Smith v Cooper & Anor [2010] EWCA Civ 722

Case No B2/2009/2695/CCRTF

[2010] EWCA Civ 722

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM NORWICH COUNTY COURT

HIS HONOUR JUDGE DARROCH

Venue Royal Courts of Justice, Strand, London, WC2A 2LL

Date 25 June 2010

Before

LORD JUSTICE JACOB

LORD JUSTICE LLOYD

LORD JUSTICE WILSON

Between

PETER JOHN SMITHAppellant

SUSAN COOPER(by her litigation friend the Official Solicitor)Respondent

PETER JOHN SMITH Claimant Respondent- and -SUSAN COOPER (by her litigation friend the Official Solicitor) Defendant Appellant

Anna Clarke (instructed by Hawkins Solicitors) for Appellant

Katharine Bundell (instructed by Roger Green & Co) for Respondent

Hearing Hearing date: 20 May 2010

Judgment

Introduction

[1]This appeal by Miss Cooper, the Defendant in the action, is brought against an order of His Honour Judge Darroch in the Norwich County Court made on 28 October 2009. By that order he dismissed a counterclaim brought by Miss Cooper against Mr Smith. At trial her counterclaim was based on three distinct grounds. Only one of those three is pursued on the appeal, namely undue influence. The appeal, for which the judge himself gave permission, requires us to consider whether the judge was right to hold that the presumption of undue influence had been successfully rebutted by Mr Smith and, if he was not, then what the consequences are as regards setting aside the relevant transactions.

[2]Miss Cooper acts in these proceedings by the Official Solicitor as her litigation friend, because she is a protected party in the terms of CPR Part 21, not having the necessary mental capacity to conduct the proceedings. She did not give evidence, although she did attend part of the hearing.

[3]At issue is the beneficial ownership of three properties: first, a bungalow called Fifty Farm, Nordelph, Downham Market, Norfolk, secondly a parcel of land adjacent to Fifty Farm, and thirdly Rose Cottage, Barroway Drove, Downham Market.

[4]Miss Cooper had been married, and has four children. She was divorced in September 2000. She had lived in Essex but wanted to move to Norfolk, her parents having themselves recently moved there from Essex. Having some £100,000 as her settlement following the divorce, she bought Fifty Farm, which cost her £84,800, in her own name on 9 November 2001. Mr Smith had also been married before and was divorced by then. He too emerged from his divorce with a settlement giving him capital of about £100,000. The parties got to know each other in about 2000, Mr Smith being a market trader and having been a customer of Miss Cooper’s father. A relationship came to exist between them. At some point after the purchase of Fifty Farm by Miss Cooper, Mr Smith moved to Norfolk to live there with her.

[5]In or about July 2004 Miss Cooper transferred Fifty Farm into the joint names of herself and Mr Smith, to be held by them as beneficial joint tenants. At the same time, they bought a small piece of adjacent land, which cost £9,000, provided by Mr Smith. This too was held in their joint names as beneficial joint tenants. In January 2006 they bought Rose Cottage, for an expressed cash price of £115,000, though it is clear that a camper van changed hands from the purchasers to the vendor and was part of the price. This property, too, was placed in their joint names, to be held as beneficial joint tenants. The bulk of the price, £100,000, was provided through a mortgage advance on the security of Fifty Farm. £15,000 cash was provided by Mr Smith. A great deal of work had to be done to Rose Cottage before it was fit for occupation. The two moved into it in September 2006, but their relationship ended in November that year, shortly after Fifty Farm had been sold.

[6]Miss Cooper seeks to set aside the gift of half of Fifty Farm to Mr Smith, and also the declaration of a joint tenancy in relation to Rose Cottage. She accepts that he has an interest in Rose Cottage, having provided part of the price, but contends that it is a modest share.

[7]The net proceeds of Fifty Farm are held by solicitors pending the resolution of this dispute. Miss Cooper lives in Rose Cottage. To the extent that Mr Smith has a beneficial interest in it, he seeks to realise it by being bought out or by an order for sale.

[8]At the trial the other issues were whether Miss Cooper had had the necessary capacity to enter into the transactions at all, and whether they were vitiated (if not by undue influence) by mistake or misrepresentation, it being alleged on her behalf that Mr Smith represented to her that he would pay her £60,000 as part of the transactions. The judge rejected these claims and they are not revived on appeal. However, some of his findings on these points, and on the more general question as to what the parties’ intentions had been as regards beneficial ownership, have a bearing on the resolution of the issues on the appeal.

The appeal

[9]The judge held that the presumption of undue influence applied, but held that it had been adequately rebutted by Mr Smith. Miss Clarke, on behalf of Miss Cooper, submitted that the judge’s reasons for finding that it had been rebutted were inadequate, and that there was no other basis on which he could properly have reached that conclusion. Miss Bundell, for Mr Smith, argued that the judge had not in fact found that the presumption did apply at all, and that he had been justified in that, but alternatively she supported his reasons for concluding that the presumption had been rebutted. By a Respondent’s Notice she contended that, even if the appeal was otherwise justified, the same conclusion should be reached by way of the doctrine of constructive trusts. On opening the appeal Miss Clarke invited us, when addressing the consequences if the appeal was to be allowed, to apply principles set out in a Court of Appeal decision, Cheese v Thomas

[1994] 1 WLR 129

, which had not previously been cited. This emphasises the need to do practical justice to both parties when a transaction is set aside.

[10]Thus, the issues on the appeal are, first, whether the judge did hold that the presumption of undue influence applied, secondly whether he was right to hold that it was rebutted, thirdly whether, if so, the principles of constructive trusts lead to the same result, and fourthly, if not, what order should be made as a consequence of setting the transactions aside.

[11]Both Counsel before us had appeared at the trial. Each of them presented submissions that were admirably and refreshingly clear, economical and sensible. Miss Bundell, in particular, evoked for us vividly something of the tenor of the oral evidence before the judge. The appeal bundle (which commendably, if unusually, had been prepared with proper care to avoid duplication of documents) included the witness statements and documents exhibited to them but not the further documents produced at trial, nor transcripts of the oral evidence other than that of one witness, a solicitor, to which I will refer in detail.

The proceedings at first instance

[12]Mr Smith brought the proceedings in order to establish his right to half of the net proceeds of sale of Fifty Farm (with the adjacent land), just over £80,000, which, by the time the proceedings were brought in November 2007, were held by solicitors pending resolution of the dispute. In addition he sought either half the value of Rose Cottage to be paid to him or an order that Rose Cottage be sold and that he should then receive half of the proceeds of sale. The claim was commenced by a Part 8 claim form, on the footing that no contentious issue of fact was involved.

[13]Miss Cooper raised the substantive disputes by her defence and counterclaim. Acting by the Official Solicitor from the outset of the proceedings, she relied first on the contention that she had not had the necessary mental capacity to enter into the transactions, secondly on undue influence as a ground for setting the transactions aside and thirdly on a contention as to misrepresentation or mistake. Mr Smith did no more in his reply and defence to counterclaim than join issue in the briefest possible terms. He did not identify or assert any facts to be relied on in support of his defence. We were not shown any details of any orders made by way of case management but it seems to have been common ground that the case was not formally treated as proceeding under Part 7 until the judge’s order made at the conclusion of the trial. No orders were made for disclosure on either side.

[14]Witness statements were served on both sides. Some documents were exhibited to those witness statements. More documents were made available through the files of Ward Gethin, the solicitors who had acted for both parties on all the relevant transactions. Other documents were produced at trial. One difficulty was that Miss Cooper, living in Rose Cottage, was not willing to make available documents held there which Mr Smith said belonged to him and might have been relevant to the issues at trial, and no attempt was made to force Miss Cooper to make those documents available. Nor was the property inspected for valuation purposes so there was no valuation evidence before the court. Mr Smith made a number of assertions in his witness statements about what he had spent and done in relation to Fifty Farm and Rose Cottage, and generally during the relationship. He exhibited to one of his witness statements three pages of his bank statements, but he produced many more such pages at trial. Miss Cooper could not and did not give evidence, and there was only very limited and indirect evidence from witnesses called on her side which bore on this subject. Some of Mr Smith’s assertions were investigated during oral evidence, and the judge made some comments on some aspects of this. However, the absence of any pleaded issue on the part of Mr Smith which went to his expenditure in cash and in kind, and the limits on the available documentation, meant that the judge was only in a position to make limited findings on some areas of dispute which, on the appeal, came to have greater relevance.

[15]Mr Iain Grimes, the solicitor who had acted for both parties, declined to make a witness statement but he was called as a witness, the judge treating him as in effect a witness of the court so that each party could cross-examine him by reference to the documents on his file. The facts The transfer of Fifty Farm into joint names and the purchase of the adjacent land

The facts

[16]I take up a more detailed account of the facts from early in 2004, by which time both parties were living together at Fifty Farm. In March 2004 it was proposed that Fifty Farm should be transferred into the joint names of Mr Smith and Miss Cooper, and that the small adjoining parcel of land should be bought from the then owner, also in joint names. The purchase price for that parcel of land was £9,000 which was to be, and eventually was, provided by Mr Smith. Mr Smith instructed Ward Gethin to act on both transactions, the solicitor acting being Mr Grimes. He wrote to both parties at Fifty Farm on 17 March 2004 seeking confirmation of their instructions in respect of the purchase. They countersigned his letter on 18 April 2004 and sent it back to him. On the same day he had also written to them for confirmation of instructions as to the transfer of Fifty Farm into joint names, which was referred to by him as a transfer of equity. It does not seem that they countersigned or returned that letter. At any rate the appeal bundle does not include a signed copy.

[17]Mr Grimes had not known either of the parties beforehand. It seems that they were referred to him by the agent who was acting on the sale of the parcel of adjoining land. His documents, supplemented by his oral evidence, are useful as providing a contemporary indication of Miss Cooper’s state of mind in relation to the transactions as they went on. Some of the documents in the file are instructive.

[18]He saw both parties for the first time on 6 May 2004, in order to discuss the proposed transfer of Fifty Farm and the proposed purchase of the adjoining land. His file note shows that there was some discussion of beneficial ownership, of a declaration of trust, of the effect in financial terms of ownership in different proportions, and of a beneficial joint tenancy.

[19]Almost immediately after this meeting, Miss Cooper telephoned and spoke to a telephonist or other assistant in Mr Grimes’ office and said that she wanted the land to be in her sole name and kept as agricultural land. That reference is presumably to the question as to whether it should be agricultural land or whether there should be a change of use for planning purposes to make it part of the garden. On 20 May 2004, in advance of a meeting due to take place the following day, Miss Cooper telephoned again and spoke to Mr Grimes’ secretary, Natasha Carr, and asked whether the documents for the land were in joint names and what percentage Mr Smith was to have.

[20]On 21 May a further meeting took place between Mr Grimes and both parties. From his file note it seems that there was further discussion as between joint tenancy and tenancy in common, with some discussion between Mr Smith and Miss Cooper as to the merits of each. The note says “Mr S not bothered whichever selected”. Mr Grimes asked the two parties to go away, to think about it and to confirm the position to him by way of instructions in an agreed letter. The note also includes this:

“IRG also explaining that gift means no money changing hands. Mr Smith explained he is financially supporting Ms Cooper.”

[21]On 11 June, after a chaser from Mr Grimes to both parties on 1 June, Miss Cooper came to his office, bringing with her the price of £9,000 to be paid for the adjoining land, and left for him a note as follows:

“Dear Ian, Should (Peter Smith) phone we came in today to pay the money for the adjacent land however I must stress that if Mr Smith wishes to purchase he needs to do the two transactions together through you, this includes the £50,000 for Fifty Farm and the field totalling the actual amount overall £45,500 for S Cooper (4,500 for field) and then £9,000 field Peter’s money to pay totals £54,500, With thanks Susan Cooper”

With thanks Susan Cooper”

With thanks

[22]Later the same day Miss Cooper telephoned and spoke to Natasha Carr, whose note of the conversation to Mr Grimes was:

“Disregard the info she left at reception. She wants Fifty Farm transferred into the joint names of herself and Mr Smith.”

[23]In the light of this Mr Grimes wrote on the same day asking for confirmation of the position in a letter as follows:

“Dear Mr Smith and Miss Cooper, Transfer of equity in Fifty Farm, Downham Road, Nordelph. Thank you for your note and later telephone call stating that I was to ignore the contents of your note. I would appreciate you signing the copy letter enclosed to confirm that (1) you agree the transfer of Fifty Farm to your joint names and that no monies are to change hands (2) that the additional land you are purchasing adjacent to your property is to be in your joint names. I look forward to hearing from you on these points.”

They duly signed that letter and returned it to him which he received on 14 June.

[24]Completion took place as regards the adjoining land on 28 June 2004. On 30 June 2004 Mr Smith called to speak to Natasha Carr for confirmation and was told that the purchase had been completed but as regards the transfer of equity the paperwork had not yet gone to the Land Registry. The transfer of equity was completed about then and both transactions were registered at the Land Registry by mid July 2004. Although no copy of the transfer in relation to Fifty Farm has been found, the absence of any restriction on the register as to the ability of the survivor of the joint proprietors to give a good receipt shows that the property was treated as held on a beneficial joint tenancy.

[25]The documents do not include completion statements for these two transactions, but Mr Grimes told his clients at the outset that the costs on the purchase of the land would be £410, and on the transfer of equity £334. There is no reason to suppose that the eventual figures were different. It is to be assumed that these costs were paid by Mr Smith. I will round the overall figure to £750, with a view to the calculations that will be necessary later in this judgment.

[26]On 5 October 2004 Mr Smith and Miss Cooper came to see Mr Grimes again. His file note is, in substance, as follows:

“Clients are concerned about transfer of equity. Seems as though Mr S has worries that his hard work and purchases (camper van, car etc) have not been acknowledged as being contributions to half value of house even though amount comes to £40,000 to £50,000 plus £10,000 he paid for land adjacent. Ms Cooper acknowledges his concerns and says that there is no need to transfer house back to her sole name and that they trust each other to make provision for each others’ children in the event of one of them dying. (No wills at present and don’t want to make wills.) Explained again TinC and JT provisions and that they could have a declaration of trust to reflect shares in property. No they don’t want this.”

[27]In a letter dated 6 October Mr Grimes confirmed that they held the property as joint tenants and what this means. Towards the end of the letter he said this:

“I understand from you that contributions and vehicles and other items have been purchased by you Pete to represent a contribution towards the share in Fifty Farm that you Susan have given to Pete. You both accept that these purchases are for your joint use and enjoyment as is the case with the property.”

The purchase of Rose Cottage

[28]So far as the documents in the appeal bundle show, Mr Grimes had no more dealings with Mr Smith or Miss Cooper until about June 2005 by which time the question had arisen of the purchase of Rose Cottage, then owned by a Mr Forster.

[29]In the meantime, Mr Smith approached a mortgage broker, Mr Michael Wilson, who gave evidence at the trial, with a view to borrowing £100,000 to go towards the purchase of Rose Cottage. The introduction was in April 2005, Abbey made an offer of an advance on 6 May 2005, and it was completed by a mortgage of Fifty Farm on 24 May 2005. A fee of £399 was payable, which was added to the loan. The advance was paid, directly or indirectly, to Ward Gethin, who therefore had it in their client account when the time came to pay for Rose Cottage. The loan was at a fixed rate of interest for two years, and included a cash back feature. On early redemption, special fees were payable by reason of these two factors. (The judge’s comment at paragraph 10 as to what was available by way of the original advance is based on a misunderstanding; the redemption statement to which he refers shows what was due under the mortgage in November 2006.)

[30]The parties next met Mr Grimes on 8 June 2005 to discuss the purchase of Rose Cottage. The file note made on that day includes this passage on beneficial ownership:

“IRG explaining the JT and TinC position. IRG concerned that same toing and froing will happen on this property as Fifty Farm. Clients explained monies which are with WG are from a mortgage of Fifty Farm. Monies joint and their “Rose” must go into joint names. Clients selected joint tenancy. No need for declaration of trust.”

[31]Mr Grimes’ concern was prescient. On 4 July 2005 Miss Cooper called and spoke to Natasha Carr. Her record of the conversation, passed on to Mr Grimes, is as follows:

“She’s called again. She’s concerned because Mr Smith said to her that you are her Solicitor and not his and he is having cold feet about buying Rose Cottage. She said her father has told her off for transferring her property into their joint names as she is mentally not well and she is concerned that as the mortgage is in their joint names and she would be unable to pay it herself - however she said that she did this because you advised her that it would be in her best interest. She said she put her trust in you and Mr Smith to sort it out on her behalf. She also said that when you transferred the property into their joint names you asked her what it was worth - she said she doesn’t know why you asked her this and it is concerning her. She said she is really keen to go ahead with the purchase of Rose Cottage, and would have continued even if the problem with the boundary didn’t get sorted out. She said she paid for her house cash and would have sold it but cannot do so now Mr Smith has the mortgage.”

[32]Mr Grimes called her back having received this message and said that he was the solicitor for both of them which he noted that she appreciated. He also noted this from the telephone call:

“House to be in joint names and she is aware of why and what this means for her and Peter. No problem.”

[33]Following those conversations and the reference to Miss Cooper’s father, Mr Cooper himself telephoned on 12 July hoping to speak to Mr Grimes. The call was taken by someone else in the office who recorded him as saying “his daughter would like to pull out of the transaction”. Mr Grimes was at first unable to speak to Miss Cooper but he did speak to Mr Smith. His note is as follows:

“Explained to him that I cannot speak to Susan’s father as he is not my client and can he speak to Mr Cooper and explain this. He informed me that Susan Cooper his partner is going through another bout of depression which she occasionally has. He says they do want to proceed and it is because Susan is under pressure that she is having the panic attack and saying what she is saying.”

[34]Later that day he did succeed in speaking to Miss Cooper. His note of this conversation is as follows, in substance:

“Client wants Rose Cottage in her sole name. Peter Smith agreeable to this. I will require confirmation from them both on this point before able to do so. Client does not want Peter S to have any interest in this property at all and will transfer her interest in Fifty Farm into Peter S sole name subject to Abbey mortgage. They will need Abbey’s consent to this. Client thinks Peter will look after her but not trust him entirely. Explained I must have the same instructions from them both otherwise unable to act for them both.”

[35]As a result of this he wrote again to both clients by the same letter at Fifty Farm seeking joint instructions to proceed in the manner that Miss Cooper had instructed him. Instead on 14 July 2005 by a handwritten fax written out, it is clear, by Miss Cooper and signed by both of them they instructed him to proceed with the purchase of Rose Cottage in joint names. That however was not the last time on which he had to ask for clear joint instructions. On 12 January 2006 Natasha Carr took a call from Miss Cooper. She recorded that she wanted Mr Grimes to call her back “as she wants to discuss percentages on her purchase because she is having problems”. Shortly after that there was another call from her to Natasha Carr in which she asked that Mr Grimes call her first thing in the morning because Mr Smith was not attending the meeting that had clearly been fixed for the following day. Miss Carr explained that because Mr Grimes was acting for the two of them he would need instructions from them both. Miss Cooper said that that was why she needed to speak to him. The following morning Mr Grimes spoke to Mr Smith having been unable to get through to Miss Cooper. He told Mr Smith that he must see the two of them today and that he could not act if only one were to turn up.

[36]The meeting due to take place, and which did take place, on 13 January 2006 must have been arranged in preparation for the completion of the purchase which took place in the end on 17 January 2006. Both parties did attend the meeting. Again Mr Grimes explained joint tenancy and tenancy in common. The file note is as follows, so far as relevant:

“JT and TinC explained. Clients not want TinC with declaration of trust. Explained JT to them and that given it is second relationship and children from previous relationship JT with wills is the minimum I would expect. Clients to think about wills. Double checked with Mrs C as to D of T given message left with NCC yesterday. No not required. Mr S and Ms C have spoken and they wish to own as JT.”

[37]Mr Grimes confirmed this advice and the other points that had been covered at the meeting in a letter sent to both parties on the same day. It does not seem that he received a written confirmation of this instruction, but that letter did not request one.

[38]The purchase of Rose Cottage was completed, on 17 January 2006 in joint names, by way of an appropriate transfer form signed by Mr Smith and Miss Cooper and witnessed by Mr Grimes which included a declaration of trust on the basis of a beneficial joint tenancy. The consideration was stated at £115,000 but it is accepted that the vendor also received, as part of the same transaction, a camper van which Mr Smith said was treated, as between them and the vendor, as worth £30,000. A completion statement for this transaction, prepared in July 2005, showed costs of £792. There seems to be no reason to suppose they were different in the end. I will round this figure up to £800.

[39]As mentioned, £100,000 of the price was met from the mortgage advance on Fifty Farm. The cash balance of £15,000, and the £800 costs, was provided by Mr Smith. The camper van which was also part of the consideration had been bought by Mr Smith in September 2004 but had been given by him to Miss Cooper on its purchase. A number of different figures appear in the papers as the price for the camper van. Miss Bundell told us that, from bank statements which were produced at trial, it seems that Mr Smith had paid a deposit of £2,000 and a few days later a balance of £21,950. In addition, a caravan of his own was taken in part exchange. That caravan, as it later transpired, had been stolen and Mr Smith had to pay £5,000 to its owner. As I have mentioned, Mr Smith said that the camper van was agreed to be worth £30,000 as part of the price of Rose Cottage. Whatever doubts there might be as to its true value, on the basis of that agreement it should be taken as being of that value for present purposes.

[40]I will deal later with the work that was carried out in relation to Rose Cottage to bring it into a fit state to be occupied.

[41]Fifty Farm, with the adjacent land, was sold in November 2006 for a gross sum of £182,750. The mortgage was redeemed out of the proceeds of sale. The completion statement in that respect shows that the principal then outstanding was £97,716.07, having been reduced from the original £100,399 by the payment of instalments in the meantime. In addition, fees of £411.45 were payable on early redemption. With that and the last sums due by way of interest, the sum payable by way of redemption was £98,614.97. For purposes of calculation, I will treat the redemption figure as £98,600 and the sum by which the principal had been reduced in the meantime as £2,700.

[42]Each of Mr Smith and Miss Cooper was liable for the payments due under the mortgage, but I dare say that in practice the payments that fell due on a monthly basis under it while it was outstanding were met by Mr Smith rather than by Miss Cooper who, apart from such funds as might have been left from her divorce settlement, seems to have been reliant on state benefits. The net proceeds were £80,011.06. They are held by Ward Gethin pending the determination of the parties’ entitlements, though a payment was made to Miss Cooper on account of her entitlement, by agreement between the parties. The mortgage had been, in effect, a bridging loan to finance the purchase of Rose Cottage pending the sale of Fifty Farm.

Work done to Rose Cottage

[43]The judge made reference to what Mr Smith spent and did at Rose Cottage in the context of his review of the contributions and the underlying intention to be inferred. At paragraph 51 he referred to the lack of documentation because of there being documents at Rose Cottage and to the fact that Mr Smith as a market trader frequently dealt in cash. At paragraph 52 he said that there was evidence of Mr Smith buying substantial items such as a three piece suite and buying at least one car for Miss Cooper. The judge said there were substantial sums of money going from his savings account to his current account where he would have ready access to cash and the judge said “it does seem that his divorce settlement has effectively disappeared”.

[44]At paragraph 53 the judge said that it was clear that he had worked assiduously and skilfully towards renovating Rose Cottage and turning it from having been a residence suitable only for Mr Forster (whose way of life had been very different) to a residence of a kind suitable for Miss Cooper. The judge also said that Mr Smith accepted that Miss Cooper herself had done useful work at Rose Cottage and did not claim all the credit for himself.

[45]At paragraph 55, in the context of reviewing Mr Smith’s credibility, he referred to contrasting and to some extent conflicting statements, including one statement as to his having paid for a full oil central heating system including a boiler for £7,000 and another where this was said to have cost him £7,000 for the central heating and £3,000 for the boiler. At paragraph 56 he said that, despite some criticisms, he accepted Mr Smith’s evidence as basically accurate.

[46]At paragraph 57 the judge referred to both parties parting with their capital, and to Mr Smith initially providing much more labour than Miss Cooper. He went on to say “the probability is that in paying off her credit card, which I accept he did, buying large items, buying the adjoining land, buying the campervan and settling the claim for the caravan he actually contributed more than she did”.

[47]Later in his judgment the judge dealt with the allegation that Miss Cooper had understood from an assurance given by Mr Smith that she would be receiving £60,000 from him, as to which the judge found that she was confused. The judge said this at paragraph 67:

“I believe that she was expecting something in return and indeed that is what she has received. I have been through figures and pointed out that there was undoubtedly a substantial contribution to the household and also a contribution to the purchase of the adjoining land and Rose Cottage. I have no doubt that the Claimant has invested well over £60,000 in actual money and, of course, he has provided physical services as well.”

I will return later to the upshot of all that but the judge relied on it in part in the context of addressing the question of what should be regarded as the intention of the parties in respect of their respective beneficial shares and concluding that they did indeed intend to share equally.

Undue influence: the judge’s decision

[48]For Miss Cooper, the case of undue influence was put on the basis that Mr Smith had a position of ascendancy over her, and that the transactions were not readily explicable by the relationship between the parties. It was said that Miss Cooper had given to Mr Smith a half interest in Fifty Farm which was her major asset at the time of the gift in 2004. This had cost her almost £85,000 in 2001. By the time of its sale (together with the adjacent piece of land) the gross proceeds of sale were £182,750 in November 2006. Presumably its value in mid 2004 was substantially greater than £85,000. As against that, at the time of the transfer into joint names, Mr Smith put in £9,000, the price of the adjoining land, and £750 costs. In addition, I assume that Mr Smith made the payments under the mortgage that led to the reduction of the capital outstanding while it was subsisting. He contributed £15,000 and costs to the purchase of Rose Cottage and he also claimed to have contributed the camper van. As regards this item, however, on his own evidence, when he bought it he gave it to Miss Cooper, well before the purchase of Rose Cottage was even considered, so that it seems that it should be regarded as her contribution to the purchase price.

[49]As regards Fifty Farm, therefore, Miss Cooper’s claim is clear. She owned it all and gave half of it to Mr Smith for no consideration. It was her major asset and such a gift requires explanation. In relation to Rose Cottage the position is that what is sought to be set aside is the declaration of a joint tenancy. This is on the basis that, in effect, the purchase was primarily funded by Miss Cooper, so that the declaration of a joint tenancy also involved a substantial gift by Miss Cooper to Mr Smith. Her case as to the funding of this purchase is that Mr Smith provided(a) £15,000 cash and

(b) at most the amount of principal paid off the mortgage while it was in existence. The camper van was hers (even though received as a gift from him) and the bulk of the mortgage money was provided by her because it was raised on the security of, and ultimately paid off out of the proceeds of sale of, Fifty Farm, which, by reason of the earlier undue influence, was Miss Cooper’s sole property.

[50]In paragraph 44 of the judge’s judgment, he said that it was a case in which the presumption of undue influence applied because Mr Smith had acquired a position of ascendancy over Miss Cooper because of her mental condition, his awareness of it, and his decision to run her finances. He also held that the transactions called for an explanation, because of the proportion of Miss Cooper’s assets that were tied up in Fifty Farm, the fact that Mr Smith made no contribution to the purchase from the outset and that within a relatively short time of their starting to live together she appeared to have volunteered a half share of this substantial asset to him. Then he proceeded from the proposition that the transactions called for an explanation to hold that there was a proper explanation for them. At paragraph 47, he came to the conclusion that there was a benefit to Miss Cooper from the transfer of half of Fifty Farm to Mr Smith and that it was not manifestly to her disadvantage. She got in return the commitment by Mr Smith to buy the adjoining land, to join in the mortgage application and to provide the balance for the purchase of Rose Cottage from his own resources. He did provide a significant contribution to costs and living expenses. He was aiming to set up home with her with a view to them spending their lives together and sharing the financial burdens. He was reasonably expecting to share in any increase in the value of their assets. That was the basis of the judge’s conclusion that the transaction was not vitiated by undue influence.

[51]The judge went on next to consider what the parties’ intentions had been as regards the beneficial interests in the properties and to hold that they intended, and had agreed, to share equally. In this context he referred to substantial labour and expenditure in improving Rose Cottage on the part of Mr Smith.

[52]At paragraph 59 of his judgment, the judge dealt with the question of advice to Miss Cooper. He said this:

“An important feature of a case such as this can be whether the other party received independent advice. Mr Grimes always saw the two parties together. He acted for them both. He did not know one better than the other and to that extent was independent. If he had insisted upon Miss Cooper going to see another solicitor that would have strengthened Mr Smith’s case. The fact that he did not do so does not in my view weaken it.”

Thus he did not base his decision in favour of Mr Smith as regards undue influence on this factor.

Rebutting the presumption: Mr Grimes’ role

[53]In the course of his oral evidence, Mr Grimes was taken to many of the documents to which I have referred earlier. Miss Clarke asked him to comment on the apparent changes of mind on the part of Miss Cooper. He was asked, for example, whether this gave him pause for thought as to what the two clients wanted, in particular what Miss Cooper wanted. To that question (page 7 of the transcript) he said that it did not and that what he was seeking and what he received was joint instructions. Nor did it occur to him, even from the reference to depression and panic attacks, that she needed independent advice. Equally, it did not occur to him at the outset as regards the transfer of equity in the Fifty Farm that there might be any conflict of interest as regards the intended gift. Later (transcript page 15) there was this exchange:

“Q. So between 6 May and 11 June you have had a number of instructions from Susan Cooper and the only instruction for a joint tenancy, apart from this one when she countermands her note, is where she is seen with you in the presence of Peter Smith. Did it not occur to you that she needed to be seen alone and that you needed instructions from her and to give her advice? A. They were both my clients. Unless I believed that there was undue influence or anything of that nature, and I did not believe that there was.”

The point returned later in his cross-examination (transcript page 16):

“Q. So this is a history of people changing their minds, in particular Miss Cooper being concerned about what she was doing. But you did not see fit to think that she might want independent advice from her own solicitor? A. No. The circumstances as they happened could not have given me concern in that way.”

[54]The point was followed up in the course of cross-examination by Miss Bundell (transcript page 22):

“Q. You mentioned in your own evidence that you had no sense of undue influence. What do you mean by that? What would have put you on notice that you needed to do something else? A. I think there was one note. I cannot remember which one it was now. There was one note where - oh here it is at 1016. I put a note here that Mr Smith is not bothered whichever is selected. I think that sums it up really for me.”

[55]The clear tenor of the documents as confirmed by that evidence is that Mr Grimes was acting for the two clients jointly, was advising them both jointly, and required joint instructions as to any formal act which he was to undertake on their behalf. He was specifically not advising one of them separately, and he refused to do so. He did not perceive anything in the situation that indicated that either of them needed separate and independent advice. He considered that they did understand his advice, for example as to joint tenancy and tenancy in common, even if they needed it repeated from time to time. He was satisfied, before he concluded each transaction for them, that he had their considered joint instructions that the transaction was to proceed, and as to the basis on which it was to proceed.

[56]So far as I can see, he acted and advised properly and with reasonable competence in his position as the solicitor instructed by, advising, and representing the two clients jointly. What he did not do, or purport to do, was to give any advice to Miss Cooper from her own separate point of view and for her own separate benefit. This is therefore not a case in which Miss Cooper had any independent advice. The judge’s comment at paragraph 59 that Mr Grimes did not know one client better than another “and to that extent was independent” is not really to the point. What is meant, in this context, by independent advice is advice to and for the benefit of the one party alone given by an adviser whose duty it is to consider the position of that party and to advise her (it would usually be a female) so that she can give thought, free from any influence of or dependence on the other party, as to whether she really does want to enter into the transaction, bearing in mind its full implications from her point of view. The adviser, advising the party in question alone, must explain the nature and the consequences of the transaction to that party with full knowledge of the relevant circumstances: see, for example, Snell’s Equity, 31st edition, paragraph 8-31. Mr Grimes was not in that position. It did not occur to him that Miss Cooper needed any such protection. He did not know the relevant underlying circumstances. He did not, and did not profess to, give Miss Cooper any advice as to her position separately.

Undue influence: did the presumption arise, and was it rebutted?

[57]The principles relating to undue influence are most recently and authoritatively set out in Royal Bank of Scotland v. Etridge (No 2)

[2001] UKHL 44

[2002] 2 AC 773

, to which the judge referred.

[58]I leave aside cases where undue influence is proved positively by the evidence: such cases are rare. The present, like so many, is a case where a presumption of undue influence is relied upon. The starting point is, first, a relevant kind of relationship. It is not now in dispute that the relationship between Mr Smith and Miss Cooper was of that kind, for reasons accepted by the judge and not challenged in the Respondent’s Notice. Secondly, to go back to the seminal case of Allcard v. Skinner

(1887) 36 Ch D 145

, the transaction must be one which is “not to be reasonably accounted for on the grounds of friendship, relationship, charity or other ordinary motives on which ordinary men act”. I take the judge’s use of the phrase “the transactions call for an explanation”, in his paragraph 44, especially by reason of the cross-reference to Etridge, as being equivalent to that concept.

[59]In paragraph 14 of his speech in Etridge, Lord Nicholls said:

“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.”

[60]It is plain from his speech that he was using the phrase “a transaction which calls for explanation” as shorthand for the formula in Allcard v Skinner.

[61]If that is shown, as Lord Nicholls said, the presumption of undue influence applies, that is to say, the court will presume that the transaction was procured by undue influence exercised by one party over the other, in other words by the abuse by the one of the position of influence that he has over the other. In such a case it is then up to the one party to prove that the transaction was not procured by an abuse of his position of influence but was rather the free exercise of the will of the other party as a result of full, free and informed thought. Lord Nicholls’ phrase “in the absence of satisfactory explanation” in paragraph 14 of Etridge refers to the dominant party satisfying this burden of showing that the transaction was not procured by undue influence. Full understanding of the transaction is of course necessary but by no means sufficient, because the problem is lack of independence, not lack of understanding. As was said by Buxton LJ in Turkey v. Awadh

[2005] EWCA Civ 382

at paragraph 15: “He would normally discharge that burden - as, for instance, now at least occurs in husband and wife cases - by showing that the Defendant entered into the matter with his will fully unconstrained, usually with the benefit of independent legal advice”.

[62]Miss Bundell contended that, despite his words at paragraph 44, the judge did not hold that the presumption of undue influence applied at all. She said that he held that the relationship was of a relevant kind, but that he did not hold that the nature of the transaction was within the Allcard v Skinner categories. She contended that his comment that the transactions called for an explanation led on to his conclusion that they were explicable according to ordinary motives on which people act, and that therefore the presumption did not apply. She submitted that the judge said first of all that the transaction called for an explanation and then went on to seek, and to find, such an explanation, thereby negating his preliminary conclusion that the presumption applied at all.

[63]I cannot accept that argument. In the context of the judge’s express cross-reference in paragraph 44 to Lord Nicholls’ speech in Etridge, his statement that “the second prerequisite applies”, and that “this is a case where undue influence is to be presumed”, I have no doubt that the judge accepted that the presumption did apply. It seems to me plain that it did apply, and he was right in that conclusion. In the context of the judge’s reference to Etridge, his phrase “calls for an explanation” must refer to the conditions for establishing the presumption, not just to a provisional conclusion in that respect to be checked by an analysis of the merits of the transactions. That is not what the judge meant. It is not the natural reading of his words in the context. If it had been his meaning, it would have been clearly wrong.

[64]Miss Bundell went on to submit that independent advice is not an essential element of rebutting a presumption of undue influence. That is correct, but the significance of its presence or absence needs to be seen in the context of the principles relating to undue influence as set out in Etridge.

[65]With respect to the judge, it does not seem to me that he can have appreciated the full force of his finding at paragraph 44 that undue influence was to be presumed, a finding which I consider to be obviously correct. He approached the case on the basis that it would be sufficient for Mr Smith to show that there was a reasonable explanation for the transaction or that it was not manifestly to Miss Cooper’s disadvantage. The phrase “manifest disadvantage” was used in National Westminster Bank v. Morgan

[1985] AC 686

in relation to the anterior question, whether the presumption applies or not. It was explained in Etridge as being equivalent to, though less satisfactory than, the Allcard v. Skinner formula. It is not relevant to the second stage of rebutting the presumption. Indeed, it is not sufficient for that purpose to show that there was no disadvantage to the party in the position of the present defendant: see Etridge at paragraph 12. The judge may have been led to his consideration of whether there was a reasonable explanation by a misunderstanding of Lord Nicholls’ phrase “in the absence of a satisfactory explanation” in Etridge, as to which see paragraph [61] above.

[66]It seems to me that the judge asked himself the wrong question at this stage of the analysis. He did not consider whether Mr Smith had discharged the burden of proving that Miss Cooper entered into the transaction of her own free will, independently of, and not in any way as a result of, the influence that Mr Smith was in a position to exercise over her. If he had posed that question, an answer favourable to Mr Smith could not have been found by reference to the advice given by Mr Grimes, as I have already explained.

[67]What other basis is there for a rebuttal of the presumption? Miss Bundell put forward submissions relying, among other things, on what the judge said as to the intentions of the parties as regards beneficial interests. That part of his judgment was strictly unnecessary, in the light of the declarations as to beneficial joint tenancy, if the transactions were not vitiated by undue influence, but she submitted that it was illustrative of the relationship between the parties generally.

[68]She did not contend that the judge focused in terms on the question whether Miss Cooper had entered into the transaction as an exercise of her free will independent of Mr Smith’s position of influence. Plainly he did not do so. However, she submitted that there was ample evidence on which the judge could find that Miss Cooper entered into the transaction of her own free volition. She pointed to some passages in the medical report of Dr Nasir, which had been primarily relevant to the question of capacity but which gave some insight into Miss Cooper’s state of mind and provided an explanation for some of the difficulties that she had or may have had in relation to her position at the time and in relation to the transactions as proposed. In essence her submission was that Miss Cooper did have difficulties but that she grappled with those difficulties and came to an ultimate conclusion in favour of proceeding with each transaction.

[69]She also referred to Miss Cooper having been advised against the transaction by her father. As to that it is clear that her father did not approve of the gift of a half share of Fifty Farm, and made that plain (see the file note quoted at paragraph [31] above), and that he also made his views about the proposed purchase of Rose Cottage clear to his daughter. We do not know the details of what he said, or when he said it, save that Miss Cooper regarded herself as having been told off after the event. In any event, views expressed or even advice given by a family member are no substitute for independent advice from a professional who is (and would be seen as) able to consider the matter in a detached and objective manner, with nothing other than Miss Cooper’s interests in mind.

[70]Miss Bundell’s submissions by reference to the evidence that, for all the difficulties she had in making up her mind, Miss Cooper did reach a concluded decision as a result of her own thought processes in favour of each transaction may well be a fair comment on the evidence. However, it is no part of a rebuttal of the presumption of undue influence. There is nothing in the evidence that can show that Miss Cooper was able to, or did, address these decisions free from the influence that Mr Smith was in a position to exercise over her. What the position would have been had Miss Cooper been capable of giving evidence and had she been cross-examined has to be a matter of speculation, but the burden is on Mr Smith, once the presumption is established, of demonstrating that she made her decisions not only understanding their effect but as a matter of her own free unconstrained will, not subject to the effect of his influence or her dependence on him. That is not something which, as it seems to me, Mr Smith began to demonstrate.

[71]With respect to the judge and to Miss Bundell’s submissions, I would hold that, having rightly concluded that the presumption of undue influence did apply on the facts at his paragraph 44, the judge then failed to address the question which then arose, namely whether Miss Cooper decided to enter into the relevant transactions - the transfer of equity of Fifty Farm and the declaration of a beneficial joint tenancy as regards Rose Cottage - of her own free will independent of the influence that Mr Smith was able to exercise over her. The only point relevant to that which he did address was the advice given by Mr Grimes. He referred to that as being in a sense independent advice but he did not rely on it as supporting Mr Smith’s case. He was, I think, wrong to call it in any relevant sense independent but he was right not to regard it as assisting Mr Smith. Accordingly he made no finding of fact that could support an answer favourable to Mr Smith on the question of Miss Cooper’s free choice to make the gift to him represented by the transactions. Nor, as far as I can see, was there any basis in the evidence on which he could have made such a finding.

The Respondent’s Notice: constructive trusts

[72]At this point I must mention the point taken in the Respondent’s Notice, that if the transaction fell to be set aside for undue influence, nevertheless the same position should be reached by way of a constructive trust. I have great difficulty with that proposition, because the basis of a constructive trust of this kind, as I understand it, is to impute an agreement by the parties as to their intended beneficial interests. In the present case there was an actual agreement, by way of the declaration of beneficial joint tenancy in respect of each property. That agreement, however, is not effective because it is vitiated by undue influence and voidable accordingly. That being so, I cannot see how it could be proper or even possible to put the same agreement in place, or an equivalent by way of a tenancy in common, as a substitute for the actual agreement which is ineffective for the reasons mentioned. The finding of undue influence Undue influence as regards Fifty Farm and the adjacent land

The finding of undue influence

[73]For reasons given above, on the Appellant’s Notice I would hold that the judge was right to conclude that the presumption of undue influence applied but wrong to hold that it was rebutted. He ought to have held that the transfer of equity of Fifty Farm from Miss Cooper was procured by undue influence, was therefore voidable and ought to be set aside. As regards Fifty Farm as such Mr Smith gave no value, so that property ought to be held on trust for Miss Cooper absolutely as it was before July 2004.

[74]Miss Clarke submitted that undue influence was not relevant to the parcel of adjacent land which had been bought in joint names and was held on a joint tenancy, the purchase money being provided by Mr Smith. She pointed out that there was nothing to vitiate that transaction which should therefore stand. That land was held, until it was sold, on trust for Mr Smith and Miss Cooper as joint tenants and she accordingly argued that so far as the proceeds of the sale as a whole was attributable to that piece of land, Miss Cooper was entitled to a half share and Mr Smith was therefore only entitled to a half share, whereas in respect of the major part of the proceeds of sale, attributable to that which had been in Miss Cooper’s sole ownership before July 2004, she contended that Miss Cooper was entitled to the whole of that. For reasons to which I will come later, it does not seem to me that that position, despite being, in a sense, theoretically correct, can fairly be maintained or ought to be the basis of the order made on the appeal.

Undue influence as regards Rose Cottage

[75]As regards Rose Cottage it is not of course the purchase of the property but the declaration of beneficial interests that involved a disposition by Miss Cooper in favour of Mr Smith which is sought to be set aside. Whether this involved a substantial gift by Miss Cooper depends on a view of what the beneficial interests would otherwise have been, and therefore on assessing the respective contributions of the parties to the acquisition cost.

[76]So far as this property is concerned, if, as I have said, Fifty Farm ought to be regarded as Miss Cooper’s sole property (leaving aside, for the moment, the small piece of adjoining land) then the proper view of the contributions to the purchase of Rose Cottage, Miss Clarke submitted, is as follows. Mr Smith provided £15,000 cash and the sum necessary to cover costs (£800). Mr Smith provided the camper van but had given it to Miss Cooper so that when it was transferred to the vendor of the property as part of the price of the property it was in fact Miss Cooper’s contribution to that price, not that of Mr Smith. The third element was the mortgage advance of £100,000. That, in substance, was provided in the end by Miss Cooper since it was repaid, as to £98,600, out of the proceeds of sale of Fifty Farm which she owned. Only to the extent of £2,700 did Mr Smith make any contribution to the mortgage, by the extent to which the principal outstanding was reduced by mortgage payments made by him during the subsistence of the mortgage. On that footing the contributions to the purchase price were very far from equal. If that is so, then a position under which the property is put into the joint names of the parties as beneficial joint tenants appears to involve a substantial gift by Miss Cooper to Mr Smith. For reasons which I will explain, I do not accept every aspect of Miss Clarke’s submissions in this respect, but I would accept that Mr Smith’s contribution to the acquisition of Rose Cottage was significantly less than that of Miss Cooper.

[77]The judge treated the mortgage advance as being a joint and equal contribution by each of the two parties by virtue of the fact that they were jointly contractually liable, even if he was wrong about the beneficial ownership of Fifty Farm. In support of this he referred to Cowcher v. Cowcher

[1972] 1 WLR 425

, a case in which, it might be said, Bagnall J endeavoured to provide family lawyers with a tutorial on equitable principles concerning trusts and their application to issues concerning jointly owned property. It seems to me that there is a material distinction of a fundamental kind between the facts of that case and those of the present case in relation to how the liability on the mortgage should be treated. In that case the mortgage advance was raised on the security of the property at the time of its purchase, to provide part of the funds necessary for its purchase. The property was held, and was intended to be held, as the matrimonial home on a long term basis, albeit that due to the failure of the marriage it had to be sold sooner than might otherwise have been the case.

[78]In the present case, by contrast, the mortgage advance was obtained on the security of Fifty Farm well in advance of the purchase of Rose Cottage. The advance was used for the purchase of Rose Cottage but it was secured on Fifty Farm and within less than a year of the purchase of Rose Cottage, Fifty Farm was sold and the mortgage was redeemed out of those proceeds of sale which, on the basis of the conclusion I have come to, were owned by Miss Cooper (leaving aside the adjacent land). It is of course true that Mr Smith was liable on the mortgage and no doubt true that he made such payments as were made while it was subsisting. But it does not seem to me that it would be realistic or appropriate to treat him as contributing half of the amount of the mortgage advance, despite his equal contractual liability for it, in circumstances in which(a) the property on which it was secured belonged, for reasons which I have already gone into, largely to Miss Cooper, rather than to him and

(b) it was obtained by way of a bridging advance which was intended to be repaid before long. In the light of those considerations it seems to me that Miss Cooper should be regarded as the contributor (or at least the main contributor) of the £98,600 of the mortgage advance which was repaid out of the proceeds of sale of Fifty Farm, and Mr Smith should be regarded as contributing the £2,700 by which the principal outstanding on the mortgage was reduced by way of payments during its subsistence. As a qualification to this, however, I will deal later with the question of the adjacent land.

[79]The other element on which Miss Bundell sought to place reliance is the expenditure in money and in effort put in by Mr Smith towards the renovation of Rose Cottage, transforming it from the condition in which it was when bought from the vendor, Mr Forster, to being in a fit state to be moved into by Miss Cooper and Mr Smith. I have already referred to the difficulties in this respect arising from, first, the absence of any pleaded issue on the point, and secondly the inadequacies of the relevant documentation put in evidence, and there being no valuation evidence which might have indicated the value and effect of the work done and the expenditure.

[80]Although the judge did not address this point in terms, as it did not arise, some of what he said in relation to the parties’ intentions as to beneficial interests does provide some relevant assistance. I have referred at paragraph [44] above to the judge’s finding at paragraph 53 that Mr Smith had worked assiduously and skilfully towards renovating Rose Cottage, though Miss Cooper had also done useful work there. I have also referred, at paragraph [4646] above, to his acceptance at paragraph 57, concluding that the parties intended to share equally, that they both parted with their capital, that Mr Smith initially provided much more labour than Miss Cooper, and that he probably contributed more than she did.

[81]I have also quoted at paragraph [47] above what the judge said at paragraph 67, when dealing with Miss Cooper’s case based on a misrepresentation that he would pay her £60,000, to the effect that Mr Smith had invested well over £60,000 in actual money, as well as providing physical services. The reference to that amount in that context seems to me to be explained by the fact that Miss Cooper’s case was that she was supposed to receive £60,000. I do not think that this reference should be taken to define, even approximately, the amount of Mr Smith’s contribution. At paragraph 56 he said that Mr Smith’s divorce settlement, which had been some £100,000, had disappeared into the properties and joint living expenses.

[82]According to Mr Smith’s own evidence the credit card bill of Miss Cooper which he paid was of £4,000. He paid about £24,000 for the camper van, plus the value of the caravan, and he had to make the further payment that I have mentioned in respect of the caravan, because it turned out to have been stolen. In his second witness statement he claimed to have spent £13,200 on specific items by way of improvement of Rose Cottage. In his third witness statement he said that he spent £10,000 on redecorating and refurbishing Fifty Farm throughout, including certain items of furniture and equipment which Miss Cooper still has at Rose Cottage, £5,000 on a new car for her, the cost of two holidays in Wales and Cornwall, £21,000 (and his previous caravan by way of part exchange) towards the new camper van already mentioned, and payments on the mortgage amounting to about £15,000. He also put down £15,000 cash towards Rose Cottage, and at that stage he had about £45,000 left of his savings from his divorce settlement. Then he said that the remaining £45,000 went on gutting and renovating Rose Cottage, including, by way of example, a new central heating system and new boiler.

[83]Thus his case was, in effect, that the respective contributions of the two parties had been more or less equal, in that they had both sunk their divorce settlements, directly or indirectly, into the relationship and the two properties, quite apart from the labour element, in respect of which his contribution was greater than hers. Miss Bundell is entitled to rely on what the judge said at paragraphs 56 and 57, in particular, as showing a general acceptance on the judge’s part of Mr Smith’s case in this respect.

[84]As I have indicated, some of Mr Smith’s case was based on his having contributed in cash and in kind to the improvement of Fifty Farm. The judge made no findings about this in any specific terms. It seems to me that there is nothing that should be taken into account in respect of Fifty Farm in this respect. I have mentioned what Mr Smith said he had contributed to Fifty Farm in his third witness statement, but apart from the payments under the mortgage (which seem to me to be referable to Rose Cottage, not to Fifty Farm) and the camper van (which I have already discussed), I do not consider that any of these should be brought into the account in any way. For one thing, the judge made no comment or finding about any of these items. For another, the evidence in the witness statement is very generalised and unspecific. Moreover, expenditure on a new car for Miss Cooper and on holidays for the two of them would clearly not be related to the property.

[85]As regards Rose Cottage, the position is different. Undoubtedly Mr Smith did contribute in cash and in kind to the renovation. That renovation was essential from the start, given the condition that the property was in when acquired. The cost of making it habitable can therefore properly be regarded as part of the acquisition cost. The judge did make some findings as to what Mr Smith had done, and Mr Smith’s evidence identified some elements of relevant expenditure with reasonable certainty.

[86]So far as contributions in kind are concerned, by work in the course of the renovation, even though Mr Smith did more than Miss Cooper, it is impossible to quantify in any meaningful way the contribution of either party, and the judge did not attempt any such quantification.

[87]As regards financial contributions, on the other hand, I am content to assume that Mr Smith made some significant contributions to the renovation, and that Miss Cooper did not. Taking together what he said that he spent on aspects of this work in his second and third witness statements, his spending on the property comes to about £16,000. This includes the replacement of a bathroom (£800), a new kitchen (£4,000), a central heating system and boiler (£7,000 plus £3,000), and laying a new drive (£1,400). I accept that the total of £16,000 is to be brought into the account to his credit as part of the acquisition cost of Rose Cottage.

[88]On this basis I conclude that Mr Smith’s contribution, overall, to the acquisition of Rose Cottage, though greater than was admitted on Miss Cooper’s behalf, was substantially less than hers. Accordingly, the declaration of a beneficial joint tenancy did involve a substantial gift on her part to him. This was vitiated by undue influence, just as was the gift of a half share in Fifty Farm, and therefore the declaration of trust is to be set aside.

The effect of setting aside the transactions: restitution

[89]The question therefore arises of the consequences of setting aside these two transactions. One approach would be to analyse the situation without reference to agreement and accordingly to have recourse to the principles of resulting trusts where land has been bought in the names of two parties without any agreement or express declaration of trust and it is necessary to refer to the objective facts as to how the consideration has been provided in order to ascertain the trusts on which it is held. In relation to Fifty Farm that could lead to a conclusion that Miss Cooper is the sole owner of the original property and has a half share in the adjacent land.

[90]However, as already mentioned, at the outset of the hearing before us, Miss Clarke showed us a decision of this court, Cheese v Thomas,in which the court had to consider not only whether a transaction should be set aside for presumed undue influence but also what adjustments should be made as a consequence of the setting aside of the transaction. This was a case in which an old man, C, had entered into an agreement with his great nephew, T, whereby he paid £43,000 to T, which was the whole of his capital, as his contribution to the purchase price of a house, to be bought in the sole name of T, which C was to occupy for the rest of his life and which thereafter was to pass unencumbered to T. The balance of the price and other expenses were funded by a building society loan to T of £40,000 secured by a mortgage over the property. T failed to pay the mortgage instalments for some months thereby jeopardising C’s occupation of the property. C brought an action seeking to set aside the transaction for undue influence and claiming repayment of the £43,000. The judge accepted that the transaction ought to be set aside and he ordered a sale of the property, the market value of which had fallen substantially. He ordered that C and T should bear the loss on the sale of the property in the same proportions as they had contributed to the purchase price and he dismissed claims for interest one way and for an occupation rent the other way. Both parties appealed; both the appeal and the cross appeal were unsuccessful. The Court of Appeal held that, when reversing a transaction under which both parties had made a financial contribution to the acquisition of an asset from which both were intended to benefit, the court was concerned to achieve practical justice for both parties and that accordingly the judge, having exonerated T of morally reprehensible behaviour towards C, had correctly ordered that the loss in the value of the property should be borne by each party in proportion to his contribution to the purchase price.

[91]In his judgment, with which the other members of the court agreed, Sir Donald Nicholls said this at page 135:

“If the transaction is set aside the plaintiff must also return what he received. Each party must hand back what he obtained under the contract. There has to be a giving back and a taking back on both sides.”

[92]Later at page 136 he said:

“It is axiomatic that, when reversing this transaction, the court is concerned to achieve practical justice for both parties, not the plaintiff alone. The plaintiff is seeking the assistance of a court of equity, and he who seeks equity must do equity.”

[93]The third passage that I would quote from the same judgment is at page 137:

“The basic objective of the court is to restore the parties to their original positions, as nearly as may be, consequent upon cancelling a transaction which the law will not permit to stand. That is the basic objective. Achieving a practically just outcome in that regard requires the court to look at all the circumstances, while keeping the basic objective firmly in mind. In carrying out this exercise the court is, of necessity, exercising a measure of discretion in the sense that it is determining what are the requirements of practical justice in the particular case. It is important not to lose sight of the very foundation of the jurisdiction being invoked. As Lord Scarman observed in the Morgan case, a court in the exercise of this jurisdiction is a court of conscience. He noted “there is no precisely defined law setting limits to the equitable jurisdiction of a court to relieve against undue influence. Definition is a poor instrument when used to determine whether a transaction is or is not unconscionable: this is a question which depends on the particular facts of the case”

. As with the jurisdiction to grant relief, so with the precise form of the relief to be granted, equity as a court of conscience will look at all the circumstances and do what fairness requires. Lord Wright adverted to this in Spence v Crawford which was a misrepresentation case. He said regarding rescission and restitution: “the remedy is equitable. Its application is discretionary and, where the remedy is applied, it must be moulded in accordance with the exigencies of the particular case””.

[94]It seems to me that the guidance given by Sir Donald Nicholls in that case is invaluable, and provides the way towards a proper resolution of the present situation, the court having set aside both the transfer of half of Fifty Farm to Mr Smith and the declaration as to a beneficial joint tenancy in respect of Rose Cottage.

Restitution as regards Fifty Farm and the adjacent land

[95]First, the purchase of the land adjacent to Fifty Farm must be seen as part of the same transaction as the transfer of equity because if the transfer of equity had not taken place the adjacent land would probably not have been put into the joint names of the parties. Accordingly, as a condition of the setting aside of the transfer of equity, Mr Smith must be given credit for the full value of the adjacent land based on his contribution of the entire purchase price of that land, namely £9,000, plus the costs incurred on the two transactions, of £750.

[96]In respect of Fifty Farm therefore, Miss Cooper is to be regarded as the owner of that which she originally owned, and as contributing that asset from her own resources, and as accordingly being the owner of the corresponding proportion of the proceeds of sale. However, Mr Smith should be regarded as contributing the adjoining piece of land and as the owner of whatever proportion of the ultimate proceeds of sale is fairly attributable to that. His financial contribution should be taken at £9,750, and Miss Cooper’s as the value of Fifty Farm as it stood (without the adjacent land) as at July 2004. The judge’s comment at paragraph 19 on this point ignores the time difference between their respective cash contributions, and the likely increase in value of Fifty Farm by the time of the transfer of equity. I will return shortly (at paragraph [106] below) to the question of how to quantify these proportions.

Restitution as regards Rose Cottage

[97]The position in relation to Rose Cottage is more complex and more difficult to unravel in the light of the circumstances that I have mentioned and the incomplete investigation and documentation and the absence of any evidence as to valuation. In other circumstances it might be that the right course would have been to remit the issue of relief to the court of first instance so that the matter could be gone into by reference to a fuller investigation on the basis of a properly formulated issue. Neither party, however, for perfectly understandable reasons, wished to contemplate a further hearing at first instance, not least because many of the difficulties that prevented the documentation from being complete and prevented valuation evidence of any utility from being obtained still prevail. Accordingly the parties agreed that this court should do its best with the material available to it in the light of the judge’s actual findings of fact, in the light of the issues as determined and in the light of the principles laid down by Sir Donald Nicholls in Cheese v Thomas. The outcome of that process is almost certain to be different from that which would be achieved after a full investigation by a trial judge, if fuller documentation were available. However, the costs of that process, and the delay, might very well mean that both parties would be worse off at the end of the day. Accordingly I accept that this court should do what it can on the limited material which we have. For this purpose, I have read the whole of the appeal bundle. I have already stated my conclusions, on this basis, as regards the contributions made by each party in cash and in kind to the overall acquisition cost (including renovation) of Rose Cottage.

[98]Unravelling a transaction or series of transactions between cohabiting parties such as these is inevitably a more difficult process than that which faced the court in, for example, Cheese v Thomas, because the relationship between the parties here encompasses so many things beyond the acquisition of the properties and their improvement. As was familiar in the early days of joint property disputes in matrimonial and quasi-matrimonial cases, there is plenty of scope for debate as to the relevance, or not, of spending on joint living expenses, and on items other than the particular properties. A strict approach would confine the disentangling process to that which was directly relevant to the acquisition and improvement of the properties in question. A broader assessment would take into account expenditure by way of joint living expenses, as well as of, for example, unrelated gifts between the parties.

[99]Which approach is appropriate may depend on the facts of the case, and also on how the case has been put. Particular features of the present case which make the task more difficult for the court are that, on the one hand, Mr Smith has not been able to produce relevant documents which he says are still at Rose Cottage, and on the other hand, that since the amount of the parties’ contributions in cash or in kind was never put in issue in Mr Smith’s Reply and Defence to Counterclaim, those representing Miss Cooper were not on notice of the need to enquire into this aspect of the case.

[100]Miss Bundell referred to Sir Donald Nicholls’ observation that “equity as a court of conscience will look at all the circumstances and do what fairness requires” (see the third passage quoted from Cheese v Thomas, at paragraph [93] above). On that basis, she submitted that the court should take a broad view, rather than a narrow one, of the factors relevant in assessing fairness as between the parties. She might claim support for this in the judge’s comment at paragraph 58 that an equal sharing was a result which was just and fair. The judge’s conclusion there proceeded on the basis that there was no vitiating factor of undue influence. That being so, the express declarations of beneficial joint tenancies would prevail in any event, so that each would have an equal share. On the basis that there were substantial gifts by Miss Cooper which are to be set aside because of undue influence, it does not seem to me that the same conclusion should by any means necessarily be reached as regards practical justice and fairness as between the parties.

[101]In particular, in my judgment, Sir Donald Nicholls’ references, in the earlier passages quoted above from Cheese v Thomas, to the task of reversing or cancelling a transaction which the law will not permit to stand, require a focus on the property transactions, not on the entire relationship between the parties. The exercise envisaged by Cheese v Thomas does not involve putting the parties back into the position of never having had a relationship. It requires that the property transactions be reversed, in effect and substance, but not that the whole history of the relationship between the parties be rewritten.

[102]In those circumstances it seems to me that, while it is fair and proper to recognise expenditure by Mr Smith of a capital nature on the acquisition of and improvement of the properties, it would not be appropriate simply to accept that, one way or another, he spent £100,000 during the relationship and that he should be treated as contributing the same amount of money as Miss Cooper, and therefore as entitled to a half share of both properties. In effect what it comes to, as regards Rose Cottage, is that the parties should have credit for the proportion of the value which is attributable to their respective contributions to the overall acquisition cost, treating the renovation as part of the acquisition in this case. That is the same approach as applies under the principles of resulting trusts.

[103]Thus, for example, it seems to me that Mr Smith ought not to be treated as having contributed the camper van to the purchase of Rose Cottage. He had given it to Miss Cooper in September 2004, before the idea of buying Rose Cottage arose, and therefore in circumstances which were not in any way connected with the purchase of the property. It follows that it was her contribution to the purchase of Rose Cottage, not his. All the more clearly, his having paid off Miss Cooper’s credit card bill, for example, is not something that has to be unwound as part of the process of restitution in respect of this property transaction.

[104]In the light of what I have already said, the several elements in the cost of acquisition of Rose Cottage were as follows: i) Mr Smith’s payment of £15,000 cash, plus £800 for costs; ii) his payment of £2,700 off the principal sum due under the mortgage by way of mortgage instalments; iii) the contribution by Miss Cooper of the camper van, to be taken as worth £30,000, for reasons already explained; iv) the repayment of the balance of the mortgage advance, namely £98,600 out of the proceeds of sale of Fifty Farm; and v) Mr Smith’s contribution of £16,000 in cash towards the cost of the renovation.

[105]That gives a total cost of £163,100 in cash terms. I would not include anything either way for the labour involved in the renovation. I do not doubt that a great deal was done, and that it had a value, but there is no possible basis on which its value could be estimated. Since, for reasons given at paragraph [86] above, I cannot attribute a value to this contribution on the part of either Mr Smith or Miss Cooper, there seems no point in attempting to work out even a notional figure to be inserted for this purpose into the calculation.

[106]I said earlier (at paragraph [78]) that the payment of the balance of the mortgage advance, £98,600, was to be taken as Miss Cooper’s contribution. However, on the footing that Mr Smith is to be taken as having contributed £9,750 to Fifty Farm as a whole, in the form in which it was eventually sold, as the price of the adjacent land and costs, it would be right to regard him as having contributed a proportion of the £98,600. This should be calculated by working out the proportion that his cash payment of £9,750 bore to the value of the original Fifty Farm as it stood in July 2004. This therefore requires a valuation of Fifty Farm, without the added adjacent land, as at July 2004. I assume that a valuer could express an expert opinion as to that. That valuation exercise needs to be done in order to apportion between the parties the net proceeds of the sale of Fifty Farm. The same exercise would show what proportion of the £98,600 should be regarded as having been contributed by Mr Smith.

[107]On that basis, I would treat the overall cost of the property as £163,100, and I would regard Mr Smith as having contributed £15,800 in cash on the purchase, £2,700 towards the reduction of the mortgage, and £16,000 towards renovation work, (making a total so far of £34,500) together with an amount to be ascertained (representing his proportionate share of the overall value of Fifty Farm plus the adjacent land) as a proportion of the £98,600 paid out of the proceeds of sale in redemption of the mortgage. The balance came from Miss Cooper.

[108]To illustrate the effect of this calculation, and taking, purely for purposes of example, a proportion of 8% as representing Mr Smith’s share of the proceeds of Fifty Farm, the result would be as follows: i) Mr Smith would be entitled to 8% of the net proceeds of sale of Fifty Farm, as held by the solicitors (namely £6,400, plus a corresponding share of any interest accrued). ii) Miss Cooper is entitled to the rest, giving credit for what she has already received. iii) Mr Smith is to be treated as having contributed towards Rose Cottage 8% of the £98,600 paid out of the gross proceeds of sale in redemption of the mortgage, namely £7,888 (say £7,900). Added to the £34,500 already identified, his contribution to acquiring Rose Cottage would have been £42,400. iv) The balance of the £163,100, namely £120,700, would have been Miss Cooper’s contribution. v) It would follow that Mr Smith would be entitled to a beneficial interest of 26% in Rose Cottage, and Miss Cooper to the balance of 74%. I emphasise that these figures are no more than illustrations, depending on what percentage is to be taken as Mr Smith’s proportion of Fifty Farm as a whole, as mentioned in paragraph [106] above.

[109]At paragraph 58 of his judgment the judge took some calculations, on different bases, in order to test his approach to the question of what were the parties’ intentions as regards their respective beneficial interests. He had, of course, rejected the claim to set aside any transaction for undue influence. Since I have concluded that he was wrong on that point, it is not surprising that my calculations proceed on a different basis from his. He took a valuation of £160,000 for Rose Cottage. If that were correct, then, on my hypothetical example of an 8% share of Fifty Farm, Mr Smith would be entitled to £6,400 out of the proceeds of sale of that property and £41,600 from Rose Cottage, a total of £48,000. That would give him half as much again as the judge’s example showed.

[110]On the basis of a finding of undue influence, and consequently of setting aside the transactions, it is not appropriate to ask whether the ultimate result corresponds with the parties’ intentions. It is relevant to consider whether the result does practical justice between the parties, in the light of the principles enunciated in Cheese v Thomas. In my judgment, the approach that I have set out above does the best to achieve such justice that is practicable given the limitations of the material available to the court.

[111]One element in the calculation remains to be determined, as I have described at paragraph [106], by valuation evidence if not by agreement. It seems to me that it would be appropriate for this court to direct the parties to resolve that issue by appointing a single joint expert valuer to give his or her opinion of the value of Fifty Farm (not including the adjacent land) as it was in July 2004. The calculation to be made, once that figure is known, is to add it to £9,750, and to calculate what £9,750 is as a percentage of the aggregate. That percentage is the proportion to which Mr Smith is entitled of the net proceeds of Fifty Farm, and it is also the proportion for which he is to be given credit as part of the mortgage redemption figure of £98,600. Once that issue has been resolved, there will be questions to be decided at first instance as regards giving effect to Mr Smith’s entitlement. Accordingly it seems to me that it would be best to allow the appeal on the basis indicated above, to give the direction as to valuation which I have described, and to remit the case to the Norwich County Court for the remaining issues to be resolved, by the court if not by agreement. I would invite written submissions from Counsel as to the terms of the order, as well as on other consequential issues such as costs.

[112]I agree.

[113]I also agree.