London High Court defends a trustee's right protection from costs

In Felicity Mary Mackley Blades v Richard Auberon Isaac and Christopher Allen Alexander [2016] EWHC 601 (Ch), a decision on costs handed down in March 2016, the English High Court agreed with the argument of the trustee defendants that where the trustees of a trust have acted in good faith, they should not have a costs order made against them.

Background

The testatrix's will established a discretionary trust over her estate, for which the Defendants acted as trustees. The beneficiaries of this trust were the Claimant, the Claimant's husband, the Claimant's children and the domestic cleaner. At a later stage, pursuant to a letter of wishes of the testatrix, the Claimant's sister was also added to that class.

The Defendants refused to provide the Claimant with information she requested regarding the breakdown of the estate on the basis that such information was confidential, and could have a negative impact on the relationship between the Claimant and her sister.

The Defendants suggested that a mutually agreeable firm of lawyers be provided with copies of the trust accounts in order to advise the Claimant whether there was anything in the accounts to give rise to legitimate concern as to how the estate assets had been dealt with. The Claimant refused and demanded to see all the documentation herself.

The Defendants received an opinion from counsel, who agreed that they should not provide any trust or estate documents to the Claimant. The Claimant then asked to see counsel's opinion on the basis that the Defendants had waived privilege over it, but the Defendants refused to provide it.

The Defendants offered to apply to the English Court for directions on the matter pursuant to CPR Part 64, but before they were able to make this application, the Claimant issued a Claim Form. The Defendants then obtained advice from new counsel, who advised that they should provide the Claimant with the requested documents. The Defendants then duly provided the Claimant with the documents she had been asking to see.

Question before the Court

As the matter had been substantively resolved, the only issue for the Court to consider was that of costs. The Claimant had effectively won, having obtained all the documents she had sought in the proceedings, and therefore counsel for the Claimant argued that costs should follow the event (i.e. that the Claimant's costs should be paid by the Defendants), in accordance with the usual rule in English litigation. Counsel for the Defendants argued, on the basis that the trustees behaved reasonably throughout, for the costs of both sides to be paid out of the trust estate.

Decision

1. The Court firstly concluded that there can be no legal professional privilege as between trustee and beneficiary. As counsel's opinion was obtained by the Defendants as trustees for the benefit of the trust, it was a trust document that should have been made available to beneficiaries.

2. The Court also concluded that the Claimant as beneficiary was not obviously entitled to all the information about the estate, as the Claimant was a beneficiary of the trust rather than a legatee of the estate. However, as the right of the trustees as legatees to information about the estate was properly part of the trust estate, the Claimant could claim against the trustees to exercise those rights on behalf of the trust through a derivative claim (Parker-Tweedale v Dunbar Bank Plc (No.1) [1991] Ch. 12 followed). Therefore the Court agreed that the Claimant should have the disclosure sought.

3. Turning to costs, the Court considered the general rule in CPR rule 44.2(1) that the unsuccessful party should pay the costs of the successful party, but stressed that the Court can make a different order. The Court exercised its discretion here, and ordered that the costs of both parties be paid out of the trust estate. This was because CPR Rule 46.3 stresses that generally, a trustee should be paid the costs of proceedings out of the relevant trust fund or estate, and this should be on an indemnity basis. This should only however apply to costs properly incurred.

4. The Court considered that the trustees had consistently acted in good faith in the interests of preserving the relationship between the Claimant and her sister, had instructed counsel, had offered to refer the accounts to an independent solicitor, and wanted to apply to the Court for directions. It concluded that the trustees had made an initial mistake in refusing disclosure of the documents, but had kept the matter under review and once it received the opinion of new counsel, did the right thing and disclosed the requested information to the Claimant. There was no misconduct on the part of the trustees and the Claimant did not suffer any financial loss.

Therefore all costs were properly incurred in this case, as the Defendant trustees were acting in what they believe to be in the best interests of the beneficiaries. As a result both parties' costs should come out of the trust fund and should do so an indemnity basis (following the second class of case in Buckton (Costs), Re [1907] 2 Ch. 406), regardless of the trustees' breach of their duty to account to the beneficiaries.

4. Although the Court acknowledged that it was unfortunate that the consequence of this order was that the costs would come out of the trust, and therefore the assets in which the Claimant and her family had the greatest interest. However, the Court further acknowledged that could not be helped: "[t]he trust fund is not the alter ego of the Claimant".

Comment

This case seems to demonstrate the Court acting to protect trustees who have acted reasonably. Although, there was a breach of trust here as the trustees failed to account to the beneficiary, as this breach of trust was held to have been in good faith, and the trustees had acted on the advice of respected counsel, the Court decided that it would not be right to penalise the trustees. The Court went as far as to say that even if an adverse costs order had been made against the trustees, they could have recovered their costs and those owed to the beneficiary from the trust fund.

This judgment is likely to provide some comfort trustees, as well as being a reminder to beneficiaries that commencing litigation may well result in significant costs being paid from the trust fund.