A Private Client Q & A with Francis Barlow QC
Seminar Notes
Thursday 13th October 2011 The Chancery Court Hotel, Holborn London
The
Seminar Season 2011/12
www.tenoldsquare.com
The Ten Old Square Seminar Season 2011/12 A Private Client Q & A with Francis Barlow QC Thank you very much for coming along to our seminar this evening. We hold our seminars not only to showcase the talent at Ten Old Square, but also to say thank you to those who continue to support our Chambers through valued instructions. This evening’s seminar will take the form of a panel discussion with Francis Barlow QC fielding questions on topical private client issues including:What if anything will fill the void after Pitt v Holt and Futter v Futter? Suing on behalf of an estate with no letters of administration Is it no longer possible to disinherit an estranged child? The other issue in Breakspear v Ackland Euro Regulation of Succession and Wills. Ten Old Square has an enviable reputation for private client work, but don’t just take my word for it. We are recognised as a leading set by both the major directories. The Legal 500 2011 says: At Ten Old Square, the ‘barristers are of a consistently high quality across the set’, and the clerks are ‘charming, helpful and responsive’. Francis Barlow QC is an ‘encyclopaedia of mainstream and obscure trust and probate law’ and a ‘brave and compelling advocate’ and the Chambers UK Directory 2011 said: “Reliability is the hallmark of Ten Old Square…. The set provides sound and sensible advice on all private client matters whether they be trusts, wills and probate or property related. Solicitors favour the barristers here as they are tired and tested – rather than any buccaneering nonsense, you know you are going to get considered and helpful advice from anyone you instruct here” (….and I am expecting even greater praise when the next edition is published in a few days’ time!) After the seminar there will be a reception in The Lounge, so do please join us for a drink and something to eat. You will earn 2 (SRA) CPD points for attending this seminar so please fill out the questionnaire at the back of this folder and let me have it back, at your convenience.
Keith Plowman 13th October 2011.
EUROPEAN COMMISSION PROPOSED REGULATION ON SUCCESSION & WILLS SUMMARY OF PROPOSALS 1.
This draft EU Regulation, which will have the force of law in all EU countries which sign up to it if and when it is eventually made, was first published in October 2009 and has been the subject of much negotiation and amendment consequent on the negotiations since.
2.
The UK was in a position to opt out of being bound by the Regulation. It did opt out, but could opt in again if the process of negotiation produces a more acceptable Regulation. The UK also continues to engage in the negotiations over the terms of the Regulation.
3.
Succession is an area of the law where the divergence between the UK and continental legal traditions is particularly pronounced, while on the other hand the UK has particularly large numbers of its citizens going off to live in other EU countries. There is thus particular difficulty in arriving at a Regulation which is acceptable to the UK, while the UK does have an interest in harmonisation and simplification of the rules of succession relating to crossborder estates.
4.
The draft Regulation does not of course seek to impose a single law of succession on all EU citizens. The main things which the draft Regulation would do are: (1) Determine which law of succession shall apply to the estate of a deceased person (‘the applicable law’). (2) Determine which country’s courts will adjudicate disputes about the succession. (3) Make the decisions of the adjudicating court enforceable in other EU States. (4) Provide for European Certificates of Succession, which can be issued by, eg, a notary, in one State and will be determinative of succession rights in the other States.
5.
One of the difficulties in grappling with this draft is that it runs to 64 pages and is in somewhat peculiar EU English, and it is often difficult to be certain of the exact potential consequences of particular provisions. I attempt to summarise the main points below. The 2009 text can be found on the EU Commission website at http://ec.europa.eu/justice/civil/family-matters/successions/index_en.htm. though the text has been amended substantially since then.
6.
The applicable law of succession is to be that of the State where the deceased had his ‘habitual residence’ at the time of his death, subject to the possibility of this being displaced by the choice of the law of some other State of which
1
he was a national at the time of making his will. It is not proposed to attempt a definition of ‘habitual residence’, though some indications as to how it should be interpreted may be provided in a recital. 7.
The applicable law will determine the succession to the entire estate irrespective of where the assets are located. This means that immovable property would no longer be, as in for example current English and French conflict rules, subject to the law of succession of the lex situs even where the movable property is subject to some other law of succession.
8.
The applicable law will govern testate and intestate succession, inheritance act claims and the like, and forced heirship, but not joint tenancies. However, forced heirship will include “clawback”: i.e. the rules under which in many civil law countries persons who have received lifetime gifts from the deceased have to hand them back to make up the compulsory portions to which relatives of the deceased are entitled. The applicable law for this purpose means the internal succession laws of the State in question, not the conflict of laws rules of that State: i.e., no renvoi. On the other hand, where a State has more than one legal system within it, it is left to its own conflict of laws rules to determine which legal system applies.
9.
The jurisdiction rules are a separate set from the applicable law rules. Jurisdiction is given in the first place to the courts of the State where the deceased had his habitual residence at death. Where the applicable law is not the law of that State, the courts of that State may (my emphasis) after considering the matter decide that the courts of the State the law of which is the applicable law should be the appropriate forum. In the event of a dispute as to where a succession dispute should be tried, e.g. because there is a dispute as to which was the State of the deceased’s habitual residence at death, it will be determined by the court “first seised”, ie the one in which proceedings are first started, and the courts of any other States in which proceedings have been started must stay proceedings until the court first seised comes to a conclusion.
10.
A judgement obtained in one State will be enforceable in all the others save in very limited circumstances, such as the proceedings having been ones in which the Defendant was not properly notified of them, or there being some pre-existing decision incompatible with the judgement.
11.
The main problems with the draft from a UK perspective are perhaps: (1) “Clawback”: the possibility, e.g., that a lifetime gift made in the UK by a UK resident UK citizen who then goes to live in France and dies there could be clawed back under the French compulsory heirship rules. (2) The possibility of a scramble to start proceedings when someone dies and there is potential dispute in the family, and for proceedings to be held up for years by obstructive commencement of proceedings in the wrong place. For example, a UK citizen who has gone to live in Italy, dies there, has made a will electing for English law to apply to his succession, and a faction in his family starts proceedings in Italy before anyone can start proceedings in England. The English courts would
2
(3)
have to wait until the Italian courts had decided whether or not they should adjudicate the dispute. It is unclear to what extent the provisions for recognition of foreign judgments, authentic instruments and Certificates of Succession leaves room for the provisions of English law on grant of probate and administration of estates in respect of property situated in the UK. Richard Wallington Ten Old Square 18 October 2011
3
THE “RULE� IN HASTINGS-BASS, MISTAKE AND PITT v HOLT; FUTTER v FUTTER What (if anything) will fill the void?
SUSANNAH MEADWAY TEN OLD SQUARE
Thursday 13th October 2011
1.
On 9th March 2011, the Court of Appeal delivered judgment in two appeals, Pitt v Holt; Futter v Futter [2011] 2 All ER 450.
2.
Essentially two legal issues were considered:
a. the so-called rule in Hastings-Bass; and b. whether a voluntary transaction could be set aside on the basis of a tax mistake.
3.
At the time of the appeals, the generally accepted formulation of the rule in HastingsBass was as follows:
"Where trustees act under a discretion given to them by the terms of the trust, in circumstances in which they are free to decide whether or not to exercise that discretion, but the effect of the exercise is different from that which they intended, the
1
court will interfere with their action if it is clear that they would not have acted as they did had they not failed to take into account considerations which they ought to have taken into account, or taken into account considerations which they ought not to have taken into account". 1
4.
This rule was derived from the Court of Appeal decision Re Hastings-Bass [1975] 1 Ch 25, as interpreted in Mettoy Pensions Trustees Ltd v Evans [1991] 2 All ER 513, and had latterly been used increasingly to enable trustees to unravel acts done by them in exercise of their powers which had had unexpected and undesirable tax consequences. 2 All that the trustees had to do to enable the act to be undone was to show that what they had done had had some unappreciated tax consequence, and had they appreciated that tax consequence they would not have done what they did.
5.
The usual result of the rule applying was to render the act void ab initio, i.e. as if it had never happened, and not merely voidable. In at least one case, however, it had been held that the rule rendered the action merely voidable, so as having effect until it was set aside, and subject to equitable defences such as laches and acquiescence. 3
6.
The rule in Hastings-Bass was invoked at first instance in Pitt v Holt [2010] 2 All ER 774. In this case a receiver, acting for P under the authority of the Court of Protection, settled P’s personal injury compensation on broad discretionary trusts for P’s benefit. It was not appreciated that this settlement triggered an immediate IHT charge
1
See Sieff v Fox [2005] 3 All ER 693, para [119], described by Lloyd LJ (sitting as a first instance judge in the case) as “the best formulation of the principle”.
2
E.g. Green v Cobham [2002] STC 820; Abacus Trust Co (Isle of Man) Ltd v NSPCC [2001] STC 1344; Re Burrell [2005] STC 569. 3
See Abacus Trust Co (Isle of Man) Ltd v Barr [2003] Ch 409. That case also departed from the general orthodoxy attached to the rule in that Lightman J held that for the rule to apply the trustees’ failure to take into account a relevant consideration had to be as a result of a breach of their fiduciary duty.
2
whereas if the trusts had been structured a little differently as disabled trusts within IHTA 1984 s. 89, this IHT liability would have been avoided. Robert Englehart QC sitting as a deputy judge of the Chancery Division acceded to the application for the settlement to be set aside on the grounds that the receiver acted as a trustee in making the settlement, and under the rule in Hastings-Bass the settlement could be set aside as the receiver had failed to take into account the IHT liability.
7.
Similarly, the rule was successfully invoked at first instance in Futter v Futter (No. 3) [2010] STC 982. In this case, trustees of a settlement which had been non-resident made capital payments to beneficiaries in the mistaken belief that the beneficiaries would be able to offset their personal losses against the stockpiled gains of the settlement and so avoid capital gains tax. On the basis of the rule in Hastings-Bass, Norris J declared the capital payments to be void since the trustees had failed to take into account the capital gains tax charges which would arise.
8.
In both Pitt v Holt and Futter v Futter, HMRC were parties and they appealed against the first instance decisions to the Court of Appeal, thus giving that Court its first opportunity post-1975 to consider the rule in Hastings-Bass in detail. Their broad conclusion was that the law had taken a “serious wrong turn” and that the so-called ‘rule’ in Hastings-Bass was inconsistent with the actual ratio decidendi of Re Hastings-Bass 4, being derived from mere obiter dicta made by Buckley LJ which went beyond the ratio.
4
In Re Hastings-Bass, trustees had exercised a power of advancement for the benefit of a beneficiary by settling capital upon trust for him for life, but with remainder trusts which were void for perpetuity. HMRC argued that the whole exercise was ineffective, but the Court of Appeal held that just because some aspects of the advancement could not take effect, it did not follow that the whole was ineffective if the effective part could reasonably be regarded as being for the benefit of the person to be advanced and so within the scope of the power of advancement.
3
9.
Following Pitt v Holt; Futter v Futter in the Court of Appeal, there is no longer any distinct rule to apply where a trustees’ act in exercise of their discretion is said to have been vitiated by their failure to take into account a relevant matter, or their taking something irrelevant into account. Instead, there is an “approach” which Lloyd LJ summarised as follows (at para [222]):
“The trustees' act is not void; it may be voidable. To be voidable it must be shown to have been done in breach of a fiduciary duty of the trustees. The duty to take relevant, and no irrelevant, matters into account is a fiduciary duty. Relevant matters may include fiscal consequences of the act in question. However, if the trustees fulfil their duty of skill and care by seeking professional advice (whether in general or in specific terms) from a proper source, and act on the advice so obtained, then (in the absence of any other basis for a challenge) they do not commit a breach of trust even if, because of inadequacies of the advice given, they act under a mistake as to a relevant matter, such as tax consequences. In the absence of a breach of trust, the trustees' act is not voidable. Even if it is voidable, it cannot be avoided unless a beneficiary seeks to have it avoided, and a claim to that effect will be subject to the discretion of the court and to the usual range of equitable defences.”
10.
So in accordance with this approach, it will have to be shown that the trustees’ failure to consider a relevant consideration was as a result of a breach of trust. Whereas this may be possible where the trustees have not sought professional advice (so are in breach of their duty of skill and care), it may not be possible where they have sought professional advice since then they will have fulfilled their duty of skill and care 5.
5
This duty may be the statutory duty of care of TA 2000 s. 1, or the common law duty recognised in Speight v Gaunt (1883) 9 App Cas 1. Interestingly, Millet LJ has opined that a trustee’s duty to use proper skill and care is not a fiduciary duty at all, but an equitable duty developed alongside the common law tortious duty of care. It arises from the fact that a trustee has assumed responsibility for
4
11.
Where does this approach come from if not from Re Hastings-Bass? It seems to be derived from a beneficiary's fundamental right to have the trust duly administered in accordance with the provisions of the trust instrument and the general law. At para [99], Lloyd LJ said this:
“if an exercise by trustees of a discretionary power is within the terms of the power, but the trustees have in some way breached their duties in respect of that exercise, then (unless it is a case of a fraud on the power) the trustees' act is not void but it may be voidable at the instance of a beneficiary who is adversely affected. The interest of a beneficiary in the trust property continues until it is brought to an end by an act of the trustees done in accordance with the terms of the trust (or the general law). This is an incident of the beneficiary's right to have the trust duly administered in accordance with the provisions of the trust instrument and the general law: see Target Holdings v Redferns (a firm) [1995] 3 All ER 785 at 793, [1996] AC 421 at 434. If the act of the trustees which purports to alter or bring to an end the interest of a beneficiary is affected by a breach of fiduciary duty, then the beneficiary is entitled to restrain the trustees from acting on it, and to have it set aside, subject always to equitable defences and discretionary factors.�
12.
Thus the new approach seems to be no more than an application of the principle that a beneficiary is entitled to have the trust duly administered in accordance with the provisions of the trust instrument and the general law, and if it is not - in other words, if the trustee commits a breach of trust - a possible remedy, instead of equitable compensation and/or account, may be the setting aside of the action affected by the breach.
the trust property and by such assumption has rendered himself liable for the careless performance of what he has undertaken to do. See Bristol and West Building Society v Mothew (t/a Stapley & Co) [1998] 1 Ch 16–18, CA.
5
13.
So this new approach involves identifying a relevant breach of trust. But whereas Lloyd LJ clearly recognises that trustees are under a “duty to take relevant, and no irrelevant, matters into account” and that fiscal considerations will often be among the relevant matters to take into account 6, a failure to take such considerations into account will not be a breach of trust for these purposes unless that failure is as a result of a further breach of trust, such as the failure to exercise due skill and care.7
14.
Since an allegation of breach of trust will now be essential to found the jurisdiction, an application to the Court to have a trustees’ action set aside will now generally be a ‘hostile’ action by a beneficiary against the trustees. The consequence of the beneficiary showing a breach of trust will then be that the action will be merely voidable, as opposed to void, and so subject to equitable and change of position defences.
15.
The Court of Appeal came to their conclusion notwithstanding that they recognised that it would reduce significantly the protection previously afforded to beneficiaries by the rule in Hastings-Bass (see para [128]). It may reduce the protection even more than they contemplated though. It will be in an extremely rare case that a beneficiary who cannot get a trustee action set aside because the trustee has acted with skill and care can instead successfully sue the trustee for equitable compensation. This lack of success might not just be as a result of an exoneration clause (as Lloyd LJ remarked), but also because, as the Court of Appeal held in Pitt v Holt; Futter v Futter, such a
6
Lloyd LJ clearly identifies this as a fiduciary duty at paras [107], [127], [222].
7
This approach bears a superficial resemblance to Lightman J’s approach in Abacus Trust Co (Isle of Man) Ltd v Barr [2003] Ch 409 that there had to be a breach of trust for the rule to apply. But since he had decided that in the case before him the trustees had taken into account all relevant considerations (albeit that they had got one, i.e. the settlor’s wishes, wrong) he needed to find a different breach of trust in order to set the trustees’ action aside.
6
trustee has not committed a breach of trust in the first place. Further, if the beneficiaries cannot sue the trustees, there are conceptual problems for them suing the trustees’ professional advisers (think White v Jones [1995] 2 AC 207). It will be for the trustees, if they have suffered the loss, to take the initiative and sue the professionals.
16.
On the second issue (relevant to Pitt v Holt where as an alternative basis of claim the receiver asked for the settlement to be set aside on the grounds that a serious tax mistake had been made), the Court of Appeal held that for the equitable jurisdiction to set aside a voluntary disposition for mistake to be invoked, there must be a mistake on the part of the donor either as to the legal effect of the disposition or as to an existing fact which is basic to the transaction. Moreover the mistake must be of so serious a character as to render it unjust on the part of the donee to retain the property given to him (the so-called Ogilvie v Littleboy ((1897) 13 TLR 399) test). The fact that the transaction gives rise to unforeseen fiscal liabilities is a consequence, not an effect, for this purpose, and is not sufficient to bring the jurisdiction into play.
17.
The Court of Appeal decision is not, though, an end to these matters. On 1st August 2011, the Supreme Court granted permission to appeal in both Pitt v Holt and Futter v Futter. It is expected that the Supreme Court will hear the appeals before the end of next year.
Susannah Meadway 10 Old Square Lincoln’s Inn
7
‘Incurably a nullity’ Suing on behalf of intestate estates without letters of administration
Millburn-Snell v Evans [2011] EWCA Civ 577 CPR 19.8(1)
1. This is an interesting judgement. It touches upon a number of procedural principles that can profit from a more in depth consideration.
BACKGROUND
2. The claim in itself was straightforward. It was alleged that the Deceased (Mr Millburn) and Mr Evans had been business partners and that the Deceased had acquired a 50% beneficial interest in a property called Willow Farm and associated riding school. The case was founded on proprietary estoppel and there were some 19 examples of work done by the Deceased in reliance on assurances given to him.
3. Where it gets interesting is paragraph 1 of the Particulars of Claim which states:
The Claimants are the personal representatives of Mr Timothy Eric James Millburn (Deceased) who died on 7 March 2007 and are entitled to bring this claim on behalf of his estate
4. I should note as Rimer LJ does in his judgement that the pleadings are signed by Counsel and supported by a statement of truth. There is no reference to the letters of administration. The defendant puts the claimants to proof of this paragraph, which is not in and of itself that uncommon.
5. The claim proceeded by further information, witness statements, disclosure and an order for expert evidence and the trial date was fixed for the 7 June 2010. A grant of letters of administration was not included in the claimants’ disclosure by list.
1
6. On 28 May 2010 (which was five clear working days before the trial) the defendant asked the claimants’ solicitors to produce a certified copy of the grant of probate (for which, read letters of administration). The claimants’ solicitors’ faxed reply on the same day is worth quoting at length:
The right of the Claimants to act as Personal Representatives has never been challenged by you. No Grant of Probate was taken out. It is permissible for persons to act as Personal Representatives either for or against a Trustee etc and we can find nothing in the rules (particularly CPR 19) that prevents an action continuing. CPR 19.8 merely requires that if a Defendant dies then the Claimant should apply for a person to be appointed and that seems to be the extent of the rule. This was a matter that we canvassed with Counsel long ago who concurred that it was suitable to pursue the claim in the form “Personal Representatives of the Deceased”.
The three Claimants are the only children of the Deceased. They are the only persons entitled to make the claim. If the claim is successful the Court can direct that Probate should be applied for…
7. Rimer LJ refers to this as an ‘unimpressive reply’. The defendant’s solicitors applied to strike the claim out on the grounds that the claimants had neither sought nor obtained letters of administration yet were purporting to sue as personal representatives of their father’s estate.
8. The strike-out application came before His Honour Judge Langan QC sitting as a High Court judge in the Leeds District Registry on the Friday before the Monday on which the trial was due to start.
THE APPLICATION BEFORE HHJ LANGAN QC
9. The claimants, the respondents to the application, had two main arguments before HHJ Langan QC. The second was an argument based on acquiescence and was given short shrift. The primary argument was based on CPR 19.8 and in particular on 19.8(1): 2
Death 19.8 (1) Where a person who had an interest in a claim has died and that person has no personal representative the court may order – (a) the claim to proceed in the absence of a person representing the estate of the deceased; or (b) a person to be appointed to represent the estate of the deceased.
(2) Where a defendant against whom a claim could have been brought has died and – (a) a grant of probate or administration has been made, the claim must be brought against the persons who are the personal representatives of the deceased; (b) a grant of probate or administration has not been made – (i) the claim must be brought against ‘the estate of’ the deceased; and (ii) the claimant must apply to the court for an order appointing a person to represent the estate of the deceased in the claim.
(3) A claim shall be treated as having been brought against ‘the estate of’ the deceased in accordance with paragraph (2)(b)(i) where – (a) the claim is brought against the ‘personal representatives’ of the deceased but a grant of probate or administration has not been made; or (b) the person against whom the claim was brought was dead when the claim was started.
(4) Before making an order under this rule, the court may direct notice of the application to be given to any other person with an interest in the claim.
(5) Where an order has been made under paragraphs (1) or (2)(b)(ii) any judgment or order made or given in the claim is binding on the estate of the deceased.
10. The Judge held that - subject to any help that might be derived from the CPR - there was no doubt that the claim should be struck out as a nullity. Even if the claimants 3
had subsequently obtained a grant of administration, such a grant would not have related back to validate the proceedings. The Judge derived support for his view from a number of cases, particularly Ingall v Moran [1944] KB 160.
THE RULE IN INGALL V MORAN
11. In Ingall v Moran, the son of the plaintiff was killed when his motorcycle was struck by a lorry driven by a Canadian soldier on 19 September 1941. The writ was issued on 17 September 1942 and purported to be a representative action by the plaintiff as administrator of his deceased son’s estate. The reason for doing this is that the limitation period under s. 21 (1) Limitation Act 1939 was only one year. Letters of administration were actually taken out on 13 November 1942.
12. The plaintiff relied on the argument that the grant of letters of administration ‘related back’ to the death of the intestate. This was rejected by the Court of Appeal who held that the claim was never properly constituted (per Scott LJ at 164-166):
As the writ was issued on September 17, 1942, and there was no grant till November, it follows, necessarily, that at the time of writ issued the plaintiff had no shadow of title to his son’s surviving chose in action… Such an action was, in my opinion, incapable of conversion by amendment into a valid action… The old writ was, in truth, incurably a nullity. It was born dead and could not be revived… if the action and the pleadings were bad, there was no valid action before the learned judge to try and it is our duty to say so… If the writ was bad when issued, the action was never commenced
13. Luxmore LJ spoke in similar terms (at 169):
[the plaintiff’s action] was incompetent at the date when the writ was issued, and that the doctrine of relation back of an administrator’s title to his intestate’s property to the date of the intestate’s death when the grant has been obtained cannot be invoked so as to render an action competent which was competent when the writ was issued.
4
14. Goddard LJ was more succinct, stating inter alia (at 172): ‘this action was, and always remained, incompetent’.
15. Ingall v Moran has been criticised but never overturned. The Judge adopted this case and turned to consider the effect, if any, of the CPR.
HHJ LANGAN QC’S CONSIDERATION OF CPR 19.8
16. Turning to CPR 19.8, the Judge noted that over the years the White Book had expressed uncertainty over whether 19.8 could cure a situation such as this. The 2000 edition suggested it could not but the 2009 and 2010 editions suggested it could. The original 2011 edition also suggested that it would work in these circumstances.
17. The Judge concluded that ‘a person who had an interest in the claim’ is to be contrasted with the position in CPR 19.8 (2) which expressly deals with a situation in which a claim has not been brought. He agreed with the defendant that it would not be right to give the ‘ambiguous language’ of CPR 19.8 (1) a construction which would overturn the Ingall v Moran cases. Therefore he struck out the claim, although he granted permission to appeal. He also ordered that the claimants pay the costs of the application and half the costs of the case.
THE APPEAL
18. The appeal came before Rimer LJ, Hooper LJ and Lord Neuberger MR. Rimer LJ gave the first judgement and also gave permission for the defendant to cross-appeal on costs.
19. By the time of the appeal, one of the sisters had in fact been granted letters of administration. There were no limitation issues and so the claim could have been brought again.
20. It was agreed at the appeal that subject to the effect of the CPR, the claimants’ claim was a nullity. Rimer LJ used Ingall v Moran to illustrate this, quoting from Scott LJ and Luxmore LJ. Again, the distinction must be drawn between an executor who 5
derives his title to sue from the will and an executor who derives his title solely from the grant of administration.
21. Addressing 19.8 Rimer LJ focussed on the meaning of ‘interest in a claim’ as an interest in the current proceedings. As Rimer LJ points out, there is a not unreasonable view that:
‘the Deceased could not during his life have had any ‘interest [in the current proceedings]’ because, by the time of their issue, he was dead. The most that might be said was that during his life he had an interest in a cause of action that, following his death, became the subject of the claim that the claimants issued.’
22. The appellant submitted before the court that this was a sufficient interest. Reliance was placed on Lean v Alston [1947] KB 467.
THE RULE IN LEAN V ALSTON
23. The plaintiff, Lean, was a pillion rider on a motorcycle driven by Hawkins. The motorcycle collided with a car driven by the defendant, Alston. Lean was injured and Hawkins was killed. Hawkins died intestate and his widow refused to take out a grant of administration. Lean sued Alston, who wanted to serve a third party notice on a representative of Hawkins’s estate. Hayden agreed to act as such a representative if indemnified as to costs.
24. Lean's argument was that RSC Ord 16, r. 46 had no application because as between Alston and Hawkins's widow or his estate there was no cause or matter pending: in other words, the rule only enabled the appointment of a representative of a party who had died. RSC Ord 16, r. 46 read, so far as applicable:
If in any cause, matter or other proceeding it shall appear to the court or a judge that any deceased person who was interested in the matter in question has no legal personal representative, the court or judge may proceed in the 6
absence of any person representing the estate of the deceased person, or may appoint some person to represent his estate for all the purposes of the cause, matter or other proceeding ….
25. RSC Ord 16, r. 46 was replaced by RSC Ord 15, r. 15(1) which was in turn replaced by CPR 19.8 (1). Lean’s argument was rejected. Scott LJ (the same who had given judgement in Ingall v Moran) explained that the rule was but one application of the inherent power of the Court of Chancery:
‘the Court of Chancery and its successor, the Chancery Division, always had the power to appoint a person to represent any particular interest in any proceeding where it thought right to make that appointment’
26. Rimer LJ accepted that CPR 19.8 (1) was a modern expression of the rule considered in Lean v Alston. Therefore, he accepted that the phrase ‘a person who had an interest in a claim has died’ did not refer exclusively to a deceased person who was formerly a party to a claim. For myself, I think Lean v Alston would work more comfortably under 19.8 (2). ‘Defendant’ is apt to include a Part 20 defendant.
RIMER LJ’S CONCLUSIONS
27. Where did this get the claimants? Not very far. Rimer LJ was prepared to accept all of this, but did not see how it helped the claimants:
In my judgement the flaw in their case is exposed by the decision in Ingall. What that case decided, by a decision binding upon us, is that a claim purportedly brought on behalf of an intestate’s estate by a claimant without a grant is an incurable nullity. Subject only to whatever Part 19.8 (1) may empower, it follows that the claim the appellants issued was equally an incurable nullity. The logic of Mr Oakley’s submission is however that the force of Part 19.8 (1) is to confer a jurisdiction upon the court to turn such a nullity into valid proceedings which may be pursued to judgement.
28. Somewhat unsurprisingly, Rimer LJ rejects this: 7
Part 19.8(1) does not, in my view, have any role to play in the way of correcting deficiencies in the manner in which proceedings have been instituted. It certainly says nothing express to that effect and I see no reason to read it as implicitly creating any such jurisdiction. It is, I consider, concerned exclusively with giving directions for the forward prosecution towards trial of validly instituted proceedings when a relevant death requires their giving. In the typical case, that death will occur during their currency and will usually be of a party. More unusually, it may have preceded them. But on any basis it appears to me clear that it is no part of the function of Part 19.8(1) to cure nullities and give life to proceedings such as the present which were born dead and incapable of being revived. In ordinary circumstances there is no reason why anyone with a legitimate interest in bringing a claim on behalf of an intestate's estate should not first obtain a grant of administration and so clothe himself with a title to sue. I am unable to interpret Part 19.8(1) as providing an optional alternative to such ordinary course. I would dismiss the appeal on the Part 19.8(1) issue.
29. Rimer LJ concluded with a rather intriguing costs judgement. He first allowed the cross-appeal and ordered the claimants to pay of the defendant’s costs of the action ‘so far as they have been wasted’. The purpose of that additional comment was the idea that since one of the sisters had in fact obtained a grant, valid proceedings would probably now be brought. Much of the work had already been done 1 and could effectively be adopted in the new action. Therefore Rimer LJ proposed an order in these terms:
If within two months the (or one or more of the) appellants issue a like claim form against the defendant, all steps that were taken in the old claim subsequent to its issue shall be deemed to be steps taken in the new claim and the costs of such steps shall (subject to the wasted costs provision to which I shall come) similarly be deemed to be incurred in the new claim. The costs of the new claim will be costs in the claim, but the appellants must pay the 1
The strike-out application had been heard one business-day before the opening of the trial.
8
defendant all costs incurred by her that have been wasted by reason that the first claim was a nullity. The assessment of any such wasted costs will necessarily have to be the subject of a detailed assessment following the trial of any new claim or pursuant to any further order in the meantime. If no new claim is commenced within two months, the appellants will simply be ordered to pay the defendant her costs of the struck out claim.
30. Hooper LJ agreed without adding anything and Lord Neuberger MR agreed, stating:
Arguments such as that which the defendant successfully raised before the judge in this case are never very attractive, and one of the purposes of the CPR is to rid the law of unnecessary technical procedural rules which can operate as traps for litigants. However, whatever one's views of the value of the principle applied and approved in Ingall v. Moran [1944] KB 160, it is a well-established principle, and, once one concludes that it has not been abrogated by CPR Part 19.8, it was the judge's duty to follow it, as it is the duty of this court, at least in the absence of any powerful contrary reason. The need for consistency, clarity and adherence to the established principles is much greater than the avoidance of a technical rule, particularly one which has a discernible purpose, namely to ensure that an action is brought by an appropriate claimant.
THE ELEPHANT IN THE ROOM
31. Before considering CPR 19.8, Rimer LJ discussed CPR 17.4 and the judgement of Arden LJ in Haq v Singh and another [2001] EWCA Civ 957. Technically, the discussion must be considered obiter because in Millburn-Snell the limitation period had not expired. However, it raises certain interesting issues which go to the heart of the decision in Millburn-Snell.
32. In Haq a discharged bankrupt brought a claim for damages in 1993. The relevant cause of action had (upon her bankruptcy) vested and remained in her trustee. An amended defence served in 2000 asserted her lack of capacity to sue, whereupon she obtained an assignment from her trustee of the cause of action. The issue was whether 9
the judge was right to permit her to amend to plead the assignment. He had so held on the basis that before the assignment she had no capacity to sue, whereas after the assignment she had the capacity to sue as the trustee's assignee and therefore the case was within Part 17.4(4). The Court of Appeal allowed the defendants' appeal, holding that since both before and after the assignment the claimant was suing in a personal capacity, her capacity had not altered and so she was not entitled to amend. In doing so Arden LJ expressed the obiter view that: ' The new rule can clearly be used where a party has brought a claim both as a dependant and as an administrator before obtaining letters of administration, and later an amendment is sought to be made to alter the capacity in which the claimant has brought the proceedings (which can only be in a personal capacity) to plead newly granted letters of administration. It would be odd if the rule could not be used where the claim had only ever been made by the claimant as administrator. Mr Evans' primary submission is that that situation is not covered by the rules and that the decision in Ingall v Moran [1944] 1 All ER 97 has not been negatived. While that situation does not arise for decision in this case, my view is that the court does have jurisdiction under CPR 17.4 in this situation since, before the application for permission to amend, the claimant can only be suing in individual capacity whatever the statement of case may say. Although the court is dealing with an application to amend a statement of case, in my judgment its jurisdiction is not restricted by the label which has been given to the party in the statement of case. The effect of CPR r 17.4(4) is therefore to remove the effect of Ingall v. Moran [1944] 1 KB 160, the technicalities of which Singleton LJ in Finnegan v. Cementation Co Ltd [1953] 1 QB 688, 699 described as a “blot upon the administration of the law.”
33. It is notable that Rimer LJ only quotes the second of those paragraphs in MillburnSnell. Pill LJ expressed similar views:
‘The effect of the introduction of that rule [17.4(4)] in the Rules of the Supreme Court, as the editors of the Supreme Court Practice 1999 put it in vol 10
1, at p 386, para 20/8/18, was to negative earlier cases cited in the note. I mention only two of them: Ingall v Moran [1944] 1 KB 160 and Finnegan v Cementation Co Ltd [1953] 1 QB 688, both decisions of this court’
34. Rimer LJ is rather dismissive of these comments: ‘For myself, I respectfully question the correctness of that assessment of the effect of Part 17.4(4). First, it is not easy to see how a claim which, as Ingall explained, is born dead and is a nullity can be given life by an amendment. Second, I am not confident that it was the Ingall principle pure and simple that was the 'blot' to which Singleton LJ was referring. He was, as I read Finnegan (see [1953] 1 QB 688, at 699), referring rather to the apparent injustice of the instant case (like Hilton, supra) in which a plaintiff who could have sued in her personal capacity under the Fatal Accidents Acts found herself barred by time from suing at all because she had mistakenly sued in time exclusively as administratrix when she had no capacity to do so. Third, as is pointed out in Executors, Administrators and Probate, Williams, Mortimer and Sunnucks, 19th Edition, 2008, in Note 68 to paragraph 8-10, Part 17.4 applies only where a period of limitation has expired and: 'Clearly, it would be an extraordinary result if proceedings could be saved by amendment where a limitation period has expired, but not where such a period had not expired. However, it is not clear on what statutory authority an amendment in the latter case is permitted and, without such authority, it is difficult to see how the earlier authorities (see fn. 65 above [which includes Ingall, Hilton and Finnegan]) can be ignored particularly as they deal with substantive rather than procedural law. Certainly the somewhat ambiguous words at the end of s. 35(7) of the Limitation Act 1980 would not seem sufficient for this purpose. … It may be, therefore, that the true effect of CPR r. 17.4(4) is much more limited than the Court of Appeal in Haq suggests…'. 20.
Having expressed my doubts about those observations in Haq, I
regard it as unnecessary to say more about them. The judge was, I consider, right to regard Haq as providing no guidance for the purposes of the application before him. First, at the time of the application, the claimants 11
had not obtained a grant and so no amendment application was before him. Second, no limitation period had expired and Part 17.4(4) applies only where one has. Mr Oakley expressly disavowed any reliance on Haq.
35. What then, is the elephant in the room? Although this is not a case about CPR 17.4, it is interesting indeed that the Court of Appeal in Millburn-Snell makes no reference at all to the discussion of Ingall v Moran in Roberts v Gill [2011] 1 AC 240.
36. Rimer LJ undoubtedly felt able to ‘respectfully´ dismiss the comments of Arden and Pill LJJ. It could be argued that even Rimer LJ needs to hesitate for a moment before dismissing the very similar statements of Lord Collins and Lord Walker. In Roberts v Gill, Lord Collins says in the second paragraph of his judgement:
The principal questions on this appeal relate to whether this is an appropriate case for a representative (or derivative) claim, which was the focus of the judge's decision, and to the interpretation and application of s 35 of the Limitation Act 1980 and the rules of court which were enacted pursuant to it, first in the Rules of the Supreme Court, and now in the Civil Procedure Rules. The limitation issues were the main focus of the decision of the Court of Appeal. Section 35 was enacted following recommendations of the Law Reform Committee in 1977. It had two main objectives. The first was to enable a Plaintiff to amend pleadings out of time so as to sue in another capacity, in particular to reverse the effect of such decisions as Ingall v Moran [1944] KB 160, [1944] 1 All ER 97, 113 LJKB 298, which created a grave injustice where proceedings were instituted under the Law Reform (Miscellaneous Provisions) Act 1934 prior to letters of administration being taken out and the limitation period expired before proceedings were instituted in a representative capacity: the grant did not date back to the date of death, by then it was too late to issue fresh proceedings or to amend. The second objective was to enable parties to be added out of time, in cases where joinder of the new party was necessary if the Plaintiff's claim was to succeed, for example where the Plaintiff was an equitable assignee and had omitted to join the assignor prior to the expiry of the limitation period.
12
37. This is rather on point and it can only be assumed that Roberts v Gill was not cited before the court in Millburn-Snell. Lord Collins returned to the theme later in his judgement:
‘[RSC Ord 20, r. 5, the predecessor to 17.4(4)] gave effect to a recommendation of the Law Reform Committee, enacted as s 35(7), to deal with the anomaly that, where probate was granted to a person as executor, leave to amend to make a claim on behalf of the estate could be given because the title related back to the death, but where the Plaintiff was subsequently granted letters of administration in such cases, the title related back to the date of the grant, which would have been after the issue of the writ. This had the effect of removing the grave injustice caused by such decisions as Ingall v Moran [1944] KB 160, [1944] 1 All ER 97, 113 LJKB 298 (CA); Hilton v Sutton Steam Laundry [1946] KB 65, [1945] 2 All ER 425, 115 LJKB 33 (CA); Burns v Campbell [1952] 1 KB 15, [1951] 2 All ER 965, [1951] 2 TLR 1007; Finnegan v Cementation Co Ltd [1953] 1 QB 688, [1953] 1 All ER 1130, [1953] 2 WLR 1015 (CA).
37. Lord Walker expressed his opinion in similar terms: In the much-cited case of Mabro v Eagle, Star and British Dominions Insurance Co Ltd [1932] 1 KB 485, 487, 101 LJKB 205, [1932] All ER Rep 411 Scrutton LJ said: “In my experience the court has always refused to allow a party or a cause of action to be added where, if it were allowed, the defence of the Statute of Limitations would be defeated. The court has never treated it as just to deprive a Defendant of a legal defence.” The same uncompromising rule of practice was applied even in cases (such as Ingall v Moran [1944] KB 160, [1944] 1 All ER 97, 113 LJKB 298 and Finnegan v Cementation Co Ltd [1953] 1 QB 688, [1953] 1 All ER 1130, [1953] 2 WLR 1015) where the result was to shut out a meritorious claim, arising from a fatal accident, on what many would regard as a technicality. Indeed in the latter case Singleton LJ (at p 699) described the point as “a blot upon the administration of the law”. 13
[98] These hard cases turned on the technical but long-established distinction between the position of an executor (whose standing relates back to the deceased's death, and is merely confirmed by probate) and an administrator (whose title depends on, and dates from, the grant of letters of administration). That distinction has ceased to be relevant, for present purposes, because of s 35(7) of the Limitation Act 1980 and CPR r 17.4(4) (made pursuant to s 35(7)). Rule 17.4(4) (replacing the former RSC Ord 20 r 5(4)) provides “The court may allow an amendment to alter the capacity in which a party claims if the new capacity is one which that party had when the proceedings started or has since acquired.” Here it is the last four words (added to Ord 20 r 5(4) in 1981) that made the important change.
38. Four questions arise:
a. Would Rimer LJ have been so dismissive of the opinions expressed in Haq v Singh if Roberts v Gill had been cited before him?
b. Is Millburn-Snell therefore wrong?
c. If Millburn-Snell is not wrong, then is there a lacuna in the law whereby invalidly constituted proceedings cannot be revived under CPR 19.8, but they can be revived under CPR 17.4(4) after limitation has expired?
d. Are Arden LJ, Pill LJ, Lord Collins and Lord Walker all wrong?
39. I would suggest that Millburn-Snell is not wrong. Rimer LJ’s reasoning is sound. If the claim is a nullity, then there is nothing upon which to amend. The question is: does CPR 17.4 (4) do anything different? 17.4 reads:
Amendments to statements of case after the end of a relevant limitation period 17.4 (1) This rule applies where – (a) a party applies to amend his statement of case in one of the ways mentioned in this rule; and 14
(b) a period of limitation has expired under – (i) the Limitation Act 1980; (ii) the Foreign Limitation Periods Act 1984; or (iii) any other enactment which allows such an amendment, or under which such an amendment is allowed.
(2) The court may allow an amendment whose effect will be to add or substitute a new claim, but only if the new claim arises out of the same facts or substantially the same facts as a claim in respect of which the party applying for permission has already claimed a remedy in the proceedings.
(3) The court may allow an amendment to correct a mistake as to the name of a party, but only where the mistake was genuine and not one which would cause reasonable doubt as to the identity of the party in question.
(4) The court may allow an amendment to alter the capacity in which a party claims if the new capacity is one which that party had when the proceedings started or has since acquired.
40. Before considering the effect of 17.4(4), it is worth noting that there might be a sound reason to allow an invalidly constituted claim to be revived after the expiry of the limitation period but not before. If the claim is invalidly constituted but still within the limitation period then a new claim can be brought (as in Millburn-Snell itself). If they are out of time, then there would be no other redress. On the other hand, this interpretation would appear to deprive defendants of perfectly legitimate limitation defences.
41. Lord Walker emphasised the last four words of CPR 17.4(4), ‘or has since acquired’. Is this sufficient? I prefer the reasoning of Rimer LJ. If a claim is improperly constituted, then it is improperly constituted. It is, to remember Scott LJ, ‘incurably a nullity’. In a broad sense, there is nothing on which to base the amendment, at least in a case such as Millburn-Snell. There is no ‘party’ who can change their capacity. It would be surprising if 17.4(4) allowed the resurrection of dead claims when 19.8(1) did not. 15
CONCLUSION
42. There are three quick conclusions to be drawn from Millburn-Snell:
a. Do not sue on behalf of an intestate estate without a grant. That would appear to be rather obvious but I should note that this appears to have been a not uncommon practice on circuit: to issue and then apply for an order under CPR 19.8).
b. Get a grant.
c. It may still be open to try to change capacity after limitation has expired in order to validate one’s proceedings. This has not been tested however, and I would not advise issuing, waiting for limitation to expire and then applying to change capacity.
Leon Pickering Ten Old Square October 2011
16
TEN OLD SQUARE PRIVATE CLIENT SEMINAR
Q & A WITH FRANCIS BARLOW QC 13th October 2011
Is it no longer possible to disinherit an estranged child? Georgia Bedworth
1.
It is thought to be one of the fundamental tenets of English law that an English testator has freedom of testamentary disposition. That freedom of testamentary disposition is not, however, absolute. The Inheritance (Provision for Family and Dependants) Act 1975 (“the 1975 Act”) gives the Court power on application by certain classes of claimant, to interfere with the dispositions made by the deceased on the ground that his will or the law of intestacy has not made reasonable financial provision for the applicant.
2.
Notwithstanding the jurisdiction under the 1975 Act, the starting point remains that the testator does have the freedom to give his estate to whomsoever he chooses. As Oliver J said in Re Coventry [1980] Ch 461 “Subject to the court’s powers under the 1975 Act and to fiscal demands, an Englishman still remains at liberty at his death to dispose of his own property in whatever way he pleases or, if he chooses to do so, to leave that disposition to be regulated by the laws of intestate succession. In order to enable the court to interfere with and reform those dispositions it must, in my judgment, be shown not that the deceased acted unreasonably but that, looked at objectively his disposition or lack of disposition produces an unreasonable result in that it does not make any or any greater provision for the applicant and that means, in the case of an applicant other than a spouse for that applicant’s maintenance”
3.
However, the decision of the Court of Appeal in Illott v Mitson [2011] EWCA Civ 346; [2011] 2 FCR 1 calls that basic starting point into question. 1
Outline of the Jurisdiction under the 1975 Act 4.
The scope of the jurisdiction under the 1975 Act is well known. Certain classes of applicant may make a claim that the disposition of the estate was not such as to make reasonable financial provision for the Applicant. In the case of applications by a spouse of the deceased, the Court assesses whether the provision was reasonable whether or not such provision is required for the spouse’s maintenance. In all other cases, “reasonable financial provision” is assessed at the maintenance standard. The Court’s approach is objective. The Court cannot re-write the Deceased’s will because it considers that the Deceased has behaved unreasonably in excluding the applicant. Nor is the Court able to make financial provision for an applicant because it would have been reasonable for the Deceased to make some provision for him. The Court must be satisfied that in all of the circumstances, considered objectively, the result is unreasonable.
5.
Section 3(1) sets out the factors that the Court must take into account: (a) The financial needs and resources that the Claimant has or is likely to have in the foreseeable future (b) The financial needs and resources of any other applicant under the Act (c) The financial needs and financial resources that any beneficiary of the estate has or will have in the foreseeable future (d) Any obligations or responsibilities of the Deceased towards any applicant or any beneficiary of the estate (e) The size and nature of the net estate (f) Any physical or mental disability of the Claimant or any beneficiary of the estate (g) Any other matter including conduct of the applicant or any other person which in the circumstances of the case the court may consider relevant.
6.
The court approaches applications under the 1975 Act in two stages. At the first stage, the Court must consider whether or not the disposition of the estate was such to make reasonable financial provision for the applicant. At the second stage, the Court must consider whether any provision should be made and what the level of that provision should be. The statutory factors must be considered at both stages of the 2
exercise. No factor is more important than another: it is a matter for the court to balance the factors when reaching its decision. Claims by Adult Children 7.
Claims by adult children who are not dependent on the Deceased, have long been regarded as more difficult than claims by other classes of applicant.
It used to be
considered that an adult child would not succeed unless he could show a moral obligation on the part of the Deceased to make provision for him. In Re Hancock [1998] 2 FLR 436 Butler-Sloss LJ made it clear that this was not the case. An adult child, like any other applicant, simply had to prove his case.
8.
However, the belief that an application by an adult child is more difficult did have some justification. The courts have repeatedly stated that the fact that the child is in necessitous circumstances and that the estate is available to make provision to relieve that need is not enough. In Re Hancock itself, Butler-Sloss LJ stated that if the child were capable of supporting himself something more would be required before the Court would interfere with the disposition of the Deceased’s estate.
9.
One material circumstance is the relationship between the child and the Deceased. Estrangement between the child and the parent might be thought to be a factor which would weigh heavily against provision being made. This was certainly the case in Garland v Morris [2007] 2 FLR 528. A child who has been estranged from the Deceased, without any expectation of inheritance from him, could not expect to successfully argue that the dispositions of the estate should be varied in his favour, even if he were in significant financial need. Or could he?
Illott v Mitson: The Facts 10.
The Deceased had one daughter, Heather. When Heather was 17, she commenced a relationship with a man of whom the Deceased disapproved. The daughter then ran away from home and began to live with her boyfriend. She later married him and they had five children together.
11.
The Deceased remained estranged from her daughter for almost the whole of the next 26 years until her death. Although there were a few of attempts at reconciliation 3
(none of which were initiated by the daughter) these were both unsuccessful and short-lived. The District Judge found that one of the reasons for this was that the Deceased had an unreasonable attitude towards the daughter and her relationship with her husband. However, the daughter was not entirely innocent. The daughter had no expectations of inheritance from her mother’s estate. The Deceased left a letter explaining why she had excluded her daughter from her estate and when the Deceased died in 2004, leaving an estate of £486,000, she left the whole of her residuary estate after a few pecuniary legacies to specific animal charities: the Blue Cross, the RSPCA and RSPB. The Deceased had had no particular affinity with these charities during her lifetime nor, apparently, any particular love of animals or birds.
12.
The daughter and her husband had decided that the daughter should be a full time wife and mother. She had not worked since the birth of her first child in 1984. She and her husband lived in rented accommodation and their income mainly derived from state benefits, although the husband worked part time as a supporting actor. They had very limited financial resources. The daughter made a claim against the estate under the 1975 Act that the Deceased’s will did not make reasonable provision for her maintenance.
The Decisions 13.
At first instance, the claim came before District Judge Million. He held that the disposition of the estate did not make reasonable financial provision for the daughter. He held that the Deceased had been harsh in her assessment of her daughter. He seemed to give little weight to the fact of the estrangement. He also took the view that the daughter was entitled to make the “lifestyle choices” that she had. Although the fact that she had made those choices did not justify no provision being made for her, he held that this did have an impact on the level of provision that should be made. He awarded the daughter £50,000 out of the Deceased’s estate.
14.
The daughter appealed the quantum of the award. The charities (who up until that point had considered that the cost of an appeal would be disproportionate) crossappealed. The charities contended that the District Judge had misdirected himself and had reached a decision which was plainly wrong. Eleanor King J allowed the charities’ cross-appeal. She held that the District Judge had asked himself whether the 4
Deceased had acted unreasonably in excluding her daughter from her estate. The appropriate question was whether or not, taking all of the factors into account, the Deceased had produced an unreasonable result. Eleanor King J went on to say that, in any event, the District Judge was plainly wrong in that he had failed to stand back and look at all of the section 3 factors and consider whether or not the disposition of the estate was unreasonable. Eleanor King J then considered the factors and held that the disposition of the estate did not produce an unreasonable result.
15.
The daughter appealed. The Court of Appeal reversed the decision of Eleanor King J. First, they stated that the District Judge had asked himself the correct question. Second, they held that there was no basis for interfering with the District Judge’s decision on the basis that it was “plainly wrong”. The Court of Appeal considered that it was a decision that he was entitled to reach in the circumstances.
The Court of Appeal’s Approach 16.
One of the things that makes the decision in Illott v Mitson difficult to understand is that the effect of the Court of Appeal’s decision is to overturn the decision of Eleanor King J, which was eminently sensible. There was little to the daughter’s application other than financial need and the fact that the Deceased was the applicant’s mother. Eleanor King J said (in line with previous authority) that this was not enough. Black LJ describes her decision as “impeccably reasoned”. If Eleanor King J had been making the decision at first instance, there would have been no ground to interfere with it. However, Eleanor King J was sitting in an appellate capacity. On one view, the decision of the Court of Appeal was simply that Eleanor King J, exercising as she was an appellate jurisdiction, was not entitled to interfere with the decision of the first instance judge. However, the judgments go much further than that. The Court gave guidance as to the approach that should be taken in a 1975 Act claim which will make such decisions more difficult to appeal in future. Three particular points come out of the decision.
17.
First, despite the repeated assertion in the authorities that the fact that a child is in financial need is not sufficient, this factor appears to have been given overriding importance. There seems to have been some considerable force in the charities’ criticism that the decision was based solely on the fact that the daughter was in 5
financial need. The approach of Black LJ in this regard was to say that financial need is never the only factor as necessarily the court sets this against the position of the beneficiary and the size of the estate. Looked at from the point of view of the position of the other beneficiaries, Mitson is not out of line with the other authorities on estranged adult children. In Re Myers [2005] WTLR 851 an estranged daughter received substantial provision in a case where the estate was sufficient to provide for the needs of all parties. In contrast, in Re Garland, the estranged daughter got nothing in a case where her sister, the sole beneficiary of the estate, had real need of the money.
18.
Second, the Court of Appeal emphasised that at the first stage the judge was undertaking a “value judgment� not an exercise of discretion. What is remarkable is the comment by Wall P that the judge is not required to undertake any balancing of the various factors at this stage. The Court of Appeal stated that this value judgment should not be lightly be interfered with. This seems to allow the judge to make a subjective assessment of the Deceased’s reasons for excluding the applicant. If the judge considers that the Deceased behaved unreasonably, that will form part of the value judgment. This seems to be an introduction of the wrong question (has the Deceased behaved unreasonably) by the back door. What is more concerning however, is that this also allows the judge to disregard the fact of the estrangement (whatever the reason for it) and give it little weight, without fear of interference from an appellate court.
19.
Third, although the judge has to take into account each of the section 3 factors in making his value judgment, the judge does not need to stand back and identify which particular factor led him to conclude that reasonable financial provision had not been made. This makes the decision difficult to appeal.
20.
Given the overriding importance given to financial need, and seemingly little or no weight placed on the objective fact of the estrangement (whatever the reasons for it), can a testator exclude an estranged child?
Georgia Bedworth 11th October 2011 6
TEN OLD SQUARE PRIVATE CLIENT SEMINAR Q & A WITH FRANCIS BARLOW QC 13th October 2011 The other issue in Breakspear v Ackland Michael Waterworth 1. Breakspear v Ackland was decided by Briggs J in early 2008. The case is quite well known. It is concerned a freestanding claim seeking disclosure of the deceased Settlor's non-binding letter of wishes which was contemporaneous with the (discretionary) settlement made in January 1995. 2. Briggs J allowed the claim for disclosure. He held that a letter of wishes existed in order to assist in the trustees in hand inherently confidential process (exercising their dispositive discretionary powers) and that a letter of wishes was itself properly to be regarded as confidential, to the same extent and effect as the process which it was intended to serve. The preservation, judicious relaxation or abandonment of that confidence was a matter for the trustees or, in an appropriate case, the court, to be exercised in accordance with what were judged to be the best interests of the beneficiaries and the due administration of the trust. The trustees and the court, when deciding whether to grant a request for disclosure of a letter of wishes were exercising a discretion rather than adjudicating on a proprietary right of beneficiaries to see trust documents. 3. However, although the trustees' decision not to disclose the letter of wishes had been a proper exercise of their discretion at the time of their refusal, because they intended to seek the court's sanction for a scheme of distribution of the trust fund it was necessary to give disclosure of the letter of wishes in order to give the claimant beneficiaries a proper opportunity to address the court on the question of sanction, notwithstanding the risk of family division occasioned by disclosure.
1
4. But that was not the only issue before the court in Breakspear v Ackland. There was a further claim to set aside the addition of a defendant ("Patricia") as a beneficiary of the settlement by deed dated 9 March 1995 and other appointments. This claim to set aside the March appointments arose out of Patricia's participation, moments after becoming a trustee of the settlement, in deeds of appointment successively including her among the class of beneficiaries and, immediately thereafter, giving a reversionary interest in the income of the trust fund to her, on the Settlor’s death. 5. It was common ground that, if the March appointments involved a breach of the self-dealing rule by virtue of Patricia's participation in them as trustee, then they were voidable at the claimants' election as of right. As Briggs J wanted out, the court had no discretion either to relieve Patricia from the consequences of liability to return her receipts, or to relieve the trust fund generally from the “probably catastrophic consequences of the retrospective loss of the spouse exemption” upon the Settlor’s death which would thereby result. He added: "The remorseless rigour of the self-dealing rule, pour encourager les autres, renders irrelevant any speculation by the court as to the reasons why the claimants might wish to engage in such an apparently self-destructive exercise." 6. The Settlement incorporated a schedule containing what were described as "Administrative Powers" (although these included a mixture of administrative and dispositive powers). Paragraph 9 of the schedule under the heading "Power to permit self-dealing" provided as follows: "The trustees shall have power to enter into any transaction concerning the trust fund notwithstanding that one or more of the trustees may be interested in the transaction other than as one of the trustees and without any trustee who is so interested being liable to account for any reasonable incidental profit provided that at least one of the trustees who is not interested in the transaction other than as a trustee approves the transaction."
2
7. This may be compared with the STEP standard provisions which are often incorporated (unread) into trust documents by reference. The STEP provisions include this: “The powers of the Trustees may be used to benefit a Trustee (to the same extent as if he were not a Trustee) provided that there is an Independent Trustee in respect of whom there is no conflict of interest.” 8. Francis Barlow deployed a variety of arguments to avoid the imposition of the self-dealing rule. One of these (raising the possibility of rectification) drew the following comment from Briggs J: ”while I admire the ingenuity behind Mr Barlow's rectification argument, I have not been persuaded by it. He drew support from first instance decisions which, to avoid unintended adverse tax consequences, display a quite remarkable degree of imagination in substituting for the defective machinery, alternative machinery of the type required by statute, which achieves the intended fiscal effect... “The trouble with this submission is that rectification would appear to achieve, by something akin to magic, a precise reversal of the order of events actually intended and implemented by the parties.” 9. There are two questions. First, how did the other issue in Breakspear v Ackland resolve itself and, secondly, how might that resolution assist others who find themselves in a similar position?
Michael Waterworth 12th October 2011
3