Proctor v Proctor [2012] EWHC 4050 (Ch)

[2012] EWHC 4050 (Ch)Claim No. 8MA31231
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Venue MANCHESTER DISTRICT REGISTRY, Manchester Civil Justice Centre
1 Bridge Street West
Venue ManchesterDate Thursday, 6 th December 2012
M60 9DJ
Before
HIS HONOUR JUDGE HODGE QCSitting as a Judge of the High Court______________________
Between
KATHERINE PROCTORClaimant-v-
Between
DOROTHY MARGARET PROCTORDefendant______________________Transcribed from the Official Tape Recording byApple Transcription LimitedSuite 104, Kingfisher Business Centre, Burnley Road, Rawtenstall, Lancashire BB4 8ESTelephone: 0845 604 5642 – Fax: 01706 870838______________________Counsel for Claimant: MR JOSHUA SHIELDSCounsel for Defendant: MISS SARAH HARRISON______________________JUDGMENT

JUDGE HODGE QC:

[1]This is my extemporary judgment in the case of Katherine Proctor (as claimant) and Dorothy Margaret Proctor (as defendant), claim no 8MA31231. The application presently before me is a sequel to two extemporary judgments I delivered when sitting in Manchester on 11th and 18th May 2010.[2]In the first of those judgments, I found that the payment of three sums of money (totalling £190,000) made by the late Professor John Proctor to the defendant, his second wife, on dates between 9th July and 1st August 2006 was liable to be set aside as having been procured by the defendant’s undue influence. The defendant was the second wife of the late Professor John Proctor. He had married her not all that long before the payments were made; and he died shortly thereafter, on 20th August 2006. The claimant is the sole daughter of the deceased by his first marriage, and she was the sole personal representative of his estate. She had brought proceedings to recover the monies back on behalf of the estate.[3]There were further proceedings brought by the defendant against the estate under the Inheritance (Provision for Family and Dependants) Act 1975 which I dismissed in the second of my two extemporary judgments, on 18th May.[4]Following the delivery of my second extemporary judgment, there was some discussion about the terms of the resulting court order. There is an agreed note of those discussions following judgment on 18th May which is to be found at exhibit PRB3 to a witness statement of the claimant’s solicitor, Mr Peter Robert Belshaw, dated 28th September 2012. That note records as follows: “After giving judgment on the undue influence claim, His Honour Judge Hodge QC said: ‘The defendant is to be allowed a generous period in which to purchase an alternative property. The generous period will be a few years. I am staying enforcement of the first proceedings. There should, therefore, be judgment for the claimant for a fixed sum. The claimant is prepared to allow two years. The estate should show movement in the property market. If the property is sold to meet the judgment, the estate should bear some costs. The order is £123,000, less 49 percent of the sale costs if property sold, stay for two years, would want a charge on the property, permission to apply. Inheritance Act proceedings transferred to the Chancery Division. Claimant’s counsel indicated needed to check position on the form of charge required.’ His Honour Judge Hodge QC directed the parties to lodge an agreed minute if possible.” ‘The defendant is to be allowed a generous period in which to purchase an alternative property. The generous period will be a few years. I am staying enforcement of the first proceedings. There should, therefore, be judgment for the claimant for a fixed sum. The claimant is prepared to allow two years. The estate should show movement in the property market. If the property is sold to meet the judgment, the estate should bear some costs. The order is £123,000, less 49 percent of the sale costs if property sold, stay for two years, would want a charge on the property, permission to apply. Inheritance Act proceedings transferred to the Chancery Division. Claimant’s counsel indicated needed to check position on the form of charge required.’[5]Unfortunately, it did not prove possible to agree a minute of order for some time after judgment was handed down. The position is addressed in the witness statement of Mr Belshaw, which also explains the background to the post-judgment discussion. In his witness statement, Mr Belshaw explains that the claimant was the daughter of John Proctor from his first marriage. Shortly before the end of his life, and at a time when he was suffering from encephalopathy as a result of advanced liver disease, John Proctor had transferred in total £190,000, which was substantially all of his money, to the defendant, whom he had married shortly before. The funds were used as part of the purchase price of a property in Spain, Real Altavista Golf, Phase 1, number 12, La Cala, Mijas, Malaga, Spain.[6]As at the date of the trial of this case, commencing on 5th May, the property had been held in the joint names of the defendant and her two sons, John Timothy Hargreaves and Charles Russell Hargreaves. Both were adult. Both men had given evidence before me at the trial. Mr Belshaw exhibits a copy of an entry in the Spanish Land Registry, together with a brief summarised translation, as exhibit PRB1, which confirms how the property was held, and also indicates that the property had been the subject of a mortgage of €240,000. That mortgage had in fact been redeemed at the time of the trial, as had been acknowledged by the defendant and her two sons, who had given evidence in the proceedings.[7]Mr Belshaw relates that in the proceedings the court had held that the transfers had been procured by undue influence exercised by the defendant over Professor Proctor. The court had found that the defendant’s sons appeared on the title because there had been a bridging loan to allow the property to be purchased before the defendant had sold a property in the UK. The bridging loan had been repaid in full by the defendant. The Hargreaves had paid nothing towards the purchase of the property. Charles Hargreaves had accepted that he held the property on trust for his mother as bare trustee; and the court had found as a fact that John Timothy Hargreaves had likewise held the property on trust for his mother, also as a bare trustee.[8]Mr Belshaw exhibits as PRB2 the claimant’s version of the judgment, given in respect of the claimant’s claim for undue influence on 11th May 2010. That note is said to be a summary based upon notes taken of the judgment by Miss Laura Watts, a solicitor in the employment of Mr Belshaw’s firm, who attended the relevant hearing. Mr Belshaw relates that, having regard to the fact that the money had been used to purchase the property, together with other monies of the defendants, and that the purchase had been entered into prior to John Proctor’s death, applying the Court of Appeal authority of Cheese v Thomas [1994] 1 WLR 129 the court had decided that the quantum of the remedy to which the claimant was entitled was £123,000. That sum had been calculated as follows:(1) the percentage of the initial purchase price of the property that the sum of £190,000 represented was calculated;(2) the value of the property at the date of trial was determined;(3) the quantum was the value (in sterling) of the percentage calculated at (1) of the value calculated at (2). Mr Belshaw relates that no settled order had been made on 11th May pending the hearing of the defendant’s claim against the claimant under the 1975 Act. That application had been adjudicated upon by the court on 18th May, and had been dismissed.[9]The court had then returned to consider the terms of the order to be made in the instant proceedings. It is at this point that Mr Belshaw exhibits the agreed note of the discussions about the terms of the judgment. The court indicated that there should be a declaration that the £190,000 was used as part of the purchase price of the property, and an order that the defendant pay £123,000 to the claimant. By way of accommodation, and mercy, to the defendant, and to allow her time to arrange her finances, the court had indicated that the claimant’s judgment should not be enforceable for two years, that is to say until 17th May 2012. As a quid pro quo, the court indicated that it would give the claimant security. The property being in Spain, from the claimant’s side they were not sure about the terms of the order needed to ensure that the security would be binding. The court was asked not to seal the order, in order to allow the claimant’s legal representatives to explore that issue. The court also ordered the defendant to pay the claimant’s costs; and an interim payment on account of costs, in the sum of £20,000, was to be made by 15th June 2010.[10]Mr Belshaw relates that he was on holiday until approximately a week after the court order given on 18th May. On instructions, he then spoke to the defendant’s solicitor to see whether a basis of agreement could be reached for the obtaining of an accelerated payment, the court having ordered that the defendant would not be required to make payment of the money judgment until 17th May 2012. Mr Belshaw relates that the defendant’s solicitors subsequently confirmed that they had been put in funds from their client in the sum of £20,000, earmarked for payment of the interim costs order made by the court on 18th May. However, Mr Belshaw relates that on 18th August 2010 he received a letter from the defendant’s solicitor informing him that his client had requested, and obtained, repayment of the £20,000 which had been earmarked for payment of the aforementioned interim costs order. He exhibits a copy of that letter at PRB4. The letter is dated 18th August 2010 and relates that their client is on holiday. The letter also invites Mr Belshaw to note that they are no longer holding the costs on account in the sum of £20,000. The client of Acklam Noor Bond, Mrs Proctor’s solicitors, had requested that those monies be sent back to her during the writer’s absence from the office on holiday. The writer’s assistant had failed to tell him that the monies had been sent back to his client upon his (the solicitor’s) return from holiday. On the basis of the defendant withdrawing these funds from her solicitors, Mr Belshaw relates that it appeared to him, and to his client, that she was acting in bad faith; and, as a result, negotiations towards an accelerated settlement were broken off.[11]I pause, or interpose, to mention that, although the defendant has made a witness statement dated 24th October 2012 in answer to Mr Belshaw’s witness statement, she does not in any way either:(1) seek to explain why it was that she required repayment of the £20,000 previously lodged with her solicitors as payment of the interim costs order; nor(2) does she in any way take issue with Mr Belshaw’s expressed belief, shared with his client, that she had been acting in bad faith in seeking the return of that sum.[12]Returning to Mr Belshaw’s witness statement, he relates that he subsequently attempted to agree a minute of order, relating to the court’s order of 18th May, with the defendant’s solicitors, but he was unable to do so, no response having been received from them after he had submitted a draft to them on 28th October. He records that, eventually, an order was sealed by the court on 12th January 2011; and that he subsequently obtained a default costs certificate for costs to be paid by the defendant in the sum of £76,980.55 within 14 days of 21st March 2011.[13]I interpose to mention that the form of order, in so far as it relates to the instant proceedings, was as follows: The order began by declaring that the defendant had used £190,000 obtained from the late John Proctor as part-payment in relation to the purchase of the Spanish property, the Land Registry number of which was given. The operative part of the order then provided:(1) that the defendant should pay the claimant £123,000 by 17th May 2012;(2) that the defendant should pay the claimant’s costs, on the standard basis up to 23rd April 2012, and thereafter on the indemnity basis, such costs (if not agreed) to be the subject of a detailed assessment upon a consolidated bill of costs with the Inheritance Act proceedings;(3) that the defendant should pay £20,000 on account of the costs of the claim and the Inheritance Act proceedings by 15th June 2010; and(4) that either party might apply on notice as to (i) interest on the said sum of £123,000, (ii) security for that sum, and (iii) the incidence of the costs of any sale of the property. The order further provided that on any such application, the parties should file a note (agreed by counsel) of any discussions as to the terms of the court’s order after the delivery of the court’s extemporary judgment or, in default of such agreement, a transcript of such discussions. It was that latter provision that was the origin of the agreed note that forms exhibit PRB3 to Mr Belshaw’s witness statement.[14]I should explain that the reason for the permission to apply contained within paragraph 4 of the draft order was as follows: First, that it was apparent from correspondence received by the parties’ respective solicitors at the court that there was an issue, both as to interest on the £123,000 and also as to the incidence of the costs of any sale of the property. Secondly, it was also clear from that correspondence that the claimant had been asserting that she should be entitled to some form of security for the judgment, pending payment.[15]In a letter to the court from the claimant’s solicitors, Belshaws, dated 21st December 2010, it was stated that:
“Although it was not entirely clear to ourselves and counsel on the date when judgment was given precisely what arrangements could be made in the Spanish jurisdiction for obtaining security for the judgment pending payment, the court nevertheless ordered that the defendant should co-operate with the procedure of obtaining security once the mechanics of this were ascertained.”
[16]In those circumstances, Belshaws suggested that the wording of the draft order that they were seeking was appropriate. That wording was:
“The defendant shall co-operate with the claimant to allow the claimant to register a charge, or equivalent, on the property to secure payment of the said sum on the property.”
[17]In a letter to the court dated 16th December 2010, the defendant’s solicitors said that their recollection of the discussion was that the claimants were indicating that they might wish to register a charge on the property, but that they needed to investigate the Spanish legal position. The judge left the matter open, giving the claimants liberty to apply back, and the issue was left open.[18]Returning to Mr Belshaw’s witness statement. He relates that on 4th May 2011 he discovered that, in December 2010, the defendant had transferred her share in the Spanish property to her two sons, and that they had obtained a mortgage over the property in the sum of €130,000. He exhibits (as PRB5) an entry from the Spanish Land Registry confirming those matters, together with a translation of that document.[19]Mr Belshaw states that the two-year suspension of the enforcement of the judgment expired in May of this year. Nothing has been paid by the defendant. She is said to have cynically abused the mercy shown to her by the court by using the period of grace given to her to attempt to put her assets beyond the reach of the claimant. He suggests that the court need feel no qualms about dealing with the defendant in a robust way in relation to this application. He says that the point of the security position in the original order had been to enable the claimant to enforce the money judgment in the sum of £123,000. The claimant applies, under the permission to apply, for a declaration that the defendant’s interest in the property is held on constructive trust for her, up to the value of £123,000. That remedy is said to be available to the court in respect of a transaction procured by undue influence. It is said that security in that form would assist the claimant to enforce her judgment.[20]The claimant has issued proceedings against the defendant’s sons, amongst other things seeking remedies against the sons as trustees, holding the property on trust for the defendant. This was said to have been found to be the case by the court in this action. It is said that a declaration that the property is held on trust for the claimant will allow her to enforce her judgment against the defendant’s sons as bare trustees for their mother. Alternatively, the claimant seeks an order that the defendant’s interest in the property is charged to the value of £123,000 in favour of the claimant.[21]The claimant further applies for an order that interest be payable on the judgment debt from 18th May 2010. It is said that the judgment sum was calculated as the value of the property that the money obtained by undue influence represented as at that date. Effectively, the claimant’s interest in the property, in money terms, is said to have crystallised at that date. The defendant was given grace of two years to arrange her affairs and, if necessary, sell the property. Payment to the claimant was therefore suspended for the defendant’s benefit. Given that the defendant had the use of the capital to which the claimant was entitled from 18th May 2010, it is said that fairness dictates that the defendant should pay interest on that sum.[22]That witness statement was made in support of an application which was received at the court on 14th August 2012, and listed for hearing by notice dated 23rd August, seeking amendment or rectification of the court’s order in this matter of 12th January, in accordance with the attached information for application notice. That attached information makes it clear that what is being sought is an order, pursuant to the permission to apply contained within paragraph 4 of the court’s order of 12th January 2011, that the defendant be declared to hold the Spanish property on constructive trust for the claimant, to the value of £123,000, as security for the payment of the same. Alternatively, the claimant seeks rectification of the order to provide a general liberty to apply, to allow the claimant to apply for an order in the terms of paragraph 1, to assist in the enforcement of the order. Further, an order is sought, pursuant to paragraph 4 of the order, that the defendant pay interest at the rate of 8 percent on the judgment sum from 18th May 2010.[23]The evidence in answer to that application is contained within the written statement of the defendant, Dorothy Proctor, dated 24th October 2012. At paragraph 4 she states that it is her recollection that at the end of the case, the claimant’s counsel indicated that they would have to take advice as to the law of Spain, and that is why there was reference in the order to either party being able to apply to the court for security for the sum of £123,000. However, it is said that there is no evidence before the court as to what advice the claimant has received as to the law of Spain, or what enforcement steps, if any, she has taken in Spain, or indeed, what steps could be taken in Spain in that regard. The defendant makes the point that, in her amended particulars of claim, the claimant had sought the repayment of the £190,000 or, in the alternative, compensation for breach of trust. In addition, she had sought a declaration that the sum had been used as part-payment of the purchase price on the Spanish property, which was, and remained, the defendant’s home. She says that, instead of ordering her to repay the £190,000, the court had accepted the argument that she should repay a sum representing the same proportion of the current value of the property as the sum of £190,000 bore to the original purchase price. Therefore, she was ordered to repay £123,000 by 17th May 2012.[24]At paragraphs 6 through to 8, she relates the history of the purchase of the Spanish property, and the later sale of her own property in England, Clover Cottage. She explains that that latter sale had enabled her to repay the mortgage that had been obtained to assist with the original purchase of the Spanish property; and she confirms that it had been discharged by the time of the trial.[25]At paragraph 9, she relates that it had always been her intention to leave Clover Cottage, and later on the property, to her sons. She explains that, following the outcome of this litigation, she had been very short of funds. She had spent just over £75,500 on her own legal costs, and was liable for the claimant’s costs, and she knew that she needed to raise £123,000 by May 2012.[26]At paragraph 10, she says that the way she viewed matters was that, whilst she owed the claimant £123,000, she was free to do as she wished with the property. She says that she had not been in good health, and she wanted to secure the inheritance which she had always intended her sons to have. She obtained a valuation of the property, which was valued at €360,000. Therefore, she says that she decided that she wanted to make a gift to her sons of her two-thirds beneficial share in the property. She could then sell them her remaining third share in the property which, she says, would have left her with sufficient funds to pay the claimant by 2012. It was important, under Spanish law, that the transaction took place at market value as otherwise there would be a tax charge.[27]To that end, she says she consulted Spanish lawyers. She exhibits (as DMP2) a true copy of a document called a “Deed of Gift and Agreement”. She says that its effect was:(1) to give a one-third share in the property to each of her two sons, Russell and Tim;(2) to agree that her third share in the property should be sold at the agreed market price of €120,000, which was to be raised by a mortgage in the names of Russell and Tim; and(3) that on payment of that price to her, Russell and Tim would each own one half of the property. She explains that a mortgage for €130,000 was arranged by Russell and Tim; 10,000 of that went on their taxes and costs. She refers to a document (DMP3), which is said to be a true copy of a document signed by her two sons, authorising the Spanish lawyer to sign a contract on their behalf for the purchase of the defendant’s share in the property. She also refers to a copy receipt for the purchase price of €120,000, and a copy bank statement showing that she received the net sum of €116,000, which was smaller due to the payment of sale expenses.[28]At paragraph 14, she says that at the time of the transaction, she had intended to use the monies to pay the claimant in May 2012.[29]Mr Joshua Shields (of counsel), who appears for the claimant, objects, with justification, that it must have been clear that that sum would have been wholly inadequate to meet the required payment of £123,000, let alone that sum together with the amount of costs which the defendant had been ordered to pay to the claimant.[30]Returning to paragraph 14 of Mrs Proctor’s witness statement, she says that she was overtaken by events; that she had to spend the monies to allow her to live. She says that she had to use some of the monies to pay for car repairs after an accident. She says she also spent a substantial amount of money on medical bills after she found lumps on her stomach and throat and there were concerns that she was suffering from cancer. She says she also gambled some of the money, trying to raise enough to pay the claimant, and lost a large sum of money. She does not condescend to particulars of the various sums applied to each of those individual purposes, nor does she exhibit any documentation supporting her assertions. There is no evidence, for example, of any expenditure of money on medical bills, or any documents evidencing her health difficulties.[31]At paragraph 15, she says that she believes, and is advised by her solicitor, that the claimant set aside the gifts made by the deceased to her and sought and obtained a monetary judgment. She says she is further advised that if she was seeking to set aside the transaction, the claimant’s claim had to be for a sum of money, and not to establish that a trust existed in relation to the property. Therefore, she submits that there is nothing to be altered in relation to the original order made by the court. In so far as the claimant is seeking a charging order in these proceedings, she believes, and is advised by her solicitor, that a charging order is made against the debtor’s beneficial interest in land. She no longer has any beneficial interest in the Spanish property to be charged. She also says that an English court will not make an order in relation to Spanish property unless it would be effective. There is said to be no evidence before the court as to the law of Spain in that regard, and as to whether or not any English order would be recognised by a Spanish court.[32]She also says that the claimant is asking for interest on the sum of £123,000 from 2010, even though she was not liable to pay the claimant until May 2012. Mr Belshaw is said to say that this is because the defendant has had the use of the capital in the meantime; but she submits that interest should only run from the date the defendant was liable to pay the claimant. Interest is also sought at 8 percent, which is said to be far higher than anyone could have received if investing such a sum. She asks the court to award interest at 3 percent from May 2012.[33]I should also mention that the claimant has issued separate proceedings (under claim number 2MA30279) against the two sons of the defendant, Charles Russell Hargreaves and John Timothy Hargreaves. There is a pending application to amend those proceedings to add Mrs Proctor as third defendant. Those proceedings claim payment of the sum of £123,000; alternatively, a declaration that the Spanish property stands charged to that value in favour of the claimant, together with interest at 8 percent from the date of judgment; and an order that the defendants take such action as is necessary to allow the claimant to enforce that charge; alternatively, the claimant seeks a declaration that the defendants hold their shares in the property on trust for Mrs Proctor, who in turn holds the property on trust for the claimant to the value of £123,000; and an order that the defendants transfer their interest in the property to that value to the claimant, alternatively, to Mrs Proctor. There is also a claim for interest and costs, and relief in the alternative under section 423 of the Insolvency Act 1986.[34]The reason why those proceedings do not appear to have proceeded very far to date is apparently that one of the defendants, Mr John Timothy Hargreaves, is resident in the Isle of Man, and he is objecting to the court’s jurisdiction over him. In addition to the pending application to add Mrs Proctor as third defendant, there is also an application for permission to serve the documents on Mr John Timothy Hargreaves out of the jurisdiction in the Isle of Man. In aid of that application, I have already, without a hearing, made an order extending the validity of the claim form in those proceedings.[35]On this application, the claimant is, as I have mentioned, represented by Mr Joshua Shields (of counsel) and the defendant by Miss Sarah Harrison (of counsel). Both counsel appeared at the trial of the instant claim and the 1975 Act proceedings in May 2010. Both counsel have submitted helpful written skeleton arguments. That of Miss Harrison is dated 30th November; and Mr Shields has submitted two written skeleton arguments dated 3rd and 5th December. I do not propose to burden this extemporary judgment by summarising what is set out in those written skeleton arguments.[36]Mr Shields addressed me this morning for about 45 minutes. Miss Harrison responded for 35 minutes; and then Mr Shields briefly replied. I then indicated to Miss Harrison that I would welcome argument on whether the claimant might be able to assert any form of tracing remedy in relation to the Spanish property. Miss Harrison indicated that she had not considered that aspect of the matter because it had not featured in Mr Shields’s skeleton argument. I therefore gave Miss Harrison an opportunity, between about 12.15 pm and 2 pm, to consider that matter; and I also supplied her with my copy of Snell’s Principles of Equity, 32nd edition (2010), for that purpose. Miss Harrison took the benefit of that opportunity; and she addressed me for a further 15 minutes or so after the luncheon adjournment by reference to the relevant paragraphs of Snell. In particular, she took me to paragraphs 30-051, 30-054 and 30-055. Mr Shields then briefly replied.[37]I can summarise Miss Harrison’s submissions as follows: She submits that although the three gifts were set aside, that merely gave rise to a money judgment. The setting aside of the three gifts did not give rise to any entitlement on the part of the claimant to a beneficial interest in the property. Although Mr Shields had taken me to selected passages in the case of Cheese v Thomas, Miss Harrison cited the case much more extensively. As a result, I think I have been taken to virtually the whole of the report in that case.[38]Miss Harrison submitted that, on a close analysis, that case was not authority for the proposition that where a gift of money is set aside, and the relevant cash has been applied in the purchase of a property, the setting aside of the gift gives rise to any beneficial interest in the property by way of co-ownership. She submitted that the setting aside of a transaction on the grounds of undue influence does not confer any beneficial share in the property upon the successful claimant. She submitted that the only relief granted was the setting aside of the original gift or gifts; that gave rise only to a monetary remedy. In any event, in the present case, she submitted that the claimant had clearly elected to take a monetary remedy only, and it was now too late to start re-opening that decision.[39]In relation to tracing, Miss Harrison submitted that tracing followed on from a disposal of an original asset, and its reinvestment in a different form of asset. It is an identification technique to enable an original asset to be traced into some other asset. Moreover, for tracing to occur, it requires the assertion of an equitable title on the part of the party seeking to trace into a substituted asset. Here, she submits, that there was no such equitable title in the hands of the claimant. She submits that a monetary remedy only was sought by the claimant, and one is now only concerned with the return of cash. This is said not to be a tracing situation. Even if it had been, then the tracing remedy is one that should have been sought at trial, and no such remedy was sought.[40]If the court were to reject all of those submissions, and the court were minded to find that, as of May 2010 (when judgment was handed down), the claimant had any tracing remedy at all, then, in view of the subsequent gift to the two sons, and their purchase of their mother’s remaining third share in the Spanish property, it would be inappropriate to address the continuing availability of any tracing remedy in the context of the instant proceedings. This should be left over to be dealt with in the new claim.[41]The position, as it seems to me, is this: The late Professor Proctor had made three gifts of money to the defendant, his second wife. Those gifts have been set aside as a result of the court’s order, made following the trial of this claim in May 2010. The effect of that was to re-vest title to that money in the late Professor Proctor’s estate. That estate is represented in these proceedings by the claimant. The claimant has an equitable title to those monies. As Mr Shields submitted, the remedies available to a claimant in a case where a transaction is set aside on the grounds of undue influence are flexible. The transaction is liable to be reversed.[42]In the course of his leading judgment in Cheese v Thomas, with which the other two members of the court (Lady Justice Butler-Sloss and Lord Justice Peter Gibson) simply agreed, Sir Donald Nicholls, the Vice-Chancellor, said that the basic objective of the court is to restore the parties to their original positions, as nearly as might be, consequent upon cancelling a transaction which the law would not permit to stand. That was the basic objective. Achieving a practically just outcome in that regard required the court to look at all the circumstances, whilst keeping the basic objective firmly in mind. In carrying out that exercise, the court was, of necessity, exercising a measure of discretion, in the sense that it was determining what were the requirements of practical justice in the particular case.[43]Sir Donald Nicholls said that it was important not to lose sight of the very foundation of the jurisdiction being invoked. He cited observations of Lord Scarman in National Westminster Bank v Morgan [1985] AC 686 to the effect that there was no precisely defined law setting limits to the equitable jurisdiction of a court to relieve against undue influence. Definition was said to be a poor instrument when used to determine whether a transaction was, or was not, unconscionable. That was said to be a question which depended upon the particular facts of the case.[44]Sir Donald Nicholls went on to observe that, as with the jurisdiction to grant relief, so with the precise form of the relief to be granted: Equity, as a court of conscience, would look at all the circumstances and do what fairness required.[45]Sir Donald Nicholls also cited observations from Lord Wright in the case of Spence v Crawford [1939] 3 A11 ER 271, which was a misrepresentation case. Lord Wright said, regarding rescission and restitution, that:
“The remedy is equitable. Its application is discretionary, and, where the remedy is applied, it must be moulded in accordance with the exigencies of the particular case.”
[46]The actual decision in Cheese v Thomas is, in my judgment, of limited assistance in the present case. That is because, by the time the matter came to be considered by the Court of Appeal, the property in question had already been sold. It had in fact been sold at a loss. The question was twofold:(1) what was to happen to the sale proceeds; and(2) to the extent that the sale proceeds were insufficient to effect a return to the claimant great-uncle of the sum he had paid over to his great nephew under that individual’s undue influence, to what extent could the deficiency be required to be made good by the defendant great-nephew, the undue influencor. Because the property had been sold, the court did not need to consider the extent of any proprietary interest that the claimant undue influencee might have had in the property, or its sale proceeds, in terms of any proprietary interest.[47]As Miss Harrison submits, the claimant in fact recovered the whole of the proceeds, together with an additional £11,000, from his great nephew, even though that still left him with a shortfall on the amount that had been originally paid over. In my judgment, the decision in Cheese v Thomas is no authority that prevents the court holding that, in a suitable case, where money is obtained by undue influence being applied in the purchase of a property, a tracing remedy cannot be asserted in relation to that property itself.[48]In my judgment, the principle is that when the gifts were set aside, the equitable title in the monies represented by those gifts re-vested in the claimant, on behalf of the late Professor Proctor’s estate. It was then open to the claimant to trace those monies into the property, in the purchase of which they had been applied. That result is consistent with the basis upon which, rather than ordering the return of the £190,000 originally obtained by way of gift, I had reduced that to £123,000, in order to reflect the present value of that sum in terms of the then value of the Spanish property.[49]I consider that a tracing remedy was available to the claimant as at the time I handed down my judgment. It seems to me that that is consistent with a proper reading of the passages from Snell to which I was taken by Miss Harrison. At paragraph 30-051 it is said that:
“Tracing is the process of identifying a new asset as the substitute for an original asset which was misappropriated from the claimant.”
[50]At the end of that paragraph it is said, by way of example, that:
“…the claimant may trace misapplied property from the trust into the trustee’s personal bank account with a view to asserting an equitable lien over the account. This will ensure the priority of his claim in the insolvency of the trustee.”
[51]At paragraph 30-054, the editors of Snell recognise that, on the basis of present authority, to rely on the equitable rules of identification a claimant must show some distinct equitable title to the original asset; but the same paragraph goes on to recognise that where the claimant was not the principal in a fiduciary relationship, the circumstances in which the claimant was separated from the original asset may generate a distinct equitable title sufficient to allow him to follow or trace it. The example is given of a person who is induced to pay money by a fraudulent misrepresentation; he is said to have a sufficient equitable title, even before he elects to rescind the payment transaction, to follow or trace the money. It seems to me that the same applies to a claimant who is induced to make a gift as a result of undue influence on the part of a defendant.[52]The editors go on, at the end of that passage, to acknowledge that the requirement that the claimant must have a distinct equitable title to follow or trace property has been criticised. It is said to confuse the requirements of the process of identifying the claimant’s original asset, or its proceeds, with the appropriate conditions for the assertion of a proprietary remedy against the property so identified, thereby conferring priority on the claimant over the defendant’s unsecured creditors. It seems to me that that criticism is well-founded; but, in any event, I am satisfied that where a transaction is set aside on the grounds of undue influence, the claimant has a sufficient equitable title to allow him to pursue a tracing remedy.[53]At paragraph 30-055 it is recognised that, against an asset in the hands of a trustee, the claimant has an election between two proprietary remedies. One of them is to enforce an equitable lien against it for the value of the original asset which was applied to acquire it. The lien is for this fixed amount, and does not change in value even if the substituted asset rises or falls in value. Alternatively, it is said that he may claim the entire beneficial ownership of the substituted asset under a constructive trust.[54]In the present case, it seems to me that, had the matter been raised at the time judgment was handed down in May 2010, I would have been fully justified in declaring that, as at that time, the claimant was entitled to trace the £123,000 into the defendant’s beneficial interest in the Spanish property and, accordingly, was entitled to an equitable lien over that property to the extent of that sum. Has the position changed as a result of the order that was made, and which was sealed by the court in January 2011? In my judgment, it has not. As Mr Shields has pointed out, one of the matters that the court expressly declared within its order was that the defendant had used the £190,000 obtained from the late John Proctor as part-payment in relation to the purchase of the Spanish property. The parties expressly contemplated that the claimant would seek some form of security in relation to that property. In my judgment, it cannot be said that the claimant made any irrevocable election to pursue a monetary remedy, to the exclusion of any tracing claim, which would have the effect of precluding her from asserting an equitable lien, to the extent of £123,000, over the defendant’s beneficial interest in the Spanish property. In my judgment, the permission to apply as to security for the sum of £123,000, on its true construction, extends to an application for a declaration that that sum is secured by an equitable lien over the defendant’s beneficial interest in the property.[55]I acknowledge that third-party rights have intervened. Those third parties are not parties to the present proceedings. Nothing that I say today should cut out any argument that they may seek to advance that the claimant’s equitable lien is no longer capable of enforcement as against them. But in these proceedings, as between the claimant and the defendant, it does seem to me that it is open to me to declare that, as of 18th May 2010, and until at least 25th September 2010 (being the date of the alleged agreement between the defendant and her two sons), the claimant was entitled to trace the sum of £123,000 into the defendant’s beneficial interest in the Spanish property; and, accordingly, that she is entitled to an equitable lien over that property to the extent of £123,000. Whether that lien is now capable of binding the two sons will have to be a matter that falls for determination in the new proceedings to which they are defendants.[56]If I am wrong, and that is not the true construction of paragraph 4 of the order sealed on 12th January 2011, then I would accede to Mr Shields’s alternative submission that that order should, to the extent necessary, be corrected under CPR 40.12 (the slip rule). That seems to me to be sanctioned by the terms of paragraph 4.5 of Practice Direction 40B at paragraph 40BPD.4 on page 1241 of the current (2012) edition of Civil Procedure. That paragraph reads:
“The court has an inherent power to vary its own orders to make the meaning and intention of the court clear”
. As of 18th May, the court did intend that the claimant should be entitled to assert an effective security over the Spanish property for the judgment debt of £123,000. If an equitable lien pursuant to a tracing remedy is the appropriate way of achieving that, then that is something which, if it had been drawn to the court’s attention on 18th May, the court would have approved, and sanctioned.[57]That leaves only the issue of interest. The issue of interest was not specifically raised or considered on 18th May. It only arose as an issue as a result of the exchange of solicitors’ correspondence in December 2010, when the terms of the order were being finalised. Mr Shields has taken me to the provisions of CPR 40.8, headed “Time from which interest begins to run”. Sub-rule (1) provides that where interest is payable on a judgment pursuant to section 17 of the Judgments Act 1838, the interest shall begin to run from the date that judgment is given unless, so far as relevant for present purposes, the court orders otherwise. In the present case the court did not expressly order otherwise.[58]The question is whether, by deferring payment until 17th May 2012, the court intended, or should be taken to have intended, that interest should not run at Judgment Act rates on that sum until that latter date. This is I confess something that was not alive to my mind on 18th May; and it does not appear to have been a matter which was expressly considered by counsel at the time, or addressed in argument before me. It does seem to me that since I was granting an element of relief to the defendant, in terms of allowing her to get her affairs in order by selling the property with a view to meeting the judgment, that it is only right that the defendant should be required to pay interest as the price of that indulgence.[59]Miss Harrison has submitted that 8 percent is, in present financial circumstances, a wholly excessive rate of interest. I am not without sympathy for that submission. The difficulty is that, by reference to the notes at paragraph 40.8.3 (at page 1215 of the current edition of the White Book), the statutory rate of interest may not be varied by the court; and Miss Harrison has gallantly sought, by reference to the notes at paragraph 40.8.9, to argue that I do have some measure of discretion. But it seems to me that that discretion is confined to the rate of interest to be awarded on damages under section 35A of the Senior Courts Act 1981, or the corresponding provision of the County Courts Act.[60]In my judgment, it is appropriate for interest to run as from the date that the liability crystallised. The sum of £123,000 was taken because that represented the then value of the late Professor Proctor’s investment in the property. By crystallising the sum in that amount, the defendant, who retained legal title to the property, and thus the ability to sell it, enjoyed the benefit of any increase in the value of the property. The claimant was deprived of any increase in the value of the property. It seems to me only just and right that she should therefore be entitled to interest on that sum. The fact that the rate of interest applied by statute to the judgment debt is, in my judgment, excessive in present circumstances does not seem to me to be sufficient reason to take any different view as to the date from which interest should run.[61]So, to summarise the effect of this extemporary judgment, I hold that the claimant was, as at 18th May and until at least 25th September 2010, entitled to trace the £123,000 into the defendant’s beneficial interest in the Spanish property, and, accordingly, was entitled to an equitable lien over the Spanish property to that extent; and I also hold that the judgment debt should carry interest as from the date of the judgment, which is the prima facie position applicable under CPR 40.8 in any event. THE JUDGE: Now, does that sufficiently address the matters before me and the reasons for my judgment? MR SHIELDS: My lord, yes. Could I then seek, in terms of the order that is made as a result of today, a further order that Dorothy be prohibited from dealing with the property any further until further order of the court? THE JUDGE: But I thought she did not have any title to the property. MR SHIELDS: Well, she… If the question is whether that document has the effect of divesting of any beneficial interest she had in the property— THE JUDGE: Well, the horse has bolted. MISS HARRISON: She is not registered in Spain. I think we all know and accept that under Spanish law they only recognise the interest of the person actually on the registration. THE JUDGE: Well, the horse has bolted. MISS HARRISON: Yes. THE JUDGE: I mean we now have to consider what the effect of my judgment is on the events that have occurred since September 2010. MR SHIELDS: My lord, yes, but if the effect of what has happened on 25th September 2010 is that she retains a beneficial interest, unless she is prohibited from dealing with that and trying to do something with that now— MISS HARRISON: Yes, but logically under Spanish law the only people who can deal with that property are the sons. So logically anyone can— MR SHIELDS: The beneficial interest is something in the same way that she dealt with… Sorry, my lord. THE JUDGE: Well, Mr Shields, it does seem to me that she has already done everything she can to divest herself of that interest and there is nothing left. MR SHIELDS: My lord, as we discussed earlier, it is not clear what the effect of that document of 25th September is. MISS HARRISON: But it is, as a matter of Spanish law, because she is not on the title. MR SHIELDS: No. THE JUDGE: Well, if you want to persuade me that there is any real risk of anything further happening, then I think I would need some evidence of Spanish law. At the moment it seems to me she has done her level best, in a way which I deprecate, to deprive herself of any interest in this property; and I cannot see that she can do any more harm. MR SHIELDS: Very well. So be it, yes. Then we will need to consider how to bring that before a court if necessary— THE JUDGE: Yes. MR SHIELDS: —or any further application. THE JUDGE: I mean there are difficulties. Apart from anything else, there may be questions as to the extent to which section 423 of the Insolvency Act has any application in the circumstances, where it may well be that she has by then acquired residence and domicile in Spain. MISS HARRISON: Well, you have taken the words out of my mouth, my lord. THE JUDGE: It may well be that her centre of main interests is Spain, in which case any main proceedings are going to have to be opened there. MISS HARRISON: Yes. MR SHIELDS: But, my lord, that would only apply if there was a bankruptcy. Section 423 applies out of bankruptcy. THE JUDGE: Yes, I know, but to what extent does it have extra-territorial effect? MISS HARRISON: But it cannot quite get to Spanish domicile— MR SHIELDS: Looking at the case law, that does seem to be something which is open to the court to find at this stage. THE JUDGE: Well, that is going to have to be for the next set of proceedings anyway. MR SHIELDS: My lord, yes, that is a matter for another day I think. Well then, the only other issue is in terms of carriage of the order. I will take carriage of the order and I can send it— THE JUDGE: Well, I think there are also costs as well. MR SHIELDS: My lord, yes. MISS HARRISON: Perhaps he does not want any, my lord; do not encourage him. THE JUDGE: I doubt that, Miss Harrison. MISS HARRISON: Well, he has not done a costs schedule. MR SHIELDS: No, well, that is true. At this stage we have an outstanding costs liability of over £76,000. There does not seem to be any more point in the filing of further schedules. My lord, I would ask for the costs to be assessed if not agreed in due course. THE JUDGE: Yes. MISS HARRISON: My lord, in my submission that is not appropriate. It is a summary application; there should have been a schedule produced. So I would invite you to make no order. THE JUDGE: Well, I am going to order… there is no reason why costs should not follow the event. The defendant has been unsuccessful. What I will say is that the defendant is to pay the claimant’s costs of the application to be the subject of a detailed assessment if not agreed. MISS HARRISON: My lord, you did make a costs order against the claimant at the previous hearing. THE JUDGE: Well, has that cost order been satisfied? MISS HARRISON: No, well it was not assessed. It was left outstanding until today. MR SHIELDS: My lord, it was to be set off against the claimant’s— MISS HARRISON: Yes, but it needs to be quantified. THE JUDGE: Well then, in so far as it is necessary, there needs to be detailed assessment of the defendant’s costs entitlement under that order with a provision for mutual set-off. MISS HARRISON: Thank you. The only other matter I would raise is for permission to appeal, my lord— THE JUDGE: Yes. MISS HARRISON: —on the basis that as a matter of law there is no power in the court to allow a tracing remedy. THE JUDGE: Well, if you wish to raise that matter, then it seems to me you must raise it in the Court of Appeal. For the reasons I have given in my extemporary judgment, I have decided that there is sufficient jurisdiction to allow a tracing remedy. It seems to me, as a result, that there is no real prospect of success on appeal; and there are no other reasons, still less any compelling reasons, why an appeal should be heard; but you have asked for permission to appeal and therefore I will retire and complete the necessary N460. MISS HARRISON: Yes, thank you. THE JUDGE: This is … I mean, it is academic as I am sitting as a judge of the High Court, so the appeal route is to the Court of Appeal anyway— MISS HARRISON: My lord, I have had that problem before. THE JUDGE: —but it seems to me that this is not a final order— MISS HARRISON: Yes. THE JUDGE: —and of course you have 21 days to apply for permission to appeal to the Court of Appeal within your appellant’s notice; but I will complete the necessary form N460. MISS HARRISON: Well, my lord, in that regard could I actually ask for an extension of time given the impending… because that is going to take me to 27th December. Could I ask for an extension of time? THE JUDGE: Until when? MISS HARRISON: Well, to give me six weeks from today. THE JUDGE: That is going to take you to when? MISS HARRISON: That will take me until 17th January by my calculation. THE JUDGE: I will extend the time for appealing, because of the Christmas and New Year break to… I think it is 14th January, yes, which is the Monday of that week. MISS HARRISON: Yes, thank you very much, my lord. THE JUDGE: I will extend time for appealing to 14th January. When you come, Mr Shields, to draft the order - and I hope that the order will be drafted and lodged with the court somewhat sooner than was the case back in 2010 because that has given rise to some difficulties - the order should make it clear that this is not a final order, that an appeal lies to the Court of Appeal and also the time for appealing is extended to Monday, 14th January 2013. MISS HARRISON: Thank you. MR SHIELDS: My lord. THE JUDGE: Can I thank both counsel for their submissions in this case, which has not been an entirely straightforward or easy one? I take it that there was no appeal from my earlier decision. MISS HARRISON: At the trial? THE JUDGE: Yes. MISS HARRISON: No. [Hearing ends]