Trustee fees and expenses in disputed cases
‘What a shame to see such a fine estate squandered amongst the beneficiaries’, as the barrister is alleged to have said when his clients decided to settle their differences at the door of the court.
There was no such complaint in one Norfolk case we worked on recently. The beneficiaries considered that the trustees’ costs and expenses were far too high and challenged them by way of formal assessment. They argued that the trustees should not be reimbursed all of the money that they had paid out. The court, however, held that it was the actions of the family that had driven up the costs.
The good news for trustees is that Trustee Act 1925 and Trustee Act 2000, together with case law, protect trustees who have acted reasonably (subject as below). Beneficiaries can be reassured that such cases will be considered carefully by the court and that only where the trustee has acted reasonably can he recover his disbursements; and in any case he must justify his own fees and be clear from the outset as to how they will be calculated.
The bad news is that where there is no proper charging clause, the executor who wishes to be paid must show that the beneficiaries have agreed that he may charge. Sections 28 and 29, Trustee Act 2000, will help an executor only where the strict requirements of those sections have been complied with: see Brealey v Shepherd 2021 EWHC B26.
Background to the recent Norfolk case
A father and two of his sons worked together in the family business. In his will, father gave each son 20% of the underlying freehold, leaving the remaining 60% on life interest trusts for his widow, with remainder to his other children. The widow was appointed executor, with an independent trustee.
However, after the death of their father the ‘working’ sons never really accepted the terms of the will, so despite the urgings of the independent trustee the terms of the trust were never fully or precisely implemented. For example, there was never any proper tenancy of the business premises, so the trustees did not as such receive income to pay to the life tenant. There were no liquid funds to pay trustees’ expenses.
The independent trustee, after some 20 years of fruitless correspondence, at his own expense instructed separate solicitors to try, by court action if need be, to resolve the various issues which he felt amounted to breaches of the trust. A Chancery action might ensue, so the trustee chose a full service firm with experience of such matters. Their charging rates reflected that. There was much correspondence but no settlement of the dispute. There were costs warnings. A witness statement was prepared that recounted the entire history, so as to support a Chancery application. Counsel was instructed to settle the application itself.
The widow survived her husband by some 25 years but she died just before those proceedings were to be commenced. That gave the surviving trustee a little more freedom to sort things out, albeit at considerable cost because he had to bring the accounts of the estate up to date and deal with Inheritance Tax accounts without the co-operation of the beneficiaries. Moreover, the family did not immediately agree about the sale of the business property. A dispute between them was resolved by mediation. The trustee meanwhile appointed a new trustee to help administer the property and give a valid receipt on any sale. There were many difficult negotiations.
The issue
The court was asked to assess the costs of the trustees, which were substantial. The charging rates of the solicitors were, overall, higher than those of the trustees. There had been no cash in the trust so, the trustees having funded the administration thus far, they were keen to be reimbursed their out of pocket expenses.
The costs assessment was quite acrimonious. At the end of the first full day of the assessment hearing, the court suggested that evidence be produced by the trustees describing the events that had led to the incurring of such substantial costs. That was supplied before the resumed hearing, which lasted two more days.
The beneficiaries argued that the level of charges of the solicitors employed by the trustees was simply too high and out of all proportion to the case. The trustee had experience in trust matters, so need not have employed solicitors; or if he did, they were mere agents to do what he could have done himself, so should be paid at no higher rate than what the court had held was fair for the trustee himself. He should have found cheaper solicitors. The ones employed had not achieved much in any case. The trustee should therefore pay the excess out of his own pocket.
The beneficiaries also challenged the fees of the trustees in detail in the usual way. In particular they argued that the trustees should receive nothing in respect of a ‘value element’: the basis for it was not clearly set out in the correspondence. Further, any such payment was a ‘profit’ that the trustee was not entitled to keep for himself.
The trustees argued that case law and statute protected them. The test was not whether the solicitors’ fees were reasonable but whether they as trustees had acted reasonably in instructing the solicitors. They referred in particular to s31, Trustee Act 2000 and to the two judgments in Mussell and Williams v Patience and Patience, especially the second judgment to be found at [2019] EWHC 1231 (Ch). They relied on paragraph 20 of that judgment, setting out the rule that the trustees in such a case ‘under the general law are entitled to recover the difference between [any sum awarded] and 100% of their costs on the indemnity basis from the estate itself.’ [Emphasis set out in the judgment]
The trustees produced evidence that the value of the fund was in the region of two million pounds and referred to correspondence in 1996 to support the claim to a value element. They asked for it to be set at about 0.5% of the fund.
The decision
The court held that the trustee had acted in a conciliatory way, keeping litigation as a last resort. He had acted reasonably. This being a local County Court case, the court was of its own knowledge satisfied as to the competence of the solicitors concerned and that they did not waste time. In the circumstances it had been reasonable for the trustee to instruct these particular solicitors. The trustee was not ‘off on a frolic of his own’ in employing them. Accordingly, Trustee Act 1925 and Trustee Act 2000 gave the trustees an indemnity in respect of the fees that they had paid out. Therefore all the sums in respect of disbursements were allowable in full.
This had, the court held, been ‘a nightmare of a case’, and the trustee had been ‘taxed beyond measure’ by the conduct of the family. Some payment in respect of value was appropriate. However, the 1996 letter had not been precise enough as to how the value element would be calculated. The court therefore awarded the trustees £5,000, or about 0.25% of the fund.