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Middle ground

In many contentious trust and probate claims the dispute is really between warring beneficiaries or between a beneficiary and a third party but the trustees or executors may be caught in the middle and joined as parties. In such circumstances it is usual for the trustee or executor to adopt a position of neutrality. Trustees and executors should exercise caution in departing from this stance without the sanction of the Court as they may put themselves at risk on costs. A profession of neutrality at the outset which is not maintained throughout the proceedings can mean that the trustees or executors will not have their costs paid from the estate or trust fund.

Adopting a neutral stance in relation to contentious claims does not mean that the trustee does not have to do anything at all in relation to the litigation. The trustees' duty to serve the best interests of the beneficiaries as a whole means that they should monitor the proceedings very carefully with a view to intervening where appropriate. What form that intervention takes will depend on the individual circumstances of the case.

In some cases the trustees simply make submissions to assist the court because they are seen as relatively impartial compared to the other litigants. In other cases it will be in the trust's interests for the trustee to ensure that each side of the argument is put before the Court.

In any case in which a neutral stance is required, the trustee may seek the protection of the Court in an application under CPR 64.2 (a). This application is very similar to a Beddoe application, but instead of seeking the Court's authority to pursue or defend proceedings, the trustee seeks authority simply to take a neutral stance. Sometimes there is no beneficiary able or willing to act, but it is nevertheless clearly in the interests of the beneficiaries as a whole for the proceedings to be resisted. In such circumstances the court may well direct a trustee to defend proceedings rather than one of the beneficiaries, in which case the application has the same effect as a Beddoe application.

Where an estate is made the subject of a claim under the 1975 Inheritance (Provision for Family and Dependants) Act ("the 1975 Act") it is usual for the executors to be named as defendants, but in responding to the claim they should as a matter of course (and unless the specific circumstances merit a different approach) adopt a position of neutrality.

The executors of an estate might also be beneficiaries. In this scenario they must be particularly careful to distinguish between the steps which they take in their role as an executor and those which they take in their role as a beneficiary of the estate and always keep in mind that their interests in each capacity are separate.

An executor's duties may require him to initiate proceedings to preserve the estate (e.g. by resisting a claim by another party to a beneficial interest in an asset of the estate) or to get in an asset of the estate (e.g. possession proceedings), but the discharge of that duty is not inconsistent with his position as a defendant in a 1975 Act claim. In this event it would be usual to give careful consideration at an early stage to making a Beddoe application. However, an executor who is also a beneficiary must renounce if he intends to either challenge the will or to make a claim whose effect, if successful, would be to diminish the estate.

Where there are no other proceedings and the executor is an independent person he should, unless the beneficiaries have requested him to enter into negotiations, limit his involvement to making the statement required of him by Paragraph 16 of the Practice Direction to CPR Part 57 and complying with any substantive orders or directions to assist the Court. The Practice Direction provides that a Personal Representative who is a named defendant must file and serve written evidence which includes the following information:

  • full particulars of the deceased's net estate as defined by s25 (1) of the 1975 Act;
  • the person or class of persons beneficially interested in the estate, giving the names (and unless they are already parties to the claim) the addresses of all living beneficiaries and the value of their interests as far as known;
  • whether any living beneficiary is a child or a person who lacks capacity (within the meaning of the Mental Capacity Act 2005); and
  • any facts known to him which might affect the exercise of the Court's powers under the 1975 Act.

Executors or trustees should not try to defeat a claim brought under the 1975 Act; that is a matter for the beneficiaries. They are obliged to make any enquiries or investigations in order to ascertain or confirm any other matters within the 21 days period but that obligation only extends to stating the facts known to them at the time they make the statement and they should maintain their position of neutrality even if their statement contains facts which may be disputed

The question of trustee neutrality was considered as a decisive factor in determining where the liability for the executors' costs lay in the recent Court of Appeal Judgment of

Shovelar & others v Lane & others [2011] EWCA 802.

In 1996 Leslie Stallwood, a widower, married Alma Shovelar. On 12 July 1999 they each made wills in identical form each leaving his or her net residuary estate to the other if he or she survived by 30 days and otherwise to their children and grandchildren with one half going to Alma's sons and the other half being divided between Alma's 4 grandchildren and two of Les' daughters. Alma died on 7 November 2001. Les made a new Will on 4 September 2003 leaving his residuary estate to his 3 daughters and his granddaughter. No provision was made for Alma's children or grandchildren. He appointed 2 members of his solicitors' firm and his son-in law to be his executors. Les died on 24 March 2006.

Alma's descendants brought a claim alleging that Alma and Les had made mutual wills in 1999 and claiming a declaration that the executors held Les's net estate upon trust for each of them in specified shares. The executors were named as the first to third defendants. The Judge at first instance held that the claimants were entitled to that declaration and also made an order that the defendants pay the Claimant's costs with the executors being indemnified from the estate to the extent of their own liability for those costs and to the extent of their own costs.

The appeal before the higher court was concerned with the orders for costs and one of the issues for determination was whether the First to Third Defendants, as executors, were entitled to be indemnified by the estate in respect of (a) their own costs and (b) in respect of their own liability for the Claimants' costs.

The Court of Appeal found that despite professing neutrality the executors did not adopt that position in the proceedings as they put in a defence to the claim and assumed the role of defendants without seeking directions from the Court. Ward LJ said in his judgment "I conclude that the executors did not conduct themselves reasonably…Although they had at an early stage written of their need to "steer a median course" and to be "guided by the court" they did not adopt that position of neutrality in their defence. They did not indicate that they would be bound by the decision of the court and hold the estate to abide that decision. They did not seek directions from the court. Instead they assumed the role of defendants and when the defence was amended to join the family members, they, the executors, continued their stout resistance". Ward LJ went on to say that he had some sympathy with the executors because, as the Judge at first instance had pointed out, it was quite proper to protect the estate and put in some form of holding defence, but where the executors erred was in filing pleadings which did not reflect their stated position of neutrality and that in continuing to adopt an adversarial stance throughout the proceedings. As a result the executors had to be judged by the rules which applied to the other defendants that costs follow the event. Accordingly the executors were not entitled to be indemnified by the estate for either their own costs or the extent of their liability for the Claimants' substantial costs.

The case gives a very clear warning to trustees and executors who find themselves involved in contentious proceedings that if they intend to depart from a position of neutrality they should always consider seeking the Court's blessing in advance (whether by way of an application pursuant to Part 64 CPR or a full-blown Beddoe application if the circumstances require it). If they do not seek the sanction of the Court there is a very real risk that they may not get their costs (or any parties' costs that they are ordered to pay) paid from the estate or trust fund.

This article was first published in the STEP Journal May 2012.

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