McLaughlin v McLaughlin
[2020] NZHC 144
•12 February 2020
IN THE HIGH COURT OF NEW ZEALAND NELSON REGISTRY
I TE KŌTI MATUA O AOTEAROA WHAKATŪ ROHE
CIV-2017-442-000052
[2020] NZHC 144
BETWEEN MARK JAMES McLAUGHLIN AND ANDREW ASHLEY McLAUGHLIN
PlaintiffsAND
JOHN DAVID MANUEL McLAUGHLIN, GLASGLOW HARLEY TRUSTEE
LIMITED AND MARK WILLIAM RUSSELL AS TRUSTEES OF THE ASHLEY TRUST
First Defendants
AND
BRIAN JAMES MAURICE NELSON
Second Defendant
Hearing: On the papers Appearances:
J W A Johnson and J R Halligan for Plaintiffs E D Peers for First and Second Defendants
D Turley for Edna McLaughlin
J W H Little for Respondents’/Plaintiffs’ Children J M McGuigan for Brett McLaughlin
Judgment:
12 February 2020
JUDGMENT OF DUNNINGHAM J RE: COSTS DECISION
This judgment was delivered by me on 12 February 2020 at 3.30 pm, pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
McLAUGHLIN v McLAUGHLIN [2020] NZHC 144 [12 February 2020]
Introduction
[1] These proceedings concern a dispute between beneficiaries of a family trust, the Ashley Trust (the Trust), and the trustees of that Trust.
[2] On 8 October 2019 I declined an application by the plaintiffs for an interim injunction restraining the trustees of the Trust from proceeding with the next stage of developing a large block of farm land in Stoke, Nelson (the Trust Property), until a new trustee was appointed to replace Glasgow Harley Trustee Ltd (Glasgow Harley).
I delivered my reasons on 11 October 2019 and I reserved the question of costs.1
[3]The parties have been unable to agree on costs and seek orders from the Court.
Submissions
Submissions for the defendants
[4] Mr Peers for the defendants submits that 2C rather than 2B scale costs are appropriate in this case. He says a comparatively large amount of time was required in taking steps to defend the interim injunction application. The application was heard on an urgent basis, was of “extremely far-reaching scope” as it sought to prevent any further steps in respect of the Trust Property, and as a result the trustees had no choice but to commit all resources necessary to defend the application within the relevant time frames.
[5] Mr Peers submits the scope of the defendants’ defence to the application was unnecessarily broadened by the unfocused nature of the evidence and arguments relied upon by the plaintiffs in their application. They sought to rely generally on all their evidence filed in the Beddoe application proceeding rather than to focus the arguments and evidence relevant to the test for the granting of an interim injunction.2 Mr Peers says the plaintiffs relied on their original evidence without reference to correcting and responding evidence filed in the Beddoe application, resulting in unnecessary time and expense. Further, Mr Peers submits significant time was also incurred in relation to
1 McLaughlin v McLaughlin [2019] NZHC 2597.
2 Re Beddoe [1893] 1 Ch 547 (CA).
the attempted introduction of information asserted by the trustees to be privileged. He says these assertions were substantially upheld by me in my rulings on those issues.3
[6] Mr Peers submits increased costs are appropriate in this case, and Mr Peers submits “at the very least” rr 14.6(3)(a), (b) and (d) of the High Court Rules 2016 apply here.
[7] As to the merits of the plaintiffs’ claim, Mr Peers submits that while I did find there was a serious question to be tried, this does not speak to the question of the substantive merits of the claim. Mr Peers points to my findings that the trustees’ evidence as to the merits of completing “Stage 1” of the Homestead block subdivision of the Trust Property was compelling; that an injunction would have an adverse impact on third parties (the Trust’s employees); that the plaintiffs’ concerns regarding the fettering of future trustee discretion were overstated given the anticipated time frame for the development; and that declining to make the injunction best protected the value of the Trust’s assets and preserved the interests of all beneficiaries. Mr Peers notes that I found the plaintiffs’ application failed by “some margin”.4
[8] Mr Peers submits because the grant of an interim injunction is an exceptional remedy, the pursuit of extraordinary relief of this nature should be pursued (in the context of a discretionary trust) only with probative and cogent evidence of “likely, or possible, irreparable loss to the Trust”. Mr Peers states the plaintiffs’ evidence was insufficient in that regard. It is submitted an uplift of 50 per cent is appropriate in this case.
[9]The plaintiffs also seek certification for second counsel.
[10] Finally, Mr Peers submits the trustees should be indemnified by the Trust, as a result of their prima facie rights of indemnity under s 38 Trustee Act 1956 and cl 12 of the Trust Deed for the balance of their costs incurred in relation to this application. The total costs incurred, including for preparing the costs memorandum, were
$39,182.00 plus GST. Mr Peers says if I do not address the issue of trustee indemnity,
3 McLaughlin v McLaughlin [2019] NZHC 2600.
4 McLaughlin v McLaughlin, above n 1, at [65].
the defendants will need to separately pursue orders for indemnity by way of a directions application.
Submissions for the plaintiffs
[11] Counsel for the plaintiffs, Mr Johnson and Mr Halligan, say costs should be awarded on a 2B basis. They say the urgency of the application and the fact the defendants had to commit resources to defend it do not increase the amount of time for any particular step in a proceeding. Any urgency was precipitated by the defendants because a substantive hearing was ordered following the defendants’ ultimatum that if no decision was received by 4 pm on 9 October 2019 they would proceed to sign the agreement for sale of sections in the next stage of the Trust Property subdivision regardless and the plaintiffs merely agreed to their demand.
[12] Counsel further submit the scope of the application was limited primarily to the first, third and fourth causes of action. The plaintiffs, having sought leave under r 7.32 of the High Court Rules, relied on affidavits previously filed in the course of the proceeding (other than one further affidavit of Mark McLaughlin) to avoid the needless time and cost involved in duplicating the substance of them. Counsel note the defendants did not seek leave under r 7.32, resulting in the hearing proceeding with the defendants offering evidence without notice being given and evidence that was not admissible.
[13] In relation to the disputes over the alleged privileged material that were heard at the interim injunction hearing, counsel say they occupied a relatively small amount of time. The plaintiffs also made practical concessions during the hearing. Counsel say it is not the case that the defendants’ assertions of privilege were substantially upheld. In some cases, both the plaintiffs’ evidence and the statement to which it responded were not admitted. In other cases, the objection was upheld; and in others, only the plaintiffs’ evidence was not admitted.
[14] Counsel submit the nature of the proceeding does not warrant certification for two counsel.5 While two counsel did appear, the proceeding could have been conducted by counsel alone.
[15] In relation to the issue of increased costs, counsel submit because the plaintiffs’ position is that costs should be calculated on a 2B basis, band C costs are not appropriate for any step of the proceeding and therefore an uplift under r 14.6(3)(a) of the High Court Rules is not appropriate.
[16] Further, an uplift under r 14.6(3)(b) is not appropriate because the plaintiffs did not pursue an unnecessary step or argument that lacked merit. Counsel cite Jarden v Lumley General Insurance (NZ) Ltd where the Court of Appeal upheld the High Court’s costs uplift of 25 per cent on 2B costs where the plaintiffs’ claim was pursued without proper justification and with key allegations being unsupported by the plaintiffs’ experts.6 Counsel also note that provided the principal arguments have merit, a weak (but not hopeless) case will not warrant increased costs.7 On the interim injunction application, counsel say that my judgment did not disclose the application as lacking merit, being unreasonable, nor never having a reasonable prospect of success. In this case, they submit that this is demonstrated by my finding that there was a serious question to be tried.8 The application only failed because the balance of convenience and the overall justice did not favour its granting.9
[17] In relation to r 14.6(3)(c), counsel submit this ground for increased costs is directed at proceedings which are brought or defended in the public interest.10 It does not apply where the party seeking costs has a direct financial interest in the outcome of the proceedings.11
5 See Nomoi Holdings Ltd v Elders Pastoral Holdings Ltd (2001) 15 PRNZ 155 (HC) at [21].
6 Jarden v Lumley General Insurance (NZ) Ltd [2018] NZCA 6.
7 Lyons v Breslin [2012] NZHC 3106 at [9]; and Powell v Hally Labels Ltd [2015] NZCA 11 at [4].
8 McLaughlin, above n 1, at [34].
9 At [66] and [73].
10 New Zealand Maori Council v Attorney-General (No 3) HC Wellington CP942/88, 28 April 1995 at [9].
11 See Whangamata Marina Society Inc v Attorney-General (2006) 18 PRNZ 565 (HC) at [16]; and
Mainzeal Property and Construction Ltd (in liq) v Yan [2019] NZHC 1637 at [19].
[18] Finally, counsel note the defendants do not specify the “other reason” justifying increased costs under r 14.6(3)(d). Counsel highlight that recourse to this ground will only be available in exceptional cases, for example, an egregious breach of a duty.12
[19] As to the trustees’ indemnity, the plaintiffs do not comment on the reasonableness of the defendants’ costs, nor on whether they are entitled to indemnity pending the outcome of the substantive proceeding – the trustees having been denied a Beddoe order for all but the second cause of action.
[20]The plaintiffs offered to pay the defendants costs calculated on a 2B basis at
$7,648 plus disbursements. The offer was rejected. Counsel therefore submit a cost award should be made in the plaintiffs’ favour as a result of having to file memoranda on costs. Accordingly, the plaintiffs seek orders that:
(a)The plaintiffs pay the defendants costs on a 2B basis of $7,648 together with disbursements of $2,920, on the interim injunction application.
(b)The defendants pay the plaintiffs costs on a 2B basis of $956, for the preparation of the plaintiffs’ costs memorandum.
Discussion
[21] The issue of costs must be determined by applying the principles in the High Court Rules. Both parties accept that the defendants, as the successful party, are entitled to costs. Those costs should be assessed by applying the appropriate daily recovery rate to the time considered reasonable for each step reasonably required in relation to the application.
[22] Both parties agree this is a category 2 proceeding. They differ, however, on whether the determination of reasonable time for each step should be made by reference to Band B (where a normal amount of time is considered reasonable), or to Band C (if a comparatively large amount of time for the particular step is considered reasonable).13
12 Willburn Furniture and Restorations Ltd (in liq) v Gledhill [2016] NZHC 549 at [7]–[14].
13 High Court Rules 2016, r 14.5(2).
[23] I accept the plaintiffs’ argument that mere urgency does not provide a basis for ordering costs on anything other than a 2B basis. It is important to look at the time and effort involved in preparation and assess whether that was a normal, or a comparatively extensive amount of time. In my view, a category 2C basis is warranted on this occasion for both the filing of the opposition to the interlocutory application and for the preparation of submissions, but not for the filing of memorandum of counsel. I accept that the plaintiffs’ grounds for seeking the injunction were wide ranging, resting largely on the underlying allegations of breach of duty rather than focusing on the particular risks of granting or declining the injunction. Furthermore, as the defendants point out, there were a number of matters that had changed since the original affidavits were filed. Updated evidence was required to be filed to give the Court an accurate picture of the circumstances at the time of the injunction.
[24] Furthermore, the defendants had to file extensive evidence in respect of the risk to the development (and therefore to the beneficiaries’ interest), if the subdivision of the trust property was brought to a halt. This was detailed and comprehensive evidence going beyond what might be required in a “normal” application for an injunction. For these reasons, I am satisfied that the costs for the steps I have identified should be calculated on a 2C basis.
[25] I do not certify for second counsel. While both parties had second counsel, that, of course, is not determinative of the matter. As Chambers J observed in Nomoi Holdings Ltd v Elders Pastoral Holdings Ltd, when assessing whether to certify the second counsel “the determination of costs is not related to the actual counsel involved” but is rather “objective and is focused on the nature of the proceeding”.14 While I have acknowledged the hearing required significant preparation, that is reflected in my costs award. The hearing itself was not so complex that it required two counsel.
[26] In terms of the claim for increased costs, I consider the categorisation of the key steps in the proceedings as meriting costs on a 2C basis effectively answers the concerns which are raised to support the claim for increased costs. As is said in the
14 Nomoi Holdings Ltd v Elders Pastoral Holdings Ltd, above n 5, at [21].
plaintiffs’ submissions, the focus in the High Court Rules is on whether a failure by the paying party to act reasonably contributed to the time or expense of the proceeding.15 It is only to that extent that any percentage uplift from the scale can be justified. In my view, the categorisation of key steps in the proceedings as 2C reflects the extent to which the plaintiffs’ position contributed to the time or expense of the proceeding.
[27]There is no basis on which to increase costs beyond that.
[28] Finally, the trustees seek to be indemnified for the balance of their costs from the Trust in light of their prima facie rights to an indemnity under s 38 Trustee Act 1956 and cl 12 of the Trust Deed.
[29] It seems, from their costs memorandum, that while the plaintiffs accept the indemnification principle, they consider the issue of whether the costs were reasonable should be referred to Mr Richard Fowler QC for determination.
[30] I do not consider that is necessary. While I accept that a Beddoe order was refused by Thomas J in respect of the defence of the substantive claim, I consider the question of whether it was in the Trust’s interests to defend the application for an interim injunction can be treated separately. The trustees were successful in their opposition and accordingly they are entitled to an indemnity from the Trust.
[31] Given my view that the proceeding was complex and warranted a 2C categorisation for most costs purposes, I see no reason to question the reasonableness of the quantum of the defendants’ costs. It strikes me that Mr Fowler would be in no better position than me to determine the reasonableness of the costs. Accordingly, I hold that the trustees are entitled to be indemnified for the balance of the costs incurred up to $39,182 plus GST in defending this application (after deducting the costs payable by the plaintiffs), from the assets of the Trust.
[32] Given the mixed success of the parties, costs are to lie where they fall on this costs application.
15 Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400.
Result
[33]I make the following costs orders:
(a)the plaintiffs are to pay:
(i)the defendants costs calculated on a 2C basis for all steps, except for filing the memorandum of counsel dated 4 October 2019 where 2B costs apply; and
(ii)the disbursements set out in Table 1 to the defendants’ costs memorandum;
(b)costs on this application are to lie where they fall; and
(c)the trustees are entitled to be indemnified for the balance of the costs they incurred up to $39,182 plus GST in relation to this application (after deducting the costs payable by the plaintiffs), from the assets of the Trust.
Solicitors:
Wynn Williams, Christchurch Buddle Findlay, Christchurch
J M McGuigan, Barrister, Christchurch
7
1