Broderick v Broderick
[2015] NZHC 1038
•18 May 2015
IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY
CIV-2014-488-203 [2015] NZHC 1038
BETWEEN DALE BRODRICK AND ALEXANDER
BRODRICK AS TRUSTEES OF TE WHANAU TRUST
Plaintiffs
AND
MARIA BRODRICK Defendant
Hearing: On the papers Appearances:
J Browne for applicants
A Easterbrook for respondentJudgment:
18 May 2015
JUDGMENT OF LANG J
[on application for review of Associate Judge's decision in relation to costs]
This judgment was delivered by me on 18 May 2015 at 2 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
BRODRICK v BRODRICK [2015] NZHC 1038 [18 May 2015]
[1] In this proceeding the trustees of the Te Whanau Trust (the Trustees) sought a vesting order under s 52 of the Trustee Act 1956 (the Act). The defendant, Mrs Brodrick, was formerly a trustee of the Trust. The current trustees alleged that she had failed to transfer her interest in the property to the Trustees after she had been removed as a trustee in September 2014.
[2] The Trustees discontinued the proceeding prior to the expiry of the time within which Mrs Brodrick was required to file a statement of defence. This occurred after the parties reached a settlement under which Mrs Brodrick agreed to execute a transfer of her interest in the property to the Trustees in return for receiving an indemnity from them in respect of any liability she might have in relation to the trust’s indebtedness.
[3] The settlement left open the issue of costs. The Trustees sought an award of costs in their favour on the basis that they had effectively succeeded in obtaining the relief they sought in this proceeding, albeit by agreement rather than by order of the Court.
[4] In a decision delivered on 10 March 2015, Associate Judge Bell directed that costs were to lie where they fall.1 The Trustees apply for review of that decision.
Relevant principles
Application for review
[5] The issue of costs is governed by Part 14 of the High Court Rules. Rule 14.1 provides that all costs are at the discretion of the Court. The application for review is therefore an application to review the exercise of a judicial discretion.
[6] Although the application proceeds by way of rehearing, nevertheless the Associate Judge must be shown to have erred in the manner in which he exercised his discretion. Reviewable error may be shown if the decision was plainly wrong, or
1 Brodrick v Brodrick (Costs Minute) HC Whangarei CIV-2014-488-203, 10 March 2015.
was based on an erroneous application of principle. Alternatively, review may be appropriate where the tribunal exercising the discretion has taken into account an irrelevant consideration or has failed to take into account a relevant consideration.2
Costs
[7] Although costs are at the discretion of the Court, the discretion must be exercised having regard to the principles contained in r 14.2 of the High Court Rules. To the forefront of these is the principle that the unsuccessful party in a proceeding should pay costs to the successful party.
[8] Rule 15.23 provides further guidance, however, in cases where costs are sought after the plaintiff has discontinued a proceeding. It provides that, in the absence of agreement or order, a plaintiff who discontinues a proceeding must pay the defendant’s costs up to the point where the proceeding is discontinued. This is based on an assumption that discontinuance by the plaintiff is ordinarily tantamount to judgment for the defendant.3
[9] The Court of Appeal recently reviewed the principles to be applied in this context in Powell v Hally Labels Ltd.4 The following principles can be extracted from that decision:5
[10] Although the Court retains its discretion in relation to costs, it does not lightly allow a plaintiff to displace the presumption that discontinuance will require costs to be paid to the defendant.
[11] The Court will permit a plaintiff to demonstrate why the discontinuance should not be regarded as a failure. This is
consistent with the principle that costs should follow the result.
2 May v May (1982) 1 NZFLR 165 (CA) at 170.
3 Powell v Hally Labels Ltd [2014] NZCA 572.
4 Powell v Hally Labels Ltd, above n 2.
5 At [20]–[24].
[12] The Court may also consider, in a clear case, why the parties brought and/or defended the proceeding, and whether steps taken in it were reasonable. This recognises that the interests of justice may occasionally require such matters to be taken into account. This is not, however, to invite a general inquiry into the reasonableness of the parties’ conduct.
[13] The plaintiff will not generally be able to displace the presumption merely by showing that it had merit on its side. The Court will not generally consider the merits unless they are immediately apparent.
[14] The reluctance to enquire into the merits reflects the objectives of the rules, which is to allow a plaintiff to end a proceeding unilaterally and thereby fix its liability for costs at that point. Post-discontinuance inquiries into the merits of the respective cases and/or the reasonableness of the parties’ conduct prolong the proceeding and put the parties to further expense. This in
turn discourages discontinuance in other appropriate cases.
The facts
[15] Mr and Mrs Brodrick were the owners of a rural property near Paparoa. Mr Broderick was formerly the owner of the property, but he transferred it to himself and his then wife as trustees of the Te Whanau Trust on 4 July 1997.
[16] Difficulties subsequently arose in the relationship between Mr and Mrs Brodrick. It appears they separated, and then became involved in a dispute regarding relationship property.
[17] The dispute that led to this proceeding arose as a result of correspondence between the solicitors acting for the parties about a proposed sale of the property. This began with a letter from the Trustees’ solicitors to Mrs Brodrick’s solicitors on
22 November 2013. Mrs Brodrick’s solicitors responded by letter dated
12 December 2013, advising the Trustees’ solicitors that Mrs Broderick considered
the property to be beneficially owned by herself and Mr Brodrick rather than by the trust. She therefore agreed to the sale, but asked to be kept informed about the sale process. She also suggested that debts owing by Mr Brodrick personally should be paid from his share of the sale proceeds.
[18] The Trustees’ solicitors did not respond to this letter for nearly ten months. Their eventual response on 30 September 2014 attached material confirming that Mr and Mrs Brodrick had acquired and mortgaged the property in their capacity as trustees of the Te Whanau Trust. The letter went on to say:
6The property is the sole asset of Te Whanau Trust. In circumstances where Maria has denied the property is held in trust and has refused to exercise her duties as trustee (and assuming she will not change that position), Dale has been left with no choice but to remove Maria as trustee of the Te Whanau Trust. Pursuant to Dale’s powers as appointor trustee under the Trust Deed of the Te Whanau Trust and section 43(1)(d) and (e) of the Trustee Act 1956, Dale has executed a deed appointing Alexander Dale Brodrick as trustee of the Te Whanau Trust, in the place of Maria. We enclose a copy.
7.We enclose a client authority and instruction form for an electronic transaction, authorising us to transfer the title from Maria to Alexander as trustee of Te Whanau Trust. Please arrange for the form to be signed, witnessed and returned to us, no later than Wednesday, 8
October 2014.
[19] Mrs Brodrick’s solicitors replied to this letter on 4 November 2014. They did not protest against the grounds on which Mr Brodrick had exercised his powers to remove Mrs Brodrick as a trustee and replace her with their son. Rather, the letter contained a number of allegations about the manner in which Mr Brodrick had allegedly operated the trust since 2001.
[20] The letter went on to advise that Mrs Brodrick would agree to transfer her interest to Mr Brodrick provided he agreed to certain conditions. One of these was that Mrs Brodrick would register a caveat over the title to the property to secure a sum of money that Mr Brodrick evidently owed her. Mrs Brodrick also sought an indemnity both from Mr Brodrick in relation to his personal debts and from the Trustees in respect of a debt owing to a company called Dimension Surveyors Ltd. The letter ended as follows:
Please confirm whether your client would agree to the above. If not we invite you to file proceedings which will be defended on the above grounds. Our client is also likely to bring a counter-claim. We are authorised to accept service.
[21] Mr Brodrick’s solicitors responded on 10 November 2014 refuting the
assertions made against their client. The letter ended as follows:
3Dale has instructed us to prepare and file proceedings in the High Court if agreement on the terms below cannot be reached. Dale is conscious of his duty as a trustee to Te Whanau Trust, so would like to extend a final opportunity to Maria to resolve matters without needing to file proceedings. We trust you will advise Maria of the evidential, discovery and cost burdens of defending proceedings in the High Court.
4Please let us know if you will agree to the above terms by no later than 5 pm, Monday 17 November 2014.
[22] This letter evidently did not elicit a favourable response, because the Trustees' solicitors filed the present proceeding on 5 December 2014 and served it on Mrs Brodrick on 17 December 2014. On the latter date they wrote to Mrs Brodrick’s solicitors in the following terms:
4. We refer to the terms of settlement offered in our letter of 10
November 2014. Our clients wish to extend that offer to Mrs Brodrick for a further period, to be accepted by no later than 5pm Monday, 22
December 2014.
5In the light of the evidence the parties have exchanged to date, we believe Mrs Brodrick is acting unreasonably in refusing to transfer the property to the new trustees. In the event Mrs Brodrick defends these proceedings, our clients intend to seek indemnity costs from Mrs Brodrick. We reserve our clients’ rights to bring the contents of this letter to the attention of the Court on the issue of costs.
[23] Through their solicitors the parties then made further efforts to resolve the dispute during January 2015. They eventually reached agreement on or about
2 February 2015, when their counsel filed the notice of discontinuance accompanied by a joint memorandum advising the Court that the parties had reached agreement to settle the proceeding “on terms consistent with the order sought in the plaintiffs’ claim”.
[24] Although the evidence is not entirely clear on the point, it would appear that the proceeding settled (with the exception of costs) on the basis set out in a letter
sent by Mrs Brodrick’s solicitors to Mr Brodrick’s solicitors dated 30 January 2015.
This contained the following passages:
2.She will agree (without prejudice to any of her claims) to the transfer of land to your client and Alexander. A copy of the signed A&I form is enclosed. It is provided on the basis that your client will withdraw his application and provide a signed indemnity as offered in paragraph
5(b) of your letter dated 29 January 2015 provided the indemnity specifically refers to the dimension surveyors debt. We do not think that either party is personally liable for that debt, but our client requires the protection of an indemnity in case there is any challenge by the creditor.
…
d. None of your client’s offers to date, including his most recent, have included an indemnity that specifically covers the dimension surveyors debt. That has been our client’s major concern and we raised that with you on 4 November 2014. It needs to be specifically identified. If the indemnity is accepted as proposed, our client may need to prove the debt was incurred “by the trust” and that it was incurred during her tenure as trustee. We do not have that information to hand. In any event given the age and lack of surviving documentation, it may be difficult to prove if the indemnity does need to be enforced. Accordingly our client would be perfectly entitled to resist your client’s application on the basis that the continuing trustees have refused to ensure our client is released from and indemnified against trust debts.
The Associate Judge’s decision
[25] The Associate Judge noted that Mr Brodrick did not apply to the Court for Mrs Brodrick to be removed as a trustee. Instead, Mr Brodrick “pre-supposed he was entirely in the right” in taking that step. The Associate Judge noted that in most cases where the removal is likely to be contentious the normal procedure is to ask the Court to order the removal of the trustee and make consequential vesting orders. In the present case the Trustees had only sought a vesting order, an approach the Associate Judge observed was normally reserved for cases where the removal of the trustee is non-contentious.
[26] Against that background, the essence of the Associate Judge’s decision is
contained in the following paragraphs of his costs minute:
[7] The plaintiffs have not put sufficient information before the court to satisfy me that if the case had gone to a hearing the plaintiffs would have
established that Mrs Brodrick’s conduct came within s 43(1)(d) or (e) of the Trustee Act. The court might have ordered Mrs Brodrick’s removal, not because of any fault on her part, but simply because of the breakdown in relations between the trustees. In such cases, out of even-handedness the court will often remove both trustees. Mrs Brodrick’s offer to step aside is not of itself an acknowledgement that the plaintiffs could justify her removal under s 43(1)(d) or (e), but may be no more than a recognition that, given that the marriage was over, it was appropriate to resign.
[8] There is information in the correspondence that gives disquiet as to the way the trust has been run. The plaintiffs tried to downplay this by saying that the trustees could not be expected to manage the trust in the same way as would be expected of a professional trustee. However, Mr Brodrick’s use of the trust to provide security for personal legal aid charges, his prior adjudication in bankruptcy, and his failure to declare the trust to the Official Assignee all give rise to proper questions. I note that Mr Brodrick alleges that he has a debt back from the trust. Presumably that debt vested in the Official Assignee on his adjudication in bankruptcy. The parties seem to assume that Mr Brodrick is entitled to that money, but surely the Official Assignee should be collecting it in the interests of creditors. Mr Brodrick’s discharge from bankruptcy does not re-vest the asset in him.
[9] Before issuing this proceeding, the plaintiffs had asked Mrs Brodrick to co-operate in transferring her interest in the Paparoa-Oakley Road property to the new trustees. The background to this matter justified Mrs Brodrick in raising questions. The plaintiffs complain about her being “difficult” but in my judgment her lawyers were entitled to ask questions, given the questionable prior history
[10] …
[11] If Mrs Brodrick had defended this proceeding, she could have put the plaintiffs to proof that her conduct came within s 43(1)(d) or (e) of the Trustee Act. She saved them that trouble by agreeing to resign, even if she did so once proceedings had been issued.
[12] I do not accept that the plaintiffs have taken the proper course in this case - by that, I mean a peremptory removal of a trustee under an appointment clause, by alleging contentious grounds. If I were to order costs against Mrs Brodrick when that procedure had been used, it might be creating something of a “bully’s charter”.
Have grounds for review been established?
[27] Counsel for the Trustees has made wide-ranging submissions regarding errors allegedly made by the Associate Judge in reaching his decision. These include a submission that the Associate Judge wrongly embarked on an examination of the merits of the case, and erroneously took into account conduct that occurred before the Trustees issued the proceeding.
[28] I do not accept that the Associate Judge embarked on an examination of the merits, because he did not address the sole issue raised in the proceeding. This was whether the Trustees were entitled to obtain the vesting order they sought. It is also clear from Hally Labels that the Court may have regard to the reasonableness of the parties’ conduct in appropriate circumstances.
[29] It is clear from the passages set out above, however, that the Associate Judge’s principal concern related to the fact that Mr Brodrick had peremptorily used his powers of appointment to remove his former wife as a trustee in circumstances where that step was likely to be contentious. He obviously considered that such conduct amounted to behaviour of a type that ought to be discouraged.
[30] I accept there is an evidential basis for the Associate Judge’s concern, because Mr Brodrick exercised his powers to remove Mrs Brodrick as a trustee before his solicitors had explained to her why she was mistaken in her belief that the property did not belong to the trust. Mr Brodrick’s act in removing Mrs Brodrick as a trustee without advance warning and without giving her an opportunity to acknowledge her error was arguably an overly aggressive approach for him to have taken.
[31] Mrs Brodrick has never, however, raised the appropriateness of her removal as a trustee as being an issue of concern to her. Nor did she indicate the possibility that she might defend the proceeding on the basis that she had been wrongly removed as a trustee. Rather, she pointed to other matters giving rise to her concern about the manner in which Mr Brodrick had administered the affairs of the trust. The propriety of Mr Brodrick’s act in having Mrs Brodrick removed as a trustee has therefore never been in issue.
[32] I therefore consider the Associate Judge took into account, and was clearly influenced by, an irrelevant consideration. As a result, it is necessary to consider the issue of costs afresh.
What should be done?
[33] Given that the trustees ultimately succeeded in achieving their desired result, they can effectively be viewed as having been the successful party in this proceeding. That factor obviously lends weight to their assertion that they have displaced the presumption and are entitled to an award of costs.
[34] I consider, however, that the conduct of the parties prior to and after the commencement of the proceeding is a relevant factor in the present case. Throughout this period both parties took the opportunity through their solicitors to criticise the manner in which the other party had conducted himself or herself as a trustee. These issues occupied much of the correspondence, but can be put to one side for present purposes because they have no relevance to the sole issue with which the proceeding was concerned.
[35] One of the issues that Mrs Brodrick’s solicitors consistently raised, however, was their client’s concern that she be given an indemnity in respect of her husband’s liabilities and also the trust’s liability to Dimension Surveyors Ltd. This issue featured throughout the correspondence that occurred after Mrs Brodrick’s removal as a trustee, and it was the final issue that needed to be resolved before the proceeding could be settled.
[36] This was clearly an important issue, because in the absence of an indemnity Mrs Brodrick had no protection in respect of such debts. Normally the issue of an indemnity would be raised and resolved at the point where a trustee retires or resigns. In the present case Mrs Brodrick had no opportunity to raise the issue before her removal because Mr Brodrick gave her no advance warning that she was about to be removed. As a result, Mrs Brodrick needed to take such steps as she could to protect herself once she learned she had been removed as a trustee.
[37] The only realistic step that Mrs Brodrick could take to protect herself was to refuse to sign the transfer of the property until she had received an appropriate indemnity from the new trustees. This is what she elected to do, even though she knew that it could prompt the trustees to apply to the Court for vesting orders under s
56 of the Act. For their part the trustees elected to issue the proceeding even though
they must have been aware that Mrs Brodrick had raised a valid concern that they needed to address. The fact that they ultimately gave her a full indemnity in respect of the trust’s liabilities, including in particular the debt owing to Dimension Surveyors Ltd, underscores the validity of that concern.
[38] These factors persuade me that, although the trustees were justified in issuing the proceeding, Mrs Brodrick was also justified in refusing to execute the transfer of the property until such time as the issue of the indemnity had been resolved. I have therefore concluded, albeit for different reasons, that the Associate Judge was correct to make no order as to costs.
Result
[39] The application for review is dismissed.
[40] Costs should follow the event in the usual way. The respondent is entitled to costs on a category 2B basis together with disbursements as fixed by the Registrar.
Lang J
Solicitors:
Henderson Reeves Connell Rishworth, Whangarei
WRMK Lawyers, Whangarei
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