HOW THE COURTS CAN SUCCESSFULLY ATTACK TRUSTS AND SOME THINGS YOU CAN DO ABOUT IT
by Anthony Grant
1. Introduction
1.1 My Paper today identifies various ways by which the Courts can modify Trusts against a person’s interests. When I refer to a “person” in this context I mean someone who was associated with the Trust at the outset and who has various expectations concerning its operation. He or she will usually be a settlor, trustee, beneficiary, or appointor. I will also give some suggestions of ways by which the likelihood of judicial intervention might be reduced.
1.2 The Paper does not contain an academic discussion of each of the 19 methods, or of many of the cases that relate to them. Nor does it refer to the reasoning – expressed or not – which has caused the Courts to justify each of the means of intervention.
2. The 19 Means of Intervention.
2.1 (1) Section 182 of the Family Proceedings Act.
Section 182 of the Family Proceedings Act gives the Courts a broad general power to modify all “nuptial” settlements in any manner that they think appropriate. It applies only to marriages and not to de facto unions or civil unions.
A “nuptial” settlement has been interpreted by the Supreme Court in Ward v Ward [2009] NZSC 125 to mean a settlement that relates to a specific marriage.
The test that Tipping J gave in that case for authorising the modification of a nuptial settlement was this:
“We consider the proper way to address whether an order should be made under [section] 182 is to identify all relevant expectations which the parties, and in particular the applicant party, had of the settlement at the time it was made. Those expectations should then be compared with the expectations which the parties, and in particular the applicant party, have of the settlement in the changed circumstances brought about by the dissolution. The Court’s task is to assess how best in the changed circumstances the reasonable expectations the applicant had of the settlement should now be fulfilled. If the dissolution has not affected the implementation of the applicant’s previous expectations, there will be no call for an order.”[1]
The case of Williams v Williams (2009)[2] illustrates the wide powers that the Court has under this section. The Court created three Trusts in the place of the original Trust. The first Trust contained 10% of the net sale proceeds of the original Trust’s assets, to be settled for the benefit of a couple’s children. The Public Trustee was appointed its sole Trustee.
A second Trust contained 55% of the balance of the assets. The wife was appointed a Trustee of that Trust and the Trust was primarily established for her benefit.
Forty-five percent of the balance was to be settled on a Trust for the primary benefit of the husband and he was to be a Trustee of that Trust.
2.2 (2) Modification of a “nuptial” settlement by a foreign court exercising powers that are similar to s 182 of the Family Proceedings Act.
Section 182 had its origins in England in the 19th century. A number of Commonwealth countries have enacted it and it exists in their laws in a similar form to the way it is currently enacted here. In Australia it appears as s 85A of the Family Law Act (Cth) 1975.
In England, the High Court has been bold enough – or arrogant enough – to use the section to modify overseas Trusts.[3] If the assets of the foreign Trusts are in England, there appears to be an expectation that the English Courts will implement the Orders and re-distribute those assets. Where an Order is made in respect of a foreign Trust whose assets are in another country, it cannot be predicted that the country in which the Trust’s assets are situated will agree to enforce the Order there.
I have a case at present in which an Australian Court has made Orders that purport to alter the governance of a New Zealand Trust. It did this by a “Consent Order” in which an office-holder was persuaded to relinquish his powers of appointment and to give a variety of undertakings and commitments. The way in which s 85A is interpreted in Australia differs from the way in which our Supreme Court has held that the section should be interpreted here and trustees of New Zealand Trusts may be at risk that orders for modification of New Zealand Trusts can be made in Australia and elsewhere in circumstances that the New Zealand Courts would not allow. The extent to which an order that a foreign court makes to modify a New Zealand Trust will be implemented in New Zealand is too complex a topic to be dealt with in this Paper.
2.3 (3) The “Bundle of Rights” doctrine
Chambers J held in Walker v Walker [2007] NZFLR 772 that a “party’s … interest in [a] Trust – whether … as settlor, trustee, appointor or beneficiary, … may be relationship property.”[4] He said that the following interests in a Trust were items of relationship property:
· A directorship of a trustee Company.
· The shares of the trustee Company.
· The power to appoint and remove directors of a trustee Company.
· The power to appoint and remove trustees of the Trust.
· The parties’ discretionary interests under the Trust.
In the later case of Harrison v Harrison[5] Robertson J said “There was also a bundle of rights associated with [Mr and Mrs Harrison’s] positions as discretionary beneficiaries under the [Family Trust] and as the joint holders of the power of appointment of the … trustees.”[6]
At this time, the doctrine has not been subjected to any rigorous analysis and the extent to which it will survive as good law remains to be seen.
It was recently applied by the Family Court in Grant v Grant (2010)[7]. That decision has been appealed to the High Court and Woolford J has reserved his decision. When it is delivered, it may be one of the more interesting decisions in this area of the law in 2011.
2.4 (4) The “Bundle of Rights”: Variant Doctrine No. 1
Conversion of Trust property into relationship property.
Judge Burns’ decision in Robertson v Robertson (2009)[8] may be described as a variant of the “Bundle of Rights” doctrine. He identified what he said were seven “property interests” in a Trust and made an Occupation Order in favour of the wife. It was implicit in his ruling that the “Bundle of Rights” doctrine[9] can convert Trust property into relationship property – a development that seems to go far beyond the Court of Appeal’s decisions in Walker and Harrison.
2.5 (5) The “Bundle of Rights”: Variant Doctrine No. 2. Appropriation by Official Assignee of a Bankrupt’s interests in a Trust
Judge Burns has reserved a decision in a case that was argued before Christmas in which I understand that the Official Assignee claims that it owns all of the rights that are available to a bankrupt pursuant to the “Bundle of Rights” doctrine. The OA says that these rights are items of “property” that, in accordance with the insolvency legislation, vest in the Official Assignee.
Although the outcome of the case is not yet known, I have included this as a mechanism for modifying a Trust against a person’s will since the existence of the OA’s arguments illustrates the possibility that the OA may be able to intercept Trust powers and the other so-called items of “property” that were referred to in Walker and Harrison and use them to confer benefits on a bankrupt’s creditors.
If Judge Burns gives a ruling along these lines, the use of the conventional discretionary Trust for creditor protection will in many cases be comprehensively defeated.
2.6 (6) The imposition of fines based upon a defendant’s “interests” in a Trust
In Hill v Ministry of Fisheries (2005)[10] Fogarty J upheld an Order of the District Court that a discretionary beneficiary who was said to be in “effective control” of the assets of some Trusts should make reparation, based upon the presumption that the debtor “reliably expects the trustees to do his bidding”.[11]
Following on from this precedent Judge Faris recently fined two directors of a Company $15,000 each and ordered them to pay $97,000 in reparations.[12] The directors could only pay these sums if the Trustees released sufficient Trust moneys to enable them to do so.
2.7 (7) Making a financial Order on the presumption that trustees will pay so much of a loan account to a Trust creditor to enable him or her to pay the sum
In Taranaki Regional Council v Moulind (2010)[13] Judge Dwyer made an Order that a Mr Moulind should pay fines and costs of more than $50,000. He did this, knowing that Mr Moulind could only pay the sums if the Trustees of a family trust would agree to release sufficient sums to him from a current account that he had with a Trust.
The Judge thought it likely that, when faced with the Order, the Trustees would find a way to pay sufficient moneys to him to enable him to pay the fines.
2.8 (8) “Ignoring” a Trust as it is a “device” to deceive creditors.
A third variation of this form of reasoning was given in Matarangi Beach Estates Limited v Dawson & Anor[14] In this case, Associate Judge Hole said that he could “ignore” the existence of a Trust that had defaulted on its contractual commitments. He could look instead to the people who controlled the corporate trustee.
A husband and wife had paid deposits on two properties. They defaulted on paying the balance of the purchase price and when they were sued for specific performance, they said that they couldn’t realise the equity from the house in which they lived because it was owned by a Trust.
The Court proceedings were filed in March 2008. At that time Mr and Mrs Dawson were recorded on the Title of their house as its owners. The purchase price had been paid from the proceeds of sale of their previous house that had been owned by a Trust.
Their solicitor advised them that the Trust’s ownership of the property would be more obvious if it was owned by a corporate trustee and in about July 2008 they arranged for a corporate trustee to take ownership of the property,
Hole AJ said that the “appropriate way of looking at the defendants’ financial situation is to … ignore the fact [that] the home is settled in a Trust. This is a device which has been used for the benefit of the defendants.”
By “ignoring” the Trust the Court was able to make an Order for specific performance, the effect of which was to force Mr and Mrs Dawson to face imprisonment for contempt of Court if they didn’t arrange for the Trust to provide them with sufficient funds to pay the balance of the purchase price for the two properties.
This decision has similarities to cases in which the Courts have imposed fines based upon an assumption that trustees will release sufficient moneys to defendants to enable them to pay the fines, costs and reparations. The weakness of the decision is that no reference was made in the Judgment to the powers that Mr and Mrs Dawson had under the Trust to ensure that they could arrange for moneys to be released to them. There appears to have been an assumption that they had such powers.
2.9 (9) Imposing a constructive trust over the assets of a Trust
The Courts have in some instances imposed a constructive trust over Trust assets. Such claims usually arise when a trustee leads his or her spouse to believe that the assets of the Trust are “their’s” - collectively. The innocent partner is encouraged to add value to Trust assets in the belief that he or she will receive the fruits of the investment in due course.
In Q v Q (2005)[15] Judge Fitzgerald upheld such a claim in circumstances where three of the four trustees had no knowledge of the representations on which the innocent spouse relied. This is a matter of particular interest since trustees are, in the absence of a rule to the contrary, obliged to act unanimously and one trustee cannot bind the others.
In paragraph 2.18 of this Paper I refer to a passage from Justice Blanchard’s Judgment in Regal Castings v Lightbody where he said that the knowledge of one trustee “tainted” the other trustees.
This is a commonsense approach and provides a pathway to explain how the unanimity rule can be undermined by the actions of one of a number of trustees.
2.10 (10) Section 44 of the Property (Relationships) Act
This section provides that:
“Where [the … Court] is satisfied that any disposition of property has been made … in order to defeat the claim or rights of any person … the Court may … make any order under subsection (2) of this section.”
Subsection (2) empowers the Court to make three types of orders.
A person who receives property “otherwise than in good faith and for valuable consideration” can be ordered to transfer it “to such person as the Court directs” and to “pay into Court, or to such person as the Court directs, a sum not exceeding the difference between the value of the consideration and the value of the property.”
If the word “property” in this section is to be interpreted in accordance with the Walker and Harrison decisions, the section ought in theory to authorise the forcible transfer of powers of appointment in a Trust. If a man settled a Trust and gave himself the powers to appoint and remove trustees, the Court may feel able to direct that he should transfer the power to his wife.
If, on the other hand, the Trust was settled by someone else and that person had given the husband the power of appointment, the Court would probably feel unable to transfer the power of appointment.
Conjecture of this nature shows the extremity of the Walker and Harrison decisions. The notion that Trust powers are like bits of confetti that can be scattered over spouses when they separate belittles the law of Trusts and undermines the fundamental notions of accountability and responsibility which the law requires of trustees.
2.11 (11) Section 44C of the Property (Relationships) Act
If, during the course of a relationship, relationship property has been “disposed of … to a Trust” and the disposition “has the effect of defeating the claim or rights of one of the parties”, the Court is empowered under s 44C to make an order by which the trustees of the Trust must “pay the whole or part of the income of the Trust, either for a specified period or until a specified amount has been paid” to the disadvantaged spouse.
2.12 (12) Tracing trust assets into subsequent entities
The case of Frimley Estate Limited v Stonewall Homes Limited (2010)[16] concerned a Trust that entered into a contract to buy a number of properties for $3.3m. It paid a deposit but when time came for settlement, it defaulted on its obligations and it was sued for damages. The Trust had a corporate trustee. It arranged for the assets of the Trust to be transferred to a second Trust.
The contractual liability of the corporate trustee of the first Trust was limited to the assets of the Trust. The director who controlled the corporate trustee apparently thought that if he arranged for the Trust to have no assets, the trustee would have no liability.
The High Court disagreed and imposed a “freezing” Order (ie a Mareva Order) over the assets of the second Trust.
In other words, the Court may not be fooled by a crude attempt to implant assets from one Trust into another, and can pursue the assets into a second Trust.
2.13 (13) Persuading a Court to remove a “co-operative” trustee and appoint a less co-operative trustee in his/her place
Trustees control the destiny of Trust assets. A “sympathetic” trustee can be very important to a beneficiary. If the trustee is removed, the successor Trustee may be unsympathetic to the beneficiary and give the beneficiary nothing. In this way, Trust assets can be alienated from an anticipated beneficiary by securing an order that a trustee must be removed and replaced by another person.
Section 51 of the Trustee Act 1956 provides that the Court can appoint new trustees whenever it is found “inexpedient, difficult, or impractical so to do without the assistance of the Court”. Section 51(2) adds as common grounds for removal “misconduct”; a conviction of a crime of dishonesty; bankruptcy; and mental disorder. Although s.51(1) refers only to the “appointment” of new trustees and not to the “removal of existing ones”, the Courts have interpreted this section to authorise both the appointment and removal of trustees.
The Courts also have an inherent jurisdiction to remove trustees and they have used this jurisdiction more frequently in recent years. Paterson J did so in Clifton v Clifton (2004)[17].
Keane J followed that decision in Oxley v Lookout Holdings Limited (2008)[18] when he prevented an appointor from exercising his powers of appointment without first obtaining permission from the Court. Keane J made this Order without informing the appointor of the application and giving him the opportunity to make representations to resist it. This appears to have been done on the assumption that the appointor was an addict who would not have been materially assisted by being given an opportunity to be heard.
2.14 (14) Section 64A – varying Trusts
S64A gives the Court wide powers to vary or revoke any of the provisions of a Trust that relate to infant beneficiaries.
So far as adults are concerned, changes to the Trust must be made with their express permission.
The power to alter beneficial interests under s.64A is therefore quite limited, as it only relates to infant beneficiaries.
2.15 (15) Section 60H of the Securities Act
S.60H of the Securities Act empowers the Court to “freeze” the assets of a person who either “holds” or “controls” the assets.
The meaning of the word “controls” has not yet been determined by the Courts.
The Securities Commission is currently investigating the possibility of pursuing claims against a Mr Mark Hotchin. On 9.12.10 Winkelmann J “froze” assets of two Trusts that own properties that are “associated” with Mr Hotchin. The titles of the properties record that they are owned by Trust Companies of which Mr Hotchin is neither a shareholder nor a director. The Court has sealed the file and no reasoned decision has yet been given to explain how Mr Hotchin “controls” assets that are owned by the two corporate trustees of which he is neither a director or shareholder.
The parties to that litigation went back to Court recently and the entitlement of the Commission to freeze the assets of the Trusts was argued at some length. I expect that Winkelmann J will soon deliver a reasoned decision in which she will explain how Mr Hotchin “controls” the Trusts if, in the light of additional evidence and argument, she concludes that he does, in fact, do so.
2.16 (16) Sham
The Court of Appeal’s decision in OA v Wilson [2008] 3 NZLR 45 describes the circumstances in which the Courts will say that a Trust is a sham and can be judicially ignored.
In essence, the Court held that a sham Trust will arise where there is a common intention between the settlor and the trustees to create something other than a genuine Trust, usually from its inception.
If a Trust is held to be a sham, the assets will be treated as the property of the “shammer”, to be disposed of as the Court thinks fit.
2.17 (17) Ordering a party to transfer Trust “property” to another – s 18C of the Property (Relationship) Act
Section 18C of the PRA empowers the Court to make various orders where relationship property has been “materially diminished in value by the deliberate actions … of one spouse or de facto partner.” If the “Bundle of Rights” doctrine is good law, the transfer of powers of appointment to a third party may constitute a “material diminution” of relationship property.
One of the remedies that is available to the Court is the ability to “order [a party] to transfer … any property whether the property is relationship property or separate property.”
If the “Bundle of Rights” doctrine is good law, and “interests” in Trusts are relationship property, the Court has power under this section to transfer property interests in a Trust to the other spouse.
I am not aware of any such order having been made to date, but if the Bundle of Rights doctrine is good law, I see no reason in principle why such an order should not be made – except where the spouse does not have power to transfer the power of appointment because, for example, that power vests in a third party.
2.18 (18) Property Law Act, s 346 of the Property Law Act 2007
A disposition to a Trust, made by an insolvent person can be set aside.[19] In Regal Castings Ltd v Lightbody [2009] 2 NZLR 433, Blanchard J spoke of the circumstances in which the predecessor provision, s 60 of the Property Law Act 1952, could be invoked:
“Whenever the circumstances are such that the debtor must have known that in alienating property, and thereby hindering, delaying or defeating creditors’ recourse to that property, he or she was exposing them to a significantly enhanced risk of not recovering the amounts owing to them, then the debtor must be taken to have intended this consequence, even if it was not actually the debtor’s wish to cause them loss …”[20]
“The most simple case is one in which an insolvent debtor has gifted a substantial asset to … trustees of a family Trust, thereby subtracting them from an already insufficient quantum of assets …”[21]
“It is not necessary to show that the debtor was actually insolvent. A transaction can expose creditors to risk in circumstances where the debtor remains presently able to pay his or her debts as they fall due, but there is a high level of probability that this situation will not continue. A gift or a transfer of property at an undervalue in these circumstances may be with the intention of hindering, delaying or defeating creditors.”[22]
The fact that trustees are not aware of any intention to defraud a creditor may not assist them. Blanchard J said that the ignorance of the professional trustee in that case “cannot immunise the Trust” since the debtor was a co-trustee and his knowledge “taint[ed] the receipt by the trustees of the property.”[23]
The Supreme Court held in the Regal Castings case that the trustees of the Trust that had acquired the property were to hold one half of it for the Official Assignee of Mr Lightbody’s property, to be dealt with by the OA for the benefit of Mr Lightbody’s creditors.
The trustees had in that case agreed to buy the interests in some land for $230,000 and “payment” of that sum had been satisfied by a gifting programme some years prior to Mr Lightbody’s insolvency.
The fact that good consideration had been given by the Trust for the property (in the sense that gifting is considered at law to constitute good consideration) did not protect it from Mr Lightbody’s creditors.
The current provision in the Property Law Act – s 346 – applies to “dispositions of property [that were made] with intent to prejudice a creditor, or by way of gift, or without receiving reasonably equivalent value in exchange.” Such transactions can be set aside if the person who disposes of the property:
· “Was insolvent at the time, or became insolvent as a result of, making the disposition”; or
· “Was engaged, or was about to engage, in a business or transaction for which the remaining assets of the [disposer] were, given the nature of the business or transaction, unreasonably small”; or
· “Intended to incur, or believed, or reasonably should have believed, that the debtor would incur, debts beyond the debtor’s ability to pay.”[24]
When these criteria are read in conjunction with the statements that Blanchard J made in Regal Castings, it is clear that assets that are transferred to a Trust may be at risk if the transferor gets into financial difficulty within a few years of the transfer.
2.19 (10) Lack of three certainties
It is commonly said that three “certainties” must exist before a Court will recognise the existence of a Trust. The simplicity of this test is not universally accepted.
One of the three “certainties” is the certainty of intention to create a Trust. The case of Antle v Canada[25] is a recent illustration where a Court ignored the existence of a Trust on the grounds that it lacked that certainty.
The Trust under consideration in that case was good in form. Its trustee was a young lawyer who, in the words of the Judge, had “satisfied himself that he could avoid any potential liability by ensuring that all decisions he made were in the best interests of the beneficiary …. He confirmed that he had every intent to act as trustee and would not engage in any fake or sham arrangement.”
Notwithstanding the genuine intentions of the trustee, it was held that there was no certainty of intention, and no Trust. A series of transactions were to take place in a specific sequence during the course of a day. At the end of the day there would be no need for the Trust to exist. In such circumstances the good intentions of the lawyer trustee were thought not to be sufficiently relevant.[26]
3. How can Trusts be drafted to successfully avoid these attacks?
3.1 There is no single method that will, in Justice Blanchard’s terminology[27], “immunise” a Trust from judicial attack. Each of the methods of attack must be considered separately.
3.2 The task of devising comprehensive ways to help preserve Trust assets from each of the 19 scenarios is much bigger than I propose to deal with in this Paper. I will, instead, give some suggestions for what might be done.
3.3 Vulnerability: S 182 of the Family Proceedings Act
Responses
· Establish a Trust at a time when a marriage between two identified people is not in contemplation so that it cannot be categorised as a “nuptial” settlement.
· Have a significant number of beneficiaries, all of whose interests ought to be taken into account when a Court considers whether to make an order under s 182.
· Incorporate the type of provisions that often appear in tax haven Trusts by which trustees are prohibited from making distributions to beneficiaries in various circumstances. (It is possible that a New Zealand Court would ignore such provisions on the grounds of public policy.)
· Arrange for Trust assets to be held overseas and in a country which is not subject to the Reciprocal Enforcement of Judgments regime.
· Arrange for the proper law of the Trust to be non-New Zealand law – either at the outset or via “flight” or “flee” provisions.
· Arrange for the Trust to invest in overseas real estate.[28]
3.4 Vulnerability. Orders made by overseas Courts under the equivalent of s 182.
Responses
· Incorporate provisions into a Trust that prevent the Trustees from co-operating with orders of a foreign court.
· Incorporate “flight” or “flee” provisions to change the law of the Trust to that of a less co-operative country.
· Incorporate some of the mechanisms referred to in paragraph 3.3 above.
3.5 Vulnerability: The “Bundle of Rights” Doctrine
Response
· Revert to the type of Trust provisions and structures that existed prior to the abolition of Estate Duty. This is easy to say but will be met by strong resistance from the legal and accounting professionals since the freedoms in current Trust structures are so great when contrasted with the constraint of the pre-1992 structures. There are some compromises that may be more acceptable such as the sharing of powers of appointment.
3.6 Vulnerability: The “Bundle of Rights”, Variant Doctrine No. 1 (which holds that Trust property can be converted into relationship property)
Response
· Revert to the type of Trust provisions and structures that existed prior to the abolition of Estate Duty.
I have not included other potential actions that can be taken to frustrate Variant Doctrine No. 1 as I think it likely that if this decision is reviewed by a higher court, it will not survive intact.
3.7 Vulnerability: The “Bundle of Rights” Variant Doctrine No. 2. (Appropriation by the Official Assignee of a bankrupt’s interests in a Trust.)
Response
· See paragraph 3.5 above.
3.8 Vulnerability: The imposition of fines based upon a defendant’s interests in a Trust.
Response
· See paragraph 3.3 and 3.5 above.
3.9 Vulnerability: Making a financial order on the presumption that Trustees will pay so much of a loan account to a person to enable him/her to pay the ordered sum.
Responses
· The creditor can make a gift of the entire debt under the proposed legislation on gifting, thereby removing the existence of the loan account.
· Incorporate a Hawkins-type clause into the Trust.
3.10 Vulnerability: Imposing a constructive Trust over the assets of a Trust.
Response
· Educate trustees on the risks that they run if they encourage a person to have expectations of entitlement under a Trust.
· Instruct Trustees to have an annual meeting and have as a standard agenda item, an enquiry to learn whether any expectations of entitlement have been created by any trustees.
· Incorporate into an annual agenda a reminder that in a Trust with two or more trustees, all decisions must be unanimous so that no trustee can commit Trust property without the permission of the others.[29]
3.11 Vulnerability: Section 44 of the PRA.
Response
· Arrange for Trust powers to be vested in people other than the spouses.
3.12 Vulnerability: Section 44C of the PRA.
Responses
· Manage a Trust’s assets so that they do not produce a stream of income.
· (Subject to the IRD’s acceptance of the practice) arrange for Trust wealth to be accessed via loans rather than income.
3.13 Vulnerability: Tracing Trust assets into subsequent entities.
Response
· Avoid actions that will be likely to incite judges to make tracing orders.
3.14 Vulnerability: Persuading a court to remove a trustee and appoint a less sympathetic person in his/her place.
Response
· Educate trustees about their responsibilities to beneficiaries and of the need to manage a Trust in a way that will avoid the risk of an application to remove trustees.
3.15 Vulnerability: Section 60H of the Securities Act.
Response
· See paragraph 3.5 above.
3.16 Vulnerability: Sham Trusts.
Response
· Educate prospective trustees about the need for a Trust to be a genuine entity.
3.17 Vulnerability: Section 18C of the PRA – Material diminution of relationship property by the deliberate actions of a spouse.
Responses
· Structure powers of appointment appropriately at the outset.
· Don’t transfer powers of appointment shortly before trouble. Instead, transfer powers when times are good.
3.18 Vulnerability: Section 346 of the Property Law Act 2007 – Alienating property that has the effect of defeating creditors.
Response
· Educate clients to establish Trusts for creditor protection, long before they confront financial difficulties.
3.19 Vulnerability: “Ignoring” a Trust – Matarangi v Dawson
Response
· See paragraph 3.5 above.
3.20 Vulnerability: Lack of three certainties
Response
· Educate clients that if a Trust is to be operated as a “puppet”, the “puppet master” who has full control of the puppet’s actions may find that the Courts regard the Trust as a non-genuine entity.
4. Education
4.1 As you will see, I have recommended in a number of instances that trustees should be “educated” in aspects of Trusts law. I suggest that solicitors should recommend to all of their trustee clients that they should have an annual meeting with an agenda item to alert them to risks that may result in the loss of Trust property. Client newsletters that refer to risks will also be helpful.
4.2 The more knowledge there is of good Trust practices, the less likely it is that the Courts will be tempted to intervene in Trust affairs in the kind of ways to which I have referred in this Paper.
[1] Paragraph 25.
[2] High Court, Christchurch, CIV-2006-409-002948, 1 May 2009, French J.
[3] E.g E v E [1990] 2 FLR 233.
[4] Paragraph 38.
[5] [2009] NZFLR 687.
[6] Paragraph 10.
[7] Family Court, North Shore, FAM-2007-044-591, 13 July 2010, Judge Ryan.
[8] Family Court, Auckland, FAM-2009-004-001627/1628.
[9] I referred in detail to this case in an article entitled “The Bundle of Rights Turns Trust to Dust”, NZ Lawyer, 5.2.10.
[10] High Court, Christchurch, CRI-2004-409-204, 18 February 2005.
[11] Paragraph 45.
[12] See my article in NZ Lawyer, 1.10.10 – “The Courts find a new way to break into Trusts: Pay up or go to jail!”.
[13] District Court, New Plymouth blank CRI-2008-021-1238, 16 November 2010
[14] (2008) 6 NZ Conv C 194,667
[15] 24.2.05, Family Court, Auckland, Fam blank 2002 –004-0002523
[16] High Court, Napier CIV 2009-441-237, 23.12.10
[17] High Court, Auckland CIV, 2004-404-4185, 5.11.04
[18] High Court, Auckland, CIV 2007-404-4828, 24.4.08
[19] Section 346 Property Law Act 2007.
[20] At para 54.
[21] At para 55.
[22] At para 56.
[23] At para 70.
[24] Section 346(2).
[25] (2009) TCC 465
[26] The decision was appealed on other grounds: Antle v Canada 2010 FCA 280.
[27] Regal Castings Ltd v Lightbody [2009] 2 NZLR, para 70.
[28] The Courts cannot make orders under the PRA in relation to overseas real estate: s 7 of that Act. This suggests a parliamentary intention that New Zealand Courts ought not to be able to make orders that affect ownership of overseas real estate, not just in the context of the PRA but also in other legislative contexts.
[29] This suggestion presumes that the Trust requires unanimity. A Trust Deed can, of course, dispense with this requirement.