Indemnity for costs beyond the High Court Rules

McKean v McKean Family Trustee Limited (Costs) is a costs decision following substantive findings. The key points of the judgment can be summarised as:

• the protagonists in the matter were entitled to be indemnified from the Trust for legal costs and disbursements in relation to proceedings to the extent that the costs were reasonably and properly incurred
• trustees are entitled to an indemnity out of the relevant trust fund in respect of trustee costs and costs trustees are ordered to pay other parties to the extent such costs are properly incurred in the execution of the trust
• regardless of the breadth of the indemnity in a trust deed, courts will limit the application so as to only cover costs that have been reasonably and properly incurred
• rights of indemnity do not generally extend to beneficiaries. The exception being trust proceedings raising questions of construction or administration, and certain actions regarding breaches of trust
• the rules that apply in ordinary hostile litigation govern beneficiaries’ costs. That is the general rule is that beneficiaries, if unsuccessful, will be ordered to pay the costs of the successful party and, if successful, will obtain an order for costs
• the court may order that the costs of beneficiaries are to be paid out of the trust by analogy to the right of indemnity accorded to trustees
• the Court may order that the costs of an application to the Court under that Trusts Act be paid from trust property pursuant to section 140 of the Trusts Act
• the terms of a trust may provide that indemnities extend to directors of a trustee company (where the terms of the trust do not extend to directors the general position is that rights of indemnity do not extend to a corporate trustee’s directors and officers). However, any such indemnity, regardless of its terms will be construed by the Courts as only covering costs that are reasonably and properly incurred
• the entitlement to any indemnity sits outside the costs regime in the High Court Rules.

For further background see Indemnity – a privilege not a right?

References:

• McKean v McKean Family Trustee Limited [2026] NZHC 107 (Costs)
• McKean v McKean Family Trustee Limited [2025] NZHC 1621
• Trusts Act 2019, s 81
• Lewin on Trusts at [48-006]–[48-007], cited with approval in Abdullah v Abdullah [2013] EWHC 4281 (Ch) at [23]
• Sund v Sunde [2019] NZCA 552 at [13]
• S and S Ltd v XYZ Ltd [2016] NZHC 26 at [38]–[39]
• Refrigerant Recovery NZ Ltd v Trust for the Destruction of Synthetic Refrigerants [2024] NZHC 3933 at [67] and [76(a)]
• Waho v Te Kohanga Reo National Trust [2019] NZHC 1440 at [13]