LEGLER v FORMANNOIJ [2022] NZCA 607

LEGLER v FORMANNOIJ [2022] NZCA 607 [7 December 2022]IN THE COURT OF APPEAL OF NEW ZEALANDI TE KŌTI PĪRA O AOTEAROACA359/2021[2022] NZCA 607BETWEEN LI KARI LEGLER, LAILA SUN LEGLERKLAUI AND KEN LEGLERAppellantsAND MARIA GUILLAUMINA CORNELIAJOHANNA FORMANNOIJFirst RespondentKAAHU TRUSTEE LIMITEDSecond RespondentHearing: 16 February 2022Court: Brown, Brewer and Cull JJCounsel: D R Bigio KC and J W H Little for AppellantsJ D McBride and R C Woods for RespondentsJudgment: 7 December 2022 at 10.30 amJUDGMENT OF THE COURTA The appeal is dismissed.B The appellants must pay the respondents one set of costs for a standardappeal on a band A basis and usual disbursements.____________________________________________________________________REASONSBrown and Brewer JJ [1]Cull J (dissenting) [43]BROWN AND BREWER JJ(Given by Brown J)Table of ContentsPara NoIntroduction [1]Factual background [3]Ricco Legler and his family [3]The Horowai Family Trust [4]The Kaahu Trust [6]Changes in the trusteeship of Kaahu [8]The High Court judgment [12]The scope of the appeal [16]Was Maria's purpose in the appointment of KTL improper? [29]Result [41]Introduction[1] As the sole remaining trustee of the Kaahu Trust (Kaahu) the first respondent(Maria) appointed the second respondent, Kaahu Trustee Ltd (KTL), as the sole trusteein her place. Maria is the sole director of KTL and, together with a company controlledby her solicitors, she owns all the shares in KTL. The appellants' challenge to Maria'sappointment of KTL as the sole trustee of Kaahu was dismissed in the High Court.1[2] On appeal the appellants contend that Maria's appointment of KTL as trusteewas void as a fraud on her power of appointment, it being for the purpose of evadinglimits on self-dealing in the Kaahu trust deed and to benefit herself. They seek anorder appointing an independent trustee in place of KTL.Factual backgroundRicco Legler and his family[3] The appellants, Li, Ken and Laila Legler, are the children of Ricco Legler fromhis first marriage. Ricco married his second wife, Maria, in 2009 following a 20-yearrelationship. Ricco's father, a successful European businessman, died in 2002 leaving1 Legler v Formannoij [2021] NZHC 1271, (2021) 5 NZTR 31-006 [High Court judgment].Ricco a significant inheritance which ultimately led to the creation of two familytrusts, the Horowai Family Trust (Horowai) in 2007 and Kaahu in 2008.The Horowai Family Trust[4] Horowai was established by a Deed of Declaration of Trust dated 2 March 2007by its sole trustee, Horowai Trustee Co Ltd (HTL).2 The appellants and Ricco werethe final beneficiaries. The discretionary beneficiaries included the final beneficiaries,Maria and any trust a beneficiary of which was also a beneficiary of Horowai.On 30 May 2014 HTL removed Ricco as a beneficiary.[5] Horowai's assets include a 214 hectare block of forested land at Purerua Road,Kerikeri, an adjacent 21 hectare block of farm land and a fund of at least $3 million.The Kaahu Trust[6] Kaahu was established by a Deed of Declaration of Trust dated 9 June 2008(the Trust Deed) by its trustees, Ricco, Maria and BOI Taxation Trustee Co No 2 Ltd(BOI). Philip Tyler, who was the accountant for both Horowai and Kaahu, was BOI'sdirector. At its inception, Kaahu's final beneficiaries were Ricco and Maria.The discretionary beneficiaries were the final beneficiaries, any issue of the finalbeneficiaries (including the appellants) and any trust which included among itsbeneficiaries a beneficiary of Kaahu (including Horowai). At present Kaahu owns ahome in Russell built by Ricco and Maria worth several million dollars and a fund ofapproximately $5 million.[7] Decisions of the trustees are required to be unanimous (cl 8.3), butthe Trust Deed provides in cl 18.1 that any power or discretion vested in the trusteescan be exercised in favour of a trustee who is also a beneficiary by the other trustee ortrustees. Central to this appeal are the provisions of the Trust Deed concerningtrustees:2 Its directors are Li and Laila Legler.26. Restriction on number and identity of Trustees26.1 Unless a corporate body is the sole Trustee:(a) if at any time there is only one Trustee, no power or discretionconferred on the Trustees by law or by this deed, other thanthat of appointing a new Trustee, shall be exercised by thesurviving Trustee until such time as an additional Trustee hasbeen duly appointed;(b) the Trustees must always include at least one person who isnot a Beneficiary, nor the spouse, parent or child of aBeneficiary or of a Trustee, nor a person who is or has beenin any sexual relationship with a Beneficiary or witha Trustee.27. Provisions as to future Trustee or Trustees27.1 Corporate bodies: Any properly empowered corporate body may actas 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 controlor management of a corporate Trustee effected by the act oromission of any party other than the directors or shareholdersof the Trustee or by the operation of law from the date of suchchange that Trustee shall cease to be the Trustee or one of theTrustees and shall not thereafter exercise any of the powersand discretions vested in a Trustee by this deed.(b) No reinstatement: Any change in any order or circumstanceswhich has disqualified any Trustee under this clause shall notresult in the removal of such disqualification of and thereinstatement of the Trustee concerned.(c) Trustee/Beneficiary: It is expressly declared a corporateTrustee may exercise all the powers and discretions vested inthat Trustee by this deed and by law notwithstanding suchexercise may in any way directly or indirectly benefit anyBeneficiary who has any interest (contingent or otherwise) inthat Trustee whether as director, officer, shareholder orotherwise however.Changes in the trusteeship of Kaahu[8] On 16 November 2017 Ricco died in a gliding accident.3 His death left Mariaand BOI as Kaahu's trustees.3 He left his shares in HTL to Li and the balance of his estate to Kaahu, which included a largecatamaran.[9] In late 2019 Mr Tyler concluded that BOI should resign as a trustee of Kaahufor a variety of reasons. Laila had questioned his competence as an accountant and Liwas a friend. Mr Tyler did not want to be involved in litigation between Maria andthe appellants, who had retained lawyers and were actively seeking information aboutRicco's estate and Kaahu. As a consequence Maria became the sole trustee. She wasrequired by cl 26 to appoint a new trustee.[10] After considering two possibilities,4 on the recommendation of a trustedadviser Maria consulted WRMK Lawyers who informed her that the Trust Deedpermitted her to appoint a corporate trustee, of which she could be a director,whereupon she could resign as a trustee. The lawyer who Maria had first approachedhad concerns about a sole corporate trustee controlled by Maria, considering that suchcontrol should be independent. However WRMK Lawyers confirmed their advice andMaria accepted it. KTL was incorporated with Maria and WRMK Trustees (2019) Ltdas equal shareholders. On 27 November 2019 KTL became a trustee of Kaahu andthat same day Maria resigned as a trustee.[11] In March 2020 KTL excluded Horowai and the appellants as beneficiariesof Kaahu. It distributed trust funds to Maria and appointed her as the beneficiary forwhom the trust would be held on vesting day.The High Court judgment[12] The appellants' challenge to Maria's appointment of KTL as sole trustee in herplace pleaded a single cause of action of fraud on a power and sought a declarationthat KTL's appointment was accordingly void. They contended that the power toappoint new trustees of Kaahu was a fiduciary power which Maria was required toexercise in good faith, for proper purposes, and in the best interests of the beneficiariesas a whole.4 A lawyer known to Maria, who was unable to assume the role as his firm did not act as trustees,and Perpetual Guardian.[13] The pleadings then asserted:21. On the true construction of the trust deed, including clauses 12.2(d),18.1 and 26.1, [Maria] was unable in any event to exercise her powerto appoint new trustees for her own benefit.522. [Maria's] purpose in replacing herself as sole trustee with a companyunder her control was to evade the limits in clause 18.1 of the trustdeed and in the law on her ability as trustee to use the trust propertyto benefit herself.23. In the circumstances pleaded above, [Maria's] appointment of [KTL]as trustee of the Kaahu Trust in her place complied with none of therequirements [to act in good faith, for proper purposes and in the bestinterests of the beneficiaries as a whole], was for her own benefit, andso was a fraud on her power of appointment.While denying those allegations Maria did not dispute that she was required to exercisethe appointment power in good faith and for a proper purpose. She maintained thatshe did so.[14] Downs J ruled that the evidence did not establish that Maria appointed KTLwith the purpose of preferring her own interests. Following a six-fold analysis ofthe evidence the Judge concluded:6[59] I summarise. I am not persuaded Maria appointed [KTL] to benefitherself 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. Maria found herself sole trustee.She looked to appoint a second trustee, encountered difficulties, and was thenadvised another course was permissible. Maria acted on that advice withoutconcealing contrary opinion. Maria was informed of her fiduciary obligationsand sought information relevant to their discharge. Direct challenge to theMarch deeds would fail. Maria impressed as sincere.[15] The Judge recorded that the closing address of Mr Bigio KC, on behalf of theappellants, involved some recalibration of the appellants' case, asserting that theappointment of KTL was a fraud on a power because Maria had sought "to takeexclusive control of the trust".7 Following an analysis of cls 26 and 27, the Judge5 Clause 12.2(d) limits the general power of the trustees to vary the terms of the Trust Deed(provided for in cl 12.1), by stipulating that they cannot vary the provisions of cl 26 specifying theidentity of any of the trustees. Clause 18.1 provides that any power or discretion vested in thetrustees may be exercised in favour of a trustee who is also a beneficiary by the other trustee ortrustees.6 High Court judgment, above n 1.7 At [40].concluded that the Trust Deed neither precluded, nor manifested an intention topreclude, control by a single corporate trustee with a beneficiary as director.8The Judge ruled that the fact Maria had done no more than something envisaged bythe Trust Deed, indeed expressly provided for by it, disposed of Mr Bigio'srecalibrated exclusive control argument.9The scope of the appeal[16] The primary grounds of appeal include:10(a) that the High Court erred in holding that the appointment of a trusteecompany controlled by a beneficiary as sole trustee of Kaahu was not afraud on the power to appoint trustees; and(b) that the High Court erred in holding that Maria exercised the power toappoint trustees for a purpose permitted by the Trust Deed, in goodfaith, and in the best interests of the beneficiaries as a whole.[17] The second ground is directed to the Judge's conclusion on the evidence thatMaria did not appoint KTL for the purpose of benefitting herself.11 However thefirst ground, while ostensibly advanced as a fraud on a power contention, has theflavour of an ultra vires argument. The particulars of that ground include:(i) When interpreted properly, the Kaahu Trust deed evidences anintention by the settlor (the donor of the power) to preclude a soletrustee-beneficiary from taking sole control of the Trust for his or herown benefit;(ii) The High Court erred in failing to reach a conclusion on the meaningof cl 18.1 of the deed and its relevance;(iii) The High Court erred in failing to consider the purpose of cls 12.2 and26.1, adopting instead an interpretation of the deed that leaves thoseclauses redundant;8 At [44].9 At [46]–[47].10 The third primary ground was an allegation that the Court erred in not appointing an independenttrustee.11 See [14] above.[18] When taxed with the suggestion that the first ground of appeal involved anultra vires challenge, Mr Bigio responded: the question is whether [this corporate trustee] is a qualifying corporatetrustee so on its face [Maria] has appointed an entity which is potentiallyeligible to be the trustee and could remain the trustee if the defect in theappointment were cured for example by the appointment of an independentdirector to sit alongside her for example. But if the corporate trustee is toretain this form we say the Trust Deed doesn't authorise a corporate trusteewith a sole director who is a beneficiary having complete control of thatcorporate entity. So on a continuum of what is allowed and what is a fraud ona power I cannot say it was never open to her to appoint a corporate trustee.The question is whether it was open to her to appoint one, this one in this form,which is purporting to administer the assets of the Trust.[19] It was apparent that Mr Bigio envisaged that the impugned appointment byMaria of a corporate trustee solely controlled by a beneficiary could be analysed eitheras an ultra vires act or as a fraud on a power. As he put it: ultimately the avenue or the characterisation is not material. What ismaterial is whether this trustee can conduct the affairs of this trust and eitheravenue would be open but we have followed the fraud on a power approach [20] We do not accept the proposition that the characterisation is not material.The distinction between an ultra vires act and fraud on a power was emphasised byLord Sumption in Eclairs Group Ltd v JKX Oil and Gas plc:12 the proper purpose rule is not concerned with excess of power by doing anact which is beyond the scope of the instrument creating it as a matter ofconstruction or implication. It is concerned with abuse of power, by doingacts which are within its scope but done for an improper reason. It followsthat the test is necessarily subjective.Similarly, in Kain v Hutton Tipping J expressed the point in this way:13A special power is one where the objects of the power are limited by the termsupon which the power is granted. An appointment to a person who is not apermitted object will usually represent an excessive execution of the power.The species of excessive execution known as a fraud on the power normallycomes about when the appointment is in form to an object but in substance toa non-object. In such a case the object is simply a vehicle through or by meansof whom the appointor's purpose of benefiting the non-object is carried out.Hence a fraud on a power is a clandestine excessive execution because it is12 Eclairs Group Ltd v JKX Oil and Gas plc [2015] UKSC 71, [2016] 3 All ER 641 at [15].Lord Sumption explained that the proper purpose rule has its origin in the equitable doctrineknown, in his view rather inappropriately, as the doctrine of fraud on a power.13 Kain v Hutton [2008] NZSC 61, [2008] 3 NZLR 589 at [47].regular on its face, but in reality is undertaken for a purpose not withinthe donor's mandate.[21] Invoking Eclairs Group Mr McBride, counsel for Maria, observed that it wasimplicit that the appellants accepted that Maria's appointment of KTL was intra vires,noting that one cannot abuse a power one does not have. However, drawing attentionto paragraph 21 of the statement of claim,14 he submitted that the pleading conflatesthe concepts of acts beyond the scope of the creating instrument and acts within itsscope but done for an improper purpose.[22] The statement of claim pleads a single cause of action which bears the heading"fraud on a power". As noted above, Mr Bigio acknowledged that that wasthe "approach" which the appellants had adopted. There is no pleading of analternative (and logically prior) cause of action to the effect that the appointment ofKTL was ultra vires. Given the presence in the Trust Deed of cl 27.2(c) that approachis readily understandable.[23] Restricting the claim to an alleged fraud on a power is also consistent with theway in which the claim was characterised by the appellants at an earlier stage inthe litigation. An application by Maria for discovery of documents, including thoserelating to the administration of Horowai, was advanced on the ground thatthe appellants had refused to provide discovery of Horowai's financial position, suchdocuments being directly relevant to the pleaded issues.[24] When declining that application, Campbell J observed that the appellants hadidentified a very narrow factual mast to which they had nailed their colours, namelythe allegation that Maria's purpose in replacing herself as sole trustee with KTL wasto evade the legal limits on her ability as trustee to use the trust property to benefitherself.15 Recording Mr McBride's expression of concern that at the substantivehearing the appellants might seek to go beyond their pleaded case, the Judge observedthat the appellants would face obvious difficulties in expanding their pleaded case attrial given the pains they had gone to on the discovery application to emphasise the14 See [13] above.15 Legler v Formannoij [2021] NZHC 737 at [28].narrowness of their case.16 Such difficulties now confront the appellants in theirattempt to advance their flip side ultra vires argument.[25] In the circumstances we consider that Mr McBride's protest, that the claim isconfined to an assertion of a fraud on the power of appointment, is fairly taken. It isnot open to the appellants to now attempt to "run the blind side" in the form of anargument that, irrespective of Maria's purpose in doing so, it was not permissible underthe Trust Deed to appoint a corporate trustee "in this form". Hence the sole issue onthis appeal is whether Maria's appointment of KTL (of which she was the sole director)was for an improper purpose.[26] However we think it appropriate to add that, in view of the terms of cl 27.2(c),we do not consider that an ultra vires argument would have availed the appellants.This case has parallels with Montevento Holdings Pty Ltd v Scaffidi Holdings Pty Ltd(No 2).17 In that case, Giuseppe Scaffidi commenced proceedings in theSupreme Court of Western Australia seeking a declaration that the appointment ofMontevento Holdings Pty Limited (Montevento), of which his brotherEugenio Scaffidi was the sole director and shareholder, as the sole trustee of a trustwas invalid. Giuseppe claimed that the appointment breached cl 11.03 of thetrust deed, which provided that "[i]f, and so long as any individual Appointor isa Beneficiary, that individual shall not be eligible to be appointed as a Trustee".18[27] At first instance it was held that there was no evidence that Eugenio, abeneficiary of the trust, had appointed Montevento as trustee for an improper purpose.The Judge also rejected the argument that the appointment of Montevento as the soletrustee of the trust was in breach of cl 11.03.19 By a majority the Western AustralianCourt of Appeal allowed Giuseppe's appeal, making orders which included adeclaration that the appointment of Montevento as the sole trustee of the trust wasinvalid because it breached cl 11.03.20 Relying on the natural and ordinary meaning16 At [38].17 Montevento Holdings Pty Ltd v Scaffidi Holdings Pty Ltd (No 2) [2010] WASC 180.18 At [23].19 At [31]–[43].20 Scaffidi v Montevento Holdings Pty Ltd [2011] WASCA 146, (2011) 6 ASTLR 446 at [167] and[169].of the words of cl 11.03 Buss JA dissented, holding that the language did not extendto prohibit the appointment of a trustee which is a corporation.21[28] The High Court of Australia favoured the interpretation of Buss JA and allowedthe appeal, ruling that when cl 11.03 was read in the context of the whole document,which repeatedly distinguished between an individual in the sense of a natural personand a corporation, the clause must be read as indicated by Buss JA.22 The Courtrejected the argument that the class of persons excluded from appointment to the officeof trustee extended to any corporate person whose powers, directions or duties astrustee would be exclusively exercised by the individual appointor.23 Given the termsof cl 27.2(c) of the Trust Deed, we consider that the present case invites the sameconclusion.Was Maria's purpose in the appointment of KTL improper?[29] As this Court explained in Wong v Burt:24 the sine qua non which makes the exercise of a discretion or power"improper" is the improper intention of the person exercising it. The centralprinciple is that if the power is exercised with the intention of benefiting somenon-object of the discretionary power, whether that person is the personexercising it, or anybody else for that matter, the exercise is void. If, on theother hand, there is no such improper intention, even although the exercisedoes in fact benefit a non-object, it is valid.As noted above, the test for establishing fraud on a power is necessarily subjective andthe relevant point in time for consideration is the date of exercise of the power.25[30] Maria gave detailed evidence concerning the two trusts, the acrimony withRicco's children following his death and the changes to the Kaahu trustees.She explained that after Ricco's death she received very aggressive letters fromLaila's lawyers concerning Ricco's will, his estate and the administration of Kaahu.This caused her great personal stress and unhappiness. She related the sequence of21 At [92]–[93].22 Montevento Holdings Pty Ltd v Scaffidi [2012] HCA 48, (2012) 246 CLR 325 at [22] and [25].23 At [24]–[25].24 Wong v Burt [2005] 1 NZLR 91 (CA) at [30], citing Vatcher v Paull [1915] AC 372 (PC) at 378per Lord Parker.25 Eclairs Group Ltd v JKX Oil and Gas plc, above n 12, at [15], referring to Duke of Portland vTopham [1864] 11 HLC 32 at 54.the advice which she received from WRMK Lawyers, observing that the appointmentof a sole corporate trustee appealed to her as she thought it would simplify mattersrelating to Kaahu.[31] Although it was not a matter explored in the High Court judgment, we considerthat Maria's use of the word "simplify" likely contemplated the difference of viewwhich emerged between her and Ricco's children concerning the future ofthe Mokomoko property in Russell, where Maria and Ricco had resided. As Mariaexplained:62. I have, for some time, wanted to sell the Mokomoko property andwant to move to Waiheke Island. I have friends at Waiheke, and I feelthat the Waiheke environment suits me and my lifestyle well.63. The Mokomoko property is too large for me alone, requires significantupkeep and maintenance, and I feel isolated in Russell. I stay atWaiheke or in Auckland several times a month for various reasons,and find the long drive very tiring.[32] A sale of Mokomoko was opposed by the appellants. As their lawyer explainedin later correspondence:This house was designed and built by their father. It was funded from legacyLegler family assets. They consider that, as a legacy asset, it should beretained in the trust for future generations of Ricco's family. They are notunmindful of your client's desire for alternative accommodation.They believe that that can be provided for from the Trust's other resources.[33] Maria was dependent on Kaahu for her accommodation and financial support.We consider that a motivation to take steps to control Kaahu so as to pursue theobjective of rendering her living arrangements more congenial would not have beenobjectionable as comprising an improper purpose. Hence this is not a case where bydint of the absence of a legitimate purpose an inference of the presence of an improperpurpose could be drawn.[34] We have noted above26 the Judge's recognition of the evolution of Maria'salleged improper purpose in exercising her power of appointment. However, as26 At [15] above. See High Court judgment, above n 1, at [38]–[40], where the Judge noted that theallegation began as one that Maria acted for the purpose of preferring her own interests then, bythe time that closing arguments were delivered, became one that she acted for the purpose of takingexclusive control of Kaahu.Mr McBride observed, it is significant that there was no cross-examination of Mariaconcerning her intentions when she appointed KTL. It was not, at least expressly,suggested to her that she intended either to improperly promote her own interests, orto take control of Kaahu or evade restrictions under the Trust Deed. In thesecircumstances the Judge's acceptance of Maria's evidence is readily understandable,particularly against the background of the tension concerning her residentialarrangements.[35] Indeed it is fair to say that the way in which the appellants' case was formulateddid not involve a direct attack on Maria's subjective purpose. Mr McBride first madethis point with reference to the pleading, which he characterised as endeavouring todevelop an overriding purpose for Kaahu, based on an artificial construction ofthe Trust Deed, and culminating in the proposition that Maria's actions contravenedsuch overall object, thereby amounting to a fraud on a power. The same theme wasapparent in the appellants' submissions, which were summarised in this way:Summary49. Given (a) the fiduciary nature of the power and (b) the provisions ofthe trust deed referred to above, a trustee who uses their power ofappointment to take control of the trust, thereby defeating the intendedeffect of clauses 18.1 and/or 26.1(b) and benefitting themselves,would be acting for an improper purpose, and so committing a fraudon a power.[36] However, as Mr McBride submitted, a claimant still needs to prove someimproper, collateral, intention that offends against the objects of the trust, such as ananticipated breach of trust by the new trustee. He submitted, and we agree, that it is alogical fallacy to contend that strict compliance with the terms of the Trust Deed canamount to a fraud on a power, absent some further evidence of intention to actimproperly.[37] Despite the extensive citation of authority by both sides in attempts to findparallels in other judgments, this appeal turns on whether the High Court erred in itsconclusion that the appellants failed to demonstrate that in exercising the power toappoint KTL Maria was motivated by an improper purpose.[38] From our review of the evidence and the contemporaneous record we are notsatisfied there was any error in the Judge's conclusion that Maria was not so motivated.As the Judge recorded, WRMK Lawyers gave explicit advice to Maria that her abilityto make decisions was always subject to the overarching duty of a trustee to act in thebest interests of the beneficiaries,27 a point which was underscored in the course ofMaria's cross-examination. We consider that it is apparent that Maria understood andaccepted that advice. In the course of the events that followed, Maria obtained andacted upon further advice of WRMK Lawyers.[39] Unlike the Judge, we do not consider that subsequent decisions, made with thebenefit of such advice, to remove the appellants as beneficiaries should be taken intoaccount in the determination of Maria's subjective motivation at the date of theexercise of the power of appointment.28 The validity of those later actions has neverbeen the subject of legal challenge. If a challenge were to be made, it would fall to beassessed by reference to different principles. In any event the Judge considered,correctly in our view, that the totality of the evidence supported the conclusion thatMaria was not actuated by an improper purpose.29[40] In these circumstances we do not consider that it is necessary or appropriate toentertain the appellants' request for the appointment of an independent trustee, eitherin place of Maria or in addition to her.Result[41] The appeal is dismissed.[42] The appellants must pay the respondents one set of costs for a standard appealon a band A basis and usual disbursements.27 High Court judgment, above n 1, at [53].28 At [56]–[58], discussing the events following KTL's appointment.29 At [59].CULL JTable of ContentsPara NoNon-compliance with the Trust Deed [45]Improper purpose [56]The March decisions [73]Conclusion [78]Observation [79][43] I would allow the appeal. I disagree with the majority that Maria was notactuated by an improper purpose and that there was no exercise of a fraud on the powerof appointment.[44] There are three reasons for my dissent. First, the appointment of the companyKTL as sole trustee was not compliant with the terms of the trust and the intentionevidenced in the Trust Deed. Second, I consider that Maria was motivated by animproper purpose in the appointment of KTL as sole trustee to gain control of the trustfor her benefit exclusively. Third, I consider that the decision to remove thebeneficiaries from Kaahu cannot be evaluated separately from Maria's exercise of herpower of appointment.Non-compliance with the Trust Deed[45] The Trust Deed establishing Kaahu contains a number of provisions governingnon-corporate trustees. Those provisions constrain self-dealing, require unanimousdecisions of trustees, and mandate the appointment of an independent trustee.[46] Clause 18.1 constrains a trustee from exercising their power to benefitthemselves. It provides that where there are two trustees, only the other trustee canbenefit the co-trustee. Clause 18.1 provides:18.1 Any power or discretion vested in the Trustees may be exercised infavour of a Trustee who is also a Beneficiary by the other Trustee orTrustees.[47] Clause 8.3 requires unanimity of trustee decisions. It states that "[t]he rule oflaw specifying all decisions of trustees shall be unanimous is applicable to the Trust."Clause 26.1(a) precludes a person acting as a sole trustee, while cl 26.1(b) providesthat the trustees must always include at least one person who is not a beneficiary norin a relationship with, or a relative of, a beneficiary or a trustee.[48] Those clauses reinforce the intention evidenced in the Trust Deed that a soleindividual trustee must have the restraint of an independent trustee to prevent anindividual, exercising his or her trustee powers, from benefitting themselves.However, cl 27 provides that a corporate body may be a sole trustee and if it is, thenit may benefit any beneficiary, notwithstanding that the beneficiary is a "director,officer, shareholder or otherwise" of the company. The wording of cl 27.1 is:Corporate bodies: Any properly empowered corporate body may act as thesole Trustee or as one of two or more corporate Trustees.[49] The appointment, therefore, of a sole corporate trustee is permissible undercl 27.1. However, in my view the Trust Deed precludes the appointment of a solecorporate trustee, such as KTL, under the sole control of a beneficiary as the onlydirector of the company. There are three reasons for my view.[50] First, the interpretation of the wording in cl 27.1 carefully distinguishes thetype of corporate body to be appointed as sole trustee. To be a sole trustee, it must bea "properly empowered corporate body". The "properly empowered corporate body"is not defined but is differently described in cl 27.1 to "corporate [t]rustees".I consider the words "properly empowered corporate body" likely refer to a trusteecompany such as Perpetual Guardian or Public Trust or a trustee company with a boardof directors and shareholders. On the wording of cl 27.1, such a company can be eithera sole trustee or a trustee in addition to two or more "corporate [t]rustees".The distinction in this wording suggests a difference between a corporate trustee, suchas KTL, and a "properly empowered corporate body," such as a professional trustcompany. This interpretation is supported by the reference in cl 27.2(a) to "directorsor shareholders of the Trustee," which suggests there should be more than one directorof the corporate trustee.[51] Second, such an interpretation is consistent with the other provisions ofthe Trust Deed requiring an independent trustee who is unrelated to a beneficiary andconstraining the exercise of powers for self-benefit. There is no logical explanationfor allowing the requirement for an independent and unrelated trustee to becircumvented by the appointment of a company, which the appointer alone controls,unless it is a corporate body with a board of directors. Thus cl 27.2(c), allowing anybeneficiary who is a shareholder/director of the corporate trustee to benefit from itsdecisions, can be read consistently with the intent of cl 26.1(b), that the trustees mustalways include one person who is not a beneficiary or related to/in a relationship witheither a trustee or a beneficiary, by requiring that there be more than one soleshareholder/director of the corporate trustee.[52] Third, it is highly relevant in my view that Mr McBrearty, the solicitor whodrafted the Kaahu Trust Deed in 2008, who had acted for HTL, and who was acting inrespect of Ricco's estate, expressed his concerns to Maria when told she was going toengage new solicitors and informed of her likely use of a sole corporate trustee in hercontrol.30 He said he had "some concerns" about a corporate trustee controlled byMaria. He advised her that if she were to form a company, "the control of the companymust be given to someone other than yourself" and control should be independent.31[53] Maria forwarded Mr McBrearty's email to her new solicitors, WRMKLawyers, and was advised that their advice stands because the Trust Deed excludesthe requirement for an independent trustee if a corporate trustee is the sole trustee.On 7 November 2019, Mr McBrearty wrote to WRMK Lawyers pointing out thatwhile a corporate trustee was "technically" available, he believed that "the intent ofthe trust document is that there will at all times be an independent trustee".[54] If there were any doubt about the requisite intention in the drafting of theTrust Deed, the drafting solicitor himself gave advice to Maria. He was the personwith "all the background knowledge" which was available at the time Kaahuwas settled.32 He was not alone. Another solicitor, Mr Jordan, who had acted for theKaahu trustees (including Maria), also expressed that an independent trustee was30 High Court judgment, above n 1, at [15] and [19]–[20].31 At [20].32 See Firm PI 1 Ltd v Zurich Australian Insurance Ltd [2014] NZSC 147, [2015] 1 NZLR 432 at[60]–[63]; and see generally Powell v Powell [2015] NZCA 133, [2015] NZAR 1886 at [53]–[55],regarding the applicability of principles of contractual interpretation to express trust deeds.required.33 Maria chose not to follow Mr McBrearty's or Mr Jordan's advice.I disagree, therefore, with the finding of the High Court Judge that Maria did notcommit a fraud on the power by appointing a corporate trustee subject to her controlbecause she "did no more than something envisaged by the deed, indeed, expresslyprovided for by it".34[55] I accept the appellants' submission that, given the fiduciary nature of the powerof appointment and the provisions of the Trust Deed as set out above, Maria has usedher power of appointment to take control of the trust, thereby defeating the intendedeffect of cl 18.1 and/or cls 26.1(b) and 27.1 to enable her to self-benefit. This is animproper purpose and constitutes a fraud on a power.Improper purpose[56] I depart from the majority's view that the appellants failed to demonstrate that,in exercising the power to appoint KTL, Maria was motivated by an improper purpose.[57] Maria accepted in re-examination that Kaahu was ultimately for the children'sbenefit on the death of her and Ricco. She said:That was the whole purpose of the Kaahu Trust. It was set up for Ricco and Ibut at our death it would go to the children and I still wanted that to happen.[58] When Maria first met the solicitors from WRMK Lawyers, however, she toldthem "it was likely the children would litigate".35 The Judge observed that whenMaria was told the Trust Deed permitted her to appoint a corporate trustee, of whichshe could be a director, then herself resign as a trustee, "[t]he advice was attractive,for, Maria wanted to 'simplify matters' in relation to Kaahu".36 Maria acknowledgedin evidence that she wanted to have a "clean break" from Ricco's children and to severthe link with them. She agreed in cross-examination that she believed they"had enough" and had "been ungrateful" for what she had done for them.33 This was communicated in an email dated 25 October 2018 to Mr Clarke, Maria's financialadviser: "The Kaahu Trust needs to have an independent trustee who is not a beneficiary"; and ina letter of 1 November 2018: "As you will be aware the trust must have and retain an independenttrustee."34 High Court judgment, above n 1, at [46].35 At [18].36 At [18].[59] From the sequence of events from October 2019 to March 2020, I consider thatMaria failed to act in accordance with Kaahu's purpose, as she articulated it.She chose the options of appointing KTL as sole trustee and herself as sole director ofthat company, with the intention of controlling the trust exclusively to benefit herselfto the exclusion of the other beneficiaries. The correspondence and its sequence werethe subject of cross-examination of Maria. It appears the key dates are:4 November 2019 Maria's solicitor, Mr McBrearty, emailed his concerns about acorporate trustee being controlled by Maria and told her therewas a requirement for an independent trustee, if a corporatetrustee were to be the sole trustee.WRMK Lawyers, the new solicitors, advised that noindependent trustee was required if a corporate trustee were thesole trustee.7 November 2019 Mr McBrearty wrote to Maria's new solicitors, saying that whilea sole corporate trustee was technically available, the intent ofthe trust document was that there would at all times be anindependent trustee.WRMK Lawyers assured Maria their advice was correct.WRMK Lawyers provided a letter giving her three options ifshe controlled the sole trustee company. Those options wereresettlement of Kaahu's assets onto a new trust, gifting some orall of the assets to any one of the beneficiaries, including herself,and/or excluding any person as a beneficiary of Kaahu.21 November 2019 WRMK Lawyers sent Maria a letter seeking instructions for therequest of financial statements for Horowai. WRMK Lawyersadvised Maria she would be the "sole director of that companyand make all relevant decisions". Maria agreed to this courseof action.27 November 2019 Maria resigned as trustee of Kaahu and KTL was appointed assole trustee. Maria became the sole director of KTL and one ofits shareholders. The other shareholder was WRMK Trustees(2019) Ltd — her solicitors' trustee company.27 February 2020 The appellants' solicitors raised concerns about Maria's soledirectorship of the sole trustee.28 February 2020 WRMK Lawyers wrote to Maria asking for a decision on whatto do with the assets of KTL.March 2020 Maria executed the "March deeds" whereby KTL removed theother beneficiaries, distributed the trust funds to Maria, andappointed Maria as the sole beneficiary on vesting day.[60] The 7 November 2019 letter from WRMK Lawyers to Maria demonstrates theimproper purpose which motivated Maria in exercising her power of appointment.The letter explained the structuring of KTL and the options available to Maria, onceshe appointed KTL and became "the sole director of the sole trustee". It also showsthat choosing those options from the outset was dependent on the exercise of her powerof appointment of KTL. The wording of the letter is instructive:You will be the sole director of the sole trustee (Kaahu Trustee Limited) of theKaahu Trust. The Trustee (through you) has a number of powers, includingto:1. give some or all of the assets of the Trust to any one or more of thebeneficiaries (including yourself); and/or2. transfer some or all of the assets of the Trust to a new Trust (called"resettlement") for the benefit of any one (or more) of the currentbeneficiaries (including you); and/or3. to exclude any person as a beneficiary of the Trust.You will have the ability to make all decisions affecting the Kaahu Trust.However, 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 needsand circumstances of each of the beneficiaries, including Ricco's children andyourself.(Emphasis added.)[61] It is clear from this correspondence that the stated purpose for the appointmentof KTL was to give Maria sole control of Kaahu and its assets, highlighting that shewould have the ability to make all decisions affecting Kaahu. Maria chose to instructWRMK Lawyers as her solicitors and followed their advice on the appointmentof KTL.[62] Once in control, Maria made decisions as director of KTL, choosing the optionof excluding the other beneficiaries of the trust and deciding to "give all of theassets of the [t]rust" to herself, as her solicitor suggested. KTL's actions are describedin the High Court judgment:37[25] In March 2020, [KTL] excluded Horowai and the children asbeneficiaries; distributed trust funds to Maria; and appointed Maria as thebeneficiary for whom the trust would be held come vesting day.[63] In rejecting the submission that Maria appointed the company to prefer herown interests, Downs J found that Maria sought and acted upon legal advice inappointing KTL and was advised of her fiduciary responsibilities as director of thesole corporate trustee.38 I do not agree with this reasoning.[64] First, the fact that Maria took and acted on legal advice is irrelevant to animproper exercise of the power to appoint. Legal advice does not prevent her actionsbeing found to be a fraud on a power. In Wong v Burt, the respondents similarly soughtand acted on advice, but this Court determined that the trustees' scheme amounted tofraud on a power despite the "fraud" being done altruistically, by the distribution offunds to a non-beneficiary.39 In this case, Maria's evidence that she intended to leavesomething from the trust to the children upon her death is equally irrelevant to whetheror not the exercise of her appointment power was lawful. It is clear that her intentionwas to appoint a vehicle through which she not only could maintain full control ofKaahu but, more problematically, divert the trust assets to herself alone and excludethe beneficiaries.[65] Second, although Maria was advised of her fiduciary responsibilities, she didnot follow that advice. In fact, the written advice from WRMK Lawyers on herfiduciary duties to the beneficiaries was contradicted by the options offered to Mariato gain control of Kaahu and self-benefit. In gaining control of the trust by the KTL37 High Court judgment, above n 1 (footnote omitted).38 At [51]–[52] and [59].39 Wong v Burt, above n 24, at [41]–[42] and [55]–[58].appointment, Maria has derived all the benefit of the trust herself. There are no otherbeneficiaries.[66] Third, while it is correct that the former trustee Mr Tyler did not want to remainas the BOI independent trustee, it did not justify Maria's decision to fail to appoint anindependent trustee. As the 7 November 2019 letter demonstrates, the reason for hernot doing so was Maria's decision to gain exclusive control of Kaahu. That is theimproper purpose which motivated Maria to appoint KTL. Whether Maria became asole trustee "through circumstance, not exploit" is irrelevant.40[67] I am therefore unable to agree with the majority that the submission that Mariaappointed KTL to prefer her interests fails on the facts. The deliberate decision madeby Maria to take the advice of new solicitors in early November 2019, contrary to theadvice and concerns of both the solicitor who drafted the Trust Deed and the trustees'solicitor, evinces her intention to gain exclusive control of Kaahu to the detriment ofthe other beneficiaries, contrary to Kaahu's purpose.[68] I consider it is no answer that KTL's appointment as a corporate trusteeseparates its actions from those of Maria. KTL cannot act in a vacuum even though itis a corporate body and separate legal entity. Its decisions and actions are those of thesole director, who is the ultimate sole beneficiary. Maria cannot be seen as separatefrom KTL, particularly as she and her solicitor's trustee company are the onlyshareholders of KTL and she is the sole director. In short, actions cannot be taken byKTL without Maria's decision and approval.41[69] This case is distinguishable from Montevento Holdings Pty Ltd v Scaffidi,42where the High Court of Australia upheld the construction of a clause of a trust deedwhich prevented any individual appointor who was a beneficiary from being appointed40 High Court judgment, above n 1, at [49].41 Compare Trevor Ivory Ltd v Anderson [1992] 2 NZLR 517 (CA) at 524. See s 8 of the Trusts Act2019 for the High Court's supervisory function over trusts for the welfare of beneficiaries andClarke v Karaitiana [2011] NZCA 154 at [38]. See for example Jacomb v Jacomb [2020] NZHC1764, where the existing two trustees/beneficiaries became the directors and sole shareholders ofthe third, corporate, trustee. This state of affairs was held not to be compliant with theindependence restrictions in the trust deed because the corporate trustee was incapable ofproviding a third voice and was indistinguishable from Mr and Mrs Jacomb during the period inwhich they were the directors and sole shareholders of the company.42 Montevento Holdings Pty Ltd v Scaffidi, above n 22.as trustee, and affirmed that a company whose sole director and shareholder was abeneficiary and the appointor of the trust could be appointed as trustee. The Courtheld that the appointment of a corporate trustee conformed with the requirement in thetrust deed that prohibited an individual (a natural person) from being a trustee.43As here, the deed drew a distinction between individual and corporate trustees.The Supreme Court of Western Australia, whose conclusion as to the construction ofthe clause was upheld by the High Court, also observed that the corporate trustee hadadvanced the welfare of the trust and the interests of the beneficiaries by makingefforts to identify, collect and preserve the assets of the trust.44[70] Putting aside the difference in the construction of the respective trust deedprovisions, the corporate trustee's actions in Montevento contrast markedly with thoseof Maria. Unlike Montevento, even if Maria were legitimately appointed as the soletrustee in control, she was clearly not acting in the interests of the beneficiaries otherthan herself. Maria accepted that the object of Kaahu was to leave the trust fund tothe discretionary beneficiaries, but she took deliberate steps not to do so. Maria hasnot acted in the interests of the other beneficiaries or preserved the assets of the trust.[71] I consider therefore that Maria was motivated by an improper purpose in theexercise of her appointment power from the outset. The appointment of KTL gave hersole control of Kaahu and, as envisaged at the time, enabled her to choose the optionof removing the beneficiaries and benefitting herself.The March decisions[72] The third issue is whether the decisions made by Maria in March 2020 arerelevant to the exercise of the appointment power in November 2021. I consider theexercise of the appointment power is inextricably linked to the options Maria choseand implemented in March 2020. I therefore depart from the majority view, that theremoval of the other beneficiaries should not be taken into account in the43 At [22] and [25].44 Montevento Holdings Pty Ltd v Scaffidi Holdings Pty Ltd (No 2), above n 17, at [41].See Montevento Holdings Pty Ltd v Scaffidi, above n 22, at [21], where the High Court of Australiamade note of those observations.determination of Maria's subjective motivation at the point of exercise of the powerof appointment.45[73] It is significant, in my view, that it was WRMK Lawyers who wrote to Mariaon 28 February 2020, asking her for a decision on what to do with the assets of Kaahu.This request for instructions reinforces that the purpose of the appointment of KTL assole trustee, with Maria as sole director, was specially designed to enable Maria toexercise the options proffered by her solicitors. The request also followed receipt theday before of a letter from the appellants' solicitors raising concerns about Maria'ssole directorship of the sole trustee. There was no other reason for Maria to decidewhat to do with the assets of KTL, other than completing the choice of WRMKLawyers' options set out in their letter of 7 November 2019, all of which enabled herto self-benefit from the trust. This was an integral part of the structuring of KTL andthe plan formed for Maria's exercise of the power of appointment.[74] I do not accept therefore that Maria's exercise of the appointment power isseparate from her March decisions. Her use of the appointment power was the meansof achieving her purpose to gain sole control of the trust and make decisions, as hersolicitor advised, to "give" herself "all of the assets of the Trust".46 This purpose wasnot in the best interests of the beneficiaries, except her, and was improper.[75] This Court in New Zealand Māori Council v Foulkes observed:47 the power to appoint new trustees is of a fiduciary nature because thesubject matter of the power is the office of the trustee. That office lies at thecore of the trust and carries fundamental and onerous obligations to act in thebest interests of the beneficiaries as a whole to the exclusion of the trustee'sown interest.[76] As noted, Maria exercised the appointment power after she had received advicefrom WRMK Lawyers that appointing KTL as sole corporate trustee and herself as itsdirector gave her the exclusive decision-making power over Kaahu. That advice andher acceptance of it was proximate in time both to the appointment of KTL on27 November 2019 and her decisions taken in March 2020, which completed the plan45 At [39] above.46 See [60] above.47 New Zealand Māori Council v Foulkes [2015] NZCA 552, [2016] 2 NZLR 337 at [22].for the exercise of the appointment power. I consider Maria had an improper purposewhen exercising that power of appointment and the consequential removal of thebeneficiaries is evidence of that.Conclusion[77] For the reasons above, I would uphold the appeal and find that Maria wasactuated by an improper purpose in the exercise of her power of appointment and hascommitted a fraud on the power of appointment.Observation[78] Although it was not pleaded or submitted before us, there is a further potentialconsequence of the March decisions and that is whether Kaahu still exists. No trustcan exist where the legal and equitable property of the trust is vested in one person,who is a trustee and a beneficiary. "A cannot be trustee for A".48 The authors ofUnderhill and Hayton: Law of Trusts and Trustees describe that where one personbecomes the absolute beneficial owner of a trust, the trust no longer exists: 49A settlor may be the beneficiary or one of the beneficiaries under the trusthe creates. A trustee may also be a beneficiary, but a sole trustee cannot holdon trust for himself as sole beneficiary since it is impossible to have rights andduties at home in one person. No trust can exist where the entire property,legal and equitable, is vested in one person. Indeed, no separate equitableinterest exists where O is absolute legal beneficial owner [79] Maria is a controlling sole trustee, being the sole director of KTL, and hersolicitor's trustee company and herself are shareholders. Her solicitors must followMaria's instructions. Kaahu's fund has been distributed to Maria, the otherbeneficiaries have been removed, and all that is left is the corporate trustee, which isgoverned by Maria only. Maria is the owner of the trust funds and property on vestingday with all other beneficiaries being removed. She is therefore the absolute legalbeneficial owner of Kaahu's assets. KTL has no fiduciary duties owed to anyone other48 Re Cook, Beck v Grant [1948] Ch 212 at 215.49 Paul Matthews and others Underhill and Hayton: Law of Trusts and Trustees (20th ed, LexisNexis,London, 2022) at [16.4] (footnotes omitted).than Maria, who makes the decisions for KTL exclusively. No separate equitableinterests exist any longer. I question whether her actions have vitiated Kaahu.Solicitors:TGT Legal, Auckland for AppellantsMartelli McKegg, Auckland for Respondents