Alexander v Alexander
[2021] NZHC 3056
•11 November 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-002433
[2021] NZHC 3056
UNDER Part 18 of the High Court Rules 2016,
Trustee Act 1956 and the inherent jurisdiction of the Court
IN THE MATTER OF
an application for orders under the Trustee Act 1956 and other equitable relief under Part 18 of the High Court Rules
BETWEEN
MAREE THERESE ALEXANDER
Plaintiff
AND
KAREN MARY ALEXANDER,
BENJAMIN DOMINIC ALEXANDER- WITTY and CHRISTOPHER ASHTON
ALEXANDER-WITTY as trustees of the S E BROWN FAMILY TRUST
Defendants
Hearing: 26 October 2021 Appearances:
J J Pietras for Plaintiff
V Bruton QC and R Dellow for Defendants
Judgment:
11 November 2021
JUDGMENT OF WYLIE J
This judgment was delivered by Justice Wylie On 11 November 2021 at 3.00 pm
Pursuant to r 11.5 of the High Court Rules Registrar/Deputy Registrar
Date:…………………………
Solicitors/counsel:
Thomas Dewar Sziranyi Letts, Lower Hutt Thorn Law/V Bruton QC, Auckland
Introduction
[1] The plaintiff, Maree Alexander (“Maree”), and the first named defendant, Karen Alexander (“Karen”), are sisters. Since their late mother, Sylvia Brown (“Sylvia”), passed away on 7 June 2018, they have been in dispute, initially about her estate and, more recently, about the S E Brown Family Trust (the “Trust”).
[2] The second and third named defendants, Christopher Alexander-Witty (“Christopher”) and Benjamin Alexander-Witty (“Benjamin”), are Karen’s children (and the grandchildren of Sylvia). They, together with Karen, are the current trustees of the Trust.
[3] These proceedings concern the Trust. When the matter came to hearing, Maree and Karen largely agreed on the orders that were necessary. They disagreed however on who should meet the costs incurred by Karen, Christopher and Benjamin in dealing with Maree’s claims in relation to the Trust. To put this dispute in context, it is necessary to set out the background.
Factual background
[4] Both Maree and Karen were born to Sylvia in the early 1950s. Karen is the older daughter by two years. Sylvia and her husband separated shortly before Maree was born and Sylvia largely brought up the girls by herself. It appears that the family initially enjoyed a reasonably close relationship, although this deteriorated over the years.
[5] Maree married and, in or about 1990, Sylvia lent her various sums of money. In particular:
(a)when Maree was separating from her husband, Sylvia lent her sufficient money to assist her in buying out her husband’s share of the family home; and
(b)when Maree’s car was stolen, Sylvia lent her money to assist her in buying a new car.
[6] At some stage, likely in or around 2004, Sylvia and Maree fell out. Thereafter, it seems that they were largely estranged, although there are competing assertions in this regard.
[7] The Trust was settled by Sylvia on 5 September 2005. At the time she was living in Porirua. A solicitor, Eugene Collins, acted on her behalf and he drew up the trust deed. Relevantly, it provided as follows:
(a)the initial trustees were Sylvia and CMS Trustees Ltd (a company associated with Mr Collins’ legal firm);
(b)the trust was settled “for the benefit of the Alexander family”;
(c)the trust was a discretionary trust and the named beneficiaries were:
(i)Maree and Karen or “any one or more of them to the exclusion of any of the others”;
(ii)Sylvia;
(iii)the children or any remoter issue of Maree and/or Karen born before the date of distribution;
(iv)the grandchildren or any remoter issue of Maree and/or Karen born by the date of distribution;
(d)the date of distribution was 31 December 2079. There was no power in the trust deed permitting the trustees to bring this date forward;
(e)the trustees were given a discretion at any time before the date of distribution to pay or apply both the income of the trust fund and the capital, for or towards the maintenance, education, advancement, wellbeing or benefit any of the beneficiaries (to the exclusion of any one or more of the beneficiaries);
(f)from and after the date of distribution, the trustees were to stand possessed of the trust fund or the balance remaining in their hands upon trust to distribute to such of the beneficiaries who were living at the date of distribution and, if more than one, as tenants in common in equal shares. There was provision for substitution of issue;
(g)the power of appointment of new trustees was vested in Sylvia during her lifetime and, after her death, to those persons who she nominated in her will to hold the power of appointment of new trustees;
(h)any person or persons having power to appoint new trustees also had the power to appoint any additional trustee and to appoint himself, herself or themselves as trustees; and
(i)the trustees had the power to make decisions in their own favour.
[8] Sylvia settled the sum of $10 on the trustees and later transferred her property in Porirua to them.
[9] On 13 October 2006, the trustees sold the Porirua property for $307,000. The sale proceeds were used to purchase an occupation licence at a retirement village in Auckland and in or around October 2006, Sylvia moved to Auckland. Karen was then living in Auckland. Maree remained in Porirua.
[10] On 28 August 2007, Sylvia prepared a memorandum of wishes for the guidance of the trustees. It recorded that it had no legal effect and was not intended in any way to fetter the discretionary powers vested in the trustees. Sylvia nevertheless recorded her wish that, after her death, the trustees should provide primarily for her children and grandchildren, and that, in making a distribution, they should give consideration to making the distribution as follows:
(a)50 per cent to Karen;
(b)15 per cent to Maree;
(c)12.5 per cent to Christopher;
(d)12.5 per cent to Benjamin;
(e)5 per cent to Charlotte Adams (Maree’s daughter and Sylvia’s granddaughter) when she reached 30 years of age; and
(f)5 per cent to Jessica Adams (now Dowdall) (also Maree’s daughter and Sylvia’s granddaughter) when she reached 30 years of age.
[11] On 12 August 2011, Sylvia executed a new will. She appointed the Public Trust as her executor and trustee and Karen and her then husband, Eric Witty (“Eric”) as advisory trustees. She made a number of specific bequests. She directed her trustees to repay a loan of $15,000 that Karen had made to her and she released one of the grandchildren from a debt owed to her. She also released the trustees of the Trust from any debts owed to her and she nominated Karen and Eric as the persons who were jointly to have the power to appoint the trustees of the Trust after her death. She expressly requested that they should appoint themselves as trustees. She directed her trustee to hold the residue of her estate as follows:
(a)a one half share for Karen (with provision for substitution of issue);
(b)a one fifth share for Eric;
(c)a one tenth share for Christopher;
(d)a one tenth share for Benjamin;
(e)a one twentieth share for Maree;
(f)a one fortieth share for Charlotte; and
(g)a one fortieth share for Jessica.
[12] When she signed her will, Sylvia completed a document headed “Will’s Experience Questionnaire Notes”. Under the heading “FPA note”, she stated as follows:
I wish to leave a greater share to Eric and Karen because of all they have done for me including preparing my house for sale, helping me move to Auckland, taking me up to Auckland, having me live with them, helping me to move to Belmont Retirement Village and helping me move to St Joseph’s. I am providing for Eric out of my estate as he has supported me very well, far in excess of what I would have expected from a son-in-law and I wish to repay him for this.
Maree’s share is smaller because I bought her a car and lent her various sums of money, including enough to enable her to buy out her husband’s share of the family home. A large part of the money was never paid back and I no longer have contact with Maree.
A statement to the same effect accompanied the will.
[13] On 15 September 2007, Sylvia amended the memorandum of wishes addressed to the trustees of the Trust. The suggested distribution of 15 per cent to Maree was crossed out and replaced with the following – “Eric Witty 12.5%”. The suggested distribution to Charlotte was increased from 5 per cent to 7.5 per cent.
[14] On 7 June 2018, Sylvia passed away. Eric died some five weeks later on 14 July 2018. Various steps were then taken:
(a)Karen took out probate of Sylvia’s will. The estate comprised approximately $34,000;
(b)Maree gave notice of her intention to file a claim under the Family Protection Act 1955;
(c)Karen was appointed the executor of Eric’s will; and
(d)Karen exercised the power of appointment contained in Sylvia’s will and appointed herself, Christopher and Benjamin, as trustees of the Trust.
[15] Maree’s family protection claim was resolved relatively quickly. Maree, Karen and the other beneficiaries of the estate entered into a deed of family arrangement dated 23 July 2019. Under the deed, Maree and Karen each took a 20 per cent share in the residue of Sylvia’s estate.
[16] Although Karen and Maree were able to agree on the distribution of Sylvia’s estate, they could not agree on how to deal with the Trust. As at April 2019, the Trust’s assets totalled approximately $230,000.
(a)Karen initially sought that Maree should agree not to make any claim against the Trust, as part of resolving the estate dispute;
(b)Maree was not prepared to agree to this; she considered that she should receive a distribution from the Trust in light of her personal circumstances;
(c)Karen considered that the trustees should distribute the Trust fund in accordance with Sylvia’s wishes; as a result, there would be no distribution to Maree but there would be a distribution to Charlotte and Jessica;
(d)Maree asked whether there was a letter recording Sylvia’s wishes and indicated that, from her perspective, the assertion that the trustees were proposing to distribute the Trust as indicated evinced a “significant degree of premeditation in the distribution of Trust property”;
(e)Maree also raised concerns as to whether or not Karen was able to discharge her duty to administer the Trust fairly and impartially in the circumstances;
(f)Maree repeatedly requested copies of the Trust documentation. Some of the documentation was provided; other documentation was not provided or was only provided belatedly.
[17] In March 2019, the trustees advanced $28,750 out of the Trust’s funds to Christopher and his partner. They signed an acknowledgement recording that the advance was interest free “until such time as the monies designated for Christopher [by Sylvia] in her Memorandum of Wishes … can be released to him”.
[18] In May 2019, Karen advised through her solicitors that an independent trustee was to be appointed once a suitable person or company had accepted the role. However, this did not occur. Karen and Christopher endeavoured to find an entity or person prepared to accept appointment as an independent trustee but were unable to do so.
[19] In February 2020, Maree advised that she was contemplating proceedings to compel the trustees to disclose the Trust documentation and to have Karen, Christopher and Benjamin removed as trustees and independent trustees appointed in their place. She also requested the trustees to give “fair and appropriate consideration to making a discretionary distribution of Trust property to her”. She asserted that she had faced considerable financial hardship and ill health over the years and that her financial position was precarious.
[20]In March 2020:
(a)Karen replied, advising that the trustees had employed a solicitor to act as an independent trustee. (In fact, this assertion was incorrect. Karen says that she misunderstood advice she received from a solicitor);
(b)Christopher advised Maree that the trustees had not made any decision to distribute the Trust and that it was not their immediate intention to do so;
(c)Maree again requested a copy of the memorandum of wishes prepared by Sylvia.
[21] A solicitor retained by the trustees – Brett Norris – sent a pro forma response to Maree’s request in April 2020. Maree, through her solicitor, expressed concern at
the delay and advised that if matters could not be progressed, she would likely commence proceedings. Mr Norris responded in early May 2020. He advised that he was seeking relevant documents from the Public Trust. In June 2020, Maree’s solicitor chased the matter up. Mr Norris responded in late June 2020, advising that he had received the information requested and that he was collating it. A substantive response was sent on 3 July 2020. It enclosed the memorandum of wishes, correspondence from the Public Trust and other relevant documentation. The letter recorded that the Trust funds consisted of term deposits in Kiwibank in the sum of approximately
$200,000. It also recorded as follows:
The trustees have considered the interest of all of the beneficiaries of the Trust and in particular the Memorandum of Wishes prepared by the trust’s solicitors
... The trustees have determined that it is the trustees obligations to follow the intent contained in the Memorandum of Wishes as it is a direction from the settlor as to what the settlor required at the time that she reviewed her position and her will in 2011. …
The trustees are mindful of their obligations to act fairly and impartially in their position as trustees of the trust. They have taken into consideration that your client had received a significant financial benefit from the appointor which has never been repaid.
…
In respect to the Memorandum of Wishes which provided a 12.5% entitlement to Eric Witty the trustees are giving consideration to this sum being distributed between the settlors nine (9) great grandchildren of whom eight (8) are the grandchildren of your client.
The letter went on to record that the trustees were taking legal and accountancy advice to wind up the Trust and distribute the Trust fund to the beneficiaries in accordance with Sylvia’s directions contained in the memorandum of wishes.
[22] In late June 2020, Karen engaged private investigators in Wellington and asked them to investigate Maree’s situation and some of the claims she had made.
[23] Maree’s solicitors responded to Mr Norris’s letter on 10 July 2020, acknowledging that the memorandum of wishes should not be disregarded by the trustees and accepting that it should be accorded proper consideration. They nevertheless submitted that proper consideration of the memorandum did not preclude
Maree from receiving a discretionary payment from the Trust. Again, proceedings were threatened.
[24] On 14 August 2020, Mr Norris replied to Maree’s solicitors, noting that Maree had not provided “any definitive information about [her] circumstances”. The letter recorded as follows:
If your client can provide evidence as to her challenging financial circumstances the trustees will give consideration to their position in respect to distribution in accordance with the requirements of the Trustee legislation.
[25] On 7 October 2020, Maree’s solicitors responded, advising that it was Maree’s position that the Trust should be wound up and distributed equally between her and Karen. Attached to the letter was a draft affidavit from Maree, outlining her position. In that draft affidavit, Maree asserted that she had maintained a relationship with Sylvia even after Sylvia had moved to Auckland. Maree also asserted that she had repaid Sylvia the monies that had been advanced to her.
[26] In November 2020, the trustees’ solicitors responded, advising that the draft affidavit contained, in the trustees’ view, a number of inaccuracies and asking Maree to provide an affidavit of her assets and liabilities, so that the trustees could give consideration to her circumstances.
[27] On 1 December 2020, Maree’s solicitors replied, advising that Maree would not be providing an affidavit of assets and liabilities to substantiate her position, and asserting that she had set out her financial situation in the draft affidavit provided.
[28] The proceedings were filed on 11 December 2020. Three causes of action were raised. First, it was asserted that the trustees had a fiduciary duty to provide Maree, as a beneficiary, with all Trust documents that were necessary so that she could scrutinise the administration of the Trust’s affairs. An order was sought requiring the trustees to do so. Secondly, it was asserted that the trustees had not acted impartially and an order was sought that any completed or anticipated distributions in accordance with the memorandum of wishes be set aside and that the trustees account for any benefits they had received from the Trust. Finally, an order was sought removing the trustees and appointing an independent trustee as the sole trustee of the Trust.
[29] All three causes of action were resisted by the trustees in the statement of defence filed on their behalf.
[30] Since the proceedings were filed, various open offers have been exchanged between the parties’ respective legal advisors.
(a)Maree’s solicitors advised that she was prepared to settle on the basis that the trustees made a full and final distribution of 35 per cent of the Trust funds to her, 35 per cent to Karen, 7.5 per cent to each of the grandchildren and that each party paid their own legal costs. In the alternative, it was proposed that trustees should step down and that an independent trustee should be appointed;
(b)Karen’s solicitors responded advising that the trustees proposed that 35 per cent should be paid to Maree and Jessica jointly, that 10 per cent should be paid to each of them Charlotte, Christopher and Benjamin, and that 35 per cent should be paid to Karen. They proposed that all beneficiaries should bear their own costs and that there should be no issue taken with the costs which had been charged to the Trust fund. It was asserted that there was no basis for Maree to unilaterally demand the appointment of independent trustees and that the trustees had, and were continuing to comply with their obligations in full. They advised that the trustees were intending to distribute the Trust in accordance with Sylvia’s memorandum of wishes, and that the appointment of an independent trustee was neither justified nor cost effective;
(c)Maree’s solicitors asserted that the trustees had no right to charge legal fees incurred by them to the Trust and that their clients’ claim was meritorious;
(d)a mediation was undertaken. Still no agreement could be reached;
(e)a judicial settlement conference was scheduled but had to be abandoned because of the Covid-19 lockdown.
The hearing/orders
[31] When the matter was called before me, Maree abandoned her first cause of action. She accepted that the trustees had ultimately provided her with all relevant documentation. As a result, the first cause of action was moot, except as to costs. She proposed however that, under ss 126 and 127 of the Trusts Act 2019, the Court should restrain the trustees from distributing the trust funds pursuant to Sylvia’s memorandum of wishes and itself decide how the funds ought to be distributed on the basis that the trustees had agreed to surrender their discretion to the Court. It was argued that 34 per cent of the Trust fund should be distributed to Maree, that the same percentage should be distributed to Karen, and that each of the four grandchildren should receive eight per cent. If the Court was unwilling to review the trustees’ actions, it was argued, in the alternative, that the Court should remove the trustees from office and appoint an independent trustee in their place.
[32] The trustees agreed that the matter should be resolved by either the Court stepping into the shoes of the trustees and distributing the Trust assets or alternatively by appointing a replacement professional trustee.
[33] In the course of discussions with Mr Pietras, for Maree, and Ms Bruton QC, for the trustees, it was accepted that the surviving beneficiaries of the Trust are:
(a)Maree;
(b)Karen;
(c)Maree’s children – Charlotte and Jessica;
(d)Charlotte’s six children;
(e)Jessica’s two children;
(f)Karen’s children – Christopher and Benjamin; and
(g)Christopher’s two children.
It was also accepted that Karen, Christopher, Benjamin, Jessica and Charlotte are not parties to the proceedings in their capacity as interested beneficiaries. Nor are their respective children. Some of those children are of age. Others are minors. None of them has been served. Nobody had been appointed to represent the interests of the minors. In these circumstances, the Court could not step into the shoes of the trustees and itself order the distribution of the Trust fund.
[34] Ms Bruton had set these various matters out in a memorandum to the Court dated 14 September 2021. Unfortunately, her suggestions were not adopted by Maree. It seems that the memorandum was not put before a Judge, perhaps because of the Covid-19 lockdown or perhaps because the memorandum did not seek any orders. No application was filed.
[35] Both parties did however agree that an independent trustee should be appointed. Maree had belatedly approached Perpetual Trust Ltd in Wellington.1 It had agreed to act as a replacement trustee of the Trust and its consent to appointment had been filed with the Court in early October 2021.
Costs
Costs incurred
[36]This leaves outstanding the issue of costs.
[37]In the course of the proceedings, the trustees have incurred costs as follows:
(a)$5,525 to Wynyard Wood, solicitors, for the period March to August 2019;
(b)$2,580 to Brett Norris Lawyers, for the period September 2019 to October 2020;
1 Christopher had earlier approached Perpetual Trust Ltd’s Auckland office. It had declined appointment.
(c)$1,405 being 50% of mediation fees and disbursements (excluding legal fees);
(d)$59,008.96 (inclusive of GST and disbursements) to Adina Thorn Lawyers, for the period December 2020 to the conclusion of the hearing;
(e)$6,095 (inclusive of GST) to Ms Bruton to the conclusion of the hearing;
(f)$1,966.50 to Wellington Investigations Ltd.
[38]These costs have in part been paid out of the Trust fund.
(a)The costs payable to Wellington Investigations were in part paid by Karen. She did not seek reimbursement of the amount she had paid. The trustees initially sought an order that they were entitled to be indemnified for the balance of these costs but, shortly after the hearing, Karen accepted that there was “a timing issue” in relation to this payment and she repaid the sum of $1,337.45 to the Trust to reimburse it for the moneys debited to the Trust fund.
(b)Some of the costs payable to Adina Thorn Lawyers and the costs payable to Ms Bruton have not yet been paid out of Trust funds. An undertaking was given at the hearing that no payments would be made unless and until they were authorised by the Court.
[39] The invoices rendered by Adina Thorn Lawyers and by Ms Bruton have been substantially discounted. The Adina Thorn Lawyers’ invoices and accompanying schedules detail the time recorded, the time billed for each invoice period subtotalled by author, summarise the legal work carried out for each invoice period and give the hourly rates and experience of each author and details of the discounts applied.
[40] Maree accepted that the mediation fee referred to in para [37](c) above was properly payable out of Trust funds. She did however dispute the trustees’ entitlement to an indemnity in respect of the other costs incurred.
Entitlement to an indemnity for costs
[41]The Trust deed does not contain an express right of indemnity for costs.
[42] Notwithstanding the absence of any express right of indemnity for costs, both counsel accepted that both the Trustee Act 1956 and the Trusts Act 2019 covered the position.
(a)Section 38(2) of the Trustee Act 1956 provided as follows:
38 Implied indemnity of trustees
…
(2) A trustee may reimburse himself or pay or discharge out of the trust property all expenses reasonably incurred in or about the execution of the trusts or powers; but …
(b)Section 81 of the Trusts Act provides as follows:
81 Trustee’s liability for expenses and liabilities incurred, and trustee’s right to indemnity
(1)A trustee is personally liable for an expense or a liability incurred by the trustee when acting as a trustee.
(2)However, a trustee who incurs an expense or a liability when acting reasonably on behalf of the trust is entitled,—
(a)if the trustee has paid the expense or discharged the liability out of the trustee’s own funds, to reimbursement from the trust property; or
(b)in any other case, to pay the expense or discharge the liability directly from the trust property (or to have it paid or discharged by a remaining trustee).
(3)The operation and enforcement of the indemnity in this section is governed by the rules of the common law and equity relating to trusts.
[43] The Trusts Act 2019 came into force on 30 January 2021. It applies to all express trusts, whether created before or after the commencement date. Counsel accepted that it applies in this case, notwithstanding that the proceedings were commenced before the Act came into force. Given this agreement, and given that there is no substantive difference between the relevant provisions in the 1956 and 2019 Acts, I take this issue no further.
[44] As can be seen, under both the 1956 and the 2019 Acts, trustees are entitled to reimbursement from the Trust funds for expenses or liabilities that they have reasonably incurred, when acting reasonably, on behalf of the Trust.2 As the Court of Appeal noted in Butterfield v Public Trust:3
[20] It is one of the fundamental rights of an honest express trustee that costs and expenses properly incurred in the administration of the trust are compensable out of the assets of the trust. As Danckwerts J explained in Re Grimthorpe :
“It is commonplace that persons who take the onerous and sometimes dangerous duty of being trustees are not expected to do any of the work on their own expense; they are entitled to be indemnified against the costs and expenses which they incur in the course of their office; of course, that necessarily means that such costs and expenses are properly incurred and not improperly incurred. The general rule is quite plain; they are entitled to be paid back all that they have had to pay out.”
[21] The proposition is so fundamental that it need not be justified. It is a right, probably proprietary in nature, recognised by equity as an incident of trusteeship. The right is to an indemnity for reasonable costs and expenses incurred in the administration of the trust. That is not the same as an award of indemnity costs in litigation. The entitlement in the first instance is against the trust and its assets. A current trustee may therefore deduct reasonable costs and expenses incurred in the administration of the trust from the trust assets, in exercise of a right of exoneration. Former trustees may claim such costs and expenses from their successors or, failing satisfaction, via the court. Exercising its supervisory jurisdiction the court will review costs and expenses incurred to ensure they are both necessarily incurred in the interests of the trust and reasonable in extent. The limitation was set out in New Zealand Māori Council v Foulkes:
“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
2 See also Andrew Butler Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009) at [5.3.1(6)(g)] and [5.3.3(2)].
3 Butterfield v Public Trust [2017] NZCA 367; and see Sunde v Sunde [2019] NZCA 552 at [6]-[7];
Spencer v Spencer [2013] NZCA 449, [2014] 2 NZLR 190.
lie beyond the scope of indemnity. Every dollar paid in trustees' expenses is a dollar denied to beneficiaries of the Trust.”
(Citations omitted)
Submissions
[45] What was in dispute was whether or not the costs incurred by the trustees in this case were reasonably incurred.
[46] Ms Bruton submitted that the trustees took legal advice and did their best to resolve Maree’s claims in a way which was proportional and took into account all relevant factors. It was argued that on no view did the trustees act dishonestly or in wilful breach of the Trust, that the costs incurred were reasonable and that they should be entitled to their indemnity. Rather, it was submitted that Maree’s actions were unreasonable. It was argued that she was fixated on a 50/50 split. Initially it was argued that the Court should order that Maree pay the trustees’ costs in terms of ss 45 and/or 46 of the Legal Services Act 2011 on an indemnity basis since an open offer was made by the trustees on 16 September 2021 but, in further submissions directed to be filed after the hearing, it was accepted that, if the trustees are entitled to their indemnity, they would not object to Maree’s costs being paid out of the Trust fund as well. (Maree had legal aid, but her legal costs, including GST and disbursements, amounted to $20,470.53).
[47] Mr Pietras argued that the trustees are unable to assert any right to an indemnity because they wilfully committed or were prepared to commit an act known by them to be a breach of trust. He also noted that the trustees failed to obtain a Beddoe order.4 He also queried whether the costs incurred were incurred in the interests of the Trust. In particular, he noted that Maree’s proposal that the trustees should step down in favour of an independent trustee, was rejected. At that stage the costs and disbursements, inclusive of GST, totalled approximately $21,000. Rather, the trustees insisted that they would honour Sylvia’s memorandum of wishes, notwithstanding that that memorandum proposed that a distribution should be made to Eric, who was not a
4 Re Beddoe, Downes and Cottam [1893] 1 Ch 547 (CA). A Beddoe order is a direction given by a Court approving trustees bringing or defending proceedings at the cost of the trust. Without such direction trustees proceed at risk: See generally McCallum v McCallum [2021] NZCA 237.
beneficiary of the Trust. It was argued that Maree did not act unreasonably. It was noted that, although she has a grant of legal aid, the grant is secured over her home. It was submitted that the costs that have been incurred could have been avoided if the trustees had agreed to stand down as proposed by Maree in her offer to settle sent in May 2021.
Analysis
[48] It is unfortunate that the trustees did not step down at an early stage and cooperate with Maree in the appointment of independent trustees. Maree proposed this at a relatively early stage and the trustees rejected that suggestion. They had however tried to secure the appointment of an independent trustee, but were unable to do so, because of the modest funds held in trust and because of the underlying claims made by Maree. At the time Maree made her offer there was no identified person or entity prepared to accept appointment.
[49] I agree with Ms Bruton that Maree became fixated on an equal split with Karen of the Trust’s assets. That was notwithstanding the fact that Maree, along with Karen, was only a discretionary beneficiary. All she had was an expectation that the discretion vested in the trustees by the Trust deed might be exercised to her advantage. She had no interest, legal or equitable, in the trust fund.5 She was entitled to request that the trustees consider a distribution in her favour. In considering any request, the trustees were entitled to consider Sylvia’s memorandum of wishes as long as they conscientiously applied their independent discretion in exercising their powers.6 Maree cannot be criticised for asking the trustees to consider making a distribution to her. Nor can the trustees be criticised for asking her for information as to her circumstances or for taking into account Sylvia’s memorandum of wishes. The amended memorandum of wishes suggested that there be a distribution to Eric; he was not a beneficiary under the Trust deed. The trustees seem to have appreciated this. Through Mr Norris, they indicated that they were considering allocating the share Sylvia wanted to go to Eric to the great grandchildren – see [21] above. The grandchildren were discretionary beneficiaries.
5 Hunt v Muollo [2003] 2 NZLR 322 (CA) at [11].
6 Chambers v S R Hamilton Corporate Trustee Ltd [2017] NZCA 131.
[50] Despite the fact that she had no interest in the Trust fund, Maree’s proceedings were wide ranging. They made extensive assertions as to the family relationships, they sought to review a distribution decision that had not been made and they requested appointment of an unidentified replacement trustee. Although Maree had at an earlier stage proposed that an independent trustee should be appointed, her position hardened over time and she ultimately took the view that she and Karen should benefit equally from the Trust. That was the view advanced in the submissions filed on her behalf for the hearing. She did not however give consideration as to whether such distribution could be achieved in the proceedings she had filed. She did not turn her mind to the interests of other named beneficiaries; she did not seek appropriate directions for service and representation. These issues were first raised when Ms Bruton was appointed to represent the trustees and she filed her memorandum dated 14 September 2021. Ms Bruton’s suggestions for dealing with the imbroglio were not taken up. Rather, Maree came before the Court submitting that the Court should exercise the powers vested in it by ss 126 and 127 of the Trustee Act 2019, wind the Trust up and distribute the Trust fund, in part in her favour.
[51] Nor did the trustees appreciate the position until Ms Bruton was appointed. Rather, they made various offers proposing a distribution of the Trust fund, again without considering the interests of all beneficiaries and how any such distribution could be achieved in terms of the proceedings filed. In a not dissimilar case, the Court of Appeal observed as follows:7
[298] Unfortunately the mistaken beliefs on both sides have caused a major rift in the family leading to the current proceedings, the dissipation of large sums in legal fees, the diversion of energy away from more productive pursuits for the trusts and no doubt major personal strain on all those involved.
Much of the same comments apply in the present case.
[52] While the proposal advanced by Ms Bruton that all costs should be met out of the Trust fund has a delusive simplicity, I am not satisfied that it achieves a fair result in this case. It would deplete the Trust fund, which is held not only for Karen and Maree but also for a number of other beneficiaries. In my view, a rather more nuanced
7 Kain v Hutton [2007] 3 NZLR 349 (CA).
approach is required, recognising both that Maree’s insistence on an equal distribution with Karen and the trustees’ preparedness to go along with this and themselves proposing percentage distributions were essentially unreasonable in the circumstances. In my judgment, costs incurred in considering and pursuing a settlement involving a distribution amongst only some of the beneficiaries, without considering the interests of other beneficiaries, were not, considered objectively, reasonably incurred by either Maree or the trustees.
[53] I have considered the various invoices which have been made available to me. Some of them provide relatively little detail; others do provide substantial detail. I deal with each in turn.
[54] Wynyard Wood issued three invoices, all addressed to Karen, in the total sum of $5,525 inclusive of GST. The invoices have been provided but they give no detail of the work undertaken. They cover the period March 2019 to August 2019. Karen gave evidence that the invoices related only to work done by Wynyard Wood for the Trust. She explained that the trustees did not know what they were doing when they were appointed, that they needed advice, and that they obtained that advice from Wynyard Wood. On that basis, the trustees have paid all the Wynyard Wood invoices out of the Trust funds. Karen was adamant that she paid for personal advice from Wynyard Wood and for advice relating to the distribution of Sylvia’s estate separately. There is no reason to doubt Karen’s evidence in this regard. I accept that she, Christopher and Benjamin required legal advice in relation to the Trust. The fees charged are not disproportionate and I am satisfied that it is appropriate to pay the Wynyard Wood invoices out of the Trust funds.
[55] Similarly, Mr Norris’s fees are modest. Much of his correspondence was in the joint bundle and it is clear that he was acting on behalf of the trustees in seeking to administer the Trust. Again, I consider it appropriate that his fees should be met out of the Trust fund.
[56] There is no dispute about the share of the mediation fee. Maree accepts that it was properly met by the trustees out of the Trust fund.
[57]The invoices payable to Adina Thorn Lawyers are rather more problematic.
(a)The first invoice is dated 29 March 2021, covering the period 10 December 2020 to 24 March 2021. It has been substantially discounted. It relates largely to reviewing the file, reviewing Maree’s statement of claim, drafting and finalising a statement of defence, preparing initial disclosure, attending various meetings with Maree’s solicitors, obtaining instructions from the trustees and various attendances regarding the proposed mediation. The total invoice was for $14,871.80. Insofar as I can glean, the invoice was reasonably incurred by the trustees in resisting Maree’s proceedings and it is properly payable out of the Trust fund.
(b)The next invoice is dated 28 April 2021. It covers attendances from 25 March 2021 to 23 April 2021 and is in the sum of $7,079.56. It relates largely to preparing for and attending the mediation. I do not know what was discussed at the mediation and I am not prepared to assume that it proceeded on a legally flawed basis. It is relevant that Maree accepts that the costs of the mediation should be met out of the Trust fund. On the information before me, the costs seem to have been reasonably incurred by the trustees, and in my judgment, the invoice is properly payable out of the Trust fund.
(c)The next invoice is dated 31 May 2021. It is for $1,097.10. It covers the period 26 April 2021 to 29 May 2021, and relates to the drafting of a memorandum for the case management conference and to correspondence with Maree’s solicitors. I accept that in part the invoice was reasonably incurred to advance the trustees’ response to Maree’s proceedings; in part however it seems to have involved attempts to settle Maree’s claim which could not be achieved on the proceedings filed. It is necessarily a rough and ready estimate but I apportion 50 per cent of this invoice to the trustees personally and the other 50 per cent to the Trust fund.
(d)The next invoice is for $4,266.50; it is dated 30 June 2021. It relates to attendances between 10 June 2021 and 28 June 2021. The narration records that it related primarily to various attendances on the trustees, reviewing documents, drafting and reviewing an affidavit of documents, discussions with senior counsel and the like. It seems that this invoice is appropriate and that the costs were reasonably incurred by the trustees in relation to the proceedings. It should be paid out of the Trust funds.
(e)The invoice dated 20 August 2021 covers the period 5 July 2021 to 18 August 2021. It is in the total sum of $13,409. It relates to attendances regarding the proposed judicial settlement conference, as well as to settlement offers. It appears to relate to in part to various settlement offers then being considered and proposed, none of which could have been implemented on the proceedings as they stood. In my view, it is appropriate that 50 per cent of this invoice be met out of the Trust funds, but that the balance be met by the trustees personally, for the reasons I have set out.
(f)The next invoice is for $11,580.50. It is dated 12 October 2021 and covers the period 17 September 2021 to 7 October 2021. It relates in part to reviewing a settlement offer and also to various issues related to the proceedings and getting ready for trial. The majority of the bill seems to relate to the pending hearing. In my view, it is appropriate to direct that 75 per cent of the invoice be paid out of the Trust fund, but that the balance of 25 per cent relating to settlement, be met by the trustees personally.
(g)The final bill is dated 29 October 2021 and it covers the period 8 October 2021 to 27 October 2021. It is for $6,704.50. It relates exclusively to preparation for and attendance at the hearing. It does however seek to recover costs for junior counsel at the hearing. In my view, junior counsel was necessary and I would not, in a normal costs situation, have been prepared to certify for second counsel. It is
appropriate to direct that 75 per cent of that bill be paid out of the Trust fund and that the balance be paid by the trustees personally.
[58] I now turn to Ms Bruton’s invoice. There is only one invoice – dated 28 October 2021. It relates exclusively to the Court proceedings. In the best traditions of the bar, Ms Bruton has substantially reduced her charge out rate. The hours claimed and the amount sought on an hourly basis are entirely reasonable. Again, it is appropriate to direct that that invoice be paid out of the Trust fund.
[59] The costs payable to Wellington Investigations Ltd have been reimbursed to the Trust fund. They are no longer in issue.
[60] As to Maree’s costs, while ultimately she obtained an order for the appointment of an independent trustee, as I have indicated, her proceedings sought much more than that. So did her submissions filed in advance of the hearing. I am satisfied that it is appropriate to make an order that 25 per cent of her costs be paid out of the Trust fund, given that she succeeded in obtaining the appointment of an independent trustee, but that the balance be met by her personally.
Result
[61]For the reasons I have set out, I make orders as follows:
(a)that Karen, Christopher and Benjamin be removed as trustees of the Trust and that Perpetual Trust Ltd be appointed as a trustee of the Trust in their place;
(b)that the costs payable to Wynyard Wood, Brett Norris Law and 50 per cent of the mediation fees be payable out of the Trust fund;
(c)that the following invoices rendered by Adina Thorn Lawyers be paid out of the Trust fund:
(i)invoice dated 29 March 2021;
(ii)invoice dated 28 April 2021;
(iii)50 per cent of the invoice dated 31 May 2021;
(iv)invoice dated 30 June 2021;
(v)50 per cent of the invoice dated 20 August 2021;
(vi)75 per cent of the invoice dated 12 October 2021;
(vii)75 per cent of the invoice dated 29 October 2021.
(d)that the balance of the invoices payable to Adina Thorn Lawyers be met by the trustees personally, on a joint and several basis.
(e)that Ms Bruton QC’s invoice dated 28 October 2021 be payable out of the Trust fund;
(f)that 25 per cent of Maree’s costs of $20,470.53 be met out of the Trust fund; and
(g)that the balance of Maree’s costs of be met by her personally (subject to the grant of legal aid made to her by the Legal Services Board).
Wylie J
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