Sandman v McKay
[2019] NZSC 41
•16 April 2019
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| IN THE SUPREME COURT OF NEW ZEALAND I TE KŌTI MANA NUI |
| SC 35/2018 [2019] NZSC 41 |
| BETWEEN | MARK ROBERT SANDMAN |
| AND | COLIN CHARLES McKAY, ROGER DAVID CANN AND DAVID JOHN CLARK (as partners of Wilson McKay) |
| Hearing: | 12 November 2018 |
Court: | Elias CJ, Glazebrook, O’Regan, Ellen France and Arnold JJ |
Counsel: | R M Dillon for Appellant |
Judgment: | 16 April 2019 |
JUDGMENT OF THE COURT
A The appeal is dismissed.
B Costs of $25,000 plus usual disbursements are awarded to the respondents.
REASONS
| Para No. | |
| Glazebrook, O’Regan, Ellen France and Arnold JJ | [1] |
| Elias CJ | [104] |
GLAZEBROOK, O’REGAN, ELLEN FRANCE AND ARNOLD JJ
(Given by Glazebrook J)
TABLE OF CONTENTS
| Para No. | |
| Introduction | [1] |
| Background | [3] |
| The proceedings | [35] |
| Statement of claim | [42] |
| Court of Appeal decision | [46] |
| Mr Sandman’s submissions | [57] |
| The firm’s submissions | [63] |
| Evidence | [69] |
| Summary judgment | [71] |
| Strike-out | [98] |
| Result and costs | [102] |
Introduction
The appellant, Mr Mark Sandman, is the only surviving child of Elizabeth Nancy Sandman, who died on 30 October 2013. Mrs Sandman’s other child, Victoria Sandman (Vicky), died in March 2011.
This appeal concerns whether the Court of Appeal was correct to make an order for summary judgment in favour of the respondent firm, Wilson McKay (the firm).[1] The claim by Mr Sandman is that the firm knowingly assisted in a breach of trust and/or fiduciary duty by Vicky and Mr Giboney. Mr Giboney was one of Mrs Sandman’s executors and trustees under a will executed on 2 December 2010 (the 2010 will).
Background
[1]McKay v Sandman [2018] NZCA 103, [2018] NZAR 707 (Brown, Brewer and Collins JJ) [CA judgment].
Under the 2010 will the apartment Mr Sandman occupied was bequeathed to him and there were also a number of minor bequests. The residuary estate was to be divided equally between Mr Sandman and Vicky. In the event either of her children predeceased her, that child’s share of the residuary estate was to be divided in specified percentages among various relatives and friends[2] and would not go to the surviving child.
[2]These included nieces and nephews, Mrs Sandman’s sister and Mrs Giboney. Under the 2010 will, Mr Giboney was left $10,000 in consideration of his assistance to Mrs Sandman and for work undertaken as her trustee.
Under an earlier will executed in 2005 (the 2005 will), Mr Sandman was bequeathed the apartment and Vicky was left $200,000. Vicky was also bequeathed some specific items, such as jewellery and art. The residuary estate was to be divided equally between Mr Sandman and Vicky. If one of her children predeceased her, the whole residuary estate would (absent grandchildren)[3] go to the surviving child.
[3]There were no grandchildren.
After Mrs Sandman’s death, the firm obtained probate of the 2010 will and acted in the administration of the estate. Mr Sandman had lodged a caveat against the grant of probate just after Mrs Sandman’ death. This had been withdrawn after he was sent a copy of the will in early November. Mr Sandman confirmed in writing on 13 November 2013 that he was “happy with the will”.
On 10 December 2013 Mr Sandman consented in writing to the distribution of the estate within six months of the grant of probate and he also indemnified the executors for any loss arising from the early distribution.[4] Mr Sandman’s share of the residuary estate amounted to approximately $440,000.[5] Final distribution of the estate was made by the end of 2014.
[4]We understand that the other beneficiaries had signed a similar form.
[5]Sandman v Giboney [2017] NZHC 1832 (Associate Judge Christiansen) [HC judgment] at [13].
The firm had acted as Mrs Sandman’s solicitors from 2007. At that time she sold her home and moved to a retirement village (the Village). As required before Mrs Sandman entered the Village, she executed two enduring powers of attorney in favour of Vicky. The one relating to property became immediately operable. The one relating to personal care and welfare became operable only when Mrs Sandman became mentally incapable.
Mrs Sandman met with Ms Paul, a solicitor from the firm, on 3 February 2010. Ms Paul’s letter of 4 February 2010 records that Mrs Sandman was considering changing the 2005 will but had decided to leave it in place for the meantime. The letter records that Mrs Sandman had been concerned that the 2005 will was not fair to Vicky in light of the continuing support provided to Mr Sandman. As the letter notes, Vicky did not wish Mrs Sandman to change her will and Mrs Sandman decided not to do so at that stage:
We note you are concerned that due to the fact you have been and will continue to support Mark, who is unemployed that Vicki is disadvantaged by your Will. As you are aware, Vicki at your request was present at this meeting [and] she did not want you to alter your Will in her favour based on current circumstances. We note that you have been experiencing medical problems and have attended a number of Doctors and ongoing investigations and tests are being carried out. As you have a valid Will that is acceptable in the circumstances, particularly to your daughter Vicki, until your health issues are identified and resolved you will not alter your existing Will.
On 4 February 2010 Mrs Sandman was referred to Auckland hospital by her general practitioner, Dr Jane Buckley, for anxiety and depression. Dr Buckley said Mrs Sandman was now very dependent on Vicky but was still living independently. It was noted that Mrs Sandman was becoming increasingly reclusive and had become more confused when on holiday with Vicky (apparently in December 2009). Dr Buckley said that Mrs Sandman had become increasingly forgetful and fearful. On 19 March 2010, a consultant psychiatrist reported that there were no immediate safety concerns but there was “mild cognitive impairment”.
In July 2010 Mrs Sandman had a fall and broke her femur. Consent to the resulting operation was given by Vicky on Mrs Sandman’s behalf, due to, as stated in medical notes, Mrs Sandman’s “mild dementia”. After the operation Mrs Sandman suffered from post-operative delirium which was slow to resolve.[6]
[6]This may have been related to the pain medication.
On her return to the Village, Mrs Sandman was placed in the hospital wing of the Village to recuperate. Mrs Sandman, however, wished to return to her unit. According to Ms Paul’s affidavit filed in these proceedings, she provided advice to Vicky about Mrs Sandman’s rights in this regard in a telephone call on 31 August 2010, followed up by a letter on 1 September 2010 recording her advice.
A gerontology nurse specialist, Ann Pidgeon, was instructed by the Village doctor to assess whether a return to independent living was possible. Her report of 21 September said that Mrs Sandman’s “MMSE today [16 September] was 19/30; losing points in orientation, short term recall, and copying of design.”[7] It was said that Mrs Sandman had become “institutionalised” and would need time “to adjust to some self reliance”. It was said further:
Mrs Sandman mobilises with a stroller frame, she needs encouragement to walk more. … I would recommend that she is supervised when walking in the [V]illage and we have discussed this added risk of falling when alone in her apartment. A St John’s medical alarm may also be warranted.
Mrs Sandman will require ongoing supervision with showering and medication management, breakfast set up and exercise times. This will be provided by RDNS [Royal District Nursing Society] who will visit twice daily. … Leigh [Giboney] will organise a privately paid person called Lisa to visit 10.30 to 1.30 each day; she will assist with shopping, outings, home help and lunch.
Leigh will organise a visit to her previous GP Dr Buckley once she is in her own apartment.
[7]MMSE (Mini-Mental State Exam) is a preliminary and contextual neurological screening test carried out by health professionals: see Virginia B Kalish and Brian Lerner “Mini-Mental State Examination for the Detection of Dementia in Older Patients” (2016) 94 American Family Physician 880.
Mrs Sandman was cleared to trial a return to her unit and independent living arrangements from the end of September 2011. Ms Paul in her affidavit deposed that her understanding was that the Village’s concerns were only in relation to Mrs Sandman’s physical health. She considered that, if the Village had had concerns about Mrs Sandman’s mental health, she would not have been allowed to return to her unit.[8]
[8]Ms Paul does not say whether or not she was aware of the report by Ms Pidgeon. We consider it unlikely that Ms Paul saw a copy of the report given it was a private medical record.
On 19 October 2010 Ms Paul met with Mrs Sandman to take instructions for a new will. In the course of that meeting Vicky disclosed that she had been diagnosed with terminal cancer. Ms Paul deposed that, apart from naming a few chattels that she wanted and suggesting that the Auckland Cup be given to the Auckland Racing Club, Vicky’s only influence during the meeting was telling Mrs Sandman she did not want to be compensated for Mr Sandman being left the apartment.
On 21 October 2010 Ms Paul wrote to Mrs Sandman setting out the instructions received. The letter was sent care of Mr Giboney at Mrs Sandman’s request.[9] The letter recorded a change of executors and trustees: from the New Zealand Guardian Trust Company[10] to Mr Giboney and Mr McKay, one of the partners of the firm. It then said:
Personal effects. You will make a list of all furniture, household goods and personal chattels that you want to leave to specific individuals ie Mark, friends and family members with a description sufficient for identification in due course. The balance of your assets will be sold and the funds form part of your residue and those assets that have no economic value, your Executors will dispose of them as they see fit ie donate to a charity. Please sign and date that list and forward to our office and retain a duplicate with your papers.
[9]According to Ms Paul’s affidavit, this was because Mrs Sandman was concerned Mr Sandman might see the draft will if it was sent to her directly.
[10]The New Zealand Guardian Trust Company was the executor of the 2005 will.
The letter went on to record that the apartment and related chattels were to go to Mr Sandman and that there was to be a legacy of $10,000 to Mr Giboney for his work as executor. As to the residue of the estate, it was said:
The balance of the estate will be transferred to the Trustees upon trust to pay all estate expenses and fifty per cent of the balance will go to Mark and 50% to Victoria, provided however in the event either Mark or Victoria predecease you then their share will be divided between your sister Christine, two nephews and one niece. In the event your sister has predeceased you, her share would go to her children.
In the same letter Ms Paul said that Mrs Sandman may wish to consider whether she wished to add other beneficiaries in the unlikely event that both Vicky and Mr Sandman predeceased her. She also asked for a decision as to the percentages to be distributed to the sister, nieces and nephews. The letter also dealt with the need for replacement powers of attorney to deal with Vicky’s illness.
Ms Paul also said in her letter that she would arrange for Mrs Sandman’s doctor to certify capacity to make a will. Ms Paul indicated this was prudent even though Ms Paul was satisfied as to Mrs Sandman’s capacity. She said:
Prior to signature of your Will we will arrange for your Doctor, Dr Jane Buckley to visit you to provide us with a medical certificate confirming that she is satisfied that you have the capacity to make a Will. Please note the writer is satisfied that you do have capacity, however in the circumstances we feel it is prudent to ensure that we have a medical certificate on file.
Ms Paul wrote to Dr Buckley on 27 October 2010 saying that Mrs Sandman was making a will and granting a power of attorney, and requested a medical certificate as to Mrs Sandman’s capacity. Ms Paul wrote:
The writer is satisfied that Mrs Sandman has capacity but in the circumstances it is prudent to obtain a certificate from you. Can you please confirm that you would be able to do so, we will then scan you through the [form] of certificate and then contact Mrs Sandman to arrange for her to see you.
The medical certificate was sent by Dr Buckley on 28 October 2010. It said:
Thank you for your letter requesting a certificate regarding the mental state of this lady. She was seen by me on 30/9/10, and has been my patient for 8 years. In my opinion she does have the mental capacity to understand that she is making a will & disposing of her assets & does have the understanding about granting a power of Attorney.
Around this time the firm received a number of letters from Mr Sandman. Ms Paul was aware that Mr Sandman had contacted Mr Giboney seeking funds for medical treatment, including a letter to Mr Giboney on 29 October 2010. On 31 October 2010 Mr Sandman wrote to Ms Paul complaining that he was being excluded from Mrs Sandman’s affairs. Amongst other things he said:
I hope you are aware by now that my mother has dementia. This I have seen oncoming for a number of years and partly explains her behavior towards me. That being, treating me like I am not part of the family and am incompetent. An example of this behavior was a few weeks ago when I was visiting her. She wouldn’t allow me to phone reception and enquire as to why her evening meal had not been delivered. She said I wasn’t capable of making the phone call and her friend Les Trusscott had to make the call. This is typical of what I have to put up with in my relationship with my mother but it is all part and parcel of her dementia. Another example was she said in her will, she was leaving Vicky her share of the estate to her, but my share was to go to the Guardian Trust. She said I was too incompetent to look after my financial affairs. Because of her dementia, she is unaware I have Accountancy qualifications, have worked for two of the largest Chartered accountancy firms in NZ, was assistant accountant for Rothmans NZ, have worked for one of the largest stockbroking firms in NZ. And also in the early 20s built up from scratch a multimillion dollar business. She is also in denial I have been a full time artist for the last 20 years.
On 5 November 2010 Ms Paul wrote to Mr Sandman enclosing with Mrs Sandman’s permission the medical certificate. Referring to Mr Sandman’s 31 October letter to her and Mr Sandman’s 29 October letter to Mr Giboney, Ms Paul said:
We note your statement that “my mother has dementia” in your letter. Please note that while your mother has aged related health issues, your mother does not suffer from dementia or any other condition that affects her mental capacity to understand and manager [sic] her affairs. In view of your belief that your mother has dementia in your recent correspondence and in previous verbal claims, we have taken the precaution of obtaining a medical certificate from your mothers [sic] doctor, Doctor Jane Buckley.
Your mother has authorised the writer to forward you the certificate from Doctor Jane Buckley dated 28 October 2010 in which she states “she does have the mental capacity to understand that she is making a Will and disposing of her assets and does have the understanding about granting a Power of Attorney”.
In the circumstances the writer is satisfied that your mother is both entitled to and has the capacity to manage her own affairs. This includes appointing whom she wishes as executor of her estate and as her attorney.
We would stress your mother is aware of her obligations to you as her son to make provision in her Will, this obligation however does not extend to having to provide you with financial support during her lifetime. You are of an age where your mother has no obligation to financially support you (or your sister Vicky) and if you are unable to support yourself financially you should apply for assistance to Work and Income.
We understand however that your mother has been and continues to provide financial support to you, including making a weekly allowance of $300.00, paying all Body Corporate fees, Local Authority rates, telephone and electricity (paid by Vicky) for the apartment owned by her that you live in at no cost to you. We understand she has also provided you with significant other support over the years towards living expenses including paying for art materials, medical and dental costs. … This has been at considerable detriment to her financial resources.
…
We note in your letter to Mr Giboney that you refer to your mother as “a wealthy woman”. The writer is aware of her financial resources and we wish to disabuse you of the notion that your mother is a wealthy woman. While your mothers [sic] assets are sufficient to provide for her current care and to continue to provide basic support for you, (at least in the short term) they are not sufficient for expensive private medical treatment where the public health system would provide you with adequate treatment.
…
In summary, your mother has both the capacity and the legal right to choose who she wants to assist her with financial and other affairs … .
Further instructions on outstanding matters were received (conveyed through Mr Giboney as Mrs Sandman found telephone conversations difficult because of hearing difficulties). The draft will was then sent to Mrs Sandman on 15 November 2010 addressed to the Village. The letter dealt with various specific bequests of chattels and a general distribution clause related to chattels. It then said:
Otherwise you continue to leave the Knightsbridge Apartment to Mark together with fifty per cent of your net estate (after payment of debts, funeral expenses etc) and the other fifty per cent to Vicky. In the event either Mark or Vicky predecease you then the share they would have received then is distribute [sic] amongst friends and relatives as discussed at our meeting. However you will note there is still ten per cent unallocated and you were to make a decision whether you wished to allocate this to one or two friends or relatives, if not then we would simply add that ten per cent back into the shares the existing beneficiaries would receive so that they receive a slightly bigger share than currently shown. Alternatively you could allocate it only to one or more of them. Please consider this issue and advise the writer and we can then finalise your Will for signature.
Ms Paul’s affidavit records that, once all the details were finalised, she attended on Mrs Sandman on 2 December 2010 for her to execute the new powers of attorney and the will. The new enduring powers of attorney were still in favour of Vicky but provided that Mr and Mrs Giboney would be successor attorneys (for property and welfare respectively). These were to be witnessed by an independent solicitor, Mr Mellett.
Mr Mellett had been told by Ms Paul by letter the previous day that Mrs Sandman had some sight and hearing issues and “therefore she may need some guidance from you as to the position for signing the enclosed forms”. It was stated that Mrs Sandman did have mental capacity. Ms Paul provided Mr Mellett with the 28 October 2010 medical certificate.
Mr Mellett was left alone with Mrs Sandman so she could be given independent advice on the powers of attorney. After this, Ms Paul, together with Vicky and Mr Giboney, returned to execute the powers of attorney.[11] As witness to Mrs Sandman’s signature, Mr Mellett certified that he had “no reason to suspect that [Mrs Sandman] was or may have been mentally incapable at the time she signed the enduring power of attorney” forms.[12]
[11]The welfare power of attorney was executed by Mrs Giboney later that day.
[12]This requirement for certification is expressly prescribed in s 94A(7)(b) of the Protection of Personal and Property Rights Act 1988.
Mr Giboney then left and Ms Paul read the draft will and asked Mrs Sandman to confirm the will was correct. It was then executed by Mrs Sandman, and witnessed by Ms Paul and Mrs Sandman’s caregiver.
Ms Paul also witnessed a statutory declaration.[13] That declaration explained that Mrs Sandman had been advised that Mr Sandman may consider bringing an action under the Family Protection Act 1955. Mrs Sandman declared that in making the 2010 will she had taken into account the extensive financial support she had provided to Mr Sandman, including rent-free accommodation for the last 20 years and earlier financial support from her and her late husband (which had not been provided to Vicky). She asked that “my family respect my wishes and abide by the terms of my Will”.
[13]The separate statutory declaration was on the advice of Ms Paul who considered these issues were better dealt with in a declaration rather than in the will itself.
Ms Paul deposed that she received a call in mid-2011 from one of Mrs Sandman’s carers because Mrs Sandman wanted to discuss her will following Vicky’s death. Ms Paul said she visited Mrs Sandman in November 2011 with copies of the 2010 will and the powers of attorney. After consultation Mrs Sandman advised that she did not wish to change her will. Ms Paul deposed that Mrs Sandman “appeared to have a good understanding of her will and how her estate would be distributed”.
Ms Paul wrote to Mr Giboney, who was now Mrs Sandman’s property attorney, on 1 December 2011 setting out some matters Mrs Sandman had brought up at the November meeting:
[Mrs Sandman] raised a number of issues at that meeting and has requested that we contact you in relation to one of these issues.
[Mrs Sandman] wishes to reassure you that she is entirely satisfied with your handling of her financial affairs and it is clear from [her] condition that her affairs are being handled well. The writer was very pleased to see that [Mrs Sandman] now has [a] hearing aid which makes communication with her much easier and we are sure also makes life more pleasant for her, she being able to communicate and hear conversations with friends and her carers more clearly.
[Mrs Sandman] wishes to have some involvement in her financial affairs and she has requested that on a monthly (or similar basis), you copy her in on her latest bank statement and a summary of investments (when they change only).
The writer did assure [Mrs Sandman] that she had sufficient funds to maintain her lifestyle and her investments were managed conservatively to ensure her lifestyle could be maintained. [Mrs Sandman] appreciates that she is not in a position to actually manage her affairs, she simply wishes to have a regular update on her financial affairs.
In relation to the will Ms Paul wrote:
The other issue discussed was her Will. We reassured [Mrs Sandman] that her Will had been prepared in the knowledge that Vicky may not survive her and was still appropriate following Vicky’s death. [She] also raised the issue of disposing of her chattels and jewellery on her death. We reminded her that a few items had been specifically allocated in her Will, however, the bulk were left such that the executors would distribute them in accordance with any wishes she made known to them. [Mrs Sandman] indicated that she would like to leave a list nominating various people to inherit her jewellery (namely nieces on her side of the family) and some of the other assets of sentimental or family value. For example the family medals which she will give to Mark on her death. [Mrs Sandman’s] carer, Lisa advised that she would ensure that any list drawn up by [Mrs Sandman] would be posted to us to place with her Will and appropriately dated so that if [she] changed her mind subsequently, the latest list would apply. We advised [Mrs Sandman] that this should only include items of significance, the balance of personal items would be sold and form part of her estate. [She] was happy with this idea and we will advise when we receive a list.
We also reassured her that Mark was looked after in her Will and would inherit the apartment he currently lives in, plus half her net estate, the balance being distributed amongst friends and relatives from her family and her late husband’s family. The writer again reassured [Mrs Sandman] that she had sufficient investments to maintain her lifestyle, you are most probably aware that this appears to pray on [her] mind.
In summary considering [Mrs Sandman’s] recent bereavement she seemed in reasonable spirits and was clearly being well cared for. Mentally she seemed a lot more alert than previously, however this may be down to her hearing aid. She was aware of Mark’s current activities and we understand he is visiting her semi regularly.
In mid-2012 Mr Giboney informed Ms Paul that the Village wished Mrs Sandman to have longer care hours if she was to be allowed to stay in her unit. Ms Paul suggested she should be assessed by her doctor.
Dr Buckley certified on 10 August 2012 that, due to advanced dementia, Mrs Sandman was no longer mentally capable of managing her affairs in relation to property. Nor was she capable of making decisions about her personal care and welfare.[14] Mrs Sandman was moved to permanent hospital care in November 2012 and remained there until shortly before her death.
[14]This state was said to be permanent and that it was unlikely Mrs Sandman would regain mental capacity.
It is worth mentioning that Vicky’s will bequeathed Mr Sandman 10 per cent of her residuary estate, which at the time of Vicky’s death in March 2011 Mr Sandman estimated to be approximately $120,000.
The proceedings
In November 2016 Mr Sandman filed proceedings seeking (as against the executors of the estate, Mr Giboney and Mr McKay) recall of the probate of the 2010 will and grant of probate of the 2005 will. The first two causes of action in the statement of claim are lack of testamentary capacity, and that Mrs Sandman did not have knowledge of the contents and effect of the 2010 will and did not approve the dispositions made under it.
The third cause of action alleges undue influence by Vicky and/or Mr Giboney. As we understand the position, the allegation of undue influence is tied to Mrs Sandman’s alleged lack of mental capacity in the sense that, due to this incapacity, it is alleged the 2010 will reflected the wishes of Vicky (and presumably Mr Giboney) and not those of Mrs Sandman.
The cause of action in the statement of claim against the firm is dishonest assistance and damages are sought based on a comparison between the benefits that Mr Sandman would have received under the 2005 will and what he did receive under the 2010 will. Mr Dillon, counsel for Mr Sandman, confirmed at the hearing in this Court that Mr Sandman makes no direct claim against the firm in negligence or otherwise.[15] The claim is for secondary or accessory liability only.[16]
[15]Any such claim would have faced formidable obstacles. Some of the difficulties are discussed in Public Trustee v Till [2001] 2 NZLR 508 (HC) at [25]–[29]; and Knox v Till [1999] 2 NZLR 753 (CA) at [2]–[6]. Because Mr Sandman’s claim is not a direct one, however, we do not need to make any definitive comments on the applicability of these cases or the extent to which they correctly state the law about solicitors’ duties.
[16]We do not consider a claim by Mr Sandman on behalf of Mrs Sandman was available on the pleadings. In this respect, we differ from the view expressed by the Chief Justice at [122]–[123] of her reasons. In our view, Mr Sandman’s sole claim against the firm in the pleadings was in dishonest assistance. As this is the case, we do not need to comment on whether Mr Sandman could have brought a claim on behalf of Mrs Sandman or on whether or not it would have supported Mr Sandman’s claim for damages: see at [125] of the Chief Justice’s reasons.
On 22 March 2017 the firm applied to strike out the claim against it, as well as applying for summary judgment and security for costs. On 4 August 2017, Associate Judge Christiansen in the High Court dismissed the applications for strike out and summary judgment. Security for costs was set at $40,000.[17]
[17]HC judgment, above n 5, at [112].
On 20 April 2018 the Court of Appeal allowed the firm’s appeal and made an order for summary judgment on Mr Sandman’s claim against the firm.[18]
[18]CA judgment, above n 1, at [94].
On 7 August 2018 this Court granted Mr Sandman’s application for leave to appeal on the issue of whether the Court of Appeal erred in granting summary judgment to the firm.[19]
[19]Sandman v McKay [2018] NZSC 71.
On 20 August 2018 the firm filed a notice that it would support the Court of Appeal judgment on other grounds, including that the claim should have been struck out.
Statement of claim
The statement of claim with regard to dishonest assistance says that, between March 2007 and December 2010, the firm “acted in relation to the deceased as set forth in paragraph 5 hereof, and with specific involvement and actual knowledge particularised in sub-paragraphs (a), (b), (g), (h), (l), (m), (n), (o), and (q)”. Paragraph 5 of the statement of claim provides (in relevant part):
5. The 2010 will was executed by the deceased when she lacked testamentary capacity. The lack of capacity is evidenced by:
(a) On the 18th March 2007 the deceased granted Vicky an enduring power of attorney, that was not limited to when she may become incapacitated (“the 2007 EPOA”).
(b) On 21 January 2010 Julie Paul, a senior associate of the Second Defendants [the firm], certified a true copy of the 2007 EPOA. The certified true copy of the 2007 EPOA was then presented to the ASB Bank Ltd to enable Vicky to take control of the accounts of the deceased from January 2010.
…
(g) In August 2010 Vicky was diagnosed as suffering a brain tumour and advised she had approximately 6 months left to live.
(h) On 1 September 2010 the Second Defendants through their employee Julie Paul (nominally) wrote to the deceased care of Vicky advising (in effect) Vicky of the indication by [the Village] to terminate the occupation licence of the deceased due to her deteriorated mental health. The letter of 1 September refers to a telephone conversation on 31 August 2010. On the same date an invoice (bearing date 31 August) was rendered nominally to the deceased but again care of Vicky, for that advice.
…
(l) On 27 September 2010 Vicky provided the first named First Defendant [Mr Giboney] with her own Enduring Power of Attorney (Vicky’s EPOA”). Vicky’s EPOA was prepared by, witnessed, and certified by Julie Paul.
(m) On 21 October 2010 the Second Defendants by their employee Julie Paul wrote (nominally) to the deceased, care of the first named First Defendant, and copied to Vicky, setting out the terms of a proposed new will, and of a new Enduring Power of Attorney (in favour of Vicky but with the first named First Defendant as substitutionary Attorney), noting that giving the power to Vicky was to be reviewed in November (“the will instructions letter”). The will instructions letter notes: (a) that the first named First Respondent will receive a bequest of $10,000 in consideration of his attendances as executor of the deceased’s estate, and (b) that the Second Defendants will arrange for Dr Buckley to visit the deceased to provide the Second Defendants with a medical certificate confirming the deceased has capacity to make a will.
(n) Contrary to the will instructions letter, the Second Defendants obtained a certificate from Dr Buckley dated 28 October 2010, recording that when Dr Buckley last saw the deceased on 30 September 2010, it was the opinion of Dr Buckley that the deceased on that date (30 September 2010) had capacity to execute a will.
(o) On 2 December 2010 Julie Paul attended on the deceased, and witnessed the deceased execution of the 2010 will. She also witnessed a statutory declaration by the deceased of the reasons for her changes in the 2010 will. The statutory declaration was prepared in advance by the Second Defendants and executed together with the 2010 will.
…
(q) On 3 December the Second Defendant wrote (nominally) to the deceased but sent care of Vicky, copies of the 2010 will and the new Enduring Power of Attorney. An invoice for those services was issued same day, but addressed to the residential address of the deceased.
The statement of claim also alleges that the firm acted for Mrs Sandman as well as Vicky at all “material times”. It is asserted that sending various letters relating to Mrs Sandman’s personal affairs to Vicky, including Mrs Sandman’s will instructions, was a breach of the duty of confidentiality owed to Mrs Sandman.
It is also alleged that, contrary to the will instructions letter, the firm did not obtain medical evidence of the testamentary capacity of the late Mrs Sandman as at the time of execution of the will.
It is further alleged that:
23.Throughout 2010 [the firm] knowingly assisted Vicky and/or [Mr Giboney] [to] obtain control of the affairs of the deceased, and in particular the execution of a will that significantly reduced the benefits otherwise flowing to the Plaintiff, and effected Vicky’s own intentions regarding the disposition of the estate of the deceased.
24.The actions of the Second Defendant in knowingly assisting Vicky and/or the first named First Defendant has caused loss or damage to the Plaintiff, being the difference in disposition to the Plaintiff under the 2005 will (which by Vicky’s prior death would have been all of the estate), as opposed to the 2010 will (less than half of the estate).
Court of Appeal decision
The Court of Appeal said that the cause of action for dishonest assistance has four components:[20]
(i) the existence of a trust or fiduciary duty;
(ii)a breach of that trust or fiduciary duty by a trustee or fiduciary that results in loss;
(iii)participation by a defendant third party (a stranger to the trust) by assisting in the breach of trust or fiduciary duty; and
(iv) dishonesty on the part of the defendant.
[20]CA judgment, above n 1, at [22].
The Court rejected the firm’s submission that there should be a further component: that the plaintiff must be a beneficiary of the trust or fiduciary relationship. The Court considered it arguable that the pool of plaintiffs should not necessarily be confined to direct beneficiaries of a trust or fiduciary relationship but that it could extend to persons who were prospective beneficiaries under the testator’s will.[21]
[21]At [24].
The Court also rejected the firm’s submission that, while an enduring power of attorney involves authority to deal with the donor’s property as the donor’s agent, it does not give rise to a trust, constructive or otherwise.[22] The Court held that a breach by the holder of an enduring power of attorney of the fiduciary duty owed to the donor in the course of the exercise of the power could satisfy the first and second components of the test for dishonest assistance.[23]
[22]At [41]–[42].
[23]At [42].
The Court was not satisfied Mr Sandman would be unable to prove that there had been a breach of the fiduciary duties owed.[24] The firm’s submission was that there was no breach because Mrs Sandman had executed the 2010 will herself and that there could be no suggestion it came about through some dealing or transaction by Vicky acting as Mrs Sandman’s attorney. The Court said:
[47] We accept that the mere fact that a person is a fiduciary does not automatically render wrongdoing a breach of the fiduciary duty owed. However while at trial it may be shown to be the case that, if there were actions on the part of Vicky or Mr Giboney that were wrongful, such actions were not within the scope of the exercise of the [enduring powers of attorney], on the state of the evidence at this juncture the Firm has not satisfied us that Mr Sandman could not establish the second component of the cause of action.
[24]At [45].
On the third and fourth components, the Court held that the firm had to satisfy the Court that Mr Sandman could not, by reference to an objective standard, establish that it had acted dishonestly.[25] In this regard, the Court first examined the pleadings on dishonesty. It noted that there were no specific particulars pleaded relating to dishonesty on the firm’s part[26] and concluded none of the allegations in the statement of claim were indicative of dishonesty.
[25]At [66]–[67].
[26]At [69]–[77].
The Court considered there were two allegations that were possibly relevant to the pleading: the firm acted for both Vicky and Mrs Sandman; and the firm allegedly breached confidentiality. The Court said that neither of those factors were indicative of dishonesty.[27]
[27]At [70]–[71].
The only other allegation related to knowledge of testamentary capacity and, in particular, the firm’s failure to obtain medical evidence of Mrs Sandman’s testamentary capacity at the time of execution of the will.[28] The Court said that ideally the doctor might have been asked to examine Mrs Sandman closer to the date of execution of the will but considered that no adverse inference about Ms Paul’s motivations could fairly be drawn from the time gap. The Court noted that it was Ms Paul who had suggested getting a medical certificate.[29]
[28]At [72]–[75].
[29]At [76].
Furthermore, given Ms Paul’s observations at the date of execution and her knowledge that Mr Mellett also considered there was no reason to suspect Mrs Sandman was mentally incapable, the Court said there was no basis for doubting the good faith of Ms Paul’s assessment that Mrs Sandman had not lost testamentary capacity since the doctor had seen her two months earlier.[30]
[30]At [77].
The Court said that it did not attribute significance to the fact Ms Paul took instructions from Mrs Sandman concerning her will in the presence of Vicky. The Court considered it “entirely understandable that a woman of Mrs Sandman’s advanced years would wish to have her daughter present at a meeting with her legal adviser”.[31]
[31]At [80].
The Court then conducted a detailed analysis of the allegations made in the submissions and of evidence that might bear on dishonesty. It held that the “grave allegation” of dishonesty “was not only unsubstantiated but was comprehensively rebutted by Ms Paul’s detailed affidavit”.[32] The Court acknowledged counsel’s argument that Ms Paul had not been cross-examined and therefore her evidence had not been tested. The Court considered, however, that the issue was whether the firm’s conduct was honest when measured by an objective standard. In the Court’s view “all the points of criticism have been aired and satisfactorily answered”.[33] Viewed realistically the Court said that the allegation of dishonesty was without merit.[34]
[32]At [90].
[33]At [91].
[34]At [91].
The Court also dealt with an evidentiary issue. Mr Sandman had filed two affidavits in opposition to the firm’s applications. One of these annexed an affidavit of Mr Sandman filed in a Family Court proceeding against Mr and Mrs Giboney, as well as affidavits from five other people that had been filed in that proceeding. The firm objected to the admissibility of the affidavits from those five people. The Court of Appeal agreed that the evidence was hearsay and was not persuaded that the affidavits should be admitted under s 18 of the Evidence Act 2006.[35] The Court therefore did not take those affidavits into account.
Mr Sandman’s submissions
[35]At [35].
Mr Dillon argues that the Court of Appeal was wrong to exclude the affidavits filed in the Family Court proceedings. He accepts that none of the affidavits refer to the firm or its knowledge of Mrs Sandman’s mental capacity. Nevertheless, he says, they provide evidence regarding the testamentary capacity of Mrs Sandman at the relevant time, and support for the allegation that Vicky and Mr Giboney were involved in Mrs Sandman’s affairs before the 2010 enduring powers of attorney were signed and had knowledge of her lack of mental capacity.
On summary judgment, Mr Dillon submits that the Court of Appeal was wrong to conclude that the untested evidence of the firm was determinative of the issues that would have to be resolved at trial, particularly in light of the firm’s alleged failure to make the required and expected inquiries as to Mrs Sandman’s testamentary capacity in December 2010. In Mr Dillon’s submission, the high threshold for summary judgment was not met.
As to dishonest assistance, Mr Dillon submits that the steps taken by Vicky and Mr Giboney to replace a valid will with an invalid will breached their fiduciary duties to the late Mrs Sandman and to the beneficiaries of the valid will. It is asserted that the firm assisted in that breach, knowing that Mrs Sandman was not mentally competent and that the 2010 will represented Vicky’s wishes and not those of Mrs Sandman.
It is further submitted that, once Mrs Sandman became incapacitated, she was not capable of making a new will. This meant that Mr Sandman, as a beneficiary of the 2005 will, had an inchoate interest in the property of Mrs Sandman that would pass to him under the only valid will (the 2005 will). On Vicky’s death, Mr Sandman would become the sole beneficiary under that will. The new will had the effect of removing half of the residuary estate from Mr Sandman.
In addition, it is submitted that the position of the firm as solicitors to both Vicky and Mrs Sandman was a conflict of interest. In Mr Dillon’s submission, the firm should have ensured that Vicky was not in a position to influence Mrs Sandman. Instead, the firm allowed her to be present at each meeting.
Mr Dillon submits that all of the above gave rise to a constructive trust in Mr Sandman’s favour.
The firm’s submissions
The firm submits that the Court of Appeal should have struck out the claim because Mr Sandman’s pleading does not disclose an arguable cause of action.
First, it is submitted that Mr Sandman was not a beneficiary of any relevant trust or constructive trust or fiduciary duty (even if a fiduciary duty suffices) and he does not plead that he was. He therefore has no standing to bring a cause of action in dishonest assistance against the firm. Mr Sandman was no more than a potential beneficiary under a will that had not come into effect, meaning that no trust was in existence at the time of the impugned conduct. Nor did Mr Sandman have a beneficial interest in any property under either the 2005 or the 2010 will, because “[w]ill makers are free to make, unmake and alter their wills on any terms up to death”. No trust was established by the execution of either the 2005 will or the 2010 will while Mrs Sandman was alive.
Secondly, the firm submits that there is no pleaded or arguable breach of a relevant trust or constructive trust in which it can be said to have assisted. Even if the cause of action for dishonest assistance extends to breach of fiduciary duty, the pleaded breach, procuring the execution of a will, does not constitute a breach of the fiduciary duty alleged. It is argued that the enduring power of attorney “did not give Vicky the power to create a will or gift property by way of a will unless the Court authorised her to execute a will being satisfied that Mrs Sandman did not have testamentary capacity”.[36]
[36]Pursuant to the Protection of Personal and Property Rights Act 1988, s 102(2)(j).
It is submitted in any event that the Court of Appeal erred when it held that it was arguable that a mere breach of fiduciary duty was sufficient for a claim for dishonest assistance. A trust or constructive trust is required. Expanding dishonest assistance outside this limit would be an unjustified leap into indeterminate third party liability.[37]
[37]It is submitted that the decision of the Court of Appeal of England and Wales in Novoship (UK) Ltd v Mikhaylyuk [2014] EWCA Civ 908, [2015] QB 499 should not be adopted in New Zealand.
Finally, the firm submits that there is no pleaded allegation of dishonesty and no proper foundation laid for such a pleading.[38]
[38]As required in Brown v Bennett [1998] 2 BCLC 97 (Ch) at [107].
The firm also supports the grant of summary judgment and says that summary judgment could also have been granted on the basis of the matters said to justify strike‑out. It also supports the exclusion of the affidavits, although it submits that these did not in any event advance Mr Sandman’s case.
Evidence
We accept Mr Sandman’s submission that the Court of Appeal should not have ruled the affidavits filed in the Family Court inadmissible. Those affidavits do not address the firm’s knowledge. They are, however, relevant to the issue of Mrs Sandman’s capacity and thus could provide some support for the submission that the firm either knew or was wilfully blind to her incapacity.[39]
[39]Some of the affidavits also address Mr Sandman’s medical condition. These provide further background to the correspondence referred to at [21]–[22] above.
The affidavits were filed in other proceedings and there was nothing to suggest they did not represent the genuine views of the deponents. Requiring the deponents to swear similar affidavits in opposition to these applications would have caused Mr Sandman unnecessary expense and inconvenience.
Summary judgment
To recap, Mr Sandman alleges that, because of Mrs Sandman’s lack of capacity, the terms of the 2010 will must have reflected Vicky’s wishes and not those of Mrs Sandman. The undue influence is said to be shown by the firm acting for both Mrs Sandman and Vicky and also by Vicky’s presence at the meetings Ms Paul had with Mrs Sandman.
It is not alleged that any undue influence arose independently of the alleged lack of capacity or that Vicky benefited personally from any such influence. Nor could such an allegation sensibly be made. We make the obvious point that Vicky was actually worse off under the 2010 will than she had been under the 2005 will as the 2010 will did not contain the $200,000 bequest. Nor, given Mr Sandman was a beneficiary of Vicky’s will,[40] does it appear that Vicky had major animosity towards Mr Sandman.
[40]Above at [34].
We also note that, according to the contemporary documentation, Vicky had not wanted Mrs Sandman to change her will in February 2010 to compensate Vicky for the assistance given to Mr Sandman by Mrs Sandman and her husband.[41] This meant that the 2005 will was left in place at that stage. It is also significant that, again according to contemporary documentation, Ms Paul saw Mrs Sandman after Vicky’s death to go over the terms of her will and Mrs Sandman advised she did not wish to change the 2010 will.[42]
[41]Above at [8].
[42]Above at [29].
As pleaded against the firm, Mrs Sandman’s lack of capacity is shown by the fact that Vicky used a copy of the power of attorney certified by the firm to gain control of Mrs Sandman’s ASB bank accounts from January 2010 and that Vicky and/or Mr Giboney otherwise had control over Mrs Sandman’s affairs.[43] It is also pleaded that Dr Buckley certified capacity some two months before the 2010 will was executed.
[43]See above at [42].
In addition, Mr Sandman relies on his own opinion, and other contemporary views, of Mrs Sandman’s lack of capacity as outlined in his correspondence with Ms Paul[44] and in his affidavits and the attached affidavits filed in the Family Court. He also relies on Mrs Sandman’s medical records.[45] Finally, he relies on the fact that some of Mrs Sandman’s affairs were managed during 2010 by Vicky and/or Mr Giboney.[46]
[44]Above at [21].
[45]Above at [9]–[10].
[46]Above at [10] and [15].
The Court of Appeal granted summary judgment on the basis that the material before the Court showed conclusively that there was no dishonesty on the part of the firm. The question is whether it was correct to do so.[47]
[47]Rule 12.2(2) of the High Court Rules 2016 governs summary judgment.
In dishonest assistance claims, New Zealand courts[48] have followed the approach of the Privy Council in Royal Brunei Airlines Sdn Bhd v Tan[49] and Barlow Clowes International Ltd (in liq) v Eurotrust International Ltd.[50] The test for dishonesty is an objective one, judged against the background of what the defendant subjectively knew. If a defendant’s mental state would be described as dishonest by ordinary standards, it is irrelevant that the defendant does not consider his or her conduct to be dishonest and/or does not appreciate that, by ordinary standards, it would be regarded as dishonest.[51]
[48]Westpac New Zealand Ltd v MAP & Associates Ltd [2011] NZSC 89, [2011] 3 NZLR 751 [Westpac v MAP] at [25]–[27]. Westpac v MAP has been followed in Fletcher v Eden Refuge Trust [2012] NZCA 124, [2012] 2 NZLR 227 at [66]–[67]; and Spencer v Spencer [2013] NZCA 449, [2014] 2 NZLR 190 at [128]–[131].
[49]Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 (PC) [Royal Brunei]. The first New Zealand appellate case to follow Royal Brunei was US International Marketing Ltd v National Bank of NZ Ltd [2004] 1 NZLR 589 (CA) at [4]–[7].
[50]Barlow Clowes International Ltd (in liq) v Eurotrust International Ltd [2005] UKPC 37, [2006] 1 All ER 333 [Barlow Clowes].
[51]Westpac v MAP, above n 48, at [26], citing Barlow Clowes, above n 50, at [10]–[12]; see also Royal Brunei, above n 49, at 389.
A defendant is dishonest if he or she has actual knowledge that the transaction is one in which the defendant cannot honestly participate.[52] Wilful blindness, which equates in equity with actual knowledge, also suffices. This arises where a defendant strongly suspects a breach of trust but makes a deliberate decision not to inquire in case the inquiry results in actual knowledge. It is “necessary that the strength of the suspicion … makes it dishonest to decide not to make inquiry”.[53]
[52]Westpac v MAP, above n 48, at [27], citing Barlow Clowes, above n 50, at [10]; see also Royal Brunei, above n 49, at 389.
[53]Westpac v MAP, above n 48, at [27].
The case was argued on the basis that Ms Paul knew Vicky and Mr Giboney were breaching a fiduciary duty. In the context of this case, this means the argument is that Ms Paul assisted them by preparing a will and having it executed, either knowing or wilfully blind to the fact that Mrs Sandman lacked capacity. This submission must be assessed against the background that Mrs Sandman was a client of the firm.
When acting for a client, solicitors have a duty to follow their clients’ instructions.[54] Solicitors also, however, need to provide the relevant advice and information to ensure the client is in an appropriate position to give informed instructions.[55] Where the instructions are to prepare a will in circumstances where there might later be issues raised about capacity, the lawyer should carefully document the advice given and the steps taken. In this regard, it would be prudent for a solicitor to suggest that a medical certificate be obtained.[56] It would also be prudent to document the reasons for the provisions of the will and the process involved in taking instructions and in ensuring that the instructions had been correctly understood.[57]
[54]Lawyers and Conveyancers Act (Lawyers: Conduct and Client Care) Rules 2008. The Preface of the Rules provides that lawyers must act “in accordance with instructions received and arrangements made”. Rule 4.1 provides that there must be good cause to refuse instructions. There is, under r 4.2, a duty to complete the services required by a client under a retainer. A lawyer cannot unilaterally terminate the retainer without good cause and notice to the client. Good cause includes instructions that require the lawyer to breach any professional obligation or the inability or failure of a client to pay an agreed fee. Rule 3.1 provides that lawyers cannot act in a discriminatory manner. See also below n 58.
[55]One of the fundamental obligations of lawyers is to act in accordance with all fiduciary duties and duties of care owed by lawyers to their clients: Lawyers and Conveyancers Act 2006, s 4(c). That fiduciary duty requires a lawyer to ensure the client has sufficient information to give informed instructions: see Duncan Webb, Kathryn Dalziel and Kerry Cook Ethics, Professional Responsibility and the Lawyer (3rd ed, LexisNexis, Wellington, 2016) at [10.3], see also [5.4.1].
[56]We use the term prudent because we do not need to decide for the purposes of this appeal the extent of the duty of a solicitor in these circumstances. Any views we express on solicitors’ duties in this context are necessarily tentative as we have heard no detailed argument on this. This is because there is no direct claim against the firm in this case.
[57]Depending on the circumstances, for example where there is an issue of undue influence, further steps may be necessary. We do not need to discuss those steps as in this case the allegation of undue influence arises only because of the alleged lack of capacity.
It is certainly arguable that once the steps set out above have been taken it would not be up to the solicitor, who is not a medical expert, to decide whether a client has testamentary capacity and thus to decide whether to follow his or her instructions.[58] The position arguably is that a solicitor, even if he or she does not think a client has capacity, would nevertheless be obliged to prepare and arrange for the execution of the will. The issue of actual capacity would then be decided after the client’s death, on the basis of the evidence including expert medical evidence.
[58]In this regard, it is relevant that New Zealand is a party to the United Nations Convention on the Rights of Persons with Disabilities 2515 UNTS 3 (opened for signature 30 March 2007, entered into force 3 May 2008). The Convention provides for the principle of individual autonomy for persons with disabilities, including the freedom to make one’s own choices, as part of respecting human dignity: art 3(a).
We are prepared, however, for the purposes of this appeal, to assume that the fact Mrs Sandman was a client of the firm is not a complete answer to the claim for dishonest assistance and that the firm could be liable in dishonest assistance if Ms Paul knew that Mrs Sandman lacked capacity or was wilfully blind to this. This must be assessed against the background of the steps taken by the firm in preparing the will.
The first point is that Ms Paul prudently suggested that a medical certificate be obtained. It was obtained from Dr Buckley on 28 October 2010. Mr Sandman submits that an updated medical certificate should have been sought, given Dr Buckley had last seen Mrs Sandman on 30 September 2010. Assuming Mrs Sandman agreed, it would certainly have been prudent to do so.
We note, however, that there is no allegation in the pleadings that there had been a major decline in Mrs Sandman’s condition in the period from 30 September (when Mrs Sandman was last seen by Dr Buckley) to 2 December (when the will was executed). The gap between those dates is only two months. The gap between the date the doctor last saw Mrs Sandman and the date instructions were taken (19 October 2010) was even shorter.
It has not been suggested that Mrs Sandman suffered any injury or illness between the date she was last seen by Dr Buckley and the execution of the will. Nor is there evidence to support that her condition had otherwise rapidly deteriorated over the two month period between seeing Dr Buckley and execution of the will. Mrs Sandman had been seen by a gerontology nurse specialist in September 2010 – one month before the firm received instructions – and had been allowed to return to independent living. She remained living independently in her unit in the Village until mid-2012 when concerns were raised about her needing further help.
It is also significant that Ms Paul saw Mrs Sandman on 29 November 2011 after Vicky’s death and considered that she was mentally more alert, noting that could have been due to a new hearing aid. This shows, at the least, that Ms Paul’s perception was that Mrs Sandman’s capacity had not declined in the year since the will was executed.
Ms Paul, again prudently, documented the reasons for the provisions of the will in the statutory declaration and also documented the process involved in taking instructions and in ensuring that these instructions had been correctly understood. In this case the contemporary documentation shows Ms Paul recording her understanding of Mrs Sandman’s instructions in correspondence to her, as well as seeking further instructions on outstanding issues.[59] Mr Sandman points out that this correspondence was sent to Mr Giboney and not to Mrs Sandman directly. This was, however, said to be at Mrs Sandman’s request.[60] The letter sending the draft will in any event seems to have been addressed to Mrs Sandman at the Village.
[59]Above at [23] and [28].
[60]Above at [15].
The contemporary documentation gives no indication that Ms Paul doubted Mrs Sandman’s capacity. To the contrary, it is consistent with her being satisfied Mrs Sandman was competent.[61]
[61]See above at [18]–[19].
Further, there was nothing to suggest to Ms Paul that she could not rely on Dr Buckley’s certificate. Mrs Sandman had been Dr Buckley’s patient for eight years and therefore the certificate was given by a doctor who was aware of Mrs Sandman’s recent medical history and who was comfortable giving the certificate even though she had seen Mrs Sandman a month before she certified competence.
In addition, there was nothing in the terms of the 2010 will itself to raise doubts as to capacity. The terms are explicable in the circumstances explained in the statutory declaration signed at the time of making the will. There is nothing in the terms that suggests irrationality and therefore nothing that should have alerted Ms Paul to any risk of lack of capacity that had up to that point not manifested itself to her.
We note too that Mr Sandman’s own letter of 31 October 2010 gives the impression of a woman who did not hesitate to express her own opinions. We make the obvious comment that the fact Mrs Sandman’s opinions did not coincide with those of Mr Sandman does not necessarily indicate lack of capacity.
Mr Sandman relies on the fact that in 2010 Vicky (and Mr Giboney) were acting for Mrs Sandman under the enduring power of attorney related to property. We do not consider that this alone shows incapacity. It is not unusual for elderly people who may be frail and less mobile to have others act for them, even if they are fully competent to manage their own affairs. Further, the enduring power of attorney for property had become operative immediately and was not dependent on Mrs Sandman being mentally incapacitated.
Against this background, we do not consider that there could be any argument that the firm strongly suspected Mrs Sandman was incompetent and deliberately decided not to inquire in case that inquiry resulted in actual knowledge. We note in particular the medical certificate and the fact that, while Mrs Sandman had what has been described as mild dementia, she had nevertheless been cleared to live independently.
This means that, in order to succeed at trial against the firm, Mr Sandman would have to prove that the contemporary documentation did not reflect what had occurred and that the relevant documents were effectively constructed by Ms Paul at the time to mask her actual knowledge of Mrs Sandman’s incapacity. No reason has been suggested as to why she would risk her professional integrity and her career in this manner. We make the obvious point that she was not a beneficiary of the 2010 will and that she did not receive any direct benefit from the fees paid for her legal work, given she was a salaried staff solicitor at the firm and not a partner.
The evidence already assembled for the purposes of the summary hearing indicates that the claims of lack of testamentary capacity and undue influence are not “plainly spurious or contrived”.[125] That is not to express a view on whether the evidence would ultimately be found to be compelling. But at trial the parties would have full opportunity to put up all evidence and after discovery. On summary procedure, it cannot be assumed that all contemporary documents are before the court. (There are, for example, no file notes available of the firm’s attendances.) At trial, there would be the opportunity to examine both expert and direct witnesses of Elizabeth Sandman’s competency who may not have been reasonably available to the plaintiff for the purposes of obtaining affidavit evidence. There would be opportunity to test the reasons for the opinions given by those who provided certificates of Elizabeth Sandman’s testamentary capacity.
[125]See CA judgment at [30]; Eng Mee Yong v Letchumanan [1980] AC 331 (PC) at 341; and Pemberton v Chappell [1987] 1 NZLR 1 (CA) at 4.
The certificates provided by Dr Buckley and Mr Mellett represent a significant evidential hurdle to Mark Sandman’s allegations of lack of testamentary capacity. I do not think, however, they can be treated as conclusive of the fact of testamentary capacity at this stage of the proceeding. They have not been tested, as they would be at trial. Dr Buckley’s certificate was made on the basis of a consultation two months before the will was entered into. Neither it nor Mr Mellet’s certificate is explained by reference to any contemporary steps taken to assess competency. Mr Mellet may well have relied on Dr Buckley’s certificate, which had been sent to him before the consultation. At trial, it may be quite appropriate to reason that there has been no explanation for deterioration in Elizabeth Sandman’s condition (such as might be caused by intervening illness) between the time Dr Buckley saw her and the time the will was made, as Glazebrook J reasons at [85]. But that is not the sort of speculation that strikes me as fairly available on summary procedure, especially in matters of fact which depend on assessment or questions of degree.
Even if accepted at the substantive hearing as establishing testamentary capacity, the certificates themselves are not determinative of undue influence. It is not necessary for a person said to have unduly influenced a testamentary or other disposition of property to benefit personally. Elizabeth Sandman’s living arrangements, reliance on Victoria Sandman and Mr Giboney (a dependency remarked upon by the health professionals who assessed Elizabeth Sandman), and her recorded cognitive impairment are all evidence of vulnerability and reliance, conditions in which undue influence often arises and from which it is sometimes presumed.
The arrangements made for communications from and to Elizabeth Sandman’s lawyers and medical professionals to be made through Victoria Sandman, Robert Giboney, or Leigh Giboney may in the end be explained, as Ms Paul explains them, as arrangements which were sensible because of Elizabeth Sandman’s deafness or because of her wish to keep her correspondence from being seen by Mark Sandman. But opportunity to test those explanations should be available to the plaintiff. The evidence may also be consistent with loss of control.
There are indications on the materials of fluctuating impairment and periods of confusion on the part of Elizabeth Sandman. The letter written by Ms Paul to Robert Giboney on 1 December 2011, referred to by Glazebrook J at [30], indicates as much. It reports Elizabeth Sandman to be “a lot more alert than previously”. Significantly, it also indicates that Elizabeth Sandman did not appear to recollect the dispositions she had made in her will of December 2010 or that they had been made to cover the position in the event of Victoria Sandman’s death. It is not clear on the current state of the evidence what information Ms Paul may have received about Elizabeth Sandman’s circumstances which is not directly referred to in her own correspondence.
It also strikes me as unsafe to speculate that the fact that Elizabeth Sandman remained living “independently” in her apartment supports an appearance of testamentary capacity and lack of undue influence. At trial it might be expected that direct evidence about the extent of Elizabeth Sandman’s independence would be obtained from witnesses who might not be readily available to a plaintiff on summary application, such as the caregivers or the administrator at the Village. It is clear from the materials before the Court that concerns about Elizabeth Sandman’s cognitive impairment had been raised throughout 2010, and predated her breaking her femur and requiring hospitalisation in July 2010. That Ms Paul was aware of a background of some impairment of Elizabeth Sandman’s capacity generally appears from the letter she wrote to Elizabeth Sandman on 4 February 2010.[126]
[126]Referred to in the reasons given by Glazebrook J at [8] above. The medical notes provided in Mark Sandman’s affidavit indicate that in February 2010 Elizabeth Sandman was referred to the Mental Health Service for Older People (MHSOP) for assessment by Dr Buckley for anxiety and depression. There is a notation on the notes of an indication of early dementia. It seems not unlikely that Ms Paul’s letter of 4 February was written in the knowledge that a referral for assessment was to be made.
It also appears from the assessments made before Elizabeth Sandman was returned to living in her apartment, with the considerable assistance referred to at [145], that assessment of her cognitive impairment was a focus of the investigation undertaken. Ms Paul’s letter of 1 September 2010 indicates that she was aware of the doubts about Elizabeth Sandman’s ability to resume living in her apartment and suggests she was informed about the investigation and the caregiving arrangements. Ms Paul suggests in her affidavit that the extensive use of caregivers which allowed Elizabeth Sandman to stay in her unit was because of mobility issues, not cognitive impairment. That is a matter which cannot be resolved on summary assessment. No doubt there were mobility issues too but the assessment which cleared the way for Elizabeth Sandman’s return to her apartment pointed as well to concern about cognitive impairment. Whether Ms Paul was informed of the assessment made by the gerontology nurse in mid-September (that Elizabeth Sandman’s “mini-mental state” examination score was 19/30 and that she had become institutionalised)[127] is not known on the evidence available. It is a matter upon which there would be opportunity for examination at a hearing.
[127]See the reasons given by Glazebrook J at [12], n 7.
At trial, it could be expected that there would be full consideration of the sequence of events and the role played in obtaining the will by Victoria Sandman, including the evidence of witnesses from whom affidavits on the summary judgment application might not readily have been obtained. It seems clear that the change in the will and the focus on Victoria Sandman’s interest in her mother’s estate reflected the knowledge that Victoria Sandman was unlikely to outlive her mother. Similar focus is shown in the other significant change from the 2005 will in the removal of a legacy of $200,000 left to Victoria Sandman which was originally to provide her with the equivalent value of the apartment being left to Mark Sandman. Although the terms of the 2010 will are explained in the statutory declaration, they represent a departure from Elizabeth Sandman’s previous intention to benefit only her children in her testamentary dispositions. (Elizabeth Sandman’s indication at the beginning of 2010 that she might change her will was directed at achieving equality between them.) There are also indications, including in correspondence from the firm,[128] of some family strain, although Elizabeth Sandman herself in her lifetime seems to have been concerned to ensure that Mark Sandman was “looked after”, as appears from Ms Paul’s letter of 1 December 2011.[129]
[128]See the letter sent by Ms Paul to Mark Sandman on 5 November 2011 referred to in the reasons given by Glazebrook J at [22] above. The letter seems to have been written at least partly on behalf of Victoria Sandman.
[129]Referred to in the reasons given by Glazebrook J at [30] above.
I mention these matters not to indicate any view as to whether they would be of significance at trial but because they are indicative of context which prompts caution on summary determination. Summary judgment is inappropriate where there are disputed issues of material fact. Here, it seems to me that there is dispute which cannot be determined without hearing and which was unsuitable for summary judgment on the application of the firm. I would allow the appeal against entry of summary judgment.
Strike out of claim for accessory liability
It is not settled on the authorities whether accessory liability arises on the basis of breach of fiduciary duties or whether it is confined to claims by beneficiaries of trusts where trust property has been disposed of in breach of trust.[130] I agree with other members of the Court that it would not be appropriate to strike the claim out on the basis that no trust or trust property is claimed to be affected.[131] Further consideration of the scope of accessory liability for participation in breach of equitable obligations should be undertaken on the basis of particular facts, not pleadings. So, for the purposes of strike-out, it is appropriate to proceed on the assumption that participation in a breach of fiduciary duty is sufficient foundation for a claim of dishonest assistance.
[130]See Brown v Bennett [1999] BCC 525 (CA) at 531–533; Burmeister v O’Brien (2009) 12 TCLR 539 (HC) at [96]; and Novoship (UK) Ltd v Mikhaylyuk [2014] EWCA Civ 908, [2015] QB 499 at [87]–[93].
[131]See the reasons given by Glazebrook J at [100](a), n 67.
I consider that the statement of claim sufficiently pleads a relationship of confidence between Elizabeth Sandman on the one hand and Victoria Sandman and Robert Giboney on the other. It also pleads Elizabeth Sandman’s dependency and impairment. In relation to Wilson McKay, it pleads that Elizabeth Sandman and Robert Giboney were “knowingly assisted” by Wilson McKay in “[obtaining] control of the affairs of the deceased, and in particular the execution of a will” despite Elizabeth Sandman’s testamentary incapacity, that “effected Vicky’s own intentions regarding the disposition of the estate of the deceased”. In my view, that is sufficient pleading of participation in the procurement of the will in breach of equitable duties owed on the facts pleaded.
It should be noted that the statement of claim does not suggest that the fiduciary responsibilities of Victoria Sandman and Robert Giboney arose under the enduring powers of attorney. The enduring powers of attorney are rather pleaded as part of the facts from which dependency and confidence can be inferred. This pleading is sufficient to raise the elements of breach of fiduciary duty in which Wilson McKay is said to have participated.
As has been indicated, if dishonesty on the part of Wilson McKay is required (a matter on which I have expressed some doubt in circumstances where the firm itself owed duties to Elizabeth Sandman), I consider it is sufficiently pleaded by the assertion that the firm had knowledge of Elizabeth Sandman’s testamentary incapacity and the undue influence she was under in making her will. I consider the pleading is sufficient to raise dishonest participation.
The last element required for accessory liability is that the plaintiff is someone who is affected by the breach of duty or trust either as a beneficiary of the trust or someone who benefits from the proper performance of the fiduciary duty.[132] Mark Sandman says he qualifies because he is a beneficiary under the 2005 will. I do not accept that to be sufficient interest.
[132]Lynton Tucker, Nicholas Le Poidevin and James Brightwell (eds) Lewin on Trusts (19th ed, Sweet & Maxwell, London, 2015) at [39-071] and [40-024]; and Bawany v Royal Bank of Scotland International Ltd [2018] EWHC 2248 (Ch) at [47]–[48]. See also CA judgment at [24].
I consider the respondent was right in the submission that accessory liability could be claimed by Mark Sandman against the firm only if those alleged to be primarily responsible, Victoria Sandman and Robert Giboney, were trustees of a trust in which he was a beneficiary or owed Elizabeth Sandman fiduciary duties through which he benefited. His potential expectation through Elizabeth Sandman’s 2005 will, a testamentary disposition she was free to change, is insufficient interest for a claim for accessory liability.
As explained in Royal Brunei Airlines v Tan, accessory liability for breach of trust fills the gap that arises where deliberate participation by a third party in a breach of trust does not lead to receipt of trust property.[133] Where the third parties act for or deal with dishonest trustees, the trustees themselves will have no claim against the third parties. Without accessory liability, nor would those beneficiaries who suffer loss as a result, perhaps because the trustees are not able to make amends. The policy served by accessory liability is “the dual purpose of making good the beneficiary’s loss should the trustee lack financial means and imposing a liability which will discourage others from behaving in a similar fashion”.[134] Such liability is “fault‑based” and the preponderance of authority requires dishonesty by the third party.[135]
[133]See Royal Brunei Airlines Sdn Bhd v Tan at 382.
[134]Royal Brunei Airlines Sbn Bhd v Tan at 387.
[135]See above at [128].
No comparable gap exists in relation to a beneficiary under a will to whom a third party owes duties of care on the principles established in tort. If the beneficiary does not qualify under those principles, it is because the third party does not owe him a duty of care. As already indicated, Mark Sandman has not brought a claim that Wilson McKay owed him a direct duty of care.
As Lord Nicholls explained in Royal Brunei Airlines v Tan, third parties who are engaged to act for trustees will usually be accountable to the trustees if they fail to act with reasonable care and skill.[136] Similarly, third parties who are engaged to act for a testator will usually be accountable to the testator or the estate if they fail to act with reasonable care and skill. These liabilities can in suitable cases be enforced by the beneficiaries of a trust or the beneficiaries of the estate if the trustees or executors are unable or unwilling to act. Against this background of remedies, there is no occasion to expand the ability to recover from accessories for those who are not beneficiaries of a trust or fiduciary duty breached by the trustees or fiduciaries primarily responsible.
[136]Royal Brunei Airlines Sdn Bhd v Tan at 391.
Mark Sandman could claim against the firm for accessory liability only if he was a beneficiary under a trust or in respect of a fiduciary obligation owed to him by Victoria Sandman or Robert Giboney. I consider Wilson McKay was right in the submission that Mark Sandman’s potential expectation as a beneficiary under the 2005 will did not qualify him to bring the accessory claim against it. I would therefore strike out the claim for accessory liability.
Solicitors:
Queen City Law, Auckland for Appellant
McElroys, Auckland for Respondents
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