NEW ZEALAND MĀORI COUNCIL v FOULKES [2015] NZHC 489

NEW ZEALAND MĀORI COUNCIL v FOULKES [2015] NZHC 489 [16 March 2015]IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYCIV-2013-485-455[2015] NZHC 489BETWEEN NEW ZEALAND MĀORI COUNCILFirst ApplicantSIR EDWARD TAIHAKUREI DURIESecond ApplicantCLETUS MAANU PAULThird ApplicantAND ANGELA JUNE FOULKESFirst RespondentALAN PAREKURA TOROHINAHARONGASecond RespondentALEXANDER JOHN WILSONThird RespondentFEDERATION OF MĀORIAUTHORITIES INCFourth RespondentIn Chambers: On papersJudgment: 16 March 2015JUDGMENT OF THE HON JUSTICE KÓS(Costs)[1] These proceedings, commenced in March 2013, concerned issues between trustees as to the effect of the Crown Forestry Rental Trust, and related issuesbetween the two appointors of the three Māori trustees. Ultimately those issues fellto this Court to determine. Five substantive judgments have been delivered.[2] Now the parties seek this Court's direction on costs. But not in the usual way. Litigation costs are not sought; costs are not sought against any other party. What is sought is recovery of costs as expenses, from the Trust assets. Section 71 of the Trustee Act 1956 is cited.[3] In the first instance, the recovery of expenses is a matter for the trustees themselves to decide. What directions has the Court already given on costs? And what further directions should it give now?Background[4] Initially in March 2013 the parties were the New Zealand Māori Council (NZMC) and Sir Edward Durie, as applicants, and the Trust, as respondent.[5] On an urgent basis, Williams J issued a decision on 28 March 2013 dealing with conflicts of interest and associated matters. He held that reasonable costs of trustees in the litigation might be met from the Trust fund under s 71.1 He also encouraged the parties to seek directions on matters that had become the subject of controversy between them.2[6] In April 2013 the proceeding was repleaded, and Mr Maanu Paul (a Māoritrustee appointee, aligned in outlook to Sir Edward) became a further applicant. The respondents became the other remaining trustees of the Trust at that time. That is, Ms Foulkes and Messrs Haronga, Wilson and Royal.[7] In August 2013 the respondents applied for an order joining the Federation ofMāori Authorities (FOMA) as a defendant. That order was then made on a consentbasis.[8] Other orders were made by Williams J during the course of his management of the proceeding. Some matters were dealt with on a consent basis,3 whereas others required determination. In particular, issues concerning the management of conflicts1 New Zealand Māori Council v Crown Forestry Rental Trust [2013] NZHC 663 at [25](c).2 At [20].3 See minute dated 4 September 2013 at [2].of interest, whether the legal costs of the Māori Appointor (being NZMC and FOMAtogether) were to be met, and the appointment or extension of appointment of trustees and alternate trustees.[9] A second substantial judgment delivered by Williams J on 9 April 2014.4That judgment invalidated the removal of one trustee, the appointment of another, and the appointment of eight persons as alternate trustees. Williams J found that theMāori Appointor process provided from cls 6.2 and 6.4 of the Deed had not been followed correctly. The Judge directed the Māori Appointor parties to meet as agroup at a special hui to discuss their philosophical differences. He reserved his decision on the application for costs by the applicants under s 71.[10] A third judgment was issued by Williams J on 3 June 2014.5 It concerned an unsuccessful attempt to debar solicitors acting in the proceeding. Secondly, and in more detail, it addressed the question of the costs of Sir Edward and Mr Paul. The Judge considered that the legal costs of Sir Edward and Mr Paul should be met from the Trust's funds.6[11] After these preliminary issues were dealt with by Williams J, the remaining issues, which ultimately numbered some 16 in all, were tried by me. The first 13 were tried in June and July 2014, and the final three in October 2014. I issued two judgments, one in July 2014 and the other in November 2014.7[12] The issues I dealt with fell into four groups:(a) Issues 1 to 3 concerned access to funding approvals by the Trust. The applicants challenged the criteria adopted by trustees as unlawful andunduly restrictive. I rejected the applicants' claims, but did note theneed for the trustees to guard against inappropriate bundling of claims(in "clusters"), and to be prepared to receive direct applications.4 New Zealand Māori Council v Foulkes [2014] NZHC 747.5 New Zealand Māori Council v Foulkes [2014] NZHC 1225.6 At [29] and [46].7 New Zealand Māori Council v Foulkes [2014] NZHC 1777 and New Zealand Māori Council vFoulkes [2014] NZHC 2757.(b) Issues 4 to 6 concerned decision making by trustees, and the extent of delegation permissible to staff. Astonishingly, given the scale of theTrust's responsibilities, the applicants seriously suggested that theTrust could not employ more than one staff member. Sensibly, counsel did not press that point. Directions in my judgment of 29 July 2014 clarified the extent of delegation permissible under the Deed.(c) Issues 7 and 8 concerned conflicts of interests by trustees: when a conflict might arise, and what information should be provided where a potential conflict is identified. The parties reached a common view (with which I agreed) on the first. On the second, I provided directions to the trustees and noted that a high threshold existed for withholding information from trustees.(d) Issues 9 to 16 concerned the appointment of trustees. Some consensus was found here also. I provided directions on the paymentof costs of NZMC and FOMA as members of the Māori Appointor,and on the duration of appointment of the chairperson of the Trust. In the two judgments I addressed the appointment of vacancies in the trusteeship and alternate trusteeship. I directed a hui of NZMC and FOMA, a process which ultimately failed to resolve any vacancy whatsoever. In my judgment of 6 November 2014 I appointed two trustees and four alternate trustees to fill vacancies left by a combination of expiry of terms and indecision by the MāoriAppointor.The applicants have appealed my decision, but on Issues 1 and 5 only.[13] My judgments did not deal with the question of costs, and expressly reserved those for further submissions. I have now received those submissions.Submissions[14] No one is suggesting that costs should be paid by one party to another. In short, all suggest that costs (or at least, some costs) be paid out of the Trust assets.[15] The applicants, NZMC, Sir Edward and Mr Paul, submit that their costs may be ordered to be met from the Trust assets under s 71. If FOMA is to be awarded costs (as it seeks), then NZMC should also be awarded costs. But no costs should be ordered now until a functional relationship is re-established between FOMA and NZMC.[16] FOMA submits that its costs should be met, on an indemnity basis, under either s 71, High Court Rule 14.6(4), or in Equity.8 FOMA says that only trusteecosts should be awarded in this way. The costs of the Māori Appointor are for theTrust to sort out, in accordance with judgments already delivered. FOMA's participation "has principally related to the trustee/alternate appointment issues".9Presumably its costs have reflected that participation also. However its actual costs now amount to a somewhat breathtaking $232,000. Perhaps anticipating an adverse reaction, FOMA suggests I might instead grant costs at scale, on a category 2 or 3, and band B, basis.[17] The first and third respondents, Ms Foulkes and Mr Wilson, abide the Court'sdecision. But in doing so they make the limited submission that participant costs are very substantial, and will diminish assets intended to be used for beneficiaries, rather than trustee expenses. Only reasonably incurred costs should be permitted, whatever jurisdictional basis applies. To that end, they submit costs incurred by NZMC and FOMA after the hui should not be payable because, by that point, "the Māori Appointor had effectively ceased to operate, and had abdicated itsappointment function to the Court".8 Citing Harvey v Olliver (1887) 57 LT 239 (Ch) and Re Buckton [1907] 2 Ch 406 (Ch).9 Issues 9–16 in [12] above.Analysis[18] This decision does not involve an application for litigation costs, inter partes. Rather it concerns the extent of rights of indemnity, to be satisfied from the Trust'sfunds. It is necessary here to distinguish between costs incurred by NZMC andFOMA in their capacity as Māori Appointor, and costs incurred by trustees inobtaining directions under s 66. For reasons given at [28], I see no necessity in this case to make any award to non-trustees (that is, NZMC and FOMA) in any other capacity.Māori Appointor costs[19] In a decision dated 4 December 2013, Williams J held:10It is ordered therefore that the actual, reasonable and necessary costsincurred by FOMA and NZMC incurred when acting jointly as the MāoriAppointor to remove or replace an appointment of trustees (includingalternate trustees) to the CFRT under cls 6.4 and 6.9 of the Trust's Deed (theDeed), are legally able to be met from Trust property as an expense of the Trust under cl 9.2.1 of the Deed.That was a consent order. But it was soundly based: the members of the MāoriAppointor undertake a fiduciary function in discharging the tasks imposed on them by the Trust Deed.11[20] In my judgment of 29 July 2014 I enlarged on Williams J's order in these terms: the qualifying costs are the actual reasonable and necessary costs of NZMCand FOMA acting jointly as Māori Appointor; those costs should be submitted forreimbursement to the Trust; and the costs need not be pre-approved, but must be reviewed before payment to ensure qualification.12 These directions were also given by consent.[21] I agree with FOMA's submission that this aspect has been determined by theCourt already. It is now for the Trust to receive appropriately detailed requests for10 New Zealand Māori Council v Foulkes HC Wellington CIV-2013-485-455, 4 December 2013 at [14].11 Harvey v Olliver, above n8; Des Pallieres v J P Morgan Chase & Co [2013] JCA 146 (Jersey CA); Carmine v Ritchie [2012] NZHC 1514; Harre v Clark [2014] NZHC 2533.12 New Zealand Māori Council v Foulkes [2014] NZHC 1777 at [224].reimbursement from FOMA and NZMC, pursuant to cl 9.2.1 of the Trust Deed.13Costs incurred in the litigation in connection with the appointment of trustees are eligible for reimbursement in this way.14 These are neither trustee expenses nor litigation costs. It is not for me, therefore, to pre-empt the Trust's decision. Nor do I have the information that would be needed to make such a decision, even if it fell within my jurisdiction. However I provide some directions here to assist trustees.[22] First, in approving costs, trustees will need to bear in mind the Trust'sconflicts policy, and the directions given by the Court on Issue 7.15 Despite the terms of s 38(2) of the Trustee Act 1956, it would not be appropriate for trustees seeking recovery of substantial legal costs from the Trust Fund to participate in the decision as to whether those costs should be allowed or not (or allowed in part only). Alternate trustees may need to participate instead.[23] Secondly, I agree with the submission of counsel for the first and third respondents that "costs are reasonably incurred if they are of an order of magnitude that an objective observer would expect for the relevant type of litigation", citing thedecision of Harrison J in Bradbury v Westpac Banking Corporation.16 I add that that observation applies equally to non-litigation expenses. Unreasonable obstinacy or the excessive compilation of cost are inconsistent with fiduciary duty and impair the right to reimbursement.17 Excessive costs may not, therefore, be reimbursed.[24] Thirdly, in approving payments for expenses, trustees must ensure that only amounts reasonably incurred are paid. Three mechanisms to achieve that occur to me. The first is seeking taxation of legal costs (pursuant to High Court Rules 14.18 to 14.23). The second is approving costs at scale plus an appropriate uplift, recognising that (1) scale is no more than a contribution to actual fees, and (2) indemnity contemplates the repayment of reasonable actual costs. The third is having costs reviewed by a senior barrister. The latter course was adopted in13 Certainly they will need to be more detailed than the material I received.14 New Zealand Māori Council v Foulkes [2014] NZHC 1777 at [231]. It seems to me that litigation costs concerning Issues 9-11 and 13-16 largely (if not wholly) fall within this category.15 New Zealand Māori Council v Foulkes [2014] NZHC 1777 at [198]–[211].16 Bradbury v Westpac Banking Corporation (2008) 18 PRNZ 859 (HC) at [205].17 See, for example, Tucker et al Lewin on Trusts (19th ed, Sweet & Maxwell, London, 2014) at [27-112]; Re Knox's Trusts [1895] 2 Ch 483 (CA); Re O'Donoghue [1998] 1 NZLR 116 (HC).Financial Markets Authority v Ross.18 It has some particular appeal because, unlike the other options, it can deal with non-litigation costs. Counsel's task would not beto advise on a client's proper liability for legal costs to its lawyer, but on the distinctquestion of the third party Trust's liability to meet the actual reasonable andnecessary costs of NZMC and FOMA acting jointly as Māori Appointor, inaccordance with principles specified in this judgment.[25] Fourthly, there is some merit in the further submission made that there is a fundamental difference in quality for eligibility between costs incurred prior to (and, presumably, at) the failed 13 September 2014 hui, and those incurred after (at whichpoint the Māori Appointor had effectively abdicated its role to the Court). But the point should not be taken too far. At that juncture the Court directed certain further steps (the making of non-binding nominations, and the conduct of a short hearing - which together gave rise to the judgment of 6 November 2014). These might be seen as tasks required of the Māori Appointor. The responses and submissions from NZMC and FOMA were necessary and helpful. They assisted in the Court making its appointments.[26] That is all I think I need to say on the Māori Appointor costs.Trustee costs[27] As I have noted already, Williams J's judgment of 28 March 2013 held:19Reasonable costs of the applicants and respondent trustees may be met from the funds of the Trust pursuant to s 71 of the Trustee Act.[28] As I apprehend that order, it relates only to the costs of trustees. Primarily the proceedings were brought under s 66, which concerns applications by trustees for directions. Judicial review was also sought by the applicant. But I held that only common law review was available, and that it added nothing to the s 66 application in any case.20 I take the view, therefore, that if NZMC and FOMA are to receive any18 Financial Markets Authority v Ross [2014] NZHC 3184 at [4]. It was not a trusts case.19 New Zealand Māori Council v Crown Forestry Rental Trust [2013] NZHC 663 at [25(c)].20 New Zealand Māori Council v Foulkes [2014] NZHC 1777 at [57] – [64].reimbursement of costs, it must be in their capacity as the members of the MāoriAppointor only. In reality this is unlikely to make any practical difference.[29] Where trustees are in real doubt as to the proper construction of a trust deed it is their duty to make application to the Court for directions, under s 66.21 The Trust Deed here is the consequence of political compromise and settlement. Probably deliberately, it is abbreviated. Some provisions can only be described as vague. Disagreement over its effect was to be expected. Given these difficulties, the making of a s 66 application was both unsurprising and appropriate. It was however unfortunate that a case properly falling within Re Buckton's category 1 was conducted instead with all the vigour and expense of wholly hostile litigation. Three camps, three sets of costs. It is to be hoped that the Court's intervention has led tothose camps now consolidating.[30] A trustee acting in accordance with his or her duty has a right of reimbursement (or indemnity) for associated expenses. As Danckwerts J explained in Re Grimthorpe:22It is commonplace that persons who take the onerous and sometimes dangerous duty of being trustees are not expected to do any of the work on their own expense; they are entitled to be indemnified against the costs and expenses which they incur I the course of their office; of course, that necessarily means that such costs and expenses are properly incurred and not improperly incurred. The general rule is quite plain; they are entitled to be paid back all that they have had to pay out.[31] The limitation on a trustee's right of indemnity is, however, that the expensesare "properly incurred". The duty to seek advice does not extend, for instance, topose questions the answers to which are perfectly obvious. Nor where no real and substantial dispute exists. Unnecessary proceedings, or the taking of unnecessary procedural steps needlessly increasing costs, may mitigate (or eliminate) the right of indemnity.23 Again, excessive costs lie beyond the scope of indemnity. Every dollarpaid in trustees' expenses is a dollar denied to beneficiaries of the Trust.21 Waters' Law of Trusts in Canada (3rd ed, Thomason Carswell, Toronto, 2005) at 1156.22 Re Grimthorpe [1958] Ch 615 (Ch) at 623. See also Turner v Hancock (1882) 20 Ch D 303 (CA) at 305.23 Tucker et al Lewin on Trusts (19th ed, Sweet & Maxwell, 2014) at [27–113]; Patterson v Wooler(1876) 2 Ch D 586 (Ch); Re Chapman (1895) 72 LT 66 (CA); Re O'Donoghue [1998] 1 NZLR 116 (HC) at 121-122.[32] In this case I do not find that the request to the Court for directions on any of Issues 1 to 16 was unnecessary. Each question advanced was legitimately raised. No one in this case is suggesting I find otherwise. And I do not. Reasonable legal costs associated with the determination of those issues are therefore legitimately a charge to the Trust. Williams J's order of 28 March 2013 may therefore be confirmed, ex post facto.[33] As to the quantum payable, that is a matter for trustees in the first instance, not this Court. The principles noted at [22]–[24] and [30]–[31] apply.[34] In the absence of either detail or dispute, it is not appropriate to say more at this point.Result[35] The costs orders made by this Court on 4 December 201324 and 28 March 201325 are confirmed. Parties seeking costs are directed to submit detailed claims for reimbursement to the Trust. Trustees are then to determine those claims, in accordance with the principles stated in this judgment. Leave is reserved to apply for further directions, if absolutely necessary. It should not be assumed that any such application will generate an entitlement to reimbursement or award of further costs.Stephen Kós JSolicitors:Woodward Law Offices, Lower Hutt for ApplicantsBuddle Findlay, Wellington for First to Third RespondentsJohnston Lawrence, Wellington for Fourth RespondentCrown Law, Wellington for Attorney-General24 See [19] above.25 See [27] above.