Chambers v Chambers [2016] NZHC 583 (6 April 2016)

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UNDER	the Administration Act 1969 and the Family Protection Act 1955
IN THE MATTER OF	the Estate of Sir Robert Stanley Chambers
BETWEEN	DAVID ROBERT CHAMBERS Plaintiff
AND	DEBORAH ANN TOHILL CHAMBERS First Defendant SIMON CHARLES BLACKWELL Second Defendant ZELDA EVE TOHILL HOLLINGS and CAITLIN ROSE TOHILL HOLLINGS Third Defendants

Hearing:	19 and 20 October 2015 (further memoranda on 3 November 2015)
Appearances:	J Farmer QC and W Galvin for the plaintiff J Miles QC for the first and second defendants J Orpin for the third defendants
_Judgment:	_{6 April 2016}

Introduction ....................................................................................................................................... [1] Background........................................................................................................................................ [6]

Family arrangements ..................................................................................................................... [6] Financial position......................................................................................................................... [11] Relationship property arrangements ............................................................................................ [19]

Events after Sir Robert’s death ..................................................................................................... [39]

Evidence objection ....................................................................................................................... [42]

Claim for removal of administrators ............................................................................................. [43]

Introduction .................................................................................................................................. [43]

_{The Property (Relationships) Act
.................................................................................................
[47]}

The effect of the second RPA and the Variation ............................................................................ [58] Can a personal representative apply to set aside a s 21 agreement? ........................................... [62] Family Protection Act claim ......................................................................................................... [87] Derivative claim and High Court Rules ......................................................................................[119] Conclusion on first cause of action ............................................................................................ [120]

Express trust .................................................................................................................................. [121] Constructive trust.......................................................................................................................... [124] Result .............................................................................................................................................. [148] Addendum...................................................................................................................................... [149]

[1] Sir Robert Chambers, a sitting Supreme Court Judge, died suddenly in his sleep on the evening of 21 May 2013 aged 59 years. He had suffered a brain aneurysm. His untimely passing was a significant loss to the law as well as, of course, to his family and friends. This proceeding concerns his family, and in particular the carefully considered financial arrangements he made for them in the event of his death.

[2] These arrangements were documented in his will and a relationship property agreement, as amended over the course of his relationship with Lady Chambers QC, his second wife. Pursuant to these documents, Lady Chambers is one of the executors of his estate and has by survivorship control of their relationship property. The value of the shared relationship property at the date of his death was in excess of

$11 million. It may be worth considerably more than that now although this is in dispute. Apart from the relationship property, the value of Sir Robert’s estate under his will is in the vicinity of $1 million.

[3] The proceeding before me is brought by David Chambers, Sir Robert’s eldest

son from his first marriage to Claire Chambers. He wishes to receive a payment of

$2.5 million, being a sum described in the relationship property agreement as his “entitlement”, but which is subject to various matters. Lady Chambers has declined to make that payment on the basis that she is not required to do so under the relationship property agreement at this point in time, and she considers that it was not Sir Robert’s intention that she do so.

[4] David has brought a claim under the Family Protection Act 1955 in order to obtain the $2.5 million payment. The substantive determination of that claim is presently deferred because first David seeks to bring Sir Robert’s share of the relationship property back into his estate. To do that several steps need to be taken. This proceeding concerns whether those steps are available and should be taken.

[5] David also makes an alternative claim that the arrangements entered into by his father and Lady Chambers give rise to either an express or constructive trust in respect of the “entitlement”.

[6] Sir Robert and Lady Chambers’ relationship commenced in 2001. They began living together in May 2002 and were married on 10 October 2004. It was a happy and successful marriage. It was the second marriage for them both.

[7] Sir Robert had two sons from his first marriage: David and Chris. Lady Chambers had two daughters from her first marriage: Caitlin and Zelda. At the time their relationship began David was about 17, Chris was about 13, Caitlin was 10 and Zelda was six.

[8] When Sir Robert and Lady Chambers began living together, Lady Chambers moved into Sir Robert’s family home in Remuera. At that time Caitlin and Zelda lived with Sir Robert and Lady Chambers. Chris lived with them on part time basis, while also living with his mother and David in Parnell. In 2006 Chris came to live with Sir Robert and Lady Chambers on a full time basis. It is agreed that Sir Robert, Lady Chambers, Chris, Caitlin and Zelda lived as a family.

[9] David remained living with his mother in Parnell until he went flatting. He would often visit the Remuera family home for Sunday dinners. He enjoyed his visits and got on with everyone but did not live with them as a family. He did not have a bedroom in the house. He did not go on the family’s overseas holidays. He

was living an independent life at University. He remained in a loving relationship with his father who he much admired.

[10] David left New Zealand in 2010. He and Sir Robert maintained contact via Skype and Facetime and David would see his father when he returned to New Zealand about once a year. David does not view his relationship with Lady Chambers as comparable to his relationship with his father. In a financial sense, he regarded his father as a safety net. He had never been dependent on Lady Chambers, financially or otherwise.

[11] When Sir Robert and Lady Chambers began living together, Sir Robert’s principal asset was the Remuera family home. Lady Chambers’ principal asset was cash. Their asset position was approximately equal. At this time Sir Robert was a High Court Judge and Lady Chambers had a successful barrister’s practice. Lady Chambers was earning considerably more than Sir Robert. She was also seven years younger than him.

[12] In late 2002 the couple bought a beach property at Pauanui for $1.05 million from funds which Lady Chambers brought to the relationship. In April 2003 they undertook a major renovation of the Remuera family home at a cost of approximately $1 million. Again this was mostly funded from Lady Chambers’ cash assets.

[13] In 2004 Sir Robert was appointed to the Court of Appeal. The couple purchased a property in Wellington for $1.7 million. In 2006 Lady Chambers was appointed a Queen’s Counsel. During that year the couple also carried out further major renovations of the Remuera family home. Lady Chambers also transferred her quarter share in her mother’s Herne Bay property into the couple’s joint names. In

[14] Throughout their relationship Lady Chambers was earning significantly more than Sir Robert. Based on tax returns she estimates she was earning about three to four times more than Sir Robert during their relationship. Sir Robert also had financial commitments to his first wife which ended 2006.

[15] At the time Sir Robert died the couple’s jointly held property was as follows:

Remuera property occupied by Lady Chambers’ $900,000 mother (Anne) (2011 CV $1.36 million)

The Wellington property (2012 CV $2.35 million) $2.35 million The Pauanui property (2011 CV $1.83 million) $1.83 million Total $12.33 million

[16] This sum reduces to a figure somewhere between $11 million and $12 million when funds advanced by Sir Robert’s superannuation trust are taken into account. In addition Sir Robert’s estate has assets of around $900,000 to $1 million comprising, amongst other things, a life insurance policy and salary owing by the Ministry of

[17] In the course of the hearing there was some dispute between the parties as to the present value of the relationship property and the matter was left for further submission after the hearing.³Subsequently David sought to adduce further

_{evidence on this topic. The defendants contended the evidence was of
very limited}

¹These figures come from the amended statement of claim which are largely accepted in the statements of defence. The defence pleads that taking into account liabilities as at the date of death the value of the property pool is unlikely to be more than $11.4 million. That takes into account funds advanced from Sir Robert’s superannuation trust. It possibly also takes into account Lady Chambers’ view, arising from unsuccessful efforts to sell the property, that the Wellington property CV significantly overstates its value.

²The second amended statement of claim alleges the net value of the remaining assets of Sir Robert’s estate is approximately $1 million. The statements of defence say it is around $900,000 and that the funds subject to the superannuation trust do not form part of Sir Robert’s estate.

³Mr Farmer QC, counsel for David, sought to produce updating evidence as to its value.

Mr Miles QC, counsel for Lady Chambers and Mr Blackwell (the second defendant), objected to this. Leave was granted for Mr Farmer to provide submissions as to why he should be permitted to adduce further evidence and what that evidence would entail. My order in this respect was misunderstood by Mr Farmer and his instructing counsel (understandably because it was made orally at the end of the hearing of the complex issues that arise in this case) but this is of no moment. Mr Farmer filed the proposed evidence and both sides had the opportunity to advance their reasons as to why the evidence should or should not be adduced.

relevance at best.⁴They also contended that if David had wished to adduce evidence about this then he should have done so prior to the hearing and the evidence now relied on was inaccurate, speculative and misleading. They contended that, having adduced no evidence on the point prior to the hearing, the Court should proceed on the basis of the defendants’ pleading in their statement of defence that the value of the relationship property was unlikely to be more than $11.4 million.

[18] I accept that the proposed further evidence is not sufficiently reliable in light of the matters raised by the defendants in their response. I take a similar view of the defendants’ submissions about value in respect of the subdivision of the Remuera family home and the value of the Wellington property which failed to sell when placed on the market after Sir Robert’s death. The result is that I do not have an accurate assessment of the current value of the relationship property. In the absence of expert valuation evidence there is, however, no reason to believe that, in accordance with the overall trend of market prices in Auckland particularly, the

current value of the Auckland properties will exceed the 2011 CVs.⁵Even on the

basis of the defendants’ figures the relationship property had increased from $11.2

[19] From the outset the couple agreed that they needed a relationship property agreement (RPA). It is not in dispute that Sir Robert drafted the relationship property arrangements and that Lady Chambers was happy that he did so and was in agreement with their contents.

[20] They entered into their first such agreement on 25 July 2002 (the first RPA). Under this agreement they:

⁴On the basis that whether there has been a breach of moral duty by a testator is assessed in light of events at the date of the testator’s death and it is only if a breach is established that the court looks to subsequent events, including any improvement in the value of the estate: Little v Angus [1981] 1 NZLR 126 (CA) at 127.

⁵That appears to be the case in respect of the second and third Remuera properties in light of the

(a) acknowledged they were residing together in a de facto relationship and that they wished to contract out of the Property (Relationships) Act 1976;

(b) acknowledged that at this time they brought approximately equal capital to their relationship. Schedules of their respective property as at May 2002 were attached and showed that the value of each was approximately $2 million;

(d) agreed that all their property at the date of the agreement would be relationship property as would all property acquired during the relationship;

(e) agreed that in the event of either of them dying, the agreement would determine the division of their property if the surviving partner elected option A under s 61 of the Property (Relationships) Act and specifically agreed that ss 80 to 83 of the Property (Relationships) Act would not apply;

(f) agreed that in the case of Sir Robert predeceasing Lady Chambers before 1 January 2013, she was to receive as her share of their relationship property the family home, any beach home and 50 per cent of the remaining property. The remaining 50 per cent was to be treated as Sir Robert’s relationship property and bequeathed by him to his sons;

(g) agreed that in the case of Sir Robert predeceasing Lady Chambers on or after 1 January 2013, she was to receive as her share of their relationship property the family home, any beach home and 66 per

(i) agreed to make new wills to reflect these arrangements. [21] Sir Robert executed a will dated 27 September 2002. This will:

(c) stated the intention was that should Lady Chambers survive Sir Robert her financial position would be identical whether she chose option A or option B under s 61 of the Property (Relationships) Act;

(d) provided what was to happen in the event that Sir Robert and Lady Chambers died within six months of each other, or if one of them survived the other by six months or more;

(e) in the case of Lady Chambers surviving Sir Robert by six months or more, provided that Lady Chambers was to receive what she was entitled to under the first RPA in so far as it might not have already passed to her by survivorship, with the balance of the estate to go to Sir Robert’s two sons equally; and

(f) in the case of Sir Robert surviving Lady Chambers by six months or more, sufficient property to equate with the “specified sum” was to be paid to Lady Chambers’ two daughters and the balance was to be paid to Sir Robert’s sons. The specified sum was a formula: essentially

half of the total value of all their combined property (their separate property and their joint property) less the amount paid under Lady Chambers’ will to her daughters.

[22] It can be seen that the will was consistent with the first RPA.⁷These arrangements were updated when a new relationship property agreement was entered into on 26 May 2003 (the second RPA).⁸The second RPA included the following provisions:

(a) Clause 1: the parties confirmed the recitals in the agreement, which included the acknowledgement that they each brought equal capital to the relationship, that they each had legal and moral obligations to provide for their children, and they wished to contract out of the Property (Relationships) Act;

(b) Clause 2: the parties agreed that all property they each owned as at May 2002 and all property acquired during the relationship would be relationship property;

(c) Clause 3: they acknowledged and agreed that they each brought equal capital to the relationship, that Lady Chambers had bought a half share of the Remuera family home, and that they would divide the property equally in the event of their separation;

(d) Clause 4: they agreed on the division of their relationship property in the same way as that provided in Sir Robert’s 27 September 2002 will;

(e) Clause 5: they acknowledged they had each made full and fair disclosure of their property to the other; and

⁸At this time the couple owned the family home in Remuera and the beach home in Pauanui.

(f) Clause 6: they agreed and acknowledged their intention that the agreement was a settlement of any rights under the Property (Relationships) Act, the Family Proceedings Act 1980, the Family Protection Act, the Law Reform (Testamentary Promises) Act 1949 or “under any other enactment or rule of common law or of equity or otherwise”.

[23] Sir Robert executed a will dated 29 May 2003 in similar terms to his earlier will. Lady Chambers executed a will dated 12 June 2003 also in similar terms.

[24] The arrangements were again updated in 2013.⁹A variation to the second RPA was prepared by Sir Robert and executed by him in April 2013 (the Variation). It was executed by Lady Chambers on the afternoon of 21 May 2013. Sir Robert died that evening.

[25] The Variation provided that clauses 1, 2, 3, 5 and 6 of the second RPA remained in force. It revoked clause 4 and made new arrangements for the division of their property in the event of the death of either of them. These arrangements introduced the concept of providing “entitlements” for the children of the first deceased.

[26] As part of these new arrangements, the parties acknowledged that their property was jointly owned with the intent that on the death of one of them it would pass by right of survivorship to the other (clause 3). They also agreed that in their respective wills they would provide that any property not jointly owned was to pass to the survivor and be dealt with in accordance with the Variation, they would provide benefits to Lady Chambers’ mother as set out in clause 16 of the Variation and each must provide benefits to the other’s children at least as advantageous as those contained in the Variation (clause 4).

(b) to permit the survivor to defer payment of entitlements on the basis that any part of an entitlement so deferred will be inflation-proofed;

(c) to accord to the survivor flexibility with respect to the disposition of the relationship property and other property acquired after the death date once the entitlements of the deceased’s children have been fulfilled and proper provision has been made for Anne.

5.2 The parties’ philosophy, which should guide those required to interpret these provisions, is that the survivor should be entitled to enjoy the parties’ relationship property to the full for the rest of his or her life, just as he or she would if the parties’ family was a “nuclear first family”. The survivor should not feel constrained in his or her actions by the need to preserve the value of the entitlements if to do so restricts the survivor’s enjoyment of life. The concept of entitlements for the deceased’s children is principally intended to ensure that they are fairly treated on the survivor’s death, especially in circumstances where the survivor has repartnered and has assumed, voluntarily or by operation of law, obligations to that new partner.

5.3 The parties intend that their children should have enforceable entitlements to the extent provided for in the variation, but only to that extent. Financial provision to any child beyond that child’s entitlement is intended to be entirely at the discretion of the parties or the survivor.

[28] Clause 6 of the Variation dealt with what was to occur if they died within six months of each other, namely that the survivor was to treat all four children equally in their will. The provisions of the Variation which would continue to apply were clause 15, relating to Lady Chambers’ relatives, clause 16, relating to her mother, and clause 22, relating to any grandchildren they may have. Clauses 23 and 24 of the Variation would also apply.

[29] Clause 7 and the remaining clauses of the Variation applied in the event that one of them survived the other by six months or more. The main clause, in terms of the arrangements for the children, is clause 10. It provided as follows:

10.3 Subject to clause 10.2, each child of the deceased is entitled to a quarter of the net value, but payment of the entitlement may be deferred as set out in the variation.

10.4 The survivor may, at his or her discretion, pay the entitlement to one or both of the deceased’s children:

(b) at the anniversary date or at such later date or dates as the survivor chooses.

10.5 If the survivor does not pay the entitlement in full at the anniversary date, such part of the entitlement as is not paid then will be subject to adjustment in accordance with clause 11.

10.6 Deb expresses the wish that, if Rob is the survivor, he should not pay any part of the entitlement of her children until the particular child has turned 24 other than in connection with a purpose he thinks sensible (like education).

$2.5 million as increased by means of an inflation calculator (which was further described). The “net value” referred to in clause 10.3 was defined as meaning the value of the relationship property at the death date after deducting liabilities. The “anniversary date” was defined as being the first anniversary of the death date. Accordingly, each child of the deceased was entitled to receive a one quarter share of the relationship property but this was capped at $2.5 million. This was to be paid one year after the death of their parent, or later at the discretion of the surviving spouse. If some or all of the entitlement was not paid to the deceased’s children one year after the deceased’s death, the entitlement was increased pursuant to clause 11.

[31] Clause 11 provided how a “late payment” (that is, a payment after the anniversary date) was to be increased by use of an inflation calculator (as further explained in the clause). It also provided:

The intent of clause 11 is to ensure the deceased’s child ultimately receives a total sum which has the same buying power when received as he or she would have obtained if the entitlement had been paid in full at the anniversary date.

[32] Clause 14 provided that once the entitlement was paid in full the deceased’s

20.2 If the survivor gives $10,000 or more or property worth $10,000 or more in any year to a family trust or a company of which the survivor is a director or shareholder, the survivor must, by the end of that year, give money or property worth the same amount to each child of the deceased who has not yet received all of his or her entitlement.

20.3 Any sum given to a child of the deceased under clause 20.2 counts as a payment to the child in terms of clause 10.

[34] Clause 22, to which clause 10 is subject, concerned the situation if a child of the parties died childless while entitlements are outstanding.

23.1 The parties intend the variation to determine the division of property on the death of each of them.

23.2 They envisage the survivor will elect option B under s 61 of the Act and will then deal with the property in terms of the variation.

23.3. If the survivor elects option A under s 61, the variation will determine the division of the relationship property.

23.4 The parties specifically agree that ss 80, 81, 82 and 83 of the Act do not apply.

24.1 This agreement is intended to confer benefits on the children of the deceased and Anne for the purposes of the Contracts (Privity) Act

24.2 The parties also intend that this agreement will bind the executors and trustees of their wills and that they will be able to enforce the terms of the agreement as varied.

[37] At around the time the Variation was signed by Sir Robert a new will was also prepared for him. This appointed Mr Blackwell, a solicitor, along with Lady Chambers, if she survived Sir Robert, as executors and trustees. It also:

(a) Noted that the will in some respects would provide greater benefits to Lady Chambers’ children than their entitlement under the Variation, and said this was intentional as Sir Robert loved them in the same way as he loved his own children.

(b) Provided that, if Sir Robert predeceased Lady Chambers, the trustee must pay the residue to Lady Chambers and ensure her obligations under the Variation were fulfilled.

This included payment of the entitlement of Lady Chambers’ children under the Variation. It also provided that, taking into account the entitlements, the residue of his estate was to be left equally to all four children.

[38] The will was unsigned at the time of Sir Robert’s death. Lady Chambers instructed her solicitor to prepare a will in the same terms as Sir Robert’s. This was also unsigned when Sir Robert died. Lady Chambers executed that will on 7 June

[39] After Sir Robert’s death, proceedings were brought to validate his unsigned will. Initially David intended to oppose this. He was unhappy with the arrangements which left Sir Robert’s estate with comparatively modest assets and any amount which Lady Chambers was contractually committed to pay to him might not be paid for some years. On 19 February 2014 his solicitors asked whether Lady Chambers would consider paying David’s entitlement to him in full on the anniversary of Sir Robert’s death or otherwise agree to any early payment of that sum. Lady Chambers’ solicitors responded to the effect that she intended to uphold Sir Robert’s wishes.

[40] On 3 April 2014 an order was made by consent validating Sir Robert’s will. Probate was granted on 6 June 2014. While David consented to the validation, he continued to seek payment of the entitlement. On 28 August 2014 he commenced this proceeding. At that time he sought to remove Lady Chambers as executor and trustee of the will and made a claim under the Family Protection Act. The proceeding was subsequently amended to include two additional causes of action: a claim that Lady Chambers holds David’s entitlement as constructive trustee; and a claim that she holds that entitlement pursuant to an express trust.

[41] David renewed his request for payment of his entitlement in correspondence with Lady Chambers in 2015. Lady Chambers responded with her view that payment of the entitlement was at her discretion and governed by clause 5, which “entitled [her] to enjoy the relationship property to the full for the rest of [her] life just as spouses usually do when the other parent dies”. She said she understood the concept of the entitlements was “principally intended to make sure that [David was] treated extremely generously on [her] death by receiving far more than [he] otherwise would”. She said she understood from David that he had no financial need. She declined to make any payment in the absence of any such need.

[42] For completeness I note that David objected to the admissibility of aspects of the evidence filed on behalf of the defendants. This was in respect of evidence that was regarded as irrelevant, opinion evidence and in the nature of submissions. In the event it has not been necessary to rule on the objections. Instead, as suggested by David’s counsel, I have taken into account that David has provided a limited response to evidence that was filed in opposition to his Family Protection Act claim bearing in mind that the substantive hearing on that cause of action is presently deferred. In relation to Sir Robert’s wishes, it is not in dispute that the relationship property agreement and will record those wishes. It is the proper interpretation of those documents is at issue. That is a matter of construction rather than evidence, except insofar as the evidence is part of the relevant factual matrix.

[43] The first cause of action is to remove Lady Chambers (the first defendant) and Mr Blackwell (the second defendant) as administrators of the estate. David seeks their removal in order to advance his second cause of action, which is his claim under the Family Protection Act. That cause of action is presently in abeyance pending the outcome of this cause of action and his trust causes of action.

[44] Before advancing his claim under the Family Protection Act, David seeks to set aside the second RPA and the Variation. That is because, pursuant to those agreements, the bulk of Sir Robert’s assets immediately before his death passed by survivorship to Lady Chambers. He considers the personal representatives under Sir Robert’s will have the power to make an application to set aside those arrangements. He considers they can do so pursuant to s 88(2) of the Property (Relationships) Act. The personal representatives (Lady Chambers and Mr Blackwell) have declined to make that application. David seeks to have them removed as administrators of Sir Robert’s estate on the ground that they have a conflict of interest in respect of such an application.

[45] Lady Chambers and Mr Blackwell consider that, as personal representatives of Sir Robert’s estate, they have no power to apply to set aside the second RPA and the Variation. Nor do they consider it is appropriate to do so in light of the carefully considered arrangements Sir Robert made for his children. They consider it would be contrary to Sir Robert’s wishes to do so and unnecessary for the purposes of David’s Family Protection Act claim.

[46] To assess the respective positions I start with a review of the relevant provisions of the Property (Relationships) Act, in light of which I consider the effect of the contractual arrangements between Sir Robert and Lady Chambers. I then consider whether personal representatives can apply under the Property (Relationships) Act to set aside the arrangements and the prospects of success in any such application. I then reach a conclusion on whether a conflict of interests exists

such that the application for removal of Lady Chambers and Mr Blackwell as administrators should be granted.

[47] The Property (Relationships) Act provides how relationship property of couples¹⁰is to be divided when they separate or one of them dies.¹¹The provisions for the division of property are set out in Part 4 of the Act. Each partner is entitled to share equally in the family home, chattels, and any other relationship property.¹²

[48] Part 6 concerns agreements contracting out of the Act’s provisions for the division of property. Section 21 provides that couples may make their own agreement “with respect to the status, ownership, and division of their property ...”. Section 21F provides that such an agreement is enforceable provided certain formalities are met. Section 21J provides:

(1) Even though an agreement satisfies the requirements of section 21F, the court may set the agreement aside if, having regard to all the circumstances, it is satisfied that giving effect to the agreement would cause serious injustice.

(2) The court may exercise the power in subsection (1) in the course of any proceedings under this Act, or on application made for the purpose.

(3) This section does not limit or affect any enactment or rule of law or of equity that makes a contract void, voidable, or unenforceable on any other ground.

(4) In deciding, under this section, whether giving effect to an agreement made under section 21 or section 21A or section 21B would cause serious injustice, the court must have regard to—

(d) whether the agreement has become unfair or unreasonable in the light of any changes in circumstances since it was made (whether or not those changes were foreseen by the parties):

(e) the fact that the parties wished to achieve certainty as to the status, ownership, and division of property by entering into the agreement:

(5) In deciding, under this section, whether giving effect to an agreement made under section 21B would cause serious injustice, the court must also have regard to whether the estate of the deceased spouse or partner has been wholly or partly distributed.

(b) any person on whom the spouses or partners have made conflicting claims in respect of property.

(i) determining the respective shares of each spouse or partner in the relationship property or any part of that property; or

(ii) dividing the relationship property or any part of that property between the spouses or partners:

(b) make any other order that it is empowered to make by any provision of this Act.

(2) The court may not make an order under subsection (1) unless it is satisfied,—

(i) that the spouses or civil union partners are living apart (whether or not they have continued to live in the same residence) or are separated; or

(b) in the case of a de facto relationship, that the de facto partners no longer have a de facto relationship with each other; or

(c) that one spouse or partner is endangering the relationship property or seriously diminishing its value, by gross mismanagement or by wilful or reckless dissipation of property or earnings; or

(3) Regardless of subsection (2), the court may at any time make any order or declaration relating to the status, ownership, vesting, or possession of any specific property as it considers just.

(4) To avoid any doubt, but without limiting subsection (3), if proceedings under this Act are pending, the court, if it considers it appropriate in the circumstances, may make an interim order under that subsection for the sale of any relationship property, and may give any directions it thinks fit with respect to the proceeds.

(6) In proceedings commenced after the death of one of the spouses or partners, this section is modified by section 91.

[51] Section 26 provides the Court with the power in proceedings under the Act to make an order settling any part of the relationship property for the benefit of the children of the relationship. Section 37 provides that, before any order is made under the Act, any person having an interest in the property that would be affected by the order is entitled to appear and be heard as a party to the application.

[52] Part 8 concerns the division of property where one partner dies. Section 61 provides that the surviving partner may choose either option A or option B. Option A is to elect to apply under the Act for a division of the relationship property. Option B is to elect not to apply under the Act for a division of the property and to receive property as a beneficiary under the deceased partner’s will.

[53] Sections 80 to 83 are concerned with what is considered to be relationship property on the death of a spouse or partner. For present purposes ss 81 and 83 have

the most relevance. Section 81 provides that all the property that was owned by the deceased spouse at his or her death is presumed, in the absence of evidence to the contrary, to be relationship property.

(1) If, on the death of a spouse or partner, any property of that spouse or partner passes to the surviving spouse or partner, whether by survivorship or otherwise (but not by succession), then unless, in any proceedings under this Act, the court decides otherwise,—

(a) that property is not automatically to be treated as the separate property of the surviving spouse or partner; and

(b) the status of the property as relationship property or separate property is to be determined according to the status it would have had if the deceased spouse or partner had not died.

(a) the spouses or partners make an agreement under section 21 defining the share of the relationship property or any part of it that each is entitled to on the death of one of them; and

(i) to have the agreement declared void for non- compliance with a requirement of section 21F:

(b) the surviving spouse or partner may make the application either before or after exercising the option in section 61.

(3) In deciding, under section 21J, whether giving effect to an agreement to which this section applies would cause serious injustice, the court must have regard, in addition to all other relevant circumstances, to

whether the estate of the deceased spouse or partner has been wholly or partly distributed.

or (b) or an order or declaration under section 25(3): (a) the surviving spouse or partner:

(b) any person on whom conflicting claims in respect of property are made by the surviving spouse or partner and the personal representative of the deceased spouse or partner.

(2) The personal representative of the deceased spouse or partner may, with the leave of the court, apply for an order under section 25(1)(a). The court may grant leave only if it is satisfied that refusing leave would cause serious injustice.

(b) the Official Assignee in bankruptcy of the property of either spouse or partner:

(c) an appointee (within the meaning of section 378(1) of the Insolvency Act 2006) in whom the estate of a deceased spouse or partner vests on an order being made under section

[57] Section 91 (referred to in s 25(6)) provides that the court must not make an order in proceedings commenced after the death of one of the spouses or partners unless it is satisfied that one of the spouses or partners has died.

[58] The second RPA and the Variation are a s 21 agreement contracting out of the Act. They govern what is regarded as relationship property and how it is to be divided in the event of the death of one of them. These arrangements are enforceable

unless the Court exercises its power to set the arrangements aside, pursuant to s 21J, if giving effect to the arrangements would cause serious injustice.

[59] The effect of the second RPA and the Variation is that the properties held by Sir Robert and Lady Chambers as joint tenants pass to Lady Chambers by survivorship (they have contracted out of ss 81 and 83). The effect of the will is that Lady Chambers receives the residue under the estate and is to carry out the obligations on her under the second RPA and the Variation. By electing option B (as clause 23 of the Variation envisaged), under these arrangements Lady Chambers receives all the relationship property, subject to her obligations to others under the Variation. As the relationship property passes to her by survivorship it is not part of the estate. As such it is not part of the assets which may be subject to a Family Protection Act claim. Lady Chambers has, in accordance with what was envisaged, elected option B.

[60] Clause 23 of the Variation further provides that if Lady Chambers elects option A, the Variation will determine the division of the relationship property. Therefore even if, contrary to what was envisaged, she had elected option A, then her application to determine and divide the relationship property would be decided in accordance with the second RPA and the Variation unless those arrangements were set aside under s 21J. If the second RPA and the Variation were set aside under s

21J, Lady Chambers’ share of the relationship property would be 50 per cent of their combined property. The remaining 50 per cent would be Sir Robert’s relationship property and would become part of his estate. This would be part of the residue to be paid to Lady Chambers, but would be subject to any successful Family Protection Act claim.

[61] Therefore in order for David to make a Family Protection Act claim in respect of Sir Robert’s half share of the assets covered by the second RPA and the Variation, those agreements need to be set aside. The issue is whether the surviving spouse or partner is the only person who has power to seek such an order or whether a personal representative of the estate may also do so.

(a) The Court has jurisdiction under s 25(1)(a) to “make any order it considers just” determining the respective shares in relationship property and dividing that property.

(b) An application under that section can be made by a spouse (s 23(1)) and, where one of them has died, s 88 applies (s 23(3)). In that case the personal representative of the deceased spouse may, with the leave of the court if it is satisfied that not granting leave will cause “serious injustice”, apply for orders under s 25(1)(a) (s 88(2)).

(c) Once an application is made by a personal representative pursuant to such leave, the Court may make “any order it considers just” determining the respective shares of each spouse in the relationship property, dividing that property between the spouses and “may make any other order that it is empowered to make by any provision of this Act” (s 25(1)(b)). This must include the power under s 21J.

(d) This is reinforced by s 21J pursuant to which the court may set aside a s 21 agreement if it is satisfied that giving effect to the agreement would cause “serious injustice” (s 21J(1)) which is the same test as that under s 88(2) for granting leave to make an application under s

25. Further, the court may exercise the power under s 21J(1) “in the course of any proceedings under this Act, or on application made for the purpose” (s 21J(2)). This section therefore contemplates two ways of providing the jurisdiction under s 21J (one being a specific application and the other via s 25).

(e) This approach does not render s 87 unnecessary. It specifically confers the power on a surviving spouse to apply to set aside a s 21 agreement whether he or she wishes to do so with or without an application under s 25. Section 88 confers the power on a personal

representative only with leave and only if it is part of an application under s 25.

(f) This construction avoids the potential for serious injustice where, because of a s 21 agreement, an estate is left with nothing and this defeats legitimate claims on the estate by children.

(a) Section 83 determines the status of property that has passed to the surviving spouse on the death of her partner by survivorship or otherwise, unless the Court determines otherwise. The Court can determine otherwise under s 25. However this is subject to any s 21 agreement and in this case the parties agreed that s 83 did not apply.

(b) Section 88(2) permits the personal representatives of a deceased to apply for an order under s 25, with the Court’s leave and subject to the “serious injustice” test.

(c) Neither s 88(2) nor s 25 allow a personal representative to apply to set aside a s 21 agreement. That power is conferred only on a spouse or partner under s 87.

[64] These respective arguments are supported by competing authorities. David’s argument is supported by S v P, a decision of the Family Court.¹³That case concerned a relationship property agreement entered into by the testator and his second partner. The effect of that agreement was that on the testator’s death his second partner received assets valued at between $450,000 and $600,000 whereas his share of the relationship property had a value of $6,000. Under his will, his share of the relationship property was to be divided amongst his four children from his first marriage. The trustee of his estate sought to set aside the relationship property agreement because of this substantial imbalance. The issue was whether the trustee

[65] The Judge held that the trustee could challenge the s 21 agreement, via an application for leave under s 88(2). His reasoning based on the language of the Property (Relationships) Act was as follows:

[56] I consider the term “in the course of any proceedings” mentioned in s 21J(2) must include the Court considering an application brought to divide relationship property under s 25(1)(a).

[57] The Court in Crotty v Williams used s 88(2) as a gateway to allow the Court to examine whether there was an agreement in existence under s 21A and s 21H. I consider there is no difference in allowing the trustee to use s 88(2) as a gateway to allow the Court to examine the issue of whether an agreement should be set aside under s 21J as long as it is done as part of an application under s 25(1)(a).

[66] The Judge considered this approach was supported by the history of the provision. He understood that the Bill as originally drafted did not provide for applications by the trustee and this was addressed in the latter stages of its passage through Parliament by introducing s 88(2). He regarded s 87 as affirming the rights of a surviving spouse to set aside a s 21 agreement but as not excluding or having primacy over other sections. If another section provided the jurisdiction to challenge a s 21 agreement, then that section was able to operate alongside s 87.

[67] Lady Chambers’ argument is supported by Tod v Tod, a decision of the High Court.¹⁴That case involved a s 21 agreement entered into by the testator and his wife, each of whom had children from their previous marriages. Under the agreement their assets would be available to the surviving spouse for his or her lifetime and upon the death of the surviving spouse the estate would be distributed equally to their children. The testator’s children were unhappy with these

arrangements. They sought to set aside the s 21 agreement via an application under s

[68] The High Court Judge was therefore faced with the same issue as that considered in S v P. He concluded that a personal representative could not seek to

_{set aside a s 21 agreement through the gateway of s 88. He considered
the plain}

¹⁵As the surviving spouse was the executor and trustee of the estate, they also sought an order under s 21 of the Administration Act 1999 to remove the surviving spouse as trustee and to appoint the Public Trustee in her place.

meaning of s 87 was to provide an entitlement of a surviving spouse or partner to set aside a s 21 agreement and it provided no such entitlement for a personal representative. He considered s 88 related to a different type of claim, namely an application for division of relationship property.

[69] The Judge also noted that s 87(3) requires the Court to have regard to whether the estate of the deceased spouse or partner has been wholly or partly distributed, when deciding whether giving effect to an agreement would cause serious injustice. Section 88 contains no such provision. The Judge considered that, if the position accepted in S v P was correct, this would mean an “asymmetric

[70] He did not agree with the Family Court judgment in S v P that s 87 affirmed the right of a spouse or partner to challenge a s 21 agreement, because it was not drafted in that way. It would also mean the right being affirmed must exist elsewhere and he considered that it did not. He considered that s 87 was an example of the “policy driven favouritism” shown to surviving spouses.¹⁷He was mindful of the hypothetical scenarios referred to by commentators in support of the personal representative being able to challenge a s 21 agreement. Noting that s 88(2) was an amendment to the Bill which introduced ss 87 and 88, he considered that if Parliament intended to make such a challenge available, then s 87 would have been

amended accordingly. He considered that to allow a personal representative to challenge a s 21 agreement would usurp the legislative function.

[71] An appeal was filed from the High Court’s decision.¹⁸Delays in progressing that appeal meant an extension of time for the appeal needed to be sought. On that application there were two issues relevant to the merits of the appeal. The first issue was whether the Judge was right to find that a personal representative does not have

_{the right to challenge a s 21 agreement in light of s 87. On that issue
counsel for the}

¹⁷At [35], citing Bill Atkin and Wendy Parker, Relationship Property in New Zealand (2^ndEd, LexisNexis, Wellington 2009) at [6.1].

¹⁸This proceeding was filed after S v P, above n 5, and before the High Court’s decision in Tod v Tod, above n 6. On the High Court’s approach David’s intended Family Protection Act claim would be confined to the estate under the will. In view of that appeal consideration was given to whether the hearing of some of all of this proceeding should await the outcome of that appeal. It was decided that the matter should proceed.

respondent conceded the point was reasonably arguable and the Court of Appeal commented that this concession was “a proper one”.¹⁹The second issue was whether the Judge was right to find that it would not be expedient to remove the trustee (assuming a personal representative could challenge a s 21 agreement). On that issue the Court of Appeal considered the appeal had no realistic prospect of success.²⁰That was a decision on the facts.

[72] Therefore all that can be taken from the Court of Appeal decision for present purposes is that the appeal on the issue of whether a personal representative can challenge a s 21 agreement was not regarded as hopeless. It was reasonably arguable that a personal representative could challenge a s 21 argument. It is not known what the Court of Appeal would have made of that argument at a substantive hearing on that issue. In the circumstances, and notwithstanding the considered judgment of this Court in Tod v Tod, it is necessary that I consider the competing arguments and form my own view on whether there is jurisdiction conferred on a personal representative to challenge a s 21 agreement.

[73] I consider the starting point to be that David’s position is open on the words of the sections. It seems to me that if a personal representative is granted leave under s 88(2) then he or she will be bringing a proceeding under the Act for the determination and division of assets under s 25. Such a proceeding gives rise to the power under s 21J(1) to set aside a s 21 agreement. That is because, as provided in s

21J(2), that power may be exercised “in the course of any proceedings under this Act” and under s 25(1)(b) the Court may make “any other order that it is empowered to make by any provision of this Act”.

[74] A personal representative may apply for an order under s 25(1)(b) without leave (see s 88(3)). An argument might be made that a personal representative could seek an order setting aside a s 21 agreement without leave through the gateway of s 88(3). Section 21J(2) appears, however, to contemplate that an order can be sought on an application made specifically for that purpose (under ss 23 or 87) or when

_{accompanied by another application under the Act (such as an application
under}

s 25(1)(a)) determining and dividing the relationship property. No such other application under the Act would be present where a personal representative seeks only to set aside a s 21J agreement via s 88(3). I note also that the proper scope of s 88(3) as against s 88(2) was regarded by the Court of Appeal as unclear in Public Trust v Whyman.²¹

[75] The stronger argument against the interpretation that I consider is open on the words of ss 88(2), 21J(2) and 25(1), is that s 87 explicitly deals with who can challenge a s 21 agreement which defines the share of the relationship property or any part of it to which a spouse is entitled on the death of one of them.²²I agree with Tod v Tod that s 87 does not read as though it is affirming a right provided elsewhere. It confers jurisdiction on certain persons to challenge a s 21 agreement and the personal representative is not referred to. I agree with Tod v Tod that, if it was intended to allow a personal representative to challenge a s 21 agreement, then it

[76] Moreover, if the argument for David is correct, then a surviving spouse or partner does not need to rely on s 87 in order to apply to set aside a s 21 agreement. Like a personal representative, pursuant to s 88 they are able to apply for an order under s 25 for a determination and division of assets. In contrast with a personal representative they do not need leave to do so. Having brought that proceeding, the Court would have jurisdiction under ss 21J and s 25 to set aside the s 21 agreement. Section 88 should not be interpreted so as to render s 87 redundant.

[77] A possible answer to this is that there may be circumstances where a surviving spouse or partner wishes to apply to set aside a s 21 agreement but has no need to apply for a determination or division of assets under s 25. That is to say, once the spouse or partner has that issue resolved, he or she will be able to determine

_{whether to elect option A or B and the division or distribution of
assets can be}

²²Interestingly, s 21 refers to an agreement “with respect to the status, ownership, and division of [the couple’s] property”. Section 87 refers to an agreement under s 21 “defining the share of the relationship property or any part of it”. The latter therefore seems to be narrower. It appears that s 87 is intended to cover an agreement which defines the spouse’s share as less than 50 per cent. Such an agreement disadvantages the spouse as against his or her position under the Act and therefore the situation is more likely to result in an application by the spouse to set it aside.

effected without further court involvement. Section 87(2)(b) specifically contemplates an application before that election has been made.²³

[78] Similarly, a spouse or partner may wish to apply for a determination and division under s 25, pursuant to the power conferred under s 88, when no order is to be sought in respect of a s 21 agreement. That might be when there is no s 21 agreement. Another possibility might be where a s 21 agreement deals with a particular aspect of the relationship property which the partner or spouse does not wish to challenge, but where he or she wishes to apply for an equal division of the balance.

[79] The legislation therefore enables a surviving spouse or partner to apply to set aside a s 21 agreement whether he or she has decided on option A or B and potentially before he or she makes that decision. In contrast, and if David’s position is correct, a personal representative may only seek to set aside a s 21 agreement where the personal representative also seeks to have a division of the relationship property under s 25. That is likely to arise only where a s 21 agreement provides the surviving partner or spouse with a better than 50:50 division of the relationship property, and the spouse does not seek a different division on an application made to the Court. Looked at in this way, s 88 does not render s 87 redundant and the two provisions are complementary.

[80] In Tod v Tod the Judge noted that s 87 required the Court to take into account, in deciding whether to give effect to a s 21 agreement, whether the estate was distributed. This requirement was not present if a personal representative could apply to set aside a s 21 agreement through the s 88 gateway.²⁴This asymmetry, however, may be of little practical significance. The estate cannot be distributed before six months have passed or the surviving spouse has elected option A,

_{whichever occurs first.}²⁵_{Nor can the estate be
distributed where proceedings are}

²³Section 87(2)(b) specifically contemplates that the application may be made before or after exercising the option in section 61. If the application is to assist the spouse in making their election it would need to be dealt with expeditiously as, pursuant to s 71(1), there is a six month time frame for making the election.

pending.²⁶If option B is elected, but a personal representative considers an application for leave should be made for a division under the Act, it is unlikely that he or she would proceed to distribute the estate. However if the application for leave is made after some or part of the estate has been distributed, that may be a relevant factor in deciding whether to grant leave.

[81] While the legislation might have been drafted more clearly if it was intended that a personal representative could apply to set aside a s 21 agreement, as one commentator points out there are other instances where the Act has failed to address the consequences of an application under s 88 from the personal representative. For example, there is no equivalent of s 77 which provides which sections of the Act apply if the surviving spouse or partner elects option A.²⁷She suggests that this may be because the decision to confer jurisdiction on personal representatives under s 88 was a late amendment to the Bill which extended the legislation to widowed spouses.²⁸

[82] As is discussed in Tod v Tod, ss 87 and 88 were part of the amendments made to what was then called the Matrimonial Property Act 1976 which extended this Act to widowed spouses. The amendments were made pursuant to the Matrimonial Property Amendment Bill 1998. That Bill as first introduced contained a clause which became s 87 and a clause which became s 88(1) and (3). It did not contain

amendment to incorporate that provision.³⁰In making that recommendation the committee said:³¹

²⁷Nicola Peart and others Relationship Property on Death (Brookers, Wellington, 2004) at 92 and

²⁹_{The Matrimonial Property Amendment Bill 1998 (109-1) was
introduced on 24 March 1998.}

³⁰See the report of the first select committee the Government Administration Committee Matrimonial Property Amendment Bill (15 September 1999) and Matrimonial Property Bill 1998 (109-2) cf the report of the second select committee the Justice and Electoral Committee

Matrimonial Property Amendment Bill and Supplementary Order Paper No 25 (30 October

2000) and Matrimonial Property Bill 1998 (109-3). Section 88(2) was included in the Report of the Government Administrative Committee. So this was not a recommendation of the Justice and Electoral Committee as some commentators have suggested.

³¹Government Administrative Committee Matrimonial Property Amendment Bill (15 September

... we consider that the court should have a discretion to decide whether the rule contained in the bill, that matrimonial property owned by the spouses as joint tenants is matrimonial property and not the separate property of the survivor by virtue of survivorship, should apply.

[83] Thereafter there was no indication in the Parliamentary materials about what was intended by the provision which became s 88(2). As one commentator put it, “[i]t is safe to assume, though, that s 88(2) was inserted in response to submissions identifying the risk of dependent family members being rendered destitute if the estate could not seek a division”.³²

[84] An estate may be rendered destitute through a s 21 agreement. An extreme example postulated by counsel in S v P illustrates this.³³A s 21 agreement may be signed the day a person’s relationship with a second partner begins. That agreement may give to the new partner all of that person’s property which is valued at millions of dollars. The person may be killed in an accident shortly afterwards leaving an estate of no value. The deceased may have an infant child from a previous relationship. It cannot have been Parliament’s intention to exclude the court’s jurisdiction to remedy a situation of such injustice.

[85] Less extreme examples could also result in serious injustice. If these cannot be remedied the legislation would cut across the legal and moral duty a deceased spouse has to provide for their children. In my view Parliament cannot have intended to favour a surviving spouse or partner to that extent, given the decision that was made to include s 88(2). That provided an avenue for a personal representative to override the surviving spouse’s election not to seek a division under s 25(1) where serious injustice would otherwise arise. It is consistent with that decision to also permit the Court to set aside a s 21 agreement which likewise may give rise to serious injustice. In my view the words of the legislation can be read in this way.

[86] I therefore conclude that s 87 is not a barrier to David’s application to remove the present executors and trustees under Sir Robert’s will.

[87] The next issue is whether there is any prospect of a successful s 88(2) application. Leave can only be granted to the personal representatives of the deceased spouse under that section if the court is satisfied that refusing leave would cause serious injustice. No serious injustice could arise if the purpose is to set aside a s 21 agreement in order to pursue a Family Protection Act claim which does not

have any prospect of success.³⁴The merits of the Family Protection Act claim that

[88] The Court’s power under the Family Protection Act arises if “in terms of [Sir Robert’s] will... adequate provision is not available from [Sir Robert’s] estate for the proper maintenance and support” of David.³⁵David’s claim is not based on any need for maintenance. David is an adult of 31 years of age. He has no dependents. He is not in financial need.³⁶

[89] David’s Family Protection Act claim is for “proper ... support”.³⁷Support in

this context is used in its wider dictionary sense of “sustaining, providing comfort”.³⁸

In respect of a child of the deceased, support is provided “by recognition of belonging to the family and of having been an important part of the overall life of the deceased”.³⁹The inquiry is whether there has been a breach of moral duty in this respect, as judged by the standards of a wise and just testator.⁴⁰

[90] Lady Chambers’ evidence is that, although Sir Robert loved David dearly, at

_{the time of Sir Robert’s death the two did not have a close
relationship. It is her}

³⁴Public Trust v Whyman, above n 21, at [48]. The defendants submit it is doubtful whether a personal representative can apply under s 88(2) for a division under s 25(1)(a) when a surviving partner has elected option B. This concerns the correct interpretation of s 95. This was one of two issues on which the Supreme Court granted leave to appeal: Whyman v Public Trust [2005] NZSC 12. I do not consider this issue because the appeal did not proceed (the parties settled). The outcome of the appeal is therefore unknown. I am bound by the Court of Appeal’s decision. In any event, as I go on to discuss, I am satisfied that leave is not likely to be granted for other reasons.

³⁶He works as a software engineer. He has been financially independent for many years. He earns a gross annual income of US$120,000, has savings of approximately NZ$107,000 and

_{US$73,000, has no liabilities, and possesses potentially valuable
technology stock options.}

³⁷_{Williams v Aucutt [2000] NZCA 289; [2000] 2 NZLR 479(CA) at [52]
which refers to “proper” support.}

⁴⁰Little v Angus [1981] 1 NZLR 126 (CA) at 127, Williams v Aucutt, above n 37, at [38].

view that “David elected to remain remote from his father ... Once he moved overseas ... he made no real effort at all to keep in touch with his father”. Other aspects of David’s evidence are referred to in support of this view.

[91] I do not regard this evidence as of assistance in assessing whether David’s Family Protection Act claim is tenable. How often an adult child keeps in touch with their parent is not the only, nor necessarily most accurate, measure of closeness between a parent and child. The special nature of the father/son relationship may not always be apparent from its outward manifestations. As David says, although he was living an independent adult life, that did not mean he ceased being Sir Robert’s son. In his words “I always admired, respected and loved him, and I’m sure he felt the same about me.” David’s Family Protection Act claim is based on a father’s moral duty to his son to recognise him as an important part of the father’s life. There is nothing in the evidence which detracts from that.

[92] Moreover, it is the fact that David was not part of the family unit on which the arrangements of Sir Robert and Lady Chambers are premised, that gives rise to the Family Protection Act claim. As his counsel puts it, the effect of these arrangements is that Sir Robert has delegated his moral and legal obligation to provide adequately for his children, to Lady Chambers. These arrangements are based on the concept of a “nuclear first family” but this had no factual basis in David’s case.

[93] David’s counsel submits that David is reliant on Lady Chambers to exercise in his favour the discretion she has to pay the entitlement at any time from one year of Sir Robert’s death. She has, however, made it plain that she does not intend to do so (unless David is in financial need which he is not). Her view is that she is entitled to enjoy the relationship property assets to the full for the rest of her life. As Lady Chambers is still relatively young, that may be at least 40 years from now. The assumption of the arrangement is that her estate will have sufficient assets to meet the obligation even though she is able to enjoy the assets to the full for the rest of her life without constraint. No security is provided to support the undertaking that Lady Chambers has given to provide for Sir Robert’s children in her will.

[94] For these reasons it is said that the arrangements breached Sir Robert’s moral duty to provide “support” to David. It is said the breach has been heightened by Lady Chambers’ rejection of David’s request that she exercise her discretion to pay his entitlement.

[95] Mr Miles QC, counsel for Lady Chambers and Mr Blackwell, submits that it is not tenable to say that Sir Robert breached his moral duty to provide proper support for David. At the latest, on Lady Chambers’ death David will receive more than $2.5 million. Mr Miles says the arrangements Sir Robert made show that he saw his primary duty as being to provide for his wife while also making careful, generous and even-handed dispositions to his two sons. It is not uncommon that children in a traditional nuclear family will inherent upon the death of both parents. The arrangements here reflected this philosophy. Mr Orpin, counsel for Zelda and Caitlin, supports this submission. He says it is a somewhat unattractive point of distinction in respect of arrangements that are common for traditional families, that Lady Chambers is a step-parent and as such is not to be trusted as to David’s eventual inheritance. He asks what more recognition a father can give to his two sons and his step-daughters than to say he loves them all and treats them all equally.

The effect of Sir Robert’s final will and the s 21 agreement as varied results in the same disposition of Sir Robert’s property regardless of whether the estate is dealt with under Sir Robert’s will or pursuant to the s 21 agreement. Put simply, this was that the survivor of them would by inheritance or joint ownership have the use and benefit of their combined assets, without interference, during his/her lifetime with adequate provision in the s 21 agreement and their wills for a fair distribution among the four children upon the death of the survivor.

[97] In accordance with that view Lady Chambers has declined David’s request for payment of his entitlement. If this view of the effect of the arrangements is correct then, absent financial need, David will not receive anything until Lady Chambers’ death, which may be at least 40 years from now. That is not uncommon in a traditional nuclear family but David’s position is different. He did not become part of the new family unit in the same way that Chris, Caitlin and Zelda did. That

was so even though Lady Chambers and Sir Robert viewed David as part of their family and, of course, loved him. As a result it is “recognition” on his father’s death which is sought.

[98] In these circumstances, if the defendants’ view of the arrangements is correct, then I consider it is tenable to claim that “proper support” has not been made for David. His recognition of belonging and of having been an important part of the overall life of his father arguably requires that recognition on or within a reasonable time of his father’s passing, not potentially many years in the future in the estate of his father’s partner. That is not to say, as Mr Orpin suggests, that step-mothers cannot be trusted in this respect. Rather it is because, in the circumstances of this family, the moral duty was that of David’s father (rather than Lady Chambers) and

[99] I refer to two authorities in support of this view. The first is Fry v Fry.⁴²In that case a testator left the whole of his estate to his second wife, and if she did not survive him his estate was to go partly to his children from his first marriage and partly to beneficiaries nominated by his second wife. His second wife made a mirror image will. Following the testator’s death, his adult son made a claim under the Family Protection Act. The claim was for support, in the form of recognition of his position in the family, as the son did not have any financial need. The Family Court Judge held that the testator had discharged his moral duty to his children, through his trust in and reliance on his second wife to maintain the commitment to provide for the testator’s children in her will.

[100] This was overturned on appeal to the High Court. The High Court Judge noted that the second wife could not be compelled to maintain her will in its present form, she was 61 years of age and so could reasonably be expected to have decades

_{of life ahead of her, and the agreement between the testator and his
second wife was}

⁴¹As it was put in Flathaug v Weaver (2003) 22 FRNZ 1035 at [32]: “The relationship of parent and child has primacy in our society. The moral obligation which attaches to it is embedded in our value system and underpinned by the law. The Family Protection Act recognises that a parent’s obligation to provide for both the emotional and material needs of his or her children is an ongoing one.”

too uncertain and dependent on events and variables which meant there was a real

[101] The present situation is distinguishable in that the entitlements are legally enforceable. They therefore provide greater certainty for David. However if the defendants’ view of the arrangements is correct, Lady Chambers is entitled to enjoy the property unconstrained by the need to preserve the entitlements. It can reasonably be expected that she has decades of life ahead of her. Events and variables over that period are an unknown. The discharge of Sir Robert’s moral duty to David may be postponed for decades and there is no guarantee David will receive anything.

[102] The second case is BCC v Public Trust Taupo.⁴³In this case the deceased had four children from his first marriage. Under his will he left most of his estate to his second wife. The deceased’s four children were adults at the time of his death. They made a Family Protection Act claim based on family recognition not on economic need. The Family Court Judge found in their favour. She was satisfied the deceased had been advised of his moral obligations and determined that they were principally owed to his second wife.⁴⁴The Judge considered the deceased had “overestimated

the strength of his moral duty to his second wife”.⁴⁵This was because the marriage

was not a particularly long one (at six years), there were no dependent children of their marriage, his second wife received by survivorship not insubstantial cash proceeds that the deceased had accumulated, and she had financial resources of her own.⁴⁶

[103] I consider that both of these authorities support David’s claim under the Family Protection Act if the defendants are correct that no payment need be made to David prior to Lady Chambers’ death absent financial need. However, in my view, the Family Protection Act claim is not reasonably arguable because the defendants’ view of the arrangements is not correct. That view relies on clause 5.2 of the

_{Variation. That clause sets out “the parties’
philosophy” as entitling the survivor to}

⁴³_{BCC v Public Trust Taupo FC Taupo
FAM-2009-069-000091, 10 November 2011.}

enjoy the parties’ relationship property to the full for the rest of her life. It also provides that the survivor should not feel constrained in her actions by the need to preserve the value of the entitlements if to do so restricts her enjoyment of life.

[104] For reasons I discuss in respect of the constructive trust cause of action, I agree with the submission for David that this is qualified by, and must be read in the light of, the legal and moral obligation Sir Robert and Lady Chambers acknowledged in each of the RPAs and confirmed in the Variation to provide for their children. I agree with Mr Farmer QC, counsel for David, that this obligation is relevant to decisions Lady Chambers might make during her lifetime as to how she applies or disposes of assets she acquired by survivorship.

[105] As also discussed in respect of the constructive trust claim, in my view the legal and moral obligation to provide for the children is also relevant to the approach Lady Chambers must take to her discretion under clause 10.4. That clause permits the survivor to pay the entitlement in full or in part at the anniversary date of the deceased’s death, or at such later date or dates as the survivor chooses. The survivor is permitted to defer payment of the entitlement (as confirmed in clause 5.1) but any amount so deferred is subject to an inflation adjustment.

[106] In permitting this deferment I consider it is wrong to say that Sir Robert’s wishes, as set out in the Variation, were that the entitlements were only to be paid upon the survivor’s death unless financial need existed. A discretion existed for the entitlement to be paid sooner. That discretion was not stated to be subject to a child establishing financial need. In providing that the entitlement could be paid on the first anniversary of the deceased’s death, or at some later time, it was Sir Robert’s intention, as expressed in the Variation, that the entitlement, in whole or in part, could be paid out well before Lady Chambers’ death if the circumstances (not confined to financial need of the child) made that appropriate.

[107] That is reinforced by clause 10.6. That clause stated Lady Chambers’ wish, if Sir Robert had been the survivor, that he should not pay her children’s entitlement until they had turned 24, other than for a sensible purpose like education. It is also reinforced by clause 10.7. Having set out Lady Chambers’ wishes in clause 10.6,

this clause provided that it was not to constrain the survivor’s discretion. The discretion was therefore unfettered, reflecting that each of them trusted the other to make the appropriate decision in the circumstances that might arise.

[108] It is also consistent with an intention that the entitlement could be paid on the anniversary of Sir Robert’s death that clause 11 describes a payment as “late” if it is not paid on that date. Moreover that clause provides a number of “worked examples” illustrating how the inflation adjustment would work where part of the entitlement had been paid after the first anniversary but before the survivor’s death.

[109] Clause 20 also contemplates the possibility of payments made before the survivor’s death. It requires that gifts made to the survivor’s family trust must also be made to each child of the deceased “who has not yet received all of his or her entitlement”.

[110] The concept of “entitlements” was introduced in the Variation. As provided in the last sentence of clause 5.2, the concept was intended to be a way of ensuring that the deceased’s children were dealt with fairly on the survivor’s death. That was because if the survivor had not paid the entitlement in full or some part of it by the time of their death, the deceased’s children would have an enforceable right in

respect of the survivor’s estate. Clause 24 of the Variation provided for this.⁴⁷

[111] Apart from the requirement that the survivor pay the entitlements at the latest from her estate upon her death, clause 5.1(c) provided the survivor with flexibility as to how she disposed of the relationship property “and other property acquired after the death date” in her will.⁴⁸Similarly clause 5.3 provided that financial provision to any child beyond their entitlement was entirely at the discretion of the parties or the

⁴⁷As I discuss later, in any event, a “mutual wills” constructive trust would arise if the survivor’s

⁴⁸Death date is defined in the Variation as the deceased’s death (not the survivor’s death). Clause

5.1(c) makes sense if this is read as the survivor having flexibility with respect to “relationship property and any other property acquired after the death date”, rather than as flexibility of the survivor with respect to “relationship property and any other property acquired”, after the deceased’s death.

[112] Given the above, there is nothing in the Variation to prevent Lady Chambers paying all or part of David’s entitlement now or at some time in the near future regardless of his financial circumstances. As the Variation reflects Sir Robert’s wishes, it follows that it would not be contrary to those wishes to do so either. Relevant to whether she does so is that Sir Robert’s duty to provide “proper support” to David under his will could involve a payment within a reasonable period of Sir Robert’s death, given David’s independence from the family unit on which the “philosophy” stated in the Variation was based. As counsel submitted, Lady Chambers is able to reassess David’s request at any time. If she does make a payment to discharge Sir Robert’s duty under the Family Protection Act pursuant to the discretion vested in her under clause 10.4, a Family Protection Act claim would be untenable. For this reason I consider it is premature to remove her and Mr Blackwell as trustees in order to enable an application under s 88(2) to be made and in turn to pursue a Family Protection Act claim.

[113] There is a further reason why I consider it is not necessary to remove the trustees. David considers the quantum of his Family Protection Act claim equates to the amount specified as his entitlement. This is said to provide evidence of what Sir Robert regarded as an appropriate sum for David to receive from his assets, inflation adjusted if it was not paid on the first anniversary of his death. However the couple’s view of what their respective children should receive does not necessarily equate with what a Court would order under the Family Protection Act. The evidence before the Court, as particularly outlined in Lady Chambers’ evidence, is that Sir Robert was a generous man. The entitlements reflect that generosity.

[114] Mr Miles submits that 10 per cent of the estate is a broad “rule of thumb” for claims made by adult children who are not in financial need. That is less than the range of 12 to 25 per cent of the estate provided in the cases surveyed between 1985 and 1994 referred to in Williams v Aucutt.⁵⁰However, as discussed in that case, “there are pointers to concerns that some orders in recent years may have been out of line with current social attitudes to testamentary freedom relative to claims by adult

_children”.⁵¹_{Where there is no economic
need the moral duty may be met by a}

legacy of a moderate amount although what will constitute proper support is a matter of judgment in the circumstances of the particular case.⁵²A few years later commentators suggested that 10 per cent would reach the upper limit of a purely “support” claim.⁵³More recently, while querying whether it was desirable to attempt to quantify claims in percentage terms, another commentator agreed that an award above 10 per cent was unlikely.⁵⁴

[115] Whether 10 per cent of the estate provides a useful guide or not, it is clear that awards to adult children on a purely “support” basis are to be modest. In this case it is relevant that the estate, if it comprised Sir Robert’s share of the relationship property, is a large one. However, it is also relevant that Sir Robert’s wish, as set out in the Variation, was that Lady Chambers was to have all their joint property, was required to provide the entitlements in her will and was trusted by Sir Robert to pay them earlier at her discretion. This judgment is not the place to resolve how an award under the Family Protection Act might impact upon the contractual entitlement. An award may, however, count towards David’s entitlement and it may be that any such award could take into account that David could obtain a further amount at a later date pursuant to these arrangements. Also relevant is that David and his brother are likely to inherit in due course under their mother’s estate.

[116] On the basis of the pleadings, the value of the relationship property at the date of Sir Robert’s death in 2013 was broadly in the vicinity of at least $11 million to $12 million. It is now worth at least $13 million. This is no more than a broad assessment because no expert valuation evidence has been adduced by any party. On that broad basis the present value of Sir Robert’s half share of the relationship property would be at least $6.5 million. Ten per cent of that sum is $650,000. There is around $900,000 to $1 million in Sir Robert’s estate as his separate property (that

⁵³See R Sutton and N Peart “Testamentary Claims by Adult Children – the Agony of the ‘Wise and

[117] That may or may not be sufficient to cover any successful Family Protection Act claim made by David, and potentially Chris, Zelda and Caitlin as well.⁵⁵But if it is not sufficient to cover all awards that might be made, it would provide a substantial contribution to any award made in David’s favour. In addition Lady Chambers could be asked, and may consider it appropriate, to exercise her discretion under clause 10.4 to pay the balance of any such award in part payment of David’s

entitlement. It therefore seems unlikely that it would be necessary to set aside the s

[118] I therefore consider that no conflict of interest arises because Lady Chambers and Mr Blackwell, as Sir Robert’s trustees, do not intend to apply for leave under s 88(2) of the Property (Relationships) Act to seek a division of the relationship property nor, as part of that, to seek to set aside the second RPA and the Variation. Any such application is unlikely to succeed because serious injustice could not be shown.

[119] As an alternative to an application under s 88(2) Mr Farmer submits that David could apply under the Property (Relationships) Act for division of the relationship property and setting aside the contractual arrangements through a derivative action in his own name or under 4.23(3) of the High Court Rules. It is unnecessary to consider these alternative bases. That is because, even if they were available to David despite the specific legislative provisions which deal with who may make applications under the Property (Relationships) Act, his prospects of establishing any serious injustice are low. The contractual arrangements, when properly construed, enable his interests to be fulfilled.

[120] I therefore consider there are no grounds to replace the trustees under Sir

⁵⁵Although Chris, Zelda and Caitlin do not wish to make such a claim, they need to be considered:

[121] David alleges that an express trust of a proprietary nature can be spelled out of the words and intentions expressed in the second RPA and Variation. I do not deal with this claim in any detail because in my view it does not have merit, in contrast with the constructive trust claim which I discuss next.

[122] In short, had an express trust been intended it could be expected that Sir Robert and Lady Chambers, given their legal expertise, would have specifically said so. Moreover the detailed provisions evince a different intention, namely that the survivor was to take the relationship property absolutely, but subject to a requirement to provide the entitlements for the children in her will if she had not paid them earlier and a discretionary power to pay them earlier. This was a mutual arrangement which could give rise to a mutual wills constructive trust if the

requirements are not fulfilled in Lady Chambers’ will.⁵⁶In that situation the survivor

acquires the property as absolute owner during their lifetime but subject to a fiduciary duty to settle the property by will in accordance with the arrangement. It is a “floating trust” or one that is in suspense. It crystallises on death.⁵⁷

[123] Mr Farmer’s submission that David has a beneficial proprietary interest in the relationship property, such that he can now call for the termination of the trust and its distribution to him, cuts across what Sir Robert and Lady Chambers agreed to. The relationship property is Lady Chambers’. She has a discretion as to when the entitlements are to be paid. David cannot simply demand that she exercise the discretion in his favour by calling for the termination of the trust as that is contrary to what was agreed. David does, however, have an interest in the proper exercise of the discretion to pay the entitlement earlier than on the survivor’s death and that is

_{relevant to the constructive trust claim. A constructive trust claim in
relation to the}

⁵⁶Geraint Thomas and Alistair Hudson The Law of Trusts (2nd ed, Oxford University Press, Oxford, 2010) at [28.66]: “A mutual will arrangement is dependent on their being clear and satisfactory evidence of contract between two testators to the effect that each would make wills in a particular form and that neither would revoke that will without informing the other testator.

...When the first of the parties to the mutual wills dies the arrangement becomes binding on any surviving parties. In the event that any survivor should have attempted to change his will or to break the mutual will arrangement, his personal representatives after his death would be required to hold his estate as constructive trustees, subject to the terms of the mutual will.”

⁵⁷At [28.66] and [28.71], see also Birmingham v Renfrew [1937] HCA 52; (1937) 57 CLR 666 at 689-690.

proper exercise of that discretion does not cut across the mutual wills constructive trust. They may co-exist.

[124] David claims that a constructive trust arises in this case. Mr Farmer submits that it springs from the fiduciary obligations that Lady Chambers has assumed by the acceptance of the moral and legal duty to ensure that Sir Robert’s children are properly provided for in the event of his death and by her taking title to the whole of Sir Robert’s relationship property. He submits that equity will hold Lady Chambers to those fiduciary obligations by way of a proprietary constructive trust in favour of Sir Robert’s relationship property, to which she has taken title, up to the cap value of

Viewed in its modern context, the constructive trust can properly be described as a remedial institution which equity imposes regardless of actual or presumed agreement or intention (and subsequently protects) to preclude the retention or assertion of beneficial ownership of property to the extent that such retention or assertion would be contrary to equitable principle.

Such equitable relief by way of constructive trust will only properly be available if applicable principles of the law or equity require that the person in whom the ownership of property is vested should hold it to the use or for the benefit of another.

The principal operation of the constructive trust in the law of this country has been in the area of breach of fiduciary duty.

[126] The reliance on Muschinski v Dodds has, it appears, caused confusion. In the above discussion Deane J was commenting on the remedial nature of the constructive trust. The defendants understood that Mr Farmer was contending for a

_{“remedial”, as opposed to an
“institutional”, constructive trust.}⁵⁹_{Mr Farmer}

⁵⁹See Fortex Group Ltd (in rec and liq) v MacIntosh, Cox and Forde [1998] 3 NZLR 171 (CA) at

172-173 where Tipping J described a remedial constructive trust as being one which the Court imposes as a remedy in circumstances where none existed previously and an institutional constructive trust as one which arises by operation of the principles of equity and whose existence the Court simply recognises in a declaratory way.

clarified that he was not contending this. Rather he submits that equity would hold Lady Chambers to her fiduciary obligations by way of a proprietary constructive trust. The reference to a “proprietary” constructive trust may also have caused confusion⁶⁰and so too the submission that the trust did not depend upon showing unconscionability.

[127] However it is clear that a constructive trust may arise from fiduciary obligations and it is clear that this is what David claims. With that clarification, a helpful statement of the nature of the institutional constructive trust that is said to arise here is found in Thomas and Hudson, The Law of Trusts:⁶¹

A constructive trust is generally said to arise by operation of law. By that is meant that a constructive trust arises automatically, retrospectively from the time of the circumstances which gave rise to it, and consequently without discretion of the court; in a word, that it arises on an ‘institutional’ or

[128] Thomas and Hudson go on to discuss that “[b]roadly speaking, constructive trusts arise in four contexts: in response to unconscionable behaviour in general terms”. One of those four contexts (that is one which is a response to unconscionable behaviour in general terms) is “in response to abuse of fiduciary

position”.⁶²The authors note that the common principle running through all these

the liability of any person to act as a constructive trustee is predicated on that person having knowledge of some factor which is deemed to affect their conscience sufficiently to justify the imposition of that office.

[129] It is orthodox that a constructive trust arises from an abuse of a fiduciary position. The issue is whether Lady Chambers occupies the position of fiduciary. Mr Farmer submits that she does through her acceptance, under the contractual arrangements, of the moral and legal duty that Sir Robert had to provide for his

_{children. He says she took the legal title to Sir Robert’s
relationship property}

⁶⁰In the sense that the provisions of the Variation are inconsistent with any present right to call upon the trust assets (the relationship property) to be delivered to him. However the fact that a beneficiary cannot compel the trustee to deliver up an asset does not show that he has no interest at all in the asset: see John McGhee (ed) Snell’s Equity (33rd ed, Sweet and Maxwell, London

pursuant to this obligation. Mr Miles submits that she does not occupy the position of fiduciary because the requirement of undivided loyalty is absent. He submits that the power under clause 10.4 could only be categorised as fiduciary if, on its true construction, by agreeing to this clause the survivor undertook to exercise the power in the interests of the first deceased’s children without regard to the survivor’s own interests. He says this is not the proper construction of clause 10.4.

[130] In this difficult area of the law, I start with the wider principles that underlie fiduciary obligations. These principles will then assist with determining whether the contractual arrangements gave rise to any fiduciary obligation on the survivor and if so what that obligation entails. Only then can it be determined whether there has been an abuse of this fiduciary position and what consequences flow from that. In

approaching the claim in this way, I refer to the “classic work”⁶⁴in this area of Finn,

Fiduciary Obligations.⁶⁵As Dr Finn⁶⁶explains, equity has developed in a way similar to torts in that particular obligations will be imposed on particular persons because these persons are carrying on particular activities which require the law’s regulation.⁶⁷In respect of each obligation it is necessary to define who “equity ordains is a fiduciary for the purposes of that obligation”.⁶⁸Each category of fiduciary exists for the purpose of its particular obligation. So a fiduciary for one obligation is not by that alone a fiduciary for all obligations, although they may be a

fiduciary for more than one obligation because of the activities he or she is performing.⁶⁹

[131] Dr Finn goes on to explain that the term fiduciary is used in two senses. One is a fiduciary power where equity regulates the manner in which a donee deals with, and exercises, such a power. Such a person is “under a general equitable obligation when dealing with those powers, to act honestly in what they consider to be that

_{other’s interests”.}⁷⁰_{This he
describes for convenience as the “holders of
fiduciary}

⁶⁴_{See Millet LJ in Bristol and West Building Society v
Mothew [1998] Ch 1 (CA) at 18.}

⁶⁶_{Who later became Justice Finn (a Judge of the Federal
Court of Australia).}

office”.⁷¹The other usage of fiduciary is where it describes a person who is “acting for, or on behalf of, or in the interests of, or with the confidence of, another”.⁷²An example of this second form is an agent acting for a principal and when fiduciary is used in this sense it “implies that certain standards of loyalty and fidelity will be expected of that person”.⁷³

[132] It is in the context of this second category that the cases usually discuss the requirement for loyalty. For example, the defendants refer to Millet LJ in Bristol and West Building Society v Mothew who said:⁷⁴

A fiduciary is someone who has undertaken to act for or on behalf of another in a particular manner in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary. This core liability has several facets. A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal. (My emphasis.)

[133] That was a solicitor and client case, a relationship recognised as one involving trust and confidence. It was the relationship of trust and confidence in Chirnside v Fay which gave rise to the fiduciary obligations of loyalty and good faith in that case.⁷⁵The rule is not, however, absolute. A fiduciary may obtain the informed consent of the beneficiary to carry out an activity in the fiduciary’s interests.⁷⁶

[134] It might be said that the Variation entered into between Sir Robert and Lady Chambers displays aspects of trust and confidence. The deceased reposes trust and confidence in the survivor to provide the entitlements to the deceased’s children on or after the first anniversary of the deceased’s death. The deceased has authorised the survivor to take into account her own interests (her enjoyment of life) in

_{discharging her duties to the deceased’s children. The
loyalty required of the}

⁷⁴Bristol and West Building Society v Mothew [1998] Ch 1 (CA) at 18. See also Thomas & Hudson at [29.01], [29.02] and [29.05], referring to the above dicta of Millet LJ as identifying “the core obligation of loyalty owed by the fiduciary to his beneficiary”.

survivor is to consider whether and when to exercise her discretion to pay the entitlements taking into account all relevant considerations.

[135] However the relationship arising seems better to fit within Dr Finn’s first category of fiduciary (the holder of a fiduciary office). This he describes as a narrow but significant class of fiduciary comprising “persons who have been entrusted with powers for the benefit of others, but who in the exercise of those powers are not subject to the direct and immediate control of those others”.⁷⁷Their powers or duties are drawn not from an agreement with those others but from some independent source, such as a statute, a will, a trust deed or a court order.⁷⁸The learned author gives some examples: company directors, trustees, personal representatives, tenants for life, and liquidators but notes “the class itself is not a closed one”.⁷⁹

Where A and B enter into an agreement – contractual or otherwise- under which A undertakes to act for or on behalf of B in some particular matter, B has in theory at least every opportunity to stipulate precisely how A is actually to serve his interests. B may retain for himself an extensive right to supervise A’s activities on his behalf, as is usually the case in employment contracts.

In sharp contrast to such relationships are those where a person, while acting for or on behalf of another, does not derive his duties and powers from an agreement with that other but derives them from an independent source.

In these relationships – relationships not founded upon agreement – one comes closer to isolating the fiduciary office holder. Where a person has his interests served by another, but has not himself agreed with that other the powers and duties to be exercised and discharged for his benefit, one finds reasons emerging for Equity’s intervention. If, in addition he has not the general right to say how they are to be exercised and discharged for his benefit then the need for Equity’s supervision becomes compelling. Here is a functionary who, within the limits of his powers and duties, is independent of, and not controlled by, the person for whose benefit he acts. In this independence, this freedom from immediate control, lies the final and decisive characteristic of the fiduciary office.

[137] A fiduciary obligation may arise “irrespective of what may be the principal nature of the relationship or what other obligations may also arise from it”.⁸¹It may arise from a contractual relationship.⁸²In this case Lady Chambers’ discretion to pay the entitlements to Sir Robert’s sons arises from a contract she entered into with Sir Robert (the second RPA and Variation). Under that contract person A [Sir Robert] has entrusted person B [Lady Chambers], with a power for another’s benefit, C [Sir

Robert’s sons], and C cannot direct or control how the power is exercised. Lady Chambers was entrusted with this power in discharge of Sir Robert’s moral and legal duty to ensure that his children were properly provided for in the event of his death. She accepted it in return for taking legal title to all of Sir Robert’s relationship property. The exercise of the power is one in respect of which equity has a role. It is

[138] It is this type of fiduciary which is discussed in the following passage relied

For a person to be a fiduciary he must first and foremost have bound himself in some way to protect and/or advance the interests of another. This is perhaps the most obvious of the characteristics of the fiduciary office for Equity will only oblige a person to act in what he believes to be another’s interests if he himself has assumed a position which requires him to act for or on behalf of that other in some particular matter. Where such a position has been assumed by one party to any legal relationship then that party’s position is potentially a fiduciary one. So in National Trustees, Executors & Agency Co of Australasia v Boyd it was held that there could be nothing fiduciary in the position of a wife in relation to a special leasing power conferred on her by a deed of family arrangement as this power was hers to be used for her own benefit and was not given so that she might exercise a discretion in the interests of others as well as herself.

[139] For this category of fiduciary, that is one where a fiduciary position arises from a power to act for the benefit of a third party, the fiduciary obligation is to act honestly in what he or she believes to be the interests of his or her beneficiaries.

_{There are two aspects to this. One aspect is concerned with ensuring
that there will}

⁸³See also Lord Browne Wilkinson’s four principles as set out in Westdeutsche Landesbank

_{Girozentrale v Islington London Borough Council [1996] UKHL 12; [1996] AC 669 at
705.}

be no failure on the fiduciary’s part to exercise their discretion. The other aspect is that the fiduciary must use the power in the service of his or her beneficiaries.⁸⁵

[140] The latter does not mean that a fiduciary cannot be entrusted with powers which permit them to act in a way which benefits themself.⁸⁶The source under which they derive their power may permit this. As discussed in the above passage, a distinction was made between a power to be used for the wife’s own benefit and a power which could be exercised “in the interest of others as well as herself”. The deed permitted the wife to exercise the power for her sole benefit.⁸⁷

[141] Where a fiduciary is entrusted with powers which can be exercised for his or her own benefit, the fiduciary can act in a way that benefits themself providing they consider also the interests of the beneficiaries of his or her power:⁸⁸

Accordingly the courts will interfere with its exercise if an aggrieved beneficiary can prove that the fiduciary in benefiting himself has acted in his own interests and did not consider the interests of his beneficiaries – or if he did consider them, he has nonetheless ignored them. So in one case where two directors sold their company’s undertaking to themselves, as they had power to do, the sale was set aside because at no point had the interests of the company entered their minds.

[142] The defendants submit that, on its proper construction, clause 10.4 was inserted principally for the survivor’s benefit. The defendants submit this construction is supported by the fact that the survivor is given a discretion whether to make the payment at all before her death, and as to the timing and amount of any such payment. They submit it is also supported by the philosophy underpinning the Variation as set out in clause 5.2. They therefore submit that clause 10.4 is no more than a contractual power to exercise as Lady Chambers sees fit.

[143] I accept that clause 10.4 can be viewed in some ways as a provision for the

_{survivor’s benefit. Clause 10.2 provides for the entitlement.
Clause 10.4 allows it to}

⁸⁷See also the recent Supreme Court decision in Clayton v Clayton [2016] NZSC 29 at [56] to [58] and the Appendix. It was submitted that Mr Clayton, as a trustee under an express trust, was constrained by fiduciary obligations to the final beneficiaries from exercising certain powers in

his own favour. The Supreme Court rejected this argument because a number of provisions in

the Trust Deed made it plain that Mr Clayton could exercise his powers unconstrained by fiduciary obligations. For example, one such clause provided that: “the Trustees shall have unfettered discretion as to the exercise of the powers and discretions conferred upon them by this deed even though ... the interests of all Beneficiaries are not considered by the Trustees”.

be deferred. However clause 10.4 also empowers the survivor to pay the entitlement in full or in part at the first anniversary of the deceased’s death or at a later time (and before the survivor’s death). If she does not pay the entitlement on the first anniversary it is described as a “late payment” and is subject to inflation adjustment. Importantly clause 10.4 was a provision made with the acknowledgement that the couple had legal and moral obligations to provide adequately for their children in the event of their deaths. It replaced the earlier arrangements under which Sir Robert’s sons were to inherit a share of Sir Robert’s estate upon his death. It enabled the survivor to meet the deceased’s obligations to his children under the Family Protection Act but in a manner that gave the survivor flexibility about how and when that was appropriately achieved.

[144] In my view clause 10.4 is a power intended to be exercised having regard to both the interests of the beneficiaries (by deciding to pay all or some of the entitlements at the anniversary of the deceased’s death, or a date earlier than the survivor’s death) and Lady Chambers’ interests. The latter is permitted because the general philosophy in clause 5.2 permits Lady Chambers to enjoy the relationship property to the full for the rest of her life. However in my view that philosophy, in the context of the whole agreement, does not override the requirement to also consider the interests of Sir Robert’s sons. She is required to exercise her discretionary power from time to time in light of all the relevant circumstances. This would include the circumstances of the property she holds (for example whether it is suitable for sale), her own needs and interests, the needs and interests of her

daughters, and the needs and interests of Sir Robert’s sons.⁸⁹It is consistent with Sir

Robert’s legal and moral duty under the Family Protection Act, that the relevant circumstances include David’s wish for a payment now.

[145] For these reasons I conclude that Lady Chambers has fiduciary obligations when considering the exercise of her discretion under clause 10.4. A constructive

_{trust could arise from an abuse of those obligations.}⁹⁰_{However the present issue is}

⁹⁰It was not contended that s 4 of the Property (Relationships) Act excluded the claim. The issue is whether a fiduciary obligation was owed to David under the relationship property agreement, and was not a question relating to the identification and classification of interests in relationship property, their value and division.

whether the discretion has been properly exercised. The duty is to consider the exercise of the power and to do so taking into account David’s interests.⁹¹Properly exercised it may or may not lead to a payment of some or all of the entitlement. The proper remedy is not therefore to compel a payment of the entitlement. Mr Orpin submitted that an appropriate remedy might be a declaration if I were to conclude that the power under clause 10.4 had been misunderstood.

(a) A declaration that the first defendant holds the relationship property held immediately before Sir Robert’s death (“the trust property”) as a constructive trustee for the plaintiff to the extent of $2.5 million dollars (inflation adjusted).

(b) An order that the first defendant transfer the trust property to the plaintiff.

[147] Order (b) is not appropriate. Nor is the declaration that is sought appropriate. A declaration in a different form could be ordered. Such a declaration could recognise that Lady Chambers has a fiduciary obligation to exercise her discretionary power from time to time in light of all the relevant circumstances. It might also set out the relevant circumstances, such as the circumstances of the property she holds, her own needs and interests, the needs and interests of her daughters, and the needs and interests of Sir Robert’s sons (including David’s wish that he receive a payment now in recognition of Sir Robert’s acknowledged legal and moral duty under the Family Protection Act). However I consider it is unnecessary to make a declaratory order. I consider this judgment provides sufficient direction for all those involved.

[148] The first, third and fourth causes of action are dismissed. However, as this judgment sets out, David has had a measure of success in respect of his third cause of action (the constructive trust claim). Costs are reserved. If costs are sought by any party and cannot be resolved by agreement, brief memoranda on the particular

costs issues that are in dispute may be filed. Any such memoranda are to be filed within 30 days of the date of this judgment.

[149] Publication of this judgment was deferred for seven days to enable the parties to consider whether they considered any redactions to be appropriate and to ensure they had received and considered the judgment before any report of it appeared in the media. Following submissions, redactions have now been made to anonymise the specific addresses of the properties referred to in the judgment. This judgment may be published after 4.30 pm on 13 April 2016.

High Court of New Zealand Decisions

Chambers v Chambers [2016] NZHC 583 (6 April 2016)