Cases of interest – April

[2018] EWHC 157 (Ch)

As is so often the case, this dispute arose between two siblings after the death of their parent, and concerned the validity of a significant lifetime transfer by the parent to one of them, thus substantively defeating the parent’s pre-existing testamentary intention that their estate be divided equally between the two children (expressed in a recent Will to that effect).

The mother had been living with C and his wife, but then moved to live with D and his wife. Soon after, the mother and D resolved that the three of them would move to live together at the mother’s home in Cornwall. D made contact with a conveyancing solicitor and informed him that the mother wished to transfer a share in her home to him ‘on a joint tenancy basis’. An exchange of correspondence between the solicitor and D and the mother ensued, in which the solicitor raised issues the mother would wish to consider before proceeding with the transfer, and the mother confirmed her wish to enter into the transfer “to ensure that [D] is properly empowered to deal with any legal matters arising in connection with the bungalow and to carry out maintenance and repairs.”

The solicitor then met with the mother alone, and explained to her options as to a transfer onto a joint tenancy or tenancy in common, and the differing consequences for the devolution of the mother’s share. This was the first time she had understood that survivorship would follow from a joint tenancy, but the solicitor’s attendance note recorded that she appreciated (i) that a joint tenancy could in future be converted into a tenancy in common by unilateral severance, (ii) that in any event, her Will would need to be amended if equality between C and D was to be preserved, but (iii) she had plenty of other funds by which equality could be achieved even if D survived to her share under the joint tenancy.

The judge (HHJ Klein) approved and adopted the summary of the law of undue influence by Lewison J (as he then was) in Thompson v Foy [2010] EWHC 1076 (Ch) at [99]-[101]. He was satisfied that the relationship between the mother and D in respect of the transfer was one of trust and confidence, and that the transfer of her home onto a beneficial joint tenancy with him was a transaction that called for an explanation, such that a presumption of undue influence arose, casting the burden on D to rebut that presumption. He also found that D had not been open and honest with the mother about the effect of the transfer into their joint names as joint tenants, and in this regard “failed to discharge the obligation of candour and fairness which he owed [her] because of the relationship of trust and confidence between them.”

Notwithstanding all of the above, the presumption of undue influence was rebutted by the evidence of the independent advice given to the mother by the conveyancing solicitor, which the judge described as having an “emancipating effect”. The suspicion that the mother could not have made a freely informed decision to effect the transfer because its effect was so inconsistent with the terms of her Will that might otherwise have arisen was dispelled by the clear evidence that she understood she could change her Will and intended to do so (albeit ultimately she did not).

The decision demonstrates that whether a transaction will be set aside for undue influence turns not on the conduct or bona fides of the donee leading up to the transaction – which may be expressly disapproved of by the Court – but rather the donor’s state of knowledge and so freedom of thought at the time of the transaction: if the donor proceeds with the transaction after receiving competent, independent legal advice, it is likely to be very difficult to satisfy the Court that the transaction is the product of undue influence regardless of all the other surrounding circumstances.

[2018] EWHC 372 (Ch)

In a short decision, the judge (Edward Murray) considered an application for an interim distribution in the sum of £400,000 from the estate of a wealthy businessman. The application was brought by the deceased’s widow (second wife), who had obtained a grant of probate de bonis non within administration proceedings brought by her stepson (son of the deceased’s first marriage), which included a claim for removal of the widow and cross-claims for an account. The administration proceedings were in the course of case management by Master Teverson, and time for filing and serving evidence had passed, with the applicant widow having done so, but the respondent stepson not.

The application was supported by copious affidavit evidence from the widow, but there was no evidence in response: the respondent stepson appeared in person providing late evidence (but not supporting documentation) that his solicitors had refused to continue acting on the grounds they had not been paid, and he was unable to pay them because of his dire financial situation.

Although the judgment does not disclose the size of the estate, the judge was prepared to order the £400,000 interim distribution sought on the basis of the applicant widow’s evidence alone. His decision was based on two factors. First, the judge was satisfied that if the interim distribution was not made it was possible that there would be “irreparable damage to her standard of living and lifestyle” and there was the potential for her claim to her share of the deceased’s UK and worldwide estate to be ‘stifled’. Second, the judge found on the evidence that the respondent stepson and “other members of his side of the family” had themselves already enjoyed significant distributions (and this finding appeared relevant to his separate finding that the respondent had chosen not to pay his solicitors, rather than being unable to do so).

The decision is a clear demonstration that the mere fact of litigation over an estate does not mean it must be tied up in its entirety until resolution of that litigation: interim distributions may be made to meet need, or fund a party’s litigation costs (to ensure equality of arms) (and no doubt there are other grounds), depending on the size of the distribution and whole estate, and the extent to which there have already been distributions to other parties.

[2018] EWHC 430 (Ch)

This is one of the latest decisions from HHJ Paul Matthews sitting as a judge of the High Court, Bristol District Registry, and is a case that concerned the vexed question of solicitors’ costs of administering an estate: residuary beneficiaries, perhaps because they see only the end result of the administration at the point of distribution (not the work taken to get there), often seem to take exception to the funds to be received by them being eaten away by the costs of the actual administration (i.e. getting to that point). The problem seems to arise particularly in the case of solicitors who are executors themselves (rather than merely retained by lay executors).

There were four residuary beneficiaries (the deceased’s four children): C1 was one of them, and D1 and D2 were two of the others. C1 and his co-executor C2, a solicitor, sought an order approving their accounts (already approved by the fourth beneficiary) and distribution on that basis.

D1 and D2 objected to the accounts, including on the basis that the information provided to them in support of invoices paid to C2 was insufficient for them to assess whether the charges were reasonable.

The judge first determined to treat the claim as not one for directions, but for the taking of an account, and then that he needed to determine the proper test to be applied. He considered statements in the textbooks as to an executor’s entitlement to expenses as those “expended in the fair execution of his trust” or “properly incurred by him in the conduct of his office”.

From that the judge concluded that an executor is entitled to pay expenses from the estate provided he can show (1) that the sum concerned was indeed spent, and (2) that it was spent in the fair execution of the estate administration. He considered that “the former will normally be demonstrated by a document (“the voucher”) showing payment or receipt” and “the latter will normally be demonstrated by a document such as an invoice referring to the executor as such, to administration of the estate or to some good or service having a connection with the estate (e.g. repairs to estate property).”

The judge accepted that a beneficiary may rebut the presumption that he considered arose from the executor demonstrating those two matters, but held that “the executor is not required at the outset to prove by his or her voucher(s) that the charge made is reasonably incurred or reasonable in amount”, as this was a question of assessment of costs.

The decision may be considered somewhat surprising. While the correctness of the test stated in the textbooks can hardly be opposed, it rather begs the question of whether the disputed expense was ‘expended in fair execution’ or ‘properly incurred’ of the administration; it is difficult to see how it determines where the burden of proof in that regard lies (which might be considered to lie with the person propounding the propriety of the expense, i.e. the executor). Further, it is hardly surprising that the objecting beneficiaries were unable to rebut the presumption if it is raised by mere invoices addressed to the executors and referencing the administration of the estate, with no obligation on the executors to disclose the number of hours worked or the hourly rate used to arrive at the total charged, or give a detailed breakdown of exactly what work was done in support of their accounts.

If the decision is followed, it appears that it is harder than may have been thought to be the case for a residuary beneficiary to satisfy himself that his benefit has not been reduced by improper solicitor’s administration charges if there is no lay executor, or no lay executor willing, to perform this task on his or her behalf.

A copy of the judgment is available here.