Costs ‘incidental to’ proceedings
An issue arose in this long-running dispute as to the extent of entitlement to costs incurred, and in particular the meaning of costs ‘incidental to’ proceedings.
The Trustees’ Representation sought Court blessing for the decision of the trustees to distribute all the assets of two trusts amongst the beneficiaries in certain proportions (the ‘Proposed Distributions’). The Court gave its approval to the Trustees’ decision. In the usual course the Court – finding no wrongdoing by the beneficiaries in putting their arguments to the Court – awarded each of the beneficiaries their costs of and incidental to the Representation.
When the parties sought to detail their costs claim of the Representation an issue arose as to the extent of such costs. Where, as here, the parties are each entitled to their costs ‘of and incidental to’ a piece of litigation, where is the line drawn? Is it a moment in time, is it when they are to be regarded as having acted reasonably in taking legal advice on the point in issue?
The Trustees accepted that costs which are ‘incidental’ to proceedings can be incurred before the proceedings are commenced but argued they must be incidental to those proceedings. The proceedings in this case were those commenced by the Trustees’ Representation on 26th February 2021 seeking the Court’s blessing to the Proposed Distributions. The Trustees argued that the furthest back which it was proper to go was 6th January 2021, being the date upon which the advocates for the Trustees alerted the parties to the fact that a new decision was about to be made by the Trustees and that they would seek to have that decision blessed by the Court. The Trustees applied that cut-off date to all the beneficiaries so as to achieve fairness amongst the opposing family members.
One of the beneficiaries argued that she should receive her costs relating to the possible termination of the Trusts from 1st September 2016 onwards. The underlying issue before the Court was whether the Trusts should be terminated and, if so, how the assets should be distributed amongst the beneficiaries. This began with the daughter’s request of 1st September 2016 and all costs incurred on the topic since then were ‘incidental’ to the proceedings which eventually came before the Court and which gave rise to the Representation.
Her fallback position was that all costs incurred since an earlier trustee proposal were clearly incidental to the proceedings. As from that date, the Trustees had formulated proposals for termination and costs were incurred relating to those proposals. They were therefore incidental to the proceedings, which were to determine whether the Trusts should be terminated and whether the Trustees’ proposals should be blessed.
Having considered the arguments and taken note in particular of guidance from Re Gibson’s Settlement Trusts  1 All E R 233, Commissioner Birt agreed with the Trustees that the costs incurred before 6 January 2021 were properly excluded.
In effect in Piedmont the Court looked at the narrow purpose of the Representation – approval of the Proposed Distributions – rather than the wider issue of the dispute between family members and steps to terminate the Trusts in question, or even the more general topic of proposals for the distribution of trust assets. The proceedings begun by the Trustees’ Representation on 26 February 2021 concerned whether the Court should approve the Proposed Distributions. The Proposed Distributions were only formulated by the Trustees in January 2021 and legal costs incurred before then were not incurred in relation to the Proposed Distributions.
Whilst it was relevant for the Court’s decision (as to whether to bless the Proposed Distributions) to record the history of the matter leading up to the decision to make the Proposed Distributions, that did not mean that the legal costs incurred at the time in the consultation process can be regarded as related to or incidental to the proceedings.
(Contrast the scenario in a case such as Newall v Lewis  4 Costs LR 626 where parties who had investigated the conduct of trustees as part of the process of establishing whether a breach of trust had occurred were entitled to their costs of those investigations, not merely the costs more closely connected with the subsequent administrative action based on their loss of trust and confidence in the trustee. Those investigations were directly relevant to the action and therefore ‘incidental’ to it.)
Therefore the Court found that costs incurred before 6 January 2021 were not incidental to the proceedings because they did not relate to or concern the Proposed Distributions; they were concerned either with general consultation about how to terminate the Trusts or with a previous proposal; they did not concern the Proposed Distributions, as they were only made known to the parties after that date.
In the modern climate where beneficiaries may well have legal advisers as to the general conduct of trustees in order to protect themselves from what might otherwise be an inequality of arms in relation to complex and high-value issues, significant costs can be incurred by parties and potential parties ‘outside’ the four corners of a piece of litigation. That can involve very significant fees. This narrow view of the ‘incidental’ costs to be allowed will therefore be of concern to many beneficiaries.
In this particular case, where beneficiaries had properly engaged with the Trustees in considering earlier, abandoned, proposals for distribution, why should the beneficiaries effectively be penalised in costs when those proposals were abandoned and replaced with the Proposed Distributions which ultimately formed the basis of the Trustees Representation? Particularly if the proposals were reconsidered because of a particular beneficiary’s own persuasive arguments?
It is also likely to lead to more specific costs orders, where for certainty parties will argue for an Order for costs from a point in time rather than resting on ‘incidental to’ and leaving open potential subsequent dispute as to what is therefore included.
24 May 2022