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Davis v White [2017] NZCA 585 (12 December 2017)

Last Updated: 22 December 2017

IN THE COURT OF APPEAL OF NEW ZEALAND
BETWEEN
 Appellants
AND
 Respondent
Hearing:
27 November 2017
Court:
Winkelmann, Venning and Duffy JJ
Counsel:
K F Gould for Appellants No appearance for Respondent
Judgment:


JUDGMENT OF THE COURT

  1. The appeal is dismissed.
  2. Mr McNiece is to meet his own legal costs of this appeal personally.

____________________________________________________________________

REASONS OF THE COURT

(Given by Venning J)

[1] In 1992 Rex White established the Rex White Family Trust (RWFT). Mr Davis and Mr McNiece were appointed trustees.
[2] No executed copies of the RWFT deed exist. The trustees applied to the High Court for orders that:
[3] The application was opposed by Mrs White, the respondent and Rex White’s widow. Davison J determined that the RWFT failed by reason of uncertainty of objects.[1]
[4] After receiving written submissions on the issue of costs, the Judge issued a costs judgment in which he made the following orders:[2]
[5] Mr McNiece appeals the costs judgment. He does not challenge the costs award in Mrs White’s favour but seeks to reverse the orders:
[6] Mr Gould advised the Court that Mr Davis died in December 2016.

Background

[7] Rex White and Mrs White met in 1962. In 1963 they moved to Australia where they lived together in a de facto marriage relationship before marrying on 12 January 1984. They continued to live together in Australia until Rex White died on 23 November 2001. Although Rex White had a son, Christopher, from a prior marriage, he and Mrs White did not have any children together. Mrs White is now 90 years old and continues to reside in Australia. She has a number of health issues.
[8] Rex White made a will which was executed and dated 2 August 1991. He appointed Mr McNiece, who is a solicitor, as sole executor and trustee and bequeathed the whole of his residuary estate to Mrs White, with the provision that should she predecease him the estate would go to Christopher.
[9] In 1992 Rex White instructed Mr McNiece to prepare a deed of family trust and a deed of acknowledgement of debt. Rex White wished to put the money from his mother’s estate into a family trust. Both documents were prepared and executed. Mr McNiece confirmed that a copy of the executed deed was filed with the Inland Revenue Department (IRD) and the trust was allocated an IRD number. Unfortunately, Mr McNiece did not retain the original executed deed. The IRD no longer has a copy of the executed deed either.

The substantive judgment

[10] Davison J accepted that on Rex White’s instructions the RWFT was established in 1992 and registered with the IRD.[3]
[11] However, the Judge found the trustees were unable to demonstrate by reference either to documentation or by cogent and reliable evidence what the objects of the trust were.[4] The draft trust deed the trustees relied on contained a number of drafting errors. In addition, the trustees were shown to have acted inconsistently concerning the objects of the trust.[5] Davison J also found the evidence of Mr McNiece and Mr Davis regarding Rex White’s intentions to be unconvincing.[6]
[12] Davison J found there was no certainty of objects. The RWFT failed by reason of uncertainty. He directed that the trust funds were to revert to the estate of Rex White to which Mrs White was entitled as sole beneficiary.

The costs judgment

[13] While the Judge accepted it was appropriate for the trustees to have sought directions from the Court, he considered they had acted unreasonably by pursuing an argument as to the existence of the RWFT which was lacking in merit.[7] It was based on a draft deed which contained several defects. Further, they also took the position the whole of the trust fund should be paid to Freemasons New Zealand which the Judge found to be an entirely untenable proposition.
[14] While the Judge rejected Mrs White’s argument that she should have costs on an indemnity basis, he awarded her costs on a 2B basis with a 50percent uplift.
[15] The Judge then considered whether the trustees should be able to pay the costs to Mrs White out of the trust property pursuant to s 38(2) of the Trustee Act 1956. The Judge noted that would effectively lead to Mrs White paying the costs which she had been awarded.[8] The trustees’ behaviour in relation to the RWFT and the manner in which they brought and conducted the proceeding led him to conclude that the trustees should pay the costs award personally.
[16] Davison J went on to determine that the trust fund should not have to bear all the legal costs incurred by the trustees. However, as the trustees had taken advice before bringing the proceedings he accepted they were entitled to recover 50 per cent of their own legal costs (including their counsel’s fee).[9] He ordered them to pay the balance personally.

Appeal points

[17] Mr Gould, counsel for Mr McNiece, raised the following grounds in support of the appeal:

Discussion

[18] It is relevant to record that there has been no appeal from Davison J’s substantive decision. The findings in that decision as to the conduct of the trustees support the Judge’s subsequent findings in the costs decision. Further, Mr McNiece does not appeal the award of costs to Mrs White. His challenge on that aspect of the costs decision is to the direction that he and Mr Davis were to pay the costs personally.
[19] Generally, a trustee will be entitled to pay expenses incurred in the execution of the trust, (including costs awards and legal costs) from the trust property.[10]
[20] The Court will be hesitant about directing a trustee to bear the costs burden personally. As Hammond J said in Re O’Donoghue:[11]

A Court will naturally hesitate before leaving a trustee, who, after all, shoulders an onerous burden, to carry costs personally. But I am afraid that this is such a case: I can see no proper reason for the trustee having adopted the obdurate position he did. He acted unreasonably in the sense that I can discern no proper justification, or even a reasonably arguable one, for his having persisted in forcing Health Waikato up to a full defended hearing, and a delayed distribution of some years of the estate. It cannot be right that he should then seek to offload his costs of the proceeding onto the residuary beneficiary. There will, therefore, be an order that the trustee is not entitled to indemnity from the estate for his costs or disbursements in these proceedings.

[21] The issue is whether the Judge was correct to find the trustees’ actions were so unreasonable in this case they should pay both the costs award to Mrs White and 50 per cent of their own legal costs personally.
[22] There was no issue that the RWFT had been established in 1992. We agree, as did the Judge, that in the absence of an executed copy of the trust deed it was appropriate for the trustees to apply to the High Court for directions.
[23] We also agree with the Judge’s finding that what made the trustees’ actions unreasonable was in seeking to rely on a plainly defective document as evidence of the trust and, more relevantly, taking the untenable position that the whole of the trust fund should be paid to Freemasons New Zealand which was in direct conflict with Mr McNiece’s earlier written advice to Mrs White.
[24] As noted, the draft deed contained a number of defects. It included the children of Mr and Mrs White as discretionary beneficiaries. Mr and Mrs White had no children. At the time the deed was executed Mrs White was in her sixties. There was no prospect of them having children. For the same reason the reference to grandchildren and spouses of grandchildren as discretionary beneficiaries was otiose. Worse, the draft deed defined grandchildren as the grandchildren of the Scotts, an unrelated family. Next the settlor was stated to be Mr Ellis, rather than Mr White. Mr Ellis was a solicitor. The draft deed provided that the trustees were to have regard to the wishes of the settlor as expressed to them in writing from time to time. It made no sense for Mr Ellis’ wishes to be afforded any significance. Finally the draft deed also referred to the trust fund being paid to the primary beneficiary on the date of distribution. No primary beneficiary was identified in the deed.
[25] Apart from the difficulties with the draft trust deed there were a number of additional aspects of the matter which supported the Judge’s conclusion the trustees had acted unreasonably and should personally bear the costs.
[26] Mr McNiece’s statements and conduct as regards the RWFT and its terms, particularly as regards the objects and beneficiaries of the trust, had been inconsistent over time. Following Rex White’s death in November 2001 Mr McNiece initially advised Mrs White she was the sole beneficiary of the assets held in the trust. He informed her that “all of the assets in the trust in the estate are effectively yours”. He provided information to the same effect to Mrs White’s Australian solicitor.
[27] However by 2014 Mr McNiece and Mr Davis took an entirely different approach with Mr McNiece advising Mrs White that she was not the sole beneficiary and first advising that the trust capital was to be distributed amongst various charities, and then later advising her it was to be distributed to the Masonic Lodge.
[28] Davison J noted there were a number of concerning aspects of Mr McNiece’s conduct and evidence that rendered his and Mr Davis’ contention regarding Mr White’s intentions questionable and lacking cogency and reliability.[12] The Judge considered Mr McNiece had misinformed Mrs White’s solicitors when on 1 July 2014 he wrote stating that it was Mr White’s intention that upon Mrs White’s death “the moneys be distributed amongst various charities and there is provision in the trust deed for that to be done”.[13]
[29] Nor can we accept Mr Gould’s submission that the Judge’s finding that Mr McNiece and Mr Davis took the position that the whole of the trust fund should be paid to Freemasons New Zealand was against the weight of evidence. As noted, a direction to that effect was expressly sought in the application to the Court. It was and remains a matter of concern that Mr McNiece appears to lack objectivity about that aspect of the matter.
[30] Both Mr Davis and Mr McNiece had a connection with the Freemasons and so had reason to support a disposition to that organisation. When giving evidence Mr McNiece said he was not a member of the Freemasons. The Judge considered Mr McNiece had invited the inference that he was not himself involved with the Freemasons so that his actions as trustee and his evidence would be viewed as independent.[14] However, it was later clarified that although Mr McNiece was no longer a member of Freemasons, he had previously been a member.
[31] Mr Gould also submitted that Davison J’s finding that Mr McNiece and Mr Davis had pursued arguments lacking in merit ignored the instructions given by Mr White.
[32] The difficulty with that submission is that the Judge rejected Mr McNiece’s evidence on the point. The Judge noted that although Mr McNiece deposed in his affidavit that it had always been the advice of Mr Davis “and indeed Mr White whilst he was alive, to both Mr Davis and myself, that Mr White wished to benefit the Society of Freemasons (Freemasons New Zealand) and not his widow...”, there was no written note, instruction or document that recorded that being Rex White’s intention.[15] Further, that was contrary to the express provisions of his will made a year before the trust was established.
[33] The Judge ultimately rejected Mr McNiece’s evidence on this aspect and found that there was no or insufficient evidence of those instructions.[16] He found Mr McNiece’s evidence unreliable. As noted the substantive judgment has not been appealed.
[34] We are satisfied the Judge was right to find that this was a proper case to deny the trustees indemnity for costs from the trust funds. The award of costs in favour of Mrs White (uplifted to reflect the unreasonable approach of the trustees) would be of no practical value to Mrs White if the trustees were able to resort to the trust funds to pay it. Mrs White would effectively be paying the costs award herself. That would defeat the purpose of the award and the reasons which led to it in the first place.
[35] For the same reason the Judge was correct to consider that it was not appropriate for the trustees to recover all their own legal costs from the estate. Despite the unreasonable approach taken by the trustees the Judge noted that they had taken advice before issuing the proceedings.[17] He reduced the amount that they were to pay personally to 50 per cent of their legal fees (including counsels’ fees) incurred in connection with commencing and conducting the proceeding. The trustees were entitled to take the remaining 50 per cent of their legal fees from the trust fund. The trustees may perhaps consider themselves fortunate the Judge did not direct that they pay the whole of the costs themselves.

Result

[36] The appeal is dismissed.
[37] As Mrs White has taken no steps in opposition there is no order for costs, other than to clarify that Mr McNiece is to meet his own legal costs of this appeal personally.





Solicitors:
Bruce C McNiece, Auckland for Appellants
Browne Linkenbagh Legal Services, New South Wales for Respondent

[1] Davis v White [2016] NZHC 1626, [2016] NZAR 985.

[2] Davis v White [2017] NZHC 500.

[3] Davis v White, above n 1, at [129].

[4] At [129].

[5] See at [112].

[6] At [127].

[7] Davis v White, above n 2, at [18].

[8] At [25].

[9] At [29].

[10] Trustee Act 1956, s 38(2).

[11] Re O’Donoghue [1998] 1 NZLR 116 (HC) at 122.

[12] Davis v White, above n 1, at [116].

[13] At [117].

[14] At [124].

[15] At [126].

[16] At [127].

[17] Davis v White, above n 2, at [29].

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