KAREN PEGLER & Ors v TIMOTHY BRUCE MCDONALD & Anor

In trust and estate litigation, the court must distinguish between the inter partes costs order and any trustee’s or personal representative’s indemnity from the estate. The general rule is that the unsuccessful party pays the successful party’s costs, subject to the court’s discretion. A party may also be ordered to pay another party’s costs where that party’s wrongful conduct caused the litigation. A trustee or personal representative is indemnified only for costs properly incurred. Unreasonable conduct in defending proceedings may, by itself, prevent indemnification. Beneficiaries who bring litigation necessary for the administration of an estate may recover their costs from the estate, subject to recovery from the party ordered to pay them.

The claimants sought the removal of the first defendant as executor of the estate of Clive McDonald. The claim succeeded in the earlier judgment, [2022] EWHC 2405 (Ch). This judgment determined consequential costs issues.

The court considered whether the first defendant should pay the claimants’ costs, the costs incurred by the former second defendant, and whether any of those costs were recoverable from the estate. It also considered whether the claimants, as beneficiaries, had an indemnity from the estate and whether the first defendant retained his own indemnity as a personal representative.

1. Disposition. The first defendant was ordered to pay the claimants’ and Ms Collins’s costs. His costs and liabilities for others’ costs were not properly incurred and were not recoverable by indemnity from the estate. The claimants and Ms Collins retained an indemnity from the estate for costs not recovered from the first defendant. The first defendant’s legacy was to be set off against his costs liability.
2. The court applied the general costs rule in CPR rule 44.2. The claimants were the successful parties because their claim to remove the first defendant had succeeded. The first defendant’s disagreement with the substantive judgment did not justify a different costs order. Any challenge to that judgment was for the appellate court to determine.
3. There is a distinction between an order requiring one party to pay another’s costs and the separate question whether a trustee or personal representative is entitled to an indemnity from the fund or estate. The indemnity is available only for costs properly incurred, assessed in all the circumstances.
4. The court treated Child v Stenning as establishing a principle wider than the usual Bullock or Sanderson order. A party may be ordered to pay another party’s costs where the first party’s wrong caused the whole litigation. The first defendant’s unreasonable conduct had caused the litigation and justified an order requiring him to pay Ms Collins’s costs as well as the claimants’ costs.
5. The claimants were beneficiaries, not personal representatives, and therefore had no statutory indemnity under section 31 of the Trustee Act 2000 or CPR rule 46.3. Applying the class-two principle in Re Buckton, however, the claim was in substance necessary for the administration of the estate, so the claimants’ costs were payable from the estate to the extent not recovered from the first defendant.
6. The defendant had not obtained prior directions, acted partly in his own interests, and objectively acted against the interests of the estate. The court did not need to decide whether the first two matters alone would defeat the indemnity. His highly unreasonable conduct in defending the proceedings was sufficient to show that the costs were not properly incurred.
7. Costs were ordered on the standard basis. The claimants’ costs were to be assessed summarily on paper, with written submissions according to the timetable stated in the judgment.

The costs judgment followed the court’s earlier substantive judgment removing the first defendant as executor: [2022] EWHC 2405 (Ch). Permission to appeal against an earlier procedural order was refused by Zacaroli J on 24 June 2022. The present judgment determined consequential costs and assessment directions.