Carmine v Ritchie [2012] NZHC 2279 (5 September 2012)

Last Updated: 14 September 2012

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2011-404-006375 [2012] NZHC 2279

IN THE MATTER OF a Deed of Trust dated 9 February 2001

AND IN THE MATTER OF the JMC and RA Ritchie Family Trust created by that Deed

AND IN THE MATTER OF a claim under r 18.1(a)(ix) for the determination of a question that arises in

the administration of that Trust, viz whether a Deed of Removal of Trustee signed by the Second Respondent dated 13 December

2010 is of any, or no effect

BETWEEN VINCENT JOHN CARMINE Plaintiff

AND ANDREW JOHN RITCHIE, RACHEL ANNE RITCHIE AND WARWICK KENT PURDIE AS TRUSTEES OF THE JMC & RA RITCHIE FAMILY TRUST

Defendants

Hearing: On the papers

Judgment: 5 September 2012

_{COSTS JUDGMENT OF GILBERT J}

This judgment was delivered by me on 5 September 2012 at 11.30 am pursuant to Rule 11.5 of the High Court Rules.

Registrar/Deputy Registrar

Date:

Counsel: A P Molloy QC, Auckland: [e-mail]

R B Stewart QC, Auckland: [e-mail]

K Davenport, Auckland: [e-mail]

Solicitors: Smith & Partners: [e-mail]

CARMINE V RITCHIE HC AK CIV 2011-404-006375 [5 September 2012]

[1] Mr Carmine formerly acted as solicitor for John and Rachel Ritchie. They appointed him as a professional trustee of their family trust. Following her husband’s death, Rachel decided to change solicitors and to remove Mr Carmine as a trustee. Mr Carmine refused to resign and she accordingly exercised her power under the Trust deed to remove him. Ten months after his removal he commenced the present proceeding challenging the validity of his removal.

[2] In my judgment delivered on 29 June 2012, I found that Rachel had validly exercised her power to remove Mr Carmine as trustee. Mr Carmine now seeks costs on an indemnity basis out of Trust assets. The defendants oppose Mr Carmine’s costs application. They seek a costs order against him.

[3] It is well settled that a trustee who is concerned that a power removing him or her as a trustee has been exercised contrary to the best interests of the beneficiaries should apply to the Court for directions as to whether the purported removal was valid. A trustee in this position should place the material facts before the Court and outline the nature of his or her concern. A trustee is entitled to an indemnity for costs reasonably and properly incurred in making such an application.

[4] However, a trustee should not actively challenge the validity of his or her removal unless directed to do so by the Court. A trustee who unsuccessfully runs an active case challenging his or her removal without the sanction of the Court is personally exposed to costs, even if he or she acts on counsel’s opinion and in good faith. Such a trustee may not only be deprived of the benefit of the normal

indemnity, but may also be ordered to pay costs to the successful party or parties.[1]

[5] Mr Carmine says that although all adult beneficiaries supported his removal, he considered that Rachel was not acting in the best interests of infant, unborn and adoptive beneficiaries in doing so. He said that their interests had been “trampled underfoot”. He apparently believed that he had a duty to them to bring the present

_{proceeding challenging the validity of his removal.}

[6] The defendants argue that Mr Carmine is not entitled to his indemnity because he did not act reasonably in bringing this proceeding in the manner that he did. In particular they argue that:

(a) He delayed for 10 months after he was removed before commencing this proceeding.

(b) He did not act reasonably in bringing the proceeding which was contrary to the expressed views of all of the adult beneficiaries of the Trust.

(c) He was motivated in pursuing the application by his enmity towards

John and Rachel’s son, Andrew Ritchie, who was a co-trustee.

(d) He pursued an adversarial approach and was inappropriately antagonistic and disparaging of the defendants in his affidavits and submissions.

(e) He did not pursue the application efficiently and the documents filed were unnecessarily voluminous and repetitive.

(f) He did not merely seek directions; he actively challenged the validity of his removal.

[7] I do not consider Mr Carmine is entitled to be indemnified for his costs out of the Trust estate. In my view he did not act reasonably and properly in bringing and pursuing this proceeding in the manner that he did.

[8] Mr Carmine was removed as a trustee by deed dated 14 December 2010. He became aware of this on 23 December 2010 but delayed for 10 months before commencing this proceeding on 10 October 2011. The delay was excessive.

[9] Mr Carmine did not follow the normal course of adopting a neutral stance in placing the relevant information before the Court and seeking directions as to whether he had been validly removed. Instead, he actively challenged the validity

of his removal in furtherance of his own agenda. This was to perpetuate his own involvement with the Trust and to attempt to force a sale of the company, in which the Trust held almost 45 percent of the shares, by seeking relief in oppression proceedings he wished to commence under s 174 of the Companies Act 1993. I gained the impression that this became something of a personal crusade for Mr Carmine. This probably explains why he opposed the defendants’ proposal that independent counsel should be appointed to represent the interests of the infant and unborn beneficiaries.

[10] Not only did Mr Carmine actively challenge his removal against the opposition of all adult beneficiaries, he chose to mount a personal attack against his co-trustees, the independent trustee appointed in his place and Rachel’s new solicitor. This was inappropriate and required the defendants to obtain separate advice to defend their respective positions, adding unnecessarily to the cost of the proceeding.

[11] There is force in the defendants’ submission that Mr Carmine was motivated by personal enmity towards Andrew Ritchie. He adopted a confrontational approach throughout the proceeding, including in his lengthy affidavits and submissions. He described Andrew as an “extortionist” and characterised his behaviour as “like the strike of a snake. It was without mercy; with total self-interest, and with no regard for anything but his own position”. He stated that Andrew was determined “to exploit her [his mother Rachel’s] position and plunder the Trust estate”. He spoke of “attempted robbery” of the Trust by Andrew, and John’s brother, Glenn Ritchie. Mr Carmine’s personal attack on Andrew was perpetuated in his counsel’s submission that Mr Carmine “was not prepared to be a lackey to of out-of-control beneficiaries ‘hell-bent’ on destroying what John spent his working life working to produce”. These statements and submissions were inappropriate and unfair. They also underscored the fact that Mr Carmine was unable to work harmoniously and constructively with his fellow trustees Andrew and Rachel and that his removal was necessary to enable the Trust to function. Mr Carmine should have recognised this.

[12] Mr Carmine dismissed Rachel’s reasons for wishing to replace him as being “so transparently inadequate as to speak loudly of undue influence”. For the reasons given in the principal judgment there was no proper basis for this allegation.

[13] Mr Carmine challenged the appropriateness of Mr Purdie’s appointment claiming that he was aligned with Andrew’s interests and therefore suffering from a disqualifying conflict of interest. He presumed that Rachel’s new solicitor was not competent to advise her and had not done so adequately.

[14] Mr Carmine considered that there was only one course; litigation under s 174 against the majority shareholders, the trustees of Glenn Ritchie’s trust. He was unable to entertain any alternative view. He argued that any trustee who did not pursue this course was “foolish”. In my view, Mr Carmine was wrong in actively, indeed aggressively, contesting his removal as a trustee so that such litigation could be pursued. I doubt whether oppression proceedings would have been successful or in the best interests of the beneficiaries.

[15] For these reasons, I consider that the manner in which Mr Carmine has pursued this proceeding disentitles him to his indemnity. He is not entitled to the protection normally afforded to trustees because he has not acted reasonably and properly in incurring the expense of this litigation without the sanction of the Court. As noted, he opposed the defendants’ application to appoint independent counsel to represent the interests of infant and unborn beneficiaries. Had he consented to that course and maintained a neutral stance he would have been entitled to his indemnity. He chose not to do so and must accept the consequences of that decision. In my view, it would be quite unjust for the Trust to have to bear the burden of the costs Mr Carmine has incurred contrary to the expressed wishes of all adult beneficiaries and without the Court’s direction.

[16] Costs should therefore follow the event. Category 2 is appropriate for this proceeding. The defendants were entitled to separate representation and they are each entitled to a contribution to their costs in accordance with the schedules in the High Court Rules. The defendants seek costs on a band B basis for most steps. However, they seek costs assessed in accordance with band C for commencement of the defence, preparation of affidavits, preparation of authorities and common bundle, and preparation for hearing. I am not persuaded that more than a normal amount of time was required for these steps, particularly taking into account that the burden of undertaking these preparatory steps was to some extent shared by the defendants. I

therefore allow costs to each of the defendants for all relevant steps on a 2B basis

_{together with disbursements.}

M A Gilbert J

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[1] Mowbray et al Lewin on Trusts (18th ed, Sweet& Maxwell, London 2007) at [21-103]. In re Beddoe [1893] 1 Ch.547. Hunter v Hunter [1938] NZLR 520 (CA).

Re O’Donoghue [1998] 1 NZLR 116 (HC).