Executor Estate Indemnity Lost In Hostile Litigation

Where executors vigorously resist removal in litigation characterised as hostile, they may lose their estate indemnity entirely and face indemnity costs for conduct including accelerating asset sales to pre-empt injunctions.

A fiduciary’s right to indemnity from the trust fund for litigation costs is contingent on the costs being incurred when acting on behalf of the trust or estate. Where litigation is hostile and the fiduciary is defending their own position or conduct, the costs are not incurred on behalf of the estate and the indemnity is not engaged. [74, 76]
A fiduciary’s right to indemnity for costs can be lost if the costs were not ‘properly incurred’. This means ‘not improperly incurred’, and costs may be improperly incurred due to misconduct, which includes not only dishonesty but also unreasonable conduct in the administration of the estate. [50, 74, 77]
In determining whether to award costs on the indemnity basis, the court considers whether there is conduct or a circumstance which takes the case out of the norm. Conduct in the litigation that is designed to pre-empt the court’s process, such as accelerating a transaction after being put on notice of an injunction application, can justify such an award. [54, 72-73]
The character of proceedings for the removal of a personal representative must be assessed to determine costs consequences. An opposed removal application will frequently constitute hostile ‘beneficiaries’ dispute’ litigation, in which the general rule that costs follow the event applies, rather than costs coming from the estate. [52, 76]
Where a fiduciary is ordered to pay the costs of another party, they are not automatically entitled to recoup those costs from the estate under their indemnity. The court must first be satisfied that the costs of defending the litigation were themselves properly incurred on behalf of the estate. [52, 74]