Smith v Campbell: trustees' costs and indemnity in removal proceedings

The High Court has addressed the question of costs and trustee indemnity following proceedings in which two of four trustees were removed and replaced with an independent professional trustee. The case concerned the Graham Cheslyn-Curtis Will Trust, with the claimants—three beneficiaries—seeking the removal of all four trustees on grounds including alleged misconduct and a breakdown in relations.

Deputy Master Holden had previously determined in his main judgement of 17 November 2025 that Ian Patrick Campbell (Paddy) and Malcolm Ronald Taylor ought to be replaced as trustees, whilst Sarah Cheslyn-Curtis and Maldwyn Stephen Henry Worsley-Tonks MBE should continue in office. Following agreement on the appointment of Freeths Trustees Limited as replacement trustee, the sole remaining issue concerned costs.

Costs as between the parties

The court found that whilst the claimants had achieved a partial success—securing removal of two trustees and appointment of an independent professional—their claim had been materially exaggerated. The vast majority of costs had been incurred litigating allegations of breach of trust and misconduct that were either withdrawn or dismissed. The claimants had made what the court termed "myriad allegations of misconduct" against the trustees, none of which justified removal from office.

Particularly significant was the claimants' failure to engage in any pre-action correspondence or comply with the Practice Direction on Pre-Action Conduct. The claim form had been issued and served on Paddy at his home address without warning. The claimants' attempt to justify this approach—citing fears about potential reactions affecting their employment and distributions—was rejected, there being no evidence to support the contention and, in any event, no proper justification for bypassing the protocol.

Regarding alternative dispute resolution, the court concluded the claimants bore primary responsibility for the failure to resolve matters earlier. The trustees had made several offers of mediation at an appropriately early stage, which were not accepted. Crucially, in December 2024 the trustees made open proposals including that Paddy retire as trustee or that there be a demerger of trust assets with an independent professional trustee appointed to hold the company shareholding. The claimants rejected the proposal for Paddy's retirement on the basis he would remain a company director—a concern the court found unreasonable given that his performance as director was not under examination in the proceedings.

Last-minute settlement discussions three working days before trial, involving offers closely reflecting the ultimate outcome, demonstrated that earlier ADR efforts could likely have avoided much of the costs incurred.

Applying the broad discretion under CPR r.44.2 and considering all circumstances including the parties' conduct, Deputy Master Holden concluded it would not be just to visit the claimants' costs on the trustees. The appropriate order was that there be no order as to costs.

The trustees' right of indemnity

The separate question of whether the trustees should be deprived of their indemnity from the trust fund required consideration of whether costs were "properly incurred" within the meaning of s.31(1) of the Trustee Act 2000, as implemented by CPR r.46.3 and Practice Direction 46.

The court emphasised that removal claims are not always categorised as hostile litigation. Where successful removal is based on hostility or breakdown in relations rather than positive misconduct, the issue is whether the trustees' resistance was in their own interests or the trust's interests, and whether it was unreasonable in all the circumstances.

Deputy Master Holden rejected any suggestion of a general rule or policy that trustees removed on grounds of hostility should not be deprived of their indemnity. Equally, there is no universal rule that removed trustees will be deprived. The assessment remains whether resistance was reasonable and in the trust's interests.

On the facts, the court found the trustees' costs were not improperly incurred. Throughout proceedings, the primary focus had been allegations of breach of trust and misconduct, all of which were dismissed. It was proper and reasonable for the trustees to defend themselves against these allegations. CPR PD 46 paragraph 1.2 makes clear that defending allegations of breach of trust does not mean trustees acted for a benefit other than the trust's.

Regarding the breakdown in relations and Paddy's hostility in his evidence—matters making it obvious he should not continue—the reasonable course would have been early proposals for him to step down. The court found the December 2024 open offer constituted just such a proposal. With the benefit of hindsight, the proposals were not perfect (Malcolm's position was not addressed), but trustees are not deprived of indemnity for imperfection. The proposals were a good faith and reasonable attempt to address legitimate concerns constructively.

The claimants' rejection of Paddy's retirement proposal because he would remain a company director was not a reasonable basis to reject a constructive solution addressing their legitimate trust administration concerns. This was particularly regrettable given the claimants had thrust proceedings on the trustees without warning or pre-action compliance.

Overall, the trustees had reasonably and properly resisted numerous unfounded allegations whilst making early, good faith attempts to address legitimate concerns about the relationship breakdown. Accordingly, the court declined to deprive them of their indemnity, confirming their entitlement to be indemnified from trust assets in respect of their costs on the indemnity basis.

The court did not determine whether jurisdiction exists to order partial deprivation of indemnity, noting the submission was not sufficiently developed, though indicating such an order would not have been made on these facts in any event.

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