What types of dispute arise in relation to trusts and can trustees recover their legal costs in relation to these disputes?
There are three common types of dispute that we often see: trust disputes, beneficiary disputes and third-party disputes.
The obligations of trustees and their prospects of recovering legal costs will vary depending upon the type of dispute they are faced with.
What is a trust dispute?
A trust dispute is a dispute as to the trusts on which the trustees hold the subject matter of the settlement.
There may be a ‘friendly’ dispute arising out of a situation in which everyone agrees there is a problem which requires a solution. For example, if the terms of a trust are ambiguous a construction summons may be pursued.
Alternatively, there be a claim brought by or on behalf of individual beneficiaries, or potential beneficiaries brought for the benefit of a particular claimant rather than the trust. In this type of dispute, the duty of the trustee is to remain neutral; they cannot prefer one class of beneficiary over another. Provided the trustees take a neutral position and do not actively defend a claim, they are likely to be able to recover their legal costs from the trust. If they do actively defend a claim and it succeeds, they risk being ordered to pay the successful claimant’s costs personally.
Explain what a beneficiary dispute is
Beneficiary disputes are those between the trustees and one or more beneficiaries and can relate to any action which the trustees have taken, or have not taken, or which they might take in the future.
For example, a beneficiary might claim that there has been a breach of trust by the trustees and may be claiming compensation or seeking to remove one or more of the trustees. In relation to future actions an injunction might be sought.
In this type of dispute, costs will usually follow the event. The court has a wide discretion to make costs orders unless the trust deed itself contains specific clauses that provide that costs can be paid from trust funds.
What do third-party claims cover?
Third-Party Claims can be very varied and cover any claim by a third-party against a trust, or indeed action taken by the trustees against third parties. A common example would be action required to remove a tenant in occupation of trust property. Again, costs will usually follow the event. Provided proceedings have been appropriately brought or defended to preserve the trust assets for the benefit of the beneficiaries, they will likely recover their costs from the trust, if they cannot recover them from the third-party. To avoid any doubt about whether proceedings should be brought or defended, trustees can obtain prior authorisation to pursue or defend proceedings in the form of a Beddoe Order.