Analysis
The claimants were the widow and the daughter of the deceased who died on 8 March 2015. The deceased executed an English will (“the Will”) dealing with his UK assets and appointing a Swiss lawyer (the 1st defendant) as his executor and trustee. The widow (the 1st claimant) was the sole beneficiary of the English estate. There was a breakdown of relations between the 1st claimant and the 1st defendant. The daughter (the 2nd claimant) supported the widow. The claimants applied for an order under s50 of the Administration of Justice Act 1985 removing the 1st defendant as executor and for their own appointment as personal representatives, or as a fall-back position, their appointment together with an independent, professional, executor.
The 1st defendant originally defended the proceedings objecting to his removal as executor at all, contending that he was the appropriate person to remain in post and that his replacement, even by another professional trustee, would generate unnecessary expense. Within a very short time he modified his position stating that he was prepared for another professional trustee to stand alongside him. He then indicated that he would be prepared in due course for that co-executor to have a casting vote. He then changed that stance to indicate that he was prepared to be replaced by the independent executor proposed by the claimants. However, he maintained the stance that he opposed the appointment of either claimant to be executor. He stated in his counterclaim that it was not appropriate for either claimant to be appointed, in particular because of their failure to acknowledge the debts of the estate. There was a without prejudice letter in which the 1st defendant indicated his willingness to agree to his replacement by the independent executor alone, and a month after that an open letter to the same effect. He sought in his counterclaim an order for the appointment of the independent executor on the footing of the unsuitability of either claimant. He made a summary judgment application which was successful initially, but overturned on appeal. By the end of the time of his involvement the 1st defendant’s stance was that he was opposed to either claimant becoming an executor. He ceased to take part in the proceedings after an order of 13 July 2018, and the trustees of various Liechtenstein trusts were joined as 2nd and 3rd defendants. The matter came on for trial in November 2018. The consequence was that the 2nd claimant was appointed as executor alongside a professional executor with significant restrictions on her opportunities to act independently of that professional executor.
It was ordered that there be a further hearing to determine the issue of the costs between the claimants and the 1st defendant for the period up to July 2018.
The claimants contended that the general rule set out in CPR 44.2(2) that the unsuccessful party will be ordered to pay the costs of the successful party should apply; and that, therefore, they should get their costs. They contended that the 1st defendant’s de facto abandonment of his counterclaim was appropriately to be seen as akin to a discontinuance.
It was contended on behalf of the 1st defendant that he was acting as an executor as such and complying with his duty to act in the best interests of the estate. Accordingly, the case fell within the ambit of CPR 46.3 which lays down a general rule that a person who is or has been a party to any proceedings in the capacity of trustee or personal representative is entitled 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, such costs to be assessed on an indemnity basis. The 1st defendant was, it was argued, entitled to an indemnity in respect of his costs as they had been properly incurred for the purposes of paras. 1.1 and 1.2 of PD 46. It was, therefore, submitted that the 1st defendant should not only have no liability for costs of the claimants, but should recover his costs out of the estate.
Held:
- 1) There was a tension between the principle that a successful party to litigation recovers his or her costs and the principle that a trustee is entitled to be indemnified out of the trust fund or estate where the proceedings are between the beneficiaries and a trustee and, in particular, where the trustee is then the unsuccessful party. In those circumstances, a costs order against a trustee, if coupled with an entitlement to indemnification out of the estate, would involve the beneficiaries being paid their costs with their own money, and an unsuccessful trustee litigating at the expense of the beneficiaries, when the trustee’s resistance should not have been mounted. The tension is particularly acute where the litigation is about the removal of a trustee or executor. The simple application of the approach of the successful party recovering his or her costs without indemnification of the trustee could penalise a trustee who has acted properly for the benefit of the trust, but has turned out in the view of the court to be unsuccessful.
- 2) The litigation was hostile litigation. The application was opposed. The opposition from the 1st defendant was in robust terms. It involved seeking a summary judgment on a counterclaim. This was a classic instance of an act of the kind that takes place in hostile litigation. It followed that the starting point lay in the provisions of CPR 44. The claimants were the successful parties against all the defendants including the 1st defendant. The 1st defendant resisted the relief which was being sought and, in particular, he resisted the appointment of either claimant as a trustee or executor.
- 3) That being the starting it was necessary to take account of the consideration set out in CPR 46.3. It was necessary to consider whether the costs incurred by the 1st defendant and the liability and costs of the claimants as the successful party arose through acting properly in his role as executor in the interests of the estate. The 1st defendant’s stance remained constant through changes of approach, and that was a resistance to either or both of the claimants becoming an executor on the grounds of their unsuitability. It was a stance which was taken with some vigour, and in this regard the summary judgment application was significant. The tone, language and length of the statements and material put forward by the 1st defendant were also significant. Although the 1st defendant was genuine in his belief that the allegations against him were misconceived and that the claimants were unsuitable persons to act as executors, he allowed himself to indulge his defence of his position and his criticism of the claimants’ suitability at length and at considerable expense. The sheer scale of the exercise which resulted was a significant factor in assessing the reasonableness of the 1st defendant’s actions. That was particularly so in the context of a failure to seek authorisation or guidance from the court. A trustee who chooses to engage in very costly steps without seeking the sanction of the court will find a court inevitably very much more sceptical as to the reasonableness and propriety of those steps if they turn out to be unsuccessful in the context of the litigation as a whole. No acceptable explanation was proffered as to why sanction was not sought from the court.
- 4) The court was satisfied that within a short time of the start of the process that was initiated by the claimants the 1st defendant’s stance was one which was partisan and was neither reasonable nor proper. In short, he was taking a robust and partisan approach in opposition to the appointment of either of the claimants; doing so in circumstances where very substantial expenditure was being incurred in terms of legal fees; and doing so without seeking the sanction of the court. Acting in that way did not amount to acting properly in the interests of the trust and took the 1st defendant outside to that extent the protection of CPR 46.3.
- 5) It was accepted that it was not open to the 1st defendant simply to wash his hands of the matter as there was at the very least a question mark over the solvency of the estate. Furthermore, it was relevant that the 1st defendant’s stance was not necessarily adopted immediately; that he would have been entitled to some period for reflection; and that some expenditure would inevitably have been incurred even if he had taken a more neutral stance of taking advice and then putting forward, perhaps in some detail, a neutral position.
- 6) The best course to reflect these conclusions and the balance of justice was a de facto discounting or setting off in terms of the costs to be awarded to the claimants. Accordingly, it was ordered that the 1st defendant was to pay 85% of the claimants’ costs in respect of the period to the ending of his involvement in the case, and to bear his own costs in respect of that period without being entitled to indemnification from the estate.
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