Role of Executors (and Trustees) in claims

Transcription

1 Role of Executors (and Trustees) in claims The role of executors in claims against an estate depends very much on the type of claim being advanced. As we can see in the presentation, executors often feel under some form of duty (either just from their role as executor or because of some personal feelings about the case) to get closely involved in defending claims, even when, like Colonel Boden, they have no direct financial interest in the outcome. Claims under the Inheritance (Provision for Family and Dependants) Act 1975 The position is relatively clear and straightforward for these claims, but a surprising number of executors (and their solicitors!) get it wrong. Where a claim is brought specifically under this Act, the executor s role is to remain neutral. The executor should provide information to the parties about the value of the estate, and matters relevant to the claim, but otherwise should not do battle with the claimant. He or she should allow those who are the main beneficiaries (usually but not always the residuary beneficiaries) to defend the claim. Some issues arise when the executor is also a beneficiary of the estate. In that scenario, the executor effectively has two hats on, one as executor (neutrality) and one as beneficiary (having an interest). An executor may have a non-neutral role to play if for example there are unborn, minor (i.e. children under 18) or unascertained beneficiaries, facing a 1975 Act claim. The court has powers to appoint someone as a litigation friend for someone like a child who is not capable of acting for themselves, and power to appoint one party as a representative, where for example there are numerous beneficiaries in the same class with the same interest. Other claims The scenario in our presentation is a familiar proprietary estoppel claim, which I come back to below, but there are all sorts of claim which executors can face and the role of executors is, as I say, dependent on the type of claim. The role of trustees (for example where there is an ongoing Will trust) is broadly similar to that of executors. External and internal disputes 1. External disputes The key distinction to bear in mind is between external and internal disputes. As the name implies, an external dispute is one where the beneficiaries are not directly involved. The executors represent the estate and can defend the claim, or bring a claim against a third party, and do not take a neutral role. The beneficiaries do not need to be a party to any litigation, and the executors have power (under section 15 of the Trustee Act 1925) to compromise the claim. A typical example of such a situation might be say where the deceased during his or her lifetime had accountants who had been negligent in dealing with the deceased s tax affairs causing loss. The executors could bring a claim for professional negligence against the accountants on behalf of the estate without involving the beneficiaries (subject to

2 what is said below about costs and Beddoe applications). Another example would be a claim by a tenant of one of the deceased s properties against the executors for personal injuries as the result of an accident at the property. One would hope the executors had occupier s liability insurance, but the claim in this scenario would be an external dispute and it would be proper for the executors (or the insurers) to defend and/or compromise it. Section 15 of the Trustee Act 1925 A personal representative, or two or more trustees acting together, or, subject to the restrictions imposed in regard to receipts by a sole trustee not being a trust corporation, a sole acting trustee where by the instrument, if any, creating the trust, or by statute, a sole trustee is authorised to execute the trusts and powers reposed in him, may, if and as he or they think fit a. accept any property, real or personal, before the time at which it is made transferable or payable; or b. sever and apportion any blended trust funds or property; or c. pay or allow any debt or claim on any evidence that he or they think sufficient; or d. accept any composition or any security, real or personal, for any debt or for any property, real or personal, claimed; or e. allow any time of payment of any debt; or f. compromise, compound, abandon, submit to arbitration, or otherwise settle any debt, account, claim, or thing whatever relating to the testator's or intestate's estate or to the trust; and for any of these purposes may enter into, give, execute, and do such agreements, instruments of composition or arrangement, releases, and other things as to him or them seem expedient, without being responsible for any loss occasioned by any act or thing so done by him or them [if he has or they have discharged the duty of care set out in section 1(1) of the Trustee Act 2000]. It will be noted that the wide powers of compromise given to the executors (or trustees) are now subject to the duty of care in the Trustee Act 2000 (although this simply confirms the common law duties which were broadly the same before the 2000 Act was passed). That is the duty to act prudently, which in practice means taking advice and acting with reasonable care and skill. A higher standard is expected of professional executors/trustees. The duty of care applies to a trustee a. when exercising the power under section 15 of the Trustee Act 1925 to do any of the things referred to in that section; b. when exercising any corresponding power, however conferred. The duty of care 1. Whenever the duty under this subsection applies to a trustee, he must exercise such care and skill as is reasonable in the circumstances, having regard in particular

3 a. to any special knowledge or experience that he has or holds himself out as having, and b. if he acts as trustee in the course of a business or profession, to any special knowledge or experience that it is reasonable to expect of a person acting in the course of that kind of business or profession. Very often the executor or trustee will protect themselves against any criticism from the beneficiaries, and to make sure they can properly use the assets of the estate or trust for their legal costs in bringing or defending an external claim, by obtaining a special court order know as a Beddoe order. A Beddoe order is an order from the court authorising the executor/trustee to bring or defend a claim and to allow them to take their costs from the estate/trust. The court will need to be satisfied that there are good prospects of success in bringing or defending the claim. An alternative and often preferable route (avoiding the not inconsiderable expense of a Beddoe application) is for the executor/trustee to consult the beneficiaries and for them to agree that the executor/trustee should take the action they are proposing, and that their costs can be paid from the estate. In this way the beneficiaries may be able to influence matters or set limitations to ensure that the executor/trustee is not going off at a tangent or expending vast sums in legal costs without reference back to the beneficiaries. 2. Internal disputes These are the claims where an executor/trustee should remain neutral. The beneficiaries should defend the claims, although the executor/trustee may need to be a party to any litigation. A good example might be where say the terms of the Will are ambiguous and need to be resolved. This may need to be decided by the court. If one interpretation of the Will would favour beneficiary A but disadvantage beneficiary B then the obvious parties to do battle are A and B. The executor clearly has an interest because he needs to know how to administer the estate, but he/she should not adopt sides and should (if the beneficiaries are of full age) take a neutral position and not get involved. These internal disputes are sometimes friendly and sometimes hostile. What I mean by that is that there may be some genuine issue which needs to be resolved in the administration of the estate or trust, which is no particular parties fault. Alternatively a hostile internal dispute might involve a challenge by one party to the very validity of the Will or trust document, e.g. where a person claims that a Will is invalid. Finally, a sub-category of these internal disputes is where there is a dispute between the beneficiaries and the executor/trustee. For example, where the beneficiaries allege that the executor has been guilty of mismanagement of the estate, or the trustee has acted in breach of trust. In those situations it is an internal hostile dispute directed at the executor/trustee. They are of course entitled to defend themselves, but are not entitled to use the assets of the estate or trust to do so. Tom v Colonel Boden? Colonel Boden wants to roll up his sleeves and make a robust defence of Tom s proprietary estoppel claim. He is going to deal with everything himself and has told the charity that they do not need to be involved and they can leave it to him. On behalf of the charity, Jack is

4 initially attracted by this because he does not have to spend money on legal costs and it might get the Daily Mail off his back. But is this right? Superficially, an estoppel claim has some of the hallmarks of an external dispute. It is not a direct challenge to the Will (Tom is not disputing the actual validity of Joan s Will); he is simply saying that she promised him the farm and she ought to have left it to him in that Will. Because she has gone back on her promises, he has an equitable claim that the farm is not really held by the executor as part of the estate, but rather that Tom is (in equity) the rightful owner of the asset. As was said in the leading case on this subject, Alsop Wilkinson v Neary (a case where there was a challenge to the validity of a trust): In a case where the dispute is between rival claimants to a beneficial interest in the subject matter of the trust, rather the duty of the trustee is to remain neutral and offer to submit to the court s directions, leaving it to the rivals to fight their battles. How then to tackle Colonel Boden? Somehow Colonel Boden is going to have to be persuaded that it is not his job to defend Tom s claim. He does not have solicitors to advise him, so perhaps the task will be a little more difficult, particularly in view of his personality. However, Flora understands the inherent dangers in this type of situation. Not only is it conceivable that Tom has a fairly decent estoppel claim against the estate which will need to be considered carefully by the charity and its legal advisers, but allowing Colonel Boden to fight the claim as he sees fit could lead the charity into a PR disaster, with the Daily Mail taking an interest in the case. She explains all this to the finance director. There is no escaping the need to explain the legal principles to Colonel Boden that he should remain neutral, stand back and allow the charity to defend. There are many cases reported to which Colonel Boden can be directed if necessary, to illustrate the risk he would face if he took an active role in this claim. For example, the case of Shovelar v Lane in 2011 in which there was a dispute about mutual wills. The executors were 2 solicitors, who were joined as defendants to the claim (as required by the CPR) along with the beneficiaries. The executors filed a defence to the claim and denied that the doctrine of mutual wills applied, but they lost the case. The trial judge ordered that the costs of the executors and their liability for the claimant s costs should be paid out of the estate. However, this meant that there would be nothing left in the estate. The claimants appealed the costs order to the Court of Appeal. The Court of Appeal said that Section 50A of the costs practice direction allows a personal representative an indemnity out of the estate for costs properly incurred. Whether costs have been properly incurred depends on first whether they acted in the interests of the estate or in substance for a benefit other than that of the estate. And second whether they acted in some way unreasonably in defending the proceedings. The court concluded that the executors did not conduct themselves reasonably. They did not adopt a position of neutrality but engaged in adversarial litigation between competing claims to the estate. It was not a case where the executors were protecting the estate from an outside claim. The court therefore retained the judge s order that the executors should pay the claimant s costs of the proceedings, but ordered that they should do so personally and that they were not entitled to an indemnity out of the estate. Shovelar would be a good case to mention to Colonel Boden because it concerned the doctrine of mutual wills which is a matter of equity, not probate law. In a probate claim

5 (i.e. challenging the validity of the Will) there are some exceptions to the normal rule that costs follow the event, i.e. that the loser pays the winner s costs. An estoppel claim is also a claim in equity, so the probate exceptions will not apply to Tom s claim. If Colonel Boden cannot be persuaded to stand back, ultimately the charity may have to warn him that if he takes control and defends the claim, the charity will dispute his right to have his legal costs from the estate, and that if he defends and is ordered to pay the claimant s legal costs he will have to do so from his own pocket. Peter Steer Partner T E [email protected]