BEDDOES APPLICATIONS IN THE BRAVE NEW WORLD
Post Civil Procedure Rules have Beddeos applications changed?
Sarah Asplin provides the answers
(taken from Issue No 17 – October 2001)
Despite that aura of Jarndyce v Jarndyce which it seems one cannot help but invoke and the look of complete incomprehension which often comes over one’s audience when one even mentions it, the Beddoes application1 has survived the perilous journey from nineteenth century trust law to the post CPR world of the early twenty-first century in pretty good shape and is a more effective and an all the more necessary weapon in the trustee’s armoury than before.
In this article, I intend to outline the circumstances in which Beddoes applications remain a useful if not essential tool, point out the added post CPR advantages of which trustees may wish to avail themselves and mention some of the pitfalls and wrinkles which remain.
The Beddoes application remains a practical and often essential means of protection for trustees faced with the difficulties inherent in balancing their duties to protect and recover the trust fund whilst preserving the limited resources within the scheme in the first place. Who would not seek guidance from the Court when steering a path through the lottery of litigation?
Where to find it
Beddoes applications are perhaps one of the elements of procedure in the Chancery Division which remain the least affected by Lord Woolf’s reforms. In physical terms the relevant provisions remain in much the same form and in the same place. RSC Order 85 rule 2 is preserved by means of Part 50 and Schedule 1 of the CPR. Order 85 enables a trustee to seek the directions of the Court in circumstances falling short of full administration of an estate and expressly encompasses the ability to seek
`an order directing a person to do or abstain from doing a particular act in his capacity as executor, administrator or trustee.2`
What is it?
This provision is utilised to enable trustees to obtain the directions of the Court as to whether to prosecute an action, to continue to do so once commenced, or to defend proceedings brought by a third party against the trust, estate or pension scheme.
On occasion, the `third party` is, in addition, a beneficiary of the trust against whom it is necessary to issue proceedings or to defend a claim. In such circumstances, the claim itself is not as a result of their interest under the trust. For example, they may allege that they have gained a beneficial interest in property which is considered to belong to the trust, or allege that assets which are considered to be comprised in the fund, have been the subject of a gift to them. In such circumstances, Beddoes relief may still be appropriate, and the procedure outlined in Re Moritz3 will have to be adopted4.
This situation should be carefully distinguished from a true dispute which is between beneficiaries of the trust in relation to the trust itself, in which the trustees should not become involved, as long as the beneficiaries are all of full age. In such circumstances, the beneficiaries themselves can decide whether to proceed with the claim and the trustee will not be able to recover his costs from the fund or estate, should he become unnecessarily embroiled in such a dispute.
Why bother given the trustee’s right to an indemnity from the trust fund in respect of all charges and expenses properly incurred? It is unlikely that such complacency would prevail in the hearts of many trustees given the renowned uncertainty of litigation and the prospect that should they unsuccessfully defend or prosecute an action, the Court may well determine that the costs which, of course, will include those of the successful party, were improperly incurred, rendering the trustee personally liable.
This was highlighted in the case of Singh v Bhasin5, in which a trustee who was sued in his representative capacity, defended proceedings brought against him without the benefit of a Beddoes order. He had been advised by counsel that he had a good defence to the claim, but nevertheless, was not entitled to his costs out of the trust fund, the defence proving unsuccessful, unless the court could have been satisfied that it would have authorised the defence of the proceedings at the expense of the trust fund, had an appropriate application been made before the costs were incurred.
Although the facts of the case were extreme, the moral of the tale is clear. If, as a trustee, one takes the risk and waits until the proceedings are concluded, if one’s claim or defence has been unsuccessful, inevitably, it will be much more difficult to convince the Court that it would have authorised the steps in the first place. Why run such a risk, especially as the procedures for obtaining Beddoesrelief have been streamlined to some extent? After all, once a Beddoes order has been obtained, the trustee will be entitled to his costs out of the fund on the indemnity basis, whatever the outcome of the hostile litigation, as long as it cannot be shown that he has otherwise acted unreasonably.
There are cases, in which it is so clear that the trustees should proceed, that the costs of making an application, even under the simplified procedure referred to below, cannot be justified in comparison with the size of the fund or the matters at stake.
Of course, the trustees can rest easy in their beds if they have the express consent of all their beneficiaries to the prosecution of the proceedings and possibly indemnification from them personally should the trust assets prove insufficient6, but in how many cases can such unanimous approval be obtained and in reality, how many trusts are sufficiently simple, that all beneficiaries are of full age and ascertainable? Certainly, in the world of pensions litigation, theBeddoes application has become an invaluable tool, because of the large classes of beneficiaries with differing interests, who especially in the case of a scheme in deficit which is also in winding up, will be affected by the incidence of the costs of litigation, to differing extents.
In any event, in preparation for an application, beneficiaries should be canvassed as to their reaction to the proposed course of action. Although such soundings7are only of value if they are accompanied by a proper explanation of the circumstances in which the proceedings arise, trustees will obviously have to take care, if one of the beneficiaries is also a party to the hostile litigation. In any event, the trustees are required to file evidence as to such soundings and the reactions to them and therefore, should contact all adult beneficiaries who are of sound mind and are traceable, whether or not there are also minors and unborns who are interested under the trust.
Although consultation will not be possible, where one or some of the beneficiaries are minors, it will be necessary to put before the Court an opinion setting out the benefits and disadvantages of the proposed course of action from the point of view of the child.8
In the case of a pension fund where the number of beneficiaries is likely to be numerous, no particular consultation process is required. However, it will be necessary to file evidence describing the suitability and willingness of any individual named as a prospective representative beneficiary/defendant in theBeddoes application and therefore, some consultation, albeit limited will be necessary in any event.
Of course, in relation to a charitable trust, it is necessary to have sought the consent of the Charity Commissioners to the application, pursuant to s.33 Charities Act 1993 and the trustees, must also consult the Attorney General. Obviously, the reactions, including the consent of the Commissioners will have to be referred to in the evidence before the Court upon the Beddoes application. If consent to the trustees making application to the Court for directions is refused, and the Charity Commissioners also refuse to give the trustees directions under their own powers, the trustees can appeal to the Court and the application may be dealt with on paper.9
How to do it
The application is made in separate proceedings from the hostile claim itself, to which the trustees will be parties, whether as claimants or defendants. The separate proceedings should be in the form of a Part 8 claim to which the trustees will be claimants and generally, the beneficiaries will be defendants. Of course, if there are large classes of beneficiaries, as in the case of a pension scheme, it will be necessary to choose representative defendants for each of the classes affected and to seek representation orders.
The proceedings need to be separate from the hostile action10 itself because the very purpose of the application is to seek the approval of the Court for the trustees’ proposed course of action and thereby remove the risk that the trustees will lose their indemnity as to costs, should their claim or defence be unsuccessful. In order to gain the sanction of the Court for continuing to be involved in the hostile proceedings and therefore, for incurring further costs at the expenses of the trust fund, the trustees must inform the Court of all the surrounding circumstances, the strengths and weaknesses of their case and the prospects of success11. If they fail to make full disclosure, the protection otherwise afforded by the order of the Court will be flawed and they will be at personal risk as to costs.
Not only must the strengths and weaknesses of the claim or defence be considered in separate proceedings, in order not to compromise the trustees’ position in the hostile litigation, but it may also be necessary to frame the relief sought in the Part 8 claim in a general way, in order to avoid alerting the other party to the hostile litigation, to the steps which the trustees wish to take12. The trustees’ position will be further protected by the fact that the hearing of theBeddoes application will initially be listed in private and therefore, the documents on the Court record, other than the claim form will not be open to public inspection without the Court’s permission: CPR rule 5.4(2).
The CPR has opened up a number of possibilities which provide trustees with additional comfort and/or potentially reduce the cost of the Beddoes application itself. (These costs should not be under estimated and in cases in which the finances of the trust are precarious, may, in themselves, lead to a situation in which the trustees refuse not only to proceed with the hostile action, but to seekBeddoes relief, given the lack of funds.)
First, where the circumstances are sufficiently straightforward and it is considered that the Court will be able to deal with the matter without the need to hear from any party other than the trustees, the Part 8 Claim form can be issued without naming any defendants, albeit that application has to be made to the Court before doing so, including a copy of the proposed claim form; see CPR Part 8.2A(2) and (3)(b).
The likelihood of this procedure being appropriate seems to be relatively small. However, a more useful tool is also provided by CPR Part 8.2A, namely that where there is uncertainty about which defendants to join, the trustees may issue a Part 8 claim form without naming any defendants and couple it with an application to the Court for directions as to who to join. Such a procedure might be adopted where there are numerous potentially conflicting classes of beneficiaries, but the trustees are reluctant to join too many defendants unnecessarily.
Disclosure to the Court is made by means of witness statements which must state the value of the trust fund, explain the significance of the litigation to the trust and why the Court’s directions are needed. In the case of a pension scheme, it is obviously, necessary, also to disclose the most recent actuarial valuation, set out the membership profile and the effect of the priority provisions, if the scheme is in deficit on a winding up13. Obviously, without such information, the Court is unable to assess the effect of the litigation, its advantages and the risk as to costs to which each category of the membership is exposed.
The merits of the claim are put before the Court by means of exhibiting the opinion of `an appropriately qualified lawyer`, together with the instructions upon which the opinion was based. `An appropriately qualified lawyer` is defined in the Practice Direction14, as a lawyer whose experience and qualifications are appropriate in the circumstances of the case and generally, is a barrister of some seniority, who specialises in the particular area of law with which the hostile litigation is concerned. The relevant qualifications must be stated.
An estimate of costs already incurred and to be incurred in the hostile proceedings must also be included in the evidence15, together with evidence as to the likelihood of settlement and whether ADR is proposed and if not, the reasons for having rejected it. Obviously, in order to be of real assistance to the Court, the costs estimate should be in the form of a breakdown showing the level of costs already incurred, if any, and an estimate of further costs down to completion of disclosure, exchange of expert, factual evidence and so on. The Court will then be able to determine whether it might be appropriate, initially to direct that steps be taken in the hostile litigation, short of a full trial and to assess the situation again once, for example, witness statements have been exchanged.
Limited orders directing steps to be taken down to disclosure are often made and even before the inception of the CPR, it was often directed that rather than incur the expense of a further hearing at that stage, the disclosed documentation should be assessed by those instructed on behalf of the trustees and a written report assessing the documentation available and its effect on the strengths and weaknesses of the claim, be lodged with the Court. A direction to continue or otherwise, may then be given without the need for a hearing16. There is no difficulty in using the documentation disclosed in the hostile litigation for the purposes of seeking further directions on behalf of the trustees, because that use is deemed to be for the purpose of the hostile litigation itself: White v Biddulph17.
In a straightforward case, a master or district judge can give the appropriate directions and will do so without the need for a hearing. Such a procedure must have the effect of encouraging trustees to seek the protection of a Beddoes order, even in more straightforward cases, given that the costs of doing so, will be reduced if the Court concurs with the trustees’ assessment of the plainness of the case and the lack of need for a hearing.
However, it is much more likely that any necessary directions having been given as to joinder of defendants and evidence, the matter will be adjourned to a judge. Even so, although there may be a hearing, if directions are made that the trustees should only proceed down to a particular stage of the hostile proceedings, as I have already mentioned, it is becoming increasingly common that further directions for continuation of the action, will be made on the strength of a written opinion of counsel, without the need for a further hearing.
Where the limitation on further progress is related to the extent of costs expended, which may be the case where the trust is a pension fund in deficit and in winding up, it would be more likely that once the costs ceiling is reached, a further hearing would be necessary, given the competing interests of the beneficiary defendants.
When should the application be made?
Ideally, of course, the Beddoes application should be made well in advance of the hostile litigation being commenced and therefore, before any costs have been expended. Of course, this is not always possible, either if the trustees are defendants in the hostile litigation, or, if in relation to a claim, the expiration of a limitation period is looming.
If time is limited, clearly, a claim form must be issued before expiration of the limitation period, in order to protect the trust’s position. However, it is now indicated in paragraph 7.9 of the Practice Direction, that in such circumstances, the Court may be willing, in effect, to give interim relief upon the basis of a summary consideration of the evidence. In such circumstances, directions covering the immediate and urgent steps would be given on the basis that an application would have to be renewed for further directions at an early stage, giving the Court the opportunity to consider the detailed evidence.
In any event, it is appropriate that an application is made at the earliest possible opportunity and certainly before other than minimal costs have been incurred. Given the requirements of the CPR which are considerably more `front loaded` than before, this means that trustees must be alive to the need to make an application in good time before they need to proceed with the hostile action. If substantial costs have been incurred by the trustees before the Beddoesapplication comes before the Court, they run the possible risk of not being allowed those costs from the fund.
Test to be applied
At whatever level the application is decided, the principles to be applied are the same. The court is concerned to establish the merits of the defence or claim in the hostile litigation, the justice of the case, the likely order for costs at trial in the main action and whether there are any special factors, for example, whether it is a test case which will affect a large number of other cases. 18
Costs of the Beddoes application itself
Unless the case was absolutely plain and/or for some other reason did not justify an application19, which must be extremely unusual, the costs of the application will be allowed out of the trust fund on the indemnity basis, as will the assessed or agreed costs of the beneficiary defendants, subject to their conduct of the proceedings having been proper and reasonable.
Given the streamlined procedure now available in some cases, the opportunity, in effect, for interim relief on an emergency basis, and the stringent test applied inSingh v Bhasin, in relation to trustees who `chance their arm`, there must be few circumstances in which it would be wise for a trustee to go his own way and omit to make a Beddoes application. Perhaps, therefore, the changes effected by the inception of the CPR, including the need to incur costs at an earlier stage in litigation, have re-vitalised this tried and tested weapon in the trustees’ armoury.
3 Stone Buildings
1 See Re Beddoe Downs v Cottam  1 Ch 547
2 See CPR Sch 1 RSC Order 85 Rule 2(3)(c)
3 In re Moritz (decd)  Ch 251 – the beneficiary against whom proceedings may be commenced, is joined as a party to the Beddoes application, but the evidence upon which the Court will be required to evaluate the strength of the claim against him will not be served upon him and he will not be entitled to be present when the merits of that claim are debated before the Court. In fact, witness statements/affidavits are usually filed, in short form and all details are set out in the exhibits which are not served upon the beneficiary who is party to the hostile proceedings.
4 It is possible that if the beneficiaries are all of full age, they will be joined as defendants in the hostile litigation. See In re Evans  1 WLR 101
5 The Times 21st August 1998
6 Of course, to be effective, all those beneficiaries must be of full age and capacity
7 See Practice Direction paragraph 7.7
8 See Practice Direction 7.10
9 See CPR Sch 1 RSC Order 108 rule 3
10 See Alsop Wilkinson v Neary  1 WLR 120
11 It is for this reason that the procedure in Re Moritz (supra), is adopted where one of the beneficiaries is also a party to the hostile proceedings. This can now be found in Practice Direction RSC Order 85 at paragraph 7.6
12 The third party could seek access to the Part 8 Claim for under CPR rule 5.4 and therefore, gain information about the steps which the trustees wish to take in the litigation against him
13 See Practice Direction RSC Order 85 [scpd 85] at paragraph 7.4
14 See Practice Direction RSC Order 85 paras 7.2 and 7.3
15 See Practice Direction RSC Order 85 paras 7.2 and 7.5
16 This procedure is now encapsulated in Practice Direction para 7.8(1) + (2)
17 Hart J, 22.05.98, (unreported)
18 See Re Beddoe (supra) and Alsop Wilkinson v Neary (supra)
19 e.g. The costs of the application entirely outweighed the substantive amount at stake and the importance, (or lack of it) of the hostile proceedings to the trust