Commentary on Sections Part 1 – Trusts Expenses
125.Section 70 of the Act implements recommendation 77. As a general rule, trustees are not to be personally liable for litigation expenses involving the trust, whether as a pursuer or defender (subsection (1)). (This provision deals with civil liability only; if a trustee is found criminally liable and is required to make a contribution to prosecution costs, these are to be paid out of the trustee’s personal patrimony.) This general rule is subject to a number of exceptions.
126.Subsection (2) provides that a trustee may be personally liable (whether wholly or in part) for litigation to which the trust is a party in certain circumstances. These include where the litigation is unnecessary in the court’s view (paragraph (a) and where the trust property is (or is likely to be) insufficient to meet an award of expenses (paragraph (g)). The court’s discretion here is such that it may find some or all of the trustees personally liable according to the circumstances of the case.
127.Where a trustee is found personally liable under subsection (2)(a) to (f), the court has discretion to allow relief against the trust property where it considers it appropriate to do so, and to the extent to which it considers it appropriate (subsection (3)).
128.Where a trust is party to litigation which is in progress, by virtue of subsection (4) a party may apply to the court (which, under section 81(1) and (3), means the Court of Session or the appropriate sheriff court) for a determination about the personal liability for certain expenses of the trustees, including those that have not yet been incurred. This allows trustees and parties taking or defending proceedings involving a trust to have more certainty about the likely implications of the action. An example might be a situation in which trustees are pursuing an investment advisor whose actions, they allege, have depleted the trust property down to a negligible level. In such a case, where it is highly likely that any expenses will exceed the value of the trust property, the trustees may raise an action against the advisor in negligence or fraud and then immediately apply to the court for personal relief from past and future expenses. Equally, if a trust with no or limited funds is used simply as a vehicle for litigation, the court may determine that the trustees will be responsible for any expenses from their personal property.
129.This provision applies irrespective of when the trust was created (subsection (5)).
130.Section 71 of the Act implements recommendation 78 and re-enacts section 34 of the 1921 Act. It permits the court (which, under section 81(1) and (3), means either the Court of Session or the appropriate sheriff court) to determine all questions of expenses relating to applications under the Act and, where it considers it reasonable, to direct that certain expenses are to be met out of trust property.