Everything Pension Scheme Trustees need to know about making a successful application for a Beddoe order.

The decision to engage in litigation, whether as claimant, defendant or applicant can be a particularly difficult one for Trustees, as they may find themselves personally liable for the decisions made on behalf of their Scheme. However, a Trustee may seek costs protection under what is known as a Beddoe order.

What is a Beddoe order?

If a Trustee engages in litigation without the sanction of the court, they do so at their own risk. The Trustees seek sanction of the court through a Beddoe order. The order can take a number of forms but the main elements are:

  • For any costs incurred by Trustees, or for which the Trustees become liable, in the underlying dispute, to be paid out of scheme funds.
  • For the Trustees to be permitted to engage in the litigation to its conclusion or up to a certain stage in proceedings.

What does the court consider in an application for a Beddoe order?

The court will undertake a cost/benefit analysis to determine whether the Trustees should pursue or defend the underlying dispute. The Trustees must give full disclosure of all relevant matters so the court can make a fully informed decision, including providing the court:

  • formal advice from a senior barrister on the merits, issues and risks of the dispute
  • an estimate of the likely costs to be incurred by both the Trustees and any other parties to the underlying dispute.

As a result, an application for a Beddoe order provides a useful sense check for the Trustees as to the merits of engaging in litigation, in addition to securing costs protection if successful.

What protection does a Beddoe order provide?

A Beddoe order can be flexible and the Trustees therefore need to ensure that the court’s directions cover what they want and may need to do.

Costs protection may be provided by an order for the Trustees to be indemnified out of Scheme assets for their own and any adverse costs. Indemnification will only provide Trustees costs protection if their conduct was reasonable.

Any costs protection granted by the Beddoe order will be based on the estimates provided by the Trustees in the original application. As anyone who has been involved in litigation will know, much may change during the life of a dispute and early estimates can quickly become outdated.

As a result, the court may specify in the Beddoe order that the Trustees are only allowed to take certain actions up to a certain stage in the proceedings, with a requirement that, thereafter, the Trustees return to the court for further directions and a reassessment of any necessary costs or other protections.

Again, this ensures that the court’s role as “sense-checker” on the costs/benefits of the litigation continues.

How to apply for a Beddoe order

The application is made in entirely stand-alone, confidential, proceedings. The parties can request for the hearing to be heard in private and for access to the court record restricted. The Beddoe application is a matter solely between the Trustee and the beneficiaries, a representative of whom is appointed to test the Trustees’ application for Beddoe relief and who has their own legal representation.

This keeps the matters raised in the Beddoe proceedings, such as the Trustees’ prospects of success and likely cost expenditure, separate from the judge and other parties in the underlying dispute, protecting the Trustees’ position in those proceedings.

Trustees often make Beddoe applications as soon as possible so that they know early on in any dispute whether they will have protection going forward. Applications can, however, be made at any time during proceedings – although that means the Trustees run the risk that they will have incurred costs in the underlying dispute and do not subsequently obtain a Beddoe order.

There are other sources of protection for Trustees’ costs arising in court proceedings. In addition to advising on Beddoe relief, we regularly advise on Trustee indemnity cover and in particular whether third party pursuit or defence costs are otherwise available to Trustees.

Trustees may also be interested in obtaining After the Event Insurance which provides protection, at a premium, for the outcomes of litigation.