Smith & Anor v Michelmores Trust Corporation Ltd & Ors (Costs)

A trustee or personal representative may recover litigation costs from a trust fund or estate only where the costs were properly incurred and were incurred in the relevant representative capacity. The indemnity is tied to the fund or estate on whose business the person acted. A person who acts as trustee cannot recover trustee-litigation costs from an estate merely because the same person is also its personal representative. In any event, costs are not properly incurred where a proper objective is pursued through an improper means, such as acting under an acute conflict of interest or committing a fraud on a power.

The claimants, acting as trustees of a discretionary trust created by a will, sought court approval for the appointment of £55,000 from the trust fund to the fourth defendant. The court refused approval in reasons given in [2021] EWHC 1425 (Ch). The costs issue concerned whether the first claimant, who was also the estate’s sole surviving personal representative, could obtain an indemnity from the remaining estate assets for the costs of the trustee proceedings, including costs payable to the fourth defendant.

1. The application was refused. The claimants were not entitled to an indemnity from the estate for the costs of the claim, including the costs payable to the fourth defendant.
2. Under the general law, reflected in section 31(1) of the Trustee Act 2000 and applied to personal representatives by section 35, an indemnity is available only for expenses properly incurred when acting on behalf of the trust or estate. CPR rule 46.3 and paragraph 1 of the Practice Direction to Part 46 implement or complement that statutory indemnity in litigation.
3. Following Price v Saundry [2019] EWCA Civ 2261, the relevant inquiry is whether the expenses were properly incurred and whether they were incurred by the trustee when acting on behalf of the trust. Properly incurred means, in substance, not improperly incurred. Misconduct includes unreasonable conduct, though a mere mistake does not suffice.
4. The first claimant brought the proceedings in her capacity as trustee, not as personal representative. The power sought to be exercised belonged to the trustees, and the second claimant was joined as co-trustee. The relevant fund under CPR rule 46.3 and paragraph 1 of the Practice Direction was therefore the discretionary trust fund, from which the claimants did not seek an indemnity. The first claimant could not transfer that claim to the estate merely because she held both offices.
5. Alternatively, if the claim were analysed as estate business, the costs would still have been improperly incurred. The first claimant acted in an acute conflict of interest and purported to exercise a power beyond its scope, or committed a fraud on the power. A proper objective could not be achieved by those improper means.