Price v Saundry & Anor

A trustee’s right to an indemnity from the trust fund under Trustee Act 2000 depends on whether the expenses were properly incurred and incurred when acting on behalf of the trust. Properly incurred means not improperly incurred. Misconduct is wider than dishonesty and may include unreasonable conduct, but not a mere mistake.

An account in common form does not itself allege wrongdoing. It may nevertheless reveal breaches of trust or serious misconduct. A trustee who unsuccessfully defends such matters is acting personally, not for the trust, and may not recoup either own costs or adverse costs from the fund. An adverse costs order and an unbettered Part 36 offer are not conclusive, but may be material indicators.

The appellant, a beneficiary, initially sought the removal of the trustees of a property trust. By consent, that claim was not pursued and the proceedings continued as an account in common form.

The account revealed adjustments requiring the first respondent trustee to restore £52,701.54 plus agreed interest to the trust. The High Court dismissed her rectification claim and made her liable for the appellant’s costs of the account, but held that she could indemnify herself from the trust fund for both her own costs and the adverse costs order: [2019] EWHC 1039 (Ch).

The appeal concerned whether the trustee retained an indemnity for the abandoned removal claim and for the account claim, including costs incurred after an unbettered Part 36 offer.

1. Appeal allowed in part. The appeal against the trustee’s indemnity for the costs of the removal claim was dismissed. The appeal against her indemnity for her own costs and the adverse costs order in the account claim was allowed.

2. Section 31(1) of the Trustee Act 2000 codified the pre-existing law. The controlling questions are whether expenses were properly incurred and whether they were incurred while acting on behalf of the trust. The procedural provisions in CPR 46.3 and PD 46.1 are complementary to that statutory inquiry; they are not exhaustive.

3. “Properly incurred” means not improperly incurred. A trustee may lose indemnity where a breach of trust causing loss or other misconduct is established. Misconduct includes unreasonable conduct, but a mere mistake does not suffice. The court relied on the distinction drawn in Armitage v Nurse & Ors, [1998] Ch 241, between an unsuccessful account without misconduct and an unsuccessful defence to breaches of trust.

4. An account in common form does not itself assume wrongdoing. However, the account here disclosed serious misconduct and breaches of trust, including retaining trust sale proceeds and using trust funds to pay the trustee’s late husband’s liabilities. In defending those matters the trustee acted for herself, not for the trust. Her costs, including the adverse costs order, were therefore not expenses properly incurred on the trust’s behalf.

5. The inter partes costs order and the consequences of the unbettered Part 36 offer did not automatically remove the indemnity. In the circumstances, however, they were material indicators which the judge should have considered when applying section 31(1).

6. By contrast, the removal claim had not been determined or compromised. There was no evidential basis to find that its defence had been improperly incurred or pursued for the trustee’s own benefit. Under PD 46.1, personal relief sought against a trustee does not alone establish that conclusion. The trustee was entitled to the benefit of the doubt for that discrete claim.

• Court of Appeal (Civil Division): Allowed the appeal concerning the trustee’s indemnity for the account claim, including her own and adverse costs, but dismissed it concerning the removal claim.
• High Court (Chancery Division), Bristol District Registry: The judge ordered the trustee to credit the trust with £52,701.54 plus interest, dismissed the rectification claim, and permitted indemnity from the trust fund for costs of both claims: [2019] EWHC 1039 (Ch).