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Beddoe Order, Directions, Trustees, webinar, Wills

Between Buckton and the deep blue sea

Trustees looking for certainty regarding costs will commonly turn their minds to a Beddoe application. However, where costs are a live issue and the grounds for a Beddoe order may not be made out, an alternative course of action is to seek a prospective costs order.  While this may appear largely the sole dominion of a beneficiary (see for example Woodward v Smith prospective costs orders can have relevance to trustees as well.   This was considered in the case of Eastgate v Walker-Prentice, which related to a contest between wills.    The principal difference between the two wills related to the forgiveness (or not) of a debt of $600,000 made by the will-maker during her lifetime to Sharon. The applicant Mr Eastgate was the remaining named executor of the earlier of the wills.  Mr Eastgate was of the view the will-maker did not have capacity when she made the later will or was operating under the influence of her daughter.  The judgment in Eastgate v Walker-Prentice helpfully sets out the law relating to prospective costs orders in the context of probate proceedings.

Prospective costs order in probate proceedings

[15] Costs in civil proceedings are at the discretion of the Court.1 That discretion is to be exercised in a principled way and in accordance with pt 14 of the High Court Rules 2016. It is a general principle that the unsuccessful party should pay costs. Costs are usually determined following the substantive hearing of the matter. A prospective costs order seeks determination of a costs matter in advance of the substantive hearing.

[16] Estate cases have their own established case law on costs. Re Paterson (deceased) is the leading authority on costs in probate matters generally. There, Stringer J set out the following principles:

The Court has a general discretion as to costs in all actions and proceedings before it, but there are certain well-established principles upon which that discretion should be exercised in cases of contested wills. They are as follows: (i.) If the litigation originates in the fault of the testator—e.g., by the state in which he left his testamentary writings, or by his eccentric or irrational habits and mode of life—or of those interested in the residue, the costs may properly be paid out of the estate. (ii.) If there be sufficient and reasonable ground, looking to the knowledge and means of knowledge of the opposing party, to question either the execution of the will or the capacity of the testator, or to put forward a charge of undue influence or fraud, the losing party may properly be relieved from the costs of his successful opponent. (iii.) Unless the circumstances of the case are such as to bring it within one of the following exceptions, the general rule that costs should follow the event ought to prevail…”

[17] A party may apply for a prospective costs order that:

 (a) their own costs will be paid out of the estate;

(b) they will not be liable to pay costs to any other party; and/or

(c) any costs they are ordered to pay to the other party will be paid out of the estate.

[18] As Associate Judge Andrew noted in Hiliau v Tu’ilotolava,[1] applications for prospective costs orders are common in trust (and estate) litigation. His Honour said these disputes may be broadly categorised as either “friendly” or “hostile”. Friendly litigation generally involves proceedings where the Court’s direction on trust administration is sought for the benefit of the trust. Conversely, hostile litigation generally involves contested proceedings, such as a challenge to the validity of a trust. The nature of the litigation will determine whether a prospective costs order will be appropriate. 

[19] In Re Buckton Kekewich J made his “classic statement”  on the issue of costs in trust case, outlining the three categories:

(a) Proceedings brought by trustees to obtain the Court’s guidance on the operation of the trust deed or the trust’s administration. In such cases, costs are treated as incurred for the benefit of the estate and ordered to be paid out of the trust.

(b) Proceedings brought by some person not a trustee to obtain the Court’s guidance on the operation of the trust deed or the trust’s administration. The same approach is taken to costs as for the first category.

(c) Proceedings brought by a beneficiary making a “hostile claim” against the trustees or another beneficiary. Under this category, the usual principles in relation to costs applies. Ordinarily they would follow the event.

            …

[22] The New Zealand Court of Appeal in Loosley v Powell noted the unique situation of executors in will cases in relation to costs.12 The Court said in its substantive decision:

 …in determining costs in a proceeding challenging a will or aspect of the will the reasonableness of the positions taken by the executors and claimants is central. Although in the end one side is likely to win and other to lose in proceedings, it can often be reasonable in the case of wills for the parties to put their respective positions to the court for a judge to decide on the outcome. Executors are often bound by their duties to propound or contest a position.

[24] In Fundación Pimjo AC v Aguilar & Aguilar Ltd Katz J made a prospective costs order in favour of a discretionary beneficiary, merely a “nominal plaintiff”, taking a neutral position in hostile litigation between the trustees and a third party alleging breach of trust. Her Honour observed the trustee’s neutral role in the litigation justified the order…”

With respect to the position in Eastgate the court was clear that Mr Eastgate had a duty to propound the earlier will.  However, as was the case in Fundación, the proceeding did not fall neatly within any of the three Buckton categories and as a result of the hostilities between the beneficiaries indicated that category 3 was an appropriate assessment.  The issue of neutrality was important.  As stated at [51]:

[51] Here, Mr Eastgate in my view is entitled to a prospective costs order to cover his reasonable costs first, in issuing this proceeding, secondly, for both discovery (if this proves necessary) and for preparing necessary materials for the substantive hearing, and thirdly, for his costs in participating as a neutral and passive party at the hearing to assist the Court where necessary. He is a lawyer and professional executor. He says he has taken counsel’s advice and after examining all the available evidence, he has determined there are reasonable and sufficient grounds to consider either that Mrs Walker did not have testamentary capacity or that she was operating under undue influence at the time of execution of the [later] Will. Where the respondent children for some time had taken no effective steps to resolve the dispute between them, it was reasonable, as I see it, that Mr Eastgate acted as he did by filing an application for probate in solemn form of the one will of which he was executor.

If you are looking for guidance as to differentiating between Buckton categories and Beddoe orders and teh range of considerations relating to trustee liability Vicki Ammundsen is presenting a webinar on trustee liability on 7 April 2021 at 10.30am NZST.  See Trust Series 2021 – Trustee Liability for further information.

References:

  • Woodward v Smith [2014] NZHC 407
  • Eastgate v Walker-Prentice [2020] NZHC 1042
  • Re Patterson (Deceased) [1924] NZLR 441 (SC) at 442–443
  • Hiliau v Tu’ilotolava [2018] NZHC 2286, (2018) 4 NZTR 28-022
  • Loosley v Powell [2018] NZCA 3
  • Fundación Pimjo AC v Aguilar & Aguilar Ltd [2015] NZHC 1402, (2015) 4 NZTR 25-018
  • Re Buckton [1907] 2 Ch 406 (Ch) at 414–415

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