Glasgow Harley Trustee Ltd v Mclaughlin

• Jurisdiction: New Zealand
• Judge: Thomas J
• Judgment Date: 20 December 2019
• Neutral Citation: [2019] NZHC 3385
• Court: High Court
• Docket Number: CIV-2017-442-78
• Date: 20 December 2019

UNDER the Trustee Act 1956

IN THE MATTER of the Ashley Trust

Between

Glasgow Harley Trustee Limited and John Mclaughlin

Applicants

and

Mark James Mclaughlin and Andrew Ashley Mclaughlin

Respondents

[2019] NZHC 3385

Thomas J

CIV-2017-442-78

IN THE HIGH COURT OF NEW ZEALAND

NELSON REGISTRY

I TE KŌTI MATUA O AOTEAROA

WHAKATŪ ROHE

Trustees — indemnification for costs in Beddoe application — implied indemnity of trustees — Trustee Act 1956

Counsel:

W J Palmer and O D Peers for Applicants

J W A Johnson and G J C Carter for Respondents

J Little for Respondents' Children (Interested Parties)

J M McGuigan for Brett McLaughlin (Interested Party)

JUDGMENT OF Thomas J

(BEDDOE APPLICATION COSTS)

1 The applicants (Trustees), respondents (Beneficiaries), Brett McLaughlin and the Beneficiaries' children (Interested Parties) all seek to be indemnified by the Ashley Trust (the Trust) for their costs associated with my decision in McLaughlin v McLaughlin (the Beddoe decision). 1 This matter has been made more complex by both the Trustees and Beneficiaries holding themselves out as the successful parties in

the Beddoe decision, and by the task of apportioning costs between the Beddoe application and the substantive proceedings. Lengthy and numerous memoranda have been filed on behalf of the main protagonists, the Trustees and Beneficiaries

2 Although Mark McLaughlin and Andrew McLaughlin are described as the Beneficiaries, they are not the only beneficiaries of the Trust. The settlors of the Trust, Jim and Edna McLaughlin, had four sons, one of whom, John, is a Trustee. All four sons are discretionary beneficiaries as well as final beneficiaries of the Trust. The fourth son, Brett, is subject to particular provisions under the Trust. The children of John, Mark and Andrew are all discretionary beneficiaries of the Trust. 2 John's children did not seek to be heard in respect of the Beddoe application. Mark and Andrew's children opposed the application, as did Brett McLaughlin.

3 The substantive proceedings involve:

• (a) An action for the removal and replacement of the Trustees with two new, independent and professional trustees (unspecified). The basis for the claim is that the Trustees have misconducted themselves in the administration of the Trust.

• (b) An action for directions as to the management and distribution of the Trust property. 3 The sole asset of the Trust is land at Stoke, Nelson (the Ashley Trust Land). The following orders are sought:

  • (a) A direction for the Trustees to stop work on the Proposed Homestead Development and only do work necessary to enable the land to be sold with consents for subdivision.

  • (b) A direction that the Trust Property be sold after the relevant consents are obtained (if they have not been already) to maximise its value and provided that Edna's wish to remain in her home is respected.

  • (c) A direction for the proceeds of sale, except for any amount required for the continued support of Edna, to be distributed to the sons.

  The orders are sought on the basis of the Trustees' alleged breach of trust in work undertaken to date and claims that the future work to the Ashley Trust Land proposed by the Trustees will not be for the benefit of the four brothers as final beneficiaries.

• (c) Three causes of action alleging breach of trust and fiduciary duty against the Trustees and Mr Nelson alleging, amongst other matters, failure to meet the standards expected of a reasonable and competent trustee and acting in a position of conflict and/or hostility to the Beneficiaries. Damages are sought as well as an account of profits in respect of John McLaughlin and Mr Nelson. It is claimed that John McLaughlin breached his fiduciary duties by:

  • (a) acting as Trustee when his position as Trustee conflicts with his personal interest; and

  • (b) profiting from decisions he has made as a Trustee.

    Particulars

  • (c) John is directly employed and remunerated by the Trust as a Project Manager for the Development work.

  • (d) John received a fee for being a guarantor of the Trust's obligations to the Bank.

  • (e) The Trust has purchased a significant amount of machinery that has been used by John for his own purposes.

  • (f) John owns adjoining land and has profited by virtue of the benefits of the subdivision works undertaken and paid for by the Trust, including resource consents and infrastructure developments, which have increased the value of his own land.

    It is claimed Mr Nelson breached his fiduciary duties by:

    • (a) acting as Trustee when his position as Trustee conflicts with his personal interest; and

    • (b) profiting from decisions he has made as Trustee.

      Particulars

    • (c) The Second Defendant is a partner in the law firm Glasgow Harley.

    • (d) Glasgow Harley has received fees from the Trust for the Ching's block subdivision and will receive fees from the Proposed Homestead Development.

Law

4 There is no specific legislative procedure for Beddoe applications in New Zealand, but here the Beddoe application was brought as an application for directions pursuant to s 66 of the Trustee Act 1956 (the Act). Section 71 of the Act, therefore applies. That provision provides:

The Court may order the costs and expenses of and incidental to any application for any order under this Act, or of and incidental to any such order, or any conveyance or assignment in pursuance thereof, to be raised and paid out of the property in respect whereof the same is made, or out of the income thereof, or to be borne and paid in such manner and by such persons as to the Court may seem just.

5 This provision is broader in scope than the High Court Rules. 4 The phrase “the costs and expenses of and incidental to any application” in s 71 allows costs that were incurred before the application was made but “necessarily incidental” to the application. 5

6 Section 38 of the Act contains an implied indemnity for trustees in respect of all expenses reasonably incurred in or about the execution of the trust or powers. An unsuccessful trustee may be entitled to claim indemnity from a trust fund if the trustee is found to have acted reasonably in an action taken in the proceedings. 6 This is, of course, not the case where the expenses arise out of that trustees' own misconduct or breach of trust. A trustee's costs must not be excessive or unreasonable in order to have been properly incurred: 7

[31] The limitation on a trustee's right of indemnity is, however, that the expenses are “properly incurred”. The duty to seek advice does not extend, for instance, to pose questions the answers to which are perfectly obvious. Nor where no real and substantial dispute exists. Unnecessary proceedings, or the taking of unnecessary procedural steps needlessly increasing costs, may mitigate (or eliminate) the right of indemnity. Again, excessive costs lie

beyond the scope of indemnity. Every dollar paid in trustees' expenses is a dollar denied to beneficiaries of the Trust.

7 Furthermore, in the present case, the Trust Deed contains a trustee indemnity. 8

8 The learned authors of the English text Lewin on Trusts say this in relation to costs incurred by trustees and beneficiaries in Beddoe applications: 9

The costs of the parties to a Beddoe application, like the costs of other applications by the trustees to the court for directions, 10 will normally, in the absence of improper conduct, be paid from the trust fund. 11 A beneficiary who makes a bona fide claim against the trustees in third party proceedings should not, it is thought, be deprived of costs (nor be ordered to pay costs) of the Beddoe application, by reason only that he has commenced the claim and therefore necessitated the Beddoe application. Such a beneficiary might, however, become at risk as to costs if he adopts an excessive role in the Beddoe application 12 and seeks to use it as a forum for promoting his claim in the third party proceedings. Any party to a Beddoe application who intends to apply for an order for payment of his costs from the trust fund must give notice of that intention to the other parties. 13

9 The Rules in England and Wales contain specific provisions for costs in trust and estate litigation. 14 The position is different in New Zealand, although the Court has a wide discretion under the Act, as outlined above.

10 The questions this Court must answer to decide whether the Trustees, Beneficiaries and Interested Parties should be indemnified by the Trust's funds are to what extent:

• (a) they acted reasonably by making or opposing the Beddoe application; and

• (b) their costs are reasonable.

Reasonable actions

Trustees

11 The Trustees consider themselves the successful party. They say, although their application was successful on one only of the five causes of action, it was the most important one. They say they were driven to make the Beddoe application because of their concern the Beneficiaries were trying to “usurp the commercial decisions of the Trustees and prevent future subdivision work” and their success related to the cause of action most relevant to this concern. They say the unsuccessful causes of action were underpinned by substantially similar factual and legal allegations. They also note the third to fifth causes of action were not the focus of the application.

12 The Beneficiaries contend the Trustees' indemnity from the Trust should be limited to 50 per cent of their costs (the balance being payable by them personally) for a number of reasons. First, the Beddoe application failed on all but one ground. Secondly, the evidence filed was excessive — amounting to the airing of the full substantive case before the Court, where the majority was of peripheral relevance only to the Court's view on the merits of defending the proceedings. Thirdly, the substantive proceedings clearly involved “hostile” elements making a Beddoe application inappropriate and was the...