Sandman v McKay [2019] NZSC 41 concerns a son’s claim against the law firm that drafted his mother’s will. The majority decision of the Supreme Court indicates that where lawyers are instructed to draft a will, they should do so even if they suspect a client may lack testamentary capacity or be subject to undue influence. However, lawyers should carefully document the advice given and steps taken. It would also be prudent for a lawyer to suggest that a medical certificate be obtained.

While the Supreme Court did not need to determine the extent of a lawyer’s duty in these circumstances for the purpose of its decision, the court’s comments provide helpful guidance for practitioners who are concerned about a client’s capacity but have instructions to draft a will.

The facts

Elizabeth Sandman died on 30 October 2013, leaving a will dated 2 December 2010. Under this will, Mrs Sandman’s son, Mark Sandman, received less than he would have under her previous will, which was executed in 2005.

The law firm that prepared Mrs Sandman’s 2010 will began acting for her in 2007, when she granted enduring powers of attorney (EPAs) in favour of her daughter, Victoria Sandman. A family friend, Mr Giboney, was the successor attorney to Victoria under the property EPA.

Mrs Sandman met with Ms Paul, a solicitor from the law firm, in early 2010 to discuss changing her will. Mrs Sandman was concerned her will was unfair to her daughter Victoria, as her son Mark had received greater financial support from her during her life than Victoria had. Ms Paul met with Mrs Sandman again in October 2010 to take instructions to prepare her new will. Victoria was present during the meeting.

Later that month, Ms Paul sent a letter to Mrs Sandman, care of Mr Giboney, summarising her instructions and setting out the further information required to prepare the new will. Ms Paul also suggested that it would be prudent to obtain a medical certificate from Mrs Sandman’s doctor to confirm she had testamentary capacity. Mrs Sandman’s doctor provided a medical certificate confirming she had capacity based on the last time she saw her, which was one month earlier, in September 2010. Mrs Sandman then executed the will in December 2010. Under the 2010 will the residue of Mrs Sandman’s estate went in equal shares to Victoria and Mark.

Sadly, Victoria died of a terminal illness in March 2011. Mrs Sandman met with Ms Paul to discuss the 2010 will following Victoria’s death. However, Mrs Sandman advised that she did not want to change her will. Under the 2010 will, Victoria’s half share of the residual estate went to relatives and family friends, whereas under the 2005 will the entire residue would have gone to Mark.

In correspondence following their meeting, Ms Paul stated that Mrs Sandman appeared to have a good understanding of her 2010 will and how her estate would be distributed in light of Victoria’s death.

Mark’s claims

Mark Sandman filed a claim in November 2016 seeking to recall probate of the 2010 will and obtain a grant of probate of the 2005 will. He claimed that his mother lacked testamentary capacity when she executed the 2010 will and, as a result, that will did not reflect her wishes but instead those of Victoria and Mr Giboney.

Mark also brought a claim against the partners of the law firm based on dishonest assistance. There are four components to a claim for dishonest assistance:

• the existence of a trust;
• a breach of that trust by a trustee that results in a loss;
• participation by the defendant, a third party, assisting in the breach of trust; and
• dishonesty on the part of the defendant.

In this case, Mark contended that a claim for dishonest assistance could be available where there is a breach of fiduciary duty, rather than a breach of trust. He argued that Ms Paul assisted Victoria and Mr Giboney in breaching EPAs, under which they owed fiduciary duties to Mrs Sandman. Mark pleaded that their breach was obtaining control of Mrs Sandman’s affairs “and in particular the execution of the [2010 will]”.

Mark sought damages based on the difference between what he received under the 2010 will – $440,000, being half of the residual estate – and what he would have received under the 2005 will – the entirety of the residual estate.

The law firm applied to strike out Mark’s dishonest assistance claim and for summary judgment. These applications were the subject of the Supreme Court proceedings.

Lower courts’ decisions

The High Court held that “a careful examination of individual facts” was required to establish whether dishonest assistance was made out. The evidence ought to be tested at full trial, as Mark’s pleadings “endeavoured to identify facts indicating the knowledge of the firm on which a claim of knowing assistance could be founded”.

The Court of Appeal was satisfied that, assuming the firm’s actions somehow amounted to assistance in a breach of fiduciary duties owed to Mrs Sandman, Mark could not establish at trial that the firm’s actions were undertaken dishonestly. The firm was entitled to an order for summary judgment and it was therefore not necessary to consider the strikeout application.

Supreme Court majority decision

The question for the Supreme Court was whether the Court of Appeal was correct to grant summary judgment on the basis that the material before the court showed conclusively that there was no dishonesty on the part of the firm.

Mark argued that the firm assisted with Victoria and Mr Giboney’s breach of fiduciary duty by preparing a will and having it executed, either knowing or wilfully blind to the fact that Mrs Sandman lacked capacity.

The Supreme Court set out the steps that a prudent solicitor would take if in doubt as to whether a client lacked capacity. The court commented that after taking these steps, it is arguably not up to the solicitor, who is not a medical expert, to decide whether a client has testamentary capacity and whether to follow his or her instructions. The court held at [81]:

“The position arguably is that a solicitor, even if he or she does not think a client has capacity, would nevertheless be obliged to prepare and arrange for the execution of the will. The issue of actual capacity would then be decided after the client’s death, on the basis of the evidence including expert medical evidence.”

For the purpose of the appeal, the Supreme Court was prepared to assume that the firm could be liable for dishonest assistance if Ms Paul knew Mrs Sandman lacked capacity or was wilfully blind to this. However, the court held there was no argument that the firm suspected Mrs Sandman was incompetent and deliberately decided not to inquire in case that inquiry resulted in actual knowledge.

In fact, Ms Paul had suggested a medical certificate should be obtained prior to Mrs Sandman making the 2010 will and one was provided by her doctor, certifying that Mrs Sandman had capacity. Although there were no file notes before the court, correspondence made it clear that Ms Paul was satisfied that Mrs Sandman had testamentary capacity.

The Supreme Court held that for Mark to succeed at trial, he “would have to prove that the contemporary documentation did not reflect what had happened and that the relevant documents were effectively constructed by Ms Paul … to mask her knowledge of [Mrs Sandman’s] incapacity”. This included the firm’s correspondence, the medical certificate and an independent solicitor’s certification in relation to the EPA regarding Mrs Sandman’s mental capability.

The Supreme Court commented that “[s]ummary judgment will be inappropriate where there are factual disputes and, in particular, credibility issues that cannot be resolved on the basis of the affidavit evidence”. However, Ms Paul’s credibility was not at issue. The contemporaneous documentation made it “clear that Ms Paul did not doubt Mrs Sandman’s capacity and was not wilfully blind to that possibility”.

The court also commented briefly on the strikeout application. There was nothing to suggest that either Victoria or Mr Giboney’s actions amounted to a breach of fiduciary duty. Even if the court accepted that a breach of fiduciary duty was sufficient for a dishonest assistance claim, and that it was not necessary for Mark to be the party the duty was owed to, there was no such breach. Accordingly, there was no arguable cause of action and the firm had a strong case for strikeout.

Supreme Court minority decision

In contrast to the majority, Elias CJ considered it arguable that a solicitor who is uncertain about a client’s capacity may be obliged to withdraw from acting. She stated at [132]:

“I doubt that a solicitor who knows a client to lack testamentary capacity is nevertheless obliged to carry out the client’s instructions, leaving capacity to be assessed after death. ... [i]t is arguable that a solicitor who formed the view that a client lacked capacity or was being unduly influenced would be obliged to withdraw from acting and that it would be a breach of the duties owed by the solicitor to the client for the solicitor to participate in the transaction.”

On the issue of summary judgment, Elias CJ held that Mrs Sandman’s capacity and the extent to which any material impairment or influence was known to the firm could not be properly assessed without a full trial. On this basis, the Court of Appeal erred in granting summary judgment.

However, Elias CJ held that Mark’s claim, as pleaded, was untenable in law and should be struck out. She held that Mark could not bring a claim for dishonest assistance on the basis of his potential interest under the 2005 will.

Elias CJ commented that it is not settled law whether participation in a breach of fiduciary duty is sufficient foundation for a claim of dishonest assistance, or whether there must be a breach of trust. However, she proceeded on the assumption that participation in a breach of fiduciary duty was sufficient foundation for a claim of dishonest assistance. Elias CJ held that Mark would only have standing to bring the claim if Victoria and Mr Giboney were trustees of a trust he was a beneficiary of, or if they owed Mrs Sandman fiduciary duties through which he benefitted. His potential expectation under the 2005 will, a testamentary disposition Mrs Sandman could change, was insufficient for a claim of dishonest assistance.

Conclusion

The majority decision of the Supreme Court provides some comfort to lawyers who frequently prepare wills, by recognising that it is not up to the lawyer to determine capacity. If in doubt, the position is arguably that a lawyer should nevertheless draft and arrange for execution of a will.

It will, of course, always be prudent for a lawyer to arrange for a medical certificate to be obtained if there is any concern around capacity. The reliance placed on contemporaneous documentation in this case should also serve as a reminder to lawyers of the importance of taking comprehensive file notes and recording observations or concerns about capacity in legal advice and correspondence.

The decision also demonstrates that it is not always clear-cut whether a claim is appropriate for summary judgment. The majority of the Supreme Court agreed with the Court of Appeal’s decision to grant summary judgment, while Elias CJ held that a full trial was warranted.

Sally Morris sally.morris@morrislegal.co.nz is a partner and Freya McKechnie freya.mckechnie@morrislegal.co.nz a solicitor at Morris Legal in Auckland.