England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE CAERNARFON COUNTY COURT
(Mr. Recorder Curran)

		Royal Courts of Justice Strand London WC2
		27th June 1996

LORD JUSTICE NOURSE:

1. This is an appeal against an order made by Mr. Recorder J.T. Curran in the Caernarfon County Court on 6th October 1995 on an application under the Inheritance (Provision for Family and Dependants) Act 1975.
2. The deceased was Frank Krubert, a Czech emigrant to the Ukraine, who was born in 1911, escaped from Siberia during the Second World War and, having fought with the British Army in North Africa, came here at the end of the War and lived for the rest of his life in or near Bangor in Gwynedd. On 29th May 1950 he was married to the applicant in these proceedings, Elsie Krubert, who was born on 3rd December 1906 and is now 89 years of age. They had no children. In 1952 the deceased acquired in his sole name a plot of land on which he built, amongst others, the house in which he and Mrs. Krubert thereafter lived together, Anna Villa, Ainion Road, Bangor. The plot was acquired at a price of £200, which was provided wholly by Mrs. Krubert. The deceased died domiciled in England and Wales on 20th April 1994 at the age of 82 or 83.
3. By his last will dated 6th December 1993 the deceased, by clause 1, appointed Mrs. Krubert and his solicitor, Mr. Davis, to be the executors and trustees thereof; by clause 2, bequeathed to Mrs. Krubert all his furniture and household and domestic effects at Anna Villa absolutely; by clause 3, bequeathed to his nephew, Milanek Krubert, his stamp collection and his war medals and decorations; and by clause 4, bequeathed to Mrs. Krubert a legacy of £10,000. By clause 5, he devised Anna Villa to his trustees upon trust to permit Mrs. Krubert to live there so long as she wanted to, she paying the rates, taxes and the cost of keeping it in good repair. Subject to Mrs. Krubert's interests, the trustees were directed to hold the net proceeds of the sale of the house and the net income until sale as part of the deceased's residuary estate.
4. By clauses 6 and 7, the deceased devised and bequeathed his residuary real and personal estate to his trustees upon the usual trusts for sale and conversion, for payment of debts, funeral and testamentary expenses and legacies and, subject thereto, to pay the income thereof to Mrs. Krubert during her life. By Clause 8, and subject to Mrs. Krubert's life interest, the trustees were directed to hold the residuary estate in trust for the deceased's brother, Vladislav Krubert, and his sister, Anna Vaskova, in equal shares. They both live in Czechoslovakia and are aged 82 and 78 or 79 respectively. The will was proved by Mr. Davis alone on 3rd October 1994. Shortly stated, the effect of the will was that Mrs. Krubert took the great bulk of the personal chattels and a legacy of £10,000 absolutely together with a life interest in the house and the rest of the estate, with remainder to the deceased's brother and sister.
5. When the matter came before the learned recorder the net estate, after deduction of actual and prospective liabilities, was estimated to be worth just over £100,000. Today we have been supplied with fresh figures, some of them estimated, which show the following. The assets of the estate, apart from chattels, consist of Anna Villa worth £59,000; marketable securities worth just over £20,000; national savings certificates worth £25,000 and cash amounting to £7,650, making a total of £111,676. The liabilities, actual and prospective, reduce that figure to £77,811, of which £59,000 is represented by Anna Villa and the remaining £18,811 by the cash and other liquid assets after paying the actual and prospective liabilities.
6. Amongst those liabilities I must mention, first, that a sum of £7,000 has been set aside as a contingency fund in respect of a claim which has not yet been made but may be made against the estate. Mr. Davis proposes that, if no claim is made before the estate is otherwise fully administered, he will transfer that sum to whomsoever may be entitled to it under whatever order of the court is ultimately made, so that any liability therefor will thereafter attach to that person or persons. Secondly, I must mention the regrettable fact that the costs already incurred of the proceedings below, all of which were directed to be paid out of the estate, together with the costs of the appeal to this court if a like order were to be made here, will amount in the aggregate to about £23,000, a very sizable proportion of this small estate.
7. After the deceased's death Mrs. Krubert was advised that reasonable financial provision had not been made for her by the deceased's will. So on 17th October 1994 she issued an originating application in the County Court asking for an order to that effect to be made under section 1 of the 1975 Act. The respondents to the application were Mr. Davis, Mr. Vladislav Krubert and Mrs. Vaskova. Mrs. Krubert swore an affidavit in support of her application. Also before the recorder were her witness statement and those of her sister, Doris Morris, Mr. Davis, Mr. Vladislav Krubert and Mrs. Vaskova. Mrs. Krubert and Mrs Morris both gave oral evidence.
8. The recorder's order made on 6th October 1995 provided that Anna Villa should be transferred to Mrs. Krubert absolutely and that the deceased's will should have effect as from his death as if, in place of the provisions of clauses 4, 5, 7 and 8, he had bequeathed legacies of £7,000 each to Mr. Vladislav Krubert and Mrs. Vaskova and the residue to Mrs. Krubert absolutely. As I have said, he directed the costs of all parties to be paid out of the estate in due course of administration. Thus the effect of the order was that, apart from the specific bequest of the deceased's stamp collection and war medals and the substituted legacies of £7,000 each for Mr. Vladislav Krubert and Mrs. Vaskova, the whole estate, including Anna Villa, would go to Mrs. Krubert absolutely. Against that order Mr. Vladislav Krubert and Mrs. Vaskova now appeal.
9. It is well established that the effect of sections 1, 2 and the other material provisions of the 1975 Act is that on every application under it the court must ask itself two questions: first, has reasonable financial provision been made for the applicant; second, if not, what financial provision ought he or she to receive? But in answering those questions a distinction is to be made between the wife or husband of the deceased and any other applicant. In the latter case the provision referred to is such financial provision as it would be reasonable in all the circumstances of the case for the applicant to receive for his or her maintenance. In the former it is such financial provision as it would be reasonable in all the circumstances of the case for a husband or wife to receive whether or not it is required for his or her maintenance. Thus, as appears from the judgment of Oliver LJ in Re Besterman, decd. [1984] Ch. 458, at pp.465-466, in the former case maintenance is not the only, or even the dominant, consideration to be taken into account by the court.
10. In the present case the recorder delivered a full and careful judgment in which he took all the material considerations into account. They need not be repeated. He answered the first question in the negative and the appellants have not sought to suggest that he was wrong in that. In other words, they now accept that the will did not make reasonable provision for Mrs. Krubert. So the question on the appeal is whether the recorder's decision as to the provision she should receive was wrong in principle or, viewed as an exercise of discretion, plainly wrong.
11. In answering both questions, the recorder directed himself by reference to the observations of this court (Mustill LJ and Waite J) in Moody v. Stevenson [1992] Ch. 486, where consideration was given to the second part of section 3(2) of the Act:

"... and, in the case of an application by the wife or husband of the deceased, the court shall also, unless at the date of death a decree of judicial separation was in force and the separation was continuing, have regard to the provision which the applicant might reasonably have expected to receive if on the day on which the deceased died the marriage, instead of being terminated by death, had been terminated by a decree of divorce."

The recorder referred to the following passages in the judgment of the court delivered by Waite J. At p.498F:

"The objective is that the acceptable minimum posthumous provision for a surviving spouse should correspond as closely as possible to the inchoate rights enjoyed by that spouse in the deceased's lifetime by virtue of his or her prospective entitlement under the matrimonial law."

At page 499D:

"In other words the Act of 1975, when stripped down to its barest terms, amounts to a direction to the judge to ask himself in surviving spouses cases: `What would a family judge have ordered for this couple if divorce instead of death had divided them; what is the effect of any other section 3 factors of which I have not taken account already in answering that question; and what, in the light of those two inquiries, am I to make of the reasonableness, when viewed objectively, of the dispositions made by the will and/or intestacy of the deceased?' If the judge finds those dispositions unreasonable, he will go on to ask himself: `What, in the light of those same inquiries, would be a reasonable provision for me to order for the applicant under section 2?'"

At page 503B:

"The starting point when fixing an appropriate provision under section 2 of the Act will, as already explained, be a consideration of the presumed entitlement of the husband under a notional divorce."

12. In Jessop v. Jessop [1992] 1 FLR 591, in a judgment with which McCowan LJ and Sir John Megaw agreed, I said, at p.597:

"In his argument in this court Mr. Vane relied strongly on s 3(2) and referred us to a recent case in this court, Moody v. Stevenson, a decision of Mustill LJ and Waite J which appears to give great prominence to the requirements of s 3(2) in a case of this kind. On the other side, Mr. Harrap referred us to a further passage in the judgment of Oliver LJ in Re Besterman deceased at p 469, which suggests that no greater prominence is required to be given to that consideration than to any of the others to which the court must have regard. It seems that Re Besterman deceased was not referred to in Moody v. Stevenson. In my view it is unnecessary for us to enter upon any possible conflict between those two decisions and I do not propose to do so."

13. What Oliver LJ said in Re Besterman, decd. at p.469D-E was this:

"In an application under section 25 of the Matrimonial Causes Act 1973 the court is directed, so far as it is practicable and is just to do so, to put the parties in the same financial position as they would have been if the marriage had not broken down. In that calculation, the concept of what is `reasonable' is nowhere mentioned, although the parties' financial needs - which have been construed to mean `reasonable requirements' - constitute one element to be considered. In an application under the Inheritance (Provision for Family and Dependants) Act 1975, however, the figure resulting from the section 25 exercise is merely one of the factors to which the court is to `have regard' and the overriding consideration is what is `reasonable' in all the circumstances. It is, however, obviously a very important consideration and one which the statute goes out of its way to bring to the court's attention."

Reference should also be made to Re Bunning, deceased [1984] Ch. 480, at pp.498-499, per Vinelott J.

14. Having considered the question afresh, I think that there is indeed a conflict between the two decisions, if only one of emphasis. However, a conflict of emphasis can often cause problems at first instance for busy district and circuit judges. Moreover, we have some anecdotal evidence that the approach adopted in Moody v. Stevenson may indeed have caused confusion at that level, especially in cases of small estates. I can understand that, if only because on a divorce there are two parties to be provided for, whereas on an application under the 1975 Act there is only one. In my view Oliver LJ's approach is preferable, being more in accordance with the intention of the Act when read as a whole. I think it should be adopted accordingly.
15. Here the recorder, having pointed to the difficulties inherent in determining what order the court would have been likely to make on a divorce between these two very elderly people, said:

"In this particular case, in very round figures there might have been an equal division of capital, something in the order of about £55,000 each, bearing in mind the common pool and the sale of the house, to each of the two parties to the marriage. But, as I understand it, the matrimonial position is a starting point and in deciding what is reasonable financial provision the court has to have regard not just to that but also to the other matters which are listed in section 3 of the Act."

16. In the end he moved right away from awarding Mrs. Krubert 50% of the net estate. As Mr. Jones, for the appellants, has pointed out, he awarded her approximately 85%.
17. Mr. Jones's basic submission on the appeal is that the recorder's order amounted to a wholesale redistribution of the deceased's estate beyond what was required as reasonable financial provision for Mrs. Krubert and that he has effectively and unjustifiably rewritten the provisions of the deceased's will. Mr. Jones has relied especially on observations of Wynn-Parry J in Re Inns, Inns v. Wallace [1947] 2 All ER 308 at p.311E. While I agree with Mr. O'Toole, for Mrs. Krubert, that those observations should now be read in a full recognition that they were expressed in different times and in relation to a different Act, which made no material distinction between surviving spouses and other applicants and conferred no power on the court to award lump sum payments, I am nevertheless of the opinion that Mr. Jones's basic submission is made out. Moreover, it is supported by the observations of Thorpe J in Davis v. Davis, approved by this court at [1993] 1 FLR 54.
18. That was a case under the 1975 Act where the deceased had left his widow a life interest in his residuary estate, with power for his trustees to purchase a house for her occupation, which they had duly exercised. The essential question was whether, as the widow claimed, she should be awarded an absolute interest in the house, a question answered in the negative by Thorpe J, who said (see [1993] 1 FLR, at p.59G):

"The Act of Parliament makes plain that the court's powers only arise if the court is satisfied that the disposition of the deceased's estate by his will fails to make reasonable financial provision for the plaintiff. It seems to me that the plaintiff has manifestly failed to cross the threshold. It is not for this court to rewrite the testamentary provisions of deceased persons lightly. If in this case it can be said that the provision of a life interest in the entire residuary estate is not reasonable provision then I think that could be asserted in almost any case in which the testator elects to make provision for his surviving spouse by that means."

19. While heeding Mr. O'Toole's admonition that it is not for this court lightly to interfere with the exercise of the recorder's discretion, I am of the clear opinion that he erred in principle in awarding Mrs. Krubert an absolute interest in Anna Villa. The position today, as we are told by Mr. O'Toole, and as we may assume it to have been at the deceased's death, is that Mrs. Krubert, although approaching 90 and suffering from deafness, is otherwise in good heath for her age. It is accepted on her behalf that if she has to move, it will not be to another house or flat of her own, but to some form of sheltered accommodation. So she needs the house to live in and, if she has to move, she will need the additional income generated by the reinvested proceeds. But no financial need for an absolute interest in the house has been made out.
20. While I fully appreciate that the question what is reasonable provision is not to be determined exclusively by the financial needs of the applicant, especially when he or she is a surviving spouse, it is a consideration which must be taken into account. Looking at the matter in the round, I think that if the deceased had made reasonable provision for Mrs. Krubert out of his other resources, it would have been reasonable for him to have left his brother and sister the reversionary interest in the house; conversely, it would not have been unreasonable for him only to have left Mrs. Krubert a life interest in it. Accordingly, to award her an absolute interest in the house and all but £14,000 of the other assets was in my judgment an error of principle on the recorder's part.
21. On that footing we in this court must exercise the discretion afresh. In doing that, I observe, first, that the deceased recognised that Mrs. Krubert would or might require capital provision as well as a life interest in his other assets. That presumably was why he gave her a legacy of £10,000. But although she is a lady of advanced years, £10,000 was not a reasonable provision to be made for her by that means. It would have been reasonable for the deceased to expect that she might need considerably more than that to supplement her other meagre resources and the income from the other assets of the estate. Moreover, there is the important consideration that, having provided the purchase price of the plot of land in 1952, she must be taken to have had a measurable beneficial interest in Anna Villa itself.
22. In all the circumstances, I think that the reasonable course for the deceased to have taken would have been to give Mrs. Krubert an absolute interest in the whole of the estate, other than the stamp collection and the medals and decorations and Anna Villa itself. I would make an order accordingly. Mrs. Krubert's life interest in Anna Villa will be retained, with remainder to Mr. Vladislav Krubert and Mrs. Vaskova in equal shares. I would vary the recorder's order to that extent and allow the appeal accordingly.

MR. JUSTICE CAZALET:

23. I agree and would only add this. As my Lord has indicated, confusion can arise in cases under the Inheritance Act 1975 in seeking to determine what weight should be given to the provision which an applicant might have expected to have obtained on divorce: see the later part of section 3(2) of the 1975 Act. One unsatisfactory aspect of placing too much emphasis on the award which would have been made on the hypothetical divorce is that, where the spouses are living together at the date of death, such an approach may well, in what may be described as small asset cases, produce financial provision below reasonable financial provision within the meaning of the 1975 Act. This is because the funds available cannot provide satisfactorily for two homes as opposed to one and support the couple living apart. However, because the court in claims under the 1975 Act is concerned with one spouse and not two, as contrasted with the divorce situation, the entitlement which the deceased would have received or obtained on divorce can be brought into consideration as potentially available to ensure that reasonable financial provision for an applicant under the 1975 Act is made available. In my view those considerations arise in this case.
24. For the reasons which my Lord has given I agree that, notwithstanding his careful and thorough judgment, the learned recorder here erred in principle in the way he sought to distribute the deceased's estate. In the applicant's circumstances reasonable financial provision would in my view enable her to continue to live in the former matrimonial home, which had been the parties' home for many years, and to ensure that she has suitable income and capital available to provide for her reasonable needs.
25. We have been told that outside the property, and in the light of the contingency in regard to the road to which reference has been made, there is something of the order of £18,000 to £19,000 available. In my view the applicant will need income as well as capital from the funds outside the house. I consider that reasonable financial provision requires her to be able to look to that liquid sum, that is the £18,000/£19,000 net, for both income and capital as required. Particularly as she grows older, she will need some outside help and, indeed, as my Lord has indicated, she will have to expend money on the property in which she will continue to live. Furthermore, first, to transfer that capital sum to her would reflect such beneficial interest or right by way of contribution as she may have acquired in the property; second, to take that course supports what in my view is the approach that this court should adopt, namely that she should have a life interest in Anna Villa rather than having that property absolutely, because this enables part of the original intention to be fulfilled, which is that some part of the residuary estate should devolve to the deceased's brother and sister in Czechoslovakia. I fully take the point that Mr. O'Toole has made in regard to the deceased's brother and sister being aged 82 and 78 or 79 respectively and that in that context they will need to have money sooner rather than later. Nevertheless, for the reasons given by my Lord and for those upon which I have touched, I agree that this appeal should be allowed and the order made as proposed.

Order: appeal allowed with the second and third respondents' costs to be taxed on the standard basis and paid out of the estate in due course of administration; recorder's order varied to the extent indicated.