A v D and E Limited
[2019] NZHC 992
•8 May 2019
ORDER PROHIBITING PUBLICATION OF NAMES, ADDRESSES OR IDENTIFYING PARTICULARS OF PLAINTIFFS AND
FIRST DEFENDANTS
IN THE HIGH COURT OF NEW ZEALAND NAPIER REGISTRY
I TE KŌTI MATUA O AOTEAROA AHURIRI ROHE
CIV-2018-441-60
[2019] NZHC 992
BETWEEN A, B and C Plaintiffs AND
D and E Ltd First defendants
LAWRENCE WILLIAM WILLIS and ALAN JAMES DAVIES
Second defendants
Hearing: 21 March 2019 Appearances:
M I S Phillipps for plaintiffs M J Wenley for defendants
Judgment:
8 May 2019
Reissued:
31 May 2019
JUDGMENT OF ASSOCIATE JUDGE JOHNSTON
[With redactions]
Introduction
[1]
In this proceeding, the surviving children of and,
[
and
and
sue the surviving trustees of a trust settled by their late father,
, in relation to dispositions by Mr
to the trust prior to his death in 2016. The practical effect of those dispositions was to alienate the majority of his property so that it did not form part of his estate upon his death.
[2]They allege that Mr ’s alienation of the assets in question constituted a
breach of fiduciary obligations owed to them. They seek orders that would have the
A v D [2019] NZHC 992 [8 May 2019]
effect of unwinding the dispositions so that the assets would fall into Mr ’s estate.
[3]They also sue Mr ’s former solicitors, Lawrence Willis and Alan
Davies, claiming that they knowingly assisted Mr damages against the solicitors.
’s breach. They seek
[4] Before the Court for determination is an application by the defendants pursuant to r 12.2 of the High Court Rules 2016 for summary judgment in respect of the claims against both the first and second defendants. They say that the plaintiffs’ claims cannot succeed and that judgment should be entered for them now.
[5]The case raises some novel issues.
Background
[6]The factual background can be summarised briefly.
[7]Mr
and Mrs
had four children;
, born in July
1960; the first-named plaintiff, , born in July 1961; the second-named plaintiff,
, born in September 1963; and the third-named plaintiff, , born in
March 1971 ] predeceased Mr until the early 1980s when Mr and Mrs
. The family lived in various homes up ’s marriage broke up. In their affidavit
evidence, the plaintiffs describe an abusive family life. Mr is said physically
to have abused Mrs abused his daughter,
and his children. In particular he is said to have sexually
. Her evidence is especially harrowing. She describes a
childhood of intimidation and repeated rapes. All three surviving children depose as to the long-term adverse consequences, including economic consequences. None of this evidence is contradicted. It should, however, be mentioned that Mr denied the allegations of abuse when they were put to him during his lifetime.
[8] The plaintiffs also say that Mr the 1980s.
was estranged from his children from
[9]Ms has provided an affidavit in support of the defendants’ application.
She says that she met Mr in 1981 and a romantic relationship followed. At
the time, she was a widow with three children. She describes how Mr became
a surrogate father to her three children. She describes how, although they lived together for only a short period, their relationship continued for 37 years, right up until his death. She says that she knew nothing of any accusations that Mr had abused his own children, and that she never had any reason to be concerned about Mr ’s relationship with her children.
[10] The second defendants have also sworn affidavits in support of the summary judgment application. They describe the circumstances in which Mr settled a family trust. In October 2014, about two years before his death, Mr instructed his solicitors of his wish to settle a family trust and dispose of certain assets — including his home — to that trust. He was open in telling his solicitors that his motivation was to prefer Ms and her children by ensuring that his surviving children, the three plaintiffs, would not benefit from his estate on his death. The trust was settled by deed of trust dated 2 December 2014. Mr subsequently disposed of his home and shares to the trustees. The home is said to have a current value of approximately $485,000.
[11]At about the same time Mr ’s solicitors prepared, and he executed, his
last will. In his will, Mr share of his estate to Ms
made no provision for his children. He left the lion’s ’s children. In any event, as a result of his inter vivos
dispositions to the trustees of the trust, the value of the estate is less than $50,000.
[12]Following Mr ’s death, the plaintiffs commenced proceedings in the
Family Court pursuant to the Family Protection Act 1955 seeking provision from their father’s estate. It was then that they discovered what had transpired.
[13] The Family Court proceedings are apparently on hold pending the outcome of this proceeding.
Summary judgment application
[14] A defendant applying for summary judgment must be able to demonstrate that the plaintiff’s claim cannot succeed. Whereas in a plaintiff’s summary judgment application the plaintiff need only prevail on one cause of action to obtain summary judgment, a defendant must be able to demonstrate that the plaintiff cannot succeed on any of the pleaded causes of action in order to secure judgment against a defendant or class of defendants.1
[15] Against that background, Mr Wenley’s submission on behalf of the defendants was that:
For the purposes of the Summary Judgment Application, the Court must proceed on the basis that:
a) the allegations of sexual and physical abuse as made are proven, but notwithstanding that from the Defendants’ point of view they have no knowledge and therefore deny the allegations, and notwithstanding that [Mr [ ] denied those allegations during his lifetime;
b)
[Mr ] deliberately excluded his children from his Will;
[
c) in settling the Trust and transferring the property to it, [Mr ]
intended to benefit the beneficiaries of that Trust and to exclude his children from the benefits of his property.
The plaintiffs’ case
[16] The plaintiffs’ claims against the first and second defendants must be addressed separately. The former proceeds on the basis of an alleged breach by Mr of fiduciary obligations to his children, as a result of which the trustees are said to hold the trust property on a constructive trust for the executors of his estate. Their case against the solicitors is of knowing assistance with that breach.
[17] Obviously, if the claim against the trustees cannot succeed, then neither can the claim against the solicitors. If the former claim survives, the claim against the solicitors will then have to be considered as it raises different issues largely around the solicitors’ states of actual or constructive knowledge.
1 See Pemberton v Chappell [1987] 1 NZLR 1 (CA); and Westpac Banking Corp v M M Kembla New Zealand Ltd [2001] 2 NZLR 298 (CA).
Claim against the first defendants (trustees)
[18] In their statement of claim dated 2 July 2018, the plaintiffs identify the parties and set out the factual background that has already been summarised. They then plead four causes of action against the trustees:
(a)breach of fiduciary duty;
(b)fraud on a power;
(c)knowing receipt;
(d)unjust enrichment.
[19] The core allegation that stands behind all of those formulations of their case is captured in paragraphs 32 and 33 of the claim:
32.From the time that he had care and responsibility for his children
[ had a duty to:
(a)care for, protect and rear his children;
(b)refrain from sexually or physically assaulting them;
(c)protect their economic interests;
(d)recognise them as members of his family and provide for them from his wealth.
33.In breach of those duties [ ]:
(a)Carried out the assaults and actions referred to in paragraphs 5 to 12 above;
(b)
Failed to make any provision for any of the plaintiffs under his will;
]
[
(c)
Settled the
Trust and gifted the Property to the Trust to ensure that his assets would go to the
beneficiaries he had chosen and not the plaintiffs.
[20] Thus, the key contentions on which the plaintiffs’ claim rests are that Mr ow owed fiduciary duties to his children that he breached when he settled the trust and transferred property to the trustees for the purpose of avoiding his obligations
to them. As he was also a trustee of that trust, the other trustees were visited with his knowledge of the breach. Accordingly, the argument runs, the express trust is vitiated, and the trustees hold the trust property for Mr ’s executors.
[21] In developing the plaintiffs’ case, Mr Phillipps’ starting point was a blunt statement of the plaintiffs’ objectives:
The plaintiffs challenge the validity of the transfer of [Mr [ ’s] property
to the Trust. They say this was in breach of his fiduciary obligations to them. This is not a claim for compensatory or exemplary damages for the abuse meted out by [Mr ] to his children. The extent of the abuse is relevant only to the breadth or depth of his fiduciary obligations to his children to protect their economic interests.
[22]From that starting point, Mr Phillipps submitted that:2
A fiduciary relationship arises where one party is reasonably entitled to repose and does repose trust and confidence in the other. The plaintiffs were entitled to rely on [Mr ] not to act in a way which is contrary to their interests.
[23]Mr Phillipps then referred to the judgment of the Supreme Court of Canada in
M (K) v M (H), where the Court said:3
It is intuitively apparent that the relationship between parent and child is fiduciary in nature, and the sexual assault of one’s child is a grievous breach of the obligations arising from that relationship. Indeed, I can think of few cases that are clearer than this. For obvious reasons society has imposed upon parents the obligation to care for, protect and rear their children. The act of incest is a heinous violation of that obligation. Equity has imposed fiduciary obligations on parents in contexts other than incest, and I see no barrier to the extension of a father’s fiduciary obligation to include a duty to refrain from incestuous assaults on his daughter.
… In the present case, however, it is sufficient to say that being a parent comprises a unilateral undertaking that is fiduciary in nature. Equity then imposes a range of obligations coordinate with that undertaking.
… Even a cursory examination of these indicia establishes that a parent must owe fiduciary obligations to his or her child. …
…
… In certain parent-child contexts, equity has recognised a parental duty to protect the economic interests of his or her child. However, this case law does
Referring to New Zealand Netherlands Society ‘Oranje’ Inc v Kuys [1973] 2 NZLR 163 (PC); and
Chirnside v Fay [2006] NZSC 68, [2007] 1 NZLR 433 at [80] per Blanchard and Tipping JJ.
M (K) v M (H) [1992] 3 SCR 6 at [72]–[74] and [77].
not limit the range of the obligations that may attach to other aspects of the parent-child relationship.
[24] He then referred me to the High Court of Australia’s judgment in Clay v Clay, in which the Court recognised that the relationship of guardian vis-à-vis ward was also one in which fiduciary obligations existed (as a natural extension of the parent vis-à- vis child relationship).4
[25] Finally, Mr Phillipps referred me to this Court’s judgment in Rule v Simpson, where Associate Judge Matthews refused to strike out a claim based on, amongst other things, an alleged fiduciary duty owed by a father to his adult son.5 That claim was also made after the death of the father against trustees of a trust established by him.
[26] On the basis of that analysis, Mr Phillipps invited the Court to conclude that, on the facts of this case, it was open to the plaintiffs to contend that Mr owed fiduciary obligations to his children that effectively prevented him from alienating the assets that he transferred to the trustees in order to defeat their interests.
[27] The circumstances in which the courts will impose fiduciary obligations on one party to a relationship in favour of another is a difficult area of the law — or, rather, equity — and I mean no disrespect to Mr Phillipps’ argument by saying that I am not convinced that it approaches this case in the most helpful way.
[28] The starting point is that there are two broad circumstances in which the courts will categorise a relationship as fiduciary:
(a)There are certain relationships that the law recognises as fiduciary by their very nature — paradigm examples are agent vis-à-vis principal; director vis-à-vis company; and solicitor vis-à-vis client. In such relationships, the law imposes fiduciaries obligations unless the circumstances dictate otherwise.
4 Clay v Clay [2001] HCA 9, (2001) 202 CLR 410 at [40].
5 Rule v Simpson [2017] NZHC 2154 at [63]–[74].
(b)Outside those recognised categories, the law will impose fiduciary obligations on one party to a relationship where the circumstances justify doing so.
[29] The Canadian and Australian cases to which Mr Phillipps referred me — M (K) v M (H) and Clay v Clay — are authority for the proposition that parents owe their children fiduciary obligations during their childhood. In my view, that recognised category of fiduciary relationship does not survive a child’s coming of age. There is, as Mr Wenley submitted, support for this in s 5 of the Child Support Act 1991, which provides that parental obligations to support their children economically cease when the child turns 18.6
[30] If that analysis is correct, then this case is not one that falls within recognised categories of fiduciary relationship and the question is whether the law will impose a fiduciary obligation on Mr by reason of the circumstances of the case.
[31] For reasons that are explained in detail in the authoritative texts in the area, it is not at all easy to identify any broadly accepted principles as to when the law will do so.
[32] The authors of Equity and Trusts in New Zealand identify two tests that appear to have been more influential than others in New Zealand cases involving the imposition of fiduciary obligations.7
[33] The first is based on the Canadian Supreme Court’s judgment in Frame v Smith.8 In that case, Wilson J said:
Relationships in which a fiduciary obligation [has] been imposed seem to possess three general characteristics:
(1)The fiduciary has scope for the exercise of some discretion or power.
(2)The fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary’s legal or practical interests.
6 Or when the child turns 19 if they are enrolled at and attending a school.
7 Andrew Butler (ed) Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009) at [17.5.4].
8 Frame v Smith [1987] 2 SCR 99 at [60].
(3)The beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power.
[34] The second test is one based on reasonable expectations. The authors of Equity and Trust in New Zealand refer to the Supreme Court of Canada’s later decision in LAC Minerals Ltd v International Corona Resources Ltd as an example of the approach.9 The learned authors replicate the following passage from a leading text by Professor Finn, which is quoted in the judgment of La Forest J:10
What must be shown, in the writer’s view, is that the actual circumstances of a relationship are such that one party is entitled to expect that the other will act in his interests in and for the purposes of the relationship … The critical matter in the end is the role that the alleged fiduciary has, or should be taken to have, in the relationship. It must so implicate that party in the other’s affairs or so align him with the protection or advancement of that other’s interests that foundation exists for the “fiduciary expectation”. Such a role may generate an actual expectation that that other’s interests are being served. That is commonly so with lawyers and investment advisers. But equally the expectation must be a judicially prescribed one because the law itself ordains it to be that other’s entitlement. And this may be so either because the party should, given the actual circumstances of the relationship, be accorded that entitlement irrespective of whether he has adverted to the matter, or because the purpose of the relationship itself is perceived to be such that to allow disloyalty in it would be to jeopardise its perceived social utility.
[35] On one view, those two tests, different as they are in some respects, both appear to apply in the circumstances of this case. It is not impossible to view Mr ’s exercise of his proprietary right to alienate his house and shares as the exercise of a discretion or power. His unilateral exercise of that discretion or power had the potential to and did affect the plaintiffs’ interests. Indeed, the evidence indicates that it was intended to do just that. There are obvious difficulties with the notion of peculiar vulnerability. But there is certainly an evidential foundation in this case for the plaintiffs to contend that their father’s treatment of them during their childhood was the very thing that rendered them vulnerable. Insofar as the reasonable expectation test is concerned, it does not seem an overly bold contention to advance
that, if indeed Mr ’s treatment of his children rendered them vulnerable
[
and resulted in long-term adverse consequences for them, they might be entitled to
9 LAC Minerals Ltd v International Corona Resources Ltd [1989] 2 SCR 574. See also Liggett v Kensington [1993] 1 NZLR 257 (CA) at 281 per Gault J; Maclean v Arklow Investments Ltd [1998] 3 NZLR 680 (CA) at 691.
10 At [148] citing Paul Finn “The Fiduciary Principle” (speech to Victoria Law School Conference Lecture, Melbourne, 1988) at 64.
expect that in exercising his rights over his property during the balance of his life he would have regard to their interests.
[36] Although it would certainly be breaking new ground, it appears to me not entirely beyond the bounds of possibility that the courts may accept that a parent who behaves abusively towards his or her children — especially in the extreme way alleged here — and where it can be demonstrated that that abuse has had a deleterious effect on the children in later life, might have imposed on him or her a fiduciary obligation to provide for their economic interests extending beyond their coming of age.
[37] To be clear, I do not say that such a duty will arise; only that the contention is not one that can be dismissed on a summary basis.
[38] In saying that, I readily acknowledge the force in the counterpoints put to me in the course of argument by Mr Wenley for the defendants:
(a)There is no authority, from New Zealand or elsewhere, for the existence of such a duty. The cases referred to above are not such authority. They are focussed on the obligations of parents (or guardians) in relation to minor children.
(b)If such a duty were to be imposed in the circumstances of this case so as to prevent Mr from alienating his property prior to his death in a way that effectively prevented his children from pursuing a claim that they might otherwise have been able to pursue pursuant to the Family Protection Act, this would undermine fundamental property rights. In developing this point, Mr Wenley referred to the principle of testamentary freedom. However, it is not a question of testamentary freedom. The essential point is that a person is entitled to deal as he or she likes with his or her property during his or her lifetime, subject only to pre-existing legal constraints.
(c)In recent publications the Law Commission has proposed amendments to the law to guard against exactly what has happened here. That is a
recognition that the existing law will not interfere with inter vivos dispositions as the plaintiffs ask the Court to do here, and a signal that the Court should leave reform in this area to Parliament.
[39] Those are powerful points against the claim. However, they do not strike me as conclusive. The fact that the duty the plaintiffs argue for has not hitherto been recognised does not necessarily mean that it will not be. The second contention really does nothing more than beg the question as to whether the circumstances are such that the law should interfere with an exercise of property rights. The Law Commission’s analysis simply recognises that as matters stand the law has not recognised the duty contended for.
[40] In the context of an application by a defendant for summary judgment, the issue is whether the defendants can satisfy the Court that the plaintiffs’ claim cannot succeed. I am not so satisfied. The observation by McGechan J that “[w]here the facts are such that a remedy may appear warranted, the summary judgment procedure should not be allowed to stultify natural development of the law which otherwise would occur through normal trial process” appears apt here.11 I also take comfort in the fact that Associate Judge Matthews recently declined to strike out aspects of two causes of action involving an alleged fiduciary duty in similar circumstances.12 In my judgement, the plaintiffs are entitled to prosecute their claim against the trustees.
Claim against the second defendants (solicitors)
[41] It is common ground that in order to succeed in this claim the plaintiffs will have to establish that the second defendants — in assisting Mr to settle the trust and transfer the property to the trustees — acted dishonestly. In the context, this will require the plaintiffs to establish that the second defendants knew of the circumstances that are said to have rendered Mr ’s actions a breach of his alleged fiduciary obligations to his children. Knowledge is determined objectively, which means that it may include actual knowledge or awareness of circumstances that would have put a reasonable person on enquiry.13
11 Bank of New Zealand v Mass-Geesteranus (1991) 4 PRNZ 689 (CA) at 697.
12 Rule v Simpson, above n 4, at [63]–[74].
13 Sandman v McKay [2019] NZSC 41 at [77]–[78].
[42] Mr Davies and Mr Willis both depose that they knew nothing of the allegations of abuse by Mr of his wife and children, and there is nothing in the evidence to contradict this.
[43] What the plaintiffs say is that the second defendants have not been frank with the Court. They ask why the second defendants have not offered more evidence concerning Mr ’s earlier wills, in which he apparently made provision for the plaintiffs. Messrs Davies and Willis do refer to this. What they say is that, by October 2014, Mr instructed them that he had had a change of heart. The plaintiffs say that discovery may unearth material that contradicts the second defendants’ assertions that they knew nothing of the allegations of abuse, and that their state of knowledge would be the subject of cross-examination at trial. At best, these contentions are speculative. This is a summary judgment application. The authorities are clear that such applications must be approached in a reasonably robust way.14 If the plaintiffs were able to point to any evidence suggesting that the two solicitors might have been aware, or even should have been aware, of the allegations of abuse, I would accept that the claim against them should be allowed to go to trial. But they have not done so.
[44] On the basis of the material before me, I am satisfied that Messrs Davies and Willis knew nothing of these allegations. They knew only that Mr was estranged from his family, that that estrangement had existed for many years, that whilst he had in the past considered it appropriate to make financial provision for them, by October 2014 he had concluded that he no longer wished to do so and that instead he wished to make provision for Ms ’s children, which he wished to achieve by settling a trust and making inter vivos dispositions.
[45]Whatever view one takes of Mr ’s motives in this, I accept Mr Wenley’s
submission that, having regard to their ignorance of the way in which Mr had
treated his children, Messrs Davies and Willis were entitled to treat the instructions
14 See Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA) at 86; and Eng Mee Yong v Letchumanan [1980] AC 331 (PC) at 341.
given by Mr as involving lawful inter vivos dealings with his own property
that they had a professional obligation to accept and implement.15
[46] In short, I am persuaded that, even if the plaintiffs have an arguable claim against the first defendants, their claim against the second defendants cannot succeed.
Conclusion
[47]For those reasons:
(a)The first defendants’ application for summary judgment is dismissed.
(b)I enter summary judgment in favour of the second defendants.
(c)Costs are reserved. If counsel are unable to agree on costs — as I would expect them to be able to do — they may come back to me by memorandum.
Associate Judge Johnston
Solicitors:
Vicki Ammundsen Trust Law Ltd, Auckland for plaintiffs Willis Legal, Napier for first and second defendant
15 Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008, sch, cl 4.2.
3