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Beware! Charge Unreasonable Fees Anburn!

In the case of Landau –v– Anburn Trustees and others [2007] the Royal Court exercised its supervisory jurisdiction to further clarify matters in relation to trustee remuneration and the trustee’s right to indemnity in respect of legal expenses.

The case involved a revocable trust of which Anburn was appointed trustee in 1996 and which was transferred to another service provider in 2003 after Anburn ceased to be licensed to carry on trust company business.Unfortunately through an administrative oversight the transfer between trustees was not properly executed and consequently the settlor revoked the trust.The questions posed before the Court were (a) is Anburn entitled to remuneration although it was not authorised to act as a trustee during the relevant period? (b) should Anburn be indemnified for legal fees? and (c) should Anburn’s claimed remuneration be reduced for being unreasonably incurred and excessive.

The Court held that, despite the trust deed providing that an unlicensed trustee should not be remunerated, its supervisory jurisdiction allows it to order remuneration and to increase or vary any amount of remuneration.Whilst the Court noted that this power should be exercised rarely, the Court ordered on the particular facts of this case that Anburn be remunerated despite its lack of authorisation because inter alia the settlor had clearly intended to have a professional trustee and failure to transfer the trusteeship did not prevent the trustee from charging for its services.

With regard to indemnification of costs, the Court cited and confirmed previous rulings that a trustee is entitled to be indemnified out of the trust fund for all expenses reasonably incurred (including legal fees), is not expected to personally fund administration expenses (including legal fees) and that no question of taxation of costs arose in relation to a trustee’s non-adversarial costs, when acting reasonably.

The Court confirmed that its supervisory jurisdiction allowed it to consider the reasonableness of both trustee and legal fees by way of an ‘assessment’ and ordered such an assessment to be carried out by the Judicial Greffier for this case.However, the Greffier would not be acting as taxing officer (and so taxation scales would be irrelevant) or be concerned to establish that the fees were incurred at the right level, but would be concentrating on whether or not the amount charged by the trustee and the instructed law firm were reasonable.

The Court set down what the Judicial Greffier should bear in mind when conducting an assessment including:

whether a particular matter is one upon which it was reasonable to spend time andwhether or not the degree of time spent on a particular matter was reasonable; and
the process of assessment should be exercised against the background of the general rule that a trustee acting reasonably is entitled to a full indemnity out of the trust fund.

In respect of legal fees the Court noted that different lawyers take different approaches to reach the same end, all of which are reasonable, but legal fees should only be disallowed if they fall outside the band of reasonable actions. Therefore any legal fees deemed unreasonable by an assessment will be disallowed and will be unrecoverable from both the trust fund and the trustee personally. This, of course, means the trustee is under a clear duty, taking into account the size of the trust fund, to consider whether the lawyer instructed is appropriate for the matter at hand.If legal fees are adjudged to be unreasonable by the Court then the trustee is unlikely to have to pay out of their own pocket such fees because legal fees should always be reasonable in the first instance.

This article is for information only and not by way of legal advice. Professional legal advice should always be taken. Should you have any queries and wish to have a confidential conversation with regard to any concern then please do not hesitate to call or email.

Advocate Richard Pirie – 01534 601755 Email
David Dorgan – 01534 601757 Email
Carl O’Shea - 01534 601750 Email