I was very intrigued by the story in this week’s papers about the complex disputes which have rumbled around the estate of late Turkey tycoon Bernard Matthews since his death in 2010. It seemed likely that the press reports were not presenting a full picture of the situation, so I have asked Principal Trainee Solicitor Laura Guillon to dig down into the legal complexities.
The case involving the dispute over the late Bernard Matthews’ estate has been reported in the press recently and this post aims to discuss the judgment.
Facts of the case
Mr Matthews died on 25 November 2010 survived by his wife Joyce Matthews, their 3 adopted children, Kathleen Matthews, Jason Matthews and Victoria Matthews, and his son by Cornelia Elgershuizen, George Matthews. Mr Matthews and his wife Joyce had been separated for nearly 30 years at the time of his death and he had been living with Odile Marteyn for roughly 20 years. They had lived together in England and in his villa in the South of France named Villa Bolinha.
Mr Matthews had 3 separate Wills; two in France and one in England. One of his French Wills left Villa Bolinha to Odile outright, the other French Will left his moveable property to Odile and the English Will made provision for £1 million tax free to be left to Odile and the residue of his estate, amounting to approximately £40 million, was left to his son George. His adopted children were not left anything under any of his Wills unless George predeceased him and had no children having reached the age of 25 in which case the adopted children would have inherited the residue of his estate.
Under French law Mr Matthews’ children were entitled to 75% of Villa Bolinha upon his death so unless they waived their right to the property Mr Matthews was only entitled to leave 25% of it to Odile. He was fully aware of this when he made his Wills and wrote a letter to “Mrs J. K. Matthews and all members of my family” dated 21 February 2006 saying the following:
“The purpose of this letter is to explain to you all … my thinking in relation to my absolute gift of my French villa to Odile…
Odile has supported me unfailingly for many years and particularly so during my recent illnesses…
In reaching my decision I have taken into account the fact that each of you is very well housed with at least one property each, and that directly, or indirectly, I have provided financially for each of you over a very long period of years. I wish the French villa to continue to be occupied and enjoyed and consider Odile would be the best person to take on this responsibility”.
George respected these wishes and did not pursue a share of the property in France but the adopted children did not which resulted in Odile only inheriting 43.75% of the property.
The issue that came before the Court in England was regarding the payment of inheritance tax in France. Clauses 4 and 5 of Mr Matthews’ English Will stated that any tax that was to be paid, whether it be in England or France, was to be paid from his estate. The adopted children, having exercised their right under French law to have a share in the property, claimed that they should also be entitled to have their inheritance tax in France paid out of the estate. Under French law inheritance tax is payable by the beneficiaries of the estate and not the executors. The adopted children had to pay 40% inheritance tax on their share of the property and Odile had to pay 60% inheritance tax on her share with each being subject to an initial exempt amount. The French tax authorities estimated that Villa Bolinha was worth approximately 15 million Euros and the tax that the adopted children had to pay was calculated at approximately 2.6 million Euros.
The Doctrine of Election
Mr Nicholas Strauss QC heard arguments regarding whether the doctrine of election should be applied in this case. This is a very old area of law and is best summarised by Halsbury vol. 18(2) paragraph 724 which is the extract that Mr Nicholas Strauss QC used in his judgment to summarise the doctrine and reads as follows:
“Where a testator by his will purports to give property to A which in fact belongs to B and at the same time out of his own property confers benefits on B, the literal construction and application of the will would allow B to keep his own property to the disappointment of A, and also to take the benefits given to him by the will. Equity, however, in such circumstances, introduces the principle that a person may not accept and reject the same instruction, and B is not allowed to take the full benefit given to him by the will unless he is prepared to carry into effect the whole of the testator’s dispositions. He is accordingly put to his election to take either under the instrument or against it. If he elects to take under the will, he is bound, and may be ordered, to convey his own property to A; but, if he elects to take against the will and to keep his own property, and so disappoints A, then he cannot take any benefits under the will without compensating A out of such benefits to the extent of the value of the property of which A is disappointed”.
Odile argued that the proper interpretation of clauses 4 and 5 was that they operate as a legacy to the adopted children of tax resulting from them having exercised their rights under French law. However, it was argued by the adopted children that the legacy was solely to Odile despite the fact that they are the parties liable for that part of the tax. Odile further argued that the doctrine of election entitled her to be compensated by the adopted children due to them having accepted the benefits that they were entitled to under French law which was contrary to the provision of the French Will. She sought to be compensated by an amount equal to the amount payable by the executors of the estate under clauses 4 and 5 of the English Will to cover the tax payable by his adopted children under French law.
The adopted children argued that the doctrine of election did not apply for two main reasons:
- They had no choice; they were not entitled to anything under any of their father’s Wills and it was not until they exercised their rights under French law that clauses 4 and 5 of his English Will would come into effect; and
- Even if they were forced to give up their rights under clauses 4 and 5 of the English Will the money that they have essentially given up could not be used to compensate Odile because it would fall into the residuary estate which has passed to George.
George’s position throughout the proceedings was neutral. He had said that he would pay the amount of tax due on the property to the adopted children if the doctrine of election did apply or he would pay it to Odile if the doctrine did apply.
Mr Nicholas Strauss QC states in his judgment that it is not surprising that the parties shared a common position that clauses 4 and 5 were to operate as a legacy of the tax payable by the adopted children. If the adopted children did not adopt this position they would have no right to be paid the tax for which they were liable and if Odile did not adopt the same position she would not be able to claim compensation under the doctrine of election.
Contract Law Principles applied to Wills – What was Mr Matthews’ true intention?
However, Mr Nicholas Strauss QC adopted a different approach as a starting point and asked whether the words “tax payable … in consequence of my death” in clause 5 should be read literally so as to include not only tax payable by those that Mr Matthews wished to benefit under his Will but also tax payable by those that had exercised the rights under French law and benefitted from his estate contrary to his wishes. Mr Nicholas Strauss QC did not think that this is what Mr Matthews would have intended and so asked whether it should really read “tax payable … in consequence of my death by the executors or by any beneficiary under the testator’s wills”. He stated that the essential question is always “what did the testator say, expressly or by necessary implication?”
In asking this question he applies principles governing the construction of contracts which apply equally to Wills. Evidence of negotiations between parties cannot to a contract cannot be used to establish their intention but it is allowed to use such evidence to establish what the parties knew at the time of entering into to the contract and then using this knowledge to help interpret the contract (Chartbrook Ltd v Permission Homes Ltd  AC 1102). A similar principle applies to Wills so whereby direct evidence of the testator’s intention is not permissible it is acceptable to look at communications between the testator and his lawyers prior to executing the Will to establish what was known to him at that time. Having reviewed the evidence Mr Nicholas Strauss QC determined that the important point was that the correspondence between Mr Matthews and his lawyers showed that he was aware of the adopted children’s rights under French law and the letter he wrote to the family in 2006 demonstrated that he had made provision for them during their lifetimes. He concluded that these pieces of evidence were admissible.
The second contract law principle he applied was consideration of whether terms should be implied into a contract. In contract law a term is to be implied “if that is what the reasonable observer, with knowledge of the relevant background, would understand the contract to mean … In other words, a term is implied where, having regard to the terms of the contract and the evidence as to its background, the court is sure that this is what the parties would have provided expressly if they had thought the issue through”. Mr Nicholas Strauss QC applied this principle in this case and decided that it was clear that Mr Matthews’ intentions had been for Odile to inherit Villa Bonhila in its entirety free of tax and given that he was fully aware of his adopted children’s rights under French law it was inconceivable that he would have wanted the tax that they are liable for, to be paid out of his estate when he had clearly not intended for them to inherit the property. He had clearly not considered the tax position if the children did not respect his wishes. The Judge concluded that had Mr Matthews considered this, clauses 4 and 5 of the English Will would not apply to tax payable by any of his children who exercised their rights under French law.
“The tax provision was to protect the beneficiaries under the will. That is what the reasonable observer would take him to have meant. Therefore the correct construction of clauses 4 and 5 is that they apply to tax payable as a consequence of his death by the executors or by beneficiaries under the will … For this reason, I hold that the adopted children have no right under the English will to have their tax liability discharged, or to be reimbursed if they have paid it. If that is right there is no need to consider the doctrine of election”.
The Judge reached his conclusion without any of the parties advancing this argument so for the sake of completeness he considered the doctrine of election but that analysis goes beyond the scope of this post.
It seems that the Judge applied a logical approach to the case and ultimately tried to achieve what Mr Matthews had intended as far as possible given that there was nothing that could be done in relation to the adopted children having successfully claimed a share of Villa Bonhila. The law in France is such that children cannot be disinherited unless they waive their right which is quite contrary to the law in England. Whilst a child can make a claim against a deceased’s estate this is only likely to be successful if the child is a dependent; the mere fact that they are the deceased’s child does not mean that they are automatically entitled to a share of the deceased’s estate which is why the adopted children could not have made a claim against the residuary estate in England which was left to George.
French v English
It is advisable that anybody that owns a property in France should make a Will in France. Even if a person dies domiciled in England it is French succession law that will determine how that property is dealt with. French property can be dealt with under an English Will provided that it complies with French succession law. However, this is not the most straight forward way to deal with it. Upon administering the French estate the English Will needs to be translated into French, certified by a French court official, notarised and its authority proven. This will undoubtedly be an expensive process and could be avoided by having a French Will that deals solely with the French property. Provided the French Will and English Will do not conflict each other by dealing with the same assets then both will be valid.
This case raises various questions; is it right that children can be disinherited in England but not in France? Which is the better principle? Should a parent have to leave a certain proportion of their estate to their children if they are grown up and have made their own way in life? Most parents leave their estate to their children in any event but if they choose not to, surely this is for good reason; it is money that they have accumulated during their lifetime and they are able to do with it what they wish during their lifetime so why not upon their death?
Parents have a responsibility to provide for their children but, take for example, a couple with one child that divorce; the non resident parent will have to provide for their child by way of child maintenance. However, once the child is 18 or has finished full time education the non resident parent is not liable to pay child maintenance in respect of that child unless, for example, there has been a Consent Order made in which it was agreed that child maintenance would extend beyond that time until say the end of first degree tertiary education. However, this is usually as far as this will extend to. Given that this is the position in family law I am not sure how well it would sit in the English Court system for adult children to automatically be entitled to a share in their parent’s estate. However, perhaps this would resolve many problems which can arise between families upon the administration of a deceased parent’s estate especially in cases involving second families.
Family relationships are never straight forward and none of us know exactly what led Mr Matthews to leave the majority of his fortune to George and nothing to his adopted children but as a child I’m sure it would hurt to receive nothing in a parent’s Will whilst one sibling receives almost everything. Perhaps if this had not been the case the adopted children would have respected Mr Matthews’ wishes, as George did, and not pursued their right to a share of Villa Bonhila.