White v Brkic

[2021] NZHC 919

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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2020-404-001613

[2021] NZHC 919

UNDER

Part 18 of the High Court Rules

IN THE MATTER

of the exercise or purported or threatened

exercise of a right or power alleged to arise out of charge 11521647.1 registered on Identifier 526110 North Auckland Land Registration District

BETWEEN

CAROLINE RUTH WHITE and JOHN

SEAKINS WHITE suing as trustees of the AWHITU TRUST

Plaintiffs

AND

GORDON BRKIC, EMILIA BRKIC and NAGI

FALTAUS, sued as trustees of the MADEG TRUST

First Defendants

THE SHERIFF OF THE HIGH COURT AT AUCKLAND

Second Defendant

Hearing:

19 April 2021

Appearances:

W C Pyke for the Plaintiffs

P Rice for the First Defendants

No appearance by or on behalf of the Second Defendant

Judgment:

28 April 2021

JUDGMENT OF WOOLFORD J

This judgment was delivered by me on Wednesday, 28 April 2021 at 3:00 pm pursuant to r 11.5 of the High Court Rules.

Solicitors:Sellar Bone & Partners (C Lucas), Auckland, for the Plaintiffs Haigh Lyon (B Molloy), Auckland, for the First Defendants

Counsel:            W C Pyke, Barrister, Auckland, for the Plaintiffs

P Rice, Barrister, Auckland, for the First Defendants

WHITE v BRKIC [2021] NZHC 919 [28 April 2021]

[1]The first defendants have obtained a charging order and sale order over

23.75 hectares of land in the Awhitu Peninsula (the Land) owned by the first named plaintiff, Caroline Ruth White. In doing so, they relied upon a High Court judgment against Ms White and Crummer Trustees No.82 Limited as trustees of the Grafton Road Trust. Ms White says she owns the land, not in her personal capacity, but as a trustee of a separate trust, The Awhitu Trust. Therefore, the land cannot be properly charged or sold. She now seeks orders setting aside the charging and sale orders. The orders sought are opposed by the first defendants. The second defendant abides the decision of the Court.

Factual background

[2]        On 1 March 2011, Ms White established the Awhitu Trust as settlor in anticipation of purchasing the land. Ms White and Crummer Trustees No.79 Limited were the original trustees. The discretionary beneficiaries are the final beneficiaries and any issue of any final beneficiary. The final beneficiaries are  Ms  White, Keegan David Gray and Renee Caroline Gray, the children of Ms White’s partner, John Gray.

[3]        Crummer Trustees No.79 Limited ceased to be a trustee on 15 April 2014, when it was liquidated. On 4 September 2014, Ms White appointed her brother,  John Seakins White, as a replacement trustee and an additional discretionary beneficiary of the Awhitu Trust. Then on 7 February 2020, Ms White appointed her brother’s daughter, Vaile Seakins White, as an additional discretionary beneficiary of the Awhitu Trust. Vaile White was born seven days earlier, on 31 January 2020.

[4]        Ms White says that she and Crummer Trustees No.79 Limited, acting as trustees of the Awhitu Trust, purchased the land on 22 July 2011. After Crummer Trustees No.79 Limited was placed into liquidation and removed from the register, ownership of the land was transferred to Ms White on 4 September 2014. Her brother was appointed as trustee the same day, but registered ownership was not transferred into both of their names because her brother was in China at the time. The transfer was a bare transfer and Ms White says she did not purchase the land in her personal capacity. The land was, and remains, owned by the Awhitu Trust.

[5]        In obtaining the charging and sale orders, the first defendants relied on two judgments of Moore J dated 18 June 2018 and 6 November 2018 in which he ordered that Ms White and Crummer Trustees No.82 Limited, sued as trustees of the Grafton Road Trust, pay the trustees of the Madeg Trust (the first defendants in this proceeding) the following sums:

$109,8	20.00 being a vendor loan in respect of the sale of an apartment in Auckland to the Grafton Road Trust due for repayment by 10 May 2012.
$169,1	22.80    being interest at 22 per cent from 10 May 2012 to 10 May 2019.
$111,7	36.95    being indemnity costs on the proceedings.
$13,1	90.32 being disbursements.
Total     $403,8	70.07

First defendants’ submissions

[6]        As the land is held in Ms White’s name, counsel for the first defendants submits that the only issue is whether the plaintiffs are able to show, on the balance of probabilities, that Ms White has no beneficial interest in the land. Counsel submits that they cannot. Under the Awhitu Trust deed, Ms White retains all the powers of ownership of the land and can do whatever she likes with it. She has unfettered power to transfer the land to herself if she wishes; or resettle the land on another trust of which she is beneficiary; or bring the trust to an end at any time and vest the land in herself. Counsel submits these rights are tantamount to ownership. As Ms White is the legal and equitable owner of the land, the plaintiffs are unable to show that the charging and sale orders are invalid.

[7]        Counsel submits that the combination of powers conferred on Ms White as settlor, trustee and beneficiary means that she can, unrestrained by fiduciary obligations, appoint the whole of the trust property to herself.

[8]        As settlor, Ms White can remove the existing trustees and appoint a corporation controlled by her to be sole trustee. This power is unrestricted. Ms White can exercise it in favour of herself. Once appointed, the corporate trustee could pay all the capital of the trust fund to Ms White as a discretionary beneficiary; or resettle the trust fund on one of her other trusts; or bring forward the vesting day and vest the whole of the

trust fund in her. The corporate trustee would not be restrained by any fiduciary duties when exercising these powers in favour of Ms White. It has absolute and uncontrolled discretion to do so. Recent authorities confirm that such extensive powers shorn of fiduciary obligations are tantamount to ownership of the trust property.

Discussion

[9]        Counsel for the first defendants rely on the cases of Clayton v Clayton [Vaughan Road Property Trust]1 and Webb v Webb2 as authority for the proposition that the extensive powers accorded to Ms White as settlor of the Awhitu Trust are tantamount to ownership of the land. However, both cases involved issues of relationship property. The cases established that relationship property can extend to rights and powers associated with a trust as well as its subject matter.

[10]As noted by the Supreme Court in Clayton:3

We accept the submission for Mrs Clayton that the property definition in s 2 of the PRA must be interpreted in a manner that reflects the statutory context. We see the reference to “any other right or interest” when interpreted in the context of social legislation, as the PRA is, as broadening traditional concepts of property and as potentially inclusive of rights and interests that may not, in other contexts, be regarded as property rights or property interests. Against that background, we now turn to the power of appointment in cl 7.1 and other relevant provisions of the VRPT deed.

[11]      There is no applicable “social legislation” in the present case. It is strictly commercial. Can the first defendants have resort to the land held by Ms White as a trustee of the Awhitu Trust to recover the judgment debt owed by Ms White as a trustee of the Grafton Road Trust? Normal trust principles apply.

[12]      I am of the view that the present case is, in any event, able to be distinguished from Clayton, although there are obvious similarities between the two trust deeds. Counsel has set out in tabular form a comparison of the powers and discretions under the Vaughan Road Property Trust and the Awhitu Trust.

1      Clayton v Clayton [Vaughan Road Property Trust] [2016] NZSC 29, [2016] 1 NZLR 551.

2      Webb v Webb (Cook Islands) [2020] UKPC 22, [2020] 5 LRC 465.

3      Clayton v Clayton, above n 1, at [38].

Vaughan Road Property Trust

Awhitu Trust

As “Principal Family Member” Mr Clayton has the power to appoint and remove discretionary beneficiaries (cl 7.1) and trustees (cl 17.1)

As “Settlor” Ms White has the power to appoint and remove discretionary beneficiaries  (cl   7.1)   and   trustees (cl 17.1)

The trustees have the power: To pay or apply all of the capital to any of the discretionary beneficiaries (cl 6.1(a))

The trustees (which includes a sole corporate trustee) have the power: To pay or apply all of the capital to any of the discretionary beneficiaries (cl 6.1(a))

To resettle the trust fund upon the trustees of any trust which include as

beneficiaries any one or more of the discretionary beneficiaries. (cl 8.1)

To resettle the trust fund upon the trustees of any trust which include as

beneficiaries any one or more of the discretionary beneficiaries. (cl 8.1)

To bring forward the vesting date (cl 10)

To bring forward the vesting date (cl 2.1 ‘Vesting Day’)

To exercise powers without considering the interests of all beneficiaries and in a way that might be contrary to the interests of present or future beneficiaries (cl 11.1)

To exercise powers without considering the interests of all beneficiaries and in a way that might be contrary to the interests of present or future beneficiaries (cl 11.1)

A trustee who is also a beneficiary is entitled to exercise a power in her own favour (cl 14.1)

No trustee who is also a beneficiary may exercise a power in  her  own  favour  (cl 14.1) but the other Trustee may do so (cl 14.2)

To exercise any power notwithstanding any conflict of interest created. (cl 19.1)

To exercise any power notwithstanding any conflict of interest created. (cl 19.1)

To vary or revoke (with the prior consent of the Settlor) any provision concerning the management or administration of the Trust (cl 23.1)

To vary or revoke (with the prior consent of the Settlor) any of the provisions of the deed (cl 24.1)

The VRPT deed must be interpreted in a manner that broadens the powers and restricts the liabilities of the  trustees  (cl 2.2(b))

The Awhitu deed must be interpreted in a manner that broadens the powers and restricts the liabilities of  the  trustees (cl 2.2(b))

[13]      The Supreme Court in Clayton stated that all of the provisions had contextual significance, but three were decisive.4 First, cl 6.1(a) gave the trustee the power to pay or apply all or any part of the capital of the trust fund to one or more discretionary beneficiaries. As Mr Clayton was both trustee and a discretionary beneficiary, he could pay or apply the entire trust capital to himself. Secondly, under cl 8.1 the trustee

4      Clayton v Clayton, above n 1, at [52] – [55].

may resettle the trust fund upon the trustees of any trust, which included any one or more of the discretionary beneficiaries (in this case, that class included Mr Clayton himself). On the face of it, this would allow Mr Clayton to resettle the trust capital on the trustee of a trust of which he was a (or the) beneficiary.

[14]      Thirdly, cl 10 enabled Mr Clayton, as trustee, to appoint the trust capital to himself to the exclusion of any other discretionary beneficiary and to bring forward the vesting day to any date of his choosing. This would effectively exclude the final beneficiaries from drawing any benefit from the trust. If Mr Clayton brought forward the vesting day to a date of his choosing and appointed all the trust capital to himself, that would give him both legal and beneficial ownership of the trust capital and the trust would be at an end.

[15]      There are similar provisions in the Awhitu Trust deed, but Ms White has done none of that. She has not paid or applied the entire trust capital to herself. She has  not resettled the trust capital on the trustee of a trust of which she is a (or the) beneficiary. She has not given herself both legal and beneficial ownership of the trust capital by bringing forward the vesting day and appointing all the trust capital to herself. Ms White therefore still owns the land as a trustee of the Awhitu Trust and not personally.

[16]      The Supreme Court in Clayton left unanswered the question whether the powers held by Mr Clayton under the Vaughan Road Property Trust meant that no valid trust ever came into existence (because he could not be said to have disposed of the property settled on the trust in favour of another) or whether a defeasible trust came into existence until Mr Clayton exercised his powers to bring it to an end. Counsel for the first defendant submits that the question was answered in favour of the former proposition — no trust comes into existence — by the Privy Council in the recent decision of Webb.5 This case must, however, be seen in the context of relationship property proceedings. I am not sure that this approach is appropriate in a commercial context. If necessary, I would favour the concept of a defeasible trust, which came into existence until Ms White exercised her powers to bring it to an end.

5      Webb v Webb, above n 2.

[17]Looking at the other powers and discretions, I note the following:

(a)Clause 7.1, which gives Ms White as settlor the power to appoint and remove discretionary beneficiaries, is insufficient on its own to give Ms White a power analogous to a power to revoke the trust. On its proper interpretation, it does not enable Ms White to remove final beneficiaries such as her partner’s children.

(b)Clause 17.1, which gives Ms White as settlor the power to appoint and remove trustees, can only be exercised as a fiduciary power. The office of trustee lies at the core of a trust and carries fundamental and onerous obligations to act in the best interests of the beneficiaries as a whole to the exclusion of the trustee’s own interest. Because the power is fiduciary in nature it cannot be exercised for a collateral purpose.6

(c)Clause 17.6, which gives Ms White as settlor the power to appoint a corporation as sole trustee of the trust, does not permit Ms White to appoint a sole corporate trustee under her control so as to procure the exercise of trustee power or discretion in her favour. That would be inconsistent with the no self-benefit clause (cl 14) and the context which sits behind the Awhitu Trust’s establishment.

(d)The key difference between the Vaughan Road Property Trust and the Awhitu Trust is the inclusion of the no self-benefit clause in the Awhitu Trust deed. No trustee who is also a beneficiary may exercise a power in her own favour (cl 14.1), but the other trustee may do so (cl 14.2). This clause is of real significance as cl 12.2, which purports to give absolute and uncontrolled discretion to the trustees, commences with the words “Except as otherwise expressly provided by this deed, the Trustees may …”. Clause 14.1 expressly provides otherwise.

[18]      There is no suggestion that Ms White’s purchase of the land as trustee of the Awhitu Trust was an alienation of property with intent to defraud creditors in terms of

6      New Zealand Maori Council v Foulkes [2015] NZCA 552, [2016] 2 NZLR 337 at [22].

s 60 of the Property Law Act 1952.7 Nor are the first defendants able to say that the trust is a sham.8 Although counsel started to cross-examine Ms White on that basis, Mr Rice responsibly accepted, after being shown financial statements, that he was not able to advance such an argument. In Clayton,9 the Supreme Court agreed with the lower courts that Mr Clayton had not intended to create Vaughan Road Property Trust as a sham, nor sought to deceive anyone as to its nature.

[19]      I am therefore of the view that the plaintiffs have shown, on the balance of probabilities, that Ms White owns the land as a trustee of the Awhitu Trust. The Trust is not an objective nullity and remains  on  foot  as  a  properly  functioning  trust. Ms White has completed a letter of wishes as settlor and annual financial statements are prepared showing the land as a trust asset.

[20]      I have some sympathy for the first defendants, but am reminded of the words of Asher J in Official Assignee v Sanctuary Propvest Ltd:10

[60] The Courts must be vigilant not to let a sense of suspicion  or  unfairness lead to the setting aside of properly created commercial structures. In the absence of legislative intervention, companies and trusts if lawfully created and if intended to operate in accordance with the law and the dictates of a corporate structure, cannot be ignored. To do so would be to create commercial instability. Any reform in the area cannot be effected by ad hoc decisions of the Courts, based on perceptions of fairness to creditors.

[21]      There is therefore no proper basis for the issue of a charging or sale order relating to the land. There will be orders setting aside the charging and sale orders. In addition, there will be an order in terms of r 17.51(b) of the High Court Rules that the land be discharged from the charging order.

[22]Costs are to follow the event.

Woolford J

7      See Regal Castings Ltd v Lightbody & Anor [2008] NZSC 87.

8      See Official Assignee v Wilson [2007] NZCA 122, [2008] 3 NZLR 45.

9      Clayton v Clayton [Vaughan Road Property Trust], above n 1.

10     Official Assignee v Sanctuary Propvest Ltd, HC Auckland CIV-2009-404-852, 11 June 2009 at [60].