Analysis
The court had previously sanctioned an apportionment of a trust fund between A in the sum of £1.9m (part of which would comprise writing off a £300,000 loan due from him), C in the sum of £0.5m and a US Trust for the benefit of D, F and E in the sum of £1.0m. At that time, there was, in the trust fund, cash in the sum of £3.4m and it was expected that after the apportionment there would be a surplus of approximately £300,000. A was disaffected with that decision. Subsequently, it transpired that after C had received her £0.5m and a further loan had been made to A there was insufficient cash in the trust fund to meet the apportionment of £1.39m for A (net of the loans totalling £510,000 due from him) and £1.0m for the US Trust because the costs of the parties (after deducting £45,000 in fees due to N as trustee) amounted to a total £492,550. This was greatly in excess of what might be expected on a routine application for directions to bless a decision; viz about £30,000. On applications for costs, A submitted that N had acted unreasonably as trustee and should be deprived of its costs in whole or in part and, if necessary, should pay a portion of his costs if that was required to prevent him being deprived of the full benefit of the apportioned share of £1.9m. The US Trust had the benefit of a pre-emptive costs order; namely that the costs be paid out of the trust fund but with the liberty to address the court as to their final allocation. Consequently, it was submitted on behalf of the US Trust that its interest should not be affected by those applications as it had been caught up in the crossfire – essentially the issue was between A and N.
Held (depriving N as Trustee of a proportion of its costs):
Normally, the costs of all the parties are paid out of the trust fund on an administrative application by a trustee for the sanction of the court. It was not suggested by any of the parties that N had acted improperly in invoking the jurisdiction of the court in this case. As a matter of principle, a trustee was entitled to an indemnity out of the trust fund in respect of costs and expenses properly incurred by him in connection with the performance of his duties and exercise of his powers but a trustee might be deprived of his costs, or even ordered to pay costs, not only by reason of his conduct if these occasioned the proceedings but also if he acted unreasonably, either in his conduct of the proceedings themselves or by bringing unnecessary trust proceedings. On the facts of this case, while it was inappropriate to characterise the US Trust as being caught in the crossfire between the other parties, given that this was an administrative application, in reality there was no other option but to take part in the proceedings to safeguard its interests and it would be unjust for those interested in the US Trust to have their fund diminished by way of a contribution to the costs of an application incurred as a result of A’s disaffection with the decision made by the court. Ordinarily, that would lead to the costs of the parties coming out of the balance of the trust fund due to A. However, given that the court had found that N had contributed materially to the disaffection of A, the manner of his treatment amounted to unreasonable conduct and that had a direct effect on the level of costs incurred in the application which the trustee had no alternative but to bring and for that reason it was right for N to be deprived of a material part of its costs. As to the proportion, applying a broad brush approach to the exercise of the discretion, N should be deprived of one half of its costs (but should not be ordered to pay any part of the costs of A).
JUDGMENT THE COMMISSIONER: [1] This is my judgment on the various applications for costs arising out of the decision of the court handed down on 7 July 2011 (JRC 135) and it has to be read in conjunction with that judgment, the definitions of which I adopt. [2] At the time of the December 2009 …Continue reading "Re Y Trust [2011] JRC 155A"