Are Those Rates Reasonable?
If there is any uncertainty as to the rates which a professional trustee can charge this must be clarified as soon as possible. As is clear from the recent case of Pullan v Wilson  EWHC 126 (Ch) failure to do so will prove costly for both trustee and beneficiary alike.
The general rules regarding the payment of trustees are clear. The starting point is that while a trustee is entitled to be indemnified against any expenses incurred as a trustee he is not entitled to receive any payment for his services. However, there are now a number of statutory extensions whereby a professional trustee can charge for his services. Thus, under s28 of the Trustee Act 2000 if the trust instrument provides for the payment of remuneration a professional trustee can charge such remuneration while under s29 a professional trustee may receive “reasonable remuneration” if every other trustee has agreed in writing that he may be remunerated for his services. There are similar provisions for trust corporations.
In Pullan the First Defendant, Mr Wilson, was a professional trustee who was appointed as trustee of ten family trusts. The majority of the trust deeds contained provisions permitting remuneration and it was accepted that Mr Wilson was also entitled to receive remuneration under s29 in relation to the other trusts. The question was whether the remuneration which he charged was reasonable.
The LawSkills Monthly Digest
Subscribe to our comprehensive Monthly Digest for insightful feedback on Wills, Probate, Trusts, Tax and Elderly & Vulnerable client matters
Not complicated to read | Requires no internet searching | Simply an informative pdf emailed to your inbox including practice points & tips
Subscribe now for monthly insightful feedback on key issues.
All for only £120 + VAT per year
(£97.50 for 10+)
Mr Wilson’s standard hourly charging rates were £400 for himself and £250 for his assistants and Mr Wilson submitted that these standard charging rates should be considered to be what was reasonable as regards his remuneration as a trustee.
This was wholeheartedly rejected by the High Court (HHJ Hodge QC) who held that to accept a trustee’s standard rates as to what is reasonable would be to “deprive the court of any effective control over a trustee’s remuneration” and that at most standard rates could only be considered “as an initial reference point”.
HHJ Hodge also rejected the idea that the nature and value of the services was irrelevant and that the only question was whether the rate was appropriate to the skill level of the trustee. This means that a professional trustee cannot properly retain the services of highly skilled and expensive employees (or indeed himself) to undertake simple tasks and expect to be paid their (or his) usual rate. To allow this would create a conflict between the trustee’s duty to the trust (to maximise the trust fund) and his personal interests. So, if the tasks which require doing are very basic the professional trustee can employ somebody inexpensive to do the tasks or he can do them himself but must charge a reduced fee to reflect the simplicity of the work.
In the circumstances HHJ Hodge decided that he would set the reasonable hourly rates which should have been charged as £330 for Mr Wilson and £165 for his assistants. But this was not the end of the matter, rather this was the beginning of the most interesting part of the judgment, as HHJ Hodge went on to consider whether the Claimant had acquiesced in the higher ‘unreasonable rates’.
The acquiescence claim depended on the Claimant being aware of the rates actually being charged but there was little evidence of this before the court. The evidence from Mr Wilson was that he had never discussed his hourly rate with the Claimant and the Claimant himself gave no direct evidence that he was aware of the rates. Despite this HHJ Hodge still managed to find that the Claimant had knowledge of the rates being charged by Mr Wilson. HHJ Hodge held this barred him from challenging these rates and that the ‘unreasonable’ rates were consequently “a reasonable and proper hourly rate of remuneration”.
There are two main problems with this part of the decision. Firstly, given the burden was on Mr Wilson to prove the Claimant knew of the rates and Mr Wilson expressly stated that he believed he had never discussed them with the Claimant and the Claimant gave no direct evidence on this the basis on which HHJ Hodge found this knowledge to exist (inferences from the Claimant’s solicitors’ witness statements) is very slim. In these circumstances, an allegation that HHJ Hodge engaged in unjustified speculative factual reconstruction has a degree of merit.
Secondly, after earlier talking about the importance of the court not being deprived of its effective control of a trustee’s remuneration HHJ Hodge does, by this decision, limit the court’s control of a trustee’s remuneration. He holds that because the Claimant was aware of the rates for two years and did not challenge those rates not only does this deprive the Claimant of the chance to challenge them but the beneficiary’s also deprives the court of its right to examine the rates to see if they are reasonable. Many people will be inherently uncomfortable with such ousting of the court’s control especially when it results in a court being forced to hold that an hourly rate which it had previously held as unreasonable was now “a reasonable and proper hourly rate”.
In the end, the Claimant received a measure of success because a discount of 7.5% was applied for excessive administration and Mr Wilson’s assistants’ rates (which the Claimant had no knowledge of) were reduced from £250 to £200. On this basis Mr Wilson was ordered to pay 25% of the Claimant’s costs.
Possible problems with HHJ Hodge’s reasoning aside, this case holds some very important lessons for both trustee and beneficiary. On the beneficiary’s side the lesson is that if you consider the charging rates of the professional trustee are too high you must challenge them immediately because if you fail to do so you may not be able to challenge them in the future. Here the Claimant’s failure to challenge Mr Wilson’s rate within two years meant the fees charged in that period could not be recouped by the trust even though the charges were unreasonable.
The lesson for the professional trustee is that your rate and basis for charging should be set out in your engagement letter. If they are set out in the engagement letter there will be no real available challenge to these rates and expensive litigation such as Pullan (where all parties incurred significant costs) will be avoided.
As HHJ Hodge says “If this unhappy litigation serves no other useful purpose, I trust that it will serve as a warning to trustees, to those appointing them, and…to the principle beneficiaries to clarify the precise basis of a trustee’s charges and remuneration in advance”. This advice would be well heeded.
FREE monthly newsletter
Wills | Probate | Trusts | Tax | Elderly & Vulnerable Client
- Relevant learning and development opportunities
- News, articles and LawSkills’ services
- Communications which help you find appropriate training in your area