Gorjat v Gorjat

For an inter vivos gift, the required mental capacity is relative to the transaction. Where the transaction disposes of substantially all of the donor’s valuable property and effectively pre-empts succession, the required understanding may approach testamentary capacity, even where legal title is placed jointly rather than transferred outright.

Undue influence requires influence which has been abused. A relationship of trust, confidence or ascendancy, together with a transaction calling for explanation, may shift the evidential burden. The donee must then show that the donor knew and understood the transaction and entered into it freely. The court must assess the issue as a question of fact by reference to the circumstances at the time.

The claimants, the deceased’s adult children, challenged instructions by which their father transferred approximately £1.8 million held in sole-name Swiss bank accounts into joint accounts with his second wife. They alleged lack of mental capacity and undue influence. The funds passed into the widow’s sole-name accounts after the deceased’s death.

The court first considered jurisdiction and applicable law, then whether the deceased had capacity to make the transfer and whether the transaction was procured by undue influence. The claimants sought declarations setting aside the transfer and repayment to the estate.

1. Jurisdiction and applicable law. The true issue was the validity of lifetime instructions assigning intangible property, rather than succession. Applying the approach discussed in Raiffeisen Zentralbank Osterrieich AG v Five Star Trading LLD [2001] 1 QB 825 and Macmillan Inc v Bishopsgate Investment Trust plc (No 3) [1996] 1 WLR 387, the assignment and its validity were governed by English law. The characteristic performance occurred in England, the deceased was habitually resident there, and both parties had submitted to the jurisdiction. The same conclusion followed if the matter were characterised as succession to movable property.
2. Capacity. The test in Re Beaney [1978] 1 WLR 770 is transaction-specific. The donor must understand the nature and effect of the transaction when explained. In this case, the funds were the deceased’s principal asset, although he retained joint entitlement during his lifetime. Given the value and potential effect on succession, the required standard fell only slightly short of testamentary capacity.
3. The burden of proving incapacity rested on the claimants. Even if an evidential burden had shifted, the evidence established that the deceased understood the nature and effect of the transfer, the property involved and its likely effect on his children. The court relied particularly on the bank manager’s evidence, the deceased’s conduct, contemporaneous records, professional witnesses and the medical evidence. The claim based on incapacity therefore failed.
4. Undue influence. The principles stated in Royal Bank of Scotland v Etridge (No 2) [2002] 2 AC 773, as summarised in Thompson v Foy [2009] EWHC 1076 (Ch), applied. Although the deceased was increasingly dependent on his wife, the evidence did not establish that she had acquired ascendancy over him. His dominant character, the history of the marriage and the independent evidence showed that he made the decision himself.
5. Even if ascendancy had been established, the transaction was naturally explicable as provision for the couple’s later life and had been satisfactorily explained. In any event, the bank manager’s evidence showed that the deceased understood the consequences, including that his children might be disinherited, and acted freely. The claims in undue influence and lack of capacity were dismissed.