Spence v Spence

[2015] NZHC 2005

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

CIV-2013-419-297 [2015] NZHC 2005

BETWEEN

FRANCIS RAYMOND MELVILLE

SPENCE Plaintiff

AND

MURRAY ALICK SPENCE of Ohaupo, farmer and DONNA MAREE SPENCE of Ohaupo, farmer and ALISON RAEWYN MORRISON of Te Awamutu, clerk

First Defendants

FOSTER & MILROY TRUSTEE COMPANY LIMITED

Second Defendant

Hearing:	18 August 2015
Appearances:	D J T Taylor for plaintiff Mr P Cornege for Defendants
Judgment:	24 August 2015

JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE [on Costs]

This judgment was delivered by me on

24.08.15 at 4 p.m, pursuant to

Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date……………

SPENCE v SPENCE & Ors [2015] NZHC 2005 [24 August 2015]

[1]      In this proceeding the plaintiff who is a beneficiary of the Fulansis Trust (“the Trust”) filed proceedings alleging breaches of trust by the trustees who are two of his sisters and his father.   The other trustee was the second defendant, a trust company apparently owned by the law firm which has been advising the defendants in the litigation.  A third sister was not involved in the litigation.

[2]      The initial statement of claim sought various orders including for the trustees or any of them in their personal capacity to return Trust property pay compensation and damages.  While this case was provisioned through the case management phase there was some discussion about whether it was possible to obtain both orders for removal of the trustees and orders that they take steps with regard to return of property or compensation.   On reflection, there would not seem to have been any inherent problem in this.  It is a question of the order in which the orders take effect. The trustees could be removed and a new trustee could be appointed by order of the Court and the orders would direct the outgoing trustees to return property to the trustee or the new trustees could recover the property in their own name.  It is not necessary to consider this matter in any detail as it does not directly affect the costs application.  However because there were criticisms made of the way in which the plaintiffs had tasked their case brief, comment has been called for.

[3]      As the case progressed a number of amended statements of claim were filed. In one of these filed in October 2014 the plaintiffs identified an additional ground for removal of the trustees which was essentially that there had been a breakdown in family relationships with the plaintiff asserting that because of the enmity between himself and his father in particular the trustees could not adopt the neutral approach to distributing Trust property to the beneficiaries on an even-handed basis.   Mr Cornege considered that the later inclusion of this ground meant that the plaintiff should not receive costs for the earlier steps in the proceeding.

[4]      The  defendants  in  response  to  the  allegation  that  there  was  a  deep  and intractable divide between the plaintiff on the one hand and the trustees on the other sought to explore the reasons for the breakdown.   They instanced allegations of misconduct on the part of the plaintiff including a claim that he assaulted his father. Because this matter has not proceeded on a defended basis, it is not possible for the

Court to express any view on the truth or otherwise of the assertions which the trustees make.   The key point is though that there was such a poor relationship between the plaintiff and the trustees that it is apparent the latter could not carry out their role properly.  If the trustees are incapable of performing their duties for any reason for instance, because they cannot bring the required neutrality to their tasks, the cause does not matter.  They are no longer suitable to be trustees.

[5]      It is possibly because the defendants appreciated the validity of this last point that they eventually decided to concede on the removal point and they have all now resigned as trustees of the Trust effective as at May 2015.  The plaintiff reserves the right to continue with personal claims against the trustees for alleged breach of their obligations.

[6]      The plaintiff now seeks an order for indemnity costs.  The defendants oppose an award of indemnity costs but would agree to an award based on category 2B of the High Court Rules.  That concession is subject to the fact that as I have noted they do not consider that the plaintiff should receive any costs for the initial stages of the litigation and also there should be a reduction in the overall amount of costs because of  disentitling  conduct  on  the  part  of  the  defendant.        I  will  discuss  those submissions by the defendant in more detail thereafter

[7]      The first issue then is whether the plaintiff ought to have indemnity costs. First, I should note on another closely related point that the defendants agree that the plaintiff ought to have his costs out of the Trust.  I agree with that approach.  Proper implementation of the Trust for the benefit of the beneficiaries requires that the Trust be  in  the  hands  of  trustees  who  are  capable  of  carrying  out  their  tasks  to  the necessary standard.  The litigation was therefore for the benefit of the Trust and the defendants’ concession is properly made.  This is consistent with the approach taken in the leading case on the incidents of costs in trust and estate litigation, in In Re

Buckton.1

[8]      I further consider that under r 14.6(4) (c) or alternatively (f) an order for indemnity costs in favour of the plaintiff ought to be made.  The means by which that result is achieved will now be discussed.

[9]      Mr Taylor for the plaintiff referred me to the authority of Hunter v Hunter2 where the Court of Appeal was dealing with an appeal against an order made removing trustees from office.  The majority decision of the Court is set out in the approach of the Chief Justice, Myers CJ, at page 539:

The respondent has been compelled to appear in this court and defend the judgment in the interests of the estate, and, that being so, I think there should be an order that she should have her costs as between solicitor and client taxed by the Registrar of the Supreme Court at Wellington and paid out of the testator’s estate, giving credit for the party and party costs which she recovers from the appellants.

[10]     That of course leaves open the question of what order ought to be made as between the plaintiff and the first defendants.  I consider that the justice of the case requires that he has his costs in their entirety out of the Trust but that he should give credit for the costs order which I will make subsequently in this judgment if an when it is paid.

[11]     I consider that the party and party costs against the first defendants should be on a 2B basis.   There is no particular aspect of the way in which the defendants approached the claim that would justify the Court imposing indemnity costs on them as a type of disciplinary measure pursuant to r 14.6 under provisions 14.6(4)(a) and (b).

[12]     Mr Taylor for the plaintiff submitted that there should in this case at least be an order for increased costs pursuant to r 14.6(3)(b)(ii), (iii).  He said the conflicts of interest and breaches of duty were so evident and so powerful and obvious the proceeding should never have been necessary in the first place let alone resisted and defended  once  they  began.    He  said  that  the  rift  in  the  family  caused  by  the separation of Mr and Mrs Spence was simply so great that all of the first defendants completely lost their perspective and their ability to think objectively about their

duties as trustees on the one hand and their personal position on the other.   He suggested a 25% uplift in costs was justified.

[13]     I do not agree that the Court can confidently make an order of that kind.  This was simply a case of the defendants apparently conceding that the plaintiff had a good case for their removal as trustees. No doubt where a defendant has such a weak case that the Court reviewing matters retrospectively concludes that there was no reasonable justification for the proceedings being defended, then instead of limiting costs to a standard 2B type level, the Court could augment the costs under r 14.6. Whether or not it would do so would involve a judgment of the overall merits of the defendants’ position.  Because a party looses a case does not mean that routinely the Court will conclude that they pursued an unnecessary step or an  argument that

lacked merit, to take an example of one of the grounds which will justify an uplift.3

A judgment that uplifted costs should be awarded will rarely be straightforward even after the Judge had the advantage of hearing the case.  Where, as here, I have not heard the case, it would be plainly wrong to come to conclusions about whether there was an absence of proper grounds for pursuing the defence in the first place.

[14]     Mr Cornege for his part submitted that the costs to be ordered should be subject to scaling downward for a number of reasons.   If, as I understand it, his approach commences with noting that there are two separate strands to the plaintiff’s case.   The plaintiff alleges that the defendants have misused Trust property.   The essence of this allegation is that the trustees agreed to make Trust property available to meet the commitments of Mr M A Spence, the father, when he was not even a beneficiary of the Trust.  The other element of the claim is that the deterioration of personal relationships between the family members meant that the trustees were incapable of bringing the required neutrality and detachment to their office.   The point that Mr Cornege makes is that it was not until the proceeding had been in existence for some time that the latter element of the case was explicitly pleaded. This  does  not  appear  to  have  been  addressed  until  the  filing  of  the  amended statement of claim dated 17 September 2013.   Although the removal of trustees continued to be justified on the case which the plaintiff pleaded because of their

breaches of Trust duty,  there was added to the  amended statement of claim an allegation that:

18.There exists within the Spence family a deep and abiding division, whereby   the   first   defendants   are   incapable   individually   or collectively of exercising the duties of trusteeship in an inpartial or neutral way.

[15]     The problem with Mr Cornege’s suggested approach is that the Court cannot analyse matters with the level of precision necessary to come to a view on this issue. The plaintiff sought the removal of the trustees right from the outset, although, based only on the alleged breaches of trust.  It is impossible for the Court to say that, when the trustees came to the position where they decided that they would no longer defend the proceeding, that they must have done so because of the allegation of the divisions in the family causing the climate in which they could not carry out their duties properly.  For those reasons I do not accept the approach that Mr Cornege has urged.

[16]    The claim which the plaintiff has filed for costs includes allowance for “preparation for hearing”.  This apparently is on the basis that the plaintiff briefed evidence of a forensic accountant in prepared evidence he might give at trial.  A trial date was never allocated in this matter.   It was the intention of the drafters of the Rules, I infer, that preparation for trial would recognise that a second phase of the general work in the proceedings had commenced once the run down to the trial begins.  Other work such as discovery and refinement of pleadings in participation in case management processes are in once sense all in preparation for the ultimate purpose of trial.  However I consider that the Rules contemplate work done which has an appreciable connection with the commencement of a trial and which is undertaken at a point when a fixture has been allocated.  I do not consider that an allowance under this head was therefore appropriate.

[17]     The plaintiff seeks one day for the preparation of a costs memorandum.  I am prepared to make some allowance for costs relating to the costs application but one day would seem to me to be excessive and 0.5 of a day is more realistic and will be ordered accordingly.

[18]     The claim for filing a reply to statement of defence should not be allowed because there is no dispute that it was filed well out of time.   I also accept the criticism that the interlocutory application should be excluded as it was never determined.  Mr Cornege also made a point about the defendants being required to file three statements of defence but I am unable to see what that relates to in the plaintiff’s costs calculation and so I put it to one side.

[19]     The defendants also dispute the payment of the disbursement claimed which was for briefing of an expert witness.  Mr Cornege says that report had no bearing on their decision to resign.   I do not however agree that that is the correct approach. Any work reasonably connected with the development of the plaintiff’s case which was incurred up until the point where the defendants conceded the relief sought is at their risk for costs.  I can understand that a report of the kind that the plaintiff sought would be required where there were allegations of misuse of Trust property.

[20]     Mr Cornege also says the report must have been prepared to support the first cause of action which has not been determined or resolved in the plaintiff’s favour. This again raises the point that the defendants apparently resigned because of the ingrafting on to the case of the assertions of lack of neutrality rather than because of the foundation which the case was initially solely built on of wrongful dealing in Trust property.  However, the Court is in no position to agree with the underlying proposition that the defendants could have been compelled to resign only on the latter ground but not the former.  There is no force in this contention in my view.

[21]     Looking at the cost application which the plaintiff makes in a general way I note that there has been four statements of claim filed.  This has come about as a result of a process of amendment of the plaintiff’s claims.  It is not a matter of minor amendments being made as the case is progressed.  It is not apparent to me why it was necessary for there to be so many statements of claim filed.  Inevitably that has contributed to a greater number of case management events.  The plaintiff claims for eight memoranda for case management conferences at a total of 3.2 days and five appearances at case management conferences, based on 5.3 of a day for a total of 1.5 days.  No doubt  the multiplicity of  amendments  to  the claim  contributed  to  the necessity for so many conferences and memoranda.  I consider that a fairer reflection

of what is reasonable is to reduce those days claimed respectively to two days and one day.

[22]     The parties are reserved leave to apply for further directions should they prove to be necessary.

J.P. Doogue

Associate Judge