Wallace v Wallace

[2024] NZHC 372

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

I TE KŌTI MATUA O AOTEAROA KIRIKIRIROA ROHE

CIV-2022-419-188

[2024] NZHC 372

IN THE MATTER

Of an application seeking directions pursuant to the Trusts Act 2019

AND

IN THE MATTER

of Part 18 High Court Rules

AND

IN THE MATTER

Of the IONE WALLACE TRUST

BETWEEN

SHANE CRAIG WALLACE and EDWARD

DEAN CLARKE as trustees of the IONE WALLACE TRUST

Plaintiffs

AND

GAVIN ROLAND WALLACE

Defendant

Hearing:	On the papers
Counsel:	D M O’Neill for Plaintiffs Defendant in Person
Judgment:	29 February 2024

JUDGMENT OF LANG J

[Costs]

Solicitors/counsel:

This judgment was delivered by Justice Lang On 29 February 2024 at 3.00 pm

Pursuant to r 11.5 of the High Court Rules Registrar/Deputy Registrar

Date:……………………

Harkness Henry, Cambridge/D M O’Neill, Barrister, Hamilton Copy to:

Mr G R Wallace

WALLACE v WALLACE [2024] NZHC 372 [29 February 2024]

[1]    In this proceeding the trustees of the Ione Wallace Trust sought directions under s 133 of the Trusts Act 2019. They sought orders sanctioning a proposal under which the vesting date of the Trust was to be brought forward and the assets of the Trust distributed in equal shares to the six named final beneficiaries.

[2]    The defendant, Mr Gavin Wallace, is one of the final beneficiaries. He opposed the trustees’ application. He also applied for an order dismissing the proceeding and granting freezing orders over the assets of the Trust.

[3]    In a judgment delivered on 19 October 2023, I granted the trustees’ application and dismissed Mr Wallace’s applications.1 I also indicated my view that the trustees had been the successful parties and would ordinarily be entitled to an award of costs in their favour.2 I reserved leave for the parties to file memoranda if they could not reach agreement regarding costs.

[4]    The parties have been unable to reach agreement regarding costs. I am therefore required to determine that issue based on the memoranda they have filed.

The arguments

[5]    Mr O’Neill submits that the trustees should receive an award of indemnity costs. This would  require  Mr  Wallace  to  pay  costs  on  a  solicitor-client  basis. Mr O’Neill also submits that the costs should be deducted from the share of trust assets that Mr Wallace will receive. In the alternative, Mr O’Neill contends that the trustees should receive costs on a category 2B basis together with a 50 per cent uplift to reflect the fact that the arguments Mr Wallace advanced at the hearing had little or no merit.

[6]    Mr Wallace opposes any award of costs being made against him. He says that costs should lie where they fall. He sets out reasons for this in lengthy submissions filed in opposition to the trustees’ application for costs. The arguments he advances are, however, largely not relevant to the issue of costs following a hearing in which he has been the wholly unsuccessful party. In large part they seek to traverse issues that

1      Wallace v Wallace [2023] NZHC 2928.

2 At [44].

he raised at the hearing. Many of these were irrelevant to the issues I was required to determine.

Should costs lie where they fall?

[7]    One of Mr Wallace’s primary arguments is that the trustees should never have brought the proceeding and that it has been a waste of the trust’s assets. I disagree. I consider the trustees acted reasonably in bringing the proceeding because Mr Wallace refused to sign an indemnity document that the remaining final beneficiaries had signed. The document indemnified the trustees against any liability arising out of their proposal to bring forward the vesting date of the Trust and distribute the trust assets to the final beneficiaries named in the deed of trust. The trustees were concerned that, if they implemented their proposal without the Court’s sanction, they ran the very real risk that Mr Wallace would challenge their decisions subsequently. The fact that he opposed their application for directions plainly justifies the trustees’ decision to file the proceeding.

[8]    Mr Wallace’s argument that costs should lie where they fall cannot succeed because the general principle is that the unsuccessful party should contribute to the costs of the successful party.3 Given that Mr Wallace was plainly the unsuccessful party, it is appropriate that he should contribute to the trustees’ costs. It is also appropriate that the award of costs should be deducted from his share of the trust assets. If this were not the case, the remaining beneficiaries would be required to contribute to his costs. That would be unjust.

[9]    This means the only issue to be determined is whether the trustees should receive costs on a category 2B basis, as would usually be the case, or whether they should receive indemnity or increased costs.

Should the trustees receive indemnity costs?

[10]   Indemnity costs will only be appropriate where a party to a proceeding has acted very badly or very unreasonably.4 This may include a situation where a party

3      High Court Rules 2016, r 14.2(1)(a).

4      Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [27].

persists with what proper consideration would have shown was a hopeless case.5 Generally speaking, however, the emphasis is generally on the manner in which the party has conducted itself in the proceeding rather than the events that have preceded it.

[11]   Some of Mr Wallace’s arguments undoubtedly had no merit. The applications that he filed certainly had no prospect of success. However, these occupied very little time at the hearing and were the subject of little discussion in the written submissions filed prior to the hearing.

[12]   Mr Wallace’s principal concern in opposing the trustees’ application for directions stemmed from his belief that the trustees held the assets of the trust on the vesting date for both the final beneficiaries and the discretionary beneficiaries. The same belief underpinned his refusal to sign the deed of indemnity and his argument that the trustees ought to have surrendered their discretion to the Court. For reasons discussed shortly, I can understand how the wording of the trust deed led Mr Wallace to this view. I therefore do not consider that Mr Wallace acted very badly or very unreasonably in opposing the application. He also co-operated in having the application set down for hearing promptly. An award of indemnity costs is therefore not appropriate.

Should the trustees receive increased costs?

[13]   The Court has the power to make an award of increased costs where a party to a proceeding has contributed unnecessarily to the time or expense of the proceeding. Rule 14.6(3)(b) of the High Court Rules 2016 provides:

14.6     Increased costs and indemnity costs

…

(3)The court may order a party to pay increased costs if—

…

(b)the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or step in it by—

5 At [24].

(i)failing to comply with these rules or with a direction of the court; or

(ii)taking or pursuing an unnecessary step or an argument that lacks merit; or

(iii)failing, without reasonable justification, to admit facts, evidence, documents, or accept a legal argument; or

(iv)failing, without reasonable justification, to comply with an order for discovery, a notice for further particulars, a notice for interrogatories, or other similar requirement under these rules; or

(v)failing, without reasonable justification, to accept an offer of settlement whether in the form of an offer under rule 14.10 or some other offer to settle or dispose of the proceeding; or

…

[14]   The applications that Mr Wallace filed did not contribute unnecessarily to the time and expense of the proceeding. Nor did he take any unnecessary steps or fail to comply with any of the Court’s directions. The only possible basis for an award of increased costs is that he failed without reasonable justification to accept the trustees’ argument regarding the interpretation to be given to cl 11 of the deed of trust. This could give rise to an increased award of costs under r 14.6(3)(b)(ii) and (iii).

[15]   As I have already noted, Mr Wallace considered that cl 11 of the deed of trust required the trustees to stand possessed of the trust assets on the vesting date for the benefit of both the discretionary beneficiaries and the final beneficiaries. Clause 11 provides as follows:

On the Vesting Day the Trustee shall stand possessed of such of the capital and income of the Trust Fund as may then remain upon trust for the Discretionary Capital Beneficiaries, whether for all of them or one or more of them to the exclusion of another or others, as are living or in existence on the Vesting Day; and if more than one in such shares and proportions as the Appointor may in writing (revocable or irrevocable) or by Will at any time on or before the Vesting Day appoint and in default of and subject to any such appointment which has not been revoked before the Vesting Day for such of SHANE CRAIG WALLACE, GAVIN ROLAND WALLACE, CHERIE BEVERLEY LUXTON, TIMOTHY JOHN WALLACE, BRONWYN MARY

WALLACE and VIVIEN CLARE HIBBERT as shall then be living if more than one in equal shares as tenants in common absolutely provided however that in case any such child shall die before Vesting Day leaving issue who shall be living on Vesting Day such issue shall stand in the place of each such

deceased child and take per stirpes and equally between them if more than one the share of the Trust Fund which the deceased child would have taken had he or she been living on the Vesting Day.

[16]   Mr Wallace based his argument on the first sentence in cl 11, which states that the trustees shall stand possessed of the trust assets on the vesting date as they may then remain upon trust for the discretionary capital beneficiaries. Standing alone, the sentence obviously supports Mr Wallace’s interpretation. However, the clause needs to be construed as a whole. I undertook this analysis in the judgment.6 In short, the discretionary beneficiaries will only share in the trust assets if the Appointor under the deed of trust has allocated them a share of the assets before the vesting date. In the present case that had not occurred. As a result, none of the discretionary beneficiaries were entitled to share in the trust assets. I therefore rejected Mr Wallace’s argument.

[17]   However, I do not consider that Mr Wallace’s argument was misconceived or hopeless from the outset. It would not have been easy for a layperson to interpret and understand the meaning of cl 11. It follows that I am not satisfied that an increased award of costs is appropriate.

Result

[18]   The trustees are entitled to an award of costs against Mr Wallace on a category 2B basis together with disbursements as fixed by the Registrar. The costs are to be deducted from Mr Wallace’s share of the trust assets.

Lang J

6      Wallace v Wallace, above n 1 at [31]-[38].