The Clayton v Clayton decision regarding trustee powers, and other powers, equating to property continues to be very relevant in the trust law area both in New Zealand and overseas.  Effectively the courts are looking at the substance of the relationships between the parties of a trust, but the provisions of the deed of trust are still extremely important in the end result of any court decision.  This can be demonstrated by the following two cases.

Goldie v Campbell: in the New Zealand High Court case the settlor was also the trustee and had the power of appointment and removal of trustees.  Based on Clayton principles on first glance, this would make the trust structure open to attack by third parties based on the power that individual wielded and this was argued in the hearing.  However, the High Court after reviewing the deed of trust ultimately found the trust assets were not relationship property as there were restrictions on those powers and the trust was formed for specific purposes.  The most important thing was that the person holding these powers could not apply the trust assets for his sole benefit which was different to Clayton.

Mezhprom v Pugachev: this was a UK High Court case but it involved a number of New Zealand governing law trusts.  The settlor and discretionary beneficiary in question was also the Protector of the trust and had to give his consent to a number of trustee decisions, including distributions, investment, removal of beneficiaries etc.  The judge in question ruled that the powers held by that person were not restricted and could be exercised solely for his benefit.  As a result, the judge viewed that the beneficial ownership of the trust assets had never been transferred to the trustees as control over those assets had never been given up.

Based on current case law these decisions are hardly surprising.  Neither trusts were considered shams but the trustee, and other, powers are very important, especially if the holder of those powers can exercise them solely for his or her benefit.  We suspect there is a large number of trusts in New Zealand that is attacked in court would fail and the trust assets would be available to settle third-party creditor claims.

Marcus Diprose

As always, the Covisory team is happy to talk to you about your needs, now and going forward. If there is anything we can do to help, please call or email me.

Please note that the information in this article is for informative purposes only and should not be relied on as legal advice.