Glasgow Harley Trustee Limited v McLaughlin - [2018] NZHC 290

IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY

I TE KŌTI MATUA O AOTEAROA WHAKATŪ ROHE

CIV-2017-442-000078 [2018] NZHC 290

UNDER The Trustee Act 1956

IN THE MATTER

of THE ASHLEY TRUST

BETWEEN

GLASGOW HARLEY TRUSTEE LIMITED and JOHN MCLAUGHLIN, as trustees of the Ashley Trust

Applicants

AND

MARK JAMES MCLAUGHLIN and ANDREW ASHLEY MCLAUGHLIN Respondents

Hearing: 12 February 2018

Appearances:

O D Peers for Applicants (via AVL) J W A Johnson for Respondents

Judgment:

1 March 2018

JUDGMENT OF ASSOCIATE JUDGE MATTHEWS

Introduction

[1] The respondents are two of the adult beneficiaries in the Ashley Trust (the Trust), of which the applicants are the trustees. The second-named applicant, John McLaughlin, is another beneficiary. In a related proceeding the respondents sue the applicants in their capacity as trustees of the Trust challenging actions and decisions
of the trustees in relation to the Trust assets,1 (the 52 proceeding).

1 M & A McLaughlin v J McLaughlin (director of Glasgow Harley Trustee Ltd) & M Russell (First
Defendants) and B Nelson (Second Defendant) HC Nelson CIV-2017-442-52.

GLASGOW HARLEY TRUSTEE LTD & J MCLAUGHLIN, as trustees of the Ashley Trust v
M MCLAUGHLIN & A MCLAUGHLIN [2018] NZHC 290 [1 March 2018]

[2] The applicants (the trustees) apply in this proceeding for orders approving their actions in defending the 52 proceeding, authorising them to make payment of their legal and associated costs on that proceeding from the assets of the Ashley Trust, and authorising them to indemnify a Mr Nelson who is the second defendant on the
52 proceeding from the assets of the Trust in respect of costs or adverse costs awards.

[3] Applications of this kind are commonly referred to as Beddoe applications.2 A succinct description of a Beddoe application appears in Garrow and Kelly Law of Trust and Trustees:3

The general rule is that the costs of litigation for the benefit of a trust are paid out of the trust fund; however, trustees will be denied their costs out of the trust fund if they have acted in breach of trust or unnecessarily. One protection available to trustees is to make a ‘Beddoe application’, which is an application to the Court for directions whether or not the trustee should bring or defend proceedings in his or her capacity as trustee. This procedure requires the trustee to make full disclosure of the strengths and weaknesses of his or her case and, provided full disclosure is made, he or she has the full assurance that they will not personally have to bear the costs or pay those of anyone else.

[4] The rationale of a Beddoe application is described in these terms by the High

Court of Australia:4

[71] In short, provision is made for a trustee to obtain judicial advice about the prosecution or defence of litigation in recognition of both the fact that the office of trustee is ordinarily a gratuitous office and the fact that a trustee is entitled to an indemnity for all costs and expenses

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2018] NZHC 290
Decision Date: 1 March 2018

CaseChat Overview and Summary

In the High Court of New Zealand, Glasgow Harley Trustee Limited and John McLaughlin, as trustees of the Ashley Trust, filed an application against Mark James McLaughlin and Andrew Ashley McLaughlin, seeking approval for their actions in defending a related proceeding. They sought orders to authorise the payment of their legal and associated costs from the Trust assets, as well as indemnifying a third party from the Trust assets in respect of costs or adverse costs awards. The applicants, acting as trustees, sought the orders to protect themselves from personal liability for costs, as provided by the Beddoe application procedure.

The primary legal issue was whether the trustees could claim confidentiality in respect of the contested materials for which litigation privilege was not claimed. The respondents argued that as the Court was being asked to allow the trustees to have their costs paid from Trust assets, the beneficiaries should know what material was before the Court on that issue and have an opportunity to respond to it. They relied on the principles discussed and enunciated by the Supreme Court in Erceg v Erceg.

The Court applied the principles in Erceg, which emphasised the obligation of a trustee to administer the trust in accordance with the trust deed and the duty to account to beneficiaries. The Court identified several factors to be evaluated in relation to an application for disclosure of trust documents, including the documents sought, the context for the request, the nature of the interests held by the beneficiary seeking access, and issues of personal or commercial confidentiality. The Court found that the respondents had a legitimate interest in seeking access to the contested material to assess whether the trustees had acted in accordance with the trust deed.

After evaluating the contested material, the Court decided that certain passages should remain confidential due to their personal nature, while others could be disclosed. The Court ruled that some passages were subject to litigation privilege and would remain redacted. In contrast, some material related to insurance and the trustees' deliberations was not confidential and could be disclosed. The Court also determined that the duration of the orders should apply until further order of the Court, considering the different principles that would apply in the related proceeding.

Costs were reserved, with the Court indicating that both parties had enjoyed a measure of success and costs should lie where they fell.

Orders