The Court of Appeal, estate litigation and standstill agreements – no need to panic

The Court of Appeal reversed the judgment in Cowan v Foreman [2019] EWCA Civ 1336; the decision gives useful guidance for practitioners both in respect of making late applications under the Inheritance (Provision for Families and Dependants) Act 1975 (Act) and in the use of standstill agreements in such proceedings.

Background to the claim

Michael Cowan (the deceased) died on 9 April 2016, leaving a widow, Mrs Cowan (the claimant). Mrs Cowan and the deceased had begun a relationship in 2001 and both had two sons from previous marriages. They married in February 2016.

The deceased’s estate was sworn in for probate at just over £29m. He left $375,000 in a joint account to pass to Mrs Cowan by survivorship

The deceased made his final will on 24 March 2016, accompanied by a letter of wishes. The will made pecuniary bequests to his son, daughter-in-law and stepsons, and gave his personal chattels to Mrs Cowan.

In addition, he left all of his business assets which qualified for 100% inheritance tax business property relief in a discretionary trust (referred to in the judgment as the Business Property Trust), for a class of beneficiaries which included Mrs Cowan, family members, charities and a charity he had established, known as the Michael Cowan Foundation.

In his letter of wishes, he set out that he wanted two funds of £500,000 to be set aside in the Business Property Trust – one for his grandchildren’s education and the second to provide support to his son and stepsons. Subject to these requests, Mrs Cowan was to be regarded as the principal beneficiary of the Business Property Trust during her lifetime, which included receiving an income.

The deceased had also left his residuary estate to the same beneficiaries, on trust, but with a revocable lifetime interest for Mrs Cowan. Following a series of unsuccessful negotiations, Mrs Cowan issued proceedings under the Act. She was concerned about her financial security, having understood from discussions with the deceased that she would inherit outright and not, as turned out to be the case, only receive a life time interest and have to request approval from the trustees for her expenditure.

High Court decision

The decision of Mr Justice Mostyn in the High Court was to dismiss the application for permission to bring proceedings out of time. Under section 4 of the Act, a claim must be brought within six months of probate being granted.

Mrs Cowan issued her claim form 17 months after the grant of probate. However, as a result of a standstill agreement entered into by the parties, the delay was in reality, only 13 months.

Upon hearing that Standstill Agreements have become relatively common place in 1975 Act claims, Mostyn J commented that: “I was told that to agree a stand-still of this nature was common practice. If it is indeed common practice, then I suggest that it is a practice that should come to an immediate end. It is not for the parties to give away time that belongs to the court.”

He also suggested that claims under the Act should be brought in time to “spare the court from being burdened with stale claims which should have been made much earlier.”

He held that there was no justification for such a substantial period of delay and, upon applying the test for summary judgment, did not think that Mrs Cowan had a realistic prospect of succeeding with her claim, given that her husband had provided well for her under the trusts created under his will.

Appeal details

Lady Justice Asplin set out that she considered that Mostyn J adopted a “disciplinary view” when deciding whether to extend the time allowed under Section 4 of the Act.

Lady Justice Asplin thought the concept of a “stale claim” was not particularly relevant to the Act and made the point that Section 4 “contains no longstop provision.” She also made the very important point that, in line with the court’s approach to encouraging ADR, “without prejudice (WP) negotiations, rather than the issue of proceedings, should be encouraged.”

In addition, if both parties are legally represented and WP negotiations are the reason for the delay in issuing proceedings, an application to extend time should be endorsed by the court.

It also appears that a court, in these circumstances, would consider whether a prompt application was made as soon as a claimant had appreciated their true position. This may be particularly relevant if a claimant is a beneficiary under a complex trust, the administration of which, in practice, may not be perfectly clear within the six month window.

Lady Justice King added that she would not wish to say that there would be “no place for standstill agreements in what are 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.” She noted that any written agreement should be clear as to the duration and terms of a standstill agreement and all potential parties in the claim should also be a party to the agreement.

Lady Justice Asplin also considered it relevant that Mrs Cowan had a “real, as opposed to fanciful, prospect of success.”

Conclusion

The appeal decision makes it clear that the court will look to the merits of a claim when deciding whether it can be brought out of time.

If reasonable financial provision has not been made for a claimant, it is worth asking the court for permission to bring the claim out of time, on the basis that it is meritorious and has a reasonable prospect of success. If the merits of a claim are not particularly strong, it becomes very important to try and bring a claim within the six month window.

The comments made by Lady Justice Asplin make it clear that parties should continue to focus on without prejudice negotiations. There should be no rush or panic to issue because a claimant is running beyond the six month window, if WP negotiations are going well. Provided both parties are legally represented, a court will take these factors into account when considering an application for permission to bring a claim out of time.

If you want to discuss a potential claim under the Act, please contact Beth King-Smith or Helen Cain on 01905 612001.