Trustees risk facing costs orders in court proceedings in just the same way as any other party would.
When proceedings are brought against a trust or estate or where trustees or personal representatives of an estate are considering issuing proceedings against third parties, they face two key areas of risk - a) fighting and losing the litigation (adverse costs consequences), and b) choosing not to fight (and therefore running the risk of a claim by a beneficiary that they have committed a breach of trust in conceding the claim). Often they may be able to look to the trust fund to meet that liability, but that is an after the event exercise, and the ability to do so may be dependent on whether they were successful in the litigation.
Where trustees or personal representatives are involved in litigation against third parties they may be able to seek protection in advance from these risks by applying to the court for what is known as a "Beddoe Order" (named after the 19th century case of Re Beddoe [1893] 1 Ch 547). This is an order from the Court confirming that the trustees or personal representatives of a will, whatever the outcome of the claim, be entitled to an indemnity out of the estate for the costs of taking the steps authorised under the order. This is therefore a potentially very valuable tool.
Where the trustees have the express consent of all the beneficiaries to pursue (or to not pursue) an action, and if appropriate they have a deed of indemnity where the trusts' assets could prove insufficient to meet any costs order, a Beddoe order will not be necessary. However, where such consent and/or indemnity is not available, the trustees can - and often should - apply for a Beddoe Order. Failure to apply for such an order can leave trustees dangerously exposed, as if they lose the action they may have to personally pay costs with no right to reimburse themselves from the trust.
A Beddoe Order is obtained by an application to court under Part 64 of the Civil Procedure Rules seeking the court's directions.
An example of a successful Beddoe application was in the case of Baker v Dunne [2016] EWCH 2318 (Ch).
The claimants were the trustees of the trust of the will of Jean Montgomery, who died in 1997. The defendants were the three children of the deceased and were all equal beneficiaries of the trust. An asset belonging to the trust was the Albert Arms pub, from which the first defendant had been running a business for several years. He had been doing so on an informal basis, without paying any rent. The trustees sought vacant possession. The trustees' application was opposed by the first defendant but supported by the other two.
By the time of the hearing of the application the trustees had obtained a possession order. The first defendant alleged however that it would be breach of trust for the trustees to recover possession of the pub because the value of the premises was enhanced by the fact of his occupation running the business.
The trustees had already obtained numerous Beddoe Orders regarding the possession proceedings but in light of the threatened claim for breach of trust, the trustees sought - and obtained - approval from the court to take steps to obtain vacant possession and to sell the freehold to ensure they could not be criticised for taking this step.
On an application for a Beddoe order the court will review the submissions from the trustees and the beneficiaries and decide whether it is in the beneficiaries best interests for the proposed action to be taken. The decision is an exercise of discretion and the court will take into account:
It is open to the court to permit the trustees to take steps up to a certain stage (for example, disclosure or the exchange of witness evidence) and to then require the trustees to make a further application once that stage has been reached. This allows the court to revisit the merits of allowing the matter to continue once further information has become available, and importantly keep control of the costs being spent.
Trustees should therefore bear in mind that, even after the granting of a Beddoe Order, they should always keep the matter under review and consider returning to the court to seek further directions if an unexpected development of fact or law could potentially alter the merits of continuing with the proceedings.
In the case of Baker v Dunne, the court took into account a number of factors when deciding to grant Beddoe relief to the trustees, including the fact that the trustees had obtained undisputed valuation advice, and because there was no "real alternative to obtaining vacant possession and selling in accordance with the advice obtained". With regards to the claim for breach of trust, the judge said that it amounted to "little more than a complaint that the trustees have chosen not to sell the Albert Arms to [the first defendant]".
This case should provide some comfort for trustees, as the court clearly took the view that in the face of a difficult defendant, trustees are entitled to proceed cautiously and to obtain a number of Beddoe Orders to ensure that every step they take is authorised by the court.
When applying for a Beddoe Order the trustees must put all the facts before the court and provide the court with a barrister's opinion on the merits of the proposed action or defence. The application must be made using the CPR Part 8 procedure. In some cases, the court may be able to deal with the application on the papers alone but otherwise it will be dealt with at a hearing.
The beneficiaries will be the defendants to the application and will have the opportunity to make representations. This unavoidably makes the process slow, burdensome and often quite expensive, but ultimately is invaluable for a trustee in order to protect his position - and, as Baker v Dunne demonstrates, is a step the court will, in the right circumstances, endorse.
Contact our Disputed Wills and Trusts Team on freephone 0800 0931336, or by email willdisputes@ashfords.co.uk for a no obligation chat to see how we can help you.
