In Johnston v Wackett  EWHC 129 (Ch), the High Court considered the rule in Cherry v Boultbee  4 My & C 442, as to whether a deceased’s personal representative could deduct an unpaid costs order from an award paid out under the Inheritance (Provision for Family and Dependants) Act 1975. Using these cases see how to set off unpaid debts against inheritance.
“He who seeks equity must do equity”
The equitable principle set out in Cherry v Boultbee provides that where a person is both a beneficiary and a debtor to the estate, the beneficiary may not receive the legacy from the estate, without first paying off the debt.
Background to Johnston v Wackett
In 1992, the Claimant, Colin Johnston brought proceedings against his father arising out of a breakdown of a business partnership. The proceedings were dismissed in 1998, and a detailed costs assessment payable by the Claimant took place. The Defendants to the 1992 proceedings sent a letter to the Claimant confirming the outcome of the detailed assessment. However, the costs order was never paid, and in 2017, the Claimant’s father died.
In 2019, the Claimant brought proceedings under the Inheritance Act 1975 seeking an order for reasonable financial provision from his father’s estate and was awarded £125,000 by the Deputy High Court Judge.
Asserting the rule under Cherry v Boultbee, Lady Natalie Elsie Wackett, in her capacity as personal representative of the estate, and relying on further evidence of the Claimant’s debt, attempted to set off the costs order in the sum of £115,432.75 against the Claimant’s award of £125,000.
The Claimant subsequently brought a Part 8 claim to decide the issue of whether the cost order could be set off against the legacy.
The judge’s decision
Deputy Master Brightwell, sitting in the High Court, considered the various issues before the court holding that, for the costs order to be set off against the legacy, the legatee must have an obligation to pay the sum to the estate. Looking at all the circumstances, including that there was no evidence of a final costs certificate being obtained by the defendants, the Deputy Master agreed with the Deputy High Court Judge that the Claimant’s father had decided not to enforce the costs order. This meant that no obligation for the Claimant to pay the sum ever came into existence, and therefore there was no debt to set off against the award.
However, the Deputy Master then considered more generally (and obiter) whether the rule of Cherry v Boultbee would apply to awards made under the Inheritance Act 1975. Deputy Master Brightwell held that in deciding whether to award the claimant with a lump sum in 2019, Mr Edwin Johnson QC, sitting as Deputy High Court Judge considered the assets and liabilities of the estate, and the financial resources and liabilities of the claimant, amongst other factors (see section 3 of the Inheritance Act 1975). The Deputy Master decided that Mr Edwin Johnson QC was fully aware of the costs order arising from the 1992 proceedings, and importantly, had made his decision in calculating what award to make the Claimant, on the understanding that the costs order would not be enforced in the future.
As such, the Deputy Master held that it would be inequitable to require a successful claimant in an Inheritance Act 1975 claim to pay back to the estate money that the court has already decided is necessary for their maintenance, disapplying the rule in Cherry v Boultbee. Deputy Master Brightwell also emphasised the wide discretion of the court in relation to awards under the Act and held that this decision was not case specific. Rather, although an award under the Inheritance Act 1975 is a legacy, it should not be treated by equity as an actual legacy in a will, and any award made under the Act must necessarily take into consideration any liabilities owed by the Claimant to the estate.
This is an important case that demonstrates the wide discretion the Court has in determining claims for financial provision from an estate and all the factors they will consider when making an award. It confirms the protection afforded to successful claimants for financial provision, and provides persuasive guidance for future cases, where debts which may have been owed to the deceased during their lifetime cannot subsequently be deducted from awards made under the Act.
How Moore Barlow can help
If you require any assistance with claims under the Inheritance (Provision for Family and Dependants) Act 1975, please contact Scott Taylor or another member of the Contentious Trusts and Estates team at Moore Barlow.