Boyd v Connolly

[2016] NZHC 2070

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2014-485-603154 [2015] NZHC 2070

IN THE MATTER

of an application for Probate in Solemn

Form

IN THE MATTER

of the Estate of Fiona Marie Duncum

BETWEEN

KAREN MICHELLE BOYD Plaintiff

AND

SEAN CONNOLLY Defendant

On the papers
Judgment:	1 September 2016

JUDGMENT AS TO COSTS OF THOMAS J

This judgment was delivered by me on 1 September 2016 at 4.30 pm pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date:………………………….

BOYD v CONNOLLY [2016] NZHC 2070 [1 September 2016]

Introduction

[1]      Ms Boyd and Mr Connolly were executors and trustees of an estate. Each disputed whether the other should remain in those roles. On 19 November 2015, I issued  my  judgment  with  the  result  that,  as  sought  by  Mr  Connolly,  both Mr Connolly and  Ms  Boyd  were  replaced  as  executors  of the  deceased  estate.1

Ms Boyd had sought that the Court replace Mr Connolly with an independent lawyer

(a different one from the lawyer ultimately appointed).

[2]      Ms Boyd now seeks that her costs be paid out of the estate. This application is opposed by Mr Connolly, who also seeks indemnity costs. Mr Connolly seeks indemnity costs of $15,663 (excluding the sealing of the judgment and excluding costs of subsequent costs memoranda), and Ms Boyd seeks $67,864.85, comprising both   counsel costs of $25,004.00, solicitor costs of $41,270.85, and $1,590.00 in disbursements for “Court filing, hearing and setting down fee”. Ms Boyd’s scale costs are $32,558.00.

[3]      I issued a minute on 9 March 2016 seeking clarification about the costs sought by the plaintiff, and whether they reflected solely costs of the proceeding or the wider costs incurred by the plaintiff in her role as executor. After receiving a response, I issued another minute on 1 June 2016 clarifying that only the costs incurred in pursuing this proceeding could be claimed and requesting that Ms Boyd file a memorandum specifically setting out the costs which were incurred in this proceeding.

Submissions

[4]      Both parties seek indemnity costs in line with the general principle in estate litigation that the personal representatives of estates receive full protection for their

costs incurred as parties to proceedings where incurring those costs was reasonable.

1      Boyd v Connolly [2015] NZHC 2884.

Challenge to Ms Boyd’s costs

[5]      Ms Boyd submits that bringing this case was necessary to determine the appropriate administrator, in circumstances where, due to the deceased’s failure to update her will, there was a conflict between Mr Connolly as executor and as a claimant under the Property (Relationships) Act 1976.   She maintains there was nothing in the conduct of the proceeding which would warrant departure from the usual principle of awarding her full indemnity costs.

[6]      Mr Connolly submits that, although the general principle is that litigation arising due to the fault of the testator may warrant full costs being paid from the estate, there is a residual discretion to award costs in a way which achieves justice between the parties. Mr Connolly says the actual costs in this case were excessive and unnecessary, making it unreasonable that the estate be liable for them in full. In particular, he says that not all the scale costs claimed were in fact incurred (for example, there was no list of issues, authorities or common bundle), that the time claimed to have been taken for some steps cannot, in fact, have been spent, and that the time taken for other steps was unreasonable.

[7]      Mr Connolly submits that it is appropriate that the estate should meet some of the plaintiff’s costs, and proposes either that both parties receive the same costs, or that the plaintiff receive scale costs (subject to some reduction in scale where the scale costs exceed the actual costs), or that the invoices for which the plaintiff seeks reimbursement be reviewed by an appropriate qualified practitioner to determine their reasonableness.

[8]      My minute of 9 March asked Ms Boyd to explain whether her costs reflected solely her costs for the litigation of this proceeding, or whether they included general legal work on the estate. It also asked her to explain the high level of costs.

[9]      In response, Ms Boyd says that the work involved in the proceeding was substantial. She says that it included substantial correspondence to deal with matters raised by the defendant and “sundry matters” continued to arise concerning the estate. Despite these sundry matters arising, and the fact that Ms Boyd said she continued pursuing recovery of the assets for the estate pending the resolution of the

proceeding so as to not be negligent in her duties as an executor, the memorandum in response states that the quantum of the current costs application relates only to the period from when instructions were given to counsel to initiate the proceeding.

[10]     Ms Boyd says that Mr Connolly’s requirements in these proceedings were significantly less, because at points he represented himself. Ms Boyd also says that Mr Connolly should not receive costs because his costs were improperly incurred and he did not succeed in the subject of the proceedings.

[11]     In response, Mr Connolly submits that it remains unclear to what extent the costs sought by the plaintiff relate to this proceeding specifically. He says she was not “successful” in the proceeding, since she was also removed by the Court, and that the same outcome could have been achieved by adopting his proposed outcome.

[12]     Given Ms Boyd’s   submission that all the time records accompanying the

11 April 2016 memorandum related to the current proceedings, Mr Connolly points out that:

(a)      There was no need for the plaintiff to research, consider or prepare Notices of Claim prior to the hearing since the question of whether the plaintiff would have the authority to register them was unknown; and

(b)The letter of settlement related primarily to the relationship property and not to the issue of who should be executor.

[13]     Mr  Connolly  says,  although  he  did  at  times  represent  himself  in  the relationship property negotiations, counsel was entirely responsible for the conduct of  this  proceeding  aside  from  drafting  and  affirming  the  children’s  affidavits. Mr Connolly’s  position  remains  that  the  plaintiff’s  costs  were  excessive  and unnecessarily incurred.

Minute of 1 June 2016

[14]     My minute of 1 June 2016 reminded Ms Boyd and counsel that the current costs application was only in respect of the attendances and work necessary for the

hearing. Any other costs were for Ms Boyd to claim from the estate, and to be dealt with by the executor of the estate. I said:2

On the face of it, it is difficult to accept that legal fees of approximately

$67,864 were incurred in respect of a relatively straightforward proceeding. The statement of claim, which was drafted by Ms Hunter, was some 13

paragraphs  long  only.    The  statement  of  defence  to  the  counterclaim

comprised three paragraphs only, yet scale costs of two days are claimed in respect of that.

If  the  time  claimed  as  scale  costs  exceeds  the  actual  costs  incurred  in carrying out a step, the party will be in contravention of r 14.2(f) which states that an award of costs should not exceed the costs incurred by the claimant. Scale costs are only applicable if actual costs exceed the scale.3

It is also evident from the printout of the attendances that some of the work cannot  possibly  have  related  to  the  proceeding,  for  example,  the  work relating to a “s 42 claim”.

[15]     I directed Ms Boyd to file a memorandum setting out the costs which she claims were specifically incurred in relation to the proceeding, as well as addressing the issue of actual costs as against scale costs, and which of the steps were in fact incurred in relation to the proceeding.

[16] In response, Ms Boyd says that the original print out provided detailed the attendances in relation to the proceedings and was accurate. In relation to the s 42 claim, Ms Boyd says that preparing a Notice of Claim under s 42 was done in line with her fiduciary duties. She says that it was related very closely to the proceedings because the proceedings related to who should be the executor of the estate and that Mr Connolly was conflicted in his position.

[17]     She says that all of the email communications concerned the proceedings as they were about the issue of the “executor/s of the estate and the estate itself”. Further, she says that there were numerous attendances about the interests of the children in the proceedings, including the decision of Woolford J that the children did not need counsel. Ms Boyd says the interests of the children are directly related

to the proceeding.

2      At [11] – [13].

3      See, for example, Body Corporate No 189855 v North Shore City Council HC Auckland CIV-

2005-404-5561, 17 April 2008.

[18]     Ms Boyd also notes that various time records referring to Galvin Law and Julie Bremner/Brenna were about the estate, which, she says, was related to the proceedings. In sum, Ms Boyd says that her costs were reasonable and related to this proceeding.

Scale costs

[19]     Mr Connolly has challenged elements of Ms Boyd’s scale costs.  He states that some steps should be categorised as band A, and that the list of scale costs provided is not accurate as certain steps were not carried out. He also claims that the scale costs for some steps exceed the actual costs, based on the invoices provided.

[20]     I had drawn some of these possible inconsistencies to Ms Boyd’s attention

but this issue was not addressed in the responses.

Law

[21]     If the time claimed as scale costs exceeds the actual costs incurred in carrying out each step, the party will be in contravention of r 14.2(f) which states that an award of costs should not exceed the costs incurred by the claimant. Scale costs are only applicable if actual costs exceed the scale.4

[22]     Lawyers are also under a clear obligation to be accurate in their claims to the court, as officers of the court.5  If the costs claim in this case does not accurately reflect the actual time spent on the case, and the time spent was in fact less than the standard allocation of time under the High Court Rules, counsel for that party has an obligation to draw that fact to the court’s attention.

[23]     I also note that, given the principle that scale costs will represent around two- thirds of the actual costs of a party,6 it will typically be rare that the actual costs and

time expended on a particular step is less than that allocated in the High Court Rules.

4      See, for example, Body Corporate No 189855 v North Shore City Council HC Auckland CIV-

2005-404-5561, 17 April 2008.

5 Lawyers and Conveyancers Act 2006, s 4 and Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008, r 13.1.

6      Rules 14.2(d) and (e).

[24]    The Court must generally rely on submissions from counsel as to their entitlement to scale costs. If counsel were required to provide affidavits attesting to the time spent on each step in the proceedings to prove that their costs did not exceed scale costs, this might undermine the speed and efficacy of deciding costs claims and undermine  the  principle  that  the  determination  of  costs  be  predictable  and

expeditious.7 For example, in this case, Ms Boyd’s offer to have a third party lawyer

review the invoices provided would add an extra layer of costs onto the estate which

would materially disadvantage the deceased’s children.

[25]   For those reasons, although in Lee v Composite Cladding and Signage Manufacture  and  Installations  Ltd,  Woodhouse  J  stated  “a  party  paying costs is entitled to see the invoices to confirm that scale costs do not exceed actual costs, unless there is some good reason for not producing a copy”,8  I prefer the way in which Mackenzie J expressed the matter in Vance v Lamb:9

Under r 47(f) [the equivalent of r 14.2(f)], an award of costs should not exceed costs incurred. That principle does not, except where special circumstances  may  suggest  that  this  is  a  particular  possibility,  justify  a general inquiry into the level of costs actually incurred.

[26]     In Tapsell v Murray, Allan J also stated:10

[26] The practice of the Court will tend to vary from case to case with respect  to  the  requirements  of  r  47(f).  Where  it  is  a  matter  of  proper inference that a successful party must have incurred costs higher than those calculated in terms of schedule 3 as being payable by the unsuccessful party, there is no utility in requiring the successful party to demonstrate that the costs  actually  incurred  exceed  the  amount  of  the  potential  costs  award. Where however, the costs so calculated appear to be high, having regard to the likely costs actually incurred by the successful party, then a Judge may agree that the plaintiff must produce evidence of costs actually incurred in order to demonstrate that r 47(f) will not be infringed.

[27]     Rule 47(f) was the equivalent to the current r 14.2(f): “An award of costs should not exceed the costs incurred by the party claiming costs”. In this case, because (as discussed below) the plaintiffs’ invoices appear to cover all of the work

7      Rule 14.2(g).

8      Lee v Composite Cladding and Signage Manufacture and Installations Ltd [2013] NZHC 1652 at [9].

9      Vance v Lamb (2009) 19 PRNZ 512 (HC) at [12].

10     Tapsell v Murray HC Tauranga CIV-2005-470-889, 21 July 2008.

that  her  lawyers  performed  on  behalf  of  the  estate  during  the  period  of  the proceeding, it is impossible fully to determine whether the rule is being infringed.

[28]     In response to Mr Connolly’s claim that the specific amount of time spent on each step may not have exceeded or met the specific time allocation for each step, looked at in isolation, I note that there is no real means of determining the work done toward each step. Those steps can at times be artificially divided, in circumstances where a lawyer is dealing with several matters for a client at one time.

[29]     For these reasons, I have accepted Ms Boyd’s list of the items carried out as

scale costs.

Indemnity costs

[30]     Expenses incurred by executors in litigation are typically recovered from the estate.11 Although these cases typically involve a beneficiary challenging the actions of an executor, this is not exclusive. Indemnity costs can be awarded even when the party was unsuccessful.12

[31]     However, these rules are not absolute. The Court is not obliged to award indemnity costs to executors and trustees in all circumstances. Where an executor or administrator acts unreasonably in incurring an expense they may not be entitled to full indemnity costs from the estate.13 Hammond J in Re O’Donoghue said:14

The  classical  Chancery  principle  was,  from  the  outset,  that  it  is  only expenses which are “properly incurred” which are the subject of a trustee's indemnity. The authority most often cited for this is Re Beddoe (1883) 1 CH

547 at 558; but the principle still obtains today — see Holding & Management Ltd v Property Holding & Investment Trust PLC [1990] 1 All

ER 938 (CA). The direct consequence of this principle is that improperly incurred expenses fall upon a trustee personally. In that sense, a trustee is

always at risk when he or she incurs expenses.

There is a respectable volume of case law authority around in the British Commonwealth as to what may be regarded as “not improperly incurred expenses”. Necessarily,  given  the principle, these cases all appear to be

11     Stobie v Clouston [2015] NZHC 568.

12     Fraser v Chalmers (1997) 11 PRNZ 348 (HC) at 350—351; McFadzean v Moleta [2013] NZHC

2694 at [11] and the cases cited therein.

13     Re O'Donoghue [1998] 1 NZLR 116 (HC) at 122.

determinations on the factual position arising in a particular case. But the principle  that expenses  must  be  properly incurred necessarily requires  a trustee, if called upon, to demonstrate that the expenses arose out of an act falling within the scope of his trusteeship; whether it was something that his or her obligations required the Trustee to undertake; and whether the expense incurred was, in all the circumstances, “reasonable”.

…

[32]     In that case, Hammond J refused to allow an indemnity to the trustee who had been entirely unjustified in adopting the position he had, which had led to litigation. However, Hammond J specified that hiring a properly qualified person to carry out work that the trustee is not qualified to undertake is not unreasonable.15

[33]     In that sense, merely hiring a lawyer cannot have been unreasonable on the part of Ms Boyd. However, incurring costs unnecessarily or unreasonably without consideration, could amount to unreasonable behaviour which would warrant reducing the scope of the actual costs for which the estate is liable.

[34]     The responses from Ms Boyd continue to beg the question. It is accepted that trustees and executors usually receive indemnity costs. However, in a costs application  following  a  hearing,  this  Court  must  only allow  costs  if  they  were incurred in relation to this proceeding. This does not mean having some relation to the proceeding’s subject matter, but in fact being related to the specific proceedings.

[35]     Ms Boyd’s responses have not explained why the claims put forward include claims  for  work  other  than  what  would  have  been  necessary  to  prosecute  a proceeding for the removal of an executor. Her responses seem to take a broad view of what was related to this proceeding, as including anything related to her work as executor. Costs incurred by Ms Boyd while fulfilling general duties as an executor and trustee are not to be claimed from the Court. They must be sought from the estate separately.

[36]     Ms   Boyd’s   costs   are   very   high   for   a   short   hearing   and   relatively straightforward claim. They are more than twice scale costs, which is unusual since scale costs should be around two-thirds of actual costs, although clearly that metric

will not always be accurate. More problematically, when analysed, her invoices reflect work which could not have been attributed to the proceeding such as the Notice of Claim under s 42 of the Property (Relationships) Act 1976.

Discretion

[37]     Ultimately costs are at the discretion of the court.16 Trustees’ costs which are unreasonable but not entirely so may be not allowed or reduced.17 In Baird v Fisher, the Court granted probate to one of the two living named executors given one of the executors’ personal hostility to the other, and to some of the beneficiaries of the

estate. In assessing costs, the Court held that Mrs Fisher was entitled to resist the order for her removal as trustee and executor but awarded only 2B scale costs from the estate.18

[38]     In another line of cases, Judges have required executors and trustees who resisted their own removal to meet part of the costs of the successful party personally.19     These cases are again typically based on the reasonableness of the decision to take or defend the litigation rather than the reasonableness of the cost incurred in doing so. While these cases are not directly applicable to the current case, which involves competing executors who were both removed, they demonstrate that

executors and trustees are not immune to costs particularly where they contest their own removal.

[39]     In  Robinson  v  Henderson,  Ronald Young  J  dealt  with  an  application  to remove the three trustees and executors of an estate.20 The parties agreed they should be replaced but could not reach agreement on who should replace them, and the Judge determined that the Public Trust was suitable. The plaintiffs sought costs, and the defendant submitted that as they had taken a reasonable position, the estate should pay all costs. His Honour stated that he had seen the correspondence, and it

was clear that the plaintiffs had sought to avoid the need for proceedings, with the

16     High Court Rules, r 14.1.

17     The Cats' Protection League v Deans (2010) 20 PRNZ 584 (HC); Roberts v Francis [2013] NZHC 2144.

18     Baird v Fisher [2014] NZHC 1952.

19     Roberts v Francis, above n 17,at [34] – [35] and Mould v Harvey [2013] NZHC 3255.

20     Robinson v Henderson [2012] NZHC 1077.

defendant refusing to accept a number of proposals. He awarded 2B scale costs in favour of the plaintiffs, against the defendant personally.

[40]     Thus, despite the general principle that executors and trustees are entitled to a full indemnity from the estate, there remains discretion to award less than full costs in some cases depending on the trustee or executor’s behaviour.

Application

[41]     I remain uncomfortable with the level of costs accrued by Ms Boyd on behalf of the estate. More centrally, I am not satisfied that they reflect solely the work undertaken in relation to the proceeding, focused as it was on whether Mr Connolly or she should be removed as an executor and trustee.

[42]     In the absence of time recordings which more accurately allow analysis of what work the solicitors completed, it is very difficult to isolate and identify specific costs which were reasonable as opposed to those which were for work not directly necessary for the proceeding, as judges have done in other cases.

[43]     However, the case law does indicate that there is a broad discretion to assess the appropriate level of costs in trustee and executor cases. There is no requirement to grant indemnity costs.

[44]     As well as the sheer level of costs accrued by Ms Boyd (which are significant in isolation, not simply compared to Mr Connolly’s costs), the memoranda offered by Ms Boyd suggest some of her claimed legal costs are outside of the scope of this proceeding.

[45]     In my judgment, I noted a number of legal steps (such as arranging draft deeds to be drawn up) which were taken by Ms Boyd without Mr Connolly’s knowledge, and that she could not estimate what costs had been incurred by her on behalf of the estate. I said:

[43] My concern is reinforced by the costs which Ms Boyd has incurred without agreement and which she expects the estate to pay. The concern she expressed, that the lawyer proposed by Mr Connolly would be expensive and

focused on pursuing every single point, is therefore, somewhat ironic. I consider lawyers to be better placed at assessing when a matter is suitable for settlement by weighing up the advantages and disadvantages of continuing with legal action. In making such a decision, emotion will not cloud their judgment.

[46]   It is clear that there were issues in the original proceedings as to the appropriateness of elements of Ms Boyd’s behaviour and as to the costs she was incurring on behalf of the estate. Parts of these related to the engagement of the firm AscoLegal to perform work in the capacity of solicitors for the estate, without wider agreement of the estate.

[47]     In  my  view,  given  these  factors,  this  is  a  situation  in  which  granting indemnity costs is not justified. I consider that it would be reasonable to make an award of 2B scale costs with an uplift of 25 per cent from the estate. This reflects the reasonable costs  of  a proceeding  of this  size and  complexity,  with  an  uplift  to represent a rough approximation of what indemnity costs would likely be in a case such as this.

[48]     Since 2B scale costs are supposed to represent roughly two-thirds of the actual costs of a proceeding, an uplift of 25 per cent would in most circumstances represent just under 100 per cent of the reasonable costs of the proceeding. Such an award would result in a total of $42,287.50, over $20,000 less than Ms Boyd’s indemnity costs claim.

Mr Connolly’s costs

[49]     Ms Boyd has claimed that Mr Connolly should not receive costs because he

was unsuccessful in his application and his costs were “improperly incurred”.

[50]     Ms Boyd’s characterisation of herself as the successful applicant is at odds with the outcome. Although she obtained the removal of Mr Connolly, she herself was also removed as an executor (an outcome which she did not seek). In fact, this was what Mr Connolly had sought.

[51]     The cases referred to above require there to be unreasonable behaviour before a  trustee  is  not  entitled  to  indemnification  for their  own  costs  from  the  estate.

Mr Connolly’s opposition to the application was based on his view that Ms Boyd was an unsuitable executor and was running up unreasonable costs for the estate. This   was   a  reasonable  position   to   take.   Nothing  indicated   he   was   acting unreasonably or in an obdurate manner which prolonged the proceedings in some way.

[52]    Mr Connolly’s costs were below 2B scale costs. There is no barrier to indemnifying him from the estate.

Result

[53]     Mr Connolly is awarded his actual costs to be paid from the estate.

[54]     Ms Boyd is awarded 2B scale costs with an uplift of 25 per cent. This is not intended to preclude Ms Boyd from ultimately claiming the balance of costs she has incurred while reasonably acting for the estate. It means, however, that she must seek

reimbursement for those costs from the current administrator/executor of the estate.

Thomas J