McGuire v Earl
[2021] NZHC 129
•10 February 2021
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE
CIV-2020-409-278
[2021] NZHC 129
BETWEEN CHRISTOPHER ALAN LESLIE
McGUIRE, as a beneficiary of the Dennis Patrick McGuire Trust
Plaintiff
AND
CHRISTOPHER KNOX EARL, ERROL MANNERING BARNES and GEOFFREY WILLIAM JAMES ROCHESTER as
trustees of the Dennis Patrick McGuire Trust Defendants
Hearing: (Determined on the papers) Counsel:
J R Pullar and M P Davis for the Plaintiff
G A Cooper and M L Rhodes for the Respondents
Judgment:
10 February 2021
JUDGMENT OF ASSOCIATE JUDGE LESTER
(Costs Judgment)
This judgment was delivered by me on 10 February 2021 at 3.30 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar 10 February 2021
McGUIRE v EARL [2021] NZHC 129 [10 February 2021]
[1] This costs judgment follows my judgment of 20 November 2020 (the November decision).1 The plaintiff/applicant had sought disclosure of information relating to the trust settled by his late father, Dennis Patrick McGuire (the Trust). The plaintiff is one of only two discretionary beneficiaries of the Trust, with the other beneficiary being one of the trustees.
[2] My November decision records that the plaintiff had made multiple requests for disclosure of information relating to the Trust. The request for disclosure was not novel in that it was for statements of accounts, copies of Minutes and Resolutions, and documents relating to any distributions and any gifting or debt incurred.
[3] Plaintiff’s counsel notes the plaintiff had made some 10 requests for disclosure from the trustees between December 2018 and May 2020. On occasions, those requests referred to the possibility of an application being made to the Court for orders of disclosure.
[4] After the proceedings had been issued and a notice of opposition filed, the trustees disclosed the financial statements for the Trust. Disclosure took place on the plaintiff’s submissions were to be filed.
[5] As recorded in my November decision, the provision of the financial accounts prompted plaintiff’s counsel to raise a number of queries with the defendants. The response to those queries confirmed, amongst other things, that a distribution from the Trust had been made to a non-beneficiary. Notwithstanding that, I recorded in the November decision at [20]:
With the issuing of these proceedings, some further documents were provided, including Dennis’ Will, but the trustees maintained they had provided sufficient information to Christopher to permit him to determine whether the trustees had acted in accordance with the Trust Deed. In addition to the claim the trustees had met their disclosure obligations, they also relied on the information sought as being confidential.
1 McGuire v Earl [2020] NZHC 3083.
[6] The trustees’ assertion that they had provided sufficient information to permit the plaintiff to determine whether the trustees had acted in accordance with their Trust Deed was patently wrong.
[7] In my November decision I was also critical of the information provided by the trustees in response to the queries of plaintiff’s counsel that had been prompted by the provision of the financial accounts. I labelled the description of a transaction in that information as “misleading”.2
[8] The treatment in the financial accounts of the distribution that was the subject of the query of plaintiff’s counsel was inadequate and, again, the explanation offered by the trustees’ solicitor’s in response to the enquiry about this transaction was less than fulsome.3
[9] During the hearing, counsel for the defendant responsibly acknowledged that the response from the trustees’ solicitors to the plaintiff’s enquiry was incomplete.4
[10] Given the information provided showed a distribution to a non-beneficiary, I described the application for disclosure as a compelling one and orders were made.5
[11] As to costs, I said they were reserved and would follow the event and that if costs could not be agreed, counsel were to address who should bear the plaintiff’s costs, at what level, and whether the trustees should have their costs paid from the Trust fund.6
[12]Counsel have been unable to agree on costs and memoranda have been filed.
[13] As to the plaintiff’s costs claim, the defendants accept that the plaintiff was successful and that he should be entitled to costs. The defendants submit that the plaintiff should be entitled to have costs on a 2B basis paid from the Trust fund. The
2 McGuire v Earl, above n 1, at [27].
3 At [37].
4 At [39].
5 At [55]-[62].
6 At [63]-[64].
defendants also seek an order that the trustees should be indemnified for their own costs from the Trust fund.
Level of plaintiff’s costs
[14] The plaintiff seeks either an order that his costs should be met on an indemnity basis or an uplift.
[15] I am satisfied that in terms of Bradbury v Westpac Banking Corporation,7 “there [was] a failure by the paying party to act reasonably”. I say this as, once it had become clear there had been a distribution to a non-beneficiary, the fullest and frankest disclosure by the trustees was required. It was unreasonable for the trustees to adopt the position prior to the hearing that they had provided sufficient information to permit the plaintiff to determine whether the trustees had acted in accordance with the Trust Deed. The defendants required the matter to be fully argued, notwithstanding the fact there had been an unauthorised distribution.
[16] I am, however, satisfied that the defendants were not motivated by bad faith. As I recorded in my November decision, at least one of the trustees was a very close friend of the settlor.8 The settlor had left a Memorandum of Wishes in which he requested certain information in respect of the Trust be kept confidential. The trustees in good faith saw themselves as bound by the Memorandum of Wishes in that regard, albeit that such was an incorrect position to adopt.
[17] However, I am satisfied that an uplift is required. There is an award of costs to the plaintiff on a 2B basis with a 50 per cent uplift together with disbursements as set out in the schedule to the plaintiff’s memorandum.
Who should pay those costs?
[18] On this issue, I have been assisted by a decision of Associate Judge Osborne (as he then was) in The Cats’ Protection League v Deans.9 The starting position is that
7 Bradbury v Westpac Banking Corporation [2009] NZCA 234, [2009] 3 NZLR 400 at [27].
8 McGuire v Earl, above n 1, at [4].
9 The Cats’ Protection League v Deans (2010) 20 PRNZ 584 (HC).
the beneficiary of the trust in that case had an entitlement to all of the income in the trust and was not a discretionary beneficiary. However, in that case the information sought was provided without the need for a hearing. The Court concluded there had been a measure of unreasonableness in the position adopted by the defendant trustees in respect of the requested information.
[19] His Honour discussed the principles applicable to the determination of costs in trust matters. He adopted the view that trustees may be made personally liable for the costs of a proceeding which is caused by the trustees’ failure to carry out their duties. Ultimately, his Honour recognised that reasonableness would be the touchstone in relation to the issue of who would bear the costs.10 On the one hand, if the costs are paid from the trust then that is ultimately to the detriment of the beneficiaries, including the plaintiff. On the other hand, if the trustees have to meet the costs personally then such may serve as a disincentive to individuals being prepared to take on the role of a trustee. This was a factor his Honour referred to in his decision, citing Re O’Donoghue, where Hammond J said:11
A Court will naturally hesitate before leaving a trustee, who, after all, shoulders an onerous burden, to carry costs personally. But I am afraid that this is such a case …
[20] As I have said, the Court found a measure of unreasonableness on the part of the defendants in The Cats’ Protection League. The Court noted that there was some debate as to the nature and extent of the beneficiaries’ rights, that the request for information was of a developing nature, and it was not a case where the trustees had for years resisted a course of action and defended it to a full hearing.12
[21] In the present case, I do not consider there was great room for debate as to the nature and extent of the beneficiaries’ rights. The nature and extent of the information sought was expanded to some extent over time but not to such an extent that the information was sought and provided on a piecemeal basis as in The Cats’ Protection League. As I have said in this case, the matter did go to a hearing.
10 At [37].
11 Re O’Donaghue [1998] 1 NZLR 116 (HC) at 122.
12 The Cats’ Protection League, above n 9, at [38].
Should the trustees bear the costs of the plaintiff?
[22] I adopt here the approach taken by the Court in The Cats’ Protection League. Here, there is no doubt that the trustees, through their stance, necessitated the application being brought and heard, and thereby caused the beneficiaries to incur loss in the form of legal costs.
[23] I am satisfied that an injustice would be caused to the plaintiff if his costs were either left to be absorbed by him or to be reimbursed from the Trust capital. The question is whether the trustees should personally bear all of the costs of the plaintiff or only a portion of those costs.
[24] The Court in Re O’Donoghue refused to make an order in favour of the beneficiary against the trustee personally, having regard to the Court’s suspicion that the unfortunate events had been partly caused by the trustee’s advisor, rather than through the trustee’s own judgment.13
[25] It is clear from the defendants’ evidence that their decision not to provide information was, at least in part, driven by their own sense of loyalty to the settlor and to his Memorandum of Wishes. Had the trustees’ position been the result of incorrect advice then I would have expected that the trustees would now be represented by different counsel – that is not the case.
[26] In The Cats’ Protection League, the trustees had to personally meet 50 per cent of the plaintiff’s costs. I consider the present case to warrant the trustees bearing a higher percentage of the plaintiff’s costs. I hold that view because the defendants sought to defend the indefensible that is, their refusal to provide information when they acknowledged having made a distribution to a non-beneficiary. They required the matter to go to a hearing. Even during the hearing, when I took a brief adjournment to see if the matter could be resolved given the discussions that had occurred, the defendants did not relent.
13 Above n 11, at 122-123.
[27] I order the defendants will pay personally two-thirds of the costs award in favour of the plaintiff and the remaining one-third will be paid from the Trust fund.
The defendants’ costs
[28] As noted at the outset, the defendants seek an order that they may be indemnified for their own costs from the Trust fund. I decline to make that order.
[29] I do not accept the submission that the application concerned a difficult question of trust administration which required the Court’s guidance. If the trustees had genuinely been in doubt then it was for them to seek directions, not to refuse the plaintiff’s request for disclosure and force him to bring an application.
[30] Counsel for the defendants relies on a trustee indemnity clause in the Trust Deed, but that indemnity does not apply where the trustees have acted negligently. I am quite satisfied that the trustees acted negligently here. Their failure to agree to provide disclosure in the circumstances I have described was, as I have characterised, indefensible.
[31] As to the distribution to a non-beneficiary, defendants’ counsel submits all relevant information ordered by the Court has now been disclosed, including a payment of $1,000 to the Ruth Spearing Cancer Research Trust. This is alleged to be a breach of trust because it is not an object of the relevant powers. Counsel submits that while the trustees will need to review the circumstances of this payment, these proceedings are not appropriate to ultimately determine the validity of that payment. They contend that it may transpire that the distribution may be remedied by the Trust Deed or that it is indeed valid under the wide powers as to beneficiaries in the Trust Deed.
[32] I do not accept this submission. It is not possible to retrospectively validate an unauthorised distribution. The Ruth Spearing Cancer Research Trust is not a named beneficiary. In any event, the above submission cannot be reconciled with the defendants’ previous position before the hearing that they had already supplied all information needed to enable their compliance with the Trust Deed to be determined.
[33] As I have said, I do not consider the defendants were acting in bad faith, but their stance was unreasonable and caused unnecessary costs. I direct the defendants shall bear two-thirds of their own costs and may be indemnified from the Trust fund only to the extent of the remaining one-third of their costs.
Results
[34] I award costs to the plaintiff on a 2B basis with a 50 per cent uplift together with disbursements as set out in the schedule to the plaintiff’s memorandum.
[35] I order the defendants will pay personally two-thirds of the costs award in favour of the plaintiff, and the remaining one-third will be paid from the Trust fund.
[36] I direct the defendants shall bear two-thirds of their own costs and may be indemnified from the Trust fund only to the extent of the remaining one-third of costs.
Associate Judge Lester
Solicitors:
Taylor Shaw, Christchurch Cavell Leitch, Christchurch
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