Solomon-Rehe v Hokotehi Moriori Trust
[2016] NZHC 239
•22 February 2016
IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY
CIV 2014-485-10740 [2016] NZHC 239
UNDER the Trustee Act 1956 and the Charitable
Trusts Act 1957
IN THE MATTER OF
an application to remove trustees and direct fresh elections
BETWEEN
CHARLES LOUIS SOLOMON-REHE, ERIC THOMAS SOLOMON, ROSALIE MARY ANDERSON, ELAINE GOOMES, JULIA ANNE SCRIMGEOUR, ALFRED HENRY RETIMANA, THOMAS HENRY
LANAUZE, MARGARET JUNE SWAIN, AARON GRAEME DONALDSON, JAMES ALEXANDER EUGENE MATENGA
Plaintiffs
AND
HOKOTEHI MORIORI TRUST First Defendant
AND
SHIRLEY JOYCE KING Second Defendant
AND
AMANDA JUANITA KING Third Defendant
AND
BRIAN JAMES SOLOMON Fourth Defendant
AND
DENNIS GRAEME SOLOMON Fifth Defendant
AND
LINDA-MAE SARAH ENTWISTLE Sixth Defendant
Hearing: On Papers Counsel:
P B Churchman QC and T H Bennion for plaintiffs
J P Ferguson and H K Irwin-Easthope for second to sixth defendants
C Linkhorn and H Carrad for Attorney-General
R Schmidt-McCleave and S Karipa for Te Ohu Kai Moana
SOLOMON-REHE & ORS v HOKOTEHI MORIORI TRUST [2016] NZHC 239 [22 February 2016]
Trustee Limited Judgment:
22 February 2016
COSTS JUDGMENT OF BROWN J
[1] This judgment addresses claims for costs and requests for indemnification in respect of legal costs consequent upon my judgment in Solomon-Rehe v Hokotehi Moriori Trust.1
[2] The litigation was the outcome of an impasse between the defendant trustees and other persons who had also been serving as trustees. As the overview to my judgment stated:
[3] The current state of trustee dysfunction is recognised by the intervention of the Attorney-General. In his role of protector of charities he seeks an immediate order for the removal of all those acting as trustees and the appointment of independent persons as interim trustees pending the holding of elections for new trustees.
[4] The outcomes sought by the plaintiffs and the defendant trustees reflect their inevitably partisan approaches. The plaintiffs apply to have the defendant trustees removed immediately on the grounds of their alleged unlawful and obstructive actions while seeking an order that Messrs Donaldson, Matenga and Lanauze should remain in place pending trustee elections. The defendant trustees take the position that all eight trustees should remain as interim trustees to work alongside any court-appointed trustees pending fresh elections. Their alternative position is that all eight trustees should be removed.
The outcome of the litigation
[3] In my judgment I made orders removing all the trustees and appointing two interim trustees who were directed to arrange an AGM on proposed amendments to the 2005 Trust Deed and to organise an election for vacant trustee positions. Those
orders followed from my findings on the following six issues.
1 Solomon-Rehe v Hokotehi Moriori Trust [2015] NZHC 46, [2015] NZAR 776.
[4] The first issue was whether (as the plaintiffs contended) the 2010 amendment to the 2005 Trust Deed was validly made? That question was answered in the negative because the process stipulated in the deed – i.e. a Hui a Moriori with the requisite quorum – was not followed.
[5] The second issue concerned the plaintiffs’ request that the Court exercise its inherent jurisdiction (or the power in s 64 of the Trustee Act 1956) to uphold and enforce the amendment as valid. In declining that request I ruled that the process surrounding the 2010 amendment was not a transaction whereby there were no other means of achieving an appropriate outcome in the absence of the Court’s approval in its inherent jurisdiction. The 2005 Trust Deed provides the mechanism for securing a valid amendment to its terms.
[6] The third issue was whether the 2012 election of trustees was conducted in accordance with the 2005 Trust Deed? This question essentially applied only to Mr Lanauze as he was the only trustee whose term had not expired. Although under the 2005 Trust Deed an AGM was required for a valid election, only a postal vote was conducted. Hence the election did not comply with the process provided for in the Deed.
[7] The fourth issue was whether the cancellation of the August 2012 trustee election by the defendant trustees was justified? The evidence revealed that the defendant trustees purported to cancel the 2012 election because some votes were submitted by email and fax, supposedly in contravention of the secret ballot requirement in cl 3.8 of the Trust Deed. I held that had the 2012 elections been conducted correctly in accordance with the procedure required by the 2005 Trust Deed, the defendant trustees would not have had the power to simply cancel the election for the reasons they did – i.e. “electoral irregularities”. The purported cancellation was not justified.
[8] The fifth issue was whether the defendant trustees were entitled to decline to hold further elections? Although the defendant trustees were motivated to investigate the 2012 elections before holding any further elections, they were not so entitled, whatever their motivation. Once the number of trustees fell below the
required eight, the remaining trustees were entitled to act only for the purpose of
holding more elections to reach the quorum “and for no other purpose whatsoever”.
[9] The final issue was whether the Court should exercise its inherent jurisdiction to remove the trustees? Orders for removal were made as explained at [3] above.
[10] On the issue of costs my judgment stated:
[102] Unsurprisingly after the events of the past two years the issue of costs is hotly contested. The plaintiffs not only seek costs but also seek an order that the defendants’ costs should be borne by them personally and with no indemnification from the Trust.
[103] The defendant trustees claim that they are entitled to have their costs in defending the proceeding met by the Trust, citing cl 24.1 of the 2005 Trust Deed:
Each Trustee shall not be liable for and shall be indemnified out of the assets of the Trust for any loss or liability which they may incur by reason of the exercise, manner of exercise or non-exercise of any of the powers, authorities or discretions conferred on them by this Trust Deed or by law. This indemnity shall not extend to any loss or liability attributable to dishonesty or to the wilful commission and or omission by the Trustee of an act or omission of the Trustee known to such person to be a breach of trust or duty and such person will be liable for such loss or liability.
[104] The Attorney-General wished to have the opportunity to make a submission on costs once the outcome of the proceeding was known.
The parties were directed to file memoranda on issues of costs and indemnification.
The parties’ positions
[11] The plaintiffs seek reimbursement from the Trust for their actual and reasonable costs and a contribution from the defendants “in light of the findings against” them, or in the alternative, full costs from the defendant trustees. They consider the judgment is a vindication of the decision to bring the action and that there are clear findings against the defendant trustees. Relevantly the plaintiffs say:
(a) They could not have made an application to the Court in August 2012.
As beneficiaries they attempted to reach a settlement of the issues
without Court intervention, but became alarmed at the defendants’
delays and insistence that fresh elections could not occur without an investigation first. They then brought the proceedings in view of the “catastrophic consequences” that could have occurred if they were inactive, such as the loss of fisheries entitlements.2
(b) They should not be liable in costs given the defendants’ insistence that
elections should follow an investigation.
(c) The proceedings brought the impasse to an end and addressed “what were complex legal issues that in the end only the Court could resolve”.3
(d)The plaintiff trustees never declined to hold fresh elections and have constantly sought to prioritise them.
(e) There were adverse findings against the defendant trustees but none against the plaintiff trustees. These findings are indicative of the plaintiffs’ success, in particular the findings at [70], [76], [81]-[83], [89], [92] and [99].
[12] Conversely, the defendants’ position is that the plaintiffs are not entitled to costs from the defendant trustees, and the defendants do not seek costs against the plaintiffs. As for indemnity, the defendants say the findings in the judgment do not trigger the exception in cl 24.1 in the 2005 Trust Deed, in other words, that the findings are not such that any loss or liability is “attributable to dishonesty or to the wilful commission and or omission by the Trustee of an act or omission of the Trustee known to such person to be a breach of trust or duty and consequently they are entitled to be indemnified for their costs. They seek indemnity in respect of both their own legal costs and also any costs that may be awarded against them. As an
alternative stance they seek indemnity in respect of 50 per cent of their legal fees.
2 Plaintiffs’ submissions at [29].
3 At [30].
[13] In particular, the defendants say:
(a) There was a unanimous resolution by all trustees to appoint two independent trustees and seek guidance on interpretation of the deed, but the plaintiffs then withdrew their support for that application and brought these proceedings. The defendants say that the consensual application did not require the independent investigation to have occurred as a precursor (although they supported an independent investigation being carried out before any elections could occur).
(b)The primary difference between the consensual application and the plaintiffs’ application is that the plaintiffs sought punitive findings against the defendant trustees in an adversarial setting. They say the consensual application would have resulted in much the same findings as the Court reached in the proceeding, had the plaintiffs not withdrawn their support for it.
(c) The finding of a breach in relation to a failure to hold elections is directed to the trustees generally, not solely the defendants. It was a collective failure and therefore a collective breach.
(d)The proceeding should not be seen in terms of the success or failure of the parties. A costs order against the defendants is incompatible with the ultimate goal of the Trust (and thus its beneficiaries) as a united whole moving forward.
(e) The defendant trustees should be entitled to indemnity in respect of their reasonable costs. Again, it was the plaintiffs’ withdrawal of support for the consensual proceeding that resulted in the adversary nature of this proceeding, in which the defendants’ participation was necessary to enable all issues to be properly argued and evidence fairly adduced. They say the Court’s findings did not reflect the primary position advanced by the plaintiffs.
[14] The Attorney-General considers both the plaintiffs and defendant trustees were “unsuccessful” in the substantive proceeding, and that costs should lie where they fall. No trustees should be entitled to indemnity costs, given the most prudent course would have been a consensual non-partisan application. The Attorney- General does not seek costs, but seeks the Court’s confirmation that costs would have been warranted in this case.
Relevant principles concerning costs in trust litigation
[15] The conventional principle is that costs follow the event. Over time, however, special costs rules have developed in the Equity jurisdiction to guide parties to trusts-related litigation. Costs in such cases remain at the discretion of the Court, though in general the liability of trustees to their solicitors for costs for acting
for the trust estate is a personal liability.4 But, subject to that overriding discretion,
the authorities provide some guidance as to how that discretion is likely to be exercised.
[16] In Re Buckton5 Kekewich J divided trust litigation into three broad categories, as summarised by Kós J in Woodward v Smith:6
(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.
4 Re Graham Pitt & Bennett, ex parte Nolan & Skeet (1891) 9 NZLR 617 (CA).
5 Re Buckton [1907] 2 Ch 406 (Ch) at 413-417.
6 Woodward v Smith [2014] NZHC 407 at [23].
(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.
[17] The Buckton categories are a guide only and are by no means exhaustive.7
For example, a fourth category has been recognised where proceedings have been brought by a trustee but which have the characteristics of a category 3 Buckton case,8 in other words, a hostile claim against a trustee by another trustee.
[18] Both Kekewich J in Buckton and Hoffmann LJ in McDonald v Horn9 noted that the above categories can often overlap. In such cases, Kekewich J observed:10
[W]hen once convinced that I am determining rights between adverse litigants I apply the rule which ought, I think, to be rigidly enforced in adverse litigation, and order the unsuccessful party to pay the costs.
[19] The authors of Lewin on Trusts are likewise of the opinion that the appropriate order for costs in a fourth category case is normally for the losing party to be ordered to pay the costs of the winning party with the trustee being entitled to indemnity in respect of his costs, so far as not recovered from the losing party, unless
the trustee is deprived of costs on the ground that he has acted unreasonably.11
[20] What, then, constitutes a “hostile claim” as described in the third or fourth Buckton category? It is one in which the claimant has acted unreasonably and otherwise than for the benefit of the trust estate.12 While the courts prefer trustees to remain neutral in such proceedings “leaving it to the rivals to fight their battles”, if
that position is not tenable and the trustee succeeds in actively defending his
7 Singapore Airlines Ltd v Buck Consultants Ltd [2011] EWCA Civ 1542; Tucker, Le Poidevin and Brightwell Lewin on Trusts (19th ed, Sweet & Maxwell, London, 2015) at [27-145].
8 Albany Trustee Co v Jeandin (2013-14) 16 ITELR 28, Guerns RC.
9 McDonald v Horn [1995] 1 All ER 961 (CA).
10 Re Buckton, above n 5, at 415.
11 Tucker, Le Poidevin and Brightwell Lewin on Trusts, above n 7, at [27-145].
12 Alsop Wilkinson v Neary [1995] 1 All ER 431 (Ch D) at 436.
position, he may be entitled to his costs out of the trust (for he has preserved the interests of the beneficiaries under the trust).13
[21] The Lewin authors consider that trustee claimants are always vulnerable to personal liability, especially if they lose.14 It is for this reason that the option is available to such claimants to make a Beddoe application for a prospective costs order.15
[22] In claims for removal of trustees by beneficiaries, an unsuccessful beneficiary will normally be ordered to pay the trustee’s costs.16 However a removed trustee’s costs will not normally be paid out of the trust fund.
[23] Most recently the issue of costs in trust litigation, and indemnity costs in particular, has been considered by Kós J in New Zealand Maori Council & Ors v Foulkes & Ors.17 There, although the trust had become ineffectual given the impasse between the plaintiff and defendant trustees, all agreed that any costs awarded should be paid from the trust fund. The Judge made the following observations relevant to trustee costs and indemnity:
[29] Where trustees are in real doubt as to the proper construction of a trust deed it is their duty to make application to the Court for directions, under s 66. The Trust Deed here is the consequence of political compromise and settlement. Probably deliberately, it is abbreviated. Some provisions can only be described as vague. Disagreement over its effect was to be expected. Given these difficulties, the making of a s 66 application was both unsurprising and appropriate. It was however unfortunate that a case properly falling within Re Buckton's category 1 was conducted instead with all the vigour and expense of wholly hostile litigation. Three camps, three sets of costs. It is to be hoped that the Court's intervention has led to those camps now consolidating.
[30] A trustee acting in accordance with his or her duty has a right of reimbursement (or indemnity) for associated expenses. As Danckwerts J explained in Re Grimthorpe:
13 At 435.
14 Tucker, Le Poidevin and Brightwell Lewin on Trusts, above n 7, at [27-187].
15 Re Beddoe [1893] 1 Ch 547 (CA); Lewin on Trusts, above n 7, at [27-236].
16 Fane v Fane (1879) 13 Ch D 228; Isaac v Isaac [2005] EWHC 435 (Ch); Re Savile [2014] EWHC 1683 (Ch).
17 New Zealand Maori Council & Ors v Foulkes & Ors [2015] NZHC 489.
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 I 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.
[31] 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.
[24] In that case the Judge stopped short of making costs awards, instead directing the parties to apply to the Trust, who would make reimbursements based on the guidance in the judgment.
Application to this case: costs
[25] As noted at the outset, this litigation was between two opposing factions of trustees within the Trust. In my view this case falls into the fourth Buckton category.
[26] This case can be distinguished from the New Zealand Maori Council case mentioned above. In that litigation, the vague language and absence of procedural provisions within the Trust Deed meant that litigation as to its interpretation was inevitable. The Trust Deed in this case was clear and unequivocal as to the procedures by which amendments could be made to the Deed and by which elections of new trustees were to be conducted. That much is reflected in the answers to the first three issues in the judgment, set out above at [4]-[6]. The plaintiffs were not
‘successful’ on their arguments on those three issues.
[27] However the fourth and fifth issues, set out above at [7]-[8], were decided against the defendant trustees. Given the finding that the Trust Deed was explicit in its procedural requirements, it was not reasonable or justified for the defendant trustees to cancel the August 2012 trustee election and decline to hold further elections.
[28] The ruling on the sixth issue – the removal of trustees – applied in relation to the trustees in both camps. It was clearly in the best interests of the beneficiaries of the Trust to remove all those purporting to act as trustees. All of the trustees’ tenures had expired, and Mr Lanauze’s appointment was invalid.
[29] On the issue of costs I find myself in agreement with the Attorney-General’s submission that, viewed in the round, both the plaintiffs and the second to sixth defendants were unsuccessful in the litigation and accordingly neither side should have costs orders made in their favour. Even if the plaintiffs may have achieved one of their objectives, that was not as a consequence of the contentions which they advanced in the litigation.
[30] As counsel for the Attorney-General noted, a substantial part of the hearing was spent in cross-examination of deponents, with both sides adopting a partisan approach which significantly extended the hearing time. The point was made that affidavits of some 554 pages were filed by the plaintiffs and some 270 pages filed by the defendants, largely canvassing the disputed facts and allegations of wrong-doing perceived by each side of the other.
[31] The Attorney-General observes that that material has proved to be relevant (if at all) largely only for costs purposes because the proceeding was principally resolved by determination of legal issues, namely the validity of the 2010 amendments to the 2005 Trust Deed, the validity of the election of trustees, the validity of the purported cancellation of the 2012 election and the alleged breaches of the 2005 Trust Deed.
[32] Furthermore the trustees’ powers to act once their number fell below eight (as occurred by at least the last quarter of 2012) were confined to the holding of elections. The trustees on both sides acted outside their powers and an order was duly made for the removal of all trustees.
[33] Not only do I consider that the refusal of costs is consistent with the overall outcome of the litigation given the positions adopted by the parties in that litigation, I regard the absence of the imposition of costs as appropriate given the necessity for the various participants to co-exist in the future. As Randerson J observed in Attorney-General v Ngati Karewa and Ngati Tahinga Trust in declining to make
costs orders:18
This is a case which has involved litigation over many years with deep seated rifts between the parties. All those parties will have to continue to relate to each other now and in the future. It would be wrong for the court to exacerbate current tensions by making an order for costs in the circumstances of this case.
Indemnity under cl 24.1 of the 2005 Trust Deed
[34] So far as the plaintiffs are concerned, any entitlement to indemnity would apply only to Messrs Donaldson, Matenga and Lanauze but not to the other seven plaintiffs who are beneficiaries of the Trust but not trustees.
[35] The Attorney-General contends that neither those three persons nor the second to sixth defendants are entitled to indemnity from the Trust as the indemnity relates only to loss or liability incurred by “trustees”. The submission made, which I accept, is that those plaintiffs who purported to hold office as trustees together with each of the second to sixth defendants are unable to claim indemnity for the reason that all were found to have been invalidly holding that office. With the exception of Mr Lanauze, all their terms of appointment had expired. Mr Lanauze’ appointment was invalid.
[36] In those circumstances I adopt that Attorney-General’s submission and I
decline to make any orders for indemnification.
18 Attorney-General v Ngati Karewa and Ngati Tahinga Trust HC Auckland M2073/99,
19 November 2001.
Costs of the Attorney-General
[37] The Attorney-General does not seek costs. Counsel advises that that decision reflects recognition of the fact that a number of the plaintiffs and defendants may need to work together in the future. It is hoped that the election to forego costs will assist the Hokotehi members and former trustees to focus on the future and work together in the best interests of the trust.
[38] In those circumstances there is no order for costs in favour of the
Attorney-General. However it is appropriate to note that in the circumstances of this case an award of costs in favour of the Attorney-General would have been justified.
Brown J
Solicitors:
Bennion Law, Wellington
Kahui Legal, WellingtonCrown Law, Wellington
Te Ohu Kai Moana Trustee Ltd, Wellington
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