LEGAL UPDATE

Probate law

By Lesley King, College of Law, London

Land valuation

Re Bowles, deceased sub nom Hayward v Jackson (2003), The Times, 27 February

The testator's will gave the claimant the right to buy part of his farm at the amount agreed between the executors and the capital taxes office.

The claimant had to be informed of this right within six months of the testator's death and then had three months to decide whether he wanted to exercise the option.

The executors renounced probate and the residuary beneficiary took out a grant of administration.

Almost three years after the testator's death, agreement had still not been reached with the Capital Taxes Office as to the value of the land.

The claimant said he should be allowed to exercise the option at any time until the expiry of a reasonable period after the value of the land had been agreed and notified to him.

He also sought an order for disclosure of all information that was relevant to his decision and, if necessary, relief from the consequences of not exercising the option within the option period since the administrator had in breach of duty refused and/or failed to disclose the information he needed to make the decision.

Mr Justice Lawrence Collins held that because the will contained no prescribed consequences for failure to act in time, time was not of the essence.

To have found that the time limits were mandatory might have defeated the testator's intention.

The time limits were directory in nature and the claimant was entitled to wait until the price was ascertainable, and from then he would have a reasonable time to exercise the option.

The rules on options seem to be developing quickly.

This decision is different from the earlier - and much stricter - decision on time limits, Re Avard [1948] Ch 43.

Readers may recall another recent case on options to purchase, Re Bliss [2001] 1 WLR 1,973, which decided that in the absence of any direction to the contrary a valuation should be an open market valuation at the date of death.

An open market valuation differs from a probate valuation in that it takes into account matters such as a right of occupation granted by will, which a probate valuation would ignore.

Re Bliss also decided that the valuation should not take into account subsequent events

Hastings Bass principle

In Abacus Trust Company v Barr [2003] WTLR 149, the Hastings Bass principle rears its head again though for once in a non-tax context.

The principle as stated by Mr Justice Warner in Mettoy Pension Trustees Limited v Evans [1991] 2 All ER 513 is: 'Where a trustee acts under a discretion given to him by the terms of the trust, the court will interfere with his action if it is clear that he would not have acted as he did had he not failed to take into account considerations which he ought to have taken into account.'

A settlor created a trust.

He was the life tenant and the trustee had a power of appointment.

The settlor wanted the trustee to exercise a power of appointment to create discretionary trusts in respect of 40% of the trust fund for the benefit of his sons and to the exclusion of himself.

The settlor was being advised by a firm that had a close relationship with the trust company and asked a representative of the firm to relay his wishes.

The representative, who had misinterpreted the instructions, told the trustee to appoint 60% of the trust fund on that basis.

In August 1992, the mistake was discovered and the settlor expressed his dissatisfaction but, for fiscal reasons, left matters as they were.

Some 400,000 was paid in capital and income to each of the sons.

In November 2001, it was realised that the appointment could be challenged and an application was made to court.

The settlor contended that the trustee's error rendered the appointment void.

The sons' primary contention was that, on the facts, the error did not affect the validity of the appointment and, if it did, the appointment was merely rendered voidable at the discretion of the court.

The case made some important points about the way in which the rule operates.

The rule does not require that the trustee's mistake be fundamental.

All that is required is that the unconsidered matter would or might have affected the trustees' decision.

It is not sufficient to show that the trustee made a mistake.

The trustee must have failed to consider something he was under a duty to consider.

If the trustee has identified the proper considerations, and used all proper care and diligence in obtaining the relevant information and advice, the trustee cannot be in breach of duty and its decision cannot be impugned merely because the information turns out to be partial or incorrect.

In this case the fault in failing to consider the true wishes of the settlor was that of the trustee, its advisers and agents.

The fiduciary duty of the trustee required the trustee to ascertain the wishes of the settlor, in particular since he was the life tenant whose interest in the trust fund was to be overridden, and since the trustee was supposedly giving effect to his wishes.

The trustee had failed to take adequate measures to ensure that it received a correct rather than a garbled version of the settlor's wishes.

The trustee had elected to use the firm as its appointed vehicle for eliciting and transmitting the settlor's wishes to the trustee.

It was accordingly responsible for its default.

In addition, the trustee had failed to seek a written note of the settlor's wishes or to provide him with a copy of the proposed appointment before execution.

Accordingly, the rule was brought into play.

A successful challenge made to a decision under this rule should result in the decision being held voidable and not void (as with a decision challenged on the ground of breach of fiduciary duty).

This means that matters such as delay or acquiescence on the part of the challenger or payments having been made in reliance on the decision will affect whether or not the decision should be avoided.

In Executor of John Holland deceased v IRC [2003] WTLR 207, the special commissioners dismissed an application from Mr Holland's cohabitee of 31 years, Kriemhild Holland.

She claimed the spouse exemption for inheritance tax purposes even though she was not married to the deceased.

The special commissioners held that 'spouse' was limited in this context to those legally married.

The Human Rights Act did not apply as death occurred before it was in force.

Even if it had applied cohabitees are not in an analogous situation to married couples and so different treatment is objectively justified.

Therefore, there was no breach of convention rights.