England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand. London. WC2A 2LL
		7 November 2006

MR. JUSTICE PATTEN:

1. Mrs. Ruby Mary Hodson, who I will refer to in this judgment for convenience as Mrs. Hodson, died on 7th May 2006. She was survived by her two adopted sons, Paul Hodson and Mark Hodson who is the first defendant. Paul Hodson originally acted as her litigation friend but now sues following her death as her personal representative. He is one of the two named executors and trustees of Mrs. Hodson's will dated 29th April 1987 and he obtained a grant of probate on 14th September 2006. The other named executor is Mark Hodson. The two brothers are the sole beneficiaries under that will.
2. Mrs. Hodson was married to Mr. John Hodson who worked for most of his life for HSBC, both in Hong Kong and the United Kingdom where he was the head of their taxation department. Their family home was at 8 Collinswood Drive in Hastings. Mr. Hodson died on 25th November 2001. Mrs. Hodson had no working career as such of her own, although she may at one time have worked as a secretary. Her main interests and the focus of her life appear to have been her family and her home. She had no experience in financial matters and no business expertise. These matters were taken care of by her husband during his life. At the date of his death she was 72.
3. It is common ground that Mrs. Hodson was badly affected by Mr. Hodson's death and became extremely lonely and depressed. Although she did at one stage indicate to Paul Hodson an interest in buying a flat in Hastings and he put down a deposit of £2,000 to reserve a flat for her, the purchase did not proceed. Both brothers realized and accepted that their mother would not be able to cope on her own and would need supervision and support. There is evidence, which I accept, that she became disorientated and confused after her husband's death and unable to carry out even simple domestic tasks such as cooking. She was clearly in a fragile state both physically and mentally at that time and extremely dependent on her family.
4. Mrs. Hodson was the sole beneficiary under her late husband's will in respect of his estate over and above the nil band rate for inheritance tax purposes. The two sons therefore inherited about £121,000 each. Apart perhaps from occasional holidays in the Far East Mrs. and Mrs. Hodson lived modestly but had considerable savings. Mrs. Hodson was left with the house in Hastings worth some £180,000 in 2002, some British Government stocks which were sold in April 2002 and realized £217,994 and some shares which were sold in December 2003 for £455,819.71. In addition she had three National Westminster bank accounts into which dividends and her pension were paid. In August 2004 some investments in Hong Kong forming part of her husband's estate were sold and the proceeds amounting to £506,563.98 were also paid into her account.
5. On 30th November 2001 Mrs. Hodson executed an enduring power of attorney in favour of her two sons jointly and severally. The express purpose of that power was to allow them to manage her property and affairs. She clearly needed their assistance. Paul Hodson has a degree in economics and is a qualified accountant. Mark Hodson ran a courier business but was known by his brother to be in financial difficulties. The evidence of Paul Hodson is that he was aware of this but trusted his brother in relation to his mother's affairs and was apparently content to allow him to run them. What he says that he did not know at the time was that Mark was already subject to an IVA and had debts in excess of £300,000. He was subsequently made bankrupt in July 2004 on the petition of Her Majesty's Revenue and Customs.
6. Although, for the reasons which I will come to, the evidence in this case is limited it is fairly clear to me that Paul was willing and perhaps relieved to allow Mark and his wife Kim, who is the second defendant, to have the day-to-day care of his mother. He recognized that his mother could not manage on her own but his preferred solution was professional help, either in the form of a nurse or house keeper or some form of residential home.
7. Mark, by contrast, was willing to have his mother live with him and his family and this was a solution to the problem which Paul was glad to accept. The consequence was that Mrs. Hodson went to live with Mark and Kim at their home at 33 Rope Walk, Bridgwater in Somerset and on 12th April 2002 8 Collinswood Drive was sold. The net proceeds of sale were put towards the purchase of a new home for Mark and Kim known as Farthingdown Combe, Holywell Lake in Wellington. This was purchased on 19th April 2002 for £395,000. It is a large modem house with six bedrooms and after the purchase considerable works of renovation and improvement were carried out to the property including the conversion of the garage to provide a separate sitting room for Mrs. Hodson.
8. The property was purchased without a mortgage and the balance of the purchase price over the monies provided by the sale of 8 Collinswood Drive came from the sale of Mrs. Hodson's government stock. As I mentioned earlier this was sold on 18th April 2002 for £217,994. The proceeds of sale were credited to Mrs. Hodson's bank account and then transferred to the client account of Tudor Rose, the fifth defendant, who acted on the purchase of Farthingdown Combe. Tudor Rose is a firm of solicitors based in Abergavenny.
9. Throughout the period with which this action is concerned the fourth defendant, Mr. Cloutman, was a partner in that firm and had the care and conduct of Mrs. Hodson's instructions. Mr. Cloutman had met Mark in about 1999 whilst still a trainee solicitor. He qualified as a solicitor in about 2000. He said in evidence that he got to know Mark and liked him. He also became aware that Mark had serious financial difficulties. In October 2000 he gave him some help and advice in relation to a county court judgment and an application by Mark to set aside a statutory demand. Mark Hodson was not able to pay him to deal with his affairs generally and Mr. Cloutman said that he was consulted from time to time as and when his advice was needed. On most occasions Mark handled matters himself.
10. In May 2001 Mr. Cloutman was asked by Mark Hodson to investigate the possibility of obtaining a second loan to replace existing borrowings. Ultimately he was unable to assist but it must have been clear to him that Mark was heavily indebted and had no significant source of income.
11. Throughout 2001 Mark was engaged in repeated attempts to ward off his creditors until in July of that year a proposal was made for an IVA. Mr. Cloutman was aware of all this and indeed his firm was included in the list of creditors, although only in the sum of £200. He accepted in evidence that he must have been sent a copy of the IVA proposal.
12. The instructions to act for Mrs. Hodson on the purchase of Farthingdown Combe came in February 2002. The conveyancing was handled by Miss Gina Bevan, a conveyancing assistant, who was not a qualified solicitor, subject to Mr. Cloutman's supervision. Her letter of 18th February was addressed to Mrs. Hodson, care of Mark Hodson and all of the subsequent correspondence responding to requests for information came from him. It is, however, clear that the original instructions to Tudor Rose were treated by Miss Bevan as instructions to purchase Farthingdown Combe in Mrs. Hodson's sole name which would accord with the source of the purchase monies.
13. Mr. Cloutman confirmed that he was asked by Mark Hodson to do the conveyancing of Collinswood Drive and Farthingdown Combe for his mother and that he was aware that Mark Hodson was handling his mother's affairs. In his witness statement made as recently as 15th September this year and affirmed without correction at this trial Mr. Cloutman says that he first met Mrs. Hodson at the Celtic Manor Hotel in Newport early in 2002 prior to the client care letter of 18th February that year being sent out.
14. He goes on to say that at this meeting Mrs. Hodson explained that she wanted to sell Collinswood Drive to enable Mark and Kim to buy Farthingdown Combe so that she could go to live with them there and that the house was intended by her to be the future home for Mark and his family. But It became clear during his cross-examination that Mr. Cloutman has at best no real recollection of these alleged events and cannot now put an accurate date on his first meeting with Mrs. Hodson. He has no attendance notes of any of the occasions when he says he met her and took instructions from her and no other member of his firm was present at any of the meetings at this time. He said in evidence that at the meetings only Mrs. Hodson's family were around, by which I took him to mean Mark and Kim.
15. The statement of events in 2002 contained in Mr. Cloutman's witness statement is contradicted by the account of these matters which he gave to the police on 27th April 2005. In that interview he said that he did not meet Mrs. Hodson prior to the purchase of Farthingdown Combe and that he first visited her once she had moved to that house. This is consistent with a letter to him from Mark Hodson dated 29th October 2002 which included directions to Farthingdown Combe.
16. Mr. Cloutman's statement to the police also contains inaccuracies. He says in that statement that on two occasions he took a trainee along to the meeting. He now accepts this is untrue. He also told the police that notes of some of the meetings were taken. This is also incorrect. What is striking about the police interview is that Mr. Cloutman places his first meeting with Mrs. Hodson some time after the purchase of Farthingdown Combe and says that it was essentially a fact-finding exercise designed to obtain information about her asset position. This was, he said, part of a plan to create a trust for Kim and her children as part of an inheritance tax saving scheme.
17. In this action Mrs. Hodson's estate seeks to set aside and to recover the dispositions of her property in favour of Mark and Kim Hodson which took place between December 2001 and January 2005. During that period at least £1.5 million worth of assets, virtually her whole estate, were transferred or paid away in favour of Mark or Kim. In December 2004 Mark and Kim Hodson separated and they are now divorced.
18. In early 2005 the claimant began to investigate what had occurred in respect of his mother's assets and his mother was released into his care in April that year. Mark and Kim Hodson have now been committed for trial on charges of theft under section 1 of the Theft Act 1968. Mr. Cloutman has been charged with the forgery of a deed of severment which was backdated but never validly executed. The claim extends to three series of transactions.
19. The first is the acquisition of Farthingdown Combe using the proceeds of 8 Collinswood Drive and the sale of Mrs. Hodson's government stock. Although the claim, as originally formulated, sought to challenge the use of these assets in order to fund the purchase, Paul Hodson accepts that he was aware that the Collinswood Drive monies were being used for this purpose and that Mark and Kim did need to purchase a larger house if Mrs. Hodson was to live with them.
20. The focus of the challenge has therefore shifted from the purchase of Farthingdown Combe using these monies to the terms upon which that property was acquired. Although 100% of the purchase price was provided by Mrs. Hodson from her own assets, the house was transferred into the joint names of Mrs. Hodson and Kim and subsequently, in February 2003, into the sole name of Kim herself for no consideration. These transfers of value to Kim Hodson are said not to have been in Mrs. Hodson's bests interests, to have been made without her knowledge or authority and, in any event, to have been procured by undue influence or a breach of fiduciary duty by both or either of Mark Hodson or Kim Hodson.
21. Alternatively, Kim Hodson is said to have received the assets knowing that they had been obtained by undue influence or in breach of trust. She gave no value for the benefit she received and if the allegations against Mark Hodson are substantiated then at the very least she is susceptible to a claim to trace the property or its proceeds into her hands or the hands of the third defendant, a company which she controls.
22. The second set of transactions stems from the use of Mrs. Hodson's bank account. Between December 2001 and January 2005 over £900,000, derived in part from the Hong Kong investments and belonging to Mrs. Hodson, was paid out of her account either by direct bank transfers or by cheque. Most of the significant payments were by on-line transfers using a facility set up and operated by Mark Hodson. Many of these payments were made to a kitchen fitting business run by him in 2001, but the bulk of the payments were in favour of Kim Hodson and were credited to her bank account which was designated the A-One Account.
23. As is apparent from subsequent correspondence between her and various mortgage lenders this was used by her as her personal account and was the only bank account which she had during the period to which this action relates. In 2001, 2002 and 2003 many thousands of pounds were paid to her every month. In 2004 some of the payments went to Hodson (UK) Developments Limited, the third defendant, a property owning and development company which, as I said, was controlled by her.
24. In October 2004, some £44,995 was used to buy a Porsche motor car for Mr. Hodson and in November that year a further £195,000 was paid for a motor powerboat also for him. All these payments were made using the powers contained in the 2001 power of attorney under which Mrs. Hodson entrusted to Mark the management of her property and affairs.
25. The third set of transactions stem from the sale in February 2003 of Mrs. Hodson's United Kingdom shares. These shares were sold under a separate power of attorney given to Mr. Cloutman by Mrs. Hodson on 15th February 2003. They realized £455,819.71. The proceeds of sale were paid into Tudor Rose's client account from which they were subsequently disbursed: £197,792.92 was used by the third defendant to purchase a property known as Isle Barn in March 2004; £130,000 was paid directly to Kim Hodson; £37,545 was used by her to purchase a property known as 16 Charlotte Close; £16,650 was paid to the A-One Account on 10th August 2004 to meet the costs of a deposit on a property known as 2 Earl's Close also purchased by Kim Hodson; a further £29,059.85 was used to complete the purchase of that property and the remaining £40,190.43 was paid to a firm of solicitors, Messrs Murdochs, following the closure of the fifth defendant's office and is retained by them.
26. These payments are alleged to have been made by Mr. Cloutman in breach his fiduciary duties to Mrs. Hodson as her attorney and solicitor. He and the fifth defendants are also said to have acted negligently having regard to his knowledge of Mark Hodson's financial difficulties and Mrs. Hodson's vulnerability in allowing one half and subsequently the whole of Farthingdown Combe to be transferred to Kim and in selling and disposing of the proceeds of the sale of the shares in 2003.
27. Mrs. Hodson There is some medical evidence filed on both sides about Mrs. Hodson's level of understanding between 2001 and 2005, but no expert evidence has been called and I am reluctant to base my judgment on a finding that Mrs. Hodson did not understand the nature of what she was asked to do. The allegations of breach of fiduciary duty and undue influence do not depend upon that. It is commonly the case that the donor has a full understanding of the nature of what he or she is being asked to do but no real ability to resist the demands being made of them. It is lack of independence which is the key to the intervention of equity.
28. During the hearing I was shown a video recording of an interview which the police conducted with Mrs. Hodson in 2005. During that interview she appeared to have difficulties remembering certain dates and events and even the name of Paul Hodson. She showed signs of confusion but she denied having authorized any of the transfers in issue in these proceedings and it is partly on that basis that these proceedings were commenced in her name.
29. It is obviously right that I should make allowances for a deterioration in her health and powers of recollection between 2001 and the date of that interview and I do so. As I mentioned earlier in this judgment she was by common consent very lonely and depressed following the death of her husband and I am quite satisfied and find that she was completely dependant upon her children in relation to the handling of her property and affairs. The execution of the 2001 power of attorney is plain evidence of this. She was obviously vulnerable. Mr. Cloutman said in his evidence to me that he regarded her at the time as susceptible to influence by her family.
30. There is no doubt in my mind that Mrs. Hodson entrusted Mark Hodson as her attorney with the conduct of these matters and relied on him to act in her best interests but her trust and confidence also, I believe, extended to Kim. Kim Hodson was, on the evidence, Mrs. Hodson's primary carer and the person with whom she had most of her daily contact. Kim accepts that she got Mrs. Hodson on occasions to sign cheques which Mark Hodson had made out and she obviously trusted and relied on Kim to act in her best interests.
31. The same could be said of her relationship with Mr. Cloutman, but as her solicitor and attorney he was subject to the usual fiduciary duties of good faith and of acting in her best interests simply by virtue of the solicitor/client relationship between them and subsequently by the execution of the 2003 power of attorney.
32. The law imposes rigorous and inflexible duties on fiduciaries who enter into transactions with the person to whom the duty is owed. The burden falls upon them to justify the transaction and to prove affirmatively that it was a fair one entered into on the basis of proper and independent advice. This principle highlighted by Lord Browne-Wilkinson in his speech in CIBC Mortgages Plc v. Pitt [1994] 1 AC 200, 209, has an obvious application in this case to the payments made directly to or for the benefit of Mark Hodson from his mother's bank account. It also covers, in my judgment, all of the transfers of property to Kim Hodson, both in terms of the beneficial ownership of Farthingdown Combe and in respect of the cash transfers to her and to the third defendant. It is clear that all of this was done at the behest of Mark Hodson and for his indirect benefit. It was doubtless routed through his wife to avoid falling into his estate for the benefit of his creditors and he, I think, admits as much.
33. Therefore, quite apart from any issues of undue influence, the burden rests on the first and second defendants, in my judgment, to justify the fairness of transfers of value in their favour. The modern law on undue influence can be traced back to cases where equity constantly intervened to prevent persons 19^th century standing in a confidential relationship to the donor from abusing their trust or allowing themselves to benefit from the influence over the donor which flowed from the trust placed in them. In Allcard v. Skinner (1887) 36 Ch 145 Lindley LJ contrasted this situation with cases of alleged coercion.
34. At page 181 he said this:

"The second group consists of cases in which the position of the donor to the donee has been such that it has been the duty of the donee to advise the donor, or even to manage his property for him. In such cases the Court throws upon the donee the burden of proving that he has not abused his position, and of proving that the gift made to him has not been brought about by any undue influence on his part. In this class of cases it has been considered necessary to shew that the donor had independent advice, and was removed from the influence of the donee when the gift to him was made. Huguenin v. Baseley was a case of this kind. The defendant had not only acquired considerable spiritual influence over the plaintiff, but was intrusted by her with the management of her property. His duty to her was clear, and it was with reference to persons so situated that Lord Eldon used the language so often quoted and so much relied on in this case. He said (1) 'Take it that she (the plaintiff) intended to give it to him (the defendant): it is by no means out of reach of the principle. The question is, not, whether she knew, what she was doing, had done, or proposed to do, but how the intention was produced: whether all that care and providence was placed round her, as against those, who advised her, which, from their situation and relation with the respect to her, they were bound to exert on her behalf. This principle has been constantly recognized and acted upon in subsequent cases, but in all of them, as in Huguenin v. Baseley (2) itself, it was the duty of the donee to advise and take care of the donor."

Later at page 185 he said this:

"Where a gift is made to a person standing in a confidential relation to the donor, the Court will not set aside the gift if of a small amount simply on the ground that the donor had no independent advice. In such a case, some proof of the exercise of the influence of the donee must be given. The mere existence of such influence is not enough in such a case ... But if the gift is so large as not to be reasonably accounted for on the ground of friendship, relationship, charity, or other ordinary motives on which ordinary men act, the burden is upon the donee to support the gift."

35. These principles have now been refined and explained by the House of Lords in Royal Bank of Scotland v. Etridge [2002] 2 AC 773. This decision confirms that in each case the burden of proof is ultimately on the claimant but the factors identified by Lindley LJ are obviously highly relevant to whether the burden is discharged. In paragraphs 13 to 14 and 24 of his speech Lord Nicholls said this:

"13. Whether a transaction was brought about by the exercise of undue influence is a question of fact. Here, as elsewhere, the general principle is that he who asserts a wrong has been committed must prove it. The burden of proving an allegation of undue influence rests upon the person who claims to have been wronged. This is the general rule. The evidence required to discharge the burden of proof depends on the nature of the alleged undue influence, the personality of the parties, their relationship, the extent to which the transaction cannot readily be accounted for by the ordinary motives of ordinary persons in that relationship, and all the circumstances of the case.

14. Proof that the complainant placed trust and confidence in the other party in relation to the management of the complainant's financial affairs, coupled with a transaction which calls for explanation, will normally be sufficient, failing satisfactory evidence to the contrary, to discharge the burden of proof. On proof of these two matters the stage is set for the court to infer that, in the absence of a satisfactory explanation, the transaction can only have been procured by undue influence. In other words, proof of these two facts is prima facie evidence that the defendant abused the influence he acquired in the parties' relationship. He preferred his own interests. He did not behave fairly to the other. So the evidential burden then shifts to him. It is for him to produce evidence to counter the inference which otherwise should be drawn. ….

24. The second prerequisite, as expressed by Lindley LJ, is good sense. It is a necessary limitation upon the width of the first prerequisite. It would be absurd for the law to presume that every gift by a child to a parent, or every transaction between a client and his solicitor or between a patient and his doctor, was brought about by undue influence unless the contrary is affirmatively proved. Such a presumption would be too far-reaching. The law would out of touch with everyday life if the presumption were to apply to every Christmas or birthday gift by a child to a parent, or to an agreement whereby a client or patient agrees to be responsible for the reasonable fees of his legal or medical adviser. The law would be rightly open to ridicule, for transactions such as these are unexceptionable. They do not suggest that something may be amiss. So something more is needed before the law reverses the burden of proof, something which calls for an explanation. When that something more is present, the greater the disadvantage to the vulnerable person, the more cogent must be the explanation before the presumption will be regarded as rebutted."

36. Before turning to the specific transactions in issue I need to mention the way in which the trial has progressed before me. None of the defendants is legally represented which gives rise to obvious, but not insuperable, difficulty. Mark Hodson has served a defence but has not made any witness statement to explain his role in and the circumstances in which Mrs. Hodson came to make the gifts and transfers under scrutiny. In his defence he states that the transfers of property were part of what he describes as the restructuring of Mrs. Hodson's finances "to give a healthy return for the investment put into the third defendant". He also says that the transfers were always discussed and agreed to by Mrs. Hodson. The £150,000 transferred to the third defendant and the use of the proceeds of sale of the shares in 2003 are alleged to have been part of a trust. He says that Mrs. Hodson gave permission for all these transfers, was not subject to any illegitimate pressure and that he, Mark Hodson, acted at all times in her best interests.
37. The second defendant, Kim Hodson, has filed a defence in which she alleges that Farthingdown Combe was put into joint names after discussion with Mrs. Hodson, herself, Mark Hodson and Paul Hodson and that a trust fund was set up in 2003 or 2004 from which Isle Barn, Earl's Close and Charlotte Close were purchased. The trustee was Mr. Cloutman and she and her children were the sole beneficiaries. She says that the transfer of Farthingdown Combe into her sole name in 2003 was at Mrs. Hodson's instigation. She says she knows nothing of and was not responsible for the transfers from Mrs. Hodson's bank accounts, although many of the payments were made to her.
38. Kim Hodson has made a witness statement dated 14th September 2006. In this she confirms how upset Mrs. Hodson was after her husband's death and how desperate she was to come and live with them. She says that her mother-in-law was on the phone, often three or four times a day, crying and saying she could not live on her own. She says that Paul Hodson agreed to the house belonging to her and to her family and that he rarely visited his mother. Her evidence is that Mrs. Hodson set up the trust fund for her and the children in 2003 or 2004 but that she was unaware of the payments from the bank accounts. Her case is that Paul Hodson was an uncaring son and that Mrs. Hodson wanted to benefit the members of her family who had looked after her.
39. At the start of the trial Mark Hodson, Kim Hodson and Mr. Cloutman each applied for an adjournment of proceedings until after the forthcoming criminal trial. They said they were concerned about the possibility of incriminating themselves and about adverse press publicity which could jeopardize a fair criminal trial. I refused the adjournment because, as I explained in my judgment at the time, there is no privilege against self incrimination in relation to charges of theft, but the evidence given by Mark and Kim Hodson in these proceedings is not admissible at the criminal trial. To deal with the problems of adverse publicity I indicated that I could make orders restraining publication of these proceedings until after the criminal trial and soon thereafter I made such an order.
40. After Paul Hodson had given his evidence and been cross-examined by Mark Hodson and Mr. Cloutman I granted the defendants a short adjournment to consider their position and both the first and second defendants indicated that they might wish to give evidence but needed time to prepare. Mr. Cloutman said that he would give evidence in any event.
41. When the trial resumed Mark and Kim Hodson then declined to give evidence. Mr. Cloutman gave evidence for a day but then indicated that he would not attend the trial any further on grounds of cost. No other reasons were given for his non-attendance. The result has been that neither the first nor the second defendant has given evidence to justify or to explain the transfers of property by Mrs. Hodson and Mr. Cloutman has dealt only with the events leading up to the purchase and transfer of Farthingdown Combe.
42. Farthingdown Combe As I mentioned earlier it is clear that the original instructions were that this property would be purchased in the sole name of Mrs. Hodson. I do not accept Mr. Cloutman's evidence that he met Mrs. Hodson prior to the purchase or took any instructions directly from her. I believe and I find that the correct sequence of events is close to that given to the police. Although even that account was embroidered it does accord with the contemporaneous documents. Although Mr. Cloutman explained the discrepancies in his statements was due to stress, I am quite satisfied after hearing him cross-examined that he is prepared to put forward almost any version of events which suits his purpose and gives him an apparent justification for his conduct and that his evidence is not to be relied on except in so far as it is corroborated by other reliable evidence.
43. It is clear from the conveyancing file of the fifth defendant that the contract for the purchase of Farthingdown Combe was prepared with Mrs. Hodson as the only purchaser. It was sent to her, care of Mark Hodson, on 22nd February 2002. He then wrote to Miss Bevan on 25th February asking for the property to be transferred into the joint names of his mother and of Kim. No explanation was given to Tudor Rose for this change.
44. Mr. Cloutman said in cross-examination that he thinks his advice was that Kim Hodson ought to be given a share as part of an inheritance tax scheme and that he told Mrs. Hodson at the Celtic Manor hotel meeting what the inheritance tax implications were but it is clear, as he himself later accepted, that any meeting with her took place much later, if at all, and I reject any suggestion that Mrs. Hodson had received inheritance tax advice or indeed any advice about the change to joint names before the house was purchased. It seems clear to me that Tudor Rose simply acted on the instructions given by Mark Hodson without questioning them.
45. Mr. Cloutman was also asked about the transfer of the property into the sole name of Kim Hodson in 2003. In paragraph 12 of his witness statement he says that on 27th September 2002 he obtained and sent to Mark Hodson a report which he had prepared on inheritance tax.
46. Back in July 2002 BDO Stoy Hay ward had given written advice to both Mark and Paul Hodson about reducing inheritance tax on their parents' estates. The suggestion in that letter was that Mrs. Hodson should retain about £300,000 for her own use and benefit but should make gifts to both Mark and Paul and their respective families of the balance of her estate. Although this would include giving to Mark Hodson the benefit of her share in Farthingdown Combe, there was to be a balancing payment to Paul and his children with the balance of the estate being held in separate discretionary trusts for each branch of the family.
47. Paul Hodson said in evidence that he did not then know that his mother had paid the entire purchase price of Farthingdown Combe and thought that Mark and Kim had provided part of the purchase price, possibly through a mortgage. At this stage the question of inheritance tax planning was discussed but only between the two brothers. No one had approached Mrs. Hodson because the tax strategy was not yet agreed. The suggestion that the brothers should obtain further advice from Mr. Cloutman came from Mark Hodson.
48. Mr. Cloutman's report is largely based on the same scheme as set out in BDO Stoy Hayward's letter. Mrs. Kim Hodson was to receive Mrs. Hodson's share of Farthingdown Combe, estimated to be worth some £240,000, and Paul would get a balancing payment in the same sum. £1,000,000 would be divided between each of Mrs. Hodson's grand children, £250,000 per child, and the balance of £628,000 would be put in trust to give Mrs. Hodson an income in her life time with interests in possession in remainder to the grandchildren. There was to be a discretionary power of appointment amongst her children.
49. Even if, which I do not accept, Mrs. Hodson had received advice as of September 2002 from Mr. Cloutman about inheritance tax planning, these proposals do not suggest that she had any wish or intention to dispose of all of her property or that she intended to discriminate in favour of Mark and his family to the exclusion of Paul and his. Even if she harboured any disappointment at Paul's lack of attention there is no indication in this evidence that it extended to disinheriting him, still less to disinheriting his children.
50. In fact the report prepared by Mr. Cloutman had no input from Mrs. Hodson because shortly after sending the report Mr. Cloutman went to Farthingdown Combe to meet Mrs. Hodson for the first time. It is, however, clear from his diary entry for 5th November 2002 that he took with him the transfer of Farthingdown Combe to Kim. This contradicted the recommendation in his report and he gave no explanation for it in his witness statement beyond saying that it was an inheritance tax avoidance measure.
51. On 15th November 2002 Miss Susan Strong of Tudor Rose wrote to Mrs. Hodson and to Mrs. Kim Hodson thanking them for their instructions to prepare the transfer. It was completed on 19th February 2003. Throughout this time Paul Hodson says that he was proceeding on the assumption that the Tudor Rose proposals would be adopted. Mr. Cloutman said that Mrs. Hodson was aware of what was proposed but that he had no recollection of what was said at any of his meetings. He said that Mark Hodson was present at the meetings and that he spoke to Mrs. Hodson on her own for only a short time. He does not now even recall whether the transfer of Farthingdown Combe to Kim Hodson alone was discussed but it seemed, he said, a reasonable thing to do.
52. There is a reference to the transfer of Farthingdown Combe to Kim Hodson in the police interview where Mr. Cloutman refers to what he describes as the justice of the proposal. When asked to explain this he said that it seemed right for Mark and Kim to end up as owners of Farthingdown Combe because they had taken care of Mrs. Hodson. But the proposal as he saw it, and as outlined in his report, was for the position to be equalized between Mark and Paul and their families by the subsequent distributions that were made. He said that he did not know Mark had already received large sums from Mrs. Hodson's estate through her bank accounts. It seems to me, and I find, that Mr. Cloutman and Tudor Rose were simply content to act on the instructions of Mark and Kim and to transfer Farthingdown Combe to Mrs. Kim Hodson without giving Mrs. Hodson any advice about the consequences or satisfying themselves that she fully understood the implications of what she was doing and was acting of her own free will.
53. The same position had obtained in 2002 when the property was first purchased in joint names. The consequence of transferring 100% of the equity to Kim Hodson was that Mrs. Hodson lost any rights over the property and the security which it provided. Mrs. Kim Hodson was free to raise money on the property which she proceeded to do almost at once. Mr. Cloutman and Tudor Rose had a clear obligation to ensure that Mrs. Hodson had independent advice before proceeding. She could, undoubtedly, have been advised both in 2002 and 2003 not to give up her interest in the property and that the avoidance of most of the inheritance tax payable on her death could be achieved by gifting away her other assets. This would also have allowed her to benefit Paul and his children which, as I have already indicated on the evidence, I have no reason to suppose she would not have wished to do.
54. As it was, the property, in effect, was simply taken away from her without any of these precautions being observed. Mr. Cloutman gave no more evidence and in the absence of cross-examination and corroboration I do not place any real weight on the other evidence contained in this witness statement.
55. What the documents show is that on 21st January 2003 Mrs. Hodson purported to change her will so as to leave her interest in Farthingdown Combe to Kim. I am told that it is accepted that this will was not validly executed in the presence of the attesting witnesses, even if it was executed by Mrs. Hodson at all which is apparently in issue.
56. On 15th February 2003 the power of attorney in favour of Mr. Cloutman was executed. Farthingdown Combe was then transferred to Kim Hodson on 19th February. Some time in 2004 a draft of a settlement in favour of Kim Hodson and her children, but not in favour of Paul or his, was prepared by Mr. Cloutman but never executed.
57. In December 2004 the shares were sold. In June 2004 a potential mortgagee, Home Loans Direct, asked for confirmation of the source of the deposit for the Earl's Close property. Tudor Rose then received from Mark Hodson a copy of a letter purportedly signed by Mrs. Hodson and dated 8th January 2004 confirming that the proceeds of sale of the shares were to be held on trust for Kim.
58. However, as late as 28th January 2004 Tudor Rose had sent a further letter to Mrs. Hodson on a tax plan following the sale of the shares. This letter contemplates setting up a trust of the proceeds itself for both Mark and Paul and including in it the proceeds of sale of shares in Hong Kong which had in fact already been paid to Mrs. Hodson and were the monies used to make the payments to Mark and Kim through her bank account.
59. Mr. Cloutman accepted in his police interview that the letter of 8th January must have been prepared and backdated by Mark, although in his witness statement in this action he seeks to rely on it. That reliance is, I am afraid, typical of his conduct in these proceedings. The letter was obviously an after thought by Mark Hodson designed to deal with the query raised and was deliberately backdated. That conduct says a lot about the propriety of his conduct in relation to his mother's affairs.
60. On 8th April 2004 Tudor Rose paid £130,000 to Mrs. Kim Hodson by cheque. The accompanying letter said that Mr. Cloutman had authorised the release and confirmed that the money "will be written into some sort of trust to protect your mother's estate" and will deal with it after the Easter break. If fact he never did so. No trust was ever validly executed.
61. Conclusions I have no doubt at all that Mrs. Hodson was dependent on both Mark and Kim and that she had no real capacity to act against their wishes. She needed to live with them and was essentially quiescent. The view I have formed is that she handed control of her property and affairs to Mark and was content to go along with what he asked her to do. To the extent that she expressed any views about the various transfers in question, the only evidence, that of Mr. Cloutman, was that her assets should be shared between both her children and all of her grandchildren. That was certainly the position adopted in the inheritance tax advice contained in Tudor Rose's letter.
62. Although Mrs. Kim Hodson was to obtain Farthingdown Combe, an adjustment was to be made in favour of Paul Hodson to account for it. My own view is that Mrs. Hodson never got a real opportunity to express or to have her wishes given effect to. Had she done so there is no reason on the evidence to believe that she would not have wished to benefit both sides of her family whilst safeguarding her own position. There is no evidence as to why these wishes were not complied with beyond the facts of the transactions themselves.
63. Neither Mark Hodson nor Kim Hodson have sought to justify the transfers in their favour and Mr. Cloutman decided to cease giving evidence, as I have indicated, after being cross-examined for one day. The scale of the transfers demands a proper explanation. They cannot be explained simply by the fact that Mark and Kim were Mrs. Hodson's son and daughter-in-law. Or by the fact that they were looking after him. Mark Hodson's suggestion in his defence that the transfers were made as part of some financial restructuring or to give a healthy return is, I am afraid, little short of absurd.
64. The schedule of payments from the bank accounts derived from the Hong Kong investments strongly indicates that Mark and Kim simply treated Mrs. Hodson's money as if it were their own. The payments began in late 2001, long before any suggestion of the trust was made, and much of the money was spent on paying bills, supporting Mark Hodson's business or on expensive boats and motor cars. This was neither the investment of Mrs. Hodson's money nor even its structured use as the basis for a trust. No trust was ever executed and Tudor Rose appear to have been kept in the dark about the £500,000 from Hong Kong that Mark Hodson paid away to himself and his wife.
65. Mrs. Hodson's dependent position, the fiduciary nature of Mark Hodson's position as an attorney and of Kim as her carer and the size of the transfers in their favour are more than adequate to raise an inference of undue influence and there has been no evidence to rebut it. Looked at in terms of fiduciary duties Mark and Kim Hodson have not discharged the burden of showing that the transactions were fair and freely entered into on the basis of proper advice. Mrs. Hodson got no advice and certainly none from an independent solicitor whose concern was to put her interests above those of his other client and friends.
66. These transfers left Mrs. Hodson with no assets at all; nothing she could pass to her grandchildren; nothing she could use to provide for her own needs at the end of her life. She obtained no benefit from any the transfers. One only needs to think of the purchase of the motor cars and the boat to see that the only persons to benefit were the first and second defendants.
67. There will be judgment against them both for breach of fiduciary duty and on the basis of undue influence. All of the transfers which Mark made as her attorney, whether in his favour or to Kim Hodson or to any other party, will be set aside. Mark and Kim are also accountable in my judgment for all sums or property so transferred. All these transfers were in breach of fiduciary duty. At no time was any consideration given to the best interests of Mrs. Hodson and all the transfers were against her best interests even if made with her formal authority.
68. Even if I had taken the view that Kim Hodson was not a fiduciary herself she was at the very least a knowing recipient of Mrs. Hodson's assets, obtained in breach of fiduciary duty by Mark and is accountants accordingly. It is impossible to believe that she was unaware of the transfer of Farthingdown Combe to her or of the transfers made into her own bank account or of the circumstances in which they were made. I do not accept her defence that she was the unwitting party in all of this. She is clearly an intelligent person with some business experience as her dealings with mortgage lenders show. No sooner had Farthingdown Combe been transferred to her that she was raising money on the security of it. She gives no explanation of how it is possible to square her alleged ignorance of the bank transfers with the receipt of most of the money into her account.
69. I leave aside other evidence which it is said shows that she was prepared to lie to mortgage lenders in order to obtain loans. I am quite satisfied that she was fully aware of the transfers in her favour and complicit in the abuse of Mrs. Hodson's trust by her husband.
70. She also gave no value for the property and therefore, quite apart from personal accountability, the property is traceable into her hands and those of the third defendant. There will be judgment against her accordingly for breach of fiduciary duty and for knowing receipt.
71. That leaves the fourth and fifth defendants. It seems to me that both Mr. Cloutman and Tudor Rose, his firm, are liable in negligence for failing to advise Mrs. Hodson of the dangers involved in transferring, first, 50% and then 100% of her interest in Farthingdown Combe to Kim Hodson and for not giving her proper advice in relation to the sale and distribution of the proceeds of her UK shares in 2003.
72. I have already set out why she needed independent advice and the likelihood that if given such advice she would not have made any of the transfers except as part of a properly thought out tax planning scheme which also safeguarded her own position. Mr. Cloutman, by his own admission, was aware in 2002 and thereafter of her vulnerability and had a duty as part of his retainer to protect her. In fact he simply gave effect to Mark Hodson's instructions, despite the obvious dangers to Mrs. Hodson. If his duties to Mark prevented his giving such advice then that merely confirms the impossibility of his and his firm's position. They should have ceased to act and should have put Mrs. Hodson into the hands of independent solicitors.
73. There is an alternative position about the proceeds of sale of the shares. Mr. Cloutman's duty as a solicitor was to act on Mrs. Hodson's instructions. On his case his instructions were to use the proceeds of sale to provide benefits for a trust for the grandchildren and to set aside a sum for Mrs. Hodson's own use. In fact he allowed the money to be expended before my trust of any kind was ever set up. He had no authority to do this and the disbursement of the monies without authority was a plain breach of trust.
74. One has to ask what would have been the position had Mrs. Hodson been asked for her consent and been given proper advice? It seems to me that if told that Mark and Kim had already received large parts of her estate, including Farthingdown Combe, she is likely to have wanted to retain the proceeds of sale either for herself or for Paul's children. Mr. Cloutman and Tudor Rose are therefore liable to make good the fund with interest.
75. There will, therefore, be judgment against the fourth and fifth defendants for the value of the interest in Farthingdown Combe transferred to Mrs. Kim Hodson and for the proceeds of sale of the United Kingdom shares.
76. The other issue in the action is the claim for the return of some antique furniture belonging to Mrs. Hodson which is apparently at Farthingdown Combe. No adverse claim of title is made to this furniture and its delivery up is sought as part of the administration of Mrs. Hodson's estate. A schedule has been prepared and I will order the delivery up of those items in accordance with that schedule.