Trustee Litigation

In Alsop Wilkinson (a firm) v Neary [1996] 1 WLR 1220, Lightman J summarised the main categories of litigation that a trustee may be involved in:

  • (1) A ‘trust dispute’: a dispute as to the trusts on which the trustees hold the subject matter of the settlement. This includes (a) “friendly litigation” eg the true construction of a trust instrument; and (b) ‘hostile litigation’ eg a challenge in whole or in part to the validity of the settlement by the settlor on the grounds of undue influence;
  • (2) a ‘beneficiary dispute’: a dispute with one or more of the beneficiaries as to the propriety of any action which the trustees have taken or omitted to take or may not take in the future, eg proceedings by which a beneficiary alleging breach of trust from the trustees and seeking removal of the trustees; and
  • (3) A ‘third party dispute’.

    In the case of Macedonian Orthodox Community Church St Petka Incorporated v His Eminence Petar the Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66 (St Petka), the High Court recognised that it was open to a trustee faced with an allegation of misconduct by a beneficiary or beneficiaries, to apply to court for judicial advice.

    A court may make a pre-emptive award of costs to pension fund members who wished to sue the trustees {McDonald and Others v Horn and Others CA [1995] 1 All ER 961, (1994) 144 NLJ 1515, [1995] ICR 685, [1995] 1 CR 685)

    Hoffmann LJ in McDonald v Horn said:

    ‘if one looks at the economic relationships involved, there does seem to me to be a compelling analogy between a minority shareholder’s action for damages on behalf of the company and an action by a member of a pension fund to compel trustees or others to account to a fund. In both cases a person with a limited interest in a fund, whether a company’s assets or a pension fund, is alleging injury to the fund as a whole and seeking restitution on behalf of the fund. And what distinguishes the shareholder and pension fund member, on the one hand, from the ordinary trust beneficiary, on the other, is that the former have both given consideration for their interests. They are not just recipients of the settlor’s bounty which he, for better or worse, has entrusted to the control of trustees of his choice. The relationship between the parties is a commercial one and the pension fund members are entitled to be satisfied that the fund is being properly administered. Even in a non-contributory scheme, the employer’s payments are not bounty. They are part of the consideration for the services of the employee. Pension funds are such a special form of trust and the analogy between them and companies with shareholders is so much stronger than in the case of ordinary trusts that, in my judgment, that it would do no violence to established authority if we were to apply to them the Wallersteiner v. Moir (No. 2) procedure.’

    Pre-empty cost orders were discussed by Finkelstein J in Australian Securities and Investments Commission, in the matter of GDK Financial Solutions Pty Ltd (in liq) v GDK Financial Solutions Pty Ltd (in liq) (No 4) [2008] FCA 858 {Link}.

    Kos J provided this summary in Woodward v Smith [2014] NZHC 407;(2014} 3 NZTR 24}:

    “A summary of the legal principles governing PCOs in favour of beneficiaries in trust-related litigation may be attempted. First, such applications may involve either or both indemnity and immunity. The former addressing the applicant’s own costs; the latter any liability to meet costs of other parties. Secondly, such orders may routinely be made in cases falling generally into categories 1 and 2 of Buckton. Thirdly, they may also routinely be granted in cases that would fall within category 3 of Buckton, but which involve substantial pension funds, where the plaintiff’s participation may be characterised as truly of a derivative nature.”

    Since equity acts “in personam”, a court in the State where a trustee is resident has jurisdiction in relation to the conduct of the trustee, even if the “proper law” of the trust is that of another State.

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    This tab updated on 19 June 2015