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Issue 38 – June 2009  

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Cases

Baynes v Hedger and others

Citation: [2009] All ER (D) 50 (May)
Alternative citations: [2009] EWCA Civ 374
Hearing date: 7 May 2009
Court: Court of Appeal, Civil Division
Judge: Sir Andrew Morritt C, Longmore and Goldring LJJ 
Representation: Thomas Dumont (instructed by Sears Tooth) for the claimant. Jeffrey Terry (instructed by Allen Janes) for the third defendant. Emily Campbell (instructed by Sheridans) for the fourth defendant.

Abstract: Will – Family provision. Court of Appeal, Civil Division: In the circumstances of the case, the claimant had not been entitled to make a claim under section 1(1)(e) of the Inheritance (Provision for Family and Dependants) Act 1975.

Keywords: Will – Family provision – Challenges by alleged dependant and former partner – Consideration of relevant factors – Whether claimants establishing claim on facts – Inheritance (Provision for Family and Dependants) Act 1975.

Summary: The judgment is available at: [2009] EWCA Civ 374
By her will dated 6 July 1977, as varied by two codicils dated respectively 19 November 1999 and 29 October 2002, the deceased appointed the first and second defendants to be her executors and trustees. She bequeathed £2,500 to her god-daughter, the claimant and other small pecuniary legacies to various friends. She specifically devised her freehold estate to the third defendant trust absolutely. She bequeathed the residue of her estate to her executors and trustees on the usual trusts for sale and conversion. She directed them to pay the income thereof to the fourth defendant, who was mother of the claimant, for her life with reversion equally to her other four children 'but not [the claimant] because she has already benefited'. One of the fourth defendant's children predeceased the deceased; the remaining three were the fifth, sixth and seventh defendants. The deceased died in 2006.

Shortly thereafter, the claimant issued proceedings under the Inheritance (Provision for Family and Dependants) Act 1975 seeking an order that reasonable provision be made for her out of the estate of the deceased by way of a lump sum or in such other way as the court should think fit. The claimant contended that she was entitled to maintain such a claim as a person who immediately before the death of the deceased was being maintained, either wholly or partly, by the deceased within the meaning of section 1(1)(e) of the Act. If she was, she then had to establish that the disposition of the deceased's estate effect by her will was not such as to make reasonable financial provision for her.

The judge considered two questions, namely whether: (i) the claimant was being maintained by the deceased immediately before the deceased death; and (ii) the will failed to make reasonable provision for the claimant. The judge on the evidence answered the first question in the affirmative and found that she was entitled to pursue her claim under section 1(1)(e). However, the judge the answered the second question in the negative, finding that the claimant had not established that the will of the deceased had failed to make reasonable financial provision for her. The claimant appealed against that decision.

The issues arose as to whether: (i) the claimant was a person who immediately before the death of the deceased was being maintained; (ii) the disposition of the deceased's estate effected by her will was not such as to make reasonable financial provision for the claimant; and if not (iii) any order should be made.

The appeal would be dismissed.

In the instant case, the conclusion of the judge expressed in respect of the first question was not one which could be made without consideration of whether the deceased had assumed responsibility for the maintenance of the claimant. That such an assumption of responsibility was a necessary ingredient of a person entitled to claim under section 1(1)(e) was supported by authority.
The conclusions of the judge on the second question demonstrated that in his judgment that ingredient had been not been satisfied in the circumstances of the case. Accordingly, the claimant had not been entitled to make a claim under section 1(1)(e) of the Act. Furthermore, the judge had been correct to hold that in all the relevant circumstances deceased had not failed to make reasonable financial provision for the claimant (see [46]-[47] and [56] of the judgment).

Beaumont, Re, Martin v Midland Bank Trust Co Ltd [1980] 1 All ER 266 applied; Jelley v Iliffe [1981] 2 All ER 29 applied.

Decision of Lewison J [2008] All ER (D) 175 (Jul), [2008] 3 FCR 151; affirmed on other grounds.
Marie-Therese Groarke, Barrister
Published date: 07/05/2009

Sinclair and another v Sinclair

Citation: [2009] All ER (D) 17 (May)
Alternative citations: [2009] EWHC 926 (Ch)
Hearing date: 1 May 2009
Court: Chancery Division
Judge: Proudman J
Representation: Constance McDonnell (instructed by DMH Stallard) for X and Y.Charles Scott (Windsor & Co) for Z.

Abstract: Estoppel - Proprietary estoppel. Chancery Division: In proceedings between siblings concerning a dispute over a testator father's will between siblings the court determined, inter alia, that the defendant had not been entitled to a proprietary interest in property known as the Yard, and was only entitled to pay notional rent for his occupation of that property from the date of mother's death.

Keywords: Estoppel – Proprietary estoppel – Will – Defendant taking on family business upon testator father's death – Defendant's own company operating from family business' site – Parties aware of defendant's occupation of site – Defendant not paying rent – Whether defendant entitled to a proprietary interest in site - Whether defendant required to pay notional rent.

Summary: The judgment is available at: [2009] EWHC 926 (Ch)
The claimants were brother (X) and sister (Y). The defendant was their elder brother (Z). Their father (F) died in December 1972. He died owning a number of investment properties which yielded rents from tenants which had eventually been developed by the family building business (SB). F owned a property known as 'the Yard' which was occupied by SB and out of which it operated. There were considerable debts attributable to the business. A statement of affairs was prepared in November 1970, and in 1971 a receiving order was made in the sum of about £33,000 in 1971.
The receiving order was discharged by the time of F's death. F and his wife (M) were unable to support the borrowing required to do so. Money was borrowed against the security of properties that F owned and also against the security of F and M's matrimonial home, but the various mortgagees had wanted Z to assume personal and/or primary liability. There was also a substantial overdraft on SB's business account which had not been repaid until 1977, when proceeds of one of the estate properties had been applied to discharge it.

Z operated his business (S&A) from the Yard. Z took over SB after F's death. SB and S&A were used interchangeably until Z and his business partner parted company in 1979 and the business became solely SB. F had appointed M as his sole executrix and trustee. F left his residuary estate upon trust for sale, with full power to postpone sale, upon trust for M for life and thereafter, for their children in equal shares absolutely. A third brother died in September 1995, leaving his widow, C, as his personal representative. It was common ground that, with M's approval, Z assumed sole responsibility form the outset for administering the trusts of the will in all respects. In April 2003, X and Y were appointed trustees in M's place. M died in February 2005. Z was her sole executor and she left her estate to X, Y, Z and C in equal shares. Z was sued as a constructive trustee of the trust from the time of F's death until X and Y took over the trust in 2003.

The issues between the parties fell under four heads: (i) that Z should repay sums in respect of certain credit recorded in his favour, appearing in the trust accounts drawn up after the event by his accountant. X and Y sought to recover sums for which there were no vouchers linking the recorded credit to Z in the accounts with expenditure on trust properties; (ii) a counterclaim by Z that there were other sums for which he was entitled to be reimbursed or which ought to have been brought into the account in his favour on distribution; (iii) a claim by X and Y for possession of the Yard, countered by a claim by Z to an interest in the Yard based upon proprietary estoppel or a proprietary constructive trust; and (iv) a claim by X and Y that Z should account to them for, and pay, a rent for his occupation of the Yard from 1972 to the present date.

The court ruled:

(1) In the instant case, Z was found, on the balance of probabilities, to have sufficiently accounted for all the recorded credit in his favour appearing in the trust accounts drawn up by the accountant (see [50]-[58] of the judgment).

(2) In relation to the counterclaim of sums to which Z was owed, both were substantiated on the facts (see [59] and [60]-[61] of the judgment).

(3) For a person to claim an interest by way of proprietary estoppel or a constructive trust, there had to have been a representation or assurance made to the person claiming that interest, a reasonable reliance on it by the claimant, and detriment to the claimant in consequence of his reliance (see [65] of the judgment).

It would be possible for a trustee to acquire an interest as against the beneficiaries. Each case would depend on its own facts. Z, at all material times, was a trustee in occupation of the Yard for his own, as well as trusts, purposes in clear breach of the rule against self-dealing. Although lack of informed consent or acquiescence might not prove fatal to a claim for proprietary estoppel, the question of knowledge would assume particular importance where the claimant was himself in breach of duty. While a beneficiary might acquiesce without being aware of his legal rights, ignorance was one of the factors which should be taken into account.

In the instant case, all parties had been aware that Z had been in occupation of the Yard. They were also aware that works had been carried out, by S&A and SB, to the Yard and to other properties owned by the trust. However, none of them were aware of the amounts expended on improvements or repairs. None of the beneficiaries had given consent to Z to occupy the Yard and they had all been unaware of the terms on which he had done so (see [70]-[72] of the judgment).

Z was not entitled to a proprietary interest in the Yard (see [72] of the judgment).

Taylor Fashions Ltd v Liverpool Victoria Trustees Co Ltd, Old and Campbell Ltd v Liverpool Victoria Friendly Society [1981] 1 All ER 897 considered; Yeoman's Row Management Ltd v Cobbe [2008] 4 All ER 713 considered; Thorner v Major [2009] All ER (D) 257 (Mar) considered.

(4) In relation to Z being bound to pay a notional rent for his occupation, while it was accepted that the capital beneficiaries had not acquiesced in his occupation, M, as income beneficiary, had. M also acquiesced in his action in her capacity as trustee and had undoubtedly herself been in breach of trust in delegating all trust decisions to Z, by failing to appoint a second trustee and by failing to supervise what had been done. The question had not strictly arisen as to whether she could pass on any such claim to Z as her delegate. M could not be sued as trustee since it had been she who had lost income as a result of non-payment of rent. The issue was whether she had acquiesced as beneficiary. In the instant case, M had acquiesced, but the fact that she had deliberately left all matters of trust administration to Z emphasised her inability to complain in her own beneficial right (see [74]-[75] of the judgment).

Z was liable to the trustees to pay a notional rent for his occupation of the Yard, but only after M's death (see [75] of the judgment).

Howlett, Re, Howlett v Howlett [1949] 2 All ER 490 considered.
Avneet Baryan, barrister

TC00008: Gordon Douglas Cairns v Revenue and Customs Commissioners

Hearing date: 30 March 2009
Court type: First-tier Tribunal (Tax)
Court: Special Commissioners
Judge: J Gordon Reid
Representation: J McArthur; C Ryder
Decision: Dismissed

Abstract: Inheritance Tax; administration and collection; executor as personal representative delivering account of heritable property of deceased; whether account incorrect; whether incorrect account fraudulently or negligently delivered; failure to declare that value of property was a provisional estimate; penalty; powers of the Tribunal; mitigation; Inheritance Tax Act 1984 sections 216, 247, 249 and 253.

Full text
Decision number: TC00008
Appellant: Gordon Douglas Cairns (Personal Representative of Victor Douglas Eustace Webb (Dec’d)
Case reference number: SC 2015/2008
Respondents: The Commissioners for Her Majesty’s Revenue and Customs
Tribunal chairman: J Gordon Reid QC., FCI ARB
Location: Edinburgh
Date: 6 November 2008
For the Appellants: J McArthur, Gillespie Macandrew LLP
For the Respondents: C Ryder, Inspector of Taxes, HMRC
Result for the appeal: Dismissed

Decision:

Introduction
1. This is an application by the Commissioners for HM Revenue and Customs ("HMRC") for the imposition of a penalty on Gordon Cairns, solicitor in his capacity as personal representative of the late Victor Webb (the "deceased") who died testate on 12/10/04. The application arises out the of value placed on the deceased's residence, Stonefield, 22 Park Road, Eskbank, Midlothian ("Stonefield"), in Form IHT 200 (which contains an inventory of the deceased's estate), and is brought under section 249(4) of the Inheritance Tax Act 1984.

2. A Hearing took place at Edinburgh on 6th November 2008. John McArthur, solicitor, Gillespie Macandrew LLP, Edinburgh appeared on behalf of Mr Cairns, the defender. Mr Cairns gave evidence. Colin Ryder, an HMRC inspector of taxes appeared on behalf of HMRC. HMRC led no evidence. An Agreed Statement of Facts was produced. HMRC lodged a bundle of documents. The authenticity and where appropriate, the transmission and receipt of those documents was not in dispute.

Statutory background:
3. Section 216 of the 1984 Act provides inter alia as follows:-
(1)....... the personal representatives of a deceased person ........
shall deliver to the Board an account specifying to the best of his knowledge and belief all appropriate property and the value of that property.
(3A) If the personal representatives, after making the fullest enquiries that are reasonably practicable in the circumstances, are unable to ascertain the exact value of any particular property, their account shall in the first instance be sufficient as regards that property if it contains-
(a) a statement to that effect
(b) a provisional estimate of the value of the property; and
(c) and undertaking to deliver a further account of it as soon as its value is ascertained

4. Section 247 provides inter alia as follows:-
(1) If any person liable for any tax on the value transferred by a chargeable transfer fraudulently or negligently delivers, furnishes or produces to the Board any incorrect account, information or document, he shall be liable to a penalty not exceeding the difference mentioned in subsection (2) below.
(2) The difference referred to in subsection (1) above is the amount by which the tax for which that person is liable exceeds what would be the amount of the that tax if the facts wee as shown in the account, information or document
5. Section 249 provides inter alia as follows:-
(1) All proceedings for the recovery of penalties under this Part of the Act shall be commenced by the Board or, in Scotland, by the Board or the Lord Advocate.
(2) Any such proceedings may be commenced either before the Special Commissioners or in the High court or the Court of Session and shall, if brought in the High Court, be deemed to be civil proceedings by the Crown .....
(4) Proceedings under this section before the Special Commissioners shall be by way of information in writing made to them, and upon summons issued by them to the defendant (or defender) to appear before them at a time and place stated in the summons, and they shall hear and determine each case in a summary way.

6. Section 160 of the 1984 Act makes market value the basis for the valuation of property. Section 200(1)(a) imposes liability for inheritance tax on the deceased's personal representatives. Section 216(6) requires delivery of the account to the Board within about 12 months after the deceased's death. Section 217 provides for remedying defective accounts. By section 226, the tax is due approximately six months after the date of death (here, the due date was 1/5/05) and the tax requires to be paid on delivery of the account. Section 233 imposes liability for interest on tax due but unpaid, from, in effect about six months after death. Here, interest was payable on any unpaid tax from 1/5/05. Provision is also made for payment of tax by instalments and interest thereon (sections 227 and 234). Here, an election was made to pay by instalments. Section 250 imposes a time limit for recovery of penalties referred to above. The period is three years from date of notification to the person liable for the tax properly payable. Here, the date of notification was 26/4/07. In fact, the notification intimated a refund of tax.

7. Section 253 entitles HMRC to mitigate any penalty. Here, HMRC were prepared in correspondence to mitigate the penalty by about 80%, reducing the sum specified in the Information of £33,559.51 ultimately to £5,000.

Commencement of proceedings.

8. By letter dated 1/4/08 to the Clerk to the Special Commissioners HMRC enclosed an information and draft summons. The information alleged that Mr Cairns had fraudulently or negligently delivered, furnished or produced to the Board an incorrect account, information or document relating to value transferred by a chargeable transfer as required by section 216 of the 1984. The information sought a penalty of £33,559.51.

9. The summons signed by another Special Commissioner on 21st August 2008, recorded inter alia that as personal representative of the deceased he was required under section 216(1) of the 1984 to deliver to the Board an account specifying to the best of his knowledge and belief all appropriate property in the deceased's estate and the value of that property. It proceeded to narrate the allegation contained in the information and concluded that Mr Cairns had rendered himself liable to a penalty under section 247(1) and (2) as amended. Mr Cairns was summoned to appear before the Special Commissioners on 6/11/08.

10. Apart from attaching extracts from the relevant legislation, the summons, which had the flavour of a summary criminal complaint, contained no further specification whatsoever of how or in what respect Mr Cairns had acted fraudulently or negligently. The account or document to which these allegations related was not even identified.

Relevancy and specification of the initiating documents.

11. Mr McArthur submitted that the summons was wholly lacking in specification and should be dismissed. I agree. The information originally laid before the Special Commissioners under section 249(4) and, more importantly, the summons served on Mr Cairns did not contain any specification whatsoever of the charge being laid against Mr Cairns. This is an important document. It could, if established, have significant consequences for Mr Cairns both financially and professionally. The penalty sought for an alleged but undisclosed act of negligence or fraud was substantial. It is beyond dispute that if this summons is to be treated on the same footing as a summary criminal complaint or, more to the point, a civil summons for payment of a debt or damages, (as the proceedings are deemed to be civil proceedings) it would be dismissed for want of specification; and that notwithstanding that the case has to be heard and determined in a summary way.

12. Mr Ryder argued that the summons had been preceded by lengthy correspondence and that Mr Cairns knew perfectly well what the issue was and why the penalty was being sought. There was therefore no prejudice. I cannot accept that argument. The relevancy of summary criminal complaints and civil pleadings are not tested in this way. Frequently, the recipient of a summons or complaint will be aware of the background but that is, in general, of no moment, where the initiating document lacks any semblance of specification or basic detail. For example, complaints against solicitors are frequently preceded by lengthy correspondence before they reach the stage of a formal complaint being considered by the appropriate disciplinary body.

In Council of the Law Society v M&W, unreported 16/1/75, noted in Smith and Barton Procedures and Decisions of the Scottish Solicitors' Discipline Tribunal, the Lord President stated in his Opinion that when the Council of the Law Society proceeds to define the precise act of professional misconduct alleged against a solicitor, that definition should, like a Summary Complaint or a charge in an Indictment, contain within itself all the ingredients necessary to disclose the offence. In my view, that statement is applicable to the present proceedings. It seems to me that the prejudice lies in the fact that the initiating document, be it summons, summary complaint or indictment must set out the parameters of the enquiry, and the essential facts and basis in law upon which the public authority relies. If it does not do so, there is bound to be significant prejudice or the risk of such prejudice. It cannot be determined where the enquiry will begin or end. How does a court or tribunal control the scope of the proceedings or the admissibility of evidence or determine the relevancy of the legal arguments unless these basic parameters exist at the outset? It is difficult to see how there could be a fair hearing for Convention purposes without these basic parameters.

13. It is important, too, to note that neither the 1984 Act nor the Tribunal's rules provide for any form of procedure between the date of issue of the summons and the date of the hearing therein specified. With a summons as vague as the present summons, virtually any aspect of the contents of the account delivered by the personal representatives could be raised. That offends the almost universal principle that a person in the position of Mr Cairns is entitled to fair notice of the allegations being made against him and a reasonable opportunity to respond to them. Something more than the bare words of the relevant statute are required to ensure that fair notice is given (King v Williams 2004 SLT 955 at paragraph 10).

14. It would have been a simple matter to flesh out the Information and summons with at least a modicum of specification. It is in stark contrast to the information and summons in Robertson v IRC 2002 STC (SCD) 182 at 190a-191f and 192d, which contained a considerable amount of detail, although even it omitted to mention certain specific matters which the Revenue wished to raise. In R v Havering Commissioners (ex parte Knight) 1973 TC 161, an information was laid before the General Commissioners containing eight counts. These are not specified but parts of the ensuing summons are quoted at pages 170-171. I infer that the information and summons contained considerably greater detail than the information contained in the present summons.

15. I should add that my views are not affected in any way by the fact that the summons is, in terms of section 249(4) of the 1984 Act, issued by the Special Commissioners. This is a purely administrative act by which the summons reflects the material contained in the information. The practice is, as I understand it, for HMRC to append a draft summons to the information. That was done in this case. It cannot be for the Special Commissioners to make substantial revisions to the material produced and by a process of drafting create a relevant and specific summons. It might have been better in this case if the Special Commissioners had simply refused to issue a summons in terms of the draft presented to them on the grounds that the information which was reflected in the draft summons was a wholly inadequate basis upon which to commence proceedings which might have serious financial and professional consequences particularly as those proceedings appeared to involve bare allegations of fraud or negligence.

16. In my opinion, therefore, the summons falls to be dismissed on the grounds that it is wholly lacking in specification. That is the end of the application. But in case I am held to be wrong on this aspect I shall consider the merits of the application.

Facts:
17. The following narrative is derived from the evidence of Gordon Cairns and an Agreed Statement of Facts.

18. Mr Cairns qualified as a solicitor in 1981. Since then he has been in practice initially as an assistant and since 1983 as a partner. Conveyancing and executry work have been his principal areas of practice. He has acted as executor on literally hundreds of estates over the years ranging from the very small to the very large; he has particular experience in dealing with elderly clients. He has tutored in the Diploma in Legal Practice course at Edinburgh University since 1989; he has been the Diploma Conveyancing examiner for ten years and is a member of the University's Board of Examiners. He was in 2004 and subsequently experienced and skilled in acting as an executor and for executors, and in fulfilling personally and on behalf of others the duties of executors in winding up estates in accordance with the law of Scotland.

19. In 2003, Mr Cairns was asked by Midlothian Council to act as the deceased's Guardian. The deceased was then residing in Roslynlee Hospital, but was anxious to return home to Stonefield, which he owned. Mr Cairns was duly appointed on 25th November 2003 under the Adults with Incapacity (Scotland) Act 2000. He drew up an Inventory of the deceased's estate which had to be lodged with the Public Guardian. Part of that estate included Stonefield. Mr Cairns instructed a valuation. Barr Brady, chartered surveyors, Edinburgh and elsewhere, valued Stonefield on 23rd January 2004 at in the region of £400,000 which was stated to be an arbitrary figure pending investigations as to costs involved in upgrading.

20. The valuation was heavily qualified. It pointed out (as Mr Cairns already knew, having visited the property) that Stonefield was in an extremely poor condition. It suffered from wet rot, dry rot, rising damp and structural defects in the roof; the report recommended specialist investigation of inter alia timber infestation and decay. Internally, the house was filthy and full of memorabilia and rubbish. The garage was falling down; a tree was growing in it. Access to the house was difficult. The garden was a mess. Part of it was or had been an orchard, and there were many (over a hundred) broken panes of glass strewn about. Mr Cairns engaged a tradesmen to clear out the garden and attempt to make Stonefield wind and watertight and one room habitable. This cost about £10,000. In the course of these works about 20 large skips of materials and garden refuse were removed from Stonefield, mainly from the garden ground. This work did not make a significant difference to the overall state, and condition of Stonefield. Nevertheless, the deceased returned to live there with his son, Andrew who had learning difficulties.

21. In spite of the clean up operations, Stonefield was still in a very poor state and condition in October 2004. Only one room was habitable. The kitchen was very basic. The water supply was possibly contaminated. The particulars of sale subsequently produced, although mentioning the need for substantial renovation cast the property in a favourable light. Viewing the property revealed the true picture and the property's potential if a significant amount of money were spent on its renovation. Such properties are difficult to value and reasonable views on their market value may differ widely.

22. Mr Cairns was unable to obtain insurance for Stonefield at a reasonable premium. Several insurers requested a valuation and on seeing the Barr Brady valuation, declined to offer to insure. That remained the position until Stonefield was sold following the deceased's death.

23. The deceased died on 12th October 2004, aged 89 years. Before he retired he was, curiously, a Chief Examiner with the Estate Duty Office (later the Capital Taxes Office) of the Inland Revenue in Edinburgh. In terms of that Will, half of the residue of the estate was bequeathed to the deceased's Family Trust, which had been created in 1998. The other half was to be held on liferent for one of the deceased's sons. On his death the fee was to pass to the Family Trust. The deceased's son, Andrew, continued to reside at Stonefield until local authority housing could be provided from him.

24. Mr Cairns, in the usual way, began the process of applying for confirmation. As it appeared that Inheritance Tax would be payable, he sought and obtained a bridging loan from the Bank of Scotland.
25. Form IHT200 was signed by Mr Cairns on 28th April 2005 and lodged with HMRC on 29th April 2005 with a cheque for £30,000 in part payment of the Inheritance Tax liability. The IHT 200 form included Stonefield at a value of £400,000. Mr Cairns was genuinely uncertain of the true value of Stonefield. He considered that the existing valuation was sufficient meantime. He knew that it would be likely that the price at which Stonefield was ultimately sold, would probably be agreed, in due course, with the District Valuer, to be the date of death value. He reasonably considered it unnecessary to go to the expense of obtaining a further valuation which would probably be heavily qualified and may not be any more accurate than the existing valuation. There was no evidence of any significant increase in the value of properties in the locality between January 2004 and October 2004. He was aware that interest would run on the tax due, from 1st May 2005 in accordance with section 233 of the 1984 Act.

26. Form IHT200 (at page 8), signed by Mr Cairns on 28th April 2005, contained the following declaration:-

"I have made the fullest enquiries that are reasonably practicable in the circumstances to find out the open market value of all the items shown in this account. The value of items shown in boxes [Stonefield was not included here] are provisional estimates which are based on all the information available to me at this time. I will tell IR Capital Taxes the exact value(s) as soon as I know it and I will pay any additional tax and interest that may be due."
It would have been prudent to describe the value attributed to Stonefield as a provisional estimate. The failure to do so was, in the circumstances, careless.

27. Meanwhile, Mr Cairns had instructed his property manager to look at the property and to market it for sale. She did so and recommended advertisement at offers over £500,000. She had fourteen years experience of the property market in the locality. It was so marketed in early April. Mr Cairns was present when prospective purchasers viewed Stonefield. This was because the deceased's son Andrew insisted on being present. There were a number of notes of interest. 5th May 2005 was fixed as a closing date. Six offers were received ranging between £425,000 and £695,00. The highest was accepted. Missives were concluded on 31st May with entry on 29th July 2005. However, the purchaser defaulted, and the transaction fell through. HMRC were so informed in July 2005, and advised that Stonefield would be re-advertised. The HMRC response, by letter dated 27th July 2005, was to note that the District Valuer must still consider the date-of-death value... regardless of any subsequent sales. But he will of course take the (sale) into account when considering his values. Stonefield was subsequently sold at the fixed price of £600,000.

28. After the sale, a cheque for £158,860.04 was sent to HMRC, based on an HMRC estimate of the tax due. This was to cover any additional liability for inheritance tax. However, there was still some doubt as to the full extent of the deceased's estate. In the event, that sum was too much and some tax was refunded as noted below.

29. Mr Cairns was justifiably surprised at the spread of offers. He took the reasonable view that Stonefield needed about £250,000 to £300,000 to be spent on renovating including re-wiring, major roof repairs, window repairs, rot and damp work treatment, rebuilding of the garage, and internal modernisation and decoration; he reasonably estimated that on completion of the renovation works Stonefield would have a market value of between about £700,000 to £800,000.

30. By about mid-December 2006, the District Valuer had agreed the date of death value of Stonefield at £600,000. The value of the estate for Inheritance Tax purposes and the Inheritance Tax liability were subsequently agreed and an assessment made and issued on or about 26th April 2007. The tax payable was agreed at £122,843.60 and a repayment of £64,418.17 (including interest) was made to Mr Cairns as executor of the deceased (while these figures are difficult to reconcile with the sum of £158,860.04 mentioned above, all these figures are taken from the Agreed Statement of Facts. Such discrepancies as may actually exist do not matter for present purposes).

Discussion:

Merits
31. The questions are (i) whether Mr Cairns furnished an incorrect account and (ii) whether he did so fraudulently or negligently. Fraud is out of the question. That leaves negligence. The onus is on HMRC. The standard of proof is the balance of probabilities (R&C v Khawaja 2008 STC 2880 at 2890h; 2891g, Robertson v IRC 2002 STC (SCD) 182 at 194d). HMRC led no valuation evidence; they led no evidence as to what a prudent representative would have done in the circumstances. Such evidence might have come from a solicitor experienced in acting as and on behalf of executors in winding up estates. A valuer might have been led to show that a more positive, precise and exact [cf. section 216(3A)] valuation of Stonefield could have been obtained in October 2004. No such evidence was led to contradict the evidence of Mr Cairns, himself an experienced solicitor in the purchase and sale of residential heritable property, and executry practice.

32. I found his evidence to be credible and reliable. He gave his evidence in a clear and straightforward manner and I have no reason to doubt his professional abilities or integrity in relation to these proceedings. It seemed to me that he acted perfectly sensibly and reasonably throughout. Indeed, he appears to have done considerably more than his duty as personal representative required him. He befriended the deceased's son, Andrew and personally attended to the viewing of Stonefield in order to keep an eye on Andrew who insisted on being present.

33. The argument for HMRC was ultimately that Mr Cairns should have obtained another professional valuation or "revisited" the Barr Brady valuation. However, standing the evidence or lack of it, and the factual background which I have set forth, this is bare assertion and cannot be correct unless the statutory duty requires a professional valuation to be obtained in every case around the time of the deceased's death. Mr Ryder for HMRC did not go that far. It was argued under reference to Havering Commissioners (above) at page 174 I to 175 that what occurred constituted wilful default and that section 247(1) embraces careful breach of duty as well as careless breach of duty. That may well be so but in each case there must be established that the account was incorrect and negligently delivered. I refer to what I said in Robertson v IRC 2002 STC (SCD) 182 at 197g-j.

Here, the mere failure to obtain another valuation when it has not been established that a second valuation would have led to a different figure being inserted in the statutory form does not constitute negligent delivery of an incorrect account. It is not and could not be suggested that a prudent personal representative or even a solicitor acting as such should have foreseen when completing the statutory form that Stonefield was likely to sell for £600,000 or even £500,000. The fact that by April 2005 a decision had been taken to advertise Stonefield at offers over £500,000 is by no means conclusive. Properties are frequently advertised at significantly in excess of their perceived value in order to test the tone of the market and the extent of the interest in them.

34. Each case must be considered having regard to its own particular circumstances. The statutory phrase in section 216(3A) refers to what is reasonably practicable in the circumstances. I refer to Robertson at page 196f-197a. Negligent conduct amounts to more than just being wrong or taking a different view from HMRC (AB v HMRC 2006 UKSPC00572 7 December 2006). The fact that Mr Cairns subsequently agreed that the ultimate sale price should be treated as the date of death value of Stonefield, does not mean that the account was negligently furnished. Here, there was a valuation, heavily qualified. There is no evidence before me to indicate that a different valuation could have been obtained between October 2004 and April 2005 when the account was furnished. On the evidence before me, even if it were concluded that an incorrect account was delivered or furnished, it is simply not possible to conclude that it was negligently delivered or furnished except in one minor respect.

35. That minor matter is that it should have been declared in the account that the value specified for Stonefield, based as it was on a heavily qualified valuation, was a provisional estimate. Omitting to do so was a careless error. However, it was minor, technical and of no consequence whatsoever. It had no effect on the dealings between HMRC and Mr Cairns as executor. Stonefield was sold. HMRC were kept informed. They, in effect, reserved their position as to whether they would regard the sale price as the date of death value. The tax was duly paid, indeed overpaid and a refund eventually paid to the deceased's estate.

36. I must therefore conclude that if I had not dismissed the summons on the grounds that it was wholly lacking in specification, I would have concluded that there had been a narrow, technical failure to comply with the provisions of section 247(1). The account was incorrect. The sum of £400,000 should have been described as a provisional estimate. It was not. That failure was negligent. For the purposes of section 247(1) it does not matter that there was no loss to HMRC. The subsections does not require it.

37. This is however, a failure of the merest technicality. A proportionate response by HMRC would have been to do no more than point this out and would certainly not have led to the imposition of a substantial penalty or the institution these present proceedings.

Powers
38. A question arose as to the extent of my powers. Under section 249(4) of the 1984 Act, the Special Commissioners are to hear and determine each case in a summary way. There is no express provision entitling the Special Commissioners to increase or reduce the penalty. By contrast, on appeal to the court on a question of law, or against the amount of any penalty awarded, the Court of Session may, under section 249(3) either confirm the decision or reduce or increase the sum awarded. The reference to the sum awarded seems to be a reference to the proceedings before the Special Commissioners. HMRC do not award a penalty. Under section 247, liability to a penalty is incurred in certain circumstances and proceedings are taken for the recovery of penalties. I infer from these provisions, as well as section 251 and 252, that in awarding a sum I have, in effect, power to reduce or increase the penalty. Mr Ryder accepted that I at least had a discretion to recommend an increase or reduction to which effect would presumably be given, subject to any appeal to the Court of Session.

39. Had I concluded that the allegation of negligence in the summons had been relevantly set out with sufficient specification, I would have, in the circumstances, reduced the penalty to a nominal amount or recommended that it be so reduced. Mr Cairns acted throughout in good faith. Any finding of negligence would have been the merest technicality. There was no loss to HMRC whatsoever. There was instead an overpayment, which was subsequently repaid. Mr Cairns co-operated fully throughout. There was full disclosure of the assets of the estate. It was made clear to HMRC at an early stage that Stonefield was to be sold and it was ultimately accepted that the sale price should be treated as the date of death valuation, which is, I understand, commonly done, perhaps for the sake of peace and to secure a Capital Gains Tax advantage rather than anything else.

Disposal:
40. The summons is dismissed. If I am wrong to dismiss it, then I would have concluded that there had been a narrow, technical failure to comply with the provisions of section 247(1). In those circumstances, I would have reduced the penalty to a nominal amount or recommended that it be so reduced. There will be no award of expenses due to or by either party unless an application for expenses is made within 28 days of the release of this Decision.


Legislation


Probate Services (Approved Bodies) Order 2009
LNB News 11/05/2009 4

Published date: 11 May 2009
Jurisdiction: England; Wales
Enactment citation: SI 2009/Draft
Commencement date: 1 August 2009
Enabling power: Courts and Legal Services Act 1990, section 55(3), schedule 9, paragraph 4
Abstract: SI 2009/Draft: Chartered Certified Accountants may issue letters to found or oppose grant of probate or a grant of letters of administration.
Summary: Approves the Association of Chartered Certified Accountants to grant exemptions under the Courts and Legal Services Act 1990, section 55.

The effect is that a certified chartered accountant is a member of an "approved body" for the purposes of drawing up or prepare papers on which to found or oppose a grant of probate or a grant of letters of administration.

Features

Pitfalls of wills
LNB News 18/05/2009 58

Published date: 18 May 2009
Jurisdiction: UK
Abstract: Concern over the increase in disputed wills has prompted the Law Society's Wills and Equity Committee to issue a practice note flagging up potential pitfalls. Committee chair Helen Clarke talks to Grania Langdon-Down.
Analysis: If a will is disputed the solicitor who prepared it may be asked to disclose information about the circumstances surrounding its preparation and execution. The practice note--Disputed Wills--gives information on disclosing such information, the consequences of failing to do so, and protecting the estate pending the resolution of the dispute.

Clarke says: "The guidance is aimed at mainstream probate practitioners rather than litigation experts who already know their way around the procedural rules and are in court regularly. It is for practitioners who may have a family member coming in to see them disgruntled about a will or who may receive a letter from another solicitor querying a will and we felt it would be useful to set out what they need to do and what they should and shouldn't disclose.

"We felt it was important to issue the information now because probate litigation is increasing. There aren't a huge number of cases getting to court because most settle but there are more people prepared to question whether a will was fair and whether there are grounds to challenge it. I suspect that, given the financial pressures people are now under, it may well increase even more."
The practice note warns solicitors that if they have prepared a will they have knowledge that makes them a material witness if the will is disputed and they should therefore provide the information in advance to try to limit the costs of a full hearing.

The key issue of confidentiality in relation to a disputed will is Larke v Nugus (1979) 123 SJ 337 (CA), later reported in (2000) WTLR 1033. The Court of Appeal refused to order those challenging the will to pay the costs of the challenge even though the will was found to be valid. This was because the solicitor who had prepared the will refused to make information available at an early stage which, had it been given, could have prevented a full trial. The claimants' costs, therefore, were ordered to be paid from the estate and reduced the amount available for the beneficiaries of the valid will.

The practice note highlights the risks involved: "The beneficiaries of an estate that has been reduced in this way would be justified in bringing an action against the solicitor who had failed to disclose the information at an early stage to recover the lost costs.

"As the purpose of a Larke v Nugus letter is to prevent money being spent on futile litigation by the provision of early pre-action disclosure, the onus is on you to provide a prompt reply and relevant evidence to facilitate early settlement. Providing a response shortly before trial, when most of the costs have been incurred, is unlikely to protect you from an adverse costs order."

Clarke says the Wills and Equity Committee was the first of the Law Society committees to produce practice notes, which have included advice on file retention, the storage of wills and lasting powers of attorney. "We feel it is important to get information on key topics out to as many practitioners as possible, whether they are members of the probate section or not," she explains.

"We are currently updating an earlier piece of work we did on the gifting of assets, which includes looking at the affect it can have on challenges for care home fees. It is a complex piece of work and involves input from the conveyancing, mental health and disability committees.

"We are also working on a practice note on electronic wills, looking at how IT is changing the way wills can be produced and the risks involved which solicitors need to address."
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