Vernon v Public Trust

IN THE COURT OF APPEAL OF NEW ZEALAND

CA517/2015
[2016] NZCA 388

BETWEEN	ASHLEY WILLIAM VERNON AND BEVERLEY KAY VERNON Appellants
AND	PUBLIC TRUST Respondent

Hearing:	28 June 2016 (further submissions received on 11 July 2016 and 18 July 2016)
Court:	Ellen France P, Harrison and Wild JJ
Counsel:	A C Beck for Appellants H N McIntosh and H M Macfarlane for Respondent
Judgment:	9 August 2016 at 3 pm

JUDGMENT OF THE COURT

AThe appeal is dismissed.
BThe appellants are ordered to pay the respondent’s costs for a standard appeal on a band A basis together with usual disbursements.

____________________________________________________________________

REASONS OF THE COURT

(Given by Harrison J)

Contents

Para No

Introduction  [1]
Facts  [5]
High Court  [17]
Decision  [26]

Undue influence  [26]
Fiduciary duty  [32]
Breach of fiduciary duty  [43]
Limitation  [56]
Beverley’s liability  [65]

Result [69]

Introduction

On the day his wife Naomi died in March 2006, the late Kenneth Vernon left his home. He went to live with his son and daughter-in-law, Ashley and Beverley Vernon. Kenneth was then aged 86 years and was not in good health. He had previously executed an enduring power of attorney (the EPOA) in Ashley’s favour.
Kenneth’s assets at that time, represented primarily by his home which he sold a few months later, amounted to about $329,000. By the time Kenneth moved into a rest home in October 2008 his assets were reduced to a bank balance of $11,000. In exercise of his powers under the EPOA, Ashley had controlled Kenneth’s bank accounts throughout this period.
Following Kenneth’s death in 2011, the Public Trust was appointed as the replacement administrator of his will. In 2014 it issued a proceeding in the High Court against Ashley and Beverley (collectively the Vernons) to recover the funds withdrawn from Kenneth’s account, alleging that Ashley had wrongly misapplied them for the joint benefit of himself and Beverley. The Vernons denied liability and the claim went to trial.
Kós J found that Ashley had exercised undue influence over Kenneth.[1] Alternatively, he found Ashley had breached his fiduciary duties to his late father or had acted unconscionably towards him. The Vernons were liable to restore all misapplied funds to the estate. Judgment was entered against them jointly for $280,354 plus interest and costs. The Vernons now appeal.

Facts

[1]Public Trust v Vernon [2015] NZHC 1928 [HC decision].

The material facts are not in dispute.
In December 2005 Kenneth signed his last will appointing Ashley and Kenneth’s brother-in-law as his trustees and executors. He divided his residual estate, should Naomi predecease him, equally between Ashley and Kenneth’s grandson, Dante. Ashley was aware of the terms of the will from the time of its execution. Shortly afterwards, Kenneth appointed Ashley as his EPOA under the provisions of the Protection of Personal and Property Rights Act 1988 (PPPRA). The appointment was not made on the ground that Kenneth was mentally incapable and nor did the Public Trust allege that it was induced by Ashley’s influence.
In the period between February 2006, shortly before Naomi died, and June 2010, when he received a residential care subsidy, Kenneth’s only income was from superannuation and a war pension. He received a total of $92,425.
In April 2006 Kenneth’s current account had a credit balance of $36,000. Kós J recited the fate of these funds as follows:
[57]     Kenneth’s ANZ 00 account for the period 27 February to 27 March 2006 is instructive. Up to 20 March 2006 the date of Naomi’s death — withdrawals are generally by cheque. There are just two eftpos payments, one of which is to the family doctor. Four days after Naomi’s death a number of eftpos transactions start appearing. They are either at Woolworths Tawa (where the Vernons live) or at a Mill liquor outlet. The pattern then continues. There are some cheques paid, but most commonly they are eftpos payments. The eftpos card is being used to pay for groceries, liquor and petrol for the most part. Regrettably we do not have evidence of the Vernons’ own cheque account during the same period to see what change in pattern has occurred there. However Ashley acknowledged he had Kenneth’s eftpos card and that he had the pin number for it. He said that Kenneth approved the payments and was generally with him when it was used. Ashley said that would have been the case “99 per cent of the time”. Plainly the money was being used to meet living expenses of all three Vernons, as Ashley and Beverley admit.
[58]     On 26 April 2006 $31,531 was transferred into Kenneth’s 00 account. That appears to be repayment of a term deposit. The presence of those funds enabled the purchase of the car two weeks later.[2] Without it, insufficient funds would have been in Kenneth’s 00 account to meet the two forged cheques. The only other deposits came from regular superannuation and war pension payments received by Kenneth.
[59]     Beginning from 27 March 2006, withdrawals from Kenneth’s 00 account, mainly through the use of eftpos payments, substantially exceed deposits (superannuation and pension payments). To take an example, and putting to one side $17,010 paid for the car, in the period 27 April to 26 May 2006 withdrawals were $10,333, and deposits $1,187. In the next one month period to 26 June 2006, withdrawals are $4,857 and deposits $1,187. In the third period, ending 27 July 2006, withdrawals are $4,113 and deposits $1,187 again. In fairness to Ashley and Beverley, I accept that Kenneth coming to live with them meant there would have been some new expenses commensurate with the residence of a very elderly, frail (and clearly frugal) man.
[2]At [39]–[40].
In June 2006, acting under the EPOA, Ashley signed an agreement to sell Kenneth’s house for $290,000. In August 2006 the net proceeds of settlement of $282,000 were deposited into Kenneth’s accounts.[3]
[3]At [60].
Ashley immediately opened a new bank account in Kenneth’s name with the ANZ Bank. Again he used the EPOA for this purpose. He transferred the existing balance in Kenneth’s former accounts into the new account and closed the old accounts. He executed an authority for the new account whereby he would be the sole authorised signatory. He also set up the new account for internet banking facilities.
Kós J described the events immediately succeeding receipt of the settlement proceeds as follows:
[60]     On 11 August 2006 proceeds of sale of Kenneth’s house were received. $100,000 was deposited to Kenneth’s 00 account and $182,071 was deposited to his 30 account. At this point things take several curious turns.
An inexplicable series of transfers
[61]     The first curious turn came three days after the $100,000 was deposited to Kenneth’s 00 account. On 14 August 2006 $46,500 of that was transferred to the Vernons, as we have seen, via the third forged cheque. It was followed three days later by the fourth forged cheque, the $5,000 payment to the Vernons’ credit card provider.[4]
[62]     The next curious turn (almost a full pirouette) occurs on 21 August 2006. On that day the balance in Kenneth’s 30 account ($191,374 — mostly the balance of the house purchase moneys) is transferred to a new 46 account opened for him by Ashley. Next $40,000 from his 00 account is also transferred to this 46 account. Finally the same day a further $20,000 is also paid into the 46 account from the Vernons’ 83 account. In effect repaying a proportion of the forged cheque money received the week before.
[4]At [41].
Between April 2006 and June 2011 Ashley made total withdrawals from Kenneth’s bank accounts of $436,577. Some withdrawals were by cash and purchases of goods and services. Others were by cheques paid to the Vernons for their benefit totalling $86,922. The largest item was internet banking transactions totalling $252,623 to the Vernons’ bank accounts.
In September 2008 Kenneth left Ashley and Beverley’s house after an accidental broken hip. On discharge from hospital in October 2008 Kenneth moved into a rest home. He died at a subsequent rest home in September 2011 at the age of 91 years. His bank accounts then had a credit balance of about $1,400.
The Vernons spent most of Kenneth’s money on meeting their own needs and living expenses. Among other things they paid for special items such as two cruises on ocean liners in 2010 and 2011, travel to Australia, a new motor vehicle, wedding expenses and alcohol. They also loaned $50,000 to their daughter.
Kenneth and Naomi had two children. Ashley was the elder son. He was born in 1952. Initially he studied law at Victoria University but did not conclude his studies. He later worked in a variety of occupations. He was unemployed from 1998. Beverley maintained employment as a school teacher. The family relied on her income to live. The Vernons have three adult children.
Kenneth and Naomi’s younger son, Chris, died of cancer in November 2005 aged 51 years. Dante was his son, Kenneth’s grandson and the other equal beneficiary with Ashley under Kenneth’s last will. Kenneth’s estate had no assets available for distribution to either beneficiary.

High Court

The pattern and scale of Ashley’s expenditure of Kenneth’s money called for an explanation. Ashley and Beverley gave evidence at trial. Each was the subject of extensive cross-examination by Mr McIntosh for the Public Trust. Findings on their credibility were at the forefront of the Judge’s decision on liability.
Kós J summarised his findings about Ashley as follows:
[112] Ashley I regret to say I found to be a witness whose sworn testimony I was unable to trust. I refer in particular to the four cheque forgeries committed by Ashley, his evidence on them (which I find to be false), his false answer to interrogatories, two false WINZ subsidy forms completed by Ashley in Kenneth’s name, the series of illogical and inexplicable bank transfers, and the inexplicable failure (if things were above board) to respond promptly and frankly to family and solicitors’ inquiries about the estate. His answers to numerous questions in evidence were patently self-serving and an incomplete or adjusted version of the truth. I was compelled to treat his evidence, where uncorroborated by documentary evidence, with considerable reserve.
The Judge was more favourably disposed towards Beverley.[5] He recorded her knowledge that Kenneth’s money was being spent and that his bank accounts were depleted. She was aware that Ashley was making these transfers without Kenneth having the benefit of independent legal advice.
[5]At [113].
Kós J addressed the state of Kenneth’s health over the relevant period.[6] He reviewed the contemporaneous medical records and reports. He found that by mid to late 2006 Kenneth was frail, with depressive tendencies, impaired hearing and eye sight and with some intellectual impairment. In the Judge’s opinion, which is not challenged on appeal, Kenneth was vulnerable.[7] While there was some initial improvement over the ensuing two years, Kenneth’s general practitioner noted Ashley’s advice in February 2008 that Kenneth had “slowed a lot in six months”.[8] A further medical record from September 2008 stated that Kenneth had a history of “worsening cognitive impairment”.[9]
[6]At [27]–[34] and [69]–[72].
[7]At [34].
[8]At [71].
[9]At [72].
As noted, the Judge found for the Public Trust on the principal ground that Ashley exercised undue influence over his father. He was satisfied alternatively that Ashley owed his father a fiduciary duty arising from the EPOA and the relationship of trust and confidence consequent upon Kenneth’s reliance and vulnerability.[10] He found that Ashley breached his obligations in a number of respects. Alternatively, Ashley had acted unconscionably towards Kenneth who was vulnerable and at a disadvantage.[11] The Judge dismissed the estate’s claim for embezzlement as unarguable in law.[12]
[10]At [133]–[134].
[11]At [140].
[12]At [117].
Kós J found Beverley liable jointly with Ashley on the ground of knowing receipt of Kenneth’s funds.[13]
[13]At [153].
Kós J dismissed the Vernons’ affirmative defence that the Public Trust claim was time barred.[14] To the extent that the claim was for losses accrued prior to 8 October 2008, when the normal six year period would have run, he was satisfied that the Vernons had acted fraudulently, thereby postponing the commencement of the limitation period.[15]
[14]At [142]–[153].
[15]Limitation Act 1950, s 28.
The Judge was satisfied that the Vernons provided Kenneth with a high standard of care.[16] He allowed $400 per week on account of payments for Kenneth’s needs. The Vernons were entitled to a credit for this factor and expenditure on other items of $60,000.[17] This amount was deducted from the Vernons’ unlawful withdrawals from Kenneth’s account of $340,354.[18] Judgment was entered for the net balance of $280,354.[19]
[16]HC decision, above n 1, at [156].
[17]At [156]–[157].
[18]At [108] and [155].
[19]At [158].
Kós J summarised his conclusions as follows:
[161] In this judgment I have concluded:
(a) Ashley was aware that upon death his father Kenneth’s estate would be split in two ways, with Ashley succeeding to half only.
(b) Ashley set about forestalling that event by ensuring transfer of virtually the whole of Kenneth’s estate, during his life, to himself and his wife.
(c) Ashley did so by subtractions from Kenneth’s bank accounts, which were in Ashley’s control.
(d) In effecting those subtractions the Vernons (primarily through Ashley, but with Beverley’s knowledge) exercised actual undue influence against Kenneth, a frail, elderly and depressed man.
(e) Ashley’s actions also amounted to a breach of fiduciary duty owed to Kenneth, and to unconscionable conduct. Had it been necessary to do so I would have set aside the subtractions on those bases also.
(f) Beverley was aware of what was occurring. She is fixed with knowledge of her husband’s actions. She is liable for knowing receipt of the transfer made with undue influence.
(g) The result of that undue influence was that the Vernons subtracted and received $340,354 from Kenneth’s accounts to which they were not entitled.
(h) The Vernons are liable to account to the administrator of Kenneth’s estate, the Public Trust, for that amount, less the credit that I have allowed them for their care of Kenneth and certain capital items purchased for his benefit. The credit allowed totals $60,000.
(i) The Vernons are therefore liable to account to the Public Trust for $280,354.
(j) Interest is payable on the amount for which the Vernons must account, from 5 September 2008.

Decision

Undue influence

Mr Beck for the Vernons submitted that Kós J erred in finding Ashley had exercised an undue influence over Kenneth in obtaining his consent to the majority of the transactions. His primary argument was that the Judge was wrong to find that Kenneth did not consent to them when he signed the EPOA. Mr Beck protested the Judge’s observation that at trial he took no issue with the evolution of the estate’s claim into one of undue influence and unconscionable conduct.[20] He observed that undue influence was not a prominent element of the case as pleaded and argued at trial.
[20]At [115].
We agree that the High Court judgment cannot be sustained on the ground of undue influence, but for a different reason. As the Judge himself noted: “The focus of undue influence is on the circumstances and sufficiency of consent to a transaction” (emphasis added),[21] such that it can be said to have been procured through the unconscientious use of one person’s power over another.[22] The inquiry is into the nature and degree of inducement operating on a person to carry out a transaction into which he or she did not freely and knowingly enter.[23] A sustainable plea of undue influence attacks the sufficiency of prima facie consent as to render a transaction fundamentally defective and legally void.
[21]At [116]. See Contractors Bonding Ltd v Snee [1992] 2 NZLR 157 (CA) at 166.
[22]Brusewitz v Brown [1923] NZLR 1106 (SC) at 1109–1110.
[23]CIBC Mortgages Plc v Pitt [1994] 1 AC 200 (HL) at 209 per Lord Browne-Wilkinson.
However, it was the antithesis of the estate’s claim that Kenneth had ever consented in any meaningful way to the transactions which Ashley, not Kenneth, had entered into. Its claim was not that Ashley had ever induced Kenneth to act but rather that Ashley acted throughout of his own volition, purportedly under the EPOA and without ever consulting with or obtaining Kenneth’s consent to transactions. It pleaded expressly that Kenneth did not authorise any of the payments but that, if the Court found otherwise, the payments were procured by Ashley’s undue influence.
In upholding the estate’s primary claim and rejecting Ashley’s evidence that Kenneth gave approval not only to individual internet banking transactions but to the transactions generally, Kós J found:
[64] Ashley’s evidence was that his father sat with him by the computer, approving internet bank transfers. That evidence was supported to some extent by Beverley. She said she observed this, although she appears to have had no real knowledge of the transfers apart from the fact that they were happening. I do not accept, however, that Kenneth gave any sort of transaction-by-transaction approval. First, the inexplicable series of transfers just analysed shows it is unlikely that Kenneth understood what Ashley was doing. Secondly, his health condition (and poor eyesight) meant it was unlikely. Thirdly, I do not accept that Kenneth, for all his generosity, approved his own conversion to pauperdom when his length of life and future needs were uncertain. He had no terminal illness. When he left the care of Ashley and Beverley, with just $11,500 of the $330,000 he brought, he in fact had three years life to live.
Kós J found a relationship of influence arose through Kenneth’s entry into the EPOA in Ashley’s favour and his de facto reposal of trust and confidence by handing Ashley daily control of his banking affairs.[24] We agree but the Public Trust did not allege that either event was caused by Ashley’s exercise of undue influence over Kenneth. Mr McIntosh submitted before us that some level of inducement must have been inherent in Kenneth’s consent to giving Ashley possession of his eftpos card and PIN number. But that submission does not fit well with the estate’s pleaded case which focused on the lack of consent to the individual payments or, if the Court found otherwise, pleaded the payments were procured by undue influence. Nor was it the subject of specific finding by the Judge.
[24]HC decision, above n 1, at [123].
We can understand why Kós J addressed undue influence in the way that he did given the Vernons’ primary defence that Kenneth consented to each transaction. However, once the Judge rejected this defence and found that the transactions did not occur with Kenneth’s consent, improperly induced or otherwise, but that “the situation was one of complete transfer of control of Kenneth’s finances”,[25] the estate’s undue influence claim could not succeed.

Fiduciary duty

[25]At [123].

The question then is whether the judgment can be sustained on Kós J’s alternative findings of breach of fiduciary duty[26] and unconscionability.[27] At the conclusion of argument on 28 June we invited counsel to file supplementary submissions on the first claim.
[26]At [132]–[137].
[27]At [138]–[141].

Mr McIntosh had advanced the Public Trust’s case of breach of fiduciary duty in the High Court on two separate grounds. One was that a donee under a power of attorney owes fiduciary obligations to the donor.[28] Specifically, they are to act with absolute openness and fairness, to exercise reasonable care in managing a donor’s financial affairs, to keep personal and fiduciary property separate and to avoid conflicts of interest in duty. Mr McIntosh expanded and focussed upon this ground in supplementary submissions. Alternatively, he argued that a fiduciary duty arose out of the existence of a family caregiver relationship, based on the essential elements of trust, vulnerability and representation.[29] As noted, Kós J found a fiduciary relationship on both grounds.
[28]Ganderton v Behre HC Rotorua CIV-2004-463-614, 23 September 2005 at [72].
[29]Chirnside v Fay [2006] NZSC 68, [2007] 1 NZLR 433 at [80].
Mr Beck submitted that the EPOA does not give rise to an obligation upon the donee which is enforceable in equity for these reasons:
(1)The EPOA is a creature of statute. The PPPRA is itself a codified statement of duties imposed on an attorney, drawing a clear distinction between donors who are mentally capable and those who are not. Express duties of a fiduciary nature are imposed on attorneys where the donor is mentally incapable, such as to act in the promotion and protection of the donor’s best interests, to keep records of each financial transaction entered into and only to act for his or her own benefit in limited circumstances.[30]
(2)By contrast, Mr Beck submitted, the duties owed by an attorney to a mentally capable donor, such as Kenneth, are circumscribed by the PPPRA. The attorney is empowered to do anything the donor could do by an attorney; that is, anything that can be lawfully done by an agent for a principal.[31] He or she is required “as far as practicable to consult the donor”.[32] Otherwise the donee is treated as being in the shoes of the donor with plenary powers. While the court has express powers to review decisions made by attorneys when the donor is mentally incapable,[33] it should not by a backdoor method allow the same remedy for a mentally capable donor when the Act does not so provide.
[30]Protection of Personal and Private Property Rights Act 1988 [PPPRA], ss 97A, 99C and 107.
[31]Section 97(2).
[32]Section 99A(1).
[33]Section 103.
It would be wrong, Mr Beck submitted, to impose equitable duties on an attorney where the statutory instrument providing for his or her appointment and obligations does not do so, and where it would have been open to the donor to impose those obligations by inclusion in the EPOA itself. He distinguished High Court decisions which have held that an EPOA created a fiduciary relationship between the donor and attorney, either because a concession was made to this effect[34] or where liability arose because the power was used to the donor’s disadvantage.[35]
[34] Lines v Pikia [2013] NZHC 503.
[35]Ganderton v Behre, above n 28.
We reject Mr Beck’s submission. We are not satisfied that the PPPRA is a self-contained codification of a donee’s duties under an EPOA where the donor is not mentally incapable. The instrument of appointment empowers the donee to act as the donor’s agent or attorney. The relationship created is classically one of principal and agent:[36]
A power of attorney is simply a formal type of agency under which the donor appoints the attorney as agent, to do certain things that the donor himself has the legal right to do.

Together, the instrument and the statute specify the purpose or purposes for which the agent is empowered to act. The EPOA’s statutory purpose is to enable the donor through his or her attorney to carry on functioning and managing his or her own property.[37] The power authorises the attorney to act generally in relation to the whole of the donor’s affairs in relation to his or her property.[38]

[36]Read v Almond [2015] NZHC 2797 at [265] quoting Law Commission Misuse of Enduring Powers of Attorney (NZLC R71, 2001) at 2. See also W R Atkin “Enduring Powers of Attorney in New Zealand” [1988] NZLJ 368 at 369.

[37]PPPRA, s 93A.

[38]Section 97(2).

However, Mr Beck’s argument is flawed because it equates a statutory expression of a power to act for a defined purpose with the absence of correlative duties. The nature of this statutory power does not exclude the imposition of equitable obligations. To the contrary, equity imposes enforceable duties upon an agent to ensure that he or she discharges a power for the purpose for which it is granted.[39] Fiduciary obligations are a necessary incident of the relationship of principal and agent.[40] Unless the instrument or statute requires otherwise, the agent must discharge his or her duties towards the principal with the utmost loyalty, honesty and good faith. He or she must ensure that he or she does not benefit himself or herself at the donor’s expense.[41] And he or she must act always in the donor’s best interests, in particular where a power is granted for the purpose of preserving and managing the donor’s property.
[39]Andrew Butler “Fiduciary Law” in Andrew Butler (ed) Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009) at [17.3.5].
[40]Chirnside v Fay, above n 29, at [72]–[73].
[41]New Zealand Netherlands Society “Oranje” Inc v Kuys and The Windmill Post Ltd [1973] 2 NZLR 163 (PC) at 165–166.
Mr Beck emphasised that an agent’s duties are all contextual.[42] In this context the donor’s mental capability does not militate against the existence of obligations. Indeed, their imposition and proper performance are essential where the donor, even if mentally capable, is elderly, vulnerable and has granted the power for the obvious reason that his ability to protect his property interests is impaired or diminished. The factors of trust and reliance, recognised by the Judge within the wider finding of a fiduciary duty, must predominate.
[42]Kelly v Cooper [1993] AC 205 (PC) at 214.
In our judgment the PPPRA’s specification of fiduciary duties imposed on an attorney holding a power for a mentally incapable donor, but not for a mentally capable donor,[43] is not decisive. Identification of those duties owed to a mentally incapable donor reinforces the requirement of proper performance for that particularly vulnerable class. It does not mean that the absence of a similar expression of duties to mentally capable donors absolves the donee from discharging the same obligations imposed by equity.
[43]PPRA, ss 97A, 99C and 107.
There is compelling evidence for our preferred construction of the PPPRA in its legislative history. Part 9, which deals with enduring powers of attorney, was inserted into the PPPRA at select committee stage.[44] The impetus behind its inclusion was to furnish the people of New Zealand with a user-friendly mechanism for arranging their future affairs, as is apparent from the speech of the Rt Hon Geoffrey Palmer, then Minister of Justice, at the Bill’s second reading:[45]
As members may recall, the Bill provides for the protection and promotion of the personal care and welfare of incapacitated people, and for the management of their property. That is to be done by the family courts, which will make personal and property orders. However, a person who has the foresight to provide for someone to act for him or her through a power of attorney should mental incapacity subsequently occur has that wish frustrated under the existing law, which automatically revokes such a power of attorney when the donor—the person giving the power—becomes mentally incapacitated. There is no policy reason that a donor of a power of attorney should not provide for what is to happen during his or her mental incapacity. Indeed, the law should encourage people to do that, because it is likely to reduce the claims made on the family court resources by application under the Bill for personal and property orders. It is even more important, because a person can tailor an enduring power of attorney to suit his or her particular circumstances. Clearly, a person is in a much better position than a court to say what he or she wants to happen in those circumstances.
[44]Law Commission, above n 36, at 1.
[45](18 February 1988) 486 NZPD 2120.
This statement complements the initial explanation for the Bill: to “replace the butcher’s knife with the surgeon’s scalpel” by tailoring personal and property arrangements “to the degree of [one’s] ability to manage without assistance”.[46] But in 2001 the Law Commission expressed concern that those who settled the form of procedure under pt 9 did not include effective safeguards for donors.[47] This led to several amendments to pt 9 through the enactment of the Protection of Personal and Property Rights Amendment Act 2007, which came into force on 26 September 2008.[48] The Hon Ruth Dyson, then Minister for Senior Citizens, said at its first reading that the amendments would “provide easier access to the courts for anyone with concerns about an attorney’s actions”.[49] The Minister further observed that the law should “prevent abuse and present opportunities for redress”.[50]
[46]Protection of Personal and Property Rights Bill 1986 (90-1) (explanatory note) at i.
[47]Law Commission, above n 36, at 3–4.
[48]Ministry of Social Development Report of the Minister for Senior Citizens on the review of the amendments to the Protection of Personal and Property Rights Act 1988 made by the Protection of Personal and Property Rights Amendment Act 2007 (June 2014) at 7.
[49](7 December 2006) 636 NZPD 7035.
[50](7 December 2006) 636 NZPD 7036.
This history is relevant in highlighting the dual purpose of the EPOA provisions to facilitate delegation of powers while maintaining the protection of vulnerable persons. That purpose supports the preservation of an equitable overlay to the technical regime provided by the PPPRA. Indeed, the general supervisory jurisdiction of the courts over fiduciary relationships is not limited or affected by the provisions specifying jurisdiction in respect of an EPOA where the donor is mentally incapable.[51] We are satisfied that Ashley owed Kenneth fiduciary duties whenever he exercised his powers under the EPOA.

Breach of fiduciary duty

[51]PPPRA, s 102(3).

In addressing breach of duty, Mr Beck accepted that Ashley would be liable if the Public Trust proved he exercised Kenneth’s power for an improper purpose. However, Mr Beck submitted that no improper purpose was identified in this case. It was not improper for a donor to spend money on household goods in the home where he is living and being cared for, or on items which will be for his comfort and improved living conditions. Nor is it an improper purpose to make payments to benefit family members.
Mr Beck’s argument must be addressed in its factual setting. Without doubt, if he were acting for himself Kenneth would have spent his funds where necessary for his own care and comfort. He may also have chosen to make payments to benefit family members. But over the relevant period he was in his late 80s and frail. His hearing and eye sight were impaired. His cognitive ability was diminishing. He had no dependents. His financial needs must have been very modest. His proper spending purposes would have been limited accordingly.
Kós J accepted this distinction between proper and improper spending purposes. He severed the transactions according to whether they are effected by the proper or improper use of the power. He carried out an apportionment exercise on a global basis, giving Ashley and Beverley the generous benefit of $400 per week for proper spending on Kenneth’s needs.[52] He found that the balance of the transactions were entered into for an improper purpose. We see no basis for interfering with the Judge’s approach.
[52]HC decision, above n 1, at [156].
Mr Beck was forced to rely on a proposition that all the impugned transactions were for a proper purpose because Kenneth consented to Ashley’s course of spending. In his submission the donor’s wishes are the key factor. Kenneth made his wishes very clear, both in conversations with Ashley and Beverley and in providing Ashley with his eftpos card and PIN.[53] Also the purchase of the car, selected by Kenneth for his comfort and to ensure his mobility, was a proper exercise of the power. It was not established that Kenneth was disadvantaged by Ashley’s payments.
[53]At [57].
Mr Beck sought to challenge Kós J’s factual findings that Kenneth did not consent. But his argument faced the inherent improbability of Kenneth giving his informed consent to Ashley’s appropriation of the entire value of his estate to his own benefit over a three year period, thereby defeating Kenneth’s testamentary intention to leave a bequest of significance to his grandson. Ashley’s use of the EPOA was directly contrary to Kenneth’s property interests.
While acknowledging the advantage enjoyed by the trial Judge who had the benefit of evaluating the evidence as it was given, Mr Beck singled out for challenge two of Kós J’s specific findings which were said to undermine his adverse conclusion on Kenneth’s consent.
The first was that Ashley was responsible for forging four particular cheques. Kós J examined the evidence relating to each cheque in detail.[54] In summary, he was satisfied that Ashley wrote out the four cheques in his own favour and forged his father’s name. He took into account a range of evidence including in particular expert evidence from a senior police document examiner. While she could not give a definitive opinion (as such witnesses are never able to do), based on the available evidence the examiner was satisfied that “there are indications” Ashley both completed the cheques and wrote Kenneth’s signatures.[55] The Judge was satisfied beyond reasonable doubt that the writing was not Kenneth’s but was similar to Ashley’s; and that nobody other than Ashley or Kenneth could have written the cheques.[56] Taking account also of Ashley’s equivocal, often evasive, answers in cross‑examination, he was in no doubt that Ashley had forged the cheques.
[54]At [36]–[48]
[55]At [43].
[56]At [47].
Before us Mr Beck relied primarily upon the document examiner’s inability to give a definitive opinion. However, we are satisfied that her indicative opinion was adequately corroborated by the surrounding circumstances identified by the Judge. Mr Beck also emphasised that Ashley had no motive to forge cheques given that he held Kenneth’s EPOA. But proof of motive was not necessary, especially where the cheques were drawn for substantial amounts in Ashley’s favour — for $13,000 in May 2006 and $46,500 in August 2006.
The second factual finding challenged by Mr Beck was that Ashley falsely completed WINZ subsidy application forms in Kenneth’s name. Kós J also addressed in detail the evidence relating to Ashley’s completion of two WINZ forms — residential care needs and financial means assessment forms.[57] Both were submitted by Ashley using his EPOA for the purpose of obtaining a rest home care subsidy for Kenneth. The Judge was satisfied that Ashley must have appreciated that the forms contained false information about whether Kenneth had, first, ever gifted, transferred or disposed of any cash or non-cash assets and, second, received a high level of care from someone other than a dependent child.[58] The Judge also found that Ashley’s answers in cross-examination on this subject were evasive and unsatisfactory.[59]
[57]At [73]–[79].
[58]At [76].
[59]At [77].
We do not need to determine this submission. The Judge’s finding on the false forms was just one of a number of planks for his adverse conclusion about Ashley; it was amply supported by all the other planks.
Mr Beck also submitted that Kós J took an unjustifiably jaundiced view of Ashley’s evidence. He referred to the Judge’s description of Ashley “making off” with Kenneth’s money and Kenneth’s “conversion to pauperdom”.[60] However, these observations do not detract from the justification for the Judge’s adverse findings about Ashley’s conduct and credibility. Kós J’s conclusion that Ashley was an untruthful witness was the inevitable consequence of his inability to justify a pattern of systematic abuse of a position of trust. In this respect he was entitled to take into account Ashley’s equivocal, contradictory and unsubstantiated answers in cross‑examination.
[60]At [148] and [64].
In summary, Mr Beck’s assertion that Ashley was acting throughout in accordance with Kenneth’s wishes must fail. Apart from the improbability of an elderly man consenting to his son’s rapid dissipation of his estate, the Judge expressly rejected Ashley’s evidence of Kenneth’s consent. We see no basis for interfering with that finding. And the fact that Kenneth provided Ashley with his eftpos card and PIN was consistent with the trust inherent in granting the EPOA to his surviving son and with an expectation that Ashley would use these details for the purpose of properly discharging his duties and protecting Kenneth’s property. Instead, when the evidence is viewed in totality, the conclusion is inescapable that from about April 2006 Ashley systematically abused for his own benefit the power entrusted by his father.
This ground of appeal must fail.

Limitation

Ashley and Beverley pleaded an affirmative defence that the Public Trust claim was time barred. The proceeding was filed on 8 October 2014. The Vernons asserted that the six-year limitation period applied. As a consequence, they were excused from liability for the losses claimed for spending before 8 October 2006.
In answer the estate relied on s 28(a) of the Limitation Act 1950 as follows:
28       Postponement of limitation period in case of fraud or mistake
Where, in the case of any action for which a period of limitation is         prescribed by this Act, either—
(a)       The action is based upon the fraud of the defendant or his          agent or of any person through whom he claims or his agent; or
(b) The right of action is concealed by the fraud of any such person as aforesaid; or
(c) The action is for relief from the consequences of a        mistake,—
the period of limitation shall not begin to run until the plaintiff has         discovered the fraud or the mistake, as the case may be, or could         with reasonable diligence have discovered it:
…
Kós J upheld the estate’s position that its claim was based on Ashley’s equitable fraud which was captured by s 28(a).[61] His fraud postponed the commencement of the six-year limitation period until May 2013.[62] The Judge was satisfied that it could not have been discovered with reasonable diligence before that date.
[61]At [148].
[62]At [149].
Mr Beck challenged this finding. He said that Kós J erred in finding that Ashley’s equitable fraud satisfied the requirements of s 28(a). In his submission this Court’s decision in Collier v Creighton[63] wrongly extended the meaning of fraud in this context to breaches of fiduciary duty. We disagree. As Mr McIntosh pointed out, this Court’s decision in Collier v Creighton was upheld on appeal by the Privy Council in finding that proof of a breach of fiduciary duty constituted equitable fraud within the meaning of s 28(a).[64]We see no reason to depart from or distinguish that settled line of authority.
[63]Collier v Creighton [1993] 2 NZLR 534 (CA) at 538–542.
[64]Collier v Creighton [1996] 2 NZLR 257 (PC) at 262.
In any event, even on Mr Beck’s approach, we are satisfied that s 28(a) applies. In his submission, fraud in this statutory context sets a high threshold. Its proof requires evidence of pursuit of a course of action knowing that it is contrary to the principal’s interests; that is, proof of the defendant’s knowledge that he is acting in a way which he does not honestly believe is in the principal’s interests.[65] The defendant must himself realise that his conduct was dishonest by the ordinary standards of reasonable people.[66] Mr Beck maintains that proof of subjective dishonesty is required.
[65]Gwembe Valley Development Co Ltd (In Receivership) v Koshy [2004] 1 BCLC 131 (CA) at [131].
[66]Twinsectra Ltd v Yardley [2002] 2 AC 164 (HL) at [27]–[28].

In this case, Mr Beck said, Ashley’s conduct did not reach that standard. He believed he was acting in accordance with Kenneth’s wishes; and he was dealing with the funds as Kenneth intended. He was not seeking to disadvantage Kenneth and there was no evidence that Kenneth was in fact disadvantaged.
There is no purely subjective standard of dishonesty. Ashley, as an agent, is not absolved from liability simply by asserting that in his own mind he was acting honestly. He cannot escape liability in circumstances where he must have known that his actions were dishonest when measured by the ordinary standards of reasonable people.[67] To that extent the objective measure applies.
[67]Barlow Clowes International Ltd (in liq) v Eurotrust International Ltd [2005] UKPC 37, [2006] 1 WLR 1476 at [10] per Lord Hoffmann.
As Kós J found, Ashley was aware of the provisions of his father’s will and set about forestalling the possibility of receiving only half the estate by transferring almost its entirety to himself.[68] That is sufficient to show Ashley must have known his actions were dishonest. He cannot have honestly believed that when entrusted with the power of protection of his father’s property he was acting in Kenneth’s interests in spending all Kenneth’s money on his own needs. In addition, we repeat our endorsement of the Judge’s finding that Kenneth did not consent to the transactions entered into by Ashley in his own favour. And we repeat also what is obvious: Ashley’s dissipation of Kenneth’s estate could never have been to Kenneth’s advantage.
[68]HC decision, above n 1, at [129].
The Vernon’s limitation defence must fail.

Beverley’s liability

Mr Beck challenged Kós J finding of Beverley’s accessory liability for losses caused by Ashley’s breaches. He held that:
[153] Finally, I consider the position of Beverley. Although Ashley committed the equitable frauds here, Beverley benefitted from them. And she was sufficiently aware of what was occurring that she must bear ancillary liability for knowing receipt. It is unconscionable for her to retain some benefit of the joint receipt with Ashley, in terms of Nourse LJ’s analysis in Bank of Credit and Commerce International (Overseas) Ltd v Akindele.[69] She is liable to account in the same manner as Ashley is. Even if this were a case in which a limitation period did apply, Ashley must be regarded as Beverley’s agent for the purposes of s 28(a) of the 1950 Act. Any limitation period would not run in her case until 1 June 2013 also.
[69]Bank of Credit and Commerce International (Overseas) Ltd v Akindele [2001] Ch 437 (CA) at 455.
We reject Mr Beck’s submission that the elements of the claim against Beverley had not been made out. All the funds misapplied by Ashley in breach of his fiduciary obligations were held on constructive trust for Kenneth.[70] Ashley was not entitled to retain for his own benefit any funds expended contrary to Kenneth’s interests. A third party such as Beverley who takes the benefit of these funds when on notice that they are dishonestly obtained is liable as a constructive trustee.
[70]Jessica Palmer “Constructive Trusts” in Butler, above n 39, at [13.2.2].
Actual or constructive knowledge is sufficient to ground recipient liability.[71] As Mr McIntosh pointed out, Beverley knew that the scope of the transactions entered into by Ashley was wrongful. She was aware they were occurring. She was concerned that Kenneth should be independently advised.[72] And when she had realised that all Kenneth’s money had gone she observed “it was not what I would have done”. Nevertheless, she benefited fully and equally with Ashley from the misappropriated payments, which were used to meet their joint living expenses and expenditure on luxuries and loans to their children. She must be treated in law as having knowingly received Kenneth’s funds when they were impressed with a constructive trust.
[71]Westpac Banking Corporation v Savin [1985] 2 NZLR 41 (CA) at 52–53.
[72]HC decision, above n 1, at [18].
Beverley is liable accordingly.

Result

The appeal is dismissed.
Mr Beck challenged the normal rule that costs should follow the event. He submitted that the case assumed a different flavour on appeal from its formulation in the High Court. He pointed to the estate’s wholehearted endorsement of the undue influence analysis undertaken by the Judge. In seeking to maintain this erroneous approach taken in the High Court, the estate must bear responsibility for the financial consequences.[73]
[73]Manukau Golf Club Inc v Shoye Venture Ltd [2012] NZSC 109, [2013] 1 NZLR 305 at [13].
Mr McIntosh countered that in his original synopsis of submissions Mr Beck did not argue that undue influence was unavailable for the reason that Kenneth did not consent to the transactions. To the contrary, the Vernons’ appeal was advanced on the basis that the undue influence finding was wrong because, contrary to the Judge’s finding, Kenneth did consent to the transactions.
While we accept that the parties were put to some additional expense because we invited further submissions at the conclusion of the hearing, we are not satisfied that that factor displaces the normal rule that costs should follow the event. The Vernons did not identify the conceptual ground upon which the primary finding of undue influence could not be sustained. And the Judge did find the Vernons liable on the alternative ground of breach of fiduciary duty which we have upheld, albeit for expanded reasons.
The Vernons are ordered to pay the Public Trust’s costs for a standard appeal on a band A basis together with usual disbursements.

Solicitors:
The Law Store, Porirua for Appellants

[2016] NZCA 388

9 August 2016 at 3 pm