Trustees And Legal Fees

Sadly trustees are not immune from litigation - on the contrary more and more trustees are finding themselves dragged into court proceedings. That inevitably raises the spectre of legal fees and who pays them. This can be of particular concern to trustees who may have nothing to gain personally from the outcome of the litigation but who may have a lot to lose if a costs order is made against them.

Trustees will quite properly be concerned about two things; who will pay the costs that they incur in pursuing or defending the proceedings and what will happen if they are unsuccessful in the litigation - could they be personally subject to an adverse costs order?

Trustees have traditionally relied on their indemnity which means that they are entitled to be indemnified from the trust fund for costs that they incur when acting properly and reasonably. This indemnity can extend to the costs of litigation but it is not a blanket, open ended indemnity as has recently been confirmed by Mr Justice Mann in Cripps Trust Corporation v Sands. The intention is that a trustee should not be out of pocket for acting properly in his representative capacity but there are limits to this principle. There may be situations where it is necessary for trustees to adopt a 'neutral' stance within the proceedings and other occasions where it is prudent for trustees to seek the sanction of the court before taking a particular step in proceedings.

Cripps Trust Corporation v Sands was an example of what is commonly known as a 'construction dispute' but it illustrates how these disputes can easily escalate and how the legal costs occasioned by the disagreement can themselves become the subject of proceedings.

Lieutenant Colonel Sands died in 2000. He left a large and valuable collection of paintings. He had made a Will in March 1998 and followed that with a Codicil in early 2000. By these documents his chattels (including the artwork) were to be held on trust by his trustees for his widow for her life and then the trustees had a power to divide the items, at their discretion, between an unrestricted class of beneficiaries which included museums and similar bodies. In the event that such a power was not exercised, the items would fall into a trust of which the beneficiaries were the deceased's grandchildren. The trustees had the power to decide how the artwork would be divided.

In the event the trustees ('CTC') did not exercise their power and a question arose as to whether...

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