Niven v Eron Holdings Ltd
[2022] NZHC 3344
•12 December 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-000053
[2022] NZHC 3344
BETWEEN JOCELYN ANNE NIVEN
First Plaintiff/First Applicant
LYNETTE RUTH NIVEN
Second Plaintiff/Second ApplicantAND
ERON HOLDINGS LTD and RINGWOOD
TRUSTEES LTD as trustees of a trust known as the Hobson Trust Defendants/Respondents
Hearing: 24 November 2022 Appearances:
T Nelson for First Plaintiff R A Rose for Defendants
Judgment:
12 December 2022
JUDGMENT OF VENNING J PROSPECTIVE COSTS ORDER
This judgment was delivered by me on 12 December 2022 at 3.00 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
Solicitors: DK Law Ltd, Auckland
TGT Legal, Auckland
Counsel:R A Rose, Auckland T Nelson, Auckland
Copy to: Lynette Niven
NIVEN v ERON HOLDINGS LTD [2022] NZHC 3344 [12 December 2022]
Introduction
[1] Jocelyn Niven and Lynette Niven seek a prospective costs order (PCO) in their favour in relation to three questions they propose to seek answers on from the Court.1 They say the questions relate to issues concerning the administration of the Hobson Trust (the Trust). The application is opposed by the defendants, Eron Holdings Limited and Ringwood Trustees Limited, the current trustees of the Trust.
[2] Jocelyn and Lynette are two of the five children of the late Ronald (Ron) Niven and Euphemia Ruth Niven (Ruth Niven). The other three children are their brothers, David, Gary, and Michael. All are beneficiaries of the Trust as were Ronald and Ruth Niven. The other beneficiaries include the siblings’ spouses, their children, (and their spouses) and any charity.
The Hobson Trust
[3] The Trust was established on 28 March 1984. The named settlor was Euphemia McLeod Lambourne, Ruth’s mother. The original trustees were Ron and Gordon Watson. Mr Watson resigned in May 2003.
[4] Ron remained as a trustee and on or about 23 June 2010 he appointed Eron Holdings Limited, a company he incorporated for the purpose, as an additional trustee.
[5] Ron died on 10 April 2020. In his will he left each of the five children 20 of the 100 shares in Eron Holdings Limited. At present the shares are held in his estate by his executors. An independent trustee company, Ringwood Trustees Holdings Limited (of which Christopher Darlow is the sole director and shareholder) was appointed as second trustee in June 2021.
[6] During Ron’s life, and after Mr Watson’s resignation as trustee, from time to time Ron exercised a power of appointment to appoint advisory and other trustees to the Trust. At other times he failed to exercise the power and carried on the business of the Trust as sole trustee (despite the requirement for two trustees).
1 The particular order sought is a PCO entitling them, at the expense of the Trust, to apply to the Court for declarations as to the three questions.
[7]The Trust’s assets are worth somewhere in the region of $25 to $30 million.
The three questions
[8] Jocelyn and Lynette have identified three questions which they propose to seek directions from the Court in relation to:
(a)Do documents of 1 July and 4 August 2019 change Ruth’s status as a beneficiary of the Trust? If so, how?
(b)Is Ruth (as Ron’s surviving spouse) entitled to:
(i)one hundred per cent of the joint loan and Ron’s loan; or
(ii)fifty per cent of the joint loan or Ron’s loan; or
(iii)some other amount?
(c)Does Lynette owe any money to the Trust?
[9] The brief background to the first question is that on 1 July 2019 Ruth and Ron gave notice to the Trust they renounced their status as beneficiaries of the Trust. On 4 August 2019, the then trustees resolved to accept that Ruth and Ron had ceased to be beneficiaries.
[10] As to the second question, some time prior to 31 March 2006, Ron and Ruth apparently advanced a joint loan of approximately $3,109,000 to the Trust. At some later time Ron advanced a further sum which, as at 31 March 2019, was recorded in the Trust’s accounts as a debt of $716,141. In his will, Ron released the Trust from payment of principal and interest in relation to any sums owing to him at the date of his death.
[11] Finally, in relation to the third question, the Trust resolved to transfer AUD 310,000 to the benefit of Lynette in November 2015. The money was paid to
her ex-partner to settle his relationship property claim. Lynette says Ron advised her on a number of occasions she was not required to repay the advance.
[12] Apart from the above issues there are two other proceedings before the Court relating to the Trust. In FAM-2021-004-1001 (now transferred to this Court),2 Ruth seeks orders under the Property (Relationships) Act 1976 (the PRA claim) against Ron’s estate and has also asserted a constructive trust over the Trust’s assets in a separate claim, CIV-2022-404-1159 (the Constructive Trust claim), against the trustees.
[13] All parties have consented to Jocelyn and Lynette being joined as additional defendants to the Constructive Trust claim and to orders consolidating that claim with the PRA claim. Counsel agree the Court could make those orders by consent.3
[14] However, as noted, the trustees oppose the plaintiffs’ application for a PCO. In his affidavit of 16 September 2022, Mr Darlow, a director of the independent trustee Ringwood, has explained the trustees’ current position in relation to the proposed questions as:
17. Presently, however, I consider that a directions application or other litigation about the Three Questions is unhelpful. Among other things, that is because:
17 .1 all questions about the amount the Trust's trustees owe Mrs Niven further to Mr Niven's personal loan and her and Mr Niven's joint loan will be resolved as part of Mrs Niven's Proceedings. As such, there is no need for separate/additional litigation about the same;
17.2 if Mrs Niven's Proceedings are successful in a way satisfactory to her, the issue of Mrs Niven's status as a beneficiary will be moot;
17 .3the issue of whether Lynette owes the Trust's trustees AU $310,000 does not justify the time and expense of a directions application or declaratory judgments proceeding; and
2 Counsel advised that FAM-2021-004-1001 has been transferred to this Court but inquiries with the Registry suggest it has not yet been received by the High Court.
3 I would have been prepared to issue a separate minute confirming those orders but cannot do so until the file is received from the Family Court.
17 .4the Plaintiffs' proposed litigation will cause unnecessary cost to the Trust, potential injustice to the Trust's other beneficiaries and cannot resolve the Core Dispute.
[15]Mr Darlow defined the core dispute as:
[h]ow much of the Trust’s corpus the settlor’s grandchildren (Jocelyn, Evelyn, David, Gary and Michael) ought to receive if the Trust is wound up.
Preliminary points
[16] The plaintiffs’ amended statement of claim refers to seeking a Beddoe order and/or a PCO. Beddoe orders are directions given by a Court approving trustees bringing or defending proceedings at the cost of the Trust.4 PCOs have developed together with the application of Beddoe orders. They are, however, different to Beddoe orders, although they have a number of common features. A principal difference is that only trustees may pursue a Beddoe Order. The High Court Rules 2016 (HCR) r 19.4(f) confirms the application of Beddoe orders to trustees. PCOs, on the other hand, may be sought by beneficiaries drawn into or pursuing litigation in relation to the administration of the Trust.5 The application in the present case is for a PCO rather than a Beddoe order.
[17] These proceedings were initially commenced on 21 January 2022 by way of an originating application. Ultimately the applicants apparently accepted that was not an appropriate form of proceeding and filed an amended statement of claim on 23 June 2022 seeking the current PCOs.6
Legal principles applying to a PCO
[18] An important consideration in determining whether a PCO should be made is the character of the proposed litigation for which the PCO is sought. In Woodward v
4 So called after the decision of the English Court of Appeal in Re Beddoe [1893] 1 Ch 547 (CA).
5 Woodward v Smith [2014] NZHC 407, [2014] 3 NZLR 525 at [26]–[29].
6 I make no comment on whether a statement of claim was required. While HCR 19.4(f) only applies to Beddoe applications by trustees, HCR 19.5 permits other applications to be commenced by originating application. I see no reason why the applicants could not have applied under that rule.
Smith, a case involving an application for a PCO by a beneficiary, Kós J referred to the three different categories of trust litigation identified in Re Buckton:7
[23] In Re Buckton, Kekewich J divided trust litigation into three broad categories:
(a)The first category involves proceedings brought by trustees to obtain the Court’s guidance on the construction of the trust deed or some aspect of the trust’s administration. In such cases, the costs of all parties necessarily participating are treated as incurred for the benefit of the estate and ordered to be paid out of the trust fund.
(b)The second category involves a similar application, but by someone other than a trustee (such as a beneficiary). However, it is a case which would have justified application by a trustee. The same approach is taken to costs in the second category as to the first.
(c)The third category, however, is where a beneficiary is making a “hostile claim” against the trustees, or another beneficiary. The claim may still involve a point of construction, or administration. It will often involve a claim to a beneficial interest or entitlement to a part of the trust fund. In the third category, involving a hostile claim against trustees or another beneficiary, the usual principles as to costs apply. Ordinarily they will follow the event.
Also:8
[29] When then, might a [PCO] be made in favour of a plaintiff beneficiary in hostile proceedings – substantially, or at least partially, within Buckton category 3? The answer suggested by the authorities is extremely rarely. As Lewin puts it:9
A [PCO] will be made if the Judge is satisfied there should be a departure from the usual practice of dealing with costs after rather than before trial in the light of the outcome of the trial, having regard to (i) the strength of the parties’ case; (ii) the likely order as to costs at the trial; (iii) the justice of the application; and
(iv) any special circumstances.
[19] As Kós J noted in Woodward v Smith it follows that, only where there are very special circumstances, will a PCO be made in a Buckton category 3 case.
7 At [23], citing Re Buckton [1907] 2 Ch 406 (Ch).
8 At [29].
9 Mowbray et al Lewin on Trusts (18th ed, Sweet & Maxwell, London, 2008) at [21–118].
[20] In McCallum Jnr v McCallum, the Court of Appeal reviewed the application of Beddoe orders.10 Kós P, delivering the judgment of the Court, confirmed that:11
Beddoe orders will only be made where necessary and in the best interests of the trust (as opposed to the trustees). And they will seldom be appropriate where the litigation is “hostile”, …
[21] In the course of discussing the principles Kós P referred again to the three broad functional categories noted by Kekewich J in Re Buckton,12 and then noted the editors of Lewin13 had identified seven broad functional categories of proceeding:14
(1)proceedings for the construction of the trust instrument or determination of questions of law as to the validity or scope of the trusts or powers under the trust instrument or imposed or conferred by law;
(2)proceedings in which directions are sought for the guidance of the trustee in the administration or execution of the trust;
(3)proceedings in which the assistance of the court is sought under various statutory provisions, for example under the Trustee Act … in relation to the appointment of trustees and vesting of trust property;
(4)proceedings in which the rights of beneficiaries in the administration or execution of the trusts are sought to be enforced, for example in relation to accounts, provision of information to beneficiaries or distribution of the trust fund;
(5)breach of trust proceedings;
(6)proceedings concerning self-dealing and profits from the trust; and
(7)proceedings for or concerning the removal of trustees.
[22] Kós P then noted the subtly different tripartite classification system posed by Lightman J in Alsop Wilkinson v Neary,15 before discussing the concept of hostile claims and self-interested litigation in the following way:16
[42] We referred earlier to the concept of “hostile” claims. There are a number of New Zealand authorities suggesting that a Beddoe order will not be granted in hostile litigation, or only in exceptional circumstances. The
10 McCallum Jnr v McCallum [2021] NZCA 237.
11 At [3].
12 Re Buckton, above n 7.
13 Lynton Tucker, Nicholas Le Poidevin and James Brightwell Lewin on Trusts (20th ed, Sweet & Maxwell, London, 2020) vol II [Lewin on Trusts], at [48–002].
14 McCallum Jnr v McCallum, above n 10, at [35].
15 Alsop Wilkinson v Neary [1996] 1 WLR 1220 (Ch).
16 McCallum Jnr v McCallum, above n 10 (footnotes omitted).
expression “hostile” is a convenient but crude shorthand for cases where it is inappropriate to pre-empt allocation of costs in advance of the ultimate event. Typically, such a case involves a claim by a beneficiary asserting breach of trust or other fiduciary duty by the trustee. Because the label is crude, it is also inaccurate. For example, it is not inappropriate to pre-empt indemnity where trustees are defending the interests of the trust against third parties. Such litigation is “hostile” in a general sense, but the trustee will be indemnified for the reasonable and necessary costs in defending the trust estate against insurgents. In that sense the label “hostile” is wrong; some “hostile” claims will earn pre-emptive indemnity via a Beddoe order. A better (but still not wholly accurate) label would be “self-interested” litigation. In that sense, the fifth, sixth and seventh modern Lewin categories referred to at [35] above are “self-interested litigation” and unlikely to earn pre-emptive indemnity via a Beddoe order. Whether, in the end result, indemnity is available to trustees defending such actions will depend on the ultimate outcome of, and the trustees' conduct in, the litigation.
[23]Kós P then cited with approval the following observations of Thomas J in
McLaughlin v McLaughlin:17
The test as educed from case law is simply that Beddoe applications are gauged against the fundamental question of what is in the best interests of the trust. The Court must therefore exercise its jurisdiction in the best interests of the trust, and the beneficiaries as a whole, having regard to all the circumstances. This may include the need to balance the interests of different beneficiaries, as well as the interests of beneficiaries and trustees. That basic test conforms to the principle on which such applications are founded, namely that trustees ought to be indemnified for costs properly and reasonably incurred for the benefit of the trust.
Before concluding:18
What can be said is that the greater the degree of self-interest of the trustee bringing or defending the proceeding, the less likely it will be that a Beddoe order should be made. That is because it is correspondingly less likely predetermination of that matter is in the best interests of the trust. …
[24] By analogy the principles discussed by Kós P in relation to an application for a Beddoe order also apply to applications proposed by beneficiaries where they seek the protection of a PCO.
17 McCallum Jnr v McCallum, above n 10, at [43], citing McLaughlin v McLaughlin [2018] NZHC 3198, [2019] NZAR 286.
18 At [45].
The defendants’ submissions
[25] The defendants’ position is that the proposed claims are essentially focused on benefiting the applicants at the other beneficiaries’ expense and that the true respondents to the proposed proceeding are Ruth and their brothers. While the plaintiffs seek to “dress up” questions about their entitlement to the Trust assets as falling within construction of the Trust Deed or some aspect of the Trust administration, they have a large element of self-interest. Ms Rose also submitted that a number of the remaining primary beneficiaries are opposed to the Trust money being used to fund the proposed proceeding.
[26] The defendants submit the applicants cannot satisfy the test that it would be inevitable a court determining the proposed proceeding would make a costs order in their favour. The disputed facts involved in and the substance of the proposed questions precludes them from discharging the onus. For those reasons also the PCO sought is inappropriate.
[27] Ms Rose also referred to a recent decision of van Bohemen J in Vincent Family Corporate Trust Limited,19 in which case the Judge dismissed the trustees’ application for Beddoe orders. With respect to the defendants’ reliance on that case, on my review of it, it is an example of an application of the principles to the facts of that case. For example, the Judge found that the application for a declaration that two named children were beneficiaries of a trust fell into the third Buckton category as it involved a claim to a beneficial interest in the trust’s funds. Further, he found the challenge to the trustees’ actions and appointment also fell within the third Buckton category. I do not find the case particularly helpful in relation to the particular issues in the present case which must be determined on their own facts.
Analysis
[28] I turn to consider whether the PCO sought by the applicants should be made in this case. That requires an assessment of the character of each of the three separate questions.
19 Vincent Family Corporate Trust Ltd [2021] NZHC 2250.
[29] Before carrying out that exercise, I consider that it is relevant that, until recently, the trustees contemplated bringing applications in relation to the first two questions themselves. In an earlier affidavit in August 2021 Mr Darlow had deposed that the trustees:
Joint standpoint … the most appropriate course for resolution of all current issues among family members appears to be a directions application by the trustees, with Ruth’s PRA claim determined either at the same time … or after the … Court has determined her claim.
[30]TGT Legal, the solicitors for the trustees, advised in a letter of 23 August 2021:
If settlement cannot be reached among all parties in short order, the trustees ought to bring a directions application regarding all outstanding matters appropriate for Court directions
And that:
[i]t appears that a directions application is the better mechanism to resolve any concern your clients have about final distribution of the Trust’s assets if a settlement cannot promptly be agreed.
[31]When the matter was before Hinton J on 7 March 2022 the Judge recorded:20
[1] The applicants have filed a Beddoe application, which the trustees oppose saying that they propose to file an application in the Court seeking directions which will include the broad issues raised in the applicants' proceeding.
[2] The applicants sensibly accept in principle that it would be preferable for there to be only one application but they would like to see the trustees' application to ensure that it addresses the issues raised in their own application. If it does then they will discontinue.
[3] The trustees say that they hope to file their directions application by the end of April 2022. The applicants therefore suggest that the call of their own application in the Chambers list on Wednesday 9 March 2022 be adjourned until seven days after the end of April 2022 to allow them time to consider the documents filed.
[32] Then, as recently as 29 April 2022, at a time when the trustees were aware of Ruth’s PRA claim and understood Ruth considered she had a Constructive Trust claim, TGT Legal wrote to Jocelyn and Lynette’s lawyer, advising that:
20 Minute of Hinton J, dated 7 March 2022.
Proposed questions
3.The two questions the trustees currently propose to ask the Court are:
(a)Do the 1 July 2019 and 4 August 2019 documents prepared by Ron (Documents) change Ruth's status as a beneficiary of the Hobson Trust? If so, how?
(b)Regarding the loan recorded in the Hobson Trust's accounts as being owed by the trustees to Ron and Ruth jointly immediately before Ron's death (Joint Loan), is Ruth (as Ron's surviving spouse) entitled to:
(i)100% of the Joint Loan;
(ii)50% of the Joint Loan; or
(iii)some other amount of the Joint Loan?
[33] However, ultimately, for the reasons now expressed by Mr Darlow, the trustees have decided not to bring such proceedings at the present time.
[34] With respect to Mr Darlow’s reasons for the trustees’ change of mind in relation to the first two questions, I do not find them convincing. The first question, whether Ruth is a beneficiary of the Trust or has validly and effectively renounced her interest as a beneficiary in the Trust, is an issue that will need to be resolved before resolution of the core dispute and any final distribution. That issue, whether Ruth has renounced her interest, or is still a beneficiary, will not be resolved in the context of her PRA claim against Ron’s estate, nor for that matter, in the context of her constructive trust claim against the Trust.
[35] While, as Ms Rose submitted, if Ruth succeeds in her PRA and/or constructive trust claims there may be little likelihood of the trustees of the Trust considering that she may need further provision from the Trust, that cannot be ruled out.
[36] Ms Rose also referred to the open letter from Ms Matheson, Ruth’s barrister, of 29 November 2022 in which she stated:
I confirm that my instructions are that if Mrs Niven is sufficiently successful in her PRA/constructive trust claim, that she will not seek any further benefit from the Hobson Trust.
[37] Two points can be made in relation to that. First, those are Ruth’s current instructions and of course can be changed in the future. Second, her position is carefully stated to be on the basis if she is “sufficiently successful” which is entirely subjective from Ruth’s point of view.
[38] The second question is more nuanced. If the joint loan was held by Ron and Ruth as joint tenants then it would have passed to Ruth on Ron’s death by reason of survivorship. However, Mr Grant, the plaintiffs’ former solicitor advanced an argument in correspondence that Ron and Ruth’s interest in the loan was as tenants in common rather than as joint tenants.21 The argument, while difficult, cannot be dismissed out of hand. Resolution of the joint loan issue will necessarily involve the trustees of the Trust, Ruth and the executors of Ron’s estate. If ultimately it is held that part of the loan was held by Ron as a tenant in common, the issue will be whether he has effectively forgiven that by the terms of his will. Further, there remains the issue of Ron’s separate loan which he also apparently purported to forgive in his will, which as at 31 March 2019 was recorded at $716,141. Again, this is an issue which will need to be resolved in the course of the administration of the Trust and before any final distributions are made. These loan issues are issues which it is in the interests of all beneficiaries to resolve.
[39] For the above reasons, I consider the first two questions proposed by the applicants fall into the second category of trust litigation identified by Kekewich J. In other words, the questions raise aspects of the Trust’s administration which would justify an application by the trustees to the Court to obtain its guidance on. If the trustees are unwilling to bring the application this should be brought by someone with a proper interest (such as the plaintiff beneficiaries).
[40] However, I consider the third question falls into a different category. It is very much in the nature of a “self-interested” claim as that concept was discussed by Kós P in McCallum.22 As Kós P observed in that case:23
21 Letter dated 18 May 2022.
22 McCallum Jnr v McCallum, above n 10.
23 At [45], the exceptions referred to in the balance of the paragraph do not apply in the present case.
What can be said is that the greater the degree of self-interest of the trustee bringing or defending the proceeding, the less likely it will be that a Beddoe order should be made. That is because it is correspondingly less likely predetermination of that matter is in the best interests of the trust.
[41] Lynette apparently accepts that the AUD 310,000 was paid to her by the Trust. At the time she executed a mortgage document recording it as an advance. Lynette says that the loan advance was forgiven by Ron as trustee during the course of his operation of the Trust.
[42] Lynette’s claim in relation to that issue falls into the third category of Re Buckton as a claim by a beneficiary against the corpus of the Trust. Lynette is effectively seeking an order that she is not liable to repay the AUD 310,000. While, broadly speaking, that may still involve an issue as to the administration of the Trust it is really the other side of the coin of a direct claim by her to a beneficial interest or entitlement in the Trust. It is an attempt by Lynette to be released from any obligation she may have to the Trust. Such a claim falls into the third category of cases identified by Kekewich J which, while it might still involve a point of administration, as it involves a claim to an entitlement to the trust fund, it is properly regarded as hostile. Generally, on such an application costs would follow the event. In any event, it is not one of those exceptional cases where a PCO should be made.
Result
[43] For the foregoing reasons, I agree that the first two questions raise issues in relation to the administration of the Trust which fall into category two of Re Buckton.
[44] The remaining issue is whether the Court should make the orders Mr Nelson sought or if it should give the trustees an opportunity to make the application in light of the above findings. Ultimately, as Thomas J observed in McLaughlin v McLaughlin, the Court must exercise its jurisdiction in the best interests of the Trust and the beneficiaries as a whole.24
[45] I consider it would be preferable if the application in relation to those two questions was made by the trustees. The trustees were, at least at one time, prepared
24 McLaughlin v McLaughlin, above n 17.
to bring such an application. They are in the best position to do so as they have access to all relevant documentation. However, if the trustees remain resolute that they will not bring such proceedings then Jocelyn and Lynette should be able to bring the proceedings with a PCO in relation to those two questions.
[46] I deal with the matter in the following way. I make an order that Jocelyn and Lynette are to have a PCO in their favour entitling them, at the expense of the Trust, to apply to the Court for declarations as to the first two questions. However, that order is to lie in Court until Friday, 10 February 2023. In the event the trustees have not confirmed in writing by that date that they will commence and expeditiously pursue the two questions identified, the order will take effect and Lynette and Jocelyn may bring proceedings to have the first two questions resolved and will have the PCO in their favour in relation to those two questions.
[47]The application for a PCO in relation to the third question is dismissed.
Costs
[48] On the basis of the outcome of the present proceedings the applicants are to have two-thirds of their actual and reasonable costs on the application paid out of the Trust.
[49] The trustees adopted a reasonable position in opposing the applications. For the avoidance of doubt they are to have their costs on all aspects of the application paid out of the estate as well.
Venning J
0
4
0