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Supreme Court to put the expansion of fiduciary obligations under the microscope

2 Jun 2023

| Author: Reweti Kohere

To date, New Zealand has followed Canada’s lead in recognising a fiduciary relationship between parents and children but the scope of the relationship is yet to be settled.

Does a fiduciary relationship exist between a parent and child? The answer will be determined by the Supreme Court in a long-running dispute that is scheduled for a hearing in just over a week.

The case A, B and C v D and E Limited as Trustees of the Z Trust is a claim borne out of a father’s “egregious” behaviour toward his children.

At issue is whether an abusive parent continues to owe fiduciary duties to his adult children in a situation where the bulk of his property has been gifted to a trust to deliberately thwart any meaningful claims, under the Family Protection Act 1955, that his children may have against his estates.

If the Supreme Court follows Australian law, it will likely find there is no fiduciary relationship in this case. But it might prefer the Canadian position, where the parent-child relationship is viewed as inherently fiduciary.

To date, New Zealand has followed Canada’s lead in recognising a fiduciary relationship between parents and children but the scope of the relationship is yet to be settled.

The case, and the development of fiduciary relationships law, was the backdrop to a panel discussion at ADLS’ recent Cradle to Grave conference, with Auckland barristers Anthony Grant and Andrew Steele debating the likely direction the Supreme Court will take after hearing the appeal in ABC.

The children allege their deceased father’s fiduciary obligations stem from his physical, mental and, in respect of his daughter, sexual and emotional abuse when they were minors. Moreover, they say, he continued to owe fiduciary duties to them as adults to protect their economic interests, provide for them from his wealth and recognise them as members of his family.

The children have sought an order that the assets gifted to the trust should revert to their father’s estate.

“Why are we here? It’s because Anthony and I disagree on the development of the law in this area,” Steele told attendees.

“He looks at the minority judgment in the Court of Appeal and says ‘yeah, this is the way we should go’. And what I say is, ‘Chirnside v Fay has been the law since 2006. It’s completely undiminished. It’s like the Rock of Gibraltar for fiduciary relationships in New Zealand. It reflects the law overseas’.”


Previous judgments

In ABC, the father ceased virtually all contact when his children left home. Later, they chose not to lay complaints with the police or start proceedings against him. Some 30 years after contact ceased, the father gifted his assets, worth hundreds of thousands of dollars, to a trust whose beneficiaries were the children and grandchildren of his friend. He didn’t name his own children as beneficiaries.

High Court Justice Cheryl Gwyn in November 2021 found the father owed fiduciary obligations to his children, based on their “inherently fiduciary” relationship. He breached those duties twice: first, through the “egregious” abuse he inflicted on them, particularly his daughter, as children. And second, when he transferred the property to the trust deliberately to ensure his estate wouldn’t be available to meet his adult children’s needs.

While the inherently fiduciary relationship ceased upon the children becoming adults, Justice Gwyn held the father’s relationship carried particular obligations due to the vulnerability his earlier breach of fiduciary duties had caused them.

Nearly a year later, the Court of Appeal was split. The full Bench allowed the trustees’ appeal against the father’s two sons, saying they couldn’t have trusted him to provide for them in his estate as they ceased to rely on him after they left home. But the court was divided when it came to the daughter’s claim.

Then President Stephen Kós held, and Justice Murray Gilbert assumed for argument’s sake, that the father owed a duty not to harm his children as minors. However, the majority found the fiduciary duty to refrain from acts that, as Justice Kós put it, “fundamentally violated” the trust inherent in a parent-child relationship, ceased when the father no longer lived with or cared for them.

In respect of the daughter’s claim, the fiduciary obligation could not evolve into protecting her economic interests as an adult – a duty Justice Gilbert described as “not only novel, but unprincipled”.

Justice David Collins dissented. Because the daughter had experienced “profound and enduring” psychological trauma arising from her father’s “appalling” abuse, it was impossible for her to live normally and independently – a situation similar to that of a severely disabled adult, relying on parents to continue caring for and supporting them.

“Such cases are best thought of as instances of a continuous relationship that is inherently fiduciary,” the judge said. Consequently, the daughter was entitled to expect her father to “atone” for his abuse and provide for her in his will.


Lost the plot?

The issue as to which direction the Supreme Court might follow arose when panel moderator and barrister Sandra Grant asked what role tikanga might play in ABC.

Steele reminded practitioners that, based on the Supreme Court’s recent judgment in the Ellis appeal, Māori customary law would apply only if relevant. However, it couldn’t apply if it was contrary to statute or established legal principles.

While New Zealand’s fiduciary relationships law is settled in some respects, Steele said tikanga could prove helpful in one area. “Now that’s got your attention,” he told the Cradle to Grave audience, saying the court would be asked to affirm not only the existence of a parent-child fiduciary relationship, but also that it is inherently fiduciary, as articulated by Justice Andrew Tipping in Chirnside, between solicitors and clients, trustees and beneficiaries, doctors and patients, or parties to a joint venture.

Whether children can repose trust and confidence in their parents to create fiduciary obligations is a controversial issue overseas.

“I can tell you Australia has rejected it,” Steele said. “There is no fiduciary relationship between a parent and their child in Australia so think about that before you move over there. They say ‘look, fiduciary obligations protect monetary interests – not non-economic or practical interests’.”

By contrast, New Zealand is headed in Canada’s direction. As Justice Collins explained, Canada has recognised parent-child relationships as having the hallmarks of a fiduciary relationship, including finding that an action for breaches of fiduciary breaches can arise where parents abuse their children. There, the fiduciary relationship arises from the children’s vulnerabilities and the parents’ power and authority.

Steele said he didn’t think the Canadian courts had “lost the plot”. “It’s grounded in established principle…I think [tikanga] is going to be influential – not necessarily decisive, but influential.”

Grant told conference attendees he had “no idea” what tikanga was. “I bought a book on tikanga the other day, which I haven’t yet read. But the suggestion there is a secondary form of legal system to which we’re all subject and which has not been written is a problem for me,” he said. “I just don’t know where we are going to begin, but there have been quite a few cases on it.”


Legal principles

When asked by the moderator whether he agreed with Justice Collins’ view, Steele said, “I see you’ve departed from the [list of] questions. This is what I was afraid of.” Amid the levity, he voiced his disagreement. “The reason the analogy doesn’t work, with due respect to the Justice, is because we need a relationship.”

Steele argued that fiduciary relationships arose, and corresponding duties kicked in, once someone assumed responsibility for caring for a child. If a disabled child was being looked after in an institution and the parent didn’t have an ongoing responsibility for that child, “do any of you suggest there would be a fiduciary relationship still, when there’s actually no relationship, no obligation to care for that person?

“We go back to Chirnside – let’s stick to legal principles…It’s pretty straightforward really: one party has expressly or impliedly undertaken to act for the other. The beneficiary has reposed trust and confidence in the fiduciary not to use their position in the relationship in an adverse way. In other words, be loyal – the keystone of fiduciary relationship law,” Steele said.

The Limitation Act also had an effect. Rather than seeking an account of profits or proprietary relief, cases of sexual misconduct involved claims for damages because the conduct was similar to the torts of assault and battery.

Steele explained the Limitation Act stipulated that where there were equitable causes of action, the time limit to apply was analogous to the most similar common law right of action. For torts, the time to sue lasted six years. The limit would start once the children became aware of the wrong done to them.

“The way [Justice] Collins has portrayed fiduciary duty, there is no time limitation period. Thirty years can pass by and they can still bring their claim.”


A balancing act

Grant said he was a great fan of English judge Lord Tom Denning, who based his dissents on doing what he thought was right.

When Grant looked at the ABC case, the daughter had been “absolutely destroyed” by her father’s “appalling conduct”. Steele might argue no remedy was available to her, but Grant asked whether attendees agreed that someone in her situation should have no recourse.

Steele was eager to respond. “Very nice of you to put words in my mouth, Anthony. I certainly do not say they have no remedy. Of course, they have a remedy – a remedy in assault and battery, that’s a tortious remedy,” he said.

Nonetheless, Steele questioned whether that was appropriate for a breach of fiduciary duty. The harm arose from a breach of loyalty, rather than a tortious act that causes suffering.

“If you’re sexually assaulted by a stranger, that’s one thing, right? But when you’re sexually assaulted by someone whom you look to, to look after your welfare, your interests, whom you can’t escape from [because] they’re in your home, it’s a whole different ballgame,” he said.

Once the children realised they could sue their father, the limitation time period started. However, they chose not to bring proceedings.

“Like all claims in law, you cannot sit on your rights. The Limitation Act provides a specific public purpose and all common law jurisdictions have it: memories dim as things get older. And a potential defendant is entitled to know a claim isn’t going to hang over them organically, for 30 years. Time ran out on this,” Steele said.

“Anthony is saying ‘we should resurrect some new kind of action that sidesteps the Limitation Act to give this person relief when they sat on their legal rights’. I don’t know. You ask yourself, ‘where are the equities balanced there?’”


Just outcomes

The Limitation Act wasn’t appropriate in these sorts of cases, said Grant, who referred to a statute the State of New York passed in 2019 allowing survivors of childhood sexual abuse to sue their abusers and any enabling institution – regardless of when the abuse occurred. Such a statute was an example of a more appropriate solution.

He also referred to the Waitangi Tribunal and its work on recommending outcomes for “well-founded” historical and contemporary breaches of Te Tiriti o Waitangi.

“We, in this room, are all paying millions of dollars every year for the Waitangi Tribunal and historical grievances, which go back 100 to 200 years. And no one says, ‘The Limitation Act was six to 12 years; these people have no rights’. It’s quite wrong.”

Steele countered: if the Limitation Act must change, “then go to your parliamentarian. Don’t ask the court to ignore the legislation. It’s just not going to happen.”

Grant said “absolutely” the Act should be changed. But the courts existed to provide justice in the community for perceived grievances. “In this case, there is no doubt – Andrew doesn’t dispute at all the nature of the grievance. And the courts ought to have the power to achieve a just outcome. It’s very simple. It’s part of the judicial oath. That’s what they’re there for.” ■

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