//
you're reading...
Strike Out;

If in doubt – do it, but cover your butt

Mrs Elizabeth Sandman, executed her final will on 2 December 2010 (the 2010 will) and later died on 30 October 2013.  Her estate was subsequently distributed in accordance with that will.

Under her will she left her son Mark Sandman the apartment that he occupied. There were also a number of other minor bequests. The residual estate was then distributed, one half to Mark and the other half was divided among certain relatives and friends of Mrs Sandman as her daughter Victoria Sandman, who would have received the other half share of the residual estate, predeceased Mrs Sandman.   Prior to her death Victoria and her mother were close.   Mark’s relationship with his mother was not as close, notwithstanding the support she had provided him.

Under an earlier will executed in 2005, Victoria’s share of the residuary estate (in the event that she pre-deceased her mother) would have gone to her brother rather than to Mrs Sandman’s relatives and friends.

Two months before Mrs Sandman executed the 2010 will her doctor certified that she had the mental capacity to understand she was making a will and disposing of her assets. At the same time Mrs Sandman executed the 2010 will, she executed two enduring powers of attorney in favour of Victoria (in relation to property and welfare). Before she executed these, as required by statute, an independent solicitor certified that he had “no reason to suspect that [Mrs Sandman] was or may have been mentally incapable at the time she signed the enduring power of attorney” forms.

In November 2016 Mark Sandman filed a claim in the High Court alleging that Mrs Sandman lacked testamentary capacity when she executed the 2010 will. He also claimed that, because Mrs Sandman lacked capacity, the 2010 will reflected the wishes of his sister Victoria, and of Mr Giboney, one of the executors of the 2010 will, rather than Mrs Sandman’s wishes.

Mark also argued that Mrs Sandman’s solicitors Wilson McKay, had dishonestly assisted Victoria Sandman and Mr Giboney.  See below regarding accessory liability and knowing assistance.

Wilson McKay applied to strike out the claim against it and for summary judgment. These applications failed in the High Court. However, an appeal to the Court of Appeal was successful and Wilson McKay’s application for summary judgment was granted.  A successful application for summary judgment means that the claim is fully disposed of and cannot be re-filed.  By way of contrast a strike out (if successful) can be re-formulated and a new claim filed to correct any deficiencies in the claim.

The matter was then appealed to the Supreme Court.

The majority of the Supreme Court, comprising Justices Glazebrook, O’Regan, Ellen France and Arnold, held that it was arguable that solicitors would be obliged to follow the instructions of their client to draft a will and have it executed, even if they had doubts about testamentary capacity.

The majority of the Supreme Court then found, on the basis of the documentation prepared around the time the 2010 will was executed, that Mark could not prove (if the matter went to trial) that Wilson McKay either knew that Mrs Sandman lacked testamentary capacity or was wilfully blind to the possibility.

The majority of the Supreme Court also held that the Wilson McKay would have had a strong case for strike-out, but did not need to decide this having allowed the summary judgment.

Chief Justice Elias (as she was), in one of her last decisions, dissented, and opined that she would have set aside the summary judgment entered for Wilson McKay. Elias CJ considered that the questions of fact concerning testamentary capacity and the firm’s knowledge of it and any undue influence were unsuitable for determination on summary application and that the evidence needed to be examined in court. See [147] to [162] regarding Elias CJ’s views regarding summary judgment where there are contested facts.    The inference is that the attending solicitor’s evidence was comprehensive and showed diligent reporting, but without being objectively tested the correctness (or not) of the views formed cannot be determined.   The importance of context was explored in the dissenting decision and warrants further consideration given that without context the relevance of testing evidence cannot be easily determined.

In this regard see [153] where Elias CJ states: “ … Although assessment is objective (and does not turn on any individual and subjective register of morality), critical context for the assessment includes the knowledge held by the firm which may be inferred from the circumstances…”

Context is also referred to again at [162] “… Summary judgment is inappropriate where there are disputed issues of material fact.  Here, it seems to me that there is dispute which cannot be determined without hearing and which was unsuitable for summary judgment on the application of the firm. I would allow the appeal against entry of summary judgment.”

Chief Justice Elias shared the view of the majority that would have struck out Mark Sandman’s claim alleging dishonest assistance on the basis that Mark Sandman was not a beneficiary of any trust and no fiduciary duty was owed to him.

The case, which is fact specific and warrants careful reading highlights the importance of detailed, contemporaneous observations and file notes regarding capacity, due enquiry and records of advice given.  The other take home message appears to be that if in doubt with regard to capacity, it may be acceptable to accept instructions (absent clear evidence of incapacity) but where this is the case ensure sufficient evidence to allow a later determination.  Prudence of course will always dictate a contemporary assessment where there is doubt.  The duty owed to follow instructions, but to confirm a client’s ability to instruct, may not always be clear.

Where there are patent indicia of incapacity accessory liability for the consequences that flow could still arise.  Elias CJ  Usefully canvasses accessory liability as follows:

[126] The Court of Appeal treated the accessory liability of a third party for the breach of duties owed by a trustee or fiduciary (the knowing assistance ground of liability referred to in Barnes v Addy) as having four components. They are taken from the elements identified in Royal Brunei Airlines v Tan: the existence of a trust or, arguably a fiduciary relationship; a breach of trust or fiduciary duty by a trustee or fiduciary resulting in loss; participation by a defendant third party (a stranger to the trust or fiduciary relationship) by assisting in the breach of trust or fiduciary duty; and dishonesty on the part of the defendant (that is, want of probity assessed against the standard of how an honest person would act in the circumstances).

[127] The Court of Appeal accepted that Wilson McKay had not discharged the burden of showing that the first three elements were excluded “on the state of the evidence at this juncture” 106 (determinations the firm challenges by notice of intention to support the judgment on other grounds). But it held that the firm had satisfied it that Mark Sandman could not establish that any assistance Wilson McKay had provided to Victoria Sandman or Robert Giboney in any breach of trust or breach of fiduciary duty had been dishonest.

[128] Liability for knowing assistance by a stranger to a trust or relationship of confidence in breaches by the trustee or fiduciary is fault-based, as Royal Brunei Airlines v Tan confirmed. In cases of stranger interference in a commercial context, conscious dishonesty or want of probity may be appropriate as the preponderance of authority suggests. But what constitutes dishonesty or want of probity is itself contextual, as Lord Nicholls made clear.

[129] The fault required for liability for knowing assistance in a breach of trust or breach of fiduciary duty is “not acting as an honest person would in the circumstances”.  Here the circumstances include the fact that the assistance is provided by solicitors themselves under duties of loyalty and care to the person to whom the primary duties are owed by the trustees or those owing fiduciary duties. Whether in that context the fault required for liability for assistance is dishonesty as the Court of Appeal thought was required, is not a matter that I consider to be established on the authorities.

[130] The case is very different from the paradigms of stranger intervention in a breach of trust in a commercial context discussed in Royal Brunei Airlines v Tan, Barlow Clowes International Ltd (in liq) v Eurotrust International Ltd and Westpac New Zealand Ltd v MAP & Associates Ltd. It may be a different matter where solicitors are strangers to the trust or fiduciary duty, as was the solicitor held liable in Twinsectra Ltd v Yardley. But where solicitors owe fiduciary duties and duties of care in the very transaction in which they are said to be liable on an accessory or secondary basis, it is not self-evident that the fault required should not align with their own obligations. The application of the principles upon which assistance will found third-party liability in this different context seems to me to require full consideration in a case where it arises.

[131] In any event, a solicitor who acts in the preparation of a will for a client who is known by the solicitor to lack testamentary capacity or to be acting under undue influence (and actual knowledge of both is alleged here) seems to me to be properly regarded as consciously transgressing the ordinary standards of honest behaviour to be expected of a solicitor. In this Court Mr Dillon explained the effect of the pleading as being to assert that if the firm knew that Elizabeth Sandman did not have testamentary capacity or was being subjected to undue influence, then it acted dishonestly and was liable to Mark Sandman for the loss through revocation of the 2005 will.

[132] Dishonesty, in the sense used in the accessory liability cases, is objectively assessed, but on the facts known to the person assisting. In this respect, I doubt that a solicitor who knows a client to lack testamentary capacity is nevertheless obliged to carry out the client’s instructions, leaving capacity to be assessed after death. While the matter would need full argument on the basis of the particular facts, I consider that it is arguable that a solicitor who formed the view that a client lacked capacity or was being unduly influenced would be obliged to withdraw from acting and that it would be a breach of the duties owed by the solicitor to the client for the solicitor to participate in the transaction.

[133] If the firm’s knowledge of incapacity or undue influence can be established, as is pleaded, it would as a matter of first impression be surprising if that is not sufficient fault to found liability for its assistance. And although the pleading of knowledge without more is criticised by the Court of Appeal as inadequate for an allegation of dishonesty, it is difficult to see what additional formula is required, especially since particulars of the facts relied on are contained in the statement of claim.

[134] In any event, I do not think lack of dishonesty can confidently be determined without hearing, for reasons to which I will turn after discussing the excluded evidence.

References:

  • Sandman v McKay & Ors [2019] NZSC 41

Discussion

No comments yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

Categories

%d bloggers like this: