THE BUNDLE OF RIGHTS:  IS IT GOOD LAW?  (PART 3)

The rationale for the Bundle of Rights doctrine was explained by Judge Burns in Robertson v R Auckland FAM-2009-004-001627, 19.11.09.

“The Family Court does get concerned … where relationship property is settled on a Trust and one party seeks to use the Trust as a device in order to try and convert that relationship property into separate property or to retain control. …. The Court will be alert to ensuring that no injustice occurs in those circumstances where the property settled was relationship property prior to being settled on a Trust.” [63].

Is this a reliable foundation for the doctrine?

A good case can be made for saying that it is not.

It goes like this.

Section 2 of the PRA defines the term “property” to include “any other right or interest”.

Did Parliament intend the words “right or interest” to include the kind of interests in Trusts that the Bundle of Rights doctrine says are relationship property? 

The definition of “property” went on the Statute book in 1976 and so far as I am aware, the first reference to the term “Bundle of Rights” was in a judgment that Robertson J delivered no less than 30 years later.

Family Trusts were commonplace in 1976 – as was divorce.  The desire of spouses to take capital from a Trust after divorce was as real then as it is now.

If the politicians had intended the definition of “property” to allow for the wholesale re-ordering of Trust wealth, as is achieved by the Bundle of Rights doctrine, why did it take three decades before there was any suggestion that the definition was intended to achieve that outcome?  Word would have got out before the enactment of the MPA in 1976 that the definition of “property” in the Act was intended to enable the wholescale re-ordering of Trust wealth following the breakdown of a relationship.  But all lawyers who are interested in this area of the law know that nothing of the sort happened.  To illustrate the prevailing belief of lawyers at the time and subsequently, the Law Society was complaining to the politicians in the late 1990s that the Act should be amended to include such powers.

Parliament next considered the statute when it debated the changes that were enacted as the PRA in 2001.  I shall refer to three important documents from this time which show that Parliament expressly refused to give the Courts powers to reorder Trust wealth after the dissolution of marriages. 

The first is the Report of the Working Group on Matrimonial Property and Family Protection, which the Ministry of Justice produced in 1998.

This Paper recommended that the Courts should have powers to distribute Trust capital to spouses after a marriage was dissolved.  Parliament rejected this recommendation and it enacted instead the much more limited powers that are contained in s 44C of the PRA.  It refused to give the Courts authority to redistribute Trust assets.

The second document is the Matrimonial Property Amendment Bill 1998 No. 109-2.  It had provisions which provided for some compensation “where Matrimonial Property is transferred to a Trust which has the effect of defeating a spouse’s interests.”  The Bill stated that the proposed sections “do not give the Court the power to order that the capital of the Trust be distributed to the affected spouse.”  The integrity of Trusts was to be maintained and there was to be no right for the Courts to redistribute Trust wealth as they thought appropriate.

As I mentioned, the Law Society argued at this time that there should be much more expansive powers in the new Act – powers which, in substance, would achieve what the Bundle of Rights doctrine achieves today.  But Parliament refused to enact them. 

The third document is the Matrimonial Property Amendment Bill and Supplementary Order Paper No. 25.   This referred to:

“Submitters [who] comment on the need for greater powers for a Court to look behind Trusts … or to vest Trust capital in one partner.”

The Paper reported that the Committee had expressly declined to “recommend any changes in regard to this submission.”  Instead, it said that the changes that were proposed with the enactment of section 44C would provide appropriate “compensatory measures where relationship property is transferred to a Trust and the transfer has the effect of defeating a partner’s rights …”.

These three materials are not well known today.

They point quite clearly to nothing less than a resolve that the Courts should not have the kind of powers that they are exercising with the Bundle of Rights doctrine today.

It would be helpful if the Judges who have spoken in favour of the  Bundle of Rights doctrine would explain how it fits properly within the context of the Parliamentary materials that are referred to in this article.