Analysis
Singapore Airlines Ltd (SA) brought proceedings against Buck Consultants Ltd (BC) alleging negligence in the drafting by BC of a revised version of the rules of SA’s pension scheme (scheme). A preliminary issue was tried concerning the meaning of ‘earnings’ for the purposes of the scheme. That preliminary issue had to be resolved for the purposes of SA’s negligence claim against BC. However, BC had also been appointed by the court to represent the interests of the members of the scheme on the preliminary issue.
Four issues were appealed by SA. Only Issue 4 concerning costs (para [64] onwards) is reported in this headnote.
Peter Smith J ordered SA to pay BC’s costs on the standard basis, but that BC should recover the difference between standard costs and indemnity costs from the Scheme assets on the basis of the principle applicable to litigation between trustee and beneficiary. The judge relied on the costs principles in Re Buckton [1907] 2 Ch 406, where three categories of costs of proceedings between trustee and beneficiary were identified. Firstly, where a trustee seeks the guidance of the court as to inter alia construction, the costs of all parties are usually treated as necessarily incurred for the benefit of the trust fund and are paid out of it. Secondly, where proceedings are brought by someone other than the trustee, but raise similar points as the first category, such proceedings differ only in form rather than substance from the first category and similar considerations apply as to costs. Thirdly, where proceedings are brought by someone other than the trustee founded on a point of construction or entitlement to the trust fund, but have the character of a hostile claim, the general rule is that the unsuccessful party pays the costs of the successful party. The distinction between the second and third categories is not always easy to draw. Peter Smith J determined that BC was entitled to an indemnity on the basis that the matter was in the second of the three categories.
SA appealed on the basis that it had been BC that had suggested the construction point be tried as a preliminary issue, and SA had acceded to that request. The preliminary issue had determined an issue in the negligence proceedings and should be regarded as part of the hostile litigation because it arose in hostile litigation and at BC’s insistence. It would be extraordinary if BC could lose the preliminary issue but recover its costs from the scheme assets.
Held:
- (1) Regard must be had to substance as well as form in determining whether the second category in Re Buckton applies. It is immediately apparent that BC has a direct financial benefit in the outcome of the preliminary issue. That takes the matter outside the second category. It was designed to end the allegations (or some of them) of professional negligence made against BC (para [71]). The third category is also not applicable because issues were resolved for the benefit of the scheme members as well as BC (para [72]).
- (2) The judge was in error in his conclusion that this as purely a dispute between the members and the trustees, because it was conducted in the course of contested negligence proceedings between SA and BC (para [73]). Categories of proceedings in Re Buckton should not be regarded as closed. This case falls outside the three categories (para [75]). Where a claimant acts in a dual capacity in bringing proceedings against the trustee, a sharing of costs between the parties is required. The beneficiary should receive an indemnity but costs should be borne by the third party as if proceedings had been brought by it without joining a beneficiary as co claimant. It is difficult to find any basis other than equality for the sharing of costs and accordingly there should be a payment out of scheme assets for only one half of the difference between BC’s standard and actual costs (paras [76]-[77]).
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