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Will Challenges – what is the executor to do?

Stephen McCarthy Barrister Manukau

Introduction

The focus of this paper is the proper response by an executor to a will dispute or

challenge. The proper response depends on the type of claim or dispute.

Common areas of dispute or challenge are:

Relationship property

Family protection

Testamentary promises

Testamentary capacity

Undue influence

Trust claims including constructive trust

Will correction: s.31 Wills Act 2007

Approval of a new will for a person who has lost capacity under s.55 of the Protection

of Personal and Property Rights Act 1988.

Multiple parties

A particular characteristic of will and estate disputes is that there are multiple parties

involved.

The executor is always a party. In most cases the executor will be active in any litigation

and settlement negotiations. In some litigation they may be passive, although in those

cases the executor will likely to be an active participant in settlement negotiations.

The executor may be a claimant, not against the estate but against someone else in order

to expand the estate. For example, a relationship property claim against the surviving

spouse or partner.

The usual claimants (against the estate) are:

surviving spouse, civil union partner or de facto partner

deceased’s children (and perhaps stepchildren)

deceased’s grandchildren

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other family members and non-family parties in testamentary promises claims

creditors.

In family protection claims there is a defined group of potential claimants1.

Other parties include beneficiaries and other family members. The beneficiaries may be

people or organizations, such as charities.

In will validity cases under the Wills Act all persons who may be potentially affected by the

validation of a document as a will must be given proper notice of the application and

proper opportunity to be heard.2

In cases under s.55 Protection of Personal and Property Rights Act 19883, the parties will

include the property manager and the family of the person who has lost capacity.

Executorship duties

If an executor understands their duties and proper role in the context of a particular claim

they can be clear about that with the other parties and that may reduce the level of conflict

between the parties or encourage settlement.

It can sometimes be a “reality check” for claimants and beneficiaries, and executors who

are also beneficiaries, to be aware of the costs likely to be incurred by the executor.

The primary duty of the executor is to propound and maintain the will under which she or

he has been appointed. That leads to the duties to get in the estate property, realise as

much as required to pay debts, expenses and legacies and then distribute as per the will.

However, there are duties owed to others that arise in the context of disputes and claims.

Duty of even-handedness

This duty means more than impartiality as between named beneficiaries.

“Even-handedness” is a fiduciary duty that extends to potential claimants against the

estate where an executor is aware that they wish to make a claim.4

The duty extends to ensuring that the executor does not actively and dishonestly conceal

1 Family Protection Act 1955, s.3.

2 Re Zhu [2010] NZHC 718, at [3].

3 For the making of a will for a person who does not have testamentary capacity.

4 Irvine v Public Trustee [1989] 1 NZLR 67 (CA) and Mackenzie v Mackenzie (1998) 16 FRNZ 487 (HC) both

summarised in Sadler v Public Trust [2009]NZCA 364.

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relevant material about the estate from potential claimants who seek information about the

estate.5

Sadler v Public Trust (Court of Appeal 2009)6 is authority for there being no general duty

upon an executor to advertise the fact of death or to inform all potential claimants of the

fact of death even where there may be a suspicion that a particular potential claimant may

wish to make a claim. In Sadler the Court of Appeal left open the question whether the

duty of even-handedness extends to potential adult claimants of full capacity of whom the

executor ought to be aware.

A recent example of the duty being applied is AB v RT and ST7, a December 2015

decision of the High Court. The Judge, Brown J, found that the case squarely raised the

question left open in Sadler about whether the duty of even-handedness may extend to

potential claimants of whom the executor ought to be aware. He considered that it should

have been abundantly plain to the executors that the plaintiff, as the deceased’s only living

child (the deceased’s other child pre-deceased) and the recipient of a very small bequest

in the will, would be entitled to make a claim under the Family Protection Act. And further,

that the plaintiff’s claim would likely be frustrated by distributing assets prior to informing

the plaintiff of her bequest, as the executors had done. The Judge held that the executors

were in breach of the duty of even-handedness and that the Court was entitled to hold the

executors personally liable for the award made in favour of the plaintiff under the Family

Protection Act8.

In that part of the judgment that discusses the duty of even-handedness there is no

express reference to the Judge taking into account that the executors were significant

beneficiaries under the will but that seems implicit. The value of the estate was

approximately $2,400,000 of which the two executors, as beneficiaries, received

approximately $999,000. In addition, the will left approximately $864,000 to a trust for the

plaintiff’s daughter, who was the deceased’s granddaughter. The bequest for the plaintiff

under the will was $25,000.

The Judge also held that if he was wrong about his assessment of the duty of even-

handedness the plaintiff was entitled, in the alternative, to following orders under s.49 of

5 Mackenzie v Mackenzie (1998) 16 FRNZ 487 (HC), summarised in Sadler v Public Trust [2009] NZCA 364

at[35]. 6 [2009] NZCA 364.

7 [2015] NZHC 3174.

8 Paragraphs [105] to [112], [2015] NZHC 3174.

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the Administration Act in relation to the bequests, including the residue, received by the

two executors and the granddaughter’s trust9.

Another recent example is Nawisielski v Nawisielski10, a judgment of Associate Judge RM

Bell. Although this judgment concerns an application for costs there are aspects of the

judgment that are likely to have much wider implications. The Court accepted that a

beneficiary may bring a derivative proceeding on behalf of the estate. In relation to the

duty of even-handedness the Court considered that the executor had arguably breached

the duty by preferring her interests as beneficiary. The executor had opposed having a

notice of claim under the PRA lodged against properties that she received by survivorship

and had opposed the applicant’s efforts to have the estate augmented by a relationship

property share of the jointly owned assets11.

Irvine v Public Trustee12 is a 1998 Court of Appeal decision which is commonly cited in

relation to even-handedness. The case involved an application by the Public Trustee

under the Matrimonial Property Act 1963 against the surviving spouse who was the sole

beneficiary under the deceased’s will. The deceased’s children and stepchildren were

substitutionary beneficiaries if the spouse did not survive the deceased.

The deceased’s children had brought proceedings against the Public Trustee. They

wanted to bring a family protection claim and had requested the Public Trustee to

commence proceedings under the Matrimonial Property Act 1963. The children had

applied to remove the Public Trustee on the basis that the Public Trustee had not brought

Matrimonial Property Act proceedings. That action was compromised and the Public

Trustee agreed to institute proceedings to determine the assets of the deceased’s estate

(in other words to bring in a share of the matrimonial property).

Mr Irvine, as the beneficiary entitled to receive all of the estate under the will, complained

that the Public Trustee was not impartial. Mr Irvine applied in the High Court to strike out

the Public Trustee’s Matrimonial Property Act claim and applied to remove the Public

Trustee as executor. Both applications were dismissed and Mr Irvine appealed.

The Court of Appeal readily accepted that the Public Trustee knew that the deceased’s

children intended to claim under the Family Protection Act and therefore the duty of even-

handedness extended to them. On the other hand, the Court said it was wrong for the

executor to bring or lend its name to litigation which might be seen as indicating that the

9 Refer paragraphs [2] and [3] of the judgment in relation to the value of the estate and the bequests under

the will. And paragraphs [113] and [114] in relation to the Following Orders. 10

[2014] NZHC 2039. 11

Paragraph [36], [2014] NZHC 2039. 12

[1989] 1 NZLR 67.

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executor was not impartial. The Court dismissed the appeal concerning the removal of the

executor on the basis that the Public Trustee was acting as a nominal plaintiff in order to

facilitate the claims by the deceased’s children.

The matrimonial law context in which Irvine was decided no longer applies because of the

Property (Relationships) Act 1976.

Relationship property claims

If the estate is going to apply for a division of relationship property the executor has to

apply for leave to bring the claim and the onus is on the executor to satisfy the Court as to

a serious injustice test13. In most cases the necessary information will come from the

beneficiaries (or those who have missed out) but they are not parties unless the Court

directs them to be14. The purpose of an application for leave is to recover relationship

assets that the surviving spouse or partner owned or received by survivorship15. The

executor may be sympathetic or not towards those who have missed out but has to make

his or her own assessment of the outcome of an application for leave.

It is outside the scope of this paper to consider the factors relevant to the assessment of

the serious injustice test. Briefly, the relevant factors include:

the financial need of the beneficiaries or claimants against the estate

assessment of the merits of the proposed claims against the estate (including the PRA

claim)

the nature and source of the relationship property

the effect of granting leave.

Can a beneficiary or claimant bypass the executor and themselves apply under s.88(2) of

the PRA? This is the provision that requires the personal representative of the deceased

to obtain leave to bring relationship property proceedings.

In Nawisielski16, Associate Judge Bell suggested that a derivative proceeding can be

brought by a beneficiary or statutory claimant. Special circumstances have to be

13

S.88(2) Property (Relationships) Act 1976. 14

S.92 Property (Relationships) Act 1976, which provides that “any person having an interest in the property which would be affected by the order” does not include a person who has an interest only as a beneficiary of or a claimant against the deceased estate but the Court may hear such a person if it considers it necessary to do so. 15

Refer the discussion in paragraphs PR88.05 and PR88.07 and following of Relationship Property & Adult Maintenance: Acts & Analysis, Thomson Reuters 2013. 16

[2014] NZHC 2039.

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demonstrated and the executor must be joined in the proceeding. The Judge referred to

the following passage from a UK Supreme Court decision, Roberts v Gill17:

“46. The cases go back to the eighteenth century, and many of them were reviewed

in Hayim v Citibank NA [1987] ac 730 (pc). The special circumstances which were

identified in the earliest authorities as justifying a beneficiary’s action were fraud on

the part of the trustee, or collusion between the trustee and the third party, or the

insolvency of the of the trustee, but it has always been clear that these are merely

examples of special circumstances, and that the underlying question is whether the

circumstances are sufficiently special to make it just for the beneficiary to have the

remedy: In re Field, decd [1971] 1 WLR 555, 560-561, per Goff J; cf. Barker v

Birch (1847) 1 De G & Sm 376, 63 ER 1112; Daniell’s Chancery Practice, 7th ed

1901, p176.”

In Nawisielski the applicant was one of the deceased’s sons. There was no provision for

the applicant under the deceased’s will. All of the deceased’s estate was left to his second

wife, the applicant’s stepmother. The Court accepted that the applicant could bring a

derivative claim though he was not a beneficiary and only a prospective claimant under the

Family Protection Act. From her actions and resistance, it was clear that the widow, who

was the sole executor and sole beneficiary under the will, was not going to do anything to

assist the applicant.

In an earlier decision by Faire J18, the Court had removed the widow and replaced her as

executor with a solicitor. The new executor had lodged notices of claim under the PRA

over properties received by the widow through survivorship. As a result, the applicant

discontinued proceedings to sustain notices of claim that he had lodged. The widow

applied for costs in respect of the discontinuance. She was awarded some costs but

solely on the basis that the applicant had not complied with timetable directions in relation

to filing submissions for the hearing of the application to sustain the notices. On all other

grounds, including that the applicant had no status to lodge notices of claim in the first

place, the widow failed.

A derivative action was advanced as an alternative claim in Chambers v Chambers19 but

the Court did not need to consider the claim because it was not satisfied that the plaintiff

had a good prospect of establishing serious injustice under s.88(2).

17

[2010] UKSC 22, also reported as [2011] 1 AC 240. 18

[2014] NZHC 1547. 19

[2016] NZHC 583 at [119].

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Relationship property agreements

Although an executor might be granted leave to bring proceedings under s.88(2) of the

PRA it is presently unclear whether the executor can apply to set aside an agreement

under s.21 (ie. a contracting out agreement). Differing opinions arise from two cases: Tod

v Tod20 and Chambers v Chambers21.

In Tod, Brown J discussed the legislative history of ss.87 and 88 in detail and concluded

that although the personal representative could apply for leave to bring proceedings under

s.88(2) that did not extend to the personal representative being able to apply to set aside a

s.21 agreement. This is because of the specific wording of s.87 of the PRA which refers to

the surviving spouse or partner applying to the Court to set aside the agreement under

s.21J or to have the agreement declared void for non-compliance with s.21F. Section 87

makes no reference to the deceased’s personal representative applying to set aside the

agreement.

In Chambers, Mallon J held that it would be consistent to allow a personal representative

to apply to set aside a s.21 agreement where leave is granted for the personal

representative under s.88(2). The Judge considered that ss.87 and 88 are complimentary

not conflicting. The Judge observed that an estate may be rendered destitute through a

s.21 agreement. If the result of the s.21 agreement is serious injustice but the agreement

cannot be set aside this would cut across the legal and moral duty a deceased spouse has

to provide for their children22.

There is an interesting footnote in the Chambers judgment that contrasts the wording of

s.21 and the reference to a s.21 agreement in s.87. Section 21 refers to an agreement

“with respect to the status, ownership, and division of [the couple’s] property”. Whereas

s.87 refers to an agreement under s.21 “defining the share of the relationship property or

any part of it that each is entitled to on the death of 1 of them”. Mallon J commented that:

“The latter therefore seems to be narrower. It appears that s.87 is

intended to cover an agreement which defines the spouse’s share as

less than 50 percent. Such an agreement disadvantages the spouse

as against his or her position under the Act and therefore the situation

is more likely to result in an application by the spouse to set it

aside.”23

20

[2015] NZHC 528. 21

[2016] NZHC 583. 22

[2016] NZHC 583 at [85]. 23

Footnote 22, paragraph [75], [2016] NZHC 583.

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Relationship property settlements after death

If there is a settlement of a claim after death, the executor signs the settlement agreement

under s.21B. This means the executor has to receive advice for the purposes of the

lawyer’s certification of the agreement. The estate beneficiaries are not parties to the

agreement but will require independent advice. An executor should not enter into a

settlement agreement unless the beneficiaries agree. There may have to be an

agreement between the executor and the beneficiaries to enable the executor to proceed.

An alternative is that the beneficiaries are directly involved in the settlement negotiations

and they authorise the executor to sign.

If the sole executor is the surviving spouse or partner the settlement agreement will be

invalid unless approved by the Court24.

Family protection claims

The proper response of the executor is to remain neutral in the Court proceedings but

ensure that the Court and the parties are provided with relevant information about the

estate and the deceased’s reasons for the various provisions in the deceased’s will25.

The extent to which the estate will be diminished by the executor’s costs and legal costs is

sometimes an inducement for parties to settle.

The executor needs to provide the right information about the financial position of the

estate. The test as to whether the deceased has breached their moral duty is assessed as

at the date of death. Accordingly, there has to be a reliable assessment of the estate

assets and liabilities as at the date of death and at relevant times after death. For

example, at the time of a hearing or settlement negotiations, and this is where the costs

incurred by the executor become an important factor.

An executor may be regarded as a nominal defendant26 because the claim is for better

provision from the estate. A successful claim will involve taking some of the estate away

from beneficiaries and giving it to the claimant. However, in most family protection cases

the role of the executor in Court is more than nominal. The executor’s position is relative

to the factual dispute about the make-up of the estate and the accusations about the

deceased’s relationship with the claimant or others. If the executor has personal

knowledge of the factual matters in issue the executor’s evidence may not be neutral.

24

S.21B(3) but also note (4) if probate is not required because it is a small estate. 25

Refer paragraph 7.2, Law of Family Protection & Testamentary Promises, 4th

Edition, Bill Patterson. 26

Paragraph 7.2, WM Patterson, Law of Family Protection and Testamentary Promises, 4th

Edition, Lexis Nexis.

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In settlement negotiations some parties may see the executor’s role as neutral. In most

cases, however, the executor and their lawyer are much more influential in negotiations

than they are in Court.

Testamentary promises claims

The executor is the primary defendant in a testamentary promises claim.

The estate is expected to defend the claim in Court because the claim is against the estate

as if the claimant is a creditor. If all the beneficiaries are represented and are going to

actively defend the claim it may be appropriate for the estate to be neutral in Court. But in

settlement negotiations, as in family protection cases, the estate has a significant if not

leading role.

Testamentary capacity

If there is a claim that the will-maker lacked testamentary capacity, the onus is on those

propounding the will to satisfy the Court that the will-maker had capacity27.

If the application for probate is going to involve a dispute about testamentary capacity then

the intended executor should apply for probate in solemn form. If probate has already

been granted, those disputing testamentary capacity will apply to recall probate. However,

in an application for recall of probate in which testamentary capacity is in question, the

onus is on the executor to satisfy the Court that the deceased had testamentary capacity28.

Undue influence

In cases involving wills, the onus of proving undue influence is on the person who makes

the claim that the will was obtained through undue influence.

In undue influence cases that do not involve the making of a will, if the plaintiff can satisfy

the Court as to the existence of a relationship of influence in a transaction that calls for

explanation the evidential burden shifts to the person seeking to uphold the transaction to

show that the transaction was not the result of undue influence.29

27

Nijsse v Squires [2004] NZCA 317 (15 December 2004). 28

For example, refer the approach taken by the High Court in Green v Green, [2015] NZHC 1218 at [89]. 29

For example, Public Trust v Vernon [2015] NZHC 1928 at [121] and [122].

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However, if the allegation is that a will has been obtained by undue influence the onus

remains on the person making that allegation30.

“Undue” relates to impairment of judgement on the part of the will-maker rather than

improper conduct on the part of the person who is said to have influenced the will-maker:

Carey v Norton31. In that case the majority judgment referred to the influence on the will-

maker as “benign” because of the particular circumstances. The High Court and Court of

Appeal were satisfied that the will-maker’s intentions had been replaced by the

suggestions made by her very businesslike brothers. Thomas J, who wrote a separate

judgment in the Court of Appeal, said that although he accepted the use of the word

“benign” the influence ceased to be benign as soon as it became “undue” as a matter of

law.

Trust claims including constructive trust

There are numerous possibilities in relation to trust and constructive trust claims.

For example, there might be a constructive trust claim in relation to one of the estate

assets and part of that claim might be that an executor owes a fiduciary duty to the

(constructive trust) claimant32.

The essential point is that the executor needs to be alert for potential conflicts of interest.

The executor will likely be a defendant as opposed to a plaintiff in any trust or constructive

trust litigation and the executor may be removed if there is a conflict of interest.

Conflicts of interest on the part of the executor

Typical conflicts of interest are:

the executor is also a claimant against the estate

the executor is a beneficiary and intends to defend a claim as a beneficiary

family beneficiaries are split over a particular dispute and the executor (not a

beneficiary) is a family member on one side

the executor is the surviving spouse or partner and either elects to bring a relationship

property claim or intends to resist claims made by the deceased’s family (usually

children) who want a division of relationship property

the executor is the family solicitor who is conflicted from having previously acted for a

number of family members

30

Green v Green [2015] NZHC 1218 at [101] to [103]. 31

[1998] 1 NZLR 661 (CA). 32

For example, as found in Chambers v Chambers [2016] NZHC 583.

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where there is a claim against the estate by a will beneficiary who is also a

discretionary beneficiary of the deceased’s inter vivos trust and the executor is a

trustee of the trust and the trust is a beneficiary under the will.

In most of the situations listed it will be inappropriate for the person involved to take up

executorship or continue as executor. The second situation, where the executor is a

beneficiary and intends to defend a claim as a beneficiary does not necessarily involve a

real conflict of interest but it would if the executor, in order to protect their own position,

failed to give proper disclosure of relevant information.

The duty of “even-handedness”, considered earlier in this paper, applies in the context of a

conflict of interest on the part of the executor.

Removal of executors

If the person named as sole executor can see they will be in a conflict of interest that

clearly will be a problem they should renounce so that someone else can apply for

appointment as administrator. After probate has been granted they cannot renounce or

retire and will have to be removed, which involves an application to the Court33.

The Court has the power to remove an executor under s.21 of the Administration Act 1969.

While there is no doubt that the Court has inherent jurisdiction to remove a trustee there

may be some doubt as to whether the Court has inherent jurisdiction to remove an

executor or administrator.34

In contested removal cases the test is whether it is “expedient” to discharge or remove an

executor.

A conflict of interest on the part of the executor may be grounds for removal.35 Removal

has also been ordered in other circumstances and recent examples are:

An impasse between the executors and trustees on the one hand and the residuary

beneficiaries, on the other, where the same people were executors and trustees and

beneficiaries. An independent executor was appointed in order to resolve the

disputes that had arisen.36

33

Removal of the administrator (which includes an executor) under s.21 Administration Act 1969, or s.51 of the Trustee Act 1956 may apply if the executorship has been completed and the relevant estate assets have passed into the trust under the will. 34

Crick v McIlraith [2012] NZHC 1290, paragraphs [10] to [14]. 35

Hunter v Hunter [1938] NZLR 520. This is the case typically cited where there is a conflict of interest. 36

Coote v Warren [2013] NZHC 3210.

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Where there was a question as to the impartiality of the executor in relation to

assessing the validity of a debt – in other words a creditor claim against the estate.37

The Court held that it was not necessary to establish misconduct, breach of trust,

dishonesty or unfitness in order for the executor to be removed.

Relationship changes between the making of the will and death

If the will-maker’s marriage or civil union comes to an end through Court orders for

separation or dissolution between the making of the will and the will-maker’s death, certain

will provisions become void unless there is a clear provision in the will to the contrary.

Section 19 of the Wills Act sets out what happens and, in particular, the appointment of the

other spouse as executor is void.

This does not apply to de facto relationships.

Under the Family Protection Act 1955, to be eligible to claim the surviving de facto partner

must have been in that relationship with the deceased at the time of death.

Under the Property (Relationships) Act, the status of the surviving de facto partner to claim

depends on when the relationship came to an end and the duration of the relationship38.

If the relationship was brought to an end by the death of one of the partners, the survivor is

in the same position as a surviving spouse or civil union partner39. If the de facto

relationship ended before death, it will depend on the time that has elapsed between the

end of the relationship and death. There is a 3 year time limit to bring proceedings if both

partners are alive when their relationship ends40. If that period has expired before the

death of one of the former partners and proceedings have not already been filed, the

surviving former partner:

has a right to exercise the Option A or B election under s.6141

and must make that election (by Option A) before they can issue relationship property

proceedings42

and when they file proceedings they should apply for an extension of time under

s.2443.

37

Bupa Care Services NZ Limited v Gillibrand [2013] NZHC 2086. 38

S.2E and s.85 Property (Relationships) Act 1976 re relationships of short duration. 39

All of whom are subject to the 3 year threshold in s.2E. 40

S.24(1)(c) Property (Relationships) Act 1976. 41

S.55(2) Property (Relationships) Act 1976, which provides that Part 8 of the Act applies where the de facto relationship has ended other than by death and proceedings have not been issued. 42

S.63 Property (Relationships) Act 1976. 43

Refer paragraph PR89.01(2) of Relationship Property & Adult Maintenance: Acts & Analysis, Thomson Reuters 2013.

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If the de facto relationship was one of short duration, there is no jurisdiction to make

relationship property orders unless the Court is satisfied about the matters referred to in

s.85(3). If there are grounds for making an order in the event of a de facto relationship of

short duration the division of relationship property is determined by the assessment of

contributions by each party to the relationship.44

Time limits

The date of probate or administration is the starting date for most limitation periods45.

The option A or B election under the Property (Relationships) Act has to be made by the

surviving spouse or partner no later than 6 months after the grant of probate: s.62 PRA.

That time may be extended by the Court but an extension cannot be granted if final

distribution of the estate has occurred before the application was made: s.62(4). The time

limit for issuing PRA proceedings is 12 months after grant of probate46.

The 6 month safe distribution time-frame under the Administration Act 196947 coupled with

limitation periods creates tension that requires careful management. The first question is

whether a notice of intention to claim has been received. There is no prescribed form of

notice. Often a potential claimant will require information from the estate. Six months after

probate the executor may be keen to distribute but they are aware of a potential for a claim

though no written notice has been received. At this point, the executor should carefully

consider the implications of the duty of even-handedness referred to earlier in this paper.

From the point of view of the potential claimant, giving written notice of intention to claim

sets off a 3 month time limit to file proceedings48.

Distribution

What constitutes distribution? And what does “final distribution” mean? These questions

typically arise where there is a claim made after the expiry of the relevant time limit.

For the purposes of the Family Protection Act “final distribution” requires the transfer of

assets to the beneficiaries49.

44

S.85(4) Property (Relationships) Act 1976. 45

Eg, for PRA, FPA and testamentary promises claims. 46

In a small estate, ie one that does not require probate, the time limit is 12 months from the date of death. 47

S.47(4) Administration Act 1969. 48

S.48(1) Administration Act 1969. 49

S.2(4) Family Protection Act 1955 and refer the discussion in paragraph 16.3, Law of Family Protection and Testamentary Promises 4

th Edition, Bill Patterson.

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However, under the Law Reform (Testamentary Promises) Act the accepted position

follows the Privy Council decision in Lilley v Public Trustee50 that held that distribution

occurs when the administrator completes executorship duties and commences to hold the

assets as trustee.

The Property (Relationships) Act does not define “final distribution”, although those words

are used in s.70 of the Act51. Patterson expresses the view that the rule as applied in

testamentary promises cases would apply, namely that the estate has been distributed

when the executorship duties have been completed and assets are held as trustee52.

There have been two Family Court cases on this topic. The first was decided in 2007 and

raises a doubt about the rule as suggested in Patterson: Re the estate of Jennifer Ann

Herbert53. The other was decided in 2009 and follows the rule54. It appears that the first

case was not considered in the second.

In the Herbert case the Judge held that mere transfer of property to the executors in the

course of administering an estate cannot be a final distribution. Unfortunately the terms of

the will are not set out in the judgment except that the claimant was given a right to occupy

the deceased’s house for 12 months provided he paid $100 per week. The house was the

subject of the claim. The judgment refers to the deceased’s two children as the will

beneficiaries and that one of them was one of the executors. In light of which the Judge’s

finding is understandable and may not be contrary to the rule in Lilley.

Correction of a will

Under s.31 of the Wills Act 2007 the High Court may make an order to correct the will to

carry out the will-maker’s intentions. The Court must be satisfied that there is a clerical

error or that the will does not give effect to the will-maker’s instructions.

In addition the Court may use external evidence to interpret words in the will that make the

will or part of it meaningless, ambiguous or uncertain.

A recent example is Re the Estate of Annie Anderson Dillon55. The deceased’s will

referred to a gift of “my house unit at Chatsford to [named beneficiary]”. The problem was

that the deceased did not own the unit in which she lived. She had an occupation right

50

[1981] 1 NZLR 41. 51

S.70 refers to the inability to set aside the choice of option if the estate has been finally distributed. 52

Patterson, Law of Family Protection and Testamentary Promises, 4th

Edition, paragraph 14.8. 53

[2007] NZFLR 844. 54

IER v GJD [2009] NZFLR 607. 55

This involved two sets of proceedings reported as [2016] NZHC 1238. One set of proceedings was under the Declaratory Judgments Act and the other under the Wills Act.

15

agreement. It was a unit in a retirement village. Typically, the occupation right terminated

on the deceased’s death and her estate was then entitled to a termination payment. The

amount paid in this case was a little over $290,000. The Court held that the words in the

will “my house unit at Chatsford” should be interpreted and applied as referring to the

bundle of rights associated with the occupation agreement.

The residuary beneficiaries were the deceased’s nephews and nieces. They applied for a

declaration that the gift in relation to the house unit failed. That application was declined

with the Court indicating that it would have made a declaration that the named beneficiary

was entitled to any value attached to the deceased’s occupation agreement.

The executor had applied for correction of the will under the Wills Act and in that regard

the Court rectified the will provision so that it referred to the occupation right agreement in

relation to the retirement unit.

The executor was the solicitor who had prepared the deceased’s will. The executor was

the applicant under the Wills Act and gave evidence as to the deceased’s knowledge of

her rights in relation to the occupation agreement.

Authorizing a will under the Protection of Personal and Property Rights Act 1988

If a person has lost testamentary capacity the Family Court can authorize that person’s

property manager to execute a will for the person56. The Court must settle the terms of the

will after hearing from those who have a proper interest “in the matter”.57 This would

include an executor named in an existing will if it was appropriate to resist the making of a

new will or to provide information to the Court as to the basis on which the existing will had

been made.

If the person has an existing will that was made when it appears they were unable to

manage their property the Court can require inquiries to be made as to whether the will

expresses the present testamentary desire and intention of the person. If the Court is

satisfied that the will does not express the present desire and intention of the person the

Court may authorise the manager to execute a new will.58 The legal test to appoint a

manager is not the same as the assessment of testamentary capacity. Similarly, the test

under which the Family Court decides to authorise the execution of a new will is not an

56

S.55 Protection of Personal and Property Rights Act 1988. 57

Eg, AM v G [2014] NZHC 751, where Venning J approved the terms of the will subject to grandchildren being notified and given the opportunity to oppose it. Section 55(2) Protection of Personal and Property Rights Act 1988 provides that the Court must hear from “such persons who wish to be heard and whom the Court is satisfied have a proper interest in the matter”. 58

S.54 Protection of Personal and Property Rights Act 1988.

16

assessment of testamentary capacity. If the person subject to the property order has

testamentary capacity no order should be made authorising a new will.

There are no statutory guidelines to assist the Court in framing the terms of the will. The

Court’s task “is to give effect to what the testator with all his or her traits and foibles would

have seen fit to do if now able to do it”.59

Negotiations and ADR

“Logic will never change emotions and behaviour. Trying to persuade people logically to

change emotions is useless in practice, and most people have experienced this. It is

perceptions that control emotions and emotions control behaviour. Changes in perception

will change emotions and therefore behaviour. If your perception changes, you have no

choice: your emotions and behaviour change too.”60

This quote from Edward de Bono is particularly appropriate in estate disputes between

family members, especially in disputes between siblings, or between children from a first

relationship of the deceased and the deceased’s surviving partner or spouse.

It can sometimes be frustrating for an executor who is independent and has no family

connection being caught up in a family dispute. The executor (or their lawyer) may think

there is a blindingly obvious solution. I have certainly come across that problem in the

course of mediation when the executor or their lawyer wants to short circuit the

negotiations because they consider they have identified the best outcome (and cannot

understand why the opposing parties do not readily accept the solution). Unfortunately

that approach fails to take into account the emotional content of the dispute for the other

parties and illustrates the point in the quote that I have referred to above from Edward de

Bono.

Sometimes the executor has to walk a very fine line between neutrality and not wanting to

be seen to be taking sides while promoting settlement by reference to relevant information,

particularly if that information accurately records the deceased’s wishes in relation to their

estate.

The executor’s approach will of course turn on the type of case. If it is a family protection

case, the executor will probably try to remain neutral but still promote settlement based on

the merits of the claims made against the estate and the costs of continuing with the

proceedings. In testamentary promises cases the executor is the active defendant and the

negotiations will be more specifically focused on the settlement figure but in most cases

59

K v Public Trustee [1995] NZFLR 249. 60

Edward de Bono, Think! Before It’s Too Late, published by Vermilion, 2009.

17

there will be a high emotional content and the executor’s response to the emotions will be

critical.

In cases where all of the parties are adults who have legal capacity, so there is no need to

refer to the Court in relation to the settlement, the executor often becomes the deal-broker.

All of which means that the executor and their lawyer should be conscious from the outset

as to the impression they are making on all of the other parties. In other words, are they

perceived as being helpful or obstructive?

Effective negotiation begins with the first contact with another party.

There may be a structure put around some parts of the negotiation, such as mediation.

Mediation is usually expensive and often the other parties will look for an agreement that

the estate will pay the cost of the mediation, that is the mediator’s fees and venue.

At what stage should mediation occur? In hard cases, there has to be a commitment to

the evidence by each side before mediation. Where the parties have entrenched views

early mediation, particularly before committing to their positions in affidavits, is unlikely to

be effective. This is partly because the parties have not closed off their options as to how

they are going to present their case in Court or they underestimate how well the opposing

case will shape up. Also, having paid legal costs to file affidavits is a reality check. There

will be a greater incentive to stop the financial cost.

The exchange of information for mediation is privileged61. If affidavits have not been filed

and the mediation is unsuccessful the parties will have obtained information they might not

have otherwise had, even if it is privileged. The problem then becomes the extent to which

they will add to their evidence in anticipation of what the opposition will say.

Costs

Referring to the list of potential claims set out early on in this paper, the costs rules will

apply to all, including Family Protection cases, notwithstanding the broad discretion

conferred by the relevant costs section in the legislation. For example, s.40 of the

Property (Relationships) Act 1976 provides that the Court may make such order as to

costs as it thinks fit. In practice, however, the Court invariably starts the costs analysis by

reference to the Rules cross-referenced with the Costs Schedules.

In Family Protection Act cases it has never been a universal practice that all parties will

have their solicitor/client costs paid out of the estate, though in practice that may have

been a general perception. While the Court may order that the reasonable costs of all

61

S.57 Evidence Act 2006.

18

parties are to be paid out of the estate, a closer analysis may be required. Even if the

Judge has given an indication of that the reasonable costs of the successful applicants

should be paid from the estate.62

In the costs decision that followed the “even-handedness” case to which I referred earlier,

AB v RT and ST63, the Judge awarded costs to the plaintiff on a Schedule 3C basis taking

into account that the executors and deceased’s grandchild, who were the major

beneficiaries of the estate, were the active defendants and they strenuously opposed the

plaintiff’s claim. The Court held that they should bear the plaintiff’s costs. An additional

amount of costs in the sum of $2,000 was awarded to the plaintiff in respect of the costs

argument.

In probate cases the usual approach to costs may not apply. The usual approach is set

out in Rule14.2 of the High Court Rules. Paragraph (a) of that Rule is: the party who fails

with respect to a proceeding or an interlocutory application should pay costs to the party

who succeeds. However, in contested probate cases the Court may accept that the

challenge to the will was justified even though it may not be pursued to the end (perhaps in

light of discovery or affidavit evidence filed by the executors). A useful example is Re the

estate of Nancy McCabe64 in which the caveator was ordered to pay costs on a 2B basis.

The Court declined the executors’ claim for increased and indemnity costs.

The Court accepted that it was justifiable for the caveator to have initial concerns that the

will was the result of undue influence and for him to raise his concerns but the caveator

had unnecessary broadened the scope of his allegations. On the other hand the Court

considered that the executors had over-reacted in their response and had gone beyond

what was required to address the primary issues. After the caveator had received the

response on the primary issues he indicated he would withdraw his caveat and he made

an open offer of costs on a 2B basis. The Court awarded cost of precisely the amount

offered.

The judgment refers to two previous cases that are worth noting.

The first is Re Paterson [1924] NZLR 441. The Court referred to “well established

principles upon which [the discretion to award costs] should be exercised in cases of

62

Wightman v Public Trust: re costs [2015] NZHC 1091, where Whata J gave that indication but the parties disagreed about costs. The Court declined increased or indemnity costs but awarded costs on a 3C basis. His Honour referred to Wood-Luxford v Wood [2013] NZSC 153, where the Supreme Court ordered the costs of all of the parties to be paid from the estate. His Honour commented that although the Court is more cautious about awarding costs out of the estate the longstanding practice of doing so on a solicitor/client basis is a relevant factor to be taken into account in determining whether costs should be paid out of the estate and on what basis. 63

The primary judgment is [2015] NZHC 3174 and the costs judgment is [2016] NZHC 1399 64

[2012] NZHC 1759

19

contested wills” and then referred to three principles, the second of which is to the effect

that if the person questioning the execution of the will of the will-maker’s capacity or the

effect of undue influence had sufficient and reasonable grounds for doing so they may be

relieved of costs if they fail.

The second case is Fraser v Chalmers (1997) 11 PRNZ 348 in which the second principle

from Re Paterson was applied.