WHITE v BRKIC [2021] NZHC 919

WHITE v BRKIC [2021] NZHC 919 [28 April 2021]IN THE HIGH COURT OF NEW ZEALANDAUCKLAND REGISTRYI TE KŌTI MATUA O AOTEAROATĀMAKI MAKAURAU ROHECIV-2020-404-001613[2021] NZHC 919UNDER Part 18 of the High Court RulesIN THE MATTER of the exercise or purported or threatenedexercise of a right or power alleged to arise outof charge 11521647.1 registered on Identifier526110 North Auckland Land RegistrationDistrictBETWEEN CAROLINE RUTH WHITE and JOHNSEAKINS WHITE suing as trustees of theAWHITU TRUSTPlaintiffsAND GORDON BRKIC, EMILIA BRKIC and NAGIFALTAUS, sued as trustees of the MADEGTRUSTFirst DefendantsTHE SHERIFF OF THE HIGH COURT ATAUCKLANDSecond DefendantHearing: 19 April 2021Appearances: W C Pyke for the PlaintiffsP Rice for the First DefendantsNo appearance by or on behalf of the Second DefendantJudgment: 28 April 2021JUDGMENT OF WOOLFORD JThis judgment was delivered by me on Wednesday, 28 April 2021 at 3:00 pmpursuant to r 11.5 of the High Court Rules.Solicitors: Sellar Bone & Partners (C Lucas), Auckland, for the PlaintiffsHaigh Lyon (B Molloy), Auckland, for the First DefendantsCounsel: W C Pyke, Barrister, Auckland, for the PlaintiffsP Rice, Barrister, Auckland, for the First Defendants[1] The first defendants have obtained a charging order and sale order over23.75 hectares of land in the Awhitu Peninsula (the Land) owned by the first namedplaintiff, Caroline Ruth White. In doing so, they relied upon a High Court judgmentagainst Ms White and Crummer Trustees No.82 Limited as trustees of the GraftonRoad Trust. Ms White says she owns the land, not in her personal capacity, but as atrustee of a separate trust, The Awhitu Trust. Therefore, the land cannot be properlycharged or sold. She now seeks orders setting aside the charging and sale orders. Theorders sought are opposed by the first defendants. The second defendant abides thedecision of the Court.Factual background[2] On 1 March 2011, Ms White established the Awhitu Trust as settlor inanticipation of purchasing the land. Ms White and Crummer Trustees No.79 Limitedwere the original trustees. The discretionary beneficiaries are the final beneficiariesand 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 discretionarybeneficiary of the Awhitu Trust. Then on 7 February 2020, Ms White appointed herbrother's daughter, Vaile Seakins White, as an additional discretionary beneficiary ofthe 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 astrustees of the Awhitu Trust, purchased the land on 22 July 2011. After CrummerTrustees 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 brotherwas appointed as trustee the same day, but registered ownership was not transferredinto both of their names because her brother was in China at the time. The transferwas a bare transfer and Ms White says she did not purchase the land in her personalcapacity. The land was, and remains, owned by the Awhitu Trust.[5] In obtaining the charging and sale orders, the first defendants relied on twojudgments of Moore J dated 18 June 2018 and 6 November 2018 in which he orderedthat Ms White and Crummer Trustees No.82 Limited, sued as trustees of the GraftonRoad Trust, pay the trustees of the Madeg Trust (the first defendants in thisproceeding) the following sums:$109,820.00 being a vendor loan in respect of the sale of anapartment in Auckland to the Grafton RoadTrust due for repayment by 10 May 2012.$169,122.80 being interest at 22 per cent from 10 May 2012to 10 May 2019.$111,736.95 being indemnity costs on the proceedings.$13,190.32 being disbursements.Total $403,870.07First defendants' submissions[6] As the land is held in Ms White's name, counsel for the first defendants submitsthat the only issue is whether the plaintiffs are able to show, on the balance ofprobabilities, that Ms White has no beneficial interest in the land. Counsel submitsthat they cannot. Under the Awhitu Trust deed, Ms White retains all the powers ofownership of the land and can do whatever she likes with it. She has unfettered powerto transfer the land to herself if she wishes; or resettle the land on another trust ofwhich she is beneficiary; or bring the trust to an end at any time and vest the land inherself. Counsel submits these rights are tantamount to ownership. As Ms White isthe legal and equitable owner of the land, the plaintiffs are unable to show that thecharging and sale orders are invalid.[7] Counsel submits that the combination of powers conferred on Ms White assettlor, trustee and beneficiary means that she can, unrestrained by fiduciaryobligations, appoint the whole of the trust property to herself.[8] As settlor, Ms White can remove the existing trustees and appoint a corporationcontrolled by her to be sole trustee. This power is unrestricted. Ms White can exerciseit in favour of herself. Once appointed, the corporate trustee could pay all the capitalof the trust fund to Ms White as a discretionary beneficiary; or resettle the trust fundon one of her other trusts; or bring forward the vesting day and vest the whole of thetrust fund in her. The corporate trustee would not be restrained by any fiduciary dutieswhen exercising these powers in favour of Ms White. It has absolute and uncontrolleddiscretion to do so. Recent authorities confirm that such extensive powers shorn offiduciary 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 propositionthat the extensive powers accorded to Ms White as settlor of the Awhitu Trust aretantamount to ownership of the land. However, both cases involved issues ofrelationship property. The cases established that relationship property can extend torights and powers associated with a trust as well as its subject matter.[10] As noted by the Supreme Court in Clayton:3We accept the submission for Mrs Clayton that the property definition in s 2of 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 thecontext of social legislation, as the PRA is, as broadening traditional conceptsof property and as potentially inclusive of rights and interests that may not, inother contexts, be regarded as property rights or property interests. Againstthat background, we now turn to the power of appointment in cl 7.1 and otherrelevant provisions of the VRPT deed.[11] There is no applicable "social legislation" in the present case. It is strictlycommercial. Can the first defendants have resort to the land held by Ms White as atrustee of the Awhitu Trust to recover the judgment debt owed by Ms White as a trusteeof 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 distinguishedfrom 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 underthe 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 TrustAs "Principal Family Member" MrClayton has the power to appoint andremove discretionary beneficiaries (cl7.1) and trustees (cl 17.1)As "Settlor" Ms White has the power toappoint and remove discretionarybeneficiaries (cl 7.1) and trustees(cl 17.1)The trustees have the power: To pay orapply all of the capital to any of thediscretionary beneficiaries (cl 6.1(a))The trustees (which includes a solecorporate trustee) have the power: Topay or apply all of the capital to any ofthe discretionary beneficiaries (cl 6.1(a))To resettle the trust fund upon thetrustees of any trust which include asbeneficiaries any one or more of thediscretionary beneficiaries. (cl 8.1)To resettle the trust fund upon thetrustees of any trust which include asbeneficiaries any one or more of thediscretionary 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 consideringthe interests of all beneficiaries and in away that might be contrary to theinterests of present or futurebeneficiaries (cl 11.1)To exercise powers without consideringthe interests of all beneficiaries and in away that might be contrary to theinterests of present or futurebeneficiaries (cl 11.1)A trustee who is also a beneficiary isentitled to exercise a power in her ownfavour (cl 14.1)No trustee who is also a beneficiary mayexercise a power in her own favour(cl 14.1) but the other Trustee may do so(cl 14.2)To exercise any power notwithstandingany conflict of interest created. (cl 19.1)To exercise any power notwithstandingany conflict of interest created. (cl 19.1)To vary or revoke (with the prior consentof the Settlor) any provision concerningthe management or administration of theTrust (cl 23.1)To vary or revoke (with the prior consentof the Settlor) any of the provisions ofthe deed (cl 24.1)The VRPT deed must be interpreted in amanner that broadens the powers andrestricts the liabilities of the trustees(cl 2.2(b))The Awhitu deed must be interpreted ina manner that broadens the powers andrestricts the liabilities of the trustees(cl 2.2(b))[13] The Supreme Court in Clayton stated that all of the provisions had contextualsignificance, but three were decisive.4 First, cl 6.1(a) gave the trustee the power topay or apply all or any part of the capital of the trust fund to one or more discretionarybeneficiaries. As Mr Clayton was both trustee and a discretionary beneficiary, hecould pay or apply the entire trust capital to himself. Secondly, under cl 8.1 the trustee4 Clayton v Clayton, above n 1, at [52] – [55].may resettle the trust fund upon the trustees of any trust, which included any one ormore of the discretionary beneficiaries (in this case, that class included Mr Claytonhimself). On the face of it, this would allow Mr Clayton to resettle the trust capital onthe 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 tohimself to the exclusion of any other discretionary beneficiary and to bring forwardthe vesting day to any date of his choosing. This would effectively exclude the finalbeneficiaries from drawing any benefit from the trust. If Mr Clayton brought forwardthe 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 thetrust would be at an end.[15] There are similar provisions in the Awhitu Trust deed, but Ms White has donenone of that. She has not paid or applied the entire trust capital to herself. She hasnot 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 trustcapital by bringing forward the vesting day and appointing all the trust capital toherself. Ms White therefore still owns the land as a trustee of the Awhitu Trust andnot personally.[16] The Supreme Court in Clayton left unanswered the question whether thepowers held by Mr Clayton under the Vaughan Road Property Trust meant that novalid trust ever came into existence (because he could not be said to have disposed ofthe property settled on the trust in favour of another) or whether a defeasible trust cameinto existence until Mr Clayton exercised his powers to bring it to an end. Counsel forthe first defendant submits that the question was answered in favour of the formerproposition — no trust comes into existence — by the Privy Council in the recentdecision of Webb.5 This case must, however, be seen in the context of relationshipproperty proceedings. I am not sure that this approach is appropriate in a commercialcontext. If necessary, I would favour the concept of a defeasible trust, which cameinto 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 andremove discretionary beneficiaries, is insufficient on its own to giveMs White a power analogous to a power to revoke the trust. On itsproper interpretation, it does not enable Ms White to remove finalbeneficiaries such as her partner's children.(b) Clause 17.1, which gives Ms White as settlor the power to appoint andremove trustees, can only be exercised as a fiduciary power. The officeof trustee lies at the core of a trust and carries fundamental and onerousobligations to act in the best interests of the beneficiaries as a whole tothe exclusion of the trustee's own interest. Because the power isfiduciary 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 acorporation as sole trustee of the trust, does not permit Ms White toappoint a sole corporate trustee under her control so as to procure theexercise of trustee power or discretion in her favour. That would beinconsistent with the no self-benefit clause (cl 14) and the contextwhich sits behind the Awhitu Trust's establishment.(d) The key difference between the Vaughan Road Property Trust and theAwhitu Trust is the inclusion of the no self-benefit clause in the AwhituTrust deed. No trustee who is also a beneficiary may exercise a powerin 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 giveabsolute and uncontrolled discretion to the trustees, commences withthe words "Except as otherwise expressly provided by this deed, theTrustees may ". Clause 14.1 expressly provides otherwise.[18] There is no suggestion that Ms White's purchase of the land as trustee of theAwhitu Trust was an alienation of property with intent to defraud creditors in terms of6 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 thetrust 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 notable to advance such an argument. In Clayton,9 the Supreme Court agreed with thelower courts that Mr Clayton had not intended to create Vaughan Road Property Trustas 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 ofprobabilities, that Ms White owns the land as a trustee of the Awhitu Trust. The Trustis 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 statementsare prepared showing the land as a trust asset.[20] I have some sympathy for the first defendants, but am reminded of the wordsof Asher J in Official Assignee v Sanctuary Propvest Ltd:10[60] The Courts must be vigilant not to let a sense of suspicion orunfairness lead to the setting aside of properly created commercial structures.In the absence of legislative intervention, companies and trusts if lawfullycreated and if intended to operate in accordance with the law and the dictatesof a corporate structure, cannot be ignored. To do so would be to createcommercial instability. Any reform in the area cannot be effected by ad hocdecisions 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 orderrelating to the land. There will be orders setting aside the charging and sale orders. Inaddition, there will be an order in terms of r 17.51(b) of the High Court Rules that theland be discharged from the charging order.[22] Costs are to follow the event.________________________________Woolford J7 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].