Fundación Pimjo AC v Aguilar & Aguilar Ltd
[2015] NZHC 1402
•19 June 2015
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2013-404-4810 [2015] NZHC 1402
UNDER the Trustee Act 1956 BETWEEN
FUNDACIÓN PIMJO AC Plaintiff
AND
AGUILAR & AGUILAR LIMITED First Defendant
CARISMA PRIMA LIMITED Second Defendant
JORGE MATEO REDMOND SCHLAGETER
Third Defendant
Hearing: 17 April 2015 (last submission dated 18 June 2015) Counsel:
P Collins for plaintiff
D McLay for first and second defendants
I Hikaka and F Whyte for third defendantJudgment:
19 June 2015
JUDGMENT OF KATZ J
(Applications by plaintiff and second defendant in relation to costs)
This judgment was delivered by me on 19 June 2015 at 4:00pm
Pursuant to Rule 11.5 High Court Rules
Registrar/Deputy Registrar
Solicitors: LeeSalmonLong, Auckland Nielsen Law, Hamilton Glaister Ennor, Auckland
Counsel: P Collins, Barrister, Auckland
D McLay, Barrister, Wellington
FUNDACIÓN PIMJO AC v AGUILAR & AGUILAR LIMITED [2015] NZHC 1402 [19 June 2015]
Introduction
[1] The plaintiff, Fundación Pimjo AC (“Fundación”), is a charitable association based in Venezuela. These proceedings involve serious allegations of breach of trust against the first and second defendants, Aguilar & Aguilar Limited (“Aguilar & Aguilar”) and Carisma Prima Limited (“Carisma”) (together, “the Aguilar defendants”).
[2] Although the Fundación is the nominal plaintiff, the real dispute is between the Aguilar defendants and the third defendant, Mr Redmond, who has had a long association with the Fundación. Mr Redmond alleges that the Aguilar defendants are the vehicles through which Mr Luis Aguilar (who has also had a long association with the Fundación) has attempted to unlawfully liquidate the Fundación and seize control of the trust funds held on its behalf. The relief sought by Mr Redmond includes removal of the current trustees and the appointment of an independent trustee. The Aguilar defendants strenuously deny any improper conduct on their part, or any breaches of trust.
[3] Against this background, the Fundación, which is taking a neutral role in the litigation, seeks a prospective costs order enabling its legal costs and disbursements to be met out of the trust funds allegedly held on its behalf (as a discretionary beneficiary). Carisma, as corporate trustee of the two trusts (the Joseph Trust and the Xavier Trust) that control the trust funds also seeks to be indemnified out of those funds for various costs it has incurred in relation to both these proceedings and related New York proceedings.
[4] The Fundación and Carisma’s respective costs applications give rise to the following issues:
(a) Should a prospective costs order in relation to the costs of these proceedings be made in favour of the Fundación? 1
1 The plaintiff ’s application for a prospective costs order was previously addressed in a judgment I delivered on 11 June 2015. That judgment was recalled, on the application of the first and second defendants, on the basis that the parties had not been informed by the Registrar that a fee waiver application had been granted in respect of the application. As a result, the first and second defendants were not aware that the time for filing a notice of opposition or submissions was running, and they had taken no steps. This judgment addresses both the plaintiff ’s prospective costs application and the second defendants separate application for a Beddoe order and/or prospective costs order.
(b)Should orders be made retrospectively indemnifying Carisma from the trust fund in respect of costs it has incurred in relation to:
(i)opposing a pre-commencement discovery application brought by Mr Redmond and others; and
(ii)opposing an application by Mr Redmond for interim relief in these proceedings.
(c) Should an order be made retrospectively indemnifying Carisma from the trust fund for costs it has incurred in relation to New York legal proceedings?
(d)Should a Beddoe order be made authorising Carisma to defend these proceedings?
[5] I will address each issue in turn, after first outlining the relevant factual background and the legal principles relating to applications for Beddoe orders or prospective costs orders, in the context of trust litigation.
Factual Background
[6] A number of facts are in dispute and will need to be determined at trial. For present purposes, however, the relevant background appears to be broadly as follows.
[7] The Fundación was settled for charitable purposes in 1994 by Joseph Grootkerk. It is registered as a “civil association” under the laws of Venezuela. Both Mr Redmond and Mr Aguilar had an existing association with Mr Grootkerk. Mr Redmond was named as chairman of the Fundación and a director. Mr Aguilar, a Venezuelan lawyer, was engaged to establish the Fundación. He was named as vice chairman and also a director.
[8] The operating assets of the Fundación, which it used to fund charitable works in Venezuela, were provided out of assets made available by Mr Grootkerk. The Fundación’s means of holding those assets evolved over the years.
[9] Following a restructuring in 2009, the Fundación’s assets of about USD 12 million were held in an investment account by Oppenheimer & Co, based in New York. The legal owner of those funds is Pimjo Trust CV, a Dutch “Commanditaire Vennootschap”, which is similar to a partnership. There are two partners: the Xavier Trust and the Joseph Trust. They are both discretionary charitable trusts, governed by New Zealand law. The Fundación is the final beneficiary of the Xavier Trust and the primary beneficiary of the Joseph Trust. Each of the relevant trust deeds name the Fundación as a discretionary beneficiary of the Trusts.
[10] The trustee of both the Xavier and Joseph Trusts is Carisma, and the sole shareholder of Carisma is Aguilar & Aguilar. Both companies are registered in New Zealand. Mr Aguilar is currently the sole shareholder of Aguilar & Aguilar, and the sole director of Carisma. Pursuant to a deed of nomination dated 30 March 2009, Aguilar & Aguilar acknowledged that it held the shares in Carisma on behalf of the Fundación as beneficial owner.
[11] In 2011, there was a falling out between Mr Redmond and Mr Aguilar. Mr Redmond alleges that, as a result, Mr Aguilar resigned as a director and vice president of the Fundación, attorney for Pimjo Trust CV, and director of Carisma Prima, in July 2011. Mr Aguilar disputes that.
[12] Beginning in January 2012, after attempts to agree to an appropriate way forward for the Fundación had failed, Mr Aguilar purported to make a number of changes to the trust structure through which the Fundación’s assets were held. These allegedly included:
(a) Purporting to remove the Fundación as a beneficiary of the Xavier and
Joseph Trusts.
(b)Purporting to put in place a “Plan of Revitalisation” under which a new structure would be created to manage the assets and appoint beneficiaries of the trusts. This new structure would be populated by persons chosen by Mr Aguilar.
(c) Making provision for Mr Aguilar to receive significant remuneration, or other financial support, from trust assets.
[13] Mr Redmond submits that such actions were unlawful and in breach of trust.
[14] Mr Aguilar, on the other hand, contends that Mr Redmond is disqualified, as a “corrupt person”, from being involved in the management of the Fundación. He says that his concerns regarding Mr Redmond’s character led to his dismissal of Mr Redmond and others as directors of Carisma Prima.
[15] Accordingly, both Mr Redmond and Mr Aguilar make serious allegations against the other. Each claims claim to have the best interests of the Fundación at heart, and to be its rightful representative.
[16] As a result of receiving conflicting instructions and disputes over the ultimate beneficiary of the funds, Oppenheimer commenced interpleader proceedings in the Supreme Court of New York (New York proceedings). These proceedings were commenced in February 2013. Oppenheimer sought to pay the trust funds into court or hold them on escrow pending determination of the substantive dispute between them.
[17] It appears that lawyers for Mr Redmond initially responded, in the name of Fundación. Based on the legal control of the account, the New York Supreme Court replaced those lawyers with lawyers acting on behalf of Mr Aguilar, who opposed granting Oppenheimer any immunity. Mr Redmond subsequently sought to intervene in the proceedings. The parties appear to have ultimately come to some form of agreement for all parties to agree to allow the New York account to be frozen with no recourse against Oppenheimer, but it is not clear from the documents before me if that agreement was ever finalised. In any event, the Oppenheimer account
remains frozen, pending determination of the substantive disputes between the parties.
[18] The present proceedings were filed on 7 November 2013, in the name of the Fundación as plaintiff, by solicitors acting on instructions from Mr Redmond. The Fundación claimed relief that would have the effect of replacing the Aguilar defendants with an independent trustee and declaring their attempts to remove the Fundación as beneficiary of the Xavier and Joseph Trusts to be invalid and of no effect.
[19] In February 2014, after these proceedings had been commenced, both parties ostensibly convened meetings of the Fundación in Venezuela. At a meeting convened by Mr Redmond, Mr Aguilar was purportedly removed as vice chairman, and new directors were appointed. At a meeting convened by Mr Aguilar the following day, Mr Redmond was purportedly expelled and a resolution passed putting the Fundación into liquidation and appointing Mr Aguilar as liquidator. In that capacity Mr Aguilar attempted to halt all claims against him (or entities controlled by him) in the Fundación’s name. Both Mr Redmond and Mr Aguilar dispute the legitimacy of the meetings convened by the other.
[20] In May 2014 court orders were made by the First Instance Court of Caracas, Venezuela, requiring that neither Mr Redmond nor Mr Aguilar purport to represent the Fundación. This prompted the Aguilar defendants to object to Mr Redmond claiming to represent the Fundación in these proceedings. As a result of that objection, Mr Redmond sought to be joined to the proceedings as an additional plaintiff. That application was opposed by Mr Aguilar.
[21] Andrews J heard Mr Redmond’s application. She declined to join him as a second plaintiff and ordered instead that he be joined as the third defendant.2
Her Honour stated:
[44] The most appropriate course is for Mr Redmond to be joined as a defendant. That would enable issues to be determined between the real protagonists, Mr Aguilar and Mr Redmond, by way of cross claims between
2 Fundación Pimjo Asociacion Civil v Aguilar v Aguilar Limited [2014] NZHC 2322.
defendants. The Fundación could then remain as plaintiff, in a neutral position. Clearly it would be necessary for the Fundación to be separately represented from Mr Redmond.
…
[47] If Mr Hikaka’s firm wishes to continue to represent Mr Redmond, then arrangements should be made for the Fundación to be separately represented. Counsel for the parties should be able to agree on such representation. It is appropriate that such representation (which I would assume would be to abide the decision of the Court in the proceeding) should be at the cost of the Fundación. Once counsel have agreed on representation, a draft order may be submitted so as to enable an application to be made in New York for release of funds for this purpose.
[22] For completeness I note that the first instance decision in Venezuela was later set aside on appeal and, I understand, the actions taken by Mr Aguilar on 5 February
2014, including the purported liquidation of the Fundación and removal of
Mr Redmond as its chairman, were declared a nullity.
[23] Following the release of Andrews J’s judgment, the parties agreed on the appointment of Paul Collins as independent counsel for the Fundación. Mr Collins prepared a draft order to enable an application to be made to the New York courts for the release of funds to meet Fundación’s costs, as envisaged by Andrews J.
[24] The assistance of Mr Redmond’s New Zealand lawyers was sought in facilitating the filing of the New Zealand court order in New York. Payment was not forthcoming, apparently because a more specific New Zealand court order was required, detailing the specific amount required to be released. That prompted a request by Mr Collins to this Court for a more specific costs order.
[25] The Aguilar defendants, however, opposed the making of such an order. Given the opposition of the Aguilar defendants, Mr Collins filed a formal application for a prospective costs order, on behalf of the Fundación. The amount sought is NZD 102,000.00, which includes NZD 32,000.00 to meet the Fundación’s obligation to pay scheduling and hearing fees in relation to the 10 day substantive fixture scheduled to commence on 27 July 2015.
[26] Mr Collins advised that the amount sought to cover legal fees for the
Fundación’s counsel and solicitors (NZD 70,000.00) is an attempt to make adequate
provision for costs in circumstances where the Fundación may need to be represented for some or all of the forthcoming 10 day hearing and counsel will need to keep fully abreast of ongoing developments in this complex litigation. The amount of funding sought is intended to avoid the need for repeated requests for further orders from this court, and also from the New York courts.
[27] To date none of Mr Collins’ costs have been paid. Nor has the Fundación paid the Court hearing fees for the forthcoming substantive hearing, which are now overdue, putting the hearing at risk.
Beddoe orders and prospective costs orders – relevant legal principles
[28] The Fundación seeks a prospective costs order. Carisma’s application is framed as an application for Beddoe orders, but in its submissions it appeared to be seeking orders more in the nature of prospective costs orders, albeit on a retrospective basis (putting to one side the apparent contradiction in that proposition).
[29] It is clear from both commentary and case law that there is significant overlap between Beddoe orders and prospective costs orders. A Beddoe application is made in separate proceedings, generally by a trustee, for directions as to whether to bring or defend proceedings at the expense of the trust.3 Full disclosure of the strengths and the weakness of the case is required. A Beddoe order will provide the trustees with an indemnity, from the trust fund, for the costs of bringing or defending the proceeding. It will not usually deal, however, with issues of costs between the parties in the main proceeding.4
[30] An application for a prospective costs order does not require separate proceedings and may be made in the main action. Further, a prospective costs order may deal with costs as between the parties in the main action, thereby fettering the discretion of the trial judge, contrary to the usual principle that costs follow the
event.
3 Re Beddoe [1893] 1 Ch 547 (CA) at 557.
4 John Mowbray and others Lewin on Trusts (18th ed, Sweet & Maxwell, London, 2008) at [21–
120]. The passage reflects the terms of Lightman J’s judgment in Alsop Wilkinson v Neary
[1996] 1 WLR 1220 (Ch), discussed at [36] below.
[31] The usual practice in trust disputes is for trustees to apply for a Beddoe order, and beneficiaries to apply for a prospective costs order, although it is possible for parties other than trustees to make a Beddoe application.
[32] The Court has an inherent jurisdiction to make both types of orders, as part of its equitable jurisdiction to supervise the administration of trusts. In a recent Jersey case, In the matter of X (Trust), the Court observed that:5
The Court’s inherent jurisdiction to supervise the administration of a trust is self-evidently a jurisdiction which the Court should exercise in the best interests of the trust. There is no logical reason why that exercise of jurisdiction should not extend in the Court’s discretion in an appropriate case, to making an order that the costs of legal action against the trustee be met out of the trust fund. … In the exercise of a discretion of this nature, the Court will clearly have to have regard to all the circumstances, and may have to balance the interests of different beneficiaries as well as the interest of beneficiaries and trustees, or conceivably the interests of beneficiaries and third parties. … At the end of the day, the question is whether the order sought is in the best interests of the trust, and thus of the beneficiaries as a whole.
[33] Although the Court has an overriding discretion in relation to costs in trustee litigation, previous case law provides some guidance as to the principles the courts will take into account in exercising that discretion. The types of litigation in which it will be appropriate to allow trustees to be indemnified for their costs out of the trust fund were summarised in Re Buckton, and Alsop Wilkinson (a firm) v Neary.6 In
Woodward v Smith, Kós J summarised the Re Buckton categories as follows:7
(a) The first category involves proceedings brought by trustees to obtain the Court's guidance on the construction of the trust deed or some aspect of the trust's administration. In such cases, the costs of all parties necessarily participating are treated as incurred for the benefit of the estate and ordered to be paid out of the trust fund.
(b) The second category involves a similar application, but by someone other than a trustee (such as a beneficiary). However, it is a case which would have justified application by a trustee. The same approach is taken to costs in the second category as to the first.
(c) The third category, however, is where a beneficiary is making a ‘hostile claim’ against the trustees, or another beneficiary. The claim may still involve a point of construction, or administration. It will often involve a claim to a beneficial interest or entitlement to a part of the trust fund. In the
5 In the matter of X (Trust) [2012] JRC 171 at [22].
6 In Re Buckton, Buckton v Buckton [1907] 2 Ch 406 (HC); Alsop Wilkinson v Neary above n 4.
7 Woodward v Smith [2014] NZHC 407; [2014] 3 NZLR 525 at [23].
third category, involving a hostile claim against trustees or another beneficiary, the usual principles as to costs apply. Ordinarily they will follow the event.
[34] The Re Buckton categories are relevant to both Beddoe and prospective cost orders applications. As Kekewich J observed in Buckton, and Hoffman LJ in McDonald v Horn,8 these three categories often overlap. For example, Kekewich J noted that it can be difficult to discriminate between the second and third categories, but said:9
... 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.
[35] Prospective costs orders fall into two broad categories. First, beneficiaries (or trustees) may seek an order that that their own costs be paid out of the trust fund, on an indemnity basis (an indemnity or “own party costs” order). Second, beneficiaries (or trustees) may seek an order, in advance of the substantive hearing, that they will not be liable to pay the other party’s costs, regardless of the outcome of the litigation (an immunity, or “other party costs” order). The orders sought by both the Fundación and Carisma fall within the first category.
[36] Prospective costs orders will routinely be made in cases falling within Buckton categories one or two. However, if trust litigation falls within category three of Buckton (hostile litigation), there must be “exceptional circumstances” to justify departing from the usual rule that costs are determined after the substantive claim has been heard.10 That is because, where the parties are involved in hostile litigation, it will usually be appropriate for each party to bear their own costs until the merits of the litigation have been resolved. Costs issues can then be determined
in light of those findings.
[37] In Alsop Wilkinson (a firm) v Neary, Lightman J also set out three categories of proceedings involving trustees and their respective appropriateness for indemnity
costs, which overlap and expand the Re Buckton categories.11 He termed these
8 McDonald v Horn [1995] 1 All ER 961 (CA) at 970.
9 Re Buckton [2907] 2 Ch 406 (Ch) at 415.
10 Lewin on Trusts, above n 4, at [21-118]; Woodward v Smith, above n 7, at [40].
11 Alsop Wilkinson, above n 4, at 1223 - 1224.
“trust disputes”, “beneficiary disputes” and “third party disputes”, with both beneficiary and third party disputes encompassing the third Buckton category. Lightman J distinguished further between friendly and hostile disputes, stating that in relation to friendly claims regarding the trustee making an application for the correct interpretation of a trust deed, or abiding a dispute between two beneficiaries, the trustees’ costs will always be paid out of the trust fund, as they have a duty to remain neutral and await determination of the dispute. If the litigation is “hostile” and the trustee is either pursuing or defending themselves against a beneficiary or third party, then the matter is for the discretion for the court.
[38] The various categories of trust litigation I have outlined have been recognised as discretionary and overlapping significantly.12 The Re Buckton categories are not closed.13 Panckhurst J, in Kain v Sutton, cited with approval the comments of Nourse LJ in the English Court of Appeal, who stated:14
First and foremost, every application of this kind depends on its own facts and is essentially a matter for the discretion of the master or judge who hears it.
[39] It is clear from the case law that neither Beddoe orders, nor prospective costs orders, will be granted where the actions of the trustee are being challenged as a breach of trust.15
[40] Applications for prospective costs orders are generally made at the outset of litigation, but conceptually there is no reason why such an application could not be made once proceedings are underway, or in relation to specific applications or parts of the proceedings only. Similarly, although unusual (and there appear to be no cases directly on point) there appears to be no principled reason why a prospective costs order could not have some element of retrospectivity. This may be necessary, for example, where a trustee has had to take urgent action, for example in relation to an injunction, following which the Court’s approval is promptly sought for the costs of
that action to be indemnified from the trust fund.
12 Alsop Wilkinson, above n 4, at 1224; Re Buckton, above n 6, at 415; McDonald v Horn [1995]
1 All ER 961 (CA) at 971.
13 Singapore Airlines v Buck Consultants Ltd [2011] EWCA Civ 1542 at [75].
14 Kain v Hutton HC Christchurch M 1989/00, 3 October 2001 at [20], citing Evans v Evans [1985]
3 All ER 289.
15 Woodward v Smith, above n 7.
[41] An application for a Beddoe order will almost always be made at the outset of proceedings, due to the requirement that the Court “approve” in advance the trustee’s proposed course in either bringing or defending proceedings. Again, however, there may be some rare cases where a trustee is forced to act urgently, and should nevertheless be indemnified provided a Beddoe order is then sought as soon as is reasonably practicable. In other than exceptional circumstances, however, a delayed Beddoe application will likely be inconsistent with the principles underlying such applications.
Should a prospective costs order be made in favour of the Fundación?
[42] I now turn to consider whether a prospective costs order should be made in favour of the Fundación.
[43] As I have noted above, the Venezuelan court order prohibiting Mr Redmond from acting on behalf of the Fundación has now been overturned on appeal. As a result, the original position of the Aguilar defendants was that separate representation for the Fundación was no longer necessary. They submitted that Mr Redmond should be treated as the “de facto” plaintiff, as he was the person who initially procured the issue of proceedings in the name of the Fundación. As a result, he should personally meet the plaintiff’s legal costs and disbursements.
[44] Due to the Aguilar defendants taking that position, rather than consenting to the orders sought by the Fundación following Andrews J’s judgment, it became necessary for the Fundación to file a formal prospective costs application. Following the release and subsequent recall of my original judgment on the issue (for the reasons summarised in footnote 1 above), the Aguilar defendants advised that they do not formally oppose a prospective costs order being made in favour of the Fundación, and I proceed accordingly.
[45] The present proceedings do not fall neatly within any of the three Buckton
categories. Rather, they appear to fall somewhere between category 2 and category
3. Viewed from the Fundación’s perspective, the proceedings most closely resemble a category two proceeding. That category refers to applications relating to the administration of the trust, which could have been brought by a trustee but for some
reason have been brought by a beneficiary. In this case, a neutral third party trustee (if there was one) could have sought directions from the Court to determine the lawfulness of the various actions undertaken by the Aguilar defendants and (to a lesser extent) Mr Redmond. Those involved historically in the administration of the trust are now effectively at war, however, and it is the Fundación that has assumed a neutral role. The defendants are pursuing essentially hostile litigation by way of cross claims against each other.
[46] The Fundación’s neutral role justifies a prospective costs order in its favour. The learned authors of Underhill and Hayton note that even in the case of category three disputes between beneficiaries in which the trustee takes a neutral and passive role, such as filing a defence, that the trustees submit to the court’s directions, they
will be entitled to costs.16 The present situation is similar, except that it is the
beneficiary taking a neutral role, while the trustees pursue “hostile” claims against each other. It is overwhelmingly clear from the case law that a neutral party will typically be provided with an indemnity from the trust fund.
[47] Orders for independent representation of the Fundación were made by the court, unopposed, in circumstances where it was clearly anticipated that the New York funds would be used as the source of payment for Fundación’s legal costs. In the event that funds are not forthcoming, counsel for the Fundación has advised that he will seek leave to withdraw from further involvement in the proceedings. That could potentially result in the proceedings being stayed and the New York funds remaining frozen indefinitely. Mr Redmond is not a beneficiary of the relevant trusts and does not appear to have any direct financial interest in the outcome of the litigation. It cannot therefore be assumed that he would be willing to fund the Fundación’s legal costs in addition to his own.
[48] As the Court observed in In the matter of X (Trust), the Court’s inherent jurisdiction to supervise the administration of a trust is self-evidently a jurisdiction that the Court should exercise in the best interests of the trust and its beneficiaries as
a whole. In this case I am in no doubt that the indemnity sought is in the best
16 David Hayton (general ed) Underhill and Hayton: Law Relating to Trusts and Trustees
(18th edition, LexisNexis, United Kingdom, 2010) at [85.36].
interests of the relevant trusts, and the Fundación as their primary beneficiary. Some of the costs burden may be able to be shifted to one or more of the defendants post trial. Currently, however, the appropriate course is that Fundación’s actual and reasonable legal costs be met from the trust fund to enable the proceedings to be progressed and the underlying issues to be resolved.
Should Carisma be indemnified from the trust fund in respect of costs it has incurred in relation to these proceedings?
[49] I now turn to consider whether Carisma should be retrospectively indemnified from the trust fund for the costs it has incurred in relation to:
(a) opposing a pre-commencement discovery application brought by
Mr Redmond and others; and
(b)opposing an application by Mr Redmond for interim relief in these proceedings.
[50] The precise jurisdictional basis of the orders sought by Carisma was somewhat unclear. The application itself was framed as a Beddoe application, albeit that it appeared from Carisma’s submissions that the orders it was seeking were more in the nature of prospective costs orders, on a retrospective basis (as noted above).
[51] The pre-commencement discovery application was made in March 2013 by Mr Redmond and other former directors of Carisma. The application was ultimately resolved by agreement, however. Mr Redmond submitted that the application was nevertheless well founded, as it resulted in the provision of documents which enabled the current proceedings to be brought and properly framed (as it was intended to).
[52] The interim relief application was brought by Mr Redmond after these proceedings had been commenced. In particular, he sought orders that pending resolution of these proceedings, no steps could be taken by the Aguilar defendants to prejudice the assets of the Fundación overseas, specifically by interfering in any way with the Oppenheimer account. I declined to grant “interim interim” relief in
relation to this issue during a telephone conference on 9 July 2014. The interim relief application was not further pursued. Counsel for Mr Redmond advised that that was due to a subsequent representation by Carisma and Mr Aguilar to the New York Supreme Court that it would not give directions in respect of the New York account until the New Zealand proceedings were disposed of.
[53] Carisma does not seek costs from Mr Redmond (or anyone else) in respect of these interlocutory applications and presumably accepts that, on a party-party basis at least, costs issues in relation to these two applications will be most appropriately dealt with post-trial. Carisma does, however, seek an order that it be entitled to recover its actual costs of those applications, on an indemnity basis, from the trust funds held in the New York account.
[54] In my view such an order is not appropriate. The proceedings, as between the defendants at least, are hostile proceedings. Although they do not fall neatly in any of the three Re Buckton categories, from the perspective of the defendants (as opposed to the Fundación) they most closely resemble category three proceedings. The two groups of defendants are engaged in a significant battle over control of the trust, albeit Mr Redmond does not seek to actually control the trust himself. Rather, he wishes to curtail Mr Aguilar’s control of the trust by the appointment of an independent trustee. Each party claims to have the best interests of the Fundación (or possibly the trust assets, given Mr Aguilar’s attempts to liquidate the Fundación) at heart. Serious allegations of breach of trust have been made.
[55] As I have noted above, it is clear from the case law that neither Beddoe orders, nor prospective costs orders, will be granted where the actions of the trustee are being challenged as a breach of trust.17 The law is clear that a trustee should not have its costs of defending such allegations met by the trust fund (i.e. by the beneficiaries) until after the allegations have been determined, and then only if they
are dismissed.
17 Woodward v Smith, above n 7; Kain v Hutton, above n 14, at [24]; Re O’Donoghue [1998]
1 NZLR 116 (HC) at 121.
[56] If the propriety of Carisma’s actions are upheld, then it will likely be entitled to an indemnity from the trust fund to meet any shortfall between the actual costs it has incurred and any costs recovered from Mr Redmond. If, however, the allegations of breach of trust are made out, then it would not be appropriate for the assets of the trusts to be depleted (to the detriment of the Fundación) by Carisma in defending allegations against it that were proved to be well founded.
[57] As discussed above, where a prospective costs application is sought in the context of hostile proceedings exceptional circumstances are required to warrant the granting of a prospective costs order. No exceptional circumstances exist here.
Should Carisma be indemnified from the trust fund in respect of the costs it has incurred in the New York proceedings?
[58] Carisma seeks recovery from the trust fund, on an indemnity basis, of the costs it has incurred in relation to the New York proceedings, in the sum of USD 327,080.06. Counsel for Mr Redmond advised that the fees incurred by Oppenheimer in relation to the interpleader proceedings were USD 48,000 and the fees incurred by Mr Redmond were USD 14,050.
[59] This aspect of Carisma’s application is, in my view, procedurally misconceived. An interlocutory application in these proceedings is not an appropriate mechanism for determining the question of the availability of the trustee’s indemnity in the New York proceedings. Interlocutory applications in these proceedings can only relate to costs incurred in these proceedings.
[60] Any application in relation to the costs of the New York proceedings would need to be brought in separate proceedings. The legal principles I have outlined above would apply to any such an application, which would likely face significant obstacles (prior to final determination of the breach of trust allegations) for the reasons I have outlined at [54] to [57] above. Carisma would likely need to ultimately establish that not only are the allegations of breach of trust unfounded, but that its conduct in opposing the interpleader application and refusing to allow the New York funds to be held in escrow pending resolution of the breach of trust issues was reasonable in all the circumstances.
[61] I further note that in Re Beddoe itself the Judge found that the trustee was not entitled to costs where they could have come before the court at the start of the proceedings and asked for authorisation to defend the proceedings.18 Carisma did not seek the direction of the courts as to whether it was appropriate to challenge Oppenheimer’s interpleader application or not.
Should a Beddoe order be made authorising Carisma to defend these proceedings?
[62] The final aspect of Carisma’s costs application is its request for a Court order authorising it to defend these proceedings. Carisma’s submissions stated that:
The scope of this application is narrow. It does not relate to the current litigation, except for the costs of preventing Mr Redmond from freezing the investment account by way of the interim interim relief application that was rejected by Katz J on 9 July 2014.
[63] To the extent that this aspect of the application relates solely to the interim relief costs, I have already dealt with those at [54] to [57] above. If a broader order is sought, authorising the defence of these proceedings more generally, I decline to make it. A key element of a Beddoe order is that if the Court authorises a trustee to pursue or defend a claim, it will be indemnified out of the trust funds for the costs of doing so. However, as noted above, Beddoe applications are typically not granted where a trustee is involved in hostile litigation or the actions of the trustee are challenged as a breach of trust. A trustee cannot have the costs of defending such allegations met out of the trust fund until after allegations have been determined, and only then if the allegations are proven to be unfounded.
[64] I also note that there are significant procedural deficits if Carisma is seeking a standard Beddoe order, including that it has not made this application in a separate proceeding and (more significantly) does not appear to have given full and frank disclosure for all relevant information relating to the claim (including its strengths and weaknesses) to the court. This is required to enable the court to make an accurate decision on whether it is in the best interests of the trust (as opposed to the
trustee) for the trustee to pursue or defend the litigation.19
18 Re Beddoe [1893] 1 Ch 547.
19 See Alsop Wilkinson, above n 4; Kain v Hutton, above n 14.
Result
[65] The second defendant’s application for orders in relation to costs is declined.
[66] The plaintiff’s application for a prospective costs order is granted. I order that:
(a) The second defendant, in its status as trustee of the Xavier and Joseph Trusts, is to take all reasonably possible steps to procure payment of the sum of NZD 102,000 to the New Zealand lawyers representing Fundación as plaintiff in these proceedings, comprising an allowance to cover the plaintiff ’s legal fees up to and including the trial in the estimated amount of NZD 70,000, and the scheduling and hearing fees of the court of NZD 32,000.
(b) That such sum be deposited into the plaintiff’s solicitor’s trust account
promptly upon the making of order (a) above.
(c) Those funds may be disbursed to pay the plaintiff’s actual and reasonable fees and disbursements incurred in relation to these proceedings, save that the hourly rate charged by counsel is not to exceed $400 per hour and the hourly rates charged by the plaintiff’s solicitors are not to exceed $300 per hour for a staff solicitor, $440 per hour for a senior associate, and $475 per hour for a partner.
(d)For the purposes of orders (a) and (b) above, the second defendant is to file these orders and this judgment with the Registry or other appropriate administrative office of the Supreme Court of the State of New York, County of New York in the proceeding 650770/2013
Oppenheimer & Co. Inc v Pimjo Trust CV, Joseph Trust, Xavier Trust, Carisma Prima Limited and Luis Alejandro Aguilar.
(e) The third defendant shall co-operate in the processes contemplated in order (d) above and, if required to do so, will do all things reasonably necessary to facilitate the payment in order (a) above.
(f) The second defendant shall direct its New York counsel to file an affidavit with this court, by 10 July 2015, describing the steps taken in relation to order (d) above and the outcome.
(g)Leave is granted to the plaintiff and the first, second and third defendants to apply to vary this order, or for any further orders necessary to implement these orders.
(h) Costs in relation to this application are reserved.
Katz J
12
2
1