Executor not entitled to professional fees in absence of charging clause in will and signed by each executor (whether active or not): Brealey v Shepherd & Co (Ct App, 26.03.24)

Details: 05 April 2024

The Court of Appeal has upheld a Costs Judge’s decision to disallow an executor’s professional fees, in the absence of an express provision in the deceased’s will entitling her solicitor executors to charge for their time.

The value of the estate was certified at £878,680. The executors were Mr Hayward (the deceased’s son), and Mr Shepherd and Mr Smyth (partners in the defendant firm, although Mr Smyth played no active role in the administration). The executors entered into various retainers with the defendant firm in connection with the administration of the estate, and ultimately received in excess of 90 invoices totalling in excess of £153.000. Some of the work was carried out by Mr Shepherd personally. The invoices were approved by Mr Hayward.

One of the beneficiaries issued a claim for a third-party assessment of a number of the defendant’s bills. The Costs Judge – we now know - wrongly decided that the beneficiary might only challenge costs falling outside the scope of the agreed retainer(s) or those allowable pursuant to a special arrangement within the terms of CPR 46.9 (3) (c) [that the beneficiary enjoys a right to mount a more extensive challenge under section 71 (3) Solicitors Act 1974 was recently confirmed in Kenig v Thomson Snell & Passmore LLP [2024] EWCA Civ 15]. However, the issue before the Court of Appeal related to the Costs Judge’s decisions that in the absence of a charging clause in the will, the claim for the cost of Mr Shepherd’s time did not fall within section 29 of the Trustee Act 2000 (which permits an executor acting in a professional capacity to receive reasonable remuneration in some circumstances); and that in the circumstances it would not be appropriate for the court to exercise its inherent jurisdiction to allow remuneration.

The appeal court found that the Costs Judge had been correct. Remuneration under section 29 is only available to an executor acting in a professional capacity, inter alia, where each of the trustees has so agreed and in writing. There was no formal agreement in writing; however the defendant argued that retainer letters and invoices (which had been countersigned by Mr Hayward, but not by Mr Smyth) could constitute the necessary confirmation, even when set against the general principle that a trustee should not profit from his or her trust and the settlor’s need to be aware of the basis and terms of the professional trustee’s remuneration. It was not ultimately necessary for the court to decide this point, as the court found that in any event section 29, properly construed, required that each of the trustees should give written consent. Rejecting the defendant’s argument that the relevant provision should be read as referring to active trustees only, the absence of Mr Smyth’s written confirmation was therefore fatal.

Neither Mr Shepherd nor Mr Hayward had provided the Costs Judge with any evidence as to the absence of the solicitor's charging clause and whether this was in accordance with the deceased’s instructions; nor as to the conditions which justified Mr Shepherd being remunerated for his services as an executor. In these circumstances, the Costs Judge had also been right to reject the defendant’s appeal to the court to exercise its inherent jurisdiction to allow remuneration, the appeal court finding that his cautious approach was consistent with the authorities and justified by the ‘undoubted principle that the office of trustee is gratuitous’ (para 32). Whilst a trustee is entitled to be indemnified for costs and expenses properly incurred in the course of his trusteeship, he cannot – without more – be remunerated for his own time, for fear of offending the equitable principle that he must avoid conflicts between duty and interest. The inherent jurisdiction, when exercised, will necessarily be an exception to the underlying rule in the sense that is must be justified by reference to ‘all the relevant circumstances including the need to protect the interests of the beneficiaries and to ensure the good administration of the trust or the estate.’

Link to judgment: Brealey v Shepherd & Co Solicitors [2024] EWCA Civ 303 (26 March 2024) (bailii.org)

Details: 05 April 2024

The Court of Appeal has upheld a Costs Judge’s decision to disallow an executor’s professional fees, in the absence of an express provision in the deceased’s will entitling her solicitor executors to charge for their time.

The value of the estate was certified at £878,680. The executors were Mr Hayward (the deceased’s son), and Mr Shepherd and Mr Smyth (partners in the defendant firm, although Mr Smyth played no active role in the administration). The executors entered into various retainers with the defendant firm in connection with the administration of the estate, and ultimately received in excess of 90 invoices totalling in excess of £153.000. Some of the work was carried out by Mr Shepherd personally. The invoices were approved by Mr Hayward.

One of the beneficiaries issued a claim for a third-party assessment of a number of the defendant’s bills. The Costs Judge – we now know - wrongly decided that the beneficiary might only challenge costs falling outside the scope of the agreed retainer(s) or those allowable pursuant to a special arrangement within the terms of CPR 46.9 (3) (c) [that the beneficiary enjoys a right to mount a more extensive challenge under section 71 (3) Solicitors Act 1974 was recently confirmed in Kenig v Thomson Snell & Passmore LLP [2024] EWCA Civ 15]. However, the issue before the Court of Appeal related to the Costs Judge’s decisions that in the absence of a charging clause in the will, the claim for the cost of Mr Shepherd’s time did not fall within section 29 of the Trustee Act 2000 (which permits an executor acting in a professional capacity to receive reasonable remuneration in some circumstances); and that in the circumstances it would not be appropriate for the court to exercise its inherent jurisdiction to allow remuneration.

The appeal court found that the Costs Judge had been correct. Remuneration under section 29 is only available to an executor acting in a professional capacity, inter alia, where each of the trustees has so agreed and in writing. There was no formal agreement in writing; however the defendant argued that retainer letters and invoices (which had been countersigned by Mr Hayward, but not by Mr Smyth) could constitute the necessary confirmation, even when set against the general principle that a trustee should not profit from his or her trust and the settlor’s need to be aware of the basis and terms of the professional trustee’s remuneration. It was not ultimately necessary for the court to decide this point, as the court found that in any event section 29, properly construed, required that each of the trustees should give written consent. Rejecting the defendant’s argument that the relevant provision should be read as referring to active trustees only, the absence of Mr Smyth’s written confirmation was therefore fatal.

Neither Mr Shepherd nor Mr Hayward had provided the Costs Judge with any evidence as to the absence of the solicitor's charging clause and whether this was in accordance with the deceased’s instructions; nor as to the conditions which justified Mr Shepherd being remunerated for his services as an executor. In these circumstances, the Costs Judge had also been right to reject the defendant’s appeal to the court to exercise its inherent jurisdiction to allow remuneration, the appeal court finding that his cautious approach was consistent with the authorities and justified by the ‘undoubted principle that the office of trustee is gratuitous’ (para 32). Whilst a trustee is entitled to be indemnified for costs and expenses properly incurred in the course of his trusteeship, he cannot – without more – be remunerated for his own time, for fear of offending the equitable principle that he must avoid conflicts between duty and interest. The inherent jurisdiction, when exercised, will necessarily be an exception to the underlying rule in the sense that is must be justified by reference to ‘all the relevant circumstances including the need to protect the interests of the beneficiaries and to ensure the good administration of the trust or the estate.’

Link to judgment: Brealey v Shepherd & Co Solicitors [2024] EWCA Civ 303 (26 March 2024) (bailii.org)