Getting personal

Costs incurred by the personal representatives (PRs) for work in non-contentious administration, where the residuary beneficiaries want to challenge the costs on account of how much they reduce residue, is a growing area of dispute.

So, here is what beneficiaries should do to avoid the risk:

• The beneficiaries must seek the court's discretion to assess costs. Previously, any application to challenge the PRs' costs had to be made under section 71(3) of the Solicitors Act 1974, i.e. by a third party (the residuary beneficiary) being a person interested in the property about which the bill ?will be paid.

• In light of Tim Martin Interiors Ltd v Akin Gump LLP, the procedure is to first make an application in the High Court for the executors to provide an account of their dealings with the estate as executors. ?The High Court will then remit the question of whether the costs (between executor and solicitor) were reasonable and proportionate down to the Senior Courts Costs Office so a 'solicitor-client' assessment under section 70 of the Solicitors Act 1974. The assessment will be reported back to the judge/master for any further order on ?the account.

• A third-party section 71 assessment (as previously the case) severely limited the judge's ability to disallow costs. An assessment under section 70 allows the judge to reduce costs based on hourly rates, items of ?work, etc.

• There are strict time limits to challenge solicitor-client costs, but there is no bar to an assessment after 12 months have lapsed from the payment of any bill (section 70(4) Solicitors Act 1974). Any greater delay may prejudice the beneficiary's right to challenge those bills paid more than 12 months ago: McIlwraith v McIlwraith.

• If the court assesses down the bill ?by 20 per cent or more, the executors will usually (unless the court relaxes the rule) have to pay the beneficiary's costs of the proceedings, failing which the beneficiary will be liable for the parties' costs. The 20 per cent ?figure is calculated on the total ?bill (profit costs plus disbursements) but excludes VAT. This is a ?high hurdle and usually quite ?a strong disincentive against ?any challenge.

1. Costs are assessed applying the principles laid out in the Solicitors' (Non-Contentious Business) Remuneration Order 2009, which dictates that the court will have regard to what is "fair and reasonable" when conducting an assessment and in particular to:
2. the complexity of the matter, ?or the difficulty or novelty of ?the questions
3. the skill, labour, specialised knowledge and responsibility involved
4. the time spent on the business
5. the number and importance of the documents prepared or considered, without regard to length
6. the place where and the circumstances in which the business or any part of the business is transacted
7. the amount or value of any money or property involved
8. whether any land involved is registered within the meaning of the Land Registration Act 2002
9. the importance of the matter to the client; and
10. the approval (express or implied) of the entitled person or the express approval of the testator ?to: the solicitor undertaking all ?or any part of the work giving rise to the costs; or the amount of ?the costs.

Therefore, get the residuary beneficiaries to agree to the work ?and/or the costs. This will be significant in the court's assessment in favour of the executor's costs.
 

Lloyd Junor is an associate at Thomas Eggar

He writes the regular in-practice article on wealth structuring for Private Client Adviser