In the Event of Litigation Involving a Trustee Will the Trustees Obtain an Order for Costs?

1. Trustees may be involved in three kinds of dispute.

1.1 Litigation which challenges the validity of the trust;

1.2 Litigation brought by one or more beneficiaries alleging breach of trust; or

1.3 A dispute with third parties in respect of rights and liabilities assumed by the trustees in the course of administration of the trust.

2. The general rule is that trustees are entitled to their costs when properly incurred in administering the trust and have a lien on the trust assets to secure an indemnity. Trustees have a duty to preserve the trust assets for the beneficiaries and therefore to represent the trust in a third party dispute.

3. Where the dispute is between rival claimants to the trust assets, the duty of the trustee is to remain neutral and to submit to the court's directions leaving it to those in dispute to fight their battles. If the trustees remain neutral they are entitled to any costs involved such as those involved in discharge of documents and complying with any court order. If the trustees actively defend the trust on behalf of the beneficiaries they may, if they win, get their costs. If they lose they will not get their costs e.g. in a dispute between the beneficiaries and creditors of the settlor when it is alleged that the trust was set up to defraud creditors (see Alsop Wilkinson v. Neary and Others (1995). 1 All ER 431; followed in Barclays Private Bank & Trust Co Ltd v Bhander (No.2) (1998/99) 1 ITELR 46. Court said appropriate to make pre-emptive order for costs following the principles in the Alsop Wilkinson case.

4. Where a trustee has done very little an application for payment of costs out of the trust fund may be refused.

Lloyds Bank v. Cala Cristal SA (1997/98) 1 O.F.L.R. 91

5. A protector who is a fiduciary may obtain an order for costs to be paid out of the trust assets where much work has been completed for the beneficiaries.

In re settlements between X and Blampied and Abacus (CI) Ltd. (1994) Unreported Judgments (Jersey 28/1/94)