Howarth v Howarth
[2022] NZHC 602
•30 March 2022
IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY
I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE
CIV-2018-419-272
CIV-2018-419-274 [2022] NZHC 602
UNDER Section 21 of the Administration Act 1969, section 51 of the Trustee Act 1956 and the Family Protection Act 1955 IN THE MATTER
of the Estate of JACK HOWARTH
BETWEEN
DAVID JOHN MACMILLAN HOWARTH
First Plaintiff
JACQUELINE ELLEN KEEN
Second PlaintiffAND
ANDREW ROBERT HOWARTH
Defendant
Judgment:
(On the papers)
30 March 2022
COSTS JUDGMENT OF BREWER J
This judgment was delivered by me on 30 March 2022 at 12 noon pursuant to Rule 11.5 High Court Rules.
Registrar/Deputy Registrar
Solicitors:
Rennie Cox (Auckland) for Plaintiff
Stace Hammond (Hamilton) for Defendant
HOWARTH v HOWARTH [2022] NZHC 602 [30 March 2022]
Introduction
[1]This is a costs judgment.
[2]In my substantive judgment,1 I:
(a)ruled in favour of the plaintiffs on their claim for maintenance and support from the estate of their late father pursuant to the Family Protection Act 1955 (the Act); and
(b)refused the plaintiffs’ application to remove the defendant, their brother, as executor and administrator of their father’s estate.
[3] The parties’ late father left his entire estate of approximately $335,000 to the defendant. I awarded each of the plaintiffs $60,000.
[4] I directed the parties to file memoranda as to what costs should be awarded. They have done so. Their positions are diametrically opposed. The plaintiffs submit costs should be awarded in their favour totalling $76,245.70.2 The defendant submits costs should be awarded in his favour totalling $112,530.00.3
The plaintiffs’ submissions
[5] The plaintiffs submit that the effect of a direction by Lang J that the two proceedings be heard together was to make the claim under the Act the primary focus of the substantive hearing and to significantly narrow the issues to be determined in the removal application at the hearing.4 They submit further that the discovery process which took place in the course of the removal application, and the evidence adduced
1 Howarth v Howarth [2021] NZHC 2521.
2 In particular, they seek an award of costs in the proceeding under the Act for $74,270.00 and disbursements of $10,327.20. The plaintiffs submit that award should be set off under r 14.17 of the High Court Rules 2016 against an award of costs in favour of the defendant in the removal application in the sum of $8,394.50 together with reasonable disbursements.
3 The defendant submits further that he should be awarded costs of approximately $6,000 for preparing the submissions on costs.
4 As I noted at [12]–[13] of my judgment, the plaintiffs no longer sought to have the defendant removed so that an independent investigation could take place into payments made by Mr Howarth to the defendant. However, the plaintiffs continued to seek removal of the defendant as executor on the grounds that they believed the plaintiffs and defendant could not work together due to the hostility between them.
in relation to the amounts received by the defendant during Mr Howarth’s lifetime, were used and considered in the determination of the Family Protection proceeding. It is therefore submitted that the cost of discovery should fall to be considered in the Family Protection proceeding, rather than the removal application.
[6] On a broad-brush approach, the plaintiffs submit that since it was decided that the proceedings would be heard together approximately 90 per cent of the parties’ time and cost (including in preparation of further evidence, preparation for hearing and hearing time) was directed to the conduct of the Family Protection proceeding and only 10 per cent towards the removal application. The plaintiffs succeeded in the Family Protection proceeding and were awarded the sum of $60,000 each, or approximately 14 per cent of the estate.5 The defendant successfully opposed the removal application.6
[7] The plaintiffs submit that they should receive a significant proportion of their actual costs out of the estate of Mr Howarth for three reasons. First, payment of costs out of the estate is based on the rationale that the Court needs to stand in the shoes of the deceased to secure the proper discharge of his or her moral duty to qualifying beneficiaries.7 The Family Protection proceeding was necessitated by the late Mr Howarth’s “failure” to recognise his moral duty to the plaintiffs. Secondly, if the plaintiffs do not receive such an award, then the payments they received by way of support in the judgment will be consumed by their own legal costs. In other words, their father’s breach of moral duty (as found by the Court) will nevertheless result in a net financial loss to the plaintiffs. Such a position is “unfair and unjust”. Thirdly, the plaintiffs submit that certain work undertaken in preparing for the removal application was in fact used in the determination of the Family Protection proceeding.
[8] The work done in respect of each proceeding varied during the course of the proceedings. The plaintiffs submit that 75 per cent of their actual costs were attributable to the conduct of the Family Protection proceeding as opposed to the removal application. Accordingly, they submit that they should receive 75 per cent of
5 At [150]–[151].
6 At [153] and [155].
7 Ormsby v Van Selm [2016] NZHC 484 at [5]–[6].
their actual costs incurred in the Family Protection proceeding, equal to the sum of
$74,270.00 in addition to actual disbursements of $10,327.20. The plaintiffs accept that the defendant is entitled to an award of costs for successfully opposing the removal application. They calculate scale costs on the removal application (after appropriate deductions) at $8,394.50.
[9] Moreover, the plaintiffs acknowledge that four offers were exchanged by the plaintiffs and defendant prior to the commencement of the proceedings which fall to be considered under rr 14.6(3)(b), 14.7(f)(v) and 14.11 of the High Court Rules 2016. In particular, an offer was made by the defendant in June 2018 to divide the estate three ways with an acknowledgement that the defendant did not owe anything to the estate. This was subject to a deed of family arrangement and each party bearing their own costs. The defendant was also to remain as executor.
[10] A counteroffer was made by the plaintiffs in July 2018 essentially seeking a further $70,000 for each plaintiff to match the amounts they believed the defendant had received by way of loans from their father, and costs. This offer was rejected by the defendant. The defendant’s offer was then withdrawn upon the filing of the proceedings and was never repeated. No other Calderbank offers were exchanged.
[11] The plaintiffs submit that, in all the circumstances of the case, the defendant’s offer should be disregarded for the purpose of assessing costs. They submit that the reasonableness of the rejection of that offer needs to be considered at the time of the rejection and not by reference to the subsequent result. At that time, in June 2018, the plaintiffs had raised “significant and legitimate concerns with the defendant about the operation of their father’s bank account over a significant period”. They had identified unexplained transactions totalling some $369,000. The defendant’s lack of candour in trying to resolve these issues meant that the plaintiffs could not reasonably assess the offer with the information available to them at the time.
The defendant’s submissions
[12] The defendant submits that the plaintiffs’ endeavour to move steps taken for the purpose of the removal application into the assessment of costs under the Family Protection proceeding is self-serving and unreasonable. He notes that the plaintiffs
opened their case at the hearing on the basis that they wanted the defendant removed as executor because of alleged fraud. It was only late in the hearing, after there was some indication from the Bench that the Court was having difficulty with the quality of the evidence to support the allegations of fraud, that the plaintiffs’ emphasis changed to having the defendant removed because of acrimony. The defendant notes that the plaintiffs had been relying upon the allegation of fraud for both the removal application and for their arguments that the deceased breached his moral duty.
[13] Given that these allegations of fraud were rejected by the Court, the defendant submits that the emphasis on the Family Protection proceeding as the lens through which costs are primarily assessed is entirely misplaced. Indeed, the defendant submits that the core issue for both the Family Protection proceeding and the removal application was the alleged fraud by the defendant. That issue was inextricably tied to the defendant’s dealings and relationship with the deceased. Stripped of the allegation of fraud, the defendant submits that the case would have been much more straightforward, less contentious and significantly less acrimonious.
[14] Moreover, unfounded or irrelevant allegations of fraud can support a claim for indemnity costs.8 The defendant submits that the Court must use the tool of costs as a disincentive to the making of such allegations, particularly in a case like the present where children may otherwise be disincentivised from managing their parent’s affairs. On the basis of the unsubstantiated allegation of fraud alone, the defendant submits that he ought to be entitled to indemnity costs or at least an uplift on the schedule costs.
[15] With respect to settlement offers, the defendant offered to share the estate evenly with each sibling getting one third. The defendant notes that had that offer been accepted, the costs of the entire dispute would not have been incurred by either party and the plaintiffs would have received a greater share of the estate than they received in the judgment (which amounted to 14 per cent each once the $98,000 acknowledged by the defendant as having come from the testator during his life was added to the estate). The plaintiffs are each 19 per cent worse off than they would have been had they accepted the offer to divide the estate into thirds. The defendant
8 See Hedley v Kiwi Co-Operative Dairies Ltd (2002) 16 PRNZ 694 (HC) at [7]–[10].
submits that he was taken to court and incurred costs unnecessarily. The plaintiffs’ failure to accept the offer should now be reflected in the costs award.
[16] The defendant also offered to step down as executor if there was a prima facie evidential basis for the claim that funds had been misappropriated. Something more than casual accusations were required. The defendant subsequently took the view that there was no basis even at a prima facie level to resign—a decision he submits has now been vindicated. The defendant also offered to step down for a second time on the basis that the plaintiffs meet the costs of the independent executor/trustee and any investigative accountant. This was on the condition that if there was no basis for the allegations, then any application for costs would be opposed. That offer was refused. The defendant submits that the plaintiffs did not have the courage of their convictions to incur the costs in the first instance of an independent executor and investigator because they knew that their allegations were false, tactical or accepted that there was a high risk to making them. They ought to bear that cost.
[17] More generally, the defendant submits that having the Court resolve the issue of breach of moral duty and remedy was entirely reasonable. The plaintiffs’ expectations were wrongly elevated by allegations of fraud. It would also result in an unjust outcome for the defendant if he is required to pay costs or the estate is required to pay costs (which he submits is in effect the same thing) as such an approach “robs the defendant of his inheritance”.9 In these circumstances, given that the case was “consumed” by the plaintiffs’ unsubstantiated allegations of fraud, the offers tabled which were better than what the plaintiffs ultimately achieved, and the plaintiffs’ failure to incur the costs of an independent executor and investigator in the first instance, the defendant submits that costs ought to be awarded in his favour.
[18]The schedule costs are $56,000 and the defendant’s actual costs are
$112,530.15. It is submitted that given the nature of the allegations, indemnity is justified or at least an uplift is warranted. On that basis, costs of $112,530 should be awarded to the defendant.
9 The value of the estate is $335,000. From that figure would be subtracted $120,000 (the award to the plaintiffs), $76,000 (the plaintiffs’ requested costs), $130,000 (the defendant’s total actual costs), leaving only $9,000 in the estate for the defendant.
Discussion
[19] The starting point is that costs follow the event.10 Success on more limited terms is still success.11 The plaintiffs were successful in the Family Protection proceeding but unsuccessful in the removal application. I accept the plaintiffs’ submission that the Family Protection proceeding was the primary focus of the hearing. It occupied the overwhelming majority of time at the hearing and that is reflected in the length at which I addressed each issue in the judgment.
[20] I do not accept the defendant’s submission that the allegation of fraud so pervaded the proceedings that any “emphasis on the Family Protection Act claim being the lens through which the costs issue is primarily dealt with is entirely misplaced”. While I agree that allegations of fraud or misappropriation clearly played a role in the proceedings, and that such allegations were not established to the requisite standard,12 that does not alter the fact that the Family Protection proceeding had been the focus of the parties’ attentions for some time—the plaintiffs suggest since July 2020 when it was directed that the two proceedings would be heard together—and was certainly their focus at the hearing in May and June 2021. The allegation of fraud did not “consume” the proceedings to such an extent that this focus should be ignored.
[21] Likewise, I reject the defendant’s suggestion that these allegations of fraud were “purely tactical”, designed to intimidate the defendant, and therefore warrant indemnity costs being awarded against the plaintiffs. Under r 14.6(4)(a), the court may order a party to pay indemnity costs if they have “acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding”. The leading authority on indemnity costs is the decision of Bradbury v Westpac Banking Corp.13 There the Court of Appeal referred to observations from Woodward J in the Federal Court Australia that:14
10 See High Court Rules, r 14.2(1)(a).
11 Weaver v Auckland Council [2017] NZCA 330, (2017) 24 PRNZ 379 at [26].
12 Howarth, above n 1, at [48].
13 See Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400.
14 Australian Transport Insurance Pty Ltd v Graeme Phillips Road Transport Insurance Pty Ltd (1986) 71 ALR 287 (FCA) at 288 as cited in Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 (FCA) at 400–401 referred to by the Court in Bradbury, above n 13, at [23].
Courts in both the United Kingdom and Australia have long accepted that solicitor and client costs can properly be awarded in appropriate cases where “there is some special or unusual feature in the case to justify the court exercising its discretion in that way” … It is sometimes said that such costs can be awarded where charges of fraud have been made and not sustained; but in all the cases I have considered, there has been some further factor which has influenced the exercise of the court’s discretion – for example, the allegations of fraud have been made knowing them to be false, or they have been irrelevant to the issues between the parties …
[22] Indeed, the Court in Bradbury concluded that indemnity costs have been ordered in circumstances involving “the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud”.15 In the present case, there is no evidence to suggest that the plaintiffs’ allegations of fraud or misappropriation were knowingly false. It is not enough that those allegations were ultimately not proven to the requisite standard at the hearing. Nor were the allegations of fraud irrelevant to the issues between the parties—the defendant himself submits that they were a “core issue” in both proceedings. I do not consider that indemnity costs are warranted on this basis.
[23] I turn then to the settlement offer from the defendant, before proceedings were issued, to divide Mr Howarth’s estate evenly between the three siblings with an acknowledgement that the defendant did not owe anything to the estate. The defendant would have remained the executor under this arrangement. That offer was roundly rejected by the plaintiffs. The defendant refers to the principle established in Calderbank v Calderbank that if an offer was made without prejudice save as to costs and the offeree was awarded less than what the offeror offered, the offeror would be entitled to costs.16 He submits this is a case where it is entirely proper for the principle to “bite” against the party that declined the offer.
[24] To be effective for costs purposes pursuant to r 14.10 of the High Court Rules, the offer needs to be:17
(a)clearly and unambiguously stated;
(b)capable of contractual acceptance; and
15 At [29(a)].
16 Calderbank v Calderbank [1965] 3 All ER 333 (CA).
17 Body Corporate S73368 v Otway [2018] NZCA 612, (2018) 20 NZCPR 477 at [80] (footnotes omitted).
(c)more beneficial (or close in benefit) to the other party than the judgment actually obtained.
[25] There is little difficulty in assessing these requirements in the present case. The defendant’s offer was clearly and unambiguously stated.18 There was certainty as to what the offer entailed. It was capable of contractual acceptance. It was also more beneficial to the plaintiffs than the judgment ultimately obtained. The plaintiffs each received $60,000 or approximately 14 per cent of the estate in the judgment.19 By comparison with the 33 per cent offered by the defendant, the plaintiffs are each approximately 19 per cent worse off than they would have been had they accepted that offer in the first place. This plainly meets the third limb of the test. I therefore consider there was an operative Calderbank offer giving rise to a presumptive entitlement to costs under r 14.11(3)(a).
[26] The relevant question is then what costs award is appropriate in these circumstances. The effect of a successful Calderbank offer is a matter of discretion under r 14.11(1).20 Indeed, a successful Calderbank offer does not of itself give rise to an entitlement to increased costs or indemnity costs.21 The Court’s discretion in such circumstances is broad:22
[33] The Court’s discretion in making an order for costs to the party that did not succeed at trial, on the basis of a Calderbank offer is broad, and all relevant circumstances must be considered, including whether rejection of the offer or offers was reasonable.
[27] I note that any assessment of the reasonableness of an offer requires the court to consider the position at the time the offer was made rather than by reference to any subsequent result.23 This assessment involves factors such as the size and timing of the offer, the reasonable expectations of the party refusing the offer and on the parties’ ability, at the time of the offer, to assess the merits of the case.24
18 I refer here to the email dated 6 June 2018 from Giles Brant to John Cox.
19 Howarth, above n 1, at [151]. This figure is obtained once the $98,000 received by the defendant from Mr Howarth is included in the value of the estate.
20 See also Junior Farms Ltd v Commissioner of Inland Revenue (CIR) (2011) 25 NZTC 25,754 at [18].
21 Weaver, above n 11, at [30].
22 Tower Insurance Ltd and Elizabeth Mary Kilduff and Veritas (2012) Ltd as Trustees of The Emosh Family Trust [2019] NZCA 82 (footnotes omitted).
23 At [35].
24 Weaver, above n 11, at [30].
[28] In this case, at the time the offer was made and before it was withdrawn, the plaintiffs were in possession of evidence from a registered chartered accountant whose affidavit identified some $369,000.00 in unexplained withdrawals from Mr Howarth’s bank accounts. However, as I observed in the judgment, there were many potential explanations for those withdrawals. Notwithstanding what the plaintiffs describe as a “general lack of candour” from the defendant, it would not have been reasonable for the plaintiffs to have expected that all of the withdrawals were unduly deposited into the defendant’s accounts. For example, some portion of the transactions may have been explained by Mr Howarth making payments into term deposits or transfers between accounts.25 It must also be recognised that Mr Howarth lived with the defendant and his partner for considerable periods and may well have reimbursed them for their expenses on his behalf.26
[29] I therefore consider that at the time the plaintiffs issued proceedings, and the defendant’s offer was accordingly withdrawn, they did not have a strong evidential foundation for believing that the defendant had misappropriated significant sums of money from their late father’s bank accounts. The plaintiffs nevertheless rejected the defendant’s offer of dividing the estate into thirds as “unacceptable”. They proposed one “final” offer of settlement in response being that each of the plaintiffs would receive payments in the sum of $70,000.00, all of the parties’ legal costs would be reimbursed by the estate, and the residue of the estate would be divided equally between the siblings. But such a proposal ignores the fact that Mr Howarth was entitled to, and had reason to, prefer the defendant in his will.27
[30] Given the evidential picture at the relevant time, in my view, it was not reasonable for the plaintiffs to reject the defendant’s settlement offer on the basis that they expected perfect equality with the defendant. The offer of settlement they received to divide the estate evenly between the siblings was demonstrably reasonable. This is a case where the defendant is entitled to an award of costs owing to the plaintiffs’ failure to accept a settlement offer which exceeded the amount they ultimately obtained. Even so, that entitlement goes no further than scale costs. Any
25 Howarth, above n 1, at [41].
26 At [44].
27 At [146].
award of costs must do justice between the parties.28 I am mindful here that given the size of the estate any costs award is likely to have significant consequences for either party.29 I consider that no uplift is warranted in this case.
[31] I conclude that the defendant is entitled to scale costs on both applications, taking into account their effective consolidation.
[32] The defendant calculates total costs on a 2B scale basis for the removal application and for the Family Protection proceeding as $56,165. The plaintiffs have separately calculated the costs on a 2B scale basis for the removal application, including a number of suggested deductions. I accept that three of those deductions are appropriate. Costs should not be awarded in respect of three consent memoranda (dated 14 November 2018, 16 August 2019 and 2 October 2020) prepared by the plaintiffs’ solicitors where the conference or mention hearing was vacated. I therefore subtract the time allocated for those steps from the defendant’s calculations.30
[33] I am not prepared to order that the defendant’s costs be paid by the estate. There was an appropriate Calderbank offer. Had it been accepted there would have been no litigation costs payable by anyone. If I order the costs to be paid by the estate, I would effectively be ordering the defendant to pay his own costs.
Result
[34] I award costs to the defendant on the removal application and on the Family Protection proceeding on a 2B scale basis totalling $53,297.
[35]I decline to award costs to the defendant for preparing costs submissions.
Brewer J
28 Ormsby, above n 7, at [6].
29 The plaintiffs submit that if they do not receive an award of costs their father’s breach of moral duty (as found by the Court) would nevertheless result in a net financial loss to the plaintiffs. The defendant submits that if an award of costs is made against him then he will be robbed of his inheritance.
30 Each step is allocated 0.4 days: 3 x 0.4 = 1.2 days subtracted from the defendant’s total.
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