Powell v Powell
| Jurisdiction | New Zealand |
| Judge | Dunningham J |
| Judgment Date | 20 August 2015 |
| Neutral Citation | [2015] NZHC 1984 |
| Docket Number | CIV-2013-409-001371 |
| Court | High Court |
| Date | 20 August 2015 |
and
CIV-2013-409-001371
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
Claims by trustees that they were entitled to full indemnity from a trust for legal costs in relation to the plaintiff's application to have himself and the defendant removed as trustees — the interested party (a beneficiary) sought either full indemnity or alternatively costs on a 2B basis — application was brought because the relationship between the trustees had broken down irretrievably — proceedings had resulted in two hearing in the High Court hearings and two appeals — the defendant trustee was successful in his opposition to the application to remove him — whether the parties had acted reasonably and in the interests of the trust or for their own benefit — whether the actions of any of the parties had contributed to the costs — whether the size of the trust fund was relevant to indemnification — whether it had been necessary for the interested party to take an active role in the proceedings.
J V Ormsby, C L Webber and J P Bell-Connell for Plaintiff
S M Grieve and S A Woods for Defendant
J Moss for Interested Party
JUDGMENT OF Dunningham J
This is a dispute over how litigation costs should be funded in proceedings under the Trustee Act 1956 where Mr John Powell (John), a trustee of a Trust known as the Daniel Powell Family Trust (the DP Trust), applied to have himself and his son Daniel Powell (Daniel), removed as trustees of that Trust.
In my decision of 14 March 2014, I held it was appropriate that John be removed as a trustee, but that Daniel remain as a trustee, as I was satisfied that, under the trusteeship of Daniel and an independent trustee, the DP Trust would be properly administered for the benefit of the beneficiaries (the first High Court decision). 1
That decision was appealed to the Court of Appeal (the first Appeal), and referred back to this Court, by consent, to consider the consequences of s 48 of the Trustee Act 1956 on my decision. In a decision dated 2 September 2014, I held that, notwithstanding the provisions of s 48, my earlier decision was unchanged (the second High Court decision). 2 The substantive appeal was then heard and, in a decision dated 24 April 2015, John's appeal was dismissed (the main appeal). 3
The Court of Appeal made decisions as to costs payable as between the parties, holding, after the first appeal, that costs should lie where they fall and, after the main appeal, that John was to pay Daniel's costs, on a band A basis.
In the High Court decisions, I reserved any issues of costs to be addressed by exchange of memoranda. The memoranda which have now been filed do not seek inter partes costs. Rather, they seek the Court's determination as to whether the costs incurred by John, in bringing these proceedings, and of Daniel's sister, Charlotte Gavin (Charlotte), in participating as an interested party, should be reimbursed in full from the DP Trust.
Reimbursement is sought by reference to the principles in Re Buckton, 4 saying they are costs incurred when a claim is made by a trustee relating to difficulties in administration of the Trust, and where the litigation expenses were reasonably incurred. 5
Daniel claims that he is entitled to full indemnity from the Trust for his legal costs in relation to the proceeding. He, in his capacity as trustee, successfully defended the proceeding brought by John, both at first instance in the High Court, and in the main appeal. He claims total costs of approximately $282,590.46, of
No opposition is raised to Daniel's claim.
John claims that he, too, is entitled to an indemnification from the DP Trust or the expenses he incurred in pursuing the litigation in the High Court and in the first appeal. While he accepts that his position was not ultimately upheld by the Court, it was nevertheless reasonable for him to take the proceedings because:
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(a) he had acted because the situation needed resolution and it was not tenable for Daniel and him to continue as trustees together;
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(b) he was not acting for his self benefit in seeking to have Daniel removed as a trustee. Instead, he genuinely considered he was acting in the best interests of the beneficiaries in seeking to have the deadlock resolved;
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(c) he was clear throughout that he would not continue in the office of trustee once a replacement trustee was appointed, even though he also considered that Daniel should not continue as trustee; and
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(d) while Daniel was not removed as a trustee, John's application, and its prosecution to a hearing, have helped ensure that the affairs of the DP Trust are conducted appropriately moving forward.
Daniel accepts that some of the costs associated with Court intervention may have been necessary to resolve the deadlock. However, looked at objectively, he says the major motivation for John in bringing the proceedings was his animosity towards Daniel. This meant there were matters dealt with which were not strictly relevant to the issues at hand, or which could have been readily resolved, short of litigation.
For these reasons, Daniel argues it would be inappropriate to allow John to be indemnified for all his legal costs from the DP Trust, but an award of 2B costs in relation to the first High Court hearing is appropriate.
Finally, Charlotte, as an interested party and beneficiary of the DP Trust, seeks either full indemnity from the DP Trust for the costs she incurred in participating in the two High Court hearings in this proceeding, or alternatively, she seeks costs on a 2B basis.
In support of this argument she says she made an “appropriate contribution … to the proper administration of the estate” by her intervention. 6 She argues that she was able to promote an independent position on behalf of her, and her children's, interests as discretionary beneficiaries, which John was not in a position to properly raise. She chose not to participate in the appeals, and, in the context of this litigation, her costs of $34,164.38 were modest given the extent of her involvement and assistance to the Court.
If indemnity costs were not thought appropriate then, at the very least, she should receive 2B costs. This would achieve consistency with Daniel's acceptance that John should be indemnified to the extent of 2B costs for his participation in the main High Court proceeding.
Daniel, however, maintains that the manner in which Charlotte chose to be involved was not necessary to the resolution of the issues and did not make an appropriate contribution to the proper administration of the Trust, so she should not be indemnified from the DP Trust.
I accept that the general rule is that a trustee is entitled to be reimbursed for expenses incurred in carrying out the Trust. 7 Such expenses can include litigation expenses where the expenses are properly incurred by a trustee acting in that capacity.
Whether the costs have been properly incurred is determined by the following factors: 8
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(a) the cost arose from an act falling within the scope of the trusteeship;
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(b) it was a cost incurred because the trustees' obligations required it; and
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(c) in all the circumstances the expense incurred was reasonable.
Where the dispute is, in reality, “adverse” or “hostile” litigation then, instead, the presumption is that the usual rule applies and the unsuccessful party pays the costs of the successful party. 9 Thus, while an unsuccessful trustee is not necessarily barred from seeking indemnity from the Trust, if he or she has acted unreasonably, or in substance for his or her own benefit, then he or she will not be entitled to indemnity. 10 In a hostile trust dispute it will rarely be the case that an unsuccessful trustee will be found to have acted reasonably, if he or she loses the dispute. For example, in Carmine v Ritchie, where there was no proper reason for the trustee to have taken the action or adopted the position that he did, the trustee was obliged to carry his own costs. 11
The position of a beneficiary who becomes involved in proceedings over the administration of a trust is not dissimilar. It was said in Re Buckton, that where trustees: 12
… ask to have some question determined which has arisen in the administration of the trusts … I regard the costs of all parties as necessarily incurred for the benefit of the estate, and direct them to be taxed as between solicitor and client and paid out of the estate.
(emphasis added)
However, again, where a beneficiary's involvement is not considered to be for the benefit of the estate, then the position will be different. As was said in National Westminster Bank v Lucas: 13 Even in the context of an application which is necessary for the proper administration of the estate, the Court retains the power to disallow particular items of cost where the party in question has, for example, launched an unjustified personal attack on one of the other parties or has raised issues which makes its conduct of the litigation deserving of moral condemnation … The Court has in such cases to distinguish between genuine points pursued in argument which are germane to the issue under consideration but which ultimately fail and points taken or applications made for no good or proper reason or which are motivated out of animosity towards the other parties.
However, opposition by a beneficiary to a proposed...
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