Hogg v Hogg & Anor [2007] EWHC 2240 (Ch)

[2007] EWHC 2240 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue Royal Courts of Justice, Strand, London, WC2A 2LLDate 4 th October 2007
Before
THE HON. MR JUSTICE LINDSAY
Case No HC05C03817
Between
ROGER BENJAMIN GEORGE HOGGClaimant(1) ANITA LOUISA HOGG andDefendants(2) ROBERTA CAROLINE SHARPDefendantCase No: HC06C01947
Between
ROGER BENJAMIN GEORGE HOGGClaimantOTFORD TOOL & GAUGE CO LTDDefendant
Martin Osment (instructed by Roger Benjamin George Hogg)David Reade QC (instructed by Volks Hedleys) for DefendantsHearing Hearing dates: 3 rd, 4 th, 5 th, 9 th, 10 th, 11 th, 12 th, 13 th and 16 th July 2007
JudgmentThe Hon Mr Justice Lindsay :
[1]I have before me two actions, directed to come on together, which both involve one or more members of the family of William Hogg. The late Mr William Hogg, a talented engineer, had been born on the 15th September 1917. He founded and was a shareholder in and a director of the Otford Tool and Gauge Company Limited (“OTG”). He ultimately became its lifetime chairman. He and his wife Irene, also a shareholder in OTG, had three children, their son Roger and their two daughters, Anita and Roberta. With a view to mitigating inheritance tax, William and Irene, at a time when Roger was on poor terms with his parents, settled their respective holdings in OTG principally upon their daughters, on terms which I shall refer to below. These two settlements (“the Shares Settlements”) had professional solicitor trustees and are not in issue in either of the actions but they need to be explained as part of the background.[2]Irene died in 1999.[3]Later, in 2001, William settled his freehold house, “Squirrels”, in Sevenoaks by way of the “Squirrels Settlement”. William himself had a shorthold tenancy of the house and the trustees were Roger and Anita. Later, still in 2001, William created “the Gosport Properties Settlement”. Again the trustees were Roger and Anita. Neither the Squirrels Settlement nor the Gosport Properties Settlement is in issue in either action. However, there were in 2004 a series of deeds which I shall together call the “Impugned Transactions”, by which William removed Roger as trustee of the Squirrels Settlement and the Gosport Properties Settlement and excluded him from benefit thereunder.[4]To mention first the second in time of the two actions before me – HC05C03817 - it was begun on 9th December 2005. Roger, as Claimant, claimed against his father and his sister Anita that the Impugned Transactions were void for want of capacity in William at the time of their creation, alternatively that they were void for having been procured by the undue influence of Anita upon her father.[5]William died on the 30th January 2006 at the age of 88; he had not served a defence by the time of his death. No grant has yet been made in his estate but on 27th April 2006 Anita and Roberta were appointed by Master Price to represent their father’s estate for the purpose of defending Roger’s claim. Whilst I shall need first to set out the background to it, I shall deal with the chief issues raised in the second action under the headings “Undue influence – the law”, “Undue influence – the facts” and “Undue influence – the conclusion”. I shall deal only briefly with the issue of want of capacity as, ultimately, Roger’s claim under this heading was abandoned.[6]In the first in time of the two actions – HC06C01947 begun on the 29th July 2005 – Roger claims against OTG for allegedly unpaid remuneration. OTG, however, counterclaims, alleging that, on the contrary, Roger owes money to OTG by way, in particular, of Roger’s so-called director’s loan account. This action requires me to look at OTG’s Memorandum and Articles, at the course of negotiations and conduct between parties and at particular items of account.[7]As if two comprehensive actions were not enough, there are, I am told, other proceedings involving Roger, OTG and Roger’s sisters. There may be a challenge mounted by Roger to a Grant of Probate in respect of his late father’s Will and there are proceedings by Roger against OTG in respect of his first being upon sick leave and then later as to his dismissal. He is, at the moment, not an employee of OTG.[8]Before I turn to the principal headings of “Undue influence”, “Want of capacity”, “Roger’s remuneration” and the “The director’s loan account”, I must first deal with the unusual way in which Roger’s case has been presented and make some comments on the witnesses who gave oral evidence before me. I will then need to explain the Shares Settlements, the Squirrels Settlement and the Gosport Properties Settlement. I will, in a little more detail than so far given, explain the Impugned Transactions and only then turn to the main topics which I have identified. B. Representation[9]The Defendants in each action are represented by Mr David Reade QC. The representation of the Claimant, Roger Hogg, in each action is less conventional. Mr Martin Osment, a retired legal researcher and solicitors’ clerk, had, by the 2nd July 2007, been assisting Roger for some two weeks or so with preparation for the hearing scheduled to begin on 3rd July. An application by Roger for an adjournment of the hearing had been finally dismissed by Evans-Lombe J. on 30th June. However, on the morning of 2nd July, Mr Osment supplied to my clerk a copy of a letter of that day’s date from Roger’s General Practitioner saying that Roger was showing clear signs of stress in relation to an upcoming court case, “so I fear”, continued the doctor, “this should be postponed in the interests of his health if at all possible”. The difficulty about that was that if, as seemed to be implied, the stress was caused by the imminence of the hearing, it would be likely to recur whenever the adjourned date for the hearing loomed. A granting of the first adjournment might be no more than a gateway to the granting of yet further ones. However, Mr Osment added that Roger was seeing a Consultant Psychiatrist that afternoon. On the next day, 3rd July, the date when the hearing was due to begin, Mr Osment produced the Consultant Psychiatrist’s note, a copy of which he had sent to my clerk late the night before. It said that Roger’s mental state was not “robust enough” [with my emphasis] “to enable him to attend and to represent himself”. The note suggested that proceedings should be adjourned for up to six months “in order to enable” Roger “to recover his emotional equilibrium”. Again the possibility, not dealt with, was that if Roger’s lack of equilibrium was attributable to the imminence of the hearing of the proceedings, any adjournment would be likely to fail to serve any useful purpose. But, as will have been seen, the Psychiatrist’s note did not suggest that Roger’s mere attendance, without his having to represent himself, would unsettle him. In questions and answers with Mr Osment on 3rd July it was established that Roger was unable, for financial reasons, to instruct Counsel, that his erstwhile solicitors were now off the record, that he was ineligible for legal aid, that he had no real prospect of obtaining it but that he was content that he should be represented by Mr Osment. He also was content to attend the hearing. Mr Osment told me and, indeed, verified that he had personal experience of addressing courts, including the Court of Appeal, on behalf of others.[10]I was concerned, as part of a consideration of what was just not merely for the Claimant but also for the Defendants, not only at substantial and possibly repeated delay but at the risk of the not inconsiderable costs thrown away by a lengthy adjournment proving to be irrecoverable by the Defendants. I indicated on the 3rd July that I was inclined towards allowing Mr Osment to address me as if an advocate on Roger’s behalf but I added that if by the next day, Wednesday 4th July, medical evidence was produced to me that Roger was not even fit to attend and give evidence, despite his being represented by Mr Osment, I would then reconsider the position in the light of whatever evidence was produced to me but that, in the absence of such evidence I would not adjourn further. After a very short hearing on 3rd July I adjourned the matter to come on on the 4th. No medical evidence of the kind I have described was produced on 4th July, nor has it been since. I authorised Mr Osment to address me on Roger’s behalf and, in the event, Roger attended throughout the hearing and gave evidence over an extended cross-examination without, in my layman’s view, exhibiting any significant stress or depression. He seemed, in the course of his oral evidence, to have a good command of the nature of his case; he seemed fully able to comprehend the papers to which he was referred and the points put to him and well able to do himself such justice as the unfolding events permitted. Mr Osment conducted Roger’s case pro bono, with excellent Court manners and ample moderation. Mr Reade, though, was right to complain that many of the points asserted in Mr Osment’s very full written closing argument had no foundation in the evidence put before me. C. Witnesses[11]For various reasons, which I need not explain, the witnesses who gave oral evidence gave it in an irregular order. First came Dr Jonathan Waite BSc, MB ChB, FRCPsych, LLM, called by the Defendants to give expert evidence as to William Hogg’s mental capacity. Although, inevitably, he suffered from the disadvantage of never having met or examined William Hogg during his lifetime, Dr Waite had made careful study of the relatively full medical records relating to William Hogg and he heard all the tape recording of a meeting between William Hogg, Roger and Mr Noble of 3rd February 2005 which the Court heard. He was an impressive witness, experienced in dealing with questions as to the mental capacity of the elderly and on whose evidence I feel able to rely.[12]Next I heard evidence from Sir Simon Stracey Bt., called by the Claimant, a friend and very firm supporter of Roger in the litigation. Indeed, for a time it had been he who was intending to seek to address the Court as Roger’s McKenzie adviser and advocate. I do not have the least reason to think that he lied to the Court in his oral evidence or wished to mislead it but he did reveal himself as having a partisan’s strong preference for Roger’s side in his disapproval of the positions taken up at times by Roger’s father and sisters.[13]Next, called by the Defendants, came Mr Martin Galvin, solicitor, an owner member of Warners Law LLP, Solicitors, Tonbridge, Kent. He has been in private practice since 1969 specialising in private client work. He did not have as much personal contact with William Hogg or the Hogg family as his partner, Charles Warner, whom I shall come on to, but he did nonetheless have sufficient contact with the family to be able to depose in some detail, especially about the Impugned Transactions. He gave evidence chiefly about the Impugned Transactions and proved to be a fully informed and careful witness. I feel able to accept his evidence as thoroughly reliable.[14]Next, called by the Claimant, came Mrs Patricia McCoy, the widow of Norris McCoy. She and her husband had known William Hogg and his wife for almost 40 years. The last time she saw William Hogg was on 11th November 2004. As was the case with other witnesses who spoke of what William Hogg had said to them in his lifetime, one cannot be sure that what William said to her truly reflected his beliefs. As I shall explain, there was evidence that he would say things to one person and quite different things to another, even though on the same subject. Thus, for example, when Mrs McCoy said in her oral evidence that William and Irene Hogg did not fully understand the Shares Settlements and were hoping to break them, not only did it transpire that that was a sentiment expressed before Irene’s death in 1999 but in any event it might have been spoken to avoid explanation of or criticism in relation to their unequal treatment of their three children, the inequality, at that time, consisting of the exclusion of Roger. There was also a sentence in Mrs McCoy’s written evidence that said:
“I always had the impression that Anita was Bill’s favourite [and that she could wrap him around her little finger if she chose to]”
. She said she did not know how the latter words came to be in square brackets and, although that impression remained as hers, she gave no grounds for it. A little later she continued:
“…. and I am sure that Bill and Rene both wanted to treat their children equally”
. In fact William Hogg and his wife manifestly did not treat their children equally so that Mrs McCoy may have fallen prey to the dissimulation by William Hogg (and, indeed, Irene Hogg) of which other witnesses spoke. Subject to those caveats, I regard Mrs McCoy’s evidence as fairly given with a view to assisting the Court.[15]Next, for the Claimant, came Mr John Noble, another old friend of William Hogg. He gave helpful evidence, as an old friend, about William Hogg but a good deal of his evidence concerned the meeting at William Hogg’s house on 3rd February 2005 at which he was present and at which, unknown to him, Roger tape recorded what was said. He plainly had a real affection for William Hogg as an old friend and gave evidence to the best of his ability.[16]Then came Roger. Notwithstanding the psychiatric evidence to which I have referred, he gave his evidence steadily and, I have mentioned, so far as I could tell, without its causing him real stress or anxiety. There were, however, real weaknesses in parts of his evidence. Whilst I would not accuse him of any broad and deliberate intent to mislead the Court, his evidence of dealings with his late father as to his (Roger’s) employment by the Company were unconvincing and at points coloured by an idiosyncratic misunderstanding of the processes by which a binding contract is made. I thus cannot describe him overall as a reliable witness. Indeed, he spoke more than once of his having a “terrible memory”. In general, though, he had good command of the issues in the case and of detailed accounting matters although it would have behoved him to be more candid in accepting, earlier than he did, that there had been expenses borne by OTG which, properly classified, should, as he must have well known, have been regarded as expenditure for his personal benefit rather than true company expenditure. Whilst it is not necessary that I should identify every example, I shall need to mention expressly some particular items of evidence given by Roger which I do not feel able to accept.[17]Mr Christopher Callow, called by way of a witness summons by Roger, is a Chartered Accountant and a partner in the accountancy firm of McCabe Ford Williams of Maidstone. He had acted as the external accountant and auditor to OTG from about 1997 until 2006 when he resigned. He spoke of both OTG and Roger as being “challenging clients”, which I took to mean that they, and in particular Roger, had frequently sought to have treated as company outgoings payments which, more strictly regarded, should have been regarded as for the personal benefit of Roger or, in other cases, of his father. I formed the view that Mr Callow was a little embarrassed, retrospectively, at a degree of laxity or informality in OTG’s affairs which, as accountant and auditor, he properly could have complained of but which, without objection from the Trustee-Shareholders and in full recognition of its being a family company, he had felt he need not press. There had been particular laxity in relation to the OTG No. 2 account and the directors’ loan accounts recorded year on year. But Mr Callow gave evidence with a view to assisting the Court and, so far as it went, I believe his evidence can be relied upon.[18]Next came Mr and Mrs Hogg’s daughter, Roberta, now Roberta Sharp. There is now plainly little love lost between her and Roger and she did not hide her suspicion, very probably well founded, that Roger’s relatively expensive lifestyle had been funded by payments from OTG not by way of agreed salary or other agreed remuneration but by way of its description as if for the company’s benefit. But she did not exaggerate her criticism of Roger and gave evidence in a steady manner; in all, she was a credible witness.[19]Next came her elder sister, Anita. There had been criticism by Roger of the way in which she looked after her father. She lived at some little distance away from her father and, as a single parent, had her own family also to serve. Whilst there would undoubtedly have been occasions when her father’s care came second, I hold that she did her best for him. Roger’s criticism of the care she provided was exaggerated. But, although I would expect she found Roger’s evidence on this subject to be hurtful, she did not reply in kind and the impression she gave was of a daughter who had real love and affection for her father. I have no doubt but that she is needy in the sense that, at material times, she was hard up and very dependant on the salary which she derived from OTG and which was related to her care for her father. She was bound to be very concerned, accordingly, about what provision would be made for her after her father’s death. But it would, in my view, be unfair to paint her, as was sought, as a grasping person only concerned with money; she was undoubtedly worried about money but not, in my view, so intent on retaining it as to lie to the Court in order to do so. On the contrary, I hold her to have been a good witness.[20]Next, for the Defendants, came Mr Charles Warner, solicitor, another member of Warners Law LLP of Tonbridge, Kent. He has been in private practice since 1976 and he, too, specialises in private client work. His firm had been solicitors to William and Irene Hogg since 1991 and he was, in effect, the lead Trustee-Shareholder (the other being his partner, Mr Galvin) once the Shares Settlement had been set up in 1992. He was well familiar with William Hogg, with OTG and with William Hogg’s wishes in relation to OTG and with OTG’s business, albeit not at a truly day-to-day level. I hold him to be a thoroughly reliable witness.[21]Next came Mr Adrian Hargreaves, solicitor, called by the Defendants and who had taken part in an investigation, on behalf of the new incoming management of OTG, of some at least of the dealings between Roger and OTG, with a special reference to dealings in which OTG’s money had, as it might seem, have been expended for Roger’s personal benefit. He met William Hogg on 15th June 2005 and so was able to speak of William Hogg’s understanding of matters even at that late stage in his life. It was he who had the conduct of preparing a witness statement from William Hogg that forms part of the evidence. I was given no reason to doubt Mr Hargreaves’ evidence.[22]Then, after Roger had been recalled to give a particular class of evidence – detailed evidence as to particular subjects put to him as expenses that truly should have been attributed to him personally and were said to be owing by him to the company – I heard evidence from Mr Reginald Carter who for a number of years had been a neighbour of William Hogg’s at Sevenoaks. He spoke of himself as “representing” William Hogg and, whilst he may well have been subject, as were others, to dissimulation on William Hogg’s part, he gave evidence such as one might expect from a truthful old friend.[23]Finally I heard evidence from Mr John Hine, who is married to a daughter of Anita and who is now the Chief Executive Officer and a Director of OTG. His evidence was uncontentious and clearly given and I have no reason to regard it as otherwise than completely reliable.[24]Those were the only witnesses who gave oral evidence. D. The Shares Settlements[25]On 8th April 1992 each of William and Irene Hogg made a settlement of shares in OTG, he of the totality of his holding, namely of 450 shares, she of her totality, of 50 shares. Thus the whole of the then issued share capital of OTG was put into settlement. In each case the original trustees appointed by each spouse were Mr Warner, Mr Galvin and the other spouse. Each settlement was expressed to be irrevocable. The beneficiaries (who were in each case the same save that in each settlement by one spouse the class of beneficiaries did not include the settlor but specifically included the other spouse) were divisible into two; there were “the Principal Beneficiaries”, namely Roberta and Anita, and “the Beneficiaries”, consisting of the Principal Beneficiaries, the other spouse and children and remoter issue, spouses, widows and widowers of the Principal Beneficiaries. The Trustees in each case had full discretionary power to appoint both capital and income to Beneficiaries subject only, during the settlor’s lifetime, to the written consent of the settlor. I need not deal with the trusts in default of appointment. There was no express provision for the appointment of new trustees once the settlor had died and accordingly thereafter that power was conferred on the surviving or continuing Trustees by section 36 of the Trustee Act 1925.[26]As the intention of each settlement was to avoid or mitigate inheritance tax, there was in each settlement an overriding provision such that no power should be exercised so as to cause or permit any part of the trust fund to be applicable for the benefit of the settlor. The settlements were in identical form, mutatis mutandis, and included conventional and wide administrative powers including that the trustees should be at liberty to leave the conduct of the business of any company in which they held all or a majority of shares to the directors of that company so long as they, the Trustees, had no notice of any act of dishonesty or misappropriation of monies on the part of those directors. Beneficiaries, said clause 18, were not to be entitled to require the distribution of any dividend or to require the Trustees to use whatever powers they had to compel such a distribution.[27]It will, of course, have been noticed that Roger was left not only unprovided for at the time of the settlements but that he was (certainly after either of the settlors had died) left in the position in which he could never be provided for out of the settled property. Whilst both of his parents were alive there could, in each settlement, have been an appointment to the other parent such that that other parent could then have made fresh provision for Roger out of whatever had then been appointed to him or her but once either parent had died that possibility would have ended. It would in any event have been a possibility that could have been likely to undo at least in part whatever IHT benefits had already been achieved or had been hoped for. Leaving aside that possibility and leaving aside any benefit to Roger enjoyed only by way of gift in his favour by one or more of his sisters, Roger was irrevocably denied present and future ownership of any part of the then total issued share capital in OTG.[28]The settlements were in each case witnessed by Mr Lunt, Chartered Accountant, who or whose firm had already, by then, acted for some time for OTG as its auditors or accountants and who also acted for William and Irene Hogg personally. E. The Squirrels Settlement[29]On 5th December 2001 William settled his freehold house in Sevenoaks, “Squirrels”. The Trustees of the Settlement were Roger and Anita. The Settlement was described as irrevocable. The beneficiaries consisted of William, his children and remoter issue and other objects who could be added under a power in that behalf. Clause 1.10 referred to an “Excluded Class”, being persons declared to be members of it pursuant to clause 3 of the Settlement which provided:
“3.2 The Settlor may, at any time during the Trust Period, add to the Excluded Class such object or person or classes of objects or persons as the Settlor shall, subject to the application (if any) of the rule against perpetuities, determine.”
[30]The trust fund – Squirrels – was to be held to pay its income to William during his lifetime, with power to appoint to him in that period. Thereafter, the trust fund was subject to appointment by William by his Will or Codicil and in default was to be held in equal fifth shares, two for Roger, two for Anita and one for Roberta. There was, subject to any appointment to William during his lifetime, an overriding power to appoint to beneficiaries at the Trustees’ discretion. During William’s lifetime the power to appoint and remove trustees was in him. No power in the Settlement was to cause or permit any income or capital to be paid or applied for the benefit of any person who was for the time being in the Excluded Class. Amongst the wide-ranging administrative powers was power – clause 47 – enabling the Trustees to exercise powers or discretions conferred on them notwithstanding a personal interest in the mode or result of any such exercise. William executed the Squirrels Settlement as a deed in the presence of A.E. Hawthorn, a legal secretary.[31]It will have been seen that under the Squirrels Settlement, all William’s children initially stood to take, after his death, albeit unequally between them, although there were ways, including by way of William’s Will, in which that could have been changed and, equally, ways in which any of them could have been totally excluded from benefit. F. The Gosport Properties Settlement[32]A few days later, on 24th December 2001, William settled £100 upon trusts of which the initial Trustees were Roger and Anita. This Settlement, too, was described as irrevocable. The trust fund was to include not only the £100 but all money, investments or other property paid or transferred to the Trustees as additions to the trust fund. This time the “Principal Beneficiaries” were only Roger and Anita and “the Beneficiaries” included them and their respective children and remoter issue and persons who might be added under a power in that behalf. Again there was an “Excluded Class”, this time comprised of, initially, William himself and the spouse or widower of Roberta as well as any person who thereafter was declared to be a member of the Excluded Class. Again there was a power to add to the Excluded Class and a provision such that no discretion or power should be used so as to cause or permit any part of the capital or income to become payable or applicable for the benefit of any person who was, for the time being, a member of the Excluded Class. Initially the trust fund was to be held for the Principal Beneficiaries, Roger and Anita, in equal shares. Each of Roger and Anita was, in effect, to be life tenant of a particular share of the trust fund with the remainder to the children and remoter issue of the relevant life tenant. The power to appoint or remove Trustees lay in the Settlor during his lifetime. The Trustees had power to add to the Beneficiaries. As in the Squirrels Settlement there were wide administrative provisions similar or identical to those in the earlier Squirrels Settlement.[33]William executed the Gosport Properties Settlement and his signature was witnessed by Mr Warner, his solicitor. The transfer of properties in Gosport to the Trustees of this Settlement was effected with the aid of a mortgage granted to William, Roger and Anita as Trustees of the Gosport Properties Settlement such as enabled them to buy the Gosport properties which were flats 14 and 15 at a development called “The Officers’ Quarters, Phase A, Royal Clarence Yard, Gosport, Hampshire”.[34]It will have been seen that whilst Roberta did not initially stand to take under the Gosport Properties Settlement, its provisions were such that she could be added as a beneficiary and that, equally, Roger (or Anita) could be excluded from benefit thereunder by way of being added to the Excluded Class. G. Roger’s Removal as Trustee[35]On 7th December 2004 William executed a Deed Poll, supplemental to the Squirrels Settlement, which recited that William wished to remove Roger as a Trustee of the Squirrels Settlement. William, in the operative part of the Deed, removed Roger as a Trustee of the Squirrels Settlement. He executed the Deed Poll and his signature was witnessed by Mr Galvin. On the same day William executed a Deed of Exclusion. The Deed provided that Roger should be added to the Excluded Class of the Squirrels Settlement. This Deed, too, had William’s execution of it witnessed by Mr Galvin.[36]Whilst it had long been the case that Roger could not benefit from the Shares Settlement, he was now not in a position to benefit under the Squirrels Settlement either.[37]On the same day, 7th December 2004, corresponding steps were taken by William to remove Roger as a Trustee of the Gosport Properties Settlement and, in relation to that Settlement, Roger was added by William to the Excluded Class. In the case of both of those deeds the execution by William was witnessed by Mr Galvin. H. Roberta is Added[38]On 17th March 2005 William and Anita as Trustees of the Gosport Properties Settlement added as a Beneficiary of that Settlement for all the purposes of the Settlement William’s other daughter, Roberta. William’s signature was witnessed by Mr Matthews, a company director. The witness’s address suggests that William executed the deed whilst he was in the West Country. The following day, William as appointor and Anita as a Continuing Trustee were parties to a deed whereby William appointed Roberta a New Trustee to act as Trustee of the Squirrels Settlement. On the same day, 18th March 2005, William as Appointor and Anita as a Continuing Trustee were party to William’s appointment of Roberta as a New Trustee of the Gosport Properties Settlement. Again William’s execution was witnessed by Mr Matthews and, again, the likelihood would appear to be that the deed was executed whilst William was in the West Country.[39]At this point (but subject to further steps being taken by their father) the daughters’ hegemony was complete. Roger was unable to take under the Shares Settlement, under which Anita and Roberta had not only stood to take but as to which, under Deeds of Appointment of 29th September 2004 to which William Hogg was party, they became absolutely entitled in equal shares. No challenge is made with respect to the Deeds of Appointment. As for the other settlements, Roger was excluded from both trusteeship and benefit under the Squirrels and Gosport Properties Settlements, of which his sisters were both Beneficiaries and Trustees.[40]The deeds impugned in the action – “the Impugned Transactions” - are the Deeds of Removal of 7th December 2004 removing Roger as a Trustee of the Squirrels Settlement and the Gosport Properties Settlement and the Deeds of Exclusion of the same day adding Roger to the Excluded Class under the Squirrels Settlement and the Gosport Properties Settlement. There is no attack on the Shares Settlement or on the addition of Roberta as a Beneficiary under the Gosport Properties Settlement or on her appointment as an additional Trustee of both the Squirrels Settlement and the Gosport Properties Settlement. I. Undue influence – the law[41]In the leading case of Royal Bank of Scotland plc v Etridge (No. 2) [2001] 3 WLR 1021 Lord Bingham at page 1028 remarked that it was plain that the opinion given in that case by Lord Nicholls commanded the unqualified support of all members of the House. It is thus with confidence that one can look to that opinion for guidance at the most authoritative level on the subject of undue influence.[42]From the speech of Lord Nicholls one can clearly identify many features of undue influence. I leave aside observations as to “overt acts of improper pressure or coercion such as unlawful threats” and “duress” as there are neither pleaded allegations nor evidence of such things in this case. Thus, leaving such aspects aside, it is clear from Lord Nicholls’ speech as follows:-(i) The objective of “undue influence”, as a form of equitable relief, is to ensure that the influence of one person over another is not abused – page 1029, para 6;(ii) The Court looks into how the intention to enter into the impugned transaction was produced – para 7;(iii) If the intention was produced by unacceptable means the transaction will not be permitted to stand – para 7;(iv) Whenever the consent of the “victim” ought not to be treated as the expression of his free will then the means that procured that consent will be regarded as unacceptable – para 7;(v) Two forms of unacceptable means of procuring consent are identified by equity. One, as I have said, I have already left aside. The other arises when there is a relationship between two persons such that one has acquired a measure of influence or ascendancy over the other and the allegedly ascendant person (whom I shall, for convenience, here call the defendant), then takes unfair advantage of that relationship and influence – para 8;(vi) In such cases based on a relationship the key is not to classify the relationship (as, for example, solicitor and client, father and child, doctor and patient and so on) but rather to examine into questions such as whether the victim reposed trust and confidence in the defendant, whether he relied on or was dependent on the defendant, whether the victim was vulnerable and how far the defendant had an ascendancy or was dominant over or had control of the victim. As Lord Nicholls said “None of these descriptions is perfect. None is all embracing. Each has its proper place” – at page 1030, para 11;(vii) It is not a necessary ingredient of the cause of action that the victim should have suffered a disadvantage from the impugned transaction (although that will very often be a feature) – para 12. This observation is of importance in the case before me because William Hogg suffered no pleaded or sustained disadvantage at all, let alone a severe or irreparable one, from the transactions in issue;(viii) The burden of proving undue influence rests upon he who claims it – para 13. Here it therefore falls upon Roger;(ix) The evidence required to discharge that burden depends on a number of factors important amongst which will be the relationship between victim and defendant, the nature of the undue influence which is alleged, the personalities of the persons involved and “the extent to which the transaction cannot readily be accounted for by the ordinary motives of ordinary persons in that relationship, and all the circumstances of the case” – para 13;(x) If it is proved both that the victim placed trust and confidence in the defendant and that the impugned transaction was one which, within the terms of (ix) above, calls for an explanation, then that, “failing satisfactory evidence to the contrary”, will normally suffice to discharge the burden of proof upon he who asserts that there has been undue influence – para 14. Proof of those two matters will be prima facie evidence that the defendant had abused such influence as he had acquired by way of the relationship between victim and defendant;(xi) If that prima facie position is arrived at, the evidential burden then shifts to the defendant; it will then be for him to produce evidence to counter the inference to which the presence of the conjoined features of trust and confidence and the nature of the transaction will have led – para 14;(xii) It is sometimes said that those conjoined features, if present, amount to a presumption of undue influence but it has to be borne in mind both that it is only an evidential presumption and is a rebuttable one – para 16;(xiii) And that rebuttable presumption is not the same as, and has to be clearly distinguished from, a different presumption where the law recognises, in cases of gift, that the particular combination of one or more identifiable relationships plus the large substance and abnormality (in all the circumstances) of the gift lead to an irrebuttable presumption of the influence and dominance of the donee over the donor. In this class of case the person asserting undue influence need not go further to prove that the victim reposed trust and confidence in the defendant – para 18. Even there, though, the defendant may escape a finding of undue influence by showing, for example, that notwithstanding the relationship being one of trust and confidence the influence thus arising had not been abused;(xiv) Proof that the complainant received advice from a third party before entering into the impugned transaction is one of the matters which a Court takes into account when weighing all the evidence but it is not the case that proof of outside advice of itself shows that the transaction was free from the exercise of undue influence. Whether that is the case is a question of fact to be decided having regard to all the evidence in the case – para 20;(xv) Lord Nicholls at his paragraphs 21 to 31 dealt with the notion of “manifest disadvantage”, making the point that the greater the disadvantage to the vulnerable person the more cogent would need to be the explanation given to the Court before the presumption of the existence of trust and confidence reposed by the victim in the defendant was rebutted. I do not see those passages of his speech as relevant in the case before me because, as I have mentioned, William Hogg suffered no relevant disadvantage at all from the Impugned Transactions that he entered into. But this is not to say that the fact that he suffered no disadvantage is irrelevant; the absence of disadvantage to William Hogg must, as it seems to me, be a feature which in practical terms makes it a little more difficult for Roger to have the transactions set aside.[43]I do not see the presumption of the kind described in (xiii) above as material to the case before me. The Impugned Transactions were not ones of gift, nor is a child in general to be taken to have had ascendancy over a parent (although the converse has often been recognised). However, whilst I am not saying that I here accede to such an argument, I accept that it is at least arguable that the type of presumption of which I am speaking could arise where the particular circumstances are that the alleged victim is an elderly parent, that that parent is living alone and is no longer in good health, that the child alleged to have influence is the one who, in large part, is responsible for his care and that the impugned transaction is one that cannot readily be accounted for (it may be said) by the ordinary motives of ordinary persons in all the attendant circumstances. Because that is, as I say, at least arguable, I shall, when I turn to the facts, examine whether such a case could be said to arise on the facts in this case and could thus create the irrebuttable presumption of influence. J. Undue influence – the facts[44]It will have been seen that, where undue influence is asserted, evidence of the personalities involved becomes relevant. A factor in judging whether a given transaction has been a product of undue influence includes an examination of how the “victim” behaved normally, when free of influence. Sir Simon Stracey described William Hogg as erratic; a man who took violent dislikes to people. “One never knew with him” he said, meaning that William Hogg could act unpredictably and in response to strong dislike of a person. He was, said Sir Simon Stracey, a difficult old man. Mrs McCoy, speaking of a period when no question of any dominance over him could reasonably be alleged, said that, with William Hogg, people were “sometimes in and sometimes out”, meaning, in particular as to his children, that sometimes Roger was “in” or “out” of favour, as, too, was Roberta. Roberta Sharp used the same “in and out” expression of her parents. That, she said, was how they were. Mr Noble said that William Hogg formed strong views and that he and his wife were prone to exclude children from dispositions of property. Roger said that his father had a temper and would like someone one day and not the other; it was a trait of his. His father could be loud and aggressive.[45]That oral evidence does not paint a picture of a person likely easily to be persuaded against his will or against his better judgment but it does portray a person whose beliefs paid little regard to a commonly recognised need for equality of disposition to children and a person whose conduct, free of any dominance, was likely to include the favouring of one or more of his children over the other or others.[46]There were indications to the like effect outside the oral evidence. Thus in the Shares Settlements of April 1992, when his wife Irene was alive, the dispositions then made were to Anita and Roberta but to the exclusion of benefit of Roger. It has not been suggested that Anita had dominance over him at the time. Under the Squirrels Settlement of December 2001, whilst all three stirps were objects of a power of appointment to deal with the case after William Hogg’s life interest, the trusts in default of appointment by William Hogg by Will or Codicil were unequal between his children (two-fifths to each of Roger and Anita, one-fifth for Roberta). The Gosport Properties Settlement, also of December 2001, excluded from initial benefit both Roberta and her children and remoter issue. A dealing that treated his children unequally or preferred one or two to the other or others was plainly at least as common as not for William.[47]A feature of this case is that the “victim” himself gives some evidence, albeit only in writing. In William Hogg’s lifetime he met his solicitors and gave an eight-page witness statement to them. He signed it after having corrected it. It does not, in terms, say that he was free of the influence of Anita when he came to make the Impugned Transactions, nor would it necessarily be helpful had he done so, but his witness statement afforded him a real opportunity, had he felt he needed it, effectively to undo the Impugned Transactions. A statement, for example, that Anita had pressured him into such transaction, had taken advantage of his age and his need for being cared for and that he was in no way displeased with his son Roger could well have been evidence that would have been difficult for Anita to have overcome. A relatively clear way of obtaining the setting aside of the Impugned Transactions would thus have been opened. But not only is there no such indication in the witness statement but also a degree of displeasure at Roger is a theme that runs through the whole statement. If anyone can be seen from William Hogg’s witness statement to be pressurising him it was Roger; Roger presented to him letters about his (Roger’s) service contract and salary and cheques that he was asked to sign which were at the time blank. William Hogg was angry that it later came to his knowledge that some of the cheques on which his signature appeared were in favour of Simon Stracey. As to letters put in front of him, he said:
“Frankly, at times, I just signed what letters he [Roger] asked me to since it was easier than having Roger persisting with the berating that I would otherwise get”
. I recognise that William Hogg’s own witness statement could have been itself engendered by undue influence but Mr Hargreaves’ evidence was that it was an accurate record of what William Hogg had said at a relaxed meeting. It was not put to Mr Hargreaves that William Hogg’s demeanour at the meeting or the witness statement had any of the hallmarks of undue influence.[48]It was Anita’s evidence, which I accept, that the idea of removing Roger from the trusts came from her father; “It was father who wanted it”. Once that indication had been given, coupled with her father’s suggestion that Roberta should be put in Roger’s place, Anita made contact with Charles Warner, the solicitor, and he sent a letter of engagement for Roberta and Anita to return to him. But, again as Anita in her evidence indicated and as I accept, nothing was done immediately by Anita and Roberta who, instead, waited to see whether their father would persist in his decision. That he did, and the letters of engagement were returned to Charles Warner later, in November 2004. It was not until December 2004 that William was taken to Warner’s offices and not until then that he met Martin Galvin in relation to the Impugned Transactions. In the course of the meeting with Martin Galvin her father saw Mr Galvin quite separately for at least part of the time. There would, again, have been an opportunity to William Hogg to indicate that he was not content with what was being asked of him or to say or let it be seen that he was being pressured into what was done.[49]Mr Galvin was familiar with the Hogg family’s affairs in that he was a trustee of the Shares Settlements and also was instructed to administer Irene Hogg’s Will. He had had a number of meetings with Mr Hogg concerning her estate and he had prepared a Will for William Hogg in 2001. He used from time to time to bump into William Hogg and have a purely social chat. He was, he says, fully alert to the difficulties sometimes experienced between members of the Hogg family and was, he added, appropriately careful in his dealings with William Hogg in 2004. His evidence confirmed that William Hogg was not being hurried into the Impugned Transactions in the sense that, whilst the letters of engagement sent out to Anita and Roberta were of the 18th October, they were not returned until 17th and 24th November.[50]On the 6th December 2004 Mr Galvin greeted William and his two daughters and took Roberta and Anita into his office so that they could explain to him why they believed their father wanted to enter into the Impugned Transactions. He then invited William to join the meeting and he told William that Roberta and Anita had explained to him that their father wished to remove Roger as a trustee and beneficiary of the Squirrels and Gosport Properties Settlements but he did not indicate to William the reasons that they had given to him as their father’s reasons for doing so. His evidence was that William was quite emphatic that that was what he definitely wanted to do. Mr Galvin’s written evidence continues:
“[William Hogg] told me that he was very concerned that Roger Hogg was associating with Mr Stracey whom [William Hogg] said he knew of old and did not trust. [William Hogg] expressed his opinion that Roger Hogg is easily influenced by his associates, and had considerably damaged OTG, which [William Hogg] had set up over a number of years. [William Hogg] had said that Roger Hogg seemed to have no concern for [William Hogg’s] welfare. I was content that what I heard reflected a genuine grievance and desire to have Roger Hogg removed from the Squirrels and Gosport Settlements. I told [William Hogg] that I would prepare the necessary paperwork.”
Later, in the absence of Roberta and Anita, he discussed with William Hogg the provisions intended for a new Will; he had asked Roberta and Anita to leave the room so that the matter could be discussed with William Hogg alone in confidence. Whilst he had William Hogg alone, William Hogg confirmed to him that he wanted only Anita and Roberta to benefit from the Squirrels and Gosport Properties Settlements.[51]The next day, 7th December 2004, Anita brought her father back to Mr Galvin’s office and, so continued Mr Galvin’s written evidence:
“As matter of course, I reminded [William Hogg] that we had met the day before and had discussed removing Roger Hogg as a trustee and beneficiary of the Squirrels and Gosport Properties Settlements. [William Hogg] recalled this clearly and confirmed it was correct; he was adamant that he wanted to proceed with this”
. Mr Galvin’s written evidence concluded with a statement that he firmly believed in December 2004 that he was carrying out William Hogg’s genuine wishes. At “no time”, said Mr Galvin, “did I form the impression that he was acting under anyone’s influence or acting under duress. The manner of [William Hogg’s] delivery of the reasons for removing Roger Hogg from the Squirrels and Gosport Settlements was sincere and convincing”.[52]As for William Hogg’s motive for entering into the Impugned Transactions, he appears to have been moved by a fear that the future of OTG as a family company of the Hogg family, a company in which he took great pride as its founder and chairman, was threatened, if left vulnerable to falling into the control of Roger, whom, he felt, was under the influence, in business matters, of Sir Simon Stracey, a man to whom he had taken and had persisted in a very strong dislike and whom he did not trust. Roger himself, after he had had day-to-day management of the company for several years but perhaps at a time when he was interested in buying for himself the total issued share capital in OTG, had told his father, and had created anxiety in him, that OTG “could go down”.[53]I am not in a position to judge whether William Hogg’s distaste for and mistrust of Sir Simon was justified but there is no doubt that Sir Simon or one or other of his firms had received large sums from OTG for work done over a number of years, that one or more persons at OTG had complained, rightly or wrongly, of the quality and cost of the work done and that Sir Simon was very willing to intervene on Roger’s side and to assist him in the sort of contentious family-related matters from which a more indifferent friend would have stayed away.[54]Thus Sir Simon assisted Roger in finding whether William Hogg could be usefully and more economically cared for not by Anita, who was on a salary from the company, but by his having instead one or more visiting home-helps, with Anita then being paid either less or nothing by the company. Indeed, for a time Anita was denied a salary until, after discussion with the Trustee-Shareholders, her salary was restored to her. That such a step was truly a family matter was plain in the sense that, if implemented, it would have separated the father from a daughter’s care and would have denied the daughter an income which, though hardly excessive, was an important component in her being able to meet her ordinary expenses. Sir Simon also advised Roger to attempt to reduce the salary paid by OTG to William Hogg, whom he regarded as an inactive chairman-for-life, no doubt thereby giving less weight than would a family member to recognising that William Hogg had founded the company, had continued it over many years and yet who had no pension from it. As between the Hogg son and daughters, Sir Simon was very obviously partisan, on Roger’s side. If, as I think likely to have been the case, William Hogg was concerned to see that OTG, which Mrs McCoy described as being his pride and joy, should continue as a successful and stable family company in which his daughters were interested as shareholders and his son as a director and executive, then a fear in the father – namely that Roger, advised by the mistrusted Sir Simon, might jeopardise that future – whilst perhaps unfair, could not be described as irrational or without possible grounds. To revert to the language of Etridge supra, I do not feel able to describe the Impugned Transactions as not readily to be accounted for, in the circumstances, by an ordinary motive.[55]It is, of course, only Anita who is alleged to have exercised undue influence on William Hogg – see Particulars of Claim, para 23. That gives rise to two points: firstly, if she was the dominant and grasping person her brother would wish the Court to believe, one might have expected her to procure transactions exclusively in her own favour. Her sister Roberta, who had been excluded earlier, would be a candidate for a continuing exclusion and such continuing exclusion would not, of itself, be taken to be an indication of Anita’s dominance as it had occurred well before. But the Impugned Transactions favour Roberta at least as greatly as they do Anita. Secondly, although Anita, as the person chiefly dealing with her father’s care as he grew into real old age, might be thought to have been able to have a great influence upon him as able to threaten the withdrawal of that care, her position as carer was far from assured and was a position which she had a keen interest in retaining. As I have mentioned, there had been a plan, not long persisted in, that her caring of her father should be replaced by a number of home-helps and that in consequence she would lose all or some of the salary the receipt of which was very important to her. There is no evidence that she gained a dominance over her father by causing him to fear that he might be left uncared for if he did not do as she wanted. Indeed, she was, in fact, in no position to threaten to give up his care in a way that carried conviction as she needed the income which she derived from the company and which it was willing to pay because she looked after him, an income which, as it was arranged with her father’s consent, he would have known (even had she not told him, as I would expect her to have done) was important to her that she should continue to receive.[56]I ought to deal more specifically with the “Particulars of Undue Influence” in Roger’s pleadings. He asserts that the later events of 3rd February 2005 and a “frank admission” which, he says, was then made by his father that the Impugned Transactions were not in accordance with his father’s wishes are evidence of Anita’s undue influence over her father, as also was her “forceful personality”.[57]I shall deal later with the 3rd February 2005 but as to the latter, there was no evidence of an exercise of it over William Hogg. Mr Callow said that William Hogg and Anita “got on” with each other. Even so, if there were rows between them – and, on balance, I would accept that there were – it was, it seems, Anita rather than her father who was left shaken by them; according to Roger, she phoned Roger and told him that she could not stand her father’s loudness and aggression any more. There were rows – “humdingers of rows” said Roberta - between her father and Roger; indeed, Roberta said that on one occasion Roger, when he was about 25 or 26, had struck his father. But no one gave evidence of having observed William Hogg being cowed by Anita’s personality.[58]As a further allegation as to Anita’s undue influence over her father, Roger mentions a number of company transactions in which, he says, she was instrumental or significantly involved to Roger’s detriment. Thus he mentions Roger’s suspension as an employee and his “effective exclusion” from any access to his father. However, removal of Roger as a director was plainly within the province not of Anita but of the shareholders of OTG and his cesser as an employee of OTG is in issue elsewhere. I fail to see how either, of itself and without a good deal more, amounts to evidence of Anita’s influence, undue or at all, over her father. As for “effective exclusion” of Roger from access to his father, that is disproved by the very events of the 3rd February 2005 on which Roger relies. He then met his father at his father’s house for several hours. There was no evidence of Roger having attended at the house on some other occasions and having been turned away by Anita, even if, physically, she could have turned Roger away, which I would doubt. Roger also relies upon the fact that his father was moved to Roberta’s house in Somerset in February 2005. There is an obvious logical difficulty in Roger seeking to rely on the events of February 2005 and thereafter in relation to the Impugned Transactions of December 2004.[59]I revert, therefore, to the events of the 3rd February 2005. Roger arrived at his father’s house. William Hogg’s old friend, Mr Noble, was already there and had played a part in arranging the meeting. William Hogg was apprehensive but happy to meet his son. A long discussion began with Roger and Mr Noble contributing far more than William Hogg. Unknown to the father or to Mr Noble, Roger tape recorded what was said. I have both seen a virtually verbatim transcript and have heard some of the tapes. I did not hear the remaining tapes on the footing that they were unlikely to add significantly to or change such impression as was likely to have been formed by the tapes that I did hear. I mention the events of 3rd February 2005 as Roger relies upon them as an indication that the Impugned Transactions had not been in accordance with his father’s wishes and, it is to be inferred, that they were the result of Anita’s undue influence upon her father.[60]There are undoubtedly passages in the very long taped conversations which, if reliable, suggest that William Hogg had not understood what he was doing when he executed the Impugned Transactions. But I feel unable to attach any real weight to those indications for three reasons. First of all, I have had clear evidence from Mr Galvin, whom I took to be a reliable witness, that William Hogg had thoroughly understood what he was doing when he entered into the Impugned Transactions. That was confirmed when William Hogg spoke to Mr Warner on 7th July 2005. Mr Warner’s attendance note, which I accept as accurate, says, inter alia:- “In response to my question, Bill confirmed that he always meant to remove Roger from the two settlements. Again, in response to my question, he said he was particularly fed-up with Roger at the time he took him off the Settlements as he realised he had become involved with Mr Stracey again. He had always told Roger that he did not want Stracey anywhere near Roger, the family or the business. He did not trust Stracey nor did he trust Roger when he was under Stracey’s influence”.[61]Secondly, as I have mentioned, there was evidence that indicated that William Hogg would quite often say one thing to one person and another to another so as to avoid conflict. Roger himself gave evidence of his father’s inconsistency in that regard. Roberta, whose evidence I accept, spoke of her father avoiding confrontation and being quite evasive in order to do so. She was, at that point, confirming Anita’s witness statement which said:
“Our father was singularly difficult to fathom because he was capable of saying he had done or would do something just to avoid a confrontation. This was particularly true of his dealings with Roger.”
On 3rd February, in Roger’s presence, William Hogg could well have wished to avoid confrontation by saying, for example, that he had been “bamboozled” by solicitors (an expression he used to Mr Carter) or otherwise had failed to understand the import of the Impugned Transactions rather than facing up to Roger and saying that they represented his true intent.[62]Thirdly, Dr Waite made the very sound points that, if one wanted to be sure whether a very elderly gentleman had, indeed, understood or failed to understand a particular transaction, one needed to explain it very carefully, perhaps repeatedly and to do so whilst the old gentleman was untired. The true and actual effect of the Impugned Transactions were not clearly described to William Hogg on 3rd February 2005 in the passages which I have seen and heard of the recorded conversations and, as the discussions continued, there was every likelihood that William Hogg became tired and a little irritable and sometimes confused. For these reasons, I do not find there to be persuasive evidence that William had not of his own volition entered into the Impugned Transactions at the time he did so. Of course, even if he had not, that, of itself, would not prove that they had been procured by the undue influence of Anita.[63]I have already mentioned that the Impugned Transactions caused no disadvantage to William Hogg and have summarised Mr Galvin’s evidence. I would be prepared to accept that, at a time when he was well into his 80s, in less than good health and in a mental state that could vary from time to time, William Hogg did indeed place trust and confidence in his daughter, Anita, his chief carer. But the Impugned Transactions, as I have mentioned, in the circumstances can be sufficiently accounted for by ordinary motives. The evidential burden therefore does not shift from Roger and he does not satisfy it. Even were I to regard the matter as one in which an irrebuttable presumption arose that Anita had dominance over her father, there is no sufficient evidence that such dominance was abused. In particular, I do not accept one assertion that Roger made, namely that when he was downstairs in the kitchen whilst Anita was upstairs with her father in the five-bedroomed house, Squirrels, in which the father was living, Roger was, he said, able to hear her repeatedly whisper to her father “Simon Stracey, Simon Stracey, Simon Stracey” in order, presumably, to poison William Hogg’s mind against Simon Stracey and, in turn, also against Roger as someone whom his father regarded as under Stracey’s putatively malign influence. Anita denied that the occasion had occurred and it seems to me inherently improbable that a whisper in a bedroom upstairs would have carried to Roger’s ears in the kitchen. Moreover, that apart, the allegation seems unlikely; the alleged whispered words would surely have been so crude an attempt to poison William Hogg’s mind as to have occurred both to her father and to Anita as being likely to risk generating a counter-reaction against the poisoner and hence the words would be unlikely to have been spoken, even in a whisper. K. Undue influence – the conclusion[64]All in all and for the reasons I have given, I dismiss the claim that the Impugned Transactions were occasioned by or the consequence of undue influence exerted by Anita over her father. L. Want of capacity[65]In a comprehensive written closing argument for the Claimant, a document signed both by Mr Osment and by Roger, it is accepted by Roger that it cannot be shown from the evidence that William was not of capacity at the time he made the Impugned Transactions in December 2004. “Accordingly”, says the written argument, “the Claimant does not advance this limb …”. Given the careful evidence of Dr Waite and of Mr Galvin, I have no doubt but that Roger’s concession is wisely made; in the circumstances, I do not need to review that evidence but I am confident that I would not have been able to find any relevant want of capacity in William at the time of and in relation to the making of the Impugned Transactions.[66]I have now dealt as fully as I need to with the principal issues in the second in time of the two actions. Accordingly I now turn to the first in time, the action in which Roger claims against OTG for remuneration and OTG counterclaims under a so-called director’s loan account that Roger owes money to that company. Whilst I recognise that in OTG, as in many small private companies, strict adherence to proper formalities is more honoured in the breach than in the observance, I shall first mention what the formalities should have been. M. Roger’s Remuneration - OTG’s Articles and the relevant other formalities[67]Under article 76 of the 1948 Table A, incorporated within OTG’s articles by way of OTG’s express article 1, directors’ remuneration (in the capacity of director) was to be fixed by the company in general meeting. As for a director’s employment qua employee, by article 11 of OTG’s express articles a director was entitled to contract with the company as if he was not a director and to vote in respect of such a contract if he had previously disclosed his interest in the matter to the company. He could, in such a case, be included in the quorum at any meeting at which the matter was considered. However, the usual obligation to declare such an interest was not overridden – see Table A, article 84(1) and OTG’s express article (2).[68]Article 84(3) of Table A, à-propos a director being given employment, a role, in other words, outside that of directorship, provides as follows:- “A director may hold any other office or place of profit under the company (other than the office of auditor) in conjunction with his office of director for such period and on such terms (as to remuneration and otherwise) as the directors may determine and no director or intending director shall be disqualified by his office from contracting with the company either with regard to his tenure of any such other office or place of profit or as vendor, purchaser or otherwise, nor shall any such contract, or any contract or arrangement entered into by or on behalf of the company in which any director is in any way interested, be liable to be avoided, nor shall any director so contracting or being so interested be liable to account to the company for any profit realised by any such contract or arrangement by reason of such director holding that office or of the fiduciary relation thereby established.”[69]Further, Article 86 of Table A provides:
“The directors shall cause minutes to be made in books provided for the purpose – (a) of all appointments of officers made by the directors; (b) of the names of the directors present at each meeting of the directors and of any committee of the directors; (c) of all resolutions and proceedings at all meetings of the company, and of the directors, and of committees of directors; and every director present at any meeting of directors or committee of directors shall sign his name in a book to be kept for that purpose.”
[70]Article 5 of Part 2 of Table A, which forms part of OTG’s articles, provides that a resolution in writing signed by all members for the time being entitled to receive notice of and to attend and vote at general meetings should be as valid and effective as if the same had been passed at a general meeting of the company duly convened and held. In extension of that Article 5, the “Duomatic Principle” – by reference to In re Duomatic Ltd [1969] 2 Ch 365 per Buckley J, as he then was – provides that, when all shareholders with the right to attend and vote at a general meeting have assented to some matter which a general meeting could by resolution carry into effect, then the assent is as binding as would have been a resolution to such effect at a general meeting. N. Roger’s remuneration – negotiations and conduct[71]From 1996 or thereabouts Roger had been involved in one way or another in OTG. In 1968 he had been appointed a director. In 1991, though, whilst, it seems, remaining a director, he was dismissed as an employee. That led to Employment Tribunal proceedings which were compromised. But he remained dismissed. In 1992 he ceased to be a director of OTG and had by then set up his own rival business, Hy-Tek, competing with OTG. It was then or thereabouts that William and Irene Hogg set up the Shares Settlement which I have described and which conferred no benefit on Roger. By 1998 Hy-Tek had failed and it went into creditors’ liquidation. Sir Simon Stracey had assisted Roger in the running of Hy-Tek (or was thought by William Hogg to have done so) and part, at least, of William Hogg’s distrust of Sir Simon went back to his views of Stracey’s part in the setting up of and later failure of Hy-Tek. Hy-Tek’s failure left Roger personally vulnerable to claims from or on behalf of creditors so that when, by late 1998, Roger’s parents were willing once again to let him back into employment with OTG, they connived at his description as “consultant”, thinking that such a position, less familiar and permanent-sounding than that of “employee”, would be less likely to attract claims by creditors to whatever Roger was receiving. It was recognised that the Revenue, were they to raise it, would have a strong case for regarding Roger as truly an employee of OTG but the description of consultant was persisted in for a while. The most pertinent period of Roger’s involvement with OTG thus begins with something of a disguise or deception. However, after his mother’s death in January 1999, by July Roger was asking that he should be given a service contract by OTG. No written contract emerged. But by October 2000 Roger (who then and thereafter had control of what he was in fact paid) was being paid at the rate of £3,500 net per calendar month, a remuneration which, at the time (and leaving aside statutory intervention as to that type of agreement), represented some £55,000 gross per annum. There is no minuted record of a decision of the directors that Roger should be employed at that rate nor, of course, was there any declaration of interest at any meeting which could have considered it. There is no paper from his father that evidences any directors’ meeting that approved that rate of remuneration but I do not understand OTG to deny a prima facie contractual entitlement in Roger, so long as he remained an employee of OTG, to remuneration at that rate. Indeed, on 9th July 1999 there was broad agreement that Roger “should be paid a proper wage” and Roger’s written evidence included that “£55k p.a. was agreed upon …”. In the circumstances I thus do not see that Roger’s claim by way of quantum meruit has any hope of success – see Richmond Gate Property Ltd [1965] 1 WLR 335. Indeed, the claim was later abandoned.[72]Mr Reade rightly points out that Roger’s claim for unpaid remuneration at any higher rate is put in confusingly variable ways, both as to the alleged rate of remuneration per annum and the date or dates from which it is said to have begun. The sheer multiplicity of the ways in which Roger puts his case in the pleadings and in case summary does nothing to bolster that case. He asserts, for example, that as at July or August 2001 his father orally agreed that he, Roger, should be remunerated at £75,000 per annum with additional provision by way of pension, bonus, motor car, medical cover and life assurance. But, although he frequently later pressed for a formal written contract, there is no record of his father ever acknowledging there was such a prior oral contract. William Hogg’s witness statement or note indicates that he left the question of Roger’s remuneration to the professional shareholder-trustees and that it was “just not right” that he, William, had agreed that Roger should have a salary of £75,000. He added that he had certainly not agreed that figure with Mr Callow. Roger’s pleading was that Mr Callow was present at the making of the alleged agreement but Mr Callow could not recall discussing Roger’s salary with William Hogg. The company’s accounts do nothing to support a contract having been made at £75,000 per year for Roger. In November 2001 Roger instructed solicitors to prepare a draft service contract for Roger. Significantly, when they produced it to the Company’s solicitors it contained blanks as to its commencement and rate of remuneration. There was contact between Roger’s solicitors, the auditors and Warners, solicitors for OTG, that led to Warners rather than Roger’s solicitors eventually preparing a further draft service contract, a copy of which was sent to Roger in June 2002. Negotiations did not proceed, nor did Roger’s own solicitors proceed, on the footing that there had already been a binding oral agreement or even an already agreed rate of remuneration and William Hogg had made it clear to Warners that he wished to approve the written form of contract before it was made. Roger himself sensibly indicated that he wanted whatever contract was to emerge to be agreed both with his sisters and with his father. From April 2002 or thereabouts onwards the course that negotiations took seems to have proceeded on the usual footing that there was to be no contract until there was a written one exchanged in the usual way, that there was no binding oral service agreement relative to Roger’s employment at any rate higher than £3,500 net per calendar month and that any proposed written contract would require the approval of William Hogg and Roger’s sisters before it became a formal binding contract, binding OTG and Roger.[73]As time passed the negotiation of Roger’s contract ran into a fresh difficulty from early 2003 on when the possibility arose that he or someone else might purchase the whole of the issued share capital of OTG. Once that became a possibility it behoved Roger to press for a formal written contract at the highest possible remuneration partly to ensure that, whoever bought the company, he would have an assured future at substantial remuneration in its employment and partly, so long as the remuneration was hefty in Roger’s favour, to depress the sale price likely to be achieved, thus giving Roger an opportunity to buy at a favourable price, he being in the market to buy the whole share capital. But equally it behoved others to resist, as they did, his being granted such a contract. No written contract was made.[74]I am unable to hold that there ever was a binding oral agreement in relation to Roger’s employment as manager or managing director or other employee of OTG, at any rate at any remuneration in excess of £3,500 net per calendar month nor, as was eventually accepted by Mr Osment and Roger, was there any written agreement of any such kind ever concluded, still less one that had received the approval of his sisters. The treatment of Director’s remuneration in OTG’s accounts also militated against it in the sense that Roger’s director’s loan account, as I shall come on to, increases inconsistently with his being owed for his remuneration. Moreover, the deeming provisions of section 311(2) of the Companies Act 1995, little explored until late in his argument, add further ground for a conclusion, which I arrive at, that Roger has no sum owing to him in respect of unpaid remuneration over the period for which he was remunerated. Thus in the account, which I shall come on to, between Roger and the company in the remuneration action, the items all go one way; it is never that the company is liable to pay more to Roger but rather whether Roger is to account for more than he has to the company. Roger resigned as an employee of OTG in May 2006 and, whilst I have not seen them, I understand, as I have mentioned, that he has brought Employment Tribunal proceedings in relation to his constructive dismissal (as, I am told, his claim is described). Those proceedings have been stayed awaiting the outcome of this action.[75]Roger’s evidence about negotiations for and formation of a service contract seem to me to have been based on a thorough misunderstanding of contract. It became clear from his oral evidence that in his mind, where a proposal was made for his remuneration on certain terms at a given rate, that represented a binding obligation thereafter upon OTG to pay him at least that rate even if (as was the case) he had either neglected to agree the rest of the terms or had proposed other ones. His evidence of there having been an oral contract is understandable only if his view of the formation of contract is accepted and, as it cannot be, his evidence (which in any event was not such that one could base a full service contract with complete terms upon it) cannot be accepted either. I reach the decision that I do as to Roger’s remuneration with a little regret. He was confident that he was worth more to the Company, OTG, than he was being paid and he may well have been right in that respect. Had he played his cards right, less aggressively, I have little doubt that a written service contract could have emerged in his favour but, as I have mentioned, none ever did. Consistently with his own misunderstanding of the formation of contract, it must have seen to him that he could safely postpone agreement on terms put to him or insist upon better terms without thereby jeopardising the very existence of a binding obligation upon OTG to remunerate him at a higher rate than he was receiving. But he has no one but himself to blame and so my regret is only minor and does nothing to deter me from the conclusion which I have indicated but I should add, finally, that the Employment Rights Act 1996 and OTG’s failure to supply written terms to Roger as required by that Act does nothing to mutate a contract purportedly at £3,500 net per calendar month into a contract at a far higher rate and having far wider terms such as Roger argued for. O. The Director’s loan account - OTG’s counterclaim[76]It became plain in the course of Mr Reade’s cross-examination of Roger that the Defendants were expecting a resolution of OTG’s cross claims against Roger in the sort of pounds and pence detail more appropriate to the taking of an account rather than to the hearing of an action. Roger’s pleadings were such that it was plain that some figures were undoubtedly owing by him to OTG and on the 13th November 2006 Master Price awarded OTG a judgment on admissions in Roger’s Defence to Counterclaim against Roger for the sum of £65,244.04 together with interest. That, though, says Mr Reade, is not the full sum that truly is owing from Roger to OTG. And the Defendant OTG then began what was intended to be a claim resolvable in detail under a whole series of minor headings which, Mr Reade suggested, would lead to it being plain that Roger owed well beyond the sum which Master Price had awarded. The general drift of OTG’s case was that sums had been advanced by OTG for purposes which truly were the purposes of Roger rather than company purposes of OTG and that, for example, OTG had thus borne car insurance expenses on behalf of Roger’s then partner, that OTG had borne what were properly regarded as Roger’s personal solicitors’ expenses, that Roger’s personal phone charges had been borne by the company, that yacht insurance and the costs of chartering boats had been borne improperly by the company rather than, as they should have been, charged to Roger and that such outgoings were accounted for in OTG’s books by writing them into a “Director’s Loan Account”.[77]Roger’s case on the loan account was not made easier by the fact that the audited accounts of OTG (signed on behalf of the Board of which he was a member and sometimes signed by him) show the Director’s Loan Account growing year on year but it was open to him to assert that mistakes had been made in attributing items to his Director’s Loan Account. On particular points Roger’s answer was that he had already explained to OTG’s auditors or to Mr Hargreaves’ investigation and had provided vouchers or similar written evidence to them in respect of the particular charges or expenses with which Mr Reade was dealing. At stages the case became, in relation to whether documents had been duly produced, more reminiscent of the passages in pantomimes where one clown says “Oh, no you didn’t!” and is met with the reply “Oh, yes you did!”. The whole process was unsuitable as a means of finding out just what was owing, if anything, under various detailed headings, from Roger to OTG. If OTG wishes to pursue Roger to the utterance (beyond, in other words, the judgment already awarded in its favour by Master Price) then there will need to be directions for the proper taking of an account with OTG setting out in detail what sums are said to be owing under what headings and substantiated by what evidence and with Roger, also relying on whatever paper and other evidence he has already produced or can produce, so that, before the Master, there can then be the proper taking of an account with, as usual, notices of surcharge and falsification in the detailed way familiar in Chancery. It may be that OTG expected Roger to throw up his hands and simply confess to certain outgoings but, so far from that happening, Roger often had what appeared to be a possible good answer and, as I have mentioned, frequently said that papers in support of his answer had already been supplied to the auditors. Mr Reade was not then in a position to disprove that there and then. Hence the pantomime. Although further time was afforded to both sides to clarify the nature of its claim and the nature of his defence, the process remained unsatisfactory, especially bearing in mind that Roger Hogg had, by then, no proper professional representation. The argument on the very many minor items seemed to me incapable of an informed resolution at that stage so, on all items save one (if OTG is, as I say, minded to pursue its Counterclaim to the utterance), there will need to be an account before the Master. If that is to be desired then I shall expect to be asked to give directions in that behalf after the release to the parties of this judgment.[78]But the one exception is a subject on which I believe I am able to come to a sufficient conclusion even at this stage. It is in relation to a sum of £29,500 or so which was borne by OTG but which OTG says was truly a payment for the personal benefit of Roger. The circumstances are far from clear but it would seem to be that, on Hy-Tek’s failure, Roger was personally liable to hire-purchase-providers in relation to machinery or equipment which Hy-Tek had acquired. It could have been that Roger would have been pushed into personal bankruptcy had the hire-purchase-providers sought payment in full. However, in a way that remains unclear, OTG seems to have assisted another company, one run by Mr Raj Bharij, to acquire the machinery from the hire-purchase company in such a way that the possibility of the hire purchase company pursuing Roger was avoided. The explanation for the payment of the £29,500 or so to whoever was the payee as being a proper expenditure on OTG’s behalf has varied from time to time; some times the payment was described as a sum which OTG quite properly paid to acquire the benefit of Roger’s services and Roger’s trade connections. It was, as it was put, a “golden hello”. At other times it was said that the payment to the Raj Bharij company was in order to procure that OTG should be supplied by that company at either discounted rates or rates which remained static whilst the industry rates in general went up and that the payment was justified on that ground. Neither explanation was the least bit convincing but the strongest answer, as it seemed to me, that Roger had in respect of the £29,500 or so was that he took no part in its provision and, indeed, (as he asserted in oral evidence) he had not even known of it at the time. It seems, as late as 13th October 2000, to have been everyone’s contemplation at a meeting attended by William, his three children, the two trustee-shareholders Messrs Warner and Galvin and Mr Callow that it was Roger who was expected to pay (or perhaps it was to re-pay) the sum. But in his oral evidence Roger said the payment was not organised by him but was “between the accountants, my father and mother”. As I cannot be sure exactly when the disputed sums were paid it may be that the alleged involvement of his mother, who had died in 1999, is attributable to Roger’s self-confessed “terrible memory” but there was no evidence that he had taken any steps to procure that payment or even knew of its making. It could be that his father procured it simply as a means of keeping his son out of bankruptcy. OTG’s pleading is that it believed that these sums, there referred to as £25,000 plus £4,500, had been paid in discharge of personal indebtedness on the part of Roger and that on that ground should be added to his director’s loan account and paid by him. There is, for example, no allegation that Roger knew or ought to be taken to have known that the sums were paid to or for him in breach of trust or in any other way such as to afflict him with knowledge or constructive knowledge of their impropriety. Even though Roger was, it would seem, a director of OTG at the time, the combination of that and the fact that they were, if that was the case, in discharge of a personal indebtedness of his, does not, of itself, seem to me to justify a conclusion that Roger, not shown to have either known of or had taken any part in the procuring of the payment, was personally liable for recoupment to OTG. I cannot accept that simply because it was Roger who reported the payments to the auditors that he must have known of the payments at the time of their making. With that sole exception, I leave the other, far more minor items, of accounting between Roger and OTG to be dealt with by way of directions for an account, should directions in that behalf be asked of me when this judgment becomes known to the parties. P. Conclusion[79]For the reasons I have given, I do not find Roger’s allegations as to undue influence well founded, nor do I need to deal with his allegations as to want of capacity. In the remuneration action I do not hold OTG to be liable to Roger for remuneration either as director or employee in respect of any period during which he was paid or credited with remuneration. On the Director’s loan account as between OTG and Roger, I do not find Roger liable in respect of the aggregate of £29,500 odd. Should OTG wish to pursue the other items of account then I shall need to be asked for directions in that behalf. Accordingly, I dismiss the action, second in time, between Roger and (as it is now constituted) his sisters and, so far as the remuneration action is concerned, Roger’s claims fail but on the OTG counterclaim, whilst finding Roger not to be liable in respect of the £29,500 or so, I make no further finding and await an indication whether directions are to be sought as to a further account.

Cited in 1 later judgment