Directors Hoodwinked out of €100 million broke duties to their Company

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The High Court has decided that two directors tricked by fraudsters failed in their duties to exercise reasonable skill and care. They paid €100 million of Company money in to a sham investment scheme induced by fraudulent misrepresentations.

Mr Justice Peter Smith said that, like many such fraud cases superficially the document looks technical and highly detailed. On closer reading it is full of incoherent phrases and expressions and is completely meaningless.

It is impossible to overstate the level of incompetence demonstrated by [the Group Legal Counsel’s] evidence at this trial. He did no checks on the background of these people trying to sell this transaction to him…He discovered nothing about the details of the transactions…He accepted without challenge anything they said. Finally in October 2011 he signed away control of €100 million, despite being required never to agree anything like that…He took comfort from documents that were meaningless…If he were uncertain as to the law, he should have obtained advice from somebody else. That is what one would expect of a senior in-house legal counsel who might have knowledge of generalities, but would not necessarily have knowledge of specifics. It is plain that he had no idea what the investments were, but was content to accept the vague descriptions provided by the defendants and fell into the trap of believing in the secrecy of everything.

The Directors committed the Company’s funds in a “ridiculous and reckless” way. It was difficult to understand how the directors had failed to spot the scam: an extremely modest level of probing the deal would have shown that it would fall apart. Their conduct was seriously inadequate regarding the discharge of the duties that they owed to Company as officers and senior employees / directors to perform their duties with reasonable skill and care.

Although this case was decided under Maltese law, the High Court’s conclusion that two directors were in breach of duty is noteworthy. The general application of English law was made clear. Directors in this situation could face personal liability to the Company for losses caused by third party fraudsters.

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However, there was no basis for findings of breach of their fiduciary duty or contributory negligence against them in favour of the Defendant (those involved in the scam). The Judge refused to reduce the damages payable to the Company by the fraudsters. The directors were duped and incompetent; fools not knaves in failing to spot that the scheme was fraudulent and bound to fail.

Director’s Duties

The Companies Act 2006 contains a general statement of directors’ fiduciary and common law duties.

  • S 171 to act within their powers
  • S 172 to promote the success of the company
  • S 173 to exercise independent judgement
  • S 174 to exercise reasonable care, skill and diligence
  • S 175 to avoid conflict of interests
  • S 176 not to accept benefits from third parties
  • S 177 to declare an interest in a proposed transaction with the company

The codified duties apply to all directors of a Company (including shadow directors and, in certain circumstances, former directors).

Director’s Potential Liability

This case decided the liabilities between the defrauded Company and the fraudsters. The award against the fraudsters was not reduced due to negligence by the gullible directors. However, it did not decide whether, or how much the directors should reimburse the Company for its losses.  

As here, where a director has broken his duty to exercise reasonable care and skill, but not his fiduciary duties, the court will consider what might have happened had it not been for the director’s breach. The court has to decide whether the Company would have suffered the losses any way. If not, the director may have to compensate the Company for all of its losses caused by his breach of duty to exercise reasonable care and skill

As a matter of public policy, the courts accept Company directors have to make judgments and take risks. Too harsh an approach to directors’ conduct would have a “chilling” effect; it would discourage people either from becoming directors, or make them too risk averse for the good of the business.

Conclusion

Directors who are in breach of duty can ask the court for relief from sanctions on the grounds that they acted honestly, reasonably and that it is fair in all circumstances of the case to relieve him of liability. A director may also be protected from liability by the company ratifiying his conduct. Alternatively, a Directors & Officers’ Insurance Policy may cover the relevant liability. Obviously, all of these are a very poor second best to remaining vigilant and following the old maxim: if it looks too good to be true, it probably is!

Although the case is being appealed, it is a timely reminder of the risks of fraud to which Companies are exposed, the duties on Directors, the consequences of breach and the need for vigilance.

Case:

Group Seven Limited v Allied Investment Corporation Limited and others [2014] EWHC 2046 (Ch).

Link:

http://www.bailii.org/ew/cases/EWHC/Ch/2013/1509.html

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Professional Negligence: Court of Appeal underscores “reliance” essential for Negligent Misstatement

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Hunt & Ors v Optima (Cambridge) Ltd & Ors [2014] EWCA Civ 714

Overturning a judgment of the Technology & Construction Court, the Court of Appeal has decided that architects’ certificates  provided after the purchase of property could not be the foundation for negligent misstatement claims. The case restores the legal position limiting the duties of professional advisors. It also provides a helpful summary of the key components of claims against professionals, especially where consultants such as architects or surveyors are providing reports that are likely to be relied on by third parties, like purchasers, lenders and developers.

Background

The Claimants had bought flats on long leases. Later, serious defects were identified, and the Claimants sued the developer and a firm of architects for negligent misstatement. The developer had instructed the architects to inspect and certify the flats had been built to meet building regulations and that there were no defects. The reports were for consideration by the purchasers and their lenders within the conveyancing process. However, most of the certificates were not actually signed off until after exchange of contracts and for most of the purchasers, after completion.

 

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Original Decision

The judge at first instance held that the architects owed two freestanding duties of care in

  • carrying out the inspection of the flats with an architect’s skill and care
  • preparing accurate certificates.

This put a duty of care on the architects during the assessment stage, but before any report or representations. The judge found it no obstacle that the signed certificates were received by the purchasers only after exchange of contracts. The case appeared to widen professional duties more generally than previously understood.

Court Of Appeal’s Decision

Clarke LJ in giving the leading judgment said the earlier decision

‘…takes inadequate account of certain key principles….. reliance must follow representation…’.

Negligent misstatement

The CoA found that both reliance on the statement must be proved and further, that loss was suffered in consequence of the reliance. Here however, the purchasers could not have relied on the certificates when they exchanged contracts, because the certificates had not been completed by then.

Clarke LJ said that this

would involve imposing …. a duty to inspect arising out of statements which, at the time when the duty arose, they had not made“.

There was no separate duty owed to the purchasers for “negligent inspection”.

Warranty

Although the architects plainly owed contractual duties to its client, the developer, there was no implied contractual or tortious duty between the architects and third parties. The certificate itself stated that it was not a promise or guarantee. However, it is salutary to note that the architects did not apply for permission to appeal the awards made against them in favour of those purchasers who did receive certificates prior to proceeding with their purchase.

Conclusion

  • The previous understanding of the law has been reinstated. For liability to be established, a claimant has to prove that it suffered losses directly as a result of relying on a professional’s negligent misstatement.
  • The court was reluctant to imply collateral warranties between professionals and third parties.
  • Professional firms’ Terms & Conditions should specify that any duty is limited to providing the final report and does not extend to preparatory work.
  • Solicitors acting for purchasers (and lenders) must ensure such certificates or reports are finalised and signed before any contracts are exchanged or loan completedn completed.

 

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PROFESSIONAL NEGLIGENCE £66,000+ award against Mishcon de Reya Solicitors

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LOSS OF CHANCE

In the recent case of Chweidan v Mishcon de Reya [i]  the High Court summarised the test for quantifying damages and calculating loss of chance in professional negligence claims.

BACKGROUND

Mishcon de Reya were ordered to pay over £66,000 in damages and interest to their former client Russell Chweidan. Mischcon partially lost a professional negligence claim Mr Chweidan brought against them in the High Court.

Mrs Justice Simler granted Mr Chweidan a portion of his damages claim in contract and tort for professional negligence. This was because Mishcon missed a deadline to lodge a cross-appeal at the Employment Tribunal relating to former trader Mr Chweidan’s dismissal by JP Morgan.

The dispute dated back to 2008 when Mishcon agreed to pursue Mr Chweidan’s unfair dismissal case. He had been made redundant after a serious skiing accident causing permanent injury. He won in the Employment Tribunal, which found he had been unfairly dismissed by JP Morgan. They had awarded him a smaller than expected bonus which the Tribunal found was unlawful and JP Morgan had discriminated against him on the basis of his disability.

JP Morgan successfully appealed to the Court of Appeal. The judgment against them was overturned in 2011. However Mishcon had failed to lodge Chweidan’s cross-appeal in time. Mishcon admitted responsibility for their failure but Mr Chweidan sued Mischcon for damages for loss of chance to win the Appeal against JP Morgan. He argued that the firm had failed to advise or assist him in bringing his allegations against JP Morgan within the statutory grievance procedure and that he suffered damages as a result of not lodging a counter claim in time.

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JUDGMENT

Mrs Justice Simler did not accept that Mishcon had failed to adhere to the statutory grievance procedure but awarded damages in relation to the counter claim breach.

On a detailed analysis of his case against JP Morgan, the Judge put Mr Chweidan’s overall prospects at 18%. Simler J calculated that he had a 50% chance of winning the age discrimination cross-appeal, and a 33% chance on the underlying claim following the appeal. That gave a 16% chance. The Judge added a small increase to cater for the possibility that, if Mr Chweidan won his cross-appeal, JP Morgan may have been persuaded to reach a settlement.

Mr Chweidan was awarded 18% of his £357,574.86 claim against his solicitors, amounting to

£64,363.47 damages plus 18% of £10,000 likely interest accrued after the Tribunal judgment (Total £66,163). Simler J rejected Mr Chweidan’s other claims and this represented substantially less damages than he had claimed.

Simler J said:

Although I have found that the chances of success were limited, there was more than a negligible prospect of the claimant succeeding on appeal and having done so, proving his unlawful age discrimination claims. In those circumstances, the breach of duty was the effective cause of these lost opportunities.

“The claimant is accordingly entitled to recover damages for the loss of opportunity suffered as a consequence of the defendant’s breach.”

6-STEP MATHEMATICAL APPROACH

The Judge summarised her approach to quantifying damages for loss of chance:

  1. The Claimant must prove that the claim had a real and substantial, rather than merely a negligible prospect of success.
  2. If the Court decides that the Claimant’s chances were more than merely negligible then it will have to evaluate them. That requires the Court to make a realistic assessment of what would have been the Claimant’s prospects of success, had the original litigation gone to trial.
  3. The Court should therefore assess the likely level of damages which the Claimant would probably have recovered if the underlying action had proceeded to judgment and then apply an appropriate fraction to that sum to reflect the uncertainties of recovering the damages awarded.
  4. In some loss of a chance cases it may be appropriate to view the prospects on a fairly broad brush basis. In other cases however it may be appropriate to look at the prospects in greater detail.
  5. The oral and documentary evidence available (and the extent to which it is more limited than what would have been available in the action) and the possibility that the claim might have settled are aspects that must be factored into any assessment. It would be wrong in any event, to conduct a “trial within a trial” or to make any firm findings as to what would have been decided.
  6. If there are “separate hurdles”, the percentage prospects on each should be multiplied together to give an overall lower percentage prospect.

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COMMENT

The Judge in Chweidan followed the approach in earlier loss of chance litigation cases, Mount v Barker Austin [ii] and Dixon v Clement Jones [iii]. Although the burden of proof is on the claimant to show that his lawyers were negligent in the advice given, a solicitor or barrister using the defence of no loss of value to the claimant must be able to show that, despite acting for him and charging for their services, the claimant’s prospects were “no better than negligible” (so that the client lost nothing by their negligence).

Simon Brown LJ in the Court of Appeal in Mount commented that clearly the burden is heavier on the Defendant solicitors if they did not advise their client of the hopelessness of the position. If the solicitors had advised in detail on the prospects, that advice would be highly relevant. As is often the case, the question of what advice was recorded in attendance notes or letters to the client was important.

In professional negligence cases, if a claimant has numerous hurdles to overcome, this judgment could substantially reduce the amount of damages awarded for loss of chance claims; each hurdle exponentially decrease the claimant’s overall prospects. However, Simler J emphasised that the assessment of damages in these types of cases

is not necessarily a purely mathematical or mechanical exercise. Although the issues may be discrete, success on one may improve the chances of success on another.’

Nevertheless, the test outlined above provides a clearer and more predictable background to how the courts calculate damages in loss of litigation chance claims. 

[i] Chweidan v Mishcon de Reya [2014] EWHC 2685 (QB),

[ii] Mount v Barker Austin [1998] EWCA Civ 277

[iii] Dixon v Clement Jones [2004] EWCA Civ 1005

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Back to “punishment to fit the crime”? Court of Appeal construes Mitchell

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The Court of Appeal has tried to clarify what happens when a party to Civil Litigation is late in complying with a court order. The decision in Denton on 4 July was eagerly awaited because lawyers, litigants (and the courts) have been in a quandary since last November’s landmark decision by the Court of Appeal in the case of Mitchell. That upheld deliberately sweeping sanctions, enforcing the “Jackson Reforms” of April 2013. 

In Mitchell, the former Chief Whip was suing a media group for defamation, arising out of the “Plebgate” saga. However, his lawyers were 5 days late in lodging at court a new detailed costs budget in “Form H” predicting costs for the entire case. Under “Jackson”, great importance is attached to this form, to be finalised by all sides, as soon as a Defence is filed.

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Because Form H was late, the court treated Mr Mitchell as having failed to serve any estimate. Consequently, his budget was restricted to court fees alone rather than the approximate £400,000 his solicitors estimated in the form. The other side estimated their costs in a similar range. As a result, even if Mr Mitchell won his claim he would have been unlikely to recover more than a fraction of his expected costs approaching £1/2M. Since that decision, courts and lawyers have been dealing with a perceived “zero tolerance” of failures to meet court deadlines. That is even though often the courts may be late in sending out forms and orders.

The upshot has been that the courts have been inundated with applications for “relief from sanctions”, usually well in advance of a deadline, because the message has been that delays, however short, may result in the case (or defence) being struck out. There have been contradictory decisions, some of which have been criticised as unduly harsh, and disregarding the justice of the individual case.

In an effort to stem the resulting tide of “satellite litigation” the Court of Appeal has argued in Denton that whilst Mitchell was correctly decided, it has been misunderstood and misapplied. There were 3 conjoined cases in Denton;

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Facts

Denton v TH White Ltd

This claim was against the installers of a milking parlour. Statements and expert reports were exchanged on time, but additional evidence was served in December 2013, just five weeks before the trial. At the pre-trial review the claimants obtained permission to rely on the statements and the court vacated the trial date. The defendant appealed to the Court of Appeal on the ground that the judge failed to apply, or misapplied, Mitchell and erred in the exercise of his case management discretion.

Decadent Vapours Ltd v Bevan

The claimant failed to comply with an order that “unless” they file a pre-trial checklist and pay the court fee by 4pm on 19 December 2013, the claim would be struck out. The checklist was filed by email on the afternoon of 19 December. Unfortunately the cheque for the fee was only sent that day and it was not cashed. It is not known when the cheque went missing, but it may have been lost at court. The failure to pay the fee wasn’t discovered until a hearing on 7 January, where the claimant’s failure to comply with the “unless” order meant that the claim was struck out. The fee was paid on 9 January 2014, shortly after it was learned that the cheque had been lost. The court rejected the claimant’s application for “relief from sanctions” to reinstate the claim.

Utilise TDS Ltd v Davies

The claimant failed to comply with an order that “unless” they file costs budgets by 4pm on 11 October 2013, they could only claim court fees by way of costs if they were successful. The claimant missed the deadline by 45 minutes. The order also granted a stay until 8 November and required the claimant to inform the court of the outcome of negotiations by 4pm on 15 November. However the claimant was 13 days late in reporting. The District Judge refused the claimant’s application for “relief from sanction”, and their appeal to the High Court was also dismissed.

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The issues before the Court of Appeal

The new Civil Procedure Rule 3.9, for applications made after 1 April 2013, dispensed with the previous nine factors for consideration (see below) and replaces them with two:

(1) the need for litigation to be conducted efficiently and at proportionate cost and (2) the need to enforce compliance with rules, practice directions and orders. As with the old rule 3.9, the court must also consider “all the circumstances”.

The three conjoined appeals were heard as a test case by the Master of the Rolls Lord Dyson, Jackson LJ, and Vos LJ. The Law Society and the Bar Council were allowed to make submissions as Intervenors regarding wide ranging issues in practice.

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The Court of Appeal decision in Denton

The Court of Appeal has and directed that this decision takes primacy and should be the only case to be considered from now regarding relief from sanctions. Mitchell, and the subsequent decisions, need not be referred to. The appeals were allowed in each of the three cases.

“…we think that the judgment in Mitchell has been misunderstood and is being misapplied by some courts. It is clear that it needs to be clarified and amplified in certain respects”.

The court differed as to the correct approach however. Lord Dyson MR and Vos LJ set out a three stage approach. Jackson LJ, agreed with the outcome in each appeal, but favoured a more direct approach at stage 3, and for the court to simply “deal justly with the application” and considering all of the relevant factors, but without regressing to excessive lenience with any breach being overcome by a costs penalty. That was the approach of the judge in Denton. Jackson LJ insisted that the judge was mistaken in not taking in to account the wider impact on litigants and the court when considering the justice of the case. Lord Dyson MR and Vos LJ criticised the treatment of Mitchell rather than Mitchell itself. On deciding an application for relief from sanctions Under CPR 3.9 ther three stage approach is:

Stage 1

Identify and assess the seriousness and significance of the failure. When considering stage 1, the court should not initially consider other unrelated failures that may have occurred in the past. In other words, no cumulative totting up of non-trivial, or insignificant breaches. If the breach is not serious or significant, the court is unlikely to need to spend much time on stages 2 and 3 and the prospects of relief being granted should be greater.

It is notable that the Court of Appeal has distanced itself from the terms “trivial” and “non-trivial”, preferring the words “serious” and “significant”.

Stage 2

Consider why the failure or default occurred? Unfortunately, the Court of Appeal gave no further guidance on this point, merely saying the guidance in Mitchell is not exhaustive. This spelt out that “pressure of work”, or being unable to get to the office due to inclement weather were not good reasons.

Stage 3

A re-emphasis of the provisions of CPR 3.9: when considering the application the Court should consider

“all the circumstances of the case, so as to enable it to deal justly with the application”,

including:

  1. Whether the breach has prevented the court or the parties from conducting the litigation (or other litigation) efficiently and at proportionate cost; and
  2. The importance of complying with rules, practice directions and orders.

Dyson MR, and Vos LJ said the third stage required the Court to give particular consideration to all the circumstances of the case but with greater weight to be given to factors (a) and (b). Jackson LJ, whose report is the foundation of the reforms (and who was part of the Court of Appeal hearing the Mitchell case, dissented slightly, stating that, “the rule does not require that factor (a) or factor (b) be given greater weight than other considerations. What the rule requires is that the two factors be specifically considered in every case”. I.e., irrespective of any other factors, the court must consider (a) and (b). As the majority, Vos LJ and Dyson LJ disagreed, the guidance now is to simply attach greater weight to those factors.

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Comment

In any event, “all the circumstances” must be considered, rather than merely concentrating on the specific factors in the new CPR 3.9. This suggests that following Denton, relief from sanctions in similar circumstances is now more likely to be granted than applied post Mitchell, where there would be short shrift.

Comparison

Relief from sanctions applications were previously governed by CPR 3.9 with consideration of nine factors as follows:

“(1) On an application for relief from any sanction imposed for a failure to comply with any rule, practice direction or court order the court will consider all the circumstances including –

  • (a) the interests of the administration of justice;
  • (b) whether the application for relief has been made promptly;
  • (c) whether the failure to comply was intentional;
  • (d) whether there is a good explanation for the failure;
  • (e) the extent to which the party in default has complied with other rules, practice directions, court orders and any relevant preaction protocol;
  • (f) whether the failure to comply was caused by the party or his legal representative;
  • (g) whether the trial date or the likely trial date can still be met if relief is granted;
  • (h) the effect which the failure to comply had on each party; and
  • (i) the effect which the granting of relief would have on each party.”

From 1 April 2013 this changed to a newly worded CPR 3.9:

“On an application for relief from any sanction imposed for a failure to comply with any rule, practice direction or court order, the court will consider all the circumstances of the case, so as to enable it to deal justly with the application, including the need—

  • (a) for litigation to be conducted efficiently and at proportionate cost; and
  • (b) to enforce compliance with rules, practice directions and orders.”

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Punishment to fit the crime?

The shift of emphasis in Denton is to be welcomed, perhaps heralding a return to “proportionality” and the principle previously endorsed as “the punishment should fit the crime” (Beeforth). It is likely that this re-balancing in Denton following recent confusion will not see a reversion to courts failing to uphold sanctions without good reason.   

The Court of Appeal wanted more co-operation between parties (which had prevailed pre-Mitchell). Opportunistic attempts to take advantage of technical or trivial breaches will be met with heavy costs sanctions.

However, there is no guidance on what remedies if any there may be for litigants, their solicitors and insurers where a claim or defence has been struck out due to a misinterpretation of Mitchell.

Cases referred to

Mitchell v News Group Newspapers Ltd [2013] EWCA Civ 1537

 Denton v TH White Ltd and another, Decadent Vapours Ltd v Bevan and others and Utilise TDS Ltd v Davies and others [2014] EWCA Civ 906

http://www.bailii.org/ew/cases/EWCA/Civ/2014/906.html

Beeforth v- Beeforth. Court of Appeal [1998] EWCA Civ 1151; The Times [17.9.1998]

 

Wills, Inheritance and Trust Disputes

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Wills, Inheritance and Trust Disputes have increased over recent years due to growing affluence, increased consumer rights awareness, the growth of more complex family structures and an ageing population.

However, by failing to make a will, almost two out of three Britons risk leaving a financial nightmare for family members when they die, warns the Law Society.

http://www.lawsociety.org.uk/news/press-releases/britons-with-no-will-should-act-fast-warns-law-society/

Research  from the Dying Matters Coalition revealed that only 36 per cent of British adults say they have written a will, while 83 per cent reported being uncomfortable discussing their dying wishes. The research coincided with Dying Awareness Week.

  • Those who die without a will die “Intestate”, and this can result in a complicated and long drawn-out battle for those left behind. When a person dies intestate, the State decides who inherits according to a set procedure. As such their friends, favourite charities and relatives may get nothing; dependants and co-habitees may have to apply to the court because their interest would otherwise be ignored.
  • A will is always fundamental, but this is critical for co-habitees who are not married or in a registered civil partnership. There is no provision for co-habitees, and “common law” partners are not recognised either. People with children or dependents will need to make it clear who will look after or provide for them.

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  • A badly drafted will can cause more problems than no will at all, so the Law Society advises against using unregulated will writers. All solicitors are subject to strict regulation to ensure that they deliver the best service to their clients, unlike unregulated will writers. Solicitors are unparalleled in the will writing market as only they have the breadth of training to consider wider implications and complex issues, including tax and family law.
  • Whether you are involved in a claim, or considering your options, it is important to get the best legal advice.  Disputes over a Will or Trust can be distressing for all concerned.  A sensitive and practical approach is required, to  resolve family and financial disputes on a pragmatic basis.  A non-adversarial approach should be tried out of court, involving pre-action protocols, Mediation / Alternative Dispute Resolution and deeds of variation.  However, court action may be needed.
  • We act for administrators, executors, trustees, beneficiaries and dependants regarding all aspects of contentious probate and trust matters. Our team have in-depth experience of problematic and high value disputes or difficulties following the death of a family member involving houses, businesses, partnerships, shareholdings, property, farms, land holdings and other assets, including property abroad.

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J Paul Sykes is one of fewer than 500 Solicitors and Barristers with the necessary experience and skill to be appointed a Member of “ACTAPS”, the Association of Contentious Trusts and Probate Specialist, set up in 1997.

We support the voluntary code of the Association of Contentious Trust & Probate Specialists

http://www.actaps.com/

We advise and act in disputes including:

1. DISPUTED WILLS

Common reasons for a Will dispute include:

  • Invalid procedure:

For a Will to be valid it must be in writing, signed and witnessed in the correct manner.  This may be a problem with homemade Wills.  A correctly drafted Will should revoke earlier Wills, but this needs to be expressly set out.

  • Undue Influence:

The Will must be made voluntarily.  If the deceased was pressured or coerced into making a Will, it may be deemed as invalid.

  • Mental Capacity:

For a Will to be valid the person making the Will must have sufficient mental capacity at the time the Will was signed.

  • Knowledge, approval, fraud and forgery:

If someone is tricked into signing a Will or there has been some other fraudulent activity then the Will may be deemed invalid.

  • Negligent drafting:

The Will does not reflect the wishes of the deceased because it was drafted negligently or contrary to the instructions of the deceased.  Even if a Will is valid, you may be able to claim against the solicitor or other professional if they drafted the Will negligently.

We advise on all issues that could give the right to seek a declaration that a Will is invalid and should be disregarded completely.

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2. CONTENTIOUS PROBATE 

“Contentious Probate” – The legal term for a dispute regarding inheritance or the administration of a deceased’s Estate.  This can include disputes about a Will or a dispute regarding Probate.

“Probate” – The process of managing the affairs of a deceased person. When someone dies an application is made to the Probate Registry to get permission to deal with their affairs.

“Grant of Probate” -Issued by the Probate Registry where there is a Will, authorising the Executors or Personal Representatives to administer the deceased’s Estate.

“Grant of Letters of Administration” -Issued by the Probate Registry where there is no Will, authorising the Administrators or Personal Representatives to administer the deceased’s Estate.

Although the majority of Estates are administered without disputes arising, where there are problems we can advise on the law as to who should have control of an Estate and how it should be divided and managed.

It is important for clients to seek legal advice promptly so as to preserve the assets of the Estate, for example through lodging a caveat.  Speed is essential as some statutory claims require the issue of court proceedings within six months.

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3. TESTAMENTARY CAPACITY 

For a Will to be valid, the person making the Will (“Testator”) must have sufficient mental capacity at the time the Will was signed.

We are experienced in making challenges to, or upholding the validity of a Will.  This is an involved area of law and detailed, careful preparation is essential.  So too is a clear understanding of the criteria that Courts apply and the evidence available.  Thorough research and obtaining sufficient evidence to pursue the claim is required to prove the position, for example on issues regarding the deceased’s lack of capacity, coercion, or undue influence by another.

4. DISPUTES INVOLVING TRUSTS

A Trust is a legal relationship where someone (“the Settlor”) settles or transfers assets to another individual or a company (“Trustees”).  The Trustees hold and manage these assets for the beneficiaries of the Trust, chosen by the Settlor.  A Trust can be established during your lifetime or following your death.

Trustees have serious statutory and common law obligations, they must:

  • act with reasonable care and skill;
  • act impartially and fairly;
  • administer the Trust in accordance with its terms;
  • act jointly if more than one;
  • be ready with the accounts when due;
  • must not cause loss to the Trust due to any conflict of interest.

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5. CLAIMS FOR REMOVAL OF OR SANCTIONS AGAINST EXECUTORS, ADMINISTRATORS, TRUSTEES

A claim for breach of Trust may arise where it is alleged that the Trustees have failed to comply with their duties and the Trust and beneficiaries have suffered consequential loss. Such claims can have serious consequences for all involved.  It is essential to ensure advice is sought at the earliest stage.

6. DISAPPOINTED BENEFICIARIES 

Although in making a Will the Testator can dispose of their assets as they wish, this is subject to a number of potential restrictions including claims under the Inheritance (Provision for family and Dependants) Act 1975.  Such claims may be pursued by family and dependants where the terms of a Will (or the rules of intestacy where there is no Will) fail to make reasonable financial provision for the complainant.  Often such claims are pursued together with other equitable remedies e.g. proprietary estoppel, resulting and constructive trusts.

It may be argued that insufficient provision has been made for those left behind. The Courts will, where the legal criteria is satisfied, make an award for reasonable provision for dependents from the Estate.

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7. INHERITANCE ACT CLAIMS

Any individual who depends on you financially or whom you have maintained at the time of your death may have a claim against your estate if you have not left them anything in your Will or made no other financial provision for them.

Can I claim under the Inheritance Act?

To find out if you can make a claim under the Inheritance Act, it is important to take professional advice as soon as possible.  If you have not been properly provided for in a Will when you should have been, you may have a valid claim.  You will need to show that you are:

  • A husband, wife, civil partner or cohabitee of the deceased.
  • A former husband, wife or civil partner of the deceased who was
  • receiving maintenance and has not remarried/entered into a new civil partnership.
  • A child of the deceased.
  • Any person who was treated as a ‘child of the family’ of the deceased.
  • Any person who was partly or wholly maintained by the deceased immediately before the death.

AND, that it is within 6 months of the date of Grant of Representation. This is a document issued by the Court which gives permission to those named in the grant to distribute the deceased’s estate.

8. PROMISSORY ESTOPPEL AND PROPRIETARY ESTOPPEL

These are Rules of Equity, where a person is prevented from denying that a certain state of affairs exists, having previously stated that it does.

“promissory estoppel”:  if an individual states that their strict legal rights will not be insisted upon, they cannot later try to assert them if a third party has relied on that declaration to their detriment.

“proprietary estoppel”: if an individual permits or persuades a third party to act to their detriment in respect of land, the first party will be “estopped” from backing out or refusing to grant something that they encouraged the other person to expect.

9. NEGLIGENTLY DRAFTED WILLS, AND CLAIMS AGAINST EXECUTORS

Professional Negligence Claims could be considered against Will Writers, Solicitors and Banks acting as Trustees: there is a duty of care owed to those who may be adversely affected.

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10. DISPUTED POWERS OF ATTORNEY

A Power of Attorney is a legal document where the donor or “Principal” transfers the power to manage their financial affairs to another person, the “Attorney”.  A Power of Attorney can be used when it is easier for someone else to act, or where the donor is unable to do so.  An example would be where someone serving abroad in the Armed Services appoints a Parent as their Attorney to deal with their finances whilst they are away on duty.

“Lasting Power of Attorney”:

This is where an Attorney is appointed to act for you if and when you become mentally incapacitated.  A Lasting Power of Attorney has to be registered with the Court of Protection before it can be used.  A Lasting Power of Attorney replaced the previous “Enduring Power of Attorney” in October 2007.

The old system was vulnerable to abuse and fraud and often the requirement to register at the Court of Protection was ignored.  The new Lasting Power of Attorney avoids this problem, because the Power will not be valid until it is registered. Nevertheless, Enduring Powers of Attorney will be around for many years to come and disputes will continue.

If you object to someone taking over the affairs of a close relative, you may be able to prevent this.  Specific advise is necessary on the appropriate steps. This may include an application to the Court of Protection.  You may be able to remove someone who is abusing their position. All decisions will be made in the best interests of a vulnerable person.  Relevant factors may be the size of any assets involved, the previous wishes of the vulnerable person and the character of the person proposing to take over.

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11. Bereavement Counselling:

First reactions to the death of someone close – What happens to us when we lose someone? For most people, bereavement is the most psychologically distressing experience they will ever face. The death of a significant person is a devastating loss. Everyone experiences grief differently and there is no ‘normal’ or ‘right’ way to grieve. How we react will be influenced by many different things, including our age and personality, or cultural background and religious beliefs, our previous experiences of bereavement, our circumstances and how we cope with loss.

Bereavement counselling is available from a variety of sources, for example:

www.crusebereavementcare.org.uk/www.counselling-directory.org.uk/bereavement.html

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12. Digital Legacy

The Dying Matters Coalition research also revealed that 71 per cent of people said they have never thought about what would happen to their digital legacy, such as social media and online accounts, online photos and music, when they die. The Law Society encourages people to leave clear instructions about what should happen to their digital assets after their death. Having a list of all your online accounts, such as email, banking, investments and social networking sites will make it easier for family members to piece together your digital legacy, comply with your wishes and could save time and money. Not making your digital legacy clear could mean important or sentimental material – such as photographs on social networks – is never recovered.

 

Insurers don’t always pay out!

 

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Lupton Fawcett Denison Till, the Leeds, Sheffield and York-based commercial law firm, has successfully defeated a £7.5 million solicitor’s professional negligence claim. A three week trial had been arranged for June at the High Court in London, but intensive investigations have led to the claim being routed.
J Paul Sykes, a Director in the firm’s Dispute Management Department, acted for the Defendant, solicitors Glassbrooks Limited of Lytham St Annes. Paul says

“We decided at the beginning that whilst this was a very complicated claim, it was nothing more than a try on. It was fundamentally flawed and should be defended in full. We stuck to our guns and through the determination of our client, their insurers and barristers Michael Pooles QC and Paul Mitchell of Hailsham Chambers, we were able to highlight the defects behind what was an enormous mass of detail.”

chess-knights-1360662-sfreeimagesThe claim was brought by Merseyside based director John Costello and his family company Belfields Limited regarding a 5.5 acre development site that they owned. They complained that their planning disputes with the local authority and court cases including Judicial Review, Appeals to the Court of Appeal and Adjudication had been mishandled over five years by their solicitors Glassbrooks. A vast number of allegations were made.

Belfields Limited eventually received £1.25 million compensation from the local authority for the compulsory purchase of the land. However, they argued that they should have received much more. Belfields tried to blame their solicitors and took action against both Nick Glassbrook in person and Glassbrooks Limited for alleged loss of profit.
Paul Sykes says

“We had to focus on the detail of every part of the claim, and re-examine much that had taken place between the many different people involved over the five years. There were over 300 lever arch files. Through applications to the court, including a successful application to have the claim against Nick Glassbrook thrown out with costs at a very early stage, the Claimants produced another 3 megabytes of additional data in the last two months. We highlighted evidence which undermined the Claimants’ case.”

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The claim was finally resolved after Mediation. The Claimants were forced to drop the whole claim. Nick Glassbrook said

“This is a great result, amounting to complete vindication. We resisted a great deal of pressure throughout, and with the help and expertise of Paul Sykes and the legal team, we scored a series of wins at court in preparing for the case. We were confident that when put under a microscope, Glassbrook’s handling of the underlying planning disputes and other complex legal proceedings was beyond criticism. It’s a relief that the proceedings are all over.”

Paul Sykes said

“I often act in high value claims against professionals for negligence, and on the other side of the fence for professionals and their insurers. Having that perspective from both sides helps decide how best to deal with an especially heavy case like this and I am pleased that we were able to see off this claim, and avoid the extra costs and time of a long trial”.

First published by Lupton Fawcett Denison Till 9 April 2014
J Paul Sykes LLB LLM

HASTINGS BASS: PROTECTION FOR TRUSTEES REDUCED

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The Court of Appeal handed down two decisions in July 2011 in favour of HMRC. The decisions substantially restrict protection for Trustees under the longstanding Rule in Re: Hastings Bass [1974] EWCA Civ 13.
The Court of Appeal heard both cases together, commenting that some of the case law evolving from Hastings Bass had been incorrect. HMRC’s Appeals against the application of the Rule was allowed in both Pitt v Holt and Futter v Futter [2011] EWCA Civ 197.

In both cases, the action taken by the Trustees/Fiduciaries had been as a result of professional advice, but there had been unexpected adverse tax consequences. Previously it was thought that where a Trustee or Fiduciary had exercised a discretion mistakenly which resulted in unintended consequences, especially where acting with professional advice the court would exercise discretion and interfere with the Trustees’ decision. This would arise by applying to the court to have their decision or act rendered void or voidable.

The Judiciary have over recent years expressed disapproval of the way that the Rule in re Hastings Bass was being so widely applied.

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The outcome is that it is less likely in future that Trustees will be able to avoid adverse consequences of the exercise of discretion by applying to the court for such problematic decisions to be set aside. Instead Trustees are more likely to be at risk of facing claims from Beneficiaries. In turn, the Trustees may have to face the more difficult prospect of considering a claim for professional negligence against their professional advisors.

The rationale is that in relying upon professional advice, Trustees are not in breach of their fiduciary duty if it turns out that the advice given to them was materially wrong. The Court of Appeal held that in such circumstances the Trustees’ decision taken in reliance on that advice is not void or voidable and cannot be interfered with or “corrected” by the court. As such, Trustees who follow advice in particular on tax from apparently competent advisors would not be regarded as being in breach of their duties.

Consideration was also given to the alternative ground of mistake, but it was held that the tests to qualify for the equitable remedy of mistake had not been fulfilled.

The result is that the Rule in Hastings Bass is restricted to pure Trust principles. Rather than Trustees applying to the court on an uncontested basis, in future it is likely to be for the Beneficiaries to challenge the Trustees’ actions if they wish to have them set aside.

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Trustees and professional advisors will note that in the leading Judgment of Lloyd LJ ( paragraph 220) he suggested that the Beneficiaries remedies

“….. lie not in the realms of equity, but by way of a claim for damages for professional negligence ….”.

It is understood that whilst the Court of Appeal refused the Trustees in Futter v Futter permission to appeal, permission may be sought from the Supreme Court.

J Paul Sykes LLB LLM
First Published July 2011