ReSolution |June 2020
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compromise if it is not in the best interests of the beneficiaries (for an Australian example in a family protection context see Re Finnie; Petrovksa v Morrison [2020] VSC 9). Trustees’ participation in a compromise which is not court sanctioned will also potentially jeopardise their being allowed to take the costs incurred in mediation from the fund.
Have the trustees acted reasonably?
How can trustees properly assess whether they are acting, or have acted, reasonably? The issue of whether trustees have acted reasonably is a deceptively complicated beast. However, in short, following the categorisation of trust disputes in Alsop Wilkinson v Neary [1995] 1 All ER 431 and other relevant caselaw, the broad position regarding where trustees may take their costs from the fund, whether following litigation or compromise, is as follows:
(a) where trustees are involved in a hostile trust dispute where there are rival claimants to a beneficial interest in the trust, such as a creditor of the settlor, trustees should remain neutral and leave it to the rivals to fight their battle. If they are seen to be preferring one beneficiary over another, and “lose” (whether as part of the compromise terms, or in litigation) they are at risk as to costs personally;
(b) where trustees are involved in a hostile trust dispute regarding claims by beneficiaries to further provision from the trust, whether trustees can compromise depends on whether any element of the compromise involves a variation of the trust or a variation of the beneficial interests. If so, any compromise will require all beneficiaries’ consent (although it could be argued that in the latter class of variation only the consent of the main protagonists would be required);
(c) claims against trustees for breach of trust are dangerous territory for trustees regarding their costs - but all is not necessarily lost if trustees are able to remedy the breach of trust. In the context of compromise, much will depend on whether there is an admission of the breach;
(d) claims seeking to remove trustees are very context dependent – even where trustees are removed by the court, they have on occasion been said to have acted reasonably in defending the application for their removal. In particular, the High Court in Triezenberg v Mason [2019] NZHC 920 was impressed with the efforts the removed trustee had made to resolve the proceedings. By way of contrast, the decisions of Summerlee v Pool [2019] NZHC 387 and Jones v O’Keeffe [2019] NZCA 222 provide examples of where removed trustees have had to pay not only their own costs personally, but at least part of the other parties’ costs in addition;
(e) claims seeking rights in the administration/execution of the trust to be enforced are generally straightforward, in terms of being both capable of compromise, and costs being met from the fund. However, it is not difficult to envisage a situation where, for example, trustees have not acted entirely reasonably in refusing to provide a beneficiary with information, and costs consequences may therefore arise (note the English decision of Lewis v Tamplin [2018] EWHC 777 (Ch) in this regard);
(f) in disputes involving third parties, trustees still need to show that they have acted reasonably in order to take their costs from the fund. Whilst third parties might not be concerned about money coming out of the fund, beneficiaries may be and any settlement would, as with all settlements reached by trustees, need to be in the best interests of the beneficiaries.
This list is not exhaustive of the types of disputes trustees might find themselves embroiled in. However, it does provide some guidance on how trustees should conduct themselves regarding any compromise, and whether or not they are likely to have acted reasonably.