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High Court of New Zealand Decisions |
Last Updated: 19 August 2012
ORDER PROHIBITING PUBLICATION OF ANY IDENTIFYING PARTICULARS OF DECEASED PERSON, PLAINTIFF OR DEFENDANTS.
IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY
CIV 2011-412-000214 [2012] NZHC 1830
IN THE MATTER OF Estate of PAULINE
BETWEEN JOAN Plaintiff
AND MARY AND CHRISTINE AS EXECUTORS AND TRUSTEES First Defendants
AND CHRISTINE AND [BLANK] TRUSTEES LIMITED JOINTLY AS TRUSTEES OF [CHRISTINE'S] FAMILY TRUST
Third Defendants
Hearing: 22 June 2012
Counsel: P Gibson for Plaintiff
S Hembrow for Defendants
Judgment: 31 July 2012
JUDGMENT1 OF WHATA J
[1] Joan, Mary and Christine are sisters. They come from a very troubled family background of poverty, sexual abuse, neglect and estrangement. In May 2010 their mother died. She left Joan a 10% share of her estate and the balance was divided in equal shares between Christine and Mary. Christine and Mary were also appointed executrices. In August 2010 Joan advised Christine that she intended to issue
proceedings under the Family Protection Act 1955 to claim an equal third share.
1 This is an anonymised version of the original judgment.
JOAN V MARY AND CHRISTINE AS EXECUTORS AND TRUSTEES HC DUN CIV 2011-412-000214 [31
July 2012]
Discussions ensued with no result. In January 2011, without further recourse to Joan, Christine allocated the estate funds in accordance with the will. Joan commenced proceedings in March 2011. Joan has since managed to come to an agreement with Mary, but not with Christine. This took Joan’s share of the estate to about 21%.
[2] The upshot of all of this is that Joan makes the following claims:
(a) A claim against the estate for a 33% share of the estate’s assets.
(b) A claim against Christine for breach of her fiduciary duty as a trustee and executrix by distributing the estate’s assets with knowledge of Joan’s claim.
(c) A claim for relief by way of tracing and following orders under ss 49(1)(b) and 49(3) of the Administration Act 1969 in respect of those funds improperly disposed of by Christine.
[3] There are additional claims for costs.
Facts
[4] The following background facts are not disputed, except where indicated.
[5] Pauline died on 26 May 2010. The estate was modest – net assets of around
$136,524. Under the will, the plaintiff was given a 10% share, and the balance of
90% was to be divided in equal half shares between Christine and Mary who were (a) jointly executors of the will, and (b) severally beneficiaries of the estate. Notice of an intention to file a claim against the estate by the plaintiff was given on 19
August 2010.
[6] Various offers and counter offers to settle the claim were made without success. Christine says that an offer was made in October 2010, but no response was received by January 2011, at which time Christine was permitted by law to distribute
the estate. Accordingly, without prior notice, the executors distributed all of the estate with effect from 11 January 2011. The plaintiff was given notice of that distribution by letter through her solicitor. The sum of $13,652 was paid to the plaintiff, and sums of $61,436 were paid to each of Christine and Mary as beneficiaries.
[7] Joan says that $31,000 of the funds paid to Christine, was paid into an account so as to reduce a loan secured by way of mortgage of a property owned by [Christine’s] Family Trust in Christchurch. Christine says that the account was a ready money account, with the balance going up and down. The monies went into the account and then dispersed very quickly in payment of other debts.
[8] A formal letter of objection by Joan was immediately dispatched dated
18 January 2011 and formal proceedings were issued on 30 March 2011. Matters were settled with Mary as second defendant and beneficiary, and action against her in that capacity has accordingly been discontinued with the leave of the Court (Court minute dated 11 October 2011). This resulted in a payment of $15,000 to Joan.
First claim – Moral Duty
[9] Mr Gibson for the plaintiff submits:
(a) Joan, as daughter of the deceased, is entitled to seek adequate provision for proper maintenance and support.2
(b) The moral obligation of a parent to a child includes moral and ethical obligations, and in this case Joan was sexually and physically abused by her father, including attempted strangulation, and rape at the age of
11 and regular sexual interference afterwards.
(c) Given her father’s reprehensible conduct, and her mother’s awareness
of the abuse, the responsibility to Joan was heightened – citing
2 Referring to ss 3 and 4 of the Family Protection Act 1955.
principles in A v B and Anor.3
(d) Her mother failed to acknowledge the rape and the abuse, leading to estrangement. In failing to perform her moral duty to Joan, during her lifetime, she was obliged to do so through her will and as she did not, the Court ought to do it for her.4
(e) The Family Protection Act should be interpreted as a living statute
and reflect society’s concern for abuse and to provide a remedy.5
(f) Christine as testatrix stood in the shoes of the mother. She assumed
her mother’s moral obligations to Joan.
(g) The mother’s failure to provide for Joan was especially cruel in light
of the history of abuse.
(h) Applying Sutton principles, where the estate is insufficient to meet in full the entirety of the moral claims on it, then the most that can be done is to ensure that the estate is justly divided between the persons who have those moral claims.
(i) The task of the Court therefore is to justly divide the estate in due proportion to the relevant urgency of the claims and that means that the daughter should receive an equal share.
Christine’s response
[10] Mr Hembrow submits on behalf of Christine (on her own part and as a trustee of [Christine’s] Family Trust):
(a) There is no issue as to the applicable legal principles as framed by the
3 A v B and Anor FC Hamilton FP 634/02 23 September 2004.
4 Citing Crosswell v Jenkins (1985) 3 NZFLR 570 (HC).
leading cases including Henry v Henry, Williams v Aucutt, Auckland
City Mission v Brown, and Little v Angus.6
(b) In light of those principles there has been no breach of moral duty by the deceased. She obviously had her reasons for the allocation of the estate including the fact that Christine and Mary had been the ones who provided care and sustenance and moral support for their mother in her declining years.
(c) The mother was aware of Christine’s difficult financial circumstances.
(d) The plaintiff’s summary of the Court’s task for dividing small estates
between those with moral claims (above [9](h)) is accepted.
(e) The relevant urgency of Christine’s claim is very considerably more
than that of Joan.
[11] The full picture of the distribution should include the distributions made by the father through his estate, where each daughter received net about $85,000.
Assessment of moral duty
[12] Section 4 of the Family Protection Act 1955 states:
4 Claims against estate of deceased person for maintenance
(1) If any person (referred to in this Act as the “deceased”) dies, whether testate or intestate, and in terms of his or her will or as a result of his or her intestacy adequate provision is not available from his or her estate for the proper maintenance and support of the persons by whom or on whose behalf application may be made under this Act, the Court may, at its discretion on application so made, order that any provision the Court thinks fit be made out of the deceased's estate for all or any of those persons.
1 NZLR 126 (CA).
[13] It is not the task of a Court under s 4 to rewrite a will. The task is to remedy, if necessary, a breach of the moral duty of a parent to make adequate provision for a child.7 The boundaries of that duty are not amenable to rigid definition. But it is not about achieving parity,8 or giving effect to subjective perceptions of fairness.9
Financial need and recognition of belonging, and overall contribution to the family are relevant considerations. I think it is also reasonably clear that an aspect of the duty includes an obligation to remedy the harm caused by parental abuse.10 The source of such an obligation can be found in the allied concepts of familial support and recognition, and I respectfully adopt the observations of Judge Strettell in A v B and Anor:11
[64] There can be little doubt in my view that there has been a breach of moral duty towards the Applicant. In this case the misconduct was not of the deceased testator but the deceased was the inheritor of her husband’s estate and with that came the duty to ensure that as best she could, the wrongs of the past were corrected.
[65] She chose not to accept the disclosure of abuse by her daughter, in many ways one might understand that of an elderly person confronted late in life with such a disclosure and indeed one could have sympathy with the testator in her struggle to come to terms with it. But a wise and just testator would have and would have made recompense and attempted to carry out her moral duty in her last will.
[14] Thus, I consider that there is substance in the plaintiff’s claim that proven parental abuse of a child during his or her upbringing may bear on the content of a parent’s moral duty for the purposes of assessing the distribution of an estate. But I reiterate that this is not about achieving parity – it is about providing an adequate remedy, to the extent that it remains necessary, for the breach of moral duty that all parents have to support, recognise, protect and care for their children.
[15] I am satisfied on the evidence that Joan was abused. The following evidence, largely uncontradicted is compelling.12
7 Refer Little v Angus at 127, Williams v Aucutt at [70], Henry v Henry at [55]-[56].
8 Vincent v Lewis (2006) NZFLR 812 at [81].
9 Ibid.
10 Refer Re A (1988) 4 FRNZ 668 at 673.
11 A v B and Anor FC Hamilton FP 634/02, 23 September 2004.
12 Affidavit of Joan (filed in support of claim against father’s estate).
Around the age of 11 Dad came into my bedroom. I had earlier gone to bed. Dad opened the door and put the light on. He said to me “you’re not reading tonight”. He came over and sat on the mattress and said he had a present for me ... He pulled my pyjama pants down and started fondling my vagina. I tried to sit up and he pushed me down. He got his trousers off and got on top of me and started pushing his penis on my vagina. He was doing it hard and it was making me really sore and I was stinging really bad.
[16] Compounding matters, Joan’s plea for help from her mother was, it appears, rejected:
I was reluctant to tell my mother because I was frightened. [A] few days later I decided to tell her. She asked when this was. I said two times in my bed. My mother then belted me around the face. The next morning my uncle and grandmother picked me up in the car. I was told I was staying with them for a while. I didn’t know what was going on. I returned home approximately two weeks later and on returning Dad wasn’t there. He arrived about a week later.
[17] There is then evidence that between the ages of 11 and 12, the father regularly sexually interfered with Joan.
[18] Regrettably, Christine also suffered similar abuse:13
At the outset I will say that I have had a vast amount of counselling for sexual abuse. It started when I was about 13 or 14 years of age after we left the family home. That counselling has continued on and off all of my life. I am now aged 53 years and I still have a counsellor for the sexual abuse that occurred in my childhood at the hands of my father. I last saw that counsellor last week. I still attend on them once a week.
I was a very disturbed and troubled infant. I’ve had descriptions of me hiding and shielding myself in the corners. Tantrums, headbanging. I believe this was as a result of the sexual abuse from a very young age. I certainly remember it occurring at the hands of my father from the age of
3 years onwards. My first real specific memories occurred later but I can say
I was sexually abused by my father every few weeks up until the age of about 11 or 12. I recall it finishing about 2 years prior to me leaving the family home. It finished because to protect ourselves mum and I for the last
2 years slept on a mattress in the lounge together. I’m certain that dad was abusive to mum up until that period and in effect we protected each other from then on.
[19] The consequences for Christine were equally traumatic:
I have attempted suicide on 5 occasions. The first was at the age of 14 and I have no doubt it was as a result of the treatment of my father to me. When I was 14 I was admitted to Waikairi Hospital in the mental health unit for 3 months. Since then I have had irregular treatment by mental health professionals. I have been diagnosed with depression. I’ve had treatment pretty consistently through my life the last some 3 years ago.
[20] In contrast to Joan, it appears from the quoted passage above that Christine
and her mother found support in each other in the face of the father’s abuse.
[21] I am invited to conclude that this apparent difference in treatment lasted throughout Joan’s life and into the distribution of the estate, and that Joan was shunned for raising the abuse, whereas Christine received protection. Certainly it appears that her mother did not try to repair the harm done to Joan. There is also evidence that they were estranged in the latter years of the mother’s life. But I am not prepared to proceed on the basis that there was always disparate treatment on the issue of abuse. There is simply not enough evidence to be confident about this. The real issue is whether a 10% allocation of the estate properly reflects what is necessary to repair parental abuse, including the rejection of Joan by her mother when she needed her most.
[22] While it might be said that a 10% allocation is generally appropriate in terms of psychological support,14 the adequacy of the allocation must be assessed on the facts of each case. When the estate is modest, it may be necessary to provide greater recognition in real terms.15 Disparate treatment might be a pointer to something having gone wrong (though not a reason by itself for intervention). But I also accept that there must be some care to acknowledge other factors that may have properly influenced an allocation, including the support provided by Christine to her mother, and Christine’s apparent need. Her abuse is plainly a relevant factor also, as it is for Joan.
[23] Given the above, I consider that a 10% allocation, or $13,652, was inadequate having regard to the size of the estate and the various competing considerations. A response by a parent to abuse must be real. Ten percent has the
appearance of perfunctory recognition. More was needed to specifically achieve the purposes of recognition and support asseverated in the authorities. In my view an additional 10% better reflects the combination of need and the wider performance of the moral duty of repair in this case. While a percentage analysis can be deceiving, a
20% allocation appears to be at the upper end of the spectrum of cases.16
[24] I am conscious that the plaintiff has sought parity. I can understand why. Against a backdrop of parental abuse, it seems unfair to treat siblings so differently. But it is the responsibility of this Court to do only what is necessary to ensure that adequate provision is made for a child, in the context of a small estate, and having regard to the circumstances of that child. Beyond that, a testator is at liberty in our system of law to decide how to distribute the residue of a life’s earnings in light of a complex matrix of influences.
Second and third claims - breach of trust and following orders
[25] Mr Gibson says that Christine breached her duty as executrix by distributing the estate (to herself and the other sister) knowing full well that Joan was going to make a family protection claim. Following orders (as well as a tracing order) are therefore sought in respect of the funds distributed into Christine’s family trust account. Mr Hembrow responds that while it may have been prudent to wait for a claim to be lodged there was no breach of duty, Christine having afforded Joan with an ample opportunity, about five months, to lodge a claim. He also says that the payment into the trust’s account was in reality a personal account used solely for personal transaction.
[26] I am going to deal with this aspect succinctly because Joan has already received what she was properly entitled to following settlement with Mary. Any
breach of trust was therefore remedied at that point.
16 Henry v Henry; Re Sutton; A v B and Anor; Crosswell v Jenkins (supra); also In re Harrison (deceased) [1962] NZLR 6 (CA); Re A [1988] NZHC 244; (1988) 4 FRNZ 668 (HC); Flathaug v Weaver [2003] NZFLR 730 (CA); LJG v JAL FC Nelson FAM 2007-042-000500, 18 November 2008.
[27] A distribution of an estate while there is a potential claimant against the estate may breach an executor’s duty.17 It is unnecessary for me to elaborate on the nature and scope of this duty in respect of potential claimants, but the potential claim must surely require a reasonable basis, given the duty of an executor to carry out the testator’s express wishes. For present purposes, the claim plainly had a reasonable basis – the disparate treatment was a pointer to something having gone wrong. The
critical issue is whether an executor acted in an even handed way with regard to the potential claimants. Mr Gibson submitted that the paper trail showed that Christine was acting in a self interested way when she chose to distribute the estate in January
2011. That might be so – she certainly advised her lawyers that she needed the money. But balanced against that, she had sought resolution through her lawyers in October 2010, and it appears there was no meaningful response from Joan. She was then advised that she could, at law, distribute the funds in January, though she was cautioned about the implications of the potential claim.
[28] Against this full backdrop, I find that Christine and Mary breached their duty by allocating to themselves in the face of the potential claim. A final warning should have been given to Joan with a final opportunity to lodge a claim. But Joan sat on her potential claim for too long. She must have known that Christine needed the money in the estate. She had ample time to lodge her claim and did not. Equity has limited tolerance for claimants who do not diligently press their claims to the obvious prejudice of legal rights. This mitigates the egregiousness of the breach.
[29] In terms of following orders, had it been necessary to rule on this, I would have made following orders into Christine’s assets and the assets of her trust. I am satisfied that the trust had the benefit of the funds, even though the monies in the account were used for personal purposes. Plainly the trustees approved of the use of the funds in that way. In addition, Christine cannot rely on s 51 Administration Act in terms of relief from a following order. Under that section, Mr Hembrow accepted, properly in my view, that a defendant must show a reasonably held belief that a
distribution would not be set aside. There is no compelling evidence to that effect.
But all of this should not be seen as unduly critical of Christine and Mary. They were wrong to proceed as they did. But a claim could easily have been lodged in the Family Court in 2010, avoiding the need for following orders altogether. That would have had the added benefit of having the matter before that Court, with its purpose built procedures. It would likely have avoided the inordinate cost of these proceedings and the need for seeking following orders.
Costs
[30] Speaking of costs, Mr Gibson submitted that one of the major hurdles to settlement was the question of costs. He estimated his costs at about $30,000. He says that Christine forced the plaintiff into commencing proceedings in the High Court with her peremptory distribution and then payment to her trust. Having done that, the only way to get the money back was to seek following orders. He says that the distribution obviously breached her duties as an executrix, and was a basic breach of trust. He refers to the exhortation of Associate Judge Osborne to the parties to settle, given the size of the claim, and to Christine’s refusal to consider a settlement conference. He refers to a later minute of this Court referring to settlement as economically essential. He says further that Christine refused to accept an offer of settlement like Mary’s ($15,000), on a without prejudice save as to costs basis. Taken together, he submits that Joan is entitled to indemnity costs or an
increased award of costs.18
[31] Mr Hembrow submits that Joan is at least partly to blame for the proceedings. She took too long to commence proceedings and did not respond to the settlement offer made by the executrix in October 2010. He says that commencement in the High Court was unnecessary and added unduly to the costs incurred. He says that the Family Court is much better placed to resolve these matters, and that a mediated result could have been achieved well before costs became a hurdle to settlement. He accepts that the offer of settlement for about $15,000 was rejected. He says that
there was no proper basis for claiming this in addition to the $15,000 already
18 Citing MacKenzie v MacKenzie supra.
obtained from Mary. In effect the plaintiff was seeking full payment on her claim, so it was not a settlement offer at all.
Assessment
[32] I propose to approach costs within the framework provided by the High Court
Rules.
[33] The party who fails in respect of a proceeding should pay costs of the party who succeeds. But it is difficult to measure success in this case, where the plaintiff has succeeded in demonstrating that the testator’s moral duty to the plaintiff has been breached and that some reparation was in order. The plaintiff was also successful in demonstrating that there was a breach of trust, albeit not as egregious as the plaintiff made it out to be. Balanced against that, no consequential order is needed, because Mary, one of the executrices, paid $15,000 to the plaintiff, thereby discharging the breach both of the moral duty and the duty as a trustee. From that point on, albeit with the benefit of hindsight, the merits of the proceedings lay with the remaining defendant.
[34] Given the competing merits, I am going to proceed on the basis that the plaintiff should be entitled to costs up to the point of settlement with Mary. Beyond that point I consider that costs should lie where they fall on the basis that the plaintiff has not succeeded in achieving her final goal of parity, but having regard to the fact that the defendant in breaching her fiduciary duty to the plaintiff ought not to be allowed to convert that breach into a claim for costs against the plaintiff.
[35] In terms of the quantum of costs, r 14.6 provides for increased costs and indemnity costs. It has not been suggested that the defendant has contributed unnecessarily to the time or expense of the proceedings by taking erroneous steps or failing to comply with the rules. There is no suggestion that this case is one of general importance that might warrant an increase in costs. A critical factor, however, remains the breach of trust. There are numerous authorities for the proposition that a trustee held to have acted in breach of trust will have to pay both its own costs and the costs of the plaintiff unless the breach is only incidental to the
proceedings, or technical with no ensuing loss.19 But I think there are distinctly mitigating factors that weigh against making such an order in this case. I have already referred to the inordinate time it took for Joan to lodge her claim. While Christine was motivated by personal interests, she nevertheless had a duty to carry out the testator’s wishes and she saw out the mandatory stand down period for distribution. In addition, and perhaps more importantly, Joan should have lodged her claims in the Family Court in an expeditious way and in doing so would have avoided altogether this costly litigation in this Court. In those circumstances it would be unduly punitive to require Christine to indemnify the plaintiff for a belated election to commence proceedings in the High Court.
[36] Therefore I am minded to award the plaintiff costs on a 2B basis (there being sufficient complexity in this case to warrant such an award), but I wish to see the allocation of costs before doing so. I therefore direct the plaintiff to file a memorandum setting out costs on a 2B basis up to the point of settlement. As I have said, the costs from that point, including the costs of the one day hearing shall lie with the parties.
Result
[37] The plaintiff was entitled to a 20% share of the estate. As she has already received that amount, no further order is needed. I award costs, provisionally, on a
2B basis in favour of the plaintiff up to the date of the agreement with Mary.
Solicitors:
Diana Shirtcliff, Christchurch, for Plaintiff (Counsel: S Hembrow) Gascoigne Wicks, Blenheim, for Defendants (Counsel: P Gibson)
19 Refer McGechan on Procedure HRPt 14.14(2) citing Sims v Craig Bell and Bond HC Wellington CP160/88, 23 December 1991 and Underhill and Hayton Law of Trusts and Trustees (17th ed, Butterworths, London, 2007) and refer to MacKenzie v MacKenzie supra at 497-498.
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