Trustee's personal liability for costs

Yesterday, 19 April 2016, the Guernsey Court of Appeal released another judgment in the long-running Investec litigation (judgment 15/2016, available on the Guernsey Legal Resources website).

It had previously been decided by the same court in 2014 that where a personal liability was asserted against a trustee of a trust governed by Jersey law, the trustee could rely on article 32 of the Trusts (Jersey) Law 1984 (2014 rev.), even though the litigation was taking place in Guernsey. Article 32 provides that where a trustee is party to “any transaction or matter affecting the trust”, and the other party knows that the trustee is acting as such, the other party’s claim extends only to the trust property. That provision reverses the English rule, which is that the trustee is personally liable without limit – e.g. on a contract or for rent – unless there is a clear term to the contrary. (Guernsey has a similar provision , section 42 of the Trusts (Guernsey) Law 2007 but it was inapplicable in Investec, because the trust was not governed by Guernsey law.) So it was held in 2014 that under article 32 the trustee was not liable for borrowing except to the extent of the trust property.

In yesterday’s judgment, the question was whether article 32 provided protection against an order for costs against the trustee. The court held that it did (at [56] to [99]). Litigation was a “matter” within article 32. So even if a court considers that the trustee should pay costs, then as long as the litigation affects the trust the article protects the trustee. In Investec, it happened that the trustee was defendant. But seemingly a trustee who makes a claim but fails can still say that it is liable for costs only to the extent of the trust property. The risk that the trust property is inadequate is switched from the trustee to the hapless defendant, who had no choice whether he entered into the “transaction or matter”. But apparently if the trustee has been really unreasonable it may be deprived of the statutory protection (see [93], [143]).

The reasoning, if correct, would seem to apply to proceedings anywhere to which a Jersey trustee is a party or, indeed, a Guernsey trustee. (Comparable provisions in the B.V.I. refer only to a “contract”: Trustee Ordinance, sections 97 and 98.)

Some of the decisions in Investec are on their way to the Privy Council. It looks likely that this will be another.

Nicholas Le Poidevin, Q.C.
New Square Chambers

Costs remain a live issue in New Zealand trust litigation. In McLaren v McLaren although the trustees successfully defended their appointment as trustees the High Court indicated an award of scale costs noting that: “I also appreciate that an award of scale costs leaves the new trustees and/or their professional indemnifiers out of pocket for the unrecoverable component of Mr Darroch’s reasonable costs. Again, I consider that the appropriate balance between reimbursement for their being wrongfully pursued to trial, and such challenges being an incident of professional practice.” See A sorry tale.
Also see _Who pays the piper?_

Trustees regularly presume that they will be reimbursed for all costs (or more accurately, that all costs will be met from the trust). In reality the correct position is that trustees commonly assume all costs will be met from the trust, but with no basis for this supposition other than, well why else would they be a trustee.

See further:
Also see