Executor costs indemnity removed: hostile trust litigation CPR PD 46

Executor's Litigation Costs Indemnity Denied And Personal Costs Ordered In Hostile Trust Dispute

An executor who continued hostile litigation despite clear conflicts of interest had his executor costs indemnity removed by the High Court. The court upheld differential costs treatment—standard basis pre-application, indemnity basis post—confirming that recognising when your position becomes untenable is crucial for fiduciaries facing removal applications.

FERNANDEZ V FERNANDEZ [2025] EWHC 2373 (Ch)

In Fernandez v Fernandez [2025] EWHC 2373 (Ch), the court dismissed an appeal against costs orders made following the successful removal of an executor and trustee. The appellant, Julian Fernandez, was removed by District Judge Wales as executor of his parents’ estates and as trustee of a 2008 family discretionary trust, with an independent professional appointed in his place. The respondents, his siblings, were awarded their costs. The judge ordered the appellant to pay the costs of the counterclaim on the standard basis, but the costs of the summary removal application, issued on 28 March 2024, were awarded on the indemnity basis. Crucially, the judge also ruled that the appellant could not indemnify himself from the assets of the estates or the trust for his own litigation costs or his liability for the respondents’ costs, though his right to an indemnity for proper administration expenses was preserved. On appeal, HHJ Paul Matthews held that the judge was entitled to characterise the litigation as hostile, engaging inter partes costs principles. The decision to award indemnity costs for the application period was justified as the appellant’s continued resistance, despite clear conflicts of interest, was conduct ‘out of the norm’. The deprivation of the litigation costs indemnity was correct under CPR PD 46 para 1.1, as the appellant had acted for a benefit other than that of the estate. The appeal court found no error in the exercise of discretion, emphasising that the judge’s thorough reasoning adequately addressed the principles from cases such as Armitage v Nurse and Excelsior Commercial & Industrial Holdings Ltd. The appeal was dismissed, affirming all costs orders.

...in circumstances where the judge considered that Julian should have realised that he would have to be replaced as executor and trustee, it was in the judge’s view sufficiently “exceptional” or “out of the norm” for him to continue to resist the application to remove him, so as to justify costs against him on the indemnity basis. That was an evaluative decision by the judge, and it was for him to make. I cannot interfere unless it was a plainly wrong decision. On the material before me, I cannot say that.

Citations

Auden McCarthy v McCarthy [2022] EWHC 516 (Ch) A breakdown in the relationship between a trustee and a beneficiary is not sufficient to justify removal unless it compromises administration or involves a conflict in decision-making affecting beneficiaries’ welfare. Boardman v Phipps [1967] 2 AC 46 A trustee must avoid situations where duty and interest conflict or may reasonably appear to conflict, even without actual impropriety, to preserve fiduciary integrity. Bray v Ford [1896] AC 44 A fiduciary must not profit from their position or act in circumstances where personal interest and duty may conflict, to uphold loyalty and deter impropriety. Edge v Pensions Ombudsman [2000] Ch 602 Trustees exercising discretionary powers must consider all relevant matters and disregard irrelevant ones, even where personal benefit is authorised. English v Emery Reimbold & Strick Ltd [2002] 1 WLR 2409 Judges must provide sufficient reasons to show parties and appellate courts the basis of decisions, particularly on costs, but need not address every issue if rationale is discernible. FAGE UK Ltd v Chobani UK Ltd [2014] EWCA 5 An appellate court should not interfere with a lower court’s evaluative findings on costs unless they are plainly wrong or outside the range of reasonable conclusions. G v G (Minors: Custody Appeal) [1985] 1 WLR 647 An appellate court may intervene in discretionary costs decisions only if the judge has exceeded the boundaries of reasonable disagreement or misapplied the law. Harris v Earwicker [2015] EWHC 1915 (Ch) Removal of an executor under section 50 requires consideration of whether administration is being conducted properly and whether replacement promotes beneficiaries’ welfare, regardless of wrongdoing. Hosking v Apax Partners [2019] 1 WLR 3347 Indemnity costs may be awarded where litigation conduct is out of the norm, such as speculative claims, reputational damage, or pursuit of exaggerated allegations without reasonable foundation. Letterstedt v Broers (1884) 9 App Cas 371 Where continued office of a trustee or executor would harm the trust’s administration or undermine beneficiaries’ confidence, the court may remove them even without proven misconduct. London & Capital Finance plc v Global Security Trustees Ltd [2019] EWHC 3339 (Ch) Misconduct is not required to remove a trustee; the court will act where continued trusteeship hinders proper administration or compromises beneficiary interests. Long v Rodman [2019] EWHC 753 (Ch) The discretion to remove under section 50 may be exercised pragmatically without resolving factual disputes, particularly where relationships have broken down and administration is impeded. The Thomas and Agnes Carvel Foundation v Carvel [2008] Ch 395 Removal of personal representatives mirrors trustee removal and focuses on whether estate administration is hindered, rather than requiring proof of misconduct. Volpi v Volpi [2022] 4 WLR 48 An appellate court will not disturb a costs decision involving evaluative judgment or findings of fact unless the original decision was plainly wrong and beyond reasonable disagreement.

FERNANDEZ V FERNANDEZ [2025] EWHC 2373 (Ch)

Section 51 Costs Jurisdiction Injunction Without Claim Form | Gotti

Being 'Annoying and Difficult' Not Sufficiently 'Out Of The Norm' For Indemnity Costs In Failed Liquidator Challenge

STOCKLER AND ANOTHER V THE CORPORATION OF THE HALL OF ARTS AND SCIENCES [2025] EWHC 2262 (SCCO)

Key Points

A trustee or personal representative may be deprived of their right to an indemnity from the estate or trust fund for litigation costs where they have acted for a benefit other than that of the estate or fund, including their own interests in hostile litigation.
In hostile litigation between a personal representative or trustee and beneficiaries, the standard inter partes costs principles apply; the successful party is ordinarily entitled to their costs from the unsuccessful party.
Costs may be ordered on the indemnity basis where the conduct of the paying party, or the circumstances of the case, take it outside the norm of ordinary and reasonable litigation conduct; this does not require findings of fraud, bad faith, or gross negligence.
The court has discretion to order a trustee or executor to pay costs personally and to deny relief from those costs out of the estate or trust fund if the costs were not properly incurred within the meaning of section 31(1) of the Trustee Act 2000 and CPR rule 46.3.
The court’s discretion to deprive a personal representative or trustee of their indemnity from the estate/trust for litigation costs is informed by whether they acted for the benefit of the fund; the fact they were appointed by the will is a relevant factor but does not provide immunity where the litigation is hostile and conducted for their own benefit.

"Taking the remarks which the judge made in his costs judgment together with this exchange with the respondent’s counsel, in my judgment it is clear that the judge considered that Julian should not be entitled to an indemnity from the estates or the trust for his own hostile litigation costs and costs liability, even though he should be entitled to one for his costs of the administration of the estates and the trust. In other words, Julian acted “in substance for a benefit other than that of the estate, including the trustee’s own”, within the meaning of paragraph 1 of CPR Practice Direction 46, and therefore was no longer entitled to his indemnity. In my judgment, the judge was entitled on the material before him to reach that conclusion, and this ground of appeal also fails."

Key Findings In The Case

The court found that the Respondents, Leessa and Nick Fernandez, were the successful parties on the counterclaim and the removal application, and thus entitled to their costs of both; those relating to the application itself were awarded on the indemnity basis due to the Appellant’s continued resistance when it was clear his position was untenable.
The court held that Julian Fernandez, the Appellant, was not entitled to indemnify himself from the estate or trust funds in respect of his own costs and liabilities incurred in the course of the hostile litigation, as he had acted in substance for a benefit other than that of the estate, engaging in proceedings for personal interest against beneficiaries.
The court concluded that although Julian had a statutory right of indemnity for expenses properly incurred in the administration of the estates and trust, that right did not extend to costs arising from conduct in hostile litigation not incurred in furtherance of proper trust administration.
The judge determined that Julian’s pursuit of his position after the March 2024 application was conduct “out of the norm,” justifying an award of indemnity costs to the Respondents from that point onwards, particularly given his clear conflicts of interest and the impediment posed to completion of the administration.
The court separated litigation costs from administration costs for the purposes of assessment, confirming that only the latter remained subject to Julian’s statutory or common law indemnity, and excluded all hostile litigation costs from that indemnity due to their character and context.

“"What the judge in the present case actually said in his costs judgment was:
'27. … The indemnity basis is appropriate where the conduct of the parties or, in the particular circumstances of the case or both, were such as to take the case out of the norm... meaning that the conduct complained of is something outside the ordinary and reasonable conduct of proceedings.'
For my part, I cannot fault that formulation of the test."

The High Court’s decision in Fernandez v Fernandez [2025] EWHC 2373 (Ch) demonstrates that executors who persist in defending removal applications after their position becomes untenable risk both personal costs liability and loss of their estate indemnity.

Background

The proceedings concerned the estates of Jean Fernandez, who died on 29 March 2010, and Alexander Fernandez, who died on 14 October 2013. The appellant, Julian Fernandez, was the executor of both wills, which were discovered after initial grants of administration had been made. The first and second respondents, Leessa and Graeme (Nick) Fernandez, had obtained letters of administration for Jean’s estate in 2013, believing she had died intestate. Julian subsequently found wills for both parents dated 1 October 1996, appointing him as executor. He obtained a grant of probate for Alexander’s estate in January 2016 and for Jean’s estate in November 2019, after the validity of her will was confirmed following a trial of a preliminary issue in July 2019.

On 10 July 2018, Julian issued a claim seeking revocation of the letters of administration granted to Leessa and Nick and a grant of probate to himself. Leessa and Nick defended the claim only by putting Julian to proof of the will’s validity and brought a counterclaim seeking Julian’s removal as executor of both estates and as trustee of a discretionary trust settled by the parents in 2008. The counterclaim alleged various instances of misconduct, including mismanagement of estate assets, conflicts of interest, and a breakdown in relations between Julian and the other beneficiaries.

The procedural history was protracted. In September 2019, District Judge Watson ordered Leessa and Nick to pay Julian’s costs of the preliminary issue concerning the validity of Jean’s will, with detailed assessment, and gave directions for a four-day trial of the counterclaim. However, the parties subsequently sought and obtained multiple stays to negotiate a settlement, including an unsuccessful mediation in January 2022. In June 2023, HHJ Paul Matthews refused a further stay, directing that the litigation must proceed. Fresh directions were given by District Judge Taylor in November 2023, leading towards a four-day trial.

On 28 March 2024, Leessa and Nick applied for summary determination of the removal application. This was heard by District Judge Wales on 16 September 2024 [§14]. On 29 October 2024 [§15], the judge handed down his substantive judgment. Following a hearing on 3 December 2024 for consequential matters, the judge made an order removing Julian as executor and trustee and appointing an independent professional trustee. At the hearing on 3 December 2024, the judge also dealt with consequential matters, including costs. He delivered a series of extempore judgments on costs, resulting in an order that Julian pay the respondents’ costs on the standard basis up to 28 March 2024 and on the indemnity basis from 28 March 2024 onwards [§26, §135], and that Julian be deprived of his right to indemnity from the estates and trust for his litigation costs (but not his administration costs) [§24, §127-128]. Julian appealed against this order, with permission granted by Michael Green J on 3 March 2025. The appeal was heard on 8 July 2025 before HHJ Paul Matthews sitting as a Judge of the High Court [§1].

Costs Issues Before the Court

The appeal required the court to review the costs orders made by District Judge Wales on 3 December 2024. The specific costs issues for determination were:

Whether the judge erred in ordering Julian to pay the respondents’ costs of the counterclaim and the application.
Whether the judge erred in awarding costs on the indemnity basis for the period following the application dated 28 March 2024.
Whether the judge erred in depriving Julian of his right to indemnity from the assets of the estates and trust in respect of his own litigation costs and the costs liability imposed by the order.
Whether the judge erred in setting the payment on account of costs at £55,000.

These issues arose in the context of hostile litigation between an executor/trustee and beneficiaries, engaging special principles under the Civil Procedure Rules and trust law.

The Parties’ Positions

The Appellant’s Position Julian argued that the costs orders were erroneous. He submitted that there was no sufficient evidence of misconduct to justify ordering him personally to pay costs or depriving him of his indemnity from the estates. He contended that the litigation was necessary for the proper administration of the estates and that he had acted properly throughout. Regarding indemnity costs, he argued that such an award required a finding of exceptional conduct, such as bad faith or gross negligence, which was not present. He also criticised the judge for failing to consider the respondents’ own litigation conduct and for not providing adequate reasons for the costs orders.

The Respondents’ Position The respondents supported the costs orders. They argued that the litigation was hostile and that Julian had acted in his own interests rather than for the benefit of the estates. They submitted that Julian’s continued resistance to removal after the application of 28 March 2024 was unreasonable, justifying indemnity costs for that period. They contended that Julian should not be entitled to an indemnity for litigation costs because he had acted for a benefit other than that of the estates, citing his conflicts of interest and the adversarial nature of the proceedings. They also argued that the payment on account was appropriately calculated. They faced a “formidable obstacle” in challenging the costs consequences [§17], citing Webb v Liverpool Women’s NHS Foundation Trust [2016] EWCA Civ 365.

The Court’s Decision

The appeal was dismissed, and the costs orders of District Judge Wales were upheld. The court analysed each costs issue as follows.

Order for Costs Against the Executor

The court held that the judge was entitled to order Julian to pay the respondents’ costs. The general rule under CPR rule 44.2(2) is that the unsuccessful party pays the costs, and the respondents were the successful parties on the counterclaim and application. The judge correctly characterised the litigation as hostile, meaning the usual inter partes principles applied, rather than treating it as trust litigation where costs might be paid from the estate. The court referred to the principle that a trustee or executor is not automatically entitled to an indemnity for costs incurred in hostile litigation, especially where they have acted for their own benefit. The judge’s decision that Julian had acted in substance for a benefit other than that of the estate was an evaluative judgment open to him on the evidence, particularly given the conflicts of interest and the breakdown in relations.

Indemnity Basis Costs

The court upheld the award of costs on the indemnity basis for the period following the application of 28 March 2024. The judge had applied the correct test, namely whether the case was taken “out of the norm” by the paying party’s conduct. The judge found that Julian should have realised his position was untenable after that date, given the clear conflicts of interest and the hostility between the parties. His continued resistance was conduct outside the ordinary and reasonable conduct of proceedings. The court cited Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson [2002] EWCA Civ 879 and Three Rivers District Council v Bank of England [2006] EWHC 816 (Comm) but emphasised that the test is not limited to specific examples like fraud; any conduct making the case exceptional can justify indemnity costs. The judge’s decision was not plainly wrong and fell within his discretion.

Deprivation of Indemnity from Estate/Trust

The court affirmed the order depriving Julian of his right to indemnify himself from the estates and trust for litigation costs [§127]. Under section 31(1) of the Trustee Act 2000 and CPR rule 46.3, a trustee or executor is entitled to an indemnity only for expenses “properly incurred”. CPR Practice Direction 46 paragraph 1 provides that costs are not properly incurred if the trustee acted for a benefit other than that of the estate. The judge found that Julian had acted in his own interest in the hostile litigation, which was a sufficient basis to deny the indemnity. The court noted that this was consistent with the obiter comments in Armitage v Nurse [1998] Ch 241, where a trustee who successfully defends a claim is entitled to an indemnity, but one who unsuccessfully defends may not be. Importantly, the judge’s distinction between administration costs (where indemnity was preserved) and litigation costs (where it was denied) was justified [§24, §128].

Payment on Account

The court found no error in the payment on account of costs set at £55,000. The judge had considered the estimated costs and exercised his discretion appropriately under CPR rule 44.2(8). No specific challenge to the amount was raised in the appeal, and the court saw no basis to interfere.

Adequacy of Reasons

The court rejected the argument that the judge failed to provide adequate reasons for the costs orders. The extempore judgments on costs spanned several pages and addressed the key issues, including the basis for awarding costs, the decision on indemnity costs, and the deprivation of indemnity. The court cited English v Emery Reimbold & Strick Ltd [2002] 1 WLR 2409, noting that reasons need not be exhaustive but must show the basis of the decision. The judge’s reasons met this standard.

In conclusion, the appeal court found that the judge below had correctly applied the legal principles and that his costs orders were within the generous ambit of his discretion. All grounds of appeal failed, and the appeal was dismissed.

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