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Cowan v Foreman - Where Are We Now?

on Thursday, 26 September 2019.

The Court of Appeal has recently reversed the controversial first instance decision in Cowan v Foreman that standstill agreements are not effective.

This decision will likely have come as a relief to practitioners advising clients in relation to claims under the Inheritance (Provision for Family and Dependants) Act 1975. But what else can we learn from the judgement?

What Happened?

The facts of the Cowan case are by no doubt well known by now, but in summary:

Michael Cowan died in April 2016, leaving an estate worth approximately £29 million, largely held in two discretionary trusts.

His Will did not make any outright provision for Mary Cowan, the deceased's widow, but a letter of wishes provided that she was to be the principal beneficiary of the two trusts and that she was to receive income and capital when requested.

Probate was granted on 16 December 2016. In 2017, Mary sought advice regarding her position under the trust, after the Will trustees raised queries regarding reimbursement of her medical bills.

In January 2018, the parties entered into a 'standstill agreement', whereby the executors and trustees agreed not to take issue with Mary bringing a claim out of time whilst the parties attempted to resolve matters.

Negotiations failed and on 8 November 2018, 17 months after the six-month limitation period to bring a claim had expired, Mary issued an application under the 1975 Act seeking outright provision from the Estate and the court's permission to bring the claim out of time under section 4.

High Court Decision

Mostyn J held that for permission to bring a claim out of time to be granted, the court must be satisfied that:

  • the claimant has shown good reasons for the delay in issuing
  • the claim has sufficient merit to be allowed to proceed to trial

The court held that Mary failed on both limbs of this test and therefore the application for permission to proceed out of time was refused.

The court held that the use of standstill agreements in 1975 Act claims are inappropriate, stating: "It is not for the parties to give away time that belongs to the court".  It added that if parties wanted to agree a moratorium for the purposes of pursuing negotiations, the claim should be issued in time and the court then be invited to stay proceedings.

This element of the decision in particular was met with much criticism by the profession, as it appeared to go against both the spirit of the overriding objective of the CPR and common sense. Perhaps unsurprisingly, the matter was appealed and judgement was handed down by the Court of Appeal on 30 July 2019.

Appeal Court Decision

The Court of Appeal (CoA) allowed the appeal. They cited the seven principles relevant to the granting of permission to bring a claim out of time, as highlighted in Berger v Berger [2014] EWCA Civ 1305, and held that the High Court had failed to consider all of the relevant circumstances and factors. Accordingly, the CoA held that Mostyn J had been wrong to seek a 'good reason' to justify a delay - this was simply one factor to be weighed against the other facts of the case.

With regard to the merits of the case, the court at first instance had held that the claim was bound to fail. Firstly, Mostyn J found that to allow the argument that Mary lacked security under the trust arrangement would amount to “a form of spousal heirship”. Secondly, he went on to find that there was no evidence that the trustees would defy the Deceased’s wishes, contained in the Letter of Wishes, that Mary be principal beneficiary of the trusts.

The CoA found that Mostyn J had failed to have regard to all of the relevant factors set out by section 3 of the Act, of which Mary’s lack of autonomy and security was one. The question to be considered was whether, on these facts, it was arguable that her interest under the discretionary trust was not reasonable financial provision. Secondly, the CoA highlighted that a Letter of Wishes is by its very nature unenforceable and may not be complied with. Mostyn J had therefore erred in finding that the claim had no real prospect of success.

Finally, the court considered that negotiations between the parties should have been viewed as a positive factor in granting permission. With regard to the use of standstill agreements to facilitate this, Lady Justice Asplin agreed with Mostyn J that they cannot bind the court but stated “without prejudice negotiations, rather than the issue of proceedings should be encouraged”. In her judgement Lady Justice King made the observation that standstill agreements will often be appropriate, particularly where the issuing of a claim can itself make the prospect of settlement less likely.

What Does This Mean for Practitioners?

You will no doubt be relieved at this apparent endorsement and common sense approach to the use of standstill agreements, which would appear to sit more comfortably with the overriding objective of the CPR. You must bear in mind, however, that whilst standstill agreements will often be appropriate tools to aide an out of court settlement, they do not provide absolute certainty. As stated by Asplin LJ, each case is fact specific and a claimant therefore still takes a risk if negotiations are unsuccessful and a claim is issued out of time.

Any practitioner advising a claimant to enter into a standstill agreement should note the comments of Lady Justice King with regard to the procedure to be adopted.

It is also worth noting that the court’s treatment of the spousal claim in Cowan suggests a stronger sympathy for spouses who are expected to put up with unsatisfactory trust arrangements in Wills, as opposed to outright provision, even if the value of the trust is very substantial, as it was in this case.

For more information on Inheritance Act claims and standstill agreements, please contact Fiona Lawrence, in our Contentious Probate team, on 0117 314 5389 or complete the below form.

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