The End of Cherry and Boultbee (1839) – No Right of Set-Off for Unpaid Debts against Inheritance Act Awards and No Costs Certificate – No Payment
In Johnson v Wackett  EWHC 129 (Ch), Deputy Master Brightwell gave judgment on 28 January 2022 in what is an important case that has received much comment both in the legal and in the national press. The Deputy Master also granted permission to appeal in respect of two fundamental aspects of his judgment. A clear indication of the importance and previous lack of authority in respect of matters upon which the judgment is concerned.
The Rule in Cherry v Boultbee (1839) is a simple one (and unchallenged for nearly 150 years), namely that when a beneficiary owes the deceased money, it provides that before the beneficiary receives the bequest from the deceased’s estate, the estate is entitled to receive payment of the debt or claim a set-off.
The case arose following a Part 8 Claim by Colin Johnston relating to the administration of the estate of the late Sidney Johnston who died on the 27 March 2017. Sidney was Colin’s father. In earlier proceedings brought under the Inheritance (Provision for Family and Dependents) Act 1975 (the 1975 Act), Colin sought an Order for financial provision from the estate of his late father. Following a trial before Mr Edwin Johnson QC then sitting as a Deputy Judge, Colin was awarded a lump sum of £125,000 from his father’s estate. The Defendant, Natalie Wackett, is Sidney’s granddaughter, being the daughter of Colin’s late brother, Gary. Natalie is the Executrix and sole beneficiary of Sidney’s estate.
The issue that arose in the Part 8 proceedings by Colin was whether Natalie, in her capacity as the personal representative in the administration of Sidney’s estate, should deduct or net off from Colin’s award under the 1975 Act the amount of an unsatisfied costs Order dating from 1998 plus interest in the total sum of £116,055.75. Under the rule in Cherry v Boultbee (1839) Natalie was of the opinion that not only was she entitled to do so, but that she was obligated to do so as the Executor of her grandfather’s estate. The existence of the costs Order and the reasons why it was unenforced were briefly considered at the 2019 trial. However, it was only after the trial had concluded and judgment had been given that Natalie discovered documentation which quantified the liability for costs arising under the earlier 1998 proceedings.
The discovery of this documentation is fundamental to understanding how the case arose. In all 1975 Act proceedings, both parties must give full financial disclosure. When doing so, Natalie did not include the quantum of the costs liability against Colin because she was unaware of the amount. As a result, the amount of the costs liability was not considered during the 2019 trial.
When an Order is made in favour of an applicant under the 1975 Act, that person is treated as a legatee under the Will and thus as a beneficiary of the Estate, re Jennery (deceased)  Ch 280. The rule applies even where the debt was statute barred at the time of the testator’s death; re Akerman  3 Ch 212. An Order for costs does not become wholly unenforceable by effect of the Limitation Act 1980. Section 24 of that Act precludes the beginning of any action upon a judgment debt after six years from the date on which it became enforceable, but this does not prevent an application (under CPR Part 83.2 (3)) to extend time for execution under a judgment re National Westminster Bank plc v Powney  Ch 339. Colin’s costs liability to Sidney arose by reason of him issuing a Writ against his father (and others) of 17 March 1992 (the 1992 proceedings). The litigation was acrimonious. Colin never spoke to his father again following which Natalie became Sidney’s sole beneficiary of his estate. Colin’s claims were dismissed for want of prosecution by Order of Master Moncaster 19 November 1998. Colin was ordered to pay the costs of the action. Sidney and the other defendants then sought the taxation (as it was then known) of their costs of the proceedings. It was only after the 2019 proceedings had concluded that Natalie found evidence ( but not the final costs certificate) that the costs had been assessed in the principal sum of £36,886.02 with VAT of £5,806.71. It was these sums plus interest of £72,758.02 that Natalie sought to set-off against the £125,000 awarded to Colin in the Part 8 proceedings.
The Deputy Master’s Decision
In coming to the conclusions that he did, the Deputy Master would have had in the forefront of his mind that the Judge in the 2019 proceedings had ordered that Colin should receive £125,000 and that the Deputy Master was not minded to circumvent that Order. In coming to his decision, the Deputy Master placed significance reliance on Natalie’s failure to find the actual costs certificate. Following an assessment, the Court issues a costs certificate upon which the receiving party then enforces against the paying party. The Deputy Master found that Sidney did not intend for Colin to pay the costs or never intended to enforce the costs Order, so no liability arose against Colin upon which the Estate could seek payment. As such the Deputy Master found it would be inequitable to set-off the costs liability against the 1975 Act award.
The Deputy Master went further and found that the rule in Cherry v Boultbee does not apply to an award made in Inheritance Act 1975 proceedings. There appears to be no previous authority on this point and was the reason why the Deputy Master gave permission to appeal. The Deputy Master found that Cherry v Boultbee would only apply in respect of Section 2 of the Inheritance Act 1975 where a claimant in a 1975 Act claim dishonestly withholds information from the Court. In granting permission to appeal, the Deputy Master appears to accept that the right of the set-off under the rule in Cherry v Boultbee is an equitable right and is divorced from and separate to the enforcement of an award under the 1975 Act. It is of note that when the 1975 Act came into existence there was no suggestion that it in any way overruled the rule in Cherry v Boultbee.
The Deputy Master’s Judgment also determined a fundamental point namely that there is no liability on a paying party following an assessment of costs unless there is a final costs certificate. Again this is a matter upon which the Deputy Master gave permission to appeal. The Deputy Master found that “whilst a judgment takes effect as soon as it is pronounced in Court, where a detailed assessment of the costs is concerned, that judgment does not itself comprise an order for payment of those costs”. This finding arguably gives insufficient weight to the principal enshrined within the CPR that a judgment takes effect at the time when it is pronounced and not upon the Order recording the terms of the judgement; Holtby v Hodgson (1889) 24 QBD and CPR R 40.7.
Natalie will not be proceeding with an appeal. Consequently, these important issues will remain unresolved for the foreseeable future. The judgment in Johnston v Wackett will impact on recovery of costs and the administration of estates for the foreseeable future. However, in respect of 1975 Act claims the parties must give full disclosure at the commencement of the case. This did not happen in this case as the relevant documents were only found after the case had concluded. Disclosure should enable the Judge hearing any such claims to consider the whole financial position so the estate should not have to rely on Cherry and Boultbee. The position in respect of the absence of a costs certificate seems counter intuitive and surprising when the law is clear that an Order is made when it is pronounced not when it is drawn up. There are numerous good reasons for this and it is unclear why costs law should be the exception.
For further information on the issues raised, please contact Hal Branch at: email@example.com