Dark v Weenink HC Auckland CIV 2003-404-5846

[2007] NZHC 1576

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2003-404-5846

IN THE MATTER OF     THE TRUSTEE ACT 1956

BETWEEN  ELIZABETH DARK Plaintiff

ANDGERALD WILLIAM WEENINK & ORS IN THEIR CAPACITY AS TRUSTEES OF THE W & K EMPLOYEE BENEFITS PLAN

Defendants

Judgment:      5 February 2007 at 2.15

COSTS JUDGMENT OF WINKELMANN J

This judgment was delivered by me on 5 February 2007 at, 2.15 pm pursuant to Rule540(4)

of the High Court Rules.

Registrar/ Deputy Registrar

Solicitors:

LawWorks, Ponsonby, Auckland

Sainsbury Logan & Williams, Napier (Mr Macfarlane)

Counsel:

Dr R E Harrison QC, Auckland

DARK V WEENINK & ORS AS TRUSTEES OF THE W & K EMPLOYEE BENEFITS PLAN HC AK CIV

2003-404-5846  5 February 2007

[1]      I delivered judgment in this proceeding on 11 August 2005.  The key issue in the proceeding was whether the defendants, Trustees of an employee superannuation plan (the Plan) could withhold death benefit payments from the plaintiff, Mrs Dark, in terms of clause 6.9 of the Trust Deed for the Plan.  Mrs Dark is the widow of a former member of the Plan, Mr Dark.  Mrs Dark had been named by Mr Dark as a “nominated beneficiary” to receive payment of any death benefit in respect of him.

[2]      Clause 6.9 provides:

Notwithstanding any other provision to the contrary in the Trust Deed if a Member shall be dismissed from the Service (or shall leave the Service in order to avoid dismissal) on the grounds that the Member owes money to the Participating  Company  arising  out  of  any  criminal  act  fraud  wilful negligence or as a result of an unlawful act or omission of the Member in respect of the Participating Company the benefit payable shall be equal in value  to  the  contributions  paid  by  the  Member  to  the  Plan  and  to  the Previous Plan (in respect of Previous Plan Members) PROVIDED THAT the Trustees may with the approval of the Participating Company pay to the Member part or all of such benefit to which the Member would have been entitled but for the provision of this Clause if they in their absolute discretion so decide.   Production of a certificate signed by the secretary of the Participating Company that any amount is so owing to it shall be sufficient evidence thereof.

[3]      The defendants declined to make payment of the death benefit on the basis of a certificate they received from the employer company (the Company) to the effect that Mr Dark had either been dismissed from the Company or left the service of the Company and that he owed money to the Company arising from “criminal acts, fraud, wilful negligence or as a result of an unlawful act or omission by him”.

[4]      The present proceedings were brought by Mrs Dark pleading three causes of action, all seeking in broad brush terms, enforcement of the Trust and payment of the death benefit to her.  Prior to hearing, counsel for Mrs Dark sought an order under Rule 418 of the High Court Rules that the trial proceed limited to specific issues. That application was dealt with on a consent basis.

[5]      The questions argued, and my answers to those questions (in summary form)

were as follows:

1.        If Mrs Dark is entitled to relief is that in her personal capacity or as administratix of the estate of Mr Dark?

I  held   that   Mrs   Dark   both   in   her   personal   capacity  and   as administratrix  of  the  estate  of  Mr  Dark  was  within  that  class  of persons to whom the defendants could distribute the death benefit when exercising their discretion under the Plan.   Although that discretion is subject to an obligation to exercise their discretion in the best interests of Mr Dark’s dependants, prior to the exercise of that discretion Mrs Dark had no entitlement to relief in either capacity.

2.        As a matter of interpretation of the fund Trust Deed, does clause 6.9 apply to a claim brought by a nominated beneficiary for payment of a fund member death benefit, at all?

I held that clause 6.9 did not apply to death benefits.   The death benefit in respect of Mr Dark was therefore to be paid by the defendants.

3.        If clause 6.9 is interpreted as applying in the case of the death of a fund member which would otherwise give rise to an entitlement to receipt of the death benefit, is the operation and effect of clause 6.9 in that context such as to constitute it either a penalty (in law) or a forfeiture (in equity)?  If so, what are the legal consequences in terms of redress for Mrs Dark?

I held that if the clause had applied to death benefits in that context it would  not  operate  as  a  penalty,  but  would  have  constituted  a forfeiture.  However, again in the particular circumstances of the case, relief would not be granted so there would be no legal consequences in terms of redress for Mrs Dark.

4.        Was Mr Dark “dismissed from the service on the grounds that [he owed] money to the [employer]  arising out of criminal act, fraud, wilful

negligence or as a result of an unlawful act or omission of the [employee] in respect of the [employer]” in terms of clause 6.9 of the Trust Deed?

I held that he had not been so dismissed.

5.        Alternatively,  did  Mr  Dark  “leave  the  service  in  order  to  avoid dismissal” on the grounds [set out in clause 6.9]?

I held that the answer to this question was no.

6.        What is the evidential effect of any certificate purportedly given by the employer to the Trustees pursuant to Clause 6.9 in terms of (i) proof of conduct, and (ii) proof that money was owed or loss caused by the alleged defaulting employee?

I held that the Trustees could rely upon the certificate as proof that the employee owed the Company money, that the debt arose out of the conduct specified in Clause 6.9 and that the employee was dismissed from service on those grounds.  However, if the employee challenged those matters the Court would consider the evidence, rather than embark on a curial review of the certificate.

[6]      Following judgment there was a delay by the parties in dealing with issues of costs.   I required that Mrs Dark file submissions as to costs by 31 August 2005. Those submissions were not filed until May 2006.  Various reply memoranda were then filed by the parties through until August 2006.

[7]      Mrs Dark seeks indemnity costs or in the alternative, increased costs above category 3C or  failing that,  category 3B costs. The defendants argue that  costs should lie where they fall.  They note that Mrs Dark did not succeed in her pleaded causes of action.  They concede that she succeeded in obtaining answers to questions which disposed of the real issues for the defendants, and so cleared the way for them to consider the exercise of their discretion, consistent with obligations to the contributors/employer company, the members and the Dark family.  However they

stress that they were successful on all causes of action.  In those circumstances, a fair balance is said to be obtained by leaving the parties to their own costs.

[8]      As to indemnity costs, the defendants say that this case does not fall within any of the categories in Rule 48C of the High Court Rules.  As to increased 3C costs, or 3B costs, the defendants rely upon an earlier cost categorisation of the proceeding at a judicial conference in December 2003.  At that time the proceeding received a category 2 cost categorisation.

[9]      Because of Mrs Dark’s delay in filing her costs submissions, she seeks an extension of time for the filing of that memorandum.  The grant of such an extension is  opposed  by the  defendants  on  the  grounds  that  the  delay has  prejudiced  the defendants.

Extension of time

[10]     Senior counsel for the plaintiff accepts personal responsibility for the delay in filing the memorandum.   He submits however that it was initially appropriate to delay addressing the issue of costs until the defendants had exercised their discretion as to the distribution of the death benefit.   After the distribution took place there were then discussions between the parties to resolve the issues of costs.  Although these were ultimately unproductive, those discussions further delayed matters.

[11]     Finally, senior counsel explains that he had been instructed on several matters arising out  of  the  same circumstances  that  led  to  the  present  proceedings.    He recorded  his  time  in  respect  of  all  of  those  matters  on  a  single  computer  file. Because his instructions were to seek indemnity costs he had then to separate out the attendances relating to this proceeding.  Because of work pressure he had no down time to undertake that exercise and the filing of the memorandum was therefore delayed considerably.

[12]     The defendants oppose the grant of the extension on the ground that the delay led the defendant Trustees to settle the contribution rate and accounts for the Plan, in consultation with their auditors, as if no claim was to be made.  Produced in support

of this claim to prejudice is a memorandum from the Plan secretary, Mr Wright.  Mr

Wright says in that memorandum:

Members have now been provided with their annual member statements with interest credited at the rate that had been calculated without any provision for costs being awarded to Mrs Dark.   Members who have left the Plan recently have been paid out at the same rate.   It would be impossible to repatriate any of this money if a payment of costs to Mrs Dark was now ordered by the Court.

[13]     The defendants submits that personal pressures on counsel is not an adequate excuse for the delay, and an extension of time should have been sought prior to the expiry of the deadline.

[14]     It is not clear from Mr Wright’s memorandum exactly when it was that the defendant Trustees decided not to accrue any expense in relation to costs that might be awarded to Mrs Dark.  Whatever that date, I am satisfied that the decision was not based on any representation by the plaintiff that she had abandoned her application for costs, arising from a delay in filing her costs memorandum.  To the contrary, it would have been apparent to the defendants at the time they took that decision, that Mrs Dark intended to pursue her application for costs.  Correspondence between the parties in November 2005 was on the basis the defendants had themselves delayed dealing with the issue of costs pending exercise of the discretion to pay the death benefit, “to be first certain that all matters were finally resolved”.  By letter dated 11

November 2005, Mrs Dark’s solicitor advised the Trustees that the plaintiff intended to seek costs on an indemnity basis, but concluded:

Perhaps in the interim you could take instructions and advise your client’s attitude toward payment of costs as this may insist in either a speedy resolution or alternatively assist our clients in the decision as to her next step in pursuing her claim for indemnity costs.

[15]     By letter dated 14 November 2005, counsel for the defendants said that he had referred the issue to his client for instructions.   On 18 November he wrote agreeing to the release of security for costs, but said:

We look forward to hearing from you or counsel as to costs.

[16]   By letter dated 27 February 2006, the plaintiff’s solicitor reminded the defendants’ counsel that he was to take instructions on costs and  requested the

defendants’ response.   By letter dated 28 March 2006, counsel for the defendants responded:

We consider that costs should lie where they fall and have so recommended to our client.

[17]     On 23 May 2006 the plaintiff’s memorandum as to costs was filed, and I

assume served on the defendants at about that time.

[18]     What emerges from this course of correspondence is that both parties had postponed addressing the issue of costs until the Trustees had exercised their discretion as to how to distribute the death benefit.  It is also apparent that there was no  sense  of urgency on either side  in  dealing  with  the  issue  of  costs,  and  the defendants were apparently content that the timetable for filing memoranda be put to one side while the parties worked through the issues.   Counsel for the defendants agreed to take instructions on the issue of solicitor/client costs, but did not respond with a counter-proposal until four months later.  Mrs Dark in turn did not reassert her claim for indemnity costs for another two months (by filing and serving of the costs memorandum).  Given the course of discussions up until March 2006, the defendants could not reasonably treat that two month delay as a representation that Mrs Dark accepted that costs should lie where they fall.  Therefore any prejudice arising from the defendants proceeding on the basis that no costs would be awarded in Mrs Dark’s favour flows not from her  conduct, but rather from the defendants’ decision to proceed on that assumption, without seeking clarification.

[19]     In any case it is by no means clear from Mr Wright’s memorandum that the defendants or Plan members will be prejudiced if the liability is dealt with in the present financial year rather than last, or what the exact nature of that prejudice is said to be.  Indeed, counsel for the defendant concedes that the fund is currently in surplus in actuarial terms.   I therefore grant the extension of time to Mrs Dark in relation to the issue of costs.

Indemnity costs

[20]     Mrs  Dark  advances  two  principal  arguments  as  to  why  indemnity  costs should be ordered in her favour.   First, she says that the case falls within the provisions of Rule 48C(4)(c) of the High Court Rules which provides:

(4)       The Court may order a party to pay indemnity costs if -

…

(c)       Costs are payable from a fund, the party claiming costs is a necessary party to the proceeding affecting the fund, and the party claiming costs has acted reasonably in the proceeding;…

[21]     Alternatively, Mrs Dark submits that such an award of costs can be justified in terms of Rule 48C(4)(f) of the High Court Rules which provides:

Some other reason exists which justifies the Court making an order for indemnity costs despite the principle that the determination of costs should be predictable and expeditious

[22]     As to the “other reason” that exists, Mrs Dark submits that she and her children have been the victims of biased and low quality decision making by the defendant Trustees, citing the Trustees’ failure to obtain independent legal advice as to the operation of clause 6.9, relying instead upon the legal advice obtained by the employer company (which had an obvious vested interest) and the Trustees unquestioning reliance upon a certificate from the company.

[23]     As to the first ground, Mrs Dark relies upon Kekewich J’s statement in In Re

Buckton [1907] 2 Ch. 406 at 414-415:

In a large proportion of the summonses adjourned into Court for argument the applicants are Trustees of a will or settlement who ask the Court to construe the instrument of trust for their guidance, and in order to ascertain the  interests  of  the  beneficiaries,  or  else  ask  to  have  some  question determined which has arisen in the administration of the trusts. In cases of this character I regard the costs of all parties as necessarily incurred for the benefit of the estate, and direct them to be taxed as between solicitor and client and paid out of the estate.

…

There is a second class of cases differing in form, but not in substance, from the first. In these cases it is admitted on all hands, or it is apparent from the proceedings, that although the application is made, not by Trustees (who are respondents), but by some of the beneficiaries, yet it is made by reason of some  difficulty  of  construction,  or  administration,  which  would  have justified an application by the Trustees, and it is not made by them only because, for some reason or other, a different course has been deemed more convenient. To cases of this class I extend the operation of the same rule as is observed in cases of the first class. The application is necessary for the administration  of  the  trust,  and  the  costs  of  all  parties  are  necessarily incurred for the benefit of the estate regarded as a whole.

There is yet a third class of cases differing in form and substance from the first, and in substance, though not in form, from the second. In this class the application is made by a beneficiary who makes a claim adverse to other beneficiaries, and really takes advantage of the convenient procedure by originating summons to get a question determined which, but for this procedure, would be the subject of an action commenced by writ, and would strictly fall within the description of litigation. It is often difficult to discriminate between cases of the second and third classes, but when once convinced that I am determining rights between adverse litigants I apply the rule which ought, I think, to be rigidly enforced in adverse litigation, and order the unsuccessful party to pay the costs. Whether he ought to be ordered to pay the costs of the Trustees, who are, of course, respondents, or not, is sometimes   open   to   question,   but   with   this   possible   exception   the unsuccessful party bears the costs of all whom he has brought before the Court.

[24]     It  is  submitted  that  the  case  falls  into  the  second  category described  by Kekewich J; the proceedings have determined a significant question of interpretation to the provision of the Trust Deed, one which the Trustees could, indeed should, have sought directions on themselves.

[25]     The defendants respond that there is no “fund” for the payment of costs and further, that this in a case in Kekewich J’s third category, a hostile claim made antithetical to the interests of the estate.  Reliance is placed upon the costs judgment in Waitara Leaseholders Association Inc. v New Plymouth District Council HC NP CIV 2004-443-162 20 December 2005, Harrison J.  In that case Harrison J accepted that Rule 48C(4)(c):

… was apparently drafted to recognise the first two categories of cases identified in Re Buckton.

[26]     He said: [at 13]

In order to succeed under R48C(4)(c) WLA must satisfy these three criteria: (1) costs are payable from a fund or funds; (2) WLA is a necessary party to

the proceeding affecting the fund or funds; and (3) it has acted reasonably in the proceeding.  Even then, a residual discretion is vested in the Court as to whether to order payment on an indemnity basis.

[27]     Harrison  J  held  that  there  was  no  fund  from  which  costs  were  payable because  the  subject  property  was  held  pursuant  to  statutory  trusts  created  for specified purposes.  Those did not include the payment of legal costs.   Further, in that case the plaintiff’s aim was accepted by Harrison J as being “antithetical to the estate’s benefit; its aim was to secure sale of the trust’s assets”.

[28]     In this case, there is clearly a fund out of which costs are payable.  That fund is the W&K Employee Benefits Plan fund.   Section 38 of the Trustee Act 1956 provides that a Trustee may reimburse himself out of the trust property all expenses reasonably incurred in or about the execution of the trusts or powers.   Further, Clause 21 of the Plan Deed expressly provides:

Without prejudice to the right to indemnity by law given to Trustees the Trustees shall except in the cases of fraud or wilful negligence be entitled to be indemnified out of the Plan in respect of all liabilities and expenses incurred by the Trustees in the execution or purported execution of the trusts or in the exercise of any powers authorities or discretions vested in the Trustees  by  the  Trust  Deed  and  against  all  actions  proceedings  costs expenses  claims  or  demands  in  respect  of  any  matter  or  thing  done  or omitted in any way relating to the Trust Deed and the Trustees may retain and pay out of the Plan all sums necessary to give effect to such indemnity.

[29]     Any costs awarded against the defendants are a cost, expense or claim to which they are entitled to an indemnity out of the Plan’s assets.   I note that the provisions of s 38 of the Trustee Act 1956 were not referred to in the Waitara case and it is therefore not clear why that provision was not considered to apply.  In any case, the Waitara proceeding clearly fell into the category of hostile litigation, the third category in In Re Buckton.

[30]     This litigation falls into the second category of case.   The essential issues before the Court were:

(i)       Did clause 6.9 apply to death benefits?

(ii)If so, had Mr Dark been dismissed on the specified grounds, or had he left to avoid such dismissal.

[31]     These are matters which could have been the subject of an application for directions by the Trustees.   Mrs Dark successfully challenged the defendants’ interpretation of clause 6.9 and successfully challenged the Company’s assertion that Mr Dark had been dismissed on the specified grounds or left to avoid such dismissal.

[32]     At the time of issue of judgment Mrs Dark was not entitled to an order directing the Trustees how to act.   They had yet to exercise their discretion as to distribution of the death benefit, because they had previously taken the view that it was not payable.  However, Mrs Dark was one of the beneficiaries nominated by Mr Dark to receive the death benefit.  She was also administratix of Mr Dark’s estate.  If she had not brought these proceedings then the Trustee’s forfeiture of the death benefit would have stood.   Mrs Dark was therefore a necessary party to the proceeding and acted reasonably in bringing them.

[33]     Accordingly, I am satisfied that all the grounds as articulated by Harrison J

exist in this situation.

[34]     In  any  case,  even  were  I  incorrect  in  that  view,  given  the  overall circumstances I would have been satisfied that this is an appropriate case in which I should exercise my discretion under Rule 48C(4)(f) to make an order for indemnity costs.   These proceedings could properly have been brought by the defendant Trustees.  If they had been, the costs would have been payable out of the fund.  I see no reason why there should be a different result because Mrs Dark had to seek the Court’s assistance.

[35]     I therefore do not need to consider Mrs Dark’s alternative argument that indemnity costs should be ordered under Rule 48C(4)(f) on the basis of the defendants’ conduct.

Quantum

[36]     Counsel  for  the  defendants  submits  that  the  quantum  of  indemnity costs sought is excessive.  Those costs are set out at paragraph 28 of senior counsel for the plaintiff’s  memorandum  filed  on  23  May 2006.    They total  some  $117,549.62. There is an additional sum of disbursements in the amount of $8,483.62.  Counsel for  the  defendants  submits  that  the  amount  sought  is  extraordinarily  high.    He submits that this was a $207,000 claim which took three days and was initially assigned a category 2 allocation for costs.  He says that much of the effort:

Was directed to a misconceived pleading in which none of the causes of action, nor relief sought, succeeded.  Counsel cannot help but surmise that the time put in by counsel and solicitors and claimed here has inadvertently migrated from attendance on the other litigation to which reference is made.

[37]     Counsel for the defendants reserves his position to make further submissions on indemnity costs.

[38]     Reluctant as I am to further delay settling the issue of costs, it is appropriate that I provide the defendants with an opportunity to state their position in relation to the quantum of indemnity costs.   Any submissions are to be no longer than four pages in length and are to be filed by the defendants by Wednesday 21 February

2007.  The plaintiff’s reply is to be filed by 14 March 2007.

Winkelmann J