An executor or trustee who engages in litigation without the Court’s approval does so at their own peril and risks having to pay their own costs personally.
So, what should a prudent executor or trustee do if they are required to engage in litigation (whether defending a claim or commencing a claim in their representative capacity)?
The short answer is: seek judicial advice and/or approval from the Court.
What is a Beddoe application?
Pursuant to Order 54.02 of the Supreme Court (General Civil Procedure) Rules 2015 (Vic) an executor/trustee can file an application for an order as to whether they are authorised to commence/defend litigation on behalf of the estate or trust.
This application is known as a “Beddoe Application” from the case of Re Beddoe; Downes v Cottam [1983] 1 CH 547. The logic of a Beddoe Application was espoused by Bowen LJ who explained:
“If a trustee is doubtful as to the wisdom of prosecuting or defending a lawsuit, he is provided by the law with an inexpensive method of solving his doubts in the interest of the trust. He has only to take out an originating summons, state the point under discussion, and ask the Court whether the point is one which should be fought out or abandoned. To embark in a lawsuit at the risk of the fund without this salutary precaution might often be to speculate in law with money that belongs to other people.”
A recent case example
KHQ Lawyers recently acted in a matter where the executors were faced with the decision as to whether it was appropriate to defend an equitable claim filed against the estate in the matter of Yuen & Anor v Louey [2023] VSC 423 and successfully obtained the Beddoe Order. In this matter:
- The applicants were two of three executors of a deceased estate.
- The deceased, by his last will, bequeathed his estate of approximately $4.1m amongst approximately 36 different family members including children under the age of 18.
- Following the deceased’s death, his widow filed a claim seeking equitable ownership of estate assets (“the Equitable Claim”).
- The deceased’s widow and two other residuary beneficiaries had also commenced claims against the estate pursuant to Part IV of the Administration and Probate Act 1958 (Vic) seeking an order that further provision be made for them out of the estate (“the Part IV Claims”).
- The effect of the Equitable Claim, if successful, would have substantially reduced the value of the estate available for the beneficiaries and would impact upon the outcome of the Part IV Claims.
- Given the possible impact of the Equitable Claim on the estate and the large number of impacted beneficiaries, the applicants filed a Beddoe Application seeking orders authorising them to defend the Equitable Claim and that their costs to defend the claim would be payable from estate funds.
In assessing the Beddoe Application and whether it was appropriate for the applicants to defend the Equitable Claim, the Court considered the size of the estate, the nature and merits of the Equitable Claim on the estate, the circumstances of the beneficiaries of the estate (many of which were minor children and reliant on the executors to defend the claim) and the estimated costs to be incurred in defending the proceedings.
The Court also considered whether the applicants were in a position of conflict given they are directly related to the deceased’s widow (daughter and granddaughter). However, the Court concluded the applicants were not in a position of direct conflict on the basis that:
- there was no evidence that the applicants stood to personally gain if the Equitable Claim was successful; and
- any settlement of the Equitable Claim would require the Court’s approval that the settlement is in the best interests of the minor beneficiaries (as is required for any settlement involving persons under a legal disability including minors).
In granting the Beddoe Application, the Court made orders that the applicants were authorised to defend the Equitable Claim and that they be indemnified for their costs to defend the proceedings from estate funds.
The outcome ensures that the applicants now can defend the Equitable Claim with approval from the Supreme Court. Alternatively, if the applicants had defended the Equitable Claim without filing a Beddoe Application, they could have been at risk of having to pay their legal costs personally if they were unsuccessful.
This scenario recently arose in the matter of Mantovani v Vanta Pty Ltd & Ors (No 3) where the trustee in a trust dispute did not file a Beddoe Application and the Court determined that it was not appropriate for the trustee to have its legal costs paid from assets of the trust in light of the way it had conducted the litigation which was inconsistent with the Civil Procedure Act 2010 (Vic). This costs order was set aside after a successful appeal of the trial judgment, but the case still highlights the importance of obtaining a Beddoe Order in estate/trust litigation.
Key takeaway
The key takeaway from these cases is that it is better to be safe than sorry, and the best way to be safe in the face of litigation filed in relation to an estate or trust is to obtain the Court’s advice through a Beddoe Application.
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