Davies v Watkins

The Court of Appeal held that an application by an executor for directions (a "Beddoe" application) retains the special character applicable to trustee/personal representative applications and should not be treated as ordinary adversarial litigation for costs purposes. The court emphasised the trustee’s and personal representative’s statutory right to indemnity for "expenses properly incurred" (Trustee Act 2000 s.31 and s.35) and the relevant Civil Procedure Rules and Practice Directions governing applications for directions (Part 64 and PD64B, and Part 48/Costs Practice Direction). The judge below was found to have erred in law by treating the 2008 Beddoe proceedings as if they were ordinary inter partes litigation, and by depriving the executor of his indemnity and ordering personal liability for some of the defendant’s costs. The appeal was allowed and the claimant was declared entitled to an indemnity out of the estate for costs of the Beddoe application up to the date of the consent order; no other order as to costs was made by the Court of Appeal.

Background and parties

The appellant, Mr Robert Davies, brought proceedings as executor of the late Mrs Doreen Watkins for directions concerning the realisation of a single share in Redijo Ltd which formed part of the residuary estate. The respondent, Mr Ian Watkins, was a co-shareholder and director of the company. Mr Davies issued a Part 8 claim seeking directions (a Beddoe application) about whether to commence litigation (an unfair prejudice petition under section 994 Companies Act 2006 or a just and equitable winding-up petition) to realise the estate’s interest.

Procedural history

• The proceedings began with a Part 8 claim on 2 July 2008. A contested hearing took place on 24 October 2008 before HHJ Graham Jones, adjourned part-heard; negotiations continued and a consent order was later made; an expert valuation produced widely differing figures for two dates and HHJ Chambers later decided the relevant valuation date (23 August 2011), which produced a low valuation for the share. On 2 November 2011 HHJ Chambers made orders about costs which denied the executor indemnity out of the estate and required the executor to pay certain costs of Mr Ian Watkins. The executor appealed to the Court of Appeal.

Relief sought and issues

• (i) The executor sought directions as to how to realise the estate’s share and (ii) on appeal the principal issues were whether the executor was entitled to recover his costs of the Beddoe application from the estate and whether he should be personally liable to pay the respondent’s costs of particular hearings.

Court’s reasoning

The Court of Appeal reviewed the law on Beddoe applications, the trustee/personal representative entitlement to indemnity for expenses "properly incurred" (as reflected in Trustee Act 2000 s.31(1) and s.35), the authorities including Re Beddoe and Re Moritz, and relevant Civil Procedure Rules and Practice Directions (Part 64, PD64B paras 7.2 and 7.5, Part 48 rule 48.4, and the Costs Practice Direction paras 50A.1–2). The court concluded that the judge below had treated the 2008 Beddoe proceedings as ordinary inter partes litigation, imposing a different approach to costs, and had relied on criticisms of the executor’s pre-action letter, alleged failure to provide a draft statement of case and delay in engaging with a settlement offer. The Court of Appeal found those criticisms unjustified in context: no specific pre-action protocol applied to Beddoe applications; PD64B did not impose mandatory requirements and a draft petition can be disproportionate in many cases; and the bringing of the Beddoe application prompted settlement negotiations. The Court allowed the appeal, set aside the challenged parts of the costs order, and declared the executor entitled to an indemnity out of the estate for his costs of the Beddoe application up to the date of the consent order, making no other order as to costs between the parties.

Procedural note: the Court acknowledged that in later contested elements of the dispute (such as the valuation-date application) the proceedings assumed the character of ordinary adversarial litigation and were treated accordingly, but that did not change the character of the Beddoe application in 2008.

Appeal allowed. The Court of Appeal held that the judge below erred in law by treating the Beddoe application as ordinary inter partes litigation for costs purposes and by depriving the executor of his indemnity out of the estate. The court declared that the claimant (executor) is entitled to an indemnity out of the estate for his costs of the Beddoe application up to the date of the consent order and made no other order as to costs between the parties.

Appeal from the High Court of Justice, Chancery Division, Cardiff District Registry (His Honour Judge Chambers Q.C.), order made 2 November 2011. Permission to appeal granted by Lord Justice Patten. This judgment is reported at [2012] EWCA Civ 1570 in the Court of Appeal (Civil Division).