Smith v Campbell [2026] EWHC 144 (Ch) – The protected right to Trustee Indemnity 

The High Court had previously heard the case of Smith v Campbell [2025] EWHC 3011 (Ch) whereby the Claimants made a claim seeking the removal of all four trustees of a trust made a claim seeking the removal of all four trustees of a trust due to a breakdown in family relations with associated allegations of breaches of trust and misconduct by the trustees. The court ordered the removal of two out of four trustees, replacing them with a professional trustee. Whilst the judgment had been handed down, costs were to be decided at a later hearing, and this blog considers how the judge ordered such costs and applied the general protection of trustee indemnity.

Trustee Indemnity

A trustee’s right to indemnity derives from S31(1) of the Trustee Act 2000, which sets out that a trustee is entitled to the reimbursement of expenses whilst acting on behalf of the trust out of a trust fund, provided those expenses have been properly incurred.

Where a person is or has been party to any proceedings in the capacity of a trustee, the general rule, where costs are not recovered from another party, is that their costs will therefore be recoverable from a trust or estate and assessed on an indemnity basis. In considering whether costs were properly incurred, the court will undertake a broad evaluation of all the circumstances, including:

a.     Whether the trustee obtained directions from the court before bringing or defending proceedings.

b.     Whether they acted in the best interests of the fund or the estate.

c.     Whether they acted unreasonably in bringing or defending such proceedings.

Therefore, the conduct of the trustees is an important factor in determining whether they should retain their indemnity, notwithstanding the outcome of the case itself.

Success and Conduct of the Parties

When considering costs in the case, the general rule is that the unsuccessful party pays the successful party’s costs of the proceedings. However, the court has the discretion to make a different order.

When reviewing success, the court will adopt a common-sense approach, considering who has succeeded as a matter of substance rather than a form of technicality.

In this case, the Claimants had sought the removal of all four trustees, yet only two were removed, so to measure success, the court had to consider the substance of the dispute.

The Costs order

The Claimants’ position

Applying success to costs, the Claimants’ Counsel submitted that the court should distinguish between the removed trustees and the remaining trustees and ‘protect’ the remaining trustees for the purpose of costs. Counsel then later modified his position, submitting that all trustees had been unsuccessful to a point. However, the judge noted that because they all had the same representation and shared a common position, this would not be appropriate.

The Defendants’ position

The Defendants’ Counsel argued that, whilst the Claimant had been successful in removing two of the trustees, their claim was to remove all four trustees and appoint Mills and Reeve Trust Corporation in their place, yet the family trustees remained. Therefore, he argued that the claim was ultimately unsuccessful, and as a result, a cost order should be made against the Claimant.

The Decision

The judge decided that the Claimants had been the substantially successful party and therefore the starting point was that the trustees pay the Claimants’ costs.

However, applying the common-sense approach to substance, the judge considered the conduct of both the Claimants and Defendants. He reviewed the correspondence between the parties and decided it was the Claimants who had failed to engage in Alternative Dispute Resolution (“ADR”) as they refused and ignored early attempts at settlement, including a proposal of mediation and an offer for one of the trustees to retire. The judge determined that although the Claimants had been partially successful, the Claimants’ conduct of the claim was unreasonable. The judge highlighted in particular:

1. A failure to engage in pre-action correspondence and ADR at an early stage; and
2. That a very significant proportion of costs were incurred in litigating allegations of misconduct and breach of trust against the trustees, which were either withdrawn or dismissed. was not justified. The Court also concluded that whilst they had been successful, the Claimant’s claim was materially exaggerated as points were made and then not pursued at the final hearing.

Against that background, the judge decided that there be no order as to costs.

That led the judge to then consider whether or not to deprive the trustees of their indemnity for costs out of the trust. The judge found that the costs incurred by the trustees were not improperly incurred. In reaching that decision, the judge highlighted:

i. That it was proper and reasonable for the trustees to have defended themselves against the Claimants’ allegations of breach of trust and misconduct, all of which were dismissed.

ii. That a reasonable course of action against a background of hostility by one of the trustees towards the Claimants would have been, at an early stage in proceedings, for the trustees to propose that trustee to step down, perhaps with other proposals that might address the breakdown in the relationship and impact on the trust administration. The judge was satisfied that an offer broadly in line with that had been made by the trustees and that attempts had been made by the trustees in good faith to address the Claimants’ concerns about the breakdown in the relationship.

In such circumstances, the judge ordered that the trustees should not be deprived of their right to indemnity for their costs from the trust.  

Implications of this case

It is evident from this case that even the removal of a trustee is not a straight line to depriving them of their indemnity for their costs from a trust fund or estate, and that the decision on whether to do so will turn on the facts of the case.

It appears that the key to the decision not to deprive the trustees of their indemnity in this case was the conduct of the trustees, both:

i. in their administration of the trust, with the allegations of misconduct and breach of trust either withdrawn in the course of the proceedings or dismissed at trial; and

ii. in their conduct of the litigation, with the court considering that they had behaved appropriately in defending the allegations against them and in their conduct of the litigation in general.

It might also be inferred that the removal of a trustee based on a breakdown of the relationship will not, without more, lead the court to deprive a trustee of their indemnity for costs from a trust.

The court’s apparent reluctance in removing a trustee’s indemnity for costs even in cases where they have been removed can make removal claims complex and careful consideration will need to be given as to whether it is commercially sensible to apply for the removal of a trustee and, if so, how to conduct such litigation, with consideration needing to be given to trying to agree settlement terms.

In this instance, whilst the Claimants were partially successful in obtaining removal of some of the trustees, they did not get an award for their costs incurred in the litigation, and the available trust fund from which they would hope to benefit was ultimately reduced by the court confirming that the trustees should not be deprived of their indemnity for costs. As such, there were significant financial implications for the Claimants even though their claim was successful in part and they might well have expected an order for their costs to be either paid by some of the trustees who were removed or from the estate and for the trustees, or certainly those who were removed, to be deprived of their indemnity for costs.

Claimants must therefore be mindful of costs when pursuing this type of claim, and not simply expect that the successful removal of a trustee will result in their costs being paid and the trustees being deprived of their indemnity.

There will also be a proportionality point to be considered by a potential Claimant as to whether the benefit of removing a trustee will outweigh the potential financial loss that might be incurred to the available trust pot or the cost they may personally incur in the litigation.

Finally, this case is yet another example of how conduct before and during litigation can impact upon a final cost order and the importance the court places on the parties engaging in both pre-action correspondence and in ADR throughout proceedings.