We are often instructed by the executors or administrators of an estate where a claim has been threatened by someone under the Inheritance (Provision for Family and Dependants) Act 1975.  These can be anything from children whose parent has disinherited them, to mistresses who have had secret affairs over a long period of time without the deceased’s family knowing anything about it.  The first question which the executors often ask is ‘do I have to do anything?’

It is worth considering at the outset whether the purported Claimant actually has the right to bring a claim (classes of Claimants are set out in s1 of the Act).  For example, we have previously been threatened with claims from grandchildren who have no right to bring a claim under the Act.  In those cases, a short letter pointing out the fact that no claim can be brought should conclude matters.

However, where a Claimant does have the right to bring a claim, then the executors will have to deal with this.  Hopefully the Claimant’s solicitors will follow the ACTAPs protocol (which is very similar to the other pre-action protocols) which encourages early disclosure and negotiation.  If they do not, they should at least follow the general protocol on pre-action conduct which is set out in the White Book.

Whilst there is a potential claim outstanding, executors should not distribute the estate – and any that do will be personally liable in the event that the claim is later taken and succeeds.  The limitation for an Inheritance Act claim is 6 months from the date of the Grant, but a Claimant then has 4 months to serve proceedings – so executors who are aware that there might be a claim may have to wait 10 months before distribution.  Even where the time limit has been missed, the Court has discretion to allow the claim to proceed out of time, although the executors are unlikely to be criticised where they could not have known of the claim in advance.

All purported claims must be taken seriously and investigated properly, even if the executors feel strongly that there are no merits.  Failure to do so may risk liability for the executors, and a professional negligence claim against solicitors who do not advise clearly.

* Disclaimer: The information on the Anthony Gold website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties, express or implied.*

In my last blog, I discussed the case of Mortgage Express v Laura Lampert [2016] EWCA Civ 55 in the context of the doctrine of unconscionable bargain. To re-cap, Ms Lampert successfully established that she had been taken advantage of by the purchaser of her property who acquired it at a huge undervalue, had granted her a tenancy, had then obtained a market value mortgage secured against the property, stopped paying it, resulting in Ms Lampert facing repossession. See the full factual description here.

The Court at first instance held that Ms Lampert was entitled to have the transaction set aside against the purchasers, but not against Mortgage Express who had acquired an interest in the property after completion of the sale by Ms Lampert.

The Court of Appeal had to consider the legal character of the right to set aside the transaction on the ground that it was an unconscionable bargain, how that fits into the scheme of land registration, and whether Ms Lampert can assert the right against Mortgage Express.

The Court held that there is no reason why the right to set aside a transaction on the basis of an unconscionable bargain should not be treated as “an equity” or “mere equity” (as in cases of undue influence and misrepresentation). The Court examined section 116 of the Land Registration Act 2002 which provides that, in relation to registered land, a mere equity has the effect from the time the equity arises as an interest capable of binding successors in title (i.e. the mortgagee). I emphasise the two key requirements to bear in mind in asserting the equitable right.

The interest will be elevated to an overriding interest, thereby binding the successor, if the interest belonged at the time of the disposition to a person in actual occupation of the property (Schedule 3 para 2 LRA 2002). The Court held that in principle Ms Lampert’s right to have the sale of her property set aside on the grounds of an unconscionable bargain is capable of being an overriding interest, and it must follow that it is proprietary in nature.

Unfortunately for Ms Lampert, she failed to disclose on her property information questionnaires that she intended to remain living in the property after the sale, and had been promised a tenancy by the purchasers. The contract also stated that she would give vacant possession. She was therefore precluded from relying on her actual occupation to elevate her equitable interest to an overriding interest.  The Land Registration rules make clear that you cannot later rely on a right that you fail to assert at the time of the transaction. Ms Lampert’s equitable interest created by the unconscionable bargain was not, therefore, capable of overriding the mortgage and she was only entitled to whatever equity was left after that was paid.

Before coming to that view, though, the Court of Appeal rounded on the key problem for Ms Lampert, which was this. That the purchasers of the property had obtained the Mortgage Express mortgage as two trustees of the property. Therefore, Ms Lampert’s equitable interest in the legal estate was overreached. Pursuant to 2 of the Law of Property Act 1925 a conveyance (which includes the grant of a mortgage) can overreach an equitable interest if made by at least two trustees. Ms Lampert, therefore, was unable to assert her equitable right against the mortgagee.

The case is a useful analysis of the interplay between the equitable principles of unconscionability, and the Land Registration Act regime, which is strict. The conclusion troubles me, though it is clear why the Court ruled as it did. There is a tension between the equitable principles and the statute. On the one hand, the court seeks to protect Ms Lampert against the unscrupulous purchasers by granting her an equitable right in the property that she sold. On the other, it is possible for those same unscrupulous people to have the unilateral ability to defeat that right by acting together to grant a mortgage. On this issue, the law gives with one hand and takes with the other.

* Disclaimer: The information on the Anthony Gold website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties, express or implied.*

When a person dies, it takes some time to deal with their estate and this can cause financial hardship to those around them.  Where there is a dispute over an estate, it will inevitably take even longer to release funds.  This can be devastating to someone who was financially reliant on the deceased because they may suddenly find themselves without enough money to pay the bills.

If someone is bringing or contemplating a claim under the Inheritance Act,  there are two things which might help in this situation.

Firstly, since 2014 it has been possible to start an Inheritance Act claim before there is a Grant of Probate.  If the executors are taking their time (possibly deliberately in an attempt to head off any potential claim), then the Claimant can proceed anyway.  However, once the proceedings have started, they will continue at the usual speed and so can take some time to reach a conclusion.

Secondly, it is possible under s5 of the Inheritance Act for a Claimant to make an application for interim maintenance from the estate (for example to cover bills). The Court has the power to award such sum or sums for financial assistance as it considers to be reasonable.  (Whilst this does not appear to include the provision of property, it is not unusual for the executors to agree that someone remains in a property whilst their claim is determined particularly where they have a very strong claim).

In order to make an application for interim maintenance, and Claimant must:

1. Have made an application for an order under the Act (in practice, the main claim and the application for interim maintenance can be made together);
2. Have a need for immediate financial assistance from the estate.

There must also be sufficient assets in the estate to pay any interim maintenance which is ordered.  However, the personal representatives will not be liable if they pay pursuant to an order and then later discover that there is not as much money as they thought and not enough to continue paying/to pay other debts (unless at the time of making the payments the personal representatives had reason to believe that there would not have been enough).

In order to succeed in an application, the Claimant must have a strong claim and the Judge will consider the merits of the claim when deciding whether to award interim maintenance.  The Court can put conditions on any maintenance awarded (for example to specify what it must be spent on) and will usually order that it is paid on account of any future award.  However, it is very rare to find that the Claimant is ordered to repay interim maintenance in the event that the claim is ultimately lost.

* Disclaimer: The information on the Anthony Gold website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties, express or implied.*

An Unconscionable Bargain is a useful equitable doctrine in tackling cases of what could broadly be described as civil fraud.

A transaction will be unconscionable if it is (1) oppressively disadvantageous to B, who, (2) when entering it, was acting under a particular form of weakness which (3) was exploited by A in a morally culpable manner (Peter Miller QC in Alec Lobb Garages Ltd v Total Oil Great Britain [1983] 1 WLR 87). There are three components to the test, identified above. Not all unfair transactions are unconscionable bargains. The transaction must satisfy the 3-part test in order to invoke the Court’s equitable jurisdiction, which could result in the transaction being set aside.

Each case is fact sensitive and cannot be approached with a broad brush. In Boustany v Pigott (1995) the Court held that it is not sufficient that the parties had unequal bargaining power or that the terms of the bargain were more favourable to one party than another. To prove that the transaction was unconscionable B must establish that A was aware that B was under a special vulnerability and knowingly took advantage of that in the transaction. In cases of civil fraud, A may no longer be on the scene, perhaps having fled with the proceeds of the transaction. B would be faced with the difficulty that A might not be available for cross examination to prove that A intended to take advantage. Thankfully for B, the Court is concerned with the overall result of the parties’ dealings, rather than solely with the specific question of A’s state of mind.  Lord Walker’s famous phrase that the result of the transactions must “shock the conscience of the Court” encapsulates the approach.

If B proves that the transaction is unconscionable it can result in it being set aside. However, in cases where the transaction involves the purchase or sale of a property, that may not be possible where a third party mortgagee has acquired an interest.

In the recent case of Mortgage Express v Laura Lampert [2016] EWCA Civ 55 the Court of Appeal considered the interplay between the equitable right to have the transaction set aside on the grounds of unconscionability, the right of the mortgagee, and how the equitable right fits in to the land registration scheme. In this blog, I consider the facts around the unconscionable bargain. My next blog, will examine the claim against the mortgagee and the impact of the land registration rules.

The facts of the case are briefly these. In 2007 Ms Lampert was in financial straits. She was unemployed and had borrowed money on the security of her leasehold flat in Maidstone; but was unable to keep up with the repayments. She was facing repossession at the behest of her mortgagee, Blemain Finances Ltd. She owed approximately £24,500 although her flat was worth £120,000. Through the internet she made contact with a company called Amonna ltd, which was run and owned by Mr Sinclair and Mr Clement. They visited the flat and told her that the flat was only worth about £30,000 and offered to buy her lease for that sum. They also told her that she could continue to live in the flat rent free for the first year and thereafter for £250 per month. She accepted the proposal. On 7 September 2007 Mr Sinclair and Mr Clements applied for a secured loan from Mortgage Express. On the application form they declared the value of the property as £120,000. Contracts were exchanged with Ms Lampert on 4 October 2007 with completion on the same day for the purchase price of £30,000. On 26 October 2007 Mr Sinclair and Mr Clements completed on their mortgage with Mortgage Express drawing down £102,000 secured by a charge against the property. By July 2008 the Mortgage Express mortgage was in arrears. Mr Clements had transferred the lease to Mr Sinclair, who had disappeared. The mortgage company began possession proceedings against Ms Lampert to enforce the security.

Ms Lampert applied to have the 2007 transaction between her and Sinclair and Clements set aside on a number of different grounds, including actual undue influence, misrepresentation, and an unconscionable bargain. Note that these can also be powerful equitable doctrines to challenge a transaction, although evidentially difficult. The undue influence and misrepresentation claims failed, but the court held that the transaction should be set aside on the basis that it was an unconscionable bargain. HHJ Simpkiss, applying the 3 stage test, found that Ms Lampert was desperate, vulnerable, naïve, and lacking in any business common sense or acumen; and that Mr Sinclair took advantage of that by making her an offer which he knew to be dishonest. The case is a useful example of the kind of property transactions that are unconscionable.

The Court at first instance held that that Ms Lampert was entitled to have the transaction against Mr Sinclair and Mr Clements set aside and there was no challenge to that. However, the Court ordered that such entitlement was not binding on Mortgage Express.

As the majority of the equity in the property was consumed by Mortgage Express’ charge, and Sinclair was essentially impecunious, Ms Lampert’s relief had little practical benefit in the circumstances. She appealed the order of HHJ Simpkiss to assert her equitable right against the mortgagee.