Claughton v Price and others

K purchasing properties in Florida with assistance of mortgage loans from vendors – K becoming patient of defendant psychiatrist – K liable to repay balance of mortgage loans – K selling properties to defendant and repaying mortgage loans with proceeds – K claiming right to repurchase – Defendant claiming no such right had been agreed – High Court set aside sale to defendant – Whether retrial should be ordered – Whether presumption of undue influence arose – Whether presumption had been rebutted – Appeal dismissed In August 1980 K became a patient of the defendant, a psychiatrist, and was treated for anxiety and depression. K and the defendant became personal friends. In 1981 K went to Florida and purchased three properties with the assistance of mortgage loans from the vendors. The loans were purchaser’s “balloon” mortgages which provided for small monthly instalments over a short period and then for the whole of the balance plus interest to be paid. K was due to pay the balance of the mortgage loans on August 1 1982. However, he had exhausted all his cash resources. The amount owed to the vendors was $140,000. K consulted lawyers about his inability to discharge the mortgage loans and an agreement was reached whereby the defendant was to purchase the properties from K for $140,000 so that K could pay the money he owed to the vendors. Completion took place in June 1993. Subsequently K sought to repurchase the properties but the defendant refused to sell them back. The plaintiff, as K’s trustee in bankruptcy, continued the proceedings commenced by K claiming that the sale had been agreed on the basis that K had a right to repurchase and that the sale of the properties should be set aside. It was common ground that the defendant had been in a fiduciary position. K stopped attending the hearing in the middle of cross-examination and the trial was concluded without him. The judge found that the sale had been concluded on the footing that K was to have a right to repurchase, albeit on terms which were never settled, because the price had not been negotiated by reference to the true value of the properties but had been based on the amount of money owed by K. The judge also held that the presumption of undue influence had arisen, that the transaction was manifestly disadvantageous and therefore the sale was to be set aside. The defendant appealed. Held The appeal was dismissed. 1. Although K had not finished giving his evidence, the judge had given appropriate weight to it by disregarding evidence as to matters which were challenged or in dispute. Since therefore there had not been a mis-trial, there were no grounds for ordering a retrial. If the judge had found that he could not have given a judgment on the evidence as given below, he would have given a direction accordingly. 2. Although the defendant and the defendant’s solicitor were entitled to have assumed that K had had independent legal advice, that did not rebut the presumption of undue influence. The defendant had been under a duty to take care of K in the transaction: see Allcard v Skinner (1887) 36 ChD 145. 3. The defendant could not reasonably have believed that K’s solicitors would have advised K to go ahead with the transaction without the protection of a right to repurchase. Therefore the presumption had not been rebutted. Anton Lodge QC (instructed by Rollit Farrell & Bladon, of Hull) appeared for the appellant; Thomas Dumont (instructed by Mason Baggott & Garton, of Scunthorpe) appeared for the respondent.