Assessing trustee's litigation costs

Suppose trustees sue a third party, such as an investment adviser for negligence or someone who has caused damage to trust land. They win and get an order for costs against the defendant but assessment against the defendant is on the standard basis and they will be lucky if they get 70% of the actual costs reasonably incurred. The balance should in principle come out of the trust fund; see Lewin on Trusts, 19th ed., para. 27-220.

But the beneficiaries complain that the trustees have been extravagant. They do not quarrel with the decision to litigate (the beneficiaries may have approved it or the trustees may have obtained Beddoe relief) but they say that the trustees spent far too much on the litigation. If they are right, part of the litigation costs were not expenses “properly incurred” so as to fall within the right of indemnity conferred by section 31(1) of the Trustee Act 2000. But what is the mechanism for deciding that question and fixing the amount to which the trustees are entitled?

CPR r. 46.3(3) says that where a person has been a party to litigation in the capacity of trustee, the general rule is that the person is entitled to take the costs out of the trust fund so far as they are not paid by someone else (usually the other party to the litigation) and that the basis of assessment will be the indemnity basis. This is simple to apply in litigation between trustee and beneficiaries, when the court will make an order in those terms; it is not so simple in litigation between trustee and third party, since usually the third party will not be concerned with the trust, the beneficiaries will not be parties and the court will not make an order in that litigation for the trustee to take any costs out of the trust fund. It seems to be assumed nonetheless that r. 46.3 applies in litigation with third parties; see, e.g., Practice Direction 46 - Costs Special Cases, para. 1.1. If so, it seems that a beneficiary must be entitled to bring separate proceedings against the trustees solely to get an assessment, though the CPR do not say so. Is there any English authority? The Jersey court grappled with a similar question in Alhamrani v. Alhamrani [2007] JCA 164 in the absence of a local equivalent to r. 46.3 (though the proceedings were trust proceedings).

Nicholas Le Poidevin, Q.C.
New Square Chambers