ch. chancery division. 303 - formatevi.com paulings settlement...1 ch. chancery division. 303 ......

1 Ch. CHANCERY DIVISION. 303

C. A. In re PAULING'S SETTLEMENT TEUSTS. 1963

YOUNGHUSBAND AND OTHERS V. COUTTS & CO. March 6, 7, 8, l l , 12, 13, 14,15,18,19,

[1958 P. 2540.] 20,21,22,25, Trusts—Breach of trust—Consent of beneficiary—Whether beneficiary

26,27. May 29.

entitled to relief against trustees — Advancement to beneficiary— Willmer, Payment to third party. upjohnVjj.

Trusts — Breach of trust — Professional trustees — Trustees' duty in conflict with interest—Whether entitled to relief—Trustee Act, 1925 (15 & 16 Geo. 5, c. 19), s. 61.

Trusts—Power of advancement—Exercise of power—Settlement—Power to advance far beneficiary's absolute use—Whether power fiduciary —Particular purpose specified—Duty of trustee-

Undue Influence — Gift by child to parent — Presumption of undue influence—Requirements to support valid gift.

Acquiescence—Breach of trust—Delay by beneficiary in bringing action —Beneficiary's knowledge of his rights essential.

Limitation of Action—Trust—Action by beneficiary—"Future inter-" est"—Advancements in breach of trust—Limitation Act, 1939 (2 & 3 Geo. 6. c. 21), s. 19 (2), proviso.

Teaches — Statutory period of limitation — Action by beneficiary for breach of trust—Doctrine inapplicable.

By clause 11 of a marriage settlement made in 1919 upon the marriage of the plaintiffs' parents, it was provided that the trustees (the defendant bank) might with the written consent of the wife, who was the life tenant, raise any part not exceeding one-half of the expectant, presumptive or vested share of any child of the wife in the trust fund and pay the same to him or her for his or her own absolute use or pay or apply the same for his or her advancement or otherwise for his or her benefit in such manner as the trustees should think fit.

The plaintiffs, Francis, George, Ann and Anthony, were the four children of the marriage who attained their majorities on October 15, 1941, October 11, 1946, March 24, 1949, and June 15, 1951, respectively. The family were a united family, who, at all material times, lived beyond their means and were continually in grave financial difficulties. The mother had a current account with the defendant bank, which was between September, 1948, and August, 1959, continuously overdrawn by some £2,000 or more.' At all material times the children knew of the family's financial difficulties.

Between 1948 and 1954, the bank, in purported exercise of their powers under clause 11, made a number of advances to the children, who, on some though not on every occasion, received independent legal advice as to their rights under the settlement. The mother's

[Reported by T. C. C. BARKWORTH, Esq., Barrister-at-Law.]

304 CHANCERY DIVISION. [ 1 9 6 4 ]

C A. consent was obtained in every case. Those advances were as follows : lg6„ in September and November, 1948, two advances, totalling £8,450

_; : to Francis and George who authorised the bank to apply them for PAULING'S the purchase of a house for the family in the Isle of Man: the sons

SETTLEMENT received no independent legal advice. Subsequently, on October 26, IRUSTS, 1948, the house was purchased and on the father's instructions and

' • without the consent or knowledge of the sons, the bank caused the conveyance to be made in favour of the parents. On September 13, 1948, an advance of £1,000 to Francis and George, which, on the authority of a " c h i t " signed by the sons, the bank paid directly into the mother's overdrawn account; as to this sum, the bank was told that the sons proposed to use it for the purchase of furniture for the house in the Isle of Man. No furniture was in fact bought, and the bank took no steps to inquire whether any had been bought. On September 13, 1948, an advance to Francis and George of £2,600 which the bank applied in discharge of a loan known as " the " Hodson Loan " on the mother's life interest under another settlement : the sons received independent legal advice. On May 13, 1949, an advance of £2,000 to Francis and George, which was paid directly into the mother's overdrawn current account. This payment was made on the authority of a memorandum prepared by the bank and signed by the sons stating that the money was to be used for "improvements" to the house in the Isle of Man. On June 3, 1949, an advance to Ann of £2,986 Is. 9d. applied by her in the purchase of a house in London, to which objection was not taken, and between August 26, 1949, and June 12, 1950, nine advances and part of a tenth to Ann of together £1,803 12s. 8d. for work and improvements to the house in London to none of which objection was taken. Between September 12, 1949, and August 21, 1950, six advances and part of another totalling £3,260 to Ann nominally for the purchase of furniture for the house in London, but which were transferred either to the father or to the mother's overdrawn account. Of this sum some £300 only was spent on furniture for Ann's house. Between July 11, 1951, and February 7, 1952, five advances to Anthony, together amounting to £6,500 of which all but £1,000 was paid directly into the mother's account, the £1,000 being used to pay off a loan charged on his sister's house in London. Anthony had an account with the bank, which was replenished from his mother's account whenever he was overdrawn by an arrangement made long before the advances. Finally there were eight advances between September 25, 1953, and June 17, 1954, four to Francis, totalling £2,475, two to George totalling £1,425, and two to Ann totalling £1,450, all of which were paid straight into the mother's account. I t was the policy of the bank to allow the mother's overdraft to be restored to its former figure so that any moneys paid in might be used.

The plaintiffs issued a writ against the bank claiming that they had wrongfully and in breach of trust paid out by way of advancement to beneficiaries who were presumed to be subject to undue influence and who were not emancipated from parental control, the sum of £29,160, and that they were liable to make good that sum,

1 C h . CHANCERY DIVISION. 305

together with the fees charged in respect of the advances and claiming if necessary the appointment of new trustees. The defendant bank pleaded, inter alia, the Limitation Act, 1939, laches and acquiescence.

Wilberforce J . held that when considering whether it was fair and equitable for a beneficiary who had concurred in such transactions to sue the trustee for breach of trust the court must consider all the circumstances in which the concurrence was given, and that subject to that, it was not necessary that the beneficiary should know that what he was concurring in was a breach of trust provided that he fully understood what he was concurring in, and that it was not necessary that the beneficiary himself should have benefited by the breach of trust. He accordingly held the bank liable to make good £14,950 subject to certain deductions, if any, which should be found on inquiry to be deductible in respect of the advances to Anthony and also repayment of the fees of £20 6s. 6d. charged on the advances. The plaintiffs appealed and the bank cross-appealed : —

Held, (1) that, having regard to the very wide interpretation placed by the House of Lords upon the statutory power of advancement, which approximated to the second limb of the power contained in clause 11 of the settlement, the ambit of the two limbs of the power did not substantially differ from each other; that in both cases the power was a fiduciary one, the power under the first limb as under the second limb being exercisable only if it were for the benefit of the child or remoter issue to be advanced (post, p. 333); and that therefore the trustees before an exercise thereof must weigh the benefit to the proposed advancee against the rights of those who were or might become interested under the settlement.

In re Pilkington's Will Trusts [1964] A.C. 612; [1962] 3 W.L.R. 1051; [1962] 3 All E.R. 622, H-L.<E.) applied.

(2) That the power was exercisable, if the circumstances warranted it, either by an out and out payment to the person advanced or by a payment for a particular purpose specified by the trustees, the advancee being then under a duty to carry out that purpose and the trustees being under a duty to see that he did so and under a duty not to leave the advancee free to spend it in any way he chose (post, p. 334).

(3) That if an advance were a proper exercise of the power the consent of a beneficiary, although an adult, was unnecessary in the absence of any express provision to the contrary in the settlement (post, p. 335). If an advance were made to or for the benefit of a beneficiary in an improper exercise of the power, but that beneficiary is suing only to compel the trustees to replace sums wrongly advanced to him or applied for his benefit, then, if the trustees could establish a valid request or consent to the advance in question, such request or consent affords a good defence to that beneficiary's claim even though the advance was made in breach of trust (post, p. 335). .

In re Pilkington's Will Trusts (supra) applied.

C. A.

1963

PAULINO'S SETTLEMENT

TRUSTS, In re.


C- A. (4) That where the presumption of undue influence existed a .gg„ gift by a child could not be retained by a parent unless he could

show first, that the gift was the spontaneous act of the child, and PAULINO'S secondly, that the child knew what his rights were. I t was also

SETTLEMENT desirable that the child should have had independent and, if /n*8*8 possible, professional advice (post, p. 336).

' Dictum of Cotton L.J. in Allcard v. Skinner (1887) 36 Ch.D. 145, 171; 3 T.L.R. 751, C.A.; Huguenin v. Baseley (1807) 14 Ves. 273, and dictum of Farwell J. in Fowell v. Powell [1900] 1 Ch. 243, 246 considered.

(5) That where a banker undertook to act as a paid trustee of a settlement created by a customer and so deliberately placed himself in a position where his duty as trustee conflicted with his interest as banker, the court should be slow to relieve him under section 61 of the Trustee Act, 1925 (post, p. 339).

(6) That where a beneficiary rightly sued trustees for breaches of trust, he was under no obligation to account for any benefit incidentally received by him but that where he had consented to such breach he must give credit for the property that he had in fact received as a result; that this principle, however, did not apply in the circumstances of this case to the advance of £2,600 used to pay off the Hodson Loan since Francis and George to whom the advance was made were wholly ignorant of and had never consented to the transaction as it was in fact carried out (post, pp. 357, 358); that since, however, the bank had received a letter from the sons' solicitors stating that the transaction was satisfactory, they ought fairly to be relieved under section 61, but (Willmer L.J. dissenting) such relief should be limited to the extent of the surrender value of the four insurance policies transferred to the sons (post, pp. 358, 359).

(7) That, on the facts, (i) the advance of £8,450 for the purchase of the house in the Isle of Man was a breach of trust to which the sons never consented and the bank was liable to restore that amount to the trust fund; (ii) the advance of £1,000 for the purchase of furniture for the house in the Isle of Man was a plain breach of trust in which the bank placed themselves in a position where their interest as bankers conflicted with their duty as trustees, and no question of relief under section 61 arose; (iii) the advance of £2,000 for improvements to the house in the Isle of Man was, likewise, a plain breach of trust, but, in the circumstances of the case, the bank had a good defence in that they obtained consents from both George and Francis, the two children concerned, who were emancipated from parental control; (iv) the advances of £3,260 to Ann, nominally for furniture for the house in London, were clearly breaches of trust, but, though Ann had independent advice as to the purchase of the house that did not extend to these advances and consequently the bank could not rely on her consent as a defence since she was still presumed to be acting under the undue influence of her parents. However, having in fact received about £300 worth of furniture, Ann was bound to give credit for this sum, but the bank having behaved unreasonably no question of relief under


section 61 of the Trustee Act, 1925, arose; (v) the advances of £6,500 to Anthony were clearly breaches of trust for which the bank was liable and relief under section 61 of the Trustee Act, 1925, was out of the question. Though Anthony, who was still under the presumed undue influence of his father, might have received some indirect benefit, in the circumstances there was nothing to entitle a defaulting trustee to demand that he should account for such benefit; (vi) the eight advances amounting to £5,350 in all, to Francis, George and Ann between September, 1953, and June, 1954, were all clear breaches of trust but they were assented to by the beneficiaries concerned, who were all by that time emancipated from parental control and accordingly these sums were not recoverable.

(8) That (post, p. 353) (affirming Wilberforce J . [1962] 1 W.L.R. at p. 115) the plaintiffs' rights were preserved by the proviso to section 19 (2) of the Limitation Act, 1939, since they undoubtedly had a " future interest " which did not fall into possession when the trustees by an ex hypothesi invalid advance raised a sum of money out of the capital, the mother's consent not being equivalent to a release of her life interest.

(9) That (affirming Wilberforce J. ibid.) there being an express statutory provision of a period of limitation for the plaintiff's claims, there was no room for the doctrine of laches (post, p. 353).

(10) That a party could not be said to have acquiesced unless he knew, or ought to have known, what his rights were (post, p. 353); and on the facts of this case the plaintiffs could not be criticised for failing to realise what these rights were until 1954, when they were advised that the advances might have been improper, and accordingly, the writ having been issued in 1958, it would not be right to debar the plaintiffs by acquiescence from bringing an action which otherwise was justified.

Allcard v. Skinner (1887) 36 Ch.D. 145; 3 T.L.R. 751, C.A. considered.

Decision of Wilberforce J . [1962] 1 W.L.R. 86; [1962] 3 All E.R. 713 upheld in part.

APPEAL from Wilberforce J . 1

The following s ta tement of facts is taken from the judgment of Wilberforce J .

The plaintiffs, Francis George Arthur Younghusband, George Oswald Younghusband, Ann Margaret Madeleine Broadbent and Anthony Arthur David Younghusband, were the four children of the marriage between Violet Pauling (now Violet Younghusband) and Commander Francis Charles Eobert Eomer Younghusband. The defendants, Coutts & Co., were the trustees of the marriage settlement made in 1919 on the marriage of the plaintiffs' parents.

The trusts of the sett lement, dated December 30, 1919, after

C. A.

1963


TRUSTS, In re.

i [1962] 1 W.L.B. 86; [1962] 3 All E.E. 713.


C. A. reciting that the wife was entitled to certain investments, pro-igg3 vided by clause 5 that the trusteee might during the life of the

;— wife raise sums not exceeding £10,000 and pay the same to the SETTLEMENT w ^ e f°r ^er absolute use and benefit. That power had been

TRUSTS, exercised in full at some time prior to the date of the transactions " complained of in the action. By clause 6 the income of the

trust fund was payable to the wife for life without power of anticipation and after her death there was provision for an annuity to the husband of £500 a year during his life but determinable as therein mentioned. Clause 7 contained a power for the wife by will or codicil to appoint an interest to a surviving husband. Clause 8 contained trusts of capital in favour of the wife's children or remoter issue whether by the intended or any future marriage as the wife should appoint, and in default of such appointment to such children who should attain twenty-one, or, being female, marry under that age. Clause 11 contained a power of advancement in the following terms: " It " shall be lawful for the trustees at any time or times after the " death of the wife or in her lifetime with her consent in writing, " to raise any part or parts not exceeding in the whole one half of " the then expectant or presumptive or vested share of any child " or more remote issue of the wife in the said trust premises " under the trusts hereinbefore contained and to pay the same to '' him or her for his or her own absolute use or to pay or apply the " same for his or her advancement or otherwise for his or her " benefit in such manner as the trustees shall think fit . . . " By clause 14 the trustees were given power at any time during the life of the wife with her consent in writing to expend a sum not exceeding £10,000 in purchasing a house, with the limitation that the house or premises should be situated in England, Wales, Scotland or Ireland. Lastly provision was made for the bank to act as bankers in respect of the trust funds without being liable to account for profits and to be remunerated for their services in accordance with their published scale of fees. Charles Eussell & Co. were the solicitors acting for the trust and the bank's own solicitors were Farrer & Co. In addition to the income from the settlement the mother enjoyed a small life interest under the will of her deceased uncle, and there were also certain shares standing in the joint names of the commander and his mother but apart from this the family were solely dependent on the income from the settlement.

The plaintiffs between them were entitled to the capital of the trust fund. Their dates of birth were : Francis, October 15,


1920, George, October 11, 1925, Ann, March 24, 1928 and C. A. Anthony, June 15, 1930. 1963

Before the transactions complained of in the action, the ~~ ; family had been living,in Gloucestershire at Clifford Manor, SETTLEMENT where they maintained a considerable establishment. At all TRUSTS, material times they lived beyond their means and were con- ' tinually in grave financial difficulties. The wife had a current account with the bank, on which her husband, the commander, could draw and which between September, 1948, and August, 1950, was continuously overdrawn by some £2,000 or more. The family was a united one and the children knew of the family's financial difficulties. In 1947 the financial difficulties turned into crisis. Clifford Manor was sold and the furniture was stored. The commander and the mother went to the United States of America, where the commander had obtained employment, leaving their children to pursue their education and spend their holidays with friends and relations, but before the end of the year they returned, the commander having given up any idea of living permanently in the United States, and having formed the idea of settling in the Isle of Man. Under the settlement, however, it appeared that there was no power to purchase land in the Isle of Man, and advice was accordingly sought from Charles Eussell & Co., who in turn sought counsel's opinion. Counsel confirmed the view that there was no power under clause 14 to purchase a house in the Isle of Man but advised that the desired object could be achieved by making use of the power of advancement under clause 11 to advance money to the two eldest sons, Francis and George, who were of age and who could thus purchase the house and settle it voluntarily upon the mother for life with remainder to themselves. Counsel emphasised, however, that this could only be done by a voluntary act on the part of the two sons who should be separately advised. Francis and George agreed to this course but said they fully understood the matter and disclaimed any desire to be separately advised. Accordingly, in September, 1948, the trustees raised £8,450 from capital and made an advance (Advances Nos. 1 & 4) to Francis and George and this was applied in the purchase of Oakhill Lodge, Douglas, Isle of Man. The house, however, was conveyed in October without the consent or knowledge of the sons, to their parents absolutely, and was not settled as had been suggested. Shortly afterwards, the house was mortgaged by the commander for £5,000, and was eventually sold for less than was needed to pay off the mortgage debt. The

310 CHANCERY DIVISION. [1964]

C. A.

1963

PAULING'S SHTTLBMBNT

TRUSTS, In re.

only benefit that the sons derived from it was that the house became the family home for seven years.

Having become aware of the extent of the possible advances, the commander suggested that it would be advantageous to make advances to the full possible amount and to pay off a loan on the mother's life interest under her uncle's will and the overdraft at the bank. On September 13, 1948, an advance of £1,000 (Advance No. 2) was made to Francis and George, supposedly to enable furniture to be bought for Oakhill, on the authority of a " chit " signed by them, the money being paid directly into their mother's overdrawn account. In fact hardly any furniture was bought. The sons received no independent advice. Similarly, on May 13, 1949, there was an advance of £2,000 (Advance No. 3) to Francis and George which went directly to the mother's account, on the authority of a memorandum prepared by the bank and signed by the sons, stating that the money was to be used for " improvements etc." to Oakhill. Again the sons received no independent advice.

On September 13, 1948, the bank, as trustees, had also advanced to Francis and George a sum of £2,600 (Advance No. 5) which was applied in discharging a loan, which the bank, as trustee of a settlement of another customer of the bank, a Mrs. Hodson, had made to their mother and which had been charged as a mortgage on their mother's life interest under her uncle's will. This loan (known as the Hodson loan) was also secured by four life insurance policies on the mother's life of a total nominal value of £3,000, whose surrender value was then about £650. On this transaction the sons did have separate advice. Charles Eussell & Co. advised that it would be a proper exercise of the power of advancement provided that Francis and George received an adequate quid pro quo in the shape of the assignment to them of the four policies, coupled with covenants by the mother to maintain the premiums and to pay interest on the money advanced. However, the assignment of the life policies, as executed, contained no such covenants by the mother. Bur-rell of Farrer & Co. approved the draft assignment on behalf of the sons without ever consulting them. The sons retained the life policies till 1953 when they gave them back to their mother, on joining with their mother in executing a mortgage dated March 18, 1953, by the mother to the bank of her life interest under her uncle's will for the sum of £2,000. Apparently this was for the purpose of enabling the commander to raise further sums by charging them again. This brought the advances, so far, to


£14,050, and thus exhausted the amount which could be advanced to the two eldest sons, according to the initial calculations made by the bank in 1948.

The next child to attain 21 was Ann and shortly before her 21st birthday, when she was in her first year at Oxford, the commander was planning advances to her. On June 3, 1949, a sum of £2,986 Is. 9d. (Advance No. 6) was raised and paid into Ann's account with the bank, this being the only advance that was ever paid into the banking account of a beneficiary who was being advanced. This was applied by her in the purchase of a house at 28, Gunter Grove, Chelsea, the house being conveyed to her, and though it was used as a family home in London, it was legally hers and when it was sold she retained the proceeds of sale. Ann received separate advice and no complaint was made as to this advance. Then followed 16 further advances for Ann's " benefit." These can be divided into two groups, the first consisting of nine advances and part of a tenth, totalling £1,803 12s. 8d. were used as payment for work and improvements to Gunter Grove and no complaint was made with regard to them. These were as follows:

C. A.

1963

PAnLINO'S SETTLEMENT

TRUSTS, In re.

Date Amount Advance No

£ s. d. August 26, 1949 85 10 9 7 October 14, 1949 225 0 0 9 December 13, 1949 200 0 0 11 January 25, 1950 100 0 0 13 January 26, 1950 41 8 6 14 February 18, 1950 14 19 0 15 February 18, 1950 8 12 6 16 May 6, 1950 400 0 0 19 May 17, 1950 200 0 0* 20 June 12, 1950 528 1 11 21

Total £1,803 12 8

* (N.B. This was one half only of the advance made on this date.)

The remainder of the 16 advances, amounting to £3,260, were transferred in most cases on the same day from Ann's account either to the commander or into the mother's overdrawn account, in some cases purportedly for the purchase of furniture for Gunter Grove.


C A. These advances were as follows: 1963 Date Amount

£ « d. Advance No.


TRUSTS,

September 12, 1949 November 1, 1949

660 400

0 0

0 0

8 10

In re. January 14, 1950 400 0 0 12 March 8, 1950 300 0 0 17 March 10, 1950 300 0 0 18 May 17, 1950 200 0 Of 20 August 22, 1950 1,000 0 0 22

Total £3,260 0 0

t (N.B. The other half of thiB advance is referred to above.)

Ann asked for these sums to be advanced and in each case did so in writing, representing that they were for furniture, etc., well knowing that in fact only about £300 was so expended from start to finish. The bank made a few protests and asked to see bills, but never in fact did so. Some of the money went into the family's general living expenses through the mother's account. Although Ann received independent advice as to the purchase of the house, she received none as to the expenditure on furniture. This completed the amount which could be advanced to Ann on the initial calculation.

Anthony, the fourth child, attained 21 on June 15, 1951, whilst he was serving with his regiment in Germany. On June 18 the commander called on the bank and told them that he wanted £2,000 raised. A solicitor's letter was to be written to Anthony, giving him separate advice, and then the money was to be raised. Burrell of Farrer & Co. wrote a most perfunctory letter to Anthony and thereafter between July 11, 1951, and February 7, 1952, £6,500 was raised and paid straight into the mother's account.

The advances were as follows: Date

July 11, 1951 August 3, 1951 October 30, 1951 January 19, 1952 February 7, 1952

Amount Advance No. £ s. d.

2,000 0 0 23 1,000 0 0 24 2,000 0 0 25 1,130 0 0 26

370 0 0 27

Total £6,500 0 0


One half of the first of these advances, namely £1,000, was used to pay off a mortgage on Ann's house in London. Anthony had an account with the bank and through his parents received the benefit of an arrangement made long before the payments in question, whereby, whenever he was overdrawn, his account should be replenished up to £40. Some of his bills were also paid directly out of the mother's account.

A further calculation was made by the bank, which showed that there was a margin available for further advances between September, 1953, and June, 1954. Eight further advances were made: four to Francis, totalling £2,475; two to George, totalling £1,425; and two to Ann, totalling £1,450. All these advances were credited directly to the joint account except one, which was paid to the commander without any reason being stated which would connect them with a benefit conferred on a child. Each one was, however, assented to by the child in question.

In every case the mother's consent to the advance was obtained.

These advances were as follows:

C. A. 1963

Date Amount

£ 225.

To Whom Advanced Advance No.

September 25, 1953

Amount

£ 225. George 28

September 25, 1953 225 Francis 29 September 25, 1953 750 Ann 30 November 30, 1953 1,200 George 31 March 1, 1954 600 Francis 32 May 18, 1954 700 Francis 33 June 17, 1954 700 Ann 34 June 17, 1954 950 Francis 35

Total £5,350

Francis

PAULING'S SETTLEMENT

TRUSTS, In re.

The bank refused to make any further advances because they thought that if they parted with any more money they might not be protected against a possible claim for estate duty if the mother should die within five years of any particular advance.

In 1954, as a result of an opinion from counsel in respect of a scheme of George's for avoiding estate duty on the mother's death, the plaintiffs first became aware that the advances might have been in breach of trust. On December 10, 1958, the plaintiffs issued a writ against the defendant bank, claiming a declaration that the bank were liable to make good the sum of

314 CHANCEEY DIVISION. [1964]

C. A. £29,160 which it was alleged the defendants as trustees had 1963 wrongfully and in breach of trust paid out by way of advancement

;— from the trust fund. SETTLEMENT ^ n e statement of claim set out the 35 advances referred to

TECSTS, above, but no claim was made in respect of Nos. 6, 7, 9, 11, 13, ' 14, 15, 16, 19, 21 and part of 20. By clause 10 of the statement of

claim it was alleged that the plaintiffs did not know that the advances were breaches of trust, and that where any consent was given it was given under undue influence whilst the plaintiffs were unemancipated from parental control. In answer to a request for further and better particulars of the statement of claim it was alleged that, except as respected Ann after her marriage, the control and undue influence alleged were such as the. law presumes to exist between a parent and child until emancipation. In regard to Francis, it was further alleged that the control and influence were such as the law presumed to exist between a person suffering from mental ill-health and the person with whom he resides, and that Francis had suffered a complete nervous breakdown in 1940 from which he had never wholly recovered, which disabled him from earning his living and attending to business matters. In Ann's case it was alleged that the control and influence continued after her marriage in respect of her interests under the settlement in that she received no advice or guidance from her husband or anyone else in relation thereto and had become accustomed to comply with her father's wishes. The defence pleaded the Limitation Act, 1939, laches and acquiescence, and claimed relief under section 61 of the Trustee Act, 1925.

Wilberforce J. held (1) that when considering whether it was fair and equitable for a beneficiary, who had concurred in such transactions, to sue the trustees for breach of trust the court must consider all the circumstances in which the concurrence was given, and that, subject to that, it was not necessary that the beneficiary should know that what he was concurring in was a breach of trust provided that he fully understood what he was concurring in, and that it was not necessary that the beneficiary himself should have directly benefited from the breach of trust. Accordingly, the trustees were liable to make good (i) the sum of £8,450 advanced to Francis and George for the purchase of the house in the Isle of Man, and (ii) the sum of £6,500 advanced to Anthony, less such sum as should on inquiry be found to be deductible in respect of benefits indirectly received by him. (2) That the plaintiffs' rights were preserved by the proviso to


section 19 (2) of the Limitation Act, 1939. (3) That there being an express statutory provision providing a period of limitation for the plaintiffs' claims, there was no room for the equitable doctrine of laches. Both sides appealed.

W. A. Bagnall Q.C. and S. L. ~Newcom.be for the plaintiffs. In so far as the bank can establish that the sums advanced were paid away in proper exercise of the power of advancement the plaintiffs have no claim. In so far as the bank fails to do so, it is liable to make good to the trust fund. The power of advancement in the settlement is wider than the ordinary power contained in such settlements. Clause 11 contains two limbs; the first is a power to pay whatever is raised to the beneficiary for his or her own absolute use; and the second (the more usual one) " to pay or apply the same for his or her advancement or " otherwise for his or her benefit." I t is a discretionary power and accordingly the trustees must consciously exercise that discretion to see whether in all the circumstances it is right that capital sums should be advanced. See In re Powlcs, deed.2 In re Pilkington's Will Trusts3 does not affect the question as to the width of the power in this case.

The claims here are really four several and independent claims by the four plaintiffs. The basic question is how far the presumption of undue influence which equity presumes a parent to exercise upon children just of age is rebutted by independent advice, or by the child becoming emancipated. The bank purported to exercise the first limb of the power of advancement and never directed its mind to the second limb, i.e., to the aspect of paying or applying the money for the advancement or benefit of the child. In the case of the advances to George and Francis for the purchase of the house in the Isle of Man, the money was never paid to the beneficiaries at all but to their mother at their direction, and the question is whether their consent was real. A further question is whether, when the money leaves the trustees' control, it can be said to have been paid to the beneficiary or for his absolute use, if, when it is paid, he is under the presumed undue influence of his parents. If the trustees can show a really free and uninfluenced direction to

C. A.

1963

PAULINO'S SBTTLBMBNT

TRUSTS, In re.

2 [1954] 1 W.L.B. 336; [1954] All E.E. 516.

3 [1964] A.C. 612; [1962] 3 W.L.B. 1051; [1962] 3 All E.E. 662, H.L.(E.).

~Newcom.be


C. A. pay to someone else, that would be a defence. But here not a igg3 penny ever was at the absolute disposal of any of the beneficiaries.

~~ ; Their consents or requests were never freely given. SETTLEMENT Here, the bank acted in three capacities: (1) As trustee.

TRUSTS, (2) As bankers to the mother, to Ann, and to Anthony, and at In T€* ' some time to George also. (3) They were also trustees of the

Hodson settlement which had lent money to the mother. Professional trustees may well owe a higher duty than the ordinary trustee. I t is not alleged that the bank here acted dishonestly or that they ever consciously exercised the power to benefit themselves or the other trust. They tried to do their duty but did not come up to the high standard required of a professional trustee. They were unduly influenced by the fact that the tenant for life was always in desperate straits for money and nearly always overdrawn, and they were looking to her interests at the expense of those of the remaindermen. [Cf. In re Northcliffe's Settlements.*]

In regard to the initial advances for the purchase of the house in the Isle of Man, the advice of Charles Eussell & Co. was unexceptionable, and if it had been followed and correctly understood, none of the trouble would have occurred. The judge correctly summed up the matter with the words " video meliora " proboque deteriora sequor." The solicitors employed to give independent advice misappreciated the problem and thought that what they had to do was to give an independent explanation, but that is not sufficient: see Powell v. Powell.5 In the case of the advances to Ann the bank knew that no consent would protect them unless she were competently independently advised. They knew that advice was being given to her by their own solicitors, but took no steps to see that it was competent. It is not suggested that they could have asked what advice was given,' but independent advice is not there for the protection of the young person, but for that of the person who takes the benefit, because otherwise equity will not allow him to retain the benefit, if in fact the advice is inadequate: see Lancashire Loans Ltd. v. Black.*

All the first group of advances, to Francis and George, occurred in 1948. (i) On the advance of £8,450 for the purchase of the house in the Isle of Man the sons were not separately advised, nor was the transaction carried out as advised by

" [1937] 3 All E.E. 804. « [1934] 1 K.B. 380, C.A. s [1900] 1 Ch. 243, 246. '-


counsel. There was no authority from the sons; such authority C. A. as there was, was given for a totally different scheme; namely, ±g&3

for a house to be bought in their names and settled upon their ■— mother for life with remainder to them. The judge rightly held gprTLBUBHT that it was not a proper exercise of the power, (ii) On the TRUSTS, advance of the £2,600, though the sons received a transfer of n re' the life insurance policies and the mother made a codicil to her will in their favour, giving them a legacy equal to the duty on the policy moneys, and though they were separately advised by solicitors, who were also the bank's own solicitors, the advice given was inadequate. The transaction was not carried out as advised and contained no covenant by the mother to keep up the premiums, and the advance was accordingly not a proper one. The transaction as carried out was never consented to by the sons, (iii) On the advances of £1,000 and £2,000 (ostensibly for furniture and for improvements to the house in the Isle of Man, but which were in fact paid direct into the mother's overdrawn account with the bank), the bank owed a duty to see that the money was actually spent on the purposes specified and can only establish a defence if they can show a truly independent request by the sons, and that they cannot do. No consideration was ever given by the bank as to whether it was for the sons' benefit, and no steps were taken to see that the furniture was bought or the improvements carried out.

As to the second group, namely, those advances made to Ann between June, 3, 1949, and August 21, 1950 (i.e., from six weeks after her majority for the next 14 months), £4,789 was advanced for the purchase of a house in London and for repairs and improvements to it, Ann being separately advised. The house was put into Ann's name. No complaint is made as to those advances, but advances of £3,260 ostensibly for furniture for the London house were in fact paid to Ann's account at the bank and thereafter at once transferred to the mother's account, Ann's account being a mere conduit pipe, and as to these advances, Ann was never independently advised. Such advice as she had was directed to the wrong question, namely, as to the merits of the house as an investment for money already in Ann's hands; it ought to have been directed to the question whether she wanted money taken out of settlement at all.

In regard to Ann: (1) the bank never took any steps to see that the money advanced, ostensibly for the purchase of furniture, was in fact spent on furniture. (2) The bank never exercised any discretion as to these advances, amounting to £3,260, and

1 C H . 1964. 22


C. A. took no steps to see that the amount advanced bore any relation' s ship to the quantity of furniture purchased. (3) If the advances

—~ ; were to be for Ann's absolute use, then in no real sense could SETTLEMENT ^ be said that she ever obtained the absolute use of it—its

TRUSTS, destination was already fixed before it was advanced to her. ' (4) The bank in her case cannot rely on any request or consent

by her, since the advances were made within the first year of her attaining her majority, whilst she was still under the presumed influence of her parents. (5) Ann received no separate advice in connection with the advances for the purchase of furniture; the advice which she received in respect of the house in London was not adequate even for that purpose, far less was it adequate to cover the advances for the purchase of furniture. (6) There was no evidence on which the judge could hold that Ann was completely emancipated at the time. Such evidence as there was, was all the other way. The knowledge of the financial pressure to which the family was subject was such as to prevent the children becoming freed from undue influence. In Allcard v. Skinner,7 it is said that where there is a presumption of undue influence the court will set aside a voluntary gift unless it is proved that in fact the gift was the spontaneous act of the donor, acting under circumstances which enable the donor to exercise an independent will. I t is conceded that £300 was in fact spent upon furniture and that Ann's claim should accordingly be reduced by that amount.

As to the third group of advances, i.e., those to Anthony between July 11, 1951, and February 17, 1952 (i.e., from a month after his 21st birthday for the next seven months), though some attempt was made at giving independent advice, it was very perfunctory and inadequate, and the judge rightly so held. He ought not, however, to have ordered an inquiry as to how much benefit Anthony had received indirectly from the advances that were at first paid into his mother's account, but from which account he received certain subventions. The judge sought to base his judgment on this matter on Raby v. Ridehalgh* and Chillingworth v. Chambers," but those cases do not support the principle he sought to deduce. They were cases where the beneficiaries had clearly instigated the breach. There is no legal principle on which Anthony should be made to account.

As to the fourth group, namely, those advances made to

' (1887) 36 Ch.D. 145, 171. » [1896] 1 Ch. 685; 12 T.L.E. « (1855) 7 De G-.M. & G. 104. 217.

1 C h . ■ CHANCERY DIVISION. ■319

George, Francis and Ann between September 25, 1953, and June 17, 1954, £5,350 was paid directly into the mother ' s account. Though authority was obtained from the various beneficiaries, the process had become a routine. The real question in issue, namely, whether the child really wished to have the money taken out of sett lement, was never raised at all. The advice given was wholly inadequate. Where there is an atmosphere of perpetual financial strain it is impossible to say that emancipation was effective.

The question of the extent and duration of undue influence is admittedly one of fact and degree. I t is partly a mat ter of fact and partly of inference. The judge found that the children were then " fully informed " of the circumstances and that knowledge was the determining factor, but tha t does not mean tha t they were emancipated. The judge was wrong in thinking that if one child was emancipated the others were too; even if George had knowledge of the facts in 1953 there is no evidence that the others had. If the children are of such an age that the law presumes undue influence to exist, the trustees mus t show not merely that the children acted on advice, but also tha t that advice was proper. For example, though the two eldest boys consented de facto to the Hodson loan transaction, their consent cannot be relied on by the bank because the presumption of undue influence still applied, and though they received independent legal advice such advice was inadequate. The transaction as completed was not the one proposed, but even as proposed it was not for their benefit. The presumption of undue influence certainly continues until shortly after the child has attained majority. Indeed, if the child is living in association with his or her parents, 10 years is not too long a period for its continuance. I t is put t ing it too high to say that marriage automatically breaks the parental connection; nor does leaving the parental home automatically do so : see Lancashire Loans Ltd. v . Black.10

The power of advancement is fiduciary and the trustees m u s t exercise their discretion whether the advance would be for the benefit of the person to be advanced. The interests of the other beneficiaries under the set t lement mus t also be considered. The exercise of the power for the benefit of the mother was clearly a wrong exercise of the power: see In re Moxon's Will Trusts11

and In re Pilkington's Will Trusts.12 The trustees must exercise

C. A.

1963


TRUSTS, In re.

1° [1934] 1 K.B. 380, C.A. " [1958] 1 W.L.B. 165; [1958]

All E.B. 386.

12 [1964] A.C. 612; [1962] 3 -W.L.B. 1051; [1962] 3 All E.B. 622, H.Ii.(E.).


C- A. their discretion in the light of all the relevant circumstances 1963 "ght UP to the moment of actual loss of control of the money

~~ ; advanced. Here everybody knew that the money was going to SETTLEMENT ^n e mother, and there would have been nothing wrong in that,

TRUSTS, provided that the person advanced could have been shown to have ' had absolute use of the money. Where the presumption of

undue influence remains, the provision of independent advice is the only way in which the presumption can be removed. The money must be unfettered in the hands of the beneficiary, or there can be no real consent. There must be a spontaneous act of will by the child: see Billage v. Southee 13 and Bainbngge v. Browne.u The bank, as trustee, is in no better position than that of a volunteer and in any case it had notice.

Independent advice, to be adequate, must not merely explain the position to the intending donor, it must also express a view as to the propriety of the transaction. In all these advances each child's case must be considered separately: there is a vast distinction between Francis's case and the others in view of his mental condition. A trustee's duty is to find out those matters relevant to the exercise of the power, and a person's mental state is one of those matters.

In summary the following propositions of law are advanced: (1) Every advance was made under the first limb of the power, i.e., to pay to the beneficiary for his or her absolute use. The other limb was never considered by the bank. (2) This was a fiduciary power requiring a conscious exercise of discretion by the bank. (3) If a payment is made to a third party at the request or with the consent of the beneficiary, that request or consent must amount to a really voluntary disposition of that which has become the beneficiary's own property. (4) Where the relationship of parent and child exists, so that undue influence is presumed, the bank trustee must show either complete emancipation from control generally, or that independent advice was given to the beneficiary, having full knowledge of his right and of the facts. The presumption of undue influence certainly extends for a short period after the child attains majority— marriage, of itself, does not necessarily amount to emancipation. (5) The last two submissions (3) and (4) apply equally where a payment is made to a beneficiary, the trustee knowing full well that the beneficiary intends at once to transfer the money to

is (1852) 9 Hare 534; 21 L.J.Ch. 472.-

" (1881) 18 Ch.D. 188.


his or her parents. The parents in such a case must show a c- A-real voluntary disposition. (6) The independent advice which is 1953 given must be given by an adviser who has full knowledge of all ;— the relevant circumstances, and it must be such as a competent SETTLEMENT and honest adviser would give if acting solely in the interests of TRUSTS, the beneficiary. It must be advice, mere explanation or informa- ' tion is inadequate. See Inche Noriah v. Shaik Allie Bin Omar.1* In Powell v. Powell16 Farwell J. went so far as to say that no protection was afforded by independent advice unless it was acted upon. Some course of conduct must be advised. If the trustees know that independent advice has been given advising against a transaction, then they ought not to carry out the transaction. (7) Looking at the question from the beneficiary's point of view, the person who seeks to rely on such a voluntary gift must show that it is the spontaneous act of the donor, in circumstances which enable him to exercise an independent will: see per Cotton L.J. in Allcard v. Skinner" and also Huguenin v. Baseley.1*

The question must be decided by an objective test, looking at the facts in each case. The judge looked at each advance to decide whether or not it was a breach of trust and then went on to consider whether the beneficiary had precluded himself from complaining. I t is submitted that the only question is whether the consent was a real one.

Though there are similarities between the exercise of a power of advancement and a power of appointment, the principles governing the exercise of the latter do not really apply here. The judge overlooked the vital question of who was complaining.

[UPJOHN L.J. I regard this analogy to powers of appointment as dangerous and misleading.]

[Eeference was also made to Reade v. Beade " ; Dyer v. Dyer20; Vatcher v. Paull21; Molyneux v. Fletcher22; McMackin v. Hibernian Bank23; In re Salting, Baillie Hamilton v. Morgan2*; Wright v. Carter.25]

Sir Milner Holland Q.C. and B. Cohens-Hardy Home for the bank. Each case of advancement raises different questions

" [1929] A.C. 127; 45 T.L.E. 1, P.C.

" [1900] 1 Ch. 243, 246. " (1887) 36 Ch.D. 145, 171. « (1807) 14 Ves. 273. 19 (1889) 9 Ir.L.R. 409. *« [1903] 1 Ch. 27; 19 T.L.E. 29, 20 (1788) 2 Cox Eq.Caa. 92. C.A.

21 [1915] A.C. 372, P.C. 22 [1898] 1 Q.B. 648; 14 T.L.E.

211. 23 [1905] 1 I.E. 296. 24, [1932] 2 Ch. 57.


C- A- because of the differing ages' and character of the children, the 1963 surrounding circumstances and the interventions of solicitors, all

~~ ; of which affect the position of the bank as trustees. I t is not a SBTTLBMBNT c a s e °f undue influence or nothing. Clause 11 of the settlement

TBTOT8, contains a dichotomy: there are two limbs to it. The first is ___' much wider than the second and under it the beneficiary can

go to the trustee and ask for an advance for a particular purpose. The power is admittedly fiduciary, but under the first limb there is no duty upon the trustee to see that the advance is for the benefit of the person to be advanced. Under the second.limb the trustee must see that the object is carried out. The plea that the children did not consent when money was paid for the benefit of other beneficiaries and was thus misapplied, has been withdrawn.

In the case of the Hodson loan transaction the bank thought that Francis and George should be separately advised. So long as the transaction, as actually carried out, was approved by independent solicitors acting for them that is sufficient to absolve the bank from any liability. The two boys agreed to what was proposed. If the solicitors did not carry out the transaction as instructed, that did not render the bank as trustees, liable. There was no need for the bank to check to see that the money was properly applied. The bank would probably be liable only if they actually knew that the money was. being paid out for another purpose. I t is not suggested that the bank was instigated to commit breaches of trust. It was, however, conceded before Wilberforce J. that the children had consented to things they knew to be breaches of trust. The children were anxious that their parents should receive bounty.

[UPJOHN L.J. You cannot give trust money away to charity at the expense of the beneficiaries.]

The plaintiffs appear to think that no breach of trust can be cured, but that is not so. In the pleadings it is alleged that the plaintiffs were unemancipated from parental control, but no allegation is made that the bank knew or ought to have known that that was so. No one told the bank that there was anything wrong with Francis's mental capacity or suggested that he could not understand what was going on. Nor is there any plea of undue influence, other than that which the law presumes. .

The law as stated in Underhill on Trusts, 10th ed., p. ,581, is that if a beneficiary has assented to or concurred in a breach of trust or has acquiesced in it, he cannot afterwards charge the


trustees with the breach; provided (1) that he was sui juris at c- A-the time, (2) that with full knowledge of the facts and of what 1963 he was doing and its legal effect he has retained the benefit of ;

"PAITT ran A

the breach, and (3) that no actual undue influence was brought SETTLEMENT to bear upon him. Crichton v. Crichton26 does not support the TRUSTS, contention for which it was there cited. '

The questions that arise are: (a) What is the legal presumption and does it apply here? (b) If it applies, is it displaced? (c) If, contrary to the judge's finding, it is not displaced, what is the position of a trustee who acts upon the authority or consent of an adult beneficiary? :

If the bank did not know that consent was obtained by undue influence they would not be liable. Perhaps the best and most accurate statement of the law as to the presumption of undue influence;is to be found in White and Tudor on Equity, 8th ed., p. 237. The court must be sure that the child was able to form an independent judgment free from influence: see Lancashire Loans Ltd. v. Black27; Smith v. Kay2S; Archer v. Hudson2*.; In re Coombes.30 These cases show that the presumption only applies when the child is just over 21 and is living at home.

The. view expressed by Farwell J. in Powell, v. Powell31 as to the nature of the advice to be given is disposed of by Inche Noriah v. Shaik Allie Bin Omar,32 where the Privy Council held that independent legal advice was not the only way in which the presumption can be rebutted, nor were they prepared to hold that independent advice was ineffective unless the advice was taken. It is sufficient if a full and independent explanation of the nature of the act is given. The court has to decide whether there has been a free exercise of an independent will and whether the explanation given was a proper one. Here in fact the plaintiffs had the position fully explained to them. The fact that Ann said that had she known that it was her money she was dealing with she would never have agreed, is evidence that she was not under the domination of her father at all. In Ann's case it is conceded that the presumption applies, but it has been displaced. She was a woman of full age who knew that if she said certain things, the bank would pay out money;, she cannot now be allowed to recover that money by. coming to a court of

=» [1896] l C h . «Y0, C.A. ■»» [1911] 1 Ch. 723, C.A. « [1934] 1 K.B. 380, C.A. « [1900] 1 Ch. 243. " (1859) 7 H.L.Cas. 750. " [1929] A.C. 127; 45 T.L.E. 1. =» (1844) 7 Beav. 551. ■


C. A. equity and saying that what she told the bank was quite untrue 1963 an(* *kat *^e D a n k ought not to have believed her.

I n considering the application of the presumption to the par-SMTLBMBNT ti°u'ar facts of each case the following conclusions can be drawn.

In re. As to the first advances to George and Francis, Francis was one ' month short of 27 when the first advance was made, he was not

living at home but with his grandmother, and was attending Edinburgh University. I t is not sufficient for him to say the presumption applies. Admittedly for a t ime it is for the father to disprove undue influence, but thereafter it is for the son to allege and prove it affirmatively. If it is to be at tempted to prove actual undue influence the bank would be seriously prejudiced. As pleaded, the plaintiffs' case alleges no actual undue influence by the father or mother, and the presumption alone is relied upon. Where a person is mentally weak, there is no presumption of undue influence by the person with whom he lives, though actual undue influence may not be hard to prove. I t is agreed that Francis suffered from a nervous breakdown before the events complained of. There is no presumption in his case, and in any case Wilberforce J . found that he was quite capable of understanding business mat ters . A trustee can rely on the consent of an adult beneficiary unless he knew or ought to have known that the consent was vitiated in some way. No actual undue influence was pleaded in his case.

In September, 1948, when the first advances were made, George was one month short of 23, and shortly after in January, 1949, he took a job in Liverpool. H e was living independently of his parents and the presumption does not apply. I n Ann's case, when the first group of advances to her were made she was living at home and it is conceded tha t since she had only just attained 21 and was living at home the presumption applies. The advances to Anthony were made when he was a regular soldier serving with his regiment in Germany, and though no doubt he spent his leaves at home it is extremely doubtful whether the presumption would apply to him. H e too was living independently of his parents. There is no finding that he was subject to undue influence when the final batch of advances to Francis, George and Ann were made. George was working for the Solicitor to the Inland EevenUe and was then about 28, Francis was at home, but was by then 33, and Ann was over 25, was married and was no longer living at home, so that in such a complete : change of circumstances the law would certainly not presume undue influence and no actual influence was alleged.

1 Ch. CHANCERY DIVISION. 325,

In re.

It is not true to say that only independent advice suffices c- A-to displace the presumption. The question for the court is: Did X963 the person express a free and independent will or was his will ;— dominated? The onus can be discharged without showing that SETTLEMENT the person had independent advice: see Allcard v. Skinner,33 TRUSTS, per Cotton L.J. I t is possible for advice to be given, but yet for the influence not to be removed. The task of the solicitor giving advice is not actually to advise a specific course of action; it is sufficient if he sees that the donor understands what he is doing and intends to do it; he need not advise him to do it or not to do it: see In re Coombes.3*

The judge set himself the right questions, namely: What was the nature and quality of the consent given? Was it given freely? Was the child freed from parental influence? Was separate independent advice required? If so, was it given, and was it adequate to impart to any consent given the necessary quality of freedom? There is no duty to inquire into the beneficiary's psychology or state of mind before making an advance.

Cozens-Hardy Home following. Unless the plaintiffs' right of action is preserved by the proviso to section 19 of the Limitation Act, 1939, section 19 (2) must apply to all the advances to the plaintiffs and bars their claims except for the fourth group of advances. See also section 8 of the Trustee Act, 1888, and section 29 of the Limitation Act, 1939. A future interest falls into possession when the trust interest under which it arises falls into possession, i.e., when it is paid to, or according to the direction of, the person beneficially interested. See Fry v. Inland Revenue Commissioners.35 There is no difference between an interest in expectancy under the Finance Act, 1894, and a future interest under section 19 of the Limitation Act, 1939.

[HARMAN L.J. You are saying that by committing a breach of trust the trustees caused the interests to fall into possession?]

The interests here fell into possession because they coalesced. Everything was done with the consent of the persons interested.

[UPJOHN L.J. When an advancement is made a sum is taken out of settlement, but there is no coalescing of the interests at all. ]

Even if the Limitation Act does not apply that does not preclude the doctrine of laches from applying, as a valid defence.

« (1887) 36 Ch.D. 145. 35 [1959] ch. 86; [1958] 3 3* [19111 1 Ch. 723, C.A. W.L.B. 381; [1958] 3 All E.R. 90,

C.A.


C. A. The plaintiffs' inaction lulled the bank into a state of inactivity X963 whereby they were losing their right to impound the income, and

; — therefore the longer the delay the greater the loss. As to laches SETTLEMENT ^e following propositions are. advanced: (1) Laches involves

TRUSTS, delay, and acquiescence by the plaintiffs, or a change of position ' by either party such that it would render it inequitable for the

plaintiffs to succeed. (2) A plaintiff is treated as having acquiesced when a violation of his rights of which he did not know is brought to his notice, and he still takes no action. (If a plaintiff knows the facts he is presumed to know his rights.) (3) Acquiescence will readily be inferred if the plaintiff benefits by keeping quiet. A benefit to the plaintiff coupled with delay is sufficient to constitute laches, even if there is no actual acquiescence. (4) Apart from acquiescence the defence of laches will readily be applied where the defendant's position has changed as a result of the delay in such a way as to prejudice him, as might be the case here in that (i) the longer the delay the greater the difficulty of getting rebutting evidence, and (ii) the delay may result in financial loss in that the defendants lose the right to impound the income of the beneficiary during the period of delay. (5) Where the plaintiff's claim is based on undue influence, the plaintiff must take steps immediately the influence ceases for the claim to lie. See Turner v. Collins,38 per Lord Hatherley. [Smith v. Kay37 and Erlanger v. New Sombrero Phosphate Company 3S were also referred to.]

In this case the plaintiffs knew their rights under the settle^ ment in 1952 and the writ was not issued until 1958. It is immaterial that they did not know that the advances had been in breach of trust: see Allcard v. Skinner39 and Stafford v. Stafford.*0

In applying the doctrine of laches to the present case the court ought also to pay attention to certain considerations very material to this case, viz.: (1) The plaintiffs were relying on the presumption rather than on actual undue influence, which meant.that it was more difficult to produce evidence in 1961 as to what happened in 1948. (2) The court ought to be particularly suspicious of allegations of undue influence made long after the influence ceased, when the donor sues.the trustee without joining the donee as a party.

When George gave his consent to the purchase of Oakhill,

se (1871) 7 Ch.App. 329. »» (1887) 36 Ch.D. 145. , : " (1859) 7 H.L.Cas. 750. « (1857) 1 De &. A J. 193 . »» (1878) 3 App.Cas. 1218, H.D. ,


he knew the financial advantages to the family of buying a house c- A-in the Isle of Man; he knew what was happening and acquiesced 1963 in it.. , The judge found that he was emancipated. On his own ~ evidence when he signed the consent to the advance of £2,000 SEMEMES he understood what was happening. Prom 1950 onwards, when TRUSTS,

Ifl T6.

he started reading for the bar, he understood that the capital ■ ■ ■ ' belonged to him, the reason why he did not institute proceedings earlier was that he thought the defendants had protected themselves by the provision of separate advice, it is submitted that he was aware that he might have rights to complain and that he decided not to act upon them. Once the plaintiffs stood by and allowed further advances without objection that was clearly acquiescence: see Stafford v. Stafford.*0 As to the purchase of Oakhill, the bank had directions from Francis and George to pay the money to whomsoever the mother directed, and she directed them to pay it to Kneale & Co., whom the bank wrongly assumed to be acting as solicitors for Francis and George. [Williams v. Johnson41 and Clarke v. Edinburgh and District. Tramways Co.42 were also referred to.]

Bagnall Q.C: in reply. The trustees must consider the interests of all the beneficiaries; the exercise of the power must not be capricious. So far as the second limb of the power in clause 11 is concerned there must be a specific purpose, so far as the- first limb is concerned, even though the money is advanced to the beneficiary absolutely, it must be for his benefit. I t is not right for the trustee to leave the application of the funds to a third person, but money can be rightly left in the hands of a third person if that third person is carrying out the purpose for which the money is to be advanced. Sir Milner Holland adopts a wrong approach in treating the matter as if it were one between a tenant for life and a remainderman, whereas it is purely as a result of the exercise of the power that the beneficiaries here were entitled to anything at all.

The Hodson loan transaction could not possibly have been a proper exercise of the power: the fact that the beneficiaries got something in return so that it was not quite so improper as it might have been is neither here nor there. George and Francis must, it is clear, give credit for something. It might be strictly correct to treat the loss to the trust fund as £2,600 less the surrender value of the policies as at August 18, 1948, the date

" 1 Deft. & J. 193. «. 1919 S.C.(H.L.) 35; 56 Sc.L.E. 41 [1937] 4 All E.B. 34, P.C. 303.


C. A. when they were assigned to the sons, but it is submitted that they ought not to be in a worse position than if they had sold the policies at the date they in fact gave them away, namely,

PAULINO'S March 18, 1953. It cannot be said that they have no claim at all TBUSTS simply because they got something which in certain circumstances In re. might have produced the required value.

As to the question of relief under section 61, four conditions must be satisfied: (i) the trustees must have acted honestly; (ii) they must have acted reasonably; (iii) the facts must be such that they ought fairly to be excused; and (iv) such that the court in its discretion ought to relieve them. There has been no case where a professional trustee had been granted relief.

[WILLMER L.J. If the trustees acted honestly and reasonably, what other test is there that should be applied in considering whether they ought fairly to be excused?]

The sort of case where trustees might be relieved is if a proposal to use capital, held in trust for a child, in payment of a parent's debts, is acceded to by trustees on condition that the parent provided a policy on his life with a covenant to keep up the premiums and to replace the capital at his death, and the parent falls upon evil days and his other income failing through wholly extraneous circumstances the parent is unable to keep up the policies so that they lapse. In such a case the trustees might well be excused, but here the scheme was wholly improper! Belief under the section is discretionary. The fact that reliance was placed on a solicitor is no defence. Maybe if the act were a ministerial one, reliance on a solicitor might afford some defence, but here the trustees virtually delegated their discretion to the solicitors. Section 61 of the Trustee Act, 1925, merely enables relief to be granted where nothing is wrong save that the court's direction has not been sought. It is almost a matter of principle that relief under section 61 is not open to professional trustees: see National Trustees Company of Australasia Ltd. v. General Finance Company of Australasia Ltd.,4,3 which was followed and applied in In re Windsor Steam Coal Company Ltd.** The circumstances must be wholly extraordinary before the court will intervene to relieve a professional trustee.

As to the advance to Francis and George of £1,000 for the purchase of furniture, the bank ought at least to have paid the sum into a separate account in their joint names, and not into the

« [1905] A.C. 373; 21 T.L.B. « [1929] 1 Ch. 151, C.A. 522, P.C.


overdrawn account. The bank never exercised any discretion C. A. as trustees as to the amount of the advance, and they never exer- 1953 cised any control over how it was spent. As to the advance of ; — £2,000 to Francis and George, the bank are at least in no better SETTLEMENT position than that of volunteers; they clearly had knowledge of TBUSTS, the facts. '

The presumption of undue influence is not one of law, but of facts assumed by the law to exist. I n the case of a child shortly after attaining majority it is presumed to exist unless the contrary is proved: see Shephard v. Cartwright.45 Those who say tha t no influence exists mus t show tha t the presumption has ceased to apply. If there is any ground for suspicion the trustees should always refuse to act. This is "illustrated by the cases dealing with fraud on a power: see King v . King46 and Lloyd v . Attwood*7 and Halsbury 's Laws of England, 3rd ed., Vol. 30, pp. 276, 27T.

Emancipation is an abstract conception and is a question part ly of law and partly of inference from facts. The correspondence in this case provides as good a guide as seeing the children in the witness box 10 years after the events in question. No exception is taken to the judge's findings of fact except in regard to Francis 's state of mind and the inferences which the judge drew from the facts. This court is in just as good a position as was the trial court to draw inferences: see Powell v. Streatham Nursing Home, per Lord Sankey L.C.4 8 The judge drew the wrong inferences in this case, and his findings on Francis were contradictory; there was no evidence on which the judge could have held that Francis knew all about the transactions. The knowledge imputed to George bore no relation to the realities of the case. There is very little in the judge's judgment to show tha t he considered the question of emancipation as distinct from that of knowledge. H e did not refer to the well-known passages on the subject: see Wright v . Vanderplank.4* The judge wrongly regarded intelligence plus knowledge as amounting to emancipation, and appears to have thought that for undue influence there had to be something equivalent to overbearing conduct. Normally at 28 Francis would have been emancipated. I t was not a trustee 's duty to find out about his mental state, bu t it was in

*s [1955] A.C. 431; [1954] 3 «» [1935] A.C. 243; 51 T.L.K. W.L.E. 967; [1954] 3 All E.E. 649, 289, H.L.(E.). H.L. 49 (1856) 8 De G.M. & G. 133,

« (1857) 1 De G. & J. 663. affirming (1855) 2 K. & J. 11. " (1859) 3 De G. & J. 614.


C. A. their interest so to do, since if they failed any advances which i g 6 3 they made would be at their peril : see Shephard v . Cartwright.50

As to Ann, but for family loyalty she would have had nothing to SETTLEMENT ^0 w ^ * n e scheme of advances. The judge makes no finding

TRUSTS, tha t she was emancipated but merely that she had received " adequate advice. Ann is asking the bank to restore the money

they applied improperly—which they were paid to apply properly. As to the last group of advances, the only argument tha t can be put forward is that they were still following the pattern set by the earlier transactions in 1948.

Gozens-Hardy Home in reply. Beneficiaries who are of full age are entitled to ask trustees for assistance, and in those circumstances the trustees are freed from responsibility if the beneficiaries give their consent: see Phillipson v . Gatty 61 and also section 61 of the Trustee Act, 1925.

As regards the Hodson loan transaction the trustees knew that separate advice was being given and if that was so there was no need for them to ask what such advice was. As to Ann, there was no reason to suppose that she was not telling the truth over the transactions in connection with her house. There was no reason to know of the mental condition of Francis. As to Anthony, though the money was paid into his mother ' s account, much of it came back into his own account when he drew cheques in view of the arrangement made by his mother.

Cur. adv. vult.

May 29, 1963. WILLMEK L . J . The judgment which I am about to read is the judgment of the court, which deals with and resolves all the points which have been argued except one, and in relation to that one there is, unhappily, a disagreement between the members of the court, and on that one point we will deliver separate judgments when I have read the judgment of the court.

This is indeed a sorry story, and one which reflects no credit at all on any of the parties to it. When Miss Pauling, the plaintiffs' mother (and we shall refer to her throughout as " the " mother ") married their father (to whom we shall refer as " the commander ") she was a young lady of considerable fortune. She was marrying a naval officer who had almost no fortune at all, and by the wisdom, no doubt, of her parents, it was decided

5 0 [1955] A.C. 431; [1954] 3 5 1 (1850) H. & Tw. 459, on appeal W.L.E. 967; [1954] 3 All B.E. 649, from (1848) 7 Hare 516. H.L.


to vest her fortune in trustees on the trusts of a marriage settlement. The whole object of this transaction was to prevent the use (or rather misuse) of the lady's capital for the very purposes for which in fact it has been very largely frittered away, that is, in the ordinary living expenses of the family. Apart from a power to raise £10,000 out of the settlement (which had been exercised long before the history of this action starts) it was intended that the mother should have nothing more than the income during her life, and she was restrained from anticipating that.

In June, 1948, the trust funds were intact, and amounted to over £70,000. By June, 1954, the bank (the trustees of the settlement) had raised and paid away over £29,000 from the capital of these funds in purported exercise of a power of advancement, and there was nothing whatever left to show for it. How had this melancholy event happened? It was in part due to a misunderstanding of a power of advancement contained in the settlement, which was in rather unusual form, and later on to its plain misuse, but also was largely due to the charm of manner and powers of persuasion of the commander. The trial judge has found the bank liable to replace nearly £15,000 as having been expended in breach of trust for which they can be compelled to account. Both parties appeal.

The relevant transactions over this period of six years are many, and involve each of the four children of the marriage. Different questions arise in respect of most of these transactions, and accordingly we propose in this judgment first to set out the basic facts, then to state our view of the legal questions that have been argued before us, and finally to deal seriatim with the facts of each advance and to apply the law accordingly.

The plaintiffs, the children of the commander and the mother, are: (1) a son, Francis, born on October 15, 1920; (2) a son, George, born on October 11, 1925; (3) a daughter, Ann (now Mrs. Broadbent), born on March 24, 1928; (4) a son, Anthony, bom on June 15, 1930. As already stated, the marriage settlement was of funds supplied entirely by the mother. The defendants, Coutts & Co. (to whom we shall refer as " the bank "), have all along been the sole trustees. Apart from the special power to raise £10,000 for the mother's use which we have already mentioned, the settlement followed the usual lines of such an instrument. The mother had the income of the trust fund for life without power of anticipation and after her death her husband was to have an annuity of £500 a year. Provision was also made

C. A. 1963


TRUSTS, In re.

332 CHANCERY DIVISION. [1964] C. A.

1963


TRUSTS, In re.

for the mother to have power to appoint a life interest in half of the trust fund to any surviving husband. Subject thereto, the trust fund was to be held in trust for the children or remoter issue of the mother, whether by the intended or any future marriage, in such shares as the mother might appoint, and in default of appointment the children were to take in equal shares on attaining the age of 21, or being female marrying under that age. Clause 11 of the settlement, under which the bank purported to act in making the advances complained of, provided as follows: " It shall be lawful for the trustees at any time or times " after the death of the wife or in her lifetime with her consent " in writing to raise any part or parts not exceeding in the whole " one-half of the then expectant or presumptive or vested share " of any child or more remote issue of the wife in the said trust " premises under the trusts hereinbefore contained and to pay

the same to him or her for his or her own absolute use or to pay " or apply the same for his or her advancement or otherwise for " his or her benefit in such manner as the trustees shall think fit " . . . " By clause 14 power was conferred on the trustees during the life of the mother, and with her consent in writing, to lay out a sum not exceeding £10,000 in the purchase of a house as a residence for the wife, and in its decoration, repair or improvement, provided that such house was situated in England, Wales, Scotland or Ireland. Lastly, provision was made for the bank to act as bankers in respect of the trust funds without being liable to account for profits, and to be remunerated for their services in accordance with their published scale of fees. Charles Eussell & Co. were nominated as solicitors to the trust with permission to the bank to consult its own solicitors in any case in which it should think fit. These were Farrer & Co. It should at this stage be stated that at all material times the mother had an account with the bank. The commander did not have any separate bank account with the bank, but he was authorised to draw on the mother's account, and it appears that it was he who largely controlled it. During most of the time with which we are concerned this account was substantially overdrawn.

In addition to the funds subject to the settlement, the mother also enjoyed a small life interest under the will of her deceased uncle. There were also certain shares standing in the joint names of the commander and his mother. Apart from these small additional sources of income, the family were wholly dependent on the income derived from the marriage settlement. The


evidence shows that the family were quite unable to adapt themselves to the changed conditions of life after the last war, and expected to continue on the scale of life suitable .between the wars, with the result that the available income was always overspent so that the commander was always hard up for money.

Now as to the questions of law involved in this appeal. First as to the true meaning and intent of the power in clause 11. This power has been accepted as containing two limbs, first a power with the consent of the mother in her lifetime to raise any part or parts not exceeding in the whole one-half of the expectant, presumptive or vested share of any child, and to pay the same to him or her for his or her absolute use, and, secondly, the more usual power to pay or apply the same for his or her advancement or otherwise for his or her benefit in such manner as the bank might think fit. I t was argued that the power contained in the first limb was wider than that in the second, although it was conceded on both sides that in both cases the power was fiduciary. Having regard to the very wide interpretation given to the statutory power (which approximates to the second limb in Pauling's settlement) by their Lordships' House in In re Pilking-ton's Will Trusts,1 we cannot see that the ambit of the first limb of the power substantially differs from that of the second limb. But, as all the advances were made in purported exercise of the first limb, we must examine the argument upon it. Being a fiduciary power, it seems to us quite clear that the power can be exercised only if it is for the benefit of the child or remoter issue to be advanced or, as was said during argument, it is thought to be " a good thing " for the advanced person to have a share of capital before his or her due time. That this must be so, we think, follows from a consideration of the fact that the parties to a settlement intend the normal trusts to take effect, and that a power of advancement be exercised only if there is some good reason for it. That good reason must be beneficial to the person to be advanced; it cannot be exercised capriciously or with some other benefit in view. The trustees, before exercising the power, have to weigh on the one side the benefit to the proposed advancee, and on the other hand the rights of those who are or may hereafter become interested under the trusts of the settlement. We reject Sir Milner Holland's argument on behalf of the bank to the effect that an advancement can be made under

C. A.

1963


TBUSTS, In re.

i [1964] A.C. 612; [1962] 3 W.L.E. 1051; [1962] 3 All E.E. 622, H.L.fB.). 1 CH. 1964. 23


C A. the first limb which is not for the benefit of the advanced person. 1963 Furthermore, it is clear that the power under the first limb may

be exercised, if the circumstances warrant it, either by making SETTLEMENT a n out_ar i (l-out payment to the person to be advanced, or for a

TRUSTS, particular purpose specified by the trustees. Thus in argument ' an example was given that when George was called to the Bar

the trustees might have quite properly advanced to him a sum of capital quite generally for his living expenses to support him while starting to practise, provided they thought that this was a reasonable thing to do, and that he was a type of person who could reasonably be trusted to make proper use of the money. On the other hand, if the trustees make the advance for a particular purpose which they state, they can quite properly pay it over to the advancee if they reasonably think they can trust him or her to carry out the prescribed purpose. What they cannot do is to prescribe a particular purpose, and then raise and pay the money over to the advancee leaving him or her entirely free, legally and morally, to apply it for that purpose or to spend it in any way he or she chooses, without any responsibility on the trustees even to inquire as to its application.

Failure to appreciate this was one of the root causes of the trouble, for in the first opinion of counsel in 1948 (to which we shall later refer) he advised that the trustees could make an advancement out and out for the purpose of a purchase of a house in the Isle of Man, but he said this purchase " depends on " a voluntary act by the children, and they should, I think, be " separately advised on this point. So far as the trustees are " concerned, they will be paying the money to the children for " their own absolute use." This, we think, was the wrong approach. At that time both Francis and George were studying at university, and it was not suggested that they required any sum for their maintenance there; the only possible justification for advancing the very substantial sum of £5,000 to each of the two boys, one of them 27 and the other just 22, who had no other possible proper use for this money, was to invest it in a house in the Isle of Man, as the settlement powers were insufficient and the advancement could be justified only for that purpose. This error was perpetuated later by the children's solicitor, who got into the habit of advising them that, although purported advancements were, for example, for the repair of a house or for the purchase of furniture, they were sums which the children could " blue," for example, on a horse.

This was wrong and misleading advice. If money was


advanced for an express purpose by the bank, the advanced person was under a duty to carry that purpose out, and he could not properly apply it to another. We are not concerned with the question whether in such circumstances the bank could recover money so misapplied, but this much is plain, that if such misapplication came to . their notice, they could not safely make further advances for particular purposes without making sure that the money was in fact applied to that purpose, since the advancee would have shown him or herself quite irresponsible. I t would be their duty to proceed on future occasions on behalf of the particular child under the second limb of the power.

The first question, therefore, that arises in relation to each of the advances, which we shall consider seriatim, is whether there was a proper exercise of the power under either limb. No question arises as to the consent of the mother, for that was given in every case. If the advance were proper in any particular case, the question of the children's consent, although adult, would not arise; that has been made quite clear in In r.e Pilkington's Will Trusts.2 As there is no express provision in clause 11 requiring the adult beneficiary's consent to the advance being made for his or her benefit, it would not be necessary to obtain that consent, though no doubt any trustee intending to advance an adult beneficiary would normally do so only with his consent and probably only at his request. But, if any advance were an improper exercise of the power in clause 11 (and they all were in the judge's view) what is the position? Prima facie, having improperly exercised the power, the bank would be guilty of a breach of trust and must replace the money misapplied.

Now Mr. Bagnall, for the plaintiffs, has made it clear that in this action each beneficiary is suing to recover only the advances purported to have been made to him or her, or for his or her benefit. This is not a case where any beneficiary is seeking to compel the trustees to replace trust funds wrongly applied, or paid away to some other beneficiary. Had that been the case, different considerations would, no doubt, have applied. But in the circumstances of this case it is clear to us that if the bank can establish a valid request or consent by the advanced beneficiary to the advance in question, that is a good defence on the part of the bank to the beneficiary's claim, even though it be plain that the advance was made in breach of trust. But (and this is really the second question) this consent or request, Mr.

C. A.

1963

PAULINO'S SBITLBMENT

TRUSTS, In re.

2 [1964] A.C. 612.


C. A. Bagnail submitted, must be the spontaneous act of the child; 1963 and it has been alleged in the pleadings that in the circumstances

;— of this case each of the children at the time of the respective SETTLEMENT a<lvances to them must be presumed to have been under the

TRUSTS, undue influence of their parents as they had but recently attained ™" full age; therefore, he says, their requests and consents cannot be

relied upon by the bank. The doctrine of undue influence, much discussed before us,

merely arises out of the fact that while equity approves of gifts by a father to a child, and therefore invented the doctrine of presumption of advancement, so on the other hand it dislikes and distrusts gifts by a child to a parent, and therefore invented the presumption of undue influence. Both these presumptions merely mean, in our opinion, that in the absence of evidence, or if the evidence on each side be evenly balanced, in the first case equity will presume that the parent who puts property in a child's name intends to make a gift or give a benefit to the child, while on the other hand money or property passing from the child to the parent cannot be retained by the latter because it is assumed that so unnatural a transaction would have been brought about by undue use of the natural influence that a parent has over a child, and of the filial obedience which a child owes to his parent. Both presumptions may be rebutted; each is in truth a convenient device in aid of decisions on facts often lost in obscurity, whether owing to the lapse of time or the death of the parties.

Where the presumption of undue influence exists, a gift by a child cannot be retained by a parent unless he or she can show,, first, that the gift was the spontaneous act of the child, and, secondly, that the child knew what his rights were. Thirdly, it is desirable, though not essential, that a child should have independent, and, if possible, professional, advice before making a gift. " In such a case the court," said Cotton L.J. in Allcard v. Skinner,3 " sets aside the voluntary gift, unless it is proved that " i n fact the gift was the spontaneous act of the donor acting " under circumstances which enabled him to exercise an indepen-" dent will and which justifies the court in holding that the gift' " was the result of a free exercise of the donor's will." The whole question is fully discussed in the leading case of Huguenin v. Baseley4 and the notes to that case in White and Tudor, 8th ed. (1910), vol. 1, pp. 259-302. The result is well stated by Farwell

a (1887) 36 Ch.D. 145, 171. 4 (1807) 14 Ves. 273.


J . in Powell v. Powell5: " A man of mature age and experience ' can make a gift to his father or mother because he stands free ' of all overriding influence except such as may spring from what ' I may call filial piety; but a young person (male or female) just ' of age requires the intervention of an independent mind and will, '..acting on his or her behalf and interest solely, in order to put ', him or her on an equality with the maturer donor who is capable ' of taking care of himself."

The question of the duration of the presumption has also been much discussed. Lord Cranworth L.C. considered that it should be taken as a period of a year after the child attained 21 (see Smith v . Kay 6) but this has not been received with approval. In our judgment the question is one of fact and degree. One begins with a strong presumption in the case of a child just 21 living at h o m e l a n d this will grow less and less as the child goes out in the world and leaves the shelter of his home. Nevertheless, the presumption normally lasts only a " short " t ime after the child has attained 21 (see Lancashire Loans Ltd. v . Black,7 per Greer L .J . 8 ) , and it seems impossible and undesirable to define it further. A married daughter with a separate establishment of her own may be emancipated directly she attains 21, whereas a spinster who has never left home might be able to rely on the presumption for a longer period. We reject, however, Mr. Bag-nail 's submission tha t this presumption continues indefinitely until it is proved that the undue influence has ceased to exist. That is to confuse a case of actual undue influence with the presumption. On the other hand, it may not be difficult for a spinster daughter living at home to prove a case of actual undue influence for many years after she has attained the age of 21 . In the present case it is important to remember that only the presumption is relied on; no actual undue influence is alleged.

Then Sir Milner argued tha t trustees who have obtained no benefit from payments induced by undue influence could not be held liable, and that the only person who could be sued would be the parent presumed to have exercised the undue influence, or any person (short of a bona fide purchaser for value) who received the benefit of the payments . On the other hand, Mr. Bagnall argued tha t the bank were in the position of volunteers, and therefore could not escape the consequences of dealing in breach

C. A.

1963


TBDSTS, In re.

H.L.

[1900] 1 Ch. 243, 246. (1859) 7 H.L.Cas. 750, 772,

■> [1934] 1 K.B. 380, C.A. 8 Ibid. 419.


C. A. of trust with a beneficiary presumed to have been actuated by lg63 the undue influence of a third party; they were at risk just as any

;— other volunteer who takes the property acquired in breach of SETTLEMENT trust. In the circumstances of this case, we do not think it

TRUSTS, necessary to express a concluded opinion upon this matter except ' to say that we reject Sir Milner Holland's argument that the

bank cannot be made liable unless they received some benefit from the breach of trust. It seems to us in principle that a trustee dealing in breach of trust with a beneficiary who has just attained the age of 21 years must realise the danger that such beneficiary may be acting under the influence of a parent. We do not see how a trustee can possibly escape the consequences of that knowledge. Some support for this view is to be found in King v. King,9 a case of a suspected fraud on a power. Without expressing a final opinion, we think that the true view may be{ that a trustee carrying out a transaction in breach of trust may be liable if he knew, or ought to have known, that the beneficiary was acting under the undue influence of another, or may be presumed to have done so, but will not be liable if it cannot be established that he so knew, or ought to have known.

That is sufficient for the purposes of the present case, for, of course, the bank knew very exactly the ages of each of the children, and they knew further that as each child attained 21, that child received advances from the bank which went straight into the banking account of the mother. Indeed, in Ann's case plans were made to effect this unhappy result even before the child attained 21. Accordingly, it seems to us clear that if it can be established that the presumption exists in any given case, the bank are fixed with notice of it and cannot rely on any consents given under such influence.

The bank also rely for relief from the consequences of any breach of trust upon section 61 of the Trustee Act, 1925. At this stage all we propose to say is that it would be a misconstruction of the section to say that it does not apply to professional trustees, but, as was pointed out in the Judicial Committee of the Privy Council in National Trustees Company of Australasia Ltd. v. General Finance Company of Australasia Ltd.,10 " . . . " without saying that the remedial provisions of the section should " never be applied to a trustee in the position of the appellants, " their Lordships think it is a circumstance to be taken into

» (1857) 1 De G. & J. 663. 10 [1905] A.C. 373, 381; 21 T.L.R. 522, P.C.


" account . . . " Where a banker undertakes to act as a paid trustee of a settlement created by a customer, and so deliberately places itself in a position where its duty as trustee conflicts with its interest as a banker, we think that the court should be very slow to relieve such a trustee under the provisions of the section.

We propose to deal with the bank's plea of the Limitation Act, 1939, and the pleas of laches, acquiescence and delay when we have considered the detailed transactions. It only remains to state that the question of law on which this case was reported in the court below, In re Pauling's Settlement Trusts,11 has not been argued before us, and many of the cases there cited have not been cited to us. Mr. Bagnall, however, accepts as accurate the proposition that " The result of these authorities appears to " me [Wilberforce J.] to be that the court has to consider all " the circumstances in which the concurrence of the cestui que " trust was given with a view to seeing whether it is fair and " equitable that, having given his concurrence, he should after-" wards turn round and sue the trustees: that, subject to this, it ' ' is not necessary that he should know that what he is concurring ". in is a breach of trust, provided that he fully understands what " h e is concurring in, and that it is not necessary that he should " himself have directly benefited by the breach of trust." 12 We express no opinion on it.

We now deal with the impugned transactions seriatim. Up to 1947 the family lived in a large country house in Gloucestershire purchased with marriage settlement funds under the power contained in clause 14, already mentioned. When it became necessary, owing to financial stringency, to sell this house, the commander conceived the idea of purchasing a house in the Isle of Man, one of his principal objects being to reduce his tax liability. It was then discovered that the purchase of a house in the Isle of Man was not authorised by the terms of the marriage settlement, and this led to the commander taking advice from Charles Eussell & Co., who in turn sought counsel's opinion. Counsel confirmed the view that there was no power under clause 14 of the settlement to purchase a house in the Isle of Man, but he advised that the desired object could possibly be achieved in a different way by invoking the power of advancement to the children of the marriage under clause 11. By this time the two eldest children, Francis and George, were over 21, and

C. A.

1963


TRUSTS, In re.

11 [1962] 1 W.L.E. 86; All E.E. 713.

[1962] 3 12 [1962] 1 W.L.E. 86. 108.


In re.

C. A. counsel advised that if they were agreeable, advances could be 1963 made to them of sums sufficient to enable a house to be bought,

;— which they could then settle voluntarily on their mother for life SETTLEMENT w^*k remainder to themselves. Counsel emphasised, however,

TRUSTS, that this could be done only by a voluntary act on the part of the children, and he recommended that they should be separately advised. We have already criticised counsel's approach to clause 11. Francis and George proved to be agreeable to the course suggested, but both disclaimed any desire to be separately advised. Accordingly, on January 10, 1948, the mother requested the bank in writing to raise up to £10,000 from capital, and pay the same as might be directed by her two sons, Francis and George. Francis and George joined in signing a memorandum dated January 12, 1948, the material part of which was in the following terms: " We, the undersigned, Francis George Young-" husband and George Oswald Younghusband, hereby authorise " and request you to apply such sums as may be made available "for our advancement under Mrs. Younghusband's request to " you dated January 10, 1948, in purchasing a property in the " Isle of Man, which it is our intention to settle in accordance " with the suggestion contained in the opinion of counsel dated " December 12, 1947, in a settlement in which you are to be " t h e trustee." In due course the commander found a house called " Oakhill Lodge " in the Isle of Man, which was duly purchased at auction on August 4, 1948, for £8,450 and became the family home for the next seven years.

The commander could not bear to see such a valuable asset as a house on which spending money could be raised disappearing into a settlement on the mother and her two children. At an early stage, long before the house was purchased, the bank, on the commander's instructions, had told Charles Eussell & Co. that it was not intended to settle any of the money to be advanced; yet this change of plan, strangely enough, brought forth no protest, or even comment, from bank or solicitors. But worse was to follow. On October 22, 1948, the bank were writing to Francis about completion of the purchase in the joint names of " you and your brother." Yet on October 26 they wrote this to the Isle of Man solicitors acting for them in connection with the conveyance: "Commander and Mrs. Younghusband's " marriage settlement. We are favoured with your letter of the " 23rd of this month, reference ADK/MT, and, in reply, beg to " say that Oakhill is being purchased with money being taken " out of the above-mentioned trust and placed at the disposal of

1 Ch. CHANCER! DIVISION. 341

' the two eldest sons of Commander and Mrs. Younghusband for ' their advancement under the powers given to us by the settle-' ment. You will appreciate, therefore, that the house will not ' have to be conveyed to us. I t is on the instructions of the ' two sons that the remittance of £7,605 is to be made to you to ' enable you to complete the purchase, but Commander Young-' husband has told us this morning that it is their wish that the ' conveyance should be in favour of himself and Mrs. Young-' husband." Not one word of protest was raised by the bank at

this complete reversal of the scheme envisaged by counsel. They quite calmly applied the money raised for the benefit of the sons in the purchase of a house for the commander and the mother. They never obtained the consent of the sons to this, and the evidence was that the sons never did consent. The subsequent history of the house was that shortly afterwards it was mortgaged by the commander for £5,000, which sum was apparently spent as income. When financial disaster overtook the commander in 1956 (as a result of which he was made bankrupt in the Isle of Man), the house was sold for less than the amount of the mortgage, so that in the event Francis and George lost the whole of their £8,450.

Making all due allowance for the fact that the bank may have misunderstood the effect of clause 11, it does not explain their complete laxity in permitting this transaction to go forward. Even at this early stage they wholly failed to exercise any powers or duties as trustees, and thought only of themselves as bankers to the commander and the mother. We doubt whether the original advance, if counsel's advice had been carried out, would have been a proper exercise of the power, but no harm could come of it, for the new settlement would replace the old, and the position would be safeguarded. But having regard to the way in which the transaction was in fact carried out, they have no defence to the claim to replace this sum, and it is not surprising that the contrary was hardly argued. Any relief under section 61 is out of the question.

This sorry tale of the house does not even end there. On the same day on which, the deposit was paid is found the first payment made direct into the mother's account, then heavily overdrawn. This was a sum of £1,000. The payment arose out of advice given on June 10, 1948, by the bank's solicitors to the effect that it would be proper, in addition to advancing money on the house (upon the footing, of course, that it would be

C. A.

1963

PADLING'S SETTLEMENT

TRUSTS, In re.

342 CHANCERY DIVISION. [1964] C. A. settled on the sons) to advance a sum for the purpose of furnish-1963 m£ i*- The n r s * mention of amount emanated from the

— ; — commander, who fixed it arbitrarily at £1,000, a sum to which SETTLEMENT n e obtained his sons' assent on August 18. The trustees

TRUSTS, accepted this without inquiry, no doubt upon the footing that ' the house would be conveyed to the sons and their consent was

given only on that footing. That assumption was still valid on September 13, 1948, when the sum was credited to the mother's account. The judge found that, this being so, there had been a valid consent, and the bank was excused. We do not accept this. This payment was bound up with the question of the house itself. Once the bank realised there was to be no settlement, it was the duty of the bank to reconsider the whole project. Then, when the bank realised that the house was not going to belong to the boys, but to their parents, the impropriety of purchasing furniture with the boys' money became obvious. Yet they took no steps to remedy the situation. The bank never even took any steps to see whether any furniture was in fact purchased, and none (or almost none) in fact was. All that happened was that the mother's overdraft was reduced by £1,000. The bank was in a delicate position. Their interest as bankers conflicted with their duties as trustees, as they had indeed shown themselves well aware in their letter earlier in the same year. The bank acted in plain breach of their duty most unreasonably, and no question of relief under section 61 of the Trustee Act, 1925, can arise. The appeal is allowed so far as this advance is concerned.

Long before the purchase of the house was completed the commander (inspired apparently by the reasoning of counsel's opinion) conceived the idea that the powers of advancement conferred by clause 11 of the settlement could be used for the purpose of raising further sums up to one-half of each child's presumptive share in the capital of the trust fund, which sums could then be used for paying off Mrs. Younghusband's overdraft, and for living expenses. It was calculated that each child's presumptive share, allowing for a reserve to meet death duties in the event of Mrs. Younghusband dying within five years, would be about £14,000. The commander therefore embarked upon a plan for raising approximately £7,000 to be advanced nominally to each child on attaining the age of twenty-one. With this object in view, the commander, early in 1948, suggested to the bank that further sums be advanced to Francis and George up to a total


of approximately £14,000 with the object of paying off (a) a loan C. A. of £2,600 which the bank, as trustees of another settlement (by gg3 a Mrs. Hodson) had advanced to the mother, and (b) the over- ; draft on the mother's account, which then stood at about £3,000. SETTLEMENT The Hodson loan was secured by the mother's life interest under TRUSTS,

Itl Tt her uncle's will and by four policies on her life to a total value ' of £3,000, the surrender value of which was then about £650.

The commander's first letter on the subject dated January 23, 1948, is characteristic and discloses the whole scheme: " (2) " W.E.T. yr. ESC27 of 21/1 for which many thanks. Would you " be kind enough, in that case, to get a memo signed by our two " sons along the lines of the proposed draft attached herewith? " Otherwise, as I pointed out in my 17/1, a house we may want to "buy might well get sold before we could pay a deposit. We " would, of course, get legal advice here before signing a contract: " To satisfy a vendor that we were entitled to sign one, I suppose " we would need a statement from you that the £10,000 was " available? (3) As this money can be advanced to our sons " unconditionally (which I hadn't realised) wouldn't it be advan-" tageous for all concerned to advance them the full amount "possible (£7,000 each, I think you said in a previous letter) " and use the balance not needed for the house to pay off first the " Hodson loan of (I think) £3,000, and second, as much as " possible of our overdraft of £3,000? From investments yielding " about 3 per cent, we are now paying 5 per cent on the loans " plus, in the first case, 3 per cent, life insurance. (4) If you " agree, would you please send memos to effect this to my wife " and sons for their signatures? If you cannot do so without " further legal advice, it might be as well to await our arrival " before asking for it so that we can make sure that we narrow " the question as much as possible to avoid unnecessary charges."

This letter led to another lamentable and indeed inexplicable transaction. The bank did not at first view these suggestions with much sympathy, and expressed doubt as to whether this would be a proper exercise of their power under clause 11 of the settlement. They took advice from Charles Russell & Co., whose advice was no more encouraging. The commander, however, was importunate and apparently very persuasive. He dropped for. the time being the suggestion of making advances to Francis and George to enable them to pay off the mother's overdraft, but he continued to press his suggestion for raising money to pay off the Hodson loan. In due course Charles Russell & Co.


C. A. advised that, subject to the bank being prepared to exercise 2953 their discretion, this might be a proper exercise of the power

~~ ; conferred by clause 11 provided that Francis and George received SETTLEMENT a n adequate quid pro quo. What was envisaged was (a) that the

TJRCSTS, four iife policies should be assigned absolutely to Francis and ' George; (b) that the mother should execute a covenant to main

tain the premiums on the policies; and (c) that the mother should also execute a covenant to pay a fair rate of interest on the money advanced. This would result in Francis and George receiving £3,000 on the death of the mother in return for the £2,600 advanced, as well as having an immediate income from the payment of the interest. Charles Eussell & Co. further recommended that Francis and George should be separately advised. In pursuance of this, Burrell of Farrer & Co. was instructed on their behalf. He interviewed Francis and George, explained the suggested arrangement to them, and satisfied himself that they wished it to be carried out. He advised, however, that in addition to the other requirements, the mother should execute a codicil to her will giving a legacy to Francis and George of such an amount as would cover the death duties payable on the policies in the event of her dying within five years.

The scheme as advised by Charles Eussell & Co. might at a pinch be justified as an exercise of the power under clause 11, though we cannot understand how a charge on the mother's life interest under her other settlement was omitted, but as carried out the transaction was disastrously different. The necessary assignment was drafted by Charles Eussell & Co. and was in due course executed by the mother, who also made a codicil to her will. Whether or not due to an oversight, the assignment as drafted and executed contained no express covenant on the part of the mother either to maintain the premiums on the policies or to pay any interest to Francis and George on the amount advanced. Burrell, however, approved the draft on behalf of the boys without ever consulting them. Accordingly, in due course, at the request of the mother, and with the consent of Francis and George, a sum of £2,600 was raised and paid over to the mother, who applied it for paying off the Hodson loan. I t is important to observe that although legal advice was taken in connection with this transaction, and although Francis and George were separately advised, the transaction as actually carried out differed materially and to the disadvantage of Francis and George from . that which had been advised and explained


to them. All the sons got in return for the expenditure of £2,600 extracted from their expectancies and paid to the bank in release of their mother's debt were policies with a surrender value of £650, and probably an implied covenant to keep up payment of the premiums.

The payment of this sum was a clear breach of trust. In this case the sons did have separate advice, but what they approved was the proposed, not the actual, transaction, of which latter they never knew, and to which they never consented. How their solicitor came to approve the assignment we cannot understand. He completely failed in his duty to his clients. The boys never saw it and, though expressed to' be parties, never executed it; this was, no doubt, unnecessary. Yet Burrell wrote this letter dated August 25, 1948, to the bank: "Dear " Sirs, Commander and Mrs. Younghusband's marriage settle-" ment. We enclose a copy of the letter which Mr. Fletcher, of " Messrs. Charles Eussell & Co., has written to Mr. Burrell. We " have now satisfied ourselves that, so far as the sons are con-" cerned, this matter is in a satisfactory state, and therefore we " should be obliged if you would complete it with Mr. Fletcher " when he makes an appointment to do so. We are, dear sirs, " Yours faithfully, Farrer & Co." A less satisfactory state could hardly be imagined. Charles Eussell & Co. equally failed in their duty to the bank to- see that the transaction was carried out in accordance with the advice they had given. As carried out, the transaction plainly could not be justified as an exercise of the power under clause 11, and, of course, the bank cannot hide behind the negligence of their own advisers for whose neglect they must, as between them and their beneficiaries, assume full responsibility. The payment being, therefore, a plain breach of trust, the fact that the boys were badly advised is no defence for the bank. The bank must show that the boys consented to the breach of trust; this on the evidence they cannot do. The members of the court differ, however, upon the question whether the bank should be relieved under section 61 of the Trustee Act, 1925, and if so to what extent. On this point alone, therefore, separate judgments will be delivered.

C. A.

1963


TRUSTS, In re.

UPJOHN L.J. continuing reading the judgment of the court: Later in 1948 the commander returned to the suggestion of raising another £2,000 so as to bring the total advanced to Francis and George up to approximately £14,000. . The bank was not


C. A. at first prepared to make this further advance, and in this it iggg was supported by the advice of Charles Bussell & Co. The com-

; mander, however, continued to press his request, and alleged SETTLEMENT that the money was needed to pay for improvements to the

TRUSTS, recently purchased house in the Isle of Man. At the request ' of the bank he promised to submit accounts in respect of the

improvements, showing what had been or had to be paid, but in fact this was never done. Eventually, at an interview which took place in April 1949, when the commander was on a visit to London, he prevailed upon the bank to let him have a form for Francis and George to sign, or at least instructions as to what they should say in order to justify the proposed advance of £2,000. He is recorded as having informed the bank that Francis and George would sign whatever was necessary. This remark is highly relevant to the question (which we shall consider later) as to the extent to which Francis and George at this date could be said to be emancipated from parental influence. The upshot was that on or about April 29, 1949, Francis and George signed a document drafted by the bank in the following terms: ' ' With " reference to the further sum of not exceeding £2,000 which: " you are raising in accordance with the terms of the above-" mentioned settlement for payment to us in equal shares by " way of advancement, we hereby authorise and request you to " place the money when raised to the account in your books of " Mrs. E. Violet Younghusband. We fully appreciate that the " money in question has been or is being used for the purpose " of making improvements to the property in the Isle of Man " belonging to Mrs. Younghusband." As a result, £2,000 was raised and. on- May 13, 1949, paid into the mother's account. It will be seen that in this case there was no pretence that the money raised was being used for the benefit of Francis and George.

Furthermore, it will be observed that this was not a request by the sons to make an advance, but a consent to a transaction already decided upon by the bank. The document emanates from the bank and was forwarded to the father by them with a view to his procuring the signatures. Its object was to protect the bank against what we cannot help thinking they knew very well to be a breach of trust. The sons had no separate advice. Nevertheless, they were of age, and competent to make their parents a present if they really wished, and the only question is whether the document we have just read was procured by the presumed undue influence of the father. We have already


discussed the law on this matter, and the real question is whether c- A-on the facts the presumption applies to this case. If it does, 1963 the bank has made no attempt to rebut it. ~~~ ;

PAOLING S It seems to us that the whole picture must be looked at, and SETTLEMENT

it is from the documents that a fairly clear view can be had. JOUSTS, It does not appear that the mother, the source of the money, was more than a cypher willing to sign whatever her husband put before her. He controlled the family fortune by his right to draw on the family banking account, and he assumed throughout that what he said would go. As we have already said, he was the originator of all the transactions complained of here. His method was to cajole the bank into going as far as they thought they dared, and then to prepare what he called " chits " (or sometimes got them prepared by the bank) and send them to his wife or the child or children concerned for signature. So far this looks like a typical case where undue influence ought to be presumed, but the judge, who saw the witnesses, was chary of acting upon the presumption. The impression he got was of a united family determined to extract from the bank by hook or by crook the money necessary to continue its extravagant way of life. On this view of it, the passage we have quoted about the sons being willing to sign anything bears a less sinister aspect. At the time of this advance the son George was twenty-three years old. He had done his military service, and was up at Cambridge. The judge thought him an exceptionally able young man, well acquainted with his rights, and able to take care of himself. He had no separate advice about this £2,000 advance, but he had been advised about the Hodson loan transaction, and in the course of receiving the explanations then offered he must have realised what the power was which the trustees were purporting to exercise. Indeed, the fatal opinion of counsel advising on the possibility of using clause 11 to purchase a house in the Isle of Man was, on the evidence, familiar not only to George, but to Ann. The judge held that he was emancipated from parental control, and well enough acquainted with his position to make his consent to this advance binding upon him, and this court cannot reverse that finding, depending, as it does, so much upon the demeanour of the witness.

The case of the other son, Francis, is quite different. He was at this time 28 years old, and was apparently living for the most part with his grandmother, so that he was removed from immediate parental control. On the other hand, we now know that


C. A. he was a schizophrenic. This diagnosis had been made in 1940 1963 when he found one day of life in the Eoyal Air Force altogether

; — too much for him, and was repeated by a doctor who saw him in SETTLEMENT 1951- He was not called by either side, it being agreed that his

TRUSTS, memory was not at all to be trusted. Consent to this, as to ' other transactions in which he was involved, was written out and

sent to him by his father. There is no letter from him anywhere in the correspondence. No representative of the bank ever saw him. He was obviously left purposely in the background. On the other hand, he was capable of teaching in a boys school, which he did for two years towards the end of the war, and was accepted for entry to Edinburgh University after the war, where also he continued for two years as a student. Further, when he went with his brother to be advised over the Hodson loan, the partner in Farrer & Co. who saw him thought him capable of understanding the transaction. Moreover, it has never been alleged that he was at any material time incapacitated from contracting or conducting business affairs by reason of his mental health, though we cannot think that if the bank had known of his history of ill-health they would have acted on the consents he. returned signed to his father. But the bank did not know the facts. We have considered anxiously whether, before making an advance, they should have made some inquiry into his circumstances. It is alleged in the particulars of the statement of claim (paragraph 10) that the law presumes undue influence to exist between a person suffering from mental ill-health and the person with whom he resides; but in the end Mr. Bagnail rightly abandoned this plea, for there is no such presumption though actual undue influence may not be difficult to prove. The presumption exists only as to the medical adviser. On the whole, we do not feel able to say that the presumption of undue influence must be held to exist between Francis and his parents having regard to his age and his absence from home, and we conclude that the bank were not bound to make inquiries as to his state of mind or fitness as an object of the power they were affecting to exercise. Accordingly, though this was the plainest breach of trust, we agree with the judge that the bank have a good defence, for they obtained consents from the two children concerned, and they were emancipated.

The completion of this transaction exhausted the amount which could be raised for the purpose of advancement to Francis and George. The next victim on the list was the daughter Ann. Even before she attained 21 in March, 1949, her father was


looking about for ways of spending her money, and broaching C. A. the subject to the bank. He very soon seems to have concluded - ggg that, having acquired a country residence at the expense of his ;

u i J i i. u i. i i . PAULING'S

sons, it would now be a good plan to get a town house at the SETTLEMENT expense of his daughter. I t is indeed fortunate for her that the TBDSTS, proposed house, which was in Chelsea, was put into her name, ' probably to preserve the fiction that the parents were living in the Isle of Man. The commander's campaign began in February, 1949, and the proposal for a Chelsea house which he found first emerged on March 14, his daughter being still an infant. The trustees had taken the advice of their solicitors as to their power of advancement, and had received the Delphic advice that it was not " qualified in any way." The solicitors added that the young lady should be separately advised. The bank seems to have accepted without any qualms the commander's proposal that the daughter's money should be used to buy the Chelsea house of his choice as a residence for the family. Why the bank should entertain this proposal passes our comprehension. The girl was in her first year at Oxford, and there was no reason at all why her expectant share should be spent in buying a house and furnishing it for her family's use. A family in these comparatively straitened circumstances had no justification for having two houses. This project, in our judgment, was clearly an improper use of the power, made in order to suit the father, and without any proper regard to the benefit of the daughter. Having regard to her age, it is clear that the presumption of undue influence applies to this transaction. She, however, was anxious to embark on this speculation. The house apparently was in a semi-ruinous condition, and was not a purchase on which trustees could properly have laid out trust money. They had power to buy a house out of capital, but this expedient was never even considered, again for fiscal reasons. As we have said, Ann was luckier than her brothers, for the purchase was to be in her name, and she received separate advice by a solicitor who saw to it that the conveyance to her was properly concluded. A member of his firm also gave her excellent advice against the transaction which she chose to ignore. As a result, sums amounting in the whole to £4,789 were applied in the purchase and repair and decoration of this house. Luckily for the bank, property in Chelsea of whatever sort has appreciated very much in value. When Ann married in 1952 the house became in truth hers, and she has since disposed of it to advantage and recognises that, having had the money once, she cannot claim it again. This sum, however, did not

1 CH. 1964. 24


C. A. exhaust her expectant share of £7,000, and under her father's ^§3 influence a further sum of £3,260 was advanced to the father or

; — the mother nominally for the further improvement and furnishing SETTLEMENT °f * n e Chelsea house, but in fact spent on the Isle of Man house,

TRUSTS, 0r used to support her mother's overdraft. This sum Ann claims ' from the bank in the action.

I t is not at all easy to follow the sequence of events on this point. I t seems plain enough that the bank, after refusing to entertain the purchase of the Chelsea house, were talked into it by the commander. In March they informed the father and Ann that they would not entertain the matter, but in the same month (and in spite of advice from their own solicitors against it) they changed their mind and agreed to pay for the price of the house and up to £1,000 for repairs. The first mention of furniture, apart from decorations, comes in a memorandum of March 21, 1949, of an interview with the commander which shows that he asked for an additional £1,000 to cover furniture. It does not appear when this was assented to, but apparently it was, for in September a sum of £660 was credited to Ann against money she paid to her father pretendedly for the purchase of furniture. In November a sum of £400 was credited to her mother for the same purpose; on January 14, 1950, another £400, and in March £600 more. In May a further £200 was paid to the mother's account, and finally £1,000 on August 21. In the intervals between these payments the bank made a few ineffectual protests and asked to see bills, but never insisted, and it is evident that they exercised no discretion at all as to the amount needed for furniture first stated to be £1,000, and gradually increased to reach £3,260.

There is no doubt that Ann asked for each of these sums to be advanced, and it is clear that on each such occasion that Ann requested these advances she did so in writing, and represented that they were required for furniture, etc., well knowing in fact that only about £300 was expended on the purchase of furniture from start to finish. The rest went in the family living expenses through the mother's account. Of course, Ann appreciated that these representations were untrue; " silly lies," as she said in the witness-box. The judge refused to give relief to Ann in these respects. He carefully set out the details of the payments. We think it is to be inferred that he did not believe that Ann was so innocent as she pretended in the witness-box, saying that she always regarded the money as her mother's. Nevertheless, the judge was clearly of opinion that a presumption of undue influence applied in Ann's case because he stated it was essential that she


should.have independent advice on the transaction. Independent C. A. advice she did have on the purchase of the house, but none upon 196g the expenditure on furniture, which was quite a separate matter, ; — and this the judge overlooked. The judge says that the bank SETTLEMENT acted on the faith of untrue statements by Ann, and refused Ann TRUSTS, relief on this ground. We cannot agree with this. If the judge ' meant no more than that the bank required some document signed by Ann stating that the money was required for furniture, we agree with him, but we do not think that the bank can have really acted on a sincere belief in the truth of the representations; their supine conduct shows that they really could have no more than a pious hope, which they did not dare to test by pressing to see receipts for the purchase of this vast quantity of furniture, that most of it was being invested in furniture. A moment's study of the mother's account at this time would have shown that even this was improbable. They merely wanted some document .which, as they thought, would give legal justification for making the payments.

Further, it seems to us that these very untrue statements must be treated as issuing out of the presumed undue influence of her father, made, as they were, either to the bank in his presence, or by arrangement with him. Finally, we do not consider that these statements, if true, would, as the judge held, have justified the advances, though furniture bought and taken by Ann and retained by her might have afforded some defence to the breach of trust. The bank at this stage ought to have had their eyes wide open to the situation and insisted on calling a halt to this reckless expenditure apparently for furniture. Ann by her counsel concedes that she must give credit for £300 of furniture actually purchased. Subject to that, we feel constrained to come to the conclusion that, without separate advice, the bank cannot rely on the assent of this young girl to gifts direct into her mother's and father's pockets, and we hold the bank liable in respect of advances numbered 8, 10, 12, 17, 18, half of 20 and 22 as set out in the statement of claim, and pro tanto allow the appeal accordingly. Having behaved unreasonably, the bank cannot rely on section 61.

Ann's portion had now been fully used, but there remained one chicken to be plucked, a younger brother, Anthony, then a young man serving with " The Blues " in Germany. He attained 21 on June 15, 1951, and three days after that event there is recorded an interview with the father, the terms of which are too important to omit. " Date June 18, 1951. Interview with


C. A. " Commander Younghusband. They want £2,000 to be raised 1963 " ^or the youngest son. Mr. Burrell is to write to the boy

~~ ; — " explaining that the money will be his to do as he likes with, SETTLEMENT " an& when that has been done and we receive Mrs. Young-

TRUSTS, " husband's formal request we are to raise the money and get " " the boy's directions for its disposal."

As the judge said, the process had become streamlined. So long as Burrell could write a letter telling the boy the money was his, all else would be automatic. This is exactly what happened. Burrell wrote a most perfunctory letter to the young man in Germany which he agreed in the witness-box could not constitute proper separate advice, and in fairness to him was not intended to be more than a pipe opener to a lawyer's relationship with a potential client, and between July 11, 1951, and February 7, 1952, £6,500 was paid straight into the mother's account. There is one payment which is characteristic. The father had succeeded to the tune of £1,000 in raising the wind by a charge on Ann's house, and half the first payment to Anthony was used to repay the bank this amount, thus robbing Anthony to pay Ann. There was not even a pretence in any instance of any countervailing benefit to Anthony except as mentioned later. We do not feel any doubt that the bank is liable on these payments, as the judge held. Eelief under section 61 is out of the question.

The story does not end there. In 1953 and 1954 the bank revalued the assets in the trust. Accordingly, when the father in June, 1953, " called to inquire whether he could borrow a few "hundred pounds," the bank (whose words these are) after looking into the figures, without any inquiry whatever as to the purpose except that the father was in what he called " an awful " hole," cheerfully agreed to advance to him a further £1,200, and suggested that it should be taken out of the shares of Francis, George and Ann in shares designed to make their advances equal. Fortunately for him, Anthony escaped this raid. Between September, 1953, and June, 1954, the advances specified in the statement of claim under numbers 28 to 35 inclusive were made direct to the father or mother; they aggregated the grand total of £5,350. Nobody pretends that these were not breaches of trust, but they were assented to by each of the three children. We have already concluded that Francis and George must be taken to be emancipated by this time, and so, we hold, was Ann. She had been married in 1952 and was living in her Chelsea house with her husband. In these circumstances, the judge rightly


held that these sums were not recoverable. The bank refused to C. A. make any further advances, not because of the slightest doubts 1963 as to the grave impropriety of their conduct over the. last six ;— years, but because they thought that if they parted with anything SETTLEMENT more they might not be protected against a possible claim for TBUSTS, estate duty if the mother should die within five years of any ' particular advance.

The bank pleads the Limitation Act, 1939, and as to this we wholly agree with what the judge said and need not repeat it. So, too, as to the defence of laches. As to acquiescence, we think that this must be looked at rather broadly. We were, of course, pressed with the leading case of Allcard v. Skinner,13 but in that case the plaintiff had had her rights fully explained to her by a brother, who was a barrister, and by her solicitor, and yet she took no steps until five or six years later. Even that gave rise to a difference of opinion in a very strong Court of Appeal. In this case it would be wrong, we feel, to place any disability upon the beneficiaries because it so happened that George was a member of the bar, and had been in well-known chambers. He had not been in Chancery chambers where it may be said that these things are better understood; but the real truth of the matter is that a party cannot be held to have acquiesced unless he knew, or ought to have known, what his rights were. On the facts of this case we cannot criticise any of the plaintiffs for failing to appreciate their rights until another junior counsel, whom they consulted on a far-fetched and futile scheme of George's for avoiding estate duty on his mother's death, advised that the advances might be improper. That was in 1954, and thereupon the family, headed, of course, by George, took immediate steps to explore this matter. This is a most complicated action, and many matters had to be explored before an action for breach of trust could properly be mounted. The writ was issued in 1958, and we do not think it right to hold that the plaintiffs were debarred by acquiescence from bringing an action which otherwise, to the. extent we have indicated, is justified.

We have already dealt with the impact of section 61 in general and in detail as we have gone through the various impugned transactions, and on that we need say nothing further. That leaves only one matter for our consideration, for the judge held that in regard to Anthony he ought to direct an account whereby Anthony would have to give credit for certain payments which he received

" (1887) 36 Ch.D. 145.


C. A. from his mother 's account. Anthony had an account with the 1963 bank, and through the kindness of his parents received the benefit

~~ - — of an arrangement made long before the payments in question SETTLEMENT whereby, whenever he was overdrawn, his account should be

TRUSTS, replenished up to £40. If he overdrew to a greater extent than ' that , he did not receive this benefit; but he was wise enough, as we

look at his account, never to do so. Furthermore, he had received for some time a trivial allowance, for an officer in " The B l u e s , " of £25 a quarter from his parents. I t was argued (and the judge agreed in principle) that as his account was being replenished in these ways from his parent ' s account, he should, instead of being able to claim that the whole amount of £6,500 should be replaced to the trust , bring into account the amount of money which had been transferred to his own personal account. The question is whether the judge was right in accepting that view. Acting on two authorities, Raby v. Ridehalgh 14 and Chillingivorth v . Chambers 15

he apparently discerned some principle which he thought entitled him to direct an inquiry whereby Anthony would have to account for the sums which he had received through his mother ' s account in this way. Before us counsel for the defendants rightly did not a t tempt to argue that those two cases supported the judge's view of the law. We do not doubt that if in fact money were paid by direction of the son to his mother 's account, or (and it mat ters not, as we think) to the son's account, and then overnight to the mother ' s account, on an understanding that some part of it was to be used to discharge the son's indebtedness to others, he must accept the position that the part so used must be treated as a payment to him. However, the facts fall far short of that in this case, and it was never sought to justify these payments on any such ground. All tha t was argued was tha t as the son had in fact received, albeit indirectly, the benefit of certain of these payments , he should to that extent account for them. This seems to us not to present any equitable principle of defence in the mouth of a defaulting trustee. In order to escape, the bank would really have to establish that payment to the mother ' s account was pro tanto a payment to Anthony. The t ru th of the mat ter is tha t Anthony, under the presumed undue influence of the commander, was paying very large sums to his mother ' s account which went to the general family living expenses, some of which he, in a general way, enjoyed as a member of the family, and some of which he enjoyed in a more particular way because it found its way into his account

>* (1855) 7 De G.M. & G. 104. « [1896] 1 Ch. 685; 12 T.L.R. 217, C.A.


under arrangements which had nothing to do with the advances. C. A. We cannot see how that circumstance entitles a defaulting trustee jggg to any account even if, which we doubt, it would be possible to ;— frame any inquiry which it would be possible to answer. On this SETTLEMENT point we allow the appeal and discharge the order for an account. TRUSTS,

We summarise our conclusions on the whole matter thus: ' (1) As to the claim in respect of the money expended on the

purchase of the house in the Isle of Man we agree with the judge, and we dismiss the cross-appeal on this.

(2) As to the sum of £1,000 purported to be expended upon furniture for that house, we disagree with the judge, and we allow the appeal to that extent. This sum must be replaced by the bank.

(3) As to the £2,600 loan to repay the Hodson settlement, we allow the appeal to this extent, that that sum must be replaced by the bank; but the majority of the court feels that section 61 of the Trustee Act, 1925, should relieve the bank, but only to the extent of the surrender value in 1948 of the policies transferred to Francis and George.

(4) With regard to the £2,000 raised for the alleged purpose of purchasing furniture in the Isle of Man, we agree with the judge and dismiss the appeal.

(5) As to Ann, we think that, notwithstanding her disregard of the truth, the bank must replace the advances of £3,260 made to her, subject to giving credit for the sum of £300 which was in fact actually expended upon furniture. The appeal is allowed pro tanto.

(6) We agree with the judge that the bank must replace the sum of £6,500 advanced to Anthony, but we disagree with the judge that he should have to account for any sums received by him through his mother's account, and we allow the appeal accordingly and dismiss the cross-appeal.

(7) As to the final series of advances aggregating £5,350, we agree with the judge and dismiss the appeal.

The appeal will be restored to the list for argument as to the exact form of order and as to costs on a mutually convenient day when counsel have had an opportunity of considering this judgment in detail.

WILLMEB L.J. The judgment I am now about to read is my own judgment on the outstanding point.

I have the misfortune to differ from my brethren as to the degree of relief which ought to be accorded to the bank under section 61 of the Trustee Act, 1925, in respect of their breach of


C. A. 1963


TRUSTS, In re.

Willmer L.J.

trust regarding what has been described as the Hodson loan transaction. All of us are agreed that in the very special circumstances of this case the bank should be accorded some relief notwithstanding the fact that they were professional trustees paid for their services. But whereas my brethren think that the bank should be relieved only in part, I take the view that if relief is to be accorded at all, it should be accorded in full. I can see no logical reason for stopping short of relief in full. The special circumstance which, in the view of all of us, entitles the bank to relief is the fact that the solicitor specially appointed by the bank to give separate advice to, and protect the interests of, Francis and George, failed to ensure that the transaction was carried out in the way which had been advised by Charles Kussell & Co. and agreed to by the boys themselves. The bank, though clearly in breach of trust, were quite innocent in the matter. They were not the cause of any part of the loss which resulted. Accordingly if, as I think, they are entitled to relief under section 61, they should, in my view, be relieved in full.

I venture to criticise the order proposed by my brethren in relation to this transaction on the ground that, although purporting to grant relief under section 61, it does not in fact result in any relief at all. For even without section 61, I do not see how the bank could have been made liable for more than the amount of the loss actually sustained through the transaction being carried out as it was. Francis and George in fact received the life policies, the surrender value of which was said to be £650 in 1948. They retained the policies until 1953, by which time they had no doubt increased considerably in value since the payment of premiums was in fact maintained by the mother. The boys then quite voluntarily gave the policies back to their mother, apparently for the purpose of enabling the commander to raise more money by charging them again. In so far as the boys gave away a tangible asset of value, their loss was due to their own voluntary act, and not to the bank's original breach of trust. Quite apart from section 61, therefore, I should have thought that in any case the bank could not have been made liable for the whole of the £2,600, but that credit ought to be given for the surrender value of the policies in 1953.

On the same principle, it has been rightly conceded on behalf of Ann that, in so far as she has herself retained the moneys advanced to her, she cannot claim to recover them again. If, therefore as we all agree, relief under section 61 should be


accorded, this should, in my view, result in giving the bank some C. A. relief beyond that to which they would in any event have been jggg entitled. For my part, I would relieve the bank entirely in respect

, ; , . or, a n n PAULING'S

of this £2,600. SETTLEMENT

UPJOHN L.J . : Harman L.J. is not able to be here this morning, and asks me to say that he concurs in the judgment which I am about to deliver.

This judgment deals only with the question of the liability of the bank in relation to the Hodson trust.

Willmer L.J. has expressed the view that, apart altogether from any relief under section 61 of the Trustee Act, 1925, the bank could not be made liable for more than the amount of the loss actually sustained through the transaction being carried out as it was; and as Francis and George received the life policies, he has held that they must give credit for at least the surrender value of the policies at the date of the transaction. I regret that I am unable to share this view.

The transaction as carried out was a complete breach of trust, and entirely unauthorised by clause 11. Therefore the bank must replace to the trust funds the £2,600 misapplied. Test it in this way. Suppose that Francis and George had still the policies, could the bank, on being ordered to replace £2,600 to the trust, claim that they were only bound to do so on having replaced to them the policies, or at any rate at least upon receiving credit for the 1948 surrender value of the policies? It is, in my judgment, not the law that the plaintiff, rightly suing for breach of trust, must account for every benefit he may have incidentally received. What right have the bank to claim some set-off from the plain consequences of their breach of trust? I can see no possible equity which entitles the bank to do so. In fairness to the bank, let it be said that their counsel never argued that they had any right (apart from section 61) to claim any such credit.

On the other hand, of course, as the judgment of the court has pointed out, it cannot be doubted that a beneficiary who has consented to a transaction in breach of trust must be prepared to accept the consequences and give credit for the money or property that he has received. That principle, in my judgment, cannot be applied to the case of the Hodson trust for the very simple reason that, as the judgment of the court has declared, Francis and George never consented to the transaction as it was in fact carried out, and indeed they were wholly ignorant of it. Therefore, the principle that they must accept the consequences of a breach of

TRUSTS, In re.


C. A.

1963


TBOSTS, In re.

Upjohn L.J.

trust to which they have consented has no application at all, in my judgment, to these circumstances. The boys received the policies, as they thought, as part of a larger transaction which would give them security and a profit on their mother's death. Through the failure of the legal advisers of the boys and of the bank, this transaction was not carried out at all, and it gave them nothing except the policies. For my part, in those circumstances, I entirely fail to understand why Francis and George have to give credit for any property which has passed to them under a transaction of which they never knew, and never gave their consent. In law the bank made them a present of the policies.

Willmer L.J. has drawn a parallel between this transaction and the transaction in which Ann conceded that she must give credit for the moneys advanced to her of which she retained the benefit. With all respect, I do not follow this. Ann conceded rightly that she must give credit for the moneys in fact applied for her benefit for the reason that, as she requested money to be applied in the purchase of a house and decorations etc., she must account for the moneys so applied in accordance with her request. That was in accordance with the general principle I have just stated, that he or she who has consented to a transaction in breach of trust must give credit for the benefit he or she has received. There is no parallel in the Hodson settlement where there was no such consent, nor any application of money at the boys' request as the transaction turned out. Accordingly, for my part I am quite unable to accept the view that Willmer L.J. has expressed that, apart altogether from section 61, Francis and George would have to account in some measure for the policies which were in fact transferred into their names.

In my judgment, therefore, the only question that arises is whether the bank should be relieved from the consequences of their breach of trust under section 61 of the Trustee Act, 1925, to any, and if so, what extent. This, I think, is a very difficult question. The judgment of the court has already pointed out that the bank were personally innocent, but they were ill-advised by their own solicitors; but the bank must accept responsibility for such negligence, and section 61 cannot possibly be invoked to relieve them from its consequences without more. The circumstance that seems to me to make the application of the section possible is that the bank received the letter quoted in the judgment of the court written by Burrell on behalf of Francis and George saying that the matter was in a satisfactory state. Thereafter it would have been quite unreasonable for the bank to take any further step to


assure themselves that the transaction had been properly carried out, and they were lulled into a false sense of security. Section 61 is purely discretionary, and its application necessarily depends on the particular facts of each case. I think, in the circumstances of this case, tha t I am prepared to hold that the bank acted honestly ( that is not in dispute) and reasonably and ought fairly to be excused to the extent of the surrender value of the policies transferred to the boys at the date of the transaction, about £650, but no doubt the exact figure can be ascertained. I do not see how the bank can properly be relieved to any greater extent. The fact that the mother paid the premiums for a few years, so enhancing the value of the policies, is (so far as the bank is concerned) as irrelevant as the fact that , as was to be expected, in due course the boys gave the policies back to their mother, and so, of course, to the commander, thereby losing all benefit from them.

Appeal allowed in part. Gross-appeal allowed in part.

Solicitors: Bird & Bird; Charles Russell & Co.

C. A.

1963


TRUSTS, In re.

Upjohn L.J.

INLAND R E V E N U E COMMISSIONEES v. F R E R E .

Revenue—Surtax—Total income—Short interest payments—Whether admissible deduction from total income for surtax purposes—Income Tax Act, 1842 ( 5 * 6 Vict. c. 35), ss. 163, 164, 190 and Sch. (G) No. XVII (3)—Finance (1909-1910) Act, 1910 (10 Edw. 7 & 1 Geo. 5, c. 8), s. 66 (2)—Income Tax Act, 1952 (15 & 16 Geo. 6 * 1 Eliz. 2, c. 10), ss. 2 (2), 200 (1), 221, 524 (1) (2), Schs. 6 (1) (2), 24.

Revenue — Income tax — Interest — Short term interest — Principles applicable.

In each of the tax years 1957-58 and 1958-59 the taxpayer borrowed substantial sums from an unlimited company for periods of less than one year. The special commissioners decided in his favour that the short-term interest paid on those loans was deductible by him in computing his total income for surtax purposes for the years in question. The Crown appealed. Wilberforce J . held in favour of the Crown that the right to deduct from the computation of total income for surtax purposes depended in all cases on a right to deduct income tax from the payment at the standard rate,

1963 July 10, 17.

Wilberforce J.

C. A.

1963 Nov. 19, 20, 21, 22, 29.

Lord Denning M.R., Donovan and Russell L.JJ.

ch. chancery division. 303 - formatevi.com paulings settlement...1 ch. chancery division. 303 ......

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