Pick your battles carefully when trying to remove a trustee

This judgement on costs follows a long and bitterly fought claim to remove the sitting trustees of a will trust worth £8.2m, including shares in a business, and underscores the principle that the conduct of the parties plays a pivotal role in who pays the legal costs.

Background:

The Court had previously decided, following a complete breakdown in the relationship between the beneficiaries (the claimants) and the four trustees (Paddy, Malcolm, Sarah, and Maldwyn), to replace Paddy and Malcolm with a professional trustee, while allowing Sarah and Maldwyn to remain. Paddy and Malcolm essentially served as the “independent” or “professional” trustees, while Sarah and Maldwyn were considered “family” trustees.

The current ruling addresses who pays the legal bills and whether the trustees can use their trust funds to cover their costs.

Decision:

After reviewing the allegations made by the claimants and having carefully weighed the conduct of the respective parties, including compliance with the pre-action protocols and offers to mediate, the Judge decided that the right order was no order as to costs. This ruling permitted the trustees to preserve their indemnity. This means both the claimants and the trustees must pay their own legal fees, with neither side reimbursing the other.

While the claimants were “substantially successful” in removing the two professional trustees (Paddy and Malcolm), the Judge sought to distance the Court from the standard “loser pays” rule for several reasons. The Judge found that a “very significant proportion” of the costs were wasted litigating unjustified claims by the claimants who proceeded without issuing any pre-action warning or correspondence, potentially exacerbating costs.

Although both sides struggled to agree on a mediator, the Judge found the claimants to be primarily responsible for the failure of any alternative dispute resolution (ADR) because they rejected early and reasonable settlement offers from the trustees.

Under the Trustee Act 2000, trustees are entitled to be reimbursed for any expenses that are “properly incurred”. The Judge found the trustees’ costs were proper, as it was reasonable for the trustees to defend themselves and their reputation.

Implications:

This judgement is a cautionary tale for anyone involved in a trust dispute. In standard litigation, the loser pays the winner’s costs. However, because they included exaggerated accusations of lying and misconduct that they could not prove, the Judge ruled that they had to pay their own legal fees. The takeaway lesson from this mired disagreement is nonetheless clear – only sue based on what you can prove, as the Court may refuse to award you costs – even if you succeed in having the trustee removed.

By ignoring the “pre-action protocol,” the beneficiaries effectively made their case worse as the Judge viewed their conduct as ‘unreasonable’. Because the beneficiaries waived their access to peaceful resolution through mediation, they lost the right to have their costs covered by the other side. Courts have a healthy disdain for ‘surprise’ lawsuits, and the best course is always to attempt mediation and follow pre-action protocols.

This case reinforces a powerful protection for trustees. Under the Trustee Act 2000, trustees are usually entitled to have their legal fees paid out of the trust’s money (the indemnity), provided they did not act “improperly”.