Simpson v Walker HC Auckland CIV 2008-404-7381
[2010] NZHC 1322
•2 August 2010
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2008-404-7381
UNDER the Family Protection Act 1955
BETWEEN DIANE MARGARET SIMPSON AND PAMELA RAE BRIGHOUSE
Plaintiffs
AND ALAN JOHNSON WALKER, DIANE MARGARET SIMPSON, PAMELA RAE BRIGHOUSE, COLIN ALAN WALKER AND SHAUN LEA BELLAMY
First Defendants
AND COLIN ALAN WALKER Second Defendant
AND ALAN JOHNSON WALKER Third Defendant
AND SHAUN LEA BELLAMY Fourth Defendant
AND SHAUN LEA BELLAMY, KEVIN JOHN SHARKEY AND PETER FRANCIS AITKEN AND KERRY REDMOND STACE
Fifth Defendants
Hearing: 14, 15, 16, 17, 18, 21, 22, 24 and 25 June 2010
Appearances: Deborah Hollings QC and Suzanne Robertson for Plaintiffs
Philip Grace and Asta Henderson for Second Defendant
Nicholas Till QC, Michael Robertson and Helen Twomey for Fourth and
Fifth Defendants
Richard Hawk and Catherine Lintott for James Walker, the Litigation
Guardian of Alan Johnson Walker
Judgment: 2 August 2010
JUDGMENT OF HARRISON J
In accordance with R11.5 I direct that the Registrar endorse this judgment with the delivery time of
10:00 am on 2 August 2010
SOLICITORS
Glaister Ennor (Auckland) for Plaintiffs
Rice Craig (Papakura) for Second Defendant
Shieff Angland (Auckland) for Fourth and Fifth Defendants
COUNSEL
Deborah Hollings QC; Nicholas Till QC; Philip Grace; Catherine Lintott
SIMPSON & BRIGHOUSE V WALKER, SIMPSON, BRIGHOUSE, WALKER & BELLAMY AND ORS HC AK CIV-2008-404-7381 2 August 2010
CONTENTS
Introduction ......................................................................................................................... [1] Claims, Defences, Counterclaims and Cross-Claims ..................................................... [11] Background
(1) Farm ....................................................................................................................... [21]
(2) Wills........................................................................................................................ [36]
Family Arrangements
(1) First Deed............................................................................................................... [52]
(2) Second Deed........................................................................................................... [68]
(3) Third Deed ............................................................................................................. [78] Subsequent Events .......................................................................................................... [101] Nola's Estate .................................................................................................................... [110]
(1) Second Deed
(a) Incapacity ..................................................................................................... [113]
(b) Colin's Fiduciary Duty ................................................................................. [122]
(2) Third Deed ........................................................................................................... [126]
Mr Bellamy ...................................................................................................................... [136] (1) Family Protection Act .......................................................................................... [141] (a) Legal Advice ................................................................................................. [144]
(b) Claim ............................................................................................................ [148] (2) Fonterra Shares ................................................................................................... [165] (3) Wasted Costs ........................................................................................................ [175]
Result................................................................................................................................ [178]
Introduction
[1] This case is sad and complex.
[2] The three adult children of loved and loving parents are in dispute about their respective entitlements to their parents' estates. The two older sisters are on one side. Their younger brother, who has inherited the family farm, is on the other side.
[3] Alan and Nola Walker owned in equal shares a dairy farm at Waiuku. They had three children - Diane, Pamela and Colin. Nola's will provided that upon her death Alan would, if he survived her, enjoy a life interest in her estate. She appointed Alan, their three children and the family solicitor, Mr Shaun Bellamy, as trustees. Alan's will was in substantially similar or mirror terms. In combination their wills provided that upon the survivor's death the family farm would pass to Colin, and their other assets, which were not insubstantial, would pass to Diane and Pamela.
[4] Nola died in 1999. Alan was, to his children's knowledge, then suffering from dementia, probably Alzheimer's. Over the next three years Alan and the children entered into three successive deeds of family arrangement prepared by Mr Bellamy. The first was exclusively to Diane and Pamela's benefit; the second was exclusively to Colin's benefit; and the third benefited all three. Colin was the primary beneficiary in value because he progressively acquired Nola's and then Alan's equal shares in the farm.
[5] The deeds had two principal effects. One was to distribute Nola's estate and substantially distribute Alan's assets, even though he was still alive and impaired. The other was to terminate Alan's life interest in Nola's estate. In 1999 Alan was, according to Pamela, in a strong financial position. Today, as a result of the three deeds, Alan has little property and no source of income. He is in his late 80s and living in a rest home. He depends on Colin's goodwill to pay the costs of his care. Diane and Pamela refuse to contribute.
[6] Colin recently sold the family farm together with his own adjoining farm as one unit for $5.5m net. Just over half of the sale price is attributable to the family farm. Colin and his wife then purchased another farm in the Waikato for $6.37m. Following completion of those transactions, Diane and Pamela applied to this Court to bring proceedings out of time against Nola's estate under the Family Protection Act 1955 (the FPA). Also, they have applied to set aside the second and third deeds of family arrangement, but not the first, and a range of other relief. Their objective is to claw back a substantial part of Nola's estate and Alan's assets, represented by much of the equity in Colin and Elaine's farm.
[7] Diane and Pamela claim separately but in parallel against Mr Bellamy, alleging the existence and breach of numerous duties. He acted for all participants in the transactions. He also participated himself as trustee of Nola's estate.
[8] The passage of time, intermingling of assets and alterations of position compound the complexities of this case. A flowchart of the possible remedies produced by Ms Deborah Hollings QC, counsel for Diane and Pamela, served to illustrate the difficulties. By the close of trial both Mr Philip Grace, Colin's counsel, and, to a lesser extent, Ms Hollings, were appealing for a result which reflects equitable remedies in their broadest and most practical sense. That approach has its attractions. But it raises the spectre of an appellate Court seeing the equities differently. In the event I am satisfied that I am able to decide the case in accordance with orthodox principles.
[9] Mr James Walker, Alan's litigation guardian, is represented by counsel, Mr Richard Hawk and Ms Catherine Lintott. James has limited funds available and did not participate at trial. He does wish to adopt a partisan position but I have reserved leave to him to take further steps upon delivery of this judgment.
[10] A brief summary of the claims, defences, counterclaims and cross-claims will provide some insight into the legal complexities before the evidence is examined.
Claims, Defences, Counterclaims and Cross-Claims
[11] Diane and Pamela have pleaded a number of claims.
[12] First, they sue themselves, Alan, Colin and Mr Bellamy as trustees in Nola's estate. They apply for leave to bring proceedings out of time under the FPA. They allege that Nola breached her moral duty to make adequate provision for their proper maintenance and support. Both acknowledge, however, that it was always their parents' intention that Colin would inherit the family farm.
[13] Second, they sue Colin alone for breach of fiduciary duty when entering into second and third deeds, alleging an imbalance of strength in their relationship and the abuse of trust and confidence. They seek remedies including an order setting aside the second deed, a range of declarations and orders for payment of moneys.
[14] Third, they sue Alan and Colin, apparently in relation to Alan's estate, on the ground that Alan did not have the necessary legal capacity when entering into the second and third deeds. They seek to set aside the deeds and an order removing Alan as Nola's trustee.
[15] Colin denies his sisters' allegations. He pleads a range of affirmative defences including estoppel by conduct, laches and affirmation. He pleads that Nola's estate has finally been distributed. He raises a right of cross-claim against his parents' estates under the Testamentary Promises Act 1949 in answer to his sisters' FPA claims. He asserts that Diane and Pamela do not have standing to apply to set aside the second and third deeds. He says that result would be inequitable in any event. He also counterclaims for orders setting aside the first deed if the second and third deeds are set aside.
[16] Fourth, Diane and Pamela sue Mr Bellamy for breaches of contractual and tortious duties of care and, most significantly, for breach of fiduciary duties. They seek very substantial damages.
[17] While Mr Bellamy denies that he owed legally enforceable duties to Diane and Pamela, the existence of duties to all family members and of Mr Bellamy's multiple breaches, principally of duties owed to Alan, became progressively apparent during trial. Initially Mr Bellamy raised every conceivable affirmative defence known in law, regardless of its arguability or merit. However, by closing Mr Bellamy's primary lines of defence as advanced by his counsel, Mr Nicholas Till QC, had retreated to denials that the relevant duties were of a fiduciary nature or that the breaches caused loss, coupled with two affirmative defences of contribution and limitation.
[18] Colin cross-claims against Mr Bellamy in the event that he is found liable to his sisters.
[19] Briefs of evidence were tendered by many witnesses on both sides. However, there is little dispute about the material facts which are largely verified by a comprehensive and reliable documentary record. Viva voce evidence was restricted to the parties themselves, Mr Victor Hareb, the family accountant; Mr Gary McLaughlin, an expert accountant; Dr Pamela Melding and Dr Jane Casey, specialists in old age psychiatry; Mr Brian Otto, an orthopaedic surgeon; and Ms Valerie Baxter, a family friend.
[20] The parties devoted a good deal of evidence and argument to establishing comparative values of family assets and relative financial positions at various points along the chronological spectrum from 1999 to 2009. Some assessments were distorted or artificial. The apparent purpose was to prove or disprove disparities in distribution, depending upon the particular party's perspective. However, the legal and factual issues ultimately arising for determination do not require findings on those competing contentions.
Background
(1) Farm
[21] The Walker dairy farm at Morley Road, Waiuku had been in family ownership since 1926. Alan was one of two brothers who inherited a share and bought out a sister's share. Alan ran his farm throughout his working life.
[22] Alan and Nola were married in 1945. Diane was born in March 1948; Pamela, in September 1950; and Colin, in August 1953. All three were raised on the farm.
[23] In 1969 Alan and Nola formed Walker Farms (Glenbrook) Ltd (WFGL) with a share capital of 10,000 shares. Alan held 5,000 "A" or voting shares; Nola held
5,000 "B" or non-voting shares. Over the next 10 years the company acquired a number of blocks of neighbouring farmland, almost trebling the size of the original farm.
[24] In due course the two older girls left school and worked locally. Diane and her former husband were the first sharemilkers on the farm. They operated under a sharemilking agreement between 1968 and 1978 on a 71%/29% share. They later bought a farm at Awhitu.
[25] Alan proposed that Colin join him as a sharemilker after he left college in the
6th form. Colin worked on the family farm and elsewhere in New Zealand and Australia between 1972 and 1976 before attending Massey University. He graduated with a Diploma of Agriculture in July 1977. Colin met his wife, Elaine, at Massey. They later had two sons.
[26] Colin started work on the family farm as a sharemilker in June 1979 on an agreed 71%/29% profit share. Colin and Elaine lived there throughout. The sharemilking arrangement was, Colin says, a trial to determine whether he was suitable to run the farm. Alan was then aged 55 years and wanting to withdraw gradually from running the farm.
[27] In 1983 Colin and his parents entered into a new sharemilking agreement. Consistently with a common intention that he should assume a larger role in the farming operation, they changed the shares to a 50/50 division. All were conscious that this was a significant commitment. As part of the arrangement, Colin and Elaine agreed to buy, first, Alan and Nola's 175 milking cows at $75 per head for $13,125 and, second, their tractor and all farm equipment for an agreed value of $34,000. The total purchase price of $47,125 was paid from cash savings of $35,000 and the balance with a Rural Bank loan.
[28] I accept Colin's evidence that this new agreement was beneficial to his parents. Alan was close to retirement. The arrangement allowed him to step back but remain involved to the extent and level that he wished. Apart from receiving a capital payment for the sale of the herd and machinery, Alan and Nola were also entitled to 50% of the farm profits while Colin and Elaine assumed full responsibility for the farm's operation.
[29] A series of related transactions followed. In the result Colin and Elaine acquired their own farm with assistance from Alan and Nola. WFGL and Alan had earlier purchased an adjoining farm known as the Collie block, expanding the family farm's size to about 113 hectares. On 23 October 1984 WFGL entered into an agreement to sell to Colin and Elaine an area of 55.6 hectares including the Collie block for $416,000. Colin and Elaine were to pay cash of $150,000 by raising a Rural Bank loan. The balance of the purchase price was to be advanced by WFGL on demand at an interest rate of 7%.
[30] The purchase price was eventually restructured. Colin and Elaine paid a cash deposit of $10,000. A further $120,000 was raised from the Rural Bank and secured by first mortgage at an interest rate of 7.5% per annum. The balance, being loans from Alan and Nola of $286,000, was secured by second and third mortgages respectively of $200,000 and $86,000 at interest rates of 10% and 7%. By then Colin and Elaine's annual debt servicing obligations were $42,000.
[31] The Valuation Department reassessed the sale from WFGL to Colin and
Elaine as being at an under value. The re-valued price was $563,000. Alan and
Nola loaned the differential of $147,000 ($563,000 - $416,000) back to Colin and Elaine. Otherwise, if written off, the additional sum would have attracted gift duty. On 19 August 1986 the parties entered a formal deed of acknowledgement of debt. The amount recorded was $114,000, not $147,000, and the variation was unexplained.
[32] As a result of these transactions, a balance of 66 hectares remained as the
Walker family farm.
[33] In accordance with the agreement for sale and purchase, WFGL subdivided off into the joint ownership of Alan and Nola an area of up to two hectares on which the family home was situated.
[34] Colin and Elaine acquired their farm during a period of upheaval in the agricultural economy. The abolition of farm subsidies in 1985 had a short-term adverse effect on values and income. Colin and Elaine were later forced to restructure their Rural Bank loans. By September 1987 they were paying interest rates of between 11 and 13.5% per annum. The bank discounted the principal then owing from $162,000 to $120,000 but increased the rate of interest to 17.5%.
[35] As part of the restructuring, the Rural Bank required Alan and Nola to reduce interest obligations on Colin and Elaine's loans. The rates dropped from 10% to 8% on the second mortgage of $200,000 and from 7.5% to 0% on the third mortgage of
$86,000. However, Colin and Elaine agreed informally to pay Alan and Nola a
$10,000 differential for the interest income reduction from $26,000 to $16,000. This sum was to be treated also as a reduction on the debt forgiven of $147,000.
(2) Wills
[36] In June 1986 Alan and Nola signed mirror wills. The material provisions were identical. Alan and Nola each gave all his or her property to their trustees upon trust with a life tenancy to the surviving spouse. All his or her land and shares in WFGL were given on trust to the trustees for Colin's benefit upon the survivor's death.
[37] The residue of Alan and Nolas' assets was given to the trustees for the equal benefit of Diane and Pamela. Included in the residue was the jointly owned family home, subject to an option to Colin to purchase within two years or the date of death of the surviving spouse, whichever was the latest. Colin was to pay five-sevenths and Diane and Pamela one-seventh each of any duties.
[38] A letter from Mr Hareb sent on 30 November 1993 provided a summary of what Alan and Nola understood was the then current aggregate value of their estates:
(1) Shares (Nola) - $250,000.
(2) Bank term deposits - $200,000
(3) Farm (owned by WFGL) - $526,000 (GV) (4) Colin and Elaine's debt - $286,000
(5) Colin's debt to Alan - $71,000 (6) Homestead - $173,000 (GV) (7) Life insurances - $72,000
Total - $1,578,000
[39] This summary omitted a valuation of the couple's NZ Dairy Co-Operative
Company, later Fonterra, shares.
[40] According to a calculation undertaken by Mr Bellamy at trial, the effect of the Walkers' joint wills was that $883,000 or 56% of this 1993 assessment of
$1,578,000 was to pass ultimately to Colin. Diane and Pamela were to receive the balance of $695,000 or 44%, divided into $347,500 or 22% each. Mr Bellamy's assessment was based upon the farm's then current improved land value of $526,000, but did not take account of WFGL's indebtedness including moneys owing on current account to the Walkers. Allowing for these contingencies, Mr Bellamy considered that under Nola's will:
(1) Diane and Pamela would inherit Nola's non WFGL shares worth
$250,000, the bank deposit of $200,000, and the proceeds of any life insurance; and
(2)Colin would inherit his mother's shares in WFGL worth $250,000 (slightly over 50% of the farm's value of $526,000) with his indebtedness of $143,000 (50% of a total of $286,000) being forgiven.
[41] Mr Hareb's letter dated 30 November 1993 was apparently prepared for estate planning purposes. Both Alan and Nola had instructed Mr Hareb that they wished to take all possible steps to preserve and protect the interests of all three children. On Mr Hareb's advice, Nola formed the NJ Walker Family Trust into which she transferred funds she had inherited. It was designed principally to benefit Diane and Pamela. Nola's assets were not to be intermingled with other assets, or their value diminished or passed on elsewhere.
[42] On 15 May 1995 Mr Bellamy noted that Alan and Nola had been gifting off annually the balance owed by Colin and Elaine. On 8 November 1995 Alan and Nola made new identical wills. The forms were simplified but the material terms remained the same.
[43] In December 1997 Alan was diagnosed with dementia. It is common ground that the family never disclosed this diagnosis to either Mr Bellamy or Mr Hareb. I am not satisfied that this omission was deliberate. A letter from Dr John Strachan to Mr Walker's general practitioner dated 19 December 1997 is instructive. He referred to a consultation with Alan and Nola on 11 December. Alan was then 73 years old. Dr Strachan reported Nola's comment that the family had noted a deterioration in Alan's short-term memory and had been "onto me about it".
[44] Dr Strachan reported as follows:
[Alan's] speech was a little hesitant and there was evidence of mild confabulation and some word finding difficulty. On cognitive testing he was disorientated to the month and year but knew the day. He was well orientated in place. His concentration was impaired. His short-term memory was markedly impaired and despite rehearsing three items on four occasions he was still unable to name any of them. Despite that he did know
that Jenny Shipley had recently become the Prime Minister. He was unable to recall recent world events. On testing verbal fluency he was significantly impaired and had difficulty in set shifting. This suggests a degree of frontal lobe impairment. His MMSE was 21/30.
[45] Dr Strachan concluded:
[Alan] has significant dementia probably of Alzheimer type. When discussing this with [Nola] I stated that I could not be certain of the type as it could well be micro-vascular. I explained I did not think there was any reversible component but that there were medications becoming available intermittently that claimed to delay the progression…
[46] In 1998 Nola was diagnosed with cancer. Her health gradually deteriorated. All the family met with Messrs Hareb and Bellamy on 4 May 1999. In a letter reporting on the meeting to Alan and Nola dated 6 May Mr Bellamy made these three recommendations:
(1)Alan and Nola should each forgive a credit balance of $170,000 showing in WFGL's current account to 31 May 1998, which was jointly owned by Alan and Nola but would pass to the survivor on death;
(2)Ownership of the debt owed by Colin and Elaine jointly to Alan and Nola should be divided equally. Mr Bellamy noted Alan and Nola's intention that the debt be forgiven. Accordingly, he advised that the mortgages should be varied so Alan and Nola each owned 50% of the debt; and
(3)Alan and Nola should transfer all their shares in WFGL to Colin, who would sign an acknowledgement of debt which was to be forgiven in their wills.
[47] Certain steps were taken in accordance with this advice. On 25 May 1999
Alan and Nola transferred joint ownership of Colin and Elaine's loan to themselves as tenants in common in equal shares. On the same day Alan signed an enduring power of attorney. Diane and Colin were appointed severally in relation to his property. Pamela alone was appointed in relation to his personal care and welfare.
As Mr Bellamy confirmed, it was unnecessary for Nola to appoint attorneys given that she was near death. I record that none of the children have purported to exercise the powers as Alan's attorneys.
[48] On 4 June 1999 Alan and Nola signed codicils which, first, bequeathed to Colin all monies then owed by WFGL to each of them and, second, declared that Colin and Elaine's indebtedness was to them as tenants in common in equal shares. The immediate effect of Nola's codicil was that on her death later in June 1999 her estate forgave Colin's indebtedness of $143,000.
[49] At the date of Nola's death Diane had two adult sons aged 26 and 29 years. She was divorced and lived alone in her own house in Racecourse Road, Waiuku, which was worth about $175,000. She had no other significant assets. She was employed on an annual income of $35,000.
[50] Pamela, who had trained as a hairdresser, was married and a fulltime mother. She and her husband had three daughters, two of whom were financially dependent on their parents. They owned their home in Racecourse Road, Waiuku but had no other significant assets. Pamela had been working as a part-time hospital worker. She gave up this employment when she and her husband moved into the family home to care for Nola two months before her death. Pamela remained there for the next two years to look after Alan.
[51] On 29 September 1999 probate was granted of Nola's will. Apart from her shareholding interest in WFGL, she owned public company shares and bank deposits totalling $363,000. By virtue of Nola's joint ownership with Alan, her interest in WFGL's current account and the homestead passed to him through transmission.
Family Arrangements
(1) First Deed
[52] On 7 December 1999 Mr Bellamy wrote to Nola's trustees, including Diane and Pamela, confirming receipt of Nola's deposit with the National Bank of
$183,000. Nola's will provided for a life interest for Alan in these funds. Mr Bellamy advised that in terms of Nola's will the interest was payable to Alan and that on his death the principal was to be divided equally between Diane and Pamela. He also advised the trustees to act prudently by investing the money to ensure both a reasonable return for Alan and growth of the capital for the benefit of Diane and Pamela, to pre-empt a reduction in its value by the effects of inflation.
[53] Colin confirmed that both his sisters were unhappy with Nola's testamentary provision for Alan's life interest in her cash. Pamela told him that she did not think it was right. She believed that Mr Bellamy must have made a mistake; and that the cash should have passed immediately to Diane and her. She says the provision was contrary to what Nola told her when she was ill.
[54] Pamela did not accept Mr Bellamy's advice. She voiced her dissatisfaction to Mr Hareb. Mr Hareb contacted Mr Bellamy the next day. He advised that the family did not wish to invest the $183,000 on Alan's behalf. Instead the funds were to be transferred equally to Diane and Pamela for their personal benefit. Alan's life interest in Nola's cash would be extinguished. Mr Bellamy understood urgency was required because Diane and Pamela wanted the money before Christmas.
[55] Mr Bellamy prepared the first deed of family arrangement in accordance with Diane and Pamela's instructions conveyed through Mr Hareb. The instrument was executed on 15 December 1999. The parties were Alan, Diane, Pamela, Colin and Mr Bellamy as trustees on the one part and Diane and Pamela as beneficiaries in Nola's estate on the other. Alan did not participate separately as a beneficiary even though his life interest was the most obviously affected by the transaction. The deed recited a common agreement to terminate Alan's life interest in Nola's estate, with
distribution of the residue immediately to Diane and Pamela. The sisters also released and indemnified the other trustees from and against any liability in respect of Nola's residuary estate.
[56] Pamela was then Alan's primary caregiver. She accepts that he did not initiate the deed. Initially she asserted that Alan was nevertheless happy to agree with the proposal, and by implication understood its nature and effect. When taxed on this point by Mr Grace, Pamela became equivocal, finishing with the proposition that "he would not have understood but he would have been happy with it". Pamela's admission that Alan would not have understood the deed is consistent with other evidence which she gave about Alan's condition at the time. For example, she said:
Once I moved into the family home, in May 1999, while Mum was dying, I saw firsthand what [Alan's] capabilities were and that he had a big problem. I realised that my mother had compensated for Dad's failing memory for a long time and tried to cover for him.
[57] Pamela described Alan's confusion from late 1999 to April 2001 when she would give him the New Zealand Herald to read. She talked of his disorientation when dressing and leaving the home. She recounted that he had serious difficulty recalling what he had been told; and that he would ask the same questions over and over again. He was unable to recall appointments made for him. His memory became progressively worse and he was unable to cope with change or changed situations. Pamela said that:
By 1999, it was, of course, very obvious that Dad was having serious problems. He definitely needed a power of attorney by then. Colin worked with Dad on the farm and used to complain that Dad drove him nuts because he would do things like constantly lose the tools because he could not remember where he had put them. I thought that Colin knew of Dad's diagnosis. It was so obvious to me that Dad had major problems for many years that I thought it would have been obvious to Colin.
[58] Moreover, Pamela was emphatic in answer to questions from Mr Grace that she regarded Alan as being "mentally impaired" in May 1999, when he signed the power of attorney, and that it would have been impossible to discuss Nola's will with him after her death because he "did not have the capacity". Pamela admitted to Mr Grace that she did not discuss with Alan her proposal to extinguish his life interest in Nola's cash as he "would not have got the idea anyway".
[59] I am satisfied that in December 1999 Pamela knew Alan was in no position to give a fully informed, independently advised and voluntary consent to surrendering his life interest in Nola's cash.[1] Her knowledge was, she said, and I accept, shared by her brother and sister.
[1] Scott v McNeilly HC Tauranga CIV-2004-470-94 15 September 2008 at [84]-[85].
[60] According to Pamela, who knew him best, Alan's incapacity and confusion was at an advanced state from 1999. Alan's vulnerability only served to enhance his reliance on Nola's other trustees for financial protection and strict performance of Nola's trusts. Mr Bellamy had expressly advised Diane and Pamela of their legal obligation to invest Nola's cash and apply the income for Alan's benefit. The sisters' rationale for ignoring Mr Bellamy's advice is that they understood Nola's testamentary provision of a life interest in Alan's favour was contrary to her wishes. That explanation rings hollow. So, too, do Pamela's attempts to blame Mr Bellamy when pressed by Mr Grace.
[61] In closing Ms Hollings was forced to justify the sisters' self dealing on the different ground, raised by Pamela in cross-examination by Mr Grace, that Nola had advised her that Alan's then strong financial position would not be substantially weakened by surrendering his life interest. Ms Hollings will understand, however, that this factor does not and cannot excuse Diane and Pamela's breach of a duty of trust owed to a vulnerable beneficiary. And the implausibility of this explanation was exposed by the sisters' willing participation in the gradual process of weakening Alan's financial position over the next three years, to the point where he was stripped of almost all his assets and all his income.
[62] Mr Bellamy's position falls for separate consideration. He represented all the parties to the first deed. He was also a party himself, as Nola's trustee. A fiduciary such as a solicitor is not absolutely prohibited from acting for all parties: but, where there is conflict, the lawyer must prove that all parties had agreed on the terms of the transaction and given informed consent to multiple representation.[2] The conflict between two self dealing trustees and a beneficiary being asked to forego a life interest could not have been more obvious.
[2] See Taylor v Schofield Peterson [1999] 3 NZLR 434 (HC) (Full Court).
[63] Mr Bellamy asserts that all parties had agreed to the essential terms of the transaction and he was simply documenting the terms. I accept that the first deed may have been one step along the path to implementing Alan and Nola's joint testamentary intention that their non WFGL assets were to pass to Diane and Pamela. But its terms marked a significant departure. Alan's life interest in the income from a substantial asset was being extinguished at a time when he had a special requirement for financial protection. A solicitor and independent trustee was plainly obliged in those circumstances to satisfy himself of Alan's informed consent.
[64] Mr Bellamy confirmed that he took none of the necessary steps to obtain Alan's informed consent. He failed to recognise the conflict of interests. He failed to explain their nature and extent to any of the family members. He did not satisfy himself that any of them truly understood their duties as trustees or the ramifications of the first deed. And of course he failed to advise any of them to seek independent advice. This pattern continued to characterise the remaining deeds and transactions.
[65] Diane and Pamela do not sue Mr Bellamy for breach of his separate duty as trustee. But again, like them, he breached that obligation on the first deed. It is inexplicable that, as a professional man and an independent trustee, Mr Bellamy failed to take any steps to satisfy himself about the legality of what was plainly an important decision. He failed to exercise his powers properly or at all or to act independently, electing instead to acquiesce without question in instructions given by Diane and Pamela.
[66] Diane and Pamela have not applied to set aside the first deed (Colin has counterclaimed for this relief in the event that the second and third deeds are set aside). But Alan's impaired condition and Mr Bellamy's breaches of duty, which provide the grounds for the sisters' challenge to the second and third deeds, equally affected the first. Diane and Pamela's assumption that they are entitled to retain the benefits of their wrongful self dealing when it suits, but to disclaim Colin's benefit from the same type of breach when it does not suit, reveals a fundamental misconception of their rights.
[67] On 22 December 1999, following execution of the first deed, Mr Bellamy wrote to each party advising that the balance of the funds then held on deposit had been paid equally, $83,379 each, to Diane and Pamela.
(2) Second Deed
[68] On 17 January 2000 Pamela visited Mr Hareb. She had been receiving dividend payments in Nola's favour on shares owned by Nola's trust. They were then valued at about $180,000. Pamela wanted the dividend cheques to be paid into personal accounts held by herself and Diane. Mr Hareb advised Alan that Nola's trust, the NJ Walker Trust, should be wound up and the assets distributed to Diane and Pamela. Mr Bellamy was given to understand that the sisters wanted this result.
[69] On 21 January 2000 Dr Richard Worrall, a consultant psycho-geriatrician, wrote to Alan's general practitioner. Alan was living with Pamela, her husband and children. Dr Worrall had visited Alan at Pamela's request. Dr Worrall confirmed Dr Strachan's earlier diagnosis of Alan's dementia, probably of Alzheimer's type. In his opinion it had been slowly progressive but there had been no significant change in his MMSE score since 1997. Dr Worrall recommended a cognitive enhancing drug called Exelon, which he had prescribed for one month's trial medication. He recommended that Alan have a driving assessment.
[70] Alan, Colin and Elaine met with Messrs Hareb and Bellamy on 7 February
2000. Their purpose was to discuss a proposed transfer of Nola's 5,000 WFGL shares to Colin. The parties discussed the possibility of Alan transferring his shares outright to Colin. Mr Bellamy noted that the mutual purpose of Alan and Nola's wills was to ensure that the surviving spouse had sufficient income for his or her future needs and that, if the transaction proceeded, the trustees would require satisfaction that Alan was protected. Mr Bellamy noted also that Alan enjoyed a life interest in Nola's WFGL shares "to provide income for him". Also discussed was a proposal to transfer all the NZ Dairy Co-op shares to Colin. Mr Hareb emphasised the importance of leaving Alan with assets of a sufficiently high value to meet his needs, given that Alan may enjoy the same longevity as his own father who died at the age of 100 years.
[71] Mr Hareb's advice to Alan in January 2000 was implemented on 15 June. Nola's trust was wound up. Her shares, then valued at $180,000, were subsequently transferred equally, $90,000 worth to each of Pamela and Diane.
[72] By mid 2000 the sisters had each received cash payments of about $170,000 from Nola's estate and trust. Its worth to Diane, for example, can be gauged by its equivalence to the value of her home.
[73] Messrs Bellamy and Hareb corresponded throughout 2000 about restructuring Alan and Nola's assets. By November 2000 Mr Bellamy had obtained land valuations of the family farm in the range of $787,000 to $890,000. However, WFGL then owed Alan $303,000 on capital account. On a rough basis, allowing for WFGL's indebtedness and assuming that both classes of shares were treated equally, the total value of the WFGL shares was about $484,000 to $587,000. Nola's shares would have been worth about $242,000 to $293,000.
[74] On 21 December 2000 Mr Bellamy paid cheques to Diane and Pamela of
$6,800 each, being the final distributions of their mother's estate.
[75] It is unclear who initiated the second deed of family arrangement. Mr Hareb did not participate, although he had attended earlier meetings to discuss estate planning with Alan, Colin and Mr Bellamy.
[76] Mr Bellamy sent copies of the second deed and transfer forms to the sisters in April 2001. The deed provided for execution by the five trustees in Nola's estate of the one part and Colin of the other. Again no provision was made for Alan to participate separately as a life beneficiary. The deed's sole operative clause provided, first, for termination of Alan's life interest in Nola's 5,000 WFGL shares and, second, for the shares to be transferred to Colin. As requested, the parties signed share transfer forms. They do not remember the circumstances of signing. But Alan, Pamela and Colin probably signed at Mr Bellamy's office. Diane signed the instrument elsewhere.
[77] On 26 April 2001 Mr Bellamy sent Mr Hareb a copy of the deed and the share transfer forms for noting. At the same time Alan, Diane and Pamela, for and on behalf of Alan and Nola, transferred 135,572 NZ Dairy Co-op shares and 4,590
Peak Supply Notes to Colin and Elaine. Mr Hareb filed notices of particulars in the Companies Office, recording that Alan and Nola had ceased to hold office as directors and appointing Colin solely in their place.
(3) Third Deed
[78] On 12 June 2001 either Diane or Pamela instructed Mr Bellamy that Alan's life interest in the family homestead was to be surrendered, and that title to the property, which had passed to Alan on transmission following Nola's death, was to be transferred to them. Pamela would then purchase Diane's share in accordance with a valuation. Mr Bellamy was instructed to prepare a third deed of family arrangement.
[79] However, no immediate steps were taken. There were meetings between Messrs Bellamy and Hareb, and at times with Alan and Colin, for the apparent purpose of estate planning. Mr Bellamy mooted various proposals throughout the balance of 2001 and into 2002. But they were inconclusive and inconsequential.
[80] On 28 August 2001 Diane, Pamela and Colin attended a meeting with Messrs Bellamy and Hareb. Alan was apparently present but there is no evidence that he took an active part. Their purpose was to discuss a number of issues relating to Alan and his assets. The parties, including the professionals, were expressly aware that Alan may require 24 hour care. Alan's annual gross income was recorded at $51,000
- comprising $22,000 payable on his WFGL shares, $11,000 from New Zealand superannuation, and $18,000 interest income on bank deposits. Alan's assets were then estimated at a value of $1.5m - comprising shares and current account indebtedness in WFGL of $900,000, cash of $300,000 and a home of $300,000.
[81] On 31 August 2001 Mr Bellamy sent a full report on the meeting to each of Diane, Pamela and Colin. He discussed a range of proposals for transferring assets from Alan's ownership for the purpose of minimising future government charges
should Alan require fulltime nursing care. Included in the proposals was a transfer of the family home to Diane and Pamela as tenants in common in equal shares or to one of them, with the other receiving $300,000 in cash. Mr Bellamy noted that this proposal had "the disadvantage of leaving Alan with no working capital". Mr Bellamy also recorded Colin's proposal that Alan's shares in WFGL be transferred to him; and that he would assume responsibility for payment of Alan's
current account indebtedness.
[82] Colin explained that the reason for his proposal was:
Getting control of the company was very important. The company had to be
controlled and only I could do that. Dad was now around 77 years old, had
not been running the farm for nearly 20 years, was leaving to live in a rest home and I needed to be dealing direct with Fonterra/bankers/accountants and everyone involved in running the farm and the company… Without me taking control the company would have become dysfunctional. Dad had stepped right aside by this time.
[83]
Sometime in early June 2002 Diane met alone with Mr Bellamy.
She
resurrected the instructions given a year earlier to prepare another deed for the purpose of transferring the family home to Pamela and herself. She did not raise any concerns with Mr Bellamy about Alan's capacity. Nor did she suggest there was any disparity in the proposals for distribution of the estates of both parents.
[84] In July or August 2002 Mr Bellamy commissioned valuations of WFGL's farm and the Walker family home. A real estate agent advised that the farm's land value, based on an average of $7,500 per acre, was $637,500. Another agent valued the family home at $305,000 (later adjusted downwards to $300,000 to take account of improvements made by Pamela).
[85] On 11 July 2002 Messrs Bellamy and Hareb met again with Diane, Pamela and Colin. In summary, those present accepted Mr Bellamy's advice to obtain a doctor's certificate that Alan was of sufficiently sound mind to execute a codicil to his will and transfer his WFGL shares to Colin. The purchase price was to be treated as a loan back, with the balance to be forgiven on Alan's death. The residue of Alan's estate was to pass to Diane and Pamela. I am satisfied that all three children
expressly agreed to this proposal and jointly instructed Mr Bellamy to prepare a further deed.
[86] Mr Bellamy's advice about obtaining a doctor's certificate arose from a comment made by Pamela that Alan "was a bit forgetful lately". That observation raised a question with Mr Bellamy about Alan's testamentary capacity. But again none of the children mentioned anything more about his condition.
[87] Alan had been in a retirement home since April 2001. The children agreed that any deed should ensure sufficient funds were available to cover Alan's costs. Also a capital fund was to be maintained to provide for his unexpected expenses.
[88] Messrs Bellamy and Hareb visited Alan at the retirement home on
26 November 2002. Mr Bellamy made a full note. He was favourably impressed by Alan's apparent state of mental health and surprised that he was in rest home care. He considered from a lay perspective that Alan was of full capacity. He discussed all aspects of the transactions with Alan. He noted Alan's concern that his children would be obliged to pay him $20,000 annually but was comforted to learn that its effect was to reduce their overall indebtedness. Alan confirmed his enduring intention that the farm would pass to Colin. He then signed the codicil and the third deed of family arrangement.
[89] Mr Bellamy raised with Alan the possibility of Diane and Pamela later attempting to upset the agreement to which he had just assented. Mr Bellamy said in evidence that his concern was not that the sisters would consider themselves to be treated inappropriately or unequally. He says it was that they might be troubled that the transactions alienated all of Alan's assets which he needed to live on. That explanation pushes the boundaries of plausibility given that Diane and Pamela were apparently untroubled by their previous participation in alienating Alan's right to income from Nola's estate. Alan believed, says Mr Bellamy, it was most unlikely that Diane and Pamela would wish to mount a challenge.
[90] On 27 November 2002 Mr Bellamy wrote to Dr Juan Toledo, whom he understood was now Alan's medical practitioner. He confirmed that he had
requested Pamela to take Alan for a consultation with Dr Toledo. Mr Bellamy was seeking a medical certificate confirming that Alan was in full possession of his faculties and able to make business decisions, and had sufficient mental capacity to know what he was doing when disposing of assets by will or codicil.
[91] On 3 December Dr Toledo phoned Mr Bellamy. Mr Bellamy made a careful note of the discussion. He explained the nature and purpose of the transactions which were to be entered into. He recorded that he said this:
There was an inequality in the value of the shares being transferred to the son as opposed to what the daughters were going to get and I wanted to make sure that if the arrangement was challenged later it could not be said that Alan was not aware of what he was doing.
[92] Mr Bellamy noted that Dr Toledo emphasised Alan's confusion and forgetfulness. However, Mr Bellamy recorded that, after he confirmed that the "whole family" was in agreement about the proposals, Dr Toledo advised that Alan had the capacity to enter into an agreement of the type contemplated.
[93] Dr Toledo has since reviewed Mr Bellamy's letter and his file memorandum of their discussion on 3 December. He says this:
In November 2002, Mr Alan Walker had an established dementia with profound short-term memory loss. Mental status tests in 2002 demonstrated that he had no ability to recall new items of information. His ability to make decisions requiring a consideration of multiple issues and/or unfamiliar information would have been impaired… Alan Walker at that time had a complete loss of short-term memory. He was unable to demonstrate memory of any of three simple items, for example a pen, key, envelope, five minutes after being asked to remember these items. If he was provided with new information he could not recall it. He was unable to recall the events of the morning and the afternoon. That would obviously be of concern if Mr Walker had to deal with complex issues or new information.
[94] Dr Toledo says that in November 2002 he would not have been competent to determine whether Alan had sufficient legal capacity to execute the codicil and deed. It would have been necessary to engage an independent psycho-geriatrician. Dr Toledo did not understand that he was being asked to provide such an opinion in November 2002. It is unnecessary to resolve the conflict between Mr Bellamy and Dr Toledo. It is enough to record my satisfaction that there was a breakdown in their communications.
[95] The third deed of family arrangement was signed in December 2002. The parties were nominated as Alan, described as the father, of the one part and the three children, apparently in those capacities, as the other. The deed simply recited that "certain items of property" were held pursuant to Nola's will and that the parties had agreed to vary its terms. This recital is puzzling because the underlying transactions dealt solely with Alan's assets.
[96] The deed materially provided for Alan, first, to transfer the family home to Pamela for $290,000, second, to advance $305,000 to Diane and, third, to transfer all his shares in WFGL to Colin in consideration for payment of $637,500. Both transfers and the payment were to be in exchange for acknowledgements of indebtedness, with provision for Colin to pay $10,500 and the sisters $5,250 each in annual reduction of their indebtedness. These payments were intended to cover Alan's rest home fees. Alan agreed to execute, and did execute, a codicil forgiving all debts on his death.
[97] Something should be said about the sum of $637,500, nominated as the consideration for Alan's shares in WFGL. Mr Bellamy had originally advised the real estate agent instructed to value the family farm that its size was 85 acres. On that basis the agent assessed the total value at $637,500. In fact, the farm was
115 acres, or near enough to 55 hectares.
[98] Mr Bellamy made three errors. First, he obtained a valuation on the wrong area, leading to advice that the total value was $637,500 instead of $862,500. Second, he treated the incorrect total sum of $637,500 as the value of Alan's remaining 50% shareholding in WFGL. Third, he made no attempt to value WFGL's shares taking account of its indebtedness. On a rough measure, using the correct land value of $862,500, but excluding adjustments, the value of Alan's 5,000 shares was $431,750.
[99] So, in summary, Colin received assets to a value of about $430,000 under the third deed, and Diane and Pamela each received cash or property worth $300,000.
[100] By contrast, Alan, when he was to his children's knowledge in an impaired mental condition and without access to independent legal advice, effectively alienated all his assets, valued at $1m or more, and almost all of his entitlement to a secure income.
Subsequent Events
[101] On 19 December 2002 Mr Bellamy sent Alan an account, care of Colin, for professional services for $3,200 relating to preparation of the third deed of family arrangement.
[102] On 11 February 2004 Diane and Pamela visited Mr Hareb, complaining that as a result of the three transactions they had only each received about a quarter (in total a half) of Alan and Nola's assets. They were apparently unhappy that Colin had acquired all the WFGL shares. Mr Hareb quantified their complaints, and made some rudimentary calculations. Each of the sisters questioned Mr Hareb about many aspects of their parents estates. He concluded by noting that they were then considering whether to contest Nola's will and Alan's sale of the farm.
[103] On 28 June 2004 Diane and Pamela visited Mr Bellamy. Their principal concern was apparently that Colin had inherited land which had appreciated substantially in value and that, as a result, Colin should contribute more to Alan's rest home fees. In the sisters' opinion, payment of a quarter each of the fees was excessive; given the appreciation in Colin's assets, they considered he should pay more than 50%.
[104] A year later, on 21 June 2005, Diane wrote to Mr Bellamy. She requested copies of Alan's power of attorney and the valuation of the farm provided in August
2002. She made various other requests relating to the third deed and assets originally belonging to Nola. Mr Bellamy sent a pro forma reply on 8 July but took no further steps.
[105] On 5 September 2007 Colin and Elaine and WFGL sold both farms as one unit for $5.8m. Colin and Elaine's own farm was allocated a value of $2.3m within
the sale price. They had subdivided off an area of about five acres on which they have since built a home where they now live. The net sale price after meeting costs was $5.5m. Colin and Elaine applied the net proceeds towards buying another dairy farm near Tokoroa for $6.375m. The shortfall of $865,000 was raised by way of four loans from the National Bank.
[106] On 29 October 2007 Diane consulted a solicitor about her rights. The lawyer noted that:
Diane is feeling that as events have turned out she is probably somewhat hard done by and feels that she should be paying the least towards her father's support.
[107] At about this time Diane and Pamela discontinued paying their annual agreed contributions to Alan's rest home costs. Both justified this on the ground that Colin, having sold the family farm, should bear the sole burden. Colin has since been meeting the total annual costs of $15,560, with the assistance of state subsidies.
[108] On 18 September 2008 Glaister Ennor, on behalf of Diane and Pamela, wrote a lengthy letter to Mr Bellamy, giving notice of possible claims. This proceeding was issued on 6 November 2008, more than four years after Diane and Pamela first complained to Mr Hareb about disparities in distribution. In the meantime Colin had substantially altered his position.
[109] Against that background, I shall now consider each of Diane and Pamela's claims.
Nola's Estate
[110] Diane and Pamela's primary claim against Nola's trustees and Colin is for an order granting leave to extend the time for bringing an application against Nola's estate under the FPA. Colin opposes on the ground that Nola's estate has been finally distributed.
[111] Section 9 Family Protection Act 1955 materially provides:
9 Limitation of proceedings
(1) No application in respect of any estate shall be heard by the Court at the instance of a party claiming the benefit of this Act unless the application is made before the expiration of the prescribed period specified in subsection (2) of this section:
Provided that the time for making an application may be extended for a further period by the Court, after hearing such of the parties affected as the Court thinks necessary; and this power shall extend to cases where the time for applying has already expired, including cases where it expired before the commencement of this Act:
Provided also that no such extension shall be granted unless the application for extension is made before the final distribution of the estate, and no distribution of any part of the estate made before the administrator receives notice that the application for extension has been made to the Court and after every notice (if any) of an intention to make an application has lapsed in accordance with subsection (1) of section 48 of the Administration Act 1969 shall be disturbed by reason of that application or of any order made thereon, and no action shall lie against the administrator by reason of his having made any such distribution.
(2) The prescribed period mentioned in this section shall be,—
(a)In the case of an application by an administrator made on behalf of a person who is not of full age or mental capacity, a period of 2 years from the date of the grant in New Zealand of administration in the estate; and
(b)In the case of any other application, a period of 12 months from the date of the grant in New Zealand of administration in the estate.
[112] Probate of Nola's estate was granted on 24 September 1999. The time for bringing a claim as of right expired on 24 September 2000, some eight years before the proceeding was filed. Ms Hollings responsibly accepts that Nola's estate has been distributed if the deeds of family arrangement are not set aside. More precisely, it is the second deed executed in April 2001 (at [68]-[77] above) which is in issue on this claim; Diane and Pamela do not challenge the first deed and the third related only to Alan's assets. In the event that Diane and Pamela are unsuccessful in setting aside the second deed, they claim damages from Mr Bellamy for the lost opportunity to pursue an FPA claim within time.
(1) Second Deed
(a) Incapacity
[113] Ms Hollings mounts a two-pronged attack to the validity of the second deed. The first ground is that Alan did not have the requisite capacity when executing the documents. She submits that the transactions were of a testamentary, not contractual, nature; and that Alan was not then able to satisfy the requirements of testamentary capacity summarised by the Court of Appeal in Woodward v Smith.[3]
[3] Woodward v Smith [2009] NZCA 215 at [19].
She relies also on the expert evidence of Dr Melding, reinforced by the factual
evidence given by Pamela and Dr Otto.
[114] I am not satisfied that Alan was of sufficient testamentary capacity when he executed any of the deeds. Both Dr Melding and Dr Casey agree that Alan was suffering from a mental impairment; that is, his cognitive ability, memory and executive functioning were impaired by 2000. They differ only in degree.
[115] I accept that Alan would have generally known of and assented to a proposal to distribute to their children the assets which he and Nola owned. That had been their shared testamentary intention throughout, but subject to the critical reservation of a life interest in the assets to the surviving spouse. Alan's life interest in Nola's
5,000 WFGL shares had previously entitled him to half of the income from the underlying farming operations. That right was extinguished by the second deed, extending the process initiated by the first; Alan's children were progressively terminating his life interest in Nola's estate and divesting him of his own assets. These changes had a profound effect on Alan's rights and I am not satisfied that he had the capacity necessary to understand the details and effects of any of the deeds; the evidence is overwhelmingly to the contrary.
[116] Mr Grace submits that, in the event of a finding of incapacity, Diane and Pamela do not have standing to apply to set aside the second deed. He relies on settled authority, starting with Somers J's statement in Scott v Wise that:[4]
[4] Scott v Wise [1986] 2 NZLR 484 (CA) at 492.
… in the case of contracts, conveyances and gifts a transaction entered into by one of unsound mind is not void but voidable only at the suit of the person lacking capacity.
[117] Ms Hollings submits to the contrary. She describes Mr Grace's argument as technical. She submits that Scott v Wise and other authorities are distinguishable because the co-contracting party did not have knowledge of the other's lack of capacity. Here, Ms Hollings submits, equity prevents Colin from retaining the benefit he received under the deed as a consequence of his breach of fiduciary duty.
[118] I agree with Mr Grace. Somers J's limitation on standing in Scott v Wise expressly extends to gifts and is, in my respectful opinion, well founded in principle. It affirms that only the person affected by the incapacity, and his or her representatives, is entitled to rely on that factor. If the position was otherwise, one party could use another's incapacity for his or her own benefit and not to benefit the incapacitated person.
[119] Diane and Pamelas' decision not to challenge the first deed, even though Alan participated with the same degree of incapacity as when he executed the second deed, coupled with their refusal to contribute towards Alan's rest home fees, is consistent with one inference. They are seeking to preserve the benefits of their self dealing at Alan's expense when he was incapacitated while using that same incapacity to deprive Colin of similar (but financially greater) benefits obtained in a similar transaction entered into less than 18 months later. They are not relying on Alan's incapacity to set aside the second deed for the purpose of repairing their substantial breaches of trust towards him. They are not attempting to restore to the person suffering the incapacity what he lost by the transaction. Instead, they are using Alan's incapacity solely for their own benefit, as a lever to reconstitute Nola's estate.
[120] Diane and Pamela are claiming in their capacities as Nola's children. They sue themselves and the others as trustees on the application for leave to bring an FPA proceeding out of time. They separately sue Colin and Alan on the application to set aside the deeds. They have no right to relief on the ground of Alan's incapacity. That factor was not the cause of loss to them as beneficiaries in Nola's estate. Alan simply acquiesced in a transaction to which his children had agreed. In my judgment Diane and Pamela have no status to rely on Alan's incapacity to set aside the second deed. Their claim against Nola's trustees must fail.
[121] I add this. The second deed is voidable on the ground of incapacity, not void. Both Ms Hollings and Mr Grace accept that equitable principles would govern any relief. I record that, even if I had found Diane and Pamela had standing to apply to set aside the second deed, I would have refused to grant relief. The most obvious ground is Diane and Pamela's disentitling conduct in self dealing throughout in breach of their duties to Alan. It would be wrong in principle for this Court to grant equitable relief to parties seeking to benefit from their own wrongdoing. Additionally, all three deeds must be treated as a composite, particularly the first and second dealing with Nola's estate: one cannot stand without the other and the sisters argue that the first deed is valid. And all children have altered their positions irretrievably. Reconstruction of Nola's estate would be an impossibility.
(b) Colin's Fiduciary Duty
[122] Ms Hollings' alternative ground of challenge to the second deed is through the route of breaches of a fiduciary duty allegedly owed by Colin. Diane and Pamela claim that the sibling relationship constituted Colin a fiduciary towards them. The relevant features pleaded are that all three were trustees and beneficiaries of Nola's estate; all three were trustees and beneficiaries under Alan's will; due to his knowledge of the affairs of Alan, Nola and WFGL and his dealings with Mr Bellamy, Colin was in a position of strength compared to his sisters relating to the administration of Nola's estate, Alan's affairs and wider family matters such as the deeds; Diane and Pamela were vulnerable in relation to Colin's exercise of his rights or powers under Nola's will and in relation to Alan's financial affairs; and
Diane and Pamela were entitled to repose and did repose trust and confidence in Colin relating to the administration of Nola's estate, execution of the deeds and related transactions.
[123] It is unnecessary for me to consider the alleged elements of the fiduciary duty or its breaches. The claim falls at the first hurdle. I am not satisfied that a duty existed. Ms Hollings accepts that the sibling relationship was not of an inherently fiduciary nature. The relationship most obviously within that inherently fiduciary category was between the three children in their capacities as trustees of Nola's estate, on the one hand, and their father as beneficiary, on the other.
[124] Nevertheless, Ms Hollings submits that a relationship may still possibly give rise to fiduciary duties in the particular circumstances. In particular, she submits that this relationship was characterised by the essential feature of an entitlement by Diane and Pamela to place trust and confidence in Colin, and to rely upon him to act in a
way which was not contrary to their interests.[5] However, in closing, apart from
[5] Chirnside v Fay [2007] 1 NZLR 433 (SC) at [80].
observing that it was indisputable Colin owed fiduciary duties in his role as executor of Nola's estate - to his father, which is correct - Ms Hollings restricted argument to the third deed, which I shall consider next.
[125] There is no evidential basis whatsoever for arguing that the special features of an entitlement to place trust, confidence and reliance existed in the relationship between Diane and Pamela, on the one hand, and Colin, on the other, sufficient to constitute Colin a fiduciary in relation to the second deed. Diane and Pamelas' application for an order granting leave to extend the time to bring an FPA application is dismissed.
(2) Third deed
[126] Diane and Pamela rely on much the same grounds for the purpose of setting aside the third deed, which related solely to disposition of Alan's assets. In effect
they seek to claw back into Alan's ownership his 5,000 shares in WFGL transferred to Colin.
[127] This claim is also based on the grounds of Alan's incapacity, which I have already addressed, and Colin's breach of fiduciary duty. In closing Ms Hollings developed a full argument that a duty arose because Colin was aware of the provisions of Alan's will, knew he was to be a trustee of that will, and knew Alan's residual estate was left to his sisters. However, Diane and Pamela had the same state of knowledge.
[128] On analysis, the only additional factors on which Ms Hollings relies are that Colin had a better understanding than his sisters of Alan's financial position, especially relating to WFGL; that Alan's transfer of his 5,000 WFGL sharers to Colin during his lifetime has had severe consequences for his sisters relating to any future right to claim against Alan's estate under the FPA; and that Alan was intricately involved in ensuring that the transfer occurred.
[129] Ms Hollings submits that Colin participated in a number of meetings with Messrs Hareb and Bellamy in 2000 and 2001 for this purpose; that Colin drove the transactions recorded in and subsequent to the third deed (it is only fair to observe that Diane and Pamela occupied the same role on the first deed); and that the sisters were not advised about the proposal to transfer Alan's WFGL shares to Colin until the meeting held on 28 August 2001 (see [80] above).
[130] In my judgment this claim must fail on the facts. I do not accept that the relationship between the three children relating to the third deed included a special element of trust and confidence reposed by the two sisters in their brother any more so than is normally present in a sibling relationship. There is no evidence that Diane and Pamela relied on Alan not to act in a way which was contrary to their interests; that Colin's knowledge of Alan's financial affairs was significantly superior to his sisters; or that Colin drove or initiated the third (or any) deed.
[131] Colin's evidence, which I accept, is that the trigger for the third deed was
Diane and Pamela's collective desire to acquire their inheritance. Pamela's plan to
renovate the family home, which of course she did not wish to undertake unless and until she had title, was a dominant factor. Without appreciating the legal distinctions, Colin did not suggest that the sisters' conduct was wrong; in fact, he said "it all seemed quite sensible".
[132] Moreover, in answer to Mr Till, Pamela confirmed her agreement with the proposals for distributing Alan's assets made at the meeting on 28 August 2001. Principally they were that Alan's 5,000 WFGL shares should be transferred to Colin and that the house and cash to the same value should be transferred to Pamela and Diane. Diane answered to the same effect in cross-examination by Mr Grace. Both Diane and Pamela accepted that they were happy with the series of transactions implemented by all three deeds.
[133] In a telling passage Pamela said:
… Colin … never instigates anything. Colin is the sort of person [who] will go with the flow with whatever's going. So that's why I say, you know, I think Mr Bellamy would be the one, that he has instigated a lot of the plans, because I don’t think Colin would have done it. I think that Colin would sit back and … let everybody do things for him. He's … that type of personality.
[134] Pamela's statement answers Ms Hollings' submission that Colin drove these transactions. Having observed all three siblings under cross-examination, I am satisfied that Diane and Pamela in fact drove the transactions. In particular, I find that the first and third deeds were generated by their demands for immediate access to cash or assets, even though Alan's advance of $300,000 to Diane removed his only real source of income once his remaining 5,000 WFGL shares were transferred to Colin; and that both were indifferent to Colin's progressive acquisition of all the WFGL shares as an incident to their immediate acquisition of other property. They accepted that was Alan and Nola's intention and never demurred.
[135] Diane and Pamela's allegation that Colin was their fiduciary, and that the third deed should be set aside on the grounds of his breach and Alan's incapacity, must fail.
Mr Bellamy
[136] It now remains to determine Diane and Pamela's claims against Mr Bellamy. [137] By way of summary, I repeat that Mr Bellamy owed duties - contractual,
tortious and fiduciary - to each of the parties whom he represented in all the various transactions. Their interests were in actual or potential conflict. Most strikingly, Alan's interest in the transactions extinguishing his life interest in Nola's estate was different from those of his children, purportedly acting as trustees.
[138] Mr Bellamy candidly accepted that he never turned his mind to the question of a conflict. He was plainly in breach of his duties owed to individual participants from time to time. The objective in this part of the judgment is to isolate the particular duties owed to Diane and Pamela, and the relevant breaches. That is because Mr Bellamy's most obvious breaches of duties, those owed to Alan, are not actionable by other family members (leave will be reserved to Alan's litigation guardian to intervene on a cross-claim against Mr Bellamy).
[139] Diane and Pamela's pleadings against Mr Bellamy are wide ranging. In closing Ms Hollings focused on two particular duties of direct relevance to this claim. Before addressing each, I record that most of Ms Hollings' submissions were directed towards a proposition that Mr Bellamy was in breach of his duties because he failed to satisfy himself about Alan's capacity to enter into the deeds. That proposition would be relevant, of course, and unanswerable, on a claim by Alan or his representatives against Mr Bellamy. But it does not require consideration in the different context of a claim by Diane and Pamela for breach of the duties owed to them.
[140] I shall now address each of the two principal duties in issue, and then if necessary the affirmative defences raised by Mr Bellamy.
(1) Family Protection Act
[141] Ms Hollings submits primarily that Mr Bellamy owed and breached a duty to Diane and Pamela to advise them of their rights to pursue an FPA claim against Nola's estate. If it existed, the duty was plainly either of a tortious or contractual nature, to be discharged with the standard of skill and care expected of a reasonably competent practitioner. It is unnecessary to determine whether its nature was also fiduciary. Ms Hollings submits that, because of Mr Bellamy's negligence, Diane and Pamela have lost an opportunity to pursue an FPA claim against Nola's estate if, as I have found, it has been distributed. Damages should be fixed accordingly.
[142] Mr Till submits that no such duty existed. But, Mr Till submits, if a duty did exist and Mr Bellamy was in breach in failing to give advice, Diane and Pamela have failed to prove that, first, they would have brought a claim if independently advised of their rights and, second, they would have probably succeeded or had a reasonable prospect of success. In the latter respect Mr Till sought to lead expert evidence from Mr Christopher Darlow, a highly experienced and regarded commercial and property solicitor in Auckland, to the effect that an independent lawyer, if instructed, would not have advised the sisters to proceed.
[143] I refused to admit Mr Darlow's evidence. I would not have found it substantially helpful. Mr Bellamy accepts that he did not consider the possibility of an FPA claim, let alone advise either Diane or Pamela of their rights to pursue one. I would not have been assisted by another lawyer's evaluation of the merits. It would be no substitute for a judicial assessment.
(a) Legal Advice
[144] I am not satisfied that Pamela or Diane would have acted on independent advice, if given before December 1999 (when the first deed was executed), that they had a right of claim against Nola's estate under the FPA. The contemporaneous evidence satisfies me that both Diane and Pamela were happy in principle with their parents joint testamentary intentions as reflected in their wills, except for Nola's
provision for Alan's life interest in her non WFGL assets. Any independent legal advice would have had to be of a compelling, even unequivocal, nature to persuade the sisters to contemplate a challenge to Nola's will, especially as its acceptance would have frustrated their objective of immediate acquisition of one of Nola's most substantial assets contrary to the terms of her will.
[145] Mr Till cross-examined both sisters on this subject carefully and effectively. As a result, I am satisfied that neither would have wanted, first, to incur the financial and emotional cost of litigation and, second to challenge publicly the fairness of their late mother's testamentary provisions, which they apparently accepted in any event, subject to the timing of distribution of their bequests. They would have been particularly conscious of the effect of litigation upon Alan and their relationships with him. They would have been conscious also of the risk of Colin cross-claiming under the Testamentary Promises Act 1949. And they would not have wanted to disturb the general state of family equilibrium prevailing after Nola's death.
[146] Diane's conduct after she complained to Mr Hareb in 2004 is also relevant. Diane first sought legal advice about the third deed in 2005. She conceded that she took no steps in the intervening period to 2008 because the decision to proceed was not easy and required a good deal of consideration. Even then, Diane was reluctant to litigate because of its likely effect on family relationships. Significantly, in 2005
Diane's state of mind towards her parents testamentary provisions and to Colin was adverse. By contrast, she was in a state of apparent contentment with arrangements in 1999.
[147] There is also an irony in Diane and Pamelas' assertion that they would have acted on affirmative advice if given in 1999 to bring an FPA claim against Nola's estate. Mr Bellamy gave them unequivocal legal advice at that time to invest Nola's cash for Alan's benefit in terms of Nola's trusts. But both sisters elected to ignore Mr Bellamy's advice, preferring their own interests.
(b) Claim
[148] However, if I am wrong in that conclusion, I am satisfied that in 1999 or even
2000 Diane and Pamela did not have an opportunity to lose. There was no real prospect of them bringing a successful FPA claim against Nola's estate.
[149] The best known contemporary statement of principle governing the application of s 4 FPA is this passage from Little v Angus:[6]
[6] Little v Angus [1981] 1 NZLR 126 (CA), at 127 per Cooke J.
The inquiry is as to whether there has been a breach of moral duty judged by the standards of a wise and just testator or testatrix; and, if so, what is appropriate to remedy that breach. Only to that extent is the will to be disturbed. The size of the estate and any other moral claims on the deceased's bounty are highly relevant. Changing social attitudes must have their influence on the existence and extent of moral duties. Whether there has been a breach of moral duty is customarily tested as at the date of the testator's death; but in deciding how a breach should be remedied regard is had to later events…
[150] Other principles are also relevant. There is no presumption of equality. Disparity between adult children is not of itself sufficient to establish a breach of a testatrix's moral duty. In the event of a breach, an award of compensation should not be more than is necessary to remedy it. In other words, the Court is not empowered to rewrite a will simply because of a view that it is unfair. The concept of "support" has a wider meaning than "maintenance" for a claimant.[7]
[7] Williams v Aucutt [2000] 2 NZLR 479 (CA).
[151] Ms Hollings submits that these additional principles are particularly relevant to Diane and Pamela's claims:
(1)A miscalculation and/or a misunderstanding by the testatrix can be influential, if not instrumental, in a Court's decision under the FPA;[8]
[8] Clough v Clough & Maassen HC Palmerston North CIV-2003-454-192, 6 May 2004, at [73] per Wild J.
(2) If a Court is satisfied that the testatrix breached her moral duty at the date of death then remedial compensation is to be assessed on
circumstances and values at the date of hearing.[9] The Court should have regard to appreciation in value of the estate subsequent to the date of the testatrix's death;[10]
[9] Currin v Schepens (1995) 14 FRNZ 1 (CA).
[10] Little v Angus, above n 6.
(3) While the breach of moral duty is determined as at the date of death, the testatrix is required to have regard to the reasonable probabilities into the future.[11] The effects of inflation and changes in the value of money are specific factors which the Court has held a testatrix ought to have in mind;[12]
[11] Coates v National Trustees (1956) 95 CLR 494 at 528.
[12] Re Z [1977] 2 NZLR 444 (HC), affirmed [1979] 2 NZLR 495 (CA); Re Young (1990) 6 FRNZ 446.
(4)Where a testatrix has formed an intention to make provision, or different provision, for an applicant but fails to carry out this intention, the Court may grant relief on adequate proof of that intention;[13]
[13] WM Patterson, Family Protection and Testamentary Promises in New Zealand (3rd ed.), Lexis Nexus, Wellington, 2004, para 413.
(5)The provision of inter vivos support may reduce or even eliminate a parent's duty to provide support for that child on death.
[152] Ms Hollings accepts that there is no presumption of equality between a testatrix's children, although she says that in normal circumstances a just parent will treat each child equally. However, she says, unequal treatment is generally regarded as appropriate where children have different needs. Unequal division of an estate is often the consequence of the testatrix's conclusion about one child's disentitling conduct or another's greater need. While there is no disentitling conduct here, Ms Hollings submits, the sisters had the greater need in 1999 and received significantly less of their mother's estate.
[153] Ms Hollings has undertaken a series of calculations by reference to key milestones - Nola's death and each of the first, second and third deeds and a notional
date of trial in 2008 - to establish gross disparities. Her assessment up to December
2002, the date of the third deed, shows that Alan had cumulatively acquired from the three transactions assets to a value of $1,105,280, being 60% of the gross value of both parents assets, whereas Diane and Pamela each received cash to a value of
$390,000 or 20%.
[154] Ms Hollings' assessment of Colin's assets includes NZ Dairy Co-op or Fonterra shares currently valued at $459,548. Its inclusion at that figure is an example of the distortion to which I earlier referred (at [20] above). Ms Linda Stewart, whose evidence I shall shortly discuss, said that these shares had a value of about $128,000 when transferred in 2001. Alan's aggregated assessment of
$1,105,280 must be adjusted by reducing in excess of $332,000 ($459,548 -
$128,000). The correct figure is about $773,280. On that revised figure, Alan received assets of about 50% of gross value while Diane and Pamela each received about 25%.
[155] Ms Hollings also rightly makes the point that Colin and Elaine were able to acquire their separate farm because of the substantial financial assistance given by Alan and Nola through unsecured loans which are being or have been forgiven. However, there are two important counterbalancing factors in the FPA context. One is the substantial contribution made by Colin and Elaine to the maintenance and development of WFGL's farm over many years. In Re Schepens, cited by Mr Grace, the Court of Appeal dismissed a daughter's challenge to her father's will which
provided for the family farm to pass to her brother.[14] On facts not dissimilar to this
[14] Re Schepens (1995) 14 FRNZ 1 (CA).
case, the daughter has bequeathed properties worth a total of about $150,000. On the other hand, the farm was valued at $835,000. In dismissing an appeal the Court observed:
The various moral claims on the two deceased were and are clear. After both had gone, it was sensible and proper the son be allowed to continue to run the farm and have its profits. It was best run with his own adjacent unit. He had put in a lifetime of work and support, and properly should have at least that reward…
[156] While, of course, the facts of no two FPA claims are the same, the Schepens reasoning applies here. Moreover, Diane and Pamela have never challenged their parents long-held belief that the family farm should pass to Colin. Even at trial, Ms Hollings did not suggest to the contrary. The question is really whether Nola's testamentary provisions for her non WFGL assets were adequate to discharge her moral duty to Diane and Pamela. Neither sister argues that she should have been treated differently from the other.
[157] The other counterbalancing factor is the weight a Court would have given to Nola's provision for Diane and Pamela as the sole beneficiaries of the NJ Walker Trust. It apparently reflected Nola's wish that her daughters should not be unduly disadvantaged by ownership of the family farm passing to Colin or by the assistance given by Alan and Nola to acquire his own farm. The benefit available from the NJ Walker Trust was substantial; each sister acquired shares or their cash value of
$90,000 in 2000.
[158] Also, all of Nola's non WFGL estate was to go to her daughters, subject to Alan's life interest. The principal asset at or within two years of death comprised cash of $180,000. Her additional testamentary provision for her 50% share of the family home for Diane and Pamela was contrary to the terms of legal ownership. Its premise was that Nola and Alan owned the property as tenants in common in equal shares. In fact, ownership was joint, and title passed by transmission to Alan on Nola's death.
[159] However, nothing was lost or was likely to be lost as a result. Alan's mirror will provided for title to pass to Diane and Pamela on his death in any event. Providing that Alan did not change his will after Nola died, the ultimate result would be the same. Doubtless the children, with the informed consent of a family member appointed to represent Alan, would have reached a satisfactory compromise in 1999 to avoid the prospect of litigation. The issue about the family home is now academic, given the terms of the third deed.
[160] In my judgment Ms Hollings' argument is flawed by its reliance upon disparities, real or perceived, between the effects of testamentary bequests and each
of the deeds. An example is her focus on disparities in 2008, taking account of the extraordinary increase in dairy farm values after 2002. While the leading FPA cases hold that a claimant's needs are normally assessed and values adopted at the date of trial, that principle is based of course upon the premise of a proceeding being issued within a year of probate and moving in a timely fashion to trial.
[161] An undue emphasis upon comparable values risks distraction from the correct legal question of whether Nola was in breach of her moral duty to Diane and Pamela. That is not a difficult question in this case. Nola's estate was not complex. Her assets were of a nature little different from those owned by many rural spouses. Like many other farming families, she and her husband wanted their son to inherit the farm. However, this case is incomparable to others, such as Re Leonard, where the Court intervened because the testator had provided only for farming sons, with
nominal provision for daughters.[15]
[15] Re Leonard [1985] 2 NZLR 88 (CA).
[162] To the contrary, Nola - and Alan - had jointly and carefully provided well for their daughters. The adequacy of provision, undistracted by a subsequent and unprecedented increase in values of dairy farms or by what others later received, must be the primary focus of the Court's inquiry. In orthodox terms, Diane and Pamela's needs were met.
[163] In the event, by not bringing an FPA claim, and instead participating in the three deeds of family arrangement, Diane and Pamela each secured, many years earlier than they were otherwise entitled, the benefits of access to $90,000, being
50% of Nola's cash of $180,000, and assets or cash each worth $300,000, represented by the family home and Alan's own investments.
[164] In my judgment a competent solicitor, exercising a reasonable standard of skill and care when instructed to advise Diane and Pamela of their FPA rights against Nola's estate in 1999 and taking account of all relevant factors, was unlikely to have advised that they had a sustainable claim. Even if the solicitor gave affirmative advice, which was accepted, a claim would have had no reasonable prospect of
success. In legal terms, there was no opportunity for Diane and Pamela to lose. This ground of claim against Mr Bellamy must fail.
(2) Fonterra Shares
[165] Ms Hollings' second principal argument of breach of duty relates to Nola's ownership of the NZ Dairy Co-op, later Fonterra, shares. While the allegation is unusually pleaded, it was concisely summarised by Ms Hollings in closing as being a duty owed to the trustees and beneficiaries to give proper advice to ensure that the NZ Dairy Co-op shares were dealt with according to Nola's will. It is common ground that Mr Bellamy gave no such advice. As Ms Hollings submits, he simply actioned a transfer which was presented to him.
[166] As noted, Mr Bellamy acted for all parties. He owed duties to each to act with reasonable skill and care. It is undeniable that it included an obligation to advise on and ensure that Nola's estate was distributed according to its provisions.
[167] Nola's will expressly provided that all her land and all her shares in WFGL were to be transferred to Colin on termination of Alan's life interest. Otherwise the residue of her estate, again on termination of Alan's life interest, was to be distributed between Diane and Pamela. These terms were unequivocal.
[168] The relevant facts are not in dispute. Ms Linda Stewart, who was employed first by NZ Dairy Co-op in 1997 and is now regional manager for Fonterra, explained the background to and nature of ownership of NZ Dairy Co-op shares. She said this:
8. A review of the NZ Dairy records show that [Alan] and [Nola] held NZ Dairy shares. I refer to an Excel spreadsheet in the bundle of documents. In 1998, Alan and Nola would have been required to hold 2 shares per 1 kilogram of milk solids supplied in the previous season. The sheet records that in 1998 and 1999 there were "bonus issues" of shares to Alan and Nola and the reason for this would have been to get their shareholding up to the required level. As at
30 July 1999, their shareholding was 135,572 shares. This means they would have supplied about 67,790 kilograms of milk solids the previous season (keeping in mind the shareholding was based on the
best of the previous 3 seasons). They did not hold any Peak Supply
Notes.
9.The next season, their production must have decreased. The records show that on 1 June 2001, Alan and Nola redeemed 7,522 shares at
$1 per share.
10.They then held 128,050 NZ Dairy shares… As was our standard practice, a letter would have been sent to Alan and Nola in July 2001 advising they held 128,050 shares. This means their production levels were about 64,000 kilograms of milk solids per season.
[169] Ms Stewart also explained the background to NZ Dairy Co-op's provision of
Peak Supply Notes as follows:
12.NZ Dairy was to provide farmers with Peak Supply Notes. The purpose of Peak Supply Notes was to recognise the different bell curves of milk supply from the farmers. Shareholders of Peak Supply Notes would contribute financially to the existing and new processing plants and capital such as tankers. These were to be issued by NZ Dairy on 1 June 2001 (the date of the merger and creation of Fonterra).
13.The number of Peak Supply Notes issued to each farmer was based upon the average daily litres of milk supplied during the farm's highest consecutive 10 days of production within NZ Dairy's 71 day peak period. For the initial allocation they were based upon the best of each farm's previous 3 season's peak period.
[170] I accept Ms Hollings' submission that shares are a chose in action.[16] They are transferred by entry of the name of the transferee on the share registry.[17]
[16] Laws of New Zealand, Choses in Action, para 1.
[17] Section 84 Companies Act 1993.
Ms Stewart's evidence is unequivocal. Alan and Nola were registered as the legal owners of the NZ Dairy Co-op shares when she died in June 1999.
[171] Ms Stewart's evidence is that Alan and Nola's 135,572 shares were worth $1 per share as at 30 July 1999. The couple did not then own any Peak Supply Notes.
[172] Mr Bellamy apparently assumed without consideration that WFGL owned the NZ Dairy Co-op shares. His note of a conference with Colin on 5 December 2000 recites an apparent assumption that Colin was entitled to 40% of the total shares, attributable to the farm he acquired in 1984. He assumed that the balance was owned by WFGL. Either Mr Bellamy or Mr Hareb arranged for Alan, Diane and
Pamela to sign a transfer of the NZ Dairy Co-op shares and Peak Supply Notes to Colin and Elaine on 27 April 2001. It is common ground that he did not advise any of the parties of their rights and obligations.
[173] However, given that the shares were choses in action, the nature of Alan and Nola's ownership of them was joint, as Ms Hollings accepts. Ownership in common arises only from severance of a joint ownership. Thus, by virtue of transmission, Nola's interest passed to Alan. Alan owned the NZ Dairy Co-op shares, not WFGL, when they were transferred to Colin and Elaine on 27 April 2001.
[174] In the result, Mr Bellamy would have been liable to Alan for the sum of
$135,572 together with interest at Judicature Act rates since April 2001 if a claim had been brought for Alan.
(3) Wasted Costs
[175] A further issue assumed some significance in argument at trial. The question is whether Mr Bellamy may be liable in damages for the costs of this litigation. That would be on the principle that such costs were a foreseeable consequence of Mr Bellamy's breaches of duty, whether of a contractual, tortious or fiduciary
nature.[18]
[18] Bank of New Zealand v New Zealand Guardian Trust Co Ltd [1999] 1 NZLR 664 (CA);
Canson Enterprises Ltd v Boughton & Co [1991] 3 SCR 534.
[176] I am satisfied that such a right exists. However, it would be vested in the party or parties who suffered loss as a result of the solicitor's breach of a contractual or fiduciary obligation. Here, as I have noted, Mr Bellamy breached his fiduciary duties by acting for all parties in positions of conflict without obtaining their informed consent. But his breach of duties owed to Diane and Pamela did not cause them loss.
[177] Instead, along with Colin, Diane and Pamela were the beneficiaries of Mr Bellamy's multiple breaches of duties owed to Alan in failing to protect his interests, whether he was acting in the capacities of Alan's solicitor or Nola's trustee.
Mr Bellamy would be at risk on a claim by Alan's litigation guardian of an award for damages equal to Alan's actual legal costs or an award of those costs. In either event, the result would be the same.
Result
[178] In the result Diane and Pamela's claims against all parties are dismissed.
[179] In normal circumstances I would enter judgment for the defendants. However, I will defer that step until a formal request is made by any defendants, but in any event not before 4 October 2010. This deferral will allow James Walker, as Alan's litigation guardian, to consider his rights. Alan is a defendant. He has rights of cross-claim and counterclaim. His litigation guardian has suspended a decision on exercising those rights pending determination of the substantive claims.
[180] It will be apparent to James that I am satisfied that Alan has rights of recourse against all other parties. Each of them, including Mr Bellamy, have breached their fiduciary obligations towards Alan in a number of ways and in different capacities, leaving Alan largely unprotected as a result. The further the trial proceeded, the more the breaches and the adverse effect on Alan's position became apparent. It was my concern in that respect which generated my invitation to James to participate in the trial itself. It will be for James acting upon legal advice to decide whether and to what extent he takes the steps necessary to rectify those breaches by recovering assets and providing Alan with a degree of financial protection for the remainder of his life. James is aware that Alan now depends primarily on Colin's goodwill, not his legal duty, for financial support.
[181] Costs would normally follow the event. Category 2B for two counsel would be appropriate. Costs are reserved and counsel are given leave to apply. Any application is to be by way of a memorandum of not more than 10 pages in length, and not before 4 October 2010. Those wishing to reply are to file memoranda within
14 days thereafter, again restricted to 10 pages or less. Counsel should advise whether they require an oral hearing.
[182] However, it may assist the parties if I make some preliminary comments on costs:
(1)I am conscious that this is a family dispute. All the parties, as I have noted, have been guilty of substantial breaches of trust towards Alan. All three siblings may prefer to allow costs to lie where they fall;
(2)I am also conscious that counsel for Diane, Pamela and Colin made genuine attempts to resolve the proceeding before and during trial. I am unable to comment on the participation of counsel for Mr Bellamy. Parties may have made offers without prejudice to costs which require consideration if claims for costs are pursued;
(3)Mr Bellamy will have to make out a convincing case for costs if he applies. His performance throughout was most unsatisfactory. Diane and Pamela's case has served to prove the extent of his potential liability to claims by Alan. This litigation was unlikely to have ensued if Mr Bellamy had discharged his professional duties according to elementary standards of competence.
[183] I wish to thank counsel for the quality of their argument, both written and oral, and for their most competent conduct of a difficult case.
Rhys Harrison J
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