought up in Porto, Portugal, in the house of their grandfather Sr Joaquim Aroso who lived there with Sra Maria Lourdes. Joaquim Aroso had been a trusted employee of Cockburn's and was well rewarded by them for having run their Portuguese company during the war. He died at the age of 97 in 1988. The deceased returned to Portugal in 1969, and he and Sra Aroso managed the family farm, but spent some months each year at Joaquim Aroso's house.

4. According to the evidence of the claimant, which there is no reason to doubt, the deceased had a dominant personality and his wife was totally subservient to his will. His relations with his children were strained, and he had a violent and explosive temper, and would frequently fly into an uncontrollable rage if he did not get his way. Two particular matters were mentioned. When his 15 year old son Pedro was accused of stealing a watch from a friend, the deceased was infuriated and not only had Pedro charged in the juvenile court, but also insisted that he be sent to a prison for juveniles rather than having him supervised by his parents on probation. Pedro as a result spent between 2 and 3 years in institutions. The other matter was that after the death of Joaquim Aroso the deceased claimed that he, and not Maria Lourdes, was entitled to the statutory tenancy of the home which Joaquim Aroso shared with Maria Lourdes. In order to support his claim, in 1989 he tried to persuade his daughter Teresa to pay some money into Maria Lourdes' bank account to make it appear that he had contributed to the household expenses. When Teresa refused he flew into a violent rage, and seriously assaulted her. He lost his case against Maria Lourdes, and Teresa never spoke to him again. The claimant and his siblings (or at least his sisters) lost their respect for him from that time. His children refused to stay with him in the Christmas period of 1989. Early in 1990 he threatened not to give the children any more money.

5. The deceased suffered from prostate cancer from 1982. In February 1990 he went into hospital with a bladder problem, and it seems his children did not visit him. In January 1993 he was again in hospital for an operation to stop the spread of cancer, but it was not successful, and he went into hospital again in mid-July 1993, and died there on July 31, 1993.

6. The family of the deceased had inherited wealth, although the claimant is critical of the way in which his father was the first in many generations to sell land which had passed down the family, and says his father had lost much of what he had invested in the Portuguese stock market following the revolution.

7. In September 1974 the deceased established an account in his sole name with the bank. The account was designated as A175, and was an investment account containing cash and securities. The securities were managed by James Capel, since the bank did not provide a total client service at that time. The bank's records note that the bank should "write very guardedly," and that it should not send him statements or contract notes. This is because the account was probably opened in breach of Portuguese exchange control regulations and/or to protect his property against the threat of the Communist Party coming to power in Portugal.

8. From time to time the deceased altered the bank's mandate so that various members of his family could be added, or removed, as co-signatories, but the account was at all times in his sole name. It seems that the children also had the benefit of cheque and credit cards. At the time of the major family row in 1989/1990 four of the six children were co-signatories. In January 1990 the deceased cancelled cheque and credit cards in the name of his daughter Margarida, perhaps because she was the most critical of her father in relation to the matter involving her sister Teresa. During this period also the deceased threatened that he would not give his children any more money.

9. The bank official who dealt with the deceased was Mr Horsley, a client relationship officer at the bank who spoke Portuguese and concentrated on clients who lived in Portugal. He plainly had a good professional relationship with the deceased, who sometimes referred to him as "my friend", and Mr Horsley deposed in connection with proceedings in Portugal that the deceased regarded him as his friend. But, having heard and seen Mr Horsley, I am satisfied that (if it were relevant, which I do not consider it is) there was no bond of personal friendship between them.

10. At a meeting on April 27, 1990 the deceased told Mr Horsley that his three daughters had fallen out with him, and of his three sons one had robbed him, one was unemployed and the third had a job but was not earning a high salary. His wife was "psychopathic". He told Mr Horsley that he would probably write to him to delete the name of his daughter as a signatory for account A175 and add the name of Sr Champalimaud. This was done by an undated letter, probably in June 1990. Mr Horsley's evidence was that he suggested to the deceased that a way of distancing the assets from his children and removing them from access to the account was by means of an offshore trust, and his note records that Mr Horsley agreed to advise the deceased of his next visit to Portugal "as for family reasons he needs to set up an off-shore Trust."

11. That visit took place on June 5, 1990, when Mr Horsley had a meeting with the deceased, and his note of the meeting records that the deceased wished to change the signatories on the account; that Mr Horsley suggested that the existing account should be closed and all the assets be transferred to a new account; and that the deceased promised to introduce the new signatory to him later that week. Mr Horsley gave him trust documents to read. Mr Horsley's note of the following day records that the deceased handed him mandate forms, an authority to delete his daughter and to transfer all the assets to a new account. He told Mr Horsley that family problems had taken a turn for the worse.

12. Mr Horsley's evidence was that the deceased was reluctant to set up the trust, and his reluctance to do so led in June 1990 to the assets in account A175 being transferred to a new account in the joint names of himself and Sr Champalimaud. The surviving documents evidencing the setting up of the new account are: (1) an undated letter signed by the deceased instructing the bank to "transfer all the assets to my new account in your books and close A175"; (2) mandate forms (with the date of April 27, 1990 inserted by Mr Horsley), signed on behalf of the bank and by the deceased and Sr Champalimaud, with a translation in Portuguese; (2) account opening form (which notes that "all assets ex A175 which is being closed for personal reasons") (3) an investment management agreement, also dated April 27, 1990, and signed by Mr Horsley and the deceased, but not fully completed (which provides that the investments and cash "shall be held by the Bank for the Owners as beneficial joint tenants"); (4) internal documents of the bank authorising the closure of account A175 on the signature of the deceased. The account opening form indicates under "Mandate" that it is a joint account and under "Power" the word "either". A cheque book in the name of the deceased only was required. There is no explanation for Mr Horsley's insertion of the date April 27, 1990, since the account was undoubtedly opened in June, and, although the deceased may have had the forms since April, Mr Horsley's notes are not consistent with the deceased having arranged for signature before June.

14. There is very little correspondence in this period (no doubt for the reasons mentioned in paragraph 7 above), but it seems that the bank corresponded solely with the deceased, who alone gave investment instructions. An internal memorandum requiring a response to a request for information on the identity of the customer in relation to shares in the account under Companies Act 1985, s. 212 received an answer giving only the name of the deceased.

15. There are then no documents until the year in which the deceased died, 1993. On January 15, 1993 Mr Horsley wrote to Rathbones (a company which organises the establishment of offshore trusts in various jurisdictions) to give them instructions on a new British Virgin Islands trust, to be called the Acalens Trust. The settlor was to be the deceased, who (they were told) was in hospital awaiting an operation. On his death Sra Aroso was to receive half the income, and their youngest son Miguel the other half. In the event of her death, Miguel was to receive the whole income. On Miguel's death, the capital was to pass to Margarida, unless she predeceased him, in which event capital was to pass to Miguel. Mr Horsley visited the deceased in hospital on January 27, when the instructions were confirmed, and they were also confirmed in a letter which the deceased wrote to Mr Horsley on February 16, when he said that he wanted the trust to operate only after his death, and added "I have explained very briefly to my nephew Mr Champalimaud what I am writing to you and I promised to leave to him the instructions in writing." On February 19, 1993 the bank sent the deceased trust documents for signature but they were never returned. None of the draft trust documents have been produced in these proceedings, other than various versions of a letter of wishes.

16. The operation did not stop the spread of cancer, and on July 9, 1993 Mr Horsley saw the deceased in Portugal, when they had further discussion about the trust, following which Mr Horsley instructed Rathbones to amend the letter of wishes to provide that, after his death, 40% of the capital was to provide income for his widow and 60% to provide income for Miguel. On July 14, 1993 the deceased telephoned Mr Horsley to revise the figures to 30% to his widow and 70% to Miguel, and the bank asked Rathbones to amend the letter of wishes accordingly. There is an undated draft letter of wishes among the papers in the case which gives effect to this proposal, and provides for the capital to pass to Margarida on the death of the widow and Miguel.

17. On July 28, 1993 Sra Aroso telephoned the bank on behalf of the deceased. She asked for �10,000 to be sent to a bank in Portugal, and she said that her husband might wish to alter the letter of wishes again. When the deceased came on the line he was too drowsy with painkillers to say anything intelligible. On July 28, 1993 the bank arranged for the delivery of a revised draft of the letter of wishes, which provided for the 30%:70% division of income as between the widow and Miguel, and also provided that on their deaths the whole of the trust fund should be held for charities whose names were to be inserted. But it seems that this was received at the hospital after the deceased died. There was no evidence as to when, and why, it was first proposed that the capital should pass to charity, rather than to Margarida, after the deaths of the widow and Miguel.

18. On July 31, Sra Aroso telephoned Mr Horsley to say that her husband had died. On August 2, Sr Champalimaud said that it was his understanding that income should be paid 30% to the widow and 70% to Miguel, and Mr Horsley suggested that if the papers were not in order Sr Champalimaud might settle the trust himself. On August 3, Sr Champalimaud told Mr Horsley that one of the daughters was trying to find out about the account, and said they should be careful about giving information. On August 4, four of the children (the three daughters and Jose) wrote to the bank asking it to block all of the assets of the deceased because of a conflict between the heirs (and the bank refused to comply with this request on August 16). In evidence Mr Horsley denied a suggestion that he realised that there were problems, and was reluctant that the light of day be shed on them. I accept his evidence that he did not seek legal guidance because he genuinely thought that the bank was entitled to deal with the survivor of the two holders of a joint account, and that the family dispute was irrelevant.

19. On August 7, Sra Aroso wrote to bank with a revised letter of wishes and a direction to transfer all A371 assets to the Acalens trust. The letter of wishes addressed to the trustees had the effect of directing the widow to follow the last wishes of the deceased in dividing the fund between the children, but if she did not do this within six months of the death, the fund was to be divided equally between them. On August 9, Sra Aroso telephoned the bank to confirm that the last wish of the deceased was that she should have the income and that on her death the account should be split equally between the children. When Mr Horsley told this to Sr Champalimaud, he replied that this was the wish of the widow but not of the deceased. It seems that in the course of conversations on August 12, Mr Tuck of Rathbones, Mr Horsley and Sr Champalimaud all agreed that the letter of wishes sent by Sra Aroso, and purportedly signed by the deceased, was a forgery. Although Sr Champalimaud believed that it was the wish of the deceased that the beneficiaries should be the widow and Miguel, he said that he would speak to Miguel to see if he would renounce his interest in 70%.

20. On October 25, Sra Aroso wrote to Mr Horsley to say that the last wishes of the deceased were in fact that she should have 30% of the income and Miguel should have 70%, with the survivor of them having 100%, and after their deaths to a charity, but that he had been too weak to sign. According to the bank, at some time after August 1993 it was agreed between Sra Aroso and Sr Champalimaud that the assets under the control of Sr Champalimaud should be settled in an offshore trust under the terms believed by them to have been the last wishes of the deceased. On November 8, 1993 the bank gave instructions to Rathbones to prepare documentation for the Acalens Trust, on the basis that Sra Aroso was to be the settlor, with 30% of the income for her and 70% for Miguel; on the death of Sra Aroso her share was to pass to Miguel, and on his death to any surviving brothers and sisters; on the death of each of Sra Aroso, Miguel and all brothers and sisters the capital was to pass to a named charitable institution. If the assets in the account were still in the name of Sr Champalimaud, the settlor could not be Sra Aroso, and on November 19, 1993 the bank gave instructions to Rathbones that Sr Champalimaud was to be the settlor, following a conversation with him, and he executed the letter of wishes early in 1994. The assets in account A371 were transferred to a new account in the name of the Acalens Trust. There are proceedings pending in Portugal between the five surviving children (Miguel having died in 1999), on the one hand, and Sra Aroso and Sr Champalimaud on the other. The claimant's evidence is that under Portuguese law, the widow is entitled to 25% of the net assets and the rest is divided between the surviving children. If the Acalens Trust is valid they will never be entitled to the capital.

21. Mr Horsley's evidence was that the bank at that time preferred accounts of overseas clients to be held in joint names, to avoid complications on the death of an account holder. He told the deceased how a joint account operated, and that on his death the assets would pass by survivorship to Sr Champalimaud. Mr Horsley said that the deceased was aware of this and was happy for the assets in account A175 to pass into a joint account held by him and Sr Champalimaud with full rights of survivorship. A copy of the mandate in Portuguese was made available to both the deceased and Sr Champalimaud, and according to Mr Horsley, he believed that they both had a full understanding of the effects in law of the transfer and the A371 mandate. From his discussions, it was his understanding that the deceased intended by the transfer of assets to A371 and the mandate for that account to transfer the beneficial interest in the assets in A175 to himself and Sr Champalimaud jointly, and that it was their joint intention that, on the death of the first of them to die, legal and beneficial title to the assets in account A371 would pass to the survivor. He believed that they both assumed that the deceased would pre-decease Sr Champalimaud and they intended that he would then be free to deal with the assets in that account as he so wished. This evidence was not challenged. In the witness box Mr Horsley said that the deceased was aware that the effect of the arrangements was that Sr Champalimaud could take all the money.

22. The starting point is that where a person transfers property, or directs a trustee for him to transfer property, otherwise than for valuable consideration, and where the presumption of advancement does not apply, it is a question of the intention of the transferor in making the transfer whether the transferee was to take beneficially or on trust, and if on trust, what trusts: Vandervell v. IRC [1967] 2 AC 291, at 312, per Lord Hodson. If, as a matter of construction of the document making or directing the transfer, it is possible to discern the intentions of the transferor, that is an end of the matter and no extraneous evidence is admissible to correct and qualify his intentions so ascertained, but if the document is silent, then a resulting trust arises in favour of the transferor, but this is only a presumption and is easily rebutted. All the relevant facts and circumstances can be considered in order to ascertain the intentions of the transferor with a view to rebutting the presumption. Ibid. See also Westdeutsche Bank v. Islington LBC [1996] AC 669, 708: "It is important to stress that this only a presumption, which presumption is easily rebutted either by the counter-presumption of advancement or by direct evidence of꿬ntention to make an outright transfer."

23. In the present case account A175 was a discretionary investment account, which consisted of bank deposits, i.e. debts due from the bank to the deceased (loosely described as "cash") and shares or other securities. It is in the nature of a discretionary account that the combination of cash and shares would vary from time to time, and that the identity of shares represented in the account would also vary from time to time. There is, however, in this case no evidence of what the combination was, nor the extent to which shares credited to in account A175 were still in account A371 on the death of the deceased.

24. Shares in United Kingdom companies were held through the bank's nominee company, and shares in overseas companies were held through the bank's account with Morgan Guaranty (and Morgan Guaranty may have held them through other institutions, such as CEDEL or Euroclear). The deceased had, therefore, only an equitable interest in the shares or securities (which would likely to be part of larger parcels of shares or securities held for other clients), the legal title to which would have been in the bank's nominee company or some other institution such as Morgan Guaranty. The legal owner of the shares was a bare trustee, as were intermediate entities such as the bank. What is described as the transfer from account A175 in the sole name of the deceased to A371 in the joint names of the deceased and Sr Champalimaud is therefore a direction to the bank to hold the assets, which were and would be in account A175, in future for the deceased and Sr Champalimaud. To the extent that it is a transfer of the equitable interest in the shares, the transfer must be in writing (Law of Property Act 1925, s. 53(1)(c)), and a direction to the trustee (the bank) is capable of being a disposition in writing: Timpson's Executors v Yerbury (HM Inspector of Taxes) [1936] 1 KB 645 (CA); Grey v IRC [1958] Ch. 690 (CA). The "cash" credit balances may be transferred by an assignment under Law of Property Act 1925, s.136, and a notice in writing to the debtor (the bank) will be sufficient.

25. A resulting trust will not arise where the relationship between the transferor and the transferee is such as to raise a presumption that a gift was intended and where the presumption is not rebutted, but in this case the relationship between the deceased and Sr Champalimaud was not such as to raise a presumption of advancement. In this case Sr Champalimaud gave no consideration for the transfer to him (and the deceased) of the interests of the deceased in the property standing to the credit of A175. The question therefore is whether there is evidence of the intention of the deceased. That question has been considered in a number of cases relating to property, including bank accounts, in joint names, of which the most relevant for the purposes of this case are the decisions of Rome J. in Young v. Sealey [1949] Ch. 278, Megarry J. in Re Figgis [1969] 1 Ch. 123, and of the High Court of Australia in Russell v. Scott (1936) 55 CLR 440.

26. In Russell v. Scott (1936) 55 CLR 440, 451, where the joint account was also in the joint names of the deceased and a nephew, Dixon and Evatt JJ. began from the position that, as the relationship between them was not such as to raise a presumption of advancement, prima facie there was a resulting trust: "But that is a mere question of onus of proof. The presumption of resulting trust does no more than call for proof of an intention to confer beneficial ownership�" In Marshal v Crutwell (1875) LR 20 Eq 328 Mr Marshal, when in fading health, called at his bank, drew a cheque on his bank account for the whole amount standing to its credit, and asked the bank to open an account in the joint names of himself and Mrs Marshal, into which he paid the cheque, and further considerable sums. He told the bank manager that the balance of the account would belong to his wife on his death, and she alone drew cheques on the account to pay household expenses. It was held that the evidence showed that it was an arrangement for mere convenience because Mr Marshal was in such poor health that he could not operate the account, and was not intended to be a provision for the wife. It is likely that today the court would have taken a different view of the facts, but the statement of principle (at 329) by Sir George Jessel MR makes it clear that, whether or not the presumption of advancement applies, the court is entitled to take "surrounding circumstances" into consideration to determine whether or not the transferee takes beneficially. See also Re Vinogradoff [1935] WN 68: transfer of War Loan to joint names of deceased and grand-daughter: presumption of resulting trust not rebutted.

27. The fact that one of the joint account holders did not contribute to, nor draw upon, the joint account does not prevent that person from having a beneficial interest. Nor does it matter that that person did not even know of the existence of the joint account: Standing v. Bowring (1885) 31 Ch D 282; Russell v. Scott (1936) 55 CLR 440, at 453 (citing Re Harrison (1920) 90 L.J.Ch. 186). Nor does it matter that that person was never intended to use the account while the other account holder was alive prevent the former from succeeding to the whole account by survivorship. In Russell v Scott, ante, Miss Russell, who was very wealthy, had a bank account at the Commonwealth Savings Bank. She and her nephew opened a joint account with the bank by the transfer of a large sum from her account. The joint account was kept in funds by payments from her investments, and it was used solely for her needs. The nephew withdrew money for this purpose with withdrawal slips signed by himself and his aunt. The nephew did not contribute to the account. When the account was opened Miss Russell told the nephew and others that any balance remaining in the account at her death would belong to the nephew, and it was found that she intended him to take whatever balance stood to the credit of the account at her death. It was held that the presumption of a resulting trust in her favour (and therefore of her estate) was rebutted, and that the nephew was entitled to the balance on the account by survivorship. The judgments must be read in the light of the fact (which is not so in this case, except to the extent of any cash deposits) that the nephew had a joint legal title to the account. Dixon and Evatt JJ said (at 451-3):

28. In Young v. Sealey [1949] Ch. 278 Miss Jarman had two accounts at Lloyds Bank, the balances on which she transferred to a new deposit account in the joint names of herself and one of her nephews. The deposit books allowed either joint account holder to draw. She and her nephew signed a form of authority to the bank, which requested and authorised the bank "To pay any moneys now or hereafter standing to the credit of any account in our joint names including all interest thereon to, or to the order of, all or any one of us, or to, or to the order of, the survivors or survivor of us or the executors or administrators of such survivor." When she sent her nephew the authority for signature she wrote a letter which said: "They are doing this in case anything happened then there would be no trouble either side." There were also similar joint accounts with the Somerset and Wilts Savings Bank. Miss Jarman alone made payments into and withdrawals from the accounts. She also had �3000 invested in Building Society shares, with regard to which she was content to take the income for life and ensured she would get it by causing her name to be entered as first of the joint investors. Her intention was that she wished to deal with the accounts and the shares during her lifetime as she wished, and only what was left at her death was to go to her nephew, "who was never expected to pay anything into the account and was not, so long as she was alive, to draw anything out for himself" and "when death should deprive her of any further use of her fortune then the benefits to her [nephew] would crystallise; but they were to remain in suspense until then�" (at 284):-

29. A question which was not raised in this case (for reasons I mention below at paragraph 36) and which was considered in Russell v. Scott and Young v. Sealey, and in a number of decisions in other common law countries (including Australia, Canada, and Ireland) is whether a transfer into a joint account in circumstances in which the transferee is not intended to be allowed to draw until the death of the transfereor is ineffective to confer a beneficial interest on the transferee because it is a disguised testamentary disposition. In Russell v. Scott, ante, it was held at first instance that the balance in the joint account did not pass to the nephew, because the benefit which the donor intended for him was testamentary in nature and had not been made in accordance with New South Wales Wills Act. In the High Court of Australia it was held that, notwithstanding that the aunt only intended the nephew to benefit on her death, he nevertheless had an immediate interest in the joint account: "The vesting of the right and title to the debt or chose in action takes effect immediately, and is not dependant upon the death of either of the persons in whose names the money has been deposited", at page 448, per Starke J. Dixon and Evatt JJ said (at pages 454-5):

30. In Young v Sealey [1949] Ch. 278 Romer J was referred to a number of Canadian and Irish decisions on the point. Romer J. said that he found appealing the reasoning of the Supreme Court of Eire in Owens v. Greene [1932] IR 225 (and some Canadian decisions which were in line with it), to the effect that it was an ineffective ambulatory and postponed gift of such monies as might remain undrawn. He found it difficult to regard the deposit account transactions as voluntary settlements coupled with a power of revocation or as immediately effective gifts of anything, seeing that the nephew had, as between his aunt and himself, no power of withdrawal and she held the entire beneficial interest. But he decided that, because the objection had not been taken in the many cases in which joint accounts had been involved, he would hold the gift valid (as it had been by the Ontario Appellate Division in Re Reid 50 Ont LR 595) and leave the question of principle to the Court of Appeal. He was not referred to the decision in Russell v. Scott, and recently in Lynch v. Burke and Allied Irish Banks plc [1996] 1 ILRM 114 the Irish Supreme Court has overruled the decision in Owens v. Greene, the reasoning of which appealed to Romer J.

31. In Re Figgis [1969] 1 Ch. 123 one of the questions was whether money paid by the husband into a joint account was a lifetime gift on which (as directed by the husband's will) duty should be paid out of the residuary estate. It was held that it was such a gift. The presumption of advancement was not rebutted. Megarry J. discussed (obiter) the way in which the doctrine of advancement operates in the case of bank accounts. After referring to Russell v. Scott and Young v. Sealey, he said that it seemed quite unreal to regard each deposit in the account as an advancement, subsequent to diminution by the drawing of subsequent cheques. But a gift of whatever stands to the credit of the account ran the peril of being accounted testamentary in nature, so as to require due execution as a will. He concluded that it might be the correct analysis is that there is an immediate gift of a fluctuating and defeasible asset consisting of the chose in action for the time being constituting the balance in the bank account. In the present case that analysis could apply to the cash deposits, but is harder to apply to a changing portfolio of investments. There is, as I have mentioned, no evidence of the extent to which the portfolio had changed between the time of the transfer to account A371 in 1990 and the date of death in July 1993. But I do not see any conceptual difficulty in the gift applying to any assets which might be acquired by the bank for the joint holders of the account, where those assets are actually acquired by the bank and placed to the credit of the joint holders. In such a case the survivor/donee needs to do nothing more to constitute his title and can give instructions to the bank in accordance with the mandate.

32. The re-amended particulars of claim simply assert that Sr Champalimaud had no beneficial interest in the account. The defence pleads that the effect of the transfer instruction and the mandate was to instruct the bank to hold assets then or thereafter transferred into account A371 for the deceased and Sr Champalimaud as joint tenants in equity, and were a disposition by the deceased of his interest under the bare trust comprised by account A175 to the deceased and Sr Champalimaud to hold the same as joint tenants in equity; and to instruct the bank that the assets in account A371 were and would be in their sole beneficial ownership and that the survivor of them would remain and be entitled to all of the assets absolutely.

33. The principal question is whether there are circumstances which displace the presumption of resulting trust in favour of the deceased. As the authorities to which I have referred make clear, the presumption is easily rebutted by evidence of intention by the transferor that the transferee was to take beneficially. The claimant relies, in particular, on the following matters: first, that the relationship between the deceased was a distant one, and not sufficiently close to justify an inference of an intention to benefit Sr Champalimaud; second, the transfer was proposed by the bank for its own convenience, and because Mr Horsley was not sufficiently familiar with the difference between legal and beneficial title, and because the deceased did not speak English, the deceased did not receive an explanation which would have adequate for him to understand that he was benefiting Sr Champalimaud; third, the reference in the investment agreement to beneficial interest does not assist, because there is no evidence that Sr Champalimaud signed it, and it was not to be effective until both account holders had signed; fourth, the mandate only regulates the position as between the account holders and the bank, and in Young v. Sealey, where there was a similar mandate, it was not treated as significant in determining whether the presumption of resulting trust was rebutted; fifth, there is evidence that the deceased treated the account as his exclusively, including the fact that he referred to it as "my new account", he alone was sent investment reports and he alone conducted correspondence about the account, and that while he was alive, only he was contemplated as the settlor of the Acalens Trust; sixth, Mr Horsley, in connection with his giving of evidence in the Portuguese proceedings, wrote a memorandum to an official of the bank in 1996 that Sr Champalimaud was a second signatory and did not personally benefit in any way from the account, and he stepped in to set up the offshore trust in accordance with the wishes of the deceased.

34. The essence of the claimant's case is that the investment account was in joint names purely for convenience. The essence of the bank's case is that the deceased put the account into joint names knowing and intending that Sr Champalimaud should have a beneficial interest: and that the nature of the interest was such that each of them in theory had the immediate right to sever the beneficial joint tenancy, but that in practice it would not have been necessary because some or all of the assets could be dealt with by either of them in accordance with the mandate.

35. In my judgment the bank has adduced sufficient evidence to displace the presumption of resulting trust, and has proved that the deceased intended to give Sr Champalimaud a beneficial interest in the assets in account A371. First, the terms of the mandate are absolutely clear. The deceased spoke English and was supplied with a translation of the mandate into Portuguese, and the words of the mandate are not capable of being other than an expression of intention that the beneficial interest is to be held jointly, and that the survivor is to take all beneficially. They are at least a representation to the bank that the assets in the account are in their joint beneficial ownership, and are not held on trust for any other person (which would include the deceased solely). Second, I do not think it is right to ignore the terms of the investment agreement which refer to the investments and cash being held for the account holders as beneficial joint tenants. Even if (which is doubtful, since a bank such as Coutts & Co. is most unlikely to have operated an investment account without a written agreement from its customers) the bank omitted to obtain the signature of Sr Champalimaud and it therefore has no contractual force, the deceased was prepared to sign it with this statement. Third, there is the uncontradicted and unchallenged evidence of Mr Horsley (who speaks Portuguese) that he explained the effect of a joint account and that the deceased understood him, and that he intended to transfer a beneficial interest to Sr Champalimaud who would be free to deal with the assets in the account as he wished. Fourth, the surrounding circumstances corroborate that evidence. The discussions about a trust and the transfer to account A371 followed what was rightly described by counsel for the bank as a monumental bust up between the deceased and his children, and at a time when they were hardly on speaking terms. Fifth, I do not accept the argument for the claimant that the joint account was established for the convenience of the bank. When Mr Horsley said in his witness statement that the bank "was not in favour of accounts being held in a sole name as this caused complications on the death of the account holder" he plainly meant that it caused complications for the account holder's estate, which might have to obtain probate in the country of the domicile in order to claim the English account. Sixth, I do not consider that there is any subsequent conduct which is inconsistent with the intention to confer a beneficial interest, and even if there had been, the subsequent conduct of the deceased (except perhaps to the extent it may relate to property acquired after that conduct) is of little or no relevance: cf. Standing v Bowring (1885) 31 Ch D 282, where the plaintiff, a widow aged 86, transferred �6000 of stock into the joint names of herself and her godson without informing him of the transfer. When she remarried at the age of 88 she asked her godson to retransfer the stock, which was when he first became aware of the transfer to himself and Mrs Standing. But when she made her request for the return of the stock what she said showed that she had originally intended to confer a benefit on him, but that in consequence of something he had done which had displeased her she desired to take back something which she had intended to be a benefit to him.

36. The only persons who knew the true reason for the establishment of the joint account were the deceased and Sr Champalimaud. The deceased left no documents which throw light on the reasons and there is no evidence from Sr Champalimaud. There is no material other than the documents and the oral evidence of Mr Horsley which throws light on the intention of the deceased, and the evidence of Mr Horsley was clear and unchallenged. Even if it were permissible to take account of subsequent events as throwing light on the intentions of the deceased in 1990, they would not show that Sr Champalimaud was not to take a beneficial interest. At most, they would show that (as in Russell v. Scott and Young v. Sealey) the deceased intended to retain control of the account, that Sr Champalimaud was not expected to add to, or draw from, the account, and that on the death of the deceased Sr Champalimaud was to have control of the account in the expectation that he would use it in accordance with the wishes of the deceased. It may be that the reason was that the deceased was reluctant to establish a trust during his lifetime (as the correspondence suggests), but was also reluctant to establish a will trust because that would have entailed the risk of the Portuguese authorities learning of the existence of his offshore assets; and that joint ownership with a wealthy relative who could be relied upon not to operate the account while he was alive and to deal with the assets properly after his death was an attractive solution. But this was no part of either party's case. If it had arisen, I would have following the reasoning in Russell v. Scott and reached the same result as Young v. Sealey.

37. The issues on breach of trust do not therefore arise, and I will deal shortly with them. They would arise only if the assets in account A371 were held by Sr Champalimaud on resulting trust for the estate of the deceased. It must follow that if they were so held, a transfer by Sr Champalimaud to the trustees of the Acalens Trust would be a breach of trust. But that could not in itself make the bank liable. The claimant originally pleaded that the bank was guilty of knowing receipt of funds transferred in breach of trust. There was, however, on the facts no question of receipt. What the bank did was to follow the instruction of its client, in accordance with the mandate of the deceased and Sr Champalimaud, to hold the assets which were in account A371 to the order of the Acalens trustees in another account. Consequently the claim based on knowing receipt was not pursued at trial.

38. What is pleaded on behalf of the claimant is that the transfer of the assets in account A371 held to the order of Sr Champalimaud to another account in the name of the Acalens trustees was an intermeddling in the estate of the deceased; that it was dishonest on the part of the bank and of Sr Champalimaud; and that, to the knowledge of the bank, it was intended to facilitate a breach of trust by Sr Champalimaud. The particulars of knowledge and dishonesty are that Mr Horsley had intimate knowledge of the affairs of the deceased, and was privy to the intentions of Sr Champalimaud when he dealt with account A371 after the death of the deceased, and that Mr Horsley intended, by the transfer from account A371, to secure the misapplication of assets in the estate of the deceased to the detriment of the persons beneficially interested in such assets.

39. The way it was put in argument was that the bank wilfully shut its eyes to facts which indicated that Sr Champalimaud had no beneficial interest and therefore had no right to direct the assets to be held to the order of the Acalens Trust; and that the bank was guilty of a wrongful distribution of trust assets notwithstanding third party claims or knowingly dealt with the property inconsistently with the terms of the trust. The claimant says that the bank had notice of an adverse claim when some of the children of the deceased wrote to the bank on August 4, 1993 asking the bank to block the account because of a dispute between the heirs. The claimant relies on the principle reflected in, for example, Guardian Trust and Executors Co. of New Zealand v. Public Trustee of New Zealand [1942] AC 115 that a trustee who receives notice that fund in his possession is or may be claimed by a person will be liable to that person if he deals with the fund in disregard of that notice should the claim subsequently prove to be well founded. But in this case the bank was a bare trustee or agent for Sr Champalimaud, and it does not become liable by virtue of mere knowledge of a claim. What is required to make the bank liable is dishonesty (Lee v. Sankey (1873) LR 15 Eq. 204, 211), as in the claimant's allegation of dishonest assistance.

40. It is of course accepted that the test of dishonesty for these purposes is to be found in Royal Brunei Airlines v. Tan [1995] AC 378, and the claimant relies particularly on this passage (at page 389):

The claimant also relies on the statement of Millett LJ in Armitage v. Nurse [1998] Ch 241, 251 that a trustee who acts in a way which he does not honestly believe is in the interests of the beneficiaries is acting dishonestly. But citation of that proposition begs the question whether the bank is trustee for the family of the deceased. Even if Sr Champalimaud held on resulting trust for the estate, the fact that the bank was bare trustee for Sr Champalimaud did not make it a trustee for the estate. The bank was bound contractually to comply with instructions given by the surviving joint holder in accordance with the mandate: see, e.g., Lynch v. Burke and Anglo Irish Banks plc [1996] 1 ILRM 114, applying McEvoy v. Belfast Banking Co. Ltd. [1935] AC 24. A bank is not liable to a third party who claims to have an interest in the funds for complying with the instructions of its customer, in accordance with the mandate, unless it knows, or is on enquiry, that the funds are being misapplied: Gray v Johnston (1868) LR 3 HL 1, 11-13, 14.

41. I cannot of course make any alternative findings on the state of knowledge of the bank in relation to these matters because I have found that there was no breach of trust, and it would be an impossible gymnastic to make findings of knowledge on the hypothesis that there was a breach. But in relation to all of these allegations the claimant would have been in a fundamental difficulty even if I had found that the account was held on resulting trust for the estate. He has put forward a pleading in which it is alleged that Sr Champalimaud intended to commit a breach of trust and that the bank was dishonest because it was privy to his intentions, and because Mr Horsley intended to secure the misapplication of the assets of the estate to the detriment of the heirs, or wilfully shut his eyes to facts which would have indicated that Sr Champalimaud had no beneficial interest. But there is no evidence of Sr Champalimaud's intention, and it was never put to Mr Horsley in the witness box that he knew Sr Champalimaud was in breach of trust, nor was he asked about Sr Champalimaud's intentions, nor was it put to him that he intended to secure the misapplication of assets by Sr Champalimaud. Nor was there any material put to Mr Horsley in cross-examination which could have led to a finding that he wilfully shut his eyes to what on this hypothesis would have been a breach of trust. It remains necessary to plead an allegation of dishonesty clearly and with particularity. This was not done in this case, and the allegations of dishonesty were not put to Mr Horsley. In these circumstances the allegations of dishonesty against the bank should not have been made or pursued.

	JOSE MANUEL PITTA DE LACERDA AROSO	Claimant
	and
	COUTTS & COMPANY	Defendants

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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Jose Manuel Pitta De Lacerda Aroso v. Coutts & Company [2001] EWHC Ch 443 (30th March, 2001) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2001/443.html Cite as: [2001] EWHC Ch 443

England and Wales High Court (Chancery Division) Decisions

Jose Manuel Pitta De Lacerda Aroso v. Coutts & Company [2001] EWHC Ch 443 (30th March, 2001)