Shin v Connolly
[2022] NZHC 2065
•19 August 2022
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-1073
[2022] NZHC 2065
BETWEEN JENNIFER HAE QUEONG SHIN
Plaintiff
AND
SIMON JAMES CONNOLLY
Defendant
Hearing: On the papers Counsel:
S Robertson QC for the Applicant/Defendant
RJ Connell and S Anthony for the Respondent/Plaintiff
Judgment:
19 August 2022
COSTS JUDGMENT OF ASSOCIATE JUDGE SUSSOCK
This judgment was delivered by me on 19 August 2022 at 11.30am pursuant to r 11.5 of the High Court Rules
Registrar/Deputy Registrar
Solicitors/Counsel:
McVeagh Fleming, Auckland Connell & Connell, Auckland
S Robertson QC, Bankside Chambers, Auckland
SHIN v CONNOLLY [2022] NZHC 2065 [19 August 2022]
Introduction
[1] The defendant, Mr Simon Connolly, applies for costs following a successful summary judgment application as a defendant on the claim brought by the plaintiff, Ms Shin.1 Mr Connolly is the executor and beneficiary of his late father’s estate. Ms Shin is the wife of the deceased.
[2] The will directed Mr Connolly to complete a subdivision of the property that his father and Ms Shin had lived in (if not subdivided already). Following the settlement of proceedings brought by Ms Shin pursuant to the Family Protection Act 1955, Ms Shin is to receive a fixed interest of 46 per cent in the proceeds of sale of Lot 1. Mr Connolly is to receive four-fifths of the residuary estate and Ms Shin’s two daughters are to receive the remaining one-fifth.
[3] Mr Connolly submits that costs ought to be paid on an indemnity basis out of Ms Shin’s share of the estate as otherwise the beneficiaries of the residuary estate, Mr Connelly and Ms Shin’s daughters, will bear the costs of the litigation.
[4] Mr Connolly’s indemnity costs total $38,830 including disbursements. For comparison, Mr Connolly attaches a schedule to his memorandum setting out scale costs on a 2B basis, except for the filing of the interlocutory application for which he has calculated costs on a 2C basis for the reasons discussed below. Costs on a combined 2B/2C basis amount to $21,043.75 including disbursements.
[5] Ms Shin, by contrast, considers that costs ought to be awarded on a 2B basis and that she ought not to be required to pay the costs until the properties are sold so the costs can be deducted from the estate’s payments to her.
[6] Counsel for the plaintiff acknowledges in their memorandum that two issues arise:
1 Shin v Connolly [2022] NZHC 664.
(a)Whether the costs awarded by the Court should be at the higher indemnity award?
(b)Who should bear the estate’s actual legal costs (in excess of the sum the Court finds Ms Shin should pay), given the residuary estate will be divided between Ms Shin’s two daughters (one-fifth) and Mr Connolly (four-fifths)?
Should the costs awarded by the Court be indemnity costs?
[7] The executor is entitled to an indemnity from the estate for all expenses and liabilities incurred acting reasonably on behalf of the estate, including legal costs. In the Court of Appeal’s decision in McCallum v McCallum (as trustees of the McCallum Family Trust), the Court surveyed trustee costs, holding that the starting point, as noted by the Court of Appeal in Butterfield v Public Trust, is that it is:2
… 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.
[8] In support of that proposition, the Court of Appeal cited the judgment of Danckwerts J in Re Grimthorpe:3
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 improperly incurred. The general rule is quite plain; they are entitled to be paid back all that they have had to pay out.
[9] The Court of Appeal in McCallum went on to say the Court will in its supervisory jurisdiction review costs and expenses incurred to ensure that they were necessary in the interests of the trust and that they were reasonable in extent.4 The
2 Butterfield v Public Trust [2017] NZCA 367, [2017] NZAR 1439 at [20]; as cited in McCallum v McCallum (as trustees of the McCallum Family Trust) [2021] NZCA 237 at [29].
3 McCallum v McCallum (as trustees of the McCallum Family Trust), above n 2, at [29], citing Re Grimthorpe [1958] Ch 615 (Ch) at 623.
4 McCallum v McCallum (as trustees of the McCallum Family Trust), above n 2, at [30].
Court referred to the High Court decision in New Zealand Māori Council v Foulkes
for its explanation of “properly incurred”:5
The limitation on a trustee’s right of indemnity is, however, that the expenses are “properly incurred”. The duty to seek advice does not extend, for instance, to pose questions the answers to which are perfectly obvious. Nor where no real and substantial dispute exists. Unnecessary proceedings, or the taking of unnecessary procedural steps needlessly increasing costs, may mitigate (or eliminate) the right of indemnity. Again, excessive costs lie beyond the scope of indemnity. Every dollar paid in trustees’ expenses is a dollar denied to beneficiaries of the Trust.
[10] The defendant in this case, as executor, cannot be criticised for bringing unnecessary proceedings. He was responding to proceedings brought by Ms Shin and was successful in his application for summary judgment as a defendant.
[11] As counsel for Mr Connolly submits, it was reasonable, in fact beneficial to the estate, for Mr Connolly to incur the costs of the summary judgment application rather than allow the estate to suffer the costs of a full defence of Ms Shin’s claim.
[12] I consider that Mr Connolly acted reasonably in defending the claim and bringing the application for summary judgment. He is therefore entitled to be indemnified for the costs associated with these steps. However, that is not the same as ordering indemnity costs to be paid by Ms Shin. In this case, who effectively pays the costs will be determined by whether the estate’s legal costs for this application are to be met from Ms Shin’s fixed share of the estate or the residuary estate of which Ms Shin is not a beneficiary. The two issues that counsel for the plaintiff considers arise therefore overlap.
[13] Counsel for the plaintiff proposes that costs are payable on a 2B basis by Ms Shin in recognition that she was unsuccessful in her application but on the basis that Ms Shin not be required to pay the costs until the properties are sold and that the 2B costs are then deducted from the estate’s payments to her. This means that, whilst the estate will indemnify Mr Connolly, only costs on a 2B basis would be borne by Ms Shin with the remaining costs borne by the other beneficiaries, Mr Connolly and Ms
5 New Zealand Māori Council v Foulkes [2015] NZHC 489 at [31] (footnote omitted).
Shin’s daughters. The question is whether it is appropriate for the residuary estate to bear the remainder of the costs.
Should indemnity costs be ordered to be paid from Ms Shin’s fixed share?
[14] I accept submissions made on behalf of Mr Connolly, relying on Cochrane v Bettley, that a trustee’s indemnity may be applied against specific trust assets held for a particular beneficiary or beneficiaries.6 Counsel for Ms Shin sought to distinguish that case but those submissions in my view relate to the proportion to be applied to the assets rather than whether the indemnity can be applied against specific trust assets in the first place.
[15] Counsel for the plaintiff in any event says it is not appropriate to apply the indemnity against Ms Shin’s share, referring to correspondence sent on behalf of Mr Connolly prior to the original claim being filed which suggests incorrectly that Ms Shin was aware that the subdivision was to be in its current form at the judicial settlement conference.
[16] Counsel for Ms Shin says that inconsistently with that position, Mr Connolly accepted in his evidence for the summary judgment application that he did not notice any variation between the subdivision approved in 1997 and the subdivision approved in 2016 prior to the conference.
[17]Counsel further refers to my finding that:7
The 2016 plan had been provided by Simon’s lawyers to Jennifer’s lawyers prior to the conference but the differences between the plans do not appear to have been noticed by the parties or their lawyers. Both parties’ valuers and actuaries also proceeded on the basis of the 1997 plan.
[18] Counsel for Ms Shin submits that this is somewhat different from the position taken by Mr Connolly’s lawyer in her letter prior to the proceedings being filed and that the position adopted by the executor likely made any resolution by discussion outside the Court process more difficult. Counsel for Ms Shin further refers to the issues in relation to the parking bay and submits that the relevance of these issues to
6 Cochrane v Bettley [2020] NZHC 2092 at [119].
7 Shin v Connolly, above n 1, at [7]
costs is that they demonstrate an unwillingness by the executor to consult or discuss matters which contributed to the matter not being resolved amicably outside of Court.
[19] A memorandum in reply, dated 13 June 2022, was filed on behalf of the defendant to correct two factual assertions in the plaintiff’s costs memorandum. One of these relates to the parking bay and records that the position of the parking bay was set in the resource consent granted by Auckland Council and was not a matter that was open to discussion.
[20] Counsel for Ms Shin further refers to the fact that the Court accepted that the change from the original contracting out agreement (COA) plan (which I refer to in my judgment as the 1997 plan) caused Ms Shin loss but that there was an issue as to the extent of the loss and whether these proceedings were the correct way for her to seek a remedy in respect of this loss.
[21] The second point raised by counsel for the defendant in their most recent memorandum was that I did not accept that the change from the 1997 plan caused Ms Shin loss, referring to the following passage from my judgment:8
It is not clear that [Ms Shin’s] rights under the COA have come to an end but that is a contractual claim that does not need to be determined in the context of these proceedings.
[22] I also held that any issue in regard to reliance on the 1997 plan in the settlement conference was properly brought in the context of the Family Court proceedings.9 As I noted, the Family Protection proceedings were still active at the time of the summary judgment hearing as under the consent orders the parties are not to discontinue until “within seven days of the receipt of the sale proceeds following settlement of the sale of the front title and distribution of the residuary estate in the shares in the will”.10
[23] I further noted that the consent orders in those proceedings reserved leave to apply for further directions for implementation. I then held that any issues arising in regard to reliance on the 1997 plan in the settlement conference were properly brought
8 At [59].
9 At [95].
10 At [64].
in the context of those proceedings and that this was particularly the case as paragraph 16 of the consent order included an agreement that the consent order records the settlement on a full and final basis and that “the parties agree there are no further claims against the estate whether under the Family Protection Act, any other statute, at common law or in equity (or against any party hereto in relation to the estate)”.11
[24] As I held in my judgment, it did not appear that any of the parties were aware of the mistake in relation to the plans. All of the parties however had all of the information they needed to correct this mistaken understanding but failed to do so.12
[25] By bringing these proceedings against Mr Connolly as executor, Ms Shin risked a costs award being made against her. Ms Shin’s daughters abided the decision of the Court and Mr Connelly successfully opposed the proceedings. Although I consider that Mr Connolly was wholly successful in his application and defence, his acceptance prior to proceedings being brought that the settlement conference had proceeded on a mistaken basis may have avoided proceedings (although I consider this relatively unlikely). To take account of this possibility, I consider that it is appropriate for 90 per cent of the indemnity costs to be paid out of Ms Shin’s share in the estate with the remaining 10 per cent to be paid by the residuary estate.
[26] Finally, I record that Mr Connolly does not appear to oppose the orders that costs are to be paid by Ms Shin by deduction from the sale proceeds, rather than payment immediately.
Result
[27]I order:
(a)the full amount of Mr Connolly’s costs of $38,830 are to be reimbursed by the estate;
11 At [64].
12 At [49] – [52].
(b)of the costs referred to in (a), 90 per cent ($34,947) are to be paid out of Ms Shin’s share of the estate by way of deduction from the sale proceeds of Lot 1.
Associate Judge Sussock
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