Rule v Rule

[2017] NZHC 672

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2012-404-005837 [2017] NZHC 672

BETWEEN

DOUGLAS IAN RULE AND

ELIZABETH JANE BELCHER Plaintiffs

AND

LESLEY LOUISE RULE AND ANTHONY CHARLES ON BEHALF OF THE ESTATE OF MURIEL GWENDOLINE RULE

Defendants

Hearing:	On the papers
Counsel	A C MacMillan for Plaintiffs W Galvin for Lesley Rule J D Turner for the estate
Judgment:	7 April 2017

JUDGMENT OF WHATA J

This judgment was delivered by me on 7 April 2017 at 3.30 pm, pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date: ………………………….

Solicitors:           B Knowles, North Shore City

McVeagh Fleming, Albany

RULE v RULE [2017] NZHC 672 [7 April 2017]

[1]      In my judgment of 20 December 2016,1  I found that Muriel Rule breached her moral duty to her son, Douglas Rule (Doug), and to her daughter, Elizabeth Jane Belcher (Jane), by providing a residual interest only in her share of the family home. I reserved leave to the parties to file submissions on relief and costs.

Position of parties

[2]      I now have the submissions of the parties.   Ms Galvin, for Lesley Louise

Rule (Louise), proposes the following remedy:

(a)      Within six months of Louise attaining the age of 65, she will pay to the plaintiffs, Doug and Jane, 25 per cent each of the current value of their mother’s half-interest in the Rarere Road property;

(b)      Louise will retain a life interest in the remaining 50 per cent of her

mother’s interest in the property; and

(c)       Louise will retain the balance of the funds in the trust account of

McVeagh Fleming.

[3]      Ms MacMillan, for Doug and Jane, endorses the comments I made at [41] of my judgment to the effect that the remedy for the breach will be achieved by vesting Muriel’s half-share in Doug and Jane, as tenants in common, when Louise reaches the age of 67 (five years from the date of judgment).   Ms MacMillan also notes, however, that the will has a clause which gives the trustees the power to purchase a replacement home to be held on the same terms as apply to the present home.  The plaintiffs wish for this clause to be removed so that if Louise wishes to sell the home within five years, then Muriel’s share vests in Doug and Jane at that point and they should all become jointly involved in the sale of the property as owners.

[4]      On the question of costs:

(a)      The defendants (the Estate) seek costs against Doug and Jane on the basis  that  Doug  and  Jane  failed  in  their  substantive  proceedings against them;

(b)Doug and Jane consider that costs should lie where they fall, on the basis that:

(i)       They pursued settlement throughout proceedings;

(ii)Awarding costs on the basis of the result of each claim would result in Doug and Jane paying costs to the estate, and Louise paying costs to them, which would not benefit anyone and reduce Louise’s share of the remaining funds;

(iii)     The testamentary capacity claims were finely balanced;

(iv)Mr Coupe, who drafted the will, repeatedly refused to provide any detail of what had occurred with the will, therefore requiring unnecessary steps to be taken;

(v)the executors took an unduly acrimonious and costly approach to the proceedings; and

(c)       Louise does not make submissions on costs.

Relief

[5]      As indicated in my judgment, I consider that some sophistication is needed in terms of providing a just result for all children.   Some key principles are worth repeating. As stated in Williams v Aucutt:2

[52]     … Just what provision will constitute proper support in this latter respect is a matter of judgment in all the circumstances of the particular case. It may take the form of lifetime gifts or a bequest of family possessions precious to its members and often part of the family history. And where there is no economic need it may also be

met by a legacy of a moderate amount. On the other hand, where the estate comprises the accumulation of the family assets and is more than sufficient to meet other needs, provision so small as to leave a justifiable sense of exclusion from participation in the family estate might not amount to proper support for a family member.

[6]      Furthermore, the object of relief is not to achieve parity as between children. Rather, all things being equal, the authorities suggest that a distribution in the order of 10 to 20 per cent would usually satisfy the moral duty to a loving child.3

[7]      I have come to the view that the proposal made by Louise will adequately discharge Muriel’s duty to Doug and Jane.  In her memorandum, Ms Galvin notes that, in percentage terms, her proposal will result in Doug and Jane each obtaining approximately 27 per cent of the testatrix’s estate.   I also agree with Ms Galvin’s submission that such a solution would enable Louise to remain living in the Rarere property (as Muriel desired) if she were able to obtain a reverse mortgage at the age of 65.  If she were unable to do so, it would at the very least enable her to purchase an alternative property for herself within the area which she has known all her life. Ms Galvin also observed, on Louise’s death, Doug and Jane would then receive the residue of their mother’s interest in the Rarere property.

[8]      Ms MacMillan submitted that this outcome is unfair because Louise already has the benefit of her father’s half of the house, will have had the benefit of the house for eleven years, it will not bring finality, does not recognise Doug and Jane’s contribution to the family and allocates any appreciation in capital value to Louise.

[9]      I disagree with Ms MacMillan.  Louise’s proposal addresses the immediate

concern raised by Doug and Jane: lack of recognition.  A distribution in the order of

$296,974.00 (on current values) in 2019 plainly recognises Doug and Jane’s place in the family.   While Louise enjoys the benefit of any increase in value, ultimately some appreciation in the value of the home or replacement home will vest in Doug and Jane (or their children) on Louise’s death, to the extent of their interest in their

mother’s estate.

3      As noted in Rule v Rule, above n 1, at [38], citing the decision of Wild J in National Heart Foundation of New Zealand v Carroll (2009) 28 FRNZ 268 (HC) at [54] and the decision of the full Court in TB v JB [2014] NZHC 478, [2015] NZFLR 9 at [71].

Costs

[10]     As  to  costs,  the  Estate  claims  costs  from  Doug  and  Jane,  including  on increased indemnity basis because:

(a)     The general  principle  in  estate litigation  is  that  personal representatives  of  estates  receive  full  protection  for  their  costs incurred as parties to proceedings where incurring those costs was reasonable;4

(b)Testamentary  incapacity  was  not  a  tenable  issue  and  the  case  in relation to undue influence was not strong;

(c)      The conduct of Doug and Jane’s counsel has created time and cost burdens, namely by raising unnecessary objections at trial, making applications in relation to cause of actions that would ultimately fail and taking unreasonable steps;

(d)Doug and  Jane  delayed  by not  complying with  Court  timetabling orders throughout, did not prepare a draft chronology or circulate it pre-trial  and  unreasonably  objected  to  evidence  being  heard  later when a witness was overseas.; and

(e)      The  defence  of  the  moral  duty  claim  was  conducted  by  Louise personally as a beneficiary.

[11]     There is reference to a without prejudice settlement offer save as to costs made by Louise, noting that a proposal was made to distribute $25,000 each, as well as an early transfer of a share in the property at Rarere Road.  Had Doug and Jane accepted the 2015 offer, then Mr Turner submits they would have been in a better position than achieved at trial, given how little cash is now left for distribution.

[12]     For Doug and Jane, Ms MacMillan submits:

4      Citing Boyd v Connolly [2015] NZHC 2884.

(a)       The proceedings were never frivolous or unmeritorious;

(b)All of the opposition and memoranda filed in advocacy at trial was drafted or undertaken by counsel for the estate;

(c)      The executors have spent approximately $210,000 on the litigation out of estate;

(d)Any claim for costs on the testamentary capacity and undue influence issues should be offset by Doug and Jane’s success on the moral duty claim, given that Louise personally will have to pay costs to Doug and Jane for the success on that claim (and given it was defended by her) if costs are awarded on a success basis.   This result is undesirable because it reduces the remainder of the estate available to Louise;

(e)       The testamentary capacity claim was finely balanced;

(f)      Mr Coupe, as drafter of the will, repeatedly refused to provide any detail as to what occurred during drafting and execution of the will, thereby requiring unnecessary steps to be taken to try and obtain that information;

(g)His  answer  to  interrogatories  in  initial  affidavit  evidence  that  the testator had told him (wrongly) that Louise had no home and was unemployed squarely raised the issue of testamentary capacity, and he also made a drafting error in the will; and

(h)      Thus, costs should lie where they fall.

Assessment

[13]     Costs should lie where they fall.   While the claims based on testamentary incapacity and undue influence did not satisfy the requisite threshold criteria, they were not meritless.  Moreover, as Ms MacMillan notes, Doug and Jane having been successful on the breach of moral duty claim, would ordinarily be entitled to costs in

respect of Louise, with the result that costs orders would in effect trigger, in part, a money-go-round.

[14]     I have also considered whether or not the settlement offer would provide a Calderbank claim for costs against the plaintiffs.5    I have come to the view that it should not.

[15]     I convened a telephone conference to address this issue.  The background to the alleged offer to settle is complicated.  Doug, Jane and Louise had reached, they thought, agreement to settle the matter on the basis that costs would lie where they fall.  It transpires, however, that a residual issue as to costs remained unresolved and,

ultimately, Courtney J decided that there had not been a final settlement agreement.6

[16]     The issue as to those costs was then determined with costs being awarded in favour of Doug and Jane.  After that order had been made, Louise’s counsel made an offer to settle but on a reduced cash payment basis.   Doug and Jane then made a counter-offer on the same terms as the prior incomplete agreement, with Ms MacMillan advising me that, from their perspective, the reduced cash offer appeared to marry the costs order, thereby defeating that order.

[17]     The counter-offer was not accepted by Louise, and Mr Turner advises that the Estate also expressed some discomfort with the lack of agreement on where costs should fall. Attempts by the estate to encourage settlement failed.

[18]     In those circumstances, I am not satisfied that it would be appropriate to treat Louise’s offer as a Calderbank offer.  It could equally be said that Doug and Jane’s offer of settlement was both reasonable and, in fact, should set the frame for a costs award.  That too, however, would belie the full circumstances of what unfolded.  I therefore am not prepared to make a costs order on the basis of a Calderbank offer having been properly made.

[19]     Given the foregoing, I make the follow orders:

5      See Calderbank v Calderbank [1975] 3 WLR 586 (CA).

6      Rule v Rule [2015] NZHC 1145.

(a)      Within six months of Louise attaining the age of 65 years, she will pay to Doug and Jane 25 per cent each of the current value of their mother’s half-interest in the Rarere property;

(b)      Louise will retain a life interest in the remaining 50 per cent of her

mother’s interest in the property;

(c)       Louise will retain the balance of funds (if any) in the trust account of

McVeagh Fleming; and

(d)      Costs will lie where they fall.

[20]     I repeat, for completeness, that on Louise’s death, Muriel’s residual interest in

the Rarere Road property (or substitute) will pass to Doug and Jane.