//
you're reading...
Beddoe Order, Trustee liability

A little light on Beddoe applications

Glasgow Harley Trustee v McLaughlin  relates to an application for orders approving the trustees’ decision to defend proceedings against them.  As noted at [3]:

“Applications of this kind are commonly referred to as Beddoe applications. A succinct description of a Beddoe application appears in Garrow and Kelly Law of Trust and Trustees:

The general rule is that the costs of litigation for the benefit of a trust are paid out of the trust fund; however, trustees will be denied their costs out of the trust fund if they have acted in breach of trust or unnecessarily. One protection available to trustees is to make a ‘Beddoe application’, which is an application to the Court for directions whether or not the trustee should bring or defend proceedings in his or her capacity as trustee. This procedure requires the trustee to make full disclosure of the strengths and weaknesses of his or her case and, provided full disclosure is made, he or she has the full assurance that they will not personally have to bear the costs or pay those of anyone else.”

A Beddoe application allows a trustee to obtain confirmation from the court that the proposed course of action is proper and that the trustee is entitled to have the trustee’s costs met from the trust.

Glasgow Harley Trustee v McLaughlin canvasses the extent to which trustees who seek a Beddoe order can seek that information provided to the court in support of the application can be suppressed so that it is not available to beneficiaries of the trust.  Given the nature of the application the respondent’s counsel had not viewed the material in question, which was reviewed by the judge with only the applicant’s lawyer present.

It is noted that trustees who seek a Beddoe order must act with complete candour. See Alsop Wilkinson v Neary.

The position adopted by the trustees in Glasgow Harley Trustee v McLaughlin was that “… in opposing suppression of the contested material the respondents are in effect fishing for information which they think may support their claim against the trustees in the substantive proceeding.”  The corollary position of the beneficiaries was that if the trustees wish to have their costs met from the trust (and thus effectively by the beneficiaries) then the beneficiaries should be aware of all of the material before the court.

Relevantly, it was noted at [14] and [15] that Beddoe applications are not generally appropriate in the context of hostile litigation where trustees’ actions are called into account.  See for example Lewin on Trusts:

“Sometimes trustees who are sued for breach of trust seek to protect their position by making a Beddoe application for directions as to whether they should defend. Apart from exceptional circumstances, this is inappropriate. For, in contrast to the position concerning third party proceedings, a trustee who loses a breach of trust action is not entitled to indemnity, and so cannot expect the court to indemnify him at a time when it is not known whether or not the charge of breach of trust is well founded.”

In determining how to proceed the court found the principles of Erceg v Erceg, which relate to disclosure of information to beneficiaries of no assistance.  However, the following passage from the judgment in Glasgow Harley Trustee  v McLaughlin does provide context and guidance at [21(b)]:

“The context of the request is an application which has the potential to have an adverse effect on the trust fund, and therefore the beneficiaries, and (as presented), to pre-empt the right of the beneficiaries to submit that the trustees should not be indemnified for costs if their action succeeds. I have already noted the difficulties facing the applicants on their Beddoe applications. I do not accept that there is any improper motive on the part of the respondent beneficiaries in seeking to have access to the contested material, as Mr Peers suggested. They have brought the … proceeding against the trustees calling into question certain actions by the trustees, as they are entitled to do. On that proceeding, the observation from Erceg that “the case for disclosure will be compelling if meaningful monitoring of the trustee’s compliance with the trust deed in the administration of the Trust could not otherwise occur” may be apt. That is not necessarily the position on the Beddoe applications, but it demonstrates why a Beddoe application may be found to be inappropriate in relation to the issues raised in the … proceeding. In short, if the beneficiaries establish their case against the trustees the Court may then form the view that the trustees should bear their own costs. Mr Peers responded to this self-evident conundrum by saying that in that event the trustees could be required to repay any payments of costs that they had received pursuant to a Beddoe order. This is an issue for the Court when considering the application itself, but the fact that the Court is going to be asked for orders protecting the trustees in relation to costs before the proceeding is heard supports the case for disclosure of material that might, in other circumstances, be withheld by the trustees as confidential.”

The court then reviewed each challenged document and determined which could be withheld.

Editor’s note:  as more trustees confront the reality (and risk) of trusteeship, this decision highlights some practical considerations regarding the exercise of candour and how this is balanced against the opposing rights of beneficiaries.  It is to be expected that such applications will become more common.

References:

  • Glasgow Harley Trustee  v McLaughlin [21018] NZHC 29
  • Re Beddoe, Downes v Cottam [1893] 1 Ch 547
  • Greg Kelly and Chris Kelly Garrow and Kelly Law of Trusts and Trustees (7th ed, LexisNexis, Wellington, 2013) at 24.36
  • Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar The Diocesan Bishop of The Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42
  • Alsop Wilkinson v Neary [1995] 1 All ER 431 at 434-43
  • Lewin on Trusts at 27-18
  • Erceg v Erceg [2017] NZSC 28, [2017] 1 NZLR 320

Discussion

No comments yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: