In the case of Blades v Isaac & Alexander (2016) the High Court had to consider whether the trustees should personally pay the beneficiary's costs in relation to her claim against them for disclosure of trust information.
Mrs Valerie Mary Lee (the deceased) left her entire estate (nearly some £1million) on discretionary trusts. The beneficiaries of the trust were originally her daughter Felicity, Felicity's husband and her children, and the deceased's cleaner. The trustees of the will trust were partners in the firm of solicitors that prepared the will.
The deceased also left a letter of wishes which suggested gifts to the beneficiaries but also that her other daughter, Deryn, should receive 5% of her estate, although she was not a named beneficiary. The trustees decided to exercise their power and added Deryn to the class of beneficiaries. Distributions were subsequently made out of the will trust to all members of the class, except Felicity's husband.
Felicity was unhappy with how the trustees were handling the administration of the trust and on a number of occasions asked them for a full inventory of the estate and a breakdown of the trustees' charges. The trustees refused to provide this information on the basis that (1) it was confidential to the executors and trustees and was not to be distributed to the beneficiaries, and (2) the trustees had concerns about the relationship between Felicity and Deryn which had been said to be "difficult". They considered that disclosing such information to the sisters could cause a breakdown in relations. They also sought Counsel's advice on their position. The first barrister they instructed said that the trustees were right to refuse.
Felicity continued to pursue the issue so the trustees sought an opinion from another barrister and indicated that if necessary they would seek the Court's direction. In the meantime Felicity issued court proceedings. The trustees' second barrister advised the trustees to disclose the information requested, and they immediately did so. At the hearing the Court focussed on what order for costs to make.
Felicity submitted that because she had in substance achieved what her claim set out to achieve (i.e. the disclosure of the requested information) she had effectively "won" and costs should follow the event. She claimed therefore that the trustees should personally pay her costs, as well as their own, without recourse to the trust.
The court held that the trustees had "at most committed a breach of their duty to account to the beneficiaries by providing appropriate information" but that no loss had been caused to the trust fund. The court said that "the trustees did what they thought was right, took specialist chancery advice when challenged… and said they would seek the court's directions". The court was satisfied therefore that the trustees had taken reasonable steps.
Therefore, in the exercise of the court's discretion under Civil Procedure Rule 44.2(2) the court ordered that the costs of the parties were to be paid out of the trust fund on the indemnity basis.
What does this mean?
The court evidently took a positive view of the fact that the trustees had sought specialist legal advice in relation to their duties of disclosure, despite the fact that that advice was initially incorrect.
While this case will provide comfort for trustees, it should also be a reminder for beneficiaries that commencing litigation, even in what appears to be a clear-cut case, may not result in the costs position sought and ultimately may well result in significant costs being paid from the trust fund.
For a full report of this case, you can read the judgment here.