Cowan v Foreman [2019] EWCA Civ 1336

WTLR Issue: Autumn 2019 #176

MARY COWAN

V

1. MARTIN FOREMAN (as executor of the estate of Michael Cowan and as trustee of the Business Property Trust and the Residuary Trust in the Will of Michael Cowan dated 24 March 2016 (the 'Will') and as trustee of the Michael Cowan Foundation (the 'Foundation')

2. FARRER & CO TRUST COMPANY (as trustee of the Business Property Trust and the Residuary Trust in the Will)

3. JAMES TRAFFORD AND JAMES BEAZLEY (as trustees of the Foundation)

4. BRYONY COVE (as executor of the estate of Michael Cowan)

Analysis

The appellant appealed from an order of Mostyn J by which he refused her permission pursuant to s4 of the Inheritance (Provision for Family and Dependants) Act 1975 (the 1975 Act) to bring an application out of time for reasonable financial provision out of the estate of her late husband (the deceased), who had died in 2016 leaving an estate of £29m. By his will the deceased left all his business assets qualifying for 100% business property relief on a discretionary trust (the business property trust) for a class of beneficiaries (the discretionary beneficiaries) including the appellant, and the residue of his estate on trust for the appellant for life, but subject to overriding powers of appointment in favour of the discretionary beneficiaries (the residuary trust). In a letter of wishes the will trustees were requested to regard the appellant as the principal beneficiary of a substantial part of the business property trust, and of the whole of the residuary trust.

The will trustees were resident in England, whereas the appellant lived in California. The six-month time period for making an application under s2 of the 1975 Act ended on 16 June 2017 without a claim having been made. The appellant was, however, in receipt of regular, agreed, monthly payments from the will trustees. The appellant underwent knee surgery in October and November 2017. Invoices were sent in November 2017 to the will trustees for reimbursement of the cost of surgery and home care, which were queried by the will trustees. The appellant consulted solicitors who wrote to the executors and will trustees on 7 December 2017 intimating a claim under the 1975 Act. On 25 January 2018 the executors/will trustees confirmed that they would not take the point that the six-month deadline to bring a claim under the 1975 Act had passed pending receipt of a letter of claim. On 1 May 2018 a letter of claim was sent on behalf of the appellant. The parties explored the possibility of an out of court settlement, leading to a failed mediation in October 2018.

The appellant issued proceedings seeking provision under the 1975 Act, and for permission to make an application under s2 of the 1975 Act out of time, on 12 November 2018, nearly 17 months after the six-month period under s4 of the 1975 Act had expired. The application for permission to bring the proceedings out of time was opposed by the will trustees, and by a charitable foundation interested under the business property trust and the residuary trust.

Mostyn J dismissed the application to bring the claim out of time, concluding that the proper approach required the court to be satisfied that the claim was arguable and that there were good reasons justifying the delay. He held that the claim was unarguable given the generous trust arrangements the deceased had implemented and there were no good reasons for the delay. He commented that the six-month time limit was there to protect beneficiaries from being vexed by a stale claim; and that a robust application of the extension power in s4 would be consistent with the overriding objective and would also echo the ever-developing sanctions jurisprudence exemplified by Denton v White [2014] EWCA Civ 906.

The appellant appealed the judge’s decision.

Held:

  1. 1) The judge had considered that he could approach the matter purely by reference to whether there was a good reason for the delay and whether there was an arguable case. These considerations appear to have led him to adopt a disciplinary view when determining whether to extend time. Section 4 of the 1975 Act was not designed to protect the court from stale claims, as explained by the judge, but for the purpose of avoiding unnecessary delay in the administration of estates which would be caused by the tardy bringing of proceedings and to avoid the complications which might arise if distributions from the estate are made before the proceedings are brought. If the circumstances warrant it, the power in s4 can be exercised in order to further the overriding objective of bringing claims before the court where it is just to do so.
  2. 2) A robust application of the extension power was not necessary. The paragraphs of the overriding objective to which the judge referred were not relevant to the exercise of s4. They were concerned with managing a claim proportionately and fairly once it has been commenced, whereas s4 is concerned with whether, given all the circumstances of the case and the delay, it is appropriate to allow a claim to be issued more than six months after a grant. The judge’s references to the ‘ever-developing sanctions jurisprudence in Denton‘ were for the most part inapposite. There is no disciplinary element to s4. The six-month time limit is not to be enforced for its own sake. The time limit is expressly made subject to permission of the court to bring an application after the six months has elapsed. When determining whether a claim should be brought outside the six-month time limit the court must consider all the relevant circumstances of the case in question and the factors which were highlighted in Berger v Berger [2013] EWCA Civ 1305. There is no additional significance to be drawn from the fact that the approach to time limits in the context of the breach of procedural rules has become more stringent. There was nothing in the principles distilled in Berger which required a robust application of the extension power to be adopted.
  3. 3) The extension power must be exercised for its proper purpose taking account of the context in which it arises, namely, in making reasonable financial provision for an applicant from the estate of a deceased, in the light of all the circumstances of the particular case, having considered the ‘Berger‘ factors. A disciplinary approach appeared to have led the judge to decide that there must be not only an explanation but a ‘good reason’ for the delay if the s4 power is to be exercised. Although the applicant must put forward a substantial case, it was not necessarily true that there must be a good reason for all delay in every case. Each case turns on its own facts and, in each case, the judge is required to weigh the Berger factors and to reach a decision. The judge was wrong to require there to be a ‘good reason’ for all periods of delay without considering the matter in the round. The power to extend time may be exercised even if there is no good reason for delay. However, the onus is on an applicant to show sufficient grounds for the grant of permission to apply out of time and, where a case is long out of time, the court is bound to search for an explanation for the delay and to consider that as part of the circumstances of the case.
  4. 4) It is necessary to decide whether an applicant’s claim has a real prospect of success rather than a fanciful one; and if the claim has no real prospect of success, there is no point in considering the other relevant factors. The court will not entertain a claim with no merit which is commenced outside the six-month time limit. The corollary is not necessarily true. If the claim would pass the summary judgment test, it does not mean that the court will exercise the s4 power to extend time. It is dependent upon an evaluation of all the relevant factors in the circumstances.
  5. 5) In determining whether the substantive claim had a real rather than a fanciful prospect of success, the judge had failed to have proper regard to all the circumstances of the case, including the size of the estate, the length of the relationship, the fact that the appellant received only the chattels outright, which were of nominal value, and that she had no autonomy and no security and no direct interest even in her own home. The judge had relied on two erroneous matters. First, he rejected the appellant’s claim for outright provision on the basis that such a claim was tantamount to saying that every widow has an entitlement to outright testamentary provision from her husband and would in effect introduce a form of forced spousal heirship. He did so despite the fact that it was not suggested that every widow is entitled to outright testamentary provision or that in every case a beneficial interest in a discretionary trust can never amount reasonable financial provision. There could be no question of ‘forced spousal heirship’. Second, the judge had concluded that there was no evidence to suggest that the trustees would blatantly defy the letter of wishes and if they were to do so it would be likely to amount to a breach of trust. He appeared to have wrongly assumed that the letter of wishes, which by its very nature was unenforceable, would be complied with in every respect, whatever the circumstances, and that a failure to comply would necessarily amount to an actionable breach of trust. The court concluded that the appellant’s claim for relief under s2 of the 1975 Act had a real, as opposed to fanciful, prospect of success.
  6. 6) As to the delay in bringing the claim, the judge was wrong to take the period between 16 June 2017 (the grant of probate) and 7 December 2017 (intimation of the claim) against the appellant. The explanation for the lapse of time was clear. The appellant and her sons had been operating at a considerable distance and mostly communicated with the relevant parties by email. The reality of the appellant’s situation was highlighted for the first time after her knee surgery in October 2017. She was not in a position to receive any advice face to face, about English law and the 1975 Act in particular, until early December 2017. Almost immediately after that, the claim was intimated.
  7. 7) The judge had decided that the period of the agreed moratorium from 25 January 2018 until 1 May 2018 (the letter of claim) could be ignored. However, he had commented that standstill agreements should not be common practice and in fact the practice ‘should come to an immediate end’. He stated that if the parties want to agree a moratorium for the purposes of negotiation they should, nevertheless, issue the claim in time and invite the court to stay the proceedings and that it was not for the parties to give away time which in truth belonged to the court. Although the judge was correct to conclude that the effect of s4 of the 1975 Act is that the legislature has determined that the power to extend the six-month period belongs to the court, and that any agreement not to take a point about delay cannot be binding, without prejudice negotiations rather than the issue of proceedings should be encouraged. Although the potential claimant will have to take a risk if an application is made subsequently to extend time in circumstances where negotiations have failed, if both parties have been legally represented, it would be unlikely that the court would refuse to endorse the approach. However (per King LJ) if the parties choose the ‘stand-still’ route, there should be clear written agreement setting out the terms/duration of such an agreement and each of the potential parties should be included in the agreement. In the event that proceedings have, in due course, to be issued, the court should be presented with a consent application for permission to be granted notwithstanding that six months have elapsed.
  8. 8) The judge had concluded that there was no proper explanation for the lapse of time after the letter of claim was sent on 1 May 2018 until proceedings were issued in November 2018, despite the continued without prejudice negotiations and the mediation in mid-October 2018. When weighing all of the circumstances, it may well be appropriate to give due weight to negotiations which take place after, as well as before, the six-month period has expired. It was not until sometime after the mediation had failed and proceedings had been issued that any point was taken about the proceedings being out of time. Negotiations continued and after the receipt of the letter of claim and consideration of it by the executors/will trustees, the appellant was encouraged, first to enter into without prejudice negotiations about variation of the trusts, and then to mediate. In those circumstances, the lapse of time and negotiations after the delivery of the letter of claim should have been viewed as a positive factor and should not have counted against the appellant.
  9. 9) The judge had also failed to consider the relevance of, and the weight to give to, whether the estate had been distributed, the prejudice suffered by other beneficiaries who were in financial need and to whom distributions could not be made while the application was on foot, and whether the appellant had alternative remedies available to her.
  10. 10) Rather than remit the matter, it was proportionate and appropriate that the court should exercise the power under s4 itself. The power was exercised to allow the appellant to bring a claim out of time. The entire period from 17 June 2017 until November 2018, when the proceedings were issued, could be properly explained. As soon as the appellant became aware of her true position and had the opportunity to take advice, a claim was intimated. A moratorium was agreed between highly experienced legal representatives and, thereafter, without prejudice negotiations continued without any indication that the point would be taken about the lapse of time. The will trustees encouraged the appellant to participate in negotiations on the basis that such a course would avoid the need for expensive, long-running and stressful court proceedings. Almost immediately after the unsuccessful mediation, enquiries were made about accepting service and the proceedings were issued very shortly after that. This was not a case where the appellant merely changed her mind and did so a considerable time after having acquiesced in the workings of the will trusts. The substantive claim for relief had a real prospect of success. Although pecuniary legacies had been paid and discretionary payments made, these were not weighty factors. In the light of the size of the estate, no one was going to be asked to return any monies received. The prejudice to the other discretionary beneficiaries as a result of the litigation was not such as to outweigh the factors in favour of extending time. Furthermore, it could not be said that the appellant had a clear claim, if any, against her advisers.
JUDGMENT ASPLIN LJ: Introduction [1] This appeal is concerned with the circumstances in which it is appropriate to grant permission under s4 of the Inheritance (Provision for Family and Dependants) Act 1975 (the 1975 Act) to allow an application for an order under s2 of the 1975 Act to be made out of time. Under …
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Counsel Details

Counsel Miss Penelope Reed QC and Miss Eliza Eagling (5 Stone Buildings, Lincoln’s Inn, London WC2A 3XT, tel 020 7242 6201, e-mail clerks@5sblaw.com), instructed by Withers LLP (20 Old Bailey, London EC4M 7AN, tel 020 7597 6364, e-mail enquiries.uk@withersworldwide.com) for the appellant.

Mr Richard Wilson QC (Serle Court, 6 New Square, Lincoln’s Inn, London WC2A 3QS), instructed by Farrer & Co (66 Lincoln’s Inn Fields, London WC2A 3LH, tel 020 3375 7000, e-mail enquiries@farrer.co.uk) for the first, second and fourth respondents in the case of the first and fourth respondents in their capacity as executors of the estate of Michael Cowan deceased and in the case of the first and second respondents in their capacity as trustees of the business property trust and the residuary trust in the will.

Miss Tracey Angus QC (5 Stone Buildings, Lincoln’s Inn, London WC2A 3XT, tel 020 7242 6201, e-mail clerks@5sblaw.com), instructed by Charles Russell Speechlys LLP (5 Fleet Place, London EC4M 7RD, tel 020 7203 5000, e-mail enquiries@crsblaw.com) for the first and third respondents in their capacity as the trustees of the foundation.

Legislation Referenced

  • Inheritance (Provision for Family and Dependants) Act 1975, ss2, 3, 4, 5, 20