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Sheffield v Sheffield and others  EWHC 2360 (Ch)
Parties who resolve the substance of a dispute but not issues about costs often face hostility when inviting a court to determine what the costs order should be. This is because of seemingly competing Court of Appeal guidance as to whether a court should require the parties to litigate the dispute until a compromise on all issues—including costs—has been reached.
In this matter, the court identified that forcing the parties to proceed to a trial simply to resolve costs would be disproportionate and wasteful; and it was willing to resolve the dispute as to costs. This pragmatic approach will no doubt be welcomed by practitioners.
This decision is of particular interest to practitioners who deal with trust disputes. The court restated the principle that the starting point in determining the costs of accounts and inquiries ordered against a defaulting trustee is that the trustee should pay those costs. It held that the principles under CPR 44.2 and CPR 36 were relevant only as ‘background’ when deciding whether this starting point should be departed from.
It is clear from this decision that the ‘defaulting trustee pays’ principle is not absolute. The court was willing to depart from the starting point where the circumstances of the case, particularly in relation to offers and conduct, justified an alternative costs order.
The parties were involved in long-running litigation regarding the rights which the claimant asserted he had as a direct or indirect beneficiary of a trust in respect of an estate. It was the claimant’s case that he was entitled to recover a substantial sum of money which should have been paid to him from 1983 onwards. The defendants to the claim were the executors, one of the executors—Julian—in his personal capacity and the trustees (which also included Julian).
The defendants contended, among other things, that the claimant had no right to the trust income because of an historical agreement between the relevant parties.
At a seven-day trial, HHJ Pelling QC rejected the defendants’ contentions as to this agreement and held that the claimant was entitled to judgment. An order for a number of accounts and inquiries and for standard disclosure by the executors and Julian to the claimant was made.
The parties soon reached agreement in relation to a number of matters and recorded that some of the accounts which had been directed were agreed at around £100,000. The claimant agreed not to pursue some of the accounts which had been ordered.
A summary account was served by the defendants. This was responded to by the claimants and significant agreement between the parties was reached. Further negotiations took place and the parties agreed that the total amount due to the claimant pursuant to the accounts and inquiries was £1,259,548.84.
The only issue for the court to determine was which party, if any, should bear the costs of the proceedings.
The court reviewed BCT Software v Solutions v C Brewer & Sons  EWCA Civ 939 and Powles v Reeves  EWCA Civ 1375;  1 Costs LR 19. It was held that the two authorities were ‘not wholly reconcilable’. The court preferred the guidance given in that later judgment of Powles and concluded that it would not be proportionate or an efficient use of the parties’ or the court’s resources to refuse to determine costs liability and require the parties to proceed to trial.
The court considered what the appropriate starting point for costs should be in a case of this nature, and held:
‘…the starting point in determining the costs of accounts and inquiries ordered against a defaulting trustee is that the trustee should pay those costs. This would remain the case even if the accounts established that no sum was payable to the beneficiary. This is because the beneficiary’s primary right is to information about the trust assets and their exploitation; with an accompanying entitlement to be paid the appropriate share of the fruits (if any) of that exploitation. And, until the account is given the beneficiary does not know what that financial entitlement is.
It follows from this that a defaulting trustee cannot protect her/himself from costs of providing the account merely by making a monetary offer.’
It went on to hold that the principles under CPR 44.2 and CPR 36, which the court would ordinarily apply when considering which costs order to make, form part of the background rather than being directly applicable in matters when considering which order for costs should be made against a defaulting trustee.
The claimant sought an order that it should recover all of its costs of the accounts and inquiries which had been ordered, some of which were to be paid by the executors and the others were to be paid by Julian personally.
The defendants’ position was that the claimant should pay costs of the accounts and inquiries.
The court concluded that the facts of the case did not justify departing from the starting point that the claimant should be entitled to its costs. This applied even if no sums were ultimately payable as a result of some of the accounts. However, the court held that it was able to look at particular accounts, and the factors relevant to incidence of costs in respect of each of them, in deciding the appropriate order to make as to costs overall.
Insofar as the accounts relating to shooting rights and spoil spreading was concerned, the defendants had made a Part 36 offer in a sum which was agreed by the claimant 17 months after the expiry of the relevant period. The court concluded that the overall costs order should be discounted to notionally reflect the claimant paying the defendant’s costs of this issue. A reduction of 10% was therefore applied.
The court did not accept that any reduction should be applied to reflect the claimant’s conduct or delay in relation to any of the accounts other than in relation to the issues which arose regarding the appointment of a new trustee. In this regard it was concluded that the claimant’s lack of engagement and delays in agreeing the basis of the appointment should be reflected in the costs order. A reduction of 3% was applied accordingly.
Alex Bagnall is a senior associate at Just Costs Solicitors Ltd, and a member of LexisPSL’s Case Analysis Expert Panel. Suitable candidates are welcome to apply to become members of the panel. Please contact firstname.lastname@example.org.
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