Powell v Powell
[2015] NZHC 1984
•20 August 2015
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2013-409-001371 [2015] NZHC 1984
BETWEEN JOHN WILLIAM POWELL
Plaintiff
AND
DANIEL JOHN POWELL Defendant
AND
CHARLOTTE TERESA GAVIN (NEE POWELL)
Interested Party
Hearing: 20 August 2015 (On the papers) Appearances:
J V Ormsby, C L Webber and J P Bell-Connell for Plaintiff
S M Grieve and S A Woods for Defendant
J Moss for Interested PartyJudgment:
20 August 2015
JUDGMENT OF DUNNINGHAM J
[1] This is a dispute over how litigation costs should be funded in proceedings under the Trustee Act 1956 where Mr John Powell (John), a trustee of a Trust known as the Daniel Powell Family Trust (the DP Trust), applied to have himself and his son Daniel Powell (Daniel), removed as trustees of that Trust.
[2] In my decision of 14 March 2014, I held it was appropriate that John be removed as a trustee, but that Daniel remain as a trustee, as I was satisfied that, under the trusteeship of Daniel and an independent trustee, the DP Trust would be properly administered for the benefit of the beneficiaries (the first High Court
decision).1
1 Powell v Powell [2014] NZHC 476.
POWELL v POWELL [2015] NZHC 1984 [20 August 2015]
[3] That decision was appealed to the Court of Appeal (the first Appeal), and referred back to this Court, by consent, to consider the consequences of s 48 of the Trustee Act 1956 on my decision. In a decision dated 2 September 2014, I held that, notwithstanding the provisions of s 48, my earlier decision was unchanged (the second High Court decision).2 The substantive appeal was then heard and, in a
decision dated 24 April 2015, John’s appeal was dismissed (the main appeal).3
[4] The Court of Appeal made decisions as to costs payable as between the parties, holding, after the first appeal, that costs should lie where they fall and, after the main appeal, that John was to pay Daniel’s costs, on a band A basis.
[5] In the High Court decisions, I reserved any issues of costs to be addressed by exchange of memoranda. The memoranda which have now been filed do not seek inter partes costs. Rather, they seek the Court’s determination as to whether the costs incurred by John, in bringing these proceedings, and of Daniel’s sister, Charlotte Gavin (Charlotte), in participating as an interested party, should be reimbursed in full from the DP Trust.
[6] Reimbursement is sought by reference to the principles in Re Buckton,4 saying they are costs incurred when a claim is made by a trustee relating to difficulties in administration of the Trust, and where the litigation expenses were reasonably incurred.5
The parties’ claims
Daniel’s claim
[7] Daniel claims that he is entitled to full indemnity from the Trust for his legal costs in relation to the proceeding. He, in his capacity as trustee, successfully defended the proceeding brought by John, both at first instance in the High Court,
and in the main appeal. He claims total costs of approximately $282,590.46, of
2 Powell v Powell [2014] NZHC 2096.
3 Powell v Powell [2015] NZCA 133.
4 Re Buckton [1907] 2 Ch 406 (Ch).
5 Those principles are also reflected in s 38(2) of the Trustee Act 1956 which authorises a trustee to be reimbursed out of trust property for all expenses reasonably incurred as trustee, as well as in r 14.6(4)(c) of the High Court Rules which codifies Re Buckton.
which $188,893.59 relate to the High Court proceedings, and the balance of
$93,696.87 relating to the two appeals in the Court of Appeal. The scale costs paid by John in relation to the main appeal have reduced that figure by $10,298.72.
[8] No opposition is raised to Daniel’s claim.
John’s claim
[9] John claims that he, too, is entitled to an indemnification from the DP Trust or the expenses he incurred in pursuing the litigation in the High Court and in the first appeal. While he accepts that his position was not ultimately upheld by the Court, it was nevertheless reasonable for him to take the proceedings because:
(a) he had acted because the situation needed resolution and it was not tenable for Daniel and him to continue as trustees together;
(b)he was not acting for his self benefit in seeking to have Daniel removed as a trustee. Instead, he genuinely considered he was acting in the best interests of the beneficiaries in seeking to have the deadlock resolved;
(c) he was clear throughout that he would not continue in the office of trustee once a replacement trustee was appointed, even though he also considered that Daniel should not continue as trustee; and
(d)while Daniel was not removed as a trustee, John’s application, and its prosecution to a hearing, have helped ensure that the affairs of the DP Trust are conducted appropriately moving forward.
[10] Daniel accepts that some of the costs associated with Court intervention may have been necessary to resolve the deadlock. However, looked at objectively, he says the major motivation for John in bringing the proceedings was his animosity towards Daniel. This meant there were matters dealt with which were not strictly relevant to the issues at hand, or which could have been readily resolved, short of litigation.
[11] For these reasons, Daniel argues it would be inappropriate to allow John to be indemnified for all his legal costs from the DP Trust, but an award of 2B costs in relation to the first High Court hearing is appropriate.
Charlotte’s claim
[12] Finally, Charlotte, as an interested party and beneficiary of the DP Trust, seeks either full indemnity from the DP Trust for the costs she incurred in participating in the two High Court hearings in this proceeding, or alternatively, she seeks costs on a 2B basis.
[13] In support of this argument she says she made an “appropriate contribution
… to the proper administration of the estate” by her intervention.6 She argues that she was able to promote an independent position on behalf of her, and her children’s, interests as discretionary beneficiaries, which John was not in a position to properly raise. She chose not to participate in the appeals, and, in the context of this litigation, her costs of $34,164.38 were modest given the extent of her involvement and assistance to the Court.
[14] If indemnity costs were not thought appropriate then, at the very least, she should receive 2B costs. This would achieve consistency with Daniel’s acceptance that John should be indemnified to the extent of 2B costs for his participation in the main High Court proceeding.
[15] Daniel, however, maintains that the manner in which Charlotte chose to be involved was not necessary to the resolution of the issues and did not make an appropriate contribution to the proper administration of the Trust, so she should not
be indemnified from the DP Trust.
6 Being the test articulated in National Westminster Bank v Lucas [2014] EWHC 1683 (Ch) at [37] as to whether an interested party such as a beneficiary who takes an active role in the proceeding should have his or her costs met from the trust fund.
Legal principles applying
[16] I accept that the general rule is that a trustee is entitled to be reimbursed for expenses incurred in carrying out the Trust.7 Such expenses can include litigation expenses where the expenses are properly incurred by a trustee acting in that capacity.
[17] Whether the costs have been properly incurred is determined by the following factors:8
(a) the cost arose from an act falling within the scope of the trusteeship; (b) it was a cost incurred because the trustees’ obligations required it; and (c) in all the circumstances the expense incurred was reasonable.
[18] Where the dispute is, in reality, “adverse” or “hostile” litigation then, instead, the presumption is that the usual rule applies and the unsuccessful party pays the costs of the successful party.9 Thus, while an unsuccessful trustee is not necessarily barred from seeking indemnity from the Trust, if he or she has acted unreasonably, or in substance for his or her own benefit, then he or she will not be entitled to indemnity.10 In a hostile trust dispute it will rarely be the case that an unsuccessful trustee will be found to have acted reasonably, if he or she loses the dispute. For example, in Carmine v Ritchie, where there was no proper reason for the trustee to have taken the action or adopted the position that he did, the trustee was obliged to carry his own costs.11
[19] The position of a beneficiary who becomes involved in proceedings over the administration of a trust is not dissimilar. It was said in Re Buckton, that where
trustees:12
7 Trustee Act 1956, s 38(2).
8 Re O’Donoghue [1998] 1 NZLR 116 (HC).
9 Re Buckton, above n 4.
10 McDonald v Horne [1995] 1 All ER 961 (CA) at [970].
11 Carmine v Ritchie [2012] NZHC 2279.
12 Re Buckton, above n 4 at 414.
… ask to have some question determined which has arisen in the administration of the trusts … I regard the costs of all parties as necessarily incurred for the benefit of the estate, and direct them to be taxed as between solicitor and client and paid out of the estate.
(emphasis added)
[20] However, again, where a beneficiary’s involvement is not considered to be for the benefit of the estate, then the position will be different. As was said in National Westminster Bank v Lucas:13
Even in the context of an application which is necessary for the proper administration of the estate, the Court retains the power to disallow particular items of cost where the party in question has, for example, launched an unjustified personal attack on one of the other parties or has raised issues which makes its conduct of the litigation deserving of moral condemnation … The Court has in such cases to distinguish between genuine points pursued in argument which are germane to the issue under consideration but which ultimately fail and points taken or applications made for no good or proper reason or which are motivated out of animosity towards the other parties.
[21] However, opposition by a beneficiary to a proposed course of action is not, without more, sufficient to justify a departure from the general rule that the costs of all necessary parties to an application brought by a trustee as to some matter of administration of the trust, should be borne by the trust fund. The fact that the party’s position is not ultimately successful, is not, on its own, a reason to deny recovery of that parties costs out of the estate so long as they were necessary parties to the debate and assisted the Court by their intervention.
Should Daniel be indemnified for the costs he has incurred?
[22] I am satisfied that in the circumstances, where Daniel has successfully argued he should remain as a trustee, there is no reason for Daniel’s costs not to be met from the DP Trust and, in respect of those costs he has met personally, for those costs to be reimbursed from the DP Trust.
Should John be indemnified for the costs he has incurred?
[23] John’s application was brought because, as all parties accepted, the relationship between John and his co-trustee, Daniel, had broken down irretrievably.
13 National Westminster Bank v Lucas [2014] EWCA Civ 1632 at [109].
I accept that in the circumstances which arose, it was appropriate that John sought the intervention of the Court to resolve the deadlock. I also accept that this was not a matter which could have been resolved by an application for directions. There was an ongoing deadlock on fundamental issues relating to the administration of the estate caused by the breakdown in the relationship between Daniel and John, and the factual background was hotly contested.
[24] However, the proceedings were adversarial, reflecting the events which gave rise to the proceedings, and this has a bearing on whether John’s costs should be met in full. John’s actions clearly contributed to the breakdown. This included his refusal to sign Trust cheques for genuine Trust expenses and for distributions which had previously been approved, and to sign off accounts. This resulted in the Trust incurring IRD penalties and caused cost and delay in terms of the administration of the Trust which was against the best interests of the beneficiaries. John also instructed his solicitors to write to Daniel in August 2013 alleging improper conduct by Daniel as a trustee and making various allegations which were not upheld by the Court. The letter also threatened to stop Daniel’s salary on which the family relied. John admitted that in instructing his solicitors to write this letter he “may have misled them”, and the letter was the catalyst for the events which followed and, in particular, Daniel’s attack on John.
[25] Daniel argues that had John taken a more neutral position as trustee, matters could have been resolved in a more cost effective way. Instead, John insisted on Daniel’s removal and, to support his application for removal, raised a myriad of complaints, which, at least to some extent, were characterised by John as misconduct.
[26] While at trial, John agreed to his own removal, this was conditional on the removal of Daniel as well, and was inevitable in any event given his irretrievable animosity towards Daniel and his family as beneficiaries.
[27] In all these circumstances, Daniel says that, looked at objectively, the major motivation for John in bringing the proceedings was his animosity towards Daniel,
rather than a genuine concern that Daniel could not act in the best interests of beneficiaries. In particular Daniel says:
(a) most of John’s complaints related to the management of Kensal, rather than his actions as trustee, and where the Court accepted the explanations provided by the directors on the issues relating to Kensal;
(b)on the issue of Hayley’s salary, the Court upheld Daniel’s position, which is that John had approved this salary, and it was in line with his own practice in relation to his own business entities;
(c) John contended that Daniel’s mental state meant he was unable to effectively act as a trustee, despite evidence from Daniel’s psychologist to the contrary, but John refused to accept this expert evidence and instead challenged this in cross-examination; and
(d)John’s argument that the attack on him was itself grounds for removal, was also misconceived as the question of whether a trustee should be removed was a matter of discretion for the Court to determine in the context of a particular case.
[28] Overall, Daniel argued that John unreasonably added to the time and cost involved with the hearing by advancing complaints which were not directly related to the administration of the Trust, and by making allegations of misconduct which were ultimately not upheld.
[29] Daniel accepted that some costs should be paid in relation to the first High Court hearing, on a category 2B basis (with certification for two counsel), but no costs should be paid in relation to the second High Court hearing because:
(a) the second hearing was unnecessary from Daniel’s perspective but
was insisted on by John; and
(b)the second hearing was of no utility because the substance of the decision did not change.
[30] In relation to the appeals, Daniel says that John is not entitled to costs, particularly as the Court of Appeal specifically dealt with this by directing that no order for costs be made. Furthermore, on the main appeal, Daniel says that it was unnecessary to resolve the deadlock and therefore was not properly incurred by him as trustee. John could have accepted the comprehensive decision at first instance following a trial where all matters have been thoroughly traversed. However, instead he chose to bring an appeal which resulted in the hostile litigation continuing at great cost.
[31] While I have accepted that the proceedings were practically necessary in the circumstances which eventuated, I am not satisfied that the costs incurred by John all fall within the category of reasonably incurred expenses, as defined in Re O’Donoghue.
[32] I reach this conclusion because I largely accept Daniel’s submissions, including that John’s position was not entirely directed to the interests of the Trust, and of the beneficiaries, but rather to vindicate his position in the interfamilial dispute which had arisen between him and Daniel and his family.
[33] The fact that John sought to gain some leverage in the dispute by arbitrarily refusing to approve expenses which he had previously approved in his capacity as trustee, or to attend to approval of the Trust’s accounts in the usual way and ensure that its obligations to the IRD were met, were all intended to put pressure on Daniel to comply with his father’s wishes. Furthermore, as I found, John chose to criticise Daniel for actions he took as a trustee, which he, as co-trustee, had previously endorsed, and most of which I found were entirely defensible. That too, suggests that aspects of the litigation were not motivated by the interests of the beneficiaries, but by a personal motivation to punish Daniel.
[34] A further point raised by John in support of indemnification is that the
DP Trust now holds assets to the value of approximately $14,000,000, which, at least
in part, was achieved through his stewardship as one of the trustees. However, the size of the fund from which indemnification is sought is irrelevant to the question of whether a trustee should be indemnified. I accept that the size of the trust fund may be relevant where it is modest, and where it might go to the reasonableness of the costs incurred, if those costs are significant. However, where the fund is large, that does not mean costs, which are not otherwise reasonably incurred, should be met simply because there is the capacity to do so.
[35] For these reasons, I do not consider it appropriate that all John’s costs in the first High Court hearing be met by an indemnity from the Trust. Rather, I accept that
2B costs, with certification for second counsel, should be paid from the Trust in respect of the first High Court hearing.
[36] In respect of the first appeal, I think it questionable that it was for the benefit of the trust, as there was no suggestion that the High Court’s decision to retain two trustees was technically unworkable. Rather, the argument was intended to provide another opportunity to remove Daniel as trustee altogether. Nevertheless, as John was correct in identifying the omission of consideration of s 48, I consider he should be indemnified for 2B costs in relation to the first appeal. I do not think the Court of Appeal’s decision as to inter partes costs closes off consideration of indemnification for costs from the trust fund.
[37] While John was not successful in the second High Court hearing, I again consider that it was not unreasonable to go back to the Court to reconsider the position having regard to s 48 of the Trustee Act 1956, and it is appropriate, too, that John is awarded 2B costs, plus certification for second counsel, in that hearing.
[38] However, I do not consider that John should be indemnified for his costs in the main appeal, nor does he seek this. As noted in Re O’Donoghue:14
… the trustee does not have a limitless ability to resort to the law: his function is to assert the interest of the beneficiaries only to a point where there is a judicial ruling on something that is properly required, such as the construction of a fairly debatable point in an instrument, or whether the trustee ought to take a certain course. And it has been said that a trustee has
14 Re O’Donoghue, above n 8 at 121-122.
to have very good grounds before that trustee can justify an appeal, especially if costs were awarded against the estate in the Court below …
[39] In the present case I do not consider John’s appeal of the first High Court decision was primarily motivated by the interests of the beneficiaries, but by his own dismay at the decision. Nevertheless, he has been allowed indemnification for
2B costs on the first appeal for the reasons already discussed.
Should Charlotte be indemnified for the costs she has incurred?
[40] Charlotte considers that it was appropriate that she join the litigation in her own right, “because she had formed her own views of why and how to break the deadlock and on whom should be appointed independent trustee”. For that reason she did not consider that it was sufficient for her to file an affidavit in support of John’s position, but that she should be separately represented.
[41] Indeed she goes further to say that “she could not have been properly represented by John’s solicitors whose focus and retainer was to represent his best interests”. However, that submission is, in fact, telling about the conduct of the litigation more generally. The reality is that John, as trustee, should have been solely interested in advancing the proper administration of the Trust for the benefit of the beneficiaries. Charlotte was of course one of the beneficiaries. The fact that she considered that John, in his capacity as trustee, would not have fairly represented her interests as a beneficiary is surprising and suggests either that she accepts John’s role was not focussed, as it should be, on the proper administration of the Trust for the benefit of the beneficiaries, or she misunderstood the scope of his role, which lead to her taking a more active role than she otherwise needed to.
[42] Charlotte characterises her involvement as an “appropriate contribution to the proper administration of the Trust”, because she played a pivotal role in opposing Daniel’s application to have Mark Rountree appointed as the independent trustee and in the ultimate findings and determination of the Court.
[43] However, while I accept that Charlotte’s views were entitled to be heard,
including on the suitability of any alternative appointee, and on her and her
children’s interest as discretionary beneficiaries of the Trust, I am not convinced that these matters could not have been aired by way of affidavit evidence in support of John’s case. That said, I also accept that it did not unduly prolong proceedings to have these views aired separately, through her own counsel.
[44] However, I consider her role went beyond that. She chose to air a number of matters which were not strictly relevant to the issues in dispute. These included her concerns about the management of Kensal, even though John himself did not seek to disturb Daniel’s role as a director of Kensal, her concerns about the disparity in value between her family Trust and the DP Trust, and various allegations about Daniel’s behaviour in earlier years, before he left home. These point against her entitlement to indemnity costs.
[45] The decision in Morris v Sumpter, which is relied on by Charlotte as an example of the costs of an unsuccessful party being indemnified from a trust fund, does not change my view on whether she is entitled to an indemnity for her costs.15
In Morris v Sumpter, an indemnity for litigation costs was allowed to the plaintiff beneficiaries who brought the proceedings, and not to a party joining to proceedings which were already underway for the removal of a trustee. Furthermore, in that case, the plaintiffs were held to have been “reasonably pragmatic” in their attitude to settlement, and the costs involved were modest. In contrast, in this case some of the allegations Charlotte made were either not directly relevant to the issues before the Court, or were not sustained.
[46] Thus, while I accept it was proper for her to raise her concerns about the appropriateness of Daniel continuing as trustee, I also consider that she took a more active role than was necessary to assist the Court and this was done in order to bolster John’s position that Daniel was not suitable to remain in the role of trustee. In those circumstances, I do not consider this is a case where all her costs should be met. Accordingly, she, too, should only receive 2B costs relating to her involvement
in the two High Court hearings.
15 Morris v Sumpter HC Auckland CIV-2004-404-3060, 20 July 2005.
Conclusion
[47] For the reasons set out above, I am satisfied this is not a case where full indemnity costs should be awarded to either the plaintiff, nor the interested party.
[48] Their cases went beyond raising issues which were necessary to resolve the division between the trustees, and I have no doubt that the hearing was longer, and more expensive than it need otherwise be, because of the decision by the plaintiff and the interested party to, between them, raise every point that might possibly put Daniel in a negative light.
[49] While I accept that there was no self interest on the part of John in the sense of a material benefit to him, I consider that John’s behaviour, both prior to and during these proceedings, was intended to maximise pressure on Daniel at all times to ensure he was removed as trustee, rather than to objectively consider what was in the best interests of the Trust.
[50] Accordingly, I order:
(a) Daniel is to be indemnified from the DP Trust for all costs incurred relating to the proceedings on an indemnity basis;
(b)John is to be indemnified from the DP Trust for legal costs incurred in the first and second High Court hearings and the first appeal, on a
2B basis (including for second counsel), but not for the main appeal;
(c) Charlotte is to be indemnified from the DP Trust on a 2B basis, for the legal costs of her participation in the first and second High Court
hearing.
Solicitors:
Wynn Williams, Christchurch
Duncan Cotterill, Christchurch
J Moss, Barrister, Christchurch
Dunningham J
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