Brkic v White
[2021] NZCA 670
•9 December 2021 at 2.30 pm
| IN THE COURT OF APPEAL OF NEW ZEALAND I TE KŌTI PĪRA O AOTEAROA |
| CA276/2021 [2021] NZCA 670 |
| BETWEEN | GORDON BRKIC and EMILIA BRKIC AS TRUSTEES OF THE MADEG TRUST |
| AND | CAROLINE RUTH WHITE and |
| AND | THE SHERIFF OF THE HIGH COURT AT AUCKLAND |
| Hearing: | 1 November 2021 |
Court: | Cooper, Duffy and Dunningham JJ |
Counsel: | P L Rice for Appellants |
Judgment: | 9 December 2021 at 2.30 pm |
JUDGMENT OF THE COURT
AThe appeal is dismissed.
BThe appellants must pay the first respondents’ costs for a standard appeal on a band A basis, plus usual disbursements.
____________________________________________________________________
REASONS OF THE COURT
(Given by Dunningham J)
This appeal concerns whether the first-named respondent, Ms Caroline White, has an interest in land registered in her name which is “tantamount to ownership of the land”, such that the appellants can obtain a charging order over the land and sell it to recover a judgment debt owed by Ms White.[1] The first respondents contend that Ms White owns the land not in her personal capacity but as trustee of the Awhitu Trust (the Trust).
[1]This judgment debt is owed by Ms White and Crummer Trustees No.82 Ltd as trustees of the Grafton Road Trust, which is a separate trust independent of the Awhitu Trust.
In the High Court, Woolford J held that this case could be distinguished from the cases Clayton v Clayton and Webb v Webb, which were relied on by the appellants, and Ms White owned the land as a trustee of the Trust.[2] The charging order which the plaintiffs had placed on the land, and the consequential sale order, were set aside.[3]
[2]White v Brkic [2021] NZHC 919 [High Court judgment] at [12]–[16], citing Clayton v Clayton [Vaughan Road Property Trust] [2016] NZSC 29, [2016] 1 NZLR 551; and Webb v Webb [2020] UKPC 22, [2021] 2 NZLR 376.
[3]At [22].
The appellants appeal that decision, saying the High Court erred in holding that the Trust was not an objective nullity and remained on foot as a properly functioning trust.[4] They say Ms White has such power over the trust property that she should be treated as the owner, and the charging order and sale order reinstated.
[4]At [19].
At the outset we note that the fact the charging order has lapsed does not, as the first respondents suggest, mean the appeal is moot. There is no impediment to this Court reinstating that order, if it is otherwise appropriate to do so.
The background facts
The relevant factual background was set out succinctly in Woolford J’s judgment as follows:
[2] On 1 March 2011, Ms White established the Awhitu Trust as settlor in anticipation of purchasing the land. Ms White and Crummer Trustees No.79 Limited were the original trustees. The discretionary beneficiaries are the final beneficiaries and any issue of any final beneficiary. The final beneficiaries are Ms White, Keegan David Gray and Renee Caroline Gray, the children of Ms White’s partner, John Gray.
[3] Crummer Trustees No.79 Limited ceased to be a trustee on 15 April 2014, when it was liquidated. On 4 September 2014, Ms White appointed her brother, John Seakins White, as a replacement trustee and an additional discretionary beneficiary of the Awhitu Trust. Then on 7 February 2020, Ms White appointed her brother’s daughter, Vaile Seakins White, as an additional discretionary beneficiary of the Awhitu Trust. Vaile White was born seven days earlier, on 31 January 2020.
[4] Ms White says that she and Crummer Trustees No.79 Limited, acting as trustees of the Awhitu Trust, purchased the land on 22 July 2011. After Crummer Trustees No.79 Limited was placed into liquidation and removed from the register, ownership of the land was transferred to Ms White on 4 September 2014. Her brother was appointed as trustee the same day, but registered ownership was not transferred into both of their names because her brother was in China at the time. The transfer was a bare transfer and Ms White says she did not purchase the land in her personal capacity. The land was, and remains, owned by the Awhitu Trust.
[5] In obtaining the charging and sale orders, the first defendants relied on two judgments of Moore J dated 18 June 2018 and 6 November 2018 in which he ordered that Ms White and Crummer Trustees No.82 Limited, sued as trustees of the Grafton Road Trust, pay the trustees of the Madeg Trust (the first defendants in this proceeding) the following sums:
$109,820.00 being a vendor loan in respect of the sale of an apartment in Auckland to the Grafton Road Trust due for repayment by 10 May 2012.
$169,122.80being interest at 22 per cent from 10 May 2012 to 10 May 2019.
$111,736.95 being indemnity costs on the proceedings.
$13,190.32 being disbursements.
Total $403,870.07
The Awhitu trust deed
The appellants rely on the terms of the trust deed to support their argument that Ms White retains such broad powers to control the Trust and its property, without regard to the interest of the other beneficiaries, that she should be treated as both the legal and beneficial owner of the trust property. Indeed, Mr Rice, on behalf of the appellants, says the powers and discretions given to her are virtually identical to the powers and discretions given to Mr Clayton under the Vaughan Road Property Trust which was considered in the Clayton decision. The comparison between the two trust deeds was set out in table form by counsel, as follows:
| Vaughan Road Property Trust | Awhitu Trust |
| As “Principal Family Member” Mr Clayton has the power to appoint and remove discretionary beneficiaries (cl 7.1) and trustees (cl 17.1) | As “Settlor” Ms White has the power to appoint and remove discretionary beneficiaries (cl 7.1) and trustees (cl 17.1) |
| The trustees have the power: To pay or apply all of the capital to any of the discretionary beneficiaries (cl 6.1(a)) | The trustees (which includes a sole corporate trustee) have the power: To pay or apply all of the capital to any of the discretionary beneficiaries (cl 6.1(a)) |
| To resettle the trust fund upon the trustees of any trust which include as beneficiaries any one or more of the discretionary beneficiaries (cl 8.1) | To resettle the trust fund upon the trustees of any trust which include as beneficiaries any one or more of the discretionary beneficiaries (cl 8.1) |
| To bring forward the vesting date (cl 10) | To bring forward the vesting date (cl 2.1 ‘Vesting Day’) |
| To exercise powers without considering the interests of all beneficiaries and in a way that might be contrary to the interests of present or future beneficiaries (cl 11.1) | To exercise powers without considering the interests of all beneficiaries and in a way that might be contrary to the interests of present or future beneficiaries (cl 11.1) |
| A trustee who is also a beneficiary is entitled to exercise a power in her own favour (cl 14.1) | No trustee who is also a beneficiary may exercise a power in her own favour (cl 14.1) but the other Trustee may do so (cl 14.2) |
| To exercise any power notwithstanding any conflict of interest created (cl 19.1) | To exercise any power notwithstanding any conflict of interest created (cl 19.1) |
| To vary or revoke (with the prior consent of the Settlor) any provision concerning the management or administration of the Trust (cl 23.1) | To vary or revoke (with the prior consent of the Settlor) any of the provisions of the deed (cl 24.1) |
| The VRPT deed must be interpreted in a manner that broadens the powers and restricts the liabilities of the trustees (cl 2.2(b)) | The Awhitu deed must be interpreted in a manner that broadens the powers and restricts the liabilities of the trustees (cl 2.2(b)) |
The appellants point out that the Trust appoints Ms White as the settlor of the Trust, a trustee, a discretionary beneficiary and a final beneficiary. The trust deed grants broad powers to Ms White, both as settlor and trustee, to control the Trust and its property, without regard to the interest of the other beneficiaries.
In her capacity as settlor, Ms White may appoint any person to become a member of the class of discretionary beneficiaries or remove any person from the class of discretionary beneficiaries.[5] Importantly, Ms White also has a power, as settlor, to appoint and remove trustees.[6] The trustees may be constituted either by a minimum of two individuals,[7] or by a sole corporate trustee.[8] The power of appointment is a general one and may “subject to any contrary intention expressed in the deed (if any) transferring the power to that person, exercise that power in favour of himself or herself”.[9]
[5]Deed of Trust Establishing Awhitu Trust [Awhitu Trust Deed], cl 7.1.
[6]Clause 17.1.
[7]Clause 12.6.
[8]Clause 12.4.
[9]Clause 17.5.
Under the trust deed, the trustees may, subject always to the trusts imposed by the deed, deal with the trust fund as if they were the absolute and beneficial owners of it, which includes the power to borrow and raise money, and to give mortgages and other securities.[10] The trustees also have powers to:
(a)pay the capital of the trust fund to such of the discretionary beneficiaries as they, in their absolute and uncontrolled discretion, think fit;[11]
(b)resettle the trust fund upon the trustees of any trust, which includes one of the discretionary beneficiaries;[12]
(c)bring forward the vesting day;[13]
(d)hold the trust fund on the vesting day for such one or more of the discretionary beneficiaries in such shares as they may, by deed, appoint, with the balance to be held for such of the final beneficiaries who are then living (or their issue on a per stirpes basis) as tenants in common in equal shares; and[14]
(e)with the prior written consent of the settlor, vary or revoke any of the provisions of the trust deed.[15]
[10]Clause 12.1.
[11]Clause 6.1(a).
[12]Clause 8.1.
[13]Definition of “Vesting Day” in cl 2.1.
[14]Clause 10.1.
[15]Clause 24.1.
Under the trust deed the trustees exercise their powers and discretions in their absolute and uncontrolled discretion even though the interests of all beneficiaries are not considered and the exercise might be contrary to the interests of any present or future beneficiary.[16] The key restriction on the trustees is that, under cl 14.1, no trustee who is also a beneficiary can exercise any power or discretion in his or her favour (the “No Self Benefit” clause) but, under cl 14.2, the other trustee or trustees may do so.
The High Court judgment
[16]Clause 11.1.
In the High Court, the Judge, while noting that many provisions in the current trust deed were similar to that in the Clayton case, considered the position as it currently stood. In that regard, Ms White had not taken any steps to apply the entire trust capital to herself, nor to resettle it, nor had she brought forward the vesting date to give herself both legal and beneficial ownership of the trust assets.[17] He concluded that Ms White therefore still owned the land as trustee of the Trust and not personally.[18]
[17]High Court judgment, above n 2, at [15].
[18]At [15].
He also noted that both Clayton and Webb were decided in the context of relationship property proceedings and the approach taken in those cases was not necessarily applicable in a strictly commercial context, as here.[19] In his view, the preferable approach in this case was to consider the Trust to be a “defeasible trust” which existed “until Ms White exercised her powers to bring it to an end”.[20]
[19]At [16].
[20]At [16].
In looking at the powers and discretions given to Ms White under the trust deed, the Judge reached the following conclusions:[21]
(a)Clause 7.1 (which gives Ms White, as settlor, the power to appoint and remove discretionary beneficiaries) did not, on its proper interpretation, give her a power analogous to a power to revoke the Trust or to remove final beneficiaries such as her partner’s children.
(b)Clause 17.1, which gives Ms White the power as settlor to appoint and remove trustees, could only be exercised as a fiduciary power and therefore could not be exercised for a collateral purpose.[22]
(c)Clause 17.6, which gives Ms White as settlor the power to appoint a corporation as a sole trustee of the Trust, did not permit Ms White to appoint a sole corporate trustee under her control so as to procure the exercise of a trustee power or discretion in her favour because that would be inconsistent with the no self-benefit clause and the context which sat behind the Trust’s establishment.
(d)The key difference between the trust in Clayton and the Trust was the inclusion of the no self-benefit clause. That affected the discretion in cl 12.2, which purports to give absolute and uncontrolled discretion to the trustees “[e]xcept as otherwise expressly provided by this deed”, because the no self-benefit expressly provides otherwise.
[21]At [17].
[22]At [17(b)], citing New Zealand Maori Council v Foulkes [2015] NZCA 552, [2016] 2 NZLR 337 at [22].
For all these reasons, he concluded that the Trust was not an objective nullity and “remains on foot as a properly functioning trust”.[23] Consequently, there was no proper basis for the issue of a charging order or sale order in relation to the land owned by the Trust and those orders were set aside.[24]
Submissions
Appellants’ submissions
[23]At [19].
[24]At [21].
Mr Rice submits that the Judge erred in two ways. First, he says the Judge was wrong to consider the inclusion of a no self-benefit clause distinguished the case from Clayton. Second, he argues it was wrong to view the Trust as a defeasible trust. Instead, the recent decision of Webb should be followed, as the powers given to Ms White are so extensive that they are tantamount to ownership and give the appellants the right to treat the trust property as if it was Ms White’s property.
In addressing the first alleged error, Mr Rice says that the Judge was wrong to conclude that the no self-benefit clause constrained the absolute discretion given to the trustees by cl 12.2 and prevented Ms White from appointing a sole corporate trustee under her control to procure the exercise of a trustee power in her favour. Mr Rice says that a power of appointment and removal of trustees is not necessarily a fiduciary power as the Judge assumed. It is a matter of construction of the trust deed. In support, he cites the text, Underhill and Hayton, where the authors state:[25]
Where a power to remove trustees by replacing them with new trustees is vested in a beneficiary who is the primary object of the settlor’s bounty and whose power is not restricted to a few specified eventualities, the obvious inference is that the power has been conferred on the beneficiary to look after his own personal interests and not those of the beneficiaries as a whole. However, if it is someone who is not a beneficiary (such as the settlor or, a fortiori, a designated protector) who has such power, there is a strong presumption that this kind of power is a fiduciary one to be exercised only in the best interests of the beneficiaries as a whole.
(Footnotes omitted.)
[25]David Hayton (ed) Underhill and Hayton Law Relating to Trusts and Trustees (19th ed, LexisNexis, London, 2016) at [71.7].
Mr Rice submits that in the particular circumstances of this case Ms White’s power of appointment and removal of trustees is not a fiduciary power. This is because:
(a)Ms White has a general power to appoint anyone she likes as a trustee including herself. Fiduciary obligations are not usually imposed on the exercise of a general power of appointment because the power is personal to the donee and may be exercised exclusively in her interests.[26]
(b)Ms White’s purpose as settlor in conferring a general power of appointment on herself was to enable her to appoint whomsoever she wanted as a trustee or trustees. This logically includes a corporation controlled by her. It is therefore difficult to see how the limitation on a co-trustee’s power in cl 14.1 can impose a fiduciary limitation on Ms White’s general power as settlor.
(c)Clause 17.6 expressly states that the holder of the power of appointment may appoint a corporation to be the sole trustee “[n]otwithstanding anything contained or implied in this deed” and, in Mr Rice’s submission, cl 14.1 cannot place any limit on the width of the appointor’s power in cl 17.6 to appoint a corporation as a trustee.
(d)Clause 11.1 grants an unfettered discretion on the trustees to exercise their powers even though the interests of all beneficiaries are not considered, and the exercise might be contrary to the interests of any beneficiary. This negates the trustee’s normal fiduciary duty to act in the interests of all beneficiaries and it would be anomalous if the trustees are not required to act in the interests of all beneficiaries but the settlor must.
(e)The settlor (and appointer) is a primary object of the Trust and the trustees are entitled to prefer her interests over other beneficiaries without breaching their mandate. Furthermore, Ms White may remove all the other discretionary beneficiaries.[27] In these circumstances, the other beneficiaries could have no expectation that Ms White would not appoint a sole corporate trustee controlled by her.
[26]Citing Clayton v Clayton, above n 2, at [104].
[27]Mr Rice’s submissions said Ms White could remove “all the other beneficiaries” but there is no power to remove the final beneficiaries (if living) who are entitled to receive the trust property (if any) held on vesting day as tenants in common in equal shares.
In addressing the alleged second error, Mr Rice notes that the Supreme Court in Clayton left unanswered the question of whether the powers held by Mr Clayton under the relevant trust deed meant that no valid trust ever came into existence or whether a defeasible trust came into existence until Mr Clayton exercised his powers to bring it to an end.[28] However, he submits that question has been answered by the Privy Council’s decision in Webb. Webb was an appeal from the Cook Islands Court of Appeal, which had found the relevant trusts were an “objective nullity” because it could not be said that the settlor trustee had divested himself of his beneficial ownership of the property when he retained uncontrolled powers to recover property he purported to settle on the trusts.[29] The Privy Council dismissed the appeal and, like the Court of Appeal, considered the powers reserved to Mr Webb under the trust deed could be analysed in two different ways:[30]
(a)the powers were so extensive that Mr Webb could be said never to have disposed of any of the property purportedly settled on or acquired by the trusts; or
(b)the powers were so extensive that, in equity, Mr Webb could be regarded as having rights that were tantamount to ownership.
As a consequence, Mr Webb had rights in the trust property which were indistinguishable from ownership, and the Privy Council held the property was available to meet Mrs Webb’s relationship property claim.[31]
[28]Clayton v Clayton, above n 2, at [124]–[125].
[29]Webb v Webb, above n 2, at [73]–[74], citing Webb v Webb [2017] CKCA 4 at [56] and [65].
[30]Webb v Webb, above n 2, at [89].
[31]At [89].
Mr Rice submits that, through a closely held corporate trustee, Ms White is able to distribute the trust property to herself unrestrained by fiduciary obligations and so her bundle of rights is indistinguishable from ownership in the same way as Mr Webb’s was.
While the Judge sought to distinguish the decisions in Clayton and Webb on the basis that they are both relationship property cases involving “social legislation”,[32] Mr Rice submits the approach of the Privy Council in Webb should be followed whatever the context. In that regard, he refers to the Privy Council’s decision in Tasarruf Mevduati Sigorta Fonu v Merrill Lynch Bank and Trust Co (Cayman) Ltd (TMSF).[33] In TMSF the unfettered power of revocation given to the debtor beneficiary in the trust deed was considered to be tantamount to ownership, and so the Court could order the debtor to delegate his powers of revocation to the receivers so that they could exercise them to make assets available to creditors.[34] For the same reason, Mr Rice says, this Court should allow the appellants to register a charging order against the land owned by Ms White and sell it to recover the judgment debt against her.
First respondents’ submissions
[32]High Court judgment, above n 2, at [11].
[33]Tasarruf Mevduati Sigorta Fonu v Merrill Lynch Bank and Trust Co (Cayman) Ltd [2011] UKPC 17, [2012] 1 WLR 1721.
[34]At [59]–[63].
The first respondents submit the High Court judgment was clearly correct because:
(a)the appellants had no right to register a charging order over the land when neither they nor Ms White held a beneficial interest in the land at the date of registration;
(b)none of the powers relied on by the appellants under the trust deed had been exercised;
(c)the High Court had no jurisdiction in this proceeding to order that Ms White exercise any of the powers vested in her as trustee under the trust deed; and
(d)the High Court was correct to hold that the exercise of the power of appointment is subject to the no self-benefit clause. Any attempt by Ms White to circumvent it by removing herself and her co-trustees and appointing a sole corporate trustee acting under her control for the purpose of her self-benefit would amount to a fraud on a power.
In advancing the last submission, Mr Pyke refers to the following statement of law set out in the Supreme Court’s decision in Kain v Hutton:[35]
[18] As the Court of Appeal appreciated, and as Lord Parker of Waddington famously remarked in Vatcher v Paull, the term fraud does not in this context denote any conduct on the part of the appointor amounting to fraud in the common law sense of the term or any conduct which could be properly termed dishonest or immoral:[36]
“It merely means that the power has been exercised for a purpose, or with an intention, beyond the scope of or not justified by the instrument creating the power. … ”
[35]Kain v Hutton [2008] NZSC 61, [2008] 3 NZLR 589 at [18]
[36]Vatcher v Paull [1915] AC 372 (PC) at 378.
Mr Pyke rejects the appellants’ characterisation of the powers Ms White has under the trust deed as being tantamount to ownership. He says that submission overlooks that it is a combination of powers, and the constraint upon the trustees, that governs the potential manner and extent of their exercise by Ms White, and that was recognised by the Judge.
Mr Pyke points out that the appellants’ reliance on Clayton, when arguing that no fiduciary obligation attaches to the power of appointment, overlooks the no self‑benefit clause in this trust deed. It also overlooked the fact that the Court in Clayton did not consider whether the trust powers gave Mr Clayton a direct interest in the underlying assets of the trust.[37]
[37]Clayton v Clayton, above n 2, at [104], n 101.
While Ms White may be an object of the Trust, Mr Pyke submits she is not the only object. She has no power to add or remove the final beneficiaries. The provision which states that trustees need not consider the interests of all beneficiaries and may make decisions contrary to the interests of any present or future beneficiary does not negate other fiduciary duties. Mr Pyke suggests this provision is designed to exclude “internecine arguments” between beneficiaries about trustees’ decisions.
In distinguishing Webb, Mr Pyke says there is no evidence that Ms White as settlor effectively retained ownership of the Trust property. To the contrary, the land was acquired by her and her co-trustee for the Trust. Furthermore, the High Court was correct to consider the context of the cases. Both Clayton and Webb were considering powers “acquired” during the marriage (that is when the trust was settled) and were therefore considered to be relationship property. In contrast, the debt owed by Ms White to the appellants was incurred while acting as a trustee of a separate trust, the Grafton Road Trust. Mr Pyke says a creditor is not entitled to reach into the property of an entirely separate trust to recover a debt owed to it by trustees of another trust. This reflects the principle that assets held by a trustee cannot be used to discharge the trustee’s personal obligations, other than those incurred by the trustees in discharge of the trust.[38]
Discussion
Was the Judge wrong to conclude the no self-benefit clause distinguishes this case from Clayton?
[38]Andrew Butler (ed) Equity and Trusts in New Zealand (2nd ed, Thomson Reuters, Wellington, 2009) at [39.2.2(b)].
As the Judge pointed out, a key difference between this trust and the trust which was the subject of the Clayton decision is the inclusion of the no self-benefit clause as an express provision in the deed. On its face, it would appear to be a complete answer to the appellants’ claim that Ms White’s powers are tantamount to ownership. However, the appellants argue that she can appoint a closely held company as corporate trustee in the place of her and her co‑trustee, and could direct that corporate trustee to distribute the Trust’s assets to her (to the detriment of the other beneficiaries including the final beneficiaries who are, under the trust deed, entitled to share in any trust property as tenants in common in equal shares). The only constraint on this happening is, as Mr Rice concedes, if the power of appointment carries with it fiduciary obligations, requiring it to be exercised in accordance with the terms of the Trust and therefore not to subvert the no self-interest clause.
Mr Rice submits that whether the power of appointment was a fiduciary power was a matter of construction and here, the provisions of the trust deed were such that it should be construed as being able to be exercised in Ms White’s own interests.
However, New Zealand case law consistently endorses the power of appointment carrying fiduciary obligations. The leading case on this issue is this Court’s decision in New Zealand Maori Council v Foulkes which held:[39]
[22] We must first identify the legal principles applying to this issue. As confirmed by two recent decisions of Gilbert J and Brewer J in the High Court,[40] the power to appoint new trustees is of a fiduciary nature because the subject matter of the power is the office of the trustee. That office lies at the core of the trust and carries fundamental and onerous obligations to act in the best interests of the beneficiaries as a whole to the exclusion of the trustee’s own interest. And, as it reposes the settlor’s personal trust and confidence in the donee to exercise its own judgment and discretion, the power cannot be delegated to a third party. In this respect it does not matter that the party exercising the power is not itself a trustee; it is the object and purpose of the power, taken from the deed, that is decisive.[41] Finally, because the power is fiduciary in nature, it must not be exercised for a collateral purpose.
[39]New Zealand Maori Council v Foulkes, above n 22 (emphasis added).
[40]Carmine v Ritchie [2012] NZHC 1514 at [66]; and Harre v Clark [2014] NZHC 2533 at [24].
[41]In Re Skeats’ Settlement (1889) 42 Ch D 522 at 527.
Similarly, in Legler v Formannoij Downs J stated:[42]
Moreover, in New Zealand at least, the appointment of a trustee is a fiduciary power. It follows a person appointing a trustee must exercise the power properly, in good faith, and with regard to the best interests of the beneficiaries as a whole.
[42]Legler v Formannoij [2021] NZHC 1271 at [32] (footnote omitted).
The majority of the textbooks also express the view that the power of appointment of trustees carries fiduciary obligations. The author of Thomas on Powers notes:[43]
All powers conferred on trustees qua trustees are fiduciary powers (whether they are obliged to exercise them or not). There is a growing tendency, which this book does not share, to regard some of the obligations of a trustee as non‑fiduciary in some sense. …
…
a power to appoint new trustees … is generally acknowledged to be a fiduciary power,[44] …
[43]Geraint Thomas Thomas on Powers, (2nd ed, Oxford University Press, Oxford, 2012) at [1.46] and [1.52].
[44]In Re Skeats’ Settlement, above n 41, at 527; Re Newen [1894] 2 Ch 297; Re Sampson [1906] 1 Ch 435; Bridge Trustees Ltd v Noel Penny (Turbines) Ltd [2008] EWHC 2054 (Ch); Rawcliffe v Steele [1993] Manx LR 426 (Isle of Man); RePapadimitriu [2004] WTLR 1141 (Isle of Man); Morant & Co Trustees Ltd v Magnus (2003-04) 6 ITELR 1078; and Montefiore v Guedalla [1903] 2 Ch 723.
The authors of Snell’s Equity note:[45]
The trust may confer an express power of appointing new trustees. The donee of such a power can appoint himself,[46] but should do so only in special circumstances, for the power is fiduciary.[47]
[45]John McGhee and Steven Elliott (eds) Snell’s Equity (34th ed, Sweet & Maxwell, London, 2020) at [27–011].
[46]Montefiore v Guedalla, above n 44; and Re Papadimitriou, above n 44.
[47]Re Skeats’ Settlement, above n 41; Re Newen, above n 44; and Re Osiris Trustees Ltd [2000] WTLR 933 (Isle of Man).
The authors of Lewin on Trusts also note that the power to appoint trustees is, prima facie, subject to fiduciary obligations, saying:[48]
The characterisation of a power of appointment of new trustees as a fiduciary power applies not only where the power is conferred on a beneficiary but also where it is conferred on a settlor who is or is not a beneficiary, a named person who is not a beneficiary, or other third party … who is a beneficiary, …
The fiduciary character of the power, the purpose for which it is conferred and fraud on the power
A power of appointment of new trustees is an administrative power, … The nature of the power indicates that, prima facie, the power is not conferred for the personal benefit of the person on whom it is conferred, even though a beneficiary, but for the benefit of the beneficiaries as a whole. … The fraud on the power doctrine, which applies in relation to powers of appointment of new trustees, would suffice to strike down an appointment made for an improper purpose, such as an appointment … made for the purpose of facilitating a breach of trust. Yet the nature of the power and the purpose for which it is conferred indicates that the responsibility of the appointor generally goes beyond responsibility resulting merely from the constraints of the fraud on the power doctrine. The exercise of the power, if exercisable for the benefit of the beneficiaries, involves the selection of a person who is fit to discharge the fiduciary and other functions of the office.
(Footnotes omitted.)
[48]Lynton Tucker, Nicholas Le Poidevin and James Brightwell Lewin on Trusts (20th ed, Sweet & Maxwell, London, 2020) at [15-047]–[15-049].
The authors go on to acknowledge that in certain circumstances the power may not be subject to fiduciary obligations but is nevertheless subject to the fraud on a power doctrine, saying:[49]
Powers of appointment of new trustees are not invariably fiduciary in character. We do not consider that the power of appointment … conferred by section 19 of the Trusts of Land and Appointment of Trustees Act 1996 is fiduciary.
…
The view is expressed in Underhill and Hayton, Law of Trusts and Trustees that where a power of removal coupled with a power of appointment of trustees is vested in a principal beneficiary, the obvious inference is that the power has been conferred on the beneficiary to look after his own personal interests and not those of the beneficiaries as a whole, though that work does not go to the extent of suggesting that such a power is free from the constraints of the fraud on the power doctrine. … a power of appointment of new trustees is fiduciary in character, or at least subject to the fraud on the power doctrine.
(Footnotes omitted.)
[49]At [15-051]–[15-052].
Here, the potential use of the power of appointment suggested by the appellants is the sole route by which Ms White could avoid the restriction of the no self-benefit clause. In our view, therefore, whether or not the power of appointment is fiduciary (though we consider that it is), we agree with the Judge that the power cannot be exercised for a collateral purpose to avoid the restrictions of the no self-benefit clause. It would, as the Judge concluded, be inconsistent with the context which sits behind the Trust’s establishment to construe the trust deed as permitting Ms White to use her power of appointment to avoid the restriction on self-benefit which constrains the trustees.[50]
[50]High Court judgment, above n 1, at [17(c)].
This ground of appeal fails.
Was the Judge wrong to conclude that a defeasible trust came into existence?
The appellants submit the Judge was wrong to conclude this was a “defeasible trust” as opposed to an “objective nullity”.[51] If the latter, the appellants say that a third party in a commercial context can treat the trustee as having both legal and beneficial ownership of the trust property.
[51]At [16] and [19].
The appellants accept this was not what was decided in Clayton. In that case, the Court considered whether the powers Mr Clayton held were rights or interests that came within the definition of “property” in s 2 of the Property (Relationships) Act 1976 (the PRA). It held that in the statutory context of the PRA, the powers Mr Clayton held were properly classified as “rights” that gave Mr Clayton an “interest” in the trust and its assets,[52] and those powers should be valued as having a value equal to that of the assets of the trust.[53] Thus, while the trust was not a sham trust, Mr Clayton had to account for the value of the interest he held in the trust property when dividing relationship property with his former spouse.
[52]Clayton v Clayton, above n 2, at [80].
[53]At [104], [107] and [131].
However, the appellants submit the decision in Webb went further. In that case, the Court did not simply value the husband’s interest in the property, it was prepared to treat him as owning the trust property and to allocate the property from the trust to the wife in settlement of her relationship property claim.[54]
[54] Webb v Webb, above n 2, at [87]–[89].
While this suggests a plaintiff can have a direct claim to property held on trust where the person who is the subject of the claim holds powers under the trust which are so extensive that they are indistinguishable from ownership, that is not the case here. We do not consider that reasoning can, without more, be extended to enable a creditor to treat property held on trust as, both legally and beneficially, the property of the trustee.
This view is reinforced by the decision in TMSF, the case relied upon by the appellants to show a creditor can have an interest in trust property where a debtor has powers of revocation of ta trust that are tantamount to ownership. Despite this finding, the Court still had to order that the power of revocation be delegated to the receivers so that they could take possession of the assets of the trust to meet the defendant’s creditors.[55] The assets of the trust became available to the creditors only after the trust was revoked. The creditors could not treat the property as beneficially owned by the debtor until that step was taken.
[55]Tasarruf Mevduati Sigorta Fonu v Merrill Lynch Bank and Trust Co (Cayman) Ltd, above n 33, at [61]–[63].
For these reasons, we consider the Judge was correct to treat the Trust as a defeasible trust (assuming for the moment Ms White did have the power to vest the assets in herself) rather than as an objective nullity where the existence of the Trust could be ignored.
Result
The appeal is dismissed.
The appellants must pay the first respondents’ costs for a standard appeal on a band A basis, plus usual disbursements.
Solicitors:
Haigh Lyon, Auckland for Appellants
Sellar Bone & Partners, Auckland for First Respondents
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