Simpson v Carr
[2015] NZHC 1102
•21 May 2015
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2013-409-001706 [2015] NZHC 1102
BETWEEN RICHARD GRANT SIMPSON, TREVOR
FRANCIS THORNTON AND GRAEME CARSON McGLINN AS STATUTORY MANAGERS OF FORRESTERS NOMINEE COMPANY LIMITED AND HUBBARD CHURCHER TRUST MANAGEMENT LIMITED
Applicants
AND
GRAHAM CARR First Respondent
AND
GRAHAM CARR (NZ) LIMITED Second Respondent
Hearing: 21 May 2015 (On the papers) Appearances:
F B Barton and A M Cunninghame for Applicant
I R Millard QC and R J Hopkins for the First and Second
RespondentsJudgment:
21 May 2015
JUDGMENT OF DUNNINGHAM J
[1] On 12 February 2015 I issued a decision on an application by the statutory managers of Hubbard Management Funds (HMF) seeking directions as to the second respondent’s entitlement to a distribution from HMF.
[2] The application turned on whether certain sums which had been transferred from Graham Carr (New Zealand) Limited’s (GCNZL) investment account to
Mr Hubbard’s equity account in HMF, should be treated as “cash withdrawals”,
SIMPSON AND ORS v CARR AND ANOR [2015] NZHC 1102 [21 May 2015]
disentitling GCNZL to reimbursement of those amounts under the directions as to distribution of those funds made by Chisholm J in 2012.1
[3] I reserved the issue of costs and the parties were unable to come to an agreement on costs. GCNZL seeks indemnity costs arguing this was essentially a case where trustees were seeking directions on the distribution of a fund held in trust. In the alternative, GCNZL seeks 3C costs with an uplift or, at least, 3C costs. The statutory managers oppose this and argue that 2B schedule costs are appropriate in this case.
[4] The issue for determination is simply, how should I exercise my discretion to award costs in light of the particular circumstances of this case?
Costs sought in the present case
[5] The respondents have incurred the following costs:
Legal fees $433,314.18 Witness Expenses $198,276.83 Legal disbursements $6,217.21 Total $638,012.22
[6] By comparison, the amounts which the respondents would be entitled to if schedule costs were applied, would all be significantly less as shown in the
following table:
Indemnity legal costs
$433,314.18
3C Costs with uplift
$216,726.50
3C Costs
$167,506.50
2B Costs
$53,083.25
1 Re Forresters Nominee Company Ltd and Hubbard Churcher Trust Management Ltd
[2012] NZHC 3256; Re Forresters Nominee Company Ltd [2012] NZHC 1216.
GCNZL’s submissions
[7] GCNZL submits that indemnity costs are appropriate because the matter was, in essence, an application for directions as to how a fund should be distributed. They say that the statutory managers were acting as trustees on the basis that the companies they were in control of, Hubbard Churcher Trust Management Limited and Forresters Nominee Company Limited, were, prior to statutory management, operating as trustees over the HMF trust accounts. In his 1 June 2012 judgment,
Chisholm J stated:2
[1] In their capacity as statutory managers of Forresters Nominee Company Limited (FNCL) and Hubbard Churcher Trust Management Limited (HCTML) the applicants hold assets relating to Hubbard Management Fund (HMF) on behalf of approximately 300 investors.
…
[11] Until approximately 2004 HMF maintained numerous holder accounts with the relevant registries in the name of FNCL (or variations of that name). In 2004 there was a transfer of investments from various individual HMF holder accounts, including the FNCL holder account, into the name of HCTML. It appears that this consolidation was to reduce the administrative burden. From that time HCTML effectively held the assets in a trustee capacity. Funds relating to HMF continued to pass through the FNCL bank account.
The statutory managers’ status as trustees is not disputed by the applicants.
[8] Rule 14.6(4)(c) of the High Court Rules provides that the Court may order a party to pay indemnity costs if:
Costs are payable from a fund, the party claiming costs is a necessary party to the proceeding affecting the fund, and the party claiming costs has acted reasonably in the proceeding.
[9] This rule is a codification of the long established principle found in
Re Buckton.3 In Re Buckton, Kekewich J divided trust litigation into three categories. Kós J summarised the Re Buckton categorisations in Woodward v Smith:4
2 Forresters Nominee Company Limited [2012] NZHC 1216 (emphasis added).
3 Re Buckton [1907] 2 Ch 406.
4 Woodward v Smith [2014] NZHC 407, [2014] 3 NZLR 525 at [23] 407 at [23] (footnotes omitted).
(a) The first category involves proceedings brought by trustees to obtain the Court's guidance on the construction of the trust deed or some aspect of the trust's administration. In such cases, the costs of all parties necessarily participating are treated as incurred for the benefit of the estate and ordered to be paid out of the trust fund.
(b) The second category involves a similar application, but by someone other than a trustee (such as a beneficiary). However, it is a case which would have justified application by a trustee. The same approach is taken to costs in the second category as to the first.
(c) The third category, however, is where a beneficiary is making a
“hostile claim” against the trustees, or another beneficiary. The claim
may still involve a point of construction, or administration. It will often involve a claim to a beneficial interest or entitlement to a part
of the trust fund. In the third category, involving a hostile claim
against trustees or another beneficiary, the usual principles as to costs apply. Ordinarily they will follow the event.
[10] In claiming indemnity costs, GCNZL argues that the case does fall within the first category in Re Buckton and that r 14.6(4) of the High Court Rules applies.
[11] GCNZL says the legal costs it incurred of $433,000 appear similar to those incurred by the statutory managers, and this is deduced from the legal costs incurred as reported in the regular statutory manager reports.
[12] Even if indemnity costs are not thought appropriate, GCNZL says that the costs should be on the most complex scale, schedule 3C, with an uplift. In support of that proposition GCNZL relies on r 14.6(3) and in particular that the Court may order a party to pay increased costs if:
(a) The nature of the proceeding or the step in it as such that the time required by the party claiming costs would substantially exceed the time allocated under band C; or
(b) The party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in by;
…
(v) failing, without reasonable justification, to accept an offer of settlement whether in the form of an offer under r 14.10 or some other offer to settle or dispose of the proceedings; or
…
(d) some other reason exists which justifies the Court making an order for increased costs despite the principle that the determination of costs should be predictable and expeditious.
[13] In the present case, GCNZL points to the complexity of the proceedings. It is not in dispute that there was a large number of documents involved, most being accounting records that required careful consideration, not just by the experts, but by counsel involved, so they could properly understand what was in dispute.
[14] GCNZL also points to the changing nature of the case as adding to the complexity. As GCNZL’s expert accounting advisers found further relevant documents, the statutory managers’ positions on the relevant transactions also changed.
[15] The third relevant factor raised by GCNZL was that, on 30 August 2014, GCNZL offered to settle the proceedings by payment of a sum which included interest costs and interim payments already made, but not including GCNZL’s entitlement to a share of any surplus. That amount was around 10 per cent less than its entitlement under the 12 February 2015 judgment even before costs and interest were taken into account.
[16] The legal costs incurred after the settlement offer was made were estimated to be $16,000. Accordingly, if indemnity costs are not awarded, GCNZL seeks legal costs of $216,726.50 plus all disbursements.
[17] GCNZL points out that if, as the statutory managers propose, they receive costs on a 2B basis, that would amount to only $53,083.25 which would unfairly reflect the costs actually and reasonably incurred in running the case. It would also not be consistent with the award of 3C costs to Mrs Hubbard in the earlier proceedings who was, in GCNZL’s submission, involved partly out of “self-interest”.
The statutory managers’ submissions
[18] The statutory managers, however, oppose the claim for indemnity costs. They take the view that this is not a “classic” fund case on the basis that there was no founding trust document that needed interpretation. The Court was “required to hunt
for the appropriate rules”. They also submit that the investors were somewhat
“remiss” for engaging Mr Hubbard on such informal terms.
[19] The statutory managers seek that costs be awarded on a 2B basis because:
(a) that was the initial indication I gave in my minute of
26 February 2014;
(b)both parties have had success in the litigation with the orders sought by the statutory managers in relation to the starting point having been conceded;
(c) in my decision I held that the statutory managers had acted appropriately in seeking directions;
(d)I indicated that the respondents should be entitled to schedule rather than indemnity costs;
(e) if costs were awarded on indemnity basis this would have a significant impact on the balance in HMF to the extent that investors would no longer receive all of their capital back.
[20] The statutory managers also resist comparisons with the costs award made to Mrs Hubbard saying that it was “Mrs Hubbard’s proposal that was ultimately accepted by the Court and for this reason the Court ordered that Mrs Hubbard be paid costs on a 3C basis”. The statutory managers say this is more analogous to the approach taken by Dobson J in Simpson v Jenks case where an award of costs on a
2B basis followed.5
[21] In respect of the rejection of the settlement offer, the statutory managers say that “to settle at a figure in the vicinity of what the respondents were seeking would require the sign-off of the High Court”, and so their decision to decline it was
reasonable in the circumstances.
5 Simpson v Jenks [2013] NZHC 3533.
[22] The statutory managers also challenge two aspects of the disbursements claimed being a claim for $31,000 for the expenses of John Stark, one of Mr Hubbard’s former partners, and costs of $2,994.60 for the affidavit of Ms Stephanie Grieve, a lawyer from Duncan Cotterill, who was instructed to give the investors advice when the proceedings were still before Chisholm J.
Discussion
[23] As is well understood, costs are always at the discretion of the Court,6 but the starting point for the exercise of that discretion includes that 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.
[24] The use of schedule costs is intended to ensure that an award of costs should “reflect the complexity and significance of the proceeding”,7 and ensure that “so far as possible the determination of costs should be predictable and expeditious”.8
However, the use of schedule costs can be departed from in circumstances as described in High Court r 14.6. I accept that, prima facie, it can be said that this litigation falls within the category described in High Court r 14.6(4)(c) and the first category in Re Buckton, as it also encompasses situations where the trustees are seeking guidance on “some aspect of the trust’s administration”.9 Here the statutory managers sought directions on how to apply the formula confirmed by the High Court in judgments given on 1 June 2012 and 4 December 2012 in order to calculate GCNZL’s entitlement to a distribution from HMF.
[25] However, simply because there is jurisdiction to grant indemnity costs is not the sole factor to take into account in exercising my discretion. I am conscious that the entire history of the statutory management of HMF has been a difficult exercise and this has been exacerbated by the conflicting documentary evidence as to each investor’s investment, the paucity of the documentation in which did exist, and the unfortunate timing of Mr Hubbard’s death before the statutory managers had
completed their investigations of the accounting records.
6 High Court Rules r 14.1.
7 Rule 14.2(b).
8 Rule 14.2(g).
9 Woodward v Smith, above n 4, at [23].
[26] The orders made by Chisholm J were designed to achieve “overall justice and fairness to the investors as a whole”, in circumstances where the precise entitlements simply could not be calculated.10 Similarly, here, any award of costs should be seen in the context where, for reasons beyond either party’s control, the calculation of entitlement was difficult. In this case, while GCNZL has necessarily incurred the cost of participating in these proceedings and opposing the orders sought by the statutory managers, awarding indemnity costs will detrimentally impact on all investors as they are also bearing the costs of the statutory managers’ legal fees.
[27] While I acknowledge that, as one of the largest investors, GCNZL will share in that cost, given the significant financial benefit GCNZL has obtained through these proceedings, I think it should bear some portion of the cost to achieve that result, particularly where it is not the statutory managers’ fault that the position was unclear. Instead, this is a circumstance where I consider that the interests of all the parties are best met by an award of 3C costs to the respondents. I also see no reason to disallow any of the respondent’s disbursements. They were all incurred for the purposes of the proceeding as required by High Court r 14.12.
[28] Accordingly, I order:
(a) the respondents are awarded 3C costs plus disbursements as identified in Annexure E to their Memorandum on Costs dated 12 March 2015.
Solicitors:
Anderson Lloyd, Dunedin
Tavendale and Partners, Christchurch
10 In Re Forresters Nominee Company Ltd, above n 1 at [109].
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