Gilchrist v Lyon
[2022] NZHC 506
•18 March 2022
NOTE: ANY REPORT OF THIS PROCEEDING MUST COMPLY WITH SS 11B, 11C AND 11D OF THE FAMILY COURT ACT 1980. FOR FURTHER INFORMATION, PLEASE SEE
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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2021-404-1790
[2022] NZHC 506
IN THE MATTER OF The Family Protection Act 1955 BETWEEN
ANDREW ROBERT GILCHRIST as
litigation guardians for “M” Appellant
AND
DAVID ANTHONY LYON “E”
“S”
as the executors and trustees of the DECEASED’S ESTATE
Respondents
Hearing: 16 February 2022 Appearances:
W Templeton and R Marsich for the Appellant P Rice for the Respondent
Judgment:
18 March 2022
JUDGMENT OF HARVEY J
This judgment was delivered by me on 18 March 2022 at 3.00 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date: ………………………….
Solicitors / Counsel:
Mr WGC Templeton, Barrister, Auckland
Mr M Bhanabhai, (appellant’s instructing solicitor) Dyer Whitechurch, Auckland Mr P Rice, Solicitor, Auckland
GILCHRIST v LYON [2022] NZHC 506 [18 March 2022]
Introduction
[1] The deceased and his wife “E” had three sons, twin boys “J” and “A” born in 1967, and “P” who arrived in 1971. A and his former wife had a daughter, “M”, a minor. He is currently an undischarged bankrupt. P married his wife and they had two daughters, also minors. P died unexpectedly in 2018. It is said that J, who has no children, has been estranged from the family for many years and lives in the United States. On 18 February 2019, the deceased executed a will. He died on 7 April 2019 and is survived by E. As at 31 March 2020, his estate was worth some $1.5 million. The estate’s major asset is a half-share in a commercial property earning $48,000 per annum for each of the owners.
[2] Prior to these events, on 31 March 1995, the deceased settled the Laurie Trust with the first trustees being himself and E along with David Lyon, a retired lawyer. The trust deed provides that J and E and their sons are final beneficiaries while all their grandchildren, and their sons’ spouses, are to be discretionary beneficiaries. The trust’s net assets were $1,950,728.26 as at 31 March 2020.
[3] On 25 March 2020, M, through her litigation guardian, Mr Gilchrist, commenced proceedings in the Family Court at Auckland for provision from the deceased’s estate, for her “proper maintenance and support.” In a judgment dated 25 August 2021, Judge T H Druce dismissed the claim.1
The appeal
[4] Mr Gilchrist now appeals that decision to this Court on three principal grounds. First, the appellant argued, given the Judge’s findings that the deceased knew of A’s precarious financial circumstances, a wise and just testator would have made provision for M, to be held in a separate trust for her sole benefit. Second, that the Judge erroneously found that the “risks” posed to M’s inheritance by her father’s bankruptcy
1 Gilchrist v Lyon [2021] NZFC 8409.
were addressed by E’s latest will and memorandum of wishes, when there is no certainty that any bequests and wishes will remain undisturbed, or that M will receive any financial benefits from the Laurie Trust. Third, that the Judge incorrectly concluded that the deceased’s moral duty was discharged by the Laurie Trust resolving to pay M’s education costs and also overlooked the likely result that any provision for M out of the deceased’s estate would not adversely affect E’s financial position.
[5] The executors, being Mr Lyon, E and the deceased’s nephew “S”, oppose the appeal. P’s widow, on behalf of their daughters, also opposes the appeal.
[6] The issue for determination is whether the Family Court erred on the grounds claimed by the appellant.
Background
[7] The factual background is not in dispute, and no criticism was made of the Family Court judge’s summary of facts, which is adopted here for convenience:2
[3] [The deceased and his wife] had three children. [J] and [A] , now 54, were both born on 7 July 1967, and [P] was born on 3 June 1971.
[4] [J] is said to have been estranged from his parents since he was a young teenager. He has lived his adult years in the USA and is reportedly a successful businessman. He has made no claim on the estate and has provided no evidence.
[5] [A], who has provided most of the evidence in support of his daughter’s claim, has worked and invested in residential and commercial property development, and has lived in the Auckland area maintaining close links with his parents. He was married and [M] is the sole child of his marriage. He and his wife separated and subsequently entered into a full s 21 Property (Relationships) Act settlement in 2014. [M] has been in the shared care of her parents since her parents’ separation. [M]’s mother works as a part- time teacher and is said to be in limited financial circumstances. [A] is obliged by the terms of the 2014 settlement to pay [M]’s mother $7,000 per month until [M] is aged 19 years. There is no direct evidence of [M]’s mother’s or maternal grandparents’ financial positions and their likely ability to contribute to [M]’s support and maintenance in the future.
[6] P commenced a relationship with [his wife] in 2007 and the couple married in 2009. They have [two children]. Their dates of birth are not known. P unexpectedly died on 9 November 2018 due to medical misadventure. [P’s wife] and the children remain living in their family home
2 At [3] – [11].
in Mt Eden which is believed to be owned by a family trust, the Hunterville Trust, and they retain a family bach at Leigh, acquired prior to P’s death. [P’s wife] is a physiotherapist with her own suburban practice, working six days per week.
[7] The Laurie Trust was settled by the deceased on 31 March 1995. Prior to his death, the trustees of the trust were the deceased, [E] and David Lyon, retired lawyer. The trust deed provides for the three children and [the deceased and E] to be final beneficiaries and for all grandchildren (and spouses of children) to be discretionary beneficiaries. The assets of the trust in April 2019 were close to $2 million. As at 31 March 2020, the trust’s net assets are reported to have been $1,950,728.26.
[8] On 8 February 2019, 10 days prior to the deceased executing his will, the trustees resolved in writing to pay [M]’s private school fees from Term 1 2019 for such time as she remained a pupil at the school. The commitment amounts to close to $28,000 per annum and has since continued to be paid (albeit complicated by [A]’s preferences as to the method of payment). It has been more recently confirmed by [E] that she has provided the trustees with her Memorandum of Wishes that the trustees support all three grandchildren through their secondary and tertiary education with the explicitly stated goal of enabling each grandchild to complete their education without incurring any student loans.
[9]The deceased’s estate is reported by the executors to have been worth
$1.561 million as at 31 March 2020. The only change in investments since the deceased’s death has been the settlement of sale of a real estate asset where the agreement for sale and purchase was entered into prior to death. The major estate asset is a half-share interest in a commercial property in Papakura which realises a significant taxable income of close to $50,000 per annum for each of the two property partners.
[10] A provides evidence that he and his father shared a common interest in property development and discussed their business matters regularly. There is evidence of the deceased making advances to, and investments in, both [P] and [A]’s business entities particularly in earlier years. It is therefore likely that the deceased was relatively well informed of [A]’s difficult financial position from 2008 onwards. It is very likely that he would have known that J had lent A substantial monies following the 2007-2008 downturn and that in October 2018 [J] had made a formal written demand to A for full repayment. J obtained a summary judgment order in the Auckland High Court for US$865,123.72 (together with interest) on 8 May 2019, just one month after [the deceased’s] death.
[11] On the other hand, there is no evidence the deceased or his friend and co-trustee, Mr Lyon, foresaw A facing bankruptcy. The best evidence of this is that the deceased’s will provided that in the event of [E] pre-deceasing him, the estate was to be divided with A receiving one half and the other half going to the Laurie Trust for the benefit of [P’s children]. If [A]’s bankruptcy had been foreseen, then the family trust would very likely have been used to protect [A]’s (and through [A], [M]’s) inheritance.
The Family Court decision
[8] Judge Druce observed that the claim against the estate was primarily founded on A’s financial difficulties, his bankruptcy and his concern with being able to adequately provide for his daughter’s future needs. In addition, his Honour found that, with the exception of relationships with J, this was a close and loving family.3 There was no evidence that the deceased or E preferred any grandchild over another, but rather that all three grandchildren were said to have had close and loving relationships with their maternal and paternal grandparents.
[9] Against that background the Judge found that, in April 2019, the deceased faced no known circumstances that would adversely impact on his grandchildren’s’ inheritance expectations if he provided solely for E upon his death. Any “ominous clouds imperilling M’s paternal family inheritance” would only arise if E did not survive the deceased and A’s half-share of the estate became exposed to creditors, including his brother J, to whom he collectively owed over $6 million.4
[10] The Judge recorded that he was cautious in accepting Mr Lyon’s evidence that the deceased did not consider the possibility that he had a moral duty to his granddaughter M. The deceased had considered his duty to his other two grandchildren who were to have half the estate held in the Laurie Trust for their benefit in the event E did not survive him, while the other half was to go to A. Being “a farmer with conventional beliefs and values”, the Judge considered that it was more likely that the deceased saw A as being able to pass on his share of his inheritance to M in due course if E did not survive him, and, if she did survive him, of her passing on the residue of her estate to A and to P’s children upon her death.5
[11] Judge Druce accepted that the deceased probably knew that A was facing significant financial stress in the context of J’s demand for the large debt owed to him and A’s lack of equity to meet such a payment, and with A having all his capital at risk in a development project while being heavily exposed to creditors through personal
3 At [39].
4 At [40]. A owing his brother J some $1.5 million.
5 At [41].
guarantees if that development project foundered. As the Judge summarised “it was reasonably foreseeable that A’s financial circumstances would remain at best insecure and at worst non-existent”.6
[12] Notwithstanding, the Judge found that, while there was strength in the argument that M may not have had adequate maintenance and support if A was relied on to provide M with her paternal inheritance, this would only have been the case if E had not survived the deceased. In the event, Judge Druce concluded that any risk to M’s inheritance had been avoided by the deceased’s estate going to E, and her new will dated 2 December 2020, the terms of which protected M’s inheritance in the event A remained a bankrupt at the time of E’s death. This, the Judge considered, was supported by the memorandum of wishes which gave clear guidance to trustees to provide for all of the grandchildren’s educational needs, including up to post graduate level.
[13] The Judge noted that, even if the Court was persuaded that the deceased had failed to adequately provide for M in his will (which was not the case), the events since his death as described above protected M’s inheritance and provided no basis for a court to exercise its discretion to vary the terms of the deceased’s will. In light of his findings, it was unnecessary to look at M’s likely provision from her mother and maternal grandparents, especially since the evidence provided had been insufficient.
[14] Regarding the argument that the deceased should have made specific provision for his granddaughters, the Judge recorded that in the context of a “moderately sized estate” the deceased had a primary duty to provide for his wife who may require financial support and maintenance as her ability to care for herself would understandably reduce over time.7 Judge Druce concluded that any moral duty to include bequests to his grandchildren had been discharged by the Laurie Trust’s resolution to pay for their private school secondary education, a not insignificant expense. Accordingly, the Judge found that he was not satisfied that the deceased
6 At [43].
7 At [50].
failed to make adequate provision in his will for the proper maintenance and support of M and dismissed the application.
Appellant’s submissions
[15] Mr Templeton and Mr Marsich submitted that the appeal was brought on the basis that the Judge erred in finding that the deceased had not breached his moral duty to his granddaughter, M, and that specific provision ought to have been made from his estate.
[16] Counsel contended that the Judge did not address whether there was a breach of moral duty at the time the will was made but “somewhat confusingly” found that the granddaughter’s risk of inheritance was voided by the deceased’s estate going to
E. The Judge considered that this assessment was strengthened by the fact that E executed a new will on 2 December 2020, which meant that M’s inheritance was “protected”. This was despite the fact that the Judge found that A’s ongoing severe financial difficulties would ensure that M would not receive any financial support or assistance from her father.
[17] In addition, Mr Marsich argued that the needs of grandchildren for provision out of their grandparents’ estate had to be measured in light of the ability of the grandchild’s own parent to provide for them, citing Re Horton.8 In that case, counsel submitted, the Court of Appeal found that the deceased had breached the moral duty to their grandchildren due, in part, to the deceased’s son having an uncertain financial position that would make “any prospect he would provide substantially for his children’s future more than doubtful”.9 According to counsel, that is comparable to the present appeal.
[18] Mr Marsich also submitted that A’s bankruptcy meant that his obligation to pay significant financial support to his former wife was now at an end. Accordingly, counsel contended that M’s mother cannot provide financially for her future, due to
8 Re Horton [1976] 1 NZLR 251 (CA).
9 At 255.
her own circumstances, and the failure of A to maintain his financial support. This too should have been taken into account by the Judge.
[19] According to counsel, Mr Lyon who prepared the deceased’s will, confirmed that it never occurred to him or the deceased that the latter was under any moral obligation to provide for M. On the contrary, Mr Marsich argued that the principal motivation for the will, according to Mr Lyons, was to provide for P’s daughters, Mila and Isla. In any event, it is accepted that the Judge found all three grandchildren had a close association with the deceased.
[20] Regarding the Laurie Trust, Mr Marsich submitted that the trust deed gives the trustees “absolute and uncontrolled discretion” which means that the trustees cannot be restricted or controlled by any direction or request from a beneficiary or a single trustee. Moreover, counsel contended that a will or memorandum of wishes made by a trustee or a beneficiary has no legal effect on the trust in the absence of a unanimous resolution of the trustees. It is well settled, according to counsel, that a trust or a particular trust deed that provides absolute discretion to the trustees is a very different form of trust to that contained in a will. In the latter case, the executors and trustees are bound to carry out the terms of the will.
[21] Mr Marsich submitted that Mr Lyon was the lawyer to the Laurie Trust at all relevant times and that he also prepared the deceased’s will. Counsel contended that it was significant that the Laurie Trust had five designated final beneficiaries, which now only include A, J and their mother, E. There is an obligation under the trust deed to provide for the final beneficiaries upon vesting or winding up, notwithstanding the trustees’ need to have regard to the potential needs of other beneficiaries, including the grandchildren.
[22] Counsel submitted that Judge Druce decided that M’s interests would be sufficiently protected by the terms of E’s will and her memorandum of wishes. However, Mr Marsich argued that there was no guarantee that those provisions and wishes would remain unchanged. More importantly, E’s will did not provide for M’s “defined share of her estate” being three-eighths of a half of her estate to be bequeathed to M or her guardian but, instead, directed that her share be transferred to the Laurie
Trust with a classification “C” as designated by E in her will and memorandum of wishes. Even if the trustees decided to adopt E’s classification, the trustees would not be bound and, even if they agreed, they could easily change their minds because they have complete discretion. According to counsel, this is no protection of M’s interests.
[23] Counsel then cited McCarthy P in Re Wilson, observing that a testator cannot avoid responsibility to make adequate provision for those individuals having moral claims to the estate by the creation of a discretionary trust.10 Counsel also referred to the decision of Harrison J in Re Hardie, highlighting how a discretionary beneficiary has no enforceable rights to either assets or income of the trust, noting that while this may be trite law, it is nonetheless correct.11
[24] Mr Marsich submitted that, while it is correct that the deceased, along with E, resolved as trustees of the Laurie Trust to pay the school fees of M, that act alone did not result in a discharge of the moral duty he owed to his granddaughter. More importantly, the fund in the Laurie Trust were not the deceased’s and, in any event, the issue of paying the educational costs of the grandchildren was not a special consideration but one that applied to all three granddaughters by virtue of a decision the deceased and his wife made years before the resolution made on 8 February 2019. Therefore, there has been no special advantage to M in having her fees paid so as to satisfy the moral duty owed by the deceased to M. Equally importantly, counsel emphasised that the other two granddaughters were always going to receive, not only half of the E’s estate under her current will, but also full payment of their future education costs. This is evidenced by both E’s will and her memorandum of wishes.
[25] Counsel recorded that the reimbursement of M’s school fees has already ceased due to a dispute between A and Mr Lyons over the means of reimbursement or payment. While the impasse remains unresolved, counsel confirmed that M’s school fees were presently being paid for by one of A’s friends.
10 Re Wilson [1973] 2 NZLR 359 (CA) at 363.
11 Re Hardie [2002] NZLFR 229 (HC) at [32].
[26] Mr Marsich referred to the fact that E executed a new will and memorandum of wishes on 2 December 2020, which directed that M’s share of E’s estate be transferred to the general fund of the Laurie Trust and held in what E described as a Class C fund. The Class A fund was to cover all three granddaughters’ educational expenses, while the Class B fund covers the half-share of E’s estate to go to Mila and Isla. Judge Druce gave weight to these provisions for M, noting that this appropriately ensures that M’s inheritance was protected. Yet, the Judge did not dispose of the possibility of E changing her will, while noting that the memorandum of wishes makes it plain that they are not binding on the trustees. In doing so, E recognised the absolute discretion of the trustees and, accordingly, counsel argued that this would not protect M’s inheritance, contrary to the Judge Druce’s finding.
[27] More importantly, Mr Marsich reiterated that M’s “share” of E’s estate, being three-eighths of half of her estate, has to go to the Laurie Trust and not a separate trust for the specific benefit of M, again contrasted to the situation under a probated will with an equivalent provision. Any distribution, therefore, of M’s share will be subject to the trustees of the Laurie Trust. Counsel cited Flathaug v Weaver, in support of the proposition that specific and exclusive benefits under a discretionary trust could be taken into account, when assessing whether personal or moral duties had been fulfilled, depending on the specific circumstances and the particular wording of the trust deed.12 That was also the situation in Carson v Lane, which emphasised that every case is fact-specific.13
[28] Here, Mr Marsich submitted that M has no exclusive right to the trust income or property. While her grandmother is one of three trustees, in due course new trustees will be appointed and they will have no obligation to follow E’s directions, given their total and unfettered discretion. There is also the provision that the beneficiaries are not to receive their share of the estate until the youngest attains 30 years of age which, according to counsel, could be at least another 17 years. During that period, the trustees will change, and the assets and liabilities will also alter. There is, accordingly, considerable uncertainty as to what the final trust position will be as at the date of the
12 Flathaug v Weaver [2003] NZFLR 730 (CA) at [36].
13 Carson v Lane [2019] NZHC 3259.
three granddaughters being paid. Contrast that again, counsel argued, with a testamentary trust which can have specific references to particular beneficiaries.
[29] As to the respondent’s submission that, as the family enjoyed close and harmonious relationships, s 4 of the Family Protection Act 1955 is not engaged, Mr Marsich submitted that this was plainly incorrect. As mentioned, J had been excluded from his parents’ wills and had entered into financial arrangements with A that, having soured, resulted in the bankruptcy of the latter. A himself, it was said, was unhappy with what he perceived had been the favoured financial support P had received from their parents. All of this demonstrated, according to counsel, that there were “clearly ongoing tensions within the family.”
[30] Mr Marsich submitted that E has treated the Laurie Trust as if it is hers. While the trust may have originally been established for the deceased and E in 1995, in reality, that is not the case and over time that will become more apparent. According to counsel, at best, M has a prospective legal benefit that may or may not remain in existence. For these reasons, counsel argued that Judge Druce was wrong to find that M was protected as a result of the provisions of E’s will and memorandum of wishes from 2 December 2020.
[31] Regarding the financial position of E, according to counsel, her combined assets with the deceased’s estate is approximately $2.4m. E has also said that she has no need for all the income she can draw from the Laurie Trust but preferred to leave it as undrawn income. Counsel submitted that E is, therefore, in a reasonably comfortable financial position which can be contrasted to the situation for M. Because of A’s financial circumstances, M’s position is far from secure. In any case, counsel submitted that the deceased would have known of A’s precarious financial position. Indeed, Mr Lyons claimed the deceased considered A could not be trusted with money. Despite this, counsel contended that the evidence discloses the deceased gave no thought to the position of M or his moral obligation to provide for her. Thus, M’s position and the need for financial protection was not properly considered by the deceased when he made his will.
[32] Added to that, Mr Marsich contended that Judge Druce was wrong to overlook the fact that any provision awarded to M from the estate would not adversely affect E.
[33] Finally, Mr Templeton submitted that as the Judge found that the deceased probably knew of A’s precarious financial position, a wise and just testator in his position would have made provision for M to be held on trust exclusively for her sole benefit, while excluding her parents’ right of access to that fund. Moreover, counsel submitted that there were no obvious reasons that the bequest should not apply at the age of 20 with a proviso that the trustees pay her educational costs in the interim. On the contrary, the Judge erroneously concluded that the risks to M’s inheritance were properly addressed in E’s latest will and memorandum of wishes. As foreshadowed, M’s interests are not protected because the Laurie Trust need not follow the wishes of E, given their absolute and uncontrolled discretion to distribute trust income and capital according to their own preferences. Therefore, counsel argued that the deceased breached his moral duty in failing to provide for M out of his estate.
[34] Following the conclusion of the hearing, Mr Templeton filed an undated memorandum on 17 February 2021 which referred to the decision Re Hardie.14 He cited a truncated passage at [37] of that decision which he submitted addressed two important issues. First, whether the resolution of the Laurie Trust in February 2019 to pay for M’s school fees discharged the deceased’s moral duty to M. Second, whether M’s inheritance was protected by E transferring her estate to the Laurie Trust and directing that it be for the benefit of her grandchildren.
Respondent’s submissions
[35] Mr Rice, for the estate, submitted that the appeal should be dismissed, as the Family Court was correct in determining that there was no breach of moral duty by the deceased in failing to make provision for M. This principal submission rests on three propositions. First, the deceased’s paramount duty was to make adequate provision for his wife of 53 years. Second, M has an expectation of both direct or indirect inheritance from her grandmother and/or maternal grandparents, and directly
14 Re Hardie [2001] 21 FRNZ 674 at [37].
through her parents. Third, shortly before making the will, the deceased made generous provision for M’s education through the Laurie Trust.
[36] In addition, Mr Rice highlighted that this is the first case in his experience where a grandchild has challenged a grandparent’s will in circumstances where the family enjoys good relationships, and the grandchild’s parents and grandparents are, with the exception of the testator, all alive. He submitted that it is difficult to see how the testator owed any moral duty to make further provision for M when only a few days earlier he had made generous provision for her education through the Laurie Trust. He had no reason to doubt that M would expect to inherit from his wife, her maternal grandparents and, in due course, her own parents.
[37] Mr Rice then submitted that on 8 February 2019, ten days before the deceased made his final will, the trustees of the Laurie Trust formally resolved to pay M’s school fees at Diocesan, commencing in term one 2019. According to the evidence, the annual sum paid including incidentals and taxes, is approximately $28,000. That amounts to more than one-third of the trust’s income.
[38] The deceased’s will, dated 18 February 2019, left his residual estate to E should she survive him for 14 days, which she did. If E did not survive, the residuary was to be divided evenly between A and the Laurie Trust. Accordingly, counsel confirmed that funds paid to the Laurie Trust were to be earmarked for the benefit of Mila and Isla, P’s daughters. In addition, should A have passed before the deceased, M would take A’s half interest in the residuary estate. That said, the residuary would remain under the control of the Laurie Trust trustees until any such grandchild attained the age of 30 years. In any case, the trustees were to assist with advances for education and maintenance while pursuing fulltime study. Counsel also pointed out that J, who lives in the United States and has no children, was deliberately excluded from the will. Mr Rice also confirmed that E made a mirror will on 8 February 2019.
[39] As to E’s financial position, counsel confirmed that she is now 81 and has assets of $607,435, comprising the value of the unit she occupies at a retirement village in South Auckland. Mr Rice submitted that E’s income is derived from national superannuation, drawings of $1,500 per month from the Laurie Trust and
approximately $48,000 per annum before tax from the deceased’s business partnership. While she is in relatively good health, she is on medication for a heart condition and high blood pressure. Mr Rice pointed out that over time her health and care needs will increase.
[40] In any event, in the context of this litigation, counsel confirmed that E is opposed to any order altering her husband’s will to benefit M. Similarly, the executors of the estate support E, that a generous disposition has been made for M to the Laurie Trust and, accordingly, no further provision is justified. Regarding the two other granddaughters, their mother filed a notice of intention to appeal in opposition to M’s application. A’s twin, J, has had no involvement in any of the estate litigation.
[41] Mr Rice pointed out that on 11 December 2020, A was adjudicated bankrupt on the petition of his brother, J, over an unpaid debt of US$865,123.72. According to counsel, as a result of A’s bankruptcy, E made her new will on 2 December 2020 wherein she made a specific bequest of two pearl necklaces and a gold bracelet to M, with the rest of her jewellery going to Mila and Isla. As to her residuary estate, she divided one half to the Laurie Trust for the benefit of Mila and Isla, the B fund to be divided equally between them on Isla attaining 30 years of age. The other half was to be divided as to one-eighth to J or his children and to M alone if A was a bankrupt; four-eighths to A or to M should A be bankrupt or predecease her; and three-eighths to the Laurie Trust for the benefit of M, the C fund, and to be paid to M on her attaining the age of 30.
[42] Further, counsel submitted that E expressed the wish that the income of the Laurie Trust be applied to the education and maintenance of the grandchildren until the youngest turned 30, at which time it would be divided equally. On 2 December 2020, E signed the memorandum of wishes requesting that the trust fund be applied to support the education of the grandchildren and to later provide a capital sum to help with the purchase of a home or otherwise assist them establish themselves in life.
[43] Turning to the legal principles, Mr Rice submitted that it is well established that s 4 of the Family Protection Act 1955 does not enable a Court to rewrite a will to remedy perceived unfairness or to achieve parity. This is because testamentary
freedom is to be respected except to the extent that there has been a failure to make proper provision for the maintenance and support of those entitled to receive it. According to counsel, the jurisdiction to change a will has not altered since Allardice v Allardice.15 Edwards J in that case confirmed that for a will to be altered, a testator must have been guilty of a manifest breach of moral duty which a just testator owes “towards his wife or towards his children”. Where there has been a breach of that duty, then the Court must make sufficient orders “but no more than sufficient” to repair that breach.
[44] Counsel also cited Vincent v Lewis which provides a helpful summary of relevant principles.16 Equally importantly, Mr Rice submitted that the Act specifically provides for claims by grandchildren under s 3(2). Even so, in Re Horton, the Court of Appeal observed that before legislative change removed restrictions on the ability of grandchildren to apply under the Act, the general principle was that, ordinarily, it was not easy for grandchildren to establish a breach of a moral duty, especially perhaps if the parent was living or if the grandchild was claiming in competition with a child having a family of his or her own to support.17 That said, the Court also confirmed that there was no presumption against grandchildren and all the circumstances had to be considered. Counsel then cited the Court of Appeal decisions, Williams v Aucutt and Auckland City Mission v Brown, in support of the proposition that the courts have identified the need to be “conservative” when assessing such claims.18
[45] Moreover, in citing Black v Black, Mr Rice underscored that a deceased who leaves everything to a surviving spouse will not usually have committed a breach of moral duty, especially where the family situation is “ordinarily harmonious”.19 In this case, Mr Rice confirmed that Judge Druce found that, with the exception of J, the testator and E enjoyed a close and loving relationship with their children and grandchildren. Accordingly, he argued that, in applying Black v Black, s 4 of the Act is not engaged. In addition, counsel distinguishes Re Horton because in that case the
15 Allardice v Allardice (1910) NZLR 959 (CA).
16 Vincent v Lewis [2006] NZFLR 812 (HC) at [81].
17 Re Horton [1976] 1 NZLR 251 (CA).
18 Williams v Aucutt [2000] 2 NZLR 479 (CA); and Auckland City Mission v Brown [2002] 2 NZLR 650 (CA).
19 Black v Black [2014] NZHC 1478, [2015] NZFLR 9.
grandchildren had no prospect of inheriting from anyone other than the testator, a situation quite different to the present case.
[46] In Re Horton, the testator had married twice, bequeathing the bulk of his estate to his second wife for life and, on her death, to their children, while making no provision for Brian, his son from his first marriage. The competing interests were between Brian’s children and the children of the testator’s second marriage. According to Cooke J (as he then was), Brian’s children had no expectation of any provision “except from their grandfather’s estate”. This was in contrast to the children of the deceased’s second marriage who had the normal expectations of inheriting from their mother.
[47] Mr Rice argued that the facts here are wholly different from Re Horton. While the deceased was aware of A’s precarious financial position, it is difficult to conceive of how he owed a duty to make further provision for M when assessed against two important considerations. First, by making generous provision for her education through the Laurie Trust. Secondly, because the deceased had no reason to doubt that M might expect to inherit from E, from her maternal grandparents and, eventually, from her own parents.
[48] Turning to the grounds of appeal, Mr Rice submitted that the relevant date for assessing the deceased’s moral duty is the date of death, not the date at which the will was made, per s 3(2) of the Family Protection Act 1955. Judge Druce was aware of the importance of the circumstances known to and available to the deceased at the time of his death.
[49] Contrary to the appellant’s submission, Mr Rice contended that it is erroneous to say that the risk of inheriting was avoided, or the inheritance protected because E might change her will at any time. What the Judge actually said at paragraphs [45] and [47] of his judgment should be read in context. He concluded that it was reasonably foreseeable at the date of the deceased’s passing that A’s position would remain precarious. Accordingly, the Judge observed that had E not survived the deceased, there would have been merit in a claim that the deceased failed to make proper provision for M since A’s half share of the estate would have passed to the
Official Assignee. If that had eventuated, M would have been left with no prospect of inheritance from her paternal side.
[50] In any case, the risks to M’s inheritance were avoided by E surviving the deceased and his estate passing entirely to her. Mr Rice argued that the Judge did not say that all risks to M’s inheritance were avoided. He expressly recognised that E might change her will. In fact, Judge Druce concluded that since the deceased’s passing, events had worked to protect M’s inheritance and so there was no basis for altering the terms of his will. Judge Druce then went on to consider whether there should have been some provision made for M in recognition of her being part of the deceased’s family. Mr Rice submitted that it was in this limited context that the Judge concluded the deceased had discharged his duty to make a recognition bequest for M due to the Laurie Trust resolution to pay for her education.
[51] Turning then to the issue of E’s financial position, counsel submitted that this was not overlooked by the Judge and the argument that any provision for M would not affect E was rejected. Mr Rice contended that over time, E’s health and medical needs were likely to increase and so it was important that her financial stability was maintained. In summary, counsel argued that M’s claim falls far short of a breach of a moral duty and, consequently, the appeal should be dismissed.
[52] Finally, responding to the post hearing memorandum filed by the appellant, Mr Rice submitted that Re Hardie is of no assistance since it deals with “wholly different facts.” In that case, the testator had left his entire estate to a trust where his claimant sons were merely discretionary beneficiaries. Here the deceased left his entire estate to his wife whom he could reasonably expect to do make proper provision for their sons and granddaughters. Regardless, Mr Rice contended that the passage cited from Re Hardie is of doubtful authority. In the subsequent case of Flathaug v Weaver the Court of Appeal criticised Re Wilson stating it is not authority for any wider proposition than that a testator could not discharge his moral obligation to provide for his widow by the establishment of a discretionary trust in her favour, and that there was no reason why in a proper case an entitlement to even a discretionary benefit under a trust should not be taken into account.
Approach on appeal
[53] Judge Druce held that the deceased had not failed to make adequate provision in his will for M’s maintenance and support. That is, that there was no breach of moral duty by the deceased. Accordingly, the appeal is to be determined in line with the Supreme Court’s approach in Austin, Nichols & Co Inc v Stichting Lodestar, following the Court of Appeal’s conclusions regarding s 4 in Talbot v Talbot:20
[37] In our judgment the position is straightforward. Whether or not there has been a breach of the moral duty set out in s 4 of the Act is a threshold issue, turning on matters of law, fact and degree. Appeals involving this threshold issue fall to be determined by reference to the approach set out in Austin, Nichols. If there is a breach of moral duty found, then what remedy should be granted by the court below is an issue involving the exercise of a discretion, and an appellate court will only intervene if there has been an error of law or principle, if the Judge below took into account an irrelevant consideration or failed to take into account a relevant consideration, or if the decision below is plainly wrong.
(footnotes omitted)
[54] Following the Austin Nichols approach to appeal, this Court is able to reach its own view on whether there was a breach of moral duty to M by the deceased. While the Court must be persuaded that the Family Court decision was wrong, no particular deference is required beyond the caution afforded when a Judge from a Court below had the usual advantages of a first instance hearing.
Legal principles
[55]The present claim is made under s 4(1) of the Family Protection Act 1955:
If any person (referred to in this Act as the deceased) dies, whether testate or intestate, and in terms of his or her will or as a result of his or her intestacy adequate provision is not available from his or her estate for the proper maintenance and support of the person by whom or on whose behalf application may be made under this Act, the court may, at its discretion on application so made, order that any provision the court thinks fit be made out of the deceased’s estate for all or any of those persons.
20Talbot v Talbot [2017] NZCA 507; citing Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141.
[56]Specific to claims by grandchildren, s 3(2) provides that:
In considering any application by a grandchild of any deceased person for provision out of the estate of that person, the court, in considering the moral duty of the deceased at the date of his death, shall have regard to all the circumstances of the case, and shall have regard to any provision made by the deceased, or by the court in pursuance of this Act, in favour of either or both of the grandchild’s parents.
[57]Randerson J summarised the relevant legal principles in Vincent v Lewis:21
(a)The test is whether, objectively considered, there has been a breach of moral duty by [the testator] judged by the standards of a wise and just [testator].
(b)Moral duty is a composite expression which is not restricted to mere financial need but includes moral and ethical considerations.
(c)Whether there has been such a breach is to be assessed in all the circumstances of the case including changing social attitudes.
(d)The size of the estate and any other moral claims on the deceased’s bounty are relevant considerations.
(e)It is not sufficient merely to show unfairness. It must be shown in a broad sense that the applicant has need of maintenance and support.
(f)Mere disparity in the treatment of beneficiaries is not sufficient to establish a claim.
(g)If a breach of moral duty is established, it is not for the Court to be generous with the testator’s property beyond ordering such provision as is sufficient to repair the breach.
(h)The Court’s power does not extend to rewriting a will because of a perception it is unfair.
(i)Although the relationship of parent and child is important and carries with it a moral obligation reflected in the Family Protection Act, it is nevertheless an obligation largely defined by the relationship which actually exists between parent and child during their joint lives.
[58] It has also been held that mere unfairness is not sufficient to warrant disturbing a testamentary disposition. 22
21 Vincent v Lewis (2006) 25 FRNZ 714 (HC) at [81]; see also AP v Lucas [2021] NZHC 1017 at [36].
22 Fisher v Kirby [2012] NZCA 310, [2013] NZFLR 463.
[59] Whata J considered the particular position of grandchildren in Wightman v Public Trust. He noted that it would be difficult (but not impossible where there were special circumstances) to establish a breach of a grandparent’s duty to a grandchild if a parent was alive at the time of the testator’s death, citing the framework from Re Ward as a guide in any assessment.23 In particular:24
Under the principles which are contained in those various decisions, it is necessary to consider a number of factors applying to grandchildren; including the ability of their own parents to provide for them; the closeness of any association between the testator and the grandchildren; the prospect of any inheritance they have from other grandparents; the size of the estate; the amount of competing claims; and any provision made for the children of the grandchild or grandchildren.
Discussion
[60] From the outset, I acknowledge that M has standing to bring an application for provision out of her grandfather’s estate as a grandchild, per s 3(1)(c) of the Act.
[61] An important case in the context of these proceedings and the position of grandchildren is Black v Black where there was, as Whata and Gendall JJ described:25
the “unusual and perhaps unique case which involved a family protection claim by natural children (and one of the grandchildren) challenging their deceased father’s will which left all of his estate to his surviving spouse, the mother and grandmother of the claimants.
[62] The Court recognised that challenges to wills by children and grandchildren under the Family Protection Act typically arise where there has been a second marriage. As the Court also noted:26
In the usual case involving an ordinarily harmonious family situation, s 4 of the Family Protection Act 1955 (the Act) is not engaged where a testator has, by leaving his estate to his surviving spouse thereby left nothing to the children of their marriage/relationship.
[63] Mr Marsich submitted that the above proposition in Black v Black is inconsistent with the Family Protection Act which states that a court may order any
23 Wightman v Public Trust (as executor of the estate of Wightman) at [68] and [69].
24 Re Ward (dec’d) (1990) 7 FRNZ 586 (HC) at 591.
25 Black v Black [2014] NZHC 1478 at [1].
26 At [2].
provision it thinks fit for the “proper maintenance and support” of a claimant, per s 4(1), taking into account, with respect to claims by grandchildren, “all the circumstances of the case” (s 3(2)).
[64] It is well settled that the scheme under ss 3 and 4 of the Family Protection Act necessitates a fact specific approach to the question of moral duty routed in the circumstances of the case. However, Black v Black is authority for the point that, in the ordinary course of events, in the absence of unique circumstances imposing a particular moral duty on the grandparent to provide for their child or grandchild, there will be no breach of the duty where the grandparent provides only for the surviving spouse.
[65] In addition, s 3(2), presumably, reflects the fact that a Court must consider the position of the grandchild separately from that of their parent where their positions conflict. A parent’s circumstances, such as bankruptcy in this case, may mean that any award in the parent’s favour, either under the will or under the Act, will not automatically revert eventually to the grandchild. Where the grandchild’s position may clash with that of their parent, the scope of the testator’s moral duty must then consider that dynamic and adjust for it accordingly.
[66] The question here is whether a wise and just testator standing in the deceased’s shoes would have made separate provision for M. Taking into account the relationships and what has occurred in this case, especially following the deceased’s passing, I agree with Judge Druce that the answer must be no. I reach this conclusion primarily on the strong prospect of inheritance which M had from her grandmother. By all accounts, the relationship is close, and there was no reason to suspect that a portion of the estate received by E would not pass to M in due course. Further, with the deceased making his will while in hospital, there was little to no risk of his wife pre-deceasing him, so as for half of his estate to go to A and become exposed to creditors.
[67] It is also important to note that A had not been adjudicated bankrupt at the time of the deceased’s death. In addition, at some point in the future he will be discharged from bankruptcy. While not strictly relevant to this assessment, the fact that the
deceased’s wife wrote a will the year of his death, following A’s bankruptcy, which moved funds for M into the Laurie Trust so as to protect them, has borne out the course of action which the deceased could reasonably have anticipated would occur. E would survive him and then make provision for M. This was a reasonable assumption and one which grandparent testators make in the vast majority of cases in New Zealand.
[68] Moreover, by all accounts and with no evidence put before the court to suggest otherwise, M also stood to gain inheritance from both her mother and her mother’s grandparents, either directly or eventually as a future successor to her mother. Simply put, this was not a situation where nothing had been provided for M. The deceased had made particular provision through the Laurie Trust for M’s education, and she remained a discretionary beneficiary of that trust. All other relevant family members who might provide for her, with the exception of the deceased, were living. As foreshadowed, by all accounts, with the exception of J, the family maintained close relationships. In this context, I note that the evidence of the appellant in support of the claim that the familial relationships were not harmonious was inconclusive. During the hearing I pointed out to counsel that it is not uncommon for parents to express concerns about their children’s’ behaviour from time to time without their relationship falling into serious discord.
[69] Finally, turning to Mr Templeton’s post hearing submission regarding Re Hardie, I agree with Mr Rice as to its relevance. More importantly, when the passage is cited more fully, I do not accept that it supports the appellant’s position:27
[37] I agree with Mr Patterson that the testator could not discharge his moral duty towards the sons by nominating them as beneficiaries of the family trust (Re Wilson (deceased) [1973] 2 NZLR 359 per McCarthy P at p 363). They have no enforceable rights to either the assets or income of the trust. They will rely for any future benefit upon the discretion of John and his co-trustee. Inevitably this litigation has generated some discord between the brothers. John himself is placed in a difficult position both as trustee and beneficiary. It is unfair to all three brothers to leave them in a position of interdependence with the prospect of ongoing conflict over satisfaction of future financial requirements.
[70] I read Re Hardie to say that in the circumstances of that case, the testator could not discharge his moral duty towards his sons by nominating them as beneficiaries of
27 Re Hardie [2001] 21 FRNZ 674.
that family trust. Of the three sons claiming, one of the sons was himself a trustee and a beneficiary and so he would be determining the distribution of his own assets and those of his brothers. So, the testator could not have discharged his moral duty towards his sons by nominating them as beneficiaries of the family trust where one son was a trustee, and accordingly each son’s individual claim would be interdependent on the other. In any event, the point is obiter as the testator had left nothing to any son. As the Court of Appeal stated in Flathaug v Weaver, there is no reason why in a proper case a discretionary entitlement under a trust cannot be taken into account.28
[71] M’s situation and the family trust is quite different. Her father is not a trustee and being minors, neither is she nor her two cousins. Moreover, as mentioned, the content of a moral duty to a grandchild is notably different to that of a moral duty to a child. Whereas the child has only their parents to expect to benefit from, the grandchild has an expectation of benefiting from both parents as well as both sets of grandparents. This significant difference inevitably impacts on both the existence and the extent of any moral duty owed to a grandchild in such circumstances as are evident in this case, particularly when the other three grandparents and both parents are living.
[72] In these circumstances, it is difficult to see any basis for considering that the deceased breached a moral duty to M. Accordingly, I am not persuaded that the decision of Judge Druce should be disturbed. On this basis, my conclusion is that there was no breach of moral duty and that the appeal should be dismissed. The decision of the Family Court dated 25 August 2021 is accordingly affirmed.
Decision
[73]The appeal is dismissed.
28 Flathaug v Weaver [2003] NZFLR 730 (CA) at [36].
[74] My inclination is to award costs on a 2B basis. If counsel disagree, they can exchange memoranda as to costs within 20 working days of no more than 10 pages.
Harvey J
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