Boddy v Symonds
[2021] NZHC 3124
•19 November 2021
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2019-409-140
[2021] NZHC 3124
UNDER The Trustee Act 1956 AND
IN THE MATTER
of the Estate of JOHN FRANCIS ALFRED CLAYDON, Deceased
BETWEEN
JASON JAMES BODDY, as executor and trustee of the Will of DARREN
JOHN CLAYDON
PlaintiffAND
CAROL LINDA SYMONDS and ELZABETH ROBYN DRABBLE
Defendants
Hearing: 16 November 2021 Appearances:
A G Whitcombe and N Reive for Plaintiff R A Peters for Defendants
Judgment:
19 November 2021
JUDGMENT OF ASSOCIATE JUDGE LESTER
BODDY v SYMONDS [2021] NZHC 3124 [19 November 2021]
[1] The defendants applied to strike out the amended statement of claim in this proceeding but withdrew their application following the completion of submissions on the basis an amended statement of claim was to be filed. Counsel were informed that a judgment would issue addressing the matters to be dealt with in the amended pleading.
[2] This proceeding was originally commenced in 2019 when the plaintiff was Darren John Claydon (Darren). Darren died on 27 April 2020. The present plaintiff, Mr Jason Boddy (Jason) is the executor and trustee of Darren’s estate.
[3] The proceeding concerns a Will Trust relating to the estate of Darren’s deceased’s father, John Francis Alfred Claydon (Mr Claydon), who died on 1 January 2003. The defendants are the executors and trustees of that Will Trust (the Trust).
[4] A dispute between Darren and the trustees first came before this Court in 2012, resulting in a judgment of Fogarty J in Claydon v Symonds.1 That proceeding concerned an application by Darren for the removal of the trustees of Mr Claydon’s estate.
[5]As Fogarty J summarised in his judgment:
[3] After making provision for the payment of his debts and administration expenses the will [of Mr Claydon] provided for the residue of the estate to be provided into seven parts: three of the shares being one share each to go to a friend, Beverley Lawson, to Elizabeth Drabble, one of the trustees, and to her husband Brian Drabble. The will then provided to hold the four shares on the following discretionary trust:
1.To invest the trust fund as if they were beneficially entitled to it;
2.To apply the income and capital of the trust fund for the benefit of such of my son, Darren John Claydon and his children (if any) as my trustees think fit;
3.To add any undistributed income to the capital of the trust fund;
4.On the death of my son at such earlier time as my trustees in their discretion think fit, to end the trust by distributing the trust fund
1 Claydon v Symonds [2012] NZHC 2501, (2012) 3 NZTR 22-026..
amongst such of my said son and his children then living as my trustees think fit.
5.My trustees may exercise their discretionary powers when and how they think fit and shall not be under any obligation to make payments to or for the benefit of all my said son and his children nor to ensure equality among those who are benefitted.
[6] Fogarty J then noted the Will provided:2 “If any of the gifts set out above fails, it should be added pro-rata to the gifts that do not” (the default clause). Mr Whitcombe, counsel who appeared for Darren at the hearing in 2012, submitted at the time that the default clause may mean one of the trustees, Mrs Drabble, might become a beneficiary (as might her husband, they each being recipients of one of the three one-seventh shares referred to above).
[7] The meaning of the default clause was not determined by Fogarty J but as will be developed below, it appears the trustees consider the clause made Mr and Mrs Drabble beneficiaries.
[8] The judgment recorded that, as at 2012, Darren was a sickness beneficiary living on the West Coast with his mother, in his mother’s house. He paid board to his mother and, as a beneficiary, had to be careful as to any other income or benefits he received. The amount of money in the Trust at that time was $190,000, described as “a good sum, but … not a particularly large sum”.3 Fogarty J said the trustees had to anticipate that Darren, who at that stage was in good health, would live to a good age and may or may not have children. Accordingly, the trustees had to take a long-term view and endeavour to keep capital intact and, if need be, hold some income back to accrue capital but also “insofar as they can, each year improve Darren’s living conditions by some income distribution”.4 His Honour, however, made it clear he was not giving a direction to the trustees but was essentially confirming what he saw had been their policy to date.5
2 Claydon v Symonds, above n 1, at [4].
3 At [7].
4 At [7].
5 At [8].
[9] The tenor of Fogarty J’s judgment is that the trustees were justified in accruing capital for the benefit of Darren’s long-term benefit. His Honour said the trustees were right in taking a long-term view of the Trust and of Darren’s needs. The Judge said:
[14] After the provision for the three specific beneficiaries the principal beneficiary is clearly Darren. He is a discretionary beneficiary. In that sense under the terms of the will the capital is not vested in him. … But it is plain that the intent of the instrument is that the estate funds will be used to his benefit in the discretion of the trustees during his life and also for his children, if he has them.
[10] After this proceeding was commenced in 2019, a judicial settlement conference was held in October 2019. The terms of what was expressed to be an interim agreement were recorded in a Minute of Associate Judge Paulsen dated 29 October 2019. One of the terms was that:
The parties have agreed on lines of communication which will allow for the trustees to be provided with an assessment of the plaintiff’s needs for decisions on any expenditure to be made for his benefit.
[11] The proceeding was adjourned to 20 April 2020 for a further telephone conference, it being hoped that arrangements would be put in place to resolve the plaintiff’s concerns and, if that was the case, that the proceeding could be discontinued.
[12] Following the settlement conference, Darren, and others writing on his behalf, made a number of further applications for assistance from the Trust. These included a replacement television, a hospital-grade bed, and new vehicle and ramps to assist with access to and from his mother’s home. In total 10 requests for assistance were made from 31 October 2019 to 8 January 2020, totalling $43,865.03 (the funding requests). Some requests received an acknowledgment, others did not. Some requests were expressly declined and some, while acknowledged, were not responded to.
[13] The requests that are before the Court were sent with an explanation as to why the application for assistance was made and were, in most cases, accompanied by a quote or a number of alternative quotes.
[14] The essence of the present claim against the trustees is that they failed to deal properly with Darren’s applications for assistance.
[15] It was also pleaded that as Mr and Mrs Drabble stood to benefit from the Trust if provision was not made for Darren, such motivated the trustees to not make provision for him, amounting to a conflict of interest.
[16] The core allegation made by the plaintiff is that the trustees’ failure to agree to the funding requests was a breach of the fiduciary duty they owed to Darren. The reasons for that allegation are not currently pulled together in one pleading but seem to be as follows:
(a)it is said the trustees had knowledge of Darren’s terminal illness, yet they invested the money in such a way that it was “tied up”, meaning that the trustees fell back on the excuse of not having available funds as a reason for not responding positively to the requests for assistance (when they did respond);
(b)the trustees were in a conflict of interest situation; and
(c)the trustees failed to have regard to Fogarty J’s conclusion that Darren was the principal beneficiary of the Trust and given his terminal illness and that he had no children, the need to preserve capital identified by Fogarty J was no longer a priority.
[17] A further issue to be considered by the plaintiff when re-pleading is the extent to which the trustees may have assessed funding requirements on an incorrect basis. While this overlaps with the conflict of interest point, it is a separate argument as, if correct, it will mean the trustees have misunderstood the terms of the Trust.
[18] The issue arises because of para [26] of the statement of defence to the amended statement of claim, where the defendants say:
Darren was not the sole beneficiary. Darren was a discretionary beneficiary during his life. The defendants as trustees also had a duty to the residuary beneficiaries not to fritter away the residue of the estate in response to Darren’s whims.
[19] It appears that the trustees treated the default clause as giving Mr and Mrs Drabble the status of residuary beneficiaries. Whether the default clause has that effect is open to debate. There is an element of a self-fulfilling prophecy in the trustees’ approach. The default clause only applies if a gift fails. That would normally carry the connotation that Darren died before the Trust could be fully distributed for his benefit or if he died with no children.6 By contrast, the trustees’ seem to have acted on the basis they would not distribute funds to Darren to ensure there would be a fund in existence when he died, hence bringing about the “failure” of the gift.
[20] Mr Reive, who presented the submissions on behalf of the plaintiff, submitted that the plaintiff intended to pursue recovery on an account of profits basis – the profit being the benefit received through the operation of the default clause. Again, the plaintiff’s case was the default clause only operates because of the breach of fiduciary duty by the trustees. However, the plaintiff will need to consider that the defendant, Ms Symonds, does not stand to receive any benefit/profit under the default clause. The other individual who stands to benefit is Mr Drabble, who is not a defendant.
Costs
[21] While the application to strike out was withdrawn, it was on the basis that an amended statement of claim would be filed. I am satisfied the statement of claim requires amendment. With the application withdrawn, the plaintiff, who is in receipt of legal aid, was obliged to apply for costs. Given the need for amendment, I am satisfied this is an appropriate case where costs should lie where they fall.
[22] However, it is appropriate that the defendants be aware that as this is hostile litigation they do not have an automatic right to take their costs from the Trust fund. Claims by beneficiaries concerning the propriety of any action taken by the trustees are regarded as hostile litigation with costs following the event and not paid out of the trust estate.7
6 See the discussion in W M Patterson Laws of New Zealand Wills: Incidents and Failure of Gifts at [100], which indicates that a gift fails because of a change in circumstances – for example, the death of a beneficiary or other change in circumstances – not because a trustee elects not to make a distribution.
7 Alsop Wilkinson (a firm) v Neary [1996] 1 WLR 1220 (Ch) at 1224.
[23] Accordingly, while costs lie where they fall in respect of the present application, had there been a costs award against the trustees, they would have to have paid that from their own personal funds.
[24] All parties need to think carefully about the economics of this proceeding. The issues are not straightforward, the costs of the proceeding will very quickly consume the amounts in issue and, as noted, the trustees may have to meet costs from their own funds if they lose.
[25] The plaintiff is to file and serve his amended statement of claim together with initial disclosure in relation to that claim within 20 working days of the date of this Judgment.
[26] If counsel consider that a judicial settlement conference held at the Greymouth High Court would assist, then such could be accommodated in the New Year. In that case, if counsel agree, the filing of the amended claim could be deferred to avoid unnecessary costs. If counsel wish to adopt that course, they should file a joint memorandum within 10 working days and a judicial settlement conference date can be allocated.
Associate Judge Lester
Solicitors
Whitcombe Guinness & Kitchingham, Greymouth Alpers & Co – Northwest Law Office, Christchurch
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