No Undue Influence + Mutual Wills: Appeal dismissed in Birch v Birch case (Qld)

I have been eagerly awaiting delivery of the appeal decision in Birch v Birch [2018] QSC 289. The case of Birch v Birch involved a situation where a mother had transferred her interest in a farming property to one of her sons, who also happened to be the mother’s duly appointed power of attorney. Whilst the son did not act as attorney when the transfer of the property was completed, the presumption of undue influence arose as a result of the very fact that the son was mum’s attorney and was in a position of trust and had fiduciary obligations. Further, in Queensland, we also have a statutory presumption of undue influence in section 87 of the Power of Attorneys Act 1998.

Let’s start at the beginning.

The factual matrix

The circumstances of this case are summarised as follows. The below is a very brief summary of the facts (and, in fairness, it mainly refers to the transfer of the property and there were other matters in the claim that included dealings in the business and trust operations) and for the fullness of this case, it is absolutely deserving of a very good read. You can read the Supreme Court decision here.

The son had worked on the family farm with his parents for most of his adulthood. He was one of 6 children to his parents. The parents had lived in the larger of the two properties, and the son lived on the smaller property, known as the “Cottage” with his wife.

In 2004, the parents made Wills giving a life interest to each other in the family farm and the remainder to the son, subject to the son paying his siblings $15,000 each.  In late 2004, the parents, son and son’s wife bought a new property to work. The son and his wife worked both the family farm and the new farm. They all purchased this new property jointly with their shares being reflective of their respective contributions to the purchase price. In 2008, they all established a new Trust for their primary production business (which largely held machinery and livestock). The parents also transferred a 1/3rd interest in the main farm to the son as a gift, resulting in them each owning a 1/3rd interest in the farm. The parents also made new Wills, leaving each other a life interest, and the remainder to the son (again) however they now required the son to pay to each of his siblings 6.66% of the main farm value. The Wills were accompanied by handwritten letters by the parents to their family explaining their Wills. The parents, as they were ageing, then later decided to move from the main farm to be closer to medical attention.

In 2009, the mother executed an enduring power of attorney in favour of her husband and son. Her husband passed away in 2011 and copies of their 2008 Will were handed out to the children.  In 2011, the mother went to a solicitor and transferred her 1/3rd share in the farming property to her son as a gift. The son then owned 2/3rd share of the farm. The solicitor was engaged by the mother and signed for the son as the transferee on the transfer.

In 2012, the mother went to a different solicitor for a new Will. The Will did not refer to the farm, as it had now been transferred. The mother wrote another letter to her family again explaining the wishes of her and her late husband that the farming property go to the son.

In mid-2013, the mother moved to Toowoomba and then went into aged care. New solicitors were later consulted by 2 of the other sons on behalf of the mother in relation to the transfer of the asset to the son and the trust dealings. There was a preliminary letter of advice provided to the mother. The enduring power of attorney to the son was then revoked and the two other sons were appointed as attorneys.

In September 2013, a claim was commenced as against the son to set aside the property transfer of the farming property on the basis of undue influence, conflict of interest and unconscionability. The son counter-claimed if the transfer was to be set aside, that the parents 2008 Wills were mutual Wills.

The Supreme Court upheld the transaction. In doing so, the Court noted that the importance of the independence of advice and quoted earlier authority on the topic:

“the duty of a solicitor providing independent advice includes the obligation to satisfy himself or herself that the ‘gift is one that is right and proper for the donor to make under all the circumstances’ (Powell v Powell). The solicitor must also be ‘free from any taint of the relationship or interest that would compromise his or her independence (In Re Coomber)”.

Paragraph [104] of the trial judgement.

The Court noted that the action of the solicitor signing on behalf of the son as transferee was not enough to “affect the transaction such as to justify setting it aside” (at paragraph [113]) and that it was significant that the son received advice separate to his mother.

After that, the siblings (on behalf of mum) appealed the decision and the matter was heard in July 2019.

So, why the blog post today, Michele?

Today, the Court of Appeal in Queensland unanimously dismissed the appeal with costs.

The grounds of the appeal were only in respect of the purported undue influence. The grounds were:

  1. that the primary judge erred in finding that the solicitor gave the mother ‘proper and independent legal advice of a kind intending to rebut the presumption of undue influence. Under this ground, it is argued that the advice was “seriously deficient”, it did not meet the requirements for such an advice according to the authorities, in particularly Powell v Powell [1900] 1 Ch 243 and Michaletos v Stivactas [1992] ANZ ConvR 90, it was given without an understanding of material facts and, more generally it was not of a kind “as would emancipate [the mother] from the presumed influence of [the son].” (para [59]

  2. that the primary judge erred in finding that the solicitor’s advice was independent of the son;

  3. that the primary judge erred in finding that the mother had been properly advised and fully understood the consequences of her gift to the son, when she had not received any financial advice;

  4. as to what advice should have been received by the mother, that the reasoning behind whether she would have acted on such advice or not (had she received it), was erroneous;

  5. that the primary judge erred in finding that the second solicitor the mother saw (after the transfer was completed) had provided legal advice of a kind intending to rebut the presumption of undue influence;

  6. that the primary judge erred in finding that the mother understood, at the time of the transfer, that she had lost ownership of cattle transfer to the trust;

  7. that the primary judge ought to have found that the mother’s transfer was “improvident“;

  8. that the primary judge erred in concluding that the presumption of undue influence had been rebutted.

    (my emphasis added)

As to the independence of advice, the Court noted the principles of Powell and Stivactas, referenced above. In Powell, the Court noted in that case that Farwell J said:

[The duty of a solicitor] is to protect the donor against himself, and not merely against personal influence of the donee, in the particular transaction… The solicitor does not discharge his duty by satisfying himself simply that the donee understands and wishes to carry out the particular transaction. He must also satisfy himself that the gift is one that is right and proper for the donor to make under all the circumstances; and if he is not so satisfied, his duty is to advise his client not to go on with the transaction, and to refuse to act further for him if he persists.

Paragraph [62]

In Stivactas, the Court quoted the comments of Waddel CJ in that judgement:

A person in the plaintiff’s position at that time should have been asked what was the extent of her property and the question of her future care and maintenance should have been discussed and the adviser should have pointed out to her the possible disadvantages of divesting herself of her major assets and relying completely on the defendant.

Paragraph [63].

With regard to the statutory presumption of undue influence, the court said:

In the present case, there is the presumption of an influence. But that he was a full capacity at the time of the transfer and the degree of his influence, which section 87 requires to be presumed, could not have been high. Further, there was nothing about this transaction which Doug had knowledge which was not shared with Betty. She was just as able to decide whether it is in her interests to transfer this interest. The presumption had to be rebutted, but the brute burden of proof in this case was not as heavy as in many others, and care must be taken in the application statements, in other cases, about different types of relationships of presumed influence.

Further, although there was a relationship of principal and attorney, it is necessary to consider that there was another relationship between the parties, namely that of mother and son, in which a gift could be explained by motives gratitude and affection. In Yerkey v Jones (1936) 63 CLR 649 at 675, Dixon J observed, about the types of relationships to which the presumption of undue influence applies:

“but in the relations comprised within the category to which the presumption of undue influence applies, there is another element besides the mere existence of an opportunity of obtaining ascendancy or confidence and of abusing it. It will be found that in none of those relations is it natural to expect that one party to give property to the other. That is to say, the character of the relation itself is never enough to explain the transaction into account for it without suspicion of confidence abused.”

Relationship of mother and son does not displace, as a matter of law, the presumption imposed by s87. But it can be relevant, and in some cases critical, to a question of whether the presumption is rebutted in a particular case. In the present case, that relationship is of central importance.

Paragraphs [76] to [77]

As to whether the transaction was an improvident one, the Court noted that there was no reason for the mother to be concerned that she would no longer receive the income to which she was accustomed from the trust and no reason to think her son would do anything wrong by her. The Court noted that the mother and son appeared to have had a close and harmonious relationship for many years. The Court also noted that it was not unlikely that the mother had an imperfect understanding of the discretionary trust and what that meant in terms of the enjoyment of income and ownership of livestock. However, the Court noted that the legal position was unlikely to be concerning for her and what the mother likely understood was that the grazing business itself was profitable and she continued to receive her income from it.

The Court noted in addition to these considerations there were others.

The Court said:

Most importantly, for some years (at least from when the 2004 wills were made), Betty and Jim had been intent on Doug inheriting their shares in Fairyland. According to the now unchallenged findings by the trial judge, Betty and Jim agreed that wills would be irrevocable and would remain unaltered. Consequently, Betty was subject to equitable obligations in respect to her one third share in Fairyland. She was obliged not to do anything which would affect the full value of that interest in Fairyland passing to Doug under her will. A reverse mortgage of that interest, if it could have been procured, would have breached that obligation. More generally, consistently with her agreement with Jim, she was not free to sell or otherwise dispose of that interest. Her one third share, whilst being valuable as measured by one third of the valuer fairyland, was not as valuable as it would have been if held by a party free from the obligations which were upon her as a result of the mutual wills. Betty would not have understood the operation of equitable principles upon her circumstances, but more generally, she must have felt an obligation to give effect to the intention which she and Jim had held for many years, which was that Doug would be the owner of Fairyland when they had died. In short, she would not have regarded this as her asset to deal with, as she pleased. When those considered, this was far from a transaction which was clearly improvident.

(my emphasis added)

Paragraph [81]

As to the arguments submitted by the appellant, the Court noted that many of the grounds the appeal challenge the primary judge’s view that the mother had not received appropriate legal advice. To that end, the Court said:

In my view, the advice which Betty did receive is not critical to the outcome of this case. This is because, if the presumption is not otherwise rebutted, the advice would that he did receive would have been insufficient to make a difference. The main reason for this is that, as [the solicitor] made clear to Betty, he was not her financial adviser and there could have been other considerations which relevant her decision. Nevertheless, the fact that Betty received the advice which was given by [the solicitor] is relevant, in demonstrating that she had professional advice which provide her with a good reason for giving this property to Doug then, rather than under her will.

Paragraph [83]

However, I do not accept all of the criticisms which are made of [the solicitor’s] advice. [The solicitor] did not misstate the legal options which were open to Betty, all the possible legal consequences of them. The consequences, which did exist in which would have been apparent to [the solicitor], where that Betty was of full capacity and had long intended that Doug should become the sole owner of fairyland. There was an extensive consultation during which Betty, but also Doug, received his advice. As things would have appeared to [the solicitor] , but he was able to make a decision about whether this transaction might affect her interest, although she may not have received from all of the advice which would be relevant to that decision.

Paragraph [84]

Like the trial judge, I would accept that [the solicitor] was an independent legal adviser. After he had advised that he, and she had instructed him to affect the transfer, he did provide some service to Doug in affecting the transaction. But the advice which he gave to Betty, during the lengthy conference on 19 August 2011, was independent advice.

Paragraph [85]

In conclusion, the Court said:

The trial judge was correct to find that the presumption of undue influence was rebutted. On the evidence which the trial judge accepted, it was demonstrated that Betty decided to make this gift, uninfluenced by her relationship with Doug as principal and attorney. She made this decision because she wished to avoid the risk that, if the interest was to pass to Doug under her will, that could be challenged by the actions of some of her other children. If she had a concern about Doug being able to borrow enough money to pay out his siblings, for what had been his father’s one third interest, that was a proper and rational concern. If there had been some challenge to the distribution of her estate, according to her will, that would have had no potential relevance for Doug’s prospects of borrowing something of the order of $1 million to pay for what had been his father’s share. For many years, she and Jim had meant to leave the whole of Fairyland Doug, and they had made mutual wills to that effect. As I have discussed, this was not an improvident transaction when all the circumstances are considered.

You can read the full appeal judgement here.

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