Cheese v Thomas
| Jurisdiction | England & Wales |
| Judge | THE VICE-CHANCELLOR,LORD JUSTICE BUTLER-SLOSS,LORD JUSTICE PETER GIBSON |
| Judgment Date | 30 July 1993 |
| Judgment citation (vLex) | [1993] EWCA Civ J0730-15 |
| Docket Number | CCRTF 93/0326/E |
| Court | Court of Appeal (Civil Division) |
| Date | 30 July 1993 |
[1993] EWCA Civ J0730-15
Before: The Vice-chancellor Lord Justice Butler-Sloss Lord Justice Peter Gibson
CCRTF 93/0326/E
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE QUEEN'S BENCH DIVISION
MR C BENNETT (instructed by Messrs K.E Davis & Sons, Middlesex) appeared for the Plaintiff/Applicant
MISS S BENBOW DOWNEY (instructed by Messrs Mackenzie Knight, Middlesex) appeared for the Respondent/Defendant
Friday, 30th July 1993
THE VICE-CHANCELLOR
This is a most unfortunate case. It arises out of the all too familiar situation where different generations of a family join to provide the older member with a home. Both sides have the best of intentions, but the arrangement breaks down. Difficulties then arise in unravelling what has been done. Here, two members of a family have become involved in proceedings which ought never to have seen the door of a court. Costs have been incurred over several full-day hearings in the county court, followed by an appeal to the Court of Appeal. On top of this the house suffered a steep decline in value. It was bought in June 1990 at a cost of £83,000, and sold in 1993 at a net price of about £55,400, a loss of over £27,500. The combined result of all this has been a financial disaster for one or other, or both, of the parties.
The plaintiff, Mr Cheese, is 88 years of age. In 1990 he was living in a flat at Peacehaven, Sussex. After the death of his brother Joe, he arranged to move back to Hayes, Middlesex, where he had lived and where his wife and daughter were buried. In May 1990 he paid £43,000 to the defendant, Mr Aubrey Thomas, in connection with the purchase of a house, 4 Jonson Close, Hayes. Mr Thomas is aged 36 and is Mr Cheese's great nephew. He owns a freight consultancy business. The house was bought in his sole name. To cover the rest of the price and the expenses, Mr Thomas borrowed £40,000 from the Halifax Building Society on the security of a mortgage over the house.
In June 1990 Mr Cheese moved in and lived there.
Mr Thomas continued to live in his own house at Bedfont. Over the next three or four months Mr Thomas failed to pay the mortgage instalments. Mr Cheese found out about this, and he felt his security threatened. He decided he wanted to withdraw, and he sought repayment of his £43,000. These proceedings ensued.
The case was tried by Judge Michael Oppenheimer sitting in the Uxbridge County Court. Both counsel paid tribute to the care and thoroughness with which the judge conducted the trial. On this appeal neither party has challenged the judge's findings of primary fact. In the proceedings
Mr Cheese claimed that he and Mr Thomas had agreed that the house should be jointly owned. The judge rejected this. He accepted the nephew's case that Mr Cheese knew and agreed that the house would be in Mr Thomas's name. Mr Cheese agreed that on his death the house would belong to
Mr Thomas. In return Mr Cheese was to be entitled to live in the house for the rest of his life.
However, the judge accepted Mr Cheese's alternative case, that the transaction should be set aside on the ground of undue influence. It was common ground that the relationship between the two of them was of a fiduciary character: they were close, Mr Thomas was considerably younger, and he had business experience and a degree of actual influence over Mr Cheese. Undue influence was therefore to be presumed. The judge held the transaction was manifestly disadvantageous to Mr Cheese, who did not enter into the transaction after full, free and informed thought about it. He had insufficient advice and understanding to make a proper judgment. Against that decision Mr Thomas has appealed.
Manifest disadvantage
The necessity for a plaintiff to prove that the transaction was manifestly disadvantageous to him before he can succeed in a claim to set it aside for undue influence finds recent expression in National Westminster Bank plc v Morgan [1985] AC 686 and Bank of Credit and Commerce International SA v Aboody [1990] 1 QB 923. Here, Mr Cheese paid £43,000, and in return he had the right to live rent free for the rest of his life in a house approved by him, and which he himself could not afford to buy, in an area where he wished to live. But there were drawbacks in the transaction so far as he was concerned.
The principal drawbacks were threefold. First, he paid over all his capital. The £43,000 represented the major part of the proceeds of his flat at Peacehaven. He had no other money of his own. Second, if in future Mr Cheese needed or wished to live elsewhere, there was no way he could compel Mr Thomas to sell the house or return his money or even some of it. At the time Mr Cheese was 85 years old. He might become less robust and need to live in sheltered accommodation. He had moved house in 1985 and in 1986, and in 1990 he had in mind that he might wish to move again and not be confined to Jonson Close for the rest of his days. Third, and importantly, Mr Cheese would be in jeopardy if
Mr Thomas failed to keep up the mortgage payments to the building society. When the house was acquired both
Mr Thomas and his company were financially embarrassed. If Mr Thomas defaulted, Mr Cheese had no money of his own with which to keep up the mortgage payments. If Mr Cheese were evicted by the building society, he would have a claim against Mr Thomas for damages for breach of contract. But that, for what it might be worth, would be poor consolation for all the upset and worry and possible loss involved. Indeed, these proceedings were prompted by Mr Cheese's concern when he opened a letter from the building society in October 1990 and learned that Mr Thomas was four months in arrears with the mortgage payments. He became fearful and anxious and disillusioned.
I agree with the judge that the transaction is properly to be described as manifestly, that is, clearly and obviously, disadvantageous to Mr Cheese. He used all his money, and it was not an insignificant amount, in buying a right which was seriously insecure and which tied him to this particular house.
I add two points. First, their Lordships in the House of Lords are currently considering their judgments on two appeals where one of the issues is whether manifest disadvantage is an essential ingredient of an undue influence claim. Having regard to the view I have reached, it is not necessary to postpone giving judgment on this appeal until the outcome in those two cases is known.
Mr Cheese has established manifest disadvantage whether or not, as remains to be seen, this is a necessary prerequisite to success on this claim.
Second, a feature of importance is that before the trial judge Mr Thomas conceded that the presumption of undue influence applied on the facts of this case. Mr Thomas did not seek to rebut the application of the presumption, for instance, by showing that Mr Cheese received independent advice. So the only issue the judge was called upon to decide on this part of the claim was whether or not the transaction was clearly disadvantageous to Mr Cheese. I mention this in fairness to Mr Thomas. Otherwise one might think Mr Thomas had behaved improperly, and sought to trick or take advantage of his aged uncle. No conduct of this sort occurred. This point is also relevant on the next issue.
Setting aside the transaction
If, then, the transaction is to be set aside, the next step is the restoration of the parties to their original positions. Achieving this would mean sale of the house and repayment of what each had paid over. Mr Cheese should get back his £43,000, and Mr Thomas should get back and repay to the building society the money he borrowed for the purchase. The house has now been sold. Unhappily, as already mentioned, although £83,000 was spent in buying the house, only £55,400 came from the sale. By the time of the sale the amount outstanding on the mortgage was about £37,700. On the sale the building society had to be repaid first. It had a mortgage over the house. The effect of paying back the building society was, in substance, to restore Mr Thomas to his original position, although he had paid some mortgage instalments. The net balance remaining from the sale proceeds was only £17,667. Clearly, this sum has to be paid to Mr Cheese, but that will still leave him more than £25,000 out of pocket. The shortfall represents, in round figures, the amount by which the house declined in value after its purchase in June 1990.
The question therefore arises: on whom should this loss fall? Mr Cheese contends he is entitled to look to
Mr Thomas personally to make good the whole of the shortfall. He paid £43,000 to Mr Thomas, and on the transaction being set aside he can look to Mr Thomas for repayment of a like sum.
The judge did not accept this. He held that the loss brought about by the fall in the market value of the house should be shared between the two of them in the same proportions (43:40) as they had contributed to the price. He said that the parties went into a joint venture, investing approximately similar sums in it: they should bear the loss equally. In short, this would mean that Mr Cheese could look to Mr Thomas for a further £11,000. Mr Cheese would then recover altogether about £28,700, leaving him £14,300 out of pocket compared with his original contribution of £43,000. For his part Mr Thomas would be out of pocket by a similar but proportionately smaller amount. He would be out of pocket to the extent of £13,300, made up...
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