Karsten v Markham

Allegations of fraud and dishonesty in civil proceedings remain subject to the balance of probabilities. The seriousness and inherent improbability of the allegation determine the cogency required from the evidence, not the standard itself.

For presumed undue influence, a relationship of trust and confidence is insufficient by itself. The transaction must also be one which calls for an explanation because it is not readily explicable by the parties’ relationship or ordinary motives. A solicitor-client relationship may raise the evidential burden, but relief still depends on that second requirement.

Moira Karsten claimed repayment of loans made to Paul Markham, declarations concerning 2 Codrington Mews, and declarations that the Kingsbury Trust Deed and later documents were invalid. Markham denied receiving loans and alleged that the payments were gifts or remuneration for services. He also alleged that documents acknowledging the debt and transferring an interest in the property were forged, procured by misrepresentation or undue influence.

The court assessed the parties’ evidence, documentary history and expert evidence. It also considered the validity of the alleged Kingsbury trusts and the alternative contention that they were sham transactions or transactions intended to defraud creditors.

1. The claims succeeded. The court found that Markham had received £1,125,000 from Karsten by way of loans, that he had signed the August 2005 acknowledgment, and that the Moira Trust Deed and Land Registry form TR1 were signed knowingly and were not blank when signed.

2. Allegations of fraud and dishonesty were proved on the balance of probabilities. The court applied the requirement for cogent evidence commensurate with the gravity and inherent improbability of the allegations. Karsten’s evidence was accepted, while Markham’s evidence was rejected as unreliable and untrue.

3. The court proceeded on the basis that the solicitor-client relationship created trust and confidence and presumed influence. However, applying the principles stated in Royal Bank of Scotland v Etridge (No 2) [2002] 2 AC 773, the relationship alone was insufficient. The transaction had to call for an explanation. The acknowledgment and trust deed recorded arrangements already agreed between the parties and were not sufficiently exceptional or disadvantageous to require an explanation. The absence of independent legal advice did not invalidate them.

4. The alleged Kingsbury Trust Deed and January 2004 documents were fabrications. The court found that Markham had continued to treat the property as his own and that the documents were unsupported by reliable evidence. It further stated, obiter, that if genuine, the documents would have been sham trusts because the parties did not intend the beneficial ownership to change. Alternatively, they would have been transactions intended to put assets beyond creditors’ reach within section 423 of the Insolvency Act 1986.

5. Judgment was entered for Karsten. The calculation adopted a net indebtedness of £850,000, after crediting the agreed value of the property and agreed deductions for mortgage and trustee-in-bankruptcy liabilities. The court also made post-judgment freezing relief, with a return date fixed for 14 January 2010.

The judgment records earlier bankruptcy proceedings. A bankruptcy order made by Mr Registrar Jaques was set aside on appeal by Mr Justice Briggs. The present consolidated actions were then tried in the High Court.