Analysis
Mrs Ross, the testatrix, (T) had three adult children, the defendants: Diana (D), Lorenzo (L) and Gianni (G). T died on 13 July 2008 leaving a will dated 21 October 1988 (the will). At her death T held the following assets:
- a) 13 Kensington Gardens, Ferryhill, County Durham (13KG) where D had lived until she moved in with her partner. At T’s death the property was worth £125,000 but subject to a mortgage with £50,401.52 outstanding. 13KG was bequeathed to D ‘free from any mortgage or legal charge to which the same may be subject at the date of my death’. The property was subsequently sold by the mortgagee to recoup outstanding monies.
- b) 15 Market Square, Ferryhill (15MS) where T ran a café downstairs and allowed D to run a hairdressing salon in the four upstairs rooms. D did not pay rent. L was employed by T in the café at a small salary and the café made a modest profit. Under clause 7 of the will T gave the goodwill, the stock in trade, the fixtures and fittings, and vehicles in respect of the café as to 50% for L, and 25% each to D and G, making it clear that the gift included a gift of the freehold of the downstairs ‘subject to any charge or liability which may be subsisting at my death which shall not be discharged out of my residuary estate’. D, L and G were directed to carry on the business at 15MS and further directed that it could only be sold as a going concern if all three consented in writing. By Clause 5 of the will T devised the upstairs to D with a full right of access through the café. When T died 15MS, including goodwill for the café, was valued at £117,000, which was later apportioned as to £87,000 for the café and £30,000 for the upstairs. There was a small charge of £770.89 in favour of the Legal Services Commission.
- c) 6 Osborne Terrace, Ferryhill (6OB) where she permitted L and his wife Lisa to live rent free. 60B was specifically bequeathed to L and valued at £65,000 on T’s death.
- d) Land in Italy valued at £8,980 and specifically devised to D, L and G.
- e) Insurance policies. T gave ‘the proceeds of my life assurance policy with Sun Alliance Insurance Company’ to D. In fact there were two policies under a changed name.
- f) Other assets in the amount of £6,697.76 which were not specifically bequeathed and were used to defray the expenses.
Following the payment of debts owed by T there were insufficient funds to meet the specific legacies in full and the executor, Mr Petterson (P), the solicitor who had drafted T’s will and had acted for her during her lifetime, needed to determine the proportions by which those legacies should abate.
At a meeting of the family after T’s death, the three children agreed that L should carry on running the café business until it was sold and that until that time he should take any profits arising from it but be responsible for any losses. However subsequently D denied reaching any such agreement. The children were unable to reach an agreement with P about the payment of the debts of the estate so an application was made to the court:
- (1) to deal with various claims made on the estate including:
- (a) a claim by L, his wife and daughter for wages in respect of the running of the café which was subject to proceedings in the Employment Court against the estate delayed to allow L’s status in respect of the café to be determined; and
- (b) a claim for work done by Lisa for £31,921.68 in respect of work done at the café and invoiced in July 2004.
- (2) to determine the proportions by which the legacies should abate.
Held:
- (1) (a) On the evidence there was an agreement between the parties in relation to the running of the café that pending the sale of the café it would be run by L on his own behalf. He would be entitled to all of the profits but be solely liable in respect of any losses. When 15MS was sold the net proceeds of sale would be divided in accordance with the will. It followed that L was entitled to all of the profits from the café until it was sold and that L was responsible for all of its liabilities between T’s death and the date of sale. This included the claim for wages by Lisa and his daughter. Their claims for wages against the estate failed. L was not an employee or a worker. He was running the café as a sole proprietor pursuant to the agreement reached and his claim for wages must also fail [47].
- (b) Lisa was not a party to the proceedings and any decision on her claim would not be binding on her. However, any claim would face very considerable difficulties. First it would appear to be statute barred. It should have been brought within six years and it was now more than nine years after the work was carried out. Second it was by no means clear that there was ever any agreement between T and Lisa and/or what the terms of any agreement were [41, 69].
- (2) Without agreement between the parties the court was required to decide the case on the basis of the rules of abatement set out in the Administration of Estates Act 1925 (AEA) and did not have discretion to consider any issues of fairness. Section 34 provided that where the estate was solvent ‘… [T’s] real and personal estate shall, subject to… provisions herein contained as to charges on property of the deceased and to the provisions, if any contained in his will, be applicable towards the discharge of the funeral testamentary and administration expenses, debts and liabilities payable thereout in the order mentioned in Part II of Sch 1‘. Part II of Sch 1 provided the order of application of assets of a solvent estate. The relevant category in this case was the sixth in the order, property specifically devised or bequeathed, rateably according to value. Section 35(1) dealt with dispositions by will of property which at the time of death was subject to a charge. It operated where the deceased had not by will, deed or other document signified a contrary or other intention, and provided that the property in question was primarily liable for the payment of the charge, rather than residue [80].
T had given clear contrary intention in her will that 13KG was to be left to D free of mortgage so following s35 the mortgage on that property was to be discharged out of residue and not out of the proceeds of sale of the property and was a liability of the estate [81]. 15MS was held to be primarily responsible for the charge secured on it as no contrary intention was expressed by T.
Abatement was to be applied to the estate’s assets to cover the liabilities that could not be satisfied by liquid residuary assets as follows:
In so far as the relevant sums were not raised or paid by the persons entitled to them the asset would have to be sold [84]. Notwithstanding that the gift of 13KG was intended to be free of mortgage the mortgagee had discharged the mortgage out of the proceeds of sale. This brought into play the principle of marshalling so that D was entitled to recoup or compensate herself out of the property which ought to have been used to pay the mortgage before resort was had to 13KG. For this reason 13KG was to be entered into the estate accounts as an asset at its value with its mortgage shown as a separate liability [87].
JUDGMENT HHJ BEHRENS: 1. Introduction [1] In this judgment I shall refer to the parties by their Christian names. No disrespect is intended to the parties who consented to the use of their Christian names during the course of the hearing. [2] This is an unfortunate family dispute. Diana, Lorenzo and Gianni are the three …Continue reading "Petterson v Ross & ors [2013] EWHC 2724 (Ch)"