McKeown v Small
[2015] NZHC 2091
•31 August 2015
IN THE HIGH COURT OF NEW ZEALAND TIMARU REGISTRY
CIV-2014-476-000023 [2015] NZHC 2091
BETWEEN JAMES SUTHERLAND MCKEOWN
Plaintiff
AND
ANGELAJEAN SMALL AND NICHOLA JANE GEARY
First Defendants
GEOFFREY ANDREW CHAPMAN, ANGELA JEAN SMALL AND NICOLA JANE GEARY AS EXECUTORS OF THE ESTATE OF HEATHER MARGARET MCKEOWN
Second Defendants
Hearing: (Dealt with on the papers) Appearances:
J V Ormsby for Plaintiff
C A O'Connor for DefendantsJudgment:
31 August 2015
JUDGMENT OF GENDALL J (As to costs)
Introduction
[1] In a substantive judgment I issued in this proceeding on 18 May 2015 the plaintiff’s claim succeeded and an order was made that he was to receive an additional payment with respect to his share in his late father’s estate together with interest.
[2] As to costs on this proceeding, at paras [62] and[63] of my 18 May 2015 judgment I stated:
[62] I have had no detailed submissions on the issue of costs. In submissions, James sought $18,142.05 for legal costs incurred while
MCKEOWN v SMALL [2015] NZHC 2091 [31 August 2015]
attempting to obtain information regarding the administration of his parents’ estate (the Timpany Walton costs). He also sought indemnity costs for this proceeding.
[63] I am not prepared to grant these costs orders in the absence of both parties being afforded an appropriate opportunity to be heard. If the parties are unable to agree on the issue of costs, they are to file memoranda and I will deal with the matter on the papers. Plaintiffs submissions are to be filed within 15 working days of the date of this judgment (not exceeding five pages). Defendants’ submissions are to follow 15 working days thereafter (not exceeding five pages).
[3] Counsel have advised that the parties have been unable to agree on the question of costs. Counsel for the plaintiff has filed his memorandum on costs dated
8 June 2015 and counsel for the first and second defendants has filed his memorandum on costs dated 29 June 2015.
[4] I have now had an opportunity to consider all the submissions advanced and now give my decision on the question of costs.
Timpany Walton legal costs
[5] First, as I noted at para [15](c) of my 18 May 2015 judgment, the plaintiff’s substantive claim in this proceeding included a claim for $18,142.05 for legal fees he incurred with Timpany Walton between 8 December 2008 and 16 December 2013. These related to instructions he had given Timpany Walton to request information regarding the administration and value of both his parents’ estates. This legal fees claim is brought against the second defendants as executors of the plaintiff’s mother’s estate.
[6] This amount for expenses incurred by the plaintiff was claimed in his amended statement of claim under the fifth cause of action being losses alleged to have arisen from breaches of trust by the second defendants. He contended that their failure to maintain proper accounts for the estates in which the plaintiff was a beneficiary, and to provide information to the plaintiff as such beneficiary, had caused him unnecessarily to incur these legal fees which were significant.
[7] The plaintiff maintained that throughout the present proceeding and going
back to 2009 he had endeavoured to accurately determine the value of his father’s
estate and then to have it distributed according to his father’s will. Had the second defendants correctly maintained estate accounts and properly performed their trustee duties, the plaintiff says that his late father’s estate would have been correctly valued and distributed after the death of his late mother as life tenant. As this did not occur, the plaintiff contends he has been put to significant expense in order to correct the mistaken distribution and this is a loss directly attributable to the second defendant’s breaches of their duties as executors and trustees. As such, the plaintiff contends he is entitled to recover those losses, including the $18,142.05 legal fee bills he incurred which flowed directly from the breaches.
[8] In response, counsel for the defendants opposes this claim and say that any costs here should relate only to the period from the time when these proceedings were issued in 2014. In any event, counsel for the defendants notes also that it was not until the plaintiff filed his amended statement of claim in this proceeding on 10
November 2014 that the real issues at trial became clear. The defence position is that there was nothing improper in what the defendants had done throughout, in that it is said they relied on assumptions made by their “expert accountant” in adopting the position they had.
[9] On these issues, certain observations I made in my 18 May 2015 judgment are usefully repeated here:
[59] I do not comment in detail on the remainder of the assertions made by James, other than to note in passing that the manner in which the estates have been handled might well be seen as somewhat unsatisfactory here. In particular, I observe that:
(a) The accounting records were particularly poor, given the complexity of the testamentary arrangements;
(b) James, as a beneficiary under Peter’s estate, did not receive
relevant information in a timely manner;
(c) The fact Mr Sinclair was called upon to prepare the accounts was not entirely satisfactory. Irrespective of whether he was in fact biased (and I reach no conclusion and make no comment on this), his relationship as Nicola’s father-in-law might well create a perception of bias. With the benefit of hindsight, it would have been wise to select a completely independent third party for carrying out these accounting and other functions here; and
(d) Potential issues clearly arose when decisions were taken to distribute the estate without first informing James that this was intended…
[10] Further, at para [14] of my substantive judgment, I set out in some detail a considerable number of steps taken by the plaintiff through Timpany Walton, his solicitors at the time, to obtain information and negotiate a position with the defendants.
[11] The $18,142.05 Timpany Walton legal fees here in issue relate to what was a period of some five years from December 2008 to December 2013. As I understand the position, however, some of these attendances may have related to investigations and legal advice over whether the plaintiff might bring a claim against the estate of his late mother or the family trust. It is clear though that no such claims eventuated. These matters, in my view, in any event, must be seen as irrelevant to the present proceeding.
[12] Otherwise, I have little doubt that a significant proportion of the Timpany Walton costs incurred by the plaintiff over this period related to his proper requests for information and the defendants’ duties as trustees to furnish information and to complete proper accounts. In all the circumstances here, in my judgment, the accurate value of the plaintiff’s father’s estate should have been determined in around 2009, but it was not. Had it been, this proceeding could have been avoided.
[13] I take the view therefore that a reasonable proportion of the Timpany Walton legal fees, which I assess at 60% of the total $18,142.05, is properly recoverable by the plaintiff here under his fifth cause of action in his amended statement of claim. As I see it, this relates directly to the inability or refusal of the second defendants to properly assemble, complete and provide the information and estate accounts when reasonably requested.
[14] An order is now made therefore that the second defendants are to pay to the plaintiff $10,885.23 representing 60% of this $18,142.05 legal fees amount.
Costs on this proceeding
[15] I now turn to the question of costs on this proceeding.
[16] As to this, counsel for the plaintiff has confirmed that the plaintiff’s actual legal fees incurred with respect to this proceeding are $77,596.52. In addition, he confirms the plaintiff has incurred $31,321.33 by way of disbursements made up as follows:
(a) Mr Butterfield’s expert accounting fees totalling $28,636.84.
(b) Court filing fees totalling $850. (c) Court scheduling fee of $1600.
(d) Related disbursements (courier, LINZ searches etc) $234.49.
[17] The plaintiff’s position is that, if an award of indemnity costs which he seeks
is not to be made, then an award of increased category 2B scale costs (amounting to
$36,516.50 with an uplift on this figure of 50%) should be made, in addition to an order for the disbursements he incurred outlined above.
[18] In response, counsel for the defendant contends there is no reason here for the Court to depart from its usual practice with respect to costs, and thus to make an award on a simple category 2B scale basis.
[19] Turning to address these issues, at the outset I need to say here that I am of the view that this is not a situation where the first defendants or the second defendants could be considered in terms of r 14.6.(4) High Court Rules to have behaved badly or very unreasonably in defending this proceeding or a step in it (for example by a breach of confidence, fraud allegations, ulterior motive or flagrant misconduct) such that the threshold is reached for an award of indemnity costs to be made in favour of the plaintiff.
[20] Having said that, however, as I see it this case is a situation where the threshold for an award of increased costs in terms of r 14.6(3) High Court Rules has been met.
[21] McGechan on Procedure at para HR14.6.02 in dealing with increased costs states:
(1A) Threshold
In Bradbury v Westpac Banking Corp [2009] 3 NZLR 400, (2009) 19 PRNZ
385 (CA) at [27] the Court of Appeal stated “increased costs may be ordered where there is failure by the paying party to act reasonably”. The
unreasonable conduct must be in relation to the proceeding, and thus after it
was commenced, not earlier conduct: Paper Reclaim Ltd v Aotearoa
International Ltd [2006] 3 NZLR 188 (CA) at [160]. Further, the court should consider the extent to which the failure to act reasonably contributed to the time or expense of the proceeding. Only to that extent could any percentage uplift from scale be justified: Commissioner of Inland Revenue v Chesterfields Preschools Ltd [2010] NZCA 400 at [165].
[22] In the present case I have no doubt that, since this proceeding was commenced in April 2014 the action of the defendants in requiring the plaintiff to advance this proceeding and to pursue information throughout relating to the respective estates, has clearly increased the costs incurred by the plaintiff.
[23] The plaintiff has satisfied the onus upon him of persuading me that an award of increased costs is justified here. In my view, a full 50% uplift from category 2B scale costs is justified in all the circumstances of this case and to reflect the extent to which the defendants in failing to act reasonably with respect to this proceeding contributed to the time or expense incurred by the plaintiff. In addition, in my view, this uplift should run from the time these proceedings were initially filed in April
2014. This is notwithstanding that some seven months later, in November 2014, an amended statement of claim was filed by the plaintiff following discovery. From this discovery, as I understand it, additional information came to hand which arguably the plaintiff might have received from the defendants at the outset.
Quantum
[24] Turning now to issues of quantum, counsel for the plaintiff has outlined in his schedule an assessment of category 2B scale costs in this proceeding at $36,516.50. This calculation is not in any real way disputed by counsel for the defendants.
[25] Given that I have found the plaintiff is to be entitled to an award of category
2B scale costs together with a 50% uplift, this $36,516.50 amount is to be uplifted by the sum of $18,258.25 to reach a total figure for costs of $54,774.74.
[26] I therefore order that the plaintiff is entitled here to an award of uplifted category 2B costs against the first defendants and the second defendants jointly and severally of $54,774.75.
[27] As to disbursements, from para [16] above the amount sought including a significant accounting expert fee totals $31,321.33. No real issue has been taken by the defendants with respect to this disbursements claim. I am satisfied too that the amount sought by the plaintiff for disbursements is reasonable and appropriate in all the circumstances here.
[28] An order is also made that the plaintiff is entitled to an award of disbursements totalling $31,321.33 against the first defendants and the second defendants jointly and severally.
...................................................
Gendall J
Solicitors:
Wynn Williams, Christchurch
Gresson Dorman & Co, Timaru
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