ON APPEAL FROM THE HIGH COURT
CHANCERY DIVISION
(HIS HONOUR JUDGE RICH QC)
Royal Courts of Justice
Strand
London, WC2A 2LL
B E F O R E:
THE MASTER OF THE ROLLS
(Lord Phillips)
LADY JUSTICE ARDEN
LORD JUSTICE DYSON
1. CAROLYN LEWIS JENNINGS
2. WILLIAM DAVIDGE LEWIS
Claimants/Appellants
-v-
PENELOPE JANE CAIRNS
Defendant/Respondent
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MS PENELOPE REED (instructed by Messrs Collyer Bristow, London, WC1R 4DF) appeared on behalf of the Appellant
MR HOWARD SMITH (instructed by Messrs Thomson Snell & Passmore, Kent, TN1 1NX) appeared on behalf of the Respondent
J U D G M E N T
LORD PHILLIPS, MR: Lady Justice Arden will give the first judgment.
LADY JUSTICE ARDEN: This is an appeal against the order of His Honour Judge Rich, dated 15 May 2003, whereby he ordered the appellant Penelope Cairns ("Penelope") to pay to the estate of Kathleen Enid Grace Davidge ("Enid) the sum of £171,596 with interest at 5 per cent from 9 April 1998, the date of Enid's death. The figures given by the judge in his judgment for the gifts in question which gave rise to this order is a slightly different figure of £171,694. I will use that figure in this judgment.
The judge made certain other orders, including an order for the substitution of Penelope as a sole executrix of Enid, and for an account of Penelope's dealings with the assets of Enid under an Enduring Power of Attorney on the footing of wilful default.
The Background
Enid was born 24 September 1910. She died on 9 April 1998. Her other sisters, Margaret and Jane, are still alive. Margaret gave evidence at the trial, although she is now over 90-years of age. Enid was a spinster. Her sisters, however, were married. Jane had one daughter, Penelope, who is married to John Cairns ("John"). They have three daughters. Margaret lived in America and she has one son and one daughter, the claimants in this action and the respondents to this appeal. Margaret's children also live in the United States of America.
By virtue of her will dated 4 April 1991, which is subject to codicils which are immaterial to this appeal, Enid left a pecuniary legacy of £3,000 to a Maria Crawford and her flat in Blackheath valued at £200,000 to Penelope. Her residuary estate is divided into two equal shares with one share going to Penelope and the other share going to the claimants in equal shares. It was accepted at trial that Penelope knew the broad terms of the provisions made in Enid's will before Enid died.
At the date of her will, Enid had capital amounting to some £300,000. This was invested in stocks and shares. In the normal course of events these stocks and shares would have increased in value over the period to her death. However, in that period, she made two substantial gifts, one of £35,000 and the other of a sum totalling £171,694. Both those gifts were in issue at the trial, although it is only the latter gift which is in issue on this appeal.
Shortly after the date of her will, Enid executed an Enduring Power of Attorney in favour of Penelope. In 1996 and 1997 Enid had two strokes and suffered three serious falls. As a result, she had a spell in hospital. She moved into a Nursing Home in Wimbledon in July 1996. She lost her hearing and in due course lost her ability to write.
Shortly after Enid moved into the Nursing Home, Penelope operated the Enduring Power of Attorney. In March 1997 she sold shares worth £23,236.70 belonging to Enid. The following year she sold further shares belonging to Enid worth £72,160.29. On both occasions she placed these sums in her own bank account. Out of this sum she lent some £15,000 to her husband's companies. Moreover, she did not disclose these assets in the Inland Revenue affidavit filed following Enid's death. The judge found that Penelope had abused the Power of Attorney and that there was still some £26,000 missing from the estate, together with interest. The judge found that Penelope had used the money for her own purposes and was attempting to avoid accounting for it. He found that Penelope had abused her position under the Power of Attorney in another way. In 1997 she had contracted for work to be carried out on Enid's flat. The judge expressed the view on a provisional basis that the Enduring Power of Attorney conferred no power on her to do this. He also found that Penelope had a conflict of interest which she resolved in her favour.
The claims made in respect of the gifts of £35,000 and £171,694 were that they were procured under undue influence exercised by Penelope over Enid. The judge reviewed the law. He held that he was entitled to consider the circumstances surrounding the gifts in the knowledge that Penelope had been prepared to abuse her position in relation to the Power of Attorney. The latter gift had resulted in a liability for capital gains tax of £30,000.
The judge considered the law and in particular the recent decision of House of Lords in Royal Bank of Scotland v Etridge [2002] 2 AC 773. He held that all the circumstances surrounding the gifts were relevant. He found that Enid and Penelope had a close relationship and that Enid treated Penelope as a daughter. "That fact both gives an opportunity to take unfair advantage but also provides a motive and explanation for acts of generosity on Enid's part" (judgment paragraph 21). However, it was not simply a question that the relationship between the parties had been one of trust and confidence. The existence of that relationship shifted the burden to Penelope to show that the gifts had been an expression of Enid's own free will.
The judge dealt first with the gift of £35,000 made in April 1994. As I have explained, this is no longer in issue in these proceedings. He held that this sum had been paid to Penelope to enable her to buy her husband's share of their house and at 55 Ellerby Road, London. John had charged his interest in the house in connection with a business project which failed. Penelope therefore needed money. The gift was made after Enid had had her first stroke. The judge found that Penelope dishonestly pretended in her evidence that she did not know about that stroke at the time of the gift. However, he was satisfied that the gift was made out of spare cash and that Enid was fully able to understand what she was doing when she made the gift. He criticised Penelope for not insisting that the money should only be given on terms that it was repayable on Enid's death. He found that the gift had been made out of Enid's own free will and that, accordingly, Penelope was not liable to repay it.
The judge turned to the gift of £171,694. This was made by payments totalling £149,116 to trustees of insurance policies (one with the Scottish Amicable and one with M&G, which were held on trust for the benefit of the education of the Cairns' three daughters) and the balance of the sum, £22,578, was paid in cash to Penelope to meet certain school fees payable in 1995.
In March 1995 Enid expressed concern to Margaret, who was visiting England, that capital gains tax would be payable on the sales of her shares necessary to make these gifts, to which she had by then agreed. She also expressed her concern to fund the education of the Cairns' children. The judge concluded that Enid was not complaining that she was being forced to do something that she was unwilling to do, but was worried about her financial ability to do it. Her concern was expressed on Sunday 2 April 1995 in the following circumstances.
Margaret was on a visit to the United Kingdom. She, Enid and the Cairns, were having lunch at the Cairns' house. Margaret escorted Enid back to the car in the course of which Enid showed her a note in writing which said, "They made me sign everything", according to Margaret. This led to a row between Margaret and the Cairns. On her return to the United States, Margaret wrote to Enid offering to provide help. However, Enid replied that she did not think that the offer of help would do much good. She wrote:
"In any case it is too late, because all the shares were to be sold on 5 and 6 April, and there is nothing to be done about it now. I expect it will be all right."
The judge did not accept Margaret's evidence that Enid was saying that she had been forced to do something against her own free will, but went on to find that there other grounds on which the gift could be reviewed.
The first claimant referred to another incident in a letter dated 6 August 1998. She stated that her mother had been sitting in the Cairns' garden in early April 1995 when Enid told her in writing that she had been forced to sign over her stocks. Shortly before this transfer, Enid had reviewed her financial affairs with Margaret and one of Enid's grandchildren. She had discussed the delicate situation that:
"The accountant handling her capital gains tax obligations was John's father."
The judge found that the terms on which the trusts were established in April 1995 provided that no part of the funds would be paid to the trustees beneficially. The trustees included Enid. Nonetheless John had written to Enid on 4 April 1995 before the trust was set up in the following terms:
Your trust is finally about to be set up and the shares that you have agreed to are to be transferred into it. The Trust documents, when we receive them, will be in your and Pene's names and the investments are held in your names. We hope that the Trust will produce an income for you that will be close to 10% per annum. The trust is, as you know, a Discretionary Trust which means that you, as Trustee with Pene, can decide on what the trust income and capital will be used for. You can then decide whether you wish this income to pay for school fees or whether you need it yourself. You can decide at any time that you need the income or capital from the trust by yourself. However, at that point it will go back into your estate for tax purposes. As you know the purpose of setting up the trust in the first place was to try to reduce the tax on your estate and to provide an investment fund that will grow.
I have repeated the basis of the trust again so as I hope you will fully understand that your money has only gone into a trust of which you are trustee with Pene and which you can do with as you like."
Before writing this letter, John had taken advice from a Mr Rouse, but Mr Rouse's advice had not been in precisely the same terms and, in any event, he did not give separate advice to Enid as to her needs. The letter written by John was not accurate in a number of respects. First, there were to be four trustees. Accordingly, it would not be possible for Enid alone to say how the income or capital should be used. Secondly, it was not a trust under which she was a beneficiary. Thus she had no power to revoke it or to benefit under it. Third, the letter refers to the desire to minimise tax and makes no reference to the tax disadvantage which would arise if Enid died within 7 years of making the gift. In that event inheritance tax would be payable on a descending scale according to the number of years that had passed. This would be in addition to the capital gains tax which Enid incurred on selling the shares and disposing of them to the trusts. The judge noted that in 1996 Scottish Amicable gave Penelope an opportunity to revise the deed of trust, but she, in her capacity as attorney, opted for a course which involved the money invested being treated as an outright gift. The judge indeed observed that Penelope might thereby have misused her powers under the Enduring Power of Attorney, but he did not have to decide this point.
The judge held that he needed to decide whether the defendants could be ordered to repay the sum of £171,694. He found that Enid was concerned to minimise her estate's liability to inheritance tax and that she had been in the habit of meeting at least some of the school fees from 1993 onwards. He also found that the question of an educational trust had been under discussion for at least two years. However, he also found that Enid wanted to be able to revoke the trusts or to benefit under the settlement, if necessary. The judge held that Enid had been wrongly advised by John and that, therefore, she did not enter into the transaction after full, free and informed thought.
The judge turned to consider what relief was appropriate given that there was no claim to set aside the settlement. He noted a number of points which militated against making an order against Penelope personally. The sum of £171,694 was only paid to her as a trustee. Moreover, the wrong advice had not been hers but John's and she could not be responsible for this. Moreover, Penelope did not appreciate the capital gains tax and inheritance tax consequences of the gift being made. On the other hand, the trust was for her indirect benefit and she failed to ensure that any gift, with the consequences that it had, was only made after full, free and informed thought. Accordingly, in the judge's judgment, she was under a conscientious obligation to make compensation. The judge held at paragraph 35 of the judgment:
"In regard to the gift to her children, it is clear that it was not made after informed thought. In my judgment, in the circumstances of this cse, Pene's failure to ensure that any such gift, with the consequences which it had, was made only after full, free and informed thought, does place her under a conscientious obligation to make compensation. She cannot conscientiously see her aunt's estate diminished in this way. In so concluding I do not set out any general principle. If I were not so conscious that the effect of ordering her to make such compensation is to increase the residuary estate of which is then herself entitled to half, I am less certain that I would regard such order as being necessary even for a court of conscience. But having regard to all the circumstances of its payment, I do so conclude. The result, having regard to the terms of the will, seems to me to be manifestly fair. I therefore order that since she makes equitable compensation in the sum of £171,694. Since Enid would, I think, have wished to pay the school fees while she lived, I do not think that interest until the date of her death should be paid, but I will hear argument as to the position from the date after her death."
The Submissions
Miss Penelope Reed, for the appellant, submits that the appellants failed to discharge the onus of showing that there was undue influence by presumption or otherwise. The question whether Enid was independently advised only arose if the judge was satisfied that there was undue influence. In her submission, the judge made no finding that there had been undue influence.
Mr Howard Smith, for the respondent, submits that the correctly directed himself as to the relevant law. Applying Etridge, the judge considered whether Penelope had abused her influence over the deceased and concluded that there was a relationship of influence which led to a substantial gift and, further, on consideration of all the circumstances, Penelope had abused the relationship of influence. Mr Smith submits that this analysis was a proper application of the principle in Etridge. Moreover, there were ample findings to justify the judge's conclusion that there had been undue influence. There was a relationship of influence and the deceased was vulnerable and open to influence by Penelope. There was a substantial gift calling for an explanation. The amount of the gift, taken with the relative capital gains tax liability of £30,000, was substantial in the context of this estate. Moreover, Enid was vulnerable and had expressed concerns about her financial position, but she had received no advice as to, for example, her needs. The judge was entitled to conclude that the influence had been abused since there was evidence that Penelope had abused her authority under the Enduring Power of Attorney. She had given dishonest evidence to the court as to the use of the monies that she improperly took as the deceased's attorney. She behaved badly in relation to the gift of £35,000, and gave dishonest evidence to as the circumstances of the gift. Penelope made no attempt to ensure that the deceased was properly advised in relation to the transaction. Penelope did not properly understand the transaction and, when she was given the option to revise the deed, she, as Enid's attorney, opted for a gift which was contrary to that which the deceased intended.
The appellant submits that it was not due to any fault on Penelope's part that wrong advice had been given to Enid and that, accordingly, Penelope could not be in breach of any duty to ensure that proper advice was given. Mr Smith submits that Penelope should have been responsible for the erroneous advice since she knew the advice was required and that Enid would not enter into the gift without advice. She should, therefore, have ensured that the advice was accurate.
The appellant submits that the judge implicitly held that Penelope did not unduly influence Enid. Mr Smith submits that the judge received extensive submissions on the appellant's case. Having correctly devoted himself to the questions of law, he must have been satisfied himself that Penelope had unduly influenced Enid.
The appellant submits that it was unclear why the judge thought it mattered that Penelope had a half interest under the residuary due in this will. As to this, Mr Smith submits that the gift benefited Penelope, not indirectly as the judge thought, but directly as she would otherwise have had to pay her daughter's school fees. Moreover, the judge was satisfied in the circumstances of this case that a personal remedy against Penelope was "manifestly fair".
Miss Reed submits that the judge should have held that Enid want to make a gift to pay the school fees of Penelope and John's daughters. It was a reasonable inference that she would have wanted to continue to make those payments after her death. Miss Reed submits that the judge's findings, and the documents in evidence at trial, all support the conclusion that Enid was acting of her own free will when she made the gift of £171,694. Miss Reed relies on the fact that the proposals for the school fee trust had been under discussion for two years before the trust was set up in 1995. There was no doubt that Enid was able to look after her own affairs, even after her first stroke in 1994.
Enid treated Penelope as if she were her daughter. Penelope reciprocated lovingly. The concerns expressed by Enid to Margaret in relation to the school fees plan were not those of being constrained to do something she did not want to do, but merely a worry about her financial ability to do it. Enid had been looking at ways to reduce her inheritance tax liability. Since 1993 she had been discussing the setting up of a school fees plan and asked John to find advice. On that point Mr Smith does not accept that it was Enid who had initiated the discussions on the school fees plan arrangement.
Miss Reed continues by submitting that the judge had found that Enid would have wanted to pay the school fees until her death. She refers to certain documents, in particular to a letter dated 4 November 1994 containing replies which Enid voluntarily gave to detailed inquiries made by her accountant showing that she was able to look after her own affairs. On 12 October 1994 Enid wrote to John asking for his views on the merits of advice given by Mr Sanderson as compared with advice given by her stock broker in relation to capital gains tax.
By a letter dated 30 November 1994, John had asked Enid whether she still wanted to go ahead with the school fees plan. Enid had replied to John how pleased she was that matters were progressing. Thus, on Miss Reed's submission, Enid was perfectly able to look after her own affairs and involved herself in an active way in the discussions which led to the arrangements for the gift of £171,694. Mr Smith submits that the fact that Enid may have been prepared to pay school fees from time to time, did not mean that she wished to enter into this substantial gift.
The judge took account of all the evidence, including the matters relied on by Miss Reed. So far as the additional documents are concerned, they are only examples of what the judge summarised in his judgment. Moreover, while Enid may have been able to look after her affairs in a broad sense so that the Enduring Power of Attorney was not then registrable, she felt that she was not so capable, particularly in her letter in which she said that she was no longer capable of giving matters extended thought. In her letter 12 October 1994 she said to John:
"You will notice that I am not capable of sustaining thought for long and also that I am apt to refer to things by the wrong name."
Mr Smith further submits that Enid did not specifically refer in the correspondence to school fees and that she did not understand the transaction into which she was entering.
Conclusions.
In Barclays Bank v O'Brien [1992] 3 WLR 593, the House of Lords laid down the categories of relationship will give rise to actual or presumed undue influence. However, in Etridge, the House of Lords followed a more flexible approach. Apart from the situations in which undue influence is proved, there may be relationships which give rise to a prima facie inference that there has been undue influence. In those circumstances the evidential burden shifts to the donee to show that there was no such influence. One of the ways of rebutting the prima facie presumption is to show that the donor had full, free and informed advice.
In Etridge the leading speech is that of Lord Nicholls, with whom Lord Bingham, Lord Clyde and Lord Hobhouse agreed. At paragraphs 8 to 12 of his speech, Lord Nicholls set out the scope of the doctrine of undue influence. He held that:
" 8. Equity identified broadly two forms of unacceptable conduct. The first comprises overt acts of improper pressure or coercion such as unlawful threats. Today there is much overlap with the principle of duress as this principle has subsequently developed. The second form arises out of a relationship between two persons where one has acquired over another a measure of influence, or ascendancy, of which the ascendant person then takes unfair advantage. An example from the 19th century, when much of this law developed, is a case where an impoverished father prevailed upon his inexperienced children to charge their reversionary interests under their parents' marriage settlement with payment of his mortgage debts: see Bainbrigge v Browne (1881) 18 Ch D 188.
In cases of this latter nature the influence one person has over another provides scope for misuse without any specific overt acts of persuasion. The relationship between two individuals may be such that, without more, one of them is disposed to agree a course of action proposed by the other. Typically this occurs when one person places trust in another to look after his affairs and interests, and the latter betrays this trust by preferring his own interests. He abuses the influence he has acquired. In Allcard v Skinner (1887) 36 Ch D 145, a case well known to every law student, Lindley LJ, at p 181, described this class of cases as those in which it was the duty of one party to advise the other or to manage his property for him. In Zamet v Hyman [1961] 1 WLR 1442, 1444-1445 Lord Evershed MR referred to relationships where one party owed the other an obligation of candour and protection.
The law has long recognised the need to prevent abuse of influence in these 'relationship' cases despite the absence of evidence of overt acts of persuasive conduct. The types of relationship, such as parent and child, in which this principle falls to be applied cannot be listed exhaustively. Relationships are infinitely various. Sir Guenter Treitel QC has rightly noted that the question is whether one party has reposed sufficient trust and confidence in the other, rather than whether the relationship between the parties belongs to a particular type: see Treitel, The Law of Contract, 10th ed (1999), pp 380-381. For example, the relation of banker and customer will not normally meet this criterion, but exceptionally it may: see National Westminster Bank Plc v Morgan [1985] AC 686, 707-709.
Even this test is not comprehensive. The principle is not confined to cases of abuse of trust and confidence. It also includes, for instance, cases where a vulnerable person has been exploited. Indeed, there is no single touchstone for determining whether the principle is applicable. Several expressions have been used in an endeavour to encapsulate the essence: trust and confidence, reliance, dependence or vulnerability on the one hand and ascendancy, domination or control on the other. None of these descriptions is perfect. None is all embracing. Each has its proper place.
In CIBC Mortgages Plc v Pitt [1994] 1 AC 200 your Lordships' House decided that in cases of undue influence disadvantage is not a necessary ingredient of the cause of action. It is not essential that the transaction should be disadvantageous to the pressurised or influenced person, either in financial terms or in any other way. However, in the nature of things, questions of undue influence will not usually arise, and the exercise of undue influence is unlikely to occur, where the transaction is innocuous. The issue is likely to arise only when, in some respect, the transaction was disadvantageous either from the outset or as matters turned out."
At paragraphs 13, 14 and 16 Lord Nicholls dealt with the question of what had to be shown where undue influence was alleged and upon whom the onus lay:
" 13. Whether a transaction was brought about by the exercise of undue influence is a question of fact. Here, as elsewhere, the general principle is that he who asserts a wrong has been committed must prove it. The burden of proving an allegation of undue influence rests upon the person who claims to have been wronged. This is the general rule. The evidence required to discharge the burden of proof depends on the nature of the alleged undue influence, the personality of the parties, their relationship, the extent to which the transaction cannot readily be accounted for by the ordinary motives of ordinary persons in that relationship, and all the circumstances of the case.
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.....
Generations of equity lawyers have conventionally described this situation as one in which a presumption of undue influence arises. This use of the term 'presumption' is descriptive of a shift in the evidential onus on a question of fact. When a plaintiff succeeds by this route he does so because he has succeeded in establishing a case of undue influence. The court has drawn appropriate inferences of fact upon a balanced consideration of the whole of the evidence at the end of a trial in which the burden of proof rested upon the plaintiff. The use, in the course of the trial, of the forensic tool of a shift in the evidential burden of proof should not be permitted to obscure the overall position. These cases are the equitable counterpart of common law cases where the principle of res ipsa loquitur is invoked. There is a rebuttable evidential presumption of undue influence."
As appears from paragraph 16, Lord Nicholls made it clear, amongst other matters, that the court had to make a balanced assessment of all the circumstances in order to decide whether undue influence was established. At paragraph 20 Lord Nicholls explained the role of independent advice. He said:
Proof that the complainant received advice from a third party before entering into the impugned transaction is one of the matters a court takes into account when weighing all the evidence. The weight, or importance, to be attached to such advice depends on all the circumstances. In the normal course, advice from a solicitor or other outside adviser can be expected to bring home to a complainant a proper understanding of what he or she is about to do. But a person may understand fully the implications of a proposed transaction, for instance, a substantial gift, and yet still be acting under the undue influence of another. Proof of outside advice does not, of itself, necessarily show that the subsequent completion of the transaction was free from the exercise of undue influence. Whether it will be proper to infer that outside advice had an emancipating effect, so that the transaction was not brought about by the exercise of undue influence, is a question of fact to be decided having regard to all the evidence in the case."
At paragraphs 21 to 24 Lord Nicholls explained what it was necessary to show in order to establish that a transaction required explanation. He said:
" 21. As already noted, there are two prerequisites to the evidential shift in the burden of proof from the complainant to the other party. First, that the complainant reposed trust and confidence in the other party, or the other party acquired ascendancy over the complainant. Second, that the transaction is not readily explicable by the relationship of the parties.
Lindley LJ summarised this second prerequisite in the leading authority of Allcard v Skinner, 36 Ch D 145, where the donor parted with almost all her property. Lindley LJ pointed out that where a gift of a small amount is made to a person standing in a confidential relationship to the donor, some proof of the exercise of the influence of the donee must be given. The mere existence of the influence is not enough. He continued, at p 185: 'But if the gift is so large as not to be reasonably accounted for on the ground of friendship, relationship, charity, or other ordinary motives on which ordinary men act, the burden is upon the donee to support the gift.'.
In Bank of Montreal v Stuart [1911] AC 120, 137 Lord Macnaghten used the phrase 'immoderate and irrational' to describe this concept.
Lord Nicholls then referred to the doubts raised on the second prerequisite by Nourse LJ in Barclays Bank v Coleman [2001] QB 20, at pages 30-32. He continued:
My Lords, this is not an invitation I would accept. The second prerequisite, as expressed by Lindley LJ, is good sense. It is a necessary limitation upon the width of the first prerequisite. It would be absurd for the law to presume that every gift by a child to a parent, or every transaction between a client and his solicitor or between a patient and his doctor, was brought about by undue influence unless the contrary is affirmatively proved. Such a presumption would be too far-reaching. The law would out of touch with everyday life if the presumption were to apply to every Christmas or birthday gift by a child to a parent, or to an agreement whereby a client or patient agrees to be responsible for the reasonable fees of his legal or medical adviser. The law would be rightly open to ridicule, for transactions such as these are unexceptionable. They do not suggest that something may be amiss. So something more is needed before the law reverses the burden of proof, something which calls for an explanation. When that something more is present, the greater the disadvantage to the vulnerable person, the more cogent must be the explanation before the presumption will be regarded as rebutted."
In a subsequent case in this court, Hammond v Osborne [2002] WTLR 125, it was argued that for an undue influence claim to succeed it had to be shown that the conduct of the person exercising the undue influence was improper. Sir Martin Nourse, with whom Keene LJ agreed, said:
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."
Miss Reed's submission on this appeal is that the judge made no finding of undue influence. In my judgment the expressly found that the relationship between Enid and Penelope was one which enabled Penelope to take unfair advantage of her aunt (see paragraph 21 of the judge's judgment). The judge also fairly recognised that that relationship could also provide the motive for Enid's act of generosity. The judge clearly regarded the gift of £171,694 as one which was not made in the ordinary course of events and one which called for an explanation. This implicit finding is, in my judgment, amply justified by the size of the gift and the fact that no independent consideration was given to Enid's need for the money, given her advancing years and failing health.
This conclusion by the judge was sufficient on the authorities to cause the evidential burden to shift from the claimants to Penelope. Penelope could have discharged this burden by showing that Enid made the gift as an exercise of her own free and informed will, but the judge held that she had failed to discharge that burden. In those circumstances, he must have come to the conclusion that all that was necessary for the purposes of showing undue influence had been shown. In my judgment, paragraph 35 of his judgment, read as a whole, comes to that conclusion. Accordingly I reject Miss Reed's first submission.
Miss Reed goes on to submit that Enid made the gift through the exercise of her own free will. Enid initiated discussions which led to the ultimate establishment of the trusts, which Enid was actively involved in processing, as is clear from the letters to which I have referred. The fact that she was mistaken about the effect of the trusts and the consequences in fiscal terms, might give rise to proceedings to set aside the transactions on the basis of mistake, but it did not prevent the exercise of free will for the purpose of rebutting the presumption of undue influence. This was Miss Reed's submission.
In my judgment, the role of mistake may be compared to the role of independent advice, as explained by Lord Nicholls in the Etridge case. As Lord Nicholls said:
"The presence of independent advice is one of the considerations which the judge must take into account in forming his balanced assessment of the circumstances surrounding the gift and in deciding whether any inference of undue influence has been rebutted."
Like independent advice, mistake is not a complete answer. It may for example appear that independent advice was taken and understood, but not acted upon. In that event the donor is not liberated from the undue influence which the law presumed to exist: see paragraph 20 of Lord Nicholls speech in the Etridge case, which I have set out above. Likewise, mistake might conceivably remove the donor's action completely from the operation of the undue influence. In that situation, there might be a remedy in mistake but not in undue influence. But, in other cases, the mistake under which the donor labours may not free him or her from the influence of the person exercising the influence and the presumption will thus not be rebutted.
In this case, the mistake made was as to the effect of the trust and as to the fiscal consequences. Enid wanted to be able to revoke or to benefit from the trust as necessary. This is an understandable wish for a lady in her position. Likewise, she was concerned about saving taxation. Penelope shared her mistaken beliefs. If Enid had not made this mistake as to the effect of the trust, she would not have made the gifts. That was the effect of the judge's finding. Miss Reed properly accepts that the mistake was as to a matter which was material to Enid's decision. Even though the mistake was innocent, in my judgment it does not free Enid from the undue influence. The mistake was not independent of the undue influence. It is not capable of being separated from Penelope's action, vis a vis Enid, therefore it does not displace the inference that has arisen that Penelope was in a position of influence vis a vis Enid and that that caused her to make the gift.
While there can be circumstances where the only claim is in mistake, in my judgment this is not such a case. The judge, was therefore not wrong to conclude that undue influence was established, notwithstanding that he concluded that Penelope was not responsible for the mistake and was unaware of the fiscal consequences of the gift. These are not incompatible conclusions, as Sir Martin Nourse pointed out in the case of Hammond v Osborne. The fact that the conduct of the person exercising influence is unimpeachable is not by itself an answer to a claim in undue influence, though the presumption of undue influence can be rebutted in many ways.
In his judgment, the judge considered the points made in favour of Penelope's contention. Those points included the fact that the transaction had been under consideration for a long time and that Enid had been in the habit of paying for the Cairns' daughters' school fees. Miss Reed also correctly makes the point that the abuse of the Enduring Power of Attorney took place after the gift of £171,694 was made. The judge would have had that point in mind.
Nonetheless, there was ample material in the judgment upon which the judge could make the findings that the evidential burden shifted to Penelope and it was not rebutted by her. He was rightly not satisfied that Enid acted from her own full, free and informed will since she did not have full advice appropriate to her needs. The judge carefully calibrated all the relevant circumstances, as is clear from the passage at the end of his judgment which I have quoted. There is no other sufficient evidence to rebut the presumption. Accordingly, I take the view that the judge was entitled to come to the conclusion that he did.
There has been some discussion as to what the judge meant at the end of his judgment in paragraph 35, when he said:
"If I were not so conscious that the effect of ordering her to make such compensation is to increase the residuary estate of which is then herself entitled to half, I am less certain that I would regard such order as being necessary even for a court of conscience."
I myself have found this passage difficult to follow. It seems to me that the judge may have had in mind that the policy behind the law of undue influence would not prevent him, if asked, from fashioning the relief so that Penelope would only have to repay to the estate the amount needed to ensure that the claimants received out of the estate what they would have received if the gift of £171,694 had not been made. It may be that he had been trying to anticipate the point which might have arisen in the discussion after judgment as to the form of relief, but, if that was his point, it was never taken up.
I should finally say that it has not been suggested in the course of this appeal, nor I think before the judge, that if the judge was entitled to conclude that there was undue influence in the respect of the gift of £171,694, he was not entitled to make order against Penelope personally rather than order setting the transactions aside. Accordingly, we have not had to consider that question of law.
In the circumstances, for the reasons which I have given, in my judgment this appeal should be dismissed.
LORD JUSTICE DYSON: I agree.
LORD PHILLIPS, MR: I would also agree.
I would not wish to leave this appeal without saying a word about procedure. The Part 52 Practice Direction provides at 15.11:
"Once the parties have been notified of the date fixed for hearing the appellant's advocate should file, after consulting his opponent, for the purpose of pre-reading by the court, one bundle containing photocopies of the principal authorities upon which each side will rely at the hearing, with the relevant passages marked. There will in general be no need to include authorities for propositions not in dispute. This should bundle should be made available 28 days before the hearing, unless the period of notice of the hearing is less than 28 days in which case the bundle should be filed immediately."
This practice direction is unfortunately more often disregarded than complied with. This appeal has been no exception. We only received the authorities this morning. The 28-day period is sometimes unrealistic, but it is essential that authorities are filed at least seven days before the hearing so that Members of the Court have the opportunity to carry out the pre-reading that is an essential part of our procedure.
There is also a practice direction on citation of authorities that was first reported in [2001] 1 WLR 1001 and is to be found in the Supreme Court Practice at 34-001. Unfortunately that Practice Direction is also largely disregarded. It should not be. It has not been complied with in the present case.
Order: Appeal dismissed with costs assessed in the sum of £12,000 to be paid within 28 days. Permission to apply for leave to appeal to the House of Lords refused.