UK: Protecting The Family Wealth: Colicci & Ors v Grinberg & Anor [2023] EWHC 1177 (Ch)

Family background

Ernesto Colicci died unexpectedly on 18 January 2021 at the age of 66. Ernesto and his first wife Josephine married in 1982 and set up a business selling ice-cream from vans which grew over time to operating catering outlets in public places. A company was incorporated in 2003 and the business transferred into it. The shares in the business were held equally by Ernesto and Josephine.

After finishing their formal education Ernesto and Josephine's two adult children (Robert and Rosanna) joined the business as employees.

Ernesto and Josephine divorced in 2011 and Ernesto married his second wife (Nora Grinberg) in 2014. Nora was the executor of Ernesto's will.

Legal Background

When Ernesto and Josephine divorced in 2011 although they negotiated a clean break, they remained in business together. At that time, they entered into a shareholder's agreement ("the 2011 agreement"). The 2011 agreement allowed Ernesto and Josephine to transfer their shares during their lifetime to their adult children, but prohibited lifetime transfer to anyone else except by consent of both shareholders. Upon the death of the first of them, the survivor had the right to acquire (at full value) any of the deceased's shares not passing to the children.

During 2015 Nora and Ernesto prepared to welcome a new child and so did Josephine and her new partner. In December 2015 Ernesto and Nora instructed a solicitor to draft wills for them. The will was prepared on Ernesto's behalf to the effect that some of his shares (and two properties) were split equally between Robert, Rosanna and his forthcoming child, the residue being left to Nora. A will to that effect was signed by Ernesto on 9 March 2016.

Although the relationship between Josephine and Nora had been good, relations soured and on 12 May 2016 Nora and Ernesto made new wills which removed Josephine as their child's guardian. Otherwise, Ernesto's second will remained substantially the same.

In light of the new additions to Josephine's and Ernesto's families Robert spoke with his parents to seek reassurance that he and Rosanna would inherit their shares in the company in due course. Neither parent expressed disagreement. On 22 April 2016 Ernesto and Josephine met with a solicitor and Ernesto indicated that he would be willing to make a will leaving his shares to the adult children. He did not mention that he had already made a will on 9 March which left his infant child 1/3 of those shares.

Only three weeks after making the 9 March will Ernesto entered into a Deed ("the 2016 Deed") which stated that Josephine and Ernesto agreed with each other (and separately with Robert and Rosanna) that upon their respective deaths if each of them still held the shares in the company the ownership of those shares would pass without costs and free of all taxes to Robert and Rosanna in equal parts or to the survivor of them. The 2016 Deed also stipulated that Josephine and Ernesto would "forthwith make a will or codicil leaving the shares free of all taxes to Robert and Rosanna as shall survive them and if both the shares shall be divided equally between them and neither of them will revoke or in any way change the aforementioned bequests".

On 1 March 2017, a further agreement was signed ("the 2017 agreement"). The 2017 agreement reflected that Ernesto and Josephine gifted 10% shareholdings to each of the adult children, with Josephine and Ernesto each retaining 40 shares. Clause 18 of the 2017 agreement stated:

"18.1 This Agreement, and any documents referred to in it, constitute the whole agreement between the parties and supersedes any arrangements, understanding or previous agreement between them relating to the subject matter they cover, including the Shareholders Agreement... dated 8 December 2011".

Recorder Mark Anderson KC (sitting as Judge) was required to determine whether clause 18 revoked the 2016 Deed i.e., was it possible for Ernesto to give his shares in the company to someone other than Rosanna and Roberto.

Findings

The Judge found that Ernesto understood what the 2016 Deed required him to do. He stated that its terms "are plain and would have caused him no confusion". "He knew, having been told in simple terms by his own solicitor, that the 2016 Deed required him to make a new will to leave his Shares to his adult children". The Judge found that the 2016 Deed contained a mutual promise that any shares still held by Ernesto and Josephine at death would pass to the adult children and a promise to make wills to that effect. In doing so it created testamentary obligations. "It removed Ernesto and Josephine's freedom to dispose of their Shares on death".

It was found that the effect of the 2017 Agreement was to change the 2011 regime to introduce two new Shareholders and a new Director. It was further found that the 2016 Deed could work alongside the 2017 Agreement just as readily as it had worked alongside the 2011 Agreement.

The Judge found that the 2016 Deed remained in force and that the adult children were entitled to the shareholding.

Points of note

• The lengthy Judgment demonstrates the importance of careful consideration and clear drafting when it comes to distribution of the family wealth, especially in the case of a blended family.
• Where different agreements are reached over time it is important that they are reviewed as a whole to ensure that they work together to reflect the deceased's genuine wishes and to avoid ambiguity.
• Where documentation is prepared which fetters future testamentary dispositions clear advice must be provided to ensure that the client fully understands the implications.
• Where there is a family business there is merit in full and frank discussion between family members regarding succession intentions to avoid the possibility of future dispute.
• The representative for Nora requested that the Judge should withhold his Order to transfer the shares pending the issue of proceedings under the Inheritance (Provision for Family and Dependants) Act 1975 ("the Act"). The Judge was not prepared to grant such a stay on the grounds that: he was not satisfied that a claim under the Act would be made, that it had reasonable prospects of success, that there was a good reason for the claim not being issued previously or that a stay was necessary to prevent injustice. The position remains that if a client has a potential claim under the Act careful consideration should be given to issuing a protective claim even if it is subsequently stayed pending the outcome of other proceedings.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.