Middle ground - The importance of trustee neutrality

Tuesday, 01 May 2012

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 that is not maintained throughout the proceedings can mean the trustees or executors will not have their costs paid from the estate or trust fund.

Taking a neutral stance in contentious claims does not mean the trustee doesn’t have to do anything in relation to the litigation. The trustees’ duty to serve the best interests of the beneficiaries as a whole means they should monitor the proceedings carefully with a view to intervening where appropriate. What form that intervention takes will depend on the individual circumstances of the case. Sometimes, 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 the subject of a claim under the Inheritance (Provision for Family and Dependants) Act 1975 (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 neutral position. The executors of an estate may also be beneficiaries. In this scenario, they must be careful to distinguish between the steps they take in their role as an executor and those they take in their role as a beneficiary of the estate, and always keep in mind that their interests in each capacity are separate.

Executor’s duties

An executor’s duties may require them 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 their position as a defendant in a 1975 Act claim. In this event, it would be usual to give consideration at an early stage to making a Beddoe application. However, an executor who is also a beneficiary must renounce if they intend to either challenge the will or make a claim that, if successful, would diminish the estate.

A neutral stance does not mean the trustee doesn’t have to do anything

Where there are no other proceedings and the executor is an independent person they should, unless the beneficiaries have requested that they enter negotiations, limit their involvement to making the statement required of them 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 that includes:

  • 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 them which may 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 to ascertain or confirm any other matters within the 21-day 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 that may be disputed.

Shovelar v Lane

The question of trustee neutrality was considered a decisive factor in determining where the liability for the executors’ costs lay in the recent Court of Appeal judgment of Shovelar and Others v Lane and Others.1 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: one half going to Alma’s sons and the other divided between Alma’s four grandchildren and two of Leslie’s daughters. Alma died on 7 November 2001. Leslie made a new will on 4 September 2003 leaving his residuary estate to his three daughters and his granddaughter. No provision was made for Alma’s children or grandchildren. He appointed two members of his solicitors’ firm and his son-in-law to be his executors. Leslie died on 24 March 2006.

Alma’s descendants brought a claim alleging that Alma and Leslie had made mutual wills in 1999 and claiming a declaration that the executors held Leslie’s net estate on 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 for their own costs and for 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.’

Trustees should not try to defeat a 1975 Act claim; that is for the beneficiaries

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 that did not reflect their stated position of neutrality and in maintaining an adversarial stance throughout the proceedings. As a result, the executors had to be judged by the rules that 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 clear warning to trustees and executors who find themselves involved in contentious proceedings. 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 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.

  • 1. Shovelar and Others v Lane and Others [2011] EWCA Civ 802.
Author block
Sofie Hoffman, Sharon Kenchington

Sofie Hoffman is a Partner in the Contentious Trusts and Estates team at Boodle Hatfield.
Sharon Kenchington TEP is a Solicitor in the Contentious Trusts and Estates team at Boodle Hatfield.

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