Petterson v Ross & Ors

In administering a solvent estate with insufficient liquid assets, the court must apply the statutory rules governing abatement unless the beneficiaries agree otherwise. The court has no discretion to substitute its own view of fairness.

Specific legacies abate rateably according to their probate value. Property subject to a charge is primarily liable for that charge unless the will shows a contrary intention. Where a mortgage is discharged from property which was intended to pass free of it, the beneficiary may obtain recoupment through marshalling.

The claimant, executor of the estate of Romana Ross, sought directions concerning the administration of an estate whose liabilities could not be discharged from available liquid funds without resort to specific legacies. The defendants were the deceased’s three children.

The principal issues concerned an alleged agreement under which Lorenzo would operate the deceased’s café for his own account, claims for unpaid wages by Lorenzo and members of his family, the treatment of liabilities secured on specific gifts, and the proportions in which the specific legacies should abate under the Administration of Estates Act 1925.

1. The court found that the parties had agreed at the meeting on 18 August 2008 that Lorenzo would run the café on his own behalf pending sale, retain all profits and bear all losses. The arrangement was not conditional upon execution of a deed of variation.

2. As a consequence, Lorenzo was not an employee or worker of the estate, and he was responsible for the café’s liabilities between the deceased’s death and sale. The wage claims brought by Lorenzo, Lisa and Chantelle therefore failed and were not liabilities of the estate.

3. In the absence of agreement between the beneficiaries, the statutory rules applied. Under section 34(3) and Part II of Schedule 1 of the Administration of Estates Act 1925, the court had no discretion to determine abatement according to fairness. Property included in the residuary gift was applied before specifically devised or bequeathed property.

4. Specific legacies abated rateably according to value. The relevant value was the value to the testator at death, namely the probate value, rather than a later market value.

5. Section 35(1) applied to charges on testamentary dispositions. The wording of the gift of 13 Kensington Gardens showed a contrary intention, so the property was not primarily liable for its mortgage; the mortgage was treated as an estate liability. The charge on 15 Market Street remained primarily payable from that property, reducing its value for abatement purposes.

6. Although the mortgage on 13 Kensington Gardens had been discharged from its sale proceeds, the principle of marshalling entitled Diana to recoup or compensate herself from property which ought to have borne the mortgage before resort was had to the specifically devised property.

7. The court expressed provisional views that Lisa’s separate claim faced limitation and contractual difficulties, but she was not a party and those views were not binding on her.