Davis v White
[2017] NZHC 500
•17 March 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2015-404-1227 [2017] NZHC 500
BETWEEN ALEXANDER JAMES DAVIS AND
BRUCE CYRIL MCNIECE AS TRUSTEES OF THE REX WHITE FAMILY TRUST
Applicants
AND
MINNIE BEATRICE WHITE Respondent
Hearing: On the papers Counsel:
K F Gould for Applicants
D M OʼNeil for RespondentJudgment:
17 March 2017
JUDGMENT OF PAUL DAVISON J [RE COSTS]
This judgment was delivered by me on 17 March 2017 at 4.30pm pursuant to r 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Solicitors:
B C McNiece, Auckland
Browne Linkenbagh Legal Services, New South Wales, Australia
DAVIS v WHITE Costs Judgment [2017] NZHC 500 [17 March 2017]
Introduction
[1] On 18 July 2016, I issued a judgment in which I held that the Rex White Family Trust had failed by reason of uncertainty.1 In that judgment I decided that the applicants had failed in their application, and that consequently the respondent, Mrs White, was entitled to costs. I reserved costs and directed the parties to file memoranda on the issue.
[2] The parties have now filed costs memoranda. For the applicants, Mr Gould has filed a memorandum dated 22 September 2016. For the Respondent, Mr O’Neil has filed three memoranda dated 30 August, 8 December and 9 December 2016.
[3] The respondent, Mrs White, seeks an award of solicitor/client costs or, alternatively, costs calculated on a 2B basis together with disbursements. She further seeks an order that the applicants, Mr Davis and Mr McNiece, be directed to pay her costs personally and without recourse to the funds held by them on trust. Furthermore, Mrs White seeks an order for the disgorgement of costs already paid from the trust fund to the applicants.
The respondent’s submissions
[4] Mr O’Neil for the respondent sets out in his first memorandum details of the actual costs incurred by the respondent. The respondent’s Australian solicitors’ fees total AUD 40,894.33, and her New Zealand counsel’s fees total $85,369.50. The relevant invoices are attached to Mr O’Neil’s memorandum. Expenses were incurred by way of a filing fee ($110.00) and an AVL fee relating to the respondent giving her evidence from Australia ( $1164.70).
[5] Mr O’Neil submits that the Court in its discretion could order either increased or indemnity costs pursuant to r 14.6. He argues that the proceedings could have been avoided at a reasonably early point in time, and refers to the open letter sent by the respondent’s Australian solicitors to Mr McNiece in October 2014. In it they
advised that on a proper construction of the terms of the trust, the respondent was the
1 Davis v White [2016] NZHC 1626, [2016] NZAR 985.
only person to whom the applicants as trustees could pay or apply the trust funds, and that the Masonic Lodge was not an entity to whom the applicants were able to pay or apply the trust funds. The letter took issue with the view expressed in a letter written by the applicant’s counsel that Mr McNiece as trustee was entitled to distribute the whole of the trust fund to the Masonic Lodge as nominated by Mr White, and that the RWFT did not fail by uncertainty. The open letter proposed as a solution that the applicants should pay the whole of the trust funds to the respondent, and in recognition of the issues raised by the applicants, the respondent would agree to making testamentary arrangements whereby $100,000 of the trust funds remaining on her death would be left by her to a nominated Masonic Lodge in New Zealand and the balance to another not for profit organisation.
[6] Mr O’Neil says that the open letter is significant to the present issue of costs as it sets out in detail the basis of the respondent’s contention that the applicants as trustees of the RWFT were required to treat Mrs White as the sole beneficiary of the trust and she was thereby entitled to receive the whole of the trust funds. Counsel notes that letter was written as an open letter and stated that it would be relied upon in support of an appropriate costs order. Mr O’Neil says that as a result of the open letter, the applicants were on notice at an early stage regarding the issue of costs, and of what the respondent’s solicitors regarded as being the likely outcome of any litigation. He submits that by failing to accept and act on the legal position explained in the open letter, the applicants commenced proceedings which were ultimately unsuccessful. This resulted in the respondent incurring considerable legal expenses.
[7] The respondent submits that the applicants’ dismissal of the legal opinion set out in the open letter and rejection of the proposal in it was unreasonable. Mr O’Neil submits that the applicant’s conduct was also unreasonable in the following respects:
(a) the whole problem was brought about by the applicants losing the
RWFT deed;
(b)the applicants were only able to mount their argument with the assistance of documents they received from the respondent; and
(c) the applicants failed unreasonably to have regard to the respondent’s
proposal in the open letter of October 2014.
[8] As an alternative submission, Mr O’Neil on behalf of the respondent seeks an award of costs on a 2B basis and as calculated in a schedule attached to his memorandum.2
[9] Mr O’Neil further submits that the applicants were both unsuccessful in the proceeding and unreasonable in their actions, and consequently should not be entitled to take any expenses relating to the proceedings from the trust funds, either for the purpose of meeting an award of costs, or in respect of the costs they themselves have incurred in conducting the proceedings. Mr O’Neil says the present situation is essentially the same as was the case in The Cats’ Protection League v Deans in which Osborne AJ found that the defendant trustees had acted with a measure of unreasonablenes in the position they adopted by withholding information
requested by the sole income beneficiary and which led to the proceeding.3 In
addressing the issue of whether the defendant trustees should be required to meet the burden of paying the costs personally, Osborne AJ said:4
I adopt the concept of reasonableness as the touchstone in relation to this issue. An example of the application of the test of reasonableness is contained in the judgment of this Court in Re O’Donoghue [1998] 1 NZLR
116 (HC). In that case Hammond J at 122 said:
A Court will naturally hesitate before leaving a trustee, who, after all, shoulders an onerous burden, to carry costs personally. But I am afraid that this is such a case: I can see no proper reason for the trustee having adopted the obdurate position he did. He acted unreasonably in the sense that I can discern no proper justification, or even a reasonably arguable one, for his having persisted in forcing Health Waikato up to a full defended hearing, and a delayed distribution of some years of the estate. It cannot be right that he should then seek to offload his costs of the proceeding onto the residuary beneficiary. There will, therefore, be an order that the trustee is not entitled to indemnity from the estate for his costs or disbursements in these proceedings.
2 Although Mr O’Neil submits that the third schedule of the High Court Rules does not allow time for preparation for hearing, item 33 of sch 3 specifically provides for preparation for hearing. In a 2B situation there is no allowance of 3 days for preparation.
3 The Cats’ Protection League v Deans (2010) 20 PRNZ 584.
4 At [37].
[10] Mr O’Neil submits that the Court’s findings in the present case, while not amounting to misconduct on the part of the applicants, do amount to a finding that the applicants were unreliable, inconsistent and that their actions resulted in excessive and unnecessary costs being incurred. He submits that in the circumstances any finding that the applicants are not personally liable to meet an award of costs and their own legal costs, will defeat the making of a costs order in favour of the respondent.
[11] Finally, Mr O’Neil seeks an order that the applicants be required to disgorge all monies paid to them by way of fees charged to the RWFT over the period up to the delivery of the judgment in this proceeding. He submits that, as the funds administered by the applicants as trust funds belonging to the RWFT were in fact the property of the Rex White estate, any money paid to the applicants has reduced the amount available to the respondent. Counsel submits that in accordance with the principles of restitution, the respondent should be put in as close a position as possible as she would have been had the trust not existed.
The applicants’ submissions
[12] Mr Gould submits that none of the circumstances contained in r 4.6 (4) are present in the circumstances of this case. He submits that the steps taken by the applicants to commence the proceeding and to apply for directions under the Trustee Act 1956, were quite proper and reasonable. Mr Gould notes that the applicants commenced the proceeding after having received a letter from the respondent’s solicitors dated 22 October 2014 in which demand was made for the trustee applicants to pay the whole of the trust fund to Mrs White. Mr Gould explains that following receipt of that letter, the applicants took legal advice and thereafter commenced the proceedings to seek the directions of the Court pursuant to s 66 of the Act.
[13] Mr Gould further submits that the applicant’s rejection of the open letter does not justify the respondents’ award of solicitor and client costs. He submits that an acceptance would have been contrary to the instructions that the applicants say that they had received from Rex White regarding the payment of the money to the
Freemasons. Furthermore, Mr Gould submits that the loss of the trust deed was an administrative error, and does not warrant punishment by way of the imposition of indemnity costs.
[14] As regards the respondent’s application for an award of increased costs, Mr Gould submits that none of the circumstances described in r 14.6(3) that would justify any increase are present.
[15] In response to the respondent’s application for an order that the applicants disgorge the legal costs already paid by them on behalf of the trust, Mr Gould submits that the applicants have not acted unreasonably, and in fact acted properly and in accordance with the law and established practice. He further submits that the applicants have not themselves profited. He notes that the applicants have paid counsel’s fees totalling $48,500.93 (including GST and disbursements), and that Mr McNiece has unpaid professional fees totalling $19,895.00. Mr Gould questions the jurisdiction of the Court to order the disgorgement sought by the respondent, and says that in any event the circumstances of the case do not warrant what he describes as a “draconian step”. Mr Gould submits that the respondent’s costs appear to be excessive by comparison to the applicants’ costs, and says that should the Court be minded to award indemnity costs, then the applicants seek to have the respondent’s costs revised by the New Zealand Law Society in accordance with the Client Care Rules.
[16] Finally, Mr Gould submits that as with the vast majority of cases, costs should be awarded on a 2B basis with the applicants being entitled to have recourse to the trust funds to meet their costs in seeking directions from the Court.
Rate of costs
[17] Costs are at the discretion of the Court.5 Increased or indemnity costs may be awarded by the Court for a number of reasons.6 In essence, increased costs are awarded when a party has acted unreasonably in relation to the proceeding after the
proceeding was commenced, whereas indemnity costs may be awarded where a party
5 High Court Rules 2016, r 14.1.
6 Rule 14.6.
has behaved badly or very unreasonably.7 In this case, as I have said counsel for the respondent submits that the applicants acted unreasonably in pursuing the litigation, and refers to the open letter sent to the applicants prior to the litigation setting out Ms White’s position in detail.
Indemnity costs
[18] I agree with the respondent’s submission and find that that the applicants did act unreasonably by pursuing an argument as to the existence of the RWFT, based on a draft deed, which was lacking in merit. While it is appropriate for trustees to seek directions from the Court, in this case the applicants not only sought to have the RWFT declared a valid trust by relying on a draft document, they also took the position that the whole of the trust fund should be paid to Freemasons New Zealand. This was an entirely untenable proposition, and indeed was in direct conflict with Mr McNiece’s earlier written advice to the respondent following her husband’s death in which he told her that “all the assets in the trust and the estate are effectively yours.” The subsequent steps taken by the respondent to secure the very same position as Mr McNiece had told her she was entitled to, required her to engage solicitors in Australia and counsel in New Zealand, and to defend the proceedings commenced by the applicants in which they argued for a quite different position, namely that Freemasons New Zealand was the proper beneficiary of the trust and was entitled to the whole of the trust fund. This put Mrs White to considerably more expense than would otherwise have been the case at every stage of the proceeding.
[19] Although I have found the applicants’ conduct in relation to the matters that led to the commencement and conducting of the proceeding to have been unreasonable and their position untenable, I do not consider their conduct to be such to justify awarding the respondent indemnity costs pursuant to r 14.6(4). It appears that the applicants commenced the proceedings relying upon the legal advice and opinion of their counsel. In these circumstances, I do not consider it appropriate to make an award of indemnity costs.
Increased costs
7 Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009] 3 NZLR 400 at [27].
[20] In Holdfast NZ Ltd v Selleys Pty Ltd the Court of Appeal set out the correct approach to calculating the extent of an uplift.8 This has been helpfully summarised in McGechan on Procedure:9
• Step 1: categorise the proceeding under r 14.3.
•Step 2: work out a reasonable time for each step in the proceeding under r 14.5.
•Step 3: as part of the step 2 exercise a party can, under r 14.6(3)(a), apply for extra time for a particular step.
•Step 4: the applicant for costs should step back and look at the costs award it could be entitled to at this point. If it considers it can argue for additional costs under r 14.6(3)(b) it should do so, but any increase above 50 per cent on the costs produced by steps 1 and 2 is unlikely, given that the daily recovery rate is two-thirds of the daily rate considered reasonable for the particular proceeding.
[21] It is Step 4 that is engaged and applicable here. The respondent’s counsel has prepared a schedule which sets out and calculates the respondent’s costs on a 2B basis as totalling $22,746 plus disbursements. In the circumstances of this case, and to recognise that the applicants have in my view contributed unnecessarily to the expense of the proceeding by pursuing arguments that lacked merit, and also to recognise the consequences of their failing to accept the proposal for settlement and resolution of the matter as proposed in the open letter sent to them by the
respondent’s Australian solicitors,10 I consider that an increase of 50 per cent on the
scale 2B costs is appropriate.
[22] On that basis the respondent’s increased 2B costs are $34,119 plus
disbursements of $1,928.72.
Personal liability for costs
[23] Pursuant to s 38(2) of the Trustee Act 1956 “… may reimburse himself or pay
or discharge out of the trust property all expenses reasonably incurred in or about the
8 Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA) at [43]-[48].
9 Andrew Beck and others McGechan on Procedure (online looseleaf ed, Brookers) at
[HR14.6.02].
10 HCR 14.6(3)(b)(ii) and (v).
execution of the trusts or powers …” In this case, if the award of costs is taken from
the trust fund, the respondent will, in effect, pay her own costs.
[24] Mr Gould does not address the issue of personal liability for costs in his memorandum on behalf of the applicants.
[25] As explained by Hammond J in O’Donoghue, the Court will hesitate before directing a trustee to meet the burden of paying costs personally. Trustees carry a significant burden of responsibility and professional trustees, such as lawyers and accountants, often undertake the role largely as a service to their clients. In this case, however, the position finally taken by the applicants that Freemasons New Zealand was to be the final beneficiary of the RWFT, was in marked contrast with the position earlier adopted by Mr McNiece that the respondent was entitled to all of the funds. There was no clear explanation for this change of position; although I do accept that the opinion provided by counsel for the applicants supported the position that they ultimately took. I consider that the applicants’ behaviour in relation to the RWFT and the manner in which they brought and conducted this proceeding, together with my finding that the trust is void, leads me to conclude that this a case where the trustees should be ordered to pay costs personally.
[26] The amount of the respondent’s costs to be paid by the applicants under this
head is accordingly $34,119 plus disbursements of $1,928.72.
Responsibility for payment of the applicants’ costs
[27] Furthermore, I find that it is not appropriate for the applicants to meet their own legal costs relating to bringing and conducting the proceedings from the assets and funds of the trust.11
[28] Were they to pay their own legal costs and disbursements from the funds they hold on trust for the estate of Rex White, the respondent as the sole beneficiary of
11 While I have held the RWFT to be void for uncertainty, the applicants nevertheless have to date continued to retain and hold the assets and funds that they previously held as trustees of the RWFT, as trustees of the Estate of Raymond White and for the respondent as the sole beneficiary of the estate.
her late husband’s estate would in effect be meeting the costs. I consider that the respondent should not be required to meet all of the applicants’ costs. They embarked on the proceedings on an entirely untenable basis, particularly in light of the fact that Mr McNiece had earlier expressed his professional view and understanding that the respondent was the sole beneficiary of the RWFT, and then having advised the respondent to that effect, thereafter somewhat inexplicably and radically changing his position and proceeding on the basis that Freemasons New Zealand were entitled to the trust funds.
[29] Nevertheless, and having regard to the situation whereby it appears that the applicants adopted a position and commenced the proceedings relying on their counsel’s opinion, this is not a case involving the kind of obstructive and unreasonable conduct found to have occurred by Hammond J in Re O’Donoghue. In my view the circumstances of this case warrant an order requiring the applicants themselves to pay 50 per cent of their legal fees (including their counsel’s fees) they have incurred in connection with commencing and conducting this proceeding. The remaining 50 per cent of the legal fees may be paid from the funds that they hold on trust for the estate of Rex White.
Disgorgement
[30] Counsel for the respondent further submits that it would be appropriate for the Court to order disgorgement of the costs already paid in relation to the litigation from the trust fund. Counsel for the applicants says that he is unaware of what jurisdiction the Court would have with respect to the disgorgement of costs already paid but submits that, in any event, the circumstances of the present case do not warrant “such a draconian step”.
[31] Having made the order requiring the applicants to meet 50 per cent of the amount of the legal fees they have incurred in commencing and conducting the proceedings, I do not consider that it is appropriate to further order that they disgorge the amount of the legal costs that they have previously paid from the funds they hold on trust.
[32] In order to comply with the order requiring them to personally pay 50 per cent of the legal costs (including counsel’s fees), the applicants may well be required to reimburse the trust to the extent necessary to make their required contribution. Beyond doing that, I do not consider it appropriate to make an order for disgorgement as sought by the respondent in this current context of fixing costs.
Result
[33] The applicants are ordered to pay the respondents costs on the increased scale
2B basis amounting to $34,119 plus disbursements $1,928.72.
[34] I order that the applicants are to personally meet 50 per cent of their own
legal costs (including their counsel’s fees).
[35] In paying the costs set out above, the applicants shall not have recourse to the funds held on trust for the Rex White estate (or the funds previously held by
them on trust for the RWFT).
Paul Davison J
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