Justitiae Trustee Company Limited v NZF Nominees Limited
[2021] NZHC 1585
•30 June 2021
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-1954
[2021] NZHC 1585
BETWEEN JUSTITIAE TRUSTEE COMPANY LIMITED
PlaintiffAND
NZF NOMINEES LIMITED
Defendant
Hearing: On the papers Counsel:
B D Gray QC, R B Hucker and R Selby for the Plaintiff No appearance by or on behalf of the Defendant
M V Robinson and A van Ammers for Fairlight Forestry Ltd and Clive Bradbury (Interested Parties)
K Glover for Clayton Bradbury (Interested Party)
S Gollin for De Havilland Investments Ltd and Heather Bradbury (Interested Parties)
Judgment:
30 June 2021
JUDGMENT OF GORDON J
[As to costs]
This judgment was delivered by me on 30 June 2021 at 3 pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
Solicitors: Hucker & Associates, Auckland
West Auckland Law Office, Auckland Harrington Law Limited, Auckland
Counsel:B D Gray QC, Auckland M V Robinson, Auckland
JUSTITIAE TRUSTEE CO LTD v NZF NOMINEES LTD [2021] NZHC 1585 [30 June 2021]
[1] This is an application for costs arising out of my judgment of 30 March 2021 (the judgment) in which I found against the plaintiff, Justitiae Trustee Company Ltd (Justitiae) in favour of the interested parties.1 In the judgment I reserved costs.2
[2] Justitiae and Fairlight Forestry Ltd (Fairlight) are the two beneficiaries of the R & A Trust (the trust), which was part of a private investment scheme set up by Garry Muir and Clive Bradbury,3 who were formerly partners in the law firm Bradbury & Muir. The trust was settled on 14 November 2008 by R & A Nominees (Anguilla) Inc (Anguilla). Garry and Clive are the directors and shareholders of Anguilla. They have joint power of appointment of the trustees of the trust. On 10 July 2009, Anguilla retired and Garry and Clive appointed the defendant, NZF Nominees Ltd (NZF) as trustee.4 NZF is owned in equal shares by Justitiae and De Havilland Investments Ltd (DHIL). Justitiae is associated with Garry and his family. DHIL is associated with Clive and his family.
[3] The trust deed of 14 November 2008 provides that the trustee holds the trust assets “on a bare trust as an nominee” as to 50 per cent for each of its two beneficiaries, Justitiae and, initially DHIL. Fairlight was subsequently substituted for DHIL. There was no issue over that substitution.
[4] The proceeding arose out of the execution of a Deed of Assignment (assignment) on 24 June 2019. Clayton Bradbury (the Bradbury defendants5 said (and I found) acting in his capacity as trustee of the trust) and Clive (the Bradbury defendants said (and I found) as the sole director of NZF) executed the assignment in favour of Fairlight. Pursuant to the assignment, Clayton and NZF jointly and severally transferred to Fairlight all their “rights, title and interests in the undivided one-half share as tenant in common in the Trust Assets currently held on trust for Fairlight by the trustee under the trust deed”. In other words, they transferred legal title. The
1 Justitiae Trustee Co Ltd v NZF Nominees Ltd [2021] NZHC 659.
2 At [216].
3 I will refer to Garry Muir and Clive Bradbury by their first names. Clive’s brother Clayton is an interested party. I will similarly refer to him by his first name to avoid confusion. I will also refer to Garry’s son Nicholas Muir by his first name. No disrespect is intended by the use of first names.
4 NZF was not required to take steps in the proceeding as its 50 per cent shareholders and their appointed directors were deadlocked by the disputes in the proceeding.
5 See [12].
assignment did not address Justitiae’s beneficial interest in the other undivided half- share of the trust assets or the trustee’s legal interest in that undivided half-share.
[5] Justitiae claimed that the assignment threatened the tax-exempt status of Trinity. I did not accept that submission.
[6] On Justitiae’s application made on a without notice basis on 17 September 2019 (seeking a number of orders) this Court directed service on Trinity Foundation (Services No 2) Limited and Trinity Foundation (Services No 3) Limited (together Trinity),6 DHIL, Fairlight, Clive, Clayton and Heather Bradbury. Heather Bradbury (Clive’s wife) is a director of DHIL along with Clive and one other person. She is also a director of Fairlight along with Selina Thomson (Heather and Clive’s daughter).
[7] Justitiae brought its claims under s 68 of the Trustee Act 1956 (the Act) and also submitted that once the s 68 jurisdiction is engaged, then the onus is on the trustee to substantiate or uphold their acts. I found that Justitiae’s claim did not fall under s 68 of the Act. In case I was wrong on that issue, I went on to consider Justitiae’s submission that it did not bear the onus of proof on its claims but the onus of proof was reversed. I found against Justitiae on that issue.
[8] Further, in case I was wrong that Justitiae’s claims did not fall under s 68 of the Act, I considered the two causes of action and found that they failed on the merits.
[9] Justitiae had sought relief by way of declarations. In the first cause of action, it sought relief against Clayton by way of the following declarations: the shareholders of NZF agree that Justitiae may appoint one half of the directors of NZF; Heather Heazlewood (Garry’s sister) was validly appointed a director of NZF on 1 May 2018; NZF was never under any legal restraint from preventing it from acting as trustee of the trust; and Clayton never became trustee of Justitiae (that is in his personal capacity as opposed to his capacity as a director of NZF). I did not make any of the declarations sought.
6 Trinity had granted the rights to carbon credits to NZF by deed. Having sought an order that Trinity be served, Justitiae subsequently sought and was granted leave to discontinue the proceeding against Trinity: Justitiae Trustee Co Ltd and NZF Nominees Ltd [2020] NZHC 471.
[10] In the second cause of action, Justitiae sought relief against Fairlight, Clive, Clayton, DHIL and Heather Bradbury by way of declarations as follows: the assignment was not binding on the trust; NZF could not validly bind the trust to the assignment; the financing change statement (registered on the Personal Property Securities Register) dated 24 June 2019 altering details of NZF’s charge against the assets of Trinity was not validly executed by the trust and was not binding on the trust; and if (contrary to the other relief sought) Clayton became a trustee, that steps taken by him to procure execution of the assignment were a breach of trust. I did not make any of those declarations.
[11] Although not pleaded, Justitiae also alleged other breaches of trust. I found against Justitiae on those alleged breaches.
[12] In this decision I will refer to Fairlight, Clive and Clayton collectively as the Bradbury defendants, as I did in the judgment. I will refer to DHIL and Heather Bradbury separately, as I did in the judgment.
Costs sought
[13] The Bradbury defendants, DHIL and Heather Bradbury all seek orders that they be awarded costs against Justitiae on the following bases:
(a)Increased costs7 with a 75 per cent uplift applied to 2B scale costs for steps taken in the period 18 September 2019 to 17 June 20208 (excluding steps in respect of which costs have already been ordered or agreed (excluded steps));
(b)Indemnity costs9 for steps taken in the period from 17 June 2020 to the completion of the hearing (not being excluded steps); and
(c)If the Court is not minded to award indemnity costs for any steps taken in the period referred to in (b) above, then increased costs with a 75 per
7 High Court Rules 2016, r 14.6(3)(b).
8 17 June 2020 is the date on which Justitiae filed its first amended statement of claim.
9 High Court Rules, r 14.6(4)(a).
cent uplift applied to 2C10 scale costs for those steps (not being excluded steps).
[14] Fairlight and Clive also ask the Court to certify for second counsel, noting that Justitiae had three counsel including senior counsel.
[15] Clayton also seeks an order that his actual and reasonable costs and expenses incurred in relation to the proceeding where he participated as trustee, be reimbursed by the trust to the extent that these are not, and have not been recovered from Justitiae.
[16] Additionally, Fairlight and Clive seek disbursements of $466.84 for filing fees and printing and binding of an affidavit. Clayton seeks disbursements for filing fees totalling $550 and DHIL and Heather Bradbury seek disbursements of $660 for filing fees.
[17] Justitiae accepts that the interested parties are entitled to costs. It says, with one exception, it agrees with the steps for which costs are sought.11 But it says that the authorities that establish the circumstances in which indemnity or increased costs are available have not been correctly applied by the interested parties. Justitiae also says that while the parties who appeared before the Court at the hearing are entitled to costs, those parties took the same position in their pleadings and in preparation of evidence as each other, so there was a degree of duplication. Therefore, costs in the interlocutory phase should reflect this.
The issues
[18]It is convenient to consider the issues in the following order:
(a)Whether indemnity costs should be awarded to any of the claimants for the period from 17 June 2020 to the completion of the hearing;
10 High Court Rules, r 14.5(2)(c).
11 Justitiae does not, however, identify the step it does not agree with.
(b)If the Court does not award indemnity costs to any of the claimants for the period from 17 June 2020 to the completion of the hearing, whether increased costs should be awarded and if so:
(i)what percentage uplift should be applied; and
(ii)should the uplift be applied to 2B or 2C scale costs;
(c)Whether increased costs should be awarded for the period from 18 September 2019 to 17 June 2020 and, if so:
(i)what percentage uplift should be applied; and
(ii)should any uplift be applied to 2B scale costs?
Indemnity costs (17 June 2020 to completion of hearing)
Submissions
[19] Mr Robinson, for Fairlight and Clive, submits that Justitiae acted vexatiously, frivolously, improperly and unnecessarily by:12
(a)commencing and pursuing a wholly unmeritorious claim;
(b)making unsubstantiated and improper allegations of reprehensible conduct by Fairlight and Clive and other interested parties; and
(c)commencing and pursuing the proceedings for the ulterior motive of prosecuting a lengthy and costly legal battle intended to punish Fairlight and Clive and the other interested parties.
[20] Mr Robinson selects 17 June 2020 as the commencement for the indemnity costs period as this is the date Justitiae filed its first amended statement of claim in which five of the seven causes of action that had been included in the original
12 High Court Rules, r 14.6(4)(a).
statement of claim were abandoned. Mr Robinson submits that by 17 June 2020, Justitiae was well aware of Fairlight’s and Clive’s defences which were based, in large part, on precisely the position Justitiae had taken in its own earlier correspondence since at least October 2019. In that correspondence, Fairlight and Clive had clearly explained to Justitiae the bases of the defences that were ultimately successful.
[21] Mr Glover, for Clayton, adopts Mr Robinson’s submissions and expands on the argument that Justitiae made unsubstantiated and improper allegations of reprehensible conduct by Clayton (and other interested parties) as follows. In summary, he says in the proceeding Justitiae essentially alleged that Clayton (and other interested parties) embarked on a deliberate strategy of breaching fiduciary and statutory duties in order to seize trust assets, thereby prejudicing not only Justitiae but potentially Trinity and their charitable beneficiaries. Mr Glover submits there was never any basis for these allegations. He says Justitiae knew this because the declarations it sought in the proceeding and the legal position for which it contended in the proceeding directly contradicted the legal position it and its solicitors had previously asserted in their dealings with Clayton and the other interested parties.
[22] Mr Glover submits that making knowingly false or irrelevant allegations of fraud is an accepted basis for awarding indemnity costs.13 He says that indemnity costs should also be available when a party has made unsubstantiated and improper allegations of reprehensible conduct attacking a person’s reputation.
[23] As to the previous correspondence, Mr Glover submits that material items of correspondence from Justitiae and its solicitors, recording the factual and legal position it had previously asserted, and responses, were omitted from Justitiae’s without notice injunction application made on 17 September 2019. Mr Glover submits that Justitiae’s previous position (reversed in its submissions at the hearing) explained why Clayton and others had taken the steps Justitiae now impugned in the proceeding, for example executing the assignment. That material was not put before the Court by Justitiae in its 17 September 2019 application.
13 Hedley v Kiwi Co-Operative Dairies Limited (Costs) (2002) 16 PRNZ 694 (HC); and Tri Media International Limited v Wellington Company Limited HC Wellington CIV-2008-485-2768, 30 June 2009.
[24] Mr Glover refers to two affidavits of Nicholas Muir, Garry’s son. Nicholas was appointed as a director of Justitiae on 6 August 2019. On 17 September 2019, he swore an affidavit in support of Justitiae’s application for the without notice injunction. Mr Glover notes that since approximately November 2019, Nicholas has been employed as a staff solicitor at the firm of Justitiae’s solicitors. Mr Glover notes that in response to Clive’s second affidavit, Nicholas swore a further affidavit on 30 October 2020 in which he confirmed the allegations he had made in his first affidavit. In doing so, he did not mention that he was employed as a lawyer by Justitiae’s solicitor.
[25] In his first affidavit, Nicholas speculated about what Clayton, Clive and others might do if unrestrained. Mr Glover submits that these assertions and allegations should never have been made. At the very least, they are assertions of reprehensible conduct, but in effect they are allegations of fraud. He says these assertions were entirely unsubstantiated and unwarranted, and Justitiae knew this.
[26] Turning to the submission that Justitiae commenced or continued this proceeding for an ulterior motive, namely of punishing the interested parties including Clayton, Mr Glover makes a number of points. First, he says Clayton never wished to take an active role in the proceeding. He filed a notice of appearance reserving rights. However, Clayton (and DHIL and Heather Bradbury) were effectively forced to become actively involved when Justitiae sought a formal proof hearing in respect of claims made against them notwithstanding that Justitiae’s claims were being actively contested by Fairlight and Clive, who had filed a statement of defence. Clayton (and DHIL and Heather Bradbury) then filed applications for leave to file statements of defence which were held to be proper applications in those circumstances.14 Mr Glover refers to the statements made by Edwards J, when granting the application for leave to file statements of defence as follows:15
[33] That brings me to the second major difficulty with Justitiae’s approach. Justitiae’s submissions go well beyond a broad level assessment of the merits of the defence for the purposes of the leave application. Rather, Justitiae seeks to transform the leave application hearing into a ruling on the merits of the claim. More than that, Justitiae seeks to have the substantive
14 Justitiae Trustee Co Ltd v NZF Nominees Ltd [2020] NZHC 1249 at [25].
15 At [33]–[34].
proceeding summarily determined without affording the opportunity to any of the applicants to put forward their defence.
[34] More concerning again is the fact that the tactic appears to be to secure judgment against the applicants which, because the grounds of defence are the same, may then be used to secure judgment against Clive Bradbury and FFL. In other words, the leave application is being used to pre-empt any decision on the substantive proceeding, without Clive Bradbury and FFL being heard. This approach offends against the cornerstone principle of natural justice, and Justitiae’s tactics in opposing the application for leave for that purpose verge on an abuse of process.
[27] Next, Mr Glover again refers to the affidavits filed by Nicholas and makes the point that he had been instructing his employer in a case in which he was giving contentious evidence. He submits this may go some way towards explaining the entrenched position Justitiae had taken in the proceeding.
[28] Finally, Mr Glover notes that Justitiae’s position before the Court was that it was bringing the proceeding partly out of the concern that the assignment could remove Trinity’s charitable tax status pursuant to s CW43 of the Income Tax Act 2007. Mr Glover notes that the Court held that that section did not apply in that way and he says to that extent the judgment removes the risk about which Justitiae was concerned and assists Trinity. But Mr Glover observes that Justitiae has appealed this finding, which he says demonstrates Justitiae’s irrational approach to the proceeding.
[29] Mr Gollin, for DHIL and Heather Bradbury, adopts the submissions for the other parties. He repeats that Justitiae’s solicitors were running a case at the hearing that completely contradicted their previous advice, asserting in a multitude of ways that the interested parties acted improperly, when they acted consistently with that previous advice from Justitiae and its solicitors.
[30] Mr Gollin further adds, in relation to DHIL and Heather Bradbury, that they were not parties to the assignment and there was no need to seek relief against them. Further, at the hearing, Justitiae conceded that it may not be necessary to seek remedies against DHIL.
[31] Mr Gollin submits that neither DHIL nor Heather Bradbury would have been required to actively participate. Like Clayton, they were content to abide the Court’s decision and they filed notices of appearance reserving rights. As with Clayton,
because of the steps taken by Justitiae they were compelled to apply for leave to file statements of defence.
[32] Mr Gollin submits that from the date of the amended statement of claim, 17 June 2020, it must have been apparent to Justitiae that its case against DHIL and Heather Bradbury, was fundamentally flawed.
[33] In opposition, Mr Gray QC, for Justitiae, submits on the “hopeless case” ground that the issue is whether Justitiae, properly advised on the basis of the evidence, should have known it had no chance of success. He notes that the onus lies on the party seeking indemnity costs to make out its claim for costs above the scale. He submits that even though there were adversarial aspects to the proceeding, ultimately the issues came down to the interpretation of the effect of the assignment, the security and arrangements with Trinity and the divisibility of trust property and associated powers, and the interpretation of s 152 of the Companies Act 1993. He submits there were authorities going each way on these issues.
[34] As far as the allegation of an ulterior motive, Mr Gray submits the Court did not have the opportunity to hear oral evidence and so is not in a position to reach conclusions about the purposes for which the litigation was brought including whether there were ancillary purposes. He submits the arguments made by the interested parties that the proceeding was brought with an intention to punish them, cannot be made out on the evidence. He submits the arguments advanced by Justitiae, although ultimately not successful, were tenable and brought in good faith. Mr Gray submits there was not the kind of inconsistency between the claim and rules governing behaviour of the parties, such as that seen in Bradbury v Westpac Banking Corporation,16 and it could not be said that the claim was hopeless from the outset.
[35] Mr Gray acknowledges that at trial Justitiae advanced a position which was inconsistent with that taken in previous correspondence, but he says there was no evidence to infer that Justitiae or counsel advanced a position that they did not believe at the time to be correct and there was no cross-examination on honest belief.
16 Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009] 3 NZLR 400.
[36] Addressing the submission that Justitiae made allegations against the defendants of reprehensible conduct and fraud which were known to be unsubstantiated and unwarranted, Mr Gray submits that misuse by a trustee of trust powers can be expressed in the law of trusts as “fraud on a power”. However, he submits this expression is not “fraud” as that term is understood in criminal law or in law (as opposed to equity).17
[37] Mr Gray submits that whether or not conduct by a trustee is an inappropriate use of trust powers is a question which may lead to a consequence that there has been “fraud on a power” but that is not the same thing as considering whether a fraud has been committed in a criminal or legal (as opposed to equitable) sense. He submits Justitiae never alleged fraud in the way the interested parties assert. When “fraud” is used in the context of breach of trust it connotes a strict liability breach of duty without any imputation of moral turpitude. Mr Gray submits Justitiae was concerned that the directors of NZF had misused trust powers. He says the claim could hardly have been expressed differently. There was no other way it could have been pleaded.
[38] Mr Gray also submits the interested parties did not at any time during the course of the proceeding apply to rescind the injunction on the basis that there had been non-disclosure or that the injunction should not have been applied for.
[39] As far as Nicholas’ employment, Mr Gray says that he was not employed by Justitiae’s solicitors until months after his initial affidavit in support of the interim injunction was made. He ceased to be employed prior to being required to give evidence and making his second affidavit on 31 October 2020. He submits the fact Nicholas was employed by Justitiae’s solicitors does not demonstrate an unreasonable approach to the litigation, particularly where senior counsel is retained. Nor is it evidence of ulterior motive or relevant for the purposes of assessing costs.
17 Vatcher v Paull [1915] AC 372, [1914-15] All ER Rep 609 (PC) at 378.
Indemnity costs - legal principles
[40] Indemnity costs are governed by r 14.6(1)(b) of the High Court Rules 2016. The leading case on indemnity costs is Bradbury v Westpac Banking Corp, where this Court distinguished between the three costs scales:18
(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 awarded where that party has behaved either badly or very unreasonably.
[41] Indemnity costs are exceptional. The misconduct of a party must be “flagrant”.19
[42] In Bradbury, the Court of Appeal listed the following circumstances in which indemnity costs have been awarded:20
(a)the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud;
(b)particular misconduct that causes loss of time to the court and to other parties;
(c)commencing or continuing proceedings for some ulterior motive;
(d)doing so in wilful disregard of known facts or clearly established law; and
(e)making allegations which ought never to have been made or unduly prolonging a case by groundless contentions, summarised in French J’s “hopeless case” test.
[43]The hopeless case test was articulated by French J as follows:21
18 Bradbury, above n 16, at [27].
19 Prebble v Awatere Huata (No 2) [2005] 2 NZLR 467 (SC) at [6].
20 Bradbury, above n 16, at [29], citing Hedley v Kiwi Co-operative Dairies Ltd, above n 13,at [11]; and Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225 (AUSFC).
21 J-Corp Pty Ltd v Australian Builders Labourers Federation Union of Workers, Western Australia Branch (No 2) [1993] 46 IR 301 (AUSFC) at 303.
It is sufficient, in my opinion, to enliven the discretion [to award indemnity costs] that, for whatever reason, a party persists in what should on proper consideration be seen to be a hopeless case.
[44] In this case, prior to commencing the proceeding, Justitiae’s position (as set out in its own correspondence and its solicitors’ formal correspondence) was that NZF became directorless when Clayton validly resigned (implying that Heather Heazlewood was not a director at the time), triggering cl 3(g) of the trust deed and resulting in Clayton replacing NZF as trustee. Further, Justitiae’s position in earlier correspondence was that Goff v Strahl applied and so legal title to the undivided half share in the trust assets in which each beneficiary had a beneficial interest would be transferred to them as tenants in common.22
[45] In what was described by counsel for the Bradbury defendants in the hearing as a “remarkable volte face” Justitiae adopted an entirely different position after the Bradbury defendants had acted in accordance with Justitiae’s previous analysis. I found that the previous analysis, and not Justitiae’s position at the hearing, was the correct position. Can it then be said that this change of position meant that Justitiae knew from the outset that its case was hopeless?
[46] I first address the position of the Bradbury defendants. I do not consider the change of position on the part of Justitiae, of itself, is a basis for a finding that the case was hopeless. In my view Justitiae’s case lacked merit (relevant to increased costs) but I do not consider that the high level of “hopeless case” is reached for these three parties.
[47] On the issue of allegations of fraud and fraudulent conduct alleged against Clayton and Clive, I accept Mr Gray’s submission that the allegations can be seen in the context of an alleged breach of trust powers. In that sense, the allegations were not necessarily allegations of fraud in a criminal or legal sense.
[48] Next there are the allegations that the filing of affidavits by Nicholas and the (now) filing of an appeal against (inter alia) my finding that Trinity’s tax-exempt status was not threatened by the assignment, indicate the bringing of the proceeding for an
22 Gough v Strahl [2013] NZHC 3184 at [38].
ulterior motive. On their own and in the absence of cross-examination, I am not able to make that finding.
[49] In short, I do not consider that Justitiae’s conduct in relation to the Bradbury defendants reaches the level of flagrant misconduct.
[50] I turn to the position of DIL and Heather Bradbury on the “hopeless case” point. I take a different view (from my view in relation to the Bradbury defendants) for these two parties.
[51] The claims against DHIL and Heather Bradbury were not pursued with any conviction in Justitiae’s written submissions. In my view, the claims were not sustainable on the pleadings or the evidence. The first cause of action contained no allegations regarding DHIL or Heather Bradbury and the relief pleaded in that cause of action was solely against Clayton. The second cause of action did not plead any specific claim against DHIL. In the judgment I noted, in particular regarding DHIL, that Justitiae made no submissions about its conduct and indeed submitted that it may not be necessary to seek remedies against DHIL.23
[52] Although the second cause of action pleaded two specific claims against Heather Bradbury, I accept Mr Gollin’s submission that neither was sustainable. Justitiae alleged that by executing the assignment, Heather Bradbury caused DHIL to acquiesce as to its terms and not protest to NZF as shareholder that NZF should not execute it. However, Heather Bradbury executed the assignment solely in her capacity as a director of Fairlight, not in any capacity for DHIL which was not a party to the assignment.
[53] Second, Justitiae alleged that the Board of Directors of DHIL, being a shareholder of a trustee company NZF, had a duty to NZF and to the beneficiaries of the trust it administered, not to permit NZF to act in breach of the terms of the trust which it did by a majority of the Board executing the assignment. As noted, Heather Bradbury is a director of DHIL. However DHIL, as 50 per cent shareholder of NZF, owed no duty to NZF or the beneficiaries of the trust. Shareholders of a
23 Justitiae Trustee Co Ltd v NZF Nominees Ltd, above n 1, at [214].
company are not trustees for one another and unlike directors, they occupy no fiduciary position and are under no fiduciary duties.24 It follows from that, the shareholders’ directors, being a further step removed, owe no such duty.
[54] Additionally, the declaration sought by Justitiae did not relate to Heather Bradbury or DHIL as neither was a party to the assignment. It should have been clear to Justitiae and its advisors that its case against DHIL and Heather Bradbury was a hopeless one.
[55] Further, DHIL and Heather Bradbury were not required as parties to Justitiae’s claim. They had sought to abide the Court’s decision and, as noted in [26] above, they filed notices of appearance reserving rights. But, as further referred to in that paragraph, they were effectively forced to become actively involved in the proceeding.
[56] In summary on indemnity costs, I refuse the claims by Fairlight, Clive and Clayton for indemnity costs for the period from 17 June 2020 to the completion of the hearing. I uphold the claim by DHIL and Heather Bradbury for indemnity costs for the period from 17 June 2020 to the completion of the hearing.25
[57] I do not make any adjustment by way of deduction for duplication as Mr Gray argues for. DHIL and Heather Bradbury were required to file a statement of defence and defend the claim because of Justitiae’s conduct referred to in [26] above.
Increased costs (from 17 June 2020 to completion of hearing)
[58] Having refused the claim by the Bradbury defendants for the period from 17 June 2020 to the completion of the hearing, it is necessary to consider their claim for increased costs for that period. Before considering any uplift and because costs have not yet been categorised, it is first necessary to consider whether scale costs should be 2B or 2C scale costs.
24 Peters’ American Delicacy Co Ltd v Heath (1939) 61 CLR 457 at 504 per Dixon J.
25 Indemnity costs awarded are as set out in Schedule 4 of the submissions of counsel for DHIL and Heather Bradbury.
Submissions
[59] Mr Robinson submits that from 17 June 2020 a “comparatively large amount of time” rather than a “normal amount of time” was necessary to deal with Justitiae’s claim.26 In other words, 2C costs rather than 2B costs should be awarded.
[60] Mr Robinson submits in particular that Justitiae’s affidavits were evasive and did not deal with important matters that had been put in issue, for example the significance of Justitiae’s and its solicitors’ previous correspondence. This required Clive to prepare an extensive affidavit explaining all of the relevant background, and exhibiting many documents and correspondence between the parties that was important in the determination of the case, but which Justitiae’s evidence had not addressed.
[61] Further, Mr Robinson submits Justitiae’s submissions did not address relevant issues; ignored important evidence; addressed alleged breaches of trust that had not been pleaded; asserted incorrectly that the Court had jurisdiction and the interested parties had the onus; and overlooked authorities contrary to its own arguments that were readily available. He says responding to those submissions required a comparatively large amount of time, not a normal amount of time.27 Mr Glover adopts Mr Robinson’s submissions.
[62] Mr Gray submits there was nothing in the proceeding that made it especially complex or time consuming. He submits the affidavit evidence was largely a collection of documents and electronic communications, and the legal arguments, while requiring research, did not require research of a scale or nature outside the ordinary. Accordingly, costs should be assessed on a 2B basis.
Discussion (categorisation)
[63] Rule 14.5(2)(c) of the High Court Rules provide that Band C is appropriate “if a comparatively large amount of time for the particular step is considered reasonable”. In this case, I consider that a band C categorisation for both the preparation of
26 High Court Rules, r 14.5(2)(c).
27 Xiamong He v EQC [2018] NZHC 67 at [14]–[18].
affidavits and preparing for the hearing is appropriate for the reasons advanced by Mr Robinson. However, I do not consider that there should be a global band C categorisation for all steps from 18 June 2020. For Fairlight and Clive, band C is to apply only to the preparation of affidavits (item 30) and preparation for hearing (item 32). As Clayton did not file an affidavit, band C is restricted to item 32, preparation for hearing.
[64] In summary, category 2C applies to the items in the above paragraph. All other items for this period are to be calculated on a 2B basis.
Discussion (increased costs)
[65] The claimants for increased costs (the Bradbury defendants) for the period 17 June 2020 to the completion of the hearing rely on essentially the same grounds as they relied on for indemnity costs for this period. While I have refused indemnity costs, as Justitiae’s misconduct did not reach the high level of misconduct required nor did its case reach the “hopeless case” level, I consider there is a basis for the award of increased costs. Such costs may be awarded when the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in it by taking or pursuing an argument that lacks merit.28 Increased costs may also be awarded if some other reason exists, which justifies the Court making an order for increased costs despite the principle that the determination of costs should be predictable and expeditious.29
[66] Here, while I do not consider Justitiae’s case was a hopeless case, its arguments on all the key issues lacked merit. But more importantly, and this is the point, Justitiae knew its arguments advanced at the trial lacked merit. That is because its position prior to trial on all the key issues on which I found against Justitiae, was the position the Bradbury defendants adopted at trial. The Bradbury defendants succeeded on all those key issues at trial. Justitiae’s position had been asserted in correspondence both by Justitiae and by its solicitors. It was not incorrect for the Bradbury defendants to call Justitiae’s change of position a “remarkable volte-face”.
28 High Court Rules, r 14.6(3)(b)(ii).
29 Rule 14.6(3)(d).
[67] Where, in terms of r 14.6(3)(b)(ii), an argument lacked merit and was inherently unlikely to succeed, the increased costs apply to all steps.30
[68] But I consider the 75 per cent uplift sought is too great. I accept Mr Gray’s submission that any increase above 50 per cent is unlikely because the daily recovery rate is two-thirds of the daily rate considered reasonable for the particular proceeding.31 In all the circumstances, I consider a 50 per cent uplift is an appropriate level of uplift.
[69] In summary then on this issue, I award a 50 per cent uplift on scale costs (as determined in the above section in this judgment regarding categorisation) to Fairlight, Clive and Clayton for all steps in the period from 17 June 2020 to the completion of the hearing.
[70] I do not consider there is a basis for any kind of reduction for duplication as argued for by Mr Gray. Clayton was forced to become involved and file a statement of defence consequent upon Justitiae’s conduct in applying for formal proof.
Increased costs (18 September 2019 to 17 June 2020)
[71] All claimants seek increased costs with a 75 per cent uplift applied to 2B scale costs for steps taken in the period 18 September 2019 to 17 June 2020.
[72] Mr Robinson submits that Justitiae contributed unnecessarily to the time and expense of the proceeding or a step in it by:
(a)taking or pursuing an unmeritorious argument;32 and
(b)failing, without reasonable justification, to accept an offer under r 14.10 or some other offer to settle or dispose of the proceeding.33
30 N R v M R [2014] NZCA 623, (2014) 22 PRNZ 636; and Broadspectrum (New Zealand) Ltd v Nathan [2017] NZCA 434 at [57].
31 Holdfast NZ Ltd v Selleys Pty Ltd (2005) 17 PRNZ 897 (CA) at [46].
32 Rule 14.6(3)(b)(ii).
33 Rule 14.6(3)(b)(v).
[73] The criterion of taking or pursuing an argument that lacks merit applies equally to this period (which runs up to the filing of the first amended statement of claim) as it does to the period from 17 June 2020 onwards. I have already made my decision on the period from 17 June 2020 onwards.
[74] On the second ground, in total there were nine settlement offers made to Justitiae on behalf of Fairlight and Clive. Most were Calderbank offers. The first settlement offer following the filing of the proceeding was made on 24 October 2019. Justitiae rejected that offer in a letter from its solicitors dated 29 October 2019. I accept Mr Robinson’s submission that the most Justitiae could ever have sought to achieve had it succeeded at trial was a return to the status quo as at 1 May 2018 with or without a restructure of the kind that Justitiae had suggested in a 2018 settlement deed. I accept that this was effectively on offer by Fairlight and Clive since their first settlement offer on 24 October 2019. Justitiae pursued the litigation aggressively in the expectation it would recover all its legal costs from one or more of the interested parties by way of an order for equitable compensation. In the proceeding, Justitiae asked the Court to resolve issues which, in the light of the first and following settlement offers, did not exist. In doing so, it contributed significantly to the time and expense of the proceeding.
[75] The reasonableness of a party’s rejection of a r 14.10 offer is required to be assessed at the time of the rejection not against the subsequent result. In this case, Justitiae was in a position to assess the merits of the case at the time it rejected the settlement offer on 29 October 2019.34
[76] The date of any increase runs from the date of the rejection of the settlement offer. However, in this case I have also found that Justitiae pursued arguments that lacked merit (at [73] above). So overall the date for increased costs in this period runs from the first date as claimed by each of the interested parties for the first of the itemised steps in this period.
34 New Zealand Sports Merchandising Ltd v DSL Logistics Ltd HC Auckland CIV-2009-404-5548, 19 August 2010 at [36]; Samson v Mourant [2016] NZHC 1119 at [44]; and Weaver v HML Nominees Ltd [2016] NZHC 473 at [30].
[77] For the same reasons as given in [68] above, the uplift is not 75 per cent as claimed, but rather 50 per cent on scale costs. There is no disagreement that scale costs for this period should be on a 2B basis.
[78] In summary, for this period I award increased costs for each of the items in the entire period as sought by way of a 50 per cent uplift on 2B scale costs for Fairlight, Clive, Clayton, DHIL and Heather Bradbury.
Should second counsel be certified for Fairlight and Clive?
[79] This was a case that warranted second counsel. Justitiae had three counsel, including senior counsel. I certify for second counsel for Fairlight and Clive.
Clayton’s claim as trustee for actual and reasonable costs
[80] Clayton seeks orders that to the extent his actual and reasonable costs incurred in relation to steps taken in the proceeding are not recovered from Justitiae under the High Court Rules, as trustee he is entitled to be reimbursed by the trust out of trust property. Mr Glover submits that as a trustee Clayton was and is entitled to be reimbursed for all expenses reasonably incurred by him in or about the execution of trust powers, including in defending litigation.35
[81] The Trustee Act 1956 applies to costs incurred prior to 30 January 2021 when the Trusts Act 2019 Act came into force. Mr Glover submits in this case, Clayton acted reasonably in defending the claims against him and the legal expenses set out in the relevant schedule to his submissions (legal fees and disbursements from 7 November 2019 to 23 February 2021) were reasonably and properly incurred. Mr Glover submits the Court may order that Clayton’s costs and expenses in relation to Justitiae’s claim be borne and paid in such manner and by such persons as the Court may consider just.36 Mr Glover submits that Clayton’s costs and expenses (less costs recovered from Justitiae under the High Court Rules) be paid by Justitiae and Fairlight in equal shares as the trust does not have any sources of income or liquid assets.
35 Trustee Act 1956, s 38(2); and Trusts Act 2019, s 81.
36 Trustee Act 1956, s 71; and Trusts Act 2019, s 140.
[82]Mr Gray submits that s 71 of the Trustee Act 1956 is limited to the trust assets.
[83] In respect of Clayton’s claim that Fairlight contribute in equal shares together with Justitiae, Mr Robinson does not make a specific submission but does state in his costs memorandum that he had had the benefit of reading in advance, drafts of the costs memorandum for Clayton, and that Fairlight and Clive endorse and adopt the submissions made in the memorandum.
Discussion
[84]I set out the relevant statutory provisions as follows.
[85]Section 71 of the Trustee Act provides:
71 Power of court to charge costs on trust estate
The court may order the costs and expenses of and incidental to any application for any order under this Act, or of and incidental to any such order, or any conveyance or assignment in pursuance thereof, to be raised and paid out of the property in respect whereof the same is made, or out of the income thereof, or to be borne and paid in such manner and by such persons as to the court may seem just.
[86]Sections 81 and 140 of the Trusts Act provide:
81Trustee’s liability for expenses and liabilities incurred, and trustee’s right to indemnity
(1)A trustee is personally liable for an expense or a liability incurred by the trustee when acting as a trustee.
(2)However, a trustee who incurs an expense or a liability when acting reasonably on behalf of the trust is entitled,—
(a)if the trustee has paid the expense or discharged the liability out of the trustee’s own funds, to reimbursement from the trust property; or
(b)in any other case, to pay the expense or discharge the liability directly from the trust property (or to have it paid or discharged by a remaining trustee).
(3)The operation and enforcement of the indemnity in this section is governed by the rules of the common law and equity relating to trusts.
(4)This section does not limit any indemnity available at common law or in equity.
…
140 Court may charge costs on trust property
The court may order that the costs of an application to the court under this Act—
(a)be paid or raised out of—
(i)the trust property to which the application relates; or
(ii)the income of the trust property to which the application relates; or
(b)be borne and paid in the way and by the persons that the court considers just.
[87] I note the comments by Thomas J in McLaughlin v McLaughlin, where the Judge said:37
[118] A key element of a Beddoe order is that, if the Court authorises a trustee to defend a claim, the trustee will be indemnified out of the trust funds for the costs of so doing. As discussed above, however, Beddoe applications ought only to be made where they are in the best interests of the trust. In claims involving allegations of breach of trust, it is unlikely to be proper for the costs of defending such allegations to be met out of the trust funds until after the allegations have been considered and determined. In such a case, it is more appropriate for trustees to be indemnified for costs when the allegations are found to be unsubstantiated.
…
[120] If the trustees’ actions to date are upheld, then they will likely be entitled to an indemnity from the Ashley Trust to meet any shortfall between actual costs incurred and those it might recover from the respondents. However, it would be inappropriate for the assets of the Ashley Trust to be used in defending allegations which are found to be proven. Put simply, if the trustees have indeed breached their duties, it would be wrong for trust assets to be used to defend them.
[88] In this case, I have upheld Clayton’s actions and found that he became trustee of the trust. Further, I found there was no breach of trust in signing the settlement and no additional breaches of trust. Clayton had filed a notice of appearance reserving rights but was forced to defend the proceeding by Justitiae’s actions already referred to in [26] above.
37 McLaughlin v McLaughlin [2018] NZHC 3198, [2019] NZAR 286 at [118]–[120].
[89] I do not consider s 71 of the Trustee Act and s 140(b) of the Trusts Act are limited in the manner as submitted on behalf of Justitiae. The words “… or to be borne and paid in such manner and by such persons as to the Court may deem just” and “be borne and paid in the way and by the persons that the Court considers just” are wide and general and are not limited to the trust assets as asserted by Justitiae.
[90] I have considered schedule 5 annexed to the submissions for Clayton for legal fees and disbursements from the period of 7 November 2019 to 23 February 2021. I consider the total amount for this period (less costs and disbursements already paid) of $71,669.51 is reasonably claimed. However, I do not consider Fairlight should be required to pay an equal share equivalent to the share paid by Justitiae. Fairlight was entirely successful in defending Justitiae’s claims.
[91] As a consequence, I order that Clayton’s costs and expenses incurred in relation to Justitiae’s claim (to the extent those costs are not recovered under the orders I will make under the High Court Rules), are to be borne and paid by Justitiae.
Items claimed
[92] The items claimed in the schedules annexed to the submissions for all claimants itemising the steps taken in the proceeding are all properly claimed. I do not accept Mr Gray’s submission that costs in the interlocutory phase should be adjusted because of a degree of duplication. Clayton, DHIL and Heather Bradbury were forced to take part by Justitiae’s own conduct as referred to in [26] above.
Disbursements
[93] The disbursements for filing fees and printing and binding of an affidavit as claimed by Fairlight and Clive ($466.84), Clayton ($550) for filing fees and DHIL and Heather Bradbury ($660) for filing fees fall within 14.12 of the High Court Rules. They are properly claimed.
Result
[94]I make the following orders:
(a)I award increased costs with a 50 per cent uplift applied to 2B scale costs for steps taken in the period 18 September 2019 to 17 June 2020 (excluding any steps in respect of which costs have already been ordered or agreed) to Fairlight, Clive, Clayton, DHIL and Heather Bradbury against Justitiae;
(b)I award indemnity costs for the period 17 June 2020 to 23 February 2021 to DHIL and Heather Bradbury against Justitiae;38
(c)I award increased costs for the period from 17 June 2020 to 23 February 2021 on the basis of a 50 per cent uplift on 2B scale costs for Fairlight, Clive and Clayton for all items except for:
(i)Fairlight and Clive: the 50 per cent uplift is on 2C scale costs for item 30 (preparation of affidavits) and item 32 (preparation for hearing); and
(ii)Clayton: the 50 per cent uplift is on 2C scale costs for item 32 (preparation for hearing).
(d)To the extent that Clayton’s costs and disbursements are not recovered from Justitiae pursuant to my orders under the High Court Rules, those costs and disbursements39 are to be paid by Justitiae; and
(e)The disbursements, being filing fees and printing and binding claimed by Fairlight and Clive of $466.84, filing fees of $550 claimed by Clayton, and filing fees of $660 claimed by DHIL and Heather Bradbury, are to be paid to those parties respectively.
[95] The claimants all annexed multiple schedules to their submissions prepared on various alternative bases. I direct that each successful claimant now file a single schedule with their calculations set out in full based on this decision. I will then issue
38 Amount as set out in Schedule 4 to submissions for DHIL and Heather Bradbury.
39 As set out schedule 5 to Clayton’s submissions.
a supplementary judgment making orders as to the precise amount of costs and disbursements to be paid by Justitiae to each of the parties.
Gordon J
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