Joshua Birch Jones v Sandra Lorraine Sheppard

Where a trustee is a party to trust proceedings, the starting point is the trustee’s entitlement to an indemnity from the trust fund under Civil Procedure Rules 1998, rule 46.3. The entitlement extends to costs properly incurred and is assessed on the indemnity basis.

Interlocutory orders for costs in the case ordinarily defer, rather than remove, the final application of that rule. A trustee’s failure to establish some allowances, or the beneficiary’s success on some accounting challenges, does not alone justify depriving the trustee of the indemnity. The court must consider all the circumstances, including whether the trustee acted unreasonably or for a benefit other than that of the fund. On the facts, the trustee acted reasonably and retained her entitlement.

The claimant beneficiary brought proceedings against the defendant trustee concerning a declaration of trust over £1.8 million used to purchase property in Barbados. He sought disclosure, an account of the trustee’s administration and an injunction preventing sale of the property.

The disclosure and sale issues were resolved at an early stage. The principal issue at the final hearing was the treatment of disputed entries in the trust accounts. Some expenditure was disallowed, and the court then invited further submissions on whether the trustee was entitled to recover her litigation costs from the trust fund.

The central issue was whether the ordinary trustee-costs regime applied and, if so, whether there was sufficient reason to depart from it.

Application of the trustee-costs regime. The earlier interlocutory orders, mostly providing for costs in the case, did not oust the provisions of Civil Procedure Rules 1998, rule 46.3. Those orders deferred the incidence of costs until the outcome of the proceedings was known. The relevant starting point was therefore the general rule that a trustee is entitled to be paid costs from the trust fund where they are not recovered from another person. Such costs are assessed on the indemnity basis.

1. The indemnity is limited to costs properly incurred. Practice Direction 46 identifies relevant circumstances, including whether the trustee obtained directions, acted in the interests of the fund rather than for another benefit, and acted unreasonably in bringing, defending or conducting the proceedings.
2. The defendant had acted reasonably. She provided interim and updated accounts supported by documentation. The delay in identifying the disputed entries was substantially attributable to the claimant’s failure to particularise his objections.
3. The claimant’s success in disallowing approximately £32,000, together with additional legal fees, did not displace the general rule. He had challenged only part of the expenditure and succeeded on approximately 15% of those challenges. In any event, a trustee’s failure to establish some allowances is insufficient without misconduct or unreasonable conduct.
4. The proceedings could not realistically be characterised as breach-of-trust proceedings at the final hearing. The sale application was also reasonable, given the sums apparently due to the trustee and the undertakings obtained.

The defendant was accordingly entitled to her costs out of the trust fund, assessed on the indemnity basis under rule 46.3(3). The order included costs incurred in relation to the costs issue and the sale application up to 3 April 2025. Particular costs were left for assessment.