Mistake & Power of Attorney – Day & another v Day [2013] EWCA Civ 280

 In Elderly/Vulnerable Client

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An application seeking the rectification of a Conveyance of a property was the subject matter of a recent case considered by the Court of Appeal. This interesting case highlights the Court’s jurisdiction in equity to rectify an instrument to relieve against the consequences of mistake. It should be noted that this case was heard before the Supreme Court decision relating to mistake in Pitt v Holt and Futter v Futter [2013] UKSC 26.

The Facts

In 1954 Eileen Alice Day (‘Mrs Day’) purchased 25 Ashby Road Sholing Southampton (the Property’) with her husband and the Property was conveyed to them as joint tenants. On the death of Mr Day the Property automatically vested in Mrs Day. Mrs Day remained in the Property

On the 13th day of May 1985 Mrs Day executed a General Power of Attorney  (pursuant to the Powers of Attorney Act 1971) appointing her solicitor Alan Gordon Froud (‘Mr Froud’) as her sole Attorney. On the 6th June 1985 Mr Froud signed a Conveyance in his capacity as Mrs Day’s Attorney conveying the Property to Mrs Day and her son Terence Anthony Day (‘the Respondent’) ‘in consideration of natural love and affection’, as beneficial joint tenants.

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Simultaneously the Respondent and Mr Froud, in his capacity as Mrs Day’s Attorney, entered into a mortgage with Gateway Building Society which was secured on the Property for the sum of £23,000 which was paid to the Respondent.  On the 21st October 1985 Mrs Day and the Respondent were registered at the Land Registry as joint owners of the Property and The Gateway mortgage was discharged. On the 1st November 1988 Mrs Day and the Respondent entered into a mortgage with The Midland Bank. The Midland Bank charge was repaid and the Property remained mortgage free.

Mrs Day died on the 21st day of December 2008. Mrs Day executed a Will in November 2008 appointing James Harry Day, Michael Harry Day (‘the Appellants’) and the Respondent as Executors and she directed that her Property was to be sold and the proceeds of sale were to be divided equally between her six children. During the estate administration period, an issue arose in relation to the ownership of the Property.

On the death of Mrs Day the Property vested absolutely in the Respondent under the principle of survivorship. Accordingly, the terms of her Will dealing with the Property were not effective as the Property was not an asset that formed part of her Estate.

The Appellants as Executors and Beneficiaries of the Will applied to the Court for rectification of the Conveyance on the basis that Mrs Day did not intend to transfer a beneficial interest in the Property to the Respondent. The Respondent admitted that the reason for the original Conveyance to him in 1985 was to use the Property to raise capital, but specified that there was no agreement that he should not acquire a beneficial interest in the house.

The Law

(1)    Rectification

The Court has jurisdiction in equity to rectify instruments to relieve against the consequences of a mistake. In Re Butlin’s Settlement Trusts 1976 Ch 251  Brightman, J set out the test of rectification in relation to a voluntary settlement

  1. Rectification is available not only in a case where particular words have been added, omitted or wrongly written as the result of careless copying or the like;
  2. It is also available where the words of the document were purposely used but it was mistakenly considered that they bore a different meaning from their correct meaning as a matter of true construction. In such a case, which is the present case, the Court will rectify the wording of the document so that it expresses the true intention;
  3. In the absence of an actual bargain between the settlor and the trustees (i) a settlor may seek rectification by proving that the settlement does not express his true intention, or the true intention of himself and any party with whom he has bargained, such as a spouse in the case of an ant-nuptial settlement; (ii) it is not essential for him to prove that the settlement fails to express the true intention of the trustees if they have not bargained; but the Court may at its discretion decline to rectify a settlement against a protesting trustee who objects to rectification.

(2)    Mistake – Court of Appeal (the legal test concurrent with Day V Day)

At the time of the Court of Appeal decision in this case the appropriate test for mistake was set out by Lloyd, L J in the Court of Appeal decision of Pitt and Another v Holt and Another (2011) EWCA Civ 197.  Lloyd, L.J specified that to set aside a voluntary disposition for mistake:-

  1. There must be a mistake
  2. The mistake is as to the legal effect of  the transaction or as to an existing fact which is basic to the transaction
  3. The mistake must be of sufficient gravity as to satisfy the test in Ogilvie v Littleboy (1897) 13 TLR399

(3)    Mistake – The Supreme Court  (the current legal test)

It should be noted that the test was revisited and simplified by the Supreme Court decision of Pitt v Holt and Futter v Futter (2013) UKSC 26. To set aside a voluntary disposition for mistake:-

  1. There must be a causative mistake of sufficient gravity which is related to either the legal character or nature of the transaction or to some other matter of fact or law which is basic to the transaction
  2. The Court has to consider whether a distinct mistake exists, how central it was to the transaction and the seriousness of its consequences
  3. The Court must judge whether it would be unconscionable, unfair or unjust to leave the mistake uncorrected

The Judgment

(1)          County Court

Mr Recorder Chapman QC dismissed the claim by the Appellants for rectification of the Conveyance of the Property.  He said that in the case of a voluntary settlement it is the mistake and intention of the Settlor that matters and he referred to Re Butlin’s Settlement Trusts (1976) Ch 251. He observed the critical question would be whether the Conveyance failed to embody Mrs Day’s intention.

He found on this point that, on the balance of probabilities, Mrs Day never intended or understood that the Conveyance gave a beneficial interest to the Respondent. He confirmed that if Mrs Day had signed the Conveyance herself he would have made an Order for rectification of the Conveyance to give her sole ownership of the Property. He found that as Mr Froud had executed the Conveyance in his capacity as her Attorney this precluded any right to rectification. The Recorder held that the General Power of Attorney had been validly granted to Mr Froud and that when Mr Froud signed the Conveyance, he was within his powers to do so and that Mr Froud did not make a mistake when he signed the Conveyance. The Recorder stated that there was no mistake that he could rectify, although he believed this to be an unsatisfactory conclusion.  He gave leave to appeal.

(2)          Court of Appeal

The Court of Appeal held that the ruling of Mr Recorder Chapman QC was incorrect.  The Court ruled that Mr Froud in his capacity as Attorney only executed the Conveyance on behalf of Mrs Day and the absence of a mistake by Mr Froud was irrelevant, as he was effectively not the Settlor nor a party to the Conveyance. The main issue was the intention of Mrs Day and not the authority and power to effect a transaction. The Recorder had ruled that Mrs Day had never intended to give and never thought that she had given a beneficial interest in the Property to the Respondent.  She always believed that once the Respondent’s borrowings had been repaid the Property ‘would be entirely hers again’. It was also noted that the Recorder had a poor view of the Respondent’s conduct.

Subjective intention

The Chancellor Sir Andrew Morritt, Elias, L.J and Lewison, L. J confirmed that the relevant intention was that of Mrs Day and the Recorder rightly pointed to Re Butlin’s Settlement as setting out the relevant legal principles. The Chancellor stated that ‘what is relevant is the subjective intention of the Settlor. It is not a legal requirement for rectification of a voluntary settlement that there is any outward expression or objective communication of the settlor’s intention equivalent to the need to show an outward expression of accord for rectification of a contract for mutual mistake’.

The Chancellor explained that the Recorder’s analysis was flawed.  He stated that ‘the doctrine of rectification is concerned with intention or rather the mistaken implementation of intention, rather than the power and authority to effect a particular transaction’. He confirmed that it would be difficult as a matter of evidence to discharge the burden of proving that there was a mistake in the absence of an ‘outward expression of intention’.

The authority of the Power of Attorney

Effectively, the Recorder had mistakenly treated the general power under the Power of Attorney as giving authority to Mr Froud to execute the Conveyance on behalf of Mrs Day on such terms as he ‘saw fit’ and which would be binding on Mrs Day. The Court of Appeal ruled that ‘the solicitor’s actual authority was prescribed by any instructions expressly given by the client’. Mr Froud actually exceeded his authority.

Lewison, LJ also considered  the case of  Pitt and Another v Holt and Another (2011) EWCA Civ 197 and the circumstances in which equity will intervene in cases of a voluntary disposition made under mistake and confirmed that (1) there was a mistake by Mrs Day as to the legal effect of the Conveyance and (2)  the mistake was of sufficient gravity to satisfy the test set out in  Ogilvie v Littleboy (1897) 13 TLR399 and that there was a grave mistake in the drafting of the Conveyance to render it unjust on the part of the Respondent to retain the Property given to him.

Appeal allowed

The Court found that the necessary conditions for equitable relief against the consequences of a mistake were satisfied and the method in which equity should relieve against the consequences of mistake on the facts of this case was by way of rectification. Accordingly, the appeal was allowed.

Practice Points

  1. The Supreme Court ruling in Pitt v Holt has now confirmed the test for mistakes of voluntary transactions. The test is simpler in that there must be a causative mistake of sufficient gravity to render it unfair or unjust to leave the mistake uncorrected.
  2. This case is also a useful reminder for those Practitioners to exercise care with elderly and vulnerable clients.
  3. Practitioners should consider carefully the authority and scope of Powers of Attorney and their clients’ instructions before carrying out any transactions on their behalf.
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