Leeder v Stevens

J U D G M E N T

1. LORD JUSTICE JACOB: This is a defendant's appeal from a decision of District Judge Singleton given on 6th May 2004. He refused permission to appeal but Carnwath LJ granted permission saying:

"Although the central thrust of the judgment is clear, there appears to be considerable force in the complaint that the judge has failed to make findings on many of the points in issue or to grapple with the detailed contentions of the defendant."

The basic facts.

2. The dispute is about title to a house in Clevedon, North Somerset. In late 1988, prior to the transactions involved in the dispute, it was in the defendant's sole name. It was worth at the time about £70,000 and was subject to a £5,000 mortgage. The defendant was in tight, but just manageable, financial circumstances. Evidently her house was her sole real asset.

3. At the time the defendant was living in the property with her grown up daughter. It was originally bought in 1976. In 1977 the defendant's then husband left her and the house was transferred into her sole name. Shortly thereafter she and the claimant began seeing each other and continued to do so until after the challenged transactions. The claimant was throughout this time a married man. He had reasonably substantial means and was a man of some affairs.

4. By the late 1980s the parties were very fond of each other and there was some discussion of marriage. The claimant had bought the defendant some jewellery which included a diamond solitaire ring. She said he told her it would be like an engagement ring. He did not accept he said that. He said he told her he could not get divorced at the time because of the cost. On this, as in relation to many other matters, the District Judge made no specific finding, as I think he ought to have done.

5. The parties went on holiday together in late 1988. From time to time the defendant gave her some cash. On one occasion he paid her credit card bill in the sum of about £300.

6. It is clear that at the time the parties were and had been for some time in a loving relationship and had it in mind that that relationship would continue indefinitely. It was the claimant who suggested the transaction in dispute. It was that, in return for his paying off the mortgage of £5,000, that the defendant's house should be transferred into joint names. He also proposed that he would pay for the maintenance, insurance and some improvements to the house. The parties disputed whether or not the defendant agreed this willingly. Again the District Judge made no finding as to who was telling the truth.

7. Whatever the position, the claimant paid off the mortgage and went to his own solicitors Bevan Ashford, in order to pursue the transaction. He dealt only with a legal executive. The instruction was to draw up a Deed of Trust declaring that the property was held as tenants in common in equal shares with either party being able to force a sale, subject only to a right of pre-emption. The claimant accepted that he understood the draft deed which had been duly prepared along with a draft transfer putting the house in both names. The legal executive sent it to the defendant with a letter which read as follows:

"I understand from Mr Stevens that you have agreed to transfer the above property to the joint names of yourself and him in consideration of the sum of £5,000 which has already been paid to you.

I also understand that on the completion of the Transfer of the property to your joint names, the property is to be held in equal shares that on the death of one of you that person's share will pass through their Will, or under the rules of intestacy, to the next of kin, and do not automatically pass to the survivor of the two of you.

I enclose herewith a Transfer deed which will change the ownership of your property to the joint names and also a Declaration of Trust dealing with your equal shares.

Assuming that the above is agreed I would be obliged if you could sign both these deeds, where indicated by the pencil markings, in the presence of an independent witness, who should add his or her name, address and occupation where provided and return.

I must point out that the enclosed deeds affect the ownership of your home and if you should have any queries whatever regarding this transaction you should seek separate legal advice before signing."

8. It may be noted there was nothing in this letter about the promise of the claimant to pay for improvements or maintenance or insurance on the house. It was a straight £5,000 for a half interest in a house worth £70,000.

9. The draft deed, when read by a lawyer, contained potentially disastrous terms from the defendant's point of view. In particular it contained the following clauses:

"2. THE TRUSTEES HEREBY AGREE AND DECLARE that the purpose of this trust shall cease when either or both of the Trustees no longer wishes to exercise the power of postponing sale.

3. THE TRUSTEES HEREBY AGREE AND DECLARE as follows:

(a) Before the sale or other disposition of the property the Trustee who wishes to sell the same shall first offer for sale the property to the other Trustee at a price to be determined in accordance with sub-clause (c) hereof..."

Spelt out, that meant that if the claimant wished the defendant could be forced to sell the house immediately unless she bought him out.

10. The defendant did not take legal advice. There was an unresolved dispute about whether she was encouraged not to do so by the claimant. He certainly did not suggest he offered to pay for any such advice. Realistically the expense meant it was unlikely she would ever do so.

11. The second paragraph of the letter provoked some discussion between the parties. This was not about the whole principle of the deal, as to whether it was fair or not, but about the right of survivorship. If he pre-deceased her she did not want his half-share passing to his wife. There was another dispute unresolved by the District Judge as to whether she saw the legal executive. The claimant said they went to see him; she denied it. Nothing in the surviving papers suggests there was a meeting. The correspondence does not read as though there was. Plainly this court cannot resolve that dispute. It is a dispute that I think should have been gone into by the District Judge for whether the defendant really understood what was going or was acting under the influence of the claimant was the live issue before him.

12. What then happened is that the parties appeared to have agreed that the property should pass by survivorship but that the defendant could live there for life and neither could force an early sale. Fresh instructions did not give effect to that though. The upshot - and I do not think the rest of the detail matters - is that there was a transfer of half of the share in the house so that each of the parties were joint registered proprietors. The truth is that there was an awful muddle by the lawyer on any view. Neither party is to be blamed for that.

13. At the heart of this dispute is whether the giving of half of the house for £5,000 was a transaction which was one that should be set aside by application of the principles of undue influence. There is no doubt as to these. They have recently been laid down in Royal Bank of Scotland v Etridge [2002] 2 AC 773, particularly in the speeches of Lord Nicholls and Lord Scott. Lord Nicholls said this:

"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.

9 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."

He went on to say:

"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.

22 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.

23 The need for this second prerequisite has recently been questioned: see Nourse LJ in Barclays Bank plc v Coleman [2001] QB, 20, 30-32, one of the cases under appeal before your Lordships' House. Mr Sher invited your Lordships to depart from the decision of the House on this point in National Westminster Bank plc v Morgan [1985] AC 686.

24 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 be 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."

14. Applying those principles, one turns to the facts of this case. Clearly the transaction was manifestly to the disadvantage of the defendant. She was not merely giving half of her rather small capital away effectively but she was putting her very home at risk. That is the sort of thing which calls for explanation. Was she in a position where she had placed trust and confidence in the claimant? Well, the relationship was a long-term relationship in the past and was foreseen to be a long-term relationship continuing into the indefinite future. She let him provide the legal advice via his solicitor, which is not the sort of thing that one would do if one was in an arm's length relationship.

15. I have no doubt whatever that this is the kind of case where, on the facts, a situation of possible undue influence arises. The District Judge seems to have rejected that. He never really gave any reasons of his own. He never asked himself "Why would she do this?" His judgment takes a curious form. After starting with an uncontroversial introduction, he sets out the law in fairly pithy form. He rightly said (a) that the burden of proof is on the person alleging undue influence but that that burden is shifted if the relationship is such that the defendant placed trust and confidence in the claimant -- he adds the words "in relation to management of her financial affairs"; (b) that the claimant exercised ascendancy and (c) the transaction is not readily explicable by the relationship be the parties. But he then goes on to deal with the evidence without deciding points in dispute. By and large what he does is just to copy out his notes of evidence. He did say this in the introduction:

"It is not surprising therefore that the parties differ in respect of some of their evidence and are unable to recollect some matters. After hearing and seeing the parties I am satisfied that neither of them has been dishonest when giving oral evidence before me. I am satisfied that both parties were trying to give an honest recollection of events."

But that is not good enough. There were conflicts of evidence which needed to be resolved. You can form the view that one party or both parties are honest, but you cannot form the view that they are both right when they are saying different things.

16. He then came to give his reasons for his judgment. By and large he does it by mere cross reference to the skeleton argument of the claimant's counsel. He does add this:

"However, for the avoidance of doubt, I find that there have been no overt acts of improper pressure or coercion on the part of the claimant..."

which is an odd thing because it was not the defendant's case that there had been any overt acts of improper pressure or coercion. He goes on to say:

"... and that the claimant did not acquire a measure of influence over the defendant or take any unfair advantage of her."

To justify this he then refers simply to Bevan Ashford's letter. He says:

"There is no doubt in my mind that the defendant knew that she was agreeing to give the claimant a half share in her property and willingly agreed to do so without any pressure or coercion..."

going back again to the idea that there had to be actual pressure or coercion. That is the totality of his judgment. It is perhaps not surprising that the defendant pressed him for more details, details which he refused to give. It is also somewhat odd that the District Judge refused to allow oral submissions after the evidence, although time had been set aside for that.

17. As I have already indicated, I have no doubt that the District Judge fell into error. He appeared to be looking for actual coercion. As regards his conclusion that this was a situation in which the claimant had not acquired a measure of influence over the defendant, I think he simply failed to understand the position. This was not the sort of case which, as Mr Paton suggested, happens every day, where a couple jointly buy a house together but one contributes more than the other and yet the house is put in joint names. For in this case the claimant was not going to be living in the house. It was a transaction which cried out for explanation other than going beyond merely a loving relationship. It is to my mind manifest that the claimant must have known that the transaction was to his advantage. He accepted that rather grudgingly in the evidence though again the District Judge made no actual finding. One remarkable piece of evidence that the claimant gave was that the value of the house had not been considered.

18. The truth is that this case is clearly analogous to the rather more well-settled kind of case of fiancées. If one goes to the very latest edition of Snell, 31st Edition, paragraph 8-26 one finds the following:

"Relationships between engaged couples have also traditionally given rise to the presumption of a relationship of influence on the basis that a young woman engaged to be married 'reposes the greatest confidence in her future husband; otherwise she would not marry him. In many, if not most, cases she would sign almost anything he put before her.' [That is a quotation from re: Lloyds Bank in 1931.] The presumption has been applied to substantial gifts or benefits provided by an intended wife for her intended husband even where the woman was no longer young."

That has a splendid 1930s redolence about it. This relationship was very much a modern equivalent of that sort of situation.

19. It was agreed that whether there is a presumption is a question of mixed fact and law. It is particularly not rebutted by simply saying that the defendant knew what she was doing, which appears to be what the District Judge thought was the right test. In a case of undue influence, the influencee (if that is the right word) will always know what he or she is doing; the question is why. Mr Paton showed us some cross-examination which he suggested showed that she was happy, years after the event, with the idea that there should be a joint ownership provided she had a right to live there for life. That to my mind is beside the point. The question is what the position was at the time. In particular was she in a position where, because of her vulnerability, financial and perhaps otherwise, she agreed to something which if she had been fully alert in her own interest and advised by an independent adviser she would not have done or may not have done. It is evident she never in fact realised the consequences of what she was doing at the time - that she might lose her house.

20. Once one comes to the conclusion that this is a case where the presumption of undue influence did come into play, then there really is nothing to rebut it. Mr Paton really did not seek to do so. As I have said, the heart of his position was that the presumption never came into place because this was simply an arrangement between two grown ups who knew what they were doing.

21. The upshot then is that I would set aside the transaction. But this is an equitable jurisdiction. The fact is that the claimant did pay money. He paid £5,000, or perhaps a little more, I am not sure, towards the payment off of the mortgage and he paid for some improvements. Mr Paton suggested he should accordingly have a proportionate share in the house worked out by some sort of mathematics involving the value of the house at the time when he made the payments. I do not think that is a suitable basis, not least because the basis upon which he got the transaction in the first place was that he would pay to keep up the improvements and the insurance and so on and he did not do so -- he did some of it but not all of it. I think the fairer way to deal with the matter is to regard the claimant as having made the defendant a loan; a loan to pay off the mortgage and a loan to pay for the improvements. The appropriate thing is that the transaction should be set aside on the basis that the notional loan with interest is repaid. This was a matter discussed with counsel. We may or may not have further argument on the question.

22. There is one other matter I should mention, and that is why was the matter before the District Judge at all? We were told that under the rules in force at the time, a multi- track case, even a small-ish one of this sort, could only go before a District Judge with the consent of the parties and they refuse the consent of the designated civil judge. What happened here was that shortly before the date which had been well fixed in advance for the hearing, the parties were told that they could have a hearing before a District Judge or the case would have to be adjourned. That was an unsatisfactory position. It forced the parties into extra costs and delay if they refused. They are over a barrel. It was particularly unfortunate to make the offer of trial by District Judge without an offer of compensation if it were rejected. The administration is very wary (perhaps too much so) of awarding compensation for not keeping a date which has been fixed but that is no basis for bringing undue pressure on the parties.

23. The rules, we were told, have now been changed. No longer is the parties' consent required before a multi-track case is placed before a District Judge; it requires simply the consent of the designated civil judge. All I would say is that a Designated Civil Judge, faced with a request to transfer a multi-track case to a District Judge, should consider carefully the nature of the case and the skills and experience of the possible District Judge before allowing a transfer. He should particularly not be influenced by pressure that there may be compensation to be paid if a fixed date cannot be complied with because no judge of appropriate level is available. In this case its very nature indicated that it may well not be suitable for a district judge. It was a case in which there were a number of contested facts and an area of law which is not all that usual (undue influence). Prima facie it was not a District Judge level case.

24. In the event, subject to appropriate terms, I would set aside the transaction and I would allow the appeal.

25. LORD JUSTICE GAGE: For the reasons given by my Lord, with which I agree, I too would allow this appeal. I only add one further comment. It seems to me that not only was this a case which was inappropriate to be allocated to a District Judge, but the District Judge was himself distinctly unwise to refuse to hear oral argument from the parties at the close of the evidence. Had he done so in the second day allocated to the case it may be that some of the difficulties and pitfalls that are evident in his judgment might have been avoided.

ORDER: Appeal allowed with costs on an indemnity basis from 21 days after 2nd September 2004; claimant to pay defendant's costs below; detailed assessment if not agreed; transfer of house set aside on condition that £30,000 is paid to the claimant; costs to be set off against sums to be paid and to be paid within 14 days of detailed assessment.