Kain v Hutton HC Christchurch M 198/00

[2001] NZHC 364

IN THE HIGH COURT OF NEW ZEALAND
CHRISTCHURCH REGISTRY M 198/00

UNDER the Trustee Act 1956

IN THE MATTER of an application to remove trustees and related orders

BETWEEN G KAIN and others
Plaintiffs

AND J R HUTTON
First Defendant

AND W A X COUPER
Second Defendant

AND A E COUPER
Third Defendant

AND W K STARTUP
Fourth Defendant

AND G T KAIN
Fifth Defendant

Hearing: 11 April 2001

Counsel: S P Rennie and R P Todd for Plaintiffs
T C Weston QC for J R Hutton, A E Couper (qua trustee)
and W K Startup
M R Camp QC for W A X Couper
G D Jones for G T Kain
G M Brodie for Mr J F Springford
R A Osborne for Mary Hutton and A E Couper (qua beneficiary)

Judgment: 11 May 2001

JUDGMENT OF PANCKHURST J RE COSTS AND RELATED ISSUES

Introduction:

[1] On 11-12 December 2000 I heard argument in relation to an interlocutory application by beneficiaries for the removal of the defendants from their various positions as trustees of numerous family trusts. In a judgment dated 21 December 2000 the application for removal was dismissed. Costs were reserved for further consideration. On 11 April there was a further full day hearing with reference to both costs and a related order sought by the plaintiffs.

[2] In my last judgment I noted the extent of the dissension between family members. If possible, the more recent hearing served to confirm that matters had deteriorated further. A costs order is sought against the plaintiffs arising from their prosecution of the unsuccessful application for summery removal. It emerged that the trustees had incurred legal and associated costs of over $600,000 with reference to these proceedings. The plaintiff beneficiaries are aggrieved at the level of this cost. Moreover, their application for an order permitting access to the assets of certain vested trusts (to cover costs) was strongly opposed. Finally, applications by trustees directed to be served, Messrs G T Kain and Mr Springford, for costs orders (in the absence of agreed indemnity) were also opposed. Goodwill is nonexistent.

[3] In these circumstances I must rule on each of the various applications in turn.

Costs on the Plaintiffs’ Unsuccessful Application:

[4] Mr Weston QC on behalf of Mr Hutton, Mrs Couper, and Mr Startup as trustees of a number of the trusts, sought costs of $20,000 against the plaintiffs. The matter was put in this way:

“The trustees believe they have a duty to all beneficiaries to seek costs from the plaintiffs and they now make such an application.”

Determination of the actual costs of these trustees in relation to the December hearing was described as “virtually impossible”. However, counsel submitted that an amount for two days of hearing and four days for preparation, being say $20,000, was appropriate. Based on six days at even the highest recovery rate (category 3, $1,900 per day) an award of $20,000 cannot be justified. As to the merits of the application for summary removal, Mr Weston submitted that the plaintiffs’ case was “misconceived”.

Mr W A X Couper did not seek an award on account of his costs in defending the application. Mr Camp QC restricted his submissions to other issues. Mr G T Kain however, in his capacity as trustee of five of the trusts, supported the stance of the plaintiffs namely that costs on the interlocutory application should be reserved until there was a final determination on the merits. Mr Osborne for Mary Hutton and Mrs Couper, as beneficiaries of certain of the trusts, opposed the reservation of costs on the interlocutory application. He generally supported Mr Weston’s submissions that there should be an award against the plaintiffs and in favour of the defendant trustees. He advanced that submission by reference to the High Court rules and to authority.

[6] Rule 48E(1) provides:

“Costs in interlocutory applications - (1) Unless there are special reasons to the contrary, costs on an opposed interlocutory application-

(a) Must be fixed in accordance with these rules when the application is determined; and

(b) Become payable when they are fixed.”

Here, are there special reasons to the contrary?

[7] With reference to authority my attention was drawn to Re Buckton, Buckton v Buckton (1907) 2 Ch 406 and to the consideration of that case in MacDonald and Others v Horn and Others [1995] 1 All ER 961, at 970-1. In the former case Kekewich J recognised the existence of three classes of “trust litigation”, being proceedings brought by trustees to resolve a question of construction or administration (where costs are usually paid out of the trust fund), proceedings by persons other than trustees but to similar effect (where the same principle applies), and thirdly proceedings in which a beneficiary makes a hostile claim against the trustees (or another beneficiary) in which case the principle applicable in ordinary common law litigation that costs follow the event, applies. It was common ground that the present is hostile litigation, but Mr Rennie for the plaintiff beneficiaries nonetheless opposed a costs award at this stage.

[8] While he had to accept that the application for summary removal failed, Mr Rennie pointed to the finding that there were “serious questions to be tried concerning the performance of the trustees particularly in recent times”. The difficulty, in an interlocutory context and in the absence of cross-examination, was that many hotly contested issues of fact could not be resolved. In addition the unevenness in the respective positions of the plaintiff beneficiaries on the one hand, and the trustees on the other, was stressed. Put shortly, the plaintiffs hold grave concerns about the trustees’ management of the trusts. These have been articulated over time. The indications are they have an arguable case. But the trustees adamantly resist removal. The substantive hearing may occupy many weeks. There is a marked unevenness of resources, in that pending a substantive result the trustees’ costs are being paid on an indemnity basis by the trusts whereas the plaintiffs must fund the case from their private resources. This, counsel suggested, was an invidious situation.

[9] In my view the particular circumstances of the case do provide special reason why costs should not be fixed and paid immediately by the plaintiffs. Two factors, that there are serious questions to be tried and the obvious unevenness in the parties’ situations, most influence me. I see the case as one where the quantum of costs should be identified at this stage but where the incidence of the order (its payment in particular) should await the substantive determination. Although the application for summary removal failed, it is possible that after a full hearing matters may emerge which were within the knowledge of the trustees and which should have influenced their decision whether to defend the proceeding or not, and a different view as to incidence may result.

[10] I have already noted that the duration of the hearing was two days, that Mr Weston ventured four days as an appropriate allowance for preparation, and that on a category 3 basis costs of $11,400 would result, exclusive of disbursements. To my mind the recording of these factors is sufficient at this point. Otherwise I reserve the question of costs on the interlocutory removal application for final determination after the substantive hearing. Should there not be one, leave is reserved for the issue to be referred back.

Costs of Mr G T Kain:

[11] Mr Kain was served in his capacity as trustee (with Mr Couper) of the Brookfields Trust, E D Couper Estate, J R Kain Estate, and J R Kain Life Insurance Trust; and as the sole trustee of the Kain Trust. In anticipation of the December hearing he swore two affidavits and was represented by counsel, Mr Hicks. Generally his position was that he abided the decision of the Court, but was supportive of the plaintiffs’ desire to have new trustees appointed, and to that end he was personally willing to resign from his trusteeships.

[12] Somewhat belatedly and no doubt in anticipation of the present hearing, Mr Kain’s solicitors sought agreement to his costs being reimbursed from the relevant trusts in terms of the normal implied indemnity of trustees : s38 Trustee Act 1956. However, his co-trustee Mr Couper was not in agreement. Accordingly a formal application for an award of costs was filed.

[13] In support of the application Mr Jones drew attention to s38(2) of the Trustee Act, whereby a trustee has a statutory entitlement to be reimbursed “expenses reasonably incurred in or about the execution of the trusts . . . ” and to s71 of the Act under which the incidence of an order may be visited to a particular trust or trusts. As to quantum a total of $19,687.50 was sought, being Mr Kain’s solicitor’s fees ($2,812.50) and counsel’s fee ($16,875).

[14] The principal opposition to the application was voiced on behalf of Mr Couper by Mr Camp. His essential submission was that the steps taken by Mr Kain in the proceeding did not “seem to emanate from his responsibilities as trustee “. His first affidavit concerned a dispute with reference to the Brookfields Trust. As to this Mr Camp submitted “it was not a relevant matter to the interlocutory application for removal of trustees and no costs orders are appropriate in relation to Brookfields before determination of the dispute”. The second affidavit was also criticised on the grounds of relevance, and since it was Mr Kain’s stance that he would abide the decision of the Court counsel argued “costs of consequence “ should not have been incurred in his capacity as trustee.

[15] If nothing else, Mr Couper’s opposition indicated the height of present family dissension. The two are brothers-in-law. On the one hand essentially legal and accounting costs of the trustees who are in Mr Couper’s camp have been debited, albeit provisionally, to the trusts and in the sum of $632,525. By contrast Mr Kain has been obliged to apply to the Court for an order, then faced opposition to it, and this in relation to expenses of under $20,000. The contrast could hardly be more marked.

[16] In my view Mr Kain is entitled to an order in his favour. I consider that the costs he incurred with reference to the December hearing were reasonable and arose in his capacity as a trustee. Accordingly, I direct that the sum of $19,687.50 be paid to Mr Kain’s solicitors from the trusts of which he is a trustee. The incidence of such costs as between the individual trusts is an accounting issue which I need not address.

[17] I understood Mr Jones at one point to suggest that any order made should extend to Mr Kain’s future costs, as well. I do not consider that is appropriate. It is not alleged by the plaintiffs that their father acted in breach of trust. Mr Kain, who is aged 83 years, has indicated his attitude towards the proceeding, but equally that he does not wish to be centrally involved. It may be that there will be a need for him to provide further information relevant to the substantive issues. That aside, Mr Kain may need not play an active future role. In any event, should he seek a further order for costs such should be considered after the event, not on a prospective basis.

The Costs of Mr J F Springford:

[18] As in the case of Mr G T Kain, Mr Springford sought an award of costs in order to indemnify him for expenses incurred and personal remuneration in his capacity as the sole trustee of the W A X Couper Trust. A significant amount was sought, being legal costs of $45,803.18 and accounting costs (for Mr Springford’s own professional services) of $16,315.60, a total of $62,119.78. It is necessary therefore to trace the history of Mr Springford’s involvement in the proceeding and note the role played by counsel on his behalf at the December hearing.

[19] The W A X Couper Trust was constituted in 1963. In 1984 it vested in the Kain children. With reference to this proceeding I made a direction on 4 October 2000 that Mr Springfield be served in his capacity as the sole trustee of this Trust.

[20] However, historically Mr Springford was a trustee of a number of trusts and acted as accountant to most (if not all) of them, to Mr Couper, and to a number of farming companies. This was from 1981 to April 1997, when Mr Springford was released from his duties by Mr Couper and Mr Startup assumed the accountancy role. Subsequently, in about May 1999 Mr Springford resigned as trustee of five trusts, save for the W A X Couper Trust which had already vested.

[21] This background is relevant to the extent that it indicates the role which Mr Springford was able to assume in relation to this proceeding. He made a detailed affidavit (thirteen pages) which set out the history of his involvement, described how Mr Couper’s farming enterprise which utilised trust assets was run until 1997, and confirmed the removal and resignation process over the past few years. In addition Mr Springford made a short supplementary affidavit which contained certain accountancy information, one item being the beneficiary accounts of the Kain children in three of the trusts.

[22] At the December hearing Mr Springford was represented by counsel, Mr Patterson. Submissions were made in support of the application for summary removal. These included criticism of the basis upon which Mr Springford had been “sacked” as the group accountant, comment upon the income position of the trusts since 1997 as compared to previously, and various criticisms of the present trustees including that they are afflicted by a conflict of interest and are unlikely to confront the current serious problems. Hence, Mr Springford’s stance was more adversarial than neutral. After the hearing accounts were rendered for legal and accountancy services, the former headed with the words “Couper Trusts” for services from 29 June 2000 to 21 December 2000, while the accountancy invoice was from Mr Springford’s firm to the W A X Couper Trust for professional services subsequent to my direction that Mr Springford be served. Payment of the $65,349.38 was not forthcoming, and accordingly Mr Springford sought an award of costs with reference to his involvement in the proceeding.

[23] This was opposed. Mr Osborne, representing the interests of Mrs Couper and Mrs Hutton as beneficiaries, made the strongest submissions. He began with the proposition that while it was appropriate for Mr Springford to be served there was no need for him to take an active role since the beneficiaries were before the Court and represented and no relief was sought against Mr Springford. Moreover, strong exception was taken to the fact that Mr Springford had “departed from the traditional neutral stance of (a) trustee” and had descended into the arena in the context of hostile trust litigation. Finally, counsel criticised the paucity of the information contained in the invoices for legal services in particular. These referred to services from 29 June 2000, whereas Mr Springford was not served until over three months later. The total sought by way of costs, $65,349.38, was described as “completely out of proportion to the role, if any, Mr Springford might reasonably have taken in the interlocutory proceeding”.

[24] Mr Weston and Mr Camp I understood to support these submissions. While Mr Rennie for the plaintiffs certainly did not adopt; Mr Osborne’s submissions, neither did he embrace the approach presented on Mr Springford’s behalf.

[25] The costs which are the subject-matter of the claim comprise both expenses incurred by Mr Springford (legal expenses) and “costs of . . . professional services performed by him in the execution of the trusts . . . ” : s38(2) Trustee Act. In terms of that section indemnity is available if the expenses were “reasonably incurred”, while the Court may allow personal costs for professional services “as in the circumstances seem just”. Although Mr Springford remains the sole trustee of the W A X Couper Trust in reality its assets are beyond his control. The implication to be drawn from non-payment of the two fees invoices is that it is not accepted the legal expenses were reasonably incurred, nor that it is just for Mr Springford to be reimbursed for his accountancy services, at least at the level claimed.

[26] The principles relevant to an award of costs in favour of the trustee where he is forced to the Court for protection are conveniently gathered in Halsbury’s Laws of England (4th ed) volume 48 at paras 799-800. In the first place costs remain in the discretion of the Court. However, generally a trustee who has been a party to any proceeding is entitled to be paid out of the trust fund and to have costs assessed on an indemnity basis. But, “the Court may order otherwise if a trustee has acted for a benefit other than that of the trust fund”. Also:

“The Court Bill not allow costs which have been unreasonably incurred or are unreasonable in amount. Any doubt as to whether costs were reasonably incurred or were reasonable in amount are resolved in favour of the receiving party.”

One example of a situation where a trustee should remain neutral and abide the Court’s decision, is where there is a dispute between rival claimants to a beneficial interest in the trust assets : Alsop Wilkinson (a firm) v Neary [1995] 1 All ER 431.

[27] The problem with reference to costs in the present instance is indicated by my earlier outline of the background circumstances. While Mr Springford was served in his capacity as trustee of only one vested trust, his historical involvement was much more significant. Given the breadth and extent of the underlying disputes between the plaintiffs and the present trustees it was legitimate, in my view, for Mr Springford to provide background information concerning his earlier involvement with the trusts. Much more problematic, however, is the stance which he adopted at the December hearing. His counsel both attacked the reasons given for removal of Mr Springford from his accountancy role and went on to actively support the plaintiffs’ application for removal. Was it proper to assume an adversarial role, rather than remain neutral? Are the legal and accountancy costs which are claimed reasonable in any event?

[28] Regrettably I am driven to the conclusion that Mr Springford strayed into an area not of his concern by actively supporting the plaintiffs’ application. A “trustee is entitled to his costs out of the find on an indemnity basis, provided only, that he has not acted unreasonably or in substance for his own benefit rather than that of the fund” : MacDonald v Horn Hoffmann LJ at 970. I fear that the benefit which Mr Springford pursued was his desire to air the obvious sense of grievance he has concerning his removal in 1997. But this criticism is secondary to my other concern namely that the costs sought are not reasonable, at least judged on the basis of the information with which I have been provided.

[29] The total amount of over $65,000 is a very large sum when viewed against the background of a direction made in October 2000 that Mr Springford be served and the subsequent two day hearing. To my mind the costs sought by Mr G T Kain, which I have approved as reasonable, better indicate an appropriate level for indemnification of a trustee in this proceeding. In one respect Mr Springford had a more onerous role, in that it was appropriate for him to provide background information as to the administration of the trusts to 1997. His first lengthy affidavit resulted. But otherwise I could only contemplate Mr Springford’s reasonable costs to be similar to those of Mr G T Kain. In all the circumstances I consider that an order for payment of the sum of $22,000 from the W A X Couper Trust is as much as can be justified

The Plaintiffs’ Future Costs:

[30] Initially the plaintiffs were minded to seek what was called a pre-emptive costs order. That is a present order that they were entitled to payment of indemnity costs in relation to the substantive hearing and irrespective of result. However, in the final analysis this was not sought. Counsel recognised that the decision in Berkett v Cave [2001 ] 1 NZLR 667 (CA) was necessarily fatal to a successful outcome. In that case the minimum prerequisites of a pre-emptive order were identified as a clearly arguable case, a substantial public interest in the decision on the issue, and that it would be truly onerous to expect the plaintiffs to fund the litigation even in the interim.

[31] Instead Mr Rennie sought an order in these terms:

“(The plaintiffs) be entitled to use the assets of the W A X Couper Trust, the Kain Trust and the E D Couper Estate (in so far as it relates to the ‘Kiwi Block’) to pay the costs they have incurred, and will incur, in this litigation.”

Mr Rennie devoted most attention to submissions in support of this aspect. Likewise, Messrs Weston and Mr Camp in particular, supported by Mr Osborne, strenuously opposed the order sought. Their concern seemed to be to ensure that the plaintiffs were forced to fund the substantive hearing from their personal resources, if they could, while the trustees’ costs would be debited to the trusts, albeit subject to the risk that the Court may find they were not justified in defending the proceeding.

[32] Before I turn to the respective arguments it may be helpful to record how the trustees’ costs to date have been treated. To recap there were costs of about $83,000 in the year to June 2000 and a further $549,000 in the six months to December 2000. The addition of these two figures totals the full amount, $632,525. Mr Startup made an affidavit, dated 10 April 2001, in which he described the accountancy treatment of costs. Until October 2000 cheques were drawn on the account of the W A X Couper Farming Company Limited and then apportioned to such trusts “as were determined should bear those costs”. This included some allocation to trusts other than the eight of which Mr Hutton, Mrs Couper and Mr Startup are the trustees, that is to trusts where the trustees are various members of the Kain family or Mr Springford. Since October 2000 fees have been met by cheques from the eight trusts of which Mr Hutton, Mrs Couper and Mr Startup are the trustees, but the trusts have received advances from the Farming Company to cover them. Hence inter-entity liabilities have arisen. Mr Couper’s costs incurred on account of his separate representation, have been met by the Farming Company, but not allocated to any of the trusts.

[33] In his affidavit Mr Startup also observed that the treatment of costs was provisional, since the accounts for the various entities to June 2000 were in draft form and could be adjusted in light of any order of the Court. Likewise, allocations since 31 June 2000 were provisional in nature. In real terms the trustees’ costs to date have been met from the income of the Farming Company, with provisional allocations back to the trusts. Importantly it is the farming enterprise controlled by Mr Couper, which is in part dependent upon land and stock owned by the trusts, which to date is the resource by which the trustees’ defence of this proceeding has been funded.

[34] Although in form the plaintiffs’ application is for an order entitling them to use the assets of the vested trusts to pay costs to date and in the future, in substance it seemed to me they sought an order in the nature of one compelling the trustees to distribute the assets. Mr Rennie noted who the trustees were being Mr Springford for the W A X Couper Trust, Mr G T Kain for the Kain Trust, and Mr G T Kain and Mr Couper for the E D Couper Estate. This in itself is significant since Messrs G T Kain and Springford favour distribution, but are not able to effect it. Mr Couper, however, holds another view.

[35] According to the draft accounts to June 2000 the net assets of the Kain Trust are $1.2m, represented in the main by an investment with and a current account in one of the farming partnerships. The W A X Couper Trust has net assets of $2.2m represented by livestock, land, and current account advances (including about $680,000 owed by Mr Couper and his farming company). Incidentally, Mr Springford in his affidavit deposed that he had endeavoured to call up those advances but without result. In relation to the E D Couper Estate the asset which is said to have vested is land known as the “Kiwi Block” valued at about $600,000. The beneficiary entitled to this land is Harry Kain.

[36] Mr Rennie also noted various indications in correspondence to the effect that the vested assets would be transferred to the beneficiaries, indeed that solicitors had been instructed to that end. Despite these indications nothing had occurred over a period of about eighteen months. Further, counsel drew attention to the trustees’ statement of defence in which with reference to an allegation of failure to distribute they responded:

“To the extent possible, the trustees are now taking steps to facilitate distribution of the vested trusts but say that the matter is largely beyond their control.”

The pleading continued:

“For the reasons set out in the counterclaim it is not possible for those trusts immediately to be distributed and the defendants seek directions as to what steps, if any, they should take.”

[37] The counterclaim noted that the defendants were not trustees of the vested trusts (save for Mr Couper being a co-trustee of the E D Couper Estate) and continued that there were “logistical and legal reasons which prevented distribution”. These included that there was a mortgage advance to the Waipuna farming partnership by the Kain Trust “which needs to be resolved prior to distribution” and that Mr Couper in his personal capacity denied liability for the current account debt of about $406,000 in the accounts of the W A X Couper Trust.

[38] In similar vein Mr Startup’s affidavit sworn on 10 April 2001 included these observations with reference to the trusts:

“14. There are numerous inter-entity advances. If we assume that the accounts are correct then, in large measure, these various advances tend to balance each other out. Therefore, it seems to me somewhat artificial to single out a number of those advances as representing real assets. That is because if these advances are recovered, it will simply trigger a whole series of claims and counterclaims in relation to all the other advances. That will result in claims being made against a number of the Plaintiffs in relation to their net indebtedness to the trusts. Therefore, I do not think it useful, at least at this preliminary state, to look at individual advances and address them in a vacuum.”

[39] Mr Startup had nothing more constructive to offer concerning the way forward to distribution, save to add that there was not “sufficient cash in the pot” to cover all the costs of this litigation without substantial borrowings.

[40] Mr Weston made only limited submissions with reference to this topic. Since he did not represent the trustees of the vested trusts, he was content to note that there were “unresolved issues “ in relation to them and that the assumption the trusts held assets in a form capable of distribution was wrong. Mr Camp advanced submissions to similar effect concerning the practical difficulties of distribution, but added that Michael, Tom and Charles Kain had variously assigned their interests in the vested trusts to Mr Couper as security for advances they had each received. Mr Rennie objected to this line of argument even being advanced and suggested it was at odds with the position taken by the trustees in their own statement of defence.

[41] Mr Osborne, on behalf of Mary Hutton, also challenged the order sought on account of the fact that it contemplated that the assets of three of the trusts would be used to pay costs incurred to date and in the future, when Mrs Hutton is not one of the plaintiffs and is opposed to their cause. From the perspective of his client he submitted that if the order was made its effect would be to allow costs to be “extracted from the trusts on a solicitor/client basis without regard to quantum and without provision for refund or security for refund” and when the entitlements of the Kain children to the trust assets were in dispute.

[42] Mr Osborne drew attention, by way of example, to a deed of arrangement signed by the six Kain children in 1997. In it Thomas and Charles are called the “indemnifiers”, their four siblings the “beneficiaries” and the recitals refer to a deed of indemnity dated in 1996 in relation to bank accommodation received by Tom and Charles and secured over the Waipuna farm. A further recital states that the parties wish to record the basis upon which Waipuna can continue to be used as security by the indemnifiers. Clause 7 of the deed provides:

“UNEQUAL ASSISTANCE

The Parties to this Deed agree that there has been unequal assistance provided from the family’s South Canterbury and Hawkes Bay interests. The parties agree to work toward ascertaining a fair statement over the amounts received by each party and working (sic) towards a position which will ensure, in so far as practicable, that all parties are or will be treated equally.”

Counsel submitted that this clause at least hinted at the extent of the problem. The entitlements of the Kain children even in the vested trusts is not straight-forward on account of inter-family dealings and arrangements. Mr Rennie, on the other hand was strongly critical of reliance upon this document which was only in evidence on account of its production in a bundle of documents used by the defendants for the December hearing.

[43] These exchanges between counsel served to indicate what for me is a fundamental problem. The hearing on 11 April was arranged for the purpose of fixing costs with reference to the application for removal I heard in December. But orders were then sought which related to future rather than past costs. In particular, on 9 April Mr Rennie filed the application in which he sought an order to enable the assets of the vested trusts to be used to meet costs. As I have already noted, this was in substance an endeavour to require trustees to distribute when in fact two of the trustees (Messrs G T Kain and Springford) wished to distribute in any event. Reluctantly I am forced to the conclusion that I am in no position to make the order sought, on account of the deficiencies in the procedure by which this issue is before me. Whether all relevant documentation is in and whether the issue is susceptible of resolution on the papers and without evidence, I very much doubt.

[44] This conclusion is one I reach reluctantly. I am concerned at the possibility that obfuscation in relation to the affairs of the trusts may be used to prevent the plaintiffs from obtaining access to trust funds in order to ventilate their concerns. I have already commented upon the marked unevenness in the positions of the plaintiffs as compared to the defendants in relation to access to funds to pay litigation costs. Despite these concerns I cannot see a way forward at least in the context of the present application. For these reasons I make no order concerning distribution of the assets of the vested trusts or for payment of costs from such assets.

Trustees’ Costs - Accounting Treatment:

[45] In the course of his submissions Mr Weston noted the criticisms made by the plaintiffs concerning the level of costs incurred by the defendants and payment of them from the trusts. He said that the trustees wished to record the steps they had taken and continued “If the Court has any concerns in relation to those steps, there will then need to be a mechanism devised to address those concerns”. I understood this to be an invitation to the Court to give directions about how the trustees should deal with costs pending the substantive hearing, albeit no formal application was filed.

[46] Mr Rennie did not hesitate to enter into this debate. He submitted that the approach of the trustees was wrong in principle. The proper course at the outset was for the trustees to seek directions whether or not to defend the action for their removal : Alsop Wilkinson v Neary. This would have required a separate application, to a different Judge, full disclosure of the strengths and weaknesses of the trustees’ case, and an independent assessment of the stance they should adopt.

All of this would occur without the involvement of the plaintiffs. Mr Weston countered that such an application was not feasible as it would effectively require determination of the substantive merits.

[47] Mr Rennie also criticised the accounting practice which existed until October 2000, whereby costs were charged to trusts of which the defendants were not the trustees and without the knowledge let alone approval of the actual trustees. He criticised this as “inexcusable”.

[48] Again, I do not consider that it is appropriate for me to enter upon this issue. The trustees have already embarked upon a course of action and decided to do so without the comfort of directions from the Court. A costs hearing in relation to an unsuccessful interlocutory application is not the time to raise, informally, a concern of this nature and seek unspecified directions. Instead, I am content to note that the matter was raised and record the respective positions of the parties.

Conclusion:

[49] Towards the end of my previous judgment under the heading “The Way Forward” I made certain observations concerning the desirability of a mediated or negotiated settlement of this case. At that time I was unaware of the costs already incurred by the trustees in mounting their defence. The present hearing has served to increase my concerns about the destructiveness of a full-scale substantive hearing, let alone its cost.

[50] The focus of the parties has continued to be upon the allegations against the trustees and the defence of them. A passage from Letterstedt v Broers (1884) 9 App Cas 351, 386 was cited in my last judgment. Later in that case their Lordships at 389 concluded that although the central allegations against the trustees were not made out, the hostility which existed was such that removal was necessary. The commentary in Halsbury, vol. 48, para 793 refers to this as a situation where continuation of the trustee in office would be likely to be detrimental to the trust because the trustee is “out of sympathy with . . . the beneficiaries”. Such must be the position in the present case.

[51] Here the fundamental problems are the number of trusts involved, the complexity of the farming undertaking in which the trust assets are employed (including the circumstance of inter-entity indebtedness), the need to resolve questions concerning the validity of certain recent actions of the trustees and likewise questions concerning the rights of the Kain children as between themselves. By contrast that the trustee-beneficiary relationship is dysfunctional seems to be beyond dispute. It must be questionable, therefore, whether a proceeding, in which removal is the underlying core issue, is an appropriate way to approach and resolve the real problems in the case.