McDonald and Others v Horn and Others: CA 8 Aug 1994

A court may make a pre-emptive award of costs to pension fund members who wished to sue the trustees. Hoffmann LJ said: ‘if one looks at the economic relationships involved, there does seem to me to be a compelling analogy between a minority shareholder’s action for damages on behalf of the company and an action by a member of a pension fund to compel trustees or others to account to a fund. In both cases a person with a limited interest in a fund, whether a company’s assets or a pension fund, is alleging injury to the fund as a whole and seeking restitution on behalf of the fund. And what distinguishes the shareholder and pension fund member, on the one hand, from the ordinary trust beneficiary, on the other, is that the former have both given consideration for their interests. They are not just recipients of the settlor’s bounty which he, for better or worse, has entrusted to the control of trustees of his choice. The relationship between the parties is a commercial one and the pension fund members are entitled to be satisfied that the fund is being properly administered. Even in a non-contributory scheme, the employer’s payments are not bounty. They are part of the consideration for the services of the employee. Pension funds are such a special form of trust and the analogy between them and companies with shareholders is so much stronger than in the case of ordinary trusts that, in my judgment, that it would do no violence to established authority if we were to apply to them the Wallersteiner v. Moir (No. 2) procedure.’
As to the court’s powers to award costs: ‘The court’s jurisdiction to deal with litigation costs is based upon section 51 of the Supreme Court Act 1981, which, is derived from section 5 of the Supreme Court of Judicature Act 1890.
The background to the Act of 1890 is briefly as follows. In the old courts of common law, costs followed the event. The judge had no discretion. In the Court of Chancery, costs were in the discretion of the court but that discretion was exercised according to certain principles which I shall discuss later. The first Rules of the new Supreme Court of Judicature (enacted in 1875) adopted the Chancery practice.
The discretion conferred by section 51 is by no means untrammelled. It must be exercised in accordance with the rules of court and established principles.’ and ‘In the case of a fund held on trust, therefore, [‘therefore’ is explained by his immediately previous citation of sub rule 2 of order 62, rule 6 of the then Rules of the Supreme Court] the trustee is entitled to his costs out of the fund on an indemnity basis, provided only that he has not acted unreasonably or in substance for his own benefit rather than that of the fund. Trustees are also able to protect themselves against the possibility that they may be held to have acted unreasonably or in their own interest by applying at an early stage for directions as to whether to bring or defend the proceedings. This procedure, sanctioned by the decision of the Court of Appeal in Re Beddoe, Downes v Cottam requires the trustee to make full disclosure of the strengths and weaknesses of his case. Provided that such disclosure has been made, the trustee can have full assurance that he will not personally have to bear his own costs or pay those of anyone else.’
Hoffmann LJ
Ind Summary 08-Aug-1994, Times 10-Aug-1994, [1995] 1 All ER 961, (1994) 144 NLJ 1515, [1995] ICR 685, [1995] 1 CR 685
Supreme Court Act 1981 51, Supreme Court of Judicature Act 1890 5
England and Wales
Appeal fromMcDonald and Others v Horn and Others ChD 12-Oct-1993
A pre-emptive costs order is possible where Plaintiffs are impecunious but the case is very strong. . .
CitedAiden Shipping Co Ltd v Interbulk Ltd (The ‘Vimeira’) HL 1986
A claim had been made against charterers by the ship owners, and in turn by the charterers against their sub-charterers. Notice of motion were issued after arbitration awards were not accepted. When heard, costs awards were made, which were now . .
CitedIn re Mills’ Estate CA 1886
The Practice Rules conferred a discretion as to costs only in cases in which before the Judicature Acts the courts would have had jurisdiction to make awards of costs. The Act of 1890 was intended to confer such jurisdiction in any case whatever. . .
CitedIn Re Beddoe, Downes v Cottam CA 1893
A trustee had unsuccessfully defended an action against the trust in detinue for the return of deeds. He now sought protection against a costs order. Costs having been awarded against a trustee in proceeding A, the trustee sought to be indemnified . .

Cited by:
CitedAMP (UK) Plc and Another v Barker and Others ChD 8-Dec-2000
The claimants were interested under a pension scheme. Alterations had been made, which the said had been in error, and they sought rectification to remove a link between early leaver benefits and incapacity benefits. The defendant trustees agreed . .
CitedAlsop Wilkinson v Neary and Others ChD 4-Nov-1994
The second defendant, a solicitor, had fraudulently taken money from trusts, and paid money into trusts for his own family. It was claimed that the payments were intended to defeat the recovery of the funds. The trustees sought protection on costs . .
CitedCorner House Research, Regina (on the Application of) v Secretary of State for Trade and Industry CA 1-Mar-2005
The applicant sought to bring an action to challenge new rules on approval of export credit guarantees. The company was non-profit and founded to support investigation of bribery. It had applied for a protected costs order to support the . .
Cited3 Individual Present Professional Trustees of 2 Trusts v an Infant Prospective Beneficiary of One Trust and others ChD 25-Jul-2007
The parties challenged under the 198 Act the right of trustees to seek a Beddoe order protecting themselves against an award of costs. . .

These lists may be incomplete.
Updated: 09 April 2021; Ref: scu.83521