Guernsey: A Question Of Costs

Background

In Trilogy Management v YT [2012] 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.

Facts

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.

Decision

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 [1907] 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.

Comment

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.