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University of Otago Law Theses and Dissertations |
Last Updated: 25 September 2023
Can parental abuse during childhood give rise to a fiduciary duty to make amends in adulthood: A contextual analysis of D & E Ltd v A B & C [2022] NZCA 430
Sam Casse
A dissertation submitted in partial fulfilment of the requirements of the degree of Bachelor of Laws (Honours) at the University of Otago – Te Whare Wānanga o Otāgo
October 2022
Acknowledgements
I would like to thank:
My supervisor, Dr Simon Connell for always keeping me on track, sharing your knowledge, and providing valuable guidance and feedback.
My parents, for your unwavering love and support in moments of doubt, with special thanks to my Dad for your proof-reading and helpful advice.
My sister, for always picking up the phone and being happy to listen to my ramblings.
My friends and flatmates for the many much needed laughs and moments of distraction, and for the incredible memories that have made my time at university so special.
Table of Contents
Introduction
There is no doubt that parental abuse during childhood is one of the most morally reprehensible forms of conduct, and can irreparably harm the personal development of victims.1 Despite this, the mechanisms currently in place are insufficient to provide victims of childhood abuse with justice. For example, the incredibly sensitive context of abuse during a persons formative years makes it less likely victims will be in a position to take action against their parents within the statutory limitations,2 nevermind that the accident compensation regime prevents abusive parents being held personally accountable, unless victims can prove a claim for exemplary damages.3 For this reason, many victims rely on the Family Protection Act 1955 to provide relief, and avoid the trauma of facing their abusive parents in Court.
Therefore, the idea that a parent guilty of such heinous behaviour can reinforce their neglect through testamentary avoidance, leaving their victims with no recourse for justice, is an outcome which leaves behind a bad taste. This very situation was considered in recent litigation (which I refer to as the “Alphabet Case”) which tested whether existing law could be stretched to provide relief.4 Through the adoption of fiduciary law, the Alphabet Case questioned whether childhood abuse, being a breach of fiduciary duty, can give rise to a separate or ongoing fiduciary duty to make financial amends.
In the Alphabet Case, anonymised Plaintiffs “A”, “B”, and “C” sued Trustees “D”, of a Trust settled by their late father, “Z”, claiming knowing receipt by the Trustees of assets transferred by Z in breach of fiduciary duties he owed them at the time.5 Z established the trust to prefer
1 For the effects of childhood abuse see, Jennifer E Langsford, Kenneth A Dodge, Gregory S Petit, John E Bates, Joseph Crozier and Julie Kaplow “A 12 Year Prospective Study of the Long-term Effects of Early Physical Maltreatment on Psychological, Behavioural, and Academic Problems in Adolescence” (2002) 156 Arch Pediatr Adolesc Med 824; Kristen W Springer, Jennifer Sheridan, Daphne Kuo and Molly Carnes “Long-term physical and mental health consequences of childhood abuse: Results from a large population-based sample of men and women” (2007) 31 Child Abuse & Neglect 517; Alphred Lang, Edwin De Beurs, Conor Dolan, Tanja Lachnit, Sandra Sjollema, and Gerrit Hanewald “Long-Term Effects of Childhood Sexual Abuse: Objective and Subjective Characteristics of the Abuse and Psychopathology Later in Life” (1999) 187 Journal of Mental & Nervous Disease 150.
2 Limitations Act 1950.
3 Accident Compensation Act 2001.
4 A v D & E Ltd [2019] NZHC 992; [2019] NZFLR 105; A v D [2021] NZHC 2997; [2021] NZFLR 772; D & E Ltd v A B & C [2022] NZCA 430.
5 A v D, above n 4. In the Court of Appeal, the Judges chose to use pseudonyms, however I will continue to use alphabetical identifiers for simplicity.
the interests of an ex-partner and her three children, and ensure his property was out of reach of his own.6 The critical context of this allegation is that the Plaintiffs suffer emotionally and financially as adults because of severe abuse Z subjected them to during childhood. All plaintiffs suffered emotional and physical abuse, however Z’s daughter was also subjected to repeated sexual abuse throughout her childhood. Because of the abuse, the Plaintiffs had been estranged from Z for over thirty years at the time he alienated his property.The Alphabet Case litigation followed the Plaintiffs’ claim under the Family Protection Act 1955 (FPA),7 when they discovered that the trust assets were worth around $700,000, and only
$47,000 remained in Z’s estate.8 As a result, their FPA claim would be fruitless.9 Upon this background, the Plaintiffs turned to fiduciary law in the hope of unwinding their father’s inter vivos dispositions, so that the trust assets fall back into his estate, within reach of a FPA remedy.10
As will be explained in detail, the relationship between a parent and minor-child has received some acceptance as being inherently fiduciary.11 However, in the Alphabet Case, the transfer of assets alleged to breach Z’s fiduciary obligations required the fiduciary relationship to survive the child’s coming-of-age. Recognition of a fiduciary relationship between parent and adult child was acknowledged to be a novel finding, but as equity facilitates imposing fiduciary relationships on a factual case-by-case basis, the question was open to whether the circumstances justify imposing a fiduciary relationship.12
Expanding the categories of fiduciary relationships, or finding a fiduciary relationship to exist on specific facts is not unusual, given the longstanding acceptance of the Court’s practice of reasoning by analogy. However, when there is no authority of sufficient analogy, we are
6 At [65]-[67]. This was proven by evidence of the history of Z’s estate planning.
7 Family Protection Act 1955, s 4.
8 A v D & E Ltd, above n 4, at [12]; D & E Ltd v A B & C, above n 4, at [45]-[53].
9 A v D, above n 4, at [65]-[66]. See also Tāneora Fraser and John-Luke Day “What property should be available to satisfy family members’ claims against an estate?” (2022) 10 NZFLJ 173.
10 A v D, above n 4, at [3].
11 Andrew Butler (ed) Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009) at [17.3.12]. See generally KM v HM [1992] 3 SCR 6; S v G [1995] 3 NZLR 681; Attorney General v Prince and Gardner [1998] 1 NZLR 262, [1998] NZFLR 145; Surrey v Speedy HC Auckland CP 279/SD99, 17 March 2000; S v Attorney-General [2003] NZCA 149, [2003] NZLR 450. See Chapter II, Part E for more in depth discussion. 12 D & E Ltd v A [2019] NZCA 585 at [10]: “While the claims by the respondents may be novel, they are very dependent upon whether or not they are able to establish the facts necessary to underpin the claim that Z owed them fiduciary duties.”
brought back to the search for a general principle of fiduciary liablility by which to justify extension to an entirely novel situation.13 The circumstances of the Alphabet Case were such a case. Not only is there novelty to finding a parent owes fiduciary obligations to an adult child, also novel is the idea that fiduciary obligations can continue beyond the end of a relationship.14The Courts’ analyses resulted in divergent opinions which engage important issues regarding the conceptual basis, and therefore the nature and scope, of fiduciary liability. Ultimately, the Court of Appeal decided against extending fiduciary law in the manner requested, however, the lower courts and dissenting opinion of Collins J in the Court of Appeal applied novel reasoning to create alternative pathways to relief.15 Given the Court of Appeal outcome means victims of childhood abuse may receive no recognition, the minority decisions arguably produce a more morally and socially desirable result.16 Therefore, these decisions will be the subject of this dissertation through a contextual analysis to determine whether judicial or theoretical support can be found for the Judges’ reasoning.
Chapter I sets out the background and context of the Alphabet Case, before providing an overview of New Zealand’s approach to categorisation and recognition of fiduciary relationships. Chapter II then considers whether there is a principled basis for extending fiduciary obligations beyond the end of an ongoing relationship, particularly in the context of abusive parent and estranged child, by focusing on the circumstances of the Alphabet Case. Ultimately, the lack of relationship between the parties at the time of alleged breach will be shown to negate principled extension of fiduciary law. Chapter III then illustrates how unprincipled extension creates remedial uncertainty, by undertaking to place the proposed remedies within a framework of rights, wrongs, and remedies which makes sense in terms of private law corrective justice.17
13 A general principle of this kind has elluded precise definition. For example see, Anthony Mason “Themes and Prospects” in PD Finn (ed) Essays in Equity (Law Book Company, Sydney, 1985) 242 at 246. Mason describes the fiduciary relationship as, “a concept in search of a principle”.
14 Andrew Steele “Fiduciary duties - parents to adult children” (2022) NZLJ 12; D & E Ltd v A B & C, above n 4, at [103].
15 A v D & E Ltd, above n 4, per Johnson J; A v D, above n 4, per Gwyn J; D & E Ltd v A B & C, above n 4, at [1]-[119] per Collins J.
16 D & E Ltd v A B & C, above n 4, at [121] per Gilbert J. “While no one would quarrel with the desire to provide
redress for the incalculable and ongoing harm Robert caused Alice by sexually abusing her when she was a child...”.
17 Peter Cane “Corrective Justice and Correlativity in Private Law” (1995) 16 Oxford J Legal Stud 471.
Throughout this dissertation the theme of instrumentalism will be explored. It is posited that the decisions in favour of the Plaintiffs demonstrate instrumental use of fiduciary law to achieve a more desirable outcome, giving credence to the historically well-known aphorism of John Seldon which criticises the apparent arbitrariness of the Law of Equity:18Equity has been perceived as being dispensed in accordance with the length of the Chancellor’s foot, rather than in accordance with established precedent.
However, criticism of instrumentalism is countered in Chapter IV, which considers the role of equity and fiduciary law. Though dismissing the Plaintiffs’ claim, the Court of Appeal nonetheless remained split. The respective decisions of Gilbert and Collins JJ reflect the variable opinions of the purpose served by fiduciary law, and the level of rigidity required in its application. Therefore, the position that the purpose of fiduciary law is to be an instrument of public policy must be considered.19 This will be done in light of the moral duty owed by parents to their children in cases of testamentary provision under the FPA,20 and considers whether fiduciary law, as a gap-filling tool, can transform that standard into an equitable obligation to providing redress to adult victims of childhood abuse.
18 Charles Rickett “Cry “Equity” it Works!” (2013) NZLJ 25; Frederick Pollock (ed) Table Talk of John Selden
(London, Quaritch, 1972) at 43.
19 P.D. Finn “The Fiduciary Principle” in T.G. Youdan (ed) Equity, Fiduciaries and Trusts (Carswell, Toronto, 1989) 1 at 26.
20 J L Caldwell “Family Protection Act 1955 - Moral Duty and Adult Children” (1982) NZLJ 215.
I Setting the Scene
To understand the issues regarding the nature and scope of fiduciary liability highlighted by the Alphabet Case, it is necessary to set out the reasoning applied by the Judges throughout the litigation’s history.
The Defendant Trustees first applied to have the Plaintiffs’ claim struck out, however, Associate Judge Johnston refused to give summary judgement. Applying the Frame v Smith and “reasonable expectations” tests, Associate Judge Johnston reasoned that an evidential foundation existed for contending the abuse suffered by the Plaintiffs had caused them to be vulnerable in adulthood, and therefore, they may reasonably have expected their father to have regard to their interests in exercising his rights over his property during the balance of his life.21 The Judge suggested that courts might accept that an extremely abusive parent, who caused their children a “deletorious effect” later in life, may be imposed with a fiduciary obligation to financially support their children beyond childhood.22
Following Associate Judge Johnston’s refusal to strike out the Plaintiffs’ claim, the case progressed to the High Court, where Gwyn J concluded that Z’s relationship with the Plaintiffs during childhood was inherently fiduciary. Justice Gwyn limited the fiduciary obligation at this time to refraining from physically or sexually assaulting his children.23 Despite finding Z blatantly breached this obligation, Gwyn J then stated that the inherently fiduciary nature of their relationship ceased upon the Plaintiffs reaching adulthood. Therefore, the key question became whether the fiduciary relationship could extend beyond the Plaintiffs’ childhood.24
21 A v D & E Ltd, above n 4, at [33]-[37]; Frame v Smith [1987] 2 SCR 99, at [60] per Wilson J; Lac Minerals Ltd v International Corona Resources Ltd (1989) LRC (Comm) 932, at 973, citing Finn, above n 19, at 46. These tests will be covered in depth in Chapter I, Part D.
22 A v D & E Ltd, above n 4, at [36].
23A v D, above n 4, at [107]. This limitation appears to reflect the position that, for practical reasons, the law does not necessarily impose the full range on restrictions on dealings in the familial context. See Butler, above n 11, at [17.3.13].
24A v D, above n 4, at [117]-[118].
Justice Gwyn reasoned, that while not generally fiduciary, there may be aspects of a relationship between a parent and their adult children that do engage fiduciary obligations.25 Like Associate Judge Johnson, Gwyn J applied the Frame v Smith test,26 and found Z’s exercise of his right to alienate his assets was a unilateral exercise of power that affected the interests of the Plaintiffs, who were peculiarly vulnerable to, and at Z’s mercy, as a result of his abuse during childhood.27 Also considering the “reasonable expectations” test,28 Gwyn J found the Plaintiffs had an, “actual expectation that when Z came to consider the disposition of his property, he would make amends for the damage caused to them through his earlier breaches of fiduciary duty.”29The content of Z’s fiduciary obligation to his adult children was said to be to, “recognise them as members of his family and to provide for them from his wealth, due to the vulnerability his earlier breach of fiduciary duty had caused them.”30 As the transfer of assets was done to prevent his estate being used to meet the Plaintiffs’ need, this was a breach of that duty. Z had himself been a trustee, therefore, Gwyn J was able to find the elements of knowing receipt satisfied by imputing Z’s knowledge of the breach to the Trustees.31 As a result the Trustees were said to hold the trust assets on constructive trust for Z’s estate.32
On appeal, the Court delivered a split decision.33 Although all Judges agreed the appeal should be allowed in respect of Z’s two sons, Collins J (dissenting), stated that in certain circumstances, the relationship between parent and child could remain inherently fiduciary beyond coming-of-age.
25 At [133].
26Frame v Smith, above n 21.
27 A v D, above n 4, at [149]-[150].
28 Lac Minerals Ltd v International Corona Resources Ltd, above n 21.
29 A v D, above n 4, at [151].
30 At [173].
31 At [176]-[182].
32 At [201].
33 D & E Ltd v A B & C, above n 4.
Justice Collins’ reasoning involved analogy of the relationship between a parent and disabled child, which he describes as a continuously inherent fiduciary relationship.34 Through this analogy, Collins J distinguished Z’s daughter’s circumstances from that of her brothers, due to the egregious nature of abuse she suffered, which reduced her ability to provide for herself to that resembling a disabled adult child. A continued fiduciary relationship was therefore justified between her and her father.35 As a result, Z’s daughter required, and was entitled to expect, economic and emotional support from her father beyond childhood. This entitlement included economic provision both throughout her adult years, and in her father’s will, including an expectation that Z would not act to deprive her of a meaningful claim against his estate.36 This finding did not extend to Z’s sons who were eventually able to find stability and success in adulthood.37Z’s fiduciary duty, as formulated by Collins J, would have been discharged if he had taken reasonable steps to provide economic security to his daughter during his life time, provided for her in his will, or at least, left adequate funds in his estate to meet any claim she may make. Therefore, transferring assets to the trust to deprive his daughter of such a claim was a breach of that duty.38 By then applying the equitable principles of recission, Collins J’s dissenting opinion cleverly facilitated all transferred property to fall back into Z’s estate for the benefit of FPA claims by all children, despite only finding a fiduciary relationship between Z and his daughter.39 This produced an equitable solution for all parties whilst keeping the scope of fiduciary liability narrow in the familial context, by only recognising ongoing fiduciary obligations between a parent and adult child who is considered “disabled”.40
34 At [79]. However, I am skeptical of whether a parent is in a continuously fiduciary relationship with a disabled child. There are statutory mechanisms to provide support for these children and a parent’s fiduciary obligation likely only exists if they act in the capacity of their child’s power of attorney. For more on this see Faye L Woodman “Financial Obligations of Parents to Adult Disabled Children - Part I” (1997) 17 Est Tr& Pensions J 131; Faye L Woodman ““Financial Obligations of Parents to Adult Disabled Children - Part II” (1997) 17 Est Tr& Pensions J 221.
35 D & E Ltd v A B & C, above n 4, at [95].
36 At [95]-[98].
37 At [92].
38 At [104].
39 At [110]-[116].
40 See discussion on the possible definition of disability in this context in Chapter I, Part C, Subpart 2.
Siding with the lower Courts and Collins J, Kos P for the majority, was satisfied that the relationship between parents and minor-children is inherently fiduciary, and that a negatively framed duty to refrain from sexual and physical abuse fell easily within the scope of their fiduciary obligations.41 Justice Gilbert, though, was less convinced of the inherently fiduciary status of parents during childhood. However, as the High Court’s finding on this point was not challenged on appeal, Gilbert J expressed reservations and left the matter at that.42 Moving on to consider the nature of the relationship between Z and his adult children, the majority agreed that the fiduciary obligations ended once the children ceased being under Z’s care.43Justice Gilbert, delivering the more detailed opinon for the majority, felt the High Court misinterpreted the Frame v Smith indicia, particularly in terms of whether Z possessed “power or discretion”. He explains that in the fiduciary context, relevant “power or discretion” is that “conferred on or held by the fiduciary for the benefit of the beneficiary”, and Z’s “power or discretion” over his own assets was not of this kind. In fact, Gilbert J describes personal property rights as the “very antithesis” of fiduciary power.44 Therefore, the Plaintiffs had no proprietary claim to Z’s assets, and he was free to deal with them as he wished.
Given Z was entitled to retain self-interest when dealing with his assets, the Plaintiffs’ interests affected by his doing so and thus their alleged vulnerability, lacked the necessary link to abuse of fiduciary power.45 Rather, Gilbert J found the Plaintiffs’ vulnerability to their father’s choice of whether to atone for the childhood abuse, was the result of their decision not to pursue a remedy earlier in time.46 The absence proper fiduciary power meant Z was under no obligation of loyalty, and being the distinguishing feature of the fiduciary relationship, this was fatal to the Plaintiffs’ case.47 Justice Gilbert then criticised the fiduciary duty proposed by Collins J, which he earlier described as “not only novel, but unprincipled”,48 as being imprecise given it
41 D & E Ltd v A B & C, above n 4, at [152], [156].
42 At [136].
43 At [146] per Gilbert J; At [166] per Kos P.
44 At [140]-[142].
45 At [143]-[144].
46 At [145].
47 At [121].
48 At [122].
does not specify where any obligation for Z to act selflessly begins or ends, if it were to exist at all.49Ultimately, the majority found the assertion of a continuing fiduciary relationship could not overcome the obstacles posed by statutory limitations, and legitimate divestment of assets.50 As Gilbert J explains, a new fiduciary duty does not arise from the failure to provide redress for an earlier breach. Therefore, the only relevant breaches of fiduciary duty were those involving the abuse suffered during the Plaintiffs’ childhood, and these could not justify extending fiduciary obligations.51
The Alphabet Case highlights issues relating to the purpose served by fiduciary law, and in particular, its use as an intrumental tool for achieving more desirable outcomes.
Legal instrumentalism is often criticised due to the tension between an instrumental view of the law, and the fundamental “rule of law” which ensures the law is predictable and that citizens are able understand the legal consequences of their actions.52 In the context of fiduciary law, Butler’s Equity and Trusts in New Zealand describes instrumentalism as “dressing up” a situation as fiduciary where the case does not lend itself to fiduciary analysis, in order to obtain a more desirable remedy.53 In New Zealand, an adult plaintiff claiming breach of fiduciary duty against an abusive parent or guardian could therefore be seen as an instrumental device for side-stepping remedy limiting barriers such as the FPA’s limit on available property, the Accident Compensation Act 2001, Limitations Act 1950, and a defendant’s divestment of
49 At [148].
50 Statutory limitations are explained in Chapter I, Part B, Subpart 1.
51 D & E Ltd v A B & C, above n 4, at [139].
52 Brian Z Tamahana “The Tension Between Legal Instrumentalism and the Rule of Law” (2005) 33 Syracuse J Int’l L & Com 131. See also Norberg v Wynrib [1992] 2 SCR 226 at 141 per Sopinka J, “Fiduciary duties should not be superimposed on these common law duties simply to improve the nature or extent of the remedy.”; MacLean v Arklow Investments Ltd [1998] 3 NZLR 680 at 690, “a fiduciary duty is to be found in the nature of the particular relationship. The finding of fiduciary obligations is not remedy led.”; Rickett, above n 18, at 28 citing Dominion Finance Group v Auld [2012] NZHC 3325 at [5], “Equity does not give the Judge a power to substitute his or her own opinion.”
53 Butler, above n 11, at [17.2.16].
assets. This is illustrated by the Alphabet Case, where the Plaintiffs faced several obstacles to potential claims against their abusive father.The Accident Compensation Act 2001 abolishes civil claims for compensatory damages arising out of personal injury.54 This has the effect of barring civil claims for injuries resulting from assaults such as those suffered by the Plaintiffs in the Alphabet Case. However, the atecedent Accident Compensation Act came into force on 1 April 1974,55 meaning the Plaintiffs could have pursued a civil claim for compensatory damages in relation to abuse that occurred prior this date.56 The Courts have also confirmed that the accident compensation scheme does not forclose claims for exemplary damages arising from physical and, notably, mental injuries.57 Therefore, a civil claim for exemplary damages remained open for the abuse suffered after 1 April 1974, though such a claim would have faced a high bar to success.58 Unfortunately, the Plaintiffs’ decision not to pursue any of the possible civil claims against Z meant they have since become time-barred by the Limitations Act 1950, which makes all common law actions subject to a 6 year limitation period.59 Once Z died a claim for damages also became statute barred by the Law Reform Act 1936, which barrs the maintaining of an action against the estate of a deceased person.60
By bringing a claim for equitable relief, the Plaintiffs avoid these limitations and have access to more potent remedies.61 Subject to the doctrine of laches, 62 the Plaintiffs could have brought their action for breach of fiduciary duty in relation to the childhood abuse alone,63 however, the limited pool of financial resources remaining in the fathers estate made this an unattractive option. By arguing a separate breach occurred in adulthood via the alienation of assets,
54 Accident Compensation Act 2001, above n 3, s 317(1).
55 Accident Compensation Act 1972.
56 D & E Ltd v A B & C, above n 4, at [138].
57 See Couch v Attorney-General (No 2) [2010] NZSC27[2010] NZSC 27; , [2010] 3 NZLR 149.
58 At [59] per Blanchard J, “The purpose of exemplary damages is to punish the defendant for outrageous conduct which has harmed the plaintiff...”
59 Limitations Act 1950, above n 4, s 4.
60 Law Reform Act 1936, s 3(3).
61 Limitations Act 1950, above n 4, s 9(4).
62 For explanation of the doctrine of laches, see Andrew Butler and Jessica Palmer “Equitable Remedies” (New Zealand Law Society Seminar, 2013) at 98-100.
63 Though the majority are of the opinion that the doctrine of laches would extinguish such claims. See D & E Ltd v A B & C, above n 4, at [138] and [165] per Gilber J and Kos P.
fiduciary law became an instrumental tool for impugning their father’s inter vivos transactions to claw back trust assets and obtain a more financially effective remedy.
Intrumentalism is also demonstrated by the Judges’ analyses which ties the characteristic features of a fiduciary relationship between Z and his adult children, to the breaches of fiduciary duty during childhood. This unusual approach will be referred to as the “temporal issue,” which arises as at the time Z alienated his assets, the Plaintiffs had spent several decades estranged from Z, requiring fiduciary duties to exist outside of an ongoing relationship. 64
In the High Court, Gwyn J found a new fiduciary relationship, separate from childhood, existed between all parties at the time of transfer. However, her reasoning demonstrates that this would not be possible independent of the earlier breach of fiduciary duty during childhood.65 Similarly, Collins J in the Court of Appeal, describes a “continuously inherent fiduciary relationship” between Z and his daughter (but not his sons) due to the ruinous effects the childhood abuse had on her life.66 Although tying parental fiduciary obligations in adulthood to the childhood abuse may act as a restraint to a floodgates situation, it also suggests that previous conduct in a fiduciary relationship can justify a continuing or separate fiduciary obligation, beyond the end of that relationship.67 This would be unusual given the conventional view, reflected in the Court of Appeal’s majority judgment, that establishment of a fiduciary relationship is central to the justification of fiduciary liability, as it is the nature of the relationship that gives rise to the duty.68
Inquiry into the temporal issue cannot be divorced from analysis of the relationship between rights, duties, wrongs, and remedies. Because private law operates on the logic of corrective justice, correlation is required between the fiduciary’s duty, the beneficiary’s right, the wrong
64 Steele, above n 14, at 13-14.
65A v D, above n 4, at [150]. “Mr Z’s abuse of the plaintiffs as children, in breach of the fiduciary duties he owed to them at that time, rendered them (especially Ms A) vulnerable and at his mercy. The plaintiffs, especially Ms A, were without doubt peculiarly vulnerable as adults, as a result of Mr Z’s abuse of them as children.”
66 D & E Ltd v A B & C, above n 4, at [101].
67 A v D, above n 4, at [163].
68 D & E Ltd v A B & C, above n 4, at [123], [139], [145]-[146]; Paul B. Miller “A Theory of Fiduciary Liability” (2011) 56 McGill L J 235, at 240.
committed, and remedy given.69 However, in the Alphabet Case the relevant wrong occurred in a past relationship, and has no correlation to Z’s proposed duties, nor to an enforceable right of the Plaintiffs. For example, Collins J devises a fiduciary duty that required Z to take reasonable steps to provide his daughter with economic security due to the harm occassioned by Z’s childhood abuse. Z could have been satisfied this duty by providing for his daughter during his lifetime, by testamentary gift, or by simply leaving sufficient funds in his estate for her to claim.70This formulation treats a non-crystallised secondary duty to remedy a breach of primary fiduciary duty, as giving rise to a subsequent primary duty to retain property and make financial amends. Justice Gilbert, in the majority decision, strongly dispells any belief that this is a potential pathway to liability.71 Furthermore, the fiduciary duty proposed by Collins J is ambiguous as to what kind of dispositions would be in breach, with the implication that the content of a fiduciary obligation may be permitted to undermine property rights.72
Potential erosion of Z’s property rights is further illustrated by the proposed remedies. For example, in the High Court, Gwyn J returned the trust assets to Z’s estate using a mismatched application of third party liability via the knowing receipt doctrine, and a constructive trust remedy. The equitable remedy of constructive trust is usually imposed when a fiduciary has acquired property during the relationship which ought to have been acquired on the beneficiary’s account.73 Thus, it is a proprietary remedy that does not respond to an in personam claim such as knowing receipt. So despite the Plaintiffs making a personal claim against the Trustees, which did not assert a proprietary interest in the trust property, the imposition of a constructive trust indirectly suggests that such an interest did exist, or at least should be created.74
69 Cane, above n 17; Paul B Miller “Essays Towards a Theory of Fiduciary Law” (Ph.D. Thesis, University of Toronto, 2008) at 9-12.
70 D & E Ltd v A B & C, above n 4, at [104].
71 At [139].
72 Andrew Steele and Martelli McKegg “Do parents owe fiduciary duties to their adult children?” (2019) NZLJ 315.
73 Butler, above n 11, at [17.6.4].
74 See Chapter III, Part B, Subpart 1 for an in depth explanation.
Justice Collins avoided such a doctrinally confused approach by applying the equitable principles of recission, which provide that a fiduciary who enters a transaction in breach of their obligations, may find the transaction rescinded.75 Despite more coherence in Collins J’s opinion, deeper scrutiny of both remedies demonstrates the danger of instrumentalism undermining a person’s fundamental legal right to deal with their own property freely during their lifetime, subject only to pre-existing legal constraints. The existence of a potential, unpursued claim such as that possessed by the Plaintiffs, is not such a constraint. In this context, should equity really have the power to unravel inter vivos property dealings?76The above points can be analysed in terms of the need for rigidity versus flexibility in identifying the nature and scope of fiduciary duties.77 For example, in his dissenting judgment, Collins J states, “it is a strength of equity that it can respond flexibly to the needs of justice”.78 In contrast, Gilbert J for the majority disagrees with the, “results-based approach taken of ‘identifying the needs of justice’ and calling on equity through the law of fiduciary obligation to ‘respond flexibly’ to meet those needs.”79
The points raised therefore pose pertinent questions that speak to the foundation, nature, and scope of the fiduciary relationship and fiduciary liability, concepts which continue to elude precise definition.80
The instrumental use of fiduciary law in the Alphabet Case is arguably a result of New Zealand’s current succession law failing to adequately address testamentary avoidance.81 Therefore, before continuing analysis of the decision, it is worth considering the Law Commission’s recommendations in their recent review of succession law, as these may provide
75 Dominic O’Sullivan, Steven Elliot and Rafal Zakrzewski The Law of Rescission (2nd ed, Oxford University Press, Oxford, 2014) .
76 For example, where the actual transaction cannot be vitiated by an equitable doctrine such as estoppel, unconscionable bargain, undue influence, or breach of trust.
77 Butler, above n 11, at [17.2.8].
78 D & E Ltd v A B & C, above n 4, at [103].
79 At [122].
80 Miller, above n 68, at 238.
81 Josie Te Rata “Fortifying Family Protection: The Need for Anti-Avoidance Provisions in the Family Protection Act 1955” (LLB (Hons) Dissertation, University of Otago, 2016).
relief in circumstances such as the Alphabet Case.82 In fact, in their review, the Commission referred to the summary judgments of both the Alphabet Case,83 and Rule v Simpson,84 as creating undesirable uncertainty in the law.85As it stands, New Zealand’s succession law is governed by several pieces of legislation which regulate how a persons’ property is dealt with when they die, and facilitate the making of claims against a deceased’s estate.86 While the Law Commission’s report covers broad reform of succession legislation,87 it is the FPA proposals that are relevant for present purposes.88 The FPA permits claims to be made against a deceased’s estate on the basis of familial connection, and includes the deceased’s children as eligible claimants.89 The historical policy behind this piece of legislation is ensuring the State is not burdened by dependents who could have been provided for by family, justifying the Court’s intrusion into testamentary freedom.90
1 Moral duty versus testamentary freedom
The Court’s jurisdiction to make awards under the FPA arises when “adequate provision” is not available from the deceased’s estate for the claimant’s “proper maintenance and support”.91 The Court’s approach has been to treat “adequate provision” for “proper maintence and support” as a moral duty on the testator, breach of which enables the Court to intefere with the
82 Law Commission Review of Succession Law: Rights to a person’s property on death (NZLC IP46, 2021); Law Commission Review of Succession Law: rights to a person’s property on death (NZLC R145, 2021). See also, Fraser and Day, above n 9.
83 A v D & E Ltd, above n 4.
84 Rule v Simpson [2017] NZHC 2154; BC201761864. This is a case involving a similar factual scenario, and where fiduciary law is used in an attempt to retrieve trust property.
85 Law Commission Review of Succession Law: Rights to a person’s property on death (NZLC IP46, 2021), above n 82, at [9.15].
86 Wills Act 2007, Administration Act 1969, Family Protection Act 1955, above n 7, Law Reform (Testamentary Promises) Act 1949, Property (Relationships) Act 1976, Te Ture Whenua Māori Act 1993.
87 Law Commission Review of Succession Law: rights to a person’s property on death (NZLC R145, 2021), above n 82, at [7]. The Commission recommend the enactment of a single comprehensive statute governing claims against estates, that brings together the existing legislation to be more clear and accessible.
88 At Chapter 5.
89 Family Protection Act 1955, above n 7, s 3(1)(b).
90 Family Protection - Introduction to the Family Protection Act 1955 (online ed, Thomas Reuters Westlaw) at [FPintro.03]. This policy has been slightly liberalised through the concept of moral duty, for example see In re Allardice, Allardice v Allardice [1909] NZGazLawRp 268; (1909) 29 NZLR 959.
91 Family Protection Act 1955, above n 7, s 4(1).
deceased’s intentions.92 As the traditional approach to property rights upon a persons’ death is to recognise their testamentary freedom, this is in tension with the moral duty to provide for one’s family, as opined by the Chief Justice Cockburn in Banks v Goodfellow:93The law of every civilised people concedes to the owner of property the right of determining by his last will, either in whole or in part, to whom the effects which he leaves behind him shall pass. [However]... a moral responsibility of no ordinary importance attaches to the exercise of the right thus given.
We can see the FPA grappling to find a balance between these two principles, however, in recent times the courts have taken a liberal approach to the meaning of “proper maintenance and support” and been generous in making awards to family members even when they are adults with no financial need.94
Nonetheless, the FPA has been described as a piece of ‘living legislation,’95 that should reflect the social climate of the time. Thus, Courts have tended to adjust their jursidiction in accordance with their perception of changing social values. Accordingly, aligning reform recommendations with public opinion was an important criteria for the Law Commission’s review.96 The Commission’s inquiry into social attitudes shows New Zealanders continue to strongly value testamentary freedom,97 making some of these generous awards a point of contention, particularly in relation to claims by adult children.98 On the other hand, investigations also revealed that New Zealanders did share an expectation that some family
92 In re Allardice, Allardice v Allardice, above n 90, at 958-959 per Edwards J, “It is the duty of the Court, so far as is possible, to place itself in all respects in the position of the testator, and to consider whether or not, having regard to all existing facts and surrounding circumstances, the testator has been guilty of a manifest breach of that moral duty which a just, but not loving, husband or father owes towards his wife or towards his children, as the case may be. If the Court finds that the testator has been plainly guilty of a breach of such moral duty, then it is the duty of the Court to make such order as appears to be sufficient, but no more than sufficient, to repair it.”
93 Banks v Goodfellow (1870) 5 LR QB 549 at 563.
94 For example see Williams v Aucutt [2000] NZCA 289; [2000] 2 NZLR 479.
95 Price, re; Price v Price HC Hamilton M99/87 19 March 1989 at 12.
96 Law Commission Review of Succession Law: rights to a person’s property on death (NZLC R145, 2021), above n 82, at [2.102].
97 Law Commission Review of Succession Law: Rights to a person’s property on death (NZLC IP46, 2021), above n 82, at [1.19]. 80% of those surveyed agreed, or strongly agreed, that a person should be able to leave family members out of their will.
98 Willis v Stevenson [2013] NZFC 4742 at [92] per Justice Riddell, “That provision represents a significant incursion into the principle of testamentary freedom.” See also Law Commission Review of Succession Law: rights to a person’s property on death (NZLC R145, 2021), above n 82, at [5.11].
members should be able to succeed to a deceased’s property even if not provided for by the will.99
The Commission’s review covered who should be entitled to claim, and in what circumstances, so that competing interests are more appropriately balanced. Finding public opinion split as to the entitlement of adult children, the Commission proposed two options as to which family members should be entitled. Under Option One, the deceased’s children and grandchildren of all ages would be eligible for provision if the deceased has unjustly failed to provide for them if in financial need, or unjustly failed to recognise them. Under Option Two, only disabled children and those under twenty-five years of age would be eligible to claim.100
The Commission recommends ‘disability’ be defined broadly to include “long-term physical, mental, intellectual or sensory impairments that have reduced the person’s independent function” so that they are seriously limited in the extent to which they can earn a livelihood.101 Therefore, whether adult victims of childhood abuse would be eligible for family provision appears likely to depend on whether they fit this definition of being disabled. In the Alphabet Case, Collins J distinguished Z’s daughter from his two sons as suffering greater detriment from the abuse. This distinction was based on evidence of ongoing mental illnesses including depression, and post-traumatic stress disorder, and her inability to maintain permanent work.102 The ongoing effects of Z’s abuse on his daughter appear to fit within the Commissions recommended definition of disability, therefore, although this would limit relief to severe cases, some victims of childhood abuse may be able to qualify for family provision.
Another key focus of the Review was whether the Court should have broader powers to make awards from property outside the estate.103 As an important purpose of testamentary freedom
99 Law Commission Review of Succession Law: Rights to a person’s property on death (NZLC IP46, 2021), above n 82, at [1.21].
100 Law Commission Review of Succession Law: rights to a person’s property on death (NZLC R145, 2021), above n 82, at [5.115], [5.118].
101 At [5.16].
102 D & E Ltd v A B & C, above n 4, at [10]-[22].
103 Law Commission Review of Succession Law: rights to a person’s property on death (NZLC R145, 2021), above n 82, at Chapter 8.
is sustaining property rights, the FPA currently limits the Court’s powers to award property only from the estate of a deceased person.104 It is this limit which led the Plaintiffs to pursue a novel argument to retrieve property from outside of Z’s estate.The Law Commission are of the opinion that the uncertainty of cases such as the Alphabet Case and Rule v Simpson is undesirable, and that the law should be reformed to include limited statutory clawback mechanisms.105 Such anti-avoidance mechanisms must balance policy objectives of respecting the deceased’s property rights, whilst ensuring sufficient property is available to satisfy deserving claims against the estate.106 Of present interest is the Commission’s proposal that recovery of a deceased’s inter vivos dispositions should be possible when the property, “has been disposed of with the intent to defeat an entitlement or claim under the new Act.”107 Under this proposal, property can be recovered from third parties, such as the Trustees, unless they were recipients in good faith for consideration.108
The Commission’s recommendations have potential to one day provide an answer to circumstances like those in the Alphabet Case, however this will be a long way off.109 Furthermore, the Commissions preference to only allow family provision claims from surviving partners and children under 25, with a possible extension to disabled children, means some victims of childhood abuse may still be left empty-handed when faced with testamentary avoidance.110 It therefore remains important to consider the decisions of those who found in favour of the Plaintiffs in the Alphabet Case, and to determine if fiduciary law can provide an alternative pathway for relief.
104 At [8.11].
105 At [8.19], [8.23], [8.59], [8.67].
106 At [8.56].
107 At [8.59]. Compare to existing clawback mechanisms in the Property (Relationships) Act 1976, above n 86, s 44, and Property Law Act 2007, ss 344-350.
108 Law Commission Review of Succession Law: rights to a person’s property on death (NZLC R145, 2021), above n 82, at [8.68].
109 Cabinet Office Circular “Government Response to the report of Te Aka Matua o te Ture | Law Commission
report, Review of Succession Law: Rights to a person’s property on death” (18 July 2022) CO (18) 4.
110 Law Commission Review of Succession Law: Rights to a person’s property on death (NZLC IP46, 2021), above n 82, at [4.17]-[4.21].
Chirnside v Fay,111 is New Zealand’s leading decision on the identification of fiduciary relationships.112 In his leading judgment, Justice Tipping stated that there are two situations in which a relationship will give rise to fiduciary obligations. The first involves relationships the law considers inherently fiduciary by their very nature.113 In these relationships it is accepted that the beneficiary was entitled to expect the fiduciary to act in their interests, unless the circumstances show otherwise. The second situation in which fiduciary obligations may arise, is where particular aspects of a relationship – though not inherently fiduciary – justify their imposition.114 Tipping J also acknowledged the perplexity of trying to establish a general principle for identifying fiduciary relationships and obligations that can be univerally applied outside of the established categories.115
Butler’s Equity and Trusts in New Zealand recognises two tests as being most influential for determining whether the law should impose fiduciary obligations in the circumstantial Chirnside v Fay category.116 The first emerged from the Canadian case Frame v Smith,117 which looks for three general characteristics:118
(1) The fiduciary has scope for the exercise of some discretion or power.119
(2) The fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary’s legal or practical interests.120
111 Chirnside v Fay [2006] NZSC 68; [2007] 1 NZLR 433.
112 See Paper Reclaim Ltd v Aotearoa International Ltd [2006] NZSC 69, [2007] 3 NZLR 169. See also Butler,
above n 11, at [17.2].
113 For example, solicitors and client, agent and principal, or employer and employee.
114 Chirnside v Fay, above n 111, at [73]-[75].
115 At [75]. “No single formula or test has received universal acceptance in deciding whether a relationship outside of the recognised categories is such that the parties owe each other obligations of a fiduciary kind.” See also, Miller, above n 68, at 237-238; Lac Minerals Ltd v International Corona Resources Ltd, above n 21, at 971 per Justice LA Forest “There are few legal concepts more frequently invoked but less conceptually certain than that of the fiduciary relationship.”
116 Butler, above n 11, at [17.5.4].
117 Frame v Smith, above n 21, per Wilson J’s dissenting judgment.
118 At [60].
119 At [62] per Wilson J, “discretion or power” includes non-proprietary powers and discretions.
120 At [62],[68] per Wilson J, the imposition of fiduciary duties is also to protect the “vital non-legal” interests of a beneficiary. “To deny relief because of the nature of the interest involved, to afford protection to material interests but not to human and personal interests would, it seems to me, be arbitrary in the extreme.” This supports the move towards using fiduciary law to protect non-economic interests, discussed in Butler, above n 11, at [17.2.10].
(3) The beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power.121
The second is known as the “reasonable expectations” test which emerged from another Canadian decision, LAC Minerals Ltd v International Corona Resources Ltd,122 citing Paul Finn’s “The Fiduciary Principle”:123
What must be shown... is that the actual circumstances of a relationship are such that one party is entitled to expect that the other will act in his interests in and for the purposes of the relationship.These tests were identified and applied in both the Summary Judgment and High Court decisions in the Alphabet Case.124 In the Court of Appeal, though not explicity applying either test, Collins J looked for a series of “recognised indicia” of essentially the same nature as Frame v Smith, and considered whether the Plaintiff’s were reasonably entitled to repose trust in Z.125 The Majority were neither approving nor disapproving of the application of Frame v Smith, though they were disapproving of the High Court, and Collins J’s interpretation of the indicia. The Majority opinon then undertakes an application of Frame v Smith, so as to demonstrate that, properly interpreted, the requisite characteristics were not present.126
Overall, Frame v Smith and the “reasonable expectations” test appear sufficiently representative of the process of identifying circumstantial fiduciary obligations. I will therefore explain these tests to illustrate why indentification of novel fiduciary relationships and obligations has been, and continues to be, such a legal conundrum.
Frame v Smith concerned the relationship between custodial and non-custodial parents in relation to providing access to children in accordance with a court order. In the context of a strike-out application, Wilson J (dissenting) formed the influential Frame v Smith test, now
121 Frame v Smith, above n 21, at [63] per Wilson J, “This vulnerability arises from the inability of a beneficiary... to prevent the injurious exercise of power or discretion combined with the grave inadequacy or absence of other legal or practical remedies to redress the wrongful exercise of discretion or power.”
122Lac Minerals Ltd v International Corona Resources Ltd, above n 21, at 973, citing Finn, above n 19, at 46.
123 Finn, above n 19, at 46.
124 A v D & E Ltd, above n 4; A v D, above n 4.
125 D & E Ltd v A B & C, above n 4, at [83].
126 At [140]-[146].
held to be a leader in the area. Acknowledging the failure of common law to settle on a general fiduciary principle,127 Wilson J identified the three common features referred to above, to assist with the task.128Applying her three-pronged test, Wilson J found the relationship between custodial and non- custodial parent in Frame v Smith was indeed fiduciary, as the custody and access order granted the custodial parent the necessary scope for exercise of power or discretion in a way that may affect the non-custodial parent’s relationship with their child in a detrimental manner. Justice Wilson explained that the non-custodial parent relied on the custodial parent to act in good faith to facilitate access to their children, and was therefore vulnerable to the custodial parent actively preventing access.129
New Zealand courts have placed emphasis on this third characteristic of vulnerability,130 and while it is recognised that many relationships involve an element of vulnerability without being fiduciary, the use of “peculiarly” is suggested to refine those relationships worthy of fiduciary protection.131 However, I wish to clarify that it is because the beneficiary is unusually exposed to power held by the fiduciary for or on their behalf, that they are peculiarly vulnerable. This can be contrasted with the vulnerability recognised by tortious duties such as negligence, which exists at large in relation to the actions of others.132 Furthermore, Canadian courts have been moving away from recognising vulnerability as a required characteristic separate from the existence of discretionary power of one party over another.133 For example, Cromwell J’s progressive Galambos v Perez decision,134 addressed the concern of fiduciary liability being used as tool for dealing with vulnerability at large, describing the only relevant vulnerability is
127Frame v Smith, above n 21, at [58]. “The failure to identify and apply a general fiduciary principle has resulted in the courts relying almost exclusively on the established list of categories of fiduciary relationships and being reluctant to grant admittance to new relationships despite their oft-repeated declaration that the category of fiduciary relationships is never closed.”
128At [59].
129 At [65].
130 For example, Watson v Dolmark Industries Ltd (1992) 4 TCLR; [1992] NZCA 576; [1992] 3 NZLR 311 at 315 per Cooke P, referring to vulnerability as the “cardinal feature” of a fiduciary relationship.
131 Butler, above n 11, at [17.5.4].
132 Miller, above n 68, at 282-284.
133 Lionel Smith “Parenthood is a Fiduciary Obligation” (2020) 70 UTLJ 395 at 422. See also Lac Minerals Ltd v International Corona Resources Ltd, above n 21, at 662 per La Forest J, “vulnerability is not... a necessary ingredient in every fiduciary relationship... when it is found it is an additional circumstance that must be considered in determining if the facts give rise to a fiduciary obligation.”
134 Galambos v Perez [2010] SCC 48.
that which results from the beneficiary’s dependence upon the fiduciary’s exercise of a discretionary power.135Justice Wilson’s Frame v Smith test has also been accused of failing to encompass the most fundamental aspect of a fiduciary relationship, loyalty.136 As noted in Norberg v Wynrib,137 the core of the fiduciary relationship is trust, not self-interest, which is why when a breach occurs, the balance favours the person wronged.138 Therefore, any test purporting to identify fiduciary relationships falls short if it fails to require loyalty from the alleged fiduciary. Butler’s Equity and Trusts in New Zealand gives the example of the guarantor for a mortagor. Whilst the mortgagor undoubtedly has scope for the exercise of discretion which could detrimentally affect the interests of the guarantor who can do little to protect themselves, the mortgagor remains free to pursue their own self-interest, and thus the relationship is not fiduciary.139
In light of criticism of the Frame v Smith indicia, a cautious approach to using these for the identification of circumstantial fidcuiary relationships is warranted. As such, it is wise not to treat them a definitive guide, but simply as evidence of a relationship where a party holds powers for or on behalf of another.
The “reasonable expectations” test is founded on the basis that fiduciary relationships are relationships of trust and confidence:140
The word “fiduciary” derives from the Latin word “fiducia” the primary meaning of which is trust. Important secondary meanings are confidence and reliance. The cases demonstrate that a fiduciary relationship will arise where one party is reasonably entitled to repose, and does repose, trust and confidence in the other, either generally or in the particular transaction.
135 At [68]. See also, Paul B. Miller “A Theory of Fiduciary Liability” (2011) 56 McGill L J 235, above n 68, at 268, 280.
136 See Paul B Miller “Defining the Scope of Fiduciary Liability” (2017) Supreme Court Law Review at 8-9. Miller identifies that Wilson J’s indicia encompass many relationships that could not plausibly be fiduciary. On the core obligation of loyalty, see Galambos v Perez, above n 134, at [69]; EW Thomas “An Affirmation of the Fiduciary Principle” (1996) NZLJ 405 at 406.
137 Norberg v Wynrib, above n 52.
138 At 230.
139 Butler, above n 11, at [17.4.4].
140 Estate Realties Ltd v Wignall [1991] 3 NZLR 482 at 492.
Courts have frequently cited, though in slightly different formations, that the fiduciary duty of loyalty arises in situations where one party to a relationship holds a reasonable expectation that the other will not act contrary to their interests.141 In particular, the reasonable expectations test received approval the leading judgment of Chirnside v Fay, in which Tipping J describes the entitlement to repose trust and confidence as the feature possessed by all inherently fiduciary relationships, and which justifies imposing fiduciary obligations in relationships outside of the established categories.142In Paul Finn’s “The Fiduciary Principle,” he states that for a reasonable expectation to exist, the alleged fiduciary must be implicated in the affairs of the other party, or aligned with protecting or advancing their interests.143 This may be so because of the fiduciary’s particular role, such as a solicitor or agent, which involves an actual expectation that they will serve the other party’s interests. On the other hand, the law may order that the expectation exists because the factual circumstances justify doing so, or because the relationship serves a social purpose that would be at risk if disloyalty was permitted.144 Manifest in Finn’s account, is the distinction between inherently fiduciary relationships, and circumstantial fiduciary relationships. Thus, the characteristics identified by Justice Wilson in Frame v Smith, remain relevant in the court’s analysis of whether a party to a relationship has occassioned an expectation of the other’s loyalty. Finn mentions “accendency, influence, vulnerability, trust, confidence, and dependence”, as being of “doubtless importance”.145 However, in his opinion, the proper treatment of these is merely as evidence, or as structural qualities of a relationship in which a requisite entitlement is present, not as standalone principles of identification.
141 For example, see Arklow Investments Ltd v Maclean [2000] 2 NZLR 1 at 4 per Henry J. “[The concept of the duty of loyalty] encapsulates a situation where one person is in a relationship with another which gives rise to a legitimate expectation, which equity will recognise, that the fiduciary will not utilise his or her position in such a way which is adverse to the interests of the principle.” See also, Paper Reclaim Ltd v Aotearoa International Ltd, above n 112, at 187 per Blanchard J, “A fiduciary relationship will be found when one party is entitled to repose and does repose trust and confidence in the other.”
142Chirnside v Fay, above n 111, per Tipping J at [80]. “It is clear from the authorities that relationships which
are inherently fiduciary all possess the feature which justifies the imposition of fiduciary duties in a case which falls outside the traditional categories; all fiduciary relationships, whether inherent or particular, are marked by the entitlement (rendered in Arklow as a legitimate expectation) of one party to place trust and confidence in the other. That party is entitled to rely on the other party not to act in a way which is contrary to the first party’s interests.”
143 Finn, above n 19, at 47.
144 At 46.
145 At 46.
Whilst these tests undoubtedly provide assistance in identifying fiduciary relationships and obligations, they fall short of explaining their theoretical basis. Rather they are what Miller describes as “approximate approaches,”146 to fiduciary liability, which do little more than provide a descriptive function.147 Application of these approximate tests has arguably given courts scope to extend the ambit of fiduciary obligations without providing a foundational justification for treating fiduciary relationships as a disinct legal occassion, giving rise to a never-ending list of indicia, the materiality of which are the subject of invariable disagreement.148
The parental obligation to support and nurture your children cannot generally be described in private law terms,150 however, Canadian courts, and more hesitantly, New Zealand courts, have signalled some general acceptance of the parent and minor child as being inherently fiduciary.151
Given that fiduciary claims by children against parents have largely related to abuse, a particular obstacle for claimants has been whether non-economic interests can be the subject of fiduciary protection. Once again Canadian Courts, and to a lesser extent New Zealand, have taken an open minded approach to this matter, whilst others such as Australia tend to consider that an economic interest is a requirement for the existence of fiduciary responsibility.152
146 Miller, above n 68, at 239.
147 At 249.
148 Miller, above n 136, at 12.
149 Frame v Smith, above n 21, at [57].
150 Michael Bryan “Parents as Fiduciaries: A Special Place in Equity” (1995) 3 IJCR 227.
151Butler, above n 11, at [17.3.13]. See generally KM v HM, above n 11, at 64; J (LA) v J (H) [1993] 102 DLR (4th) 177; S v G, above n 11; Surrey v Speedy, above n 11; S v Attorney-General, above n 11; Jay v Jay [2014] NZCA 445, [2015] NZAR 861.
152 KM v HM, above n 11, at 10. See also Frame v Smith, above n 21, at [68]; Butler, above n 11, at [17.2.10].
Therefore, the fiduciary nature of the parent and child relationship is far from being an undisputed matter, despite the confident assertions of the lower courts in the Alphabet Case.153
In his article analysing the characterisation of parents as fiduciaries to their minor children, Lionel Smith argues that the relationship captures an element that is characteristic of all established fiduciary relationships.154 That element is the ‘possession of legal powers held in a managerial or other regarding capacity for the benefit of another person’.155 For example, the parent’s powers to determine what kind of education their child shall receive, religion to follow, or discipline methods, are granted to the parent for the benefit of the child.156
Taking a slightly different approach, Canadian academic Margaret Hall, describes the relationship as falling close in structure to the paradigmatic fiduciary relationship of trustee and beneficiary:157
The relationship between parent and child... [is a] purposively constructed ongoing relationship of power and dependence in which the parent has been entrusted by social custom and by law with powers to be exercised for the benefit of the child.
What is interesting in Hall’s analyis of the relationship, is that the inherent fiduciary quality arises not from the fact of biological connection, but rather from the ‘structure and purpose of the social “family unit”’.158 This is said to be due to legal restrictions that define and enforce what we understand as the modern (western) conception of childhood, and which gives rise to a socio-legal dependence that continues beyond age-defined physical dependence. These circumstances place an expectation on parents (and family) to provide for and support their children. In Hall’s account, according the relationship fiduciary quality facilitates an interpersonal arrangement that society has deemed to be desirable and productive.
153 D & E Ltd v A B & C, above n 4, at [163].
154 Smith, above n 133, at 417.
155 At 395.
156 At 423.
157 Margaret Isabel Hall “Intuitive Fiduciaries”: The Equitable Structure of Family Life” (2002) 19 Canadian Journal of Family Law 345 at 351-355.
158 At 355. This accords with the position taken by the courts that a parent who does not assume a parental role and does not take part in their ubringing, is not in a fiduciary relationship with them, for example, see Louie v Lastman (No 1) (2002) 61 OR (3d) 449 at [29].
Hall’s view is supported by the Canadian Supreme Court’s decision in M (K) v M(H),159 in which the relationship between parent and child is described as ‘intuitively’ fiduciary. The policy reasoning expressed by Hall, is also reflected in the judgement, for example:160For obvious reasons society has imposed upon parents the obligation to care for, protect, and rear their children.
Both Smith and Hall’s explanations accord with a relational account of fiduciary duties, which appears common amongst those who believe fiduciary law should protect non-economic interests. In a relational account, the presence of other-regarding powers distinguishes a special class of relationship, and justifies the law’s intervention.161 For example, Lionel Smith analyses the relationship between parent and child in terms of the relational account because parents possess other-regarding powers in terms of decision making authority, held for and on behalf of their children.162
Application of the fiduciary concept to parental responsibilities is therefore founded on the dominance and influence a parent exerts over their children’s day-to-day lives, and the corresponding vulnerability of their children.163 These qualities arise not from biological connection but from the social structure surrounding the caregiver and child roles, which require fiduciary obligations give legal effect to the other regarding nature of those powers.
The nature of the parent or caregiver role creates added difficulty in defining the scope of any fiduciary obligation. Unlike some Canadian cases which have recognised a fiduciary duty to positively act in the child’s interests,164 New Zealand has taken a narrower approach to what can amount to an actionable breach of fiduciary duty.
159 KM v HM, above n 11.
160 At [72] per La Forest J.
161 Smith, above n 133, at 415. The relational account can be identified in the approach of courts across the common law world. As discussed by Smith, courts commonly focus on whether one party has been empowered to act for and on behalf of the other.
162 At 418.
163 Bryan, above n 150, at 228.
164 J (LA) v J (H) above n 151. Rutherford J found the mother under a positive duty to protect her daughter from her husband’s abuse; Y (AD) v Y (MY) 90 BCLR (2d) 145; [1994] WWR 623 at [81]-[84]. Dorgan J found a father’s inaction in relation to the abusive home environment to be a breach of fiducuary duty.
The current position in New Zealand appears to be that a parent’s fiduciary obligation is framed negatively, requiring that they refrain from abusing their children. However, even a broad conception of parental fiduciary obligation cannot go so far as refusing parents the ability to consult their own interests, and they can never be under a blanket obligation to use all their time and reasources to advance the interests of their child.165 In fact, it is generally accepted that parents can prefer their own interests in some circumstances.166 Lionel Smith gives the example of a parent who believes their child’s interests would be best served by attending an expensive private school, yet the law will not penalise a parent who chooses not to sacrifice their personal savings for this purpose.167Whether or not the parental role is truly inherently fiduciary during childhood is a debate that is likely to continue. However, in the context of extreme abuse in the Alphabet Case, contention surrounding the nature of the relationship is diminished, as Z’s conduct is an axiomatic example for even the most limited fiduciary obligation to which parents may be held.168 The following analysis therefore continues on the basis that childhood abuse is a breach of a parent’s fiduciary obligation, and examines whether this can justify extending fiduciary obligations beyond the childs coming of age.
II The Temporal Question
The temporal question asks whether a party to a fiduciary relationship can continue to owe fiduciary duties after the relationship has ended, or, if a breach of fiduciary duty can extend a fiduciary relationship until the breach is remedied? 169 In this context, the end of a relationship refers to a previously fiduciary relationship ceasing to possess the characteristics that qualified it as fiduciary. For example, when a child reaches adulthood, parents no longer possess the decision making power and influence that qualified the relationship as fiduciary in childhood. To address this question it is necessary to understand the basis on which fiduciary relationships
165 Smith, above n 133, at 398.
166 At 398; Steele and McKegg, above n 72.
167 Smith, above n 133, at 398.
168 KM v HM, above n 11, at 72 per La Forest J, “it is intuitively apparent that the relationship between parent and child is fiduciary in nature, and that sexual assault of one’s child is a grievous breach of the obligations arising from that relationship. Indeed I can think of few cases that are clearer than this”.
169 Steele, above n 14.
are established in order to critique any framework which purports to give rise to fiduciary obligations outside of an ongoing relationship.
The Plaintiffs in the Alphabet Case attempted to unilaterally assert the existence of fiduciary obligations against their father, requiring him to exercise his personal property rights in their favour despite several decades of estrangement.170 As there was no longer an ongoing relationship between the parties, this is an unusual circumstance in which to find enforceable fiduciary obligations. For example, in “A Theory of Fiduciary Liability”, Paul Miller argues that: 171
The obligations imposed upon the fiduciary arise within and are contained by the fiduciary relationship. Unless a fiduciary has an open mandate, or retains discretionary power in respect of interests connected with a closed one, the obligations generated by the relationship terminate with it.
The absence of ongoing relationship at the time of the alleged breach was a main defensive argument by the Trustees, and was the primary reason the Court of Appeal majority rejected that Z was under fiduciary obligations in favour of the Plaintiffs.172 The Majority reasoning is in contrast to the lower Courts’ and Collins J’s dissenting opinion, which concluded that fiduciary relationships are not required to be mutual in the sense of reciprocal obligations, and do not require the fiduciary to intend, or consent to, the relationship.173 This conclusion permitted the Judges to find a fiduciary relationship existed at the time Z transferred his assets, despite the lengthy estrangement.The concern with accepting the Plaintiffs’ unilateral assertion of fiduciary duty is the uncertainty this creates for a defendant such as Z, who had no notice that the exercise of his personal property rights was subject to a duty in favour to plaintiffs.174 Therefore, the reliance
170 D & E Ltd v A B & C, above n 4, at [123]-[127].
171 Miller, above n 68, at 269. See also Attorney General v Blake [1998] 1 AII ER 833 at 841. Sopinka J described the Crown’s attempt to derive a fiduciary duty from past fiduciary relationships as misconceived. “We do not recognise the concept of a fiduciary obligation that continues notwithstanding the determination of the particular relationship which gives rise to it.”
172 D & E Ltd v A B & C, above n 4, at [139].
173 A v D, above n 4, at [146]-[147]; D & E Ltd v A B & C, above n 4, at [97].
174 Miller, above n 68, at 252, 278-279.
on non-mutuality of fiduciary relationships by those finding in favour of the Plaintiffs, is an unsatisfactory justification for imposing fiduciary obligations outside of an actual relationship, particularly in the sensitive and complex context of familial relations. Rather, as identified by the Majority, greater analysis of existing theory and jurisprudence on the justification of fiduciary obligations does not support the finding that a fiduciary relationship could have existed between the parties.175This research has considered the extent to which fiduciary obligations can possibly exist outside of an ongoing relationship, leading to the conclusion that they can only do so in a very limited sense, as will be illustrated by the concept of a “subsisting relationship”. I will analyse why this is so through the lens of a relational account of fiduciary obligations, as this account is best suited to protection of non-economic interests, which New Zealand Courts – like Canadian courts – have tended to accept as capable of attracting the protection of fiduciary law.176
On a relational account, a “subsisting relationship” is required for the existence of fiduciary obligations because it is the qualities of that relationship that secures the fiduciary’s loyalty to the beneficiary. To subsist generally means to be in existence, to persist, or continue, however ‘subsist’ is also commonly used to describe survival on the bare necessities.177 Therefore, there is an argument that the term may be used in the legal context so that a subsisting relationship is one that persists on minimum effort including, perhaps, bare biological connection. However, the description I have formed of a “subsisting relationship” for the purposes of fiduciary law accounts for both meanings, yet is still unlikely to extend to a bare-biological relationship. The reliance on non-mutuality of fiduciary relationships by those Judges in favour of the Plaintiffs is also accounted for by my definition of a subsisting relationship which need
175 D & E Ltd v A B & C, above n 4, at [140]-[149].
176 Smith, above n 133, at 418. Particularly so as the Alphabet Case proceeded on the basis that the relationship between parent and minor child was inherently fiduciary, which, as Smith points out, indicates the Courts’ adoption of a relational account of fiduciary obligations.
177 Dictionary by Merriam-Webster <www.merriam-webster.com>.
not be, and often is not, a mutual relationship.178 Before setting out this definition, it is helpful to understand how courts have been approaching this question.
As evidenced by the reasoning in the Alphabet Case,179 courts have tended to focus on vulnerability as the preeminent characteristic of a fiduciary relationship.180 However, vulnerability alone is not evidence of a subsisting relationship capable of attracting fiduciary obligations.181
As Butler’s Equity and Trusts in New Zealand puts it, simply because A’s relationship with the alleged beneficiary (B), allows A to appreciate B’s vulnerability to a harm, this is not enough to render A a fiduciary to B.182 As a general proposition, just because someone is vulnerable to the actions of another does not give rise to a fiduciary relationship, as is evidenced by other relationships which have been established as non-fiduciary, such as the mortgagor and mortgagee.183 Applied to the Alphabet Case, the fact Z was aware the plaintiffs would be detrimentally affected by his alienation of assets, is not sufficient to render him a fiduciary to them, as was recognised by the majority.184
Vulnerability, as held in Galambos,185 is thus only relevant in terms of the beneficiary’s vulnerability to the fiduciary’s exercise of powers held for and on their behalf.186 The reason is that at the core of the fiduciary relationship is securing the fiduciary’s loyalty, and mere
178 A v D, above n 4, at [146] citing Tamar Frankel “Fiduciary Law” (1983) 71 Calif. L. Rev. 795 at 801.
179 A v D, above n 4, per Gwyn J; D & E Ltd v A B & C, above n 4, per Collins J.
180 For example, Lac Minerals Ltd v International Corona Resources Ltd, above n 21, at 944 per Sopinka J, “The one feature, however, which is considered to be indispensable to the existence of the relationship, and which is most relevant in this case, is that of dependency or vulnerability.” See also Hospital Products Ltd v United States Surgical Corporation and Others [1984] HCA 64; (1984) 156 CLR 41 at 488 per Dawson J. “There is, however, the notion underlying all the cases of fiduciary obligation that inherent in the nature of the relationship itself is a position of disadvantage or vulnerability on the part of one of the p arties which causes him to place reliance upon the other and requires the protection of equity...”
181 Miller, above n 136, at 14; Finn, above n 19, at 32. See also Alberta v Elder Advocates of Alberta Society [2011] SCJ No 24 at [28] per McLachlin J. “It is now clear that vulnerability alone is insufficient to support a fiduciary claim. As Cromwell J explained in Galambos v Perez, above n 134, at [67]”.
182 Butler, above n 11.
183 At [17.4.4].
184 D & E Ltd v A B & C, above n 4, at [144].
185 Galambos v Perez, above n 134.
186 Paul B. Miller “Justifying Fiduciary Duties” (2013) 58 McGill LJ 969.
proximity in terms of vulnerability is not sufficient to do so.187 This reasoning is supported by criticism of Wilson J’s test in Frame v Smith, which has been accused of failing to explain why the beneficiary is entitled to the loyalty of the fiduciary.188 Therefore, the key to defining a “subsisting relationship” must therefore be based on what makes the fiduciary relationship capable of securing the fiduciary’s loyalty.
Paul Miller, in his article “Justifying Fiduciary Duties,” provides a convincing explanation of why a beneficiary is entitled to the fiduciary’s loyalty, which in turn informs what will amount to a “subsisting relationship”.189
Miller justifies the obligation of fiduciary loyalty in terms of power called “fiduciary authority”, which is derivative, rightful, relational, and specific.190 Treating power held by a fiduciary as the essential characteristic of the fiduciary relationship is not novel. In particular, the Canadian Supreme Court in Galambos v Perez, made significant progress in the developing a principled theory of fiduciary liability based on ‘discretionary power’.191 It appears Miller drew inspiration from the decision of Cromwell J in Galambos, and his work in “Justifying Fiduciary Duties” was directed towards formulating a definition of what is meant by the concept of fiduciary power. For present purposes, it is the derivative characteristic that is most important.
“Fiduciary authority” is derived from the capacities of another person, usually the beneficiary, so that the fiduciary exercises power over matters normally within the exclusive legal capacity of the beneficiary.192 Though fiduciary power is commonly referred to as power held for and
187 For example, see Disher v Farnworth [1993] NZCA 299; [1993] 3 NZLR 390 at 399 per McKay J, “Fiduciary obligations are not lightly to be imposed, and the mere fact of proximity is not sufficient to create them”.
188 See discussion in Chapter I, Part D, Subpart 2.
189 See also Miller, above n 186, at 1014-1015. Miller explains that vulnerability, dependence, and inequality are products of the fiduciary relationship, not ingredients.
190 At 1013.
191 Galambos v Perez, above n 134, at [70]. See generally, Miller, above n 68. See also Smith, above n 133, at 452; Guerin v Canada [1984] 2 SCR 335 at 387 per Dickson J, describing descretionary power as “the hallmark of any fiduciary relationship.”; Hodgkinson v Simms [1994] 3 SCR 377.
192 Miller, above n 186, 1013-1014.
on behalf of the beneficiary, using the term derivative explains why the power is held as such.193 It is because the fiduciary’s authority is derived from the beneficiary that the beneficiary is entitled to expect the fiduciary to exercise that power in their interests, therefore securing the duty of loyalty. Furthermore, when the fiduciary’s power is understood as derived from the beneficiary, there will necessarily be correllation between the fiduciary’s obligations and beneficiaries rights, which is consistent with the dominant private law logic of corrective justice.194Not only does the derivative theory of fiduciary liability provide the core justification missing in the Frame v Smith and “reasonable expectations” tests, but it explains that the indicia identified by these tests, such as vulnerability, dependence, and inequatily, are merely structural consequences of the correlating ascendent and dependent positions of the parties in the relationship.195 This means, for example, that pre-existing vulnerability, such as the Plaintiff’s in the Alphabet Case, cannot give rise to a fiduciary relationship.196
Importantly, the concept of derivative fiduciary authority, directly opposes a beneficiary being able to unilaterally assert the existence of a fiduciary relationship, as is attempted in the Alphabet Case. Miller’s theory is that the authority may be conferred – by the law or by consent of the person from whose capacity it is derived – or undertaken.197 When conferred, there must usually be some form of consent from the individual from whom the authority is derived, and importantly, acceptance by the alleged fiduciary.198 Miller’s theory therefore accords with the relational account of fiduciary law, as it treats the qualities of the relationship as the central justification for the fiduciary obligations.199 Taking account of Miller’s theory on the derivative nature of fiduciary obligations and relational theories of fiduciary obligations, it is obvious that a relationship must have been established on the free will of the parties in order for fiduciary obligations to arise.
193 At 1014.
194 Cane, above n 17; Miller, above n 69, at 7.
195 Miller, above n 186, at 1018-1019.
196 Miller, above n 68, at 273, 280.
197 See also Galambos v Perez, above n 134, at [66].
198 Miller, above n 186, at 1015. In relation to acceptance by the fiduciary, Miller gives the example of a parent who places a child up for adoption, or otherwise refuses to recognise and take custody of the child. See also Galambos v Perez, above n 134, at [66] per Cromwell J. “While a mutual understanding may not always be necessary, it is fundamental to ad hoc fiduciary duties that there be an undertaking by the fiduciary.”
199 Smith, above n 133, at 414.
Working from Miller’s account of fiduciary obligations, and dominant theories of corrective justice, a “subsisting relationship” is that in which the parties are shown to be in correlating ascedent and dependent positions at the time of breach. This will be so where one party is in possession of power held for or on behalf of the other, which is derived from their capacities, and which gives rise to correlating duties and rights.200 It is the qualities of derivation and correlation that have the effect of restricting the fiduciary’s pursuit of self-interest so as to secure the fiduciary’s loyalty.201 A subsisting relationship of this kind is not required to be affective, physical, or mutual, as illustrated by trustees and discretionary beneficiaries, and can therefore continue beyond the termination of a relationship in the ordinary everyday sense.(a) Example: a subsisting relationship in the context of employment
In the High Court, the Plaintiffs used analogy with employment relationships as an example of fiduciary obligations continuing beyond termination of the relationship.202 Although this analogy was flawed, it provides a helpful example for applying my definition of a “subsisting relationship”.
In an employment relationship, an employee’s obligation of loyalty ends with the relationship, meaning a former employee cannot owe a duty of loyalty to their former employer, unless through contractual arrangement, and even then only if it amounts to a lawful restraint of trade.203 Therefore, a former employer cannot assert continued loyalty by invoking the previous fiduciary relationship which subsisted between them.204 It is only the duty of confidence that can continue beyond the termination of the relationship. Leaving for now the debate of whether or not the duty of confidence is truly a fiduciary duty,205 the duty lasts only so long as the information imparted remains confidential.206
Applying my concept of a “subsisting relationship”, the possession of confidential information by a past employer proves the continuation of a relationship to which the duty of confidence
200 Miller, above n 69, at 228.
201 See MacLean v Arklow Investments Ltd, above n 52.
202 A v D, above n 4, at [124].
203 Attorney General v Blake, above n 171, at 842.
204 At 842.
205 At 842, per Lord Woolf. See also, MacLean v Arklow Investments Ltd, above n 52, at 688.
206 Attorney General v Blake, above n 171, at 842. See also Attorney General v Guardian Newspapers (No 2)
[1988] 3 AII ER 545, [1990] 1 AC 109 at 647, 659.
can attach. The employer has fiduciary authority in the form of power to disclose that information, which may affect the legal or practical interests of the employee who disclosed it. That power is derived from the employee in the sense that it is usually within their personal capacity. Therefore, the parties are in ascendent and dependent positions which result from the past employer’s possession of fiduciary authority, giving rise to a correlating rights and duties of confidence. This example demonstrates how the derivative and correlative nature of ‘fiduciary authority’ operates so as to restrict the fiduciary’s pursuit of self-interest, and entitles beneficiary to expect the loyalty of the alleged fiduciary in relation to exercise of that power.207
When the Plaintiffs were children, Z had the necessary “fiduciary authority”, as his power to make decisions regarding their welfare was derived from the Plaintiffs, in the sense that these decisions are normally within the exclusive capacity of the individual they affect.208 His acceptance of this authority is implicit in his acting in the role as the Plaintiffs’ father. However, Z ceased acting in his parental role over 30 years before the Plaintiffs made their claim, leaving them to argue that biological connection, or ongoing harm as a result of the abuse, are a sufficient basis for a subsisting relationship to which fiduciary obligations can attach.
It does not appear that courts have been willing set a precedent that biological connection is a relevant evidential factor for proving the existence of a fiduciary relationship. In the Canadian case of Louie v Lastman, it was held that a father who did not participate in raising his child was not in a fiduciary relationship with that child.209 The Court reasoned that because the father did not act as a parent to the child, he had no scope for the exercising discretion or power over their day-to-day lives.210 New Zealand has taken a similar position, as seen in the case of Jay v Jay,211 which involved a claim by a women against her uncle who had sexually abused her as a child. The Court held that the relationship of uncle and niece could potentially be fiduciary
207 Similarly, the fiduciary obligations between parties to a joint venture can continue beyond termination of the relationship, but only to the extent necessary to wind up any projects already underway before termination. For example, see Green & McCahill Holdings Ltd v Ara Weiti Development Ltd [2022] NZCA 218.
208 Smith, above n 133, at 423.
209 Louie v Lastman (No 1), above n 158.
210 At [29].
211 Jay v Jay, above n 151.
where the facts demonstrate a relationship more analogous to the “inherently fiduciary role of parent or guardian”:212But placing trust in an individual by virtue of shared family bonds does not of itself establish a fiduciary duty. To impose a fiduciary duty on that ground alone would in our view constitute an unwarranted expansion of the concept of fiduciary.
The Court is clearly indicating that familial, or biological, connection will not itself be enough to prove a fiduciary relationship. Simply put, a biological connection – without parental authority in terms of decision making power – will not alone give rise to a fiduciary relationship between parent and minor child. Carried over, this suggests that a bare biological connection will also not be sufficient between a parent and their adult child.
To transform the “bare biological” relationship between Z and his children into that to which fiduciary obligations can attach, those finding in favour of the Plaintiffs used the ongoing harm suffered by the Plaintiffs as a result of the abuse, as giving rise to a new or continuing fiduciary relationship.213 Whilst Gwyn J found the ongoing harm suffered by all Plaintiffs gave rise to fiduciary obligations, Collins J relied on the analogy of a disabled child and thus raised the threshold of ‘harm’ to that of being disabled. Therefore, in Collin J’s account, only the daughter’s ongoing ‘disability’ justified the continuation of a fiduciary relationship with her father. Justice Collins and Justice Gwyn both then suggested that the Plaintiffs’ continued suffering could restrict their father’s pursuit of self interest in terms of how they deal with their own property, therefore, treating Z’s possession of property rights as the relevant fiduciary authority.
However, power over one’s own property has no correlation with ongoing harm suffered by the Plaintiffs and is not a power derived from their capacity.214 Rather, Z’s personal property
212 At 148, at [67]-[69] per Stephens J.
213 Attorney General v Blake, above n 171, at 842. Compare Sopinka J’s justification of the duty of confidence continuing beyond termination of the employment relationship: “A quite different relationship is that of confidentiality. This arises whenever information is imparted by one person in confidence. It is often, perhaps usually, imparted in the course of another fiduciary relationship such as that of employer and employee. If so, the duty will survive the termination of that other relationship, for it is not derived from it.”
214 Miller, above n 69, at 11. “That is, the wrong complained of must be a violation of a duty owed by the defendant to the plaintiff, correlative to which she enjoyed a right.”
rights existed independently of the relationship, and were not held for and on behalf of the Plaintiffs. To steal the phrasing of Lionel Smith,215 legal powers to deal with one’s own property are like “money in the bank”, held to do with as the holder pleases. Justice Collins even acknowledges that the assets belonged solely to Z and had only been acquired long after the period of estrangement had begun, yet still suggests that exercising this power adversely to the Plaintiffs’ interests breached his responsibilites. Given that fiduciary authority is properly understood as being derived from the capacities of the beneficiary, by doing so, Collins J implicitly suggests that the Plaintiffs had a beneficial interest in Z’s property rights, and in the property subject of those rights.Following this analysis, the judicial opinions in favour of the Plaintiffs failed to show a subsisting relationship between the parties capable of attracting fiduciary obligations beyond the end of the childhood relationship. Z did not possess “fiduciary authority” derived from the Plaintiffs, and thus the parties were not in correlating positions of ascendency and dependency involving correlating rights and duties. Application of my definition of subsisting relationship has therefore ousted the idea that biological connection or ongoing harm caused by childhood abuse are capable, in and of themselves, of extending or creating fiduciary obligations beyond the inherently fiduciary relationship during childhood.
However, for the sake of analysis, I will continue on the assumption that Z did owe fiduciary obligations to his adult children. This will allow me to demonstrate how Collins J’s suggestion that the Plaintiffs had a beneficial interest in Z’s property, creates further difficulty in formulating a principled explanation of extending fiduciary law to these circumstances. This will be achieved through analysis of the possible content of an abusive parent’s fiduciary obligations, as formulated by the High Court and Collins J, and the respective remedies given.
III Remedial Uncertainty
The content of Z’s suggested duties ties into both the temporal issue, as it suggests all subsequent dispositions of property by Z following the childhood breach may have been in
215 Smith, above n 133, at 421.
breach of fiduciary duty, and also instrumentalism, as the identified duties use awkward flexion of the law to achieve a more desirable remedy. This is innappropriate as explained by Gault J in Maclean v Arklow Investments, the discovery of fiduciary obligations is not to be remedy- led, rather they are to be found in the nature of the particular relationship.216
In the High Court, Gwyn J found all three Plaintiffs to be psychologically and financially vulnerable to Z’s exercise of discretionary power in relation to his assets, and reasoned that Z was obliged to act in their interests.217 She then went on to consider the context specific duty owed by Z:218
At the time he gifted the property, Mr Z owed each of the plaintiffs a duty to recognise them as members of his family and to provide for them from his wealth, due to the vulnerability his earlier breach of fiduciary duty had caused them.
In the Court of Appeal, Collins J found that Z only owed fiduciary obligations to his daughter, as her psychological trauma from the childhood abuse, led her to be reliant on Z to provide her with economic and emotional support. Z was therefore said to be under a continuing fiduciary obligation to remedy the harm he had earlier inflicted. This duty included providing for his daughter during her adult years, which included testamentary provision, or at least maintaining a large enough estate that she would be able to make a meaningful claim.219
The content of a fiduciary’s obligation of loyalty is best explained in terms of the beneficiary’s vulnerability to power held by the fiduciary on their behalf.220 This is because the discretionary power undertaken by the fiduciary is only to be exercised in the beneficiary’s interests, because, as explained in Chapter III, the fiduciary’s authority is derived from the capacity of the plaintiff. Given that fiduciary duties are explicable in terms of a specific discretionary power and corresponding vulnerability, these duties cannot exist at large. Rather, they exist to constrain
216 MacLean v Arklow Investments Ltd, above n 52, at 690.
217 A v D, above n 4, at [165].
218 At [172]-[173].
219 D & E Ltd v A B & C, above n 4, at [95]-[98].
220 Galambos v Perez, above n 134, at [83]-[84]; Miller, above n 68, at 269.
the exercise of that specific discretionary power held by the fiduciary.221 Some obvious concerns therefore exist with these formulations of Z’s fiduciary duty, as identified by Gilbert J on Appeal.Both proposed duties lack the specificity required for securing loyalty in a fiduciary relationship, undermine the fundamental nature of property rights, and lack the correlativity required between rights and duties in a private law claim of injustice.222 For example, Z was entitled to the exclusive enjoyment of his property, subject only to any pre-existing legal constraints. Thus, he could only have been under a duty to manage the property for the Plaintiffs’ benefit if they had a correlating right requiring him to do so.223 Therefore, although Z’s earlier commission of a wrong entitled the Plaintiffs to a potential claim, this is not a legal constraint on his property rights unless pursued and leads to a court order.
(b) Undermining personal property rights
The content of the duties said to be owed by Z therefore has the effect of retrospectively depriving him of his personal property rights, and demonstrates the concern that instrumental use of law endangers the rule of law by failing to take a party’s legal entitlements seriously.224 Furthermore, Z’s retention of self interest does not accord with theory of fiduciary authority, which requires absolute loyalty in the exercise of the relevant discretion or power,225 and thus requires arbitrarily quantifying what parts of the power can be exercised for Z’s own benefit, and what parts for the Plaintiffs. These shortcomings led Gilbert J to describe Collins J’s proposed duty as unprincipled and one that fails to provide a justiciable standard by which to test the fiduciary’s conduct.226
The confusion surrounding the proposed duties results from the attempt to overcome the temporal issues surrounding the relationship.227 As Gilbert J explains, a new fiduciary duty
221 Miller, above n 68, at 284. See also D & E Ltd v A B & C, above n 4, at [147] per Gilbert J.
222 Miller, above n 69, at 11-12: “The correlative structure of private liability requires that the injustice suffered by the plaintiff and committed by the defendant be one and the same for the defendant to be held liable to the plaintiff.”
223 At 10.
224 Rickett, above n 18, at 28.
225 Thomas, above n 136, at 406; Finn, above n 19, at 3; Peter Birks “The Content of Fiduciary Obligation” (2000) 1 Isr L Rev 3, at 22; Bristol and West Building Society v Mothew [1998] Ch 1 (CA), at 18B per Millet LJ, “The principal is entitled to the single-minded loyalty of his fiduciary.”
226 D & E Ltd v A B & C, above n 4, at [122], [148].
227 See discussion of the temporal issues in Chapter II.
does not arise to require remedy of earlier breaches, or in other words, failure to remedy a breach is not itself a new breach of duty.228 This is because private law revolves around primary rights which declare the holder to have certain legally protected interests, and secondary rights which bestow the holder with power to enforce their primary rights.229(c) Primary and secondary liability
Primary liability arises upon violation of a primary right of the plaintiff. Secondary liability is consequential on primary liability and consists of the responsibility to redress the wrong which establishes it. However, Paul Miller states that secondary liability to make redress only arises upon a court order consequent upon its judgment of primary liability.230 It is therefore the court order that transforms the primary liability into a secondary duty to redress the wrong. In other words, the duty to take corrective action only crystallises upon a court order of redress.231 Therefore secondary liability does not exist in the air as a backstop for a plaintiff who decides not to pursue a claim for violation of their primary right, but then changes their mind when the wrongdoer doesn’t act as they expected.
As Lionel Smith explains, the range of distinctive legal incidents which a fiduciary relationship attracts, and to which the courts commonly refer to as fiduciary obligations, are primary duties. They are duties that have arisen from the relationship, not because the fiduciary has done anything wrong.232 This highlights the fundamental confusion in the Alphabet Case, with both Gwyn J and Collins J attempting to transform a secondary duty to redress damage caused by an earlier breach – which arguably never existed due to the Plaintiff’s failure to pursue their right to a remedy – into a primary duty to either apply or preserve his estate for the beneficiaries. Both formulations therefore suggest that when Z committed the primary wrong, namely the breach of fiduciary duty via childhood abuse, this event triggered a proprietary right, in favour on the plaintiffs, in Z’s estate.
228 D & E Ltd v A B & C, above n 4, at [139].
229 Peter Birks “Rights, Wrongs, and Remedies” (2000) 20 Oxford J Legal Stud 1; Emily Sherwin “An Essay on Private Remedies” (1993) 1 Can J L & R 89 at 90-91; Alan Calnan “The Instrumental Justice of Private Law” (2010) 78 UMKC L Rev 559 at 583.
230 Paul B. Miller “Justifying Fiduciary Remedies” (2013) 63 UTLJ 570 at 573.
231 At 580.
232 Lionel Smith “Prescriptive Fiduciary Duties” [2018] UQLawJl 27; (2018) 37 U Queensland LJ 261 at 272-273.
(d) Requiring a fiduciary to use their own resources
In plain language, this issue revolves around the suggestion that a fiduciary can be under a positive duty to manage or apply their own resources to the benefit of beneficiaries with no enforceable interest in that property, which is not a generally accepted position of fiduciary law. In fact, a fiduciary is usually entitled to recover expenses incurred whilst acting properlty in their role. Lionel Smith states as much in his article, “Parenthood is a fiduciary obligation”:233
It is perfectly clear that general fiduciary loyalty does not require the fiduciary to use his or her own resources to further the interests of the beneficiaries. It is true that the duty of care, skill, and dilligence requires the fiduciary to act positively in the fiduciary role, but it does not require the fiduciary to spend his or her own money.
Even during childhood, a parent is not required to use all their resources for the benefit of their children. Although they have legal obligations to provide for the necessities of life,234 they will not be penalised if they decide to send their child to public school despite having enough money to afford a private school, even if private schooling is in the child’s best interests. Ultimately, it is a generally acceptable proposition that fiduciaries are entitled to act selfishly in relation to their own resources.235 The Plaintiffs therefore, could not have a proprietary right in the assets transferred to the trust, as Z could never be required to selflessly apply his own unencumbered resources to their benefit.
Corrective justice, being the dominant logic behind private law,236 requires a remedy that undoes the wrong by restoring the plaintiff’s correlating right. However, the remedial attempts of the High Court and of Collins J reflect the lack of correlativity between the alleged duty owed by Z and the wrong suffered by the plaintiffs, and as a result give rise to doctrinal confusion. Only a brief discussion of the proposed remedies is necessary to illustrate the danger
233 Smith, above n 133, at 438.
234 Crimes Act 1961, s 151.
235 Smith, above n 133, at 451.
236 Cane, above n 17.
of the instrumentalist reasoning through which these remedies have been treated as a means to an end.
In the High Court, Gwyn J held that the Trustees were liable for knowing receipt, and consequently, that they held the trust assets on constructive trust for Z’s estate. Putting to one side the preliminary question of whether knowing receipt is even available in respect of property that was not transferred in breach of a trust,237 present concern is with the application of a proprietary remedy for a personal claim.
Knowing receipt is an action for the purpose of holding a third party personally liable for receiving a benefit with knowledge of the transferor’s breach of trust or fiduciary duty.238 The aim is to recover losses from the third party in circumstances where the money would otherwise be irrecoverable from the defaulting fiduciaries.239 The third party then becomes under a personal obligation to repay the value they received.240 As knowing receipt gives rise to a personal remedy, it is not the equivalent of a plaintiff asserting equitable title in that property, and therefore does not have a proprietary basis. The pursual of the in personam claim of knowing receipt indicates acknowledgment by the Plaintiffs’ that they did not have a persisting, equitable or otherwise, interest in their Father’s estate. This highlights the confusion of the High Courts imposition of a constructive trust – which is a proprietary remedy – over the Trust assets.241
Knowing receipt is therefore a personal claim which cannot give rise to a proprietary remedy such as constructive trust. Yet, in this case the content of the duty giving rise to the remedy suggests that it is being used as such, so although not directly creating or enforcing proprietary
237 D & E Ltd v A B & C, above n 4, at [107], Sandman v McKay [2019] NZSC 41; [2019] NZLR 519 at [100]. See also Jamie Glister and James Lee Hanbury & Martin Modern Equity (22nd ed, Thomson Reuters Sweet & Maxwell, Canary Wharf, London, 2021), at [25-007]. In order for the “breach of duty” element of knowing receipt to be satisfied, it appears that there must have been a misapplication of the principal’s property, not simply a breach of any fiduciary duty.
238 For the elements of a knowing receipt claim in the context of a breach of fiduciary duty, see Torbay Holdings Ltd v Napier [2015] NZHC 2477 at [184].
239 Susan Barkehall Thomas “‘Goodbye’ Knowing Receipt. ‘Hello’ Unconscientious Receipt” (2001) 21 Oxford J Legal Stud 239 at 240.
240 Peter B.H. Birks “Knowing Receipt: Re Montagu’s Settlement Trusts Revisited” (2001) 1 Global Jurist Advances 1.
241 D & E Ltd v A B & C, above n 4, at [108].
rights, the imposition of the constructive trust indirectly does just that. This confusion of doctrines has likely come about due to the fictional labelling of those found liable for knowing receipt as constructive trustees.242A corollory of the personal claim – proprietary remedy conundrum, is that the usual result of an in personam claim, where the proceeds of any remedy go to the plaintiff directly, is also overlooked as the assets of the Trust are ordered to be held by the Trustees for the estate, not the Plaintiffs.243 Therefore, what the outcome of the case achieves is not private law corrective justice, but simply bolstering the financial pool from which Family Protection Act provision can then be made.
The High Court’s reasoning therefore appears to be a clear case of invoking the objective of the cause of action to justify a better remedy. However, the fact that a plaintiff’s remedies may be worthless will not typically be sufficient to establish that the objective of the cause of action will be defeated unless substituted with a proprietary remedy.244 This confused application of remedial doctrines once again exposes issues that can originate in instrumentalist reasoning.
In his dissenting appellate decision, Justice Collins was alive to the incongruence of Gwyn J’s application of the knowing receipt and constructive trust doctrines.245 He therefore looked to the equitable principles of rescission as an alternative pathway to relief. Not only could rescission avoid a knowing receipt analysis, but this option enabled Collins J to provide relief to all the Plaintiffs, despite restricting his finding of fiduciary breach to Z’s daughter. This is because rescission simply treats the transaction as if it never took place ab initio, reverting property to the transferor, which in the Alphabet Case is now Z’s estate, making that property available for a Family Protection Act order.
242 Butler, above n 11, at [13.4.4]. “Defendants [liable for knowing receipt] are required to hold property as if they were constructive trustees and not actually as constructive trustees.” See also Glister and Lee, above n 237, at [25- 004].
243 A v D, above n 4, at [182] per Gwyn J, purports to find the property is held on constructive trust for the plaintiffs,
yet confusingly at [201] the result is stated to be that the property is held on constructive trust for Z’s estate.
244 Remedies - A to Z of New Zealand Law (online ed, Thomas Reuters) at [51.10.2.4].
245 D & E Ltd v A B & C, above n 4, at [106]-[109].
Rescission involves setting aside a transaction which is affected by a vitiating factor on the principle of restitutio in integrum.246 The Law of Equity adopts a broad, flexible approach to rescission, which is less concerned about the exactness of restitutio in integrum than the Common Law.247 Therefore, equitable rescission will be available for a transaction involving a breach of fiduciary duty,248 if it would result in “substantial justice” for the parties.249 Equitable rescission depends not on the claimant’s decision to rescind,250 but on the court exercising its discretion to intervene with the parties’ legal rights. However, the exercise of that discretion only extends to the quantum of restitution, and is not equivalent to the judge imposing their personal conception of fairness upon the parties.251 Therefore, in order for rescission the claimant must possess the equity to rescind, which is a right to restitution in respect of property transferred under the impugned transaction.252Therefore, alongside granting entitlement to equitable relief, the equity to rescind is also a right to obtain a future property right upon its exercise.253 Accordingly, the usual application of rescission is to enable the rescinding party to recover title in their transferred property, due to to a vitiating factor which meant title obtained by the receiver was tainted by their imperfect consent, rendering title to that property defeasible. 254
Whilst a claimant who is not a party to the transaction can possess the equity to rescind, for example, where a trustee has sold property in breach of trust, this does not appear to encompass
246 Butler, above n 11, at [28.2.4]. Examples of vitiating factors that can trigger equitable rescission include duress, economic pressure amounting to coercion of will vitiating consent, breach of fiduciary duty, undue influence, and unconscionable bargains.
247 O’Sullivan, Elliot and Zakrzewski, above n 75, at [13.02]. Restitutio in integrum means returning the parties
to their original position.
248 At [10.47]. See also JD Heydon, MJ Leeming and PG Turner Meagher, Gummow & Lehane’s Equity Doctrines and Remedies (5th ed, LexisNexis Butterworths, Chatswood (NSW), 2015), at [25-025]. “Rescission in equity applies to setting aside dispositions and transactions, not just contracts, that equity regards as being procured by innocent but material misrepresentation, equitable fraud, undue influence, breach of fiduciary duty or other unconscionable conduct, even though the disposition is neither void nor voidable at law.”
249 O’Sullivan, Elliot and Zakrzewski, above n 75, at [13.08], [10.22] and Chapter 18. Compare the Common Law’s application of rescission which strictly requires that it is possible to do so, making rescission a narrower remedy.
250 At [10.11]. As is the case in Common Law.
251 At [11.90], [13.09].
252 At [15.03].
253 At [16.17].
254 At [8.01].
the circumstances of the Plaintiffs in the Alphabet Case as suggested by Collins J.255 This is because recission is a proprietary remedy, whose purpose is to restore property transferred under the transaction – though equity permits a monetary substitute – by undoing the transaction. As rescission is in the business of restoring property rights, not creating them, it cannot operate where the transaction involves property in which the plaintiffs do not have, and have never had, any proprietary right.256 Therefore, the remedy of rescission once again feels like it is being uncomfortably moulded to fit the circumstances of the Alphabet Case, due to the Plaintiffs’ lack of proprietary interest in the assets subject to their claim.Both Gwyn J and Collins J seem cognisant of the fact that the Plaintiffs could not possess an interest in Z’s property that was enforceable over every dispostion made by Z. Therefore, the trouble encountered by both the High Court and Collins J arises from the lack of correlation between the alleged duties, wrongs, and rights, as the remedial options result in Z’s alleged wrong being remedied independently of any correlating right of the Plaintiffs. For example, the misapplication of knowing receipt and constructive trust doctrines artificially created for the Plaintiffs the necessary correlating right in Z’s transferred property. Similary, while the concern of rescission is restoring the parties to their original position, in the Alphabet Case the Plaintiffs’ position did not change in terms of any legal or equitable rights correlating to Z’s disposition of property. Therefore, rescission of the transaction returned Trustees and Z’s estate to their original positions, but leaving the Plaintiffs position, as it had always been, as possessing only the right to make a claim against Z’s estate.
IV The Instrumentalist Justification
Equity has refused to tie its hands by defining with precision when a fiduciary relationship will arise.257
255 D & E Ltd v A B & C, above n 4, at [112]. See also O’Sullivan, Elliot and Zakrzewski, above n 75, at [8.35]- [8.49]. When a fiduciary enters into a transaction with a third party, the third party will be implicated in the wrongdoing if they have knowledge that the fiduciary has breached duties owed to their principal.
256 O’Sullivan, Elliot and Zakrzewski, above n 75, at [16.12]. Although a claimant’s equity to rescind is not itself
a proprietary right in the transferred property, it is best described as a “personal right to recover title when rescission occurs”.
257 Lac Minerals Ltd v International Corona Resources Ltd, above n 21, at 942.
Thus far, this analysis has proceeded on the footing that there is a principled basis for fiduciary liability capable of general application and that supports the distinctive legal character of fiduciary relationships, but which is inconsistent with ends-based instrumental reasoning, such as that demonstrated in the Alphabet Case. However, just as instrumentalism is criticised by those who side with the formal basis of fiduciary liability, there are others who argue that the whole point of equity, and thus fiduciary law, is to provide the flexibility to give just outcomes in worthy cases that would otherwise be unsatisfactorily remedied by Common Law.258 From this perspective, equity is designed to fulfil and supplement the Common Law, by providing a space for commmunity standards, traditions, and customs, and to fulfil moral, economic, or policy goals.259Instrumentalism in this context therefore refers to consciously-ends-oriented judicial decisions made when the law is unclear enough to allow judges to insert their opinion of what result produces the most sound policy.260 The typical argument for doing so is that private law is simply a means through which desirable social or political ends can be pursued.261 I agree that to an extent, private law is inescapably instrumental in that, just as it is influential in setting norms of social behaviour, socially accepted behavioural norms influence private law.262
Public policy is thus also inherent in the fiduciary concept, as it reflects community expectations of what is considered socially desirable or acceptable behaviour, and in doing so, protects the integrity of relationships deemed to provide important social utility.263 We can see acknowledgement of this influence in the famous dissenting judgment of Wilson J in Frame v Smith:264
The cause of action for breach of fiduciary duty creates a very strong incentive to custodial parents to exercise their custodial rights so as to further the best interests of
258 Thomas, above n 136, at 405. See also Canson Enterprises Ltd v Broughton & Co [1991] 3 SCR 534 at [67].
259 Calnan, above n 229, at 566; Miller, above n 69, at 2.
260 Brian Z Tamanaha “How an Instrumental View of Law Corrodes the Rule of Law” (2007) 56 DePaul L Rev 469, at 501-503.
261 Calnan, above n 229, at 559.
262 At 566.
263 Thomas, above n 136, at 406; Finn, above n 19, at 26-27.
264 Frame v Smith, above n 21, at [71].
their children, to recognise that their children are entitled to an ongoing relationship with their other parent.To that end, the concern of fiduciary law is imposing societal standards of acceptable conduct in relationships where one party has a responsibility to preserve of the other’s interests.265 In the instrumentalist argument, morality and public policy therefore justify treating certain relationships as legally distinct and capable of attracting fiduciary obligations.266 It is that moral rhetoric inherent in fiduciary law that enables it to encompass ever changing community perceptions of acceptable conduct.267
The instrumentalist perspective also encompasses the idea that equity is not subject to the same requirements of rigidity as other areas of law, and accordingly, it is the elasticity of the fiduciary concept that gives an advantage without which the law would be deficient.268 For example, Sir EW Thomas, (a retired judge of the Court of Appeal of New Zealand and a former acting judge of the Supreme Court of New Zealand), in his extrajudicial work “An Affirmation of the Fiduciary Principle”, wrote that the value of the fiduciary concept lies in its flexibility. Sir Thomas takes the position that the fiduciary concept is not founded on traditional notions of a trust and management of another’s affairs, but rather on public policy, and is designed to meet the expectations of the community.269 He suggests that in New Zealand, the law of civil remedies has been evolving into a process of “informed remedial choice”, where the courts consider which remedy if most appropriate given the “substance of the liability” as opposed to simply imposing an doctrine without paying mind to practical considerations.270
If we accept the influence of instrumental reasoning giving rise to some version of “informed remedial choice” approach, then perhaps the substance of an abusive parent’s liability may justify imposing a financial fiduciary obligation where the formal theory would otherwise deny
265 Finn, above n 19, at 2.
266 Miller, above n 186, at 994-1001. Miller gives an explanation of the differences between the morality and public policy justifications of fiduciary obligations.
267 Thomas, above n 136, at 407.
268 At 405.
269 At 406.
270 At 412. For example, see Lockwood Buildings Ltd v Trust Bank Canterbury Ltd [1994] NZCA 266; [1995] 1 NZLR 22 at 26 per Cook P. “A the present day, the historical derivation of the cause of action is less importan than an identification of the substance of the right.” Also per Tipping J at 34. “The assimilation which I favour accords with the modern practice which is to look more at substance than form.”
liability. Moreover, there is evidence in the family law context, that community expectations and ideas of morality support the existence of such a duty.
In both Gwyn J’s High Court judgment, and Collins J’s dissenting appellate judgment, the duty Z was suggested to have owed his children was capable of being satisfied by a testamentary gift, or retention of a sizable estate. Given the focus both put on testamentary disposition, the Judges’ reasoning is reminiscent of that applied in estate claims under the Family Protection Act 1955.271
In this context, Family Law recognises a moral duty of parents to recognise and provide for their children through testamentary provision. This moral duty, though today applied far more liberally, was developed to serve public policy by preventing dependents, who could otherwise be provided for by family, from becoming a burden on the state.272 The standard required by this duty is flexible and reflects contemporary social attitudes, and may therefore be considered evidence of community expectations and perform a gap-filling function to provide relief in cases such as the Alphabet Case.273 I therefore aim to illustrate an instrumentalist justification of how equity may serve to transform this moral duty into an enforceable fiduciary obliation.
In the context of FPA claims,274 Courts have recognised that parents still have a moral duty to recognise familial connection even if the children are estranged, and that this duty intensifies if the child suffered poor quality parenting, or sexual abuse at the hands of the parent.275 Roben v Public Trust held that in such circumstances, the offending parent is under an obligation to “recognise and at least attempt to compensate his children for the incalculable harm he caused
271 J Caldwell Family Protection (online ed, LexisNexis NZ)
272 At [7.903]. For the origins of this duty see Banks v Goodfellow, above n 93, at 563; In re Allardice, Allardice v Allardice, above n 90, at 972-973.
273 Cartwright v Joseph [2018] NZHC 2383; BC201861255, at [29]. Note also the long awaited shift being seen in New Zealand towards recognition of principles of Tikanga supports the transformation of the moral duty owed by testators to their family, into an enforceable duty in equity. See more on succession from an ao Māori perspective, in particular the centrality of whānau and and other core values that underpin tikanga in Law Commission Review of Succession Law: rights to a person’s property on death (NZLC R145, 2021), above n 82, at [2.1]-[2.53].
274 Family Protection Act 1955, above n 7, s 4.
275 Caldwell, above n 271, at [7.903.4]. See also Bristow v Bristow HC Auckland M 1810/90, 9 August 1991,
Roben v The Public Trust [2016] NZFC 6313; BC201665114.
them during their childhood.”276 This statement is comparable to Collins J’s reasoning that harm suffered by Z’s daughter as a result of his abuse, meant she was entitled to expect Z make amends by providing her with economic and emotional support.277The content of the fiduciary duty Z is said to have owed his children could therefore be explained as being informed by the moral duty espoused in the Family Law Courts, based on community standards of behaviour. This would provide the basis for the recognition of an instrumental fiduciary relationship that recognises community expectations, not just judicial opinion of the best outcome. For example, where a victim of childhood abuse remains detrimentally affected into adulthood, the abusive parent would be imposed with a fiduciary obligation to provide financial support to their children by way of testamentary disposition, to recognise and make amends for the harm caused.
Transforming the FPA moral standard into the basis for a continuous fiduciary relationship in which the fiduciary is under a financial obligation, has the benefit of restricting a breach of the parent’s obligation to instances of testamentary avoidance. Thus leaving the parent’s property rights intact during their lifetime. Furthermore, as court interference with testamentary dispositions has been generally accepted as justified, this extension of fiduciary law is not obviously inconsistent with social attitudes. Formulating an abusive parent’s ongoing fiduciary obligations on the basis of a testator’s moral duty therefore keeps the scope of fiduciary liability narrow in the familial context where legal intervention of this kind is unlikely to be welcomed.
Furthermore, ongoing parental fiduciary obligations should only arise in cases of extreme abuse involving an adult child who, as proposed by Collins J, is in a position analogous to that of a disabled child.278 I suggest this limitation as it is consistent with the Law Commission’s recommendations for reforming Family Protection claims, as based on their extensive survey of public opinion which found family provision for disabled children was “strongly favoured”.279 In this context, the Commission’s proposed definition of disability appears likely
276 Roben v The Public Trust, above n 275, at [33]. 277 D & E Ltd v A B & C, above n 4, at [93]-[96]. 278 At [79].
279 Law Commission Review of Succession Law: rights to a person’s property on death (NZLC R145, 2021), above n 82, at [5.51].
to encompass some long-term effects of childhood abuse, such as those suffered by Z’s daughter, whilst also restricting successful claims to the most serious instances of abuse.280As it stands, a breach of moral duty in an FPA claim does not enable the court to reach outside the deceased’s estate. Therefore, to serve its instrumental purpose, a breach of fiduciary duty via testamentary avoidance should also encompass the Commission’s recommended clawback mechanism, as this could provide an objective standard by which to assess whether the duty has been breached. For example, plaintiffs would need to establish that a parent had disposed of property intending to defeat their child’s entitlement.281 The Property (Relationships) Act 1976 contains similar ‘clawback provisions’ to recover property if it was disposed of with intent to defeat a partner’s rights.282 These could provide further guidance for establishing a breach of duty.283
Despite its logic, the source of the moral duty recognised under the FPA means it serves a very different purpose than private law imposed duties. The FPA was introduced to prevent dependent family members being left destitute and therefore implements a policy of distributing the burden of supporting vulnerable individuals between the state and family.284 Therefore, although the moral duty enforced by the Family Courts has led to serving more liberal purposes of familial recognition, its roots lie in theories of distributive justice, unlike the dominant corrective justice philosophy of the private law. This creates tension when trying to transform the moral duty into a equitable standard of conduct in bilateral relationships.
Furthermore, instrumentalist justifications that rely solely on a social goal, such as this attempt, overlook the necessary correlative structure of rights, duties, and remedies required by private law doctrines that exclude factors extrinsic to the relationship from consideration.285 Fiduciary law was not created to serve specific identified policy goals. Rather, it provides social and
280 See discussion of the Commission’s definition of disability in Chapter 1, Part C, Subpart 2.
281 Law Commission Review of Succession Law: rights to a person’s property on death (NZLC R145, 2021), above n 82, at [8.59].
282 Property (Relationships) Act 1976, above n 86, s 44C, 44F.
283 However, I note that in the context of an unjust enrichment claim, the Court was critical of this derivative approach and did not find it to be a principled basis for a new category of equitable liability in a similar proposal made in Pollock v Pollock [2021] NZCA 331 at [83]- [87].
284 Caldwell, above n 271, at [7.901.4]; Parish v Parish [1923] NZGazLawRp 110; [1924] NZLR 307 at 314 per Sim J.”
285 Miller, above n 69, at 34.
economic utility because it applies in relationships involving transfer of power that if abused, would result in negative outcomes for society.286It is also uncertain whether there is room in the legislative matrix for equity to intervene in a parent’s financial obligations to their children. Canadian cases have held that where there is a comprehensive statutory regime regulating family relations, there is no room for a private law action on the basis of fiduciary breach.287 As New Zealand also enforces statutory obligations upon parents to provide their children with financial support, Courts may view this as an issue for legislative reform.288
Accordingly, the scope of fiduciary liability should be restricted to the correlative circumstances of the personal relationship between the parties, and should not be expanded by extrinsic social or moral goals. Therefore, whilst the FPA has recognised a moral duty owed by parents to their adult children, the justification for this duty is incongruent with private law corrective justice, and should not be transformed into a fiduciary obligation.
V Conclusion
Although fiduciary law continues to search for a unifying principle, I have found that there has been juridicial progress which holds strong explanatory power for its principled extension. This progress informed a description of a “subsisting relationship” as that required for the existence of fiduciary obligations. However, the circumstances between an estranged adult child and their parent does not fit this definition, even where the child was a victim of abuse. Though childhood abuse does give rise to rights of action against the parent, an uncrystallised secondary duty to redress a breach of fiduciary duty, cannot be transformed into a primary fiduciary duty and thus a continuous fiduciary relationship, because the beneficiary does not or is not in a position to pursue their right to remedy promptly.
The allure of instrumental reasoning is therefore understandably strong in circumstances such as the Alphabet Case, especially where there is recognition of a parental duty, though in a different legal context, which supports the desired remedy. However, the difficulties
286 At 32-38.
287 Hall, above n 157, at 360. For example see, Frame v Smith, above n 21; Louie v Lastman (No 1), above n 158.
288 Child Support Act 1991; Family Protection Act 1955, above n 7.
encountered in formulating the content of Z’s fiduciary obligations and remedial application, demonstrate that moral distaste for a defendant’s actions cannot provide a legitimate basis for instrumental justification of a judicial outcome, particularly where that outcome deprives the defendant of otherwise indefeasible personal property rights. The Alphabet Case is therefore a prime example of the concern that instrumentalism endangers the rule of law, and that extension of the fiduciary concept for instrumental purposes dilutes its purpose of extracting the highest level of selfless conduct from fiduciaries.289Given that childhood abuse cannot justify instrumental nor principled extension of parental fiduciary obligations into adulthood, overcoming statutory limitations to hold abusive parents financially accountable will require legislative action. As previously acknowledged, the Law Commission has made proposals for reform of the Family Protection Act which touch on the issues faced by the Plaintiffs in the Alphabet Case. Unfortunately, as they stand, it is unclear whether the Commission’s proposals would provide a remedy to Plaintiffs such as those in the Alphabet Case.290 Therefore, any reform of the FPA should reconsider the undesirable outcome of the Alphabet Case now that the Court of Appeal has now made it clear they do not believe this situation can be remedied by fiduciary law. For example, Collins J’s analogy of a disabled child suggests it may be as simple as explicitly including the debilitating effects of childhood abuse within any new Act’s definition of “disability”.
Whilst I would love to have found support for those judicial opinions in favour of the Plaintiffs in the Alphabet Case, I have been unable to justify the decisions of Gwyn and Collins JJ in terms of legal theory which leaves the distinct nature of the fiducary relationship intact. Both Judges appear to be driven by ends based reasoning that demonstrates the errosive effect of instrumentalism on the rule of law, and began extending Equity’s powers in a concerning direction.
289 Tamahana, above n 52; Finn, above n 19.
290 Law Commission Review of Succession Law: rights to a person’s property on death (NZLC R145, 2021), above n 82, at [5.186].
VI Bibliography
A Cases
Arklow Investments Ltd v Maclean [2000] 2 NZLR 1.
Attorney General v Guardian Newspapers (No 2) [1988] 3 AII ER 545, [1990] 1 AC 109.
Attorney General v Prince and Gardner [1998] 1 NZLR 262, [1998] NZFLR 145.
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C Journal Articles
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Brian Z Tamahana “The Tension Between Legal Instrumentalism and the Rule of Law” (2005) 33 Syracuse J Int’l L & Com 131.
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Faye L Woodman ““Financial Obligations of Parents to Adult Disabled Children - Part II” (1997) 17 Est Tr& Pensions J 221.
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J L Caldwell “Family Protection Act 1955 - Moral Duty and Adult Children” (1982) NZLJ 215.
Jennifer E Langsford, Kenneth A Dodge, Gregory S Petit, John E Bates, Joseph Crozier and Julie Kaplow “A 12 Year Prospective Study of the Long-term Effects of Early Physical Maltreatment on Psychological, Behavioural, and Academic Problems in Adolescence” (2002) 156 Arch Pediatr Adolesc Med 824.
Kristen W Springer, Jennifer Sheridan, Daphne Kuo and Molly Carnes “Long-term physical and mental health consequences of childhood abuse: Results from a large population-based sample of men and women” (2007) 31 Child Abuse & Neglect 517.
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Margaret Isabel Hall “Intuitive Fiduciaries”: The Equitable Structure of Family Life” (2002) 19 Canadian Journal of Family Law 345.
Michael Bryan “Parents as Fiduciaries: A Special Place in Equity” (1995) 3 IJCR 227.
Paul B Miller “Defining the Scope of Fiduciary Liability” (2017) Supreme Court Law Review.
Paul B Miller “Essays Towards a Theory of Fiduciary Law” (Ph.D. Thesis, University of Toronto, 2008).
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Paul B. Miller “Justifying Fiduciary Remedies” (2013) 63 UTLJ 570.
Peter B.H. Birks “Knowing Receipt: Re Montagu’s Settlement Trusts Revisited” (2001) 1 Global Jurist Advances 1.
Peter Birks “Rights, Wrongs, and Remedies” (2000) 20 Oxford J Legal Stud 1. Peter Birks “The Content of Fiduciary Obligation” (2000) 1 Isr L Rev 3.
Peter Cane “Corrective Justice and Correlativity in Private Law” (1995) 16 Oxford J Legal Stud 471.
Susan Barkehall Thomas “‘Goodbye’ Knowing Receipt. ‘Hello’ Unconscientious Receipt” (2001) 21 Oxford J Legal Stud 239.
Tamar Frankel “Fiduciary Law” (1983) 71 Calif. L. Rev. 795.
Tāneora Fraser and John-Luke Day “What property should be available to satisfy family members’ claims against an estate?” (2022) 10 NZFLJ 173.
D Books and Chapters in Books
Andrew Butler (ed) Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009).
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Dominic O’Sullivan, Steven Elliot and Rafal Zakrzewski The Law of Rescission (2nd ed, Oxford University Press, Oxford, 2014)
Frederick Pollock (ed) Table Talk of John Selden (London, Quaritch, 1972).
Jamie Glister and James Lee Hanbury & Martin Modern Equity (22nd ed, Thomson Reuters Sweet & Maxwell, Canary Wharf, London, 2021).
JD Heydon, MJ Leeming and PG Turner Meagher, Gummow & Lehane’s Equity Doctrines and Remedies (5th ed, LexisNexis Butterworths, Chatswood (NSW), 2015).
P.D. Finn “The Fiduciary Principle” in T.G. Youdan (ed) Equity, Fiduciaries and Trusts (Carswell, Toronto, 1989) 1.
E Reports
Law Commission Review of Succession Law: Rights to a person’s property on death (NZLC IP46, 2021).
Law Commission Review of Succession Law: rights to a person’s property on death (NZLC R145, 2021).
Law Reform (Testamentary Promises) Act 1949.
F Online Commentaries
J Caldwell Family Protection (online ed, LexisNexis NZ)
Remedies - A to Z of New Zealand Law (online ed, Thomas Reuters)
G Seminars
Andrew Butler and Jessica Palmer “Equitable Remedies” (New Zealand Law Society Seminar, 2013).
H Other Official Sources
Cabinet Office Circular “Government Response to the report of Te Aka Matua o te Ture | Law Commission report, Review of Succession Law: Rights to a person’s property on death” (18 July 2022) CO (18) 4.
I Websites
Dictionary by Merriam-Webster <www.merriam-webster.com>.
J Unpublished Papers
Josie Te Rata “Fortifying Family Protection: The Need for Anti-Avoidance Provisions in the Family Protection Act 1955” (LLB (Hons) Dissertation, University of Otago, 2016).
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