Burrows v Rental Space Ltd HC Auckland M1405/98

[2001] NZHC 770

IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY M1405/98

IN THE MATTER of ss 174 and 241(4)(d) of the Companies Act 1993

BETWEEN S J BURROWS
Plaintiff

AND RENTAL SPACE LTD
First Defendant

AND P G HEMMING
Second Defendant

AND C A HEMMING
Third Defendant

AND P J HEMMING
Fourth Defendant

AND P G HEMMING & ORS as the trustees and executors in the estate of M O Hemming
Fifth Defendants

CP402/98

IN THE MATTER of the estate of M O HEMMING

BETWEEN S J BURROWS
Plaintiff

AND P G HEMMING & ORS as the trustees and executors in the estate of M O Hemming
Defendants

Date of hearing: 20 August 2001

Counsel: Hugh Fulton and George Ireland for S J Burrows
David Smith for all other parties

Date of judgement: 21 August 2001

JUDGMENT OF CHAMBERS J

Lawyers
Milne Ireland Walker, DX CX 10256, Auckland, for S J Burrows
Cairns Slane, DX CP 24005, Auckland, for all other parties

Judgment of 7 June 2001

[1] On 7 June 2001 I gave judgment in the two proceedings brought by Sheryl Burrows. Two matters were left to be finalised. One was directions under s 66 of the Trustee Act 1956. The other was costs.

[2] One other matter has subsequently arisen. That is the question of what role, if any, the court should play with respect to the replacement of a trustee who wishes to resign.

Directions under s 66

[3] I make the following directions under s 66:

(1) The trustees must hold an annual meeting for formal and timely consideration and approval of annual financial statement.

(2) The trustees must hold such further meetings as are desirable.

(3) Where possible, 28 days’ notice of meeting must be given.

(4) There must be a formal agenda for each meeting, circulated to the trustees so as to reach each of them not less than 14 days before the meeting.

(5) The trustees must keep a formal minute book containing approved copies of minutes and trustees’ resolutions and the minute book must be available for perusal by all the trustees.

(6) The annual meeting must be held not less than three weeks after the trust’s draft financial statements intended for approval are circulated to the trustees together with proposals on the treatment of income. The meeting may approve the draft financial statements and decide on the treatment of income to be incorporated in the accounts.

(7) Any trustee not attending a meeting in person may attend by telephone link or other reasonable communication system.

(8) The trustees must make all reasonable endeavours to reach a consensus. Majority decisions may be made only after all trustees have formally consulted and each has had an opportunity to express views and opinions at a meeting.

(9) Sheryl Burrows may be accompanied to any meeting by a support person whose function is to assist her.

(10) Where there is an independent trustee, he or she must, in the absence of agreement to the contrary, chair any meeting.

(11) Trustees must disclose to each other all information relevant to the administration of the trust.

(12) The trustees must monitor fully and carefully the investments of the trust, and in particular its investment in Rental Space Ltd.

[4] Most of those directions are made by consent. I comment only on those not made by consent. I have made direction 10 because it is important, I think, to have a default position as to who is to chair trustee meetings in the event that the trustees cannot agree on a chair. The independent trustee is likely to be a professional person. He or she will be used to chairing meetings. The independent trustee is the trustee most likely to be in a position to ensure that meeting procedure is fairly administered. I have made direction 11 to remind all trustees of their duty to keep each other informed about trust affairs. I have made direction 12 to remind the trustees that they must monitor carefully the trust investments, and in particular the trust investment in Rental Space Ltd. I would expect that company to have at least an annual general meeting to which all the trustees should be invited. This will then give each trustee the opportunity to ask questions of Phyllis Hemming in her capacity as governing director of Rental Space.

[5] Mrs Burrows sought some further directions which I have not been prepared to make. First, she wanted a direction that if she was unable to attend a meeting personally she could nominate another to act as her proxy. Such a direction is beyond the scope of s 66. Mr Fulton, for Mrs Burrows, pointed out to me the power under s 31 to delegate trusts. While I have not studied that section, it may be that Mrs Burrows will be able to utilise that power in appropriate circumstances.

[6] Secondly, Mrs Burrows noted the intention which Peter Hemming and Christine Hemming had expressed in court, namely that on their mother’s death the company and the trust would be wound up with the assets being distributed equally among the children. Mrs Burrows asked that that intention should be made legally binding by way of shareholders’ agreement or by amendment to the constitution of the company. Clearly such a direction is beyond the jurisdiction of s 66. I would certainly not be prepared at this stage to direct the trustees on how they should exercise their discretion upon Phyllis Hemming’s death.

[7] Thirdly, Mrs Burrows sought some specific directions relating to Rental Space. I have dealt with that matter by means of the more general directions 11 and 12 made above.

[8] Finally, Mrs Burrows sought a direction that withdrawals from the trust fund must be authorised by the independent trustee and one other trustee. There is no need for such a direction. The trust does not have a chequebook. Any dealing with trust property must be agreed to by all the trustees, save in the circumstances where a majority decision may be made.

Costs

[9] I make the following costs orders:

(1) Mrs Burrows must pay costs to Rental Space and the trust:

(a) as to steps taken in CP402/98 and M1405/98 before 1 January 2000, in accordance with the scale prevailing before the High Court Amendment Rules 1999 came into force;

(b) as to steps taken after 1 January 2000, in accordance with items 14-20 on Mr Smith’s schedule; -

in each case reduced by 40%.

(2) The costs paid are to be allocated 50% to Rental Space and 50°/o the trust.

(3) Mrs Burrows must pay disbursements (in the absence of agreement, as fixed by the registrar) to whichever party incurred them, reduced by 40%. In the case of Telfer Young and Hardie Shalders, I direct that disbursements be fixed at a rate of $60 an hour ($100 x 60%) for whatever time they spent.

(4) Costs in M1500-SD99 are to be fixed by Paterson J.

[10] I make the following comments with respect to these costs orders. In particular I am keen to explain why I have not adopted either party’s position in full. First, Mrs Burrows argued that costs should fall where they lie. That was on the basis that neither side had been completely successful and the result could be described as “a draw”. I reject that submission. The fact is that Mrs Burrows did not succeed in either proceeding with respect to the relief she sought. The other parties were justified in defending both proceedings and accordingly are entitled to costs in terms of the fundamental principle governing the determination of costs. At the same time some disquieting features, particularly with respect to the administration of the trust, were unearthed. That is reflected in the fact that I have seen fit to make directions under s 66 of the Trustee Act even though such directions were not initially sought by Mrs Burrows. The correct judicial response in these circumstances is to reduce the costs that would otherwise be payable to reflect Mrs Burrows’s partial success.

[11] Secondly, it is appropriate that Mrs Burrows should contribute towards the defendants’ costs in retaining valuers. It is true that the valuers did not ultimately have to give evidence because the parties reached agreement. But the retention of valuers was a responsible and necessary step. It would send quite the wrong message if a party were to be denied recovery of the cost of an expert because the parties responsibly reached an agreement which obviated the need in the end to call the expert as a witness. For the same reason that costs should be reduced by 40%, so too should disbursements be reduced by 40%.

[12] Mr Smith, for the defendants, had claimed costs solely under the new scale. I reject that approach in light of r 5 of the High Court Amendment Rules 1999. Applying the old scale to steps taken before 1 January 2000 does not “lead to an unjust result”, as Mr Smith conceded. Mr Smith did make the point that the old scale was unrealistically low. I accept that in many cases it could be, especially with respect to substantive hearings and preparation for substantive hearings. The substantive hearing and the preparation for the substantive hearing are in this case, however, covered by the new scale. I believe the old scale is fair in this case, particularly given that this was a dispute among family members.

[13] Secondly, Mr Smith asked me to fix the costs in a related proceeding M1500-SD99. That was a case heard by Paterson J. It is appropriate, I think, that he should fix the costs in that proceeding.

[14] I conclude this part of the judgment with a brief comment on a recently reported costs decision, Shephard v All Steel Services Limited (2000) 14 PRNZ 707. In that case a successful party had sought costs in the sum of $2,448.75. The other party apparently took issue “with the inclusion of GST of $268.75”. Counsel submitted “that the prescribed rates in the Second Schedule on which the claim [was] based should be treated as GST inclusive”. Rodney Hansen J agreed that the prescribed rates should be treated as GST inclusive and accordingly allowed costs of only $2,180.00. With respect, that decision is wrong. Costs between parties are GST neutral. The losing party when required to make a contribution towards the successful party’s costs is not paying for a service provided to it by the successful party or its lawyers. I have discussed this matter with Rodney Hansen J and with Fisher J, chair of the Rules Committee. Both agree with the views I have just expressed and have authorised me to say that they do so agree. Shephard should be regarded, therefore, as wrongly decided. Rodney Hansen J did not have the benefit of full argument before giving his brief three paragraph decision. He certainly never envisaged that the decision would be reported.

Replacement of independent trustee

[15] Counsel informed me that Stewart Germann, currently the only non-family trustee, wishes to resign as soon as this judgment is delivered and this acrimonious period in the trust’s history comes to a close. The family trustees have been trying to agree on a replacement for Mr Germann. So far they have not been able to agree on a suitable person. I do not believe there is any assistance the court can give the parties at this stage. If ultimately the parties cannot agree on a replacement trustee, then presumably some member of the family will need to make an appropriate application to this court. I have considered whether this file should remain open for that purpose. On balance I have decided that that is not appropriate. If the court’s assistance is ultimately required, a new proceeding will need to be commenced.