Grant v McDermott
[2014] NZHC 1120
•26 May 2014
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2013-404-003215 [2014] NZHC 1120
UNDER the Administration Act 1969, the Adoption
Act 1955 and the Declaratory Judgments
Act 1908BETWEEN
GRAHAM GRANT as executor and trustee of the Estate of David John Dudley Brown
Plaintiff
AND
DENICE McDERMOTT and SUSAN TAYLOR
First Defendants
TIMOTHY GARNET UREN Second Defendant
Hearing: On the papers.
Written submissions as to costs received on 11 April, 28 April, 8
May, and 14 May 2014.Counsel:
H Fulton and S Reeves for Plaintiff
M A Beattie for First Defendants
S Clapham and A J Steel for Second DefendantJudgment:
26 May 2014
JUDGMENT OF ANDREWS J [Costs]
This judgment is delivered by me on 26 May 2014 at 1:00pm pursuant to r 11.5 of the High Court Rules.
..................................................... Registrar / Deputy Registrar
Solicitors:
Simon E K Reeves, Auckland
Martelli McKegg, Auckland
Town & Country Law Limited, Warkworth
Counsel:
H Fulton, Auckland
S Clapham, Auckland
GRANT v McDERMOTT & ANOR [2014] NZHC 1120 [26 May 2014]
Introduction
[1] In this proceeding, the plaintiff (executor and trustee of the estate of David Brown, deceased) sought determination of a question before trial. In essence, the question was who is entitled to inherit the residue of Mr Brown’s estate.
[2] In my judgment delivered on 4 March 2014, I answered the question for determination and held that the second defendant, alone, is entitled to inherit the residue of the estate. In so doing I rejected submissions that the first defendants, alone, were entitled to the residue.
[3] Counsel for the parties have now filed memoranda as to costs. There is no issue that the costs of the first defendants may be met from the estate. In contention is whether the plaintiff ’s costs should be paid from the estate.
Submissions
[4] It is appropriate to refer first to Ms Clapham’s submissions for the second defendant, as the submissions for the second defendant and the plaintiff were filed in response to her submissions.
[5] The essence of Ms Clapham’s submission is that the plaintiff made the application unreasonably (in concert with the first defendants) to pursue a particular argument that was adverse to the first defendant, and wrong. She submitted that as a result, the estate and the second defendant had been put to unnecessary expense. She submitted that together, the plaintiff’s solicitor and counsel have charged the plaintiff a total of $231,386 since Mr Brown’s death, and that the invoices have been paid out of the assets of the estate, or the assets of a company owned by the estate.
[6] Ms Clapham submitted that if there were a genuine contest between the first and second defendants as to entitlement to the residue of the estate, the proceeding ought to have been brought by the first defendants. She submitted that the plaintiff had acted throughout with partiality against the second defendant. Accordingly, she submitted, the plaintiff’s costs should not be met from the estate, and the plaintiff should be ordered to meet costs on a 2B basis in favour of the second defendant. In
the alternative, she submitted, an order could be made that only a portion of the costs could be met from the estate.
[7] Regarding the first defendants, Ms Clapham submitted that this was a case within the third category of cases discussed by Asher J in Re Hamblett (McGowan v Hamblett), where an application, even if brought by trustees, is in effect the determination of a position taken by a beneficiary who makes a claim adverse to other beneficiaries. In such a case, the unsuccessful party could be ordered to pay
costs.1 However, Ms Clapham went on to record her instructions from the second
defendant, that in all the circumstances, he did not wish the first defendants to be out of pocket, and agreed to the first defendants’ costs ($16,300 GST incl) being paid by the estate.
[8] Mr Fulton first submitted for the plaintiff that the issue for determination in the proceeding was one which had not previously been considered, notwithstanding the existence of adoption legislation since the Infants Amendment Act 1950 (re- placed by the Adoption Act 1950). He submitted that it was not for the plaintiff to determine the issue himself, and the plaintiff cannot be criticised for submitting the issue to the Court, as to which the answer had not been plain and obvious.
[9] Secondly, Mr Fulton rejected Ms Clapham’s submission that the plaintiff had acted with any bias and in concert with the first defendants. He submitted that the proceeding had been properly brought under Part 18 of the High Court Rules, in order to determine entitlement to the estate in what was, for the most part, an intestacy. The proceeding was properly brought on a question of law governing the disposition of a trust fund, in the nature of a trust instrument. Further, he submitted, it was entirely appropriate that the plaintiff bring the proceeding, rather than the first defendants.
[10] Further, Mr Fulton submitted that the second defendant had wrongly set out the costs incurred by the plaintiff in the litigation, notwithstanding having been
advised that the quantum of costs provided by the plaintiff’s solicitors related to the
1 Re Hamblett (McGowan v Hamblett) HC Auckland CIV-2005-404-5488, 7 September 2006 at
[9]–[10], citing Buckton v Buckton [1907] 2 Ch 406, 414–415.
total administration of the estate which was now virtually complete (and which had involved extensive attendances to realise assets). The actual sum incurred by the plaintiff’s solicitors in the litigation was in the order of $6,000-$8,000. As to the costs of the plaintiff’s counsel, Mr Fulton submitted that the second defendant had earlier been advised that approximately 13 to 15% of the approximately $71,000 incurred had been for attendances outside of the litigation.
[11] For the first defendants, Mr Beattie submitted that the first defendants did not agree with the “majority of points” made in Ms Clapham’s submissions, or with her categorisation of the proceeding as falling within the third category of cases discussed in Hamblett. The first defendants are of the view that the costs of all parties should be met from the estate.
[12] Ms Clapham filed brief submissions in reply to Mr Fulton’s submissions. She reiterated her submission that it was unnecessary for the plaintiff to be represented by two counsel (the plaintiff’s solicitor having sat with Mr Fulton, as counsel). She further submitted that the tone of the plaintiff’s submissions on costs was “consistent with the contemptuous stance taken by the plaintiff to the second defendant throughout the litigation and throughout the administration of this estate”. She submitted that the “combative approach taken by the plaintiff is not consistent with the even-handed conduct expected by trustees of deceased estates towards beneficiaries, and caused unnecessary cost for the second defendant, and for the executors and trustee for which the estate should not be burdened.”
Relevant principles as to costs
[13] In Re O’Donoghue, Hammond J set out relevant principles as to a trustee’s
claims for costs from an estate, which may be summarised as follows:2
(a) It would be an unfair and unworkable system of trustee law if trustees were not permitted to recover out of pocket expenses incurred in the discharge of their duties. It is in the nature of the trustee’s office that
the trustee should be reimbursed all charges and expenses incurred in the execution of the trust.
(b) Section 38(2) of the Trustee Act 1956 allows such reimbursement.
(c) Reimbursement payment have to be justified on the indemnification principle, and it is critical that there be a check on those expenses and costs.
(d) It is only expenses that are properly incurred that are the subject of a
trustee’s indemnity.
(e) If called upon, the trustee must demonstrate that the expenses arose out of an act falling within the scope of the trusteeship, out of something that his or her obligations required the trustee to undertake, and were in all the circumstances reasonable.
(f) The trustee’s function is to assert the interests of the beneficiaries only to appoint where there is judicial ruling on something that is properly required, such as the construction of a fairly debatable point in an instrument, or whether the trustee ought to take a certain course.
(g)The burden of proving unreasonableness is on the party alleging unreasonableness.
[14] As to [13](f), above, in Hamblett, Asher J described three “commonly encountered” cases arising in the determination of costs issues in trustees’ application for directions:3
(a) Where trustees seek guidance on an issues of construction of a trust instrument or ask for determination of an issue that has arisen in the administration. In such a case, costs will generally be payable by the estate.
(b)Where an application such as in (a) is made not by the trustee, but by beneficiaries, but is in reality an issue of construction or administration. Here, too, costs will generally be payable by the estate.
(c) Where an application, even if brought by the trustee, is in effect the determination of a position taken by a beneficiary who makes a claim adverse to other beneficiaries. In such cases, an order may be made that costs not be met from the estate.
[15] Further, on the question whether a trustee has acted unreasonably in bringing proceedings, the UK Court of Appeal said in McDonald v Horn:4
In the case of a fund held on trust, therefore, the trustee is entitled to his costs out of the fund on an indemnity basis, provided only that he has not acted unreasonably or in substance for his own benefit rather than that of the fund.
Discussion
[16] I accept that it would be appropriate to make an order for the first defendant’s costs to be met in full from the estate. As to that, there is no dispute. However, given the strong challenge made on behalf of the second defendant, it is necessary to give careful consideration to whether the the plaintiff’s costs should be met from the estate.
[17] In Re O’Donoguhue, Hammond J held that the trustee was not entitled to indemnity from the estate for his costs or disbursements in an application for directions as to entitlement to the residue of an estate. The issue in that case was whether Health Waikato Limited was the statutory successor to the Waikato Hospital Board such that the bequest of the residue of an estate to the Waikato Hospital Board
could be paid to Health Waikato. His Honour said:5
A Court will naturally hesitate before leaving a trustee, who, after all, shoulders an onerous burden, to carry costs personally. But I am afraid that this is such a case: I can see no proper reason for the trustee having adopted
4 McDonald v Horn [1995] 1 All ER 961 (UKCA) at 970.
5 Re O’Donoghue, above n 2, at 122.
the obdurate position he did. He acted unreasonably in the sense that I can discern no proper justification, or even a reasonably arguable one, for his having persisted in forcing Health Waikato up to a full defended hearing, and a delayed distribution of some years of the estate. It cannot be right that he should then seek to offload his costs of the proceeding on to the residuary beneficiaries. There will, therefore, be an order that the trustee is not entitled to indemnity from the estate for his costs or disbursements in these proceedings.
[18] However, his Honour did not make an order that the estate was to meet the costs of Health Waikato.
[19] In Hamblett, the proceedings had been brought by the trustees, as a result of a claim by the widow of the deceased. Asher J concluded that Mrs Hamblett’s claim was not strong, and ordered that she pay costs in favour of the beneficiaries whose entitlement she challenged. However, he ordered that the trustees had acted
reasonably in seeking a determination, and were entitled to be paid from the estate.6
[20] The judgment in The Cats’ Protection League v Deans also concerned trustees’ entitlement to indemnity for costs from an estate.7 In that case, the plaintiff beneficiary had issued proceedings seeking documents and information relating to trust finances. The dispute was resolved, with the defendant trustees agreeing to disclose certain documents. The beneficiary then sought costs.
[21] Associate Judge Osborne referred to O’Donoguhue, and concluded that although there was a measure of unreasonableness in the position adopted by the trustees, it was not close to the level of unreasonableness found in O’Donoguhue. He observed that in the case before him, there was some room for debate at to the nature and extent of a beneficiary’s rights, and that there was some substance to the trustees’ submission that requests for information had been of a developing nature.8
His Honour ordered that the trustees were not entitled to indemnity from the estate to
the extent of 50 per cent of their costs and disbursements in the proceeding.9 He also
held that the trustees were to meet 50 per cent of the beneficiary’s costs on a 2B
6 Re Hamblett, McGowan v Hamblett, above n 1, at [13]–[18].
7 The Cats’ Protection League v Deans (2010) 20 PRNZ 584 (HC).
8 At [38].
9 At [40].
basis, without recourse to the trust, with the remainder of the beneficiary’s costs
being met from the estate.10
[22] I do not accept that in this case the plaintiff acted unreasonably in seeking directions. I do not accept that there has been any conduct on behalf of the plaintiff in the course of the litigation that would disentitle the plaintiff to his indemnity from the estate.
[23] Further, I do not accept that the plaintiff acted with bias against the second defendant and in concert with the first defendants. I accept Mr Fulton’s submission that the issue as to who was entitled to succeed to the estate was one which required determination, and it was one that was of some complexity. The fact that the answer given may have been able to be expressed in a reasonably short form does not detract from the complexity of the issue.
[24] Finally, I accept Mr Fulton’s submission that the costs incurred for the plaintiff in relation to the litigation were not excessive or unreasonable, and were not improperly incurred. In particular, I accept that the plaintiff’s solicitor was properly present in Court, and it is immaterial whether he was there in his capacity as solicitor for the plaintiff, or as second counsel for the plaintiff.
[25] In all the circumstances, I am not satisfied that the plaintiff should be denied indemnity for his costs.
Result
[26] The costs and disbursements of the plaintiff, the first defendant, and the second defendants are to be met from the estate.
Andrews J
10 At [41]–[44].
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