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Undoing Mutual Wills Agreements: Can Equity Speak With Two Voices?
Date: 07/03/2024 Type: Articles Topic: Private Client | Trusts | Wills and Estates | Inheritance | Next Generation Wealth | Investment and HNWI’s | Tax |Mutual Wills come in and out of fashion, more commonly used in blended families to protect an estate for the children as agreed at a point in time, sensitive to the fact that neither testator may want a subsequent spouse (or their children) to benefit from a joint estate built up during a relationship. Once the first testator has died, the second is prohibited in equity from changing the dispositions in that mutual will, so that any subsequent executor will hold the estate on trust for the gifts made in the mutual will. Put plainly, after the first testator has died, the practical effect is that the gifts in the mutual will take effect regardless of any subsequent will.
What, though, of the situation where the mutual wills were validly executed and contained gifts that the testators were prepared to make at the time, but the mutual wills agreement was procured by the undue influence of another individual. Can the mutual wills agreement be separated from the will and set aside, applying the well known test in Royal Bank of Scotland Plc v Etridge (No.2) [2002] 2 AC 773 (i.e. has a person in a position of trust and confidence or ascendancy abused that position to prefer his own interests) or does the more stringent common law test for setting aside a will for undue influence apply? This was the novel question decided by HHJ Cadwallader in a judgment handed down in the Business and Property Courts in Liverpool [Naidoo v Barton & Barton [2023] EWHC 500 (Ch)].
The claim related to the estate of Mrs Naidoo, who died in 2016. She and her husband had seven children but relied on her third son, the Defendant, Mr Barton, to assist her and her husband (who had been increasingly unwell and unable to manage the family businesses) with their finances and businesses. They had gifted Mr Barton one of the family businesses in the 1990s and he was assisting them with some litigation against another family member to recover various properties, being all of the assets acquired by the Naidoos since they came to the UK in the late 1960s including their businesses and their family home.
During this stressful litigation and shortly before Dr Naidoo’s death, Mr Barton arranged for his parents to see a solicitor to make new wills leaving everything to each other and then to Mr Barton and his wife, excluding all of their other children. Mr Barton was advised by his solicitors that the wills should be true mutual wills so that his parents could not change their minds later, and this message was passed to the solicitors instructed to prepare the wills. Wills were prepared following a meeting with the testators which were mirror wills, but contained no mutual wills agreement. Mrs Naidoo later called the solicitors to say that the wills should be ‘true mutual wills’ (a phrase used by Mr Barton and his solicitor) and the drafts were amended and new wills containing a mutual wills agreement were executed.
It was alleged that the mutual wills agreements (as well as other subsequent agreements) between Mrs Naidoo and Mr Barton and his wife were procured by Mr Barton’s undue influence. The Judge had to decide which test to apply in deciding whether there had been any undue influence. The Claimant made the argument that the matter had not been decided, and that there was little academic discussion around the point.
The Judge considered what was required for a mutual will agreement and whether that can be separated from the will itself. He held that what is required for a mutual will agreement is a contract enforceable at law, which may be contained in the will, or may be proved outside the will. In this case, where there was a written mutual wills agreement, it is a matter of construction of that contract, in accordance with the principles generally applicable to the construction of contracts. That contract would operate to impose a trust in equity. If the contract were void by reason of an equitable principle (such as undue influence), to then impose a trust under the doctrine of mutual wills would mean that ‘equity would be speaking with two voices’ (as discussed by the editors of Theobald on Wills).
The defendants argued that as the mutual wills agreement was expressed in a will, the test for setting aside that agreement by undue influence should be that applicable to the vitiation of wills for undue influence, rather than the equitable test under Etridge.
The Judge held: ‘a mutual wills agreement is a contract first, before there is any basis for equity to intervene. Such a contract may be found explicitly in the wills, or explicitly or implicitly outside it. But either way, it is not a testamentary provision, and it lies outside the wills.’ Further, the doctrine of undue influence relating to wills is a common law doctrine, affecting the admissibility of the will to probate. A mutual wills agreement does not affect the validity of subsequent wills and so there was no reason why ‘a test of undue influence developed for probate purposes and concerned with the validity of a will should be pressed into service to undo a contract giving rise to just such a trust, or (perhaps) the trust itself, where an equitable doctrine, apt to avoid contracts and dispositions, is already available.’
The two doctrines should be carefully distinguished. The probate doctrine applies where such pressure has been placed on the testator as to overpower their will without affecting their judgment; there is no ability to take advantage of the evidential presumption that undue influence can be established based on a relationship of ascendancy and a questionable transaction; it can be invoked by any party with standing to challenge the will; and if established it renders the will void. The equitable doctrine on the other hand: allows a party to take advantage of that evidential presumption; does not render the contract invalid, rather it takes effect unless and until it is rescinded; and only applies to lifetime transactions.
The Judge concluded that the probate test is to be distinguished from that in equity, and is inapplicable to the doctrine of mutual wills. That analysis was to be preferred to resolving a clash of equities.
The Claimant established that the required relationship of ascendancy existed and that Mrs Naidoo placed trust and confidence in Mr Barton to look after her affairs, and that the mutual wills agreement which left all assets recovered in her litigation to Mr Barton called for an explanation. No satisfactory explanation was offered and it was found that Mr Barton had abused that trust by preferring his own interests. The mutual wills agreement and other subsequent agreements between Mrs Naidoo and Mr and Mrs Barton were set aside for undue influence and Mrs Naidoo’s later will was pronounced for in solemn form.
This judgment clarifies the position as to the test to be satisfied when considering mutual wills agreements contained within or outside of wills and whether they were procured by undue influence or can be set aside using other contractual principles. This may be particularly relevant where there is no clear advice as to the effect of a mutual wills agreement, and even more so where one of the parties to the will or a beneficiary under it is in a position of ascendancy over the testators or one of them which may be abused.
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