National Westminster Bank Plc v Lucas & Ors

This is the hearing of applications made in relation to the execution of the will of Jimmy Savile and the administration of his estate. Issues have arisen as to whether a validation order should be made for the purposes of section 284 of the Insolvency Act 1986 as it applies in relation to the estates of deceased persons by virtue of the Administration of Insolvent Estates of Deceased Persons Order 1986. Mr Cunningham QC, for the Bank, the executor under Jimmy Savile’s will, submits that a retrospective validation order should be made in relation to payments out of the estate totalling £1,047,715.83 up to 13 February 2013, and a prospective validation order in relation to payments to be made out of the estate totalling £50,281.56 in the near future.

The items include substantial sums in respect of legal fees, funeral expenses and tax payments. Mr Cunningham submits that they are all perfectly proper payments made or to be made by the Bank, as executor, which ought not to be invalidated by operation of section 284 as it applies in relation to the estates of deceased persons. By virtue of the 1986 order, section 284 provides that dispositions from the date of death of a deceased person out of his estate are, subject to the order of the court, void – see Re Vos [2006] BPIR 348. Section 284(1) provides:

Mr Cunningham QC submits that all the dispositions and proposed dispositions should be validated and hence saved from being treated as void under section 284, but he goes further and submits that the court should make an order now which also provides that all those dispositions and proposed dispositions should be treated as lawfully made by the executor and incapable of challenge hereafter by any person claiming in respect of the estate.

Jimmy Savile died on 29 October 2011. The Bank proceeded to administer his estate in accordance with his will in the usual way. A considerable sum of about £70,000 was spent in relation to Jimmy Savile’s funeral and burial arrangements. This included payment for a funeral service in Leeds Cathedral. At that stage, Jimmy Savile was a high profile and often revered public celebrity. The funeral arrangements were in accordance with his wishes, and were supervised by his family in consultation with the executor.

On 4 October 2012 a TV programme was broadcast on ITV accusing Jimmy Savile of being a serial child abuser and sex offender. A public furore followed, with numerous individuals coming forward to say they had been abused by Jimmy Savile. From the date of the programme, I consider that it was clear that it was very possible, indeed likely, that a substantial number of legal claims might be brought forward against his estate by alleged victims of abuse by him. It was clear, or should have been clear, from about that time that such claims might be so numerous and so serious as to render the estate insolvent. The first formal letter of claim was sent to the Bank by an alleged victim on 31 October 2012. Certainly by 8 November 2012, the Bank accepts that it appeared that it was possible, depending on the outcome of the claims which might be brought forward, that the estate might be insolvent. The Bank has applied to this court for directions as to how to proceed.

At the hearing before me today, Mr Lissack QC appears representing the Jimmy Savile Trust (“the Trust”), which is the residuary legatee under his will. Mr Collins appears for a group of claimants and potential claimants known as the “Pannone Claimants”. Mr Dumont appears for another group of claimants and potential claimants (“the RJW Claimants”), and Mrs McKenna, who is a beneficiary under the will, the niece of Jimmy Savile and his next of kin, appeared representing herself.

The Pannone Claimants and the RJW Claimants and the Trust contest the width and effect of the validation order which the Bank now seeks. Apart from an issue in relation to payment of tax (to which I come below), the points they made were to object to the validity of various expenses incurred or to be incurred by the executor - in particular, legal expenses incurred by the Bank in the course of executing the will and administering the estate and the funeral expenses (which were particularly objected to by the RJW Claimants).

It was common ground, by way of background, that in an ordinary case the way in which issues regarding the appropriateness or otherwise of expenditure by an executor or administrator of an estate may be tested is when the executor or administrator renders an account to the beneficiaries under a will, or in respect of an estate, of their dealing with the property in the estate. At that point, any person claiming in respect of the estate who may have been adversely affected by what they claim to have been excessive expenditure by an executor or administrator of the estate can contest that expenditure and argue that it ought not to be allowed as an expense of the executor or administrator by way of deduction from the assets of the estate under the usual indemnity principle, according to which an executor or administrator may recoup their expenditure out of the estate.

In my view, for present purposes, two issues should be distinguished. First, whether dispositions out of the estate should be saved from being automatically void under section 284(1) of the Insolvency Act if the estate proves to be insolvent (which is something which is uncertain at this point) and, second, whether expenditure by the Bank, as executor, may be challenged hereafter by any persons claiming in respect of the estate as being excessive, in accordance with usual practice. In relation to the latter issue, it is open to executors, trustees and so forth to come to the court to seek approval of expenditure by them in the course of administering an estate or carrying out a trust. Mr Cunningham seeks an order that will have the effect of both validating the transactions in issue for the purposes of section 284 of the Act and constituting approval by this court for the expenditure by the Bank as executor in a way which would prevent later challenge being brought forward. He emphasises that this is an unusual case. He submits that the Bank, as executor, is in a difficult position taking the administration of Jimmy Savile’s estate going forward, against the background of an unusual and unexpected level of litigation activity very much in the public eye. He submits that, as a matter of policy, this court should be prepared to provide certainty for the Bank in regulating its expenditure and approving its expenditure as executor, and validating that expenditure during the course of the administration of Jimmy Savile’s estate where it appears to the court that what has been done or is proposed to be done is right and proper.

Mr Cunningham submits that it is relevant to distinguish two periods. The first is the period where it appeared to the Bank that Jimmy Savile’s estate was clearly solvent, and it was making arrangements to administer it and to execute his will accordingly. In that period, Mr Cunningham submits that the relevant test of lawfulness of conduct on the part of the Bank as executor is simply whether it acted in good faith as the executor of the estate. This is the period in which the funeral expenses were incurred.

The second period relevant for present purposes is after the Bank came on notice that there might be claims to be made against the estate of a magnitude which could render the estate insolvent. In my view, the relevant watershed for these purposes was on or shortly after 4 October 2012, when the television programme was broadcast. Mr Cunningham submits that, where it appears that an estate may be insolvent because of claims to be made against it, a more rigorous test should be applicable; namely, that the executor acts bona fide and for the benefit of the estate, with that to be judged on the basis of whether the executor could reasonably think that what it was doing was for the benefit of the estate, in the sense that it acted within parameters such that it could not be said that no reasonable executor in the position of the executor and properly advised could have taken the step that it did.

In my view, it is correct to distinguish the two periods in the way that Mr Cunningham does. It is the position that a more rigorous standard of behaviour and test for validation of expenditure should be applied in the period after an executor is on notice that the estate with which he is dealing may be insolvent. From that point, it is necessary for the executor to have regard to the interests of potential creditors of the deceased; the executor cannot proceed to treat the deceased’s assets as having been unequivocally his own and therefore cannot apply the assets in the estate with the same level of generosity in relation to matters such as funeral expenses as would otherwise be the case. I agree with Mr Cunningham that paragraph [43] in the judgment of Master Baister in Re Vos lends support to such a distinction and supports the notion that a more rigorous standard applies in relation to what an executor may do in the period after being on notice that the estate may be insolvent.

In relation to the funeral expenses in this case, I consider that it is appropriate at this stage for the court to make a validation order in relation to those expenses, and to confirm that they constitute expenditure properly incurred by the Bank in the course of executing Jimmy Savile’s will and administering his estate. In my judgment, although the expenses of Jimmy Savile’s funeral and burial arrangements were very high, they were proper expenses bona fide incurred by the Bank as executor, and ought to be sanctioned by the court at this point in time.

Mr Dumont, for the RJW Claimants, has made a series of points criticising the expenditure. Applying the basic test in relation to the phase before the executor became on notice that the estate might be insolvent, as submitted by Mr Cunningham, I consider that the entirety of the funeral expenses were proper and appropriate expenses bona fide incurred by the executor in the ordinary course of the administration of Jimmy Savile’s estate. They were, in my view, fully in line with what one might expect in relation to the burial of such a significant public figure as Jimmy Savile was at that time, before he became the object of public opprobrium as a result of the publicity in and following the TV programme in October 2012.

In relation to this item, Mr Dumont did not accept that Mr Cunningham’s explanation of the test applicable during this period was correct. For present purposes, however, Mr Dumont was prepared to accept that the relevant test to be applied in relation to funeral expenses is that “A representative is allowed reasonable expenses according to the deceased’s condition in life, and if he exceeds those he is to take the chance of the estate turning out insolvent”, drawing that from paragraph 6.12 in Williams, Mortimer and Sunnucks on Executors, Administrators and Probate (19 ^th Ed 2008).

It is unnecessary for resolution of this dispute to decide precisely which version of the test is applicable since, in my view, on either approach the funeral expenses were properly incurred by the executor. In my view, the funeral expenses, though very high, were reasonable expenses according to Jimmy Savile’s condition in life which was at the relevant time, as I have said, the condition of someone who was a major and often revered public celebrity.

At the hearing before me, Mrs McKenna, Jimmy Savile’s niece and next of kin, explained why the family considered that the funeral arrangements were appropriate. She pointed out that some 5,000 people turned up to pay their respects to Jimmy Savile, and she gave an account of the reasons why the particular arrangements were made as they were. It was clear that Jimmy Savile’s family wished such a funeral to take place and believed that it was entirely appropriate that it should take place, using, as they understood the position at the time, his money to pay for it. They advised the Bank as executor accordingly.

In my view, whichever version of the test for the period before the Bank was on notice that the estate might be insolvent is applicable in relation to these items, they plainly were lawful items. I also consider that it is right to make at this stage a validation order with the effect of making these items of expenditure unchallengeable in the future, in the interests of providing as much certainty as possible for the Bank as executor at this point in the proceedings. The issues in relation to the funeral expenses have been the subject of full debate before me today. I do not consider that there is any realistic prospect of further points being capable of being brought forward in relation to those by anyone else who might become interested in Jimmy Savile’s estate at some subsequent point in time. Accordingly I make a full and unqualified validation order in relation to those items.

The position is, however, less straightforward in relation to the legal expenses which the executor has incurred. Counsel for the Trust and for both sets of claimants have made it clear that there are significant points that they would wish to raise to challenge the appropriateness and lawfulness of the legal fees which have been incurred. In large part, what they would like to see is for there to be the opportunity at some stage of some form of review, effectively by way of a taxation of the costs, of the lawfulness of the legal expenses which have been incurred by the Bank in the course of conducting the execution of the will and the administration of Jimmy Savile’s estate.

As matters were presented to me, on one approach it seemed that this court was being invited, in effect, to conduct some form of taxation or review of the reasonableness of the executor in incurring the legal expenses in issue and/or of the extent of the legal fees charged by the executor’s lawyers, Osborne Clarke, to the executor, going through detailed items of account in court. This is not an appropriate or sensible use of the court’s time at this hearing. In my view, the more appropriate way forward in relation to these matters is that a more limited form of validation order should be made in respect of them, to save these items of expenditure from being automatically rendered void under section 284(1) of the 1986 Act, whilst also preserving the opportunity of the opposing parties to challenge the expenditure by the executor and the appropriateness of the fees charged by Osborne Clarke at some later point in time and in a more appropriate forum.

It was common ground between counsel that it is open to the court, in making an order under section 284(1), to limit the extent to which the validation is given, so as to ensure that the validation operates without prejudice to the usual ability of persons claiming in respect of an estate to seek to challenge items of account in relation to expenses incurred by administrators or an executor at some later point in time, when an account of the administration of the estate is presented. Against the suggestion that I might proceed in this way, Mr Cunningham submitted that the executor is entitled to certainty at this stage, and that I was in a proper position to make a ruling both validating the legal expenses for the purposes of section 284(1) and also placing them beyond challenge by endorsing those expenses at this point.

In my view, however, it would not be appropriate to proceed in that way in relation to the legal expenses. In relation to them, I consider that the just and appropriate way forward is to make the limited validation order under section 284(1) which I have indicated, so as to ensure that it operates without prejudice to the ability of persons claiming in relation to the estate to raise points at some later point in time in relation to the legal expenses so far incurred. In taking that approach, I recognise that there is a value for the executor in having a degree of certainty in relation even to these expenses, but nonetheless note that even in an ordinary case of a solvent estate an executor would not have the level of certainty which such an order as Mr Cunningham sought would provide them at this stage. I also observe that the executor does already, of course, have a considerable level of protection by reason of the generous rules applicable upon the taking of an account in relation to administration of an estate, in relation to which the usual indemnity principle applies for the benefit of an executor or administrator of an estate whose expenditure is subject to challenge.

Also relevant to the exercise of my discretion in this manner is the fact that I consider that it would not be an appropriate use of the court’s time sitting here today to go through the individual items, trying to understand the accounts and trying to make some assessment as to the validity of each item of the legal expenses incurred. There are other procedures available in the courts whereby, if such challenges are to be pursued, the matter can be looked at in more detail. As Mr Dumont explained to me, what would happen in a usual case where one is dealing with a solvent estate is that there could be an occasion later on where matters of this kind could be raised before a master, who typically would refer the issues on to a costs judge for review. In my view, if the challenges in this case are to be pursued, that would be a more appropriate avenue by which that could be done. It is also an avenue which would be fairer and more just as between the parties, rather than this court seeking summarily to determine these issues, sitting here now and on the basis of very limited information.

Accordingly, in relation to the legal expenses of the Bank in instructing Osborne Clarke, the validation order that I make is qualified in the way I have indicated so as to operate without prejudice to the opportunity of persons who seek to query those expenses to do so hereafter.

Having said that, I wish to emphasise that this ruling should not be taken as any encouragement whatsoever to those who might seek to raise queries on those legal expenses at some later point in time. As I said at the outset of the hearing today, the parties must be sensible and seek to adopt reasonable positions, designed to minimise the incidence of costs in relation to the administration of Jimmy Savile’s estate, so that if claims are to be made against it, the estate is not eaten up in legal expenses and professional fees. Therefore, although the effect of the order that I make is to reserve to the parties who wish to challenge the legal expenses incurred by the executor the opportunity to do so, they should give careful thought as to whether that is ultimately going to be a realistic and appropriate way forward. That said, in present circumstances I do not consider that it would be right for me to preclude them from having that opportunity.

That leaves the issues in relation to validation of tax payments. These fall into two categories. First, there are payments of inheritance tax that have been made to HM Revenue & Customs (“HMRC”) on the footing that, as was understood previously, Jimmy Savile’s estate is solvent. In relation to those, it is common ground that, if the payments are validated and it later transpires that the estate is insolvent, mechanisms exist according to which HMRC would account back to the estate for those payments. Accordingly, it seems to me right that a validation order should be made in relation to those payments, since, in my view, it is clear that the executor acted properly in making those payments.

Secondly, there is an issue about payments which have been made in respect of income tax due from Jimmy Savile to HMRC. Here, in the light of debate at the hearing, Mr Cunningham, for the executor, accepts that it would not be appropriate for the validation order which I now make to cover those payments. The effect of including those payments of tax within a validation order would be to promote HMRC to the position of, in effect, a preferred creditor in relation to the estate. It would not be right to do that at this point in time. If it transpires that the estate is indeed insolvent, it would be open to the executor to seek a validation order in respect of these payments of tax at some future point in time, and, if that occurs, it would be appropriate at that stage for HMRC to be joined to such an application, so that they could argue to defend their own interests in relation to that payment against the submissions of any other party then wishing to argue against such a course.

So far as the remainder of the items included in the schedules for which validation is sought are concerned, no significant issues have been raised in relation to those, and it is appropriate, in my view, to make validation orders in respect of them in the same unqualified terms which I have found to be appropriate in relation to the funeral expenses.