KEN LEGLER LAILA SUN LEGLER KLAUI s AND MARIA GUILLAUMINA CORNELIA JOHANNA FORMANNOIJ AND KAAHU TRUSTEE LIMITED

IN THE SUPREME COURT OF NEW ZEALAND

I TE KŌTI MANA NUI O AOTEAROA

SC 8/2023
[2024] NZSC 173

BETWEEN	KEN LEGLER LAILA SUN LEGLER KLAUI Appellants
AND	MARIA GUILLAUMINA CORNELIA JOHANNA FORMANNOIJ First Respondent
AND	KAAHU TRUSTEE LIMITED Second Respondent

Hearing:	10 October 2023
Court:	Winkelmann CJ, Glazebrook, O’Regan, Williams and Miller JJ
Counsel:	D R Bigio KC and J W H Little for Appellants J D McBride and R C Woods for Respondents
Judgment:	18 December 2024

JUDGMENT OF THE COURT

AThe appeal is dismissed.

BThe appellants must pay the respondents total costs of $25,000 plus usual disbursements.

____________________________________________________________________

REASONS

Para No
Glazebrook, O’Regan, Williams and Miller JJ	[1]
Winkelmann CJ	[143]

GLAZEBROOK, O’REGAN, WILLIAMS AND MILLER JJ
(Given by Glazebrook J)

Table of Contents

Para No
Introduction	[1]
Background	[8]
Kaahu Trust	[16]
Horowai Trust Asset transfers before 2018 After Ricco’s death The will	[24] [27] [41] [41]
Asset transfers Further correspondence with lawyers acting for Laila	[43] [44]
Retirement of BOI	[49]
Search for replacement trustee	[51]
Legal advice on sole corporate trustee	[53]
Requests for information about Horowai	[63]
Mokomoko	[69]
Actions taken after KT Ltd became sole trustee	[74]
High Court judgment Court of Appeal judgment	[82] [91]
Positions of the parties	[100]
Our assessment of factual issues	[102]
Comments on the Chief Justice’s reasons	[116]
Relevant evidence	[117]
Intent to take control	[122]
Self‑benefit	[126]
Result and costs	[141]

Introduction

Mr Ricco Legler (Ricco),[1] Ms Maria Formannoij (Marina)[2] and Bay of Islands Taxation Trustee Company No 2 Ltd (BOI) were the original trustees of the Kaahu Trust (Kaahu). Ricco died in an accident in November 2017. BOI retired as a trustee on 21 November 2019. On 27 November 2019, Marina appointed Kaahu Trustee Ltd (KT Ltd) as the corporate trustee of Kaahu and then resigned as trustee. Marina is the sole director of KT Ltd.
[1]We use first names for ease of reference.
[2]Ms Formannoij’s legal first name is Maria but she prefers to be called Marina.
Ricco’s three adult children from a former marriage, Li and Ken Legler and Laila Legler Klaui, issued proceedings alleging that the appointment of KT Ltd was for an improper purpose—to enable Marina to use the trust property to benefit herself at their expense.[3]
[3]See further below at [135].
Li, Ken and Laila failed in their challenge in the High Court.[4] The Court of Appeal, by majority, dismissed the appeal against that decision.[5] Leave to appeal to this Court was granted on 4 May 2023.[6] Li is not a party to the appeal in this Court. The appeal is continued by Ken and Laila alone.
[4]Legler v Formannoij [2021] NZHC 1271, (2021) 5 NZTR ¶31-006 (Downs J) [HC judgment].
[5]Legler vFormannoij [2022] NZCA 607, (2022) 5 NZTR ¶32-013 (Brown, Brewer and Cull JJ) [CA judgment].
[6]Legler v Formannoij [2023] NZSC 46 (O’Regan, Ellen France and Kós JJ). The approved question was whether the Court of Appeal was correct to dismiss the appeal.
It is common ground that the appointment of a corporate trustee, including where a beneficiary is the sole director and a shareholder, is consistent with the terms of the Deed of Declaration of Trust creating the Kaahu Trust (the Deed).[7]
[7]Ken and Laila do not seek to support Cull J’s conclusion, discussed below at [98], that a trustee company would be the only proper sole corporate trustee.
It is also common ground that whether Marina’s purpose in appointing KT Ltd as trustee was improper is judged subjectively (that is, according to her intent) at the date of the exercise of the power.[8] This means that at trial Li, Laila and Ken had to prove that the appointment of KT Ltd, at the time the appointment was made, was for the purpose of benefiting Marina at their expense. If that has not been proved then the appeal fails, whether or not, and in what circumstances, an intention of benefiting herself at the expense of Ricco’s children would have been an improper purpose.[9]
[8]Eclairs Group Ltd v JKX Oil and Gas plc [2015] UKSC 71, [2016] 3 All ER 641 at [15] per Sumption LJ; and see the authorities there cited: The Duke of Portland v Topham (1864) 11 HLC 32, 11 ER 1242 (HL) at [54] per Lord Westbury LC, regarding the subjective assessment occurring at the point the power is exercised; and Hindle v John Cotton Ltd (1919) 56 SLR 625 (HL) at 630 per Viscount Finlay, regarding the test being subjective.
[9]There was some indication during the oral hearing that counsel for Marina and KT Ltd conceded that Marina taking control of Kaahu Trust [Kaahu] for the purpose of benefiting herself would have been an improper purpose, but this apparent concession was at odds with their written submissions, outline of oral argument and some of their other oral submissions made at the hearing.
We conclude that the appointment was not proved to be for that alleged purpose, largely for the same reasons as in the Courts below. The appeal must therefore be dismissed. Given this conclusion, we do not need to address the legal questions related to the scope of the improper purposes doctrine.
In this judgment, we first give a detailed summary of the events that occurred both before and after the death of Ricco. We then provide summaries of the decisions below and of the submissions of the parties. After this, we assess the factual issue on which this case largely turns: Marina’s intent at the time of the appointment of KT Ltd as trustee. Finally, we provide some comments on the reasons of the Chief Justice.

Background

Marina and Ricco met in 1989 in the Caribbean, and their relationship began that year. They moved to New Zealand in October 1991 where Marina trained as an osteopath. Ricco had, in 1986, purchased a farm in the Bay of Islands. He later purchased a forestry block. Once the couple moved to New Zealand, they lived in a farmhouse on the farm. They married in 2009.
Li moved to New Zealand in 1991 and Laila came a year or so later. Marina says that, as Laila grew older, Laila’s relationship with Ricco and her deteriorated.[10] Marina says she still has a good relationship with Li, but her relationship with Ken weakened as he got older. Ken currently lives in Perth.
[10]Li says that Ricco and Laila’s relationship was strained at times but this was because of the strained relationship between Laila and Marina. Laila says that her relationship with Ricco was complicated by the relationship with Marina (particularly in her teen years) but her relationship with her father, while up and down, improved as she got older.
Ricco’s father died in 2002, leaving a substantial inheritance to Ricco.[11] Ricco was able to use part of this money to pay off debts (together with interest) owed to his father in relation to the farm property.[12] Ricco’s legacy ultimately led to the creation of two family trusts: the Horowai Family Trust (Horowai) on 2 March 2007 and Kaahu on 9 June 2008. Ricco’s father also left CHF 750,000 (Swiss Francs, around NZD 1.4 million at today’s exchange rate) each to Li, Ken and Laila.[13]
[11]Ricco received various distributions (including in shares and foreign currency) totalling over CHF 5 million (Swiss Francs, around NZD 9.6 million at today’s exchange rate) from two Europe‑based foundations created by his father to provide for his family. Ricco initially held these distributions in his own foundation but eventually decided to wind up this foundation due to compliance costs. On 7 May 2013 around NZD 7.6 million was transferred from Ricco’s foundation to Kaahu.
[12] It is not clear whether there was debt owing on the forestry land.
[13]HC judgment, above n 4, at [56]. The Chief Justice says below at [151] of her reasons that it is not in dispute that the original source of the wealth settled on both trusts was Ricco’s father. We accept this is the case with regard to the sum of over CHF 5 million referred to above n 11. The extent to which it is the case with regard to the farm assets is not clear as the evidence does not appear to indicate the amount of the loans owed on the farm properties.
Marina’s evidence was that the dual trust structure was set up on the basis that Horowai was primarily to hold assets for Ricco’s children and Kaahu was primarily intended to provide her and Ricco with a home and income as they grew older. She says that Kaahu was “never intended to provide [the children] with any significant financial benefits”.[14]
[14]Marina agreed in cross‑examination that the forgiveness of $900,000 for the sale of a plot of land from the Kaahu to the Horowai Family Trust [Horowai] was a significant benefit to the children: see below at [28]. She similarly agreed during cross‑examination that the $3 million which was transferred from Kaahu to Horowai was a significant financial benefit: see below at [31].
As further background, on 10 July 2003, Ricco and Marina signed a relationship property agreement (the 2003 agreement) by which they contracted out of the Property (Relationships) Act 1976. Ricco acknowledged Marina as (at that stage) his de facto partner and agreed that she would be given a significant share of the farm and forest properties if he died.This agreement was overtaken by the formation of the two trusts and in 2008 the transfer of the farm to Kaahu and the forestry block to Horowai.[15]
[15]Below at [27]. Later dealings are set out below at [28]–[40].
Marina’s evidence was that she did not remember whether she and Ricco had really thought about the 2003 agreement when they started to transfer everything across to the trusts. She said, however, that she knew she was giving up the 2003 agreement as the new structure would be a “better way of making sure that the children had their own trust and that Ricco and I had our own property and income, held in Kaahu”.
Marina said that she had been intimately involved with setting up the trusts as it was important to her that she be protected if Ricco died, given the difficult relationship they had with Laila in particular: “I wanted things to be right for Ricco and me, and for the children.” Marina also said:
… I gave up my own separate property to ensure that the farm and forest properties were held for [Ricco’s children] in the Horowai Family Trust, on the basis that Kaahu would then be effectively ring-fenced as separate property for the benefit of me and Ricco. That has always been the purpose of the Kaahu Trust … Whatever remains in Kaahu, after my death, will go to them.
Li, in his trial evidence, acknowledged that Ricco intended Kaahu to provide Ricco and Marina a home and income as they grew older. Li said that Ricco would draw $200,000 a year from the trust, pay $60,000 to the children’s mother, Gitta, and use the rest to support Marina and himself.[16] Li did not, however, accept that his father would have thought of Kaahu as only being for him and Marina to the exclusion of his children and grandchildren. Li pointed out that Ricco did not remove him, Laila or Ken as beneficiaries of Kaahu when Ricco was removed as a beneficiary of Horowai.[17] Li said, however, that he and his siblings do not wish to deprive Marina of the financial support she receives from Kaahu.[18]

Kaahu Trust

[16]Gitta’s full first name is Birgitta. She is Ricco’s former wife.

[17]See below at [26].

[18]Laila in her evidence agreed with this, although she said she just knew the trust belonged to Ricco rather than it being set up primarily for both Ricco and Marina.

Kaahu was established by the Deed dated 9 June 2008. As noted above, the original three trustees of Kaahu were Ricco, Marina and BOI. Philip Tyler was the director of BOI[19] and also acted as accountant for both Horowai[20] and Kaahu. Kaahu’s sole trustee is now KT Ltd.
[19]Marina says that, while he was to act as an independent trustee for Kaahu in his capacity as director, Mr Tyler never had much involvement with significant decisions. Such decisions were made by Ricco and her. According to Marina, while Mr Tyler did provide advice, he never disagreed with the decisions she and Ricco had made.
[20]Mr Tyler ceased to be the accountant for Horowai in May 2019.
The final beneficiaries of Kaahu are Ricco and Marina. The discretionary beneficiaries of the trust are the final beneficiaries, any issue[21] (descendant) of any final beneficiary, any trust which includes among its beneficiaries any beneficiary or their issue, and any beneficiary appointed by deed by the trustees.[22] Clause 11 of the Deed gives the trustees the power to add or exclude beneficiaries, including final beneficiaries.[23]
[21]Defined in cl 2.1 as “lineal descendants, adopted or natural born”.
[22]Clause 2.1.
[23]Clause 2.1 defines “[b]eneficiary” as “any person who receives or may receive an interest in the Trust Fund”. So, while cl 11 just refers generally to a power to appoint beneficiaries of the trust, this includes final beneficiaries.
Clauses 4 and 5 have the effect of allowing the trustees to make distributions of “all or any part” of the trust income or capital to any one or more of the beneficiaries.
Clause 6 provides that the trustees shall hold the trust fund on the vesting day on trust for those of the living final beneficiaries, or their issue, who the trustees appoint by deed to benefit from the trust fund. In respect of any portion of the trust fund not appointed, the Deed provides in relevant part that the fund is held for the final beneficiaries then living as tenants in common in equal shares.
If either of the final beneficiaries has died before the vesting date then that person’s share passes to the issue of that final beneficiary living on the vesting day. This means that, if Ricco predeceased Marina and she was alive at the vesting day (which is able to be brought forward),[24] then (assuming no valid appointment to any other eligible beneficiary)[25] Marina would take a half share of the trust assets and Ricco’s children would take the other half.
[24]Clause 2.1 defines the “[v]esting day” as the day upon which the period of 80 years from the date of Deed of Declaration of Trust creating the Kaahu Trust [the Deed] expires, or such earlier day as the trustees by deed appoint.
[25]For the power to appoint and remove final beneficiaries see above n 23.
Under cl 8.3, decisions of the trustees are required to be unanimous. Clause 18.1, however, reads: “Any power or discretion vested in the Trustees may be exercised in favour of a Trustee who is also a Beneficiary by the other Trustee or Trustees.”[26]
[26]We comment that, while Ricco was alive, it does not appear as if cl 18.1 of the Deed was interpreted as requiring Ricco to stand aside in decisions to make distributions to himself: see above n 19. This may be because decisions of Kaahu had to be unanimous (cl 8.3) and, therefore, involve all three trustees. Indeed, if Ricco were required to stand aside, then cl 8.3 would act to bar any distribution from being made—effectively meaning that no distribution could ever be made in Ricco’s favour (which clearly would not reflect the intent of the Deed). The possible conflict between the two provisions may have been resolved by taking the view that cl 18.1 would be satisfied if the other two trustees (including Bay of Islands Taxation Trustee Company No 2 Ltd [BOI] as the independent trustee) were individually satisfied it was appropriate to decide to benefit Ricco before making a distribution. Having Ricco nevertheless also involved in making the decision would also satisfy cl 8.3.
Clause 14 provides that the trustees may at any time resettle the Deed and all or any of the trust fund upon the trustees of a trust which includes among its beneficiaries one or more of the beneficiaries of Kaahu.
Clauses 26 and 27 concern trustees. Relevantly, cl 26 provides that, unless a corporate body is the sole trustee, the only power of a sole trustee is to appoint a new trustee; and that the trustees must include one person who is independent of the beneficiaries. Clause 27 provides that a corporate body can be the sole trustee or one of a number of trustees and, in terms of cl 27.2(c), that it can exercise the functions of a trustee despite the fact that doing so may directly or indirectly benefit a beneficiary with an interest in the trustee (whether as director, officer or shareholder or otherwise). In full the clauses provide:
26       Restriction on number and identity of Trustees
26.1     Unless a corporate body is the sole Trustee:
(a)if at any time there is only one Trustee, 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;
(b)the Trustees must always include at least one person who is not a Beneficiary, nor the spouse, parent or child of a Beneficiary or of a Trustee, nor a person who is or has been in any sexual relationship with a Beneficiary or with a Trustee.
27       Provisions as to future Trustee or Trustees
27.1Corporate bodies: Any properly empowered corporate body may act as the sole Trustee or as one of two or more corporate Trustees.
27.2     Provisions applicable when the Trustee is a corporate body:
(a)Disqualification of Trustee: Upon any change in the control or management of a corporate Trustee effected by the act or omission of any party other than the directors or shareholders of the Trustee or by the operation of law from the date of such change that Trustee shall cease to be the Trustee or one of the Trustees and shall not thereafter exercise any of the powers and discretions vested in a Trustee by this deed.
(b)No reinstatement: Any change in any order or circumstances which has disqualified any Trustee under this clause shall not result in the removal of such disqualification of and the reinstatement of the Trustee concerned.
(c)Trustee/Beneficiary: It is expressly declared a corporate Trustee may exercise all the powers and discretions vested in that Trustee by this deed and by law notwithstanding such exercise may in any way directly or indirectly benefit any Beneficiary who has any interest (contingent or otherwise) in that Trustee whether as director, officer, shareholder or otherwise however.
27.3Except as expressly provided in this deed the provisions of the Trustee Act 1956 in relation to the appointment, retirement, resignation and replacement of trustees shall apply to Trustees.

Horowai Trust

The sole trustee of Horowai was from inception, and remains, Horowai Trustee Co Ltd (HT Ltd). The original directors of HT Ltd were Ricco and Li. Li and Laila are the current directors. The trust was established by the Deed of Declaration of Trust creating the Horowai Family Trust (the Horowai deed) dated 2 March 2007 by HT Ltd.
The discretionary beneficiaries of Horowai are:
(a)the final beneficiaries and any issue[27] of the final beneficiaries;
(b)any “wife, husband, widow, widower, former wife, former husband, [de facto partner] or former [de facto partner]”[28] of any final beneficiary or issue of any final beneficiary;
(c)any trust which includes among the beneficiaries any beneficiary or issue of any beneficiary; and
(d)any beneficiaries the trustees appoint pursuant to the Horowai deed.
[27]Defined as “lineal descendants, adopted or natural born”.
[28]“De facto partner” is defined as “any natural person who is or who has been at any time a partner in a de facto relationship as prescribed by the Property (Relationships) Act 1976”.

Ricco, Li, Laila and Ken were originally the final beneficiaries but Ricco was removed as a final beneficiary on 30 May 2014.[29] Marina was not a final beneficiary of Horowai but, until Ricco was excluded as a final beneficiary of Horowai, she was a discretionary beneficiary because she was Ricco’s de facto partner and, from 2009, his wife. Li’s evidence was that Ricco was removed[30] as a beneficiary by HT Ltd to make sure that Marina could not have any claim to Ricco’s share of Horowai, as Ricco’s dream was for the forest[31] to be there for the long term.[32]

Asset transfers before 2018

[29]Any other child or children of Ricco born or adopted before the vesting day were also final beneficiaries, but he had no more children.

[30]Ricco agreed to being removed.

[31]See below at [27].

[32]Laila said she agreed that Ricco’s dream was for the forest to be there for the long term.

On 1 September 2008, Ricco sold the forestry block he had purchased in the Bay of Islands to Horowai for around $2.7 million.[33] Also in 2008, the adjacent farm was subdivided into two titles (lots 1 and 2) and sold to Kaahu for around $5.7 million.
[33]But settlement did not occur until 31 March 2010, possibly due to a delay in waiting for titles to issue.
Lot 2, including the farmhouse, was sold to Horowai in May 2015 with the sale price of $900,000 being forgiven by way of distribution from Kaahu to Horowai.
Lot 1 was sold to a third party for $3.1 million in November 2015. Around half of the proceeds was used to buy land near Russell where a new home for Ricco and Marina was built, called Mokomoko.[34]
[34]The house itself cost $1.7 million to build, but this seems to have been funded by Ricco personally.
The balance of Kaahu’s assets comprised managed funds which provided passive income. Around $7.6 million had been transferred into Kaahu in 2013, a product of the legacy left to Ricco by his father.[35] The remaining $1.5 million from the sale of Lot 1 was also deposited into the managed funds.
[35]See above n 11.
In mid‑2017, a total of $3 million was withdrawn from Kaahu’s managed funds and transferred to Horowai. Ricco told his financial advisor, Alan Clarke, that he and Marina had decided to do this to set his children up financially. Part of the gift was intended to assist with the costs of managing the forest. The transfer was not prompted by any pressing need for financial assistance on the part of the children.[36]
[36]There was an issue at trial about the accounting treatment of the $3 million, but Marina confirmed in evidence that, whatever the correct accounting treatment, she and Ricco had wanted the $3 million to go to the children as a gift. See below at [47] and n 56.
Mr Clarke, who had managed the investments of Kaahu since 2013,[37] gave evidence that the notes from his first meeting with Ricco show that Ricco was very clear that Kaahu was intended to be for the benefit of himself and Marina and that Horowai was intended to be for the benefit of the children. His evidence was that Ricco had made this clear on many subsequent occasions.
[37]In February 2021, another investment advisor took over managing Kaahu’s portfolio after Mr Clarke’s retirement.
Mr Clarke’s evidence was that, after Ricco and Marina gave the additional $3 million to Horowai, Ricco “said he felt he and Marina had finally (well and truly) set up his children financially”. He also said that “Marina and I can now get on with the rest of our lives using the funds in Kaahu for income and spending on ourselves for our lifetime”. Mr Clarke said that Ricco “did not want to be too prescriptive” with how the $3 million was used but wanted the children to know that the “funds were to be used to develop the Horowai forestry block”. He stated that Ricco “did not want to see it spent in the near future, except for emergencies and things like tertiary education”. The $3 million was particularly intended to provide for the children’s retirement, Ricco had said. Mr Clarke said he explained this to Li and Laila in the meetings he had with them.[38]
[38]When cross-examined on these statements from Mr Clarke, Laila said that she did not recall Mr Clarke using the word “retirement” in his meetings with her and Li. Nor, according to Laila, did Mr Clarke tell them that Ricco did not want to be too prescriptive. Rather, she said that Mr Clarke had told them that Ricco had wanted to provide the $3 million as Horowai had needed funds and because he was a “family man” who was proud of his ability to provide for his family.
In his notes summarising a meeting in 2017, Mr Clarke said that the $3 million was intended to fund the Horowai forestry until it matured but also to “[b]e split equally between the three children to enhance their lives”. Mr Clarke proposed that each of the children would receive $833,000.[39] This would be used to set up three investment portfolios under Horowai. Each portfolio should not be allowed to fall below $500,000 until the harvesting of the Horowai forestry was well underway, but each individual could draw down funds for personal purposes (subject to the approval of the director of HT Ltd). Li and Laila accepted that they recalled some of these details.[40]
[39]The remaining $500,000 would be distributed to a company (run by Li) which would do the logging and milling work.
[40]Li accepted that he recalled that Mr Clarke explained to him and Laila how the potential portfolio would work and seems also to have recalled the more specific details of the arrangement. Laila appears to have agreed that she recalled that each child would take one third of the $2.5 million.
Li’s evidence (as of 2021) was that the $3 million was, as at 2021, invested in a managed fund and had not yet been used for harvesting costs. Li did not know what the harvesting costs were going to be and accepted that the tree harvest would be self‑funding “to a degree”.[41]
[41]This is because the income gained from each successive harvest could be used to cover future costs.
Li’s evidence was that his father had told him that, if they (Ricco’s children or their children) ever needed anything in the future, he would be there, which Li took to mean that the Kaahu assets would be available in such circumstances. Li accepted that the purpose of the $3 million, to support the development of the forest over the long term, would indirectly support Ricco’s children and their families. But Li conceded that, in addition to indirect support, “down the line” there would be a direct benefit to Ricco’s children, and Laila conceded that giving the $3 million to Horowai was a means of bestowing the money on her and her siblings. Li also conceded that it was a “fair comment” to say that his legacy was intact after the $3 million was transferred into Horowai.
Marina said that she understood from her discussions with Ricco that he considered the forest (at the time of maturity and harvest of the trees) was likely to be worth in the order of $16 million. But she said that she had not seen a formal current market valuation. Li disputed this and said that the forest was not worth “anything close” to that amount. He estimated a total value of $3,331,680 based on a recent pine harvest.[42] He stated in cross‑examination that he did not know the value of the 215 ha on which the forestry sits, although it was rated at $2.6 million.
[42]He said that the real value was likely to be less than this, as this estimate was based on the value of the forest if it were planted entirely with pine (in actuality, only one-third of the forest was pine).
It is worth mentioning that Mr Tyler, the director of BOI and the accountant for both trusts, confirmed that Kaahu was for the benefit of Ricco and Marina and was administered by the trustees on that basis. Horowai, to his understanding, was established for Li, Laila and Ken. He said that over the period from 2008 to 2017, Ricco, Marina and Kaahu entered into various transactions that were intended to remove assets from Kaahu and “ring-fence” them in Horowai for the benefit of the children.
It is also worth mentioning that Ricco had lent $858,490 to a trust which owns the property in New Zealand on which Gitta lives and that he later forgave the debt. That trust also owns two properties in the Caribbean.
As to the financial position of Kaahu, Marina gave evidence in 2021 that it held cash and investments of approximately $4.8 million. In addition to this was Mokomoko, which was worth $4–5 million. As we discuss below, Mokomoko has now been sold and a new house in Waiheke purchased.[43]

After Ricco’s death

The will

[43]See below at [73].

Ricco tragically died in a gliding accident on 16 November 2017. His will was dated 30 May 2014, the same day HT Ltd removed him as a beneficiary of Horowai. He left his shareholding in HT Ltd to Li and the residue of his estate to Kaahu.
On 13 March 2018, TGT Legal, acting for Laila, asked for confirmation that the will dated 30 May 2014 was Ricco’s last will and commented that this will made no direct provision for any of his children, although noting that Kaahu was the residuary beneficiary. The letter also sought information about the assets of Ricco’s estate and the application for probate.

Asset transfers

In 2018, the remaining trustees of Kaahu (Marina and BOI) transferred Jimmy, a large sailing catamaran which had become an asset of Kaahu through Ricco’s will, to Horowai.[44] Marina also arranged for Ricco’s interest in the contents of dwellings in Portugal and Switzerland (or proceeds from their sale) to be transferred to his children. Marina continued the annual payment of $60,000 to Gitta, until December 2019, out of her own resources, as Gitta is not a beneficiary of Kaahu.

Further correspondence with lawyers acting for Laila

[44]Jimmy was built by Ricco, cost over $1 million and has a value of between $400,000 and $600,000. Marina had sailed this boat around the Pacific with Ricco, and Li had also been involved in its construction.

On 22 August 2018, TGT Legal advised the executors of Ricco’s estate that Laila would make a claim on Ricco’s estate under the Family Protection Act 1955. No claim was, however, filed. Laila accepted in cross‑examination that she was not genuinely intending to make a claim, and primarily wanted information.
On 4 September 2018, TGT Legal wrote that, as they read the Deed, Ricco’s children have a “contingent interest in one-half of [the] trust fund of the Kaahu Trust” and that the same applied to Marina. The letter said:
Against that backdrop, it is inappropriate for Marina to be a trustee while there is no child of Ricco’s who is a trustee. … Marina is in a position of conflict. Given that she is a fiduciary, she is unable to participate in any decision that favours her. This is the implication of clause 18 of the trust. That clause would leave all decisions involving the exercise of discretions in favour of Marina to the only other trustee, namely BOI … In the view of our client, this is inappropriate, as it is unclear how that company will be in a position to take the interests of all the beneficiaries (including Ricco’s children and grandchildren) into account in making its decision.
It was also asserted that Kaahu assets were “primarily legacy assets derived from Ricco’s family” and that “the children of Ricco have a legitimate interest in the stewardship of those assets”. The letter noted it was unclear whether Marina had contributed anything to the trust. TGT Legal thus requested the trustees to consider appointing Laila as one of the trustees and offered to discuss “protocols” to ensure Marina was “able to benefit in a reasonable manner”.
Other correspondence followed, outlining a disagreement over the accounting treatment of the $3 million distribution to Horowai.[45] A letter of 15 February 2019 from TGT Legal said that their client was “very concerned about the efficacy of the accounting, the conduct of the Kaahu trustees, and the due administration of the Kaahu Trust”. Mr Tyler’s actions in relation to the accounting for the $3 million were expressly referenced and criticised. Detailed disclosure of documents relating to the administration of Kaahu was requested.
[45]The areas of disagreement expressed by TGT Legal related both to the accounting treatment and the source and nature of the funds.
Further correspondence asking for other information followed, including a letter of 31 July 2019 requesting information about, among other things, the sale of the remaining part of the farm, the custodial arrangements for the managed funds, and the financing of the buildings at Tapeka Point (where Mokomoko is located).

Retirement of BOI

In late 2019, Mr Tyler made the decision that BOI should retire as a trustee of Kaahu.[46] He said in evidence that this was for a number of reasons, including his friendship with Li and the fact that in the letter of 15 February 2019 his “competence and efficacy as an accountant” had been questioned. This, he said, implied that the children “had no confidence in my abilities, which, in my mind, left me no option but to retire as trustee of any Trust which the [children] were involved in”. Mr Tyler also did not wish to be involved in litigation between Ricco’s children and his widow, particularly given his personal relationship with Li and his connection to Horowai.[47]
[46]BOI did not actually retire until towards the end of November, leaving about a week between this retirement and the appointment of KT Ltd where Marina was the sole trustee. Over the period when she was sole trustee, she could not exercise any power other than the power to appoint a new trustee: see cl 26.1(a) set out at [23] above.
[47]BOI held two shares in HT Ltd up until 26 April 2019.
Marina’s evidence was that Mr Tyler told her that the decision that BOI would resign as trustee was “mainly due to the harassment he was receiving from Ricco’s children, primarily Laila, in his capacity as both trustee and accountant of the Kaahu Trust”.

Search for replacement trustee

Marina’s advisers at the time, including Mr Clarke and Graham Jordan (a lawyer who had been acting for the trustees of Kaahu and the executors of Ricco’s estate in respect of Laila’s potential claim), told her that a new trustee would need to be appointed in place of BOI. She initially approached Dennis McBrearty of Law North Ltd, who was acting in respect of the administration of Ricco’s estate. He refused as his firm did not take on trusteeships. Marina suspected, given that Mr McBrearty knew that Marina was having issues with Ricco’s children, that he refused because he “did not wish to take on what had the potential to become a litigious trusteeship”.
Mr McBrearty suggested Marina approach Perpetual Guardian (Perpetual). She did so. She considered whether Perpetual would be a good independent trustee but was unsure if it would be a “good fit” and she considered the fees to be excessive.[48]

Legal advice on sole corporate trustee

[48]It is not totally clear what the fees to be charged by Perpetual Guardian were, but the schedule of fees in the draft letter of engagement included an establishment fee of $4,000, an annual management fee of $15,668.75 and a minimum investment management charge of $5,750 with excess charged at an hourly rate. It also included a five per cent income management charge and an hourly rate for any accounting and tax services. The amount of the hourly rates was not specified.

When Marina advised Mr Clarke of her concerns about Perpetual, he introduced her to WRMK Lawyers (WRMK) in Whangārei. She and Mr Clarke met with two of its lawyers on 21 October 2019. They discussed the fact that litigation with the children seemed likely if not inevitable. They also discussed Horowai and the role of that trust to provide for the children. Marina explained the difficulties she was having finding a new person to take on the role of independent trustee.
WRMK advised Marina that she would be able to appoint a corporate trustee and resign as a trustee and that it would be permissible for her to act as the sole director of this company. Marina said in evidence that this appealed to her as she thought “it would simplify matters relating to the Kaahu Trust”.
Marina let Mr McBrearty know that she had decided to instruct WRMK “to find a satisfactory solution for the trust”. She said this would probably be a company with a sole director “which will be me”. Mr McBrearty responded, expressing the view that:
The Trust Deed for Kaahu provides that there must at all times be an independent trustee. … If you are going to form a company I believe the control of the company must be given to someone other than yourself.

He concluded by saying: “As you know it is important that you get this change of Trustees right as it is likely that Laila will be ready to challenge any misstep.” Marina provided this correspondence to WRMK. It reiterated its advice based on cl 26.1 of the Deed.[49]

[49]Counsel for Ken and Laila also pointed to communications from Mr Jordan indicating the need for an independent trustee. These communications do not, however, seem to be directly engaging with the proposal to appoint a single corporate trustee or the effect of cls 26 or 27.

Mr McBrearty provided a more detailed letter to WRMK on 7 November 2019. His concern appears to have been focused on the likelihood of Laila continuing to challenge the actions of Kaahu in the absence of an independent trustee. He said:
… [W]e advise that Laila through TGT Legal argued that she should be appointed as a trustee of Kaahu Trust … Clearly such a proposal was not in the interests of the Trust or its principal beneficiary. It does however give an indication that it is likely that Laila will monitor the way in which the Kaahu Trust is administered and distributions that are made from it. It is for that reason we have expressed concern to Marina over her proposal to replace BOI … with a company in which she will be the sole shareholder and beneficiary.
Mr McBrearty advised that, although technically cl 26 of the Deed provides a sole company trustee as being an exclusion from the requirement to have an independent trustee, it would not be in Marina’s best interests to make such an appointment. He believed that:
… the intent of the trust document is that there will at all times be an independent trustee. It will be in Marina’s best interest to have an independent trustee as a safeguard against allegations from Laila that she is using her position to benefit herself without adequate consideration of the interests of the other beneficiaries …
…
I remain concerned that if Marina is in sole control of the administration of the trust, it could encourage Laila to again raise issues or contest the administration of the trust.
WRMK wrote to Marina on the same day recommending that, when BOI retired as trustee, she, as remaining trustee, appoint a new company to be the trustee and then retire as trustee. It said that this was a valid option under the Deed. It explained that it would set up a new company with her as sole director and her and the firm’s trustee company as joint shareholders. It said that the company would not end and, in the event of her death, if Kaahu was still operating, a new director would be appointed.
It was explained that, as Marina would be the sole director, the company as trustee would (through her) have a number of powers, including distributing some or all of the assets of Kaahu to any of the beneficiaries (including herself), resettling some or all the assets of Kaahu onto another trust, and excluding any person as a beneficiary. Marina was advised that she would be able to make all decisions in relation to Kaahu but that:
… this is always subject to the overarching duty of a trustee to act in [the] best interests of the beneficiaries of the trust, having considered the needs and circumstances of each of the beneficiaries, including Ricco’s children and yourself.

The letter went on:
After you have considered the needs and circumstances of each of the beneficiaries, you might decide to proceed in any number of ways, including, for example:
1. Transferring part or all of the Trust’s assets to a new Trust (trust-to-trust transfers are called “resettlements”) of which you will be the primary beneficiary and Ricco’s children would be discretionary beneficiaries, but only following your death (subject to tax advice because resettlements can trigger tax obligations); or
2. Distributing part of the Trust’s assets directly to you (or a new Trust solely for your benefit) and leaving the rest in the Kaahu Trust, still available for your benefit. For example, you might decide to make a distribution to yourself of all of the funds invested by the Kaahu Trust and leave the property owned by the Kaahu Trust.
There are several options for you to consider. However, because you must first consider the needs of all of the current beneficiaries, before you can proceed with any particular option, you will need more information about the circumstances of each of Ricco’s children, including their entitlement under any other Trusts (like the Horowai Trust). You will see we have requested information about that Trust from [Dennis] McBrearty, Law North, and from Phil Tyler, BOI taxation. We will keep you informed in that regard.
Technically, the Trust Deed gives you (the Trustee) a number of options and even allows you to distribute the whole Trust Fund to yourself, provided you first consider the needs and circumstances of each of the beneficiaries. There is nothing to prevent a beneficiary from making a claim regardless of what you do. Our job will be to assist you to gather and assess all of the relevant material before making your decisions which will lessen the chance that any such claim could be successful.
On 21 November 2019, WRMK wrote again to Marina explaining the logistics of the change of trustee. It said that Marina was now the sole trustee as BOI had resigned and set out the steps for her to appoint KT Ltd as trustee. WRMK advised that, if she then resigned personally, KT Ltd would become the sole trustee and that Marina would be “the sole director of [KT Ltd] and make all relevant decisions (with our advice)”. In that letter, WRMK also stated that: “At this stage we are just changing the trusteeship. Once that is done, we will work with you to help you decide what to do with the trust assets.”
Marina resigned as trustee and KT Ltd was duly appointed as sole corporate trustee on 27 November 2019 in accordance with the steps outlined in the letter of 21 November.

Requests for information about Horowai

In the letter of 21 November 2019, Marina was also asked if WRMK should request financial statements for Horowai as she would “need to have all relevant information so you can assess that before making decisions regarding the Kaahu Trust”. Marina confirmed it should ask for the accounts.
Inquiries were duly made of the new accountant for Horowai on 26 November 2019 on the basis that Kaahu was a beneficiary. Inquiries were also made by Mr Tyler but, as of 9 December, no reply had been received by him.
Following a telephone call from Laila on 30 January 2020, WRMK wrote to her confirming that KT Ltd was now the sole trustee of Kaahu, that Marina was its sole director and that Kaahu was now finalising its financial statements.[50] WRMK again asked for copies of Horowai’s financial statements.
[50]WRMK Trustees (2019) Ltd, WRMK’s trustee company, jointly holds shares in KT Ltd alongside Marina.
Laila replied the following day to the effect that she was seeking advice and asked for copies of the relevant documents appointing KT Ltd. These were provided on 5 February 2020, and in the same email WRMK said that it was looking forward to receiving the accounts for Horowai.
TGT Legal wrote to WRMK on 27 February 2020. It noted that no particular reason had been specified as to why the financial statements of Horowai had been requested. It was asserted that the fact that Kaahu may be considered a discretionary beneficiary of Horowai did not alone give it an entitlement to the information requested. It was noted that all the final beneficiaries of Horowai were privy to the information and there was “no reason at this time to make disclosure to any other person, especially one that only has a remote interest”. It said that Kaahu was “very, very unlikely to benefit from the Horowai Family Trust”. Kaahu was therefore not sufficiently “close” to entitle it to trust information.
TGT Legal pointed out that, by contrast, their clients were discretionary beneficiaries of Kaahu, and “contingently interested in one-half of the trust fund”. This meant that their clients:
… stand in the shoes of Ricco as final beneficiaries, and have a legitimate interest in ensuring the stewardship of the family’s legacy assets and that the trust is properly administered.

They requested information about the corporate trustee and various financial issues relating to Kaahu, saying:

Given the obvious conflict that exists between Marina’s interest as a beneficiary, and now her sole directorship of the trustee, our clients are concerned to ensure that the affairs of the Kaahu Trust are properly managed.

Mokomoko

In her evidence before the High Court, Marina explained that, after Ricco’s death, she had personally paid for the insurance, rates, maintenance and other outgoings in respect of Mokomoko. She had also paid any tax owed by Kaahu, from the distributions she received from it, in the belief that, following Ricco’s death, Mokomoko was primarily for her benefit.
She deposed that she had for some time wanted to move to Waiheke Island where she has friends. She said that Mokomoko was too large for her and she felt isolated there. In early February 2020, Kaahu began taking steps to list Mokomoko for sale. The March 2020 COVID‑19 lockdown delayed the listing and she had no communication with the children at that time. Marina explained that the High Court proceedings based on the fraud on a power argument were issued in June 2020 and an interim injunction was granted preventing the sale of Mokomoko.[51] Marina said that she decided (reluctantly) that she would not challenge the injunction but she was unhappy that she had not been able to move.
[51]Brewer J made an order that the Marina and KT Ltd not “exercise any dispositive powers or otherwise dispose of property of the Kaahu Trust pending further order of the Court”: Legler v Formannoij HC Whangārei CIV-2020-488-32, 8 July 2020 at [15]. This order was subject to stipulations which enabled the Marina and KT Ltd to challenge it.
On 3 December 2020, her solicitors requested a variation of the injunction to allow the sale of Mokomoko (on the condition that the sale proceeds would not be disposed of without a court order or the agreement of the parties) but received no reply. They asked again on 18 February 2021 and received a negative response on 23 February with the following explanation:
[Mokomoko] was designed and built by their father. It was funded from legacy Legler family assets. They consider that, as a legacy asset, it should be retained in the trust for future generations of Ricco’s family. They are not unmindful of your client’s desire for alternative accommodation. They believe that that can be provided for from the Trust’s other resources.
We note that Laila’s position in her evidence at trial remained that Mokomoko had personal significance to her because it had belonged to her father, even though she acknowledged she had never been there before her father’s death. Li conceded during trial that it was fair for Marina to sell Mokomoko in order to facilitate her lifestyle (if she could not live there). His concerns were based on where the proceeds from the sale went (given that Li saw Kaahu as intended for more than the benefit of Marina and Ricco). Also relevant here is Li’s seeming acceptance that his legacy was intact after the $3 million was transferred back into Horowai, as part of the $3 million had originally been used to fund the purchase of the land on which Mokomoko was built.[52]
[52]See above at [36]. Lot 1 had originally been sold for $3.1 million, with half of this funding the purchase of the land on which Mokomoko sits: see above at [29].
Mokomoko has subsequently been sold and a new house on Waiheke Island purchased.[53] The Waiheke house continues to be held by Kaahu.

Actions taken after KT Ltd became sole trustee

[53]The interim injunction was discharged by the HC judgment: above n 4, at [69].

WRMK recommended that the power of appointing new trustees should vest in Marina in case a situation ever arose where KT Ltd was removed from the companies register, which WRMK were concerned might disqualify KT Ltd from acting as a trustee. This was done by deed of 31 January 2020.
On 28 February 2020, WRMK wrote to Marina, enclosing the letter from TGT Legal of 27 February 2020.[54] WRMK said:
In summary, they say that they do not have to give any information about the Horowai Family Trust, but they are still seeking the financial statements for the Kaahu trust and note they are concerned about you being the sole director.
This was all to be expected.
[54]See above at [67].
WRMK noted that it was preparing a response to the 27 February letter but did not have sufficient information to provide a proper response to the letter of 31 July 2019.[55] However, WRMK said it could respond by requiring TGT to explain the purpose of their requests for such detailed and historical information.
[55]See above at [48].
WRMK said that it was time for a decision to be made as to what to do with the assets of Kaahu. It advised:
There are essentially 3 options for dealing with the Kaahu Trust and its assets (or a combination of 2 or all of them):
1.Remove Ricco’s children (and associated trust) as beneficiaries;
2.Resettle (i.e. transfer) the Trust’s assets to a new trust for your benefit only; and/or
3.Distribute all of the Trust’s assets to you personally and wind up the Trust.
We recommend option 2 and/or 3 in preference to option 1, however there are potentially tax implications arising from the proposed sale of [Mokomoko].
In her evidence at trial Marina said that, in accordance with WRMK’s advice, she took time to consider the needs of all of the beneficiaries of Kaahu, including herself as the sole remaining final beneficiary, along with Ricco’s children and grandchildren, and Horowai. In the week or so following the 27 February letter, she had a number of meetings and telephone discussions with Tania Beckham of WRMK about the options available. In early March, she came to a tentative resolution as to what the next steps would be and instructed WRMK to prepare the documents it had recommended.
WRMK prepared the documents whereby, in summary, KT Ltd, as trustee, agreed to write off all of the debt that Horowai owed to Kaahu, give the rest of the assets of Kaahu to Marina as a beneficiary, and remove Ricco’s children (and associated trusts) as beneficiaries. These were forwarded to Marina on 6 March 2020, along with a letter of advice, which finished with the following:
As we have discussed many times, there is nothing to stop Ricco’s children making a claim against the Kaahu Trust and/or against you as a trustee. We can never stop someone making a claim against you, all we can do is best advise you so as to minimise their chances of succeeding if they do make a claim.
You have all of the power and authority to take these actions under the Trust Deed. As a Trustee (technically a director of the company which is the trustee) your duty is to consider the needs and circumstances of each of the beneficiaries and to act in good faith and in accordance with the purposes of the Trust. By making the distributions as contemplated (i.e. releasing the Horowai Family Trust from all debt owed to the Kaahu Trust) and then giving the rest of the Kaahu Trust’s assets to yourself before you remove Ricco’s children as beneficiaries, you can say that you took into account the needs and circumstances of all of the beneficiaries before making the relevant distributions and decisions, and that you acted in accordance with the purpose of the Trust.
Because you are acting in good faith and in accordance with the purpose of the Trust, because none of Ricco’s children have any financial need and because they have already been generously provided for through the Horowai Family Trust, we do not consider they have a good chance of succeeding if they were to make a claim.
Marina deposed that, after careful consideration of the legal advice, she decided KT Ltd would:
(a)distribute the sum of $1 million to her as a beneficiary of Kaahu (done by deed of distribution dated 3 March 2020);
(b)forgive the debt of $3,738,297.93 which was owed by Horowai to Kaahu (done by deed of distribution dated 12 March 2020);[56]
(c)remove Ricco’s children and Horowai as beneficiaries of Kaahu (done by deed of distribution dated 12 March 2020);
(d)distribute all other assets of Kaahu, excluding the Mokomoko property, to her as beneficiary (done by deed of distribution dated 12 March 2020); and
(e)appoint her as the beneficiary entitled to receive the trust fund on the vesting day of Kaahu (done by deed of appointment dated 19 March 2020).
[56]See above at [31]. Marina conceded during cross‑examination that the $3 million should not have been treated as a debt owed. She did not, however, concede this in relation to the remaining $738,000. See above n 36 and at [47].
We will refer to the various deeds described in the above paragraph as “the March 2020 deeds”. Marina explained her actions in her evidence in the following way:
All of the above actions were taken on the advice of WRMK, who drafted the documents and said this was an appropriate way to proceed. The advice provided by WRMK was based on my instructions to them that I wished to take a careful and cautious approach, and wished to ensure that my actions were not open to challenge by Ricco’s children. WRMK were very clear in their advice that the actions outlined [above] were appropriate steps for me to take in my capacity as trustee of the Kaahu Trust.
My intention in forgiving the debt owed by the Horowai Family Trust to the Kaahu Trust and removing Ricco’s children and the Horowai Family Trust as beneficiaries of the Kaahu Trust was to sever the link between the Kaahu Trust and the children, based on my understanding that Ricco’s children were already very well provided for and that the purpose of the Kaahu Trust was to provide for me and Ricco, or the survivor of us, for our retirement.

High Court judgment

The High Court held that the Deed expressly permits a single corporate trustee to exercise the powers of a trustee even if a beneficiary is a director or shareholder or both.[57] Marina did no more than was contemplated by the Deed. And this meant she did not, by the mere fact of appointing a single corporate trustee, act for an improper purpose (whether her intent was to simplify the trust or to control it).[58]
[57]HC judgment, above n 4, at [44].
[58]At [46].
The Judge said that this left open the question of whether she appointed the trustee to benefit herself and to prefer her own interests.[59] It was held that this contention failed on the facts.[60] The Judge accepted that the March 2020 deeds were evidence that could support a contrary conclusion but determined that the totality of the evidence pointed the other way.[61]
[59]At [47].
[60]At [48].
[61]At [59].
The Judge gave six reasons. First, Marina “became the sole trustee through circumstance, not exploit”. Her husband died, and BOI resigned “after Laila questioned Mr Tyler’s competence as an accountant, and Mr Tyler did not want to become meat in the sandwich”.[62]
[62]At [49].
Second, Marina tried to find another trustee who would act with her but was unsuccessful. Mr McBrearty of Law North Ltd declined. Perpetual was approached, but Marina believed the fees were excessive and “questioned whether it would be the right fit”. It was never put to Marina that she was “going through the motions rather than genuinely looking for a second trustee”.[63]
[63]At [50].
Third, when Mr McBrearty questioned the legitimacy of a single corporate trustee, Marina forwarded the advice to WRMK and was assured that its advice was legitimate.[64] When Mr McBrearty raised the point directly with WRMK, Marina was again assured the firm’s advice was correct. The Judge found that the “sequence suggests [Marina] wanted to act lawfully; and was acting on legal advice”.[65] The Judge noted that WRMK was recommended by Mr Clarke, a longstanding financial advisor to Kaahu.[66]
[64]At [51].
[65]At [51].
[66]At [52].
Fourth, the Judge referred to correspondence from WRMK on 7 November 2019 advising Marina of the fiduciary obligations of a trustee.[67] In response to that correspondence, Marina instructed WRMK to seek Horowai’s financial statements, and it was only when this was refused that WRMK “encourage[d] [Marina] to make a decision about Kaahu’s assets”.[68]
[67]At [53]–[55].
[68]At [55].
Fifth, Li, Ken and Laila do not directly challenge the March 2020 deeds.[69] In the Judge’s opinion, such challenge would have been “forlorn” as they had been provided for and were well off, both through Horowai and because each of the children had received CHF 750,000 (around $1.4 million) from their grandfather’s estate.[70] The Judge also considered that the evidence made it plain that Horowai was primarily for the children and Kaahu primarily for Ricco and Marina, referring to the unchallenged evidence of Mr Tyler and Mr Clarke to that effect. The Judge said that this cast a “different light” on the March 2020 deeds, which the children had advanced as evidence of Marina’s purpose to benefit herself in November 2019.[71]
[69]At [56].
[70]At [56]. We note that Li’s evidence was that the payment from the children’s grandfather was spread over 15 years. The Judge also noted Marina’s transfer of Jimmy to Kaahu.
[71]At [57].
Sixth, the Judge considered Marina to be a careful, fair‑minded witness, and that she “impressed as sincere”.[72] The Judge noted that Marina said that she was still determining how she could leave the children property when she died and that this still remained her intention despite the litigation.[73]
[72]At [58].
[73]At [58].
The Judge summarised his conclusions as follows:[74]
I summarise. I am not persuaded [Marina] appointed Kaahu Trustee to benefit herself or that this was one of her purposes in appointing that trustee. While the March deeds are evidence that could support a contrary conclusion, the totality of evidence points another way. [Marina] found herself sole trustee. She looked to appoint a second trustee, encountered difficulties, and was then advised another course was permissible. [Marina] acted on that advice without concealing contrary opinion. [Marina] was informed of her fiduciary obligations and sought information relevant to their discharge. Direct challenge to the March deeds would fail. [Marina] impressed as sincere.

Court of Appeal judgment

[74]At [59].

The majority of the Court of Appeal noted that the statement of claim pleaded a single cause of action of fraud on a power, and that there was no pleading of an alternative (and logically prior) cause of action to the effect that the appointment of KT Ltd was outside the powers conferred by the Deed and thus ultra vires.[75] The majority considered that, in view of the terms of cl 27.2(c), an ultra vires argument would not in any event have prevailed.[76]
[75]CA judgment, above n 5, at [22] per Brown and Brewer JJ.
[76]At [26].

The question therefore was whether Marina’s purpose in appointing KT Ltd as trustee was improper. The Court said that this is judged subjectively and at the date of the exercise of the power.[77] The majority accepted the submission that it would be:[78]
… a logical fallacy to contend that strict compliance with the terms of the Trust Deed can amount to a fraud on a power, absent some further evidence of intention to act improperly.
[77]At [29] citing Eclairs Group Ltd v JKX Oil and Gas plc, above n 8, at [15] per Sumption LJ; and The Duke of Portland v Topham, above n 8, at [54] per Lord Westbury LC.
[78]CA judgment, above n 5, at [36].
The majority commented that Marina’s use of the word “simplify” likely “contemplated the difference of view which emerged between her and Ricco’s children concerning the future of the Mokomoko property in Russell”.[79] Marina wished to sell it and move to Waiheke. The children opposed the sale because they considered it a “legacy” asset.[80]
[79]At [31].
[80]At [31]–[32].
The majority considered that, because Marina was dependent on Kaahu for her accommodation and financial support:[81]
… a motivation to take steps to control Kaahu so as to pursue the objective of rendering her living arrangements more congenial would not have been objectionable as comprising an improper purpose.

This meant that this was “not a case where by dint of the absence of a legitimate purpose an inference of the presence of an improper purpose could be drawn”.[82]

[81]At [33].

[82]At [33].

The majority noted that it was not, at least expressly, suggested to Marina in cross‑examination that she intended either to promote her own interests improperly, or to take control of Kaahu or to evade restrictions under the Deed. In these circumstances the majority considered that the High Court Judge’s acceptance of Marina’s evidence was readily understandable, particularly against the background of the tension concerning her residential arrangements.[83]
[83]At [34].
The majority said that the appeal turned on whether the High Court erred in its conclusion that the children had failed to demonstrate that KT Ltd had been appointed for an improper purpose.[84] They were not satisfied that there was any error in the High Court’s conclusion. WRMK gave explicit advice that KT Ltd’s ability to make decisions was always subject to the overarching duty to act in the best interests of the beneficiaries, and the majority considered that Marina understood and accepted that advice. She then subsequently obtained and acted upon further advice of WRMK.[85]
[84]At [37].
[85]At [38].
The majority did not consider, contrary to the view of the High Court Judge, that the decisions of March 2020 should be taken into account in the determination of Marina’s subjective motivation at the date of the appointment of KT Ltd. The validity of those actions had not been the subject of legal challenge, but in any event the majority considered that the totality of the evidence supported the Judge’s conclusion that Marina had not acted according to an improper purpose.[86]
[86]At [39].
Cull J dissented. She considered that the appointment of KT Ltd as sole trustee was not compliant with the terms of the trust for three reasons. First, she noted that to be a trustee a corporate entity has to be a “properly empowered corporate body” which likely refers to a trustee company such as Perpetual, the Public Trust or a trustee company with a board of directors and shareholders.[87] Second, she considered that such an interpretation was consistent with other provisions of the Deed requiring an independent trustee unrelated to a beneficiary.[88] Third, she considered it highly relevant that Mr McBrearty, the solicitor who drafted the Deed, had “some concerns” about the proposal to appoint a sole trustee under Marina’s control and that another solicitor also expressed the view that an independent trustee was required.[89]
[87]At [50] per Cull J dissenting.
[88]At [51].
[89]At [52]–[54].
Cull J considered that the sequence of events from October 2019 to March 2020 showed that Marina had chosen the option of appointing KT Ltd “with the intention of controlling the trust exclusively to benefit herself to the exclusion of the other beneficiaries”.[90] She considered that the decisions made in March 2020 were relevant to the exercise of the appointment power in November 2021. The exercise of that power was “inextricably linked to the options [Marina] chose and implemented in March 2020”.[91] The use of the appointment power was, in Cull J’s view, to gain sole control of the trust and to “give” herself “all of the assets of the Trust”.[92] This was “not in the best interests of the beneficiaries, except her, and was improper”.[93]

Positions of the parties

[90]At [59].

[91]At [72].

[92]At [74] quoting the letter from WRMK to Marina on 7 November 2019, discussed above at [58]–‍[60].

[93]At [74].

Ken and Laila submit that the power under the Deed to appoint new trustees is a fiduciary power and must be exercised for the benefit of the beneficiaries as a whole and not for Marina’s personal benefit. It was therefore improper for Marina to exercise the power to benefit herself[94] and (additionally or alternatively) for her to use the power for the purpose of taking control of the trust.[95] They submit that Marina’s purpose in appointing KT Ltd was to place herself in control of Kaahu and to exercise the trustee’s powers for her own benefit. This is evidenced by the legal advice she considered at the time of exercising the power of appointment and by the March 2020 deeds. It is submitted that Marina chose to act based on advice which suited her interests and set aside advice which did not. With regard to Horowai, Ken and Laila submit that this is a purpose trust, designed to manage and administer the forestry land rather than to make distributions to the children. We deal with Ken and Laila’s specific arguments directed to proving Marina’s subjective intent in the next section.
[94]We note that Ken and Laila accept that Ricco established Kaahu partly to benefit Marina (alongside Ricco and the children). Thus, on Ken and Laila’s own view of the facts, it cannot be the case that Marina must entirely avoid considering her own interests.
[95]This alternative ground, that it would be improper to have the purpose of intending to take control of the trust, is inconsistent with the statement of claim (contrary to the view of the Chief Justice below at [230]–[231]) which characterised the improper purpose as assuming control of the trust with an intent to benefit herself. Further, this ground functions in effect as a tacit ultra vires argument, which is inconsistent with the concession mentioned above at [4] and below at [122]. If it is not ultra vires to appoint a corporate trustee where a beneficiary is the sole director and a shareholder (as conceded) then it cannot be an improper purpose to have the bare intention of doing this.
Marina and KT Ltd submit that Marina was the primary object of Kaahu following Ricco’s death. It would not, therefore, be improper for her to wish to benefit herself.[96] A trustee’s obligation to act in the best interests of the beneficiaries does not entail an obligation to ensure that every exercise of every discretion benefits every discretionary beneficiary considered as a class. The case must be seen in the context of Kaahu being set up primarily to provide for Marina and Ricco, and Horowai primarily to benefit the children. Marina and KT Ltd submit that it would not be improper for Marina to intend to benefit herself and, in any event, this Court should not disturb the evidential finding of the High Court that self-benefit was not among Marina’s motivations for appointing KT Ltd. The burden of proving an improper purpose lies on Ken and Laila, and it was never put to Marina during cross‑examination that her real purpose in appointing KT Ltd was to benefit herself.

Our assessment of factual issues

[96]But see above n 9 in relation to possibly contrary statements made during the oral hearing.

We do not consider that it was proved that the appointment of KT Ltd had the purpose, at the time it was made, of allowing Marina to take control of the assets of Kaahu for her own benefit at the expense of Ricco’s children. This (apart from the two points set out below) is essentially for the same reasons as those outlined by the High Court and the majority of the Court of Appeal and summarised above.
Like the Court of Appeal majority, we do not comment on the validity or otherwise of the actions in March 2020 as that question is not before us.[97] We therefore do not adopt that part of the High Court’s reasons.[98]
[97]CA judgment, above n 5, at [39] per Brown and Brewer JJ.
[98]HC judgment, above n 4, at [56].
In terms of the Court of Appeal judgment, we comment that the objection raised by Ricco’s children as to the possible sale of Mokomoko did not arise until after the decision to appoint KT Ltd as trustee and cannot therefore have been the purpose of the appointment.[99] Nevertheless, we do note the correspondence that had been received by the trustees since Ricco’s death which asserted that Kaahu held “legacy” assets and that Ricco’s children had a contingent interest in one-half of the assets owned by Kaahu.[100] We note also the requests that Laila be appointed a trustee and for information about the administration of the trust.[101] In those circumstances Marina could well have anticipated that issues would arise as to a trustee’s (whether a sole corporate trustee or otherwise) ability to deal with the trust property (as indeed turned out to be the case).
[99]Contrast above at [93]. Although, we acknowledge that Kaahu began taking steps to list Mokomoko for sale in February 2020: see above at [70].
[100]The alleged one‑half share is certainly contingent. It would depend, among other things, on the vesting day being brought forward and no other appointment of a beneficiary being made, as well as the resettlement power not being exercised: see above at [18]–[20].
[101]See above at [44]–[48].
We do not deal here with the full range of submissions made to us by the parties on Marina’s intent at the time of appointment of KT Ltd but will instead focus on several key points.
It is submitted by Ken and Laila that the majority of the Court of Appeal erred: Marina’s improper purpose can be inferred from the correspondence from WRMK in November 2019 and her later actions in March 2020.
Taking the last point first, we agree with the High Court that the actions taken in March 2020 could have supported an inference that it had been Marina’s purpose at the time of appointing KT Ltd as trustee to take those actions. We also agree with the High Court, however, that there are major factors weighing against that conclusion, including that she became a sole trustee because of happenstance (the resignation of BOI as trustee), she had made efforts to find a replacement for BOI and the contemporaneous documentation showed she was concerned to fulfil her legal obligations.[102]
[102]HC judgment, above n 4, at [59]. As noted above at [103], like the majority of the Court of Appeal, we do not, however, comment on the High Court’s view about the validity of the March 2020 deeds, as that question is not before us: see at [56]; and CA judgment, above n 5, at [39] per Brown and Brewer JJ.
The High Court Judge had the advantage of hearing and seeing the witnesses. He found Marina’s evidence credible, including her wish to ensure her actions were legal and her intention to explore ways to ensure the residue of the trust assets would benefit Ricco’s children after her death. An appellate court must “recognise and allow for the advantages that a trial judge has in assessing oral evidence”, although it must not let deference prevent it from coming to its own view of the facts and deciding the case accordingly.[103] Here, there is nothing to suggest we should depart from Downs J’s view of Marina as a credible witness. Indeed, the contemporaneous documentation, understood in context, clearly supports his conclusion. The Court of Appeal majority was correct to uphold his findings.
[103]Deng v Zheng [2022] NZSC 76, [2022] 1 NZLR 151 at [71] citing Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141 at [13].
We reject the contention that the November 2019 letters from WRMK support Ken and Laila’s allegation. As noted by both Courts below, those letters made it very clear that KT Ltd had fiduciary obligations to all of the beneficiaries and the Courts below found that Marina understood and accepted that advice.[104] This is why information was sought on the financial position of Horowai. We also note that the possible options set out in the 7 November 2019 letter were different from the actions taken in March 2020.[105] The two options outlined in the 7 November letter included the possibility that only “part” of Kaahu’s assets would be distributed to Marina or resettled. The first of the 7 November options also specified that the children would remain discretionary beneficiaries following Marina’s death.
[104]See above at [86]–[87] and [96].
[105]See above at [58]–[60] and [80]. The options set out in the letter of 7 November also differed from the options set out in the letter of 28 February 2020: see above at [76]–[77]. The three options recommended on 28 February all involved totally excluding Ricco’s children as beneficiaries.
Ken and Laila submit that an improper purpose can be inferred from the fact Marina did not take Mr McBrearty’s advice on the legality of the appointment of a sole corporate trustee with her as a sole director.[106] We do not accept that submission. Marina was not obliged to accept Mr McBrearty’s advice, which she had been told was not correct by WRMK. She is a layperson and is entitled to rely on advice from experts unless there are indications, obvious to a layperson, that the advice is likely wrong. This is far from such a case. The WRMK advice was confirmed after Mr McBrearty’s concerns were aired. It was grounded in the terms of the Deed and, in particular, cl 26.1, and three Judges (one in the High Court and two in the Court of Appeal) have agreed with WRMK’s interpretation. Indeed, Ken and Laila concede that the appointment was consistent with the terms of the Deed.[107] We also note that this must all be viewed against the background of Marina’s prior attempts to find a replacement independent trustee.
[106]They make the same argument with regard to advice from Mr Jordan; but see above n 49.
[107]See above at [4].
Ken and Laila also criticise Marina and WRMK for not disclosing why they were asking about the financial position of Horowai. We accept that this was not disclosed, but nothing has been put forward to suggest that the answer would have been different had the purpose of the inquiry been disclosed or to suggest that, had the information been provided, it would have shown that Horowai and the children were not in the healthy financial position Marina thought they should have been, given the assets held by Horowai.
We also accept Marina’s submission that the whole case must be seen against the background that Kaahu was set up in order to provide for the needs of Ricco and Marina while they were alive, while Horowai was to provide for the interests of the children.[108] It must also be seen in the context of the fact that Marina had foregone her rights under the 2003 relationship property agreement with regard to the farm[109] and the forest now held by Horowai.[110] It is also significant that Ricco left the residue of his estate to Kaahu, the trust set up primarily to provide for them as a couple.
[108]See above at [11] and [32]–[36].
[109]Kaahu had owned the farm from 2008 until 2015. We note, as stated above, that only part of the farm (Lot 2) is held by Horowai given that Lot 1 was sold by Kaahu, with part of the sale funds being used to purchase the site of Mokomoko: see above at [27]–[29].
[110]See above at [12]–[13].
Finally, we reject Ken and Laila’s submission that an inference can be drawn from the fact that other options (for example, appointing a company where she was merely one of three directors) were not pursued by Marina. The fact that other options were open to Marina, while relevant, is not decisive in explaining her reasons for the option she chose to pursue. In any event, given her issues with finding a possible independent trustee, it is unlikely that she would have found independent directors willing to act. We note, for example, that Mr McBrearty did not offer himself as one of the directors of a possible corporate trustee. Nor, seemingly, did WRMK offer one of its directors as an independent director.
Taken overall, the evidence fails to prove that Marina’s purpose in appointing KT Ltd was, at the relevant time, to benefit herself at the expense of the children.
Given this conclusion (that on the facts Marina’s purpose was not to benefit herself at the expense of the children) there is no need for us to decide whether or not, or in what circumstances, such a purpose would be improper.

Comments on the Chief Justice’s reasons

We make some brief comments below on the reasons of the Chief Justice.[111]

Relevant evidence

[111]We do not express a view on the Chief Justice’s comments on the doctrine of fraud on a power at [156]–[163].

The Chief Justice takes the view that the evidence led as to Ricco’s intent with regard to the dual trust structure was not relevant insofar as it relates to the post‑settlement administration of Kaahu and post‑settlement statements regarding Kaahu’s purpose and how Kaahu would be administered in the future.[112]
[112]See below at [179]–[181].
We comment first that some of the third‑party evidence on Ricco’s intent came from Mr Tyler, who was the accountant for both trusts and the director of BOI which was one of the three original trustees of the Kaahu Trust.[113] It was thus evidence of Ricco’s intent at the time that Kaahu was set up.
[113]See above at [37].
Second, the evidence of Ricco’s intent in 2013 and in 2017 appears to have coincided with major settlements on the trusts (the transfer of the assets from his foundation and the gift of $3 million).[114] The intent at the time of such settlements may be relevant to arguments concerning the limits of powers to deal with trust assets.
[114]See above n 11 and [32]–[34].
Third, the point about a fraud on a power is that the exercise of the power is beyond the purpose of the power, even if it may be within its terms. This, by definition, must entail looking beyond what is narrowly permitted by the terms of the instrument and therefore would mean that a broad range of evidence to ascertain the purpose of a power could potentially be relevant and admissible.
Fourth, we consider that, if the settlor (as a trustee or in collaboration with other trustees) administers the trust in a certain way, this may be relevant in ascertaining the purpose of any power in a trust deed. Likewise, evidence which otherwise establishes the post‑settlement behaviour or words of the settlor may be evidence of what the settlor intended the words in the trust deed to mean.[115]

Intent to take control

[115]This phrasing is adapted from the judgment of Tipping J in Vector Gas Ltd v Bay of Plenty Energy Ltd [2010] NZSC 5, [2010] 2 NZLR 444 at [31]. This Court had earlier held that subsequent conduct may be relevant to contractual interpretation in Gibbons Holdings Ltd v Wholesale Distributors Ltd [2007] NZSC 37, [2008] 1 NZLR 277 at [7] per Elias CJ, [52]–[55] and [60]–‍[63] per Tipping J, [73]–[74] per Anderson J and [122] per Thomas J. We are not, however, to be taken as commenting on whether the principles of contractual interpretation necessarily apply to the interpretation of trust deeds.

The argument that Marina’s benefit was the sole purpose of the Kaahu Trust following Ricco’s death is insupportable, given the clear provisions of the Trust Deed that the appellants were also beneficiaries. As to the notion that her benefit was the primary purpose, that needs to be tested in two factual contexts: when Ricco was alive, and after his death. The Trust Deed operates differently in each context.
What is clear from the structure of the Trust Deed is that Ricco wished to retain sufficient control to ensure that, during his life, he and Marina would receive the support they needed to live the lives they wished as a couple. Ricco retained control of who the trustees were, and Ricco and Marina were listed as the final beneficiaries, should the trust be wound up at any point while they both were still alive. I accept that it is clear from this structure, and consistent with the context applying at the time the Kaahu Trust was settled, that Ricco and Marina were together a primary focus of the Kaahu Trust while they both remained alive.
All the same, while the intention was to see Ricco and Marina provided for, the assets were placed outside their personal ownership when they were made subject to the trust. They lost the unconstrained rights to deal with the assets as if they were their own, free of the trusts set up under the Trust Deed. That is the inevitable effect of the creation of a trust. So too is the fiduciary constraint imposed upon the trustees, once appointed, to consider the interests of all beneficiaries. In that regard, the trusts created contemplated that the trust funds were available to meet the needs of other beneficiaries should the occasion arise, and should the trustees so decide. There is also an obvious intention, apparent on the face of the Trust Deed, that assets not distributed during Ricco and Marina’s lives would pass to their issue on their death.
As noted, the provisions of the Kaahu Trust operate differently on the death of either Ricco or Marina. Although Ricco and Marina were the final beneficiaries for the purposes of the vesting day, if either of them died before that date the Trust Deed provided their share was to go to their issue, and not to the surviving partner.[173] In other words the Trust Deed provided that, in the event Ricco predeceased Marina, Ricco’s children stepped into his shoes as a final beneficiary alongside Marina. The Trust Deed therefore does the work of looking after one generation, but also, at some point, passing family wealth to the next. In this, it is no more than a conventional family trust.
[173]See above at [167].
There is therefore no sense in which Marina’s benefit can properly be said to be the purpose of the Kaahu Trust nor, following Ricco’s death, its primary purpose. Of course, even were Marina the primary object of the Kaahu Trust, it would still not be a proper purpose to exercise the power to appoint a company she controlled in order to take control of the Kaahu Trust. This is for the reasons set out above.
To recapitulate, the following features support the conclusion that an exercise of the power of appointment by a trustee/beneficiary to deliver decision‑making control to themselves is an improper use of that power:
(a)the fiduciary nature of the power of appointment of trustees, which requires that it be used to appoint someone with the skills and characteristics that enable them to discharge the terms of, and their duties under, the trust; and
(b)the provisions in the Trust Deed which are designed to ensure independent input (in the sense of judgement which is not tainted by self-dealing or self-interest) into trustee decision-making.

The second issue — Marina’s purpose in exercising the power of appointment

Was Marina’s purpose to take control of the Kaahu Trust?

It can be said that the appointment by Marina of a corporate entity as trustee — a company which had been created for this purpose and which was owned and controlled by Marina — provides compelling evidence that her subjective intention was to take control of the Kaahu Trust and sidestep the restrictions that would otherwise have applied to require input other than her own into trustee decision‑making. It remains necessary, however, to review the immediate factual circumstances surrounding the appointment in case they provide a different view of events.
As noted earlier, in 2018 Laila’s solicitors, TGT Legal, notified Laila’s intention to bring a claim against the estate of her father under the Family Protection Act. In a later letter, TGT Legal raised concerns regarding the administration of the Kaahu Trust. They observed that, under the terms of the trust, and following the death of Ricco, Marina’s interest was no greater than that of the children — the children and Marina were discretionary beneficiaries, and the children and Marina each had a contingent interest in one half of the trust fund. They contested Marina’s view that the Kaahu Trust was established principally for Ricco and Marina and that Ricco’s children would only have a “default interest”. Against that background, they said, it was inappropriate for Marina to be a trustee while none of Ricco’s children were trustees, noting that Marina would be disqualified by cl 18.1 from participating in any decision favouring herself. They stated their understanding that the trust assets were primarily legacy assets derived from Ricco’s family, querying whether Marina had contributed anything to the trust.
In late 2018, TGT Legal and Lowndes Jordan, the solicitors acting for the executors of Ricco’s estate (noting that Marina was one of two executors of that estate) and for the trustees of the Kaahu Trust, exchanged correspondence in connection with the signalled family protection claim. It was in this context that tensions developed over the status of the $3 million payment from the Kaahu Trust to the Horowai Family Trust. In a letter dated 15 February 2019 TGT Legal expressed concern regarding the executors’ assertion that the $3 million had been an advance to the Horowai Family Trust from Ricco personally, although using Kaahu Trust funds (and so resulting in a debt owing by the Horowai Family Trust to the estate). TGT Legal noted that the advance had been recorded in the Horowai Family Trust’s accounts as a distribution from the Kaahu Trust, and assumed that was how Mr Tyler had understood the transfer when he prepared the Kaahu Trust accounts. They recorded their understanding that, after Ricco’s death, Mr Tyler had been directed to restate the Kaahu Trust’s financial statements to reflect the $3 million as drawings by Ricco rather than a distribution to the Horowai Family Trust.
Ultimately the executors accepted that Ricco had intended a gift to his children, and that there should be no obligation owing by the Horowai Family Trust to the estate. But this position taken by the executors set other events in motion. In that same letter of 15 February 2019 TGT Legal expressed concern about the efficacy of the accounting for and administration of the Kaahu Trust, and the conduct of its trustees, noting the various inconsistencies in the executors’ attempt to recast the $3 million transaction. Mr Tyler’s evidence was that it was partially the concerns expressed in this correspondence that caused him, in October 2019, to signal his wish that his company, BOI, resign as trustee of the Kaahu Trust.
The possibility of such a resignation was not a new idea. In several items of correspondence Lowndes Jordan had made reference to the need for the Kaahu Trust to have an independent trustee. In an email of October 2018, Lowndes Jordan expressed the view that BOI may not fit that bill, since Mr Tyler, who owned and controlled that company, was the accountant for both the Kaahu Trust and the Horowai Family Trust.
After receiving notice from Mr Tyler that he wished his company, BOI, to retire as trustee, Marina approached her and Ricco’s family lawyer, Dennis McBrearty, to ask him if he would accept appointment. Mr McBrearty declined, recommending Perpetual Guardian for the role. However, Marina was concerned that Perpetual Guardian would be too expensive and was concerned as to whether they were a good fit for the role. Alan Clarke, her financial advisor, recommended she seek the assistance of a Whangārei law firm, WRMK Lawyers (WRMK).
Marina met with WRMK. Her evidence was that she instructed them that the Kaahu Trust “had been established to provide for Ricco and myself”. She described the difficulties she was having with Ricco’s children. WRMK advised her that she could appoint a corporate trustee that she controlled and then resign herself. Marina engaged WRMK to act for both herself and for the Kaahu Trust. It is not clear from the record whether BOI, as the other trustee, also agreed to instruct WRMK.
Marina then made contact with Mr McBrearty to ask him to provide her new lawyers with anything they needed to carry this plan into effect. Mr McBrearty had drafted the Trust Deed for the Kaahu Trust. Mr McBrearty expressed his concern about the proposal to appoint as sole trustee a company of which Marina was sole shareholder/director. He said:
The Trust Deed for Kaahu provides that there must at all times be an independent trustee. That is defined as a person who is not a beneficiary, nor the spouse, parent or child of a beneficiary. If you are going to form a company I believe the control of the company must be given to someone other than yourself.
Mr McBrearty followed this up with a memorandum to WRMK. In that memorandum he said:
Company as sole trustee. Technically the wording of the Trust Deed will allow for a company to be the sole trustee. Even though the wording of clause 26 of the Trust Deed provides the sole company trustee as being an exclusion from the requirement to have an independent trustee, I believe the intent of the trust document is that there will at all times be an independent trustee.
By letter of 7 November WRMK confirmed their advice that the use of a sole corporate trustee controlled by Marina was a “valid option”. They confirmed that this would enable Marina to make all decisions affecting the Kaahu Trust. They noted that her decisions would be subject to the overriding duty to act in the best interests of the trust and proceeded to say:
After you have considered the needs and circumstances of each of the beneficiaries, you might decide to proceed in any number of ways, including, for example:
(1)Transferring part or all of the Trust’s assets to a new Trust … of which you will be the primary beneficiary and Ricco’s children would be discretionary beneficiaries, but only following your death …
(2)Distributing part of the Trust’s assets directly to you (or a new Trust solely for your benefit) and leaving the rest in the Kaahu Trust, still available for your benefit. For example, you might decide to make a distribution to yourself of all of the funds invested by the Kaahu Trust and leave the property owned by the Kaahu Trust.
Marina said in evidence that the “appointment of a sole trustee appealed to me as I thought it would simplify matters relating to the Kaahu Trust”. She said that the letter of 7 November “gave me confidence that my interests were being looked after and that the proposal was legally permissible”. She instructed WRMK to proceed with the proposal.
KT Ltd was incorporated by WRMK for the purpose of acting as trustee of the Kaahu Trust. In accordance with the plan WRMK had set out to give Marina control of the Kaahu Trust, BOI resigned as trustee. Marina then appointed KT Ltd as trustee, before resigning and being discharged as a trustee herself. The resignation and appointment were effected on 27 November 2019.
Predictably, on learning of the appointment of a company owned and controlled by Marina as the sole trustee of the Kaahu Trust, the children were aggrieved. On 27 February 2020 TGT Legal, now acting for all three children, wrote to WRMK. They inquired as to the beneficial ownership of the shares in KT Ltd held by WRMK’s trustee company and continued:
Given the obvious conflict that exists between Marina’s interest as a beneficiary, and now her sole directorship of the trustee, our clients are concerned to ensure that the affairs of the Kaahu Trust are properly managed.
WRMK reported this correspondence to Marina. At this point it is not entirely clear for whom WRMK was acting — whether it was for Marina (through her company) as trustee, or personally. The subject line of the letter, “Estate Planning”, suggests that they were advising her in her personal capacity. Noting the requests for financial statements for the Kaahu Trust and the concerns expressed at Marina’s sole directorship, they commented that “[t]his was all to be expected”, continuing: “It is time for a decision to be made as to what to do with the assets of the Kaahu Trust.”
TGT Legal’s concern was entirely reasonable. KT Ltd was not an independent trustee. WRMK was right, then, that the concern was predictable. What is harder to understand is why it was time to decide what to do with the assets of the Kaahu Trust. It is therefore of interest just what possible courses of action were identified for Marina. WRMK advised there were essentially three options for dealing with the Kaahu Trust and its assets, although it noted that they could be combined. The options were:
(1)Remove Ricco’s children (and associated trust) as beneficiaries;
(2)Resettle (ie transfer) the Trust’s assets to a new trust for your benefit only; and/or
(3)Distribute all of the Trust’s assets to you personally and wind up the Trust.

Again it is of interest that all of the available options entail the corporate trustee, controlled by Marina, exercising its discretion in favour of Marina.

As noted earlier, on 12 March 2020 Marina then proceeded to cause the corporate trustee to remove Ricco’s children as beneficiaries of the Kaahu Trust, appoint the assets to herself, and irrevocably appropriate to herself any further assets that came into the Kaahu Trust from Ricco’s estate. The only asset she did not act to appoint to herself was the Russell property. As is clear from WRMK’s advice to Marina, the reason for that was that it would have had adverse tax implications.
This factual narrative makes plain that Marina acted to appoint a body corporate as sole trustee in order to give herself control of the Kaahu Trust. The respondents argue that the appellants needed to show more than that — that Marina intended to use her control in some improper way. In my view, it is not necessary for the appellants to make out any anterior motivation for Marina’s intention to exercise the power of appointment to gain control of the trust. Since using the power to give control of the trust to a trustee/beneficiary is itself an improper purpose, Marina’s intention to take control by that appointment is all that the appellants need prove. They have done that.
I do not consider the legal advice Marina took as relevant to the conclusions I have reached in this case. In my view the advice she was given was wrong. Moreover, advice that Marina could act to use her power of appointment to take control does not alter the purpose for which she acted or make that purpose proper.[174]
[174]See Wong v Burt [2005] 1 NZLR 91 (CA) at [55].
I would therefore have allowed the appeal.
As is apparent from the foregoing, my analysis of the issues is different to that of the majority. The majority define the issue for determination as being whether the appellants have proved that Marina acted to appoint KT Ltd as sole trustee with the purpose of benefiting herself at the expense of Ricco’s children. They do not address in any detail the alternative argument (the focus of my analysis) that Marina appointed KT Ltd as sole trustee with the improper purpose of gaining control of the Kaahu Trust. They say, among other things, that the argument is inconsistent with the statement of claim.[175] I do not agree. The alternative argument is squarely raised by the statement of claim. I set out the key passage from that pleading as follows:
20.[Marina] was … required to exercise her power to appoint new trustees in good faith, for proper purposes and in the best interests of the beneficiaries as a whole.
21.On the true construction of the trust deed, including clauses 12.2(d), 18.1 and 26.1, [Marina] was unable in any event to exercise her power to appoint new trustees for her own benefit.
22.[Marina]’s purpose in replacing herself as sole trustee with a company under her control was to evade the limits in clause 18.1 of the trust deed and in the law on her ability as trustee to use the trust property to benefit herself.
23.In the circumstances pleaded above, [Marina]’s appointment of [KT Ltd] as trustee of the Kaahu Trust in her place complied with none of the requirements referred to at paragraph 20 above, was for her own benefit, and so was a fraud on her power of appointment.
[175]See above n 95.
On the face of the pleading, the appellants did allege that Marina wished to gain control of the trust and that this was an improper purpose. As set out above, gaining control of the trust in this way was to exercise the power of appointment in her own favour (in other words to benefit herself). In any case, to exclude the argument on this pleading point is, in my view, to take an overly technical approach given that the trust is a creature of equity, and given the importance of the matters at issue in this proceeding.

Was Marina’s purpose to benefit herself at the expense of the children?

I record that I would also have found in favour of the appellants on the argument the majority rejected. I would have found it had been proved that Marina appointed a corporate trustee so that she could use the trustee’s powers as she wished and benefit herself at the expense of the children. In my view the factual narrative set out above presents an overwhelming case that Marina did take control in order to do just this.
I recognise that this is to reach a different view to that of the High Court Judge, who found that Marina acted as she did because she encountered difficulties in appointing an independent trustee and was advised this other path was permissible.[176] The Judge found her to be a careful, fair-minded and sincere witness.[177] I acknowledge the benefits that the High Court Judge had in that regard in seeing her give evidence. Nevertheless, I consider that there is such clear evidence of her subjective intention available that I would have been prepared to take a different view of the facts on appeal.[178]
[176]HC judgment, above n 159, at [59].
[177]At [58].
[178]See Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141 at [13]; and Deng v Zheng [2022] NZSC 76, [2022] 1 NZLR 151 at [71], where this Court said: “When considering whether to depart from findings of fact made at trial, an appellate court must, of course, recognise and allow for the advantages that a trial judge has in assessing oral evidence. But, if after allowing for those advantages the appellate court is of the view that the factual findings were wrong, it must decide the appeal in accordance with its own view of the facts.”
First, Marina made only modest efforts to find an independent trustee. There can be no suggestion that she was compelled by necessity to the course of action she took. There was an option available to her — Perpetual Guardian. There is no suggestion that their costs were prohibitive in the context of a trust of this value. Marina said that she also took into account whether they were a good fit for the role, but, as she should have realised, a body corporate controlled by her was a still worse fit. As WRMK said in their letter to her, it was expected that it would cause the adverse reaction that it did in fact elicit from the appellants.

Secondly, Marina instructed WRMK that the Kaahu Trust was set up for her and Ricco — a position that the lawyers acting for Marina in these proceedings maintained at the hearing in this Court, notwithstanding that the words of the Trust Deed contradict that position. On Marina’s own evidence, when she instructed WRMK she was pleased because she felt they would look after her interests.
Thirdly, the advice that Marina received and acted upon from WRMK — who acted not just for the Kaahu Trust, but also for Marina personally — placed Marina’s interests front and centre.[179] Although Marina was advised of the obligation to have regard to the interests of other beneficiaries, the possible courses of action mapped out in those letters of advice revolved around Marina gaining not just control of the Kaahu Trust but also the benefit of its assets, eliminating or minimising the interests of the children.
[179]There is an issue as to whether it was appropriate for WRMK to act for both the Kaahu Trust and Marina. The same issue might be said to arise in relation to these proceedings, although Marina’s control of the Kaahu Trust’s decision-making perhaps makes that issue somewhat more academic. However, since no argument was addressed on that issue, I make no further comment.
Fourthly, and most significantly, Marina moved very promptly to use her control to benefit herself. Her actions are the best evidence of her intention. She caused the body corporate she controlled to become the sole trustee on 27 November 2019. She caused the removal of the children as beneficiaries and caused the assets to be appointed to herself on 12 March 2020. As the appellants argue, the inference that she appointed a company she controlled as sole trustee in order that she could benefit herself through the distribution of the assets seems to me to be irresistible.
Finally, in my view it should not be overlooked that Marina has argued throughout that, because her benefit was the primary (or sole) purpose of the Kaahu Trust, the power to appoint a trustee would only be improperly exercised if exercised to benefit a foreign object (not a beneficiary), and would not be improperly exercised by her for the purpose of preferring her interest. This position is consistent with the appellants’ case against her, and seems to me to provide support for it.
To conclude, taking a different view of the facts and the issues to be determined on appeal to that of the majority, I would have allowed the appeal. Because of the finding of the majority, however, I need not explore issues related to relief.

Solicitors:
TGT Legal, Auckland for Appellants
Martelli McKegg, Auckland for Respondents

[2024] NZSC 173

18 December 2024