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England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Davies v Watkins  EWCA Civ 1570 (04 December 2012)
Cite as:  EWCA Civ 1570
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ON APPEAL FROM THE HIGH COURT OF JUSTICE
CARDIFF DISTRICT REGISTRY
HIS HONOUR JUDGE CHAMBERS Q.C.
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE LLOYD
LADY JUSTICE BLACK
| ROBERT HUGH THOMAS DAVIES
|- and -
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Richard Ascroft (instructed by Acuity Legal Ltd) for the Respondent
Hearing date: 3 October 2012
Crown Copyright ©
Lord Justice Lloyd:
"This ruling is confined to the question whether it is proper for the claimant to take his costs out of the estate. There are no real assets in the estate and it may be insolvent: there is undoubtedly a liability to HMRC and the only property of substance has been transferred, so there are no assets in the estate to meet the liability. There have been extended discussions about the costs but, looking at the correspondence, it is wholly inappropriate for the claimant to get his costs from the estate, even if there were money available. There is a proper way of doing things and he has overlooked the need to do that.
The White Book demands that there should be a pre-action protocol letter.
Looking at the letter dated 5th June 2008 from the claimant to the first defendant, I find it wholly inappropriate for the requirements of the protocol. It should have had details of the basis of the relief clearly set out. Furthermore, at no stage did he ever serve a draft of the statement of case so it was only after the start of the proceedings that it could finally be said what the first defendant was facing.
On 31st July the first defendant responded at length and in particular made an offer tightly in keeping with the requirements set out by Lord Hoffmann in O'Neill v Phillips  1 WLR 1092, at 1107-8.
In the circumstances it might have been supposed that the response would be a clear engagement with the offer but instead the claimant still felt it necessary to put forward matters relevant to Beddoe application rather than dealing with the offer made in the witness statement. It is suggested that in some way the first defendant reneged; not so. The claimant, having chosen to put forward a substantive case instead of dealing with the O'Neill offer, the first defendant was entitled to refute that there was a settlement. So no one knew who was right or wrong and it went to a hearing when it should not have done and should have settled in the form of the offer.
It is not right that the fund should be called upon to reimburse the claimant who did not carry out the proper procedure. Therefore, there can be no resort to the estate by way of reimbursement."
"I am now dealing with the application by the first defendant for Mr Davies to pay the totality of the costs. It seems to me that this is going too far. The position is postulated on the supposition that if a proper pre-action protocol letter had been written there would have been a response as is found in paragraph 79 of the statement dated 31st July 2008 and after that things would have proceeded in a smooth fashion with minimal costs until the matter was put to bed.
Unfortunately, the events that one does know about indicate that the contrary would have occurred. It seems to me that, inevitably, there would have been costs incurred by the first defendant, for which the estate or the claimant would not be liable. It seems to me that I should take a common sense approach to this matter. The fact remains that I take the view that the Beddoe application should never have resulted in the hearing of the 24th October 2008. I take the view that it would have been necessary for a properly prepared letter, which would have incurred costs. The witness statement of the 31st July was made necessary by the witness statement in support of the application, to which it had to be directed.
It seems to me that, on a rough and ready approach, the claimant should be personally liable for the costs of and incidental to the hearing in October, including the preparation of the first defendant's evidence in respect of that hearing.
Having regard to the Part 36 offer, the claimant is to pay one half of the first defendant's costs of today."
"But a trustee who, without the sanction of the Court, commences an action or defends an action unsuccessfully, does so at his own risk as regards the costs, even if he acts on counsel's opinion; and when the trustee seeks to obtain such costs out of his trust estate, he ought not to be allowed to charge them against his cestui que trust unless under very exceptional circumstances. If, indeed, the Judge comes to the conclusion that he would have authorized the action or defence had he been applied to, he might, in the exercise of his discretion, allow the costs incurred by the trustee out of the estate; but I cannot imagine any other circumstances under which the costs of an unauthorized and unsuccessful action brought or defended by a trustee could be properly thrown on the estate.
I entirely agree that a trustee is entitled as of right to full indemnity out of his trust estate against all his costs, charges, and expenses properly incurred: such an indemnity is the price paid by cestuis que trust for the gratuitous and onerous services of trustees; and in all cases of doubt, costs incurred by a trustee ought to be borne by the trust estate and not by him personally. The words "properly incurred" in the ordinary form of order are equivalent to "not improperly incurred." This view of a right of a trustee to indemnity is in conformity with the settled practice in Chancery and with Turner v. Hancock (1882) 20 Ch D 303, the latest decision on the subject.
But, considering the ease and comparatively small expense with which trustees can obtain the opinion of a Judge of the Chancery Division on the question whether an action should be brought or defended at the expense of the trust estate, I am of opinion that if a trustee brings or defends an action unsuccessfully and without leave, it is for him to shew that the costs so incurred were properly incurred."
"If there be one consideration again more than another which ought to be present to the mind of a trustee, especially the trustee of a small and easily dissipated fund, it is that all litigation should be avoided, unless there is such a chance of success as to render it desirable in the interests of the estate that the necessary risk should be incurred. If a trustee is doubtful as to the wisdom of prosecuting or defending a lawsuit, he is provided by the law with an inexpensive method of solving his doubts in the interest of the trust. He has only to take out an originating summons, state the point under discussion, and ask the Court whether the point is one which should be fought out or abandoned. To embark in a lawsuit at the risk of the fund without this salutory precaution might often be to speculate in law with money that belongs to other people."
"(1) A trustee
(a) is entitled to be reimbursed from the trust funds, or
(b) may pay out of the trust funds,
expenses properly incurred by him when acting on behalf of the trust."
"Applications for directions whether or not to take or defend or pursue litigation should be supported by evidence including the advice of an appropriately qualified lawyer as to the prospects of success and other matters relevant to be taken into account, including a cost estimate for the proceedings and any known facts concerning the means of the opposite party to the proceedings, and a draft of any proposed statement of case."
"On an application for directions about actual or possible litigation the evidence should also state whether (i) any relevant Pre-Action Protocol has been followed; and (ii) the trustees have proposed or undertaken, or intend to propose, mediation by ADR, and (in each case) if not why not."
"(1) This rule applies where
(a) a person is or has been a party to any proceedings in the capacity of trustee or personal representative; and
(b) rule 48.3 does not apply.
(2) The general rule is that he is entitled to be paid the costs of those proceedings, insofar as they are not recovered from or paid by any other person, out of the relevant trust fund or estate.
(3) Where he is entitled to be paid any of those costs out of the fund or estate, those costs will be assessed on the indemnity basis."
"1. A trustee or personal representative is entitled to an indemnity out of the relevant trust fund or estate for costs properly incurred, which may include costs awarded against the trustee or personal representative in favour of another party.
2. Whether costs were properly incurred depends on all the circumstances of the case, and may, for example, depend on
(1) whether the trustee or personal representative obtained directions from the court before bringing or defending the proceedings;
(2) whether the trustee or personal representative acted in the interests of the fund or estate or in substance for a benefit other than that of the estate, including his own; and
(3) whether the trustee or personal representative acted in some way unreasonably in bringing or defending, or in the conduct of, the proceedings."
"The right of a trustee to indemnity in respect of costs extends only to costs properly incurred in the execution of the trust. By this is meant costs which have been both honestly and reasonably incurred. A doubt is to be resolved in favour of the trustee, and so the right is sometimes expressed in terms of a double negative, that is the trustee is entitled to costs not improperly incurred. The right of indemnity can be lost or curtailed by such inequitable conduct on the part of the trustee as amounts to a violation or culpable neglect of his duty as trustee."
Lady Justice Black
Lord Justice Thorpe