Schischka v Schischka
[2023] NZHC 2275
•22 August 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2022-404-1773
[2023] NZHC 2275
UNDER Part 18 of the High Court Rules IN THE MATTER OF
the property at 25 Curran Street, Herne Bay, Auckland
BETWEEN
JOHN CRAIG SCHISCHKA and GREGORY ERROL BUCHAN SCHISCHKA
Plaintiff
AND
GLENN LAURENCE SCHISCHKA
Defendant
Hearing: 29 June 2023 Appearances:
G J Angus and T P Kelly for the Plaintiffs L J Kearns KC for the Defendant
Judgment:
22 August 2023
JUDGMENT OF ASSOCIATE JUDGE BRITTAIN
This judgment was delivered by me on 22 August 2023 at 4.00 pm.
Pursuant to Rule 11.5 of the High Court Rules.
…………………..
Registrar/Deputy Registrar
Solicitors/Counsel: Morris Legal, Auckland
Shieff Angland, Auckland
Bastion Chambers, Auckland
SCHISCHKA v SCHISCHKA [2023] NZHC 2275 [22 August 2023]
Introduction
[1] The plaintiffs, John Schischka and Gregory Schischka, and the defendant, Glenn Schischka, are brothers.1 Their mother, Sylvia Schischka, was their last surviving parent. Mrs Schischka passed away on 13 February 2018, aged 95. Both generations of the Schischka family are, or were, profoundly deaf.
[2] Mrs Schischka’s last will dated 10 February 2015 appointed Glenn, Gregory and her solicitor, Ronald Craig, as her executors. After Mrs Schischka’s death, each renounced their positions as executors in favour of Perpetual Guardian, a statutory trustee company, which took on the role of administrator. The Schischka brothers are all beneficiaries under the will, largely receiving equal treatment.
[3] Perpetual Guardian completed administration of the estate without issue, making final distributions to Glenn, John and Gregory on 30 November 2021.
[4] Mrs Schischka’s estate did not include the family home at 25 Curran Street, Herne Bay, Auckland (the property). Mrs Schischka became the sole registered proprietor of the property after the death of her husband, Laurence Schischka, on 17 October 2014.
[5] On 13 February 2015, Mrs Schischka transferred the property to Glenn, by way of gift (the transfer of the property). In this proceeding, John and Gregory challenge the transfer of the property, claiming that Mrs Schischka lacked capacity at the material time, or alternatively that the transfer was brought about by the undue influence of Glenn.
[6] Glenn says that he has lived in the family home for most of his life and describes himself as having been the primary caregiver for his parents. He insists that his mother gifted the property to him by her own initiative and that she had capacity to do so.
1 For convenience, and intending no disrespect to the parties, I will refer to each of the brothers by their given name.
[7] Glenn has applied for defendant summary judgment dismissing the claim, on grounds that:
(a)John and Gregory do not have standing to bring the claim in their capacity as beneficiaries of the estate; or
(b)alternatively, that the claim is an abuse of process on the basis of res judicata because John and Gregory could have, and should have, brought this claim in a proceeding commenced by them in the Waitakere Family Court in 2015, which sought orders under the Protection of Personal and Property Rights Act 1988 (PPPRA) (the Family Court proceeding).
[8] John and Gregory respond that their capacity as beneficiaries of their mother’s estate entitles them to seek a declaration that the transfer of the property is voidable. They contend it was not possible for them to bring this claim in the Family Court proceeding.
[9]I will deal with the abuse of process argument before the issue of standing.
Legal principles
[10] Rule 12.2(2) of the High Court Rules 2016 (HCR) provides that the Court may enter judgment against a plaintiff if the defendant satisfies the Court that none of the causes of action in the plaintiff’s statement of claim can succeed.
[11] The test for defendant summary judgment was summarised by the Court of Appeal in Stephens v Barron:2
(a)The defendant has the onus of proving on the balance of probabilities that the plaintiff cannot succeed. Usually this will arise where the defendant can offer evidence which is a complete defence to the plaintiff’s claim.
(b)An application for summary judgment will be inappropriate where there are disputed issues of material fact or where material facts need
2 Stephens v Barron [2014] NZCA 82 at [9] citing Westpac Banking Corp v M M Kembla New Zealand Ltd [2001] 2 NZLR 298 (CA).
to be ascertained by the Court and cannot confidently be concluded from affidavits. It may also be inappropriate where ultimate determination turns on a judgment able to be properly arrived at only after a full hearing of the evidence.
(c)The Court must be satisfied that none of the claims can succeed. It is not enough that they are shown to have weaknesses. The assessment is not to be arrived at on a fine balance of the available evidence as would be appropriate at a trial.
(d)The residual discretion of the Court to refuse summary judgment would be properly invoked to avoid the oppression which would otherwise result if an application by a defendant for summary judgment would pre-empt a plaintiff exercising the right to amend the pleadings.
(e)Summary judgment should not be applied for unless the substantive merits of the case are clear and capable of summary disposal.
[12] In Westpac Banking Corp v M M Kembla New Zealand Ltd, Elias CJ explained the practical evidentiary requirements on a plaintiff in a defendant’s application for summary judgement:3
[63] Except in clear cases, such as a claim upon a simple debt where it is reasonable to expect proof to be immediately available, it will not be appropriate to decide by summary procedure the sufficiency of the proof of the plaintiff's claim. That would permit a defendant, perhaps more in possession of the facts than the plaintiff (as is not uncommon where a plaintiff is the victim of deceit), to force on the plaintiff's case prematurely before completion of discovery or other interlocutory steps and before the plaintiff's evidence can reasonably be assembled.
[64] The defendant bears the onus of satisfying the Court that none of the claims can succeed. It is not necessary for the plaintiff to put up evidence at all although, if the defendant supplies evidence which would satisfy the Court that the claim cannot succeed, a plaintiff will usually have to respond with credible evidence of its own. Even then it is perhaps unhelpful to describe the effect as one where an onus is transferred. At the end of the day, the Court must be satisfied that none of the claims can succeed …
Abuse of process
Background
[13] Mrs Schischka granted an enduring power of attorney for property to Glenn on 14 March 2014. Mrs Schischka had previously granted a power of attorney to Gregory, which was revoked on the grant of Glenn’s power of attorney.
3 Westpac Banking Corp v M M Kembla New Zealand Ltd, above n 2.
[14] In September 2015, John filed the Family Court proceeding seeking an order appointing Perpetual Guardian as Mrs Schischka’s property manager under s 31 of the PPPRA.
[15] John also sought orders determining when Mrs Schischka lost mental capacity, and a review of any decisions made by Glenn or Gregory when exercising a power of attorney. In his affidavit in the Family Court proceeding, John deposed that he believed that his mother did not have capacity at the time of the transfer of the property.
[16] Gregory filed a cross-application in the Family Court proceeding, seeking the appointment of a welfare guardian for his mother, under s 12 of the PPPRA.
[17] On 2 December 2016, Judge Burns delivered a reserved judgment making procedural orders.4 The judgment reproduced the conclusion of a report dated 26 February 2016 from Dr Jane Casey, an expert commissioned by the Court to report on Mrs Schischka’s capacity. Dr Casey’s report assessed capacity as at the date of her meeting with Mrs Schischka:5
Regarding capacity in respect to the management of her property, Mrs Schischka did not understand the nature and extent of her estate. She knew that the Curran Street property was passed to her upon her husband’s death. Mrs Schischka was consistent in saying that she was leaving the house to Glenn. She gave a consistent rationale for this. Although at one point she stated that Glenn now owns the house she could not recall if she signed such a document. She deferred to the lawyer to help her manage her affairs. The impact of a potential uneven distribution of the estate on her other two sons was raised. Again, Mrs Schischka had some rationale for this.
Mrs Schischka could communicate a consistent choice in respect of the Curran Street property. She had difficulty understanding and manipulating relevant information in regards to this choice, was unable to recall if the transfer had occurred or would occur on her death, nor could she foresee the consequences of this decision-making. Thus, in my independent medical opinion, Mrs Schischka did not demonstrate capacity on this assessment in respect to the capacity to transfer the Curran Street property.
[18]Regarding the transfer of the property, the Judge commented:6
… Both John and Gregory say that they were not consulted with respect to the transaction of transferring the family home to Glenn. John and Gregory say
4 Schischka v Schischka [2016] NZFC 10125.
5 At [2] (emphasis in original).
6 At [9].
that their mother was subject to undue influence. Glenn says that that is not the case and that this is something that she wished and was very clear about. Evidence has been gathered from the lawyer involved in the transaction. It is common ground that no medical report was obtained at the time of the transaction. It is common ground that there is no challenge under the Protection of Personal Property Rights Act to reversing the transfer of the property to Glenn. He says that at no stage was the enduring power of attorney used or operated upon in relation to that transaction. It was a decision made entirely by his mother who he says had capacity at the time to make such a decision. Therefore he says that s 102 and following of the Act does not apply because there was no decision made as attorney. This seems to have been accepted by the applicant and it is considered that if there is to be a challenge to the transaction under the Act that will have to be under other legislation.
[19] The Judge then proceeded to record the issue that would be determined at the substantive hearing and set the matter down for hearing.
[20] In August 2017, the brothers attended a private mediation and agreed terms of settlement of the Family Court proceeding, including the appointment of Perpetual Guardian as property manager for Mrs Schischka. On 31 October 2017, the Family Court made orders under the PPPRA by consent, giving effect to the settlement agreement. Perpetual Guardian was granted all the powers contained in sch 1 of the PPPRA. The Court also made personal orders under s 10, which related to Mrs Schischka’s living arrangements and personal care.
[21] Ms Kearns KC, counsel for Glenn, submitted that the Family Court proceeding provided an opportunity to John and Gregory to bring a claim concerning the transfer of the property. It was submitted that their failure to take that opportunity gives rise to a res judicata defence, with the result that John and Gregory are estopped from raising the clam now.
Legal principles
[22]The rules of res judicata have three common applications:
(a)cause of action estoppel, where a cause of action in a prior proceeding is merged in the judgment in that proceeding, so that a party is estopped from raising the cause of action again in a subsequent proceeding;
(b)issue estoppel, where a particular matter of fact or law raised in a subsequent proceeding is held to have been decided by a prior judgment, so that a party is estopped from raising the issue again; and
(c)where it is an abuse of process for a plaintiff to rely on issues or facts which could and ought to have been raised in a prior proceeding.7
[23] This last category of abuse of process has its origin in the judgment of Wigram V-C in Henderson v Henderson.8 In the House of Lord’s decision in Johnson v Gore Wood & Co (a firm), Lord Bingham discussed the principle:9
… Henderson v Henderson abuse of process, as now understood, although separate and distinct from cause of action estoppel and issue estoppel, has much in common with them. The underlying public interest is the same: that there should be finality in litigation and that a party should not be twice vexed in the same matter. This public interest is reinforced by the current emphasis on efficiency and economy in the conduct of litigation, in the interests of the parties and the public as a whole. The bringing of a claim or the raising of a defence in later proceedings may, without more, amount to abuse if the court is satisfied (the onus being on the party alleging abuse) that the claim or defence should have been raised in the earlier proceedings if it was to be raised at all. I would not accept that it is necessary, before abuse may be found, to identify any additional element such as a collateral attack on a previous decision or some dishonesty, but where those elements are present the later proceedings will be much more obviously abusive, and there will rarely be a finding of abuse unless the later proceeding involves what the court regards as unjust harassment of a party. It is, however, wrong to hold that because a matter could have been raised in earlier proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive. That is to adopt too dogmatic an approach to what should in my opinion be a broad, merits-based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focusing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before.
The argument advanced on behalf of Glenn
[24] Ms Kearns submitted that the Family Court had jurisdiction under the PPPRA to examine the transfer of the property, and if required, to provide an appropriate remedy. Specifically, it was argued that John and Gregory could have sought
7 Beattie v Premier Events Group Ltd [2014] NZCA 184; [2015] NZAR 1413 at [42]–[43].
8 Henderson v Henderson (1843) 3 Hare 100 (Ch).
9 Johnson v Gore Wood & Co (a firm) [2002] 2 AC 1 (HL) at 31.
determinations under s 29(3) regarding Mrs Schischka’s capacity at the time of the transfer of the property, and whether she was subject to undue influence at that time.
[25]Section 29(3) of the PPPRA provides:
(3)If the court decides to make an order under section 31 in relation to any property, it shall determine which of the rights and powers specified in clause 1 of Schedule 1 the manager is to have in respect of that property, what other rights and powers (if any) the manager is to have in respect of that property, and what restrictions (if any) are to be imposed on the exercise of any such rights and powers.
[26] Ms Kearns’ submission was based on the premise that the Family Court has jurisdiction under the PPPRA to make a retrospective determination about capacity, relying on the Family Court’s decision in AAC v CCKS.10 She submitted that the reasoning in that case supports her proposition that the Family Court could have made determinations on the allegation that Glenn exerted undue influence over his mother at the time of the transfer of the property.
Discussion
[27]As Judge Inglis QC said in Re Tony:11
The [PPPRA] is protective and remedial legislation, designed to provide for the needs of those with impaired ability to manage their personal care or welfare, to communicate their decisions on those matters, or to manage their property affairs.
[28] The Family Court’s jurisdiction under the PPPRA in respect of a person’s property rights arises when a person lacks wholly or partly the competence to manage his or her own affairs.12 The emphasis in this statutory test is on competence to manage. To assume jurisdiction, the Court need not be satisfied that the person lacks any or all capacity to understand the nature, and to foresee the consequences, of their decisions, as is the case for jurisdiction under the PPPRA in respect of a person’s personal rights.13
10 AAC v CCKS [2011] NZFLR 603 (FC).
11 Re Tony (1990) 5 NZFLR 609 (FC) at 613.
12 Section 25.
13 Section 6.
[29] The test is different to the test for capacity to make a valid inter-vivos gift. As with all inter-vivos transactions, the law requires that the person executing the transaction understands the “general nature”, but not necessarily the exact detail, of the transaction when it is explained to them.14
[30] In a cause of action for undue influence, the focus is on whether a transaction has been procured by unacceptable means; that is, by the impairment of free and independent will of a person by another, often, but not always, within a relationship of influence, trust or ascendancy.15
[31]Section 25(4) of the PPPRA provides that:
(4)In determining whether or not it should exercise its jurisdiction under this Part in relation to any person, a court may have regard to the degree to which the person is subject, or is liable to be subjected, to undue influence in the management of his or her own affairs in relation to his or her property.
[32] Section 25(4) is limited to a consideration of the current or prospective position. There is no provision in the PPPRA providing the Family Court with jurisdiction to determine the validity of an inter-vivos transaction executed by the subject person before the appointment of a property manager.
[33] Notably, the Court does have jurisdiction to review an attorney’s past decisions under s 103 of the PPPRA, which provides:
103 Review of attorney’s decisions
(1)Any of the following people may at any time apply to a court to review any decision made by an attorney acting under an enduring power of attorney while the donor is or was mentally incapable:
(a)the donor of the enduring power of attorney:
(b)a relative or attorney of the donor (not being the attorney whose decision is sought to be reviewed):
(c)a social worker:
14 Scott v Wise [1986] 2 NZLR 484 (CA) at 491. See also Dark v Boock [1991] 1 NZLR 496 (HC) at 500 and Dodssuweit v Olivier [2019] NZHC 1226 at [169].
15 Royal Bank of Soctland plc v Etridge (No 2) [2001] UKHL 44, [2002] 2 AC 773 at [8]–[11]; Attorney-General for England and Wales v R [2003] UKPC 22, [2004] 2 NZLR 577 at [21]; and Green v Green [2016] NZCA 486, [2017] 2 NZLR 321 at [40].
(d)a medical practitioner:
(e)a trustee corporation:
(f)if the donor is a patient or a resident in any place that provides hospital care, rest home care, or residential disability care within the meaning of the Health and Disability Services (Safety) Act 2001, the principal manager of that place:
(g)any welfare guardian who has been appointed for the donor:
(h)a person authorised by a body or organisation contracted by the Government to provide elder abuse and neglect prevention services.
(2)Any other person may apply for a review if the court gives leave to do so.
(3)For the avoidance of doubt, an application for review may be made while the enduring power of attorney is in force or after it is revoked by the death of the donor or otherwise.
(4)The court may, if it thinks it reasonable to do so in all the circumstances, review the decision and make any order it thinks fit.
(5)An order under subsection (4) has effect according to its tenor.
[34] However, there is no suggestion that the transfer of the property was made by Glenn acting as Mrs Schischka’s attorney. It was a transaction that Mrs Schischka entered into on her own behalf.
[35] If the Court appoints a property manager, then s 29(3) of the PPPRA requires the Court to determine the rights and powers bestowed on the manager in respect of the property. I reject the submission that s 29(3) empowers the Family Court to embark on an examination and determination of the validity of transactions made by the subject person before the appointment of a property manager.
[36] As recorded by Judge Burns in his judgment, it was common ground at the time of the Family Court proceeding that any challenge to the transfer of the property would require a separate proceeding. The claim now brought by John and Gregory was not a claim that could have been raised in the Family Court proceeding.
[37] Even if the issues of capacity and undue influence at the time of the transfer of the property could have been raised in the Family Court proceeding, this is not a
situation where the failure to do so renders the raising of the issues now abusive. Even a broad reading of the Family Court’s jurisdiction under the PPPRA would still not displace this Court’s jurisdiction to determine the validity of inter-vivos transactions by a person acting on their own behalf before any orders were made under the Act.
Standing to bring the claim
Legal principles
[38] In the case of contracts, conveyances and gifts, a transaction by one of unsound mind is not void, but voidable only at the suit of the person lacking capacity or their personal representatives.16
[39] The beneficiaries of an estate do not generally have standing to sue on the rights of the deceased, but in special circumstances may bring a derivative claim.17 Leave to bring a derivative claim is not required, but the special circumstances which justify a derivative claim must be pleaded and proved.18 If a derivative action is permitted, the beneficiary stands in the place of the administrator and sues in right of the estate enforcing duties owed to the administrator rather than to the beneficiary.19 The administrator should be joined as a defendant.20
[40] Examples of special circumstances which may permit the bringing of a derivate claim include failure, excusable or inexcusable, by the trustees in the performance of duties; fraud on the part of the trustee; collusion between the trustee and a third party; insolvency of a trustee; where a trustee has acted in breach of trust; and where there is a conflict of interests.21 In any case, the guiding question is whether the circumstances are sufficiently special to make it just for the beneficiary to have the remedy.22 In
16 Scott v Wise, above n 14, at 492.
17 Hayim v Citibank NA [1987] AC 730 (PC) at 748.
18 Roberts v Gill & Co [2010] UKSC 22, [2011] 1 AC 240 at [103].
19 Roberts v Gill & Co, above n 18, at [22].
20 Roberts v Gill & Co, above n 18, at [62]–[63] per Lord Collins JSC. But see comments of Lord Hope DPSC and Lord Clarke JSC suggesting that it may not be necessary to join the administrator if that would cause an injustice at [84] and [127]–[134].
21 Hayim v Citibank NA, above n 17, at 747–748 and Roberts v Gill & Co, above n 18, at [46].
22 Roberts v Gill & Co, above n 18, at [46].
other words, is the derivative action needed to avoid injustice?23 Each case of special circumstances will necessarily turn on its own facts.
[41] In Roberts v Gill & Co,24 the Supreme Court of the United Kingdom considered whether a claimant, in his personal capacity, could bring proceedings for damages in negligence against two firms of solicitors who had advised the former personal representatives of his late grandmother’s estate. The general rule against derivative claims was restated with clarity by Lord Roger JSC:25
… Unquestionably, the general rule is that the beneficiary of a trust cannot sue a debtor of the trust: the relevant right of action is vested in the trustees and it is for them to enforce that right by raising an action, if appropriate. Where the trustees decline to take proceedings but the beneficiary insists, he can require them to assign the right of action or to permit him to use their name, provided that he gives them indemnity for any liability for expenses.
[42] The court of first instance had declined to allow an amendment of the pleadings that would have permitted a derivative claim to proceed. The court of first instance, and the appeal courts, were prepared to assess whether special circumstances were made out at an interlocutory stage of the proceeding.
[43] The court of first instance found that there were no special circumstances, in a situation where, inter alia, the claimant was not the sole beneficiary of the estate; the administrator had been appointed by the court as administrator on the application of the claimant; the claimant had not procured the vesting of the estate’s cause of action in himself; there was no reason to think that the administrator would not have been prepared to vest the estate’s cause of action in the claimant; there was no basis for any allegation of any breach of trust by the administrator; there was no conflict of duty or interest involving the administrator; and the administrator’s decision not to sue on the cause of action had not been said to be open to any criticism.26 The Supreme Court would not have interfered in those findings, holding that the judge at first instance had a wide latitude in evaluating special circumstances.27
23 Roberts v Gill & Co, above n 18, at [110].
24 Roberts v Gill & Co, above n 18.
25 At [87].
26 At [74].
27 At [76], [78], [114]
The argument advanced on behalf of Glenn at the hearing
[44] Ms Kearns referred to the lack of pleading by John and Gregory of any special circumstances and submitted that there was no evidence that any special circumstances exist.
[45] Ms Kearns emphasised that John and Gregory were aware of the transfer of the property transaction before their mother passed away and pointed to the fact that Gregory was named in Mrs Schischka’s will as an executor but took no steps to challenge the transaction before he renounced his position.
[46] Glenn’s affidavit evidence is that, as far as he is aware, John and Gregory did not at any time during the administration of the estate seek to compel Perpetual Guardian to commence litigation in respect of the transfer of the property, or to defer the final distribution.
[47] Ms Kearns also placed reliance on John and Gregory’s failure to take any issue with their mother’s last will, which was executed a few days before the transfer of the property.
John and Gregory’s response at the hearing
[48] Counsel for John and Gregory, Ms Angus, argued that John and Gregory do not need to establish special circumstances to bring a derivative claim. She sought to distinguish Roberts v Gill & Co, on the basis that John and Gregory are seeking only declaratory orders, arguing that they can do so as of right without having to establish special circumstances, relying on two decisions of this Court: Yeoman v Public Trust Ltd28 and Gaitz v Donovan.29
[49] The statement of claim seeks “[a]n order that the transfer of the Curran Street property to the defendant is void.” During argument, Ms Angus suggested that this could be amended so that the only relief sought was a declaration that the transfer of
28 Yeoman v Public Trust Ltd [2011] NZFLR 753 (HC).
29 Gaitz v Donovan [2022] NZHC 2107.
the property was voidable, leaving Mrs Schischka’s administrator to then bring a separate proceeding seeking consequential relief.
Further evidence and submissions
[50] At the conclusion of the hearing, it was apparent that if I rejected the plaintiffs’ argument that they have standing in their own right, then one option open to the Court would be to permit an amendment of the statement of claim to afford the plaintiffs an opportunity to bring a derivative claim, by pleading special circumstances and joining Perpetual Guardian as a party. Therefore, I allowed the parties an opportunity to adduce further evidence regarding any facts relevant to the existence of special circumstances, including any steps taken by John and Gregory during the administration of the estate by Perpetual Guardian regarding enforcement of any claim that the estate had in respect of the transfer of the property.
[51]I also directed the parties to file further submissions on two issues:
(a)whether it was possible to now join Perpetual Guardian as a party, given the purported final distribution; and
(b)whether any limitation issues would arise if an amended pleading was filed adding a derivative claim.
Discussion
[52] Ms Angus, in effect, seeks to place a significant gloss on the well-established principle confirmed in Roberts v Gill & Co, recently applied by this Court in Peterberic v Eady30 and Fruit Shippers Ltd v Petrie.31
[53] The decisions relied on by Ms Angus do not assist. In Yeoman v Public Trust Ltd,32 the central issue was whether certain assets were part of a deceased’s estate or owned by the trustees of a family trust. The plaintiff was one of the trustees of the family trust, and a beneficiary of the trust. The plaintiff commenced a proceeding in
30 Peterberic v Eady [2020] NZHC 2130.
31 Fruit Shippers Ltd v Petrie [2020] NZHC 749.
32 Yeoman v Public Trust Ltd, above n 28.
this Court seeking a declaration that the trust owned the assets. There was related estate litigation extant in the Family Court.
[54] Associate Judge Bell found that the plaintiff had standing under the Declaratory Judgments Act 1908 to seek a declaration regarding ownership of the property.33 However, the proceeding was held to be an abuse of process and stayed because it sought relief which was part of the relief sought against the same defendant in the extant Family Court proceedings.34
[55] Yeoman is distinguishable from the present case because the plaintiff was one of the trustees of the family trust claiming ownership of the property in dispute. The plaintiff’s claim was not therefore derivative.
[56] In Gaitz v Donovan,35 the plaintiff had been excluded from her father’s estate. The executors were his solicitor and his wife. Prior to his death, the father had transferred property to his wife. The plaintiff challenged the validity of the will and the inter-vivos transactions in a proceeding against the wife, on the ground of undue influence. The executors were named as defendants.
[57] The case proceeded to trial by formal proof. Lang J granted relief to the plaintiff. There was no appearance by the defendants, and the issue of the plaintiff’s standing was not raised in the judgment.
[58] Although the case is an example of a claim which is derivative in nature, it gives no guidance on the issue of special circumstances, which appear to have been assumed. The conflict between the wife’s dual interests as executor, and as recipient of the gifted property, was an obvious basis for special circumstances.
[59] Any cause of action that Mrs Schischka had against Glenn resulting from the transfer of the property vested in her administrator, Perpetual Guardian. Any claim by John and Gregory to impugn the transfer of the property is derivative, regardless of the nature of the relief sought. Limiting the relief claimed to a declaration does not
33 At [71] and [77].
34 At [78]–[79].
35 Gaitz v Donovan, above n 29.
assist, or avoid the principle clearly restated in Roberts v Gill & Co. The plaintiffs do not have standing to bring this proceeding in their own right. The proceeding cannot continue in its current form.
[60] It is common ground that Perpetual Guardian made what were considered to be final distributions in November 2021. However, those distributions did not terminate Perpetual Guardian’s role as administrator because the position is one for life;36 unless an administrator is granted an appointment of limited duration, it will never truly be functus officio.37 After final distribution, an administrator will in effect have nothing over which to exercise its power but the powers of its office nonetheless remain, even if dormant. If further assets are discovered which need to be administered, then the administrator will be called upon to exercise those powers.38
[61] Counsel for the parties agree that joining Perpetual Guardian as a defendant does not appear to raise any limitation issues.
[62] Glenn’s application for summary judgment should be resolved on the evidence and not a pleading point. The failure by John and Gregory to name Perpetual Guardian as a defendant, and to plead special circumstances justifying a derivative action, are defects that can be cured by filing an amended pleading. It would be inappropriate to enter judgment against them to thwart that amendment.
[63] However, summary judgment is appropriate if Glenn can discharge the onus on him to establish that John and Gregory’s derivative claim cannot succeed, because at trial they will be unable to establish special circumstances justifying a derivative claim.
[64] Although there is no requirement for the beneficiaries of an estate to seek the Court’s sanction before commencing a derivative proceeding, the potential for a defendant to seek a strike-out or summary judgment provides a means by which
36 Re Eagle HC Auckland, M721/97, 21 November 1997 at 8.
37 Chantal Stebbings “The fallacy of functus officio in the administration of estates” (1990) 6 Conv 427 at 427–428.
38 Stebbings, above n 37, at 428.
standing can be tested at a summary stage of the proceeding, including a consideration of whether there is an absence of special circumstances.
[65] I am cognisant of the Court of Appeal’s comment that there is no formal shift of the evidential onus to John and Gregory as plaintiffs when faced with an application for summary judgment by a defendant. However, as Elias CJ stated in Westpac Banking Corp v M M Kembla New Zealand Ltd, if the defendant supplies evidence which would satisfy the Court that a claim cannot succeed, a plaintiff will usually have to respond with credible evidence of its own.39
[66] John and Gregory, through Gregory’s appointment as an executor, could have taken steps before Gregory renounced his executorship to ensure that the estate pursued any cause of action that existed in respect of the transfer of the property.
[67] After Perpetual Guardian was appointed administrator, it was open to John and Gregory to request that the executor pursue the claim or assign the claim to them. If Perpetual Guardian refused or failed to do so, then it would have been open to John and Gregory to seek an order under the Administration Act 1969 compelling Perpetual Guardian to pursue the cause of action or to assign the cause of action to them.
[68] At the hearing there was no evidence from John or Gregory regarding their dealings with Perpetual Guardian during the administration of the estate. It appeared that neither had sought to compel Perpetual Guardian to pursue the claim, or to assign the cause of action to them.
[69] However, John has since sworn a second affidavit dated 10 July 2023, providing some limited evidence of the steps taken by him and Gregory, after their mother passed away, to pursue a remedy in respect of the transfer of the property.
[70] The evidence confirms that John and Gregory had not abandoned the issue. Perpetual Guardian prepared an “Estate Management Plan” dated 4 July 2018, which acknowledged that the transfer of the property to Glenn was an outstanding issue “yet
39 Westpac Banking Corp v M M Kembla New Zealand Ltd, above n 2, at [64].
to be resolved”. The report then noted that it was Perpetual Guardian’s understanding that external solicitors were working through the matter.
[71] John states that from March 2018 to around April 2019 the brothers were in settlement negotiations regarding the transfer of the property.
[72] On 3 April 2019, an email was sent on John’s behalf to a staff member at Perpetual Guardian, raising various issues, including the following:
While it is agreed that the Curran Street property is not an issue for the Trust, you should be aware that [John] and Greg are looking to commence legal action against Glenn for undue influence over his mother in regard to the transferring of the property into Glenn’s name when clearly she did not have capacity at the time the transfer took place.
[73] On 3 May 2019, Perpetual Guardian wrote to John but made no reference to the property. Reference was made to an earlier letter from Perpetual Guardian dated 15 April 2019, which is not in evidence.
[74] Glenn did not file an affidavit in reply, and there is no evidence from Perpetual Guardian confirming whether Perpetual Guardian took any further steps after 3 May 2019 to ascertain whether Perpetual Guardian should itself be challenging the transfer of the property.
[75] On 25 May 2022, John and Gregory’s solicitors, Morris Legal, wrote to Glenn giving notice of John and Gregory’s intention to bring this claim. Glenn instructed Shieff Angland, who responded to Morris Legal by a letter dated 20 June 2022. In that letter, Shieff Angland asserted that John and Gregory did not have standing to bring this claim.
[76] Morris Legal responded with a letter dated 15 September 2022, rejecting the assertion that John and Gregory do not have standing, stating:
… Our clients have an interest in asserting that the property forms part of the estate, which they are beneficiaries of. This is sufficient to give our clients standing to bring a claim in relation to the transfer.
[77] It appears that John and Gregory, and perhaps Perpetual Guardian, may have been operating throughout under a mistaken belief that it was open to John and Gregory to directly pursue any cause of action that existed. The file of Perpetual Guardian is not available at this stage, so it is not possible to confirm Perpetual Guardian’s position.
[78] Perpetual Guardian had a duty to investigate whether the estate should pursue a cause of action against Glenn to restore the property to the estate. It is arguable that Perpetual Guardian failed to perform that duty, even though the failure may have been excusable due to the position on standing taken by John and Gregory acting on legal advice. If so, that may amount to special circumstances.40 Further evidence is required.
[79] It is unsafe for the Court to conclude at this summary stage of the proceeding that there are no special circumstances which justify a derivative claim. I am not satisfied on the state of the evidence that a derivative claim cannot succeed because of a lack of standing. The plaintiffs should be given an opportunity to plead special circumstances and to join Perpetual Guardian as a defendant. That may raise an issue as to whether Perpetual Guardian is entitled to an indemnity from the plaintiffs for costs. It may also cause the parties to consider whether Perpetual Guardian should be the plaintiff, to prosecute the cause of action in the usual way. That is a matter for the parties.
Costs
[80] Although the defendant’s application for summary judgment has been unsuccessful, the application was justified given that the plaintiffs do not have standing to sue in their own right. The proceeding survives as a result of an exercise of the Court’s discretion to permit the plaintiffs to re-plead. Accordingly, my preliminary view is that costs should lie where they fall. I will make directions to deal with costs, should counsel be unable to agree on costs.
40 Roberts v Gill & Co, above n 18, at [46].
Result
[81]The defendant’s application for summary judgment is dismissed.
[82] Leave is granted to the plaintiffs under r 4.56 of the HCR to join Perpetual Guardian as a second defendant. If the plaintiffs wish to do so, then they shall file an amended statement of claim.
[83] The amended statement of claim shall plead the facts relied upon to establish special circumstances for a derivative claim.
[84] Any amended statement of claim shall be filed and served by 16 September 2023.
[85]The proceeding is stayed until an amended statement of claim is filed.
[86]I direct the plaintiffs to provide a copy of this judgment to Perpetual Guardian.
[87]If the parties are unable to agree on costs, then:
(a)the plaintiffs may file written submissions on costs, of no more than five pages, by 16 September 2023;
(b)the defendant may file written submissions on costs, of no more than five pages, by 23 September 2023;
(c)I will determine costs on the papers.
Associate Judge Brittain
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