All England Law Reports, All ER 1997 Volume 4, Re Yorke (deceased) Stone and another v Chataway and another
[1997] 4 All ER 907
Re Yorke (deceased)
Stone and another v Chataway and another
SUCCESSION; Administration of Estates: INSURANCE
CHANCERY DIVISION
LINDSAY J
18, 19, 20 JUNE, 8 JULY 1997
Administration of estates - Distribution - Retention of assets to meet future liabilities - Executors of deceased Lloyd's name wishing to distribute residue of estate - Deceased name's Lloyd's liability reinsured into Equitas - Executors applying for directions of court to protect against personal liability - Whether executors under duty to distribute without making retention in respect of future Lloyd's liability - Whether court would sanction distribution relying on adequacy of Equitas as reinsurer - Whether executors should make a retention in respect of future Lloyd's liability.
The plaintiffs were the executors of Y, who had been a 'name' at Lloyd's of London insurance market from 1983 until his death in 1991. As a result of the implementation of the Lloyd's 'reconstruction and renewal' plan in August 1996, reinsurance of all Lloyd's 1992 and earlier non-life business was reinsured into Equitas for all names and the estates of deceased names. In that way, Y's estate had the benefit of reinsurance into Equitas in respect of every possible Lloyd's risk to which it would or might otherwise be vulnerable. Having settled the debts and liabilities of Y's estate, other than the unascertained or contingent liabilities arising from his position as a Lloyd's name, the plaintiffs wished to complete their administration by distributing the residue. However, they wished to be sure that distribution would not involve them in personal liability should creditors in respect of Y's position as a name emerge. They applied to the court therefore for directions as to whether, given the protection of Equitas, they were under a duty to distribute to the remaining beneficiaries without any retention and free of all risk of personal liability; or whether they should retain something (and, if so, how much and for how long) against the emergence of one or more policyholders with a claim or claims against Y's estate.
Held - The personal representatives of Lloyd's names protected by Equitas were not under a general duty to distribute to beneficiaries without retention, such that they could be obliged to distribute without first obtaining the sanction of the court. Moreover, those personal representatives who did rely on Equitas did not thereby obtain complete freedom from the risk of personal liability unless they obtained and acted on the sanction of the court in that behalf, even where they could later show that they would probably have obtained that sanction had they asked for it. In the instant case, the court would give the plaintiffs liberty to distribute to the beneficiaries without further retention or security, having balanced the injustice of beneficiaries being kept out of benefit on account of unascertained liabilities which might never come to anything against the risk of the unknown and contingent creditors who had paid for cover finding their matured debts unmet and determined (i) that there was no reason to think that Equitas was likely to fail, either wholly or in part, and (ii) that the sanction of the court could properly be given even where the provision for future creditors was not assuredly and in all possible events complete (see p 922 j to p 924 c, p 925 b to d f to p 926 a g and p 927 j to p 928 c, post).
907
   Per curiam. On the taking of the directions of the court argument on behalf of unknown or contingent creditors can be heard (see p 927 h, post).
   Re Arnold, Calvert v Whelan [1942] 1 All ER 501 followed.
   Re King, Mellor v South Australian Land Mortgage and Agency Co [1907] 1 Ch 72 not followed.
Notes
For executors' discharge of liabilities not presently due, see 17 Halsbury's Laws (4th edn) paras 1160-1162.
Cases referred to in judgment
Arnold, Re, Calvert v Whelan [1942] 1 All ER 501, [1942] Ch 272.
Barnato (decd), Re, Joel v Sanges [1948] 2 All ER 585, [1949] Ch 21.
Bennett, Re, Midland Bank Executor and Trustee Co Ltd v Fletcher [1943] 1 All ER 467.
Blow, Re, Governors of St Bartholomew's Hospital v Cambden [1914] 1 Ch 233, CA.
Davies, Re, Davies v Davies (1888) 38 Ch D 210.
Dean v Allen (1855) 20 Beav 1, 52 ER 502.
Dobson v Carpenter (1850) 12 Beav 370, 50 ER 1103.
Dodson v Sammell (1861) 1 Drew & Sm 575, 62 ER 498.
Fletcher v Stevenson (1844) 3 Hare 360, 67 ER 420.
Hargreaves, Re, Dicks v Hare (1890) 44 Ch D 236, [1886-90] All ER Rep 1017, CA.
Hawkins v Day (1753) Amb 160, 27 ER 107.
Johnson, Re, Johnson v King Edward Hospital Fund for London [1940] WN 195.
King, Re, Mellor v South Australian Land Mortgage and Agency Co [1907] 1 Ch 72.
King v Malcott (1852) 9 Hare 692, 68 ER 691.
Knatchbull v Fearnhead (1837) 3 My & Cr 122, 40 ER 871.
Lawley, Re, Jackson v Leighton [1911] 2 Ch 530.
Lewis, Re, Jennings v Hemsley [1939] 3 All ER 269, [1939] Ch 232.
March v Russell (1837) 3 My & Cr 31, [1835-42] All ER Rep 501, 40 ER 836, LC.
Newcastle Banking Co v Hymers (1856) 22 Beav 367, 52 ER 1149.
Nixon, Re, Gray v Bell [1904] 1 Ch 638.
Owers, Re, Public Trustee v Death [1941] 2 All ER 589, [1941] Ch 389.
Simmons v Bolland (1817) 3 Mer 547, 36 ER 210.
Smith v Smith (1861) 1 Drew & Sm 384, 62 ER 426.
Spode v Smith (1827) 3 Russ 511, 38 ER 667.
Taylor v Taylor (1870) LR 10 Eq 477.
Waller v Barrett (1857) 24 Beav 413, 53 ER 417.
Cases also cited or referred to in skeleton arguments
Marley v Mutual Security Merchant Bank and Trust Co Ltd [1991] 3 All ER 198, PC.
Royle, Re, Royle v Hayes (1890) 43 Ch D 18, CA.
Application
The plaintiffs, Richard Frederick Stone QC and Michael Edwards-Ker, the executors of Richard Michael Yorke QC (decd), a former underwriting member of Lloyd's, applied by originating summons dated 7 May 1997 for the determination of the court whether they were under a duty to the persons interested in the estate to distribute the same without retention to meet any claim which might in future arise under a contract of insurance or reinsurance underwritten by the deceased; alternatively whether any, and if so what, retentions should be made out of the estate to meet any such claims and for what908 period or periods any such retention should endure and whether any and, if so, what other provisions should be made as against such potential claims. The executors joined as respondents to their originating summons, Lady Carola Cecil Chataway, a residuary legatee, and Giles Neville Clarke, who had the benefit of a contract of insurance or reinsurance partly underwritten by the deceased. The facts are set out in the judgment.
Christopher McCall QC and Shan Warnock-Smith (instructed by Reynolds Porter Chamberlain) for the plaintiffs.
Alexandra Mason (instructed by Reynolds Porter Chamberlain) for Lady Chataway.
W R Stewart-Smith (instructed by Laytons) for Mr Clarke.
Cur adv vult
8 July 1997. The following judgment was delivered.
LINDSAY J. Richard Michael Yorke was a Queen's Counsel with a substantial practice, largely in commercial cases. The last four years or so of his life were blighted with serious illness and he died on 12 April 1991. The two executors named in his will relating to his property in this jurisdiction, the plaintiffs, Richard Frederick Stone QC and Michael Edwardes-Ker (the executors), were granted probate on 19 September 1991. All the inheritance tax liabilities of the estate have been finalised and discharged; only minimal adjustments remain before a certificate of discharge can be applied for. Mr Yorke, a bachelor, left a good number of specific and pecuniary legacies amongst his many friends and the executors have already paid or satisfied them with the exception of three legacies totalling £3,500 left to the executors themselves and to the testator's accountant. His residuary English estate, no distribution of which has yet been made, is to be shared between a number of individuals, including a group of godchildren, and, as to a quarter, is destined to go to familiar established charities. All debts and liabilities other than the particular unascertained or contingent liabilities I shall presently describe, have, with minor exceptions in respect of small accruing debts, already been met. The estate is now largely liquid; as at 5 April 1997 the executors held net assets of some £620,000 consisting almost exclusively of cash on deposit. Not unnaturally, the executors now wish to move towards a completion of their administration by distributing the residue. Only one possible impediment stands in their way.
   It is this. Mr Yorke was a 'name' at Lloyd's of London. In manner I shall need to explain, his estate could therefore find itself liable to pay policyholders both in respect of present debts (albeit ones which have not yet come to notice nor have been quantified) and also (depending on the terms of the policies) in respect of truly contingent liabilities, the maturing of which into debts immediately payable still depends on events which may or may not happen. In recent years the difficulties experienced at Lloyd's have been notorious and the executors find themselves in a position in which they conceive it to be their duty to make as early as practicable a distribution to their beneficiaries yet also recognise it to be right that they should provide for the debts of their testator before such a distribution. They acknowledge, in respect of Mr Yorke's position as a name, that there are potential claims, the amounts of which (severally or in aggregate) they can no more estimate than they can estimate whether or when they will arise. They have no reason to believe the protection, which I shall describe, which the909 estate has against such claims is or will be inadequate but, of course, they do not wish to find themselves vulnerable to claims from any creditors who emerge and in respect of whom that protection proves inadequate. They do not wish to have to retain the estate against the risk of such creditors emerging (which would in the meantime deny beneficiaries enjoyment of their gifts) yet also do not wish to be held to have fallen short in whatever due consideration is owed to such creditors.
   Whilst the particular details of such a dilemma will, as I shall explain, vary from case to case, the position the executors are in is, unhappily, far from rare; the executors believe there may be some 3,000 estates faced with similar questions. The executors' solicitor, Mr Colin Russell of Messrs Reynolds Porter Chamberlain, is also chairman of the central London branch of STEP, the Society of Trust and Estate Practitioners, through whom some cost-sharing arrangements have been made whereby the executors would in these proceedings raise questions which, whilst arising in Mr Yorke's estate, might lead the court to give answers helpful or even determinative in other estates as well. In that way Mr Yorke's executors look beyond being given liberty to distribute and hope instead to be recognised as being under a duty of so general a nature that it might safely be acted on not only in this but also in other cases. To that end they have joined as respondents to their originating summons not only Lady Chataway, a residuary legatee, but also Mr Giles Neville Clarke, a person who has the benefit of a contract of insurance or reinsurance partly underwritten by Mr Yorke in the course of business as an underwriting member of Lloyd's of London, asking also for appropriate representation orders in each case. Whilst the argument has ranged beyond it, the executors' originating summons of 7 May 1997 asks, so far as material for present purposes, as follows:

   'The Plaintiffs seek the determination of the Court on the following directions and orders, namely: 1. That it may be determined whether the Plaintiffs are now as such executors and trustees under a duty to the persons interested in the said estate to distribute the same without retention to meet any possible claim which might otherwise be made against them in the event that any claims arise at any time in the future under any such contract of Insurance or reinsurance; 2. In the alternative it may be determined (a) whether [any] and if so (b) what retentions should be made out of the estate to meet any such claims and (c) for what period or periods any such retention should endure and (d) whether any and if so what other provision should be made as against such potential claims ...'
   The scheme of this judgment will be first to describe the way in which executors can find themselves liable should they distribute to beneficiaries ahead of creditors and then to describe the position of Mr Yorke as a name, the possibilities of liability which that has led to and the protection which the executors have against the emergence of such liability. Then I will turn to the law in this area and finally draw together the facts and the law so described so as to answer such of the questions which the originating summons and the argument have raised as require an answer.
   So far as concerns the application of assets coming to the hands of executors in that capacity they are required to deal with them in an order of priorities which in the broadest terms provides that debts and liabilities are to be paid ahead of gifts. If a creditor sues an estate where there has been a distribution such that the executor has insufficient funds left to meet the creditor's debt then the executor910 is able to answer that he has already duly administered the estate (plene administravit). If the creditor is not satisfied that the administration of the estate in question had truly recognised the due order of priority and wishes to pursue the matter then the burden is upon him to prove a devastavit, namely, in the example being considered, that assets came to the executors' hands and existed or should have existed in those hands at the time the creditor's writ was issued. An executor who distributes to legatees is taken to have admitted he has had assets sufficient to meet debts. Amongst the various possible forms of devastavit is that which occurs where an executor has paid obligations of an inferior degree ahead of a superior one; where, for example, he has paid legatees ahead and to the detriment of creditors. Where such a devastavit is proved, the executor concerned becomes personally liable in respect of the assets so misapplied. He may be liable for interest thereon. He is also very likely to become personally liable to the creditors in respect of costs. Such a claim against an executor is not the only remedy open to an unpaid or underpaid creditor; he may also sue the overpaid beneficiaries, but such a claim is available and only open to him if and to the extent that he is without remedy against the wrongdoer executor: see Snell's Equity (29th edn, 1990) p 359. Executors are entitled to look to the persons to whom they have made distributions for a refund or an indemnity in respect of their overpayment.
   Mr Yorke's executors wish, of course, to be sure that the distribution to beneficiaries which they want to embark upon would not involve them in a devastavit nor, in turn, to personal liability should creditors in respect of Mr Yorke's position as a name emerge, they being the only persons or class of persons whom the executors can now foresee as likely to be unpaid or underpaid creditors.
   As to the position of names, I have received evidence, none of which has been challenged, from Mr William David Robson, a director and the chairman of Anton Jardine Members Agency Ltd, a leading Lloyd's members' agent; he has been involved in the Lloyd's market since 1963. He is chairman of the Lloyd's Underwriting Agents' Association. He explains that each individual member of a syndicate, names such as Mr Yorke, agrees to assume a proportion of the risks underwritten by that syndicate. The liability of an individual for that agreed part is unlimited, but there is no liability upon him for the failure of any fellow member of the syndicate to bear that other's proportion.
   From 1927 there was a central fund, a principal function of which has been to assume responsibility for claims where the members concerned have failed to meet their liabilities. On becoming a name each individual signs a general undertaking to the effect that he and his personal representatives shall be bound by the rules of Lloyd's. Each syndicate is, in a sense, an annual venture; it exists for a year of account but syndicates are accounted for under a three-year accounting system. A syndicate's profit or loss is calculated only at the end of three years. However, at the end of any three years there are nowadays very likely still to be unsettled claims and the possibility of future ones. In order to achieve finality in respect of any accounting period of three years there is what is called 'reinsurance to close' (RITC). Members of a syndicate for a year which is to become a 'closed year' pay a premium to and assign their rights in relation to the 'closed year' to members of a syndicate for a later year who, in return, assume the liability of the members for the 'closed year' for all the known and unknown liabilities attributable to the 'closed year'. Until the year of account is closed by RITC it remains an 'open year', but once closed it is not reopened. By way of911 successive assignments by which syndicates for later years have year after year thus assumed responsibility for the risks of earlier years, any given syndicate which has become a reinsurer by way of RITC may find itself liable for late emerging or late-settled claims in respect of risks run many years before. In 1992, for example, there were still risks covered in respect of policies written before the 1939-45 war. The representative creditor, Mr G N Clarke, a past or present name, has the RITC for one of his years insured by a syndicate which included Mr Yorke; it is in that way in which he comes to be a possible future creditor of the estate.
   If there is, in respect of a given year, a material degree of uncertainty about the appropriate figure to be fixed for its RITC, the syndicate's accounts will remain open; the syndicate is then in 'run-off'. The syndicate itself continues to pay claims and to debit its members until its present and future liabilities are felt to be sufficiently quantifiable to make a closure by RITC equitable as between the syndicate for the closing year and that of the year which proposes to take over the risk by becoming the reinsurer under the RITC.
   Subject to the other reinsurance methods I shall mention, so long as any of his years remains open a name remains at risk of being required personally to pay in respect of policies, as does his estate. He may reinsure by taking out a personal 'stop-loss' policy and, more materially to present consideration, he may subscribe or have subscribed to an 'EPP', an estate protection plan. An EPP is designed to protect a name's estate against claims in respect of such of his years as are open at his death, namely such years as are open because their three years of account have not expired and years in respect of which RITC has not been achieved and which are therefore in 'run-off'. The indemnity afforded by the EPP will differ from case to case depending upon the terms of the policy, but EPPs have been found very valuable as personal representatives of names who had had generally in the past felt able safely to distribute the estates in their charge knowing that should there transpire to be some liability to policyholders in respect of open years they would have, from the EPP, a reliable total or specified indemnity. But at the material times the EPPs were themselves written at Lloyd's. The reliability of recovery under EPPs has therefore itself been put in question.
   A policyholder with a claim insured or reinsured at Lloyd's submits his claim to Lloyd's which then passes it on to the appropriate syndicate. The syndicate then meets it out of its reserves, including its RITC. If a syndicate has inadequate reserves to meet its claims before it is closed then its members will be required to inject cash by way of 'calls'. If a 'call' is not met, a syndicate's managing agent may sue the member or his estate for the 'call' plus interest or the central fund I mentioned earlier may discharge the debt on the member's behalf and, where appropriate, then sue the member or estate concerned.
   A member ceases to be a member at his death. He does not participate in the syndicates for the year in which his death occurs. His personal representatives, however, are bound by the general undertaking which the name made upon his joining Lloyd's. The general practice in the past has been that estates protected by an EPP have distributed without making any further provision in respect of open years but in cases where the estates have not had the protection of EPPs, the executors not uncommonly, I am told, have made retentions of the whole or part of their estates against the risks of liabilities in respect of open years.
   In the period 1988-1992 Lloyd's suffered enormous losses. There have been years of anxiety, uncertainty, difficulty and litigation leading, in late July 1996, to the circulation of the 'settlement offer document' giving details of the 'Lloyd's912 reconstruction and renewal'. A reinsurance group was to be formed, Equitas, into which all liabilities for 1992 and earlier years were to be reinsured. By late August 1996 the settlement offer had become unconditional and thereupon reinsurance of all Lloyd's 1992 and earlier non-life business was reinsured into Equitas for all names and the estates of deceased names, whether or not they had accepted the settlement offer.
   In that way Mr Yorke's estate has acquired the benefit of reinsurance into Equitas in respect of every possible Lloyd's risk to which it would or might otherwise be vulnerable. But, needless to say, reinsurance is only as good as the relationship between the funds available or to become available to the reinsurer and the claims it has to meet. That leads to the questions of how reliable, how adequately financed, is Equitas as a reinsurer?
   The Equitas group includes two companies, Equitas Reinsurance Ltd and Equitas Ltd, both of which are authorised by the Department of Trade and Industry (the DTI) pursuant to the Insurance Companies Act 1982. The former reinsures and is to act as a conduit for the collection of payments and will cede its reinsurance into the latter, its subsidiary, Equitas Ltd, which has been required by the DTI to show an appropriate surplus of assets over liabilities on its balance sheets. A third company, Equitas Policyholders Trustee Ltd, is to hold the rights of names under the reinsurance contracts for the benefit of the underlying policyholders. The reserves required to be held by Equitas were arrived at as a result of a comprehensive project which involved Lloyd's, Equitas itself, their respective financial and actuarial advisers, the DTI and the Government Actuary's Department. Equitas was given interim authorisation from the DTI in March 1996 and final authorisation in September 1996. The authorisation has not been revoked.
   Equitas's opening accounts as at 4 September 1996 were published in April 1997. For the time being they are its most recently available accounts. They are heavily qualified by the auditors, Coopers & Lybrand. The publication of the accounts generated press comment, some of it very pessimistic as to the adequacy of Equitas. I shall deal later with the implications of authorisation from the DTI and with the evidence which I have received as to the import of the comments made by the auditors.
   The mechanics of Equitas are such that the liability of the EPPs in relation to years up to 1992 have been compulsorily reinsured into Equitas. A 'finality bill' (so-called) has been sent to names and to the personal representatives of deceased names under which, upon payment of the sums specified, the years in question attain RITC through Equitas. The DTI has accepted that reinsurance into Equitas can be treated as an RITC and that upon payment of the relevant 'finality bill' the names and the executors concerned may cease to be members of Lloyd's.
   Should Equitas fail, liability would revert to the relevant names. Policyholders, under the arrangements now made, are unable to look to Lloyd's as they were in the past but rather would ultimately need to go directly against the particular names. Even should Equitas fail there are remedies or palliatives which may suffice to satisfy or head off the claims of policyholders before any individual name or any estate of a name might come to be sued. First, at the request of the DTI the Equitas arrangements contain a proportionate cover plan which would enable it to pay claims at a reduced rate rather than going into insolvent liquidation. So long as a policyholder feels he has been treated fairly in relation to all other claims, his recovery of a proportion only of his debt might suffice to head him off from pursuing the matter further. Secondly, Equitas would be able913 to propose a scheme under s 425 of the Companies Act 1985 under which a policyholder may have to be satisfied with less than a payment in full. In addition, some policyholders might have recourse to the deposits required by some regulatory authorities in other jurisdictions, which deposits might then be renewed by the then members of Lloyd's in order that Lloyd's could continue to do business in that jurisdiction, thus conferring on policyholders in such jurisdictions a possibility of recoupment out of deposits, possibly even beyond the extent of the deposit as it was at the time of failure. Beyond that there would be a strong commercial pressure upon Lloyd's, rather than to allow any Lloyd's policy to be dishonoured, for it to inject hitherto uncovenanted funds into Equitas to ensure that, even should Equitas at first have failed, its obligations would none the less be met. A policyholder still unsatisfied after the above measures had been exhausted and persistent in his wish to recover to the full might then embark on suits against the particular names within the particular syndicates covering his risk, a course fraught with difficulty on the part of the policyholder leading, to a persistent policyholder, to proceedings which, as against any one name, when identified, would be likely to be only for a relatively small proportion of the policyholder's overall and thus far still unsatisfied claim.
   Mr Yorke became an underwriting member of Lloyd's in 1983 and remained one until his death in April 1991. Accordingly the last year of account with which his estate is concerned is that for 1990. He was a member of one syndicate which still has an open year for 1985, two syndicates which have open years for 1989 and 21 syndicates which have open years for 1990. Those are the only open years with which his estate is concerned. Significant calls, amounting in all to over £675,000, have already been made in respect of Mr Yorke's open years and have been met in full by the underwriters of the EPP, save that one call, the largest, has been reinsured into Equitas. Some of the syndicates in which Mr Yorke was involved were amongst those which are or have been or are likely to be exposed to the most substantial deterioration in respect of old years' liabilities. Others of his syndicates are thought to be much less exposed. I have evidence from Mr John Robson, managing director of Anton Jardine Members Agency, evidence to which no challenge has been made, that there is, in his view:

   'Nothing particularly unusual about the syndicates in question which would distinguish this estate from others so far as Equitas is concerned and I see no particular reason why this estate should face liabilities in any event other than that of the total failure of Equitas.'
   There are no syndicates in which Mr Yorke participated that have been left outside of the Equitas agreement. Mr W D Robson (the two deponents are brothers) has made a study of the particular portfolio syndicates of which Mr Yorke was a member. Two of the syndicates were amongst the largest in the market and were supported by several thousand names. Mr W D Robson's view is that because of the particular syndicates of which Mr Yorke was a member his estate has more exposure than most names to United States liability. He concludes, however:

   'Having regard to the exposure of the portfolio of syndicates in comparison to Names as a whole, I consider that the estate's exposure is above average on the market, although there are likely to be a number of Names and deceased Names' estates with a much greater exposure.'
914
I have no evidence of there being any maximum calculable of the liability which could, should Equitas totally fail, become that of Mr Yorke's executors, nor as to anything being calculable as a maximum should Equitas fail only as to part. If the executors have to retain out of the estate in order to meet some theoretical possible maximum liability then there is no evidence other than that in the executors' own words:

   'We are faced with a stark choice between either retaining the entire estate indefinitely which we think would be grossly unfair to the beneficiaries (unless it is something which it is our duty to do) or distributing on the basis that the creditors have no right to expect us to make such an indefinite retention when they have protection which has been assessed to be commercially appropriate.'
As for the assessment of the protection as being commercially appropriate, I have mentioned both the authorisation given by the DTI and the nature of the auditor's report to the most recent accounts of Equitas. In order to achieve their respective authorisations, each of the Equitas companies which have it must have submitted proposals to the Secretary of State for Trade and Industry as to the manner in which each respectively proposed to carry on business and each must also have supplied the financial forecasts prescribed by regulation: Insurance Companies Act 1982, s 5(1). The Secretary of State is required not to issue an authorisation unless he is satisfied it ought to be granted: s 5(1)(b). There are specified criteria of sound and prudent management which must appear to the Secretary of State to be fulfilled: s 5(1A) and s 5(4) and Sch 2A. Prescribed margins of solvency are required to be kept up (s 32) in respect of which both the value of the assets and the amount of liabilities are to be determined in prescribed manner: s 32(5)(a) and see the Insurance Companies (Reserves) Act 1995. Liabilities are to be covered by assets of appropriate safety, yield and marketability: s 35A(1). The Secretary of State can, in an appropriate case, require an actuarial investigation of, or other information as to, a company's business: ss 42, 43A and 44. His authorisation can be withdrawn if, inter alia, it appears to the Secretary of State that any such criteria of sound and prudent management may not be fulfilled: s 11(1) and (2)(a), (b). As I mentioned earlier, the two Equitas companies have been granted authorisation and it has not been withdrawn.
   The report and accounts of Equitas Reinsurance Ltd for the period ended 4 September 1996 disclosed that it then had net claims reserves of £108bn. It had the benefit of more than 248,500 reinsurance policies with 2,900 reinsurers. The accounts show a surplus of assets over liabilities of £588m after prudent provision. The chairman's report itself emphasises the uncertainties inherent in the company's business, especially so far as the business concerned reinsurance of risks deriving from asbestos, pollution and health hazards of a 'long-tail' nature. The report of Coopers & Lybrand as auditors notes that there are significant uncertainties, including uncertainty as to the accuracy of the provisions for claims, and noted also that by reason of the matters which the auditors explain, they had not obtained all the information and explanations that they considered necessary for the purpose of their audit. I have received unchallenged evidence as to the auditors' report from Mr Frank Attwood, a partner in Robson Rhodes who was from 1980 to 1984 a member of the Auditing Practices Committee of the Consultative Committee of Accountancy Bodies and who from 1984 to 1992 chaired the working party which produced that committee's audit brief on Lloyd's syndicates. He has studied the language of the915 Coopers & Lybrand report. He notes, from the fact that Coopers & Lybrand have not commented in their report on the use of the going concern basis there employed, that, in the context of the requirements of the Statement of Auditing Standards (130), it is to be inferred that the auditors did not consider that there was a significant level of concern about Equitas's ability in the foreseeable future to continue as a going concern.
   Against the background of fact which I have described the executors pose the questions in their originating summons as amplified in oral argument. The originating summons does not seek to distinguish between what, if only all facts were known, could be seen to be present albeit as yet un-notified debts or liabilities on the one hand and truly contingent ones or prospective ones on the other; nor has the argument before me sought to say that the solution appropriate to one is not the solution as to all. The question is thus this: are the executors, given the protection of the kind I have described which they have from Equitas, now duty bound to distribute to the remaining beneficiaries without any retention so that, performing that duty, they will be entirely free of all risk of the personal liability which is consequent upon a devastavit? Are they, if not under that duty, at least to be given liberty by the court to distribute, similarly free of that risk? Or must they retain something (and, if so, how much and for how long) against the emergence of one or more policyholders with a claim or claims against Mr Yorke's estate? I should add (to deal with what will occur to many as a further possibility) that the evidence before me is that no market for policies to protect against the total or partial failure of Equitas has yet been developed. I must now turn to the law.
   It is an unfortunate feature of the law in this area that it has frequently been described as unsatisfactory or curious: see Smith v Smith (1861) 1 Drew & Sm 384, 62 ER 426, Dodson v Sammell (1861) 1 Drew & Sm 575, 62 ER 498 and Re Hargreaves, Dicks v Hare (1890) 44 Ch D 236, [1886-90] All ER Rep 1017. Contradictions are readily found; in 1907 it was argued that retention by executors against possible further liability had as a practice been discontinued (see Re King, Mellor v South Australian Land Mortgage and Agency Co [1907] 1 Ch 72 at 75) yet it was still being sanctioned in 1937, 1941, 1942 and 1943 (see Re Lewis, Jennings v Hemsley [1939] 3 All ER 269, [1939] Ch 232, Re Owers, Public Trustee v Death [1941] 2 All ER 589, [1941] Ch 389, Re Arnold, Calvert v Whelan [1942] 1 All ER 501, [1942] Ch 272 and Re Bennett, Midland Bank Executor and Trustee Co Ltd v Fletcher [1943] 1 All ER 467). Sometimes the presence of a contingent creditor at the hearing before the court is discountenanced (Re King), but yet at another time the perceived weakness in another case is explained by reference to the fact that such creditors were not then represented: see Re Arnold, where such creditors were heard. Sometimes it is said that the order of the court confers total protection upon the executor who acts upon it (Fletcher v Stevenson (1844) 3 Hare 360, 67 ER 420), yet at another that no such protection is conferred (Simmons v Bolland (1817) 3 Mer 547, 36 ER 210). Moreover, the youngest case on the subject cited to me is over half a century old; Miss Mason, on behalf of the beneficiaries under Mr Yorke's will, rightly says there is difficulty in discerning the principles underlying the authorities.
   In the past the question of how executors should deal with late emerging creditors or contingent creditors whose debts matured into present ones only late in an administration generally arose in relation to leases where a deceased lessee, be he the original lessee or an assignee, might find himself liable for rent or under covenants such as repairing covenants upon the failure of the tenant for the time916 being. Where the lease was a long one and the death occurred early in the term, the executors had to contemplate the possibility of debts arising 80 and more years after the death. Another situation one commonly finds in the authorities is where the estate held partly paid shares which either by choice or because no transferee acceptable to be registered by the company could be found, had remained in the estate. A call on such shares could thus be made as to the unpaid-up part many years after the death. So far as concerned some of the late emerging liabilities in the landlord and tenant relationship, they were in part dealt with in the Law of Property Amendment Act 1859 (Lord St Leonards' Act). It was retrospective: Smith v Smith. It provided at s 27, so far as here relevant, that if an executor, 'liable as such' for rent or under covenants in a lease which had been either granted or assigned to his testator satisfied such liabilities thereunder as had accrued and had been claimed at the time of such assignment, then, upon his assigning the lease 'to a purchaser thereof, he shall be at liberty' to distribute the residuary personal estate without making any retention to meet any future liability thereunder. It will be noted, though, first, that an executor who distributed to, say, a legatee was at first not so protected; 'a purchaser' meant only a person to whom the lease was sold and who paid a price in money: Re Lawley, Jackson v Leighton [1911] 2 Ch 530. Secondly, the Act merely gave liberty to the executor; it imposed no duty upon him so to distribute. It was s 30 of the same Act under which the ability of executors to obtain the guidance of the court in proceedings short of a full administration suit was brought into existence. An executor acting upon such guidance was, under the 1859 Act, deemed to have discharged his duty as such (other than in cases of fraud, wilful concealment or misrepresentation). Furthermore, the Act by no means attempted to deal with all types of contingent liability and not even all types of contingent liability in the landlord and tenant context. In particular, cases in respect of later calls on partly paid shares continued unabated. However, in the landlord and tenant area to which it applied the court began to make distributions without retention where earlier it might have done otherwise: Smith v Smith. Section 26 of the Trustee Act 1925 further extended the relief granted by Lord St Leonards' Act so as to cover cases where the lease was assigned not only to a purchaser 'but to a legatee, devisee or other person entitled to call for a conveyance thereof'. Still the provisions were left such that executors satisfying the requirements of s 26 'may' rather than 'shall' distribute the residue without any retention. Even in 1926 Parliament left unaffected cases falling outside the limited range of s 26 of the 1925 Act as to which one has to revert to the law as it developed in the cases over the years.
   As to that an executor could be made personally liable in respect of a late maturing contingent debt even though he had not been told by the creditor of the existence of it nor known of it when he had earlier made a distribution to creditors of an inferior degree: Hawkins v Day (1753) Amb 160, 27 ER 107 and Newcastle Banking Co v Hymers (1856) 22 Beav 366, 52 ER 1149. Again, if an executor distributed to a lower class without the absolute certainty that he would have in hand funds to meet the superior one he could be liable even if at the time of his distribution to the lower class he had honestly and reasonably believed that sufficient funds to pay the superior class would come to hand: Spode v Smith (1827) 3 Russ 511, 38 ER 667. He could be made personally liable in respect of a breach of trust by his testator, committed years before, even where he had not even known that the testator was a trustee let alone had not known that there was a breach of trust: Knatchbull v Fearnhead (1837) 3 My & Cr 122, 40 ER 871.
917
   It is possible to find dicta which suggest even with respect to contingent creditors, that, should they not come in and claim in response to advertisement, then their only remedy would thereafter be against the legatees and that their remedy against the executors personally would have gone: Waller v Barrett (1857) 24 Beav 413, 53 ER 417. Such a view not only conflicts, in my judgment, with the earlier broad approach in such cases as Knatchbull v Fearnhead and Hawkins v Day (where the executors' ignorance of the claims was no defence) but with basic notions of justice and common sense. Especially is that so in the context of claims against a Lloyd's name where a policyholder (who could be anywhere in the world) could not reasonably be expected to know, at the time of any advertisement, even if it came to his notice or could be expected to have done so, that he had or might have a claim against some particular deceased. I do not propose to place any reliance on a possibility that in any case such as that before me executors could escape personal liability (be it for un-notified insurance or reinsurance claims based on events which have already happened or for future maturing continent liabilities) by the simple expedient of placing an advertisement and finding it to have yielded no response.
   The cases show that as the risk to executors was so serious the court would not order a distribution which left an executor at any personal risk: Simmons v Bolland. However, the severity of the risk to executors was tempered by the ability in the executor to obtain and to act upon the directions of the court. There are some observations that support a view that the executor could not obtain absolute protection by way of an application to court: Simmons v Bolland. However, that may have depended on the particular form of procedure there used and it may simply have referred to the fact that absent, at all events, some other material restriction upon the creditor, there was nothing to stop the creditor from suing the executor, even if that executor, upon being sued, would have no personal liability. The better view is that if the executor has laid all information before the court and acts under its order he will achieve complete protection: Dean v Allen (1855) 20 Beav 1, 52 ER 502. Of course, the court may have permitted or sanctioned a distribution on some particular basis of fact specified by the personal representatives concerned, for example that the estate did have assets sufficient to meet all liabilities standing prior to, say, a certain legacy. If that legacy was thus paid under an order of the court made on such a basis then the order would not protect the executor if the basis predicated by the executors proved unfounded: the Newcastle Banking case. However, it is implicit in Knatchbull's case that if only the executor had passed his accounts in court and had obtained a decree he would have been left free of any personal risk. Fletcher v Stevenson, too, and many later cases have held that an executor would be entirely safe after acting upon the direction of the court.
   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 including contingent creditors: Fletcher v Stevenson and Dean v Allen; see Re Nixon, Gray v Bell [1904] 1 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 the918 beneficiaries by whom (usually) a distribution without retention was sought. Whether the indemnity from a beneficiary would, in order to have any value, need support from security beyond the personal security of the beneficiary would depend on all surrounding circumstances. The means of the recipient could thus be relevant: Dean v Allen. If there was sufficient security from the legatee then no retention by the executor would be necessary as the price of obtaining the sanction of the court to the particular proposal put before it. Although any such reasoning in the case is invisible in the brief report, it may have been that it was because the personal covenant of the King Edward Hospital Fund (as residuary legatee) was regarded as a sound personal covenant that no retention was required in Re Johnson [1940] WN 195: see Re Arnold.
   As for retention by the executors, as early as 1753 at the latest a retention out of the estate was seen as a possible way of protecting executors against the risk of contingent debts maturing: see the executors' argument in Hawkins v Day. In March v Russell (1837) 3 My & Cr 31 at 41, [1835-42] All ER Rep 501 at 505-506 it was said that an earlier practice of the court of requiring a legatee to give the executors security for a refund in case other debts were discovered was no longer observed. However, in practice, retentions were frequently made by executors but when any was challenged by a beneficiary the court would be willing, in order to avoid locking up funds for long and unknowable periods to the disadvantage of the beneficiaries, instead to see the executors protected by way of their being secured by the beneficiaries: Simmons v Bolland and Dobson v Carpenter (1850) 12 Beav 370, 50 ER 1103. Security from the beneficiaries was thus perhaps not strictly required by the courts, but, if it was not offered, the beneficiaries might suffer a retention and hence, no doubt, they saw their way to offering the security where it was possible. Furthermore, although the operation of limitation in devastavit cases divided the Court of Appeal in Re Blow, Governors of St Bartholomew's Hospital v Cambden [1914] 1 Ch 233, it may be that retention or security was after 1880 needed for only six years: see also Re Lewis [1939] 3 All ER 269, [1939] Ch 232. Despite observations which suggest retentions were no longer ordered they were, as I have already indicated, being ordered as late as 1943.
   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 Bolland, 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 eg 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. In annuity cases there are familiar formulae but where the contingency was other than merely the survival of an annuitant the description of the security to be provided was that it should be 'proper' or 'due' or 'sufficient' without there being any indication that that meant only that it had necessarily in all events to be full: see Dobson v Carpenter and Simmons v Bolland. The court would look to what 'could itself be reasonably considered a sufficient security for the possible demands': Fletcher v Stevenson (1844) 3 Hare 360 at 370, 67 ER 420 at 919425. Nor is it clear what, if any, rate of net growth the court took into account as appropriate to assume on whatever property was retained. 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. However, in many cases the potential liability would be truly unascertainable, perhaps even unascertainable as to a theoretical maximum. An example would be the possible expenditure, as it would be at rates of building cost as they would be years hence, needed to make good dilapidations as yet long in the future but likely to be required to be made good under leases with, say, 80 years yet to run. Even so the master would fix the security to be provided by the beneficiaries. Thus in Dobson v Carpenter 12 Beav 370, 50 ER 1103 heard in 1850 the prospective or contingent liability in question arose under leases that could have run until 1879 or, it seems, even to 1922, yet only £1,000 was set aside after the master's inquiry. Without knowing what the rents provided for by the relevant leases were and without knowing all possible contingencies (such as dilapidations) and the cost of remedying them one cannot say for certain whether that £1,000 would necessarily and in all events suffice to pay whatever might become payable but the sum has all the appearance of a rounded figure which seemed to the master at the time to be not unreasonable in the circumstances. The £1,100 mentioned in Dodson v Sammell (1861) 1 Drew & Sm 575, 62 ER 498 has the same look to it. Only in annuity cases does one find unrounded sums being set aside, where familiar formulae could be used. The court in general looked at the 'reasonable probability' of there being future demands against the estate: Dean v Allen. A practical view would be taken. Thus if the rent for which the estate would be liable was greatly exceeded by the current and foreseeable rack rent currently paid for the premises, the court recognised that in practical terms liability for rent falling upon the estate would be negligible; any landlord would prefer to forfeit the lease for breach of covenant (thus recovering possession of premises he could relet at the higher rack rent) rather than asserting the lease and the estate's liability under it: Dean v Allen and Waller v Barrett. Accordingly there might be in an appropriate case no retention at all nor any secured indemnity required as the price of the court's sanction. In such cases there could, however, have been no true certainty that the rack rent would continue over long periods to be higher than the rent under the leases for which the testator was liable and accordingly there could have been no certainty that the estate would not find itself liable in the future. Yet 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.
   The whole point of the provision of security by beneficiaries to executors or of a retention was so that the executor could be wholly exonerated from any personal liability: Dodson v Sammell. One could therefore take it, where retention was ordered by the court (or fixed by the court as to its amount and then paid by agreement between the parties), that the position thus arrived at was intended to give executors total protection against any devastavit on account of a premature distribution to legatees or others of degrees inferior to that of the contingent creditor concerned. Fletcher v Stevenson suggests that security, had it been capable of being supplied by the widow life tenant in that case, would have led to the executor being totally free of personal risk. There is no authority dealing with the920 position which arose or which would arise if a retention directed by the court later proved inadequate as events fell out. That absence of authority is of itself consistent with a view that where a retention or security was ordered by the court, that order, if acted upon, conferred total protection on the executors concerned: see also Re Nixon [1904] 1 Ch 638 at 646 and Re King [1907] 1 Ch 72 at 77.
   There is no suggestion in the authorities, nor would business efficacy require, that the security to the executor could be given only by the recipient beneficiary himself. If, for example, a legacy to a wife was paid to her by an executor at risk of personal inability to a creditor, there would seem to be no reason, so long as the security given to the executor was appropriate in amount and kind, that it should not be given to him by, say, the wife's husband or father or perhaps be provided to the executors by their own arrangements at the expense of the estate or some part of it.
   No case in the area decided in the last half century has been cited to me in the course of argument but the law and practice on the subject, so far as it can be derived from the cases, would seem to be as follows. First, a distribution made pursuant to a decree of the court affords a complete protection to the executor and the executor need not and indeed should not look, for example to a retention, for any protection beyond that. Secondly, it had 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 co-exist 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.
   Considerable importance was, it seems, attributed to the prior sanction of the court having been obtained to whatever course was then acted upon. That would explain why in Taylor v Taylor (1870) LR 10 Eq 477 Lord Romilly MR paid no attention in his judgment to the argument of Mr Jessel QC that the executors there (who, without obtaining any decree, had paid a legacy without making any retention against the possibility of a call on partly paid shares in the estate) had921 merely done that which, said Mr Jessel, had they sought the directions of the court, they would have been bound to do. Lord Romilly MR found the executors liable to the extent of the legacy paid. He does not give his reasons at any length but it was the case that the executors had neither obtained a decree for a distribution without a retention nor made a retention, still less a retention sanctioned by the court. In Re Blow [1914] 1 Ch 233 Cozens-Hardy MR assumed that an earlier distribution made without the authority of the court but which, had the directions of the court been sought at the time, might well have then been given the sanction of the court, was none the less a devastavit. The cases provide no ground for a view, if the impugned executors had done only that which the court could have allowed at the time, that they should be later afforded the protection they would have had earlier if the acts had been so sanctioned.
   In no case cited where the protection of the executors from risk against the maturing of a contingent liability into a present and payable one had been in issue has it been held that it was wrong of the executors to take the matter to court for its directions or was it held that to have done so had been so unnecessary that the executors should bear the costs of the application themselves. Thus in Dodson v Sammell, heard after the 1859 Act, despite the judge being (in an obiter) critical of retention, and although the executors sought to continue to retain even after the 1859 Act and were held not justified in doing so, the executors' costs came out of the estate. So also, in Dean v Allen Romilly MR held it to have been very proper of the executors there to have brought to court the question of whether they should retain £3,000 out of the estate to meet contingent leasehold liabilities even though the master had already certified that no further indemnity than the personal indemnity of the recipients was necessary. This is consistent at least in circumstances where an executor can reasonably believe he has not achieved absolute certainty of the distribution proposed not being a devastavit, with the executor until then being under no duty to distribute ahead of his obtaining directions in that behalf. It was not even the case that the administration of assets in an estate should necessarily be the same whether the administration of the estate took place in court or out of court. In Re Hargreaves (1890) 44 Ch D 236, although it seemed strange to Lindley LJ that such should be the position, he acknowledged that there was an anomaly not peculiar to that particular case such that a person's rights could depend on whether the administration was in or out of court. It had earlier been the case that if any question in an administration was raised by the personal representatives to be decided by the court then they had to seek a general administration. That had come to be regarded as a 'crying evil'-in Re Davies, Davies v Davies (1888) 38 Ch D 210. Lord St Leonards' Act had, as mentioned above, enabled executors to obtain guidance of the court without there being a general administration. If the courts, as it seems they had, had attached great importance to executors obtaining the guidance of the courts when that guidance could only be obtained where a full and expensive general administration suit was put in train, then a fortiori one would expect importance to be attached to the obtaining of the guidance of the court where it could, after 1859, have been obtained relatively economically and speedily.
   I must now seek to apply the law thus emerging from the cases to the facts earlier described. First, I hold there to be good reason for the court, on the particular facts of Mr Yorke's case, to sanction a distribution to legatees without the executors requiring any retention out of the estate or any particular security beyond the personal security of the recipients in support of an indemnity from the beneficiaries to the executors should it transpire that the legatees have been922 overpaid by reason of there being emerging debts in respect of Mr Yorke's open years which are unsatisfied by the Equitas arrangements. Mr Yorke's Lloyd's creditors did not contract for any security from Mr Yorke and have, strictly speaking, no right to insist upon a retention or anything else to protect them. Even so, it is proper that the court, in the practical way exemplified in the earlier cases, should have it in mind to achieve a fair balance between, on the one side, the injustice of beneficiaries being kept out of benefit on account of liabilities that cannot be quantified and which may never come to anything and, on the other, the risk of the unknown and contingent creditors who have paid for cover finding their matured debts unmet. If, as in the earlier cases, I had to fix a proper provision for such possible creditors I would not, on the very full facts already before me, feel the need, as was commonly done, to adjourn the question to the master but rather I feel able to deal with the question here and now. I have already described the case that has to emerge before the executors would find themselves sued in respect of Mr Yorke's open years. Even were Equitas to fail in whole or in part it is very far from certain that the executors would, for the reasons I have given, find themselves proceeded against in the courts but ahead of that happening and then chief of their protections and chief of the safeguards for any policyholders is the RITC into Equitas. I cannot say Equitas is absolutely certain not to fail either wholly or in part, but I can say, first, that on the evidence before me I am entitled to hold, as I do, that there is at present no reason to think that it is likely to.
   Secondly, I hold that the authorities show that the sanction of the court can properly be given, even to cases where the provision for future creditors is not assuredly and in all possible events complete. Equitas has been authorised by the Department of Trade and Industry to conduct its business and that authority has not been withdrawn. Its auditors, whilst qualifying their report upon its latest accounts, can be taken by inference not to have considered there to be a significant level of concern about its ability, at least in the then foreseeable future, to continue as a going concern. I cannot and do not pretend to be even as well informed about Equitas as, let alone to be better informed than, are the DTI or were Equitas's own auditors at the time of their report; I have no reason to doubt their assessments. It is, of course, possible to suppose the failure of almost any corporate reinsurer which, unlike a government, is unable to print its own money, but if, as I believe I may, I can properly approach the question of Equitas's adequacy, as a security given to the executors, in a practical and business-like way corresponding to that in which the courts (before Lord St Leonards' Act) approached the similar problem of security being given against unquantifiable liabilities arising under very long leases, I have no doubt but that it would be right to describe Equitas as a sufficient and proper provision. It is such that upon their arranging for it as they have, Mr Yorke's executors are to be given by the court liberty to distribute to legatees without more ado. Such liberty, in the absence of fraud, wilful concealment or misrepresentation, will, if acted upon, give Mr Yorke's executors complete protection against any creditor in respect of an open year who later emerges to claim that the distribution was a devastavit.
   So much for Mr Yorke's executors having liberty to distribute, but can it be said that there is in Lloyd's cases a duty to distribute of such general applicability that executors and administrators in other estates affected by open years but protected by Equitas must in all cases and with total safety distribute without their first taking directions of the court? There are some possible formulations of a duty which at first appear to avoid the need for reference to the court, as, for example, 923if there were one (put in argument) which provided that it is the duty of executors to pay all existing debts and to make reasonable provision for future and contingent ones and that, having done so, the executors must then distribute the estate to the beneficiaries. But a duty so framed would not assist executors generally as, without going to court, they could not have achieved the certainty that they would desire that the provision they had made had, indeed, been reasonable, a thing which, possibly years later and after many events had happened, might be difficult to prove. In the circumstances which I have mentioned of Mr Yorke's case being partly funded as a pilot or test case I would have wished, if it were at all possible, to give guidance of such a nature that the costs and delays of applications to court in other estates were avoided; it is thus tempting to hold there to be a general duty such that references to the court need not be made. However, I am unable to hold that there is. I remind myself that both Lord St Leonards' Act and s 26 of the Trustee Act 1925, even whilst conferring a complete and statutory freedom from personal liability upon the personal representatives within their terms, confer only a discretion rather than a duty to distribute and that there is no hint in the cases I have been taken to of there being any such duty. Perhaps because the courts recognise, as a matter of public policy, the importance of a ready supply of individual executors willing to take on the often thankless tasks of that office, the courts entitle executors, if they insist upon it, to require and achieve absolute certainty of freedom from personal liability: consider Spode v Smith. Equitas of itself does not offer certainty to that degree. Whilst executors can reasonably choose, as many no doubt will, to rely upon it alone, it cannot be said in all cases that it would be wrong for an executor who is without the sanction of the court to decline to do so. There are very many variables which executors may properly wish to take into account in electing whether to rely upon Equitas without taking the directions of the court. Equitas's position may change from time to time; its forthcoming accounts, due shortly, for example, might show a different position or have annexed to them a qualifying auditors' report of a more pessimistic import. Willingness to rely on Equitas would, as another example, surely change amongst executors if it became known that the DTI was even considering, let alone acting upon, some withdrawal of authorisation. Moreover, in differing estates the risks represented by open years will vary greatly; some names will be exposed to few open years and some to many; some to syndicates at the lower end of risk and in others, especially those having done extensive business in the United States and in the environmental field, the personal representatives will be conscious of a risk of greater exposure should Equitas be found wanting. Even whether a deceased name's syndicates were those with few members or those with literally thousands of members would be likely to affect whether policyholders pursue an estate to the utterance and may hence affect a personal representative's assessment of the adequacy of Equitas. The likely timing of claims may be material as, were it to fail at all, it could be that Equitas would have met early claims and fail only as to later ones. Further, the size and nature and the dispositions made of the estate may need to be borne in mind; where the administration is, for example, in any event going to be spread over several years so that the representatives are not to be in a position to distribute significant parts of it for a long time then the representatives may be more willing to regard Equitas as adequate than they would where the whole estate would at an early stage otherwise pass from their hands. Further, given that personal representatives can require an indemnity from the beneficiaries to whom they924 distribute, the means of the recipients are relevant to the nature to the risk of personal liability to which personal representatives expose themselves. A distribution to a beneficiary who is already a person of substance and who is likely to remain so is thus less risky than a disposition to someone of small means and who is likely to dissipate that which he receives. A disposition, for example, to an established endowed charity may, in practical terms, be regarded by some executors as free from any but a negligible risk. In other estates the personal representatives may be given expert advice quite different to that I have described as the unchallenged evidence adduced on behalf of Mr Yorke's executors. In some estates the cost of obtaining the directions of the court will be a negligible proportion of the net estate, in others a significant one. There may be cases where personal representatives, having regard to the known position of Equitas at the time as they shall not unreasonably have interpreted it and upon their conscientiously weighing as best they can the very many variables concerned, elect not to rely upon Equitas or not to do so without first obtaining the directions of the court. I cannot see either of those courses necessarily to be wrong and I thus cannot find there to be a duty of general application of the kind which Mr McCall QC and Mrs Warnock-Smith on behalf of the executors invite me to. It is far from the case that the position of all personal representatives to names can be taken to be the same as the position of Mr Yorke's executors.
   It may be reasonably urged that if, as I have described, upon his obtaining and acting upon a direction of the court an executor relying upon Equitas obtains a complete freedom from personal liability (fraud etc apart) then why should he not obtain that same freedom where, to save money and time, he has not taken the directions of the court? Surely, it may be argued, the principles behind the administration of assets must be the same whether the administration is directed by the court or is conducted without that direction?
   Surely, the argument would run, if the personal representatives have done only that which the court could at the time have sanctioned, then they should have the protection which they would have had if they had been given that sanction? I see the force of these arguments but (leaving aside the difficulty and uncertainty of proving what the court would probably have done, perhaps several years earlier and in different circumstances) I fear authority is against my acceptance of them. The former argument failed in the Court of Appeal in Re Hargreaves (1890) 44 Ch D 236, [1886-90] All ER Rep 1017 and the latter was not accepted by Lord Romilly MR in Taylor v Taylor (1870) LR 10 Eq 477 and, to judge from his obiter comments, failed to attract Cozens-Hardy MR in Re Blow [1914] 1 Ch 233 at 240. Even at times when, to obtain any direction from the court, personal representatives had to surrender the whole administration to court, it was regarded as significant that they had passed their accounts in court, thus obtaining the sanction of the court: see Knatchbull v Fearnhead (1837) 3 My & Cr 122, 40 ER 871. Now that the directions of the court can be taken with relatively less expenditure in costs and time by way of the raising of specific issues in an administration, then, a fortiori, the personal representatives can be expected to seek the court's directions, which represent the result of consideration of the estate's position and Equitas's position at the time and in a forum in which, as I shall turn to below, arguments on behalf of the absent, unknown or contingent creditors can be heard and balanced (and be seen to be) in an informed and objective way that is unlikely to be possible out of court. Accordingly, personal representatives of deceased names with open years who rely upon Equitas do not, in my judgment, thereby obtain complete freedom from the risk of personal925 liability in respect of those open years unless they obtain and act upon the sanction of the court in that behalf, even where (as may be difficult and as may introduce the very uncertainty they wish to avoid) they can later show that they would probably have obtained that sanction had only they earlier asked for it. The imprimatur of the court confers a protection not otherwise obtainable. In the event of a beneficiary complaining in such a case that the executors had sought the guidance of the court unnecessarily and had thus unnecessarily subjected the estate to delays and costs, the executors would be able to point to the failure of that argument as long ago as 1837 in Knatchbull's case, even at a time when the 'crying evil' existed that if any question was required by the personal representatives to be decided by the courts then a general administration of the whole estate had to be sought.
   This is not to say that the directions of the court have necessarily to be taken in each of the 3,000 estates in which, the evidence suggests, problems of open years are present. A person claiming as a creditor but who is not able to show he is owed an immediate payable and ascertained debt at the time cannot insist upon the directions of the court being taken: King v Malcott. Some executors may recognise, on the facts relating to their particular estates, that to insist upon complete freedom from risk would be unjustified and that such risk as they run of the failure of Equitas could in practical terms be regarded as negligible. Some may feel, having regard to the beneficiaries to whom they distribute, that an agreed indemnity from them, if necessary with security in support of it, will amply suffice. Some professional executors (corporate or not) may feel that not only is the risk negligible but that they would in any event be insured against it. Indeed, that market in insurance against the failure of Equitas which I am told is not yet developed may develop to give yet further protection to personal representatives. In the circumstances I would not be able to attach real weight to any argument that this judgment in Mr Yorke's case threatens the court with there being thousands of applications for directions. Even were I to do so, that argument would not be one that could, in my view, displace, at any rate at first instance, the authorities which indicate that it is only upon personal representatives obtaining and acting upon the directions of the court that they obtain (fraud etc apart) complete freedom from personal liability.
   I have given Mr Yorke's executors liberty to distribute and I have, as earlier discussed, not found a duty of general applicability such that personal representatives protected by Equitas can be obliged to distribute without their obtaining the sanction of the court. But I have not indicated whether, on the particular facts of Mr Yorke's case, his executors are or are not under a duty now to distribute. However, that is not a real and present question; it will arise, if at all, only in the events that his executors, who keenly wish to distribute and who have been given liberty to do so, fail to do so and are then pursued by beneficiaries who assert that such a duty exists. I shall leave such an improbable collocation of events to be ruled upon if and when it arises.
   I mentioned earlier that upon the taking of the directions of the court argument on behalf of unknown or contingent creditors could be heard. Mr Stewart-Smith on behalf of Mr Giles Neville Clarke (representing persons who in the future make claims under Lloyd's policies partly underwritten by Mr Yorke) draws attention to Re King [1907] 1 Ch 72, a case where the estate was at risk of calls being made on the partly paid shares which it held. The executors sought the directions of the court and joined as a party the company in which the shares were held. Counsel for that company (for reasons which are not apparent) took926 the preliminary objection that the company had been improperly made a defendant. He accepted that contingent creditors might come voluntarily into a summons as to the administration of the estate but argued that the company could not be obliged to be before the court. Although the judge (at 77) noticed the unsatisfactory nature of cases where the rights of absent parties might be prejudicially affected, the objection succeeded; Neville J ruled the company had been improperly served and the proceedings against the company were dismissed with costs. Mr Stewart-Smith did not have instructions to raise such a preliminary objection in the case before me nor to oppose liberty being given to the executors to distribute although, to assist the court, he did raise doubts as to the general existence of a duty such as I have described. Indeed, if any such preliminary objection were to be taken it would need, if the objector is to avoid costs, to be taken early: see Re Davies (1888) 38 Ch D 210 and Re Barnato (decd), Joel v Sanges [1948] 2 All ER 585, [1949] Ch 21. Moreover, the authorities include a case after Re King in which contingent creditors (albeit annuitants) were heard: see Re Arnold [1942] 1 All ER 501, [1942] Ch 272 in which Simonds J commenting adversely and not following Re Johnson [1940] WN 195, said that Re Johnson was a case where there had been no argument on behalf of the creditor, an odd comment if there could properly have been none. Nor can Re Arnold be fairly put on one side as relating only to cases where the only contingency in issue is the survival of an annuitant as, although Simonds J mentioned that reason as a way of distinguishing Re Johnson, the future continuing debt to an annuitant although being capable of being provided for in a more readily calculable way, is quite as much a contingent debt as many others.
   Nowadays under RSC Ord 85, r 2 personal representatives can raise 'any question arising in the administration of the estate'. The parties, where such a question is raised, are prescribed but not in an exclusive way; the provision in Ord 85, r 3(2) begins by providing that all persons having a beneficial interest in or claim against the estate need not be parties. It goes on: '... but the plaintiff may make such of those persons ... parties as, having regard to the nature of the relief or remedy claimed in the action, he thinks fit.'
   The rule does not in terms preclude others than 'such of those persons' being joined as parties and it is plain from the terms of Ord 15, r 13(1) that in proceedings concerning the estate of a deceased person the court may appoint a person to represent those who 'may be interested (whether presently or for any future, contingent or unascertained interest) in or affected by the proceedings'.
   It would be nothing short of absurd if a person could be invited to court to argue for contingent creditors or ones with unascertained interests and yet the court was bound not to hear him. In my judgment Re Arnold is to be preferred to Re King; it is not only possible that respondents joined as parties to represent contingent or unascertained interests may nowadays be heard but, if the seeking and giving of directions is to be and to be seen to be the balanced and informed process that I have described, it is desirable that the position of unascertained and future creditors should be considered. Where without inconvenience suitable representatives can be found to put argument on their behalf it should be welcomed because their presence would absolve the executors from having to do so. I thus welcomed what Mr Stewart-Smith had to say to me.
   To return to the questions in the originating summons, as developed in argument, I give the executors liberty to distribute without further retention or security, a form of relief which was an alternative which Miss Mason asked for should the general duty not be held to exist. For the reason I have mentioned, I927 do not answer the question whether the particular executors before me are under a duty of the kind specified in question 1 of the summons but again for the reasons given I do not find there to be a general duty of such a kind. I do not understand costs to be in issue but, rather, to be agreed and I invite Mrs Warnock-Smith to prepare and circulate minutes of order including a representation order as to Lady Chataway. Given that Mr Stewart-Smith had no instructions to oppose the relief in the originating summons and given also that Mr G N Clarke, himself interested in the position of Equitas, is a representative in an ambivalent position, I have paused before making a representation order in his case. However, I believe the arguments that could be put on behalf of the class he has been asked to represent have been put as fully as any court could reasonably expect. Accordingly I make a representation order in his case also. Only if the terms of the minutes of order cannot be agreed need the matter be restored to me for further hearing.
Directions accordingly.
23 July 1997. Lindsay J, on a hearing as to the form of the order, indicated that it was no part of his ruling that the executors were required expressly to take any security from beneficiaries as a precondition either of their being given leave to distribute by the court or their obtaining that protection which acting under the direction of the court confers.
Celia Fox Barrister.
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