Courteney v Pratley

[2017] NZHC 3285

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

I TE KŌTI MATUA O AOTEAROA TE WHANGANUI-Ā-TARA ROHE

CIV-2013-485-5912 [2017] NZHC 3285

UNDER	THE FAMILY PROTECTION ACT 1955
IN THE MATTER OF	THE ESTATE OF JOAN AYLEEN COURTENEY
BETWEEN	STEVEN COURTENEY First Plaintiff
AND	KLAUDIA ARIANE COURTENEY Second Plaintiff
AND	LANCE HOWARD PRATLEY AS TRUSTEE AND EXECUTOR OF THE ESTATE, REPLACING STUART COURTENEY, FORMER EXECUTOR Defendant

Hearing:	9 November 2017
Counsel:	K Johnston QC for the Plaintiffs R Fowler QC for Defendant
Judgment:	21 December 2017

JUDGMENT OF CULL J

[1]      Following my judgment of 23 May 2017,1 a further hearing was reconvened for the parties to make submissions on my provisional views on the payment of the

estate’s liabilities, expressed in the latter part of my judgment.2

1      Courteney v Pratley [2017] NZHC 1761.

2      At [59] – [71].

COURTENEY v PRATLEY [2017] NZHC 3285 [21 December 2017]

[2]      This judgment concerns one issue only and that is whether it was necessary for Mr Pratley as executor/trustee to take steps to actively defend a $36,000 claim filed in the District Court by the first plaintiff, Steven Courteney, for expenses from his father’s estate.

[3]      Mr Pratley, after his appointment, instructed counsel to defend the claim in the District Court, after the former trustee, Stuart Courteney, had commenced the defence. Apart from filing submissions prior to the defended hearing, Stuart had become less interested  and  did  not  wish  to  take  any  further  steps,  including  not  coming  to New Zealand to give evidence in support of his pleaded defence. The question arising of whether Mr Pratley is entitled to be indemnified from the New Zealand assets of the estate, in respect of his costs and expenses incurred in defending Steven’s District Court claim, will be determined by the finding on whether it was necessary to take those steps.

[4]      The question of whether Mr Pratley’s costs and expenses were reasonable, in respect of the administration of the estate, is to be determined by an experienced practitioner dealing with estates. A determination from this Court is not required.

Agreements reached on liabilities

[5]      This decision should be read with the principal decision, where the background facts,  concerning  the  Family  Protection  Act  1995  claim,  are  fully  canvassed.3

Following the principal judgment, counsel for the parties have each agreed on the following orders under s 21 of the Administration Act 1969:

(a)       Mr Pratley is to be discharged from his office as executor of the estate;

and

(b)      Mr Steven Courteney is to be appointed to the office of executor.

3      Courteney, above n 1.

[6]      The   parties   also   agreed   that   Steven   Courteney   should   receive   the New Zealand-based assets of the estate of the late Joan Courteney, less the following unpaid items:

(a)       the estate’s liability for income tax at a sum to be determined; and

(b)      such further sum, if any, payable to Mr Pratley, over and above the

$30,000.00 already paid from the New Zealand-based assets of the estate on account of his costs and expenses, as is appropriate to reimburse him for the costs and expenses necessarily and reasonably incurred in his role as executor.

[7]      The parties agreed the following unpaid items are not to be deducted from the New Zealand-based  assets  of  the  estate  prior  to  the  final  distribution  to  Steven Courteney of the net balance. Those items are:

(a)      the amount of the overpayments to pension funds, formerly in the name of the deceased; and

(b)any  liability  incurred  by  Stuart  Courteney  in  his  capacity  as  the executor of the estate, prior to Mr Pratley’s appointment. This includes the Duncan Cotterill costs, which are referred to in my previous judgment.4

[8]      The only issue which remains for this Court are the costs and expenses arising from the defended District Court claim.

Parties’ positions

Steven’s position

[9]      For  Steven  Courteney,  Mr Johnson  submits  that  Mr Pratley’s  costs  and expenses in defending the District Court claim should not be visited on Steven.

Although he acknowledges that an executor or trustee has a duty to protect the assets

4      Courteney, above n 1, at [67].

of the estate or trust, it is not an absolute obligation to defend every proceeding which threatens the assets of the estate or trust.  It is an obligation that involves judgment.

[10]     Mr Johnson relies on Re Beddoe5  and its application in Re O’Donoghue,6 where the Court denied the trustees his costs and expenses, because the trustee was not considered to have acted reasonably.  The trustee, Mr Johnson submits, should remain neutral.  If Mr Pratley were to be reimbursed for his costs and expenses, the net effect for Steven would be to fund Mr Pratley’s unsuccessful defence of this claim, amounting to $73,000, in addition to the $36,000 expense of providing for his father, which he funded.  It is submitted this is a profoundly unjust outcome.

Mr Pratley’s position

[11]     Mr Fowler QC for Mr Pratley submits that Mr Pratley was appointed by the Court on 12 October 2015, replacing Stuart Courteney as trustee and executor.  He was informed that the District Court hearing was to be conducted on 10 November

2015 and on 30 October 2015, Mr Pratley received the files.  He sought advice from Thomas Dewar Sziranyi Letts (TDSL), following the view expressed by Duncan Cotterill, the solicitors acting for Stuart Courteney, that he should defend the proceedings in the District Court.  Despite his application to seek an adjournment, which was opposed by Steven Courteney, the District Court hearing proceeded and judgment was given against the estate.

[12]     Mr Fowler contends that there was nothing else Mr Pratley could have done, once the adjournment was declined, but defend the proceedings, given that Stuart was not going to appear or prosecute his defence. Mr Pratley took independent legal advice and followed it.   Stuart was still the only beneficiary standing to gain, although Steven’s application under the Family Protection Act was proceeding to a hearing.

[13]     Mr Pratley was obliged to protect trust property, he submits, and where there is a reasonable prospect of defending proceedings successfully, particularly where

proceedings are bought against a trustee in respect of trust property, he should defend

5      Re Beddoe [1893] 1 Ch 547 (CA).

6      Re O’Donoghue [1998] 1 NZLR 116 (HC) at 121.

them.  Mr Fowler submits that there was no time to bring a Beddoe application, with the space of only a week to do so and there is a lesser imperative to seek a Beddoe order, in the case of “third party” disputes, compared to other trustee litigation.7

Discussion

[14]     MacKenzie and  Clifford  JJ  issued  minutes  and  a judgment  respectively,8 expressing concern that Stuart, as the sole executive trustee and sole beneficiary of his mother’s estate failed to act even-handedly as an executor and trustee.   He had a conflict of interest, because of his interest as a sole beneficiary of his mother’s estate, which adversely affected his duties as a trustee.

[15]     Against that background, Mr Pratley was appointed as a trustee and executor on 20 October 2015, by virtue of Clifford J’s decision on the same day.  In or about March 2015, Mr Pratley had been advised by the solicitor for Steven, that there was a District Court claim bought by Steven and Stuart was defending it. Those proceedings concern the expenses which Steven had expended, by an alleged agreement with his brother, for his father’s care prior to his death. Steven sought to be recompensed from his father’s estate, which passed to his mother, on his father’s death.

[16]     By late October 2015, Stuart had lost interest in defending the claim, although he had filed submissions with the District Court in support of his defence. He advised that he did not wish to attend the Court and nor was he going to attend by AVL.  He did not propose to give evidence in support of his pleaded defence.  On 2 November

2015, Mr Pratley swore an affidavit to seek an adjournment, which Steven opposed and the adjournment was refused.  Tompkins DCJ, who had management of the file and was the Judge scheduled to hear the proceeding, declined the adjournment, noting specifically that:9

On the basis of the material contained in the application for adjournment, and taking into account Mr Michalik’s email dated 3 November 2015, I do not consider, given the prolonged history of this matter and the other factual matters as set out in Mr Michalik’s email, that this trial can consonant with the interests of justice be adjourned.  It will proceed as scheduled.

7      Alsop Wilkinson v Neary [1995] 1 All ER 431 (Ch).

8      Courteney  v  Courteney  HC  Wellington  CIV-2013-485-5912,  12  August  2015  (Minute  of

MacKenzie J); and Courteney v Courteney [2015] NZHC 2563 [Clifford J judgment].

9      Courteney v Courteney DC Masterton CIV-2012-035-052, 3 November 2015 (Minute).

[17]     Mr Pratley instructed TDSL to defend the proceeding.  It is unclear from the evidence filed, if an estimate of costs was obtained.  Mr Fowler has submitted that

Mr Pratley had no option but to defend the proceedings, which were scheduled to take place eight days later.

[18]     Steven was successful in the District Court on “an infrequently visited corner of the law of unjust enrichment” in the provision of the necessities of life to his father, which was successful.10

[19]     In finding for Steven, the Judge noted that no claim for interest was made but that Steven was entitled to costs and that in all the circumstances, the Judge considered the estate should not be niggardly or parsimonious, but generous with respect to his costs. A costs award was made of $36,735.80 (excluding interest).

[20]     In defending Steven’s $36,000 claim, Mr Pratley incurred $8,000 of his own costs and TDSL’s costs of $29,000.  In addition, the costs award of $36,735.80 was also owed to Steven.  Mr Johnson argues that $73,000 is the total costs and expenses, which is now sought to be recouped from the New Zealand-based assets of the estate, which have been awarded to Steven. The effect of this, is that out of his award, Steven is effectively funding Mr Pratley’s unsuccessful defence of this claim in the sum of

$73,000 and although he was ultimately successful in his Family Protection Act claim, he is essentially funding the $36,000 expense of providing care for his father, the judgment of which comes out of the New Zealand-based assets of the estate.   Mr Johnson argues that that is effectively $109,000 being visited on Steven for the actions of Stuart and Mr Pratley.

Was it necessary to defend the District Court proceeding?

[21]     Mr Pratley  was  appointed  against  a  background  of  a  dysfunctional  and conflicted trusteeship, formerly undertaken by Stuart.  The failure by Stuart to act even-handedly was fully explained in a minute of MacKenzie J, who described the

position thus:11

10     Courteney v Estate of Courteney DC Wellington CIV-2012-035-052, 24 March 2016 at [23].

11     Courteney v Courteney HC Wellington CIV-2013-485-5912, 16 April 2015 (Minute of MacKenzie

J) (emphasis added).

[2] The essence of the issue before the Court at this stage is how best to achieve an “equality of arms” between the plaintiffs and the defendant [Stuart], given the superior position of the defendant which derives from his possession of material and information in his capacity as an executor.

[3] The defendant has two distinct and separate roles in these proceedings. The first is his role as executor.   In that role, he owes a duty of even- handedness between the plaintiffs, as claimants against the estate, and the beneficiaries under the estate.12     Aspects of that duty are given statutory expression in s 11A of the Family Protection Act 1955. The duty is wider than that.  The second is his role as beneficiary.  In that capacity, the defendant is able to take a partisan stand supporting the dispositions in the will.

[4] That dual role of the defendant creates a conflict of interest.   The defendant … says that on balance, he does not consider he has a conflict of interest.  That is wrong.  He does.  The conflict is, as a matter of law, inherent in the dual role.

…

[7] The  duty  of  even-handedness  means  that  an  executor  should  obtain separate legal advice from a legal adviser who is visibly independent of the protagonists in the litigation, in a way which will satisfactorily address the inequality of the positions of plaintiffs and defendant.   The history of the matter suggests that the defendant’s current legal advisers would reasonably be perceived by the plaintiffs as not independent of the defendant in his personal capacity.  …

[22]     MacKenzie J adjourned the hearing to enable Stuart to obtain independent advice.

[23]     In  a further minute, MacKenzie J  recorded that he had made it clear to

Mr Barkle, who had been instructed to act for Stuart in his capacity as executor, that MacKenzie J regarded the defendant’s duty of even-handedness as executor as requiring him to obtain urgent advice on his obligations, in particular on the disclosure, to counsel for the plaintiffs as well as to counsel for the defendant in his personal capacity, of information which may have a bearing on the plaintiff’s claim.13    The Judge stressed:14

I have informed Mr Barkle that the Court is placing reliance upon his obligations as an officer of the Court to ensure that the defendant receives, and acts in accordance with, advice as to material which should be disclosed, or any other assistance which the defendant in his capacity as executor should provide to the Court relating to the matters in issue in this claim.

12     Sadler v Public Trust [2009] NZCA 364, [2009] NZFLR 937 at [35].

13     Courteney v Courteney HC Wellington CIV-2013-485-5912, 28 April 2015 (Minute of MacKenzie

J).

14 At [2].

[24]     The application by Steven and his daughter to recall probate and appoint an independent executor, Mr Pratley, in place of the defendant was adjourned twice to enable Mr Barkle to provide advice to Stuart and a fixture on 3 June 2015 was vacated. A minute of MacKenzie J on 12 August 2015 recorded that Mr Barkle had been appointed to the District Court bench  and two  further solicitors, who had been instructed to act for Stuart in his respective capacities as executor and beneficiary were unable to obtain current instructions from Stuart.15   MacKenzie J set the matter down and gave directions for affidavits to be filed before a half day fixture, which was scheduled to be heard by Clifford J on 12 October 2015.

[25]     Clifford J canvassed this history in his judgment of 20 October 2015, noting that matters had progressed no further in terms of the defendant receiving or responding to legal advice.16    The two solicitors, Mr Mundy-Smith and Ms Forrest sought leave to withdraw and Clifford J granted them leave.   Stuart filed a memorandum on the day of the hearing before Clifford J, which took issue with the Court’s jurisdiction over assets that were outside New Zealand and set out his position.

[26]     Clifford J, referring to MacKenzie J’s minutes, found that Stuart had failed to discharge his duty to act even-handedly as executor and trustee.   Further, Stuart’s discharge of his obligations was found to have been adversely affected by his interest as sole beneficiary of his mother’s estate and Clifford J made the order sought by the plaintiff’s recalling probate of Mrs Courteney’s will and appointing Mr Pratley as trustee and executor in the Stuart’s place.  Clifford J said:17

Mr Pratley’s costs will be payable from the estate. Mr Pratley will, I am sure, be mindful of the need for proportionality in the steps he now takes as executor and trustee.

[27]     Those cautionary words of Clifford J have particular significance. By the time that Mr Pratley was appointed by the Court to act as trustee, it was apparent that Stuart Courteney, despite the legal advice which MacKenzie J directed he receive, had not

provided any information about the overseas assets, which he had realised; that he was

15     Courteney  v  Courteney  HC  Wellington  CIV-2013-485-5912,  12  August  2015  (Minute  of

MacKenzie J)

16     Clifford J judgment, above n 8, at [8].

17 At [10].

opposing Steven and his daughter’s Family Protection Act claim vigorously; and he was defending Steven’s claim for reimbursement for the expenses incurred in looking after their father.

[28]     It is correct, as Mr Fowler submits, that Stuart was the only beneficiary of the estate at the time of Mr Pratley’s appointment in October 2015, but Steven and his daughter’s Family Protection Act claim was afoot and an assessment of its likely success could have been surmised.   MacKenzie J reinforced the duty of even- handedness Stuart owed to the claimants and the beneficiaries of the estate.  It is also correct that Mr Pratley had no information about the overseas assets, despite his attempts to obtain them and he was confronted by the impending District Court hearing of Steven’s claim.

[29]     Mr Fowler submits that the starting point for a trustee in Mr Pratley’s position is his obligation to protect trust property. Reliance was placed on the corollary of that obligation, namely that where there is a reasonable prospect of doing so successfully he or she should defend proceedings brought against him/her in respect of trust property.18

[30]     As Clifford J prophetically warned, Mr Pratley had to be mindful of the need for proportionality in the steps he took. Here, the cost of protecting trust property had to be balanced with the concomitant erosion of trust property, by litigation costs.  In taking the steps to prosecute Stuart’s defence of Steven’s claim in the District Court for the sum of $36,000, the economics of that step had to be carefully weighed. Therefore,  the  proportionality of  the  cost  of  defending  a  proceeding  had  to  be measured against the cost of the claim, before a trustee in Mr Pratley’s position, should embark on the litigation process, at the expense of the trust.

[31]     In a similar case of a claim, in which there was effectively a dispute between two rival claimants to a trust fund, Lightman J in Alsop Wilkinson v Neary said:19

I do not think that the view expressed by Kekewich J in the Ideal Bedding case that in a case of a trust dispute (as was the dispute in that case) a trustee has a duty to defend the trust is correct or in accordance with modern authority.  In

18     Laws of New Zealand Trusts (online ed) at [295].

19     Alsop Wilkinson, above n 7, at 435.

a case where the dispute is between rival claimants to a beneficial interest in the subject matter of the trust, rather the duty of the trustee is to remain neutral and … offer to submit to the court’s directions, leaving it to the rivals to fight their battles.

[32]     Lord Hoffmann  in  McDonald v Horn also cautioned that a  beneficiary’s dispute is regarded as ordinary hostile litigation in which costs follow the event and do not come out of the trust estate.20

[33]     The hostile dispute between two rival claimants to a trust fund is the situation which greeted Mr Pratley on his appointment. He has properly acknowledged that he knew, before his appointment, that there was a District Court dispute between the brothers.  On his appointment, Mr Pratley became aware of the 10 November 2015 date, consulted with Stuart’s solicitors, Duncan Cotterill, who urged him to continue the defence of Stuart.  He sought advice from, and then instructed TDSL, to pursue Stuart’s defence, when Mr Pratley’s application for adjournment was declined.

[34]     The question before the Court is whether Mr Pratley’s actions were necessary

in these circumstances. Hammond J in Re O’Donoghue declined a trustee’s indemnity for costs, where the executor refused to accept that the original entity to which a bequest had been made out of the residue of an estate, had been replaced by its statutory successor, the Waikato Area Health Board.21  Hammond J found that the Area Health Board’s application for summary judgment was so clear and the executor’s and his advisor’s judgment was so misplaced, that the executor should be treated as having acted unreasonably and his costs and expenses were denied.

[35]     Hammond J referred to s 38(2) of the Trustee Act 1956, which entitles a trustee to reimburse himself out of the trust property for “all expenses reasonably incurred in or about the execution of the trusts or powers”.22     He cited the classic Chancery principle that it is only expenses which are “properly incurred” which are the subject of  a  trustee’s  indemnity.23      The  “direct  consequence  of  this  principle”  is  that

improperly incurred expenses fall upon a trustee personally.24

20     McDonald v Horn [1995] 1 All ER 961 (CA) at 970–971.

21     Re O’Donoghue, above n 6.

22     At 120, citing Trustee Act 1956, s 38(2).

23     At 121.

24     At 121.

[36]     The principle arises from the oft-cited Re Beddoe, where Lindley LJ held:25

I entirely agree that a trustee is entitled as of right to full indemnity out of his trust estate against all his costs, charges, and expenses properly incurred: such an indemnity is the price paid by [cestuis que trust] for the gratuitous and onerous services of trustees; and in all cases of doubt, costs incurred by a trustee ought to be borne by the trust estate and not by him personally. The words “properly incurred” in the ordinary form of order are equivalent to “not improperly incurred.” …

But, considering the case and comparatively small expense with which trustees can obtain the opinion of a Judge of the Chancery Division on the question whether an action should be brought or defended at the expense of the trust estate, I am of opinion that if a trustee brings or defends an action unsuccessfully and without leave, it is for him to shew that the costs so incurred were properly incurred.

[37]     As Hammond J said, in his consideration of the notion of a trustee acting reasonably in Re O’Donoghue, the trustee does not have a limitless ability to resort to the law.26   His function is to assert the interest of the beneficiaries only up to a point where there is a judicial ruling on something that is properly required, such as the construction of a fairly debateable point in an instrument, or whether the trustees ought to take a certain course.27

[38]     In this case, the construction of a debateable point in an instrument or deed or the requirement for a judicial ruling was not in issue.  The District Court litigation was, as Lord Hoffman described it, a hostile dispute between two rival claimants to a trust fund. Although Mr Pratley was appointed by this Court within four weeks of the District Court hearing, the background facts and the acrimony between the brothers, needed to be carefully balanced.

[39]     I accept that Mr Pratley had to make a judgment call, in the face of a former trustee who was proving difficult and, contrary to the direction of the Court and legal advice, was not acting even-handedly.  However, while acting out of an abundance of caution and with the best of motives, Mr Pratley’s actions in defending Steven’s District Court claim, incurring costs to the estate, was, in my view, not necessary or

reasonable.  My reasons for finding this are:

25     Re Beddoe, above n 5, at 558.

26     Re O’Donoghue, above n 6, at 121.

27     At 121.

(a)      The background facts indicated that Stuart, as the former trustee and executor, acted in a conflict of interest and contrary to the obligations on him as a trustee, to act even-handedly between his interests and the claimant’s interests to the estate.

(b)There was clear evidence of acrimony between the two brothers, with Stuart engaging in the defence of his brother’s claims in the District Court and the High Court.  The District Court litigation was a “hostile dispute” between claimants in respect of the same trust fund.

(c)      The claim itself was only $36,000, which made litigation over such an amount uneconomical.

(d)The trustee’s obligation to protect the assets of the trust had to be measured against the erosion of trust property by litigation costs.

(e)      Although Stuart was the only beneficiary of the estate in 2015, Steven and his daughter’s claim under the Family Protection Act was on foot and proceeding. This factor was stressed by MacKenzie J and required an assessment by the trustee about the likely beneficiaries of the estate and their interests.

(f)      Stuart had already provided the Court with his submissions in support of his defence and elected to step away from the litigation. The option of regarding this as “ordinary hostile litigation” between beneficiaries, to be decided on the strength or weaknesses of either parties’ submissions and evidence (or lack of it), with no involvement of the trustee, was open to him.

[40]     In making this finding that the defence of the District Court proceedings was not necessary, I want to make it clear that this in no way reflects on Mr Pratley’s competence or integrity.  I accept he understood he was discharging his obligation as a trustee, in difficult circumstances.  However, this Court must also take into account the position of the estate’s beneficiaries.

[41]     For reasons fully explained in the principal judgment,28 Stuart has received the overseas assets from his mother’s estate, but the Court is unaware of their value.  In my judgment, I expressed the Court’s concern as follows:29

[68] In the absence of knowing precisely what the overseas assets and chattels are, together with their value as at the date of hearing, I am unable to assess the full extent of the share of the estate received by Stuart.  Stuart, however, had the information available to him but took no part in his hearing.

[69] From the history of these proceedings, which commenced in 2013, I consider that it is not appropriate or fair for all the liabilities to be deducted out of the estate’s funds. I accept the submission that to do so would penalise Steven further, by making such a substantial deduction from his award or share of the estate.

[42]     I expressed a provisional view that the legal expenses and fees incurred by Stuart should be paid by him.  He was in breach of his duty as a trustee in failing to disclose the estate’s assets and engaged in litigation against his brother.   This has resulted in the present hearing, with the one extant issue under consideration – the District Court defence costs.

[43]     Although the Court appointed Mr Pratley, as a trustee to replace Stuart, the costs of the conduct of the District Court defence, if awarded in this decision, are to be met out of Steven’s New Zealand-based share of the estate. In other words, Steven would  bear  the  full  costs  of  Stuart’s  unsuccessful  litigation  and  subsequently

Mr Pratley’s costs, in defending Steven’s claim, which was ultimately successful.  I

consider that this would be unfair to Steven and produces a disproportionate result.

[44]     I note that Mr Pratley has received $20,000 towards his overall costs. It is also accepted by Steven, that Mr Pratley’s expenses and costs in dealing with the administration of the estate, are to be paid out of Steven’s share. It is only the District Court costs, which are disproportionate.

[45]     I find that Mr Pratley’s costs and expenses, in relation to the District Court claim only, should not be met by the estate.

28     Courteney, above n 1.

29     At [68]–[69].

Trustees’ protection by a Beddoe application

[46]     The issue of whether Mr Pratley could have applied to the Court for a direction, by way of a Beddoe application, to protect his costs, was raised by Mr Johnston.  It is important in the context of this decision to address the position of a trustee who faces the question of whether proceedings should be defended.

[47]     Arising from the case of Re Beddoe, a Beddoe application by a trustee provides a means of seeking the Court’s direction on whether expenses or costs should be incurred, such as to secure a trustee’s indemnity for costs.30  Mr Fowler relies on Alsop Wilkinson for the proposition that a separate application is required for a Beddoe application and there was insufficient time for Mr Pratley to accomplish this, prior to the District Court hearing.31

[48]     In Alsop Wilkinson the facts can be distinguished from those in the present case. In Alsop Wilkinson, the trustee’s Beddoe application was made in the context of proceedings under the Insolvency Act 1986 (UK).  The application was found to be fundamentally flawed for two reasons:

(a)     the application should be made in separate proceedings (not in proceedings  under  the  Insolvency Act  for  orders  that  transactions defrauded creditors); and

(b)the necessary parties were not before the Court to the action under consideration, namely the settlor’s wife and their issue were not represented.

[49]     The principle in Re Beddoe was upheld more recently in New Zealand in Woodward v Smith.32    In Woodward, Mr Woodward, a beneficiary of a family trust, challenged the actions of the trustees who had made interest-free, unsecured loans to enterprises  from  which  they  directly  benefitted  and  made  income  distributions

favouring their family.  Prior to trial, Mr Woodward filed a prospective costs order,

30     Re Beddoe, above n 5.

31     Alsop Wilkinson, above n 7.

32     Woodward v Smith [2014] NZHC 407, [2014] 3 NZLR 525 at [27].

that should his claims fail at trial, he would not be liable to pay costs to the defendants, as any such costs would have been incurred in challenging actions for which the trustees ought to have sought approval of the court in the first place.

[50]     Kós J noted that the dominant nature of the litigation was hostile as the proceedings alleged breach of trust and sought removal of the trustees. The Judge held the usual principle that costs follow the event applied and exceptional circumstances were not present in the case to warrant granting immunity from costs.

[51]     In examining prospective costs orders, Kós J drew a distinction between those orders and Beddoe orders.  The Judge affirmed the applicability of Beddoe orders in particular circumstances:33

[27] The Beddoe order, part of equitable procedure for 120 years now, involves a separate application by a trustee for pre-emptive directions as to whether to bring or defend proceedings. Full disclosure of the strengths and the weakness of a case (normally by the mechanism of a fully informed counsel’s opinion provided to the Court) is required. The order will normally provide that the trustee may recover costs and expenses incurred in accordance with counsel’s advice from the trust itself. But it will not usually deal with costs the trustees are ordered to pay to other parties.

[52]     Mr Fowler submits that there was no time for Mr Pratley to seek such orders, as he had no time to file a separate application and there was a lesser imperative to seek a Beddoe order in the case of “third party disputes”.34

[53]     The ability of a trustee to seek directions, particularly on an issue requiring urgency, is a matter, which this Court in its supervisory function over trustees and in its inherent jurisdiction, can and does accommodate.

[54]     As the authors of Underhill and Hayton have commented:35

Trustees are entitled to seek the assistance of the court in determining how the trust instrument should be construed or as to the proper administration of the trust so as to enable them to execute their duties properly… They can then act in accordance with that guidance without fear that they are in breach of trust.

33     Footnotes omitted.

34     David Hayton, Paul Matthews and Charles Mitchell Underhill and Hayton Law of Trusts and

Trustees (19th edition, LexisNexis, London, 2016) at [85.50].

35     Hayton, above n 34, at [85.2]

[55]     By contrast with the facts in Alsop Wilkinson, an originating application under the High Court Rules 2016 and under the provisions of the Trustee Act 1956, can be sought, if necessary on an urgent basis, with reference to Re Beddoe, in relation to the proposed expenditure of funds or costs by the trustee.36     Consistent with the requirements of a Beddoe application, the advice received by Mr Pratley to defend Steven’s claim could have been placed before the Court, with counsel’s assessment of likely success or otherwise.

[56]     Sections 66 and 69 of the Trustee Act are intended to provide an easy method for trustees to obtain directions from the Court in relation to specific matters of trust administration.37   Section 66 provides the right for a trustee to apply to the Court for directions concerning any property subject to a trust, or in relation to the management or administration of such property, or the exercise of any power or discretion vested in the trustee.  Section 69 provides protection to a trustee acting under any direction of the Court, deeming the trustee to have discharged their duty as a trustee, notwithstanding that the Court’s direction is later invalidated, overruled, set aside or rendered of no effect.

[57]     In that way, the Court can hear parties, at its direction, and give such direction as is required.  There should be no impediment to any trustee seeking urgency from this Court, when faced with a pressing dilemma, such as an approaching hearing of a proceeding.  This option does protect the trustee, in the event that costs and expenses are incurred in engaging in litigation, if the Court so directs.  This in no way should be seen as a criticism of Mr Pratley, but rather as a reminder to trustees, that this is a potential protection for trustees facing exigencies such as this.

Result

[58]     Although  acting  under  exigency,  it  was  not  necessary  for  Mr Pratley  as executor to defend the District Court proceedings, because Stuart Courteney elected

not to attend.  Mr Pratley is not entitled to be indemnified from the New Zealand-

36     High Court Rules 2016, r 19.5.

37Greg Kelly and Chris Kelly Garrow and Kelly Law of Trusts and Trustees (7th edition, LexisNexis, Wellington, 2013) at 705.

based assets of the estate, in respect of his costs and expenses incurred in defending the District Court claim only.

[59]     By consent, under s 21 of the Administration Act:

(a)       Mr Pratley is discharged from his office as executor of the estate; and

(b)      Steven Courteney is appointed to the office of executor of the estate.

Cull J

Solicitors:

WMC Legal Limited