Gregory v Bason HC Palmerston North CIV-2008-454-545

[2011] NZHC 620

IN THE HIGH COURT OF NEW ZEALAND PALMERSTON NORTH REGISTRY

CIV-2008-454-545

UNDER  the Trustee Act 1956

BETWEEN  JEANETTE MARGARET GREGORY Plaintiff

ANDNANCY JANET LOUISE BASON, IAN CHARLES EASTON AND ALAN MCKENZIE LARSEN

Defendants

Hearing:         7 March 2011

(Heard at Wellington)

Counsel:         M B Ryan for plaintiff

K B Johnston for first and third named defendants
J O Upton QC for second named defendant

Judgment:      8 March 2011

RESERVED JUDGMENT OF DOBSON J (Costs)

[1]      These proceedings were one aspect of family disputes between the offspring of Ian Graham and Bettina Mary Easton (Bettina).  They died within weeks of each other in April and May 2000.  Mr Easton Senior had operated a farming business in the Manawatu and their son, Ian Charles Easton (Ian), had operated that farming business with him during his lifetime, and has continued to operate it since his father’s death.

[2]      At least a substantial part of the family’s farming assets had been settled on a trust established in 1997 called the Moutoa Trust (the Trust).  The governance of the Trust is closely linked to the on-going administration of what remains of Bettina’s

estate.  The present defendants (in addition to Ian) are one of her daughters (Nancy)

GREGORY v BASON & ORS HC PMN CIV-2008-454-545 8 March 2011

and a Palmerston North accountant who has provided accounting services for the

Trust and other family entities. The plaintiff (Jeanette) is Nancy and Ian’s sister.

[3]      The  present  proceedings  were  commenced  by  Jeanette  in  August  2008 seeking removal of all of the defendants as the trustees of the Trust,  and their replacement by a corporate trustee.  Nancy and Mr Larsen promptly indicated their agreement with that course and in early 2009 filed a cross-claim in the same proceedings seeking a consistent order for the removal of all the present defendants from their capacity as trustees in the will trust of Bettina.  Jeanette’s Statement of Claim pleaded numerous conflicts between Ian’s personal interests and his duty as a trustee.  It was implicit that the conduct of the trustees, with decisions required to be made unanimously, was dysfunctional.

[4]      Ian denied the grounds for relief and pursued numerous initiatives in relation to the present proceedings, the effect of which has delayed a fixture until late 2010 when it became appropriate to allocate a fixture for them.  That was to occur on 7, 8 and 9 March 2011.

[5]      In mid February 2011, those acting for Ian indicated that he would now consent to removal of himself and the other defendants as trustees of the Trust, and also to their removal as the trustees in the will trust of Bettina.  On 1 March 2011, I made consent orders to that effect.

[6]      However, the parties are at odds as to the cost consequences that should flow from the resolution that has been achieved in these circumstances.

[7]      Jeanette seeks a contribution to the costs she has incurred, such amount to be paid out of the assets of the Trust.   Mr Ryan argues on behalf of Jeanette that the proceedings were necessary because of the dysfunctionality of the trustees and Ian’s numerous conflicts of interest.  She sought the outcome that has now been achieved by corresponding with those acting for the others before the proceedings were commenced, and has subsequently taken the steps in the litigation necessary to have it readied for trial.  Mr Ryan submits that the outcome now achieved is the only one that could possibly have ensued and that Ian has obstructed that outcome for more

than two years because of the advantages to him from the on-going practical control of the assets of the Trust whilst the trustees were unable to act because of a lack of unanimity.

[8]      Jeanette does not seek an order for costs personally against Ian.  That might be seen as a significant concession on her part because it means that any order made against the Trust will, in the end, be at a substantial cost to her, as the effective funder  of  a  significant  portion  of  it.    A  Memorandum  of  Wishes  of  Mr and Mrs Easton Senior had acknowledged that Ian had achieved what was in effect an advancement of his entitlement out of family assets, to assist him in building his own farming  business.     To  address  that,  they  expressed  the  wish  that  the  final distributions from the Trust ought to take into account that discriminatory allocation in his favour, with the intent that the final distributions would more or less achieve equality of treatment between all three of the siblings.   Depending on the values attributable to the assets previously transferred to Ian, and the value of assets remaining for final distribution within the Trust, it may be that Jeanette and Nancy receive all, or substantially all, of the distributions from the residue.   In that case they  would  each  be  funding  any contribution  to  Jeanette’s  costs  in  the  present proceedings that are to be paid by the Trust, up to 50 per cent each.   If the final distribution  was,  say,  40 per cent  to  each  of  them  and  20 per cent  to  Ian,  then Jeanette would be contributing 40 per cent of her own costs entitlement.

[9]      Mr Johnston had not been able to take explicit instructions from Nancy in relation to this costs claim which, if successful, would be at her ultimate cost to the same extent as it costs Jeanette.  Mr Johnston expressed some surprise that Jeanette would seek a contribution to her costs on this basis, but was unable to take the matter further.

[10]     For their parts, Nancy and Mr Larsen sought costs against Ian as their co- defendant.  They have been required to file a Statement of Defence and have taken the initiative on their cross-claim which, as a matter of consistency, was a logical companion to Jeanette’s claim.  From the outset, they have indicated that they would not oppose Jeanette’s claim.  Nancy has completed a detailed affidavit setting out her

view on the matters relevant to the claim and their advisers have had to complete interlocutory procedures to ensure that they were ready for the fixture.

[11]   From their perspective, all those steps were only necessary because of opposition by Ian which was not justified.  The stance adopted by Jeanette and the remaining defendants has been vindicated in the terms of the consent orders recently made.  The consequence, in conventional application of costs’ principles, is that the party causing the proceedings to be protracted as they have been ought to be liable for costs.

[12]     On  behalf  of  Ian,  Mr Upton  QC  resisted  the  application  of  usual  costs’ principles, on the basis that a wider appreciation of the context in which the family disputes had been progressed should exonerate Ian of responsibility.  Further, that he ought to be given credit for initiatives he has taken that have led to the orders recently made by consent, and that each party ought therefore to bear its own costs. Mr Upton went so far as to suggest that Ian ought to be granted costs against Nancy and Mr Larsen on their cross-claim.

[13]     Mr Upton argued that the consent orders recently agreed to represented a win for all sides, and that they resulted from initiatives Ian had taken and for which he ought therefore to be given credit.   This referred to the fact that Ian had assumed responsibility for arranging a due diligence analysis of the affairs of the Trust which Guardian Trust required to be completed as a pre-condition of its indicating it was prepared to accept appointment as the substitute trustee.  He has personally met the cost of that exercise.

[14]     Mr Upton also argued that a 2008 initiative by Ian’s solicitors inviting a mediation rendered Jeanette’s proceedings unnecessary and that she ought therefore to absorb her own costs.

[15]     This is not a case in which it is appropriate to hold against other parties their apparent reluctance to engage in mediation. There is some suggestion that Ian, as the party in practical control of the assets, was insistent on a view in relation to them that was entirely unacceptable to the others.   The others could legitimately have been

concerned about delays, and certainly the litigious initiatives pursued on behalf of

Ian had the effect of delaying a fixture for the present proceedings.

[16]     Mr Upton also defended Ian’s conduct by submitting that he had acted on the basis of professional advice throughout.  I agree with Mr Johnston that this is not a ground for avoiding the cost consequences that would otherwise follow.   To the extent Ian did it on advice, his course of conduct has resisted the eventual outcome throughout the period from before August 2008 when Jeanette’s claim was filed, until February 2011.  Certainly, the perspective I have after perusing the pleadings and evidence prepared by other family members suggests that Jeanette’s relief was entirely inevitable.

[17]     It is not an adequate justification for the delay that Ian wished to achieve an overall settlement of all aspects at the same time, and that the parties have only been able to move towards that in recent times.   He was a conflicted trustee and beneficiaries were interested in achieving a resolution.  His conduct has obstructed that course.

[18]     The argument for Ian also invited account to be taken of his contribution to previous financial dealings.  It was submitted that Jeanette had not met a costs order made against her in unsuccessful family protection proceedings brought against their father’s  estate.     Mr Ryan  advised  me  from  the  Bar  that  from  his  personal involvement  in  those  matters,  that  was  not  correct.     An  offsetting  of  other entitlements going to Jeanette had been authorised to discharge that costs obligation ordered against her.  It was also argued for Ian that he had funded a liability of some

$120,000 for costs in relation to proceedings in relation to the estate of Bettina. Again, Mr Ryan denied that any of that amount was a payment on account of costs for Jeanette.

[19]     Having reviewed all the documents since hearing counsel’s relatively focused arguments, I am satisfied that both applications for costs are appropriate, and that they ought to be made.

[20]     I accordingly order that Jeanette is entitled to costs and disbursements on a

2B basis, such order to be met out of the assets of the Moutoa Trust.  Any dispute as to  the  extent  of  that  entitlement  relative  to  the  schedule  attached  to  Mr Ryan’s submissions is to be referred to the Registrar.

[21]     Nancy  and  Mr Larsen  are  entitled  to  a  contribution  to  their  costs  and disbursements, also on a 2B basis, such liability to be met by their former co-trustee, Ian.  Similarly, any dispute as to amount is to be referred to the Registrar.

Dobson J

Solicitors:

M B Ryan, Palmerston North for plaintiff

Jacobs Florentine, Palmerston North for Nancy Bason

Rainey Collins, Wellington for Ian Easton

Brittens, Palmerston North for Alan Larsen