IN THE Court of appeal OF new Zealand

I TE KŌTI PĪRA O AOTEAROA	
 CA324/2018
 [2019] NZCA 64

	
BETWEEN	
AARON NICHOLAS GUEST
Appellant	
	
AND	
JOANNE ELIZABETH GUEST
First Respondent	
	
AND	
GUEST TRUSTEE LIMITED
Second Respondent	
	
AND	
MELISSA ANNE GUEST
Third Respondent	
	
AND	
JUDITH ANNE WARNER
Fourth Respondent	

Hearing:	
13 February 2019	

Court:	
Miller, Simon France and Peters JJ	

Counsel:	
J G Ross for Appellant
G R Mathieson for Respondents	

Judgment:	
22 March 2019 at 3.00 pm	

JUDGMENT OF THE COURT

A	The application for leave to admit further evidence is declined, other than to admit a letter of 7 November 2018 which was inadvertently left out of a chain of correspondence.
B	The appeal is allowed.
C	The costs order in the High Court is quashed.  The appellant is entitled to an award of scale costs on a 2B basis plus usual disbursements.  The figure is to be calculated in accordance with [29].
D	The first, second and third respondents, together with Mr Basil Ian Livingstone, are jointly and severally liable to meet this costs award.
E	The appellant is entitled to an award of costs for a standard appeal on a band A basis together with reasonable disbursements.
____________________________________________________________________

REASONS OF THE COURT

(Given by Simon France J)
[1]	An application was brought in the High Court to determine who was, and who should be, trustees of the Martin and Anne Guest Family Trust (the Trust).  The Trust is connected to one side of a family partnership through which two brothers farmed land in Northland.  Although not formally a party to the proceeding, Aaron Guest played an active role.  He is one of four children of Martin and Anne Guest, and a beneficiary of the Trust.  The end result of the proceeding was that all current trustees were removed, and a professional trustee appointed.  This was an outcome Aaron Guest had supported, and which he had suggested some time earlier as a means of resolving the proceeding.
[2]	Jagose J ordered that all parties bear their own costs.  Aaron Guest now appeals that order, claiming his costs should be met by the respondents, and also by a non‑party.
[3]	The respondents applied for leave to admit further evidence on the appeal.  Document A, dated 7 November 2018, was a letter in a chain of documents already before the Court.  The letter was omitted in error and leave is given to admit it on appeal.  The other numerous documents were not of assistance to the narrow issue on appeal and do not require further elaboration.  Save for Document A, the application is dismissed.
Facts
[4]	Martin and Bill Guest were brothers who farmed properties in an informal partnership.  Each brother eventually established family trusts which came to own some of the properties on which the enterprise was based.  The fourth respondent, Judith Anne Warner, is an accountant who was known to Martin and Bill.  She worked with Bill on some farmer advocacy matters.  The firm with which she was associated carried out the book keeping for the partnership, and a partner was an initial trustee of the Trust.  That firm partner retired and another was appointed.  When that partner died, Ms Warner took over these roles.
[5]	After Martin Guest died, Anne Guest became more involved in the partnership and developed concerns about the accounting.  A particular concern was whether the two brothers had been treated equally, or whether Bill had been favoured.  Mrs Guest’s concerns led to differences between her and Ms Warner.  In her inquiries, and subsequently in proceedings she brought, Mrs Guest has been assisted by her brother, Basil Ian Livingstone.  He is the non‑party against whom Aaron Guest seeks costs.
[6]	At one point in the dispute Mrs Guest purported to remove Ms Warner as a trustee.  She replaced her with a corporate trustee which was an entity of her brother’s.  Mr Livingstone is the only person involved in the company, which has no assets.  In evidence Mr Livingstone accepted the company was formed to protect him from liability.  
[7]	Ms Warner refused to accept the legitimacy of her removal, and refused to facilitate the transfer of assets.  Mrs Guest initiated proceedings seeking to confirm that Ms Warner was no longer a trustee.  Before they were heard, Mrs Guest died, but her daughters Joanne and Melissa have continued the proceeding.  They are executors of Mrs Guest’s will and have appointed both Joanne and Mr Livingstone’s company as trustees.  Subsequently a further corporate trustee, an alter ego of Melissa, was added as a third trustee.
[8]	This proceeding is not the only litigation within the family.  Aaron Guest, the brother of Joanne and Melissa, had subsequent to his father’s death been farming the properties.  Likewise, it seems, Sam Guest, a son of the now deceased Bill Guest, has been carrying out that family’s side of the family partnership.  Aaron Guest asserts that the trusts were a succession plan designed to ensure he took over and inherited his family’s side of the farming operation.  There are no formal documents that give effect to this plan and Aaron has brought proceedings in contract and under the testamentary promises regime.  There was a third proceeding involving dissolution of the informal family partnership.  That has now been settled.  This background explains why Aaron was involved in the dispute as to who were and should be the trustees of his parents’ family trust.  Aaron has different interests to those of his sisters.  A fourth sibling, Phillip, appears to be neutral.
The original pleadings
[9]	The plaintiffs’ (now first, second and third respondents) claim set out the history leading up to Ms Warner’s purported removal.  It alleged Ms Warner was under the control and supervision of Bill Guest, detailed benefits she allegedly received personally, and identified financial actions by the Guest partnership that appeared not to treat the Martin Guest side equally.  The claim further alleged the partnership officers, namely Bill Guest and Ms Warner, failed to disclose financial information and that Ms Warner had a conflict of interest.  The proceeding sought orders:
(a)	confirming the only present trustees are Joanne Guest and the two corporate trustees;
(b)	alternatively, removing Ms Warner as trustee and appointing those three as the only trustees; and
(c)	directing transfer of all assets to the trustees.
[10]	Ms Warner’s statement of defence denied she had been properly removed as trustee.  Then by way of counterclaim it alleged various misuses of power by Joanne Guest and Mr Livingstone’s trustee company.  It alleged discriminatory treatment of Aaron Guest.  Ms Warner sought orders:
(a)	removing all trustees (including herself); and
(b)	appointing an independent trustee plus the fourth sibling, Phillip.
The plaintiffs filed a reply objecting to the independent trustee proposal.
[11]	Aaron Guest filed a statement of defence which was similar to Ms Warner’s.  He alleged improper purpose in the exercise of trustee powers.  The essential proposition was that his mother, Anne, exercised her powers as trustee to defeat his own interests and advance hers.  Similar motivations were claimed against his sisters.  Allegations were then made against Mr Livingstone in the context of alleging unfitness to be a trustee.  Aaron Guest sought orders:
(a)	appointing the same independent trustee advanced by Ms Warner, and his brother Philip; but
(b)	as a point of difference, the reinstatement of Ms Warner (if necessary).
The decision under appeal
[12]	Jagose J heard evidence over several days.  He concluded that the divisions in the family were significant and that Joanne and Melissa, and their uncle Ian, had a marked antipathy to what they considered to be Bill Guest’s misconduct of the partnership business.  His Honour found that coloured their view of those seen as associated with the business, namely Anne Warner and Aaron Guest.
[13]	Jagose J identified a list of actions by each of the three plaintiffs that displayed an inability to take a neutral position, concluding there was a degree of wilful blindness to seeing any objective for the Trust other than their own views.  There was an appearance of collusion, and the Judge described conduct of one trustee when seated in the public gallery which supported a perception of partiality.  His conclusion was that the appointment of a new independent trustee was desirable because it would be preferable to not have some of the beneficiaries as trustees; the current trustees seemed focused solely on sale of the assets when a purpose of the trust, at least initially, was to support a working farm; and:
(c)	Ian, Joanne and Melissa’s plain “animosity” towards Bill and the partnership [was] a clear disincentive to their efficiently executing the trusts, and faithfully and soundly exercising their trustee powers.
[14]	The Judge made separate orders appointing a single trustee, Chris Darlow, an Auckland barrister and solicitor. The sealed order refers to Mr Darlow or a trustee company.
[15]	Concerning costs, Jagose J held:
[42]	In  my preliminary view, each party should bear their own costs in this proceeding.  That is because:
(a)	the costs should not be borne by the M&A Family Trust;
(b)	no‑one can claim truly to be the successful party in the proceeding;
(c)	the costs of the Martin and Anne Guest family members and advisors are further investments made in those beneficiaries’ personal interests; and
(d)	Anne Warner’s liability for her own costs acknowledges the Carmine v Ritchie principle: a trustee who unsuccessfully fights an action for their removal without the court’s sanction “is personally exposed to costs, even if he or she acts on counsel’s opinion and in good faith”.
	Some costs incurred in this proceeding may be recoverable in one or another of the other proceedings.  I do not know.  A decision parties should bear their own costs in this proceeding does not prevent that.
(Footnotes omitted)
[16]	The parties did not accept this preliminary view and filed submissions in support of different costs orders.  Aaron Guest sought 2B costs jointly and severally from the plaintiffs and from Mr Livingstone; Ms Warner sought 2B costs from the Trust or increased costs from the plaintiffs personally; and the plaintiffs accepted costs could lie where they fell, but if there was not agreement to that, sought 2B costs from Ms Warner.  Jagose J held:
[3]	All parties have responded to the claims (including Aaron to the former trustees’ claim against Anne Warner), and in turn reply to those responses.  Also relevant is:
	(a)	this is one of three inter‑related proceedings between the Guest interests (although Anne Warner is not party to those other proceedings);
	(b)	very substantial litigation funding is provided by Joanne and Melissa in their personal capacities, and by Mr Livingstone; and
	(c)	Anne Warner is indemnified in the proceeding by the Bill and Glenis Guest Family Trust.  Bill Guest was Martin’s brother.
[4]	Having reviewed all those memoranda, I am reinforced in my preliminary view, for the reasons set out in my 12 April 2018 judgment.  Costs are to lie where they fall.
[17]	Aaron Guest appeals, again seeking the same orders as he did in the High Court.
Discussion
[18]	While costs are discretionary, that discretion is to be exercised according to a set of principles, the most basic of which is that costs are normally awarded to the party who has the success.  Jagose J concluded, without elaboration, that no‑one could claim to be truly successful.  As between the respondents and Aaron Guest, we consider that is not a correct assessment.  The respondents ought to have recognised their lack of independence and agreed to step aside in favour of an independent trustee.  Instead, they sought to remain as trustees and expressly rejected, in reply pleadings, such an appointment.  By contrast, Aaron Guest sought the appointment of an independent trustee as well as his brother Philip, and the reinstatement of Ms Warner.  However, it is common ground that Ms Warner was willing to resign if an independent trustee was appointed.
[19]	At the appeal, counsel for the respondents did not really challenge the proposition that, as between these parties, the success lay with Aaron Guest.  We consider that was correct.  Rather, other bases were advanced to support the costs outcome in the High Court.
[20]	Their first and core proposition is that this proceeding has to be seen in the broader context of the family dispute and the three separate proceedings.  Mr Mathieson, for the respondents, advised, for example, that the reason Aaron Guest’s compromise proposal of a sole independent trustee was not accepted was that it did not settle all the issues between the parties.  Likewise, it was primarily for this reason that Mr Mathieson submitted in his written submissions no‑one could claim to be successful.  The litigation was only one aspect of a broader on‑going battle.  We observe the latter point might support a decision to reserve the issue of costs, but that was not the view of the Judge and we see no reason to differ.
[21]	The respondents are entitled to adopt whatever litigation strategy they wish.  But the inescapable reality is that the High Court had directed that this proceeding was to be heard separately and first.  There was a standalone outcome to the proceeding, and the Court decided to determine costs.  Aaron Guest’s settlement offer would have had the exact outcome the Court reached.  He described this letter as a Calderbank letter.  Certainly, it was a suggested compromise that mirrored the eventual outcome.  It is advanced by him, seeking only scale costs, as a basis to resist any suggestion of further limiting his costs.  Used in that way, we consider it merits considerable weight.
[22]	The second main plank in the respondents’ case is the proposition that Aaron Guest’s involvement was unnecessary and that he was responsible for irrelevant and contentious material being introduced.  Concerning his involvement, it is clear there was a degree of overlap between the positions taken by Ms Warner and Aaron Guest.  However, his interests were quite different from those of an independent trustee who was taking a more active role than might be expected.  The respondents were directed to serve Aaron Guest as an interested party and he was entitled to be involved.
[23]	As regards the scope of the proceeding, we note that it was Aaron Guest’s task to satisfy the Court that the respondents should not remain as trustees.  A court does not lightly remove trustees and so he had to point to matters that provided an evidential basis for it to act.  In his judgment Jagose J made significant findings about the respondents’ lack of fitness to be trustees.  Understandably his Honour did not traverse all the evidence that informed these conclusions, but we note there was no criticism of the evidence led by Mr Guest.  Plainly at least some of the material he introduced underlay the Court’s decision.  Further, the pleadings between the respondents and Ms Warner already set the context for a considerable amount of the underlying dispute to at least put in an appearance at this hearing.  We have not been satisfied the type of case run by Mr Guest merits a departure from the basic costs rule.
[24]	Another strand of the respondents’ argument was that much of Mr Guest’s core position concerning his other claims was untenable and has been discredited.  Mr Mathieson accepted, however, that the Judge did not conclude this and rather it was counsel’s assessment of the evidence.  Accordingly, we do not address it further.
[25]	We recognise this is an appeal from a costs decision.  Further, the context is a family dispute and his opportunity to directly observe the various dynamics means that caution is needed before interfering with the Judge’s assessment.  However, we consider it appropriate to do so because on our assessment the trial Judge departed incorrectly from the basic rule that costs follow the event.  We can see no other conclusion but that Aaron Guest was successful in the High Court proceeding as against the respondents.  For that reason, we will allow the appeal.
Costs against the non‑party
[26]	It is settled law that an award of costs may be made against a non‑party.  The relevant factors have been discussed in S H Lock (NZ) Ltd v New Zealand Bloodstock Leasing Ltd and Arklow Investments Ltd v MacLean.  Important considerations are the extent to which the non‑party stands to gain from the litigation, and the level of involvement of the non‑party in the litigation.
[27]	There is no doubt Mr Livingstone has been heavily involved.  He swore several affidavits and has given evidence.  He advanced at least $260,000 to the Trust and has been involved in many of the key decisions along the way.  Through his company, Guest Trustee Ltd (the second respondent), Mr Livingstone acted as a trustee of the Trust.  Guest Trustee Ltd is a corporate shell with no assets or income.  It exists solely to be trustee of the Trust, and Mr Livingstone accepted he had formed it solely to insulate himself from liability as a trustee.
[28]	We do not accept the proposition advanced on appeal that Mr Livingstone was merely a loyal brother assisting his sister.  That may have been the initial motivation, but it is clear his involvement has been much greater.  He has been as equally involved as his nieces Melissa and Joanne.  He is a significant creditor of the Trust, and is aligned with the other trustees who are also beneficiaries.  There can be no doubt he is interested in the matter in all respects.  That of recent times he formally acts through a corporate entity should not in all these circumstances insulate him from a costs liability he would bear if a trustee in his own name.  We accordingly consider it is appropriate to include him in the costs liability.
Quantum
[29]	Aaron Guest sought 2B costs plus reasonable disbursements.  We consider that is the appropriate measure.  The initial calculation was $116,632.50, but an incorrect daily rate was used;  when that is corrected the claim is for $111,837.50.  At the hearing it was accepted items 23, 24 and 26, which relate to an interim receivership application, are not properly included in this assessment.  Two of the sums claimed under item 36 were included in error — the parties had reached a separate agreement on that.  These items are to be removed.  Mr Mathieson further challenged items that relate to counsel for Mr Guest considering documents sourced by Ms Warner.  It was submitted there was a level of common interest that made this unnecessary.  We disagree; counsel was obligated to consider that material including perusing the documents thereby being produced, and advise his client in relation to them.  These items are properly claimed.  The other challenges do not require detailing and are not accepted.
[30]	These adjustments reduce the total by $7,470.50, to $104,367.
Result
[31]	The application for leave to adduce further evidence is declined, other than to admit a letter of 7 November 2018 which was inadvertently left out of a chain of correspondence.
[32]	The appeal is allowed.
[33]	The costs order in the High Court is quashed.  The appellant is entitled to an award of scale costs on a 2B basis plus reasonable disbursements.  The figure is to be calculated in accordance with [29].
[34]	The first, second and third respondents, together with Mr Basil Ian Livingstone, are jointly and severally liable to meet this costs award.
[35]	The appellant is entitled to an award of costs for a standard appeal on a band A basis together with reasonable disbursements.

Solicitors: 
The Oaks Law Centre Ltd, Whangarei for Appellant
Greg Kelly Law Ltd, Wellington for Respondent