Bonham & Ors v Blake Lapthorn Linell (A Firm) & Anor

A trustee may recover litigation costs from a trust fund under the statutory indemnity only where the expenditure was properly and reasonably incurred. The absence of a Beddoe order does not itself prevent recovery, although an unauthorised and unsuccessful action will ordinarily be recoverable only in exceptional circumstances. The relevant claims must be assessed separately, including their prospects of success and purpose. A trustee exemption clause can cover loss caused by an unauthorised application of trust funds, provided its wording extends clearly to that liability. A solicitor advising trustees may owe a broad duty to advise on their powers and duties, but liability requires proof of breach and causative loss.

The claimants, comprising a beneficiary and trustees of the Bonham Settlement, sought to recover the costs of earlier litigation from a trustee and the solicitors who had acted for the trustees. They alleged that the earlier proceedings had been pursued for an improper purpose, lacked reasonable prospects of success, and should have been discontinued sooner.

The court considered three component claims in the earlier litigation: the trustee claim against Toby Bonham, the trustee claim against Eve Bonham-Cozens, and Toby’s personal claim against Eve. It also considered the statutory trustee indemnity, the absence of a Beddoe order, the scope of an exemption clause, alleged solicitor negligence and fiduciary breach, conflict of interest, and limitation.

1. Disposition. The claims against Mr Fishwick and Blake Lapthorn were dismissed.
2. The court applied the principles in Re Beddoe [1893] 1 Ch 547. A trustee litigating without beneficiaries’ consent or the court’s direction does so at risk as to costs, but the question under section 30(2) of the Trustee Act 1925 and section 31(1) of the Trustee Act 2000 remained whether the expenditure was properly and reasonably incurred. An application for a Beddoe order is for the trustee’s protection; it is not mandatory.
3. The three claims had to be assessed separately. The claim against Toby substantially succeeded because the settlement preserved the trust and associated security arrangements, confirmed the option and charge, and secured the trustees’ costs. It also had a reasonable prospect of success and was pursued for proper trust purposes. The claim against Eve was ultimately unsuccessful, but it had reasonable prospects until the settlement with Toby materially altered the trustees’ position. Thereafter it was reasonable to preserve the position while Toby decided whether to join and pursue his own claim. Toby’s personal claim was not a trust claim.
4. The litigation was pursued for proper and reasonable purposes, including protecting the trust from enforcement and a forced sale at an undervalue, and obtaining the outstanding shares so that the holding could be sold as a whole. Clause 18 of the option agreement did not itself establish that the trustees were required to litigate.
5. The exemption clause was construed restrictively, consistently with Bogg v Raper (1988/1989) 1 ITELR 267. Nevertheless, an unauthorised application of trust funds creates a deficiency and therefore a loss capable of falling within the clause if the wording clearly covers it. The court adopted the reasoning in Armitage v Nurse [1998] Ch 241 that an honest, non-fraudulent unauthorised act may fall within a trustee exemption clause.
6. Mr Fishwick had not acted in breach of trust, and his conduct was neither conscious wrongdoing nor recklessness. Blake Lapthorn owed contractual and tortious duties, extending in the circumstances to advice about the trustee’s powers and duties, but no actionable breach or causative loss was established. The conflict issue did not alter that conclusion because independent advice had been recommended and the claimants did not prove substantive detriment.
7. Claims concerning costs paid before 16 June 1998 were statute-barred.