Steve Meiklejohn January 19 2012 Shockwaves around the trust industry? Ogier | Private Client & Offshore Services - Jersey Steve Meiklejohn Private Client & Offshore Services FactsDecisionCommentIn In the Matter of the Y Trust,(1) counsel for one of the parties and Commissioner Clyde-Smith were at odds over whether the court's decision to deprive one of the parties of 50% of its costs would send shockwaves around the trust industry. This judgment represents the Royal Court's decision on costs, following an earlier decision by the court to sanction the trustee's decision to distribute the assets of a discretionary trust in a manner that was inconsistent with the previous indications given by the trustee to the beneficiaries.FactsIn the substantive hearing, the court had agreed with the trustee's decision to give one beneficiary more than the 50% suggested in the letter of wishes and more than the trustee had originally indicated it would distribute to that beneficiary. Nonetheless, the court was critical of the trustee's high-handed approach as, having changed its mind regarding the share of the balance of the trust to be paid out to the two sides of the family, the trustee had failed properly to communicate this to the beneficiary that had 'lost out'.DecisionIn the present hearing, the court set out the legal principles to be applied. It stated that the costs of an application of this nature would normally be borne by the trust fund. However, citing the decision in In the matter of ELO and R Trusts,(2) the court ruled that a trustee can be deprived of its costs if it is found to have acted unreasonably. In addition, beneficiaries can be penalised in costs if their conduct is thought to have been such as to have caused the application to have been brought in the first place.(3)The court had been critical of the trustee in the previous hearing. On this occasion, the court went further and noted that following the meeting at which the trustee had communicated its original decision, and aware that one beneficiary would likely be disaffected in light of that change of decision, instead of giving both sides of the family a full explanation, the trustee had resorted to a bland 'Dear all' email. The court was therefore unsurprised that the beneficiary that had lost out was disaffected.The court concluded that the behaviour of the trustee had been unreasonable and the cause of the escalation of the costs. Accordingly, the court decided to deprive the trustee of 50% of its costs from the application. The court stated that it did not believe the decision would send shockwaves around the trust industry, because it was apparent on the facts that the trustee had behaved poorly.CommentAs determined by both the court's ruling and the historical approach of the Jersey courts, trustees should be aware that if they behave in a less than proper fashion, they can expect to be penalised or censured.For further information on this topic please contact Steve Meiklejohn at Ogier by telephone (+44 1534 504 000), fax (+44 1534 504 444) or email ([email protected]).Endnotes(1) Jersey Unreported Judgments, August 4 2011.(2)  JRC 150.(3) Lewin on Trusts, 18th Edition, 21 - A5.