Goldie v Campbell
[2017] NZHC 1692
•21 July 2017
NOTE: PURSUANT TO S 35A OF THE PROPERTY (RELATIONSHIPS) ACT 1976, ANY REPORT OF THIS PROCEEDING MUST COMPLY WITH SS 11B TO 11D OF THE FAMILY COURTS ACT 1980. FOR FURTHER INFORMATION, PLEASE SEE
THE-FAMILY-COURT/LEGISLATION/RESTRICTION-ON-PUBLISHING- JUDGMENTS.
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV-2016-404-002601 [2017] NZHC 1692
BETWEEN DENISE KAY CAMPBELL GOLDIE
Appellant
AND
ROBIN MCGREGOR CAMPBELL First Respondent
ROBIN MCGREGOR CAMPBELL, JOHN CHARLES WILKINSON AND ROGERS & RUTHERFORD TRUSTEES
2007 LIMITED AS TRUSTEES OF THE ROBIN CAMPBELL FAMILY TRUST Second Respondent
Hearing: 16 March 2017 Appearances:
Brent OʼCallahan for the Appellant
Lisa La Mantia for the First Respondent
No appearance for the Second RespondentJudgment:
21 July 2017
JUDGMENT OF MOORE J
This judgment was delivered by me on 21 July 2017 at 12:00 pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/ Deputy Registrar
Date:
GOLDIE v CAMPBELL & ANOR [2017] NZHC 1692 [21 July 2017]
Introduction
[1] The parties are embroiled in a dispute under the Property Relationships Act
1975 (“the PRA”).
[2] The appellant, Ms Goldie, claims that the respondent, Mr Campbell, has property interests by virtue of his powers in relation to a family trust which was settled in 2007 about nine years after Ms Goldie and Mr Campbell commenced their relationship.
[3] Ms Goldie claims that the terms of the trust favoured Mr Campbell; he has the power to control, at will, the assets of the trust for his own purposes or to his own ultimate benefit with the effect that the trust property is relationship property under the PRA.
[4] Mr Campbell counters this claim by reference to the provisions of the trust and Memoranda of Guidance prepared for the benefit of the trustees. He says that his powers under the trust do not constitute relationship property because he is fettered both as appointor and as a trustee to such an extent that any powers he does possess did not enable him to control the trust assets for his own purposes or to his own ultimate benefit.
[5] In advancing their respective cases, both parties rely on the judgment of the
Supreme Court in Clayton v Clayton.1
[6] At first instance the Family Court held that the provisions of Mr Campbell’s trust were readily distinguishable from the powers and entitlements vested in Mr Clayton because Mr Campbell was fettered both as a trustee and appointor. Thus any powers he held fell far short of any mantle of ownership of the trust assets.
[7] Ms Goldie appeals that finding.
1 Clayton v Clayton [2016] NZSC 29, [2016] 1 NZLR 551.
Background
[8] The background is fully summarised in the decision of her Honour
Judge M Southwick QC.
[9] The respondent, Robin Campbell, married his first wife, Elaine, in 1966. In
1990 the couple purchased a property at 14A Takutai Avenue, Bucklands Beach (“the
Takutai property”).
[10] In August 1995 the couple established two mirror trusts. These were the E M Campbell Family Trust (the “EMCFT”) and the R M Campbell Family Trust (the “FMCFT”). Elaine Campbell was the settlor and appointor of the EMCFT. The trustees were Mr Campbell, Mr Thom (a solicitor), and Mr Crawford (a pilot). The EMCFT had Mr Campbell as a discretionary beneficiary and the couple’s two daughters as discretionary and final beneficiaries. Mr Campbell was the settlor and appointor of the RMCFT. The trustees were Elaine Campbell, Mr Thom and Mr Crawford. The RMCFT had Elaine Campbell as a discretionary beneficiary and the couple’s daughters as discretionary and final beneficiaries.
[11] The mirror trusts were unremarkable. Each trust owned 50 per cent of the Takutai property. At about the same time as the mirror trusts were settled the couple paid off the mortgage debt on the Takutai property.
[12] In about 1998 Mr Campbell commenced a relationship with the appellant, Ms Goldie, although he did not separate from Mrs Campbell until February 2000. Mr Campbell and Ms Goldie began living together permanently in December 2001 and they married in February 2006.
[13] In July 2007 the trustees resolved to re-settle the assets of each of the mirror trusts on new trusts. Two new trusts were established:
(a) the Robin Campbell Family Trust (the “RCFT”); and
(b) the Elaine Campbell Family Trust (the “ECFT”).
[14] The terms establishing the respective trusts were drafted identically. The vesting day for each remained the same as the vesting day under the previous mirror trusts, namely 30 August 2075.
[15] A Memorandum of Guidance provided by Mr Campbell to the trustees of the
RCFT on 12 October 2007 included the following statements:
“2.I have set up the trust for the general purposes of ensuring that certain family assets are owned through a coherent ownership vehicle and to ensure that members of the family are able to benefit from the capital income of the trust from time to time.
3.It is my wish that my reasonable needs are met from the trust during my lifetime.
4.After making such provision as may be necessary to give effect to that wish in paragraph 3 above, in exercising your discretion you should:
(a) consider the reasonable needs and requirements of my daughters Meredith Susan Campbell and Claire Adrianne Campbell as paramount and having priority over the needs and requirements of all other beneficiaries particularly with respect to their educational requirements, health, general welfare, maintenance and well-being;
(b) take into account the age and circumstances of each daughter
and encourage their self reliance and independence.”
[16] In October 2009 Mr and Mrs Campbell resolved that the half share of the Takutai property owned by the ECFT would be settled on the RCFT to give effect to agreements between them as to the division of their relationship property.
[17] On 18 January 2010 Mr Campbell and Ms Goldie separated.
[18] On 3 August 2012 Mr Campbell signed a Memorandum of Wishes addressed to the trustees of the RCFT. This requested that the needs of Mr Campbell’s new partner, Ms Leon, were taken into account as well as the needs of her children. Ms Leon and her children were added as discretionary beneficiaries.
Family Court judgment
[19] In a comprehensive and detailed decision Judge Southwick rejected Ms Goldie’s argument that the power of appointment was vested in Mr Campbell with the specific and deliberate intention of permitting unfettered and self benefiting decision-making as appointor. She found that Mr Campbell owed fiduciary duties to the beneficiaries of the RCFT. These duties imposed a restraint on his powers and his potential ownership of the assets of the RCFT. In doing so the Judge distinguished the provisions of the RCFT deed from those contained in the trust deed
in Clayton v Clayton.2
[20] In reaching her decision, the Judge relied on four specific factors.3 These were:
(a) the history of the establishment of the RCFT and the consistently stated intention to benefit the two named daughters of Robin and Elaine Campbell (the discretionary and final beneficiaries);
(b) the existence of a no benefit clause;
(c) the inability of trustees to act alone (except in the case of a corporate trustee); and
(d)the inability of Mr Campbell to remove the original discretionary beneficiaries.
[21] I now summarise the Judge’s findings under each of these headings.
History of the establishment of the RCFT and the intent to benefit the daughters
[22] Judge Southwick found that the purpose of the RCFT trust deed remained the same as the purpose underlying the original mirror trusts. She found both trusts were established for the purpose of benefiting Elaine or Robin Campbell and their
daughters and other beneficiaries. The Judge referred to the 2007 Memorandum of
2 Clayton v Clayton above n 1.
3 Goldie v Campbell [2016] NZFC 4757 at [44].
Guidance which confirmed that the intention of the underlying trust deed remained one of benefiting Mr Campbell, his daughters and other beneficiaries.
No benefit clause
[23] The RCFT contained a no benefit clause which read:
“No trustee who is also a beneficiary may exercise any power or discretion vested in the trustees in his/her or its favour.”
[24] Judge Southwick referred to Clayton v Clayton where the relevant trust deed allowed Mr Clayton to benefit himself in the roles of sole trustee and discretionary beneficiary. Her Honour distinguished the Clayton trust deed with the present, observing that Mr Campbell was specifically prevented from exercising any power or discretion vested in the trustees in his favour.
[25] She also held that any attempt by Mr Campbell to circumvent this clause by removing himself as trustee and appointing a sole corporate trustee under his control would amount to fraud on a power. Any circumvention of the no benefit clause would be outside the mandate afforded to Mr Campbell by the trust deed.
[26] The Judge considered that the no benefit clause would be rendered meaningless if the donors intended that Mr Campbell could use his role as appointor to find a way to breach the provision legitimately.
Inability of trustees to act alone
[27] The terms of the RCFT prohibited a single trustee, except a corporate trustee, from exercising by themselves any power or discretion conferred on a trustee.
[28] The relevant clause read as follows:
“12.4Powers and discretion of sole Trustee: Except where a corporation is the sole Trustee, notwithstanding anything contained or implied in this deed, if at any time there is only one Trustee of the Trust, no power or discretion conferred on the Trustees by law or by this deed, other than that of appointing a new Trustee, shall be exercised by the surviving Trustee until such time as an additional Trustee has been duly appointed.”
[29] Her Honour found that this amounted to a further constraint on
Mr Campbell’s ability to control the assets of the RCFT.
Inability to remove original discretionary beneficiaries
[30] The Judge found that Mr Campbell could not remove the original discretionary beneficiaries because to do so was contrary to the provisions of the deed which stated:
“7.1Power to appoint and remove Beneficiaries: The Appointor may, by deed, before the expiry of the Trust Period:
(a) appoint any person to become a member of the class of Discretionary Beneficiaries and any person so appointed shall from the date specified in such deed (or if no date is specified, from the date of the deed) become a Discretionary Beneficiary as if such person had been specified or named in this deed as a Discretionary Beneficiary;
(b) remove such person from the class of Discretionary Beneficiary and any person so removed shall, from the date specified in such deed (or if no date is specified, from the date of the deed) cease to be a Discretionary Beneficiary as if such person had not been specified or named in this deed as a Discretionary Beneficiary. Any removal of a Discretionary Beneficiary pursuant to this clause shall be without prejudice to any benefit to which the Beneficiary has become indefeasibly entitled.”
[My emphasis]
[31] The Judge considered that the word “such” in clause 7.1(b), emphasised in bold in the reproduction above, necessarily referred to the preceding clause 7.1(a) which gave Mr Campbell the power to appoint any person to become a member of the class of discretionary beneficiaries. In other words, only those appointed as discretionary beneficiaries under clause 7.1(a) may be removed as discretionary beneficiaries under clause 7.1(b). The Judge’s reasoning is summarised below:
(a) The word “such” in clause 7.1(b) would make no sense unless it was designed to limit the power of removal to those beneficiaries that had been added by the appointor and not to the original discretionary beneficiaries.
(b)Given the background of the establishment of the trust, it is “entirely possible” that it was the intention of both Mr and Mrs Campbell that each spouse’s new trust would always preserve the position of their daughters as discretionary and final beneficiaries, hence the wording which ensures the inability to remove those beneficiaries.
(c) The Judge also considered the phrase in clause 7.1(b) that upon removal, the removed beneficiary shall “cease to be a Discretionary Beneficiary as if such person had not been specified or named in this deed as a Discretionary Beneficiary”. Ms Goldie had argued that this phrase suggested Mr Campbell had the power to remove beneficiaries named in the deed, that is his daughters. The Judge rejected this argument and held that the reference to beneficiaries “specified or named in the deed as a discretionary beneficiary” does not need to refer to the originally named beneficiaries given the wording in clause
7.1(a) that a newly-appointed discretionary beneficiary will become a discretionary beneficiary “as if such person had been specified or named in this deed as a discretionary beneficiary”.
Grounds of appeal
[32] Although five grounds of appeal are advanced by Ms Goldie they may be summarised as follows:
(a) The Judge was wrong to find that Mr Campbell does not have the power to remove his daughters as discretionary beneficiaries.
(b)The Judge failed to find that an appointment by Mr Campbell of a sole corporate trustee which he could direct or control would not be the exercise of a fiduciary power.
(c) Alternatively, if it was the exercise of a fiduciary power, the Judge failed to find that if Mr Campbell is the sole discretionary beneficiary, then the appointment of a sole corporate trustee which he could direct or control would not be an improper exercise of that power.
(d)The Judge failed to find that Mr Campbell’s ability to make himself the sole discretionary beneficiary, combined with his ability to add and remove trustees, means that he is able to bring about a situation where the assets of the trust would be applied for his sole benefit prior to the vesting day.
[33] In summary, the essence of Mr O’Callahan’s submission for Ms Goldie is that Mr Campbell’s power to appoint and remove trustees is unfettered under the RCFT. In other words, this power is not fiduciary in nature and is not subject to the doctrine of fraud on a power. As such, Mr O’Callahan submits that such is Mr Campbell’s degree of control over the assets of the trust that he is in a comparable position to Mr Clayton. For that reason it is appropriate to first discuss Clayton v Clayton and the legal principles which emerged in the decisions of both the Court of Appeal and the Supreme Court.
Legal principles – Clayton v Clayton
[34] In Clayton v Clayton, as in this case, the overarching issue was whether certain powers under a trust deed constituted relationship property under the PRA.
[35] The Court of Appeal considered that Mr Clayton enjoyed a power of general appointment under clause 7.1 in the trust deed and that this power constituted property under the PRA.4 In reaching this conclusion, the Court of Appeal relied heavily on Tasarruf Mevduati Sigorta Fonu v Merrill Lynch Bank & Trust Co (Cayman) Ltd where the Privy Council held that an unfettered (non-fiduciary) power of revocation was tantamount to ownership.5
[36] On appeal, the Supreme Court agreed with the Court of Appeal that if Mr Clayton had a non-fiduciary power as Principal Family Member to make himself the sole beneficiary under the trust deed, the effect of the exercise of that power
would be tantamount to ownership.6 But the Supreme Court found the Court of
4 Clayton v Clayton [2015] NZCA 30, [2015] 3 NZLR 293.
5 Tasarruf Mevduati Sigorta Fonu v Merrill Lynch Bank & Trust Co (Cayman) Ltd [2011] UKPC
17, [2012] 1 WLR 1721 [TMSF].
6 At [44].
Appeal to be in error when it held that Mr Clayton could remove Final Beneficiaries under clause 7.1. The Court of Appeal appears to have reasoned that the definition of “Discretionary Beneficiaries” included “the Final Beneficiaries”. However, removal of the Final Beneficiaries as Discretionary Beneficiaries did not mean that they ceased to be Final Beneficiaries. As a result, the Supreme Court held that clause 7.1 was insufficient on its own to give Mr Clayton a power analogous to a power to revoke the trust and was therefore insufficient by itself to constitute
property under the PRA.7
[37] But the Supreme Court did not see that as fatal to Mrs Clayton’s claim in relation to the trust. The Court went on to analyse the trust deed to see whether Mr Clayton’s power and entitlements as Principal Family Member, Trustee and Discretionary Beneficiary gave him such a degree of control over the assets of the trust that it was appropriate to classify those powers as rights or interests falling within the definition of “property” in s 2 of the PRA.
[38] Mr Clayton was settlor, sole trustee, and “Principal Family Member”. He had power of appointment in respect of both discretionary beneficiaries and trustees. He could transfer the power of appointment of trustees to another person. He had the power to change any provision relating to the management and administration of the trust. There was also provision in the deed requiring the trust deed to be interpreted in a manner broadening the powers and restricting the liabilities of
Mr Clayton as trustee.8
[39] The Court found three additional clauses to demonstrate decisively Mr Clayton did have a sufficient degree of control over the assets of the trust that it was appropriate to classify those powers as property under the PRA because:9
(a) Clause 6.1(a) gave the trustee the power to pay or apply all or any part of the capital of the Trust Fund to any one or more discretionary
beneficiaries. As Mr Clayton was both trustee and a discretionary
7 At [45]-[49].
8 (Mr Campbell also enjoys all these powers under the Campbell Family Trust Deed.)
9 At [52]-[55].
beneficiary, he could pay or apply the entire trust capital to himself. Clause 4 gave him a similar power in relation to trust income.
(b)Clause 8 empowered the trustee to resettle the trust fund upon the trustees of any trust which included any one or more of the discretionary beneficiaries. That would allow Mr Clayton to resettle the trust capital on the trustee of a trust of which he was a (or the) beneficiary.
(c) Clause 10 gave the trustee the power to bring forward the vesting day to any date of his choosing which meant he could exclude the final beneficiaries from deriving any benefit from the trust. If he brought forward the vesting day to a date of his choosing and had appointed all the trust capital to himself, that would give him both legal and beneficial ownership of the trust capital and the trust would be at an end.
[40] There were other clauses of relevance:
(a) Clause 11.1 authorised the trustee to exercise a power of discretion even though the interests of all the beneficiaries were not considered by the trustee, the exercise would or might be contrary to the interests of any present or future beneficiary and/or the exercise would result in the whole of the trust capital or income being distributed to one beneficiary to the exclusion of others.
(b)Clause 14.1 authorised a trustee who is also a beneficiary to exercise any power or discretion vested in the trustee in his own favour.
(c) Clause 19.1(c) authorised the trustee to exercise any power or discretion notwithstanding that the interests of the trustee may conflict with the duty of the trustee to the beneficiaries or any of them.
[41] After reciting these clauses, the Supreme Court observed:
“[57] These provisions make it possible for Mr Clayton, even if he has not exercised the power conferred on him as Principal Family Member by clause
7.1, 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 this without considering the interests of other Discretionary Beneficiaries (if any) 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. The position of the Final Beneficiaries is contingent on the trust capital not being distributed before the Vesting Day. The fact that the decision involved a conflict between his personal interest and the interests of other Beneficiaries would not matter.
[58] These provisions mean that Mr Clayton is 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 cannot remove the Final Beneficiaries does not alter the fact that he can, unrestrained by fiduciary obligations, exercise the VRPT powers to appoint the whole of the trust property to himself. …”
[42] The Supreme Court then dealt with an argument that the exercise of any power in a manner that defeated the mandate of the trust deed to the final beneficiaries would be an act in respect of which the final beneficiaries could enforce an account against the trustee. Counsel argued that, if Mr Clayton exercised any of the powers in favour of himself in breach of his fiduciary duty to the final beneficiaries, the final beneficiaries would have remedies for breach of trust. The Court rejected this argument. There was nothing in the trust deed referring to such a “mandate”. Given the breadth of powers held by Mr Clayton, there was no effective
constraint on the exercise of powers in favour of himself.10
[43] The Court therefore concluded that the combination of powers and entitlements of Mr Clayton in his various capacities amounted in effect to a general power of appointment which the Court held was property under the PRA. Earlier in its judgment, the Supreme Court had considered the breadth of the definition of “property” in s 2 of the PRA, observing:
“[38] We accept the submission for Mrs Clayton that the property definition in s 2 of the PRA must be interpreted in a manner that reflects the statutory context. We see the reference to “any other right or interest” when interpreted in the context of social legislation, as the PRA is, as broadening traditional concepts of property and as potentially inclusive of rights and
10 At [63]-[68].
interests that may not, in other contexts, be regarded as property rights or property interests. …”
Analysis
[44] I turn now to consider each of the grounds of appeal as previously summarised.
Was the Judge wrong to find that Mr Campbell does not have the power to remove his daughters as discretionary beneficiaries?
[45] In my view, the Judge was correct, for the reasons she gave, that Mr Campbell does not have the power to remove his daughters as discretionary beneficiaries. There are two key points. First, the conclusion is consistent with the stated intention of the trust and secondly, it gives the word “such” in clause 7.1(b) practical effect.
[46] As to the first point, it is necessary to address Mr O’Callahan’s submissions attacking the intention of the deed as found by the Judge. Mr O’Callahan submits the Judge erred in finding it “entirely possible” that it was the intention of both Mr and Mrs Campbell that the new trusts would always preserve their daughters’ positions as discretionary and final beneficiaries. He refers to the fact that the previous family trusts held joint ownership of the Takutai property so, in his submission, matters relating to the property required co-operation between Mrs and Mr Campbell as trustees of the respective trusts. This, says Mr O’Callahan, leads to the proposition that Mr and Mrs Campbell would have needed to take decisions together which provided natural checks and balances where unless Mr and Mrs Campbell had a common intention to defeat the interest of their daughters, there would be at least some measure of protection. Mr O’Callahan submits the primary reason for the alteration of the trusts was to split the joint holdings and to enable each person to have dominion over their respective shares without resorting to the other in light of and following the separation.
[47] Mr O’Callahan submits that if the protection of the daughters’ interests was a central plank of that proposal, the choice of these trust structures was an inappropriate vehicle to achieve that purpose. In particular, he submits:
(a) There is no suggestion that there is any real intention to necessarily benefit the daughters during Mr and Mrs Campbell’s lifetime. For example, why is the property not tenanted and for the income to be distributed to the daughters?
(b)Mr and Mrs Campbell each have the power of appointing additional discretionary beneficiaries and may appoint whoever they wish. Distributions to others during Mr and Mrs Campbell’s lifetimes are not precluded; nor is distribution to others after Mr and Mrs Campbell’s death if during their lifetime they added additional discretionary beneficiaries.
(c) There is apparently no trustee oversight over Mr Campbell’s continued occupation of the trust’s sole asset. There does not seem to have been any account taken between Mr Campbell and the trust regarding advances or distributions.
[48] Mr O’Callahan suggests the daughters may have been better protected if property were distributed to Mr and Mrs Campbell personally as any asset after their death would form part of their estate requiring them to discharge moral duties under the Family Protection Act 1955. He says the trust structure adopted could never achieve protection for the daughters and it would be wrong to imply it was a central intention of the mirror trustees who resettled the trusts as an aid to interpreting the relevant trust deed. He suggests the better inference is that the trust was meant to give Mr Campbell control.
[49] I do not accept these submissions. The first point to make is that if the trusts had not been established then the daughters’ interest in assets now in trust would have been eroded by 50 per cent by a claim by Ms Goldie under the PRA (which is
what this appeal essentially is) and potentially by a further 50 per cent by
Mr Campbell’s new partner, Ms Leon.
[50] But in any event, the Memoranda of Guidance provided to the trustees of the RCFT reveal a consistently stated intention to benefit Mr Campbell as well as his daughters:
(a) The Memoranda of Wishes to the trustees of the mirror trusts dated
27 July 2007 recorded that the new trusts were to be for the benefit of Robin and Elaine respectively and “our daughters and other beneficiaries”.
(b)The resolution of trustees for each new trust dated 27 July 2007 stated the trust was to be “on a new trust for the benefit of Robin/Elaine, [their] daughters and certain other beneficiaries”.
(c) The Memorandum of Guidance given to the trustees by Mr Campbell on 12 October 2007 expressly prioritised Mr Campbell’s daughters’ reasonable needs over other beneficiaries except himself.
[51] These documents make clear that it was the intention of the settlors that Mr Campbell’s daughters’ reasonable needs and requirements are to be considered by the trustees before exercising powers of discretion vested in them under the trust deed (even if Mr Campbell’s reasonable needs are to take precedence). It would be entirely inconsistent with this intention if the appointor was empowered to remove the daughters as discretionary beneficiaries.
[52] That Mr Campbell has added Ms Leon and her daughter as beneficiaries of the trust and has expressed his desire that the trustees make substantial provision to them in the event of his death does not change the analysis. The reference to “other beneficiaries” in the 2007 memoranda and resolutions contemplated that both or either Mr and Mrs Campbell may wish to add a discretionary beneficiary in the future. The adding of these beneficiaries does not support the argument
Mr Campbell has the power under clause 7.1(b) to remove his daughters as discretionary beneficiaries.
[53] As to the second point, it is difficult to see what role the word “such” would play in clause 7 if its intended effect was not to confine the class of beneficiaries capable of removal to those appointed under clause 7.1(a). This is a significant factor in favour of the interpretation adopted by the Judge.
[54] I do acknowledge, however, that clause 7 is awkwardly drafted. The phrase in clause 7.1(b) providing that upon removal, the removed beneficiary shall “cease to be a Discretionary Beneficiary as if such person had not been specified or named in this deed as a Discretionary Beneficiary” gives rise to an ambiguity because it suggests clause 7.1(b) includes the discretionary beneficiaries listed in the deed itself who are only the original discretionary beneficiaries. However, I agree with the Judge that this ambiguity can be resolved by interpreting this phrase to refer to the phrase in clause 7.1(a) that a newly-appointed discretionary beneficiary will become a discretionary beneficiary “as if such person had been specified or named in this deed as a discretionary beneficiary”. In other words, as clause 7.1(a) deems additional discretionary beneficiaries to have been listed in the deed, clause 7.1(b) reverses the deeming effect of clause 7.1(a).
[55] This means Mr Campbell is not able to make himself the sole discretionary beneficiary. As such it is a significant point of difference between the RCFT deed and the deed in Clayton v Clayton.
[56] It follows I am satisfied that Judge Southwick did not err in her interpretation of clause 7.
Was the Judge wrong to find that Mr Campbell’s power to appoint a sole corporate trustee is a fiduciary power?
[57] The argument advanced on appeal is that fiduciary obligations would not apply if Mr Campbell exercised his power to appoint a sole corporate trustee because these powers were given to him in his separate capacity as appointor rather than trustee. In support of this argument, Mr O’Callahan closely analysed a line of
authority emanating from Carmine v Ritchie where Gilbert J in this Court observed:11
“[66] The power to appoint new trustees is generally acknowledged to be a fiduciary power even though it may not have been conferred on trustees or the holder of any other office.12 Equally, a power to remove a trustee and replace him with a new trustee is almost always considered to be a fiduciary power to be exercised in the best interests of the beneficiaries. This is because the subject matter of the power is the office of the trustee which 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.”13
[58] Brewer J cited Carmine v Ritchie in Harre v Clarke and observed:14
“[24] The power of appointment and removal of trustees is a fiduciary power regardless of whether that power is possessed by a trustee or any other individual.15 Therefore, a settlor of a Trust who retains the power of appointment of trustees is also under a fiduciary duty to exercise that power only in the best interests of the Trust. In the common law there existed a presumption that it would be an improper purpose for an appointor to use the power to appoint themselves as a trustee. Thomas and Hudson on the Law of Trusts notes that as a general rule, and in the absence of express provision to the contrary, an appointor may not appoint himself. In this case there is express provision to the contrary. Clause 10(e) of the Trust Deed allows Mrs Harre to appoint herself trustee.
[25] The power of appointment, or removal, must be exercised in good faith, for a proper purpose, consistent with the object of the power and in the best interests of the beneficiaries as a whole. The Court of Appeal of the Supreme Court of Western Australia noted:16
‘The discretion is to be exercised by reference to the objects and purposes of the trust, having regard to the competing interests of the various potential beneficiaries, and without taking into account improper, irrelevant or irrational considerations.’
[26] The use of a power of appointment to achieve a purpose which is not in the best interests of the beneficiaries as a whole will be a fraud on the power and will be set aside by the Court.”
11 Carmine v Ritchie [2012] NZHC 2279, (2012) 3 NZTR 22-025.
12 For this proposition Gilbert J cited Geraint Thomas Thomas on Powers (2nd ed, Oxford University Press, Oxford, 2012) at [1.52] and John McGhee Snell’s Equity (32nd ed, Sweet & Maxwell, London, 2010) at [27-011].
13 For this proposition Gilbert J cited David Hayton (ed) Underhill and Hayton Law Relating to
Trusts and Trustees (18th ed, LexisNexis, London, 2010) at [70.20] and [71.11].
14 Harre v Clarke [2014] NZHC 2533. This statement of principle was expressly adopted by
Winkelmann J in Green v Green [2015] NZHC 1218, (2015) 4 NZTR 25-017 at [504].
15 Citing Carmine v Ritchie, above n 11.
16 Scaffidi v Montevento Holdings Pty Ltd [2011] WASCA 146, (2011) 6 ASTLR 446 at [150]
citing Elovalis v Elovalis [2008] WASCA 141 at [51] and [70].
[59] In New Zealand Maori Council v Foulkes the Court of Appeal referred to the decisions of Gilbert and Brewer JJ and endorsed the statements of principles contained in those judgments:17
“[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, 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. Finally, because the power is fiduciary in nature, it must not be exercised for a collateral purpose.”
[60] Mr O’Callahan submits that Carmine v Ritchie and subsequent authority referring to it cannot be relied on as an accurate statement of the law where the power to remove trustees is vested in a discretionary beneficiary who is the primary object of the trust. He refers to Underhill and Hayton Law Relating to Trusts and Trustees, one of the texts cited by Gilbert J in Carmine, where the authors state:18
“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. This is because the subject- matter of the power is the office of the trustee at the very core of the trust, also obliged to act in the best interests of the beneficiaries as a whole.”
[61] Drawing on these observations, Mr O’Callahan submits that the correct position is this: where the power is conferred on a discretionary beneficiary there is a strong presumption that the power has been conferred so the beneficiary can look after his or her own interests. He submits that, as Gilbert J relied on this text, he must not have considered the beneficiary in Carmine to have been the primary object
of the trust and the case is thus distinguishable on this basis.
17 New Zealand Maori Council v Foulkes [2015] NZCA 552, [2016] 2 NZLR 337.
18 At [71.11].
[62] I do not accept Mr O’Callahan’s submission for the following reasons.
[63] First, the doctrine of precedent seems to preclude a finding that Mr Campbell’s powers of appointment and removal are unfettered by fiduciary obligations. The Court of Appeal in New Zealand Maori Council v Foulkes, in addition to the observations cited in paragraph [59] above, said:19
“Any decision about appointing or removing trustees must always be made on measured evaluation by reference to the deed, consistent with the fiduciary nature of the power, and not for any collateral purpose.”
[64] That is an unqualified observation with wide application in a trust context. Any attempt to distinguish these comments on the basis of factual dissimilarities or misplaced reliance on Carmine is likely to be an exercise in sophistry. The doctrine of precedent requires application of this principle, as articulated by the Court of Appeal, to the facts of this case by the High Court.
[65] Secondly, even if the position contended for by Mr O’Callahan were adopted, the question would still remain, in my view, whether the “strong presumption” or “obvious inference” that Mr Campbell was given his powers as appointor entirely for his own benefit would survive the terms of the trust deed and the underlying context. Resolving that question would be a matter of interpretation to be conducted by reference to the terms of the trust in light of the relevant context. In this case:
(a) There is a no self-benefit clause (clause 14.1). It can be logically inferred that the purpose of this provision is to protect beneficiaries other than Mr Campbell. Otherwise it is difficult to see what other purpose it might serve.
(b)Clause 12.4 requires there to be two or more trustees or a sole corporate trustee. It can be logically inferred that the purpose of this provision is to protect against abuse by a sole trustee, i.e.
Mr Campbell.
19 At [27].
(c) As discussed, the consistently stated intention of the trust was to benefit Mr Campbell and his daughters and other beneficiaries.
(d)This trust was established in the context of the resettlement of two mirror trusts established for the benefit of Mr Campbell, Elaine Campbell and their daughters.
[66] In light of the above, I do not accept the submission that Mr Campbell could exercise his powers as appointor without constraint even if the formulation of the principle as it appears in Underhill v Hayton is adopted. That would be inconsistent with the no self-benefit clause and the context which sits behind the trust’s establishment. The “obvious inference” referred to in Underhill v Hayton would be displaced on the facts of the present case.
[67] I thus conclude that the Judge did not err in her conclusion that Mr Campbell’s power to appoint and remove trustees was to be exercised as a fiduciary power.
If the power to appoint a sole corporate trustee is a fiduciary power, was the Judge wrong to find that the appointment of a sole corporate trustee under Mr Clayton’s direction would be an improper exercise of that power?
[68] It is worth reproducing, as Judge Southwick did, the comments of Tipping J in Kain v Hutton.20 In that case his Honour agreed with the majority judgment (written by McGrath J) but added his own comments relating to fraud on a power:
“[46] The expression fraud on a power is historical language for when a power is misused in an ultra vires manner. When an appointment is made pursuant to a power of appointment the person making the appointment (who can be called either the donee of the power or the appointor) is acting pursuant to a mandate granted by the donor of the power and must stay within that mandate. The donor is normally the settlor of an inter vivos trust or the testator when the power is contained in a will.
[47] A general power of appointment entitles the donee/appointor to appoint to anyone at all, including himself. There cannot therefore be excessive execution of, or a fraud on, such a power because it is logically impossible for the donee/appointor to exceed the donor’s mandate. By contrast a special power enables the donee/appointor to appoint only those specifically permitted by the donor’s mandate. A special power is one where
20 Kain v Hutton [2008] NZSC 61, [2008] 3 NZLR 589.
the objects of the power are limited by the terms upon which the power is granted. An appointment to a person who is not a permitted object will usually represent an excessive execution of the power. The species of excessive execution known as a fraud on the power normally comes about when the appointment is in form to an object but in substance to a non- object. In such a case the object is simply a vehicle through or by means of whom the appointor’s purpose of benefiting the non-object is carried out. Hence a fraud on a power is a clandestine excessive execution because it is regular on its face but in reality is undertaken for a purpose not within the donor’s mandate.”
[69] In this case, the trust deed expressly prohibited a trustee from exercising any power or discretion in his or her favour. If Mr Campbell was to appoint a sole corporate trustee under his control so that he could procure the exercise of trustee powers or discretion in his favour, then, to borrow the language of Tipping J, the corporate trustee would be “simply a vehicle through or by means of whom the appointor’s purpose of benefiting [himself] is carried out”. That would be a clandestine excessive execution because it would appear regular on its face but in reality would be undertaken for a purpose not within the donor’s mandate.
[70] I conclude that the Judge did not err in concluding that appointing a sole corporate trustee under the control of Mr Campbell would be an improper use of the power of appointment and removal.
Alternatively, was the Judge wrong to find that Mr Campbell is unable to bring about a situation where the assets of the trust would be applied for his sole benefit prior to the vesting day?
[71] It is true that the trustee’s discretion is unfettered in terms of clause 11 and that, on the face of clause 2.121 and clause 622 the trustees could apply the assets of the trust to Mr Campbell’s sole benefit prior to the vesting day. But the powers Mr Campbell holds in his capacities as trustee and appointor or both do not permit him to do this. He cannot remove the original discretionary beneficiaries and he cannot appoint a sole corporate trustee under his direction. And as a trustee he is
fettered by the no self-benefit clause.
21 The trustees can bring the vesting day forward by deed.
22 The trustees may pay or apply all or any part of the capital of the trust to one or more of the discretionary beneficiaries before the vesting day.
[72] I conclude the Judge did not err when finding that Mr Campbell is unable to bring about a situation where the assets of the trust would be applied for his sole benefit prior to the vesting day.
Conclusion
[73] As I said earlier, Mr O’Callahan submits that the key proposition on this appeal is that Mr Campbell’s power to appoint and remove trustees is unfettered. In other words, it is not a fiduciary power and thus not subject to the doctrine of fraud on a power. I have rejected this proposition. I observe, however, that the fetters constraining Mr Campbell are derived largely from the no self-benefit clause. Without this clause, it would be arguable the powers he enjoys under the deed are sufficiently similar to that in Clayton v Clayton that they could constitute property under the PRA.
Result
[74] The appeal is dismissed.
Costs
[75] In the circumstances I am of the view the respondent is entitled to costs calculated on a 2B basis. I invite counsel to file a joint memorandum as to costs. In the event the parties are unable to agree memoranda are to be filed and served within
25 working days of the date of this judgment.
Moore J
Solicitors/Counsel:
Mr O’Callahan, Auckland
Ms La Mantia, Auckland
7
0