Neumegen v Durrans

[2020] NZHC 2018

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV 2020-404-000689

[2020] NZHC 2018

UNDER

Trustee Act 1956, s 75

IN THE MATTER OF

the Estate of JEAN DURRANS

BETWEEN

PETER CARL NEUMEGEN as executor of the estate of JEAN DURRANS

Plaintiff

AND

JANET MARY DURRANS

Defendant

Hearing:

06 August 2020

Appearances:

A McDonald for the Plaintiff

No appearance for the Defendant

Judgment:

10 August 2020

JUDGMENT OF CAMPBELL J

This judgment was delivered by me on 10 August 2020 at 4.00pm Pursuant to Rule 11.5 of the High Court Rules

…………………………

Registrar/Deputy Registrar

Solicitors/Counsel:

Daniel Overton & Goulding, Auckland Akarana Chambers, Auckland

NEUMEGEN v DURRANS (estate of JEAN DURRANS) [2020] NZHC 2018 [10 August 2020]

Introduction

[1]    The plaintiff, Mr Neumegen, is the sole executor of the estate of the late Jean Durrans. Mrs Durrans had two adult children, Andrew Durrans and Jean Durrans (known as JD). I will refer to them as Andrew and JD respectively. They are the residuary beneficiaries of Mrs Durrans’ estate.

[2]    JD is the defendant. She has made or indicated some claims against the estate (beyond her claim as a residuary beneficiary), but has not initiated or pursued those claims in any formal way. Mr Neumegen believes the claims are, subject to one exception, without merit. He wishes to complete administration of the estate, but feels that he cannot while JD’s potential claims hang over it.

[3]    To resolve this impasse Mr Neumegen served a notice on JD under s 75 of the Trustee Act 1956. The notice called upon JD to bring a proceeding to enforce her claims within three months. JD did not bring any proceeding.

[4]    Mr Neumegen then commenced this proceeding under s 75, seeking orders barring JD’s claims, and enabling him to deal with the estate without regard to those claims. He made a detailed affidavit in support, dated 18 May 2020.

[5]    JD was served with the proceeding on 28 May 2020. She did not file a defence. Mr Neumegen sought judgment by default, and a formal proof hearing was held for that purpose.1

Background

[6]    Mrs Durrans died on 7 August 2017. Mr Neumegen was appointed executor under her will, which was dated 22 June 2017. Probate of the will was granted on 16 November 2017.

[7]    The principal assets of the estate were a three-fifths share in a property that was Mrs Durrans’ former home (the property), monies held in bank accounts and various investments. Those assets have all been realised.

1      High Court Rules 2016, r 15.9.

[8]    The will provides for gifts of money and specified items to various individuals. Those gifts have all been made. The residue of the estate, as at March 2020, was

$998,392.38.

JD’s claims

[9]    JD has made or indicated she has three claims against the estate. In summary, the claims are for:

(a)reimbursements of various alleged costs incurred by her on the estate’s behalf;

(b)entitlement to the proceeds of a National Bank account previously held by Mrs Durrans; and

(c)entitlement to some part of a two-fifths share in the property held by Andrew’s family trust (or, now, the equivalent share of the sale proceeds).

[10]   JD communicated these claims directly to Mr Neumegen, who describes and exhibits some of the communications in his affidavit. Mr Neumegen explains why he rejected almost all of the claims. He exhibits emails that he sent to JD (or to JD’s solicitor, Mr Foley, whom she instructed in June 2019) explaining his reasons.

[11]   Mr Neumegen deposes that Andrew and JD attempted, unsuccessfully, to negotiate a resolution to JD’s claims. By November 2019 little progress had been made. Accordingly, Mr Neumegen decided to invoke the notice procedure under s 75 of the Trustee Act.

Section 75 notice

[12]   Section 75 allows trustees dealing with unresolved claims affecting the administration of the trust to require claimants to “put up or shut up”, by setting a

three-month deadline for issuing proceedings to enforce the claims, failing which they can be barred.2 It provides, relevantly:

75       Barring of claims

(1)Where a trustee desires to reject a claim that has been made, or that he has reason to believe may be made,—

(a)to or against the estate or property that he is administering; or

(b)against the trustee personally by reason of his being under any liability in respect of which he is entitled to reimburse himself out of the estate or property that he is administering—

the trustee may serve upon the claimant or the person who may become a claimant as aforesaid a notice calling upon him, within a period of 3 months from the date of service of the notice, to take legal proceedings to enforce the claim and also to prosecute the proceedings with all due diligence.

(2)At the expiration of that period the trustee may apply to the court for an order under subsection (3), and shall serve a copy of the application on the person concerned.

(3)If on the hearing of that application that person does not satisfy the court that he has commenced the proceedings and is prosecuting them with all due diligence, the court may make an order—

(a)extending the period, or barring the claim, or enabling the trust property to be dealt with without regard to the claim; and

(b)imposing such conditions and giving such directions, including a direction as to the payment of the costs of or incidental to the application, as to the court seems just.

[13]   On 6 November 2019 Mr Neumegen served a  s 75 notice  on JD (through  Mr Foley, who had confirmed he had instructions to accept service). The notice said that Mr Neumegen desired to reject JD’s claims. It required JD to take proceedings to enforce the claims within three months. Mr Foley confirmed receipt of the notice.

[14]   The three months expired on 6 February 2020. JD had not brought any proceeding by then. She still has not.

2      Noel & Melva Yarrow Charitable Trust v Yarrow [2016] NZHC 1011 at [3].

This proceeding

[15]   Mr Neumegen commenced this proceeding on 19 May 2020. In his statement of claim he seeks the following orders:

(a)An order barring the claims made by JD.

(b)An order directing Mr Neumegen to finally distribute the estate without regard to JD’s claims.

(c)An order that JD is liable to pay the costs of the proceeding on an indemnity basis, which costs Mr Neumegen is entitled to deduct from JD’s share of the residuary prior to distribution to her.

(d)Such further and other orders as the Court deems just and expedient.

[16]   This Court directed that JD could be served by her solicitor, Mr Foley. Service was effected on 28 May 2020. JD has not taken any steps in the proceeding. In an updating affidavit made on 4 August 2020, Mr Neumegen deposes that no communication from JD, or from anyone on her behalf, has since been received.

[17]   In that updating affidavit Mr Neumegen also says that, by doing nothing in response to the s 75 notice, JD forced him to bring the proceeding. He says that in doing so the estate has incurred both legal costs and his own costs as executor. He believes that if the legal costs and his own costs were paid out of the estate as a whole, that would unduly prejudice Andrew’s interests. He therefore seeks an order that the legal costs and his own costs as executor as they relate to the proceeding be borne by JD from her share of the residuary estate.

[18]   To the extent that Mr Neumegen seeks an order that his own costs as executor be borne by JD, this goes beyond the orders sought in his statement of claim.

The issues

[19]The issues are:

(a)Should the substantive orders (barring JD’s  claims,  and  enabling  Mr Neumegen to finally distribute the estate without regard to them) be made?

(b)What costs should be awarded against JD?

(c)Should an order be made entitling Mr Neumegen to deduct any costs award from JD’s share of the residuary?

(d)Should an order be made that Mr Neumegen’s own costs as executor as they relate to the proceeding be borne by JD from her share of the residuary estate?

Should the substantive orders be made?

[20]   In New Zealand Guardian Trust Co Ltd v Lipsitt Master Venning, as he then was, said that:3

Section 75 recognises that of (sic) claims are often raised with executors and trustees of a deceased’s estate. If the executors and trustees do not feel able to accept those claims then s 75 provides a mechanism for giving fair notice to the claimant to issue proceedings and in the absence of such proceedings to obtain an order from the Court barring the proposed claim so that the estate may be administered, despite the threatened claims.

While a Court is reluctant to bar a party from pursuing a claim which may have merit, the period of notice and the requirement of an application of this kind recognises that such may be the outcome in certain circumstances. It will only be the case where the trustee has not felt able to accept the claim, and despite being requested to issue, a claimant has failed to do so.

[21]   In Graham v Graham Dunningham J drew the following principles from Master Venning’s judgment:4

(a)the Court is not required to undertake a substantive assessment of the merits of the claimant’s claim. However, whether the claim has any merit may be taken into account when considering if it should be barred;

(b)a lack of action both before and after the three month period will count against a claimant;

3      New Zealand Guardian Trust Co Ltd v Lipsitt HC Christchurch P386/91, 14 August 1998 at 4–5.

4      Graham v Graham [2015] NZHC 1571 at [13].

(c)an explanation will be required as to why no steps were taken to initiate proceedings from the time the claimant had knowledge that the trustee was not going to meet their claim;

(d)evidence that a claim may not be prosecuted with all due diligence will count against a claimant;

(e)even where the claim is meritorious, and there is an explanation for the failure to initiate one to date, it would only extend the time for bringing a claim on conditions requiring the claimant to initiate his or her proceedings in a specified period of time, failing which it would be barred.

[22]   Her Honour considered s 75 would usually be used to safeguard the disposal of claims within finite periods, with a full bar reserved for clear-cut cases:

[15] Section 75 is, therefore, designed to provide a process by which threatened claims can be brought to a head and determined one way or the other so that administration of the estate or property can proceed with certainty. While the Court has the power to bar a claim under s 75(3), that would normally only be used when the claim lacks obvious merit or where there is reason to believe the claim will not be prosecuted diligently. In other cases, the more appropriate course of action would be to make orders under s 75(3)(b) imposing conditions, and giving directions, including as to payment of costs, to ensure the object of s 75 is achieved and the claim is disposed of in a finite time period. That could, of course, include the making of unless orders.

[23]   For the reasons that follow I am satisfied that, subject to two modifications, I should make the substantive orders that Mr Neumegen seeks.

[24]   Mr Neumegen practised as a barrister and solicitor for over 30 years until retiring from legal practice in 2017. In that time he administered many estates. He continues to work a day or so a week as a professional trustee and executor. It is clear that he has given proper consideration to JD’s claims. He has set out his explanations for rejecting most of the claims, and he has conveyed those explanations to JD. I will note the explanations briefly.

[25]   As to JD’s first claim, for reimbursement of costs, Mr Neumegen says that for the most part they are either not relevant to the maintenance of the estate or are unsupported by invoices. He accepts that JD is entitled to reimbursement of some of the costs, totalling $2,869.94. He explained this to JD’s solicitor on 24 August 2019.

[26]   As to the claim regarding the National Bank account, JD relies on a letter from Andrew dated 3 October 2000 (which JD says “Mum kept safely attached to her Will”) that he would not contest the bank account being paid out to JD by Mrs Durrans’ executor.  Mr Neumegen’s evidence is that that bank account had been closed by  Mrs Durrans, and does not form part of the estate. His view is that the 3 October 2000 letter refers to an earlier will, since revoked. The current will specifically gifts $10,000 to JD. It does not gift the balance of any bank account to JD. On the face of it, I agree that there is no merit to this claim.

[27]   As to the two-fifths share that Andrew’s family trust held in the property (since sold), Mr Neumegen annexes to his affidavit an email from JD to Mr Neumegen suggesting that the estate may have had a claim to some of that share. The email does not disclose any basis upon which the estate might have such a claim. Mr Neumegen’s view, as executor, is that the estate has no such claim, and that the two-fifths share is not part of the estate. On the face of it, I agree.

[28]   JD has had ample opportunity to contest Mr Neumegen’s rejection of her claims. By the time that Mr Neumegen served the s 75 notice, JD had instructed a solicitor. She has had plenty of time, both after the notice was served and after this proceeding was commenced, to bring her own proceeding to enforce her claims. She has not brought any proceeding, nor taken any steps in this one. She has not offered any explanation for failing to take steps. It appears that she does not intend to pursue any claim. Nothing suggests an extension of time is desired.

[29]   I therefore intend to grant the substantive orders, subject to two matters. First, the orders sought in the statement of claim would bar JD’s claim to reimbursement in its entirety, yet Mr Neumegen has accepted that JD is entitled to reimbursement to the extent of $2,869.94. It is not clear that this amount has been paid to JD. I raised this with Ms McDonald, counsel for Mr Neumegen, at the formal proof hearing. She agreed that JD should be entitled to this amount, and that allowance could be made for this through the conditions attached to the order. I will do so.

[30]   Second, Mr Neumegen sought an order “directing” him to distribute the estate without regard to JD’s claims. Under s 75 it is not a matter of the Court directing

Mr Neumegen to do anything. The section empowers a Court to make an order “enabling” Mr Neumegen to proceed with the distribution of the estate. The order will be in those terms.

What costs should be awarded against JD?

[31]Mr Neumegen is entitled to costs against JD.

[32]   In his statement of claim Mr Neumegen seeks costs on an indemnity basis. I do not have to decide whether indemnity costs should be awarded. This is because, in a memorandum filed before the hearing, Ms McDonald advised that costs calculated on a 2B basis considerably exceed Mr Neumegen’s actual reasonable legal costs.   Ms McDonald accepted that Mr Neumegen could not recover more than those actual costs.5

[33]   In my view 2B costs are appropriate for this proceeding and for the steps that have been taken. I award costs on that basis, subject to Mr Neumegen not being able to recover more than his actual reasonable legal costs.

Should an order be made entitling Mr Neumegen to deduct any costs award from JD’s share of the residuary?

[34]   The effect of the costs award will be that JD alone will bear responsibility for the legal costs of this proceeding. Mr Neumegen wishes to go further. He asks for an order that he be entitled to deduct that costs award from JD’s share of the residuary estate prior to distribution to her.

[35]   At the formal proof hearing Ms McDonald submitted that the court had jurisdiction to make such an order under s 75(3)(b). This empowers the court to give such directions, including a direction as to the payment of the costs of the application, as to the court seems just.

[36]   I have come to the view that, in the circumstances of this case, it is just to make the further order sought. If this order is not made, there is a risk that JD will not pay

5      High Court Rules 2016, r 14.1(f).

the costs award. Mr Neumegen would then have to distribute the residuary, depleted by the legal costs that have been incurred, to Andrew and JD. He could then seek to enforce the costs award against JD, but given that she resides in Connecticut, this is likely to be impractical. There would therefore be a substantial risk that Andrew would be left to bear half of the costs. That would not be just.

[37]   In reaching that view I am also influenced by the likelihood that Mr Neumegen would in any event have a right of set-off.

Should an order be made that Mr Neumegen’s own costs as executor as they relate to the proceeding be borne by JD from her share of the residuary estate?

[38]   I will not make an order that Mr Neumegen’s own costs be borne by JD. I doubt that there is any jurisdictional basis for such an order, but I do not have to decide that. The difficulty for Mr Neumegen is that this order was not sought in the statement of claim. JD has had no notice of it.

Result

[39]I make the following orders:

1)       The defendant is barred from bringing any claim against the estate of  Mrs Jean Durrans (the executor of which is the plaintiff) for:

(a)reimbursement of various alleged costs incurred by the defendant on the estate’s behalf (other than the $2,869.94 that the plaintiff has accepted);

(b)entitlement to the proceeds of Mrs Durrans’ National Bank account; or

(c)entitlement to any part of the two-fifths share that Andrew James Durrans’ family trust formerly held in Mrs Durrans’ former home.

2)       The plaintiff is able to distribute the estate of Mrs Durrans without regard to the above claims (other than the $2,869.64 claim for reimbursement that the plaintiff has accepted).

3)       The defendant is to pay costs to the plaintiff on a 2B basis, but those costs not to exceed the plaintiff’s actual reasonable legal costs.

4)       The plaintiff is entitled to deduct that costs award from the defendant’s share of the residuary estate prior to distribution to the defendant.

Campbell J