A recent article in LawNews referred to the Court of Appeal’s ruling in D v A [2022] NZCA 430 and voiced support for the dissenting judgment of Collins J.
The case involved a father who verbally and physically abused his two sons and daughter while they were young and under his care. In 1981, the father left the family home and he and children became estranged for more than 30 years.
Despite the absence of direct contact or communication between them, the children continued to suffer from the earlier abuse, including financially, via their employment opportunities, and mentally by way of a lack of self-confidence and self-belief.
During the estrangement, the father knew his children needed financial and emotional support, but he gave none. In 2014, 16 months before he died, the father gifted property into a trust in part to deliberately thwart a possible claim against his estate by his children. The father’s estate had around $47,000 and the trust around $700,000.
The court noted that the Family Protection Act claim brought by the children would be rendered meaningless unless the property gifted to the trust reverted to the father’s estate. Nevertheless, by a majority of two to one, the father was held not to have acted in breach of any fiduciary duty when he disposed of his assets to the trust. The children were left without relief.
Apparently, several readers contacted the author of the earlier LawNews article to say that they disagreed with the majority’s decision. And the author exhorted our judges to have the confidence to make new law where the principles of justice require it.
But remember the idiom: be careful what you wish for. You might just get it, along with things you probably wouldn’t wish for.
In a paper entitled Hard Cases and Bad Law (Waikato Law Review 2008, Vol 16 page 1), then Justice Paul Heath explained the maxim as describing a difficult case which might cause the clarity or purity of the law to be obscured by exceptions and strained interpretations that were designed to achieve justice in a particular case.
The underlying idea is the need for the courts to apply binding precedents in a manner that produces consistency in the application of the law. Heath stated: Predictability is, in my view, the most important factor in cases where a particular branch of the civil law affects the lives of many and advice to act in a particular way is likely to have been given based on existing law. If no proper point of distinction can be made from a binding precedent after critical analysis of it, any change in the law is likely to result in a hard case making bad law.
D v A is a hard case. The father whose duty and responsibility it was to care for his young and vulnerable children instead mentally and physically abused them, raping his daughter. This case is the paradigm for cases deserving of relief.
But here’s the rub. Should the dissenting judgment in D v A be heralded as a welcome bending of the principles governing fiduciary relationships in order to avoid those principles being used as ‘weapons for inequity’? Or does the reasoning underpinning the judgment so strain existing principles that adopting them into law will cause unacceptable uncertainty about when fiduciary relationships subsist and the consequences of a breach of a fiduciary duty?
All three judges agreed that the children could have successfully pursued claims against their father for breach of fiduciary duty.
Justice Kós held that any fiduciary duty owed by the father ended when he ceased to care for the children [166]. And because the ordinary remedy must be equitable compensation, the claim was long extinguished by laches [165]. He agreed with Gilbert J that the children’s residual personal claim could not be converted to, and preserved by, a continuing proprietary claim to the father’s property [167].
Gilbert J held that the father was free to deal with his own assets as he wished because [142]:
- they were his assets, accumulated over the course of his life, and he was entitled to deal with them as he pleased;
- he did not acquire or hold the assets for the benefit of his children;
- the children did not contribute to the assets so they had no proprietary claim in respect of them; and
- the father did not undertake or assume any obligation by contract, agreement, unilateral undertaking or otherwise to deal with his assets for their benefit.
The majority concluded there was no fiduciary relationship between the father and his children when he gifted his assets to the trust.
The dissenting judgment
Collins J listed the “recognised indicia of a fiduciary relationship” as follows [167]:
- the fiduciary had actual or inferred responsibilities to the beneficiary;
- the fiduciary had a discretion to exercise their powers so as to affect the interests of the beneficiary;
- the beneficiary was entitled to, and did, have trust and confidence in the fiduciary not to adversely affect the beneficiary’s interests; and
- the beneficiary was particularly vulnerable and dependent upon the fiduciary to exercise their discretion in a way that did not undermine the interests of the beneficiary.
Collins J defined the filial fiduciary duty as an actual or implied responsibility of a parent not to act in a way that was contrary to the child’s interests and, conversely, the actual or implied trust and confidence a child reposes in their parent to not act contrary to the child’s interests.
None of the above is controversial. The dissent arises from Collins J’s finding that the father’s fiduciary duty to the daughter continued after the child became an adult and after he had departed the family home.
The judge justifies this view by reference to the “strongly similar” example of a “severely disabled child who is dependent on their parents for care and support…” [79].
By the same reasoning, the father in D v A owed a continuing duty to his daughter during the 30-plus years of estrangement and when he gave away his assets to defeat any claim she might make against his estate.
But does the disabled child analogy hold true? There is a world of difference between:
- a severely disabled adult child who is dependent upon their parent for care and support where the parent has expressly or impliedly assumed responsibility for that child’s care and support (scenario A); and
- a severely disabled adult child who is cared for and supported by some person or entity, not the parent, who has taken on that responsibility and the child and parent have no existing and continuing relationship with each other, much less one involving provision and acceptance of care and support (scenario B).
In these scenarios, the only constant is the blood relationship. In scenario A, the parent entered into a relationship with, and assumed a responsibility for, the child. In second B, the parent did not.
It is not the child being related to the parent that creates the fiduciary relationship and attendant duties. It is the assumption of responsibility within a relationship, expressly or by implication, by the parent for the care of the child and the converse dependency and vulnerability of the child who relies on the care that makes the relationship fiduciary.
Collins J’s dissenting rationale does not require an ongoing relationship between the parties. I suggest it is one thing for the law of equity to graft fiduciary duties onto a relationship but it is something new to impose a relationship on two people when none exists and then graft duties onto it.
Collins J explained that for the daughter to have any semblance of a normal and independent life, she required economic and emotional support from her father, including a provision for her in his will. He called it “atonement” [96].
The judge dismissed the two brothers’ appeal because they had achieved independent and autonomous lives despite the abuse they suffered. By application of atonement, it seems the court will now dictate how a parent should parent and what a wise and just parent or testator should put in their will.
Applying the new principle of fiduciary relationship and atonement is not easy. It seems that if in the past, and that could be decades past, a parent breaches a fiduciary obligation to their child, then forever after, and whether they have an actual relationship together, the parent owes a fiduciary duty to provide for the child, but only if they need such provision.
The child receives a proprietary interest in the parent’s property whenever it is acquired, so the parent cannot deal with it in a way that is adverse to that child’s interests without being in breach of fiduciary duty.
Settlement into a trust is one example of such a breach, but in principle any divesting of the parent’s property will qualify – perhaps the expenditure involved in going on an extravagant winter holiday or a gift to the parent’s other children.
Any contract-breaker, tortfeasor or fiduciary duty-breacher may be said to be under an obligation to atone until such time as they pay for the damage their conduct wrought. The dissenting judgment appears to elevate atonement into a separate and self-standing principle of law, actionable as a discrete cause of action.
I suggest Collins J’s dissent constitutes much more than an exercise of confidence or a mere bending of existing fiduciary relationship principles. If adopted into law, the dissent would arguably open a veritable can of worms.
Justice for the daughter would likely be done at the cost of consistency within the law of fiduciary obligations and predictability in estate planning and the law of trusts more generally.
Andrew Steele is an Auckland barrister specialising in family trust and estate disputes.
0 Comments