Sheffield v Sheffield & Ors

This judgment deals with the costs order to be made following the parties’ agreement reached in respect of the relief ordered in a breach of trust claim.

This is the final stage of a claim commenced on 24 November 2010, by which the claimant, John David Sheffield, sought to establish his rights as a direct or indirect beneficiary of a trust in respect of an estate in Hampshire called the Laverstoke Estate (“Laverstoke”).

The trust (“the 1968 Settlement”) was established by a conveyance in 1968 by the claimant’s grandparents, Anne Margaret Sheffield (“AMS”) and her husband John Vincent Sheffield (“JVS”), who were the legal owners of Laverstoke. In it they declared that they held Laverstoke on trust for themselves as tenants in common, as to three quarters for AMS, and as to one quarter for JVS.

AMS died in 1969. By her will, she created a further trust of her share in Laverstoke under which the income was to be paid to JVS for life and, on his death, the trust property was to be held for their son, John Julian Lionel George Sheffield (“Julian”) absolutely. Julian is the claimant’s father.

By a declaration of trust dated 24 October 1983 (“the 1983 declaration”), JVS declared that he held his beneficial interest in Laverstoke under the 1968 Settlement (including “the net income until sale”) on trust for the claimant. The claimant was aware of the 1983 declaration, but believed that he would only be entitled to benefit from it after JVS died; and he received no income in respect of his beneficial interest during JVS’s life.

JVS died on 9 May 2008. Julian thereupon became entitled to AMS’s three quarters share under the 1968 Settlement.

In the claim, John sued JVS’s executors (“the executors”) and the trustees of the 1968 Settlement (“the trustees”) to recover what he claimed should have been paid to him from 1983 onwards. He also claimed against Julian for relief in respect of benefits Julian had received from the 1968 Settlement. The defendants to the claim were therefore (using the unorthodox nomenclature adopted by the parties):

The defendants contended, among other things, that the claimant had no right to the trust income because of an agreement between the relevant parties (“the Arrangement”) that the income should continue to be paid to JVS, notwithstanding the 1983 declaration.

The proceedings were tried before HH Judge Pelling QC over 7 days in November 2013. He rejected the defendants’ contentions as to the Arrangement, and held that the claimant was entitled to judgment.

A legal issue arose as to the effect of the 1983 declaration: did that make the claimant a beneficiary of the 1968 Settlement (as an equitable assignee of JVS’s interest) or a beneficiary of a sub-trust of JVS’s interest? The Judge held it was the latter. He therefore concluded that the claimant was entitled to succeed against the executors, but not the trustees, for 25% of the income from the 1968 Settlement from 24 October 1983 until the death of JVS. Julian accepted he was liable to make good the loss arising from his (Julian’s) and his wife’s acquisition of certain trust property (“the Spring Pond Properties”). Other specific claims of breach of trust (failure to exploit shooting rights on the estate and occupation by JVS of estate property (New Barn House) without regard to the claimant’s rights) were also upheld.

The facts and issues in the claim are set out in more detail in the judgment dated 13 December 2013 (“the Main Judgment”), at paragraphs 4 to 27; and, generally, I adopt the definitions used in the judgment.

On 28 February 2014, the judge made an order (“the Main Order”) consequent upon his judgment, for a number of accounts and inquiries. The accounting parties are the executors, who stand in JVS’s shoes as a defaulting (sub-)trustee; and Julian, in respect of the transfer to himself and his wife of the Spring Pond Properties and a loan agreement dated 5 July 2007 (“the Loan Agreement”) entered into by him with the trustees. For the purposes of this judgment, I refer to the executors and Julian as ‘the defendants’, since no order for accounting or inquiries was made against the trustees.

On the same date, the parties recorded their agreement as to a number of matters in a letter dated 28 February 2014 (“the 2014 agreement”) from the claimant’s solicitors, Trowers & Hamlins LLP to the defendants’ solicitors, Farrer & Co LLP. The total financial value of the agreed accounts was £99,805.94. It was also agreed that a number of the accounts ordered by the Main Order would not be pursued by the claimant.

The following accounts and inquiries were pursued by the claimant (referred to by the relevant paragraph number in the Main Order):

The accounts under §§2(d) and (i) were ordered on the footing of wilful default.

The Main Order also provided (at §8(a)) for the executors and Julian to give standard disclosure to the claimant of all documents relating to the accounts and inquiries, except insofar as such documents had already been disclosed in the claim. This was not formally complied with; the defendants’ solicitors provided the claimant’s solicitors with 3 lever arch files of copy documents; but the correspondence is peppered with complaints by the claimant’s solicitors that inadequate documentation has been provided and with requests for further documentation.

§8(b) of the Main Order provided that the parties were at liberty to apply to the Master for further directions as to the taking of the accounts and the making of the inquiries.

Finally, §11 provided that the parties were at liberty to apply in respect of the future administration of the 1968 Settlement (including as to whether or not the trustees thereof should be replaced).

The 2014 agreement included an agreement between the claimant, Julian and the trustees that the claimant should have the option of accepting payment of any sums found to be due by way of a transfer from the trustees of Cowlease Cottage, together with not less than 2 acres of adjoining land and a right-of-way over all roads and tracks to the cottage. The basis of the transfer was agreed to be that the claimant would pay 75% of the cottage’s market value, to be determined by the court if not agreed.

Following the 2014 agreement, the parties entered into correspondence with a view to narrowing the issues between them. This correspondence occupies two lever arch files; and did not result in a resolution. On 7 November 2016, the defendants issued an application notice (“the application”) seeking:

On 1 March 2017 I made an order providing for the defendants to serve a summary in tabular or Excel form in respect of those accounts remaining to be given ordered by §2 of the Main Order (“the Summary Account”). As to the inquiries and accounts ordered in respect of the Spring Pond Properties, I directed that the defendants’ solicitor’s witness statement in support of their application should stand as their case. As to the inquiry ordered by §6 of the Main Order, I ordered the defendants to file and serve a witness statement setting out their case as to whether Julian had received any improper benefit from the loan agreement dated 5 July 2007.

I also gave directions for the claimant to respond to the defendants’ case, and for the defendants to reply; for the claimant to request any further documents or information he required and the defendants to respond by either providing them or explaining why they were not being provided. I directed the parties to seek to agree a list of issues, and any further directions needed to bring the accounts and inquiries to trial.

The defendants served the Summary Account on 21 April 2017. The claimant responded on 21 June 2017. The defendants served their reply on 14 July 2017. This process resulted in significant agreement between the parties. On 11 September 2017 I made an order reflecting that agreement, and providing for:

These issues were finally resolved by the parties by agreement; and on 24 November 2017 I made an order providing that the executors pay the claimant £56,867.96 in respect of the sums due in the two FBT accounts and interest on them; and recording the indemnity agreed between the parties.

The grand total received by the claimant pursuant to the accounts and inquiries is £1,259,548.84: this is £1,159,742.90 in addition to the amounts agreed in the 2014 agreement.

I consider first the approach to costs to be taken in the circumstances of this case. Neither side referred me to the authorities governing determination of liability for costs where the parties have reached a compromise. There are two lines of authority which are not wholly reconcilable. In BCT Software v Solutions v C Brewer & Sons [2004] FSR 150, Mummery LJ at [4] – [7] considered that in a case of any complexity, the Court could properly refuse to undertake the exercise at all. However, this is not a universal view. In Powles v Reeves [2016] EWCA Civ 1375; [2017] 1 Costs L.R. 19, David Richards LJ at [19] acknowledged that:

“[i]t is neither desirable nor generally practical for the whole case to be heard solely for the purpose of determining costs and it would usually be an unacceptable waste of the court's resources, as well as the parties' resources, to do so.”

In this case, although it is of substantial complexity, it would not, in my judgment, be proportionate or an efficient use of the parties’ or the court’s resources to refuse to determine costs liability and require the parties to proceed to trial.

In Powles, the Court identified a number of factors which the judge should consider, in the absence of a determination of the merits of the claim. These include:

The claimant’s counsel did rely upon the fact that the court has not made any determination of any of the rights of the parties in the relation to the issues. This, he said, meant that the court had no material with which to assess whether the outcome agreed under any particular head of the account was a just or unjust disposal of the issues raised. There was likely, he submitted, to be an element of horse-trading involved in the agreed resolution of issues, which might not reflect the strength or weakness of the substantive point. Even if the court were to proceed by means of a “percentage” order, it would, he submitted, have no material with which to attribute any particular cost to the agreed outcome of particular issues. The exercise of discretion in this way would therefore be even more broad brush than would be the case following a judicial determination of the issues.

I accept that in a claim resolved by agreement, the court necessarily adopts a more broad brush approach to costs, reflecting the fact that there has been no judicial determination of the issues. But the task is nonetheless to be undertaken, and done so in accordance with the guidance set out in Powles.

In addition, in the case of accounts and inquiries ordered against trustees, special considerations apply. When the accounts and inquiries are rendered necessary by the breach of trust, then the defaulting trustee will be ordered to pay the costs of the claim; and those costs include the costs of accounts and inquiries made necessary by the breach of trust: see Lewin on Trusts (19^th edn) at 27-174.

In addition, in this case, the order for the accounts also reflected the claimant’s substantive entitlement to accurate information as to the state of the trust and to inspection of the trustees’ vouchers for their expenditure: see Lewin on Trusts (19^th edn) at 23-030. In In re Skinner [1904] 1 Ch 289, the relevant costs to be paid by the trustee were the costs of “taking and vouching” the accounts. The claimant’s counsel submitted that this decision reflects an important principle, namely, where a trustee has been held to be in default, s/he has to prove (at her/his expense) that he has fully remedied that breach of duty. This, he submitted, would be particularly the case where (as here) the outcome of the accounts and inquiries depends upon information which is in the possession or power of the defaulting trustee (whether in respect of income actually received, or income which could have been received).

I accept these submissions. In my judgment, the starting point in determining the costs of accounts and inquiries ordered against a defaulting trustee is that the trustee should pay those costs. This would remain the case even if the accounts established that no sum was payable to the beneficiary. This is because the beneficiary’s primary right is to information about the trust assets and their exploitation; with an accompanying entitlement to be paid the appropriate share of the fruits (if any) of that exploitation. And, until the account is given the beneficiary does not know what that financial entitlement is.

It follows from this that a defaulting trustee cannot protect her/himself from costs of providing the account merely by making a monetary offer. Without the information which is solely in the trustee’s possession, the beneficiary has no means of evaluating the offer. Furthermore, as already stated, the beneficiary is entitled to be satisfied as to the accuracy of any information provided by the trustee by reference to the relevant documents proving the trust’s income and its expenditure.

As to the Spring Pond Properties, the defendants’ counsel submitted that Julian was not a defaulting trustee. In response, the claimant’s counsel referred to the Deputy Judge’s finding that the claimant had been deprived of 25% of these properties (Main Judgment at para. 169); and submitted that this was a clear finding of breach of trust on Julian’s part.

The default on Julian’s part was not however, a failure in his capacity as trustee to account to the claimant and pay him income to which he was entitled. It was the acquisition by him of the claimant’s share of a trust asset to which he was not entitled. Not all of the accounts and inquiries ordered as remedies for this breach of trust required disclosure of information known only to Julian: the issues of the current market value of the properties, the market occupation rent for the period of his occupation and difference in value between the properties in their improved and unimproved condition were all matters determinable without disclosure by Julian. However, the cost of the improvements carried out by Julian were matters which were solely within his knowledge; and in respect of which full disclosure would be required before any financial offer could be properly considered by the claimant. The claimant’s position was therefore, in my judgment, analogous to his position in respect of the accounts ordered against the executors – he could not reasonably consider an offer in respect of the Spring Pond Properties until full details and supporting disclosure in respect of Julian’s improvements had been given.

The claimant’s counsel also referred to and relied upon the costs provisions in the CPR, and, in particular, the following principles:

The defendants’ counsel did not dispute these principles. He particularly relied upon CPR 44.2 (4) directing the court to have regard to:

“(b)

whether a party has succeeded on part of its case, even if that party has not been wholly successful; and

(c)

any admissible offer to settle by a party which is drawn to the court’s attention, and which is not an offer to which costs consequences under Part 36 apply”;

and on Part 36 itself, which provides that where a claimant fails to obtain a judgment more advantageous than the defendant’s Part 36 offer, then the defendant is to entitled costs and interests on those costs, unless the court considers it unjust to so order: CPR 36.17 (3).

In my judgment, these principles form part of the background against which I should consider the appropriate costs order to make, but are not directly applicable, because of the considerations set out above. In particular, in my judgment, if a defendant makes a Part 36 offer in respect of an account without having provided the information the claimant needs to evaluate that offer, then if the claimant fails to beat the offer, it would not normally be just to order the claimant to pay the defendant’s costs. This is because the claimant is not just entitled to payment of what is due to him, but also to the information and documents which enable him to satisfy himself that the sums paid reflect his true entitlement.

The claimant seeks an order that

The claimant’s principal submission was that he is the incontrovertibly successful party in the account proceedings, and that there is no good reason to deprive him of his costs. He relied therefore on the general rule in CPR 44.2 (2) that the unsuccessful party will be ordered to pay the costs of the successful party. He submitted that the general rule applied to allow him to recover all his costs (subject to assessment on the standard basis).

Firstly, he relied on the fact that the total sum recovered by the claimant is over £1.2 million. He submitted that on any view this was substantial success justifying the application of the general rule referred to above.

The claimant’s counsel submitted is that this is not a case where it was appropriate to consider an issues-based order or approach in relation to the costs of the accounts required from the executors.

He relied on the fact that the judge’s decision gave rise to a general obligation to account. It was, he said, the claimant himself (without any actual detailed knowledge of the trust’s affairs) who identified the particular heads of account which needed to be investigated. The defendants did not contend at trial that these heads of account were misconceived as legitimate matters for investigation (except in relation to those matters where the Judge specifically found in favour of the claimant or the defendants: see paragraphs 164-75 of the Main Judgment). The consequence of the Judge’s order was, he said, that the First Defendants were required to explain themselves under each of those heads. That was the result of JVS’s breach of trust. Their explanation may or may not have given rise to a liability in every case but, even if no liability was established under any particular head, the investigation was still required so as to ensure that the claimant had received the full value to which he was entitled.

For the reasons which I have set out above, I accept that the fact that ultimately no sums may be payable in respect of an account is not of itself a ground for depriving the claimant of the costs of that account. However, in my judgment, it does not follow from this principle that the court is unable to look at particular accounts, and the factors relevant to incidence of costs in respect of each of them, in deciding the appropriate order to make as to costs overall.

The defendants’ position was that the claimant should pay costs of the accounts and inquiries. They did not expressly accept that the default position, in the absence of special factors, was that they should pay the costs of them. However, this was implicit in their submissions. They made three principal submissions:

The first offer the defendants rely upon was made in their solicitors’ letter of 8 January 2016, in respect of shooting rights and spoil spreading. That offer:

The amount offered in the letter was ultimately accepted by the claimant in his answer to the Summary of Account dated 21 June 2017. The defendants’ counsel submitted that since the claimant failed to do better than this offer, he must be ordered to pay the defendants’ costs from the date of the expiry of the offer.

The second offer the defendants rely upon was made on 16 May 2016 in respect of Spring Pond Properties and Cowlease Cottage. The offer set out in some detail the defendants’ calculations for the exercise required by the accounts and inquiries ordered in the Main Order. It therefore set out the defendants’ position on all the various issues such as the market value of the Spring Pond Properties, their rental value, interest on the various sums and so on.

The offer also included a calculation of the sum due to the claimant from Julian should the claimant decide to exercise the option provided for in the 2014 agreement to acquire title to Cowlease Cottage and the land and rights associated with it. In carrying out this calculation, Cowlease Cottage was valued in its then condition (although it was the defendants’ case that this condition was the claimant’s fault). The sum payable by the claimant for Cowlease Cottage was then set off against the sum payable by Julian for the Spring Pond Properties. This resulted in a net sum of £148,323.31 being payable by Julian to the claimant.

The defendants relied upon the fact that all the valuations and other amounts set out in the offer of 16 May 2016 were ultimately accepted by the claimant in his response to the Summary of Account.

The claimant’s counsel did not suggest that he was not in a position to evaluate the offers in respect of shooting rights and spoil spreading. He submitted however that the costs attributable to these accounts after the offer were relatively small, and would justify at most a discount of 10% on the claimant’s recoverable costs. In my judgment there should be some discount, on a broad brush basis, to the costs recoverable by the claimant, reflecting the additional work resulting from his not having accepted these offers. The sum in issue is about 5% of the total recovered in the account; and on the basis that the discount should reflect both the claimant bearing his own costs and paying the defendants’ costs of this issue, I consider that 10% is the right figure.

The claimant’s counsel submitted that it was not right to conclude that the claimant had not done better than the offer made in the letter of 16 May 2016. This was because the offer was made on the basis that the claimant would exercise the option contained in the 2014 agreement. As to this, the claimant’s evidence was:

“I needed to see all of the Defendants’ accounts and inquiries before deciding whether I could afford to exercise my Cowlease Cottage option. Once I had seen all of the Defendants’ accounts and inquiries, as set out in their summary of account dated 21/4/17, it became clear to me that I could not afford to exercise my Cowlease Cottage option as I believed that the Defendants had significantly undervalued the accounts and inquiries and their conduct in the account … had made the pursuit of some or the further pursuit of some other accounts and inquiries as uneconomic.”

As to this, the defendants’ counsel submitted that the sums offered were ultimately accepted; and the only reason that the ultimate outcome by agreement did not reflect the offer was the claimant’s decision at a late stage (21 June 2017) that he would not exercise the option. This, the defendants’ counsel said, was unreasonable behaviour on the part of the claimant, having proceeded on the basis in his dealings with the defendants that he would be acquiring Cowlease Cottage.

As to this, the claimant’s counsel referred to the 2014 agreement which provides that the claimant shall have

“the option of accepting payment of any sums found to be due by way of a transfer from the trustees of Cowlease Cottage …”

(emphasis added)

This, he submitted, entitled the claimant to wait until the outcome of the account before making his decision as to whether to exercise the option. The defendants’ offer was premised on the option being exercised and the amount Julian was required to pay to the trustees for the Spring Pond Properties being set off against the sum payable by the claimant to acquire Cowlease Cottage. The Summary of Account was the first occasion when the defendants did not tie the sums payable to the exercise of the option. When the claimant decided, following its receipt on 21 April 2017, not to exercise the option, the defendants’ response was that he had exercised the option, or was estopped from asserting that he had not. This remained their position until September 2017. In those circumstances the claimant’s counsel submitted, there had been no offer to resolve this issue in the manner eventually agreed.

I accept that submission. I also note that by their letter of 16 August 2016, the claimant’s solicitors requested additional information and documents relating to the Spring Pond Properties; and concluded the letter with the following:

“To place the above requests above (sic) into context, your client is claiming that over £1 million was spent on the Spring Pond Properties, but to date has provided little or no information from which our client or his expert can judge what this money was spent on and whether the works had the effect of increasing the capital value of the property.’

The defendants did not respond to this letter before issuing the Application.

Although the further documents requested were not provided, and the claimant accepted the defendants’ valuations and calculations in the Summary of Account, this is not in my judgment a basis for departing from the usual order in accounts and inquiries. The defendants, and in particular Julian, were obliged to account fully to the claimant in respect of the breach of trust consisting of the transfer of the Spring Pond Properties to Julian and his wife; and, in doing so, to provide full disclosure of all relevant documentation. The fact that the claimant was ultimately willing to accept the defendants’ calculations without requiring all disclosure was a concession by him, relieving the defendants from their obligations under the Main Order. It is not a matter which justifies depriving him of costs to which he is otherwise entitled.

The defendants submitted that the claimant had acted unreasonably in the manner in which he has raised and then pursued and contested issues. Their counsel particularly relied upon the claimant’s conduct in relation to the following matters:

The 2014 agreement provided that this account would not be pursued if the claimant was provided with certain disclosure and provided that such disclosure revealed no further net income other than that disclosed and accounted for.

Disclosure was provided, and the parties then corresponded as to whether the disclosure revealed no further net income. The defendants’ position (maintained at the hearing before me) was that the information sought was irrelevant and disproportionate, and that the claimant was not entitled to any further account in respect of timber sales. The claimant’s position was that until the defendants provided the further information and documents sought it could not be said that the disclosure revealed no further net income.

Ultimately this issue remained unresolved: in the Summary of Account, the defendants stated that no further income was due in relation to timber sales; and the claimant accepted this in his response to the Summary. His position is that it would have been uneconomic to pursue it further as it would have required a disclosure application and, possibly, expert evidence. In his witness statement dated 19 January 2018, the claimant states at para 97:

“I believe that the [trustees’] approach to this account, by offering up minimal information and then refusing to engage with my legitimate requests for further information, has been indicative of their close an obstructive approach taken in relation to the account generally.”

It would not be proportionate for me to resolve this issue. The fact that the claimant chose ultimately, in the context of the accounts and inquiries as a whole, not to pursue it is not in my judgment a reason to depart from the usual order as to costs in his favour.

The defendants complain about the claimant’s delay and failure to engage, as shown by the inter-solicitor correspondence dealing with this issue. The factual position can be summarised as follows (all figures are exclusive of interest):

From the above chronology it can be seen that although there was 5 months delay on the claimant’s part in responding to the defendants’ offer of 4 August 2014, there are also significant periods of delay (and failures to respond) on the defendants’ part. In my judgment there is no basis for depriving the claimant of any costs on this ground.

The matters relied upon here are those discussed in paras 53 to 57 above; and do not, in my judgment, provide a basis for depriving the claimant of his costs.

On 13 November 2013, shortly before the trial, the defendants proposed, and the claimant agreed, that an additional trustee of the 1968 settlement should be appointed. The Deed of Retirement and Appointment (“DORA”) of the new trustee was finally countersigned by the claimant in May 2017.

The relevant events and references to the relevant correspondence are set out in paragraphs 78 to 81 of the first witness statement dated 7 November 2017 and paragraphs 25 to 26.9 of the second witness statement dated 19 January 2018 of the defendants’ solicitor, Joanna Poole. I was not taken to all of this correspondence at the hearing; but I have read all of it for the purpose of writing this judgment. It is not necessary to set out the detailed sequence of events. It is clear from this evidence that on this issue, the claimant failed properly to engage and delayed (sometimes for several months) in responding to the defendants’ solicitors’ correspondence seeking to identify the new trustee and to agree on the terms of the DORA – which was itself a relatively short and straightforward document. The claimant’s counsel did not seek to persuade me otherwise. He submitted that some of the defendants’ concerns would be dealt with at the detailed assessment. He also submitted that the appointment of the replacement trustee fell outside the scope of the account; but, as noted, the Main Order provided that the parties had liberty to apply in respect of the 1968 Settlement, including whether or not the trustees thereof should be replaced; and the application seeks an order for the future administration of the trust.

In my judgment, the deficiencies in the claimant’s conduct in respect of this issue would not adequately be addressed in the assessment process, and should be reflected in a discount of the costs recoverable by him from Julian (the executors in their capacity as such having no interest in the future administration of the 1968 Settlement), on a broad brush basis, of 3%.

For the reasons set out above, therefore, I will order that

As for the costs of the hearing to determine the costs order consequent upon the parties’ agreement, if the parties are unable to agree what order I should make, a hearing will be listed to determine this issue and any other matters consequential upon this judgment.