Cornes v Hirst

[2023] NZHC 3000

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-1110

[2023] NZHC 3000

UNDER

sections 112 and 114 Trusts Act 2019 and the inherent jurisdiction of the High Court Rules

AND UNDER

Part 19 High Court Rules

IN THE MATTER

of the BELLE STOREY TRUST

BETWEEN

KATHRYN MAY CORNES, GREGORY GRAHAM CORNES, JORDAN WILLIAM CORNES AS BENEFICIARIES OF THE BELLE STOREY TRUST

Applicants

AND

JANETTE JOY HIRST AND CODYMO TRUSTEES NO 2 LIMITED AS

TRUSTEES OF THE BELLE STOREY TRUST

Respondents

On the Papers:

Counsel:

M I S Phillipps for Applicants

A Steele for First Named Respondent Janette Hirst
B P Thomas for Second Named Respondent Codymo Trustees No 2 Limited

Judgment:

26 October 2023

JUDGMENT ISAC J

[Costs]

CORNES, CORNES, CORNES TRUST v HIRST AND CODYMO TRUSTEES NO 2 LIMITED AS TRUSTEES OF THE BELLE STOREY TRUST [2023] NZHC 3000 [26 October 2023]

Introduction and the issues

[1]                 In this proceeding, the applicants, the beneficiaries of the Belle Storey Trust, sought the removal of the respondents as trustees of the Trust. However, the parties resolved the matter informally before it was heard and, in a joint memorandum dated 18 August 2023, sought orders by consent removing the respondents as trustees and appointing Comac Trustees Ltd in their place. I made the orders sought in a Minute of 21 August 2023,1 and issued a judgment the following day setting out my reasons.2

[2]                 In accordance with the parties’ joint memorandum, I ordered that they could file memoranda if they were unable to reach agreement as to costs.3 The parties have not been able to agree and have asked that the Court determine the issue.

[3]                 The applicants seek costs on a 2B basis of $10,038, and invite the Court to consider awarding increased or indemnity costs.4 The applicants also ask that their costs be met by the trustees personally on the basis that it would be unfair for the beneficiaries to bear the costs of bringing the proceeding.5 The applicants point to a financial investigation report issued by the Public Trust on 24 November 2022 pursuant to s 153 of the Trusts Act 2019. They say the report discloses significant deficiencies in the management and administration of the Trust which made it “abundantly plain” that the trustees had to retire. Nevertheless, Ms Hirst refused to accept service of proceedings by email when she was overseas in July 2023, and the respondents waited until after the date for filing an opposition to notify their consent to the application. It is said that these steps were unreasonable, frivolous, and put the applicants to unnecessary expense in the proceeding.

[4]                 The respondents oppose an uplift to costs on the basis that the applicants’ allegations (which are denied) concern pre-litigation conduct which is irrelevant to the question of costs. Further, the respondents seek indemnification from the Trust’s assets for their costs in the proceeding.

1      Cornes v Hirst HC Auckland CIV-2023-404-1110, 21 August 2023 (Minute of Isac J).

2      Cornes v Hirst [2023] NZHC 2293.

3      At [7(e)].

4      Disbursements of $740 are also sought.

5      Citing Borell v Tangitu (1990) 1 NZTR 0-001 (HC) at 5.

[5]There are three issues for determination:

(a)whether costs on a 2B basis are appropriate;

(b)whether the respondents’ conduct requires an uplift to costs; and

(c)whether the respondents ought to be indemnified for their costs in this proceeding.

Consideration

[6]                 First, I am satisfied that 2B costs are clearly appropriate. While the Court has received evidence indicating that the respondents refused to settle the issue of costs on a scale basis, counsel in their written submissions did not attempt to challenge the ordinary 2B costs sought by the applicants. Indeed, they could not sensibly have done so. The applicants were ultimately successful and the starting point is that costs will normally follow the event,6 and should be predictable and expeditious.7

[7]                 However, I do not consider that there is any conduct warranting an uplift. The scale applies by default where cause is not shown to depart from it.8 There is clearly no basis for indemnity costs, which are reserved for truly exceptional circumstances involving exceptionally bad or very unreasonable behaviour.9 Nor is there any conduct which would justify increased costs. I accept the respondents’ submission that the applicants’ real complaints are directed to conduct which occurred before the litigation commenced, and that such pre-proceeding conduct is clearly irrelevant to the question of costs.10 If the beneficiaries wish to pursue allegations of breach of trust or mishandling of trust finances against the respondents, the proper procedure would be to bring a claim for breach of trust.11 It is neither appropriate nor possible to determine such claims in the present context.

6      High Court Rules 2016, 14.2(1)(a).

7      Rule 14.2(1)(g).

8      Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [27]–[28].

9      At [27]–[28].

10     Jones v O’Keeffe [2019] NZCA 222, [2019] NZAR 1448 at [61]–[62]; and Paper Reclaim Ltd v Aotearoa International Ltd [2007] NZSC 26, [2007] 3 NZLR 169 at [40]–[41].

11 At [62].

[8]                 Turning to the trustees’ conduct during the litigation, I accept that it appears they may have acted in a rather uncooperative and untimely fashion, and that this put the applicants to the trouble and expense of obtaining orders for substituted service and drafting a memorandum which ultimately proved unnecessary. However, the scale makes provision for these steps. There is nothing which meets the threshold for increased costs.

[9]                 Finally, I accept that the respondents are entitled to be indemnified from the Trust’s assets for their costs in this proceeding. The principles relating to trustee indemnification were set out by this Court in Tillemans v Tillemans,12 and I adopt them gratefully.

[10]              The Trust Deed in the present case (a copy of which is attached to an affidavit by one of the applicants) appears to confer an extensive indemnity on the trustees. Clause 15.2 provides:

Where the Trustees take or omit any action or incur any liabilities, they do so as Trustees and not in their personal capacities. No person has recourse to any property belonging to any Trustee which does not form part of the Trust Fund.

Clause 15.5 then provides:

A Trustee is hereby fully and completely indemnified from the Trust Fund for any personal liability which that Trustee may sustain in:

a.exercising or omitting to exercise any function, duty or power of the Trustee; or

b.purporting, in good faith, to exercise as Trustee any function, duty or power which is not authorised or which may be a breach of this Trust;

unless such loss or liability is attributable to such Trustee's fraud, dishonesty or wilful commission or omission of an act known by that Trustee to be a breach of trust.

[11]              While the indemnity does not cover liability for breaches of trust arising from the trustees’ dishonesty, wilful misconduct, or gross negligence,13 no such breaches of trust have been established. Nor am I satisfied that the trustees have incurred excessive or unreasonable costs, or taken unnecessary proceedings or procedural steps, as

12     Tillemans v Tillemans [2020] NZHC 1907 at [24]–[28].

13     Trusts Act 2019, ss 40–42.

envisaged in Jones v O’Keeffe, which might operate to reduce or remove their indemnity.14

[12]              On the contrary, the trustees—without accepting the allegations against them— chose not to oppose the application and agreed to be replaced without the need for a substantive hearing. That was a reasonable step given the content of the Public Trust’s report. And although it appears there were concerns in relation to the trustees’ conduct as early as 2017, the matter was resolved relatively quickly after proceedings were commenced. The respondents communicated their consent to be removed as trustees on 17 August 2023, less than two months after leave to commence the proceeding was granted,15 and less than one month after Ms Hirst was served with the proceeding.16

[13]              Overall, I consider that the present case falls into the same category as Jones v O’Keeffe and Tillemans, and the respondents have not lost their indemnity.

Conclusion and result

[14]For the foregoing reasons, I make these orders:

(a)the applicants are entitled to costs of $10,038, together with disbursements of $740;

(b)those costs are to be paid from the trust assets, but are not enforceable against the defendants personally; and

(c)the respondents may indemnify themselves from the trust assets for their actual and reasonable costs incurred in this proceeding. In this regard, given the lack of formal steps, I do not anticipate those costs will be substantial. In the event of disagreement, leave to apply is reserved.

14     Jones v O’Keeffe, above n 10, at [67]; and Tillemans v Tillemans, above n 12, at [26].

15     Cornes v Hirst HC Auckland CIV-2023-404-1110, 30 June 2023 (Minute of Davison J).

16     Service was effected on Ms Hirst by email on 21 July 2023.

Isac J

Solicitors:

Vicki Ammundsen Trust Law Ltd, Auckland for Applicants

Cockroft d’Young Moorhouse, Auckland for Second Named Respondent