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High Court of New Zealand Decisions |
Last Updated: 21 December 2018
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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
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CIV-2016-404-3232
[2018] NZHC 3154 |
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BETWEEN
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NIGEL GARLAND COOKE
Plaintiff
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AND
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ROSAMONDE BERNICE McMILLAN
First Defendant
THE PUBLIC TRUST OF NEW ZEALAND
Second Defendant
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Hearing:
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1 November 2018
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Counsel:
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R J Connell for Plaintiff
S J Humphrey for First Defendant
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Judgment:
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3 December 2018
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Reissued:
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7 December 2018
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COSTS JUDGMENT OF BREWER J
This judgment was delivered by me on 3 December 2018 at 12 noon pursuant to Rule 11.5 High Court Rules.
Registrar/Deputy Registrar
Solicitors:
Connell & Connell (Auckland) for Plaintiff
Lee Salmon Long (Auckland) for First Defendant
COOKE v McMILLAN & ANOR [2018] NZHC 3154 [3 December 2018]
Introduction
[1] This is a costs judgment.
[2] The proceeding at the heart of the dispute revolved around the ownership of an investment portfolio held by Craigs Investment Partners (the Craigs portfolio) and a number of bank accounts (the BNZ accounts).
[3] The original owner of the Craigs portfolio and the BNZ accounts was an elderly woman (Mrs Cooke). After she died, her daughter (Mrs McMillan) claimed the portfolio and the bank accounts by survivorship. Her brother (Mr Cooke) thought her conduct was unconscionable. He was of the view that the portfolio and the BNZ accounts should have passed into his mother’s estate and so he issued proceedings against Mrs McMillan.
[4] A four-day fixture was allocated for the hearing. A day or so before the hearing commenced, the parties settled the dispute except for the matter of costs.
[5] The matter has now come before me because the parties have been unable to agree.
Chronology
[6] Mrs Cooke died on 30 June 2015. The part of her Will that gave rise to the dispute stated:
5 Gifts of Specified Property
I make the following specific gifts:
5.1 Specific Gift
I GIVE all shares and rights to shares which I own at my death (including my shares in Lion Nathan Limited, Brierley Investments Limited and ABN Ambros) including any dividend without apportionment to my daughter ROSAMONDE BERNICE MCMILLAN if she survives me.
...
7 Gift of Residue
I GIVE –
My residuary estate to be divided equally among my son JON BEALE COOKE, my daughter ROSAMONDE BERNICE MCMILLAN, my
son NIGEL GARLAND COOKE and my daughter JULIET JEAN CLARKE living at my death. However if this gift to any such beneficiary does not take effect THEN any benefit to which that beneficiary would have been entitled is to be taken equally by those of his or her children who are living at my death.
[7] When Mrs Cooke died the Craigs portfolio and the BNZ accounts passed to Mrs McMillan. When Mr Cooke heard about this, he wrote to Mrs McMillan seeking confirmation.
[8] On 24 September 2015, Mrs McMillan’s solicitors wrote to Mr Cooke. They said they were not aware of any concerns about Mrs Cooke’s testamentary capacity at the time the Will was made. As to the ownership of the share-portion of the Craigs portfolio, they said:
[9] Mr Cooke replied on 20 November 2015. In that response, he appeared to relinquish any claim to the share-portion of the Craigs portfolio:
The spread of investments in the total portfolio was carried out by Craigs Investment Partners and their report of the 30 June 2015, (being the date of death of the deceased) refers to the portfolio comprising 5 different assets. The value of each class of asset is set alongside and their commercial designation set alongside that as well, thus,
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Fixed Interest
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$58,433.00
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Bonds
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Property
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$27,074.00
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Stapled Securities
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Equities
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$270,338.00
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Shares
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Cash
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$26,305.00
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Cash
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Accrued Interest
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$514.00
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Cash
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It is fundamental that “cash” cannot be “shares” and neither are Bonds or Stapled Securities.
What has been received by your client in claiming her entitlement and ownership of the entire portfolio, are assets otherwise than shares to which she has no claim under the Will as a matter of law.
...
The specific bequest of shares to Rosamonde totalling $270,338.00 is not challenged and is hers under the Will subject to the following:
(1) What is challenged is that Rosamonde claims to be entitled to the remaining assets in the portfolio totalling $112,336.00. This amount is sought to be recovered from Rosamonde and distributed equally between herself and the other 3 children of the deceased.
(2) Additionally, the sum of $71,495, which has been contributed since inception of management of the portfolio by Craigs up to 01/10/2012, together with a further contribution of $57,932.00 up to 30/06/2014 are outstanding and owing to the Trust. These sums totalling $129,427.00 have been contributed to the portfolio from the Trust and are to be recovered by the Trust and distributed in the same manner as the portfolio of assets excluding the shares, will be.
(3) Further, the retention by Rosamonde of these additional funds/assets has disadvantaged the beneficiaries, and interest has accrued and losses sustained on those funds. Recovery at penalty interest rates is also sought on behalf of the beneficiaries.
(4) The 3 remaining beneficiaries have taken it upon themselves to meet the gifts to the grandchildren, but will not meet the gifts to Rosamonde’s children or the god-daughter.
(Emphasis added)
[10] Mr Cooke then instructed solicitors. On 27 November 2015, they wrote to Mrs McMillan’s solicitors suggesting that settlement would be the preferable option. Mrs McMillan’s solicitors sent a reply on 1 December 2015 expressing agreement.
[11] On 18 March 2016, Mrs McMillan’s solicitors extended an offer of settlement. This will be referred to as the first settlement offer. In it, Mrs McMillan’s solicitors maintained that the portfolio passed to Mrs McMillan by survivorship.
(b) Winding up of the trust.
Estate
Trust
(a) Adjustments to reflect the current account balance of each sibling.
(b) Your clients will each receive an additional $7,500, and Rosamonde correspondingly $22,500 less.
[12] The offer remained open until 8 April 2016. From my reading, it did not involve resolution of the ownership of the Craigs portfolio.
[13] Mr Cooke made no response to the first settlement offer. On 21 October 2016, his solicitors wrote to Mrs McMillan’s solicitors, expressing Mr Cooke’s position as follows:
(a) Mrs McMillan signed the portfolio as a trustee and so could not claim to be entitled to it by survivorship.
(b) Mrs Cooke’s estate owed a debt to the Garland Trust that needed to be repaid.
(c) In any event, medical records indicated that Mrs Cooke’s health had been deteriorating prior to her death, casting doubt on her testamentary capacity.
[14] Mr Cooke filed proceedings on 21 December 2016.
[15] Mrs McMillan’s solicitors made a further offer of settlement on 9 March 2017. This will be referred to as the second settlement offer. In it, Mrs McMillan’s solicitors maintained she was entitled to the share-component of the Craigs portfolio. The remaining children were therefore only entitled to a proportion of the non-share component, being $21,315 each. Mrs McMillan’s solicitors also questioned Mr Cooke’s claim that the estate owed a debt to the Garland Trust. They maintained the estate was solvent and was itself owed a debt by the Garland Trust of $322,424.
[16] The second settlement offer was marked “without prejudice save as to costs”. I cite the relevant extracts:
(a) The debt to the estate from the Garland Trust is to be repaid.
(b) The specific legacies and estate debts are to be satisfied, including reimbursement of Rosamonde McMillan for the monies she paid for the meeting of specific gifts under clause 4 of the will and for estate expenses. We are instructed that these total $46,991.23 and include the following:
...
(c) The residue of the monies shall be distributed equally to the four children under clause 7 of the will.
(d) Once the debt to the estate is repaid, the trustees of the Garland Trust shall resolve to distribute the trust capital equally between the four siblings, subject to:
- (i) Adjustments to reflect the current account balances of the beneficiaries’ accounts;
(ii) An increase in your clients’ distribution of
$21,315.50.
(iii) A corresponding reduction in our client’s distribution of $63,946.50
[17] The offer remained open until 23 March 2017. No response was received from Mr Cooke or his solicitors.
[18] On 25 May 2017, Mr Cooke filed a memorandum in advance of the first case management conference. In it he suggested he would be open to resolving the matter by means of mediation. Mrs McMillan’s solicitors replied with a letter dated 29 May 2017, expressing agreement and suggesting a potential mediator.
[19] On 2 June 2017, Mr Cooke’s solicitors wrote to Mrs McMillan’s solicitors stating Mr Cooke would be prepared to undertake a settlement conference, but not until Mrs McMillan provided the following information:
(a) The source of the $46,991.23 used by Mrs McMillan to pay the estate’s gifts and expenses, for which she sought reimbursement.
(b) Mrs Cooke’s bank account details.
(c) Authorisation from Mrs McMillan for access to the file held by Craigs Investment Partners in respect of the Craigs portfolio.
[20] On 21 July 2017, Mrs McMillan’s solicitors responded. They said Mrs McMillan had obtained the $46,991.23 by realising a portion of the Craigs portfolio. They also said they had requested the information sought by Mr Cooke and provided documentation showing this. Mrs McMillan contends the Craigs file was provided to Mr Cooke the following day. The rest of the information was either provided to the Public Trust or did not exist.
[21] On 1 May 2018, Mrs McMillan’s solicitors made a further settlement offer (the third settlement offer). This was also marked “without prejudice save as to costs”. In it, Mrs McMillan’s solicitors steadfastly denied any impropriety in her management of the Craigs portfolio and bank accounts. They offered to resolve the proceeding on the following terms:
(a) Our client will forgo the claim that the BNZ accounts and the Craigs portfolio passed to her by survivorship and accept those items being treated as part of the estate;
(b) The Public Trust, in accordance with its obligations as executor of Mrs Cooke’s estate, will deal with the estate in accordance with the will.
(c) Any amounts our client has received over entitlements under the will as a result of her possession of the BNZ accounts and Craigs portfolio (if any) shall be taken into account by the Public Trust in determining the distribution of the estate.
(d) All parties will co-operate with the Public Trust in supplying information the Public Trust reasonably needs to determine distribution of the estate.
(e) The current proceedings shall be discontinued with no question as to costs.
[22] The offer remained open until 11 May 2018. On 21 May 2018, Mr Cooke responded by sending Mrs McMillan a draft settlement agreement (the counter-offer). It differed from the third settlement offer. The counter-offer contained the following terms:
(a) Mrs McMillan would transfer the BNZ accounts to the Public Trust as well as full accounting details for three years prior to Mrs Cooke’s death.
(b) Mrs McMillan would reimburse the estate for all monies from the BNZ accounts used for her personal benefit and not seek reimbursement for funds she paid to the Public Trust out of the accounts.
(c) Mrs McMillan would transfer the Craigs portfolio to the Public Trust and accompanying documentation, as well as reimburse the estate for any monies paid to her by Craigs.
(d) Mrs McMillan would reimburse the Garland Trust for funds it advanced towards the Craigs portfolio.
(e) Mrs McMillan would meet a substantial part of Mr Cooke’s costs in relation to the proceeding, with the balance to be paid out of the estate.
[23] On 17 July 2018, Mrs McMillan responded with the fourth settlement offer. This was essentially a repetition of the third settlement offer. The only difference was that it reserved the determination of costs to the Court.
[24] Mr Cooke did not accept the fourth settlement offer right away. The trial was scheduled to begin on 23 July 2018, being a Monday. On 20 July 2018 Mrs McMillan and the Public Trust filed a joint memorandum annexing the fourth settlement offer. Later that day, the parties agreed to a joint memorandum proposing orders that were consistent with the offer.
The parties’ positions as to costs
[25] Mr Cooke seeks costs on a 2B basis. He says he was successful on the core issue in the proceeding; Mrs McMillan abandoned her defence and consented to the orders he sought.
[26] Mrs McMillan’s position is twofold. First, she argues that costs prior to 11 May 2018 should lie where they fall. That is because Mr Cooke acted unreasonably in not accepting the first and second settlement offers. These offers did not include the BNZ accounts, but were financially similar to the final settlement agreement.
[27] In the alternative, if the Court were to consider Mr Cooke was entitled to scale costs, Mrs McMillan seeks a reduction of 75 percent to reflect the unreasonable stance taken by Mr Cooke with regard to the settlement offers.
[28] Secondly, Mrs McMillan says that Mr Cooke should pay her increased costs for steps taken after 11 May 2018, being the date that the third settlement offer expired. That is because the third settlement offer resolved all issues relevant to the proceeding and should have been accepted promptly by Mr Cooke. The counter-offer was unreasonable and introduced new issues to the proceeding.
Discussion
[29] Costs go to the successful party.1 The consent orders made in this proceeding aligned broadly with Mr Cooke’s amended statement of claim. At first glance, therefore, he is entitled to costs.
[30] However, the Court may reduce or refuse an order for costs if the party claiming costs has contributed unnecessarily to the time or expense of the proceeding by failing without reasonable justification to accept an offer of settlement.2 As Lang J put it, the ultimate result is not the issue. Rather, it is whether a party was acting reasonably when they rejected the offer.3
[31] Mr Humphrey, for Mrs McMillan, submitted that Mr Cooke’s claim to success should be devalued somewhat. He said the principal issue in the proceeding was the ownership of the Craigs portfolio. While Mrs McMillan agreed to treat the Craigs portfolio as if it were part of Mrs Cooke’s estate when agreeing to the consent orders, she did not relinquish her underlying claim to it. That is, Mrs McMillan still believes she is entitled to the Craigs portfolio under cl 5.1 of the Will. This claim is strong and is likely to be recognised by the executors now that the Craigs portfolio has been returned to the estate.
1 High Court Rules 2016, r 14.2(1)(a).
2 Rule 14.7(f)(v).
3 Williams v Scott [2018] NZHC 1979, [2018] NZFLR 570 at [26].
[32] I doubt the strength of this argument. Mrs McMillan surrendered her claim to legal ownership of the Craigs portfolio when she agreed to the consent orders. Whether the executors of her mother’s estate see fit to return it to her is a matter for another day. In any case, I do not think it helps Mrs McMillan to say that while she may have lost the battle, she intends to win the war. Costs follow the event; and success is judged in relation to the event, not matters outside it.
[33] More persuasive is Mr Humphrey’s argument that Mr Cooke should have accepted one of the earlier settlement offers. Success is most often measured in monetary terms. Mr Humphrey submitted Mr Cooke would have enjoyed the same or similar success if he had accepted either the first or the second settlement offer. His failure to do so was unreasonable.
[34] This argument is premised on Mr Cooke’s acceptance that Mrs McMillan is ultimately entitled to the share component of the Craigs portfolio. As early as November 2015, Mr Cooke conceded that Mrs McMillan was entitled to the shares under the Will.4 The treatment of the share component (whether it should pass into Mrs Cooke’s estate) continued to be disputed. However, it does not seem to have been disputed that Mrs McMillan would be the one ultimately to benefit. In financial terms, therefore, Mr Humphrey submitted the proceeding revolved around the non-share component of the portfolio and the BNZ accounts. Under the Will, the non-share component of the Craigs portfolio (some $85,262 at the time of Mrs Cooke’s death) is to be divided equally among her four children once it falls into the estate.
[35] I do not accept Mr Humphrey’s submission this was essentially what Mrs McMillan offered in the earlier settlement offers. In the first settlement offer, Mrs McMillan offered to pay each of her siblings $7,500. But this is much less than the value of a quarter-share of the non-share component of the Craigs portfolio. I do not think it was unreasonable for Mr Cooke not to accept this offer.
[36] The second settlement offer provided more attractive terms. The offer of
$7,500 apiece was increased to $21,315. Mr Humphrey in oral submissions clarified
4 See the letter at [9].
this was intended to reflect an equal division of the non-share component of the Craigs portfolio.
[37] Mr Humphrey conceded that neither settlement offer included resolution of the issue over the BNZ accounts. However, he said the financial significance of these accounts is minimal. At the time of Mrs Cooke’s death, there were some $14,000 in the accounts. This was reduced to a negligible level after Mrs McMillan made withdrawals for Mrs Cooke’s funeral and other expenses related to the estate. The failure of the settlement offers to include reference to the BNZ accounts therefore does not change matters. He submitted it was unreasonable for Mr Cooke not to accept the earlier offers, particularly the second offer, given he received essentially the same financial benefit from the eventual settlement.
[38] I accept it was unreasonable for Mr Cooke not to accept the second settlement offer. I have already expressed my reservations in relation to the first settlement offer. However, the second offer provided much more attractive terms in a financial sense. These terms reflected very largely what Mr Cooke was seeking from the proceeding as a whole: namely, equal distribution of the non-share component of the Craigs portfolio. The financial value of the other assets Mrs McMillan has since agreed to transfer into the estate (the share component of the Craigs portfolio and the BNZ accounts) appears to have been outside the contemplation of Mr Cooke. He accepted Mrs McMillan is entitled to the share component once it passes into the estate. As for the BNZ accounts, Mr Humphrey submitted these are of little value when compared to the portfolio. Mr Cooke does not appear to dispute this.
[39] Mr Connell, for Mr Cooke, raised two matters in response. The first is that, notwithstanding the equivalent financial value of the second settlement offer with the eventual settlement, the latter was preferable to Mr Cooke. That is because the second settlement offer did not involve the Craigs portfolio itself passing into the estate and into the hands of the executors. Mr Connell said this was preferable for Mr Cooke, since the executors could distribute the Craigs portfolio to the beneficiaries in accordance with the Will and as they saw appropriate. Their decisions could then be amenable to challenge. However, if Mr Cooke and his other siblings accepted the
monetary value of their respective shares in the Craigs portfolio as set out in the second settlement offer, they would forego this ability to challenge.
[40] I think this argument is strained. It supposes the executors might make a decision adverse to Mr Cooke. But the terms of the Will appear clear. Clause 7 states that the residue of Mrs Cooke’s estate is to be distributed equally among her children. Clause 5.1 states that all shares owned by Mrs Cooke at the time of her death go to Mrs McMillan. It is therefore difficult to see how either: (a) Mr Cooke could achieve a result under the Will different to that which was offered by Mrs McMillan in the second settlement offer; and (b) how Mr Cooke would challenge the executor’s distribution of the portfolio such that he could procure a more favourable financial result. Not without taking separate proceedings and challenging, say, testamentary capacity. There is, I think, no value inherent in the right to challenge an executor’s decisions. Without more, I do not think it was reasonable for Mr Cooke to reject the second settlement offer on this ground.
[41] Similarly, Mr Connell submitted that having the portfolio pass into the estate benefited Mr Cooke because it meant the executors would be able to review the statements of the BNZ accounts. This might reveal withdrawals made by Mrs McMillan which should properly be returned to the estate and then distributed to the beneficiaries. An increased financial benefit to Mr Cooke would then accrue.
[42] Mr Humphrey pointed out that the statements were provided by discovery. I have reviewed Mrs McMillan’s affidavit dated 19 December 2017 in which she lists the documents she is required to discover. These include BNZ bank statements going back to several years before Mrs Cooke’s death. There is therefore little weight in Mr Connell’s submission that forcing Mrs McMillan to hand the Craigs portfolio over to the executors would have provided the executors access to bank statements they would not otherwise have had.
[43] In any case, I note that on 2 June 2017 Mr Cooke’s solicitors wrote to Mrs McMillan’s solicitors requesting copies of Mrs Cooke’s bank statements from the year before her death, along with other documentation. Mr Humphrey in his written submissions said this information either did not exist or was provided to the Public
Trust. It is therefore difficult to accept that forcing Mrs McMillan to relinquish ownership of the bank accounts to the estate was the only way to obtain access to the statements. It follows it provides little reason not to accept the second settlement offer.
[44] Mrs McMillan’s position is also that Mr Cooke took a number of steps which unreasonably prolonged the proceeding, including:
(a) Filing a defective statement of claim;
(b) Failing to obtain the permission of the Public Trust to bring the proceeding as a derivative action under r 18.5 of the High Court Rules 2016;
(c) Advancing an inherently contradictory case; and
(d) Late compliance with discovery requirements.
[45] I do not think these matters are particularly relevant. They may have delayed the proceeding to some extent, but it remained on track after suitable adjustments were made. The primary factor that needlessly prolonged the proceeding was Mr Cooke’s refusal of the second settlement offer. I have already found this was unreasonable. This is particularly so given Mr Cooke did not respond to the second settlement offer or otherwise engage with it. If it was just a matter of arriving at the right figure, I would have expected Mr Cooke to have made a counter-offer proposing terms more favourable to him. As it was he seemed to dismiss the second settlement offer out of hand for reasons which were not apparent at the time and are not apparent now. Given the financial terms of the offer, and the extent to which they aligned with what Mr Cooke sought from the proceeding, this was unreasonable.
[46] However, I have also found that it was not unreasonable for Mr Cooke to refuse the first settlement offer given its relatively unfavourable terms. Mr Cooke is therefore entitled to 2B costs up to 23 March 2017, which is the date when the second settlement offer expired. After this (but before 11 May 2018), costs should lie where they fall because Mr Cooke should have accepted the second offer.
Costs after 11 May 2018
[47] The third settlement offer expired on 11 May 2018. It was not responded to by Mr Cooke until his counter-offer was sent on 21 May 2018. Mrs McMillan submitted the counter-offer was unreasonable as it introduced issues not relevant to the proceedings such as the allegation that a portion of the Craigs portfolio was held on trust for the Garland Trust.
[48] After Mrs McMillan refused to accept the counter-offer, Mr Cooke eventually relented and accepted the fourth settlement offer, which was materially the same as the third settlement offer except for the determination of costs.
[49] Mrs McMillan submitted there was no reason for Mr Cooke not to accept the third settlement offer. She seeks 2B costs along with an increase of 25 percent to reflect Mr Cooke’s unreasonable stance.
[50] I agree Mr Cooke should have accepted the third settlement offer. Even more than the second settlement offer, it settled all the issues he sought to have determined in the hearing. This is consistent with his own argument now that he was the successful party because the consent orders gave him everything he sought. The consent orders essentially replicated the fourth settlement offer, which was materially the same as the third.
[51] The only difference was the matter of costs. It is clear from the counter-offer and from Mr Cooke’s eventual acceptance of the fourth settlement offer that he did not want costs to lie where they fell. One of the terms of the counter-offer was that Mr Cooke’s costs should be paid by Mrs McMillan and out of the estate. Moreover, his position in this proceeding has been he is entitled to costs from Mrs McMillan. This I glean was the motive for him refusing the third settlement offer. That stance was not a reasonable one. Other than the period prior to the expiry of the second settlement offer, I have found costs should lie where they fall. Mr Cooke should have accepted the third settlement offer. Although this would have meant costs prior to 23 March 2017 would have lain where they fell (as opposed to being allocated to Mr Cooke), this loss would have been offset by the costs Mr Cooke would have saved after 11 May 2018 had he accepted the third settlement offer.
[52] I note Mr Cooke’s response to the third settlement offer was a counter-offer made some 10 days after the expiry of the third offer. The hearing was imminent. No reason was given for the delay. In addition, I agree with Mrs McMillan that the counter-offer introduced issues that were not relevant. If Mr Cooke had been of a mind to accept the third settlement offer, but been genuinely concerned as to the determination of costs, he could have made a response saying as much far more promptly than he did. As it was, he made a late and unreasonable counter-offer, before eventually accepting Mrs McMillan’s fourth settlement offer at the eleventh hour. He maintains that that settlement offer provided him with everything he sought from the proceeding. In such circumstances, I do not think it was reasonable for him to refuse the third settlement offer.
[53] However, I am unable to agree with Mrs McMillan that Mr Cooke’s stance was so unreasonable that she should be entitled to increased costs. I infer that Mr Cooke, by making the counter-offer, was negotiating for advantage. While the counter-offer itself was objectively unreasonable, this kind of approach is common enough in negotiation prior to trial. I will not penalise it in this case. I will allocate 2B costs to Mrs McMillan for the period after 11 May 2018.
Result
[54] I make the following orders:
(a) For the period up to 23 March 2017, Mr Cooke is entitled to costs on a 2B basis.
(b) For the period between 23 March 2017 and 11 May 2018, costs lie where they fall.
(c) For the period after 11 May 2018, Mrs McMillan is entitled to costs on a 2B basis.
Brewer J
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