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Costs, Trustee liability, Trusts

Disclosure to the trustees

Disclosure of trust information to beneficiaries is commonly considered.  However, what of disclosure to the trustees?

Consider the case of Daniel v Cundall.  In this case Mr Daniel and Mr Cundall were the trustees of a trust.  Mr Daniel, a lawyer, says that he left the day-to-day trust administration to Mr Cundall.

After a long period of time Mr Daniel decided to concern himself actively with the affairs of the trust.  In doing so he requested copies of the trust’s financial records from his co-trustee.  In the first instance orally, then in writing and then by lawyer.  Following which he filed proceedings.  Once served his co-trustee took legal advice and the requested trust information was provided.

The end of the matter?  No.  There remained the matter of Mr Daniel’s $18,088.30 of costs, which Mr Daniel sought under rule 14.6(4)(f) (“some other reason”).

Mr Cundall, perhaps not surprisingly suggested that costs should lie where they fell as Mr Daniel had disregarded his responsibility as a trustee for many years.

From the court’s perspective the matter was not clear, AJ Bell noting at [7] that:

“… It was not clear to me that costs for this proceeding should be decided only under the High Court Rules. Potentially either of the parties might have recourse to trust assets to meet their expenses. Whatever the position between Mr Daniel and Mr Cundall under the High Court Rules, Mr Daniel might be able to look to trust assets to meet the expenses he incurred as trustee and Mr Cundall might look to trust assets to indemnify himself for any liability for costs. The High Court Rules do not cover those aspects.”

As noted above, and as confirmed at [8]:

“While proceedings by beneficiaries against trustees to obtain documents and to provide accounts are not unusual, it appears that a proceeding by one trustee against another trustee to obtain trust documents is relatively uncommon. All the same, case law on costs in beneficiaries’ applications offers guidance. In Heugh v Scard, Sir George Jessell MR said:

It is a matter of some importance that executors and trustees should understand my rule on the subject of costs. The question of costs being discretionary, it is impossible to lay down a rule binding on any other branch of the Court. But it is, nevertheless, well that executors and trustees should understand what I think to be the proper rule. In certain cases of mere neglect or refusal to furnish accounts, when the neglect is very gross or the refusal wholly indefensible, I reserve to myself the right of making the executor or trustee pay the cost of litigation caused by his neglect or refusal. But I expressly guard myself from saying that in every case of mere neglect, even in every case of mere refusal, an honest executor or trustee who has fairly discharged his duty — an onerous and thankless one is to pay costs. But when I find, in addition to unjustifiable neglect or delay, that there has been misconduct in dealing with the trust fund, then I look upon that neglect or delay as an aggravation of the latter misconduct; and, although, standing alone, the neglect or delay might not be sufficient to induce me to order the trustee or executor to pay costs, yet, when combined with such misconduct I should order them to do so.

AT [9] the court refers to examples of the principles from Heugh v Scard:

  • Re Page, where the executor and trustee had not provided accounts but there was no evidence that he had converted any part of the trust fund to his own use or obtained any part of it — no costs were ordered
  • Re Skinner, where the trustees’ failure to provide accounts was held to be gross and indefensible – costs were ordered.
  • Furness v Public Trustee, where a trustee had failed to perform her duty of keeping proper books. The executor of her estate could not recover the increased costs required because of the failure to keep proper books of account.

Applying these the court did not apply any discount for Mr Daniel’s prolonged absence as a trustee.  However, Mr Cundall “Undoubtedly … breached his duty in not providing trust records to Mr Daniel when asked.”

The result was an order that Mr Daniel’s costs to be met from the trust fund under s 38(2) of the Trustee Act 1956.

 References:

  • Daniel v Cundall [2017] NZHC 2339
  • High Court Rules, Part 14, r 14.6(4)(f)
  • Heugh v Scard (1876) 63 LT 659
  • Re Page [1893] I Ch 304
  • Re Skinner [1904] 1 Ch 289
  • Furness v Public [1922] NZLR 920

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