Price -v- Saundry & Anor
18 Dec 2019
A sought an account in common form, alleging various improper payments and receipts. HHJ Matthews heard the account, made a number of findings of improper payments by the trustee and ultimately ordered the trustee to repay £52,701 plus interest to the trust. On costs, he ordered the trustees to pay the applicant’s costs of the account, partly on the indemnity basis because a Part 36 offer had not been met. However, he ordered that the trustees could have both their own costs and the costs ordered to be paid to the claimant out of the fund, because he did not consider he had found the trustees guilty of any breach of trust. The claimant appealed.
The Court of Appeal reversed the decision.
A trustee’s right to an indemnity arises from s.31 Trustee Act 2000 and applies if the court is satisfied of two matters: (1) Were the expenses not improperly incurred? And (2) were the expenses incurred by the trustee acting on behalf of the trust, rather than for his own benefit?
If a breach of trust causing loss to the trust fund or other misconduct is established against the trustee, the trustee may be deprived of his indemnity. Misconduct in this context should be construed widely to include not only misconduct in the sense of dishonesty but also conduct which is unreasonable in the circumstances. It does not extend, however, to a mere mistake on the part of the trustee.
The taking of an account in common form is hostile litigation and may involve findings of breach of trust and/or other misconduct; historically it was the only means by which such allegations could be made. The account taken by the judge below revealed serious misconduct by the trustee; the decision to preserve their indemnity failed to recognise the seriousness of that misconduct. Although an adverse costs order made inter partes does not necessarily lead to the loss of a trustee’s indemnity, it is a strong indicator that the requirements of section 31 may not have been met. Similarly, the failure to meet a Part 36 offer is a material indicator in the assessment whether to deprive the trustee of their indemnity.
The Court of appeal ordered that the trustee pay her own and the claimant’s costs of the account personally.
Trustees can now expect to lose their indemnity for costs out of the trust fund where they are found to have acted unreasonably in the circumstances, and the court’s making of an inter partes costs order against the trustees will usually, but not always, lead to an order depriving the trustee of their indemnity.