Analysis
A was survived by C, his sister; H, with whom he had had a relationship; E and F, who were the daughters of A and H; B, with whom A had also had a relationship; and G, the son of A and B. C was one of the executors of A’s will. Each of A and C owned 50% of the shares in X Ltd (the company) and on A’s death C remained a director and was in control of the company. During A’s lifetime, a property (Property 1) was acquired in his name and remained so at his death.
There were three claims following A’s death: (1) H claimed to be the beneficial owner of Property 1 (the property claim); (2) B sought an order for financial provision under the Inheritance (Provision for Family and Dependants) Act 1975 (the 1975 Act); and (3) H sought an order for financial provision under the 1975 Act.
As to the property claim, H claimed that A promised her a house and it was only his death that prevented him from effecting the transfer of Property 1 into her beneficial ownership. After A and H had split up, A continued to provide H and their children with a home until his death. A then told H that he would buy a house for her and the children and told her to look for one. After H found Property 1, A told her that he would pay for everything and purchased it in his sole name.
Held:
The property claim
The judge determined that on the evidence and looking at the position objectively, there was a common understanding that A would provide a home for H and the children but not that he would make a gift to H. As to detriment, although the judge did not consider that financial detriment was necessary, he held that it was still necessary to establish something that could be linked to the common intention such that it would be inequitable for the legal owner to ignore it. There was no such detriment in this case and the property claim was dismissed.
The 1975 Act claims
The 1975 Act claims were made under s1(1A) by H and s1(1)(e) by B. The following issues, which arose under the application of the matters in s3 of the 1975 Act, were significant.
The net estate
Although insufficient evidence had been adduced relating to the assets in the estate and their value as at the date of trial, the judge tailored the methodology by which he reached his decision so that what was lacking had no material impact. The estate included Property 1, which was occupied by H; another property that was occupied by B (Property 2); and the 50% shareholding in the company, which was given by A’s will to trustees to hold on discretionary trusts for the benefit of E, F, G (and their issue), C (her children and their issue), J (another sister of A) and their spouses and civil partners.
Expert evidence was given by a jointly appointed expert as well as an expert called by E and F. As this was a private company the judge took the following matters into consideration in reaching the value of the holding. He said that it was necessary:
- for the fair asset value of the minority holding to be discounted by taking into account both the lack of marketability and lack of control;
- to have regard to what might be realisable as a result of the estate’s assets, including the possibility that an outside investor might not wish to buy into a potential dispute;
- to take into account the structure of the pre-emption provisions in the articles of association; and
- the likelihood that on any sale from the estate, C, who also had a 50% holding, would have the opportunity to acquire at least one share at fair value, thus acquiring a majority holding.
The judge distinguished the unfair prejudice decisions, such as In re Bird Precision Bellows Ltd [1986].
Although the estate did not have much in the way of liquid assets, the judge took into account a £3m keyman insurance policy payment made to the company as a result of A’s death and other policy benefits that were not in A’s estate and had on A’s death become held on trusts for the benefit of A’s children and B and H. The judge accepted that any orders he made might lead to the sale of the estate’s shareholding in the company and, while not determining that any lump sum payments ordered by him should be made out of any assets outside the estate, he suggested that the various trustees might find some way to exercise their respective powers in order to avoid a forced sale of the estate’s shareholding.
Financial resources and needs
All of the relevant individuals in the case needed housing and there were sufficient properties in the estate to meet their needs. As to the financial position of the claimants, the judge took into account their actual capital, income and expenditure and future prospects, including their employment histories and training, their willingness to work, the positions of their children, and the possibility of relationships in the future.
Obligations and responsibilities
In respect of both applicants, their primary claims over the estate were based on their being mothers and carers of A’s children. F and G were minors, but E was an adult child who had been earning her own money as an employee of the company. E had also benefited from payments by A to support her lifestyle over and above her wages and benefits from the company. The evidence showed that A was concerned to treat his children equally.
Any other relevant matter
The judge considered that in determining an order under the 1975 Act, it could be appropriate to cut across the scheme of asset priority set out in Part II of the First Schedule to the Administration of Estates Act 1925 to ensure fairness between beneficiaries. He agreed that A’s intention to benefit his children should be taken into account but disagreed that a presumption should be raised in favour of the children over the claimants.
Decision
Reasonable provision was not made by A for either B or H.
The starting point was that A was maintaining both B and H at the date of his death. The maintenance included housing and the costs of living and was reflective of their being the mothers of his children. The needs of F and G, who were minor children, were of prime significance and no order should be made that could have a significant impact on them. It would also be unfair to E if it was a necessary consequence of any order that the company would cease to exist. Nonetheless, the court should not refuse relief just because of the illiquid nature of the estate.
B’s housing needs were satisfied by an outright transfer of Property 2. Her cost of living needs were satisfied by an award of a lump sum payment based on maintenance during the period of G’s minority. The shortfall between her needs and her resources was simply multiplied by a period of years. As a cross-check, adding the result of that calculation to the value of Property 2 resulted in about the same amount as a lifetime calculation based on Duxbury figures.
H’s housing needs were satisfied by an outright transfer of Property 1. Maintenance was also to be provided by payment of a sum calculated by multiplying an annual amount for a period of years. A similar cross-check using Duxbury tables was also carried out.
The executors were given time to take advice on the satisfaction of the monetary orders, with permission to apply if necessary.
Costs
The appeal against the costs decision for this case appears on p391 of this issue, under Y & anr v C & ors.
JUDGMENT HHJ PARFITT: Introduction [1] This judgment concerns the estate of the late A who died on 12 September 2013, aged 47 (‘A’). I have used first names throughout without any disrespect being intended. It is best to explain the parties’ relationships chronologically. The First Defendant (‘C’) is one of A’s sisters and executors. A …Continue reading "B v C & ors [2021] WTLR 1"