The Poulton Family Trust; M.A. Canham (Née Poulton), J.A. Poulton, N.J. Poulton, J.M. Poulton and Houghton-Poulton v Cutty Sark Land Company and Five Others
| Jurisdiction | Cayman Islands |
| Judge | (Kawaley, J.) |
| Judgment Date | 18 February 2022 |
| Court | Grand Court (Cayman Islands) |
(Kawaley, J.)
Trusts — beneficiaries — exclusion — declaration of exclusion by which settlor’s children removed as beneficiaries of trust, with effect that settlor’s wife received all his assets on his death, set aside for undue influence — settlor vulnerable due to terminal cancer diagnosis and extremely dependent on wife, who isolated him from children — declaration of exclusion entered into by settlor without relevant independent legal advice — wife failed to displace presumption of undue influence
Held, ruling as follows:
(1) The test for capacity remained the threefold test established in Banks v. Goodfellow (L.R. 5 Q.B. 549), namely the capacity to understand (a) the nature of the act and its effects; (b) the extent of property being disposed of; and (c) the claims to which he might give effect. The importance of the declaration of exclusion made it appropriate to apply the standard of proof applicable to the making of wills. The Banks v. Goodfellow test would not be applied in a mechanistic way. The issue as to testamentary capacity was a decision for the court. It was not to be delegated to experts, although their knowledge, skill and experience might be an invaluable tool in the analysis. The burden of proof was subject to the following rules: (a) the burden started with the propounder of a will to establish capacity, where a will was duly executed and appeared rational on its face, the court would presume capacity; (b) in such a case, the evidential burden shifted to the objector to raise a real doubt about capacity; and (c) if a real doubt were raised, the evidential burden shifted back to the propounder to establish capacity nonetheless. In the present case, the court found that (a) the declaration of exclusion was, prima facie, duly executed and rational on its face, engagingthe presumption of capacity; (b) the plaintiffs had raised a real doubt about capacity; and (c) the evidential burden accordingly shifted back to the second to fourth defendants to establish capacity. The real doubt about capacity as at March 2016 and thereafter was based on (a) evidence that Deborah had concerns about Alan’s capacity being challenged for almost a year before the document was executed, and sought to have it executed in the presence of a doctor; (b) evidence that the trustee was sufficiently concerned about Alan’s capacity to carry out its own lay assessment; and (c) evidence of the plaintiffs’ expert psychiatric witness (paras. 352–360).
(2) On the balance of probabilities, Alan had sufficient mental capacity to execute the deed of exclusion in March 2016 when he signed it. He understood that he was putting in train a series of transactions which would prevent his children from receiving any benefit from the assets of the trust. The court accepted the submission of the second to fourth defendants that if Alan had capacity when he gave instructions in relation to steps which he formally approved after he had lost capacity to make the substantive overarching decision, all that was required was (in effect) for him to understand that his duly given instructions were now being carried out. Assisted by the evidence of the second to fourth defendants’ psychiatric expert, the court found that Alan did not suffer from any permanent cognitive impairment and that there were no significant transitory impairments to his mental capacity. The evidence did show that (a) from time to time Alan would have been cognitively impaired (both in terms of lack of lucidity and diminished capacity to exercise or make fine business judgments), and (b) his various medical conditions meant that he was clearly heavily dependent on others to act on his part in relation to the management of his personal business and legal affairs. These considerations had potentially greater significance in relation to the question whether Alan’s decision to terminate the trust and receive the trust assets for the benefit of himself and Deborah was his own independent decision (paras. 433–434).
(3) The equitable doctrine of undue influence was broadly designed to ensure that when vulnerable persons made significant decisions they had not been improperly influenced by other persons. The law would treat any influence as improper (undue) where, inter alia, the influencer had preferred their interests over those of the influenced party. Where a vulnerable person had entrusted the management of their affairs to a trusted person, as occurred in the present case, there was a legal policy need to prevent abuse of influence despite the absence of evidence of overt acts of persuasive conduct. The relationship of husband and wife was not one where undue influence was automatically presumed; where one spouse was shown to be sufficiently subject to the influence of the other, undue influence was rebuttably presumed; the onus would then be on the party seeking to uphold the impugned transaction to show that the transaction was not actually vitiated by undue influence. The court rejected the submission of the second to fourth defendants to the effect that undueinfluence required a transaction which was “wrongful” because it involved a person being victimized and forced, tricked or misled in any way by others into parting with his property. The equitable doctrine of undue influence was more fluid. In respect of familial relations in particular, it was more apposite to frame the critical question as being whether it was proved that the gift was made by the donor only after full, free and informed thought about it. In a family context where the key actors were likely to have mixed motives (and no conscious intention of abusing a position of trust) it was important to keep in mind the fundamental objectives of this flexible equitable remedy. In the present case therefore, the critical question was whether the circumstances in which Alan decided to exclude the plaintiffs as beneficiaries and to terminate the trust (with himself and Deborah receiving all the trust assets) diminished to a material extent his ability to freely express his own independent will. In relation to the burden of proof, if it was shown that the presumption of undue influence applied, the burden of proof would then be on the party who allegedly exercised undue influence to prove that the transaction was not procured by an abuse of his position of influence but was the free exercise of the will of the other party (paras. 435–456).
(4) The declaration of exclusion was liable to be set aside on the ground of undue influence. Alan was particularly vulnerable to undue influence after his terminal cancer diagnosis and until his death. He was in a position of extreme dependency on Deborah for his personal and financial needs. He was largely bedridden and frail. He was legally blind, suffered from anxiety, had a recent history of chronic alcohol abuse and was incapacitated and/or impaired by surgery, terminal illness and medication. The decision to prefer Deborah’s interests to those of the plaintiffs after terminating the trust was only clearly expressed after he became heavily dependent on Deborah. Prior to that, he had intended to make provision for both his wife and his children. Alan was isolated from his children in the months before his death. He had a very limited role in instructing the lawyers and received no or insufficient independent advice about the implications of the declaration of exclusion. The combination of a relationship of trust and confidence (based on the presence of multiple factors suggestive of vulnerability, including the mere fact of isolation from the plaintiffs) and a transaction entered into by Alan without the benefit of relevant independent legal advice and which ultimately solely benefited Deborah at the expense of the plaintiffs supported a prima facie inference or presumption of undue influence. The second to fourth defendants had not displaced that presumption. Further and in any event, on the balance of probabilities the court found that Alan’s decision to execute the declaration of exclusion in order to terminate the trust was not made after full, free and informed thought about it. He was misinformed about his children’s true position and was denied free contact with them. His wife, who was his primary caregiver, was convinced that his children had no interest in their father’s welfare and she had a vested interest in Alan making no provision for them. Although he admittedly wished to provide for both his wife and children,Alan received no independent advice about the implications of the transaction (when he was terminally ill) on terms which would benefit the wife upon whom he was wholly dependent and disinherit the children for whom he also wished to provide, if he died after the trust was terminated and before making alternative financial provision for his children. The lawyers from whom he did receive advice were retained for him by an agent who was committed to advancing Deborah’s interest over the plaintiffs’, and the terms of the lawyers’ retainer absolved them from any obligation to advise Alan on the merits of the trust termination decision. The declaration of exclusion was therefore liable to be set aside on the ground on undue influence (paras. 465–481; paras. 588–589).
(1) Ashkettle v. Gwinnett, [2013] EWHC 2125 (Ch), referred to.
(2) BCCI v. Aboody, [1989] 1 Q.B. 923; [1989] 2 W.L.R. 759; [1992] 4 All E.R. 955, considered.
(3) Banks v. Goodfellow (1870), L.R. 5 Q.B. 549; [1861–73] All E.R. Rep. 47; 39 L.J.Q.B. 237, applied.
(4) Beaney, In re, [1978] 1 W.L.R. 770; [1978] 2 All E.R. 595, considered.
(5) Clayton v. Clayton, [2016] NZSC 29, considered.
(6) E(C) v. E(B), 2016 (1) CILR 162, considered.
(7)...
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