Mccallum Jnr v Mccallum and Others as Trustees of The Mccallum Family Trust

JurisdictionNew Zealand
CourtCourt of Appeal
JudgeKós P
Judgment Date08 June 2021
Neutral Citation[2021] NZCA 237
Docket NumberCA294/2020

[2021] NZCA 237

IN THE COURT OF APPEAL OF NEW ZEALAND

I TE KŌTI PĪRA O AOTEAROA

Court:

Kós P, Gilbert and Goddard JJ

CA294/2020

Between
William Fraser Mccallum Jnr
Appellant
and
Carrick Robert Zachary Mccallum, Callum Fraser Mccallum and Mccallum Independent Trustees Limited as Trustees of The Mccallum Family Trust
First Respondent
Carrick Robert Zachary Mccallum and Callum Fraser Mccallum as Executors of The Estate of William Fraser Mccallum Snr
Second Respondent
Fiona Catherine Jane Mccallum by Her Litigation Guardian Martha Selwyn
Third Respondent
Counsel:

D A T Chambers QC and J M McGuigan for Appellant

A S Butler and A M Cameron for First and Second Respondents

S L Robertson QC for Third Respondent

Equity, Trusts — appeal against a High Court decision which made partial Beddoe orders in favour of the respondent trustees — principles governing trustee duties, trustee costs and Beddoe applications

The issues were: whether the Beddoe orders should be abolished, being contrary to public policy; whether the making of the orders was in breach of natural justice and whether in the context of hostile litigation the orders should not have been made.

The Court held that Beddoe orders may be sought to confirm pre-emptively the propriety of trustees bringing or defending proceedings, and to confirm the trustees entitlement to indemnity for costs to be paid out of the trust's funds. Whether a Beddoe application was granted must be assessed against what was in the trust's best interests. Beddoe applications would seldom be granted where litigation was hostile.

The Beddoe order justification had a long and secure lineage and should be retained in New Zealand. The Beddoe orders made had not breached natural justice. The procedure followed was one which all counsel had acceded in advance. It was in the best interests of the beneficiaries of the New Trust that the second cause of action (a novel cause of action alleging B owed legal and fiduciary duties to W) be defended because the effect of the claim, if successful, would be to diminish the assets of the Trust. The indemnity could only extend to reasonable and proper costs attributable to the Trust's defence. The same reasons applied in respect of the third (that the assets of the Old Trust were invalidly resettled on the New Trust) and eighth (the grant of probate should be recalled and B's will be declared invalid on the basis that it was procured by undue influence by R and/or C) causes of action.

However, Beddoe orders should not have been granted on the fourth cause of action which was brought against R and C in their personal capacities (that R and C knowingly received trust and estate assets for no or inadequate consideration). Beddoe orders should also not have been granted on the seventh cause of action, which seeks the removal of the respondents as executors of Bill Snr's estate, and trustees of both Trusts. A trustee challenged on that basis could not expect a pre-emptive costs indemnity via a Beddoe order.

The appeal was allowed in part. Two of the four limited orders made, but not the more extensive order. Parties to a Beddoe application were entitled to be indemnified as to their fair and reasonable legal costs out of the assets of the trust.

  • A The applications to adduce fresh evidence are granted to the extent identified at [26] of this judgment.

  • B The appeal is allowed to the extent identified in [68] and [69] of this judgment.

  • C No order is made for costs.

JUDGMENT OF THE COURT
REASONS OF THE COURT

(Given by Kós P)

TABLE OF CONTENTS

Para No

Introduction

[1]

Background

[5]

Trusts and transfers

[6]

Litigation

[15]

Judgment appealed

[20]

Appeal

[23]

Trustee duties, trustee costs, and Beddoe applications

[27]

Trustee duties

[28]

Trustee costs

[29]

Beddoe applications

[37]

Should Beddoe orders be abolished in New Zealand?

[46]

Should Beddoe orders have been made here?

[52]

Breach of natural justice

[53]

“Hostile litigation” —— submissions

[56]

“Hostile litigation” —— discussion

[59]

Costs

[71]

Result

[72]

Introduction
1

“Beddoe orders” are directions given by a court approving trustees bringing or defending proceedings at the cost of the trust. 1 With a Beddoe order in place, trustees

may pursue or defend claims with the confidence that they will not be liable personally for costs reasonably incurred. Without such an order, they proceed at risk
2

These orders are supposed to be fast and inexpensive. The orders sought in this case have been fought tooth and nail for two years. So, neither fast nor inexpensive.

3

Beddoe orders will only be made where necessary and in the best interests of the trust (as opposed to the trustees). And they will seldom be appropriate where the litigation is “hostile”, that is, alleging wrongdoing by the trustees.

4

In this case, partial Beddoe orders were made by Gwyn J. 2 This appeal challenges the making of these partial orders.

Background
5

The McCallum family moved from Scotland to South Auckland in the 1860s. There they acquired land: the Pakihi and Karamurau Islands off the Clevedon coast, and an estate at Wairoa Bay, Clevedon, known as Lismore. There they built a substantial homestead.

Trusts and transfers
6

In 1986 Bill Snr (1936–2017) settled the W F McCallum Trust (Old Trust). The beneficiaries of that trust were his wife, Heather; children, William Jnr and Fiona; any grandchildren; any trust or superannuation scheme for the benefit of the aforementioned persons; and any charitable trust. The trustees were Bill Snr; his brother, Robert; and his son, William Jnr.

7

At that stage Fiona was 25 years of age, and William Jnr was 24. They are now 60 and 59 years of age respectively. Neither has children. Fiona has been intellectually disabled for most of her life, and suffered a stroke three years ago. William Jnr appears to have capacity, but suffers from his own developmental difficulties. He is described as vulnerable. In 2016 he was removed as a trustee of

the Old Trust because of his unwillingness to engage with the other trustees. 3 Woodhouse J held that he was “unfit to continue to act as a trustee”. 4 He also said that: 5

The evidence establishes that William junior is not competent to make sensible decisions relating to management of the trust assets, that he is not able to distinguish between his duties as a trustee and his personal interests, and that he is either unwilling or unable to participate in the necessary decision making of the trustees.

8

In 2010 Bill Snr was diagnosed with prostate cancer. By 2016 that condition was irreversible and hospice care was needed. Heather (then aged 83 years) also had serious health issues. Jumping ahead, Bill Snr died in January 2017, and Heather in August 2017.

9

Beginning in August 2016, a series of transactions occurred involving both the Old Trust and the McCallum Family Trust (New Trust), and Bill Snr's separate property. The exact details will concern the Judge who decides the substantive proceedings in due course. The detail need not concern us here, dealing as we are separately with a Beddoe order application. The key participants in those transactions were three: Bill Snr, his brother Robert, and Bill Snr's nephew, Callum (son of his late brother, John).

10

In sum, however, there was an exchange of assets between Bill Snr and the trustees of the Old Trust, and a transfer of assets from Bill Snr to Robert, Callum's trust, 6 and the New Trust. We need only summarise the four organising transactions.

11

First, in August 2016 Bill Snr settled the New Trust. The trustees were Bill Snr, Robert and Callum. The discretionary beneficiaries of the New Trust were Bill Snr, Heather, Fiona, William Jnr, any children of William Jnr and Fiona, and any trust for the benefit of the discretionary beneficiaries. The final beneficiaries of the New Trust are any children of William Jnr and Fiona, any charitable trusts, Bill Snr's

grand-nephews and grand-nieces (some of whom are Callum's children), and any trust for the benefit of the final beneficiaries. 7
12

Secondly, Bill Snr made a will in November 2016 in which he gave his personal domestic assets to Heather, forgave his debt to the New Trust, and gifted the residue of his estate to the trustees of the New Trust. One of the assets falling into that residue was a debt owed by the Old Trust.

13

Thirdly, in the same month Bill Snr also gifted a number of assets to the New Trust, including shares in two family companies, his half share in the family home, and the yacht Thistle.

14

Fourthly, and after Bill Snr's death, there was a resettlement of the remaining assets of the Old Trust on to the New Trust. That occurred in November 2017.

Litigation
15

Heather's estate comprises a half share in the family home and about $1 million held in bank accounts. Before her death she had brought proceedings against Bill Snr's estate under the Property (Relationships) Act 1976. Her executor has continued those proceedings. We can set them to one side for present purposes.

16

More relevantly, the substantive proceedings (being CIV-2019-404-00372) underlying the Beddoe application were brought in March 2019. William Jnr is plaintiff, later joined in that capacity by his sister Fiona through her litigation guardian. The defendants are Robert and Callum in three capacities: (1) as executors and trustees of the estate of Bill Snr; (2) as trustees of the New Trust; and (3) personally.

17

The statement of claim (at least at the time Gwyn J heard the Beddoe application) alleges: 8

  • (a) First cause of action (against the defendants in their capacities as executors of Bill Snr's estate): that Bill Snr breached his moral duty in terms of the Family Protection Act 1955 by not making adequate provision for...

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