An Executor’s right of indemnity
Rachel Talbot reports on a recent case which considered the Executors’ right of indemnity for costs incurred in an unsuccessful court application.
The recent case of Mussell and another v Patience and another  EWHC 1231 (Ch) considered the Executors’ right of indemnity for costs incurred in an unsuccessful court application.
Why is a right of indemnity important?
The right of indemnity from an estate is important to protect the role of executor, and also to the testators who have chosen particular persons to entrust their estate to.
Without the right many executors who are appointed would not take up the role.
Consequently the administration of an estate may not be carried out as per a testator’s wishes.
This case concerned costs which were incurred by an earlier case (Mussell and another v Patience and another  4 WLR 57) in which some beneficiaries of an estate (‘Beneficiaries’) disputed legal fees incurred by the Executors.
Mussell and another v Patience and another  4 WLR 57
The Beneficiaries were unsuccessful in this earlier case.
The Beneficiaries had argued that they were unable to determine whether legal fees shown in the estate accounts were reasonable because they had not been provided with enough information by the Executors.
The Court held that an executor only has to show that sums recorded in estate accounts has been spent and spent fairly in carrying out the administration of an estate. There is no obligation for an Executor to show in estate accounts that any fees had been reasonably incurred or were of a reasonable amount. Subsequently it was found the Beneficiaries had made several objections to the estate accounts which were inappropriate.
As the Beneficiaries were unsuccessful the court ruled they were to meet the costs of proceedings (in accordance with the civil procedure rules).
However the court reduced the amount payable by the Beneficiaries to 80% of the total proceeding costs as the Executors had also made an unsuccessful application to court during the same proceedings.
The Executors’ had made an application for the court to approve a distribution account. The court declined to deal with the distribution account as it held this did not relate to the matter in dispute (i.e the distribution account did not relate to the Executors accounting for what they had done during administration of the estate).
As a consequence it was held the Executors were responsible for 20% of the total proceeding costs.
Following the court’s ruling the Beneficiaries agreed to pay 80% of the court costs. However what was now in dispute between the parties was whether the remaining 20% of costs should be paid by the Executors or be borne by the estate as an administration expense.
Executor’s general right of indemnity
Under section 31 of the Trustee Act 2000 an executor has a statutory right to be reimbursed for their costs incurred in carrying out the administration of an estate provided they have not breached their duties and/or acted unreasonably.
Under rule 46 of the Civil Procedure Rules an Executor is entitled to costs for court proceedings where they are a party to proceedings in their capacity as a personal representative.
Mussell and another v Patience and another  EWHC 1231 (Ch)
In Mussell and another v Patience and another  EWHC 1231 (Ch) the Executors sought to recover the 20% of proceeding costs from the estate on an indemnity basis.
The Beneficiaries argued that application for approval of the distribution account was not required to administer the estate. Therefore the 20% of proceeding costs should not be reimbursed from the estate.
The court held that the Executors could not be deprived of their indemnity to be reimbursed from the estate unless the costs of proceedings had been incurred improperly.
The court ruled the Executors had not acted improperly and subsequently it was held the Executors were to be reimbursed from the estate.
The court stated that by bring the distribution account to court the Executors had tried to agree with the Beneficiaries how the estate was to be distributed between each beneficiary. This was an issue that needed to be resolved to conclude administration of the estate and therefore the costs had been properly incurred.
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