Pullan v Wilson & Ors

Factual and Procedural Background

This case concerns the reasonableness of remuneration charged by a professional trustee to several family trusts. The claimant, a beneficiary and managing director of family companies, initiated a Part 8 claim on 11th February 2010 seeking an order for accounts and inquiries to determine if fees charged by the first defendant, a chartered accountant and trustee, exceeded proper and reasonable remuneration. The claimant also sought directions for repayment of any excess fees with interest.

The trusts had multiple trustees over time: initially the claimant’s parents and an accountant from a Leeds firm; after 12th March 2007, the first defendant replaced the retiring accountant as trustee and non-executive director of companies in which the trusts held shares. The claimant’s parents retired as trustees in December 2007 and were replaced by the second and third defendants, the latter later substituted by another accountant. The claimant confirmed no relief was sought against anyone other than the first defendant.

During the trial commencing 21st January 2014, the court varied earlier orders regarding the scope of the accounting and the period under review. A single joint expert was appointed to report on the reasonableness of fees charged by the first defendant and his assistants. The expert concluded that the rates charged were excessive and lacked transparency, recommending discounted hourly rates and adjustments for excessive administration time and unagreed company-related work.

The claimant accepted the expert’s conclusions, with further submissions on company work charges. The first defendant contested the reasonableness of the rates and argued the claimant was barred from challenge due to acquiescence. Additional expert reports were produced supporting both sides, and the court heard extensive oral evidence from the experts and submissions from counsel. No live evidence was given by the parties themselves.

Legal Issues Presented

1. Whether the remuneration charged by the first defendant as a professional trustee and for his assistants was proper and reasonable under the relevant trust instruments and the Trustee Act 2000.
2. Whether any adjustments should be made to the remuneration charged for company-related work given the first defendant's role as non-executive director and separate remuneration from the companies.
3. Whether the claimant is barred from challenging the remuneration due to concurrence or acquiescence in the charges.
4. The appropriate hourly rates for the first defendant and his assistants, and the applicability of any discounts for excessive administration or non-productive time.
5. The incidence of costs between the claimant and the first defendant following the determination of the excessive fees.

Arguments of the Parties

Claimant's Arguments

• The first defendant's hourly rates of £400 for himself and £250 for assistants were excessive, especially given the large number of hours billed.
• No charge should be made for internal administrative time.
• The first defendant improperly charged the trusts for company work related to his directorships, for which he received separate remuneration.
• The claimant relied on the single joint expert’s report, advocating for adjustments to fees charged for company work beyond those identified by the expert.
• The claimant contended that the hourly rates had not been agreed, except possibly for an initial period, and that the assistants’ hourly rates were not agreed at all.
• The claimant sought an order that any excess remuneration be repaid with interest and costs awarded against the first defendant.

First Defendant's Arguments

• The first defendant argued that the hourly rates charged were reasonable and supported by expert evidence.
• He contended that the claimant was barred from challenging the fees due to concurrence or acquiescence, as the rates had been communicated and accepted.
• The first defendant submitted that company-related work was properly charged to the trusts since the roles of trustee and director were intertwined and the charges were not duplicative.
• He emphasized that a professional trustee is entitled to charge normal professional rates, even for work that could be done by a lay trustee.
• The first defendant argued that retrospective assessment of fees should be cautious to avoid undermining trustees’ confidence in charging their normal rates.
• Regarding costs, the first defendant submitted that he was the substantial victor on key issues and should recover a substantial proportion of his costs.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by outlining the established legal framework governing trustee remuneration, primarily derived from Lewin on Trusts and the Trustee Act 2000. The office of trustee is generally gratuitous, but professional trustees may be entitled to reasonable remuneration if authorized by the trust instrument, statute, court order, or beneficiary agreement.

The court considered the specific charging clauses in the various trust instruments and concluded that despite some variation, the first defendant’s entitlement to remuneration was subject to the overarching test of reasonableness and propriety. The claimant’s challenge was appropriately framed by whether fees charged exceeded proper and reasonable remuneration.

The court gave substantial weight to the single joint expert’s report, which found the rates charged excessive and lacking transparency. However, the court also considered the joint expert statement and the defendant’s expert report, weighing their credentials, independence, and relevance. The court found the claimant’s experts more objective and helpful, rejecting the defendant’s expert’s approach as too narrow and lacking independence.

The court emphasized that the reasonableness of remuneration involves an evaluative judgment considering the nature and value of services rendered, the skill level of fee earners, and proportionality between hours spent and rates charged. It rejected the defendant’s submission that normal professional rates are automatically reasonable regardless of the work done.

The court found that the first defendant’s hourly rate had been agreed with the claimant and his parents for the initial period, and that the claimant’s failure to object to rates until mid-2009 amounted to acquiescence, barring challenge to the first defendant’s rate of £400 per hour. For assistants, no such agreement existed, but evidence supported a reasonable rate of £200 per hour.

Regarding company-related work charged to the trusts, the court found no basis for disallowance. The trustee’s dual role as director and trustee blurred distinctions, and there was no evidence of double recovery or breach of statutory duties under the Companies Act 2006.

The court applied a 7.5% discount to reflect excessive administration and non-productive time as recommended by the expert, with no challenge to this figure.

On costs, the court analyzed the conduct of the parties, offers to settle, the extent of success, and proportionality. It found the claimant to be the successful party, having secured repayment of excessive fees, but only partially successful given the limited recovery relative to the claim. The court exercised its discretion to award the claimant 25% of his costs, noting the litigation arose partly due to inadequate clarity in the first defendant’s engagement documentation.

Holding and Implications

Holding: The court held that the first defendant was entitled to charge remuneration at an hourly rate of £400 for himself and £200 for his assistants, each discounted by 7.5%, and that no adjustment was required for company-related work charges. The fees charged exceeded proper and reasonable remuneration by £20,348.50, which must be repaid to the trusts with interest.

Implications: The decision underscores the necessity for professional trustees to clearly communicate and document agreed hourly rates prior to undertaking work to avoid disputes. It affirms the court’s supervisory role in assessing trustee remuneration for reasonableness and proportionality, balancing trustees’ entitlement to fair payment against beneficiaries’ protection from excessive charges. The ruling also clarifies that acquiescence by beneficiaries can bar subsequent challenges to remuneration. No new precedent was established beyond the application of established equitable principles.