Glasgow Harley Trustee Limited v McLaughlin

[2019] NZHC 3385

IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY

I TE KŌTI MATUA O AOTEAROA WHAKATŪ ROHE

CIV-2017-442-78

[2019] NZHC 3385

UNDER

the Trustee Act 1956

IN THE MATTER

of the Ashley Trust

BETWEEN

GLASGOW HARLEY TRUSTEE

LIMITED AND JOHN MCLAUGHLIN
Applicants

AND

MARK JAMES MCLAUGHLIN AND ANDREW ASHLEY MCLAUGHLIN

Respondents

On the papers

Counsel:

W J Palmer and O D Peers for Applicants

J W A Johnson and G J C Carter for Respondents
J Little for Respondents’ Children (Interested Parties)
J M McGuigan for Brett McLaughlin (Interested Party)

Judgment:

18 December 2019

Reissued:

20 December 2019

JUDGMENT OF THOMAS J (BEDDOE APPLICATION COSTS)

[1]    The applicants (Trustees), respondents (Beneficiaries), Brett McLaughlin and the Beneficiaries’ children (Interested Parties) all seek to be indemnified by the Ashley Trust (the Trust) for their costs associated with my decision in McLaughlin v McLaughlin (the Beddoe decision).1 This matter has been made more complex by both the Trustees and Beneficiaries holding themselves out as the successful parties in

1      McLaughlin v McLaughlin [2018] NZHC 3198.

GLASGOW HARLEY TRUSTEE LIMITED v MCLAUGHLIN [2019] NZHC 3385 [18 December 2019]

the Beddoe decision, and by the task of apportioning costs between the Beddoe application and the substantive proceedings. Lengthy and numerous memoranda have been filed on behalf of the main protagonists, the Trustees and Beneficiaries.

[2]    Although Mark McLaughlin and Andrew McLaughlin are described as the Beneficiaries, they are not the only beneficiaries of the Trust. The settlors of the Trust, Jim and Edna McLaughlin, had four sons, one of whom, John, is a Trustee. All four sons are discretionary beneficiaries as well as final beneficiaries of the Trust. The fourth son, Brett, is subject to particular provisions under the Trust. The children of John, Mark and Andrew are all discretionary beneficiaries of the Trust.2 John’s children did not seek to be heard in respect of the Beddoe application. Mark and Andrew’s children opposed the application, as did Brett McLaughlin.

[3]The substantive proceedings involve:

(a)An action for the removal and replacement of the Trustees with two new, independent and professional trustees (unspecified). The basis for the claim is that the Trustees have misconducted themselves in the administration of the Trust.

(b)An action for directions as to the management and distribution of the Trust property.3 The sole asset of the Trust is land at Stoke, Nelson (the Ashley Trust Land). The following orders are sought:

(a)A direction for the Trustees to stop work on the Proposed Homestead Development and only do work necessary to enable the land to be sold with consents for subdivision.

(b)A direction that the Trust Property be sold after the relevant consents are obtained (if they have not been already) to maximise its value and provided that Edna’s wish to remain in her home is respected.

(c)A direction for the proceeds of sale, except for any amount required for the continued support of Edna, to be distributed to the sons.

2      Brett McLaughlin does not have children.

3      This cause of action will no longer be pursued.

The orders are sought on the basis of the Trustees’ alleged breach of trust in work undertaken to date and claims that the future work to the Ashley Trust Land proposed by the Trustees will not be for the benefit of the four brothers as final beneficiaries.

(c)Three causes of action alleging breach of trust and fiduciary duty against the Trustees and Mr Nelson alleging, amongst other matters, failure to meet the standards expected of a reasonable and competent trustee and acting in a position of conflict and/or hostility to the Beneficiaries. Damages are sought as well as an account of profits in respect of John McLaughlin and Mr Nelson. It is claimed that John McLaughlin breached his fiduciary duties by:

(a)acting as Trustee when his position as Trustee conflicts with his personal interest; and

(b)profiting from decisions he has made as a Trustee.

Particulars

(c)John is directly employed and remunerated by the Trust as a Project Manager for the Development work.

(d)John received a fee for being a guarantor of the Trust’s obligations to the Bank.

(e)The Trust has purchased a significant amount of machinery that has been used by John for his own purposes.

(f)John owns adjoining land and has profited by virtue of the benefits of the subdivision works undertaken and paid for by the Trust, including resource consents and infrastructure developments, which have increased the value of his own land.

It is claimed Mr Nelson breached his fiduciary duties by:

(a)acting as Trustee when his position as Trustee conflicts with his personal interest; and

(b)profiting from decisions he has made as Trustee.

Particulars

(c)The Second Defendant is a partner in the law firm Glasgow Harley.

(d)Glasgow Harley has received fees from the Trust for the Ching’s block subdivision and will receive fees from the Proposed Homestead Development.

Law

[4]    There is no  specific  legislative  procedure  for  Beddoe  applications  in  New Zealand, but here the Beddoe application was brought as an application for directions pursuant to s 66 of the Trustee Act 1956 (the Act). Section 71 of the Act, therefore applies. That provision provides:

The Court may order the costs and expenses of and incidental to any application for any order under this Act, or of and incidental to any such order, or any conveyance or assignment in pursuance thereof, to be raised and paid out of the property in respect whereof the same is made, or out of the income thereof, or to be borne and paid in such manner and by such persons as to the Court may seem just.

[5]    This provision is broader in scope than the High Court Rules.4 The phrase “the costs and expenses of and incidental to any application” in s 71 allows costs that were incurred before the application was made but “necessarily incidental” to the application.5

[6]    Section 38 of the Act contains an implied indemnity for trustees in respect of all expenses reasonably incurred in or about the execution of the trust or powers. An unsuccessful trustee may be entitled to claim indemnity from a trust fund if the trustee is found to have acted reasonably in an action taken in the proceedings.6 This is, of course, not the case where the expenses arise out of that trustees’ own misconduct or breach of trust. A trustee’s costs must not be excessive or unreasonable in order to have been properly incurred:7

[31] The limitation on a trustee’s right of indemnity is, however, that the expenses are “properly incurred”. The duty to seek advice does not extend, for instance, to pose questions the answers to which are perfectly obvious. Nor where no real and substantial dispute exists. Unnecessary proceedings, or the taking of unnecessary procedural steps needlessly increasing costs, may mitigate (or eliminate) the right of indemnity. Again, excessive costs lie

4      Jones v O’Keeffe [2019] NZCA 222, [2019] NZAR 1448 at [70].

5 At [72].

6      Lomas v Lomas HC Auckland CIV 2003-404-2591, 28 November 2003 at [26]; Clement v Lucas

[2018] NZHC 1799, (2018) 4 NZTR 28-009 at [37].

7      New Zealand Māori Council v Foulkes [2015] NZHC 489, (2015) 4 NZTR 25-003.

beyond the scope of indemnity. Every dollar paid in trustees’ expenses is a dollar denied to beneficiaries of the Trust.

[7]Furthermore, in the present case, the Trust Deed contains a trustee indemnity.8

[8]    The learned authors of the English text Lewin on Trusts say this in relation to costs incurred by trustees and beneficiaries in Beddoe applications:9

The costs of the parties to a Beddoe application, like the costs of other applications by the trustees to the court for directions,10 will normally, in the absence of improper conduct, be paid from the trust fund.11 A beneficiary who makes a bona fide claim against the trustees in third party proceedings should not, it is thought, be deprived of costs (nor be ordered to pay costs) of the Beddoe application, by reason only that he has commenced the claim and therefore necessitated the Beddoe application. Such a beneficiary might, however, become at risk as to costs if he adopts an excessive role in the Beddoe application12 and seeks to use it as a forum for promoting his claim in the third party proceedings. Any party to a Beddoe application who intends to apply for an order for payment of his costs from the trust fund must give notice of that intention to the other parties.13

[9]    The Rules in England and Wales contain specific provisions for costs in trust and estate litigation.14 The position is different in New Zealand, although the Court has a wide discretion under the Act, as outlined above.

[10]   The questions this Court must answer to decide whether the Trustees, Beneficiaries and Interested Parties should be indemnified by the Trust’s funds are to what extent:

(a)they acted reasonably by making or opposing the Beddoe application; and

(b)their costs are reasonable.

8      Clause 12 of the Trust Deed provides:

The Trustees shall not be liable for (and shall be indemnified out of the Trust Fund for) any loss or liability which they may incur by reason of the exercise, manner of exercise or no exercise of any of the powers, authorities, or discretions conferred on them by this Deed or by law.

9      Lynton Tucker, Nicholas Le Poidevin and James Brightwell Lewin on Trusts (19th ed, Sweet & Maxwell, London, 2015) at [27-260].

10     See §§ 27–158 to 21–160.

11     Davies v Watkins [2012] EWCA 1570; [2013] W.T.L.R 221 at [26] et seq.

12     As to the proper role of such a beneficiary in a Beddoe application, see § 27–253.

13     Dagnell v J.L. Freedman & Co. [1993] 1 W.L.R 338, HL.

14     The Civil Procedure Rules 1998.

Reasonable actions

Trustees

[11]   The Trustees consider themselves the successful party. They say, although their application was successful on one only of the five causes of action, it was the most important one. They say they were driven to make the Beddoe application because of their concern the Beneficiaries were trying to “usurp the commercial decisions of the Trustees and prevent future subdivision work” and their success related to the cause of action most relevant to this concern. They say the unsuccessful causes of action were underpinned by substantially similar factual and legal allegations. They also note the third to fifth causes of action were not the focus of the application.

[12]   The Beneficiaries contend the Trustees’ indemnity from the Trust should be limited to 50 per cent of their costs (the balance being payable by them personally) for a number of reasons. First, the Beddoe application failed on all but one ground. Secondly, the evidence filed was excessive – amounting to the airing of the full substantive case before the Court, where the majority was of peripheral relevance only to the Court’s view on the merits of defending the proceedings. Thirdly, the substantive proceedings clearly involved “hostile” elements making a Beddoe application inappropriate and was the reason the Beddoe application failed in respect of the first, third, fourth and fifth causes of action. Fourthly, the Beneficiaries wrote  a letter to the Trustees on a without prejudice save as to costs basis, consenting to the discontinuance of the Beddoe application, and this was not accepted.

[13]   The Beddoe application was clearly at least in part reasonable given its success on the second cause of action. A level of indemnification will therefore be appropriate.

[14]   The question is what that level should be. This assessment must now turn to focus on whether it was reasonable for the Trustees to bring the Beddoe application against all five causes of action, rather than just the second. The significance of those causes of action, the amount of evidence and submissions required in respect of them and the prospects of success are relevant to the assessment of reasonableness.

[15]   The Beddoe application was unsuccessful on four causes of action as they were classified as “hostile” litigation for which indemnifying the Trustees would not be in the best interests of the Trust.15 In claims involving allegations of breach of trust, it is unlikely to be proper for the costs of defending such allegations to be met out of trust funds until after the allegations have been considered and determined. In such a case, it is more appropriate for trustees to be indemnified in respect of costs when the allegations are found to be unsubstantiated.

[16]   That said, the analysis of the best interests of the trust in Beddoe applications requires an assessment of the best interests of the trust and the beneficiaries as a whole, having regard to all the circumstances, including the need to balance the interests of different beneficiaries and trustees.16 Trustees are also obliged to provide full and frank disclosure to the Court, including the strengths and weaknesses of their case, to enable an informed decision to be made as to the best interests of the trust.17

[17]   In this case, the impact of the other four causes of action on the shape of the Beddoe application was relatively minor. The evidence before the Court was voluminous but necessarily so. Of the five causes of action, the second was by far the most substantial and required a significant amount of the evidence to be before the Court in any event.18 As I observed in my decision:

[122] I have already discussed my reservations as to the prospect of success of the second cause of action. The respondents effectively seek to challenge the continued pursuit of the objective of the Ashley Trust as recorded in the Trust Deed and as the surviving settlor confirms still applies. It seeks a direction that the proceeds of sale of the Ashley Trust’s sole asset be distributed to the final beneficiaries well in advance of the potential life of the Ashley Trust and without consideration of the interests of discretionary beneficiaries. It asks the Court essentially to usurp the role of the trustees. All of these matters involve a challenge to fundamental aspects of the Ashley Trust itself. It is right that the trustees defend this cause of action. It is in the best interests of the Trust. The trustees are in the best position to defend the claim.

15 See for example Re Beddoe [1893] 1 Ch 547 (CA) at 562; Alsop Wilkinson (a firm) v Neary [1996] 1 WLR 1220 (Ch) at 1224; and Macedonian  Orthodox Community  Church  St  Petka  Inc v  His Eminence Petar The Diocesan Bishop of The Macedonian Orthodox Diocese of Australia and New Zealand [2008] HCA 42, (2008) 237 CLR 66 at [71]–[72].

16 In the matter of X (Trust) [2012] JRC 171 at [22].

17 McLaughlin v McLaughlin, above n 1, at [113]; Alsop Wilkinson (a firm) v Neary, above n 15;

Kain v Hutton HC Christchurch M 1989/00, 3 October 2001.

18 McLaughlin v McLaughlin, above n 1, at [123]–[125].

…

[125] It is plain, therefore, that in order to address the claim as to the future of the Ashley Trust and the directions which are sought by the respondents, the past performance of the Ashley Trust will need to be analysed. To that extent, I cannot accept the respondents’ position that the bulk of the affidavit evidence filed to date is for the purposes of addressing the claims against the trustees for breach of duty. For a court to make any decision on the second cause of action it will require evidence about subdivision of Ching’s Block.

[Ching’s Block forms part of the Ashley Trust land.]

[18]   Although there are five causes of action, all those other than the second are directed at the alleged misconduct of the Trustees. There is a high degree of overlap between them and they rely on common factual assertions. The fifth cause of action against the second defendant mirrors the fourth against John McLaughlin and, as I understand it, is to be withdrawn. As Mr Peers, for the Trustees, properly acknowledged at the hearing, if the substantive proceedings concerned only an application for John McLaughlin’s removal as trustee and an account of profits from him, then there would have been no merit in the Beddoe application.

[19]   I agree with the Trustees that the real import of the substantive proceedings concerns the future of the Trust itself, as evidenced by the relief sought in the second cause of action. It was the second cause of action which was the real focus of the hearing into the Beddoe application, certainly on the part of the Trustees. The primary driver for the defence of the substantive proceeding, and therefore the Beddoe application, was the Trustees’ concern that the Beneficiaries were seeking to usurp the commercial decisions of the Trustees and prevent further subdivision work. I also accept that, in this respect, the proceedings involved a fundamental challenge to essential aspects of the Trust.

[20]   The Beneficiaries pre-empted and effectively forced the Trustees to make the Beddoe application by their application for a restraining order seeking to restrain the Trustees from using the Trust Funds to defend the substantive proceedings.19 Furthermore, the Beneficiaries relied on their allegations that the Trustees were in breach of the Trust in their grounds for the second cause of action. Analysed in this

19     McLaughlin v McLaughlin, above n 1, at [2].

way, the hostile aspects of the substantive proceedings were essential context to the case.

[21]   Overall, therefore, it was reasonable for the Trustees to seek directions that they be entitled to expend Trust funds to defend all causes of action in the substantive proceedings. I will, however, reduce the amount of the indemnity to reflect the costs incurred in connection with the hostile aspect of the proceedings.

[22]   Turning to disbursements, all of the Trustees’ independent reports before the Court were necessary. That evidence was required in light of the evidence put forward by the Beneficiaries, particularly in regard to Mr Hussey’s reports. The Trustees had a duty to make full and frank disclosure. Full indemnification for reasonable disbursements is appropriate in light of this.

Beneficiaries

[23]   The Beneficiaries say the extent of their participation in the Beddoe hearing was entirely reasonable. They note the legitimacy of their right to be involved as the plaintiffs in the substantive proceedings. Beyond this, they say they did not adopt an excessive role in terms of using the application as a platform to promote their substantive claims.

[24]   However, the Beneficiaries do not simply seek to be indemnified by the Trust on this basis. They contend that their scale costs for the Beddoe application ($18,164) should be met by the Trustees personally and the balance met on an indemnity basis from the Trust’s funds. The essence of this claim is that the Beddoe application was unsuccessful on four of the five causes of action and therefore the Trustees primarily failed. The Beneficiaries also note a Calderbank offer was sent to the Trustees which was “more beneficial” than the result achieved by them at the Beddoe hearing.

[25]   The Beneficiaries cite the High Court decision of Re Schroder in support of their costs application against the Trustees.20 In that case, Ms Schroder successfully opposed a Beddoe application by the trustees and she was held to be entitled to

20     Re Schroder [2004] 1 NZLR 695 (HC).

indemnity costs payable by the trustees personally.21 I note this was a case where the Judge had “considerable” concern about the absence of trustee neutrality in a proceeding that had been brought by the trustees against the interests of one of the beneficiaries.22 This was a very unusual case and is readily distinguishable from the present proceeding.

[26]   No other authority was cited to support the proposition that the Trustees should be liable for the Beneficiaries’ scale costs incurred in the Beddoe application. Other cases which involve scale costs being paid by the Trustees involve significant unreasonableness, partiality, proven breach or obstruction.23 Often there is an element of fault, the behaviour of the Trustees having been found to have forced litigation.24

[27]   None of those matters are present here. The substantive proceedings have not yet completed their course, no allegations of breach of trust or mismanagement have been proven. In any event, as I have already explained, I consider the Trustees were the successful party in the Beddoe application. I am not satisfied there is a basis for awarding costs against them personally.

[28]   I put the Calderbank letter to one side as I regard it as irrelevant. It did not make an offer that was more beneficial than the outcome of the application. It simply offered that, if the application were discontinued by 10 January 2018, the Beneficiaries would agree to the discontinuance with no issue as to costs. I reiterate, the Trustees succeeded on what I regard as the most significant and far–reaching of the causes of action, going as it does to the heart of the Trust.

[29]   I now turn to whether the actions of the Beneficiaries in opposing the Beddoe application were reasonable. To assess the reasonableness of their role, I note that beneficiaries have a right to be heard on such applications, but they should not adopt an excessive role. This means they should not use a Beddoe application as “a forum for promoting [the beneficiaries] claim …” in the substantive proceedings.25

21 At [45].

22 At [43].

23     Hemming v Chambers HC Auckland CP351-SD/97, 7 December 2000; and Lomas v Lomas, above n 6.

24     Roberts v Francis [2013] NZHC 2144 at [34]–[35]; Mould v Mould [2013] NZHC 3255 at [24].

25     Tucker, Le Poidevin and Brightwell, above n 9, at [27–260].

[30]   The Beneficiaries claim the expansive role they took in the proceedings was not excessive. The Trustees, however, note that a significant proportion of the Beneficiaries’ costs and all of their disbursements were incurred in advancing their interests and allegations in the substantive proceedings. They refer to what they describe as the Beneficiaries’ excessive and adversarial role right from the outset. This included pre-empting the Beddoe application by applying for the restraining order. They refer also to the recent application by the Beneficiaries for an interim injunction seeking to prevent further development of the Ashley Trust Land26 where the Beneficiaries sought leave to rely on all the evidence filed in the Beddoe application.

[31]   The Beneficiaries filed two expert reports from Mr Hussey relating to the financial performance of the Ching’s block development. Mr Hussey undertook a detailed analysis of the Trust accounts and financial performance of Ching’s block and made serious allegations, including that the Ching’s block development had resulted in significant losses. It was that evidence which required the Trustees to file various expert reports in reply.

[32]   The Beneficiaries’ extensive evidence went beyond simply exercising their right to be heard. The Beneficiaries clearly considered they had a strong claim of trustee hostility as far back as December 2017, as evidenced by their Calderbank letter. That being the case, the large volume of evidence put forward to support their substantive claims was simply needless. This was never going to be a case where the expert evidence would make it immediately apparent that there was no defence to the substantive proceedings. All that was required was submissions, and perhaps affidavits, from the Beneficiaries. Unlike the Trustees, the Beneficiaries did not have a duty to the Court to provide it with full and frank disclosure.

[33]   That said, I recognise some measure of indemnity by the Trust is appropriate in light of the extent of the Beneficiaries’ success and their right to be heard in such an application. As will be evident from my comments above in relation to the Trustees, I do not accept that the Beneficiaries should be entitled to all their costs as they claim the greater measure of success. All causes of action, apart from the second, involved

26     McLaughlin v McLaughlin [2019] NZHC 2561; McLaughlin v McLaughlin [2019] NZHC 2597.

similar allegations of mismanagement and breach of duty. All were underpinned by the same legal and factual allegations about the subdivision of the Ashley Trust Land, its performance and whether it was for the benefit of the Beneficiaries.

[34]   The Beneficiaries claimed the Trustees should be liable for the Beneficiaries’ scale costs in respect of the Beddoe application. That same logic could be applied to the Beneficiaries. That is, as they, in my assessment, were overall unsuccessful in their opposition to the Beddoe application, arguably they should personally bear the costs of that. The Trustees do not seek to make that argument. I consider it would have been open to them.

[35]   However, as I have already determined, costs on a Beddoe application are not considered in the same way as costs in general proceedings. I accept the Beneficiaries had a legitimate interest in defending the Beddoe application. To that extent, they are entitled to have their reasonable costs met by the Trust. What that amounts to is addressed in the next section of this decision.

[36]   I do not accept, however, that the disbursements are appropriately claimable at this stage. The reports from Mr Hussey went far beyond the Beneficiaries’ necessary role in such an application and forced the Trustees to provide evidence that might not have otherwise have been necessary. The reports resembled those expected in the substantive proceedings. Indeed, presumably that evidence was obtained for that purpose. Costs associated with the substantive proceedings are appropriately considered after the proceedings have been decided. This is in contrast to the position of the Trustees who incurred those costs as a result of the affidavit evidence filed by the Beneficiaries.

Interested parties

[37]   The Interested Parties seek to be fully indemnified by the Trust. Like the Beneficiaries, their entitlement to indemnification depends on the reasonableness of their engagement in the proceedings.

[38]   When I gave leave for the Interested Parties to file submissions and be heard on the Beddoe application, I noted the following:27

[15] [Counsel for the Interested Parties] confirmed no evidence would be filed by their clients and any submissions would not cover matters dealt with by the parties. They seek simply the right to file submissions and be heard and estimate that, together, their participation in the hearing will not exceed 40 minutes.

[39]   The Interested Parties responsibly did not exceed the permitted scope of their participation at the hearing, although I comment on the material included in their submissions below. There was no indication to the Court in advance, however, that they would seek full indemnity from the Trust in relation to their costs of being heard. Mr Peers submits it would have been fair and reasonable for them to have done so. Indeed, the quote from Lewin on Trusts at [8] above suggests they should have given notice of this intention to the other parties. While that is so, it is not unexpected that they would seek indemnity from the Trust.

[40]I am satisfied indemnification of reasonable costs is appropriate.

Reasonableness of the costs

[41]It is this aspect of the costs which is the most problematic.

Trustees

[42]   The Trustees’ legal costs rendered up to 31 October 2018 totalled $187,692.73. After the hearing, this increased by $43,000, principally related to preparation and attendance at the hearing.28 The Trustees then reviewed costs attributable to the Beddoe application and claimed costs of $245,000 and $63,850 in disbursements.

[43]   Both the Trustees and the Beneficiaries included in their costs’ claims amounts attributable to an interlocutory decision in which Associate Judge Matthews had recorded his view that costs should lie where they fall in the absence of memoranda from the parties.  No such memoranda were filed.  Given the absence of compliance

27     McLaughlin v McLaughlin HC Nelson CIV-2017-442-52, 18 October 2018 (Minute of Thomas J).

28     Both amounts are GST exclusive.

with the Associate Judge’s direction, there is no reason why his indication that costs should lie should not apply. The parties were therefore directed to recalculate their costs.29 As a consequence, the Trustees recalculated their costs to total $227,500 and disbursements of $62,143.43 in respect of expert fees.

[44]   The Trustees then say they have reflected on my observations that much of the work necessary for arguing the substantive issues has been completed. They acknowledge that, in the ordinary course, such substantive evidence would not ordinarily fall within conventional Beddoe indemnity cost principles. Following that approach, they divided costs which they consider might fairly be seen to be for the benefit of the substantive proceedings but incurred in relation to the Beddoe application from those purely confined to the Beddoe application itself. Mr Peers concluded that a reasonable apportionment could be assessed as 40 per cent (Beddoe indemnity costs) and 60 per cent (substantive Beddoe costs). This results in $136,500 attributed to the substantive proceedings and $91,000 to the Beddoe application.30

[45]   I find this a somewhat convoluted and unhelpful approach, particularly as the Trustees still claim an indemnity in respect of both sets of costs. Quite what the point of separating them is I am therefore unsure. There could be some merit in dealing with what Mr Peers categorised as “Beddoe indemnity costs” now, with the “substantive Beddoe costs” to await the outcome of the substantive proceedings. However, given the Trustees succeeded overall in my assessment on the Beddoe application, this would be an artificial approach and conceptually misguided.

[46]    It is also clear that the costs are “incidental” to the Beddoe application and are claimable under s 71 of the Act if found to be reasonable. This is particularly relevant in relation to the Trustees who must provide full and frank disclosure of the strengths and weaknesses of their case to the Court.

[47]   The position has been complicated by the Beneficiaries informing the Trustees that they do not intend to pursue the second cause of action which will not be included

29     McLaughlin v McLaughlin HC Nelson CIV-2017-442-52, 28 November 2019 (Minute of Thomas J).

30     I see no reason to doubt the apportionments in respect of both legal costs and disbursements made by both the Trustees and the Beneficiaries.

in an amended statement of claim that is to be filed. The Trustees consider this development is relevant to the question of the reasonableness of the costs they incurred in the Beddoe application and as to the question of success/benefit of the application. Unsurprisingly, the Beneficiaries take a contrary position. As I have already concluded, and as set out above, the Trustees are entitled to the costs in the Beddoe application. I have found those costs were reasonably incurred. The fact they would have been of benefit in the substantive proceedings simply meant there was no need for substantial further costs to be incurred for the purposes of the substantive proceedings. As I have already observed, were it not for the second cause of action, there may well not have been a Beddoe application.

[48]   What the Trustees are not entitled to, however, is any Beddoe costs which can properly be considered applicable to the substantive costs of the hostile litigation.  Mr Peers apportioned 40:60 per cent in respect of indemnity costs and substantive costs respectively. Of that 60 per cent, I attribute 15 per cent to the hostile litigation ($20,475). That sum is therefore not properly payable in connection with the Beddoe application as it is more correctly attributable to the substantive hostile proceedings. Whether or not the Trustees can recover those costs is to be assessed once the result of the substantive proceedings is known.

[49]   I have not lost sight of the fact that there is a trustee indemnity clause in the Trust Deed. The full import of this clause was not a focus of the hearing into the Beddoe application and I do not propose to deal with it in a costs decision. Whether the indemnity clause would entitle the Trustees to recover all their costs from the Trust is a separate matter involving separate argument. The Beneficiaries challenge the validity of the indemnity clause in the substantive proceedings, claiming it is too wide in scope. The validity of the clause and whether the Trustees can recover any shortfall pursuant to it must therefore await the outcome of the substantive proceedings.

[50]   I also accept that the majority of the affidavit evidence filed by the Trustees was directed to this broader issue underpinning the second cause of action. The expert evidence responded to the Beneficiaries’ complaints that the Trustees did not have a sufficiently detailed analysis of the financial success of the Ching’s block development to decide whether or not to proceed with development of the Homestead block.

[51]   The affidavit evidence also addressed the alleged conflicts of interest, particularly concerning John McLaughlin. Although there was inevitable crossover with the detail required in respect of the second cause of action, overall, I assess that less than five per cent of the evidence related to John McLaughlin specifically. To the extent that any cost associated with that was incurred in expert fees, any reduction would be de minimis.

Beneficiaries

[52]The Beneficiaries now seek the following costs:31

(a)scale costs against the Trustees on a 2B basis totalling $18,164.00;

(b)actual costs on an indemnity basis from the Trust totalling $117,837.77; and

(c)disbursements of $29,946

[53]   Counsel for the Beneficiaries has reviewed time entries underlying the relevant invoices and apportioned time between that relating to the Beddoe application and where some of the costs will provide a benefit in the substantive proceedings. I have no reason to doubt that apportionment.

[54]   I assume that the actual costs claimed include the scale costs sought from the Trustees personally. As already discussed, I make no costs award against the Trustees personally.

[55]   I do not accept that it is reasonable for the Beneficiaries to be indemnified from the Trust in the sum of $117,837.77. That sum is simply excessive, bearing in mind the Beneficiaries’ role in the Beddoe application. It was entirely proper for the Beneficiaries to resist the Beddoe application as far as the hostile elements of the substantive proceedings were concerned. That was a relatively straightforward and indeed, as discussed, uncontentious proposition. Their role exceeded that, however,

31     Amended following my Minute of 28 November 2019.

as they engaged in a zealous defence of the application, delving into the detail of the financial performance of the Trust. This, in my assessment, was arguably beyond their proper role but, in any event, it was certainly beyond the extent to which they are entitled to an indemnity from the Trust. They are awarded 50 per cent, being

$58,918.88 which, in the context of the result of the Beddoe application, I regard as generous.

[56]   For the reasons discussed above, they are not entitled to an indemnity in respect of disbursements.

Interested Parties

[57]The Interested Parties seek to be indemnified by the Trust for costs of:

(a)$10,867.5 for the Beneficiaries’ children; and

(b)$8,144.33 for Brett McLaughlin.

[58]   I agree with Mr Peers that the submissions on behalf of Brett McLaughlin addressed the same issues already before the Court, including principles relating to Beddoe applications and general trustee law.32

[59]   I have a similar concern regarding the involvement of the Beneficiaries’ children. I note from Mr Peers’ submission they had no prior communications with the Trustees. I note John McLaughlin’s children did not participate. Their submissions also addressed legal and factual matters already before the Court. The Trustees say they should not be entitled to a separate costs award.

[60]   What is more, the level of costs claimed is out of proportion to the role they were given leave to play at the hearing. Their lawyers spent 31.5 and 55.1933 hours respectively in preparation, attendances and giving advice. That amounts to around

32    The Interested Parties filed their submissions before either the Trustees or Beneficiaries, however it should have been obvious in light of their very limited role that the other parties would address the law and any inclusion of it in their submissions would be repetitious.

33 I note Brett McLaughlin’s counsel charged him on a fixed fee basis for only 20.25 hours for these items.

one full weeks’ work and exceeds by some margin the extent to which the Trust should bear the cost. They are each awarded $5,000 which, in my view, is generous.

Conclusion

[61]   I want to express my concern at the level of costs which have been incurred in the case to date. It is somewhat ironic, given the basis of the Beneficiaries’ (and indeed Interested Parties’) concern is that the actions of the Trustees are not in the best interests of the Trust. Every dollar paid in costs is a dollar denied to the beneficiaries of the Trust.

[62]   All parties should reflect carefully on the possibility that costs awards could be made against them personally as a result of the substantive proceedings.

[63]   Finally, the Trust is “currently cash strapped and running on tight financial reserves”. The Trustees seek that any award to the Beneficiaries be subject to a condition that payment is made as soon as the Trust’s financial situation permits it. The Trust accountant is to file a brief report to the Court outlining the timeframe within which the Trust might reasonably be in a position to make payment.

Result

[64]I award costs as follows:

(a)$207,025 to the Trustees plus disbursements of $62,143.43;

(b)$58,918.88 to the Beneficiaries; and

(c)$5,000 each to the Interested Parties.

Thomas J

Solicitors:

Wynn Williams, Christchurch for Plaintiffs/Respondents Buddle Findlay, Christchurch for Defendants/Applicants