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Everyone Makes Mistakes

11th November 2016 By Arman Khosravi

When a businessman died, he left his substantial and complex business affairs in the hands of his executors – his brother, his widow and his accountant. As his business had been run with his brother, it was agreed that the two families’ respective interests were best served by splitting up the businesses they co-ran.

One of the more complex aspects of the demerger negotiations was a claim for VAT refunds totalling tens of millions of pounds. The deceased man’s brother considered the claims were likely to fail and offered to sell his right to pursue them to his fellow executors at a low price, which they declined. After the businesses were split up, the refunds were successfully claimed, which led the deceased man’s wife and accountant to believe that they had been misled by his brother during the negotiations.

A series of lawsuits resulted, with the wife and accountant claiming for ‘equitable compensation’ as regards the estate’s share of the VAT refunds. They brought claims of deceit, breach of contract, negligence and breach of fiduciary duty as an executor. Those claims failed and appeals were lodged with the Court of Appeal.

One of the important aspects the Court had to consider at the outset of the appeals was the effect of an ‘exoneration clause’, which stated that ‘no trustee shall be liable for any loss to the trust premises arising by reason of any improper investment made in good faith or for the negligence or fraud of any agent employed by him or by any other trustee hereof…’, the term ‘trustee’ in this instance including an executor.

The Court concluded that since the brother’s actions had been taken in good faith, the exoneration clause would apply and he was therefore not personally liable for breaches of duty.

Whilst this decision backs up the general proposition that executors and others who act in good faith and with reasonable care will not be personally liable for losses which result, it is likely to be the subject of a further appeal. In addition, the dispute might well have been avoided altogether had more attention been given at an early stage to the possible outcome of a successful claim for the recovery of the VAT.

Source: Concious

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