Vale v Armstrong & Anor

In this case the claimant Henry Thomas Vale (“Mr Vale”) seeks to set aside a transaction whereby he transferred to the first defendant Jason Armstrong (“Jason”), his great nephew, his house at 9 Foord Road, Lenham near Maidstone (“the property”) on the 12^th October 2001. The property is registered land and the transaction was completed by an appropriate transfer executed on behalf of Mr Vale by the second defendant, Terence Armstrong (“Mr Armstrong”), Jason’s father, in the exercise of an enduring power of attorney granted by Mr Vale to Mr Armstrong.

At the time of the transfer Mr Vale was a widower aged 78, his wife (“Mrs Vale”) having died on the 7^th June of the same year. The property had been purchased in the joint names of Mr and Mrs Vale from Mr Armstrong’s mother in law in 1993 when the Vales moved from their previous residence in council property in East London. The property was purchased by them for £60,000 with the assistance of a loan of £43,000 from the Catholic Building Society secured by a mortgage requiring them to pay instalments of interest only. It is not in issue that the beneficial interest in the property was held jointly by Mr and Mrs Vale and that, upon the death of Mrs Vale her beneficial interest vested in Mr Vale by survivorship.

Mr Vale having seen service in the RAF, latterly, before his retirement, worked as a painter and decorator. His wife was younger than him but for some years prior to her death suffered from severe arthritis making the performance of normal household tasks difficult. She could get about with the assistance of a stick and an invalid car provided to her by the medical authorities which Mr Vale himself drove and used. It is not in issue that Mrs Vale was a lady of strong character and that Mr Vale depended upon her to organise his financial and property affairs. After their retirement the Vales had no income save that which was due to them from State benefits. Mrs Vale’s death, therefore, reduced substantially the income available to Mr Vale. However, before the transfer, the bulk of the interest payments due under the mortgage of the property were paid by the DSS leaving Mr Vale to find just less than £19 to pay monthly. It is not suggested that this was an excessive burden upon him.

The defendants are in business as “entertainment agents” together with Mr Armstrong’s wife and younger son Scott. This business, in the fairly recent past was conducted through a network of companies, a parent and six subsidiaries, each subsidiary being responsible for the conduct of a particular aspect of the business. It is not in issue that currently only two of the companies are active. The defendants accept that business in recent years has been poor. Accounts for the parent company, Armstrong Multi-Media Arts Academy Ltd show it as making losses in the years of account for 2001, 2002 and 2003 of £10,060, £20,452 and £17,696 respectively. The figures for the only active subsidiary, Armstrong Academy Artist Management Ltd, show a loss of £179 in 2002 and £709 in 2003. Earlier accounts are not available for this company. When questioned about the business over the last three years Jason accepted that it was substantially conducted in cash and that he and his father took payment from the business informally from which ever of the companies happened to have money available at the relevant time. He was unclear whether they were to be treated as employees of the companies and was unable to give me any, even approximate figures for what his earnings were over the last three years.

It was Mr Armstrong’s evidence that he had a close connection with Mrs Vale whom he regarded as a favourite aunt. By his family he was regarded as the most capable member and the one with the money to whom other family members looked for assistance. He assisted the Vales in their move to Lenham but after that only had limited contact with them on the odd family occasion. However it was his evidence that when Mrs Vale fell ill she asked him to keep an eye on her husband should she pre-decease him.

Mrs Vale was Mr Vale’s second wife. He had five children by a previous marriage and one daughter, Dawn, by his marriage to Mrs Vale. It does not seem that any of these children were either willing or able financially to give much assistance to their parents. It is not in issue that the death of Mrs Vale came as a considerable shock to Mr Vale. Initially all are agreed that it disoriented him. Mr Armstrong attended the funeral at which he was approached, he says, by Mr Vale and his daughter Dawn to ask for assistance in meeting the expenses of the property and other living expenses. He says at that stage he did not offer assistance. Paragraph 23 of Mr Armstrong’s main witness statement reads as follows:-

“In or around late June early July 2001, Mr Vale contacted me in a distressed state to explain he could not cope at the property and was especially finding it hard to meet the mortgage payments and other outgoings on the property. Jason and I knew from the few visits we had made to the property since the Vales took occupation that it was in a filthy state and poor condition. Mr Vale spoke openly about having contemplated suicide because of his predicament. In particular he asked me if I could help him with the mortgage payments. Mr Vale said his children by his first marriage would not assist him presumably because of his second marriage to Lillian [Mrs Vale] and his subsequent problems on the council estate in the East End. Mr Vale said his daughter by his second marriage, Dawn, was not in a financial position to help which in Mr Vale’s opinion left him with just my family to ask for help… .”

Although there are issues between the parties as to precisely what then happened with relation to the property it is common ground that consequent on his wife’s death, Mr Vale was concerned that he would not be able to service the mortgage and pay for its upkeep. What he wanted was to be relieved of those requirements but nonetheless have a secure right to live in the property for the remainder of his life or for such time as he wished to remain there.

Not long after the funeral Mr Vale approached Mr Armstrong with a view to Mr Armstrong purchasing the house from him at a discounted price but subject to Mr Armstrong agreeing to his having a right to continue to occupy the house free of charge for life. It was Mr Vale’s evidence that he had been encouraged to do this by his wife before her death. It is common ground that Mr Armstrong declined the offer but subsequently Jason became the purchaser of the house upon terms and in the circumstances which I will describe.

There is an issue between the parties whether the property was offered to Jason on the initiative of Mr Vale without any suggestion or encouragement from Mr Armstrong. Mr Armstrong accepts that he told Jason of the offer to him but denies that he was in any way instrumental in Jason offering to buy the property. There is also an issue whether Mr Vale’s daughter Dawn joined in offering the property for sale first to Mr Armstrong and then to Jason. Both she and Mr Vale deny that she did. In any event it is common ground that their conclusion was that Mr Vale agreed that he would transfer the property, which had been valued at £88,000 to Jason in consideration of Jason taking over liability on the mortgage for £43,000 and promising to permit Mr Vale to remain in the house free of any charge for the remainder of his life if he wished to do so.

It is also common ground that Mr Vale entrusted Mr Armstrong with the task of putting these arrangements into effect. There was in evidence a document dated the 29^th July 2001 which Mr Armstrong accepted that he prepared and typed, signed by Mr Vale, which reads:-

“To whom it may concern

Please accept this as my confirmation my nephew Mr Terry Armstrong has the (sic) Enduring Power of Attorney in connection with the sale of my property, 9 Foord Road Lenham Kent ME17 2QN”.

On the 1^st August 2001 Jason applied to the Halifax for a mortgage advance to assist in his purchase of the property. His application form shows that he valued the property at £90,000 and that he would be using £43,000 of any loan to pay for it. He answered the question posed by the form “will you personally only use the property for residential purposes immediately after you enter into the mortgage?” – “yes.” He answered the question on the form under the heading of “occupation of property” – “if there is anyone aged 17 or over who will not be entering into the mortgage but who will live at the property with you, please give their full name (and present address if different from your own). Anyone aged over 18 when you enter into the mortgage will have to sign our consent to mortgage form. …” – “N/A” i.e. not applicable. In cross-examination Jason accepted that at the time he filled in the form he knew these answers to be false. In the result the Halifax offered Jason and he accepted a loan of £49,750 of which £43,000 was used to discharge Mr Vale’s mortgage from the Catholic Building Society.

Jason instructed Messrs Roderick O’Driscoll and Partners to handle the conveyance to him of the property on his behalf. The whole of their conveyancing file in respect of the transaction was in evidence. They were also instructed by the Halifax for the purpose of completing the new mortgage. On that file was a valuation by the Halifax, resulting from an inspection of the property on the 9^th August, valuing the property at £88,000. Under the heading “matters for your conveyancer” appears the comment:-

“At inspection, the property was occupied by a person who is understood to be a relative of the applicant. The valuation assumes a sound freehold title with full vacant possession.”

It appears that, because the property was being sold at an undervalue, it was thought necessary that Mr Vale should obtain the independent advice of a solicitor as to the consequences of the transaction he was proposing to enter into. For that purpose a Mr Duce of Messrs Dundas & Duce, solicitors, was approached by an independent financial advisor known to Mr Armstrong. The name of the advisor was Mr Alner. Mr Duce gave evidence for the defendants under subpoena. Before the court was Mr Duce’s notes of his introductory conversation with Mr Alner. It is accepted that this took place on the 15^th August. Mr Duce was previously unknown either to Mr Vale or the defendants. The note records that the transaction in respect of which advice was sought was a sale of the property valued at £90,000 for a price of £43,000 and that it was a “family arrangement”. The purchaser is shown as Jason instructing Messrs O’Driscoll. The vendor is incorrectly shown as Harold Vale and records that “Harold to remain at property”. This is the only documentary record in evidence of the intention to confer on Mr Vale a right to remain in the property after transfer. The notes also contain the words “send to Terry Armstrong – attorney” followed by Mr Armstrong’s address. This appears to indicate that Mr Duce was told that Mr Armstrong was Mr Vale’s attorney to whom he should communicate.

On the 15^th August Mr Duce wrote to Mr Vale confirming his acceptance of Mr Vale’s instructions “in connection with the sale of your property”. Enclosing a “property information form” for completion. In its penultimate paragraph the letter reads:-

“Whilst I understand the value of the property is £90,000, I understand that the actual price of the property to be sold is £43,000 and that the purchaser, namely Jason Armstrong is a relative of yours. I also understand you have provided Mr Terry Armstrong with an enduring power of attorney.”

On the 16^th August Mr Vale returned that form completed though not in his writing, and signed. Under the heading “Any other relevant information” he records giving Mr Armstrong an attorney but makes no mention of any right to remain in the property after transfer.

On the 18^th August the Halifax made their mortgage offer to Jason which he accepted. At special condition number 5 appears the term:-

“5.

When you enter into the mortgage no one else must be living in the property or have any right to live in it.”

That requirement was repeated in the Halifax instructions to Messrs O’Driscoll to complete the transaction on their behalf.

On the 20^th August Mr Duce wrote to Mr Armstrong asking for a copy of the power of attorney. This was sent on the 21^st August and he wrote back on the 28^th August pointing out that it was ineffective and asking whether Mr Armstrong “would kindly contact me as soon as possible so that we can attend to the preparation of the prescribed form for Mr Vale to sign”. Mr Armstrong responded by e-mail:-

“Please be so kind as to prepare the necessary documents as soon as possible. I can arrange for them to be collected from your office, signed by Mr Vale and returned to you.”

In the result, however, Mr Vale executed an enduring power of attorney in proper form appointing Mr Armstrong “to be my attorney for the purpose of the Enduring Powers of Attorney Act 1985” in relation to “all my property and affairs” in the course of a visit to Dundas & Duce accompanied by Mr Armstrong on the 3^rd September.

In the course of cross-examination Mr Armstrong accepted that he had not originally intended to take Mr Vale to see Mr Duce, as his e-mail to Mr Duce of the 29^th August illustrates, but did so on the insistence of Mr Duce. Mr Duce’s notes of his interview with Mr Vale on the 3^rd September were in evidence. They record that Mr Vale came with Mr Armstrong to Dundas & Duce’s offices on that day but that Mr Duce interviewed Mr Vale alone. It was Mr Vale’s evidence that his interview with Mr Duce lasted approximately five minutes and that the solicitor in the course of the interview, told him that he “was turning all my assets over to Jason – that was fine with me because Terry had told me I would be able to live in the house for the rest of my life rent free and they would do it up”. Mr Vale’s recollection was that Mr Duce spent most of the interview explaining the effect of the power of attorney. Mr Duce’s notes record that he “prepared enduring power of attorney and went through it with Mr Vale – I satisfied he understood terms of power and was happy for Mr Armstrong to sign on his behalf - discussed deal with Mr Vale and I satisfied he understood that he selling property at undervalue.”

Mr Duce gave evidence under subpoena and was cross-examined. He said that the interview lasted between 20 – 30 minutes in the course of which he completed and explained the effect of the power of attorney and also went through with Mr Vale the transaction of sale of the property to Jason for the purpose of the completion of which Mr Armstrong was to be constituted his attorney. He said that he appreciated that Mr Vale’s object was to obtain a secure home for the rest of his life for which he would not have to pay rent or other outgoings. It was his impression, by the end of the interview, that Mr Vale understood what was to take place and was content to permit the transaction to proceed.

Mr Duce was cross examined by reference to the guidelines for solicitors prepared by the Law Societies Mental Health and Disabilities subcommittee in 1995 and which is published in, amongst other places the most recent edition of Cordery on Solicitors. He did not recollect having seen this document but thought he had seen something like it. He did not have at his office a copy of Cordery. When the passage at paragraph 6 of the guidelines, which records that “if the client is not already known to the solicitor, it may be necessary to spend some time with the client talking about wider issues, in order to get to know him or her, to be clear about the family circumstances and also to assess whether the client has the mental capacity to make the gift…” Mr Duce accepted that he could not recall having had any discussion with Mr Vale about his background and family, in particular he was not aware that Mr Vale had recently lost his wife. He accepted that it did not cross his mind that Mr Vale’s right to occupy the property cost free for the rest of his life should be recorded in a contractual document in which those rights were acknowledged by Jason and which would be capable of registration. He thought Mr Vale’s rights adequately protected by his oral agreement with Jason which would constitute an overriding interest in the property of which any future transferees or mortgages would have notice by reason of his occupation. He was driven to accept that Mr Vale’s rights under his oral agreement with Jason were subject to the mortgage to the Halifax and that he was therefore at risk of being removed if Jason failed to keep up the payments of the instalments of the mortgage. Although he did not positively remember doing so Mr Duce thought that he would have drawn to Mr Vale’s attention the difficulties which might arise were Jason to become bankrupt or attempt to raise money from re-mortgaging the property in the future. He accepted that he did not know and did not enquire what Mr Vale’s current obligations under the mortgage were. He accepted that he did not appreciate that, as things stood, the Benefits Agency were paying the bulk of the mortgage interest leaving Mr Vale to pay approximately £19 monthly and that, had he appreciated this, it would have made a difference to his advice. He accepted that there was no discussion with Mr Vale of any alternatives to the transaction in contemplation by which Mr Vale could achieve his objective. His discussion did not enable him to evaluate what Mr Vale’s expertise and experience was in property matters.

In the result Mr Vale executed the power of attorney at the meeting and his signature was witnessed by Mr Duce. Mr Armstrong also executed the attorney under the words “I also understand my limited power to use the donor’s property to benefit persons other than the donor.”

On the 13^th September Messrs O’Driscoll reported to the Halifax that the transaction was not at market value and between family members and on the 17^th September the Halifax acknowledged this. On the 8^th October Messrs O’Driscoll gave to the Halifax a clear certificate of title to the property. Mr Thornewell is a legal executive at the firm which now incorporates Roderick O’Driscoll and partners. It was he who had conduct of the matter on behalf both of Jason and of the Halifax. He was called as a witness by the defendants and was cross-examined. In the course of his cross-examination he said that his firm was able to give a clear certificate of title to the property to the Halifax notwithstanding the report of the Halifax valuers of the 9^th August drawing attention to the fact that the property was occupied “by a person who is understood to be a relative of the applicant”. It was Mr Thornewell’s evidence that this certificate was given because the contract provided for a sale with vacant possession and because Jason told him that his uncle would be moving out before completion. Had he not received these assurances Mr Vale would have been required to sign a priority agreement ceding priority over his right of occupation to the Halifax before the Halifax would have been prepared to advance any money on security of the property. Notwithstanding that Mr Thornewell was the defendants’ witness I permitted them to challenge his evidence on this point. I have no doubt that I should accept Mr Thornewell’s evidence in full. In particular I accept his evidence that he had considerable experience acting for building societies in transactions such as this and what his habitual practice was when so acting.

It appears from Mr Thornewell’s attendance note of the 2^nd October of a conversation with Jason that it was planned that exchange of contracts and completion should take place on the same day. From Dundas & Duce letter of the 4^th October to Messrs O’Driscoll it appears that that day was fixed to be the 12^th October. In the interim a simple form of contract had been agreed which identified the seller as Mr Vale, the buyer as Jason, the property and the price of £43,000 and which was subject to standard terms and conditions. The contract contains no term conferring any right of occupation on Mr Vale after transfer.

It seems that before the date for completion a copy of the contract was sent to Mr Armstrong for approval and he obtained Mr Vale’s signature upon it notwithstanding that his power of attorney would have enabled him to sign it on Mr Vale’s behalf. From a hand written note on the contract signed by Mr Vale it seems that exchange took place at 12:35 on the 12^th October. It was Mr Duce’s evidence that he would not have exchanged contracts without the express authorisation of his client to do so and he obtained that authorisation from Mr Armstrong. The transfer of the property from Mr Vale to Jason is executed by Mr Armstrong in the exercise in his power of attorney and his signature is witnessed by a member of Mr Duce’s staff. The transfer is dated the 12^th October. I do not think it is in issue that Mr Armstrong attended at the offices of Messrs Dundas & Duce on the 12^th October and that he then authorised exchange of contracts and signed the transfer which transferred the property. If there is any issue on this point then I am satisfied that that is what took place.

On the 18^th October Jason was registered as proprietor of the property. On the 3^rd November, less than a month later Jason applied to Birmingham Midshires to re-mortgage the property for the purpose of obtaining an advance of £70,000 part of which sum would discharge his mortgage to the Halifax. This application repeated the knowing misrepresentations as to the occupation of the property which had appeared in Jason’s application to the Halifax. Mr Vale continued to occupy the property. Jason’s application was approved by the building society and completed on the 20^th December. It is not suggested that Mr Vale was told that this was happening.

Meanwhile on the 15^th November a letter signed by Mr Vale was sent to the Benefits Agency as if from the property. This letter represented that Mr Vale had sold the property but was continuing to live there paying a rent of £100 per week to Jason, being his landlord. The letter sought to persuade the Benefits Agency to pay Mr Vale’s rent now that they had ceased to have to meet the bulk of the interest payable by Mr Vale to the Catholic Building Society. This letter appears to have been written in consequence of a request by Mr Voice of SSAFA who had been responsible for supervising benefits paid by that organisation to Mr Vale. Mr Armstrong accepted in cross-examination that he had drafted and typed the letter and obtained Mr Vale’s signature on it. He also accepted that the representation that Mr Vale was paying rent was untrue and an attempt to deceive the Benefits Agency into making housing subsidy payments in respect of that rent, presumably, direct to Jason whose address is given in the letter.

It seems that the Benefits agency were not responsible for making housing subsidy payments and so on the 13^th December Jason wrote to Maidstone Borough Council informing them of the transaction involving repayment of the Catholic Building Society but that Mr Vale remained in occupation of the Property as the Armstrong’s tenant paying a rent. The letter concludes:-

“We hope Mr Vale can stay on at the house he shared with his wife, now deceased, as a tenant contributing a rent of £100 a week. In the event this arrangement cannot be agreed for whatever reason Mr Vale will need to seek alternative accommodation.”

This letter was accompanied by a housing benefit claim form, signed by Mr Vale which asked for payments of benefit be made direct “to landlord”, that is Jason.

In cross-examination Jason accepted that this was untrue and a deception designed to persuade the council to contribute to Mr Vale’s alleged rent to avoid the expense of having to place him in sheltered accommodation.

On the 25^th January 2002 Mr Armstrong wrote a further letter to Maidstone Borough council consequent on their seeking further information from Jason before paying housing benefit. This is an important letter and I will set it out in full. It is headed “Housing Benefit Mr H Vale 9 Foord Road Lenham” it then continues:-

“Your letter of the 22^nd inst has been passed to me by my son Jason Armstrong.

Mr Harry Vale is my uncle by marriage to my aunt Lilly who passed away in June last year. Lilly was my last remaining close relative and I miss her dearly. At her funeral Harry was distraught and confided he felt that I was the only person he could rely on. Understandably his sorrow at the loss of his wife was immense but his sense of despair was reinforced by his fear of being unable to meet his financial commitments, a function his wife controlled and managed during their marriage. His greatest fear was indeed the repossession of the house because with Lilly gone insufficient income would be forthcoming to meet the mortgage repayments which I believed to be the case, so I embarked upon a course of action to prevent the repossession of the house.

Not being in a position to take on another mortgage myself I approached my son Jason who lives with us at home to take out a mortgage on the property in order to settle the outstanding debt and remove the liability from Harry. Obviously Jason was reticent but I reasoned with him to view the transaction as an investment for the future and assured him to the best of my knowledge Harry would be entitled to some financial help in terms of housing benefit to assist him in meeting the ongoing financial commitment.

Unfortunately the property is in an extremely poor condition having little or no maintenance over several years and requires extensive refurbishment work to be executed in almost every aspect from the roof to replacement carpets and furniture.

My aunt was in very poor health and confined to her bed in the latter years and Harry was unable to cope. These are fundamental facts which I trust will be endorsed by representatives of SAFFA [sic] who have been enormous help to Harry following his loss. Without financial help from the council housing benefit scheme Harry is unable to contribute to the cost involved and regretfully this places my son in the unfortunate position of having difficulties in meeting the mortgage repayments on the property and necessitating the immediate sale of the property which is being organised.

Accordingly please arrange alternative accommodation for Mr Harry Vale as a matter of urgency to avoid hardship and unnecessary suffering. I deeply regret the outcome of my trying to help but having no experience in these matters I did my best.”

I note that this letter accords reasonably closely with Mr Vale’s account of the circumstances in which he came to agree to sell the property to Jason. No attempt was made by the Armstrongs to justify this letter which they sought to categorise as invention designed to deceive the Borough Council. I agree that the letter was designed to deceive but I am far from satisfied that parts of it, in particular the description of the state of Mr Vale after the death of his wife, do not represent the truth.

It is common ground that in October 2002 the Armstrongs approached Mr Vale with a request that he vacate the property. I will return to this request and the reasons for it later in this judgment. Suffice it to say that this request induced Mr Vale to consult solicitors who, on the 20^th December, registered a caution against the property. On the 19^th December Messrs Kingsfords on behalf of Mr Vale wrote to Mr Armstrong a letter in which they contend that the transfer to Jason of the property by Mr Vale should be set aside on the ground of undue influence.

Notwithstanding this letter, on the following day, Jason applied to the Birmingham Midshires for a further advance of £70,000 secured by the mortgage on the property. Again the application deliberately, as Jason accepted, concealed Mr Vale’s occupation of the property. It appears, however, that the building society got to know of Mr Vale’s occupation because on the 6^th January they wrote to Mr Vale suggesting that he held a second charge on the property and asking for him to sign a priority agreement as a condition of making a further advance. Mr Vale was persuaded, as he says by the Armstrongs, to sign such a priority agreement on the 9^th January with the result that the building society made an offer to Jason of a further advance of £43,358 which he accepted. From that sum, on the 14^th February, £20,000 was paid by Jason to the credit of family trading companies and £10,000 directly to Mr Armstrong and his wife, according to his evidence, to pay off indebtedness to them. Mr Vale had not told his solicitors of his signature of the priority agreement because on the 21^st February they wrote to Birmingham Midshires objecting to any further advance being made to Jason and were answered by the production of the agreement signed by Mr Vale. On the 3^rd March these proceedings were commenced and a freezing injunction obtained against Jason which was followed by a freezing injunction against Mr Armstrong on the 13^th March though that was subsequently discharged.

On the 18^th April 2003, during the night while Mr Vale was sleeping in the property, it was vandalised and also his car parked outside. What was done was the painting of graffiti on the building and the car. The graffiti suggested abhorrent behaviour by the occupier.

I return to the reasons why the Armstrongs suggested to Mr Vale in October 2002 that he vacate the property. The defendants alleged that Mr Vale had a tendency towards sexual perversion and child pornography. It played a prominent part in the case they presented. They alleged that one of the causes for the Vales leaving East London and coming to live at Lenham was their neighbours reaction to such behaviour by Mr Vale. The explanation for their seeking to make Mr Vale leave the property in October 2002 was the alleged discovery by them, in the course of a visit to the property to trim the boundary hedge of the garden, of pornographic material in Mr Vale’s bedroom. Mr Vale accepts that there have been complaints but denies any such conduct. He has never been convicted of any offence of such nature or been arrested because of complaints. Nonetheless, because of the vandalism at the property in April 2003 Mr Vale took the decision to leave and not to return and he now lives elsewhere. Since I take the view that the allegations of this type made in the course of the proceedings have no relevance to the issues which I have to decide I have not investigated them, so far as it was open to me to do so, and I make no findings about them. I have also sought to put the allegations and the making of them from my mind in coming to the conclusions which I have reached. It was the defendants’ case that this alleged behaviour justified their treating the arrangement between Jason and Mr Vale as to the future occupation of the property as being at an end. In my judgment that was a fallacy even if the allegations were proved.

When these proceedings started the defendants were represented by solicitors who continued to act for them until shortly before the hearing when they parted company for reasons which have not been explained to me. Accordingly, although the case had been fully prepared on paper by solicitors for the defendants, when the hearing started the two defendants appeared in person and continued to do so while all the oral evidence was taken. At the conclusion of the oral evidence the claimant put in a further written submission to reflect a change in the way he was putting his case as a result of the late production by the defendants of the contract signed by Mr Vale and dated 12^th October 2001. The hearing was then adjourned on the morning of Friday 30^th April 2004 to be resumed for closing submissions on Tuesday 4^th May. The defendants took the opportunity over that weekend to instruct solicitors and counsel and accordingly on the 4^th May Mr Learmonth appeared to make closing submissions on the defendants’ behalf. He was handicapped by having to rely on his lay clients for their recollection of how the oral evidence of the various witnesses was given. Nonetheless he was able to make helpful submissions, primarily of law, based on the pleadings, affidavits and witness statements and his clients instructions.

Mr Bartlett for the claimant in opening sought to have the transfer set aside on three grounds. These were:-

In agreement with the submissions of Mr Learmonth it seems to me that the first two ways in which Mr Bartlett seeks to attack the transaction depend on his being successful on the third way in which he puts his case. If the contract between Mr Vale and Jason, subject to the oral agreement, was, at the time of the transfer pursuant to it, an enforceable contract it cannot have been a breach of Mr Armstrong’s fiduciary or statutory duties to use his authority and power of attorney over the whole of Mr Vale’s property to put that contract into effect. Accordingly it seems to me that the result of this case turns on whether Mr Vale can succeed in an attack on the transaction as being entered into by him as a result of the undue influence of Mr Armstrong.

The principles of law guiding the courts in the exercise of their equitable jurisdiction to set aside transactions which have been brought about by the exercise of undue influence on a party to such transaction, are now to be found in the speech of Lord Nicholls in the decision of the House of Lords in Royal Bank of Scotland plc v Etridge (No 2) 2002 2 AC 773. In that case the House of Lords was considering 7 separate appeals in which the undue influence alleged had been exercised by one spouse usually a husband on the other to commit her free assets in his support. In this case we are not concerned with facts of that kind which presented the House of Lords with peculiar problems which do not arise here. Lord Nichols, however, dealt with the subject of undue influence broadly. At paragraph 6 of the report he is recorded as saying this:-

“6

The issues raised by these appeals make it necessary to go back to first principles. Undue influence is one of the grounds of relief developed by the courts of equity as a court of conscience. The objective is to ensure that the influence of one person over another is not abused. In everyday life people constantly seek to influence the decisions of others. They seek to persuade those with whom they are dealing to enter into transactions, whether great or small. The law has set limits to the means properly employable for this purpose….

7

…The means used is regarded as an exercise of improper or “undue” influence, and hence unacceptable, whenever the consent thus procured ought not fairly to be treated as the expression of a person's free will.

8

Equity identified broadly two forms of unacceptable conduct. The first comprises overt acts of improper pressure or coercion such as unlawful threats… 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….

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…

11

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…

12

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.

Burden of proof and presumptions

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.

14.

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.

Independent advice

20.

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.

Manifest disadvantage

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.

26.

Lord Scarman attached the label “manifest disadvantage” to this second ingredient necessary to raise the presumption. This label has been causing difficulty. It may be apt enough when applied to straightforward transactions such as a substantial gift or a sale at an undervalue. But experience has now shown that this expression can give rise to misunderstanding.”

Lord Nichols went on to show how that misunderstanding particularly tended to arise in husband and wife cases. Since this is not such a case I will use the phrase “manifest disadvantage” as shorthand for the second requirement necessary to shift the burden of proof from the claimant seeking to impugn a transaction for undue influence to the defendant seeking to uphold it.

It is the case advanced for Mr Vale that, prior to the transaction in question being entered into, there had been established between Mr Vale and Mr Armstrong a relationship whereby Mr Vale “reposed trust and confidence” in Mr Armstrong to so arrange his affairs so that he should be relieved from the financial burden of keeping up his mortgage payments and paying for the upkeep and other outgoings relating to his occupation of the property in a manner which best served his, Mr Vale’s, best interests. Accordingly Mr Vale left to Mr Armstrong the arrangement of his affairs without fully comprehending and so giving informed assent to what was done, trusting that Mr Armstrong would not take advantage of him. By contrast it is the defendant’s case that Mr Vale fully understood the transaction, proposed and approved of it, and cooperated fully with its being carried out and the events which succeeded the transfer including, in particular, the concealment of his occupation of the property from the Halifax and the Birmingham Midshires and the attempt to persuade the Benefits Agency and the Maidstone Borough Council to pay housing benefit to Jason in respect of a non-existent rent liability.

I have no doubt that I should accept Mr Vale’s case on this issue. Coupled with the evidence of Mrs Morrison on the state of her father in the months that followed her mother’s death there is the description of his state of mind contained in the first full paragraph of the letter of the 25^th January 2002 written by Mr Armstrong to the Benefits manager of the Maidstone Borough Council. Mr Armstrong attempted to explain the contents of this letter as moonshine to deceive the Borough Council in which Mr Vale participated but I can see no reason, even for that purpose, to have misrepresented Mr Vale’s state of mind and anxieties following his wife’s death. In addition there is the fact of the two powers of attorney, one informal and ineffective, the other effective entered into by Mr Vale as donor in favour of Mr Armstrong of the 29^th July and 3^rd September 2001 respectively, the former expressed to be “in connection with the sale of my property 9 Foord Rd” the latter to extend over “all my property and affairs.” It matters not that the proposed transactions may have been discussed between Mr Vale and Mr Armstrong before the powers of attorney were given. They are indicative of a pre-existing relationship.

Mr Vale gave evidence in the course of the hearing and I was able to form a view of his capacity to understand property transactions. I have to remind myself that Mr Vale has aged by more than two years since October 2001 when he was 78 years old. The impression I formed of him is of somebody who could not be written off as stupid and entirely incapable, but I would accept Mr Bartlett’s submission that it appeared to be a considerable struggle for him to understand the basic features of any legal document or transaction but that:-

“In Court when taken slowly through a document such as the contract of sale he was able to understand correctly its main features. The situation in the witness box is quite different to what happens in real life. A person who has severe difficulties in understanding matters of this kind will if left to themselves simply give up. If there is a person whom they trust and believe to have business experience they will readily leave it to that person to do what is best for them. ”

I will return shortly to the question of whether the oral agreement between Mr Vale and Jason gave Mr Vale a secure right to occupy the property after the transfer. However I very much doubt that Mr Vale had sufficient capacity to measure the security which his arrangements with Jason gave him in his occupation of the property even when those arrangements were explained to him patiently by a lawyer.

I turn to the second requirement which must be established before the burden of proof of undue influence shifts to the defendants, namely, that he transaction was manifestly to the disadvantage of the Mr Vale, and, “not readily explicable by the relationship of the parties”. Contrary to the submissions of Mr Learmonth, in my view, the authorities on this question and, in particular the extracts from the speech of Lord Nicholls, which I have set out above, can only be read as prescribing that the test of the existence of manifest disadvantage is an objective test, having regard to the parties, to the transaction, their respective circumstances and the surrounding facts, against the background of which the impugned transaction was arranged and entered into.

At this point I remind myself that although Mr Vale was married to Mr Armstrong’s aunt there is no evidence of real friendship between them. Mr Vale hardly knew Jason.

Mr Vale’s objective from the moment of his approach to Mr Armstrong after the death of his wife was to achieve a secure right to occupy the property, relieved of the mortgage instalments to the Catholic Building Society, rent free and free also of any expenses of maintenance or refurbishment or other expenses referable to his occupation. To achieve this he had effectively to give away to Jason his only asset of any substance namely the equity of redemption of the property, valued at the date of transfer at £45,000. It seems clear that the arrangement for Mr Vale’s future occupation of the property was never reduced into writing. No such document appears amongst the evidence none of the witnesses suggest that such a document ever had existed. At times Mr Vale appeared to be suggesting that the arrangement extended to the payment of his utility bills and even Council Tax. Be that as it may it seems to me that I should proceed on this part of the case on the basis that by the oral arrangement between Mr Vale and Jason, Jason orally bound himself to permit Mr Vale to occupy the property on the terms that Mr Vale appears to have expected.

It appears to me that the transaction suffered from three principal disadvantages so far as Mr Vale was concerned. The first disadvantage related to the security of Mr Vale’s continued occupation of the property. Assuming that Mr Vale was capable of demonstrating the existence of Jason’s oral contract with him, the rights conferred by that contract would be protected as overriding interests in the property pursuant to section 70(1)(g) of the Land Registration Act 1925. The property was registered land of which Mr Vale was in actual occupation. For the purposes of this judgment, therefore, and in the absence of Birmingham Midshires to contend to the contrary, Mr Vale was safe from being removed by any subsequent mortgagees of the property in whose favour he had not entered into a priority agreement which, in the end he appears quixotically to have done. It is however far from clear that his occupation of the property could not have been determined by the Halifax in the event that Jason failed to keep up the mortgage instalments of the Halifax’s mortgage. True it is, as Mr Learmonth pointed out, that Mr Vale was in occupation of the property at the time that the Halifax mortgage was completed albeit unbeknownst to the Halifax. However Mr Vale must have known that Jason was paying off Mr Vale’s mortgage to the Catholic Building Society by entering into a new mortgage of the property and applying at least part of the proceeds of that mortgage to paying off Mr Vale’s own mortgage. It seems to me that because the proceeds of the Halifax mortgage were used to discharge the Catholic Building Society’s mortgage, as against Mr Vale, the Halifax would be entitled to contend that they were subrogated to the rights of the Catholic Building Society who undoubtedly had been in a position to remove Mr Vale were payments of the instalments on their mortgage not maintained. That this situation may not have been appreciated by the Armstrongs and can be said not to have been “their fault” is immaterial.

Secondly Mr Vale was committing his only substantial asset to purchase a right to occupy the property for life. At the time of the transaction he was 78 years old and it was entirely possible that circumstances, such as illness or incapacity, might, in the future, require him to live elsewhere. He would have nothing with which to finance such a move. If such an event occurred quickly he would have got little value out of his investment of £45,000. Thirdly the success of the transaction so far as Mr Vale was concerned would depend, very largely, on a reasonably cooperative relationship between him and Jason. The absence of any written record of the full arrangement between them is very relevant to this point.

These disadvantages must be viewed against the fact that at the time of the transfer Mr Vale was receiving housing benefit which relieved him of all but £19 of the monthly mortgage instalments to the Catholic Building Society and no one has suggested that that subsidy would not have continued had Mr Vale not transferred the property to Jason. There was no evidence of what could be expected to be the annual outgoings on the property in respect of repairs and refurbishments in any year. Equally there was no evidence of what further State or charitable benefits might have been available to Mr Vale to assist with meeting those outgoings. It appears to be the case that Jason accompanied Mr Vale in a visit to the Benefits office during July of 2001 and so before the transfer. It is not clear precisely what support was being sought by them and for whom. Suffice it to say that Mr Vale’s housing benefit continued to be paid thereafter down to the date of the transfer. There were undoubtedly alternatives to the transaction, sale of the property using the nett proceeds to acquire a smaller more manageable house; equity release; sale and moving to smaller rented accommodation.

The first two principal disadvantages to the transaction which I have set out above are reminiscent of those which persuaded Lord Nicholls then The Vice Chancellor in Cheese v Thomas [1994] 1 WLR 129 to conclude that the transaction in that case, entered into by the claimant was manifestly disadvantageous to him, see page 133 of the report. In my judgment the transaction in question in the present case was manifestly disadvantageous to Mr Vale. Accordingly the burden of proof shifts to the defendants to justify the transaction as not having been brought about as a result of their undue influence.

It is the defendant’s case that there is ample material from which that presumption can be rebutted.

It is first said that the whole transaction was Mr Vale’s idea acting on his wife’s suggestion before her death and it is not in issue that the first approach was made by Mr Vale to Mr Armstrong after her funeral. I accept and prefer Mr Vale and Mrs Morrison’s account of how the transaction thereafter emerged to that of the Armstrongs. Mr Vale’s account was that when he suggested to Mr Armstrong that Mr Armstrong should buy the property from him leaving him to live there for the rest of his life, Mr Armstrong after thinking about it, told him that he could not do so because of his existing mortgage commitments but suggested and arranged that the purchase should be made by his son Jason. It was Mr Armstrong who suggested that Mr Vale give him an enduring power of attorney which Mr Vale did. It was not Mr Armstrong’s initial intention that Mr Vale see a solicitor before executing the attorney. The Armstrongs’ account is entirely inconsistent with the letter written by Mr Armstrong to Maidstone Borough Council of 25^th January 2002 and their explanation for this inconsistency is unacceptable. I further accept that, after executing the attorney on the 3^rd September, Mr Vale played little part in the arrangements for the transfer. He accepts he signed the contract of the 12^th October probably before that date. He could not remember having done so and the production of the document by late disclosure in the middle of the hearing took him by surprise.

I do not accept, as submitted on behalf of the defendants that “the impugned transaction, in every respect, was conceived by Mr Vale (and his late wife).” In particular I do not accept that he, at any stage, realised how vulnerable his future occupation of the property was. Anybody who had any ability at all to understand legal documentation would surely have noticed, when signing the contract, that Mr Vale’s primary objective of being able to occupy the property cost free, was not mentioned in it. In my judgment the fact that the outline idea of the transaction was initially suggested by Mr Vale to Mr Armstrong does not operate to rebut a presumption of undue influence in persuading Mr Vale to accept the transaction which ultimately emerged. It would have been perfectly possible to have set up a transaction involving a sale of the property to Jason at an undervalue subject to a right of lifetime occupation by Mr Vale on terms which were not manifestly disadvantageous to him.

The defendants place much reliance on the admitted fact that in July 2001, before the transfer, Jason accompanied Mr Vale on a visit to the benefits agency. It is wholly unclear from the written evidence what the purpose of this visit was and what it was that the agency refused to subsidise if they actually did refuse something. Mr Vale was not cross-examined about this incident. Jason’s later dealings with the welfare authorities do not inspire confidence that this visit was intended to explore the possibilities of obtaining an increase in benefit as an alternative to the transaction which emerged.

It is then submitted that the fact that Mr Vale was advised by a solicitor in relation to the transaction, which solicitor has given evidence that he appeared to be content to go ahead with it, is sufficient evidence that he understood and was content with what was to happen. I have set out above an extract from the speech of Lord Nichols in the Etridge case from which it emerges that it by no means follows that prior legal advice rebuts the presumption. It all depends on the quality of that advice and, even if that advice can be shown to have been properly directed to the transaction and what was at stake in embarking upon it, does not necessarily negative undue influence.

I have already set out what I regard as the weaknesses in the advice given by Mr Duce to Mr Vale during their interview on the 3^rd September. Reviewing his account of that interview it is clear, in my judgment, that he failed to bring home to Mr Vale the insecurity of his future occupation of the property if he proceeded with the transaction. In particular he did not advise Mr Vale to insist that the terms of his arrangement with Jason were clearly recorded in a written contract in which Jason joined. He failed to enquire about Mr Vale’s present financial situation and to explore alternatives to the suggested transaction but which would also achieve Mr Vale’s objective. He failed to enquire into Mr Vale’s family relationship whereby he would have discovered that Mr Vale’s relationship with Mr Armstrong and Jason was not a particularly close one such as would justify the generous discount on the actual value of the property to be transferred. In any event, as I have already found, I doubt whether Mr Vale was capable of judging the extent of the security that the transaction gave to his future occupation of the property however clearly expounded by a solicitor. In my judgment Mr Duce’s account that he appeared happy with the transaction cannot be taken as a true indication of Mr Vale’s informed consent.

Finally the further evidence of Mr Voice and Mr James, his next-door neighbour, that Mr Vale appeared happy with the transaction does not in my judgment much assist the defendants’ case.

In my Judgment the defendants have failed to rebut the presumption that the impugned transaction was brought about by the undue influence of Mr Armstrong on Mr Vale. Accordingly Mr Vale’s transfer of the property to Jason is voidable.

It follows that in my judgment Mr Armstrong in assisting or procuring that transaction to take place acted in breach of his fiduciary duty and in breach of his obligations as Mr Vale’s attorney under section 3(4) or (5) of the Powers of Attorney Act 1985. I am satisfied that Jason was fully aware of all the circumstances which I have set out in this judgment as leading to my conclusion as to his father’s breach of fiduciary and statutory duty. It follows that the impugned transaction and the consequent transfer must be set aside. Since it seems likely that the interests of the mortgagees of the property Birmingham Midshires may be affected by the result of this case, I will not go further at this stage. I will expect counsel to address me on the consequences of my findings. I would ask the claimant’s instructing solicitors to send a copy of my judgment to Birmingham Midshires. A date should be arranged through the usual channels for the matter to be brought back before me giving Birmingham Midshires the opportunity to attend, be joined as a party, and make submissions if so advised.