Hilliau v Tu'ilotolava

[2018] NZHC 2286

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV 2017-404-002677 [2018] NZHC 2286

BETWEEN

CHARLES WINSTON HILIAU and

GABRIELLE JANE WAGNER Plaintiffs

AND

MELE FINAU TU’ILOTOLAVA and ELIZABETH CHARON MURRAY Defendants

Hearing:	9 August 2018
Appearances:	S R Morris/A A M Newfield for the Plaintiffs P Moodley for the Defendants
Judgment:	31 August 2018

JUDGMENT OF ASSOCIATE JUDGE P J ANDREW

This judgment was delivered by me on

31.08.18 at 3:30pm, pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Solicitors:

Morris Legal, Auckland

Brookfields Lawyers, Auckland

C W HILIAU and G J WAGNER v M F TU’ILOTOLAVA and E C MURRAY [2018] NZHC 2286 [31 August

2018]

Introduction

[1]      The plaintiffs, as executors, have applied for probate in solemn form of the will of the deceased, Agnes Pui’i Hiliau (the deceased) dated 18 August 2015.

[2]      The defendants oppose the plaintiffs’ application for probate on the basis that the deceased lacked testamentary capacity and that the August 2015 will was signed as a result of undue influence by the plaintiffs.   The defendants counterclaim for probate of the deceased’s earlier will dated 17 September 2014.

[3]      The defendants have applied for prospective costs orders that their costs in this proceeding, on an indemnity basis, as well as any costs the defendants may be ordered to pay the plaintiffs, be paid out of the estate of the deceased.  The critical issues for determination are whether this is hostile litigation, and if so, whether this a case of exceptional circumstances in which it is appropriate to make a prospective costs award.

Factual background

[4]      The first-named plaintiff, Charles Winston Hiliau (Mr Hiliau) is the biological nephew of the deceased and her adopted son.  He and his brother George Hiliau were adopted by the deceased as adults.

[5]      The first-named defendant, Mele Finau Tu’ilotolava (Ms Tu’ilotolava), was the deceased’s first cousin once removed.   The second-named defendant, Elizabeth Charon Murray (Ms Murray), was a close friend of the deceased.

[6]      The deceased was a devout Catholic who lived with Ms Tu’ilotolava’s family for some time in the 1960s before purchasing a property in Mt Eden, Auckland (the property).

[7]      The deceased worshiped at the local St Joseph’s Catholic Parish, Grey Lynn, Auckland.   In her various wills, the deceased expressed her intention to repay the assistance given to her by the Catholic church.

[8]      The deceased signed a will on 27 September 2011, the key aspects of which were:

(a)An option to buy the property for either Mr Hiliau or his brother George or for Elsie Wong, all at market value;

(b)The establishment of the Agnes Hiliau Trust Fund for the purposes of education of the children of the families of the St Joseph’s Parish, education for the children of George and Mr Hiliau and education for other family members.

[9]      Ms Tu’ilotolava is a solicitor.  She prepared, on the deceased’s instructions, a will signed by the deceased on 5 May 2012.  That will contained the option for Mr Hiliau, George or Elsie Wong to purchase the property at market value and the establishment of the trust fund for the purposes of tertiary education of the children of St Joseph’s parish and education of children of family members.

[10]     In 2013, on Ms Tu’ilotolava’s advice, the deceased instructed that both Ms

Murray and Ms Tu’ilotolava act as her attorney under an enduring power of attorney.

[11]     The deceased signed two wills in September 2014.  They are identical except for the paragraph numbering.  Under those wills the defendants were appointed as executors and trustees.  Those wills repeat the same key elements contained in the earlier will of 5 May 2012, namely the option for Mr Hiliau or George to purchase the property at market value and the establishment of the trust fund.  The main objective of the trust fund remained one of providing funds equally for the tertiary education of the families of the St Joseph’s parish and education of children of the family members specified.

[12]     The deceased subsequently signed a will dated 1 May 2015 and a deed of trust for the Agnes Pui’i Hiliau Educational Trust (the Educational Trust). Both documents were prepared by McMahon Butterworths lawyers.

[13]     The May 2015 will contained the following changes from the earlier wills of the deceased:

(a)      It named the plaintiffs as executors;

(b)It provided an option to the plaintiffs to purchase the property for the sum of $300,000 (not market value);

(c)      It transferred the residue of the deceased’s estate to the Educational

Trust.

[14]     The Educational Trust appointed the plaintiffs as the only trustees of the trust, and nominated Mr Hiliau, his children and grand-children as discretionary beneficiaries.  It also nominated children of the families of St Joseph’s Parish, chosen by the trustees in consultation with the Parish Priest, as discretionary beneficiaries.

[15]     The deceased subsequently signed a will dated 16 June 2015.  It was prepared by Ms Tu’ilotolava.  The June 2015 will reflected the provisions of earlier wills with the exception of the May 2015 will. These included:

(a)The provision of an option to the plaintiffs to purchase the property for the government valuation, or at a reduced value at the discretion of the executors;

(b)The establishment of the Trust Fund pursuant to clause 8, with the discretionary beneficiaries again being the students of the families of the St Joseph’s parish, the children and grandchildren of Mr Hiliau or George, and the children and grandchildren of the deceased’s nephew’s, Patrick Hiliau and Fifita Hiliau.

[16]     Between 24 July 2015 and 9 September 2015, the deceased was in Auckland Hospital.  She was admitted to hospital after sustaining a fall resulting in an injury to her hip.

[17]     On 18 August 2015, while she was in Auckland Hospital, a further will was signed by the deceased.  Pursuant to that will there is a sole option to the plaintiffs to purchase the property, this time at the price of 50 percent of the current capital valuation of the property.  Pursuant to clause 4(e), the proceeds of sale are to be paid to the Agnes Pui’i Hiliau Educational Trust with such trust to be set up by a deed intended to be dated the same date as the will.

Relevant legal principles

[18]     Costs in proceedings are at the discretion of the Court.1  The Court’s discretion is to be exercised in a principled way and in accordance with Part 14 of the High Court Rules.  It is a general principle that the party who failed in the proceeding should pay costs to the party who succeeds.  Costs are of course ordinarily determined following the substantive hearing of the matter.

[19]     The judgment of Stringer J in Re Paterson2 is the leading authority on costs in probate proceedings generally and sets out the following principles:

The court has a general discretion as to costs and all actions in proceedings before it, but there are certain well-established principles upon which that discretion should be exercised in cases of contested wills.   They are as follows—

(i)if the litigation originates in the fault of the testator – e.g. by the state in which he left his testamentary writings, or by his eccentric or irrational habits and mode of life – or of those interested in the residue, the costs may properly be paid out of the estate;

(ii)if there be sufficient and reasonable ground, looking to the knowledge and means of knowledge of the opposing party, to question either the execution of the will or the capacity of the testator, or to put forward a charge of undue influence or fraud, the losing party may properly be relieved from the costs of his successful opponent;

(iii)unless the circumstances of the case are such as to being it within one of the foregoing exceptions, the general rule that costs should follow the event ought to prevail…

[20]     A party may apply for a prospective costs order that:

1      High Court Rules 2016, r 14.1.

2      Re Paterson (deceased) [1924] NZLR 441.

(a)      their own legal costs will be paid out of the estate;

(b)      they will not be liable to pay costs to any other party; and/or

(c)any costs they are ordered to pay to the other party will be paid out of the estate.3

[21]     Applications for prospective cost orders are commonly made in the context of trust litigation by trustees or beneficiaries.  Disputes relating to trusts may be broadly categorised as “friendly” or “hostile”.4     Friendly litigation generally involves proceedings brought to seek the court’s direction on some aspect of the trust administration and for the benefit of the trust.  Hostile litigation, on the other hand, generally involves contested proceedings, such as a challenge to the validity of a trust. The nature of the litigation in question will affect whether it is appropriate for the Court to make a prospective costs order.

[22]     In Woodward v Smith, Kōs J held that in cases of hostile litigation, the court should  only  depart  from the  usual  practice  of  dealing  with  costs  after  the  trial “extremely rarely”.5   In determining whether a prospective costs order is appropriate, the Court will have regard to the following factors:6

(a)      The strength of the parties’ case; (b)     The likely order as to costs at trial; (c)      The justice of the application;

(d)      Any special circumstances.

3      Woodward v Smith [2014] 3 NZLR 525 at [28].

4      See in Re Buckton [1907] 2 Ch 406 (Ch) at 414-415, cited by Kōs J in Woodward v Smith at [23];

see also Alsop Wilkinson v Neary [1996] 1 WLR 1220 (Ch) at 1223-1224. As noted by Katz J in Fundacion Pinjo AC v Aguilar & Aguilar Ltd [2015] NZHC 1402 at [38], the categories of trust litigation set out in various authorities are discretionary and overlapping. Each case depends on its own facts.

5      Woodward v Smith, above n 3, at [29].

6 At [39].

[23]     Katz J held in Fundacion Pinjo AC v Aguilar & Aguilar Ltd,7 that where parties are involved in hostile litigation it is usually appropriate for parties to bear their own costs until the merits of the litigation have been resolved. The court can then determine cost issues with the benefit of its findings on the merits of the parties’ arguments.

The competing position of the parties

[24]     The defendants say that this is not hostile litigation.  Mr Moodley submitted the defendants are independent, putative, professional executor/trustees with no personal financial interest in the estate.  They are akin to neutral and independent trustees.  He further submitted:

(a)The litigation originates in the actions of the testator who made multiple wills in 2015 and failed to execute a trust deed at the same time as she signed her August 2015 will, in accordance with the terms of that will. Alternatively, there are clearly sufficient and reasonable grounds to question the capacity of the deceased at the time the August 2015 will was entered into.   In either case, the costs, in accordance with the standard principles in Re Paterson8 should be paid out of the estate;

(b)The defendants’ application for costs falls squarely within the second category in Re Buckton9  and prospective costs orders are routinely made in this category;

(c)Even  if  the  proceedings  are  properly  classified  as  hostile,  the defendants have a strong case on the merits and the circumstances here are exceptional such that a prospective costs order should be made.

[25]     The defendants are concerned that the May and August 2015 wills provide a substantial benefit to the plaintiffs and their family, at levels not present in earlier wills. They are also concerned that the August 2015 will may lead to a partial intestacy. Under the Administration Act 1969, the plaintiff, Mr Hiliau and his brother George,

would inherit the monies intended for the children of the families of the St Joseph’s

Parish.

[26]     The plaintiffs submit that the dominant nature of the litigation, viewed as a whole, is hostile.   The defendants have not met the threshold of exceptional circumstances, particularly given the relatively weak merits of the claims. There is no basis for a prospective costs order.

[27]     On the substantive claims, the plaintiffs dispute the defendants’ contentions of abrupt and significant changes in the wills. They also say there are remedies available, including rectification, to avoid an intestacy.

Analysis and decision

[28]     It is clear that the Court has jurisdiction to make a prospective costs order, including for indemnity costs. In principle, I can see no reason why such costs should not be awarded in estate litigation.10

[29]     I accept the submission of Mr Moodley that the principles set out in Re Paterson11 provide some guidance to the matters in issue here. However, that decision did not deal with the issue of a prospective costs order where different considerations can arise.

[30]     I propose to adopt the framework set out by Kōs J in Woodward v Smith.12  This is essentially a two-step process:

(a)      Consider which Buckton category the case falls into;

(b)If the answer is category 3 (hostile litigation) consider whether there exceptional circumstances, having regard to:

(i)       the strength of the plaintiff’s case?

(ii)      the likely costs order at trial? (iii)         the justice of the application? (iv)  any other special circumstances.

[31]     Mr Moodley contended that this case falls within the second category of

Buckton. The three Buckton categories are as follows:13

(a)The first category involves proceedings brought by trustees to obtain the Court’s guidance on the construction of the trust deed or some aspect of the trust’s administration. In such cases, the costs of all parties

justifiably participating are treated as incurred for the benefit of the estate in order to be paid out of the trust fund.

(b)The second category involves a similar application, but by someone other than a trustee (such as a beneficiary). However, it is a case which would have justified application by a trustee.  The same approach is taken to costs in the second category as to the first.

(c)The third category, however, is where a beneficiary is making a “hostile claim” against the trustees, or another beneficiary. The claim may still involve a point of construction, or administration. It will often involve a claim to a beneficial interest or entitlement to a part of the trust fund. In the third category, involving a hostile claim against trustees or another beneficiary, the usual principles as to costs apply.  Ordinarily they will follow the event.

[32]     The jurisprudence notes that these categories can often overlap and it can be difficult to discriminate between the various categories.14

13 At [23].

[33]     There is some merit to Mr Moodley’s contention that the testator here has been at fault, given the number of wills she signed, and that this supports his client’s claim for costs to be paid out of the estate.  However, I find that the dominant nature of the litigation viewed as a whole, is hostile and that the application falls to be determined in accordance with category 3 of the Re Buckton category.

[34]     The   defendants   and   the   plaintiffs   are   competing   to   be   the   rightful representatives of the deceased’s estate.  While the defendants may have no direct financial interest in the estate, they are not in my view truly independent, neutral parties. This is essentially a family dispute where the defendants, with close personal ties to the deceased, claim that they are carrying out the wishes of the deceased.

Ms  Tu’ilotolava has been a long time professional advisor, relative and friend of the deceased.

[35]     I accept Mr Moodley’s submission that the defendants have no improper motive and seek to defend the proceedings out of genuine concern.  However, it is clear that on both sides there are strong personal views and the defendants, in claiming undue influence, which they would be required to prove, are making serious allegations of a personal nature. As I have said, this is essentially a family dispute.

[36]     In the circumstances here, the defendants are seeking some benefit, which, if they are successful, would come at the expense of the plaintiffs. In my view this is in substance hostile litigation.

[37]     Having concluded that this litigation falls within category 3 in Buckton, I now turn to consider whether there are any exceptional circumstances to justify a prospective costs award.

[38]     As best as I can assess at this preliminary stage, I find that the defendants do not have a strong case. There are no medical records that support the defendants’ claim of lack of testamentary capacity.  The clinical records from Auckland Hospital show that the deceased was not diagnosed with delirium, dementia, Alzheimer’s disease or any serious cognitive disorder during her stay at Auckland Hospital (during which period she signed the last will).  Furthermore, there is no evidence before the court

that the deceased, who passed away in 2017, subsequently developed advanced dementia or any other significant cognitive disorder.

[39]     In relation to the claim of undue influence, Mr Moodley submitted that the defendants’ case is that the deceased was an elderly vulnerable woman, who for a sustained period was under the influence of her son, Charles Hiliau.  She had been estranged from Charles for many years and in circumstances where she was and remains completely estranged from her other son.

[40]     However, as Ms Morris submitted, there is a high threshold for claims of undue influence.  The Court of Appeal in Green v Green15 held that in order for a claim of undue influence to be successful, it must be more likely that the will was a product of undue influence than not.   It is entirely legitimate for family members to try and persuade a will-maker to leave more to them, or to appeal to the will-maker’s goodwill and affections, provided that the final decision is left to the will-maker.  I also accept that the circumstances of re-establishing a relationship following estrangement, on their face, would provide some plausible and rational explanation for provision for the deceased’s son. There is nothing inherently improper about that.

[41]     The next factor I address is the likely order as to costs at trial.

[42]     Before making a prospective costs order the Court must be satisfied that the Judge at the trial could properly exercise his or her discretion only by ordering that the applicants’ costs be paid out of a trust estate.16

[43]     In order to grant the prospective costs order sought here, the Court must be satisfied that if costs were left to the trial Judge, he or she is likely to order:

(a)      The defendants’ costs be paid by the estate on an indemnity basis; and

(b)Costs awarded in the plaintiffs’ favour to be paid from the estate (if applicable).

15     Green v Green [2016] NZCA 486 at [47].

16     Alsop Wilkinson v Neary above n 4, adopted by Kōs J in Woodward v Smith, above n 3, at [35]- [37].

[44]     I accept the submissions of the plaintiffs that it is unlikely that the trial Judge would exercise his or her discretion as to costs in that manner.   If the defendants succeed in their claim it is of course likely that the trial Judge would order that their costs be paid out of the estate. However, indemnity costs are by no means guaranteed. A number of factors will be relevant to the Court’s determination of quantum, such as the size of the estate, the effect of a costs award on residuary beneficiaries, the strength and appropriateness of arguments advanced at trial and the conduct of the parties throughout the proceedings.17  In this case, the defendants would need to play an active role given that they carry the burden of establishing their claim of undue influence. Indeed, their role generally would be an active one; this is not a case of independent parties simply abiding the Court’s decision.

[45]     If the defendants do not succeed in their claim, the trial Judge will need to first consider if either of the exceptions set out in Re Paterson apply.   If one of the exceptions applies then the Judge will need to determine the appropriate award.

[46]     I am not satisfied that the Judge at the trial could properly exercise his or her discretion only by ordering the defendants’ costs be paid out of the trust estate.

[47]     I also find that the other grounds I need to consider, namely the justice of the application, and whether there are any special circumstances, have not been made out. There are no special circumstances.  I acknowledge that if costs are not awarded at this stage, then it is likely that the proceedings will be undefended.  However, that cannot be a determinative factor.  I have already expressed the view that I do not see the defendants’ case as a strong one.

[48]     I thus conclude there is no basis to make a prospective costs award.   The litigation here is essentially hostile and there are no exceptional circumstances to justify an award of the nature sought.

17     In response to a direction I made at the hearing, counsel for the defendants provided an estimate as to indemnity costs.

Result

[49]     The defendants’ application for a prospective costs order is dismissed.

[50]     In the ordinary course, costs should follow the event and be awarded on a 2B basis. However, I would urge the parties to consider whether costs on this application should lie where they fall. The defendants brought their application in good faith and with a view to what they obviously saw as carrying out a commitment to the wishes of the deceased.

[51]     If costs cannot be agreed, then memoranda are to filed within 14 days.

Associate Judge P J Andrew