Glover No 2 Ltd v Glover Trust Ltd
[2013] NZCA 608
•3 December 2013 at 3 pm
| IN THE COURT OF APPEAL OF NEW ZEALAND |
| CA194/2013 [2013] NZCA 608 |
| BETWEEN | GLOVER NO 2 LIMITED |
| AND | THE GLOVER TRUST LIMITED, BAILEY TRUSTEE SERVICES LIMITED AND AUCKLAND WEST LEGAL SERVICES LIMITED |
| AND | CIT HOLDINGS LIMITED |
| Hearing: | 6 November 2013 |
Court: | Harrison, French and Miller JJ |
Counsel: | R C Knight and T A Chubb for Appellant |
Judgment: | 3 December 2013 at 3 pm |
JUDGMENT OF THE COURT
AThe application for leave to adduce further evidence is granted.
BThe appeal is dismissed.
C The appellant must pay the respondents one set of costs for a standard appeal on a Band A basis and usual disbursements.
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REASONS OF THE COURT
(Given by Harrison J)
Introduction
Gregory Olliver and his former wife, Sarah Sparks, were developers of high value residential properties in St Heliers, Auckland. Their operations were conducted through a convoluted legal structure of trusts and companies apparently designed to protect assets from creditors and minimise taxation liability. Entities associated with each of the Ollivers were parties to a joint venture which was formed to carry out the development.
Differences arose between the couple leading to their separation. Ms Sparks held fears about the viability of the development project. She instructed Don Thomas, a solicitor who represented the couple in their commercial interests, to take immediate steps to protect her interests and those of her children in the development assets, both from Mr Olliver and the parties’ creditors. At short notice Mr Thomas prepared and he and Ms Sparks in their capacities as trustees executed, a series of documents designed to ensure that Ms Sparks and her trusts obtained ownership and control of four properties.
One of the documents was a deed of trust whereby the appellant, Glover No 2 Ltd, declared that it held the four properties upon trust for a nominated beneficiary. Ms Sparks now asserts, despite her active participation, that the deed is not a valid document having legal effect. Instead, she says, it is a sham, intended to mask or conceal the true nature of the underlying transaction.
Allan J rejected that proposition in a decision delivered following a trial in the High Court.[1] As a consequence of his finding that a valid trust had been created, the Judge ordered Glover No 2 Ltd to deliver to other entities associated with Mr Olliver an executed transfer for the four properties. Glover No 2 Ltd now appeals.
[1]The Glover Trust Ltd v Glover Trust Corp Ltd [2013] NZHC 545.
Glover No 2 Ltd also applies for leave to adduce a new document, a resolution of the trustee of the Glover Trust dated 10 March 2011. The application was opposed. We grant leave but we are satisfied that the resolution is of no consequence to the substantive argument. The document is immaterial to the primary issue of whether the deed of trust was a sham.
Facts
The relevant facts are not in dispute and are set out in considerable detail in the judgment under appeal.[2] However, for these purposes we are able to summarise them more briefly as follows.
[2]At [4]–[30].
In 1999 Mr Olliver established the Glover Trust. The Glover Trust’s primary assets were shares in CIT Holdings Ltd, CIT Properties Ltd and CIT Administration Ltd (collectively the CIT companies). Ms Sparks later established her own trust called the Waimarie Trust. In 2008 Mr Olliver appointed Glover Trust Corporation Ltd (GTC) as the new trustee of his trust.
In March 2009 the Glover and Waimarie Trusts acting as joint venturers purchased a number of properties in Waimarie Street through the medium of CIT Holdings Ltd for a price of $8.317 million. The transaction was known as the first stage of the development and was funded primarily by a loan from the Bank of New Zealand (BNZ) of $6.75 million, secured by mortgages over the properties and a general security agreement.
It should be observed that during this period Mr Olliver found himself in financial difficulties. In late 2008 a creditor applied to have him adjudicated bankrupt. In early 2009 Mr Olliver filed a proposal under pt 5 of the Insolvency Act 2006. As Allan J noted:
[12] On 13 May 2009, Mr Olliver’s proposal under Part 5 of the Act was approved by the High Court. Against debts exceeding $90 million, he was required to pay $100,000 to the trustee and then on the first, second and third anniversaries of the approval of the proposal, to pay the greater of $100,000 or an amount equal to 50% of his net earnings from employment after tax for the immediately preceding financial year. The proposal was underwritten by CIT Holdings Ltd.
At about this time CIT Holdings Ltd agreed to purchase four additional properties, known as the second stage of the development, for $1.65 million. As Mr Stewart QC points out for the respondents, these properties became subject to the BNZ’s existing general security agreement but were not separately mortgaged.
What happened next was described by Allan J in these terms:
[13] In April 2010, the Auckland City Council granted consent to a proposed scheme plan providing for the maximum allowable development of the Waimarie Street properties. A Waimarie joint venture implementation agreement was prepared for the joint venture partners to approve the scheme plan but it was never signed.
[14] The BNZ loan secured over the Waimarie Street first tranche properties was for a term of two years. At the outset it was anticipated by Mr Olliver that two years would be a sufficient period within which to maximise the potential of the properties, save for 22 Waimarie Street which was the family home. Development work entailed certain earth works and a subdivision of lots to increase the size and value of the lots that could then be sold for residential purposes. The proposed scheme created two road frontage development lots (lots one and two, being 14a, 16, 16a and 20 Waimarie Street) suitable for multi-storey residential blocks comprising three substantial luxury apartments for each lot (six in total), and a rear lot (lot five being 31 Waimarie Street) suitable for a substantial single dwelling or another three apartment buildings.
Relationships between Mr Olliver and Ms Sparks deteriorated through 2010 and 2011, fuelled in part by her fear that his development plans were overambitious and unduly risky. Ms Sparks sought advice from Ms Anne Hinton QC about relationship property issues. Not unnaturally, Ms Hinton advised Ms Sparks to do all possible to protect her asset position.
One evening in early March 2011 the couple argued. The next morning Ms Sparks instructed Mr Thomas. She requested him to take all possible steps to protect the second stage assets as far as he could. With great alacrity, and without apparent appreciation of his conflicted position, Mr Thomas prepared a number of interrelated documents for the purposes of implementing Ms Sparks’ instructions.
The validity of the first six documents executed on 10 March 2011 is not challenged. In summary they provided as follows:
(a)A trust deed creating the Glover No 2 Trust. Ms Sparks was the settlor. Glover No 2 Ltd was the trustee. Ms Sparks and Mr Thomas were directors and equal shareholders; and Ms Sparks, her children and grandchildren and Mr Olliver were discretionary beneficiaries.
(b)A resolution of GTC, trustee of the Glover Trust, to distribute the four properties to the Glover No 2 Trust.
(c)Glover No 2 Ltd’s resolution as trustee of the Glover No 2 Trust to accept the distribution of the properties from the Glover Trust for the benefit of the beneficiaries of the Glover No 2 Trust.
(d)An authority form for the transfer of the properties from CIT Holdings Ltd to Glover No 2 Ltd.
(e)Ms Sparks’ memorandum of wishes.
(f)A deed of novation, substituting Glover No 2 Ltd for Waimarie Trust Ltd in the joint venture arrangement.
The final document is the one which Ms Sparks now challenges. It provided as follows:
THIS TRUST DEED made the [ ] day of March 2011 by Glover No2 Ltd (“the Trustee”)
WHEREAS
1. ON the [ ] day of March 2011 the Trustee became the registered proprietor of the property situated at and known as 14A, 14B, 16 and 20 Waimarie Street (“the property”).
2. THE transfer effected by the beneficial owner of the property CIT Holdings Ltd (“the Beneficiary”).
3. IT is intended that the Trustee should hold the property merely as a Trustee for the Beneficiary as the Trustee doth here by acknowledge.
NOW THIS DEED WITNESSETH that the Trustee HEREBY DECLARES that they [sic] hold the property upon trust for the Beneficiary AND FURTHER DECLARES that they hold all income accrued or to accrue from the property upon trust for the Beneficiary or their Assignees.
...
Three subsequent events are relevant:
(a)On 17 October 2011, in accordance with the transactions entered into on 10 March 2011, Glover No 2 Ltd became registered as owner of the four properties in place of CIT Holdings Ltd.
(b)On 23 August 2012, Mr Thomas resigned as a director of all CIT companies, Glover No 2 Ltd and GTC. Ms Sparks was then the sole director of CIT Holdings Ltd.
(c)On 2 September 2012 Mr Olliver replaced Glover Trust Corporation as trustee of the Glover Trust as a first step in replacing the board of CIT Holdings Ltd. On the same day, the Glover Trust Ltd, Bailey Trustee Services Ltd and Auckland West Legal Services Ltd were appointed trustees of the Glover Trust in Ms Sparks’ place.
Mr Olliver’s new solicitors then wrote to Ms Sparks, advising of the change of trustees and requesting that the properties owned by the Glover Trust be transferred to the new trustees. Ms Sparks’ refusal led to Glover Trust Ltd issuing this proceeding.
There is some urgency in resolving this litigation. The BNZ loan is now in serious default. The bank apparently appreciates that its best chance of maximising the return on its loan is to complete the development and sell the properties in an orderly fashion. However, it is unable to act while Glover No 2 Ltd’s claim remains outstanding.
Decision
The principal issue before Allan J and on appeal is whether the deed of bare trust (set out above at [15]) was a valid instrument having legal effect and if so what was that effect. As the Judge found, Ms Sparks’ intention in executing the deed was to obtain a degree of financial protection and security as best she could in the circumstances.[3] However, for taxation reasons she was unable to effect an outright disposition by transferring the properties absolutely from CIT Holdings Ltd to Glover No 2 Ltd. There was no doubt that the deed was intended for production to the revenue authorities for the purpose of establishing that the disposition was not made outright. However, Allan J was satisfied that it did not follow that the deed was invalid or ineffective; to the contrary the deed had to be effective in order to achieve its object of avoiding significant tax liability.[4] In the result, the properties were held in trust for CIT Holdings Ltd.
[3]At [47].
[4]At [48].
On appeal Mr Knight for Glover No 2 Ltd submits as he did in the High Court that the deed of bare trust was a sham but that the remaining documents should be enforced, resulting in an absolute transfer of the properties to Glover No 2 Ltd free of any trust obligations. He does not challenge Allan J’s concise summary of the relevant legal principles as follows:
[46] A sham exists where there is an intention to conceal the true nature of a transaction.[5] The common intention of parties to commercial documents is normally ascertained objectively by reference to the language used, viewed against the overall commercial matrix. But where a sham is alleged, the search must be for a subjective intention that the transaction be a sham, although this does not mean that a witness is later entitled to give oral evidence of his or her subjective intention.[6]
[5]Snook v London and West Riding Investments Ltd [1967] 2 QB 786 (CA) at 802; Paintin and Nottingham Ltd v Miller Gale and Winter [1971] NZLR 164 (CA) at 175; Official Assignee v Wilson [2007] NZCA 122, [2008] 3 NZLR 45 at [26].
[6]Ben Nevis Forestry v Commissioner of Inland Revenue Department [2008] NZSC 115, [2009] 2 NZLR 289 at 32-39; Official Assignee v Wilson, above n 6, at [50], [108] and [109].
However, Mr Knight submits that the Judge incorrectly applied these principles to the facts. His submission is that Ms Sparks’ intention was that CIT Holdings Ltd should make an outright disposition of the properties to Glover No 2 Ltd, rather than creating a binding trust in favour of CIT Holdings Ltd; and that the overriding purpose of the document was to avoid taxation liability and defeat creditors. His apparent purpose is to show that the trust was one in name or appearance only, designed to mislead others about its existence.
We can address these points shortly. First, a party asserting that a trust is a sham must discharge a high onus. There is nothing on the face of the deed or in the surrounding circumstances to show that it does not correctly reflect the common intention of the parties. In the event that Ms Sparks sought to argue otherwise her remedy was to apply for rectification. She did not take this step. Nor, despite Mr Knight’s emphasis on Mr Thomas’ plainly conflicted position, did Ms Sparks assert that Mr Thomas was not acting in accordance with her instructions by taking all legal steps that might be available to secure her control of the properties. She now complains only about the means he adopted. Allan J rightly concluded that Mr Thomas did the best he could for Ms Sparks in the circumstances given that absolute protection was not possible because an outright disposition of the properties to the Glover No 2 Trust would attract adverse taxation consequences.[7]
[7]At [48].
Here the parties’ intention was unmistakable. GTC was the settlor; Glover No 2 Ltd was the trustee. Apart from the unequivocal language of the deed, Mr Thomas’ evidence was that the trust structure was used to achieve the best result for the beneficiaries of the Glover No 2 Trust. In these circumstances Allan J’s conclusion that GTC had the necessary intent to create a valid trust in favour of CIT Holdings Ltd is unassailable.
Our conclusion is reinforced by the fact that Glover No 2 Ltd only seeks to challenge the deed of trust, the last in a logical sequence (with the exception of one resolution) of seven documents. Mr Knight affirmatively asserts that the other six are valid but says they are severable. Once those documents are taken into account, the parties’ intention as reflected by the deed becomes even more apparent. It was plainly the intended culmination of a series of steps undertaken on Ms Sparks’ instructions and implemented by Mr Thomas to ensure that the properties and all accruing income were held on trust for CIT Holdings Ltd for the ultimate benefit of the beneficiaries of the Glover No 2 Trust. Ms Sparks cannot affirm some documents while rejecting another because it does not fit her purposes when all were executed as part of the one composite transaction designed to protect her interests.
As in the High Court, Mr Knight seeks to highlight an inconsistency between the deed and the second resolution (summarised at [14]). On one hand, as Allan J recognised, the trustee of the Glover No 2 Trust (Glover No 2 Ltd, a corporate trustee), resolved to accept distribution of the properties from the Glover Trust for the benefit of the beneficiaries of the Glover No 2 Trust. On the other hand the directors of Glover No 2 Ltd, Ms Sparks and Mr Thomas, executed the deed of the trust declaring that the properties were held on a bare trust for CIT Holdings Ltd. That company was the actual registered owner of the property.
However, we agree with Allan J that the deed was intended to be effective despite the trustees’ resolution approving the receipt of the distribution of the properties “as a distribution from the Glover Family Trust for the benefit of the beneficiaries of this Trust”;[8] and that the directors of Glover No 2 Ltd must be treated as passing the resolution subject to the terms of the trust. Otherwise the resolution would make no legal sense.
[8]At [49].
Second, as Mr Stewart submits, Mr Knight’s argument confuses the parties’ objective in executing the deed and their separate intention to declare a trust designed to give rise to the ordinary incidents of a trust – in this case in favour of CIT Holdings Ltd once Glover No 2 Ltd became a registered proprietor. Mr Knight cross-examined Mr Thomas repeatedly and at length on the parties’ intention in creating the trust. He returned frequently to the theme that it was designed to defeat creditors and avoid taxation liability. Before us, he described it as a “ruse”.
That factor is, however, irrelevant to whether the parties actually intended to create the ordinary incidents of a trust by a declaration in favour of CIT Holdings Ltd as beneficiary. Mr Knight says that the document was created to obscure what had happened. But there was no intention to conceal the true nature of the transaction. To the contrary, it could not have been more obvious. Thus it cannot be said that the parties intended to have an express trust in appearance only.
We refer to the unusual feature of this case that Ms Sparks herself seeks to impugn the validity of a document prepared in accordance with her instructions. On this approach, Ms Sparks’ interests would be able to profit from her own wrong given that she executed the documents on behalf of the settlor and trustee. That is because a finding of a sham would likely result in the trust property reverting back to the settlor but allowing it to be retained rather than being available for creditors. Such a result would be inequitable.
For these brief reasons, we are satisfied that Allan J correctly found that a valid trust was created by the deed executed on 10 March 2011 and ordered Glover No 2 Ltd to deliver and execute a transfer of the properties.
Result
The appeal is dismissed.
The appellant must pay the respondents one set of costs for a standard appeal on a Band A basis and usual disbursements.
Solicitors:
Martelli McKegg, Auckland for Appellant
Minter Ellison Rudd Watts, Auckland for Respondents
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