Signing away testamentary freedom

The High Court handed to a judgment considering the circumstances in which a promise to make a Will favouring particular people was binding in Colicci v Grinberg. Why is a Company/Commercial solicitor writing this, rather than a member of our Private Client team? Because deeds like this are highly relevant to corporate arrangements in shareholders agreements and it’s something for shareholders to think about, especially in family businesses, when they’re instructing us to prepare a shareholders agreement. It is possible to sign away your testamentary freedom to make a Will benefitting anyone you want with a deed of the kind used in Colicci v Grinberg. Whether it’s desirable is a different matter and the factual background to Colicci v Grinberg may help you to think about the personal issues involved when considering whether to enter into such a deed.

Ernesto Colicci died in January 2021. He and his first wife, Josephine Colicci, had run a business since the early 1980s (setting up a company, ECSI Limited (the Company), in 2003) and continued to run it until Mr Colicci’s death, although they divorced in 2011. They had two adult children in their 30s, Robert and Rosanna Colicci, who began working in the business after finishing their formal educations. In 2017, Robert was appointed as a director of the Company. Rosanna left the Company to run her own business from the same premises as the Company but until about 2019, she continued to help out in the accounts department without payment.

Mr Colicci remarried in 2014 to Nora Grinberg.  She was sued by Mrs Collici and her children as executrix of Mr Colicci’s Will. The claim was also brought against the Company.

Following their 2011 divorce, Mr Colicci and Mrs Collici entered into a shareholders agreement, under which they were each allowed to transfer their shares during their lifetime to Robert and Rosanna (or to trusts for their benefit) but were not allowed to transfer to anyone else. Upon the death of the first of them, the survivor had the right to acquire, at full value, any of the deceased’s shares which would not pass to their adult children under the Will of the deceased.

By 2015, both Mrs Colicci and Ms Grinberg were expecting children, Ms Grinberg with Mr Colicci. Mrs Colicci proposed all shares in the Company should pass to Robert and Rosanna on the death of Mr Colicci or Mrs Collici and that the shareholders agreement should be revised to reflect that agreement. Whilst seeming to agree with her, Mr Colicci didn’t respond to her solicitors. Instead, without telling her, he made a Will in March 2016 leaving his shares to be divided equally between Robert and Rosanna and his new (not yet born at that point) baby. At the same time, Mr Colicci wrote a letter to be opened after his death, which laid out the content of his Will and went on:

‘I love Roberto and Rosanna very much and this split is no reflection on how I feel about them. I have provided both with significant funds in their lifetimes, and I have set them up with properties, rental properties, and provided them with careers in my company, ECSI Ltd. They are independent adults now with financial security. I have left them interests in my rental properties, and my company, which is my most substantial asset in terms of financial value. I consider this more than sufficient provision for Roberto and Rosanna.

 My [infant child] is due to be born April 2016 …. [He/she] will not have had the benefit of my generosity in her lifetime as Roberto and Rosanna have. It is for these reasons, which I consider fair and just, that I have left my residue as I have.’

 In May 2016, Mr Colicci made another Will, the only change being that Mrs Collici was no longer named as the guardian of his new baby if he and Ms Grinberg both died, because of a falling out over keeping the two pregnancies a secret from Robert and Rosanna who were extremely upset to learn they were to have two half siblings at the last minute. He didn’t tell his first family about either of these Wills.

Despite the two Wills leaving a third of his shares to his baby and the rest to his first two children, Mr Colicci agreed (this time without telling Ms Grinberg) the terms of a deed with Mrs Colicci and Robert and Rosanna a few weeks later (dated 1 June 2016). The deed said that:

• Ownership of all of Mr Colicci’s and Mrs Colicci’s shares would:

‘pass without cost and free of all taxes to Robert and Rosanna in equal parts or to the survivor of them’; and

• Each of Mr Colicci and Mrs Colicci then covenanted:

‘with each other and separately with Robert and Rosanna that (a) each of them will forthwith make a will or codicil leaving the shares free of all taxes to such of Robert and Rosanna as shall survive them and if both the shares shall be divided equally between them and (b) neither of them will revoke or in any way change the aforementioned bequests…’

The question facing the Recorder was whether the 1 June 2016 deed was enforceable against Mr Colicci’s estate in all the circumstances because things weren’t left at that. In March 2017, Mr Colicci and Mrs Colicci gave a 10% holding in the Company to each of Robert and Rosanna and replaced the 2011 shareholders agreement with a new one which made it clear that the ability of Mr Colicci and Mrs Collici to give away their shares during and after their lifetime only applied to gifts to the two adult children and not to either of their respective infant children. It also dealt with the possibility of their wanting to sell the whole of the Company to a third party. The new shareholders agreement also contained an ‘entire agreement’ clause:

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

 In April 2017, Mr Colicci made his final Will and left everything to his wife, Ms Grinberg. His solicitor’s evidence on his instructions about the shares was as follows:

‘I explained to him that if he didn’t do anything at the moment, then his entire estate went to Nora on his death and if Nora wasn’t here, it went to [his infant child], which means his children from his first marriage would get nothing. Ernie was not concerned by this. He said he and his ex-wife had done a shareholders agreement whereby should anything happen to either of them, their children, Rose and Roberto, got their shares in ECSI Limited but he said he couldn’t remember the details and he couldn’t remember where the agreement was, who did it, or in fact even if it was valid. …

 ‘In respect of the business … [he] fully appreciated that this may go to Nora if he hasn’t done a shareholders agreement or if the shareholders agreement is invalid but equally he said if the shareholders agreement is valid, it will go to his two children and he wasn’t concerned either way.’

 In December 2018 Mr Colicci made a statement to accompany that final will:

‘I have not included my children Roberto and Rosanna (from my first marriage) in my Will. I love Roberto and Rosanna very much and my Will is no reflection on how I feel about them. I have provided both of them with significant financial funds in their lifetimes, and I have set them up with properties, rental properties, and provided them with careers. They are independent adults now with financial security. I consider this more than sufficient financial provision for both Roberto and Rosanna.

 ‘My wife Nora is in greater financial need than Roberto and Rosanna and my concern is therefore to provide for her and my [infant] … (who was only born in April 2016) [and] will also not have had the benefit of my generosity in [his/her] lifetime as Roberto and Rosanna have.

It is for these reasons, which I consider fair and just, that I have left my estate as I have and I hope Roberto and Rosanna will not challenge my Will and respect my wishes.’

The Recorder also reported that:

‘There was another meeting in December 2019 between Ernesto and [his solicitor]. Ernesto repeated that “an agreement had been done for the business was such that his children inherited should anything happen to him or his ex-wife”. At a meeting in June 2020, he said that he was not sure what would happen to the Shares upon his death and wanted to take advice about it. He never did.’

Are you confused about what Mr Colicci’s intentions really were yet? The Recorder was left to decide whether the ‘entire agreement’ clause in the 2017 shareholders agreement revoked the 2016 deed. He noted that Mr Colicci’s secrecy over his Wills was relevant to his interpretation of this clause:

‘In particular the fact that Ernesto made two wills and a statement to accompany them is irrelevant, because those facts were not known to the claimants.’

 Later in his judgment, he notes:

‘there is very limited evidence about Ernesto’s state of mind about any of the matters relevant to this dispute. He was conspicuously uncommunicative. There is not a single email from him in evidence, and neither was he forthcoming in face-to-face communications. For example, despite advice by Ms Bhargava to discuss his will with the adult children, he never did so. He never told Nora about the 2016 Deed or about the 2017 Agreement. He was even reluctant to share information with his lawyers, as some of Ms Bhargava’s attendance notes specifically record.’

 The Recorder decided that:

‘Ernesto had no reason to think that the 2017 Agreement superseded the 2016 Deed and so probably did not think that. I think it is unlikely that he gave the matter any thought at all.’

 He concluded that:

‘The subject matter of the 2016 Deed was 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. It created testamentary obligations. It removed Ernesto’s and Josephine’s freedom to dispose of their Shares on death,’

and that:

‘the 2016 Deed imposes obligations on Ernesto and Josephine as testators, and confers benefits upon the adult children as beneficiaries, which are different from the subject matter of the 2017 Agreement, which concerns the rights and obligations of the parties as shareholders. The 2016 Deed was not a “previous agreement … relating to the subject matter” covered by clause 11.1(a).’

So, the 2016 deed was binding on its face in the first place and the ‘entire agreement’ clause in the 2017 shareholders agreement didn’t affect the validity of the earlier deed because it was sufficiently removed from the subject matter of the shareholders agreement.

What’s the takeaway from all this? I suppose that deeds of this kind can be used in appropriate circumstances but that you never know what’s round the corner in life and if your circumstances change, you may find yourself regretting signing such a deed. Mr Colicci was secretive and disorganised but it’s pretty clear that he did ultimately want Ms Grinberg and his third child to benefit from the value of the Company. You can certainly criticise him for the way he went about things but, in the end, Ms Grinberg and his third child didn’t get what he intended them to because he’d signed away his testamentary freedom in the 2016 deed.