Malcolm v John aka de Faria
[2021] NZHC 406
•10 December 2021
IN THE HIGH COURT OF NEW ZEALAND NEW PLYMOUTH REGISTRY
I TE KŌTI MATUA O AOTEAROA NGĀMOTU ROHE
CIV-2020-443-55
[2021] NZHC 406
UNDER the Trustee Act 1956 IN THE MATTER
of an application pursuant to section 51 of the Trustee Act 1956
BETWEEN
MAREE PATRICIA MALCOLM
Plaintiff
AND
CRAIG LESTER JOHN (also known as CRAIG DE FARIA)
Defendant
Hearing: 25 November 2021 Appearances:
S W Hughes QC for the Plaintiff A F Johnston for the Defendant
C A Gelston for the Subject Person
Judgment:
10 December 2021
JUDGMENT OF COOKE J
Table of Contents
Factual background [3]
The issues [24]
Did Mrs John have capacity? [25]
The test to be applied [26]
Application of the test in the current case [34]
Removal of the defendant [43]
Removal of an attorney [45]
Removal of a trustee [49]
Application to the present case [55]
Who will fulfil the replacement roles? [65]
MALCOLM v JOHN [2021] NZHC 406 [10 December 2021]
[1] These proceedings involve two applications. First, by statement of claim dated 21 December 2020 the plaintiff applies for orders removing the defendant as trustee of the estate of Mr Anthony Bruce John and replacing him with Mr Boyd John. Boyd John is a brother to the plaintiff and defendant. Anthony Bruce John was their father. There are four other siblings.
[2] Further by application dated 15 August 2019 the plaintiff seeks to review the defendant’s appointment as the attorney for their mother, Mrs Margaret John and to have an independent person appointed in his place. Mrs John is in her nineties and now lacks capacity. By order dated 3 September 2021 the Family Court directed that this application be transferred to this Court under s 14 of the Family Court Act 1980 to be heard together with the first proceeding. I heard the applications together under Part 18 of the High Court Rules with witnesses being cross-examined on their affidavits. A bundle of documents was also provided. The parties also provided a statement of matters that were agreed.
Factual background
[3] I begin by describing the factual background. This will involve making some factual findings.
[4] Mr Anthony John died on 19 November 2006. His final will was dated 20 July 2001. The primary asset of his estate was then the matrimonial home in Oriental Street, New Plymouth. In his will the executors of his estate were Mrs John, the plaintiff and the defendant. Mrs John had a life interest in the estate, and on her death the residue is to be divided between the plaintiff, defendant and two of their siblings (Owen and Howard John). Boyd John and Sharyn Mottram are not provided for in the will, and a final brother, Mark John had died in 1989.
[5] It is apparent that there were, and are, differences of view amongst the family, and that this involves quite strongly held views. I had the advantage of hearing evidence from the long-standing family solicitor, Mr Harold Fitzgibbons. He had acted for Mr and Mrs John over the years and was the solicitor responsible for administration of Mr John’s estate. He explained that the plaintiff had introduced the family to his firm. In evidence he referred to the tensions within the family explaining
that there were at least two camps and “possibly followers of one camp who might move between camps”.
[6] One of the disputes concerned a commercial building owned by the parents in Devon Street East in New Plymouth. The plaintiff and her husband had a business that held a Remax Real Estate franchise and they operated this business from a tenancy in the building. Some time after Mr John had died Mrs John made the decision that she wished this building to be sold. The building was by then half owned by Mr John’s estate, and half by Mrs John. The plaintiff and her husband said that they would like to purchase the building. The plaintiff and her husband made an offer at $520,000. When asked about it, Mr Fitzgibbons advised that a valuation should be obtained. The plaintiff obtained one which said that the building was worth $605,000.
[7] On 19 June 2013 the defendant raised a concern about the proposed sale with Mr Fitzgibbons. Mr Fitzgibbons advised him that he had an obligation as joint trustee of his father’s estate to obtain the best value for the building on behalf of the estate. This led to a change to the offer price so that the estate’s half share was purchased for
$290,000 representing half the valuation less an allowance for the commission saved. But Mrs John still intended to sell her half share to the plaintiff and her husband for less, namely $230,000.
[8] Mr Fitzgibbons arranged for Mrs John to receive independent legal advice on the transaction. This was provided by Mr Ian Cull who in his reporting letter to Mr Fitzgibbons of 9 July 2013 said:
Firstly may I say how impressed I was with Margaret as to her intellectual capacity at the age of 84, I have no doubt whatsoever that she knows exactly what she is doing, she knows exactly what she wants and no one not even myself playing the devil’s advocate is going to alter her stance as to the proposed sale of her half share.
We discussed at length certain issues with regards to some of her children who are making life seemingly rather difficult for her and more than likely it will be more difficult as a result of her decision to sell her half share at $230,000.00
+ GST.
Margaret is aware that many of these issues with her children are money issues, that they will not be impressed by her agreement to sell at less than that which her half share should realise. However as she said to me this is my share in the asset, I am in complete control of all of my assets and it is my
very strong wish that I be able to deal with any of my assets in my own way during my lifetime. Admittedly as she said once she has passed on then it would be a slightly different story with regards to obligations under her Will and the Trustees obligation in that regard as well. She has not passed on and therefore it is her decision to do what she likes with her assets and she is more than prepared for any unfortunate reactions that may occur from some of the family as a result of her decision to sell.
[9] These observations are consistent with the general family dynamics. It would appear that Mrs John had firm, but somewhat changeable views about her children, and which of them should receive financial advantage. The plaintiff and her husband were financially advantaged by the arrangements for the sale of the commercial building. The plaintiff had earlier been appointed as Mrs John’s attorney in May 2013. The plaintiff explained in evidence that her mother did not have the ability to deal with electronic banking, and that she did all her banking transactions on her behalf during the period when she held her power of attorney. At this time Mrs John favoured the plaintiff. Later it was the defendant who was preferred, and he subsequently obtained control over his mother’s bank accounts and later also benefitted financially from her.
[10] At the time of the sale of the commercial building the defendant remained concerned at the financial advantage his sister was obtaining, but he nevertheless consented to the sale, and obtained the consent of the other beneficiaries of the estate to the sale in his role as joint executor.
[11] Other steps were taken at this time that disadvantaged the defendant. In August 2013 Mrs John instructed Mr Fitzgibbons to change her will to take the defendant and his brother Owen out as beneficiaries, replacing them with their children. That was duly done. There was a further meeting between Mrs John and Mr Fitzgibbons in November (at which the plaintiff and Boyd were present) which involved Mr Fitzgibbons noting that the other sons were “constantly questioning [Mrs John] on both estate affairs and her own affairs, and voicing suspicion of [the plaintiff’s] behaviour”.
[12] But things changed over the next three years. A further meeting between Mrs John and Mr Fitzgibbons took place in November 2016. On this occasion Mrs John was brought to Mr Fitzgibbons by the defendant. Mrs John now said she wished to change her will again by reinstating the defendant, and also reinstating
Owen so that his share would be enjoyed jointly with his children. Mrs John also wanted a protective trust established for her daughter Sharyn, who had earlier been excluded.
[13] Mr Fitzgibbons then saw Mrs John the following month, on 23 December 2016. This time she was accompanied by the plaintiff rather than the defendant. Mr Fitzgibbons’ file note reads as follows:
I suggested Maree [the plaintiff] leave us. Margaret [Mrs John] though she should stay. She stayed.
I asked Margaret to tell me what she had instructed me to do. She could not, though did recall that she wanted to reinstate children.
Maree interjected to advise if had been her suggestion that provision be made for Sharyn. When I advised that a sixth share was to be held on protective trust for Sharyn, Maree concerned – plan had been for only a limited amount, as she and Boyd don’t want ongoing responsibility.
Margaret described issues with Sharyn at length, with Maree defending Sharyn and suggesting Margaret had been a little hard on her.
I advised that instructions were too inconsistent to allow progress. On the one hand Margaret thought nothing should be done for Sharyn, on the other that a small provision might be made.
I raised FP Act action. Maree thought there would be none. Sharyn had apparently acknowledged that she has had provision and expects nothing more.
Margaret firm in reinstating Craig for his children and adding Owen with his children. There matters amended and Will signed.
[14] In his evidence Mr Fitzgibbons said he was concerned about Mrs John’s capacity at this time as she did not recall her earlier instructions about Sharyn. But as the file note records Mrs John’s will was changed at this meeting. Mr Fitzgibbons did not include changes that Mrs John did not appear to have remembered from the earlier consultation, however. So he only included things that appeared to be clear instructions, particularly if they were consistent with his earlier instructions.
[15] Matters changed yet again the following year. On 7 April 2017 Mrs John attended on a new solicitors’ firm with the defendant and Howard requesting that her powers of attorney be changed, removing the plaintiff, and substituting the defendant. They saw Ms Leanne Young, a legal executive of the firm then known as R M Y Legal.
Ms Young duly prepared replacement powers of attorney which were signed the following Monday 10 April.
[16] Mrs John and the defendant attended on Ms Young again on 8 May, this time to make changes to Mrs John’s will. This involved changing the will so that her executor would be the defendant solely.
[17] After a draft will had been prepared and sent to the defendant, the defendant asked Ms Young what the process would be for Mrs John to provide him with funds to assist with building a new house. He explained that it was intended that Mrs John move in with him. Ms Young responded by saying that a deed of acknowledgement of debt would be required. She was subsequently advised by the defendant that the amount of the loan would be $150,000 and that it would be interest free.
[18] A meeting was then arranged on 21 June 2017 where Mrs John signed her will and the defendant signed an acknowledgement of debt. Ms Young explained in her evidence that she met with Mrs John without the defendant being present, and that her recollection of her instructions were consistent with the will that she signed. A deed of acknowledgement of debt was also signed acknowledging a loan from Mrs John to the defendant in the amount of $150,000. Two features of the acknowledgement are notable. First Mrs John did not sign it. Secondly the loan amount was as recorded as being repayable only on Mrs John’s death. Ms Young said in her evidence that this second aspect was changed in the deed on 21 June 2017 when the documents were executed.
[19] Following the earlier changes to the person authorised to be Mrs John’s attorney, the defendant was now in charge of Mrs John’s bank accounts. Using this power amounts beyond the $150,000 subject to the deed of acknowledgement of debt were taken from her accounts and moved into his accounts. He accepts that in addition to the $150,000 and amount of $50,000 was transferred to him on 26 July 2017,
$10,000 on 8 May 2018, $9,000 on 15 June 2018 and $18,500 on 20 November 2019. A transfer of $5,000 was also made to Owen on 12 May 2019.
[20] Repayments were also made by the defendant. A repayment of $19,000 was made on 25 August 2018, and then on 9 December 2019 a repayment of $68,500 was made. In cross-examination the defendant accepted that the last repayment was made after these proceedings had been commenced in the Family Court. It is agreed at that point that the only amount owed by the defendant to Mrs John was the $150,000.
[21] During this period, on 5 July 2019, Mrs John also took up residence in a rest home. She was seen by a doctor later that month who assessed her and provided a formal report that she had lack of capacity such that the power of attorney in relation to health and welfare was activated.
[22] After Mrs John moved into the rest home, the defendant, and then the defendant’s son, moved into the family home in Oriental Street. The defendant changed the locks. At this time the home was half owned by the estate, and half owned by Mrs John. No agreement was obtained to this happening from the plaintiff as the other executor of the estate, and no rent was paid for this occupation. When it was suggested to the defendant by the solicitors acting for the estate that there was an issue with the executors not agreeing to him occupying the house the defendant responded by saying that he would be prepared to pay rent provided that the plaintiff compensated the estate for not paying market rental while she occupied a house owned by their parents. In cross-examination it was put to him that based on a market appraisal an amount of approximately $31,200 in rent had not been paid. But the defendant was not prepared to agree to that assessment and said that he would be “happy when all the rentals are assessed at the same time”.
[23] There is a final issue of importance. Some of Mrs John’s bank accounts from 2019 were produced in evidence and the defendant was asked about sums deducted from her accounts while the defendant was in control of them. It is apparent that all outgoings of the Oriental Street property such as rates and insurance are being paid for by Mrs John. It is also apparent that other charges such as rubbish collection and electricity are as well. In addition there are amounts, such as cash withdrawals, that the defendant was not able to explain. He said Mrs John liked to have cash and that he would withdraw amounts and give it to her. But the amounts involved are higher than would be expected of an elderly woman suffering from dementia residing in a
rest home. The defendant insisted that none of this had been for his own personal use, but he had not kept accounts and was not able to provide a full explanation for the withdrawals involved.
The issues
[24] Against the background of the facts as found above, and in light of the matters raised by the parties, there are three key issues:
(a)Did Mrs John have capacity when appointing the defendant as her attorney?
(b)Should the defendant be removed as Mrs John’s attorney, and as trustee, because of the way he has conducted these roles?
(c)Who should play any replacement roles?
Did Mrs John have capacity?
[25] The plaintiff’s first contention is that Mrs John did not have capacity at the time she appointed the defendant as her attorney on 10 April 2017, and that the powers of attorney should accordingly be set aside. That application is made on the basis that the previous appointment of the plaintiff as Mrs John’s attorney in May 2013 would be revived.
The test to be applied
[26] I first consider the test to be applied. There is a potential jurisdictional issue. The jurisdiction of the Family Court arises under s 102 of the Protection of Personal and Property Rights Act 1988 (the PPPR Act).1 This provides:
102 Court’s jurisdiction in respect of an enduring power of attorney
(1)A court shall have jurisdiction to determine—
1 Exercised by this Court following the removal of the proceeding to the High Court under s 14 of the Family Court Act 1980.
(a)whether or not any instrument is an enduring power of attorney; or
(b)whether or not the donor of an enduring power of attorney is mentally incapable.
…
[27] On the face of it this only contemplates the Court determining whether there is a power of attorney meeting the requirements set out in the PPPR Act, and then determining whether the donor was mentally incapable for the purposes of the subsequent exercise of powers under the PPPR Act. The Act does not appear to expressly confer jurisdiction to determine that the appointment of an attorney is ineffective because the donor lacked capacity. In Waldron v Public Trust Potter J held, however, that such jurisdiction necessarily existed as to hold otherwise would result in inefficient and illogical outcomes.2 She concluded:3
Section 102(1)(a) confers on the Family Court jurisdiction to determine whether or not any instrument is an enduring power of attorney. I conclude that this includes jurisdiction to determine whether an enduring power of attorney has come into effect, including whether the donor had mental capacity at the time the enduring power of attorney was entered into and executed.
[28] That approach has since been accepted in later decisions, 4 and I also agree with it for the reasons outlined by Potter J. The Act must be able to work in accordance with its principles.
[29] I note, however, that the PPPR Act sets out detailed requirements for entering a power of attorney which must be followed, and that there is a presumption of competence in ss 5, 24 and 93B. So an applicant will need to bring forward reasonably compelling evidence to demonstrate why an appointment that has followed the Act’s procedures was ineffective. In addressing the question of competence generally, Moore J said in Flavell v Campbell:5
2 Waldron v Public Trust [2010] NZFCL 277, (2010) 28 FRNZ 403 at [37].
3 At [46].
4 Carrington v Carrington [2014] NZHC 869, (2014) FRNZ 738 at [64]–[67]; NJF v MIF FC Rotorua FAM-2008-063-759, 20 December 2010.
5 Flavell v Campbell [2019] NZHC 799 at [64].
The Act is premised on a presumption of competence.6 Everyone is assumed to have the ability to make decisions about their personal care and welfare and to express their views unless the presumption is displaced by evidence that they lack the requisite capacity. The burden establishing lack of competence falls on the person alleging it.7 The evidential burden then passes to the person who is the subject of the application to rebut it.8
[30] I do not understand that the passing of an evidential burden arises from a statutory provision, however, and adopting a transferable burden may unduly complicate a straightforward evidential question. At the least I do not consider that any shift of evidential burden can arise in the present circumstances. A person alleging a lack of competence when an appointment has been duly made under the PPPR Act’s procedures will have the burden to demonstrate that there was a lack of capacity notwithstanding that a lawyer, trust officer or legal executive witnessed the execution of the power of attorney, and provided the certification under s 94A which effectively included a certification that the donor had capacity to make the appointment.9
[31] The test to be applied as to whether a person had capacity can be taken from s 6 of the PPPR Act. It provides:
6 Jurisdiction of court under this Part
(1)Subject to subsection (2), a court shall have jurisdiction under this Part in respect of any person who is ordinarily resident in New Zealand and who—
(a)lacks, wholly or partly, the capacity to understand the nature, and to foresee the consequences, of decisions in respect of matters relating to his or her personal care and welfare; or
(b)has the capacity to understand the nature, and to foresee the consequences, of decisions in respect of matters relating to his or her personal care and welfare, but wholly lacks the capacity to communicate decisions in respect of such matters.
…
[32]In KR v MR Miller J held:10
6 See, for example, Protection of Personal and Property Rights Act 1988, ss 5 and 24.
7 Re “Tony” (1990) 5 NZFLR 609 (FC) at 616.
8 Sylvia Bell Protection of Personal and Property Rights Act and Analysis (2nd ed, Thomson Reuters, Wellington 2017) at 4.
9 See s 94A(7). These sections were amended by the Statutes Amendment Act 2016 (2016 No 104).
10 KR v MR [2004] 2 NZLR 847 at [51]–[52].
It has been held that four factors are particularly important in determining whether a person has capacity to make the relevant decision: ability to communicate choice; understanding of relevant information; appreciation of the situation and its consequences; and manipulation of information – in other words, the person’s ability to follow a logical sequence of thought in order to reach a decision: Re FT (District Court, Auckland, PPPR 68/94, 11 January 1995, Judge Boshier). In Re G (PPPR: Jurisdiction) (1994) 11 FRNZ 643 at p 648, Judge Inglis QC held that:
“It is sufficient to show that the subject’s capacity to understand the nature and to foresee the consequences of alternatives or options available for choice is so limited by intellectual disability or by mental illness or both that any choice between such alternatives or options which the subject may make cannot responsibly be recognised as effective.”
Once the presumption of competence is displaced, the Court may make a personal order under s 10. Application may be made for a personal order by a relative of the person in respect of whom the application is made.
[33] I apply these standards. If they are satisfied the Court can not only determine that the appointment of the attorney was ineffective, but may also exercise the other powers of the PPPR Act if the incapacity is still present.
Application of the test in the current case
[34] I accept that Mrs John does not now have capacity. But I do not accept that Mrs John lacked capacity when appointing the defendant as her attorney on 10 April 2017.
[35] I agree with Mr Johnston’s submission that as a consequence of s 12A of the Family Court Act 1980 the Court may receive evidence that would otherwise be regarded as inadmissible as hearsay under the Evidence Act 2006.11 That means that certain reports, such as that from Dr Ian Smiley of 17 July 2019 (that Mrs John had mental incapacity due to dementia that was likely to continue indefinitely), and from Dr Judith Teague dated 4 November 2019 (that she was no longer competent to manage her affairs) can be referred to, along with other documents I was provided by counsel. But neither of these doctors saw Mrs John more than two years earlier when she executed the powers of attorney. Indeed there is no medical evidence at all relating to her mental capacity at that time.
11 See Family Court Act 1980, s 12A(2)(h), (3)(e) and (4).
[36] The absence of medical evidence is not fatal to the plaintiff’s application because a lack of capacity could be established by other evidence. Here the plaintiff relies on her own evidence and that of Mr Fitzgibbons. The plaintiff gave evidence that Mrs John’s mental state declined over the years from about 2015, and I accept that by April 2017 there was an issue in relation to her capacity. But the plaintiff’s evidence does not establish that she had no capacity at all as at April 2017.
[37] Mr Fitzgibbons gave evidence that at the meeting on 23 December 2016 he developed a concern about Mrs John’s capacity as she was not able to properly recall all the instructions she had given at the earlier meeting in November. Mr Fitzgibbons’ evidence is significant because he had known Mrs John for some time and would be well placed to assess her capacity.
[38] But whilst he had concerns it is significant that he nevertheless proceeded to act upon her instructions to change her will, and she duly executed changes to her will at the December meeting. So he accepted she had capacity to do this. Mr Fitzgibbons did not include changes that he understood he had earlier been instructed to make at the November meeting because Mrs John could not recall them at the December meeting, but he made the changes that Mrs John was able to remember and reiterate. So I conclude that his view was that her capacity was compromised, but that she was still able to give some instructions and understand their implications. Those were the matters that he acted upon. That evidence does not establish that Mrs John had no capacity at all at that stage.
[39] The most important evidence as at April 2017 comes from Ms Young, the legal executive who accepted Ms John’s instructions, and who certified that the requirements for the entry of the power of attorney were met when the documents were executed. There are a number of criticisms of the approach that Ms Young adopted, and I accept there is validity in some of those criticisms. For example no contemporaneous file note was kept. Ms Young also made no attempt to contact Mr Fitzgibbons who had previously acted for Mrs John. This would have been prudent in the circumstances. Ms Young was presented with an elderly person for whom she had never previously acted in circumstances where she knew there was a family disagreement. She was asked to take a number of steps in favour of the family member
who brought Mrs John to the appointments. There was a request that replacement enduring powers of attorney be executed, and then that her will be changed to replace the executor, and then a loan be legally documented. It would have been prudent to check with the solicitor who had acted for some time for Mrs John, and to take more steps to check on the issues of capacity and undue influence in those circumstances. If she had contacted Mr Fitzgibbons she would no doubt have been advised by Mr Fitzgibbons that he had concerns about her capacity.
[40] Ms Young gave evidence that she was not able to now confirm the steps she took to confirm Mrs John’s capacity in the absence of any contemporaneous notes. She did say, however, that Mrs John had confirmed her instructions in relation to the change to her will, and also in relation to the loan, at the subsequent meetings. When she was asked about her certification in relation to capacity she referred to her usual practices, and also gave evidence that the instructions Mrs John gave to her were clear and that she would have spoken to her independently of the defendant. She had also later provided a letter dated 4 November 2019 at the request of the defendant that stated “I had no reason to believe that Margaret was confused or unfit to make the changes to her EPOA’s nor did I feel that there was any influence from Craig and Howard to do so”.
[41] Notwithstanding the shortcomings in the approach adopted by Ms Young I accept her evidence that Mrs John gave clear instructions to change the powers of attorney, and that she believed that Mrs John had the capacity to give those instructions at that time. That is what Ms Young certified. The instructions Mrs John gave were not complex. Ms Young’s evidence that she knew what she wanted to do is also consistent with Mr Fitzgibbons evidence of her approach a few months earlier where he acted upon her instructions in relation to changes to her will that she was able to repeat and understand. Although there was an issue with her capacity, she was able to give some instructions that she was able to properly understand. That approach is also consistent with s 8 of the PPPR Act which contemplates that a person be encouraged to exercise capacity to the greatest extent possible.
[42] In short the evidence presented by the plaintiff does not displace the presumption of competence under the Act, or the certification provided when the
powers of attorney were entered. This aspect of the plaintiff’s claim is accordingly dismissed.
Removal of the defendant
[43] The plaintiff seeks that the defendant be removed as Mrs John’s attorney, both in respect of his appointment as her attorney in relation to property, and as her attorney in relation to her personal welfare. In addition the plaintiff seeks that he be removed as the trustee of Mr John’s estate. The basis for the removal is that the defendant has not been acting in Mrs John’s best interests and has been preferring his own interests.
[44] There are different tests for removing an attorney, and removing a trustee. I will first address those tests and then apply them to the circumstances of this case.
Removal of an attorney
[45] The removal of an attorney because of the way in which he or she has undertaken the role arises under s 105 of the PPPR Act, which provides:
105 Court may revoke appointment of attorney
(1)The court may, in any proceeding commenced under section 101, 102A, or 103, revoke the appointment of an attorney under an enduring power of attorney if it is satisfied that the attorney—
(a)is not acting, or proposes not to act, in the best interests of the donor; or
(b)is failing, or has failed, to comply with any of the attorney’s obligations under section 99A or 99B, or proposes not to comply with any of those obligations.
…
(2)Where a court under paragraph (h) or paragraph (i) of section 102(2) determines that the donor of an enduring power of attorney was induced by undue influence or fraud to create the power or that the attorney is not suitable to be the donor’s attorney, the court shall revoke the appointment of the attorney.
[46] The requirements of this section should be applied in light of the overall scheme and purpose of the PPPR Act. In Courteney v Estate of Courteney Judge
Tompkins summarised some of the background to amendments made to the Act in the following way:12
… following the Act’s enactment, it became apparent that people who enjoyed enduring powers could abuse them. In 2001 the Law Commission issued a report entitled Misuse of Enduring Powers of Attorney,13 which highlighted a number of problems with the statutory regime.
The Commission recommended that a number of further safeguards be introduced to curb misuse of the Act. Many of these were adopted with the passage of the Protection of Personal and Property Rights Amendment Act 2007.
This short (and incomplete) history emphasises the close Parliamentary scrutiny afforded enduring powers of attorney, the ongoing legislative attempts both to regulate that relationship and to ensure that the system is not abused, and the strict obligations and duties that an attorney must adhere to as a result. The High Court has said that:14
The justification for greater scrutiny under the Act must be that the donor who is mentally incapable is unable to “supervise” the actions of his or her attorney in the way a person who is mentally capable might.
A person exercising an enduring power of attorney must do so consistently with the Act, as this is the enabling instrument that gives them jurisdiction to act while the donor is mentally incapable. An enduring power of attorney is a special form of agency, but “is a creature of statute; there is no equivalent common law instrument”.15 Enduring powers must be governed by the principles stated or implicit in the Act, and there is “no logical reason” to follow the common law rules governing ordinary powers of attorney.16
[47] The Act should be applied with this focus. I agree with the analysis of Judge Murfitt in Treneary v Treneary that it is significant that s 105(2) involves automatic removal in the case of undue influence, fraud or lack of suitability, and that lack of suitability would likely arise from more profound factors such as the attorney’s own mental or physical incapacity, criminal behaviour or factors of that kind.17 I also agree with his view that:18
Where a failure of the attorney to act (in the past or proposing to do so in the future) in the best interests of the donor has been proven, the Court then has a discretion to revoke the appointment. Such a discretion must be exercised in
12 Courteney v Estate of Courteney [2016] NZDC 20578, [2017] DCR 390 at [15]–[18].
13 Law Commission Misuse of Enduring Powers of Attorney (NZLC R71, 2001).
14 Read v Almond [2015] NZHC 2797 at [267].
15 At [265].
16 Re “Tony” (1990) 5 NZFLR 609 (FC) at 624.
17 Treneary v Treneary [2009] NZFLR 208 at [15]–[17].
18 At [19].
the light of the purposes of the Act. The purposes are described in the full title of the Act and in various sections (ss 5, 8 and 28) with reference to personal rights and property rights. The primary purpose of the statute is to provide for protection and promotion of the personal and property rights of the persons who are not fully able to manage their own affairs (the full title). In doing so the Court must have regard to the primary objectives outlined in the sections referred to above. These describe the goals of making the least restrictive intervention possible in the circumstances in the light of the subject person and fostering maximum involvement in the decisions to be made, and the development of such an ability to the maximum extent possible. They describe the presumption of competence referred to earlier.
[48]When exercising discretion the following approach may be appropriate:
(a)The starting point will be to recognise the donor’s wishes, expressed through the execution of the power of attorney.
(b)The nature and seriousness of the attorney’s failings or proposed failings, and the Court’s views on the likelihood of future compliance will then be highly material.
(c)The alternatives available to the Court in light of those failings, and its views on the prospects of future compliance, will also be relevant.
(d)The ultimate touchstone will be the best interests of the donor, to be considered in light of the scheme and purpose of the PPPR Act.
Removal of a trustee
[49] The plaintiff’s statement of claim sought orders removing the defendant as executor of Mrs John’s estate under s 51 of the Trustee Act 1956. At the hearing I queried whether the equivalent provisions in the Trust Act 2019 might now apply, whilst noting that cl 8(b) of Schedule 1 the Trust Act 2019 might preserve the application of the 1956 Act for this proceeding. In a minute issued after the hearing in relation to the parties closing submissions I also raised whether the appropriate provision to be considered in relation to the plaintiff’s application was actually s 21 of the Administration Act 1969.
[50] The combined effect of cl 8(b) of Schedule 1 and s 33 of the Legislation Act 201919 is that this proceeding is to be completed as if the Trustee Act 1956 had not been repealed. Accordingly s 51 of the Trustee Act 1956 applies. This was agreed by the parties.
[51] Mr Johnston argued, however, that the Trustee Act s 51 could not apply to the removal of an executor or administrator as a result of s 51(4), and that s 21 of the Administration Act was the correct section to apply. Ms Hughes QC argued, effectively in response that all functions as an executor of Mr John’s estate had been completed and the property was now held on trust rather than in the capacity of executors.20
[52] Ms Hughes’ submission may be correct. But in the end the question is immaterial as the approach of the Court to the removal and replacement of executors or trustees remains effectively the same.21 The proper approach was addressed by the Court of Appeal in Tod v Tod22 and Frickleton v Frickleton23 by reference to s 21. Both decisions adopt the approach set out by Heath J in Farquhar v Nunns who said:24
(a)The starting point is the Court’s duty to see estates properly administered and trusts properly executed.
(b)This jurisdiction involves a large discretion which is heavily fact- dependent.
(c)The wishes of the testator/settlor (evidenced by the appointment of a particular executor or trustee) are to be given consideration, but ultimately the question is as to what is expedient in the interests of the beneficiaries.
(d)Expedience is a lower threshold than necessity, and imports considerations of suitability, practicality and efficiency. Misconduct, breach of trust, dishonesty, or unfitness need not be established.
(e)Hostility as between administrators/trustees and beneficiaries is not of itself a reason for removal, but hostility will assume relevance if and when it risks prejudicing the interests of the beneficiaries.
19 Which replaces s 18 of the Interpretation Act 1999.
20 Garrow and Kelly Law of Trust and Trustees (7th ed, LexisNexis, Wellington, 2013) at [16.9]– [16.12].
21 At [16.11].
22 Tod v Tod [2015] NZCA 501, [2017] 2 NZLR 145.
23 Frickleton v Frickleton [2016] NZCA 408, [2017] 2 NZLR 154.
24 Farquhar v Nunns [2013] NZHC 1670 at [13] (footnotes omitted).
(f)The principles for the exercise of the Court’s discretion are the same, whether an application is made pursuant to s 51 of the 1956 Act or s 21 of the 1969 Act.
[53] The testator’s selection of the executor is important,25 but the interests of the beneficiaries must always be the focus.26 The same approach has not only been applied to the removal of the trustee under s 51 but also the parallel equitable or inherent jurisdiction.27 So I apply it here.
[54] There are many examples of trustees being removed for the kind of reasons raised by the plaintiff here. In St Clair v Wright the Court accepted that the grounds of removal were established when the Court found there had been misconduct.28 In Kellerman v Kellerman the Court removed an executor in circumstances where she was incurring substantial costs for her own benefit, such as excessive airfare and hotel expenses.29 And in Crick v Wallace the High Court removed a professional trustee because of deep seated distrust of the executor.30
Application to the present case
[55] Whilst the test for removing of an attorney, and the removal of a trustee are different, there are areas of substantial overlap and I address the facts of this case in light of both questions.
[56] In essence I accept that the defendant has misconducted himself in his role as attorney and trustee, and that he ought to be removed from these roles.
[57] The fact that the defendant has occupied the house belonging to Mrs John and the estate rent free and without permission, and then facilitated his son doing so involves him preferring his own interests over those he has a responsibility to uphold. From the estate’s perspective he has so preferred himself without proper authority, and
25 Tod v Tod, above n 22, at [27](a); Frickleton v Frickleton, above n 23, at [31]; Crick v McIlraith
[2012] NZHC 1290 at [19] – [20].
26 Frickleton v Frickleton, above n 23, at [33].
27 St Clair v Wright [2017] NZHC 494 at [17]–[19]; Hall v Radich-Chaytor [2020] NZHC 409 at [34]–[35], [41]–[42]; Crick v Wallace [2015] NZHC 2260 at [10]–[13]; Harsant v Menzies [2012] NZHC 3390 at [57].
28 At [22].
29 Kellerman v Kellerman [2020] NZHC 2297.30 Crick v Wallace, above n 27.
in relation to both the estate and Mrs John he has given himself a financial advantage to the detriment of the estate and Mrs John. Whilst he argued with the details of the rent assessment produced in evidence I accept that his financial advantage and the disadvantage to the estate and Mrs John has been in the order of $31,000.
[58] The explanation he provides for his conduct further illustrates a lack of proper understanding of his responsibilities, and raises a concern about his future conduct were he to stay in the role. He explained that he would be prepared to pay rent provided that his sister’s preferential treatment when she did not pay rent was also addressed. I received little evidence of any preferential rental treatment, but did receive evidence that she and her husband were preferred by Mrs John when the commercial building was sold. But Mrs John was entitled to prefer her daughter at that time, just as she was entitled to prefer the defendant by giving him an interest free loan for $150,000 some years later. Moreover the defendant consented to the terms of the sale of the commercial building at the time, as did the other beneficiaries. He cannot now seek to reopen old disputes and adopt the stance that he will only fulfil his own obligations if those matters are resolved to his satisfaction. That is to abuse his position.
[59] The defendant also admitted that in addition to the amount of $150,000 that had been documented as a loan from his mother to him he took substantial amounts over and above that amount from her bank account.31 This involved moving money out of interest bearing accounts. These were subsequently repaid (without interest), but the final repayment occurred only after proceedings were commenced in the Family Court. This is a further clear case of the defendant preferring himself at his mother’s expense in the manner contemplated by s 105(1). It is not appropriate conduct for someone who holds power as an attorney.
[60] The evidence concerning the smaller amounts of cash being removed from Mrs John’s bank account while the defendant has been her attorney is also concerning. He insisted that none of the cash withdrawals had been for his own benefit. But it is very difficult to understand the amounts of cash withdrawn for a lady in Mrs John’s
31 See [19] above.
situation. In the absence of a comprehensive analysis of the accounts I refrain from making definitive findings of misconduct in this respect. But the defendant had a duty to keep proper records of the expenditure of Mrs John’s money under s 99C of the PPPR Act. So his failure to fully explain amounts that had been expended itself demonstrates a potential breach of his obligations.
[61] More generally the evidence satisfies me that the defendant does not have an ability to manage the inherent conflict of interest involved in being in charge of his mother’s financial affairs whilst at the same time being a potential beneficiary of his decisions on her behalf. There is also a dysfunctional relationship within the family generally. The defendant is not capable of acting in the role of trustee or attorney in a way that involves decisions affecting some of his siblings without personal animosity interfering with those decisions. That is reflected in his insistence that his sister provide compensation for her past preferential treatment as a tenant before he would pay rent for occupying the home.
[62] The finding of a dysfunctional relationship is not limited to the defendant, however, as it seems to me that the inherent lack of trust is reciprocated. The plaintiff may also find it hard to make decisions unaffected by personal animosity towards the defendant. This will be relevant to the decisions that I make in relation to the appropriate orders that follow from my findings.
[63] I have given consideration to whether the defendant should continue in his role as attorney for Mrs John’s personal care and welfare. His misconduct does not extend to any decisions he has made for Mrs John in that capacity, although I accept that consultation may not have taken place. I was also troubled by the plaintiff’s evidence to the extent that she suggested that Mrs John did not need to be in a rest home. I note that a letter from the rest home manager suggests that Mrs John becomes anxious when she is visited by the plaintiff. I would be concerned if there was a suggestion that Mrs John now resided with any of the family members, particularly if her personal finances were being controlled by that person. Both the plaintiff and defendant have had periods where they have controlled Mrs John’s bank accounts. That is no longer appropriate.
[64] Notwithstanding my hesitation about the personal power of attorney, I am satisfied that grounds exist to remove the defendant from his role as attorney in both respects, and that they also exist to provide a basis to remove him as trustee of his father’s estate.
Who will fulfil the replacement roles?
[65] The next question is who it is who fulfils the replacement roles of attorney in relation to property, attorney in relation to personal care and welfare, and trustee of the estate of Mr John. There is also the issue of the proposed executor of the estate of Mrs John as I understand the defendant is identified as having that role in the June 2017 will. The parties have partly addressed these questions in their submissions, but for the reasons outlined below the issues have not been fully considered and further consideration will be required. This is accordingly only an interim judgment.
[66] The plaintiff’s application proceeds on the basis that her brother Boyd will play the replacement roles. When the defendant was asked about that he said he no longer trusted Boyd and that Boyd hadn’t been honest with him. He indicated that his other brother Howard should fulfil any replacement roles.
[67] Ms Gelston rightly acknowledged that the powers of attorney entered on 10 April 2017 appoint Howard as the successor attorney. On the face of it, therefore, my conclusion that Mrs John had capacity to execute the powers of attorney in April 2017 which revoked the earlier appointment of the plaintiff, and my conclusion that the defendant should be removed from that role under s 105 of the PPPR Act will mean that Howard takes over the roles as substitute attorney.32
[68] This is less than ideal given that Howard lives in Australia, but I have no jurisdiction to remove him as the substitute attorney in the absence of grounds being established. Section 100 of the PPPR Act provides, however, that any such role as attorney would be subject to any orders that have been made under the PPPR Act. The Court has jurisdiction to appoint a welfare guardian and/or a property manager under
32 I note that the attorney’s role does not extend to acting as trustee – see Godfrey v McCormack
[2017] NZHC 420, [2017] 3 NZLR 198.
ss 12 and 31 if a person wholly lacks capacity to make or communicate decisions about their personal care and welfare, or property. From the evidence before the Court, particularly the evidence of Dr Smiley and Dr Teague, Mrs John no longer has capacity to manage her personal care or welfare, or her property. There was no evidence presented to me that suggested the position has changed since those reports. For that reason I am satisfied that the Court has jurisdiction to appoint a welfare guardian, and a property rights manager under the PPPR Act. I also note that there is an ability for Howard to disclaim the role of attorney under s 104 of the PPPR Act.
[69] With respect to the plaintiff’s application to have the defendant removed as trustee and replaced by Boyd and applying the approach set out at [52] above, my conclusion that the defendant has not conducted his role appropriately means that he should be removed. But the Court’s jurisdiction is to replace trustees, and it proceeds on the basis that the Court should ensure that trusts are properly administered, there is a large discretion, and the threshold is what is expedient. The Court has jurisdiction to remove all the present trustees and replace them with an independent person as sole trustee under s 51 if the Court considers that is the appropriate step. The Court is not confined to what the parties have applied for. For example Mrs John is a trustee and she is now incapacitated. It seems to me, therefore, that she should be removed as a trustee even though nobody has applied for this.
[70] Ms Hughes argued that the Court did not have jurisdiction to remove the plaintiff as a trustee as there is no evidence that she had acted other than in a manner that was consistent with her obligations, and it would be entirely inappropriate to dismiss her. But the Court’s jurisdiction is engaged by my findings, and the issue is now to determine the appropriate replacements. There is no requirement for there to be misconduct before a trustee is replaced. Section 51 empowers the Court to replace trustees whenever it is expedient to do so. The ultimate objective is to ensure that trusts are properly administered, and it may be appropriate to have a single independent trustee act in the role when there is a history of family disagreement, and a difficulty in any particular family members holding the position without a lack of trust continuing to interfere with the effective administration of the trust.
[71] Appointing a single independent trustee may be particularly appropriate in a case where the relationships between the family members have become dysfunctional, and where any family member fulfilling the role would encounter difficulties because of a lack of trust between different family member groups. This kind of situation is not uncommon. For example in Wellwood v Wellwood I referred to the “deep seated grievances going both ways” and said:33
I do not intend to traverse all the allegations I have just referred to, let alone make any findings about each of them. What they demonstrate, however, is that given the animosity, and the other circumstances I have addressed, it is no longer appropriate for the defendant to remain the sole executor of the estate. For the same reason, it would not be appropriate for any of the plaintiffs to occupy that position. The position has been reached where it is necessary for there to be an independent solicitor appointed to act as the executor to ensure that the appropriate steps in the administration of the estate are taken, and that all those who benefit from the estate can know that this role is being undertaken on an impartial and professional basis.
[72] At the hearing I asked Ms Gelston to enquire as to whether Mr Fitzgibbons would be prepared to act in the replacement roles. Counsel’s submissions subsequently provided indicate that he has indicated he is not willing to do so. Reference has been made to other professionals, including a retired solicitor performing the role, and that enquiries are being undertaken. In Mr Johnston’s submissions for the defendant he indicated that another retired solicitor was being considered, but that an institutional organisation should be avoided. Ms Gelston’s submissions refer to the possibility of a local solicitor, or Mrs John’s accountant acting as property manager.34 Ms Hughes’ submissions did not address any alternatives. The parties submissions have taken these important matters no further.
[73] In the circumstances the parties will now need to review the position in light of the findings in this judgment, and then provide further information to the Court by way of memoranda indicating who the parties have agreed should fulfil the replacement roles, or in the event of disagreement who they propose should fulfil those roles. My preliminary view is that a solicitor or accountant should fulfil the role as property manager, and as trustee. My preliminary view is that some other independent
33 Wellwood v Wellwood [2019] NZHC 801 at [26]. See also J and M v T [2017] NZHC 3089.
34 Ms Gelston’s submissions also suggested a direction that the house property be sold, and there may be some sense in that.
person should fulfil the role of welfare guardian. He or she should be an independent person who is prepared to advocate for Mrs John’s interests, including in relation to decisions made at the rest home. I do not exclude the possibility of a family member being welfare guardian if this were agreed.
[74] I the meantime under s 105 of the PPPR Act I remove the defendant from his role as attorney in both respects. This has the effect of Howard taking over those functions as alternate attorney unless or until he relinquishes that role. I do not presently make an order removing the defendant (or the plaintiff or Mrs John) from the role as trustee of Mr John’s estate. That order can await further discussions between the parties on a replacement trustee.
[75] There is a further related issue. As I understand it the defendant is named as the intended sole executor of Mrs John’s estate. I apprehend that the Court has jurisdiction, one way or another, to replace the defendant in that role, including (if necessary) under s 55(1) of the PPPR Act. This should also be considered as part of the discussions.
[76] Counsel for the parties are to discuss the replacement roles in an attempt to assist the parties to reach agreement, following which memorandum may be filed. If agreement cannot be reached counsel for the plaintiff, defendant, and subject person may file memoranda. I will then review the memoranda filed and decide whether a further hearing is required. I generally reserve leave to apply, especially in relation to any orders or directions required to preserve the interim position while discussions take place, recognising that the Christmas holiday period may prevent final decisions being made this year.
Cooke J
Solicitors:
Quin Law, New Plymouth for the Plaintiff C&M Legal, New Plymouth for the Defendant
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