The Jersey case Trilogy Management v YT & Others
[2012] JCA 204 has provided some useful guidance in relation to the
costs arising from non adversarial applications in relation to
trusts.
The appeal was limited to a single issue relating to the treatment
of dividends from a Jersey company and accordingly the construction
of the company's articles of association and applicable
accounting principles.
In considering its judgment on costs, the Jersey Court of Appeal
held that:
(a) At first instance, the costs of convened parties to a
non-adversarial application should normally be awarded on the
indemnity basis out of the trust fund whether successful or not.
This was because they had been incurred for the benefit of the
trust/estate as a whole.
(b) The position on appeal, however, is quite different. On appeal,
the appellant (trustee or third party) takes a risk in relation to
his/her costs. It will depend upon the circumstances underlying
each individual application. A question may be asked as to whether
the party stood to gain any material benefit from successful
contentions in the litigation.
Trustees Costs
It was further held that:
1. a neutral trustee (or persons exercising a fiduciary function in
relation to the trust) is entitled to an indemnity from the trust
fund in relation to all costs and expenses reasonably incurred.
This arises from statute, contract and inherent jurisdiction. A
Court order to this effect is unnecessary;
2. an indemnity, in this sense, means full reimbursement; and
3. if costs have not been incurred reasonably, then this principle
may be displaced. A trustee has to act in a proportionate and
reasonable way at all times.
Other Parties' Costs
The position regarding the costs of third parties convened to
proceedings is different. Providing there has been no misconduct on
the part of the third party, such as a beneficiary, they will be
entitled to an award of costs out of the trust fund. These will
also be paid on the indemnity basis. Although this will usually
result in a large proportion of costs being recovered, it will
unlikely amount to full reimbursement in the same manner as a
trustee.
Appeal
The position on appeal, however, is quite different. On appeal, the
appellant (trustee or third party) takes a risk in relation to
his/her costs. Further, if the appeal is unsuccessful, it is quite
possible that he/she will not only bear his/her own costs but also
the costs of the respondent party. This is because a first instance
application, correctly brought, will be deemed necessary for the
proper administration of the trust, whatever the outcome. However,
it does not follow that an unsuccessful appeal is also necessary in
the same way.
If the appeal is successful, then the appeal will be deemed
necessary to the proper administration, and the successful
appellant will usually enjoy his/her costs out of the trust. In
this situation, the unsuccessful respondent's costs may still
also be deemed to have been incurred for the benefit of the trust
(and so may also be paid out of the trust fund). This would depend
upon the circumstances underlying each individual application. In
deciding whether a party was adopting an adversarial stance (i.e.
taking it outside the scope of these principles), a question may be
asked as to whether the party stood to gain any material benefit
from successful assertions in the litigation.
Further application
In another recent decision, In the Matter of the Representation
of Weingarten and Tolmie (22 January 2013), the Jersey Royal
Court confirmed that acting unreasonably might comprise taking
unnecessary procedural steps which increased costs or acting in a
partisan manner between beneficiaries. Where the Court has simply
disagreed with a trustee's recommendations, the trustee will
not be found to be acting unreasonably.
These recent cases indicate that there must be exceptional
circumstances for a trust to be burdened with the costs of an
appeal. The proceedings brought and actions of the relevant parties
must be necessary for the proper administration of the trust.
Isle of Man
Pursuant to the Trustee Act 2001, the provisions of modern trust
deeds and the inherent jurisdiction of the of the Isle of Man
Court, trustees of Isle of Man law governed trusts are entitled to
an indemnity from the trust fund in relation to all costs and
expenses reasonably incurred. It is likely that the Isle of Man
Courts would follow the same pragmatic approach as the Jersey Court
of Appeal when dealing with similar circumstances in the
future.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.