Lavelle v Tracy Lavelle & Ors

LORD PHILLIPS, MR:

This is an appeal from the judgment delivered on 21 May 2003 by His Honour Judge Howarth, sitting as a judge of the High Court. That judgment resolved an unhappy family dispute as to the ownership of a flat, Flat 6, Churchill Place, Monton, which is on the outskirts of Manchester ("the flat").

The claimant, George Lavelle ("George"), purchased the flat in 1997. The solicitors acting for George were MB Cuttle & Co of Sale. On 13 November 1996 they wrote to George advising him that, because of uncertainty about access to the flat, they would not recommend exchanging contracts. On 26 November 1996 they received a reply, which appeared to be signed by George, in the following terms:

The solicitors complied with those instructions, and the flat was conveyed into the name of Tracy Lavelle ("Tracy"). She is George's daughter and the first defendant. The issue before the judge related to the nature and effect of this transaction.

It was George's evidence that he was buying the flat for his own use, that he had no knowledge of the letter of 26 November 1996 and that Tracy must either have forged his signature or tricked him into signing it unread. It was Tracy's evidence that she had no recollection of the letter of 26 November, but she accepted that she had typed it. The signature was George's. George had been taking advice about avoiding inheritance tax, and in November 1996 he had told her that he was putting the flat into the name of herself and her brother, Craig Lavelle ("Craig"), the second defendant, in order to save inheritance tax on his estate. Tracy concluded that he had instructed the solicitors to put the flat in her name in order to save inheritance tax. Her case was that the effect of this was to vest the flat in her to hold for the benefit of herself and Craig absolutely.

Craig advanced the same case. In his witness statement he gave the following explanation for what had occurred:

The judge rejected Craig's evidence of the conversation in his Mercedes; equally he rejected George's assertion that Tracy had forged his signature or tricked him into signing the letter of 26 November 1996 in ignorance of its contents.

In the light of these findings the judge went on to consider the effect of the other evidence. His starting point was that, as Tracy was George's daughter, there was a presumption that, in having the flat conveyed into her name, George intended to pass to her the beneficial interest in the flat. He then considered whether there was evidence that rebutted this presumption of advancement. He held that the presumption was comprehensively rebutted by evidence that George was buying the flat for his own use. He gave a declaration that Tracy held the flat upon trust for George.

Mr Chaisty QC, who appeared before us on behalf of Craig and Tracy, challenged the judge's approach and his conclusions. He observed that the only case that George had advanced to explain the conveyance of the flat to Tracy was the allegation that she had forged the letter of 26 November 1996 or tricked him into signing it. As the judge had rejected that allegation, George had no explanation at all for the conveyance to Tracy. Furthermore, he had put forward a false story. In those circumstances the judge should have held that George was not able to rebut the presumption of advancement in favour of Tracy.

Mr Chaisty further submitted that, had the judge made a proper appraisal of the evidence, he would have been driven to the conclusion that George's intention was to make a gift of the flat to Tracy and Craig, reserving no interest to himself. This submission founded critically on the evidence and advice given by accountants on how to avoid inheritance tax. They had advised that inheritance tax on the flat would be avoided if George made a gift of it to Tracy and Craig. Mr Chaisty criticised the judge for failing to address the issue of whether George was aware of this advice. Had he addressed that issue, he would have concluded that George was aware of the advice and that the instructions he gave to his solicitors to convey the flat to Tracy were intended to give effect to it.

Mr Chaisty submitted that the evidence that George was purchasing the flat for his own use was not inconsistent with his making a gift of the flat to Tracy and Craig. He could naturally have assumed that they would have been prepared to permit him to use the flat, as indeed they were.

I propose at this point to set out in simply terms the law that is relevant in the case. For the most part this is not in dispute.

Where one person, A, transfers the legal title of a property that he owns or purchases to another, B, without receipt of any consideration, the effect will depend on his intention. If he intends to transfer the beneficial interest in the property to B, the transaction will take effect as a gift and A will lose all interest in the property. If he intends to retain the beneficial interest for himself, A will take the legal interest but will hold the property in trust for A.

Normally there will be evidence of the intention with which a transfer is made. Where there is not, the law applies presumptions. Where there is no close relationship between A and B, there will be a presumption that A does not intend to part with the beneficial interest in the property and B will take the legal title under a resultant trust for A. Where, however, there is a close relationship between A and B, such as father and child, a presumption of advancement will apply. The implication will be that A intended to give the beneficial interest in the property to B and the transaction will take effect accordingly.

Some of the older authorities upon which Mr Chaisty relies indicate that the presumption of advancement is not lightly to be displaced by evidence. Chettiar v Chettiar [1962] AC 294 involved a transfer of land from father to son. In giving the advice of the Privy Council, Lord Denning had this to say about the presumption of advancement:

In Shephard v Cartwright the issue was whether a father, in registering shares in the names of his children, had transferred the beneficial interest in those shares to them. Many years later the father had treated the shares as his own. The question arose as to whether this fact displaced the presumption of advancement. Mr Chaisty particularly relies on this passage from the speech of Viscount Simonds at page 445:

These authorities relied upon by Mr Chaisty have lost much of their force in modern times. Pettitt v Pettitt [1970] AC 777 involved a dispute between husband and wife as to the ownership of the matrimonial home. At page 793, Lord Reid said about the presumption of advancement:

In Tribe v Tribe [1996] Ch 107 at page 129, Millett LJ said:

In these cases equity searches for the subjective intention of the transferor. It seems to me that it is not satisfactory to apply rigid rules of law to the evidence that is admissible to rebut the presumption of advancement. Plainly, self-serving statements or conduct of a transferor, who may long after the transaction be regretting earlier generosity, carry little or no weight. But words or conduct more proximate to the transaction itself should be given the significance that they naturally bear as part of the overall picture. Where the transferee is an adult, the words or conduct of the transferor will carry more weight if the transferee is aware of them and makes no protest or challenge to them.

Sometimes the reason why property is put in the name of a nominee is in order to perpetrate a fraud or some other illegality. Equity will not permit the transferor to pray in aid the existence of that illegal purpose in order to rebut a presumption of advancement (see Collier v Collier [2002] EWCA Civ 1095 and the authorities there cited).

Where a person gives away property and thereafter survives for at least seven years, that property will not be counted as part of his estate for the purposes of calculating inheritance tax on his death. The exemption will however not apply if at any time during the seven year period before his death:

Permission to appeal in this case was given by Aldous LJ. He suggested that the court might have to consider whether George could only explain the transfer to Tracy by relying on an illegal purpose, namely an intention to deceive the Inland Revenue into believing that George had parted with the enjoyment of all benefit in the flat so that it would not form part of George's estate for the purpose of inheritance tax. It has never been part of the appellants' case that George had any such intention or, indeed, knowledge of the effect of the Finance Act that would be a pre-requisite to the forming of such an intention. Illegality has no part to play in this appeal.

I shall now summarise the facts found by the judge, which include those that persuaded him that the presumption of advancement was displaced.

George has three children: David, Craig and Tracy. At the start of the story he was on good terms with Craig and Tracy who were helping him to run a family business, but he was estranged from David. In 1990 George and his wife, the mother of David, Craig and Tracy, were living in a large house in Chatsworth Road, Worsley. In that year they purchased an apartment on the Costa del Sol in Spain. They decided to retire there and George handed over the management of the family business to Craig and Tracy, although he kept a shareholding in it. Thereafter George and his wife spent about three-quarters of the year in Spain and about one-quarter at their home in Chatsworth Road.

In 1999 George's wife died. He then sold the house in Chatsworth Road and proceeded to purchase the flat. On 26 November 1996 he signed the letter to which I have referred. Accordingly, although the entirety of the purchase price of the flat (£115,000) was provided by the father, the contract was signed by Tracy and the flat was conveyed into and registered in her name.

George then arranged, and paid for, various alterations to be made to the flat; the garage was extended to a size which would accommodate his Jaguar car, the bathroom fittings were changed, a new fitted kitchen was installed and various other alterations were made. George installed his own furniture in the flat. He insured the new fittings and the furniture. He took shares in and became a director of the management company. He kept keys to the flat, although Craig and Tracy also had a set. He continued to spend the majority of his time in Spain, but when he came to England he used the flat as his own. He paid the utilities bills and the council tax. Neither Tracy nor Craig made any use of the flat.

In the summer of 2000, the family business was in financial difficulty. At a meeting with Craig and Tracy, George offered to sell the flat and put the proceeds into the business. Craig and Tracy refused his offer. Neither asserted that the flat was not his to sell. By 2002 the good relationship between George and his two children had soured as a consequence of a dispute about ownership of the family business and an associated business that Craig and Tracy had developed. That dispute initially formed part of the subject matter of litigation, but was resolved at a comparatively early stage.

Mr Chaisty made a number of criticisms of the judge's findings. The least weighty of these was the finding that George had insured the furniture and fittings of the flat. The evidence was that the insurance had been effected by the family company. Once my attention had been drawn to the evidence relating to this, it struck me that a more forceful point might have been made in favour of George's case by referring to the information provided to the insurance brokers when the risk was placed:

Mr Chaisty also criticised the judge's finding in relation to the conversation at the meeting in the summer of 2000. When giving oral evidence, Craig and Tracy had denied the details of this conversation given by George. The judge failed to refer to this conflict of evidence, or to give any reasons for resolving it as he did. I consider that this criticism of the judgment is well founded. The only hint that George's evidence was challenged was the judge's comment, after summarising his evidence, "I am inclined to think that was precisely what did happen". Once again, however, there is no sound basis for challenging the judge's evaluation of this part of the evidence, if the manner in which he weighed the evidence as a whole is not open to attack. Mr Chaisty did launch such an attack and it is to that which I now turn.

Mr Chaisty submitted that the judge failed to deal with the implications of his rejection of George's evidence that Tracy had forged his signature on the letter of 26 November 1996 or induced him to sign it by trickery. He submitted that the judge should have concluded that George was a dishonest witness, and that the clear implication was that he was attempting to conceal the fact that he had given away his flat. I consider the judge should have addressed expressly the implications of George's evidence. I have no doubt, however, that, had he concluded that George had been deliberately advancing false evidence, he would have said so. The inference is that he did not consider George to be dishonest. This inference is strengthened by the judge's approach to the evidence about tax advice, to which I shall shortly refer.

Should the judge have held that George was dishonest? I do not consider that he should. Mr Chaisty sought to attach significance to the finding of the judge in relation to a request made by George to his solicitors, by letter of 8 February 2002, to know whether the deeds of the flat were in his name or in Tracy's name. As to this the judge said:

I do not consider that this passage should have led the judge to conclude that George was dishonest in denying knowledge of the letter of 26 November 1966. Neither does the other finding upon which Mr Chaisty relies; that is that George was in England on 26 November 1996 when his case had been that he was in fact abroad. The correspondence between solicitors made makes it plain that George was attempting to reconstruct his movements at the material time. All the evidence and the judge's finding to which I have just referred is consistent with George having forgotten the details of the arrangements for the conveyance of the flat. I do not think this is unlikely, given the passage of time, if George had not attached much importance to this. This again links with the question of George's reaction to the inheritance tax advice.

In this context I consider it significant that Tracy herself had no recollection of the letter of 26 November 1996. She accepted that she had typed it and that the precise wording would have been her own, although George would have given her the gist of what he wanted to say. The fact that she had written the letter had, however, slipped from her memory over the passage of time, as had other details of the communications with the accountants about inheritance tax.

I propose to summarise the evidence in relation to this on the basis of the contemporary documents, for the judge's summary of these was not wholly accurate. The documents in question are memoranda made by the staff of the accountants who provided the advice. The accountants were the firm of Downham Train Epstein ("DTE"), who acted as accountants to the family company. The evidence shows that in April 1995 George visited DTE and had some initial advice on inheritance tax planning, which included the possibility of lifetime gifting. This is the backcloth to the following evidence about advice given over a year later at the time of the purchase of the flat. On 11 November 1996 there was a memorandum from Miss O'Loughlin, to Mike Jacques as follows:

There was an inter-office memorandum dated 12 November 1996, which is not in evidence. The response to this is the next document, a memorandum from Mr Teale to Mr Jacques dated 13 November 1996, as follows:

There followed a letter from Mr Jacques to Tracy dated 14 November 1996 as follows:

Mr Chaisty submitted that the only possible conclusion to which this evidence leads is that George did receive the advice that he could save inheritance tax if he made a gift of the flat to Tracy and Craig, and that it was in order to make such a gift that he instructed the solicitors that the flat should be conveyed to Tracy.

In dealing with the issue as to whether George had signed the letter of 26 November 1996, the judge posed the following question.

The judge did not expressly answer this question. The clear inference from the judgment as a whole is that he concluded the former was the correct interpretation of the events and that George was not attaching great importance to the formalities of the transaction.

Mr Chaisty complained that the judge never addressed the crucial question of why George instructed the conveyance of the flat to be put into Tracy's name. The judge observed at one point that the only independent advice which George, "may or may not have had is that coming from Downham Train Epstein." In the passage that I have already quoted, the judge appears to have concluded that, "something had gone on which might have induced [George] to agree to the deeds going in his daughter's name". This is not a satisfactory analysis of the extent to which DTE's advice was the reason why George directed that the flat should be conveyed to Tracy.

One thing that the judge did decide quite clearly was that, in putting the property in Tracy's name, George did not intend to make a gift of it to her. The judge's final conclusion was:

The evidence given by Tracy about this in her witness statement is significant.

Turning to the letter to her from DTE dated 14 November 1996, Tracy states that she has no recollection of receiving this letter. A little later in her statement Tracy states that her father:

I am not persuaded by Mr Chaisty that it was not open to the judge on the evidence to make this finding. On the contrary, I have formed the view that the judge's final conclusions were correct. The evidence, taken as a whole, speaks strongly against the conclusion that George intended to give away his flat to Craig and Tracy. The evidence also suggests to me that Craig and Tracy did not believe that George was doing this at the time.

The appellants have always had a problem in marrying their contention that George intended to give his flat to both Craig and Tracy with the fact that he instructed the flat to be placed in the name of Tracy alone. At one and the same time they have sought to rely upon the presumption of advancement and yet accept that the flat was conveyed to Tracy as trustee for herself and Craig. I note that the grounds of appeal advance the following contentions:

Mr Cawson QC, on behalf of George, has drawn our attention to two pieces of evidence that I consider to be significant. The first is to be found in the statement of Mr Yeardley, Tracy's husband:

This peep we have been afforded under the cloak of legal professional privilege suggests that Craig and Tracy and their solicitors were not confident that George had appreciated in 1997 that he was giving away his flat. I am led to suspect that the appellants' contention that George made a gift of the flat to them is based on a subsequent analysis of the legal effect of events in 1996 and 1997, rather that upon a belief held by them throughout that George had given away to them all the interest in his flat.

The judgment under appeal is not a good judgment. It is discursive and does not clearly set out and resolve the material issues. It is not satisfactory that this court has had to deduce the judge's conclusions on these issues by a process of analysis of his reasoning. The core issue was, however, whether the considerable evidence demonstrated that, in 1997, George had intended to give away his flat. The evidence left no room for the application of the presumption of advancement. After a two-day trial in which he heard the witnesses, the judge concluded that George had had no such intention.

For the reasons that I have given, I can see no ground for upsetting this conclusion and would dismiss this part of the appeal.

The appellants also have permission to appeal against the costs order made by the judge that the defendants should pay 90 per cent of the claimant's costs, excluding the costs of the handwriting expert. As I understand the position, George had to bear the costs of this expert.

We have a note of the argument on costs below. Essentially this was that George had lost on every issue that he raised, namely that he did not sign the letter of 26 November 1996, he was out of the country when the letter was signed and that he had not sought inheritance tax advice. The costs' order should reflect the defendants' success on these issues to the extent that there should be no order as to costs or a very substantial discount on the claimant's costs.

No note was kept of the judge's reasons for the costs order that he made. We understand that the costs were dealt with at the end of a long day and that the reasons were perfunctory. Costs are important, particularly where, as I fear in this case, they are disproportionate to what is at stake. Judges must be sure that their reasons for costs' orders are clear; they should not be left to inference, albeit that it is often possible to infer the reasons.

In this case it is clear that the judge concluded that there should only be a modest departure from usual rule that costs follow the event to reflect the matters raised by the defendants. Was that a view he could properly take? I consider that it was. George was resisting a claim that he had given away his flat when he had not done so. His positive assertions were a product of faulty recollection about matters which had occurred five years before. Had I been awarding the costs, I might have adopted a more generous approach to the defendants, but I find it impossible to say that the judge's order was outside the ambit of that which he could reasonably make.

Accordingly, I would dismiss the appeal against his costs order.

LORD JUSTICE MAY: I agree.

LORD JUSTICE JONATHAN PARKER: I also agree.