Trustees lose rights to indemnity for costs from the Trust

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Price v Saundry 

This is a case in which I acted throughout for the successful appellant, Mrs Pauline Price. Mr Alex Learmonth of New Square Chambers was retained as Counsel and did the advocacy throughout.


Mrs Price and a Mrs Saundry were the beneficiaries of a bare trust comprising a portfolio of about 35 buy-to-let residential properties in and around Bristol and Weston-Super-Mare. The Trust arose and was created during the lifetimes of their respective late husbands; Mr Saundry was by profession a financial services professional; Mr Price was a builder.

After they both sadly died, matters became fraught between Mrs Saundry and Mrs Price. As a consequence of the way the Trust was set up, Mrs Saundry became a trustee on the death of her husband. The trust document required her to appoint Mrs Price or another trustee of Mrs Price’s choice. Mrs Saundry did neither; instead she appointed her brother, Mr Sanders to be the other trustee. It was like a red rag to a bull.

A long and acrimonious battle ensued to get the trustees removed on the grounds that Mr Sanders was appointed in breach of trust. By the time that application was due to come before Mr Simon Monty QC in September 2017, most of the properties (but not all) had been sold. The proceedings thereby became otiose or sterile. In consequence of that, it was acknowledged by Mrs Price, taking a pragmatic view of things, that there was little point in pursuing the removal application any further (but she nevertheless reserved her position to seek the wasted costs of the removal application). She instead sought an account and enquiry in common form.

At the time, there was nothing to suggest that the Account should be on the grounds of wilful default or neglect. It was not until the Account was prepared (in a fashion) that matters appeared to be less than straightforward.

An account in common form should be distinguished from an account in relation to wilful default or neglect.

An account in common form is an account which merely requires the trustees to account for what they have received and what they have spent. There is no suggestion that they have been negligent or were in breach of trust. The distinction was amply demonstrated in this case as the difference in approach to say the receipt (and therefore account) of rents derived from the property portfolio. In the taking of a common form account, the trustees merely had to account for what came in and what went out. Even though there were long periods during which properties remained empty and no income was received, it was not open to Mrs Price to argue “look here, you should have achieved a better rental income by letting the properties instead of just leaving them empty”. If Mrs Price wanted to argue that, then the Account would need to be one of wilful neglect or breach of trust.

Deciding against doing so, Mrs Price sought the Account in common form, but still alleged various improper payments and receipts, including payments to Mr Sanders (even though he was a lay trustee so de facto in breach of trust) and payments/benefits in kind paid or given to other members of Mrs Saundry’s family (her son and daughter).  

HHJ Matthews heard the Account and had no hesitation in finding as a matter of fact that various improper payments had been made by the trustees and ordered Mrs Saundry to repay to the trust a sum of £52,701 plus interest. Mr Sanders had passed away before the hearing and it was common ground that the Account was prepared by and at the request of Mrs Saundry as the sole surviving trustee, but the disallowed payments related back to a time when she and Mr Sanders were both trustees, hence the Order being binding on her and his estate.

On the question of costs, he ordered the trustees to pay the Claimant’s costs of the Account, in part on the indemnity basis because they had failed to beat a Part 36 offer. However, rather surprisingly, after being so damning about the trustees behaviour he allowed them to have an indemnity for their own costs from the Trust fund. He also allowed the trustees to have an indemnity for the adverse costs they were ordered to pay the Claimant (save for one unsuccessful matter of rectification, brought by Mrs Saundry, for which she was ordered to pay Mrs Price’s costs and her own, without indemnity).

The consequence of such an Order for Mrs Price was that despite having “won” her case, and beaten her own Part 36 offer (and a previous  Calderbank offer she had made) she would end up paying (i) one half of her own costs (despite the Order in her favour) because she was a 50% beneficiary of the trust and (ii)  one half of the trustees costs for the same reason as a result of the indemnity they were given.

Despite his findings against Mrs Saundry on the Account, The Judge did not think the trustees were guilty of any breach of trust. 

The claimant appealed. The Court of Appeal (Underhill VP, Asplin and Arnold LJ) reversed the decision.


 A trustee’s right to an indemnity arises from section 31 of the Trustee Act 2000 and applies where the court is satisfied as to two matters: firstly, the Court asks “were the expenses not improperly incurred?” and secondly, if they were properly incurred, were they incurred on behalf of the trust, rather than for the trustees own benefit?

If it is shown that there was a breach of trust or other misconduct causing a loss to the trust, the trustee or trustees may be deprived of his, her or their indemnity. In this context “misconduct” is construed widely; it not only includes the more obvious misconduct in the sense of dishonesty or fraud but also conduct which is unreasonable in the circumstances. Note, it does not extend to a mere mistake on the part of the trustee.

However, it is accepted that the taking of an account in common form is not merely inquisitorial but is classed as hostile litigation which may involve findings of breach of trust and/or other misconduct; historically it was the only way that such allegations could be made.

In this case, the Account taken by HHJ Matthews revealed serious misconduct by the trustee; his decision to preserve their indemnity failed to recognise the seriousness of that misconduct.

Although an adverse costs order made inter partes does not necessarily lead to the loss of a trustee’s indemnity, it is a strong indication that the requirements of section 31 may not have been met.

Similarly, the failure to meet a Part 36 offer is a material factor in the assessment and the subsequent consideration of whether to deprive the trustees of their indemnity.

The Court of appeal ordered that the trustee pay her own and the claimant’s costs of the account personally, that is, without the benefit of the indemnity.

Trustees can now expect to lose their indemnity for costs out of the trust fund where they are found to have acted unreasonably in the circumstances, and the court’s making of an inter partes costs order against the trustees will usually, but not always, lead to an order depriving the trustee of their indemnity.

© Miles Farren

May 2020

Contact:  Miles Farren, Ebery Williams 

Case Citation: Price v Saundry & Anor [2019EWCA Civ 2261 (18 December 2019)

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