Ash v Singh [2018] NZHC 224 (26 February 2018)

Last Updated: 8 March 2018

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2017-404-589 [2018] NZHC 224

BETWEEN	GABRIEL SEBASTIAN ASH Plaintiff
AND	MAHENDRA SINGH as trustee of the SHEAN SINGH FAMILY TRUST First Defendant GEOFFREY HUGH BOURCHIER Second Defendant DARSAN SINGH Third Defendant

Hearing:	On the papers
Appearances:	R J Thompson for Plaintiff A R Gilchrist for all Defendants
Judgment:	26 February 2018

_{COSTS JUDGMENT OF ASSOCIATE JUDGE R M BELL}

This judgment was delivered by me on 26 February 2018 at 3:00pm

pursuant to Rule 11.5 of the High Court Rules

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

Registrar/Deputy Registrar

Solicitors:

Patterson Hopkins (W M Patterson), Auckland, for the Plaintiff

Kiely Thompson Caisley for the Defendants

Copy for:

Richard J Thompson, Auckland, for the Plaintiff

_{A R Gilchrist, Auckland, for the Defendants,}

ASH v SINGH as trustee of the SHEAN SINGH FAMILY TRUST [2018] NZHC 224 [26 February 2018]

[1] In my judgment of 24 November 2017¹ I found substantially for the plaintiff on his summary judgment application for the first cause of action, dismissed his summary judgment application for the fourth cause of action, dismissed the defendants’ application for security for costs and declined to refer the proceeding for a judicial settlement conference. The defendants have appealed against my judgment, but that is not a reason for putting off deciding costs. Costs should be decided promptly. Any error in fixing costs can be corrected on the appeal now pending.

[2] Counsel have filed memoranda as to costs, as directed. There are two cost questions:

(a) What order for costs should be made in favour of the plaintiff?

(b) What orders should be made for costs incurred by the defendant trustees in the proceeding?

[3] In the prayers for relief to the first and fourth causes of action in his statement of claim, the plaintiff sought orders that the trustees pay costs personally and that they not be indemnified from the trust assets for their part of any costs they are ordered to pay the plaintiff. The plaintiff’s costs submission altered that slightly, seeking an order for the defendants personally to pay increased costs, and to the extent that any order for costs made under Part 14 of the High Court Rules was less than his actual and reasonable costs, he should receive a top-up from the trust fund. He also sought an order that the defendants not be entitled to any indemnity from the trust fund for their own costs in the proceeding or for any costs they are ordered to pay the plaintiff.

[4] For the defendants, Mr Gilchrist says that the plaintiff is entitled to recover his actual and reasonable costs but only for the period from 27 June 2017, and only for

_{the primary application on which he succeeded.}

¹ Ash v Singh [2017] NZHC 2909.

[5] Mr Thompson advises that the plaintiffs’ actual and reasonable costs are

$35,414.00 in fees, exclusive of GST. While his written submission refers to a summary in a table, that was not provided. There is no evidence as to the actual fees incurred. If the court is to order indemnity costs, it is standard to provide affidavit evidence as to the actual costs.²

The plaintiff ’s costs

[6] On the plaintiff’s costs, the differences between the parties are:

(a) the period for which the plaintiff should have actual solicitor-client costs;

(b) for which work the plaintiff should recover actual solicitor-client costs;

(c) where the burden of costs order should fall.

[7] In trust litigation courts of equity have developed distinctive principles for costs. In some proceedings costs are awarded in the same way as in common law cases. In others, the parties may be able to have recourse to the trust fund to meet their costs. Accordingly, the costs rules in Part 14 of the High Court Rules do not always apply. It is common to note the three classes of proceeding identified by Kekewich J in Re Buckton:³

In a large proportion of the summonses adjourned into Court for argument the applicants are trustees of a will or settlement who ask the Court to construe the instrument of trust for their guidance, and in order to ascertain the interests of the beneficiaries, or else ask to have some question determined which has arisen in the administration of the trusts. In cases of this character I regard the costs of all parties as necessarily incurred for the benefit of the estate, and direct them to be taxed as between solicitor and client and paid out of the estate. It is, of course, possible that trustees may come to the Court without due cause. A question of construction or of administration may be too clear for argument, or it may be the duty of trustees to inform a claimant that they must administer their trust on the footing that his claim is unfounded, and leave him to take whatever course he thinks fit. But, although I have thought it necessary sometimes to caution timid trustees against making applications which might with propriety be avoided, I act on the principle that trustees are

entitled to the fullest possible protection which the Court can give them, and that I must give them credit for not applying to the Court except under advice which, though it may appear to me unsound, must not be readily treated as unwise. I cannot remember any case in which I have refused to deal with the costs of an application by trustees in the manner above mentioned.

There is a second class of cases differing in form, but not in substance, from the first. In these cases it is admitted on all hands, or it is apparent from the proceedings, that although the application is made, not by trustees (who are respondents), but by some of the beneficiaries, yet it is made by reason of some difficulty of construction, or administration, which would have justified an application by the trustees, and it is not made by them only because, for some reason or other, a different course has been deemed more convenient. To

cases of this class I extend the operation of the same rule as is observed in cases of the first class. The application is necessary for the administration of the trust, and the costs of all parties are necessarily incurred for the benefit of the estate regarded as a whole.

There is yet a third class of cases differing in form and substance from the first, and in substance, though not in form, from the second. In this class the application is made by a beneficiary who makes a claim adverse to other beneficiaries, and really takes advantage of the convenient procedure by originating summons to get a question determined which, but for this procedure, would be the subject of an action commenced by writ, and would strictly fall within the description of litigation. It is often difficult to discriminate between cases of the second and third classes, but when once convinced that I am determining rights between adverse litigants I apply the rule which ought, I think, to be rigidly enforced in adverse litigation, and order the unsuccessful party to pay the costs. Whether he ought to be ordered to pay the costs of the trustees, who are, of course, respondents, or not, is sometimes open to question, but with this possible exception the unsuccessful party bears the costs of all whom he has brought before the Court.

[8] In Alsop Wilkinson v Neary Lightman J set out another classification:⁴

Trustees may be involved in three kinds of dispute. (1) The first (which I shall call “a trust dispute”) is a dispute as to the trusts on which they hold the subject matter of the settlement. This may be “friendly” litigation involving e.g. the true construction of the trust instrument or some other question arising in the course of the administration of the trust; or “hostile” litigation e.g. a challenge in whole or in part to the validity of the settlement by the settlor on grounds of undue influence or by a trustee in bankruptcy or a defrauded creditor of the settlor, in which case the claim is that the trustees hold the trust funds as trustees for the settlor, the trustee in bankruptcy or creditor in place of or in addition to the beneficiaries specified in the settlement. The line between friendly and hostile litigation, which is relevant as to the incidence of costs, is not always easy to draw: see In re Buckton; Buckton v. Buckton [1907] 2 Ch

406. (2) The second (which I shall call “a beneficiaries dispute”) is a dispute with one or more of the beneficiaries as to the propriety of any action which the trustees have taken or omitted to take or may or may not take in the future. This may take the form of proceedings by a beneficiary alleging breach of trust by the trustees and seeking removal of the trustees and/or damages for

breach of trust. (3) The third (which I shall call “a third party dispute”) is a dispute with persons, otherwise than in the capacity of beneficiaries, in respect of rights and liabilities e.g. in contract or tort assumed by the trustees as such in the course of administration of the trust.

[9] The differences in the matters I dealt with in my judgment of 24 November

2017 affect the way costs are fixed. The plaintiff’s first cause of action dealt with the validity of the deed of variation of 23 August 1996. That was a matter that required a determination for everyone—the trustees, all beneficiaries and Darsan Singh, who claimed to be a beneficiary under the deed of variation. There were good reasons to doubt the validity of the deed of variation. The trustees had received advice to that effect already—the letter from Vicki Ammundsen Trust Law Ltd dated 10 July 2016. Ideally, the trustees ought to have applied to the court for directions once there was a question as to the validity of the variation. Any proceeding by the trustees would be in the first class of cases identified by Kekewich J in Re Buckton.⁵ If they had applied, they would recover their costs in full.

[10] The plaintiff, a beneficiary, applied instead of the trustees. That is a case within Kekewich J’s second class in Re Buckton. On that principle, the plaintiff is entitled to have his costs paid because his application was necessary for the administration of the trust. He brought his first cause of action for the benefit of the estate as a whole.

[11] The plaintiff’s second and third causes of action seek removal and replacement of the trustees, and damages against the trustees for mismanagement of the trust assets. In the third cause of action there are allegations of fraud on the power, breach of fiduciary duties, not acting with due diligence and prudence, failing to act in good faith and for the benefit of the beneficiaries, and the like. These causes of action are in Kekewich J’s third class in Buckton. Under Lightman J’s classification in Alsop Wilkinson v Neary,⁶ there is a beneficiaries’ dispute, which is ordinary hostile litigation. Costs follow the event and do not come out of the trust estate. The trustees’ applications for security for costs and for a judicial settlement conference were made for the second and third causes of action.

[12] In the fourth cause of action, the plaintiff sought substantive disclosure of trust records. That is also a beneficiaries’ dispute under Lightman J’s classification in Alsop Wilkinson v Neary.

[13] I deal with costs for each of these in reverse order. On the fourth cause of action, the plaintiff failed in his application for summary judgment. The defendants had an arguable defence that they had no further documents of the kind sought by the plaintiff. The final merits of that matters are still to be determined. I apply the standard approach when a plaintiff does not succeed on an application for summary judgment and reserve costs on that part of the case.⁷ There is nothing in the circumstances of the case to suggest a departure from the usual course. For all I know the plaintiff may establish later that the defendants have further documents. If so he will be vindicated and should not pay costs now.

[14] The plaintiff succeeded on the applications for security for costs and for a judicial settlement conference. Admittedly the application for a judicial settlement conference was held over rather than dismissed, but that result was in the plaintiff’s favour. The plaintiff is entitled to costs under category 2 for those applications. Those costs are against the trustees personally and do not come out of the trust estate.⁸

[15] For the first cause of action the plaintiff’s costs come out of the trust estate. That means that an order for costs is made against the trustees, but the trustees are entitled to indemnify themselves by recourse to the trust assets. The amount is not the plaintiff’s full solicitor-client costs. It will be necessary to make deductions from his actual expenses for those parts dealing with the second, third and fourth causes of action because they relate to a beneficiaries’ dispute, not a trust dispute under the terminology of Lightman J.

[16] The trustees say that the plaintiff should not recover for attendances before

27 June 2017. I see no reason for limiting the plaintiff’s costs in that way. This proceeding started on 4 April 2017. The plaintiff swore his affidavit on 16 March

_{2017. I would expect the plaintiff to have instructed his lawyers earlier than that. The}

⁷ NZI Bank Ltd v Philpott [1990] 2 NZLR 403 (CA).

plaintiff is entitled to have his costs for this proceeding from the time he first instructed lawyers for it. I do not intend that he should be able to recover costs incurred earlier, when other lawyers on his behalf dealt with lawyers for the trustees.

[17] Given the apportionment required, the plaintiff needs to make full disclosure of his lawyers’ charges, including time records, to show how much time was spent on particular tasks. I encourage counsel to confer with a view to agreeing on the apportionment. If they cannot agree, further affidavits and memoranda will need to be filed so that I can make the apportionment on the papers. Experienced counsel should be able to work this matter out without recourse to the court.

[18] Each side has taken points as to procedural “fumbles” by the other side. I do not regard any of these matters as requiring any increased costs under r 14.6 of the High Court Rules, or as reasons for deducting costs from actual costs. None of the matters raised is so serious as to require adjustments under the High Court Rules or at equity.

The trustees’ costs

[19] The question here is whether the trustees can recover their own costs of this proceeding from trust assets. That is aside from the order for costs for the applications for a judicial settlement conference and security for costs, which they must pay personally. Lightman J stated the principle in Alsop Wilkinson v Neary:⁹

In a case where the dispute is between rival claimants to a beneficial interest in the subject matter of the trust, rather the duty of the trustee is to remain neutral and (in the absence of any court direction to the contrary and substantially as happened in Merry’s case [1898] 1 Ch. 306) offer to submit to the court’s directions leaving it to the rivals to fight their battles. If this stance is adopted, in respect of the costs necessarily and properly incurred e.g. in serving a defence agreeing to submit to the court’s direction and in making discovery, the trustees will be entitled to an indemnity and lien. If the trustees do actively defend the trust and succeed, e.g. in challenging a claim by the settlor to set aside for undue influence, they may be entitled to their costs out of the trust, for they have preserved the interests of the beneficiaries under the trust: consider In Re Holden, ex parte Official Receiver (1887) 20 Q.B.D. 43. But if they fail, then in particular in the case of hostile litigation although in an exceptional case the court may consider that the trustees should have their costs (see Bullock. v Lloyds Bank Ltd [1955] 1 Ch. 317) ordinarily the trustees

⁹ Alsop Wilkinson v Neary [1996] 1 WLR 1220 (Ch D) at 1225.

will not be entitled to any indemnity, for they have incurred expenditure and liabilities in an unsuccessful effort to prefer one class of beneficiaries e.g. the express beneficiaries specified in the trust instrument, over another e.g. the trustees in bankruptcy or creditors, and so have acted unreasonably and otherwise than for the benefit of the trust estate.

[20] In this case, the rival claimants were the plaintiff as a beneficiary under the original deed of trust of 23 December 1993 and Darsan Singh as a 60 per cent beneficiary under the deed of variation of 23 August 1996. Relevantly, the plaintiff applied for directions as to service on Darsan Singh as executrix of the estate of Shean Singh and on all the beneficiaries of the trust. Darsan Singh and the others took no steps as beneficiaries, even though they were served. Instead the trustees undertook the defence to the plaintiff’s summary judgment application on the merits, instead of taking a neutral stance. Their approach was partisan throughout. That can be seen in their stonewalling the plaintiff in supplying information reasonably requested, in Mahendra Singh’s abusive correspondence to the plaintiff, and in stalling tactics such as the application for security for costs. For the trustee dispute, the validity of the deed of variation, it can be seen in the threats that the plaintiff would have to bear all those costs himself. The trustees’ stance was the opposite of recognising that there was a serious issue, on which there may be differing views and on which they should be neutral. The proper course was for them to abide the decision of the court and to leave the other beneficiaries, especially Darsan Singh, to oppose the summary judgment application. Significantly, the trustees did not make any application under In Re Beddoe.¹⁰ In the absence of any advice or direction from the court, they took a risk as to costs while electing to proceed in a partisan manner.

[21] Mr Gilchrist referred to cl 21 of the trust deed:

No Trustee hereunder shall be liable for any loss suffered by the Trust Fund or by any beneficiary hereunder arising from any action taken by him as a Trustee hereunder PROVIDED ALWAYS that such action is not attributable to his own dishonesty or to the wilful commission by him of an act known to him to be a breach of trust and no Trustee shall be bound to take any proceedings against a co-Trustee or former Trustee for any breach or alleged breach of trust committed by such co-Trustee or former Trustee AND each of the Trustees shall be entitled to a full and complete indemnity from the Trust Fund and every part hereof for any personal liability he may incur in any way arising out of or in connection with his acting or purporting to act as a Trustee hereunder subject to the foregoing proviso.

¹⁰ In re Beddoe [1893] 1 Ch 547 (CA).

[22] That does not protect the trustees here. Trustees are under a duty to act impartially amongst beneficiaries. In a case such as this, where there is a dispute as to entitlements under a trust deed, trustees comply with that duty by taking the neutral stance required under Alsop Wilkinson v Neary.¹¹ Here, the trustees knowingly aligned themselves with Darsan Singh and supported her as a beneficiary and opposed the plaintiff. They knowingly did that in breach of trust. In these circumstances, they are not entitled to be indemnified out of the trust assets.

[23] Accordingly, for all the costs the trustees incurred to date in this proceeding, whether in opposing the plaintiff’s summary judgment application in the first cause of action (the trustee dispute) or in opposing his other claims and making unsuccessful interlocutory applications themselves (a beneficiary dispute), the trustees are not entitled to have recourse to trust assets to meet or reimburse their costs.

[24] There is another aspect. Given that the trustees actively supported the position of Darsan Singh as beneficiary under the deed of variation, should she reimburse them for the expenses they incurred on her behalf? If she were a beneficiary, no doubt the trustees could claim an indemnity from her under the principle in Hardoon v Belilios.¹²

Darsan Singh has, however, been found not to be a beneficiary. Even so, if someone claiming to be a beneficiary encourages a trustee to incur expenses, for which a trustee cannot indemnify himself out of the trust fund, should not the purported beneficiary answer for those expenses? There may be liability as a “beneficiary de son tort”. The parties did not address this question in their submissions. If Mr Singh and

Mr Bourchier wish to take this matter further, more steps will be required. Darsan Singh will need to be separately advised and represented, and given the opportunity to be heard on any application they might make. I leave that aspect for the trustees to consider further.

[25] In summary, I order:

(a) The plaintiff shall recover his actual and reasonable costs of this proceeding relating to his first cause of action. That will not include

¹¹ Alsop Wilkinson v Neary [1996] 1 WLR 1220 (Ch D).

¹² Hardoon v Belilios [1900] UKPC 66; [1901] AC 118 (PC).

his actual and reasonable costs on the other causes of action. For that purpose, the plaintiff is to file further evidence as to actual costs incurred so that an apportionment may be made and the amount of costs can be fixed. Counsel are to confer as to the apportionment and the amount. If no agreement can be reached, memoranda are to be filed and I will decide the matter on the papers.

(b) The plaintiff ’s costs order on the first cause of action is against the trustees, who are entitled to indemnify themselves out of the trust assets. The plaintiff may use subrogation to enforce the trustees’ indemnities.

(c) The plaintiff has costs against the trustees personally on the applications for a judicial settlement conference and for security for costs. Costs are to be category 2. The trustees may not indemnify themselves out of trust assets for those costs. If counsel cannot agree costs, memoranda may be filed for costs to be decided on the papers.

(d) There is no order for costs on the plaintiff ’s application on his fourth cause of action.

(e) Leave is reserved to apply for further directions.

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Associate Judge R M Bell