England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE CHANF 96/0250/B

(MR JUSTICE CARNWATH )

Royal Courts of Justice

Strand

London WC2

Friday, 2 May 1997

B e f o r e:

LORD JUSTICE LEGGAT

LORD JUSTICE MORRITT

LORD JUSTICE PHILLIPS

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GOODCHILD & ANR

PLAINTIFFS/RESPONDENTS

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GOODCHILD

DEFENDANT/APPELLANT

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(Transcript of the handed down judgment of

Smith Bernal Reporting Limited, 180 Fleet Street,

London EC4A 2HD

Tel: 0171 831 3183

Official Shorthand Writers to the Court)

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MR J SUNNUCKS (Instructed by Messrs Rowe & Maw, London EC4V 6HD London Agents for Messrs Porter Bartlett & Mayo, Somerset BA20 1HH) appeared on behalf of the Appellant

MR J GORDON (Instructed by Messrs Kingsford Stacey, London WC2A 3UB London Agents for Messrs Poole & Co, Somerset, BA20 1TP) appeared on behalf of the Respondent

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J U D G M E N T

(As approved by the Court )

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©Crown Copyright

Friday, 2 May 1997

J U D G M E N T

LORD JUSTICE LEGGATT: I trust that I shall not be thought disrespectful if I refer to the members of the Goodchild family, as did the judge, only by their first names. There is no purpose in paraphrasing the facts summarised by the judge at the beginning of the judgment, which he handed down on 13th December l995. It is reported at [l996] 1 W.L.R. 694. His account, which has not been criticised, began at page 696D:

"The first plaintiff, Gary Goodchild, is the only son of Dennis Goodchild, the testator. The second plaintiff, Margot, is his wife. They married in 1969. The defendant, Enid Goodchild is the second wife of the testator. The testator and his first wife, Joan, had a public house and hotel supply business, Pub and Hotel Supplies Ltd., which they started together in 1966. The business was run from a warehouse on the Pen Mill Trading Estate, Yeovil. Gary was then 22. He joined them in the business soon after. In June 1969 he held one-third of the shares in the business which was run as a partnership, his father having the other two-thirds. In April 1976 (apparently for tax reasons, but also reflecting the parties' views of their respective interests in the business at that time) the shares were reallocated as to four-ninths to Dennis, two-ninths to Joan, and three-ninths to Gary. Joan ceased active involvement in the business in 1984 when she was 60, but remained as a partner until 1 December 1987. Dennis gradually reduced his involvement until he retired in 1987 at the age of 65. By the beginning of 1988 Joan had become ill with the muscle wasting disease from which she subsequently died.

In January 1988 they decided to make simultaneous wills in similar form, in favour of Gary. They were advised by Mr George, a solicitor, in the firm of Messrs Porter Bartlett & Mayo. On 11 February 1988 they executed the wills as drawn up by him. Dennis's will so far as material is in these terms:

'1. I revoke all former wills and codicils made by me. 2. If my wife Joan Edith Goodchild survives me for the space of 28 days then I devise and bequeath all my real and personal estate to her absolutely and appoint her to be the sole executrix of this my will. 3. If my said wife does not survive me for the period aforesaid, then I appoint my son Gary Jack Goodchild and my daughter Margot Alison Goodchild ... to be the executors and trustees of this my will and I declare that the following clauses shall take effect.'

Clause 4 gave legacies of £1,000 each to his sister and three brothers. By clause 5 he devised the remainder of his estate after payment of expenses

'upon trust for my said son Gary if he survives me for the space of 28 days and if he does not so survive me then upon trust for each of his children as shall be living at the time of my death on their attaining the age of 21 years and if more than one in equal shares.'

Joan's will was in identical form save that in clause 2 the reference is to her husband, Dennis Goodchild.

Also in January 1988 arrangements were put in hand for the transfer of the business to Gary and his wife. The formal documents were not completed until 15 September 1988. By a partnership deed of that date the existing partners retired as from 31 December 1987, and assigned their interest to the new partners, Gary and Margot, for £200,000. Dennis's share in the Pen Mil property was transferred to Gary for £166,667 (the balance of the £200,000 represented other assets such as plant and stock). By a 'legal charge' it was recorded that Dennis and Joan had lent the amount of £200,000 to Gary and Margot secured on the Pen Mill property, on terms whereby the principal was to be repaid in equal monthly sums of £1,667 over 10 years, no interest being payable so long as repayments were maintained. By a separate declaration of trust, Dennis confirmed that one-third of his share of the Pen Mill property or its proceeds was held in trust for Joan. The plaintiff claims that there was an oral agreement that the repayments would cease, and the loan be discharged, after the death of the mother and father. This is one of the issues in the case. I shall have to look at the circumstances of these legal arrangements in more detail later. Joan died on 14 April 1991. Towards the end of June 1991 Dennis renewed contact with the defendant, Enid, who had been an acquaintance of him and his wife through the Yeovil Bowling Club some years earlier. They began to go out to dinner together and their relationship developed, leading to a holiday together over Christmas that year. On 15 August 1992 they married, Dennis by then being aged 70, and his new wife 61. On 16 November 1992 he made a new will leaving everything to Enid, and named her as executrix. A few months later on 1 January 1993 he died. He left an estate valued at nearly half a million pounds, if the outstanding debt from Gary (which by then stood at something over £120,000) is taken into account.

Mention should also be made of the arrangements in relation to premises at Unit 4, Kingsway Business Centre, Wilton. In about spring 1990 a competing business in Salisbury closed, and Gary decided to take on two former employees from that business and open a new warehouse there. He discussed the plan with his father, who had favoured the idea. The purchase was completed in September 1990, with the assistance of a further loan from Dennis and Joan of £70,200. This was secured by a legal charge on the new premises, in similar form to that made in September 1988. The plan did not prove a success, and in about September 1992 it was decided to sell the property. The warehouse was in due course sold, leaving a balance on the loan, standing now at just over £13,000."

The judge held that the wills of 11th February l988 were not mutual wills binding on Dennis after Joan's death, because there was no clear agreement that they were to be mutually binding. If they had been, Dennis would not have avoided those obligations by remarrying, since, even if the effect of section 18 of the Wills Act l837 were to produce a revocation of the will by operation of law, the enforceability of any mutual agreement underlying such wills would depend on a floating trust held binding in equity. The judge also held that there was no form of binding agreement or estoppel upon which Gary could rely for the purpose of claiming any benefit under either of the legal charges or otherwise. The judge, however, granted an order under section 2 of the Inheritance (Provision for Family and Dependants) Act l975 (‘the Act of 1975') on the ground that Joan's mistaken belief that the terms of the wills were mutually binding imposed a moral obligation on Dennis. That constituted a special circumstance which exceptionally justified a claim by Gary under the Act of l975. The parties having failed to arrive at financial arrangements in the light of the judgment, on 16th February l996 the judge awarded Gary the sum of £185,000 under the Act of l975.

Against the judge's orders both sides now appeal. Enid appealed first against the award of the lump sum to Gary. He and his wife then cross-appealed on the ground that the judge should have held the wills were mutual wills binding upon Dennis after Joan's death, and that in that context no distinction should be made between an obligation which was only morally binding and an obligation which was legally binding. By Supplementary Notice of Appeal Enid seeks to resurrect the effect of section 18 of the Wills Act l837, but only if it is established that the wills were mutual wills. I shall consider the cross-appeal first.

Crucial to this topic is the evidence. The judge attached particular weight to that of three friends of the family, Mrs Fiddy, Mr Cutler and Laura White. Mrs Fiddy was a qualified accountant who acted as such for the business run by her husband and Dennis. The Fiddys had made wills in each other's favour, with the estate going to their son after they had both died. The Goodchilds later told her that they had done the same. But the Fiddys' wills were made at different times and were not expressed to be mutually binding. Mr Cutler similarly told Dennis that he and his wife had made mutually binding wills, and in l988 Dennis told him that the Goodchilds had done the same. On another occasion Dennis told Mr Cutler that when he died Gary would inherit the whole estate. Mr Cutler understood that Joan and Dennis intended the wills to be mutually binding, with the result that money owed by Gary to his parents for his business would in effect be cancelled after the death of Dennis. But Mr Cutler's will stated that the survivor would be bound, and the wills of himself and his wife were in the same form and contained the words "mutually agreed". Laura White was the Goodchilds' housekeeper between l986 and l988. Joan told her that she and her husband had made mutually binding wills leaving everything to Gary, so that his business debts would die with them.

Against this evidence the judge had to set that of Mr George, the family solicitor. He had never advised a client to make a "mutually binding will", nor would he have done so. He would have advised a client either to leave the property to the other spouse with a provision for the estate to go to the heir in default of survivor, or to grant a life interest to the survivor. The judge said of Mr George at page 706B that -

"He had no doubt that the Goodchilds wished to adopt the former course, because Dennis would not have favoured the limitations of a life interest."

The judge expressed his conclusion in the four passages that I must now set out. First at page 706D he said -

"Faced with this conflict of evidence, I have to bear in mind that the onus of proof lies on the plaintiffs, and that, as the cases show, there must be established evidence outside the wills, not just some loose understanding or sense of moral obligation. I also bear in mind that this was part of a wider scheme under which the Goodchilds made arrangements for the disposal of their business to their son. Considerable care was taken to obtain legal and accountancy advice on these arrangements. This is a far cry from the simple domestic arrangements made by Mr and Mrs Fiddy in the early l950's. I also bear in mind that Dennis was an experienced businessman, who knew his own mind, and was likely to have made his wishes known to his solicitor. In those circumstances, the weight of the evidence of his family solicitor, with whom he had worked closely on a number of occasions is considerable."

Next at page 706H he said -

"I am prepared to accept that Joan understood that her intentions would be binding upon her husband after her death, indeed that one of the reasons for making the will at that time in that form was to get that assurance. However, I would not have expected her to have taken much part in the conversation with Mr George on 13 January. Equally, I would accept that Dennis would at that stage have taken it for granted that the common intention would be put into effect. From what I have heard, he was a devoted husband and would have wanted to do everything he could to ease her suffering and put her mind at rest. However, he may not have thought it necessary to have any particular provisions in the will to force him to do what he would have envisaged himself doing in any event."

The judge then remarked at page 707E -

"It is also important, as I have said, that this took place at the time when the future of the business was being provided for. If any of the parties, including Gary, had thought that some form of mutually binding agreement was to be made for the position after the parents' death, I am sure there would have been a specific record of its being mentioned in connection with the other formal arrangements being made for the transfer of the business."

Finally in relation to the argument that there was some form of binding agreement or estoppel outside the formal l988 documents upon which Gary was entitled to rely the judge said at page 708H:

"The plaintiff needs to show that there was some agreement, or representation intended to have legal effect, to which the court should give effect. However, the evidence fails to convince me that there was anything, apart from the genuine understanding to which I have already referred. In particular, none of the witnesses who spoke of the payments under the legal charge ceasing on death, suggested there was a separate agreement distinct from the effect of what they thought to be mutually binding wills. Obviously, if Gary had inherited the whole estate, then there would have been no further payments under the charge, since he would have become the beneficiary. However, I have no evidence of any separate agreement to that effect, and, as I have already observed, the comprehensive and formal nature of the legal documents drawn up in September l988 makes it difficult to infer any such collateral agreement or representation. I therefore reject this part of the claim."

Mr Gordon submitted that on the authorities, it is sufficient for Gary to show a common understanding between the two testators at the time of the wills. If neither testator has given notice to the other that they withdraw from the understanding, upon the death of the first testator the obligation becomes a legal one. He drew an analogy with secret trusts, where equity will not permit property transferred to another on the faith of an agreement or understanding to be dealt with differently from that understanding. For that principle he relied on In re Cleaver dec'd [1981] 1 W.L.R. 939 in which, after citing extensively from the judgment of Dixon J. in Birmingham v Renfrew (l937) 57 C.L.R. 666, Nourse J. said at page 947C -

"It is also clear from Birmingham v Renfrew .... that these cases of mutual wills are only one example of a wider category of cases, for example secret trusts, in which a court of equity will intervene to impose a constructive trust .... The principle of all these cases is that a court of equity will not permit a person to whom property is transferred by way of gift, but on the faith of an agreement or clear understanding that it is to be dealt with in a particular way for the benefit of a third person, to deal with that property inconsistently with that agreement or understanding."

At page 947F he said -

"I would emphasise that the agreement or understanding must be such as to impose on the donee a legally binding obligation to deal with the property in the particular way and that the other two certainties, namely, those as to the subject matter of the trust and the persons intended to benefit under it, are as essential to this species of trust as they are to any other."

He added at page 947G that -

".... the principal difficulty is always whether there was a legally binding obligation or merely what Lord Loughborough L.C. in Lord Walpole v Lord Orford (l797) 3 Ves. Jun. 402, 419, described as an honourable engagement."

At page 947H Nourse J. emphasised that -

"..... an enforceable agreement to dispose of property in pursuance of mutual wills can be established only by clear and satisfactory evidence."

Mr Gordon referred to Ottaway v Norman [l972] 1 Ch. 698, which concerned a secret trust. At page 711A Brightman J. said -

"It will be convenient to call the person upon whom such a trust is imposed the 'primary donee' and the beneficiary under that trust the 'secondary donee.' The essential elements which must be proved to exist are: (i) the intention of the testator to subject the primary donee to an obligation in favour of the secondary donee; (ii) communication of that intention to the primary donee; and (iii) the acceptance of that obligation by the primary donee either expressly or by acquiesence."

Mr Gordon contended that those three elements had been found by the judge in this case.

In support of his submission that the taking of benefit on the strength of a binding engagement suffices to create a constructive trust, Mr Gordon referred to In re Dale [l994] Ch. 31 for its extensive citations from the judgment of Lord Camden L.C. in Lord Walpole v Lord Orford . He referred also to In re Gardner [l920] 2 Ch. 523 and to In re Hagger [l930] 2 Ch. 190 for the proposition that a common intention of husband and wife and taking of benefit are sufficient to establish mutual wills.

In my judgment all Mr Gordon's submissions founder at the same point. As my brother Morritt put to him in argument, the reason why, if mutual wills are to take effect, an agreement is necessary, is that without it the property of the second testator is not bound, whereas a secret trust concerns only the property of a person in the position of the first testator.

If there were room for argument about this it is concluded by the language of Nourse J. himself at page 945G after reviewing the cases:

"It is therefore clear that there must be a definite agreement between the makers of the two wills; but that must be established by evidence; that the fact that there are mutual wills to the same effect is a relevant circumstance to be taken into account, although not enough of itself; and that the whole of the evidence must be looked at."

I am satisfied that for the doctrine to apply there must be a contract at law: see per Morritt J. in In re Dale dec’d at page 38. In reaching this conclusion Morritt J. was guided, even if not in strictness bound, by the high authority of Lord Camden L.C. in Dufour v Pereira (l769) 1 Dick. 419 (as more fully set out in Hargrave, Juridical Arguments and Collections, vol. 2), Lord Loughborough in Walpole v Orford (1797), the High Court of Australia in Birmingham v Renfrew, and the Privy Council in Gray v Perpetual Trustee Co Ltd [l928] A.C. 391. Delivering the opinion of the Board in the latter case Viscount Haldane said at page 400 -

"The case before [their Lordships] is one in which the evidence of an agreement, apart from that of making the wills in question, is so lacking that they are unable to come to the conclusion that an agreement to constitute equitable interest has been shown to have been made. As they have already said, the mere fact of making wills mutually is not, at least by the law of England, evidence of such an agreement having been come to. And without such a definite agreement there can no more be a trust in equity than a right to damages at law."

These cases lead unequivocally to the judge's conclusion at page 702E that -

".... if a clear agreement can be found, in the wills or elsewhere, that they are to be mutually binding, whether or not that is expressed in language of revocation, the law will give effect to that intention by way of a 'floating trust', which becomes irrevocable following the death of the first testator and crystallises on the death of the second."

The distinction drawn by Nourse J. between a legally binding obligation and an ‘honourable engagement’, upon which Mr Gordon also relies, was not drawn in the context of declaring that, for purposes of mutual wills, either will do. I am not impressed by Mr Gordon's table comparing this case with In re Cleaver . I never heard of such a method of seeking to support a submission that essential facts in one case should be found in the same way as in another. The judgment of facts is not an exercise in counting similarities: it is the product of an evaluation and appraisal of the evidence. So here I see no reason to criticise the judge's conclusion at page 708B:

"It may be that In re Cleaver is an extreme example of the circumstances in which an agreement may be found on the basis of oral evidence. It does not provide any precedent for this case."

The crucial difference between the cases is that in In re Cleaver there was specific evidence as to the testators' mutual intentions at the time the wills were made, whereas here there was not. Even if a binding agreement were not required, it would still have to be proved that both testators intended not merely that Gary should be the ultimate beneficiary but that the survivor should not prevent that happening, if he or she thought fit. The judge declined to infer any agreement between Dennis and Joan that would have prevented the survivor of them from interfering from the succession.

Two wills may be in the same form as each other. Each testator may leave his or her estate to the other with a view to the survivor leaving both estates to their heir. But there is no presumption that a present plan will be immutable in future. A key feature of the concept of mutual wills is the irrevocability of the mutual intentions. Not only must they be binding when made, but the testators must have undertaken, and so must be bound, not to change their intentions after the death of the first testator. The test must always be, 'Suppose that during the lifetime of the surviving testator the intended beneficiary did something which the survivor regarded as unpardonable, would he or she be free not to leave the combined estate to him?' The answer must be that the survivor is so entitled unless the testators agreed otherwise when they executed their wills. Hence the need for a clear agreement.

Dennis and Joy executed wills in the same terms save that each left his or her estate to the other. Thus the survivor was to have both estates. They wanted Gary to inherit the combined estates. But there was no express agreement not to revoke the wills. Nor could any such agreement be implied from the fact that the survivor was in a position to leave both estates to Gary. The fact that each expected that the other would leave them to him is not sufficient to impress the arrangement with a floating trust, binding in equity. A mutual desire that Gary should inherit could not of itself prevent the survivor from resiling from the arrangement. What is required is a mutual intention that both wills should remain unaltered and that the survivor should be bound to leave the combined estates to the son. That is what is missing here. The judge found that Joan regarded the arrangement as irrevocable, but that Dennis did not. No mutual intention was proven that the survivor should be bound to leave the joint estate to Gary. That is what they meant to achieve. It could not happen unless they first left their respective estates to the survivor of them. But the fact that each was able to leave the combined estate to Gary does not without more mean that both were bound to do so.

The judge declined to infer any agreement between Dennis and Joan that would prevent the survivor of them from interfering with the succession. That was a conclusion to which he was entitled to come on the evidence. Mr Gordon has helpfully marshalled the judge's references to what had to be shown to establish binding mutual wills. Though Joan believed that they mutually intended to leave their estates to Gary, Dennis was not shown to have shared it. So the intention was not in fact mutual. Hence the result that Dennis had no more than a moral obligation to give effect to Joan's belief at least in so far as it affected what had been her estate.

I would accordingly dismiss the appeal. It follows that Mr Sunnucks has no need of the Supplementary Notice of Appeal.

On Enid's behalf Mr Sunnucks argued in a terse written argument that no provision should have been made for Gary under the Act of l975 because he was capable of earning his own living; that there are no special circumstances in this case and any moral claim was defeated by Gary's conduct especially in failing to disclose his debts when asking his father for money; that there was no sufficient certainty to support a moral obligation; and that Gary was and is in financial difficulty and a gift to him might, as Dennis knew, be simply a gift to his creditors whereas a gift to Enid was tax-free and involved no such risks.

Section 2 of the Act of 1975 empowered the Court by order to make ‘reasonable financial provision’ for Gary. By section 1(2) that means "such financial provision as it would be reasonable in all the circumstances of the case for the applicant to receive for his maintenance." Section 3 lists matters to which the Court is to have regard in exercising its powers under section 2. They include -

(i) the financial resources and financial needs which the applicant and any beneficiary of the estate have or are likely to have in the foreseeable future;

(ii) any obligations or responsibilities which the deceased had towards any applicant or beneficiary;

(iii)the size and nature of the net estate;

(iv) any other matter, including the conduct of the applicant or any other person, which in the circumstances of the case the Court may consider relevant.

In oral argument Mr Sunnucks sought to further the appeal by contending that the judgment showed confusion between the principles of family provision and those relating to mutual wills. The judge had been influenced by the evidence about mutual wills, and so had been wrongly induced to make an order for Gary's maintenance where none was warranted under the Act. Mr Sunnucks relied primarily on In re Coventry dec'd [l980] 1 Ch. 461 in which the judgment of Oliver J. was upheld by this Court. Oliver J. thought that the court has to find that it was unreasonable on the part of the testator to make no provision for the person in question or that it was unreasonable not to make a larger provision. At page 474G he said -

"It is not the purpose of the Act to provide legacies or awards for meritorious conduct. Subject to the court's powers under the Act and to fiscal demands, an Englishman still remains at liberty at his death to dispose of his own property in whatever way he pleases or, if he chooses to do so, to leave that disposition to be regulated by the laws of intestate succession."

There could be no question of the court making for the deceased a disposition merely because the court took the view that it would have been reasonable or sensible for him to have done so. Oliver J. concluded at page 478B that -

"In my judgment the plaintiff's claim substantially rests on two limbs only, that is to say (a) that he is a son of the deceased with whom it might be thought that there would be a bond of natural affection and (b) that although he is in employment and capable of maintaining himself his circumstances leaves him little or no margin for expenditure on anything other than the necessities of life."

He added that -

"I cannot in this case find any circumstances which satisfy me that it is an unreasonable result of the intestacy laws that no provision is made for the plaintiff's maintenance and in my judgment the application must fail."

Mr Sunnucks sought to belittle the judge's finding in the present case that Dennis was under a moral obligation by submitting that, despite the judge's finding that there was no agreement to which Joan was party, he nevertheless seems to have found that there was some sort of agreement from which her wishes could be ascertained. Having found that there was no basis for equitable relief, the judge was trying to use the law of family provision for a purpose for which it was not designed. Mr Sunnucks traversed at length the judge's investigation of Gary's predicament. He accepted the concept of moral duty, but submitted that here there was none. The business had been meant for Dennis's retirement but it did not prosper. He helped Gary by reducing the payments due from him and lent him money. Gary then deceived his father as to his resources. It was reasonable in those circumstances for Dennis to conclude that if he made the will in favour of his son his property would be likely to go in tax and to creditors, whereas if he left it to his second wife no tax would be payable and the property would be safe. The fact that she has since made offers to relieve family tensions, both of which have been refused, shows that Dennis could trust her to be fair. In a closing peroration Mr Sunnuck submitted that if every impecunious son is going to be able to make a claim for family provision, that will lead to a state of disastrous litigation.

With these submissions I disagree fundamentally. The principles by reference to which the Court proceeds are clear. When the Court finds that the testator has been guilty in all the circumstances of a breach of moral obligation owed by a father towards his child, leaving the child in straitened financial circumstances, the Court must ensure that adequate provision is made for the child out of the estate, having regard to his need for maintenance and support: Bosch v Perpetual Trustee Co [l938] A.C. 463. There was here the plainest possible basis for concluding that, whereas Dennis and Joan had not made a clear agreement for mutual wills, nonetheless Joan's understanding of the effect of the will she had made were such as to impose upon Dennis, free though he was of any legal obligation, a moral obligation, once Gary's need for reasonable financial provision was established, to devote to his son so much of his mother's estate as would have come to him if there had been mutual wills.

The judge dealt with this point shortly but sufficiently when, after referring to Dennis’s own share, he said at page 714D -

"I take a different view however, in relation to that part of the joint estate which belonged previously to his wife. Although I have found that the wills were not mutually binding in law, I am satisfied that Joan made her will in the understanding that her husband would give effect to what she believed to be their mutual intentions. I see this as giving rise to a moral obligation, though not a legal obligation."

The judge had taken the view that Dennis was free, legally and morally, to deal with his own share as he wished. He had, after all, contracted responsibilities to Enid, quite apart from the fact that he had fallen out with Gary.

When considering reasonable financial provision, the judge concluded that Gary was barely able to meet his financial requirements from his existing income. If he was required to continue payments to the estate under the two loan charges, he would be unable to maintain himself and his family. If he sold his house in order to meet debts to the bank in respect of a business loan of £88,000 and his share of another debt of £40,000, he would have nowhere to live. If he sold his business premises at Yeovil, he would he would be unable to continue his employment. Enid, on the other hand, was able to cater for herself; had not long been married to Dennis; and had no particular expectations from his will. So far as the business was concerned, Dennis had arrived at an agreed arrangement in 1988 for the transfer of the business, and the judge saw no reason to look behind that arrangement.

The judge remarked at page 714G that -

".... the estate is not a large one, but even if regard is had only to the part which derived from the former wife, there is sufficient to relieve substantially the indebtedness of the son and enable him to maintain himself from his current income."

The judge also took account of the fact that the payments under the charges were intended to provide the parents with a livelihood during their remaining lives. That was indeed the principal, if not the only, reason for requiring those payments.

Mr Sunnucks relies on the fact that when Gary asked him for a loan to buy new premises he had failed to tell him that he had an overdraft approaching £90,000. But that failure could scarcely be regarded as relieving Dennis of his personal obligation towards his son: it certainly did not touch Dennis's moral obligation to see to it that Joan's intention was fulfilled, founded as it was on her understanding that he would give effect to what she believed to be their mutual intention. The judge expressed his own view at page 708F, immediately after mentioning Gary’s failure to tell his father about the overdraft:

"Nothing I have heard suggests that Gary did anything to justify the reversal of the reasonable expectations that he had built up over the years of personal and business co-operation with his parents."

The appraisal of all the circumstances was essentially for the trial judge. He properly directed himself, and is not shown to have erred in principle, or even to have reached a conclusion that was surprising or untoward. On the contrary, it is a conclusion at which any right-minded person, taking stock of all the circumstances, would have been likely to arrive. That a bequest to Gary might do no more than relieve him of his indebtedness to his creditors and that a gift to Enid would have been more tax-efficient, is nothing to the point. Having regard to Gary's needs in his business as well as to the basis of the moral obligation, the sum awarded to him cannot be challenged.

The judge's order for costs was within his discretion and was unexceptionable. But I would reiterate the comments of this Court in In Re Coventry about the undesirability of dissipating estates of modest size by pursuing appeals against sensible judgments at first instance. The judgment of Carnwath J. was not only sensible: it was unimpeachable. I would dismiss the appeal as well as the cross-appeal. In doing so I endorse the importance, to which my brother Morritt has referred, of ensuring before they are made that variation orders under section 2(4) of the Act of 1975 are warranted.

LORD JUSTICE MORRITT: I agree with Leggatt LJ that the appeal and cross-appeal should be dismissed for the reasons given by him. I add a few words of my own in relation to the cross-appeal and the form of the order made by Carnwath J in this case.

As Leggatt LJ has pointed out, a consistent line of authority requires that for the doctrine of mutual wills to apply there must be a contract between the two testators. In delivering the advice of the Privy Council in Gray v Perpetual Trustee Co. Ltd (1928) AC 391, 400 such requirement was made abundantly clear by Viscount Haldane. Counsel for Gary suggests that this test is too high. He does so by reference to the requirements for a secret trust or the imposition of a constructive trust. I do not accept that there is any justification to be found in those areas of equity such as would justify departing from the clear statement of Viscount Haldane.

The principles applicable to cases of a fully secret trust do, in substance, require the proof of a contract. Thus in Ottaway v Norman (1972) Ch. 698 at page 711 Brightman J recorded that

"the essential elements which must be proved to exist are: (i) the intention of the testator to subject the primary donee to an obligation in favour of the secondary donee; (ii) communication of that intention to the primary donee; and (iii) the acceptance of that obligation by the primary donee either expressly or by acquiescence."

But if those principles do not require exactly the same degree of agreement as does a contract at law there is no reason to import that lesser requirement into the doctrine of mutual wills. Secret trusts affect the property of the donor not that of the primary donee. Where there are mutual wills the doctrine affects the property of both testators, in particular that of the second to die. If he is to be subjected to an obligation with regard to property of his own not derived from the other then an agreement should be required.

In the case of the imposition of a constructive trust in cases like Lloyds Bank PLC v Rosset (1991) AC 107 on which counsel for Gary relied the court is considering the equitable interests in property acquired for joint use. At page 132, to which we were referred, Lord Bridge of Harwich said

"The first and fundamental question which must always be resolved is whether....there has at any time prior to acquisition, or exceptionally at some later date, been any agreement, arrangement or understanding reached between them that the property is to be shared beneficially. The finding of an agreement or arrangement to share in this sense can only, I think, be based on evidence of express discussions between the partners, however imperfectly remembered and however imprecise their terms may have been. Once a finding to this effect is made it will only be necessary for the partner asserting a claim to a beneficial interest against the partner entitled to the legal estate to show that he or she has acted to his or her detriment or significantly altered his or her position in reliance on the agreement in order to give rise to a constructive trust or a proprietary estoppel."

In my view this principle has no operation in the case of mutual wills in regard to property already owned both legally and beneficially by the second testator to die. Even assuming that in the absence of an agreement a constructive trust may be imposed in relation to the property acquired by the second testator from the first there is no basis, in the absence of an agreement relating to the property of the second testator, to impose a constructive trust in relation to that property too.

The doctrine of mutual wills is anomalous. The bequest of his entire estate by a husband to his wife absolutely and beneficially with a gift over of whatever was left at her death could not take effect in accordance with its terms. Either the interest taken by the wife would be limited or the gift over would be void as repugnant to the absolute and beneficial nature of the gift. Similarly the bare promise of the wife to leave her property by will in a particular manner would be unenforceable for any will she then made would be revocable under Wills Act 1837. In my judgment if these principles are to be excluded in the case of mutual wills it is essential that there should be a contract to that effect. In my view that is what both principle and the authorities require.

Carnwath J gave judgment on 13th December 1996 and then adjourned the matter so as to afford to the parties the opportunity “to arrive at a sensible financial arrangement, which meets as far as possible their respective requirements and is tax efficient”. It seems that they were unable to do so and the matter was restored for further argument on 16th February 1996. On that occasion there was further argument as to the amount of the award. There was also argument as to how it should be provided. In his judgment Carnwath J said

"One is talking in the order of £180,000, but I note that Mr Matthews [counsel for Gary] has advised on a tax efficient way of doing that by giving a life interest to Enid. I do not think it is for me to say whether that is effective or not but it appears to be common ground between the parties that whatever is done should be done in a tax efficient way. That certainly seems a possible way of doing it and it has been used in other cases.”

The order, as drawn up on 20th February 1996, provided that pursuant to the provisions of the Act the will of the Testator should have effect and be deemed always to have had effect as if he had bequeathed a legacy of £185,000 to trustees to hold the same on trust to pay the income to Enid until her death or until 1st March 1996, whichever should occur first and subject thereto for Gary absolutely. The purpose of inserting the life interest to Enid was to obtain in respect of the legacy of £185,000 the benefit of the exemption for transfers between spouses afforded by s.18 Inheritance Act 1984 which would not be available if the will or the order had provided for the payment to Gary direct. The price of doing so was to create a prospective liability on the death of Enid if she died within the next seven years. But that liability might never mature and would reduce with the passing of the years anyway.

This result could have been achieved by Enid and Gary by agreement at any time up to two years after the death of the Testator. See s.142 Inheritance Tax Act 1984. By February 1996 it was too late; the only way of achieving that result was by an order made by the court under s.2 Inheritance (Provision for Family and Dependants) Act 1975. See s.146 Inheritance Act 1984. The orders which may be made under s.2 Inheritance (Provision for Family and Dependants) 1975 are those described in subsection (1), of which the relevant one for present purposes is “(b) an order for payment to the applicant out of that estate of a lump sum of such amount as may be so specified”. Subsection (4) provides

"An order under this section may contain such consequential and supplemental provisions as the court thinks necessary or expedient for the purpose of giving effect to the order or for the purpose of securing that the order operates fairly as between one beneficiary of the estate of the deceased and another and may, in particular, but without prejudice to the generality of this subsection-

...

(b) vary the disposition of the deceased’s estate effected by the will and the law relating to intestacy, or by both the will and the law relating to intestacy, in such manner as the court thinks fair and reasonable having regard to the provisions of the order and all the circumstances of the case;"

If the order made is properly within the jurisdiction of the court the fact that it was sought with the motive of seeking to achieve a better tax position is usually irrelevant. Re Sainsbury's Settlement (1967) 1 WLR 476. But where the effect of the order is to confer a substantial advantage on the parties at the expense of the Revenue it is in my view important that the court should be satisfied that the order is not only within its jurisdiction but also one which may properly be made.

It formed no part of either the appeal or the cross-appeal to challenge the manner in which the provision the judge thought was appropriate for the maintenance of Gary was made. Obviously it was in the interests of both parties that if the judge were to make any order it should be in this form. We have heard no argument on whether the order was or was not warranted by the terms of subsection (4); that would be a matter for the Revenue. However I think that it is important for the future that if an order such as this is to be made the grounds on which it is thought to be authorised by subsection (4) should be clearly demonstrated, for the consent and wishes of the parties is not enough.

LORD JUSTICE PHILLIPS: I agree.

ORDER: Appeal and cross appeal dismissed; no order as to costs, save legal aid taxation.