Standstill agreements effectively extend or suspend the limitation period. This allows the parties more time to exchange information, narrow the issues and explore settlement, without the need to issue proceedings, and subsequently comply with the court timetable. If the matter settles pre-action, the parties will avoid both the court issue fee (which can be thousands of pounds), and the potentially even greater cost of preparing the necessary court documents.
Claims under the 1975 Act
The limitation position is particularly stark in relation to claims under the Inheritance (Provision for Family and Dependants) Act 1975 (the 1975 Act). Section 4 of the 1975 Act specifies that:
“An application for an order under… this Act shall not, except with the permission of the court, be made after the end of the period of 6 months from the date on which representation with respect of the estate of the deceased is first taken out…”
Given the particularly short time limit, standstill agreements are commonly used in relation to proceedings under the 1975 Act.
It is important to note at the outset that 1975 Act claims can be distinguished from the majority of claims. In many claims (such as claims in contract and tort, which are subject to the Limitation Act 1980), a defendant effectively agrees with the claimant that they will not rely on a limitation defence that they would otherwise have.
In contrast, the effect of section 4 of the 1975 Act is that the power to extend the six month period belongs to the court. Therefore, a claimant who enters into a standstill agreement in relation to a 1975 Act claim will still need the permission of the court to proceed with their claim, if it is issued after the expiry of the relevant time limit.
Despite this, prior to the first instance decision in Cowan, most contentious trusts and estates practitioners found it difficult to envisage a situation where a court would refuse permission when parties had entered into a standstill agreement.
The first instance decision
The surprising judgment of Mostyn J in Cowan v Foreman appeared to severely limit the circumstances in which it was appropriate to enter into standstill agreements in the context of 1975 Act claims and was therefore a worrying development for litigators and their clients.
The case concerned a claim by Mrs Cowan against her late husband’s estate. The key underlying facts and dates were as follows:
- Mr Cowan died on 9 April 2016, with a net estate worth just over £29 million - the majority of which he left on discretionary trust for various beneficiaries, including his children and Mrs Cowan (the primary beneficiary).
- Probate was granted on 16 December 2016.
- The time limit under section 4 of the 1975 Act was therefore 16 June 2017.
- Mrs Cowan and the majority of the defendants to the intimated claim (but apparently not all) agreed an informal standstill whereby the defendants confirmed that they would “not take a point on the six month deadline” (albeit they did so after time had expired).
- The parties also engaged in open and without prejudice correspondence, and attended an ultimately unsuccessful mediation on 16 October 2018.
- Mrs Cowan issued her claim on 12 November 2018 (nearly 17 months after the expiry of the section 4 period).
Delivering judgment in February 2019, Mostyn J ultimately refused Mrs Cowan’s application to bring the claim out of time. In doing so, he placed particular (and ultimately, as the Court of Appeal found, undue) importance on two of the seven considerations outlined by the Court of Appeal in Berger v Berger. Those considerations were:
- Whether there were good reasons for the delay (he found there were not).
- Whether the claimant had an arguable case (again, he found she did not).
Mostyn J suggested that section 4 was intended as a guard against “stale claims”.
He also commented both that “it is not for the parties to give away time which belongs to the Court” and also that “absent highly exceptional factors, in the modern era of civil litigation, the limit of excusable delay should be measured in weeks or, at most, a few months”. These comments cast serious doubt on the efficacy of standstill agreements in the context of 1975 Act claims and potentially more widely.
The Court of Appeal’s decision
On 30 July 2019, the Court of Appeal unanimously overturned Mostyn J’s decision and confirmed that Mrs Cowan was entitled to bring a claim out-of-time.
Delivering the lead judgment, Aplin LJ noted in particular that:
- A standstill agreement is not binding on a court in the context of a 1975 Act claim. However, where the parties are legally represented, a court is unlikely to refuse to endorse the approach.
- A delay (even without good reason) may not be fatal to a claim under the 1975 Act – although the claimant must show sufficient grounds to justify the court granting the permission. The fact that Mrs Cowan intimated her claim shortly after she first took advice, and negotiations were entered into thereafter, were also important factors.
- The judge had failed to consider all the factors highlighted in Berger - and also to have regard to all the circumstances when determining the claimant’s prospects of success in the underlying case (which were better than he had appreciated).
- Rather than a guard against “stale claims”, the purpose of section 4 of the 1975 Act is to avoid an unnecessary delay in the administration of estates, and distributions being made prior to proceedings. Section 20 of the 1975 Act affords protection against “stale claims”.
At the conclusion of her judgment, King LJ emphasised that standstill agreements must be drafted clearly and that all potential parties must be included in the agreement.
Wider lessons for the future
The Court of Appeal’s decision is reassuring for contentious trusts and estates practitioners and their clients and appears to restore the orthodox position.
We suggest, however, that its relevance is not limited to a particular type of claim and that wider lessons can also be drawn for all litigators.
While the parties in Cowan avoided the issuing of a claim at a time when settlement appeared possible, they have now spent a significant period engaging in satellite litigation to the, no doubt, considerable expense of their clients.
With the benefit of hindsight, the claimant in Cowan would probably have been in a better position had her advisers ensured that all possible litigants had signed up to a formal written agreement with clear provisions on the steps that should be taken on the breakdown of negotiations. King LJ suggested that the parties should in the future apply for permission by consent. Going forwards, practitioners may want to include express provisions in their agreements to that effect.
The Cowan case certainly highlights that, while standstill agreements can provide significant benefits by allowing parties the opportunity to save money and retain control, they also necessarily entail the risk of satellite litigation.
In order to minimise that risk, parties should take care to draft the terms as clearly as possible. Claimants should also routinely consider the alternative option of issuing a claim and then immediately seeking a stay of proceedings.
Each situation should be considered carefully on its facts.
For more information or advice about Inheritance Act claims, trust or will disputes please visit our Private Wealth page.
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