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On 19 May 2010 the Supreme Court handed down judgment in Roberts v Gill & Co and another, the first case concerning a will to be heard by the Supreme Court since its inception last October. Mr Roberts, as beneficiary of an estate, wished to bring a derivative action in his own name on behalf of the estate against a third party. The High Court refused on the basis that there were no ‘special circumstances’ which entitled him to do so.  His appeal had been dismissed by the Court of Appeal despite a majority finding that there were ‘special circumstances’ because the amendment was time-barred by virtue of section 35 of the Limitation Act 1980 and CPR 19.5.  The Supreme Court unanimously dismissed the appeal albeit by a majority of just one (Lords Collins, Rodger and Walker) doing so on the grounds that the amendment was time barred and a minority (Lords Hope and Clarke) preferring to decide the case on the ground that there were no special circumstances which entitled the appellant to carry on the claim on behalf of the estate.

The case has clarified the law in this area to an extent in that the majority would also have ruled that there were no special circumstances had the claim not been time-barred, but probate practitioners would no doubt welcome further guidance and/or action by the Rules Committee to amend the CPR rules and clarify exactly when a beneficiary under an estate is entitled to bring such a claim. 

Facts

Mark Roberts and his brother John were the beneficiaries of their grandmother’s will, who had died in July 1995.  The will provided that if John paid all the inheritance tax due on the estate then the main property would pass to him and another smaller property would pass to Mark.  If he did not pay the inheritance tax, then the trustees would be instructed to sell the estate and to use the resulting proceeds to pay the tax with, the remainder to be divided equally between Mark, John and their sister Jill. As it transpired the executors named in the will renounced their right to probate and John was appointed as administrator of the estate instead. In July 1996, John instructed a firm of  solicitors (Gill & Co) to transfer ownership of the main property to himself as beneficiary and then sometime in 1997 instructed another firm of solicitors (Whitehead Vizard) to sell the property to a third party. Although John discharged some of the estate’s liabilities he subsequently disappeared with the proceeds without paying the inheritance tax, leaving £100,000 unpaid owing to the Inland Revenue.

In November 2002, Mark Roberts brought proceedings against both Gill & Co and Whitehead Vizard for negligence, alleging broadly that they had assisted in the breach of the provisions of the will.  However, the claim was brought by Mark Roberts in his personal capacity: he alleged that the duty of care was owed to him personally.  The correct legal position (which was not disputed by any of the parties on appeal) is that the duty of care is owed to the estate of the dead person and therefore the proper claimant is the administrator of the estate. This meant that Mark Roberts’ original claim therefore had little prospect of success. On 25 August 2006, Mark Roberts applied to the court for permission to amend his claim so as to continue the proceedings in a representative capacity as well as in a personal capacity.

First Instance

The Respondents resisted the application on two grounds. Firstly, on the ground that the amendment was time barred under section 35 of the Limitation Act 1980 and the relevant Civil Procedure Rules, and secondly, on the ground that there were no ‘special circumstances’ which entitled the Appellant, as a beneficiary, to continue the claim on behalf of the estate.  At first instance, Mr Paul Morgan QC, sitting as deputy judge of the Chancery Division, considered the possible ‘special circumstances’ but found for the Respondents on the basis that none of them applied to the case. However, he was of the view that the claim was not time barred because the amendment was not in substance a new claim, and that therefore if ‘special circumstances’ had been present the amendment would have been permitted by virtue of CPR 17.4(4) (which permits a party to amend the capacity in which its claim was brought, provided the new capacity is one which the party had when the original proceedings were commenced).

Court of Appeal

The Court of Appeal also dismissed Mr Robert’s appeal but for different reasons.  Arden LJ, who gave the leading judgment, dealt with the procedural question first and disagreed with the judge that the amendment was in substance not a new claim and was therefore not time barred. The issue was that although the CPR does not expressly deal with a derivative claim by a beneficiary of an estate, in her view this type of claim was indistinguishable from the other examples of derivative actions dealt with at CPR 19.8 and 19.9 (concerning derivative actions brought by members of a company, body corporate, or trade union) and it was clear from those provisions and from CPR 19.2 that the party on whose behalf the claim is brought must be joined as a defendant to the proceedings.  Although that party need not play an active part in the proceedings, the principle was necessary in order to bind them so that there could not be any further claim based on the same cause of action, so to avoid the risk of multiple actions being brought by different parties in relation to the same set of facts

The amendment sought by Mark Roberts would require the administrator of the estate to be joined as a nominal defendant to the proceedings. Unfortunately for Mark Roberts, CPR 19.5 prohibited the addition of a new party to proceedings after the limitation had expired except where it was ‘necessary’ under one of the three reasons listed in 19.5(3). On the facts the only arguable limb was 19.5(3)(b) which states “the addition or substitution of a party is necessary only if the court is satisfied that the claim cannot properly be carried on by or against the original party unless the new party is added or substituted as claimant or defendant.”  All of the Court of Appeal judges agreed that Mark Roberts could not satisfy this requirement. There was no need for the administrator to be joined to Mark Roberts’ original claim, brought in his personal capacity, in order for that claim to continue.

However, what followed in obiter was a disagreement between Arden LJ and Patten LJ on the one hand and Pill LJ on the other as to whether Mark Roberts’ case would satisfy the ‘special circumstances’ test had the claim not been time barred. The former argued that it would, stressing that the judge had given insufficient weight to the fact that the derivative claim would enable an asset to be realised. There was no evidence that Mr Roberts delayed deliberately and so the fair result in the circumstances would have been to allow the amendment and to leave it to the defendants to try and strike it out.  Pill LJ disagreed, arguing that the circumstances might have been exceptional had John Roberts, the absconding brother, remained the estate’s administrator, thereby effectively preventing any claim to remedy the wrong on Mark Roberts’ behalf.  However, he was replaced as administrator in October 2000 by Mr Sainter following an application by Mark Roberts.  At that point the onus was on Mark Roberts to bring a derivative action but he waited until 2006 to do so and in the words of Pill LJ “the existence of an action on his own behalf, which he is free to pursue, cannot be relied on as a special circumstance justifying the action now sought to be taken.”

The Supreme Court’s decision

The Supreme Court dismissed the appeal. Lord Collins gave the leading judgment in which it was explained that the appeal was dismissed on the basis that the claim was time barred, and Lords Walker and Rodger agreed with that judgment in its entirety (albeit that they also offered a few observations of their own).  Lord Collins’ approach was to first review the purpose of the Limitation Act 1980 and the development of principles therein in the Rules of Court before explaining the effect of the provisions on the appeal. In his view it was clear that if the amendment required the administrator to be joined to the proceedings then the claim was statute barred by virtue of CPR 19.5(3). The original action was Mr Roberts’ personal claim for negligence and the joinder of the administrator was clearly not ‘necessary’ for the purposes of the original action.  The wording of CPR 19.5(3) was clear and there was no proper basis by which it could be argued otherwise.

Having made that point his Lordship then reviewed the authorities where ‘special circumstances’ had existed, both with a view to answering the second question in the appeal and in order to shed light on the question of whether or not the administrator had to be joined to the proceedings.  He agreed with the Court of Appeal judges that the following summary given by Lord Templeman in Hayim v Citibank accurately described the test to be applied:

“These authorities demonstrate that a beneficiary has no cause of action against a third party save in special circumstances which embrace a failure, excusable or inexcusable, by the trustees in the performance of the duty owed by the trustees to the beneficiary to protect the trust estate or to protect the interests of the beneficiary in the trust estate.”

He also drew comparisons with the position in Scotland and the United States and with other derivative actions such as those brought by shareholders on behalf of a company such as that provided for by CPR 19.9. Having reviewed the authorities his conclusion was that:

“it has been the consistent practice…for almost 300 years that where a beneficiary brings an action in his own name to recover trust property, the trustees should be joined as defendants….To put it differently, it would be procedurally improper to continue without the addition [of the trustees as defendants]…”

That conclusion was not undermined by cases such as William Brandt’s Sons & Co v Dunlop Rubber Co. Ltd in which it had been held that an action by an equitable assignee of property (such as a debt, or intellectual property) can proceed without the joinder of the assignor at the outset of proceedings.  Lord Collins distinguished those cases from the present facts on the basis that in an equitable assignment the assignee is the true owner and the assignor is merely a bare trustee. Interestingly, he did not rule out the possibility that there may be circumstances in which justice would require that the joinder of the administrator be dispensed with. However, in his words, “the mere fact that there were ‘special circumstances’ justifying an action by the beneficiary, or the fact that non-joinder would defeat a limitation defence, would not be sufficient“.

Given the potential injustice of such cases it is perhaps a little difficult to see quite what would be required in order for the rule to be departed from.  Lord Hope appears to have had this in mind when commenting in his judgment, “I am not convinced that the rule that the administrator must be joined is quite as absolute as Lord Collins indicates in his judgment“. In any case both he and Lord Clarke preferred not to reach a final conclusion on the question of whether, if special circumstances had been made out, the court would have had power to give the appellant permission to amend to introduce the derivative claim.  As it happens this minority of opinion had little bearing on the outcome of the case as all of their Lordships took the view, in contrast to the majority of the Court of Appeal, that the circumstances of the present case were not sufficiently ‘special’ to warrant a derivative action. However, it is fair to say that the two minority opinions of Lord Clarke and Lord Hope in this case leave a degree of doubt as to the correct position in respect of the procedural question where special circumstances do exist, for example if John Roberts had remained as administrator of the estate throughout the limitation period, as envisaged by Pill LJ in the Court of Appeal: the law in this area therefore remains unclear.