Mental capacity to make lifetime gifts – Gorjat v Gorjat [2010] EWHC 1537

 In Wills

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The perennial difficulty of a person married twice must be to divide his estate fairly between his second wife and the children of his first marriage. This case explores the modern version of this problem – the international family with the deceased a citizen of France but domiciled and habitually resident in England; his children born and resident in France and his second wife Argentinean but domiciled in England. It is particularly difficult when capacity might be called into question through poor health and there is always the old chestnut of ‘undue influence’ to add into the mix.

The facts

Jean Gorjat was born a French citizen but was domiciled and resident in England. He had three adult children: Elisabeth, Philippe and Sophie by his first wife Cecile, all of whom are French citizens who are resident and domiciled in France. His second wife Lucrecia is Argentinean but is domiciled in England.

Jean’s children brought this action challenging the validity of the transfer of £1.8 million from a Swiss bank account in Jean’s sole name to a new account in the joint names of Jean and Lucrecia in late December 2006 or early January 2007. The claim was based on Jean’s lack of capacity to give the instructions and the undue influence of Lucrecia.

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The actions taken to recover the funds involved criminal proceedings and subsequent civil proceedings in Switzerland in which the accounts in Lucrecia’s name at Credit Suisse were frozen until the present hearing to decide which is the applicable law and whether under that law Jean was able to make the decisions he did freely and with capacity.

Jean was an engineer and had a very successful career which took him all over the world. His family were of Swiss origin but he was born in Paris in 1930 and was 77 at the time of his death. He began living with Lucreia in Harrow on the Hill in 1979 and following his divorce from Cecile in 1983 they were married and therefore had been married 24 years at the time of his death. They also had a home in Harrisburg in the USA which was the headquarters location of Jean’s employers. There was also a house in Buenos Aires which Lucreia said he bought for her.

In his prime Jean was a man of exceptional intellectual ability able to master technical subjects and make complex decisions. He spoke four or five languages. He had a strong character and made his own decisions rarely taking advice. He retired in 1995. He had inherited half the reversionary interest in an apartment block in Paris following his mother’s death and these apartments were sold off between 1997 and 1999. He opened the Swiss accounts following his father’s death in 1993. His son Philippe had a power of attorney over the accounts from the start and Lucrecia was given such a power in 2004 just before he underwent major heart surgery.

Jean made various gifts to his children and their families during his lifetime – some of them significant and permitted each of them to reside in the Paris apartments rent free or provide mortgage assistance to purchase a property. On 14 July 2003 he gifted the property at Harrow on the Hill to his three children and Lucrecia’s youngest daughter Paula in equal shares subject to a 25 year lease in favour of himself and Lucrecia as beneficial tenants in common in equal shares.

Jean underwent a hip replacement in 1999 but was still well thereafter. It was not until August 2004 that his health deteriorated. He had heart surgery which was followed by a bout of pneumonia and in October 2004 he suffered a stroke. He was a non-insulin dependent diabetic. He had difficulties with his eyesight and used a magnifying glass when working in his study. After his stroke he complained of being depressed and of losing his memory. Both medical experts agreed that the evidence showed he was suffering from cerebrovascular cognitive impairment which had a measurable effect on his memory.

It was the fact that he set himself very high standards that seemed to be causing a low mood after the stroke when he became fearful and frustrated as he became unable to do things to the standard he had been used to. A variety of tests were conducted by Dr Bede Smith, a clinical psychologist, in September 2005 who concluded that he had a moderate impairment of memory but retained a good working memory. He also saw a consultant old age psychiatrist who noted that his CT scan showed considerable cerebrovascular damage. She conducted the Mini Mental MMSE test on 29 September 2005 and he scored 29 out of 30 losing only one point on what was probably cultural rather than cognitive grounds.

In March 2006 Philippe had surgery for cancer and his father was in contact before and after, visited him in Paris both with and without Lucrecia and also helped pay his bills. He also spent time with his daughter Sophie in Paris and both gave contradictory evidence as to conversations he had with them about the existence of a Will or notes as to what he would do with his estate on death.

On 16 August 2006 Jean had another MMSE test and again he scored 29 out of 30; he also instructed his solicitor in London to sell four garages and his solicitor noticed nothing out of the ordinary with his capacity. He also went back to Paris to celebrate Philippe’s 50th birthday. He was in Paris again on his own between 17 September and 15 October 2006; Lucretia was travelling in North & South America. He stayed with Sophie and also Philippe at the weekends. She said her father slept a great deal and showed little interest in things apart from his grandchildren whom he helped with their homework.

While he was in Paris Sophie took him to see various medical people including a geriatrician who also said Jean was suffering from moderate cognitive impairment undoubtedly of vascular origin. He also scored 27/30 in yet another mini mental test.

Throughout his life and during this period of depression and less activity Jean continued to write detailed entries in his diaries so despite the children’s evidence of serious deterioration in his mental state the Judge did not accept that his mental state warranted being described as that of a ‘vegetable’ as alleged by Philippe.

However, on his return from Paris he was in a reduced state both physically and mentally and Lucrecia on her return from her independent travels realised she was no longer able to leave him on his own or with others to care for him. She also began to assist him with his financial affairs and paperwork generally.

Jean met with his a representative of Credit Suisse in London on 11 December 2006 and at that meeting he signed a contract relating to an investment and enquired about how he could protect his wife in the organisation of his succession. The representative suggested a joint account or a trust. A decision was not made then but Jean telephoned his account manager a couple of weeks later instructing him to transfer the assets on his account to a joint account with Lucrecia. The necessary forms were sent out by the Bank on 18 December 2006 but as Jean and Lucrecia departed on a cruise that day and did not return until 28 December the forms were not signed until 30 December 2006. The instructions were carried into effect between 10 January and 2 February 2007.

All agreed that by the end of 2006 Jean needed Lucrecia’s help with many things including the management of his financial affairs and she happily gave it.

Between January and March 2007 Jean met one of his old friends on several occasions for lunch and he gave evidence that he still appeared mentally sharp to him even though he was slower than the old days. He still had a range of strongly held views for example and his contributions to conversation were thoughtful and intelligent.

Jean and Lucrecia travelled to the USA in April 2007 to prepare to sell the Harrisburg house and the transportation to Europe of his vintage car collection in readiness for its sale. He became ill on 13 May 2007 and subsequently died on 30 May 2007. He died intestate and his funeral was held in the USA on 4 June 2007. He was cremated. None of his children attended.

The medical evidence was based on the various tests and scans carried out by various practitioners between 2005 and 2007. Professor Jacoby on behalf of the claimants criticised the MMSE test and preferred the other neuropsychological tests carried out by Dr Bede Smith. On balance of probabilities he felt Mr Gorjat lacked the relevant capacities to undertake the tasks he did.

Professor Howard for Lucrecia agreed Dr Bede Smith’s test were more sophisticated than the MMSE ones but he drew attention to the statistical correlation between capacity assessments and MMSE scores. Professor Jacoby had to concede that the majority of persons with an MMSE score of 20 or more would have testamentary capacity; even 50% of those scoring between 10 out of 30 to 20 out of 30 would have testamentary capacity. In general Jean’s scores were near perfect.

Asked whether Jean knew that in transferring the Credit Suisse accounts into joint names he would effectively be disinheriting his children Professor Howard confirmed that in his opinion Jean would have known the effect of his decision.

The law

The Judge had been referred to the case of Re Beaney [1978] 1 WLR 770 by counsel as the test for capacity in relation to lifetime gifts. The degree of capacity required when dealing with a contract such as a lifetime transfer will vary depending on the circumstances of the transaction. A gift of most of the remaining estate requires the same level of capacity as if making a Will whereas a trivial gift in comparison with the rest of the estate would simply require an understanding of the transaction being undertaken when explained.

In this case Jean was parting with most of his estate and thus would need to meet the test laid down in Banks v Goodfellow [1870] LR 5 QB 549 as brought up to date in Perrins v Holland [2009] EWHC 1945. The Judge was also referred to the recent decision of Briggs J in Key v Key [2010] WTLR 623 where it was suggested that in addition to the three limbs of Banks v Goodfellow it was necessary to take into account the decision-making powers of the testator and not just comprehension.

The Judge declined to apply ss 2 and 3 Mental Capacity Act 2005 as the Act was not in force at the relevant time and in accordance with Scammell v Farmer [2008] WTLR 1261 it should not be applied retrospectively. Accordingly, the common law presumption of every adult being presumed to have mental capacity until shown otherwise applied.

On behalf of the children counsel argued that they had discharged the burden of showing that Jean lacked capacity and that accordingly the burden of proving that Jean had capacity fell on Lucrecia. Counsel for Lucrecia said that the children had not advanced a sufficient case to shift the evidential burden. It was not enough to question capacity in general but lack of capacity must be material to the specific transfer of the Credit Suisse accounts. The Judge agreed.

The transfer of the accounts at Credit Suisse into joint names is presumed to be a gift (because it was between spouses) and this would be invalid if procured by undue influence. The starting point for a discussion of undue influence is the House of Lords decision in Royal Bank of Scotland v Etridge (No 2) [2002] 2 AC 773. Whether or not a transaction has been brought about by undue influence is a question of fact and the legal burden of proving it rests with the person alleging it. The evidence required to discharge the burden of proof depends on the nature of the alleged undue influence, the personalities of the parties, their relationship, the extent to which the transaction cannot be readily accounted for by the ordinary motives of ordinary persons in that relationship and all the circumstances of the case.

If a claimant could prove that the donor placed trust and confidence in the donee or that the donee acquired ascendancy over the donor and that the transaction calls out for explanation then the claimant has discharged the evidential burden which will satisfy the legal burden i.e. there would be undue influence in regard to that transaction.

The Court of Appeal in Hammond v Osborn [2002] WTLR 1125 held that a court should interfere with a transaction in cases of presumed undue influence as a matter of public policy unless it could be shown that the donor had made the transfer after full, free and informed consideration.

Counsel for Lucrecia argued that there must be influence which has been abused and be therefore improper. A presumption of undue influence can arise from a relationship of trust and confidence where one person has acquired a measure of ascendancy over the other; or one of the parties is vulnerable and reliant and where the transaction is not readily explicable. The legal burden of proving undue influence falls on the claimants but can shift to the defendant where a relationship of ascendancy exists and a transaction calls for explanation; in which case the defendant has to prove that the transaction was entered into freely.

The result

  1. Capacity – The Judge decided that Jean had capacity – she felt it was a borderline case as to whether the children had proved a lack of capacity but whether or not the burden of proving capacity had shifted to Lucrecia the Judge decided that there was significant independent evidence other than medical evidence of Jean’s capacity at the time from his friends, the account manager at Credit Suisse, his GP and his solicitor. The Judge preferred Professor Howard’s medical evidence particularly his comments about the MMSE scores. It was also relevant that Jean kept his diary as usual throughout the period in question. She applied the three pronged Banks v Goodfellow test and considered that he did have sufficient decision-making powers.
  2. Undue Influence – The Judge did not find that Lucrecia had ascendancy over Jean but rather that despite the need for her to be more involved in the financial affairs of the couple from 2006 onwards she was still deferential to him as she had been throughout their marriage and his character and temperament were dominant. Even if the Judge was wrong in coming to this conclusion she pointed out that the burden of proof would not shift to Lucrecia unless the transaction was one which called for an explanation.

The reason the claimants brought the case was undoubtedly because of the short space of time between the transfer of the accounts into joint names and Jean’s death but looked at in the wider context it was a natural progression in preparing for old age and death in so far as he gave Lucrecia a power of attorney over the accounts in 2004 and had made lifetime gifts in order to save tax and avoid the need to make a Will. The substantial lifetime gifts to the children were consistent with this scheme of things and there was no system of forced heirship affecting what was done.

Even if the Judge was wrong about both the ascendancy and the nature of the transaction points she still was satisfied that Jean knew and understood what he was doing based on the evidence of the Credit Suisse representative. Therefore there was no undue influence.

Practice points

This is a useful case to observe the logical steps as to the legal and evidential burdens placed on the claimants and defendant when embarking on cases involving both capacity and undue influence in relation to lifetime giving. It emphasises the need to ask the relevant questions should you be instructed to effect a lifetime gift about both capacity and undue influence and record both.

It is also interesting that whilst there was an unusually significant number of tests evidencing mental health in the end it was as much the non-medical evidence from family, friends and advisors which held sway with the Judge.

© Gill Steel, LawSkills Ltd

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