Director of private trust company held personally liable for costs in trust dispute

In Guest v Guest & Ors [2019] NZCA 64, the New Zealand Court of Appeal (overturning a first instance decision) held that the appellant's costs should be met by (among others) an individual who was shareholder and director of a private trust company, despite him not personally being party to the proceedings. We discuss the case further below.

Background

There was a dispute between various members of the Guest family which lead to an application before the New Zealand High Court to determine who was, and who should be, trustees of the Trust. One of the parties to those proceedings was Guest Trustee Limited, a company formed by Basil Livingstone (the brother of one of the main protagonists). Guest Trustee Limited was the corporate vehicle through which Mr Livingstone had agreed to accept appointment as trustee. Mr Livingstone was the sole shareholder and director of Guest Trustee Limited, and Mr Livingstone accepted that he had formed the company to protect himself from personal liability.

The First Instance Judgment

Following disposal of the claims, the trial judge (Jagose J) held that each party should bear their own costs. This was on the basis that the costs should not be borne by the Trust and that no one could claim truly to be the successful party in the proceeding.

The Appeal

One of the beneficiaries of the Trust appealed the costs order claiming that his costs should be met by various parties, including Guest Trustee Ltd (the "Respondents") together with Mr Livingstone (a non-party). The appeal was granted and the Respondents, together with Mr Livingstone, were ordered jointly and severally liable to meet the costs.

The appeal was granted on the basis that Jagose J had departed incorrectly from the basic rule that costs follow the event. The Court stated that it was incorrect for the trial judge to conclude that none of the parties could claim to be truly successful. The ultimate result was as proposed by the party seeking costs, and so he had been successful in the High Court proceeding.

The Court rejected the Respondents' proposition that these proceedings had to be seen in the broader context of the family dispute necessitating a decision to reserve the issue of costs.

Costs against the non-party

The Court of Appeal stated that while it is settled law that an award of costs may be made against a non-party, important considerations before making such an order are the extent to which the non-party stands to gain from the litigation and their level of involvement in such.

In this instance, the Court of Appeal found that there was no doubt Mr Livingstone had been heavily involved in the proceedings; he was a significant creditor of the Trust and was also aligned with the other trustees who are also beneficiaries.

The Court was clear that, although Mr Livingstone was not individually party to proceedings, the fact that he formally acted as a trustee through a corporate entity should not insulate him from the costs liability he would have borne if he were a trustee in his own name.

Comment

The decision to hold Mr Livingstone liable in his personal capacity is unusual and could be seen to sit in contrast with the current state of the law on so-called "dog-leg" claims, where a beneficiary brings a claim for breach of trust against the directors of a trust corporation (albeit that this was not strictly a dog-leg claim but one based on cost attribution principles). Whilst there has been some debate over the legitimacy of dog-leg claims, the court in Gregson v HAE Trustees [2008] EWHC 1006 (Ch) made clear that such claims are implausible on the basis they aim to circumvent the general principle that a director cannot be pursued personally for a breach of duty to the company acting as trustee.

As such, the present case demonstrates that individuals using private trust companies must be careful to assess the potential cost implications where that corporate entity is party to proceedings. Where the individual has significant involvement in the case they can be personally liable for costs, regardless of the law on dog-leg claims and the fact they are not individually party to proceedings.