Mark Arnold Clayton v Melanie Ann Clayton

JurisdictionNew Zealand
CourtSupreme Court
JudgeO'Regan J
Judgment Date23 March 2016
Neutral Citation[2016] NZSC 29
Date23 March 2016
Docket NumberSC 23/2015

[2016] NZSC 29

IN THE SUPREME COURT OF NEW ZEALAND

Court:

Elias CJ, William Young, Glazebrook, Arnold and O'Regan JJ

SC 23/2015

Between
Mark Arnold Clayton
First Appellant
Mark Arnold Clayton as Trustee of the Vaughan Road Property Trust
Second Appellant
and
Melanie Ann Clayton
Respondent
Counsel:

M J McCartney QC and K E Sullivan for First Appellant

C R Carruthers QC and A S Butler for Second Appellant

D A T Chambers QC and J R Hosking for Respondent

Appeal against a Court of Appeal (CA) decision which held that the appellant's power to appoint and remove beneficiaries under a trust deed was relationship property of value equivalent to the assets of the trust — cross-appeal by the respondent against a CA finding that the trust was not a sham and was not illusory — whether the bundle of rights and powers held by the appellant under the trust deed were “property” for the purposes of the Property (Relationships) Act 1976 (PRA) — whether the power of appointment under the trust deed was “relationship property” for the purposes of the PRA — whether the trust was a sham or illusory.

Held: Section 2 PRA (interpretation) defined “property” as including “rights” and “interests”. The property definition in s2 PRA must be interpreted in a manner that reflected the statutory context. The reference to “any other right or interest” when interpreted in the context of social legislation, as the PRA was, broadened traditional concepts of property and as potentially inclusive of rights and interests that may not, in other contexts, be regarded as property rights or property interests.

The CA had interpreted cl7.1 as giving Mr C the unfettered right to remove not only the other Discretionary Beneficiaries but also to remove the Final Beneficiaries. That appeared to be based on the fact that the definition of “Discretionary Beneficiaries” in cl2.1 included “the Final Beneficiaries”. However, removal of the Final Beneficiaries as Discretionary Beneficiaries did not mean that they ceased to be Final Beneficiaries. Thus, even if Mr C exercised the power in cl7.1 to remove all other Discretionary Beneficiaries so that he was the only remaining Discretionary Beneficiary, that would not have any effect on the position of the Final Beneficiaries in their capacity as Final Beneficiaries (as opposed to Discretionary Beneficiaries).

In light of the error in the CA's interpretation of cl7.1 of the VRPT deed, it could not be said that cl7.1 on its own gave Mr C a power that was analogous to a power to revoke the VRPT. Other provisions made it possible for Mr C to resolve as trustee, to apply the trust capital and income to himself (to the exclusion of the Final Beneficiaries and any remaining Discretionary Beneficiaries). He could do that without considering the interests of other Discretionary Beneficiaries or those of the Final Beneficiaries even if it meant all the trust capital and income was distributed to him to the exclusion of other beneficiaries. Those provisions meant that Mr C was not constrained by any fiduciary duty when exercising the VRPT powers in his own favour to the detriment of the Final Beneficiaries. The fact that he could not remove the Final Beneficiaries did not alter the fact that he could, unrestrained by fiduciary obligations, exercise the VRPT powers to appoint the whole of the trust property to himself. The power Mr C had to apply the property of the VRPT to himself, with the freedom given to him by the certain clauses, had many of the characteristics of a general power of appointment. A general power of appointment was usually viewed as tantamount to ownership and could be treated as property for particular purposes.

Taking an approach that recognised the statutory context of the PRA, the VRPT powers were properly classified as “rights” that gave Mr C an “interest” in the VRPT and its assets. As the VRPT powers, were “acquired” by Mr C after his relationship with Mrs C began (when the VRPT was settled in 1999), they were relationship property under s8(1)(e) Property (Relationships) Act 1976 (“PRA”) (relationship property defined — all property acquired after their marriage … began). The CA had found that the property held in the VRPT was not relationship property because the property in the trust was held on trust by Mr C, not that it was Mr C's separate property. The value of the VRPT powers was equal to the value of the net assets of the VRPT. As Mr C could appoint the assets of the VRPT to himself at any time, there was no reason to differentiate the value of the power to do that from the value of the assets to which the power related.

Mr C's reliance on his advisors in relation to the VRPT and his lack of knowledge of the legal ramifications of the trust structure and the terms of the trust deed itself did not lead to the conclusion that the VRPT deed was a sham. The fact that the trust deed gave Mr C powers that amounted in effect, to a general power of appointment did not indicate that when entering into the VRPT deed. Mr C in fact intended to create a structure different from that set out in the terms of the VRPT deed itself. The VRPT deed was not a sham.

A sham was a pretence: the terms of the document did not represent what was really intended. The term “illusory trust” was not helpful. What the FC and HC had meant by that term was that no trust was created. In such a case, the document as executed represented the terms to which the parties intended to agree but, despite their subjective intention to create a trust, they failed in their attempt to do so. Mr C had intended to create a trust on the terms recorded in the VRPT deed.

The CA had erred in determining that cl7.1 of the VRPT deed was a general power of appointment and that power was relationship property. However, the VRPT powers were relationship property, the value of which was equal to the value of the net assets of the VRPT. The practical outcome was the same.

The appeal was allowed. The CA's finding that the VRPT was not a sham was upheld. The SC did not determine whether the VRPT was an illusory trust.

JUDGMENT OF THE COURT

A The appeal is allowed in part.

B We set aside the findings of the Court of Appeal that cl 7.1 of the Vaughan Road Property Trust (VRPT) trust deed (the VRPT deed) is a general power of appointment and that the power is both property and relationship property, having a value equal to that of the net assets of the VRPT.

C We substitute a finding that the powers of Mr Clayton as Principal Family Member and Trustee under cls 6.1, 7.1, 8.1 and 10.1 of the VRPT deed (read in light of cls 11.1, 14.1 and 19.1(c) of that deed) are property and relationship property having a value equal to that of the net assets of the VRPT.

D We set aside the finding of the Court of Appeal that the VRPT is not an illusory trust (i.e. that it is a valid trust). We decline to make a ruling on that issue.

E We uphold the finding of the Court of Appeal that the VRPT is not a sham.

F We make no award of costs.

REASONS

(Given by O'Regan J)

Table of Contents

Para No.

Leave

[4]

Facts

[5]

Vaughan Road Property Trust

[10]

Relevant legislation

[15]

Are the rights of Mr (and Mrs) Clayton under the VRPT deed relationship property? Is the power of appointment under cl 7.1 of the VRPT deed relationship property?

[21]

Is cl 7.1 a general power of appointment?

[22]

Property definition

[24]

The Court of Appeal finding: general power of appointment in cl 7.1

[39]

Our interpretation of cl 7.1

[45]

The VRPT powers

[50]

General power of appointment?

[59]

Are the VRPT powers “property”?

[69]

Is this interpretation contrary to Parliament's intention?

[82]

Is the property “relationship property”?

[85]

Conclusions on VRPT powers

[98]

What is the correct valuation of the VRPT powers?

[99]

Sham trust or illusory trust?

[108]

Is the VRPT deed a sham?

[110]

Is the VRPT an illusory trust?

[118]

Is there a distinction between a sham trust and an illusory trust?

[128]

Result

[131]

Costs

[135]

1

This is an appeal and cross-appeal against a decision of the Court of Appeal, which dealt with a number of aspects of the relationship property dispute between Mark and Melanie Clayton. Most of the dispute concerned trusts established by Mr Clayton both during his marriage to Mrs Clayton and after they separated. 1

2

The Court of Appeal decision dealt with issues relating to four trusts that were established during the marriage and four trusts that were established after the parties separated. The present appeal and cross-appeal relate to one of those trusts, the Vaughan Road Property Trust (VRPT). We heard this appeal and cross-appeal contemporaneously with an appeal by Mrs Clayton relating to another trust, the Claymark Trust. Our judgment in relation to that appeal is being delivered at the same time as this judgment. 2

3

On 21 December 2015, the parties notified the Court that they had reached a settlement. In their memorandum, counsel said they accepted that the Court should still deliver judgment. The Court is also of the view that it is appropriate to deliver both judgments, given the importance of the issues they raise. 3

Leave
4

Leave was granted on to the following questions relating to the VRPT: 4

  • (a) Was the Court of Appeal correct to find that there is no distinction between a sham trust and what the Family Court and the High Court described as an illusory trust? (Mrs Clayton's cross-appeal).

  • (b) Was the Court of Appeal correct to find that the VRPT was neither a sham trust nor what the Family Court and the High Court described as an illusory trust? (Mrs Clayton's cross-appeal).

  • (c) If so:

    • (i) Was the bundle of rights and powers held by Mr and/or Mrs Clayton under the VRPT deed “property” for...

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