Re Beaney is still the test for capacity to make lifetime gifts; not MCA 2005

 In Elderly/Vulnerable Client, Probate, Wills

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Undue influence – lifetime gifts – Kicks v Leigh [2014] EWHC 3926

Case Summary from LawSkills | Private Client specialist trainersThis case of a lifetime gift of the proceeds of sale of the deceased’s house to her sole surviving daughter considers the interplay between the common law test for capacity to make a significant lifetime gift in Re Beaney (and its reliance on the test in Banks v Goodfellow) and the statutory test in the Mental Capacity Act 2005 and concludes that the former applies in the usual case with the latter being for matters within the Court of Protection only.

The facts

Joyce Smith died aged 85 on 7 December 2011. She had two children – Norma and Georgina but was survived only by Georgina Leigh. Her two grandchildren – Paul Kicks and Lisa Martin (the children of Norma Kicks who died on January 2004) – brought the action against Mrs Leigh.

Mrs Smith lived at her home in Oxford until December 2009, initially with her husband Roy who died on 3 January 1999; and then on her own. After Roy died Norma’s husband Barry saw Mrs Smith every week and took her to the Post Office to pay her bills. She had a fall in November 2008 which led to her being hospitalised for some time. Her health was declining – her eyesight deteriorated and tests for dementia had been carried out.

By Christmas 2009 Mr & Mrs Leigh were concerned about her welfare. There had been emergency call outs on 20 December and Christmas Eve. The Leighs visited her in Oxford and were keen to take her to live with them but she expressed a strong desire to her GP to stay at home.

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In the event Mr & Mrs Leigh took her back with them to Kent which resulted in the Oxford family involving social services who visited the Leighs with the police on New Year’s Eve 2009.

Shortly afterwards Mrs Leigh moved Mrs Smith into the Maidstone Care Centre where she resided until she died in December 2011.

Mrs Smith’s original Will left her estate equally between her two daughters. She made a new Will on 16 October 2003 which left 80% of Norma’s share to Paul and Lisa. Mrs Leigh’s share was divided equally between her (50%) and her two children (50%). The executors of this Will were Roger Coppock, Mrs Leigh and Norma. Norma’s husband gave evidence to the effect that this change was made at the Kicks’ request because Norma was already ill and for their IHT planning it was better to leave Mrs. Smith’s estate to Mr & Mrs Kick’s children instead of Norma.

Around New Year 2008 Mr Leigh started to take an interest in Mrs Smith’s financial affairs. Mrs Smith made her last Will on 22 February 2008. This time she appointed Mrs Leigh as her sole executrix and gave her entire net estate to hold on trust as to 50% for herself and 50% for Mrs Smith’s four grandchildren. This made Mrs Smith’s last Will more favourable to Mrs Leigh and her children to the detriment of the claimants.

The Will was made by a solicitor. Mr & Mrs Leigh were present when Mrs Smith gave her instructions but not present when the solicitor explained the terms of the new Will or when she signed it. None of the Oxford family knew about the new Will.

Mrs Smith’s house was sold on 23 April 2010 and the proceeds of sale (£292,899.92) were transferred to a bank account in the joint names of Mr & Mrs Leigh on Joyce’s instructions. Mrs Leigh claimed this was a gift by her mother.

The house sale and subsequent gift to Mr & Mrs Leigh were only discovered in May 2010 when the Oxford family found where Mrs Smith was living and visited her a couple of times even though the Leighs had instructed the home to obstruct these visits.

The grandchildren argued that the gift should be set aside because:

  • Mrs Smith lacked capacity to make it – the house was Mrs Smith’s principal asset and at the time of the sale she did not have capacity to make the gift. She did not understand the nature of the transaction nor that it’s effect would be to disinherit her grandchildren; or
  • The gift was procured by the exercise of undue influence by Mrs Leigh – there was a relationship of trust and confidence between Mrs Smith and Mrs Leigh and the gift was a transaction which called for an explanation, giving rise to a presumption of undue influence.

Mrs Leigh contended that there was not sufficient evidence to suggest Mrs Smith was incapable of understanding the nature of the gift, nor the effect on the grandchildren or on her ability to pay for her own care. There was much evidence from the GP and members of the family that although old and infirm Mrs Smith knew her own mind and was capable of taking decisions.

As to the allegation of undue influence, Mrs Leigh argued there was no relationship of trust or ascendancy. In fact, it was Mr Barry Kicks who dominated Mrs Smith; so, the presumption of undue influence did not arise. It was natural for a mother to make a gift to her daughter.

There was a history of non-co-operation by Mrs Leigh who instructed and then dis-instructed various firms of solicitors to act in her defence, culminating at this hearing where she was a litigant in person.

Mrs Leigh’s husband and the late Norma’s husband were at loggerheads so that the two parts of the family were in acrimonious disagreement.

The law

Capacity to make a gift

The common law test for capacity to make a gift was set out in Re Beaney [1978] 1 WLR 770:

“The question is whether the person making it was capable of understanding the effect of the deed when its general purport had been fully explained to him.”

The test is about ability to understand rather than actual understanding. As to the degree of understanding required:

“that the mental capacity required by the law in respect of any instrument is relative to the particular transaction which is being effected by means of the instrument and may be described as the capacity to understand the nature of that transaction when it is explained.”

In a later passage at page 774 D-F it was said the test will veer more towards the test for capacity to make a Will the more significant the gift as part of the deceased’s estate. Therefore, it is necessary to consider the Banks v Goodfellow test.

In Re Beaney the deceased suffered from senile dementia in a very advanced stage and could not have had a lucid interval nor was she capable of understanding she was making a gift.

There was some uncertainty as to whether the Mental Capacity Act 2005 (MCA 2005) was relevant and the interplay between it and the test in Banks v Goodfellow. The MCA 2005 is essentially concerned with the jurisdiction of the Court of Protection to deal with welfare issues of living persons who have mental incapacity – ss 1 – 3 set out the relevant principles.

s.1(2) deals with the burden of proof. Ss.1(3) and 3(2) reflect the position in Re Beaney. Ss. 16 – 18 set out the powers of the Court of Protection to make decisions about personal welfare and property and affairs of a living person who lacks capacity.

The Judge was clear that the s.3(1) test and other provisions only apply directly where the Court of Protection is considering issues within its statutory jurisdiction and is not a general test applicable to all issues where mental capacity arises nor in all Courts.

42 MCA 2005 requires the issue of Codes of Practice which any Court must take into account. The Code, which came into force on 23 April 2007, provides in paragraphs 4.31 – 4.33 that the definition of lack of capacity and the two stage test set out in the MCA 2005 are “for the purposes of this Act.”
Mr Stephen Morris QC, sitting here as a Deputy High Court Judge, considered which was the correct test to apply to Mrs Smith and what would be the correct approach to the burden of proof in relation to the mental capacity required to make a lifetime gift.

He concluded that it was the test in Re Beaney which was appropriate and not the MCA 2005. Even if he was wrong in this decision he believed that if you apply the MCA 2005 test it would have to apply alongside the common law test not instead of it.

He said that the correct approach to the burden of proof was set down in Gorjat v Gorjat [2010] EWHC 1537 – that the burden was upon the person alleging the mental incapacity but this only extends to showing that prima facie there was a case of lack of capacity; thereafter the evidential burden shifted to the person seeking to uphold the gift.

He reviewed several cases:

Local Authority X v MM [2007] EWHC 2003; Scammell v Farmer [2008] EWHC 1100; Sutton v Suttton [2009] EWHC 2576; Gorjat v Gorjat [201] EWHC 1537; Fischer v Diffley [2013] EWHC 4567; Bray v Pearce [2014] unreported

In neither Fischer v Diffley nor Bray v Pearce was the Code of Practice referred to nor was the helpful guidance provided by Lord Justice Mumby in X v MM. This Judge preferred the decision in Scammell v Fisher.

As far as the burden of proof was concerned, the common law test remains rather than the presumption of capacity in s.1(2) MCA 2005. This meant the claimants had the legal burden of addeucing sufficient evidence to raise a doubt about the capacity of Mrs Smith which then shifts the evidential burden to the defence to produce evidence of actual capacity at the relevant time.

Undue Influence

The leading case on undue influence is Royal Bank of Scotland v Etridge [2002] 2AC 773 and more recent decisions in Hammond v Osborn [2002] WTLR 1126 and Hart v Burbidge [2013] EWHC 1628 have also considered the issue.

There are two forms of undue influence: actual and presumed. In this case the party alleging presumed undue influence is arguing a transaction should be set aside and therefore must show the existence of a relationship of trust and confidence and a transaction which calls for explanation.

There are several ways of looking at the issue of trust and confidence –where there is vulnerability and dependence on one side and ascendancy and domination or control on the other.

A transaction which calls for explanation is a gift which is so large as not to be reasonably accounted for on the ground of friendship, relationship, charity or other ordinary motive.

Once the claimants have established these two prerequisites, the presumption of undue influence arises. To rebut the presumption, the defendant has to show the gift or transaction was made free of this influence. One way this is commonly done is by establishing that the donor received advice from an independent person as to the nature and effect of the transaction. Whilst such advice is not always necessary or sufficient, its absence is a factor.

The decision

Capacity to make a gift

The judge held that whilst there was no disclosure of positive information as to the size of Mrs Smith’s estate, despite court orders for disclosure, it did appear that the house was Mrs Smith principal if not sole asset.

It followed that the gift of the proceeds of sale would have the effect of depriving the beneficiaries of the 2008 Will of their inheritance and affect the ability of Mrs Smith to pay for her own care.

In applying the Re Beaney approach Mrs Smith would have had to have been capable of a high level of understanding of the effect of the gift in order to have had the mental capacity to make it. Here it was argued that because she was not given sufficient an explanation about the nature and effect of the gift she was incapable. That is not correct – the question is : Would she have been capable if a proper explanation had been given to her?

As regards the burden of proof, the claimants had addeuced all the relevant evidence and Mrs Leigh none. There was a medical suspicion of vascular cognitive impairment but insufficient evidence of the degree of impairment. Unfortunately, there was no medical evidence from December 2009. There was therefore insufficient medical evidence to suggest mental incapacity.

The evidence of others supported the fact that Mrs Smith’s mental capacity appears not to have been markedly worse than that expected of someone who was 83 at the time.

Mr & Mrs Leigh organised the sale of the property and no explanation was proffered by Mrs Leigh as to how the gift of the proceeds came to be made to her. There was no documentary or other evidence to show whether Mrs Smith understood the effect of the gift both in terms of her beneficiaries and the resources to fund her own care. However, that is not to say she would not have been capable had things been explained.

Accordingly, the Judge found that Mrs Smith was mentally competent at the time the gift was made because the Claimants were unable to discharge the legal burden of proof that she was otherwise than capable.

Undue influence

He held that the relationship between Mrs Smith and Mrs Leigh was one of trust and confidence and one in which Mrs Leigh was in the ascendancy. Mrs Smith was vulnerable. She was frightened of doing things which would upset her only remaining daughter. There was independent evidence that Mrs Smith did not wish to tell her daughter that she no longer wanted her to have sole control over her finances as attorney.

When the police interviewed her in Maidstone Mrs Smith did not wish to get her daughter into trouble so said she was content to stay in Maidstone when there was other evidence which clearly showed she would have preferred to stay in Oxford.

The relationship between Mrs Smith and Mrs Leigh was a loving one but Mrs Leigh was dominated by her husband and he did not get on with Mrs Smith. Mrs Smith was frightened of doing things contrary to his wishes because this would cause upset to her daughter. In this regard Mrs Leigh’s ascendancy over her mother was driven by Mr Leigh’s ascendancy over her.

This ascendancy was seen clearly in the way in which Mrs Smith indicated she did not wish Mrs Leigh to be her sole attorney under an LPA when given independent advice but then switched back almost immediately apparently to having her daughter as sole attorney and saying in a letter written on her behalf by Mrs Leigh to the Court of Protection that the LPA had been arranged without Mrs Smith’s knowledge, something which was wholly untrue.

Mr & Mrs Leigh moved Mrs Smith to Maidstone contrary to her wishes and placed her in a care home subsequently, against her wishes expressed to the doctor some three weeks before. Once in the Care Centre Mrs Leigh went to considerable lengths to prevent access to Mrs Smith by the Oxford family; firstly trying to prevent them from finding out where she was and then instructing staff not to permit visits.

The whole process for the sale of Mrs Smith’s house was organised by Mr & Mrs Leigh. It was her principal asset and without its proceeds she would have been unable to fund her own care and would have effectively dis-inherited her beneficiaries. The size and nature of the gift of the proceeds of sale therefore calls for explanation.

Mrs Leigh’s action debarred her from bringing evidence to show that she paid her mother’s care fees after the Council stopped its support after the usual 12 weeks. The Claimants have said that if she can produce evidence that she did then those costs can be reimbursed from the estate.

Even if Mrs Leigh had paid the fees it would not prevent the presumption of undue influence from arising nor been sufficient to rebut the presumption.

There is no evidence that Mrs Smith received any independent legal or financial advice about the nature and effect of making the gift. The solicitors acting in the sale merely recorded that Mrs Smith authorised them to make the payment of the proceeds of sale to Mr & Mrs Leigh’s account. There was evidence subsequently that when asked Mrs Smith did not know where her money was.

Thus it was held that the gift of the proceeds of sale was procured by undue influence and was set aside.


Practice points

  • Unless this case is appealed it is now clear that in respect of lifetime gifts the proper test for mental capacity to make the gift is Re Beaney and therefore for significant gifts there is a need to meet the standard in Banks v Goodfellow. This means that the common law requirement for the claimant to show a sufficient risk of lack of capacity remains before the evidential burden shifts to the defence to show that in the actual circumstances there was sufficient capacity to make the gift.
  • It is pleasing to note that the confusion as to the burden of proof following the coming into effect of the Mental Capacity Act 2005 has now been clarified and that the presumption of capacity in s.3(1) of that Act relates only to matters governed by that Act and not generally.
  • The postscript in the case refers to the as yet unreported case of Walker v Badmin which was heard on 20 November 2014 and which follows in more detail similar arguments in relation to testamentary capacity and concludes the common law test in Banks v Goodfellow is the correct test to follow rather than the MCA 2005.

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