This article analyses the legal profession's reaction to the use of standstill agreements in 1975 Act claims following Cowan v Foreman and Others.
The 1975 Act allows claims for financial provision out of the estate of someone who died domiciled in England and Wales. Such a claim should be made within six months from the date of the first Grant. However, the Court has power to permit late claims.
Until recently it was common practice to enter into standstill agreements with a view to exploring alternative dispute resolution of the claim eg through mediation. But in February 2019 Mr Justice Mostyn, in refusing to allow a widow's claim to proceed out of time , insisted the practice come to an immediate end, damning it as 'cock[ing] a snook at... Parliament...'.
Five months later the Court of Appeal unanimously overturned Mostyn J's judgment. It allowed the widow's claim to proceed and expressed positive views about the standstill agreement Mrs Cowan had entered into.
In the two years since then much has been said about standstill agreements with the legal profession seemingly convincing itself, based on close textural analysis of the Court of Appeal's decision, that Mostyn J was right. Which is odd given the Court of Appeal concluded he was wrong.
What did the Court of Appeal say which so undermines confidence in standstill agreements?
Lady Justice Asplin gave the leading judgment. Lady Justice King's supporting five paragraph judgment focusses on the subject of standstill agreements. After agreeing the appeal should be allowed, she first summarised the position advanced by leading counsel for the Foundation (the ultimate beneficiary of the Trusts established under the Will); namely that parts of the profession 'strongly deprecated' the use of standstill agreements and that the approach, favoured Mostyn, should be to issue proceedings within six months and, if parties are negotiating, apply for an adjournment.
But Lady Justice King then makes clear that there is an important place for standstill agreements. As she says, 1975 Act claims arise 'in what are often highly distressing and sensitive cases and in which a decision to issue is otherwise to be made whilst bereavement is still very raw and emotions high'.
She then makes the point that issuing proceedings, rather than providing a safety net if agreement cannot be reached, can lead to a hardening of attitudes and a focus on the litigation with the consequential cost and delay in the estate being administered.
In other words, she draws a clear distinction between choosing safety first or pursuit of alternative dispute resolution. And it is clear which choice she prefers even before saying that where there is a 'properly evidenced agreement to which no objection has been taken by the executors and beneficiaries, it is unlikely that in the ordinary way, a Judge would dismiss an application for an extension of time'.
Lady Justice King does not say that a Judge must allow the application, but her expectation of a Judge presented with a standstill agreement could not be clearer given the powerful policy reasons she advances in favour of such an outcome.
What appears to outweigh all the above for those barristers and solicitors who say 'safety first' is her acknowledgement that the final decision rests with the court.
Similarly Lady Justice Asplin says, 'if both parties have been legally represented, it would be unlikely that the court would refuse to endorse the approach'.
The dread word here is 'unlikely' – proof that such an outcome cannot be ruled out as if all things in litigation are otherwise certain! Lawyers deal every day with the distinction between what is possible on the one hand and what is plausible or likely on the other.
What is the risk?
So, what are the circumstances in which a Judge will ignore a standstill agreement and refuse permission?
The safety-first analysis in the talks and online articles appears rather thin on this point. All that is said is that because the court retains a discretion it is safer to issue rather than be sorry.
One article says, 'the difficulty for practitioners is that the Court of Appeal have left alive the real possibility of a risk to a claimant if they enter into a Standstill Agreement' meaning that 'the best advice might still be to issue claims and avoid the risk entirely'.
One well known QC's line is 'I do not trust judges. Never leave them the slightest opportunity to hang you out to dry.'
A well-known law firm says on its website that 'the prudent litigant may elect to bring a protective claim (which is then stayed) as the only way to ensure the right to claim under the 1975 Act is not lost'.
But this commentary obliterates the Court of Appeal's core message.
Lady Justice Asplin describes the lapse of time in Cowan between the standstill agreement and the issue of proceedings, in order to pursue alternative dispute resolution, as a positive factor.
We all seek to advise clients as to what is in their best interests. It may be that pressing on and issuing a claim form is in the claimant's interests. But not always. At least three drawbacks spring to mind.
Issuing proceedings gives rise to additional cost. Costs create pressure on the defendant to settle a valid claim. But there is always a shortfall, so the claimant also loses out as costs increase. And the pace at which the quantum of cost increases often outstrips defendant willingness to write larger cheques (because the size of the estate from which costs must be paid remains the same).
Where the defendant is exempt for inheritance tax purposes (specifically a spouse, civil partner or charity), issuing a claim potentially leads to an adverse tax consequence. Any award is automatically read back to the date of death thus negating the original tax-exempt status of the legacy.
And it is immensely difficult to draft a witness statement in support of a 1975 Act claim which does not inflame tensions with those who consider themselves charged with upholding the wishes of the deceased testator. In other words, as Lady Justice King warns, there is a hardening of attitudes and focus on litigation. Indeed, even the fact of having issued proceedings will, in and of itself, be regarded or portrayed as hostile not only to the defendants but to the deceased's wishes.
There is a more nuanced approach which both claimant and defendant might do well to consider.
Twice in 2019 the Court of Appeal placed emphasis on how the merits of the substantive claim should have the most weight when determining an application for leave to issue out of time.
If a claimant insists on issuing, despite the offer of a standstill, the other parties might reasonably see that as a lack of confidence about merit. Because if the 1975 Act claim is meritorious and the defendants have agreed to a standstill, why insist on issuing given what Lady Justice Asplin and Lady Justice King have said?
Secondly, how is the argument against granting permission to be advanced? Where defendants have entered into a standstill but then seek to renege on that agreement and invite the Court to disregard it they must be at serious risk as to costs. It is precisely that kind of underhand behaviour which riles so many judges.
Of course, a judge might independently exercise his or her right and deny permission without anyone arguing for that outcome, but are we not entering the realms of fantastical outcome? As Lady Justice Asplin said, 'without prejudice discussions, rather than the issue of proceedings, should be encouraged'. I am not aware of any Judge who has criticised parties for pursuing alternative dispute resolution in good faith.
All litigation involves risk analysis. So we can advise clients that there is a theoretical risk associated with a standstill agreement but that there are also real advantages.
Lady Justice King said that there should be a clear written agreement setting out the term/duration, and each of the potential parties should be included.
If we take the standard position where executors (who, of course, are neutral) and residuary beneficiaries have agreed a stay and proceedings are in due course issued, in Lady Justice King's words 'the court should be presented with a consent application for permission to be granted notwithstanding that six months has elapsed'.
There are practical difficulties where, for instance, there is a minor beneficiary. But such difficulties are surmountable.
There may be a degree of uncertainty where residue is held on trust. Are the beneficiaries of the trust to be joined and is their consent necessary? Cowan appears to leave the point unanswered. But it should be clear as a matter of principle that where an estate is left on trust, the beneficiaries of the probate process are the trustees themselves who then hold for the beneficiaries of the trust. So, it is the trustees who should be a party to a standstill agreement.
Notably, in Cowan Lady Justice Asplin dismisses the complaint by Leading Counsel for the Foundation (the ultimate default beneficiary) that it had not endorsed the standstill as 'having little weight'.
Rarely can a Court of Appeal decision have led so many practitioners to reach precisely the opposite conclusion of its core message. It is time to recognise that the Court of Appeal is in favour of standstill agreements and to have confidence that the judiciary will practice what has been preached.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.