To Litigate or Not to Litigate – When Should Charities Initiate Will Disputes?

As Contentious Probate disputes continue to rise, it is unsurprising that more charities are considering the merits of initiating legacy and Will disputes. Indeed, legacies often form a significant proportion of a charity’s income, which trustees are rightly concerned to protect.

But is it always appropriate to commence legal action?

The notorious case of RSPCA v Sharp [2010] EWCA Civ 1474 addresses exactly that question and provides important guidance for charities.

Key Takeaways

• The decision in RSPCA v Sharp [2010] EWCA Civ 1474 confirms that charities should not be discouraged from bringing sensible and proportionate Will disputes.
• Trustees must balance their duty to maximise the charity’s financial return with the potential risks of litigation.
• Before starting court proceedings, charities should obtain specialist legal advice and consider whether negotiation or mediation may be appropriate.
• Each potential dispute should be assessed on its own facts, with a clear cost-benefit analysis guiding the decision.

Background

The dispute arose as a result of the provisions of the will of Mr George Mason (“the Deceased”), who died on 18 June 2007.

The Will contained three main provisions:

1.A ‘nil-rate’ band gift to two friends of the Deceased, and his only brother, in unequal shares:

‘”I GIVE the amount which at my death equals the maximum which I can give by this my will without Inheritance Tax becoming payable in respect of this gift …” (clause 3);

2. A gift of the Deceased’s house, worth £169,000 to the same two friends, directing that:

“the Inheritance Tax (if any) payable on my death in respect of the property… shall be payable out of my residuary estate”;

3.A gift of residue to the RSPCA.

The central issue arose in relation to the Will’s construction. Namely, whether the nil rate band gift under clause 3 amounted to:

1. £300,000 (the available nil rate band at that time). This was the Executors’ interpretation, which would value the total chargeable gifts as £469,000 (a gift of £300,000 under clause 3, plus the total value of the house £169,00), leaving inheritance tax of £112,667 payable out of the residue of the estate.
2. £131,000 (i.e., £300,000 less £169,000) given the gift under clause 3 directed it should be paid free of any Inheritance Tax. This was RSCPA’s interpretation, which meant no inheritance tax would be payable in respect of the Deceased’s estate, given charities are exempt from paying inheritance tax.

The financial incentive for RSPCA was therefore significant.

Accordingly, the RSPCA issued proceedings, alleging that the legacy under clause 3 comprised only the balance of the unused nil rate band remaining after the Deceased’s property had been taken into account.

High Court Decision

In the First Instance Decision, Peter Smith J considered that the RSPCA’s interpretation of the decision was patently wrong and that it was a “matter of regret” that the action was even brought. Despite recognising that it was the duty of the trustees of a charitable organisation to maximise the return for their charity, the High Court judge heavily criticised the RSPCA for attempting to erode gifts intended for the Deceased’s close family and lifelong friends.

Dismissing the charity’s application, the Judge noted the claim caused clear distress to the testator’s family and “ought not to have been brought”. To mark the court’s disapproval, Peter Smith J ordered the charity to pay the Defendant’s legal costs on an indemnity basis.

The Appeal

Fortunately for the RSPCA, the decision was later overturned by the Court of Appeal, which agreed with the charity’s construction of the Will. The Court of Appeal stated it was “largely speculation” to assume the Deceased did not intend to make a Will under which no inheritance tax was payable, even if that reduced the entitlement of his brother. It was particularly persuasive that the Will had been drafted by a Solicitor and that it was ‘tax efficient’.

Accordingly, the order for indemnity costs was set aside, and the appeal was allowed. Further, Patten LJ offered his own stamp of disapproval, making clear that an “order for indemnity costs remains an exceptional order” which was not justified in the present circumstances.

What Does This Mean for Charities?

Whilst a charity is under no duty to litigate, trustees are under a duty to maximise the return for the charity and to act in its best interests.

This decision therefore brings into sharp focus two competing issues facing charities when faced with a potential Will dispute:

1. Whether the trustees of the charities should use all reasonable endeavours to maximise the return for the charity; or
2. Whether charities should refrain from initiating legal proceedings in all cases against family beneficiaries, even if it is likely the Will has been interpreted incorrectly.

For now, it appears the Court of Appeal agree that sensible legacy and Will disputes should be escalated in appropriate circumstances and charities should not succumb to the claims of family members. Crucially, the Court of Appeal did not disapprove of the RSPCA’s decision to seek their maximum entitlement but instead made clear that charities should not be penalised in circumstances where they raise a legitimate claim.

Such decisions, however, will require professional legal advice as to the merits of the claim while ensuring there is a justifiable cost-benefit to the charity. Charities or legacy officers looking to initiate legal action must also consider the potential reputational risk, in the event it is later perceived the charity took a particularly overzealous approach in opposition to the testator’s family. Ultimately, charities should not be deterred from litigating but must exercise their discretion carefully, on a case-by-case basis.

Mediation and other alternative dispute resolution methods should also be explored, which can provide an opportunity for parties to resolve matters without escalating to court.

Conclusion

In the end, the Court of Appeal unanimously upheld the RSPCA’s appeal and cleared the criticisms of the High Court. That’s good news, right? Well, that depends.

The case serves as a stark reminder of the careful balance trustees must strike between a charity’s fiduciary duties and the potential risks of litigation. Trustees must balance the obligation to protect charitable assets against the risk of appearing overzealous, particularly where close family beneficiaries are involved. The correct approach is neither to litigate reflexively nor to avoid proceedings altogether, but to assess each case on its merits, supported by clear legal advice and a realistic cost‑benefit analysis.

How can Tozers help?

Our specialist Contentious Probate team, which is led by an Association of Contentious Trusts and Probate Specialists (ACTAPS) accredited lawyer, has the experience and expertise to help charities navigate any legacy or will challenges confidently, ensuring you receive pragmatic and clear advice in light of the potential risks and benefits to your charitable organisation.

Contact our legal experts