George v Blomfield

[2016] NZHC 3099

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

CIV-2016-419-000212 [2016] NZHC 3099

IN THE MATTER

of the Estate of ALFRED ERNEST

GEORGE deceased

BETWEEN

PETER WILLIAM GEORGE Appellant

AND

PAULINE JUNE BLOMFIELD AND ALAN GRAEME BLOMFIELD Respondents

Hearing:	15 November 2016
Appearances:	S A McKenna for Appellant No appearance for Respondents M D Branch and W J Scotter for Interested Parties
Judgment:	16 December 2016

JUDGMENT OF COURTNEY J

This judgment was delivered by Justice Courtney on 16 December 2016 at 2.30 pm

pursuant to R 11.5 of the High Court Rules

Registrar / Deputy Registrar

Date……………………….

GEORGE v BLOMFIELD [2016] NZHC 3099 [16 December 2016]

Introduction

[1]      Following the death of their father, Alfred Ernest George, Peter George and his brother, Alan George, brought claims under the Family Protection Act 1955. Alan died in 2015 and his executor negotiated a settlement of his claim with the executors.  Peter continued his claim.

[2]      Judge Riddell dismissed the claim.1   Peter George appeals that decision.  He asserts that the Judge made errors in:

(a)      failing to treat debts forgiven in the will as assets of the estate; and

(b)wrongly  treating  his  historical  conduct  and  the  fact  that  he  had previously received a distribution from a family trust as relevant to the question of whether Mr George had breached his moral duty to him.

Background to the claim

[3]      Mr George was a widower when he died in 2012.   He and his late wife, Avice, had four children; Alan (born 1945), Colin (born 1948), Peter (born 1951) and Pauline (born 1954).  Pauline subsequently married Alan Blomfield.

[4]      Mr George was an astute property buyer and developer.   Sometime in the

1970s he established a family trust, the A E George Family Trust, which purchased land in Hamilton.  That trust was wound up in the 1980s and the four children each received a substantial distribution. At some later time a second trust was formed, the A E George No 2 Trust.2

[5]      Mrs George died in 1986 and the Judge found that Pauline provided very substantial support and care for her father until he died.  This fact is reflected in the clause of Mr George’s will explaining why Pauline was to inherit more than her brothers:

In particular my daughter  PAULINE has been a considerable source of comfort and friendship to me. This is not the case as far as my three sons are concerned who for reasons of their own have chosen to have very little

1      George v Blomfield [2016] NZFC 4137.

2      In the evidence and in the decision of the Family Court that trust is sometimes referred to

(wrongly) as the A E George (No 2) Family Trust.

contact with me and my late wife over the years.  Although I anticipate that PAULINE and her family will receive a greater share from my estate than my three sons, my sons will receive an adequate share.

[6]      The net assets of the estate appear, from the various affidavits, to total about

$2.6m.  More than half of this figure, $1,665,655 comprised loans to the A E George

No 2 Trust, the P J Blomfield Family Trust and the A G Blomfield Family Trust. The assets of the estate were:

Shares in Newstead Group Ltd (based on rateable value of landless loans and capital adjustment)	$   135,833.00
Shares in Ernies Holdings Ltd(based on rateable value of landless loans and capital adjustment)	$   105,150.00
National Bank accounts	$     4,732.99
Refund from rest home	$        563.35
Tower Life Policies	$    40,340.45
Bonus Bonds	$     5,850.00
Contact Energy shares	$     5,488.64
Contact Energy dividend payments	$        252.52
Motor vehicle	$     2,500.00
Personal effects (estimated value)	$    10,000.00
Loan to A E George No 2 Trust	$   484,920.00
Loan to A E George No 2 Trust	$   353,000.00
Loan to A E George No 2 Trust	$   418,359.00
Loan to P J Blomfield Family Trust	$   204,688.00
Loan to A G Blomfield Family Trust	$   204,688.00
Loan to Newstead Group Limited	$   230,645.00
Loan to Ernies Holdings Limited	$   231,500.00
Loan to Pauline and Alan Blomfield3	$   212,935.00
Net interest received on funds held by solicitors	$       570.65

Total  $2,652,016.60

Less liabilities incurred after death  $    35,691.75

$2,616,324.85

[7]      Mr  George  appointed  Pauline  and  Alan  Blomfield  as  the  trustees  and executors of his will.  In terms of bequests he:

3      This loan was identified after the original statement of assets was prepared. Details are provided in the updating affidavit of Mr George’s accountant, Mr Glen Martyn, dated 23 October 2014.

(a)       forgave all the loans made to the A E George No 2 Trust;

(b)forgave all the loans he had made to the A G Blomfield Family Trust and the P J Blomfield Family Trust;

(c)       forgave all the loans he had made to his sons, his friend Naomi Game, and to Pauline and Alan Blomfield;

(d)gave his shares in Newstead Group Limited to Alan and Peter in equal shares;

(e)       gave  his  shares  in  Ernies  Holdings  Limited  to  Naomi  Game  and

Colin;

(f)       gave the land and buildings at 16 Pollock Drive, Hamilton, together with personal belongings and furniture to Pauline and Alan Blomfield;

(g)      gave his car to Naomi Game;

(h)      gave his residuary estate to Pauline and Alan Blomfield.

First ground of appeal: excluding the forgiven debts from the estate for the purposes of the family protection claim

The application for discovery

[8]      Judge Riddell’s decision at trial was considerably affected by an interlocutory decision made by Judge Twaddle.4   Peter and Alan had sought discovery of the trust deed for the A E George No 2 Trust, together with its financial statements and details of loans and gifts and the same documentation and information in relation to the P J Blomfield Family Trust and the A G Blomfield Family Trusts.

[9]      It is evident that Peter and Alan were mainly focused on dispositions of assets by Mr George prior to his death.   Nevertheless, in his affidavit in support of the application for discovery Peter specifically put in issue the need to determine the value of the estate and the prospect that the beneficiaries of the A E George No 2

Trust had benefited from the terms of the will.   Likewise, in his affidavit, Alan identified as an issue the effect the loans owed by the A E George No 2 Trust and the two Blomfield trusts had on the accuracy of the statement of assets and liabilities.

[10]     The applications were resisted on the grounds that the terms of the various trusts  and  identity  of  the  beneficiaries  were  not  relevant.    In  her  affidavit  in opposition Pauline said:

I fail to see how the trust deed is relevant to Alan G and Peter’s claim.  Any assets held by the A E George No 2 Trust are not part of Dad’s estate. Insofar as the trust owed money to Dad at the date of his death, details of the loans (which are forgiven under the will) have already been provided in the schedule of assets and liabilities of the estate.  Dad was never a beneficiary of the trust and Alan G and Peter have never been beneficiaries of the trust.

[11]     The same reason was given for resisting any disclosure by the Blomfield trusts.

[12]     This explanation missed the point; the issue was not whether the assets of the trusts formed part of Mr George’s estate but, rather, the extent to which the forgiven debts owed by the trusts should have been treated as part of Mr George’s estate for the purposes of the family protection claim.

[13]     Unfortunately, Alan’s counsel was given leave to withdraw on the day of the hearing, leaving Peter, who was unrepresented, to advance and argue the application in person.  So the issue that the applicants were, unsuccessfully, trying to pin down was not identified.   With the benefit of hindsight it is clear that all parties were disadvantaged by the fact that there was no opposing counsel.

[14]     Judge Twaddle recorded the submissions made on behalf of the interested parties (who included the trustees of the A E George No 2 Trust, the A G Blomfield Family Trust and the P J Blomfield Family Trust). These submissions, included that:

(a)      The two matters at the heart of the discovery application were whether there was undue influence by Pauline and how the estate assets were accumulated and made up, neither of which was relevant to the proceeding;

(b)The date of assessment of the deceased’s moral duty is the date of death and it is therefore not appropriate to consider transactions that pre-dated the death;

(c)       The size of the estate at the date of death is not in issue; and

(d)The discovery application was made in a forlorn hope that documents relating to pre-death transactions would show undue influence or an issue relating to capacity and was effectively a fishing expedition.

[15]     The  Judge’s  decision  contained  no  reasoning  but  merely  repeated  the submissions that had been made to him:5

I accept the submissions of Mr Branch and Mrs Spry and refuse to make an order for discovery for the following reasons:

(a)       The issues in the proceeding are:

(i)        whether  the  deceased  breached  his  moral  duty  to  make adequate  provision  for  the  maintenance  and  support  of Mr George; and

(ii)      if so, what would be required to remedy the breach;

(b)       There is no issue as to the size of the Estate or that, in the event the Court found a breach of moral duty, an exercise in re-distributive justice would be required;

(c)       The date of assessment of moral duty is the date of the deceased’s

death;

(d)       Assets disposed of prior to death (including to a trust in which the settlor  has  no  interest  other  than  as  settlor)  are  outside  the jurisdiction of the Court;

(e)       Any question of undue influence is outside the jurisdiction of the Court in family protection proceedings and, in any event, outside the jurisdiction of the Family Court;

(f)       Mr George(Snr)’s bank statements from 2005 to his death have no

relevance to the issues in the proceedings;

(g)       The Estate has fulfilled its statutory obligations under the Act and no reason  has  been  shown  why  the  Court  should  go  beyond  the evidence filed on behalf the Estate.

[16]     There was no appeal against this decision.  As a result of it, the parties went to trial without any evidence regarding the terms of the trusts or the identity of the trustees and beneficiaries.   But Judge Twaddle’s decision had proceeded on a misapprehension that the size of the estate was not in issue; it became clear in the Family Court that it was one of the most significant issues.

The trial court’s decision

[17]     Peter was unrepresented at trial.   It is apparent that Peter had sought to characterise some of the forgiven loans as legacies to his sister, Pauline Blomfield, though his submissions are not recorded and it is unlikely that he was in a position to advance an argument of any complexity.

[18]     Judge Riddell identified the fact that in a family protection claim the size of the estate against which the claim is being made may be an important consideration. However,  although  the  net  assets  of  the  estate  were worth  well  over  $2m,  she proceeded on the basis that the amount available for distribution was considerably less because she excluded the loans to family trusts, companies and individuals that had been forgiven.

[19]     On the question of how the forgiven loans should be treated, the Judge said:6

It is an accepted principle that a forgiveness of debt to a named person is an asset of the estate.

In the case of a forgiveness of debt to a family trust, the starting point is that the Court needs to be able to identify the beneficiaries of the trust, the particular circumstances of the debt that has been forgiven and establish that the forgiveness of debt derives from the assets owned by the testator.

[20]     After referring to this Court’s decisions in Re Crozier and Edmondson v

Green the Judge said:7

… a family protection claim must be determined within certain parameters. There are limits to the Court’s ability to treat a forgiveness of debt as an asset of the deceased’s estate.   While I have referred to certain cases in which the debt forgiveness was regarded as an asset of the estate, the circumstances were quite different.   In one case the prime beneficiaries of the trust was the two daughters.  Here, it was argued that the debts forgiven

6      George v Blomfield, above n 1, at [76].

7      George v Blomfield, above n 1, at [87]; Re Crozier (deceased) [2004] NZFLR 360 (HC);

Edmonson v Green [1997] BCL 1145 (HC).

did not constitute assets of the estate because the trust was never intended to benefit either the deceased (who was not a beneficiary) or his estate. A more compelling reason is that the Court has no information about the circumstances leading to the forgiveness of debt, or even who the beneficiaries were or what were the terms of the various family trusts.  No cross-examination was directed to Pauline or her husband about any family trust matters and there was simply no evidence on which the Court could conclude that Pauline had received any benefit personally from her father via a forgiveness of debt.

The relevance of forgiveness of debts to named family trusts was argued in the application for discovery and the Court found in favour of the respondents.  To that extent the matter has already been determined and the Court cannot go behind that decision.

Had the forgiveness of debt been directed to a named person, then that would have been different. Indeed Mr George did forgive debts incurred by all four of his children and by Ms Game and those forgiveness of debts do form part of his estate.

… I find that the imbalance of the residuary estate is not particularly significant.    Counsel  for  Peter  submitted  that  the  estate  had  net  assets totalling $2,403,389.85 as at 15 November 2013.  That sum does not take into account debts incurred by five family trusts which are outside the jurisdiction of this Court.  The total of those five loans was $1,670,655.  The loans to the two companies should also be taken off as they are not to named persons and the Court has no information about those loans either.  The total is then $2,132,800. When that sum is deducted from the net assets, there is a relatively  modest   amount  remaining,   $270,589.80.     Peter’s   share  of

$67,916.50 represents just under 25% of that net estate.   Moreover, it is likely that the land owned by Newstead Group Limited (left to Peter and Alan) has a higher value than its rateable value in November 2013, so that share may be an underestimation.

(emphasis added)

Appeal

[21]     The correct treatment of debts forgiven in a will is as stated by the Privy

Council in Commissioner of Stamp Duties v Bone & Ors:8

By “giving” or “forgiving” or “releasing” by will a debt to the debtor, a testator, in their Lordships’ opinion, is but leaving a legacy of the amount of the debt; for it is clear by such purported release the testator cannot remove this asset from the claims of creditors of the estate and the requirements of funeral and administration expenses; the testator can give to his benefaction no other status than that of a specific legacy of the value of the debt.  The debt remains outstanding as an asset of the estate; but on analysis, the debtor is in a position to deny an obligation to pay it to the extent that the specific legacy is effective as such.

[22]     Mr McKenna submitted that the Judge made an error in proceeding on the basis that a debt owed by a named person is an asset of the estate but a debt owed by a trust should only be taken into account by reference to the known beneficiary of the trust.  Mr Branch, for the executors, supported the approach taken by the Judge on the basis that because there was no evidence as to who the beneficiaries of the trusts were and whether those persons were able to repay the debt, the correct course was to not treat the forgiven debts as a legacy or an asset of the estate.

[23]     Mr Branch did not refer to Bone but relied on the decisions in LAC & Ors v NJC & Ors9  and Re Crozier, both of which had been referred to by the Judge.   In LAC the sole or principal beneficiary of the trust was known to be the deceased’s wife and the forgiven debt was treated as a legacy to her.   In Re Crozier Wild J acknowledged that where there were other discretionary beneficiaries it was, strictly, correct  not  to  equate  two  final  beneficiaries  with  a  trust  whose  debt  had  been forgiven, but he nevertheless accepted that, in practical terms, it was difficult to distinguish between the trust and the two main beneficiaries.

[24]     Mr Branch sought to distinguish both cases on the basis that in each there was a clear link between the forgiveness of debt and a claimant and emphasised that Judge Riddell had no evidence as to who the beneficiaries of the trusts were and whether they had the ability to repay the debt.

[25]     On the authority of Bone the correct starting point is that the loans were, unquestionably, assets of the estate.  The legacies created through the forgiveness of the debts were, if not to named persons, then to identifiable persons and it was the executors’ responsibility to identify them.  The size and make-up of the estate could not  be  identified  properly  without  this  information  but,  as  a  result  of  Judge Twaddle’s decision Judge Riddell was in a difficult position.

[26]     In  my view, Judge Twaddle’s  decision to  refuse discovery of documents relating to the trusts was wrong.  The estate was very substantial and the forgiven loans represented such a significant part of it that the extent of any breach of duty could not be properly determined without information about the trusts and their beneficiaries.

[27]     I do not accept Mr Branch’s submission that, even if the size of the estate were to be treated as including the forgiven loans, the claim would still inevitably fail.  It is not possible to make that assessment without knowing precisely how this very large estate had been disposed of.

[28]     I consider that the proper course is to exercise my powers under s 76 of the

District Courts Act 1947 which, relevantly, provides:

(1) Having heard an appeal under s 72, the High Court may –

(a)  make any decision or decisions it thinks should have been made; (b) direct the District Court in which the decision appealed against

was made –

(i)  to rehear the proceedings concerned; or

(ii) to consider or determine (whether for the first time or again)

any matters the High Court directs; or

(iii) to   enter   judgment   for   any   party   to   the   proceedings concerned the High Court directs:

(c)  make any further or other orders it thinks fit (including any order as to costs).

...

(5) Even if an interlocutory decision made in the proceedings concerned has not been appealed against, the High Court –

(a)  may act under subsection (1); and

(b) may set the interlocutory decision aside; and

(c)  if it sets the interlocutory decision aside, may make in its place any interlocutory decision or decisions the District Court could have made.

(6) The powers given by this section may be exercised in favour of any respondent or party to the proceedings concerned, even if the respondent or party did not appeal against the decision concerned.

[29]     It is my intention to allow the appeal on this ground and to set aside both Judge Riddell’s decision and Judge Twaddle’s decision and remit the entire proceeding to the Family Court for rehearing.  To expedite matters I intend to make orders directing the discovery of documents relating to the trusts.

[30]     Although  the  appeal  has  succeeded  on  the  previous  ground,  I  go  on  to consider the other issues because they are likely to arise again at the rehearing in the Family Court.

[31]     The Judge identified the following reasons for finding that there had been no breach of moral duty by Mr George toward Peter:  (1) the will was a carefully considered one that showed no sign of petulance or intended slight towards any of the children; (2) Peter failed to take up his father’s offer of a home when his motel business collapsed; (3) there was no evidence on which the Court could conclude that Pauline benefited personally from the forgiveness of debt; (4) the imbalance in the residuary estate (after the loans to the trusts were removed) was not significant, with Peter’s share representing just under 25 per cent; (5) there was a particularly close and trusting relationship between Mr George and Pauline and the terms of his will were effectively an expression of gratitude; (6) Mr George provided for all of the children to some extent; (7) Peter’s historical animosity towards Pauline was of his own making and if he had accepted his father’s offer of a home he might have been in a better financial position now; (8) although Peter has some financial need and it might be regarded as unfair not to redress his situation, unfairness is not a relevant basis for assessment.

[32]     It is apparent that (2) and (7) are essentially the same.  The context was that against Mr George’s advice, Peter used a distribution he received from the A E George Family Trust to buy a motel lease.  The motel business failed and Peter was left with a substantial debt to his bank. The Judge recorded what happened next:10

Consequently Mr George offered to provide a home for Peter and his family. Peter then located a piece of land outside of Hamilton on which he wanted to re-locate an air force barracks as living accommodation.  His father did not consider that was a good idea and asked Ms Game, Pauline and the real estate agent to look for a suitable home in Hamilton.  When Peter learned that the house would be purchased by a family trust and that Pauline would be one of the trustees he declared he did not want anything to do with it and so the purchase did not go ahead.  Ultimately Peter could not repay his debt and he was bankrupted.

10     George v Blomfield, above n 1, at [38].

Secondly, Peter failed to take up the offer of a home when the motel business collapsed.   His primary reason for refusing his father’s offer was because Pauline might be involved in the trust that would purchase the property.  It is not unreasonable to conclude that, had Peter taken up the offer made to him, he would have had accommodation available for him and his family. … Had he accepted, he may well have been in a more secure financial position today.

[34]     And later still, the Judge essentially repeated that point:12

Seventhly, I consider that Peter’s animosity towards Pauline was of his own making and did not derive from anything Pauline did or said.  As such he is the author of his own misfortune when it came to receiving benefits from his father.  He could have received further benefit from his father by way of a home, but chose to reject that offer.

[35]     Mr McKenna argued that these were irrelevant considerations; the fact that Peter was in a poor financial position compared to his siblings was relevant but it was not relevant to how he came to be in that position and not for the Judge to speculate that he would have been in a stronger position had he accepted the offer made by his father so long ago.  Moreover, given that what was proposed was a loan to a family trust controlled by Pauline there is no basis on which to assume that, even if Peter had received the benefit of accommodation at the time, he would have received any long-term financial benefit from the trust’s investment.

[36]     Past conduct of an adult child is not irrelevant in the context of a family protection claim.  The nature of the relationship between parent and child over the course of their lives can be a significant factor in determining the nature of the moral duty owed and the existence and extent of any breach of that duty.  So the Judge did not make any error in looking at the nature of the relationship between Peter and his father, including Peter’s refusal to take his father’s advice and offers of help.

[37]     I do, however, consider that the Judge made an error in finding that, had Peter accepted his father’s offer of a home when the motel business failed “he may have been in a more secure position today”. As it is framed, this conclusion is speculation and there was no evidence that might have supported a finding that Peter would have

been better off.  It may well have been foolish of Peter to reject the offer of help at

11 At [80].

12 At [93].

the time but even on Pauline’s evidence, it was clear that the property was to be purchased by a family trust and would not add directly to Peter’s own wealth.

[38]     Mr McKenna also submitted that the distribution from the A E George Family Trust in 1994, although referred to by witnesses as “an early inheritance” was not that, but simply a distribution from a trust and could not be relied on to satisfy Mr George’s moral duty.  However, this fact is not one that the Judge identified as a factor in her decision.

Result

[39]     The appeal is allowed.  The decisions of Judges Twaddle and Riddell are set aside.  The proceeding is remitted to the Family Court for rehearing on the following terms:

(a)      The executors are, by 1 February 2017, to file and serve a list of documents disclosing the identity of the trustees and beneficiaries of the A E George No 2 Trust, the P J Blomfield Family Trust and the A G Blomfield Family Trust, including the trust deeds and details of the debts forgiven by the terms of the will;

(b)If it is to be said by any of the interested parties that any debt would not have been recoverable from a trust, those parties are to file and serve a list of documents by 1 February 2017 disclosing the financial statements of the trust concerned and any other relevant information;

(c)       Inspection of the documents is to be undertaken by 20 February 2017.

(d)The affidavits and notes of evidence from the trial will form part of the evidence at the rehearing;

(e)      Any  further  evidence  that  parties  wish  to  adduce  is  be  filed  and served:

(i)       by the plaintiff by 13 March 2017;

(ii)      by the executors and/or interested parties by 27 March 2017.

[40]     I was not addressed on the issue of costs.  Parties may file memoranda.  My

preliminary view is that costs are properly met from the estate.

P Courtney J