Burnside v Burnside (No 2)

[2017] NZHC 1678

IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY

CIV-2015-441-000043 [2017] NZHC 1678

BETWEEN

ALEXANDER CRAIG BURNSIDE

Plaintiff

AND

ROBERT JAMES BURNSIDE Defendant

Hearing:	On the papers
Appearances:	H N McIntosh for the Plaintiff H B Rennie QC for the Defendant
Judgment:	20 July 2017

JUDGMENT No 2 OF PALMER J (COSTS)

This judgment is delivered by me on 20 July 2017 at 1 pm pursuant to r 11.5 of the High Court Rules.

..................................................... Registrar / Deputy Registrar

Counsel/Solicitors:

H N McIntosh, Barrister, Wellington

Greg Kelly Law Limited, Wellington

H B Rennie QC, Wellington

Ord Legal, Wellington

BURNSIDE v BURNSIDE NO 2 [2017] NZHC 1678 [20 July 2017]

Summary

[1]      Mr Alec  Burnside  and  Mr  Robert  Burnside  litigated  about  a  number  of aspects of the administration of their father’s estate.   Now they each seek costs, against each other or to come from the estate. I consider it is primarily Alec’s and Robert’s jointly dysfunctional behaviour that has resulted in this litigation.   They each acted unreasonably.  The beneficiaries of the estate should not bear the costs of that. Accordingly, I order costs lie where they fall.

The substantive judgment

[2]      The summary of the substantive judgment of 29 March 2017 was:1

[1]       Mr Jim Burnside, who built substantial business holdings, died in

2003. His family has fallen out over aspects of administration of his estate. Mr Alec Burnside seeks to remove both himself and his brother, Mr Robert Burnside,  as  trustees  of  the  estate. Alec  also  seeks  a  declaration  about Robert’s obligations to distribute the net proceeds of a forestry harvest and orders that Robert pay $173,321 to the estate. Robert counterclaims seeking directions that the estate’s shareholding in Burnside Forests Ltd and Ravensdown be transferred to Robert.

[2]       I consider the dysfunctionality between the brothers is impeding the administration of the estate and I remove them both as trustees. I order the appointment of independent trustees through a specified process. I do not consider any order is required regarding the net proceeds of the forestry harvest.  I order  the  estate’s  shareholding  in  Burnside  Forests  Ltd  to  be transferred to, and vest in, Robert. I find the Ravensdown shares form part of the residue of the estate.

[3]       Behind the animosity created by mutual suspicion and resentment regarding the estate, I discern a wish for reconciliation on all sides. I encourage the Burnsides to put these issues behind them and move forward as a family.

[3]      The last paragraph of the judgment stated:

[72]      Alec has succeeded in his application to remove the trustees. Robert has succeeded in his counterclaim for the transfer of the BFL shares. Both sought costs. I am inclined to let costs lie where they fall. But I reserve leave for either side to file and serve brief written submissions on costs within 20 working days of the date of this judgment, to which the other party may respond within 10 working days.

[4]      The need for this judgment suggests paragraph [3] was not effective.

1      Burnside v Burnside [2017] NZHC 595 (Substantive Judgment) at [1]–[3].

Law of costs in the context of estates

[5]      It is a fundamental principle that costs follow the event – a losing party pays a winning party a contribution towards their legal costs.2    The question of who has won and who has lost is guided by the interests of justice and must be viewed in terms of “who in reality has been the successful party”.3

[6]      In the context of this case, the prior question is whether the legal costs of the parties, who were both trustees, should be met from the estate.  Section 38(2) of the Trustee Act 1956 (the Act) provides:

(2)   A trustee may reimburse himself or pay or discharge out of the trust property all expenses reasonably incurred in or about the execution of the trusts or powers; … :

provided that the court may on the application of the trustee allow such costs as in the circumstances seem just.

[7]      In addition, s 71 of the Act authorises the Court to order “the costs and expenses, and incidental to any application for any order” under the Act to be paid out of the trust property “or to be borne and paid in such manner and by such persons as to the court may seem just.”

[8]      Hammond J stated in Re O’Donoghue:4

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 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”.

[9]      If a trustee is successful in litigation brought as a trustee, and their position was reasonably taken, costs would ordinarily be payable from the trust property.  If a

2      Rule 14.2(a) of the High Court Rules and Manukau Golf Club Inc v Shoye Venture Ltd [2012] NZSC 109, [2013] 1 NZLR 305 at [8].

3      Waihi Mines Ltd v AUAG Resources Ltd (1999) 13 PRNZ 372 (CA) at [5]. See also Packing in Ltd (in liq) formerly known as Bond Cargo Ltd v Chilcott (2003) 16 PRNZ 869 (CA) at [6] (calling for “a realistic appraisal of the end result”).

4      Re O'Donoghue [1998] 1 NZLR 116 (HC).

trustee is unsuccessful, and their position was not reasonably taken, they will not be payable from the trust property.   So, for example, in Carmine v Ritchie the High Court held a trustee who unsuccessfully ran an active case challenging his or her removal, rather than adopting a neutral stance and seeking the Court’s direction “is personally exposed to costs, even if he or she acts on counsel’s opinion and in good

faith.”5

Submissions

[10]     In summary, Alec submits:

(a)      costs on Alec’s application to remove the trustees should be awarded on a 2B basis against Robert or alternatively against the Fund that is part of the estate;

(b)costs on the other trial issues regarding harvest proceeds, BFL shares and Ravensdown shares should lie where they fall, or Robert should get 2B costs reduced by a third, from the Fund; and

(c)      costs should lie where they fall on Alec’s interlocutory application to hear his claim before Robert’s and for two expert witnesses but Alec should get costs for another.

[11]     In summary, Robert submits:

(a)      Alec should not be awarded costs on the claim or the counterclaim, including the removal application, costs should be awarded against Alec on a 2B basis on the counterclaim and scale costs on Alec’s interlocutory application should be paid to Robert from the estate on a

2B basis, though they could be recovered directly from Alec; and

(b)      Robert’s actual and reasonable costs of defending Alec’s claim should

be paid by the estate Robert should get costs paid from the estate for one expert.

5      Carmine v Ritchie [2012] NZHC 2279 at [4].

Decision

[12]     Alec succeeded in his application for removal of the trustees.  Robert actively opposed it rather than adopting a neutral stance and seeking the Court’s direction.  In so doing his position was unreasonable. The dysfunction between the trustees was palpable.

[13]   Robert succeeded in the other trial issues (though only partly on the Ravensdown shares) and in opposing the interlocutory application.  Alec’s position on them was unreasonable.  Robert was legally required to take the position he did on the forestry harvest proceeds, the BFL share transfer should have been effected

13 years earlier and it was clear all issues had to be tried together.

[14]     There would be some basis for ordering that each of Alec’s and Robert’s costs of the issues on which they succeeded should be met by the estate and they should pay costs to the estate on a 2B basis for the issues on which they failed.  Depending on the calculations those countervailing costs orders may balance each other out.

[15]     However, I consider that would result in the estate bearing too much of the cost of this litigation.   It is primarily Alec’s and Robert’s collective dysfunctional behaviour that has resulted in this litigation.   They each acted unreasonably.   The beneficiaries of the estate should not bear the costs of that.  The costs of the experts at trial should also lie where they fall.

Result

[16]     Accordingly, I order that costs lie where they fall.

..................................................................

Palmer J