Case digest

Agreement set aside on grounds of undue influence
Henry Thomas Vale v (1) Jason Armstrong (2) Terence Armstrong (2004)
[2004] EWHC 1160 (Ch) 21/5/2004

Mr Vale was a widower aged 78. He had relied on his wife to organise his financial and property affairs and became concerned that he would be unable to keep up with mortgage repayments on his house. Mr Vale suggested to his nephew, Terence, who was his attorney, that he purchase the property at a discount on the basis that he be allowed to occupy the property free of charge for the remainder of his life. Terence did not take him up on this but, subsequently, Terence’s son, Jason, agreed to purchase the property at a reduced price. There was an oral agreement between the parties that Mr Vale be allowed to remain at the property for free for the remainder of his life. As the property was sold undervalue, Mr Vale was provided with independent legal advice, although all communication was made to Terence. The solicitor gave evidence that he was unaware of the Law Society’s guidelines on the gifting of property and he had failed to ask relevant questions that would have had an impact on the advice given. Terence transferred the property on behalf of Mr Vale as attorney in October 2001.There was nothing in writing to reflect Mr Vale’s wishes. He continued to occupy the property until October 2002, when Jason and Terence asked Mr Vale to vacate the property.

Mr Vale obtained legal advice and his solicitors registered a caution against the property, contending that the property transfer to Jason should be set aside on the grounds of undue influence. After that, Mr Vale’s car and property were vandalised and he decided to move elsewhere.

Held:

Mr Vale had to show that he had trust and confidence in Terence, and that the transaction was not readily explicable by the relationship between himself and Jason (Royal Bank of Scotland PLC v Etridge (No.2) [2002] 2 AC 773 referred). As to the first, prior to the transaction, Mr Vale had trust and confidence in Terence to arrange his affairs so as to best serve his best interests in relation to the property. As such, Mr Vale left the arrangement of his affairs to Terence, without fully understanding them, trusting that his attorney and nephew would not take advantage of him. As to the second, there was no real friendship between Mr Vale and Jason and they hardly knew each other. There was an oral arrangement between them by which Jason agreed that Mr Vale could occupy the property for the remainder of his life. However, it was clear that the arrangement was manifestly disadvantageous to Mr Vale and so the burden of proof shifted to Jason and Terence to show that the transaction was not procured by undue influence.

Although Mr Vale suggested the outline of the idea, it did not operate to rebut the presumption. It was possible to set up the arrangement subject to a right of lifetime occupation by Mr Vale on terms, that were not manifestly disadvantageous to him. In addition, the legal advice received by Mr Vale before the transfer was inadequate and could not be taken as a true indication of his informed consent.

Terence had breached his fiduciary duty as attorney by assisting or procuring the transaction to take place. Jason was fully aware of the facts in the case and on that basis, the transaction and consequent transfer were set aside for undue influence.

Advance directive to refuse blood transfusion
The NHS Trust v Ms T (2004)
[2004] EWHC 1279 (Fam) 28/5/2004

Ms T suffered from a borderline personality disorder. Over the years she self harmed by cutting herself and blood-letting. The consequence of this blood-letting was that her haemoglobin level fell to a life threateningly low level, such that she required blood transfusion on an emergency basis. On 28 January 2004, Ms T signed an advance directive stating that she no longer wished to receive blood transfusions, partly as she believed that her blood was evil and contaminated the transfused blood.

In April 2004, an emergency application was granted to the health authority by the duty judge for Ms T to have a blood transfusion following further self harm. Subsequently, the health authority sought an interim declaration from the court for future emergencies. The court considered whether Ms T had capacity when she entered into the advance directive and whether, if not, it was in her best interests to receive the treatment.

Held:

1. Ms T’s references to her blood being evil showed a misconception of reality, which could be accepted as a disorder of the mind and evidence of incompetence. She had lacked capacity when she had signed the advance directive and this continued to the present time. It was not a case in which there was a possibility of a relevant change in her circumstances, as the evidence indicated that Ms T’s capacity had not changed since the signing of the directive and her history demonstrated that the emergencies were likely to be repeated with no material differences. The medical reports showed that if Ms T were not given a blood transfusion in such situations, she would die. On the available evidence, the balance of competing factors came down heavily in favour of Ms T having, in the future, the required life saving treatment. Re MB (Caesarean Section) [1998] 38 BMLR 175 and Re C (Refusal of Medical Treatment) [1994] 1 FLR 31 considered;

2. The nature of the relief sought in respect of medical treatment of an adult who lacked capacity meant that the declaratory relief was founded on a particular set of circumstances and facts. The declaration could be reconsidered if there was any material change in circumstances. So long as the person concerned had an opportunity to make representations, the court could make a final declaration in respect of the identified treatment, which it considered on the available evidence to be in the best interests of that person (St George’s Healthcare NHS Trust v S [1998] 3 WLR 936). Where such an approach found an effective final declaration, it followed that such an approach enabled the court to make a valid interim declaration R v R (Interim declaration; Adult’s residence) [2000] 1 FLR 451 applied.

A declaration would be made in the terms sought by the health authority.

Disabled facility grants and estranged spouses
R (on the application of Barry Fay) v Essex County Council (2004)
[2004] EWHC 879 (Admin)

Mr Fay suffered from multiple sclerosis and was substantially and permanently disabled for the purposes of s.29 National Assistance Act 1948. He was assessed under s47 of the NHS and Community Care Act 1990 and received a care package from the local authority. He was assessed as being a person whose home was in need of adaptations and so applied for funding from the local authority to do these under the Chronically Sick and Disabled Persons Act 1970. His wife owned Mr Fay’s home but they no longer lived together as husband and wife. She was not prepared either to contribute towards funding the adaptations or to disclose her means. Mr Fay was refused a disabilities-facilities grant pursuant to the Housing Grants, Construction and regeneration Act 1996, as he did not own the property.

Mr Fay claimed that the local authority had a duty under the 1970 Act to carry out and fund the adaptations, although he accepted that the most usual route for the provision of funding for adaptations to a home would be through a grant. Both parties proceeded under the basis that Mrs Fay would not be a person from whom costs could be recovered under s.17 of the Health and Social Services and Social Security Adjudications Act 1983 and this approach gave rise to a potential mismatch between the means of Mr Fay and his wife that could or would be taken into account for a grant.

The Borough Council had indicated that as Mr Fay was neither a tenant nor co-owner of the home, the application for a grant would have to be made by his wife. If she was to apply for a grant they would accept that Mr and Mrs Fay did not live together as members of the same household, enabling Mrs Fay to be disregarded in assessing Mr Fay’s grant entitlement. Mr Fay argued that s.17 of the 1983 Act was a recovery provision, which indicated that the means of the service user or users was a factor that should not be taken into account in determining whether the duty arose under s.2 of the 1970 Act.

Held:

If the adaptations were carried out by the local authority, pursuant to its duty under s.2 of the 1970 Act, it was arguable that Mrs Fay, as well as Mr Fay, would be a person who would have availed herself of the relevant services and would, therefore, be a person from whom the costs of the works could be recovered under s.17 of the1983 Act. This was based on the fact that the adaptations would be on Mrs Fay’s house. The adaptations could only be carried out with her permission because she owned the property. It followed that there was no substantive difference between Mrs Fay applying for a grant and her agreeing to the works being carried out by the local authority pursuant to a duty under s.2 of the 1970 Act.

It could not be said that it was necessary for the local authority to fund the adaptations to meet the needs of Mr Fay because it was likely that a grant would be available on the basis that Mrs Fay’s means would not be taken into account. It followed that in the specific circumstances, viz-a viz the relationship, the duty imposed by s.2 of the 1970 Act had not arisen and, therefore, the points argued as to the construction and application of s.2 and the reasonableness of the local authority’s decision did not arise. Both sides had taken an incorrect stance as to the availability of a grant and this error had an impact on the decision-making process of the local authority. The inaccuracies in the common position of the parties meant that it was not appropriate to decide the points of construction and reasonableness on the basis of the arguments presented.

Above cases compiled by Caroline Bielanska, a solicitor, TEP, lecturer and freelance consultant. She can be contacted at caroline.bielanska@ntlworld.com.

Circumstances in which the courts will allow a rectification of a deed of variation
Kenneth Lesley Farmer (the executor of the estates of Mr B J Hubbard and Mrs J M Hubbard, deceased) v Carol Jean Sloan [2004] All ER (B) 207

Mr and Mrs Hubbard made their wills on the same day in 1975, leaving their whole estates to each other, subject to survivorship clauses providing that their estates would go to their daughter, Mrs Sloan. Mr Hubbard died in 2000. His estate included the matrimonial home valued at £225,000, just below the then nil rate band of £234,000.

Mr Farmer, Mr Hubbard’s executor, suggested that the house should pass directly to Mrs Sloan to save inheritance tax on Mrs Hubbard’s death. Mrs Hubbard was then seventy four, in poor health and was dependent on her daughter for care. Mrs Sloan also independently asked Mr Farmer to make that suggestion to her mother.

The solicitor acting for Mr Farmer prepared the deed of variation, which was signed on 22 June 2001. Mrs Hubbard was by then living elsewhere with her daughter but did return to the matrimonial home to attend hospital appointments. The deed provided that Mr Hubbard’s will was to be construed as if it had taken effect from his death and as if the matrimonial home had passed to Mrs Sloan absolutely. In addition, clause two of the deed provided as follows: “It is hereby agreed that Mrs Hubbard shall be entitled to occupy the property, rent free, for the remainder of her life or until such time as she wishes to vacate the same.”

Mr Farmer sent the deed to the Inland Revenue, which replied accepting the election under Section 142(1) IHTA 1984, but pointing out that Mrs Hubbard now had a life interest in the property, which meant that it would be aggregated with her estate for inheritance-tax purposes on her own death. Clause two had, therefore, defeated the object of avoiding inheritance tax on the property as part of Mrs Hubbard’s estate on her death.

Mrs Hubbard died on 23 July 2001, one month after execution of the deed. Mr Farmer sought rectification to omit clause two and Mrs Sloan supported the claim. The Revenue were notified of the claim and indicated that they did not wish to be a party but drew the court’s attention to a number of authorities.

It was held by Mr Justice Rich QC that following the authority of Re Slocock’s Will Trust [1979], the court had a discretion to rectify, where it was satisfied, that a document did not carry out the intention of the parties. Parties are entitled to enter into any transaction that is legal and, in particular, are entitled to arrange their affairs in order to avoid the payment of tax if they can legitimately do so. If a mistake is made and the document is legitimately designed to avoid tax, there is no reason why it should not be corrected.

After reviewing the cases, the judge concluded that, if he was satisfied the document executed by the parties did not give effect to the true agreement between them, the court had jurisdiction to rectify it and should do so. Judge Rich also indicated that he must be satisfied the document did not give effect to the true agreement between the parties, rather than merely as to its failure to achieve its objective.

Based on the evidence, it appeared it had been no part of Mr Farmer’s instructions to his solicitor to include a reservation of rights to Mrs Hubbard, such as were included in clause two. The parties appeared to have understood what the words in clause two meant, but they agreed to its inclusion in ignorance of the fact that it destroyed the effectiveness of the deed to save inheritance tax on Mrs Hubbard’s death. The solicitor was equally ignorant of that fact so the judge held there was no doubt that the clause was entered into by mistake, the mistake being as to the effect of the provision on the main purpose of the parties.

On the basis of the facts and, in particular, the advanced state of arrangements for the purchase of a retirement flat close to her daughter and the payment of a deposit shortly after the execution of the deed, Judge Rich held that the solicitor had departed from the clear instructions given on behalf of all three parties to the deed and in including clause two, he had produced a document contrary to the parties’ true intention. Rectification was ordered.

Above case compiled by Julia Abrey, principal at Withers LLP. She can be contacted at julia.abrey@withersworldwide.com