The Court of Appeal, They Say Yes!... Or Do They?

Back in March of this year I published an article on the recent case of Cowan V Foreman, a case where not only did Mr Justice Mostyn refused Mrs Cowan’s application to bring a claim under the Inheritance Act (Provision for Family and Dependants) Act 1975 (“the Act”) out of time, he also (worryingly for estate practitioners) provided obiter comments suggesting that the common practice of parties entering into standstill agreements should cease with immediate effect. That decision has now been appealed.  This article sets out the current position in light of that appeal.

Review of the law

The primary limitation period for brining a claim under the Act is 6 months from the date of the grant of probate.  However, under Section 4 of the Act the court has discretion to allow a claim to be brought out of time.  Under Section 2 of the Act, the court make may an order varying the terms of a will (or intestacy if there is no will) if it is satisfied that the disposition of the deceased’s estate was not such as to make reasonable financial provision for the applicant.

In Cowan, the appeal raised specific issues as to whether it was arguable that a beneficial interest under a discretionary trust rather than outright provision for a spouse is not such as to make reasonable financial provision for the spouse.  It also considered the weight to be given and any relevance to the standstill agreement that the parties had entered into to the point that a delay in bringing proceedings will not be taken as an issue while an out of court settlement is being pursued.

Review of the facts

Mrs Cowan and her husband began a relationship in 1991.  In 1998 Mr Cowan asked Mrs Cowan to take early retirement so that they could spend more time together and from that point on she was largely financially dependent on him.  From 2001 until April 2016 when Mr Cowan died, aged 78, they split their lives between living in their property in Santa Barbara, California and their home in Hampstead, England.  At the time of his death, Mr Cowan’s estate was worth a little over £29m.  Throughout this time, the parties were not married but they did then marry in February 2016 shortly after Mr Cowan had been diagnosed with cancer.

At around this time, Mr Cowan transferred the sum of $400,000 into a bank account in the joint names of himself and Mrs Cowan.  There was approximately $375,000 left in this account at the date of Mr Cowan’s death.  These monies passed to Mrs Cowan by virtue of rights of survivorship.

Mr Cowan’s Will

On 24 March 2016, Mr Cowan made a final will accompanied by a letter of wishes.  In summary, he left pecuniary legacies to one of his two sons, Timothy and his wife.  He did not leave anything to his other son, Andrew, from whom he was estranged.  He also left pecuniary legacies to Mrs Cowan’s two sons from a previous marriage.  He gave his personal chattels to Mrs Cowan and left all his business interests on discretionary trust (“the Business Property Trust”) for a class of beneficiaries including Mrs Cowan, other members of his family, charities and any persons added by the trustees (“the Discretionary Beneficiaries”).  Lastly, he gave the residue of his estate to Mrs Cowan on trust for life but subject to overriding powers of appointment in favour of the Discretionary Beneficiaries and subject thereto for the Foundation (“the Residuary Trust”).

His letter of wishes recorded he wishes that two trusts of £500,000 be set aside in the Business Property Trust, the first to provide education and support for his grandchildren, and the second to provide a safety net for his son, his daughter-in-law and his stepsons and their families.  Subject to that, the Will Trustees were to regard Mrs Cowan as the principal beneficiary of the remaining part of the Business Property Trust fund during her lifetime.  She was to receive an income and her requests for capital were to be considered generously.

She should also be the principal beneficiary of the Residuary Fund. She was to be entitled to income and occupation of any properties in the Residuary Fund during her lifetime and her standard of living was to be maintained at a reasonable level to include payment of medical bills, provision for care in old age etc.

Value of the Trusts

The grant of probate was taken out on 16 December 2016.

The value of the assets in the Residuary Trust totalled approximately £4.7m and the value of the assets in the Business Property Trust approximately £16m.

The property in California was included in the Residuary Trust.  Mrs Cowan remained living in that property following her husband’s death.

Events following Mr Cowan’s death

In December 2016 the executors sent Mrs Cowan a detailed email containing the structure and effect of Mr Cowan’s will.  A further explanation was sent in February 2017, at which point Mrs Cowan sought legal advice from a UK tax lawyer.  Having done so, Mrs Cowan was advised regarding the limitation period, although she was also told that the court had discretion to extend this deadline.

The June 2017 deadline for bringing a claim under the Act passed without any such claim being issued.  Mrs Cowan maintained that this was because she did not understand the structure of the will or that there was a deadline.

By May/June 2016 Mrs Cowan had been able to agree with the Executors and Will Trustees a regular monthly payment of $17,250 (including a back payment from Mr Cowan’s date of death up to April 2017 of $207,000).

In October 2017 Mrs Cowan underwent knee surgery.  Although by this time agreement had been reached with Executors and Will Trustees that her monthly payments should increase as from August 2018 to $26,250 she was concerned about payment of her ongoing medical bills as well as her need for 24 hour care, although these were being discussed with the Executors and Will Trustees.  At the end of November 2017, however, following receipt of invoices for her medical care, the Will Trustees sought clarification as to why these sums were not already covered by her agreed monthly payments.

In the circumstances, she decided to seek further legal advice.  As explained to her lawyers by her son, acting on her behalf, her number one concern was transparency from the trust to enable her to plan for the future.  She also expressed specific concern about the need for home care and future assisted living.  Having done so, she was advised to bring a claim under the Act.  She contended that this was the first time that the possibility of bringing a claim had been mentioned to her.

In the meantime, given the delay, the solicitors also sought the agreement from the Executors and Will Trustees’ solicitors that they would not seek to take advantage of any delay whilst attempts were made to explore resolution of the claim.  Such confirmation was provided initially pending receipt of a letter of claim.  This was subsequently formalised by way of a standstill agreement.

The matter was then referred to mediation in October 2018 but that failed to resolve the issues.

Proceedings were eventually issued on 12 November 2018, nearly 17 months after the primary limitation period had expired.

First instance decision

At first instance, Mr Justice Mostyn concluded that in order to consider an application for an extension under Section 4 the court had to be satisfied that the claim was arguable and there were good reasons for the delay in bringing the claim.

Mr Justice Mostyn concluded that the claim was unarguable given the generous trust arrangements Mr Cowan had implemented.  He considered that the will was designed to meet Mrs Cowan’s reasonable needs for the rest of her life.  The mere fact, the Judge said, that there was no outright legacy for Mrs Cowan did not mean the provision under the will was unreasonable.  He also held that there was no evidence to suggest the Will Trustees would blatantly ignore Mr Cowan’s wishes as set out in the letter of wishes but that even if they did, this would amount to a breach of trust claim in any event.

As to the question of the delay in issuing the proceedings, he found there was no good reason for the delay and he did not accept that Mrs Cowan had not previously been advised of the primary limitation period nor that she had failed to understand the true nature of Mr Cowan’s will.  He also considered that Section 4 was designed to protect the court from what he described as “stale” claims.

Accordingly, he dismissed Mrs Cowan’s application for an extension of time and her claim.

Grounds for Appeal

The grounds for the appeal were nine in total.  They ranged from an assertion that the Judge had erred in applying the wrong test by asking only whether Mrs Cowan had an arguable claim and had shown good reasons justifying the delay to an alleged disregard by the Judge for (1) failing to give any weight to the fact that the estate had not been distributed and (2) disregarding negotiations taking place between May and November 2018 and asserting that the claim should have been issued when parties are encouraged to explore alternative dispute resolution.  Further grounds also included assertions that the Judge had (1) failed to give sufficient weight to the fact that Mrs Cowan was the object of a discretionary trust and a life interest in the residue estate (which could be terminated by exercise of a Power of Appointment) and (2) that the claim would be dealt with by reference to “needs” rather than the “sharing” principle under the “divorce cross check” principle.

The Will Trustees also filed a notice seeking to uphold Mr Justice Mostyn’s order on grounds which included the fact that there had been no external trigger to justify Mrs Cowan issuing proceedings out of time, that the estate had been distributed and that there was no evidence that the amounts received by Mrs Cowan were insufficient.

The Foundation Trustees filed a notice in similar terms.

Although there were nine grounds of appeal, the appeal centred, in the main on the question of delay (and the question of standstill agreements) and the question of prospects of success in relation to the claim itself.  The Court’s main findings in this respect are set out below.

Delay

Giving the leading judgment, Lady Justice Asplin stated that she disagreed with the Judge’s findings at first instance that Section 4 was designed to protect the court from “stale” claims holding, on the contrary, that if the circumstances warranted it, the power in Section 4 could be exercised to further the overriding objective of bringing such claims before the court where it was just to do so and in circumstances where the personal representatives would have the protection afforded by Section 20 – Section 20 provides express protection for the personal representatives of an estate from any liability which might otherwise arise as regards any distribution of the estate more than six months after the date of the grant of probate if no claim has by then been issued.  The court considered that the Judge’s erroneous approach to the exercise of the Section 4 power had led him to take a disciplinary view rather than to adopt the proper approach and consider all the relevant factors and give them appropriate weight in the particular circumstances.  The court also found that it was not necessary for there to be a good reason for all delay in every case.  All relevant factors must be taken into account and given their due weight with the question of delay then being considered in the round.

As to the Judge’s approach to the question of delay, Lady Justice Asplin also found that if one viewed the sequence of events as a whole, it seemed to her that the Judge was wrong to afford no weight to the explanation for the period of delay between June and December 2017.  He should, said Lady Justice Asplin, have considered it as part of all the circumstances of the case.  She also considered that to the extent he did so, it was wrong of the Judge to have found that Mrs Cowan had received sufficient advice about the time limit under the Act in March 2017.  The evidence is contrary to such a conclusion.  In this particular case, Mrs Cowan came to understand her position over a relatively short period of time after payment from the Will Trusts had commenced in April 2017 and following her knee surgery in October 2017.  Furthermore, proceedings were initiated within days of her solicitors’ visit in December 2017.

Furthermore, negotiations continued after receipt of the letter of claim.  After consideration of it by the Executors and Will Trustees, Mrs Cowan was encouraged first to enter into without prejudice negotiations about variation of the trusts and then to mediate.  This, said Lady Justice Asplin, should be viewed as a positive factor and should not therefore have counted against Mrs Cowan.

Standstill Agreements

Whilst Lady Justice Asplin agreed that the Judge was correct to conclude that the effect of Section 4 was that the legislation has determined that the power to the extend the 6 month period belongs to the court, and that any agreement not to take a point about delay cannot be binding, without prejudice negotiations rather than the issue of proceedings should be encouraged.  She accepted that any potential claimant would be taking a risk if an application were subsequently made to extend time in circumstances where negotiations had failed.  However, she said that if both parties had been legally represented it seemed to her unlikely that the court would refuse to endorse the approach.

Prospects of success

As to the question of whether Mrs Cowan’s claim had an arguable claim, her counsel submitted that there were numerous cases where it had been held that making a widow the object of a discretionary trust did not amount to reasonable financial provision.  She submitted that Mr Justice Mostyn had given insufficient weight to Mrs Cowan’s lack of security under the provisions of the Will Trusts.

Lady Justice Asplin agreed that the Judge appeared to have indulged in speculation as regards Mr Cowan’s motivation in relation to the creation of the trusts.  She also found that he had failed to have proper regard to all the circumstances of the case including the size of the estate, the length of the relationship, the fact that Mrs Cowan only received the chattels outright, had no autonomy, no security and no direct interest even in the Santa Barbara property which had been her home for more than 20 years (as he was required to do under Section 2 of the Act).

She also found that the Judge appeared to have relied, incorrectly, upon his conclusion that any failure by the Will Trustees to comply with the letter of wishes would necessarily amount to an actionable breach of trust.

Court of Appeal Decision

Having considered further evidence that had been filed by the Will Trustees dealing with updated evidence as regards the administration of the will, the payments made to Mrs Cowan and the which in which they have approached their obligations, the court decided that it was appropriate that they should deal with determination of the exercise of their power under Section 4 as regards an extension of time rather than remit the matter for re-consideration by the lower courts.

The court held that entire period for the delay of June 2017 to November 2018 in issuing proceedings could be explained.  A moratorium had been agreed between highly experienced legal representatives, without prejudice negotiations taken place as well as a mediation (which steps were encouraged by the Will Trustees) and when that failed to resolve matters and as soon as Mrs Cowan became aware of her true position a claim was initiated.

This, said the court, was not a case where Mrs Cowan had simply changed her mind and at a considerable time after having acquiesced in the workings of the Will Trusts.  It seemed to the court that there was a proper explanation for the delay.

In addition, the court considered that Mrs Cowan’s substantive claim under Section 2 had a real as opposed to fanciful prospect of success.

Conclusion

Whilst estate practitioners will be cheered to read the court of appeal’s judgment, in particular as regards the Judge’s original findings regarding the question of delay and overall prospects of success, there remains some uncertainty surrounding the question of standstill agreements.  Lady Justice King did also give a short judgment, in which she stated, as regards the question of standstill agreements “I would not wish to go so far as the judge and to say that there is no place for stand-still agreements in which are often highly distressing and sensitive cases and in which a decision to issue is otherwise to be made whilst bereavement is still very raw and emotions high.  In such circumstances the issue of proceedings can, rather than providing a safety net if agreement cannot be reached, lead to a hardening of attitudes …”.

She went on to say that she agreed with Lady Justice Asplin that the final decision always rests with the court but “where there is a properly evidenced agreement to which no objection has been taken by the Executors and beneficiaries, it is unlikely that in the ordinary way, a judgment would dismiss an application for an extension of time.”.

It seems therefore that the standstill agreement lives to fight another day … or does it?  Only time will tell!