Hopwood v Hopwood HC Hamilton CIV 2008-419-1500

[2010] NZHC 1725

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

CIV 2008-419-1500

IN THE MATTER OF     of the Estate of the late MARGARET ELLEN HOPWOOD

BETWEEN  PHILIP ROLAND HOPWOOD, WARREN KEITH HOPWOOD AND GRAHAM JOHN HOPWOOD Plaintiffs

ANDRICHARD TRAVIS HOPWOOD AND SUSAN LINDA HOPWOOD

First Defendants

ANDRICHARD TRAVIS HOPWOOD Second Defendant

Hearing:         23 September 2010

Counsel:         D J Taylor for Plaintiffs

J B Lovely for Defendants

Judgment:      23 September 2010

(ORAL) JUDGMENT OF HEATH J

Solicitors:

Jones Howden, PO Box 1, Matamata Downie Stewart, PO Box 1345, Dunedin CounselL:

D J Taylor, PO Box 19366, Hamilton

HOPWOOD V HOPWOOD AND ANOR HC HAM CIV 2008-419-1500  23 September 2010

Introduction

[1]      In this proceeding, Philip, Warren and Graham Hopwood, sought removal of their siblings, Richard and Susan Hopwood, as trustees of the estate of their late mother, Margaret Ellen Hopwood.

[2]      The proceeding was issued on 23 October 2008 and was finally resolved by a consent order made on 19 July 2010, by Andrews J.  The upshot was the removal of Richard and Susan as trustees and their replacement by Mr Alan Wilson, a solicitor from Huntly.  When the proceeding was settled, costs remained reserved.  The only aspect  of  costs  addressed  in  the  consent  order  was  to  enable  Mr Wilson  to  be indemnified for his costs, out of the trust estate.

[3]      Philip, Warren and Graham seek one set of costs against Richard and Susan personally in relation to the proceeding.  They also contend that Richard and Susan should not be entitled to indemnity out of trust assets in respect of costs they have incurred  in  defending  the  proceeding.    In  short,  Mr  Taylor,  on  behalf  of  the applicants for costs, submits that the proceeding was always unnecessary and the outcome inevitable.

Background

[4]      The late Margaret Hopwood died on 30 April 2002, leaving a Will made on

26 March 1998.  Probate of the Will was granted in favour of Richard and Susan on

9 July 2002.  The Will provided for the net estate to be distributed equally among the five children.  The main asset is a property, situated near Thames.  That property was transmitted to Richard and Susan in their capacity as executors and trustees of the deceased estate, on 19 August 2002.

[5]      The plaintiffs alleged that Richard and Susan had not accounted for their administration of the estate since 9 July 2002 and had failed to deal adequately with trust assets.  Indeed, it appears that during the period between the time probate was

granted and the issue of the proceeding, the property was used for the benefit of at least one of the trustees and consideration was being given to the trustees or one of them acquiring the property without full consultation with beneficiaries.

[6]      While no particular allegation of breach of the self-dealing rule[1] was asserted, it seems to me that the conduct could be regarded as perilously close to the appropriate dividing line.

[1] For example, see Dever v Knobloch HC Napier CIV 2008-441-537, 29 October 2009 (Dobson J) at paras [39]-[41].

[7]      Philip, Warren and Graham seek increased costs; or, at least, costs on a 2B basis.  The costs claim is based on the failure of Richard and Susan to give up their office of trustees and their failure to account appropriately for their administration, over what is a long period of time.

[8]      Indeed, it took almost two years for settlement to be effected, even after the proceedings were issued.   It would have been a simple matter for the replacement trustee to have been put in place earlier and for negotiations in respect of the sale of the property, whether to Richard, Susan or anyone else, to have been dealt with at arm’s length by an independent trustee.

[9]      Mr Taylor submitted today that part of the problem was that the defendants had always been reactive to approaches by his clients.  He says that Philip, Warren and Graham still do not have knowledge of what assets have passed through the trustees hands.

[10]     Mr Lovely, for Richard and Susan, has pointed to what he describes as the “dysfunctional” nature of the family and the difficulties it caused in communications between the trustees and the beneficiaries in respect of what should happen to assets of the trust.  He submits that the fact that settlement was always on the cards from the time the proceeding was brought to remove the trustees, should be a factor weighing in favour of his client’s position.  Mr Lovely submits that costs should lie where they fall, so far as the plaintiffs are concerned, and that his clients should be indemnified in respect of actual costs incurred by them from the estate.

Analysis

[11]     The principles in respect of increased costs were considered by the Court of Appeal  in  Bradbury  v  Westpac  Banking  Corporation.[2]    The  rules  relating  to indemnity and increased costs were contrasted.[3]   In discussing the distinction among the three broad approaches mandated by the High Court Rules, Baragwanath J, for the Court, said:[4]

[2] Bradbury v Westpac Banking Corporation [2009] 3 NZLR 400 (CA).

[3] Ibid, at para [7].

[4] Ibid, at para [27].

[27] The distinction among our three broad approaches – standard scale costs, increased costs and indemnity costs – may be summarised broadly:

(a) standard scale applies by default where cause is not shown to depart from it;

(b) increased costs may be ordered where there is failure by the paying party to act reasonably; and

(c) indemnity costs may be ordered where that party has behaved either badly or very unreasonably.

[12]   On any view, it was extremely remiss of the trustees not to execute administration of the estate as required by the Will in a timely fashion, even making due allowance for any problems with inter-sibling communications caused by what is alleged to be a dysfunctional family.   Some six years went by before Philip, Warren and Graham issued proceedings.  There is no valid explanation that can be given for the trustees’ failures to deal with the property in terms of the Will and to account for their administration over such a long period.

[13]     I am satisfied, in terms of the principles set out in Bradbury v Westpac Banking Corporation in light of r 14.6(3) of the High Court Rules, that there has been a failure by Richard and Susan to act reasonably which should be met by an order for increased costs.

[14]     On ordinary principles, costs for a proceeding of this type should be ordered on a 2B basis.  An uplift is required to reflect the unreasonable stances taken, but in calculating that uplift I take the view that I should be conservative given the inability

on a costs argument following a consent resolution of the proceeding, to make difficult findings of fact in relation to each party’s behaviour.  The uplift I propose to apply is 25%.

[15]     The next issue is whether Richard and Susan should be entitled to their costs out  of  the  estate.    In  Re  O’Donoghue,[5]   Hammond J  addressed  this  issue.    He described “the classical Chancery principle” as being that “only expenses properly incurred are the subject of a trustee’s indemnity”.[6]   The consequence of that principle is that improperly incurred expenses fall upon a trustee personally.  In that sense, a trustee is at risk when he or she incurs expenses.[7]

[5] Re O’Donoghue [1998] 1 NZLR 116 (HC).

[6] Ibid, at 121.

[7] Ibid.

[16]     While acknowledging that a Court will always be hesitant to require a trustee to carry costs personally, it should do so if there is no proper reason for the trustees having adopted the position they did.   In that regard, the inexcusable failure to account for their administration and to deal with trust property in accordance with their obligations as trustees over the lengthy period involved, means that at least some of those costs should be borne personally.

[17]     In my view, the appropriate course is to allow $5000, plus any reasonable disbursements to be paid out of the estate with any additional costs over that to be borne personally by Richard and Susan.  That will reflect an estimate of the amount of trust work that could be regarded as reasonable in the circumstances.   While I might have been inclined to do so otherwise, I have left aside the self-dealing issue as that was never tested, in an evidential sense.

Result

[18]     For those reasons, I make the following orders:

a)        Costs shall be paid by Richard and Susan personally to Philip, Warren and Graham on a 2B basis together with an uplift of 25%.  In addition,

reasonable disbursements are payable.  Both costs and disbursements shall be fixed by the Registrar.

b)Richard and Susan are entitled to have indemnity from the estate in respect   of   costs   totalling   $5000   and   reasonable   disbursements incurred.     I  leave  the  quantum  of  disbursements  for  discussion between Mr Taylor and Mr Lovely, whom I am confident can resolve that issue between themselves.

[19]     Leave to apply is reserved, in case any unexpected issue arises that requires the Court’s attention.

P R Heath J