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The Further Decline and Fall of Benham

Paul Hewitt  –   Trust and Probate Litigation Team Withers
(taken from Isssue No 11 –  April 2000)

Paul Hewitt introduces Christopher McCall’s Opinion, a substantial extract of which is reproduced by kind permission of Counsel and instructing charities.

The judgments in Benham and in Ratcliffe have been given detailed analysis in these pages previously. Further clarity has now been given following the Opinion of leading Counsel Christoher McCall QC obtained on behalf of the British Heart Foundation, The Cancer Research Campaign, Imperial Cancer Research Fund and the National Trust.

Counsel was asked to advise in relation to two specific wills but also with a view to the opinion being provided for general guidance to executors in other estates where difficulties are being experienced in persuading lay executors or non-exempt beneficiaries (and on occasion professional executors) of the correct law.

Specific Examples

The Residuary Clause of the late Trevor Charles Corp is worded as follows:

MY TRUSTEES shall hold the residue of my estate upon trust either to retain or sell it and:-

(a) To pay all debts and testamentary expenses

(b) To divide the balance then remaining into ten equal parts or shares and to stand possessed thereof on the trusts following that is to say:-

(i) As to one such share for … absolutely

The Residuary Clause of the late Lionel Taylor is worded as follows:

I GIVE DEVISE AND BEQUEATH … unto my Trustees UPON TRUST to sell call in and convert … to pay my funeral and testamentary expenses Inheritance Tax (if any) and debts and the legacies bequeathed hereby … and to stand possessed of the residue…IN TRUST for such of the following … in the following part or shares:-

(a) As to … equal parts …. absolutely

Counsel’s Opinion

After summarising the decision in Re Benham Counsel analysed the decision in Ratcliffe as follows

`1.2.1. In in re Ratcliffe [1999] STC 262 Mr Justice Blackburne heard argument from leading Counsel, including argument on the effect of in re Benham, in the context of a will providing so far as relevant that residue after payment of testamentary expenses should be divided as to one half part between certain individual legatees equally and as to the other half part between certain charities equally. The judge held that of the three alternatives listed by Mr Gray QC inBenham the will before him called for the application of alternative (1) which he called the gross division approach as opposed to alternative (2) which he called the net division approach. It was not argued that alternative (3) was possible.

1.2.2 In his judgment at page 268j onwards Blackburne J indicated the difficulties he felt in being asked to follow Benham; though he said that he would have followed the case had he thought that it laid down any principle, unless he was convinced that it was wrong, he said that he was unable to find that it laid down any such principle, and therefore did not feel bound to follow it. But it is to be noted that he impliedly criticized the conclusion in Benham on the basis that alternative (3) had rightly been regarded as prohibited by the legislation, but that it was not clear why that was not the construction which had to be adopted to give effect to the intention of Miss Benham. He pointed out that the mere fact that the legislation had prohibited one alternative did not mean that it was not what had been intended. Of course this comment is pregnant with the thought that the difficulty in the Benham approach is finding an intention that is not prohibited by the Act and it explains perhaps the remark at [1999] STC 268h-j that

`Although … Mrs Ratcliffe could have achieved [equality after tax] … much clearer wording would be needed than the common form wording actually used.`

1.2.3  It is also to be noted that at page 268d-e Blackburne J pointed out that if the net division approach were correct then it would apply in intestacies calling for a division between a surviving spouse and issue, which he thought would be surprising.

1.3 It is known that a notice of appeal was served in Ratcliffe but the appeal was not pursued. Accordingly for the purposes of the rules as to judicial precedent the decision stands in the normal way, that is to say it is a decision of a High Court Judge in a matter which has not been the subject of an appeal.

1.4.1  There is no statute or common law rule that requires one court to abide by the decision of another of co-ordinate jurisdiction, nor can one first instance judge overrule another. But as a matter of judicial comity and practice a judge of first instance will normally follow a decision of another such judge in which the same issue has arisen unless convinced that it was wrong or able to distinguish it on the facts. Where there is a conflict of first instance decisions the later such decision is to be preferred if reached after full consideration of the earlier decision. As to these rules see Halsbury Laws of England (4th Edition) Volume 26 at paragraph 580 as set out in volume 2 of the 1999 Cumulative Supplement.

1.4.2 The Ratcliffe decision involved a full analysis after extensive argument by leading Counsel, including argument as to the decision in Benham; so Ratcliffewas plainly a decision reached after full consideration of the earlier case. By contrast the Benham decision was reached as a matter of identifying an intention out of a carefully structured formulation of the manner in which the estate was to be divided by the use of words that went further than a mere direction for proportionate division of the net after expenses estate as between numerous beneficiaries – the division was by reference to what would be needed to produce a certain balance of receipts amongst the listed persons, which is of course a quite different formula from one which simply requires a division of a fund into proportionate shares with the outcome of that division in terms of the amounts received being left to follow as a matter of course. Thus it is on any footing distinguishable from the category of case where as in Ratcliffe an attempt had been made to achieve a simple proportionate divide of what is left after administrative expenses.

1.4.3 It must, therefore, in my opinion be accepted that should further cases come before the High Court in which the choice between alternatives (1) (2) and (3) has to be made then unless and until a higher court has intervened the decision in Ratcliffe will be followed and the gross division approach will be applied at least so long as there is no clear intention revealed in the will in question that justifies preferring a net division approach on the basis that the testator has shown his concern for arranging a divide by reference to the actual amounts which will be received in the hands of the relevant legatees.

1.4.4 In particular it will be seen that the two words with which Mr Gray QC dismissed the argument that alternative (3) should be preferred amount to an emphatic acceptance that the one thing that cannot be said is that a testator can override the Act and provide that exempt legacies are to bear their own tax; thus it is not for example possible to say that since Ratcliffe involved no express reference to the payment of `tax` a will that does refer to tax is distinguishable along the lines of a revealed intention that enables a net division approach to be adopted – even in Benham the argument that intention can be used to shift the tax burden was dismissed almost out of hand.

1.4.5 It would of course be quite wrong to say that since Ratcliffe was a case decided on its facts it therefore does not offer any precedent. It is of course true that any case is decided on its facts, and as Blackburne J pointed out in discussing the extent to which he was bound to follow Benham the question is in the last resort whether or not a principle has been laid down. The principle laid down in Ratcliffe is that a gross division approach is correct in all cases where common form wording is used for a proportionate division of an estate. It will be followed by any judge at first instance who is not satisfied that it is wrong and cannot find a valid basis of distinction in the facts of the case with which he is concerned.

2.1 In these circumstances it is my unqualified opinion that wills such as those now before me (Corp and Taylor) containing directions for

(i) a proportionate divide as between numerous legatees some attracting exemption and others not where

(ii) the division is of what is expressed to be a residuary estate netted down by payment of testamentary expenses

will whether or not the direction for the payment of expenses contains express reference to the payment of tax fall to be administered on the basis that the gross division approach is applicable.

2.2 Moreover any person who seeks to challenge this view must in my opinion face the fact that it will be necessary to take the matter to the Court of Appeal to avoid that result, and of course a beneficiary who appeals to the Court of Appeal has to accept that he or she will do so at his or her own risk as to costs in the event that the appeal is unsuccessful; it cannot be assumed, and would be the case in the normal case where a first instance decision is required, that the costs of all parties will be treated as a burden on the estate in any event.

2.3 Finally any trustee who voluntarily distributes on any basis other than that adopted in Ratcliffe, or who refuses to distribute on the Ratcliffe basis for any other reason than that a beneficiary disputes his rights to do so and is willing to challenge the Ratcliffe decision in the Court of Appeal, accepting the risk as to the ultimate incidence of costs, must in my opinion face the fact that prima facie he is acting in breach of trust. It is not in my opinion necessary for the trustee who feels doubt as to his duty to do more than seek confirmation that he can apply the Ratcliffe approach by an ex parte summons under section 48 of the Administration of Justice Act 1985; and for my part, absence what I would term a receipts-based formula in the will in question, I am firmly of opinion that the fact that both Benham and Ratcliffe ruled out the possibility of adopting alternative (3) means that a trustee not faced with any beneficiary (or the Revenue) seeking to argue any other point of view ought to be ready to apply alternative (1) without more, and would find it hard to justify his conduct should he face a breach of trust claim and have to rely on the prospect of relief under Trustee Act 1925 section 61.

3.1 I thus consider that in practice Ratcliffe has laid down a binding precedent unless and until it is overturned on appeal or a judge at first instance can be led to take the wholly exceptional course of casting doubt on a decision reached after full argument by leading Counsel in which there was a full debate of the outstanding authority that might have been thought to point in another direction. It is not in my opinion now right for executors to seek to assert that there is a doubt in any common form will unless they are faced with beneficiaries who challenge the correctness of Ratcliffe; and if they do then they must accept the risk involved in terms of the costs of do doing. There is no merit in any assertion that Ratcliffe was decided on its facts except in a case where the facts as so clearly different that they lead to the case falling on the other side of a dividing line that Blackburne J himself recognised. The supposed conflict between the decisions is in my opinion more apparent than real once one takes account of the fact that Mr Gray dismissed out of hand alternative (3) and simply allowed alternative (2) to be upheld as the result of a receipts based formula in the will; but in so far as there is a conflict Ratcliffe as a later, and fully considered, decision carries dominant weight.

3.2 I furthermore do not think that executors can justify spending money on anything more substantial than a section 48 application to approve a Ratcliffedistribution, and than only if they have minor or unascertained beneficiaries; in other cases they must in my view distribute in line with Ratcliffe save where a beneficiary challenges their right to do so and accepts the burden of costs involved in pursuing the challenge unless it succeeds.

4.1 It only remains for me to add that in my opinion there is little or no chance of the Court of Appeal overturning Ratcliffe, which I consider to be a careful decision which correctly reflects the law. Those who see to argue the contrary do in my view face the very significant force of the dismissal by Mr Gray QC of alternative (3) as unarguable; it will in my view be a rare case where it is at one and the same time possible to accept that section 41 precludes any attempt to make an exempt share of residue bear its own tax but still possible to find an intention in the wording of the will that allows the same result to be achieved as statute has sought to preclude. I do not for a moment doubt that it can be done. What I doubt is that it will ever be done by a testator who has not made plain in the words used that he or she is aware of the workings of the tax and is seeking to achieve either the grossing up of a gift that bears tax or the netting down of a gift that is exempt from tax.`

Counsel concluded that he saw nothing in the specific wording of the two wills before him which could possibly justify any attempt to disregard Ratcliffe, and that the estate distributed on the net division basis (Corp) had been wrongly distributed and the executors prima facie liable for the loss to the charities concerned.

The key issue for executors faced with a challenge to Ratcliffe based estate account calculations will be the form of wording of the testamentary gift. It was accepted in Ratcliffe that a net division (i.e. Benham) approach could be achieved by a testator. However `much clearer wording` would be needed than the common form wording actually used.

It may be appropriate for legal advice to be taken where there is distinctive wording with a view to taking out an ex parte summons under s48 of the Administration of Justice Act 1985.

We consider that Mr McCall’s Opinion sets out what should now be considered incontrovertible, namely that the gross division approach is the correct method of distribution.

As a footnote, readers may well be interested to know the Solicitors Indemnity Fund has paid out in settlement on one of the two cases referred to in Mr McCall’s Opinion.

Copies of the Opinion are available by e-mailing Paul Hewitt postal or DX details. Liability will not be accepted for any errors or omissions.    Extracts may not be published without express permission from Paul Hewitt.