Blades v Isaac & Anor

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 on 19 June 2013 (sadly, as the result of a road traffic accident). The defendants are (1) the sole proving executor of the will and sole accepting trustee of the will trust, and (2) a subsequently appointed co- trustee of the will trust. (The other two named executors renounced probate.) The two defendants are partners in Tanners Solicitors LLP, the firm of solicitors that advised the testatrix and drew up the will. The Claimant is one of the two children (both daughters) of the testatrix. The other members of the class of objects originally consisted of the Claimant’s husband and children, and the testatrix’s domestic cleaner. At a later stage, the Claimant’s sister, Deryn Binder (the other child of the testatrix), was added to the class, pursuant to a power in that behalf.

The claim was essentially for disclosure of information from the defendants. The claim form sought:

“1.

An order that the First Defendant provide to the Claimant a full inventory of the estate of the [testatrix] (“the Estate”) and a full account of his dealings with the Estate, including a breakdown of all charges made to the Estate by him and by Tanners Solicitors LLP.

2.

If and to the extent that it may be necessary, an order requiring the Defendants as trustees of the trust created by the will of [the testatrix] (“the Will Trust”):

(a)

to obtain from the First Defendant in his capacity as sole personal representative of the Estate the information identified at 1 above; and

(b)

to disclose the same to the Claimant.

3.

An order that the Defendants as trustees of the Will trust provide to the Claimant full details of:

(a)

the assets comprised in the Will Trust on its creation;

(b)

their dealings with such assets;

(c)

the assets currently comprised in the Will Trust; and

(d)

a breakdown of all charges made to the Will Trust by them and by Tanners Solicitors LLP.

4.

Such further or other relief as the Court thinks just.

5.

An order that the Defendants pay the Claimant’s costs of these proceedings and their own costs personally without recourse to the assets of the Estate or the Will Trust.”

In support of her claim, the Claimant made a witness statement dated 2 September 2015, with one exhibit (“Blades 1”). The First Defendant made a witness statement in response, dated 1 October 2015 (“Isaac”). The Claimant made a second witness statement, with another exhibit, on 27 October 2015 (“Blades 2”), replying to that of the First Defendant. Both defendants filed acknowledgments of service indicating an intention to defend the whole claim. As it happened, by the time that the claim came to be heard by me, on 16 February 2016, the defendants had on 21 January 2016 changed their minds, apparently on the advice of different counsel from that whom they had originally consulted, and had given to the Claimant the disclosure of information sought in paragraph 1 of the Claim Form. The hearing before me was therefore essentially about costs. But for this purpose it was necessary for me to be taken through the events that had happened, and to be addressed on the law relating to trustees’ costs. Some aspects of the law relating to the disclosure of information of beneficiaries of estates and trusts were also inevitably relevant.

There was a directions hearing on 5 November 2015. It was argued for the defendants that, given that the Claimant was raising issues that might have been raised by the defendants, these proceedings were to be treated as if they were an application for directions brought by them as trustees, and that the Claimant’s sister Deryn ought to be joined as a party. On that occasion I decided that it was not appropriate to treat the proceedings in that way. The Claimant was claiming that in refusing to disclose information and documents to her the defendants were failing in their duties as trustees. In substance these were hostile proceedings, and the Claimant was not obliged to join her sister if she did not wish to. Moreover, the sister was then making, and since then has made, no application to be joined.

I also directed on that occasion that the parties might request permission to cross-examine witnesses at the final hearing by giving written notice to me by 11 November 2015. Neither party did so, and accordingly there was to be no cross-examination at the final hearing. As it has turned out, the main issue between the parties (the disclosure by the defendants to the Claimant) has now gone. But it is still necessary to set out some of the facts, which I take from the witness statements filed, and already referred to above, and there are still some disputed elements of fact. Since there was no application made for cross-examination of any witness, the evidence given in the filed witness statements, at least so far as consistent one with another, is unchallenged. So far as that evidence is inconsistent, the rule is that the court is not entitled to reject any written evidence as being untrue, unless on the basis of all the evidence before the Court the Court considers that that written evidence is simply incredible: see eg Long v Farrer & Co [2004] BPIR 1218, [57]-[61], applied in Shierson v Vlieland-Boddy [2005] 1 WLR 3966, CA, [56], Coyne v DRC Distribution Ltd [2008] EWCA Civ 488, [58]. This is a high threshold to reach. I add that, at the hearing, I was not invited to disregard any of the written evidence on that basis.

The Claimant is some 14 years younger than her sister, Deryn Binder. (There was an intermediate sibling who unfortunately died.) Each sister married and had children. Both sisters and their husbands at some point worked together in the family business, which was a very successful one. However, relationships between them became strained, and after some years the Claimant and her husband left the business and moved away. The relationship between the Claimant’s father and her brother in law thereafter broke down, which affected the relationship between the Claimant’s sister and her mother. That in turn had an impact of some sort on the relationship between the Claimant and her sister. There are some differences in the evidence about what that impact was, and how friendly they were at the time of the testatrix’s death and thereafter. I refer to this below.

By the testatrix’s will, she appointed the First Defendant and two other professional men as her executors and trustees. As mentioned above, the other two renounced probate, and only the First Defendant proved the will, obtaining a grant on 28 January 2014. The value of the estate was stated to be £903,574. The testatrix left her entire estate to her trustees on discretionary trusts for a class consisting originally of the Claimant, her husband, her children and the testatrix’s cleaner, but with power to add further members in future.

The First Defendant subsequently appointed the Second Defendant as co-trustee of the will trust. The testatrix left a letter of wishes. This included suggested gifts to members of the class, but also 5% of the estate for the Claimant’s sister, although of course she was not originally a member of the class. On 1 October 2014 the trustees exercised their power to add Deryn to the class. Subsequently, in 2014 and 2015 distributions were made out of the will trust to all the members of the class, including Deryn, other than the Claimant’s husband.

The evidence shows that the Claimant was unhappy with the defendants and their law firm almost from the beginning of their involvement in the administration of the estate. On 12 August 2013, Tanners wrote to both the Claimant and Deryn asking them to limit communications with the First Defendant (as personal representative) “as they only add to the costs of the administration”. The Claimant responded that, whilst she did not wish to increase the costs, she did want a more sympathetic approach, and more explanation, and she did not see why that should add much cost (Blades 1, paras 18-19).

More importantly in the context of the present claim, on a number of occasions the Claimant asked the defendants for a detailed breakdown of the testatrix’s estate. The defendants refused, on the basis that the estate accounts were documents confidential to the executor and the trustees, and were not to be distributed to the beneficiaries of the will trust. The Claimant’s complaint was that, if that were right, since the executor was one of the trustees, and both were partners in Tanners LLP, the law firm acting for them, which had carried out the administration for reward, “nobody apart from the Defendants themselves could scrutinise what one of them ([the First Defendant]) has done or how much their own firm (Tanners) has charged in relation to the administration of [the testatrix’s] estate” (Blades 1, para 21).

The defendants justified this approach by saying that they were aware of 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. In the First Defendant’s evidence the matter is put his way:

“[The testatrix] was introduced to me in 2002 by an existing client because there were complicated family dynamics and it was felt that I might be able to assist [her] in resolving these. For reasons of confidentiality, I am not going to detail the family issues as they remain relevant today and have to be taken into account in the trustees’ confidential deliberations. I can say that I have no reason to doubt that some of the difficulties within the family arose because of the circumstances set out by [the Claimant] in [Blades 1]. However, the difficulties that were narrated to me by [the Testatrix] were broader and more complex than those referred to by [the Claimant]. [The Testatrix] always emphasised that her love for her daughters ... was equal and the family difficulties were a great cause of unhappiness to her. They continued to feature in her discussions with me during formal Will Reviews in 2007 and 2012 and informally when we met or spoke on the telephone over the years” (Isaac, para 6).

The Claimant in her evidence takes issue with this. She says (Blades, paras 28-29):

“28.

The only reason the Defendants appear to rely on as their basis for refusing to disclose any information at all regarding the Will Trust to me is that the relationship between my sister Deryn and me has at times been a difficult one … This is simply not the case. Deryn and I have never had a particularly close relationship as she is fourteen years older than me and left home when I was only five years old but it has not been a difficult relationship.

29… I am fully aware that my sister has received £40,000 from the Will Trust. I have no problem with this and I understand that it is in line with my mother’s wishes. I do not understand why the Defendants are taking the position that they are in relation to me and my sister. As I have also explained above, the difficult relationship was between my mother and my sister, not between me and my sister. The fact that my sister and I have spoken about this, that I am aware that she has received a payment from the will Trust and that I have raised no concerns or objections surely shows that the justification the Defendants are relying on to refuse disclosure has no basis.”

The defendants’ evidence however goes on to state (amongst other things) that

By way of comment on this, the Claimant makes the point that the First Defendant seeks to justify the refusal to disclose accounts to her

“on the basis that the relationship between my sister and me is a difficult one, but he fails to provide any details of the difficulties he is referring to. He has also failed to explain what he thinks will happen between my sister and me if the accounts are disclosed to me, which I find surprising given that this appears to be his sole justification for refusing disclosure” (Blades 2, para 7).

She also makes that additional point that

“I am quite sure that I understand the family dynamics and my relationship with my sister better than the Defendants. In any event, I am 56 years old and Deryn is 70; we are both adults and we do not need a trustee to manage our relationship for us” (Blades 2, para 8).

As I have already made clear, in the absence of cross-examination I cannot resolve the dispute on the written evidence as to whether there was or had been a difficult relationship between the two sisters, as the defendants say and the Claimant denies. Accordingly, in considering the propriety and reasonableness of the defendants’ actions I proceed on the basis that I am unable to reject as “incredible” the First Defendant’s evidence that there was such tension, animosity and difficulty between them, and that they acted accordingly.

However, in any event it is clear from the evidence that I have referred to that, at least to some extent, the Claimant is concentrating on the wrong matters. I do not know, and am currently in no position to know, whether the Claimant and her sister on the one hand or the defendants on the other are better able to understand the family dynamics. The former have grown up in the family, and therefore have their own points of view, whereas the latter have come later to it, but stand outside it and can be more objective. But the Claimant may have lost sight of the important point that the discretionary trust was imposed on the estate of the Testatrix by the express desire of the Testatrix herself. She deliberately chose not to give assets outright to her daughters or either of them. She did not wish either of them to play any part in the administration of either the estate or the trust which she created.

The Claimant says that she and her sister are adults and do not need a trust. Of course they are adults. But even on the basis that the sisters do not need a trust, the estate assets belonged to the Testatrix to deal with, and on advice she decided that, rather than give them outright to her daughters (or either of them), she would impose a trust on the assets on her death. Whether the Testatrix was wise or not to do this is not a matter for the Claimant, nor indeed for me. In the absence of a Saunders v Vautier application by all the beneficiaries, the Claimant by herself has no business or right of imposing her own will on the trust which her mother wished to create. She is entitled to the rights conferred on her by the trust, neither more nor less. We have to go from where we are, and not from where we would like to be.

For the purpose of resolving the dispute about costs, it is necessary to look specifically at some of the correspondence between the parties, which was exhibited to the witness statement evidence.

In a letter from Tanners LLP to the two sisters of 16 October 2013, a few months after the death, matters discussed included the letter of wishes and the estate accounts. As to the former, the letter said:

“In respect of Deryn’s request to see the letter of wishes, [the First Defendant] confirmed that this decision will be made at the time the estate is distributed and the trustees will not consider making this available at any time beforehand and if anything is disclosed it may not necessarily be the whole letter of wishes.”

As to the latter, the letter said:

“Estate accounts will be prepared and submitted to the trustees for approval. [ … ] The estate accounts are confidential document [sic] between the trustees and executor and will not be distributed to beneficiaries.”

Almost a year later, on 9 October 2014, the Claimant emailed the First Defendant saying

“I may be able to give Deryn more than the 5% she has been bequeathed in the Letter of Wishes but I do need some indication as to the value of my inheritance so that I can ensure our plans can be met as well as giving to Deryn [ …]

My other concern is that whatever I may or may not be able to give Deryn from my inheritance she may not be satisfied and will try to get more [ … ]”

After a chasing email from the Claimant of 12 October, the First Defendant replied by email on 13 October 2014:

“Obviously we continue to hold funds within the Will Trust and are intending to exercise some further discretion after the end of October 2014 and we would certainly take into account any representations put forward by you or Deryn prior to the exercise of that discretion. We are not prepared however, to reveal details regarding the Will Trust to any actual or potential beneficiary [ … ]”

There was a further email exchange between the Claimant and the First Defendant on 27 and 28 October 2014. The Claimant said her sister had telephoned to suggest a joint meeting with the First Defendant, but that the Claimant would do nothing until she knew the amount of her inheritance. The First Defendant replied that the trustees had decided that they would not meet either sister, and that further representations before the exercise of trustee discretion would have to be made in writing.

Thereafter the correspondence was conducted between solicitors. On 8 May 2015, Charles Russell Speechlys wrote on behalf of the Claimant to Tanners LLP. The letter asked for the following to be supplied “as a matter of priority and in any event within the next 14 days”:

“1.

A copy of the Estate Accounts.

2.

A copy of the Trust Accounts for the last two years or (if such accounts are not ready):

2.1

Details of the assets placed into the Trust on its creation;

2.2

Details of payments made to beneficiaries from the Trust Fund;

2.3

Details of all accounts raised by your firm in relation to the creation of, and administration of, the Trust.

2.4

Details of the assets currently remaining in the Trust Fund.

3.

A copy of all Trust documents to include any deeds adding or excluding further beneficiaries to the class as set out in the Will.

4.

A copy of the Letter/s of wishes written by the Deceased in the Trustees’ possession.”

Tanners replied by email on the same day, saying that they had been about to send the Claimant a further letter by email (which they attached), that they would take their clients’ instructions on the requests for documents and information, but that “we doubt our clients will be prepared to release the information you have requested as this is information confidential to them as discretionary Will Trustees, not your client”. The email letter attached informed the Claimant that the defendants had decided to make a further distribution to the Claimant, but that they required the Claimant first to indemnify them “in the event of a claim or dispute arising in relation to the Estate or the Will Trust”. A form of indemnity covenant was attached.

By a letter dated 20 May 2015, Charles Russell Speechlys challenged what it termed the refusal of the trustees to disclose the information sought, and referred to Re Londonderry’s Settlements and Schmidt v Rosewood Trust. They threatened an application to the court. The response of Tanners LLP of 27 May 2015 accepted that the court had “an overriding discretion in these matters”, but considered that the Claimant’s solicitors had not been fully instructed, in particular about the “severe potential for conflict” between the two sisters. But Tanners went on to suggest that “a mutually agreeable firm of lawyers is provided with copies of the Trust Accounts on the basis that they advise quite simply whether or not there is anything in those Accounts which gives rise to legitimate concern on the part of” the Claimant.

Two days later, on 27 May 2015, Charles Russell Speechlys refuted the suggestion that they had not been fully instructed, and declined to agree to a referral of accounts to a third firm of solicitors, both on the basis that it would not allay concerns, and that it would involve further unnecessary costs. They stated that they had instructions to issue proceedings for the disclosure sought, if it was not provided within seven days, and seek her costs from the defendants personally.

The response of Tanners, on 1 June 2015, was

On 11 and 15 June there were further email exchanges between the two firms about instructing counsel. Charles Russell Speechlys attempted to place parameters on the identity and cost of the opinion. These were not accepted by Tanners, but counsel was nevertheless instructed. On 22 June 2015 Tanners wrote to say that they had counsel’s opinion, and that it “wholeheartedly endorses the approach adopted by our clients”. Nevertheless the trustees repeated “their offer … to disclose the Accounts to a mutually agreed independent third party – the approach endorsed by Lewin and by Lord Walker in the Schmidt decision”.

On 9 and 20 July there was a further exchange, but this time about the proposal to make a further distribution to the Claimant on the basis of an indemnity to the defendants. Charles Russell Speechlys challenged the indemnity, and asked for confirmation that it was not linked to the request for disclosure. That confirmation was given by Tanners. But they also made clear that there would be no distribution unless there was also an indemnity.

On 31 July 2015, in a long letter, Charles Russell Speechlys returned to the question of the refusal to give disclosure to the Claimant. It begins by asking Tanners for a copy of the opinion of counsel that they had obtained, saying that they “have chosen to waive privilege over” it. It then complains of alleged failures to understand the duty of accountability and the costs to which the Claimant has therefore been put. It repeats the request for disclosure, in terms practically identical to those in the letter of 8 May 2015. Then the letter deals in some detail with the relevant law, and concludes that if full disclosure is not given within seven days “our client will have no option but to issue proceedings against your clients...” and will seek an order that the defendants “pay her costs and to bear their own costs personally without recourse to estate or trust assets”.

The response of Tanners, dated 5 August 2015, was to say this:

“As you are aware, we are acting in accordance with Counsel’s advice and, in the circumstances, the Trustees have no option but to seek further advice from Counsel with regard to your letter. We have been in touch with Counsel’s clerk and understand that Counsel is away at present and we must therefore await his return. Whilst we will revert to you as soon as possible, this will not be within the seven-day time period to which you refer in your email.”

There were then (on the same day) email exchanges concerning when counsel would be able to supply the opinion sought (he being away from chambers). Tanners told Charles Russell Speechlys that counsel would be returning to chambers in the week commencing 17 August:

“We have no doubt that he will attend to this matter as soon as he possibly can thereafter and we will revert to you when we hear from him.”

Charles Russell Speechlys considered that this was not good enough. In an email the next day (6 August), they wrote:

“Our client considers that the Trustees have had sufficient opportunity to agree to our disclosure requests and considers their continued refusal to disclose unreasonable. The factual position has not changed since the Trustees last sought counsel’s advice, and it is disingenuous to suggest that only on receipt of our letter has the position changed, requiring further consultation with counsel. Nothing has changed since our client’s initial requests. This matter has dragged on for some 2 years and our client understandably wants to draw this matter to a close. We have therefore been instructed to issue proceedings against the trustees now.”

Pausing there, it is to be noted that, since the requests were first made, at least two important things had happened: first, the defendants had taken counsel’s opinion and followed it, and second, the Claimant was threatening to issue proceedings imminently with personal costs sanctions against them.

Charles Russell Speechlys went on:

“We have advised our client to allow the Trustees the opportunity to discuss the matter with counsel in the hope that the Trustees will finally take the proper approach in relation to this matter. Our client will therefore allow us to postpone issuing proceedings for a short period of time. The Trustees therefore have until 4 pm on 17 August 2015 to revert to us with confirmation that the documents sought will be disclosed in full. If no response is received, or if the Trustees still refuse our client’s disclosure request, we are instructed to issue and serve proceedings, which we will do without further reference to you.

Please confirm that you are instructed to accept service on behalf of the trustees.”

On 10 August 2015 Tanners replied, repeating some points made on earlier occasions, and concluding:

“We could not possibly advise our clients to alter the way in which they have approached this matter, as to do so would be flying counter to Counsel’s advice given to date. As we have advised, Counsel is on leave at the moment and we cannot reply to your letter until Counsel has had the opportunity to consider the matter on his return, we will therefore revert to you as soon as possible but we cannot guarantee that this will be by the deadline to which you refer in your letter.”

Charles Russell Speechlys did not write again until the deadline of 17 August had expired. On 18 August 2015 they responded to points made in Tanners’ letter of 10 August. They concluded:

“We are instructed to finalise and issue proceedings. Please confirm, per our previous request, that you are instructed to accept service.”

Tanners replied the same day, pointing out that it was by then vacation, “and so it is unlikely that your application will be attended to until the start of the new term.” They expressed their own view of the costs risk as follows:

“We cannot see how trustees, when acting on experienced counsel’s advice and not perversely, and when any legitimate concerns could be addressed through the proffered mechanism of an independent firm of solicitors at much lower cost, could be made personally liable for the costs of this exercise.”

Finally, Tanners confirmed that they had instructions to accept service of proceedings, but indicated that they would revert when they had received counsel’s further advice.

In a further email sent the same day, Charles Russell Speechlys dealt with two matters. As to the suggestion of third party trustees considering the accounts, they referred back to their letter of 31 July 2015, and said that Tanners had misunderstood what Lewin said on the subject. As to costs, they said this:

“The position on costs is standard: your clients are failing to discharge their duties as trustees and are not entitled to call on the estate or trust funds to pay their costs of this matter.”

The email concluded:

“Our instructions are … to issue proceedings. If you are proposing to revert in sensible terms and provide disclosure, we suggest that you do it quickly, before the proceedings are issued at court.”

The next day, 19 August 2015, Tanners wrote what turned out to be the last communication from either side to the other before the issue of proceedings. It dealt with a number of points, including the following (my numbering):

The letter concluded:

“We are sure that, once you have reflected on the position more fully, you will agree the interests of your client and the trust as a whole will be best served by adopting the pragmatic approach suggested by us. If you cannot agree the Trustees’ proposal, then the appropriate way forward is for them to issue proceedings pursuant to CPR Part 64 seeking directions. Please confirm that you will not now commence a disclosure action.”

There was no response to that letter from Charles Russell Speechlys. As already stated above, they issued the claim form on the 4 September 2015, supported by a witness statement dated two days earlier. As also already stated, there was a directions hearing before me on 5 November 2015. Appearing before me on that occasion for the defendants was the counsel who had been consulted by Tanners and who had written the opinion referred to in the correspondence. However, by the time of the substantive hearing of the claim, on 16 February 2016, he had been replaced by Piers Feltham, who appeared before me. The latter had evidently advised Tanners and the defendants in different terms from the earlier counsel. The Claimant was represented by Edward Hewitt of counsel, as before.

At the hearing on 16 February, Mr Hewitt for the Claimant (in summary) said that the defendants had refused disclosure, the Claimant had had to issue proceedings, and had now obtained everything which she had sought in the proceedings. She had therefore won, and costs should follow the event, ie the defendants should pay the Claimant’s costs. Moreover, he said, the defendants should have to bear both those costs and their own personally, without recourse to the estate or trust funds. He took me through the correspondence set out above, to passages in Lewin on Trusts and Underhill and Hayton on Trusts and Trustees, and to the decisions in Re Buckton (No 2) [1907] 2 Ch 406, Wingate v Butterfield Trust Co [2008] WTLR 543, and Mason v Coleman [2007] EWHC 3070 (Ch).

For the defendants, Mr Feltham (also in summary) argued for the costs of both sides to be paid out of the trust estate. In his submission the trustees had behaved reasonably throughout. First, they had put forward a mechanism (which Mr Feltham said had been approved in Schmidt v Rosewood Trust Ltd [2003] 2 AC 709) to cope with what they perceived as the danger of even-handed disclosure to the two sisters of the estate accounts. Then they had sought and followed the opinion of specialist counsel (a senior junior, practising in the field of estates and trusts, in well-known chancery chambers).

Thirdly, in subsequent correspondence, they had said that, if the Claimant would not agree to the proposal that they had put forward, they would apply to the court for directions. But the Claimant had not waited for that, and instead had issued the present proceedings. Therefore, submitted Mr Feltham, the defendants were in the usual default position, which was that they should have an indemnity for their costs. He also took me through the correspondence, and referred me to various cases (in addition to Schmidt), including Brakespear v Ackland [2009] Ch 32, Re Londonderry’s Settlements [1965] Ch 918, Pitt v Holt [2013] 2 AC 108, and Re Buckton [1907] 2 Ch 406. But he also submitted that the Claimant should have her costs out of the trust estate as well, on the principle that I have below called Buckton (2).

As mentioned above, the main reason for the claim being instituted at all has now disappeared. The disclosure sought by this claim has now in fact been given by the defendants. But, on the basis of what has happened, I am required to decide what order as to costs should be made.

There are two matters that need to be dealt with at the outset. The first is the argument over privilege in counsel’s opinion. As already mentioned, in the letter of 31 July 2015, Charles Russell Speechlys asked Tanners for a copy of the opinion of counsel that the latter had obtained, on the basis that they had waived privilege in it. In response, on 19 August 2015, Tanners impliedly asserted privilege, by denying that privilege had been waived. However, in my judgment, and as was made clear by the opinion itself (which was made available to me at the hearing), the argument over privilege completely misses the point. The opinion had been obtained by the defendants as trustees, for the benefit of the trust rather than for their benefit personally, and therefore it was proper for them to pay for it from trust funds. But the corollary of this was that it was a trust document, and therefore in the same category as other trust documents, that is, available to the beneficiaries if the court so considered. In relation to such documents, there can be no legal professional privilege as between trustee and beneficiary. Arguments about privilege in the present case were therefore simply irrelevant. Indeed, they made things worse, by diverting attention and resources to non-points.

The second point relates to fact that the structure created by the testatrix had two quite separate levels. At the first level, the testatrix by her will left assets to be administered by her personal representative, who after the administration was complete would pass them to the legatees, as trustees, to be held on discretionary trusts for the objects (the beneficiaries), including the Claimant. The legatees could hold the personal representative to account, and seek for example an inventory of the assets of the estate under s 25 of the Administration of Estates Act 1925, including details of the costs charged to the estate by Tanners, acting for the personal representative.

At the second level, the Claimant could hold the trustees to account, for what the trustees had received and for what they had done with it: see Schmidt v Rosewood Trust Co Ltd [2003] 2 AC 709. But what she could not claim to be was a legatee of the estate, and therefore directly to enjoy the information rights of a legatee. Yet the Claimant in this case sought information about both the estate and the trust. In my judgment this complicated the question for the trustees. From the defendants’ point of view, it was perhaps a little more difficult to see clearly how the Claimant was entitled to what she sought.

Nevertheless, in my judgment the rights of the trustees as legatees to information about the estate (whatever they were) were properly part of the trust estate in which she was interested as a trust beneficiary. If need be, therefore, she could claim as against the trustees that they as trustees should exercise those rights, or, if they could not or unreasonably would not do so, claim to exercise them herself, though in that case on behalf of the trust: Parker-Tweeddale v Dunbar Bank [1991] Ch 12. Since the same person was both personal representative and one of the two trustees, it is clear that that trustee at least could not hold himself to account, and, since the other was his partner in the law firm that had acted for him (as personal representative) and for both trustees, it is hard to see how that trustee could do so effectively either. It is a classic case for a derivative claim.

An alternative argument would be that, since the trustees had an obligation to check to see that the correct assets had been paid over to them by the personal representative, and to get in any assets not so paid over, and the Claimant as an object of the discretionary trust created by the will had standing to complain of a breach of trust by the trustees (eg an unauthorised transfer to a non-beneficiary), she equally should have standing to challenge the trustees, both over a failure to check that the correct amount of assets had been paid over to the trustees by the personal representative, and also (if the facts justified it) over a failure to get in the assets that had not been so paid over, as to complain about, say, possible overcharging by the personal representative’s lawyers.

The defendants accepted at the hearing that, whatever the precise legal basis, the consequence flowed, that is, that the Claimant should have the disclosure sought. As a result, neither of these doctrines was the subject of argument before me. Nevertheless, in my judgment these are two ways in which the court could order disclosure, but as a result of the defendants’ concession I have not considered this aspect of the matter further.

I turn then to costs. The rules relating to the incidence of legal costs in a trust or estate case are more complex than in some other cases. The primary rule relating to costs is set out in the Senior Courts Act 1981, s 51, and then there are some secondary rules in the Civil Procedure Rules 1998 (“CPR”).

First of all, s 51 provides in part that, subject to rules of court, the costs of and incidental to all proceedings in the High Court are in the discretion of the court, and that the court has full power to determine by whom and to what extent the costs are to be paid. Secondly, under the relevant rules of court, the CPR, the ordinary position is this. By CPR rule 44.2(1), the court has discretion as to whether costs are payable by one party to another, the amount of those costs, and when they are to be paid. However, under rule 44.2(2), if the court decides to make an order about costs, the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party, but the court may make a different order.

Thirdly, however, costs in trust and estate litigation are subject to special provisions in the CPR. Rule 46.3 and para 1 of the Practice Direction to Part 46 contain the main ones. Rule 46.3 is as follows:

“(1)

This rule applies where –

(a)

a person is or has been a party to any proceedings in the capacity of trustee or personal representative; and

(b)

rule 44.5 does not apply.

(2)

The general rule is that that person is entitled to be paid the costs of those proceedings, insofar as they are not recovered from or paid by any other person, out of the relevant trust fund or estate.

(3)

Where that person is entitled to be paid any of those costs out of the fund or estate, those costs will be assessed on the indemnity basis.”

(I interpose to say that rule 44.5, referred to in rule 46.3(1)(b) above, concerns costs payable under a contract, and is not relevant to this case.)

Para 1 of the Practice Direction to Part 46 is as follows:

“1.1

A trustee or personal representative is entitled to an indemnity out of the relevant trust fund or estate for costs properly incurred. Whether costs were properly incurred depends on all the circumstances of the case including whether the trustee or personal representative (‘the trustee’) – 

(a)

obtained directions from the court before bringing or defending the proceedings;

(b)

acted in the interests of the fund or estate or in substance for a benefit other than that of the estate, including the trustee's own; and

(c)

acted in some way unreasonably in bringing or defending, or in the conduct of, the proceedings.

1.2

The trustee is not to be taken to have acted for a benefit other than that of the fund by reason only that the trustee has defended a claim in which relief is sought against the trustee personally.”

These two provisions are both drawn from the former RSC Order 62 r 6(2), though with some differences of detail. That rule was concerned with both (1) the right of trustees or personal representatives to be paid the costs of legal proceedings, meaning their own costs, out of the trust assets or deceased’s estate, so far as not recovered from another party, and also (2) any costs which such a party might be ordered to pay to another party: see for example Singh v Bhasin [2000] WTLR 275, 280, per Mr Alan Boyle QC (deputy judge). It is clear that paragraph 1 of PD 46 is similarly concerned with both these things. It is perhaps less clear whether rule 46.3, on its face at least, extends beyond the first of them. But that does not matter for present purposes.

In any event, however, the indemnity is available only where the costs concerned are “properly incurred”, and for this purpose para 1 of the Practice Direction to Part 46 sets out how this is to be ascertained. Often, a trustee might be involved in litigation with a third party and seek and obtain a Beddoe order approving the expenditure of his own costs and the risk of incurring liability for those of the other side, in advance. If this is done, the trustee’s indemnity is secure: see Alsop Wilkinson v Neary [1996] 1 WLR 1220, 1224. But it is also clear that the test for whether costs are properly incurred is independent of the question whether a Beddoe order was sought and obtained. In other words, a trustee might not seek a Beddoe order, and yet might manage to establish that the liability he incurred to pay costs to another party was properly incurred.

For completeness I should add that CPR rule 44.10(1) provides that

“Where the court makes an order which does not mention costs –

(a)

[ … ] the general rule is that no party is entitled [ … ] to costs [ … ] but

(b)

this does not affect any entitlement of a party to recover costs out of a fund held by that party as trustee or personal representative [ … ].”

This means that, where the trustee is entitled to an indemnity for any costs out of the trust fund, whether under Rule 46.3 and/or para 1 of the Practice Direction to Part 46, or indeed otherwise (eg a contract), there is no need for an order to that effect. An order made which does not mention costs does not prevent the trustee exercising his right to indemnity. If the trustee does so, and the beneficiary wishes to challenge this, he is still able to (formally, this could be, for example, by applying for an account and then seeking to falsify it).

The reference in rule 46.3(3) to “assessed” costs does not mean that trustees cannot exercise their indemnity without a court order to that effect. Instead it just confirms the basis of assessment in any case where the costs of trustees fall to be assessed under a court order. It avoids the risk that trustees who should otherwise obtain a complete indemnity from the trust fund, but who, in respect of the litigation costs they incur are awarded costs only on the standard basis, thereby obtain less than a complete indemnity.

Rule 46.3 and para 1 of the Practice Direction to Part 46 deal with the costs of trustees and personal representatives. They do not deal with the costs of other parties, such as beneficiaries who are joined to a trustee’s or personal representative’s application for directions, or who indeed issue proceedings against the trustee or personal representative for such directions. Nor do they deal with beneficiaries’ costs in hostile litigation. These matters are all dealt with in the caselaw, and in particular in the decision of Kekewich J in Re Buckton [1907] 2 Ch 406, followed post CPR in D’Abo v Paget (No 2) [2000] WTLR 863.

In Re Buckton one of the beneficiaries of a will trust issued a claim for a declaration as to the true construction of the will against another beneficiary, who had refused to agree with the first beneficiary’s view. The trustees were joined, so that they would be bound, but played no part in the argument. The judge held that in substance the first beneficiary was right. He sought his costs against the second.

The judge said that there were three classes of case:

In that case the judge held that in substance the present case fell within the second class, which may conveniently be referred to as “Buckton (2)”, and that all parties’ costs should come out of the trust estate. It will be noted that this case was not about trustees’ costs at all. Instead (and as noted by Nugee JA in Des Pallières v JP Morgan Chase & Co [2013] JCA 146, [30]-[31]), it was about the circumstances in which beneficiaries might obtain their costs, either from the fund, or from another beneficiary.

On the other hand, the more recent case of Alsop Wilkinson v Neary [1996] 1 WLR 1220 was concerned with trustees’ costs, rather than beneficiaries’. Moreover, it was specifically concerned with the proper role of trustees where there was in essence what the court called a “trust dispute”, rather than a “beneficiaries dispute” or a “third party dispute”. A “trust dispute” could be friendly (where the trustees sought directions or the construction of the trust was in issue) or hostile (for example where the validity of the trust itself was challenged). A “beneficiaries dispute” however relates to the propriety of the action which the trustees have taken or may in the future take (typically a breach of trust claim). And a “third party dispute” is one with parties external to the trust in which the property or other rights of the trust are in play as against a third party (for example a boundary dispute with a neighbour to the trust property).

The trustees in that case sought directions as to, and a pre-emptive costs order for, their role in defending the trust against a challenge by third parties who claimed to have been defrauded by the settlor of the assets which the settlor had subsequently settled. This was therefore a hostile “trust dispute”. Lightman J held that both applications failed, for various reasons. In the course of giving judgment, however, he said (at 1224) that

“Trustees (express and constructive) are entitled to an indemnity against all costs, expenses and liabilities properly incurred in administering the trust and have a lien on the trust assets to secure such indemnity.”

The starting point in the present case is that the Claimant in substance succeeded in her claim against the defendants. So if the court decided to make an order about costs in the litigation, the general rule in CPR rule 44.2(2) would have the effect that the defendants as the unsuccessful parties would be ordered to pay the costs of the Claimant as the successful party. But then the question would arise as to whether the defendants would be entitled to an indemnity for the trust fund for those costs. If so, then the Claimant would effectively be obtaining her costs out of the trust fund. Thus, since she or her family are the main beneficiaries of the trust, she would be in substance paying for the litigation which she won. The Claimant therefore argues that the defendants should pay her costs, but should not be entitled to any indemnity for them from the trust fund.

The defendants say that the default position is that the defendants should be indemnified out of the trust fund, and that in the circumstances the right order is to pay all parties’ costs out of the trust fund. This is on the basis that the Claimant in fact commenced the proceedings, to decide whether the defendants should give the disclosure sought, but the defendants could have done so, on an application for directions (as indeed their solicitors’ letter of 19 August 2015 suggested) and that the situation is therefore one like Buckton (2).

In order to reach the correct answer to this costs question, I must analyse the situation carefully. So far as the law is concerned, I was referred to passages in chapters 23 and 27 of Lewin on Trusts, 19^th edition, and in articles 56, 84 and 85 of Underhill and Hayton’s Law of Trusts and Trustees, 18^th edition. Lewin, in particular, at paragraphs [27-165] – [27-166], draws an important distinction, supported by reference to numerous cases, between (i) cases of claims of breach of trust by trustees causing loss to the trust fund, and (ii) cases of claims that the trustees are in breach of some other duty, not itself causing loss to the trust fund.

The order in the litigation

The first question must be whether I should order the defendants to pay the Claimant’s costs, given that in substance the Claimant has achieved what her claim set out to achieve. As I have said, the general litigation rule is that costs follow the event. However, this is a case where the trustees have at most committed a breach of their duty to account to the beneficiaries by providing appropriate information. It is not the case of a breach of trust claim where loss has been caused to the trust fund, or trust assets have been converted to personal use. It is more properly characterised as Nugee JA characterised the dispute in Des Pallières v JP Morgan Chase & Co [2013] JCA 146, [59], that is,

“a disagreement … between a beneficiary and a fiduciary as to what the fiduciary’s duties require, and where the court is asked to resolve that disagreement on an application … invoking its supervisory powers.”

I bear in mind what Sir George Jessel MR said in Heugh v Scard (1875) 33 LT 659 (a case cited in Lewin at para 27-166):

“In certain cases of mere neglect or refusal to furnish accounts, when the neglect is very gross or the refusal wholly indefensible, I reserve to myself the right of making the executor or trustee pay the costs of litigation caused by his neglect or refusal. But I expressly guard myself against saying that in every case of mere neglect, or even in every case of mere neglect, or even in every case of mere refusal, an honest executor or trustee who has fairly discharged his duty – an onerous and thankless one – is to pay costs… In this case I find inexcusable delay, inexcusable refusal to furnish accounts, and misconduct in dealing with the trust fund… I think he [the executor] must pay the costs of the suit, except the cost of vouching the accounts.”

This dictum was cited, and the case was followed, in Re Skinner [1904] 1 Ch 289.

Looking at the evidence in this case, what I find is that the trustees, for all the reasons that they gave and have already been mentioned, in good faith had genuine concerns about the harm that might be done to the relationship between the two sisters if they supplied information showing the unbalanced treatment by the trustees of the two families out of the discretionary trust. On that basis they decided not to make any information available to the Claimant about the accounts of the estate. This was challenged, and they therefore offered to provide the accounts to an agreed third party firm to consider whether there was any ground for legitimate concern by the Claimant. This was a course suggested as possible in an appropriate case by no less an authority than Lord Walker of Gestingthorpe giving the advice of the Board in Schmidt v Rosewood Trust Ltd [2003] 2 AC 709, [54]. Whether this was an appropriate case or not is another matter. But in any event that approach too was rejected, and the trustees thereupon sought counsel’s opinion.

I observe at this point that, if the trustees had instructed the counsel who was ultimately instructed (and whose advice they in fact followed), the disclosure sought would probably have been given, and these proceedings would never have been necessary. However that may be, they instructed other counsel, but nevertheless, it must be emphasised, a chancery specialist from reputable chancery chambers. That counsel gave an opinion supporting the trustees’ approach. The substance of that opinion (though not a copy) was supplied to the Claimant’s solicitors. There followed further, somewhat acrimonious correspondence between the two sides’ solicitors, leading to a further approach to counsel with the same result, and culminating in the trustees’ solicitors letter of 19 August 2015. This concluded that, if the Claimant’s solicitors could not agree, the trustees would issue proceedings seeking the directions of the court. The Claimant’s solicitors did not respond to that letter, but instead shortly afterwards issued their own, the present proceedings.

In my judgment, there are two important points which arise from this. The first is that the trustees did what they thought was right, took specialist chancery counsel’s advice when challenged, relied on it, and finally, when that was challenged too, said that they would seek the court’s directions. Moreover, when the court first dealt with the case at a hearing and made comments, the defendants took them to heart, and asked different specialist chancery counsel for a second opinion. All that seems to me to indicate trustees who, despite their initial (mistaken) decision, were properly keeping the matter under review, and doing the right thing at each stage thereafter.

In that state of affairs, I find it hard to say that the trustees, even though in my judgment they ought to have supplied the information sought, but did not merely by such failure cause loss to the trust fund, should be ordered to pay the Claimant’s costs of these proceedings. I would characterise this as a “mere” refusal rather than as a “wholly indefensible” one within Sir George Jessel MR’s dictum quoted above. On the facts the defendants were seeking to prevent harm to beneficiaries, taking reasonable steps to deal with the reaction they received, and, although time undoubtedly elapsed and the Claimant was undoubtedly frustrated, there was neither inexcusable delay or misconduct.

The second point is that, given that the trustees’ solicitors had finally (but rightly) suggested applying to the court for directions if the parties could not agree, it was over hasty of the Claimant’s solicitors simply to issue proceedings without more. It is true that about four months had elapsed since the Claimant originally sought disclosure through solicitors. It is also true that the defendants had reminded the Claimant through her solicitors that she could seek directions herself. Indeed, she had intimated more than once, and certainly at the end of July 2015, that she would issue proceedings. However, that was before the trustees had themselves offered to issue proceedings for directions if the parties could not agree. In my judgment the Claimant should at that stage have agreed that the trustees should seek the directions of the Court. The matter would then have come before the court in the usual way, but as an application for directions rather than as a hostile claim, and the defendants would have had their costs out of the trust fund. What the Claimant then did without further reference to the defendants should not fundamentally alter the situation.

In my judgment, for these two reasons, I decline to order the defendants to pay the Claimant’s costs of these proceedings. In the exercise of my discretion under CPR rule 44.2(2), I have decided not to make the unsuccessful party pay the costs of the successful party, but instead to make a different order. This is that the costs of both parties are paid out of the trust fund, in each case on the indemnity basis, as if it were a case of Buckton (2). This, as it happens, is what was done at first instance in the case of Re Londonderry’s Settlement [1964] Ch 594, 614, where the beneficiary succeeded in her assertion that the trustees should make disclosure of trust documents to her (the substantive decision, as is well known, was reversed on appeal). I accept of course, that the effect of such an order is that the costs come out of assets in which the Claimant and her family have the greatest interest, but that cannot be helped. The trust fund is not the alter ego of the Claimant.

The trustees’ indemnity

However, in case I am wrong in my primary decision, I will go on to consider what would be the consequence of my instead ordering the defendants to pay the Claimant’s costs. In that situation, the question would arise as to the trustees’ indemnity for liabilities out of the trust fund. That question also arises in relation to the trustees’ own legal costs in any event.

Under the general law of trusts, a trustee “(a) is entitled to be reimbursed from the trust funds, or (b) may pay out of the trust funds, expenses properly incurred by him when acting on behalf of the trust” (Trustee Act 2000, s 31(1); and see also the quotation from Alsop Wilkinson v Neary [1996] 1 WLR 1220 set out above). In the context of litigation costs, this rule is expressed by paragraph 1 of the Practice Direction to CPR Part 46, already set out above, referring to “costs properly incurred”. At the outset it is necessary to distinguish between (1) an indemnity out of the trust fund for the defendants’ own legal costs, and (2) an indemnity for any costs that they might be ordered by the Court to pay to the Claimant.

The trustees’ own costs

The first of these indemnities would arise if either (i) I ordered the defendants to pay the Claimant’s costs, or (ii) I ordered all costs to come out of the trust fund, and there were a difference between the costs assessed to come out of the trust fund and the amount actually paid by the defendants to their lawyers. But the second of these indemnities would need to be considered only if I made an order that the defendants pay the Claimant’s costs, as the Claimant seeks. If I ordered all costs to be paid out of the trust fund, as the defendants ask, it would not arise.

As to the first kind of indemnity, I have already pointed out the difference between (i) cases of claims of breach of trust by trustees causing loss to the trust fund, and (ii) cases of claims that the trustees are in breach of some other duty, not itself causing loss to the trust fund.

As to the first class of case, a trustee successfully defending against a breach of trust claim may recoup his costs of doing so (so far as need be) out of the trust fund, even though he is acting in his own interest: Walters v Woodbridge (1878) 7 Ch D 504; Re Spurling [1966] 1 WLR 920; Des Pallières v JP Morgan Chase & Co [2013] JCA 146, [21].

On the other hand, a trustee who defends such a claim unsuccessfully may not: Armitage v Nurse [1998] Ch 241. It may be that this is just an example of the rule as now expressed in PD 46, paragraph 1, that the trustee may lose his indemnity where he acts in substance for a benefit of other than the trust or otherwise acts unreasonably. (In the cases this is often referred to generically as “misconduct”). The applicable rule in 1998 was RSC Ord 62 r 6(2), which was cast in narrower and more rigid terms than the current paragraph 1 of PD 46. But I do not need to resolve this now.

As to the second class, however, a trustee who is accused of breach of duty not causing loss to the trust fund is prima facie entitled to the indemnity, whether he is found to be in breach of duty or not, but will lose it if guilty of “misconduct”: Turner v Hancock (1882) 20 ChD 303, Re Jones [1897] 2 Ch 190, Re Londonderry’s Settlement [1964] Ch 594, 614, Armitage v Nurse [1998] Ch 241.

Thus, for example, in Turner v Hancock (1882) 20 ChD 303, a trustee committed an innocent breach of trust, by asserting that the trust owed him money, when in fact it turned out that he owed money to the trust. The trustee sought his own legal costs out of the trust estate, even though he had been unsuccessful. Sir George Jessel MR, with whom Cotton and Lindley LJJ agreed, said (at 307-308):

“That is no ground for depriving him of his costs in the absence of misconduct...”

And, in Armitage v Nurse [1998] Ch 241, 263, Millett LJ (with whom Hirst and Hutchinson LJJ agreed) held that, although the judge could properly make an order awarding the trustees only 80% of their costs to be paid by the other party, thus depriving them of the other 20%, because they had put forward arguments on which they had been unsuccessful, he could not properly deprive them of the right to recoup themselves out of the trust fund of that 20% (ie the part which they would not recover from the other party) simply on the grounds that the claim was a hostile claim against them for breach of trust. This is important, because it makes clear that the decision on the litigation costs order does not automatically deal with the trustee indemnity question, even in the case of a hostile claim for breach of trust causing loss (unless the claim succeeds).

Liability for another party’s costs

But, as to the second kind of indemnity, there is a further potential difference to notice. This is that between (i) the case of a claim by a third party against a trustee which the trustee loses, and (ii) the case of a claim by a beneficiary against a trustee which the trustee loses. As to (i), there are many cases in the books demonstrating that the indemnity of a trustee can extend to the damages and costs awarded to a successful third party against an unsuccessful trustee, where the trustee can show that the liability was properly incurred. These include Benett v Wyndham (1862) 4 De G F & J 259, Re Raybould [1900] 1 Ch 199, and Bonham v Blake Lapthorne Linnell [2006] EWHC 2513 (Ch). But this is not our case, and we can put it on one side.

The cases are fewer, however, in the second class of case, where a beneficiary claims successfully against a trustee. There is the dictum, already mentioned, of the deputy judge in Singh v Bhasin, to the effect that the indemnity can cover a costs liability of the trustee to another party. There are also (perhaps) the decisions of HHJ Behrens in Mason v Coleman [2007] EWHC 3070 (Ch), and Bell J in Wingate v Butterfield Trust (Bermuda) Ltd [2008] WTLR 551, both of which I discuss below. But, subject to those cases, in principle I see no reason why the same distinction that arises in the case of the first kind of indemnity should not also arise in this class of the second kind.

In other words, where a beneficiary successfully sues the trustee, that trustee will have no indemnity for any costs ordered to be paid to the beneficiary where the claim was for a breach of trust causing loss to the trust fund. On the other hand, there is no good reason for withholding the indemnity merely because the trustee has been found to be in breach of some other duty not causing loss to the trust fund. Otherwise, indeed, on the authorities there would be the possibility that in the same case a trustee could have an indemnity for his own legal costs, but not for those he was ordered to pay the other side, which seems inconsistent.

However, as stated above, I was referred by the Claimant to the cases of Mason v Coleman [2007] EWHC 3070 (Ch), a decision of HHJ Behrens sitting as a High Court judge, and Wingate v Butterfield Trust (Bermuda) Ltd [2008] WTLR 551 (a decision of Bell J, sitting in the Supreme Court of Bermuda), and I must deal with them, to see whether they guide me to a different conclusion.

The first of the two cases involved a decision by the High Court on costs following the compromise of a claim for an account and other trust information sought by trust beneficiaries from the trustees. The compromise agreement provided that the questions of costs of various parts of the proceedings should be decided by the court. The facts of the case were striking. The First Claimant was the settlor, and the other claimants beneficiaries, of a number of trusts of which the defendants were professional, remunerated trustees. The First Defendant was the lead trustee, the other defendants being his wife and two offshore companies which he controlled. The First Defendant had advised the First Claimant (who was eleven years older than him) for many years, and the First Claimant had reposed confidence in him. The First Claimant executed an enduring power of attorney in wide terms in favour of the First Defendant in September 2000.

In December 2004 the First Defendant was approached by a beneficiary of one of the trusts for a distribution to fund his education, but the First Defendant refused. This caused a breakdown in relations between the parties. The enduring power of attorney was revoked on 23 December 2004. On 2 February 2005 solicitors for the First Claimant wrote to the First Claimant, saying that previous requests for information made of the trustees had not been responded to, and making fresh requests for information about the trusts. The First Claimant did not reply to the letter. Instead the First Defendant sought legal advice about registering the enduring power of attorney, on the basis that the First Claimant was no longer able to manage his own affairs and was being put under pressure by his family.

The First Claimant complained about the First Defendant to the police, who interviewed him. Several (inadequate) reasons were given to the police for not providing information in writing to the First Claimant. One was that to do so would make the First Claimant liable to UK tax. In March 2005 some information about the trusts was provided by the First Defendant to the police. There was a meeting at the end of March 2005 at the First Claimant’s solicitors’ offices. It was held in two phases. First, the First Claimant, the First Defendant and the police were present, though not the First Claimant’s solicitor. The First Defendant’s evidence was that he showed the profit and loss account summaries of the trusts and a bank account statement to the First Claimant, in the absence of the police officer. This was denied by the First Claimant, who said that the First Defendant merely wrote down a figure on a piece of paper and allowed him a brief glimpse of it. Second, after the First Claimant had left, his solicitor joined the meeting, and there was a discussion as to the First Claimant’s ability to manage his affairs. The First Defendant said an order of the Court of Protection was needed, and refused to say who the trustees were or give any further details of the trusts, saying he owed duties of confidentiality to the trustees, and would deal only with the First Claimant.

There were no further communications between the parties before the claimants issued proceedings on 10 June 2005. There was no protocol letter. On 1 July, after acknowledgments of service had been filed (indicating intentions either to contest the claim or the jurisdiction), the claimants issued an application for summary judgment in respect of their claim to an account. The First Defendant filed a defence. The application for summary judgment was heard on 1 August, when Master Price ordered a summary account. An account was filed. A further hearing before Master Price led to a consent order for verification. In fact the First Defendant instructed accountants to prepare a new account which was verified in December 2005. This second account was criticised by the claimants as inadequate. They eventually filed points of objection in May 2006. They also asked for further information concerning the Third and Fourth Defendants, which had to be made the subject of a court order in March 2006. The defendants filed a reply to the points of objection in July 2006. An application to remove the defendants as trustees was also made in May 2006, and was heard by Master Price in July 2007, when he removed them as trustees, appointing other professional trustees in their place.

The judge in dealing with the costs questions arising under the compromise agreement was referred to passages in a number of textbooks, including Lewin and Underhill. But there was “little or no dispute between counsel as to the applicable law”. The judge set out the following propositions (footnotes omitted):

“6.1

Duty of trustee or agent to account

He applied them to the facts in this way, first of all dealing with the application for a summary account:

“7.1

The application for a summary account.

The judge then went on to deal with the costs of the other aspects of the case apart from the application for a summary account.

“7.2

The costs of preparing the account.

These costs decisions raise a number of questions. It will be seen that, at a number of points in his judgment (paras 107, 109, 111, 113, 117, 123), the judge has decided that the defendants should pay certain costs of the claimants, and has then simply stated that the defendants “are not entitled to an indemnity”. But it is first of all not altogether clear what exactly the judge considers to be the subject of the indemnity refused. In paras 107 and 117 he says “indemnity in respect of their costs”, which suggests the defendants’ own legal costs that they had to pay their lawyers. In the others, after referring to the order that the defendants pay the claimants’ costs, he says “these costs” or simply “it”, suggesting that the indemnity is for liability in respect of the claimants’ costs.

Then, in two cases (paras 107, 109) he says that the refusal of indemnity “follows” from his costs order. In the four others he does not, merely stating the costs order and then denying the indemnity without explanation. Then in both paras 116 and 121 the judge decides that the costs should lie where they fall. Yet in para 116 he goes on to say that since “it has not … been shown that there was any misconduct by the Defendants” they should have their indemnity out of the trust fund (he does not say for what, but it must be their own costs). On the other hand, in para 121 he says that they are not entitled to the indemnity for “their costs”, notwithstanding that in the previous paragraph (120) he has expressly found that “it is not possible for me to find that the alleged misconduct has taken place”.

If these costs decisions refer to an indemnity for the trustees’ own legal costs (not for the Claimants’ costs that they were ordered to pay), then they are not on the point which is before me, which is the latter. More importantly, even if they are on the point, although the judge refers earlier in his judgment (para 96) to a trustee’s being deprived of his indemnity only for “such inequitable conduct on the part of the trustee as amounts to a violation or culpable neglect of his duty as trustee”, he does not (except in para 116) consider in terms whether the breaches of duty which he has found in each case are sufficient to justify depriving the trustee in this way, and makes no allusion to the distinction drawn in the cases to which I have previously considered between those cases where the trustee has just got the law wrong (“mere neglect”) and those where he has been guilty of an “inexcusable refusal”. Indeed, in para 121 he deprives the trustees of their indemnity even though (in para 120) he says he has not found the misconduct alleged.

At all events, the case of Mason v Coleman is easily distinguishable from that before me by reason of the egregious facts. On any view the trustees in that case were guilty of “inexcusable refusal” to supply trust information to the beneficiaries, and the behaviour of the First Defendant, at least, bordered on the bizarre, and could easily amount to “misconduct” depriving the trustees of their indemnity. It is far removed from the facts of the present case, and that decision cannot govern this one. I therefore put it on one side.

I turn now to the other case, Wingate v Butterfield Trust (Bermuda) Ltd [2008] WTLR 551. Here the Plaintiff was the son of the settlor of a trust, and the Defendant was the professional trustee. It is not stated in this report, but is stated in the earlier judgment given, and reported at [2008] WTLR 357, that he had a significant beneficial interest in both income and capital under the trust. In November 2005, through London solicitors, he sought from the defendant trustee the provision of information and documentation concerning the trust. Although the Defendant had originally indicated a willingness to supply the information, this did not translate into behaviour acceptable to the Plaintiff, and in May 2007 he began proceedings for breach of trust against the defendant, including failure to supply information, failure to use reasonable care and skill in relation to a specific trust asset, and breach of trust in relation to fees and disbursements.

The plaintiff applied for summary judgment in relation to his disclosure complaints. This covered not only the original requests for trust information, but also made an application for an account, both on the footing of wilful default, and in common form. Shortly before the hearing the plaintiff abandoned the claim for an account on the footing of wilful default, and proceeded only with that in common form. The judge at the hearing ordered the supply of substantial trust information and documentation, but declined to order an account in common form. The question of costs was adjourned off to the present hearing.

At that hearing, both parties sought their costs from the other. Each had succeeded in large measure. The Plaintiff had obtained the trust information and documentation; the Defendant had defeated the claim for an account. The judge held that the Plaintiff had

“succeeded in his application, in broad terms. However, it does have to be recognised that his success was not complete, and that because of the overly broad way in which the matter was pursued, the overall costs increased, and so far as the trustee was concerned, were unnecessarily incurred” (at 546).

The judge weighed the competing arguments, and awarded the plaintiff two-thirds of his costs. The Plaintiff sought those costs on the indemnity basis. The judge held that there was a difference between the indemnity costs rules under the RSC in Bermuda and under the CPR in England. He concluded that “there has been nothing exceptional in relation to the conduct of these proceedings that would call for an award of costs on the indemnity basis”. If not agreed, therefore, costs would be taxed on the standard basis.

The final question was whether, as the Plaintiff submitted, the trustee “should be debarred from effecting any recovery of costs from the trust fund pursuant to the provisions of Order 62 r 6(2) RSC.” The text of the Bermudian rule is not set out in the judgment, but according to the Bermudian judiciary website at www.judiciary.gov.bm it is as follows:

“Where a person is or has been a party to any proceedings in the capacity of trustee, estate representative or mortgagee, he shall be entitled to the costs of those proceedings, in so far as they are not recovered from or paid by any other person, out of the fund held by him in that capacity or out of the mortgaged property, as the case may be, and the Court may order otherwise only on the ground that he has acted unreasonably or, in the case of a trustee or estate representative, has in substance acted for his own benefit rather than for the benefit of the fund.”

This is the same, apart from the substitution of the word “estate” for the word “personal”, as the text of the former English RSC Ord 62, r 6(2). The present English rule, paragraph 1 of Practice Direction 46, is plainly based on that rule, although, as I have already noted, it is wider and more flexible.

In considering the applicability of the Bermudian rule, the judge referred to Alsop Wilkinson v Neary [1996] 1 WLR 1220 and McDonald v Horn [1995] ICR 685, CA, in each of which the judges had said that in a hostile “beneficiaries dispute” costs usually followed the event. In the latter case Hoffmann LJ (who gave the leading judgment, and with whom the other members agreed) had also referred to the Beddoe procedure, saying that

“Trustees are also able to protect themselves against the possibility that they may be held to have acted unreasonably or in their own interest by applying at an early stage for directions as to whether to bring or defend the proceedings.”

But the reference was incidental, for the Beddoe procedure is appropriate where the litigation is with a third party, whereas the litigation in McDonald v Horn was a hostile breach of trust claim by beneficiaries against trustees and others.

Bell J however concluded (seemingly from these two cases) that:

“it would be highly unusual to allow the trustee to recover its costs (whether its own or those it has been ordered to pay) in circumstances where the trustee has not sought the direction of the court, and has ended up the losing party in what may be described as ordinary hostile or common law litigation” (at 551).

With respect, while this conclusion may follow for third party litigation (see eg Re Yorke [1911] 1 Ch 370, 374, and Singh v Bhasin [2000] WTLR 275, 280), it is not right for litigation between trustee and beneficiary, as shown by the cases which I have discussed above, where the trustee has been shown to have gone wrong in law, and yet has not been deprived of his indemnity, although no Beddoe’s order has been sought. In such cases the question is whether the trustee acted in the trust’s interest or not, or otherwise unreasonably.

As it happens, the judge did go on to deal with this question, and held that the trustee had acted unreasonably in failing to provide trust information and documentation. Nevertheless, the judge still took into account the fact that the trustee had “failed to protect itself by means of an application to the court”, in concluding that the trustee should not be able to be paid its costs from the trust fund, nor to be reimbursed for the costs it had to pay the plaintiff.

I am not bound by the decision of the Bermudian Court, and whilst it may well be that the decision is right on the facts, and the conduct of the trustee was so unreasonable as to justify depriving it of its indemnity, in my respectful view it is wrong to the extent that it suggests that a failure to obtain a Beddoe order is significant in a trustee/beneficiary dispute, at all events absent exceptional circumstances. In my judgment the present case is not exceptional.

Loss of indemnity

So I return to the position which seemed to me to be correct in principle. A trustee who has not committed a breach of trust causing loss is not automatically deprived of the indemnity for costs (of either kind). Of course, it can still be lost, in accordance with the rules stated in paragraph 1 of PD 46, if the liability was not “properly incurred”. For this purpose, it is necessary to consider all the circumstances of the case, and the three specific matters referred to: (1) whether directions were obtained; (2) whose interests were served; and (3) whether the action or conduct was unreasonable.

I consider these three matters in turn. First, in the present case, the trustees did not seek or obtain the directions of the court as to costs. But that was not necessary. This was not a third party claim, external to the trust. This was in substance a dispute between the parties as to whether the trustees should supply information to a beneficiary. If the trustees (as they offered to do) had issued the proceedings seeking directions, there could have been no criticism of them for not seeking a Beddoe order first. I do not think it is different because the Claimant issued proceedings before the defendants could do so.

Second, on the facts as I have found them, the defendants did not consider that they were serving their own interests, but those of their beneficiaries. Although I consider that the defendants should have supplied the information sought, as indeed they ultimately did, their actions were intended to benefit the beneficiaries, albeit largely in an intangible way. Certainly, on the evidence, they did not benefit the defendants’ own interests. To the extent that it may be suggested (it is not clear if it is or not) that by refusing disclosure the defendants were preventing their law firm’s charges from being subject to scrutiny, I reject this. There is no evidence that this was their motive, and in any event their offer for the accounts to be subject to the scrutiny of a third party law firm meant that any egregious overcharging would have been found out, and this is not the behaviour of trustees who know that they have overcharged.

The Claimant in written submissions argues that the defendants were not acting in the interests of the trust because their fear of causing difficulties between the Claimant and her sister could not be realised by giving the Claimant disclosure. The disclosure was sought by the Claimant, who would not have passed any information on to her sister, and indeed she was prepared to give an undertaking to that effect.

I reject this argument. First of all, acting in the interests of the trust does not mean that the defendants have to show that particular harm would have occurred if they had acted as the Claimant asked. It is enough if the consequence that the defendants feared was possible, and they honestly wished to avoid the risk. Secondly, as the defendants made clear, they wished (very properly) to be even-handed between the objects of the trust. The sister was such an object, and had indeed received a distribution. It is very hard to see on what ground the defendants, once having given disclosure to the Claimant, could have refused to give it to the sister if she asked. They did not know whether she would or not.

Third, at the time there was a fear that the sister might make a claim under the 1975 Act. Even if ultimately she were adjudged to have no claim (of which of course no-one can be certain in the absence of a trial and decision on the matter) in the meantime there would be uncertainty, delay and expense caused by such a claim, materially affecting all the objects of the trust. So the consequences of upsetting the sister might have been even more severe than otherwise. In these circumstances I am not satisfied that the defendants were acting otherwise than in the interests of the trust.

I turn to the third factor. On the facts as I have found them, the defendants were mistaken in law, though unfortunately buttressed by the opinion of independent, specialist counsel. But in my judgment they did not act unreasonably in defending or conducting the proceedings. After a process of expressing their own view, taking counsel’s opinion, and indeed returning to counsel, they had suggested issuing the proceedings for directions, but were pre-empted by the Claimant. Once those proceedings were launched, and the court had made comments at the first hearing, the defendants sensibly sought a second opinion. When this was found to be in the opposite sense from the first, the defendants commendably applied it so as to render the continuance of the proceedings no longer necessary (except, unfortunately, as to costs).

Standing back and looking at the matter in the round, whilst I think that the initial error made by the trustees was unfortunate, and compounded by the opinion of counsel first instructed, it was made in the context of an unusual variation on the ‘normal’ trustee disclosure problem, and a difficult family relationship, and nothing that they did thereafter could be stigmatised as misconduct, or done otherwise than with the intention of acting in the best interests of the beneficiaries. In those circumstances I do not consider that it would be fair to deprive them of their indemnity under paragraph 1 of PD 46. In so considering, I have taken into account the effect on the Claimant of allowing the defendants the indemnity out of the trust fund, as stated above.

Accordingly, if I had decided in the exercise of my discretion that the right order to make was that the defendants should pay the costs of the Claimant, I would have also held that the defendants were entitled to recover what they paid the Claimant under that order from the trust fund, as well as reimbursing their own costs from that source, in each case on the indemnity basis. So the substance would have been the same as what I have actually ordered, that is, that both parties take their costs out of the trust fund. (Indeed, as the defendants observed in written submissions, the Claimant does slightly better under my actual order, as her costs are taken out of the fund on the indemnity rather than standard basis.) This is an additional reason for supporting my decision.

For these reasons I have decided that the appropriate costs order in this case is that the costs of all parties be paid out of the trust fund. I will ask counsel to draw up an appropriate minute of order to reflect my decision.