The costs of contesting a trust

The High Court was concerned with the thorny issue of legal costs in a trust dispute. 

Background:

A Declaration of Trust dated 7 August 2020 was made pursuant to which the defendant, as settlor, created a trust over sums of circa £1.8m for the benefit of her grandson, the claimant. The trust funds were then applied for the purchase of a property in Barbados.

The claimant initiated the legal action on 1 March 2023 against his grandmother, the defendant Trustee, seeking disclosure of trust documents, an account of her administration of the trust, and an injunction to prevent the sale of the Barbados property, the primary asset of the trust.

By the time the case reached the Judge, the core issues surrounded the claim for an account and whether various costs, included by the defendant in the trust accounts, should be allowed. A substantial disagreement then emerged regarding the defendant's entitlement to have her legal costs indemnified from the trust fund, prompting the Judge to request further written submissions from the parties.

Decision: 

The Judge rejected the claimant's argument that interlocutory costs orders ousted the Civil Procedure Rules (CPR) provisions for Trustee costs, affirming that such orders merely defer the final decision. He found that the general rule in CPR 46.3(2), entitling the Trustee to costs from the trust fund, applied. The Judge concluded that there was no good reason to depart from this rule, and the Court found the defendant had acted reasonably in responding to the proceedings, providing accounts, and making the application for sale. He attributed much of the delay to the claimant's vagueness in challenging the accounts. He also noted that the claimant's limited success in disallowing entries was insufficient to demonstrate the misconduct required to deprive a Trustee of costs, particularly given the large number of entries and the overall proportion of challenges that failed. Consequently, the Judge ordered that the defendant was entitled to her costs of the proceedings out of the trust fund, assessed on an indemnity basis, including costs related to the costs issue itself and the application for an order of sale.

Implications:

This judgement strongly reiterates the fundamental principle that trustees are entitled to be indemnified for costs "properly incurred" from the trust fund, even if they don't fully succeed on every point of contention. This is a crucial protective measure for trustees acting diligently.

Trustees must understand they need to act reasonably, in the trust's interest (and not solely their own), and be prepared to provide clear accounts and documentation. Unreasonable conduct or active misconduct can lead to a loss of indemnity. Beneficiaries must understand that challenging a Trustee does not automatically mean that the Trustee will bear their own costs or the beneficiary's costs. If the Trustee acted reasonably, their costs will likely be drawn from the trust fund, effectively reducing the beneficiary's entitlement. This needs to be a key consideration when deciding whether to litigate.

This case reiterates that minor accounting errors or good faith disputes over allowances will not automatically lead to personal liability for costs, provided the Trustee otherwise acts reasonably and transparently.