Wyllie v Firmin
[2024] NZCA 291
•4 July 2024 at 10.30 am
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA467/2022 [2024] NZCA 291 |
| BETWEEN | CORNELIA FRIEDERIKE MARIA WYLLIE AND ABIGAIL JUTTA LATHAM |
| AND | TIMOTHY RICHARD FIRMIN |
| Hearing: | 13 May 2024 |
Court: | Thomas, Fitzgerald and Osborne JJ |
Counsel: | H L Thompson for Appellants |
Judgment: | 4 July 2024 at 10.30 am |
JUDGMENT OF THE COURT
AThe appeal is dismissed.
BThe appellants must pay the respondent costs for a standard appeal on a band A basis with usual disbursements. The award of costs should be met without reimbursement from the estate.
____________________________________________________________________
REASONS OF THE COURT
(Given by Osborne J)
Introduction
The appellants, Cornelia Wyllie and Abigail Latham, appeal a judgment of Associate Judge Sussock (Costs Judgment) by which it was ordered:[1]
(a)they pay to Timothy Firmin, the respondent, $18,810.17 in relation to the costs and disbursements he incurred in two proceedings relating to the estate of their deceased father, Anthony Firmin, (the deceased); and
(b)they not be reimbursed by the estate for two-thirds of the costs of the two proceedings.
(collectively, the costs orders)
Background
[1]Wyllie v Firmin [2022] NZHC 1994 [Costs Judgment].
The appellants are the executors named in the will of the deceased who died in February 2020. The appellants obtained probate of the will. The most substantial estate asset is an orchard property. The deceased and his wife had lived there, growing feijoas and running a winemaking business. The respondent lived on the property in what the family called the “smoko quarters”.
The respondent asserted he had, by way of a testamentary promise, a right of first refusal to acquire the property at market value, to be determined by a registered valuation. The promise arose, he asserted, because he and his wife had returned from Australia in 2015 to care for his elderly parents and to help in the day-to-day operations of the orchard.
Discussions between the parties did not lead to any agreement for sale to the respondent. In October 2020, the respondent provided the executors with a written offer to purchase the property for $800,000 plus GST based on a registered valuation, subject to finance. The following day the respondent lodged a caveat over the property. This was said to be pursuant to the offer he had made to purchase the property, on the basis of a right of first refusal afforded to him.
Further discussions and negotiations took place, unsuccessfully. In May 2021, the appellants gave the respondent notice to vacate the property by 5 July 2021.
When the respondent did not vacate the property, the executors in July 2021 filed an application for orders removing the caveat and for vacant possession (Caveat Application).
The appellants’ stated purpose in seeking vacant possession of the property was:
[S]o that overdue maintenance can be carried out before a decision is made regarding the future of the property, which may involve selling it or renting it on the open market.
Shortly afterwards, the respondent filed proceedings seeking (amongst other orders) an order enforcing a testamentary promise of a right of first refusal to purchase the property or, alternatively, an order revoking probate and declaring a solicitor’s letter as a codicil to the deceased’s will. The respondent by interlocutory application sought the removal of the appellants as executors by way of summary judgment (Removal Application).
The parties opposed one another’s applications.
Substantive judgment
The judgment
The Associate Judge determined the Caveat Application and the Removal Application in a single judgment (Substantive Judgment).[2]
[2]Wyllie v Firmin [2022] NZHC 527 [Substantive Judgment].
The Substantive Judgment has not been appealed and the conclusions in it were accordingly conclusive for the purposes of the Costs Judgment.
Caveat Application
The Associate Judge applied the settled principles governing an application that a caveat not lapse as summarised by this Court in Philpott v Noble Investments Ltd.[3] A caveat will be removed only if it is patently clear the caveat cannot be maintained.
[3]At [73], citing Philpott v Noble Investments Ltd [2015] NZCA 342 at [26].
The Associate Judge found, having regard to correspondence between the appellants and their siblings, it was reasonably arguable the deceased had promised the respondent a right of first refusal.[4] It was also found to be reasonably arguable that specific performance may be available on a contractual basis and that the doctrine of part performance was available to the respondent.[5]
[4]Substantive judgment, above n 2, at [77]–[90].
[5]At [102] and [104]–[106].
The Associate Judge therefore ordered the caveat not lapse on the condition the respondent brought a claim in contract for a right of first refusal at market value (whether in a proceeding already filed or in separate proceedings) within 30 working days.[6]
Removal Application
[6]At [112].
The Removal Application was brought pursuant to s 21(1) of the Administration Act 1969, which empowers the Court to discharge or remove an administrator where (among other situations) it becomes expedient to discharge or remove the administrator. The Judge referred to the observation in Crick v McIlraith:[7]
The term “expedient” imports considerations of suitability, practicality and efficiency. In the context of estate administration the use of the term “expedient” therefore demands an overarching question – will removal of the administrator be a suitable, practical and efficient means of advancing the interests of the estate and of its beneficiaries?
[7]At [128]–[129], citing Crick v McIlraith [2012] NZHC 1290 at [18]; and Smith v Smith [2021] NZHC 1042 at [21]. See also Frickleton v Frickleton [2016] NZCA 408, [2017] 2 NZLR 154 at [29]–[36].
The Associate Judge identified conduct on the part of the appellants that had led the estate’s initial lawyer to warn them of the real risk of their successful removal and personal liability for costs.[8] The Associate Judge found it was expedient to remove the appellants as executors, explaining:
[127] The actions taken by the executors so far have meant that there has been considerable delay in selling the main asset of the estate and, therefore, considerable delay distributing the estate to the beneficiaries.
…
[129] … it appears that without a change of executor, the position of the beneficiaries will not be protected and the estate will not be administered efficiently. The removal of the executors will therefore “be a suitable, practical and efficient means of advancing the interests of the estate and its beneficiaries” (as the test was described in Crick v McIlraith referred to above).
…
[140] For the reasons set out above, I consider that it is expedient to remove the executors and replace them with an independent executor. The executors have no reasonably arguable opposition that prevents that decision being reached on a summary basis.
Costs Judgment
[8]Substantive Judgment, above n 2, at [120]–[125].
The respondent, as the successful party on both the Caveat and the Removal Applications, sought the following orders:[9]
(a) costs on a 2B basis for both proceedings, totalling $25,692.50;
(b) disbursements of $2,522.75;
(c) that costs and disbursements are met by the [appellants] personally; and
(d) [the appellants] are not to be reimbursed by the estate for the costs of progressing the [Caveat Application] and defending the [Removal Application].
[9]Costs Judgment, above n 1, at [37].
The appellants opposed orders requiring them to pay costs and disbursements personally and to not be reimbursed by the estate for their costs.
The Associate Judge identified the general rule that a successful party in litigation is entitled to costs.[10] She referred also to themes developed in matters concerning estates, as identified by counsel for the respondent:[11]
(a) To the extent proceedings have been reasonably necessary to resolve disputed issues in relation to an estate (such as its administration), a party who reasonably and successfully brings such issues to the Court for determination will normally be awarded their reasonable and actual legal costs from the estate.[12]
(b) To the extent that the unsuccessful party has acted unreasonably in opposing the position advanced by the successful party, it may also be appropriate that the unsuccessful party bear the unsuccessful party’s costs, rather than burden the estate.[13]
(c)Where the unsuccessful party is an executor or trustee who has taken an unreasonable position in bringing or defending proceedings, it would normally be inappropriate that they be reimbursed by the estate for their own costs.[14]
[10]At [39]; and see High Court Rules 2016, r 14.2(1)(a).
[11]Costs Judgment, above n 1, at [39].
[12]Loosley v Powell [2018] NZCA 73 at [6]–[8]; and Powell v Powell [2015] NZHC 1984 at [19]–[20] and [24].
[13]Mumby v Mumby [2016] NZHC 2836 at [19]. In that case, the parties pursued allegations in support of an undue influence claim which ought not to have been made or ought to have been abandoned.
[14]Thompson v Koligi [2020] NZHC 560 at [19] and [47]; and Jones v O’Keefe [2019] NZCA 222 at
[82]–[83] and [88]–[89].
The Associate Judge first considered the Caveat Application. She concluded:
(a)Before the respondent filed his substantive proceedings, there may have been an argument to say the appellants’ actions were reasonable in that they were forcing the respondent to file a claim so matters could be resolved;[15]
(b)once the respondent had filed proceedings seeking orders to enforce a first right of refusal, the appellants had no sufficient or reasonable grounds to continue to pursue the Caveat Application;[16]
(c)the appellants’ given reason for seeking the removal of the caveat and an order for vacant possession — to enable them to make decisions which “may involve selling or renting [the property] on the open market” — if carried through by sale to a third party would likely have defeated the respondent’s claim;[17] and
(d)the appellants’ application was clearly adversarial, with large amounts of evidence aimed at maligning the respondent’s character, and unnecessary from the estate’s perspective.[18]
[15]Costs Judgment, above n 1, at [49].
[16]At [47], [49], and [50].
[17]At [48].
[18]At [52].
The Associate Judge next considered the Removal Application by reference to the ground on which removal had been ordered, namely expediency. The Judge found:
[56] … In my view it ought to have been clear to the executors that the Court would find that it was expedient to do so. The executors had received advice in December 2020 that there were “fair to good prospects” of their successful removal at that stage and matters had significantly deteriorated by the time [the appellants] filed their notice of opposition.
The Associate Judge then turned to consider the appropriate proportion of costs the appellants should personally bear. She found the fairest proportion was two-thirds of the respondent’s costs. She also found that two-thirds of the appellants’ costs in respect of both applications should not be reimbursed from the estate. The remaining one-third of the costs claimed by the respondent and of the costs incurred by the appellants in respect of the two applications were ordered to be paid by the estate.[19]
Appellants’ submissions
[19]Costs Judgment, above n 1, at [60].
On this appeal Mr Thompson, for the appellants, submitted:
(a)having regard to the context being “a summary hearing” and the fact the Judge made no findings of misconduct or a breach of trust, the Judge erred in finding the appellants’ conduct of their application (the Caveat Application) and opposition (on the Removal Application) was unreasonable;
(b)having regard to the fact the caveat was sustained on grounds other than advanced by the respondent, the Judge erred in making the costs orders on the Caveat Application;
(c)the Judge erred by not reserving costs to be determined on the outcome of the respondent’s substantive proceeding; and
(d)the Judge in making the costs orders wrongly disregarded:
(i)a long-standing practice in such matters of having the relevant estate bear the costs;
(ii)a provision in the deceased’s will providing no trustee of the will shall be personally liable for any inadvertent breach of trust or any error of judgement committed in good faith; and
(iii)the principle that where litigation involves a dispute over a will, it is usual for costs to be paid from the estate.
Submissions for the respondent
Mr Iorns, for the respondent, submitted the Associate Judge proceeded on correct principle particularly in relation to circumstances where executors or trustees take unreasonable positions in litigation. He submitted the Judge correctly found on the facts relating to both applications that the appellants had acted unreasonably.
Legal regimes
Principles on appeal
As expressly provided in r 14.1 of the High Court Rules 2016 (the Rules), an award of costs is an exercise of the Court’s discretion. The discretion is to be exercised generally in accordance with the costs rules contained in Part 14 of the Rules, including the general principle that the party who fails with respect to a proceeding should pay costs to the party who succeeds.[20]
[20]Shirley v Wairarapa District Health Board [2006] NZSC 63, [2006] 3 NZLR 523 at [17].
Accordingly, an appellate court should not interfere unless satisfied the Judge who made the order acted on a wrong principle, or failed to consider some relevant matter, or took account of some irrelevant matter or was plainly wrong.[21]
[21]At [15]. This is the formula for appeals from the exercise of a discretion, as established in May v May (1982) 1 NZFLR 165 (CA) at 170, to be distinguished from the formula for appeals by way of rehearing, on which the appeal court is required to come to its own conclusions on matters of fact and law properly before it: Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141 at [19]–[21].
This Court has previously observed the assessment of costs is essentially a matter for the trial Judge and, in deference to the special advantage which he or she enjoys, this Court is slow to upset an award — an appeal should not simply repeat, or rerun arguments advanced on costs in the High Court.[22]
Costs on a successful summary judgment application
[22]Waimakariri District Council v Gauld [2015] NZCA 200 at [15].
The costs of a successful summary judgment application are usually awarded as costs following the event.[23] The situation in which the costs of a summary judgment application are usually reserved — following a plaintiff’s unsuccessful application — do not apply in this case where the summary judgment finally determined the Removal Application.[24]
Trustees’ liability for the expenses and liabilities incurred and the right to indemnity
[23]See Jessica Gorman and others McGechan on Procedure (online ed, Thomson Reuters) at [HR14.8.05(a)].
[24]NZI Bank Ltd v Philpott [1990] 2 NZLR (CA) at 405–406.
Section 81 of the Trusts Act 2019 (the Act) provides for trustees’ personal liability for expenses and liabilities incurred and their right to indemnity:
81Trustee’s liability for expenses and liabilities incurred, and trustee’s right to indemnity
(1)A trustee is personally liable for an expense or a liability incurred by the trustee when acting as a trustee.
(2)However, a trustee who incurs an expense or a liability when acting reasonably on behalf of the trust is entitled,—
(a)if the trustee has paid the expense or discharged the liability out of the trustee’s own funds, to reimbursement from the trust property; or
(b)in any other case, to pay the expense or discharge the liability directly from the trust property (or to have it paid or discharged by a remaining trustee).
(3)The operation and enforcement of the indemnity in this section is governed by the rules of the common law and equity relating to trusts.
(4)This section does not limit any indemnity available at common law or in equity.
The scope of the trustees’ statutory indemnity relates to expenditure and liabilities incurred both in pursuing and in defending proceedings on behalf of the trust (for which the trustees are, under s 81(1) of the Act, personally liable).
The entitlement under the predecessor provision — s 38(2) of the Act 1956 — to reimbursement for expenses reasonably incurred was discussed by Hammond J in Re O’Donoghue.[25] His Honour identified that what is “reasonable” will turn on the facts of each case:[26]
Necessarily, given the principle, these cases all appear to be determinations on the factual position arising in a particular case. But the principle that expenses must be properly incurred necessarily requires a trustee, if called upon, to demonstrate that the expenses arose out of an act falling within the scope of his trusteeship; whether it was something that his or her obligations required the Trustee to undertake; and whether the expense incurred was, in all the circumstances, “reasonable”.
The provisions of the will
[25]Re O’Donoghue [1998] 1 NZLR 116 (HC).
[26]At 121.
Clause 3 of the deceased’s will provides:
No Trustee of this Will shall be personally liable for any inadvertent breach of trust or any error of judgment committed in good faith.
This provision does not in its terms provide for trustees to be indemnified out of the estate for expenses they incur in litigation. There is no basis upon which to read into cl 3 an intention to provide a right of reimbursement for expenses or liabilities incurred in situations covered by s 81(2) of the Act but modified to remove the requirement that the trustees have been acting reasonably on behalf of the trust. Clause 3 by its nature precludes subsequent claims against a trustee (by beneficiaries or later trustees) for alleged breaches of trust that would otherwise create liability. The right of reimbursement for expenses and liabilities arises under s 81(2) of the Act or under the rules of common law and equity.
Discussion
Principle
The Associate Judge clearly acted in a principled way in not reserving the costs of either proceeding. The determination of the Removal Application, through summary judgment, necessitated the determination of the costs and disbursements of that application. Equally, once it was determined the appellants had no sufficient or reasonable grounds to pursue their Caveat Application following the respondent’s filing of his substantive proceeding, principle favoured the prompt determination of costs on that application.
The appellants have not established the Associate Judge adopted any erroneous principle in her approach to the content of the costs orders. In accordance with the authorities to which she referred, the costs decisions were informed by whether the appellants had acted unreasonably in opposing the Removal Application and pursuing the Caveat Application. The Judge correctly applied reasonableness as the benchmark in relation both to the appellants’ liability for party/party costs and their right of reimbursement for expenses and liabilities incurred through the litigation.
The benchmark of reasonableness in relation to matters both of party/party costs and the trustee’s entitlement to reimbursement was not in this case relevantly altered by the provisions of cl 3 of the deceased’s will, for the reasons referred to at [32]–[33] above.
Factual considerations
The Associate Judge’s conclusions as to the unreasonableness of the appellants’ conduct in litigation were straightforward and, in our view, inevitable.
The appellants’ focus on the absence of a finding of misconduct or breach of trust is inconsequential. The Judge focused, as s 81 of the Act and the common law authorities require, on whether the appellants had acted reasonably in incurring expenses and liabilities.
In relation to the Caveat Application, the Associate Judge logically drew a distinction between the period before the respondent commenced his substantive proceeding — when the respondent’s actions could arguably be viewed as reasonable, by forcing the respondent to file a claim,[27] and the period after the substantive proceeding was commenced, when the Caveat Application was “clearly adversarial” and unnecessary from the estate’s perspective. With the filing of the respondent’s substantive proceeding, there was no realistic prospect that the appellants would be able to satisfy the High Court that the respondent did not have a reasonably arguable case to support the interest he claimed.
[27]Costs Judgment, above n 1, at [49].
The issue of reasonable apportionment did not arise in relation to the Removal Application, as the appellants ought to have retired before the Removal Application was made.
Conclusion
The appellants have not established the Associate Judge, in making the costs orders, acted on a wrong principle, or failed to consider relevant matters or took into account irrelevant matters. The orders made were within the proper exercise of the Judge’s discretion.
Costs
As the costs orders were appropriately made in the High Court, costs should follow in this Court on the same basis.
Orders
The appeal is dismissed.
The appellants must pay the respondent costs for a standard appeal on a band A basis with usual disbursements. The award of costs should be met without reimbursement from the estate.
Solicitors:
McMahon Butterworth Thompson, Auckland for Appellants
Upper Hutt Law Limited, Upper Hutt for Respondent
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