BETWEEN VICTORIA MARGARET MCEVEDY Plaintiff AND MICHAEL THOMAS MCEVEDY First Defendant AND MICHAEL THOMAS MCEVEDY and BENJAMIN WILLIAM MCALPINE TOTHILL Second Defendants AND CATHERINE MCEVEDY and ALEXANDRA...
[2023] NZHC 3875
•21 December 2023
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2021-409-583
[2023] NZHC 3875
BETWEEN VICTORIA MARGARET MCEVEDY
Plaintiff
AND
MICHAEL THOMAS MCEVEDY
First Defendant
AND
MICHAEL THOMAS MCEVEDY and BENJAMIN WILLIAM MCALPINE TOTHILL
Second Defendants
AND
CATHERINE MCEVEDY and ALEXANDRA RUTHERFORD
Third Defendants
AND
BENJAMIN WILLIAM MCALPINE TOTHILL and
DUNCAN COTTERILL
Fourth Defendants
Hearing: 22 August 2023 Appearances:
S R Carey and M K Prendergast for the Plaintiff G J Ryan for the First Defendants
M E Parker for the Second Defendants B G Walker for the Third Defendants
Judgment:
21 December 2023
JUDGMENT OF HARLAND J
[1] This judgment determines an application by the defendants for security for costs against the plaintiff and an application by the plaintiff for preservation orders in relation to the Connamara Trust (the Trust). Both applications are opposed, noting
MCEVEDY v MCEVEDY [2023] NZHC 3875 [21 December 2023]
that the application for preservation orders is opposed only by the first and second defendants.
[2] I have decided to grant the application for security for costs and dismiss the application for preservation orders. This judgment outlines my reasons for reaching these conclusions.
Background
[3] The applications are brought in the context of a claim by the plaintiff, Victoria McEvedy, a lawyer residing in Italy, to review various acts undertaken by the trustees of the Trust who are the second defendants. The plaintiff brings the proceedings in her capacity as a beneficiary as to the capital of the Trust. The other beneficiaries as to capital are her sibling sisters Catherine McEvedy and Alexandra Rutherford, who reside in Christchurch and are the third defendants.
[4] The first defendant is the father of Victoria, Catherine and Alexandra. He is a defendant because he is a beneficiary as to the income of the Trust during his lifetime. Adrienne McEvedy, who died on 11 October 2012, was the wife of the first defendant and the mother of the plaintiff and third defendants. Mrs McEvedy was a joint settlor of the Connamara Trust, together with the first defendant.
[5] The Trust is a discretionary family trust which was settled in 2005. The major asset settled into the Trust was the settlors’ interest in a family farm, which was subsequently sold for approximately $3 million. Its current assets comprise a home occupied by the first defendant and a portfolio managed by Jarden Securities Ltd. The most recent annual accounts, being the accounts for the year ended 31 March 2022, list the total equity in the Trust to be just over $3.2 million.
[6] The fourth defendant is a firm of solicitors. Mr Tothill, a former partner of the firm, drafted and prepared the Trust and related documentation, as well as wills for the first defendant and his late wife.
[7] The plaintiff has filed a second amended statement of claim. She pleads eight causes of action:
(a) the first cause of action against the first to third defendants alleges breach of trust and/or constructive trust;
(b) the second cause of action against the first to third defendants is a derivative claim under s 126 of the Trusts Act 2019 (the Act);
(c) the third cause of action against the first defendant is a claim under s 17 of the Contract and Commercial Law Act 2017 for breach of agreement;
(d) the fourth cause of action against the first to third defendants alleges a breach of the deed of appointment entered into in 2005;
(e) the fifth cause of action against the fourth defendant alleges negligence;
(f) the sixth cause of action against the first defendant seeks a declaration pursuant to the doctrine of mutual wills and/or is brought under s 30 of the Wills Act 2007;
(g) the seventh cause of action against the second defendant seeks an order removing them as trustees of the Trust; and
(h) the eighth cause of action against the first and second defendants alleges a breach of trust.
[8] By minute dated 27 April 2022, Osborne J directed that statements of defence were not required to be filed pending the determination of the application for security for costs.
[9] There have been no fewer than 15 affidavits filed in this proceeding so far. These include six affidavits by Victoria McEvedy; one by Michael Schimanski, the primary accountant for the Trust; two by Mr Tothill, a trustee and former partner in the law firm Duncan Cotterill; one joint affidavit by Catherine McEvedy and Alexandra Rutherford; affidavits by Mr McEvedy; and an affidavit by Jonathan Cochrane, an investment advisor and managing director of Jarden which manages the Trust fund portfolio on behalf of the Trust.
[10] I heard both applications together on 22 August 2023. Argument took the best part of the day. I reserved my judgment.
[11] Since the hearing, at which I expressed the view that a judicial settlement conference would be a sensible idea, the plaintiff has indicated her agreement that this would be beneficial and asked for one be scheduled. In counsel’s memorandum dated 18 October 2023, there was also a request for disclosure of outstanding documents contended to be necessary for the judicial settlement conference.
[12] On the same date, an amended notice of opposition to the application for security for costs was purportedly filed on behalf of the plaintiff. In response to this, counsel for the defendants filed a joint memorandum opposing the attempt to file an amended notice of opposition and opposing a judicial settlement conference at this stage, pending the outcome of this judgment.
[13] I have decided to reject the plaintiff’s amended notice of opposition to the application by the defendants for security for costs. It is entirely unorthodox to attempt to file an amended pleading (effectively what the notice of opposition is in this context) after a hearing seeking effectively to raise additional arguments to support her opposition.
The factual disputes
[14] I now address, as best I can at this stage of the proceedings, the factual disputes that underline the plaintiff’s claim against the defendants.
[15] Clearly, there is a considerable amount of evidence before the Court but no statements of defence and the affidavits in most instances replied to by the other respective party have not been the subject of cross-examination. In addition, there are matters of interpretation of the various documents required. Any conclusions I reach about the factual background must be viewed in this context and, should the claim proceed, it cannot be binding on the Judge who would hear the substantive claim. Despite these observations, an assessment of the merits or strength of the plaintiff’s case is required at this stage of the proceeding in order to address the matters that must be considered in relation to the applications.
[16] As outlined above, the Trust was settled in 2005 by the first defendant and Mrs McEvedy.
[17] It is not in dispute that Mr and Mrs McEvedy discussed their intentions to leave the assets in the Trust on their respective deaths to their daughters and in shares which thereabouts reflected equality and that they would continue to receive income from the capital during their lifetime. What is in dispute is whether the settlors were entitled to retain assets outside of the Trust and/or recover debts owing to them by the Trust for their own purposes during their lifetime.
The alleged agreement
[18] Most of the plaintiff’s causes of action turn on an alleged (oral) agreement pleaded at paras 6, 11 and 12 of the amended statement of claim (the agreement). In very broad terms, the plaintiff alleges that, despite settling the discretionary Trust, her parents agreed between themselves and promised her that all their assets would be settled in the Trust and that she would inherit a one-third interest in those assets on the death of the survivor, regardless of what might happen in the intervening years, and that they would forgive any debt owed to them by the Trust.
[19] The first defendant agrees that he and Mrs McEvedy discussed their intentions prior to settling the Trust. But, as counsel for the defendants submitted, intentions are liable to change with circumstances and, as such, they do not and cannot themselves create binding obligations.
[20] The plaintiff relies on an alleged oral agreement which she was not party to, was not present at the making of, and which allegedly evolved from an agreement made prior to the taking of legal advice into a more detailed agreement following the taking of legal advice and which the defendants submit is contrary to several contemporaneous documents.
[21] The first defendant and the late Mrs McEvedy received legal advice about their estate planning from Mr Tothill, who was then a partner in Duncan Cotterill. Mr Tothill was Mr and Mrs McEvedy’s longstanding family solicitor. After meeting with them, Mr Tothill wrote a letter to Mr and Mrs McEvedy recording his instructions and
advice regarding the Trust. I agree with counsel for the defendants that the letter does not accord with the agreement alleged by the plaintiff as there is no mention of any binding intention to divide the Trust capital equally and irrevocably between the three daughters. There is also no mention of the alleged binding promise to forgive all debt, rather, the letter outlines and expressly notes that Mr or Mrs McEvedy would be able to call in loans owing to them by the Trust.
[22] The plaintiff contends that there was an agreement that any loan to the Trust would be forgiven in full so, in other words, the first defendant has no lawful right to call on the capital of the Trust to purportedly repay his loan.
[23] There is also force to counsel for the defendants’ submission that the reference to Mr or Mrs McEvedy being able to call in loans owing to them by the Trust made sense. As Mr and Mrs McEvedy were proposing to settle most of their assets into a Trust in which they were not to be the capital beneficiaries, their only ability to call assets out of the Trust to support themselves, in addition to any income derived from the capital, was by repayment of their loans to the Trust. Mr McEvedy’s evidence was that he has been calling on the loan made to the Trust to support himself in his retirement and there is no other evidence to suggest there are other assets available to do this. The evidence establishes that $287,585 is the balance of the loan as at 31 March 2021. The first defendant utilises funds from the Trust by payment of a monthly allowance. If it transpires that the income is not adequate to cover the payments made to him, the year end accounts debit the excess off his current account or settlor’s advance account.
[24] There is also a Deed of Appointment and Nomination dated 17 August 2005 which was signed at the same time the Trust was settled. By virtue of this Deed, the remaining capital of the Trust was to be divided on the death of the survivor of either Mr or Mrs McEvedy into three sub-trusts. This accords with Mr McEvedy’s acknowledged position that he and his wife intended to leave the remainder of the Trust to their three daughters. However, counsel for the defendants submitted that it differs from the agreement alleged by the plaintiff because there is no reference to an intention not to recover loans owing back to them (as the division is to the remainder
of the Trust capital existing on the death of the survivor) and the Deed records expressly that it is revocable.
[25] Accordingly, counsel for the defendants submitted, and I agree, that the plaintiff’s claim depends on an alleged oral agreement in respect of which there does not appear to be documentary support and which appears to be contrary to the position that emerges in both the Deed of Appointment and Nomination, as well as Mr Tothill’s advice as recorded in his letter to Mr McEvedy and the late Mrs McEvedy.
The alleged distribution
[26] This factual background is particularly relevant to the plaintiff’s application for preservation orders. It is also relevant to the assessment of the merits of the case and the balance of interests that must be undertaken when exercising the Court’s discretion to either grant or refuse the defendants’ application for security for costs.
[27] The plaintiff claims that, during the 2018 financial year, the second defendants distributed $495,400 of Trust capital to the first defendant. The first defendant claims that the payment was not a distribution but, rather, was a reduction of his settlor’s advance loan. Further, the defendants submit that this payment related to a fund referred to by the first defendant as the Education Fund.
[28] In his affidavit dated 23 March 2022, Mr McEvedy deposed that this fund was introduced by error into the Trust when it had always been intended to sit outside the Trust until the surviving settlor’s death. It appears that the distribution referred to above has been made to the third defendants over time and applied expressly to educate each of their children, being Mr McEvedy and Mrs McEvedy’s grandchildren.
[29] The plaintiff does not have children. Her claim is that the Education Fund should be brought back into the Trust as she claims she has been treated unfairly as a result of it.
[30] The defendants contend that the distribution to the Education Fund is not a breach of the alleged agreement because there is no reason why an equalisation could not be made upon Mr McEvedy’s death compensating the plaintiff for the earlier
payments, although the defendants contend that such a payment is not required. But, more importantly, the defendants submit there is no basis for the plaintiff’s claim that the distribution should be paid back now or for the suggestion that a constructive trust existed over the capital of the Trust, essentially preserving the capital of it immediately.
The alleged sub-trust
[31] The fourth cause of action alleges that the 2005 Deed of Appointment created a one-third sub-trust in favour of the plaintiff. The defendants do not accept this. They refer to cl 1.1 of the Deed which provides that the sub-trusts only come into existence on the death of the survivor of Mr McEvedy and his late wife, and then only in relation to what capital remains at that time.
[32] But, further, the defendants refer to a further Deed of Appointment and Nomination entered into in 2019 which they contend revoked the 2005 Deed. Under the 2019 Deed, there is no sub-trust arrangement.
[33] The plaintiff alleges that this revocation could not occur because of “an express or implied term”. In answer, the defendants submit there is no such term, which would in any event be contrary to the 2005 Deed as, by virtue of cl 1.3, it expressed itself to be revocable. Further, the defendants point to the Trust Deed itself which defines the appointors as “[Michael] and [Adrienne] jointly or the survivor of them …”. As well, they refer to the late Mrs McEvedy’s last Will which referred to “any appointment for the capital existing or made subsequently …” which they contend indicates and supports their contention an intention by her that the 2005 Deed was revocable.
[34] Whether the deed was revocable or not has only been assessed by me at this stage on an interlocutory basis. While arguable, the defendants have certainly provided an answer to the plaintiff’s claim that, at this stage at least, appear compelling.
The alleged threats by Mr McEvedy
[35] The plaintiff alleges that, in December 2020, Mr McEvedy threatened her that he would call in the balance of his loan which she deposed he considered extended to almost the whole capital. She also claims that, in January 2019, Mr McEvedy told her that Mr Tothill was resigning as trustee, and the Trust was being wound up. These allegations formed the basis of the plaintiff’s request for interim orders preserving the capital of the Trust.
[36] The defendants contend that these claims are unsupported by any objective written material at the time or subsequently. But, in any event, Mr McEvedy denies making such statements and it is contended that his subsequent conduct shows them to be unfounded. Mr Tothill remains a trustee of the Trust and has not resigned, and the Trust capital remains intact.
[37] In addition, the defendants refer to a letter by Mr McEvedy which counsel submitted contains no such threat. Rather, it is submitted that the letter reinforces Mr McEvedy’s intention that upon his death, his daughters would equally share in whatever is left.
[38] The plaintiff invites the Court to consider the discussions and correspondence between Mr Tothill and her then solicitor Mr Walker. The defendants submit that the affidavit of Mr Tothill has responded satisfactorily to the plaintiff’s concerns arising from those exchanges and also notes that the subsequent correspondence from Mr Tothill made his position clear and post-dated Mr Walker’s file notes. In this regard, I note that Mr Walker has not provided an affidavit in these proceedings.
Other
[39] I have referred to the key factual contentions by each of the parties that relate to the applications. I record that I have reviewed the affidavits and the chronologies which are largely the same as they relate, at least, to the key documentation and events. It does however appear from the plaintiff’s chronology that there were two separate occasions where inheritances from Mrs McEvedy were either received by the Trust or
received by way of a loan. No specific submissions were received during the argument about differences, and I simply record them at this point.
Should security for costs be provided?
[40] The defendants apply for security for costs against the plaintiff who resides out of New Zealand. The application was supported by an affidavit by Mr McEvedy sworn 23 March 2022.
[41]The plaintiff opposes the application on the grounds that:
(a) it is not in the interests of justice for security to be granted as the trustees have a right of recourse and therefore are already secured by the Trust fund capital;
(b) the court has the power to order a charge over the Trust fund by virtue of section 140 of the Trusts Act 2019, and the plaintiff has offered a charge over her vested interest in the Trust fund capital which will adequately secure the defendants;
(c) the first defendant is using Trust fund capital to finance this action and has removed one third of the same or in breach of trust and removes further capital monthly and is paying the costs of the second and third defendants so that neither the first to third defendants should be granted security for their costs;
(d) ordering security would stifle the claim and avoid the scrutiny and supervision of the court where it is needed;
(e) the fourth defendant is presumably insured; and
(f) the amount sought is excessive.
[42]The plaintiff filed an affidavit in support of her position, sworn on 5 May 2022.
[43] Mr McEvedy and Mr Tothill filed affidavits in reply, sworn 26 May and 31 May 2022 respectively.
Legal framework
[44] Rule 5.45 of the High Court Rules 2016 (HCR) applies. If it is considered just in all the circumstances, a Judge may order a plaintiff to give security for costs if, relevant to this case, the plaintiff is resident out of New Zealand.1 As the plaintiff resides in Italy, the threshold is met so the issue before me is whether I ought to exercise my discretion to grant the application. This requires me to consider whether it is just in all the circumstances to order security to be provided.2 This requires a broad assessment.3
[45] Relevant to the exercise of the discretion is whether the merits favour an award, whether the quantum of the claim justifies an award, whether there are any issues to do with the plaintiff’s residence overseas that need to be taken into account, and whether the grounds raised in the notice of opposition have been met.
[46]I address each of the matters raised to support and oppose the application.
Overseas residency
[47] In considering security for costs for a plaintiff resident overseas, the ease, convenience, and cost of enforcing a costs judgment in the plaintiff’s country of residence are primary considerations.4 Exercising the Court’s discretion to order security against an overseas plaintiff avoids the costs and difficulties of overseas enforcement.5 The plaintiff is a tax-resident in Italy and practises law in London. Italy is a non-common law and non-English speaking jurisdiction. As a result, it is likely enforcement of costs awarded in Italy will be complex, costly and time-consuming. That said, the plaintiff’s practice is in the United Kingdom, a common law and English-speaking jurisdiction. Regardless, however, enforcing a costs order outside of New Zealand will still be more complex and costly.
1 High Court Rules 2016, r 5.45(1)(a)(i).
2 Rule 5.45(2).
3 Hamilton v Papakura District Council (1997) 11 PRNZ 333 (HC) at 335; and Wishart v Murray
[2016] NZHC 3132 at [9].
4 Aquaculture Corp v McFarlane Laboratories (1984) 1 PRNZ 467 (HC) at 470.
5 Klimenko v Klimenko [2022] NZHC 2684 at [11] and [31].
[48] The plaintiff submits her ties to New Zealand support her opposition to security for costs being granted. However, she has lived and worked overseas for about 25 years, including in New York, Hong Kong, London and Rome. Although the plaintiff has deposed she intends to return to New Zealand to live, she has not provided anything that demonstrates this intention. As a result, I do not find her ties to New Zealand to be particularly strong. This is especially so considering that, as a result of these proceedings and the events leading up to them, it can reasonably be inferred the plaintiff’s relationship with her father and siblings is similarly strained. That the defendants have declined to attend a settlement conference pending the outcome of this judgment similarly supports this inference.
Is a charge an available option?
[49] The plaintiff has offered a charge over her beneficial interest in one-third of the Trust capital by way of security. She submits her share of the Trust capital according to the 2005 Deed of Appointment was irrevocable and cannot be gifted or distributed. She submits those funds, in respect of which the defendants accept the plaintiff’s receipt of is certain, significantly exceed the security sought, confirmed by the defendants in their submissions that stated the plaintiff “certainly will receive a sizeable sum when the Trust is distributed”.
[50] The defendants reject this offer on the basis that the plaintiff only has a contingent interest in the Trust’s capital, she does not have control over the capital, it is not known when the Trust will be distributed, and to set aside one-third of the capital in a security account would compromise the first defendant’s income from the Trust.
[51] In my view, the most convincing argument is that the plaintiff does not have control over the capital of the Trust. In Mawhinney & Ors v Auckland Council, the Council sought security for costs in respect of the three plaintiffs’ claim of statutory breach relating to the Mawhinney Trust’s applications under the Resource Management Act 1991.6 Mr Mawhinney suggested that a second mortgage could be provided over the land in question, but the Court held security could not be given over
6 Mawhinney & Ors v Auckland Council [2014] NZHC 3207.
an asset the plaintiff did not have control over.7 Similarly, the plaintiff is only a beneficiary of the Trust and is not in control of the capital. She cannot therefore offer a charge even if it was an appropriate option to consider. It is incorrect for her, via her counsel, to have stated that she has liquid assets in New Zealand sufficient to meet the security sought. She has a beneficial interest in a trust, but it is the trustees who are responsible for and in control of the distribution of the Trust’s income and capital.
[52] In Neely v Attorney-General, the Court held that an order for security will not be made where a plaintiff has a substantial asset in New Zealand that is permanent, cannot easily be removed and is not under threat.8 The Court found against the respondent in that case, because the assets within New Zealand it offered a charge over were purchased with the intention of being moved from the country.9 However, the Court also stated that the property in New Zealand had to “be available in the event of the defendants being entitled to the costs of the action”.10 The plaintiff does not have control over the capital of the Trust and therefore it is not property that is currently available to her.
Merits and balance of interests
[53] The plaintiff submits ordering security in the amount the defendants seek “or anything like it” would stifle her claim. The Court will be slow to order security,11 and there are “strong policy considerations” which favour the essential human right of access to justice where ordering security will stifle a claim.12
[54] The plaintiff’s interest must however be balanced against the defendants’ interests. In A S McLaughlan Ltd v MEL Networks Ltd, the Court of Appeal held:13
The rule itself contemplates an order for security where the plaintiff will be unable to meet an adverse award of costs. That must be taken as contemplating also that an order for substantial security may, in effect, prevent the plaintiff from pursuing the claim. An order having that effect should be made only after careful consideration and in a case in which the claim has
7 At [8]-[14].
8 Neely v Attorney-General [1984] 2 NZLR 636 (CA).
9 At [7].
10 At [5].
11 Reekie v Attorney-General [2014] NZSC 63 at [3].
12 Highgate on Broadway Ltd v Devine [2013] NZAR 1017 at [23](b).
13 A S McLaughlan Ltd v MEL Networks Ltd [2002] 16 PRNZ 747 (CA) at [15]-[16].
little chance of success. Access to the Courts for a genuine plaintiff is not likely to be denied.
Of course, the interests of defendants must also be weighted. They must be protected against being drawn into unjustified litigation, particularly where it is overcomplicated and unnecessarily protracted.
[55] As the defendants have submitted, the plaintiff’s claim that she is not in a position to pay the security for costs and thus her claim would be stifled should the order be granted equally indicates that an award for costs in favour of the defendants post trial would be hollow. As well, the plaintiff, despite her submissions that she would not be able to pay security (at least to the amount the defendants seek), has failed to provide any information as to her financial position nor has she provided a figure that she would be able to pay. There is nothing beyond her self-reporting that demonstrates she does not have the means to pay an order for security for costs. As well and to the contrary, the plaintiff has described her legal practice in London as having a respectable turnover.
[56] The merits of the plaintiff’s claim are also a proper matter to consider14 but, as the Court has recognised on applications for security for costs, views as to the merits of the case are “very much matters of impression”.15
[57] The parties dispute whether the settlors were entitled to retain assets outside of the Trust and/or recover debts owing to them by the Trust for their own purposes. The plaintiff’s position, which the majority of her causes of action rely upon, is that Mr and Mrs McEvedy made a binding agreement between themselves promising the plaintiff and her siblings that they would each inherit a one-third interest in the assets settled in the Trust on the death of the survivor, regardless of any change in circumstances.
[58] I take all these matters into account but I am not persuaded that they militate against my very clear view that the plaintiff should be required to pay security for costs.
14 Ambrose v Pickard [2009] NZCA 502 at [32].
15 Busch v Zion Wildlife Gardens Ltd (in receivership and in liquidation) [2012] NZHC 17 at [15].
What amount should security for costs be fixed at?
[59] The amount of security that should be ordered is discretionary.16 It is not required to be fixed by reference to likely cost awards,17 but it is ordered to reflect what the Court considers to be just in all the circumstances.18
[60] In McNaughton v Miller, the Court of Appeal summarised “the circumstances” as including:19
(a) the amount or nature of relief claimed;
(b) the nature of the proceeding, including the complexity and novelty of the issues, and therefore the likely extent of interlocutory processes;
(c) the estimated duration of the trial; and
(d) the probable costs payable if the plaintiff is unsuccessful and the defendant’s estimated actual costs.
[61] The defendants seek an award to the sum of $69,000 per defendant group, amounting to $276,000. This is on the basis that each defendant group is entitled to separate representation because they each advance a distinct position and each will need to be represented throughout the trial. Assessed on a 2B basis, the estimated legal costs, on a conservative approach, amounts to approximately $59,033 for each defendant. As well, the defendants expect to instruct expert witnesses (as to trust law and an accountant). An allowance of $10,000 per defendant group is requested, although the defendants accept the cost of any expert witnesses may be able to be shared between them. In total, the amount of security sought for each defendant group is $79,000.
[62] The duration of the trial is estimated to be one week. It involves multiple parties and several causes of action.
16 Busch v Zion Wildlife Gardens Ltd, above n 15, at [9].
17 Sharp v Pillay [2017] NZHC 647; and Red 9 Ltd v The Learning Ladder Ltd (in liq) [2021] NZCA 284, (2021) 25 PRNZ 780 at [30].
18 AS Mclachlan Ltd v MEL Network Ltd (2002) 16 PRNZ 747 (CA) at [13] and [14].
19 McNaughton v Miller [2022] NZHC 273 at [17].
[63] The table provided below summarises cases that I consider to be helpful to my assessment of quantum, understanding that each case depends on its own facts:
Case
Quantum
Context
Kazhegeldin v Radio New Zealand Ltd [2018] NZHC 3179
$50,000 ordered in respect of two defendants
(combined) where scale
costs estimated at $100,000.
Merits assessed as “reasonably evenly
balanced” – plaintiff had a strong case of defamation with the argument focusing on whether the defendants acted responsibly. Half payable following a JSC
and other half on the close of pleadings date. Stay given pending payment.
Keez Ltd v Waikato District Health Board [2020] NZHC 2330
$50,000 ordered in relation to an estimated five-day trial where 2B scale costs were assessed at $63,813.
Payable in three lots. Proceeding to be stayed pending further order if any payments not made.
Sharp v Pillay [2017] NZHC 647
$18,286 ordered for a three- day trial where costs on a 2B basis of $51,959 were sought.
Plaintiff’s case assessed as weak but not hopeless or without merit.
Il Forno Ltd v Kleine [2018] NZHC 723
Increased security for costs from $45,000 (Associate Judge’s decision) to
$85,000. Estimate of scale costs and disbursements of
$124,441 (including
$41,440 plus GST for accounting experts).
$25,000 had already been paid. Outstanding $60,000 payable in three stages – on the close of pleadings date, exchange of evidence and 15 working days before
commencement of rial.
Court considered the amount ordered by the Associate Judge was
insufficient to protect the plaintiff in respect of an apparently unmeritorious counterclaim.
[64] Having regard to all the matters to which I have referred, in my view, the sum of $50,000 per defendant group is justified. This takes into account the allowance suggested for expert witnesses on the basis that the group will share such expertise. The total amount of security I will therefore order is a sum of $200,000.
[65] I accept however that the payment of such security in instalments is justified. In light of the amount of security ordered, I consider four quarterly separate payments of security to be reasonable. I therefore order as follows:
(a) the sum of $50,000 is payable by 29 February 2024;
(b) a further sum of $50,000 is payable following any judicial settlement conference the parties agree to attend;
(c) a further sum of $50,000 is payable on the close of pleadings date; and
(d) the final sum of $50,000 is payable 15 working days before the commencement of trial.
[66] Pursuant to r 5.45(3)(b) of the HCR, the Court may stay a proceeding until the security ordered is given. Although discretionary, a stay of proceeding is generally granted until security is given, unless there are “unusual situations” that may warrant a refusal.20
[67] The proceedings will be stayed should any of the payments referred to at [65] not be made in accordance with this order.
Should preservation orders be granted?
The application
[68] The plaintiff applies for preservation orders against the first and second defendants on the basis that significant funds have been removed from Trust capital since 2005 and that capital continues to be removed, in her submission, invalidly. She considers the capital of the Trust, and her right to a one-third share, is therefore at risk.
[69]The plaintiff seeks:
20 Tomanovich Holdings Ltd v Gibbston Community Water Company 2014 Ltd [2018] NZHC 990 at [68]; and RA Osborne and others McGechan on Procedure (online ed, Thomson Reuters) at [HR5.45.11]. Examples of “unusual situations” include where the trial is imminent and likely to be vacated if a stay was ordered: Delapena v McConnell Dowell Corp Ltd HC Auckland CP2706/88, 15 March 1991; or if the plaintiff has appealed the order for security for costs: Smallbone v London [2019] NZHC 2180.
(a) an order that, until resolution of these proceedings, leave of the Court or the plaintiff’s prior written approval is required before any transfer, distribution or other dealing (by whatever means) of Trust capital can occur; or
(b) such other order as the Court considers appropriate to preserve Trust capital.
[70]The grounds upon which the orders are sought are:
(a) The plaintiff is a beneficiary of the Trust pursuant to the Deed of Trust and the 2005 Deed of Appointment and, as such, has received a vested irrevocable and indefeasible beneficial interest in a one-third share of the capital of the Trust as at 17 August 2005 (plus subsequently added capital). The third defendants are similar capital beneficiaries with the same beneficial interest as the plaintiff.
(b) The first defendant is a beneficiary as to the income of the Trust only but he has sought to partially revoke the vested interest of the plaintiff, contrary to the terms of the Trust.
(c) The second defendant trustees are in breach of the Trust because they have distributed, transferred or otherwise paid to the first defendant capital from the Trust and advanced or distributed further sums to the third defendants from the Trust capital. The trustees have refused to make any adjustment to the plaintiff in respect of the Trust capital, as a result of which the depletion of almost one-third of the Trust capital has occurred, to the prejudice of the plaintiff.
(d) The plaintiff is a beneficiary under an agreement between the first defendant and Mrs McEvedy whereby they agreed to settle the Trust, take loans back and divide the capital in equal shares between their three daughters; they would forgive all debts owed to them by the Trust in their mutual wills and would not revoke those wills without keeping the agreement. Mrs McEvedy kept the agreement in her last mutual will and
died in October 2012 and, by her will, the first defendant took a gift of the income from the Trust for life.
(e) The first defendant and Mrs McEvedy entered into mutual wills (2005 and 2012) and s 30 of the Wills Act and/or the common law doctrine of mutual wills restrains lifetime dispositions of the property that is the subject of the mutual wills so as to defeat the agreed gifts. The property concerned is the Trust capital and the disposition made breach the agreement and will defeat the agreed gifts.
(f) There is good reason for the orders as the Trust capital is at risk of further dissipation for the reasons set out in her affidavits and in light of the second defendants’ refusal to provide undertakings to protect the remaining capital.
[71] The plaintiff filed five affidavits, dated 5 May and 7 May 2022, and 6 February, 22 March and 26 July 2023, in support of her application.
[72] The plaintiff relies on r 7.55(3) of the HCR, which allows the Court to order that a fund be paid into court or otherwise secured if the proceeding concerns the right of a party to the fund.
[73]The first and second defendants oppose the application on the grounds that:
(a) there has been no distribution of capital of the Trust to date;
(b) the Trust has made equal loan advances to each of the plaintiff and the third defendants totalling $155,992 each. These loan balances remain as assets of the Trust;
(c) the first defendant has received part repayment of his settlor’s advance loan and his current account in a manner consistent with the original architecture of the Trust. The balance of the settlor’s advance loan owing to him as at 31 March 2021 was $287,585. The Trust has not made any loan advances to the first defendant;
(d) the 2019 Deed of Appointment subsists and has not been revoked so there is no capacity or discretion for the trustees to distribute any Trust capital until the death of the first defendant, and there is no evidence that Trust capital is at risk of being dissipated in the future;
(e) there was no agreement of the nature alleged by the plaintiff;
(f) the 2019 Deed of Appointment conferred the same benefits to each of the plaintiff and third defendants as the original 2005 Deed of Appointment;
(g) the undertakings sought by the plaintiff are unnecessary, over-arching and oppressive;
(h) the plaintiff has not provided an undertaking as to damages;
(i) there has been no breach of trust by the second defendants;
(j) the doctrine of mutual wills does not apply;
(k) preservation orders should not be granted on a quia timet basis; and
(l) the overall justice of the case militates against an order being made in favour of the plaintiff.
The arguments
[74] The Court’s power to order preservation of property pursuant to r 7.55(3) is discretionary. The fundamental requirement that the property (or fund) exists, the right to which is in question in these proceedings, is not disputed by the parties. The issue is whether I should exercise my discretion to make the order. The order is not to be as “a matter of course”,21 rather, the onus is on the plaintiff to establish there is a “proper basis” to do so.22
[75]The plaintiff’s position is that:
21 Proco Holdings Ltd v Thompson HC Auckland, CO 2850/88, 3 February 1989 at 3.
22 Helicarr Helicopters v Watts (1992) 6 PRNZ 61, at 67.
(a) the trustees are precluded from distributing or removing capital from the Trust, pursuant to the Trust deed, 2005 Deed of Appointment (and its 2019 replacement), the alleged mutual wills of Mr and Mrs McEvedy, and their 2005 agreement of which she is a beneficiary;
(b) the trustees have permitted such removal and continue to do so;
(c) the plaintiff has sought from the trustees and first defendant undertakings to preserve and protecting the remaining Trust capital, to which the trustees have refused to provide except for an offer to preserve one-third of the capital as it existed from “time to time”;
(d) the first defendant has threatened to take capital for his own use and has made threats to the whole of the capital; and
(e) the orders would preserve the remainder of the capital while having little to no effect on the defendants.
[76] The defendants submit the intention of Mr and Mrs McEvedy was to treat their three daughters equally when the time came to distribute the Trust capital, not to create an irrevocable fixed Trust. They submit the revocation of the 2005 Deed was permitted and the 2019 Deed improves the plaintiff’s position by similarly restating the equal division principle but also because it contains a provision to the effect that if any of the daughters receive more than an equal share, then that is to be accounted for to ensure equality between them.
Discussion
[77] The Trust Deed provided the power at cl 4.1.2 to Mr and Mrs McEvedy to appoint the Trust capital during their lifetime. As well, Mr Tothill’s letter advising the couple prior to establishing the Trust, stated that the broad objective of cls 9 and 10 is to enable the trustees to administer the Trust assets “in very much the same way as you would be able to administer them had they remained in your own names”. This is in direct conflict with the plaintiff’s contention that the one-third share to each of the daughters was intended to be a fixed amount set in stone as at 17 August 2005 (plus subsequently added capital).
[78] The risk of dissipation is a factor for this Court to consider.23 The parties dispute whether there has been any distribution of the Trust capital. The issue here relates to the Education Fund, which Mr McEvedy set up to cover the future education costs of his grandchildren as it was both he and his wife’s wish that their grandchildren attend private schools. Mr McEvedy contends he has provided the funds for this from his personal assets, by reducing the loan he says is owed to him by the Trust. The first and second defendant’s argument here is two-fold: they submit Mr McEvedy was entitled to draw down the loan owed to him from the Trust to pay for the Education Fund, but also that he retained the ultimate discretion to appoint the capital as he wished to regardless.
[79] The defendants submit Mr and Mrs McEvedy shared a mutual intention but did not create binding obligations which would see them deprived of their assets permanently, supported by legal advice provided by Duncan Cotterill that did not mention a binding promise to divide the Trust capital equally and irrevocably between the three daughters nor to forgive all debt. The defendants submit the plaintiff’s causes of action depend upon an oral agreement to which she was not a party nor was she present when the agreement was discussed or purportedly made.
[80] Although, at this early stage of the proceeding, caution should be exercised in expressing an opinion about the strength of the plaintiff’s claim, nonetheless, an assessment of the merits, as best as can be ascertained is required. In this case, there have been a large number of affidavits filed supporting the parties’ respective contentions. Although the evidence in the case will largely involve an interpretation of the Trust Deed and related documentation, there are aspects of the plaintiff’s claim and the defendants’ response that will require a trial Judge to assess the credibility and reliability of the witnesses.
[81] On a preliminary assessment, it cannot be said that the plaintiff’s case is strong, but it may not be entirely without merit. The plaintiff refers to her various attempts to obtain information from the trustees, her offer prior to issuing proceedings to mediate the issue and her unanswered request for confirmation that the defendants’ costs are
23 Lewis v Poultry Processors (Holdings) Ltd & Ors (1988) 4 NZCLC.
not and have not been paid from Trust capital. On the other hand, the defendants contend that the plaintiff’s conduct has been far from exemplary. They refer to her taking Trust papers from Mr McEvedy’s home without his knowledge.
[82] The next question to consider is whether there is a proper basis or good reason to make preservation orders. The onus is on the plaintiff to satisfy the Court of this requirement. I am not persuaded that she has. The alleged threats made by the first defendant have not transpired but, in any event, it is the trustees that control the Trust income and capital and, if there are to be distributions, the trustees are required to be satisfied that they are appropriate in terms of the Trust Deed. Accordingly, it is not simply a case of the first defendant deciding to take whatever action he wishes to take.
[83] Further, I am satisfied that the first defendant is taking a responsible approach to these proceedings. He has advised the Court, via his counsel, that he will not be drawing on his loan in the meantime until these proceedings are resolved but, further, the amount of the loan concerned, contrary to the plaintiff’s contention, will not completely dissipate the Trust fund even if it was to be drawn down.
[84] As well, I am satisfied that the intention of the first and second defendants is that there will be, in due course, an adjustment made to ensure that the distributions made via the Education Fund are taken into account in the capital finally distributed to the third defendants when their entitlement of capital of beneficiaries arises.
[85] Although undertakings to this effect have not been provided, even taking into account the plaintiff’s estrangement from her family, there is nothing, in my view, to suggest likely untoward behaviour by the first or second defendants pending the outcome of the substantive hearing.
[86] In my view, the plaintiff has not discharged the onus of showing there is a “proper basis” or “good reason” to make a preservation order.
[87]The application by the plaintiff for preservation orders is dismissed.
Result
[88] The application for security for costs by the defendants is granted in the terms outlined in this judgment.
[89]The application for preservation orders by the plaintiff are dismissed.
[90] Costs should follow the event. Counsel for the defendants are to file any memoranda in respect of costs no later than 26 January 2024. Counsel for the plaintiff can file a memorandum in reply no later than 9 February 2024.
[91] As I have previously outlined, this proceeding, if it is to continue, cries out for resolution. It is a family dispute which should be able to be resolved. If the proceeding remains, a settlement conference is the obvious way forward. Although the defendants claim there have been many attempts to try to resolve matters between the parties, it may be that, with the presence of an Associate Judge facilitating a settlement conference, more progress can be made. The plaintiff has indicated her willingness to attend a settlement conference. Her position may change as a result of this judgment. The defendants were content to await the outcome of my judgment before considering whether to attend a settlement conference. I express the very strong view that, should the plaintiff remain willing to attend a settlement conference and should the proceedings remain in foot, the defendants would be well advised to reconsider their position. Having made these direct comments, however, I accept that it is a matter for the parties to decide what they wish to do from hereon in.
Harland J
10
0