Martin v Martin
[2024] NZHC 658
•22 March 2024
IN THE HIGH COURT OF NEW ZEALAND MASTERTON REGISTRY
I TE KŌTI MATUA O AOTEAROA WHAKAORIORI ROHE
CIV-2023-435-010
[2024] NZHC 658
UNDER the Trusts Act 2019 and the Inherent Jurisdiction of the High Court IN THE MATTER OF
the Dyerville Trust
BETWEEN
JULIA MARIE MARTIN
Applicant
AND
ALISTAIR HENRY MARTIN
Respondent
On the papers: Counsel:
S W H Fletcher and L Hansen for Applicant R C Laurenson and C D Batt for Respondent
Judgment:
22 March 2024
JUDGMENT OF GRAU J
[Costs]
Introduction
[1] Julia and Alistair Martin (Julia and Alistair) are the remaining trustees of the Dyerville Trust (the Trust). Both parties and their children are also named as beneficiaries in the Trust deed. Julia and Alistair are married but have been separated since February 2020. Proceedings are currently underway to determine whether Otaraia Farm, a 695-ha beef and sheep farm in Martinborough currently owned by the Trust, is relationship property. All other property owned by the Trust is accepted to be relationship property.
MARTIN v MARTIN [2024] NZHC 658 [22 March 2024]
[2] Following the breakdown in their relationship and the dispute about Otaraia Farm, on 1 September 2023 Julia applied to the Court for an order replacing her and Alistair with independent trustees pursuant to ss 112 and 114 of the Trusts Act (the Act). She also applied for leave to commence proceedings by way of originating application under r 19.5 of the High Court Rules 2016 (the HCR). This prompted Alistair to commence the substantive relationship property proceedings noted above. At the same time, Alistair made a cross-application under s 137 of the Act for directions that Julia represent the trustees of the Trust in the relationship property proceedings.
[3] On 12 February 2023, Ellis J delivered a judgment in respect of the applications by Julia and Alistair.1 Justice Ellis granted Julia’s applications and dismissed Alistair’s.2 Her Honour gave both parties an opportunity to confirm that Ms Jessica Kellow and Mr Iain Shephard of BDO are to be appointed as the independent trustees before the orders replacing Julia and Martin took effect.3 The parties have confirmed that Ms Kellow and Mr Shephard can be appointed by consent. The orders in [38(b)– (c)] of Ellis J’s decision thus take effect accordingly.
[4] Justice Ellis also indicated she saw no reason why 2B costs should not follow the event (being that Julia had succeeded). However, her Honour agreed to the parties filing memoranda following her judgment.4 This decision deals with the remaining issue of costs.
Julia’s position
[5] Julia’s position is that she should have her actual costs paid from the Trust funds, but that Alistair should not. She also seeks an order for increased costs at 20 per cent above 2B scale.
[6] Julia says that she acted entirely reasonably in bringing her applications: the trustees were deadlocked, no trustee decisions could be made, and judicial intervention
1 Martin v Martin [2024] NZHC 147; to the extent that it is necessary, this judgment should be read together with the decision of Ellis J in order to give full context.
2 At [38].
3 At [39].
4 At [42].
was needed. Proper trust administration of the Trust is in the interests of all beneficiaries and Julia was required as a reasonable trustee to rectify the deadlock.
[7] Julia suggests that Alistair should be required to pay his costs personally and at an increased rate because of his behaviour in these proceedings. She submits that Alistair pursued arguments that lacked merit, failed to admit undisputed material facts as to the extent of the parties’ hostile relationship, and should not have opposed Julia’s applications once warned of the difficulties his application faced. Julia notes Ellis J’s comments that the parties were at a “deadlock”.5 She also points to Ellis J’s finding that Alistair’s application for Julia to represent the Trust interests was “unworkable” and so replacement of the trustees was “the fair and sensible way forward”.6
[8] Julia also objects to Alistair’s counsel discussing the content of settlement negotiations in the costs memorandum he has filed before the Court.
Alistair’s position
[9] Alistair says that costs should not be awarded between the parties at all, or, alternatively, costs should be reserved until the determination of all issues in the substantive litigation. As a second alternative, if costs are to be fixed on a 2B basis, they should be paid from the Trust funds. If Alistair is to pay costs personally, he asks that the order lie until determination of the substantive litigation.
[10] Alistair says that the applications arose out of mutual discord but were ultimately for the benefit of the Trust. He says that Ellis J made no findings against himself or Julia and so the costs of the applications can reasonably fall on the Trust. Alistair argues that an award of costs would not be conducive to settlement. He says his application for Julia to represent the Trust in substantive litigation was brought genuinely, and so no costs award should bear on him personally at this time.
5 At [28].
6 At [35].
Discussion
[11] Generally speaking, a trustee has a right to indemnity from trust assets for reasonable costs and expenses incurred in the administration of the trust. That right is set out in s 81 of the Act, which provides:
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.
[12]Clause 20 of the Trust deed also supports that right:
20 Indemnity
The Settlor hereby declares that the Trustees shall not be liable for and shall be indemnified by and out of the Trust fund in respect of any loss or liability which may be sustained or incurred by reason of the exercise, the mode of exercise or the non-exercise of any of the powers, authorities or discretions hereby or by law conferred upon them and further declares that no Trustee shall be liable for:
(a)Any loss not attributable to dishonesty.
…
[13] Also relevant is s 140 of the Act, which allows the court to charge costs out of trust property or order that the costs “be borne and paid in the way and by the persons that the court considers just”.
[14] Where an application to remove trustees is made on appropriate grounds, the costs of the application will usually be paid from the trust.7 However, as is set out in s 81, a trustee may only be indemnified for expenses incurred “when acting reasonably”. Generally, the court will approach this issue by asking whether the expenses have been “properly incurred” in the administration of the trust. It involves an assessment of whether the costs and expenses have been necessarily incurred in the interests of the beneficiaries and are reasonable in amount.8
[15] I note at this point that the fact there are relationship property proceedings also on foot does not bear on the costs that should be ordered in respect of the confined applications dealt with by Ellis J. An order for costs does not have to wait until final determination of those relationship property matters.9
[16] I agree that Julia’s costs should be paid from the Trust funds. As is implicit in the decision of Ellis J, Julia’s application to have her and Alistair replaced with independent trustees was clearly in the interests of the Trust’s beneficiaries. It was an entirely reasonable action to take in the circumstances.
[17] As to whether Alistair can also be indemnified pursuant to s 81, I would accept Ellis J was clear that she did not make any concrete findings as to pre-proceeding misconduct, breach of trust, dishonesty or unfitness on the part of either Julia or Martin. That was in keeping with the pt 19 procedure that was applied for (and granted). For the same reason, it would not now be appropriate for me to make any such findings in relation to the issue of costs.10 However, the award of costs is concerned with the behaviour of the parties during proceedings,11 therefore the fact that Ellis J did not make any findings as to the propriety of Alistair’s conduct before proceedings commenced is not particularly helpful to him.
[18] Justice Ellis did observe, however, that Alistair’s opposition to replacement and counter-application that Julia represent the trust interests in the relationship
7 Gallagher v Gallagher [2021] NZHC 677 at [15].
8 Sunde v Sunde [2019] NZCA 552 at [13].
9 See Gallagher v Gallagher, above n 7, at [11].
10 See Jones v O’Keeffe [2019] NZCA 222.
11 Paper Reclaim Ltd v Aotearoa International Ltd [2007] NZSC 26, [2007] 3 NZLR 169 at [40]– [41].
property proceedings left some matters unaddressed and “far from clear”.12 Those matters included how the Trust would be able to make decisions relating to the relationship property proceedings, and how costs would be paid in respect of those proceedings when the time came. In respect of Alistair’s s 137 application, issues remained as to the day-to-day management of the Trust and Julia’s alleged exclusion from decision-making. 13 Alistair acknowledged he had not consulted with Julia over certain matters but continued to deny that he was required to do so. Justice Ellis commented that “it seems at least arguable that [Alistair] is not correct”.14
[19] Alongside Ellis J’s comment that the “almost inexorable conclusion[s]” was that the order sought by Alistair would “almost certainly be unworkable and (ultimately) costly”,15 I am satisfied that the actions taken by Alistair in opposing Julia’s applications for replacement and commencement under pt 19 were not in the interests of the beneficiaries. It follows that the costs thereby incurred cannot be considered as being “properly” incurred. Accordingly, he is not entitled to have his costs indemnified from Trust funds under s 81 of the Act and must bear his costs personally.
[20] The remaining issue is whether the costs order in respect of which Julia is indemnified should be made at an increased rate because of Alistair’s behaviour during the proceedings.
[21] It is trite to say that the determination of costs should be predictable and expeditious.16 Any departure from an application of ordinary scale costs is an exception to this general rule. Increased costs can be awarded at any stage of proceedings and in relation to any step in it.17 They are awarded under r 14.6(3) of the HCR which relevantly provides:
(3) The court may order a party to pay increased costs if—
…
12 Martin v Martin, above n 1, at [33].
13 At [34].
14 At [34].
15 At [35].
16 HCR, r 14.2(1)(g).
17 HCR, r 14.6(2).
(a)the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in it by—
…
(iii)failing, without reasonable justification, to admit facts, evidence, documents, or accept a legal argument; or
(iv)failing, without reasonable justification, to comply with an order for discovery, a notice for further particulars, a notice for interrogatories, or other similar requirement under these rules; or …
…
(d) 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.
[22] It follows from the discussion above that Alistair did contribute unnecessarily to the time or expense of the proceeding in his opposition to Julia’s applications and in the filing of his counter-application under s 137 of the Act. I am satisfied that Alistair failed, without reasonable justification, to accept Julia’s application for replacement of the trustees. Given the breakdown in the relationship, there was no reasonable alternative to the replacement of Julia and Alistair as trustees. Julia seeks an uplift of 20 per cent on standard 2B scale costs, which is appropriate.
[23] Alistair remains focused on the substantive proceedings and on his view that Otaraia Farm is not Trust property. His belief coloured his opposition to Julia’s applications. His position did not acknowledge the reality that the Otaraia Farm property remains in the name of the Trust and any decisions about the Trust must, at least for the time being, still be made unanimously. As a responsible trustee, Alistair must also have regard to the fact that there are many other issues of day-to-day trust administration that are not about the farm which may arise before relationship property issues can be settled. Such issues will require his co-operation with Julia. Against this background, it is unreasonable that Alistair would stand opposed to the appointment of independent trustees while simultaneously acknowledging the breakdown of his relationship and failure to consult with Julia.
[24] Finally, I note that Alistair’s counsel inappropriately and unfairly discussed the substance of settlement discussions between the parties in submissions on the issue of costs, which further supports an order for increased costs. Alistair may wish to consider what this means for the payment of his own costs.
Result
[25] Ms Jessica Kellow and Mr Iain Shephard are to be appointed as the independent trustees of the Dyerville Trust. The orders in [38(b)–(c)] of Ellis J’s decision in Martin v Martin can now take effect.18
[26] Julia is to be indemnified out of the Trust fund at 20 per cent above 2B scale costs, being a total of $22,370.40 in costs and $2,261.37 in disbursements.
[27]Alistair is to bear his costs personally.
Grau J
Solicitors:
Maxwell Law Limited, Wellington for Applicant Batt Law, Masterton for Respondent
18 Martin v Martin [2024] NZHC 147.
5
0