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What is a Beddoe Order?
A trustee is normally entitled to a full indemnity out of
the trust assets for his costs and expenses incurred in the
administration of the trust, as long as those costs and expenses
are reasonably and properly incurred. In the case of Re Beddoe
[1893] 1 Ch 547 this principle was narrowed so that a trustee
who commences or defends litigation unsuccessfully does so
at his own risk as to costs even if he acts on the opinion
of counsel and would only be entitled to reimbursement out
of the trust assets for the costs of so doing in exceptional
circumstances, unless the trustee has first obtained an order
from the Court permitting him to bring or defend the litigation
at the expense of the trust.
Such an order has become known as a "Beddoe" order
and affords a trustee the costs protection he seeks regardless
of the outcome of the litigation. There is no need for a Beddoe
order if all the beneficiaries are adults of full capacity
in favour of the trustee's proposed course of action who agree
that his costs can be paid out of the trust assets.
The procedure
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The trustee should seek directions as to
whether he should bring or defend, or continue to bring
or defend, proceedings in his capacity as trustee. The
application should be made in separate proceedings from
the litigation in question. |
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As the question in issue is the merit in
bringing or defending an action from the perspective of
the trust, the Judge will necessarily require access to
otherwise privileged information which the Judge in the
main action would not be permitted to see. |
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The trustee should make full disclosure
of all of the facts at his disposal. |
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The beneficiaries of the trust should be
joined as defendants since the expenditure of trust money
is an issue which directly concerns them. |
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The evidence will normally include details
of the dispute in question, an opinion from Counsel as
to the merits, details of the assets of the Trust, pleadings
(if any) in the main action, and cost estimates for participation
in the litigation. |
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The court will often grant a Beddoe order
authorising the bringing or defending of proceedings up
to a certain stage prior to trial at which point the trustee
should seek another Beddoe order to extend his protection.
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Advantages
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Focuses a trustee's minds on the merits
of the case at an early stage. |
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When other parties realise a Beddoe order
has been made it can encourage a negotiated settlement
as they will realise that the court is effectively endorsing
a trustee's conduct. |
Disadvantages
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While the Court will consider whether the
matter can be dealt with on paper, hearings are the normal
course and this can delay resolution of the main dispute
while the question of a trustee's costs remains unresolved.
However if urgency can be made out, the Court may give
directions on the summary consideration of the evidence
to permit the urgent steps to be taken, with the application
to come back before the Court at a later date for fuller
consideration. |
This note is intended to provide general information and
is not intended to be comprehensive nor to provide specific
legal advice and should not be acted or relied upon as doing
so. For further information, please contact any member of
the Trusts & Fiduciary Disputes Team.
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