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Undue influence: what is sufficient legal advice?

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Roman Kubiak considers two contentious probate cases: an attorney’s application to be appointed as substitute personal representative in place of a donor; and a property transfer set aside for presumed undue influence.

Attorney appointed in place of donor executor

Whittaker v Hancock & Ors [2018] EWHC 3478 (Ch)

Sometimes, it is all too easy for those who are emotionally invested in cases to lose sight of the big picture and to pursue issues which, with the benefit of hindsight and objectivity, ought not to have been pursued.

It seems counter-
intuitive for the third defendant to have resisted the application

Whittaker v Hancock & Ors [2018] EWHC 3478 (Ch) is just such an example. It raises interesting technical points which perhaps could justify resisting the claimant’s application to appoint herself as substitute personal representative in place of her mother, the second defendant. However, aside from those technical points, there appears to have been little point or benefit for the third defendant to resist the application.

The case

The mother was one of two executors and sole beneficiary of her late husband’s will, along with the first defendant. By a lasting power of attorney (LPA) made in 2013, she appointed the claimant to be her attorney for property and financial affairs, with no conditions or restrictions.

Whittaker originated as a threatened challenge to the deceased’s 2003 will, by the daughter from his first marriage (the third defendant), due to lack of testamentary capacity, lack of knowledge and approval, and undue influence. Although the third defendant had, since then, failed to issue a contentious probate claim, the challenge led to a caveat .

With the mother (the second defendant) lacking capacity and the co-executor first defendant unwilling or unable to incur any costs to try to remove the caveat , the deceased’s estate was left un-administered. It was left to the mother’s attorney (the claimant) to try to resolve the apparent impasse, by applying to be appointed as personal representative in place of her mother under section 50 of the Administration of Justice Act 1985 (AJA 1985).

Given that the third defendant’s claim had now appeared to have evolved into a claim for reasonable financial provision, it seems counterintuitive for her to have resisted the application – but resist she did.

The third defendant’s stance has caused an unjustified and unnecessary delay of over two years

Master Shuman

The third defendant’s main (largely technical) points of contention were that:

  1. The second defendant lacked capacity to execute the LPA such that the claimant did not have locus to bring the claim.
  2. The LPA only extended to the second defendant’s financial affairs, not those of the deceased.
  3. In truth, the claimant would likely try to deal with the estate to the exclusion of the first defendant.

In response, the claimant’s position was that:

  1. As the second defendant was the sole beneficiary of the deceased’s estate, it was right that the LPA covering property and financial affairs extended to the deceased’s estate; further, section 50 of the AJA 1985 permits the claimant to bring the application as attorney for the second defendant, whether in the latter’s capacity as executor or beneficiary.
  2. Under rule 35(2)(b) of the Non-Contentious Probate Rules 1987, the probate registry may grant probate to the attorney of an incapacitated executor under a registered LPA.

The judgment

Master Shuman was unconvinced by the third defendant’s arguments, after examining the factual background and the relevant case law (most notably Letterstedt v Broers (1884) 9 App Cas 371, Thomas & Agnes Carvel Foundation [2008] Ch 395 and Kershaw v Micklethwaite [2010] EWHC 506). He summed up her approach to the litigation as having caused an ‘unjustified and unnecessary’ delay of over two years: ‘This is unacceptable and particularly so when the second defendant is the sole beneficiary under the 2003 will, is elderly and has undoubted financial needs to assist with her care costs.’

He accordingly granted the claimant’s application.

Take away points: right in the circumstances?

Having discussed this case with colleagues and practitioners, the consensus appears to be that, technically speaking, the mother was proper claimant and the daughter ought to have issued proceedings as litigation friend on her mother’s behalf. However, the decision was the right one in the circumstances.

A better argument for the third defendant may have been that, due to a total breakdown in the relationship between the claimant and herself, she would have been prejudiced by the claimant’s appointment. Proposing an independent personal representative may have helped further, although it seems unlikely that this line of argument would have succeeded, given her noted prior conduct.

Undue influence presumed – despite independent legal advice

Paull v Paull [2018] EWHC 2520 (Ch) 

I would hazard a guess that most non-contentious private client practitioners have been asked to assist a client with gifting their home to a child, usually in the hope of:

  1. avoiding care home fees
  2. saving inheritance tax
  3. accelerating an inheritance and defeating potential claims on the estate on death.

Of course, these intentions can often be defeated, with:

  1. local authorities able to look back at what can be deemed a deliberate deprivation of assets
  2. gift with reservation of benefit rules
  3. anti-avoidance provisions in section 10 of the Inheritance (Provision for Family and Dependants) Act 1975.

Paull v Paull [2018] EWHC 2520 (Ch) involved all these elements. However, what sets this case apart is that the application to set the purported gift aside was brought by the original donor, Neville, against his son, Bradley, by reason of presumed undue influence.

Undue influence

Undue influence is a form of relief which permits certain transactions to be set aside where it can be shown that the donor’s free will was overborne by (usually, but not always) the donee.

In cases of actual undue influence (such as claims to set aside wills) the burden of proof is on the party seeking relief. However, in cases involving certain relationships, coupled with a transaction which objectively calls for an explanation, a legal presumption of undue influence will arise and then it falls on the party who was in the position of trust to disprove undue influence on the victim.

The leading authority on this is the well-known case of Royal Bank of Scotland v Etridge (No2) [2002] 2 AC 773. In Etridge , the House of Lords held that the presumption could be rebutted where there was evidence that the relevant party had received independent legal advice.

The case

Paull concerned a 2010 transfer of Neville’s main asset, his home, to Bradley. At the time, Neville was 67 and lived in the property. He was of good physical health, although he had suffered long term anxiety and depression and, by 2016, had little recollection of the transfer or the surrounding circumstances.

Neville argued that a relationship of trust and confidence existed on the basis that:

  1. he had delegated control of the majority of his personal financial and other documents to his son
  2. it was Bradley who had originally proposed the transfer
  3. Bradley had told Neville that he would ‘look after’ the property for his father.

The existence of a transfer of the property was indicative of a relationship of trust and confidence between father and son

In reply, Bradley’s case was that his relationship with Neville was no more or less than the standard relationship between father and son. Master Bowles rejected Bradley’s argument, and found that a relationship of trust and confidence existed. Relevant factors included Neville’s increasing delegation to Bradley of important financial matters, and that Neville was likely to have been vulnerable at the material time. In fact – perhaps crucially to cases of this nature – Master Bowles found that the existence of a transfer of the property was indicative of a relationship of trust and confidence between them.

The next issue was whether the 2010 transfer was a transaction reasonably calling for an explanation. Unsurprisingly, Master Bowles held that it was. In simple terms, on transferring his property, Neville was left with no secure home and without half of his capital assets. It was not sufficient to argue that the transfers may have saved care home fees or inheritance tax, nor that Neville wanted to stop his partner’s children from inheriting the property.

Master Bowles held that the presumption of undue influence applied and it was for Bradley to convince the court that the transaction was not procured by undue influence.

He was unable to do so. His explanation for the transfer was rejected. Master Bowles was generally unimpressed with his performance as a witness and set the transfer aside.

Crucially, however – and what marks this case as particularly unique – Neville had received what most would consider to be clear legal advice from the conveyancing solicitor. He read through with Neville a note prepared on the legal effect of the transfer ‘slowly and verbatim’, line by line. His evidence was that Neville was keen to proceed with the transfer, and that he understood its implications.

The judgment

Despite this, the Master held that the document was not, itself, sufficient to have provided Neville with the appropriate advice. It was a ‘lawyer’s document’, and ‘not an easy read’. While it discussed various legal issues at length, it did not provide clarity on the central issue – namely, that such a transfer would be permanent, and that once effective Neville would lose ownership and control over it.

As such, the conveyancer’s evidence was not sufficient to demonstrate that the transfer was the product of Neville’s free and informed wishes.

Ensuring that the client has knowledge of the legal effects may not be enough

Concluding the judgment, Master Bowles made a number of interesting (albeit obiter ) comments. He speculated that in these circumstances even if the conveyancer had provided Neville with a clear warning of the dangers of the transfer, this would not have rebutted the presumption of undue influence:

‘Bradley and Neville had come, that day, to [the firm] to implement the transfer. While Neville was being seen by [the conveyancer], Bradley will have remained, nearby, in an adjacent room. Neville will have been conscious of that fact and of Bradley’s expectation that the transfer would be concluded at the termination of the interview. It is hard to see that, in all those circumstances, there is any certainty, or even probability, that the effect of Bradley’s exercise of his presumed influence would have been negated. The much greater likelihood, given, after all, that Neville reposed his trust in Bradley and given the pressure occasioned by the circumstances, is that Neville would still have been unable to disengage himself from Bradley’s influence.’

What does Paull mean for my practice?

Unfortunately, Master Bowles does not indicate what steps the conveyancer should have reasonably taken to satisfy himself that the transfer represented Neville’s free and informed wishes or, indeed, if he could possibly have taken any steps which would have rebutted the presumption. One suspects that in the circumstances of this case, and in light of the Master’s view of Bradley’s evidence, he could not.

However, the case serves as a useful reminder to practitioners of both the importance of clear, plain language and the dangers of an overreliance on precedents.

Practitioners should proceed carefully when dealing with transactions which may be suspicious. Ensuring that the client has knowledge of the legal effects may not be enough to save the lawyer from criticism, or worse.

The obvious point to consider, particularly in a legal landscape of increased competition and commoditisation, is how your firm can balance the need to ensure all the above while undertaking the work cost-effectively. Here, the firm’s charges were an incredibly modest £250.

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