Gallagher v Gallagher
[2021] NZHC 677
•31 March 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2020-404-1996
[2021] NZHC 677
UNDER Section 51 of the Trustee Act 1956 and/or the Court’s inherent jurisdiction IN THE MATTER
of the Janevine Trust, being a trust settled on 23 May 2007, pursuant to a Deed of Trust executed on that date
BETWEEN
SHERYL JANE GALLAGHER as one of
three trustees of the JANEVINE TRUST Applicant
AND
GLENN NOEL VINING GALLAGHER, as
the second trustee of the JANEVINE TRUST
First Respondent
DAVID GOULD RUSSELL SHORT, as the
third trustee of the JANEVINE TRUST Second Respondent
Hearing: On the papers Counsel:
T S Gough for Plaintiff
P Craighead for Respondent
Judgment:
31 March 2021
COSTS JUDGMENT OF VENNING J
This judgment was delivered by me on 31 March 2021 at 12.30 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors: Martelli McKegg, Auckland
Whaley Garnett, Auckland
GALLAGHER v GALLAGHER [2021] NZHC 677 [31 March 2021]
[1] This is an application for costs. It should have been able to be resolved by the parties some time ago.
[2] The applicant brought an originating application seeking orders removing the existing trustees of the Janevine Trust (the Trust) and appointing New Zealand Trustee Services Limited as substitute trustee. She also sought costs.
[3] The applicant and the first respondent were married. They are now separated. They, together with the second respondent, a lawyer and friend of the first respondent, were trustees of the Trust. Given the breakdown in the parties’ relationship, the application to remove the existing trustees and appoint an independent trustee was a reasonable one.
[4] The first respondent’s initial response was also reasonable. Before the first call of the application which was scheduled for 25 November 2020, the first respondent filed a notice confirming that he agreed to the removal of the existing trustees and the substitution of the proposed independent trustee. Given the general nature of the application for costs, he noted he opposed any application for costs against him personally.
[5] For his part, the second respondent filed a memorandum confirming that he had been willing to resign as trustee for some time and that he would abide the decision of the Court.
[6] When the matter was before the Court on 25 November, Hinton J noted that the parties were to file a joint memorandum setting out the orders to be made on a consent basis and otherwise adjourned the proceeding for call on 2 December.
[7] So far so good. However, on 2 December, while Wylie J made an order by consent appointing New Zealand Trustee Services Limited in substitution for the original trustees and noted the parties agreed that each should be entitled to be indemnified for their costs, the Judge noted that they had not been able to agree on quantum.
[8] The issue was not able to be resolved and on 24 February 2021 Duffy J made directions for a hearing to resolve the issue.
[9] The applicant filed an affidavit in support of the application for indemnity costs dated 9 March 2021. In that affidavit she annexed copies of bills of costs she claimed had been incurred with her solicitors and barrister relating to the current application. Ms Gallagher noted that she had on two occasions provided to Mr Gallagher, the first respondent, a trust statement showing the costs and disbursements paid to date in respect of the proceedings. There had been no response or disagreement in relation to those costs until the last appearance before the Court and as a consequence the applicant had incurred further costs of filing the affidavit.
[10] Mr Gallagher responded with an affidavit on 17 March 2021. He again failed to engage with the costs sought by the applicant. Instead he listed his costs which he stated as:
Court application to remove the trustee $2,334.50
Invoices dated 4/12/20 and 17/3/21 $4,950.75 Trustees work of the Trust, invoice 9.10.19
Invoices from third Trustee’s lawyer $12,362.50
He also referred to a number of invoices relating to relationship property matters totalling in excess of $46,500.
[11] The suggestion by the first respondent, Mr Gallagher, that the matters relating to relationship property have any relevance whatsoever to this application is completely misconceived and further, wasteful of time and expense. It was not pursued by his counsel in his written submissions.
[12] Mr Craighead submitted that the first respondent’s costs of $7,285.25 were appropriate. He noted that the first respondent now claimed some costs incurred in relation to relationship property matters which reflected matters for which the applicant now claimed against the Trust. He also noted that the amount claimed by the first respondent included costs charged by the second respondent, who was a professional trustee which the first respondent had paid personally.
[13] The hearing to resolve costs was scheduled for 30 March 2021. On 29 March the parties filed a joint memorandum asking for the issue to be resolved on the papers and on the basis of the submissions they had exchanged. The Court acceded to that request. It avoided the cost of the hearing.
[14] The Court has been told that the replacement trustee, NZ Trustee Services Limited, has been advised of these proceedings but has chosen to take no steps.
Decision
[15] The law is clear enough. A trustee has a right to indemnity from trust assets for reasonable costs and expenses incurred in the administration of the trust. Where an application to remove trustees is made on appropriate grounds as it was in this case, generally the costs of the application will be paid from the trust.
[16] In the present case the Trust document also supports the payment of costs. It provides:
Indemnity of Trustees: Each Trustee or former Trustee or officer of any Trustee or former Trustee shall be entitled to a full and complete indemnity from the Trust Fund for any liability which that Trustee, former trustee or officer may incur in any way arising out of or in connection with that Trustee or officer acting or purporting to act as or on behalf of a Trustee of the Trust, provided such liability is not attributable to that Trustee’s or officer’s own dishonesty, or to the wilful commission or omission by that Trustee or officer of an act known by that Trustee or officer to be a breach of trust.
[17]However, as has been confirmed by the Court of Appeal in Sunde v Sunde:1
The presence of an indemnity clause will not oust the court’s supervisory jurisdiction to review whether costs and expenses incurred by a trustee have been necessarily incurred in the interests of the beneficiaries and are reasonable in amount.
[18] As noted, given the background to the breakdown in the parties’ relationship the application to remove all the trustees and replace them with an independent trustee was properly brought. The applicant is entitled to be reimbursed for the costs of that application on a solicitor/client basis provided the costs are otherwise reasonable and
1 Sunde v Sunde [2019] NZCA 552 at [13].
appropriately incurred in relation to the application. Costs outside the application are not recoverable in these proceedings.
[19] Also, given the responsible attitude initially adopted by the first respondent to the application, his costs of taking advice about the application and responding to it are again properly payable by the Trust.
[20] The second respondent, being an independent trustee, albeit aligned with the first respondent, was entitled to take legal advice about the application. The costs of such advice would however be limited.
The applicant’s costs
[21] On a scale basis the costs of the application and attendances would have been between $7,000–$8,000. Scale costs are generally regarded as two-thirds of a reasonable solicitor/client fee. On that basis, the solicitor/client cost would be expected to be approximately $12,000. The costs sought by the applicant are
$18,885.83. Counsel suggests that the increased costs have been incurred because there was a delay in processing the application for a number of months. Counsel was required to follow the matter up by way of phone and email. Next, the applicant had to advise the independent trustee of the position throughout the proceedings, and additional costs were incurred because of the failure of the first respondent to engage in relation to the quantum of costs.
[22] Mr Craighead submitted in his written submissions that the information provided to the Court by the applicant did not allow an assessment as to whether each attendance claimed for qualified as assisting the beneficiaries.
[23] The applicant also referred to the link to the substantive relationship property proceedings which she argues needed to be taken account of in the current proceedings together with additional attendances relating to a settlement proposal.
[24] I do not accept that there should be any allowance for the attendances relating to the parties’ relationship property issues. This was a confined application to replace
trustees. It should have been apparent to the parties from the outset that the fact they were in dispute as to relationship property matters of itself was a sufficient reason for an independent trustee to be appointed to the Trust. While I accept that some increase in costs for the other reasons advanced by the applicant would be reasonable, it must be limited.
[25] Having reviewed the accounts for work claimed as best as I can estimate it, I consider an appropriate and reasonable solicitor cost amount associated with the application is $15,000. The New Zealand Trustee Service Limited, as trustee, is to pay that sum to the applicant in relation to this application from the assets of the Trust when it is in a position to do so.
First respondent’s costs
[26] The first respondent was entitled to take advice on the application and respond to it. The first respondent seeks costs of $7,285.25. However it is apparent from the narration to the second account for work claimed that it covered matters unrelated to the application. The costs of the first account of $2,334.50 together with one half of the related account of $4,950.75, namely $2,475.38 are allowed. That totals
$4,809.88. The New Zealand Trustee Service Limited is to pay that sum to the first respondent in relation to this application from the assets of the Trust when it is in a position to do so.
Second respondent’s costs
[27] The costs of the second respondent that the applicant agrees were incurred in relation to this application are $1,295.00 plus GST, in total $1,489.25. Again, the New Zealand Trustee Service Limited, as trustee, is to pay that sum to the second respondent from the assets of the Trust when it is in a position to do so.
[28] The other costs paid by the first respondent to the second respondent are not claimable in these proceedings. The first respondent should not have sought payment of them. The invoice is for trustee services relating to Radius and Consultant Management Services Ltd, various Trust issues, sale of 503 Great South Road and all incidental time and attendances. It is apparent from that invoice that the invoice was
directed to Physmed Therapeutics Limited, Glenn Gallagher and the Gallagher Trust, Vining Trust and JaneVine Trust and Sheryl Gallagher. The work obviously dealt with issues other than this particular application.
Costs of this application
[29] That leaves the cost of this application. The matter should have been able to be resolved if the first respondent had responded and engaged with the issue of quantum at an earlier stage.
[30] In the circumstances the applicant is to have costs on a 2B basis for the costs of filing the memorandum in relation to costs. Those costs are fixed in the sum of
$956.00. Those costs should not be an imposition on the Trust. The costs of $956.00 are to be paid by the first respondent personally.
Venning J