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Beddoe Order, Trustee liability, Trustees

To Beddoe or not??

McLaughlin v McLaughlin relates to an application for a Beddoe Order by the trustee (Glasgow Harley Trustee Limited (Glasgow Harley) of the Ashley Trust (the Trust).  Two beneficiaries of the Trust seek the removal of Glasgow Harley who they are also suing for breaches of trust.

Glasgow Harley denies any wrong doing and seeks a Beddoe Order permitting it to defend the substantive proceedings and have its costs paid from the Trust.

A Beddoe Order, at the simplest level, allows trustees to confirm that an indemnity for costs is available from the trust from the commencement of proceedings, rather than awaiting the final outcome when costs will generally follow the event.  The reality of litigation can be somewhat confronting for many trustees where expectations that whatever a trustee does, the trust will pay, can be challenged.

The result in McLaughlin v McLaughlin, which is highly fact specific, was that one claim of the substantive proceeding could be defended with costs met from the Trust.  However, it remains to be seen to what extent the trustees will be indemnified for the costs of the Beddoe application.

One aspect of McLaughlin that requires particular consideration is the position where there are allegations of breach of trust.  As noted at [120]:

“If the trustees’ actions to date are upheld, then they will likely be entitled to an indemnity from the Ashley Trust to meet any shortfall between actual costs incurred and those it might recover from the respondents. However, it would be inappropriate for the assets of the Ashley Trust to be used in defending allegations which are found to be proven. Put simply, if the trustees have indeed breached their duties, it would be wrong for trust assets to be used to defend them.”

However, this observation must be considered in light of s 73 of the Trustee Act 1956, which gives the court the power to relieve trustees from personal liability where trustees have acted in breach of trust notwithstanding that the trustee has acted honestly and reasonably.

Beddoe applications are in their infancy in New Zealand.  Whether there is an absolute formula (that is whether applicants must advise the court of all strengths and weaknesses and include an opinion of senior counsel as to the likelihood of success in the substantive matter) or not, will await further judicial consideration.   The serious practical consideration is whether a Beddoe application should ever be made in hostile circumstances.  It is a brave trustee who will do so.  However, if trustees won’t or are concerned at the costs, how much power will be transferred to beneficiaries because trustees properly wish to manage cost exposure?

The decision in McLaughlin v McLaughlin warrants reading in its entirety due to the fact specific nature of the subject matter and Thomas J’s assessment of the relevant history of Beddoe applications.

References:

  • McLaughlin v McLaughlin [2018] NZHC 3198
  • 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
  • Fundación Pimjo Ac v Aguilar& Aguilar Ltd [2015] NZHC 1402

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