England and Wales Court of Appeal (Civil Division) Decisions

IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE MANCHESTER COUNTY COURT
MR RECORDER G D SMITH
2MA30011

		Royal Courts of Justice Strand, London, WC2A 2LL
		4th December 2014

Lady Justice Gloster :

Background

1. The appellant, and defendant in the action, Monica Elaine Crossfield (whom I shall refer to as "the Appellant"), appeals against paragraphs 1-6 of the order of Recorder G.D. Smith dated 31 January 2014 ("the Order") made in the Manchester County Court. Permission to appeal was granted on paper by Patten LJ on 17 March 2014.
2. The dispute relates to the ownership of a property known as 17 Manley House, Black Prince Road, Kennington, London SE11 6HT, a four-bedroom property in a low rise apartment block ("the Property"). In or around 19 January 1987 the Appellant became a council tenant of the Property and lived there with her family under the terms of a secure tenancy from the London Borough of Lambeth ("LBC"). By a lease dated 26 August 2003 ("the Lease") the Mayor and Burgesses of LBC demised the Property to the Appellant for a term of 125 years starting on 15 January 1990 in consideration of the payment of a premium of £109,500 ("the Premium") and otherwise on the terms set out in the Lease. The Appellant was entitled to a discount of £38,000 from the market price of the Property by reason of her position as a secure tenant. The registered legal owner of the Lease is the Appellant.
3. Under the terms of a declaration of trust dated 26 August 2003 ("the Deed") and made between the Appellant and Franklin Roy Johnson, her brother and the claimant in the action (whom I shall refer to as "the Respondent"), it was declared that upon the Lease being completed the Property would be owned beneficially by the Respondent.
4. The relevant terms of the Deed provided as follows:

"DEFINITIONS

1 In this deed the following terms shall have the following meanings.

'Buyer'

means Miss Johnson

'Capital Contribution'

means £109,500.00 (one hundred and nine thousand five hundred pounds) representing the total of the amounts paid by Mr Jackson towards the purchase price of the Property paid by Mr Jackson.

'Indebtedness'

means all money from time to time owing under the scheme.

'Scheme'

means the Council of the London Borough of Lambeth's rights under the Right to Buy provisions mentioned in the Transfer.

'Property'

means the property known as 17 Manley House Black Prince Road aforesaid with registered title number

'Selling Expenses'

means the estate agents' and solicitors' fees and expenses properly and reasonably incurred in connection with the sale of the Property.

'Transfer'

means the transfer or lease of the Property intended to be made in favour of Miss Johnson.

BACKGROUND

2 Miss Johnson intends

- to purchase the Property in her name.

- to finance its purchase by the Capital Contribution and in part by the Indebtedness; and

-by the Scheme to charge the Property

BENEFICIAL INTERESTS

3 The Parties declare that the Property will be owned beneficially by Mr Jackson and that Mr Jackson shall receive all the net proceeds of sale of the Property after deduction of the Selling Expenses and the indebtedness."

5. In the action the Respondent claimed that, under the terms of the Deed, the Appellant was obliged to transfer the Property to him. It was common ground at trial that he had paid the Premium, all the legal fees associated with the transaction and had also discharged some of the Appellant's rent arrears prior to the transaction. The Respondent also claimed that he had paid all the Appellant's rent arrears in the sum of £4200, and made an additional cash payment to the Appellant in the sum of about £5800 to reflect the fact that she was giving up the value of her discount and to assist her with her family's relocation expenses to Florida.
6. The Appellant's case at trial was that the amounts which the Respondent had paid, either to her or to LBC, had been paid by way of an interest-free loan to her; that after the purchase she was going to be the sole beneficial owner of the Property, subject only to repayment to the Respondent of the sums which he had advanced; which were to be recouped by him by renting out the Property over a period of 15 years; and that the Deed should be set aside on the grounds that it had been procured by undue influence, mistake or misrepresentation. If the Deed were to be set aside, the Appellant's primary case was that she was the sole beneficial owner of the Property; her alternative case was that the Property was owned by her and the Respondent under a resulting trust in accordance with their respective contributions.
7. The following additional factual matters were either not in dispute at trial or before this court, or were found by the judge:

i) On 8 April 1997 a suspended possession order was made in respect of the Property because of arrears owing to LBC.

ii) In early 2002 the Appellant received a leaflet from LBC which stated that LBC was changing the Right to Buy Scheme. The Appellant was interested in purchasing the Property but did not have the money to do so.

iii) In the summer of 2002, the parties' mother and step-father decided to move to the USA. They were aged 73 and 83 years old respectively. The Respondent and two other brothers purchased a house in Florida for them to live in. It was subsequently decided that the Appellant, together with her two children, would move out to the USA to live with her mother and step-father. The judge held, contrary to the Appellant's assertion, that the transaction relating to the Property was linked to her decision to relocate to Florida.

iv) In the summer of 2002 the Respondent and the Appellant had discussions about whether the Respondent would be interested in providing the money to purchase the Property. The Respondent stated that he could only take that decision once he knew how much the Property would be and how much the Appellant's discount under the Right to Buy Scheme would be.

v) On 20 September 2002 the Appellant received a notice from LBC granting her the right to buy.

vi) On 12 December 2002 LBC served a notice under section 125 of the Housing Act 1985 on the Appellant which provided a valuation of the Property of £147,000.00. The right to buy discount ("the Discount") was valued at £38,000.00, some 25.85% of the value of the Property, which resulted in a proposed purchase price of £109,500.00.

vii) In January 2003 a valuation and survey of the Property was carried out.

viii) Some time in early 2003 the Appellant and the Respondent entered into the oral agreement which subsequently led to the Appellant purchasing the Property from LBC, the payment of the Premium by the Respondent to LBC and the execution of the Deed.

ix) In April 2003 the Respondent engaged Mr Neil Bolton, of Harvey Roberts, solicitors, to draw up the Deed and act in the conveyance of the Property. The judge held that he had acted for both the Appellant and the Respondent in connection with the transaction.

x) On 7 April 2003 LBC wrote to say that it had instructed its solicitors, Steeles, to prepare the legal documents for the sale and purchase of the Property.

xi) In May 2003 the Respondent paid a sum of about £3,000.00 to discharge the Appellant's rent arrears in respect of the Property.

xii) Some time shortly after 22 May 2003 the first meeting took place between the Appellant and Mr Bolton at the offices of Harvey Roberts. The Respondent came to Harvey Roberts' offices with his sister but was not present during discussions between Mr Bolton and the Appellant. There was a discussion about the fact that there would need to be a declaration of trust which would be protected by caution and that after three years the Property would be transferred. (It could not be transferred earlier than three years because of the restrictions in the right to buy legislation preventing the sale of the property within that period.) The judge held that Mr Bolton had indeed given advice to the Appellant on this occasion which was evidenced by the fact that the Appellant had signed a handwritten note written by Mr Bolton summarising his advice. It stated "Declaration of Trust – protection by caution – after three years transferred."

xiii) In July 2003 the Respondent paid the sum of £109,500.00 to Mr Bolton which comprised the total purchase price which the Appellant had to pay LBC for the purchase of the Property.

xiv) In the period July to August 2003 further rent arrears accrued in respect of the Property and on 21 August 2003 LBC's solicitors, Steeles, wrote stating that completion could not occur until the arrears of £1,102.04 had been paid.

xv) On 26 August 2003 there was a second meeting between Mr Bolton and the Appellant at Mr Bolton's office. His evidence at trial was that he had drafted the Deed to reflect the agreement between the parties, that he took the Appellant through the Deed and that he fully explained the same to her. The judge held that the Deed and the Lease were signed at this meeting, despite the Appellant's case at trial being that there was only ever one meeting between herself and Mr Bolton.

xvi) On 26 August 2003 Mr Bolton forwarded the completion monies to Steeles in the sum of £110,817.84, the totality of which had been provided by the Respondent. This sum included the additional rent arrears of £1,102.04 which had accrued up to 21 August 2003.

xvii) The judge held that, at some date before the transaction completed, the Appellant had moved out of the Property. This was contrary to the Appellant's assertion which was that she had only moved out in October 2003.

xviii) In the period August to September 2003 the Respondent spent a "considerable" or "significant" amount in renovating the Property.

xix) On 17 October 2003 the Appellant was registered as proprietor of the Property.

xx) On 5 December 2003 the Respondent rented out the Property.

xxi) On 16 December 2003 a restriction was registered over the title of the Property in favour of the Respondent to protect his rights under the Deed.

xxii) In January 2004 the Appellant travelled to the USA with her parents and her two children.

xxiii) In 2006 the Appellant returned to England without her parents. The reasons for her return were disputed, but were not the subject of findings by the judge. Because she had lost her right to housing benefit, she moved into a one-bedroom flat with her daughter.

xxiv) On 29 November 2010 Mr Bolton wrote to the Appellant and asked her to transfer the Property to the Respondent as per the agreement between them. The Appellant did not respond to that letter. On 15 February 2011 Mr Bolton again wrote to the Appellant asking her to transfer the Property to the Respondent. Again the Appellant did not respond to that letter.

xxv) On 10 January 2012 the Respondent issued proceedings.

8. Mr William East appeared both at trial and in this court as counsel for the Appellant; likewise, Miss Eleanor d'Arcy appeared both at trial and in this court as counsel for the Respondent.

The judgment

9. The trial took place over four days between 10 December and 13 December 2013 and the judge delivered his judgment on 31 January 2014. In the judgment the judge correctly identified the relevant issues as follows:

i) Whether the Deed could be set aside by the Appellant on the grounds of undue influence, unilateral mistake or misrepresentation.

ii) In the event that the Deed were set aside, whether the true nature of the agreement was that the payment of the purchase price by the Respondent amounted to a loan which had by the date of trial been paid off so that the Appellant was the sole beneficial owner of the Property.

iii) In the event that the payment of the purchase price by the Respondent did not amount to a loan, what were the interests of the parties in the Property.

10. Before this court Mr East did not seek to challenge the judge's formulation of the legal requirements for setting aside the Deed. He accepted that the judge correctly identified that, following the decision of the House of Lords in Royal Bank Of Scotland v Etridge [2002] 2 AC 773, the Appellant, in order to set aside the Deed on the grounds of presumed undue influence, had to establish: (i) that a relationship of trust and confidence (also known as a relationship of influence) existed between her and the Respondent; and (ii) that the transaction called for an explanation. He explained that, if she satisfied these two requirements, the burden shifted to the Respondent to rebut the presumption that the Deed was procured by undue influence.
11. The judge referred to statements of Lord Nicholls of Birkenhead in Royal Bank Of Scotland v Etridge and of Nourse LJ in Goldsworthy v Brickell [1987] Ch 378 to describe what was comprised in a relationship of trust and confidence. At paragraph 10 (i) he said:

"In relation to the issue of trust and confidence, Mr East relies upon the following:

a) Lord Nicholls of Birkenhead in Etridge:

i) "A relationship between two persons where one has acquired over another a measure of influence, or ascendancy" (para [8]);

ii) One example is where "one person places trust in another to look after his own affairs and interest, and the latter betrays this trust by preferring his own interests" (para [9]);

iii) Also "for instance, cases where a vulnerable person has been exploited. Indeed, there is no single touchstone for determining whether the principle is applicable. Several expressions have been used in an endeavour to encapsulate the essence: trust and confidence, reliance, dependence or vulnerability on the one hand and ascendancy, domination or control on the other. None of these descriptions is perfect. None is all embracing. Each has its proper place" (para [11]).

b) Nourse LJ in Goldsworthy –v- Brickell [1987] Ch 378, at 401: "a degree of trust and confidence [which] is such that the party in whom it is reposed, either because he is or has become an adviser of the other or because he has been entrusted with the management of his affairs or everyday needs or for some other reason, is in a position to influence him into effecting the transaction of which complaint is later made."

12. The judge further correctly held^[1] that the test for whether a transaction calls for an explanation was that set out by Lindley LJ in Allcard v Skinner (1887) 36 Ch D 145 and approved by the House of Lords in Etridge at paragraph [22]: namely whether the

"'gift is so large as not to be accounted for on the ground of friendship, charity or other ordinary motives on which ordinary men act'."

13. There was no dispute between the parties at trial that a transaction could call for an explanation where it did not amount to a pure gift, and where some value was provided in return.
14. In his judgment the judge:

i) analysed the evidence given by the Respondent and concluded that it was substantially consistent with his witness statement and with such documentary evidence as still existed;

ii) analysed the evidence given by Mr Bolton and concluded:

"24. Unfortunately, there were significant problems with Mr Bolton's conduct at the time of the transaction and in giving evidence. He openly conceded that he had fallen short of best practice on a number of occasions, for example there was no note of his instructions, no express authority from Monica authorising Franklin to instruct him and no retainer letter. Additionally there is no detailed note on the file of the advice given to Monica…

25. For this reason, I am unable to rely upon Mr Bolton's evidence unless it is supported by some documentary or other evidence.

26. It also seems to me that Mr Bolton was insufficiently rigorous in the way in which he dealt with the transaction generally. If he believed that he was acting for Monica only, he should have been scrupulous in ensuring that he received instructions directly from her rather than from Franklin, who was effectively the other party to the transaction. In this respect, on the basis of his understanding of the situation, there were effectively two transactions: (1) the purchase of the Property from Lambeth by Monica and (2) the purchase of the Property by Franklin from Monica. The transaction had to be structured in the way it was because of the restriction on ownership of properties under the "right to buy" scheme. Even if Mr Bolton believed that he was acting for Monica only, and that Franklin was acting for himself, it does not seem to me that he took sufficient steps to ensure that Monica's interests were protected. Not only does he appear to have taken virtually all of his instructions from Franklin, but in relation to the restriction that was registered he considered that he was entitled to identify himself as Franklin's solicitor on the basis that he was his solicitor in general terms. Accordingly, it seems to me that Mr Bolton's conduct of the transaction fell very far below acceptable standards.

27. Having said this I do accept that Mr Bolton did believe that he was acting for Monica alone…..

28. Further, despite his conduct falling well below acceptable standards I do not accept that Mr Bolton at any stage acted dishonestly. This is of particular relevance in relation to the brief handwritten note which appears at page C8… On the balance of probabilities, I find that there were two meetings and that Mr Bolton's note related to the advice given at the initial meeting. It seems to me a highly unlikely that Mr Bolton would have prepared the note for Monica to sign at the meeting when all the formal documents were signed. There is no suggestion that the note is a forgery."

iii) analysed the evidence given by the Appellant and in particular concluded:

"29. Regrettably, Monica's evidence was riddled with inconsistencies, and those inconsistencies go to the heart of her case. In particular, bold statements in her witness statement were shown on several occasions to be inconsistent with the limited documentary evidence available.

30. The first inconsistency arises because of Monica's insistence that at all times she trusted Franklin in relation to the transaction. This assertion is essential to her claim that the Deed be set aside as procured by undue influence. The difficulty for Monica is her clear assertion in cross-examination that Franklin was dishonest. This arose in the course of cross-examination concerning an earlier occasion when she borrowed a sum of money from Franklin. The amount is not agreed, but was no more than £450. As a security for the loan, she gave her child benefit book to Franklin so that he could collect the benefit payments. Additionally, she signed a letter which would prevent her from revoking her authority to collect benefits or from reporting that the benefit book was missing. When Monica was questioned by Miss d'Arcy about the length of time it took for the loan to be repaid, Monica asserted her belief that if she had not requested the benefit book back from Franklin, he would have carried on taking payments. At this point, Miss d'Arcy put it to her that Franklin was not dishonest, and her response was "I know he is". Later in her cross-examination, Miss d'Arcy returned to the issue of Monica's belief that Franklin was dishonest, and she denied saying this. I reminded her of her words which she had used, and her response was "oh yes--my child benefit book."

31. I find it impossible to believe that Monica reposed trust and confidence in Franklin in relation to her financial affairs at the time of the transaction given that she already considered him to be dishonest as a result of his conduct concerning the previous loan.

…….

36. Significant reliance is placed by Monica upon the fact that she has learning difficulties. I accept her evidence that she has difficulty reading complicated documents and concentrating when doing so, and that she has considerable difficulty spelling. These difficulties may well have affected her ability to read and understand the full details of some of the documents which she signed. However, I do not accept that they affected her ability to understand the basic nature of the transaction, nor do I accept that, without more, they made her a particularly vulnerable person. Monica is clearly able to read and understand some documents, and indeed she was able to take the oath and navigate through the trial bundles with greater ease than some of the other witnesses. More significantly than this, in the way in which she gave her evidence she came over as an intelligent and forceful individual. Indeed, her witness statement suggests that she was the instigator of the agreement by which Franklin would lend her the money to buy the Property and would then rent it out for as long as necessary to recover his outlay. I am quite satisfied that Monica is an independent lady well able to manage her own affairs, albeit with some assistance where necessary in dealing with more complicated forms and documents."

37. In relation to Mr Bolton's note at page C8, Monica's only explanation is that she signed underneath his note without reading or understanding it. This seems to me highly implausible. I accept that she may have done this with more complex documents which she signed, including the Deed. However, the note is very short and simple, and even if Monica did not understand "Declaration of Trust" or "protection by caution" the words "after three years transferred" are plain and simple to understand. Since Monica's evidence is that she expected repayment of Franklin to take 15 years, there is no reason why she would sign a document referring to a transfer after three years if the nature of the transaction was as she suggests."

iv) set out at paragraph 47 of the judgment the following conclusions in relation to the issues which he had identified in paragraph 6 of the judgment:

"47. Accordingly, I have no hesitation in preferring the evidence of Franklin over that of Monica in relation to disputed issues. In relation to the specific issues which I identified in paragraph 6 of this judgment, my findings are as follows:

i) What was the true nature of the overall agreement between Franklin and Monica? The agreement was as set out in the documents and in Franklin's evidence, namely Monica purchased the legal interest in the Property and held the equitable interest on trust for Franklin. It was never an agreement by Franklin to lend the purchase price to Monica.

ii) Did Franklin make payments of around £4200 in respect of Monica's rent arrears? I am not entirely clear as to Monica's position on this issue. Mr East's skeleton argument states that Monica "now candidly takes the position that whilst it remains a possibility that the arrears were paid off as a result of the resolution of issues over her housing benefit, it is possible that a further payment of £3000 was made by Franklin", but Franklin was challenged extensively on the point and in his closing submissions Mr East submits that "the resolution of Monica's housing benefit situation is more likely reason for the reduction in arrears". For the reasons I have given, I am satisfied that a figure in the region of £4200 was paid by Franklin, although I cannot be sure that it was exactly £4200.

iii) Did Franklin make a cash payment of £5800 to Monica? I am satisfied that a figure in the region of £5800 was paid and that the total sum paid including rent arrears was £10000.

iv) Did Monica repose trust and confidence in Franklin as to the management of her financial affairs? I find that Monica did not repose trust and confidence in Franklin as to the management of her financial affairs, either generally or in relation to this transaction. The only respect in which she relied upon Franklin was in relation to the initial instruction of Harvey Roberts (as she did not herself know any solicitors), and in relation to some of the dealings with Harvey Roberts. By the time Harvey Roberts had been instructed, the agreement between Franklin and Monica had been reached, and I find that Monica was not reliant or dependant upon Franklin in relation to that agreement, nor was she vulnerable in the sense used in the authorities to which I have referred.

v) For whom was Neil Bolton acting? Neil Bolton (and therefore Harvey Roberts) was acting expressly for Monica in relation to the purchase from Lambeth. In relation to the transaction between Monica and Franklin, he believed himself to be acting only for Monica but objectively he was acting also for Franklin.

vi) What, if any, advice was given by Mr Bolton to Monica? I am satisfied that Neil Bolton did advise Monica in relation to the structure of the transaction, namely that the equitable interest would be held on trust for Franklin pursuant to a declaration of trust, to be protected by caution, with the Property to be transferred to him after the three-year period in which such transfer was not possible."

v) reached the following conclusions in relation to what he referred to as the legal issues previously defined by him:

"Legal conclusions

48. In the light of my factual findings, the legal issues fall to be dealt with very briefly.

i) Presumed undue influence. I find that there was no relationship of trust and confidence. Further, I find that the transaction does not call for an explanation. It has been a significant part of Monica's case that, even on Franklin's case, he only paid her £10,000 in respect of the discount which was valued at £38,000 together with the value of her other rights (the right to receive housing benefit, the general rights of a secured council house tenant, the specific right of succession and the right to buy the property for herself in the future in the event that her financial circumstances changed) - Mr East asks in his closing submissions "why would any reasonable person acting on ordinary motives give up such a Discount for £10,000, enabling the other party to have the benefit of a purchase of a Property in Central London at 25.8% of the value which (according to Franklin himself) was a good rental prospect?". However, this overlooks the fundamental point that the discount was only of any value if it could be used. Monica was quite clear in her evidence that she had neither the capital resources, nor the income resources to fund a mortgage, to enable her to purchase the Property. In those circumstances, the discount was of no value to her. Moreover, it is quite clear from the correspondence with Lambeth that the Property could not be purchased unless the rent arrears were discharged, and Monica was clearly in no position to do that either. An agreement by which she received £10,000 was better than the alternative of moving to Florida and relinquishing her tenancy for no payment while retaining a liability for the rent arrears. For reasons I have already given, I am satisfied that she did intend to move to Florida at the time she reached agreement with Franklin. If I am wrong in my conclusion on these issues and the Deed was procured by undue influence, I would not conclude that Franklin has rebutted the presumption because the advice given by Neil Bolton was not truly independent.

ii) Mistake. In the light of my findings there was no mistake, and therefore even if Monica was not aware of the true nature of the Deed this makes no difference because she would have signed it had she been aware of its true nature. Further, even if Monica was mistaken as to the nature of the transaction, Franklin was not aware of this as he always proceeded on the basis that he was purchasing the beneficial interest in the Property.

iii) Misrepresentation. In the light of my findings, there was no representation by Franklin that Monica would obtain an interest in the Property if she entered into the transaction.

iv) Loan agreement. On the basis of my findings in relation to the Deed, this issue does not arise. There was never any agreement that the money advanced by Franklin was a loan.

v) Resulting trust. In the light of my findings, again this issue simply does not arise."

15. Accordingly he concluded that the Respondent was entitled to an order that the Property be conveyed to him and that the counter-claim should be dismissed.

The arguments on the appeal

16. On the appeal Mr East for the Appellant did not seek to challenge the primary findings of facts made by the judge or his conclusions as to the respective credibility of the various witnesses. The Appellant's case as set out in her grounds of appeal and as developed by Mr East in submission was that, in the light of the judge's findings of fact:

i) the judge's conclusion that there was no relationship of trust as between her and the Respondent was unsustainable;

ii) the mismatch between what the Appellant had received by way of payment from the Respondent and what she was giving up ought to have prompted the judge to conclude that the transaction called for an explanation.

17. In summary Mr East's submissions were as follows.
18. In relation to the judge's conclusion that there was no relationship of trust and confidence as between her and the Respondent, he submitted that:

i) The judge unduly relied on the evidence relating to the Appellant's views about the earlier loan arrangement, as summarised in paragraph 30 of the judgment; that incident had occurred around 14 years before the transaction took place and had related to a loan with a low value of not more than £450; his conclusion simply did not tally with the judge's finding that the Appellant was willing to rely on the Respondent to instruct and deal with Harvey Roberts, to the extent that 'virtually all' of the instructions provided to that firm were provided by the Respondent, and such that the only note of any substantive advice provided to the Appellant was that contained on the 22 May 2003 letter, in relation to what the Respondent himself described as the 'biggest deal of her [the Appellant's] life'; it must have been the case, therefore, that the Appellant was still willing to repose her trust in the Respondent despite her views about the earlier loan arrangement.

ii) In any event, the findings made by the judge in relation to the extent to which the Respondent managed the transaction on the Appellant's behalf ought to have prompted a conclusion that there was a qualifying relationship. The Appellant was clearly entrusting the Respondent with the management of her affairs in the sense referred to in Goldsworthy. That was in a context in which her learning difficulties meant that she needed assistance with some of the more complicated documents associated with the transaction (including the Deed) and may have been unable to understand them, as the judge found.

iii) The judge attempted to distinguish between the time at which the agreement was made, at which time he concluded the Appellant was not relying on or dependent on the Respondent, and the period after which Harvey Roberts had been instructed, when she was relying on the Respondent in the respects stated in paragraph 47 (iv) of the judgment. Although the judge did not make any precise findings as to the date of the agreement or the date on which Harvey Roberts were instructed, the Respondent stated in his oral evidence that the offer he made to the Appellant which gave rise to the agreement was made after December 2002, and that the instruction of Harvey Roberts took place in mid-April 2003.

iv) To the extent that the judge was relying on this distinction in coming to his conclusion that there was no relationship of trust and confidence was not sustainable. In Turkey v Awadh [2005] EWCA Civ 382 the Court of Appeal held that a relationship of trust and confidence will 'usually spring from a historic relationship between the parties of a general nature, that precedes the impugned transaction'; see per Buxton LJ at paragraph 10. The Court of Appeal went on to hold that there can even be cases where the relationship arises as late as the time of the transaction itself, because of the actual circumstances of the transaction itself, citing Macklin v Dowsett [2004] EWCA Civ 904. Here, the impugned transaction was the Deed (dated 26 August 2003), and the reliance which the judge found the Appellant placed in the Respondent preceded that by several months. This reliance was placed in the Respondent at the crucial time at which the purchase went through and the Deed was executed.

v) In any event, both prior to and after the instruction of Harvey Roberts, the Appellant was in a vulnerable position as per Etridge, both owing to her learning difficulties and consequential difficulty in understanding documents (see above) and owing to her financial position.

19. In relation to the judge's conclusion that the transaction did not call for an explanation, Mr East submitted that:

i) The judge's first point was that the Discount was only of any value if it could be used. However the Discount clearly was an asset of value. It amounted to a sum of £38,000 representing the difference between the then current market valuation of the Property, £147,000, and the purchase price of the Property which the Appellant had to pay, namely £ 109,500. Otherwise, why would the Respondent have paid £10,000 in exchange for it? On the deal as agreed, the availability of the right to buy and the Discount enabled the Respondent to purchase a property in Central London, which he himself had said in his evidence was a good rental property, for around 19% less than the asking price of an equivalent property where such a discount was not available. Taking into account the £10,000 payment, the outlay by the Respondent was £119,500. The difference between the value of the Property at the time (£147,000) and £119,500 was £27,500. Expressed as a percentage of the value of the Property, the reduction equalled 18.7%.

ii) Even if the Respondent had granted the Appellant a beneficial interest in the Property which was consonant with what she was contributing by way of the Discount, but making an adjustment for the £10,000 payment, the Respondent still would have been benefiting, in that his cash outlay would have been a lot less than it would have been if he was purchasing a property where no discount was available. If the Discount was an asset which was of value to the Respondent to obtain, it must have been of value to the Appellant.

iii) What the judge was required to ask was whether the undervalue represented by the difference between the rights the Appellant was giving up and the payment which she received was so large as not to be accounted for on the ground of friendship, charity or other ordinary motives on which ordinary men act. It was not a commercial transaction between two parties on an arm's length basis. It was an agreement between brother and sister in a familial context, and yet the Appellant:

a) received much less than the monetary value of the Discount at the time of the purchase - £10,000 versus £38,000 which did not even approach fair value and resulted in the Respondent receiving a significant windfall;

b) did not receive any beneficial interest in the Property, despite the fact that any normal person in the Appellant's position, having built up the maximum discount by virtue of paying the rent and living there for 16 years, and having contributed that to the purchase, would have expected her brother to give her such an interest in exchange for allowing him to participate in the purchase;

c) gave up a host of other rights, including the right to receive housing benefit, the general rights of a secured council house tenant, the right of succession to the secured tenancy and the right to buy the property for herself in the future in the event that her circumstances changed; in particular, the loss of the right to receive housing benefit would have had a particular impact in the event that the Appellant needed to return to the UK for any reason – as proved to be the case. It was notable that at no stage did the Appellant receive any advice about what she was giving up.

iv) The judge's second point (namely that an agreement by which the Appellant received £10,000 was better than the alternative of moving to Florida and relinquishing her tenancy for no payment while retaining a liability for the rent arrears) was not the right approach. It was not correct simply to compare the deal which the Appellant did get with another hypothetical situation where she would get nothing. The real question was to ask whether the difference between what the Appellant was giving up and what she received is explicable on ordinary motives. There was no evidence, for example, that the Appellant intended to make a gift to the Respondent, nor that £10,000 was all that the Respondent could pay.

v) Moreover, as for the fact that the Appellant was going to Florida, the judge wrongly failed to consider why it was that she was going, despite the fact that relevant evidence had been given on the point and declined to make a finding on the point when requested by the Appellant's counsel to do so.

20. This court did not call upon Miss d'Arcy to amplify her written submissions by oral argument. In her written submissions she supported the conclusions reached by the judge. She emphasised that credibility was at the heart of the case and that, as she had submitted below, this was not a case where the difference in the accounts between the Appellant and the Respondent could be attributed to honest mistake or difference in recollection. In circumstances where the Appellant did not appeal the findings of fact made against her at sub-paragraphs 47(i) to (iii) of the judge's judgment, it followed that the Appellant accepted the judge's findings of fact on those issues. But those findings were wholly at odds with her witness evidence, her evidence under cross-examination at trial and the case she advanced at trial - but entirely consistent with the Respondent's witness evidence, his evidence under cross-examination and his case at trial. She submitted that it therefore followed that this court should be extremely cautious about how it proceeded with the appeal. The judge was best placed to assess the parties' credibility. He did that after hearing 4 days' evidence at trial and after making a clear assessment as to the nature and demeanour of the witnesses and their evidence. Accordingly he was right to reach the conclusions that: (a) there was no relationship of trust and confidence between the Respondent and the Appellant, (b) that the transaction, namely the entering into of the Deed dated 26 August 2003, did not call for an explanation, and (c) that accordingly the Deed was not procured by undue influence.

Discussion and determination

21. In my judgment, the Appellant's challenge to the judge's principal conclusions that: (a) there was no relationship of trust and confidence between the Respondent and the Appellant, (b) that the transaction, namely the execution of the Deed dated 26 August 2003, did not call for an explanation, and (c) that accordingly the Deed was not procured by undue influence, in reality amounted to a wholesale attack on the judge's careful and holistic analysis of the entire factual situation as between the Appellant and the Respondent and his assessment of their respective credibility and their characters. A decision as to whether there is a relationship of trust and confidence as between two people, and whether a transaction has been procured by undue influence, is necessarily highly fact sensitive and justifiably dependent upon the view formed by the judge of the principal protagonists.
22. In my judgment, there is no justification whatsoever in the present case for this court going behind the conclusions reached by the judge. My reasons may be briefly summarised as follows.
23. As Lloyd LJ said in Cook v Thomas [2010] EWCA Civ 227 at [48] (with whom Sullivan and Laws LJJ agreed):

"an appellate court can hardly ever overturn primary findings of fact by a trial judge, who has seen the witnesses give evidence in a case in which credibility was in issue".

Whilst Mr East sought to suggest that his challenge was merely to the judge's conclusions of secondary fact, which he asserted were not justified in the light of his primary findings, the reality was that the Appellant was mounting an out and out challenge to the judge's primary findings of fact in relation to her relationship with the Respondent and the judge's assessment of their respective credibility.

24. The first point of critical importance to note is that the Appellant's primary case was that the financial deal between her and the Respondent was that: he would lend her the sum of £109,500 to purchase the Property; that he would pay further sums in respect of the legal fees connected with the transaction; that he would pay off the arrears; that the whole amount of the sums so paid would be an interest-free loan from him to her which the Respondent would recoup over an unspecified number of years (which the Appellant, according to her evidence, expected would take 15 years) by renting out the Property; and that she would remain the sole beneficial owner of the Property, subject to repayment of the loan. If that had been the true deal between the parties, it would have hardly been an unconscionable or bad bargain so far as the Appellant was concerned. On the contrary it would have been a very good deal from her perspective since she would have been getting an interest-free loan and, subject to repayment of the loan, retaining a sole beneficial interest in the Property. Her case was that in effect the Respondent had fraudulently tricked her by getting the Deed drafted along the lines that it was, knowing that, in the light of her learning difficulties, the Appellant would not be able to recognise what was happening or that the Deed did not reflect the true arrangement between them; see paragraph 5 of the judgment.
25. But that case was roundly rejected by the judge. He concluded that she was lying when she said that was the deal between the parties. He also rejected her case that the Respondent had tricked her into signing the Deed in the terms in which it was expressed. Her advancement of that primary case, and its rejection, meant that her alternative, and counter-factual, case that she had entered into the Deed because of the Respondent's undue influence and in the absence of appropriate advice as to what value she was receiving out of a transaction whereby she gave up her beneficial interest in the Property, hardly started its life in fertile soil.
26. In my judgment the judge was clearly entitled to come to the conclusion on all the evidence before him that the Appellant did not repose trust and confidence in the Respondent as to the management of her financial affairs, either generally or in relation to the particular transaction. In coming to that conclusion he was clearly entitled to rely on the Appellant's evidence that she mistrusted the Respondent as a result of their previous loan dealings; that she thought he was selfish; and that she rejected any suggestion that he provided financial assistance to her. It is obvious that the judge gave detailed and careful consideration to her evidence as to her alleged learning difficulties and, having seen her performance in the witness box, was clearly entitled to conclude that such difficulties as she did have did not affect her ability to understand the basic nature of the transaction and that they did not render her a particularly vulnerable person.
27. Of particular importance in this context were his findings in paragraph 36 of the judgment:

" ..in the way in which she gave her evidence she came over as an intelligent and forceful individual. Indeed, her witness statement suggests that she was the instigator of the agreement by which Franklin would lend her the money to buy the property and would then rent it out for as long as necessary to recover his outlay. I am quite satisfied that Monica is an independent lady well able to manage her own affairs, albeit with some assistance when necessary in dealing with more complicated forms and documents."

28. Nor was there any substance in Mr East's point that the judge had somehow concluded that there had been reliance by the Appellant upon the Respondent at the critical time of the transaction. All that the judge was saying in paragraph 47 (iv) of the judgment was that to a very limited extent, the Appellant had relied upon the Respondent in relation to the initial instruction of Harvey Roberts, as she herself did not know any solicitors, "and in relation to some of the dealings with Harvey Roberts." Precisely what the judge was referring to in the latter half of the sentence is not clear; it may well have been a reference to the fact that the Respondent paid all the legal fees in connection with the transaction. But what is clear is that the judge was not concluding that there was a relationship of trust and confidence as between the Appellant and the Respondent. Moreover the judge clearly held in paragraph 47 (vi) of the judgment that Mr Bolton had advised the Appellant in relation to the structure of the transaction, namely that the Appellant would hold the equitable interest in the Property on trust for the Respondent, to be protected by caution, with the Property to be transferred to him after the three-year period in which such transfer was not possible. If it be the case (as to which I express no view) that Mr Bolton, as the Appellant's solicitor, was negligent in failing to advise the Appellant as to the housing rights which she was giving up by purchasing the Property, going to Florida and transferring the beneficial interest in the Property to the Respondent, that is not a matter which in the circumstances of this case provides any reason why the judge should have concluded that somehow the Appellant reposed trust and confidence in the Respondent.
29. Likewise in my judgment the judge's conclusion that the transaction did not call for an explanation cannot be faulted. As the judge summarised in paragraph 48(i) of the judgment, although the Discount had a theoretical value of £38,000, in the particular circumstances of the case, namely where the Appellant was proposing to leave the Property to go and live in Florida, and had no available resources to raise, whether by way of mortgage or otherwise, the purchase price of the Property (including legal fees) or to pay off the rent arrears, neither the Discount, nor her housing rights (given her intended relocation to Florida), in real terms had any realisable value to her, unless she could find a purchaser of the Property effectively prepared to split the value of the Discount with her. She was clearly in a weak negotiating position given her personal circumstances. Against that evidential background, the judge was in my view clearly entitled to conclude that a deal whereby the Appellant received £10,000 effectively in consideration of making the Discount available to the Respondent, was not so commercially surprising as to call for an explanation. The split fairly represented her weak bargaining position and inability to raise funds. I do not consider that it could realistically be characterised as a "gift" at all. Even if it could be so characterised, it did not come within the category of gifts that are so "large as not to be accounted for on the ground of friendship, charity or other ordinary motives on which ordinary men act".
30. For the above reasons, I conclude that, on the evidence before him, the judge was entitled to reach the conclusion that the Deed should not be set aside on the grounds of undue influence.

Disposition

31. Accordingly I would dismiss this appeal.

Lord Justice McFarlane

32. I agree.

The Chancellor

33. I also agree.

Note 1   Again at paragraph 10 (i).    [Back]