INHERITANCE DISPUTES: NO WILL? NEW INTESTACY RULES APPLY

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The Inheritance and Trustees’ Powers Act 2014

For anyone who dies without a Will after 1st October 2014, new rules apply. Up to two thirds of adults don’t have a Will, and thousands of people die “intestate” every year. The Inheritance and Trustees’ Powers Act 2014 (“ITPA 2014”) follows a six year investigation by the Law Commission.

Many people don’t get round to making a Will, are put off, or don’t know that key events in life like getting married or a civil partnership can revoke an existing Will. The intestacy rules then apply. These fix the distribution of a deceased’s estate once debts and liabilities, funeral expenses and costs of the administration of the estate have been paid

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KEY CHANGES

(References to “spouses” and “marriage” include same-sex spouses and civil partners respectively).

a/ If you are survived by a spouse and children

The spouse takes all the assets in joint names, all your personal possessions, the first £250,000 outright, and half the remainder. The other half of the remainder goes to the children equally at 18.

Previously, a surviving spouse would receive a statutory legacy of the first £250,000; any remaining amount would be split in two. Half went to the surviving spouse as a “life interest” reverting to the children on the surviving spouse’s death. The other half went to the surviving children immediately.

b/ If you are survived by a spouse but no children or grandchildren

The spouse takes the whole estate, even if your parents or brothers and sisters survive you. Extended family will no longer have an interest. Previously, the spouse had to share the remaining estate (after payment of a £450,000 legacy to the spouse) with the deceased’s parents (if living) or full siblings (and their descendants). Under ITPA 2014 the spouse receives the whole of the estate. Most would regard this as fairer to the spouse and usually what the deceased would have wished.

c/ If you don’t have a spouse but you do have children

The remaining rules are unchanged, so the children share the estate equally between them.

d/ If you don’t have a spouse and you don’t have children

Remaining family members inherit the whole estate (equally between them if there is more than one, e.g. you have two surviving parents) in the following order:

  1. parents
  2. brothers and sisters of the whole blood and the offspring of any predeceased
  3. brothers and sisters of the half blood and the offspring of any predeceased
  4. grandparents
  5. aunts and uncles of the whole blood and the offspring of any predeceased
  6. aunts and uncles of the half blood and the offspring of any predeceased and,
  7. finally, if there are none of the above then the estate goes to the Crown.

For someone whose parents were not married, if both names are on the birth certificate, then they are both parents for the purposes of inheritance.

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WINNERS & LOSERS

  • Children of wealthy families where a parent dies intestate will receive less under the new rules than before. Spouses are the main beneficiaries of an intestate’s estate under the new Act.
  • Where there are no children, other relatives of the intestate individual (like siblings, parents and cousins), will no longer automatically inherit part of their estate.

FAMILY PROVISION

Certain family members and dependents can apply to the court for a share (or larger share) of a deceased’s estate under the Inheritance (Provision for Family and Dependants) Act 1975 (“IPFD 1975”) where they can prove there is no “reasonable financial provision”.

Although making a Family Provision claim can make a difference, this depends on litigation, which can be expensive. It is preferable to consider any potential claims when making a Will because decisions taken then can stop such disputes arising once it’s too late.

The 2014 Act does make a number of amendments to IPFD 1975 permitting close family and dependants of the deceased to make a claim for provision from the estate where they have not been provided for.

Classes of claimant will be extended to include any person who was treated by the deceased as a child of the family, not only in relation to a marriage or civil partnership, but in relation to any family in which the deceased had a “parental role”.

Changes also apply where someone is treated as being “maintained” by the deceased. Previously, a person would be treated as being maintained by the deceased if the deceased was, otherwise than for full valuable consideration, making a substantial contribution towards that person’s reasonable needs. Now, the words

“otherwise than for full valuable consideration”

are deleted. This prevents a claim failing where there was some give and take economically in the household.

WHAT IS NOT COVERED

  • The intestacy rules don’t recognise a deceased person’s step-children, only their natural, adopted or illegitimate children.
  • Whilst the rules give some protection to married couples and civil partners, both partners or co-habitees should have a Will to ensure that their wishes are carried out.
  • Entitlement under the Intestacy Rules only applies to couples who are married or in a civil partnership. Other couples who are co-habiting have no protection. Anyone who is co-habiting with a partner who wants to provide for them on death must make a Will. If not, your estate passes to your relatives or, failing that, to the Crown – unless your partner can make a claim for financial provision to be made on the ground that they were financially dependent on you.

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MAKING A WILL OVERRIDES THE INTESTACY RULES

  1. People should still always make a Will rather than rely on the Intestacy Rules. These are only a fall back where there is no valid Will, and are inevitably rough and ready, often very different to what the deceased may have wanted or assumed would happen.
  2. Making a Will not only ensures that your wishes are complied with, but it can also help to minimise the tax burden when you die. In addition, Administration in an Intestacy can be slower and more expensive.
  3. For unmarried and co-habitating couples, having a Will is equally, if not more important, as the rules for an unmarried surviving partner are unchanged; under the current and the revised intestacy rules, they are not automatically entitled to any of the estate.
  4. Often a Will saves surviving relatives an enormous amount of time, expense, uncertainty and possible disputes and litigation.

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Paul Sykes is a Contentious Trust and Probate Specialist registered with ACTAPS

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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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Are you a Shadow or de facto director?

Latest Court of Appeal Guidance

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The Court of Appeal has provided guidance for deciding whether someone is a Shadow or de facto director: Smithton Ltd (formerly Hobart Capital Markets Ltd) v Naggar[i]

Under the Companies Act 2006, all duties owed by a director can apply to former directors, de facto directors and “shadow directors”. It is axiomatic that creditors or liquidators will look for someone to sue when a company collapses. Given the various extensions in directors’ duties and liabilities, and widening of the class of persons covered, questions arise e.g. regarding the majority shareholder’s vulnerability, and that of other parties including directors of companies that are directors of a subsidiary.

TERMS

  • De jure Director: A director at Law, registered at Companies House
  • De facto Director: A director in Fact, although not formally appointed, but who behaves as and is taken by the company and other directors to behave as a director
  • Shadow Director: “in accordance with whose directions or instructions the Board is accustomed to act”, not being a professional adviser retained to advise “real influence over the majority of board members”; [ii]

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Group Directors, Private funders and possibly venture capitalists could fall in to the trap of becoming “shadow directors”. What would happen to them on insolvency? This is tempered by such funders commonly requiring a directorship. Following Deverell,[iii] per Morritt J., a “nod and a wink” can amount to an “instruction”. A management consultant,[iv] a parent company,[v] and a “stakeholder”[vi] have all been held to be shadow directors. A bank could be a shadow director for example.

BACKGROUND

The Court of Appeal has upheld the decision of trial judge Rose J that the Defendant Guy Naggar, was not a de facto director or shadow director of Smithton Ltd, (formerly Hobart Capital Markets Ltd). Mr Naggar was a director of Hobart’s former holding company Dawnay Day, which operated under a joint venture agreement. Hobart entered into numerous transactions with clients introduced by Mr Naggar. Following the collapse of Dawnay Day, Hobart suffered losses around £4 million. Hobart sued Mr Naggar, seeking to recoup its losses claimingng an indemnity from him, contending that while he was not a duly appointed director of Hobart, he was a de facto or shadow director of Hobart and had acted in breach of his duties owed to Hobart.

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DECISION

  • The evidence suggested that Mr Nagar was acting as chairman of Dawnay Day, Hobart’s parent company.
  • There was nothing that went beyond the involvement normally expected of someone combining the roles of major client and chairman of the majority shareholder.
  • There was no evidence that Hobart’s board were accustomed to complying with Mr Naggar’s instructions.
  • There was no basis for setting aside the judge’s conclusion that Mr Naggar had been involved with Hobart’s affairs other than in his capacity as a director of Dawnay Day or some other capacity than that of director of Hobart.
  • The judgment of Arden LJ (Elias, Tomlinson LJJ concurring) included points of general principle, applying and reaffirming the leading case of Revenue and Customs Commissioners v Holland[vii]

GENERAL PRINCIPLES

  1. There is no one definitive test whether a person was a de facto director, the question is whether he was part of the corporate governance system of the company and whether he assumed the status and function of a director so as to make himself responsible as if he were a director.
  2. Someone could be a de facto director even where there was no invalid appointment. The question was whether he had assumed responsibility to act as a director, and in what capacity he was acting.
  3. The court had to examine what the director actually did and not any job title.
  4. The court would need to consider the corporate governance structure of the company so as to decide in relation to the company’s business whether the individual’s acts were directorial in nature.
  5. The court should look at the cumulative effect of the activities relied on and should look at all the circumstances in the round.
  6. Whether an individual acted as a director is decided objectively and irrespective of their motivation or belief. A defendant did not avoid liability if he showed that he in good faith thought he was not acting as a director.
  7. Even a single directorial act could lead to liability in an exceptional case
  8. It was also important to look at the acts in their context. Relevant factors included whether
  • the company considered him to be a director and held him out as such
  • third parties considered that he was a director
  • a person was consulted about directorial decisions or his approval did not in general make him a director because he was not making the decision
    1. Acts outside the period when he was said to have been a de facto director might throw light on whether he was a de facto director in the relevant period.
    2. An individual can be both a shadow director and a de facto director at the same time, and there can be overlap.
    3. A de facto or shadow director’s role doesn’t have to cover all the company’s activities.
    4. Whether a person was a de facto or shadow director is a question of fact and degree.

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CONCLUSION

  • Where someone is a director of a holding company which is its subsidiary’s corporate director, provided that what that individual does is wholly within the ambit of his duties and responsibilities as a director of the corporate director/holding company, his acts would not make him a de facto director of that subsidiary (as in the instant case).
  • Groups of companies, directors (and those who may fall within the definition of de facto or shadow director of a holding company) should consider whether the directors of the parent company are an integral part of the subsidiary’s corporate governance and would be exposed to being deemed either de facto or shadow directors, or both.
  • This case helpfully applies the general principles and puts them in context.

 

[i] [2014] EWCA Civ 939

[ii] 251(1) of the Companies Act 2006

[iii] Deverell [2001] Ch. 340 CA (Civ Div

[iv] Tasiban Ltd (No.3), Re [1991] B.C.C. 435; [1991] B.C.L.C. 792 Ch D.

[v] Hydrodam (Corby) Ltd, Re [1994] B.C.C. 161; [1994] 2 B.C.L.C. 180 Ch D

[vi] Deverell [2001] Ch. 340 CA (Civ Div).

[vii] [2010] 1 WLR 2793

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More Noise: Loser pays on CFA’s?

  Coventry v Lawrence (Part 2)

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A Supreme Court case I commented on recently, elsewhere described as “…an important judgment on the principles of private nuisance for the 21st century…”[i] now has wider ramifications for legal costs in CFA cases. In the supplemental judgment of 23 July, Coventry v Lawrence [2014] UKSC 46[ii] a five member Supreme Court panel decided on the grant of an injunction and damages in a private nuisance case brought by a house owner against operators of a speedway stadium.

One of the remaining issues was whether the injunction for nuisance should be suspended until the house was again habitable, following fire damage. Damages were thought likely to be even more of an adequate remedy in the meantime.

However, the pronouncements on CFA costs have assumed far greater importance than on this case alone. The house owner had been awarded 60% of his costs to be paid by the operators, including base costs, success fee and after the event costs insurance (AEI). On a detailed analysis of the figures, Lord Neuberger said

 the figures are very disturbing

The base costs were £398,000, success fee £319,000 and AEI £350,000 (total £1,067,000). This was “regrettable” in the context of the house being worth a maximum of £300,000, and the nuisance reducing this by £74,000 at most. The operator’s liability to pay the householder’s costs would leap from £238,000 (60% of basic costs only) to £640,200, being 60% of all three elements, based solely on how the householder had chosen to fund their case.

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It had been thought that satellite litigation on costs or CFAs and AEIs at least had subsided, following Callery v Gray [2002] 1 WLR 2000, where the House of Lords decided that, subject to reasonableness, success fees and ATE premiums were recoverable. In Campbell v MGN Ltd (No 2) [2005] 1 WLR 3394, the House of Lords held that the 1999 Act[iii] costs recovery regime did not infringe Article 10 of the European Convention on Human Rights (“ECHR”) (freedom of expression).

However, the operators argued that following the Strasbourg Court in MGN Limited v United Kingdom (2011) 53 EHRR 5 and Dombo Beheer BV v Netherlands (1994) 18 EHRR 213, Article 6 (right to a fair trial) would be infringed if the court required them to pay 60% of the success fee and the ATE premium.

In MGN v UK at para 217, the Strasbourg Court said that “…the depth and nature of the flaws in the system…” introduced by the 1999 Act and the provisions of the CPR were “…such that the Court can conclude that [it] exceeded even the broad margin of appreciation to be accorded to the State in respect of general measures pursuing social and economic interests…”.

As to Article 1 of the First Protocol to the Convention (“A1P1”), the operators rely on the reasoning of the Strasbourg court in James v United Kingdom (1986) 8 EHRR 123.

Faced with these contentions and giving the lead judgment, Lord Neuberger held that it is

open for argument

whether the home owner’s costs claims (success fee and AEI) are a breach of the operator’s entitlement to a fair trial under Article 6 ECHR and/or A1P1. The Supreme Court ruled that if the operator wishes to pursue that argument, it would be wrong for it to decide the point without representations from the Government and other interested parties as interveners. These would include the Attorney-General and the Secretary of State for Justice, and any other intervener sanctioned by the Court.

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Comment

Following the Jackson Reforms, the success fee and AEI would no longer be recoverable in cases where such arrangements were entered in to after April 2013. However, in the instant case (and a vast number of cases continuing through the Courts under the “old” fee regime), until now such success fee and AEI have been regarded as entirely valid and enforceable against the losing side.

A number of questions arise, including whether, if the court considered that there was an infringement of the operator’s rights this ought to be recognised by a declaration of incompatibility. However, the forum for this decision has yet to be resolved, whether this should be again at the Supreme Court, or as stated in Callery v Gray at the Court of Appeal, being “…the primary supervisory and judicial policy-making functions in connection with case-management, procedural and costs issues…” with greater experience on matters concerning costs.

Further affected by this renewed doubt however, are litigants in ongoing cases subject to the old costs regime, where the funding, CFAs, retainers and AEI premiums will now be questioned, to say nothing of all previous cases decided (or settled) on the assumption by the courts that the old regime did not offend against ECHR. If there is a declaration of incompatibility, this could lead to a deluge of compensation claims against the UK Government.

 

[i] (Planning permission no defence to private nuisance claim) http://wp.me/p4DFLr-c

[ii] http://supremecourt.uk/decided-cases/docs/UKSC_2012_0076_Judgment.pdf

[iii] Legal Services Act 1990 Part II, Access to Justice Act 1999

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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]

 

Arbitration: Pros & Cons

 

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Why Arbitrate?

1              The aim of this briefing is to identify the relative advantages and disadvantages of Arbitration as a means of dispute resolution. Arbitration is, justifiably, an increasingly popular method of dealing with disputes, but arbitration is not ideally suited to every situation. This note compares the main features of arbitration with litigation and ADR,  and pinpoints key issues in deciding the most appropriate dispute resolution forum.

2              Typically, the question of whether or not to arbitrate arises at two key stages:

  • When negotiating a contract. The parties may decide to include in their agreement an arbitration clause to cover disputes that arise in the future. Inevitably, the arbitration clause is one of the last terms to be agreed, and there may be a temptation to rush matters to get the deal finalised. Given the far-reaching consequences of agreeing, or failing to agree, an arbitration clause, this temptation is best resisted. It is vital that the pros and cons of arbitration are given proper consideration at the time of contracting.
  • When a dispute has arisen. The decision at this stage is, in one sense, easier because the features of the particular dispute, and its suitability for arbitration, will be clearer. However, it may be more difficult to conclude an agreement to arbitrate if one party has an interest in delaying matters, or perceives a tactical disadvantage in arbitrating.

3              If the parties do decide to enter an arbitration agreement, it is important that it is carefully drafted; further advise as necessary should be taken on individual circumstances.

Arbitration compared with litigation

4              Arbitration can have several advantages over litigation. However, it is important that each perceived advantage is examined carefully in each particular case to assess its weight.

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Enforcement

5              Ease of enforcement is probably the most important factor in favour of arbitration. The New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) provides an extensive enforcement regime for international arbitration awards. There is no real equivalent for enforcement of court judgments.

6              If you opt for arbitration principally because of the advantageous enforcement regime, it is important to ensure that you draft the agreement with this in mind. This will usually involve ensuring that the arbitration agreement is in a form that will be recognised as valid in both the seat of the arbitration and the country of enforcement.

Certainty

7              Like a choice of court clause, a well-drafted arbitration agreement introduces a welcome degree of certainty with regard to the forum for resolving disputes. This is particularly attractive where there is a cross-border element to the dispute: the need to consider, or take advice on, the complex rules of private international law governing jurisdiction can be entirely sidestepped.

8              In litigation, disputes over jurisdiction can be expensive and (once appeals are factored in) extremely time-consuming. By contrast, a carefully drafted arbitration agreement should minimise the chances of jurisdictional disputes. Furthermore, if the parties agree to institutional arbitration, or agree that a certain set of rules will apply to their arbitration, this will also ensure a degree of procedural certainty and predictability (By simply referring to the applicable arbitration rules, the parties can inform themselves of what steps they need to take, and when.

9              Of course, disputes relating to jurisdiction and procedure can and do arise in arbitration just as in litigation. But the chances of such disputes can be eliminated or minimised by carefully drafting the arbitration agreement.

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Flexibility

10           A significant advantage of arbitration is the ability to tailor procedures to the needs of a particular dispute. There is great scope for the adoption of innovative, effective and efficient procedures. For example:

  • The parties are generally free to agree a suitable procedure, and are able to influence the procedure much more than is possible in court proceedings.
  • Similarly, the tribunal will give directions that are fine-tuned to the particular dispute so as to ensure its speedy and efficient determination.

Expertise

11           The parties in an arbitration can choose their tribunal. For example, where a dispute raises technical or scientific issues of fact, the parties can choose a tribunal with the relevant technical expertise. Similarly, where a dispute turns on a point of law, they can appoint a lawyer or lawyers. Choosing wisely can save time and money.

Privacy

12           Litigation is rarely private. For example, in England, court trials are usually open to members of the public. The mere fact that a party is involved in English court litigation can be ascertained by a search of publicly available information, and most judgments are publicly available. More importantly, non-parties are permitted to obtain copies of any statements of case, judgments or orders in English litigation (unless the court makes a special order to the contrary – see CPR 5.4C).

13           The relative privacy of arbitration is an attractive feature to many commercial parties. Arbitration hearings are usually held in private, and the fact that a party is involved in arbitral proceedings is not usually in the public domain. Furthermore, English law has also recognised an implied duty of confidentiality which prevents the disclosure to third parties of most documents produced or disclosed in an arbitration, including the statements of case and award. This is in stark contrast to court proceedings.

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14           Note, however, that the precise scope of the duty of confidentiality, and the exceptions to it, may be a matter of argument. If privacy and confidentiality is a particularly important factor consider including an express confidentiality clause in your arbitration agreement.

Neutrality

15           Another important feature of arbitration is the ability of the parties to refer their disputes to a neutral forum. This factor is likely to be particularly important to commercial parties, wary of referring disputes to the “home” courts of their contracting partner. The consensual nature of arbitration means that the parties can ensure that the composition of the tribunal, as well as the seat of the arbitration and the location of any hearing, are neutral. By their choice of the arbitral seat, the parties can also ensure that their arbitration is subject to modern, effective and supportive arbitration law.

Cost

16           Although arbitration is often perceived as being cheaper than litigation, this is not always the case. The parties must pay the tribunal plus any administrative costs (for example, room hire), which may represent a relatively substantial outlay when compared with the cost of court proceedings. The parties must also undertake the practical arrangements and organisation for any hearing.

17           To a large extent, the relative cost of arbitral proceedings depends upon the attitudes of the parties and the tribunal. An experienced tribunal and co-operative parties will often be able to devise procedures that minimise costs. By contrast, where arbitration is conducted as if it were court litigation, or where the tribunal unthinkingly applies the procedure set out in institutional rules without any attempt to modify them, costs can escalate. Do not assume that arbitration necessarily equals cheaper.

 

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Delays

18           Again, this perceived advantage of arbitration is one that needs to be assessed carefully. It is true that, compared with lead times to trial in court, arbitration often represents a speedy method of dispute resolution. However, if the parties opt for a three-man tribunal consisting of three busy and popular arbitrators, there may be a substantial delay before any hearing can be accommodated. Also, because arbitrators’ powers of coercion are much more limited than the courts’, there is greater opportunity for deliberate delays and breaches of procedural deadlines.

19           This works the other way, too: if your chosen strategy is to delay the “day of judgment” for as long as possible, then arbitration may be your best option. It is probably fair to say that institutional arbitration offers the greatest safeguards against delays.

Finality

20           A court judgment will very frequently be subject to appeal(s). By contrast, the opportunities for appealing or otherwise challenging an arbitration award are very much more limited. This is frequently perceived as an advantage to the parties – though, of course, this is questionable if the arbitrator determines a dispute wrongly.

Predictability

21           Although national arbitration laws vary to some extent, there is a significant degree of harmonisation. Many countries have adopted the UNCITRAL Model Law; others (like England, Wales and Northern Ireland) have arbitration laws based upon its provisions. There is, therefore, a degree of certainty and predictability with regard to arbitration law that may not apply to the procedural law of national courts.

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When is litigation preferable to arbitration?

22           Notwithstanding the factors identified above, there are certain situations in which litigation will usually be preferable to arbitration. The following analysis focuses primarily on litigation in the English courts: the position may be different if you are seeking to compare arbitration with litigation in a foreign court, in which case advice from a competent foreign lawyer is advisable).

Multiparty disputes

23           The right to arbitrate derives from the arbitration agreement. There is, therefore, no power to join third parties unless all the parties, and the third party, agree. Although joinder may well result in overall savings in costs, parties will often refuse to agree to it for obvious tactical reasons. This means that in multiparty situations, arbitration can be a cumbersome and inconvenient procedure, which carries a risk of inconsistent findings and which may prejudice the chances of settlement.

24           For similar reasons, arbitration cannot easily accommodate class action litigation. ( Note, however, that class arbitration is recognised in the US (though subject to certain restrictions).

Recalcitrant parties

25           Arbitral tribunals’ coercive powers are much more limited than that of a court. Although national courts can sometimes intervene to enforce arbitrators’ procedural orders, delays are still a more distinct possibility in arbitration than in litigation. Some institutions have taken steps to deal with this, but deliberate delaying tactics may be more difficult to combat in arbitration than in litigation.

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Summary determination

26           In principle an arbitral tribunal can determine claims and defences summarily. However, in practice they may be less willing than a court to do so. For example, English courts tend to be robust in disposing of meritless claims or defences on a summary basis. An arbitral tribunal is less likely to adopt such an approach. Therefore, if your claims are simple, involving only one defendant, and are indisputably due, you may prefer to issue court proceedings and apply for summary judgment.

No precedent

27           An arbitration award is for most purposes confidential to the parties. Furthermore, although persuasive, it does not give rise to any binding precedent or res judicata vis a vis other parties. Where, therefore, a final and generally binding ruling on the meaning of a standard form contract is required, litigation in court will be preferable.

Irrelevant evidence

28           The tribunal or parties may decide whether or not to apply the strict rules of evidence. If they decide not to, there is a greater chance of the introduction of prejudicial or irrelevant material. However, this is not usually a problem in practice.

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Arbitration compared with ADR

29           The term “ADR” encompasses so many and varied procedures that it is difficult to generalise about its relative advantages and disadvantages. For present purposes, the following general points may be stated.

 

30           ADR (in particular mediation) enables the parties to reach solutions that are not based on a “win/lose” paradigm, and that promote continuing relationships. As such, ADR may save time and costs by cutting through the legal or technical rights and wrongs, and focusing upon the solution. The flexibility and goal-oriented nature of ADR will be attractive to many parties.

31           However, unless the parties reach a settlement, ADR will not give rise to any binding judgment or award. Parties may withdraw from ADR before reaching any settlement, or the ADR may conclude without any settlement being reached, giving rise in such cases to wasted costs. Furthermore, and by contrast with arbitration, there is at present no statutory regime in support of ADR. Parties who are not comfortable with this relative lack of structure may prefer to arbitrate or litigate, or possibly to adopt two-tiered or hybrid procedures.

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.

 

Court of Appeal upholds power of English Court to commit a foreign director for contempt

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The Court of Appeal has unanimously upheld the High Court’s decision that the Managing Director of the Claimant (domiciled and resident in Saudi Arabia) could be served with committal proceedings for contempt of cour

BACKGROUND

In the lower court, the Claimant companies obtained a ‘without notice’ injunction against the Defendants. This was cancelled when the judge at first instance found that the Claimant companies were in breach of their obligations to give full disclosure. They had also misled the court and broken an undertaking to preserve evidence. Consequently one of the Defendants asked the court to punish the Claimant companies for contempt of court. Additionally, the Defendant made an application for committal (imprisonment) of  the Claimants’ Managing Director. This was on the basis that he was also in contempt of court , although he was not personally bringing the case in his name. The judge ordered service of the application for contempt on the director out of the jurisdiction.

The director appealed to the Court of Appeal. He argued that the Court had no power to make any order against him because he was outside the territorial jurisdiction.

CASE

Dar Al Arkan Real Estate Development Co & Anor V Al Refai & Ors [2014] EWCA Civ 715

http://www.bailii.org/ew/cases/EWCA/Civ/2014/715.html

 

COMMITTAL

Under CPR r81.4 a committal order can be made against the director of a company which is in breach of a judgment, order or undertaking.

The Court of Appeal accepted that the legislative intention behind the provision must include dealing with contempt of its orders by companies with foreign directors. Although CPR r81.4 does not specifically state that it is effective out of the jurisdiction, if this was not the case, the power of the English courts to ensure compliance with its orders would be

significantly weakened”.

The Court of Appeal distinguished the position where it had previously been decided that the English courts did not have jurisdiction to order the examination of a foreign director of a debtor company under CPR r71. The rationale was the nature of committal proceedings is very different from the power of the court under Part 71 to obtain information from judgment debtors.

The Court of Appeal upheld the Judge’s exercise of discretion to allow service out of the jurisdiction of the Notice of Committal. This was because the application constituted a “Claim Form” under the definition in CPR r6 as it commenced “proceedings”.

The Court of Appeal also referred to Article 22(5) of Regulation 44/2001 of the Brussels I Regulation. This states that, in proceedings concerned with the enforcement of judgments, the courts of the Member State in which the judgment has been or is to be enforced shall have exclusive jurisdiction,

regardless of domicile”.

The trial judge held that this Article did not apply because the director was not domiciled in a European Union Member State.

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The judge said that he was bound by the Court of Appeal’s decision in Choudhary & Ors v Bhatter & Ors [2009] EWCA Civ 1176. The Court of Appeal however indicated that, in view of ECJ decisions, there was a “compelling” argument that Choudhary was incorrectly decided and that the English courts did have jurisdiction under the Article, no matter where the defendant is domiciled.

As such, there was no reason not to extend the jurisdictional rule to parties and directors domiciled outside of the EU. Their non-domiciliary status is irrelevant and does not limit the Court’s powers to enforce its orders.

COMMENT

It would have been damaging for compliance with  the Overriding Objectives to deal with cases justly, and unfair if there was a weakened regime  for directors resident abroad, or directors of foreign companies.

The decision shows that the court is prepared to extend the reach of sanctions where this is in the public interest. Ultimately this could result in committal for contempt of court, even for a foreign director,  where there is continued disobedience of a court order.

 

Court of Appeal Decision: Assessing Damages on a Freezing Order Cross-Undertaking

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The Court of Appeal has for the first time given guidance on how damages are to be awarded on a cross-undertaking in damages on a freezing order. This clarifies recent uncertainty on the principles in first instance decisions.

Whenever the Court makes an interim order pending trial, such as a freezing order, search order or injunction, invariably the Court requires an undertaking from the Claimant. This “cross-undertaking” makes the Claimant pay damages to the Defendant if it is later decided that the Claimant should not have been granted the interim order.

The Court of Appeal has reiterated the analogy of contractual principles that should apply to assessment of damages under a cross-undertaking. That is with the proviso that there is in reality no contract and there has to be room for exceptions.

In Abbey Forwarding Ltd (in liquidation) and another v Hone and others (No 3) [2014] EWCA Civ 711; [2014] WLR (D) 236  giving the lead judgment of the Court of Appeal, McCombe LJ held

‘When determining questions of compensation for loss arising as a result of a freezing order and the undertaking in damages therein, the correct approach was that the remote consequences of obtaining an injunction were not to be taken into account in assessing damages but that logical and sensible adjustments might well be required simply because the court was not awarding damages for breach of contract but was compensating for loss caused by the injunction which was wrongly granted.’

This was the correct approach where a Defendant who is the victim of an unfair injunction should be compensated for their loss. However, a Claimant should not be fixed with liabilities that no reasonable person could have foreseen, unless the Claimant knew or ought to have known of other circumstances that were likely to give rise to that type of loss.

Terms such as “common law damages” and “equitable compensation” did not assist.

The aggreived Defendants contended that they had been successful entrepreneurs with a track record of commercial and investment success which had been impeded for some 20 months because of the wrongful freezing order.  On appeal it was confirmed that whilst principles of remoteness of damage in contract ought to apply in the circumstances, there should be flexibility so as to allow logical and sensible adjustments. This was because the Court was not awarding damages for breach of contract, but was compensating for loss caused by the injunction.

Vos LJ added that general damages could also be included within the cross-undertaking in some cases where appropiate, for stress, loss of reputation and general loss of business opportunities and disruption caused by inappropriate policing of the injunction.

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Freezing Injunction: Full & Frank Disclosure – Reflective Loss

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  • For a Freezing injunction, does a Claimant need “much the better of the argument”?
  • On Reflective Loss, what is a “good arguable case”?

Case

Kazakhstan Kagazy and others -v- Arip [2014 EWCA CIV 381]

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Key Points

  1. On a Freezing injunction, a “good arguable case” is more than barely capable of serious argument, but not necessarily better than 50% prospects of success.
  2. The parent company’s alleged loss was the same as those of its subsidiaries. Under the reflective loss principles the parent company had no good and arguable loss of its own.

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Background

The Court of Appeal has unanimously upheld a freezing injunction in a case involving alleged inter company frauds exceeding $150M.

The Court considered issues relating to limitation, reflective loss, and the obligation on the Claimants to give full and frank disclosure on without notice applications.

The Court of Appeal held that the “good arguable case” was the appropriate test, approving the traditional test laid down by Mustill J in Ninemia Maritime Corporation -v- Trave (The Neidersachsen) [1983] 2 Lloyd’s Rep 600;

“…in the sense of a case which is more than barley capable of serious argument, and yet not necessarily which the Judge believes to have a better than 50% chance of success…

The injunction had been granted by Judge Mackie QC in the Commercial Court adopting a somewhat higher test requiring the Claimants to show they had “much the better of the argument“.

The Court of Appeal emphasised the wide discretion of the lower Court, including all matters of alleged non-disclosure, and the Judge’s decision was well within the margins of discretion.

The Defendants deny any wrong doing. No defence had yet been required from the Defendants, and Jackson LJ commented that “… it is only by a narrow margin that (the Claimant’s) case is strong enough to support their entitlement to a freezing injunction…“. He referred to “a very real possibility that the Defendants’ limitation defence will prevail at trial on the basis of Kazakh law“. That stipulated a three year limitation period.

Elias LJ said in relation to the alleged non-disclosure and the date of knowledge from when limitation runs

… nobody should allege dishonestly lightly. The Court should not readily conclude that fraud ought to have been apparent unless it is satisfied that the evidence would plainly justify the allegations. That is all  a high hurdle…

It was also pointed our that it is inherently unattractive for the Defendant to submit that the fraud should have been manifestly obvious, and yet at the same time to assert that he had a complete defence to the allegation (on the basis of the proceedings having been issued too late).

Avoid Mini Trial

The Court of Appeal emphasised that applications to discharge freezing injunctions should not turn into mini trials. The High Court had considerable discretion regarding allegations of non-disclosure.

Any failures to give full and frank disclosure were unintentional and ultimately not material. The Court of Appeal commented that the question of when the Claimants had the relevant knowledge, which determines when the limitation period starts should not be usually be decided on an interlocutory basis unless the facts and circumstances were very clear.

Reflective Loss

Although the injunction was upheld for £72M and this stays until the trial, the Defendant was successful in the cross appeal. According to the “reflective loss” principle, a  shareholder cannot recover damages simply on the basis that the company in which the shareholder has an interest has suffered loss. Applying Johnson -v- Gore Wood [2000 UKHL65] Longmoor LJ found that it was well arguable that the claims were not time barred, but if they are, the subsidiaries ought to have been aware that their rights had been violated. In those circumstances the subsidiaries could not say that the inability to sue was no fault of their own. Accordingly, the parent company had no loss independant of the subsidiaries (the other Claimant companies).

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