Allen v Going no.2 [2012] NZHC 1562 (4 July 2012)

Last Updated: 10 July 2012

IN THE HIGH COURT OF NEW ZEALAND WHANGAREI REGISTRY

CIV-2011-488-550 [2012] NZHC 1562

UNDER the Land Transfer Act 1952

IN THE MATTER OF Sections 145 and 145A that a caveat do not lapse

BETWEEN ROSEMARY ANN ALLEN Applicant

AND ALAN HUGH GOING and BRUCE CHARLES GOING AS TRUSTEES OF THE ESTATE OF HUGH CHARLES GOING

Respondents

Hearing: 2 July 2012

Counsel: J Hickey and D M Roughan for Applicant

J A Browne for Respondents

Judgment: 4 July 2012

_{JUDGMENT (No.2) of ASSOCIATE JUDGE R M BELL}

This judgment was delivered by me on 4 July 2012 at 4:30pm

pursuant to Rule 11.5 of the High Court Rules.

...................................

Registrar/Deputy Registrar

Solicitors:

Hickey Law, P O Box 100802 North Shore City 0745

Email: [e-mail]

Northlaw (D M Roughan) P O Box 4333 Kamo, Whangarei 0141

Email: [e-mail]

Henderson Reeves Connell Rishworth P O Box 11 Whangarei 0140

_Email: [e-mail]

ALLEN V GOING No.2 HC WHA CIV-2011-488-550 [4 July 2012]

[1] I gave an interim oral judgment in this matter on 18 October 2011. I held that the applicant had a caveatable interest in the property held by the respondents as trustees and executors of their father’s estate. I reserved the question of costs. I also invited the parties to confer to work out a mechanism by which the respondents could sell the property with the assurance that the caveat would be released if the sale was made properly, but at the same time Mrs Allen would be protected if the exercise of the power of sale were collusive or improper.

[2] I heard the parties on these questions by telephone conference on 2 July

2012.

Mechanism to remove caveat

[3] The parties have not agreed on a mechanism for the caveat to be removed without coming back to court. I understand from Mr Browne that marketing of the property has continued. In the absence of any agreed mechanism for the caveat to be taken off the title, I give directions for this matter to be brought back before the court for a prompt decision whether the caveat should be removed.

[4] If the respondents require the caveat to be removed so as to complete a sale of the property, and the applicant does not co-operate in the removal of the caveat, the respondents should ask the court for a prompt telephone conference so that I may consider whether the caveat should be removed.

[5] For that conference, the respondents are required to file a memorandum, together with any affidavits setting out relevant evidence. The applicant may file a memorandum in reply together with supporting evidence set out in affidavits. Any hearing should require no more than one hour. The Registrar in Whangarei will arrange the telephone conference.

[6] The applicant sought additional directions. One direction was that I should order the trustees to obtain a valuation of the property. I leave that for the respondents to consider, without directing it. The property has now been marketed

for some time. That exercise by itself will assist the trustees in establishing the current state of the market. While the trustees may see it as prudent to obtain a valuation in any event, they would also appreciate that if there is a proposal to sell the property to some associated person, it will be necessary to have a valuation to support the sale.

[7] The applicant also sought an order for the property to be vested in the applicant and the two respondents as tenants in common in equal shares. There is no relevant application for such an order. It is not open to me to make such an order in the context of a caveat application. Associate Judges do not have a general jurisdiction to vest trust assets in beneficiaries.

Costs

[8] The applicant seeks costs. The respondents recognise that the applicant is entitled to costs as she succeeded in establishing a caveatable interest. The case is category 2 under r 14.3(1). The proceeding was of average complexity. For time allocations, the applicant claims some time in band C on the grounds of urgency. Under r 14.5(2), times are allocated to bands by reference to the amount of time considered reasonable; urgency is not the criterion. As a caveat application, this case did not require a comparatively large amount of time. It required no more time than would be required in the general run of caveat applications. I apply band B. Under Band B the respondents calculate 4 days. The applicant claims 4.8 days. The differences are that the applicant claims for second counsel, for filing a second memorandum and for an additional quarter day’s preparation.

[9] I fix the time at 4.25 days. The respondents allowed only .5 of a day for preparation, but .75 of a day for the hearing. The preparation time should be the same as the hearing time. I do not allow the applicant’s claims for filing a second memorandum or for second counsel. This case did not require second counsel. The calculation of costs on a 2B basis is $7,990.00.

[10] The applicant seeks indemnity costs. There is nothing in this case that brings it within r 14.6(4) of the rules. The applicant criticises the respondents for opposing

her application. While the respondents opposed unsuccessfully, they opposed in good faith. The opposition was not vexatious, frivolous, improper or unnecessary. They generally complied with the directions. Their conduct of the case did not contribute unnecessarily to costs.

[11] As an alternative, the applicant seeks increased costs. I do not see any basis for increased costs under r 14.6(3)(a)-(c), but there is good reason for increased costs under r 14.6(3)(d). That is because the applicant is a beneficiary of the trust. An order for costs would be met out of the trust assets and would reduce the amount available to her. I adopt the respondent’s suggestion for remedying that. The costs are increased by 50 per cent so that after distributions under the estate, the applicant will be left with a net amount payable on a 2B basis.

[12] Accordingly the appropriate amount for costs in favour of the applicant is as follows:

_{4.25 days @ $1,880}

_$7,990.00

Plus 50 per cent

Disbursements: Filing fee on the application

_{Plus sealing fee}

$3,995.00

$483.40

_$48.30

$11,985.00

_$531.70

_TOTAL:

$12,516.70

[13] There is an order for costs in favour of the applicant against the respondents for $11,985.00 plus disbursements of $531.70. The respondents may recoup these costs from trust assets.

Indemnity for trustees for own expenses

[14] The parties also requested a decision whether the respondents, as trustees, could indemnify themselves from the trust assets for the costs they incurred in defending the proceeding.

[15] The trustees say that they are entitled to be indemnified from the trust assets for their costs of the proceeding. The applicant says that they should pay the costs themselves and should not be indemnified from the trust assets.

[16] Section 38(2) of the Trustee Act 1956 says:

38 Implied indemnity of trustees

...

(2) A trustee may reimburse himself or pay or discharge out of the trust property all expenses reasonably incurred in or about the execution of the trusts or powers; but, except as provided in this Act or any other Act or as agreed by the persons beneficially interested under the trust, no trustee shall be allowed the costs of any professional services performed by him in the execution of the trusts or powers unless the contrary is expressly declared by the instrument creating the trust:

Provided that the Court may on the application of the trustee allow such costs as in the circumstances seem just.

[17] There is guidance on the application of the section in the judgment of

Hammond J in Re O’Donoghue:[1]

The essential concept in both the United Kingdom, and New Zealand, is that of reimbursement. The trustee discharges costs, expenses and even liabilities and then recovers them from the trust property. This is not to suggest that a trustee must always meet these expenses; in practice trustees routinely make payments out of funds readily available from the trust. But of course, all such payments have to be justified on the indemnification principle. The consequence of this general principle is that it is the beneficiaries who are meeting the trustee's expenses. It follows that it is critical that there be a check on those expenses and costs incurred by a trustee.

The classical Chancery principle was, from the outset, that it is only expenses which are “properly incurred'' which are the subject of a trustee's indemnity. ... The direct consequence of this principle is that improperly incurred expenses fall upon a trustee personally. In that sense, a trustee is always at risk when he or she incurs expenses.

There is a respectable volume of case law authority around in the British

_{Commonwealth as to what may be regarded as “not improperly incurred}

expenses''. 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 notion that a trustee must act ``reasonably'' is necessarily qualified in various ways. First, it has never been thought unreasonable for a trustee to hire a properly qualified person to carry out work which the trustee is not qualified to undertake. Second, the trustee does not have a limitless ability to resort to the law: his function is to assert the interest of the beneficiaries only to a point where there is a judicial ruling on something that is properly required, such as the construction of a fairly debatable point in an instrument, or whether the trustee ought to take a certain course. And, it has been said that a trustee has to have very good grounds before that trustee can justify an appeal, especially if costs were awarded against the estate in the Court below. ... Third, a trustee is not entitled to expenses arising out of his own misconduct.

Finally, on the law under this head, it must surely be the case that where, on the face of things, the trustee's actions appear regular enough the burden of proving unreasonableness falls on the party alleging the same. ...

[18] The applicant says that the court’s decision upholding her application that she has a caveatable interest vindicates her position that the litigation costs were not reasonably incurred. She says that by the time the respondents received her application to sustain the caveat, they ought to have realised that they could not resist her application.

[19] The respondents did not take steps immediately after the applicant lodged her caveat. They applied for the caveat to lapse under s 145A of the Land Transfer Act when they put the property on the market for tender. In anticipation of selling, they wanted the caveat removed. It is accepted that they had the power to sell the property. All parties seem to accept that the property should be sold. No one is proposing to buy the others out. In undertaking the sale of the property, the respondents were properly acting as trustees. Seeking the removal of the caveat was a reasonable step to take in anticipation of sale. There is also evidence that they could not count on the applicant’s co-operation. That evidence is found in the applicant’s complaints of their administration of the estate. It is also borne out in continuing strained relations between the parties.

[20] To obtain the removal of the caveat, they were entitled to engage lawyers. As they were not legally qualified themselves, it was reasonable for them to retain lawyers, and to take and heed their advice. They opposed the application to sustain the caveat on the grounds that they did not yet hold the estate property on trust, but still held it as executors. On that point they were unsuccessful, but in taking that point they were not so unreasonable as to lose their right to be indemnified from the trust.

[21] Having taken legal advice and having defended the application in good faith and on what seemed to be an arguable point, they are entitled to be indemnified from the assets of the trust for the costs of defending the application.

..................................

R M Bell

Associate Judge

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[1] Re O’Donoghue [1998] 1 NZLR 116 at 121-122.