Synopsis
Following the successful application to remove two trustees, the Court refused to award the successful side their costs of the proceedings and maintained that the removed trustees would remain entitled to indemnity from the trust fund for their costs.
Background
The underlying claim related to an application for the removal of four trustees following a breakdown of the relationship between the trustees. The Claimants were trustees appointed following the death of the sole owner of a trading group in 2018 and comprised of deceased’s long-term partner and two stepchildren. The Defendants were two of the deceased’s long-standing business partners and two other family members, who were the Trustee body.
The relationship deteriorated between the Trustees and culminated in the removal of two of the Claimants as Directors of the Deceased’s company, and the dismissal of the Second Claimant’s employment. Five weeks after the dismissal of C2, proceedings were issued for the removal of all four Trustees.
Upon considering the claim, the Court found that one of the grounds raised by the Claimants for the removal of the trustees could be considered a legitimate ground for intervention under the Letterstedt test, this being the evidence of entrenched hostility on the part of the First Defendant, and corroborating agreement with those sentiments by the Second Defendant. It was considered that continuance of D1 and D2 as trustees risked prejudicing the proper administration of the Trust and the welfare of the beneficiaries. Therefore, D1 and D2 were ordered to step down as trustees, and a professional trustee was appointed to serve together with D3 and D4. Arguments thereafter turned to costs.
Claimants’ arguments and the general rule
As the general rule is that costs following the event, the Claimant’s sought payment of their costs from the Defendants personally and sought for the Defendants’ to be deprived of their indemnity from the trust fund.
It was contended that the Claimants attained significant success in their claim, resulting in what they referred to as a 'regime change'. They suggested that the purpose of a Costs Order is to achieve substantial justice between the parties, and in this case would require a costs order in the Claimants’ favour.
The Trustees were accused of unreasonably refusing mediation and rejecting settlement offers that matched the trial’s final outcome. It was asserted that the Claimants had not unreasonably declined to participate in mediation, and that they had ultimately achieved a more favourable outcome than the offers presented.
It was also alleged that the Defendants were unreasonable in vigorously defending their removal. D3 and D4 also acted unreasonably in supporting them in doing so.
The Claimants sought that the Defendants should pay the Claimant’s costs on the standard basis, and the Defendants be deprived of their indemnity out of the assets of the Trust in respect of their own costs.
Defendants’ arguments and the importance of conduct
The Defendants disagreed with the synopsis of the Claimants that they had been successful. It was argued that the Claimants did not succeed in removing all four Defendants as Trustees and that most of their numerous allegations of misconduct were unsuccessful. The Defendants faced 15 or 22 grounds, depending on classification, but only one succeeded.
It was also asserted that the Claimants, rather than the Defendants, demonstrated unreasonable conduct by declining to participate in mediation or consider viable settlement offers. It was also suggested that the Claimants issued and served the claim without warning and without any attempt by the Claimants to engage in the Practice Direction for Pre-Action conduct.
The Defendants sought payment of their costs by the Claimants either in full, or with a high percentage payable to reflect the proportion of allegations to which the Defendants succeeded.
The suggestion that the Defendants be deprived of their indemnity was contested, as the Defendants argued they had acted reasonably throughout proceedings and considered it unjust to be deprived of their indemnity for defending a removal claim largely based on meritless allegations of misconduct.
The Court’s findings
When considering which order would be most fair and just in the circumstances, the Court first considered which party had been substantially the successful party. It was considered that the Claimants were the successful party, but only achieved partial success, as they only achieved the removal of 2 of the 4 trustees. In the circumstances, it would generally fall for the Defendants to pay the Claimants’ costs of proceedings. However, the Court has broad discretion to make a different order.
The conduct of the Claimants was considered, and it was found that the Claimants had failed to engage in any pre-action correspondence whatsoever and made no attempt to comply with the Practice Direction. In relation to the claims brought against the Defendants, this was considered unreasonable and were not justified. It was also considered that the Claimants exaggerated some of their allegations and were the party that were primarily responsible for the failure to mediate, as initiating the claim without any forewarning placed a particular onus on them to consider mediation at an early stage. As such, no order was made as to costs.
In relation to the deprivation of the Defendants’ right of indemnity, the Court considered that the Defendants’ costs of proceedings were not improperly incurred. It was considered proper and reasonable for the Defendants to defend the allegations of misconduct. It was also considered that the open proposal made by the Defendants at an early stage recognised the breakdown in relations that occurred and the Claimants’ criticisms of D1. It was found that the Defendants had acted reasonably and properly, so the Court ordered that the Defendants are entitled to their right to be indemnified out of the assets of the trust for the costs of the claim
Analysis
This claim further reinforces the position taken by the Court that the entirety of proceedings must be taken into account when determining conduct and Costs Orders to be made. The Defendants protected themselves from being personally responsible for the significant legal costs by acting property. It demonstrates that even if a party is successful, the Court will re-examine the points raised when consider costs to prevent parties from ‘throwing the kitchen sink’ in order to ensure they are successful. Parties wishing to take that approach appear likely to find themselves deprived of at least a significant proportion of their costs at the conclusion of the claim.
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