Client care – know your limitations

As lawyers, we are often reminded of the benefits of a good client/solicitor relationship and the need to provide more than just a good legal service. Building a rapport and trust are important, however, a recent case^[1] has highlighted the need to ensure that the lawyer remains objective.

The solicitors had acted for a client and her late husband (Mr and Mrs Folkes) for many years. One son, Con, had taken over the family businesses and the solicitors had acted for both son and mother in several transactions, including gifts between mother and son and a number of wills and codicils over the years for the mother.

By her final will, Mrs Folkes appointed two solicitors in the firm and her accountant as executors, before leaving her estate on discretionary trusts. Mrs Folkes died on 20 December 2014 and her daughter, Jane, first challenged the will on the grounds of lack of capacity and subsequently sought removal of the executors on the basis that they could not be impartial. Con and his family, as well as the executors, disagreed. Jane subsequently raised queries about certain lifetime gifts made by her mother and proposed an independent administrator act as a mediator, who would be able to review the lifetime transactions thoroughly, objectively and without any conflict of interest. Con and his family again wanted the executors to remain in place.

Jane issued proceedings for the removal of the executors, which both Con and his children contested, as did the executors up to the point of a hearing on 24 February 2017. Shortly before the hearing, the executors advised the other parties they were taking a neutral stance regarding their removal.

The Court then ordered that the executors were not entitled to any indemnity from the estate in respect of their own costs and were also jointly and severally liable with the other defendants for Jane’s costs up to the date of the hearing. The defendants all appealed this.

The judge reaffirmed the general principle that costs follow the event and, even though Jane had not “won” on all her claims, the conflicts of interest for the executors were plain and obvious (para 61(4)) and it was unreasonable of them to resist removal (para 58(2)) – even though Con and his children resisted the removal; the executors should have let Con argue the point. The judge affirmed that:

“If the trustee did not act reasonably, he will be ordered to pay the applicant’s costs and deprived of his indemnity^[2].”

At paragraphs 113 and 114 of his judgement the Judge set out the provisions of paragraph 1 of Practice Direction 46, which says:

“1.1 A trustee or personal representative is entitled to an indemnity out of the relevant trust fund or estate for costs properly incurred. Whether costs were properly incurred depends on all the circumstances of the case including whether the trustee or personal representative (“the trustee”):

• a) Obtained directions from the Court before bringing or defending the proceedings;
• b) Acted in the interests of the fund or estate or in substance for a benefit other than that of the estate, including the trustee’s own; and
• c) Acted in some way unreasonably in bringing or defending, or in the conduct of the proceedings.

1.2 The trustee is not to be taken to have acted for a benefit other than that of the fund by reason only that the trustee has defended a claim in which relief is sought against the trustee personally.”

The judge went on to advise that, where an application is made to remove executors, they cannot obtain directions from the Court before defending the proceedings, so paragraph 1.1(a) is not relevant. Paragraphs 1.1(b) and (c) read with paragraph 1.2 state the applicable principles.

The judge also referred to the Law Society’s Practice Note on disputed wills, which states:

“If you are partisan in the litigation, you risk a costs order being made against you personally. Provided you act neutrally in any litigation, the costs of the executor should come out of the estate^[3].” commenting (paragraph 131) that:

“In circumstances where all the beneficiaries of an estate are adults, and are able to make their own voices known, and one beneficiary applies to remove the executors, I consider that the advice in the Practice Note is applicable. The executors are well advised to remain neutral and let those beneficiaries who wish to oppose the application do so.”

Regarding the fact that the executors did subsequently adopt a neutral stance, the judge stated that “it would not be just, in general, for executors to contest removal and then realise their own true position, adopt a neutral stance and expect the estate to pay the costs of same” (paragraph 61(5)).

Some of Jane’s allegations questioned the integrity of the executors in terms of the lifetime gifts. The judge advised that removal of the executors did not prevent them from answering any allegations and defending their integrity as appropriate.

The judge went on to reject the executors’ argument that they could not stand down, once they had commenced to act, without an order of the Court as it did not follow that the executors had acted reasonably in resisting the application.

Conclusion

Hindsight is wonderful, but it is critical to remember the importance of remaining neutral in the role of executor and distinguish the different roles one may have – especially where you may also be solicitor to one or more of the beneficiaries and where your advice and actions for the deceased may be in question.

The case has a resonance with Keeling v Keeling^[4], where solicitors acted for Mr Stephen Keeling in his capacity as both personal representative and beneficiary, failing to advise Mr Keeling when there was a conflict between his roles as he sought to argue the validity of a lifetime gift to the detriment of the estate as a whole.

For more information

If you would like more information on client care matters, please contact Alex Elphinston.

Notes:

1. Griffin v Higgs & 5 Ors [2018]EWHC 2498 (Ch)
2. Lewin on Trusts 19^th edition and supplement at 27-191
3. Paragraph 5.1
4. Keeling v Keeling [2017] EWHC 1189 (Ch)