CH-2025-BRS-000001 - [2025] EWHC 2373 (Ch)

The general law on costs is not in dispute. Under the general law, costs are in the discretion of the court: Senior Courts Act 1981, section 51(1); CPR rule 44.2(1). If the court decides to make an order about costs, the generalrule is that the unsuccessful party in the proceedings should pay the costs of the successful party: CPR rule 44.2(2)(a). However, the court may make a different order: CPR rule 44.2(2)(b). In deciding whether to make an order at all, and, if so, what order, the court will have regard to all the circumstances, including “the conduct of all the parties”, and to any admissible offer to settle the case (not falling under CPR Part 36) which is drawn to the court’s attention: CPR rule 44.2(4). (If there is a Part 36 offer, however, there is a special regime.)

If the general rule applies, it requires the court first to ascertain which is the “successful party”. In Kastor Navigation Co Ltd v Axa Global Risks (UK) Ltd [2004] 2 Lloyd's Rep 119, Rix LJ (giving the judgment of the Court of Appeal) said (at [143]) that the words "successful party" mean "successful party in the litigation", not "successful party on any particular issue". As a general proposition, the courts prefer to make costs orders covering the entire action (even if then extending only to a proportion of costs), rather than issue-based costs orders. But it is clear that the court may still make an issue-based order if it considers that this better meets the justice of the case.

The next point to consider is the basis of assessment of those costs. There are two bases, the standard basis and the indemnity basis. The difference between the two is also well known. CPR rules 44.3(1), (2) provide that, where the court assesses the amount of costs on the standard basis it will not allow costs which have been unreasonably incurred, or are unreasonable in amount, and will only allow costs which are proportionate to the matters in issue. CPR rules 44.3(1), (3) provide that, where the court assesses the amount of costs on the indemnity basis it will do the same, except that the test of proportionality will not apply. Moreover, it will resolve in favour of the receiving party any doubt which it may have as to whether costs were reasonably incurred or were reasonable in amount.

The indemnity basis of costs assessment was discussed by Hildyard J in Hosking v Apax Partners Ltd [2019] 1 WLR 3347, [42], [43]. There, the judge said:

“42.

The emphasis is thus on whether the behaviour of the paying party or the circumstances of the case take it out of the norm. The merits of the case are relevant in determining the incidence of costs: but, outside the context of an entirely hopeless case, they are of much less, if any, relevance in determining the basis of assessment.

43.

The cases cited show that amongst the factors which might lead to an indemnity basis of costs are (1) the making of serious allegations which are unwarranted and calculated to tarnish the commercial reputation of the defendant; (2) the making of grossly exaggerated claims; (3) the speculative pursuit of large-scale and expensive litigation with a high risk of failure, particularly without documentary support, in circumstances calculated to exert commercial pressure on a defendant; (4) the courting of publicity designed to drive a party to settlement notwithstanding perceived or unaddressed weaknesses in the claims.”

In the present case, it is also necessary to consider the special rules relating to trust and estate cases. I first mention the relevant primary legislation. This is now contained in section 31(1) of the Trustee Act 2000, which applies to trustees, but also (by section 35(1) of that Act) to personal representatives:

“(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.”

The relevant secondary legislation, focusing more clearly on litigation costs, is contained in CPR rule 46.3 and PD 46 para 1. Rule 46.3 relevantly provides:

“(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 …

(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.”

Para 1 of PD 46 provides:

“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.”

It will be seen that this provision picks up on the phrase “properly incurred”, which is the key phrase in section 31(1) of the Trustee Act 2000, set out above. Where the litigation costs are not “properly incurred”, the trustee or executor is not entitled to an indemnity for them. What paragraph 1 of CPR Practice Direction 46 does is twofold. First, it directs the court in assessing whether the costs were properly incurred to look at “all the circumstances of the case”. Second, it sets out some considerations for the court in making that assessment. None of them is stated to be conclusive one way or the other.

It is important to appreciate that a trustee or executor may in some circumstances properly incur costs for its own account, or incur a liability to pay the other side’s costs, in engaging in hostile litigation. In hostile litigation against a third party, a wise trustee or executor will normally seek the protection of a Beddoe order (or at the very least obtain counsel’s opinion that it is proper to incur such liability) before engaging in the litigation, but that is not a formal requirement. However, in hostile litigation between a trustee or executor on the one hand and a beneficiary on the other, the court is not usually in a position to make a Beddoe order. Yet that does not mean that it can never be proper for a trustee or executor to incur costs or a costs liability in such litigation. The matter is fact-sensitive.

In Armitage v Nurse [1998] Ch 241, there was breach of trust litigation between a beneficiary and trustees. At first instance, the judge made an order awarding the successful trustees only 80% of their costs to be paid by the beneficiary, thus depriving them of the other 20%, because they had put forward arguments on which they had been unsuccessful. The judge then went on to deprive them of the right to recoup themselves out of the trust fund of that 20% (ie the part which they would not recover from the other party) simply on the grounds that the claim was a hostile claim against them for breach of trust.

On appeal, Millett LJ, with whom Hirst and Hutchinson LJJ agreed, held (at 263) that, although the judge could properly make the 80% inter partes litigation costs order, he

“ … also deprived them of their right to recoup themselves out of the trust fund to the extent of that 20 per cent. on the ground that the claim was a hostile claim against them personally for breach of trust. In my opinion, that was not a sufficient ground for denying them their contractual rights. As things stood at the conclusion of the judge's judgment, he had held that the respondents were absolved by clause 15 from liability in respect of all the claims for breach of trust pleaded against them, with the result that the greater part of the action was bound to fail … Accordingly, unless the pleadings were amended, the action would be dismissed without any inquiry into the trustees’ conduct. This would not provide any basis for depriving the respondents of their rights.”

This is important, because it makes clear that the decision on the litigation costs order does not automatically deal with the trustee indemnity question. On the other hand, the position is or may be different where the beneficiary’s claim against the trustee or executor succeeds. Armitage v Nurse was a case where the beneficiary failed. In the same case, Millett LJ said (at 262), necessarily obiter,

“Trustees are entitled to a lien on the trust fund for the costs of successfully defending themselves against an action for breach of trust … But on what principle can one justify their right to recoup themselves out of the trust fund for the costs of unsuccessfully defending themselves against such an action? It offends all sense of justice.”