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Beneficiaries, trust, Trusts

Family relationship minefield

In Sandman v Giboney, Mr Sandman claims that a law firm knowingly assisted a breach of trust by taking will instructions and assisting in the preparation and subsequent administration of a will when the will-maker did not have sufficient capacity to make a will.

The matter came before the court in an application for strike out / summary judgment against Mr Sandman on the basis that the claim could not succeed at trial.  That application was unsuccessful.  However, an application for security for costs in the amount of $40,000 was successful, which means that before the matter can proceed to a hearing Mr Sandman must pay $40,000 into the court on account of costs that will be payable by him if his claim is not made out at trial.

In the meantime, it is useful to consider the facts that lead to the claim and the elements that must be made out to make a case of knowing assistance.

No opinion is proffered here as to the likely outcome should the matter proceed to trial.  However, the claim of knowing assistance is an interesting one that is worth considering as it is suggested that claims of knowing assistance could be made more often than is currently the case.

Trusts arise in all manner of relationships where there are fiduciary or similar obligations.  When those trusts are breached due to third party actions, it is appropriate to consider whether there has been actionable assistance in any breach of trust that results.

The background facts to Sandman v Giboney are considered here, in part to give context to the discussion, but also to highlight the very fact specific nature of such claims.

  • Mrs Sandman had two children Mark (referred to in the decision as Mr Sandman) and Vicki, who predeceased her
  • In 2005 Mrs Sandman made a will prepared by Guardian Trust whereby she made specific legacies of an apartment to Mr Sandman and $200,000 to his sister Vicki, with the residuary balance to be divided equally between Mr Sandman and his sister or the survivor of them such that in the event Vicki predeceased Mrs Sandman, the entire estate would be distributed to Mr Sandman
  • In 2007 Mrs Sandman instructed Wilson McKay on the sale of her home as she was moving into a retirement village.  At the time Mrs Sandman appointed her daughter Vicki her property and welfare attorney under enduring powers of attorney.  The appointment of Vicki as her property attorney took immediate effect
  • In 2010 Mrs Sandman made a new will after Vicki was diagnosed with terminal cancer
  • Under that will Mr Sandman was still to inherit the apartment, but no longer inherited the entirety  of the residuary estate
  • New enduring powers of attorney were also entered into whereby Mr and Mrs Giboney were appointed as successor attorneys in the event that Vicki could no longer act as an attorney
  • Vicki died in 2011
  • Mrs Sandman died in 2013
  • The executors of Mrs Sandman’s estate were Mr Giboney and Mr McKay, a partner at Wilson McKay
  • No caveat is reported as being lodged to prevent probate
  • No claim by Mr Sandman against the estate, for example under s 4 of the Family Protection Act is referred to in the decision
  • The estate was fully distributed
  • Mr Sandman received an apartment and approximately $440,000
  • Mr Sandman subsequently filed the proceedings referred to above.  As noted at [14] “The claim against Wilson McKay is that they knowingly assisted Vicki and/or Mr Giboney in obtaining control of Mrs Sandman’s affairs and by her execution of the Will in 2010.”

It is useful to set out Mr Sandman’s pleadings as noted at [18]:

“5. The 2010 will was executed by the deceased when she lacked testamentary capacity. The lack of capacity is evidenced by:

(a) On 18th March 2007 the deceased granted Vicky an enduring power of attorney, that was not limited to when she may become incapacitated (“the 2007 EPOA”).

(b) On 21 January 2010 Julie Paul, a senior associate of the Second Defendants, certified a true copy of the 2007 EPOA. The certified true copy of the 2007 EPOA was then presented to the ASB Bank Ltd to enable Vicky to take control of the accounts of the deceased from January 2010.

(c) The doctor acting for the deceased sought an assessment of the deceased for mild dementia in February 2010.

(d) The deceased was assessed as having mild cognitive impairment in March 2010.

(e) The deceased was admitted to hospital for a fall in July 2010, at which time she was unable to consent to her medical operation, and the clinical admission notes recorded that she had become reclusive and dependant on her daughter Vicky. The notes record the deceased had mild dementia which meant she could not consent to the operation and was vulnerable to repeat episodes of confusion and agitation. Vicky consented to the operation on behalf of the deceased

(f) The deceased was discharged in August 2010, and the discharge report noted the deceased had suffered post-operative delirium, was suffering mild dementia, and had an MMSE score of 12/30 (where anything less than 23 shows cognitive impairment).

(g) In August 2010 Vicky was diagnosed as suffering a brain tumour and advised she had approximately 6 months left to live.

(h) On 1 September 2010 the Second Defendants through their employee Julie Paul (nominally) wrote to the deceased care of Vicky advising (in effect) Vicky of the indication by the rest home to terminate the occupation licence of the deceased due to her deteriorated mental health. The letter of 1 September refers to a telephone conversation on 31 August 2010. On the same date an invoice (bearing date 31 August) was rendered nominally to the deceased but again care of Vicky, for that advice.

(i) The care plan instigated by the rest home where the deceased was living in September 2010 proceeded with her care on the basis of her dementia at an MMSE score of 12/30.

(j) Full time care givers were employed to assist the deceased in her daily routine in September 2010. The wages for care givers were paid for from the accounts of the deceased, then operated by the first named First Defendant.

(k) On or about the 21st September 2010 the in-house doctor at the rest home assessed the deceased as having an MMSE score of 19/30.

(l) On 27 September 2010 Vicky provided the first named First Defendant with her own Enduring Power of Attorney (“Vicky’s EPA”), Vicky’s EPOA was prepared by, witnessed, and certified by Julie Paul.

(m) On 21 October 2010 the Second Defendants by their employee Julie Paul wrote (nominally) to the deceased, care of the first named First Defendant, and copied to Vicky, setting out the terms of a proposed new will, and of a new Enduring Power of Attorney (in favour of Vicky but with the first named First Defendant as substitutionary Attorney), noting that giving the power to Vicky was to be reviewed in November (“the will instructions letter”). The will instructions letter notes: (a) that the first named First Respondent will receive a bequest of $10,000 in consideration of his attendances as executor of the deceased’s estate, and (b) that the Second Defendants will arrange for Dr Buckley to visit the deceased to provide the Second Defendants with a medical certificate confirming the deceased has capacity to make a will.

(n) Contrary to the will instructions letter, the Second Defendants obtained a certificate from Dr Buckley dated 28 October 2010, recording that when Dr Buckley last saw the deceased on 30 September 2010, it was the opinion of Dr Buckley that the deceased on that date (30 September 2010) had capacity to execute a will

(o) On 2 December 2010 Julie Paul attended on the deceased, and witnessed the deceased execution of the 2010 will. She also witnessed a statutory declaration by the deceased of the reasons for her changes in the 2010 will. The statutory declaration was prepared in advance by the Second Defendants and executed together with the 2010 will.

(p) On the 2nd December 2010, James Langton visited the deceased, who advised him that she had received a visit from some lawyers earlier that day, but had no idea why they had come or what they had discussed with her.

(q) On 3 December the Second Defendant wrote (nominally) to the deceased but sent care of Vicky, copies of the 2010 will and the new Enduring Power of Attorney. An invoice for those services was issued same day, but addressed to the residential address of the deceased.

6. The deceased did not have the ability to comprehend or recollect the extent of her estate or to comprehend the appropriate claims of persons on her estate when she signed the 2010 will. The 2010 will reflected the intentions of Vicky, regarding the disposition of the estate of the deceased, in light of Vicky’s own pending death.

7. The deceased executed a will dated 15 December 2005 (“the 2005 will”) appointing The New Zealand Guardian Trust Company Limited (“Guardian Trust”) as executor and trustee (a copy of which will is annexed hereto and pleaded in full). The 2005 will remains in the possession and control of Guardian Trust.”

As noted at [19]:

” In overview it is Mr Sandman’s claim against Mr Giboney and Mr McKay that Mrs Sandman lacked testamentary capacity, and/or lacked knowledge and approval, and/or was unduly influenced in respect of her execution of the 2010 Will. His claim against Wilson McKay is that they “knowingly assisted” Vicki and/or Mr Giboney in obtaining control of Mrs Sandman’s affairs in the execution of the 2010 Will. With regard to the claim of “knowing assistance” Mr Sandman at paragraph 23 of his statement of claim pleads:

Throughout 2010 [Wilson McKay] knowingly assisted Vicki and/or the first named First Defendant [Mr Giboney] obtain control of the affairs of the deceased, and in particular the execution of a Will that significantly reduced the benefits otherwise flowing to the Plaintiff, and effected Vicki’s own intentions regarding the disposition of the estate of the deceased.”

Knowing / dishonest assistance

Where a third party dishonestly assists a trustee to commit a breach a trust the third party is liable to the beneficiary for any loss, regardless of the fact that there may have been no benefit to the third party.

The basis for such claims is set in the seminal case on this subject of Royal Brunei v Tan  as follows:

“… Stated in the simplest terms, a trust is a relationship which exists when one person holds property on behalf of another. If, for his own purposes, a third party deliberately interferes in that relationship by assisting the trustee in depriving the beneficiary of the property held for him by the trustee, the beneficiary should be able to look for recompense to the third party as well as the trustee. Affording the beneficiary a remedy against the third party serves the dual purpose of making good the beneficiary’s loss should the trustee lack financial means and imposing a liability which will discourage others from behaving in a similar fashion.

The rationale is not far to seek. Beneficiaries are entitled to expect that those who become trustees will fulfil their obligations. They are also entitled to expect, and this is only a short step further, that those who become trustees will be permitted to fulfil their obligations without deliberate intervention from third parties. They are entitled to expect that third parties will refrain from intentionally intruding in the trustee-beneficiary relationship and thereby hindering a beneficiary from receiving his entitlement in accordance with the terms of the trust instrument. There is a close analogy with breach of contract. A person who knowingly procures a breach of contract, or knowingly interferes with the due performance of a contract, is liable to the innocent party. The underlying rational is the same.

…This is an objective standard.”

Royal Brunei was applied in the New Zealand case of Burmeister v O’Brien where it was noted that the terms unconscionable and knowing were imprecise and unhelpful, what was required was dishonesty.

See Spencer v Spencer where  the Court of Appeal reviews the relevant case law on the subject, noting that the proposition previously relied upon “dishonesty means “simply not acting as an honest person should” judged by an objective standard.” [para 126] truncates the original passage from Royal Brunei v Tan  and omits the requirement of a subjective element. The Court of Appeal concluding that in New Zealand “the assessment of a trustee’s honesty comprises both subjective and objective elements. A critical first step is to establish what the trustee actually knew about the terms of the trust relevant to the breach alleged and whether the trustee knew that the impugned conduct amounted to a breach of trust… The second step requires an assessment of whether, in the light of what the trustee knew, he or she acted in the way an honest person would in the circumstances. This is to be assessed on an objective basis. 

Editor’s note: in this context honesty is not considered in a moral construct. Rather, to be dishonest simply means not be entirely honest.  Accordingly, a reckless failure to enquire can also be dishonest.

Reverting back to Sandman v Giboney  whether or not the claim can be made out will require careful attention to the evidence. As noted by Christiansen AJ:

[94] What this case requires is a careful examination of individual facts. From that it may become easier to define the precise scope of a trust and identify any focus upon the confidence which has been placed in the fiduciary and hence in the areas within which a conflict may lie and a duty arise. It may not be necessary to show that the fiduciary has put personal interest ahead of duty. It may be that a breach can occur when a fiduciary placed them in a position where there is a possibility of a conflict between the fiduciary and the principal. If that person is under a fiduciary obligation they may have to account to the person to whom that obligation was owed and in those circumstances the fiduciary may be considered to be acting as a constructive trustee. It may be that a constructive trust does arise even if there was no lack of good faith nor damage occurred to the person to whom a fiduciary obligation was owed.

[95] It is sufficient if the evidence can establish wilfulness and recklessness – a proposition which in this case cannot be ignored at least until all available evidence has been properly assessed.

[96] Perhaps claims of dishonest assistance can involve a third party to a trust or fiduciary relationship for which that third party may be held personally liable as if that third party was the constructive trustee or if he/she dishonestly assists in the perpetration of a breach whereby a loss is suffered to a beneficiary.”

Sandman v Giboney will concern many practitioners who routinely deal with multiple generations.  Without pre-determined the answer, which as noted by the court, will require careful analysis of the facts, some points can be highlighted:

  • the need to be brutally careful to correctly identify who is your client
  • hypersensitivity to the possibility of future arguments suggesting duress – it can be difficult to identify where a close relationship segues to a controlling relationship
  • the need for contemporaneous assessments of capacity and to enquire widely as to what other capacity assessments exist cannot be overstated.

It is important to appreciate that this matter has not been determined by the summary judgment application.  No comments made in this blog should be read as advancing a view or opinion on any matters raised in the current decision in Sandman v Giboney.

References:

  • Sandman v Giboney and McKay & Ors [2017] NZHC 1832
  • Royal Brunei Airlines Sdn Bhd v Tan Kok Ming [1995] 2 AC 378 (PC); [1995] 3 All ER 97
  • Spencer v Spencer [2013] NZCA 449
  • Burmeister v O’Brien (2009) 12 TCLR 539

 

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