Ryan v Lobb
[2022] NZHC 513
•18 March 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2019-404-001591
[2022] NZHC 513
BETWEEN VERENA COLLEEN RYAN
Plaintiff
AND
STUART JAMES LOBB
First Defendant
AND
LOCKHART TRUSTEE SERVICES NO. 56 LIMITED
Second Defendant
AND
PUBLIC TRUST
Non-Party
Hearing: On the papers Counsel:
W M Patterson for Plaintiff
P A Fuscic for First Defendant
A A H Low for Second DefendantJudgment:
18 March 2022
COSTS JUDGMENT OF ASSOCIATE JUDGE PAULSEN
This judgment was delivered by me on 18 March 2022 at 4.00 pm pursuant to Rule 11.5 of the High Court Rules
Registrar/Deputy Registrar Date:
RYAN v LOBB (Costs) [2022] NZHC 513 [18 March 2022]
[1] This proceeding concerns the Lothbury Trust (the Trust) in respect of which all parties are former trustees and the plaintiff (Ms Ryan) and the first defendant (Mr Lobb) are beneficiaries.
[2] In a judgment of 27 August 2021, I determined an application by Mr Lobb for orders requiring Ms Ryan and the second defendant, Lockhart Trustee Services No. 56 Ltd (Lockhart), to provide tailored or particular discovery and that the Public Trust provide particular non-party discovery.1 Although I made discovery orders, I did not do so in the terms sought by Mr Lobb.
[3] This judgment concerns the issue of costs claimed by Lockhart, both in respect of the application and compliance with the order I made that it provide standard discovery.
Background
[4] Mr Lobb and Ms Ryan were married, but their marriage has been dissolved. Their separation has been bitter, resulting in much litigation which is ongoing.
[5] In this particular substantive proceeding, Ms Ryan has asked the Court to make a declaration as to the meaning of a resettlement clause in the trust deed establishing the Trust.
[6] At the time the proceeding was commenced, the defendants were, along with Ms Ryan, the trustees of the Trust. However, in separate proceedings, Lockhart applied to the Court for an order discharging it as a trustee. On 27 July 2020, Edwards J removed all of the trustees and appointed Digby Noyce as a receiver of the Trust’s assets.2
[7] Although no longer a trustee, and having no other interest in the litigation, Lockhart is still a party to this proceeding. Its position from the commencement of the proceeding has been that it will abide the decisions of the Court on all matters.
1 Ryan v Lobb [2021] NZHC 2219.
2 Lockhart Trustee Services No. 56 Ltd v Ryan [2020] NZHC 1823.
[8] As far as the discovery application is concerned, the narrative begins on 19 April 2021 when Mr Lobb’s solicitor, Mr Fuscic, wrote to Lockhart’s solicitor, Ms Low, asking her to identify what documents Lockhart had (and those it no longer had) relevant to the proceeding.
[9] On 29 April 2021, Ms Low responded to Mr Fuscic’s enquiry. She advised what documents Lockhart had handed over to the receiver, Mr Noyce, and what documents it was presently holding. In respect to documents held in Mr Lobb’s personal name, she advised these could be collected on the provision of an authority to uplift.
[10] Also on 29 April 2021, Mr Lobb filed his discovery application including a request for tailored discovery from Lockhart. The discovery sought was extensive. I described it in my judgment on the application as “startling” and that Mr Lobb was seeking disclosure of more than 70 categories or sub-categories of documents going back to 1984.
[11] On 17 May 2021, Mason Lockhart, the director of Lockhart, filed an affidavit confirming Lockhart’s position that it would abide the Court’s decision on the application. In addition, the affidavit responded comprehensively to both Mr Fuscic’s request of 19 April 2021 and, to the extent that Lockhart was able, to Mr Lobb’s application for discovery. Mr Lockhart noted that even though a formal discovery order had not yet been made, counsel had explained to him his obligations on discovery and that he had complied with such obligations. He also indicated that as it was no longer a trustee of the Trust, and effectively a non-party, if an order for discovery was made against it, Lockhart’s costs should be paid.
[12] Mr Lockhart’s affidavit did not satisfy Mr Lobb. In submissions supporting his discovery application of 31 May 2021, it was asserted that Lockhart’s position was “somewhat equivocal in terms of what documents it has”. The submission was made that Mr Lockhart had not said whether Lockhart had documents falling within particular categories of documents sought in Mr Lobb’s discovery application.
[13] Lockhart’s counsel responded with a memorandum dated 3 June 2021 to clarify its position. It addressed each of the specific categories in issue and confirmed Lockhart had either disclosed all documents it held, or had informed Mr Lobb of the whereabouts of documents it had passed on to others. Lockhart’s position was that it had satisfied its disclosure obligation and if Lockhart was required to provide formal discovery by affidavit, it would seek costs.
[14] Mr Lobb’s discovery application came before me for hearing on 10 June 2021, but it did not proceed on that day as I had understood Ms Ryan and Mr Lobb had agreed to attend mediation on terms. In a minute of 11 June 2021, I recorded my understanding of the directions that were to be made to facilitate the mediation. In respect of Lockhart, I directed it was to provide disclosure of such documents as it had in its possession or control and also, as a result of submissions made for Mr Lobb, directed Lockhart to clarify one paragraph in Mr Lockhart’s 14 May 2021 affidavit. The issue of costs was reserved.
[15] On 7 July 2021, Mr Lockhart filed a second affidavit in response to the directions I had made. Mr Lockhart provided the clarification sought, relevantly stating:
To make the position abundantly clear, except for the documents referred to in paragraphs 9, 10, 13, 20 and a single unsigned annual resolution, of the type referred to at paragraph 18 of my 14 May 2021 affidavit Lockhart Trustee has no documents in my possession or control in categories 1, 2, 3, 4.3 or 4.4 of schedule 2 of the first defendant’s discovery application.
I have prepared disclosure of the documents in Lockhart Trustee’s possession and control as directed by Associate Judge Paulson on 11 June 2021. The disclosure will be provided to the plaintiff and the first defendant shortly. Most of these documents the plaintiff and the first defendant already have and on this basis would not have been discoverable in any event.
[16] The mediation between Ms Ryan and Mr Lobb did not proceed. Mr Lobb’s application for discovery was again brought on for hearing before me on 20 July 2021. As I recorded in my judgment of 27 August 2021, despite the steps taken by Lockhart to satisfy Mr Lobb’s disclosure requirements, he insisted a discovery order be made against Lockhart. He argued Mr Lockhart’s affidavits were not sufficiently clear as to what documents Lockhart had in its control and that absent a formal affidavit of
documents being filed by Lockhart, the disclosure that it had provided could not be regarded as conclusive or complete.3
[17] Whilst in my judgment I gave consideration to dismissing the application against Lockhart, given the bitter history of this proceeding, and in particular Mr Lobb’s approach to it, I decided it would be counter-productive and cause Lockhart to become further involved in interlocutory skirmishes. I therefore made an order Lockhart would provide standard discovery. I identified as an issue whether the costs of Lockhart providing discovery should be borne by Mr Lobb under r 8.22 of the High Court Rules 2016. I noted that if Lockhart wished to pursue that, it should address the matter in its submissions on costs.
The submissions
[18] Lockhart claims it is entitled to its full costs on the basis that it has a right to be indemnified from the assets of the Trust. Alternatively, it contends it is entitled to a costs order pursuant to r 8.22 because it would be manifestly unjust for it to have to meet the costs of complying with the discovery order.
[19] Mr Lobb opposes any order of costs against him personally or against the assets of the Trust. His first submission is that costs should be reserved until Ms Ryan and Lockhart have provided their affidavits of documents. This is because, it is said, it will be material whether the positions they advanced in response to his application are borne out in their affidavits of documents. In the alternative, he submits he is entitled to costs in respect of the discovery application on the basis that he was the successful party. He contends Lockhart’s position was not purely to abide the decision of the Court but was “showing some resistance to provide an Affidavit of Documents”.
[20] Ms Ryan does not oppose Lockhart’s claim for costs under r 8.22 but says its costs must be met by Mr Lobb personally. She argues an award should not be made from the assets of the Trust as in that event she would (on her view of the proper interpretation of the trust deed at least) unfairly bear a 50 per cent share of the costs.
3 At [51].
My assessment
[21] I propose to deal with Lockhart’s application in two parts. First, I consider Lockhart’s entitlement to costs on the principles that apply under the High Court Rules. Second, I consider whether Lockhart has any entitlement to indemnity from the assets of the Trust.4
[22] The starting-point is that all issues of costs are at the discretion of the Court.5 The exercise of the Court’s discretion is guided by the principles set out in r 14.2, which most relevantly, for present purposes, include that the party who fails with respect to a proceeding or interlocutory application should pay costs to the party who succeeds,6 and so far as possible, the determination of costs should be predictable and expeditious.7 Also relevant in the present context is that unless there are special reasons to the contrary, costs on interlocutory applications must be fixed when the application is determined and become payable when fixed.8
[23] Mr Lobb asserts he was the successful party. I do not accept that submission. Mr Lobb did not obtain the tailored discovery order he sought. By the time of the hearing, it was only the scope of the discovery order that was in dispute as between him and Ms Ryan. The fact that Mr Lobb did not consider himself successful is aptly demonstrated by the fact that he sought leave to appeal from the decision made on his discovery application. In my view, the application for extensive tailored discovery lacked merit for the reasons set out in the judgment. It is sufficient for present purposes to note the reasons included that Mr Lobb was seeking excessive discovery, discovery of irrelevant documents and for collateral purposes.
[24] However, as far as Lockhart was concerned, it did not oppose the application and took no position in relation to it other than the entirely reasonable one of providing disclosure of all documents it had in its possession concerning the Trust. I do not accept Mr Lobb’s submission that Lockhart was showing resistance to providing a list
4 Kain v Hutton HC Christchurch M198/00, 18 November 2005; Trieznberg v Mason [2019] NZHC 920 at [42] and Lockhart Trustee Services No 56 Ltd v Ryan [2021] NZHC 2544 at [16].
5 High Court Rules 2016, r 14.1.
6 Rule 14.2(1)(a).
7 Rule 14.2(1)(g).
8 Rule 14.8.
of documents, rather its position, as stated in Mr Lockhart’s affidavit filed 17 May 2021 at [23], was that if, notwithstanding it had complied with its discovery obligations, Mr Lobb insisted upon the making of a discovery order, its costs should be paid. Mr Lobb was clearly on notice that the application I am now dealing with would be made.
[25] The position taken by Mr Lobb was that notwithstanding Lockhart’s disclosure, a discovery order was required because without a formal affidavit of documents, the disclosure it had already provided could not be regarded as conclusive or complete. There is nothing before me to suggest the discovery Lockhart provided was incomplete. I note, in this regard, Mr Lobb filed an affidavit in support of his application for leave to appeal the judgment asserting that Public Trust had failed to provide complete discovery, but he provided no examples of inadequate disclosure by Lockhart.
[26] Lockhart seeks costs in respect of its compliance with the discovery order under r 8.22. That rule relevantly provides:
Costs of discovery
(1)If it is manifestly unjust for a party to have to meet the costs of complying with an order made under this subpart, a Judge may order that another party meet those costs, either in whole or in part, in advance or after the party has complied.
(2)Despite subclause (1), the court may subsequently discharge or vary an order made under that subclause if satisfied that a different allocation of those costs would be just.
[27] In my view it would be manifestly unjust for Lockhart to meet the costs of complying with the discovery order in this case, and that its costs should be borne by Mr Lobb. There are several reasons for this.
[28] The first consideration is that Lockhart was a party to this proceeding because it was a trustee of the Trust. Since it was removed as a trustee, Lockhart has no interest in this litigation. It’s position is analogous to that of a non-party who, in the ordinary course, could expect to have its reasonable costs of complying with an order for discovery met by the party who has applied for the order. In making an order the Public Trust was to provide discovery, I ordered that its actual and reasonable costs were to
be paid by Mr Lobb. I can see no reason why Lockhart should not be treated in the same manner.
[29] Second, I am satisfied Lockhart acted reasonably throughout in responding to Mr Lobb’s discovery application. Mr Lobb continued to seek discovery orders against Lockhart, notwithstanding it had provided disclosure and knowing it would seek its costs.
[30] Third, the order for discovery was made against Lockhart on the insistence of Mr Lobb and, as Ms Low puts it, only to “curb any complaint that might be made by the first defendant”. Also, as noted by Ms Low, Mr Lobb insisted on an order after Lockhart had:
(a)provided a voluntary response as to the documents it held when invited by Mr Fuscic on behalf of Mr Lobb;
(b)provided an affidavit, by its director, of the documents it had in its possession, in which Mr Lockhart confirmed on oath that he was aware of his discovery obligations and he complied with them;
(c)provided a clarifying affidavit and disclosure as ordered by the Court; and
(d)where there is no evidence to support any contention that Lockhart’s disclosure was incomplete.
[31] Accordingly, there shall be an order that Mr Lobb is to pay the actual and reasonable costs of Lockhart in complying with the order for discovery. I will reserve leave to refer any dispute concerning the quantum of such costs to the Court for resolution.
Trustees’ indemnity
[32] While Lockhart is entitled to its costs under r 8.22, that relates only to compliance with the discovery order and will not indemnify it for its costs in
responding to Mr Lobb’s discovery application prior to the discovery order being made. Lockhart may wish to claim these on the basis it is entitled to be indemnified under the terms of the trust deed, s 81(2) of the Trusts Act 2019, or upon equitable principles. In the event Lockhart considers it has a further entitlement to achieve indemnification, I shall express my views on the matter.
[33] In so far as they deal with the trustees’ entitlement to an indemnity for cost and expenses, the terms of the trust deed do not seem to be applicable to the present circumstances. Most relevant is cl 6.1(2) which provides:
All Trustees, former Trustees, Protectors and former Protectors will be entitled to be reimbursed from the trust fund for all costs and expenses they incur in defending their actions, unless liability for loss is established and is not excluded by the provisions of this Deed.
[34] Ms Low did not suggest that in responding to Mr Lobb’s discovery application and complying with the discovery order, Lockhart was “defending [its] actions.” It appears to me that would be an unrealistic interpretation.
[35] Section 81(2) of the Trusts Act 2019 provides that a trustee who incurs an expense or liability when acting reasonably on behalf of the trust, is entitled to be reimbursed from the trust property for expenses or liabilities incurred. Section 81(4) provides that the section does not limit any indemnity available at common law or in equity.
[36] In Butterfield v Public Trust, the Court of Appeal noted that it is one of the fundamental rights of an honest express trustee that costs and expenses properly incurred in the administration of the trust are compensable out of the assets of the trust.9 The Court relied on the judgment of Danckwerts J in Re Grimthorpe, as follows:10
It is commonplace that persons who take the onerous and sometimes dangerous duty of being trustees are not expected to do any of the work on their own expense; they are entitled to be indemnified against the costs and expenses which they incur in the course of their office; of course, that necessarily means that such costs and expenses are properly incurred and not
9 Butterfield v Public Trust [2017] NZCA 367, [2017] NZAR 1439 at [20].
10 Re Grimthorpe [1958] Ch 615 (Ch) at 623.
improperly incurred. The general rule is quite plain; they are entitled to be paid back all that they have had to pay out.
[37] The general rule then is not in doubt, but the question that arises here is whether Lockhart remains entitled to an indemnity from the trust assets for its costs and expenses, notwithstanding that it was removed as a trustee. Ms Low submits that the right to indemnity remains and the only issue is whether the expense or liability was incurred by the trustee or former trustee when acting reasonably on behalf of the trust. Counsel for Mr Lobb and Ms Ryan did not advance any submissions to the contrary.
[38] In my view Ms Low’s submission is correct. Butterfield v Public Trust is a relevant authority in this regard. The issue in Butterfield was whether trustees whose terms had expired (but who had not been replaced) or who had been invalidly appointed to the trust, were entitled to an indemnity from the trust fund for reasonable costs and expenses incurred in bringing applications for directions from the High Court.11 The Court of Appeal held that they were and said:
[21] It is a right, probably proprietary in nature, recognised by equity as an incident of trusteeship. The right is to an indemnity for reasonable costs and expenses incurred in the administration of the trust. That is not the same as an award of indemnity costs in litigation. The entitlement in the first instance is against the trust and its assets. A current trustee may therefore deduct reasonable costs and expenses incurred in the administration of the trust from the trust assets, in exercise of a right of exoneration. Former trustees may claim such costs and expenses from their successors or, failing satisfaction, via the court. Exercising its supervisory jurisdiction the court will review costs and expenses incurred to ensure they are both necessarily incurred in the interests of the trust and reasonable in extent.
(Footnotes omitted)
[39] The Court noted that the position concerning express trustees applies also to constructive trustees, acting reasonably and in good faith, and quoted from Lewin on Trusts as follows:12
Persons who have not been properly appointed as trustees, if they have acted in good faith, believing themselves to have been duly appointed, are entitled to indemnity in the same way as other trustees.
11 Butterfield v Public Trust, above n 9, at [1].
12 At [22]. See Rothmore Farms Pty Ltd v Belgravia Farms Pty Ltd [1999] FCA 745, 2 ITELR 159 at [37].
[40]The Court went on to note that:
[25] It would be unjust if de facto trustees bringing responsible applications for directions to progress the administration of a distressed trust did not receive their reasonable costs and expenses in doing so.
[41] The authors of Lewin on Trusts discuss the issue of a former trustee’s rights of indemnity and state:13
We consider that it is now settled law that, subject to the terms of the trust instrument, and subject to any express provision taking effect on the retirement or other termination of office of a trustee, a former trustee continues to have rights of reimbursement and exoneration out of the trust property in respect of expenses and liabilities properly incurred by him as trustee, to the same extent as he would have had those rights if he had not ceased to hold office, whether or not he retains, or retains possession or control over, the trust property.
[42] Applied to the facts of this case, Lockhart is a party because it was a trustee of the Trust. The proceeding is, in essence, concerned to obtain the Court’s guidance as to the construction of the trust deed, in respect of which the costs of the parties would ordinarily be treated as being incurred for the benefit of the trust and paid from the trust fund.14 Lockhart acted responsibly in relation to Mr Lobb’s application. Such costs and expenses as it incurred must be considered to have been incurred when acting on behalf of the Trust. There is nothing in the trust deed which deprived Lockhart of its rights of indemnity. In fact, the terms of the trust deed appear, at cl 6.1.2, to recognise that former trustees retain rights to be indemnified. It would be inequitable in those circumstances if Lockhart was deprived of its right to indemnity.
Result
[43]Lockhart’s application for costs is successful.
[44] In respect to its compliance with the order for discovery made on 27 August 2021, Lockhart is entitled under r 8.22 to its actual and reasonable costs and disbursements which shall be paid by Mr Lobb. I reserve leave to refer any dispute
13 Lewin on Trusts (19th ed, Sweet & Maxwell, London 2015) at [17-060].
14 Re Buckton [1907] 2 Ch 406 (Ch) at 413-415 and see the discussion in McCallum Jnr v McCallum & Ors as Trustees of the McCallum Family Trust [2021] NZCA 237, (2021) 32 FRNZ 851 at [29]- [36].
concerning the amount of such costs and disbursements for determination by the Court, noting that if such an application is necessary it may itself have costs consequences.
[45] Insofar as Lockhart considers it is entitled to any further sum to be fully indemnified, I find it is entitled to be paid its reasonable costs and expenses out of the assets of the Lothbury Trust. Any costs payable will need to be agreed or, failing agreement, determined by the Court under its supervisory jurisdiction to review costs and expenses and ensure that they are reasonable in the circumstances.15 Lockhart may, if necessary, make further application to determine the issue on notice to Mr Lobb and Ms Ryan. I would hope however such an application would not be necessary.
O G Paulsen Associate Judge
Solicitors:
Patterson Hopkins, Auckland for Plaintiff McVeagh Fleming, Auckland for First Defendant
Alexandra Low & Associates, Auckland for Second Defendant
15 McCallum & Ors as Trustees of the McCallum Family Trust, above n 14, at [31].
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