Nathan James Smith & Ors v Ian Patrick Campbell & Ors

Costs between parties and a trustee’s indemnity from trust assets are separate questions, although both may involve the reasonableness of the trustee’s conduct. Costs remain within the court’s broad discretion under Senior Courts Act 1981, s 51 and CPR r 44.2. The court assesses substantial success, conduct, settlement offers and alternative dispute resolution. A trustee’s indemnity under Trustee Act 2000, s 31(1), and CPR r 46.3 is lost only where costs were improperly incurred. Removal for hostility or a breakdown in relations creates no general rule either for or against deprivation of the indemnity. The court must assess whether resistance to removal was in the trustee’s interests or those of the trust, and whether it was reasonable in all the circumstances.

The judgment concerned costs following the court’s earlier decision, Smith v Campbell [2025] EWHC 3011 (Ch), which directed that two trustees be replaced by an independent professional trustee while two family trustees remained in office. The parties agreed the replacement trustee and conventional change-of-trustee orders. The remaining issues were the incidence of costs between the parties and whether the trustees should lose their indemnity from the trust assets.

1. The claimants were substantially successful because two of the four trustees were removed and replaced, but their success was partial. The starting point under CPR r 44.2 was therefore an order requiring the trustees to pay the claimants’ costs, subject to the court’s broad discretion.
2. The claimants had acted unreasonably by commencing proceedings without pre-action correspondence or compliance with the Practice Direction – Pre-Action Conduct, exaggerating allegations and pursuing numerous misconduct allegations which were withdrawn or dismissed. They were also primarily responsible for the failure to achieve early ADR. The court rejected the suggestion that pre-action conduct matters only if it caused an unsuccessful claim or increased subsequent costs, applying Bank of Tokyo-Mitsubishi Ufj Ltd v Baskn Gida Sanayi Ve Pazarlama AS [2009] EWHC 1696 (Ch).
3. The appropriate order as between the parties was therefore no order as to costs.
4. The trustees’ indemnity was a distinct issue. Under Trustee Act 2000, s 31(1), CPR r 46.3 and Practice Direction 46, the court had to make a broad evaluative judgment, with particular regard to whether the trustees obtained directions, acted for the benefit of the trust, or acted unreasonably. Properly incurred costs mean costs which were not improperly incurred, and a trustee has the benefit of the doubt where propriety is uncertain, following Price v Saundry [2019] EWCA Civ 2261.
5. A removal claim is ordinarily hostile beneficiary litigation, but may instead concern the administration of the trust. There is no universal rule that trustees removed for hostility or a breakdown in relations must, or must not, lose their indemnity. The court must examine the grounds of removal and the reasonableness and purpose of the trustees’ resistance. A trustee may properly defend allegations of breach of trust or misconduct, even where removal is ultimately justified by a breakdown in relations.
6. The trustees had reasonably defended the allegations and had made an early, good-faith proposal involving Paddy’s retirement or a demerger with an independent trustee. Their proposal was imperfect but did not need to be perfect. The trustees were therefore entitled to be indemnified from the trust assets. The court did not decide whether partial deprivation of an indemnity was jurisdictionally available.

First-instance costs judgment following Smith v Campbell [2025] EWHC 3011 (Ch). The earlier judgment removed two trustees and directed their replacement by an independent professional trustee.