When undue influence and mutual wills collide: Naidoo v Barton [2023] EWHC 500 (Ch)

Naidoo v Barton [2023] EWHC 500 (Ch) clarifies an important, and hitherto unresolved, issue concerning the doctrine of mutual wills. The court determined that it is the Etridge test for undue influence, applicable to challenging life time transactions, that applies when considering whether or not a mutual wills agreement should be set aside and not the more stringent probate test that generally applies where a will is challenged on the grounds of undue influence.

Background

The claimant in the High Court proceedings, Charan, accused his brother David Barton (formerly known as Ramamurthie Dasaratha Naidoo) of exercising undue influence in relation to both wills and lifetime transactions involving their parents, Mrs Naidoo and Dr Naidoo, as well as Charan himself. The case is further notable for the fact that David is currently serving a 17-year sentence for criminal offences involving the manipulation and exploitation of elderly residents at Barton Park Nursing Home, which he ran. The Barton Park Nursing Home itself was at the centre of one of Charan’s claims to set aside life time transactions that he and his parents had entered into, having been a family owned business, until the entire shareholding in the holding company had been transferred to David.

According to the BBC report at the time of his conviction, David was convicted after a 12 month trial alongside other members of staff, with whom he had conspired, of 4 counts of conspiracy to defraud, 3 counts of theft and 1 count of fraud. Those crimes, committed over a 16 year period between 1997 and 2015 and valued at more than £4 million, involved the grooming of six wealthy and vulnerable residents of the nursing home, who had been isolated from their families and had their bank accounts drained.

In his sentencing remarks in the criminal proceedings, Judge Everett characterised David as being adept at flattery, persuasion and veiled threats. He was said to be very good at getting people to do what he wanted. The judge described him as a “despicably greedy man” and a “hypocrite” who claimed to care for the residents when in reality he only cared for himself. The sentencing judge also remarked that David would trample over anyone who opposed him and described him as having an especially unattractive habit of instructing solicitors to issue threats and unpleasant letters to warn off anyone whom he felt to be a hurdle in the pursuit of his dishonest ambitions.

That is, to say the least, a most unpromising position from which to be defending undue influence claims.

HHJ Cadwallader, in delivering judgment in the High Court proceedings between Charan and David and his wife, was at pains to assess David’s credibility as a witness independently of his criminal convictions. He describes David as a composed witness and capable of charm. Giving a narcissistic impression, however, he is said to have talked up his account of helping family members and his abilities as a businessman in a grandiose manner. The judge observed that a cold and ruthless streak became evident in his evidence. He wilted under cross-examination and could not adequately justify many of his previous answers. HHJ Cadwallader concluded that his evidence could not be relied upon unless corroborated by other reliable material.

Rejecting, David’s counsel’s submission that David’s criminal conduct was irrelevant to the matters at issue, HHJ Cadwallader observed that of relevance to the facts of the present case, and demonstrating evidence of character, propensity and ability to behave as described, the facts upon which he was convicted included the use of fairly sophisticated legal devices, including wills, contracts, spurious gifts, loans, transfers of land and other property, to enrich himself at the expense of vulnerable persons who placed their trust in him.

The Claims

Charan claimed the following relief:

1. That the Court should pronounce for Mrs Naidoo’s 2015 Will which, contrary to the terms of an apparent mutual wills agreement and the resulting wills made in 1998 which favoured David alone, appointed Charan as her sole executor and sole beneficiary.
2. That the Court should set aside lifetime transactions, namely:
   1. The transfer in 1992 by Mrs Naidoo, Dr Naidoo and Charan to David of their shareholdings in Choiceclassic Ltd, the company owning Barton Park Nursing Home.
   2. A purported agreement between Mrs Naidoo and David and his wife entered into in February 2000, pursuant to which David supplied the settlement sums due under a compromise relating to litigation between Dr and Mrs Naidoo and a third party and under which David and his wife took the benefits of the compromise.
   3. The execution of settlements in favour of David and his wife and children by Mrs Naidoo over certain policies, pursuant to the terms of the 2000 agreement.

The 1998 mutual wills agreement and the February 2000 agreement, and the subsequent trusts of the policies, all arose in circumstances where Mrs Naidoo and Dr Naidoo (before his death in January 1999) were embroiled in litigation they had issued in 1997 to recover assets of theirs transferred to their son-in-law, Saantha. The exact terms of the agreement with Saantha were in dispute between Dr and Mrs Naidoo and Saantha. Saantha had provided assistance to Dr and Mrs Naidoo in circumstances where they were experiencing difficulties servicing a loan facility with NatWest. They transferred various assets to Saantha, including their home, but claimed, which Saantha disputed, that they were to retain the beneficial interests in those assets.

David had funded that litigation and had power of attorney for his parents and was instructing the solicitors.The mutual wills arrangement had been suggested by David and the solicitors he was instructing in the litigation with Saantha.

Terms of compromise were ultimately negotiated with Saantha and the February 2000 agreement provided that David would pay the settlement sum under the compromise negotiated with Saantha (some £1.75 million) and that the recovered assets, including Mrs Naidoo’s home, would be transferred to David on terms that would permit her a license to occupy her home, unless David and his wife formed the reasonable opinion they needed to dispose of it, and that they would pay her a modest allowance of £1,000 per month. It is not clear from the judgment what the value of the recovered assets was.

Mutual wills and undue influence

The key point of legal principle established by the judgment concerns the approach to be taken to the question of whether or not an agreement to make mutual wills is liable to be set aside on the grounds of undue influence.

Mutual wills

The essential elements of the doctrine of mutual wills were not in dispute and the following principles can be distilled from the judge’s analysis of the authorities:

• Mutual wills describe joint or separate wills made as a result of an agreement between the parties to create irrevocable interests in favour of ascertainable beneficiaries.
• When two individuals have agreed to dispose of their property in a particular way and then execute mutual wills pursuant to that agreement, upon the death of the first testator without having revoked their will (T1) the property of the survivor (T2) is held on an implied trust for the beneficiary named in the wills.
• Whilst T2 may thereafter revoke their will, and a probate court will recognise the revocable nature of the wills, the mutual wills agreement may be enforced after the death of the first to die by means of a constructive trust and T2’s personal representatives will hold the property subject to the trust.
• The consequences of the imposition of such a trust will depend on the terms of the agreement. The object of an arrangement for mutual wills is often to enable the survivor during their life to deal as an absolute owner with the property passing under the will of the party first dying, but to ensure that when the survivor dies they bequeath what is left in the manner agreed upon. This creates a ‘floating obligation’ that only crystallises on what is left at the point of the survivor’s death. The survivor of an arrangement of this description would be able to use the assets for their own benefit during their lifetime, although they could not make gifts or settlements calculated to defeat the mutual wills agreement.
• A mutual wills agreement requires a contract enforceable at law. The contract need not include a specific term that the testators should not revoke their wills, so long as it is clear that the wills are intended to be mutually binding. The agreement may be in the will, or be proven to have arisen outside the will.
• The burden of proving a mutual wills agreement rests on the person who relies upon it. Where the case turns on oral evidence of an agreement, the court will take into account the inherent improbability of the testators’ giving up the right to change their will in future, regardless of any change of circumstances.
• The principles generally applicable to the construction of contracts, equally apply to mutual wills agreements.

Undue influence

The general principle, whether the subject matter of the claim is a lifetime transaction or a will, is that the party asserting undue influence bears the burden of proving it. However, in the case of lifetime transactions, the forensic route to establishing such a finding is more liberal than is the case where it alleged that a will has been procured by undue influence.

The leading case on undue influence in the context of lifetime transactions is the decision of the House of Lords in Royal Bank of Scotland Plc v Etridge (No.2) [2002] 2 AC 773. In summary, the following points of principle in relation to establishing undue influence can be drawn from Etridge and the associated case law considered by HHJ Cadwallader:

• Undue influence is an equitable remedy that seeks to prevent one person from abusing the influence they have over another person. Two forms of improper conduct are recognised: (1) overt acts of improper pressure or coercion, such as unlawful threat, and (2) the exploitation of a relationship in which one person has acquired a measure of influence or ascendancy over the other. In cases of the second kind, it is recognised that such relationships provide scope for misuse, even without any specific overt acts of persuasion.
• The burden of proving undue influence rests on the person who claims to be wronged. However, in cases of the second kind, proof that the complainant placed trust and confidence in the other party or that there was otherwise a relationship of vulnerability or dependence between them, coupled with a transaction that calls for an explanation, will normally be sufficient evidence to discharge the burden of proof on the complainant and to supply the court with evidence to conclude that the transaction was brought about by undue influence unless a satisfactory explanation is provided. The effect of this is to shift the evidential burden onto the defendant to counter the inference that undue influence occurred.
• The availability of the forensic tool, shifting the burden of proof, in cases founded upon abuse of influence arising from the parties’ relationship has been termed “presumed undue influence”.
• Where the presumption arises, it is rebuttable. The greater the disadvantage to the vulnerable person, the more cogent the explanation must be to rebut the presumption of undue influence. Proving that outside advice was received by the complainant is the usual way in which the presumption is rebutted but the presence of outside advice does not, by itself, necessarily show that the transaction was free from undue influence.

In a probate claim, undue influence is never presumed from the relationship between the parties and the circumstances of the will. The party alleging undue influence must establish that there was coercion, pressure that has overpowered the freedom of action of the testator without having convinced the will of the testator: Wharton v Bancroft [2012] WTLR 693. This is a much more difficult evidential threshold to surmount (particularly as undue influence is typically exercised behind closed doors) and successful probate claims founded on undue influence are consequently rare.

The applicable test for undue influence in a mutual wills context

HHJ Cadwallader resolved two important points of principle in relation to the intersection between the doctrines of undue influence and mutual wills.

First, HHJ Cadwallader considered whether or not the doctrine of mutual wills should give way to the doctrine of undue influence, if undue influence is established to have tainted the mutual wills agreement:

37. Theobald on Wills, 19th ed., states at 1 – 019, summarises the position as follows.

“There is little authority as to how far the requirement of a legally binding agreement will be satisfied if it is void, voidable or otherwise unenforceable by reason of some supervening rule, principle or provision. The view of the present editors is this. If the agreement is void, voidable or otherwise unenforceable by reason of some common law rule, then there is not the required “contract at law” and the doctrine of mutual wills cannot operate. If the agreement is void, voidable or otherwise unenforceable by reason of some equitable principle, then the court is unlikely to apply the (equitable) doctrine of mutual wills for to do so would mean that equity would be speaking with two voices.”

Certainly, no authority on the point has been cited to me in this case.

38. From what I have said already, the doctrine operates by the imposition of an implied or constructive trust in equity, so as to give effect to a particular kind of contract. If there is no contract, then of course there is no basis for equity to intervene. If there is a contract, but it is avoided for, for example, undue influence, then there is still no basis for equity to intervene to impose a trust.

39. But if there were some such basis, I agree with the current editors of Theobald on Wills that it would be unlikely to do so, since it would mean that equity would be speaking with two voices (although I suppose there would remain the theoretical possibility, in that case, of a court’s holding in a particular case that the mutual wills voice should trump the undue influence voice rather than vice versa – which is one reason why I prefer to consider the question as one of the vitiation of the contractual basis, rather than as avoiding a clash of equities).

Second, in relation to whether or not it is the probate test that applies to establishing whether or not a mutual wills agreement is vitiated by undue influence or whether the Etridge presumption of undue influence might apply, the judge concluded as follows:

40. Counsel for the defendants submitted that where the mutual wills agreement was expressed in a will, the test for vitiation of that agreement by undue influence ought to be that applicable to the vitiation of wills for undue influence, rather than the equitable test under Etridge. I cannot accept that proposition. As appears from what I have already said, a mutual wills agreement is a contract first, before there is any basis for equity to intervene. Such a contract may be found explicitly in the wills, or explicitly or implicitly outside it. But either way, it is not a testamentary provision, and it lies outside the wills. It does not need to be executed in the way that a will needs to be executed. When considering whether a mutual wills agreement is void or voidable, there seems no possible reason in principle why a distinction should be drawn between agreements expressed in the will, and those not so expressed. But such a distinction is implicit in the submission of counsel for the defendants. Moreover, the doctrine of undue influence in relation to the vitiation of wills is a common law doctrine. Counsel for the defendants belatedly and rightly accepted at trial that any mutual wills agreement in the present case did not affect the validity of any subsequent will, or its admissibility to probate. That can only have been on the basis that the probate court is concerned with the validity of a will, rather than constructive or implied trusts to which its dispositions may be subject. Given that, it is impossible to see why a test of undue influence developed for probate purposes and concerned with the validity of a will should be pressed into service to undo a contract giving rise to just such a trust, or (perhaps) the trust itself, where an equitable doctrine, apt to avoid contracts and dispositions, is already available. The point was not argued with force. The only reason I can see why it was not conceded was a desire on the part of the defendants that a more stringent test than the equitable one should be applied.

41. Counsel for the claimant seemed at times to seek, to a degree, to elide the tests in any event. One might expect there to be similarities if only because of the coincidence of their names. But as the editors of Snell on Equity 34th ed., 8-011 to 8-012 point out, the two doctrines must be carefully distinguished. The probate doctrine applies where such pressure has been placed on the testator as to overpower the volition without convincing the judgment, and does not permit the party challenging the will to take advantage of the evidential presumption mentioned above; the probate doctrine can be invoked by any party with standing to challenge the will; the equitable doctrine does not render the transaction invalid, rather the transaction takes effect unless and until it is rescinded, whereas under the probate doctrine the will is void; and the equitable doctrine only applies to inter vivos transactions. I conclude that the probate test is to be distinguished from that in equity, and is inapplicable to the doctrine of mutual wills.

For what it is worth, I am not sure that I am entirely convinced by the reasoning. The logic of the judgment is that contracts should analysed by the test for undue influence applicable to contracts and, it would appear to follow, wills by the test generally applicable to wills. This begs the question of what test should be applied in order to decide whether or not the resulting wills made pursuant to the mutual wills agreement in 1998 were valid. It was not necessary on the facts to deal with this issue since there was no doubt that the later 2015 Will was valid, the question being whether or not its terms could take effect in light of the mutual wills agreement. What if Mrs Naidoo had died without making a further will? Would the validity of the 1998 Will have been evaluated by reference to the Etridge test, or the probate test for undue influence?

The policy considerations that lie behind the rule that undue influence will not be presumed in a probate context are not explored in the judgment. It is a material distinction that wills, unlike lifetime transfers, are revocable and that the dispositions made by them do not take effect until death. The fact that the testator is not immediately deprived of anything and can ordinarily readily change the terms of their will, supports the view that there is less justification for the law taking the more protective stance it takes in the case of lifetime transactions in the context of relationships of dependency or trust and confidence.

The rationale behind the distinction between inter vivos transactions and wills was considered in Parfitt v Lawless (1872) L.R. 2 P. & D. 462, which does not appear to have been referred to in Naidoo v Barton. Lord Penzance noted that undue influence is not presumed in the case of a will because the circumstances surrounding the execution of a will are different from those surrounding a gift or contract inter vivos. Unlike gifts or contracts inter vivos where the person benefited at least takes part in the transaction, in the case of a will, the legatee may have no part in or even knowledge of the act. It is reasonable enough to make the recipient of a lifetime gift or contract, where they a person in a position of influence, explain themselves. Conversely, it is unjust to impose a rule of casting onto the legatee, based upon the bare fact of a relevant relationship and the proof of the legacy, the burden of proving that the will was not executed under undue influence, as they may not have any knowledge or ability to explain the circumstances surrounding the will’s execution. Moreover, the law has long recognised that it is not unlawful for a person to seek to persuade a testator to make provision for them, particularly in the case of those for whom a testator may naturally expect to provide, so long as that persuasion stops short of coercion so the testator acts of their free will.

It strikes me as somewhat unsatisfactory if different tests applied to different aspects of mutual wills arrangements, although perhaps considering that the doctrine of mutual wills itself is something of a Frankenstein creation, stitching together contract, trusts and probate principles, this is only to be expected. To my mind, however, whilst mutual wills are something of a hybrid arrangement, they are more will-like than they are contract-like, given that the entire arrangement is revocable at least until the point of the first death and even then the survivor is generally free to use and dispose of their property for their own benefit so that the interests of the intended beneficiaries only crystallise on the second death. Generally speaking, outside of the facts of this particular case, the policy considerations that make it unfair to cast the burden onto legatees to explain why provision has been made for them apply with just as much force in the context of an agreement to make mutual wills.

The outcome on the facts

All of Charan’s claims succeed on the grounds of undue influence, with the exception of the claim to set aside the transfer of the Choiceclassic shareholdings.

Chiefly, the Choiceclassic claim failed because HHJ Cadwallader concluded that the necessary relationship of trust and confidence did not exist between David and his parents at the applicable time of the transfers in 1992 and the judge was not satisfied that Charan’s transfer of his shares arose from his parents’ relationship of trust and confidence with David. Whilst the transfers were recorded as being for nil consideration, the judge further considered that a sufficient explanation had been provided in that he accepted that David had discharged the overdrawn directors accounts and offered indemnities against other liabilities that might otherwise have been visited upon Dr and Mrs Naidoo.

In relation to the mutual wills agreement, Dr and Mrs Naidoo had entered into wills in 1998 in favour of David that were expressed on their face to be mutual wills. The suggestion advanced by Charan that the mutual wills agreement could be set aside on the grounds that Dr and Mrs Naidoo had shared a common mistake that the survivor would be free to change their will was rejected on the facts. Dr and Mrs Naidoo had understood the effect of a mutual wills agreement, having received sufficient legal advice to bring home the point that such an agreement would bind the survivor.

However, the court held that the mutual wills agreement was vitiated by undue influence. Dr and Mrs Naidoo were in a vulnerable position, by reason of ill health on the part of Dr Naidoo, and their unsettled financial affairs including the litigation they had embarked upon against Saantha. They reposed profound trust in David, who had power of attorney and was effectively conducting the litigation on their behalf. The making of mutual wills in his favour called for an explanation given the notorious inflexibility and complications of such arrangements and its effect to lock Mrs Naidoo into making provision for David, irrespective of what he might do thereafter. His assistance with the litigation was not considered to come near to an adequate explanation, notwithstanding that without his help they would stand no chance of recovering their assets (given further that the deal was that the assets should go to him in any event if they recovered).

Whilst Dr and Mrs Naidoo had understood the nature of mutual wills, the advice that they had received was not adequate to ensure that they were acting of their own free will rather than as a result of undue influence. Consequently, the mutual wills agreement was vitiated on the grounds of undue influence and Mrs Naidoo was free to make the 2015 Will, which would take effect on its terms.

The 2000 agreement, and the settlement of the policies pursuant to that agreement, were also held to be vitiated by undue influence. The transaction called for an explanation since no one would ordinarily enter into an agreement willingly to transfer to one of their several adult children and his wife what amounted to all of their assets, or the hope of recovering assets, and give up their right to live in their own home for a mere terminable licence and the promise of an allowance, however helpful and trustworthy that child might have been. That David had funded the Saantha proceedings and the settlement was not a satisfactory explanation. The deal rendered the proceedings effectively pointless as regards Mrs Naidoo, or worse. While it might have made sense for Mrs Naidoo to agree that he should benefit substantially from the assets recovered as a result of the settlement, the judge was not satisfied that her giving them all up was satisfactorily explained by the situation.

Whilst Mrs Naidoo had received independent advice, this was not considered to be enough to free her from the effect of David’s influence. Interestingly, it was inferred that the advice was competent based on the seniority of the advisor notwithstanding that there was no record of the advice actually given and notwithstanding that the solicitor could have been called by the defendants to give evidence but was not. The judge concluded that no one in her position would have entered into the deal if they had had a genuinely free choice. Moreover, in the context of already deep dependancy on and trust in David, it was unlikely that any independent legal advice could have freed her from that vulnerability and influence.

Learning points for practitioners

• The key take away is that it is the Etridge presumption of undue influence may be deployed in aid of a challenge to a mutual wills agreement on the grounds of undue influence on the basis of the decision in Naidoo v Barton.
• The decision is also of interest in its application of the law of undue influence to the other aspects of David’s dealings with his parents. David had supplied (substantial) consideration for the 2000 agreement and had the 2000 agreement not been quite so lopsided, an arrangement that gave David generous benefits might well have stood up given that he funded the litigation and supplied the settlement sum due in circumstances where Mrs Naidoo appears to have had no real alternatives but to look to David for this assistance. However, it is those self-same facts which placed Mrs Naidoo over a barrel and left her with little option but to accept David’s terms.
• It is also a notable feature of the case that a range of solicitors had participated in the various transactions and had advised Mrs Naidoo and that the judge was willing to infer competent advice in the absence of any record of that advice or the solicitor being called. However, the relationship with David was such that the judge considered that no advice, no matter how forceful and competent, could have freed her from that influence. One senses that here David’s bad character stood against him. The case demonstrates clearly that the participation of a solicitor is no guarantee that a transaction was entered into free from the effect of any undue influence.