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Issue 37 – May 2009  

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Cases

Re Ritchie (deceased) Ritchie and others v Joslin and others

Citation: [2009] All ER (D) 78 (Apr)
Hearing date: 3 April 2009
Court: Chancery Division, Leeds District Registry
Judge: Judge Behrens sitting as a judge of the high court
Representation: Mark Blackett-Ord (instructed by Mitchells, York) for the claimants. David Rose (instructed by Sykes Lee and Brysdon, York) for the first and second defendants. Malcolm Warner (instructed by Spreecher Grier & Halberstam) for the third defendant.

Abstract: Costs – Probate. Chancery Division (Probate): In a contentious probate claim, one of the exceptions to the general rule that costs followed the event applied where the testatrix, who was held not to have had testamentary capacity at the time of making the will, had been the cause of the litigation. Accordingly, the third defendant charity, which had resisted the claimants' claim for revocation of the grant of probate, was entitled to its costs out of the estate.

Keywords: Costs – Probate – Contentious probate – Case involving challenge to testamentary capacity of testatrix – Third defendant charity less successful than previous CPR part 36 offer from claimant – Whether unjust to make costs order in accordance with CPR part 36 – Whether party justified in contesting claimants' challenge to will – CPR part 36.

Summary: Following a judgment handed down on 31 March 2009 ([2009] All ER (D) 59 (Apr)), in which the court ruled that a grant of probate in favour of the first and second defendants (the executors) should be revoked and letters of administration granted to the first and second claimants, the court awarded the first and second defendants their costs out of the estate on an indemnity basis, to be assessed if not agreed.

The claimants who were the children of the testatrix, had sought the revocation of the grant of probate on the ground that M had not had testamentary capacity when she made her will leaving the majority of her estate to the third defendant charity. On 22 May 2008, the claimants had made an offer to the third defendant of £100,000, pursuant to part 36 of the CPR, which represented four per cent of the total value of the estate of £2.5m. The court heard submissions as to costs between the claimants and the third defendant.

The claimants submitted that the third defendant: (i) should pay the claimants' costs, mostly on an indemnity basis; (ii) indemnify the claimants against the executors' costs payable out of the estate; and (iii) should pay to the claimants costs incurred by the executors. The third defendant contended that it should be paid costs out of the estate on the standard basis.

The court ruled:

(1) Where a party had been less successful than the part 36 offer of which it had been the recipient, a costs order had to be made in accordance with CPR Part 36 unless it was considered unjust to do so (see [46] of the judgment).

The challenge to testamentary capacity meant that the case might be described as all or nothing, as the result was bound to be that either the will was valid or it was not. There was, therefore, no room for the court to make a partial award and the part 36 offer by the claimants of less than the whole claim could never reflect the order that the court could make. In those circumstances, the question of whether it was unjust not to follow CPR part 36 depended on the reasonableness of the offer. As the offer represented only four per cent of the value of the estate, and in the circumstances of the case, it had been perfectly reasonable for the third defendant to continue the litigation (see [47] of the judgment).

(2) In a contentious probate claim, one of the exceptions to the general rule that costs followed the event, was that if the person who made the will was really the cause of the litigation, a case was made for costs to come out of the estate. That exception could apply to cases where there was mental incapacity (see [9] of the judgment).

In the instant case, an experienced probate solicitor and the testatrix's doctor had expressed the view that the testatrix had testamentary capacity at the time she made the will and there had been no independent evidence that she had not had capacity. Even after the arrival of the report of the claimants' expert in May 2008, it would not have been accurate to describe the claim as very strong, as difficulties with the claim remained. Accordingly, the case fell within one of the exceptions to the rule, available in contentious probate claims, that costs followed the event, as it was the testatrix's conduct which had been the cause of the litigation (see [40], [41] of the judgment).

The third defendant's costs would be payable out of the estate until the date of service of the claimants' expert's report and thereafter; there would be no order for costs as between the third defendant and the claimants; and there would be no indemnity by the third defendant in respect of the costs of the executors.

Spiers v English [1907] P 122 applied; Kostic v Chaplin [2007] EWHC 2909 (Ch) applied.

Alison Blood, Barrister
Published date: 07/04/2009
 
Re Richie (deceased) Ritchie and others v Joslin and others

Citation: [2009] All ER (D) 59 (Apr)
Alternative citations: [2009] EWHC 709 (Ch)
Hearing date: 31 March 2009
Court: Chancery Division, Leeds District Registry
Judge: Judge Behrens sitting as a judge of the high court
Representation: Mark Blackett-Ord and Mark Baxter (instructed by Mitchells, York) for the claimants. David Rose (instructed by Sykes Lee and Brysdon, York) for the first and second defendants. Malcolm Warner (instructed by Thatcher & Hallam, Bath) for the third defendant.
Abstract: Probate – Grant. Chancery Division (Probate): The claimants' challenge to the grant of probate to their mother's will was successful and probate was revoked where it was held that at the time of executing the will, by which she left the majority of her estate to the third defendant National Osteoporosis Society charity, she had not had testamentary capacity.

Keywords: Probate – Grant – Revocation of grant – Claimants being the children of testatrix – Testatrix leaving estate to third defendant charity – Claimants contending testatrix not having testamentary capacity at time will executed – Third defendant seeking to uphold will – Whether testatrix lacking testamentary capacity.

Summary: The mother of the four claimants, M, died in November 2006 aged 88. Her estate was valued at in excess of £2.5m. The principal asset was a farm in North Yorkshire. By her will dated 7 October 1998, M left the whole of her estate (save for £5,000 left to her local church) to the third defendant, a charity. On 13 February 2007, probate of her estate was granted to the first and second defendants who were solicitors and partners in the same firm. The first defendant was the solicitor who was instrumental in taking instructions for and in the execution of the will.

It was common ground that the claimants would be entitled under an intestacy as there was no prior will. They contended that M did not have testamentary capacity when she executed the will in September 1998. In particular, they contended, inter alia, that she was suffering from irrational delusions in that she falsely and irrationally believed that they did little or nothing to help her. The third defendant sought to uphold the will. At the trial, the claimants gave evidence that M had behaved in a strange or deluded way, which by the mid-1990s, increasingly often, involved making allegations of dishonesty against other members of the family which were totally unfounded.

In September 1996, M had discussed her will with the first defendant and told him that she was considering cutting the claimants out of her will because they were well provided for, did not need the money, and none of them had shown her any kindness since her husband had died. She had also said that the first claimant had been violent towards her in the past, including grabbing her by the throat, and that he stole from her. She had alleged that the fourth claimant never had any contact with her. The allegations were all strongly denied. The third and fourth claimants contended that they had visited and helped M regularly. They also maintained that M could not have known about their financial situations as they had never discussed that with her. The first defendant confirmed that he had no independent corroboration of the allegations made by M but had had no reason to doubt her at the time.

The first defendant gave evidence that, in November 1996, similar complaints had been made to him about the claimants and M had told him that she was inclined to leave them all out of her will. His interpretation at the time had been that M's desire was to cut out the claimants rather than benefit any particular charity. Similar complaints and allegations had been made in January and September 1998. She had made a specific allegation that her daughters had not visited her for 18 months. He stated that in October 1998, the will had been executed in the presence of M's doctor who had been of the opinion that she had testamentary capacity at that time.
The psychiatrist (Dr M) who gave evidence on behalf of the claimants was of the view that M had suffered from a variety of delusions and that those delusions had significantly influenced her actions, including the making of the will. The psychiatrist (Dr C) who gave evidence on behalf of the third defendant concluded that M had had a personality problem but not a disease of the mind and accordingly, had not suffered from delusions.

The issue was whether M had testamentary capacity in 1998 when the will was executed; namely, whether M's human instincts and affections, or her moral sense, had been perverted by the mental disease from which she had suffered.

The court ruled:

To determine testamentary capacity it was necessary to establish: (i) whether the testator understood the nature of the act and its effects; (ii) whether the testator understood the extent of the property of which he was disposing; (iii) whether the testator comprehended and appreciated the claims to which he ought to have given effect; and, with a view to the latter object, and (iv) that no disorder of the mind poisoned his affections, perverted his sense of right, or prevented the exercise of his natural faculties, that no insane delusion influenced his will in disposing of his property and bringing about a disposal of it which, if the mind had been sound, would not have been made (see [185] of the judgment).

On the evidence, it was clear that the claimants were honest witnesses and that the allegations made by M against them had been untrue. Further, as the evidence of Dr M was to be preferred to that of Dr C, those irrational beliefs and delusions were the result of a disease of the mind and they had been believed by M to have been true. The evidence plainly pointed to the fact that M's motive in making the will was to cut out the claimants rather than benefit the third defendant. As there was no rational reason for her to cut out all the claimants, it was apparent that her affections to the claimants had been poisoned. The reasons she gave for cutting them out had been untrue but believed by M to be true, the reasons had therefore been delusions. As there had been a strong moral reason, in all the circumstances of the case, to leave the estate to the claimants, it was clear that she would not have cut the claimants out but for the delusional beliefs. Accordingly, M had not had testamentary capacity at the relevant time (see [173]-[175], [186], [190]-[192] of the judgment).

The grant of probate to the will dated 7 October 1998 would be revoked and therefore M died intestate.

Banks v Goodfellow LR 5 QB 549 applied; Sharp v Adam [2006] All ER (D) 277 (Apr) applied.

Alison Blood, Barrister
Published date: 06/04/2009

Specialist case digests

 
SpC 740: Margaret Lau v Revenue and Customs Commissioners

Hearing date: 18 March 2009
Court type: Special Commissioners
Court: Special Commissioners
Judge: Michael Tildesley
Representation: Philip Simpson; Roddy Thomson
Decision: Dismissed

Abstract: Inheritance tax – disclaimer of benefit – The Appellant was joint executor and residuary beneficiary of her late husband's estate – The Appellant paid £1 million to her son who had renounced a legacy of £665,000 under the will of his stepfather – The Appellant contended that the payment of £1 million was unconnected with her son's renunciation – the payment was made in fulfilment of an earlier promise to fund her son's business ventures – evidence overwhelmingly demonstrated that the renunciation was made in return for payment of the £1 million - renunciation no effect made for consideration in monies - Appeal dismissed - section 142(3) Inheritance Tax Act 1984.

Full Text: Decision number: SPC 740
Appellants: Mrs Margaret Lau (The Executor of Werner Lau Deceased)
Case reference number: SC 3125/2008
Respondents: Her Majesty’s Revenue and Customs
Special commissioner: Michael Tildesley OBE
Location: Arberdeen and Edinburgh
Date: 13 February 2009
For the Appellants: Philip Simpson instructed by Iain Smith Solicitors
Decision: Dismissed
Decision: The Issue to be Determined

1. The parties agreed the following
"Whether a disclaimer signed by Colin Derek Harris on 23 March 2005 was a disclaimer to which section 142(1) of the Inheritance Tax Act 1984 (hereinafter the 1984 Act) applied, or whether such application was excluded by section 142(3) of the 1984 Act by it being made for consideration in money or money's worth".

The background:

2. Mr Lau died on 6 October 2004. The Appellant was the widow of Mr Lau, and the executrix of his estate. Colin Derek Harris was the Appellant's only child from a previous marriage. Mr Lau was his stepfather. Mr Harris was married to Marie Christie on 26 August 2005.

3. The value of Mr Lau's estate at death was about £7 million before deduction of funeral expenses, debts, fees and inheritance tax. Mr Lau in his Will dated 22 July 2003 left a legacy to Mr Harris of £665,000. Legacies in the same sum were left to each of Mr Lau's daughters, Dagmar Bach and Angelika Lau, both of whom resided in Germany. The legacies were free of inheritance tax, which meant that they were grossed up to calculate the inheritance tax payable by the estate.
 
4. Mrs Lau was the residuary beneficiary under the Will. Her share of the estate was valued at around £3 million which was exempt from inheritance tax under the surviving spouse provisions.
5. According to Mr Harris, he renounced his legacy soon after he learnt of the contents of the will. His renunciation was put in writing on 23 March 2005.

6. On 30 September 2005 £3,827,000 was transferred to the Appellant's bank account from Mr Lau's estate. The £3,827,000 represented the residue of the estate which included the value of Mr Harris renounced legacy. On or about 3 October 2005 the Appellant transferred £1 million to Mr Harris.
7. I use the word renunciation instead of disclaimer throughout the decision because that was the word adopted by the parties at the Appeal hearing. Renunciation has the same meaning as disclaimer for the purposes of section 142 of the 1984 Act. Also I have substituted the word the Appellant for Mrs Lau in the extracts from the correspondence referred to in the decision.

The dispute:

8. The dispute concerned the payment of the £1 million from the Appellant to Mr Harris. The Appellant contended that the £1 million was a gift from her in fulfilment of an earlier promise made by her to fund Mr Harris' business ventures. Also the gift was in part a wedding present to Mr Harris who had recently married Miss Christie.

9. The Respondents, on the other hand, contended that Mr Harris' renunciation was made in return for the £1 million payment. The Respondents relied on correspondence from the Appellant which set out in some detail her proposal to pay £1 million to each of the legatees, Mr Harris and Mr Lau's daughters, in return for them executing a Deed of Variation renouncing their legacies under the Will. The Deed was executed in July 2006 under which Mr Harris and Mr Lau's daughters renounced their legacies, and resolved that the whole free residue of the estate be payable to the Appellant.

10. When the Respondents pointed out the provisions of section 142(3) of the 1984 Act which rendered a Deed of Variation ineffective for the purposes of section 142(1) if made for consideration in monies, the Appellant accepted that the Deed of Variation did not apply in respect of Mr Lau's daughters but declared that Mr Harris' renunciation was not part of the arrangements to mitigate inheritance tax liability. The Respondents considered the Appellant's explanation distinguishing Mr Harris' renunciation from that of Mr Lau's daughters fanciful and without substance. In their view there was a direct causal relationship between the payment of the £1 million and Mr Harris renunciation which meant that the renunciation fell foul of the provisions of section 142(3) of the 1984 Act.

11. The onus was upon the Appellant to demonstrate on the balance of probabilities that Mr Harris' renunciation of the legacy in the sum of £665,000 was not made in return for payment of the £1million from the Appellant.

The Appeal:

12. On 8 February 2008 the Respondents issued a Notice determining that section 142(1) of the 1984 Act did not apply to the written disclaimer made on 23 March by Mr Harris having regard to the provisions of section 142(3) of the 1984 Act.

13. On 29 February 2008 the Appellant appealed against the determination.

14. On 15 January 2009 the Appellant supplied the Clerk to the Special Commissioners and the Respondents with a Minute of Amendment to the Note of Appeal which had the effect of replacing the grounds of Appeal as set out in the original Note. The Respondents did not object to the amendment but their Counsel reserved his right to make submissions on the lateness of the amendment. I gave my consent to the amendment.

15. The Appellant's grounds of Appeal were as follows:

"The Commissioners erred in determining that section 142(1) of the 1984 Act did not apply to the disclaimer identified in the Notice of Determination.

The disclaimer was not made for consideration. There was no agreement or understanding between the Appellant and Mr Harris that if he made the disclaimer he would receive any consideration for that.

In particular, the payment of £1 million on or around 3 October 2005 was not given by way of consideration for the disclaimer.

The payment was given (a) on account of Mr Harris' marriage on 26 August 2005 and (b) pursuant to an understanding between the Appellant and Mr Harris reached in or around 2001 that the Appellant would provide all the funding necessary for Mr Harris to start up a business, if he chose to do so.
The Appellant accepts that any such understanding did not constitute an enforceable, unilateral gratuitous obligation under Scots law. This is because it did not satisfy the requirements as to form set down in the Requirements of Writing (Scotland) Act 1995 (the 1995 Act) and it cannot be said that section 1(3) and (4) of the 1995 Act apply so as to make the understanding none the less enforceable.

Notwithstanding that the understanding was not enforceable, it remains the Appellant's position that whether or not, apart from the 1995 Act, the Special Commissioner finds that there was an actual promise or a mere understanding entered into in 2001, the reasons given above were the reasons for making the payment of £1 million, and that payment was not made by way of consideration for the disclaimer.

Accordingly the determination should be set aside".

The Law:

16. Section 142(1) of the 1984 Act provides that
"Where within the period of two years after a person's death -
(a) any of the dispositions (whether effected by will, under the law relating to intestacy or otherwise) of the property comprised in his estate immediately before his death are varied or

(b) the benefit conferred by any of those dispositions is disclaimed

by an instrument in writing made by the persons or any of the persons who benefit or would benefit under the dispositions, this Act shall apply as if the variation had been effected by the deceased or, as the case may be, the disclaimed benefit had never been conferred"

17. Section 142(2) of the 1984 Act provides that

"Subsection (1) above shall not apply to a variation unless the instrument contains a statement, made by all the relevant persons to the effect that they intend the subsection to apply to the variation".

18. Section 142(3) of the 1984 Act provides that

"Subsection (1) above shall not apply to variation or disclaimer made for any consideration in money or money's worth other than consideration consisting of the making in respect of another of the dispositions, of a variation or disclaimer to which that subsection applies".

Correspondence:

19. A memorandum of the Appellant's solicitors dated 25 October 2004 entitled Werner Lau's Executry recorded that

"Meeting with Appellant and Colin Harris. Discussing generally with them regarding the estate. Also discussing re possible Deed of Arrangement and that this would be left meantime until the ingathering of the estate. Obtaining papers etc. Discussing re fee and agreeing that this would be fee'd by Marie and being agreed by Peter Macari and then a restriction of 25 per cent being made thereon".

20. An unsigned letter from Appellant's solicitors to Ms Lau (daughter of the deceased) dated 18 November 2004 stated among other matters:

"I will let you know that in terms of the late Mr Lau's Will you have been bequeathed a legacy of £665,000 free of inheritance tax and other expense but without interest. Settlement of this legacy will be made in due course but we would advise you at the outset the Executors are in discussion concerning your legacy and various other legacies and other terms of the Will. In Scotland it is possible to vary the terms of the Will by means of a Deed of Variation and the usual purpose of this is to alleviate the Inheritance Tax burden either as affecting the Estate itself or as affecting the future burden of tax on the beneficiaries of the Estate.
The Appellant is keen to explore this possibility and it would of course be designed not only to alleviate the burden of tax on your father's estate but also to be of ultimate financial benefit to yourself and the other beneficiaries. We would stress at the outset that whether or not you wish to enter into such an agreement would be at your discretion and you are fully entitled to simply take your legacy under the Will in full. We stress that Appellant's wish would be to benefit the legatees as well as herself".

21. In a letter dated 25 January 2005 the Appellant's solicitors advised the Appellant of the effect of entering into a Deed of Variation. The letter stated among other matters:

"The letter seeks to layout the effect of entering into a Deed of Variation. You will see from the documents enclosed that if Angelika, Dagmar and Colin (Mr Harris) are prepared to enter into a Deed of Variation then an enhanced figure of £1 million will be paid to them.

The real point for your information is how this will affect you and we draw your attention to the annexation to this letter. As Part 1 we have shown the distribution under the current terms of Werner's Will. You will receive net after tax is paid and the bequests are grossed up for tax purposes the sum of £3,297,356".

At part 2 of the note attached you will see that if a Deed of Variation is entered into then allowing for the two bequests x £20,000 and gifts totalling £3 million by you a net figure of £3,634,711.50 will be retained by you.

In essence under a Deed of Variation you are £337,355 better off".

22. On the same date of 25 January 2005 the Appellant's solicitors wrote to each of the legatees including Mr Harris stating among other matters the following:

"The Executors of your late father have instructed us to write to you concerning his estate. We attach for your information a copy of the late Mr Lau's will. As you will see at clause second you have been left free of inheritance tax and other expenses but without interest the sum of £665,000. This sum represents a pre-tax figure of £1,108,333.30.

After due consideration the Executors with the consent and concurrence of the Appellant, as an individual, and in her position as Residuary Legatee, having instructed us to point out to you that an enhanced figure can be paid if what is known as a Deed of Variation is entered into. We enclose for your consideration a draft deed of variation. The document indicates that each of the three beneficiaries renounce the bequests which are made to them. In the event that such a document is agreed signed and accepted by the UK tax authorities then the Appellant will pay each of the beneficiaries from her own resources the sum of £1 million net.

We hope that you will see from the terms of this letter and annexation that it would be beneficial to enter into a Deed of Variation which will legally avoid Inheritance Tax on the bequests to the three main beneficiaries. The Appellant as surviving spouse is exempt from tax on the residue of the estate which passes to her. Under UK tax law there is no IHT eligible from that part of the estate which passes to the surviving spouse.

We therefore suggest that you give serious consideration to entering into a Deed of Variation. It is of course necessary that the UK tax authorities accept the terms of the Deed of Variation and confirm that no tax is payable at which point the necessary documentation will be lodged with the court so that the estate may be ingathered and paid to the Appellant. She will make arrangements to settle the sum of £1million to you.
These payments should be regarded as gifts from the Appellant.

23. On 7 February 2005 the Appellant's solicitors responded to various queries raised by the legal advisers of the daughters residing in Germany. The letter contained the following passage
I would also say in passing that the Appellant in her capacity as Executrix and one of the beneficiaries is keen to make progress in this matter and it would be helpful for your client's interest if you would confirm the German tax position with her a soon as practicable and advise as to whether we are to proceed with the Deed of Variation or not. I would say in passing that a substantial delay in making the decision in the matter will likely cause the Appellant as residuary legatee to suggest that the terms of the Will would be simply adhered to and this would cause a substantial loss to the principal beneficiaries".

24. On 23 March 2005 Mr Harris wrote to the Appellant's solicitors advising them of the following:
"Thank you for advising me of the legacy of £665,000 bequeathed to me by the late Werner Lau in terms of his Will dated 22 July 2003. I write however to advise that I do not wish to accept the legacy and I therefore now hereby formally renounce the said legacy. Please acknowledge safe receipt".

25. On 10 August 2005 the Appellant's solicitors wrote to the Appellant advising her of the arrangements for paying inheritance tax on the estate and confirmation of the Will. Within the letter the solicitors advised that

"Turning to Colin's (Mr Harris) position I do hold on file a Minute of Waiver in regard to his bequest in terms of the will. I am holding this basically as undelivered pending settlement of any private arrangement between yourself and Colin (Mr Harris)".

26. From 25 April 2005 there was a series of correspondence between the Appellant's solicitors and the German legal advisers for the daughters. The correspondence concerned the various options available to the daughters. The tenor of the Appellant's approach was to emphasise the benefits of the Deed of Variation for the daughters and the urgency of the situation having regard to the two year time limit for executing the Deed.
On the 7 July 2006 the German legal advisers proposed that the Appellant's solicitors go ahead with preparations for an eventual deed of variation. On 17 July 2006 the daughters formally renounced their legacies in writing and signed the Deed of Variation.

27. On 19 July 2006 the Appellant's solicitors wrote to the Respondents making a formal request for the repayment of inheritance tax in the sum of £782,459.02 which was paid on 18 August 2005 in respect of the two daughters' legacies. The ground for the request was that Mr Harris and the two daughters had formally renounced their legacies and entered into a Deed of Variation to that effect with the result that the whole residue of the estate passed to the Appellant.

28. There followed a series of correspondence between the Appellant's solicitors and the Respondents' Capital Taxes Offices in Edinburgh. I set out below extracts from the correspondence which were relevant to the Appeal:

(1) Appellant's solicitors' letter dated 18 August 2006:

"No fees have been paid by the Executors to Colin Harris. He renounced his legacy at the outset. We understood that the Appellant as an individual has gifted her son (Mr Harris) £1 million from her own funds".

(2) Appellant's solicitors' letter dated 11 September 2006:

"The intentions of the parties to the Deed of Variation in executing the deed is to legally avoid inheritance tax"

"The suggestion that a Deed of Variation be entered into was raised by ourselves as law agents to the Executors. As you will see from the correspondence above mentioned that this was disseminated among the parties at the earliest possible stage".

(3) Respondents' letter dated 14 September 2006:

"It seems, therefore, that the renunciation, the variation and the gifts back were all part of a series of pre-ordained transactions the net result of which was Angelika, Dagmar and Colin (Mr Harris) recovered the benefit which they purported to give up by the renunciation and the variation. In these circumstances, it would appear that section 142(3) IHTA (which disqualifies section 142(1) from applying to a disclaimer or variation made for any consideration in money or monies worth) would apply both to the renunciation dated 23 March 2005 and the variation dated 17 June 2006 so that neither falls within the provisions of section 142(1).

(4) Appellant's solicitor's letter dated 21 September 2006:

"Firstly the Executors accept that section 142(1) will not apply in the circumstances to the variation and this letter will not concern itself with that document.

However, the Executors take exception to the suggestion that section 142(3) applies to the waiver or disclaimer which was signed by Colin Harris on 23 March 2005. For the removal of doubt Colin Harris required to sign the deed of variation since he was referred to in the body of the deceased's will. That being the case he had no other interest in the variation itself.

It appears that HM Revenue & Customs have jumped to the conclusion that the disclaimer and the payment by the Appellant as an individual to her son (Mr Harris) were linked and that payment was by way of consideration of giving up the bequest in terms of the deceased's will.

The disclaimer was not dependent on the subsequent gift from the Appellant. That was entirely at her discretion as to the amount, time and indeed if it were ever paid. The Appellant made the gift to her son in the October as a wedding gift. Colin Harris was married at the end of August 2005. The money was gifted to Colin Harris and his wife for the purposes of starting a business, buying a home and for the couple's honeymoon".

(5) Respondents' letter dated 25 October 2006:

"I confirm that my view remains the same and that the disclaimer by Colin Harris was executed by him in the full knowledge that the Appellant intended to pay him a greater sum from her own resources. The fact that Colin was going to be married later that year, had plans to start his own business and buy a home strengthens my view that he would not have renounced his entitlement under his step-father's will without knowing that he was going to receive consideration from his mother for doing so. This was outlined in the letter sent to him on 25 January 2005".
(6) Appellant's solicitors' letter dated 21 November 2006:

"The Appellant has considered matters further and does not accept your view on this matter. Colin Harris and his fiancée Marie Christie were about to leave for the USA and had arranged to be married there when Mr Lau took ill. They were required to cancel the trip and plans for the wedding on 3 September 2004. Shortly prior to that time the Appellant had agreed to give her son a sum of money in order that he might set himself up with a home and purchase a business – effectively in contemplation of marriage since it was anticipated that the couple would then leave the family home where they resided.

Colin Harris had no promise from the Appellant as to what sum if any she was going to give him although he did anticipate that this would be substantial. Colin Harris signed the waiver in regards to his stepfather's estate in good faith and in the knowledge that his mother would give him a sum of money. However, the precise amount was not known and the date of payment was again not known. The matter was at the entire discretion of the Appellant who could have reneged on her promise or indeed have given whatever sum she felt at whatever time she chose".

29. In letters dated 11 December 2006 and 22 December 2006 the parties accepted that their differences could not be resolved and that it would be necessary for a hearing before the Special Commissioners.

The evidence:

30. I heard evidence over four days from the Appellant and eight witnesses for the Appellant who were extensively cross-examined by Respondents' counsel. The Appellant and witnesses supplied affidavits and statements which were admitted in examination in chief. The Respondents called no witnesses. A bundle of documents was received in evidence.

31. I set out in the following paragraphs a summary of their evidence in support of the Appellant's case. I analyse the cross-examination, the reliability and weight to be attached to their evidence in my findings of fact, so as to avoid unnecessary repetition.

32. The Appellant confirmed that Mr Harris was her only child from a previous marriage. The Appellant had supported Mr Harris throughout his life, paying for his education at school and University, and generally meeting his financial needs. The Appellant supplied details of payments made to Mr Harris and his wife. Mr Harris lived with the Appellant since moving to Scotland some 20 years ago. His wife and child also resided with the Appellant in a large house in Aberdeen, the ownership of which was now in equal shares between the Appellant on the one hand, and Mr Harris and his wife of the other hand. The Appellant had a loving relationship with her son.

33. The Appellant stated that in October 2005 she gave her son, Colin Harris, £1 million from her personal monies in fulfilment of a promise made to him in 2001 to fund a business. The Appellant felt she should not be supporting Mr Harris now that he was married, and wanted him financially secure for married life. The Appellant testified that the gift of £1 million would be used to fund the costs of a Quiznos[1] franchise acquired by Mr Harris in May 2006.

34. The Appellant stated that she and Mr Harris were unaware of the terms of her late husband's Will before he died. On learning the terms of the Will Mr Harris immediately renounced the legacy of £665,000 bequeathed to him. The renunciation was oral which was later confirmed in writing. The Appellant believed that Mr Harris' motive for renouncing the legacy was that he had no need of the money and was financially secure. The Appellant insisted that she would have given the £1 million regardless of whether Mr Harris had renounced the legacy or not. The timing of the £1 million payment in October 2005 had more to do with the date of Mr Harris' marriage in August 2006 than with her receipt of £3.8 million from the estate.

35. Mr Colin Harris explained that he applied without success for about 50 jobs since obtaining his degree in 2000. In 2001 the Appellant advised him that she would give him funds to start a business. According to Mr Harris, in 2002 he considered a range of franchised businesses including Subway and Papa Johns and made a conditional offer for a post office and general store at Nigg which did not proceed because he was turned down by the Post Office for the position of sub-postmaster. In May 2006 Mr Harris paid a fee of £15,000 to Quiznos for a franchise, which he terminated early on 3 January 2007 following a settlement agreement with Quiznos Corporation UK Limited.

36. Mr Harris testified that after learning the terms of Mr Lau's Will he immediately renounced the legacy bequeathed to him. Further he had no intention of accepting the legacy because he was financially stable and in the process of starting his own business. Shortly after his marriage on 26 August 2005, the Appellant gave him £1 million which was the money promised to him in 2001 to start up a business. Also the payment was in part a wedding gift.

37. Mrs Marie Harris was employed by the Appellant's solicitors as an executries assistant, and married to Mr Harris. She was aware of the contents of Mr Lau's Will but bound by client confidentiality. Mrs Harris expanded upon the businesses possibilities investigated by Mr Harris in 2001/2002, which included a tanning studio in Torry and visiting commercial premises on or around Union Street in Aberdeen as potential locations for a franchise. She sought advice from the Appellant's solicitors about a Subway franchise. Mrs Harris explained that they did not look at business premises in England until after Mr Lau died. Mr Harris intended to operate the Quiznos franchise from premises in the West Midlands, which would have involved them moving home from Aberdeen.

38. Mrs Harris stated that she and the Appellant's solicitors were made aware of Mr Harris' renunciation shortly after the death of Mr Lau. According to Mrs Harris, Mr Harris renounced his legacy in full knowledge that he was already financially secure. The Appellant's payment of £1 million to Mr Harris was made in respect of an earlier promise to fund his business ventures and as a wedding gift.

39. Mr Peter Macari was a partner at the Appellant's solicitors and co-executor of Mr Lau's estate. Mr Macari resigned from his position as co-executor in early March 2007 as a consequence of a likely dispute with HM Revenue and Customs. Mr Macari explained that he handled the litigious aspects of the dispute concerning Mr Lau's estate. The executry department of his firm dealt with the ingathering and settlement of the estate.

40. Mr Macari said he was aware of Mr Harris exploring possible business ventures for several years. Further he understood that the Appellant would provide the funds for a suitable venture. Mr Macari testified about details of a meeting with HM Revenue & Customs Officers at which he and the Appellant in their capacity of executors of Mr Lau's Will disclosed voluntarily specific assets upon which Mr Lau had not declared for tax in his lifetime because he believed mistakenly that he was domiciled in Germany.

41. Mr David Morrison was a partner in the firm of Cambell Connon Solicitors in Aberdeen. In May 2002 Mr Harris instructed Mr Morrison in connection with the proposed purchase of Nigg Post Office at an agreed price of £130,000 plus stock at valuation. Mr Harris told Mr Morrison that the Appellant would provide the purchase monies. In September 2002 Mr Harris indicated to Mr Morrison his interest in shop premises at Torry and in Summer Street, Aberdeen for a sunbed tanning business. Mr Morrison was told by Mr Harris that the costs of purchasing and fitting out the premises might be in the region of £100,000. Neither interest, however, was pursued by Mr Harris.

42. Mrs Adrienne McDonald and Mrs Dorothy McKenzie were work colleagues of Mrs Harris and together with their respective partners socialised with Mr and Mrs Harris. Their evidence consisted of recollections of conversations with Mrs Harris about the Appellant giving large sums of money to Mr Harris, the efforts of Mr Harris to find a suitable business, and an overview of the value of commercial properties in central Aberdeen.

43. Mr Peter Christie and Mrs Mary Christie were the father and step-mother of Mrs Harris. Their evidence essentially comprised of Mr Harris seeking potential business ventures and that the Appellant supported Mr Harris' lifestyle, which they learnt about through contact with their daughter and Mr Harris.

Findings of Fact

44. I considered that that the evidence of the Appellant, Mr and Mrs Harris and to a limited extent Mr Macari critical to the determination of the dispute. Mr Morrison's testimony was relevant only insofar as providing an insight of Mr Harris' pursuit of potential businesses in 2001 and 2002. I attached no weight to the evidence of Mrs McDonald, Mrs McKenzie Mr and Mrs Christie, which was largely derived from conversations with Mrs Harris and related mainly to Mr Harris' business search in 2001 and 2002. My discussion on the facts is structured under headings which are relevant to the dispute concluding with the facts found.

Mr Harris' Reason for Renouncing the Legacy

45. Mr Harris testified that he renounced the legacy because he did not want the money. He considered that he was financially secure and that the Appellant would meet his financial needs. According to Mr Harris at the time he orally renounced the legacy he did not know that the Appellant would give him £1 million. The Appellant believed that Mr Harris refused the legacy because he knew that she would support him. The Appellant could not explain why she chose the sum of £1 million other than it was a nice round sum. The Appellant considered that she was wealthy and could do what she liked with her money.

46. Mr Harris' contention that he was financially secure at the time of the renunciation was open to question. He was totally dependent upon the generosity of the Appellant to support his lifestyle. Mr Harris had no independent means of support. His employment prospects were bleak. In the 20 years since leaving school Mr Harris worked for about two years in relatively unskilled jobs. To his credit he gained a University degree and post-graduate qualification but for some reason did not capitalise on his qualifications. Mr Harris researched various business opportunities but none had come to fruition. Mr Harris owned a flat in Aberdeen which he bought as a development opportunity and for resale. Mr Harris used the £150,000 given to him for the purchase of Nigg Post Office to buy the flat. The value of the flat at the time of the renunciation was not much more than the original purchase price. Mr Harris supplied no documentary evidence of holding substantial savings at the time of the oral renunciation.

47. Until 2001 the Appellant was reliant upon her husband for financial support. Mr Lau supplied the Appellant with a credit card for her expenditure. The Appellant became financially independent of her husband on 6 December 2001 when she received £3.5 million from her husband pursuant to a separation agreement following an acrimonious matrimonial dispute. In reality it was Mr Lau who provided for Mr Harris during the majority of his adult life. Mr Lau's responsibility for Mr Harris was reflected in his bequest of £650,000 to Mr Harris in his Will. The size of the bequest carried the implication that Mr Lau did not consider Mr Harris to be financially secure.

48. The payment of £1 million in October 2005 by the Appellant to Mr Harris was wholly exceptional and uncharacteristic of the level of support given by the Appellant and Mr Lau to Mr Harris. Essentially the Appellant and Mr Lau met Mr Harris' immediate financial needs, and gave him relatively modest sums of money for cars, holidays, birthdays and Christmas. The Appellant adduced evidence of just two sizable gifts of money to Mr Harris prior to October 2005. The first was a sum of £150,000 in four instalments between March and June 2002 from the Appellant which was connected with the proposed purchase of Nigg Post Office.
The second in 2004, a gift of £30,000 each to Mr Harris and Mrs Harris from Mr Lau from his winnings at a local casino.

49. I find Mr Harris' reasons for renouncing the legacy highly improbable. A legacy of £665,000 free of inheritance tax was a considerable sum of money which would have given Mr Harris financial independence and security for the remainder of his life. His assertions of being financially secure, and money did not matter to him were without factual foundation. Mr Harris was entirely dependent upon the Appellant for financial support. He had been out of work for most of his adult life, and at the time of his renunciation owned no assets of significant value. If his account was to be believed, Mr Harris took an incalculable risk when refusing the legacy.
The Appellant had only become wealthy in her own right following the separation agreement with her late husband in December 2001. Prior to the separation agreement the Appellant and by implication Mr Harris were dependent upon Mr Lau for financial support. Mr Lau recognised his financial obligations towards Mr Harris with his substantial bequest which guaranteed Mr Harris financial security long after his death.

The Appellant, on the other hand, had been in a position since December 2001 to give Mr Harris a substantial sum of money to secure his financial independence. She had made one gift of £150,000 for the proposed purchase of Nigg Post Office. The Appellant phased the payment in four instalments, which suggested that she was more cautious with her money than the image portrayed at the hearing of giving whatever Mr Harris required. The Appellant's £1 million payment to Mr Harris was made only after receipt of the settlement of £3.8 million from Mr Lau's estate, which included the gain to her from Mr Harris' renunciation of his legacy. In these circumstances Mr Harris' forsaking of a guaranteed £665,000 on an assumption that the Appellant would provide for his future needs was not only reckless but beyond the bounds of reasonable comprehension.

The Appellant's Promise to Fund Mr Harris' Business Ventures

50. The Appellant's explanation for giving the £1 million in October 2005 was to discharge her earlier promise to fund a business for Mr Harris, and in part a wedding gift. I will examine in turn each aspect of the explanation.

51. According to the Appellant, she was concerned about Mr Harris not securing employment after graduating from University despite his efforts. In around 2001 she suggested that he might wish to run his own business, and that she would fund the venture. The Appellant and her witnesses adduced evidence purporting to show that in 2001/2002 Mr and Mrs Harris looked at a range of potential commercial premises on or close to Union Street in Aberdeen (an expensive part of the City) from which to run a business. Mr and Mrs Harris stated that they considered several fast food franchises, a Post Office and general store at Nigg, a tanning studio at Torry, and a courier service. Mr Morrison gave evidence that he had been instructed by Mr Harris in relation to the proposed purchase of the Nigg Post Office, and his advice had been sought in relation to the studio at Torry.

52. Mr and Mrs Harris gave evidence of taking up a franchise with Quiznos, which sold deli sandwiches. Mr Harris stated that he met Quiznos' representatives in Edinburgh between March and October 2005. He signed a franchise agreement in May 2006. In November 2006 he instructed Mills and Reeve, solicitors in Birmingham, to progress a lease for a restaurant at Merry Hill Shopping Centre in the West Midlands from which the franchise would operate. Mr and Mrs Harris estimated that the total start up costs of the franchise would be about £225,000, plus an additional £250,000 for the costs of relocating to the Birmingham area. Mr Harris decided not to go ahead with the franchise, which was brought to an end by mutual agreement in May 2007.

53. The Appellant in its original Note of Appeal submitted that on or about 2001 she undertook and promised to pay a sum in the region of £1 million to Mr Harris as and when he found a business interest in which to invest. The promise amounted to a unilateral gratuitous obligation enforceable under the Law of Scotland. On 15 January 2009 the Appellant acknowledged that the promise did not amount to an unilateral gratuitous obligation because it was not in writing as required by section 1(2)(a)(ii) of Requirements of Writing (Scotland) Act 1995. Notwithstanding the unenforceability of that promise the Appellant maintained that her pledge to fund Mr Harris' business was the principal reason for making the payment of £1 million.

54. The Appellant and her witnesses were unable to provide precise details of the circumstances surrounding the promise. They believed it was given in 2001 but it may have been in 2002. The Appellant stated that no specific amount was mentioned but she would give whatever Mr Harris required to start up a business. The Respondents accepted that there was some sort of discussion between the Appellant and Mr Harris about funding a potential business around 2001 but challenged the details of the commitment given by the Appellant.

55. The Appellant relied on the evidence of Mr Harris' search for business opportunities to support her assertion of an open-ended commitment. Mr and Mrs Harris depicted their business intentions in 2002 as wide ranging embracing different opportunities of varying costs. Mr Harris stated that he intended to purchase commercial premises which would significantly increase the start up costs. The evidence, on the other hand, demonstrated that their intentions in respect of potential business opportunities were somewhat limited in scope, cost and time.

56. The evidence showed that in 2002 Mr Harris had seriously considered one business which was the Post Office and general store at Nigg, which he agreed conditionally to purchase for the sum of £130,000 plus the value of stock in hand. He sought the advice of his solicitor in respect of a tanning studio at Torry but was put off by the costs of fitting out the studio with the necessary equipment, which was in the region of £200,000[2]. The businesses were not located in prime parts of Aberdeen. They did not involve acquisitions of expensive commercial premises and their purchase costs were in the region of £150,000.

57. Mr and Mrs Harris' evidence in 2001/2002 of giving active consideration to fast food franchises run from commercial properties on Union Street or nearby was unreliable. They adduced no documentary evidence to back up their stated interest in such business ventures. Further the evidence of Mrs Harris' parents, and work colleagues on the wide search for businesses carried no weight as their knowledge of events was largely derived from conversations with Mrs Harris.
58. The evidence of the Appellant's involvement in the search for business premises was contradictory. Mrs Harris asserted that the Appellant accompanied them on their viewings. The Appellant, on the other hand, stated in her affidavit that she was aware of Mr Harris viewing premises. In her cross-examination the Appellant gave the impression that she left it to Mr Harris, "I was not holding his hands".

59. Following his failure to obtain the position of sub-postmaster in late 2002, Mr Harris made no concerted effort to secure another business except the Quiznos franchise in 2006. He flirted with the idea of a courier business and set up a company in June 2003 to run it. Mr Harris, however, did not progress the project, and application was made in January 2004 to strike off the company from the Register held at Companies' House.

60. Mr Harris' flagging interest in finding a business was demonstrated by his use of the £150,000 given to him by the Appellant for the Post Office to purchase a flat for the purposes of renovation and onward sale, and his return to college in September 2003 for a one year post graduate course.
61. The facts of the Quiznos franchise were central to the Appellant's case in respect of its relationship to the £1 million payment and her stated obligation to fund Mr Harris' business ventures. The affidavits of the Appellant, Mr Harris and Mrs Harris dated April 2007 linked the timing of the £1 million payment to Mr Harris' acquisition of a Quiznos franchise. The Appellant and Mrs Harris described the franchise as going ahead in their affidavits. Mr Harris claimed that the £1 million was paid in October 2005 as he was in negotiations over the franchise, which required a payment of a deposit. Their affidavits, however, did not mention that the franchise was about to be ended by Mr Harris, who had received legal advice on the termination in the period between 18 December 2006 to 23 January 2007.

62. In her witness statement dated 8 January 2009 the Appellant furnished details of the cost of the Quiznos franchise which would be in the region of £1 million if Mr and Mrs Harris relocated to the West Midlands, and commercial premises were purchased instead of leasing. The Appellant, however, again omitted the salient fact of the franchise ending in May 2007. In his witness statement of 10 January 2009 Mr Harris acknowledged that he had not gone ahead with the franchise, while still emphasising the potential high costs of setting up a franchise and relocation.

Mr Harris also stated that when the gift of £1 million was made he had not entered into discussions with Quiznos and that the date of the gift was not linked to any particular line of enquiry in relation to purchasing or setting up a business. On 14 January 2009 Mr Harris made a supplementary witness statement in which he sought to retract his evidence of not entering into discussions with Quiznos by replacing discussions with no formal written agreement. Mr Harris went onto state that he held a meeting with a Quiznos representative sometime after March 2005 but before October 2005. His enquiries with Quiznos were at an early stage and the Appellant's gift of £1 million was coincidental and, in his view, connected with his overall intention to purchase a business.

63. The contradictions and omissions in the affidavits and statements casted considerable doubt on the veracity of the Appellant's assertion that the gift of £1 million was connected with the acquisition of the Quizonos franchise.

64. The facts not in dispute regarding the Quiznos franchise were that Mr Harris acquired a franchise to operate in the Manchester area in May 2006 for five years on payment of a fee in the sum of £12,500 plus VAT. On 28 September 2006 Mr Harris incorporated a company Isandco Four Hundred and Seventy Six Limited (name changed to CDH Securities Limited on 5 October 2006) to run the franchise. In November 2006 Mr Harris instructed Mills and Reeve, solicitors in Birmingham, to negotiate a lease for premises at Merry Hill Shopping Centre in the West Midlands. In December 2006 Mr Harris was taking legal advice on terminating the franchise, which was formally brought to an end on 20 April 2007.

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