In the recent decision in Cowan v Foreman  EWCA 1336 the Court of Appeal overturned the first instance decision and granted permission to the applicant to bring a claim under the Inheritance (Provision for Family and Dependants) Act 1975 (the “Act“) 17 months out of time. Confirming that the guidelines in Berger v Berger  EWCA Civ 1305 remain at the core of the court’s exercise of its power to extend the six-month period within which such a claim must be brought, the judgment clarifies the position following recent first instance decisions which were hard to reconcile (see our blog posts here and here) on this topic. The decision also contains guidance as to how the court will approach standstill agreements.
Mr and Mrs Cowan started their relationship in 1991 and Mrs Cowan became largely financially dependent on Mr Cowan in 1998. From 2001 they had lived in a property in California and Mrs Cowan still resided at that property at the date of the hearing. Mr and Mrs Cowan were married just two months prior to Mr Cowan’s death in April 2016.
The estate was sworn for probate purposes at just under £30m. Under the terms of Mr Cowan’s will, his business assets were to be held in a discretionary trust for a class of beneficiaries, including Mrs Cowan, and the residue of his estate was to be held on trust for Mrs Cowan for life, subject to overriding powers of appointment in favour of other discretionary beneficiaries. The letter of wishes asked that Mrs Cowan be considered the principal beneficiary of both trusts.
Probate of the will was granted on 16 December 2016 and Mrs Cowan first received advice about the possibility of a claim under the Act in March 2017. No claim was pursued at that time and, soon after, the trustees and Mrs Cowan agreed the terms of a regular monthly payment to Mrs Cowan out of the trust. The deadline for making a claim under the Act passed on 16 June 2017 without a claim being made.
Later that year, Mrs Cowan became concerned about her financial position, prompting her to seek further legal advice about a potential claim under the Act. In December 2017, her solicitors wrote to the executors and trustees, explaining that they were advising Mrs Cowan on a potential claim and seeking confirmation that the executors and trustees would not take a point on the deadline for making a claim under the Act having passed. In January 2018, the executors and trustees confirmed that they “will not take a point on the six-month deadline having passed pending receipt of a letter of claim“, at which point they proposed to review the position again.
In the following months, the parties explored the possibility of an out of court settlement, with a letter of claim being provided on 1 May 2018 and the parties attending an (ultimately unsuccessful) mediation in October 2018.
Within two days of the mediation, enquiries were made about instructions to accept service of Mrs Cowan’s claim, and Mrs Cowan issued proceedings seeking provision under the Act on 12 November 2018, nearly 17 months after the deadline to bring a claim under the Act had expired.
The Act provides a statutory basis on which a limited class of people may be able to benefit from the deceased’s estate in circumstances in which the Will (or intestacy) fails to make reasonable financial provision for them. The court will have regard to the matters in section 3 of the Act, including the financial needs and resources of the applicant, the size and nature of the estate, and in the case of a spouse, the age of the applicant, the duration of the marriage and the provision the applicant might reasonably have expected to receive if the marriage had ended in divorce rather than death.
Section 4 provides that an application must be brought within six months of the date on which probate is granted. When considering whether to exercise the power under section 4 of the Act, the courts will have regard to the following guidelines in Berger v Berger:
- The court’s discretion is unfettered but must be exercised judicially in accordance with what is right and proper.
- The onus is on the applicant to show sufficient grounds for the granting of permission to apply out of time.
- The court must consider whether the applicant has acted promptly and the circumstances in which she applied for an extension of time after the expiry of the time limit.
- Were negotiations begun within the time limit?
- Has the estate been distributed before the claim was notified to the defendants?
- Would dismissal of the claim leave the applicant without recourse to other remedies?
- Looking at the position as it is now, has the applicant an arguable case under the Act if I allowed the application to proceed?
The First instance Decision
At first instance, the judge refused permission to extend the time allowed to issue a claim, finding that there were no good reasons for the delay in issuing the claim and that, in any event, the substantive claim was unarguable given that Mrs Cowan stood to benefit under the trusts. A more detailed summary of the judge’s decision can be found here.
The court of appeal decision
Mrs Cowan appealed the first instance decision arguing (amongst others) that the judge erred:
- in his approach to section 4, which led him to leave out relevant considerations and take into account irrelevant considerations;
- in holding that Mrs Cowan did not have an arguable case; and
- in finding that there were no good reasons for the delay (and in having considered that to be a determinative factor).
The nature and purpose of the power in section 4
At first instance, the judge had suggested that the six-month time limit existed not only to avoid unnecessary delay in the administration of the estate, but also to protect beneficiaries and the court being vexed by stale claims which should have been made earlier. It followed, on his analysis, that the court’s approach to applications to extend time should be ‘robust’ and consistent with the “ever-developing sanctions jurisprudence“. On his analysis, the claimant not only had to provide an explanation but also ‘good reasons’ for any periods of delay.
The Court of Appeal was critical of this ‘disciplinary approach’. Neither the concept of stale claims nor the court’s approach to applications for relief from sanctions had particular relevance to the court’s discretion under section 4. The Court of Appeal confirmed that the six-month time limit should not be enforced for its own sake and, instead, that the court should consider all of the relevant circumstances, following the guidelines set out in Berger.
No real prospect of success
The first instance judge decided that Mrs Cowan had no arguable case for substantive relief under the Act. Whilst the Court of Appeal confirmed that the judge had correctly applied the summary judgment test, it found that, in assessing the merits of the substantive claim, the first instance judge had fallen into a number of errors.
- The intentions of the deceased are of no relevance to the substantive claim and the judge had unnecessarily speculated that Mr Cowan created the trust structure because he believed that “[Mrs Cowan] should be spared the burden of administering, investing and deploying large sums of money”.
- The judge had erred in assuming that the terms of the (unenforceable) letter of wishes would be complied with (and that failure to do so would amount to an actionable breach of trust).
- The judge failed to have proper regard to all the circumstances of the case, including the size of the estate, the length of the relationship, and that Mrs Cowan had no autonomy, security, or a direct interest even in her home of 20 years.
The Court of Appeal also differed from the first instance judge in its analysis of the period of delay between (1) the grant of probate and Mrs Cowan intimating a claim under the Act; and (2) between a letter of claim being provided and a claim being issued.
In respect of the first period of delay, the Court of Appeal found that the advice Mrs Cowan received in March 2017 could not have been substantive and that the delay in intimating a claim until December 2017 could be explained by the fact that it was not until Mrs Cowan started to receive and request distributions from the trusts that she understood the reality of her situation. On appreciating the precarious nature of her position she had requested a face-to-face meeting with her solicitor and a claim was intimated shortly after that meeting.
The Court of Appeal found that the second period of delay should not count against Mrs Cowan either. Negotiations had continued during that period and it was not until after proceedings had been issued that any point was taken about the proceedings being out of time.
Finally, in respect of the moratorium agreed between the parties following the intimation of a claim, the Court of Appeal did not endorse the first instance judge’s suggestion that the practice of agreeing standstill agreements should immediately cease. On the contrary, whilst noting that any such agreement could not be binding on the court, the Court of Appeal was keen to encourage pre-action without prejudice negotiations, suggesting that, in some cases, issuing proceedings may only harden attitudes and lead to increased costs to the estate and a delay in its distribution. The Court of Appeal suggested that, provided parties had been legally represented, the court should give effect to any such agreement, although care should be taken to ensure that the agreement includes all relevant parties and clearly sets out the duration and terms of the moratorium.
Exercise of section 4 power
Rather than remit this matter, the Court of Appeal concluded that it was proportionate and appropriate for it to exercise the power under section 4, and allowed Mrs Cowan to bring a claim out of time on the following basis:
- There is a proper explanation for the entire period of delay, Mrs Cowan acted promptly once her true position was appreciated and advice had been taken, and the negotiations, quite properly encouraged by the trustees, were a significant factor even though they began after the six-month period in section 4 had elapsed.
- A moratorium was agreed between experienced legal representatives and without prejudice negotiations then continued up to the claim being issued without any indication that a point would be taken about the lapse of time.
- Mrs Cowan’s claim for relief under the Act has a real prospect of success.
- Although pecuniary legacies had been paid and the trusts constituted, the fact that beneficiaries would not have to return money to the estate in order to satisfy the Mrs Cowan’s claim under the Act was a point in her favour.
- It cannot be said that Mrs Cowan has a clear claim, if any, against her advisers.
The decision confirms that the Berger guidelines remain the starting point for the assessment of whether the court should grant permission to bring an out of time claim for reasonable financial provision under the Act. An application should not be dismissed simply on the basis that there is no “good reason” for the delay in bringing a claim out of time.
The Court of Appeal’s decision also provides some comfort to parties engaged in without prejudice negotiations. Claimants can now be reasonably confident that, provided all potential parties have agreed to it, the courts will look to give effect to a well drafted standstill agreement. From a practice perspective, the judgment highlights the importance of properly drafting and documenting any such standstill agreement. Failure to do so may also lead to claims against the advising firms.
The decision, however, also shows some of the difficulties that arise out of the section 4 regime. When faced with an application under section 4, the court has to consider the Berger guidelines and take a number of considerations into account. This is not a straightforward process, and it can be difficult for parties to predict the outcome of the court’s exercise of its discretion with any degree of certainty. In some cases it may therefore still be preferable, even if negotiations are ongoing, to issue proceedings within the six-month time limit and seek a stay by consent, to reduce the risk of future litigation in relation to an out of time application.