The plaintiffs were executors of the deceased, a ‘name’ at Lloyd’s from 1983 until his death in 1991. The estate was reinsured with Equitas for every possible Lloyd’s risk to which it would or might otherwise be liable. Having settled the debts and liabilities of the deceased, other than unascertained potential future liabilities arising from his position as a Lloyd’s name, the plaintiffs wished to complete their administration by distributing the residue. The plaintiffs wished to be sure, however, that distribution would not involve them in personal liability should creditors in respect of the deceased’s position as a Lloyd’s name emerge.
Held: Personal representatives of Lloyd’s names protected by Equitas were not under a general duty to distribute to beneficiaries without retention or further security and without first obtaining the sanction of the court. Nevertheless, balancing the injustice of beneficiaries being kept out of benefit on account of unascertained liabilities which might never come to anything against the risk of unknown contingent creditors who had paid for cover finding their matured debts unmet, the plaintiffs would be permitted to distribute to the beneficiaries without retention or further security beyond that provided by Equitas. On the evidence there was no reason to think that Equitas was likely to fail, in whole or in part. The Court gave complete protection to an executor distributing the estate despite a potential claim; no further retention for et hclaim was to be allowed.
Lindsay J said: ‘Although in considering the making of an order giving protection to executors the court would not look to create for a creditor some security which he had not stipulated for by his contract and would not act upon an attempt by a creditor in such a behalf (King v Malcott (1852) 9 Hare 692, 68 ER 691), the court would none the less, in making such orders, consider whether any and if so what indirect protection should be extended to creditors and including contingent creditors: Fletcher v Stevenson and Dean v Allen; see Re Nixon, Gray v Bell [1904] l Ch 638 at 694.
As for the forms of protection to be given to executors, they seem principally or exclusively to have consisted on the one hand of a retention by the executors out of the estate or, alternatively, the provision of an indemnity from the beneficiaries by whom (usually) a distribution without retention was sought.’ and
‘If security was to be provided by a beneficiary to an executor so as to indemnify the executors in a secured way and, alternatively, where there was a retention by the executor in lieu of sufficient security from the beneficiary, then the question of the amount of the security or of the retention would be adjourned to be fixed by the master: Simmons v Bollard, Dobson v Carpenter, Re Bennett and Re Owers. That reference to the master was not, it seems, by reason of any rule or principle requiring it but simply because the material for an assessment had not been put before the judge: see e. g. Re Owers.
The principle on which the master would act in fixing the amount or nature of the security or retention is not disclosed in the cases but it is nowhere suggested that the calculation had to be such that the security would necessarily and in all possible events suffice to meet in full whatever the executor might have to pay the creditors.’ and
‘Even though a contingent creditor had no strict right at law or in equity to insist upon a retention or upon security, the better view, in my judgment, is that the court would have in mind, in fixing a retention or security, that it was proper, as noted above, that creditors should to some extent be protected.’ and
‘The courts looked in general at the ‘reasonable probability’ of there being future demands against the estate: Dean v Allen. A practical view would be taken.’
Lindsay J continued: ‘the court could take a practical view, even against executors who asked for better protection, that no retention or security beyond the personal liability of the beneficiaries was needed and could decree accordingly, thus conferring the immunity which the executors had sought: see Waller v Barrett and March v Russell.’ and he concluded ‘First, a distribution made pursuant to a decree of the court affords a complete protection for the executor and the executor need not and indeed should not look, for example to a retention, for any protection beyond that. Secondly, it has long been the practice of the court to enable personal representatives to set apart ‘a reasonable sum to cover any liability which might in any reasonable probability arise by reason of a future breach’ of covenants in a lease held by the deceased: Kindersley V-C in Dodson v Carpenter. These observations can comfortably coexist if the case was that where an executor during his administration knew of no likelihood of any contingent debt maturing he could, by having an account taken in court of all known liabilities, obtain a decree which permitted him to distribute to legatees without making any retention but which none the less gave him complete freedom from a devastavit (save in exceptional circumstances such, for example, as fraud, misrepresentation or concealment). Where that was done a creditor with a late maturing contingent debt would be able to recover, if at all, only against the legatees.
Conversely, if, during an administration some real possibility of some contingent debt maturing came to the executor’s notice, the executor could, either of his own volition or under the guidance of the court, retain a sum out of the estate against that risk or seek security direct from the prospective recipient beneficiary. If there was a retention and if his retention was pursuant to a direction of the court, or if the security from the beneficiary was given under the direction of the court, then, again, he would be protected against devastavit once the fund retained or the security so given was exhausted in application towards a risk against which it had been reserved. But if the executor failed to obtain the directions of the court in that he distributed with neither a retention, nor a security from a beneficiary, sanctioned by the court nor had obtained the sanction of the court upon the taking of an account and a decree then, in any such case, he remained at risk of personal liability.’
Judges:
Lindsay J
Citations:
Gazette 03-Sep-1997, [1997] 4 All ER 907
Jurisdiction:
England and Wales
Cited by:
Cited – Re K (Deceased) ChD 28-Mar-2007
The administrators of the deceased’s estate sought permission of the court to pay certain creditors and then to distribute the balance to the beneficiaries without reference to claims against the estate which they disputed.
Held: Whilst a . .
Lists of cited by and citing cases may be incomplete.
Wills and Probate
Updated: 17 June 2022; Ref: scu.82307