Limitation periods – Lane v Cullens solicitors [2011] EWCA Civ 547

 In Probate

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A salutary warning for those advising PRs – remember that there is no time limit on bringing a probate action. However, fortunately, the absence of advice as to the risks of anyone pursuing a claim of which the PRs had notice is subject to limitation which saw the solicitors here defeating the PRs’ claim.

The facts

Mrs Eason died on 22 January 1997 and although she left a Will in favour of her niece Mrs Hannah it was not properly executed and therefore invalid. As a result her brother, Mr John Lane, took out the Grant of Letters of Administration in her intestate estate through Cullens Solicitors which was issued on 2 August 2000.

Mrs Eason has two brothers and a sister but her sister predeceased her leaving two children, Mr Hobson and Mrs Hannah. The deceased’s estate was therefore divisible into one-third for the PR, one-third for his brother, one-sixth for Mr Hobson and one-sixth for Mrs Hannah. The net estate was worth £61,000 of which was mostly represented by the sale proceeds of Mrs Eason’s home.

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Mr Cullen stopped practising as Cullens at the end of February 2001 and became a consultant with Bowling & Co where he carried on acting in the estate.

Mrs Hannah has not only disputed the fact that Mrs Eason died intestate by the production of the invalid Will she also in 1998 asserted a separate right to the estate based on an express or constructive trust created before Mrs Eason’s death or on proprietary estoppel which was said to be binding on the estate in respect of Mrs Eason’s house. She put the family and Cullens on notice and obtained legal aid initially to pursue her claims.

Meanwhile Mr Lane became the administrator of the estate and carried out his task. By February 2001 he was in a position to make payments to beneficiaries and Mr Cullen paid £10,000 to each brother in February 2001 and a further £10,000 to each of them in March 2001.

Shortly afterwards Mrs Hannah issued proceedings claiming the whole estate. In her particulars of claim she said that after the death of Mrs Eason’s mother in October 1993 Mrs Eason gave her freehold property to Mrs Hannah subject to a licence to live there for the rest of her life. Mrs Hannah became the registered proprietor at the end of December 1993, about the time the invalid Will was executed.

Mrs Eason subsequently became unwell and discussions ensued with social services about modifying the property at the public expense but this could only be done if the property was in Mrs Eason’s name. As a result Mrs Hannah agreed to transfer the property back to Mrs Eason on the understanding her entire estate would go back to Mrs Hannah on Mrs Eason’s death. This was the basis of her claims against the estate.

Mrs Hannah was successful and an order was made on 2 June 2003 ordering Mr Lane and his brother to each pay Mrs Hannah £20,000. The PR’s brother failed to repay the sum due and so a further order was issued against the PR saying that he should repay this sum to Mrs Hannah.

The arguments

Mr Lane, the PR, contended that he should have been warned by Cullens/ Bowling & Co, not to distribute any money to any beneficiary given the claim made by Mrs Hannah had not been withdrawn. The question for the Court was whether his claim was barred by the Limitation Act as not having been brought within six years of the accrual of the cause of action.

The fact of the matter was that the order made in October 2002 in favour of Mrs Hannah meant that the PR was holding the entire estate on trust for Mrs Hannah. He therefore argues that as soon as any payment was made out of the estate account to a beneficiary he suffered loss because he personally would be liable to repay that sum to its true owner Mrs Hannah.

It is a principle of equity that if a trustee or person acting in a fiduciary position has received notice that a fund in his possession is or may be claimed by another he will be liable to that person if he deals with the fund in disregard of that notice should the claim subsequently be proved.

Mrs Hannah originally asserted her claim in 1998 and the PRs’ dealings with the fund in 2001 were inconsistent with the notice he had of her claim. As a result the Judge at first instance found that the PR was barred from making the claim against Cullen’s since his cause of action in tort arose on the first payment being made in February 2001 which was more than six years before the issue of these proceedings against the solicitors.

Counsel for Mr Lane argued that the PR’s position did not change and no loss was suffered until the nature of Mrs Hannah’s proprietary estoppel claim was known, which was not until the court made an order (in October 2002). However, Lloyd LJ said that the PR’s legal position changed (i.e. he acquired personal liability) as soon as any distribution was made at a time when the claim of which he had notice had not been finalised.

The decision

Lloyd LJ explained that the PR had completed his task of collecting in the assets and meeting the debts of the deceased by February 2001 and held in the PR’s account £61,000. At that time he had notice of a claim by Mrs Hannah which had not at that stage been pursued but which had not been withdrawn and for which as PR he remained exposed. He was therefore safe as until he made a distribution he had access to the estate and could be indemnified against any claim from those funds.

As soon as the PR parted with £40,000 of those estate funds he altered his secure position so that he personally became exposed for any part of Mrs Hannah’s claim which could not be met out of the retained funds. The damage the PR suffered here was real and he could have made good his claim in tort against Cullens for releasing funds to him and his brother without Mrs Hannah having withdrawn her claim.

However, the act of making the payments out of the estate account was the beginning of the period of time for making a claim against Cullens. It was when the PR’s position changed and therefore time ran under the Limitation Acts from that point. As the Judge at first instance identified this meant that the PR was out of time as this was more than six years before the present action and therefore Mr Lane was not successful in his claim against Cullens.

The other judges sitting in the Court of Appeal agreed.

Practice points

Some might feel this is a useful decision exonerating the solicitor but actually it does not do any more than apply a time limit in what transpired to be fortunate timing for the solicitor. The solicitor did make a mistake in not advising his client PR of the risks of making a distribution in the absence of a resolution or withdrawal of a known claim against the estate.

There is no statutory time-bar to bringing an action in probate and there is little guidance in the cases as to how long it would have to drag on for before any action might be struck out for unreasonable delay. Although it is always open to the PRs to distribute in the face of the unresolved challenge, as here, it should be in the knowledge of what the likely consequences might be and knowing that this will mean waiving the protection of s.27 Administration of Estates Act 1925 – which gives protection for acting in good faith under a Grant which has been issued.

The cost of bringing an action to prove a Will or assert the validity of the grant already issued in an estate would incur the PR in significant costs so consider the interesting case of Cobden Ramsay v Sutton [2009] WTLR 1303 in which the PRs used a directions hearing to obtain an order permitting them to distribute the estate in accordance with the Will unless the defendant issued proceedings within 28 days – a sort of ‘put up or shut up’ type of order which would usefully flush out the action and bring it to a head. If no proceedings were issued the PRs could safely distribute knowing they personally could not be liable to the claimant if proceedings were subsequently issued after the 28 day deadline and that the claimant would have to trace the funds instead.

6 June 2011

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