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Beddoe Order, Beneficiaries, breach of trust, Costs, Directions, indemnity, Indmenity, Trustee liability, Trustees

Between a rock and a hard place

Mr Pratley was a Court appointed executor and trustee of two estates.  At the time of his appointment a 2-day hearing had already been set down to determine a claim against the prior executor and trustee.  The time-line is as follows:

  • Mr Pratley’s appointment as executor and trustee – 20 October 2015
  • 21 October 2015 Mr Pratley learns that there is a  hearing set down for 10 November 2015 – claim is for $36,869
  • 30 October 2015 Mr Pratley obtains the file and immediately seeks an adjournment to familiarise himself with the claim and to explore options for resolution – supporting affidavit is filed 2 November 2015
  • adjournment application declined

As noted at [14]:

“The Judge observed that Mr Pratley should have brought a Beddoe application to the High Court seeking directions as to whether he should continue the estate’s defence of Steven’s claim in the District Court. The Judge considered that such an application could have been accommodated and resolved in the week available between Mr Pratley’s receipt of the file and the commencement of the District Court hearing.”

Note that a Beddoe order application typically requires an opinion of senior counsel as to the strength of the case and advice to the Court regarding the strengths and weaknesses of the application so that the Court is fully informed as to all relevant matters.

In the Court of Appeal it was argued for Mr Pratley that the High Court was wrong to suggest that the claim should not have been defended due to the economics of defending a claim for only $36,000 and the proceedings should not have been characterised as hostile proceedings.

The Court of Appeal assessed the matter as follows:

[18] An executor and trustee has a duty to protect estate assets for the benefit of the beneficiaries. This duty extends to representing the estate in claims made against it by third parties where there are reasonable grounds of defence.  The trustee must act reasonably, exercising due skill and care. In cases of doubt, the trustee may take legal advice or seek directions from the Court.  So long as the trustee acts honestly and reasonably, he or she is normally entitled to an indemnity for all expenses reasonably incurred in the execution of the trust.

[19] There are generally thought to be three broad categories of disputes involving trustees. In Alsop Wilkinson (a firm) v Neary, Lightman J described the first category as a “trust dispute”, for example a dispute about the proper construction of the trust. The second he described as a “beneficiaries dispute” concerning the propriety of any action taken or to be taken by the trustees. Disputes in this category are regarded as ordinary hostile litigation with costs following the event and not being paid out of the trust estate. The third category he called a “third party dispute”. These were disputes with persons, other than in their capacity as beneficiaries, in respect of the trust, for example in contract or tort. As to the third category, Lightman J made the following observations of importance in the present case:

Trustees (express and constructive) are entitled to an indemnity against all costs, expenses and liabilities properly incurred in administering the trust and have a lien on the trust assets to secure such indemnity. Trustees have a duty to protect and preserve the trust estate for the benefit of the beneficiaries and accordingly to represent the trust in a third party dispute.

A beneficiary dispute will be hostile, with costs to follow the event. However, the case at hand was not a beneficiary dispute, rather it was characterised by the Court of Appeal as a “third party” dispute as Steven was claiming as a creditor not a beneficiary.

Mr Pratley as executor and trustee had a duty to preserve the assets for the beneficiaries.  An executor or trustee is not entitled to allow a claim to proceed on an undefended basis only because it is modest.  While it was not tested as to whether the Court could give directions that the matter be defended in the limited time available, the Court of Appeal was satisfied that the time frame was a significant consideration as was the corollary risk of a claim against Mr Pratley if he did not defend that claim.

Accordingly, Mr Pratley acted reasonably and was entitled to be indemnified from the estate for his costs.

The decision is fact specific but should provide some comfort for professional trustees and administrators.

References:

  • Pratley v Courteney [2018] NZCA 436
  • Re Beddoe [1893] 1 Ch 547
  • Re Buckton [1907] 2 Ch 406 at 414–415

  • McDonald v Horn [1995] 1 All ER 961(CA) at 970-971

  • Alsop Wilkinson (a firm) v Neary [1996] 1 WLR 1220 (HC) at 1222

 

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