Re Cadogan [2021] WTLR 411

WTLR Issue: Summer 2021 #183

In the matter of: VERONICA CHRISTINA CADOGAN DECEASED

KIRSTY AMANDA MARY LOUISE CADOGAN

V

1. KEVIN ANDREW CADOGAN

2. KATHRIN ELIZABETH ANN CADOGAN

3. JUSTIN CHUDDIE

4. KELLY DAVIES (as the representative of Paul Cadogan deceased)

5. MILLS & REEVE TRUST CORPORATION LIMITED (as the representative of Veronica Christina Cadogan deceased)

Analysis

C and D1-D4 were the children of Mrs Veronica Cadogan (VC), who died in 2011. VC’s will left her residuary estate to them in equal shares. In 2013, C and D1 took letters of administration with the will annexed. They remained as administrators until they were replaced by D5 at the first case management hearing in the proceedings.

VC’s estate included 14 English properties. Following her death, each of C and D1-D4 had informally taken over or remained in control of one or more properties and either occupied or received rent from them. This continued during the period of C and D1’s administration. In addition, D1 used six of the properties (the Ebonycare properties) in the business of his wholly owned company, Ebonycare Ltd (EL), which operated children’s homes for looked-after children in exchange for payments from local authorities. Some of EL’s income was received into an account held in VC’s name with HSBC (the HSBC account).

C sued D1 seeking inter alia orders that they both be removed as administrators and replaced by a professional and that D1 account for his administration on a footing of wilful default, on the basis that D1 had failed to obtain rent for EL’s occupation of the Ebonycare properties. C offered to account herself in common form. D1 admitted in his defence that the Ebonycare properties were estate assets but denied that he had failed to collect rent for EL’s occupation of the Ebonycare properties, claiming he had ‘given credit’ to the estate for all sums due and that sums he had advanced to or paid on behalf of the estate offset EL’s liability. D1 counterclaimed for an order that C account on a footing of wilful default, on the basis that she had failed to collect rent or obtain possession of estate properties, had failed to account for rents she received, and appropriated estate funds for her own use.

At the first case management hearing, Chief Master Marsh replaced C and D1 as administrators with D5 (by consent). He also made orders for disclosure and for a report from a single joint expert in forensic accounting.

The expert report indicated that C had received £242,625 in rent and withdrawn £2,353 from VC’s bank accounts, but had incurred legitimate expenditure reducing her liability to £142,793. It indicated that D1 had received rental income of £163,401 and had withdrawn money from VC’s accounts (including the HSBC account) totalling £2.67m. Setting off what the expert regarded as legitimate expenditure, the expert estimated D1’s liability at £1,723,365. The expert was also of the opinion that VC’s estate was entitled to be reimbursed up to about £1.865m for rent for the English properties, including £951,000 in respect of the Ebonycare properties.

The report recorded that D1 had not answered questions the expert had raised with him, or agreed to a meeting she had sought, or provided papers and information she had sought. When the first draft of her report was circulated, he only raised two queries (which were not pursued at trial).

Notwithstanding the contents of his defence, D1’s witness evidence indicated that the Ebonycare properties and the HSBC account were not estate assets and that the expert report had failed to take account of mortgage payments and other payments made by him on behalf of the estate.

The case had a difficult history, taking three years to get to trial. The court’s orders indicated that this was due to D1’s conduct, which included not complying with court orders.

The trial time estimate was insufficient to consider all of the pleaded issues. However the court decided to determine whether the Ebonycare properties fell to be treated as estate assets, whether D1 should account for income from the Ebonycare properties (or income capable of being generated by them on a footing of wilful default), whether D1 or EL had a beneficial interest in the HSBC account, whether D1 should be permitted to claim as just allowances expenses not drawn to the attention of or recommended by the expert, whether C should account in common form or on a footing of wilful default, and whether C should have liberty to apply for further accounts from D1 on a footing of wilful default.

Held (allowing the claim):

Were the Ebonycare properties estate assets?

D1 admitted in his defence and counterclaim that VC’s estate included the Ebonycare properties and had not applied to amend to pursue the argument indicated by his witness statement. However even if there had been a successful application to make a very late amendment, the outcome would have been the same. The Ebonycare properties had been legally owned by VC on her death in her sole name. The presumption was therefore that she was sole owner (Jones v Kernott [2012] referred to). There was no evidence that they did not come within the estate. To the contrary, the IHT400 completed by C and D1 indicated that they did fall into the estate, as did an express declaration of trust concerning one of the Ebonycare properties.

D1 suggested in cross-examination that EL’s business had contributed sums to the purchase and improvement of the Ebonycare properties but there was no evidence which established or expressly suggested that. The Ebonycare properties were bought before the incorporation of EL at a time when the business appeared to have been conducted as a partnership at will between VC and her (also deceased) husband. The effect of her husband’s retirement was to dissolve the partnership, and VC would have inherited his estate. The partnership accounts did not show any of the Ebonycare properties as partnership assets and EL’s accounts did not show any interest in the Ebonycare properties. The court was therefore not satisfied that any partnership or EL contributed to the purchase or improvement of the Ebonycare properties or that thereby they did not fall wholly into VC’s estate.

How should D1 account for income from the Ebonycare properties?

A reasonably competent administrator controlling the Ebonycare properties would have obtained income for the benefit of VC’s estate. D1 had failed to do this and so was liable to account for them on a footing of wilful default. D1’s failure has been so significant as to justify an order for a general account on a footing of wilful default. However C did not seek such a general account.

How should D1 account for the HSBC account?

The HSBC account was an asset of VC’s estate on her death. In principle, D1 was liable to account for his management of it (Libertarian Investments Ltd v Hall [2015] referred to). However because D1 had been ordered to account on a footing of wilful default for his administration of the Ebonycare properties and otherwise in common form, and C’s solicitors’ analysis indicated that almost all of the receipts into the HSBC account related to EL’s business, the court would hear further submissions on whether a separate account of D1’s administration of the HSBC account was appropriate or whether it was appropriate to order an inquiry into it.

Should D1 be prevented from claiming just allowances for expenditure not drawn to the expert’s attention or recommended by her?

D1 had made no application to cross-examine the expert, had not asked her questions concerning the allowances his witness statement contended she should have allowed, and had failed to provide her with requested information. D1 had had over two years to provide information about his expenses – he had delayed the expert’s work by delaying her instruction and not responding substantively to her questions. He had had her report for about a year prior to trial. He did not raise the matters he now relied upon in his questions to her. He had made no attempt to obtain alternative expert evidence or apply for the joint expert to give oral evidence.

If D1 was now permitted to claim, in the taking of the accounts, just allowances for expenses which he had not informed the expert about and on which she had not expressed an opinion, this would undermine the original order for expert evidence in circumstances where the claim had already been undetermined for about three years. In light of the order for expert evidence, the parties’ expectation was likely to have been that, at trial, the court would determine what expenses should be allowed to D1. D1 had provided some witness evidence about just allowances but he said little and provided no details in support.

Whether as a matter of case management or pursuant to the court’s power to determine the terms on which accounts are conducted under PD40A, the proportionate and appropriate response was not to permit D1 to claim as a just allowance any expense not recommended by the expert to be allowed to him (Popek v National Westminster Bank plc [2002] considered).

Should C have liberty to apply for a broader account on a footing of wilful default?

Since sufficient grounds were made out for a full account on a footing of wilful default, although one was not being ordered, C was to have liberty to apply for one (Re Tebbs [1976] and Re Symons (1882) referred to). If such an application were made, the judge would need to consider, from a case management perspective at least, whether it was appropriate. Any application was to be supported by evidence explaining why further accounts on a footing of wilful default were not sought at trial.

Should C account in common form or on a footing of wilful default?

D1 complained that C had failed to collect rent or obtain possession of estate properties, failed to account for rent she received, and appropriated estate funds for her own use. The latter two complaints were active breaches of trust. It followed that C could only be required to account on a footing of wilful default if she had failed to manage the English properties as a reasonably competent administratrix would.

D1 accepted in cross-examination that D2, D3 and D4 should not have to pay rent for their occupation of estate properties, that D2 and D3 should be allowed to remain in occupation, and that C should not be liable for failure to recover rent for occupation of properties under his (ie D1’s) control. Taking into account this case, C could therefore only be liable to account on a footing of wilful default in relation to the management of the English properties under her control while she was administratrix.

The expert’s analysis was consistent with C’s case that she had given up control of most properties in October 2013. This was also consistent with contemporaneous e-mails from D1. The court therefore accepted C’s case as to which properties she controlled.

D1 was unable to show wilful default in C’s management of the properties under her control. In relation to one property, C did not receive rent between August 2013 and December 2013, but the tenants had left the property in July 2013 and it was sold in January 2014. The court was not satisfied that a reasonably competent administratrix would have relet the property.

There was a more difficult question as to whether a reasonably competent administratrix would have taken steps between April 2013 and April 2017 to repossess a property in relation to which the tenant had fallen into arrears. Possession proceedings would have likely left a number of months of a rent void and there would have been irrecoverable litigation costs. The expert’s analysis suggested that the tenant had paid most of the rent due during most months. The court was therefore not satisfied that a reasonably competent administratrix would have brought possession proceedings. Nor was the court satisfied that C had otherwise been in wilful default. D5 was apparently now taking steps to recover arrears from the tenant and there was no evidence that they would find it any more difficult to recover them now than C would have done earlier. If there had been other wilful default, the court would not have exercised its discretion to order an account for the property on a footing of wilful default in any event.

Interest

The court ordered inquiries into interest.

JUDGMENT HHJ KLEIN: [1] Veronica Cadogan (‘Mrs Cadogan’) died, aged 76, on 3 September 2011. She left alive 5 children; the Claimant (‘Kirsty’), the First Defendant (‘Kevin’), the Second Defendant (‘Kathrin’), the Third Defendant (‘Justin’) and Paul Cadogan, who died on 29 August 2014 (‘Paul’).1 [2] Mrs Cadogan died leaving a will dated 27 May …
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Counsel Details

Francis Ng (Selborne Chambers, 10 Essex Street, London WC2R 3AA, tel 020 7420 9500, e-mail clerks@selbornechambers.co.uk), instructed by Irwin Mitchell LLP (40 Holborn Viaduct, London EC1N 2PZ, tel 020 7404 3600) for the claimant.

The first and third defendants appeared in person.

Cases Referenced