Mussell & Anor v Patience & Anor

A litigation costs order does not automatically determine an executor’s separate right to indemnity from the estate. The two questions involve different principles. Litigation costs primarily depend on success and any reason to depart from the usual rule. An executor’s indemnity depends on whether the relevant costs or liabilities were properly incurred. A dispute concerning the trusts on which an estate is held, including the beneficiaries’ entitlements, may be a friendly trust dispute even where the parties are hostile. An executor is not deprived of indemnity merely because the proposed course has not yet produced a financial result. Impropriety, including unreasonable conduct in substance, must be established before the indemnity is lost.

The claimants were executors of the estate of the late Louis Patience. Earlier proceedings concerned their estate accounts and the proposed distribution of the estate. The court confirmed the accounts but declined to approve the distribution account, which raised questions concerning the effect of a mediation agreement and the beneficiaries’ potential capital gains tax liabilities.

At a costs hearing, the defendants were ordered to pay 80% of the claimants’ litigation costs. The parties then disagreed whether the remaining 20% could be recovered from the estate under the executors’ general right of indemnity. The issue was whether the distribution-account work was a beneficiaries’ dispute or a hostile trust dispute, and whether the litigation costs order controlled the executors’ entitlement to indemnity.

1. Nature of the dispute. The court rejected the submission that the distribution account involved a beneficiaries’ dispute. The executors had not distributed the estate or committed any act giving rise to a breach of trust or devastavit claim. They had stated their view of the beneficiaries’ entitlements and sought agreement.
2. The dispute was instead a trust dispute concerning for whom, and in what shares, the estate was held. It was a friendly trust dispute in the relevant legal sense because it concerned a question arising in the administration of the estate. The parties’ personal animosity did not make the dispute legally hostile.
3. Separate costs principles. A litigation costs order and an executor’s general indemnity are distinct. The former principally concerns who succeeded in the proceedings and whether the usual rule should be varied. The latter concerns whether the executor acted properly in incurring the relevant costs or liabilities. There is no automatic carry-over from one decision to the other.
4. Under Trustee Act 2000 sections 31 and 35, together with CPR Part 46 Practice Direction paragraph 1, the claimants could be deprived of indemnity only if the relevant costs had been incurred improperly. References to unreasonable conduct or misconduct expressed the same substance.
5. The claimants had not acted improperly or unreasonably. They had attempted to advance the interests of all beneficiaries and to bring the administration to an end by addressing an issue that required resolution. The relevant costs were therefore properly incurred, even though the proposed account had not yet produced a final result.
6. The claimants were entitled to recover 80% of their costs from the defendants under the litigation costs order and the balance from the estate on the indemnity basis. The court did not rely on the will’s charging clause.

First-instance ruling on the form and effect of a costs order following earlier proceedings before the same judge. No appeal or lower-court decision is stated.