FE1 EQUITY & TRUSTS NIGHT BEFORE NOTES Twelve Topics for Careful Revision (page numbers refer to City College’s FE1 Equity Manual) Trusts
P 35 – 36, Strong v Bird P 37 – 40, Donatio Mortis Causa P 43 – 52, Secret Trusts P 57 – 70, Charitable Trusts P 85 – 93, Resulting Trusts, including: a. P 90 – 92, Quistclose Trusts b. P 94 – 95, Joint Deposit Accounts P 125 – 135, Trusteeship P 141 – 150, Tracing
p 153 – 180, Injunctions (particularly Mareva Injunctions (pp.169 -180) p 189 – 198, Specific Performance p 205 – 211, Rectification p 213 – 229, Rescission & Undue Influence p 246 – 255, Proprietary Estoppel
Equity
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TRUSTS DONATIO MORTIS CAUSA King v Chiltern Dog Rescue [2015] EWCA Civ 581 (King v Dubrey [2014] EWHC 2083 appealed) The English courts have considered the concept recently in King v. Dubrey (2014) and Vallee v. Birchwood (2014). In Vallee v. Birchwood, deputy High Court judge Jonathan Gaunt QC, in upholding a DMC, asserted that the requirement for contemplation of death in such cases did not mean that the donor had to be in extremis. In this case, the donor was visited by his daughter, and, at the end of the visit, she told him she would see him again at Christmas. He told her that he didn’t expect to live that long, and proceeded to hand her the title deeds and keys to his house. He died intestate three months later. It was held that such a gap between the alleged gift and death was not fatal to the claim, even though, during this time, the donor continued to live in the property without any involvement or interference from the donee. In King v. Dubrey, it was stated that the task for the court is to distinguish between a genuine DMC and an attempt to make a testamentary gift other than in accordance with the...Act, ‘... no case of this description ought to prevail unless it is supported by evidence of the clearest and most unequivocal character.’ The claimant had lived with his elderly aunt for four years before her death. He asserted that his aunt wished for him to have the property and ‘find a nice lady for him to share it with’. Some four to six months before her death, she presented him with the title deeds to the house, saying ‘this will be yours when I go’. The court, in upholding the gift, deemed this parting with possession to be particularly important, notwithstanding that the deeds remained in her house, albeit in Mr. King’s bedroom. On appeal to the Court of Appeal, Hollander J’s decision at first instance was reversed. Jackson LJ’s judgment has significantly limited the circumstances within which a valid donatio mortis causa will be deemed to have arisen. The decision establishes that a valid DMC must be made in contemplation of imminent death for a specific reason. Jackson LJ said that the requirement that the gift be made in contemplation of death necessitated “death in the near future for a specific reason.” A general feeling of approaching the end of one’s natural lifespan was not sufficient.
CHARITABLE TRUSTS Irish charity law has undergone a significant overhaul following the enactment of the Charities Act 2009, the most important parts of which only became effective in 2014. The Act is the first attempt by the legislature in Ireland to define what is legally charitable. It provides a new definition of ‘‘charitable purpose’’ for the first time in primary legislation. The Act also provides for the establishment of a new Regulatory Authority to secure compliance by charities with the legal obligations and also to encourage better administration of charities. Jurisdiction regarding charities previously vested in the Attorney General is transferred to the authority under the terms of the Act.
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The classification of charitable purpose within Section 3(1) of the Act mirrors almost identically the four broad categories identified by Lord Mac Naghten in Commissioners for Special Purposes of Income Tax v Pemsel, namely: (a) the prevention or relief of poverty or economic hardship; (b) the advancement of education; (c) the advancement of religion; (d) any other purpose that is of benefit to the community. Moreover, s 3(2) of the Act explicitly states that as well as falling into one of the four classifications, the gift must be for the public benefit. Unlike the McNaghten classification, the concept of public benefit established in the Act does not vary as between the different categories of charitable trusts. Section 3(3) of the Act also allows great flexibility in construing ‘‘public benefit’’. Whilst stating that a gift will not be regarded as being for the public benefit unless it is intended to benefit the public or a section of the public, the Act goes on to provide a gift which confers a benefit on a person other than in his or her capacity as a member of the public or a section of the public will not fail if any such benefit is reasonable in all of the circumstances, and is supplementary to, and necessary for the furtherance of the public benefit. Section 3(7) of the Act provides factors that shall be taken into account in determining whether a gift is of public benefit or not. Account will be taken of any limitation imposed by the donor of the gift on the class of persons who may benefit from the gift, and whether such limitation is justified and reasonable, having regard to the nature of the purpose of the gift. Section 3(7)(b) provides that account will also be taken of the amount of any charge payable for any service provided in furtherance of the purpose for which the gift is given and whether it is likely to limit the number of persons or classes of person who will benefit from the gift. Section 3(8) establishes that a limitation shall not be justified and reasonable if all of the intended beneficiaries of the gift or a significant number of them have a personal connection with the donor of the gift. Section 3(11) lays out a list of charitable purposes that are of ‘‘benefit to the community.’’ Included in this list is:
the advancement of community welfare, including the relief of those in need by reason of youth, age, ill-health, or disability, the advancement of community development, including rural or urban regeneration; the promotion of civic responsibility or voluntary work within the community; the promotion of health, including the prevention or relief of sickness, disease or human suffering the advancement of conflict resolution or reconciliation; the promotion of religious or racial harmony and harmonious community relations; the protection of the natural environment; the prevention or relief of the suffering of animals the advancement of the arts, culture, heritage or sciences and;
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the integration of those who are disadvantaged, and the promotion of their full participation, in society.
According to Tobin (Annual Review of Irish Law, 2009, at p.447) ‘gifts for sporting and recreational purposes are not recognised under s.3(11), and neither are gifts for political purposes because an “excluded body” under s.2 includes a political party, or a body that promotes a political cause, unless the promotion of that cause relates directly to the advancement of the charitable purpose of that body. Thus, it would appear that a body that is primarily charitable may use political means to achieve its charitable goals under s.2, as recognised by Oonagh Breen in (2008) 59 Northern Ireland Legal Quarterly 223 at 227’. Later (at p.449) he notes that ‘section 3(7) and (8) and s.2(2)(a) of the 2009 Act are significant provisions in that they effectively make it impossible for trusts for poor relations/employees to attain charitable status in this jurisdiction from now on given the personal connection between the donor and beneficiaries of the gift. These sections will also enable the Irish courts to continue to disqualify trusts for the advancement of education from charitable status where there is a personal connection between the donor and the intended beneficiaries.’
CHARITABLE TRUSTS & THE ADVANCEMENT OF EDUCATION Most private (fee paying) schools in the UK which are not 'for profit' are entitled to charitable status. A useful (relatively) recent decision is Independent Schools Council v. Charity Commission (2012). The focus was on the public benefit requirement, and whether these schools adequately met the requirement simply by educating the children enrolled. It was held that such schools must provide a public benefit over and above that provided by educating their students. Such benefit must also be "more than a token benefit" to those who generally cannot afford to send their children to such schools. On the other hand, schools were not obliged or limited to offering bursaries and scholarships when meeting the public benefit requirement. For example, sharing facilities or teaching staff with state schools might suffice. “Once provision is made for the “poor” which is more than de minimis or merely token, we see no reason why an identified wider benefit should not be taken into account in deciding whether, overall, the way in which the school is being operated is for the public benefit.”
SECRET TRUSTS In the Estate of Lucien Freud (2014), the High Court (UK) upheld a fully secret trust created by the testator in respect of a large part (£42 million) of his £96 million estate. The testator, who was obsessively secretive, had at least 14 children, one of whom was that claimant, and none of whom were provided for under his will
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RESULTING TRUSTS While the entirety of Resulting Trusts is ripe for examination, certain sub-topics has proven to be particularly popular with your Examiner:
JOINT ACCOUNTS Write a short note on Joint Accounts (10 marks) Suggested Solution: A resulting trust is one which arises to fill a gap in the beneficial ownership of property (Re Vandervell’s Trust). There are two forms of resulting trust, the automatic resulting trust and the presumed resulting trust. The latter has been utilised in circumstances where there has been a transfer of property by one party into an account held jointly. Delany notes that this is usually done in a manner which allows the transferor or depositor alone to retain dominion over the money in the account during his lifetime but which displays the intention that the balance should go to the other party should he survive him. For more than 60 years, Irish law was represented by Kennedy CJ’s decision in Owens v Greene (1932). The deceased died in 1930, aged 92. He had made his will the previous day. This action concerned two sums of money which he had placed on deposit, the first, £5,000 was in the name of the deceased and Pat Freely. The second sum, £10,826 was in the joint names of himself and Michael Owens. The question at issue was whether these named persons took the respective sums under the right of survivorship, or held the sums under a resulting trusts for the estate of the deceased. The bank manager gave evidence that the deceased was very secretive and visited the bank each day to see how the money was doing. In relation to both deposits, the second party had no knowledge of the existence of the account. Three months before his death, the deceased told the bank manager that under no circumstances should anyone be made aware of the existence of the accounts. The two named individuals should only be made aware on his death, and at this stage the deposit books were to be handed over to them. Kennedy C.J. held that this was a case of an incompletely constituted trust, and as a result the two men held the property on resulting trust for the estate of the deceased. It was not sufficient to prove a merely testamentary intention, because a testamentary gift can only be made by will (with the possible exception of secret trusts and the donatio mortis causa). The deceased never intended to make the money in the joint accounts as an immediate gift. This decision had the effect of overruling Diver v McCrea (1908), where it was held that no resulting trust arose in circumstances where the depositor had kept control and dominion over the monies in a joint account during his lifetime. However, in Lynch v Burke and AIB (Supreme Court, 1990) O’Flaherty J. rejected the opportunity to distinguish Owens v Greene and instead held it to have been wrongly decided. In doing so, he overturned the decision of O’Hanlon J. at first instance. In this case, the plaintiff, Lynch, was the executrix of the will of S. In 1983, S had opened a deposit account with AIB. Until her death, she made lodgements into, but made no withdrawals from, the account. The account was in the names of S and Moira Burke, her niece. The account was expressly made payable to S only or the survivor of the two. S kept control of the deposit book at all times. The niece was told about the account and travelled from Scotland to sign bank documentation relating to the account. S had made a will two months before opening the account, and left all of her property to the plaintiff, her executrix. In this action, the plaintiff sought a declaration that the monies in the account were held by Ms Burke on © Philip Burke, City Colleges www.citycolleges.ie
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resulting trust for her benefit. In the Supreme Court, O’Flaherty J. placed emphasis on the fact that the niece was a party to the opening of the account. He stated that the money in the account could only be part of the estate if the plaintiff could prove that there was an equitable obligation on Ms Burke which made her a trustee of the money which prima facie she was taking under the right of survivorship. In this case, because there was a voluntary transfer to Burke without consideration moving from her, without an express trust being declared and without circumstances giving rise to the presumption of advancement, therefore a prima facie presumed resulting trust arose. However, the presumption (of resulting trust) was rebutted by evidence that the intentions of the deceased were inconsistent with the presumption. O’Flaherty J. concluded that: ‘‘Since historically the concept of an implied or a resulting trust was an invention of equity to defeat the misappropriation of property as a consequence of potentially fraudulent or improvident transactions, it would surely be paradoxical, if the doctrine was allowed to defeat the clear intention of the donor as found by the trial judge’’. In Aroso v. Coutts & Company (2001), Collins J. considered Romer J’s decision in Young v. Sealey [1949], and noted that the latter, having cited Owens v. Greene [1932], declared he found the reasoning utilised in that decision to be “appealing”. Conversely, O’Doherty, ‘Lynch v Burke - The Supreme Court Heralds the Validation of Post Mortem Dispositions, commends O’Flaherty J’s conclusion for its ‘appealing logic’. She notes that ‘if we enjoy freedom of disposition of our assets, and if the intention to dispose of an asset is clear, it seems indeed a nonsense to allow that intention to be defeated.’ Delany also welcomes the decision as having ‘laid to rest the paradoxical decision of Owens v Greene once and for all’. More recently, in O’Meara v. Bank of Scotland (2011), Laffoy J upheld the validity of a joint account created by a husband before his death which was in the joint names of himself and his wife. He was, at the time of his death, heavily indebted to the defendant bank, which in turn to set off some of the monies owed against the funds in the joint account. Laffoy J held that no such right of set off existed in the circumstances, and, following Lynch v Burke & AIB (1995), she held that “the legal effect of the opening of that account in the joint names of Mr. O’Meara and the plaintiff on foot of the application signed by both of them was that the defendant became contractually bound to both account holders and, as a matter of contract between the plaintiff, as surviving joint account holder, and the defendant, she became entitled to the balance in the account on the death of Mr. O’ Meara.”
QUISTCLOSE TRUSTS Write a short note on Quistclose trusts (10 marks) Hanbury and Martin state ‘‘there can be no resulting trust where a donor has parted with the property in pursuance of some contract except in rare cases exemplified by the 1970 case of Barclays Bank plc v Quistclose Investments’’. A Quistclose trust may arise where a lender and borrower intend, in relation to moneys advanced to a borrower for a specific purpose, that: (a) the lender shall retain the beneficial interest in the moneys advanced; and (b) the moneys advanced shall constitute a fund separate from the assets of the borrower until the purpose has been fulfilled. If such an intention can be proved, both the law of trusts and the law relating to debt will govern the relationship of the parties. There have been various and confused explanations of the Quistclose trust including analyses based on the illusory trust, the purpose trust and the constructive trust (Burns, 1992, Monash University Law Review 7). Lord Millett has observed that “the so-called Quistclose trust probably represents the single most important application of equitable principles in © Philip Burke, City Colleges www.citycolleges.ie
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commercial life" (foreword, The Quistclose Trust; Critical Essays, Swadling). Delany notes that ‘‘considerable debate has surrounded the manner in which the so called ‘Quistclose’ trust should be classified. While it may be considered to be a form of express trust, the secondary trust which will arise in some circumstances can be classified as an automatically resulting trust… Although there has been no consideration given to the type of trust recognised in the Quistclose case yet in this jurisdiction, trusts of this nature are likely to assume increasing significance in the future”. In the House of Lords’ decision, Barclay’s Bank Ltd v Quistclose Investments Ltd, Rolls Razor Ltd, declared a dividend to shareholders that they couldn’t meet, and so borrowed a sum of money from Quistclose for that purpose. It was explicitly agreed that the loan could be used for this purpose only. The money was to be paid into a separate bank account in Barclay’s Bank. The dividend was payable on 24th July 1964, but had not been paid when, on 27th August, the Company entered voluntary liquidation. Barclays and Quistclose both claimed the money. The House of Lords held that the money had been paid into the account on trust for the purpose of paying the dividend, and that since this purpose could not now be carried out, it was held on a resulting trust for Quistclose. As Lord Wilberforce said: ‘‘the loan for the express purpose of ensuring the payment of the dividend gave rise to a relationship of a fiduciary character or trust in favour, as a primary trust, of the creditors, and secondarily, if the primary trust failed, of the third person, namely the institution which had made the loan. In such cases, it is not necessary that the term ‘trust’ is used provided the conditions outlined above namely in relation to segregation of the funds and specifying the purpose for their use, have been complied with’’. Lord Millett considered the limitations placed on the transferee under a Quistclose trust in Twinsectra v Yardley (2002) and concluded that “the question in every case is whether the parties intended the money to be at the free disposal of the recipient. His freedom to dispose of the money is necessarily excluded by an arrangement that the money shall be used exclusively for the stated purpose”. Conceptually, the most significant difficulty posed by the approach taken by the House of Lords in Quistclose was that the arrangement could be construed as an attempt to create a non-charitable (and invalid) purpose trust. This problem was addressed in Carreras Rothmans v Freeman Mathews Treasure Ltd (1985) (FMT Ltd) where the plaintiff employed the defendant to act as advertising agents and book space in the media for them. The defendant was in certain financial difficulties; the plaintiff was worried about this and to protect their good name it set up a dedicated bank account from which advertising bills were to be paid. Subsequently, the defendant went into liquidation and its liquidators sought to establish an entitlement to the money in the account. The plaintiff sought a declaration that the money in the account was held on trust pursuant to a private express trust for their creditors as beneficiaries, and this declaration was granted. The court held that the money in the account was not held on secret trust for the plaintiff, nor was it held on resulting trust for the plaintiff’s benefit, nor was it held on trust for Barclays to whom the defendant owed a substantial sum of money. Rather it was held for the benefit of the company’s creditors pursuant to an express trust. In Re McKeown (1974), the applicant loaned a sum of money to McKeown, in whose favour an arbitration award had been made, so that the latter might pay the necessary fees and costs to enable him to recover the award. The loan was made on the condition that it would only be used for the purpose of paying these fees and costs and that the applicant would be paid out of the award. McKeown was adjudicated bankrupt before he received the award and the applicant sought a declaration that the Official Assignee held the sum of the loan on trust for him. Lord MacDermott upheld the applicant’s claim, and did not appear to be deterred by the lack of the type of language usually associated with the creation of trusts. However, the words used must be sufficiently certain © Philip Burke, City Colleges www.citycolleges.ie
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in nature and must show a sufficient intention to create a trust. The principle laid own in Quistclose was applied by the English Court of Appeal in Re EVTR (1987) in a situation where the loan was made in order that a company might purchase new equipment rather than to ensure payment of a debt. Dillon L.J. concluded that ‘‘on Quistclose principles, a resulting trust in favour of the provider of the money arises when money is provided for a particular purpose only, and that purpose fails’’. In Re Farepak Food and Gifts Ltd (2006), Mann J considered but rejected the possibility that a Quistclose type trust had arisen in circumstances where customers had prepaid for Christmas hampers and other goods. Unlike most Quistclose cases, there was no contract of loan between the parties. Mann J stated that ‘crucially, there is no suggestion that the money ought to have been put on one side by Farepak pending the transmutation from credited money to goods or vouchers. If there were a Quistclose trust then that obligation would have been inherent in it, but the business model would have made no sense. It would have required Farepak to have kept all the customer moneys in a separate account from January until November, untouched until the time when the goods or vouchers were acquired and then sent out. That is completely implausible. It would turn Farepak into a very odd savings organisation. Even banks do not have to do that.’ In the more recent decision Bieber v Teathers Ltd. (2012), an investor unsuccessfully relied on Quistclose principles to claim an entitlement to the return of his money. The disputed investment was to have afforded the participants certain tax breaks. It was held that, before a Quistclose trust can arise, it must be demonstrably clear that the monies transferred were not to form part of the general body of assets of the recipient. Instead, it should be limited to use for a particular purpose, and if that use is no longer possible, then the money should be returned to the transferor. In this case, the original investment was stipulated to be for ‘profitable’ purposes. Since there was no way of being certain if a particular investment would yield a profit, therefore, a Quistclose trust could not arise in the circumstances. In a similar vein, the existence of a Quistclose trust was denied by McGovern J. in an Irish context in Harlequin Property v. O’Halloran (2013) on the basis that the payments made by the plaintiff (for the purpose of developing a hotel resort in the Caribbean) were not limited to use for a “specific purpose and no other purpose”. The court endorsed Bieber v Teathers and the explanation provided by Thomas & Hudson in ‘The Law of Trusts’ (2nd Ed. Oxford 2010): “The authors address the question of the character of a relationship capable of giving rise to a Quistclose trust at p. 276 thus:-
“All decisions have emphasised one highly significant factor in that analysis, and that is whether the money is intended to be at the free disposal of the borrower or whether it is intended to be used exclusively for the stated purpose. This is normally (but not necessarily) evidenced by payment of money into a separate bank account. If such intention exists, the fact that the borrower fails to deal with the money in the agreed manner (by not keeping it separate from his own money or actually misapplying it) is immaterial: there is then a breach of an established trust. On the other hand, when money may be placed in a general operating account, or where it is merely recorded by a book entry, it is unlikely the requisite intention to create a Quistclose Trust (or indeed any trust) will be found.””
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CONSTRUCTIVE TRUSTS THE LIABILITY OF STRANGERS Irish Adherence to the Old (Pre BCCI v. Akindele) Approach The Irish approach to the liability of strangers for receiving trust property is now best illustrated by McGovern J’s decision in Harlequin Property v. O’Halloran (2013). Having referred to the English requirement to show some degree of ‘unconscionability’, he went on to remark (citing Blayney J. in Re Frederick Inns) that “. . . the threshold for finding a person accountable as a constructive trustee for the knowing receipt of misapplied trust property had been set at a significantly lower level in Ireland.” Nevertheless, the second named defendant, who was the first named defendant’s elderly father, avoided liability under constructive trust principles. The trial judge formed the view that he “had been unwittingly dragged into the proceedings by the action [of his son].”
TRACING & CONSTRUCTIVE TRUSTS BRIBES & SECRET COMMISSIONS In FHR European Ventures LLP & Ors v Cedar Capital Partners LLC (2014), a company (Cedar Capital) acting as agent for the principal (FHR) in the purchase of a hotel in Monte Carlo secretly entered into a lucrative brokerage agreement with the seller. While the court at first instance accepted that the agent was liable for the payment, it was not deemed to be subject to a proprietary remedy such as tracing. The UK Supreme Court held, citing arguments of principle and practicality, that not only does a constructive trust arise when a fiduciary receives a secret commission or bribe, but that such commission or bribe was indeed subject to a proprietary claim. The court, in considering the policy considerations involved, held that bribes and secret commissions should be considered to be the property of the principal as they “undermine trust in the commercial world”. Lord Neuberger noted that previous “it is not possible to identify any plainly right or plainly wrong answer to the issue of the extent of the Rule, as a matter of pure legal authority….it is fair to say that the concept of equitable proprietary rights is in some respects somewhat paradoxical.” He favoured FHR’s argument which had “the merit of simplicity” whereby any benefit acquired by an agent, because of his agency and in breach of his fiduciary duty, is held on trust for the principal. He concluded “clarity and simplicity are highly desirable qualities in the law….and, accordingly, in the absence of any other good reason, it would seem right to opt for the simple answer”.
RECTIFICATION In Slattery v Friends First (2013), McGovern J. granted rectification for unilateral mistake in circumstances where “the only construction one could put on this chain of emails is that the plaintiff did not expect this proposed addition to the draft Deed of Pledge would be accepted, and that it was hoped that the defendant would not notice the clause. Furthermore, when it became clear that the © Philip Burke, City Colleges www.citycolleges.ie
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defendant had not noticed the change, the plaintiff’s reaction was to get the document signed as soon as possible in that form.” The requirement to show ‘sharp practice’ for rectification based on unilateral mistake was affirmed. He characterised the appropriate standard as ‘convincing proof’. In King & Ors v. Ulster Bank (2013), Cooke J. refused the plaintiff’s application for rectification, holding that there was no mistake, whether unilateral or mutual, on the part of the plaintiffs' representative and no misrepresentation on the part of the Bank.’
MAREVA INJUNCTIONS In Bouvier v. Accent Delight (2015), the Court of Appeal in Singapore held that the making of an allegation of dishonesty within the context of an application for Mareva relief does not obviate the need to establish a real risk of dissipation of the assets in question. Furthermore, as a general rule (in that jurisdiction), a party seeking a Mareva injunction must give notice to the party against whom the injunction is sought, unless giving prior notice would defeat the purpose of the injunction: it is no longer "common practice" to apply for Mareva injunctions ex parte. It will be interesting to observe how this reasoning might influence the current Irish approach to ‘requisite intent’.
RESCISSION & UNDUE INFLUENCE Question You act for Gaelic Bank. In the light of recent developments in the banking sector, your client is reviewing its loans policies and procedures. The Bank is anxious to ensure that it is in a position to safeguard the monies that it lends. To that end, Gaelic Bank asks you to prepare guidelines regarding the matters that the Bank must attend to in order to ensure that it can enforce loan agreements entered into with customers when a person connected to that customer has acted as guarantor of liabilities or has agreed to create a charge over assets in respect of the customer’s liabilities. In drafting these guidelines for your client you should, where appropriate, refer to relevant case law to illustrate and clarify for your client the points that you are making. Suggested Solution To Whom It May Concern: In preparing the following guidelines in respect of the matters Gaelic Bank must attend to in order to ensure the enforcement of loan agreements, particularly where connected persons have acted as guarantors or have agreed to create a charge over assets in respect of a customer’s liabilities, it is necessary to have regard to the equitable remedy of rescission, undue influence as a basis for rescission, and the interplay between the doctrine of undue influence and third parties. Rescission is the right of a party to an agreement to have it set aside and be restored to the position he or she was in prior to the agreement. A loan contract may be rescinded if its validity was affected by a party’s wrongful conduct, or if undue influence was exerted on the innocent party, or if the transaction is deemed to be unconscionable based on the nature of the bargain and the circumstances which surrounded its creation. When ordered, equitable rescission will set the
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impugned transaction aside, and the transaction in question will be treated as having been void since its inception (or void ab initio). As a result, the parties are absolved from having to perform the agreement. Equitable rescission aims to restore the parties, at least substantially, to their positions before they entered into the impugned transaction. In other words, substantial restitutio in integrum must be possible (Northern Bank Finance Corporation Ltd. v Charlton (1979)). Undue influence, as a ground for rescission, is based on gifts or agreements made for inadequate consideration when one party is acting under the influence of another. The general principle was enunciated by Lindley LJ in Allcard v Skinner (1887). There are two cases where a claim of undue influence can arise: actual undue influence (class 1) and presumed undue influence (class 2) ((BCCI v. Aboody (1990), per Slade LJ, and O’ Flanagan v Ray-Ger Ltd. (1983) per Costello J). Where the presumption of undue influence arises, the onus of proof shifts to the defendant, to prove that he entered into the impugned transaction of his own free will. In the now out of favour decision of O’Donovan J. in Ulster Bank Ireland Ltd v Fitzgerald (2001), the defendant sought to resist the enforcement of her guarantees on the grounds of “undue and wrongful influence exercised over her by the First Named Defendant who is her husband; a wrongful influence of which the plaintiffs were aware, or are deemed to have been aware”. The learned trial judge accepted that the guarantor signed the guarantees because her husband prevailed upon her to do so and that had she not done so it would have compounded their existing marital problems. However, he also accepted the bank manager’s evidence that each defendant had signed the guarantees in the bank manager’s presence in his office, they were not present together, and prior to their signatures, he had explained to each of them the meaning and effect of the guarantees, and he had advised the second defendant to seek legal advice. Nevertheless, she signed them “on the spot”. And these facts were fatal to the second defendant’s claim. To quote Clarke J. in a later decision (Roche), ‘there was no obligation on the bank to take any steps to ascertain whether, in the presence of circumstances suggesting a non-commercial aspect to a guarantee, the party offering the guarantee may not be fully and freely entering into same.’ However, in an ominous development for lenders such as Gaelic Bank, Clarke J. effected substantial change to Irish law on this area In Ulster Bank Ireland Ltd v. Roche (2012) IEHC 166 (High Court, Clarke J , 29 March 2012). Here, the learned trial judge dismissed a claim by a bank based on a personal guarantee from the second named defendant who was under the undue influence of her boyfriend, the first named defendant. Clarke J. stated that it was not necessary ‘to fully explore the precise parameters of the circumstances in which a bank may be placed on inquiry for the purposes of determining the issues in this case’. He endorsed, at least to some extent, the decision of the House of Lords in Royal Bank of Scotland v. Etridge, and stated: It seems, for example, to follow from the adoption of the test from Etridge that a bank would be placed on inquiry when faced with a request for guarantees from two business partners who were the principals and shareholders in a business whose debts were to be guaranteed and who were also, to the knowledge of the bank, same sex partners in the relationship sense of that term. There would be no particular reason why either one of the partners might not be said to be the one who might exercise undue influence and the other be the one who might be influenced. It follows that it would be necessary to ensure that both had independent legal advice. © Philip Burke, City Colleges www.citycolleges.ie
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He concluded: “It seems to me that the academic criticism of Fitzgerald is well founded…. While not necessarily accepting that the precise parameters, identified in Etridge, are those which give rise to an obligation on the bank to inquire, and thus represent the law in this jurisdiction, I am satisfied that the general principle, which underlies Etridge, is to the effect that a bank is placed on inquiry where it is aware of facts which suggest, or ought to suggest, that there may be a non-commercial element to a guarantee. That general principle, at a minimum, goes far enough to cover the facts of this case where the bank was, for reasons set out, aware of the personal relationship between Ms. Buttimer and Mr. Roche and was also aware that Ms. Buttimer had no direct interest in the company (other than being a director) and was, indeed, in those circumstances, in a less secure position than a spouse or, in the modern context, a civil partner who has at least certain potential legal rights in the assets or income of the other spouse or partner. The potential for undue influence against a partner, such as Ms. Buttimer, who has very limited legal rights indeed and who has no interest in the company whose debts it is sought that she should guarantee, seems to me to be well on the side of whatever threshold might ultimately be fixed for determining the point at which a bank is placed on inquiry.” He cautioned that, once a lender is put on enquiry, ‘nothing which I say should be taken as necessarily implying that the full rigours of the regime which applies in the United Kingdom represents the law in Ireland. However, I am satisfied that a bank which is placed on inquiry is obliged to take at least some measures to seek to ensure that the proposed surety is openly and freely agreeing to provide the requested security.’ In Etridge, Lord Nicholls had considered the reasonable steps that the lender should take in order to protect its security:
the bank should communicate directly with the wife, informing her that for its own protection it will require written confirmation from a solicitor, acting for her, to the effect that the solicitor has fully explained to her the nature of the documents and the practical implications they will have for her.
She should be told that the purpose of this requirement is that thereafter she should not be able to dispute she is legally bound by the documents once she has signed them.
She should be asked to nominate a solicitor whom she is willing to instruct to advise her, separately from her husband, and act for her in giving the necessary confirmation to the bank.
She should be told that, if she wishes the solicitor may be the same solicitor as is acting for her husband in the transaction. If a solicitor is already acting for the husband and the wife, she should be asked whether she would prefer that a different solicitor should act for her regarding the bank’s requirement for confirmation from a solicitor. The bank should not proceed with the transaction until it has received an appropriate response directly from the wife.
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GE Capital Woodchester Homeloans Limited v. Reade (22nd August 2012), serves as a reminder that the liability of lenders such as Gaelic Bank is not unlimited, and that no consequences should flow from circumstances where the lender was not put on enquiry in the first instance. Laffoy J., in granting an order for possession in favour of the plaintiff, noted that “…while it is true to say, albeit at the risk of oversimplification, that the decision in Ulster Bank Ireland Limited v. Roche does represent a development of the law in this jurisdiction, it has no bearing on the factual situation with which the Court is concerned in this case…It is clear that the Defendants represented to the Plaintiff that they were jointly seeking to draw down a loan…from the plaintiff to be secured on the property, which was jointly owned by them…Ex facie, there is nothing in the letter of offer which would have put the plaintiff on inquiry.” Therefore, and in conclusion, prudence dictates that Gaelic Bank adopt the Etridge guidelines pending further authoritative direction from the courts. It is hoped that this much needed definition will come sooner (either in the form of further High Court endorsement of the new approach or a clear enunciation of the applicable principles by the Supreme Court), rather than later. [Ends] Case Note In the Estate of Claire Browne (Deceased) (2015) WILL OF WOMAN WHO LEFT €500,000 ESTATE TO BUILDER FRIEND ANNULLED Tuesday, 24 November, 2015 The Irish Times A retired journalist who bequeathed an estate with an estimated value of €500,000 to a builder friend did not have testamentary capacity to make the will, the High Court has ruled. The court made an order condemning a 2008 will that Claire Browne made in favour of Noel Wright, Kiltipper, Tallaght, Dublin. Ms Browne died in 2011, aged 91. Jacqueline Maryon, a niece of Ms Browne, who is based in South Africa, had contested the will. The order refusing to prove the will – enter it into probate – was made yesterday by Mr Justice Paul Gilligan on consent between Ms Maryon and Mr Wright. The judge said he was satisfied to make an order condemning the 2008 will, and all caveats, on the basis it was void and of no effect by reason of Ms Browne’s lack of testamentary capacity. The court’s order means another will, made in 1976 in favour of Ms Browne’s late brother Edward, uncle of Ms Maryon, is now her true last will and testament. Ms Maryon argued that she and her brother Peter Reynolds, as the only surviving relatives, were beneficiaries of their Uncle Edward’s estate and therefore the proceeds of their Aunt Claire’s will should go to them, not Mr Wright. In addition to claims that Ms Browne lacked testamentary capacity to make a new will in 2008, Ms Maryon alleged undue influence. Ms Browne’s home on Beach Road, Sandymount, Dublin, with an estimated value of €500,000, comprised the bulk of her estate. Vinog Faughnan SC for Ms Maryon, said yesterday the case had been resolved following talks and all the court needed to hear was evidence from medical personnel as to testamentary capacity. Prof Desmond O’Neill, a consultant physician in geriatrics, who reviewed Ms Browne’s medical records, said he believed she did not have testamentary capacity. Previously, the court had heard that Ms Browne died in November 2011, having been in hospitals in Dublin since 2003. Mr Wright had denied he used undue influence over her, describing the claim as outrageous. He said he had carried out work on her home and got to know her very well when she was in hospital, when © Philip Burke, City Colleges www.citycolleges.ie
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he was her only visitor. It was also claimed Ms Maryon and her brother Peter had “effectively ignored and disregarded” Ms Browne in the final decades of her life. Mr Wright had also maintained she was of sound mind when she made the will. The court heard that three cognitive tests to assess her capacity were carried out in the hospital between 2006 and 2008 showing she was in early stage Alzheimer’s and dementia. The 2008 will was made without legal or medical advice against a background where Ms Browne had for almost five years been exhibiting signs of dementia and cognitive impairment, it was claimed.
ESTOPPEL In Davies v. Davies (2015), a daughter won an award of £1.3 million pursuant to her proprietary estoppel claim against her parents' farm (valued at approximately £3.8 million). She was 45 at the time of making her claim, and had worked on the farm for little or no pay for most of her life. Her parents had initially agreed to gift her 49% of the farm, and prepared (but did not execute) documentation to give this effect. However, a rift soon developed between the parties and the parents later purported to split the asset between all three children in the family. In the Irish decision, Naylor v. Maher (2013), O’Keeffe J. held that a 57 year-old man was beneficially entitled to the 120-acre farm owned by someone who, it later transpired, was his biological father. Although the latter, Mr. Hoare, had executed a will leaving the farm to his daughter and the plaintiff’s sister, his earlier promises to the plaintiff concerning the farm constituted assurances sufficient to give rise to an estoppel in the plaintiff’s favour. O’Keeffe J. accepted Thorner v. Major (2009) “as persuasive authority relevant to this case”. More recently, in Southwell v. Blackburn (2014), the Court of Appeal affirmed a County Court order directing the defendant to pay £28,500 to the plaintiff, his former girlfriend, pursuant to an estoppel which arose in her favour. She was invited by him to live in his house in 2002. He alone contributed to the mortgage repayments. However, she gave up a secure tenancy on a flat in Manchester to move in with him, and he later made certain assurances to the effect that she would always have a home in his house. The defendant appealed the original order on the following bases (at page 2 of the judgment): ‘He contends that the assurances found proved by the judge in relation to the Respondents' security of tenure lacked the requisite specificity to engage the doctrine of proprietary estoppel. He contends also that the judge erred in finding that the Respondent suffered detriment in reliance on those assurances, asserting that such detriment as may have been initially incurred by the Respondent in giving up a secure tenancy and moving in with the Appellant was dissipated over the course of the relationship, which lasted for about nine years. Finally, the Appellant contends that the judge was wrong to find that the Appellant acted unconscionably in denying to the Respondent the right or benefit that she expected to receive.’
The Court rejected each ground of appeal, holding that it would be ‘unconscionable’ to permit the defendant to revoke the assurances he had given her.’
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