The Royal Court held that a decision of the trustee (a Jersey trust company) was one that no reasonable trustee would have taken.

This is the established legal test laid down in In the matter of the H Trust (2007) JLR 569, and has been often referred to as the “no rational trustee test”, being a more restrictive test than merely showing that the decision of the trustee was unreasonable on the basis that no reasonable trustee would have arrived at the same conclusion.

The substantive hearing proved for a lengthy judgment, but when all was said and done, the Royal Court, having found against the trustee, had to decide whether it was going to, inter alia, make an adverse order against the trustee in respect of the other parties’ costs and, if it was minded to do so, on what basis.

Dealing with these two questions in turn:

  1. Awarding costs

The Court’s power to award costs derives from Article 2 of the Civil Proceedings (Jersey) Law 1956 (as amended). Article 2 provides that the cost of an incidental to all proceedings in the Royal Court shall be in the discretion of the Court and that the Court “shall have full power to determine by whom and to what extent the costs are to be paid”.

The general rule is that ‘costs follow the event’, in that the winning party will receive its costs from the losing party. This general rule is not set in stone, though, as the Court can exercise its discretion to depart from this should it wish to on the basis that Article 2 ought not be treated as fettered by any particular supposed rule or practice (which has happened in the past). It is therefore open to the Court to have regard to any and all considerations that may have any bearing on the overriding objective of doing justice.

In this instance, the trustee was ordered to pay the representors’ costs, which, given the Court’s findings, was not entirely unexpected. However, it was the justification for the type of adverse costs award which is likely to be of interest.

  1. Costs on the standard or indemnity basis

The Royal Court Rules 2004 (as amended), describes the two types of costs award as follows:

On a taxation (a review of the parties’ costs by the Greffier of the Royal Court) on the standard basis, there shall be allowed a reasonable amount of all costs reasonably incurred and any doubts which the Greffier may have as to whether the costs were reasonably incurred or were reasonable in amount shall be resolved in favour of the paying party.

On a taxation of costs on the indemnity basis, all costs shall be allowed except insofar as they are of an unreasonable amount of have been unreasonably incurred and any doubts which the Greffier may have as to whether the costs were reasonably incurred or were reasonable in amount shall be resolved in favour of the receiving party.

As the label suggests, the typical basis is the standard basis, under which the Greffier resolves all doubts as to whether costs were reasonably incurred in favour of the paying party. The indemnity basis is reserved for more exceptional cases as it is inherently onerous on the paying party, with all doubts as to whether costs were reasonably incurred are resolved in favour of the receiving party.

So what has to happen for the Court to consider making an indemnity costs order? In the recent Court of Appeal case of P-S v C [2010] JCA 225, the Court stated:

“The question will always be – is there something in the conduct of the action by one of the parties or the circumstances of the case which takes the case out of the norm in a way which justifies an order for indemnity costs, recognising that there will usually be some degree of unreasonableness. We do not consider that there is a need for the claiming party to show a moral lack of probity of conduct deserving of moral condemnation, or malicious of vexatious conduct.”

In the present case the Royal Court noted that further to the decision of P-S v C, there will usually be a degree of unreasonableness in any litigation, but here the trustee’s degree of unreasonableness was high, in that it was conduct which no other reasonable trustee would have embarked upon. The threshold the representors had to over come to succeed against the trustee meant that no further unreasonableness was required by the Court before making an indemnity costs order against the trustee.

The decision of Royal Court gives a strong indication of the Court’s approach to costs awards where a trustee is found to have fallen short of the ‘no rationale trustee’ test. It is therefore recommended that specialist legal advice is sought by trustees at all material times to ensure they are equipped with the necessary information to assist with arriving at a reasonable decision.