Percy v Percy
[2020] NZHC 828
•29 April 2020
IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY
I TE KŌTI MATUA O AOTEAROA AHURIRI ROHE
CIV-2019-441-000089
[2020] NZHC 828
UNDER s 51 of the Trustee Act 1956 and the Court’s inherent and supervisory jurisdiction IN THE MATTER OF
claims of breach of contract, breach of trust and fiduciary duty and an application for removal of Trustees
BETWEEN
DOUGLAS WILLIAM PERCY
First Plaintiff
VIRGINIA FRANCES PERCY
Second PlaintiffAND
VANCE CHARLES PERCY
First Defendant
STEPHEN PETER LUNN
Second DefendantVANCE CHARLES PERCY and DENISE MARY PERCY
Third Defendants
Hearing: 23 March 2020 (by telephone) Counsel:
J L Bates for Plaintiffs
D J O’Connor for Defendants
Judgment:
29 April 2020
JUDGMENT OF DOOGUE J
(Prospective Costs Application)
PERCY & ANOR v PERCY & ORS [2020] NZHC 828 [29 April 2020]
Introduction
[1] In proceedings filed in November 2019 the plaintiffs (Douglas and Virginia) allege that the first defendant (Vance), their brother and a trustee of the Percy Farming Trust (the trust), together with the second defendant (Mr Lunn), a solicitor and co- trustee of the trust, have failed to act in good faith and in the best interests of the trust’s beneficiaries.
[2] Douglas and Virginia are discretionary beneficiaries of the trust as to income and capital at the date of distribution. They have filed a substantive action seeking a variety of remedies against Vance and Mr Lunn, including:
(a)declarations of breach of trust, and that they are in breach of their fiduciary duty to the beneficiaries;
(b)the removal of Vance and Mr Lunn as trustees and the appointment of independent trustees;
(c)a declaration that Vance and his wife Denise as partners in the farming partnership known as the Shiloh Santa Gertrudis Stud (the Shiloh Stud) have knowingly assisted Vance to enter into transactions in breach of trust and fiduciary duty; and
(d)enquiries into losses and profits as a result of the above declarations, and various subsequent financial remedies, including compensation and/or account for profits.
[3] Douglas alone also seeks damages from Vance and Mr Lunn for breach of contract.
[4] Previous proceedings alleging the same or very similar causes of action were settled in December 2017 by deed of settlement between Douglas, Vance and Mr Lunn.
[5]In this interlocutory proceeding, Douglas and Virginia seek:
(a)a prospective costs order (PCO) that the costs of bringing the substantive proceedings be paid out of the assets of the trust upon monthly invoicing until finalisation of the litigation;
(b)an order prohibiting the trustee defendants from using trust assets to defend the case against them; and
(c)an order that the defendants personally pay the plaintiffs’ costs of this interlocutory application, on an indemnity basis.
Background
[6] The trust was established on 15 December 1969 by Frank William Percy (the settlor), the father of Douglas, Virginia and Vance. The beneficiaries were the settlor’s wife and his children and grandchildren and the wives or widows of any sons or grandsons of the settlor.
[7] The F W Percy Farming Company Limited (the company) was incorporated on 16 December 1969. The company operates a farm in Hawke’s Bay. The trust owns 50 per cent of the shares in the company. The third defendants operate the Shiloh Stud and graze their stock on the farm owned by the company.
[8]Vance became a director of the company on 3 August 1995.
[9] The trustees of the trust changed over time. Vance was appointed as a new trustee of the trust on 23 February 2001. He accepted such appointment voluntarily. As a result of his appointment he then held two fiduciary positions, one as director of the company and the other as trustee of the trust.
[10] On 13 November 2002 the settlor signed a memorandum of guidance for the trustees of the trust (the memorandum of guidance). It set out his wishes concerning the administration and management of the trust.
[11]The settlor died in April 2008.
[12] In May 2015 the capital of the company was 200,000 $1.00 shares: 100,000 shares held by the trustees of the trust, 59,999 shares held by Vance, 40,000 shares held by the settlor’s wife, and one share held by Denise.
[13] The settlor’s wife died in July 2015, and she bequeathed her shares in the company to Vance. Virginia contested that bequest in the Family Court and was granted ownership of 4,000 shares in the company.1
[14] On or about 2 May 2016 Douglas filed High Court proceedings against the then trustees: Vance and a Mr Riddell. The Shiloh Stud was later joined as second defendant. Mr Riddell agreed to resign, and Mr Lunn was then appointed as a trustee in 2017.
[15] In those proceedings, Douglas made an interlocutory application for an order appointing auditors and reviewers under s 83B of the Trustee Act 1956 (the Act) to investigate alleged irregularities. That application was declined by Associate Judge Smith in a decision dated 18 August 2017, and costs were awarded in favour of the Shiloh Stud.2 As part of that claim, Douglas sought the removal of the then trustees, to be replaced by independent trustees.
[16] The proceedings were settled by a deed of settlement in December 2017. Douglas’ claim was settled and a process for the appointment of replacement trustees was established.
[17]The deed of settlement provided as follows:
1.The current trustees Vance Percy and Stephen Lunn agree to resign as Trustees to be replaced by agreed independent professional Trustees and failing such agreement the parties agree that the President of the New Zealand Law Society (or her nominee) shall have power to nominate two independent professional Trustees from the Hawkes Bay District, and such nomination shall be accepted by the parties as binding.
2.The two independent Trustees shall have no conflict of interest.
3.One independent Trustee must come from an accounting firm or company.
1 Bennett v Percy [2020] NZFC 770.
2 Percy v Percy [2017] NZHC 1989.
4.The other professional Trustee must come from a law firm or company.
5.Douglas Percy agrees to discontinue his proceedings and the parties agreed that costs are to lie where they fall.
6.Each party will put forward up to four names as potential professional Trustees within 7 days.
7.Absent agreement as to the composition of the Trustees within 21 days, the power of nomination set out in clause 1 shall vest in the President of the NZLS (or nominee).
8.Vance Percy shall indemnify Douglas Percy in the event Denise Percy claims costs against Douglas upon discontinuance.
9.Clause 1 is an arbitration clause for the purposes of the Arbitration Act.
[18] Contrary to the terms of the settlement, when the parties were unable to agree on replacement trustees, they continued to negotiate the identity of the replacement trustees; a process which took about 18 months.
[19] In June 2019 Douglas referred the matter to the Law Society. Mr Lunn claimed the Law Society had no jurisdiction in the matter and that the deed of settlement was contrary to the Act.
[20] Douglas claims that Vance and Mr Lunn have repudiated the deed of settlement, while they claim that Douglas has; each denies repudiating it.
[21] As to the trustees, the parties are agreed that Vance and Mr Lunn should be removed and new trustees appointed. However, neither Douglas and Virginia nor Vance and Mr Lunn can agree on who those trustees should be.
Substantive proceedings
[22] At the heart of Douglas and Virginia’s case is the allegation that Vance has a conflict of interest in being both a trustee of the trust and a director of and controlling shareholder in the company. They allege that Vance is in breach of the self-dealing rule, binding on all trustees, as he is using company property (the farm) for the benefit of the Shiloh Stud, in which he has a personal interest.
[23] Over time Douglas has been concerned about the manner in which the trust has been operated. In particular, he has been concerned at the very low rate of return received by the trust from its shareholding in the company and the low rate of interest (one per cent per annum) paid on a loan of approximately $220,000.00 from the trust to the company.
[24] In addition, Douglas and Virginia allege distributions made by the trustees over the years have favoured Vance’s family over the other beneficiaries.
[25] Douglas and Virginia also harbour concerns about Mr Lunn’s breach of trust and fiduciary duties owed to them. They say Mr Lunn has failed to prevent Vance from personally dealing with the company’s assets.
[26] Finally, Douglas and Virginia allege that Vance and Denise have knowingly assisted Vance in his capacity as a trustee to enter into transactions with Shiloh Stud in breach of his duties to the trust. They say Vance and Denise have benefitted from their ability to graze stock owned by the Shiloh Stud on the company’s property.
[27] On the other hand, Vance and Mr Lunn deny that Vance placed himself in a position to self-deal. They say he was placed in that position by the settlor, the settlor’s will, the memorandum of guidance, and the terms of the trust. They say that there has been an implied exemption from the self-dealing rule in this case, as the settlor intended to waive the conflict of interest rule for Vance. They also deny that the Shiloh Stud has profited from the company.
[28] Affidavits have been filed by Douglas and Vance. They disclose a complete breakdown in the relationship between Douglas and Virginia, and Vance and Mr Lunn. It would be difficult to characterise the relationships as anything other than intensely acrimonious.
Costs in trusts litigation
[29] The conventional costs principle is that costs follow the event. That principle is subject to the Court’s overall discretion as expressed in r 14.1 of the High Court
Rules 2016. Subject to that overriding discretion, various cases give litigants guidance as to how that discretion is likely to be exercised.
[30] The “classic statement” as to the application of costs jurisprudence to trusts litigation is that of Kekewich J in Re Buckton,3 as described by Hoffmann LJ in McDonald v Horn.4 In Re Buckton, Kekewich J divided trust litigation into three broad categories:5
(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 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.
[31] In Woodward v Smith, Kós J examined when a prospective costs order application may be made in favour of a plaintiff beneficiary in hostile proceedings:6
[29] When then, might a prospective costs application be made in favour of a plaintiff beneficiary in hostile proceedings – substantially, or at least
3 Re Buckton [1907] 2 Ch 406 (Ch) at 413-417.
4 McDonald v Horn [1995] 1 All ER 961 (CA) at 970-971.
5 As summarised in Woodward v Smith [2014] NZHC 407, [2014] 3 NZLR 525 at [23].
6 At [29].
partially, within Buckton category 3? The answer suggested by the authorities is extremely rarely. As Lewin puts it:7
A prospective costs order 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.
Lewin goes on to say that the second element indicated has been “tightened up”.8 As a general rule, it is only where the Judge hearing the application is satisfied that the Judge at trial could properly exercise his or her discretion only by making an order in accordance with the proposed prospective cost orders that the order will be made. It follows that only where there are very special circumstances will a PCO be made in a Buckton category 3 case.
[32] Kós J then set out a very useful summary of the legal principles governing PCOs:9
A summary of the legal principles governing PCOs in favour of beneficiaries in trust-related litigation may be attempted. First, such applications may involve either or both indemnity and immunity. The former addressing the applicant’s own costs; the latter any liability to meet costs of other parties. Secondly, such orders may routinely be made in cases falling generally into categories 1 and 2 of Buckton. Thirdly, they may also routinely be granted in cases that would fall within category 3 of Buckton, but which involve substantial pension funds, where the plaintiff’s participation may be characterised as truly of a derivative nature. Fourthly, however, in any other case within Buckton category 3, the making of such a PCO will be quite exceptional. In such cases the norm is to allow costs to be resolved by the trial Judge. Only in very exceptional cases, after having regard to the strength of the party’s case, the likely costs order at trial, the justice of the application and any special circumstances, will a PCO be made. Care is needed in considering each potential aspect of such an order: the indemnity aspect (essentially funding the plaintiff’s own costs) and the immunity aspect (protecting the applicant for liability for other party’s costs). Some cases may justify one or the other, and, very exceptionally, both. It may well be the case, for instance, that the granting of pre-emptive indemnity orders will be sufficient in itself to meet the justice of the case.
Should a prospective costs order be made in this case?
[33] It is clear that on the spectrum between consultative trust related litigation and hostile trust related litigation, this case is a hostile claim and is therefore a category three Buckton case. The parties agree on that.
7 John Mowbray and others Lewin on Trusts (18th ed, Sweet & Maxwell, London, 2008) at [21.120].
8 At [21.120]. The passage reflects the terms of Lightman J’s judgment in Alsop Wilkinson v Neary
[1996] 1 WLR 1220 (Ch).
9 Woodward v Smith, above n 5, at [39].
Strength of Douglas and Virginia’s case
[34] Douglas and Virginia (in seeking the removal of Vance and Mr Lunn as trustees and the appointment of independent trustees) say that the action is necessary because:
(a)Vance has placed himself in a position of conflict of interest, is in breach of the self-dealing rule, and is profiting from that conflict;
(b)Vance and a former trustee have breached fiduciary duties to all beneficiaries by making distributions to Vance and his family members; and
(c)Vance and Mr Lunn unlawfully repudiated the deed of settlement.
Allegation that Vance has placed himself in a position of conflict of interest, is in breach of the self-dealing rule, and is profiting from that conflict, in particular in relation to the Shiloh Stud
[35] Douglas and Virginia allege that Vance put himself in a position where his interests as a trustee and as a director and controlling shareholder in the company are in conflict. They rely on the rule against self-dealing. They say Vance has profited from self-dealing.
[36] The scope of the rule against self-dealing is as described in the Chancery Division decision of Vinelott J in Re Thompson’s Settlement:10
It is clear that the self-dealing rule is an application of the wider principle that a man must not put himself in a position where duty and interest conflict or where his duty to one conflicts with his duty to another … The principle is applied stringently in cases where a trustee concurs in a transaction which cannot be carried into effect without his concurrence and who also has an interest in or holds a fiduciary duty to another in relation to the same transaction. The transaction cannot stand if challenged by a beneficiary because in the absence of an express provision in the trust instrument the beneficiaries are entitled to require that the trustees act unanimously and that each brings to bear a mind unclouded by any contrary interest or duty in deciding whether it is in the interest of the beneficiaries that the trustees concur in it.
10 Re Thompson’s Settlement [1985] 2 All ER 720 at 730.
[37]Vinelott J’s decision was referred to with approval in Staite v Kusabs,11 and
Dever v Knobloch.12
[38] Douglas and Virginia argue that Vance has made income allocations and lent money from the trust on less than commercially prudent terms, but substantially favouring his own interests. They also say that as a director of the company Vance has entered into annual grazing contracts with Shiloh Stud, favouring his interests in Shiloh Stud at the expense of the trust.
[39] Vance argues he has been operating under an implied exemption to the self- dealing rule. He denies placing himself in a position of conflict of interest by being appointed as trustee, claiming that he was placed in that position by the settlor. Further, he rejects profiting from any self-dealing.
[40] I have considerable difficulty with Vance’s claim that he has been operating under an implied exemption to the self-dealing rule. Counsel for the defendants submitted that the self-dealing rule does not apply to a trustee who is placed in a position of self-dealing by the settlor.13
[41] The self-dealing rule does not apply in certain circumstances, including when allowed expressly by the terms of the trust, or by implication in the terms of the trust.14 The implied exemption applies if a trustee has not placed themselves in a position of conflict, but is instead placed in a position of conflict by the settlor or the terms of the trust.15 For example, in the context of a family trust, a settlor may appoint a trustee who is also a beneficiary, from the outset of the trust.16 This implied exemption is unlikely to apply to a trustee who has been appointed by persons other than the settlor, except in exceptional circumstances.17
11 Staite v Kusabs [2014] NZHC 1183 at [52], citing Naera v Fenwick [2013] NZCA 353 at [91].
12 Dever v Knobloch HC Napier CIV-2008-441-537 29 October 2008 at [39].
13 Citing Chris Kelly and Greg Kelly Garrow and Kelly Law of Trusts and Trustees (7th ed, LexisNexis, Wellington, 2013) at [20.179]; Anthony Grant “The Bundle of Rights “doctrine”: Can appointed do whatever they want?” < Kelly and Kelly, above n 13, at [20.173]; Mowbray and others, above n 7, at [20.65].
15 Kelly and Kelly, above n 13, at [20.179]; Mowbray and others, above n 7, at [20.95]; Breakspear v Ackland [2008] EWHC 220 (Ch) at [114]; Dever v Knobloch, above n 12.
16 Kelly and Kelly, above n 13, at [20.179]; Dever v Knobloch, above n 12, at [47].
17 Kelly and Kelly, above n 13, at [20.184]; Earl of Cardigan v Moore [2012] EWHC 1024 (Ch) at
[47] and [63]; Enright v Enright [2019] NZHC 1124 at [160].
[42] Vance was not an original trustee. He accepted appointment on 28 February 2001 when Mr Rolls retired as a trustee. He was not appointed by the settlor and is thus a successor trustee. Therefore, the implied exemption to the self- dealing rule is unlikely to apply to him.
[43]There is no self-dealing or conflict authorisation in the Trust Deed itself.
[44] There is no reference to conflict authorisation, nor to the wishes of the settlor, in the documentation appointing Vance as a trustee. Although there is some evidence that the settlor wished for Vance to become a trustee, that does not go so far as to prove that the settlor authorised Vance to self-deal.
[45] Contrary to the Vance’s case, the memorandum of guidance to the trustees does not provide any authorisation for self-dealing. In fact, it exhorts the trustees to ensure that all the settlor’s children shall receive a reasonable amount of money from the distribution, whilst acknowledging that Vance’s distribution may be higher as a result of his efforts in farming the property over the years. By doing so, the settlor expressly acknowledged and provided a mechanism by which Vance received preferential treatment, albeit limited.
[46] Finally, had the settlor truly wished to exempt Vance from the self-dealing rule he could have wound up the existing trust and created a new one which made express provision for self-dealing. He did not do so.
[47] Therefore, I find that Douglas and Virginia have a strong case that Vance is in a position where he has a conflict of interest, where he can self-deal and does not have express authorisation to do so.
[48] I turn now to whether Douglas and Virginia have a strong case that Vance, Denise and the Shiloh Stud have in fact profited from Vance being in a position to self- deal.
[49] As a result of document discovery during the earlier proceeding, Douglas received copious documentation concerning the management and administration of
the trust and of the company. Douglas and Vance filed affidavits confirming their respective positions, which remain the same today and are summarised in the background section of this judgment.
[50] In the earlier proceedings, expert evidence was filed for Douglas by Mr John Palairet (a chartered accountant and professional trustee) and Mr Philip Tither (director of AgFirst Pastoral (HB) Ltd, a company that provides farm management consultancy services). Mr Tither’s brief of evidence recorded his opinion that the grazing rate paid by the Shiloh Stud to the company was “significantly below fair market rate”, and more generally that there were various opportunities to make the farm more profitable. Mr Palairet’s brief of evidence recorded his opinion that the loan from the trust to the company should be renegotiated, on commercial terms, to a higher interest rate. He concluded that trustees acting with reasonable skill and care could take steps to secure more benefit for the trust’s beneficiaries, primarily by charging interest at market rate on the loan and putting pressure on the directors of the company to increase profits from the farm (including by increasing the grazing rate).
[51] In those earlier proceedings, expert evidence was also filed for the defendants by Mr John Cannon (director of Challenge Consultancy Limited, a farm management consulting company) and Mr Ewan Gardiner (a senior chartered accountant who had completed accounting work for the company, the trust and the Shiloh Stud). Mr Cannon confirmed Vance’s evidence that the salaries received by Vance and Denise were substantially below market levels. Vance’s brief of evidence also recorded that Vance and Denise had personally paid some of the company’s expenses. Mr Gardiner reviewed all of the expert evidence and found that, in his opinion, neither the company nor the trust had been disadvantaged by the arrangements, once adjustments were made for underpaid salaries and expenses that Vance and Denise had covered personally. He also confirmed that the grazing arrangement between the company and the Shiloh Stud had been in place when the settlor was alive.
[52] Those proceedings were of course settled. But it could not be said on the evidence that existed at that time that Douglas’ case was strong and conclusive proof of profiting from self-dealing by Vance.
[53] The present proceedings have been brought on the basis that there has been self-dealing resulting in losses to the trust and the company between 2016 and now. No financial evidence over and above that contained in Mr Gardiner’s affidavit has been filed. There is a vacuum as to the financial dealings since 2016. There is insufficient evidence before the Court to assess the strength of the plaintiffs’ case in this respect.
[54] Given the background and the outcome of the earlier proceedings and the lack of evidence of current self-dealing to the detriment of the trust, it could not be said that on this cause of action Douglas and Virginia have such a strong case that the only order a judge could make would be to find the cause of action proven.
Allegation that Vance and a former trustee breached fiduciary duties to all beneficiaries by making distributions to Vance’s family members and not to the other beneficiaries
[55] It is difficult to understand the case here. In the earlier proceedings Douglas alleged that significant distributions had been made to Vance’s family members and not to other beneficiaries and their families. He alleged that on or about 30 May 2005 the trustees of the trust at that time authorised distributions of income as follows –
$3,000.00 to Vance and Mr Riddell, $12,000.00 to Vance’s son, and $12,000.00 to Vance’s daughter.
[56] I note from the documentation referred to that it is arguable these were gifts by the settlor to the donees listed in [55], as evidenced by gift statements provided to the Inland Revenue Department. However, those gift statements have not been provided in the current proceeding.
[57] If those gifts are set to one side, Douglas and Virginia’s case on this cause of action primarily relies on a conversation between Douglas and Vance where it is alleged by Douglas that Vance said “he had no intention of ever allocating income to the First or Second Plaintiffs”.
[58] This cause of action is scant on detail, and in the absence of any corroborative evidence will need to be decided by the trial judge on an assessment of credibility
issues. In such a situation it could not be said that Douglas and Virginia have a strong case where the only outcome available to the trial judge is to make a finding in their favour.
Allegation that Vance and Mr Lunn unlawfully repudiated the deed of settlement
[59] This cause of action needs to be kept in perspective. It is secondary and follows on from the former causes of action. Both parties claim the other initiated repudiation of the settlement. However, both parties agree that the current trustees should be removed and replaced (which was the substance of the deed of settlement). The remaining question is who the replacement trustees should be – those agreed upon by the parties at an earlier time, or by the Court appointing independent trustees.
[60] In pleading this cause of action Douglas and Virginia appear to have two clear objectives. First, to secure the removal of the current trustees, replacing them with independent trustees. Secondly, to demonstrate the alleged obstructive and intransigent methods employed by Vance and Mr Lunn to delay critical examination of their administration and management of the trust.
[61] Notwithstanding the protestations of Vance and Mr Lunn that it was Douglas who repudiated the deed of settlement, I find their case to be rather weak on the face of it. I do not agree with their submissions that the deed is invalid on its face, or contrary to the Act.
[62] But little is to be gained in pursuing this cause of action in my view when it is common ground how acrimonious the history and relationships in this family are, where it is secondary to the other causes of action, and where all parties agree new trustees need to be appointed.
Should Vance and Mr Lunn be removed and replaced by independent trustees?
[63] The Court’s jurisdiction to remove is not limited to cases where a trustee has misconducted themselves in the administration of the trust. Section 51(1) of the Act provides that an order may be made appointing a new trustee “… whenever it is
expedient to appoint a new trustee … and it is found inexpedient, difficult, or impracticable so to do without the assistance of the court…”.
[64] The Court has jurisdiction to remove a trustee where friction of personalities or honest differences of opinion make it difficult for a trustee to act in the interests of the beneficiary, even where there has been no misconduct on the part of the trustee. It may be that the trial judge does consider it is important to resolve the repudiation issue. It may be that the trial judge finds that Vance and Mr Lunn were correct in their views and it was Douglas who repudiated the agreement, or that they were honest in their beliefs but wrong. But this will not, in my view, resolve the issue of whether there should be removal of Vance and Mr Lunn as trustees or not, because it is so obviously necessary to do so and in any event such a course is agreed to by Vance and Mr Lunn.
[65] I consider this is one of those cases where the case for removal of the trustees is overwhelmingly strong, even in the absence of the trial judge finding any mistaken belief or misconduct by the trustees.
[66] I consider that the case for removal of the trustees is strong on the basis that Vance is in a position to self-deal, and that over many years he has failed to adequately provide information to Douglas when reasonably requested to do so. Under the current Act there is no legal obligation on the trustees to provide that information to beneficiaries, but it may have been a measure that would have alleviated the deep level of suspicion harboured by Douglas over the years. Even in the absence of any misconduct and allowing for the fact that Vance and Mr Lunn might have had a reasonable belief that it was Douglas who repudiated the deed of settlement or that the deed did contravene the Act, there is such a high level of distrust and dysfunction that removal of the trustees and the appointment of replacement trustees seems inevitable.
[67] In fairness to Vance and Mr Lunn, that must be the view they have themselves arrived at. They no longer oppose removal, they simply dispute the mechanism by which successor trustees should be chosen and the appropriateness of the trustees proposed by Douglas and Virginia.
Likely order as to costs at trial
[68] What the trial judge will order by way of costs remains to be seen. There is a lot of water to go under the bridge yet. More disclosure will need to be given to the plaintiffs, and some kind of independent assessment of whether there are in fact any losses occasioned by virtue of the conflict of interest Vance is in would need to be tendered in evidence. Credibility issues lie at the heart of the dispute and I am not armed with enough evidence to resolve those at this interlocutory stage.
[69] If Douglas and Virginia are successful they would likely receive some award of costs. If they are unsuccessful it is not inevitable that the trial judge would award costs against them, given the history of the management and administration of the trust and the difficulties that have arisen.
[70] I note in passing that in relation to the appointment of trustees, the deed of settlement provided that any dispute was a matter for arbitration. The fact that neither party invoked the arbitration clause is likely to be a matter considered by the trial judge in relation to costs.
Justice of the application
[71] There is no evidence before me that Douglas and Virginia are unable to fund the litigation in the event that a PCO is not granted. There is therefore no reason in my view to disturb the usual application of costs rules in this case.
[72] Douglas and Virginia seek an order that Vance and Mr Lunn bear the costs of these proceedings personally. I decline that application for the reasons already given; those are matters for determination by the trial judge in due course. I would expect a prudent impartial professional trustee would in any event abide the decision of the Court in this case.
Should the applications be served on all beneficiaries?
[73] Vance and Mr Lunn assert that all of the discretionary beneficiaries should be served with these proceedings. Rule 4.23(2) of the High Court Rules expressly deals with this. There is no requirement to serve all those beneficially interested in a trust,
because the trustees represent those persons. There is nothing in the circumstances of this case to warrant service on all discretionary beneficiaries, and indeed the cost of doing so could be disproportionate in monetary terms and amount to further and unnecessary delay.
Conclusion
[74] This is a clear Buckton category 3 case. The exceptional circumstances necessary to justify a PCO have not been made out. Nor have Douglas and Virginia made out a case that Vance and Mr Lunn should bear the costs of these proceedings personally.
[75] Costs associated with this interlocutory application will be determined by the trial judge in due course when its merits (or otherwise) can be assessed in the context of costs as a whole.
Result
[76]The application for prospective costs order is dismissed.
[77] The application that Vance and Mr Lunn bear the costs of these proceedings personally is dismissed.
[78]Costs in respect of this application are reserved.
Doogue J
Solicitors:
Brown & Bates, Napier Lunn & Associates, Napier
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