New Zealand Court of Appeal grants reverse summary judgment in claims for dishonest assistance against solicitor

In McKay & Ors v Sandman [2018] NZCA 103, the New Zealand Court of Appeal granted a claim for summary judgment in relation to claims brought on the basis of alleged dishonest assistance. We consider this case further below.

Background

Mrs Sandman made a will in 2005 (the "2005 Will") which provided for her residual estate to be transferred to her surviving children, Mark (the "Respondent") and Vicky, in equal shares. On 18 March 2007 Mrs Sandman granted an enduring power of attorney in favour of Vicky (the "EPOA"). In 2010 Mrs Sandman executed a new will which provided that, in the event that either of her children pre-deceased her, that child's share would be redistributed among various other beneficiaries, and would not pass to the surviving child (the "2010 Will"). Vicky died in 2011. Mrs Sandman died in 2013.

Messers McKay, Cann and Clark (the "Appellants") were the partners of the law firm Wilson McKay (the "Firm") which had obtained probate of the 2010 Will on behalf of the named executors, Mr McKay and a Mr Giboney. The Firm had also overseen the drafting and execution of the 2010 Will.

The Respondent had sought the recall of the grant of probate of the 2010 Will on the basis that there was a question as to Mrs Sandman's testamentary capacity at the time of its execution, and alleging undue influence on the part of Vicky and Mr Giboney. The Respondent also brought claims alleging that the Firm should be held accessorily liable for dishonesty assisting in the alleged undue influencing of Mrs Sandman.

The Appellants had applied for reverse summary judgment in relation to the claims against them. At first instance, the High Court refused to grant summary judgment and they therefore appealed to the Court of Appeal.

Judgment

The Court of Appeal, drawing on the judgment of Lord Nicholls in Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378, held that the requirements for a claim for dishonest assistance could be conveniently analysed as comprising four limbs:

• the existence of a trust or fiduciary duty;
• a breach of trust or fiduciary duty, which resulted in a loss;
• a third party assisted in the breach; and
• the third party acted dishonestly.

Initially, the Court was not convinced that the evidence presented by the Firm was strong enough to show satisfactorily that the Respondent's claim could not succeed. In relation to the first two limbs, the Respondent alleged that Vicky, as the holder of the EPOA, owed fiduciary duties to Mrs Sandman which were breached causing him loss as a beneficiary under the 2005 Will. The Court held that a breach by an enduring power of attorney holder of a fiduciary duty owed to the donor in the course of the exercise of the power that results in loss would be sufficient to satisfy the first two limbs of the test from Royal Brunei Airlines.

The Court therefore turned its focus to the third and fourth components, the dishonest assistance. The Firm accepted that if a breach of duty by Vicky and/or Mr Giboney could be shown at trial pursuant to limbs one and two, then it had a high hurdle to surmount in order to show that there had not been any assistance by the Firm. It did however strongly reject any claim that it had acted dishonesty.

Within the fourth limb the Court set out the following passage from Fletcher v Eden Refuge Trust [2012] 2 NZLR 227 to demonstrate New Zealand's approach to dishonesty (following the reinterpretation of the test by the Privy Council in Barlow Clowes International Ltd (In Liquidation) v Eurotrust International Ltd [2006] 1 All E.R. 333) which mirrors the approach applied in Hong Kong and England (recently confirmed by the Supreme Court in Ivey v Genting Casinos (UK) Ltd [2017] 3 W.L.R. 1212 - see our previous blog post):

"In New Zealand a dishonest state of mind is determined by the application of an objective standard. A dishonest state of mind consists of actual knowledge that the transaction is one in which the assistor cannot honestly participate or a sufficiently strong suspicion of a breach of trust that it is dishonest to decide not to inquire, coupled with a deliberate decision not to make inquiry lest the inquiry result in actual knowledge."

The Respondent did not plead any specific particulars as to what conduct of the Firm amounted to dishonesty. The Court however held that a number of allegations made by the Respondent were likely included with an eye to establishing dishonesty. These included: the fact that the Firm acted for both Vicky and Mrs Sandman; that the Firm had breached a duty of confidence to Mrs Sandman in providing Vicky and Mr Giboney with documents; that it reported to Mrs Sandman via Vicky; and that Vicky was present when the 2010 Will was executed.

The Court, in rejecting the Respondent's submissions, placed considerable weight on the affidavits given by Ms Paul (a senior lawyer at the Firm who handled the case). The Court held that the affidavits provided sufficient information to demonstrate that the Firm's actions during the preparation of the 2010 Will, and the execution of Mrs Sandman's testamentary wishes, lacked (objective) dishonest motivation.

In reference to the allegations of dishonest assistance, the Court held that;

"There was no other evidence which in our view provided any basis for the allegation of dishonest assistance…in our view this grave allegation was not only unsubstantiated but was comprehensively rebutted by Ms Paul's detailed affidavit."

The Court concluded that on the basis of the evidence given by Ms Paul, she acted as "an honest legal advisor would have in the provision of advice to Mrs Sandman". The appeal was therefore allowed on the basis that the Respondent would be unable to establish at trial that the Appellants had acted (objectively) dishonestly.

Comment

Courts are generally unwilling to perform a detailed analysis of the merits of a case on an application for summary judgment and this case demonstrates the high burden of proof placed upon applicants seeking the Court's indulgence in conducting such an analysis. The Appellants only succeeded in this case due to a complete lack of evidence on a key element of the cause of action.

However, this case also demonstrates the potential dangers to solicitors (and other professionals) of acting for multiple family members whose interests may not be wholly aligned and the need to ensure that careful records are kept of instructions and the circumstances in which testators change their wills.