Bird & Anor v Lantern Recovery Llp & Ors

A relationship of trust and confidence, combined with a transaction that calls for explanation, may shift the evidential burden in an undue-influence claim. The court must assess the transaction in its full context, including its size, repetition, financial effect, explanation and the parties’ relationship. A transaction is not undue merely because it is unusual, foolish or disadvantageous. The explanation must show that the donor acted freely and with proper understanding.

Internal accounting entries do not by themselves establish a loan, gift, trust or beneficial ownership. Documentary records may require cautious treatment where they were created for tax or accounting purposes and conflict with the underlying agreement.

The claimants, executors of Sheila Coleman’s estate, challenged transactions involving family companies controlled by her son Ray Coleman. They sought repayment of loans and unpaid dividends, declarations concerning property and earlier family loans, and the setting aside of alleged gifts and dividend waivers for undue influence. The defendants counterclaimed for alleged loans and other sums.

The central issues were whether Coleman had made gifts or loans, whether dividend waivers were valid and effective, whether certain assets were beneficially owned by her or her late husband, and whether the impugned transactions were procured by undue influence.

1. Outcome. The claimants established that Sheila Coleman had lent £150,000 to the 1997 Settlement trustees and £1 million to Lantern at 8.5 per cent. She had not gifted £300,000 for Craig’s property or £543,500 for Lee’s property. The £220,000 taken from her bank account was also repayable.
2. Undue influence. The court applied the approach in Royal Bank of Scotland v Etridge [2002] 2 AC 773. Coleman had placed trust and confidence in Ray, who controlled her financial affairs. The large and repeated dividend waivers, and the alleged gifts, called for explanation. The explanations advanced were not credible and showed that Ray’s family interests had been preferred to Coleman’s.
3. The court considered the transactions cumulatively and in their contemporary context. Coleman was not properly informed of her dividend entitlement, the effect of waiving it, or the alleged liabilities recorded in the companies’ books. The absence of independent advice, the misleading explanations, the forgery of the December 2013 waiver and the circumstances of the later waivers reinforced the inference of undue influence. The valid waivers were set aside. The December 2013 waiver was forged and ineffective.
4. The court construed the 22 August 2011 waiver according to its express period. It covered dividends declared and payable during the period ending 31 March 2012, not the £113,400 dividend declared and payable in the preceding period. The 20 December 2013 waiver was not signed by Coleman. The September 2014 waivers were signed later than represented and were also tainted by undue influence.
5. As to Blanche Lane and the earlier loans to the 1997 Settlement, the presumption that beneficial ownership follows legal title was not rebutted. The claimants had not proved the necessary agreement, understanding and detrimental reliance. The relevant loan accounts were treated with caution and did not establish beneficial ownership or a debt due from the estate.
6. The counterclaim was dismissed, subject to agreed deductions of £48,040 and £56,735 from contractual interest. Statutory interest on unpaid dividends was awarded under section 35A of the Supreme Court Act 1981. The articles did not provide that interest ran on the debt and did not exclude the court’s statutory discretion in these exceptional circumstances.