HAMID KHOSROWPOUR AGAINST ANDREW JOSEPH MACKAY AS EXECUTOR NOMINATE OF THE LATE ANN BOWDEN MACKAY
EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
[2016] CSIH 50
A384/12
Lady Paton
Lord Bracadale
Lord Malcolm
OPINION OF THE COURT
delivered by LORD MALCOLM
in the cause
HAMID KHOSROWPOUR
Pursuer and Respondent;
against
ANDREW JOSEPH MACKAY
as executor nominate of the late Ann Bowden Mackay
Defender and Reclaimer:
Act: Maclean; Thorley Stephenson SSC
Alt: Watt; Allan McDougall (for Archibald Sharp, Glasgow)
1 July 2016
[1] Hamid Khosrowpour (the pursuer) seeks damages from the estate of his late mother‑in‑law (the deceased) on the basis that she failed to honour an agreement that she would leave her house to him in her will. The pursuer offers to prove that in 1989 she agreed to do this in return for payment of £8,000, which allowed her to exercise her right to purchase the house then tenanted by her from the local authority; £800 being referable to legal costs, etc.
[2] In resisting the claim, her son and executor (the defender) refers to a standard security granted by the deceased in 1991 over the subjects which bears to be in security of all sums due to the pursuer. It does not mention any obligation to bequeath the house to him. The defender avers that any agreement between the pursuer and the deceased is outwith his knowledge, but in any event it was not reduced to writing.
[3] The pursuer admits that there was no written record of the agreement. He states that, because of the promise that the house would be left to him, he did not insist upon any interest payments. He avers that the deceased executed a will in terms which complied with the agreement. However, unknown to him, she signed a subsequent will in different terms which superseded the first will. The second will directed that £7,200 be paid to her daughter (the pursuer’s wife) as representing her contribution to the purchase of the house, with the residue of the estate, including the sale proceeds of the house, to such of her three children as survive her. This will is said to be in breach of the agreement. The pursuer became aware of it after the death of the deceased in 2012. The defender avers that the first will was destroyed, and that he has no knowledge of its terms.
[4] Given that the agreement is said to have occurred in 1989, before the reforms introduced by the Requirements of Writing (Scotland) Act 1995, the old law applies. At a debate the Lord Ordinary addressed submissions on behalf of the defender that, being one relating to heritable property, the alleged agreement required to be constituted in writing, and that the pursuer’s averments in support of a plea of rei interventus are insufficient to justify a proof. The pursuer accepted that pre-1995 agreements relating to land required to be constituted in writing ‑ however, it was submitted that this was not such a contract. It was an innominate or unusual contract which could be proved by parole evidence. Failing that, it was claimed that the defender is personally barred from relying upon the invalidity, and that by operation of the doctrine of rei interventus.
[5] For the reasons given at [2014] CSOH 175, the Lord Ordinary held that the alleged contract relates to heritable property and therefore required to be constituted in writing. The pursuer’s averments in support of rei interventus were (i) the payment of the agreed sum and (ii) the execution by the deceased of the first will. In response the defender pointed to the terms of the standard security which contradict the alleged bargain. The Lord Ordinary recognised that the terms of the standard security present a problem for the pursuer, but held that these are matters for decision after evidence. He allowed a proof before answer. In this reclaiming motion (appeal) the defender challenges that decision. The innominate or unusual contract issue having been decided in his favour, the submission is that the action should have been dismissed. (The pursuer has not challenged the Lord Ordinary’s decision that writing was required, legal aid for such having been refused.)
[6] Before this court the defender again relied upon the terms of the standard security, and invited the court to the view that it was clearly contradictory of the pursuer’s case. In the absence of any pleadings providing a cogent explanation for the terms of the standard security, the pursuer should not have been afforded a proof on personal bar. In the course of discussion it became clear that the key factor for the pursuer is the offer to prove the terms of the first will, it being accepted that the mere fact of payment having been made to the deceased did not point unequivocally to an agreement of the kind alleged by the pursuer. The court observed that actings of the party who relies upon the invalidity of the bargain to escape from it, are properly to be characterised as homologation, not rei interventus. The latter refers to conduct of the party seeking to enforce the bargain. In due course this proposition was accepted by both parties, and counsel for the pursuer was allowed to add an appropriate homologation plea‑in‑law by way of amendment.
[7] It was acknowledged by counsel that there is an important question arising from this reclassification, in that there is authority that an invalid agreement cannot be homologated by actings unless they took place at a time when the alleged homologator was aware of the right to resile. Such knowledge is not a requirement in relation to rei interventus. The defender then relied upon the absence of any averment by the pursuer that the first will was executed at a time when the deceased knew that it was within her power to resile from the verbal agreement. It was submitted that, without some such averment, the case is irrelevant and should be dismissed.
[8] Given the change of front, counsel for the pursuer was given time to reflect upon the whole matter. When the court reconvened, supplementary notes of argument on this point had been prepared. The defender relied upon Gardner v Gardner (1830) 9S 138; Shaw v Shaw (1851) 13D 877 and Bell’s Principles 10th edition at paragraph 27. Counsel placed particular emphasis upon the observations of Lord Cockburn at page 879 of Shaw. Reference was also made to Lord Advocate v Wemyss (1899) 2F (HL) 1 and Crerar v The Bank of Scotland 1921 SC 736.
[9] For the pursuer, Mr Maclean acknowledged that the absence of any averment of knowledge of the right to resile on the part of the deceased when the first will was drafted is a significant issue. He accepted that his case stands or falls upon proof of homologation based upon the execution of the first will. No copy of that will is available, however the court was told that its terms will be spoken to by the pursuer and his wife. Mr Maclean accepted that there is a general requirement of full knowledge before there can be homologation, but he submitted that, in most cases, it is “dealt with” by way of a presumption that people look after their own interests and are aware of their rights. Thus the court was asked to hold that it is for the defender to aver and prove that the deceased was unaware of her right to withdraw from the agreement. Reliance was placed upon the equitable nature of the doctrine of personal bar. It had been open to the deceased to take legal advice before executing the first will. In the case of a gratuitous obligation there will be no presumption of knowledge, but different considerations arise in respect of onerous transactions. According to counsel, in such cases: “If you have the means of knowing, you are taken as knowing.” It is for the executor to prove the opposite.
[10] Counsel for the pursuer discussed a number of cases, including Shaw; Fleming v Wilson & McLellan (1827) 5S 906; Paul v Henderson (1867) 5M 613; and the decisions in Crerar v The Bank of Scotland and Lord Advocate v Wemyss mentioned earlier. Shaw concerned a gratuitous obligation. In any event the key remarks in that decision were obiter. It was submitted that there are decisions to the effect that equity will enforce a contract subject to a formal invalidity even where there is no knowledge of the right to resile on the part of the homologator. It follows that the absence of any averment on the point by the pursuer does not render his case irrelevant. The whole matter should be sent to a proof before answer.
Discussion
[11] The classic exposition of the doctrine of homologation is to be found in Bell’s Principles 10th edition at paragraph 27.
“Homologation … is an act … approbatory of a preceding engagement, which in itself is defective or informal … either confirming or adopting it as binding. It may be expressed, or inferred from circumstances. It must be absolute, and not compulsory, nor proceeding on error or fraud, and unequivocally referable to the engagement; and must imply assent to it, with full knowledge of its extent and of all the relative interests of the homologator.”
The effect of homologation is to remove the right to resile from the informal agreement. The actings must be carried out in the full knowledge of all matters relevant to the homologator’s rights and interests. Most obviously this includes knowledge of the right to resile. “No man can be barred from the assertion of a legal right by acts done in ignorance of his legal rights”: Lauder v Millars (1859) 21D 1353, Lord Justice Clerk Inglis at 1357. In Shaw Lord Cockburn stated that a plea of homologation “would require averment and proof that the party was aware of his legal rights before homologating” (page 879). The other judges concurred.
[12] Similar reasoning underpinned the discussion in Gardner, where it was stated that “the law of homologation proceeds on the principle of presumed consent by the party who does the acts, to pass from grounds of challenge known by him to exist, and sciens et prudens to adopt the challengeable deed as his own” (page 140). An heir at law, the pursuer, sought to take advantage of a right to reduce, ex capite lecti, a deed of entail executed by his father on deathbed. His brother, as a substitute heir, pleaded that the pursuer was barred from proceeding, having homologated the deed by authorising a solicitor to record it in the register of tailzies. The pursuer explained that no one had told him of his right to reduce the deed. His brother did not aver that the pursuer was so aware or informed. The pursuer had married and had possessed the lands for several years. There were no children of the marriage. No one had entered appearance to found on the marriage contract by way of objection, and it was not averred that any other onerous contract had been entered into on the faith of the acts and deeds of the pursuer. The Lord Ordinary described the pursuer’s conduct as a gratuitous act, in that he had received nothing in return for registering the deed – it was a wholly prejudicial act so far as he was concerned, depriving him of a fee-simple.
[13] The Lord Ordinary held that the facts did not create any implication or assumption of knowledge of the right to reduce on the part of the alleged homologator. It was accepted that he acted in ignorance of the law, as had the law agent. If third party interests were involved through an onerous contract entered into on the faith of the apparent state of affairs, that would be important, since “a man is bound to know his own rights before he transacts with third parties”. In the whole circumstances it was held that the reduction was not barred by homologation given the pursuer’s ignorance of the law of deathbed and of his right to reduce the deed of entail. The Inner House adhered to the approach of the Lord Ordinary.
[14] When considering the decision and reasoning in Gardner, it is important to note that homologation was being assessed in the context of whether a free‑standing right of reduction of a deed of entail was barred by the acts of the party in benefit of that right. The question as to the presumption of knowledge, upon which Mr Maclean places emphasis, arose in the context of a discussion of the absence of any arrangements entered into by that party in respect of which others might have relied upon the apparent state of affairs, and who would be prejudiced by the exercise of a right of reduction. In the present case, no third parties are involved. No new contracts or arrangements were made by either the pursuer or the deceased in reliance on the alleged agreement. In our view modern textbooks, for example the first edition of Professor McBryde’s Law of Contract at paragraph 27.53, have been correct to cite Shaw and Gardner as support for the general proposition that a homologator must act in the knowledge of the right to resile. Properly understood, Gardner demonstrates no more than that a presumption of knowledge can arise if the homologating acts are in exchange for a benefit (onerous transactions) or bona fide third party interests are involved. In the context of an equitable jurisdiction it is understandable ,that in certain circumstances a party might be prevented from relying upon ignorance of his legal rights.
[15] A glance at Professor Rankine’s Personal Bar (1921) demonstrates that over the years there have been dozens, probably hundreds of decisions on the subject of when actings will and will not prevent reliance upon an agreement lacking in formal validity. It is clear that generally the outcome turns upon the particular facts and circumstances of each case; and it is true that on occasions the court has expected the person challenging an arrangement to prove ignorance of the true position, as opposed to the other party having to establish full knowledge. The question is – upon whom does the onus lie in the present case?
[16] The opinions in Fleming illustrate how fact sensitive these cases can be, and that questions of homologation in the pure sense can overlap with other considerations, such as completion of a new agreement, prorogation of time limits, etc. Furthermore, those judges who focussed on homologation in the sense discussed in the present case, required knowledge of the expiry of the submission to arbitration.
[17] Counsel for the pursuer placed particular reliance upon Lord Advocate v Wemyss for the proposition that, for the purposes of homologation, knowledge of the right to resile is not an absolute requirement. However, we agree with Professor Rankine’s treatment of this case as one concerning the loss of a right through mora or acquiescence over a period of time (page 120). Lord Watson in his speech at page 17 made it clear that the challenge would have been successful if brought within a reasonable period after Mr Wemyss attained majority.
[18] Mr Maclean’s ultimate submission was that, except in the case of gratuitous obligations, there is a rebuttable presumption that parties are aware of their rights, the onus of proving the opposite resting on the party contradicting the proposition. In our view there is no such presumption in law, though certain cases do show that, depending upon the particular circumstances, the courts will not allow a party to rely upon alleged ignorance in the absence of clear proof. Paul v Henderson is a good example. It was held that when a party can be expected to have known, or at least ascertained the correct state of affairs, he will be presumed to have done so. The judges spoke of the circumstances creating “a duty” to ascertain the true position. Having participated in an arbitration to its final determination, the pursuer could not then plead that it had fallen at an earlier stage through lack of prorogation. In its context, that outcome was unsurprising. And likewise in respect of Crerar v Bank of Scotland, where the “true question” was whether knowledge of a course of dealing established the pursuer’s agreement to it.
[19] In the present case, at a minimum we consider that the pursuer requires to aver facts and circumstances which are sufficient to create a stateable case that he need not prove that his mother‑in‑law was aware of her right to resile from the agreement (assuming it is proved) when she signed the first will (again assuming that the first will is proved to have been executed). As a generality, no doubt competent persons are expected to know about and look out for their own interests, otherwise they must accept the consequences. However the cases discussed in Reid and Blackie, Personal Bar (2006) at paragraph 2‑35 again demonstrate how fact sensitive such considerations are, and that no absolute rule one way or the other can be laid down.
[20] Turning to the pursuer’s averments in the present case, the most obvious aspect to note is that the money was paid in a family context. This was not a purely commercial or business transaction. The pursuer states that he was asked to “lend” his mother‑in‑law money to allow her to buy her council house. It is said that “a contract was concluded between them”, but there is no suggestion of a written bargain or of lawyers being involved. As a result “the deceased in effect undertook an inter vivos obligation to leave and bequeath the property to the pursuer in her will.” In return he did not insist upon interest payments on the sum advanced. If the bargain cannot be enforced he will have lost out on both interest and the capital value of the house. It is said to be “unconscionable” that the agreement is not enforced. As already mentioned, heavy reliance is placed upon the offer to prove the alleged terms of the first will. The terms of the standard security dated November 1991 are referred to, but no explanation is tendered.
[21] For present purposes these averments on behalf of the pursuer must be taken pro veritate. However, in our view they do not entitle the pursuer to the benefit of any assumption or presumption that, when executing the first will, the deceased is to be taken as having been aware that she knew of her right to withdraw from the arrangement. Nor are we persuaded that the court could hold that she must bear responsibility for any ignorance on her part in that regard. Any other approach would be difficult to reconcile with the clear and unequivocal terms of Bell’s classic statement referred to above. There was a suggestion at the hearing that the deceased could have obtained legal advice. As a proposition no doubt that is true, and in a different context might well be significant. However, this was a family matter, and when a formal legal document was prepared and executed, it directly contradicted the alleged oral bargain.
[22] Throughout, the defender’s main submission has been that it is sufficient for him that the pursuer’s case cannot be reconciled with the terms of the standard security. That bald proposition is perhaps overstated. However, when one adds a requirement on the pursuer to prove full knowledge on the part of his mother‑in‑law as to her right to resile, failing which to demonstrate that the onus has shifted to her, we are persuaded that it is an important factor in our ultimate conclusion, namely that the pursuer has not averred a relevant and sufficiently specific case such as would entitle him to a proof before answer. It follows that this reclaiming motion should be allowed and the action dismissed. In fairness to the Lord Ordinary, it is right to acknowledge that the issue in the Inner House was very different from that which he was asked to decide.