D and E Ltd v A, B and C

• Jurisdiction: New Zealand
• Judge: Collins J,Gilbert J,Kós P
• Judgment Date: 14 September 2022
• Neutral Citation: [2022] NZCA 430
• Docket Number: CA701/2021
• Court: Court of Appeal
• Year: 2022

Between

D and E Limited as Trustees of the Z Trust

Appellants

and

A, B and C

Respondents

[2022] NZCA 430

Court:

Kós P, Gilbert and Collins JJ

CA701/2021

IN THE COURT OF APPEAL OF NEW ZEALAND

I TE KŌTI PĪRA O AOTEAROA

Equity, Family, Trusts — appeal against a High Court decision which held the respondents’ father owed them fiduciary duties not to transfer the bulk of his assets to the Trust — sexual abuse by father — fiduciary relationship between parents and children

Counsel:

M J Wenley for Appellants

M I S Phillipps for Respondents

JUDGMENT OF THE COURT

REASONS

Collins J (dissenting)	[1]
Gilbert J	[120]
Kós P	[152]

Collins J

Table of Contents

Introduction	[1]
Background	[7]
Alice	[10]
Barry	[23]
Cliff	[32]
Rose	[39]
Phillipa	[43]
Estate planning	[45]
Litigation	[53]
High Court judgment	[57]
Options available in relation to civil proceedings	[59]
Criminal proceedings	[63]
Legal principles relevant to this appeal	[64]
Fiduciary duties	[65]
Fiduciary duties in a family context	[73]
Parents and adult children	[79]
Analysis	[84]
The nature of Robert's powers and responsibilities at the time he gifted his principal assets to the Trust	[85]
Whether Alice, Barry and Cliff were entitled to repose and did repose trust and confidence in Robert to protect their interests when he gifted his principal assets to the Trust	[87]
Whether Robert was required to protect the interests of Alice, Barry and Cliff when he gifted his principal assets to the Trust	[99]
Remedy	[105]

Introduction

[1] This appeal arises from a judgment in which the High Court granted a claim by the respondents against the trustees of a trust (the Trust) that the respondents' late father settled.1 At the heart of the dispute is whether the respondents' father owed them fiduciary duties not to transfer the bulk of his assets to the Trust.

[2] In the High Court, the respondents successfully argued that:

• (a) Their father abused them egregiously when they were children, thereby breaching fiduciary duties he owed them at the time.

• (b) The abuse had an enduring adverse impact on the children when they became adults.

• (c) The father committed a further breach of fiduciary duty when, approximately 30 years after his children ceased to have contact with him, he established the Trust for the benefit of another family and gifted his principal assets to the Trust, thereby depriving the children of any meaningful claim against their father's estate.

• (d) The trustees received the father's principal assets knowing that the transfers breached the father's fiduciary duties to his children.

• (e) The trustees were deemed to hold the father's principal assets as constructive trustees for the benefit of the father's estate, thereby exposing those assets to a related claim that the children have brought against the father's estate under the Family Protection Act 1955.

[3] The following key facts are now beyond dispute:

• (a) The father repeatedly raped and sexually abused his daughter when she was between seven and 13 years of age. He also emotionally abused his daughter during her childhood and teenage years.

• (b) The father physically and emotionally abused his sons up until they left home when they were approximately 16 years of age.

• (c) The father had virtually no contact with his children after they left home.

• (d) The children elected not to lay complaints with the police or commence civil proceedings against their father.

• (e) Approximately 30 years after the children ceased to have contact with their father, the father gifted to the Trust his home and some shares worth approximately $700,000 in total. The beneficiaries of that Trust are the children and grandchildren of a friend of the father.

• (f) The children were not named as beneficiaries in the father's will.

• (g) The father's remaining estate is worth approximately $47,000.

• (h) The children's claim under the Family Protection Act will be rendered meaningless unless the property gifted to the Trust reverts back to the father's estate.

[4] In their appeal, the trustees now accept that the father owed fiduciary duties to his children not to abuse them when they were children. The submissions before us focused upon the following questions:

• (a) Did the father owe fiduciary duties to his adult children at the time he gifted his principal assets to the Trust?

• (b) If so, what were the nature and scope of those duties?

• (c) Did the father breach any fiduciary duties he owed his adult children when he gifted his principal assets to the Trust?

• (d) Did the High Court err when it decided the trustees held the father's principal assets as constructive trustees on behalf of the father's estate?

[5] In the High Court the names of the parties and the beneficiaries of the Trust were anonymised. I can understand why the daughter should have the benefit of name suppression. As I shall explain, she has endured significant psychological trauma as a result of the abuse she suffered as a child. Identifying her in this judgment is likely to exacerbate her already fragile health. The High Court suppressed the names of the appellants and respondents in order to protect the identity of the daughter. I will continue to suppress the names of the parties and the beneficiaries of the Trust as well as other persons and entities connected to the proceedings in order to protect the interests of the daughter.

[6] Rather than use alphabet letters when referring to those involved in this proceeding, I shall use the following fictitious names. I place in parentheses the letters that were used to refer to the same people in the High Court judgment:

Robert (Z) — the father;

Rose (J) — Robert's former wife and mother of the respondents;

Greg (G) — the eldest son of Robert and Rose;

Alice (A) — the daughter of Robert and Rose;

Barry (B) — the second son of Robert and Rose;

Cliff (C) — the third son of Robert and Rose;

Phillipa (Y) — a long-term friend of Robert and the mother of the principal beneficiaries of the Trust established by Robert;

Louise (L), Sally (S) and Mark (M) — the children of Phillipa and the principal beneficiaries of the Trust;

Don (D) — the husband of Louise and a trustee of the Trust; and

Karen (K) — the child of Don and Louise and final beneficiary of the Trust.

Background

[7] Robert and Rose married in December 1958. They subsequently had four children, namely Greg, born in 1960; Alice, born in 1961; Barry, born in 1963; and Cliff, who was born in 1971. Greg died in 2015. His estate is not involved in this litigation.

[8] Robert and Rose separated in 1981, and although they made an attempt at reconciliation, their marriage ended in 1983. At about the time Robert and Rose's marriage came to an end, Robert commenced a relationship with Phillipa, a widow who had three children, namely Louise, Sally and Mark. Robert and Phillipa remained close friends until he succumbed to cancer in 2016.

[9] During the period of the marriage Robert frequently abused Rose and their children. Although Rose was made aware of the abuse that Robert inflicted on his children, they decided not to ask their mother to give evidence because of her age and poor health.

Alice

[10] In the High Court, Gwyn J accepted that Robert had started to rape Alice when she was seven years old and that the sexual abuse continued until she was 13 years old, when she and her family moved to a house in which there was a lock on the bedroom door that prevented Robert from entering her room at night.2

[11] By the time she was nine years old, Alice was frequently soiling herself and she suffered urinary tract infections. By the time she was 11, Alice's self-esteem was so low that she made attempts to end her own life.

[12] In 1979, when she was about 18 years old, Alice left home to undertake tertiary education. Even after she ceased living in the same house as her father, Alice continued to suffer emotionally and physically from the adverse influences of Robert. Alice explained that during this period she was bulimic and suffered depression.

[13] After she completed tertiary training, Alice found it very difficult to maintain steady employment and relationships. She attributed her challenges, including her profound depression, suicidal thoughts and lack of self-esteem, to the abuse she had suffered from her father. Alice explained that she was never able to properly settle and “lived a transient lifestyle”. She sought counselling for the first time in late 1985 but was unable to achieve much progress. She moved overseas before returning to New Zealand in 1987. On her return, Alice continued to live an impoverished and nomadic life.

[14] In 1990, Alice sought assistance from the ACC Sensitive Claim Unit, which accepted her claim that she had been sexually abused by Robert, thereby enabling her to obtain financial and counselling support from ACC. It was at about this time Alice confided in her three brothers that their father had sexually abused her. Alice also told her mother about the sexual abuse that she had endured. Rose wrote a letter to Robert in early 1992 saying that what he had done to their daughter was unforgiveable. Robert's response to Rose was a letter from a lawyer, saying that the allegations were false and defamatory, and that if the statements were repeated legal action would be taken. Alice also wrote to her father in 1992, reminding him of the abuse she had suffered. She received no response.

[15] Between late 1992 and 1994, Alice and her brothers resolved not to initiate criminal or civil proceedings against Robert. Instead, Alice explained “[w]e all agreed that we would continue to have no contact with him, and we didn't”.

[16] In 1996, Alice gave birth to a...