Significant issues raised
In June 2023, the Supreme Court heard the ‘Alphabet case.’ To understand the significance of what is at stake in this case, it is worth considering the facts that gave rise to the litigation and the High Court’s decision.
Abuse of A, B and C by Mr Z
Mr Z and Ms J married in 1958 and separated in 1981. They had four children: G (1960-2015), A (b 1961), B (b 1963) and C (b 1971).
Mr Z severely abused Ms J and the children physically, psychologically and sexually. A was repeatedly raped between the ages of seven and 13, but she did not disclose the abuse to anyone until 1983. She did not tell her mother until 1991. A was unable to face taking action against Mr Z.
Mr Z died in 2016 leaving an estate valued at $46,839. He had, however, settled a trust two years previously for the express purpose of preventing his family from “chasing” his assets, to which he had gifted his home and investments worth $700,000. The children were not beneficiaries of Mr Z’s estate or the trust; rather, the trust’s beneficiaries were the children of Mr Z’s former partner.
That should have been the end of the matter because the Family Protection Act 1955 (FPA), that allows children to challenge their parents’ wills, only applies to assets a deceased owned in their personal names; it doesn’t apply to trust assets.
However, the children argued that their father owed them a fiduciary duty and, that because of the abuse, he continued to have obligations to them even after they became adults. They said that Mr Z had breached that duty when he gifted his home and shares to the trust in order to prevent his children from claiming against those assets under the FPA.
In the High Court
In the High Court, Justice Gwyn agreed with the children and said they could bring claims under the FPA against the assets that had been transferred to the trust.
The trustees of Mr Z’s estate and trust appealed to the Court of Appeal.
Court of Appeal divided over case
The Court of Appeal accepted that Mr Z owed a fiduciary duty to his children and that he breached that duty when he abused them. The issue was whether Mr Z continued to owe those fiduciary duties to his adult children at the time he gifted his assets to the trust.
The majority of the Court of Appeal judges disagreed; they said that the appropriate remedy for the breach of fiduciary duty was equitable compensation (and the children had run out of time to make that claim).
However, one judge said that in some circumstances the inherently fiduciary relationship between a parent and a child may continue after a child becomes an adult (for example, in the case of a severely disabled child).
The judge (who was in the minority, so their views don’t affect the final outcome) decided that A’s position, owing to the abuse she suffered, was analogous to that of a disabled child. Mr Z therefore had a continuing duty to take steps to remedy, as best he could, the enormous harm he inflicted on A, not only when she was living in his care, but also during her adult life. This meant he was required to protect her interests when considering gifting his principal assets to the trust, and failed to do so.
The Supreme Court will tell us whether Mr Z owed a continuing fiduciary duty to A into her adult life because of the abuse he perpetrated on her. Many commentators believe that it is stretching the concept of a child/parent fiduciary duty too far.
If legal principles cannot evolve, however, a situation may emerge where extraordinarily meritorious claimants are left with no effective relief, simply because too much time has passed, and/or because their parent transferred their assets into a trust to prevent claims after they have died.
That raises two questions:
- Should time count against people such as A, who have been so seriously abused by a parent?
- Should parents be allowed to transfer their assets into a trust in order to prevent their children making claims after their death?
  NZHC 2997.
  NZCA 430.
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