St Philips involved in mental capacity case involving lifetime gifts of the main family asset and the imposition of ad hoc fiduciary duties on the caring sibling

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David Stockill

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By David Stockill, Barrister

In a recent decision, in the Business and Property Courts of the High Court in Birmingham, the Judge found an elderly mother incapable of having the mental capacity to make three substantial lifetime gifts to one only of her four children.

The case was brought by three siblings against their brother, and the court heard it amounted to the whole of her estate (being the proceeds of the former family home).  The judge also found that the recipient son, who had taken responsibility for his mother, was under a fiduciary duty to account for the dealings he had had with his mother’s assets.

The judge endorsed the comments in a Northern Irish authority that solicitors acting for living vulnerable clients were under similar duties as encouraged by the so-called ‘Golden Rule’ in testamentary cases.

The three claimants and the defendants were siblings (three brothers and one sister and their mother, who outlived their father, had a deteriorating mental capacity in later years.

Their mother, Mrs Joan Roberts, eventually died on 9 March 2013 of senile dementia and Alzheimer’s disease.

The father, who passed away four years previous, had left all his estate to Joan.

Following his death, all children, to varying degrees, assisted with the care of the mother, but by July 2010 her condition had deteriorated to the point she needed all round care.  In what the claimants said was to be a temporary measure, until they found an appropriate care home, Mrs Roberts moved from the family home in Shrewsbury to live with the defendant, her son Paul, and his wife Michelle, in mid Wales.

It was a matter of dispute, but Paul and his wife started to isolate Joan from his siblings.  Joan’s condition deteriorated and occasionally she went into respite care.  The three claimants only had access to their mother whilst she was there.

It is worth adding, somewhat as an aside, one of the dangers of any piece of litigation is an adverse finding causing upset to the parties, such as happened here when the Judge found that the three claimants had not cared as much as they could have done for their mother’s welfare.  Paul and Michelle had cared, well, for Joan, which was not disputed by the other parties.

All siblings had agreed the appropriate thing to do was to sell the family home in Shrewsbury.  The property had remained in the father’s name, and so the sale was effected by Paul taking a Grant of Letters of Administration to his father’s estate as lawful attorney for Joan.  The property was sold, and transferred, to purchasers with all sides legally represented.  The subsequent judgement in this case, probably reveals that at that time Joan did not have capacity to enter into such transaction (Paul was acting as attorney for the purposes of probate, and did not hold, nor ever had held, a Lasting Power of Attorney).

Additionally, the parties had agreed to the closure of a building society account and the sharing of the proceeds as to £10,000 to each of the brothers, and, unbeknownst to her, £3000 (only) to the sister.

Two years after the property sale, and shortly after Joan’s death and funeral, it was discovered that Paul had transferred to his own bank account virtually the whole of the proceeds of sale of £137,000, in two transfers of £25,000 two days after the property sale, and then he had written a cheque on Joan’s account in his own favour for £80,000 three weeks later.

As a result legal proceedings commenced as the claimants doubted whether a gift had been made.  They concentrated on challenging the transactions for lack of mental capacity to make them and had an optimistic single joint expert report.  The judge did find that Joan had made gifts to Paul of the monies, but that she clearly did not have mental capacity to make them.

From a legal standpoint, he relied principally on the authority of re Beaney [1978] 1 WLR 770 which had a similarity of facts where an elder daughter had been favoured in a gift of the mother’s sole asset of value, the family home.  The deputy judge (Martin Nourse QC as he then was) said:

In the circumstances, it seems to me that the law is this. The degree or extent of understanding, required in respect of any instrument is relative to the particular transaction which it is to effect. In the case of a will the degree required is always high. In the case of a contract, a deed made for consideration or a gift inter vivos, whether by deed or otherwise, the degree required varies with the circumstances of the transaction. Thus, at one extreme, if the subject matter and value of a gift are trivial in relation to the donor’s other assets a low degree of understanding will suffice. But, at the other extreme, if its effect is to dispose of the donor’s only asset of value and thus, for practical purposes, to pre-empt the devolution of his estate under his will or on his intestacy, then the degree of understanding required is as high as that required for a will, and the donor must understand the claims of all potential donees and the extent of the property to be disposed of.

 

The judge there, as here, found the donor to be incapable of making such a substantial gift.

Incidentally:

  1. Since that decision the Mental Capacity Act 2005 has been passed.  In re Smith (deceased) [2014] EWHC 3926 (Ch) it was held that the correct approach to an inter vivos gift was still to apply the principles in re Beaney; and
  2. In a Northern Irish case: Connolly v Connelly [2017] NICh 8 inter vivos transfers between farming father and two of his sons (leaving his wife with nothing) were set aside.  The judge, obiter, said that solicitors acting for elderly persons who might be mentally vulnerable should proceed with caution and ensure that a medical examination took place if there was any doubt.   This is, in effect, importing the (non-mandatory) Golden Rule in testamentary cases into lifetime gifts were there are solicitors acting (there weren’t in the present case under discussion).

Now here are two other interesting aspect of Roberts v Roberts.  First, and whilst they were not in issue (except they was an attempt to undermine the claimants’ credibility in this respect) it is possible that the judge would have found Joan capable of making the gifts of £10,000/£3000 to the claimant and defendant as such gifts did not constitute her major asset, unlike the proceeds of sale of the house.  Arguably, they could have been seen as a fair distribution of her estate in advance of her demise, although that analysis does not account for the seeming inequality in the daughter receiving less.  No findings were found in this respect.

Secondly, Paul had taken over the finances of his mother.  He collected or arranged the collection of the various pensions and her administering her other assets.  The claimants asserted that he thereby became under an ad hoc fiduciary duty to account for all such dealings.  This duty was strenuously denied in quite scornful terms in the Defence.  The claimants relied on a passage in Snell, Principles of Equity, 34th edition, 7 – 005 where it was explained the categories of fiduciary relationship were not closed.  If the circumstances justify the imposition of such duties, then a court can find they are owed although there is no universal principle.  The discussion, and examples which follow in Snell, are mainly in the commercial and/or professional context, and not the domestic or familial.  There was therefore an element of novelty in the assertion.  However, the judge found that the circumstances did justify imposition of a fiduciary duty; after all, what Paul did was something akin to as if he was acting under a Lasting Power of Attorney (where there can be little doubt that fiduciary/ statutory duties to account exist).  However, considering the sums involved, and the fact that an account would prolong the litigation, the claimants decided not to pursue their remedy of an account.  They were commended by the judge in so deciding.

Postscript

I confess an axe to grind here.  I acted for the claimants, and this was the second case in short succession where my assertion of an ad hoc fiduciary duty had been treated, in the statements of case, with some disrespect – the earlier case had settled.  Whilst there is an element of “I told you so here”, it does seem that the principle is of general application if one of a number of siblings takes over the family’s finances in caring for his or her parents or surviving parent.  Then such duties can exist and the (caring) family member should be ready to furnish accounts.

 

David Stockill is a senior member of the Business and Property Group in Chambers.  His principal practice areas are Contentious Wills, Trusts and Probate; Company and Partnership; and Real Estate (Property Litigation).

Written by David Stockill

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