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Costs, Directions, Indmenity, Trustee liability, Trustee Resolutions, Trustees, Trusts, Trusts Bill, Wills

Costs bite when trustees fight

Trustees fall out, sometimes to the point where a working relationship is no longer possible. Applications to remove trustees are becoming an increasingly common occurrence. So, should trustees fight attempts to remove them? When is it appropriate to do so, and when not? And what are the potential consequences of misjudged opposition?

The recent decision in O’Keeffe v Jones is a useful example of judicial thinking on the subject. Ms O’Keeffe and Mr Jones (a lawyer) were trustees of an estate who disagreed on a number of aspects of estate administration. When Ms O’Keeffe asked Mr Jones to resign he refused and invited her to apply to the High Court. She did so, applying to have either Mr Jones removed or else both trustees replaced by the Public Trust. Mr Jones subsequently consented to the appointment of the Public Trust but opposed an application by Ms O’Keeffe to have her costs met from the estate.

This was an estate where there were seven children, not all on good terms. Palmer J recounted that disagreements between Ms O’Keeffe (the fourth child of the seven) and Mr Jones had been ongoing but had come to a head when the trust’s bank account became overdrawn and outgoings went unpaid. Each accused the other of misconduct.

Ms O’Keeffe brought her action to remove Mr Jones based on both the alleged misconduct and the deadlock following the breakdown of the relationship between them. Ms O’Keeffe’s siblings were, unsurprisingly, split over who they favoured, which probably made the subsequent agreement to for consent orders in favour of the Public Trust. However, when the draft order included an order for Ms O’Keeffe’s costs, Mr Jones withdrew his consent. Further affidavits were exchanged, and time passed. A consent order was agreed on replacing the trustees, but the matter of costs was set down for a hearing.

In examining the law concerning costs, Palmer J considered the circumstances when indemnity costs might be ordered, citing Bradbury v Westpac Banking Corporation. The particular focus was on the reasonableness of the parties’ stances, especially when there are strident claims of misconduct, up to the point of discontinuance. In a trust context His Honour cited Burnside v Burnside (No 2) (an unreasonable trustee could not expect costs to be payable from trust property), Borell v Tangitu (losses to the estate caused by trustee deficiencies) and Aitkenhead v Kooperberg (persistent failure by a trustee to discharge his duties, even when on notice of an application until it was actually made).

In the present case Mr Jones had known for years that the relationship with Ms O’Keeffe was not working but had persisted to refuse to stand down. Ms O’Keeffe brought the action not personally but as trustee. Palmer J found she did so reasonably given the deadlock between the trustees. It was appropriate to seek the Court’s directions in the circumstances.

In contrast, Palmer J found that Mr Jones had not acted as reasonably in opposing her application, merely prolonging proceedings, and ended with an order to pay costs personally on an indemnity basis.

Aspects of Mr Jones conduct as a trustee that invited particular consideration were itemised by Palmer J, and serve as a salutary warning.  In particular, as recounted at [25]:

  • Mr Jones’ antagonistic approach to his co-trustee
  • Correspondence in which he “practically dared” his co-trustee to take proceedings
  • Filing a notice of opposition when the matter was substantially settled
  • Mr Jones’ dealings with the trust’s funds through his firm’s trust account including payment of his own fees without the agreement of his co-trustee, refusing to transfer to trust funds from his firm’s trust account to other accounts, refusing to pay trust debts and refusing to act as a trustee unless his firm was paid in priority to other debtors

References

  • O’Keeffe v Jones [2018] NZHC 2482
  • Bradbury v Westpac Banking Corporation [2009] NZCA 234
  • Burnside v Burnside (No 2) [2017] NZHC 1678
  • Borell v Tangitu (1990) 1 NZTR 0-001 (HC)
  • Aitkenhead v Kooperberg [2017] NZHC 3071

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