Fairness to all beneficiaries

The key facts of Tata v Abrams are set out in [2] of the judgment as follows:

… Donna and Reginald’s mother, Violet Tata (Violet), passed away on 19 March 2008. Donna was one of two executors appointed under Violet’s Will. The other executor, Ms Judy Kaka, passed away in 2016. Donna assumed responsibility for administering the estate. The primary asset of the estate was her mother’s home. The home was occupied by a relation, Tony Tata, until he passed away in August 2019. At this point the whānau began discussions in earnest about what to do with the property. I will return to those discussions below. In any event, two property valuations were obtained from real estate agents, putting the property at between $1 million and $1.05 million. Donna then arranged for the home to be sold to Joseph for $760,000 in December 2020. The sum of in and around $240,500 was also gifted by the estate to Joseph. This was subsequently increased to $300,000…

Joseph’s purchase was funded with borrowings. Following default whānau members tried unsuccessfully to purchase the property, which was sold by the mortgagee for $1.04 million. The surplus funds after repayment of the mortgage and costs was $164,000.

Donna’s brother Reginald and half-sister Christina filed proceedings on the basis that Donna breached her fiduciary duty of fairness to the beneficiaries of the estate by selling estate property for less than market value. Reginald and Christina also claimed against Joseph on the basis that he received the property, knowing that Donna was breaching her duties to the estate.

Donna died in September 2023 before the matter was heard, accordingly the hearing was on of formal proof only.

As stated at [1] to [12]:

[10] An executor must act fairly toward beneficiaries and must not act in self-interest. Transfer of property out of an estate for the benefit only of a child of the executor, who is not a beneficiary of the estate, at significant undervalue, is prima facie, a breach of these basic duties. That executor is liable for consequential loss to the estate arising from that breach. Furthermore, a recipient of estate property, knowing that the executor is acting in self-interest and unfairly to the beneficiaries of the estate, must also account to the estate for that consequential loss.

[11] In the present case, there is a dispute on the evidence as to whether Donna acted on the authority of the whānau when she sold the property to her son Joseph. It is difficult in the absence of cross-examination to make a definitive finding about this issue. Her claim that she wanted to retain the property in the hands of whānau as it was papakāinga is plausible. Given the importance of maintaining connection to place in tikanga Māori, it is conceivable that she felt obliged to prefer an outcome that kept the property in whānau hands. That obligation might, in the appropriate case, colour whether there was a breach of fiduciary duty.

[12] But, even so, it remained incumbent on Donna as executor to be sure she had the approval of the whānau when taking steps that benefited her son Joseph at the obvious expense of the beneficiaries of the estate. She did not do this. In fact, she turned down the opportunity to obtain a Deed when advised that this was the proper course. The advice to her and Joseph bears repeating in this regard, recorded in an email sent a by a legal executive to Donna as well as to the email address of Joseph in which she recommended that all parties should sign a Deed. In particular that email records:

We would wish to make it clear that we are acting for you as executor in the Estate of Violet Tata relating to the transmission of the property to you as surviving executor and then the sale of the estate’s property. We are not acting for any of the beneficiaries.

There is a possibility that potential beneficiaries of the estate could make a claim due to the fact that the property is to be sold below market valuation. In this situation, we would recommend that the siblings and grandchildren enter into a Deed of Family Arrangement confirming that they are aware and agree to receiving the lesser amount for the property and therefore their share in the estate. This will of course take some time to circulate to all the potential beneficiaries to sign.

Whata J was satisfied that Donna breached the duties she owed as an executor stating at [13] and [14]:

[13] Given this, I am satisfied on balance that Donna acted in self-interest and unfairly to the beneficiaries of the estate when she sold estate property to her son at substantial undervalue, as well as gifting the sum of $300,000 to him. In so doing, she breached her fiduciary duty to the beneficiaries of the estate. She must account for the consequential losses to the estate. I am also in no doubt that Joseph was aware of what was happening and therefore knowingly received the property in breach of fiduciary duty. He too must compensate the estate for the losses incurred by the estate because of it.

[14] For completeness, while not addressed in submissions, I have considered whether I should relieve Donna of personal liability pursuant to s 73 of the Trustee Act 1956. The essential requirements are that the trustees must have acted honestly and reasonably and ought fairly to be excused for both breaching the trust and omitting to obtain directions from the Court.6 Donna’s claim to acting to keep the land in whanau hands may, if proven, gone to the issues of honesty, reasonableness and fairness. But on the present state of the evidence, for reasons already stated, I consider that she acted in self-interest and unreasonably so.

Donna’s estate and Joseph were found jointly liable for damages in the amount of $300,000 plus interest and costs.

Editor’s note:

In prior proceedings an application to remove Donna as administrator and trustee was unsuccessful. However, Reginald and Christina were appointed in addition to Donna as administrators and trustees.

An interpleader to that removal application related to funds in the hands of a lawyer instructed by Donna. Of note were concerns relating to Donna’s capacity. As noted at [10] of the interpleader application:

[10] The following month, a senior solicitor in the Firm met with Ms Abrams and that solicitor’s file note shows he had serious concerns about Ms Abrams’ capacity to act as executor of Mrs Tata’s Estate. The solicitor went so far as to write to Ms Abrams referring to Anti-Money Laundering (AML) requirements and expressing concerns about her capacity and the need to obtain evidence about her capacity. That letter was sent on 28 July 2021. The Firm did not receive a reply and wrote again in August and November 2021 to follow up a response

References

• Tata v Abrams [2023] NZHC 3372
• Tata v Abrams [2022] NZHC 1554 (application to remove administrator and trustee)
• Tata v Abrams [2022] NZHC 479