IN THE HIGH COURT OF NEW ZEALAND MASTERTON REGISTRY

I TE KŌTI MATUA O AOTEAROA WHAKAORIORI ROHE	
CIV-2022-435-10
[2023] NZHC 1509	

UNDER	section 21 of the Administration Act 1969 and s 112 of the Trusts Act 2019	
IN THE MATTER	of an application for removal of an administrator of the estate of James Edwin Veale	
BETWEEN	ANGELA WENDY FERGUSON and GARRY JAMES VEALE
Plaintiffs	
AND	MARGARET HANNAH HOLLAND
Defendant	

Hearing:	On the papers	
Appearances:	D Kerr for Plaintiffs
E Cox and R Georgiou for Defendant	
Judgment:	16 June 2023	

JUDGMENT OF ASSOCIATE JUDGE SKELTON
[Costs]

[1]	This proceeding relates to the estate of the late James Edwin Veale. The defendant, a sister of the deceased, was the executor of the estate. The plaintiffs are two of the deceased’s three children and beneficiaries of his estate.

[2]	The plaintiffs sought the removal and replacement of the defendant as executor under s 21 of the Administration Act 1969 and s 112 of the Trusts Act 2019.

FERGUSON v HOLLAND [2023] NZHC 1509 [16 June 2023]

[3]	On 6 March 2023, Associate Judge Johnston made orders by consent which removed and replaced the defendant as executor of the deceased estate. Those orders provided that the new executor would have sole management and administration of the estate and may review the prior conduct of the administration of the estate.1 Those orders determined the substantive issues in the proceeding.

[4]	Costs were reserved and the parties were directed to file submissions. Both parties have filed submissions seeking costs.

Legal principles

[5]	Costs are ultimately a matter of the court’s discretion, the overall objective being to achieve an outcome that best meets the interest of justice.2 However, that discretion is qualified by the applicable costs rules,  contained  in  pt  14  of  the  High Court Rules 2016. The primary principle applying to the determination of costs is that costs follow the event – meaning that a party who is unsuccessful pays costs to a party who is successful.3

[6]	The Court may order a party to pay increased costs where the party opposing costs has contributed unnecessarily to the time or expense of the proceeding or a step in it.4 An example of this is failing, without reasonable justification, to accept an offer of settlement whether in the form of an offer under r 14.10 or some other offer to settle or dispose of the proceeding.5 Essentially, increased costs may be awarded where there is a failure by the paying party to act reasonably.6

[7]	The Court may also award the actual costs reasonably incurred by a party (indemnity costs).7 Indemnity costs may be ordered if, for example, the party has acted

1	Ferguson v Holland HC Wellington CIV-2022-435-010, 6 March 2023 (Minute of Associate Judge Johnston.
2	High Court Rules 2016, r 14.1; Manukau Golf Club Inc v Shoye Venture Ltd [2012] NZSC 109, [2013] 1 NZLR 305 at [7] and [16]; Glaister v Amalgamated Dairies Ltd [2004] 2 NZLR 606 (CA) at [21]–[24] and [28]; and Mansfield Drycleaners Ltd v Quinny’s Drycleaning (Dentice Drycleaning Upper Hutt Ltd) (2002) 16 PRNZ 662 (CA) at [27].
3	Rule 14.2(1)(a).
4	Rule 14.6(3)(b).
5	Rule 14.6(3)(b)(v).
6	See Bradbury v Westpac Banking Corp [2009] NZCA 234, [2009] 3 NZLR 400 at [27].
7	High Court Rules 2016, r 14.6(1)(b).

vexatiously, frivolously, improperly, or unnecessarily in commencing, continuing, or defending a proceeding or step in a proceeding.8 Indemnity costs may also be awarded where some other reason exists which justifies the Court making an order for indemnity costs, despite the principle that the determination of costs should be predictable and expeditious.9 Essentially, indemnity costs may be awarded where a party has behaved either badly or very unreasonably.10

Background

[8]	It is necessary to set out the background to this proceeding.

[9]	On 29 July 2022, the plaintiffs’ counsel wrote to the defendant’s then solicitors (Innes Dean) alleging misconduct on the part of the defendant in how she had administered the estate, and seeking an unqualified undertaking that there would be no further distribution from the estate other than by order of the Court or the consent of all beneficiaries of the estate.

[10]	The letter stated that if the undertaking was not received by 5.00pm on Tuesday 2 August 2022, then substantive proceedings and an interlocutory application for an interim injunction would be filed.

[11]	The undertaking was provided by Innes Dean at 1.49pm on 2 August 2022.

[12]	On 4 August 2022, Innes Dean asked that the plaintiffs provide details of a proposal for the removal of the defendant as executor before the issuing of proceedings, so that unnecessary costs to the estate could be avoided.

[13]	Counsel for the plaintiffs responded the same day stating that he was taking instructions on a proposal about a change of administrator by consent. He advised that the substantive proceeding had been filed because, even if the defendant ultimately consented to being removed, an order of the Court would still be required.

8	Rule 14.6(4)(a).
9	High Court Rules, r 14.6(4)(f).
10	Bradbury v Westpac Banking Corp, above n 6, at [27]–[28]; and Prebble v Awatere Huata (No. 2)
[2005] NZSC 18, [2005] 2 NZLR 467 at [6].

[14]	Innes Dean replied on 8 August 2022 stating that the filing of the statement of claim, despite receiving the undertaking, was contrary to the plaintiffs’ stated intentions. The defendant reserved the matter of costs of the defence for the estate. Innes Dean accepted service of the proceedings on behalf of the defendant and waived the requirement of initial disclosure as requested by the plaintiffs’ counsel.

[15]	The statement of claim dated 2 August 2022 alleged various acts of misconduct by the defendant and sought:

(a)	an order discharging the defendant as the administrator of the estate;

(b)	an order requiring the defendant to compensate the estate for losses caused; and

(c)	costs.

[16]	On 10 August 2022, counsel for the plaintiffs wrote to Innes Dean putting a proposal that:

(a)	the defendant be replaced;

(b)	the defendant compensate the estate in the sum of $10,000 in relation to the sale of the property for less than the best possible price; and

(c)	the defendant pay scale costs to the plaintiffs on a 2B basis in the sum of $10,004.00.

[17]	At that stage, the defendant engaged Gibson Sheat. Gibson Sheat wrote to the plaintiffs’ counsel on 6 September 2022 rejecting the 10 August 2022 offer and proposing removal of the defendant as the executor by consent on the following conditions:

(a)	the plaintiffs would indemnify the defendant for her actions as executor to date and agree to take no further action against her; and

(b)	the plaintiffs would not seek costs or damages against the defendant.

[18]	On 12 September 2022, counsel for the plaintiffs wrote to Gibson Sheat rejecting the defendant’s offer and repeating the plaintiffs’ offer of 10 August 2022.

[19]	On 23 September 2022, Gibson Sheat wrote to the  plaintiffs’  solicitors  (JAG Legal) on a “without prejudice save as to costs” basis. The letter noted the existence of an indemnity clause (cl 8) in the deceased’s will. Gibson Sheat contended that cl 8 gives the defendant an indemnity against the estate assets for any liability that is asserted. The letter also noted the possibility of increased costs against the plaintiffs if their claim did not succeed for various reasons.

[20]	The defendant offered to settle the claim (without admission of liability) by:

(a)	consenting to her removal as the administrator of the estate; and

(b)	a payment of $5,000 towards the plaintiffs’ legal costs.

[21]	On 30 September 2022, counsel for the plaintiffs wrote to Gibson Sheat on a “without prejudice save as to costs” basis. He advised that the plaintiffs rejected the defendant’s offer. The plaintiffs’ offered to settle on the basis that:

(a)	the defendant be removed and replaced as executor; and

(b)	the defendant pay costs to the plaintiffs in the sum of $10,004.00.

[22]	This offer was rejected by the defendant. The defendant filed her statement of defence on 19 October 2022 following extensions agreed by the parties. The first case management conference was originally scheduled for 7 February 2023 but was adjourned for a month to see if the parties could finalise a settlement.

[23]	On 21 February 2023, Gibson Sheat sent a further “without prejudice save as to costs” offer, proposing that the defendant would retire as executor of the estate, there would be no admission of liability, and the parties would go to a costs hearing for the Court to decide the issue of costs.

[24]	This offer was rejected by the plaintiffs on 28 February 2023. The plaintiffs made a further counteroffer on a “without prejudice save as to costs” basis, proposing that:

(a)	the defendant would retire and be replaced;

(b)	the defendant would personally pay scale costs to the plaintiffs of approximately $14,101.00 plus disbursements; and

(c)	the remaining parts of the claim relating to compensation for loss would be discontinued.

[25]	On 2 March 2023, the defendant rejected the plaintiffs’ offer. On the same day, Gibson Sheat also wrote to counsel for the plaintiffs on an open basis in advance of the case management conference on 7 March 2023 advising that:

(a)	the defendant denied any misconduct on her part as executor but that she would consent to her removal as executor;

(b)	in terms of the remaining claims in the statement of claim, no loss had crystallised and those claims should fall away; and

(c)	the defendant maintained there was no breach of duty over the sale of the property in Woodville.

[26]	On 3 March 2023, a further “without prejudice save as to costs” offer was made by the plaintiffs to settle the proceeding. In consideration of the defendant’s willingness to be replaced as executor by one of their nominees, the plaintiffs were willing to discontinue the claim and allow the Court to determine costs. The defendant accepted this offer.

The plaintiffs’ application

[27]	The plaintiffs seek an award of costs on a category 2B basis against the defendant personally and invite the Court to consider increasing the award on account

of the defendant’s unreasonable approach to settlement. The scale costs sought are in the total sum of $14,101.00 and disbursements in the total sum of $1,400.00.

[28]	The plaintiffs acknowledge the legal principle that, although a trustee is personally liable for an expense or liability incurred when acting as a trustee, he or she is generally entitled to be indemnified out of trust funds if he or she has acted reasonably in incurring that expense or liability.11

[29]	However, the plaintiffs submit that in this case, where there has been a “hostile claim” and allegations of misconduct against the defendant, the defendant is not entitled to be indemnified out of the trust fund for their legal costs or for any costs that they are required to pay to the other party. The plaintiffs rely on the decision of the Court of Appeal in McCallum v McCallum.12 In that case, the Court of Appeal noted that:13
Misconduct, broadly construed may deprive a trustee of a right to indemnity. Given we are dealing here with assets the trustee is charged with protecting, misconduct includes careless and unreasonable conduct in the conduct of litigation or the management of the trust. A trustee partisan in his own interests or the interests of only some beneficiaries likewise may be deprived of indemnity.14

[30]	In summary, the plaintiffs’ position is that the defendant should be held personally liable for the plaintiffs’ costs and should bear her own legal costs because the application for her removal was expressly based on allegations of misconduct, and she has also taken an unreasonable approach to the litigation and the resolution thereof.

[31]	The defendant acknowledges that the plaintiffs ultimately achieved one of the orders sought in the statement of claim with the defendant agreeing to be replaced as executor. The defendant does not oppose the costs of her removal as executor being met by the estate. However, she rebuts any entitlement to a costs order against her personally.

11	See Trusts Act 2019, s 81.
12	McCallum v McCallum [2021] NZCA 237. (2021) 32 FRNZ 851.
13	At [32].
14	Lynton Tucker, Nicolas Le Poidevin and James Brightwell Lewin on Trusts (20th ed, Sweet & Maxwell, London, 2020) vol II at [48-008].

[32]	The defendant relies on cl 8 of the deceased’s will which states:

Liability of Trustees

I direct no Trustee shall be personally liable for any loss incurred as a Trustee in the course of administration of my estate but, if personal liability be asserted, a Trustee will be entitled to full indemnity from my estate unless that liability arose from the Trustee’s own dishonesty or from the wilful commission or omission by that Trustee of an act known to be a breach of trust.

[33]	The plaintiffs say that cl 8 does not apply in this case because they are not seeking to hold the defendant personally liable for any losses she has caused the estate. Rather, they are seeking an award of costs against her, and to prevent her from resorting to estate funds to meet that award or to pay her own litigation expenses.

[34]	The defendant says that, even if the indemnification clause does not apply, the defendant is entitled to indemnification because of the general principle that trustees ought to be indemnified for costs properly incurred in the exercise of their duties.

[35]	The defendant says also that in the circumstances it was not necessary for proceedings to be filed. Further, there has been no determination of the merits of the plaintiffs’ application. Therefore, the proper course is to determine costs on the basis of the actions of the parties in filing, defending and settling the proceedings.15

Discussion

[36]	It is clear that there has been no determination of the merits of the allegations of misconduct made against the defendant in the plaintiffs’ statement of claim. Nor is it appropriate for any such determinations to be made as part of the determination of costs. I agree with counsel for the defendant that the focus regarding costs is on the parties’ conduct in relation to the proceedings.

[37]	When the defendant became aware of the potential application for her removal as executor, she asked the plaintiffs to provide details of a proposal for removal before the issue of proceedings so that unnecessary costs to the estate could be avoided. Subsequently, when it became clear that proceedings had been issued, the defendant’s

15	See Dunham v Chambers [2014] NZHC 9 at[9].

solicitors were given instructions to accept service and to agree to dispense with the need for both parties to provide initial disclosure. When it became necessary, after there had been agreements to extensions of time, the defendant filed and served a statement of defence. The defendant engaged with the plaintiffs in attempts to settle the matter and was from the outset prepared to consent to her removal as executor and replacement on various conditions.

[38]	With regard to the various settlement offers, up until March 2023, the plaintiffs’ offers required that  their  scale  costs  be  paid  by  the  defendant  personally.  On  23 September 2022, the defendant offered to consent to her removal as administrator without any admission of liability and to pay $5000 towards the plaintiffs’ costs. This offer was rejected by the plaintiffs.

[39]	There are similarities between this case and Dunham v Chambers.16 In that case, proceedings were filed by Mrs Dunham to remove Mr Chambers as executor for misconduct when she was aware that he was willing to be removed, albeit not because he accepted the allegations of misconduct, but due to the stress and tensions the office had caused him, and he was in the process of preparing his own application to remove himself. There was no determination of the merits. Katz J found:17
Mr Chambers appears to have behaved cooperatively and reasonably in relation to both applications. Unproven allegations of misconduct in relation to the administration of the estate in a more general sense cannot justify a personal indemnity costs award against Mr Chambers in relation to the two specific applications before the Court. Indemnity costs awards are exceptional, as are costs awards against an executor personally. Mrs Dunham has not established that sufficient grounds exist for the making of a personal indemnity costs award against the executor in this case.

The appropriate course is an award of scale costs on a 2B basis, to be paid out of the estate, in respect of both applications… .

[40]	Based on my review of the conduct of the parties in this proceeding, my assessment is that the defendant has behaved cooperatively and reasonably. I consider that the appropriate course is an award of scale costs to the plaintiffs on a 2B basis, to be paid out of the estate.

16	Dunham v Chambers, above n 15.
17	At [12]–[13].

The defendant’s costs

[41]	The defendant seeks reimbursement for her costs in defending the proceedings primarily pursuant to cl 8 of the deceased’s will.

[42]	Even if the scope of this clause is not sufficiently wide to encompass personal liability for costs in these circumstances (and I make no finding in this regard), executors are in any event generally entitled to have their actual and reasonable costs met by the estate.18

[43]	I have found that the defendant’s conduct in relation to the proceeding was cooperative and reasonable. As such, in accordance with usual principles, the defendant’s costs are appropriately met out of the estate.

Result

[44]	Orders are made as follows:

(a)	The plaintiffs’ costs in relation to the proceedings are to be met by the estate on a category 2B basis in the total sum of $14,101.00 together with disbursements in the total sum of $1,400.00.

(b)	The defendant’s actual and reasonable costs and disbursements in relation to defending the proceedings are to be met by the estate. The defendant is to prepare a costs schedule for approval by the Court within 14 days of the date of this judgment.

Associate Judge Skelton

Solicitors:
JAG Legal, Lower Hutt for Plaintiffs Gibson Sheat, Wellington for Defendant

18	Dunham v Chambers, above n 15, at [14]–[16]; citing Keelan v Peach [Costs] NZFLR 727 at [7].