Mason & Ors v Coleman & Ors

Introduction

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 2 years and shortly before the issues in the account were due to be heard the parties agreed to compromise the taking of the account on the terms set out in the Consent Order. The compromise was without prejudice to the Claimants’ contention that the accounts provided by the Defendants were defective. The parties could not, however, come to an agreement regarding liability for costs and agreed that they would seek a determination from the court on these points. Deputy Master Bartlett made the Consent Order in those terms.

Representation

The Claimants were represented by Mr Stuart Adair instructed by Lawrence Graham LLP of London WC2; the Defendants were represented by Mr Michael Norman instructed by Mr Clive Sutton of Lymington Hampshire. Counsel produced full and helpful skeleton arguments in a by no means straightforward application. I am most grateful to them.

Evidence

A huge volume of evidence has been filed in support of this application. It includes all of the pleadings, orders and witness statements in all of the applications that have been before the Court in this protracted litigation. The pleadings bundle comprised one lever arch file divided into 14 sections and totalled 145 pages. The evidence bundle comprised 4 lever arch files, 43 sections and 1661 pages. Most (but not all) of the relevant evidence was in the fourth lever arch file.

The hearing took the best part of two days whereupon it was necessary to reserve judgment.

The Consent Order

The consent order made by Deputy Master Bartlett on 21^st May 2007 is in Tomlin Form. Under paragraph 1 it was ordered that the taking of the account be stayed on the terms set out in Schedule 1; under paragraph 2 it was however ordered that there be a hearing to determine costs issues set out in Schedule 2 and also whether the Defendants were entitled to be indemnified out of trust funds in respect of any part of the proceedings. Under paragraphs 4 to 9 directions were given as to the hearing. It then provided that there would be no order as to costs save that the Court will determine the costs of the matters set out in Schedule 2.

Under Schedule 2, there are five distinct items of costs to be determined by the Court

The costs of the claim.

The costs of the summary judgment application.

The costs of the various applications for information and disclosure.

The costs of various directions hearings.

The costs of the application to remove the Defendants from their positions as trustees of various trusts held and managed on behalf of the Claimants.

The Agreement starts with an Interpretation Clause. Within that clauses are 3 definitions to which I was referred.

The Taking of the Account was defined as “The disposal of issues arising from the Points of Objection filed by the Claimants and the points of Reply to the Objection filed by the Defendants”.

The Accounting Costs were defined as “The Claimants’ costs of preparing and filing the Points of Objection, the Defendants’ costs of considering the Points of Objection and preparing and filing a Reply to the Points of Objection”.

The Compromised Costs were defined as “The Defendants’ costs of considering the Points of Objection filed by the Claimants and preparing and filing their Reply to the Points of Objection”.

The Agreement contained 4 paragraphs. Under paragraph 1 the parties agreed not to proceed with the taking of the account and that neither side were to be liable to the other in respect of the Accounting Costs. Under paragraph 2 the parties agreed that the Defendants be indemnified out of the trust fund in respect of the Compromised Costs. Under clause 3 the parties agreed for the determination by the Court of the issues mentioned above.

It is no part of my task to assess the various items of costs in Schedule 2. That will, in due course, be a matter for the Costs Judge. It is, however, worth recording the figures that Mr Holliday on behalf of the Claimants asserts are involved. In paragraph 19 of his most recent witness statement he puts the position thus:

The figure of £140,000 is not intended to be more than an estimate. It includes, as I understand it, all of the Claimants’ costs, that is to say it includes the 4 other elements listed in Schedule 2. It also includes the Accounting Costs which are the subject of the compromise in paragraph 1 in Schedule 1

The precise figure for which the Defendants seek an indemnity has not been made clear. However Mr Holliday points out that the trust accounts now produced show that some £53,855.53 of trust monies have been applied by the Defendants in payment of their costs before transferring the trust funds to the new trustees.

There is a construction issue on the meaning of the expression “the costs of the claim” in paragraph 1 of Schedule 2. It arises because the figure of £140,000 is so large. The total of the estimates for paragraphs 2 to 5 of Schedule 2 is £53,845.32. If one estimates a further £17,000 for the Accounting Costs, that leaves a figure of approximately £70,000 unaccounted for. I was told that this represents the costs of voluminous correspondence throughout the history of the proceedings. On any view this seems a disproportionately large sum to have spent on a claim of this nature.

Mr Norman was naturally concerned that the Defendants should be at risk of being ordered to pay all or some part of this £70,000. He therefore submitted firstly that costs of the claim comprised no more than the costs of the summary judgment application. In the alternative he submitted that the costs of the claim should be limited to the costs up to the date of the order of Master Price on 1^st August 2005.

In support of his submissions he sought to adduce evidence by way of a further witness statement of Mr Sutton. That witness statement purported to give evidence of the negotiations leading up to the compromise. I ruled that the evidence was inadmissible either on the basis that the negotiations in relations to the figures were without prejudice or (more probably) because evidence as to the negotiations was not admissible as an aid to construction of the agreement.

Mr Adair rejected Mr Norman’s construction. He made the point that the compromise agreement was signed by the solicitors on each side. Thus it was an agreement approved by the parties with the benefit of legal advice. He made the point that the expression “the costs of the claim” was a perfectly ordinary and well-known expression in the field of litigation. It was unlimited in time. Thus it should be construed as referring to the whole of the costs of the claim up until the conclusion of the taking of the account. He made the point that the agreement in Schedule 1 carefully defines the extent of the compromise and that did not include general costs incurred after the summary judgment hearing.

There are to my mind a number of difficulties with Mr Adair’s submissions:

If, as Mr Adair contends, the expression was intended to mean all of the costs of the claim up to the end of the taking of the account, it would have been unnecessary to include any of items in paragraphs 2 to 5 of the Schedule. They would have been within the expression “costs of the claim”.

If Mr Adair is correct both the Accounting Costs and the Compromised Costs would be within the definition “the costs of the claim”. Schedule 2 is headed “Matters in respect of which liability for costs to be determined by the Court”. That is confirmed by Paragraph 3(1) of Schedule 1. It is however plain from Schedule 1 that no determination is required in respect of the Accounting Costs or the Compromised Costs. Thus some adjustment needs to be made to the ordinary construction of the expression “the costs of the claim”

All of the applications and hearing in paragraphs 2 to 5 of Schedule 2 are the subject of express orders of the Court that the costs be reserved. In relation to the costs of the claim the only order is that of Master Price on 1^st August 2005 that “the Defendants shall bear the cost of producing the said Account and the costs of the Claim to date shall be reserved”.

It is plain from the Schedules produced that up to 1^st August 2005 some costs will have been incurred that are not included with the costs of the summary judgment application. `By way of example there was a court fee of £400 incurred for the issue of the Claim Form.

However there are equally problems with Mr Norman’s submissions. If there was no intention to provide for the costs of the claim it is difficult to see why there should be a specific item in Schedule 1 for those costs. If it had been intended to limit the costs to those incurred before August 1^st 2005 it would have been relatively easy provide for it expressly. Furthermore it is difficult to see why the parties should make express provision for the Accounting and Compromise Costs if it was the intention of the parties that there should in fact be no order for costs after the hearing before Master Price.

With some hesitation I have come to the conclusion that Mr Adair’s construction is to be preferred. On any view the agreement is not well drafted. However Mr Adair’s construction seems to me to do less violence to the language than either of Mr Norman’s. Mr Norman’s first construction invites me to ignore the costs of the claim completely. His second construction could in my view only be reached as a result of an application for rectification.

It follows that I would interpret the expression “costs of the claim” as including all of the costs of the claim save for the Accounting Costs, the Compromised Costs, and the costs specifically referred to in paragraphs 2 to 5 of Schedule 2.

History before the institution of proceedings

Mr Mason is 86 years old. He is the Settlor of a number of settlements. On 3^rd September 2000 he executed an Enduring Power of Attorney in the widest possible terms in favour of Mr Coleman.

The remaining Claimants are beneficiaries under trusts set up by Mr Mason.

Mr Coleman is a financial advisor. He is over 75 years old. There seems little doubt that he has given advice to Mr Mason for a number of years. There can be little doubt that Mr Mason reposed trust and confidence in Mr Coleman for a considerable period of time.

It is not necessary to describe the other Defendants in detail. Josephine Coleman is Mr Coleman’s wife. The two corporate Defendants are foreign companies that act on Mr Coleman’s instructions.

In the course of his submissions Mr Norman did not seek to distinguish between the various Defendants. He accepted that any orders made could and should be made jointly and severally against them all.

There is a dispute as to the extent to which the Defendants were involved in some of the trusts and the Bank accounts that are the subject of the claim.

The Accumulation and Maintenance Settlement dated 13^th March 1989 (“the A&M Settlement”);

The Clerical Medical Gift Trust dated 6^th March 1998 (“the CMI Gift Trust”);

The CMI Loan Trust Settlement dated 2^nd June 1992 (“the Loan Trust”);

The Clerical Medical Gift Trust (Small Gift Trust) dated 31^st May 2000 (“the Small Gift Trust”);

The Scottish Life Trust dated 19^th March 1990 in respect of Policy No. 99370 (“the Scottish Life 370 Trust”); and

The Scottish Life Trust dated 5^th June 1990 in respect of Policy No. 981842 (“the Scottish Life 842 Trust”); and

The trust of General Accident Policy number 2554739LH created in November 1992 (“the General Accident Trust”).

This settlement was created in March 1989 for the benefit of Dora Birstwistle’s children. The current beneficiaries are the 2^nd, 3^rd and 4^th Claimants. The trust property originally consisted of 4 National Savings Certificates. Mr Mason later assigned two life assurance policies with Laurentian Life to the Trustees. On 10^th June 2002 Mr and Mrs Coleman were appointed trustees of the A & M Settlement. According to Mr Coleman they never had any control over the assets of the settlement. The National Savings Certificates were never transferred into their names.

In December 2004 Robert Birtwistle wrote to Mr Coleman requesting a distribution to assist in funding his education. For whatever reason Mr Coleman did not accede to the request. It was this refusal that ultimately led to these proceedings.

There are three trusts created in 1988, 1992 and 2000.The assets originally comprised bonds. The principal beneficiary appears to have been Ivy Colclough but Robert and Trent Birtwistle were beneficiaries of one of the bonds. The Third and Fourth Defendants became trustees and the funds came under their control in 2002

On 5^th June 1990 Mr Mason executed a declaration of trust in respect of 2 life policies. In March 2000 Mr Coleman was appointed a trustee of the 2 policies in 2000 with Mr Mason. On 16^th April 2002 the Third and Fourth Defendants were appointed to replace them.

In addition there were a number of other Bank accounts to which reference was made. The most important of these was an account with Coutts Bank von Ernst, which was opened by Mr Coleman in Mr Mason’s name in January 2001 (“the Bank von Ernst Account”). The documents show that the initial deposits were cheques signed by Mr Mason. The letter from Mr Coleman giving instructions to open the account included an authority to transfer securities including a Power of Attorney. There is a dispute as to whether this was the Enduring Power of Attorney. It is also not clear to what extent Mr Coleman did in fact exercise any control over this account.

Through a company called Insurance and Financial Services Limited (“IFSL”) Mr Coleman and/or Josephine Coleman (“Mrs Coleman”), his wife, appear to have authorised payments from an account in Mr Mason’s name with Brown Shipley & Company (“the BSC Account”). Letters were signed by Mrs Coleman on 21^st November 1994 and 22^nd November 1995 (on IFSL notepaper) requesting Brown Shipley & Company to pay the £10,000 annual premium on the policy in the General Accident Trust from the BSC Account.

According to Mr Coleman it was Mr Mason who did not agree to the moneys being paid to Robert Birtwistle. Mr Coleman says that by Christmas 2004 Mr Mason was not well. He had cancer of the bowel and had had falls. He felt intimidated by Mrs Birtwistle who was coming to England in January 2005 and did not want changes to the trust.

At or about that time Mrs Camm, another relative of Mr Mason, accused Mr Coleman of stealing moneys from the trusts.

In any event on 16^th December 2004 Mr Coleman wrote to Mr Mason. He referred to a conversation with Mrs Birtwistle in which she had stated her determination to put Mr Mason’s affairs in order and ensure that he had up to date statements and accounts and to review his will. He warned Mr Mason against precipitate action because of a new Act of Parliament which he called the “Previously Owned Assets Act” due to come into force the following April. According to Mr Adair there is no such Act. Mr Norman has not suggested what Act might have been intended by that reference.

Mr Mason did not accept that he was being influenced by Mrs Birtwistle. In a witness statement made in July 2006 Mr Mason confirmed that he was of sound mind and that he was not being so influenced. He pointed out that as she lived in Canada it was hard to see how such influence could have been exerted.

On 23^rd December 2004 Mr Mason’s solicitors Blatch & Co served a notice on Mr Coleman revoking the Enduring Power of Attorney.

On 2^nd February 2005 Mr Porter, a partner in Underwood & Co, wrote to Mr Coleman. The letter is important. In the letter Mr Porter made it clear that he was acting for Mr Mason and that he was aware that the Enduring Power of Attorney had been revoked. He pointed out that requests for information made by Mr Mason and Mrs Birtwistle have not been responded to. He then asked 9 specific questions of Mr Coleman including:

Mr Coleman did not reply to that letter. As a professional trustee who was in receipt of substantial fees from the trusts the failure to respond can only be regarded as highly unprofessional.

Instead on about 16^th February 2005 Mr Coleman consulted Messers Paris Smith & Randall about the Enduring Power of Attorney. Paris Smith & Randall were the solicitors who had been instructed by Mr Mason in connection with the execution of the Enduring Power of Attorney. It is, however, difficult to understand how Mr Coleman could have thought they were still acting for Mr Mason. In any event he instructed them that he needed to register the Enduring Power of Attorney because Mr Mason had lost or was beginning to lose the ability to manage his own affairs. He also instructed them that Mr Mason was being put under pressure by his family who were seeking to take over his financial affairs for their own benefit.

Paris Smith & Randall gave appropriate advice as to the procedure for registering the Enduring Power of Attorney. They advised him of the necessity to serve notice on Mr Mason. By 23^rd February 2005 Paris Smith & Randall were advised by the police that they were satisfied that Mr Mason had appropriate capacity and so advised Mr Coleman that any application to register the Enduring Power of Attorney was premature. Mr Coleman has indemnified himself against Paris Smith & Randall’s costs from the trust fund.

In late 2004 or early 2005 Mr Mason made a complaint to the police about Mr Coleman. He complained that he had attempted to acquire details of his investments and statements of account without success. The police investigation was carried out in the main by D C Spears, a detective who retired in 2006 after 31 years service.

D C Spears saw Mr Coleman on 3 occasions – 23^rd February 2005, the 11^th March 2005 and 31^st March 2005

At the first meeting D C Spears asked Mr Coleman if he was willing to provide a current statement of Mr Mason’s investments to put his mind at rest. According to D C Spears Mr Coleman stated that:

Some of Mr Mason’s investments had been consolidated and invested in two offshore companies (the Third and Fourth Defendants)

He was a paid representative of Alliance Suisse. He had no personal knowledge of the current state of Mr Mason’s investments, and that Alliance Suisse were under no obligation to account for their dealings to Mr Mason.

No statements or details of investments could be given in writing to Mr Mason as this would make him liable to tax at the UK rate.

He had regularly kept Mr Mason verbally informed of the state of his investments and that Mr Mason seemed satisfied with the progress.

All Mr Mason’s investments were with large investment corporations and were safe.

In his sixth witness statement Mr Coleman accepts much of this evidence. He makes the point that he was being cautious in order to try to avoid giving away too much information which he believed would be passed on to Mrs Birtwistle. He says he had to consider the tax implications of giving away information that could be passed on to the authorities.

On 11^th March 2005 Mr Coleman handed to D C Spears Mr Mason’s Will, some personal effects and a document comprising some 5 pages. The first 2 pages contain a summary of Mr Mason’s will and a statement from Mr Coleman expressing his concern that Mr Mason was being subjected to duress from Mrs Birtwistle and/or Mrs Camm. He expressed the view that Mr Mason was acting out of character and that arrangements should be made for him to be medically assessed.

The final 3 pages consists of partial financial information about the trusts and assets of Mr Mason. For example it gives on the fist page a statement of the value of Accumulations and Maintenance Settlement; on the second page it gives some information about the Scottish Life Policy and the Coutts Bank Deposit Account. On the third page it gives the value of the Clerical Medical Policies.

Mr Norman did not suggest that the information provided in this document was or was arguably an account.

The meeting on 31^st March 2005 was at the offices of Underwood’s at the request of Mr Porter. There were at least 2 distinct phases of the meeting. There are some disputes as to what was said at each. It is not necessary for me to set out all the disputes in detail.

There was an initial discussion between Mr Porter, D C Spears, Mr Coleman and Mr Mason. At this stage Mr Coleman stated he did not want Mr Porter present because of recent legislation. [Mr Coleman says he was referring to the Proceeds of Crime Act]. Mr Porter agreed not to be present. There were then some discussions between Mr Mason and Mr Coleman in the presence of D C Spears about the trusts and the identity of the trustees. D C Spears was asked to leave so that Mr Coleman could update Mr Mason on the financial position.

There is a dispute between Mr Coleman and Mr Mason as to what information was given to Mr Mason. According to Mr Mason all Mr Coleman did was to write down a figure on a piece of paper and to allow him the briefest glimpse of it. He believes it was in the region of £300,000. Mr Coleman says that he put down in front of Mr Mason profit and loss account summaries of the 3 active trusts and the Coutts Bank Von Ernst account. He says that Mr Mason did not wish to retain them but gave him permission to show them to the police but not to Mr Porter. Mr Mason then left the meeting.

It is common ground that there was then a meeting between Mr Coleman, Mr Porter and D C Spears. Mr Porter made a file note of the meeting. According to Mr Porter Mr Coleman was concerned that Mr Mason could not manage his affairs and that a Court of Protection Order was necessary; Mr Coleman believed that Mrs Birtwistle and Mrs Camm were trying to take Mr Mason’s money. He refused to say who the trustees were or give any further details of the trusts. In his witness statement Mr Porter makes the point that at no stage during the meeting did Mr Coleman state that he had provided Mr Mason with accounts. In his sixth witness statement Mr Coleman agreed that he continued to insist on the confidentiality of the trust. He says he stated he would only deal with Mr Mason. He made the point that he had duties to the trustees of the offshore trusts not to break their confidentiality.

There was no further communication between the parties before proceedings were commenced on 10^th June 2005. Mr Mason instructed Lawrence Graham to act for him in the litigation. Mr Norman relies on the fact that there was no formal letter before action from Lawrence Graham on behalf of the beneficiaries. He contends that that failure amounted to a breach of the pre-action protocol that is highly relevant in relation to costs.

The original claim form sought an enquiry of what property was received or possessed by any of the Defendants and an account. It was supported by a detailed Particulars of Claim extending to some 52 paragraphs. It is not necessary to summarise them. It gave details of the settlements, and moneys given by Mr Mason to Mr Coleman. In paragraph 50 it alleged that the Defendants had not produced any regular or any account to each or any Claimant. In paragraph 51 it recited Underwood’s letter of 2^nd February 2005 and stated that there had been no reply.

On 27^th June 2005 the Defendants filed an Acknowledgement of Service indicating an intention either to dispute the jurisdiction or to contest the claim.

On 1^st July 2005 Lawrence Graham issued an application for summary judgment solely in respect of the claim for an account. It was supported by a short statement from Mr Holliday. In effect he made the point that the Defendants were trustees and fiduciaries of Mr Mason. They had a duty to account to the Claimants and had failed to do so despite requests.

Mr Coleman did not consult solicitors at this stage of the proceedings. He did have problems with his eyes and at abut that time spent some 10 days in hospital. In any event he filed a Defence on 14^th July 2005.

Mr Adair is highly critical of the defence. In the course of submissions he asserted that it was riddled with lies and inconsistencies. I shall not lengthen this judgment by setting out all Mr Adair’s criticisms. Three examples will suffice:

In paragraph 3 Mr Coleman states that he has never been a trustee of Mr Mason’s trusts. It is plain from a Deed of Appointment annexed to the Particulars of Claim that he was a trustee of the Accumulation and Maintenance Settlement.

In paragraph 4 Mr Coleman denies that he was an agent. However it is plain that he was appointed an agent for Mr Mason in the Enduring Power of Attorney.

In paragraph 26 of the Defence Mr Coleman states that he introduced himself to Mr Mason some years later than January 1994 when the Clerical Medical Bond was purchased . It is plain from other documents (not least a letter sent by Mr Coleman on 3^rd August 1993) that Mr Coleman was indeed advising Mr Mason at that time.

The heart of the Defence is at paragraphs 50 – 52. Mr Coleman makes the point that accounts to the Settlor are not required. He was advised by solicitors not to respond to the letter of 2^nd February 2005. He has kept Mr Mason updated at various meetings in 2003 and 2004. He is not obliged to inform the other beneficiaries or to disclose information that he regards as confidential to Mr Mason.

It is to be noted that he makes no mention of giving detailed accounts at the meeting on 31^st March 2005. It is his case that he is not obliged to provide accounts.

On 18^th July 2005 Mr Coleman sent a letter to Master Price. In the letter he referred to his illness, his concerns about Mrs Birtwistle and Mrs Camm and the laws of secrecy. He attached 3 items one of which was said to be the voluntary statement to the police (made on 11^th March 2005). In his witness statement he suggested that it included the whole of the statement including the partial account on the final 3 pages referred to above. However when the court file was examined the letter was there with the attachments stapled to it. The attachment contained the statement but not the accounts. It is possible that he did include partial account and that has been lost from the Court file but that does seem somewhat unlikely.

The hearing before Master Price took place on 1^st August 2005. There is no transcript of the hearing. There is an unapproved note of Stephen Connolly the trainee solicitor from Lawrence Graham who attended the hearing with Counsel. The hearing appears to have been short. It started at 12.30 p.m and according to the note the combined hearing and waiting time were 0.8 hour.

According to the note:

Mr Coleman stated that the defence was that none of the Defendants had been trustees of any of the trusts and that he could not provide an account.

Mr Coleman sought to rely on the defence. Although it was on the file it had not been served and Master Price decided not to consider it in the summary judgment application.

Master Price made an order for a summary account by 12^th September 2005 with a return date of 29^th September 2005. He directed that it be endorsed with a penal notice.

Master Price reserved the costs of the summary judgment application and of the action to date but ordered Mr Coleman to bear the costs of preparing the account.

Mr Coleman has no clear recollection of the hearing before Master Price. However in his sixth witness statement he makes a number of points:

He was concerned at the pressure being placed on Mr Mason by Mrs Birtwistle and Mrs Camm.

He was not well and in considerable pain at the time.

If there had been compliance with the pre-action protocol he would have sought legal advice.

He did not seek legal advice because he thought there would be a saving in costs

Whilst reserving costs Master Price specifically left open the question of whether it was reasonable for the claim to have been brought.

Following the hearing before Master Price Mr Coleman consulted Mr Sutton towards the end of August 2005. The matter was complicated by the fact Mr Coleman had recurring eye problems and went into hospital for further treatment. This prevented him from giving full instructions to Mr Sutton.

A substantial amount of information (and supporting documentation) was provided by 12^th September 2005. Although an account was filed it was not verified. The matter came back before Master Price on 27^th September 2005. That hearing resulted in a consent hearing at which various directions were agreed between the parties. These included:

an order that Mr Coleman verify the account

the joinder of Independent Finance as Fourth Defendant

orders in relation to disclosure,

provision for the Claimants to serve points of objection

the reservation of costs

Mr Coleman did not verify the original account. Instead he instructed accountants – Messers Hunt Johnson & Stokes - to prepare an account. On 7^th December 2005 this account was filed and duly verified by Mr Coleman.

The Claimants are critical of this account in a number of ways. It will be necessary to summarise them later in this judgment. For present purposes it is sufficient to note that it only deals with the period from 23^rd March 2002 to 31^st July 2005.

On 30^th January 2006 Master Price made an order by consent extending the time for filing Points of Objection till (curiously) 20^th January 2006. He directed that a further hearing take place on the first open day after 28^th February 2006. The costs of the application (which appears to have been dealt with as box work) were reserved.

The further hearing took place on 9^th March 2006 before Deputy Master Bartlett. On 7^th March 2006 Mr Holliday filed a witness statement containing a number of detailed criticisms of the account filed in December 2005. Amongst the detailed points made was an allegation that the Defendants had been involved in the financial affairs of Mr Mason since the early 1990’s and had been receiving money and assets from him since at least that date.

In the result Deputy Master Bartlett made an order that the Defendants account to the Claimants “in respect of all monies and/or assets received collected or held by the Defendants …on behalf of the Claimants and any subsequent dealing with such monies from 1^st January 1992 to 26^th March 2002”. He made an order for disclosure. He extended time for the serving of Points of Objection till 19^th May 2006 and he reserved the costs.

In response to this application Mr Sutton wrote a letter to Lawrence Graham on 21^st April 2006 which included:

On 13^th January 2006 Lawrence Graham wrote to Mr Sutton enclosing a list of queries relating to the nature of the Third and Fourth Defendants to enable them to determine whether the funds under the control of these companies were offshore or onshore and/or any possible tax liabilities and/or consequences. The letter asked whether the information would be provided voluntarily. On 23^rd January 2006 Lawrence Graham wrote again asking for a reply to the queries. The letter stated that if no answers were given an application to the Court would be made. On 31^st January 2006 Lawrence Graham submitted a formal Request for Further Information under CPR Part 18. The letter made it clear that if the information was not provided by 8^th February 2006 an application to Court would be made. No response was received and the application was duly made on 16^th February 2006 duly supported by a witness statement from Miss Godfrey. There was no evidence filed in opposition. The matter came before Deputy Master Lloyd on 16^th March 2006. He made an order that the information be supplied as requested and reserved the costs. On 11^th April 2006 Mr Coleman duly supplied the information.

The Claimants’ Points of Objection to the Account was filed on 22^nd May 2006. It made a number of points.

It complained that the account started on 23^rd March 2002. It listed a number events in or after 1992 that ought to have been included

It complained that the account only dealt with the CMI Trusts and did not deal with 7 other trusts.

It complained that the Alliance Suisse accounts had been used for a variety of clients and that separate ledgers for the trusts had not been maintained or disclosed.

It complained that no detailed explanation had been provided in respect of some items on the Sterling Account

It complained that it was not possible to verify the holding of a Friends Provident Bond

It made the point that there was no proper explanation of a schedule of transactions in Mr Mason’s bank account and of the destination of some £43,000

No proper explanation of payments to City Asset Management plc

It made a number of detailed points over the charges incurred by the trusts.

In July 2006 the Defendants filed a Reply to the Points of Objection. In it Mr Coleman contended:

That the account was for the period when the Defendants received monies through the trusts. In so far as there were transfers of monies before this date they are adequately recorded in action sheets disclosed.

Mr Coleman provided a variety of information as to why he had only provided an account of 3 trusts. Thus the assets of the Accumulation and Maintenance Settlement were never within the Defendants’ control. Many of the other alleged trusts were private accounts of Mr Mason over which the Defendants had no control.

The mixing of accounts attracted a higher rate of interest.

Payments in the Sterling Account were made in respect of management charges.

It was possible to verify the holding of the Friends Provident Bond. Appropriate references were given.

The £43,000 was paid direct by CMI to Mr Mason. Mr Coleman did not believe that other sums related to unaccounted for matters for which an adequate account had not been given.

Mr Coleman requested more details of this allegation

Mr Coleman gave an explanation for the charging queries.

It was the overall contention of the Defendants that the statements made and papers produced were a reasonable and proportionate compliance with court’s orders. The fact that further issues are raised by the Claimants did not indicate that the Defendants were in any way at fault.

Lawrence Graham first raised the question of the retirement of the Defendants as trustees in a letter dated 4^th October 2005. On 10^th January 2006 Lawrence Graham gave an ultimatum of 16^th January 2006 for the Defendants to agree to retire, failing which proceedings would be brought to compel the retirement.

On 16^th January 2006 Mr Sutton stated that the Defendants were prepared to resign but suggested that the matter be put in abeyance till after the response to the account then believed to be 30^th January 2006.

On 9^th February 2006 Mr Sutton wrote a letter that included:

The application to remove the Defendants as trustees was made on 22^nd May 2006. It is important to note that the application was for Mrs Birtwistle and for Ross Birtwistle to be appointed in place of the Defendants. Thus it was not for the appointment of professional trustees as suggested in the earlier correspondence. It was supported by a witness statement from Mr Holliday. Mr Holliday gave 6 grounds for the removal of the Defendants. They included allegations of mismanagement, possible wrongdoing and ill health on the part of Mr Coleman. Mr Holliday made the point that Mr Coleman had agreed to resign. He expressed the view that Mr and Mrs Birtwistle were appropriate persons to be appointed as Trustees.

Mr Coleman filed a lengthy witness statement in response. In it he sought to deal with all the allegations made against him. In paragraph 64 he accepted that the current trustees should retire but thought it should be simultaneous with the conclusion of the proceedings. In paragraph 75 he stated that the point in the application with which he took greatest issue was the appointment of Mr and Mrs Birtwistle as trustees. He then repeated in some detail his concerns about them and stated that any new trustee should be a professional trustee as was represented in solicitors’ correspondence in February 2006.

The matter came before Master Price on 17^th July 2007. Both parties were represented by Counsel, Mr Adair and Mr Norman. Master Price made an order discharging the Defendants forthwith from the trusteeship but he did not appoint Mr and Mrs Birtwistle as trustees. Instead he appointed professional trustees, that is to say Mr Porter and Lawrence Graham Trust Corporation. He reserved the question of costs to the trial judge.

There is no approved transcript of his judgment. However there is a detailed note which is accepted by Mr Adair and Mr Norman to be substantially correct.

The basis of the decision to remove the Defendants is summarised in paragraphs 56 to 60 of the note:

There are live issues to be decided on the production of the account. There is a breakdown in confidence and in the relationship between the parties. There is a prima facie case of breach of trust.

Trust monies have been mixed and paid to Mr Coleman or to his relations.

It was impossible to reach any other conclusion than that it was expedient to remove the Trustees.

The basis of the decision to appoint professional trustees is in paragraphs 62 and 63 of the note:

There have been accusations against Mrs Birtwistle. Her family are interested in the trusts and thus there is the possibility of conflict. She is out of the jurisdiction and this could cause difficulties.

It was appropriate in the circumstances on an interim basis until the account is produced to appoint a professional trustee.

The basis of the decision on costs is in paragraph 70 of the note. It reads:

Following the order of Master Price I was told that a total of £341,000 was handed over to the new trustees in respect of the various trusts. I was also told that some £53,855 had been taken from and charged to the trust funds relating to these proceedings.

I have set out the terms of the compromise above and shall not repeat them. It will be recalled that the parties agreed not to proceed with the Taking of the Account on the terms as to costs set out above. Thus there has been no determination of the many issues identified in the evidence and (to some extent) summarised above.

Relevant Law

I was shown a number of well-known passages from Lewin on Trusts, Bowstead on Agency and Underhill and Hayton on the Law Relating to Trustees. There was little or no dispute between Counsel as to the applicable law.

It is the duty of both trustees (Footnote: ¹) and agents (Footnote: ²) to keep clear and distinct accounts of the property they administer and to be ready with the accounts. Beneficiaries and/or principals are entitled to inspect trust 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.

Trustees may be ordered to pay costs where they unreasonably fail to provide an account to which the claimant beneficiary is entitled though if the claimant commences the proceedings with unreasonable haste the court may make no order for costs (Footnote: ³)

A trustee is entitled to be reimbursed out of trusts or may pay out of trusts funds expenses properly incurred by him when acting on behalf of the trust. (Footnote: ⁴).

The right of a trustee to indemnity in respect of costs extends only to costs properly incurred in the execution of the trust. By this is meant costs which have been both honestly and reasonably incurred. The 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. (Footnote: ⁵)

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 the trustee is less at risk of being ordered to pay the applicant’s costs though may nonetheless be ordered to bear his own costs if he has unreasonably resisted the claim for removal. (Footnote: ⁶)

I have been referred to 2 cases where the courts have been asked to determine costs in an action that has been compromised (Footnote: ⁷). In paragraphs 4 to 6 of his judgment in BCT Software v Brewer Mummery LJ said:

I was also referred to paragraphs 23 and 24 of the judgment of Chadwick LJ

Under CPR 44.3(4)(a) the Court is required to take into account the conduct of the parties in deciding what order to make about costs. Under CPR 44.3(5)(a) the conduct includes the extent to which the parties followed any relevant pre-action protocol.

The relevant pre-action protocol is set out in paragraph 4 of the Practice Direction on Protocols

Discussion and Conclusions

In my view it is plain that the beneficiaries were entitled to an account. To that extent the application was successful. Furthermore Mr Coleman had refused to supply an account to Mr Porter or to reply to his letter. Even though Mr Mason was not a beneficiary of all of the trusts he was a beneficiary of some of the moneys under Mr Coleman’s direction. Mr Coleman had a supplied a partial account to the police and (on his account) some information to Mr Mason. There was in my view no justification in not sending the information to Mr Mason rather than refusing to supply information to Mr Porter.

Mr Norman accepts that this part of the application has been successful but contends that the failure by Lawrence Graham to send a letter complying with the pre-action protocol amounts to misconduct so as to deprive the Claimants of their costs. He submits that if a pre-action protocol letter had been sent setting out the matters referred to in paragraph 4.3 Mr Coleman might have consulted solicitors who might have advised him to provide the account. Thus he submits there should be no order as to costs.

I accept that there was no pre-action letter sent by Lawrence Graham. However Mr Coleman had not replied to Mr Porter’s letter, had refused to supply information to Mr Porter and in the Defence maintained that he was not obliged to give any information to the beneficiaries. I do not in all the circumstances regard the application as having been made over hastily.

The hearing before Master Price was more than 6 weeks after the issue of proceedings. Mr Coleman was a professional trustee who had consulted solicitors about the registering of the EPA and (apparently) about the letter of 2^nd February 2005. If he had wanted to consult solicitors he was more than able to do so.

I am not, in the circumstances satisfied that the failure to send a letter spelling out the consequences of failure to supply an account would have made any significant difference. It is also to be noted that Mr Coleman was well aware of the case to be met. He was being asked to supply an account.

In my view the Defendants should pay the costs of the application for a summary account. It follows from this that they are not entitled to any indemnity in respect of their costs.

Mr Adair submitted that the costs should be assessed on the indemnity basis. Whilst I see the force of the submission I do not accept it. It has not in the end been shown that Mr Coleman was guilty of any misconduct other than the failure to produce the account. Furthermore there were failures by the Claimants to send an appropriate pre-action letter. In my judgment costs should be assessed on the standard basis.

These are dealt with in Master Price’s order. They are to be paid for by the Defendants. It follows that the Defendants are not entitled to an indemnity in respect of these costs.

At this stage the Defendants were in breach of the orders of Master Price in that the account filed was not verified. Indeed that account was never verified. The agreed orders were in part to put matters right and also to give disclosure to enable the account to be verified.

In my view these orders arise out of the original failure of the Defendants to provide the account. In my view the Defendants should pay the costs of this application and are not entitled to an indemnity in respect of it.

This was a consent application and no doubt the costs are very small. However the Claimants were plainly entitled to a reasonable time to consider the accounts and the disclosure filed. They needed to apply for the extension because of the lateness of the filing of the Defendants’ verified account.

In my view the Defendants should pay the costs of this application and are not entitled to an indemnity in respect of it.

The Claimants did not accept that the account filed was a proper account. This hearing (and the witness statement in support) were the first attempt to challenge it. The response to Deputy Master Bartlett’s order was that there were no accounts to be provided before March 2002.

The Claimants sought to challenge this in the Points of Objection. The Defendants refuted the challenge in the Points of Reply. In the settlement the account was not pursued and thus it cannot be said that the Defendants’ stance was wrong.

In those circumstances it seems to me that the appropriate order for this application is that there be no order as to costs as between the parties. It has not, however, been shown that there was any misconduct by the Defendants after the provision of the account. In those circumstances it would not be right to refuse them an indemnity.

Lawrence Graham wrote 3 letters seeking the information. There was no response from the Defendants. The Claimants were entitled to the information and had to make the application to court to get it. In my view the Defendants must pay the costs of the application for further information and are not entitled to an indemnity in respect of their costs.

The application was partially successful in that the Defendants were removed. There was, however, no express finding of misconduct against the Defendants even though Master Price felt there was a prima facie case. He recognised in his judgment that the picture at trial might be different. The order was made on the ground that it was expedient to do so. Furthermore the Claimants failed in their choice of new trustees – a main ground of Mr Coleman’s opposition.

On the other hand the application was opposed and the Defendants did not protect themselves with a suitably worded Part 36 Offer.

As there has been no trial it is not possible for me to find that the alleged misconduct has taken place.

In all the circumstances the appropriate order for this application is that each side pay their own costs. In my view the Defendants are not entitled to an indemnity in respect of their costs.

In my view the Claimants were entitled to pursue the action until a reasonable time after the Defendants had provided an account. Thus they were entitled to pursue the action until 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.

In those circumstances it seems to me that the Claimants should be entitled to their costs up to the end of February 2006. Whilst I would include within this time spent in considering the accounts filed in December 2005 I would not include time spent in preparation of the witness statement filed for the hearing on 9^th March 2006 if it took place in February 2006. For that period the Defendants should not be entitled to any indemnity in respect of their costs.

After the end of February 2006 the Claimants should not be entitled to any costs against the Defendants but the Defendants should be entitled to an indemnity in respect of their costs out of the trust assets. This is consistent with the terms of Settlement under which the Defendants were entitled to be indemnified in respect of the Compromised Costs. I do not, for my part see why the Claimants should be entitled to any costs after February 2006 in pursuing a challenge that was in the end unsuccessful. Equally there is no reason to deny the Defendants an indemnity for this period.