New Zealand Māori Council v Foulkes

[2015] NZHC 489

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2013-485-455 [2015] NZHC 489

BETWEEN

NEW ZEALAND MĀORI COUNCIL

First Applicant

SIR EDWARD TAIHAKUREI DURIE Second Applicant

CLETUS MAANU PAUL Third Applicant

AND

ANGELA JUNE FOULKES First Respondent

ALAN PAREKURA TOROHINA HARONGA

Second Respondent

ALEXANDER JOHN WILSON Third Respondent

FEDERATION OF MĀORI

AUTHORITIES INC Fourth Respondent

In Chambers:	On papers
Judgment:	16 March 2015

JUDGMENT OF THE HON JUSTICE KÓS (Costs)

[1]      These proceedings, commenced in March 2013, concerned issues between trustees as  to the effect  of the Crown  Forestry Rental Trust,  and related issues between the two appointors of the three Māori trustees.  Ultimately those issues fell

to this Court to determine.  Five substantive judgments have been delivered.

NEW ZEALAND MĀORI COUNCIL v FOULKES [2015] NZHC 489 [16 March 2015]

[2]      Now the parties seek this Court’s direction on costs.   But not in the usual way.   Litigation costs are not sought; costs are not sought against any other party. What is sought is recovery of costs as expenses, from the Trust assets.  Section 71 of the Trustee Act 1956 is cited.

[3]      In the first instance, the recovery of expenses is a matter for the trustees themselves to decide.  What directions has the Court already given on costs?  And what further directions should it give now?

Background

[4]      Initially in March 2013 the parties were the New Zealand Māori Council

(NZMC) and Sir Edward Durie, as applicants, and the Trust, as respondent.

[5]      On an urgent basis, Williams J issued a decision on 28 March 2013 dealing with conflicts of interest and associated matters.   He held that reasonable costs of trustees in the litigation might be met from the Trust fund under s 71.1    He also encouraged the parties to seek directions on matters that had become the subject of controversy between them.2

[6]      In April 2013 the proceeding was repleaded, and Mr Maanu Paul (a Māori trustee appointee, aligned in outlook to Sir Edward) became a further applicant.  The respondents became the other remaining trustees of the Trust at that time.  That is, Ms Foulkes and Messrs Haronga, Wilson and Royal.

[7]      In August 2013 the respondents applied for an order joining the Federation of Māori Authorities (FOMA) as a defendant.  That order was then made on a consent basis.

[8]      Other orders were made by Williams J during the course of his management of the proceeding.  Some matters were dealt with on a consent basis,3 whereas others

required determination.  In particular, issues concerning the management of conflicts

1      New Zealand Māori Council v Crown Forestry Rental Trust [2013] NZHC 663 at [25](c).

2 At [20].

3 See minute dated 4 September 2013 at [2].

of interest, whether the legal costs of the Māori Appointor (being NZMC and FOMA together)  were  to  be  met,  and  the  appointment  or  extension  of  appointment  of trustees and alternate trustees.

[9]      A second substantial judgment delivered by Williams J on 9 April 2014.4

That judgment invalidated the removal of one trustee, the appointment of another, and the appointment of eight persons as alternate trustees.  Williams J found that the Māori Appointor process provided from cls 6.2 and 6.4 of the Deed had not been followed correctly.   The Judge directed the Māori Appointor parties to meet as a group at a special hui to discuss their philosophical differences.   He reserved his decision on the application for costs by the applicants under s 71.

[10]     A third judgment was issued by Williams J on 3 June 2014.5   It concerned an unsuccessful attempt to debar solicitors acting in the proceeding.  Secondly, and in more detail, it addressed the question of the costs of Sir Edward and Mr Paul.  The Judge considered that the legal costs of Sir Edward and Mr Paul should be met from the Trust’s funds.6

[11]     After these preliminary issues were dealt with by Williams J, the remaining issues, which ultimately numbered some 16 in all, were tried by me.  The first 13 were tried in June and July 2014, and the final three in October 2014.  I issued two judgments, one in July 2014 and the other in November 2014.7

[12]     The issues I dealt with fell into four groups:

(a)      Issues 1 to 3 concerned access to funding approvals by the Trust.  The applicants challenged the criteria adopted by trustees as unlawful and unduly restrictive.  I rejected the applicants’ claims, but did note the need for the trustees to guard against inappropriate bundling of claims

(in “clusters”), and to be prepared to receive direct applications.

4      New Zealand Māori Council v Foulkes [2014] NZHC 747.

5      New Zealand Māori Council v Foulkes [2014] NZHC 1225.

6      At [29] and [46].

7      New Zealand Māori Council v Foulkes [2014] NZHC 1777 and New Zealand Māori Council v

Foulkes [2014] NZHC 2757.

(b)Issues 4 to 6 concerned decision making by trustees, and the extent of delegation permissible to staff.  Astonishingly, given the scale of the Trust’s  responsibilities,  the  applicants  seriously  suggested  that  the Trust  could  not  employ  more  than  one  staff  member.    Sensibly, counsel  did  not  press  that  point.    Directions  in  my  judgment  of

29 July 2014 clarified the extent of delegation permissible under the

Deed.

(c)      Issues 7 and 8 concerned conflicts of interests by trustees: when a conflict might arise, and what information should be provided where a potential conflict is identified.  The parties reached a common view (with  which  I  agreed)  on  the  first.    On  the  second,  I  provided directions to the trustees and noted that a high threshold existed for withholding information from trustees.

(d)Issues  9  to  16  concerned  the  appointment  of  trustees.     Some consensus was found here also.  I provided directions on the payment of costs of NZMC and FOMA as members of the Māori Appointor, and on the duration of appointment of the chairperson of the Trust.  In the two judgments I addressed the appointment of vacancies in the trusteeship and alternate trusteeship.  I directed a hui of NZMC and FOMA,  a  process  which  ultimately failed  to  resolve  any vacancy whatsoever.   In my judgment of 6 November 2014 I appointed two trustees and four alternate trustees to fill vacancies left by a combination  of  expiry  of  terms  and  indecision  by  the  Māori Appointor.

The applicants have appealed my decision, but on Issues 1 and 5 only.

[13]     My judgments did not deal with the question of costs, and expressly reserved those for further submissions.  I have now received those submissions.

[14]     No one is suggesting that costs should be paid by one party to another.  In short, all suggest that costs (or at least, some costs) be paid out of the Trust assets.

[15]     The applicants, NZMC, Sir Edward and Mr Paul, submit that their costs may be ordered to be met from the Trust assets under s 71.  If FOMA is to be awarded costs (as it seeks), then NZMC should also be awarded costs.  But no costs should be ordered now until a functional relationship is re-established between FOMA and NZMC.

[16]     FOMA submits that its costs should be met, on an indemnity basis, under either s 71, High Court Rule 14.6(4), or in Equity.8    FOMA says that only trustee costs should be awarded in this way.  The costs of the Māori Appointor are for the Trust to sort out, in accordance with judgments already delivered.   FOMA’s participation “has principally related to the trustee/alternate appointment issues”.9

Presumably its costs have reflected that participation also.  However its actual costs now amount to a somewhat breathtaking $232,000.  Perhaps anticipating an adverse reaction, FOMA suggests I might instead grant costs at scale, on a category 2 or 3, and band B, basis.

[17]     The first and third respondents, Ms Foulkes and Mr Wilson, abide the Court’s decision.  But in doing so they make the limited submission that participant costs are very substantial, and will diminish assets intended to be used for beneficiaries, rather than  trustee  expenses.     Only  reasonably  incurred  costs  should  be  permitted, whatever jurisdictional basis applies.   To that end, they submit costs incurred by NZMC and FOMA after the hui should not be payable because, by that point, “the Māori  Appointor   had   effectively   ceased   to   operate,   and   had   abdicated   its

appointment function to the Court”.

8      Citing Harvey v Olliver (1887) 57 LT 239 (Ch) and Re Buckton [1907] 2 Ch 406 (Ch).

9      Issues 9–16 in [12] above.

[18]     This decision does not involve an application for litigation costs, inter partes. Rather it concerns the extent of rights of indemnity, to be satisfied from the Trust’s funds.   It is necessary here to distinguish between costs incurred by NZMC and FOMA in  their  capacity  as  Māori Appointor,  and  costs  incurred  by  trustees  in obtaining directions under s 66.  For reasons given at [28], I see no necessity in this case to make any award to non-trustees (that is, NZMC and FOMA) in any other capacity.

Māori Appointor costs

[19]     In a decision dated 4 December 2013, Williams J held:10

It  is  ordered  therefore  that  the  actual,  reasonable  and  necessary  costs incurred by FOMA and NZMC incurred when acting jointly as the Māori Appointor to remove or replace an appointment of trustees (including alternate trustees) to the CFRT under cls 6.4 and 6.9 of the Trust’s Deed (the Deed), are legally able to be met from Trust property as an expense of the Trust under cl 9.2.1 of the Deed.

That was a consent order.   But it was soundly based: the members of the Māori Appointor undertake a fiduciary function in discharging the tasks imposed on them by the Trust Deed.11

[20]     In my judgment of 29 July 2014 I enlarged on Williams J’s order in these terms:  the qualifying costs are the actual reasonable and necessary costs of NZMC and FOMA acting jointly as Māori Appointor; those costs should be submitted for reimbursement to the Trust; and the costs need not be pre-approved, but must be reviewed before payment to ensure qualification.12   These directions were also given by consent.

[21]     I agree with FOMA’s submission that this aspect has been determined by the

Court already.  It is now for the Trust to receive appropriately detailed requests for

10     New Zealand Māori Council v Foulkes HC Wellington CIV-2013-485-455, 4 December 2013 at

[14].

11     Harvey v Olliver, above n8; Des Pallieres v J P Morgan Chase & Co [2013] JCA 146 (Jersey

CA); Carmine v Ritchie [2012] NZHC 1514; Harre v Clark [2014] NZHC 2533.

12     New Zealand Māori Council v Foulkes [2014] NZHC 1777 at [224].

reimbursement from FOMA and NZMC, pursuant to cl 9.2.1 of the Trust Deed.13

Costs incurred in the litigation in connection with the appointment of trustees are eligible for reimbursement in this way.14     These are neither trustee expenses nor litigation costs.  It is not for me, therefore, to pre-empt the Trust’s decision.  Nor do I have the information that would be needed to make such a decision, even if it fell within my jurisdiction.  However I provide some directions here to assist trustees.

[22]     First,  in  approving  costs,  trustees  will  need  to  bear  in  mind  the  Trust’s conflicts policy, and the directions given by the Court on Issue 7.15     Despite the terms of s 38(2) of the Trustee Act 1956, it would not be appropriate for trustees seeking recovery of substantial legal costs from the Trust Fund to participate in the decision as to whether those costs should be allowed or not (or allowed in part only). Alternate trustees may need to participate instead.

[23]     Secondly,  I agree  with  the  submission  of  counsel  for  the  first  and  third respondents that “costs are reasonably incurred if they are of an order of magnitude that an objective observer would expect for the relevant type of litigation”, citing the decision of Harrison J in Bradbury v Westpac Banking Corporation.16   I add that that observation applies equally to non-litigation expenses.   Unreasonable obstinacy or the excessive compilation of cost are inconsistent with fiduciary duty and impair the right to reimbursement.17   Excessive costs may not, therefore, be reimbursed.

[24]     Thirdly, in approving payments for expenses, trustees must ensure that only amounts reasonably incurred are paid.  Three mechanisms to achieve that occur to me.  The first is seeking taxation of legal costs (pursuant to High Court Rules 14.18 to 14.23).   The second is approving costs at scale plus an appropriate uplift, recognising that (1) scale is no more than a contribution to actual fees, and (2) indemnity contemplates  the repayment  of reasonable actual  costs.    The third is

having  costs  reviewed  by  a  senior  barrister.    The  latter  course  was  adopted  in

13     Certainly they will need to be more detailed than the material I received.

14     New Zealand Māori Council v Foulkes [2014] NZHC 1777 at [231]. It seems to me that litigation costs concerning Issues 9-11 and 13-16 largely (if not wholly) fall within this category.

15     New Zealand Māori Council v Foulkes [2014] NZHC 1777 at [198]–[211].

16     Bradbury v Westpac Banking Corporation (2008) 18 PRNZ 859 (HC) at [205].

17     See, for example, Tucker et al Lewin on Trusts (19th ed, Sweet & Maxwell, London, 2014) at

[27-112]; Re Knox’s Trusts [1895] 2 Ch 483 (CA); Re O’Donoghue [1998] 1 NZLR 116 (HC).

Financial Markets Authority v Ross.18   It has some particular appeal because, unlike the other options, it can deal with non-litigation costs.  Counsel’s task would not be to advise on a client’s proper liability for legal costs to its lawyer, but on the distinct question  of  the  third  party  Trust’s  liability  to  meet  the  actual  reasonable  and necessary costs of NZMC and FOMA acting jointly as Māori Appointor, in accordance with principles specified in this judgment.

[25]     Fourthly, there is some merit in the further submission made that there is a fundamental difference in quality for eligibility between costs incurred prior to (and, presumably, at) the failed 13 September 2014 hui, and those incurred after (at which point the Māori Appointor had effectively abdicated its role to the Court).  But the point should not be taken too far.  At that juncture the Court directed certain further steps (the making of non-binding nominations, and the conduct of a short hearing - which together gave rise to the judgment of 6 November 2014). These might be seen as tasks required of the Māori Appointor.   The responses and submissions from NZMC and FOMA were necessary and helpful.  They assisted in the Court making its appointments.

[26]     That is all I think I need to say on the Māori Appointor costs.

Trustee costs

[27]     As I have noted already, Williams J’s judgment of 28 March 2013 held:19

Reasonable costs of the applicants and respondent trustees may be met from the funds of the Trust pursuant to s 71 of the Trustee Act.

[28]     As I apprehend that order, it relates only to the costs of trustees.  Primarily the proceedings were brought under s 66, which concerns applications by trustees for directions.  Judicial review was also sought by the applicant.  But I held that only common law review was available, and that it added nothing to the s 66 application

in any case.20   I take the view, therefore, that if NZMC and FOMA are to receive any

18     Financial Markets Authority v Ross [2014] NZHC 3184 at [4]. It was not a trusts case.

19     New Zealand Māori Council v Crown Forestry Rental Trust [2013] NZHC 663 at [25(c)].

20     New Zealand Māori Council v Foulkes [2014] NZHC 1777 at [57] – [64].

reimbursement of costs, it must be in their capacity as the members of the Māori

Appointor only.  In reality this is unlikely to make any practical difference.

[29]     Where trustees are in real doubt as to the proper construction of a trust deed it is their duty to make application to the Court for directions, under s 66.21   The Trust Deed here is the consequence of political compromise and settlement.   Probably deliberately, it is abbreviated.   Some provisions can only be described as vague. Disagreement over its effect was to be expected.  Given these difficulties, the making of  a  s  66  application  was  both  unsurprising  and  appropriate.    It  was  however

unfortunate  that  a  case  properly  falling  within  Re  Buckton’s  category  1  was conducted instead with all the vigour and expense of wholly hostile litigation.  Three camps, three sets of costs.  It is to be hoped that the Court’s intervention has led to those camps now consolidating.

[30]     A  trustee  acting  in  accordance  with  his  or  her  duty  has  a  right  of reimbursement (or indemnity) for associated expenses.  As Danckwerts J explained in Re Grimthorpe:22

It is commonplace that persons who take the onerous and sometimes dangerous duty of being trustees are not expected to do any of the work on their own expense; they are entitled to be indemnified against the costs and expenses which they incur I the course of their office; of course, that necessarily means that such costs and expenses are properly incurred and not improperly incurred.  The general rule is quite plain; they are entitled to be paid back all that they have had to pay out.

[31]     The limitation on a trustee’s right of indemnity is, however, that the expenses are “properly incurred”.  The duty to seek advice does not extend, for instance, to pose questions the answers to which are perfectly obvious.  Nor where no real and substantial dispute exists.   Unnecessary proceedings, or the taking of unnecessary procedural steps needlessly increasing costs, may mitigate (or eliminate) the right of indemnity.23  Again, excessive costs lie beyond the scope of indemnity.  Every dollar

paid in trustees’ expenses is a dollar denied to beneficiaries of the Trust.

21     Waters’ Law of Trusts in Canada (3rd ed, Thomason Carswell, Toronto, 2005) at 1156.

22     Re Grimthorpe [1958] Ch 615 (Ch) at 623. See also Turner v Hancock (1882) 20 Ch D 303 (CA) at 305.

23     Tucker et al Lewin on Trusts (19th ed, Sweet & Maxwell, 2014) at [27–113]; Patterson v Wooler

(1876) 2 Ch D 586 (Ch); Re Chapman (1895) 72 LT 66 (CA); Re O’Donoghue [1998] 1 NZLR
116 (HC) at 121-122.

[32]     In this case I do not find that the request to the Court for directions on any of Issues 1 to 16 was unnecessary.   Each question advanced was legitimately raised. No one in this case is suggesting I find otherwise.  And I do not.  Reasonable legal costs associated with the determination of those issues are therefore legitimately a charge to the Trust.   Williams J’s order of 28 March 2013 may therefore be confirmed, ex post facto.

[33]     As to the quantum payable, that is a matter for trustees in the first instance, not this Court. The principles noted at [22]–[24] and [30]–[31] apply.

[34]     In the absence of either detail or dispute, it is not appropriate to say more at this point.

Result

[35]     The costs orders made by this Court on 4 December 201324  and 28 March

201325  are confirmed.  Parties seeking costs are directed to submit detailed claims for reimbursement to the Trust.   Trustees are then to determine those claims, in accordance with the principles stated in this judgment.  Leave is reserved to apply for further directions, if absolutely necessary.  It should not be assumed that any such application will generate an entitlement to reimbursement or award of further costs.

Stephen Kós J

Solicitors:

Woodward Law Offices, Lower Hutt for Applicants

Buddle Findlay, Wellington for First to Third Respondents

Johnston Lawrence, Wellington for Fourth Respondent

Crown Law, Wellington for Attorney-General

24 See [19] above.

25 See [27] above.