Our German Desk
The Court of Appeal’s recent decision in D and E Ltd v A, B and C[1] overruled the High Court’s landmark decision in that case[2]. The High Court held that a fiduciary duty existed between a father and his adult children because of the abuse he had inflicted on them when they were children. This fiduciary duty was breached when the father placed his assets into a trust to purposefully disinherit his children. The trustees of the trust appealed to the Court of Appeal.
The Court of Appeal grappled with some very technical legal issues. What are the duties that a parent owes their adult children? Should adult children have a heightened right of claim because of their abusive childhoods? After much deliberation, the Court decided that fiduciary duties of a parent to their children do not extend into adulthood.
Background
The Family Protection Act 1955 (FPA) allows children to make claims against their parent’s estate. However, assets held in trust may be protected against claims of this nature, as such assets are trust assets which are not part of the parent’s estate.
The claimants in this case were the estranged children of the deceased Robert and victims of sexual and physical abuse committed against them by Robert throughout their childhood. Before Robert passed away, he moved his assets from his personal name into a trust with the intention to exclude his children from being able to make a claim against his estate under the FPA. He then continued to completely disentitle his children by leaving them out of his will.
Following Robert’s death, the children filed a claim in the High Court asserting that their father owed them a fiduciary duty – a responsibility – which was breached when he transferred his assets into the trust. The High Court ruled as follows:
- Robert owed a fiduciary duty to his children to not physically and sexually assault them when they were children and had consequently breached this fiduciary duty.
- Due to the long-term consequences of Robert’s abuse a fiduciary relationship and the accompanying duty continued between Robert and his children into the children’s adulthood.
- This fiduciary duty existed at the time Robert transferred his assets into the trust. Robert breached this fiduciary duty.
- The trustees of the trust knowingly received the assets in breach of Robert’s fiduciary duties and therefore held the assets on constructive trust for the estate. For that reason, the claimants could make a claim against the trust.
For a more in-depth discussion of the background of the case and the High Court decision please refer to our previous article Putting all your assets in trust? What can your children do about it?
Court of Appeal’s Decision
The trustees of the trust appealed the High Court’s decision. Although the reasoning differed between judgments, the Court of Appeal held that there was no fiduciary relationship or duties owed by Robert to any of his adult children when he transferred his assets into the trust.
The Court accepted that Robert had a fiduciary relationship with his children when they were young. It had been established that Robert had breached that relationship and his duties to his children when he had abused them. But what about now that they are older, in adulthood, and have had no relationship with their father for many years?
Justice Murray Gilbert observed that when Robert was dealing with his personal assets, although his actions had implications on what claims his children could make against his estate, Robert was not exercising a “power” conferred to protect his children’s interests. Robert could therefore deal with his personal property as he wished, without the constraints of fiduciary obligations such as the duty to act with undivided loyalty.
In reaching this position, Justice Gilbert reasoned that fiduciary relationships are defined by particular powers conferred for specific purposes and for the benefit of specific people. The fiduciary obligations do not extend to any actions Robert may choose to take in regard to his personal assets.
Further, the transfer of Robert’s assets did not affect the children’s interests, but rather affected a future possible claim under the FPA. In addition, Justice Gilbert noted, Robert’s assets were acquired by him without any contribution from his children, several years after his children had entered adulthood. Accordingly, Justice Gilbert concluded there was no obligation on Robert to hold or deal with his assets for the benefit of his children.
Justice Stephen Kós differed in his approach. Justice Kós observed that the relationship between a parent and child is of a fiduciary nature as long as a parent lives with and/or cares for their child. In this case, Robert’s fiduciary duty to his children ended when Robert no longer lived with or cared for his children as there was no longer a relationship of trust. Therefore, there was no breach of fiduciary duty when Robert transferred his assets into the trust.
As you can see, the reasoning is very detailed and the distinctions made are ‘fine’.
Following from those findings, the Court of Appeal held that there could be no basis in this case to impose a constructive trust.
Ultimately, the trustees were successful in the appeal. The children would only be able to claim under the FPA against the small amount of assets in Robert’s estate.
Key Learning
This case echoes similar fears acknowledged in the High Court decision that allowing a claim for a breach of fiduciary duty between an adult child and their parent could open the floodgates to more claims of this nature in the future. To our mind, the High Court decision had also created an arbitrary distinction between children who had been seriously abused by their parents and children who had not.
We are likely to see far more debate in this area especially as societal attitudes change in terms of how we believe children “ought” to be treated. Should an adult child ever have an entitlement to provision from their parent’s estate? This is a matter recently under consideration in the Law Commission review of New Zealand succession law.
What is evident from this decision is that at this time in New Zealand law, fiduciary duties are likely only to be imposed between a parent and their child when that child is in their care. However, this position could change if the Court of Appeal’s decision is appealed to the Supreme Court, or another similar matter is taken to the Supreme Court. The position could also change if the New Zealand Government implemented reform recommended by the Law Commission as part of the succession law review.
If you have any questions about this article, please get in touch with our Private Wealth Team or your usual contact at Hesketh Henry.
Disclaimer: The information contained in this article is current at the date of publishing and is of a general nature. It should be used as a guide only and not as a substitute for obtaining legal advice. Specific legal advice should be sought where required.
