Analysis
The first claimant, Mr Mason, was the settlor of a number of settlements. The second to sixth claimants were the beneficiaries under those settlements. The first defendant, Mr Coleman, was a financial advisor in whose favour Mr Mason on 3 September 2000 executed an enduring power of attorney in wide terms. The defendants were between them the trustees of the various settlements.
On 23 December 2004 Mr Mason served notice on Mr Coleman revoking the enduring power of attorney. On 2 February 2005 Mr Mason wrote again to Mr Coleman seeking information regarding the settlements, including particulars of the settlements, the names of the trustees, and an account of Mr Coleman’s dealings with assets received from Mr Mason. Mr Coleman did not respond.
On 10 June 2005 the claimants issued proceedings for an enquiry of what property was received or possessed by any of the defendants and an account. The defendants filed an Acknowledgment of Service indicating an intention either to dispute the jurisdiction of the court or to contest the claim. On 1 July 2005 the claimants issued an application for summary judgment in respect of the claim for an account. On 14 July 2005 Mr Coleman filed a defence in which he denied that he was or had been a trustee of the settlements created by Mr Mason and that he was or had been an agent for Mr Mason.
On 1 August 2005 a master made an order for the provision of a summary account by 12 September 2005 with a return date of 29 September 2005. Mr Coleman was ordered to pay the costs of preparing the account, but the costs of the application for summary judgment and of the action to that date were reserved. A substantial amount of information and an unverified account were filed by 12 September 2005.
On 27 September 2005 the master ordered at a hearing, by consent, that the account should be verified, that certain disclosure should be given, that points of objection to the account should be filed by the claimants, and that the costs be reserved. Rather than verifying the account Mr Coleman instructed accountants to prepare a fresh account which he verified and filed. This account dealt with the period between 2002 and 2005.
On 30 January 2006 the master ordered, by consent, that the time for filing points of objection be extended, and the costs were reserved. A detailed witness statement criticising the account was filed by the claimants on 7 March 2006. In particular, this criticised the fact that the account only related to a period which began in 2002.
On 9 March 2006 the master ordered that the defendants provide an account for the period between 1992 and 2002. He also made further orders for disclosure and for an extension of time to file points of objection, and reserved the costs. On 21 April 2006 Mr Coleman wrote to Mr Mason stating that no account could be provided in respect of the period prior to 2002 because the defendants did not have control of any funds prior to that date. On 22 May 2006 the claimants filed points of objection to the defendants’ account. The defendants filed a reply in July 2006.
Meanwhile, on 13 January 2006 Mr Mason wrote to Mr Coleman requesting certain information in order to determine whether the funds under the control of the third and fourth defendants were held offshore or onshore. The request was repeated on 23 January 2006 and again in a formal request for further information on 31 January 2006. Mr Mason applied to the court for an order that the information be provided, and on 16 March 2006 the master so ordered, and reserved the costs. On 11 April 2006 Mr Coleman provided the information pursuant to the order.
Further, by letters dated 4 October 2005 and 10 January 2006 Mr Mason requested of the defendants that they resign as trustees of the settlements. In January and February 2006 the defendants stated that they would resign in favour of professional trustees. On 22 May 2006 the claimants applied for the defendants to be removed as trustees and for members of Mr Mason’s family to be appointed in their place. Mr Coleman filed evidence in response to the application in which he stated that the defendants should be replaced by professional trustees at the conclusion of the proceedings. On 17 July 2007 the master ordered that the defendants be removed as trustees and replaced by professional trustees. The costs of the application were reserved.
On 21 May 2007 the parties entered into a consent order in Tomlin order form. This stayed the taking of the account on terms set out in the attached schedule. The consent order provided that neither side were to be liable to the other in respect of the costs regarding the points of objection and the points of reply and that the defendants be indemnified out of the trust funds in respect of their share of these costs. It was provided that liability for the remaining costs be determined at a hearing.
Held (determining the liability for the outstanding costs):
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- 1) It is the duty of both trustees and agents to keep clear and distinct accounts of the property they administer and to be ready with the accounts. Trustees who indefensibly fail to produce accounts may be ordered to pay not only the costs of proceedings to obtain the accounts but also the costs of taking the account which is ordered. However, if the claimant commences the proceedings with unreasonable haste the court may make no order for costs.
- 2) A trustee is entitled to be reimbursed out of trusts or may pay out of trust funds expenses properly incurred by him when acting on behalf of the trust. The right of indemnity in respect of costs extends only to costs properly incurred (ie honestly and reasonably incurred) in the execution of the trust. This right can be lost or curtailed by such inequitable conduct on the part of the trustee as amounts to a violation or culpable neglect of his duty as trustee.
- 3) The defendants should pay the costs of the application for a summary account. They should not be entitled to any indemnity from the trust funds in respect of these costs. It is plain that the beneficiaries were entitled to an account. To that extent the application was successful. Whilst no pre-action letter had been sent by the claimants to the defendants, it was unlikely that this would have made any significant difference, and therefore the application had not been made over hastily.
- 4) The costs of preparing the account had been dealt with by the master. They should be paid by the defendants, who should not be entitled to an indemnity from the trust funds.
- 5) The costs of the order of 27 September 2005 (that the account should be verified, that certain disclosure should be given, and that points of objection to the account should be filed by the claimants) should be paid by the defendants who should not be entitled to an indemnity from the trust funds. The defendants were in breach of the earlier orders and these matters arose out of their original failure to provide the account.
- 6) The costs of the order of 30 January 2005 (that the time for filing points of objection be extended) should be paid by the defendants who should not be entitled to an indemnity from the trust funds. The claimants were entitled to a reasonable time to consider the accounts and the disclosure filed. They needed to apply for an extension because of the lateness of the filing of the defendants’ verified account.
- 7) There would be no order as to costs, and the defendants would be entitled to an indemnity out of the trust funds, in respect of the costs of the order of 9 March 2006 (that the defendants provide an account for the period between 1992 and 2002, that further disclosure be given, and that there be an extension of time for filing points of objection). The claimants first attempted to challenge the filed account at the hearing on 9 March 2006, on the basis that no account had been provided for the period prior to 2002. In the settlement the account for this period was not pursued and thus it could not be said that the defendants’ stance was wrong. Further, it had not been shown that there was any misconduct by the defendants after the provision of the account.
- 8) The costs of the order of 16 March 2006 for provision of further information should be paid by the defendants who should not be entitled to an indemnity from the trust funds. The claimants were entitled to the information and had to make the application to court to get it.
- 9) If a trustee is removed on the ground of misconduct even if some of the charges of misconduct are rejected the trustee who is removed will normally be ordered to pay the costs of the successful applicant as well as bear his own costs. If a trustee is removed on other grounds he is at less risk of being ordered to pay the applicant’s costs though may nonetheless be ordered to bear his own costs if he unreasonably resisted the claim for removal.
- 10) There would be no order as to costs, and the defendants would not be entitled to an indemnity out of the trust funds, in respect of the costs of the application to remove the defendants as trustees. The application was successful in that the defendants were removed, and the defendants did not protect themselves with a suitably worded Part 36 Offer. However, there was no finding of misconduct against the defendants and the claimants failed in their choice of new trustees.
11) As regards the remaining costs of the action, the defendants should pay these up to the end of February 2006 (save for any costs incurred before that date in preparing for the hearing on 9 March 2006). For that period the defendants should not be entitled to an indemnity from the trust funds. After that period there should be no order as to costs, and the defendants should be entitled to an indemnity from the trust funds. The claimants were entitled to pursue the action until a reasonable time after the defendants had provided an account, being the end of February 2006. However, they chose to challenge the account provided by the defendants. The effect of the compromise was that this challenge was not successful; the account was not pursued.
JUDGE JOHN BEHRENS: 1. Introduction [1] This is an application for the court to determine a number of outstanding issues relating to the costs of these proceedings. The proceedings were a claim for an account and other information brought by beneficiaries against trustees. After the proceedings had been on foot for almost two years and …Continue reading "Mason & ors v Coleman & ors [2007] EWHC 3149 (Ch)"