ROSALIE SUTTON v (1) MARK PHILIP SUTTON (2)SUSAN DEOBRAH SUTTON (acting as Trustees of the Edrosa Settlement) [2009] EWHC 2576 (Ch)

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
[2009] EWHC 2576 (Ch)Venue Royal Courts of Justice, Strand, London. WC2A 2LL
Between
ROSALIE SUTTONClaimant(1) MARK PHILIP SUTTON (2)SUSAN DEOBRAH SUTTON (acting as Trustees of the Edrosa Settlement)Defendants
Before
Mr Christopher Nugee QCsitting as a Deputy Judge of the High CourtPhilip Jenkins (instructed by Saulet Ashworth LLP) for the ClaimantRichard Dew (instructed by Donnelly Si Elliott LLP) for the DefendantsHearing date: 6 October 2009Date 29 October 2009
[1]Mr Christopher Nugee QC: Introduction The Claimant, Mrs Rosalie Sutton, ("Mrs Sutton") is the widow of Mr Norman Edward Sutton ("Mr Sutton") who died intestate on 12 November 2005 aged 81. She is also the administratrix of his estate. In this action she sues to recover for the estate a freehold property known as Edrosa, a bungalow in Tangmere, West Sussex, which was their matrimonial home and where she still lives ("Edrosa"). In 1997 Mr Sutton executed a transfer of Edrosa to their son Mark Sutton (the First Defendant); and in 2002 Mark Sutton transferred it into the joint names of himself and his wife Susan Sutton (the Second Defendant) as trustees of a trust known as the Edrosa Settlement. Mark and Susan Sutton are the current registered proprietors of Edrosa.[2]The basis for the claim is that Mr Sutton lacked capacity at the time of making the transfer in 1997 and that the transfer was therefore void. The Defendants initially defended the claim, putting the Claimant to proof of the lack of capacity (although advancing no positive case to the contrary), asserting that the lack of capacity would have made the transfer voidable rather than void, and advancing reasons why it should not be set aside. They have now however agreed a conditional compromise of the action with the Claimant under which they have agreed in effect not to contest the relief sought by the Claimant in return for a charge in agreed terms in favour of themselves (as trustees of the Edrosa Settlement). This is however subject to the Court being willing to grant a declaration that the transfer by Mr Sutton was void, or should be set aside, for lack of capacity.[3]This means that the case comes before me in an unusual form. Mr Jenkins, who appeared for Mrs Sutton, and Mr Dew, who appeared for Mark and Susan Sutton, joined forces in asking me to find that Mr Sutton lacked capacity at the time of executing the transfer in 1997 and to hold that as a consequence the transfer was void; and both invited me to grant a declaration to that effect. There was therefore no live issue between them: none of the witnesses whose statements were before the Court was cross-examined or called to give oral evidence, and there was no adversarial argument either on the facts, or on the law (although counsel helpfully drew my attention to certain authorities which might be against them on the law).[4]In these circumstances there are three issues for me to resolve: i) Did Mr Sutton have capacity to execute the transfer ? ii) If he did not, is the effect of that to make the transfer void or voidable ? iii) Should the Court grant the declaration as asked ? Facts[5]The basic facts can be summarised quite briefly. Mr Sutton was born in 1923. He had a succession of jobs in electronics, ending up owning his own business. In summer 1997 he was living at Edrosa with his wife; I am not told when they moved there but I am told that it was their matrimonial home for many years. It was registered at HM Land Registry in his sole name. Mr Sutton was then 73. He and his wife had one son, Mark, who was born in 1959 and was then 37. On 31 August 1997 (a Sunday), they executed a form of transfer of Edrosa to Mark ("the 1997 transfer"). There was no monetary consideration, the transfer being in consideration of "our natural love and affection". As drawn up, the transfer was expressed to be a transfer by both Mr and Mrs Sutton and each signed it, their signatures being witnessed in each case by a neighbour, D M Tsang.[6]When the 1997 transfer was lodged at HM Land Registry, it was returned by the Registry on the basis that the property was registered in Mr Sutton's name alone and the transfer should not have been in joint names. The transfer was then altered by striking through both the reference to Mrs Sutton and her signature, the deletion in each case being signed by Mr Sutton. The evidence does not deal with any precision when this took place although Mark Sutton says that his mother called to tell him that the Registry had returned the form "several weeks later" (than the original execution).[7]It appears that the amended transfer was then re-lodged and in due course Mark Sutton registered as proprietor. On 22 November 2002 he executed a further transfer of Edrosa to himself and his wife Susan. This was expressed to be in consideration of £50,000. It is common ground on the pleadings that the transfer was to Mark and Susan Sutton as trustees of the Edrosa Settlement, a discretionary trust established by them earlier that day, and that the £50,000 was lent by Mark to the trustees.[8]Despite the 1997 transfer, Mr and Mrs Sutton continued to live in Edrosa. As already mentioned Mr Sutton died intestate on 12 November 2005. Mrs Sutton was granted letters of administration to his estate on 30 November 2007. She continues to live there, I am told currently under a licence.[9]I have no formal evidence of value but I am told that the value of Edrosa at the time of Mr Sutton's death was £325,000 and that he then owned investments worth around £116,000; it is thought that Edrosa is now worth about £400,000. I have no evidence as to the value of Edrosa in 1997, or of what investments Mr Sutton then had or their value, but I am prepared to infer that in 1997 Edrosa was his principal, although not only, asset of any value.[10]The impetus for the 1997 transfer appears to have come from Mrs Sutton's brother-in-law who thought that it would save inheritance tax. If so, it would seem that he was badly mistaken: I was not addressed at any length on the inheritance tax consequences but I assume that the 1997 transfer (if valid) would have been a gift with a reservation of benefit, and therefore ineffective to take the value of the property out of Mr Sutton's estate. That no doubt explains why both parties now consider it in their interest to have the transfer declared void. I am told that there are also capital gains tax implications; again, I have not been given any details of this, but it appears that the problem is or may be that if the 1997 transfer were valid, Mark Sutton would have acquired the property with a base cost of its 1997 value whereas if the transfer had not been made, Mr Sutton would have continued to enjoy principal private residence relief and there would have been a CGT-free uplift to its value at the date of his death. And the settlement of Edrosa on the trustees would no doubt have been a chargeable disposition, although I do not know whether any election was made for relief. Did Mr Sutton lack capacity ?[11]With that introduction I can now consider the question whether Mr Sutton lacked capacity at the time of executing the 1997 transfer. There is no dispute that the question whether a person giving away property has the capacity to do so is to be determined by the principles set out by Mr Martin Nourse QC (as he then was) in Re Beamy deed [1978] 1 WLR 770. That was another case where the deceased had given away her house (her only asset of value) and after her death the transaction was impeached on the grounds that she lacked capacity. Having said that there appeared to be no clear authority on the degree or extent of understanding required for the validity of a voluntary disposition by deed, and having discussed the rival submissions, he gave his views as follows (at 774D-F):
"In the circumstances, it seems to me that the law is this. The degree or extent of understanding required in respect of any instrument is relative to the particular transaction which it is to effect. In the case of a will the degree required is always high. In the case of a contract, a deed made for consideration or a gift inter vivos, whether by deed or otherwise, the degree required varies with the circumstances of the transaction. Thus, at one extreme, if the subject matter and value of a gift are trivial in relation to the donor's other assets a low degree of understanding will suffice. But, at the other extreme, if its effect is to dispose of the donor's only asset of value and thus, for practical purposes, to pre-empt the devolution of his estate under his will or on his intestacy, then the degree of understanding required is as high as that required for a will, and the donor must understand the claims of all potential donees and the extent of the property to he disposed of."
In the present case, it is unlikely that Edrosa was Mr Sutton's only asset of value in 1997 because it is probable that he already owned investments of some value, but as I have already said I am prepared to infer that it was his principal asset. I therefore proceed on the basis that the degree of understanding that he had to have for the gift to be valid was a high one and that he had to be capable of understanding not only the general nature of the transaction but also the claims of other potential donees.[12]The evidence as to Mr Sutton's mental capacity can be divided into three parts: evidence as to the circumstances of the transaction itself; evidence of members of the family, in particular of a number of incidents of forgetfulness or confusion; and medical evidence. I will consider each of these in rum.[13]So far as evidence of the circumstances of the transaction itself are concerned, very little in the way of detail was in fact adduced, Mrs Sutton's evidence was that her brother-in-law, named only as Harry, had told her some time before August 1997 that she and her husband should consider transferring the house to Mark to avoid paying tax. She said that she understood he had done something similar for her sister and other relatives in the north of England but did not discuss it any further with Harry, her understanding being that he would have discussed it with Mark. She could not remember who prepared the transfer, her involvement being limited to signing it. Mark Sutton's evidence was that the transfer was prepared by his uncle who sent various forms and letters to his mother. He does not say anything about his uncle having discussed it with him; in fact he says that his mother telephoned him to say that she wanted to "gift" the house to him.[14]So far as the actual execution is concerned, Mrs Sutton says that by the time of the transfer (August 1997) she had "very real doubts" that her husband would have understood what he was doing and that although he might have understood that he was signing something, "I do not believe he would have grasped what it was, its importance or why". Mark Sutton says that he and his family went to lunch one Sunday in summer 1997 and whilst he was there his mother got one of the neighbours to call round to witness the signing of the transfer; he noted that "my mother had to assist my father to sign and she had some difficulty in making him understand what he was doing". He says that he was concerned at the time as his father had written his full name but not signed the document. He also says he did not discuss the transfer with his father either before or after the signing although he was concerned at the time that his father was unsure as to what he was doing or why he was doing it.[15]The only other non-medical witness, Susan Sutton, does not say anything about the execution of the transfer, even whether she was present at the lunch that day (which her husband's evidence would suggest) or not.[16]This evidence leaves a number of questions unanswered. It leaves unclear whether Mrs Sutton's brother-in-law did discuss the transfer with Mark (as she thought, but on which he says nothing) or whether he did send "various forms and letters" to Mrs Sutton, as Mark says, and if so what explanation was in them. It also leaves completely obscure what explanation was given to Mr Sutton when he was asked to sign it. Had Mrs Sutton discussed it with him in advance or was it produced out of the blue ? What did she say to him when it was before him to sign ? One assumes that she gave some explanation, and it is notable that Mark says that his mother had some difficulty in making him understand what he was doing, which suggests that she tried to explain it; yet she says nothing of this herself.[17]Questions such as these might have been explored if oral evidence had been called and the witnesses cross-examined. As it is, I am not left with a clear picture of how it came about that Mr Sutton came to sign the transfer and what he may or may not have understood of it or the reasons for doing it. It is of course true that this all took place over 12 years ago, and it is understandable that no-one should have a detailed recollection of the event; but this still leaves the central question how Mrs Sutton and Mark Sutton could have let Mr Sutton sign the document if, as they now say, she had very real doubts at the time he would have understood it, and he was concerned at the time that his father was unsure what he was doing or why. Either they actually thought at the time, contrary to what they now say, that he did understand what he was doing; or one must conclude that they were content to allow Mr Sutton to sign an important document giving away Ins major asset (and potentially the roof over his head) despite having real doubts and concerns whether he knew what he was doing. The latter would not reflect very well on them (even allowing for the fact, as Mrs Sutton says, that she left all financial matters to her husband); and I am left with the uneasy suspicion that everyone may have been quite happy to allow an elderly and quite possibly confused man to sign away his house because they thought it would save tax, and that it was only the discovery that tax had not after all been avoided which caused them to raise any questions about it.[18]Overall, this evidence by itself, untested as it was, would not have persuaded me that Mr Sutton lacked capacity, the onus being on those who seek to establish that a document executed by a person is invalid for lack of capacity.[19]Mr Jenkins, who dealt with this aspect of the case, also relied on two features of the transfer itself. One I have already mentioned which is that the transfer as originally drafted and executed was in the form of a transfer by both Mr and Mrs Sutton, and it is suggested that Mr Sutton's willingness to execute it in that form is indicative of his lack of understanding because he was in fact the sole owner. I do not think much weight can be attached to this point: it may indicate a lack of understanding but it may just be that he did not remember in whose name the house was or that he thought that it ought to be in that form.[20]The other feature of the transfer is that it at one place it contains what is presumably Mr Sutton's attempt to write his name as follows:
"NORM NORMAN Edard Sutton"; underneath the struck through "
Ed a rd " has been written "EDward". This is not in the correct place for his signature but comes between the space for his own signature to be witnessed and for his wife to sign. Mr Jenkins suggested that this was his attempt to sign the deed and was indicative of his condition at the time. If this had been his only attempt to put his name on the transfer, this would have had some force; but in fact the transfer contains three other signatures by Mr Sutton in his full name Norman Edward Sutton, perfectly legible and correctly spelt. Two of these are where his wife's name and signature have respectively been deleted and were presumably added after the transfer had been returned by the Land Registry; but the other one is in the correct space for Mr Sutton to sign by way of execution and this is witnessed by the witness. Despite Mark Sutton's suggestion that his father did not sign but only wrote his name, I think I must presume that he did execute it at the time by signing it correctly and in the right place. This leaves unexplained when and in what circumstances he misspelt his name - it might have been on the occasion of the initial execution but it might equally have been some weeks later when the document was being altered. I am unable on the state of the evidence to make any finding on this but even if it was the former, it would not appear to have prevented him from signing the document correctly in due course. In the circumstances I do not think this point takes the matter any further either.[21]The second category of evidence is evidence from members of his family. Some of this is of a general nature; for example Mark Sutton described his father's mental health as deteriorating and that he had started to withdraw into himself, and Susan Sutton said that she and Mark had gone to Australia in August 1996 with his job and at that time Mr Sutton had been contented, communicative and well organised. They had planned to stay for some time but in fact returned in February 1997 because of concerns about Mr Sutton's health, and she found him withdrawn, saying he appeared to have lost his spark. She particularly noticed this at a dinner they had for Mr and Mrs Sutton's golden wedding anniversary which was on 4 August 1997.[22]This general evidence is supported by evidence of a number of specific incidents where Mr Sutton was confused or forgetful dating from around the time of the execution of the transfer. There is reliable contemporaneous evidence of these incidents, some of them being detailed in a diary kept by Mrs Sutton in which she started recording them from late June 1997, and others being mentioned in Mr Sutton's medical notes.[23]It is not necessary for the purposes of this judgment to detail them all but the following gives a good idea: i) The first suggestion that Mr Sutton was becoming confused was in November 1996. He was on his way from his home at Tangmere to see a Dr Ridley at Sherburne Hospital and lost his way. The previous month he had driven up to Manchester without a problem. ii) On 26 February 1997 Mr Sutton was seen by Dr Hammans, a consultant neurologist. By then there had been a number of other matters which Mrs Sutton brought to Dr Hammans' attention. On 11 February Mr Sutton had ordered 6 new cars (or possibly 4) for friends from the garage where he normally bought his cars. (She had to cancel the order explaining it was a mistake). He had insisted she wrote a letter about a new TV video programmer and photocopied the letter many times (although she thought it was simply that he could not work it); he had left a tap running and flooded the bathroom. iii) In June 1997 Mr Sutton was seen by Dr Collier (a Senior House Officer to Dr Amaladoss, a consultant psychiatrist). Mrs Sutton told Dr Collier that her husband had increased difficulty remembering his way around and she had encouraged him to stop driving some months before; that he was becoming very worried about some problems they were having with the television; and that he had some quite marked problems with both short term and long term memory. iv) On 28 June 1997, Mrs Sutton recorded in her diary that Mr Sutton's memory was getting worse. They had parked in a car park but did not have the correct change for it; he had gone off and borrowed some money; meanwhile she had found a car park attendant who had given them a free ticket, but when she returned to the car, she found he had got back in and put his seat belt on ready to go home. v) On 4 July, they went shopping and left the car in the car park. When they returned she found that he had left the car door wide open for 2 hours. vi) The next day he tried to take her into an estate agents and suggested they buy a place in France; she thought this was triggered by a TV programme they had been watching the day before. vii) On 7 July, she asked him to put the groceries in the fridge and he put them in the freezer in the garage. viii) The next entry in the diary relates to a Tuesday (I mink 15 July) when she kept finding that the TV Times was being changed to Saturday; she asked him what day it was and he thought it was Saturday. ix) On 22 July, they were going to have lunch in a pub and he asked her if the name of the pub was "Epsylon", which was the name of a place where he had worked years before. x) On 28 July he suggested out of the blue that they should buy a caravan. xi) On 4 August Mark and Susan Sutton took them out to a restaurant to celebrate their golden wedding anniversary. Susan asked Mrs Sutton what her husband had bought for their anniversary but she replied that he had forgotten it. This struck Mark as very odd as he never forgot birthdays and anniversaries. Susan noticed that Mrs Sutton had to order for him. xii) On 30 August Mrs Sutton was driving to Ford and he told her she was going the wrong way although she was going the usual way. xiii) On 17 September she got up to find that he had cooked himself some bacon and left the pan on the cooker full on and nearly ruined her new pan. xiv) On 19 September Mrs Sutton told Rita Mahoney, a Community Psychiatric Nurse, that they had returned from a week's holiday in Devon and that she felt she could have screamed in the days preceding the holiday, that her husband had got much worse, that he had left her pan on the hob, had left the taps on the previous week, and forgot to switch off appliances. Some of these incidents are trivial in themselves; but taken together they show a consistent pattern of Mr Sutton exhibiting confused and forgetful behaviour over the months leading up to and immediately after the execution of the transfer at the end of August 1997. This does not by itself mean that he was incapable of understanding the nature and effect of the transfer - as Mr Dew said, he could be confused as to time and space and as to what he had done last week but still have the abilities to understand the significance and effect of the transfer of his home - but it does suggest a real question mark over his degree of mental capacity at the time.[24]The third strand of evidence is medical evidence. This comes from Dr Hammans who himself examined Mr Sutton in February and March 1997 and who has also had access to Mr Sutton's medical notes for the purpose of writing an expert report. The relevant histoiy is as follows: i) In August 1996 Mr Sutton was suffering from back and shoulder pain and stiffness. His GP, Dr Mallam, referred him to Dr Ridley, a consultant physician and rheumatologist. ii) This particular problem was treated with medication, but on 19 February 1997 Dr Mallam referred him again to Dr Ridley saying that he appeared to be suffering from an acute onset of loss of memory (this was based on what Mrs Sutton had told him). Dr Ridley sent him on to Dr Hammans, who saw him on 26 February 1997. iii) Dr Hammans performed a test known as the mini mental state examination or MMSE. Mr Sutton scored 20 out of a possible 30, showing mild disorientation, failure of attention and calculation and recall. For example he did not know the date or which clinic he was in; was asked to count backwards from 100 by 7 and only got the first answer right; and he could only recall one out of three objects given to him earlier. His language however was good. iv) Dr Hammans' conclusion was that this had the flavour of confusional state rather than dementia and he arranged for him to have a brain scan. v) Dr Hammans saw Mr Sutton again on 12 March 1997. The brain scan had shown some shrinkage of the brain (atrophy) but no other abnormality. He thought that Mr Sutton might have some organic cognitive decline but that the symptoms might be contributed to by anxiety and possible depression, and recommended that he be seen by a psychiatrist. vi) Dr Mallam then referred Mr Sutton to Dr Amaladoss, a consultant psychiatrist with the Mental Health Services for the Elderly. He was in fact seen by Dr Collier, under Dr Amaladoss' supervision, on 18 June 1997. She recorded his cognitive function as "obviously slightly poor, especially] LTM" (which I take to be long term memory). She also performed an MMSE test. She scored this as 24 out of 30, although his performance was very similar to the previous occasion: he did not know the day or date, did not know which county he was in, could only recall two out of three objects given to him, and was unable to count backwards from 100 by 7s at all, giving 94, 92, 88, 86 and 84. Dr Collier nevertheless gave him a higher score than before; this was because she gave him an alternative task to the counting backwards by 7s (spelling "world" backwards) on which he scored 4 out of 5. Dr Hammans comments that this was a slightly generous way to assess him, and that if she had assessed his calculation rather than his spelling, the score would have been similar to his own. This seems to me to be right. vii) On this basis Dr Amaladoss diagnosed Mr Sutton as suffering from the early stages of a vascular dementia and recommended that he be seen by a community psychiatric nurse. The nurse (Ms Mahoney) visited at roughly monthly intervals, noting on 7 July that Mrs Sutton was citing his forgetfulness and his being "sometimes muddled" as the greatest concern, and on 18 August that Mr Sutton appeared more confused and admitted to feeling more muddled.[25]Dr Hammans explains in his evidence that for a man of Mr Sutton's age and education the median score for the MMSE test is 27, and the fifth centile is 24. Having reviewed all the evidence his opinion is that Mr Sutton had significant cognitive decline by the summer of 1997, sufficient to impair his understanding of a legal document or financial transaction; and that although he quite probably had some understanding of the process, this would fall far short of an adequate or full understanding. Having been referred to the legal test in Re Beaney he concluded that Mr Sutton did not have the capacity on that test fully to understand a complicated transaction such as a will during this period.[26]I accept this evidence. It seems to me to be supported by the MMSE tests which Dr Hammans himself and Dr Collier earned out in February and June 1997 respectively, by the diagnosis made by Dr Amaladoss in June 1997, and by the other material referred to in the medical notes. It is also consistent with the picture that emerges from the evidence of the various instances of forgetfulness and confusion that I have referred to above.[27]In terms of the test in Re Beaney, it seems to me that Mr Sutton not only needed to be capable of understanding that he was giving away his house to his son, but that the effect of this would be to deprive himself and his wife (in the event of his predeceasing her) of any entitlement to the house or legal right to stay there. In Re Beaney itself Mrs Beaney was never told that the effect of the gift of the house to her daughter would be to deprive her other two children of any real interest in her estate and the judge found that this by itself was sufficient to invalidate the gift (see at [1978] 1 WLR 773D-E, 774F-G); here it was in my judgment even more necessary for Mi* Sutton to have an understanding that by giving the house to Mark, he would leave his wife without any right to the house because this was not just an asset which she might expect to inherit but was, and is, her home. I find that his ability to make significant financial decisions was impaired (as witness his apparently off the cuff decisions to buy cars for his friends, a caravan or a house in France, the latter seemingly on the basis of a suggestion in a TV programme) and on the balance of probabilities I conclude that Mr Sutton did not have the capacity in August 1997 to understand the nature and effect of what he was doing.[28]I therefore find that the 1997 transfer was invalid for lack of capacity. Void or voidable[29]In so expressing it I have deliberately used the word "invalid" as a neutral term so as to leave open the question whether the effect of Mr Sutton's capacity was to make the transfer void or voidable. That is the second issue that I am asked to decide.[30]There is clearly a difference in principle between a transaction which is void and one which is merely voidable. An example of the former is a forged deed in which the purported signature of the grantor is not his signature at all. This in principle does not affect the grantor as it is not his deed and is therefore of no effect. An example of the latter is a deed induced by misrepresentation. This is the grantor's deed, albeit a flawed one, and is in principle valid unless and until set aside. In the case of a transfer of registered land however, this distinction is blurred because even in the case of a transfer which is forged and therefore wholly void the transferee will in fact acquire the legal title if registered as proprietor, and the former owner will therefore require the assistance of the Court to regain the title.[31]Thus on any view Mrs Sutton here requires the Court to declare that the 1997 transfer was invalid and to order the rectification of the register. Since it is not now suggested that there is any reason why she should not recover the land in her capacity as administratrix of her husband's estate I have no hesitation in declaring that the 1997 transfer is invalid and should be set aside and the register rectified accordingly.[32]But the parties jointly ask me to go further than this and declare that the transfer was void. It is not obvious to me that this will have any practical consequences in the present case. As between the parties themselves, it seems to me to be enough to declare that the transfer should be set aside: just as with the case of rescission for misrepresentation, this setting aside seems to me to date back to the original impugned transaction (what used to be called rescission ab initio) and as between themselves puts the parties into the same position they would have been in had the transfer never taken place.[33]It is suggested that it may nonetheless have a practical difference when it comes to taxation. I have not heard from HM Revenue and Customs ("HMRC") who, although aware of these proceedings have, in accordance with what appears to be their usual practice, not sought to become parties, but I am rather doubtful whether it will make any difference at all. So far as inheritance tax is concerned, Mi" Jenkins told me that it was thought it would not make any difference: I suspect he is right about this as it seems to me that the effect of setting aside the 1997 transfer is that Edrosa will be treated as if it had never left Mr Sutton's estate and that it will therefore be comprised in his estate at the date of his death. So far as CGT is concerned, Mr Jenkins expressed a concern that it would however make a difference: I would have thought however that it would follow from the transfer being set aside that Mark Sutton is to be regarded as not in fact acquiring Edrosa under the transfer (save for the bare legal title) and therefore had nothing, or at any rate nothing of value, to dispose of when he purported to settle it on himself and his wife. If so, I do not see that there is likely to be any charge to CGT. But I have not heard any argument on the point and it may be that there are subtleties that I have not understood.[34]Nevertheless the question whether the transfer is void or voidable has been raised and I have heard some argument on it, principally from Mr Dew who undertook the burden of arguing this point and who very helpfully showed me authorities on both sides of it.[35]I will start with the more recent English authorities, all of which are at first instance. These start with Re Beaney itself where Mr Nourse was asked to declare the transfer void, and, as appears from the order, did so. But in the course of his judgment, after referring to Gibbons v Wright (1954) 91 CLR 423, a decision of the High Court of Australia (referred to in greater detail below), he continued (at 774B):
"That was a case where the instruments in question were deeds made for consideration. A large part of the judgment was concerned with the question whether such a deed, if made by a person without sufficient mental capacity, is void or merely voidable. The facts of the present case make it unnecessary for me to consider whether that distinction could be material in the case of a voluntary disposition, and I express no view on that point."
This seems to me to make it clear that the fact that he in the event declared the transfer void is not to be taken as any decision whether the transfer was void or voidable, it making no difference on the facts of that case. I therefore agree with the comment of Warren J in Qutb v Hussain [2005] EWHC 157 (Ch) at [25] that "Notwithstanding the form of the order made, Re Beaney is not, therefore, an authority in support of the proposition that a gift made by a person lacking capacity is void rather than voidable."[36]The next case is Re Morris, Special Trustees for Great Ormond Street Hospital for Children v Rushin [2000] AER (D) 598. There Mrs Morris, aged 75 and suffering from a material degree of dementia, entered into an agreement in relation to her house, then worth between £200,000 and £300,000, under which she agreed to transfer it for the sum of £50 and a promise by the recipients to care for her for the rest of her life. This meant that the agreement was in the form of a contract not a gift and Rimer J therefore approached this part of the case on the basis of the principles governing incapacity to make a contract rather than those governing incapacity to make a gift. After referring to Re Beaney and noting that

the judge had there declared the gift void, he said (at [24]):

"Incapacity to make a contract can, as was made clear in Beaney, found a claim by the incapable contracting party (or his estate) to set the contract aside, but there are two material differences as compared with a like challenge to avoid a gift. First a contract entered into by someone lacking the requisite capacity is at most voidable, not void. Secondly, it will only be voidable if (being a contract other than for necessaries) it can be shown that the other contracting party was aware of the incapacity: see The Imperial Loan Company, Limited v. Stone [1892] 1 QB 599 ,at 601 per Lord Esher M.R."
This indicates that Rimer J proceeded on the basis that incapacity in relation to a gift made the gift void (as opposed to incapacity in relation to a contract where at most it makes the contract voidable); and indeed later in his judgment he declared two comparatively minor gifts (of cars or the money to buy them) void (at [180]-[181]). But the main purport of the passage I have cited is to set out the requisites for setting aside a contract for lack of capacity. These are well established and there is no suggestion from the judgment that there had been any dispute about them; there is also no indication in the judgment that he had heard any argument on the effect of incapacity on a gift, and no suggestion that it made any difference in that case. Indeed Rimer J concluded his judgment by saying that he would set aside both the agreement in relation to the house and the gifts of the cars (at [197]) which suggests that he saw no significant distinction between declaring the gifts void and setting them aside. I do not therefore think his judgment can fairly be regarded as a considered decision reached after argument that incapacity renders a gift void rather than voidable.[37]The next case is Williams v Williams [2003] EWHC 742 (Ch) , a decision of Mr Kevin Garnett QC. In that case the claimant, a man with learning difficulties, inherited from his mother the house where he had been living with her, and transferred it into the joint names of himself, his brother and his brother's wife to hold as tenants in common (for no consideration). The Judge held that he had lacked capacity and declared the transfer void. In that case there was argument for the defendants that the lack of capacity made the transfer voidable rather than void and hence that equity could impose terms as a condition of granting relief, it being suggested that the transfer should only be set aside on terms that the defendants be permitted to continue to occupy the property paying the claimant an occupation rent for doing so. Mr Garnett rejected this submission, saying very briefly (at [56]):
"I do not accept that the gift is voidable. It is void. See In re Beaney and The Special Trustees for Great Ormond Street Hospital for Children v Rushin [ie Re Morris] at para 24. In any event I would not have been inclined to make an order in the form which Mr Strutt suggests. The suggestion would mean that John would have no access to a capital asset which is in truth his. The fact also is that George and Marion have had the benefit of rent-free accommodation for 16 years."
This case is therefore a decision that incapacity makes a gift void rather than voidable, albeit one that would not appear to have made any difference to the outcome in practical terms. It is not clear however how much argument Mr Garnett had on the point; and for the reasons I have already given, I do not think the authorities he referred to really decided the point, Re Beaney being no authority for the proposition that lack of capacity makes a gift void rather than voidable, and Re Morris not being a considered decision to that effect either.[38]The last in this run of cases is Qutb v Hussain [2005] EWHC 157 (Ch), a decision of Warren J. In that case the claimant, an elderly and suggestible woman, entered into a deed of gift in the sum of £80,000 in favour of the defendant, and then separately an agreement to transfer her house to him at an undervalue, and a transfer. Warren J held that she lacked capacity and that the deed of gift was void, and that the agreement and transfer should be set aside as against the defendant (but not as against a bank which had a registered charge on the property and knew nothing of her incapacity). In relation to the question whether the lack of capacity made the gift void or voidable, he recorded that the claimant said that the purported gift was void and that the contrary was not argued. Having referred to re Beaney, Williams v Williams and Re Morris, Warren J continued (at [26]):
"However, the proposition that a gift, in these circumstances, is rendered voidable rather than void has not, as I have already noted, been argued before me let alone has it been suggested that Rimer J and Mr Garnett were clearly wrong. I proceed therefore on the basis that a gift would be rendered void as a result of the lack of capacity of the donor to understand the transaction in die sense necessary."
I read this as a decision by Warren J to proceed on the basis that the earlier decisions are correct, but really as a matter of comity and without having heard argument. Again it does not appear to have made a difference in that case.[39]Thus although it can be said that there are four recent English decisions which proceed on the basis that lack of capacity makes a gift void rather than voidable, in none of them does it appear that the point was fully argued and in none of them does it appear to have made a material difference to the result. Of the four of them, I regard only Williams v Williams as having been an actual decision to that effect, but this is based, so far as appeal's from the judgment, solely on Re Beaney and Re Morris, neither of which is in my view compelling. I am not therefore persuaded that the point is settled law, even at first instance.[40]I was also referred to some material tending to suggest that a gift infected by incapacity was voidable rather than void. In Snell's Equity (31 st edn, 2005) at §8-44, the editors, having noted that Re Morris and Williams v Williams suggest that such a transaction is void, submit that the better view is that such a transaction is voidable. But this is combined with a suggestion that the gift will only be set aside if the donee knows of the incapacity, and this latter requirement has not, so far as the cases I have seen indicate, ever been regarded as applicable to gifts rather than contracts. Indeed the cases cited in support all appeal - to be cases dealing with contracts where rather different considerations arise. I therefore do not find this suggestion of any particular assistance.[41]Of more interest is Gibbons v Wright (1954) 91 CLR 423, a decision of the High Court of Australia presided over by Dixon CJ. In that case two sisters, who were joint tenants with the plaintiff, had executed a deed conveying their one-third shares to each other. If valid, this would have brought about a severance of the joint tenancy. After their death, the plaintiff claimed the entirety of the property by survivorship on the ground that each sister lacked capacity at the time, and the joint tenancy had therefore never been severed. The High Court proceeded on the basis that the verdict of the jury at trial effectively decided that the sisters did lack capacity. They went on to consider whether the effect was to render the deed wholly void (in which case the plaintiff could rely on its invalidity) or merely voidable (in which case they considered it clear that only the sisters or their executor, who had consistently affirmed the deed, could elect to avoid it, it not being open to other persons to elect to treat it as invalid).[42]After a lengthy and formidably erudite review of the authorities dating back to the 17th century and earlier, they concluded that the deed was merely voidable and that the sisters' lack of capacity could therefore not be relied on by the plaintiff. They expressed their conclusion (at 449) as follows:
"Upon the authorities as they now stand, it appears to us that we ought to regard it as settled law that an instrument of conveyance executed by a person incapable of understanding its effect, in the sense of its general purport, is not on that account void, though in the circumstances it may be voidable by the conveyor or his representatives."
Mr Dew argues that this case is only authority for the position in regard to conveyances for valuable consideration and that voluntary conveyances are different. I accept that the actual decision in the case was concerned with what was in form a conveyance for consideration, each sister conveying her share to each other. But this was largely a matter of form as the only effect was to leave each sister with a severed one-third share instead of the one-third interest as joint tenant each had before, and as I understand it, it was always possible for such a joint tenant to bring about a severance unilaterally, for example by conveying away her share to a third party in trust for herself. The fact that the deed was technically made for consideration does not seem to have been significant.[43]More generally, as I read the judgment of the High Court, their conclusion, which is expressed in entirely general terms by reference to "an instrument of conveyance", is not based on the need to protect the other party to a contract or a conveyance for value. It is not necessary for me to analyse the judgment, which cannot be succinctly summarised, in detail. It is enough to say that the basis for the decision seems to me to be that there is a difference between a person who does not sign a deed at all (or "a somnambulist, writing his name in his sleep" or "a lunatic ... in a frenzy, not even being aware what were the motions his hand was performing"), and a person who does in fact execute a deed and cannot deny that it was in truth signed sealed and delivered as his deed, but who was incapable of understanding its effect. If this is right, there is no ground for supposing that they would have taken any different view of a purely voluntary conveyance.[44]Mr Dew also referred me to Craigo v Mclntyre [1976] 1 NSWLR 729, a decision of Holland J from New South Wales. In that case he found that the plaintiff, who had made a voluntary settlement of all his property as a young man as long before as 1935, had lacked capacity to do so. He then considered whether his incapacity rendered the deed void or voidable and held that it should be voidable, saying (at 742G):
"It would be absurd to say that a settlor who at the time did not have sufficient mental capacity validly to make it could not afterwards adopt or affirm it when he gained or regained his capacity, yet if it was void he could never make it good except by starting all over again."
He also referred to the High Court decision in Gibbons v Wright and said that he could see no acceptable reason why the same rules there laid down in relation to an instrument conveying properly for consideration should not apply to a voluntary deed of settlement. He then went on to consider various defences, and among other things held that the plaintiff had elected to adopt and affirm the deed on several occasions since 1935; and also said that he would have been inclined to reject the plaintiffs claims on the grounds of laches, acquiescence and delay.[45]The debate whether the lack of capacity makes a voluntary transaction void or voidable is somewhat reminiscent of the debate in a different field, namely that of the so-called rule in Hastings-Bass under which it has been held at first instance that the decisions of trustees may be flawed if they have failed to take into account matters they ought to have taken into account; here too there is no consensus as to whether such a flawed decision is void or voidable. Mr Dew referred me to the detailed consideration of the doctrine in the judgment of Lloyd LJ (sitting in the High Court) in Sieff v Fox [2005] 1 WLR 1311 where he discusses the point, but reaches no conclusion on it, it being agreed that nothing turned on it in that case (see at [82]). But it did potentially make a difference in one of the earlier cases, namely Abacus Trust Co (Isle of Man) v Barr [2003] Ch 409 where Lightman J preferred the view that the impugned decision (in that case an appointment) was voidable as this would enable equitable defences such as delay and acquiescence to be taken into account which in his view would not be available to the Court if the appointment were simply void. Lloyd LJ in Sieff v Fox described tins result as "attractive", although he then went on to say that he thought the conclusion was open to doubt (at [79], [81]); he also recorded the submission of Mr Taube QC that since the jurisdiction is equitable, and the grant of a declaration is discretionary, matters such as laches and acquiescence could be taken into account by the Court in deciding what relief to grant even if the true position were that the flawed decision were void not voidable. Lightman J was clearly not of this view and I am rather doubtful of it too: while it is true that the granting of a declaration is discretionary, I am not sure that it would be appropriate, if the Court had found that a transaction was void, for it then to refuse to make a declaration on discretionary grounds such as these (compare the recent case of Fisher v Brooker [2009] 1 WLR 1764 where the House of Lords held that once the claimant had been found entitled to a property right (in that case copyright in a musical work), it would be wrong to refuse him a declaration to that effect on the grounds of laches and acquiescence).[46]Where does this survey of the cases leave the position ? In my judgment, despite the recent English cases, there is real doubt whether as a matter of law incapacity makes a voluntary transaction such as a gift void rather than voidable. I do not consider that the decision of the High Court in Gibbons v Wright turned on the distinction between deeds made for consideration and voluntary deeds, and although of course not binding, it is persuasive authority that any deed affected by lack of capacity is voidable only. The decision of Holland J in Craigo v Mclntyre is naturally of less persuasive value but I respectfully think there is force in what he says about affirmation; his decision is also an example of a case where equitable defences were able to be deployed because he had held that the settlement was voidable. For reasons similar to those given by Lightman J in Abacus v Barr, I think it would be preferable if such defences were available; and although they are clearly available if a transaction is voidable, the position is at the lowest far less clear if a transaction is void.[47]If it were necessary to resolve the rights of the parties before me, I would of course have to form a view one way or the other. But I have already said that it does not seem to me make any difference to the position of the parties as between themselves. The only suggested consequence is that it might make a difference for tax purposes. But here one runs up against the fact that I am asked to make a declaration that the transfer is void not so as to clarity the rights of the parties between themselves but so as to bolster their position vis-a-vis HMRC.[48]In the particular circumstances of this case I do not think it is appropriate to do so. A declaration is a discretionary remedy: see note 40.20.2 in vol 1 of Civil Procedure (the White Book) which refers to the judgment of Neuberger J (as he then was) in Financial Services Authority v Rourke [2002] CP Rep 14 . He is reported as saying that when considering whether to grant a declaration or not, the court should take into account justice to the claimant, justice to the defendant, whether the declaration would serve a useful purpose, and whether there are any other special reasons why or why not the court should grant the declaration. This seems to me to be sound guidance and I propose to follow it.[49]In the present case I do not consider that justice to the Claimant or the Defendants requires me to do more than resolve the position between them which is adequately done by declaring that the 1997 transfer is invalid for lack of capacity and should be set aside. As to whether it would serve a useful purpose to make a further declaration that the transfer was void, no doubt the parties think it would help them in their discussions with FIMRC. But as I have already pointed out, HMRC are not parties to this action and would not be bound by any declaration I made in any event. This seems to me to limit the usefulness of making a declaration.[50]But the overriding consideration in my judgment is that the true position in law is quite obscure, and one on which I have not heard true adversarial argument. In saying this I mean no disrespect to counsel, particularly Mr Dew who took on the task of arguing this part of the case and who diligently showed me the cases against his own position; but it is never the same hearing counsel putting arguments against himself and heaiing argument from counsel who are truly opposed. If I had reached a clear view of the law, I would have said so and I think I would then have made a declaration accordingly; but in circumstances where I am left in real doubt as to what the law is or ought to be, I do not think it either necessary or appropriate to resolve those doubts and make a declaration for the purpose of strengthening the arguments of the parties against HMRC.[51]I add three footnote points on the issue of void or voidable. First, it appears that gifts by minors are in general voidable rather than void (see eg Halsbury's Laws (4 th ed) vol 5(3), Children and Young Persons, para 46); and it might be thought odd if a different result were to attach to mental incapacity, as both are in law a form of incapacity. Second, however, there is some suggestion that the plea of non est factum (which if successful does undoubtedly mean that a deed is void) may be available to a person suffering from incapacity: see Saunders v Anglia Building Society [1971] AC 1004 , 1015 per Lord Reid where he refers to those unable through no fault of their own to have any real understanding of the purport of a document "whether that be from defective education, illness or innate incapacity". But it is not at first blush easy to see how this can be reconciled with the principle that contracts made by a person lacking capacity are at best voidable: see the discussion by Warren J in Qutb v Hussain at [28]-[29]. Third, there are a number of older cases collected in the footnotes to Halsbury's Laws (4 th ed) vol 30(2), Mental Health, paras 608 and 609 which are cited for the propositions that although a deed executed by a mentally disordered person "was void at law", courts of equity in deciding whether to set aside such a deed took into account all the circumstances and could refuse to do so for example on the grounds of delay and the like. This appears to reflect the position before the fusion of law and equity in the Judicature Acts and it is unclear whether these cases are of any continuing relevance. None of these points was explored in argument; I do not in any way suggest they should have been, or mean to criticise counsel, but refer to them merely to reinforce the point I have already made that the whole question whether a deed of gift affected by incapacity is void or voidable is one of considerable difficulty and one which I do not intend to answer in the circumstances of this particular case. Summary[52]For the reasons I have given, I find that Mr Sutton was suffering from incapacity at the time of executing the 1997 transfer, and that the transfer is therefore invalid for lack of capacity. I have not decided whether the invalidity of the transfer made it wholly void or only voidable; if it was voidable, Mrs Sutton (in her capacity as administratrix of Mr Sutton's estate) has duly avoided it. I will therefore not make any declaration that the transfer was void but I will declare that the transfer is invalid on account of Mr Sutton's lack of capacity and will (if and insofar as necessary) set it aside; I will also order rectification of the register.[53]I will hear counsel if necessary on the form of the Order. I am very grateful to both counsel for their considerable assistance.

Cited in 3 later judgments