Y & anr v C & ors [2021] WTLR 391

WTLR Issue: Spring 2021 #182

1. Y (D1 BELOW)

2. Z (D2 BELOW)

V

1. C (APPLICANT, BELOW)

2. D (CHILD, D3 BELOW)

3. E (CHILD, D4 BELOW) (A MINOR, BY HER LITIGATION FRIEND, M)

4. F (CHILD, D5 BELOW) (A MINOR, BY HIS LITIGATION FRIEND, S)

5. G (D6 BUT ALSO A CLAIMANT, BELOW)

Analysis

A claim was made under the Inheritance (Provision for Family and Dependants) Act 1975 (1975 Act) by the mothers of the deceased’s children. The deceased had owned 50% of a private company. That shareholding was valued for probate at £5m. The executors of the deceased’s estate were his sister, who owned the other 50% of the shares and was a director of the company, and a solicitor from the firm which had drafted the deceased’s will, and who was also a director of the private company. The claim under the 1975 Act was upheld against the estate (reported as B v C & ors at p1 of this issue), and the judge ordered that the executors were to pay the costs of the beneficiaries of that claim. The executors were not to be entitled to indemnify themselves from the estate in respect of those costs, or in respect of their own costs (save those that arose in respect of a single issue and in respect of compliance with PD57). They were deprived of their indemnity on a number of bases.

First, they had failed to adopt a neutral stance in respect of the litigation, adopting the position that the private shares were in effect illiquid and hence maintaining that their value should not be taken into account in deciding on the provision to be made for the applicants. Secondly, they had been conflicted throughout. The deceased’s sister was conflicted by virtue of her own shareholding in the company and the implications for that shareholding of a need to realise the value of the deceased’s share. The solicitor was conflicted owing to her position as director of the private company. These conflicts could have been appropriately managed by the executors, but they were not, no independent advice having been obtained, nor any application for directions having been made. Thirdly, they had allowed a settlement proposal to collapse by failing to engage with the applicants appropriately after an initial subject-to-contract agreement had proven unworkable owing to its tax implications. Fourthly, they had continued to fight against an argument made by one applicant that she was the beneficiary of a constructive trust over the house in which she had lived, even though it was apparent that nobody was going to contest it. Had they wanted an indemnity in respect of the costs of that element of the claim they ought to have made a Beddoe application, which they did not do, and which would have revealed that no one would oppose that applicant’s claim to the house. For those reasons, they had acted unreasonably in the conduct of the claim

The issue on this appeal was whether the executors ought to have enjoyed an indemnity against the estate in respect of the costs of the claim.

The executors disputed that they had not been neutral. They alleged that they had not maintained that the shares were valueless; they had simply properly pointed out that they were illiquid, and would be difficult, if not impossible, to realise. The court should have tested their conduct by reference to whether it amounted to a breach of fiduciary duty. The fact that the executors had been neutral in regards to the claim undermined the finding that they had been conflicted. The solicitor was not conflicted by reason of being a member of the firm that drafted the deceased’s will. The deceased’s sister would not have had any conflict unless and until an order had been made requiring the realisation of the deceased’s shareholding; until then, any conflict was entirely theoretical. There was no evidence that decisions were taken on the basis of any conflicting interest of the executors. The executors had not been responsible for the failure of the settlement discussions. When the tax implications came into view the proposal was untenable without provision by the children beneficiaries of the estate of an indemnity as to excessive tax, which those beneficiaries had not been prepared to give. The executors qua executors could not bring about the transactions necessary for a settlement on the proposed terms (eg the issuance of a dividend from the company). Although it was accepted that a Part 36 offer had been received by the executors and that the judge had found that the executors were unreasonable for having failed to accept it, responsibility for this lay with the lawyers acting for the executors, with the consequence that the executors should not themselves be penalised for it.

Held:

The appeal would be dismissed. The judge had not relied on the notion that the executors had taken the position that the shareholding was valueless. He had instead relied on their position that in the context of the proceedings it was valueless, as an illiquid asset which should be taken out of account in determining what provision ought to be made for the applicants. While the executors maintained that the assertions made as to illiquidity of the shareholding were expressions merely of the position of their lawyers, and hence that they should not be attributed to themselves, any such argument was completely wrong. The executors were not entitled to divorce themselves from the positions adopted on their behalf by their lawyers. By reason of their position as to the illiquidity of the shares, and the fact that the executors had offered to meet the costs of other defendants opposing the applicants’ claim, they had not been neutral. Although the executors claimed that the judge had to find a breach of fiduciary duty before finding an absence of neutrality, there was in fact no need for him to do so.

Moreover the executors were conflicted. Although the solicitor’s position as a member of the firm which drafted the deceased’s will may not have created much of a conflict, she was conflicted as a director of the private company. The deceased’s sister was conflicted both as a director and as a shareholder in her own right. The judge found that the executors did not act in the interests of the estate, insofar as they had failed to take any steps to ascertain how the deceased’s shareholding could be realised, and insisted instead that it had no value for the purposes of the proceedings. The judge was entitled to make that finding. The judge did not need to take the view that it was inevitable that steps taken to ascertain how the shareholding could have been realised would in fact have enabled a solution to the issues. It was enough that the executors had not done anything equivalent to making those investigations, and thus had not behaved as unconflicted executors would have.

The judge had not failed to appreciate that the executors qua executors could not have brought about the transactions necessary for a settlement. He instead relied on the fact that the executors in their role as executors had given effect to their reluctance as directors and shareholders to declare a dividend. Independent executors would not have behaved in that way. Although it was not obvious how a Beddoe application would have made clear that no one would have wanted the constructive trust claim to be defended, that conclusion was not seriously attacked by the executors. As to the Part 36 offer, it was again impermissible for the executors to divest themselves of responsibility for actions taken on their behalf by their lawyers.

JUDGMENT MANN J: Introduction [1] This is an appeal from a judgment of HHJ Parfitt delivered on 15 October 2019. The judgment deals with the disputed costs issues arising out of his previous decision of 15 February 2019 in which he decided proceedings under the Inheritance (Provision for Family and Dependants) Act 1975 in favour …
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Counsel Details

Joseph Dalby QC (The 36 Group, 4 Field Court, Grays Inn, London WC1R 5EF, tel 020 7421 8000, e-mail clerks@36commercial.co.uk) and Guy Holland (The 36 Group, 4 Field Court, Grays Inn, London WC1R 5EF, tel 020 7421 8000, e-mail clerks@36family.co.uk), instructed by Ashtons Legal (Chequers House, 77-81 Newmarket Road, Cambridge CB5 8EU, tel 01284 762331, e-mail enquiries.bury@ashtonslegal.co.uk) for the appellants.

Clare Stanley QC (Wilberforce Chambers, 8 New Square, Lincoln’s Inn, London WC2A 3QP, tel 020 7306 0102, e-mail chambers@wilberforce.co.uk), instructed by Greenwoods GRM LLP (Monkstone House, City Road, Peterborough PE1 1JE, tel 01733 887700, e-mail enquiries@greenwoodsgrm.co.uk) for the second and third respondents.

Dov Ohrenstein (Radcliffe Chambers, 11 New Square, Lincoln’s Inn, London WC2A 3QB, tel 020 7831 0081, e-mail clerks@radcliffechambers.com) instructed by Hegarty (48 Broadway, Peterborough PE1 1YW, tel 01733 346333, e-mail enquiries@hegarty.co.uk) for the fourth respondent (but taking no active part in the appeal).

The first and sixth respondents did not appear.

Cases Referenced

  • Re Beddoe [1893] 1 Ch 547

Legislation Referenced

  • CPR 36, PD 39A, 46.3, PD 46, PD 57
  • Inheritance (Provision for Family and Dependants) Act 1975