In a judgment that is bound to be appealed further, a majority of the Court of Appeal has overturned a High Court decision that held a father owed his children a fiduciary duty not to transfer his estate into trust. Consequently, the duties were held to devolve onto the trustees holding the estate assets.
The extent of the moral obligation of parents to provide for their children has long been debated. This judgment sets out an extensive and helpful analysis of fiduciary duties in a family context. There are aspects of the background that will challenge some views of what would have been a just outcome in the circumstances, and that is likely to prompt further consideration by the Supreme Court.
The background to the case is confronting. The father sexually and emotionally abused his children until they left home in their teens, after which he had virtually no contact with them. The children did not lay complaints or bring proceedings against their father. Some thirty years after their estrangement the father settled property valued at some $700,000 on a trust established for the children of his friend. There were some assets in his estate at the time of his death, but they were of modest value and his children were not named in his last will, although they or some of them had been named in a number of earlier wills that he executed between 2001 and 2015.
The High Court held that the father owed a fiduciary duty not to abuse his children and that this duty had been breached. It held that he owed a further duty not to alienate his assets to defeat a claim by his children. The trustees were found to have received the assets knowing of that breach of duty, because the father was one of the trustees. On that basis it was found that the assets were held by the trustees on a constructive trust for the benefit of the father’s estate. This exposed the assets to a family protection claim by the children.
On appeal the trustees accepted that the father had a duty not to abuse his children but the core issue in dispute was whether he owed fiduciary duties to his then adult children at the time he gifted assets to the trust. This put in issue the constructive trust that exposed the assets to a family protection claim.
The trust was established in 2014, avowedly to stop the father’s family from “chasing” his assets. His home went into the trust and later some shares. He then executed his last will in which his remaining estate went essentially to members of the family that benefited under the trust.
The High Court found that the father owed fiduciary duties to his adult children at the time the trust was established because his earlier abuse had caused vulnerability of the children. He should therefore have recognised them as members of his family and provided for them. Instead, at least one of the reasons for setting up the trust had been to ensure the father’s estate would not be available to his children.
The Court of Appeal set out legal principles relating to fiduciary duties noting that relationships could impose such duties when they were inherently fiduciary or where the circumstances warranted that. Inherent in the concept is the assumption of trust and confidence and a degree of dependence in the relationship being examined.
In a family context the Court noted that the relationship between parent and child has the hallmarks of a fiduciary relationship, including a responsibility not to act contrary to the child’s interests. The Court referred to Canadian authorities that say the fiduciary parental relationship is based on the vulnerability of the child and the power and authority of the parent. The trustees did not argue against a duty applying between the father and his children in their youth, but the argument followed that once a child becomes an adult the relationship between parent and child is not inherently fiduciary. The central issue was whether a parent can owe a fiduciary duty to an adult child to provide for that child’s economic interests. The focus of the argument was the daughter, whose treatment and situation had been particularly bad, but the resolution affected all the children.
On this point the Court split. The majority held that any fiduciary duty owed by the father to his children ceased when he no longer lived with or cared for the children. Gilbert J did not support what he considered was a novel and unprincipled expression of duty proposed by Collins J in his minority decision. Gilbert J could find no support for a duty to take reasonable steps to provide economic security that would support recapturing the trust assets for a family protection action.
Kos P agreed with Collins J that the relationship between parent and child is inherently fiduciary at least for so long as the parent cares for the child. But he also sided with Gilbert J in not describing the parental duty in positive terms to act generally in the best interest of the child in disregard of the parent’s interests. Instead, he saw the duty as one to refrain from fundamentally violating the trust inherent in the parent child relationship.
Whatever remedies might have been available to the children for breaches of duty during the time they were young and in their father’s care, the majority held that there was no breach of fiduciary duty when the father later established a trust to which he transferred his assets – even if that was expressly to defeat claims by his children. The majority were not prepared to take a path that, in Gilbert J’s words, would open the possibility of a “vast expansion” of claims for breach of fiduciary duty. Kos P echoed that by saying that he could not countenance a new or sustained fiduciary duty to make proprietary provision during the long years the father and children no longer lived together.
The judgments of the Court of Appeal make for instructive reading. It is not often that Judges criticise their fellows as adopting an “unprincipled” approach but that is what has been said of Collins J’s minority decision. His approach is criticised as “results based” and identifying the needs of justice for which equity should respond flexibly.
The majority decision recognises the limits of a fiduciary relationship between parent and child. Such a relationship is inherent while a child is young and dependent and in the care of a parent. However, with adulthood comes a change in the relationship. It is not necessarily one of dependence such as to warrant a fiduciary character and the majority was not prepared to accept that obligations of support could overturn steps legitimately (though perhaps questionably) taken by a parent, once children are well out of the parent’s care.
The Court carefully examined the alternative remedies that might have been available to the children, such as seeking equitable damages for breach of the undoubted fiduciary duty that existed while they were in their father’s household. It will be interesting to see if this is taken up by others in the future.
In practical terms it is difficult to see how these alternatives might have been pursued, but the existence of other options, that the children deliberately eschewed at the time, is perhaps one justification for saying it would be step too far to recognise a fiduciary duty thirty years after the children left the thrall of their father.
The decision leaves a gulf between the statutory regime under the Family Protection Act and the scope of fiduciary duties. The former recognises that a moral obligation can apply to a parent to provide for children even when they are adult and independent. Yet if a parent settles assets on a trust to the exclusion of adult children for whom a moral obligation could exist, the majority has said that there is no necessary fiduciary duty that could found a constructive trust over those assets.
© G D Clews 2022