King v Jacks

[2022] NZHC 918

IN THE HIGH COURT OF NEW ZEALAND ROTORUA REGISTRY

I TE KŌTI MATUA O AOTEAROA

TE ROTORUA-NUI-A-KAHUMATAMOMOE ROHE

CIV-2021-419-292

[2022] NZHC 918

UNDER

Trusts Act 2019

IN THE MATTER OF

the FA and TA King Family Trust

BETWEEN

FRASER ALEXANDER KING

Plaintiff

AND

TESSA ALEXANDRA JACKS

Defendant

SCOTT ANTHONY MCKENNA

Interested Party

Hearing:	On the papers
Appearances:	M A Dempster for Plaintiff G Angus for Defendant
Judgment:	4 May 2022

JUDGMENT OF MANDER J

This judgment was delivered by me on 4 May 2022 at 3 pm pursuant to Rule 11.5 of the High Court Rules 2016

Registrar/Deputy Registrar Date:     .

KING v JACKS [2022] NZHC 918 [4 May 2022]

[1]                   On 17 February 2022, I issued a judgment granting by consent Mr Fraser King’s interlocutory application to appoint Perpetual Guardian as an independent trustee in substitution for the three existing trustees, including Mr King and his estranged wife, Ms Tessa Jacks, on an interim basis.1 Costs were reserved.

[2]                   Mr King now seeks indemnity costs of $42,207.00, which he maintains were incurred bringing the interlocutory application, and an order that Ms Jacks not be indemnified by the trust. He also makes an ancillary argument that it is open to the court to award costs against Ms Jack’s previous counsel. For her part, Ms Jacks opposes the award of indemnity costs and seeks 2B costs in relation to the hearing of the interlocutory application and an order that costs otherwise lie where they fall

Background

[3]                   These proceedings concern an acrimonious relationship breakup and related trust property dispute between Mr King and Ms Jacks. The background to the proceeding was set out in my judgment which, for convenience, I reproduce here:

[1]… The plaintiff, Mr Fraser King, and the defendant, Ms Tessa Jacks, are a married couple who separated in December 2020. The state of their relationship is such that they have been unable to agree on arrangements regarding the division and distribution of matrimonial and Trust property.   The main asset of the Trust is a property at   414 Matangi Road, Tamahere, Hamilton (the Property), which is currently tenanted.

[2]Mr King has commenced proceedings seeking removal of all trustees and their replacement with an independent trustee, Perpetual Guardian. Mr King also filed an interlocutory application for the appointment of this independent trustee on an interim basis which was set down for hearing before me.

[3]Until recently, Mr King’s application for an interim order was opposed by Ms Jacks. However, late last week, Ms Jacks accepted the irreconcilable breakdown in relations between the parties and their inability to work together to discharge their duties as trustees to administer the Trust and its property necessitates the removal of the current trustees and the appointment of Perpetual Guardian. Notwithstanding considerable overlap between the parties regarding ancillary orders to accompany the appointment of the independent trustee, the parties were not able to agree appropriate orders and it was necessary to hear counsel for the purpose of confirming their

1      King v Jacks [2022] NZHC 219.

respective positions regarding these matters and to identify remaining areas of disagreement.

The arguments

Mr King’s submissions

[4]        Ms Dempster, counsel for Mr King, advanced arguments as to costs in no less than four sets of submissions, including in her submissions on the interlocutory application, further memoranda and a memorandum in reply. Ms Dempster sought to rely on the decision of this Court, O’Keeffe v Jones,2 which she submitted involved an analogous situation where the plaintiff and defendant were deadlocked over how to manage a trust. The defendant’s acceptance of his removal as a trustee was only forthcoming after an application was made to that effect. His opposition to such a step was said to have provided the basis upon which the court awarded indemnity costs. Ms Dempster submitted that Mr King had acted honestly and diligently as trustee, whereas Ms Jacks had misconducted herself in the administration of the trust. She alleged Ms Jacks had breached an undertaking to the court “at the first opportunity” by not paying the monthly mortgage repayment for the Property in full.

[5]        In support of an award of indemnity costs, Ms Dempster argued Mr King had been consistently asking Ms Jacks to consent to the sale of the Property and that her refusal to do so had placed it in danger of a mortgagee sale. It was submitted Ms Jacks breached her trustee duties by unilaterally tenanting the property in an attempt to preserve it for herself and unilaterally converted relationship funds to keep the mortgage paid.

[6]        While accepting Mr King had been notified of Ms Jacks’ subsequent consent to the property being sold, it was emphasised that, despite that concession, she continued to refuse to resign as trustee. Attempts by Ms Jacks to enter into settlement discussions on 3 February 2022 were described as disingenuous. In support of an award of indemnity costs, Ms Dempster sought to characterise Ms Jacks’ actions in defending the application as “frivolous, improper and meritless”, and that “in

2      O’Keeffe v Jones [2018] NZHC 2482, (2018) 4 NZTR 28-030.

commencing and continuing her defence” she acted “unnecessarily”. It was submitted it would be unjust for Mr King to have to meet his own costs.

[7]        Mr King’s application for costs extended to a submission that the Court should consider awarding costs against Ms Jacks’ former counsel. Ms Dempster submitted it was apparent from the email correspondence in February and March 2021 that Ms Jacks’ then counsel (who has since been replaced) supported her “unilateral actions and trustee duty breaches” in tenanting the property.

[8]        Ms Dempster summarised Mr King’s case in favour of indemnity costs as follows:

a.The defendant has acted improperly, unnecessarily and vexatiously in wilfully flouting the law and her trustee breaches through 2021, despite being advised by counsel throughout …

b.The defendant has breached her undertaking to the court in short- paying the Trust’s mortgage to Kiwibank in December 2021 …

c.The defendant has acted unreasonably in pursuing a tenuous defence, which was very unlikely to be successful … Further, the defendant still maintains her tenuous defence in the substantive proceedings.

[9]        Ms Dempster argued that it was not until the day of the filing of written submissions on 11 February, six days prior to the hearing of the interlocutory application, that Ms Jacks finally accepted what was described as the “inevitable”, and consented to the appointment of the independent trustee. It followed that Mr King had been successful in his application and was therefore entitled to costs.

[10]      In further support of an award of indemnity costs, Ms Dempster submitted the sole reason for the trust being placed into financial peril was Ms Jacks’ unilateral dealing with the property in 2021.   Counsel was critical of Ms Jacks proposal of     3 February 2021, which she described as deficient, because it proposed “the defendant’s” solicitors and real estate agents  who  were  based  out  of  Hamilton. Ms Dempster submitted:

[Mr King] replied with a very generous offer on 10 February 2022 in a final attempt to avoid a court hearing. That offer included local independent real estate agents and solicitors – and importantly the plaintiff offered to progress all matters to do with the sale of the property and obtaining the second

resource consent – all free of charge and in consultation with Mr McKenna, the other trustee.

[11]      Finally, Ms Dempster acknowledged my direction at the hearing that submissions as to costs should relate solely to the interlocutory application, but submitted in order to obtain the appointment of an interim trustee she had been required to complete full research for removal of trustees, draft a statement of claim, and then a later statement in reply. As a result, she sought “full costs”.

Submissions for Ms Jacks

[12]      Ms Jacks opposed an award of indemnity costs, noting that Mr King had not accepted a settlement proposal made on 11 February 2022 which would have resolved the interlocutory argument and avoided the need for a hearing. Ms Angus submitted Ms Jacks should be awarded 2B costs in respect of that hearing.

[13]      Ms Angus drew attention to the reason for Ms Jacks’ opposition to the interlocutory application, set out in her notice of opposition filed on 20 December 2021. The application was defended on the basis that it was Ms Jacks’ view at that stage that it was neither necessary nor desirable to appoint an independent trustee as the trustees had agreed to sell the property. Contrary to claims made by Mr King that this was the first time he was made aware of Ms Jacks’ agreement to sell the property, it was noted that Ms Jacks had informed Mr King of her willingness to sell during the course of a judicial settlement conference relating to Family Court proceedings that was held on 3 December 2021.

[14]      The settlement offer of 3 February 2022 was traversed by Ms Angus. Mr King was advised at that time that Ms Jack saw no utility in appointing an independent trustee to deal with the sale as that would be an additional cost that would only reduce the equity available to beneficiaries. Counsel characterised Mr King’s response of  10 February as a marked change from that which had been sought in the interlocutory application itself. Ms Angus submitted it was only upon receipt of that response that it became clear the parties could not remain as trustees and would be unable to agree on a sensible way forward. As a result, she wrote to Mr King on 11 February rejecting his 10 February proposal and advising Ms Jacks now agreed to the appointment of an

independent trustee. In her submission Mr King then rejected that concession by adding further conditions to the appointment of the independent trustee that had not been included in the original interlocutory application. These included an order under s 135 of the Trusts Act 2019 and a requirement the independent trustee be appointed permanently. Ms Angus emphasised that on 15 February she proposed the parties agree to vacate the hearing to avoid further unnecessary legal fees and provided a draft joint memorandum seeking orders by consent to resolve the application. This was rejected by Mr King.

[15]      By reference to my minute of 16 February,3 it was noted the Court had urged the parties to confer and agree conditions for the appointment of the independent trustee and that Mr King had flatly rejected her attempt to comply. Ms Angus submitted the orders that were ultimately made aligned with those proposed by     Ms Jacks and rejected by Mr King.

[16]      In relation to the question of indemnity costs, Ms Angus submitted Ms Jacks’ position was reasonable and that for the following reasons she was entitled to defend the application given that:

(a)the defendant disagreed with the conditions on Perpetual Guardian’s appointment proposed by the plaintiff;

(b)the substantive issues between the parties are yet to be resolved in the Family Court;

(c)the defendant’s actions since separation have only been to preserve the trust property and no findings have been made by the Court in respect of the defendant’s conduct as trustee;

(d)the defendant was concerned about the financial position of the Trust and Perpetual Guardian’s fees; and

(e)the Trust remains in a precarious financial position and it is still unclear how Perpetual Guardian will cover the shortfall between the rental income received and the mortgage repayments.

(footnotes omitted)

[17]      In response to the allegations that Ms Jacks breached undertakings, it was submitted these had been exaggerated. Ms Angus submitted that Ms Jacks and her

3      King v Jacks HC Hamilton CIV-2021-419-292, 16 February 2022.

parents provided undertakings to the Court they would cover the shortfall between the rent received under the tenancy agreement and the mortgage repayments each month pending the determination of the interlocutory application. The automatic payment was unexpectedly $200 short but this error was remedied by Ms Jacks and the shortfall has continued to be met by her and her parents.

[18]      Ms Angus described the calculation of indemnity costs as unreasonable and out of all proportion to the issue before the Court and the complexity of the matter. It was noted that Ms Jacks’ 2B scale costs amounted to $7,887. In particular, issue was taken with Ms Dempster’s recorded 36 hours and 30 minutes for “research” in relation to an interlocutory application. She was also critical of Mr King seeking costs with no evidence he had actually incurred the costs sought. It was noted that Ms Dempster is Mr King’s de facto partner. Doubts were expressed as to whether in fact Mr King would be invoiced for Ms Dempster’s services. It was noted Ms Dempster had erroneously referred to her billable timesheet that was provided as an invoice.

[19]      In response to the application for a costs award against counsel, Ms Angus simply submitted there was no basis for such an award. Counsel argued that Ms Jacks had been the successful party given the outstanding issues that remained between the parties at the time of the hearing and the orders made were those proposed by her client. Conversely, three further orders sought by Mr King were not granted. In the absence of an order for costs in favour of Ms Jacks, it was submitted costs should otherwise lie where they fall.

Reply by Mr King

[20]      Ms Dempster filed reply submissions. Objection was taken to a reference to statements made in a without prejudice settlement conference, which it was submitted should be put to one side. Ms Dempster also attached to her reply submissions a copy of her letter of engagement and the invoice used to bill Mr King. Ms Dempster confirmed she had spent her professional time on the proceeding and that her fees were claimable in the normal way. In response to the challenge of the reasonableness of the quantum of the fees sought, Ms Dempster submitted extensive research was required into the interim appointment of a trustee, which she submitted was a relatively rare

occurrence in respect of which there was little jurisprudence. It was also claimed that, because of the breaches of duty by Ms Jacks and the extensive factual matrix, a comprehensive affidavit from Mr King had to be drafted.

Analysis

[21]      Questions of costs are ultimately a matter of discretion, with the overall objective being to achieve an outcome that best meets the interests of justice.4 Ordinarily the party who fails with respect to a proceeding is to pay the costs of the party who succeeds.5 Notably, an award of costs should reflect the complexity and significance of the proceeding and, as far as possible, their determination should be predictable and expeditious.6 Indemnity costs may be awarded where a party has acted vexatiously, frivolously, improperly, or unnecessarily, or has disobeyed an order or direction of the court or breached an undertaking.7 The term “unnecessarily” used in r 14.6(4)(a) of the High Court Rules takes its meaning and flavour from the adverbs which proceed it and is to be interpreted as being for “distinctly bad behaviour”.8

[22]      Mr King placed considerable emphasis on this Court’s decision in O’Keeffe v Jones, although did not mention the subsequent partially successful appeal.9 Ms O’Keeffe and Mr Jones were trustees of an estate who disagreed on its administration. Ms O’Keefe requested Mr Jones step down, but he refused and invited her to take legal proceedings. An application was made to this Court to have Mr Jones or both trustees removed. Mr Jones consented to the application but opposed Ms O’Keeffe’s costs being met from the estate. Ms O’Keeffe was found to have acted reasonably in bringing the application and was successful in doing so. Mr Jones was found to have unnecessarily required the application to be made and had prolonged the proceeding. As a result, indemnity costs were awarded in favour of Ms O’Keeffe.

[23]      The Court of Appeal found that this Court had erred in finding Mr Jones was effectively in breach of trust without him having the opportunity to respond to proper

4      High Court Rules 2016, r 14.1(1).

5      Rule 14.2(a).

6      Rules 14.2(b) and 14.2(g).

7      Rules 14.6(4)(a) and 14.6(4)(b).

8      Saunders v Winton Stock Feed [2009] NZCA 148, (2009) 19 PRNZ 342 at [30]; Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009] 3 NZLR 400 at [26].

9      O’Keeffe v Jones, above n 2; Jones v O’Keeffe [2019] NZCA 222, (2019) PRNZ 529.

pleadings and to obtain discovery or cross-examine Ms O’Keeffe. It was noted that Ms O’Keeffe’s application was a proper one but that it had been complicated by costs orders having been sought by her from the outset (as did Mr King). The Court of Appeal found Mr Jones acted reasonably by immediately agreeing to his removal and replacement on the basis Ms O’Keeffe resigned as well. It was observed that an order requiring Mr Jones to pay costs personally, at that stage of the proceeding, could not be justified. The order for indemnity costs against Mr Jones personally was set aside and instead an order was made for Ms O’Keeffe to be reimbursed from the trust for her actual and reasonable costs and disbursements in relation to the application.     Mr Jones was ordered to reimburse the trust for all steps in the proceeding after, but not including, an amended application for interlocutory orders.10 Costs on the appeal lay where they fell.

[24]      The Court of Appeal was critical of the Judge’s approach. In particular, it was observed that, when considering costs under the High Court Rules, the focus must be on how parties acted during the litigation, not before it. They endorsed the approach previously taken by that Court in Paper Reclaim Ltd v Aotearoa International Ltd when a costs judgment was set aside because the Judge at first instance had relied on conduct prior to the issuing of the proceedings.11 After citing further authority of that Court and the Supreme Court where the same approach had been adopted,12 the Court stated:13

… That reinforces our conclusion that if Ms O’Keeffe wished to pursue allegations of breach of  trust  or  mishandling  of  trust  finances  against  Mr Jones, the proper procedure would have been to bring a claim for breach of trust. The pre-proceedings’ conduct of Mr Jones was not relevant to costs in this case.

[25]      Mr Kings heavy reliance on this Court’s decision in O’Keeffe is misplaced in light of the approach subsequently taken by the Court of Appeal, based, as it is, on what are essentially allegations that Ms Jacks has “misconducted” herself as a trustee. The question of indemnity costs must be focussed on the conduct of the parties in

10     Jones v O’Keeffe, above n 9, at [84]–[86].

11     At [61], citing Paper Reclaim Ltd v Aotearoa International Ltd [2006] 3 NZLR 188 (CA) at [160].

12     At [63], citing Kain v Hutton [2007] NZCA 199, (2007) 3 NZLR 349, and at [62], citing Paper Reclaim Ltd v Aotearoa International Ltd [2007] NZSC 26, [2007] 3 NZLR 169 at [40]-[41].

13 At [62].

relation to the interlocutory application.14 It is apparent from the volume of material filed and the stances taken by the parties that there has been an unfortunate loss of perspective in this proceeding which has culminated in a misguided approach to the issue of costs. It is sufficient to observe that the unresolved disputes between the parties and the unsubstantiated allegations arising from untested and conflicting contentions, particularly as they relate to the conduct of the trustees, are largely irrelevant to the issue of costs on the interlocutory application.

[26]      The application for the interim appointment of an independent trustee was brought in November 2021. It was reasonably made in response to the deterioration in the relationship between the trustees and the apparent (at that stage) deadlock between the parties. The notice of opposition dated 20 December at least narrowed the contest by recording Ms Jacks’ agreement that the property should be sold, but opposed the application on the basis it was unnecessary to appoint an independent trustee where the parties agreed the property needed to be sold. As is apparent from Jones, any prior refusal by Ms Jacks to consent to the sale of the property is not directly relevant to the questions of costs on the interlocutory application.

[27]      Because, at that stage, it was apparent the trustees agreed the property ought to be sold but took different positions regarding the process by which that should be achieved and whether it was necessary to incur the cost of an independent trustee, seemingly without proper discussion regarding that option, I do not consider Ms Jacks’ opposition was unreasonable. If the trustees were able to agree how the property should be sold, the appointment of an independent trustee may have proved to be an unnecessary step and an avoidable cost. The fact Mr King took the strong position such cooperation was not possible is not decisive, nor does it render Ms Jacks’ view of the circumstances one that should attract punitive consequences. The notice of opposition was framed on the basis such a step was unnecessary and would involve increased costs in addition to putting in contest various sundry claims that were also raised by the application. For completeness, I note that on this analysis the issue of whether Mr King was already aware of Ms Jacks’ acceptance of the need for there to be a sale falls away.

14     Jones v O’Keeffe, above n 9, at [64].

[28]      From that point, the correspondence indicates Ms Angus, on behalf of Ms Jacks,  attempted  to  reach  agreement  on  how  the  property  should  be  sold.  On 3 February, Ms Angus sent a letter to Mr King referring to the agreement the property should be sold and recording Ms Jacks’ objection to the application on the basis an independent trustee would put the trust to further cost. A process by which the property could be sold was proposed. Notably, the letter advised “the real estate agents, reserve price and solicitors are simply suggestions and our client is happy to consider alternatives”. It was suggested the hearing be vacated and the proceeding left for call in the duty Judge’s list in three months’ time. This proposal was entirely reasonable and at that time represented a legitimate way forward that was at least worthy of consideration. Had it been agreed to, the trust would not have been deadlocked and removal of the trustees may not have been necessary.

[29]      Somewhat unhelpfully given the nature and tenor of the dispute between the parties, Mr King, rather than his counsel, sent a lengthy email in response. He rejected the proposal. Mr King indicated he was not prepared to proceed with a sale unless a resource consent application for a second dwelling was finalised and submitted to the local authority. The email also set out various sundry claims and disputes between the parties. An alternative “Formal Offer to resolve the Trust issues and prevent High Court litigation” was made. Mr King proposed:

(a)Ms Jacks provide a court undertaking not to deal unilaterally with any trust property;

(b)He and Mr McKenna would take over matters as agents for the trust in relation to the Property and file a resource consent for a second dwelling as soon as reasonably practicable;

(c)He would do the majority of the work and will not charge for his time, though Mr McKenna would;

(d)He would undertake to pay any shortfall in rent from 17 February 2022 until the Property was sold;

(e)The tenants would be given 90 days’ notice to vacate the property within 3 working days of the outcome of the resource consent application;

(f)The property would be sold with a reserve price of $1,765,000 (or higher with agreement);

(g)An alternative real estate agent and law firm; and

(h)The sale proceeds, net of the Kiwibank mortgage and sale fees, be divided equally into two separate trusts with Mr King and the children as beneficiaries of one and Ms Jacks and the children as beneficiaries of the other.

[30]      It is apparent from this exchange that the parties were open to negotiation and that disputes between them in relation to the sale were limited to whether a resource consent for a second dwelling should be obtained before the property was sold; whether, if a resource consent for a second dwelling should be obtained, that work was to be carried out by Mr King and Mr McKenna; the real estate agent and lawyer that was to be used (noting Ms Angus had indicated the proposals in that regard were simply suggestions); and what should be done with the proceeds of sale.

[31]      Ms Angus replied on 11 February 2022, advising Ms Jacks did not  accept  Mr King’s offer, in particular because she considered it unreasonable for Mr King and Mr McKenna to act as agents in relation to the Property and resource consent application. Notwithstanding the parties disagreement, it is notable this correspondence does not suggest the trust was deadlocked as it appears there was still the potential for agreement on a process of sale and the parties were still in negotiation.

[32]      Ms Angus also communicated that Ms Jacks was now willing to agree to orders appointing Perpetual Guardian as independent trustee on an interim basis and proposed terms for the  same,  attaching  a  draft  joint  memorandum  for  filling.  Ms Angus submitted, and I accept, these proposed terms were substantially those set out in the original application. However, Mr King rejected this resolution and, by way

of a further email, he now sought orders under s 135 of the Trusts Act that the independent trustee be appointed on a permanent basis and that Ms Jacks have 90 days to file any claims against the trust. It is notable that, by this stage, Ms Jacks’ position was closer to the terms sought in the formal application before the Court than the orders now being sought by Mr King.

[33]      On 15 February, Mr King was advised that Ms Jacks did not accept the further two proposed conditions that he sought and reiterated her position the hearing should be vacated to avoid fees with costs to be determined on the papers. It was her position the interlocutory application had been resolved and the hearing was unnecessary.

[34]      In response to the memoranda filed, I issued a minute on 16 February 2022 recording the application was no longer opposed subject to appropriate conditions but that Ms Dempster had filed an application on behalf of Mr King effectively seeking permanent appointment of the independent trustee (essentially an application for summary judgment) on the substantive proceeding.15 I recorded my unwillingness to entertain such an application in the absence of Ms Jacks’ consent and the hearing would otherwise have to proceed on the limited basis of determining the conditions of Perpetual Guardian’s appointment, although, I urged counsel to agree those conditions to avoid the expense of a hearing.

[35]      Ms Angus subsequently emailed Ms Dempster (cc-ing Mr King) confirming that Ms Jacks did not agree to extending the scope of the interlocutory hearing to a summary judgment application and identifying the only outstanding issue between them as being the conditions for the  interim  appointment of  Perpetual Guardian. Mr King’s reply was as rapid (less than two minutes) as it was short — “We do not agree. The hearing will proceed.” The hearing proceeded on 17 February, and the next day I made interim orders consistent with the initial application and the proposed joint memorandum put forward by Ms Angus. Neither of Mr King’s proposed further conditions were accepted and the one remaining issue regarding how the funds generated from the sale should be held was resolved in favour of Ms Jacks.

15     King v Jacks, above n 3.

[36]      Ms Dempster described the 3 February 2022 offer made by Ms Jacks as disingenuous, but I do not accept that was the case. Nor do I consider Ms Jacks defence of the application was frivolous, vexatious or unnecessary as was contended on behalf of Mr King.  As will already be apparent, Ms Dempster’s criticism of the  3 February proposal as being deficient because it used all of Ms Jacks proposed solicitors and real estate agents who were based out of Hamilton is not sustainable given Ms Angus’ indication that what was being proposed in that regard were only suggestions.

[37]      Similarly, I do not accept counsel’s characterisation of Mr King’s  offer of   10 February as being “very generous” and amounting to “a final attempt to avoid a court hearing”. The correspondence contained various allegations that were largely irrelevant to the issue of the appropriate process for sale that ought not to have been included had it been genuinely put forward as an attempt to avoid a court hearing. Nor do I accept that any of the subsequent correspondence from Ms Angus could be termed frivolous or vexatious. It appears to have been entered into in a reasonable attempt to reach a practical solution to the dispute. It follows that I do not consider Ms Jacks’ conduct in the proceeding justifies an award of indemnity costs. Indeed, it falls well short of that threshold. Similarly, I do not consider there is any basis for an award of costs against counsel. More could be said about the wisdom of both aspects of the costs application and Mr King’s willingness to inject himself directly into the proceedings that involved an obviously fraught and difficult breakdown in the parties’ personal relationship, which the professional independence of counsel should ordinarily ameliorate. That background appears to have acted as a barrier to minimising expense and achieving a practical solution.

Decision

[38]      I have concluded that costs should lie where they fall on the interlocutory application. Ms Jack’s position evolved to the point where she essentially consented to the interim order, but the steps she took to reach that position were not unreasonable. Ordinarily, Mr King, as the successful applicant, would be entitled to costs on the basis they normally follow the event. However, the hearing was avoidable given the substantive agreement that had been reached between the parties. The conditions

Mr King sought were additional to those that were originally the subject of the application and, to the extent he sought to prosecute his position in respect of conditions that remained in contest, he failed. Mr King’s flat refusal to engage with Ms Angus on the outstanding conditions of the appointment also tends to detract from his status as the successful party and resulted in the extra expense of a hearing having to be convened.

[39]      A further issue, albeit one that is now irrelevant as a result of my determination, was whether costs claimed by Mr King were reasonable. I accept Ms Angus’ submissions in this regard are valid. The interlocutory application involved the appointment of an independent trustee on an interim basis to take over the running of a family trust against the background of a marriage breakdown involving one main asset in the form of the family home, and was relatively straightforward. It is not necessary for me to make any further comment other than to note that, prima facie and without further inquiry, costs of $42,207.00 appear excessive.

[40]      The final issue is the extent to which, if any, the parties are entitled to be indemnified by the trust for their legal costs. Section 81(2) of the Trusts Act 2019 confirms that a trustee is entitled to be indemnified or reimbursed for all expenses reasonably incurred in the administration of the trust. Indeed, this is said to be a fundamental right of an honest trustee.16 However, in Jones the Court of Appeal observed that, even where a trustee has an indemnity, it may be reduced or lost if unnecessary proceedings or procedural steps are taken.17 Furthermore, excessive or unreasonable costs lie beyond the scope of any indemnity.18

[41]      The parties did not address this issue at any great length in their submissions. The background and context of the interlocutory application cannot be ignored. There are extant Family Court proceedings and the trust’s main asset, the property, is to be sold. No doubt, the parties will have competing claims regarding the proceeds of that sale. In the circumstances, I consider the prudent course is for them to meet their own costs of the interlocutory application from their personal resources, subject to any

16     Butterfield v Public Trust [2017] NZCA 367, [2017] NZAR 1439 at [20].

17     Jones v O’Keeffe, above n 9, at [67].

18 At [67].

agreement they may reach as between themselves regarding accessing trust funds for the purpose of meeting legal expenses. Adopting any other course by allowing the parties to be indemnified by the trust for their respective costs will likely lead to further disputes and the necessity for further orders to be made by this Court. The better course at this stage is to allow the proceeds of the trust to be allocated and distributed before permitting the parties to draw on its assets to meet their respective costs of this litigation.

Result

[42]      Costs  are  to  lie  where they fall.    Each party is to personally meet their individual costs on the interlocutory application.

Solicitors:

Morris Legal, Auckland McKenna King, Hamilton