Berkett v Cave [2000] NZCA 387; [2001] 1 NZLR 667; (2000) 15 PRNZ 150 (14 December 2000)

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Berkett v Cave [2000] NZCA 387 (14 December 2000); [2001] 1 NZLR 667; (2000) 15 PRNZ 150

Last Updated: 7 December 2011

IN THE COURT OF APPEAL OF NEW ZEALAND

CA260/00

	BETWEEN	JEFFREY ROBERT BERKETT, JOHN BRIAN BURKE, CHRIS KIRK-BURNNAND AND RICHARD JOHN WERRY as trustees of the HUTT MANA ENERGY TRUST
		Appellants

	AND	MURRAY PETER CAVE of Petone, Energy Consultant AND BARRY DAVID BROWN of Upper Hutt, Chartered Accountant
		Respondents

Hearing:	4 December 2000
Coram:	Thomas J Tipping J McGrath J
Appearances:	R A Dobson QC and E M E Bird for Appellants J C Gwilliam for Respondents
Judgment:	14 December 2000

JUDGMENT OF THE COURT DELIVERED BY TIPPING J

Introduction

[1] This appeal is concerned with an order requiring the appellants (the defendants in the High Court) to pay indemnity costs to the respondents (plaintiffs in the High Court). That order was made in the early stages of the litigation and was to apply to the whole of the rest of the proceeding, irrespective of the result. The appellants are the present trustees of the Hutt Mana Energy Trust (the Trust). The respondents, Dr Cave and Mr Brown, to whom we will refer as the plaintiffs, have brought proceedings against the Trust raising a number of issues. Included are contentions that the Trust has exceeded its powers in specified respects, and has improperly exercised certain other powers in the sense of having failed to act with the prudence and care to be expected of trustees. The plaintiffs do not seek to make the present trustees personally liable. They do, however, upon a single multifaceted cause of action, seek declarations to the effect that the present and prior trustees have in seven specified ways acted unlawfully or in breach of their fiduciary duties to the plaintiffs.
[2] Various other orders are sought including an order setting aside a number of amendments to the Trust Deed, an order "unwinding" an associated Charitable Trust, an order for account directing the trustees "to account for all remuneration received by them from the Charitable Trust", two different injunctions, and an order directing that the Trust be wound up or, alternatively, an order directing "the beneficiaries" to commission an independent review "of the future of the Trust".
[3] The proceedings are thus of considerable width, both as to the elements of the cause of action, and as to the relief sought. Mr Gwilliam for the plaintiffs forecast that they might undergo substantial refinement and narrowing, following completion of discovery, but for present purposes they must be taken as they stand.
[4] For the appellants Mr Dobson QC argued that Wild J, who made the order under appeal, had exercised his discretion on an erroneous legal premise and was in any event plainly wrong in the conclusion to which he came. Counsel accepted that the Judge had jurisdiction to make an order of the kind in question, but contended that the present was not an appropriate case for the exercise of that jurisdiction. Mr Gwilliam endeavoured to support the Judge's order, arguing that he had not erred in law and that this Court should not interfere with his exercise of discretion. Mrs Melhuish, one of the Trustees, appeared in person to support the Judge's order, she being of the view that it was justified.

Factual background

[5] We will set out the relevant background as asserted in the plaintiff's amended statement of claim. The plaintiffs are customer beneficiaries of the Trust which was established by deed dated 6 April 1993. Pursuant to the Energy Companies Act 1992, EnergyDirect Corporation Limited (the company) acquired the assets and undertaking of the Hutt Valley Energy Board. The Trust (then known as EnergyDirect Community Trust) was established in terms of the company's share allocation and establishment plan approved by the Minister of Energy pursuant to s27 of the Energy Companies Act 1992. The company established the Trust to enable it to acquire 30% of the company's share capital and to allow the benefits of ownership of the shares to be distributed to customers and to the community served by the company's energy distribution network.
[6] The Trust was established to receive the shares in the company, to enter into and comply with the terms of what is described as the placement deed, and to retain and hold the Trust assets on the terms of the Trust. An additional purpose and objective of the Trust was to encourage and assist the company in meeting its objective of operating as a successful business and return any benefits of ownership to customers and to the community within its district.
[7] Following various mergers and acquisitions, the company became known as TransAlta New Zealand Limited and the Trust owned approximately 14.6% of its share capital. The transaction whereby the Trust became instead a shareholder in National Gas Corporation Holdings Limited is not immediately relevant to the present appeal; albeit that transaction may feature in the proceedings which are the subject of the order under appeal.

High Court judgment

[8] After setting out the relevant evidence and submissions, the Judge made reference to the new costs rules which came into force on 1 January 2000. He referred to a number of authorities including Wallersteiner v Moir (No. 2) [1975] QB 375 (CA), Government Insurance Office of New South Wales v Ivanoff and Ors (1991) 22 NSWLR 368 (CA), and R v Lord Chancellor, ex parte Child Poverty Action Group [1988] 2 All ER 755 (Dyson J). We have borne in mind all the cases mentioned by the Judge and cited by counsel, but see no advantage in making citations from them. The Judge suggested that all the issues raised were "of public interest, at least to the Trust beneficiaries but very possibly of wider public interest".
[9] The Judge was satisfied that, on the unexamined evidence before him, the plaintiffs were motivated in bringing the proceeding by genuine concerns they held as beneficiaries, and not by ulterior motives. Whilst he accepted that they would benefit financially if the Trust was wound up, so equally would all the beneficiaries. Accordingly, the Judge said he did not consider that the plaintiffs' interests could properly be described as a only a private interest in the outcome of the case such as might disqualify them from a costs indemnity.
[10] The Judge held that the plaintiffs did not have the financial resources properly to conduct the proceeding. He did not think they could reasonably be expected to sell their homes for the purpose. That conclusion was reached without the plaintiffs having put before the Court any detailed evidence as to their overall financial position. The Judge indicated that if the plaintiffs were not indemnified for their costs, they might be able to "struggle on" to and through a hearing, but the hearing would not be a satisfactory one. He considered that the Court would in that event be unlikely to have the benefit of the evidence and opposing arguments it would need properly to decide the case. He suggested that a case not properly and adequately decided was arguably best not decided at all.
[11] The orders made by the Judge were

• [a] The defendant Trustees are to indemnify the plaintiffs out of the funds of the Hutt Mana Energy Trust for their actual, reasonable costs of this proceeding, from and including preparation for and the hearing of today's application. Thus, the indemnity is retrospective only to the extent that it covers the filing of today's application, and preparation for it. Otherwise, it covers only the plaintiffs' costs of the proceeding incurred from the delivery of this judgment onwards.
• [b] The plaintiffs' solicitor is to bill the Hutt Mana Energy Trust promptly, monthly. The first bill is to be submitted at the end of this month. The bill is to be properly itemised including as to any disbursements or counsel's fees.
• [c] If the defendants' solicitor has any concern as to the reasonableness and/or level of costs being incurred by the plaintiffs, then he has leave to apply to me immediately. Any such application may be done simply by notifying the Registrar that counsel wish to see me in respect of costs.

Discussion

[12] The authorities noted by the Judge suggest that the course he took should be taken only in an exceptional case. The Judge did not, however, specifically address that issue, nor indicate on what basis he regarded the present as being an exceptional case. Mr Gwilliam did not find it easy to state why that was so. The basic starting point is that, subject to the Court's discretion at the interlocutory stage, costs are normally awarded after trial and generally follow the event. It is only after trial that the ultimate merits are apparent and account can be taken of the way in which the litigation has been conducted. Mr Dobson was right to submit that costs are the only real sanction available to the Court for inappropriate use of the legal process. That is not to say the present plaintiffs are acting or will act irresponsibly. The point is relevant in a general way and supports the general rule.
[13] As Mr Dobson properly accepted there will be cases, exceptional for whatever reason, in which the Court can properly make an order of the kind now in question. The authorities can be summarised as indicating that to obtain such an order the applicant must, as a minimum, show:

(1) The case mounted is clearly arguable.

(2) There is a substantial public interest in obtaining a decision of the Court on the point or points at issue, irrespective of the result.

(3) It would be unduly onerous for the plaintiff to be expected to fund the litigation even in the interim.

[14] It is difficult to envisage a case qualifying for an advance order for indemnity costs unless the applicant can demonstrate at least these three points. Such demonstration will take the case along the way towards being a qualifying one, but ultimately the outcome will depend on the Judge's appreciation of whether it is appropriate, against all relevant factors, for such an order to be made. The Judge did not direct himself in these terms or to this effect. It is therefore necessary for us to consider the case afresh on that basis.
[15] Although the position is by no means clear, we are prepared to accept for present purposes that the plaintiffs have an arguable case on at least some of the issues they have raised. But we are not satisfied on the material before the Court that there is a public interest in the case being brought, irrespective of the result, sufficient to justify the order made. It is possible that when this breach of trust case has concluded, an order for indemnity costs in favour of the plaintiffs may be justified on a retrospective basis. At the present stage we consider the plaintiffs have fallen short of showing grounds for the exceptional course of making an indemnity order in advance. We are also of the view that the plaintiffs did not lay a sufficient evidentiary foundation to support the conclusion that it would be unduly onerous for them to be expected to fund the litigation, even in the interim. They did not specifically assert any difficulty in funding the legal costs, albeit that position may have changed in the light of the suggestion by Mr Gwilliam that other counsel may be instructed.
[16] The plaintiffs' primary point in the High Court appears to have been an inability to fund a variety of expert witnesses. It is not clear how the legal attack which the plaintiffs make on the administration of the Trust will be assisted by expert evidence. To the extent that the plaintiffs assert lack of care and prudence, we do not consider that sort of allegation, even in the present context, should be the subject of an advance order for indemnity costs.

Conclusion

[17] Having carefully reviewed the points made by Mr Gwilliam, and those made by Mrs Melhuish in an endeavour to support the Judge's orders, we are satisfied that when the correct legal approach is taken those orders cannot be sustained. We therefore allow the appeal, and set aside the orders made by the Judge.
[18] The question of costs in relation to the application in the High Court and this appeal also arises. The plaintiffs' application was made essentially at the Judge's invitation during the course of earlier interlocutory proceedings. The plaintiffs can hardly be blamed for applying. They achieved success and were thereby encouraged to appear in this Court to defend that success. While we appreciate the position of the Trust, we consider that overall justice requires that the plaintiffs should have an order for costs on their application in this Court and below. We therefore order the appellants to pay the respondents the sum of $6000 plus disbursements, to be fixed if necessary by the Registrar to cover the indemnity costs issue both in this Court and in the High Court.

Solicitors
Quigg Partners, Wellington, for Appellants
John Gwilliam, Upper Hutt, for Respondents