General principles of family arrangements
A court is aware that family arrangements are very special creatures which have to be treated rather differently from the commercial transactions. The law relating to family arrangements is succinctly stated in 18 Halsbury's Laws of England (4th Ed, 1977) at paras 301 to 328.
When dealing with an agreement between members of a family which is intended to be generally and reasonably for the benefit of the family, the court has to consider what, in the broadest view of the matter, is most in the interest of the family. In doing so, it has regard to considerations such as whether the arrangement has the result of avoiding disputes in the family, or preserves the family's honour, or allows family property to continue in the family.
In this case, the last consideration is clearly apt since it is clear that the arrangement was to ensure that the siblings' inheritance from their father was not divided up and, perhaps, dissipated, but continued to work for all of them though in a different form.
As stated in Halsbury's, various factors can affect the validity of a family arrangement. Adequacy of consideration is not usually an issue since in the nature of such an arrangement founded on sentiment rather than commerce, only part of the consideration is value, the other part being love and affection. If, however, the inadequacy of the consideration is so gross as to lead the court to the conclusion that a party to the arrangement either did not understand what he was doing or was the victim of some imposition, the court can set aside the arrangement.
It is also not fatal to a family arrangement that a party to it is ignorant of the true state of his rights or is ignorant of the true nature of the arrangement as long as the transaction has been effected in good faith and the ignorant party has not been misled by any one else and, in fact, has an intention whic h is not widely different from that expressed by the arrangement. It is also not essential to a family arrangement that the parties to it receive independent legal advice, though of course this is desirable in the interests of deflecting later challenges to the arrangement.
What is most important in considering the validity of such an arrangement is first whether it was founded in an honest disclosure of material facts and, secondly, whether any undue influence was brought to bear on any party to the arrange ment. In this context, para 315 of Halsbury's is worth quoting in full. It states:
Duty of disclosure In any family arrangement there must be honest disclosure by each party to the other of all such material facts known to him, relative to the rights and title of either, as are calculated to influence the other's judgment in the adoption of the arrangement, and an advantage taken by either of the parties of the other's known ignorance of such facts will render the agreement liable to be set aside.If one pa rty to the arrangement has material information in his possession which, without any dishonest intention, he does not communicate to the others, proceedings by them to set aside the transaction may succeed even though they made enquiries on the subject.
In Bullock v Lloyds Bank Ltd [1954] 3 All ER 726, it was held that a failure to impress upon the young maker of a settlement which put her fortune irrevocably beyond her control that it was not obligatory on her to make any settlement at all was a good reason for setting aside the settlement, all the more would the non-disclosure of such significant facts justify setting aside the deed in this case.
Was there undue influence? The plaintiffs also challenge the deed on the basis that its execution was procured by the exercise of undue influence. Since the basic principles in relation to a plea of undue influence were laid down in the seminal decision of Allcard v Skinner (1887) 36 Ch D 145, they have been considered and elaborated in a long line of cases of which the most recent is CIBC Mortgages plc v Pitt [1994] 1 FLR 17, [1994] 1 AC 200, a decision of the House of Lords.
There are two distinct categories of cases in which the courts will set aside a transaction on the basis of a plea of undue influence. The first category, the "actual undue influence" category, comprises those cases where the plea is upheld only if the court is satisfied that such influence has been affirmatively proved on the evidence. The second category, the "presumed undue influence" category, comprises those cases in which the relationship between the parties will lead the court to presume that undue influence has been exerted unless evidence is adduced proving the contrary.
A plaintiff pleading undue influence can rely on either actual or presumed undue influence or both but there are differences in the case which he or she has to make out to establish each category. Where the court is being invited to draw a presumption of undue influence, the plaintiff must show that the parties had a particular relationship, for example they were father and child or solicitor and client, which enabled one of them to influence the decisions of the other. In addition the complainant must prove the wrongfulness of the transaction by showing that "it constituted an advantage taken of the person subject to the influence which failing proof to the contrary was explicable only on the basis that undue influence had been exercised to procure it" : National Westminster Bank plc v Morgan [1985] AC 686 at p 704. Accordingly, in order to succeed on a plea of presumed undue influence, it must be shown that the resulting transaction was manifestly disadvantageous to the person subject to the influence.
In BCCI SA v Aboody [1992] 4 All ER 955 the English Court of Appeal held that manifest disadvantage was also an essential element to substantiate an actual undue influence plea. Accordingly, the plaintiffs contended that the deed was manifestly disadvantageous to them. The position has now changed, however. In CIBC Mortgages v Pitt [1994] 1 FLR 17, [1994] 1 AC 200, the House of Lords overruled the decision in Aboody's case [1992] 4 All ER 955 and held that manifest disadvantage need not be proved in a case of actual undue influence. The rationale of this holding is clearly stated in the judgment of Lord Browne-Wilkinson. He said ( [1994] 1 FLR 17 at p 22 and [1994] 1 AC 200 at p 209):
Whatever the merits of requiring a complainant to show manifest disadvantage in order to raise a presumption of undue influence, in my judgment there is no logic in imposing such a requirement where actual undue influence has been exercised and proved. Actual undue influence is a species of fraud. Like any victim of fraud, a person who has been induced by undue influence to carry out a transaction which he did not freely and knowingly enter into is entitled to have that transaction set aside as of right.
The House of Lords in Pitt's case did not however criticise the other holdings of Aboody. Accordingly, it remains the law that in order to establish a plea of actual undue influence, the plaintiff must show that: (a) the other party to the transaction (or someone who induced the transaction for his own benefit) had the capacity to influence the complainant; (b) that the influence was exercised; (c) that its exercise was undue and (d) that its exercise brought about the transaction: BCCI SA v Aboody [1992] 4 All ER 955 at p 976.
Was it an unconscionable bargain? The plaintiffs' final challenge to the deed is based on the doctrine of unconscionable bargain. The principle established by the case of Fry v Lane[1886-90] All ER 1084, as updated by Cresswell v Potter[1978] 2 WLR 255, is that where a transaction is entered into by a poor and ignorant man at a considerable undervalue, such person not having had independent advice, that transaction will be set aside by a court of equity. The pre-requirements which the plaintiffs must prove to succeed on this ground are, therefore, that (a) they are poor (meaning members of the lower income group) and ignorant (meaning less highly educated), (b) they gave up part of their interests in the estate at a considerable undervalue and (c) they did not have independent advice.
At the trial, the Court made the following orders:
(1) that the deed of family arrangement be set aside;
(2) that the defendant as sole surviving administrator of the estate submit and render properly audited accounts of the estate of the deceased to the plaintiffs within three months of the date of this order;
(3) that an inquiry be held by the Registrar of the Supreme Court to determine the value of the estate;
(4) that the defendant pay to the plaintiffs all amounts found to be due to them as beneficiaries of the estate of the deceased (whether arising out of their inheritance from their father or out of their mother's share of the deceased\rquote s estate) either out of the funds of the said estate or from his own funds;
(5) that the plaintiffs' costs of these proceedings including the costs of all inquiries and taking of accounts be taxed on a solicitor and client basis and paid by the defendant personally.
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