Lyall v Lyall

[2024] NZHC 1876

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2024-409-125

[2024] NZHC 1876

BETWEEN

EUAN DOUGLAS MACDAIRMID LYALL

Applicant

AND

MALCOLM BRUCE LYALL as an Executor and Trustee of the Estate of Heath Aston Lyall

Respondent

Hearing:	On the papers
Appearances:	J I Taylor for Applicant N R Rout for Respondent
Judgment:	10 July 2024

JUDGMENT OF DUNNINGHAM J

Re: Costs

This judgment was delivered by me on 10 July 2024 at 2.45 pm, pursuant to r 11.5 of the High Court Rules

Registrar/Deputy Registrar Date:

LYALL v LYALL [2024] NZHC 1876 [10 July 2024]

Introduction

[1]                 This is an application for costs following this Court making orders, as sought by the applicant, directing the respondent to pay the applicant his share of his late mother’s estate.

[2]The applicant says costs should be awarded:

(a)against the respondent in his personal capacity; and

(b)on an increased or indemnity basis;

in light of the history of the applicant’s dealings with the respondent, and the fact the application was initially opposed.

Background

[3]                 The  applicant’s  mother,  Heath  Aston   Lyall   (the   deceased),   died   on 31 January 2013.  Probate  of  her  will  was  granted  on  17  June   2014   to  Alistair Robert Lyall and Malcolm Bruce Lyall, two of the deceased’s four sons.

[4]                 The applicant was a beneficiary of the will, with the will specifying that he was to get:

(a)the deceased’s oak dresser; and

(b)25 out of 100 shares of the balance of the residue of the deceased’s estate.

[5]                 The respondent, the applicant’s brother, is now the sole executor and trustee of the deceased’s estate, as Alistair Lyall passed away on 1 April 2020.

[6]                 On 15 March 2013, the applicant lodged a caveat against the granting of probate for the will because of concerns, at the time, as to the validity of the will and the possibility it may have been created under improper influence or duress. However, he allowed the caveat to lapse when he learned his concerns were not well founded.

While he acknowledges the caveat may have caused delay in obtaining probate of the will, he says the caveat had no effect on the executors’ ability to distribute the estate after probate was granted on 17 June 2014.

[7]                 After probate was granted, the applicant did not receive his entitlements to the estate under the will. The respondent explains that shortly after his mother’s death Mr McNab, an associate of the applicant,  began  contacting  the  estate’s  solicitor Mr Nicholas Rout, alleging that the applicant had assigned his interest in the deceased’s estate to Mr McNab and Mr Hay (who was copied into Mr McNab’s emails).

[8]On 1 October 2015 Mr Rout wrote to the applicant advising that:

(a)Mr McNab and Mr Hay had made a claim that they were entitled to the applicant’s share in the deceased’s estate;

(b)the applicant, Mr McNab and Mr Hay would need to provide written directions in relation to the distribution of the applicant’s share; and

(c)in the absence of written directions signed by all interested parties, the executors would bring “interpleader proceedings in the High Court”, the costs of which would be borne by the applicant and any other interested parties.

[9]                 It is because of this alleged claim by Messrs McNab and Hay that the respondent and his then co-executor took no steps to distribute the applicant’s share.

[10]             In September 2021, the applicant engaged the law firm, Wynn Williams to assist him with obtaining distribution of the estate. Wynn Williams had various communications with Mr Rout from 2021 onwards, but no real progress was made. Although Mr Rout acknowledged in an email dated 13 October 2021 that Mr McNab was now bankrupt and the limitation period had “probably” passed, he said he would still need to check with the respondent whether signed releases from Messrs McNab and Hay were required before distribution could be made. Further requests from the

applicant’s lawyers to Mr Rout to respond and to distribute the estate were resisted or ignored.

This application

[11]             Finally, the applicant issued these proceedings on 12 March 2024 seeking various orders including:

(a)the removal and replacement of the respondent as executor and trustee of the deceased’s estate;

(b)the applicant’s share in the deceased’s estate be distributed immediately in accordance with the terms of the will; and

(c)that costs were payable by the respondent in his personal capacity.

[12]             The respondent filed a notice of opposition and supporting affidavit, albeit he also said he would not oppose the distribution of the applicant’s share in the estate “… if the Court is of the view that the share should be distributed, taking into account the interests of The estate [of] Gordon [McNab], the Official Assignee, and Mr Hay”.

[13]             At the first call of the proceedings on 29 April 2024, the respondent still expressed, through counsel, reluctance to action  distribution, although  ultimately Mr Rout agreed that the respondent would not oppose an order being made to distribute the applicant’s share in the deceased’s estate to him. As a consequence, I made an order authorising distribution and distribution was effected on 3 May 2024. However, I reserved costs, with memoranda to be filed in the timeframes directed if costs could not be agreed.

[14]             The applicant’s costs memorandum was received in accordance with these directions on 27 May 2024.   The respondent was required to file a response by      11 June 2024. No response has been filed, nor has any application been made for an extension of time to file a costs memorandum. Accordingly, I am determining the issue of costs on the papers I have before me.

The applicant’s submissions

[15]             The applicant’s starting point is that costs are payable by the respondent. While the applicant accepts that trustees of an estate have a right, recognised in s 81 of the Trusts Act 2019, to claim an indemnity from the deceased’s estate where a trustee has incurred an expense or liability when acting reasonably on behalf of the trust, there are circumstances when a trustee will no longer be entitled to that indemnity. In Hunter v Hunter, Myers CJ said:1

No doubt, speaking generally, trustees acting for the protection of their trust estate are prima facie entitled to costs on that basis … But, even so, those and other authorities show that trustees may be deprived of their costs where there has been misconduct. In any event, I cannot find it anywhere laid down that trustees are necessarily entitled to costs on that basis or at all in defending proceedings which are brought to secure their removal and in which their defence fails. In such cases it would appear that they may not only be deprived of their costs, but may be ordered to pay the plaintiff’s costs. It all depends upon the circumstances of the particular case.

[16]             Even where a trustee has an indemnity, it may be reduced or lost if the trustee takes unnecessary proceedings or procedural steps.2

[17]             Examples of where an executor and trustee of the state have been held to be personally liable include where an executor delayed administration of the estate to the detriment of the beneficiaries and preferred his own interests, which ultimately led the beneficiaries to apply for the executor’s removal and distribution of the estate,3 and where an executor unreasonably opposed the other party’s costs application.4

[18]             The applicant’s solicitors submit that the respondent should not be entitled to an indemnity from the residue of the deceased’s estate for either his own costs or the applicant’s incurred from 12 March 2024 to 29 April 2024, being the period from the initiation of this proceeding until the resolution of all substantive matters (excluding costs) at the first call. They say that the proceeding and, in turn, the costs, only arose from the respondent’s misconduct in relation to the distribution of the applicant’s share of the deceased’s estate. This misconduct includes:

1      Hunter v Hunter [1938] NZLR 520 (CA) at 538.

2      Jones v O’Keefe [2019] NZCA 222, (2019) 24 PRNZ 529 at [67].

3      Bateman v Whanga [2023] NZHC 3539 at [1] and [6].

4      Jones v O’Keefe, above n 2, at [86].

(a)a near decade long delay in distributing the applicant’s share of the deceased’s estate without any sound justification and to the applicant’s detriment;

(b)the respondent’s continued failure to perform his two central roles as executor and trustee of the deceased’s estate which required him, in particular, to:

(i)act in the best interests of the beneficiaries of the deceased’s estate; and

(ii)distribute the assets of the deceased’s estate in accordance with the terms of the will;

(c)in the circumstances where the respondent understood the alleged claim by Messrs McNab and Hay to be genuine, his failure to seek directions from the Court about distribution of the applicant’s share; and

(d)his continued refusal to comply with requests from the applicant and his solicitors for distribution of his share.

[19]             Counsel for the applicant says that to require the applicant to bear the cost of initiating an application to obtain an outcome the other beneficiaries of the deceased’s estate acquired by right would be unreasonable and unjust, particularly when the only remaining funds in the deceased’s estate comprise the applicant’s fixed share.

[20]             Counsel for the applicant points out that the respondent could have brought an application for directions seeking distribution at any point in time should he have been concerned about his liability from Mr McNab or Mr Hay (although not conceding that such would have been necessary in the circumstances given the lack of evidence there was a claim against the estate). That application was not brought and instead the respondent simply refused to distribute the estate which he was duty bound to do.

[21]             In terms of costs on the present application, counsel for the applicant contends that costs should follow the event. Here, distribution was only achieved through bringing the application, which was successful.

[22]             In arguing for indemnity or increased costs, the applicant notes that a party can be ordered to pay the same where they have acted “vexatiously, frivolously, improperly, or unnecessarily in […] defending a proceeding or a step in a proceeding”,5 or where a party has “contributed unnecessarily to the time or expense of the proceeding or step in it” by, for example, taking or pursuing an unnecessary step or an argument that lacks merit, or failing without reasonable justification to admit facts, evidence, documents, or accept a legal argument.6

[23]             Here, the applicant argues that the respondent acted unnecessarily in advancing his opposition throughout this proceeding by:

(a)causing the applicant to have to initiate the proceeding in the first place;

(b)filing a notice of opposition and supporting affidavit out of time;

(c)acknowledging that distribution of the applicant’s share could be made but then not agreeing to do so without “taking into account the interests of The estate [of]  Gordon  [McNab],  the  Official  Assignee,  and  Mr Hay”;

(d)only consenting to the distribution at the first call; and

(e)refusing to pay costs personally, meaning that the applicant had to bear the expense of preparing a memorandum as to costs.

[24]             The applicant’s costs in bringing the application total $30,509.42 along with disbursements totalling $950.05, meaning an indemnity costs award would total

$31,459.47.

5      High Court Rules, r 14.6(4)(a).

6      Rule 14.6(3)(b).

[25]             Even if the Court is not minded to make an order for indemnity costs, the applicant submits the same factors warrant an increased order of costs or, at the minimum, an order for scale costs which the respondent is personally liable to pay.

Discussion

[26]             The first issue to be determined is whether, considering the totality of the circumstances, this is a case where the executor should be personally liable for costs rather than the estate. That is to be determined by considering whether the trustee has acted reasonably in defending the proceedings.

[27]             The costs principles applying in matters concerning estates were summarised by Associate Judge Sussock in Wyllie v Firmin, as follows:7

(a)to the extent proceedings have been reasonably necessary to resolve disputed issues in relation to an estate (such as its administration), a party who reasonably and successfully brings such issues to the Court for determination will normally be awarded their reasonable and actual legal costs from the estate;

(b)to the extent that the unsuccessful party has acted unreasonably in opposing the position advanced by the successful party, it may also be appropriate that the unsuccessful party bear the unsuccessful party’s costs rather than burden the estate;

(c)where the unsuccessful party is an executor or trustee who has taken an unreasonable position in bringing or defending proceedings, it would normally be inappropriate that they be reimbursed by the estate for their costs.

(footnotes omitted)

7      Wyllie v Firmin [2022] NZHC 1994 at [39].

[28]             Here, the difficulty is that the costs application does not follow fully defended proceedings where all issues of fact were determined. Nevertheless, on the undisputed affidavit evidence, I note the following:

(a)Probate was granted to the respondent in June 2014. At that point the respondent had sworn to faithfully execute the will of which probate is granted in accordance with the law.8

(b)The  estate’s   solicitor  accepted,  in  an  email   to  Mr  McNab  on    4 June 2014, that Mr McNab had “no interest in the Estate of HA Lyall apart from some alleged assignment of [the applicant’s] share. However, I have never seen any proof of such assignment.” The estate’s solicitors then never sought or received that evidence nor determined whether such a claim could be brought against the estate as opposed to the applicant personally as the contracting party to any such assignment.

(c)By 13 October 2021 the estate’s solicitor acknowledged in an email that “McNab is bankrupt and the limitation period has probably passed”.

(d)On 24 November 2021 the applicant’s solicitors wrote to the estate’s solicitor advising that their instructions were “to apply to the Court for an order for the estate to be distributed” and that that application “would include provision for the costs to be met by the executor personally.”

(e)Mr McNab passed away on 27 July 2022.

(f)A  further  email   was   sent   from   the   applicant’s   solicitors   on  7 August 2023 seeking an update on when the funds would be distributed to the applicant; and

(g)A  detailed  letter  was   sent   from   the   applicant’s   solicitor   on  17 August 2023 setting out their understanding of the legal position,

8      High Court Rules, Sch 1, Form PR 1, cl 11.

including the executor’s clear obligation to distribute the estate according to the terms of the will, and again warning that if an application had to be made, costs would be sought from the respondent personally.

[29]             On the evidence provided, any contractual arrangement (if indeed there was one), was between Mr McNab and Mr Hay and the applicant, and the claimants would have needed to bring their claim against the applicant rather than the estate if he failed to assign his interest as promised. Even if there was a tenable claim against the estate, it is unclear why that was not required to be brought in a specified period of time, failing which the estate would be distributed. Alternatively, the respondent could have sought directions from the Court, although in the absence of proof of assignment or a formal claim, I accept the applicant’s submissions that this would not have been necessary.

[30]             With the passage of time, the respondent’s position became more and more untenable.  No  formal  claim  has  been  brought.   Limitation  periods  arose  and Mr McNab, who made the initial claim, was first adjudicated bankrupt and then died. What might have seemed prudent caution in 2014, became, in time, indefensible refusal to execute the terms of the will.

[31]             By the time Wynn Williams wrote to the estate solicitors on 17 August 2023, insisting on distribution and setting out the legal basis for doing so, the executor was on notice that if an application to the Court was necessary, the costs of that would be sought from the respondent personally. In my view, this was the equivalent to a “without prejudice except as to costs” letter.

[32]             In terms of the applicant’s claim for costs, I accept the principle that costs should follow the event applies here and that the applicant, as the successful party, should be paid costs by the respondent.

[33]             I am also satisfied that in the circumstances it would wrong for any costs that are awarded to be paid from the estate. The other beneficiaries received their entitlement some 10 years ago and will not share in meeting any costs award. Any

costs award made would effectively be paid by the applicant, thus negating the effect of a costs award given it is only his share of the estate that could be charged. For the reasons set out above, I do not consider that would be fair or appropriate, particularly when the respondent was fairly advised of the legal position and repeatedly warned that costs would be sought from him personally before the application was made.

[34]             The nest issue then is whether costs should be increased or indemnity costs or simply scale costs calculated on a 2B basis. Indemnity costs on the application, as noted above, total $31,459.47. If scale costs are awarded on a 2B basis, they would total $10,277 plus disbursements of $590.

[35]             In the absence of any submissions from the respondent, I must assess the reasonableness of the respondent’s position purely from the documents before me. While the respondent eventually did not oppose the distribution of the applicant’s share of the estate, he nevertheless initially opposed the application and maintained that the failure to distribute was justified by the need to take into account the interest of the estate of Mr McNab, the Official Assignee and Mr Hay. No sound legal basis was provided for why those interests justified the failure to distribute the estate for almost 10 years after probate was granted.

[36]             While the grounds of opposition included that delays had been occasioned “by the actions of the applicant”, no evidence was provided as to what actions of the applicant delayed distribution after probate was granted. Delays were also attributed to the actions of Mr McNab and Mr Hay, although the only evidence of the claim is a statement and an email from Mr McNab to Mr Rout on 4 June 2014, saying “TD Hay and I purchased and [sic] expectancy from [the applicant] for $30,000.00 when he was really short …” and that the arrangement is “fully documented”. However, no documents were ever provided (or sought) and no claim was ever made against the estate in the ensuing 10 years.

[37]             Increased costs can be awarded under r 14.6(3) in a range of situations, including where:

(a)the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in it by taking or pursuing:

(i)an unnecessary step; or

(ii)an argument that lacks merit; or

(b)where 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.

[38]             Here, I consider the combination of the correspondence received from Wynn Williams in advance of making the application, explaining why distribution should be made and warning that costs would be sought from the executor personally, along with the respondent taking the unnecessary step of opposing the application to distribute the estate when no reasonable basis for doing so was given, warrants an uplift in costs.

[39]             In all the circumstances, I consider increased costs should be payable and I would order a 50 per cent uplift on scale costs, plus disbursements.

[40]             I also order (as sought) that costs are payable to the applicant in respect of this application for costs, on the same terms.

Result

[41]             The respondent is ordered to pay costs, in his personal capacity, to be calculated on a 2B basis with a 50 per cent uplift, plus disbursements for all steps taken on the application, including in respect of applying for costs.

Solicitors:

Wynn Williams, Christchurch Prime Legal Ltd, Christchurch