Disputes Between Personal Representatives

Feature

posted 1 Nov 1999 in Volume 5 Issue 1

Disputes Between Personal Representatives

Situations of Conflict
It is impossible to give an exhaustive list of situations in which personal representatives may find themselves at odds with each other but the following situations are typical :

(1) Bona fide disputes, e.g. as to the appropriateness of a particular investment or other administrative act.

(2) A personal representative with a personal interest, e.g. in cases where

(a) he is a beneficiary under the will or intestacy; or

(b) he is a director and shareholder of a company in which the estate is interested; or

(c) he has a claim which is adverse to the estate or he may be liable to the estate, e.g. because he has misused his powers under a power of attorney (or an enduring power of attorney) granted to him by the deceased.

(3) A personal representative who is partisan, e.g. where one of the personal representatives is a friend of or professional adviser to one of the principal beneficiaries.

(4) A personal representative who is dishonest, e.g. in his duties as to the disclosure of assets.

(5) A personal representative who is simply argumentative or unreasonable. It is surprising how often this situation occurs! A personal representative who has no personal interest in the estate is nevertheless quite capable of being obstinate and difficult.

Handling conflicts

The manner in which conflicts are resolved very much depends on the nature of the particular conflict.

(1) Where there is a friendly dispute as to the propriety of a particular administrative act, e.g. as to the propriety of making an investment of a particular type or of selling a particular asset about which the personal representatives entertain strong but conflicting views, one solution may be to agree to take professional advice, and to act on it.

(2) Where the dispute is not quite so friendly or where the consequences of adopting one view rather than another, e.g. as to construction or as to the propriety of an appropriation in specie of a mixed fund of realty and personalty or the propriety of instituting proceedings against a third party, may significantly affect the nature or value of the interests of competing beneficiaries, it will usually be advisable to take the directions of the court.

(3) Where serious differences between executors emerge before probate has been granted, one or other of the executors may wish to renounce probate. In theory an executor who has intermeddled is not entitled to renounce. However, not all acts of administration amount to intermeddling so as to debar an executor from renouncing :

Holder v Holder [1968] Ch 353, CA (in which it was held the opening of an executors account, the payment in of rents due to the testator, the payment out of funeral and testamentary expenses and of moneys required to redeem land tax and various other estate liabilities and the instruction of valuers to value the land amounted to an interference with the administration of a minimal character which did not debar one of the executors from subsequently renouncing probate).

An application could alternatively be made under section 116 of the Supreme Court Act 1981 passing over the executors and granting administration to other persons by agreement: see section 116(2). Acts of intermeddling are irrelevant to the exercise of this jurisdiction and in practice will not give rise to difficulty.

(4) Removal of executor. One possible solution is to apply for the executor to be passed over under section 116 of the 1981 Act even if he objects. The jurisdiction is exercisable by reason of any special circumstances which is a wide jurisdiction :

Re Clore decd [1982] Fam 113 (affd, CA, [1982] Ch 456) ( special circumstances not limited to circumstances in connection with the estate itself or its administration, but extend to any other circumstances the court thinks are relevant).

But the jurisdiction under section 116 will not be available after the grant of probate, unless there are also grounds for revocation. (The power of the court to revoke in non-contentious proceedings is limited to cases where the grant was made to someone not entitled to it on the basis of a false statement or where there is a defect, e.g. where a caveat is overlooked or a new will is discovered.)

Another potential limitation on the jurisdiction under section 116 may arise where the executor is also appointed trustee and the will declares enduring trusts. It is in theory doubtful whether, in such circumstances an order under section 116 passing over the executor would also unsaddle him as trustee. (The offices of executor and trustee are distinct and can be separately disclaimed.) In practice the persons to whom administration is granted will usually remain in the saddle as trustees after the completion of the administration without objection from the executor who has been passed over. An alternative solution in such circumstances, which avoids the theoretical defect in the jurisdiction under section 116, is to apply in the Chancery Division for the removal or replacement of the executor as both executor and trustee under section 50 of the Administration of Justice Act 1985 and section 41 of the Trustee Act 1925. (Section 50 is primarily directed to cases where a grant has already been made, but is not in terms confined to such cases. The title of an executor stems from the will and there appears to be no reason why one should not invoke the section before the grant has been made.)

Whichever course is adopted, it should be borne in mind that the court will not lightly remove a person named as executor and/or trustee. Nevertheless if the administration is being hamstrung by the activities of one of the personal representatives, there may be no other option but to apply.

Role of solicitors in cases of conflict

Solicitors who have been instructed, whether before or after the grant of probate, to act in the administration of an estate by executors or administrators who subsequently fall out can find themselves in a difficult situation. (For the sake of brevity I will refer to executors in this section, but what is said applies equally to administrators.) It may be possible in such circumstances for the solicitors to confine their activities to matters of routine administration and to continue to act with the acquiescence of both executors. But the time may come when they can no longer obtain the joint instructions of both executors and can no longer effectively act; one of the executors may have to go, whether willingly or not. What are the solicitors to do in such circumstances? One option for solicitors in this position is simply to terminate the retainer and cease to act altogether. Many solicitors, however, will be unwilling to take this step and may feel it to be inappropriate to do so. For example, one of the executors may be a long-standing client and the other not, or one may be a perfectly sensible client and the other not. In such circumstances the solicitors may wish to continue acting for the one and cease acting for the other and may feel that they are entitled to do so. But can they?

Who is the client?

A preliminary question about which confusion often arises is the identity of the client of a solicitor who has been instructed to act in the administration of the estate of a deceased person. A solicitor who is so instructed does not act for the estate. The estate is not a person in law. The solicitor can only act for the persons who instructed him. The solicitor s clients are thus the executors and, where there are two or more of them, the solicitor is obliged to act on their joint instructions. No doubt in practice one executor may take a lead role with the acquiescence of the other. In such circumstances the solicitor may act on the authority of that executor, at least on day to day matters which do not require the assent of all. But where one of the executors objects, the solicitor cannot consistently with his retainer disregard that objection. He cannot continue to act for the estate as if it were a separate entity. If his situation becomes impossible, he may have to consider terminating the joint retainer. Can he thereafter accept instructions from one of the executors, e.g. for the purpose of taking proceedings for the removal of the other or the recovery of property or compensation from him? Or must he cease to act altogether?

Conflict of interest

(1) It is axiomatic that a solicitor who already acts for one client may not accept instructions from another client whose interests conflict or are likely to conflict with those of the first client: see The Guide to the Professional Conduct of Solicitors, 8th Edn (1999), section 15.01, para 1. But it does not follow that a solicitor is always obliged to decline instructions from an existing client to act against a former client. A conflict of interest between the existing and former clients is bound to arise and the solicitor in representing the existing client will necessarily be acting against the interests of the former client.

However the conflict of interest between the existing and former clients will not of itself debar the solicitor from acting in such circumstances - indeed the use of the expression conflict of interest is rather misleading in this context in that it suggests that the very existence of such a conflict is an automatic bar. This is not so.

(2) The basis upon which a solicitor (or other professional person in an analogous position) may be restrained from acting on behalf of an existing client against a former client has recently been considered by the House of Lords (for the first time) in Prince Jefri Bolkiah v KPMG [1999] 2 WLR 215. This case establishes conclusively that

there is no absolute rule of law that a solicitor may not act in litigation against a former client

and that

the basis for the court s intervention is founded not on the avoidance of any perception of possible impropriety but on the protection of confidential information : per Lord Millett at p 224 (p 526).

The two conditions which must be satisfied before a court can properly intervene are :-

(i) that the solicitor is in possession of information which is confidential to the former client; and

(ii) that such information is or may be relevant to the matter on which he is instructed by the second client.

(3) For this purpose confidential information includes not only information communicated in confidence by the client to the solicitor but also confidential information acquired by the solicitor on behalf of his client, e.g. by consulting experts, and advice given by the solicitor to the client: Re a Firm of Solicitors [1997] Ch 1 at 9 per Lightman J. Lord Millett agreed with Lightman J s view that where there is a real (and not merely fanciful or theoretical) risk of disclosure, though not necessarily a substantial one, the court should intervene, disapproving in this respect the balancing exercise adopted by the Court of Appeal in Rakusen v Ellis, Munday & Clarke [1912] 1 Ch 831 and in the Court of Appeal in Prince Jefri itself.

(4) Solicitors professional obligations

The professional view is consistent with the views expressed judicially. The Guide to the Professional Conduct of Solicitors, 8th Edn (1999), section 15.03 specifically addresses this situation. Although headed Conflict arising between two or more current clients , the commentary also deals with the position of former clients. Para 1 reads as follows :

If a solicitor has already accepted instructions from two clients in a matter or related matters and a conflict subsequently arises between the interests of those clients, the firm must usually cease to act for both clients. A solicitor may only continue to represent one client if not in possession of relevant confidential information concerning the other obtained whilst acting for the other. Even in such a case it would be prudent to confirm that the other party does not object.

(The suggestion in the last sentence amounts to a counsel of perfection! In many cases the former client would undoubtedly object to the solicitors acting, but this would be no bar to their doing so.)

(5) The Prince Jefri case was a Chinese walls case. The question, which the House of Lords answered in the negative, was whether KPMG who had collected confidential information in the course of private litigation in which Prince Jefri was a defendant could subsequently, and after the termination of their retainer by him, accept instructions from an agency of the Brunei government to carry out an investigation (involving the provision of litigation support services such as a firm of solicitors would provide) into the whereabouts of assets transferred from the agency s funds during Prince Jefri s chairmanship of that body. The case may be a far cry from the case of two warring executors but the principles it establishes are clearly very relevant to the freedom of a solicitor to terminate his joint retainer by two executors and thereafter accept instructions for one of them only.

6) Applying the principles laid down in Prince Jefri and The Professional Conduct Guide to a situation in which solicitors wish to cease to act for one executor but to continue to act for the other, it is difficult to envisage circumstances in which they would be debarred from so doing. To take the example of a solicitor acting for executors one of whom is an established client and the other previously a stranger, the only information which the solicitor will have acquired about the stranger will have been acquired during the currency of the joint instructions. Some of the information so acquired may possibly be both confidential and relevant to subsequent proceedings to have him removed, but it will almost certainly be confidential to both executors; in other words it will be information to which the continuing executor will be entitled in his own right or, to put it another way, it will be an asset of the estate. Continuing to act for the established client will not therefore normally involve any breach of the confidentiality principle. If on the other hand the firm had previously acted for one of the executors in, say, proceedings involving allegations of dishonesty, then it might well be improper for the solicitors to act for the other executor in proceedings for his removal. Such situations will be exceptional.

(7) Solicitors who plan to part company with one of two executors should act warily. Although the jurisdiction to debar a solicitor from continuing to act is not founded on the avoidance of any perception of impropriety , it would be unwise, indeed unprofessional, to take up a partisan position during the currency of the joint instructions. The solicitor should first terminate the joint instructions, and only then adopt the openly partisan stance.

Correspondence exchanged between the solicitor and the continuing client during the currency of the joint retainer in which the solicitor and continuing client appear to be ganging up on the other executor will be discoverable in subsequent proceedings and could be professionally embarrassing to the solicitor.

Francis Barlow, Barrister, 10 Old Square, Tel: 0171 405 0758.

He is a joint editor of Williams on Wills and the new Wills title and the forthcoming Executors title in Halsbury s Laws of England.