Should an administrator of an estate be personally liable for breaching undertakings given to court?

 In Comment

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Lyons v Kerr-Robinson [2016] EWHC 2137

This is an unusual case of a defendant, who was alleged not to be related to the deceased, and so, not entitled under her intestacy to either take out a Grant or appropriate assets of the estate to herself. Unfortunately for her, her chosen lawyers were not authorised to act in litigation and they took monies she transferred to them from the deceased’s estate in settlement of outrageous invoices before going into liquidation. The court had to consider whether she was liable to restore the sums to the estate.

Case Summary from LawSkills | Private Client specialist trainers

The facts

The deceased, Cynthia Maria Lyons, was born in Jamaica in 1927 and died in 2011 domiciled in England. She had been married but at the time of her death was divorced. She died intestate leaving estate in Jamaica and England. The claimants in the estate were a claimant under the IPFD 1975 and a nephew of the half-blood.

Incorrectly, (a caveat having been registered) a Grant was issued to Andrene Kerr-Robinson (AKR) on 15 February 2012. The Principal Registry wrote to AKR on 20 March 2012 requiring the return of the Grant but it was not forthcoming.

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AKR was born in Jamaica and claims to be the niece of the half-blood of the deceased. She is an accountant and is a director of a financial services company.

The issue in this case is not about who is entitled under the intestacy of the deceased but the liability of AKR to repay the monies she appropriated to accounts in her sole name at the Halifax and later transferred to Blueprint Property Lawyers Limited (Blueprint) who she asked to represent her. Blueprint was only ever a firm of licensed conveyancers and was not authorised to conduct litigation or probate.

To prevent dissipation of the estate the claimants sought to appoint an independent interim administrator. The claimants were eventually successful in getting the grant issued to AKR revoked and to have an interim administrator, nominated by the President of the Law Society, appointed under a new Grant.

At the hearing to deal with these issues the Judge ordered AKR to pay £20,000 on account of costs within 28 days – these monies were not to come out of the estate assets under AKR’s control. These costs were not paid and a further court order placed a charging order on AKR’s house to secure the debt. Eventually, a director of Blueprint put AKR’s subsequent solicitors, Fortis Rose, in funds to pay this debt.

Fortis Rose acted for AKR from April 2013 until February 2016 when she appointed Sharman Law.

The problem for AKR is that in October 2013 the Council of Licensed Conveyancers intervened in the practice of Blueprint and disclaimed any losses the estate suffered as the losses were incurred in the course of Blueprint undertaking unauthorised work. Blueprint then went into insolvent liquidation early in 2014.

The issue was that AKR opened an account with the Halifax into which she paid all monies obtained from the deceased’s estate. From that account she transferred via CHAPS £59,657.71 on 28 March 2012 to Blueprint’s client account and a further CHAPS transfer of £27,107.41 on 26 May 2012. In addition, Blueprint received £30,000 from the deposit on the sale of the deceased’s property.

Blueprint was ordered to transfer the deposit monies to the interim administrator but in fact only transferred £19,537.20 claiming the balance was represented by the costs on sale (£10,462.80).

Blueprint was not authorised to conduct litigation but it did – it said through general counsel – Samuel Okoronkwo (SO). He was in fact not a barrister in private practice but employed by a Company called Capstone Sports Management Limited and should not have appeared for anyone apart from them. He did, however, appear for Blueprint and was listed in the client care letter as a member of their personnel. The hourly rate for him was said to be £550; and for two other members of staff, £250.

Between AKR’s two payments to Blueprint a hearing was held on 4 April 2012 at which SO represented AKR. At the hearing AKR gave undertakings to the Court including one not to dispose of or distribute any part of the deceased’s estate until further order. Therefore, of the payments to Blueprint, one was made before and one after this undertaking was given to the court.

Blueprint rendered an invoice on 11 May 2012 for £97,167.50 plus disbursements of £799.70 & VAT of £19,433.50 making a total of £117,400.70. This was for profit costs for mostly SO’s work where he apparently undertook 107 hours work over a period of 24 working days at the rate of £550 per hour – by any measure this is a high rate of charge.

Although no copy of an earlier invoice was available a redacted bank statement showed that a further sum of £55,523.40 was taken from client to office account on 4 April 2012 and which could only have covered 8 working days as Blueprint started working for AKR on 26 March 2012.

Further bank statements showed that through three transfers from client to office account a total of £86,075.40 was taken. This was a mere trifle of the total statement of costs apparently prepared for an earlier hearing for the period 26 March to 7 December 2012 which sought a total of £360,814.30!

There was considerable doubt as to whether AKR knew that the monies she had transferred to Blueprint had been transferred into office account. By the time the order requiring her to refrain from paying or distributing monies had been made the first payment would have been used up in these costs and by the time she asked Blueprint what part of the order had not been complied with on 20 March 2013 she was told the £20,000 she had been ordered to pay in costs into court and the return of the Grant.

The law

The Judge reviewed a number of cases around the question of whether or not merely paying estate monies to Blueprint constituted a breach of the undertaking and court order: Re Barn Crown Ltd [1995] 1 WLR 147, involving the clearance of a cheque following a winding up petition; R (Revenue & Customs Prosecutions Office) v R [2007] EWHC 2393, involving a conviction for money laundering which resulted in a restraining order in respect of certain assets in R’s possession.

Public policy requires that a person who commits an act or omission in breach of an injunction or in breach of an undertaking in lieu of an injunction, should not be able to profit from it – Clarke v Chadburn [1985] 1 WLR 78 per Sir Robert Megarry:

those who defy a prohibition ought not to be able to claim that the fruits of their defiance are good, and not tainted by the illegality that produced them.

One of the consequences of AKR’s breach of the undertaking is that she cannot recover the monies paid to Blueprint in part satisfaction of their invoices because the money is irrecoverable.

Alternatively, AKR obtained a Grant of Letters of Administration and therefore stood in a fiduciary position in relation to those entitled to benefit from it. She must account to those entitled. In so doing she is entitled to deduct proper estate expenses and also losses incurred without her fault. The burden is on AKR to show the expenses were proper and the losses were without her fault. In the context of litigation costs the relevant rules are in CPR Practice Direction 46 par 1.

There was also an argument as to whether she could be excused liability under s.61 Trustee Act 1925 which says:

If it appears to the court that a trustee, whether appointed by the court or otherwise, is or may be personally liable for any breach of trust, whether the transaction alleged to be a breach of trust occurred before or after the commencement of this Act, but has acted honestly and reasonably, and ought fairly to be excused for the breach of trust and for omitting to obtain the directions of the court in the matter in which he committed such breach, then the court may relieve him either wholly or partly from personal liability for the same.”

The decision

Blueprint told the interim administrator in March 2013 that the litigation costs had been paid out of the estate funds so the judge decided on balance of probabilities that AKR did know that the estate funds had been so used. Since it is not necessary to show that AKR appreciated the significance of this in order for her to be in contempt of the court order in which she gave undertakings not to dissipate the estate then showing she knew the terms of the order or undertaking, that her acts or omissions did breach the order or undertaking and that she knew of the facts which made it such a breach.

As to the alternative arguments about the proper deduction of litigation expenses, the Judge found that AKR had not discharged the burden on her because:

  • She did not obtain directions from the court before defending the proceedings to appoint an interim administrator
  • The claim was all about whether AKR or someone else should act as administrator and not about protecting the estate
  • AKR engaged lawyers who were in fact not authorised to conduct litigation at all; who put in place high charging rates which she did not query or try to cap

AKR must pay over to the administrator the sum of £86,075.40 being the minimum amount which can be demonstrated to have been paid out of estate monies to towards the invoices of Blueprint for legal services.

The Judge confirmed that s.61 Trustees Act 1925 applied as much to PRs as trustees. Although reference was made to De Clifford v Quilter [1900] 2 Ch 518, where monies transferred to a solicitors’ firm by the executors in an estate were partly lost when the solicitors became bankrupt; the Judge distinguished the decision. He said it that whilst it was correct to relieve the executors of liability in that case, in the present case it was not reasonable to hand over estate money to Blueprint when it had no estate function to perform only litigation, which it was carrying on for AKR’s benefit and not for the benefit of the estate.

The Judge commented that AKR was a professional person well used to business matters and so it would not be fair to those who should correctly benefit from the estate to excuse her for failing to obtain directions from the court as to whether she should pay money over to Blueprint.

The Judge also reviewed the potential shortfall in the Halifax account which related to other expenses incurred. Some expenses were legitimate (next of kin verifications and obtaining the Grants here and in Jamaica etc.) but others not: no credit was given for return air fares for flights to Jamaica or car hire as it was not felt appropriate for AKR to visit Jamaica for the purposes of the estate administration. AKR was ordered to pay the interim administrator a further £2,450.02 plus interest.

Practice points

  • Personal liability does mean just that when administering an estate
  • A PR, particularly if a professional person, must challenge and question fee estimates; select only authorised persons to act for the estate and only act in preservation of the estate and not for their own self-interest

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