Pegler v McDonald

More than just the usual successful claim for removal of a problem executor!

This autumn HHJ Paul Mathews, sitting as a Judge of the High Court, handed down a series of decisions relating to the removal of an executor and trustee. The case concerned a long running battle between some of the residuary beneficiaries of the will of Clive McDonald (deceased) (represented by Ashfords LLP and Louise Corfield of No5 Chambers) and a lay executor, Timothy McDonald, who appeared as a Litigant in Person throughout.

The three reported decision each provide (as is often the case with Judgments of HHJ Paul Mathews) helpful summaries of the legal principles and relevant authorities on three subjects:

1. Removal of Executors/Trustees [2022] EWHC 2405 (Ch)

2. Costs Orders in Trusts and Estate Litigation [2022] EWHC 2505 (Ch)

3. Extended Civil Restraint Orders (CROs) [2022] EWHC 2069 (Ch)

1. Removal of Executors/Trustees

Pegler v McDonald [2022] EWHC 2405 (Ch) reviewed the relevant authorities for removal of an executor. The Claimants sought the removal of the First Defendant under s50 Trustee Act 2000 and/or s116 Senior Courts Act 1981, as the application to remove was being made prior to a grant of probate having been made.

The Law

At paragraphs 12 to 20 of the Judgment HHJ Matthews summarises the key authorities in this area.

The s116 jurisdiction is straightforward; there must be special circumstances making it at least expedient to appoint someone to administer the estate who is not the person who would otherwise do so (see s116 itself and A-B v Dobbs [2010] WTLR 931).

In relation to s50 the test is as set out in Letterstedt v Broers (1884) 9 App Cas 371 (held to be applicable to executors as well as trustees in The Thomas and Agnes Carvel Foundation v Carvel [2008] Ch 395). HHJ Matthews commented that Chief Master March had summarised the modern position in Harris v Earwicker [2015] EWHC 1915 (Ch), quoting from that case at length in paragraph 18 of his Judgment. By way of further summary, the test is accordingly:

(i) That there is no need for the court to find wrongdoing or fault on the part of the PR whose removal is proposed (see also Schumacher v Clarke [2019] EWHC 1031(Ch)), but the guiding principle is whether that removal is in the best interests of the beneficiaries,

(ii) That if there is wrongdoing or fault, and it is material so as to endanger the estate, the court will be very likely to exercise its power to remove,

(iii) The wishes of the testator, as reflected in the will, are a factor to take into account,

(iv) The wishes of the beneficiaries may be relevant, but the beneficiaries, or some of them, have no right to demand replacement,

(v) The breakdown of the relationship between some or all of the beneficiaries and the PR will not without more justify removal or replacement, but it may be the only option if it makes the task of the PRs difficult or impossible, and

(vi) The additional cost of a professional replacement will be a material consideration, such that the size of the estate and the scope and cost of the work will have to be

The Court’s Findings

In Pegler the case for removal was stark and the findings of the Court uncompromising:

(i) The First Defendant had maintained a wish to potentially challenge the validity of the will which he sought to gain a grant of probate in respect of, and continued to threaten to do so. Despite a court Order, made at an earlier directions hearing, meaning that he would need permission of the court to bring such a claim, it remained possible for the First Defendant to apply for permission to challenge the will at any time. The Court found his equivocal approach to the validity of the will “highly troubling”.

(ii) The First Defendant had made extensive and outlandish complaints about a significant number of individuals involved in the estate, including of fraud and theft against an original lay co-executor, against the police for failing to investigate those complaints as the First Defendant saw fit, complaints to the SRA (and other professional bodies) about his professional co-executor, the solicitors for the Claimants, and the replacement professional PRs, and to the Judicial Conduct Investigations Office about DJ Watkins (who dealt with the directions hearing) and possibly also Zacaroli J (who heard an Appeal of the orders made at that directions hearing), and HHJ Mathews himself. He alleged ‘oath breaking’ and ‘corruption’ on the part of all three judges who had made orders in the case.

(iii) The Court found that relations between the First Defendant and the Claimants had broken down.

(iv) The Defendant’s explanation that at the outset of the administration he had made certain (albeit minor) decisions in relation to estate funds because of a ‘temporary misunderstanding of the relevant law’ was inadequate because as an intelligent and experienced businessman he must have realised that he needed to understand his powers before embarking upon exercising them and he had failed to even consult his professional co-executor.

(v) During the proceedings the First Defendant had made four applications recorded as totally without merit and resulting in an extended civil restraint order (see below). The Court put weight upon “the lack of judgment shown in pursuing hopeless applications before the Court”. The First Defendant also sent an email which was found to be ‘utterly inappropriate’ directly to the barristers representing the Claimants and the Second Defendant.

(vi) The First Defendant’s approach to ‘objective’ decision making and the authority of the Court was summed up in the First Defendant’s own words as follows “As a retired high-level publishing executive with proven unusual powers of perception and recall, strong accreditation including a prize for highest marks in a law exam from a Chartered Accountants Institute, as well as knowledge of the estate and the parties involved, all of which should be obvious from the above, I know all my allegations are well-founded” (emphasis supplied by the Court)”.

The Court was critical of “his inability to accept the authority of the court where he thinks it has gone wrong … buttressed by his constant reference in correspondence to having once won the law prize of the Ontario Institute of Chartered Accountants”.

(vii) In the round, the Court concluded that “the defendant, however well-meaning he undoubtedly is, and however much he believes that he knows what his late brother would have wanted, and that he is capable of implementing this, is unfortunately incapable of acting as a disinterested, objective administrator of this testator’s estate”. The findings set out above added up to a “comprehensive disqualification for his being concerned in the fiduciary administration of assets for the benefit of other people”. He was found not to have the temperament, character or personal qualities needed to act as a personal representative.

2. Costs Orders in Trusts and Estate Litigation

Pegler v McDonald [2022] EWHC 2505 (Ch) provides both a useful summary of the general principles as to when/whether an estate or trust should pay the costs of parties to litigation, and also specific consideration of inter-defendant cost orders in trust/estate litigation.

As to the general principles the Court summarised [paragraphs 8-11] that;

(1) The starting point for the costs of a trustee or personal representative (PR) are codified in s31 Trustee Act 2000 and CPR 46.3 which provide that, as a general rule, where a person has been a party to any proceedings in their capacity as a trustee/PR, they shall be entitled to be reimbursed from the relevant trust or estate.

(2) The codified law does not deal with three common situations being;

(i) The costs of other parties who are joined to trust/estate proceedings, such as beneficiaries,

(ii) The costs of beneficiaries who issue proceedings against a trustee/PR

(iii) Beneficiaries’ costs in hostile litigation.

These matters are dealt with in the case law, and in particular Re Buckton [1907] 2 Ch 406. (See Blades v Isaac [2016] EWHC 601)

(3) Re Buckton creates three classes of case. In the first two (either applications for directions/construction by a trustee, or such an application brought by a beneficiary, but which could have been made by the trustee) all parties’ costs come from the trust/estate. In the third class of case (hostile inter-beneficiary litigation) the general cost rules apply and the unsuccessful party generally pays the costs.

Inter-Defendant costs [Paragraphs 18-32]

The Claimants asked the Court to go further and Order that the First Defendant (the lay executor who had resisted his removal) should pay not only their costs (which were straightforwardly ordered following the general rule that costs follow the event) but also the costs of another Defendant, who had been a necessary party to the proceedings. This Defendant was a professional executor, who had been willing to stand down by consent. She had done so at an interlocutory hearing, and as such her costs had been dealt with at that stage, prior to the findings that the First Defendant should be removed and therefore any ability to attribute ‘fault’ for the proceedings. The Claimants, post judgment, asked the Court to revisit the issue of her costs, and find that the First Defendant should pay them, rather than them coming from the estate (to be paid for ultimately by the residuary beneficiaries) in accordance with her indemnity.

The Court held that there was a wide chancery jurisdiction to order that one defendant pay another defendant’s costs. The order being sought was akin to the result in Child v Stenning (1879) Ch D 82,CA in which a party was ordered to pay to another party the costs of a third because the paying party has by his or her wrong caused the litigation. It was accepted in Pegler v McDonald that had the First Defendant not behaved unreasonably (in refusing to stand down) the litigation would never have been needed, and therefore neither the Claimants’ nor the other defendant’s costs would have been incurred. His actions would cause loss to the residuary beneficiaries, who would ultimately bear the costs of the professional executor unless those were paid by the First Defendant. The Court therefore held that the First Defendant should pay the Second Defendant’s costs.

The Court found that this result could also be achieved by alternative reasoning, namely that s51 Senior Courts Act 1981 allows the Court full power to determine by whom and to what extent costs are to be paid. This discretion can extend even to the payment of costs by a non-party (see Aiden Shipping Ltd v Interbulk Ltd [1986] AC 965). The Judge took the view that whilst the matter had been determined in two stages (removal of the Second Defendant followed by removal of the First) it might have been resolved at a single trial. The appropriate costs order in those circumstances would have been for the First Defendant to pay all the costs, and the resolution of the issues in separate stages should prevent the Court from determining that he should have to pay all of the costs, including those of the other defendant.

The Claimants’ costs

The Claimants were beneficiaries of the Estate and so had no statutory right to an indemnity from the Estate. The issue of the Claimants’ costs fell squarely into a second class Buckton case; in which they had brought proceedings that could have been brought by a personal representative and succeeded, such that they should have their costs from the Estate. However, the Court found that the Claimants’ costs should only be paid from the estate to the extent that they were not paid (for any reason) by the Defendant. The general rule as to costs should apply in the first instance; the Claimants had brought a claim and succeeded, and the First Defendant should pay their costs.

The Court further ordered that the legacy given to the First Defendant by the deceased’s will should be set off against the liability for costs owed to the Claimants.

…it perhaps goes without saying based on the foregoing that the First Defendant was not entitled to be indemnified out of the estate in respect of his own costs or the cost orders made against him!

3. Extended Civil Restraint Orders (CROs)

Pegler v McDonald [2022] EWHC 2069 (Ch) saw the dismissal of two interlocutory applications by the First Defendant and the making of an extended CRO against him, demonstrating that he was more than just the usual difficult executor seeking to hold onto their position determinedly and ill-advisedly.

The Law

The CRO regime is governed by CPR 3.11 and Practice Direction 3C. CPR 3.3(7), 3.4(6) and 23.12, demand that where a statement of case or application is struck out or dismissed as totally without merit, the court order doing so must specify that and the court must then consider whether to make a CRO.

There are three kinds of CRO:

(1) A limited CRO – which can be made by a judge of any court, where a party has made 2 or more applications/statements of case which are totally without merit (PD 3C para 2.1),

(2) An extended CRO – which can only be made by a High Court judge, and only where a party has ‘persistently’ issued claims or made claims/applications (where ‘persistently’ means on at least three occasions), and

(3) A general CRO – which can only be made by a High Court judge and only where an extended CRO is considered not to be sufficient or appropriate.

The purpose behind the CRO jurisdiction is to prevent litigants who make claims or applications which have no merit from harming the administration of justice by consuming public funds and diverting the courts from dealing with cases which have real merit. There is a strong public interest in protecting the Court system from abuse (see Nowak v The Nursing and Midwifery Council [2013] EWHC 1932 (QB)).

The CRO regime does not prevent the subject of the CRO from accessing justice, but requires a person who has repeatedly made wholly unmeritorious claims/applications to have any new claim/application within the scope of the order to be reviewed by a judge at its outset.

The Decision to make an extended CRO against Timothy McDonald

By the date of HHJ Paul Matthews’ consideration as to whether to make a CRO against Mr McDonald, he had made the following claims/applications which has been judged as totally without merit:

(i) A seperate claim (considered to be abusive as it replicated large portions of the existing/main proceedings and sought to bring other claims where no cause of action lay) PT-2022-BRS-000043, which was dismissed as totally without merit by DJ Taylor on 13 April 2022,

(ii) An appeal of an Order made at a Directions hearing by DJ Watkins, which was dismissed as totally without merit by Zacaroli J on 24 June 2022,

(iii) An application to adjourn the trial listed for 14 September 2022, which was dismissed as totally without merit by HHJ Paul Matthews as part of the Judgment in which the extended CRO was made,

(iv) An application for a Beddoe Order, which was also dismissed as totally without merit by HHJ Paul Matthews as part of the Judgment in which the extended CRO was made.

On that basis the Judge considered that he was compelled to consider whether to make an ECRO in this case (there having been ‘persistent’/more than three totally without merit findings made) and if so, of which kind and for how long.

The Judge found that although Mr McDonald was well meaning, in the sense that the Judge had no doubt that he “sincerely believes in the rightness of his cause”, the problem is that “he does not take no for an answer”. Mr McDonald’s conduct in making the hopeless appeal, complaining to the judges (both DJ Watkins and Zacaroli J) about the orders they had made, asking the Court to investigate allegations of contempt of court (despite being told it cannot) and asking Court staff for advice as to how to challenge court fees (despite that not being their role), was found to be time-consuming and labour intensive for court staff and the judiciary involved. Accordingly, a CRO was deemed appropriate, and the case considered too serious for a limited order. An extended CRO was made, to apply in both the High Court and the County Court.

Notably, when making the order for an extended CRO the Court expressly stated that the selection of a period of 2 years was in anticipation that the administration of the estate would be completed in that time. The parties were reminded that such orders can be renewed if it is appropriate to do so, effectively inviting the Claimants to seek such an extension/renewal if the administration is not completed before the CRO expires and Mr McDonald is still actively engaged in interfering with it!