Pettigrew & Ors v Edwards

This is an application by claim form under CPR Part 8 issued on 25 July 2016 for an order that the claimants as trustees of the will of Veronica Ann Edwards deceased (i) have permission to continue to defend a claim brought against them by the defendant to this claim, Neale Edwards, in an earlier claim, no HC-2016-001404 issued on 11 May 2016, and to make a counterclaim in that claim, and (ii) be indemnified out of the trust fund in respect of all costs properly incurred by them in connection with the claim and counterclaim. In other words, this is a claim for a Beddoe order (see Re Beddoe [1893] 1 Ch 547) and also for a protective costs order. Since there are two claims, and the positions of the parties in the one are reversed in the other, I will from now on call the present claimants “the trustees”, and the present defendant “the life tenant”.

The application is supported by the witness statement dated 21 July 2016 of Claire Louise Dennison, the trustees’ solicitor, together with two exhibits, one of which is confidential to the Court. It is opposed by the witness statement dated 23 August 2016 of Julia Clegg, the life tenant’s solicitor, plus one exhibit. I have also seen relevant documents (see paragraph 11 below) from claim no HC-2016-001404, and of course I have had the benefit of skeleton arguments from both counsel involved.

The hearing was originally listed for 6 October 2016, but the time was insufficient and it had to be adjourned to 1 November 2016. At the hearings Guy Adams of counsel appeared for the trustees, and Rory Brown of counsel for the life tenant. Even then there was not enough time to finish and the trustees’ reply had to be made in writing. I received this within the timescale set, ie by 3 November 2016. The following day, I also received a short bonus from Mr Brown, counsel for the life tenant, in the form of a comment by email. Mr Adams, for the trustees, did not object to me looking at this. I am sorry that it has taken quite so long since then to produce this written judgment.

Although all Beddoe cases are notoriously fact-sensitive and hence discretionary (see Re Evans [1986] 1 WLR 101, 106), this one is unusually so. I give here a short summary of the essential facts. The deceased died on 2 April 2003 and her will was proved by the trustees as her executors on 20 October 2003. The first and second trustees are the deceased’s sons from her first marriage. The third trustee was her solicitor and drafted the will, as well as a promissory note which features heavily in the story. Under the will the deceased left her residuary estate to the trustees as trustees upon trust to pay the income to the life tenant, her fourth husband, for his life, and subject thereto, and to certain specific gifts (to which I refer further below), upon trust for the first and second trustees beneficially in equal shares.

The residuary estate on completion of the administration, which became the trust fund, was valued at £521,897.53. This included a promissory note signed by the life tenant to the deceased in the sum of £100,000. This note represented the value of a loan made by the deceased to the life tenant in respect of works done to the life tenant’s property, The Old Rectory, Chaffcombe, where they both lived. Originally it appears that the deceased was intended by expenditure of her money in improvement of the property to acquire an interest in it but, once the deceased learned that she had the pancreatic cancer from which she ultimately died, this was altered to a loan to be made by the deceased to the life tenant.

The promissory note was signed by the life tenant and dated 21 March 2003, and recited his promise to repay to the deceased the sum of £100,000 on demand. It appears that it was the parties’ wish that the loan (and therefore the note) should remain an asset of the estate during the life tenant’s lifetime, and that the loan would be repaid only after his death. As already stated, the deceased died on 2 April 2003. At that date the deceased had not in fact paid the whole of the agreed sum of £100,000. The outstanding balance was treated as a liability of the estate.

After the deceased’s death and the administration of the estate, there was correspondence between the trustees and the life tenant about the repayment of the loan. The trustees sought security for the loan. None was ultimately forthcoming. In addition, the trustees learned that the life tenant had remarried, had put the Old Rectory on the market, and was thinking of emigrating to France. Subsequently they learned that the Old Rectory had been transferred to the life tenant and his new wife jointly.

In May 2014 the trustees asked again for security, saying that if the life tenant failed to pay on demand they would be entitled to withhold from him income arising from the will trust. The parties discussed proposals for breaking the trust, but they came to nothing. In May 2015 the trustees demanded the repayment of the loan, commenting that one method of repayment would be for the trustees to withhold the income otherwise due to the life tenant on the rest of the trust fund. In June 2015 the life tenant’s solicitor in correspondence declined to accept that there was any loan liability outstanding. In July 2015 the trustees instructed the fund manager to stop making income payments to the life tenant. Income from 8 July 2015 to date has been transferred to a holding account, still under the trustees’ control. The life tenant’s solicitor complained on 14 July 2015 of a “clear breach of trust”, and asserted that the “alleged debt” of the life tenant was “in any event statute-barred and unenforceable”.

As mentioned above, on 11 May 2016 the life tenant issued a claim in the Chancery Division of the High Court, allocated for case management purposes to a different master from me, for (i) an order requiring the payment to himself of outstanding income since 30 June 2015, plus interest thereon, (ii) a direction that the trustees pay the income to him during his lifetime pursuant to clause 3 of the will, or alternatively a declaration as to the meaning of that clause, (iii) costs, and (iv) further or other relief. The claim was issued under CPR Part 8, for claims raising questions of law but no substantial questions of fact, and pursuant to CPR rule 64.2.

The latter rule, so far as material, reads as follows:

“This Section of this Part applies to claims –

(a)

for the court to determine any question arising in –

[ … ]

(ii)

the execution of a trust;

(b)

for [ … ] the execution of a trust, to be carried out under the direction of the court (‘an administration order’);

[ … ]”

It is supplemented by the Practice Direction to Part 64, para 1(2)(a)(iii), which, so far as material, reads as follows:

“The following are examples of the types of claims which may be made under rule 64.2(a) –

[ … ]

(2)

a claim for any of the following remedies –

(a)

an order requiring a trustee –

[ … ]

(iii)

to do or not to do any particular act…”

On 31 May 2016 the trustees filed their acknowledgment of service, seeking directions and an order that the claim be treated as one under CPR Part 7, ie more suitable for cases raising substantial questions of fact. That order was made by the court on its own initiative on 1 June 2016. Directions were given for the future conduct of the action. On 20 June 2016 the trustees filed and served their defence and counterclaim in the action. The life tenant served his reply and defence to counterclaim on 6 July 2016. The parties have now filed their directions questionnaires, draft directions and disclosure reports, but no further steps have been taken in that claim pending the resolution of the present one.

It appears that the issues now requiring to be decided in the main claim include issues about the loan and the promissory note, including (i) whether the debt is statute barred, on the basis that the cause of action accrued when the loan was made, the note was payable only on demand by the deceased, and she made no such demand during her life, and if not (ii) whether it is repayable before the life tenant’s death, and also (iii) whether the promissory note was for consideration. Even if the debt is due and payable, there is also an issue (iv) about the right of the trustees to set off the income due to the life tenant under the will trust against that debt. The trustees’ counterclaim is for the whole sum of the loan and a declaration that they are entitled to retain the income due to the life tenant until the debt has been discharged.

The parties to this application are the trustees and the life tenant. The first two trustees are also in substance the only beneficiaries interested in the capital of the trust fund after the life tenant’s death. The third trustee is a professional trustee and has no beneficial interest. As mentioned above, however, the will provided for certain other specific gifts, in each case contingent on surviving both the deceased and the life tenant. One legatee, although he survived the deceased, did not survive the life tenant, and his gift failed. A second such legatee has been paid out and has no further claim. Three other legatees, all now adult, are entitled to £5,000 each contingently on surviving the life tenant. They have not been joined on the basis that their interests are so small that the costs of these proceedings are not likely to affect them. Consideration will need to be given to their position, if only to ensure that they are bound by any order made.

The purpose of a Beddoe order application is to provide assurance to trustees and others who hold funds for the benefit of others that they are applying such funds correctly in prosecuting or defending legal proceedings (or in not doing so). To understand this it is necessary to have regard to the rules relating to the incidence of costs of litigation, as applied to trustees and persons in similar fiduciary positions.

In the recent case of Blades v Isaac [2016] EWHC 601 (Ch) I had occasion to consider these rules in some detail. It will be easiest if I simply set out verbatim the relevant paragraphs in my judgment in that case:

“57.

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’).

58.

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.

59.

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.)

60.

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.’

61.

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.

62.

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.

63.

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 [ … ].’

64.

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 a 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).

65.

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.

66.

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.

67.

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.

68.

The judge said that there were three classes of case:

(1)

Application by originating summons (now Part 8 claim) by trustees for directions/construction: all parties’ costs come out of the trust estate;

(2)

Application which could have been made [by] the trustees (as in (1)) but in fact is made by a beneficiary, joining the trustees as defendants: all parties’ costs come out of the trust estate;

(3)

Application by a beneficiary adverse to other beneficiaries, in hostile litigation which could have been begun by writ action (now Part 7 claim) but was in fact begun by originating summons: the general costs rule applies, and the unsuccessful party is generally ordered to pay the costs.

69.

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.

70.

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).

71.

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’.”

Thus, for trustees to have the assurance that they will not personally have to pay costs of proceedings to which they are parties, but may use trust funds, they need to know that their participation is not unreasonable or for the benefit of anyone other than the fund: see eg McDonald v Horn [1995] ICR 685, 695E-F (decided under the RSC). In some cases, such as a “friendly trust dispute” in the sense given in Alsop Wilkinson v Neary [1996] 1 WLR 1220, 1223H (for example a construction question) it may be obvious that the proceedings are for the benefit of the fund and that it is not unreasonable for the trustees to take part in. In such cases there would be no useful purpose served by an application for a Beddoe order. Indeed, it would generally be a waste of trust money even to apply.

But in other cases, such as a “third party dispute” in the Alsop Wilkinson sense at 1224C (for example a claim by or against a third party in relation to trust assets) the trustees cannot be sure at the outset whether the proceedings will turn out to be for the benefit of the fund. In such cases an application for a Beddoe order may serve a useful purpose. The trustees apply to the court, supplying all the relevant information which they then have, including legal advice received, and the court makes a judgment at that stage and on the materials available as to whether the trustees’ behaviour is reasonable and for the benefit of the fund. In effect the judge “determines what course the interests of justice require to be taken in the proceedings”: see Alsop Wilkinson v Neary [1996] 1 WLR 1220, 1224F, citing Re Evans deceased [1986] 1 WLR 101, considered by Hoffmann LJ in McDonald v Horn [1995] ICR 685, 699D-E.

In a further class of case, a “beneficiaries dispute” in the Alsop Wilkinson sense at 1224B (for example a claim that the trustees have acted in breach of trust), there is equal uncertainty as to how the litigation will turn out. However, unlike the previous case, where the court looks out at the third party’s position from the point of view of the trust, the court is faced with conflicts inside the trust, and will probably be in no position at that stage to judge the reasonableness or propriety of the trustees’ defence of their position. More importantly, it is “ordinary hostile litigation in which costs follow the event and do not come out of the trust estate”: see Alsop Wilkinson v Neary [1996] 1 WLR 1220, 1224G, citing Hoffmann LJ in McDonald v Horn [1995] ICR 685, 696B. So, again, no useful purpose would be served by an application for a Beddoe order.

However, there are sometimes cases (otherwise falling within one or more of the above three categories of case) where the dispute is in substance between persons each claiming the beneficial interest in the fund, and the trustees have no substantive role to play. In such a case the trustees’ duty will be to remain neutral, and whatever small costs they expend in that capacity will be properly incurred. No Beddoe order is therefore needed: see eg Alsop Wilkinson v Neary [1996] 1 WLR 1220, and also Re Evans deceased [1986] 1 WLR 101 (both also decided under the RSC). As will be seen, this is argued to be such a case.

What I have to consider here is whether the present is a case where it would be possible and, if possible, useful for the court to make a Beddoe order at the instance of the trustees. So I must first analyse and characterise the claims made in these proceedings.

There are three separate elements to the main litigation in action no HC-2016-001404 between the parties. The first is the claim by the life tenant as life tenant of the will trust fund in relation to the failure to pay the income to him since June 2015. The second element is the defence to that claim. This is one of set-off of the debt alleged to be due to the trustees by the life tenant as a third party to the trust. The third element is the counterclaim in that action by the trustees for the whole sum of the loan, and/or a declaration that they are entitled to retain the income due to the life tenant until the debt has been discharged.

The life tenant’s claim to be paid the income of the trust fund is not a third party claim; it is internal to the trust. It could be merely a question as to what the trustees ought to do in the circumstances (ie one for directions), or it could be a claim of a breach of trust. In the former case it would be a “trust” dispute, capable of being raised either by the trustees or the beneficiary; in the latter it would be a “beneficiary” dispute, raised almost invariably by the relevant beneficiary alone.

In the former case it would normally be expected to be for the benefit of the fund and its beneficiaries that the trustees’ duties be clarified, and so one would not expect a Beddoe order to be needed. In the latter case the court could not tell at this stage whether defending the claim of breach of trust was in the interests of the fund, and so could not make a Beddoe order anyway.

Although the claim was originally begun under Part 8, as a question of law without significant disputes of fact (which might indicate a trust dispute), it was quickly changed to continue under Part 7, with pleadings, disclosure and so on (which might indicate a beneficiaries dispute). The life tenant’s skeleton argument speaks (at [4]) of breach of trust as “a result for which [the life tenant] vigorously contends”.

The trustees’ argument is that the income that has been withheld from the life tenant is not misapplied or lost to the trust, but merely put to one side. The trustees seek simply a direction as to what to do with it. The weakness of this argument is that, although the trustees stopped the income at the end of June 2015, they did not raise the directions question then or indeed thereafter. It was left to the life tenant to issue proceedings, which he did only in May 2016.

The correspondence between the parties is not conclusive, but strongly suggests that this is not a mere directions question. On 8 July 2015 the trustees’ solicitors informed the life tenant’s solicitors that they would now withhold income due from the trust to the life tenant and treat it as partial repayments of the promissory note. On 14 July the life tenant’s solicitors responded that there was no legal basis for withholding the income and that it was “a clear breach of trust”. On 13 August 2015 the life tenant’s solicitors informed the trustees’ solicitors that preparatory steps for contentious litigation were now being undertaken, and asked whether the solicitors would continue to act for all the trustees. On 13 October the trustees’ solicitors wrote that any proceedings to reinstate the income would be defended by the trustees. On 30 December 2015 the life tenant’s solicitors wrote a letter headed “Letter before Action”, claiming that the trustees were committing a breach of trust. The response, dated 18 February 2016, was that any proceedings were premature.

On the whole, and after consideration of the material placed before me, I consider that this is not a “friendly” dispute, and that it should properly be characterised as a breach of trust claim, in respect of which it is not normally possible or sensible to make a Beddoe order.

As to the defence to the claim, this has a double aspect. First it raises the question of the validity and enforceability at this stage the promissory note debt (which involves a claim by the trustees against the life tenant as a third party). But it also raises the question whether, assuming a valid and currently enforceable claim against the life tenant (as a third party), that gives rise to a set-off operating by way of defence to the claim by the life tenant to the performance of the trustees’ obligation to pay out the income. The first aspect is clearly a third party claim, and a Beddoe order is possible in relation to it. The second aspect is not a third party claim. It is a question of law bearing on the admitted obligation of the trustees under the trust. In theory, at least, if the only question were this second aspect, it would be unusual to contemplate the making of a Beddoe order, as it would normally be for the benefit of the fund and its beneficiaries to decide the point.

Lastly, as to the third element, that splits in much the same way. The counterclaim itself, for the repayment of the whole debt, is a third party claim, and a Beddoe order would normally be possible. But the claim to a declaration relates to the obligation of the trustees under the trust, just as the second aspect of the second element does.

The elements of this case are however all mixed together. The reality is that there are two quite separate cases here. One relates to the validity and enforceability of the claim to the loan and under the promissory note. The other relates to how the result of that case bears on the obligation of the trustees to pay income to the life tenant to which he is otherwise entitled. In particular, do the obligations (if any) of the life tenant under the third party loan arrangement entitle the trustees to a set-off defence under the trust? The first case is a third party claim and a candidate for a Beddoe order. The second case is internal to the trust and is not (either because it is an application for directions, or because it is a claim for breach of trust).

It seems to me that I should deal with these two cases separately. If it were the case that I was willing to make a Beddoe order in relation to the first but not the second, it would be necessary to go on and explore how this might be made to work in practice. For example, one solution might be to try the first part first, that is, the validity and enforceability of the claim to the loan and under the promissory note, and to stay the remainder until the result of the first part is known.

Accordingly I begin with the question whether to make a Beddoe order in relation to the first part of the case (the validity and enforceability of the claim to the loan and under the promissory note). Mr Brown, for the life tenant, argues that I should not do so. He has four main arguments.

The first is that the first two trustees, as adult and sui iuris beneficiaries in remainder of the trust fund, can decide whether to resist the life tenant’s claim. The court’s sanction is not needed. The life tenant relies on the decision of the Court of Appeal in Re Evans deceased [1986] 1 WLR 101. I shall have to examine this decision carefully.

The second argument is that the trustees cannot seek permission to make a counterclaim in the main action since they have already made one, on 20 June 2016. I reject this argument straight away. Trustees can seek the sanction of the court at any stage for what they have done or what they propose to do. The point is only that, as I have said, they wish to know whether their participation is or is not unreasonable or for the benefit of anyone other than the fund, and the court can decide that at any time. Obviously, if the trustees act first and ask later they run the risk that the court refuses sanction, and they are worse off than if they had applied earlier, when the information available was less, or alternatively if they waited until the end of the proceedings and applied for their costs then, when the knowledge was greater (including of course the result). But no authority was cited in support of the proposition that trustees have to apply for a Beddoe order before they do anything, and I know of none.

The third argument is that it would be inappropriate to make a Beddoe order in favour of the third trustee as he is argued to be in a serious position of conflict of interest. He advised the deceased and the life tenant on their estate planning, and on the promissory note (indeed, he drafted it). But there is now a dispute about the terms of the note and the loan. Moreover, he is relying on material obtained or generated in the course of acting for the deceased and the life tenant (and which may be privileged) in support of his applications in the present claim. But he is now a party on the opposite side to the life tenant and on the same side and with the same solicitors as the other two trustees, the capital beneficiaries of the trust fund, whose interests are opposed to those of the life tenant as income beneficiary. I will return to this argument also.

The fourth argument is that it is pointless to make a Beddoe order on the facts of this case, because the costs will come out of capital which on the death of the life tenant will belong to the two trustees who are also capital beneficiaries. I will refer further to this argument later.

I return to consider the first argument referred to above. Re Evans deceased [1986] 1 WLR 101 was a case where six adult nephews and nieces claimed as the next of kin of an intestate. One of them took out administration of the estate. Another, however, issued proceedings by writ action against the administrator alone, claiming the entire estate by virtue of a proprietary estoppel based on promises said to have been made to him by the deceased during his lifetime. The administrator issued an originating summons for a Beddoe order, making all the other nieces and nephews defendants to the application.

Upon the proprietary estoppel claimant’s undertaking to join all the other nephews and nieces to the main action, the master dismissed the Beddoe application. The administrator appealed to the judge, who allowed the appeal, and, following Re Dallaway deceased [1982] 1 WLR 756 (a decision of Sir Robert Megarry V-C), made the Beddoe order sought. The claimant appealed to the Court of Appeal, which allowed the appeal and discharged the Beddoe order.

Re Dallaway deceased [1982] 1 WLR 756 was a case where the facts were similar to Re Evans deceased. The deceased had by will left his entire estate, apart from one legacy (worth less than 5% of the net estate), to his ten brothers and sisters. One brother issued proceedings claiming the entire estate by virtue of an oral agreement with the deceased that he would leave his estate to that brother. The professional executor of the will (who was not one of the beneficiaries) sought an order directing the executor to defend the proceedings. The claimant suggested that, instead of making a Beddoe order, the court should direct the other beneficiaries should indemnify the executor against the costs incurred. Sir Robert Megarry V-C declined to take up that suggestion, made the Beddoe order, and also directed that the executor be indemnified out of the estate as to costs “subject to any order of the trial judge”.

In Re Evans deceased Nourse LJ (with whom O’Connor and Robert Goff LJJ agreed) distinguished Re Dallaway deceased on the bases that (i) every Beddoe application was fact-specific, (ii) the judge in that case had “serious reservations” about the strength of the claim being made, and (iii) there was no proposal in that case (as there was here) that the other adult beneficiaries be joined as parties to the proceedings. He went on to agree with counsel for the claimant that it would be unjust for the claimant to succeed but for the property which he had fought for to have to be sold to meet the costs of the unsuccessful defendant administrator, while the other nephews and nieces would have risked nothing and lost nothing.

Nourse LJ said this:

“In my view, in a case where the beneficiaries are all adult and sui juris and can make up their own minds as to whether the claim should be resisted or not, there must be countervailing considerations of some weight before it is right for the action to be pursued or defended at the cost of the estate. I would not wish to curtail the discretion of the court in any future case but, as already indicated, those considerations might include the merits of the action. I emphasise that these remarks are directed only to cases where all the beneficiaries are adult and sui juris.”

I have to say that I have some difficulty in seeing why the principle enunciated by Nourse LJ should not have applied also to the facts of Re Dallaway deceased. It is true that there were minor factual differences between the two cases. Dallaway was a will case and not an intestacy, the executor was not one of the beneficiaries, the beneficiaries were siblings not nephews and nieces, and there was a small legacy to a third party. But none of those can make any difference.

Nourse LJ seems to have relied heavily on (i) a perception that the judge in Dallaway considered the claim weak, and (ii) the fact that there was no direction to join the beneficiaries to the action. But I struggle to see why these matters should have changed the result. They may be “countervailing considerations”, but they do not seem to me to be of any significant, let alone sufficient, weight. As to the first, any view which the judge takes at the Beddoe stage is necessarily speculative (usually one-sided), and there can be no real confidence that the result will follow. As to the second, it would have been just as possible in Dallaway to join the beneficiaries as it was in Evans. There was no impediment. Plainly, however, if there is any conflict between the cases, I am bound by the decision of the Court of Appeal, and I must follow the principle laid down.

In the witness statement of Julia Clegg dated 23 August 2016, at [6], there appears the following quotation from Williams, Mortimer and Sunnucks, 20^th ed 2013, [62-11]:

“[I]f all the beneficiaries are ascertained, competent and capable of deciding whether or not to pursue a claim, and they are agreed as to the course they want the personal representatives to take then the personal representatives are completely protected and there is no need or justification for seeking the directions of the court.”

For that proposition is cited the decision in Re Evans deceased.

Mr Adams criticises this. He says that, instead of being based on Re Evans deceased, the principle stated is an extension of the rule in Saunders v Vautier, that is, that the beneficiaries together absolutely entitled should decide what to do with the trust fund. I agree with him that Re Evans deceased is not an application of the rule in Saunders v Vautier. That rule does not entitle the beneficiaries, even acting all together, to direct the trustee what to do whilst the trust remains in being: Re Brockbank [1948] Ch 206. And in any event (as Mr Adams observes) they are not unanimous, because ex hypothesi the life tenant does not agree.

Mr Adams explains why the beneficiaries in the case put by Williams, Mortimer and Sunnucks cannot complain in this way:

“if [the beneficiaries] all give their informed consent to a course of action by the trustees they are estopped from denying that it was [a proper] (Footnote: ¹) course to take”.

But I do not think it is necessary to resort to any kind of estoppel. The beneficiaries have given their (fully informed) consent to the action. They have licensed the trustees to do what might otherwise be a wrong. So it is not a breach of trust and they cannot complain of it as such thereafter. But that does not explain Re Evans deceased either. The beneficiaries were not asked to, and neither did they, give their consent to the administrators’ defence of the proprietary estoppel claim.

Instead, in my judgment the Re Evans deceased principle is a response to the request by the trustees for certainty as to their role in litigation. Where the litigation is in substance between sui iuris adults there is simply no need for the trustees to take a substantive role. So they do not need a Beddoe order. Agreement between the beneficiaries and the trustees on this point is not needed. Of course because assets in the trust fund are concerned, the trustees still have, and must play, a nominal one in the litigation.

Mr Adams further argues that the need for “countervailing considerations of some weight” only applies where (as in Re Evans deceased) the beneficial ownership of the entire estate is in dispute. In my judgment the point made by Nourse LJ was not intended to be so limited. As I have said, the mere fact that there was a small additional legacy in Dallaway cannot explain the difference in treatment, and Nourse LJ did not so suggest. In any event, trustees can be ‘interveners’ holding disputed assets even if the assets disputed are only part of a wider trust fund. However, I do not say that there are no limits at all.

In the present case, of course, all the beneficiaries are adult and sui iuris. Moreover, with the exception of the three insubstantial contingent legatees, they are all parties to the main action already. Mr Brown for the life tenant makes the same argument about injustice as did counsel for the claimant in Re Evans deceased. He says that, if a Beddoe order is made but the trial judge finds a breach of trust, the trustees will be insulated from the normal costs consequences, and the life tenant will in effect have been made to pay for the trustees’ unsuccessful defence.

In relation to the “beneficiaries dispute” about whether there is a defence by way of set-off, for the reasons given it would not be right anyway to make a Beddoe order in relation to what I have characterised as a breach of trust claim. However, I am not considering that. At this stage I am considering only the claim concerning the promissory note and associated loan. That is certainly a “third party dispute”. Yet the argument from injustice can still be made. If a Beddoe order is made and the court finds that the claim against the life tenant on the note or loan fails for any reason, the life tenant as beneficiary will still have paid, at least in part, for that unsuccessful claim, though as third party he will have been successful.

As I have already noted, in Re Evans deceased the property in dispute was the whole estate. Here the dispute is about the promissory note and loan, which is only a part of the trust fund (less than a fifth by value). But in my judgment that makes no difference in principle. It means that instead of the third party paying the whole of the costs of the claim even if he is successful, he will instead only pay a part. The degree of injustice may be less, but it is simply a question of degree. The only way to remove that risk of injustice is to ensure that the costs risk of the third party claim falls on the two capital beneficiaries for whose benefit the litigation is carried on. In some cases this may be possible. Here, however, since the life tenant has an income interest in the whole fund, that cannot be done by granting the indemnity out of the capital, because the payment of capital in costs would reduce the fund generating the income to which the life tenant is entitled. Whilst the injustice would not be as great as in Re Evans deceased, nonetheless in my judgment it would be significant, and sufficient to justify refusing a Beddoe order.

This view is supported by reference to the position which would obtain if there were no trust involved. Suppose the deceased had given the promissory note directly to her sons as tenants in common, as well as a beneficial lease of land (on which there was a modest ground rent), the freehold of which was given to her widower. If the widower did not pay on the promissory note, there would be a similar question as to whether the sons could properly refuse to pay the ground rent. If they did, the widower sued for the unpaid ground rent, and the sons counterclaimed for the debt due on the note, the sons would have to decide whether to fund their own litigation. Why should the interposition of a trust for the sons make a difference? I accept that it would probably make a difference if minors were involved, or others with substantial interests not otherwise affected by the litigation. The trustees would have to consider whether trust monies should be used to fund the substantive prosecution or defence of the proceedings. But here there are no minors and no other substantive interests for them to consider. Therefore they need only play a nominal role at most.

Accordingly, I conclude that Mr Brown is right, and that it would be unjust, on the particular facts of this case, to make a Beddoe order even in relation to the third party claim, and in relation to any of the three trustees. Because the two trustees who are capital beneficiaries are already parties to the proceedings, it is not necessary to consider the need for any order joining them, such as arose in Re Evans deceased. The trustees as trustees will be entitled to nominal costs, as they need to be parties to the claim, but they need no Beddoe order for those. The part of the litigation claiming that the promissory note forming part of the trust fund is valid and enforceable against the life tenant is being carried on for the benefit of the first and second trustees, in their capacity as capital beneficiaries. They are adults and sui iuris, and can decide whether they wish to fund and take the risk of that litigation.

It might be thought that there is another way to reach the same conclusion, and that is by means of Mr Brown’s fourth argument. The costs will come out of the capital which belongs (in remainder) to the first two trustees. That is true, though actually the impact of the costs being taken from the capital would injure the life tenant as income beneficiary as well. Moreover the argument only goes to the making of an order in relation to the first two trustees, and not in relation to the third, who is not a capital beneficiary. Accordingly I do not consider the fourth argument further.

I should however say something more specifically about the position of the third trustee. He is suing by the same solicitors as the first two. He will remain a nominal party. The costs should be no greater than if it was only the two. As a nominal party, where the substantive litigation is with the two capital beneficiaries, costs from now on are unlikely to be awarded against him. Nevertheless, and depending on the result, of course, he may still find that he is entitled, by virtue of the costs rules to which I have already referred in CPR rule 46.3 and PD 46 para 1 to take his costs out of the trust fund. But he may wish to consider with the two first trustees whether he requires any additional indemnity from them in respect of the liability for his own costs or for any which he may be ordered to pay the life tenant.

In the circumstances it is not necessary for me to deal in any detail with Mr Brown’s third argument, that the court should not make a Beddoe order in favour of the third trustee on the grounds of his conflict of interest. However I will say this. If I had not been satisfied that it was wrong to make a Beddoe order because of the risk of injustice to the life tenant, I do not think I would have refused an order on the basis of the matters urged in this argument. I say that, not because the matters referred to are not important, but because as it seems to me they go to a different point, which is whether it would be appropriate for the third trustee to continue as trustee at all. If he were replaced as trustee by a non-beneficiary against whom the same criticisms could not be made, those criticisms obviously could not prevent a Beddoe order being made in favour of such new trustee. If however those criticisms were held not to justify the replacement of the third trustee, then as at present advised I do not see why they should prevent a Beddoe order’s being made either. But I do not rest my decision on this.

If I were wrong, and the Re Evans principle did not apply to the case, so as to make a Beddoe order unnecessary, I would have gone on to consider the confidential evidence of the advice given to the trustees. Although I have of course read this, there is a risk that anything I said would be taken (whether justifiably or not) to indicate the tenor of that advice. Since it is unnecessary for my decision to do so, I do not think it would be right for me to indicate what my view would have been.

The trustees also seek an order for permission to make or continue their counterclaim. In my judgment, having held that it is not right to make a Beddoe order in favour of the trustees, so that the costs risk lies where it should, on the trustees who are beneficially entitled substantially to the capital in which the life tenant’s interest subsists, there is no need for the court to give a direction as to the counterclaim.

So far, I have dealt with this application on the basis that it was merely for a Beddoe order. In fact the trustees by this claim also seek a protective costs order. Normally, where the court makes a Beddoe order and directs the trustees to take or defend proceedings, that will imply the court’s view of the trustees’ proposed actions as beneficial to the trust fund and so engage the rules enabling the trustees to take their costs out of the fund. A protective costs order is not needed as well. But the fact that a Beddoe order is not made does not automatically mean that a protective costs order cannot be made. I therefore consider it separately.

The law is that a protective costs order can only be made where “the judge at trial could properly exercise his discretion only by ordering that the applicants’ costs be paid out of the trust estate”: see Alsop Wilkinson v Neary [1996] 1 WLR 1220, 1226H; McDonald v Horn [1985] ICR 685, 697A-B. I accept that, as Mr Adams says, if the court decides that it is reasonable and proper for the trustees to commit the trust funds to certain litigation costs at that stage, then it makes it likely that the court at trial will order those costs to come out of the trust fund.

But in the present case, in my judgment, this is not so. As to the first case referred to in paragraph 27 above (the validity and enforceability of the claim to the loan and under the promissory note), the court has refused a Beddoe order, and cannot know at this stage who is going to win and therefore whether the costs of that must inevitably come out of the trust estate. As to the second such case (how the result of that first case bears on the obligation of the trustees to pay income to the life tenant to which he is otherwise entitled), that has been characterised as a breach of trust claim (paragraph 24 above). In such a case the costs will not come out of the trust fund: see the authorities referred to in paragraph 18 above.

Mr Adams suggests that the court could make a protective costs order “subject to any order made by the trial judge,” as was done in Re Dallaway deceased [1982] 1 WLR 756, 761H. There may be cases where this is appropriate. But I cannot see how it would help the trustees in the present case to decide what to do. As for authorising the incurring of costs up to a certain point (Mr Adams’s further point), if the court does not consider that it can tell now whether any of the trustees’ costs must inevitably come out of the trust fund, there is ex hypothesi no scope for making such an order.

For all the reasons given above, I decline to make either a Beddoe order or a protective costs order in this case, or to give a direction to the trustees in relation to the counterclaim. I ask counsel to draw up an appropriate minute of order to reflect my judgment, bearing in mind that we have not so far considered whether there is any need to ensure that the non-party beneficiaries of the trust are bound by the decision.