Re Internine Trust

CourtRoyal Court
JudgeBailhache, Bailiff
Judgment Date25 May 2006
Date25 May 2006
Bailhache, Bailiff

P.D. James for the representor;

J.P. Speck for the second respondent;

M.H. Taylor for the third to eighth respondents;

S.J. Young for the ninth and tenth respondents.

Cases cited:

(1) Beddoe, In re, Downes v. Cottam, [1893] 1 Ch. 547; (1892), 62 L.J. Ch. 233; 68 L.T. 595, dicta of Bowen, L.J. considered.

(2) Brush v. Bower Cotton & Bower, [1993] 1 W.L.R. 1328; [1993] 4 All E.R. 741, considered.

(3) Carafe Trust, In re, 2005 JLR 159, applied.

(4) Esteem Settlement, In re, 2000 JLR N-67; 2001 JLR N [8], applied.

(5) Grimthorpe, In re, [1958] Ch. 615; [1958] 1 W.L.R. 381; sub nom. Grimthorpe's (Baron) Will Trusts, Re, [1958] 1 All E.R. 765, dicta of Danckwerts, J. applied.

(6) Johnson v. Reed Corrugated Cases Ltd., [1992] 1 All E.R. 169, considered.

(7) Lloyds Bank Private Banking (C.I.) Ltd. v. Cala Cristal S.A., 1996 JLR N-20, referred to.

(8) Murphy v. Collins, 2000 JLR 276, referred to.

(9) Parujan v. Atlantic Western Trustees Ltd., 2003 JLR N [11], referred to.

(10) Spurling's Will Trusts, Re, [1966] 1 W.L.R. 920; [1966] 1 All E.R. 745; (1965), 110 Sol. Jo. 408, applied.

(11) Turner v. Hancock (1882), 20 Ch. D. 303; 51 L.J. Ch. 517; 46 L.T. 750, applied.

Legislation construed:

Royal Court Rules 2004 (Revised Edition, ch.07.770.72, 2006 ed.), r.12/5: The relevant terms of this rule are set out at para. 46.

r.12/7: The relevant terms of this rule are set out at para. 27.

Trusts (Jersey) Law 1984 (Revised Edition, ch.13.875), art. 26(2): The relevant terms of this paragraph are set out at para. 12.

art. 53: The relevant terms of this article are set out at para. 17.

Texts cited:

Codes of Practice for Trust Company Business, Jersey Fin. Servs. Commn., para. 4.2, at 18 (2001).

Halsbury's Laws of England, 4th ed., vol. 48, paras. 780-781, at 419-420.

Lewin on Trusts, 17th ed., para. 21-03, at 526 (2000).

Trusts—costs—indemnity—trustee normally entitled to full indemnity out of trust for reasonable legal costs if takes neutral position in litigation—only to be denied indemnity by specific order, if found unreasonable, which is high hurdle—not generally in public interest to require trustee to pay own costs

A trustee sought to recover its costs incurred in litigation between the beneficiaries of a trust.

The representor and the third to tenth respondents were siblings and the beneficiaries of several substantial Jersey trusts. A dispute arose between them concerning the trusts and litigation was subsequently initiated, which was complex and hotly contested. As a result of several interlocutory applications, costs orders were made in favour of the second respondent, the trustee of one of the trusts. Some of its costs were ordered to be paid out of the trust fund, which held over US$1m., on the indemnity basis and certain of the beneficiaries were ordered to pay its other costs on the standard basis. In total, the trustee claimed over £60,000, of which the Greffier Substitute allowed less than £15,000 on taxation. In relation to the costs to be paid by the beneficiaries, he allowed a Factor 'B' mark-up (for care and conduct) of only 35-50%, whereas the trustee claimed 97%.

The trustee had instructed Jersey counsel and also specialist English Chancery lawyers. It appealed against the Greffier Substitute's award, submitting that, as it had maintained a neutral role in the litigation, it should be entitled to recover all of its costs. When first hearing the appeal, Page, Commr. considered that the trustee had properly maintained a neutral position and had made valuable contributions in the proceedings.

The representor accepted that the trustee had been impartial but submitted that the nature and cost of the legal advice obtained was excessive given the trustee's neutral position. The third to eighth respondents agreed that an excessive number of lawyers had been instructed but did not consider the trustee to have been impartial.

Held, allowing the appeal and remitting the taxation of the bills of costs to the Greffier Substitute:

(1) As the trustee had maintained a neutral role in the litigation and had acted properly and reasonably, it was entitled to an indemnity from the trust fund for all its reasonable costs and expenses, except those which the beneficiaries had been ordered to pay on the standard basis. Its appeal against the disallowance on taxation of a substantial proportion of its costs would therefore be allowed. It was not in the public interest to impose on a trustee, whose role in Jersey was particularly burdensome given the requirements of the Jersey Financial Services Commission, the additional burden of paying its costs. In general, a trustee's reasonable costs resulting from litigation in which it had been neutral would be recoverable from the trust fund on the indemnity basis and would not be taxed. As, however, in the present case, the costs had been ordered to be taxed without dispute by the trustee, the bills would be remitted to the Greffier Substitute to be reconsidered. A trustee could only be denied indemnity for its costs by specific order if it were found to have acted unreasonably, which was a high hurdle and would depend on the circumstances of the particular case. If it were suggested that a trustee had not acted appropriately in incurring certain costs, it would not necessarily be unreasonable for it to respond by obtaining further or specialist advice ( paras. 18-21; para. 44).

(2) The trustee's costs incurred in obtaining legal advice from Jersey counsel were reasonable and it could recover them from the trust fund on the indemnity basis where ordered. When obtaining such advice, the trustee should have had regard to the necessity of employing advisers whose skills and charges were appropriate both to the nature of the problem and to the size of the trust fund. Provided such matters were considered, the court would not lightly make a finding of misconduct. The trustee had a continuing duty to act in the best interests of the beneficiaries of the trust, which was a high duty—to observe the utmost good faith—and persisted even in the face of conduct by a beneficiary which the trustee might perceive to be offensive or unreasonable. Whilst it would not generally be in the interests of the beneficiaries for the trustee to quarrel with its lawyers, it had a duty to contest any legal charges which it considered to be excessive or to relate to unnecessary or unauthorized work. On taxation of those costs ordered to be paid by the beneficiaries, it would prima facie be reasonable to allow the usual rate which the particular lawyer would charge. It would not be reasonable to increase the rate merely because the client was a trustee ( para. 25; para. 47).

(3) Similarly, the trustee was also entitled to recover the costs incurred in obtaining specialist legal advice from English Chancery lawyers, at the relevant lawyer's usual rate for the work undertaken. In complex trusts litigation such as the present case, it might be appropriate for a trustee to seek legal advice from large English firms and specialist counsel at the Chancery Bar because Jersey trusts law was very similar to English law. Also, as Jersey was a small jurisdiction, complicated trusts litigation could often be better managed by utilizing the resources and experience of large English firms. In addition, there were few specialist trusts practitioners in Jersey, whereas the Chancery Bar represented a valuable intellectual resource on which it could be useful to draw when developing Jersey trusts law. Seeking such advice had, however, to be reasonable and proportionate to the matter in issue and to the size of the trust fund. If a trustee relied on its Jersey counsel as to the desirability of obtaining such advice, he too would have a continuing duty to consider the reasonableness and proportionality of doing so. If serious default were shown, the court would not hesitate to make an appropriate order against the advocate personally, under art. 53 of the Trusts (Jersey) Law 1984 ( paras. 28-30; para. 47).

(4) Although the trustee's position in the litigation had been neutral rather than adversarial, it was not unreasonable for it to have obtained legal advice and incurred costs in relation to the litigation. A trustee adopting a neutral position in litigation concerning a trust need not necessarily be inactive. Active participation, by giving impartial and constructive advice on the opposing contentions of different beneficiaries or claimants to the trust fund, could greatly assist the court and did in fact do so in the present case ( para. 34).

(5) If a trustee were to be indemnified for its legal costs from the trust fund, it would be desirable and in accordance with the requirements of openness and transparency, in appropriate circumstances, for it to submit its bills of costs to the beneficiaries and to consider any objections to them ( paras. 23-24).

(6) In relation to the costs ordered to be paid by certain of the beneficiaries, an appropriate Factor 'B' uplift on taxation would have been 60-75%. The Factor 'B' uplift, i.e. the allowance for care and conduct, was intended to reflect all the relevant circumstances of the case, especially imponderable factors for which no time charge could be substantiated and the element of commercial profit. Account should have been taken of the nature of the case as a whole, not only its complexity but also the risk to the lawyer. Heavyweight commercial litigation tended to be inherently riskier to conduct than ordinary litigation, the stakes higher and the clients more critical. The present litigation raised difficult issues and was hotly contested, with much animosity between the beneficiaries. It involved a dispute over substantial trust funds. A Factor 'B' uplift of around 100% would therefore be appropriate at trial and 60-75%, rather than the 35-50% allowed, would be appropriate...

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