Smith v Cooper & Anor

Where a relationship of trust and confidence is coupled with a transaction that cannot reasonably be explained by ordinary motives, a presumption of undue influence arises. The evidential burden then falls on the influential party to prove that the transaction was the other party’s free, independent and informed choice. Understanding the transaction, or showing that it was not disadvantageous, does not by itself rebut that presumption.

Joint advice from a solicitor acting for both parties is not independent advice to the vulnerable party. On rescission, equity must restore the parties’ original positions as nearly as practicable and achieve practical justice. The assessment should focus on capital contributions to the property transactions, rather than unrelated expenditure during the relationship.

Miss Cooper transferred her formerly sole home, Fifty Farm, into the parties’ joint names. The parties later acquired Rose Cottage in joint names and declared a beneficial joint tenancy. Miss Cooper, acting through the Official Solicitor, counterclaimed to set aside the dispositions for undue influence.

The Norwich County Court dismissed the counterclaim. It held that the presumption of undue influence arose but had been rebutted. Miss Cooper appealed. The central questions were whether that presumption had been rebutted, whether a constructive trust could nevertheless reproduce the agreed joint interests, and what restitutionary relief should follow if the transactions were set aside.

Appeal allowed. Lloyd LJ, with whom Wilson and Jacob LJJ agreed, held that the judge had correctly found that the presumption of undue influence arose, but had applied the wrong test when deciding whether it was rebutted.

1. The relationship gave Mr Smith a position of influence over Miss Cooper. The dispositions were substantial gifts which required explanation under Allcard v Skinner (1887) 36 Ch D 145. The presumption therefore arose in accordance with Royal Bank of Scotland v Etridge (No 2) [2001] UKHL 44.

2. Mr Smith then bore the burden of proving that Miss Cooper acted of her own free and unconstrained will, independently of his influence. The judge wrongly treated a reasonable explanation for the transactions, or the absence of manifest disadvantage, as sufficient. Full understanding was necessary but insufficient. The issue was independence of will, not merely understanding.

3. Mr Grimes acted for both parties jointly and gave them joint advice. He did not advise Miss Cooper separately, for her sole benefit, or with knowledge of the circumstances requiring her protection. His advice was therefore not independent advice capable of assisting Mr Smith. No other evidence showed that Miss Cooper made the gifts free from his influence.

4. The transfer of half of Fifty Farm and the declaration of a beneficial joint tenancy in Rose Cottage were voidable for undue influence and had to be set aside. A constructive trust could not reproduce the actual agreement once that agreement was ineffective for undue influence. The court distinguished Cowcher v Cowcher [1972] 1 WLR 425: joint contractual liability under the bridging mortgage did not make the advance an equal contribution where it was secured on, and substantially repaid from, Miss Cooper’s property.

5. Applying Cheese v Thomas [1994] 1 WLR 129, relief had to achieve practical justice by reversing the property transactions as nearly as possible. Capital paid towards acquisition and necessary renovation was credited, but unrelated gifts and living expenditure were excluded. A single joint expert was to value Fifty Farm, excluding the adjacent land, as at July 2004. The matter was remitted to the Norwich County Court to give effect to the resulting shares and determine remaining issues.

• Court of Appeal (Civil Division): Allowed Miss Cooper’s appeal, set aside the relevant dispositions for undue influence, directed a valuation, and remitted the remaining issues to the Norwich County Court.
• Norwich County Court: On 28 October 2009, Judge Darroch dismissed Miss Cooper’s counterclaim, holding that the presumption of undue influence had been rebutted.