Analysis
A testatrix (T) left the residue of her estate (the trust fund) on trust to be divided into four equal shares, directing that one of them (the share fund) be held upon discretionary trusts for the benefit of her son, B, and his children and remoter issue. The other three shares were given to her other three children absolutely. The will trustees (who were the executrix of T’s will and another person appointed by her as a co-trustee) sought the approval of the court for a proposed appointment of all of the liquid funds in the share fund to B absolutely. The judge refused to approve the proposed appointment (see p1051 of this edition) on various grounds: that the executrix-trustee had a stark and obvious conflict of interest; that she had purported to exercise a power beyond its scope; and/or she had committed a fraud on the power.
B sought orders for the claimants to pay his costs summarily and for no part of those costs to be paid from the share fund. These orders were agreed by the claimants, who sought their costs (including the costs that they were ordered to pay to B) from the remaining three-quarters of the trust fund, on the principle that they should be entitled to an indemnity. One of T’s other children objected.
Held:
The claimants were not entitled to any indemnity for the costs of the action out of the assets of the estate.
T’s will did not contain any provisions concerning a right for the executors or trustees to have an indemnity out of the trust fund. The judge examined ss31(1) and 35 of the Trustee Act 2000, which provided that trustees and personal representatives were entitled to be reimbursed from, or paid out of, the trust fund any expenses properly incurred on trust or estate business. Complementary provisions were to be found in CPR rr46.3 and 46, PD.12, in the context of costs incurred in trust and estate litigation: depending on the circumstances, a trustee could be deprived of their indemnity if a breach of trust or other misconduct causing loss to the trust fund was established against them. Misconduct was to be construed widely to include dishonesty and also conduct that was unreasonable in the circumstances.
In relation to the second claimant, who was not a personal representative of T’s estate, he had agreed not to take his costs out of the share fund. An indemnity was therefore available, if at all, only to the first claimant executrix-trustee, who was seeking her costs out of the remaining shares of the trust fund. She had, however, brought the action as trustee and not as personal representative and in that capacity she did not have any powers conferred by the gift of the share fund. She was therefore not acting on estate business in bringing the claim and therefore not entitled to an indemnity.
If the judge was wrong and the executrix-trustee was acting on estate business, it would have been her duty to do the best she could for the estate, which included collecting the debts due to the estate. It was in the course of carrying out this duty that she had been found to have been acting in a situation of acute conflict of interest, purporting to exercise a power beyond its scope, and committing a fraud on the power. By doing so, she had improperly incurred the expenses of the claim, because it is improper to achieve a proper object by improper means.
The claimants were therefore not entitled to an indemnity from the trust fund.
JUDGMENT HHJ PAUL MATTHEWS: Introduction [1] On 27 May 2021 I handed down written reasons, under neutral citation [2021] EWHC 1425 (Ch), for my oral decision on 14 May in a Part 8 claim seeking directions form the court. This claim was in effect to approve a proposed appointment by the claimants, as trustees of …Continue reading "Smith & anr v Michelmores Trust Corporation Ltd & ors (costs) [2021] WTLR 1083"