Joshua Birch Jones v Sandra Lorraine Sheppard

Andrew de Mestre K.C.:

1. This judgment concerns the costs of Part 7 proceedings (albeit determined following a procedure more akin to a Part 8 claim as a result of the directions given at a hearing on 8 January 2024), the final hearing of which I heard on 3 April 2025. Those proceedings concerned a Declaration of Trust dated 7 August 2020 pursuant to which the Defendant, as Settlor, created a trust over sums totalling £1.8 million for the benefit of her grandson, the Claimant. The trust funds were then applied for the purchase of a property in Barbados.

2. The proceedings were commenced by the Claimant beneficiary on 1 March 2023 against the Defendant trustee and sought orders for the disclosure of documents and information relating to the trust, as well as an account in common form of the Defendant’s administration of the trust and an injunction to prevent the Barbados property (the principal asset of the trust) from being sold.

3. By the time the proceedings came before me, the principal issues for determination concerned the claim for an account and whether or not the trust accounts should include a range of costs which had been included by the Defendant. At the conclusion of the hearing, I made various rulings about the final form of the trust accounts which were reflected in an order dated 17 April 2025, and the schedule attached to that order. There was also an application by the Defendant, issued in January 2025, for an order for sale of the property which was adjourned with liberty to apply on undertakings set out in the order.

4. As regards the costs of the proceedings, it was apparent to me at the hearing that there was a substantial difference of principle between the parties about the entitlement of the Defendant to be indemnified for her costs out of the trust fund and I ordered the parties to file further written submissions on this issue.

5. The Claimant filed his written submissions on this issue of principle on 24 April 2025 and the Defendant responded on 6 May 2025. Although my order of 17 April 2025 provided for the possibility of the parties being required to attend a further hearing, I am satisfied that this is not required, and this is my ruling on costs in the light of those submissions. The Defendant’s position

6. It is convenient to start with the position taken by the Defendant. She says, in summary, that:- i) As a trustee, she is entitled to be indemnified for her costs out of the trust fund as reflected in CPR 46.3 and PD46.1 which provide as follows: CPR 46.3 “46.3 (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 44.5 does not apply. (2) The general rule is that that person 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 that person is entitled to be paid any of those costs out of the fund or estate, those costs will be assessed on the indemnity basis. ” Practice Direction 46 – Costs special cases “Awards of costs in favour of a trustee or personal representative: rule 46.3 1.1 A trustee or personal representative is entitled to an indemnity out of the relevant trust fund or estate for costs properly incurred. Whether costs were properly incurred depends on all the circumstances of the case including whether the trustee or personal representative (‘the trustee’) – (a) obtained directions from the court before bringing or defending the proceedings; (b) acted in the interests of the fund or estate or in substance for a benefit other than that of the estate, including the trustee’s own; and (c) acted in some way unreasonably in bringing or defending, or in the conduct of, the proceedings. 1.2 The trustee is not to be taken to have acted for a benefit other than that of the fund by reason only that the trustee has defended a claim in which relief is sought against the trustee personally.” ii) This principle is referred to in Lewin on Trusts at paragraph 48-059 as follows: “ We now come to proceedings in which beneficiaries claim to enforce their rights against the trustee in the administration or execution of the trust. The borderline between such proceedings and breach of trust actions is a fine one. There are cases where beneficiaries complain of the acts or (more usually) omissions of the trustee, but without seeking to restrain commission of a breach of trust, or compensation for breach of trust, or to recover from the trustee trust property alleged to have been wrongfully taken by the trustee. It is with this kind of case that we are here concerned. The general principle applicable to this kind of case is that the trustee’s right of indemnity applies so as to entitle the trustee to costs out of the trust fund even if he is unsuccessful, though if the trustee has been guilty of misconduct, that is if he acts unreasonably in the proceedings, or his unreasonable conduct occasions the claim, the trustee will be deprived of costs or ordered to pay costs.” iii) It is for the Claimant to demonstrate that the Defendant has acted unreasonably in defending the proceedings against her. iv) The Claimant cannot satisfy this burden by reference to the nature and progress of the proceedings. The Defendant points, in particular, to the following facts and matters: (i) the Claimant had a copy of the Declaration of Trust by the time the proceedings were commenced; (ii) the claim for an injunction was compromised by the giving of undertakings within a week of the proceedings being commenced; (iii) the Defendant filed provisional accounts with her defence on 28 April 2023 and updated accounts with her evidence in April 2024; (iv) the Claimant did not challenge any entries in the accounts until August 2024 by which time he had been subject to an unless order; and (v) the objections ultimately taken were frequently vague with clarity only being provided the day before the hearing of the final account on 3 April 2025. v) Further, in so far as the Claimant seeks to rely on having succeeded before me in having certain of the items in the provisional accounts disallowed, that is not sufficient to disturb the usual position on costs, particularly where the Claimant was unsuccessful in his challenges to the majority of the entries. The Defendant refers, in particular, to Lewin on Trusts ¶48-064 which provides as follows in its material part: “ In cases where issues arise as to whether a trustee is entitled to allowances from the trust fund, or has fully accounted to the beneficiaries, the fact that the trustee is unsuccessful in establishing the allowances, or that the claimant successfully establishes that money is due from the trustee notwithstanding denials on the part of the trustee, does not suffice to establish that the trustee should pay the claimant’s costs or be deprived of his own costs. It is only where a case of misconduct against the trustees is made out, that is where the trustee has conducted himself dishonestly or unreasonably, that he will normally be deprived of costs or ordered to pay costs. Where a case of misconduct is made out, the trustee will be ordered to pay costs. ” vi) The Defendant also relies, in so far as necessary, on offers made by her in “without prejudice save as to costs” correspondence, copies of which have been provided to me. The Claimant’s position

7. The Claimant takes a very different position. He says, in summary, that: i) He has succeeded substantially in obtaining the relief he was seeking – a copy of the trust deed, an undertaking from the Defendant not to sell the property, and an account from the Defendant trustee - and he should therefore be awarded his costs of the proceedings against the Defendant (save for the limited cases where the Court has already dealt with costs in orders dated 14 June 2023 and 14 June 2024). ii) Further, he was successful in that £32,638 was disallowed from the trust accounts produced by the Defendant, with a further deduction to be made for legal costs incurred by the Defendant after 11 December 2022 (when this litigation became likely). The latter deduction reflected the fact that I considered that the legal costs after that date should be treated as costs of the litigation and whether they could be recovered by the Defendant from the trust funds would depend on my decision as to such costs. At the hearing on 3 April 2025, I was concerned only with legal costs incurred by the Defendant which would not be treated as costs of this litigation. iii) More generally, the Court should not apply the general rules in relation to costs incurred by a trustee (as set out above) because the Court has already made a series of separate costs orders each time the case has come before the Court (usually “costs in the case”) and so the relevant question is to ask who the successful party was. The Claimant identified in his written submissions each of the costs orders previously made by the Court. iv) In any event, the Defendant did not act properly but, rather, acted for her own benefit. This can be seen from the nature of some of the costs which were disallowed, particularly costs relating to the inception of the trust (which the Claimant said could never properly have been included in the trust accounts). Moreover, the Claimant points to the fact that the claim included an allegation of breach of trust by the Defendant. v) The Claimant is entitled exclusively to the trust fund (as the sole beneficiary to whom the property has now been conveyed), and so it would not be right for the Defendant to take her costs out of the trust fund as that is, in effect, an order for costs against the Claimant. vi) The application for an order for sale of the property was unnecessary. Analysis

8. The first issue I have to consider is whether, as the Claimant submits, the fact that a series of orders have previously been made in relation to costs at interlocutory hearings (mostly in the form of “costs in the case”) means that the provisions of the CPR relating to the costs incurred by a trustee have, in effect, been ousted.

9. I do not accept this submission. It seems to me that, when the Court made interlocutory costs orders for “costs in the case”, the intention was to defer the determination of the incidence of the costs of the proceedings to the final hearing, with all options being open. There is nothing in the orders themselves or, so far as I am aware, the circumstances in which they were made, to suggest that there was any intention to deprive the Defendant, at a preliminary stage, of the ability to rely on the provisions of the CPR that I have set out above. It was not said, for example, this these provisions were the subject of any argument at that time. This is not surprising as it would have been premature to take this step at an interlocutory stage (when the various costs orders were made) given that the outcome of the account was unknown and it would not realistically have been possible for the Court to determine whether or not there was good reason to deprive the Defendant of the indemnity to which she is otherwise entitled.

10. In these circumstances, the starting point in relation to the costs of the proceedings is the “ general rule ” described in CPR 46.3(2), namely that the Defendant trustee is entitled to be paid her costs out of the trust fund in so far as they are not recovered from another person. As the only relevant “other person” is the Claimant beneficiary, the Defendant relies on her indemnity.

11. The second issue therefore is to identify whether there is a good reason to depart from the general rule. CPR PD46 provides that the indemnity relates to costs which are “properly incurred” and identifies three factors which are to be considered in determining whether, in all of the circumstances of the case, the relevant costs were properly incurred.

12. Having considered carefully the submissions made on behalf of the Claimant, I have concluded nonetheless that the general rule should be applied and that the Defendant is entitled to be paid her legal costs out of the trust fund. I have reached this conclusion for the following reasons: i) I do not consider that the Defendant acted unreasonably in the way she responded to the proceedings. As I have referred to above, the issues relating to the provision of the trust deed and the sale of the property were resolved either before the proceedings commenced or very shortly thereafter, meaning that the very substantial remainder of the proceedings was concerned with the accounts to be provided by the Defendant. As to that, the Defendant provided interim accounts at an early stage and those were subsequently updated and supported by underlying documentation. This was a reasonable and proper approach. ii) The fact that it took a relatively lengthy period to get to the final hearing at which the disputed entries in the accounts could be considered, was largely a consequence of the manner in which the Claimant responded to the accounts and, in particular, his failure to identify and explain the entries to which he was objecting. This approach continued up to the final hearing where the first objection taken to the Defendant’s account was, despite previous orders requiring proper details of the objection taken, set out in the most general and unparticularised terms as follows: “ The Defendant has not separated her own finances from those of the trust and consequently may be claiming reimbursement of monies to which she is not entitled. ” iii) The fact that a number of the entries in the accounts were disallowed is not, in my view, sufficient to displace the general rule. The accounts provided by the Defendant and her accountant were lengthy and detailed, and contained a very significant number of entries for the purchase, refurbishment, and running of the property in Barbados. The expenditure part of the accounts totalled some £400,000 up to February 2024. Ultimately, the Claimant only challenged some of these entries (totalling approximately £220,000) and was only successful in respect of some 15% of those challenges (totalling approximately £32,000 plus some additional legal fees, but the latter will fall within the indemnity which I have found applies). The Claimant also failed before me in a challenge to substantial property transfer fees which had not been included in the Scott Schedule of items in dispute. Moreover, even where the Claimant was successful, the basis on which he succeeded only emerged with any clarity very shortly before the hearing. In these circumstances, it seems to me that the Defendant rather than the Claimant would be described as the successful party but, in any event, as Lewin makes clear, the fact that the trustee may not succeed is not sufficient. There must be something more and there was not. iv) Although the Claimant pointed to an allegation of breach of trust in the Particulars of Claim, that related to the alleged failure to provide accounts and, as I have referred to, provisional accounts were provided with the Defendant’s Defence. Thereafter the proceedings concerned the detail of the entries contained in those accounts and the proceedings cannot realistically be described as relating to a breach of trust. At the final hearing, for example, I was not considering whether there had been such a breach. v) I do not consider that the application for an order for sale of the property was unreasonable or unnecessary given that the accounts prepared by the Defendant demonstrated that there were substantial amounts outstanding to her as trustee and only part of these amounts was under challenge. Furthermore, the utility of the application can be seen from the fact that the Defendant obtained undertakings on that application in the hearing before me.

13. Given this conclusion and given that the Defendant was not contending for any order going beyond her entitlement to an indemnity, I have not found it necessary to consider in any detail the content and effect of the without prejudice correspondence. However, it does seem to me that the general approach taken by the Defendant in that correspondence reinforces the reasonableness of her approach to the proceedings.

14. In these circumstances, I will order that the Defendant is entitled to her costs of the proceedings out of the trust fund, such costs to be assessed on the indemnity basis as provided in CPR 46.3(3). For the avoidance of doubt, the costs to which the Defendant is entitled shall include (a) the costs incurred since the hearing before me relating to the issue of costs and (b) the costs of the application for an order for sale of the property up to the hearing before me on 3 April 2025. As to the latter, if that application is restored, it will be for the Court hearing the restored application to determine the incidence of costs incurred in relation to the application after 3 April 2025.

15. I should also make it clear that, as I do not have before me costs schedules or bills setting out the precise details of the costs which the Defendant has incurred in relation to the proceedings since December 2022, I have not determined whether particular individual elements of the costs should be allowed on an assessment of costs. However, as referred to above, pursuant to CPR 46.3(3), the Defendant’s costs are to be assessed on the indemnity basis and I would encourage the parties to seek to agree the amount of the Defendant’s costs in order to bring this litigation to an end as efficiently and quickly as possible.