Establishing Priority of Executor Legal Costs in Insolvent Estates: A New Guideline from AIB Mortgage Bank v Kelly & Ors ([2025] IEHC 34)

Introduction

The High Court of Ireland's decision in AIB Mortgage Bank v Kelly & Ors (Approved) ([2025] IEHC 34) focuses on one of the more delicate issues in estate administration: whether and under what circumstances executors can recover legal costs incurred in litigation from an insolvent estate. The case was brought by AIB Mortgage Bank against a number of individuals, including the executors of the late Mr. Brendan Heapes’s estate. The primary dispute was a debt collection matter concerning loan agreements and associated liabilities, but the Court’s analysis offers a clarifying precedent on how executors can secure reimbursement of their legal costs when the estate is insolvent.

In reaching its decision, the Court examined the relevant statutory framework, particularly section 168(1)(b) of the Legal Services Regulation Act 2015 and Order 99, rule 7(2) of the Rules of the Superior Courts. Crucially, the ruling underscores that executors performing their lawful function in responding to claims against an estate should, in principle, be entitled to recover their legal fees from the estate’s assets, provided certain threshold conditions are satisfied. The judgment also extends more generally to highlight the Court’s discretion to measure costs in gross when appropriate.

Below is a detailed commentary on the key points of this decision, including its background, the judicial reasoning, the legal precedents referenced, the impact on future cases, and how complex concepts have been simplified by the Court.

Summary of the Judgment

The High Court granted summary judgment in favor of AIB Mortgage Bank for the debt owed by the late Mr. Heapes’s estate. Although the executors had initially sought to preserve any defense in anticipation that another co-defendant’s “creative” arguments concerning interbank lending rates might succeed, they themselves were not in a position to raise any credible defense. Consequently, the Court entered judgment against the deceased’s estate on 28 November 2024.

Once liability was established, the executors applied to recover their own legal costs from the estate, citing section 168(1)(b) of the Legal Services Regulation Act 2015. They argued that if they were allowed such costs, those amounts should have priority as “administration expenses” under the First Schedule to the Succession Act 1965. Because the estate was insolvent, a clear order from the Court was essential to establish that the executors’ legal expenses would stand ahead of other claims.

The Court, after reviewing the submissions and cost reports, measured the executors’ legal expenses in a lump sum (or “sum in gross”) rather than sending them to the Chief Legal Costs Adjudicator, concluding that this was both proper and expedient given the simplicity of the case and the insolvency of the estate. The Court’s final determination was to allow certain discrete portions of the executors’ costs, with other claims being disallowed for reasons of proportionality and necessity.

Analysis

A. Precedents Cited

In arriving at its decision, Mr. Justice Simons referenced multiple legal sources. The Court invoked Gilvarry v. Naylor [2024] IEHC 688 for the proposition that executors’ legal costs, when established as necessary outlays, can rank ahead of other unsecured debts in an insolvent estate. By viewing these costs as “administration expenses,” the Court pointed to a longstanding principle that enables personal representatives to carry out their duties without incurring personal liability in the process.

The Court also drew structure from two lines of authority dealing with the measurement (also referred to as adjudication or taxation) of legal costs:

1. Taaffe v. McMahon [2011] IEHC 408: Formulated a benchmark that a High Court judge may measure costs directly—particularly in cases deemed “straightforward.” In Taaffe, the Court found that it was capable of estimating appropriate legal costs for judicial review matters without launching a more formal or detailed assessment.
2. Landers v. Dixon [2015] IECA 155, [2015] 1 IR 707: The Court of Appeal clarified that, while the High Court may measure costs under certain circumstances, it must do so “judicially” and on a rational basis. The Judge’s experience, familiarity with the relevant area of law, and the presence of guiding evidence play vital roles in ensuring such a costs determination is justifiable and equitable.

Taken together, these precedents confirm that, while the High Court has full authority to measure costs in a summary manner, it should reserve this approach for cases where the facts are not overly intricate, there has been limited documentary exchange, and the evidence before the Court is sufficient to enable a fair estimate of appropriate fees.

B. Legal Reasoning

The Court’s reasoning is anchored in three major considerations:

1. The Executors’ Role and Entitlement: Executors are entrusted with defending or otherwise responding to claims brought against an estate. In discharging this role, they may justifiably consult legal counsel. Section 168(1)(b) of the Legal Services Regulation Act 2015 expressly allows executors (or “one or more parties”) to apply for costs to be taken from the estate property in connection with proceedings “concerning the estate.” Because the action here directly sought recovery of a debt from an estate, there was no question that the Court held jurisdiction to allow such an application.
2. Priority of Executor Costs in Insolvent Estates: Where an estate lacks sufficient assets to cover all debts, costs recognized as “administration expenses” take priority over ordinary unsecured debts. The Court emphasized that not every cost automatically qualifies as a priority expense; rather, personal representatives should be able to show that such costs were rationally and necessarily incurred. Here, the Court accepted that certain costs related to legal advice and minimal participation in proceedings were legitimate. However, costs for unnecessary participation—such as appearing at a hearing when not contesting the claim—were disallowed.
3. Measuring Costs “In Gross” Under Order 99, Rule 7(2): The High Court retains the discretion to measure or “tax” costs summarily if the proceedings are straightforward, parties consent, or the judge is satisfied that no complex evidentiary hearing is required. The Court referenced Landers v. Dixon to explain that ample evidentiary support is required for a just assessment. Since the matter involved standard summary summons proceedings and no large-scale discovery, the Court could meaningfully evaluate the extent of the legal work performed for the executors.

After weighing the facts, the Judge concluded that most fees relating to counseling the executors—who were initially uncertain whether the co-defendant’s unusual defenses would affect the estate—were reimbursable. However, expenses for unnecessary affidavits filed after the main hearing date and for attending an uncontested hearing were excluded.

C. Impact

The decision in AIB Mortgage Bank v Kelly & Ors has broad implications in debt litigation and estate administration by:

1. Clarifying Executors’ Rights: Executors who face legal proceedings against an estate have clearer guidance that they may recover their reasonably and necessarily incurred legal expenses from the estate’s assets. This prevents the burden from falling personally on the executors and encourages proper defense or inquiry into claims against the deceased.
2. Confirming the Priority of Administration Expenses: By designating executors’ allowable legal costs as “administration expenses,” the Court ensures these costs are afforded priority. While beneficial for personal representatives, it also serves notice to creditors that such costs have primacy in the distribution waterfall, especially when estates are insolvent.
3. Streamlining Cost Assessments: The judgment affirms that the High Court may measure and set the amount of legal expenses in simple or “straightforward” matters. This expedites the cost determination process and can save the estate or losing party the added expense of a lengthier adjudication by the Chief Legal Costs Adjudicator.
4. Guiding Future Litigation Strategy: Personal representatives and creditors alike now have a clearer roadmap for prosecuting or defending claims. If executors decide to participate only minimally, or not at all, to avoid incurring unnecessary costs, they have good legal precedent to justify that stance while still recovering the basic expenses required to protect their duties.

Complex Concepts Simplified

Several legal concepts and procedural rules emerged in this case that can be confusing to non-lawyers. Below is a simplification of some of the most relevant:

1. Insolvent Estate: An estate is “insolvent” when its debts exceed its assets. This means creditors may not be fully repaid, and a hierarchy (or “waterfall”) of debts and obligations takes effect according to statute.
2. Executors’ Legal Costs as “Administration Expenses”: Under the Succession Act 1965, certain expenses involved in administering the estate are given priority. The Court deems executors’ legal costs, when necessarily incurred in responding to litigation, to be included in that category.
3. Measuring Costs “in Gross”: Rather than sending the bill to a detailed cost adjudication process, a Court may decide on an approximate but fair figure directly. This is less formal and typically quicker, though it must still be grounded in reliable and transparent evidence (e.g., a legal costs accountant’s report).
4. Section 168(1)(b) of the Legal Services Regulation Act 2015: This provision grants the Court power to order that the legal costs of one or more parties to proceedings involving a deceased’s estate be paid out of the estate’s property. This method ensures personal representatives are not personally liable when they act properly in conducting or defending a legal claim.
5. Summary Judgment: A method of deciding a case quickly without proceeding to a full trial when there is no credible defense. In this matter, the Court found the executors had no defense, and the co-defendant who actually raised various arguments later consented to judgment, leaving the estate with no basis to contest the claim.

Conclusion

The AIB Mortgage Bank v Kelly & Ors ([2025] IEHC 34) decision is a valuable reference for practitioners navigating claims against insolvent estates. It clarifies that executors are entitled to recover their legitimate legal expenses from the estate’s resources—particularly where the estate’s liabilities outweigh its assets—and establishes that such costs should be given priority as “administration expenses” under the Succession Act 1965. Additionally, the ruling confirms the High Court’s capacity to measure costs in a “straightforward” case directly, avoiding further expense and delay.

Going forward, executors involved in similar proceedings should find comfort in knowing that courts will support their reasonable legal expenditure when facing claims against an estate, provided those steps are necessary and proportionate. Creditors, on the other hand, must remain conscious that executors’ costs can rank ahead of their claims if an estate is insolvent, thereby influencing any determination of the ultimate sums they may recover. This judgment’s hallmark lies in its balanced treatment of estate administration, ensuring that personal representatives neither bear legal costs personally nor incur them unreasonably—protecting both the integrity of the estate process and the interests of all claimants.