Proprietary Estoppel and Testamentary Capacity

 In Elderly/Vulnerable Client, Probate

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Raymond Allen James v. Karen James & others [2018] EWHC 43 (Ch)

Case Summary from LawSkills | Private Client specialist trainersTwo separate claims were examined: a proprietary estoppel claim and a claim that the testator’s Will was invalid due to lack of testamentary capacity. They were made by the testator’s only son who had worked all his life in the family business and expected to be left the land owned by his father.

Proprietary estoppel

The facts

Charles James died on 27 August 2012 aged 81 years having made a Will dated 16 September 2010. The claimant was his son known as Sam. The defendants were Charles’ wife Sandra James and his two daughters, Karen and Serena.

Charles was a “self-made man”. He had built up a farming and haulage business acquiring various parcels of farmland over the years. In 2007, he gave three pieces of land to Karen. In 2009, on dissolution of a farming partnership between himself, Sam and Mrs James, he transferred another piece of land called Chequers and the haulage business to Sam and Pennymore Pitt Farm was transferred into joint names with Mrs James. By the 2010 Will he left the remaining land and the residue of his estate to Mrs James, Karen and Serena but nothing to Sam.

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The parcels of land were all adjacent to each other except one called Chequers. Sam made no claim to a parcel of land called Framptons but he did make a claim in relation to the other two parcels given to Karen and to Pennymore Pitt Farm.

In 2010, at the time of making the Will, Mr and Mrs James executed a notice of severance of the joint tenancy of Pennymore Pitt Farm.

The Will provided that Charles’ interest in the northern part of Pennymore Pitt Farm should pass to Karen and his interest in the southern part to be held on trust for Mrs James for life with remainder to Serena. The residue was left to Mrs James.

Sam contended that he was entitled to the land left by the Will and also the greater part of the land given to Karen in 2007 by virtue of a proprietary estoppel equity in his favour.

The law

The law as to proprietary estoppel was not substantially disputed. The judge referred to the statement of Lord Walker in Thorner v Major [2009] 1WLR 776:

“the doctrine is based on three main elements……..a representation or assurance made to the claimant; reliance on it by the claimant; and detriment to the claimant in consequence of his (reasonable) reliance”

(a)  Representation or assurance

From the case of Thorner v Major it is clear the court must look at the totality of the evidence of what passed between parties and form a view as to whether it was intended or whether a reasonable man would have taken it to have intended to amount to an assurance. It is not necessarily fatal to a claim that there is no evidence of any particular promise or act creating an expectation that the testator would leave any particular property to the claimant.

Clarity: “The promise must be unambiguous and must appear to have been intended to be taken seriously.” Hoffman LJ in Walton v Walton [1994] CA Transcript No 479

(b)  Reliance on it and

(c)  Detriment to the claimant in consequence

There needs to be shown that the promisee has relied on the promise to his detriment. There must be a sufficient causative link between the promise relied on and the detriment.

There is a question whether there needs to be a relationship of proportionality between the level of detriment and the relief awarded. In Davies v Davies [2016] EWCA Civ 463 Lewison LJ had referred to the suggestion there might be a sliding scale giving greater weight to the expectation in cases of clearer expectation, greater detriment and longer passage of time during which it was held.

But in the cases of Suggitt v Suggitt [2012] WTLR 1607, [2012] EWCA Civ 1140 and Jennings v Rice [2002] EWCA Civ 159, [2002] WTLR 367 it was felt that if the claimant’s expectations were extravagant or out of all proportion to the detriment suffered this does not mean there has to be proportionality between the level of detriment and the relief awarded.

The decision

The judge, HHJ Matthews, sitting as a judge of the High Court, had reservations about evidence of some of the witnesses including Sam. The judge felt Sam had convinced himself he was in the right and interpreted all the material available in a way which demonstrated he was, but he sometimes went further and told the judge things which were not true. The judge therefore did not place much reliance on Sam’s testimony where it was not supported independently.

Due to these reservations he said the documents and inherent probabilities played a much bigger role in his fact-finding than would have been the case otherwise.

He found Mrs James to be clear and decisive and very much “on the ball” despite her age.

(a)  Representation or assurance

He said there was nothing with a sufficient degree of clarity in this case to amount to an assurance.

There was a meeting in 2004 when Charles told Sam what his testamentary intentions were. But HHJ Matthews said a statement of current intentions as to future conduct is not a promise of that conduct, let alone a promise intended to be acted on. Sam agreed Charles wanted to keep all the assets in his name as long as possible. In 2001 the accountant had said it was unlikely that a family meeting could be held to discuss inheritance issues as Charles was not prepared to discuss his future intentions.

There had been other comments about the children not being able to prepare their own Wills as they did not know what was going to happen to the land and the business. In contrast the solicitor expressly recorded in 2004 that Charles had promised Framptons to Karen. Sam probably assumed that in a country farming family in the second half of the 20th century the only son would inherit the land rather than the daughters.

The high point of Sam’s case was his evidence that before buying further land Charles would ask Sam whether he should buy it because as Sam put it “I would be farming it one day”. The judge did not find the phrase amounted to a promise or assurance to leave property to Sam. Stating an intention to do something is not the same thing as promising to do it. He felt Sam’s eagerness to inherit the farmland caused him to persuade himself that he was being promised something.

Looking back over the course of events as a whole too, the judge could not find the substance of a promise or assurance or anything which could have been so intended by Charles. That was not his character. He wanted to preserve his freedom of action as long as possible.

(b)  Reliance on it and

(c)  Detriment to the claimant in consequence

HHJ Matthews felt Sam failed on this aspect too.

Sam’s case was that he was paid very little over the years for the work he did. He also alleged his father financed purchases of land out of profits of the business.

The judge found he was paid regularly at the same rate as other farm workers and that in addition his father bought him several cars the costs of which were recorded in the accounts as very large bonuses. He was a very hard worker when it came to the haulage business (but not the farming business which he was never as interested in) but that was because it was in his nature. He did get to live rent free at Chequers but in 1991 he became an equal partner in the business with his parents and then in 2003 became entitled to 50% with Mr and Mrs James reducing to 25% each.

There was no evidence either to show Sam would have done anything differently if it had been made clear to him he would receive Chequers and the haulage business (which he did) but not Pennymore. There was no evidence he thought about going away to make his fortune elsewhere. He would still have worked hard.

He had received things. He had become a partner which was worth something. On dissolution of the partnership he received Chequers, the haulage business (which had produced most of the profits for years) a tractor, a number of other vehicles and trailers, a licence to use Pennymore and cash of £200,000.

The judge commented that in relation to the question of proportionality he agreed with Arden LJ in the Suggitt case cited above that there did not need to be proportionality where the claimant’s expectations were extravagant or out of all proportion to the detriment suffered. But rather than contract law (which like proprietary estoppel focuses on expectations created rather than losses suffered) it is not as strict as it is also an equitable doctrine and therefore tempered by conscience.

The claim to proprietary estoppel was dismissed.

Practice points

  1. There does not need to be one particular act amounting to a promise or assurance but, if there is no particular act, there does need to be a course of events amounting to a promise or assurance.
  2. For the claimant to have relied on the promise and acted to his detriment he needs to show the actions were different from how he would have acted anyway.
  3. It is not sufficient for the claimant to imagine a promise just because he has an unfounded expectation.

Testamentary Capacity

The facts

Sam claimed that his father lacked testamentary capacity at the time of making the Will in 2010.

In November 2004, without reference to his wife Charles had given Rutters solicitors instructions to draft a Will. This was to include a gift of Pennymore Pitt Farm to Sam. The draft sent through the post by the solicitors did not carry out these instructions. Mr James phoned the solicitors and a redraft was sent which included the gift to Sam, a gift of Chequers to Mrs James, a gift of Framptons to Karen and cash to Serena. It was seen by Mrs James who challenged her husband on the basis that it was not fair to their daughters as she wanted a more even distribution of assets. The result of this was the Will was never signed.

From about 2004 Charles seems to have suffered from some memory loss. By 2007 the GP had noted that Charles repeated himself several times in a meeting but there was no formal diagnosis of dementia. In that year Charles made the gift of land to Karen and transferred his bank accounts into joint names with his wife.

In March 2009, Charles, Sandra and Sam met with their solicitor and accountant to discuss the future of the partnership. The advice was to dissolve it. In addition Sam was to be given Chequers though it was not a partnership asset. Sam took independent advice and the agreement was signed on 7 August 2009 without any suggestion being made that Charles did not have capacity.

In October 2009 the GP referred him to the Community Mental Health team saying he suffered from “short-term memory loss and spells of quite profound confusion”. In November 2009 a Community Mental Health nurse wrote to the GP saying that problems with memory had been noticed over the last 3 years and Charles could no longer manage the farm or drive a car although he occasionally drove a tractor. Sandra felt supported by her family and saw no need for mental health services to become involved.

About that time Charles was taken to see the solicitor again at the instigation of Sandra and gave instructions to transfer Pennymore Pitt Farm into joint names. The solicitor did have some concerns whether this was being done freely by Charles. The transaction went ahead in November 2009.

In January 2010 when Charles was being treated in hospital for a shoulder injury the patient record states he had dementia/Alzheimer’s but there was no note as to who wrote this or whether any formal diagnosis had been made.

In May 2010 a new solicitor, Ms Thomas, who had not acted for Charles and Sandra before took instructions from them (together) to make Wills. The attendance note makes no mention of capacity being considered. Sandra then saw Ms Thomas later separately on her own as she wanted to ensure her half share of Pennymore Pitt Farm passed to Serena. A severance of the joint tenancy was required and Ms Thomas suggested a life interest for Charles in case he survived his wife. The attendance note records that Ms Thomas was confident Charles understood everything at the first meeting but that he might be under Sam’s influence.

Draft Wills and draft powers of attorney were sent out with a retainer letter and a three page explanatory letter. Nothing in either letter suggested any question about a lack of testamentary capacity.

There were then 5 telephone conversations on various aspects of the Wills and filling in missing “blanks” between Sandra and Ms Thomas. Charles took no part and they seemed to be about what Sandra wanted. Again, there was no reference in any of the notes that there was any question about Charles’ testamentary capacity.

The drafts were finalised on 7th September and the Wills signed on 16 September. There was a long and detailed attendance note and a Larke v Nugus statement made by Ms Thomas. She saw Charles and Sandra separately about signing their Wills but Charles was reluctant to sign his Will even though he approved its contents as he said he could see no point in signing it. Finally, there was a further discussion with Charles and Sandra both present and after going through the contents of the Will again and approving its contents Charles said he would sign it if his wife was happy with it. They then both signed their Wills. Ms Thomas recorded that she was confident he was happy to sign his Will and had not been forced to do so but that he appeared to be far more comfortable with Ms Thomas with his wife present than when he was with Ms Thomas alone.

At trial Ms Thomas was asked why she had not sought a medical opinion on Charles’ testamentary capacity. She said at the three meetings she had with Charles he was interactive and showed no signs of confusion or ill health. She admitted sometimes he acted “a little out of the ordinary” but she had seen this before. Ms Thomas was happy he had sufficient capacity. She might have preferred his wife was not present but saw no need for a medical opinion in her judgment.

In May 2011 Charles was referred to The Older Person’s Mental Health Team at the local hospital and a doctor specialising in old age psychiatry gave a diagnosis on 12 May 2011 of “probable moderate dementia with frontal lobe impairment” and said he did not think Charles “has the basic capacity to make decisions about his health care, where he lives or his finances”.

Two experts gave evidence at the trial (without having met Charles when he was alive) having examined records and other documents including witness statements. Both agreed Charles was suffering from Alzheimer’s disease resulting in moderate dementia at the time of making his Will. They disagreed as to whether he had the capacity to appreciate the claims of his children on his inheritance, one saying he did and one saying he did not. But they agreed the situation was not clear cut so it was no surprise to either of them that the other disagreed.

The law

The judge considered the traditional test of testamentary capacity laid down in Banks v Goodfellow (1890) LR 5 QB 549, 565 per Cockburn CJ that the testator shall understand:

(a)  the nature of his act and its effects

(b)  the extent of the property of which he is disposing and

(c)  the claims to which he ought to give effect

and that no disorder of the mind or insane delusion shall bring about a disposal of his property which he would not have made if he had been of sound mind.

He commented this had been applied consistently to cases well into the 21st century.

He then considered the Mental Capacity Act 2005 (MCA) which had unfortunately not expressly made clear how much the legislation affects the test for capacity to make a Will.

Section 16 of the Act provides that if a person lacks capacity in relation to a matter concerning his property and affairs the court may make an order making a decision on the person’s behalf and Section 18(1) provides that this power extends to the execution of a Will.

The judge referred to several authorities where it had been decided that the rule in Banks v Goodfellow had been supplemented by rather than superseded by the MCA: Fischer v Diffley [2013] EWHC 4567 (Ch), Gorjat v Gorjat [2010] EWHC 1537 (Ch) and Bray v Pearce, unreported, 6 March 2014 [87]-[90]. Two of these cases related to Wills made after the MCA came into force. The earlier case of Scammell v Farmer [2009] EWHC 1100 (Ch) had decided that the MCA did not apply to probate claims about testamentary capacity because that was outside the Act’s purposes as set out in Sections 1 to 4 of the Act.

He also cited the case of Walker v Badmin [2014] EWHC 71 (Ch), [2015] WTLR 493 which was decided in a contrary way. All the events arose after the coming into force of the MCA but the judge held the test in Banks v Goodfellow had not only survived the Act but was still the sole test of capacity for judging Will-making in retrospect.

The reasons for the ruling in Walker v Badmin were:

  1. The tests under earlier case law and the Act were not the same and had significant differences.
  2. The Act set out the test for mental capacity “for the purposes of this Act” which relates to decisions for living persons who lack capacity.
  3. It was not unsatisfactory not to have a single test for capacity for deciding if a living person has capacity and for the retrospective task of the Chancery Division of assessing whether a Will made by the testator himself was valid.
  4. The traditional test for testamentary capacity was low so as not to deprive elderly persons of the ability to make Wills in their declining years.

The decision

All parties originally submitted that the correct test was that in Banks v Goodfellow but by the time of closing submissions Sam’s position had changed saying it could not be regarded as satisfactory that the Court of Protection applies a different test as to whether someone has testamentary capacity during lifetime from the test applied by the court after someone has died. So the judge considered this matter.

HHJ Matthews thought the decision in Walker v Badmin that the Banks v Goodfellow test was the sole test was right. He also said he followed it because of the general rule of precedent that the court is not strictly bound by decisions of co-ordinate jurisdiction but will follow them as a matter of comity unless convinced they are wrong. Walker v Badmin was a decision of co-ordinate jurisdiction whereas the authorities to the opposite effect were not decisions but obiter dicta.

The test in Banks v Goodfellow was moreover an old test when that case was decided in 1870 founded on decisions going back three centuries. He said Parliament is assumed not to intend to overrule well-established rules of the common law without clear words.

It follows there are two different tests for mental capacity in making Wills, one prospective for a living person and the other retrospective in relation to a Will already made.

As far as Charles was concerned the judge said what actually happened on the day the Will was signed was the most important evidence of capacity as there was no medical evidence of his condition and capacity on or about that time.

He felt Ms Thomas was a highly competent and intelligent solicitor who was experienced in dealing with farmers and Wills and accepted that everything she said was truthful. He said it was regrettable she had not followed the “golden rule” of obtaining a medical opinion but it is only a rule of practice not of law. Ms Thomas had said in evidence that it is often difficult to implement today (presumably due to the difficulty in getting a doctor to agree to witness a Will).

HHJ Matthews held that the testator had had capacity to make the transfers of land and other property in 2007 and 2009 and at the time of making his Will in September 2010 satisfied the first two limbs of the rule in Banks v Goodfellow, i.e. the nature of his act and its effects and the extent of the property of which he was disposing.

He then discussed the third limb – whether Charles understood the claims upon his inheritance to which he ought to give effect. He explained that the burden of proving capacity lies on those seeking to propound the Will, on the balance of probabilities, where a real doubt is raised. In this case it fell on the defendants.

There was evidence of memory loss and confusion but there was also considerable evidence of normal behaviour and rational thought. He seemed struck by the evidence of Ms Thomas that just before signing his Will Charles appreciated the balance needed to be redressed between the children. Also the terms of the Will signed corresponded closely to the instructions originally given some months before. The judge also felt Charles had relatively few claims to consider and a fairly simple estate to dispose of so the less acute were the faculties needed to do so. He said the Will demonstrated a rational and balanced approach to the disposal of his estate bearing in mind the transfers already made.

He concluded Charles had the capacity to appreciate the claims made on his estate and therefore had capacity to make the Will. He also commented that he had the capacity to sign the notice of severance of the joint tenancy (as it was a less complex matter to understand than the Will).

Practice points

  1. The only test for testamentary capacity is still the rule in Banks v Goodfellow. This case has reaffirmed Walker v Badmin. The test in the MCA is not applied retrospectively when the testator has died.
  2. The level of understanding for testamentary capacity is relatively low despite practitioners believing for years it is relatively high!
  3. This case confirms yet again the importance of thorough and clear attendance notes.
  4. The court will place weight on the solicitor’s evidence where an experienced professional has made a considered judgment even if the “golden rule” has not been followed.
  5. The number of claims the testator ought to consider on his estate and the number and nature of the assets all play a role in determining the level of capacity required.

 

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