Price v Saundry [2019] EWCA civ 2261

This case relates to a Trustee who lost their rights to indemnity for costs from the trust.

The Court of Appeal in this case had to consider the circumstances in which trustees are entitled to be indemnified from the trust fund for the costs that they incur in Court proceedings.

The background to this involves two beneficiaries of a trust, Mrs Price and Mrs Saundry. The Trust comprised of several buy to let properties in the South West. The Trustees were Mrs Saundry and her brother, Mr Sanders.

Mrs Price commenced a claim to remove the Trustees for three specific reasons:

1. Mrs Price claimed that in breach of the trust deed, Mrs Saundry refused to appoint Mrs Price as a trustee, instead appointing her brother;
2. Mrs Price claimed that Mrs Saundry had attempted to boy on the trust properties at an undervalue; and
3. The trustees had persistently failed to provide Mrs Price with financial and accounting information, which was again, in breach of the trust.

An added complexity to this case was that by the time the matter was ready for trial, the trustees had sold the majority of the trust properties, which meant there would shortly be only a pot of money for distribution. The application to remove them therefore would be rendered otiose. Instead however, it was agreed that the litigation would proceed as an account against the trustees, requiring them to account for the capital and all income and expenditure of the trust since Mrs Saundry because a trustee back in 2013.

During the Court proceedings, three attempts were made to provide the account, which had been ordered by the Court. Unfortunately, however, Mr Sanders died shortly after the service of the first attempt.

Mrs Price disputed the account alleging, amongst other things, that the trustee had made various improper payments. Mrs Price provided an example of this which showed a payment of over £21,000 to Mr Sanders after his appointment as a trustee. As a matter of law, Trustees cannot benefit financially, or profit in anyway from their position, which includes any remuneration. This is also applicable to someone who is not legally a trustee, but who hold themselves out to be.

The Court therefore determined that the trustees had indeed made various improper payments and ordered Mrs Saundry to repay the trust over £52,000 plus interest.

Prior to the Court hearing, Mrs Price had made two relevant offers to settle, one of them being a Part 36 offer in a genuine attempt to settle her share in the trust fund, and of course Part 36 offers have significant cost consequences.

Therefore, when it came to costs, the Judge decided that Mrs Saundry should pay Mrs Price’s legal costs which were incurred in connection with the account Mrs Saundry had prepared. However, he also ordered that the trustees could have both their own costs and the costs they had to pay to Mrs Price, indemnified out of the trust fund. The effect of this would have therefore meant that Mrs Price, despite winning her case on the account, would have been better off financially if she had never challenged the trustees at all.

It is therefore not surprising that Mrs Price appealed this decision in the Court of Appeal. The Court of Appeal reversed the original judgment on the costs relating to the indemnity. They ultimately concluded that if a breach of trust or misconduct is established, causing loss to the trust fund, then the trustee can be deprived of their indemnity from the trust. The Court of Appeal judges said that the misconduct should be “construed widely to include not only misconduct in the sense of dishonesty but also misconduct which is unreasonable in the circumstances”. The Court of Appeal therefore made it clear that misconduct does not extend to a mistake on the part of the trustee.

Not only did the Court of Appeal consider that the account demonstrated that there had been serious misconduct, but also breaches of trust and it ordered that Mrs Saundry pay Mrs Price’s costs and her own costs of the account personally.

This case is important as it establishes a stark warning to those acting as a trustee that they cannot embark on litigation, have a cost order made against them, and then expect the trust to pay for it. If a trustee’s conduct is found to be unreasonable, then they are at real risk of losing their indemnity and becoming personally liable, as Mrs Saundry was, and they cannot use the trust as a safety blanket for misconduct.