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On 22 and 23 February 2010, the Supreme Court (Lords Hope, Rodger, Walker, Collins and Clarke) will hear a case concerning a will, the Court’s first since its inception last October. The question for the Court to decide is, what circumstances will a beneficiary under a will be entitled to enforce a cause of action against a third party (which is ordinarily vested in the administrator of the estate)?  

The question arises out of proceedings for professional negligence brought by a beneficiary, Mr Mark Roberts, against the solicitors dealing with the testator’s estate. Mr Roberts initially sued the defendants in a personal capacity as beneficiary: he later sought permission to amend and sue in a derivative capacity on behalf of the estate. However, he was refused permission at first instance and in the Court of Appeal, but both Courts adopted different reasoning (largely as a result of the fact that the Civil Procedure Rules do not specify the circumstances in which a derivative claim may be brought by a beneficiary of an estate).  The Supreme Court will now have the opportunity to clarify what the correct circumstances should be, and Mr Roberts will have a third chance to persuade the Courts to extend the ambit (and thus the financial value) of his claim.

Facts

Mr Roberts and his brother John were the beneficiaries of their grandmother’s will, who had died in July 1995. The will was constructed in such a way that if John paid for the inheritance tax on the estate, Mark would receive a small amount of land with the remainder falling to John. If not, the trustees would be directed to sell the estate and use the resulting proceeds to pay the inheritance tax, the remainder to be divided into equal shares 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. In July 1996, John instructed solicitors to transfer all of the assets of the estate to himself as beneficiary under the will, and sell them to a third party. John then disappeared, leaving £100,000 unpaid inheritance tax.

The Claim

In November 2002, Mark started proceedings against the solicitors retained by John to advise and assist in the administration of the estate (Messrs Gill & Co, and Messrs Whitehead Vizard) for breach of duty of care owed to him as beneficiary of the estate. On 25 August 2006, Mr Roberts applied to the court for permission to continue the proceedings in a representative capacity, as well as in a personal capacity. The normal rule is that the proper claimant to enforce a right of action belonging to an estate is the personal representative. However, case law has established that there are “special” or “exceptional” circumstances in which a beneficiary can sue on behalf of an estate.  Mr Roberts argued that such special circumstances were present in his case, because otherwise there was an asset (the cause of action in negligence) which would not be realised for the benefit of the estate. The defendants denied liability, and in response to the application for permission to amend argued that (i) (substantively) no special circumstances applied, and (ii) (procedurally) under the rules applying to derivative claims the amendment required the personal representative to be joined as a defendant, which was in effect a new claim that should be time barred under the Limitation Act.  

First Instance

At first instance ([2007] All ER (D) 89), Mr Paul Morgan QC, sitting as deputy judge of the Chancery Division, considered the 18 possible “special circumstances” that might have applied to the case, but found for the Defendants on the basis that none of them applied. However, on the procedural question, he concluded that the amendment was in substance not a new claim, and so was not time barred by virtue of CPR 17.4(4) (which permits a party to amend the capacity in which its claim was brought, if the new capacity is one which the party had when the original proceedings were commenced). 

Court of Appeal

In the Court of Appeal ([2008] EWCA Civ 803), Arden LJ also dismissed the application, but did so by approaching the question in reverse.  The starting point was not to determine whether the common law “special circumstances” exception applied, but instead was to determine the limitation question. To do so, the Court had to consider the proper nature of the application and thus identify which provisions of the CPR were applicable. If it was only a change of capacity then CPR 17.4(4) would apply, whereas if the personal representative did need to be added as a defendant then CPR 19.5 would apply. CPR 19.5 (pleaded by the Defendants for the first time at the Court of Appeal level) provides that time-barred parties may only be added if “necessary” according to three reasons set out in 19.5(3)(a) to (c).The problem faced by Arden LJ in determining the correct nature of the application under the CPRs was that the CPRs do not deal expressly with a derivative claim by a beneficiary of an estate. Accordingly, Her Ladyship considered the comparable provisions of CPR 19.8 and 19.9 (concerning derivative actions brought by members of a company, body corporate, or trade union) and extrapolated the underlying principles.  Arden LJ’s analysis, which is summarised at the notes to CPR 19.9 in the 2009 White Book, was in summary:

·       CPR 19.9(3) specifically provides in a derivative action the company, body corporate or trade union (assuming it is not the claimant) should be joined as a defendant, but need not play an active role (i.e. it can just be a ‘nominal’ defendant);

·       Similarly, CPR 19.2 states that where a claimant claims a remedy to which some other person is jointly entitled with him, all persons entitled to the remedy must be parties unless the court orders otherwise;

·       There are numerous other examples of cases involving the joinder of trustees where the beneficiary of a trust or a contract brings a derivative claim; and

·       The principal reason for joinder of these persons is to bind them so that there cannot be any further claim based on the same cause of action.

Arden LJ held that the situation involving the derivative claim brought by the beneficiary of an estate was indistinguishable from these examples and therefore the personal representative must be joined as a defendant, otherwise the solicitors would be exposed to the risk of multiplicity of actions. Accordingly, the applicable rule was CPR 19.5 and not 17.4(4). The next question was whether the amendment was “necessary” under one of the three reasons in 19.5(3). The only possible relevant reason was CPR 19.5(3)(b), which states that “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”.  However, Mr Roberts could not satisfy this requirement because the claim was already continuing as a personal claim and the addition of the administrator was not necessary for that purpose.  With Patten LJ and Pill LJ in agreement with Arden LJ’s conclusions, Mr Roberts’ application was dismissed on this basis.

Per Curiam

However, there then followed an interesting disagreement in obiter between Patten LJ and Arden LJ, as to what would have happened had the application not been time barred by 19.5, and the common law “special circumstances” exception was potentially called into play. Both agreed that the relevant test was summed up by Lord Templeman in Hayim v Citibank NA [1987] 1 AC 730 as follows: “there must be exceptional circumstances, which embrace a failure, excusable or inexcusable, by the trustees in the performance of a duty and by the trustees to the beneficiary to protect the trust estate, or to protect the interests of the beneficiary in the trust estate”.  However, they disagreed as to the application of that test to the facts.

Arden LJ looked at the conduct of the parties and considered that exceptional circumstances did exist: there was no evidence that Mr Roberts had delayed deliberately, and since the court was not in a position to say whether the claim of the estate had any value, the fair result in the circumstances would have been to give permission to amend and leave it to the Defendants to try and strike it out.

Pill LJ considered that the circumstances might have been exceptional if John Roberts, the absconding brother, had remained as personal representative. However, at Mark Roberts’ instigation his solicitor had been appointed as personal representative in John’s place back in 2000. At that point, the onus was on Mark to bring a derivative action: but he did not, choosing instead to wait until 2006 to do so; and “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”. 

Probate practitioners will doubtless be hoping that this confusion will be clarified by the Supreme Court, whatever basis the case is decided on: and indeed the lacuna identified by this case would seem ripe for attention by the Rules Committee (by the relatively simple addition of beneficiaries under trusts and beneficiaries under wills to those parties entitled to bring derivative claims under CPR 19.9, subject of course to satisfying the Hayim test).