Does Removal As Trustee Always Mean Loss Of Indemnity?

Trustees removed from office on hostility grounds retained their right to an indemnity from the trust fund. An early good faith settlement proposal and reasonable defence of unfounded misconduct allegations preserved the trustees’ entitlement to recover their costs from the trust, even though the claimants achieved partial success.

SMITH AND OTHERS v CAMPBELL AND OTHERS [2026] EWHC 144 (Ch)

In Smith and others v Campbell and others [2026] EWHC 144 (Ch), Deputy Master Holden determined costs following a judgment ordering the removal of two of four trustees. The partially successful claimants sought an order that the trustees pay their costs and contended that the trustees should be deprived of their indemnity from the trust fund. On the claimants’ claim for costs, applying the discretion under s.51 of the Senior Courts Act 1981 and CPR r.44.2, the court found the claimants’ conduct unreasonable, including issuing proceedings without pre-action correspondence, pursuing exaggerated misconduct allegations that formed the bulk of the litigation costs, and failing to engage in early ADR (including rejecting an early proposal for one trustee to retire). No order as to costs was made. On the trustees’ indemnity, applying s.31(1) of the Trustee Act 2000, CPR r.46.3 and the principles in Price v Saundry [2019] EWCA Civ 2261, the court held the trustees’ costs were properly incurred: they had reasonably defended dismissed allegations and made a good-faith early offer addressing the relationship breakdown. The trustees therefore retained their indemnity from the trust.

With the benefit of hindsight, the Trustees did not propose a complete or perfect solution (e.g. Malcolm’s position was not addressed in that open proposal). However, trustees are not deprived of their right of indemnity because they have not acted perfectly. The Trustees’ open proposal, made at an early stage, recognised the breakdown in relations that had occurred, and that the Claimants’ criticisms related primarily to Paddy. In all the circumstances, the Trustees’ proposals were a good faith and reasonable attempt to address those criticisms in a constructive fashion.

Citations

Smith v Campbell [2025] EWHC 3011 (Ch) The main judgment in the case in which the court ordered the replacement of two trustees with an independent professional trustee while allowing two family trustees to remain in office, forming the basis for the subsequent costs decision. Shufflebotham v Shuff-Wentzel [2025] EWHC 3321 (Ch) The court noted the possibility of ordering trustees to pay another party’s costs while still permitting indemnity from the trust, demonstrating the discretion to allow indemnity despite an adverse costs order. Price v Saundry [2019] EWCA Civ 2261 Reaffirmed that trustees have the benefit of the doubt when determining whether costs were properly incurred and defined “properly incurred” as “not improperly incurred.” Smith v Michelmores Trust Corporation Ltd [2021] EWHC 1521 (Ch) Clarified that the trustee indemnity provisions in CPR r.46.3 implement the statutory indemnity in the context of litigation costs. Alsop Wilkinson v Neary [1996] 1 WLR 1220 Distinguished between beneficiaries’ disputes and trust administration claims, observing that beneficiaries’ disputes are generally treated as hostile litigation where costs follow the event. McDonald v Horn [1995] ICR 685 Cited to support the principle that in hostile trust litigation, costs do not usually come out of the trust estate. Jones v Longley [2015] EWHC 3362 (Ch) Recognised that not all removal claims are hostile, and some may properly fall within the scope of trust administration issues. Hanson v Coleman [2025] EWHC 116 (Ch) Affirmed that it is unnecessary to find breach of trust for a trustee to lose indemnity; the key is whether defending the claim without the court’s approval was unreasonable. Perry v Neupert [2019] EWHC 2775 (Ch) Applied in determining that the unreasonableness of resisting removal may justify the loss of indemnity even without threshold misconduct. Bank of Tokyo-Mitsubishi Ufj Ltd v Baskn Gida Sanayi Ve Pazarlama AS [2009] EWHC 1696 (Ch) Held that failure to comply with the Practice Direction – Pre-Action Conduct can be relevant to costs, even if no direct causation with outcome or expense is shown.

Track allocation housing disrepair CPR 46.13 settlement sum costs restriction SCCO

MRO fee markup cap 25% detailed assessment personal injury Senior Courts Costs Office

Security for costs refused CPR 25.27 very high probability success excessive estimate King's Bench

IPEC scale costs transfer Patents Court PD 30 para 9.2 costs caps Court of Appeal

Costs budget variation CPR 3.15A promptness significant development unfair prejudice Chancery Division

Costs budgeting inter partes proportionality high hourly rates AI disclosure Patents Court CPR 3E

Beneficiary personal liability section 71(3) Solicitors Act 1974 indemnity costs VAT self-supply SCCO

Summary assessment indemnity costs unless order payment on account disclosure default Chancery Division

Provisional assessment set aside CPR 3.1(7) points of dispute filing duty PD 47 para 14.3 SCCO

Fixed recoverable costs police claims CPR 26.9(10)(e) intentional tort exemption

Key Points

In determining the incidence of costs in a successful but partially unsuccessful claim, the court will consider whether the successful party’s conduct was unreasonable, including the pursuit of unjustified or exaggerated allegations which generated a significant proportion of the costs, and may depart from the general rule that the unsuccessful party pays. [24, 27]
A party’s failure to engage in any pre-action correspondence, contrary to the Practice Direction – Pre-Action Conduct, is a relevant factor in the exercise of the costs discretion, even if it is not strictly causative of the subsequent litigation or increased expense. [22, 23]
When assessing a trustee’s right to an indemnity from the trust fund for litigation costs, the court will consider whether the trustees made a good faith and reasonable attempt to address the legitimate concerns underlying the claim at an early stage, such as by constructive settlement proposals; the absence of such attempts may be relevant to, and weigh against, a trustee’s claim to an indemnity in the court’s evaluative assessment. [28, 29]
The defence of a trusteeship removal claim which includes numerous allegations of breach of trust and misconduct does not, of itself, mean the trustees acted for a benefit other than that of the trust, and it can be proper and reasonable for trustees to defend such allegations. [28]
In a hybrid claim for trustee removal based on both allegations of misconduct and a breakdown in relations, the reasonableness of the trustees’ conduct is assessed as a whole, taking into account their response to the substantive allegations and their proposals to address the relationship issues. [14(vi), 28]

"I disagree that there is any general rule or policy that a trustee removed from office on the basis of hostility or a breakdown in relations should not be deprived of his or her indemnity. Equally, there is no universal rule that a trustee who is removed from office will be deprived of his or her indemnity. The issue remains whether the trustees’ resistance to the claim for their removal was in their own interests (as opposed to being in the interests of the trust), and whether it was unreasonable in all the circumstances. "

Key Findings In The Case

Although the Claimants achieved partial success in obtaining the removal of two trustees and the appointment of an independent professional trustee, their claim was materially exaggerated, and a significant portion of the litigation costs arose from their pursuit of unfounded allegations of breach of trust and misconduct, which were dismissed by the court [24, 27].
The Claimants failed to comply with the Practice Direction – Pre-Action Conduct by issuing the proceedings without prior warning or correspondence and without offering any acceptable justification, which the court considered relevant when exercising its costs discretion [22, 23].
The Claimants were primarily responsible for the failure to engage in alternative dispute resolution at an early stage, having rejected reasonable proposals for mediation and refused an early offer for the resignation of one trustee, which could have mitigated costs had it been accepted [25(i)–(v), 26].
The court found that all Trustees reasonably and properly defended the proceedings, particularly against numerous allegations of misconduct which were not made out, and determined that they did not act solely in their own interests nor unreasonably in doing so [28(i), (vi)].
The Trustees made a genuine and reasonable attempt early in the proceedings to address the legitimate concerns of the Claimants by proposing the retirement of one trustee and the possible appointment of an independent trustee over part of the trust assets; this conduct was deemed sufficient to preserve their entitlement to be indemnified from the trust fund for their litigation costs [28(ii)–(iv), 29].

"In summary: while the Claimants have achieved a partial success, their claim was materially exaggerated, and the majority of the cost of the proceedings was incurred in litigating allegations of breach of trust and misconduct against the Trustees that were either withdrawn or have been dismissed. The Claimants unreasonably failed to engage in any pre-action correspondence, and were primarily responsible for the lack of earlystage ADR. In those circumstances, I do not consider that it would be just or fair to visit the Claimants’ costs of the claim on the Trustees. In all the circumstances, in my judgment the appropriate costs order as between the parties is that there be no order as to costs. "

The High Court’s decision in Smith v Campbell [2026] EWHC 144 (Ch) confirms that the test for a trustee’s indemnity following removal is whether they defended in the interests of the trust and acted reasonably in all the circumstances — not whether they were ultimately successful in resisting removal.

Background

The claimants, Nathan James Smith, Leah-Jane Styring, and Suzanne April Smith, beneficiaries of the Graham Cheslyn-Curtis Will Trust, brought proceedings against the four trustees. The claim was for the removal and replacement of all trustees; as recorded in this costs judgment, it involved “numerous allegations of breach of trust and misconduct,” the majority of which were ultimately dismissed. The trial on the merits resulted in a written judgment on 17 November 2025 (Smith v Campbell [2025] EWHC 3011 (Ch)) (the “Main Judgment”). In that judgment, the court ordered the removal of two trustees, Ian Patrick Campbell (‘Paddy’) and Malcolm Ronald Taylor, but declined to remove the remaining two, Sarah Cheslyn-Curtis and Maldwyn Stephen Henry Worsley-Tonks MBE. Following that decision, the parties agreed to the appointment of Freeths Trustees Limited as a replacement professional trustee. The only outstanding matter was the determination of costs, which was the subject of a hearing on 14 January 2026.

Costs Issues Before the Court

The court was required to determine two distinct but related costs issues. The first was the incidence of costs as between the claimant beneficiaries and the defendant trustees, to be decided under the court’s general discretion pursuant to section 51 of the Senior Courts Act 1981 and CPR rule 44.2. The second issue was whether the trustees should be deprived of their right to an indemnity from the trust fund for their costs of the proceedings, which is governed by section 31(1) of the Trustee Act 2000, implemented in the litigation costs context by CPR rule 46.3 and Practice Direction 46.

The Parties’ Positions

The claimants, represented by Paul Burton, argued they were the substantially successful party as they had achieved “regime change” by securing the removal of two trustees and the appointment of an independent professional trustee. They submitted the trustees had unreasonably refused to mediate and had rejected offers of settlement made shortly before trial which reflected the ultimate outcome. The claimants sought an order that the trustees pay their costs on the standard basis and that the trustees be deprived of their indemnity from the trust fund, contending it was unreasonable for Paddy and Malcolm to have “fully and determinedly defended their removal.”

The trustees, represented by Alexander Learmonth KC, submitted they were the successful parties in substance. They emphasised that the claimants had failed to remove two trustees and had advanced numerous allegations of misconduct which were almost entirely dismissed. They argued the claimants’ true objective was commercial, relating to Paddy’s directorship of the underlying company, Millpledge, and that the claimants had acted unreasonably by issuing proceedings without any pre-action correspondence and by rejecting reasonable settlement offers, including an early proposal for Paddy to retire as trustee. The trustees sought an order that the claimants pay their costs, or circa 90% of them, and that they retain their full right of indemnity from the trust.

The Court’s Decision

On the incidence of costs between the parties, the court held that the claimants were the partially successful party, having achieved the removal of two of the four trustees. The starting point pursuant to CPR rule 44.2(2)(a) was therefore that the trustees should pay the claimants’ costs. However, the court exercised its discretion to depart from this rule. The court found the claimants’ conduct was unreasonable in several key respects: they issued proceedings without any pre-action correspondence or compliance with the Practice Direction – Pre-Action Conduct; they made and pursued “myriad allegations of misconduct” against the trustees which were unjustified and exaggerated, and which formed the bulk of the litigation costs; and they were primarily responsible for the failure to engage in early alternative dispute resolution. On this last point, the court found the claimants had not accepted early offers of mediation and had rejected outright the trustees’ December 2024 proposal that Paddy retire as a trustee. Although shortly before trial the parties exchanged without prejudice save as to costs offers with substantive terms closely reflecting the eventual outcome, the principal remaining dispute was costs, and time ran out before a resolution could be reached. In all the circumstances, the court ordered that there be no order as to costs between the parties.

On the trustees’ right of indemnity, the court held that their costs were not improperly incurred and they were entitled to be indemnified from the trust fund. The court found it was proper and reasonable for the trustees to defend themselves against the numerous allegations of breach of trust and misconduct, the majority of which were dismissed. Furthermore, the trustees had made a good faith and reasonable attempt to address the legitimate relationship issues by making an open offer in December 2024 for Paddy to retire or for a demerger of the trust assets involving an independent trustee. The claimants’ rejection of that proposal, on the basis that Paddy would remain a company director, was not a reasonable basis on which to refuse an offer that sought to address their concerns about trust administration. The trustees had not acted perfectly—for example, Malcolm’s position was not addressed in their open proposal—but their conduct in defending the allegations and making a constructive settlement proposal was not such as to justify depriving them of their indemnity. The court also noted, obiter, that it was doubtful whether it had jurisdiction to order a partial deprivation of indemnity, but declined to decide the point and stated it would not have exercised any such jurisdiction on the facts of this case.

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