Analysis
Mr and Mrs Clayton were married in 1989, had two daughters who were born in 1990 and 1994, separated in 2006 and were divorced in 2009. By the time of the separation Mr Clayton had built up a significant saw milling and timber processing business, which operated from land and buildings in Vaughan Road, Rotorua. By declaration of trust dated 14 June 1999 (VRPT) Mr Clayton settled the land and buildings, with himself as sole trustee, on discretionary trusts for the benefit of a class of beneficiaries that included Mr Clayton as ‘principal family member’, Mrs Clayton as his wife or former wife, and their two daughters. The two daughters were the ‘final beneficiaries’. The trustee had an unfettered discretion as to the exercise of the powers conferred by the VRPT. The principal family member had power under clause 7.1 to appoint and remove members of the class of beneficiaries. A number of issues arose concerning the VRPT as aspects of a wider relationship property dispute between Mr and Mrs Clayton. In particular, Mrs Clayton claimed that the VRPT was a sham or, if not, an illusory trust. The claim of sham failed at all levels but both the Family Court and the High Court found that it was an illusory trust. The Court of Appeal overturned the finding that the VRPT was an illusory trust but upheld Mrs Clayton’s claim that the power of Mr Clayton as ‘principal family member’ to appoint and remove beneficiaries was relationship property and its value was equivalent to the net value of the assets of the VRPT. Mr Clayton appealed and Mrs Clayton cross-appealed. In particular, it was argued that the bundle of rights and powers held by Mr Clayton under the VRPT constituted property for the purposes of the Property (Relationships) Act 1976 (PRA) and, therefore, was relationship property.
Held (allowing the appeal in part):
The PRA defined ‘property’ as including, inter alia, ‘any other right or interest’. The concept of relationship property incorporated the family home and family chattels, jointly owned property and property that had been acquired by either spouse during the marriage. That definition, when interpreted in the context of social legislation, broadened the traditional concept of property so as potentially to include rights and interests that may not, in other contexts, be regarded as property rights or interests. However, the Court of Appeal had erred in its interpretation of clause 7.1 of the VRPT that the power conferred on Mr Clayton as ‘principal family member’ to remove not only the other members of the class of beneficiaries but also the ‘final beneficiaries’ enabled him in effect to revoke the trust and become sole beneficiary of the VRPT. Even if Mr Clayton exercised the power to remove his two daughters as members of the class of beneficiaries, that would not have any effect on their rights as the ‘final beneficiaries’. Consequently, this power by itself was not tantamount to ownership and therefore could not be said to be a general power of appointment. Nevertheless, the bundle of rights and powers held by Mr Clayton, which were not constrained by any fiduciary duty towards the ‘final beneficiaries’, gave him such a degree of control that he could appoint the entire trust capital and income to himself freed and discharged from the trusts of the VRPT. As such, they gave Mr Clayton in effect a general power of appointment in relation to the assets of the VRPT and, when interpreted within the context of the PRA, those powers were properly classified as ‘rights’ that gave him an ‘interest’ in the assets of the VRPT. They therefore fell within the statutory definition of ‘property’ and, having been ‘acquired’ by Mr Clayton after his relationship with Mrs Clayton began, they constituted relationship property under s8(1)(e) of the PRA. Further, as Mr Clayton’s possession of this bundle of rights and powers was tantamount to ownership of assets to which they related, it followed that the value of those powers was equal to the value of the assets of the VRPT. There was no basis to depart from the findings of the courts below that the trust created by Mr Clayton was not a sham; there was nothing to indicate that he intended to create a structure different from that set out in the terms of the VRPT. It was unnecessary to make a finding as to whether the trust were illusory.
A) The appeal is allowed in part. B) We set aside the findings of the Court of Appeal that cl 7.1 of the Vaughan Road Property Trust (VRPT) trust deed (the VRPT deed) is a general power of appointment and that the power is both property and relationship property, having a value equal to that …Continue reading "Clayton v Clayton [2016] NZSC 29"