Taking sides

The role of a trustee is one laden with responsibilities and often thankless beneficiaries. When advising trustees who are parties in proceedings where beneficiaries are arguing over a trust fund, one usually starts by explaining the need for them to remain neutral and allow the beneficiaries to fight it out. The case of Fielden & ors v Christie-Miller [2015] EWHC 2940 (Ch) helps to demonstrate that neutrality is not always necessary.

In Fielden, Stephen Christie-Miller (a beneficiary) brought a claim regarding the conduct of the trustees. The case concerns the Swyncombe Estate in Oxfordshire, which had been split in two by the late Charles Wakefield Christie-Miller (the settlor) in an effort to mitigate tax. One part was passed to his son, John, and one part was settled on trust (the settlement). John and his wife Kathleen were receiving the income of the settlement and so it was as if appointments for life in their favour had been executed.

On John's death, he left his estate on trust (the will fund) to his wife Kathleen for life, following which a wide class of discretionary beneficiaries could benefit, including the issue of the settlor, his brother and the issue of David Christie-Miller. Samuel Fielden (Sam), grandson of the settlor, was within the discretionary class, as was Stephen Christie-Miller, David's son. Stephen had a default interest in the income and capital of the will fund. The will fund trustees, subject to certain trusts declared for Stephen, appointed the will fund with its income to Sam absolutely. The terms of this deed of appointment became a matter of controversy and resulted in proceedings concerning the true construction of the deed and alternatively rectification of it by Sam.

The case contains various claims. Stephen counter-claimed, asserting proprietary estoppel in relation to his interest in his home, where he and his family lived. However, it is the comments made in the judgment of Sir William Blackburne in relation to trustees defending a hostile action brought by a beneficiary (in this instance, Stephen) that I wish to focus on.

It was submitted by Stephen's counsel that the trustees of the settlement had been highly partisan in their conduct of the proceedings, leading Stephen to lose all trust and confidence in them and ask that they be removed. Trustees are normally advised to remain neutral as by taking a partisan approach, they can put themselves at risk on costs. In this case, the difference was Stephen had chosen to claim against the trustees. The court found it unreasonable for a beneficiary who had taken action against the trustees to complain when steps are taken to resist that claim and, after taking legal advice, to seek to have the claim struck out.

The judge commented that he saw nothing objectionable in the trustees defending their own position and choosing to strike out the claim. The judge felt this was justified when the trustees' own conduct was called into question.

Careful consideration should be given as to when a trustee should defend an action. It is usual where trustees are involved in proceedings to consider whether a Beddoes Order should be sought. A Beddoes application is a means by which a trustee can protect himself regards litigation costs as against his beneficiaries, by making an application to the court for directions as to whether he should or should not bring or defend, or continue to bring or defend proceedings in his capacity as trustee.

There are five main instances when a Beddoes application might be appropriate, including when trustees become involved in proceedings against the trust or trust property. In Fielden, the trustees chose to rely on an indemnity from one of the beneficiaries (Sam). The judge commented that in having chosen to defend the hostile action brought by a beneficiary with the benefit of an indemnity, this did not compromise their duty 'of neutrality or impartiality towards the settlement beneficiaries, which they may be said to owe.'

The case also highlights that at an early stage, trustees should consider whether to apply to have a beneficiary's claim struck out if they have taken advice and reasonably believe it to be unmeritorious.

Caroline Cook is a senior associate at Wedlake Bell

She writes the regular comment on inheritance in Private Client Adviser