MCLAUGHLIN v MCLAUGHLIN [2023] NZCA 473

MCLAUGHLIN v MCLAUGHLIN [2023] NZCA 473 [29 September 2023]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA712/2021CA435/2022[2023] NZCA 473BETWEEN MARK JAMES MCLAUGHLIN ANDANDREW ASHLEY MCLAUGHLINAppellantsAND JOHN DAVID MANUEL MCLAUGHLINFirst RespondentAND GLASGOW HARLEY TRUSTEELIMITEDSecond RespondentAND BRETT GARDNER MCLAUGHLINInterested PartyHearing: 7 March 2023Court: French, Courtney and Clifford JJCounsel: J W A Johnson, S T Dymond and A A H Low for AppellantsN S Gedye KC, G G Dill-Russell and O D Peers for FirstRespondentNo appearance for Second RespondentJ M McGuigan for Interested PartyJudgment: 29 September 2023 at 3 pmJUDGMENT OF THE COURTA The appellants' application for leave to adduce the further evidence ofMark James McLaughlin is declined.B The appeal in CA712/2021 is dismissed.C The appeal in CA435/2022 is dismissed and the cross-appeal allowed. TheHigh Court's imposition of a 20 per cent reduction on the costs anddisbursements otherwise payable to the first respondent by the appellantsand the Trust is quashed, but in all other respects the High Court's decisionon costs is affirmed.D The appellants must pay the first respondent costs on the two appeals andcross-appeal calculated on the basis of a standard appeal, band A, togetherwith usual disbursements. We certify for second counsel.____________________________________________________________________REASONS OF THE COURT(Given by French J)Table of ContentsIntroduction [1]Background [8]Events leading to the creation of the Trust [8]The creation of the Trust in 2004 [18]Events after the creation of the Trust [27]Appointment of John as project manager 2008 [38]Events after the commencement of the Ching's Block development [60]The court proceedings [80]The hearing in the High Court [88]The High Court judgment [92]Preliminary matters prior to appeal hearing [104]Arguments on appeal [110]Analysis [114]The rule against self-dealing and the exceptions to it [114]John's conflict of interest as adjoining landowner [129]John's conflict as a paid project manager [139]Implicit authorisation? [139]Express authorisation — clause 13 [149]The costs appeal and cross-appeal [186]The High Court costs decision [186]Arguments on appeal [190]Analysis [194]Outcome [205]Introduction[1] John McLaughlin (John) was a trustee of a family discretionary trustestablished by his parents.1 The Trust undertook a residential subdivision whichincluded the Trust's own land as well as land belonging to John and his wife. John'scompany was engaged by the Trust as the project manager for the subdivision and waspaid a fixed fee.[2] John's three brothers, who are discretionary beneficiaries, became unhappywith the way the Trust was being run. Two of them, the appellants Mark and AndrewMcLaughlin, issued proceedings in the High Court making various claims of breachof trust against John and another trustee, the second respondent Glasgow HarleyTrustee Ltd. Those claims included a cause of action against John for an account ofprofits.[3] The case came before Gendall J. The Judge found on the evidence that Markand Andrew's allegations were unfounded. He held that at all times the trustees,including John, had acted competently and in the best interests of the beneficiaries.2He further held that in so far as John had any conflicts of interest, those conflicts hadbeen either impliedly authorised by the settlors or expressly authorised in the TrustDeed and had been appropriately managed.3[4] Mark and Andrew now appeal the Judge's rejection of their claim for anaccount of profits against John.4 Although a fourth brother, Brett, is not a party to theappeal, he was represented as an interested party and made submissions in support ofMark and Andrew's case.[5] Both parties challenge aspects of the Judge's subsequent costs decision.5 Markand Andrew appeal the Judge's decision to award increased costs against them in1 To avoid confusion, we refer to all members of the McLaughlin family by their first names.2 McLaughlin v McLaughlin [2021] NZHC 3015 [High Court judgment] at [372] and [384].3 At [346]–[351] and [357]–[363].4 The claim against the second respondent was withdrawn by agreement shortly before the hearingof the appeal.5 McLaughlin v McLaughlin [2022] NZHC 1841 [Costs judgment].John's favour. John cross-appeals the Judge's decision to discount the award of costsby 20 per cent.[6] The substantive appeal regarding John's liability has been allocated the filenumber CA712/2021. The costs appeal and cross-appeal have been allocated the filenumber CA435/2022. Both appeals were heard at the same time.[7] Although the substantive appeal is limited to the claim against John, it isnecessary to traverse the general factual background in some detail because of theissues raised in the costs appeal.BackgroundEvents leading to the creation of the Trust[8] In the early 1960s, the four brothers, then just children, shifted with theirparents Jim and Edna McLaughlin to Nelson. Jim took up a position as generalmanager of a local company.[9] The couple purchased land in the Marsden Valley. Their first purchase was ofa block of land referred to in the proceeding as the Homestead Block. Relatively soonafter purchasing the Homestead Block, Jim and Edna purchased another block of landacross the road called Ching's Block. Taking both blocks into account, the total landarea acquired was approximately 100 hectares.[10] Jim and Edna ran stock on both properties.[11] It was not an economic farm unit and Jim continued to work full time in hismanagerial role. Jim was an astute businessman and according to the evidence alwayshad it in mind that the land being close to Nelson City would be ripe for residentialsubdivision in the future. He was very confident about that. When it became apparent,however, that no ready market existed for the land, his thinking changed from one ofexploring potential sale opportunities with local developers to a firm belief that moneycould only be made if the family developed the land themselves.[12] In the ensuing years, three of the sons left the Nelson area to pursue careers oftheir own. Mark became a doctor, Andrew a vet and John a registered valuer. Withfinancial assistance from his parents, Brett acquired a small area of land near Ching'sBlock and farmed a portion of the Homestead Block.[13] Jim retired from his managerial position at age 62. There is no evidence as tohis date of birth and therefore no evidence as to exactly when he retired. However,drawing inferences from other evidence, it is likely to have been in the late 1970s orearly 1980s.[14] In 1979 John, who was employed by the Rural Bank at the time, returned toNelson. His parents subdivided a block of five hectares at the back of Ching's Blockwhich they sold to John and his then wife Wendy. For ease of reference, we will callthis five hectares "John's Land".6 This transaction was done at the parents' initiativefor two reasons: partly to prevent the property being resold to someone who mightoppose Jim's subdivision plans and also because Jim thought the sale would set aprecedent for subdivision.[15] During the 1990s, Jim persisted with his vision of a subdivision and madeseveral resource consent applications. These were initially unsuccessful because thelocal authorities were opposed to subdivision in the Marsden Valley.[16] In 1994, Ching's Block and John's Land were rezoned under a plan change torural/residential, and in 1996 Jim and Edna were granted resource consent to subdivide106 hectares. However, the minimum lot sizes stipulated under the consent were toolarge to make a subdivision profitable having regard to the costs involved and thelikely yields from sale of the individual allotments. What Jim needed in order torealise his vision was residential zoning with small urban sections. He continued topress the local authorities and renewed his consent application.6 In May 2017 following the breakdown of their marriage, John and Wendy transferred their landto a family trust, which was not a party to the proceedings. Although the High Court Judgeconsidered this might of itself be an impediment to an accounting of profits, it has becomeunnecessary for us to express any view on the correctness of that proposition.[17] Around 2000, Jim and Edna obtained a further resource consent whichincluded both their land and John's Land. It allowed for subdivision and the creationof around 70 residential lots with a minimum size of 1500 square metres across partsof the Homestead Block and Ching's Block with the balance of the holding sub-divisible into rural/residential lots. In his evidence, John said this "broke the ice" butwas still not sufficient because 70 lots would also have never been economic.The creation of the Trust in 2004[18] The Trust, called the Ashley Trust, was settled by Jim and Edna on 26 February2004. They appointed themselves as the trustees along with John and a solicitor,Mr Brian Nelson, who had acted for Jim and Edna for many years. The discretionarybeneficiaries of the Trust were Jim and Edna, their children, together with any spousewidow or widower of those children, any grandchild or later issue, and any furthertrust or body appointed by deed. The final beneficiaries were Jim and Edna's children.[19] The Trust Deed empowered the trustees to subdivide and develop property, andunder the heading "Settlor's Wishes" provided as follows:9.2 It is declared as the further wish of the Settlor that the Trustees shallrealise the value of the farm property by way of subdivision into individual orlifestyle allotments to better benefit the discretionary beneficiaries.[20] Mr Nelson, who drafted the Trust Deed, testified that Jim had wanted to makeit mandatory for the trustees to undertake a subdivision development but waspersuaded it was better to give them some flexibility in case of unforeseen eventsoutside their control. Hence the word "wish".[21] On 22 April 2004, Jim and Edna transferred Ching's Block and the HomesteadBlock to the Trust for the sum of $9.9 million. The land was the Trust's primary asset.The debt of $9.9 million owing by the Trust to Edna and Jim as a result of the transferwas to be forgiven in their respective wills. Meanwhile, they retained a leaseholdinterest for their lifetime.[22] Also in April 2004, a fifth trustee was appointed, Mr Westrupp, a retiredaccountant.[23] As at the date the Trust was established, both Jim and Edna were in their 80s.Jim's health was failing after a stroke. The subdivision development was in limbowith the necessary consents still to be obtained. Jim remained confident however thatthey would eventually be obtained. It was just a matter of time, possibly a long time,but it would happen. He was convinced there was no money in farming and that thegreatest value in the land lay in subdividing it. He also wanted it to be his family whogot the maximum benefit of that by doing the subdivision itself and not letting externaldevelopers take the golden egg.[24] It is clear in our view from the overwhelming weight of evidence that theprimary reason for the creation of the Trust was to provide a vehicle whereby the landwould be preserved for subdivision and the subdivision work able to be continued afterJim's death. According to Mr Nelson, Jim made the comment that the Trust wouldkeep going long after he was dead and would not be waylaid from its purpose by otherfamily members. Under the Trust Deed, the Trust was to endure for a maximum of80 years.[25] As regards the selection of the initial trustees, Mr Nelson testified that he askedJim why he wanted John to be a trustee and whether any of his other sons should alsobe appointed. Jim's response was that he trusted John to carry out his subdivisionproject and that none of his other sons had any interest in it. In contrast to his brothers,John was interested and being next door was already involved, plus unlike the othershe had experience in business and land development.[26] Under the Trust Deed, the number of trustees was not to be less than twopersons, one of whom could not be a discretionary beneficiary. The deed also providedthat the trustees' decisions were not required to be unanimous. A majority vote wassufficient, provided that the majority included at least one person who was not adiscretionary beneficiary. As noted by the Judge, the combined effect of theseprovisions was that there would always be an independent trustee with no possibleself-interest, and that they would always be part of any majority decision.77 High Court judgment, above n 2, at [357]–[359].Events after the creation of the Trust[27] Between 2004 and 2007 John was actively involved in pursuing thedevelopment plans at Jim's request and with the agreement of the other trustees.[28] In December 2006, the Trust together with John and Wendy made a jointapplication for a resource consent to subdivide Ching's Block. The application wasfor a staged subdivision with 117 residential lots over both the Trust land and John'sLand. The inclusion of both pieces of land was seen as necessary to obtain a consenton the most favourable terms.[29] The subdivision plan and consent application were prepared by surveyors. Jimand John were disappointed with the work that had been done and discussed ways toimprove it. Jim asked John to take over sole management of the consent process.[30] Jim died on 21 May 2007.[31] By the time of Jim's death, John had taken over all aspects of the managementof the project, including the application process, and had begun to assemble a projectdesign team.[32] A few months after Jim's death, Mr Westrupp, who it will be recalled wasappointed a trustee in April 2004, expressed misgivings about the subdivision whichhe thought was too big for the Trust. He also thought John was moving too quickly.Those views were not shared by the other trustees and the Trust's accountant.Mr Westrupp later resigned in September 2007.[33] Also in September 2007, Mr Nelson retired as a trustee in his personal capacityand was replaced by his firm's professional trustee company, the second respondentGlasgow Harley Trustee. Mr Nelson was a director of Glasgow Harley Trustee andacted on its behalf in relation to the Trust. He therefore continued to attend trusteemeetings along with Edna and John.[34] On 8 November 2007, the resource consent that would enable Stage One, theresidential subdivision of 129 lots, of Ching's Block to proceed was finally obtained.8The Trust had 91 lots in the Ching's Block of which 15 were composite or shared lotscomprising both Trust land and John's Land (the Composite Lots.)[35] In order to obtain bank funding for Stage One, John personally guaranteed theTrust's borrowings up to $3.7 million. Had he not done so, the Trust would not havebeen able to proceed. In evidence John said he was prepared to provide the guaranteewith the comfort that he could ensure the subdivision was properly managed.[36] In around April 2008, Mr Hinton, the Trust's accountant, was employed as anadviser to the trustees and in particular to Edna.[37] The following month, on John's initiative the Trust applied for a further planchange to rezone all the Trust land, including the Homestead Block, as residential.The Council adopted the proposed plan change as its own and applied the rezoning toall properties in the Marsden Valley. This was of significant benefit for the Trust'sHomestead Block because it meant residential subdivision with a minimum lot size of400 square metres could be undertaken as of right, accompanied by designated areasfor comprehensive housing and commercial activity.Appointment of John as project manager in 2008[38] Up until early June 2008, John had been undertaking unpaid work on thedevelopment while still in full-time employment as the Chief Executive Officer of abuilding company. He gave uncontested evidence that during 2007 and 2008 heinvested a significant amount of time — hundreds of hours — into managing theconsent process, including taking a week's leave to attend a consent hearing. He wasnot paid to do any of this work by the Trust and nor did he seek payment for it.[39] According to Mr Nelson's evidence, without John the consenting processbegun by Jim would never have been completed nor would the development have beenable to be undertaken by the Trust.8 The application was initially for 117 lots but was redrawn to include 129 lots prior to consentbeing granted.[40] Given the size of the proposed development, it had, however, always beenanticipated that the Trust would at some stage need to employ a project manager.[41] In the week his job with the building company was due to end, John emailedMr Nelson on 3 June 2008 attaching a role description for a contract for him (John) tomanage the development. The email with the subject line "Re Marsden Parkmanagement" read:BrianI have attached the principal expectations and tasks to manage Marsden Parkdevelopment to best advantage.I finish the job I am doing this Friday and I need confirmation of amanagement contract as soon as reasonably possible. It is very difficult tosize this position. The best indication I have, given the scale of the project, isin the ball park of around $180k. However, given this is a family situationand to get the project started I'm happy to accept a contract of $120k pa witha review after 12 months. A contract would mean I would meet all my ownexpenses including vehicle etc which gives a clean, simple and transparentarrangement which should leave no issue open to challenge. While I need toget into this full time from next week to meet our targeted start of Oct 2008, Idon't expect to start the contract formally until 1st July 2008.I have had a brief discussion with Alan re this and I think it would be a goodidea for you to get agreement with him so we can record this in the minutesetc. I would appreciate a call once you have had time to consider.[42] A copy of the email was forwarded that same day to Mr Hinton. The referenceto a targeted start date of October 2008 was a reference to the Ching's Blockdevelopment.[43] It is clear from the wording of the email and the reference to a prior discussionwith Mr Hinton that the contents would not have come out of the blue for eitherMr Nelson or Mr Hinton. That is confirmed by the oral evidence of Mr Nelson. Itappears, presumably during discussion about future project management, that Johnhad offered to undertake the role and that Mr Nelson had asked John to give him a listof the tasks that John thought needed to be done.[44] The position was never advertised or put out for tender. However, inMr Nelson's assessment, John was the right person for the role. He had the necessarybackground and had already demonstrated he had the necessary skills and commitmentto the project and the Trust. Mr Nelson was impressed with John. He described himas dedicated to realising his parents' vision and the Trust's goal of maximising thevalue of the land for the benefit of the Trust.[45] As a general rule, a trustee is not entitled to remuneration for their time andtrouble in order to avoid a conflict between their personal interests and their duty tothe beneficiaries.9 One of the exceptions to this rule is if remuneration is provided forexpressly or impliedly in the trust deed.10[46] Mr Nelson testified that he considered John was entitled to receive payment asproject manager despite being also a trustee because this was permitted by an expresscharging clause in the Trust Deed, cl 13.[47] Although John's proposal email does not specifically mention this, theproposal was that John would provide the management services through the corporatevehicle of a consulting company he owned called McQuarry Group Ltd (John'sCompany). The company had been incorporated in June 2005, which was after theTrust was established but some two years before Jim died.[48] On receipt of the email from John, Mr Nelson asked Mr Hinton if hisaccounting firm had benchmarking facilities so that they could "ascertain thereasonableness of John's proposed contract". Mr Nelson noted that if John bore hisown general expenses that would be worth $12,000 to $15,000 a year for the Trust.[49] Mr Hinton then consulted with a specialist executive recruitment company,reviewed the list of duties and made some of his own inquiries into appropriatebenchmarking. In evidence, he said he considered whether a contract based on a returnas a percentage of sales was preferable to a fixed fee, but ultimately opted for the latterbecause the role encompassed so much more than just sales. A fixed fee allowed foroverall management including times when sales would be low but workload every bitas high.9 See for example Peach v Jagger (1910) 30 NZLR 423 (SC) at 428; and Spencer v Spencer [2013]NZCA 449, [2014] 2 NZLR 190 at [90].10 See for example Peach v Jagger, above n 9, at 428; and Spencer v Spencer, above n 9, at [91].[50] Mr Hinton duly reported back to Mr Nelson advising he would be comfortablewith the remuneration proposed by John.[51] On 13 June 2008, Mr Nelson sought Edna's views. He forwarded her John'sproposal which he described as a proposal the Trust enter into a contract with John'sCompany for John to manage the subdivision project on a full-time basis at a fixed feeof $120,000 plus GST per year. The email exchanges and the draft job descriptionwere also forwarded for her consideration. At some stage, according to Mr Nelson'stestimony, he made some amendments to the job description.[52] Edna subsequently confirmed to Mr Nelson and Mr Hinton that she agreed thefee was fair and reasonable and that John's Company should be appointed.[53] It appears from the minutes of a meeting of the trustees the following monthon 2 July 2008 that a draft management contract between the Trust and John'sCompany was discussed,11 and a resolution passed that Mr Nelson was to consider thecontract and have it approved by the trustees.[54] In attendance at the meeting were Edna, Mr Nelson, John and Mr Hinton. Thecontract was one of 10 matters discussed at the meeting. John is not recorded as havingabstained in respect of any matter. At the time, the trustees appear to have beenoperating under the mistaken belief that the Trust Deed did not allow for majoritydecisions. However, based on the evidence of Messrs Nelson, Hinton and Russell,that did not mean that John in fact participated in decisions relating to him personally,including the project management contract. According to their evidence, he invariablydisqualified himself.[55] While the management fee was approved, the reality was that the Trust did nothave the funds to pay John. John agreed he would not get paid until the Trust couldafford it. That did not happen for some eight years during which the vast majority ofthe work required to complete the Ching's Block subdivision was undertaken.11 Strictly speaking, the parties to the contract were Marsden Park Ltd, the corporate vehicle for theTrust's subdivision, and John's Company.[56] Due to the Trust's inability to pay John, a completed contract of services wasnever signed in order to avoid creating a liability in the Trust's accounts.[57] What was signed in July 2008 was a Heads of Agreement between the Trustand John and Wendy regarding the subdivision. The key features of the agreementwere:(a) the Trust's land would be subdivided first;(b) John and Wendy were to contribute $45,000 to the costs of obtainingthe consent to subdivide;(c) the lot size on John's Land was to be larger in order to satisfy a councilrequirement that the subdivision must include some larger lot sizes;(d) the Trust was to meet its own costs in obtaining a rezoning of theremainder of its land; and(e) the division of net profits on the sale of composite land was to bedivided rateably in accordance with the area contributed by each party.The calculation of the net profit in respect of each section to be agreedor, failing agreement, by a third party.[58] The agreement was signed by John both in his capacity as trustee (along withEdna and Mr Nelson) and in his personal capacity.[59] In late 2008 an application for an amendment to the resource consentincreasing the available lots on Ching's Block from 129 to 130 was granted. Veryshortly thereafter, at the end of 2008, the physical subdivision work, being the initialbulk earthworks, began.Events after the commencement of the Ching's Block development[60] Work on the Ching's Block development continued for several years.[61] In around 2011 Mark and Andrew's concerns about the development andJohn's conflicts of interest began to surface. They engaged their own professionaladvisers to look into the operation of the Trust. The advice they received encouragedthem to persist with challenges to the way the Trust was being run.[62] In 2012, the trustees themselves arranged for an independent review of theTrust, including the arrangements with John. The reviewer did not identify anysignificant concerns. The review did not however allay Mark and Andrew's concernsand in response they commissioned their own expert to conduct a report, which wasproduced in 2013.[63] In 2014, the trustees made two distributions, totalling $550,000, to each of thefour brothers.[64] The following year in April, Mr Ian Kearney, a solicitor with experience andexpertise in the Nelson development and building sector was appointed as anindependent professional trustee in anticipation of Edna retiring as a trustee. Hebecame the Chair of the trustees.[65] On 5 August 2015 a second independent professional trustee, Mr Russell, alsoa solicitor, was appointed. Mr Russell had been nominated by Mark and Andrew'slawyer. Mr Russell was an experienced commercial lawyer with significantgovernance and trusteeship experience. It was hoped his appointment would helpallay Mark and Andrew's concerns.[66] In his evidence, Mr Russell said his initial observations were that the MarsdenValley subdivision was a project with considerable economic upside and that thetrustees were conscientious. However, both he and Mr Kearney considered thatgreater formality was needed in terms of documentation and decision-makingprocesses. In particular, both considered it important to formalise the unsignedmanagement agreement with John's Company and to resolve the situation of theunpaid remuneration for past services. A substantial sum was now owing, andMr Russell recommended that advice be sought from Deloitte as to how this paymentshould be made.[67] Looking ahead to the future, Messrs Kearney and Russell also considered thatJohn's salary needed to be agreed, formally recorded and remuneration set on the basisof independent and objective criteria. They were aware that market benchmarkinformation had previously been used but were of the view that a formal evaluationshould be obtained from a suitably qualified expert. Accordingly, a decision was madeto instruct the accounting firm PricewaterhouseCoopers (PwC).[68] Like Mr Nelson, neither Mr Kearney nor Mr Russell saw any legal impedimentto John receiving remuneration from the Trust given the terms of the Trust Deed, andin particular the charging clause.[69] By the time of Mr Russell's appointment in August 2015, the Ching's Blocksubdivision (including John's Land) had largely been completed, save for somehillside sections. The main focus of the trustees was now on the issue of whether toproceed with the subdivision of the Homestead Block.[70] The PwC remuneration report was provided to the trustees on 28 August 2015.The report provided an average total remuneration benchmark of $163,500 per annumfor the role of property development manager with a 75th percentile rate of $181,500.The trustees had what Mr Russell described in evidence as "some robust discussions"before agreeing on a package of $180,000. Mr Russell confirmed Mr Nelson'stestimony that John was largely excluded from these discussions and was not privy tothe correspondence. John had no involvement in the final decision which was madeon 27 November 2015.[71] In September 2015 Edna retired as trustee.12[72] In March 2016, Mr Kearney retired following receipt of a letter from Mark thatMr Kearney was said by others to have considered offensive. Mr Russell replaced himas Chair. That same month, there was discussion at a trustee meeting initiated byMr Russell as to whether John should resign as trustee. Mr Russell's evidence wasthat although he did not consider John's conflicts were unlawful under the Trust Deed,he thought John's resignation might appease Mark and Andrew and take the heat out12 Edna retained her power as settlor to appoint trustees, but resigned as the appointer in 2016.of their complaints. Mr Nelson and John however felt this would be to defeat one ofthe founding elements of the Trust.[73] It was agreed on Mr Russell's advice that the Trust Deed should be amendedto ensure the independent trustees could always outvote John. In fact, an amendmentwas not required because as previously mentioned at [26] the Trust Deed already hadthat effect.[74] On 31 March 2016, on the advice of Deloitte the Trust paid John's Companythe arrears owing to it which amounted to approximately $800,000. No interest waspaid. The payment was later documented in a signed agreement. An agreementbetween the Trust and John's Company providing for the annual management fee of$180,000 was also signed. John did not sign that agreement as trustee.[75] In response to threats of legal action from Mark and Andrew, Edna now in her90s swore an affidavit on 7 November 2016. In the affidavit she detailed thebackground to the creation of the Trust and the selection of the trustees. Her affidavitwas consistent with the evidence given at trial by John and Mr Nelson.[76] The following month, the trustees obtained a report from an independentconsultant Mr Tony Sewell. They had engaged him on the recommendation ofMr Russell to review the quality of the development and to advise on future plans.Mr Sewell had recently retired as the CEO of Ngāi Tahu, a position which he had heldfor 21 years and was, Mr Russell said in evidence, well known within the professionalcommunity for being one of the foremost experts in residential development in theSouth Island.[77] Mr Sewell's report to the trustees identified some issues around financialreporting and budgeting but was generally positive. It confirmed that the first stagesof the development had been managed to an acceptable standard, that to date it hadbeen a success in the market, that its design and construction was sound, and that itwas profitable. It also confirmed that the remuneration being paid to John was in linewith the market. Under the heading "The Proceed with Development or SellQuestion", Mr Sewell identified significant benefits for the beneficiaries in continuingwith the development of the Homestead Block.[78] On 15 August 2017, the Trust obtained resource consent for the subdivision ofthe Homestead Block into 220 lots in 21 stages.[79] During 2017 and 2018, the first sales of the lots in John's Land took place asdid the sales of the last Ching's Block sections, except for the nine hillside sections,which remained unsold.The court proceedings[80] On 24 August 2017, Mark and Andrew issued the current proceedings in theHigh Court against John, Mr Russell and Glasgow Harley Trustee as the then currenttrustees, and against Mr Nelson as a former trustee.[81] The essence of the claim was that the subdivision project undertaken by thetrustees had been a disaster due to mismanagement and that the beneficiaries wouldhave been better off had the Trust land been sold in 2008 and the proceeds invested.Coupled with this was what Mark and Andrew described in evidence as "a main andenduring concern" that the only person who had really benefited from the decision tosubdivide the Trust land was John. He had earned significant fees as the projectmanager and obtained significant benefits as the owner of the adjoining land. It wasalso alleged that the decisions to undertake the Ching's Block development and thennot to sell it uncompleted when economic conditions changed in 2008 were decisionsmade in John's self-interest because he was desperate for work and wanted to beappointed project manager.[82] Mark and Andrew said they wanted an explanation as to how a clearlyconflicted trustee had effectively been able to run the development, profiting himselfalong the way, with his co-trustees taking no steps to protect the Trust and itsbeneficiaries. They also accused the trustees of a lack of consultation, secrecy andhostility.[83] Due to the risk of personal exposure, Mr Russell was forced to resign as trusteeon 12 December 2017, and was subsequently removed as a defendant.13 Mr Nelsonwas also removed as a defendant at the same time.14 That left John and GlasgowHarley Trustee as the sole defendants.[84] In evidence, Mr Russell said he very much regretted having to resign. Heconsidered Mark and Andrew's claims were unreasonable and said he had reached afirm view that the development work was soundly run and would continue to providesolid commercial benefits for the beneficiaries. Despite resigning, he remainedinvolved with the Trust in an advisory capacity.[85] Then followed two contested interlocutory applications. First, in 2018, Markand Andrew applied to the High Court for a restraining order, seeking to restrain Johnand Glasgow Harley Trustee from using Trust funds to defend their claims. Inresponse the trustees sought and obtained a court order allowing them to do that inrelation to claims regarding the subdivision.15 Then, in 2019, Mark and Andrewunsuccessfully sought an interim injunction to stop the trustees from proceeding anyfurther with the Homestead Block development, the trustees having resolved toprogress development of Stage One and sell several lots.16[86] The statement of claim pleaded three causes of action:(a) First cause of action — removal of John as trustee and replacement witha professional trustee, on the grounds that John had misconductedhimself in the administration of the trust.(b) Second cause of action — John and Glasgow Harley Trustee hadbreached several of the duties they owed the beneficiaries including13 McLaughlin v McLaughlin HC Nelson CIV-2017-442-52, 18 December 2019 (Minute ofAssociate Judge Lester) at [3(i)].14 At [3(i)].15 McLaughlin v McLaughlin [2018] NZHC 3198, [2019] NZAR 286 [Beddoe judgment].16 McLaughlin v McLaughlin [2019] NZHC 2597, [2019] NZFLR 299 [Injunction judgment].their duty of prudent investment with regards to the decision to embarkupon and carry out the Ching's Block subdivision.17(c) Third cause of action — breach of fiduciary duty by John in obtainingpersonal benefits while acting in a position of conflict of interest, andby Glasgow Harley Trustee as co-trustee allowing and assisting John toact in a position of conflict and to profit.[87] Under the third cause of action, Mark and Andrew sought an account of profitsfrom John and Glasgow Harley Trustee in relation to:(a) all profits received from the subdivision of John's Land;(b) the increase in value of John's Land due to the initial consent obtainedby the Trust and the developments on the Trust's land;(c) disgorgement of the project management fees paid to John or hiscompany; and(d) the difference between the contribution John had paid to sharedresource consent costs and the amount he should have contributed.18The hearing in the High Court[88] The hearing in the High Court took place over several weeks in May and Juneof 2021. Sadly, during that time Edna died. Despite opposition from Mark andAndrew, the Judge held that her 2016 affidavit should be admitted into evidence.19[89] As at the date of the High Court hearing, the Trust was partway through thecompletion of Stage One of the Homestead Block subdivision, sections having beenpre-sold with completion scheduled for October 2021. The gross revenue from the17 The Ching's Block being the first block developed by the trustees was the main focus of thecriticisms of the performance of the development.18 An account of profits was also sought in relation to John's use of trust machinery and otherequipment for the development of his own land but this was not pursued at the hearing in the HighCourt.19 High Court judgment, above n 2, at [13]–[15].sales was expected to be in the vicinity of $6 to $7 million. The process to obtainconsents for another area of land within the Homestead Block, called Edna's Block,was also underway. As regards the remainder of the Homestead Block, a decision hadbeen made to sell it, with the consents that had been obtained, to a developer. Thenine hill sections in the Ching's Block were still unsold. There had not been anydistribution to beneficiaries other than the $550,000 paid to each of the brothers in2014.[90] At trial, evidence was given by Mark, Andrew, Brett and John along withMessrs Russell, Nelson and Hinton. There was also extensive expert evidenceregarding the financial viability of the subdivision project, as well as the quality of thework done by John and the remuneration paid to him.[91] After the evidence had concluded but before closing submissions, John advisedthe Judge that he had decided to resign as a trustee.The High Court judgment[92] John's resignation meant it was unnecessary for the Judge to consider the firstcause of action save only that he needed to decide who should replace John as trustee,the parties being unable to agree. Mr Dorrance, a trust lawyer, was appointed asreplacement trustee.20[93] In dismissing the second cause of action — breach of the trustees' duties asregards the decision to embark on and undertake the Ching's Block subdivision — theJudge placed considerable weight on Jim and Edna's intentions for the Trust asexpressed in cl 9.2 of the Trust Deed quoted above at [19].21[94] As to the commercial wisdom of honouring those intentions and themanagement of the subdivision, the Judge preferred the expert evidence called by thetrustees to that called by Mark and Andrew. In particular, the Judge found the evidenceof Mr Sewell as to the profitability and quality of the subdivision particularly20 At [151].21 At [172]–[198].compelling.22 As well as Mr Sewell's evidence, the Judge also relied on evidence theChing's Block subdivision had won a prize as a standout development, together withevidence of Westpac's continued willingness to support the project.23[95] In contrast the Judge considered that an expert called by Mark and Andrew hadstrayed into areas outside his expertise, and that a report Mark and Andrew hadobtained in 2013 critical of the Trust was hearsay, the report writer not being called togive evidence.24[96] In so far as the second cause of action included an allegation that the trusteeshad failed to appoint a suitable and qualified project manager, the Judge found thatthere was "nothing in [that] suggestion".25 In his assessment, Mark and Andrew's"scathing comments" about John's abilities were not supported by the evidence andwere more indicative of their hostility towards their brother than any other objectiveassessment.26 The Judge was satisfied John had performed his role competently,diligently and with considerable hard work over a long period, with good results.27[97] The Judge concluded that the Ching's Block subdivision was performing welland that once the hill sections were sold its fair overall profitability was likely to be inthe $7 million to $8 million range, which was what had been forecast in 2014.28[98] In relation to the third cause of action, the Judge identified a key issue as beingwhether John had:29 obtained a benefit whilst acting in a position of conflict of interest and incircumstances where that conflict was neither authorised nor excused norwaived under the express terms of the Trust Deed.[99] The Judge found that Edna and Jim had authorised that conflict by appointingJohn as trustee knowing of his interest in the adjoining land and that any further22 See for example at [165], [246(a)], [251], [372] and [384].23 At [166], [249], [268], [372] and [384].24 At [163]–[164].25 At [286].26 At [285].27 At [283]–[286].28 At [246] and [248].29 At [321].conflict he had in acting as project manager was also effectively authorised by Jim andEdna through their actions.30 The conflict having been authorised by the settlors, itfollowed that the trustees were not required to manage it.31[100] In case he was wrong on that, the Judge went on to consider what steps thetrustees had taken to manage the conflict.32 After reviewing the evidence of the useof independent trustees, an independent adviser to the Trust, the obtaining of externaladvice, the commissioning of the 2012/2013 review, and the exclusion of John fromdecision making involving the setting of his remuneration; the Judge concluded thatthe trustees had appropriately managed the conflict.33 The Judge also found on theevidence that John did not receive from his project management role more than whatthe trustees would otherwise have been required to pay an outside person.34 He alsoadded that he took from Mr Sewell's favourable comments that if anything John hadoutperformed any outside project manager who might have been contracted.35[101] The Judge concluded that all decisions regarding the Ching's Block were madefor the benefit of the Trust and dismissed the application for an account of profits.36[102] Although it was not necessary for the Judge to do so, he also went on to statethere was a possible argument that even if John had breached his duties as trustee, itwould not be in the interests of justice to make any order for disgorgement havingregard to s 73 of the Trustee Act 195637 and the principle of acquiescence.38 Mark andAndrew had not put John on notice they were seeking a disgorgement of profits until2017 and in the intervening period they had stood by and allowed the trustees toproceed with the development of Ching's Block.30 At [346].31 At [346].32 At [347].33 At [350], [359]–[362] and [415].34 At [351].35 At [371].36 At [396]–[397], [399], [408] and [426].37 Section 73 empowers the Court to relieve a trustee partly or wholly from personal liability forbreach of trust if the trustee has acted honestly and reasonably and ought fairly to be excused forthe breach.38 High Court judgment, above n 2, at [421]–[425].[103] Dissatisfied with that outcome, Mark and Andrew filed an appeal in this Court.As mentioned, the grounds of appeal only relate to the third cause of action, that is theclaim against John for an account of profits.Preliminary matters prior to the appeal hearing[104] Initially Glasgow Harley Trustee was named as a respondent in the appeal.However, prior to the appeal hearing, counsel advised the Court that Mark and Andrewhad reached an agreement with Glasgow Harley Trustee and would no longer pursuethe appeal against it. Mark and Andrew also confirmed they would not oppose anyapplication by Glasgow Harley Trustee seeking an indemnity from the Trust in relationto costs incurred on the appeal.[105] Also prior to the appeal hearing, Mark and Andrew filed an application forleave to adduce further evidence. The proposed further evidence consisted of anaffidavit from Mark annexing the Trust's financial statements for the year ended31 March 2022, which had only recently become available.[106] The evidence was provisionally admitted for the purposes of the appeal hearingon the basis that a final decision would be made as to its admissibility in our judgment.[107] While we accept the proposed further evidence is fresh and credible, we havedecided it should not be admitted for the simple reason that it is not relevant to theissues on appeal. The financial performance of the Trust was only relevant to thesecond cause of action seeking equitable compensation in respect of the Ching's Blocksubdivision. But that cause of action has not been appealed. The substantive appealis limited to the claim for a disgorgement of profits from an allegedly errant fiduciary.[108] The application to adduce the further evidence is accordingly declined.[109] We turn now to consider the merits of the appeal regarding John's liability toaccount.Arguments on appeal[110] On behalf of Mark and Andrew, Mr Johnson told us we need only read threeEnglish cases, Da Silva v Heselton, Sargeant v National Westminster Bank Plc andBreakspear v Ackland,39 to be satisfied that the Judge's decision in this case representsa significant departure from established English authority and should not be allowedto stand. In particular, he contended that the Judge had made two fundamental errorsof law.[111] First, in reaching his conclusion that the charging clause (cl 13 of the TrustDeed) expressly authorised John acting in a position of conflict, the Judge adopted fartoo expansive an interpretation of the Trust Deed and wrongly relied on contextualfactors that largely arose after settlement of the Trust. In Mr Johnson's submission, ifthe Judge's finding is allowed to stand, trustees will be able to use a standard clauselike cl 13 to effectively create a job for themselves and charge the trust.[112] The second and related error was to support a finding of implied authorisationby reference largely to events that took place after settlement.[113] In Mr Johnson's submission, the Judge was led into these errors because hewas imbued with the misconceived idea that the usual strict rules relating to trusteeobligations do not apply, or at least not with the same force, to the trustees of closelyheld family discretionary trusts. While Mr Johnson accepted that some latitude maybe afforded to trustees of family trusts, in this case it went too far and, in the process,fundamental trust rules that go to the very concept of a trust were undermined.AnalysisThe rule against self-dealing and the exceptions to it[114] Mark and Andrew's claim of breach of fiduciary duty is based on two wellestablished and fundamental rules that apply to all trustees, including trustees of39 Da Silva v Heselton [2022] EWCA Civ 880, 25 ITELR 130; Sargeant v National WestminsterBank Plc (1990) 61 P & CR 518 (CA); and Breakspear v Ackland [2008] EWHC 220 (Ch), [2009]CH 32.family trusts. Both rules are in effect sub-sets of the trustee's core duty of loyalty andfidelity which is the hall mark of a fiduciary relationship.40[115] The first is the rule that a trustee must not profit from their trusteeship. If theydo, equity will invariably require the profit be disgorged. The second rule (aimed toprevent the trustee from being able to profit from their trust in the first place) is that atrustee must not put themselves into a position where their interest and duty conflict.41[116] Although the rules are sometimes described as absolute rules or prohibitions,42there are some established exceptions, those exceptions being where the self-dealingtransaction or conduct at issue is:(a) either expressly authorised by the trust deed;43 or(b) impliedly authorised by the settlor;44 or(c) sanctioned by the court.45[117] In holding that John had not breached his fiduciary obligations despite hisconflicts of interest, the Judge relied principally on the second exception and inparticular the decision of the English Court of Appeal in Sargeant v NationalWestminster Bank plc.46 In submissions, John's counsel, Mr Gedye KC, described thisdecision as being at the heart of the present case.[118] Sargeant concerned a retired farmer Henry Sargeant who owned three freeholdfarms which he leased to his children on yearly tenancies. The children farmed the40 Bristol and West Building Society v Mothew [1998] Ch 1 (CA) at 18.41 Re Thompson's Settlement [1986] Ch 99, [1985] 2 All ER 720 at 730. See also Spencer v Spencer,above n 9, at [90]; and Enright v Enright [2019] NZHC 1124 at [154]–[160].42 Boardman v Phipps [1967] 2 AC 46, [1966] 3 All ER 721 (HL) at 115 per Lord Guest and 123 perLord Upjohn.43 Bray v Ford [1896] AC 44 (HL) at 51; Breakspear, above n 39, at [114(a)]; and Enright, aboven 41, at [159]–[160].44 Sargeant, above n 39, at 522–524. See also Dever v Knobloch HC Napier CIV-2008-441-537,29 October 2009 at [46]–[47]; and Enright, above n 41, at [159]–[160].45 New Zealand Māori Council v Foulkes [2014] NZHC 1225 at [22].46 High Court judgment, above n 2, at [334]–[336] and [346], citing Sargeant, above n 39, at 519.three properties in partnership, each being entitled to a one third share of the profits.The leasehold interests were assets of the partnership.47[119] The father died in 1969. Under his will, he appointed his widow and the threechildren as trustees and executors. He gave his residuary estate, including the threefarms, to his trustees on trust for sale and conversion, a life interest to his widow anddirected that on her death, the capital was to be held on trust for such of his childrenas should survive him, and if more than one in equal shares absolutely. The will alsoconferred a power on his trustees to purchase any portion of his estate for themselves,notwithstanding that they were a trustee.48[120] Thus, each child as well as having the duties of a trustee also had the rights ofa tenant and a beneficiary.[121] The widow died in 1973 and shortly thereafter one of the children, Charles,also died. On Charles' death, he ceased to be a trustee of his father's will but his estateretained his beneficial interest in the farms subject to the tenancies. Charles' estatedid not however retain his interest in the tenancies because following his death, histwo siblings exercised the option conferred on them by the partnership deed to acquirethat interest. The two surviving trustees continued to farm the three properties andpaid rent into their father's estate.49[122] The dispute before the Court of Appeal centred on whether the trustees wereentitled to exercise their powers under the will to sell the farms either to third partiesor to themselves without first terminating the tenancies. The value of the farms wassignificantly greater with vacant possession than without. The administrators ofCharles' estate50 argued the trustees had a duty to obtain the best price possible for thefreeholds of the farms, and therefore if they went ahead without ending the tenancies,they would be putting themselves in a position where there was a conflict betweentheir duty to the beneficiaries and their own personal interests.5147 Sargeant, above n 39, at 519–520.48 At 520.49 At 520 and 523.50 Charles died without a will requiring the appointment of administrators.51 Sargeant, above n 39, at 520–522 and 524.[123] The Court accepted there was no doubt that ever since Charles' death thetrustees had been in a position where their interests as tenants might conflict with theirduties as trustees. However, it went on to say there was "a conclusive objection" tothe application of the self-dealing rule, namely that it was not the trustees who had putthemselves into that position. Rather, they had been put there by the testator, by hisgrant of the tenancies and the provisions of his will, and also by the contractualarrangements to which Charles himself was a party.52[124] The rule having no application, the trustees were not required to appoint a newtrustee before making any sale subject to the tenancies. Nor was there any absolutebar to their selling to themselves while the tenancies subsisted. On the other hand, itwas also said, they must continue to discharge their fiduciary obligations to Charles'estate in regard to the freeholds by obtaining the best price for them subject to thetenancies.53[125] Sargeant has been cited with approval in New Zealand54 and in Australia55 andregarded as authoritative in the leading English text, Lewin on Trusts.56 The principleit enunciates has been described as an exclusion of the self-dealing rule by necessaryimplication, arising not from the wording of the trust instrument, but from thecircumstances in which the appointment was made by the settlor.57 In the present case,the Judge used the notion of implied authority to capture the same concept.[126] While acknowledging the existence of the "implicit authorisation" exception,Mr Johnson emphasised that it was a narrow exception. He submitted there was adistinction to be drawn between the administrative powers of trustees and theirdispositive powers, and that, in the past, the cases dealing with implicit authorisationhave primarily been confined to cases of dispositive powers rather than administrative52 At 523.53 At 523.54 See for example McNulty v McNulty (2011) 3 NZTR 21-025 (HC) at [45].55 See for example Brine v Carter [2015] SASC 205 at [144].56 Lynton Tucker, Nicholas Le Poidevin and James Brightwell Lewin on Trusts (20th ed, ThomsonReuters, London, 2020) vol 2 at [46-005] and [46-041].57 Brine, above n 55, at [143]–[144]; and Tucker, Le Poidevin and Brightwell, above n 56, at [46-041]. We note it was common ground in this case that the mere fact a settlor of a family trustappoints a beneficiary/family member as a trustee does not of itself necessarily trigger theapplication of the Sargeant exception. All depends on the particular circumstances.powers.58 According to Mr Johnson, in cases, such as Sargeant, which involve purelyadministrative powers, there can only be implicit authorisation if the self-dealing wasan axiomatic and necessary consequence of the trustee being appointed as trustee fromsettlement.[127] In so far as there was a suggestion in the submissions that the exception onlyapplies to dispositive powers, we do not accept that submission. No such distinctionis drawn in the caselaw, and we know of no reason of policy or principle why thatshould be so and nor did Mr Johnson identify one. We would also question thecharacterisation of the powers at issue in Sargeant as purely administrative.[128] We do however agree that for the purposes of determining whether theexception applies in this case, the primary focus must be on the circumstances thatexisted at the time of the settlement. Findings relating to those circumstances,including settlor intentions, may of course be informed by evidence of subsequentconduct.John's conflict of interest as adjoining landowner[129] As regards the conflict of interest that existed between John's duties as a trusteeand his interests as an adjoining landowner, we consider that the Judge's finding of animplicit authorisation was well founded on the evidence.59[130] We say that for the following reasons.[131] First, there was very strong evidence that Jim and Edna's whole rationale forforming the Trust was to provide a vehicle to take their subdivision plans well into thefuture after their deaths.[132] Secondly, there was also strong evidence that the settlors' subdivision planshad always included John's Land as part of the subdivision. He had owned his landfor some 25 years before the Trust was formed. The reason the settlors had sold it tohim in the first place was because they saw his ownership of adjoining land and the58 Citing Breakspear, above n 39.59 High Court judgment, above n 2, at [346].prospect of it being subdivided as beneficial to their subdivision plans for what was tobecome the Trust land. Further, the uncontested evidence was that the work Jim hadbeen doing on consents and plan changes prior to 2004 in relation to Ching's Blockhad always included John's Land.[133] Thirdly, a key reason the settlors appointed John as trustee was preciselybecause he had "skin in the game".[134] In our assessment, these key facts amply support the Judge's finding that John'sconflict as an adjoining landowner was hard wired into the Trust.60 It was alwaysintended that the applications to the local authorities would be in joint names and thatthe subdivision would encompass both blocks of land, to their mutual benefit.[135] Accordingly, it follows in our view that any profits and benefits John obtainedin his personal capacity as a result of his land being included in the subdivision are notcaught by the self-dealing rule.[136] Further, contrary to Mr Johnson's submission, we consider that conclusion isconsistent with Sargeant and an entirely orthodox application of the principle ofimplicit authorisation. We also disagree with his submission that the conclusion iscontrary to Breakspear, the outcome of which turned on an express provision in thetrust deed permitting self-dealing.61 It is correct that in the absence of that expressclause the Court in Breakspear considered the trustee would have been liable forexercising a power to add herself as a beneficiary, even although the settlor had alwaysintended her to be a beneficiary, albeit at a later date on his death.62 However, thedistinguishing feature is that it was crucial in that case that the appointment as a trusteewas a first step, whereas here John had been a neighbouring owner for two and a halfdecades before being appointed as trustee.63[137] Finally, for completeness, we do not consider there is any cause for complaintover the amount of the respective contributions towards the costs of the subdivision60 High Court judgment, above n 2, at [343(g)].61 Breakspear, above n 39, at [131].62 At [102], [107], [123]–[125] and [131].63 At [102].that were agreed between the other trustees and John in July 2008. On the evidence,the figure of $40,000 (plus GST) was able to be independently justified. Mark andAndrew's argument to the contrary is based on what we consider to be an incorrectassumption that the true joint resource consent costs for Ching's Block were muchmore than the figure used by the trustees of $130,000 plus GST. Mark and Andrewdid not adduce any accounting or other forensic evidence to support this other than areference to a figure of $220,000 in a funding application made by the trustees to thebank. John and Mr Nelson testified that this higher figure included additional costsspecific to the Trust land but not benefiting John's Land. As for costs that wereincurred in the later years, these related to the Homestead Block and were exclusivelyfor the benefit of the Trust land.[138] Although we have come to a very clear view about authorisation of John'sconflict as adjoining landowner, the conflict of interest that arose as a result of hisappointment as a remunerated project manager is not quite so straightforward, as wenow explain.John's conflict as a paid project managerImplicit authorisation?[139] Mr Johnson submitted that while John was already an adjoining landowner atthe time the Trust was settled, the conflict as project manager came about because ofan active decision by the trustees, including John, to appoint him to the role. It wasnot a state of affairs that existed by implication.[140] Mr Gedye however argued that at the time the Trust was settled, the settlorsknew the subdivision was always going to take years to complete and that it wouldneed a project manager. Mr Gedye acknowledged there was no formal appointmentback then but argued that was entirely understandable because at that time thedevelopment was still in a state of limbo. There was therefore no need to formalisewhat was John's nominated position.[141] We accept the settlors must have been known and intended from the outset thateventually the trustees would need to employ people to work on the subdivisionproject, and that given the size and complexity of the project there would be a needfor a project manager. And, of course, the Trust did engage paid contractors between2004 and 2007 while Jim was still a trustee.[142] In accepting it was always contemplated that a project manager would beneeded, we have not overlooked the existence of a handwritten note in the minutes ofa trustee meeting held in January 2009. The note reads "Dad didn't want [a] projectmanager". However, surprisingly given that the appellants seek to rely on it, thisnotation was never put to any of the trustees in cross-examination, including John andthe note taker, Mr Nelson. We think it more likely the note was a reference to Jim'shostility towards outsiders becoming involved. Seen in that light, the note actuallytends to support the existence of a long-standing intention that John should lead thedevelopment, rather than the other way around.[143] We also acknowledge that at the time the Trust was settled, the evidenceestablished that Jim's health was failing, that he and Edna wanted a family member tolead the project, that John was becoming increasingly involved in the project and wasthe obvious choice to assume that leadership role. That was the second of the two keyreasons why they appointed him as one of the trustees. John was to step into hisfather's shoes and lead the project to completion. Jim trusted John to carry out hisplan[144] To that extent, we therefore agree with the Judge that the settlors can be viewedas pre-selecting John as the person in charge of the subdivision, and so implicitlyauthorising that appointment.64[145] However, while John had been pre-selected, it would have been possible forhim to oversee and lead the project in his capacity as trustee without necessarily beingthe remunerated full-time project manager himself. There is no evidence of anyspecific discussions with Edna and Jim about John taking a paid full-time managementrole himself prior to or at the date the Trust was settled. And, of course, as at thesettlement date John was in full-time employment elsewhere.64 High Court judgment, above n 2, at [281].[146] John himself does not say that his taking on a paid full-time position was everdiscussed with his parents. The best evidence for John is the fact of Edna's agreementto his appointment in 2008 and the following statement in her affidavit:I completely disagree with any suggestion by Mark and Andrew that Johnshouldn't be getting paid fairly for his work or that there is something wrongabout him doing so while also being a trustee. This is what Jim wanted [147] Having regard to all the evidence, we consider it highly likely that had Jimbeen alive in 2008, he too would have strongly supported John's appointment as a paidfull-time project manager. However, as a matter of law, we are not persuaded that isa sufficient foundation of itself to say that payment — as distinct from John'sappointment to drive the project — was implicitly authorised or hard wired into theTrust. On that issue, we therefore take a different view to Gendall J.[148] In our view, express authorisation for payment was required and accordingly itis necessary to turn to the Trust Deed.Express authorisation — clause 13[149] Mr Gedye submitted that even if we were not persuaded that remuneration forJohn for project management was implicitly authorised, then it was in any eventexpressly authorised by cl 13 of the Trust Deed. It will be recalled that the threelawyers involved in the Trust — Messrs Nelson, Kearney and Russell — were all ofthe view that cl 13 sanctioned the payments to John. Mr Gedye emphasised that cl 13was expressed in wide and permissive terms, and that even if it was a standard clause,it should be read in a way as to give effect to the intentions of Jim and Edna. In hissubmission the settlors' intentions must be all important when it comes to construingtrust deeds and it could not be right that cl 13 should have no application when thesettlors intended John be paid.[150] Clause 13 was in the following terms:13 DELEGATION AND PROFESSIONAL TRUSTEESThe Trustees shall not be bound in any case to act personally but shall be atfull liberty to employ a solicitor or any other agent to transact all or anybusiness of whatsoever nature required to be done under this Trust (includingthe receipt and payment of money) but not involving the exercise of anydiscretion and shall be entitled to be allowed and paid all charges and expensesso incurred and shall not be responsible for the default of any such solicitor oragent or any loss occasioned by hi[s] employment and further that any Trusteefor the time being under these presents being a Solicitor or a CharteredAccountant or other person engaged in any profession or business shall beentitled to charge and be paid all usual or professional or other charges forbusiness done by him or his firm in relation to the execution of the trusts ofthese presents whether in the ordinary course of his profession or business ornot and although not of a nature requiring the employment of a professionalperson.[151] In his submissions regarding cl 13, Mr Johnson placed considerable weight onthe English Court of Appeal decision Da Silva v Heselton.65 The Court in that caseheld, regarding a clause with similar wording to cl 13, that a trustee was only entitledto charge for work that fell within the scope of their profession.66 The clause, it wassaid, did not mean that any trustee who happened to be engaged in a profession orbusiness could charge for all work done or time spent on the administration of theestate irrespective of whether that work had any connection with their profession orbusiness.67 What the trustee needed to show was that she was conducting a businessand that the work done for which she was seeking payment had been done in the courseof that business.68 In Mr Johnson's submission, the Judge's finding in this case thatcl 13 authorised remuneration to John was clearly contrary to Da Silva.[152] We accept, as Mr Johnson submitted, that charging clauses are to be construedstrictly. However, as has also been said (including in Da Silva), authorities on theconstruction of charging clauses in other trust documents need to be handled with carebecause every case turns on the wording of the particular clause at issue, such thatslight differences in wording can make a difference.69 And there are some aspects ofcl 13 that are different from other charging clauses, including the clause in Da Silvaitself. For example, in Da Silva what was authorised was payment of "all usualprofessional and other fees", whereas in this case, the wording is "all usual orprofessional or other charges" indicating three distinct categories of charges.7065 Da Silva, above n 39.66 At [6], [58] and [62].67 At [39]–[40].68 At [40], [57]–[59] and [61]–[62].69 At [50].70 Da Silva, above n 39, at [2].Likewise, the Da Silva clause did not include the phrase "and although not of a naturerequiring the employment of a professional person".[153] Turning then to a closer analysis of the text of cl 13.[154] As will be apparent, cl 13 addresses two different situations.[155] The first part of the clause concerns delegation and is not relevant for presentpurposes. It empowers the trustees to use trust monies to engage and pay externalparties, that is to say non-trustees, to undertake work for the benefit of the Trust.[156] It is the second part of the clause that is at issue. It permits payment to a trusteefor work the trustee has done for the Trust. The crucial words are: further that any Trustee for the time being under these presents being aSolicitor or a Chartered Accountant or other person engaged in any professionor business shall be entitled to charge and be paid all usual or professional orother charges for business done by him or his firm in relation to the executionof the trusts of these presents whether in the ordinary course of his professionor business or not and although not of a nature requiring the employment of aprofessional person.[157] We draw the following key points from that wording.[158] First, although the heading of the clause refers to "professional trustees", thewording in the text makes it clear that the entitlement to charge is not limited toprofessional trustees, nor is it limited to the provision of professional services. It canalso apply to a trustee who is not a solicitor or chartered accountant so long as thattrustee is engaged in a business, "any" business. The word "any" must apply to both"profession" and "business" in the phrase "engaged in any profession or business".[159] Secondly, the work in question that has been done for the Trust need not bework that the trustee does in the ordinary course of their business. The use of thedisjunctive "or" in the phrase "all usual or professional or other charges" reinforcesthis because it means that the charges at issue need not be the trustee's usual charges.However, there must nevertheless in our view be some connection or link between thebusiness of the trustee and the work being charged for. The underlying purpose of theclause is to ensure that payments are made to a trustee with some knowledge andexperience in the work sought to be charged or to a trustee who is engaged in workthat has some association with the work to be charged. That approach is broadlyconsistent with the approach taken in Da Silva.[160] Thus, to take an extreme example the clause would not allow payment to atrustee for carrying out building work when he or she had only ever worked as adentist.[161] Thirdly, to be a person in business for the purposes of the clause does notrequire the person to be self-employed — "business done by him or his firm". Legalwork done by a trustee who was a staff solicitor would be work done by his or her firmand be covered by the clause.[162] Fourthly, contrary to a submission made by Mr Gedye, we consider that theword "business", in its ordinary and natural meaning, connotes an activity that has acommercial element and involves the exchange of money. It would not be an ordinaryuse of language to refer to someone who was doing unpaid work as being engaged ina business. We therefore do not accept his contention that for the purposes of cl 13John was engaged in the business of managing the development prior to hisappointment as project manager in 2008.[163] Finally, as to when the trustee must be engaged in the business, our view is thatthe clause cannot be sensibly interpreted to always require the trustee to be in therelevant profession or business at the time of their appointment as trustee. It would beabsurd to suggest that a trustee for example who commenced legal practice some yearsafter their appointment would for that reason alone be precluded from ever chargingfor legal services.[164] Conversely, if a trustee was engaged in a relevant business before theirappointment or at the time of their appointment, but undertook some other endeavourbefore returning to their previous line of work for the benefit of the trust, we do notconsider it a sensible or reasonable interpretation to conclude that such a trustee wouldautomatically be outside the scope of the clause. In short, a trustee need not have beencontinuously engaged in a relevant business to come within the clause.[165] Applying this interpretation to the facts of this case, the provision of projectmanagement services, whether undertaken by a professional or nonprofessional, isclearly capable of being work within the scope of the clause. The critical question iswhether John was or had been engaged in that business or in a business involvingrelevant skills and knowledge.[166] As mentioned, because we interpret "business" as requiring a commercialelement we are not persuaded that John was engaged in an operative business whendoing unpaid work on the subdivision prior to 2008. However, we do consider thatthe paid work he had undertaken prior to 2008 was sufficiently connected to projectmanagement of a residential property development that he can properly be said to havebeen engaged in a qualifying business for the purposes of the clause.[167] John's paid work history prior to 2008 was that after obtaining a diploma invaluation and farm management from Lincoln University, he had worked in a numberof industries and management roles. Significantly, for present purposes, theseincluded working as an appraiser for the Rural Bank, Chief Executive for theNelson/Marlborough Combined Rural Traders, and Chief Executive for the NgātiRārua Ātiawa Iwi Trust. In the latter role, he was responsible for managing aspects ofthe Iwi's investment portfolio, including the management of a 95 lot subdivision inMotueka. Finally, the building company (for whom he was still working in 2008) hadinterests in residential development.[168] This paid employment history meant John had significant work experience inbusiness and land development, experience that was a key reason for his selection asan initial trustee and experience which we are satisfied brought him within the scopeof the charging clause.[169] That however is not the end of the story. The fact that the trust instrumentauthorises the payment of the cost of services rendered by the trustee, does not meanthe trustee has an unfettered discretion as to the amount. The fees must still bereasonable and just.71[170] At trial, Mark and Andrew claimed that the role was not full time and that thefees were excessive. In particular, they contended that the remuneration was based onan over scoped job description, being scoped on the basis of 600 lots with $126 milliongross yield, which never eventuated. They also argued that when it became apparent,the subdivision was slowing down the fees should have been reviewed.[171] The Judge rejected those assertions, principally in reliance on the evidence ofMr Sewell.72 There was also evidence from Mr Nelson that the role assumed by Johnwas far wider and more involved than a project manager would undertake on astandard development. For his part, John gave evidence that the job description wasnot based on getting to 600 lots but based on a process of development capable ofdelivering 600 lots.[172] On appeal, Mr Johnson challenged the Judge's finding which he suggested wasnot in fact supported by Mr Sewell's evidence.[173] First, according to Mr Johnson, Mr Sewell acknowledged that at times Johnwas effectively not working at all and certainly not on a full-time basis. We have readMr Sewell's evidence in its entirety and do not consider that to be an accurate accountof his evidence. Mr Sewell was very definite it was a full-time role, pointing out thatit was not limited to project managing the construction phase of the 91-lot Ching'sBlock but was much wider, including planning and preparation for the HomesteadBlock development. He regarded John's role as encompassing the work of both aproject director and a project manager, which was consistent with the evidence ofMr Nelson.71 Re Wells [1962] 1 WLR 874, [162] 2 All ER 826 (CA) at 879 per Lord Russell; and Lynton Tucker,Nicholas Le Poidevin and James Brightwell Lewin on Trusts (20th ed, Thomson Reuters, London,2020) vol 1 at [20-013]. See also Ngai Tai Ki Tamaki Tribal Trust v Karaka [2012] NZCA 268,[2015] NZAR 266 at [58].72 High Court judgment, above n 2, at [383].[174] In cross-examination Mr Sewell confirmed his view that the role was full time,and further stated that in his opinion it would have only ended being full time once theHomestead Block Stage One development was completed. Significantly, he alsospecifically rejected the suggestion that because there may at one point have been ahiatus in sales or physical activity on site that meant there was nothing for John to do.Mr Sewell pointed out there was no hiatus in planning for the project, working onconsents and working with the engineers.[175] As regards the reasonableness of John's fee, Mr Johnson contends thatMr Sewell acknowledged that John's fees were above market rate.[176] However, again, we do not accept that was the thrust of Mr Sewell's evidencetaken as whole. It rests on a selective comment taken out of context.[177] The context was as follows. In his 2016 report, Mr Sewell had suggested thatJohn's fee be based on 4.5 per cent of project income, the fee being paid monthly ona pro-rata basis. That would mean approximately $172,000 per annum, which heconsidered was consistent with the advice obtained from PwC.[178] It was put to him in cross-examination that total gross revenue of the wholeproject was likely to be $27 million, which would mean the project management feeswould in fact represent 8 per cent of revenue. He was then asked whether in his view8 per cent was a market rate. He responded by saying "No, that is high" but then wenton to say that it was "high because of the nature of the work". He further stated thatthe question still came down to whether it was possible to find someone who wouldbe willing to work for 4 per cent, that it was not just a percentage game and that hedoubted very much whether it would be possible to find anyone for that amount. Hehad looked and PwC had looked. In his evidence, Mr Sewell also rejected thesuggestion that trustees were required to test the market as well as take external advice.[179] In re-examination, he reiterated that the theory of applying a mathematicalcalculation to determine payment may be good for analysis, but it was necessary toface the reality that if you went to the market and tried to hire somebody in theresidential development sphere for the amount being suggested by the appellants, hisfirm view was you would not find anyone. At one point, Mr Sewell stated that for himto have employed a project manager to undertake the bulk of the roles that had fallento John in the Nelson market would have required a salary to be paid in the order of$250,000 per annum.[180] In our view, the Judge was entitled to rely on Mr Sewell's evidence to supporthis finding about the reasonableness of the fees. We agree with that finding. We agreetoo that the conflicts were appropriately managed as detailed in the evidence of MessrsNelson, Hinton and Russell.[181] It follows from all of the above, that in our view the appeal against theHigh Court decision is not sustainable and it is accordingly dismissed. This was a casewhere on orthodox trust principles, John was not liable to account for personal benefitsobtained in his capacity as the owner of land adjoining the Trust's subdivision and asproject manager.[182] We add that having decided there was no breach of fiduciary duty, it isunnecessary for us to address three further arguments raised by Mr Gedye as fall-backpositions. Those arguments centred on the application of an exclusion clause in theTrust Deed exempting the trustees from liability for breach of trust, and ss 72 and 73of the Trustee Act 1956. Section 72 empowers the court to order payment in an amountthat is fair and reasonable to a trustee for services rendered to the trust.[183] Section 72 is being raised for the first time on appeal, and in the absence of aformal application to support the judgment on other grounds. Mark and Andrew alsoquestion the sufficiency of the trial evidence to be able to determine it. As for theexemption clause, the Judge never considered the exemption clause in relation to thethird cause of action, only in relation to the second cause of action and even then, didnot reach any concluded view, only that it was reasonably arguable it applied.73[184] In those circumstances and given that it would not in any event be dispositiveof the substantive appeal, our preference is not to address those two arguments. Nor73 At [311]. The Judge appears to have wrongly assumed the exemption clause was pleaded as anaffirmative defence.do we consider it appropriate to consider s 73, which it will be recalled was discussedby the High Court Judge as a possible argument.74[185] We therefore now turn to the costs appeal.The costs appeal and cross-appealThe High Court costs decision[186] There were two costs issues for determination in the High Court.75[187] The first was costs as between the parties consequential on the outcome of theproceeding. The second was a claim made by John for indemnification from the Trustfund for any shortfall between his actual solicitor-client costs (said to total$1,104,778.38) and the amount of any costs award in his favour against Mark andAndrew. In making a claim for indemnification from the Trust, John relied on anindemnity clause in the Trust Deed.[188] For their part, Mark and Andrew argued that costs should lie where they fell,in light of John's resignation at the end of the hearing.[189] The Judge disagreed. He held that was an unrealistic stance for Mark andAndrew to take and that John as the successful party was entitled to costs againstthem.76 He further held the costs should be increased by 30 per cent on the grounds itwas Mark and Andrew who had initiated "this unfortunate, heated, and hostile dispute"which had occupied considerable court time and involved senior counsel.77 However,the Judge also held the costs award to John should be reduced by 20 per cent onaccount of the outcome of the first cause of action.78 The 20 percent reduction wasapplied to both the scale costs as well as the indemnity costs, which the Judge acceptedwere otherwise payable to John under the Trust Deed.7974 At [421]–[425]; and see above at [102].75 Costs judgment, above n 5.76 At [14(a)].77 At [14(d)].78 At [14(a)].79 At [14(a)] and [17].Arguments on appeal[190] On appeal, Mark and Andrew contend their conduct did not meet the test foran increase. Developing this central contention, Mr Johnson submitted that increasedcosts respond to conduct which is unreasonable, whereas the factors relied on by theJudge reflect ordinary realities of litigation. He also argued that the conceptualconfusion of the Judge's approach was illustrated by the fact that he simultaneouslyuplifted and reduced costs when the reasons relied on were essentially two sides of thesame coin. The Judge did not for example consider whether John's persistent refusalto resign contributed to the contentious nature of the dispute.[191] The second ground of Mark and Andrew's appeal is that a discount of20 per cent was insufficient recognition of the time occupied by the first cause ofaction and the success they achieved when John resigned. According to Mr Johnson,John's removal as trustee was the appellants' principal objective from the outset of thisproceeding and in his submission a one third reduction was justified.[192] There was no challenge on appeal to John's entitlement to indemnity costsunder the Trust Deed.[193] In a cross-appeal on the costs decision, John sought an order setting aside the20 per cent reduction altogether.Analysis[194] In imposing a 20 per cent reduction of the costs otherwise available to John,the Judge stated that a discount was required to reflect the increased time and workinvolved for all in addressing the retirement issue and to provide some finality.80[195] The power to reduce costs that would otherwise be payable to a successfulparty is contained in r 14.7 of the High Court Rules 2016. Rule 14.7(d) states that thecourt may impose a reduction if the party claiming costs has failed in relation to acause of action or issue which has significantly increased the costs of the party80 At [14(a)].opposing costs. Rule 14.7(g) preserves a residual discretion to reduce costs for someother reason.[196] We acknowledge that as a result of his decision to retire as a trustee, John canbe said to have failed in the first cause of action. However, we do not accept that thesecond condition precedent for a reduction was satisfied. That is to say, we do notaccept that the first cause of action significantly increased Mark and Andrew's costs.[197] Their grounds for seeking John's removal were based on the same misconductallegations made against him in the second and third causes of action. There were nomisconduct allegations unique to the first cause of action. It follows that even in theabsence of the first cause of action, those allegations would still have been traversedin the detail that they were, and the same evidence called. Further, they wereallegations which, ultimately, the Judge emphatically rejected, thereby vindicatingJohn's defence of them.[198] The only additional costs associated exclusively with the first cause of actionrelated to the appointment of a trustee to replace John. And, ironically, it was John'ssuggested candidate that the Judge appointed, being in the latter's view a more suitablechoice than the person proposed by Mark and Andrew.81[199] We are unsure what the Judge meant by the interests of finality but note thatthe claim that John's removal was the appellants' primary objective sits uneasily withtheir pursuit of the substantive appeal.[200] We are satisfied the Judge erred in imposing any discount on the costs payableto John both under the High Court Rules and the Trust Deed, and accordingly set asidethat aspect of the costs decision.[201] Contrary to Mr Johnson's submission, we are not however persuaded that theJudge erred in uplifting the costs by 30 percent. In our assessment, there wasunreasonable conduct which unnecessarily prolonged the litigation rendering it morecostly than it should otherwise have been.81 High Court judgment, above n 2, at [148] and [150].[202] The High Court judgment is littered with damning comments about the lack ofany evidence, or any relevant and reliable evidence, to support Mark and Andrew'score allegations, as well as references to arguments being advanced by them that were"without substance" or "not credible".82 There was also what can fairly be describedas an unnecessarily wide-ranging audit of the minutiae of the trustees' commercialdecisions. It is a striking feature of the evidence that outsiders includingknowledgeable experts generally tended to be very positive about John and thesubdivision, including of course Mr Russell who had been made a trustee on Mark andAndrew's own initiative. When Mr Russell did not share their views, Mark andAndrew became hostile towards him as well.[203] Also relevant to the issue of increased costs is Mark and Andrew's rejection ofa "without prejudice save as to costs" offer made by John in January 2021. The offerwould have resulted in a better outcome for them than the judgment. Although theoffer was made only a few months before the commencement of the hearing, theremust have been significant costs incurred in the period commencing 1 February 2021and ending at the conclusion of the hearing in late June 2021. We note too that arevised settlement offer made in April 2021 included an offer from John to resign astrustee.[204] It follows from all of the above that we have decided Mark and Andrew'sappeal on costs should be dismissed and John's cross-appeal allowed. The effect ofthis is that Mark and Andrew must pay John scale costs with a 30 per cent uplift, withthe difference between whatever amount that formula yields and John's actualsolicitor-client costs being funded from the trust.Outcome[205] The appellants' application for leave to adduce the further evidence of MarkJames McLaughlin is declined.[206] The appeal in CA712/2021 is dismissed.82 For example at [195], [244], [247] and [257].[207] The appeal in CA435/2022 is dismissed and the cross-appeal allowed. TheHigh Court's imposition of a 20 per cent discount on the costs and disbursementsotherwise payable to the first respondent by the appellants and the Trust is quashed,but in all other respects the High Court's decision on costs is affirmed.[208] As regards costs on the appeal, it was common ground that these should followthe event. The appellants must pay the first respondent costs on the two appeals andthe cross-appeal calculated on the basis of a standard appeal, band A, together withusual disbursements. We certify for second counsel.[209] Finally for completeness we note that counsel who represented Brett at thehearing was doing so on pro bono basis, and we therefore make no award of costs inrelation to him.Solicitors:Wynn Williams, Christchurch for AppellantBuddle Findlay, Christchurch for First RespondentMorgan Coakle, Auckland for Second RespondentAPLS Lawyers, Auckland for the Interested Party