Casey v Peach Cornwall Trustees Limited Trustee of the KP and S J Malcolm Family Trust
[2017] NZHC 1823
•28 July 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2015-419-55 [2017] NZHC 1823
IN THE MATTER OF the K P and S J MALCOLM FAMILY
TRUST
BETWEEN
CHERYL JANE CASEY, GARY DONALD MORRELL MALCOLM, AND KATHRYN AGNES MALCOLM AS PERSONAL REPRESENTATIVES OF THE ESTATE OF SILVIA JANE MALCOLM
Proposed First Plaintiffs
CHERYL JANE CASEY, GARY DONALD MORRELL MALCOLM, and KATHRYN AGNES MALCOLM
Second Plaintiffs
AND
PEACH CORNWALL TRUSTEES LIMITED TRUSTEE OF THE KP AND S J MALCOLM FAMILY TRUST
First Defendant
GRAHAM BRUCE MALCOLM Second Defendant
GRAHAM BRUCE MALCOLM and
JO-ANN ELSIE MALCOLM and BALANCE TRUSTEES LIMITED Third Defendants
STEPHEN REX FAGAN Fourth Defendant
ANIL KUMAR JAICHAND Fifth Defendant
Hearing: 28 July 2017
CASEY & ORS v PEACH CORNWALL TRUSTEES LIMITED TRUSTEE OF THE KP AND S J MALCOLM FAMILY TRUST [2017] NZHC 1823 [28 July 2017]
Appearances: H Waalkens QC for the Plaintiffs
D J Taylor for the Second and Third Defendants
No appearances for the other partiesJudgment:
28 July 2017
ORAL JUDGMENT OF ASSOCIATE JUDGE R M BELL
Solicitors:
Stafford Klaassen, Epsom, Auckland, for the Plaintiffs
Bogers Scott Shortland, Hamilton, for the Defendants
DLA Piper (Jeanette Hayes ), Auckland, for the First Defendant and third-named Third Defendant, Neverman Bennett Lawyers, Hamilton, for the Fourth Defendant
Robertsons (Helen Twomey), Auckland, for the Fifth Defendant
Copy for:
H Waalkens QC, Auckland, for the Plaintiffs
D J Taylor, Hamilton, for the Second and Third DefendantsElliott J Hudson, Hamilton, for the Fourth Defendant
[1] Graham Malcolm, the second defendant, and the third defendants, trustees of the G B and J E Malcolm Family Trust, apply for further particulars of the statement of claim. During the hearing I have discussed other aspects of the proceeding with counsel. This decision covers some of those matters as well as the application for particulars. I have done this in the hope that it may make the proceeding run more smoothly.
The parties
[2] The background to this case is the estate planning of the late Ken and Sylvia
Malcolm. They farmed in the King Country for over 40 years. Ken died on 7 April
2013 and Sylvia died on 7 December 2016. They had five children:
Cheryl Jane Casey - aged 57 years
Clive Stewart Malcolm – aged 56 years
Kathryn Agnes Malcolm – aged 55 years
Gary Donald Morrell Malcolm – aged 52 years
Graham Bruce Malcolm – 50 years.
[3] When this proceeding started, Sylvia was still alive. The original plaintiff, Kevin Parker, was her property manager under s 31 of the Protection of Personal and Property Rights Act 1988. As she has now died, he is no longer her property manager. As yet there is no grant of administration for her estate.
[4] The second plaintiffs, Cheryl, Gary and Kathryn, sue as beneficiaries of the K P and S J Malcolm Family Trust. The other brother, Clive, is not a party to the proceeding.1
[5] The first defendant, Peach Cornwall Trustees Ltd, is the remaining trustee of the K P and S J Malcolm Family Trust. I understand it to be a solicitors’ trustee
company. Graham, the second defendant, is sued in respect of distributions made to
1 I was advised that he has been served.
him as a beneficiary of the K P and S J Malcolm Family Trust. The third defendants, trustees of the G B and J E Malcolm Family Trust, are sued in respect of the A shares which Graham transferred to them, after he received them from the trustees of the K P and S J Malcolm Family Trust. Stephen Fagan, the fourth defendant, is sued as the executor and trustee of the estate of the late Ken Malcolm. Mr Jaichand, the fifth defendant, is a lawyer who gave advice to various parties. He is sued in negligence.
The estate planning
[6] The family farm is said to be some 4,000 acres in area (about 1,600 hectares). It was owned by a land-owning company, K P Malcolm Ltd. There are 1,000 shares in the company divided into 100 A shares and 900 B non-voting shares. The farming operation was carried on by a separate company, Malcolm Farming Ltd. Ken and Sylvia established a family trust in April 2003, called the K P and S J Malcolm Family Trust. Ken and Sylvia were the settlors. They and Peach Cornwall Trustees Ltd were the initial trustees. The beneficiaries were Ken and Sylvia, their children and grandchildren. I am advised that it is a discretionary trust.
[7] The estate planning transactions in this case took place in 2008 and 2009. In March 2008 Ken and Sylvia made a relationship property agreement. Under that agreement each was recorded as owning 50 A shares and 446 B shares in K P Malcolm Ltd. I am advised that that agreement recorded the couple’s intention to transfer the shares ultimately to the K P and S J Malcolm Family Trust. In December 2008 Sylvia retired as a trustee of the K P and S J Malcolm Family Trust. That left Ken and Peach Cornwall Trustees Ltd as the remaining trustees. Since Ken’s death, Peach Cornwall Trustees Ltd has remained as the trustee.
[8] In February 2009, Sylvia and Ken entered into separate agreements with the trustees under which each sold to the trustees their 50 A shares for $2,337,000. The price had originally been $2,000,000 each, but that was increased as a result of the Inland Revenue reviewing the consideration.
[9] Although this is not in the pleadings, I am advised that Sylvia wrote a letter in which she indicated her consent to the trustees’ distributing the A shares held by the
trustees to Graham as beneficiary. I understand that the plaintiffs will say that her consent was flawed for undue influence and other factors which may allow the consent to be disregarded.
[10] On 31 March 2009 the trustees of the K P and S J Malcolm Family Trust distributed all the A shares in K P Malcolm Ltd to Graham as beneficiary. I am advised that at the same time as that distribution there was a deed of lease of the farm land to Malcolm Farming Ltd. Later, in June 2009, Graham transferred the 100 A shares to the third defendants, the trustees of his family trust. In June 2009, Sylvia sold her B shares in K P Malcolm Ltd to Graham for $447.00 – that is at $1.00 per share.
[11] The result of these transactions is that Graham has received the bulk of the family’s wealth built up through Ken and Sylvia’s lifetimes of farming. Mr Taylor, for Graham, points out that the other brothers, Clive and Gary, received substantial assistance at different times, whereas Graham took on the farm saddled with debt used to finance the provision for his older brothers.
[12] Counsel for Graham says that Cheryl and Kathryn have received the residues of the parents’ estates – that is, everything other than the land – but Mr Waalkens QC says that the case for the daughters is that there is relatively little in the estates and the daughters have received insignificant provision from their parents compared in particular with Graham. The overall thrust of the plaintiffs’ case is to attack the provision made for Graham as a result of the estate planning.
[13] For completeness, I mention the wills. I am advised that Ken and Sylvia made mirror wills in 2010 as part of their estate planning. Probate for Ken’s will has been granted. Sylvia made another will in 2013 but Graham has lodged a caveat against the grant of probate. The position at present is that there is no one in place to administer Sylvia’s estate. There is a proceeding to decide the will for which probate should be granted. Sylvia’s testamentary capacity will be in issue.
[14] I am also advised that Graham is to bring a testamentary promises claim if the outcome of this case is that the distribution of the A shares is set aside. Cheryl and Kathryn have brought a family protection claim against Ken’s estate.
[15] These numerous proceedings raise two matters of comment. It would be desirable that the proceedings be co-ordinated. That does not mean that they need to be consolidated, but it would be helpful for the overall conduct of the litigation concerning Ken and Sylvia’s estates and their trust, if one judge were to have overall management of all proceedings. There is bound to be significant overlap. There are going to be particular issues as to Sylvia’s capacity – questions as to her capacity when she made her wills in 2010 and 2013 are going to overlap with questions as to her capacity for transactions in issue in this proceeding. The other proceedings are in the Hamilton High Court. This proceeding was transferred to Auckland because the associate judge who sits in Hamilton recused himself because of his past connection with one of the parties. It would be desirable that this proceeding be transferred back to Hamilton, but to be case managed by another judge.
[16] The other matter is that if they are to be fully contested, these proceedings are going to be time-consuming, they are going to be stressful for the family and they are going to be expensive. A judge will make decisions applying the law after carefully considering the evidence and making findings of fact. For the family, that means that an outsider will decide on the distribution of the wealth of the family. There can be a better solution for the family if they were to work out answers themselves rather than have someone outside decide them. In short, I see benefits for the family in their considering alternative dispute resolution. An ideal way of enabling the family to discuss the issues and see if they can find a solution is by w mediation. I commend that to the family as a way to resolve issues. Nothing I say in this judgment is intended to deter them from looking for solutions outside litigation.
This proceeding
[17] There have been no amendments to the initial statement of claim. But, as a result of other parties taking issue with it, the plaintiffs have prepared a draft amended statement of claim. While the application for particulars is directed at the original statement of claim, counsel have agreed that for convenience I should deal with the application the draft pleading. There are eight causes of action.
[18] The first cause of action is for undue influence. That is directed at the retirement of Sylvia as trustee of the family trust, the distribution of the A shares, and the sale of the B shares to Graham. It alleges that Ken exerted significant control on Sylvia and that she placed trust and confidence in Graham and in Mr Jaichand in relation to her financial affairs. The transactions are alleged to be unfair, unacceptable and unconscionable. Orders are sought setting aside the distribution of the A shares and re-vesting them in Sylvia, and also setting aside the transfer of the B shares.
[19] The second cause of action is for unconscionable bargain in the distribution of the A shares. Sylvia is said to have suffered from a disability and disadvantage that diminished her ability to assess her best interests. It is alleged that her mental faculties were diminished and that she had limited ability to understand financial or commercial estate matters. The defendants are alleged to have taken advantage of her disability. Again, orders are sought setting aside the distribution of the A shares.
[20] The third cause of action is also for unconscionable bargain. It is for the sale of the B shares to Graham. That cause of action relies on broadly similar matters as for the unconscionable bargain cause of action for the distribution of the A shares.
[21] The fourth cause of action is under s 344 of the Property Law Act 2007. That claims that the distribution of the A shares to Graham defeated Sylvia’s rights as a creditor for the debt of $2,337,000.00. Again, an order is sought setting aside the distribution of the A shares.
[22] The fifth cause of action is a claim for breach of trust against Peach Cornwall Trustees Ltd as the surviving trustee. The trustees are said to owe a duty to each of the plaintiffs and to treat them jointly and severally as discretionary beneficiaries in a fair and even-handed manner. A key term of the trust deed is said to be that its principal purpose was for the future care and comfort of all discretionary beneficiaries, and separately for the care and comfort of the settlors. The distribution of the A shares is alleged not to be in the best interests or the welfare of all beneficiaries and prevented the trustees making any future provision for any of the other beneficiaries. That distribution also defeated the trustees’ indebtedness to Sylvia and Ken under their respective deeds of indebtedness.
[23] The sixth cause of action seeks the removal of Peach Cornwall Trustees Ltd as trustee of the KP and SJ Malcolm Family Trust under s 51 of the Trustee Act 1956.
[24] The seventh cause of action is for breach of fiduciary duty against both Graham and Mr Jaichand. Both are alleged to have owed fiduciary duties to Sylvia, and to have breached their duties by failing to ensure that she had independent legal advice in relation to her retirement as trustee, in consenting to the distribution of the A shares and in the sale of the B shares. They failed to ensure that she was fully informed of all the implications. They are also said to have failed to take steps to have her capacity assessed. They should have ensured that she was replaced when she retired as a trustee of the family trust. It seems to be alleged that but for those breaches of duty Sylvia would not have agreed to the distribution of the A shares or the B share sales.
[25] The eighth cause of action, against Mr Jaichand alone, is a claim in negligence.
[26] Before I deal with the particulars, I comment on the statement of claim.
[27] At present, there is no one who has standing to sue on behalf of Sylvia’s estate. That is because on her death Mr Parker’s authority to sue on her behalf ceased. So far, there has been no grant of probate, and it is uncertain for which will probate will be granted. There is a solution available. Section 7 of the Administration Act 1969 provides for interim appointments to cater for circumstances such as these.
[28] The draft statement of claim suggests that Cheryl and Gary will sue on behalf of the estate. But that can only happen once an order under s 7 of the Administration Act is made. It will be for another judge to make an order once a proper application is made. Consequential on that, there will be an order changing or adding the temporary administrators as first plaintiffs in this proceeding. For what it is worth, I see no particular difficulty with Cheryl and Gary being appointed temporary administrators under s 7. Kathryn, Cheryl and Gary obviously wish to challenge the estate arrangements. It would be efficient for them to be placed in the position of their mother so that they can pursue the causes of action which are available to her. I took
a similar course in Causer v Causer although that case involved the appointment of a litigation guardian, while the incapacitated person was still alive.2
[29] There are standing issues. Many of the causes of action are ones in which only Sylvia could be a plaintiff while she was alive. Those are the claims for undue influence, unconscionable bargain, under s 344 of the Property Law Act 2007, for breach of fiduciary duty and the negligence claim against Mr Jaichand. For those causes of action the only people who have standing to sue in the name of her estate are those appointed under s 7 of the Administration Act. On the other hand, claims that trustees should be removed and that the distribution of the A shares can be set aside, may be made only by beneficiaries of the family trust. Cheryl, Gary and Kathryn have standing for those causes of action. Mr Waalkens also makes the point that Sylvia’s estate also has an interest in challenging the distribution of the A shares.
[30] It is also helpful to identify the particular transactions which are in issue. The statement of claim does not challenge any of these transactions: the establishment of the K P and S J Malcolm family trust in 2003, the relationship property agreement of March 2008, the retirement of Sylvia as a trustee in December 2008 and the sale of Sylvia’s A shares to the trustees in February 2009. Equally, there are no claims by the estate of Ken Malcolm. None of the transactions he entered into are challenged.
[31] Sylvia was not directly a party to the distribution of the A shares to Graham in March 2009, but I understand that the trustees resolved to distribute those shares and Sylvia gave her consent. The written consent has not been put in issue in the proceeding so far. It appears that at a defended hearing the validity or otherwise of that consent will be a crucial issue. No doubt the defendants will wish to rely on it as justifying the transactions entered into and the plaintiffs who will attack it as not giving the other side a defence. Strictly, that consent ought to be pleaded as an affirmative defence in the current statement of defence. It is also in the plaintiffs’ interests to plead it and put it in issue as well. And finally, Sylvia can attack the sale of the B shares as she was a party to that transaction.
[32] So far as the cause of action for undue influence is concerned, it appears that Graham is being sued in two respects. It is alleged that he used undue influence – I will need to consider the nature of that undue influence later – and second, he is sued as a recipient. In other words, even if Graham himself did not exercise any undue influence, the plaintiffs are saying that Ken, the father, exercised undue influence. If undue influence by Ken is proved and there was no undue influence by Graham, the transaction may still be susceptible to being set aside.
[33] The fifth cause of action seems to raise a number of arguments. I take it as being a broad spectrum attack on the validity of the trustees’ decision when exercising powers of distribution among a class of beneficiaries under a discretionary trust.
[34] The seventh cause of action combines claims for breach of fiduciary duty against Graham and Mr Jaichand. Those are distinct causes of action and they should be treated separately under r 5.17 of the High Court Rules. Mr Jaichand is a lawyer. Fiduciary duties arise in a lawyer-client relationship. Graham is different. The case for him to owe fiduciary duties will rely on fact-specific considerations. The case for Graham to owe a fiduciary duty and the matters that give rise to the duty, need to be set out in a different cause of action from that against Mr Jaichand.
Application for particulars
[35] Now for the particulars application. There is no dispute as to the general principles. I refer here to r 5.17 and r 5.26 of the High Court Rules:
5.17 Distinct matters to be stated separately
(1) Distinct causes of action and distinct grounds of defence, founded on separate and distinct facts, must if possible be stated separately and clearly.
(2) If a party alleges a state of mind of a person, that party must give particulars of the facts relied on in alleging that state of mind.
(3) A state of mind includes a mental disorder or disability, malice, or fraudulent intention but does not include mere knowledge.
5.26 Statement of claim to show nature of claim
The statement of claim—
(a) must show the general nature of the plaintiff’s claim to the
relief sought; and
(b) must give sufficient particulars of time, place, amounts, names of persons, nature and dates of instruments, and other circumstances to inform the court and the party or parties against whom relief is sought of the plaintiff’s cause of action; and
…
[36] In support of his application, Mr Taylor relevantly referred to the judgment of Barker J in Commerce Commission v Qantas Airways Ltd where he summarised the function of particulars as follows:3
The function of particulars is to carry into operation the over-riding principle that the litigation between the parties, and particularly the trial, should be conducted fairly, openly, without surprises and, incidentally, to reduce cost. Their function has been stated inter alia:
(a) to inform the other party of the nature of the case he has to meet, as distinguished from the mode in which the case will be proved;
(b) to prevent the other party from being taken by surprise;
(c) to enable the other party to know with what evidence he ought to be prepared; and
(d) to limit and define the issues.
A certain amount of detail is necessary in order to ensure clearness. What particulars need to be stated depend on facts of each case.
…
Another important principle is that where misconduct is imputed against any party, those allegations… must be stated with especial particularity and care. This general statement applies to allegations of fraud, dishonesty, breach of trust, bad faith and the like – all of which are found in these pleadings.
If the only object of an application for particulars is to obtain the names of witnesses or some other detail of the opposite party’s evidence, it will be dismissed; however, where the information sought is clearly necessary to enable the applicant properly to prepare for trial, the information must be given, even though it may incidentally disclose some portion of the evidence upon which the other party proposed to rely at the trial.
The (1982) Annual Practice at p 334 states, in regard to the frequently-made objection to providing particulars, that the applicant must know the true facts
better than his opponent; “but each party is entitled to know the outline of the case that his adversary is going to make against him, and to bind him down to a definite story. Particulars therefore will be ordered whenever the Master is satisfied that without them the applicant will not know what his opponent will try to prove against him at the trial.
[37] Mr Taylor also referred to the Court of Appeal’s decision to similar effect, in Price Waterhouse v Fortex Group Ltd.4 There, dealing with applications for particulars, McGechan J said:
It has become fashionable in some quarters to regard the pleadings as being of little importance. There as an echo of that approach in the implicit suggestion floated in this case that exchange of briefs of evidence before trial might be seen as curing any lack of particularity in the pleadings. Any such view is misguided. Pleadings which are properly drawn and particularised are, in a case of any complexity, if not in all cases, an essential road map for the Court and the parties. They are the documents against which the briefs of evidence are or should be prepared. They are the documents which establish parameters of the case, not the briefs of evidence.
… Nor are we advocating a pedantic approach to the topic. Pleadings should be read as conveying what they would reasonably convey, in the context of the case, to a sensible legal mind. Even less are we advocating prolixity of pleadings, or the raising of every conceivable cause of action irrespective of its potential for success; this type of pleading often contains the additional flaw of overlooking R 114 which requires each cause of action to be separately pleaded. What we are saying is that both the Court and opposite parties are entitled to be advised of the essential basis of a claim or defence, and all necessary ingredients of it, so that subsequent processes and the trial itself can be conducted against recognisable boundaries. Neither the Court nor opposite parties should be placed in the position of having to deal with a proposition of whose substance adequate notice has not been given in the pleadings.
Statements of Claim : Particularity : Principles
The principles are well enough known. Difficulties lie in application in marginal situations. This is one such situation.
The object of a Statement of Claim is to “state” the “claim”, so that the Court knows what it is to rule upon, and the Defendant knows the case which it must meet. As a matter of practicalities, this initial “statement” is not at the level of a full disclosure of all evidence and documentation. It is of course an abbreviated summary “statement” of the basic facts said to give rise to the claim, and of the relief which is sought.
It is the level at which such abbreviation is to be set which causes ongoing difficulties. There is, of course, an eternal tension between Plaintiffs who wish to keep content as wide and general as possible, allowing maximum room to cover oversight and further developments, and Defendants who wish to narrow issues and impose restrictions to the maximum possible degree. Determinations, with respect, are not greatly assisted by very general labels
4 Price Waterhouse v Fortex Group Ltd CA179/98, 30 November 1998 at 12.
such as pleading the “general” nature of matters claimed, or mantras such as “what not how”. While they grasp an idea, they afford little hard guidance. Nor, with respect, does it greatly help to talk in terms of “facts” (to be pleaded) and “evidence” (for trial) as if there were some bright-line distinction between the two. There is not. “Facts’ can merge into “evidence” without any clear dividing line.
In marginal cases, it is better to avoid generalities and rules of thumb, and to return to principle. The pleader and court simply ask, “In the circumstances of this claim, is that statement sufficiently detailed to state a clear issue and inform the opposite party of the case to be met?”. This is not, under modern practice, simply some minimum which a Defendant needs so as to be able to plead. It is intended to supply an outline of the case advanced, sufficient to enable a reasonable degree of pre-trial briefing and preparation. Discovery and interrogatories are only an adjunct, not a substitute for pleading.
In the result, and particularly in complex cases, a rather more detailed factual narrative has come to be required than was the case in earlier and simpler times. That does not require the full details which later will be contained in a brief of evidence. Nor does the modern requirement for pre-trial exchange of briefs dilute the earlier and differently based requirement for sufficiently particular pleading. What is require is an assessment based on the principle that a pleading must, in the individual circumstances of the case, state the issue and inform the opposite party of the case to be met. As so often is the case in procedural matters, in the end a common-sense and balanced judgment based on experience as to how cases are prepared and trials work is required. It is not an area for mechanical approaches or pedantry.
[38] The application for particulars focused on four matters:
1 The allegation of undue influence by Ken Malcolm on
Sylvia (paragraph 18(a) of the draft pleading).
2The allegation in paragraph 18(b) that Sylvia placed trust and confidence in both Graham and Mr Jaichand in relation to management of her financial affairs.
3The allegations in paragraph 24(a) and 28(a) that from around 2005 Sylvia’s mental faculties were diminished.
4The allegation in paragraph 26(e) that Sylvia did not have the mental capacity to understand the nature and effect of the A shares transaction and its nature and effect were not adequately explaioed to her.
Undue influence allegations
[39] There are different undue influence allegations directed against Ken and
Graham. The relevant parts of paragraph 18 say:
There is a relationship of influence between the first plaintiff and the defendants:
Particulars:
(a) Throughout their marriage, Ken exerted significant control on the first plaintiff, of which each of the defendants were aware;
(b) At all material times, the first plaintiff placed trust and confidence in the second and fifth defendants in relation to management of her financial affairs.
[40] The allegation about Ken is that he exercised actual undue influence on Sylvia. The allegation in respect of Graham is different. It is a case of presumed undue influence. That difference between actual undue influence and presumed undue influence is brought out by Lord Nicholls in Royal Bank of Scotland plc v Etridge (No.2):5
[6] Undue influence is one of the grounds I believe developed by the courts of equity as a court of conscience. The objective is to ensure that the influence of one person over another is not abused. In everyday life, people constantly seek to influence the decisions of others. They seek to persuade those with whom they are dealing to enter into transactions, whether great or small. The law has set limits to the means properly employable for this purpose. …
[7] Equity extended the reach of the law to other unacceptable forms of persuasion. The law will investigate the manner in which the intention to enter into the transaction was secured. … If the intention was produced by an unacceptable means, the law will not permit the transaction to stand. The means used is regarded as an exercise in improper or “undue” influence, and hence unacceptable whenever the consent thus procured ought not fairly to be treated as the expression of a person’s free will. It is impossible to be more precise or definitive. The circumstances in which one person acquires influence over another, and the manner in which the influence may be exercised, will vary too widely to permit of any more specific criteria.
[8] Equity identified broadly the two forms of unacceptable conduct. The first comprises overt acts of improper pressure or coercion such as unlawful threats. Today there is much overlap with the principle of duress as this principle has subsequently developed. The second form arises out of a relationship between two persons where one has acquired over another a measure of influence, or ascendency, of which the ascendant person then takes unfair advantage. …
[9] In cases of this latter nature, the influence one person has over another provides scope for misuse without any specific overt acts of persuasion. The relationship between two individuals may be such that, without more, one of them is disposed to agree a course of action proposed by the other. Typically
this occurs when one person places trust in another to look after his affairs and interests, and the latter betrays his trust by preferring his own interests. He abuses the influence he has acquired.
[10] The law has long recognised the need to prevent abuse of influence in
these “relationship” cases despite the absence of evidence of overt acts of persuasive conduct. The types of relationship, such as parent and child, in which this principle falls to be applied, cannot be listed exhaustively. Relationships are infinitely various. Guenter Treitel QC has rightly noted that the question is whether one party has reposed sufficient trust and confidence in the other, rather than whether the relationship between the parties belongs to a particular type.
[11] Even this test is not comprehensive. The principle is not confined to cases of abuse of trust and confidence. It also includes, for instance, cases where a vulnerable person has been exploited. Indeed, there is no single touchstone for determining whether the principle is applicable. Several expressions have been used in an endeavour to encapsulate the essence: trust and confidence, reliance, dependence, vulnerability on the one hand and ascendency, domination or control on the other. None of these descriptions is perfect. None is all embracing. Each has its proper place.
Under the heading “Burden of Proof and Presumptions”, Lord Nicholls went on:
[13] Whether a transaction was brought about by the exercise of undue influence is a question of fact. Here, as elsewhere, the general principle is that he who asserts a wrong has been committed must prove it. The burden of proving an allegation of undue influence rests upon the person who claims to have been wronged. This is the general rule. The evidence required to discharge the burden of proof depends on the nature of the alleged undue influence, the personality of the parties, their relationship, the extent to which the transaction cannot readily be accounted for by the ordinary motives of ordinary persons in that relationship, and all the circumstances of the case.
[14] Proof that the complainant placed trust and confidence in the other party in relation to the management of the complainant’s financial affairs, coupled with a transaction which calls for explanation, will normally be sufficient, failing satisfactory evidence to the contrary, to discharge the burden of proof. On proof of these two matters the stage is set for the Court to infer that, in the absence of a satisfactory explanation, the transaction can only have been procured by undue influence. In other words, proof of these two facts is prima facie evidence that the defendant abused the influence he acquired in the parties’ relationship. He preferred his own interests. He did not behave fairly to the other. So the evidential burden then shifts to him. It is for him to produce evidence to counter the inference which otherwise should be drawn.
…
[16] Generations of equity lawyers have conventionally described this situation as one in which a presumption of undue influence arises. This use of the term “presumption” is descriptive of a shift in the evidential onus on a question of fact. When a plaintiff succeeds by this route he does so because he has succeeded in establishing a case of undue influence. The Court has drawn appropriate inferences of fact upon a balanced consideration of the
whole of the evidence at the end of a trial in which the burden of proof rested upon the plaintiff. The use, in the course of the trial, of the forensic tool of a shift in the evidential burden of proof should not be permitted to obscure the overall position. These cases are the equitable counterpart of common law cases where the principle of res ipsa loquitur is invoked. There is a rebuttable evidential presumption of undue influence.
[41] Cases of actual undue influence and presumed undue influence are to be distinguished from those cases where undue influence is irrebuttably presumed. That applies in certain limited relationships. A significant one is that of solicitor and client. But cases of actual undue influence lie outside the special narrow class of cases. If actual undue influence is found, then the transaction can be set aside.
Paragraph 18(a)
[42] As to the allegations against Ken Malcolm, at present there is nothing more pleaded than the general allegation that Ken exerted significant control on Sylvia, and that the defendants were aware of it. The defendants say that that is enough to inform them of the case that they have to meet. Their concern is that without further particulars they will not know the case they are to meet until evidence briefs are served. The Court of Appeal made it clear in the Price Waterhouse6 decision that the delivery before trial of witness statements of evidence is not by itself a substitute for adequate pleadings. The defendants are entitled to know the factual basis – but not the evidence – for the claim that Ken exerted control on Sylvia. It may well be that the alleged influence appeared in patterns of conduct by Ken, but if the plaintiffs are to rely on patterns of conduct by Ken, then they need to tell the defendants what those patterns of conduct were so that the defendants know what the case is that they need to respond to. In short, the defendants have established that further particulars of the facts amounting to significant control by Ken do need to be given in the pleadings.
Paragraph 18(b)
[43] Graham has sworn an affidavit expressing surprise that as a son he is alleged to have been the repository of Sylvia’s trust and confidence on financial matters. The Court of Appeal has recognised that between child and parent there is no legal
presumption that a relationship of trust and confidence is to be presumed against a child.7 If the plaintiffs are to make a case for presumed undue influence, they need to prove at trial how Sylvia did place trust and confidence in Graham in relation to management of her financial affairs. Again, I accept the case for the defendants that they may be embarrassed if they do not find out what the plaintiffs’ case is, until statements of evidence are delivered. They are entitled to have clear notice so that they can then prepare their case. Accordingly, I direct further particulars in respect of paragraph 18(b) of the draft statement of claim.
Paragraphs 24(a) and 28(a)
[44] The third matter is the pleading that Sylvia’s mental faculties were diminished. There has been some interchange on this in affidavits, with Graham pointing out that he became concerned about his mother’s mental capacity in 2013, and that his sisters objected to his overtures that something needed to be done. It turned out that in 2013
Sylvia had been assessed by a psychiatrist who had found that she was suffering from dementia to a significant degree. The question of her mental capacity between 2008 and 2009, has the interesting factor that her capacity enter into a relationship property agreement is not under challenge and her capacity to sell the A shares to the trustees is not either. But her capacity to agree to the distribution of the A shares and her capacity to sell the B shares are challenged.
[45] It is likely that a plaintiff wishing to build a case based on mental infirmity or diminished mental capacity will rely on two sources of evidence. First there is the medical evidence. That might come from contemporary records made by doctors and other medical experts who attended to Sylvia while she was alive. It may also come from expert assessments made by geriatricians or psychiatrists working off information provided to them by others. But there are other sources – anecdotal evidence which non-expert witnesses may be able to give.
[46] At present the defendants do not understand what the case is. They are entitled to be informed of the basis for the claim that Sylvia’s mental capacities were diminished. Again, if there is going to be medical evidence it may be possible to state
in a summary way which facts are relied on to show the nature of the medical disability. Equally, if there is going to be evidence about conduct so as to show a weakening of her faculties, then without going into evidence, it should be possible to state, in terms of pleading of the facts, what will be relied on at trial. Accordingly, I order further particulars as to the facts giving rise to the allegations that Sylvia’s mental faculties were diminished.
Paragraph 26(e)
[47] Paragraph 26(e) says that Sylvia did not have the mental capacity or understand the nature of the effect of the A shares distribution. That seems to overlap with the last matter. Mr Waalkens was careful to explain that the plaintiffs do not have first- hand information as to what exactly happened either when Sylvia wrote her letter that she consented to the distribution of the A shares and when Sylvia sold the B shares. The plaintiffs cannot reasonably be expected to give evidence as to those matters because the case clearly is based on a history of conduct and behaviour before those events, which they will no doubt rely on, to make out their case. It is not unreasonable to require them to set out those matters go to influence and incompetence so as to set out for the defendants what their case is, to enable the defendants to prepare in an informed way. I point out also that if it is clearly articulated, the statement of claim is likely to give greater focus on specific issues when preparation for trial is under way and to ensure that matters not truly relevant to the case are left out.
[48] I make these orders:
(a) Once an order has been made under s 7 of the Administration Act appointing temporary administrators for the estate of Sylvia, the parties are to file and serve a joint memorandum for the joinder of those administrators as first plaintiffs.
(b)Once that is done, an amended statement of claim shall be filed which will give particulars of paragraphs 18(a), (b), 24(a), 26(e) and 28(a) as directed in this decision. I expect that amended statement of claim to be filed and served within two months.
(c) The defendants will have the costs of their application today. That will be on a category 2 basis. The hearing took half a day. I trust that counsel will be able to agree as to costs, but if they cannot, memoranda may be filed and I will decide costs on the papers.
(d)The proceeding is to be transferred back to the Hamilton registry, so that it can be dealt with in conjunction with the other proceedings relating to the Malcolm family. As Judge Doogue has recused himself, he will not be case-managing these proceedings.
[49] Outside those orders I record that I intend to make a request for this proceeding, and the other proceedings relating to this family, to be co-ordinated so that they are case-managed and heard by a single Judge to ensure efficiency and continuity of management.
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Associate Judge R M Bell
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