Phillips v Heremaia
[2025] NZCA 394
•8 August 2025 at 11.30 am
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA86/2024 |
| BETWEEN | ZAHIRA AUDREY PHILLIPS |
| AND | ZARIN SUSAN HEREMAIA |
| Hearing: | 26 March 2025 |
Court: | Palmer, Brewer and Gault JJ |
Counsel: | J J Pietras and B E Jones for Appellant |
Judgment: | 8 August 2025 at 11.30 am |
JUDGMENT OF THE COURT
The appeal is dismissed.
____________________________________________________________________
REASONS OF THE COURT
(Given by Gault J)
This is an appeal against a costs judgment of Associate Judge Paulsen dated 21 December 2023 determining there should be no order for costs in each of two proceedings that settled (except as to costs) at a judicial settlement conference.[1]
[1]Phillips v Heremaia [2023] NZHC 3847 [judgment under appeal] at [41].
The proceedings form part of an unfortunate dispute between two sisters, Audrey (the appellant) and Susan (the respondent),[2] about the estate of their late father, Mr Mohamed, who died on 20 November 2020.
Background
[2]As in the High Court’s costs judgment, we refer to them in this way not for informality but for ease of differentiation.
The background is conveniently set out in the High Court judgment:[3]
[3]Emphasis omitted.
[5] Mr Mohamed made a will dated 31 October 2003 (2003 will). The 2003 will left his estate in equal parts to Audrey and Susan and appointed Maurice Burney as the executor.
[6] Mr Mohamed made another will on 11 August 2016 (2016 will) that was on materially the same terms as the 2003 will, except:
(a) there was an additional clause forgiving any debt owed to him by Susan; and
(b) in place of Mr Burney, Susan was appointed the executor.
[7] Following Mr Mohamed’s death Susan took no immediate steps to apply for probate.
[8] On 1 October 2021, Audrey applied for letters of administration of the 2003 will. I understand she had no knowledge of the 2016 will. While that proceeding is not presently before me, Audrey applies for costs in relation to it.
[9] On 16 December 2021, Susan sought grant of probate of the 2016 will. In response, Audrey lodged a caveat to prevent the grant.
[10] There are two proceedings presently before me, one filed by Audrey and one by Susan.
[11] Audrey’s claim (CIV-2022-409-256) was filed on 23 June 2022. An amended claim was filed on 25 November 2022. Audrey’s amended claim sought orders that:
(a) letters of administration with the 2003 will annexed be granted to the Public Trust;
(b) the 2016 will was not valid for want of testamentary capacity and undue influence; and
(c) in the alternative to (a) and (b) above, that the 2016 will be granted to probate in solemn form on the following basis:
(i) that Susan be removed as trustee and executor; and
(ii) that the Public Trust be appointed as an independent trustee and executor.
[12] Susan’s claim (CIV-2023-409-249) was filed on 18 May 2023. It applied for orders that:
(a) the application be consolidated with Audrey’s application; and
(b) the disposition of the property in favour of Susan made in cl 2(c) of the 2016 will is valid.
[13] Audrey’s claim was called by way of telephone conferences before Eaton J on 3 October 2022 and Doogue J on 25 October 2022. Doogue J noted that Susan purportedly applied to strike out the proceedings and made timetabling instructions to hear that application.
[14] The case then came before Nation J on 18 November 2022. He noted that Susan had decided not to pursue the application for strike out, but rather had provided Audrey’s lawyers with “a pragmatic solution that is fair to both residual beneficiaries”. Audrey’s counsel advised that she was willing to resolve the proceedings on the basis that either of the wills was admitted to probate, so long as an independent executor and trustee was appointed to administer the estate. Her preference was for the 2003 will to be admitted to probate, as otherwise there would “still have to be continuing proceedings” because of the presumption that Susan could not benefit under that 2016 will when it was witnessed by her husband. Nation J set the case down for a three‑day hearing.
[15] Associate Judge Lester held a telephone conference in respect of both proceedings on 22 May 2023. At that conference the parties agreed that the three-day hearing could be vacated. Audrey confirmed that she would not seek declarations that the 2016 will was invalid on the basis of undue influence or lack of capacity. The only issue that remained was therefore the removal of Susan as the executor of the will. Associate Judge Lester noted the estate was a modest one, and then said:
[7] The respondent was not opposed to the idea of an independent executor but was concerned that an independent executor could end up depleting the estate further and investigating the applicant’s concerns about the estate. The applicant, having had access to the deceased’s bank statements, has concerns about a number of transactions in effect alleging that the respondent and/or her husband received funds from the deceased for which they have an obligation to account.
[8] Given the applicant’s real concern lay with understanding financial transactions that were of concern to her, I suggested that the parties’ energies be put into exploring that issue rather than arguing about the identity of the executor.
[9] The following consensus has been reached:
(i) There will be an independent executor appointed to administer the estate pursuant to the 2016 Will.
(ii) The hearing commencing 17 July 2023 is vacated.
(iii) There will be a Judicial Settlement Conference (JSC) with me on Friday 21 July 2023 for the purposes of considering the applicant’s concerns in relation to transactions from the deceased’s bank account.
(iv) The applicant is to identify her concerns in respect of those transactions, with sufficient clarity to enable them to be addressed by the respondent. (I suggest that counsel agree an appropriate cut off point so that very small amounts do not need to be addressed).
(v) The parties may attend the JSC by AVL or in person as they think fit, otherwise counsel will appear in person.
(vi) Costs in respect of the proceeding are reserved, to be dealt with by memoranda following the JSC.
[16] There was a judicial settlement conference on 21 July 2023. After the judicial settlement conference, Associate Judge Lester issued a minute, to which the parties consented, that outlined their agreement. This relevantly provided:
[6] I record that the settlement and the orders I record below are in full and final settlement of all matters between Audrey and Suzie. Audrey and Suzie have also agreed that as between them and Dale Heremaia and the Heremaia Family Trust and as between their father’s estate and Dale Heremaia and the Family Trust, this settlement is in full and final settlement of all issues relating to their father’s estate.
[7] For the avoidance of doubt the full and final settlement between Audrey and Suzie includes a loan made by Suzie to Audrey in or about January 2017 of $25,000.
[8] There is an order that Mortlock McCormack Law is to pay to Audrey the sum of $105,000 of the funds they are holding for the estate of the late Mr [Mohamed]. The funds payable to Audrey are to be paid to the trust account of Wynn Williams, solicitors, Christchurch.
[9] The balance of the estate monies held by Mortlock McCormack Law are to be paid to Suzie as she directs.
[10] I record that this settlement is without prejudice to each party’s right to seek costs against the other in this proceeding and in the related proceeding.
[11] For the avoidance of doubt, both this proceeding and the related proceeding are recorded as being discontinued by consent with costs reserved to be dealt with as set out below.
[12] While I have said the two proceedings are discontinued, leave is reserved to apply for any further consequential orders that may be required in relation to issues arising from this settlement.
High Court costs decision
The Judge observed in his introduction that:[4]
[3] Both parties seek costs, including indemnity costs. The amount of material submitted to the Court is simply staggering. The parties have lost all sense of proportion. The material filed includes lengthy and detailed submissions for each party, reply submissions, affirmations on disputed factual matters, a 231-page bundle of documents, and a bundle of authorities.
[4] I expressed my concern about the material at a teleconference on 25 October 2023. I then issued a minute in which I confirmed I did not intend to consider the affirmations which I did not consider assisted me, and nor would I consider submissions about what had occurred at the settlement conference beyond what Associate Judge Lester recorded in his minute.[5]
[4]Footnote in original.
[5]High Court Rules 2016, r 7.79(6) and (7).
After referring to the background and applicable legal principles relating to the costs presumption on discontinuance, the Judge addressed who was successful in the proceedings:[6]
… I consider that both parties had a measure of success. Susan’s claim as to the validity of the disposition of property to her in the 2016 will was effectively upheld. She was successful in defending Audrey’s challenge to the 2016 will. However, Audrey was successful in relation to the appointment of an independent executor.
[6]Judgment under appeal, above n 1, at [29].
The Judge then addressed the parties’ claims “for indemnity or increased costs based on the other party contributing unnecessarily to the time or expense of the proceedings by pursuing arguments that lacked merit”.[7] The Judge rejected all these claims on the basis that he was in no position to determine to what extent they had any merit , the claims were not relevant to costs, or the claims could not have a bearing on costs having regard to the settlement reached.[8]
[7]At [30].
[8]At [32]–[39].
The Judge concluded:
[40] On a strict application of r 15.23 each party would be required to pay costs to the other in respect of one proceeding. However, all issues of cost are discretionary and the proceedings were closely related. The parties settled as a result of negotiation and the extent to which what was agreed reflects the merits of the parties’ positions is not immediately apparent. What is clear is that they shared a degree of success.
[41] Having reached a settlement in a confidential setting the parties cannot expect that the Court will now conduct a mini-trial on the papers of the rights and wrongs of their respective positions, nor is it possible for the Court to do so. The only just outcome in the circumstances is that costs lie where they fall.
Approach on appeal
On a general appeal by way of rehearing, “the appellate court has the responsibility of considering the merits of the case afresh”.[9] The appellate court “must be persuaded that the decision is wrong”,[10] but “[t]he weight it gives to the reasoning of the court or courts below is a matter for the appellate court’s assessment”.[11] Further:[12]
[16] Those exercising general rights of appeal are entitled to judgment in accordance with the opinion of the appellate court, even where that opinion is an assessment of fact and degree and entails a value judgment. If the appellate court’s opinion is different from the conclusion of the tribunal appealed from, then the decision under appeal is wrong in the only sense that matters, even if it was a conclusion on which minds might reasonably differ.
[9]Kacem v Bashir [2010] NZSC 112, [2011] 2 NZLR 1 at [31], citing Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141.
[10]Austin, Nichols & Co Inc v Stichting Lodestar, above n 9, at [13].
[11]Kacem v Bashir, above n 9, at [31]. No deference is required beyond the customary caution appropriate when seeing the witnesses provides an advantage because credibility is important: see Austin, Nichols & Co Inc v Stichting Lodestar, above n 9, at [13]; and Green v Green [2016] NZCA 486, [2017] 2 NZLR 321 at [31]–[32].
[12]Austin, Nichols & Co Inc v Stichting Lodestar, above n 9 (footnote omitted); and see Kacem v Bashir, above n 9, at [32].
However, on an appeal against the exercise of a discretion, the appellate court can only intervene where the judge who made the order acted on a wrong principle, or failed to take into account some relevant matter, or took account of some irrelevant matter, or was plainly wrong.[13] A decision on costs, as here, involves the exercise of a discretion.[14]
Applicable costs principles
[13]May v May (1982) 1 NZFLR 165 (CA) at 170.
[14]Harrington v Wilding [2019] NZCA 605 at [14]; and see Belgiorno-Nettis v Auckland Unitary Plan Independent Hearings Panel [2024] NZCA 695, (2024) 26 PRNZ 672 at [28].
We refer to the relevant costs rules and principles in the High Court Rules 2016, starting with r 14.1:
14.1 Costs at discretion of court
(1) All matters are at the discretion of the court if they relate to costs—
(a) of a proceeding; or
(b) incidental to a proceeding; or
(c) of a step in a proceeding.
(2) Rules 14.2 to 14.10 are subject to subclause (1).
(3) The provisions of any Act override subclauses (1) and (2).
Rule 14.2(1) then provides:
14.2 Principles applying to determination of costs
(1) The following general principles apply to the determination of costs:
(a)the party who fails with respect to a proceeding or an interlocutory application should pay costs to the party who succeeds:
(b)an award of costs should reflect the complexity and significance of the proceeding:
(c)costs should be assessed by applying the appropriate daily recovery rate to the time considered reasonable for each step reasonably required in relation to the proceeding or interlocutory application:
(d)an appropriate daily recovery rate should normally be two‑thirds of the daily rate considered reasonable in relation to the proceeding or interlocutory application:
(e)what is an appropriate daily recovery rate and what is a reasonable time should not depend on the skill or experience of the solicitor or counsel involved or on the time actually spent by the solicitor or counsel involved or on the costs actually incurred by the party claiming costs:
(f)an award of costs should not exceed the costs incurred by the party claiming costs (not being a party acting in person):
(g)so far as possible the determination of costs should be predictable and expeditious.
Rules 14.3–14.5 then provide the mechanism for scale costs.
Rule 14.6 provides for increased and indemnity costs. Relevantly, rr 14.6(3) and (4) provide:
(3) The court may order a party to pay increased costs if—
…
(b)the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in it by—
…
(iii)failing, without reasonable justification, to admit facts, evidence, documents, or accept a legal argument; or
…
(v)failing, without reasonable justification, to accept an offer of settlement whether in the form of an offer under rule 14.10 or some other offer to settle or dispose of the proceeding; or
…
(4)The court may order a party to pay indemnity costs if—
(a)the party has acted vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or a step in a proceeding; or
…
(f)some other reason exists which justifies the court making an order for indemnity costs despite the principle that the determination of costs should be predictable and expeditious.
As this Court said in Bradbury v Westpac Banking Corp, “unnecessarily” in the context of r 14.6(4)(a) takes its meaning from the adverbs which precede it: “vexatiously, frivolously, improperly”.[15] Indemnity costs may be ordered where a party has behaved either badly or very unreasonably.[16] The Court went on to say that “[i]ndemnity costs, which depart from the predictability of the Rules Committee’s regime, are exceptional and require exceptionally bad behaviour”.[17] That is why “to justify an order for such costs the misconduct must be ‘flagrant’”.[18] The Court also said that increased costs may be ordered where there is failure by the paying party to act reasonably.[19] More recently, this Court in Bathurst Resources Ltd v L&M Coal Holdings Ltd put it this way:[20]
[16] Generally, increased costs may be ordered where there is a failure by the paying party to act reasonably. It is not enough that an appeal (and therefore cause of action at first instance) lacks merit. Increased costs will generally not be appropriate where there are “at least available starting points” for the argument — where its pursuit is not “unreasonable” nor “hopeless”. …
[15]Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [26].
[16]At [27(c)].
[17]At [28].
[18]At [28].
[19]At [27(b)], in the context of r 14.6(3)(b).
[20]Bathurst Resources Ltd v L&M Coal Holdings Ltd [2021] NZCA 684 (footnotes omitted).
Rule 14.6(4)(f) requires that, to award indemnity costs if no other specified reason exists, there must be specific circumstances that justify such an award despite the principle that the determination of costs should be predictable and expeditious.
The onus is on the applicant for increased or indemnity costs to persuade the Court that such an award is justified.[21]
[21]See: SPAK (1996) Ltd v LeRoy [2022] NZCA 564, (2022) 23 NZCPR 769 at [189]; and Corrick v Silich [2018] NZCA 221, [2018] NZCCLR 21 at 14.
Rule 14.7 provides that the court may refuse to make an order for costs or may reduce the costs otherwise payable under rr 14.2–14.5 in certain circumstances.
Rules 14.10–14.11 address written offers made without prejudice except as to costs, and their effect on costs.
Rule 15.23 sets a costs presumption on discontinuance:
15.23 Costs
Unless the defendant otherwise agrees or the court otherwise orders, a plaintiff who discontinues a proceeding against a defendant must pay costs to the defendant of and incidental to the proceeding up to and including the discontinuance.
Issues
The parties agreed that the issues to be determined on the appeal are as follows:
(a)Did the High Court err in finding that each party shared a degree of success, when assessing who failed and who succeeded under r 14.2(1)(a)?
(b)Did the High Court err in finding that it was not in a position to determine whether the respondent had acted unreasonably in the proceeding for the purposes of awarding increased or indemnity costs under r 14.6(3)(b)(iii) or (4)(a) and (f)?
(c)Did the High Court err in finding that it was not unreasonable for the respondent to reject the appellant’s settlement offers for the purposes of awarding increased or indemnity costs under r 14.6(3)(b)(v) and (4)(a) and (f)?
(d)Did the High Court err by failing to have regard to the relevant principles under r 14.7 in refusing to award the appellant any costs?
(e)Did the High Court err in finding that the appellant was not entitled to recover wasted costs in respect of the probate proceedings?
Discussion
We do not consider the case to be as complicated as these issues suggest. We detect no error of principle by the Judge, no failure to take into account some relevant matter or error by taking into account some irrelevant matter. The issue on appeal is whether the Judge was plainly wrong in making no order as to costs.
The primary argument on appeal is that Audrey was the overwhelmingly successful party—Susan agreed to step down as executor. Mr Pietras submitted there was information asymmetry and information was drip fed. He submitted Audrey has been penalised for taking a pragmatic approach to resolve issues—she would have been criticised if she refused to settle and ran the case to trial for the purposes of cost recovery. He submitted Audrey’s inheritance has been eroded by legal fees through no fault of her own and the interests of justice dictate that the costs decision be set aside.
The starting point is that the substantive dispute in each proceeding settled. The settlement’s reservation as to costs entitled the parties to address costs in accordance with normal costs principles. But the settlement meant the Court made no determination on the merits of each claim. This limits the relevance of the general costs principle that costs follow the event—the party who fails with respect to a proceeding should pay costs to the party who succeeds.[22] Both proceedings were discontinued.
[22]High Court Rules, r 14.2(1)(a).
It is well-established that, in deciding whether it is just and equitable to exercise the discretion to displace the costs presumption on discontinuance:[23]
… the Court may consider the parties’ conduct in the matter and the reasonableness of the parties’ respective stances, including the reasons why the plaintiff brought and continued the proceeding and the defendant opposed it.
[23]Earthquake Commission v Whiting [2015] NZCA 144, (2015) 23 PRNZ 411 at [68]. See also: Kroma Colour Prints Ltd v Tridonicatco NZ Ltd [2008] NZCA 150, (2008) 18 PRNZ 973 at [12] and [29]; and Powell v Hally Labels Ltd [2014] NZCA 572 at [22].
Courts have been persuaded to exercise the discretion when “the defendant’s acts or omissions have caused the litigation and then rendered it unnecessary”.[24] However, the court “will not undertake a review of the merits of the plaintiff’s claim unless they are immediately apparent”.[25] To “undertake a disputed merits review would result in a trial which would be contrary to the object of r 15.23”.[26] In Powell v Hally Labels Ltd, this Court quoted Lord Denning MR who said when faced with the prospect of such an inquiry:[27]
It is plain that neither side wishes to go on with the action so as to get his own costs. But neither side wishes to pay the other side’s costs. Each will fight rather than pay the other side’s costs. So what is to be done? Is this case to go on simply about costs? I think not.
[24]Earthquake Commission v Whiting, above n 23, at [69] , citing Andrew Beck and others McGechan on Procedure (online looseleaf ed, Brookers) at [HRPt 15.23.01]; G E Dal Pont Law of Costs (3rd ed, LexisNexis Butterworths, Australia, 2013) at [14.64]; Kroma Colour Prints Ltd v Tridonicatco NZ Ltd, above n 23, at [12] and [29]; and Powell v Hally Labels Ltd, above n 23, at [21].
[25]Earthquake Commission v Whiting, above n 23, at [71], citing Powell v Hally Labels Ltd, above n 23, at [23]–[24].
[26]Earthquake Commission v Whiting, above n 23, at [71].
[27]Powell v Hally Labels Ltd, above n 23, at [24], quoting Lord Denning MR in J T Stratford & Son Ltd v Lindley [1969] 1 WLR 1547 (CA) at 1553.
Further, in a case where the trial is not completed, increased or indemnity costs may be awarded only where the lack of merit is both obvious and incontrovertible.[28]
[28]N-Tech Ltd v Abooth Ltd [2012] NZHC 1167 at [108].
We consider the costs presumption was not displaced. The Judge was right to decline to engage in a disputed merits review for cost purposes. Such a mini-trial would be contrary to the object of r 15.23. The fact that the costs application needed to be determined by a Judge other than the Judge who presided over the judicial settlement conference does not make it any more appropriate to engage in such a review. The merits were not immediately apparent. That can be seen even from the different ways the parties characterise the dispute. Reciprocal claims for indemnity costs were even more inappropriate. It is unfortunate that inheritance has been eroded by legal fees but that is not a proper basis for seeking costs. Nor was it necessary or appropriate to determine the value of the estate for cost purposes.
Insofar as success, including partial success,[29] remains relevant when there is no Court determination, as the Judge accepted, Audrey was successful in relation to the appointment of an independent executor.[30] However, the Judge also accepted that Susan’s claim as to the validity of the disposition of property to her in the 2016 will was effectively upheld.[31] She was successful in defending Audrey’s challenge to the 2016 will. It would not be appropriate to seek to assess the merits of the concerns about misuse of Mr Mohamed’s funds that were resolved in the judicial settlement conference. We do not accept the characterisation that Audrey was the overwhelmingly successful party.
[29]Success on more limited terms is still success: Weaver v Auckland Council [2017] NZCA 330, (2017) 24 PRNZ 379 at [26]. Partial failure can be addressed by reducing costs in accordance with r 14.7(d) of the High Court Rules.
[30]Judgment under appeal, above n 1, at [29].
[31]At [29].
We also do not accept that it was obvious that Susan contributed unnecessarily to the time or expense of the proceedings by pursuing arguments that lacked merit or refusing to accept an earlier settlement offer. That was not the only conclusion open to the Judge, who rightly declined to engage in a detailed merits review.
Accordingly, as the Judge said, on a strict application of r 15.23 each party would be required to pay (scale) costs to the other in respect of one proceeding.[32] However, given the off-setting effect of such orders (acknowledging there may have been some mismatch) and the overall circumstances of the case, the Judge was entitled to conclude in the exercise of the Court’s discretion that costs in each of the two proceedings should lie where they fall. Further, the Judge was not required to take into account the costs in the earlier, separate probate proceeding (as wasted costs or otherwise).
[32]At [40].
We are far from persuaded the decision was plainly wrong.
Costs
Costs would ordinarily follow the event. However, Audrey is legally aided and we are not satisfied that there are exceptional circumstances warranting an order for costs.[33] We make no order as to costs.
Result
[33]Legal Services Act 2011, s 45(2).
The appeal is dismissed.
Solicitors:
Duncan Cotterill, Wellington for Appellant
Saunders & Co, Christchurch for Respondent
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