In Griffin v Higgs & Ors  EWHC 2498 (Ch), the London High Court heard an appeal against a costs order which prevented the removed executors of a trust from being entitled to an indemnity from the estate in respect of their costs for the Part 8 Claim to remove them. The High Court dismissed most of the appeal and held that the executors were not entitled to an indemnity for the majority of the costs that they were liable for. We discuss the case further below.
Mr and Mrs Folkes had built up a number of assets throughout their lifetime. Mr Folkes died in 1991, and Mrs Folkes in 2014, leaving behind their three adult children: Constantine Folkes (the fourth Defendant in these proceedings), Jane Griffiths (the Claimant in these proceedings) and James Folkes. Prior to Mrs Folkes’ death, she created a will and codicils and a letter of wishes and appointed two solicitors and an accountant as her executors and trustees (the “Executors“). By Mrs Folkes’ last will and codicils, she left the remainder of the estate to be held on discretionary trusts, with her three children and grandchildren as the beneficiaries.
In June 2016, Jane Griffiths issued a Claim against the Executors, seeking an order removing the Executors and replacing them. The Claim was based on allegations that some of the transactions entered into during Mrs Folkes’ lifetime should be investigated due to her mental capacity at the time, and that the Executors were not sufficiently independent to conduct this investigation due to their ties with one of the beneficiaries (Constantine Folkes). There were also allegations that the Executors favoured some of the beneficiaries (Constantine Folkes and his children).
The Executors defended the claim as first, second and third Defendants. Constantine Folkes and his children were joined as the fourth to seventh Defendants prior to the three day trial of the Claim. Just before the trial, the Executors decided not to defend the claim and adopted a neutral stance, despite the fourth to seventh Defendants being opposed to their adoption of a neutral stance.
The First Instance Judgment
The Claim was heard in the High Court in London. The Trial Judge held that the Executors should be replaced, albeit not by the person proposed by the Claimant.
The Trial Judge also held that out of the 15 allegations that the Claimant stated should be investigated and 2 additional allegations that arose just before trial, only 5 of those justified the appointment of an administrator. However, the Trial Judge did not decide to limit which of the allegations should be investigated, to ensure that the appointed administrator would be properly independent and able to follow lines of enquiry as he/she sees fit.
The Costs Judgment
Following this, the Trial Judge provided a Costs Judgment and Order which split liability for costs into two periods: the period up to the date of the hearing when the Executors continued to actively oppose their removal (the “First Period“) and the period following the start of the hearing when the Executors had decided to take a neutral stance (the “Second Period“).
The Trial Judge ordered:
- All seven Defendants to be jointly and severally liable to pay the Claimant’s costs during the First Period;
- The fourth and seventh Defendants to be jointly and severally liable to pay both the Claimant’s costs and the Executors’ costs incurred in the Second Period;
- The Executors were not entitled to an indemnity from the estate in respect of their own costs incurred throughout either the First Period or the Second Period; and
- A payment of £150,000 on account of costs to be paid by all of the Defendants to the Claimant.
In coming to his decision, the Trial Judge discussed the principles that he found applied to costs orders relating to when executors are parties to litigation. The Trial Judge held that the general rules to costs apply:
- the starting point was that costs follow the event;
- subject to a consideration of whether or not the Executors’ costs have been properly or reasonably incurred.
Costs follow the event
The Trial Judge held that the Claimant had “won” for the purposes of costs, because she had been successful in her application to have the Executors removed. Although the Trial Judge found that only 5 of the issues that the Claimant raised justified an investigation, he did not limit the administrator’s discretion. He held that it would not be just to make an issues or conduct based costs order in the circumstances.
Costs properly and reasonably incurred
The Trial Judge relied on Lewin on Trusts, (19th edition) at [27-191] which states:
“If a trustee is removed on the ground of conflict of interest and duty, the court might normally be expected to make an order for costs against the trustee, though might allow the trustee his costs in special circumstances…If the trustee did not act reasonably, he will be ordered to pay the applicant’s costs and deprived of his indemnity“.
The Judge also referred to the Law Society’s Practice Note on Disputed Wills (relevant to the 2 solicitor executors) which states at para 5.1:
“As an executor you are a fiduciary with duties to the beneficiaries of the estate, whoever they turn out to be. If you are partisan in the litigation, you risk a costs order being made against you personally…To avoid being at risk of costs you should therefore remain neutral and allow the beneficiaries of the will or next of kin to pursue the litigation. Your only obligation in the proceedings is to provide information and to preserve the estate.”
The Trial Judge held that during the First Period the Executors had not acted reasonably in opposing their removal in light of the conflicts of interest being “plain and obvious”. He therefore refused the Executors the indemnity on the basis that they should have adopted a neutral stance from the commencement of proceedings, because the conflict of interest arose some years before that date at a time when they were also aware of Mrs Folkes’ declining capacity.
As for the Second Period, the Trial Judge held that the Executors were still not entitled to an indemnity because the adoption of a neutral position left them present at the trial, and that expecting the estate to pay for the costs of a late change of position would have a detrimental financial consequence for beneficiaries. However, the Trial Judge found that the fourth to seventh Defendants should instead pay the Executors’ costs for the second period as the Executors could have adopted a neutral position much earlier on in the proceedings if the fourth to seventh defendants had agreed to it.
The Executors and fourth to seventh Defendants appealed the Costs Order.
The Grounds of Appeal
There were a number of grounds raised by the representatives for the Executors and the fourth to seventh Defendants. To summarise, the key grounds of appeal were:
- The Trial Judge was wrong to hold that the Claimant had won and the fourth to seventh Defendants had lost;
- The Trial Judge was wrong to fail to reflect the Claimant’s conduct (in that she lost on a number of issues) in the Costs Order;
- The Trial Judge was wrong to order that the fourth to seventh Defendants were liable for costs incurred prior to them becoming party to the proceedings;
- The Trial Judge was wrong to order that the fourth to seventh Defendants should pay the Executors costs during the second period;
- The Trial Judge was wrong to deny the Executors an indemnity from the estate for the First Period; and
- The Judge was wrong to deny the Executors an indemnity from the estate for the Second Period.
On appeal, the High Court upheld all of the Trial Judge’s findings, except for the final ground of appeal. The Appeal Judge held that the Executors should not have been deprived of an indemnity for the Second Period, but upheld the finding that the Executors were not entitled to an indemnity for the First Period.
In coming to these conclusions, the Appeal Judge considered that the starting point is reflected in CPR r.46.3 and PD46 para 1. These provisions express that the general rule is that where a person is party to proceedings in their capacity as trustee or personal representative, they are entitled to be paid the costs of the proceedings (insofar as they are not recovered from another person) out of the relevant trust fund or estate, assessed on an indemnity basis. This general rule applies when costs have been properly incurred, which depends on whether or not the representatives acted unreasonably in bringing or defending a claim, or in the conduct of the proceedings.
The Appeal Judge agreed with Lewin (see above), and held that in the circumstances the Trial Judge had not erred in principle in finding that where there was a clear conflict of interest, the Executors had acted unreasonably in resisting the claim for their removal throughout the First Period.
Regarding the Second Period, however, the Appeal Judge disagreed with the Trial Judge’s approach that the Executors were still acting unreasonably when they were no longer defending the claim. The Appeal Judge held that “any reasonable costs which are reasonably incurred by them thereafter will generally not be due to their previous unreasonable resistance but to events occurring after that resistance has been abandoned.” The Appeal Judge found that costs continued to be incurred after resistance was abandoned due to the defence mounted by others, and therefore, the Executors should not be deprived of the indemnity for the Second Period (insofar as they are not paid by the fourth to seventh defendants) and allowed this point of appeal. All other grounds of appeal were dismissed.
This case demonstrates that trustees and personal representatives must very carefully assess the possible personal cost implications of being party to litigation regarding a disputed estate, and in particular, taking an active position in the proceedings, as the costs consequences can be substantial. In this case, the cost order was in excess of £1million in total.
Where the claim is to remove trustees or personal representatives, it should not be assumed that the trustees’ costs will automatically be ordered from the estate. This will only occur if costs have been reasonable in amount, reasonably incurred, and if the trustees or representatives have acted reasonably in resisting the claim and throughout proceedings.
There are a number of factors that the Court will be looking at when assessing whether the trustee or representative has acted reasonably, but as demonstrated in this case, where there is evidence that the trustee was aware of a conflict of interest, it is likely to be found to be unreasonable to resist a claim with potentially very costly consequences for the trustee.