In Trilogy Management v YT  JCA 204 the Court of Appeal of
Jersey has clarified the principles relating to the payment of
costs in non-adversarial trust applications. In so doing, it has
drawn together approaches established in a number of early cases
and consolidated the position in an area which it said had
previously received only "sporadic consideration".
This case is relevant to any trustees that are contemplating
non-adversarial applications to the court such as the correct
administration of a trust. The case is significant because the
Court distinguishes between the costs of trustees and beneficiaries
or other convened parties, as well as between costs at first
instance and costs on appeal.
It should be noted that the Court considered that the test to
establish what was a non-adversarial application was the
determination if the party stood to gain any material benefit from
successful contentions in the litigation.
A charitable structure was established by a business man. An
investment company was established pursuant to the structure, the
trustees were a shareholder in this company and would receive
dividends that were applied for charitable purposes. The
businessman was the controlling shareholder of both the investment
company and the trust's corporate trustee.
Upon the death of the businessman certain of his interests
passed to his wife. Eight charitable sub-trusts were created by his
will for a separate purpose trust with each of his 8 children being
appointed as a guardian. The original charitable trust was to make
equal annual distributions to the sub-trusts for the children to
carry out their own philanthropic activities.
Applications were made to the Court because changes had been
made to the articles of association of the investment company and
the accounting methods it used created discrepancies in relation to
the distributions made to the sub-trusts.
The Court of Appeal considered in reaching its decision that if
a trustee maintains a neutral position it is entitled to an
indemnity, i.e. a full reimbursement, from the trust fund for all
reasonably incurred costs and expenses. However, this principle may
be set aside if the costs and expenses have been unreasonably
incurred. A trustee has a duty to act proportionately and
reasonably at all times, therefore, if there is any breach of trust
or duty the Court may displace the original principle and order
that the trustee is not entitled to its costs or expenses.
The position of beneficiaries' and other parties' costs
is quite different, the Court may order that their costs are
exigible from the Trust on the indemnity basis but it must be
recognised that taxation of those costs would not necessarily
result in reimbursement.
The Court took guidance from the old English decision of
Kekewich J in Buckton v Buckton  Ch D 406 in which it was
held that in first instance non-adversarial applications costs of
all the parties should be regarded as a whole and for the benefit
of the trust, whatever the outcome, provided that the applications
were necessary for the administration of the trust.
However, the Court held that it did not follow that this was the
case on appeal. An appeal of a decision on a non-adversarial
application puts the relevant parties at risk as to costs. If a
party is unsuccessful on appeal it may not recover its costs from
the estate and may have to pay the otherside's costs. A
successful appellant should be entitled to their costs from the
estate as the appeal would generally have been justified.
The Court declined to set a principle that all respondents to an
appeal should be entitled to their costs from the estate but did
indicate that this would be the usual order provided that their
participation was for the benefit of the estate.
This decision has provided clarity to the Court's approach
to cost awards in the context of non-adversarial trust proceedings
both at first instance and on appeal. It has also given potential
appellants a warning that they will need to carefully consider
their appeal as they could end up bearing not only their own costs
but those of other parties. Given the escalating costs in trust
litigation it is reminder to trustees to ensure that underlying
documents are unambiguous and clear.
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.
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