National Westminster Bank v Lucas [2014] EWCA Civ 1632

Analysis

Jimmy Savile died in October 2011. His will dated 24 July 2006 named NatWest as his executor and left the residue of his estate to the Jimmy Savile Charitable Trust (the trust) which he had created in 1984. Probate was obtained on 8 March 2012 with a net estate of £4.3m. The bank placed s27 Trustee Act adverts on 5 January 2012.

Following an ITV programme broadcast on 4 October 2012 accusing Mr Savile of being a serial sex offender, NatWest began to receive letters from potential claimants seeking compensation from the estate. NatWest quickly appreciated that the estate could be rendered insolvent if there were numerous claims and therefore applied on 24 January 2013 for an order under the Insolvency Act 1986 to ratify its past expenditure in respect of the administration of the estate. It also issued a claim form without naming any defendants to seek the determination of ‘all questions that arise for determination arising out of the administration of the estate’. At that point no legal claims had been issued against the estate and most claims were likely to be out of time under the three-year limitation period. However, NatWest received legal advice that the court would be likely to disapply the three-year period.

On 1 April 2014 Sales J made an order approving NatWest entering into a scheme negotiated between the PI claimants and themselves and bodies alleged to be vicariously liable in respect of the claims including the BBC and Secretary of State for Health. The scheme provided a mechanism to allow a PI claimant to submit their claim to the bank. A tariff rate of damages for each category of assault was agreed and for existing PI claimants whose claims are agreed to receive £10,000 for their costs up to the approval of the scheme and fixed costs going forward. The costs of the executor of operating the scheme are to be paid out of the estate on an indemnity basis.

PI claimants, even if accepted under the scheme, retain the right to pursue legal action and payment under the scheme has first to be approved by the court.

Sales J also ordered the ratification of £392,000 of expenditure by the bank, dismissed the trust’s application for the removal of NatWest as executor and ordered the trust to pay the costs of NatWest, the PI claimants and the Secretary of State for the removal application on an indemnity basis and to pay 80% of NatWest’s costs and all the costs of the PI claimants of the application for the approval of the scheme, again on the indemnity basis. This was because the trust had failed to engage with the various parties during the negotiations about the scheme.

The trust appealed against the order allowing entry into the scheme, the dismissal of the removal application, the order ratifying expenditure and the order for costs. The trust contended that:

1. a) NatWest treated the interests of the PI claimants and the beneficiaries equally although the PI claims were unsubstantiated.
2. b) The judge, when approving the scheme, failed to take into account the executor’s duty to ensure the estate is not reduced by adverse claims to the estate.
3. c) NatWest failed to provide evidence that the scheme was reasonable having regard to the interests of those entitled to the due administration of the estate and the judge was wrong to approve the scheme on the material before him. There was no explanation of why £10,000 was agreed for pre-scheme costs.
4. d) NatWest failed to consider alternative methods of considering the PI claims and spent £0.5m on formulating the scheme. The judge was wrong to reject the trust’s complaint that NatWest was misguided in its role as executor.
5. e) NatWest should have sought directions from the court before incurring expenditure in negotiating the scheme, given that there was doubt over the solvency of the estate.
6. f) NatWest had excluded the trust from the scheme negotiations and failed to update them on progress.
7. g) The scheme enabled PI claimants to participate with no risk as to costs, operated entirely at the expense of the estate and made no provision for limitation defences.
8. h) The PI claimants should not have participated in the application for removal of NatWest as the executor.
9. i) The judge did not consider the breakdown in confidence between the beneficiaries and NatWest and NatWest should have been required to justify the expenditure for which it sought validation.
10. j) The judge erred in principle in ordering the trust to pay both the removal approval application costs.

Held (dismissing the appeals against the order allowing entry to the scheme and the dismissal of the application to remove NatWest as executor; partially allowing the appeal against the order for costs – the third parties to the removal application to pay their own costs and the trust’s costs for approving the scheme to be paid from the estate)

1. 1) NatWest was wrong in its view that it should treat the PI claimants as having the status of creditors.
2. 2) NatWest’s initial application was on the basis of seeking approval that the PI claimants were properly provided for rather than seeking the court’s approval of their decision to implement the scheme.
3. 3) This appeal does not have the task of redrafting the scheme – if the scheme is not suitable then it must be set aside.
4. 4) At first instance the judge applied the right test in deciding whether to approve NatWest entering the scheme and so the order can only be set aside if he was obviously wrong in his assessment of whether the executor could properly have taken the decision to process the PI claims in this way. It has to be shown that the scheme is inherently unsuitable in efficacy or cost to take it outside the range of what a prudent executor acting in the best interests of the estate as a whole could agree to or that the judge had insufficient evidence to carry out the assessment. Neither of these points have been proven on this appeal.
5. 5) Given the number of PI claims the bank was right to design a scheme to consider them. Mediation would provide insufficient protection to the executor unless carried out as part of a larger scheme.
6. 6) Much of the criticism about the scheme is in relation to cost. The judge’s order enables the trust to conduct a detailed assessment of the solicitors’ bills and therefore the trust’s challenge to the judge’s order approving the scheme on these terms is rejected.
7. 7) A lack of confidence or feeling of mistrust is not sufficient to justify the removal of an executor. Although the trust says that relations with NatWest have broken down, the PI claimants do not.
8. 8) If the outcome of the trust’s challenge to the scheme had been successful then the case for a new administrator would have been stronger. A change to the administrator now risks disrupting the scheme, leading to unnecessary costs and delay.
9. 9) Going forward in operating the scheme it is difficult to see how NatWest’s views about the trust can have any material effect. The PI claims are professionally vetted and any negotiations about claims will be a matter for the bank’s solicitors.
10. 10) The appeal against the judge’s own dismissal of the removal application is dismissed.
11. 11) On the financial figures available at first instance the estate was not insolvent given that its assets far exceeded its proven liabilities. Once debts such as tax, funeral expenses and legal costs associated with the realisation of assets are excluded then the only unsecured creditors are the PI claimants. Since they agreed to the scheme it is difficult to see how such claimants can object to the costs of the scheme being paid in priority to their claims.
12. 12) The costs of any necessary parties other than the personal representative to an application for directions will ordinarily be paid out of the estate. However, the court retains the power to disallow particular items of costs where points are raised for no good or proper reason or when they are motivated out of animosity towards the other parties.
13. 13) At first instance the trust was ordered to pay 80% of the costs of the approval application because the trust generated extra costs by opposing the application. The judge was entitled to reject most of the objections raised by the trust but he was wrong to treat them as anything but genuine concerns. The judge should have ordered that the trust’s costs of the approval application should be paid out of the estate on the indemnity basis.
14. 14) NatWest should take the entirety of its costs in relation to the application out of the estate.
15. 15) The PI claimants were necessary and proper parties in these unusual circumstances and were entitled to be heard on the application. Their attendance at the hearing assisted the judge in deciding to approve the scheme and they are entitled to their costs out of the estate.
16. 16) The removal application was a direct attack on the conduct of NatWest. The judge was entitled to conclude that the trust should pay NatWest’s costs on the indemnity basis.

17) Neither the PI claimants nor the Secretary of State were parties to the trust’s removal application. NatWest was well able to defend the attack. The costs of these third parties are only recoverable if the judge was in some way justified in making costs orders against the trust in favour of non-parties to the application. The removal application did not concern their conduct and they were not necessary parties. They were entitled to be heard but it must be at their own expense.

JUDGMENT PATTEN LJ: Introduction [1] Sir James Savile, better known as Jimmy Savile, died on 29 October 2011. Under his will dated 24 July 2006 he made a number of small gifts and pecuniary legacies and gave lifetime interests to eight named beneficiaries in a fund of £600,000. The residue of his estate (including the …

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