In its eagerly anticipated judgment of 30 July 2019, the Court of Appeal has reversed Mr Justice Mostyn’s decision in Cowan v Foreman and allowed a spousal claim for reasonable financial provision under section 2 of the Inheritance (Provision for Family and Dependants) Act 1975 to commence almost 17 months out of time.1
Of particular interest to spouses, the Court of Appeal’s judgment lends authority to the notion that it is arguable that giving a spouse a beneficial interest under a discretionary trust under your will rather than making outright provision for them is not reasonable financial provision.
More generally, the judgment provides helpful guidance on how the court should approach its power to override the six-month time limit under section 4. The judgment may offer comfort to beneficiaries needing longer than six months to negotiate with Executors/Will Trustees because the court is now unlikely to reject standstill agreements entered into for the purpose of negotiations if the parties are legally represented when the moratorium is agreed.
Background to the claim
Mr and Mrs Cowan met in 1991 and were devoted to each other. Unfortunately Mr Cowan was diagnosed with a brain tumour in February 2016. As a result, the couple quickly married and Mr Cowan changed his will.
Mr Cowan’s will made his wife a beneficiary of two discretionary trusts, with a life interest in one of them, but he did not make any outright provision for her. Mr Cowan’s accompanying letter of wishes stated that Mrs Cowan should be regarded as the primary beneficiary of both trusts and should receive income to ensure that she maintains a standard of living at a reasonable level.
Mrs Cowan issued a claim under section 2 of the Inheritance (Provision for Family and Dependants) Act 1975 (“the Act”) for reasonable financial provision from her deceased husband’s estate and applied for permission under section 4 of the Act for her claim to commence out of time. Section 4 provides that, except with the court’s permission, the time limit for bringing a section 2 claim for financial provision is six months from the date of the grant of representation. In this case, Mrs Cowan issued the claim almost two years after probate was granted, nearly 17 months after the six-month limitation period had expired. During that time, Mrs Cowan was obtaining legal advice and negotiating with the Executors/Will Trustees. The parties agreed a moratorium for the purposes of negotiation. Negotiations were unsuccessful and Mrs Cowan issued a claim out of time.
In the High Court, Mr Justice Mostyn said that in order to be granted permission under section 4, Mrs Cowan would need to show that she has:-
- good reasons justifying the delay in bringing a claim; and
- a claim of sufficient merit to be allowed to proceed to trial 2
In respect of the first limb, the Judge considered the court’s overriding objective including CPR1.1(2)(d)-(f) and the “ever-developing sanctions jurisprudence” under Denton principles.3 The Judge said that the six-month time limit must be there to “protect beneficiaries from being vexed by a stale claim” and to “spare the court from being burdened with stale claims”. Ignoring the moratorium period, the Judge concluded that there was no good reason for the “very substantial” 13-month delay following expiry of the limitation period.4
In respect of the second limb, the Judge applied the summary judgment test under CPR 24.2 and concluded that Mrs Cowan’s claim failed the test. The Judge’s reasons included that the will made a “generous trust arrangement” for Mrs Cowan, he could see no evidence that the Trustees would not honour the testator’s wishes and any failure to do so would an actionable breach of trust.5 The Judge said that requiring outright testamentary provision between spouses would “introduce a form of forced spousal heirship”.6
The Judge condemned parties agreeing a moratorium for the purpose of negotiations and said that standstill agreements “should come to an immediate end. It is not for the parties to give away time that belongs to the court”.7 Instead, the Judge recommended that claims be issued in time and the court be invited the stay proceedings for the purposes of negotiation.
Court of Appeal
The Court of Appeal overturned the High Court Judgment and granted permission under section 4 of the Act for Mrs Cowan’s claim to commence out of time. The Court of Appeal’s reasons are summarised below.
1. The Judge erred in his approach to the nature and purpose of section 4.
- Stale claims irrelevant: Contrary to the Judge’s view, “Section 4 is not designed…to protect the court from stale claims” but “to further the overriding objective of bringing such claims before the court where it is just to do so”. The concept of a stale claim is more relevant to the Limitation Act 1980, whereas the 1975 Act requires assessment at the date of the hearing and therefore there is less of a concern about the loss of evidence over time.8
- Overriding Objective and Denton irrelevant: Contrary to the Judge’s approach, paragraphs CPR1.1(2)(d)-(f) and the “Denton jurisprudence” are not relevant because they concern how to properly manage a case once it has been issued. In contrast, section 4 concerns whether to allow a claim to be issued out of time. The Claimant “must make out a substantial case for the exercise of the section 4 power” but that does not require the court to approach the statutory time limit as strictly as they would approach compliance with procedural rules.9
- Evaluation of Berger factors necessary: The Judge’s “erroneous approach” led him “to take a disciplinary view and to polarise his thinking into two main streams”. The “proper approach” is to consider the seven Berger v Berger factors10 and “to give them appropriate weight in the particular circumstances.”11 The merits of the claim for reasonable financial provision should be considered first because “if the claim has no real prospect of success, there is no point in considering the other relevant factors”.12
- Good reason for delay not essential: Contrary to the Judge’s view, “it is not necessarily true that there must be a good reason for all delay in every case”. In some circumstances, “it may be appropriate…to exercise the section 4 power, despite the lack of a good reason for delay”.13
- Clear explanation sufficient: The Court of Appeal viewed the sequence of events as a whole and found that “the explanation for the lapse of time…is clear”.14 The lapse of time after the letter of claim should be viewed positively and not count against Mrs Cowan because during that period the Executors/Will Trustees encouraged Mrs Cowan to enter into without prejudice negotiations and then to mediate.15
2. The Judge erred in finding no real prospect of success
- Right test but wrong question: The Judge was right to consider the merits of the substantive claim in terms of whether it met the summary judgment test16 but was wrong, when applying the test, to speculate about whether the Deceased’s intentions were reasonable (particular without any relevant evidence). The Judge should have asked “whether it was arguable that reasonable financial provision had not been made for Mrs Cowan”.17
- Improper regard for all relevant circumstances: The Judge failed to give proper regard to all the circumstances of the case, including the size of the estate, the length of the relationship and the fact that the only outright testamentary provision to Mrs Cowan was chattels of nominal value.18 In all the circumstances, the Court of Appeal concluded that Mrs Cowan’s substantive claim “has a real as opposed to fanciful prospect of success”.
- No forced spousal heirship: The Judge was wrong to suggest that a spousal claim for outright provision from the estate imports “forced spousal heirship”. Each case is fact specific and must be considered in light of the relevant factors.19
- Wrong approach to letter of wishes: A letter of wishes is unenforceable and therefore the Judge was wrong to rely on his conclusion that, because he could see no evidence to suggest that the Trustees would defy the letter of wishes, the Trustees would comply with the letter of wishes and any non-compliance would amount to an actionable breach of trust.20
3. The Judge erred in suggesting an end to standstill agreements
- Standstill agreements not binding but should be encouraged: Whilst only the court has the power under section 4 of the Act to extend the six-month period for issuing the claim and any agreement not to take a point about delay cannot be binding, “without prejudice negotiations rather than the issue of proceedings should be encouraged”.21
- Legal representation relevant: If the parties are legally represented when they agree a standstill agreement, then “it would be unlikely that the court would refuse to endorse the approach”.22
- Written agreement needed: The Court of Appeal stressed that there should be a clear written agreement setting out the terms and duration of the standstill agreement.23
- Section 4 application with consent: The Court of Appeal said that if proceedings are issued out of time following a standstill agreement, a section 4 application seeking permission should be made by consent when proceedings are issued.24