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Beddoe applications – still fit for purpose?

1st Apr 2015

Since the case of Re Beddoe [1893] 1 Ch 547 it has become accepted that costs incurred by trustees who bring or defend hostile litigation unsuccessfully are costs which are prima facie not properly incurred and therefore cannot be recouped from the trust fund pursuant to their indemnity. A trustee is not protected merely because he acts on legal advice. It has been said fairly recently that a trustee who has pursued or defended an action unsuccessfully is likely only in exceptional circumstances to be able to show that his costs were properly and reasonably incurred (see Bonham v Blake Lapthorn Linell [2007] EWHC 2513 (Ch) at para 123). Consequently, trustees are usually advised to obtain the consent of their beneficiaries, or an indemnity from one or more of them. In the last resort, trustees are usually advised to obtain prospective costs protection by bringing an application for directions as to whether or not the claim should be litigated – a Beddoe application.

One has to remember that at the time of Re Beddoe, it was envisaged that an application for directions would be quick and cheap (“an inexpensive method of solving [the] doubts” of a trustee who “is doubtful as to the wisdom of pursuing or defending a lawsuit” per Bowen LJ)

That is no longer always true. Beddoe applications have the potential to become hard fought and expensive litigation. In Howell v Lees-Millais the hearing of the Beddoe application took 12 days and together with the subsequent arguments on costs incurred over £1m in costs, something which the Court of Appeal said should never happen again. See also Garnham v PC [2012] JRC 050, a hearing in Jersey in which the hearing bundles comprised 23 lever arch files, and lasted 5 days, with comparable costs.

Both these cases were cases in which the trustee was asking for directions as to whether to sue a beneficiary. It may fairly be said it is a momentous decision for a trustee to sue one of his beneficiaries and that it is important that the court examines the case for and against bringing proceedings before allowing the resources of the trust to be brought to bear. But what about simple cases, where the advice is clear, but the beneficial class too large for consent and indemnities to be workable?

The CPR makes detailed provision for the contents of the evidence in support of the application which must contain the advice of a suitably qualified lawyer on the prospects of success and opens the door to making straightforward applications on paper. In a case where there is no opposition, it is questionable whether the trustee is really obtaining the opinion of the judge or master. There is a sense of a busy court “rubber stamping” the advice which has been given. How does this advance or protect the interests of the beneficiaries? What advantage is there over and above the trustee simply being allowed to rely on the advice he has been given? Worse – if the lawyer’s advice has been negligent, the Court’s approval of the course suggested may weaken a claim which the trust or estate may have against the lawyer.

Trustees are used to taking risk. Whenever they make investments they take the risk that the investments will go down in value instead of up. They take the risk that beneficiaries will say that they have acted negligently in making a bad investment. They expect to have to justify their position by reference to the advice they took and the information they had available. Why should a decision whether or not to litigate be any different?

There has been one wrong turn in the law. That is the acceptance of the contention that trustees who bring or defend an external claim unsuccessfully are prima facie not entitled to an indemnity. If that presumption were removed, then a trustee would be free to make a decision as to whether or not to litigate on the basis of competent advice. A trustee who acted in accordance with such competent advice would not be negligent (see Lloyd LJ’s analysis in Pitt v Holt, Futter v Futter [2011] EWCA Civ 197 at 119 to 125). Unless and until a beneficiary successfully established that the trustee had acted negligently in relation to the litigation, the trustee could rely upon his indemnity and lien whatever the outcome of the litigation.

In this way, Beddoe applications would be brought into line with other applications for directions. They would only be used where there was real doubt about the correct course of action, or because a decision to litigate was so momentous that the trustee needed the guidance of the court.

Sadly, that is not the present state of the law.

The Honourable Mr Justice Rajah The Honourable Mr Justice Rajah
Barrister Portfolio
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