Wasted costs and conflict of interestFitzhugh Gates (a firm) v Borden and Sherman  EWCA Civ 886
Readers will recall the case of Re Woolnough  WTLR 595, which reminded us that beneficial joint tenancies can be severed by mutual agreement as well as by notice.
In Re Woolnough, a brother (Len) and sister (Emma) had gone together to see the family solicitors (Fitzhugh Gates) to make wills leaving their interests in their house (owned as beneficial joint tenants) to the survivor, remainder to their niece, Dorothy, and if she predeceased to her children.
Emma died before Len.
Len changed his will to leave the house to charity.
After his death Dorothy's children successfully claimed that there had been severance of the beneficial joint tenancy by agreement as a result of which they were entitled to half the house under Emma's will.
They had also alleged that Len's brother's will was void for lack of capacity, but this was not considered in Re Woolnough.
Partners at Fitzhugh Gates acted as executors of Emma's will and for the executors of Len's will.
Initially, Master Moncaster ordered that the costs of the application be paid from the proceeds of sale of the house.
On appeal (Sherman v Perkins  WTLR 603), David Mackie QC, sitting as a deputy High Court judge, substituted an order making Fitzhugh Gates liable for all costs on the following grounds:
- The form of the proceedings was misconceived;- The firm had failed to inform Dorothy's children of the master's indication to that effect;- More generally, it had failed to take proper steps to avoid a conflict of interest in its dealings with the two estates.
Fitzhugh Gates appealed, claiming that the order was made without jurisdiction, without regard to the principles governing wasted costs orders and was in any event unjustified on the merits.
The pre-action history was that Claudia (the eldest child of Dorothy) had conducted the proceedings on behalf of her siblings.
She instructed solicitors in February 1994.
The solicitors had challenged Len's will on the two bases of severance of the beneficial joint tenancy and lack of capacity.
Claudia and her siblings all lived in Canada and had little evidence but Claudia insisted that they wished to make a claim.
Matters dragged on until January 1997 and Fitzhugh Gates asked Claudia to confirm that she renounced all rights or to commence proceedings.
She did neither.
On 20 January 1998, Fitzhugh Gates issued proceedings asking for an inquiry into any interest Claudia might have in Len's estate.
The application referred both to the alleged severance and to the alleged lack of capacity.
Claudia was by now acting in person.
On 27 January 1999, Master Moncaster indicated that he could decide the severance issue but not the capacity issue which would require a probate action and adjourned the matter.
Fitzhugh Gates merely informed Claudia that the matter had been adjourned as the master wished to hear further argument and was not prepared to make a final order.
A new hearing was fixed for 14 July 1999.
Claudia attended expecting to hear argument on the capacity point.
The master found in her favour on severance but confirmed his inability to deal with the capacity issue.
He ordered the costs to come out of the proceeds of the house on the basis that there was a genuine issue to be decided and that there was no impropriety in the executors bringing the action.
In May 2000, Claudia obtained legal representation and her solicitors challenged the costs order.
David Mackie QC made the wasted costs order which was the subject of this appeal.
Lord Justice Carnwath held that the conflict of interest had not in itself led to wasted costs.
So far as the form of proceedings were concerned it was true that they were not appropriate to decide the question of capacity but it was for Claudia to bring proceedings to challenge the validity of the will.
Len's executors had already obtained a grant of probate in common form and were not required to take any further steps.
The proceedings brought failed to solve the deadlock between Len's executors and Claudia, but the solicitors had instructed counsel to settle the form of proceedings.
Lord Justice Carnwath quoted with approval from Ridehalgh v Horsfield  Ch 205 (the leading judgment on wasted costs), in which it was said that while a solicitor does not abdicate responsibility when he seeks advice of counsel: 'The more specialist the nature of the advice, the more reasonable it is likely to be for the solicitor to accept it and act on it.'
Lord Justice Carnwath said that Fitzhugh Gates was entitled to look to counsel for specialist advice as to the appropriate procedure and to have that factor taken into account in assessing the reasonableness of its conduct.
It was unfortunate that the limited nature of the application before the master was not explained to Claudia.
However, primary responsibility for protecting litigants in person lies with the court.
The master was fully aware of Claudia's position and could have ordered that she be informed of his views or given a short judgment and taken steps to have it sent to her.
It was not the solicitor's responsibility to do this.
Finally, it was not clear that any costs were actually wasted as a result of the failure to pass on the information.
The judge had exercised his discretion wrongly.
The firm could not be said to have acted in a way which was 'improper, unreasonable or negligent'.
They were faced with a difficult situation and had acted in good faith on the advice of counsel.
In addition to the wasted costs issue, the court also considered whether the original order that the costs be borne from the proceeds of sale was appropriate.
The court held that it was.
While the general costs of administration fall on the estate, the costs of distribution fall on the gift in question.
Thus the costs of inquiries to ascertain the person entitled to any asset are normally to be paid out of the asset in question.
In Curnock v IRC  SWTI 1053, it was held that a cheque written before death as a gift but not cleared until after death was a gift uncompleted at the date of death.
The money was still an asset of the estate for inheritance tax purposes.
It could not be regarded as a donatio mortis causa or as a debt of the estate.