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Home > Articles > 2013 archive

Undue Influence in the Family - A 2013 Update

Luke Barnes, barrister at Three Dr Johnson’s Buildings, examines the issue of undue influence in family matters.

 

Luke Barnes, barrister, at Three Dr Johnson's Buildings. Luke is qualified to accept instructions under the Bar Council Public Access Scheme.
Email: LBarnes@3DJB.co.uk

Undue influence may apply to a wide variety of transactions: for example, gifts, transfers, loans, guarantees and so on. It is particularly likely to be in issue regarding transactions within the family.

In this article, I summarise six recent cases concerning undue influence in a family situation. Two of them concern a husband and wife and their liabilities to lenders; two, cohabitants' property transactions; and two, an elderly mother's gift to her adult son, where the latter held a power of attorney. 

All of these scenarios will be instantly recognisable and may 'set alarm bells ringing', but the divergent results of the cases show that the outcome of litigation is far from a foregone conclusion. Bringing or defending a case based on undue influence requires careful analysis.

Husband and Wife
1.   Hewett v First Plus Financial Group plc [2010] EWCA Civ 312
Undue influence, involving the husband's deliberate concealment of his extra-marital affair, rather than coercion, threats or any presumption.

2.   Davies v AIB [2012] EWHC 2178:
The husband gave full disclosure of loan and security transactions to wife's solicitor: no undue influence.

Cohabitants
3.   Smith v Cooper [2010] EWCA Civ 722
A jointly-instructed solicitor's advice did not rebut the presumption of undue influence.

4.   Liddle v Cree [2011] EWHC 3294 (Ch)
Parties' post-separation partition of their property was an unwise transaction for L, who suffered mental ill-health – but undue influence was not established.

Elderly mother and Her Attorney son
5.   Violet Hackett v (1) Crown Prosecution Service (2) David Hackett [2011] EWHC 1170 (Admin)
Power of attorney inevitably demonstrating relation of influence, in the circumstances. The presumption of undue influence was not rebutted.

6.   De Wind v Wedge [2008] EWHC 514 (Ch)
The mother's desire to assist her son at her daughter's expense was free and genuine. His attorneyship did not increase the likelihood of undue influence.

1.   Hewett v First Plus Financial Group plc [2010] EWCA Civ 312
The matrimonial home was owned and mortgaged jointly. The husband persuaded the wife to re-mortgage to re-finance his credit card debts on a secured basis, promising on their children's lives to pay the increased mortgage instalments. He was having a secret affair, which in due course led to separation and divorce.

The judge held that no undue influence or misrepresentation was established, as W had exercised her own free will in financial decision-making and signed the charge to rescue the family from a tight financial situation. W appealed, primarily on the ground that H's failure to disclose his affair amounted to an abuse by him of her trust and confidence.

As Briggs J, giving the Court of Appeal's judgment, put it (at para [2]):

The main issue raised by this appeal ... is the extent to which non-disclosure by a husband when seeking to persuade his wife to join with him in a charge of their matrimonial home as security for his separate debts may constitute misconduct on his part sufficient to afford his wife with a defence of undue influence or misrepresentation, when that charge comes to be enforced against her by the chargee.

Allowing the appeal, the Court held:

(1)   A finding of undue influence does not depend upon a conclusion that the victim made no decision of her own, or that her will and intention was completely overborne. A conscious exercise of will may nonetheless be vitiated by undue influence.

(2) Following Royal Bank of Scotland v Etridge (No.2) [2001] UKHL 44 (at [33]) a husband would owe to his wife an obligation of candour and fairness, where she reposed trust and confidence in him, which (see Thompson v Foy [2009] EWHC 1076 (Ch) at [100]) could extend beyond the management of her financial affairs. W had reposed sufficient trust and confidence in H to give rise to an obligation of candour and fairness.

(3)  The purpose of the obligation of candour was that W should be able to make an informed decision (with or without independent advice) properly and fairly apprised of the relevant circumstances.

(4)   H's affair plainly called for disclosure. He breached the obligation of candour, exercising undue influence sufficient to vitiate the re-mortgage transaction as between them. The test was objective: would a solicitor advising W independently have thought it relevant to know that, at the time H was asking for her unqualified trust, he was conducting a clandestine affair ? 

(5)   It had never been part of the law of undue influence that, but for the relevant abuse of trust, the impugned transaction would not have been entered into; the right to set aside arose because the wrongful abuse of confidence was part of the process by which the victim's consent was obtained.

2.   Davies v AIB Group (UK) PLC [2012] EWHC 2178 (Ch) (Norris J)
W signed, in June 2001, a facility letter relating to a loan of £1.35m to be advanced by AIB jointly to W and H ("the Personal Loan"). H died in 2005. W later claimed that she accepted the facility of the Personal Loan because of H's undue influence in that:

she signed the Personal Loan in ignorance of the fact that a £1.45m Guarantee she also signed in June 2001 related to separate lending to H's company;

she did not fully apply her mind to the matter of the Personal Loan or its nature;

she was afraid to ask H questions for fear of abusive violence;

so that she did not appreciate that her total liabilities to AIB were £2.8m, as opposed to £1.45m.

W advanced no case of misrepresentation, or a specific act of improper pressure or coercion. She accepted that the burden lay upon her to prove undue influence without the benefit of any presumption:- her counsel (Richard Coleman QC) accepted that the entry of a joint loan obligation is the sort of transaction which husbands and wives frequently enter into for good and sufficient reasons.

Dismissing the claim, Norris J.  held that the burden was on W to establish some legal or equitable wrong committed by H which caused her to enter the Personal Loan. The identification of that wrong must take into account the context of the relationship of trust and confidence which commonly subsists between a married couple.

(1)   When W signed for the Personal Loan, she had a basic but real grasp of its nature and context.

(2)    At that time W grasped the gist of the arrangements (including the separate Company borrowing she guaranteed) even if she did not wrestle with the detail or work through the consequences. Inter alia she had had the benefit of her own solicitor's advice, bringing home to her the existence of two facilities.

(3)    W's acceptance of the personal Loan was not brought about by some wrongdoing by H. The banking arrangements with AIB (totalling £2.8m) was the very sort of transaction that might be accounted for by the ordinary motives of spouses: the family's assets were on the line throughout.

(4)    H had sought to ensure that W's solicitor had the fullest and clearest understanding of the transactions and securities, in order to give whatever advice he thought fit to W.

(5)    The important point was not whether W's solicitor did his job competently (although he probably did). It was whether in procuring W's consent H committed a legal or equitable wrong. But a husband who, by full disclosure of the transaction and relevant documents, put his wife's solicitor in a position to tender full, informed advice cannot fairly be criticised as lacking candour or suppressing information.

3.   Smith v Cooper [2010] EWCA Civ 722
S (the man) and C (the woman) cohabited. C transferred her home from her sole name into their joint names for no consideration, as part of an arrangement where they jointly purchased some adjacent land. They later mortgaged the property to purchase another property in joint names, on which S did a great deal of renovation work.

The judge ruled that the presumption of undue influence applied to the transfer into joint names: S had acquired a position of ascendancy over C due to her mental condition, his awareness of it and his decision to run her finances. The transactions called for an explanation, because of the proportion of C's assets tied up in her home, the fact S had not contributed to its acquisition, and the fact that within a short time of him moving in she volunteered a half share to him.

The judge proceeded from the proposition that the transactions called for an explanation to hold that there was a proper explanation for them, due to the parties' joint property projects, which involved financial and other input from S, and intention to spend the rest of their lives together.

However, in the Court of Appeal's unanimous judgment, given that the presumption applied, the judge erred by failing to address the consequent question: whether C decided to enter into the relevant transactions of her own free will independent of S's influence.

The advice given by the solicitor who acted for the parties in the transactions was inadequate to rebut the presumption. It seemed that he acted and advised properly and with reasonable competence in his position as the solicitor instructed by, advising, and representing the two clients jointly. What he did not do, or purport to do, was to give any advice to C from her own separate point of view and for her own separate benefit. Therefore she had not received any independent advice.

Independent advice, in this context, meant advice to and for the benefit of one party alone given by an adviser whose duty it is to consider the position of that party and to advise her so that she can give thought, free from any influence of or dependence on the other party, as to whether she really does want to enter into the transaction, bearing in mind its full implications from her point of view. The adviser, advising the party in question alone, must explain the nature and consequences of the transaction to that party with full knowledge of the relevant circumstances.

4.    Liddle v Cree [2011] EWHC 3294 (Ch) (Briggs J)
The Farm was transferred to L (man) and C (woman) as beneficial joint tenants in 1999. They cohabited there from 1999 to 2008 and farmed in partnership. They separated in 2008. During 2009 they dissolved their farming partnership, selling livestock and equipment by auction in September that year and dividing the proceeds equally.

L was a lifelong bipolar sufferer and controlled his symptoms with lithium. He suffered a heart attack in December 2009 and had a coronary stent fitted. His health worsened significantly in the summer of 2010.

The parties began to discuss a division of the Farm between them as early as 2008. They reached before December 2009 an agreement in principle for C to have the House and L to have the Barn and agricultural land, and on the boundaries of their respective parts. L intended to continue activities with his sheep dogs and by taking other farmers' sheep for grazing; he may also have hoped to develop the Barn for living accommodation.

In 2009 there was no relationship between them capable of giving rise (in combination with a transaction calling for an explanation) to a presumption of undue influence. Any trust and confidence between the couple had largely evaporated by the time of their arms' length negotiations.

They jointly instructed a firm of solicitors in February 2010, to carry out the conveyancing aspects of the partition. By transfers executed by the parties and dated 31 March 2010 the registered title to the Farm was partitioned into two titles: (1) the House and 5 acres, of which C became sole proprietor; (2) the Barn and 13 acres, of which L became sole proprietor.

The transfers were not registered until August 2010, by which time L's mental and physical health had declined so that the transaction was thoroughly unwise and his ability to look after himself had seriously deteriorated. The critical question was whether C's relationship with L imposed on her an equitable duty to advise him to reconsider the wisdom of the agreed Partition, or at least seek independent advice, before it became irrevocable. The answer was an emphatic 'no'.

Firstly, the transaction was effectively concluded when the transfers were signed in March 2010. Secondly, although unwise for L even in 2009, the transaction did not call for an explanation, as it was not unfair in terms of value, despite the beneficial joint tenancy of the Farm, because of C's much larger financial contribution to the purchase. The two severed parts were worth £450,000 (L) and £600,000 (C). Thirdly, it was doubtful that there arose, over a year after their separation, an obligation on L to have regard to C's best interests

5.   Violet Hackett v (1) Crown Prosecution Service (2) David Hackett [2011] EWHC 1170 (Admin) (Silber J)
V applied for an order setting aside the 2004 transfer of her home to D (her son). She had signed a Power of Attorney in favour of D in June 2003, although the transfer was not executed thereunder. On 27 August 2004 D was arrested in possession of smuggled goods, on which approximately £50,000 in import duty was payable.

In October 2004 D arranged for V to see a solicitor, to arrange for V to transfer the home to D's sole name for no consideration. V saw the solicitor on 4 October 2004 in the company of D and a deaf friend of V's, when the transfer was discussed. On 6 October the solicitor sent a letter to V with a copy of the transfer, which she signed and returned.
In 2007 a confiscation order was made against D for £645,000 odd. The evidence showed that the home was purchased from the savings of V's late husband.

The claim in undue influence succeeded. It was accepted that there was a "relationship of presumed influence" between D and V. Silber J said:

"as I would inevitably have found to be the position, there was such a relationship because in June 2003, [V] signed a power of attorney in favour of [D].  ... There are further reasons why there was a relationship of presumed influence ... because first V was deaf, dumb, barely educated and illiterate and second, since the death of her husband, she had become reliant on [D2] to manage her affairs and physically care for her". 

It seems that, consistent with the authorities, Silber J found that the power of attorney was a relevant factor in establishing that a relationship of influence existed, but not that the relation of Attorney – Donor automatically establishes that first step towards the presumption of undue influence.

The transaction called for an explanation and the presumption of undue influence arose.
The meeting at the solicitor's office of 4 October was incapable of emancipating V from any undue influence. For one example among many, the solicitor's statement in his attendance note of 4 October that the transfer "was probably of her own free will" did not address the issue of whether the transfer was made on the basis of "full, free and informed thought".


6.    De Wind v Wedge [2008] EWHC 514 (Ch) (Patten J)
D and W were sister and brother. Their late mother (M) granted W a general power of attorney to enable him to sell her property (which he did in 1993); M instructed the conveyancing solicitor to pay the net proceeds to W. M died in 2001 intestate. D took out letters of administration and sought an account from W of the proceeds of sale.

Patten J confirmed that the case did not concern one of the categories of relationship where influence is irrebuttably presumed. D's burden was to establish the necessary relation of trust and confidence and primary facts surrounding the transaction from which the inference of undue influence could be drawn. The Court's task was to set this against W's explanation and to decide whether he had rebutted any such inferences.

The relationship between M and W was one of trust and confidence -  but not necessarily different from any other between mother and son. The grant of the power of attorney undoubtedly imposed fiduciary duties on W – but it did not add to the likelihood that undue influence having occurred. It was no more than a tool enabling W to manage the sale on M's behalf.

However, the gift to W of M's only capital asset called for an explanation and the presumption of undue influence was engaged, and M had not received sufficient legal advice to rebut it. Nonetheless, in all the circumstances the presumption was rebutted, the judge not being satisfied that undue influence on W's part had been established as the cause of the gift.

A key fact was that in 1988 W had advanced £70,000 to D, which was invested in her Spanish business but which was lost with no return. D returned from Spain destitute in 1992. The judge found on the basis of all the evidence that M decided of her own volition to gift the proceeds to W; a decision not made as a result of any influence or persuasion brought to bear on her but, rather, as a response to W's financial position brought about by his loan to D – that was not undue influence.