The claimant was a member of a class of objects of a discretionary trust created by the will of Valerie Mary Lee who died on 19 June 2013. The defendants, who were partners in Tanners Solicitors LLP, were the trustees (including the sole proving executor). The relationship between the claimant and her elder sister (who had been added to the class of potential beneficiaries after the death of their mother) was affected by a history of strains between members of the family. The first defendant proved the will on 28 January 2014 in relation to an estate valued at £903,574. The second defendant was appointed to act as co-trustee and a letter of wishes provided guidance with distributions being made out of the trust to all members of a class other than the claimant’s husband. However, the claimant was unhappy with the defendants and their law firm almost from the beginning of their involvement in the administration of the estate. When she asked them for a detailed breakdown of the estate, they refused on the basis that the estate accounts were documents confidential to the executor and the trustees. The claimant objected that, if that were right, no one apart from the defendants themselves could scrutinise what one of them (i.e. the first defendant) had done or how much their own firm (i.e. Tanners) had charged in relation to the administration of the estate. The defendants justified this approach by referring to the difficult relationship between the two sisters and that they had genuine concerns about the disclosure of the information sought to one of the two daughters. The claimant denied this, saying that she and her sister were adults and did not need a trust – this ignored the fact that their mother had chosen not to give assets outright to them or entrust either of them with the administration of the estate or the trust which she had created by her will. In declining to disclose trust documents and information, the defendants originally followed advice which they had obtained from counsel. The claimant, who had by then instructed solicitors, threatened to issue proceedings, including an order that the defendants pay her costs and bear their own costs personally without recourse to the estate or trust assets. Tanners then put forward a proposal by the trustees to disclose the accounts to a mutually agreed independent third party which, it had been suggested by Lewin on Trusts, was a normal way of addressing their concerns in these circumstances. The claimant’s solicitors declined to agree and issued the claim form, notwithstanding a letter from Tanners pointing out that the appropriate way forward would be for the trustees to issue proceedings for directions. Subsequently, as a result of instructing another counsel, the defendants voluntarily disclosed the documents.
Held (on the question of costs):
Subject to rules of court, the costs of and incidental to all proceedings were in the discretion of the court. Under those rules, if the court made an order as to costs, the general rule was that the unsuccessful party would pay the costs of the successful party. However, special provisions applied to costs in trust and estate litigation whereby, if a person has been a party to any proceedings in the capacity of trustee or personal representative, the general rule was that that person was entitled to be paid the costs of those proceedings, insofar as they were not recovered from any other person, out of the relevant trust fund or estate, to be assessed on the indemnity basis. Furthermore, a trustee or personal representative was entitled to an indemnity out of the relevant trust fund or estate for costs properly incurred, which depended on all the circumstances of the case. On the facts, although the general rule was that costs followed the event, the trustees had at most committed a breach of their duty to account to the beneficiaries by providing appropriate information; it was not a case of a breach of trust claim where loss had been caused to the trust fund or trust assets had been converted to their personal use. Essentially the court was being asked to exercise its supervisory powers to resolve a disagreement between a beneficiary and a fiduciary as to what the fiduciary’s duties required. The trustees’ conduct in this regard should be characterised as a mere neglect or refusal; not a very gross neglect or wholly indefensible refusal. They had, firstly, taken and relied on the advice of counsel and, when challenged, offered to seek the directions of the court. Moreover, in seeking a second opinion from a different counsel, this indicated that the trustees, despite their initial (mistaken) decision, were keeping the matter under review and doing the right thing at each stage. Secondly, once the trustees had themselves offered to issue proceedings for directions if the parties could not agree, the claimant should at that stage have agreed that the trustees should seek the directions of the court. For these two reasons, the defendants should not be ordered to pay the claimant’s costs. Instead, the costs of both parties should be paid out of the trust fund, in each case on the indemnity basis, as if it were the second class of case described by Kekewich, J in Re Buckton.
In the event that the above primary decision was wrong, the question arises as to the trustees’ indemnity for liabilities out of the trust fund. As regards the trustees’ own costs, the indemnity would only be lost in a case of misconduct where a trustee was unsuccessful in defending a claim against breach of trust. As regards liability for another party’s costs, there was no good reason for withholding the indemnity merely because the trustees had been found to be in breach of some duty not causing loss to the trust fund. Mason v Coleman, distinguishable on its facts, was a case of ‘inexcusable refusal’ to supply trust information to the beneficiaries, and could easily amount to misconduct, thereby depriving the trustees of their indemnity. Wingate v Butterfield Trust (Bermuda) Ltd was not binding and, whilst the decision may be right on the facts, it was wrong to suggest that a failure to obtain a Beddoe Order was significant in a trustee/beneficiary dispute, at all events absent exceptional circumstances. A trustee who has not committed a breach of trust causing loss is not to be automatically deprived of an indemnity for costs of either kind so long as they had been properly incurred. There were several reasons for this. Firstly, although the trustees did not obtain directions as to costs, this was not necessary as there was not a third party claim against the trust. In substance, it was a dispute between the parties as to whether the trustees should supply information to a beneficiary. Secondly, the trustees did not consider that they were serving their own interests, but those of their beneficiaries. Thirdly, though the initial error in not making disclosure was unfortunate, compounded by the first opinion they had obtained, the trustees should not be deprived of their indemnity in the unusual circumstances of this case. Accordingly, if the defendants had been ordered to pay the costs of the claimant, they would be entitled to recover what they had paid from the trust fund in addition to reimbursement of their own costs, in each case on the indemnity basis.MATTHEWS M:  This is my judgment on a claim made by claim form under Part 8 of the CPR issued on 4 September 2015. The claimant is a member of a class of objects of a discretionary trust created by the will of Mrs Valerie Mary Lee, dated 9 August 2012. The testatrix died …