The appellant is ordered to pay the reasonable costs of the respondent in this Court on an indemnity basis, such costs to be paid by the appellant from the assets of the Gordon and Hansa Family Trust.

____________________________________________________________________

REASONS OF THE COURT

(Given by Randerson J)

Introduction

[1] The appellant Mr Naresh appeals against his removal as a trustee of the Gordon & Hansa Family Trust. The order was made by Courtney J on 14 November 2008 under s 51 Trustee Act 1956: HC AK CIV-2007-404-006152. The Judge also made an order appointing the Public Trust as sole trustee and certain ancillary orders.
[2] By a further judgment issued on 12 December 2008, the Judge ordered that the respondent, Mr Gordon McCluskie, receive indemnity costs of $77,130.05 out of the Trust.
[3] Mr Naresh now appeals against all the orders made. The grounds of appeal as set out in his amended notice of appeal dated 30 January 2009 are:

(a) The Court did not have jurisdiction to commence the trial or to appoint a replacement litigation guardian for the respondent where the originally appointed litigation guardian did not appear at the hearing.

The Judge erred in accepting into evidence the unsworn testimony of the original litigation guardian.
The Judge erred in finding it was necessary or expedient to remove the appellant as a trustee.
A settlement between the parties was reached prior to trial and, in those circumstances, the respondent was precluded from proceeding with his original application under s 51 and could only seek leave to enforce the settlement.
The Court erred in awarding indemnity costs and disbursements.

Background

[4] The background to this litigation reveals a most unhappy state of affairs. The key figures are Mr Gordon McCluskie, his late wife Hansa McCluskie and her brother Mr Tulsi Naresh. For convenience, we will refer to them as Gordon, Hansa and Tulsi.
[5] Gordon and Hansa were married in 1981. For most of their marriage they lived in a property at 11 John Street, Ponsonby which had been registered in Hansa’s name from a date in 1978 prior to their marriage. Tulsi claims to have contributed to the purchase price of this property. In 2003, Hansa settled the Gordon & Hansa Family Trust and the property at John Street was transferred into the names of the trustees. Tulsi accepts that the formation of the trust was his idea. All three, Gordon, Hansa and Tulsi were appointed as trustees. The transaction was effected in the following manner:

(a) Hansa and Gordon signed an agreement under the Property (Relationships) Act 1976 in which they agreed that the John Street property be divided equally between themselves as tenants in common. Gordon and Hansa then sold the property to the family trust for $345,000 (the agreement being signed by them both and also by Tulsi).

A Deed of Acknowledgement of Debt was executed by Gordon, Hansa and Tulsi in which the family trust acknowledged that $172,500 was owed to each of Gordon and Hansa.
Gordon, Hansa and Tulsi signed a resolution as trustees of the family trust authorising the trust to enter into the arrangements described and recording:

That it is proposed that the purchase of the said property is by way of long-term residential investment for the Trust, to provide accommodation for the beneficiaries of the Trust and possibly for obtaining rental income in the future for the Trust.

[6] In terms of the family trust:

(a) The discretionary beneficiaries include Gordon, Hansa, Tulsi and a brother, sister and nephew of Hansa.

The final beneficiaries are Tulsi and the nephew.
There are the usual broad discretionary powers including a power of advancement of both capital and income to the beneficiaries.
Clause 4.2 of the deed establishing the trust provides:

Without intending in manner to bind or impose any obligation on the Trustees, the Settlors express the wish that the Trustees treat the adequate personal support, maintenance, comfort, education, advancement in life and other benefit howsoever of the Final Beneficiaries as the primary objective of the Trust and the adequate personal support, maintenance, comfort, education, advancement in life and other benefit of the Settlor and Gordon Edward McCluskie the secondary objective of the Trust.

Clause 17 of the trust deed provides:

SUBJECT to any express provision to the contrary contained in this Deed every discretion vested in the Trustees shall be absolute and uncontrolled and every power vested in them shall be exercisable at their absolute and uncontrolled discretion PROVIDED HOWEVER THAT NO PERSON WHO FOR THE TIME BEING IS BOTH A Trustee of all or any of the trusts hereof and beneficiary hereunder may exercise the discretionary powers contained in clauses 5, 14 and 15 hereof in their own favour AND the remaining Trustee or Trustees alone shall have full powers to exercise the said discretionary powers in favour of a Discretionary Beneficiary who shall for the time being be a Trustee hereunder.

(The limitation under this clause on the otherwise broad discretions conferred on the trustees relates, relevantly, to the power to distribute income and capital under clause 5 of the deed.)

[7] Following the execution of all the documents described, the property at John Street was first transferred to Gordon and Hansa in equal shares and then immediately transferred by them to Gordon, Hansa and Tulsi as trustees of the family trust. These transfers were both registered on 20 March 2003.
[8] Hansa died on 21 September 2004. Gordon continued to live in the John Street property until March 2006 when he travelled to Thailand. There, Gordon met and later married a Thai national. When Gordon and his new wife returned to New Zealand later that year, they found that Tulsi had let the John Street property and, in consequence, they were unable to live there. The Judge rejected Tulsi’s evidence that Gordon had told him he was leaving New Zealand permanently.
[9] Subsequently, Gordon (who was 78 years of age at the date of the hearing) became ill and now suffers from dementia. His friend, a Mr Quilter-Clark, was appointed his litigation guardian for the purpose of the application to the High Court under s 51 of the Trustee Act. Mr Quilter-Clark did not appear as expected at the hearing. It was established that he was in Australia and out of contact. At the commencement of the hearing, the Judge appointed Gordon’s new wife to act as litigation guardian in place of Mr Quilter-Clark. She did so despite Tulsi’s objection, finding that Mrs McCluskie was able competently to conduct proceedings on behalf of her husband.
[10] The Judge also ruled that Mr Quilter-Clark’s unsigned brief of evidence prepared for the purpose of the proceeding and subsequently approved by him could be adduced as evidence. The Judge was satisfied that the brief had been prepared by Mr Gilchrist on the instructions of, and in consultation with, Mr Quilter-Clark and that this provided reasonable assurance that the statement was reliable. The Judge acknowledged that Tulsi would not have the opportunity to cross-examine Mr Quilter-Clark. She accepted this was a serious matter but said she would take this into account in assessing the weight to be given to his statement.
[11] The debt due by the trust to Hansa was forgiven on her death. The corresponding debt due to Gordon had been reduced by gifts and stood at $91,500 at the date of hearing. Gordon had demanded this sum but it remained unpaid.
[12] The John Street property remains tenanted but Tulsi intends to resume occupation of it in March 2010.

The substantive judgment

[13] After dealing with preliminary matters and the general background the Judge noted the following points on the central issues:

Tulsi continued to assert that he had paid for the John Street property and expected to inherit it.

Gordon had not been given the opportunity to move back into the house.

Tulsi refused to accept that Gordon had any entitlement as a beneficiary under the Trust and maintained that anything he did for Gordon would be an act of generosity on his (Tulsi’s) part.

Tulsi had “no understanding whatsoever” of the role of a trustee nor the duties of a trustee towards the beneficiaries of a trust.

Tulsi’s belief that the property was supposed to come back to him after Hansa’s death was genuine and was consistent with his assertion of a constructive trust in his favour. Such a claim could still be pursued (the Judge noting that Tulsi was a final beneficiary under the trust which might ultimately have the same effect).

The evidence could “not have been clearer” that Tulsi has never regarded Gordon as having any function as a trustee or any rights as a beneficiary.

Tulsi regarded the trust property as his own to deal with as he wishes.

Tulsi was oblivious to the concept of conflict of interest as illustrated by his assertion in evidence that “I am the Trust”.

Income from the property has never been placed in a separate bank account but had gone into Tulsi’s personal account.

Accounts have never been completed for the trust.

The trust has never made any attempt to repay the $91,500 owed to Gordon which he had demanded prior to trial and Tulsi did not accept any obligation on the part of the trust to pay the debt due to Gordon.

Tulsi agreed he had never consulted Gordon about any decisions regarding the trust.

[14] The Judge then concluded:

[30] Mr Naresh’s own evidence satisfied me that he has not conducted the affairs of the Trust in accordance with the Trust Deed. Not only that, since 2006 he has consistently preferred his own interests to those of other beneficiaries, particularly Mr McCluskie, when he was on notice as to the dire circumstances in which Mr McCluskie was living. He has ignored all attempts to have him address the issue. It was clear to me that, even if he did understand his obligations, his belief in his own rights is so strong that he would not alter his behaviour. The decision regarding the removal of trustees in this case is not difficult. Mr McCluskie must be removed because he is incapable of functioning as a trustee. Mr Naresh must be removed because he has absolutely no understanding whatsoever of his obligations towards the beneficiaries and no intention of complying with the terms of the Trust.

[15] As noted, the Judge appointed the Public Trust as trustee. She also made an order removing a caveat which Tulsi had registered against the title to the John Street property on 4 August 2006. She did so on the basis that the caveat did not describe any ground that might support a caveat.
[16] Tulsi had made (and continues to make) very serious allegations against Gordon including allegations of theft of trust property. The Judge found there was insufficient evidence on which a finding could be made on the point and that, in any event, she was not required to decide the issue. Gordon’s conduct was not relevant to Tulsi’s fitness to continue acting as a trustee.
[17] At the conclusion of the hearing, Mr Gilchrist, Gordon’s counsel, sought indemnity costs against Tulsi. It was only in that context that the issue of the settlement agreement was raised. On this issue, the Judge said:

[37] ...In addition to the various aspects of his conduct described above, the parties actually reached a settlement on terms that would have seen the Trust pay Mr McCluskie $85,000 in full and final settlement of all claims against it but which Mr Naresh reneged on. Documents were put before me evidencing a concluded settlement negotiated by Mr McCluskie’s and Mr Naresh’s counsel. Mr Naresh had signed a Deed of Settlement and faxed it to his counsel but ultimately refused to post the original and, in the end, refused to proceed with the payment.

[38] Mr Naresh said in evidence that his reason for not proceeding with the settlement was that he had only agreed to it under the duress of his solicitors and counsel. However, he could not give any specific instance of such duress and then later maintained that the settlement agreement contained a term that permitted him to change his mind. Subsequently he said that this provision was contained in a letter not in the settlement agreement itself but was unable to produce any such letter. In the face of his obvious refusal to comply with the terms of the settlement agreement Mr McCluskie’s counsel cancelled the agreement.

[39] I accept that the parties had reached a settlement of the proceeding which, had Mr Naresh honoured it, would have avoided this trial. I reject any suggestion of duress. Further, although Mr Naresh was within his rights to appear without counsel, the nature of the evidence he sought to adduce was substantially irrelevant and sought to denigrate Mr McCluskie in a way that was quite unnecessary and inappropriate.

Costs judgment

[18] After receiving memoranda from Tulsi and counsel for Gordon, the Judge issued her reserved decision on costs. Gordon sought an award of indemnity costs on the grounds permitted by r 48C(4) High Court Rules then in force. Reliance was placed on the principles established in Hedley v Kiwi Co-operative Dairies Ltd (2002) 16 PRNZ 694 (HC) and Paper Reclaim Ltd v Aotearoa International Ltd [2006] 3 NZLR 188 (CA).
[19] The Judge found that an award of indemnity costs was appropriate citing:

Tulsi’s scandalous assertions against Gordon and Mr Quilter-Clark including a wide-range of alleged immoral and criminal conduct by them expressed in the most intemperate language.

The time spent on these issues in evidence which the Judge found were irrelevant to any issue before the Court.

Tulsi had made almost no attempt to actually address the issue the Court was required to determine.

Tulsi “reneging” from the settlement agreement reached with the benefit of representation.

Allegations made by Tulsi against Gordon’s counsel in relation to the settlement agreement which the Judge described as being “quite without foundation”.

Tulsi had no defence to the proceeding and the outcome was inevitable.

Gordon had been put to substantial additional cost in dealing with the volume of largely irrelevant material produced by Tulsi.

The case had taken some four days to hear.

Nearly all Tulsi’s cross-examination and most of the evidence he called was irrelevant.

The circumstances of the case were sufficiently exceptional to justify an award of indemnity costs.

The litigation guardian issue

[20] Tulsi did not advance any argument in support of this ground of appeal. Indeed, he did not advance any argument in respect of any of the grounds of appeal notified to the Court. We refer to this further below.
[21] The rules relating to litigation guardians for incapacitated persons are now contained in rr 4.29 to 4.48 of the current High Court Rules. The rules in force at the time of the hearing in the Court below were in substantially similar form and it is convenient to refer to the new rules Under r 4.30, an incapacitated person (as defined in r 4.29) must have a litigation guardian as his or her representative unless the Court orders otherwise. No step may be taken in the proceeding without the permission of the Court until the litigation guardian is appointed. It is not in dispute that Gordon remained an incapacitated person at the time of the hearing. It follows that the hearing could not have proceeded without the appointment of a replacement litigation guardian unless the Court ordered otherwise. The appointment of a replacement litigation guardian is contemplated by r 4.46(2).
[22] There is no suggestion that Tulsi was prejudiced in any way by the appointment of Mrs McCluskie as Gordon’s new litigation guardian. Nor has it been suggested that Mrs McCluskie was not a suitable person for that task. We are satisfied that it was entirely appropriate for the Judge to appoint her as the replacement litigation guardian. We record that Mrs McCluskie was also appointed as Gordon’s litigation guardian for the purpose of this appeal.

The admissibility of Mr Quilter-Clark’s brief of evidence

[23] In terms of s 18 of the Evidence Act 2006, a hearsay statement is admissible in any proceeding if the circumstances relating to the statement provide reasonable assurance that the statement is reliable and the maker of the statement is unavailable as a witness. The Judge properly satisfied herself that Mr Quilter-Clark was unavailable in terms of s 16(2)(b) as he was outside New Zealand and it was not reasonably practicable for him to be called as a witness. The Judge was also satisfied, correctly in our view, that there was reasonable assurance the statement was reliable given it had been prepared by counsel and approved by
Mr Quilter-Clark. Much of the evidence was undisputed background or related to the production of documents put before the Court in an agreed bundle. Some of Mr Quilter-Clark’s evidence was disputed but we are satisfied the Judge did not place any improper weight on disputed material. She reached her decision to remove Tulsi as a trustee largely upon his own admissions in evidence or in his statement of defence.

The Judge’s finding that it was necessary or expedient in terms of s 51 Trustee Act to remove the appellant as a trustee

[24] Tulsi did not advance any argument to support this ground of appeal which, of course, lay at the heart of the application before the High Court. Just as he did in the Court below, Tulsi instead advanced his argument on grounds the Judge found to be irrelevant. These were essentially:

Despite the transactions to which he was a party in 2003, the John Street property was his since he had paid the deposit.

He was misled by the legal adviser responsible for establishing the trust as to its true effect.

He understood the family trust was merely a step along the way towards his ultimate ownership of the property after Hansa’s death.

He understood it was a simple matter to wind up the trust on Hansa’s death so that he could resume ownership of it in his own right.

[25] We are satisfied these arguments have no relevance to the application under s 51. We agree with the Judge that there was an overwhelming case for the removal of Tulsi as a trustee and that the order made in that respect was entirely appropriate, indeed inevitable.

The settlement issue

[26] The Judge found there was a concluded settlement in terms of which Tulsi was to pay Gordon $85,000 in full settlement of all the litigation. However, it is quite clear from the documentation that the contemplated deed of settlement (although signed by Tulsi) was never sent to Gordon’s counsel because Tulsi had, on his own admission, changed his mind and refused to proceed with the settlement. He confirmed this to us, saying that he did not wish to settle with Gordon and made it clear he wished to proceed with the Court hearing.
[27] In addition, any settlement was plainly subject to two conditions. First, the approval of the Court was needed because it would have involved the removal of Gordon as a beneficiary and other changes to the Trust Deed. Secondly, Gordon’s counsel had insisted that the Court approval and payment of the agreed amount occur prior to the date of hearing. If not, then Gordon wished to proceed. It is clear from the correspondence that Tulsi’s then counsel understood and accepted these terms. Neither the approval of the Court nor the payment of the money ever occurred.
[28] The Judge correctly found that Gordon was entitled, as he did, to cancel the settlement and proceed to trial since Tulsi had repudiated. Alternatively, the conditional agreement lapsed for non-fulfilment of the conditions.

Indemnity costs

[29] Mr Gilchrist accepted that an award of indemnity costs is an exceptional course, referring us to the decision of the Supreme Court in Prebble v Awatere Huata (No 2) [2005] 2 NZLR 467 at [10] endorsing the observations of Cooke P in Kuwait Asia Bank EC v National Mutual Life Nominees Ltd [1999] 3 NZLR 457 at 460 (CA). Cooke P there noted that where a party has acted unreasonably by, for example, pursuing a wholly unmeritorious and hopeless claim or defence, a more liberal award than the usual costs may be made.
[30] We are satisfied for the reasons the Judge gave, that this was an exceptional case in which an award of indemnity costs was appropriate. We see no ground to interfere with the Judge’s decision in this respect or with the quantum of the costs ordered.

Result

[31] The appeal against Courtney J’s substantive decision and the decision on costs is dismissed.
[32] Mr Gilchrist sought indemnity costs on the appeal. We agree it is appropriate for indemnity costs to be awarded. Tulsi has continued to pursue wholly irrelevant points and has failed to advance any of the grounds set forth in his amended notice of appeal. The dismissal of the appeal was inevitable. Gordon should not have been put to the expense of defending it.
[33] In the circumstances, we order that the appellant pay to the respondent his reasonable legal costs in this Court on an indemnity basis, such costs to be paid by the appellant from the assets of the Gordon & Hansa Family Trust. The respondent is to file and serve a memorandum setting out the extent of costs and disbursements for approval by the Court. The appellant will have 14 days thereafter to file any submissions with regard to the amount of the costs.

Solicitors:
Vlatkovich & McGowan, Auckland for Respondent

NZLII: Copyright Policy | Disclaimers | Privacy Policy | Feedback
URL: http://www.nzlii.org/nz/cases/NZCA/2009/328.html