London Capital & Finance Plc v Global Security Trustees Ltd

A trustee’s removal is not fault-based, but that does not make success and failure irrelevant to costs. A trustee who actively resists replacement will ordinarily be liable for the successful claimant’s costs where replacement is ordered, subject to the circumstances of the case. Indemnity costs are appropriate where the conduct takes the case outside the norm. A trustee’s contractual indemnity is construed according to its terms. Expenses must satisfy any requirement that they were reasonably and properly incurred, and conduct amounting to wilful misconduct may defeat the indemnity.

The judgment determined consequential issues following the earlier decision to remove Global Security Trustees Ltd (“GST”) as security trustee under a security trust deed. Madison Pacific Trust Limited had subsequently been appointed in its place.

The outstanding issues concerned costs, the basis of assessment and payment on account, GST’s entitlement to an indemnity under the deed, the effect of GST’s removal, GST’s remuneration and expenses, and whether it should identify any funder.

1. Costs. The fact that removal of a trustee is not dependent upon proof of fault does not make success or failure irrelevant. GST had actively opposed the claim despite being on notice of the conflict concerns and the bondholders’ wishes. The claim succeeded, and GST was ordered to pay LCF’s costs, subject to detailed assessment.
2. Indemnity basis and payment on account. Applying the guidance in Excelsior Commercial and Industrial Holdings Ltd [2002] EWCA Civ 879, the circumstances were outside the norm. The unusual nature of the trust role, the bondholders’ substantial losses, GST’s disregard of obvious conflicts and its prioritisation of commercial interests justified indemnity costs. GST was ordered to pay £150,000 on account under CPR rule 44.2(8).
3. Contractual indemnity. Clause 5.5 of the Security Trust Deed was wider than section 31(1) of the Trustee Act 2000, but its requirement that costs and expenses be reasonably and properly incurred materially restricted the indemnity. GST’s own costs and its liability for LCF’s costs were not reasonably and properly incurred. If necessary, the court would also have found wilful misconduct. The contractual issue was determined under the deed, without deciding the wider relationship between a contractual indemnity and the statutory and procedural provisions.
4. Effect of removal and remaining issues. The orders removing GST and appointing Madison Pacific terminated GST’s role and future duties under the deed, while preserving rights and liabilities accrued before removal. GST was given permission to apply concerning remuneration and expenses, subject to a properly formulated application and evidence. No further witness statement concerning funding was required.