Public Trust v Vernon [2015] NZHC 1928 (13 August 2015)

Last Updated: 18 August 2015

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2014-485-11285 [2015] NZHC 1928

BETWEEN	PUBLIC TRUST Plaintiff
AND	ASHLEY WILLIAM VERNON AND BEVERLEY KAY VERNON Defendants

Hearing:	9-12 June 2015
Counsel:	H N McIntosh and H M Macfarlane for Plaintiff A C Beck for Defendants
Judgment:	13 August 2015

_{JUDGMENT OF THE HON JUSTICE KÓS}

Index

Facts .......................................................................................................................[3]

Essential dates....................................................................................................[4] A family ..............................................................................................................[5] No funeral for Chris ...........................................................................................[8] An agreement to pay $50,000 to Ashley? .........................................................[10] Wills..................................................................................................................[20] Powers of attorney ...........................................................................................[22] Naomi’s death; Kenneth moves in with the Vernons ........................................[24] Kenneth’s health in 2006 ..................................................................................[27] Kenneth’s assets and accounts in March 2006.................................................[35] Ashley forges four cheques on Kenneth’s account, for his benefit ...................[36] The state of the family 2006–2008 ...................................................................[49] A loan from Kenneth to Kylie? .........................................................................[52] Ashley operates the accounts ...........................................................................[57] An inexplicable series of transfers ...................................................................[61] Depletion of the accounts 2006-2008 ..............................................................[65] Kenneth’s health: 2007–2008...........................................................................[69] Ashley’s dealings with WINZ............................................................................[73] Kenneth’s assets and accounts in September 2008 ..........................................[80] Kenneth’s death ................................................................................................[81] Inquiries into Kenneth’s estate, and Ashley’s responses ..................................[83] Appointment of Public Trust as administrator .................................................[97] The Public Trust tries to get answers ...............................................................[98]

PUBLIC TRUST v VERNON & ANOR [2015] NZHC 1928 [13 August 2015]

Proceedings are issued...................................................................................[106] How much money have the Vernons received? ..............................................[107] Assessment of the witnesses .............................................................................. [110] Pleadings ............................................................................................................ [114] Issues .................................................................................................................. [118] Issue 1: Should the payments to the Vernons be set aside for undue influence?[120] A relationship of influence? ...........................................................................[123] Was influence exercised?................................................................................[124] Was the influence undue? ...............................................................................[127] Were Kenneth’s assets depleted as a result of undue influence? ....................[128]

Is Equity’s conscience exercised? ..................................................................[129] Conclusion .....................................................................................................[130] Issue 2: Should the payments be set aside for breach of fiduciary duty? ..........[132] Issue 3: Should the payments be set aside as unconscionable? .........................[138] Issue 5: Are the Public Trust’s claims time-barred? ...........................................[142] Submissions ....................................................................................................[143] Discussion ......................................................................................................[147] Issue 6: What relief should be granted? .............................................................[154] Summary of conclusions ....................................................................................[161] Result..................................................................................................................[162]

[1] After the death of his wife an elderly man goes to live with son and daughter- in-law. All his assets in the world come to a little under $330,000. When he goes into a rest home 30 months later, he has just $11,500. When he dies, another three years later, just $1,400. The son has spent his father’s money. With, he says, his father’s blessing. But the administrator of the father’s estate says the expenditure is

tainted with undue influence and must be repaid.¹

[2] A summary of the conclusions I reach may be found at [161].

Facts

[3] A detailed statement of agreed facts was filed by counsel. The findings of fact that follow are drawn from that document or are further conclusions reached, on the balance of probabilities, on the evidence. Where allegations seriously adverse to reputation are advanced, strong evidence is necessary for each allegation to be

_sustained.²

¹ The beneficiaries of the estate, equally, are the son and the child of a second son who had predeceased the father. Causes of action other than undue influence were also pleaded, but it dominates the claim. See [114] to [117] below.

² Z v Dental Complaints Assessment Committee [2008] NZSC 55, [2009] 1 NZLR 1.

Essential dates

[4] I will start by summarising the essential dates in Mr Kenneth Vernon’s long life. He was born in 1919. He married Naomi Vernon in 1950. They had two children, Ashley and Chris, born in 1952 and 1954. Kenneth had four grandchildren, three to Ashley and Beverley and one to Chris and his partner Jude Pauwels (now Sims). Chris died of cancer in November 2005. Naomi died in March 2006. Kenneth then lived with Ashley and Beverley Vernon for two and a half years, between 20 March 2006 and 5 September 2008, from the ages of 86 to 88. He then lived in rest home care for three years until his death on 8 September 2011. He was

91 years old at his death.

A family

[5] Having set out those bare details, I now fill out the family circumstances in a little more detail. Kenneth Vernon was born in Wanganui on 30 October 1919. He served in the second NZEF in Egypt and Greece during World War II. On returning to Wanganui he married Naomi and took up hotel management. During his career he managed hotels in Wanganui, New Plymouth, Tauranga, and various parts of the Waikato. He and Naomi retired to Raumati, north of Wellington, to be closer to their children and grandchildren. They lived together in Raumati, and then Paraparaumu, for about 20 years.

[6] Ashley Vernon, the first son and first-named defendant, was born in 1952. He attended Victoria University and studied law. He worked part time in a legal publishing firm. He dropped out of law studies to join those publishers on a permanent basis. He rose to general manager but was made redundant in about 1996 following an international takeover. With a colleague he formed a corporate gifts business and wine bar in Allen Street, Wellington. It did not prosper. In early 1997 he and his brother Chris formed a new business in the same premises, a café called Café Riocca. It did not prosper either. There are differing accounts of why the venture between the brothers ended. From 1998 to date Mr Ashley Vernon has not been in employment. He has undertaken some volunteer work. He has been, as he put it, a full time house husband. The family have relied on the income generated by

his wife, Ms Beverley Vernon. She is a school teacher and the other defendant. They have three children, born in 1982, 1984 and 1990.

[7] Chris Vernon, the second son, was born in 1954. He was a chef of considerable ability. His abilities did not extend to business management however. He never made (or kept) much money. Chris had a son, Dante Pauwels-Vernon, born

23 May 1996, with his partner Jude Pauwels, now Jude Sims. Sadly when Dante was nine years old Chris died of pancreatic cancer. That was on 5 November 2005. He was just 51. His family was left in dire economic straits by his illness and death.

No funeral for Chris

[8] In his evidence-in-chief, Ashley describes the circumstances in which his brother died. He continued:

Funeral arrangements were left for Bev and myself, to arrange. Jude didn’t want anything to do with it although she was fully consulted on all decisions we made with the funeral director, at the hospice. Jude did however arrange for the person she was staying with to collect Chris’s ashes from the funeral home without our knowledge.

The implication of that evidence was that Ashley had made those funeral arrangements. The truth, however, was that he had not. Cross-examined by Mr McIntosh:

Q But there wasn’t a funeral for your brother in the end was there? A No there wasn’t, Jude didn’t want one.

The cost of the funeral would have been Ashley’s expense; Chris and Jude had spent all their remaining money on alternative cancer therapies. The cross-examination of Ashley continued with a Seddonite sort of question:³

Q Did you want to have a funeral? A It didn’t worry me, to be honest. THE COURT

_{Q What was that?}

³ Filson Young, Trial of the Seddons (2 ed) (William Hodge & Co, London, 1952) at 170.

A It didn’t actually bother me which was – it was what – Chris didn’t, I don’t think Chris wanted a funeral as far as I was aware. Jude didn’t want a funeral, so that were the two things that we put together.

[9] Jude’s evidence was different:

I could not afford a funeral for Chris, as his family all knew; as I have explained, by the end he and I had nothing left at all. Naomi volunteered to apply for a funeral grant, and to top up the difference if necessary; and Ashley as executor said he would arrange everything. I was very grateful for those things, because I was in grief at Chris’s death, had no money or energy, and had to look after Dante, by myself, with nothing. However, in the end, to my surprise and sadness, they did not have a funeral.

She was not cross-examined on that point.

An agreement to pay $50,000 to Ashley?

[10] Ashley claimed a right to make a deduction of $50,000 from Kenneth’s funds. He said it arose from a promise by his parents that they would make a contribution to him of that amount, should the need arose, when he and Chris went into business together in 1997.

[11] Ashley claimed that he had put $200,000 capital into the business. And that Chris contributed none. Jude contested that account, saying that neither put capital into the business and it was funded by a $20,000 overdraft limit from a business account held by Ashley. It is more likely that Ashley’s version is broadly correct. And that Ashley (or a company in which he was the principal shareholder) had financed the café fit-out. But in the absence of primary records I make no finding as to the extent of capitalisation by Ashley. Nor in the absence of records am I able to make a finding as to the nature of the business venture between Ashley and Chris. Jude says it was a partnership. Ashley says that Chris was an employee, with a prospect of taking shares when the business became profitable. Beverley did not give evidence on this issue at all.

[12] Café Riocca failed. Again it is unclear (in the absence of primary records) why. Jude’s account is that Chris did not put any effort into the business, and that she had to take over the front of house responsibilities. There is some support for that in an exhibit produced in evidence. She says the business ended because of

disagreement over Ashley’s non-contribution. Ashley says it simply was not profitable. And that he, not they, sold the business to a third party for $90,000 ($70,000 of which was consumed by debt). As I say, the exact position is unclear. It is probably immaterial.

[13] For six reasons I find it unlikely that there was a promise by Kenneth or Naomi to give Ashley $50,000, or any right to receive such a sum from the estate in preference to beneficiaries.

[14] First, wills made by them in December 2005 simply divided the residual estate equally. The wills were made shortly after Chris’s death but long after Café Riocca had folded.

[15] Secondly, Naomi left a note regarding the distribution of some of her jewellery. It was of modest value. It is surprising therefore that no similar record was made of a promise to contribute $50,000 to Ashley in respect of the failed business.

[16] Thirdly, the basis of the promise was both vaguely and inconsistently stated in Ashley’s evidence. In one instance, to support the business, “if needed”, in another, to compensate for business losses.

[17] Fourthly, the failure (and Ashley’s need) long pre-dated all this. The loss was incurred almost a decade earlier. I accept that such funds could not readily be found by Kenneth and Naomi at that time. But that would reinforce the need to make provision in writing for the time when they could – i.e. on the eventual sale of their house. That might well occur when neither of them were there to attest to any preference Ashley was entitled to.

[18] Fifthly, to the extent Kenneth is later said to have agreed to pay that sum to Ashley, it falls to be decided along with the other justifications offered for Ashley’s depletion of Kenneth’s funds. I say however that it is very surprising that a man of Ashley’s background and experience (as a businessman, involved peripherally in the legal profession with some legal study behind him), and knowing his responsibilities

as executor of Kenneth’s will, would not think fit to obtain a written record of Kenneth’s agreement or consent. It is even more surprising given that Beverley certainly appreciated the risks, and said so. She gave evidence that she had said to both Ashley and Kenneth that they should get legal advice: “I knew there was something about old people and money.”

[19] Finally, on matters where there is conflict in evidence, or an absence of documentary corroboration, I approach the evidence of Ashley with reserve, for the reasons given in this judgment.⁴

Wills

[20] Kenneth and Naomi made wills in December 2005, after Chris’s death. They are mirror wills. Ashley’s answer to interrogatories states that he received a copy on

21 December 2005. He acknowledged reading the wills and being aware of their contents.

[21] There are two important aspects to the wills. First, the whole estate is given by one spouse to the surviving spouse. But if the other spouse has not survived, then the residual estate is to be divided equally between Ashley and Dante. Secondly, the executors of the will are Ashley and Naomi’s brother, John Rayner. Mr Rayner did not give evidence. There was much he could have assisted the Court with. In particular, events after the death of Kenneth and on some correspondence of which he was author.

Powers of attorney

[22] On 21 December 2005, just after executing their mirror wills, Kenneth and Naomi also executed mirror enduring powers of attorney. These appointed each other, together with Ashley, as an attorney with general authority to act in relation to

_{the whole of their property. The attorneys could act jointly or severally.}

⁴ See, in particular, [112] below.

[23] The first exercise by Ashley of the power appears to have taken place on

21 August 2006. Then, using the power of attorney, he gave himself signing authority for two accounts held by Kenneth at the ANZ Bank.

Naomi’s death; Kenneth moves in with the Vernons

[24] Kenneth’s wife Naomi died of cancer in March 2006, less than five months after Chris’s death.

[25] It is common ground that Kenneth, who was 86 when Naomi died, was prostrated by grief at this double blow. Kenneth was no longer able to live by himself. He moved into Ashley and Beverley’s house the day Naomi died.

[26] Ashley’s evidence was that Kenneth asked for his house to be sold, and for all the furniture to be given away, donated to charity or sold. He didn’t want it as a reminder of Naomi. Ashley said that some of the furniture was given to his daughter. Most of the remainder went to the Salvation Army. Jude says that she phoned to ask if she could buy the washing machine, but that Ashley told her he had already sold it. Ashley’s evidence was that he offered her the washing machine, refrigerator and anything else she wanted in the house, for free. Jude and Dante’s need was obvious. The two accounts are diametrically opposed. Resolution of the conflict is not material to my decision.

Kenneth’s health in 2006

[27] There is divergent evidence in relation to Kenneth’s condition in 2006. The divergence is between Ashley and Beverley’s account (which is relatively up-beat) and medical records (which are not). For reasons given earlier I am cautious in accepting the evidence of Ashley and Beverley when unsupported by other evidence.

[28] There was some very generalised evidence called for the defendant from Mr Lamberton and Ms Chaney, close friends of Ashley and Beverley. It does not take things far. Ms Chaney describes Kenneth as “a little hard of hearing but alert and quick-witted”. That is hard to reconcile with the medical records, at least in

2007-2008. Ms Chaney was not called for cross-examination. Her evidence, so far as it goes (and it is not date-specific), was unchallenged.

[29] Mr Beck objected to receipt of the medical records in evidence on the basis that they are hearsay. Mr McIntosh sought to support their admission under s 19(1)(b) of the Evidence Act 2006. I am satisfied that this is a case where the records speak for themselves. No useful purpose would be served by requiring those who compiled them, in 2006 to 2008, to give evidence. They could not reasonably be expected to recall independently the matters set out in their records.

[30] Kenneth transferred from his Paraparaumu general practitioner to a Tawa medical practitioner in July 2006. The Paraparaumu GP’s notes for 11 May 2006 records that Kenneth was living “probably permanently” with his son in Tawa. He was on a number of different medications, including clonazepam. The entry also records “still very tearful”.

[31] The new Tawa GP saw Kenneth a number of times in July and August 2006. At the initiative of district nurses (who had been providing assistance since 27 March

2006) a needs assessment was undertaken by a nurse, Ms Carian, on 28 July 2006. Her report is important because of its proximity to the initial transfers made by Ashley from Kenneth’s bank accounts:

(a) Mood: Her report records the deaths of Naomi and Chris had had a “devastating effect on Ken”. It records that he “[wish]ed to die with his son, and had been “quite suicidal”. It records that he had tried to throw himself downstairs. He was put on anti-depressants by the GP. The family were concerned at his low mood, and that he was becoming isolated and lonely.

(b) Communication: The report noted that Kenneth wore hearing aids “but has difficulty hearing, hesitant communication”. It also recorded “his vision is impaired, he can read the headlines only in the paper. Both cataracts have been removed.”

(c) Cognition: The report records that his short term memory had deteriorated, and that he had been mildly confused at times. Ashley did not like to leave him alone. It records the family were managing all household shopping and meal tasks, and that “Ashley manages medications, finances and appointments”.

(d) Physical health: Kenneth required assistance with showering and dressing. He was short of breath on exertion and he tired easily.

[32] The GP’s records for 14 August 2006 noted that Kenneth had had several

falls, some upon standing up. As to his outlook:

Says himself: “Couldn’t give a stuff”.

Kenneth was referred to a psycho-geriatrician. The assessment took place on the same day. It records that Kenneth became tearful on several occasions during the conversation when discussing Naomi and Chris. He had low mood, and was experiencing “very negative thoughts”. He said he wished he wasn’t here. He reported having tried to throw himself down the stairs since his wife’s death. Very recently he had considered walking into the sea. But he denied harbouring suicidal thoughts at the time of interview. He had difficulty hearing normal conversation. Formal memory testing was not undertaken because of his emotional state, but “evidence of short term memory impairment” was noted in the interview. The report noted:

Poor concentration evident on interview. Mr Vernon reports that he has lost

interest in “everything” since his wife’s death.

[33] The medical reports are at odds with Ashley (and to a lesser extent Beverley)’s accounts of Kenneth’s doing chores, gardening on steep parts of the property, reading the newspaper and Time magazine, and sitting with Ashley on the computer approving banking transactions. I accept some of these things may have happened at some points. But they create a false impression of a degree of independence I find improbable on the medical record evidence.

[34] I find that Kenneth in mid to late 2006 was a frail man with depressive tendencies, hearing and eyesight impairment and some intellectual impairment also. He was, in short, vulnerable.

Kenneth’s assets and accounts in March 2006

[35] Apart from his house, Kenneth’s savings at the time he came to live with Ashley and Beverley were $47,545. His house was sold in June 2006, for $290,000. The net proceeds received were $282,071. So at the time of coming to live with Ashley and Beverley, Kenneth was worth approximately $329,616.

Ashley forges four cheques on Kenneth’s account, for his benefit

[36] The last document in evidence bearing Kenneth’s signature is an application for transmission of title to the Paraparaumu house. It is dated 4 July 2006. Kenneth’s signature is distinctive. It is a rather wobbly elderly man’s signature. There are a number of earlier examples in evidence. Nothing in the medical evidence, and nothing in Ashley’s evidence (indeed quite the contrary) suggests Kenneth was incapable of signing his own name. Clearly on 4 July 2006 he still was.

[37] So why did Ashley forge four cheques, signing his father’s name?

[38] On 9 May 2006, Ashley purchased a Mitsubishi car from Kirk Motors in

Tawa, using Kenneth’s money.⁵ Ashley’s evidence was that Kenneth had approved

_{use of his money to purchase the Mitsubishi, and had helped choose the car.}

⁵ In his evidence-in-chief, Kenneth said that this car was purchased “to replace mine which needed more money spent on it than it was worth (we needed a car easy for Dad to get in and out of and that would fit all the family in)”. When Kenneth moved in, Ashley’s car was a Holden. Beverley had a Honda. Kenneth had an Audi, and that car was taken over by Beverley. On

20 August 2013 the Public Trust wrote to Ashley asking to explain the car arrangements:

Did you and Beverley retain your existing cars when you received Ken’s Audi or did you sell them and

if so where did the sale proceeds go?

Ashley’s response was:

From memory we kept the car and it was used by our family until it was written off in an accident.

That answer was evasive and incorrect. Cross-examination elicited the Audi is still in the Vernons’ possession. The Holden was replaced by the Mitsubishi bought in May 2006. The car “written off in an accident” proved to be a former family car passed on to one of the Vernon’s daughters.

[39] First there is an eftpos withdrawal of $3,000 for the deposit. Kenneth would not have effected that. He preferred using cheques.

[40] Later, the balance of the purchase price was paid for with a $13,000 cheque written on Kenneth’s chequebook on 9 May 2006. The signature on the cheque is “K E W Vernon”. On any view it is not Kenneth’s signature. The same may be said of another cheque written the same day in favour of Swan Insurance (to purchase an extended warranty for the car). That too is signed by “K E W Vernon”.

[41] There are two other cheques like that, written on Kenneth’s chequebook in August 2006. One of them, for $46,500, was made payable to Ashley and Beverley. The other was for $5,000, payable to “Global Plus Card”. That was Ashley and Beverley’s credit card provider. These cheques too were signed “K E W Vernon”.

[42] Ashley was interrogated in April 2015 as to who wrote and signed the four cheques. His answer, given in a sworn affidavit, was:

These cheques were signed and completed by Ken Vernon.

[43] The Public Trust called the evidence of a senior police document examiner, Patricia James. Her evidence was that there were a number of similarities between the writing on the cheques (not only the signature) and specimens of Ashley Vernon’s handwriting. Her conclusions were:

Due to the limitations of the specimen material, a definitive opinion is not possible. However, based on the similarities observed I concluded there are indications the author of the specimens attributed to Ashley Vernon completed the body writings on all four questioned cheques.

...

If the possible pool of authors for the questioned signatures is restricted to Kenneth Vernon and Ashley Vernon, then it is my opinion that there are indications that Ashley Vernon has completed the questioned “KEW Vernon” signatures.

Notably, Ms James was not called for cross-examination by the Vernons. [44] In his evidence in response to Ms James, Ashley said:

I accept that some of the writing does look like mine, but I cannot recall writing these cheques. I would not have signed Ken’s name because I had no need to – I had the power of attorney.

In cross-examination Ashley persisted in his line that he did not recall writing the cheques, but definitely did not sign them. He accepted the writing “does look a bit like mine”. Later he accepted it “does look similar to my writing”. Asked if it was possible that he wrote them, he said:

Maybe, I’ve got no memory of doing it but maybe, could be.

Ashley still maintained an improbable distinction between writing the details out on the cheques, and signing them. Asked if it was possible he signed the cheques as well as writing them out, he said it was not.

[45] Ashley could not suggest anyone who might have signed the cheques other than Kenneth or himself. If Kenneth was present when they bought the car, as Ashley said, there was no reason for Ashley to write and sign the second cheque, as opposed to Kenneth. He accepted that was so.

[46] At the end of the hearing, I made my views on this aspect of the evidence plain to the parties. I said to them that I was satisfied by a substantial balance of probabilities that the four cheques in May and August 2006 were signed by Ashley forging his father’s signature as well as having been written by him.

[47] Patently the writing is not Kenneth’s. The writing – body and signature – is similar to Ashley’s. No one other than Ashley or Kenneth could have written the cheques. Ashley is the beneficiary of the payments made by the cheques. Ashley’s authorship and execution of these four cheques is established beyond any reasonable doubt.

[48] I do not accept that Ashley would have forgotten writing and signing the four cheques. The answer to interrogatories set out at [42] was false. So too, I find, was Ashley’s evidence on this topic.

The state of the family 2006–2008

[49] A great deal of evidence was given concerning the state of relations between Jude and Dante (on one side) and the Vernons (on the other) – with Kenneth somewhere in between. In the end I do not think I need to burden a lengthy judgment with an account of the disagreements, their causes or any sort of assessment of who is right and who is wrong.

[50] The following is clear. Jude and Dante had almost no contact with Kenneth after he went to live with the Vernons. Doubtless they could have done more to see him. Doubtless, too, the Vernons might have been more inviting (they had Dante’s email address). The two arms of the family did not see eye to eye. That appears to have created a barrier. Neither seems to have sought the other out.

[51] The relationship between Kenneth and Dante seems to have attenuated as a result. I do not accept suggestions in evidence that it had broken down, however. I do not accept that Kenneth had ceased to care for, or wish to provide for, Dante out of his estate in accordance with the terms of his will. That much is corroborated by Ashley’s recognition that he still needed to make provision for Dante’s interests.⁶

A loan from Kenneth to Kylie?

[52] Some of the money deducted from Kenneth’s accounts was said to have been a $50,000 loan by Kenneth to Ashley and Beverley’s daughter Kylie and her husband Marcus to assist them to put down the deposit on a house. It seems clear that a loan was made to Kylie, and that she has repaid that loan. But there are some curiosities about the explanation given.

[53] First, no single sum comprising $50,000 appears to have been deducted from Kenneth’s account, and paid directly or indirectly to Kylie. A confused account was given by Ashley in evidence as to the payment being made in two or three payments (which do not total $50,000) and from two accounts (one of which in fact was Ashley and Beverley’s). The payments were said to have been made in November

_{and December 2006.}

⁶ See [55] below.

[54] Secondly, on 20 May 2007 a document was signed by Ashley, Beverley, Kylie and her husband. It states that:

This is to confirm that we Beverley Kaye Vernon, Ashley William Vernon have leant [sic] to Kylie Marie Parker (née Vernon) and Marcus Brian Parker the sum of $50,000. The said sum to be repaid at a rate as agreed (presently

$100/week) or on demand.

There the loan is said to be from Ashley and Beverley. Not Kenneth at all. Ashley maintained in evidence the loan still was from Kenneth. He could not explain why the acknowledgement was drafted in this fashion. Nor could he explain why Kenneth, as the lender, was not party to the document. Nor why he had not signed it. Beverley acknowledged having drafted that document. She accepted it was indeed possible the loan was – as the document suggests – from them. But sourced from Kenneth’s money.

[55] Thirdly, none of the repayments by Kylie and Marcus were paid to Kenneth. Repayments were made into Ashley and Beverley’s own ANZ bank 00 account. Ashley said in his evidence that he had tried to keep the repayments separate “so there was a sum available for Dante. However they were needed to pay Ken’s expenses in accordance with his wishes”.

[56] A loan plainly was made to Kylie Vernon. But, as Beverley at least acknowledged, the evidence suggests strongly it was a loan from her parents, rather than from her grandfather (albeit he was the source of the funds). So the loan is something of an irrelevancy, save that it is another excuse offered by the Vernons that I cannot accept on the evidence.

Ashley operates the accounts

[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 Vernon’s 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.⁷ 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.

[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 Vernon’s credit card provider.⁸

[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.

[63] I asked Ashley about this:

Q. Are you able to explain to me why any of that occurred? A. Ah, no Sir I can't really, no.

Q. Now you said to me that your father was in charge of his accounts? A. Yes.

Q. Can you give me any reason why your father, who was in charge of those accounts, would have ordered you to do what’s just set out there, which you now can't explain to me?

A. I just can't remember, no, sorry.

Q. You prepared for this case presumably? A. Well the best I could, yes.

Q. Yes, well you knew these sorts of transactions would be the subject of inquiry, didn't you?

A. Basically, yes, yes.

[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.

Depletion of the accounts 2006-2008

[65] As I have recorded elsewhere, Kenneth’s savings at the time he came to live with Ashley and Beverley were $47,545. In addition net proceeds of the sale of his house were $282,071. During the period between 20 March 2006 and 3 October

2008, he received additional sums by way of superannuation, war pension and interest entitlements.

[66] It is an agreed fact that total deposits 20 March 2006 to 13 June 2011 amount to $535,632. Allowing for intra-account transfers of $98,737, that comes to

$436,895.

[67] It is a second agreed fact that total withdrawals from the two accounts in the same period amount to $535,314. Again allowing for the inter-account transfers, that is $436,577.

[68] It is a third agreed fact that the withdrawals were made by Ashley and consisted of:

(a) cheques or other payments to Ashley and Beverley (or for their benefit) amounting to $86,922;

(b) internet banking transactions from Kenneth’s accounts to Ashley and

Beverley’s accounts totalling $252,624;

(c) cash withdrawals and purchases for goods and services from the 00 account (which by a process of deduction must amount to $97,031).

Kenneth’s health: 2007–2008

[69] I described Kenneth’s state of health in 2006 earlier in this judgment.⁹ I now consider the years 2007–2008.

[70] A further needs assessment was done by a nurse, Ms McCully, on 9 March

2007. It records that Mr Vernon’s mental outlook was better. He still “gets down at times but is not clinically depressed”. He is no longer on anti-depressants. His physical health had improved, although his mobility had not. He needed assistance when going outside. He had had a fall recently and incurred a head injury. Ashley reported that he was “sleeping a lot, but this is not new”.

[71] In October 2007 Kenneth was admitted to hospital following a further fall on to his head. The doctor’s report notes that he “appeared confused”. He was discharged to his own home the same day. In February 2008 his GP undertook a home visit. The report notes that Ashley advised that Kenneth had “slowed a lot in six months, took to his bed recently for three days”. The GP reported that Kenneth was “able to converse with him though slowly”.

[72] In September 2008 Kenneth slipped on the stairs and fell and broke his left hip. He was discharged from hospital one week later but to rehabilitation to Kenepuru Hospital. He was there for three weeks. The Kenepuru records state:

Mr Vernon has a history of worsening cognitive impairment. He previously lived with his son and daughter-in-law, who are having difficulty coping with his decreasing mobility and increasing confusion, and were considering rest home placement before his fall.

On discharge from Kenepuru hospital, Kenneth moved into the Johnsonvale Rest

Home.¹⁰

Ashley’s dealings with WINZ

[73] It will be remembered that Ashley Vernon’s defence of his operation of

_{Kenneth’s account, and withdrawals from it for his joint benefit with Beverley, was}

⁹ _{At [27] to [34].}

10. In January 2009 he moved from that facility to the Longview Rest Home, where he lived until his death in September 2011.

that Kenneth wanted him to have the money. As Ashley put it, in his evidence-in- chief:

Ken often made comments about the use of his money. He said things like “Please use it while I am alive – it’s no good to me dead,” and “I want to see you enjoy it while I am alive. Get rid of debt”. Ken was keen to see his money used as an acknowledgement that we were caring for him.

[74] Ashley offered as a further justification that Kenneth understood that he was missing out on employment opportunities by taking time to care for him. Given that Ashley had not worked since 1997, I treat that observation with some reserve.

[75] When Kenneth was about to enter the Johnsonvale Rest Home in September

2008 Ashley completed a WINZ residential care needs assessment and financial means assessment form. This was with a view to obtaining a rest home care subsidy for Kenneth. The form was completed on Kenneth’s behalf using the enduring power of attorney referred to earlier.¹¹ It records Kenneth’s assets as being an 00 account balance of $2,007 and a 46 account of $11,399. Under “assets” it records a “family loan” of $80,000. It is accepted this was the loan said to be to Kylie, and

should have been recorded at $50,000. It refers to receipt of $280,000 from sale of the house, but does not explain where that money has gone.

[76] Then there is a specific question:

Have you ... ever gifted, transferred or disposed of any cash or non-cash assets? Please include assets gifted or transferred to family trusts, trusts, family members, business or charitable organisations.

This is answered, by Ashley, on Kenneth’s behalf, “No”. A further question asks:

Have you received a high level of care from someone other than your partner or dependent child and gifted in recognition of that care?

Again, this is answered by Ashley on Kenneth’s behalf, “No”.

[77] The whole basis of the Vernons’ defence at this trial was that the withdrawals from Kenneth’s account were just that: for the most part gifts or transfers in part or

_{in whole in recognition for the care being provided for him by him. Ashley must}

¹¹ At [22].

have appreciated that the form being completed by him, for submission to WINZ and to obtain a state subsidy, was false. His answers in cross-examination on this point were evasive and unsatisfactory.

[78] WINZ appear not to have been fooled by the form. The application was declined. A letter from WINZ notes that “by transferring funds to family members” Kenneth had deprived himself of assets. The letter was sent to Kenneth care of Ashley.

[79] A similar form was however completed in June 2010. Again it was completed by Ashley as representative for his father. Kenneth’s assets are now recorded as $737 in the 00 account and $239 in the 46 account. The family loan is still stated as an asset with $80,000. The question about gifts to family members is again answered “No”, despite the response from WINZ on the last occasion. There is no equivalent “recognition of care” question in the 2010 form. This time WINZ accepted the application.

Kenneth’s assets and accounts in September 2008

[80] As at the end of September 2008, at the point Kenneth moved into the Johnsonvale Rest Home, the balance of his 00 account was just $1,185. His 46 account had $10,344 in it.¹²

Kenneth’s death

[81] Kenneth died aged 91 at Longview Rest Home on 8 September 2011.

[82] At the time of his death his 00 account had a balance of $1,180, and his 46 account a balance of $246.

Inquiries into Kenneth’s estate, and Ashley’s responses

[83] On 3 October 2011 an Otaki solicitor, Mr McLaren, wrote to Ashley. He was instructed by Jude. He said he was instructed to take action regarding the estate. He

¹² These numbers are slightly different to the numbers shown in the WINZ form completed by

Ashley at the same time: see [75] and [79].

asked who the solicitors acting in its administration were. No response was forthcoming, although it is possible the letter did not reach Ashley.

[84] On 28 October 2011 Dante emailed Ashley. He said that, as heir to Chris, he

was entitled to Chris’ equal share of the estate. The email continues:

Please make this simple for me by providing information requested. If this does not happen an application will be made to the Court next week. The estate will then be frozen and my lawyer advises that the police will become involved in an investigation as to the whereabouts of the money.

This did elicit a response from Ashley. He noted the absence of contact in the last five to six years. He denied having received the letter from Mr McLaren. He invited Dante to come around and see the will (and Ashley and Beverley). He did not however say anything about the state of the estate. Given his knowledge of the reality that there was virtually nothing left, that is curious. Why not clarify that a mere chimera was in issue?

[85] Mr McLaren appears to have obtained a copy of the will from Ashley. He then made contact with Maude & Miller, who had drafted the will. On 13 December

2011 Maude & Miller advised that Ashley had told them that he would attend to the administration of the estate and that Maude & Miller’s services were not required. The persistent Mr McLaren then wrote again to Ashley. He asked for the name of the solicitor acting for Ashley in the administration of the estate (Ashley being an executor of course). And for a list of assets and liabilities of Kenneth’s estate. Absent satisfaction:

We shall otherwise make complaint to authorities setting out our concern for the correct and proper administration of the estate of which our client is a substantial beneficiary.

[86] The same day Dante again emailed Ashley. The email records:

Pop made provision for me in the will yet you are not appearing to honour this. Please advise where my inheritance lies and the extent of it IMMEDIATELY. If you do not contact my solicitor and myself regarding this immediately we will have no option but to contest the will and will apply to the High Court to have the estate frozen and audited.

[87] On 16 December 2011 Ashley responded. He said there were “no problems”. As trustee he acknowledged his duty was to pay the debts and general expenses and to provide the remaining balance as requested. He said he was waiting for accounts for final funeral expenses for both Naomi and Ken at the RSA burial plots and a final account from the rest home.

[88] On 20 December 2011 Mr McLaren wrote again. He again asked for the solicitor acting on the estate. And again for a schedule of the assets and liabilities of the estate. He gave notice of a claim by Dante pursuant to the Family Protection Act

1952. He foreshadowed an application to the Courts in support of that claim. In cross-examination Ashley said he did not consider matters had become serious. An oddly disconnected answer in my view.

[89] Ashley responded on 6 January 2012 saying he could see no problem. Nothing had happened since Kenneth had died. They were waiting for the final accounts mentioned before. He said he had contacted Maude & Miller before forwarding the will (presumably to Mr McLaren) and had been told “that there was no problem and that it wasn’t necessary to engage them as it was all simple and straightforward given the small amounts involved and the requirements of the will”. He said he would be in touch with Mr McLaren again in February. He did not however do that, and activity abated for a while.

[90] At this point Jude and Dante consulted a new solicitor in Wellington, Mr Leggat. He wrote to both Ashley and the other executor, Ashley’s uncle, John Rayner, on 2 May 2012. He noted that Ashley had said he would contact Mr McLaren in February but had not done so. He required Ashley to provide by return details of all assets and liabilities of the estate. This information had been sought in Mr McLaren’s letter of 24 November 2011, and still, six months later, had not been forthcoming.

[91] Mr Rayner responded three days later. His letter, curiously, is typed with the same unusual font used by Ashley and Beverley. For instance, in the agreement documenting the loan to Kylie. Mr Rayner said he had no details of his brother-in- law’s estate and:

I have limited contact with my nephew Ashley Vernon and have not yet discussed the matter with him.

Ashley, in an undated letter with the same font as Mr Rayner’s letter, responded to Mr Leggat.¹³ The letter advised that there were a number of outstanding matters to be settled before full details of the estate could be finalised. There was an issue about some shares in Māori land in Wanganui. He was still waiting for a response to inquiries on this. The letter said:

... it goes without saying that nothing has been touched or distributed to

anyone since the day dad passed away.

He said that he was now instructing solicitors. I have to say that I find it curious that he does not indicate that the estate is worth neither powder nor shot. There had been a delphic reference to “small amounts” in his email of 6 January 2012. But if everything was in order, an awful lot of energy was being expended on an estate of miniature proportions.

[92] Mr Leggat was not to be deflected. The following day, 11 May 2012, he wrote saying:

If, as you say, you are awaiting details of the Taranaki property, then kindly provide details of the other assets and liabilities, and then provide details of the Taranaki interests when you obtain them. I hope it is clear to you that my client and his mother will not continue to be fobbed off by you.

He picked up on the fact that Mr Vernon’s email to Mr McLaren of 6 January had referred to “small amounts involved”. Mr Leggat indicated that his clients’ understanding was that the amounts involved were not small.

[93] On 21 May 2012 a solicitor acting for Mr Rayner advised Mr Leggat that his client was also concerned to resolve matters. He was not sure he was still an executor. He had now spoken to Ashley. Ashley was instructing solicitors to apply

_{for probate promptly.}

¹³ It was received by Mr Leggat on 10 May 2012.

[94] On 24 May 2012 Mr Leggat again sought details of the assets of the estate and progress in its administration. He noted that inquiries since October had been “ignored or at best evaded”.

[95] On 30 May 2012 Mr Harrison, a Porirua solicitor, wrote to Mr Leggat advising he was now instructed by Ashley. He was discussing a proposal with Mr Rayner’s solicitor and was expecting to be able to put it to Mr Leggat as soon as he had instructions.

[96] Nothing then happened for some weeks. On 10 July 2012 Mr Leggat wrote

to Mr Harrison and Mr Rayner’s solicitor. His letter said:

It is becoming increasingly clear that your clients are unwilling, and perhaps not competent, to carry out the role of administrators to the estate. There must also be a serious question whether Mr Ashley Vernon would not be conflicted in carrying out that role in any event.

Mr Leggat indicated he had instructions to make application to the Court to have the

Public Trust appointed administrators.

Appointment of Public Trust as administrator

[97] On 1 October 2012, and without opposition from either Mr Rayner or Ashley, the Public Trust was appointed administrator of Kenneth’s estate.

The Public Trust tries to get answers

[98] The following day, 2 October 2012, the Public Trust began making inquiries of Ashley. In particular, it was seeking an inventory of the estate assets as at the date of death. Not having received a response,¹⁴ the Public Trust wrote again on

8 November 2012. This solicited a response from Ashley on 13 November 2012. In that letter he said:

Your letter 8 November 2012 mentioned sale of property, banking arrangements etc. These events happened over six years ago when dad was alive and everything that was done he did or was done with his authority.

14. There is some evidence that Ashley and Beverley were overseas from mid-September to mid- October 2012.

[99] The Public Trust sought copies of cheques written on Kenneth’s account, including the four forged cheques. These were provided. On 28 January 2013 it wrote to Ashley seeking a meeting to discuss transactions that took place with the ANZ account, and the loan to Kylie. On 3 April 2013, Kellie McKinstry, a Public Trust officer met Ashley. On the topic of the ANZ bank accounts, Ashley is recorded as saying that any transactions undertaken on the bank accounts “were at his father’s request and with his approval”. He referred to payments being made on his father’s behalf, and receiving reimbursements. A new bed, television and other items of furniture were purchased. Railings had to be put in the house for Kenneth. Kenneth wanted to contribute to the purchase of the new car, particularly as Ashley’s car had broken down and he was driving Kenneth around all the time. Ashley could not provide details as to what many of the payments were for. He believed that many of them would be reimbursements. He is recorded as recalling a trip made to Brisbane with Kenneth in April 2008. Either the statement, or the record, is incorrect. There was no overseas trip with Kenneth after he came to live with the Vernons.

[100] The record finishes with this interesting observation:

I asked Ashley if he had ever thought about the future impact of all the withdrawals on the other beneficiary of his father’s estate. He said he had not as he thought it was only him anyway.

It is difficult to square that observation with Ashley’s knowledge of the will¹⁵ and

Ashley’s stated intent to keep Kylie’s repayments aside for Dante.¹⁶

[101] The meeting concluded on the basis that Ashley was going to try to identify what the queried transactions were for.

[102] A copy of the notes were sent to Ashley on 19 April. He responded saying that he needed to correct a few things, and he had made some progress, but that he was going to be away for three weeks. He said he would respond on 23 May. He did not do so, and on 29 May 2013, Ms McKinstry reminded him again of the need

_{for progress. In June 2013 Ashley was admitted to hospital for two weeks.}

¹⁵ _{See [20] above.}

¹⁶ See [55] above.

Eventually on 12 July 2013, he wrote to Ms McKinstry. He provided some information but said that he was still checking on the transactions. He said:

As to the withdrawals on Dad’s account, he was aware of all transactions and always checked the bank statements. As he always said “I can’t take it with me”.

[103] On 20 August 2013 Ms McKinstry sought further clarification, including the foreshadowed corrections to her minutes of the meeting on 3 April. On

14 September 2013 Ashley responded. In relation to the minutes he said he could not now remember what things needed changing from the notes. As to the bank account payments he said:

I would just reiterate that all payments were made by Dad or with his knowledge and approval and were for things that (a) he wanted to buy, do, pay for etc or (b) had to pay for such as doctors, dentists, optometrists, respite care, funerals etc.

[104] On 2 October 2013 Kylie Vernon wrote to Ms McKinstry. She referred to the loan from her grandfather’s estate, confirmed that she had been lent $50,000 “from the estate” and that $14,400 was currently owing. She referred to payments having been made until early 2011 into “Kenneth’s nominated bank account”. In fact it had been paid into an account of Ashley and Beverley.

[105] On 19 December 2013 Mr Leggat, now acting for the Public Trust, wrote to the Vernons stating that he had advised the Public Trust that it had a strong claim to recover payments, appearing to be “well in excess of $400,000” paid from Kenneth’s bank accounts to the Vernons.

Proceedings are issued

[106] These proceedings were issued in October 2014. The causes of action pursued are in undue influence, unconscionable conduct, breach of fiduciary duty and “embezzlement”.

How much money have the Vernons received?

[107] The evidence is that Ashley effected net withdrawals of $436,577 from Kenneth’s bank accounts.¹⁷ I accept analysis provided by the plaintiff (and uncontested by the Vernons) that third party costs for Kenneth of $96,223 have been established. Most of that was for rest home fees from September 2008 to September

2011.

[108] The result is that the Vernons themselves received $340,354.

[109] This was expended on (1) their general living expenses, (2) special expenses (such as travel to Australia and two cruises in April 2010 and July–August 2011, wedding expenses, and the loan to Kylie) and of course (3) expenses maintaining Kenneth in their home. In the event that I hold that the depletion of Kenneth’s accounts was unlawful, credit for the latter amount will be given.¹⁸

Assessment of the witnesses

[110] I comment briefly on the three principal witnesses who gave evidence before me.

[111] Jude’s evidence was limited in extent and importance. The short point is that she and Dante had very limited contact with the Vernons or Kenneth after Chris and Naomi died, and Kenneth went to live with the Vernons. It was apparent she and Beverley did not warm to each other. Her evidence struck me as generally fair- minded. She did not attempt to conceal her dislike for the Vernons.

[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}

¹⁷ _{See [67] above.}

¹⁸ See [156] below.

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.

[113] Beverley I found relatively frank by contrast to her husband. She was willing to make concessions, a trait largely absent in Ashley. I do not accept her evidence in every respect. I consider she had an unreliable view of the state of Kenneth’s health given the contrary medical records. Her evidence was skewed to an extent by a desire to support her husband. Commendable in a spouse, but undesirable in a witness. The reality is that she knew little of significance. None of the banking transactions had been undertaken by her, and she knew nothing of their detail. But she was well aware that transfers were being made by Ashley from Kenneth to her joint accounts with Ashley. She acknowledged awareness that Kenneth’s money was “being spent”, and that his bank accounts “had got right down”. And she knew that doing this without independent legal advice and documentation might result in legal

problems.¹⁹

Pleadings

[114] The plaintiff ’s second amended statement of claim advances three causes of action: nominally “embezzlement”, breach of fiduciary duty and “unconscionable conduct”.

[115] By the time Mr McIntosh opened for the plaintiff, the third cause of action had evolved to “undue influence/unconscionable conduct”. No issue was taken by Mr Beck about that evolution. As he acknowledged, it was clear that the plaintiff was relying on undue influence as well as the more generic head of unconscionability. That concession was appropriate from a substantive point of view. Undue influence was expressly referred to at paragraph 13 of that cause of

_{action, for instance. There was no prejudice to the defendants.}

¹⁹ See [18] above.

[116] But it is important to note that while undue influence and unconscionability are closely related doctrines, their inclusion focus differs.²⁰ The focus of undue influence is on the circumstances and sufficiency of consent to a transaction. Unconscionability, on the other hand, inquires more broadly into the existence of disadvantage or disability, and whether a stronger party has taken advantage unconscionably of that disadvantage or disability.

[117] Somewhat adventurously the first cause of action was, as I have said, “embezzlement”. This evolved into “embezzlement/fraud” in Mr McIntosh’s closing submissions. “Embezzlement” is not a cause of action known to the common law or Equity. The common law has conversion and deceit. Equity recognises a cause of action in fraud. None of these were pleaded. I do not think it is appropriate to further mutate the statement of claim at this late stage. In any event, it is clear from the plaintiff’s closing submissions that the focus of this aspect of the claim was on the quality of Kenneth’s consent to the transfers. This suggested cause of action therefore appears to add nothing to undue influence.

Issues

[118] Counsel submitted a joint list of issues. Having done so, they largely ignored it. Instead they reverted to a conventional cause of action analysis. I will do likewise. The issues I must address therefore are these:

(a) Issue 1: Should the payments to the Vernons be set aside for undue influence?

(b) Issue 2: Should the payments be set aside for breach of fiduciary duty?

(c) Issue 3: Should the payments be set aside as unconscionable?

_{(d) Issue 5: Are the Public Trust’s claims time-barred?}

²⁰ See Andrew Butler (ed) Equity and Trusts in New Zealand (2^nd ed, Wellington, 2009) at

[22.4.5(2)] and [23.1.1].

(e) Issue 6: What relief should be granted?

[119] Given the conclusions I have reached on Issue 1, it proves unnecessary to deal with Issues 2 and 3 in any detail.

Issue 1: Should the payments to the Vernons be set aside for undue influence?

[120] It was accepted that this ground was in effect the primary basis for the

plaintiff’s claim.

[121] There was no real controversy as to the applicable legal principles. In this country the principles set forth in the speech of Lord Nicholls in Royal Bank of Scotland v Etridge (No 2)²¹ were approved by the Court of Appeal in Hogan v

Commercial Factors Ltd.²² The plaintiff must demonstrate:²³

(a) the existence of a relationship of influence; (b) the exercise of that influence;

(c) that the influence was undue – i.e. unfair, unacceptable or unconscionable;

(d) that the impugned transactions were a result of that undue influence;

and

(e) that Equity’s conscience is exercised as a result.

[122] A probative short-cut exists however where (a) is established, and a “transaction that calls for explanation” is also demonstrated.²⁴ In such a case the burden passes to the defendant to rebut the inference, indeed presumption, arising of

_{undue influence.}²⁵

²¹ _{Royal Bank of Scotland v Etridge (No 2) [2002] 2 AC 793 (HL) at [9]–[121].}

²² _{Hogan v Commercial Factors Ltd [2006] 3 NZLR 618 (CA) at [40]–[41].}

²³ _{Butler, above n 20, at [22.1.2]. See also Green v Green [2015] NZHC 1218 at [100].}

²⁴ _{Royal Bank of Scotland v Etridge (No 2), above n 21, at [14].}

²⁵ Butler, above n 20, at [22.5.2].

A relationship of influence?

[123] It is clear that a relationship of influence existed in this case. This is demonstrated in two respects. The first is the entry into the enduring power of attorney by Kenneth in favour of Ashley. The second is the de facto reposal of trust and confidence by Kenneth handing Ashley daily control of his banking affairs. This is not the common situation of a lending transaction in which a vulnerable parent improvidently provides security for a child’s borrowing. Rather the situation was one of complete transfer of control of Kenneth’s finances. In that respect it is not

unlike the situation in Sareczky v Fodermayer.²⁶

Was influence exercised?

[124] It also follows from the facts as I find them that influence was exercised in this case.

[125] The substantial depletion of Kenneth’s assets, so that he moved from a state of modest comfort to one of effective pauperdom, and the substantial benefit in that transition to Ashley and Beverley, is a transaction calling for explanation. It follows that the persuasive onus falls on the Vernons to rebut the inference of undue influence arising.²⁷ It follows also that the evidential burden falls to the Vernons to provide satisfactory evidence that the influence exercised was not undue.

[126] I will deal with that question under the next heading, where I find that the Vernons fail to discharge these burdens. And although presumptive undue influence is thus established by the Public Trust, I shall continue to consider whether actual undue influence has also been demonstrated to the requisite standard.

Was the influence undue?

[127] As I have just noted, the burden here falls upon the Vernons to establish that the exercise of influence by them in this case was not undue. The Vernons were wholly unable to discharge that reverse onus and show that the transactions were in

_{order. The substantial preponderance of the evidence was to the contrary. I refer in}

²⁶ _{Sareczky v Fodermayer (1986) 1 NZBLC 102,492 (HC).}

²⁷ See [122] above.

particular to the cheque forgeries committed by Ashley, his false dealings with WINZ on his father’s behalf, the inexplicable bank transfers, and the simple reality that the substance of his father’s estate was, in life, exhausted in the Vernons’ interest.

Were Kenneth’s assets depleted as a result of undue influence?

[128] Having found a relationship of influence, and the exercise of undue influence, it is plain that the answer to this question must be “Yes”. Ashley had sole control over the banking facility, enabling depletion of assets in the way described earlier.

Is Equity’s conscience exercised?

[129] In these circumstances Equity’s conscience is exercised. Ashley was aware that on death his father’s estate would split in two ways, with Ashley succeeding to half only. I find that he set about forestalling that event by ensuring transfer of virtually the whole of the estate, in life, to himself. Beverley was aware of what was occurring. She appreciated the need for independent advice and documentation. She is fixed with the knowledge of her husband’s actions. It would be a gross affront to Equity to permit these tainted transactions to remain unreversed.

Conclusion

[130] For reasons given above I find that the fund transfers effected by Ashley from Kenneth’s accounts to those of the Vernons should be set aside on the basis of undue influence.

[131] In light of my finding that undue influence has occurred in this case, it is unnecessary for me to deal in any depth with Issue 2 (breach of fiduciary duty) or Issue 3 (unconscionability).

Issue 2: Should the payments be set aside for breach of fiduciary duty?

[132] Mr McIntosh advanced fiduciary duty on two bases.

[133] First, he submitted a donee under a power of attorney owes fiduciary duties to the donor.²⁸ The attorney must act with absolute openness and fairness to the donor, exercise reasonable care (including acting with reasonable prudence in managing the donor’s financial affairs), keep personal and fiduciary property separate, and avoid conflict of interest and duty to the donor.

[134] The second basis on which Mr McIntosh advanced a fiduciary duty was on the basis of a family caregiver relationship. Although that was not, he said, one of the traditional categories of relationship Equity recognises as inherently fiduciary, the circumstances in this case did give rise to fiduciary obligations. In particular he

pointed to the essential elements in this case of trust, reliance and vulnerability.²⁹ To

that I would add the aspect of representation. In part as a result of the enduring power of attorney Ashley assumed the task of representing his father in his dealings with others, including Kenneth’s bank. Representative capacity is not a necessary condition of a fiduciary relationship.³⁰ But its presence will assist in inferring one.

[135] I accept in this case that even had an enduring power of attorney not been executed, the relationship between Kenneth and Ashley was a fiduciary one. The same duties as described at [133] above apply in this instance also.

[136] Ashley’s actions in this instance were to extract his father’s estate in life, to the disadvantage of both his father and the other heir, Dante. I find these actions to be neither fair nor prudent. Plainly personal and fiduciary property were not kept apart, and Ashley allowed his interests to conflict with his duty to his fiduciary. Fiduciary duties were breached, en masse.

[137] It follows that I would also have set aside the funds transfers effected by

Ashley from Kenneth’s accounts to those of the Vernons on the basis of breach of

_{fiduciary duty.}

²⁸ _{Ganderton v Behre HC Rotorua CIV-2004-463-614 at [72].}

²⁹ _{Chirnside v Fay [2006] NZSC 68, [2007] 1 NZLR 433 at [80].}

³⁰ At [85].

Issue 3: Should the payments be set aside as unconscionable?

[138] I need deal briefly only with unconscionability. Such a cause of action will be made out if it can be established by the plaintiff that Kenneth was under a special disadvantage, and that the Vernons knowingly took advantage of that.

[139] I accept that Kenneth was at a special disadvantage as a result of his circumstances: his grief upon the death of his wife (a state which plainly endured), his adverse health, his reliance on the Vernons while an occupant of their home, the control he gave to Ashley over his financial accounts, and his lack of independent advice. I agree with Mr McIntosh that the Vernons cannot say they were unaware of the disadvantage, albeit they put a positive (and I find unjustified) gloss upon Kenneth’s circumstances.

[140] I find, for the same reasons as in the case of the other two causes of action, that the Vernons knowingly and unconscionably took advantage of the disadvantage under which Kenneth laboured. They cannot in good conscience accept the benefit of the funds transferred to them.

[141] It follows that I would also have set the payments aside on the basis of unconscionability.

Issue 5: Are the Public Trust’s claims time-barred?

[142] The Vernons plead that the Public Trust claim is subject to the Limitation Act

1950 and are “barred to the extent they accrued prior to 8 October 2008”.³¹ The effect of this pleading, as sustained, is that substantially all of the Vernons unlawful subtraction of Kenneth’s assets would be time-barred.³²

Submissions

[143] For the Vernons Mr Beck submits, first, that s 21(2) of the 1950 Act applies here:

³¹ Herein “the 1950 Act”. It is common ground that this Act, rather than the Limitation Act 2010 –

_{which came into effect on 1 January 2011 – applies.}

³² See [80] above.

21 Limitation of actions in respect of trust property

...

(2) Subject as aforesaid, an action by a beneficiary to recover trust property or in respect of any breach of trust, not being an action for which a period of limitation is prescribed by any other provision of this Act, shall not be brought after the expiration of 6 years from the date on which the right of action accrued:

Provided that the right of action shall not be deemed to have accrued to any beneficiary entitled to a future interest in the trust property until the interest fell into possession.

[144] Secondly, Mr Beck submits that s 28 does not apply here:

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:

...

Reliance on s 28 had not been pleaded by the Public Trust. Nor was there evidence as to when the alleged fraud was discovered or could reasonably have been discovered. A claim based on a presumption of undue influence cannot properly be described as one of equitable fraud: “there is not the requisite intention”.

[145] Thirdly, Mr Beck submits that s 21(1) of the 1950 Act does not apply:

21 Limitation of actions in respect of trust property

(1) No period of limitation prescribed by this Act shall apply to an action by a beneficiary under a trust, being an action—

(a) In respect of any fraud or fraudulent breach of trust to which the trustee was a party or privy; or

(b) To recover from the trustee trust property or the proceeds thereof in the possession of the trustee, or previously received by the trustee and converted to his use.

That is for the same reasons given in relation to s 28, and, further, on the basis that s 21 applies only to true trusts (rather than constructive trusts). Further, Beverley was not a trustee of any sort, and her only liability could be ancillary. Any claim against her is time-barred.

[146] Fourthly, Mr Beck submits that the claim based on undue influence and unconscionability – the third cause of action – is essentially restitutionary. By seeking judgment for sums subtracted by the Vernons, the Public Trust is essentially seeking an account of profits. Limitation by analogy to common law is appropriate,

even if s 4(2) does not apply.³³

Discussion

[147] I do not accept the Vernons’ argument that the claims against them are barred by the 1950 Act. There are six reasons for that conclusion.

[148] First, I have found actual undue influence occurred in this case. Such undue influence, although it focuses on the quality of consent by the donor, is still properly to be regarded as a species of equitable fraud.³⁴ The same may be said of the unconscionable conduct found in this case.³⁵ Such is the nature of the offence to Equity in this case that Ashley’s branch of fiduciary duty also has the quality of

equitable fraud. The making off by Ashley with his father’s assets is fraud by any

standard.³⁶

[149] Secondly, the policy of the 1950 Act is that fraud at least postpones, and in the case of an action at Equity for recovery of trust property fraudulently extracted by a trustee excludes, statutory limitations. That is the effect of ss 21(2) and 28 in

_{combination. As the latter section has universal application, it is the short answer to}

³³ _{Instancing the common law claim for money had and received.}

³⁴ Allcard v Skinner (1887) 36 ChD 145 (CA); Niersmans v Pesticcio [2004] EWCA Civ 372 at

_[20].

³⁵ _{O’Connor v Hart [1985] UKPC 17; [1985] 1 NZLR 159 (PC) at 174.}

³⁶ Meagher Gummow & Lehane’s Equity Doctrines and Remedies (4^th ed, Butterworths

LexisNexis, Sydney, 2002) at [12–040].

the Vernons’ limitation plea. I find as a matter of fact the acts of deflection of inquiry by Ashley meant that the existence of his frauds could not reasonably have been discovered before (1) the appointment of an administrator to Kenneth’s estate; (2) that administrator had received and been able to analyse Kenneth’s bank account records; and (3) Ashley had had a reasonable opportunity to offer a coherent, legitimate explanation. On the evidence I conclude that point was not reached until

the end of May 2013.³⁷

[150] Thirdly, the Public Trust was not bound to reply to the Vernons’ affirmative pleading of limitation in any more detail than the simple denial it gave. It did not need to identify specific provisions in the 1950 Act that it relied upon. No such specificity is required by High Court Rules 5.63(1) and 5.48. Nor, significantly, was such specificity offered by the Vernons themselves in their original statement of defence pleading of limitation.

[151] Fourthly, it is unnecessary for me to consider the Vernons’ arguments that limitation arises by analogy under s 4(2). That is because even if that was so, Ashley’s frauds would postpone the limitation period so that it would not run until 1

June 2013. Even if that was not the case, I would have held, consistent with the decisions of the Court of Appeal in Johns v Johns and Venning J in Lyons v Pika, that for analogy to arise the substance of the equitable claim must so closely approximate a statute-barred common law claim that it would be itself inequitable to allow the unbarred equitable claim to “outflank” the limitation.³⁸ It is insufficient that the remedy sought – an account – is similar. By no means can what is asserted here be likened in substance to a common law restitutionary action for money had and received.

[152] Fifthly, for similar reasons I need not address the Vernons’ argument that s

21(2) applies, and that s 21(1) does not apply. Even if that were so, the effect of s 28

_{is that Ashley’s frauds would postpone the limitation period to 1 June 2013.}

³⁷ See discussion of the evidence circa [102] above. The proceedings were filed on 8 October

_2014.

³⁸ Johns v Johns [2004] NZCA 42; [2004] 3 NZLR 202 (CA) at [80]; Lines v Pika [2013] NZHC 503 at [67]–[70].

[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.³⁹ 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.

Issue 6: What relief should be granted?

[154] As Mr McIntosh observes, the Public Trust seeks essentially the same relief in respect of each of the three causes of action. Judgment is sought against each of Ashley and Beverley, jointly and severally, in a money sum. It is therefore an action for account for the unlawful subtractions from Kenneth’s bank accounts during the relevant period.

[155] The extent of those subtractions is $340,354.⁴⁰

[156] It is common ground that credit for expenses incurred by the Vernons in maintaining Kenneth in their home should be given.⁴¹ There was little evidence as to the appropriate allowance. Mr O’Day, a principal trust officer with the Public Trust gave evidence that a figure of between $300 and $400 per week was appropriate. In this case it is clear that a high standard of care was given to Kenneth by the Vernons. Payments also met Kenneth’s medical and dental costs, for instance. I am inclined therefore to take the upper level accepted by the Public Trust. An allowance of $400 per week will be given. Over the 130 weeks involved, that comes to a credit of

_$52,000.

³⁹ Bank of Credit and Commerce International (Overseas) Ltd v Akindele [2001] Ch 437 (CA) at

_455.

⁴⁰ _{See [108] above.}

⁴¹ At [109].

[157] In addition to that capital expenditure was incurred for safety railings, a new bed, television and some other furniture.⁴² These were not quantified by the Vernons. Taking a reasonable but conservative view in the circumstances, I will allow a further credit of $8,000. The total credit allowed will, therefore, be $60,000.

[158] The Vernons must therefore account to the Public Trust for the sum of

$280,354.

[159] Interest is claimed pursuant either to s 87 of the Judicature Act 1908 or the Court’s equitable jurisdiction to award interest.⁴³ Mr McIntosh submitted interest should run from 5 September 2008, the date on which Kenneth was hospitalised and went into care. I accept that submission. That date represents the effective conclusion of the unlawful subtractions by the Vernons.

[160] Interest will be payable on the sum in [158] above, at the statutory rate, as from 5 September 2008.

Summary of conclusions

[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.

⁴² _{See [99] above.}

⁴³ See Rama v Millar [1995] UKPC 49; [1996] 1 NZLR 257 (PC).

(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.

Result

[162] The defendants are to account to the plaintiff for the sum of $280,354. Judgment is given, in that sum, accordingly.

[163] Interest is payable on that sum, as from 5 September 2008, at the rate prescribed under the Judicature Act 1908.

[164] Costs will follow the event. Brief memoranda may be filed if the parties cannot agree.

[165] I thank all counsel for their assistance during the trial.

Stephen Kós J

Solicitors:

Greg Kelly Law Limited, Wellington for Plaintiff

The Law Store, Porirua for Defendant