The Jersey case Trilogy Management v YT & Others
 JCA 204 has provided some useful guidance in relation to the
costs arising from non adversarial applications in relation to
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.
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.
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.
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.