When Trustees and Executors Collide

26-06-2014

 

Court-of-Justice

The Jimmy Savile saga continued this year with a fallout between the executors of his estate and the trustees of one of his trusts.

The Facts
Jimmy Savile died on 29 October 2011 leaving approximately £4.4 million in his will and potentially hundreds of claims against his estate arising out of the sexual abuse cases. The current value of his estate, after allowing for the surprisingly high executors’ legal costs, is about £3.3 million.

His will appointed National Westminster Bank plc (“Nat West”) as executors and legal representatives. He named various individuals in his will as beneficiaries (“The Beneficiaries”). The residue of his estate was to pass to the Jimmy Savile Charitable Trust (“The Trust”). The Trust was intended to serve a number of worthwhile and valid charitable causes. Following revelations contained within an ITV television programme broadcast on 4 October 2012 many hundreds of potential claimants have come forward to make private claims for damages against his estate. Over 140 individuals have made personal injury claims based on these allegations (“The PI Claimants”).

The Law
As a starting point, an estate can only be distributed after the claims of creditors have been satisfied (Re Hubback, (1885) 29 Ch. D. 934) this would include those with valid personal injury claims. Mr. Justice Sales stated during a 3 day hearing in February this year that, “There is no serious dispute that some, perhaps many, of the claims may be well-founded and meritorious. If such claims are substantiated, there is a serious possibility, to put it no higher, that they would exhaust the money remaining in the estate, leaving the individual beneficiaries and the Trust with nothing.”

The Beneficiaries and the Trust had the following concerns:

The Hearing
In February this year the Trust brought an application to court seeking an order under section 50 of the Administration of Justice Act 1985 for Nat West’s replacement as executor on the grounds that it had failed to act in the interests of the benefit of the Trust and the Beneficiaries.

In dismissing the Trust’s application, the Court rejected a number of criticisms of Nat West’s conduct and found that it had performed its duties appropriately. The Court also approved Nat West’s scheme for administration of the estate, which was designed to achieve speedy and inexpensive resolution of existing and future personal injury claims against the estate.

Under Section 284(1) of the Insolvency Act 1986, the Court also ratified various expenses incurred by the bank in executing the will and administering the estate, including the substantial legal costs that had been incurred in relation to the personal injury claims.

The case is perhaps helpful in its analysis of the duty of an executor and what constitutes behavior which justifies removal of an executor and personal representative. In respect of the former the judge drew on the principle authority of Letterstedt v Broers (1884) 9 App Cas 371.

Mr. Justice Sales concluded…”the circumstances of this case requires Nat West to have regard not only to the interests of those claiming under Jimmy Savile’s will (the Beneficiaries and the Trust) but also to the interests of those among the PI Claimants, possible future claimants and the Third Party Defendants who may have meritorious claims against his estate”. He went on to state that if personal injury claimants or Third Party Defendants have meritorious claims against the estate, the proper fulfillment of the executor’s role is to see that such claims are paid out of the estate before making any distribution under the terms of the will.

An appeal has been lodged.

The Outcome
The courts have (at least for now) indicated that they will support executors who endeavor to balance the competing interests of a charitable trust with creditors of the estate.  We shouldn’t overlook the fact that a quarter of the sizable estate has been lost to legal costs, leaving less money available for worthwhile charitable causes. If the Trustees had agreed to mediate the terms of the PI scheme with Nat West they may have been able to build in additional safeguards to it, to ensure that only valid PI claims were compromised by the executors. This only reinforces the obvious benefit of Trustees working with executors to minimise costs and only seeking court intervention as a matter of last resort.


Share this Blog