Shields v Haywood
[2017] NZHC 261
•24 February 2017
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2014-404-828 [2017] NZHC 261
BETWEEN RUVE ADELE SHIELDS
Plaintiff
AND
CARLA HAYWARD First Defendant
CORBAN REVELL Second Defendant
Hearing: 14-17 February 2017 Appearances:
D A Wood for Plaintiff
First Defendant in person
M C Smith and M H A Ho for Second DefendantJudgment:
24 February 2017
JUDGMENT OF LANG J
This judgment was delivered by me on 24 February 2017 at 3.30 pm, pursuant to Rule 11.5 of the High Court Rules.
Registrar/Deputy Registrar
Date……………
SHIELDS v HAYWARD [2017] NZHC 261 [24 February 2017]
INDEX
Undue influence [7] Legal principles [7] The allegation in this case [10] Carla's involvement in the transactions [14] Mrs Shields' cognitive disorder [22] Carla’s explanations [26] Were Sarah and Mrs Shields estranged during the period leading up to July
2012? [28] The explanations given by Mrs Shields to Mr Allen [43] Conclusion [49]
Unconscionable conduct [56] Legal principles [56] The claim [58] Did Mrs Shields suffer from a disadvantage? [59] Did Carla engage in unconscionable conduct? [61]
The claim against Corban Revell [72] Failure to ensure that Mrs Shields was free from undue influence by Carla [74] Failure to ensure that Mrs Shields fully understood the nature and effect of the transactions she undertook on 9 July 2012 [75]
Result [95]
Costs [96]
[1] Mrs Ruvé Shields is 88 years of age. She suffers from a cognitive disorder in the nature of dementia, and is currently residing in a rest home.
[2] For many years up until 2014 Mrs Shields lived on a 4.4 hectare property near Kumeu in West Auckland (the property). On 9 July 2012, Mrs Shields instructed Mr Thomas Allen of the West Auckland law firm Corban Revell to form a trust called the Martha’s Vineyard Trust. Mrs Shields then transferred the property to that trust, the trustees of which were herself and her youngest daughter Carla. The discretionary and final beneficiaries of the trust were Mrs Shields, Carla and Carla’s children. The Deed of Trust did not include as beneficiaries Mrs Shields’ eldest daughter Sarah and her children. Mrs Shields also executed a new will. This provided for Carla to receive 70 per cent of her residuary estate and Sarah to receive the remaining 30 per cent.
[3] Mrs Shields appears to have changed her mind in or about August 2013. At that time Sarah became aware that her mother had done something with her property and she also believed Carla had been withdrawing money from her mother’s bank accounts. Sarah and her mother visited Corban Revell on 16 August 2013 and Sarah discovered that her mother had transferred the property to the trust the previous year. Mrs Shields had no memory of having undertaken that step. Sarah and Mrs Shields then sought advice from another firm of solicitors and ultimately instructed them to issue the present proceeding.
[4] In this proceeding Mrs Shields seeks to have the transfer of the property to the trust set aside.1 She alleges it was induced by undue influence exerted on her by Carla. Alternatively, she contends that Carla acted in an unconscionable manner by taking advantage of Mrs Shields’ disability for her own advantage.
[5] Mrs Shields also contends that Corban Revell breached duties that it owed to her. She says Mr Allen failed to exercise reasonable competence to ensure she was
1 In the statement of claim Mrs Shields also sought an order that her will be set aside. During the hearing Mr Woods confirmed that Mrs Shields had abandoned that aspect of her claim.
not acting under Carla’s influence, and to ensure she fully understood the nature and effect of the transactions that she entered into on 9 July 2012.
[6] Mrs Shields commenced this proceeding in her own right in April 2014. On
30 November 2015, the Family Court appointed Mrs Shields’ eldest daughter Sarah as Mrs Shields’ welfare guardian and property manager under the Protection of Personal and Property Rights Act 1988.2 The Family Court took that step because Mrs Shields was no longer competent to manage her own affairs and to make decisions in relation to her property. Sarah has continued this proceeding on Mrs Shields’ behalf in her capacity as Mrs Shields’ property manager.
Undue influence
Legal principles
[7] The principles relating to undue influence have developed as equity’s response to situations in which the free will of a person who enters into a transaction has been overborne or impaired by the influence of another person, usually but not always the other party to the transaction. This makes the influence undue.3
[8] In Green v Green, Winkelmann J recently summarised the principles relating to undue influence as follows:4
(a) The overall burden of proof rests on the person seeking to establish undue influence.
(b) The burden of proof is the balance of probabilities.
(c) The person asserting undue influence must show the alleged influence led to the making of the impugned transaction, and the influence was undue in the sense that the transaction was not the result of the free exercise of an independent will on the part of the person at whose expense the transaction was made.
(d) The question of whether a transaction was brought about by undue influence is a question of fact. A party can succeed in establishing this either directly by proving ‘actual undue influence’ or recourse to an evidential presumption which arises where it is established that
2 Shields v Shields [2015] NZFC 10309.
3 Green v Green [2016] NZCA 486 at [40].
4 Green v Green [2015] NZHC 1218. The Court of Appeal confirmed that the Judge’s summary
was correct: See Green v Green, above n 3, at [48].
(i) the person said to have been subject to undue influence placed trust and confidence in the other; and
(ii) the transaction called for an explanation.
…
(h) The presence of independent advice is one of many factors that may be taken into account in determining whether undue influence is proved. Whether the independent advice helps to establish that the transaction was the result of a person's free will depends on the facts of the case. Independent advice can help establish that a person understood the decision they were making. But establishing that a person fully understood the act is not the same as establishing that the act was not brought about by undue influence. A person can fully understand an act and still be subject to undue influence.
(i) Allegations of undue influence may succeed in relation to the exercise of powers not just the transfer of property.
[9] In this context it is not necessary for the person allegedly exerting undue influence to act with impropriety or in an unconscionable manner. The focus is on the mind of the person consenting to the impugned transaction rather than the motives or conduct of the person said to be exerting the pressure or influence.5
The allegation in this case
[10] Mr Wood candidly acknowledged that it is not possible for Mrs Shields to prove actual undue influence in the present case. Rather, the claim is based on the presumption that flows from the relationship between the parties, the nature of the transaction and Carla’s involvement in it.
[11] I accept that the relationship between Mrs Shields and Carla was such that Mrs Shields held trust and confidence in Carla during the months and years leading up to July 2012. The evidence establishes quite clearly that Carla and Mrs Shields were in regular contact during that period, and Mrs Shields relied on Carla for many things. Carla regularly transported her to appointments and to the bank. Mrs Shields also trusted Carla to withdraw money from her bank accounts and to attend to other aspects of her financial affairs. In such circumstances Mrs Shields clearly placed trust and confidence in Carla and to that extent was vulnerable to influence from her.
[12] I also accept that the transaction calls for an explanation. Mrs Shields went from being the sole owner of her property to having no interest in it other than as a trustee and beneficiary under the Martha’s Vineyard Trust. Furthermore, although Mrs Shields was a beneficiary of the trust, it is clear that the overall object of the exercise was to ensure that upon Mrs Shields’ death the property would pass to Carla and/or her children. The transfer of the property to the trust also effectively excluded Sarah and her children from receiving any interest in the property.
[13] Carla’s involvement in the transaction also raises the possibility of undue
influence.
Carla’s involvement in the transaction
[14] Carla telephoned the receptionist at Corban Revell on Tuesday 3 July 2012 and made an appointment for her mother to see Mr Allen at 1 pm the following day. Mr Allen is a legal executive with approximately forty years experience dealing with wills and trusts. Carla says she chose Corban Revell because of the location of their offices in West Auckland. Corban Revell had never acted for either Carla or her mother in the past.
[15] Notes made by Mr Allen later the same day suggest that he telephoned Carla on 3 July to discuss the appointment she had made. It is likely that he contacted her by using one of the two telephone numbers she had provided when she made the appointment. It also appears that the issue of a trust was discussed to some extent because Mr Allen has inserted the word “Trust” in his notes.
[16] Mr Allen says, and Carla confirms, that at the beginning of the meeting on
4 July he told Carla that he needed to obtain his instructions only from her mother. He also told Carla that she should not prompt her mother in any way, and that Mrs Shields could not look to her for guidance. Mr Allen said that Carla appeared to accept this advice, and her only contribution to the discussion occurred when it turned to the share of Mrs Shields’ estate that Sarah should receive under Mrs Shields’ will. I deal with that aspect of the discussion later in the judgment.6
[17] Mr Allen says that Mrs Shields told him she wanted to achieve two things. First, she wanted to ensure that her property would be available for Carla and Carla’s children after she had passed away. Secondly, Mrs Shields wished to prepare a new will. Mr Allen then asked Mrs Shields why she had not consulted her previous solicitor, and she told him that her previous solicitor had got her name wrong. He gained the impression that she was not satisfied with the work her previous solicitor had done.
[18] At the conclusion of the interview Mr Allen arranged for Carla and
Mrs Shields to return on 9 July 2012 to sign the documents.
[19] Carla was present when she and her mother signed the documentation on 9
July 2012. Mr Allen said that Mrs Shields again seemed to be quite independent at this meeting and did not look to, or need to be prompted by, Carla in any way.
[20] If Carla exerted undue influence over her mother, it must have begun during the period leading up to 4 July 2012. Carla acknowledged that she and her mother discussed the need to make a new will at some stage prior to 4 July, and she also said she had suggested that her mother should consider forming a trust to hold her property. This possibility is borne out by the fact that Mr Allen’s notes suggest that Carla raised the issue of a trust during her telephone discussion with Mr Allen on
3 July. On the other hand, Mr Allen said it was he who suggested forming a trust after Mrs Shields told him she wanted to ensure that Carla and her family received the benefit of her property after her death.
[21] The fact that Carla remained in the room throughout the period whilst her mother gave her instructions to Mr Allen obviously raises the prospect of undue influence. Mere presence can sometimes be sufficient to exert influence. Mr Allen endeavoured to deal with this issue by telling Carla at the beginning of the meeting that he needed to receive instructions only from Mrs Shields and he says Carla respected this request. Mr Allen also said that he did not perceive Mrs Shields to be influenced in any way by Carla’s presence. Mr Allen’s assessment of the position obviously provides a degree of comfort, but it does not exclude the possibility that Mrs Shields was acting under Carla’s influence when she gave Mr Allen her
instructions. Mr Allen had never dealt with either Mrs Shields or Carla before, and he had no way of knowing the full extent of the family dynamics. In addition, he was not aware that Mrs Shields was suffering from an underlying cognitive disorder.
Mrs Shields’ cognitive disorder
[22] Carla had noticed some unusual aspects of her mother’s behaviour by 2012, and in October 2012 Sarah received reports that her mother was getting lost whilst driving her motor vehicle. Mrs Shields was not formally assessed, however, until
20 August 2013. On that date Ms Janet Parker, an experienced gerontology nurse employed by the Waitemata District Health Board (the DHB), carried out a full assessment of Mrs Shields. This included the administration of several recognised tests designed to identify cognitive disorders. The assessment led Ms Parker to conclude that Mrs Shields was suffering from an underlying cognitive disorder of at least moderate severity. One of the principal ways in which this manifested itself was through significant short term memory loss. Another was a degree of paranoia manifested by Mrs Shields regarding her property, and in particular her beliefs that others were trying to steal from her. Carla advised her mother of Mrs Parker’s conclusions at the end of the assessment.
[23] The existence of the cognitive disorder was subsequently confirmed in testing carried out by the Bexley Clinic in December 2013. This showed that the disorder had advanced to the stage where it rendered Mrs Shields incapable of managing her own affairs.
[24] Dr John Shepherd, a consultant geriatrician employed by the DHB, gave evidence for Mrs Shields. He has had oversight of the Shields family’s interactions with the DHB since 2012. Dr Shepherd was unable to advance any firm opinion as to Mrs Shields’ mental state a year earlier because she had not been examined by DHB staff as at that date. He said, however, that Mrs Shields’ cognitive disorder would have been “many years in the making”. For that reason he said it would have been unusual for a person with Mrs Shields’ level of impairment in mid-2013 to have been functioning at a high level a year earlier. Dr Shepherd also said that the issue of Mrs Shields’ capacity to make decisions regarding her affairs was to some extent a
“red herring” for present purposes. He said that the cognitive disorder rendered Mrs Shields vulnerable to undue influence, and the extent to which this may have occurred was the real issue in the present case.
[25] Given that background, it is necessary to consider the explanations advanced
by Carla for her mother’s actions.
Carla’s explanations
[26] Carla provides two explanations for the transactions. First, Mrs Shields was aware in July 2012 that Carla was bringing up three children on her own after she had earlier separated from her husband in 2005. This presented real challenges for Carla and these were exacerbated by the fact that one of the children suffered from mental health issues. Mrs Shields had always played an important role in the lives of Carla’s children, and Carla says it is therefore not surprising that Mrs Shields wanted to ensure Carla and the children had the benefit of her property when she passed away. Secondly, Mrs Shields and Sarah had effectively been estranged for approximately five years by 2012, and had very little contact with each other during that period.
[27] There appears to be no dispute that Mrs Shields was aware of Carla’s difficult personal circumstances. Sarah does, however, challenge Carla’s assertion that she and her mother had become estranged during the period leading up to July 2012.
Were Sarah and Mrs Shields estranged during the period leading up to July 2012?
[28] Sarah and her husband currently reside on an eight hectare block of land that adjoins Mrs Shields’ property. Mrs Shields was originally the owner of that property, but Sarah and her husband purchased it in 1996. The have always grazed cattle on their property, and from time to time they have also grazed cattle on Mrs Shields’ property.
[29] Sarah and her husband lived in Australia for eight years from 1984 to 1992 but she maintained contact with her mother during that period by visiting New Zealand annually and Mrs Shields also visited Sarah in Australia on several
occasions. Sarah and her husband then lived in the Middle East for approximately
14 years between 1992 and 2006. Sarah says that she kept in touch with her mother during this period by travelling to New Zealand annually, and Mrs Shields also visited her on three occasions. Sarah also said she gave birth to her six children in New Zealand. On each of those occasions she remained in New Zealand for approximately three months.
[30] The relationship between Sarah and Mrs Shields appears to have been normal until shortly after Sarah and her husband returned to live in New Zealand in 2006. It is clear, however, that the relationship deteriorated during the six year period between 2006 and 2012.
[31] Carla says that the difficulties between Mrs Shields and Sarah began in July 2007, when Mrs Shields told her that she and Sarah had had a falling out. Carla says that contact between her sister and mother reduced significantly after this time. The relationship was strained further by an incident that occurred in relation to a boundary fence to be erected through a green belt that runs through the two properties. Issues appear to have arisen in relation to who was to pay for the cost of the fence. Mrs Shields was also upset because Sarah placed locks on the gates between the two properties. Mrs Shields felt that this was preventing her from having contact with Sarah’s children.
[32] Mrs Shields’ growing displeasure with Sarah is demonstrated by the fact that during 2008 she revoked an Enduring Power of Attorney in relation to her welfare that she had previously executed in favour of Sarah. She replaced this with an Enduring Power of Attorney in favour of Carla. She also removed Sarah as her attorney in respect of issues relating to her property.
[33] Sarah rejects the notion that she was “estranged” from her mother during this period because she considers the term to be a dramatic expression and one that is charged with emotion. She says that her relationship with her mother was primarily a practical one in which she and her mother co-existed as neighbours who had their differences but generally got on well. She considers that any deterioration in the relationship was probably caused by Carla’s influence on her mother. She also
points out that her mother could be extremely abrasive and difficult. Although Sarah said she was prepared to put up with this herself, she was not prepared to expose her family to it.
[34] Sarah acknowledges, however, that there was a “cooling off” in her relationship with her mother after she and her husband returned to live in New Zealand. She says this may have been caused in part by the fact that she was required to work long hours away from her property during this period and therefore did not have much opportunity to socialise with her mother. She was also raising her children at this time. Sarah maintains, however, that she was in reasonably regular contact with her mother because they were neighbours. As such they saw each other regularly whilst they were working on their respective properties, and she had contact with her mother regarding farming issues. In later years she reached an arrangement with her mother under which she paid rental in return for being permitted to graze cattle on Mrs Shields’ land. Sarah’s son also provided Mrs Shields with assistance on her property from time to time, and her family was called upon to assist her mother on several occasions when she locked herself out of her house.
[35] Furthermore, Sarah explains that she was required to put the locks on the gates for security reasons after she found a tree house on her property that she believed had been built by one of Carla’s children. She says that this was no physical impediment to her mother, because Mrs Shields regularly climbed gates and fences even in advanced years.
[36] That may be so, but a padlock on a gate can present to others as being far more than a physical barrier. It can also convey the message that those outside the gate are not welcome on the property inside it, and it appears that Mrs Shields took it that way. Importantly, Sarah acknowledges that these issues caused Mrs Shields to become upset, and she says she became upset herself.
[37] Although Sarah may not approve of the term, I have no doubt that by July 2012 Sarah and Mrs Shields were effectively estranged. This is confirmed by comments that Sarah made to two independent third parties between during 2012
and 2013. In or about October 2012 Sarah contacted the DHB after receiving the reports about her mother getting lost whilst driving her motor vehicle. Dr Carbonell, a doctor employed by the DHB, wrote to Mrs Shields’ doctor on 26 October 2012 regarding the concerns Sarah had expressed. The letter contained the following paragraph:
The problem is that Sera [sic] is not in contact with her mother or her sister since years [sic] and we do not know the reliability of the information she has provided, though it seems genuine enough for us to get involved.
[38] Sarah sought to explain her comments to the DHB by saying she did not want to become directly involved in issues relating to her mother’s driving habits because she knew it would inevitably cause further tension between herself and Carla. She therefore reported her concerns to the DHB but took no further steps. The relevance of Sarah’s comments for present purposes, however, is that she clearly gave the DHB the impression that she had not had any meaningful contact with her mother and sister for several years.
[39] Sarah subsequently had contact with the Bexley Clinic in or about December
2013, when that clinic was asked to assess Mrs Shields’ capacity to make decisions in relation to her affairs. A report from the clinic dated 8 December 2013 contains the following observations that were obviously based on comments Sarah had made:
Sarah and her mother have had little contact over the last five years until a few months ago, in part because of Sarah’s estrangement with Carla. Sarah’s son and her husband had done some work on Mrs Shields’ property. Sarah had recently become much more involved in her mother’s care because of her concerns around how Carla had been managing her mother’s property and finances. This has led Sarah to believe that Carla has been trying to engineer things for her own benefit rather than her mother’s wellbeing.
…
Sarah noted their mother’s cognition had deteriorated recently, although does not know over what period because she had only really had increased contact with her mother for about four or so months.
[40] The most compelling evidence, however, is to be found in a very detailed file note prepared by Mr Dail Jones, a Kumeu solicitor, whom Mrs Shields had consulted on 14 December 2011 when she wished to make a new will. This contains the following passages:
I was informed by Mrs Shields that Sarah is married to an Iraqi person. I have actually met both of them in the past. She informs me that she is having difficulty with Sarah and is in fact estranged. This is advice she gave to [PS], a lawyer with S & Partners, to whom she had earlier given instructions but he confused everything and she was very unhappy [with] his attendance.7 No actual completed instructions were given to PS from the note which I saw.
…
Locks have been put on the gate. There are clearly problems and Mrs Shields is upset that she cannot see her grandchildren, even though they are so close by. She interrupts me and tells me that she hopes that she will live long enough for the estrangement with the grandchildren to be overcome by the grandchildren themselves.
…
Mrs Shields also pointed out to me that Sarah and she had a disagreement over a green belt and the erection of a fence. Apparently Sarah said Mrs Shields was responsible and should pay and Mrs Shields resisted payment. Sarah apparently indicated she would go to see a lawyer to enforce the payment, but nothing has eventuated. It does, however, show the estrangement between Mrs Shields and Sarah.
[41] Furthermore, Mrs Shields also told Mr Allen that she and Sarah had had no contact for six years when she consulted him on 4 July 2012. A file note that Mr Allen made in relation to this discussion is set out later in this judgment.8
[42] All of these factors confirm that both Sarah and Mrs Shields were effectively estranged during the period between approximately July 2007 and August 2013. The transactions that are the subject of the present proceeding fall squarely within that period.
The explanations given by Mrs Shields to Mr Allen
[43] Carla also relies on the explanations that her mother gave to Mr Allen when she instructed him to form the trust and transfer her property to it.
[44] Mr Allen’s evidence in relation to this proposal was as follows:
7. Mrs Shields told me that she owned a property at Kauri Crescent in
Kumeu, and that she wanted to leave it to Carla and Carla’s children
7 I have anonymised the name of this lawyer for reasons that will be obvious.
8 At [48].
after her death. She explained she had another daughter, Sarah, but she wanted the house to go to Carla and Carla’s children. She said this was because Carla was in greater financial need than Sarah and one of Carla’s children had special needs. Mrs Shields also mentioned that although Sarah had lived over the back of her property, she had not had contact with Sarah for over six years.
8.I advised Mrs Shields that she had two options. First, she could leave the house to Carla and Carla’s children in her will. I explained that this might be subject to a Family Protection Act challenge by Sarah after Mrs Shields’ death. Alternatively, I said that Mrs Shields could establish a trust to hold the property with the trustees to be Mrs Shields and Carla, and Mrs Shields to have the power to appoint or remove trustees. I told Mrs Shields that the trust structure would be more flexible, as Mrs Shields could add beneficiaries during her lifetime, and Sarah would not be able to make a claim under the Family Protection Act. After I explained this, Mrs Shields nodded and said that she understood; and asked that I go ahead and set up a trust.
9.I did not consider the establishment of the trust to be imprudent in any way from Mrs Shields’ point of view. As a trustee, and holder of the power of appointment, Mrs Shields could ensure that she retained the use of the property during her lifetime. The establishment of the trust was a sensible way of making provision for Carla and her children after Mrs Shields’ death.
[45] Notes made by Mr Allen during the meeting suggest he ascertained that Mrs Shields’ property was worth $860,000 and that she had approximately $70,000 in her bank accounts. He took the value of the property from a rates demand that Mrs Shields gave him during the interview.
[46] Mr Allen also took Mrs Shields’ instructions in relation to a new will. He said she told him she wanted to leave everything to Carla. At that point Carla interjected and said Mrs Shields needed to leave Sarah something under the will. Mr Allen also told her that the courts were likely to allow disinherited children to receive between ten and 30 per cent of a deceased person’s estate. Mrs Shields then said she would leave Sarah ten per cent of her estate but Carla again intervened and said she should leave Sarah more. Mrs Shields relented and told Mr Allen that she would leave Sarah 30 per cent of her estate.
[47] Mrs Shields told Mr Allen that her reasons for preferring Carla over Sarah in her will were the same as those that had prompted her to prefer Carla under the trust.
In essence, these were that she was disappointed in the lack of contact she now had with Sarah, and Carla was in greater financial need than Sarah.
[48] At the conclusion of the meeting on 4 July 2012 Mr Allen prepared the following file note to record why Mrs Shields had decided to set up the trust and transfer her property to it:
4.7.2012
Meeting with Mrs Shields & daughter Carla. Mrs Shields instructed me to set up a Trust to hold the property at 186 Kauri Cres for her daughter Carla and her children. Wanted property transferred as a gift – told her this would disqualify her from rest home subsidy. Also instructed me to draft a will leaving 30% to Sarah and 70% to Carla.
Originally said 10% only to Sarah & changed mind after being advised that
Sarah could contest the will.
Mrs Shields said that she was leaving the house to Carla because she was in greater need than Sarah & one of her children had special needs.
Also said that although Sarah lived over the back of her property she had virtually no contact with her for 6 years.
Conclusion
[49] The fact that Carla had greater financial needs than Sarah obviously helps to explain why Mrs Shields acted as she did. The fact that Sarah and Mrs Shields were effectively estranged between 2007 and 2013 also goes a long way towards providing an alternative explanation to that of undue influence.
[50] In determining whether Mrs Shields was subject to undue influence by Carla I also attach considerable importance to comments Mrs Shields made to Mr Jones when she consulted him in December 2011. Mrs Shields instructed Mr Jones to prepare a will under which she left 65 percent of her residuary estate to Carla, 35 per cent to Sarah and the remaining ten per cent to her step daughter Deidre Bacon. Mr Jones was clearly concerned by the unequal manner in which Mrs Shields wished to distribute her assets to her daughters, and also by the fact that Carla had brought Mrs Shields to his office. In addition, Mr Jones was Carla’s solicitor at this time. In order to guard against the possibility that Carla might be exercising influence over
her mother, Mr Jones asked to Carla to wait outside whilst he spoke to her mother alone.
[51] Mr Jones then took detailed instructions from Mrs Shields in Carla’s absence. He recorded the reasons for these, as well as his observations regarding Mrs Shields’ ability to understand what she was doing, in the file note to which I have already referred.9 In addition to the passages I have already set out, the file note contained the following observations:
Sarah and her husband appear to be very well off. They have built a house on the land. They have got the little house still on the land and the husband may have interests in the Middle East. I am not aware of any such interest although I had a discussion with the husband many years ago. I remember he was from Basra and I have had family connections with the Middle East.
…
I am informed by Mrs Shields that Carla “has not got a lot – want to give her a lot more”. In addition, it will be noted from the earlier Will that Mrs Shields has a step-daughter, Deidre Camille Bacon. She had gifted the sum of $10,000.00 in the earlier Will in 1993. It appears that Deidre received nothing from her father in his estate. Mrs Shields wants to give something to Deidre as she has done previously. She has very wisely pointed out that dollar sums tend to devalue over time and she wishes to set the amount on a percentage.
In fact, she wants to set the amounts for the three beneficiaries in percentages, this is why the Will is being prepared in 100 shares. Mrs Shields immediately recognises that the 100 shares creates 100%.
…
I pointed out to Mrs Shields the provisions of the Family Protection Act and her legal obligations and her moral obligations and her moral obligations to her two daughters. She has taken the view that Sarah is already very well provided for and Carla is not as well provided for and so she wishes to prefer Carla in this Will.
For the reasons already mentioned she also wishes to acknowledge her step- daughter Deidre Camille Bacon.
The Will has been prepared on this basis as Mrs Shields wishes.
I took some consideration of Mrs Shields’ ability to make a Will and her testamentary capacity. I was satisfied that following our lengthy discussion of over an hour that she was capable of giving me proper instructions. That she had the mental strength to continue the discussion for that length of time.
9 At [40].
I was certain that she had all her mental capacity and gave me proper instructions.
We had a good discussion over the legal and moral aspects. The notes I made were made in her presence. The Will was dictated in her presence. As I have mentioned in my notes she even interrupted me at one point to clarify an issue when I was taking notes so she was fully aware of everything that was said. I could see no reason for any reference to a Medical Practitioner to confirm her mental ability and testamentary capacity to make a Will.
The interesting thing is she was very disappointed with the draft notes taken by [PS], lawyer, forwarded to her. He confused Sarah and Carla. This made Mrs Shields extremely upset and it is the reason why she came to see us again to make her Will. There is absolutely no doubt in her mind as to what she was doing and the basis on which she was doing it and the fact that she was very upset at [PS]’s inability to take proper instructions. She was even more concerned because as she mentioned to me towards the end of the appointment, Carla actually looked after [PS]’s children. He ought to have remembered who she was.
This Will was made in the presence only of myself and Mrs Shields. I made sure that Carla who brought her to our office was not in my office at the time the Will instructions were given. Carla came back into the office again after the Will instructions were completed and we merely discussed pleasantries.
It was Mrs Shields’ intention to make her gift in percentages and in considering the matter I used the phrase 100 shares and she immediately recognised that 100 shares equated to 100%. She was clearly alert and cognisant of everything that was taking place.
[52] These observations are relevant for several reasons. First, they demonstrate that in December 2011, just eight months before the events of July 2012, Mrs Shields wished to ensure that Carla was preferred over Sarah in her will. This shows a consistency of approach to the distribution of her assets. Secondly, Mrs Shields was able to clearly articulate her reasons for taking that step in circumstances where Carla was not present. Thirdly, her reasons for preferring Carla in December 2011 were broadly the same as those she gave to Mr Allen eight months later when she instructed him to form the trust and transfer her property to it. Finally, they demonstrate that Mr Jones was not left in any doubt that Mrs Shields had the necessary capacity to understand both the nature and effect of her actions.
[53] Although the nature of the transactions and the circumstances in which they occurred clearly call for an explanation, the evidence as a whole satisfies me that such an explanation exists. I consider that over the years Mrs Shields became increasingly frustrated, and ultimately embittered, by her perception that Sarah did
not want to have a meaningful relationship with her. This was no doubt the product of an incremental process, with both parties gradually withdrawing from the relationship as a result of perceived slights and differences. I suspect that Mrs Shields was particularly aggrieved by her perception that Sarah was denying her the ability to have a meaningful relationship with her grandchildren.
[54] In addition, Mrs Shields was aware that Carla was in greater financial need than Sarah. She endeavoured to meet that need by ensuring Carla would receive her property to the exclusion of Sarah. Although she may have changed her mind following the resumption of her relationship with Sarah in August 2013, this does not alter the fact that in July 2012 she wished to prefer Carla over Sarah.
[55] Finally, to the extent that Mrs Shields may have been subject to any unconscious influence by Carla, I do not consider this caused her to act as she did. Rather, I consider Mrs Shields genuinely believed that Carla needed and wanted her support whilst Sarah did not. This explains why Mrs Shields chose a method of dealing with her property that was to Carla’s benefit and to the exclusion of Sarah.
Unconscionable conduct
Legal principles
[56] The learned authors of Butler’s Equity and Trusts in New Zealand observe that the equitable principles relating to unconscionable bargains are designed to “protect those who, through poverty, infirmity, need, ignorance, or some such disadvantage, are unable to determine whether particular transactions are in their
own best interests”.10 Equity will intervene to set aside transactions where one party
knew, or ought to have known, of the other’s disadvantage and that party has “actively exploited or passively accepted, a contractual benefit or advantage from the disadvantaged party”.11
[57] Whereas undue influence focuses on the sufficiency of consent, the doctrine of unconscionable bargains is concerned with preventing advantage being taken of
10 Butler (ed) Equity and Trusts in New Zealand (2nd ed, Brookers Ltd, Wellington, 2009) at
[23.1.1].
11 At [23.1.1].
those in a position of disadvantage. All of the circumstances of the case will be relevant to the Court’s assessment as to whether the stronger party has obtained a benefit in unconscionable circumstances.12 In particular, the Court is likely to examine the respective positions of the parties, the conduct of the stronger party and the substantive fairness of the resulting transaction.13 A key factor may be the inability of the disadvantaged party to make proper judgments as to what is in his or her own best interests.14
The claim
[58] The statement of claim relies on the following factors under this head:
(a) Mrs Shields was elderly and susceptible to disentitling conduct by
Carla.
(b)Mrs Shields was suffering from at least the early stages of dementia and was unable to appreciate the meaning and purport of the transactions.
(c) Mrs Shields was thereby under a disability or disadvantage because of illness, her age, her medical and/or physical infirmity, stress and anxiety such as it was unconscionable for the transactions to be entered into.
(d)Carla knew or ought to have known that her mother was at a disadvantage and therefore knew or ought to have known that she should have declined to have taken any benefit from her mother.
(e) Instead Carla ensured the transaction would proceed by:
(i)Locating a law firm that was pliant and would undertake the transaction with little or no regard to its propriety; and/or
12 Contractors Bonding Ltd v Snee [1992] 2 NZLR 157 (CA) per Tipping J at 174.
13 Butler, above n 10, at [23.1.1].
14 Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 462.
(ii)Failing to ensure that Mrs Shields received proper and independent legal advice from a law firm that was aware of her circumstances; and/or
(iii)Taking Mrs Shields to Corban Revell and remaining present whilst instructions were given and the relevant documents were executed.
Did Mrs Shields suffer from a disadvantage?
[59] Mrs Shields was 83 years of age in July 2012. As such she could obviously be described as elderly, but this fact alone would not be sufficient to establish disadvantage. Many persons of that age are still well equipped to look after their own interests, and this appears to have been true of Mrs Shields. The evidence as a whole paints a picture of a person having very strong views and opinions. She was also undoubtedly difficult to deal with on occasions.
[60] As I have already observed, however, it is also likely that Mrs Shields was affected to some degree by her cognitive disorder in July 2012, and this may have left her vulnerable to some extent to exploitation by others. In that sense I accept she could properly be described as a disadvantaged party. However, the file note prepared by Mr Jones in December 2011 suggests that she was fully aware of what
she was doing at that stage and the reasons why she was doing it.15 Mr Allen’s
evidence regarding his dealings with Mrs Shields eight months later is to similar effect.
Did Carla engage in unconscionable conduct?
[61] I consider the answer to Mrs Shields’ claim under this head is to be found in an analysis of the substantive fairness of the transaction.
[62] Although Mrs Shields transferred ownership of her property to the trust with immediate effect, she retained the right to remain living on it and to receive any
15 Set out above at [40] and [51].
income derived from it. Those rights flowed from a resolution passed by the trustees
of the Martha’s Vineyard Trust on 9 July 2012. This was in the following terms:
3.That the Trust allow Ruve Adele Shields to continue to reside on the property and to collect all rental income arising from that property on condition that she make payment of all rates, insurance and other charges assessed on the property while she remains in occupation.
[63] Mrs Shields is currently meeting her rest home fees from rental income that she derives from the property.
[64] In addition, the Deed of Trust gave Mrs Shields the power to remove existing trustees and to appoint new trustees. She also had the power to remove and add classes of beneficiaries. Furthermore, the trustees had an unfettered power to apply the income and capital of the trust for the benefit of the discretionary beneficiaries, and to re-settle the trust on any one of the discretionary beneficiaries to the exclusion of the others.
[65] The position would obviously have been different if the transaction had deprived Mrs Shields of the ownership of her home with no corresponding benefit to her. That was not the overall effect of this particular transaction, however, because it enabled Mrs Shields to retain the practical benefit of the property whilst ensuring that it would be available to Carla and her children upon her death. The arrangement also prevented Sarah and her family from obtaining any interest in it.
[66] Although Sarah might consider this to be an unfair outcome from her perspective, it was what Mrs Shields wanted at that particular time for the reasons I have already set out. Furthermore, the transfer of the property to the trust meant that Sarah could not challenge the disposition under the Family Protection Act 1983 because the property would not form part of Mrs Shields’ estate on her death. Any risk that her co-trustee might prove to be uncooperative or hostile was also satisfactorily met by the power vested in her under the Deed of Trust to remove and appoint trustees and beneficiaries.
[67] When the overall effect of the transaction is viewed in this light, it can be seen that Mrs Shields achieved her short and long term objectives whilst Carla
obtained no immediate benefit. All that Carla gained was the status of trustee and beneficiary, both of which Mrs Shields could remove at any time. The arrangement was therefore in substance a fair transaction from Mrs Shields’ perspective.
[68] Mrs Shields’ allegations relating to the choice of law firm and lack of independent advice are not sustained on the evidence. Mr Wood opened for the plaintiff on the basis that Carla had chosen Corban Revell after she had approached three other law firms and they declined to act for Mrs Shields in relation to the transaction. Sarah said in evidence that her mother had told her this, but Carla denied having approached any other firms and said she chose Corban Revell purely because of that firm’s location.
[69] There is no other evidence to suggest Carla approached any other law firms in relation to the proposed transaction. Mrs Shields had, however, earlier sought advice in relation to her will from two other solicitors, namely Mr Jones and PS. I consider the most probable explanation for Mrs Shields telling Sarah that Carla had approached other solicitors to be that Mrs Shields was confused about the circumstances in which she had approached other solicitors earlier about a new will herself.
[70] Furthermore, Corban Revell was in all material respects an independent law firm. The firm had never acted for any of the Shields family in the past, and for that reason was not placed in a position of conflict by acting for Mrs Shields in relation to the proposed transactions.
[71] For these reasons I do not accept that the transfer of the property to the trust was a transaction by a disadvantaged party whose interests require the intervention of the Court in its equitable jurisdiction. The claim under the second head fails as a result.
The claim against Corban Revell
[72] As summarised above, Mrs Shields advances her claim of negligence against Corban Revell on two bases. First, she alleges that Corban Revell breached a duty to exercise proper skill and competence to ensure that Mrs Shields’ instructions were
not given as a result of undue influence or unconscionable conduct by Carla. Secondly, Mrs Shields contends that Corban Revell breached a duty to ensure she fully understood the nature and effect of the transactions at the time she undertook them. Mrs Shields does not allege that Corban Revell provided advice that was incorrect or misleading in any way.
[73] Corban Revell accepts that it owed both these duties to Mrs Shields, but contends that it breached neither.
Failure to ensure that Mrs Shields was free from undue influence by Carla
[74] I have already found that Mrs Shields has failed to establish her claims based on undue influence and unconscionable conduct by Carla. It follows that the first alleged breach of duty by Corban Revell cannot succeed as a matter of fact.
Failure to ensure that Mrs Shields fully understood the nature and effect of the transactions she undertook on 9 July 2012
[75] This cause of action derives its impetus largely from events that occurred in
August 2013.
[76] On 16 August 2013 Mrs Shields and Sarah visited Mr Allen. By this stage Sarah appears to have repaired her relationship with her mother. That may have been driven, as Carla believes, by Mrs Shields’ reaction to the fact that Carla had told her mother that she was suffering from dementia after her assessment by Ms Parker a few days earlier.
[77] Mr Allen’s recollection of this meeting is that Mrs Shields was much more subdued than she had been in July 2012, and Sarah did most of the talking. In a file note written after the meeting Mr Allen recorded the subjects discussed at the meeting in the following way:
16/8/2013
Meeting with Ruve Shields & her daughter Sarah
Mrs Shields was concerned that her daughter Carla might remove her from
the house owned by the Martha’s Vineyard Trust.
I assured Mrs Shields that she had the right to remain in the house & to receive the income from it. Also advised her that if she did not want Carla as Trustee she had the power to remove her.
Sarah requested copies of the Trust Deed & her mother’s will. These were provided with Mrs Shields’ consent.
No discussion or comment was made regarding the Trust or the will. TA
[78] This file note does not fit with Sarah’s evidence that she and her mother sought to have Mr Allen explain what had occurred the previous year. What is clear, however, is that Mr Allen acceded to a request by Sarah for a copy of the Deed of Trust. Sarah and Mrs Shields then consulted the law firm Davenports West later the same day. A few days later they spoke to Mr John McIntosh, a consultant with that firm. Mr McIntosh understood from his discussions with Mrs Shields that she did not recall the transfer of the property to the trust and now wanted to treat both her daughters equally.
[79] Mrs Shields’ presentation during this meeting obviously did not alert Mr McIntosh to the fact that she was suffering from a cognitive disorder. This is notwithstanding the fact that her assessment by Ms Parker that led to the report dated
22 August 2013 had occurred just a week earlier. Mr McIntosh immediately prepared several documents on Mrs Shields’ instructions, including a Deed appointing Sarah as an additional trustee of the Martha’s Vineyard Trust and a further Deed adding Sarah and her children as beneficiaries of the trust. He arranged for Sarah and Mrs Shields to sign the former, but not the latter. He subsequently concluded that there may be issues relating to Mrs Shields’ mental state, and it appears that these transactions and the preparation of a new will were not taken any further.
[80] The events that occurred in August 2013 obviously form a necessary part of the narrative, but they do not assist in determining whether Mr Allen failed to exercise reasonable competence in ensuring that Mrs Shields fully understood the nature and effect of the transactions that occurred in July 2012.
[81] Furthermore, although it appears that Mrs Shields did not remember having transferred the property to the trust when she and Sarah consulted Mr Allen and Mr McIntosh in August 2013, that fact is hardly surprising. The report written by Ms Parker on 22 August 2013 confirms that Mrs Shields’ cognitive disorder had by that stage progressed to the point where it was significantly impacting on her short term memory. I therefore place very little weight on the fact that Mrs Shields did not recall the transactions when she and Sarah met with Mr Allen and Mr McIntosh in August 2013.
[82] The issue of whether Mrs Shields fully understood the nature and effect of the transactions must realistically be assessed against the background of what happened when she and Carla met with Mr Allen on 4 and 9 July 2012.
[83] Mr Allen said he explained the nature and effect of the transfer of the property to the trust fully with Mrs Shields at the meeting on 4 July, and she appeared to understand what he was saying. She then instructed him to prepare the documents necessary to implement the formation of the trust and the transfer of the property to it. Carla is less certain about what was said at the meeting, but agrees that Mr Allen explained the concept of a trust fully to her mother and she appeared to understand what he was telling her.
[84] Mr Allen’s time records show that he spent an hour with Mrs Shields and Carla on 4 July 2012. I agree with Mr Eades, an extremely experienced property solicitor who gave evidence on behalf of Corban Revell, that this was ample time within which to discuss the matters that needed to be covered with Mrs Shields at the initial meeting.
[85] Furthermore, Mr Wood accepted in his closing submissions that there would have been nothing at the meeting on 4 July to alert Mr Allen to the fact that Mrs Shields may have been in the early stages of a significant cognitive disorder. Rather, she appears to have presented to Mr Allen in much the same way as she presented to Mr Jones when he took instructions from her eight months earlier.
[86] For that reason I do not accept the submission for Mrs Shields that Mr Allen ought to have committed his advice to writing following the meeting on 4 July. That may have been appropriate if Mr Allen was concerned that Mrs Shields might not understand the proposed transactions, or if it was going to be some time before they were put into effect. It may also have been appropriate if Mrs Shields had indicated she wished to discuss the proposal with others before making a final decision. However, none of those scenarios emerged at the meeting on 4 July. Both Carla and Mr Allen considered that Mrs Shields understood what Mr Allen was telling her, and she gave him firm instructions to prepare the necessary documentation. An appointment was also made for Mrs Shields and Carla to sign the documents in just five days time. There was therefore no reason for Mr Allen to put Mrs Shields to the extra expense of having him write to her to outline what he had just told her.
[87] Mr Wood also suggested to Mr Allen that he ought to have uplifted Mrs Shields’ files from other solicitors she had instructed in the past. This would have enabled him to gain a better understanding of the background against which Mrs Shields was providing him with instructions. Mr Allen said he did not consider this to be necessary because Mrs Shields was providing him with clear instructions and he was able to implement these without obtaining her files from other solicitors. Mr Eades said there was no invariable requirement for a solicitor in Mr Allen’s position to take that step. Whether or not it was prudent to do so was ultimately a matter of judgment for Mr Allen, and this was likely to be informed by the nature of the instructions he was receiving from Mrs Shields.
[88] I accept that some solicitors may have considered it prudent to uplift Mrs Shields’ files from her former solicitors, if only to ensure that all documents were held in one place. The fact that Mrs Shields was expressing a desire to prefer one daughter over another may also have prompted some solicitors to check earlier dispositions in order to see whether these were at variance with her current instructions.
[89] I also accept, however, that it was ultimately a matter of judgment for Mr Allen to decide whether to take that step. His decision not to uplift the files did not result in his conduct falling below that of a competent solicitor because I accept
his evidence that Mrs Shields was firm in her instructions, and he did not need to have recourse to earlier transactions in order to understand or implement them. It also needs to be remembered that, had Mr Allen obtained Mrs Shields’ file from Mr Jones, he would have seen that Mrs Shields had also preferred Carla, and for largely the same reasons, in the will she executed in December 2011. The earlier will would therefore have provided Mr Allen with confirmation that Mrs Shields’ current instructions were largely consistent with those she had given another solicitor eight months earlier. For these reasons there is nothing in this point.
[90] The meeting on 9 July 2012 lasted for 90 minutes. Mr Allen says that Mrs Shields presented lucidly and spoke normally during this meeting just as she had on the previous occasion. Carla agrees that Mr Allen went through the documents and explained their effect before she and her mother signed them. That seems likely given the duration of the meeting. Again I agree with Mr Eades that a meeting of 90 minutes duration was more than sufficient to ensure that Mrs Shields and Carla fully understood the meaning and effect of the documents they were being asked to sign.
[91] Mr Wood suggested to Mr Allen and Mr Eades that Mr Allen ought to have followed up the meeting on 9 July 2012 with a reporting letter to Mrs Shields summarising the transactions she had undertaken. Mr Allen responded to this by pointing out that he had followed his usual practice of giving the client a copy of the Deed of Trust to take home at the end of the meeting, and he also wrote to her the following day to confirm that the transfer of the property to the trustees had been completed. He enclosed a search copy of the certificate of title with that letter to enable Mrs Shields to see that this had occurred. Mr Eades said that some lawyers might send a full reporting letter as a public relations exercise, but he considered Mr Allen had fulfilled his duty to Mrs Shields if she understood what he had told her at the time she signed the documents.
[92] I agree with Mr Eades. The fact that Mr Allen did not send Mrs Shields a more comprehensive reporting letter on 10 July 2012 is of little moment. If Mrs Shields understood what Mr Allen was telling her on 9 July, there was little point in repeating that advice one day later.
[93] I accept the evidence given by Carla and Mr Allen regarding their impression
of Mrs Shields’ level of comprehension during the discussions that occurred on 4 and
9 July 2012. That evidence, and the evidence as a whole, does not support Mrs Shields’ claim that she failed to fully understand what Mr Allen was telling her. Rather, it confirms that she did. The complicating factor in the present case has arisen from the fact that Mrs Shields’ developing cognitive disorder meant she could not remember the transactions 13 months later when she restored her relations with Sarah.
[94] It follows that the second limb of Mrs Shields’ claim against Corban Revell
fails as well.
Result
[95] The claims against both defendants are dismissed.
Costs
[96] The defendants have succeeded and are entitled to costs. Carla would only be entitled to costs for those steps taken whilst she was represented by counsel.
[97] If counsel cannot reach agreement regarding costs within 21 days, the defendants should file concise memoranda (no more than five pages in length) setting out the costs that they seek. Mr Wood will then have 14 days within which to respond on behalf of Mrs Shields. I will then determine the issue on the basis of the
memoranda filed.
Lang J
Solicitors:
Davenports West, Waitakere
Counsel:
D A Wood, Auckland
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