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Beddoe Order, Beneficiary rights, breach of trust, Deed of Trust, Directions, High Court Rules, Indmenity, Trustee liability, Trustees, Trusts

Strangers and Beddoe orders

A Beddoe order (the name derives from the case Re Beddoe (Downes v Cottam))  is an order made by the court that permits trustees to incur expense on behalf of the trust filing or defending proceedings. A Beddoe order (if obtained) protects the trustees against claims by the beneficiaries that the action should not have been brought or defended (and the risk that the expenses were not properly incurred) and enables the trustees to recover the costs from the trust.

Trustees can file or defend proceedings without a Beddoe order.  However, without prior confirmation that costs can be met from the trust, the trustees run the risk of being personally liable for the trustees’ costs and any costs against them.

While a Beddoe order application is essentially a trustees’ application, the question arose in the matter of Snedden v Reid, as to who has standing to oppose a Beddoe application.  By way of background the application arose in the context of proceedings relating to the estate of Mr Gallais (the Estate)  and the Gallais Family Trust (the Trust).  The trustees of the Estate are seeking to obtain Trust funds on account of proceedings filed by Ms Dawson who alleges that she is Mr Gallais’ adopted daughter.  Ms Dawson wishes to be heard in the Beddoe application on the basis that if granted, Trust funds, which she alleges belong to her, will be diverted to fund litigation.

The plaintiffs and defendants opposed Ms Dawson’s involvement on the basis that any interest she has in the Trust is “entirely contingent in fact and law.”

At the hearing no parties were able to identify any local authority for or against the proposition.    Reference was made to the Court of Appeal of Gibraltar decision in STG Valmet Trustees Ltd v Brennan where that Court stated that:

“Summary of the law

The effect of the authorities is to support the general proposition that the unusual and (as it may appear to some) arcane procedure of a Beddoe application survives our law as a valuable facility for trustees, but the exercise of this specialised jurisdiction is subject to two guiding principles:

(a) Claimants to the trust fund, whether they be beneficiaries or strangers to the trust, should be allowed the maximum opportunity to be heard on the application consistent with the need to maintain confidentiality on matters which properly arise for consideration between the trustee and the Court alone.

(b) Orders that the trustee is to have his costs paid out of the trust fund in any event should be made sparingly, with due regard to the principles which apply to the analogous case of pre-emptive costs orders sought in the general jurisdiction.”

In finding that in the interests of pragmatism, Ms Dawson did have standing the court made the following observations that warrant strategic consideration:

  • there was evidence that Ms Dawson was legally adopted and accordingly the court accepted “for argument’s sake” that she has at least a contingent interest in the Estate.  This was notwithstanding the problematic matter that the Trust held no property deriving from the Estate
  • accordingly, the Beddoe order has no direct legal effect on Ms Dawson
  • the “air of unreality” that applied to its analysis in that the Trustees of the Estate and Trust were one and the same and that the Estate intended to loan the litigation funds to the Trust.  As a consequence, “A decision to decline standing will simply delay an inevitable challenge to a Beddoe order.”

Editor’s note: with respect to prospective costs orders referred to above, see Beneficiaries fighting back.

References:

  • Re Beddoe (Downes v Cottam) [1893] 1 Ch 547
  • Snedden v Reid [2018] NZHC 2976
  • STG Valmet Trustees Ltd v Brennan 4 ITELR 337

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