Davies v Watkins

A trustee or personal representative who seeks directions about bringing, continuing or defending litigation invokes a special Beddoe jurisdiction. The application is not ordinary hostile litigation, and costs are not determined by the court’s general discretion between litigants. Subject to improper conduct, the trustee’s properly incurred costs, and normally those of beneficiary defendants, are payable from the trust fund or estate on the indemnity basis. Whether costs were properly incurred is fact-sensitive, but obtaining directions, acting for the fund and avoiding unreasonable conduct are central considerations. Practice Direction 64B guidance about a draft statement of case is not an inflexible condition of a proper application. The court may proceed in stages where preparation would be disproportionate.

The appellant, acting as executor of the estate of Mrs Doreen Watkins, issued a Part 8 claim seeking directions concerning a company share which was difficult to realise. The respondent, a beneficiary and potential defendant to contemplated company proceedings, opposed the application but made an offer to purchase the share. The matter was eventually compromised by consent, leaving the valuation date unresolved.

The High Court later determined the valuation date and ordered that the executor could not recover his costs from the estate and should personally pay specified costs of the respondent. The appeal concerned whether the costs of the earlier directions proceedings were governed by the ordinary rules for contentious litigation or by the special rules applicable to applications for trustee directions.

1. Appeal allowed. The Court of Appeal set aside paragraphs 1 and 2 of the High Court’s order. It declared that the claimant was entitled to an indemnity from the estate for his costs of the Beddoe application up to the consent order, with no further order as to costs between the parties apart from the earlier provision made by consent.
2. The proceedings were applications for directions by a fiduciary. Following Re Beddoe [1893] 1 Ch 547, they were not ordinary hostile litigation governed by the court’s general discretion as to inter partes costs. Any later proceedings authorised by the court would be separate proceedings governed by the ordinary costs rules.
3. The general position was confirmed by section 31(1) of the Trustee Act 2000, section 35 of that Act, rule 48.4 of the Civil Procedure Rules 1998 and paragraphs 50A.1 and 50A.2 of the Costs Practice Direction. A trustee or personal representative is entitled to an indemnity for costs properly incurred. In the absence of improper conduct, the trustee’s costs and normally the costs of beneficiary defendants participating in the directions application are payable from the fund or estate.
4. The respondent’s criticisms did not establish improper conduct. There was no relevant pre-action protocol for the proposed Beddoe application, unfair prejudice petition or just and equitable winding-up petition. The letter giving notice of the application was adequate. The requirement in Practice Direction 64B for a draft statement of case was guidance rather than an inflexible condition, and the court could direct staged preparation where a draft petition would involve disproportionate expense.
5. The executor’s response to the purchase offer was not improper. The proceedings had prompted a further offer which, after negotiation, resolved the problem. It was legitimate to continue preparing for the first hearing until the offer was put into acceptable terms. The later transfer of the house was not a proper basis for the costs decision because it had not formed part of the open material before the earlier judge.
6. The order for half the respondent’s costs of the later hearing also fell away. No offer before the court could properly be treated as a Part 36 offer, and the costs order could not stand once the underlying approach to the 2008 directions proceedings was rejected.

• Court of Appeal (Civil Division) — On 4 December 2012, the appeal was allowed and the relevant costs orders were set aside: [2012] EWCA Civ 1570.
• High Court of Justice, Chancery Division — His Honour Judge Chambers Q.C. ordered on 2 November 2011 that the executor could not recover his costs from the estate and should personally pay specified costs of the respondent.