Vervoort v Spears [2015] NZHC 808 (23 April 2015)

	Home \| Databases \| WorldLII \| Search \| Feedback High Court of New Zealand Decisions

BETWEEN	EMILIE VERVOORT Plaintiff
AND	RAYMOND DENNIS SPEARS and WILLIAM DUFFY as trustees of the William Duffy Family Trust First Defendants WILLIAM DUFFY Second Defendant

Hearing:	18 September 2014. Further submissions 19 September 2014, 5 February 2015, 9 March 2015
Appearances:	P Finnigan for the Plaintiff No appearance for the Defendants
_Judgment:	_{23 April 2015}

This judgment was delivered by me on Thursday 23 April 2015 at 4.00 pm pursuant to Rule 11.5 of the High Court Rules.

[1] Ms Vervoort seeks orders granting her an interest in assets held by her estranged partner, Mr Duffy (the second defendant), and by his family trust (the trustees of which are the first defendants). Mr Duffy lives in Fiji and that is where much of the property at issue is located.

[2] In part because of the Fijian connection the defendants challenged this Court’s jurisdiction to hear the claims. That challenge was rejected by Associate Judge Sargisson in March 2013.¹Rather than seeking a review of that decision there was an unsuccessful attempt to appeal to the Court of Appeal.²Since that time (late

2013) the respondents have taken no further steps to defend the claim, which therefore proceeded before me essentially by way of formal proof.³

valiant efforts on her behalf, her claims bristle with legal and factual difficulties.

[4] The somewhat troubled relationship between Ms Vervoort and Mr Duffy lasted from 1999 until 2011, although there were a series of separations and reconciliations during that time. Ms Vervoort alleges Mr Duffy has problems with alcohol and that he physically and mentally abused her. There are no children of the relationship.

[5] On 1 August 1994, well before the relationship began, Mr Duffy settled the William Duffy Family Trust (the trust). The trustees of the trust were named as the first defendants in these proceedings. Mr Russell Forrest was replaced as trustee by Mr Raymond Spears in December 2010.⁴

[6] Ms Vervoort claims an interest in the assets of this trust, the majority of which are situated in Fiji, on the basis of contributions she says she made to the

²_{The Court of Appeal declined jurisdiction: Duffy v
Vervoort [2013] NZCA 522.}

property. The current financial statements of the trust are unavailable, but it appears it has approximately $7 million in assets. Extensive affidavit evidence has been filed concerning the trust assets as well as assets held by Mr Duffy personally.

[7] After Ms Vervoort left Mr Duffy in January 2010, she commenced proceedings in the Family Court seeking maintenance and making relationship property claims. It seems that Ms Vervoort and Mr Duffy briefly reconciled during that year and in that context Mr Duffy made her various promises, including that he would marry her and that she would receive a “fair” settlement in relation to relationship property issues.

[8] On 17 November 2010 Ms Vervoort and Mr Duffy entered into a formal Deed of Mutual Settlement (the first agreement) under which Ms Vervoort was to receive the proceeds of the sale of a property at Orewa and $20,000. It appears that some payments were made to her under this agreement.

[9] Both Ms Vervoort’s original Family Court proceedings were dismissed for want of prosecution in November 2010. My understanding is that she did not pursue the claims because of the reconciliation and the first agreement.

[10] On 6 April 2011, however, Ms Vervoort and Mr Duffy entered into a further agreement entitled “Deed of Release” (the second agreement) which was said to supersede and replace the first agreement. Under the second agreement Mr Duffy paid Ms Vervoort $327,002.17 (which constituted the proceeds of the sale of the Orewa property) in full and final payment of “her claim against Duffy in respect to her allegations that she has some rights for continuing maintenance or rights to the

property owned by Duffy or his trust”.⁵The Deed also contained a covenant by Ms

Vervoort that she would not bring any further such claims and or claims against Mr Duffy in relation to allegations of domestic violence she had made against him. The Deed recorded an acknowledgment by Ms Vervoort that she had received and

⁵That payment was made in full very shortly after the second agreement was executed. It appears that a large proportion of this settlement was remitted to her mother to repay a long outstanding loan of $100,000 made in 1997, as well as other debts.

[11] The relationship ended (again) in July 2011. Ms Vervoort (again) filed proceedings against Mr Duffy in the Family Court. It appears proceedings were also commenced in Fiji. Again, Ms Vervoort claimed an interest in the property held by Mr Duffy personally and those held by his trust.

[12] In 2011 Ms Vervoort also commenced further proceedings in this Court, seeking equitable relief.

[13] Ms Vervoort necessarily contended that she was not barred from bringing those proceedings because the second agreement is voidable on the grounds of unconscionability, duress or undue influence.

[14] The trustees applied to have the claims against the trust dismissed on the bases that the Court had been deprived of jurisdiction because the second agreement was entered into in Fiji, was a complete answer to the plaintiff’s claims, and the property alleged to be relationship property was not held by Mr Duffy personally but by his trust. As I have said, that application was dismissed by Associate Judge Sargisson who found that New Zealand was the appropriate forum.⁶She found that while Ms Vervoort did not have a seriously arguable case based on constructive trust, it was seriously arguable that the trust was a sham, in which case the trust property

might be relationship property for the purposes of the Property (Relationships) Act

1976 (the Act). Her judgment records that it was conceded by Mr Duffy’s counsel at the hearing that it was at least arguable that the second agreement was voidable for duress.

[15] In January 2014 Ms Vervoort successfully applied to transfer the Family Court proceedings to this Court.⁷On 5 March the transferred Family Court proceedings (claiming an entitlement to relationship property under the Act and maintenance under the Family Proceedings Act 1980) were consolidated with the

[16] As I have said, Ms Vervoort claims an interest in assets held both by Mr Duffy personally and by his trust. Extensive affidavit evidence has been filed, including from the accountant of the trust, Mrs Anne Nye. She deposes that as at 31

March 2012 the trust had $904,835 in cash, $6,954,204 in assets and $375,068 in liabilities.

[17] The cash appears to comprise the proceeds of the sale of a property in Coatesville (which had also been owned by the Trust) in 2008, the sale of two other Auckland apartments, as well as the proceeds of the sale of shares in a company, Curries Proprietary Limited, in July 2010.⁸

[18] It seems the trust also held 999 shares in Moduco Ltd and 2,094,694 shares in United Container Services Ltd (UCL). The UCL shares alone are said to be worth nearly $2,500,000. It appears these shares were sold on 29 July 2013. There are also two company loans on the books.

[19] The trust’s fixed assets (valued at $3,410,628) include an apartment at Denerau as well as another property there worth $2,380,438 (6 Marina Point, where Mr Duffy lives). In addition there are three cars (a Toyota Prada, a BMW, and a Mitsubishi Outlander) valued at approximately $170,000 and a yacht named Slainje that was bought for $650,000. The yacht has been valued more recently at $228,830, and the Lot 6 Marina Point property is now valued at $3,280,000. Mr Duffy has refused to permit valuers access to the property or to inspect other items for the purposes of this hearing.

[20] Ms Vervoort claims to have made direct and indirect contributions to the trust's property in the reasonable expectation of an interest in the same. She also

_{relevantly claims in the alternative that Mr Duffy treated the trust as
a sham.}

⁸The proceeds of the sale in 2011 of the property in Orewa (which had been purchased by the

Trust in 2007) have already been paid to Ms Vervoort under the second agreement.

[21] Mr Duffy owns some other items personally. There is a Harley Davidson motor cycle and a jet ski, said to be worth $20,000 and $4,000 each. There is a Mitsubishi Pajero valued at $25,000.

[22] Ms Vervoort has also filed an affidavit listing household items that were taken by Mr Duffy from New Zealand to Fiji and estimated to be worth $67,000. There are also said to be other chattels at the 6 Marina Point property and in the yacht. These are not valued. She also claims the value of two wedding dresses she purchased for $943 in reliance on Mr Duffy’s promise to marry her.

[23] Ms Vervoort also claims maintenance from Mr Duffy. She puts her weekly budget to live in New Zealand at $1,425.00.

[24] In her third amended statement of claim Ms Vervoort advances four causes of action:

(a) That there is a constructive trust over the assets of the trust, or alternatively Mr Duffy is estopped from denying his promise of a “fair” settlement.

(b) In the alternative, that the trust is a sham trust or is otherwise illusory and is therefore void.

[25] As pleaded, the claim is confusing. Ordering the claims logically, the first issue to be determined is (c) above, namely, whether the plaintiff is entitled to make any claim at all. That is because all her claims are at present barred by reason of either the second or the first agreements.

[26] The next issue to be determined must be the claim that the trust is a sham or is illusory ((b) above). Then, if the trust is valid, the plaintiff’s claim is for a constructive trust over the trust property in relation to contributions she has made to it ((a) above). It is submitted that this claim can be made on a proprietary basis or, alternatively, personally against Mr Duffy. An ancillary issue is whether the plaintiff is estopped from advancing this claim at all, given it was dismissed as not seriously arguable by Associate Judge Sargisson.

[27] The last alternative claim is that, if the trust can be ignored, then the property held by Mr Duffy in his trust is subject to division under the Act if it is in fact relationship property ((d) above).

[28] Finally, and regardless of the outcome in relation to issues (a) to (d), a further question arises as to whether this Court should make an order for maintenance under the Family Proceedings Act 1980.

[30] The first agreement (dated 17 November 2010) makes it clear that it was intended to be a final disposition of Ms Vervoort’s relationship property claims. It provided that the property in Orewa would be sold and the net proceeds would be transferred to Ms Vervoort. Mr Duffy agreed that he would also transfer an additional $20,000.00 to her.

[31] The second agreement (dated 6 April 2011) recorded that Mr Duffy had paid some, but not all, of the money owed to Ms Vervoort under the first agreement, but that the parties wished to terminate that agreement and enter into a new agreement. It provided for the payment of $326,002.17 to Ms Vervoort. In return, Ms Vervoort agreed the payment was made in full and final settlement of her claims for continued maintenance or to property owned by Mr Duffy or his trust (cl 6.2). Clause 7.1 was to a similar effect, and excluded (in addition) all rights in law and in equity that she may have once had against Mr Duffy arising from their cohabitation. Clause 6.3

contains an acknowledgement by Ms Vervoort that she had taken legal advice in relation to the matters contemplated by the Deed.

[32] Ms Vervoort claimed that the second agreement was voidable by reason of undue influence, duress or unconscionability. But at the hearing before me, a question was raised as to whether, if the second was declared void, the first agreement would “reactivate”. If it did, that would plainly be problematic for Ms Vervoort’s claim.

[33] In submissions filed after the hearing, Mr Finnigan submitted that it was not necessary to avoid the first agreement because, shortly before the second agreement was signed, Mr Duffy’s solicitor stated that he (Mr Duffy) accepted that he had repudiated the deed (by not paying all of the agreed amounts) and “considers the Deed to be now terminated”. It was also noted that cl 1 of the second agreement stated that the first was terminated thenceforth.

[34] It seems to me that there are some difficulties with that submission. If, for the purposes of this proceeding, the second agreement is declared void, then the declaration in cl 1 that the first agreement is terminated would also be of no effect. Secondly, I doubt that Mr Duffy’s “acceptance” of his own repudiation is sufficient to terminate the first agreement. A party cannot refuse to perform his obligations under a contract, acknowledge that failure and then purport to terminate; as Asquith

[a]n unaccepted repudiation is a thing writ in water and of no value to anybody: it confers no legal rights of any sort or kind.

[35] It is for the innocent party (Ms Vervoort) to decide whether or not to terminate the contract, not the party in breach, and there is no evidence from Ms Vervoort that she (implicitly or otherwise) accepted Mr Duffy’s repudiation of the first agreement until she signed the second. And if the second agreement is to be

_{avoided on the grounds of duress then a question mark remains in that
regard.}

⁹Howard v Pickford Tool Co Ltd [1951] 1 KB 417 (CA) at 421. See generally Burrows Finn & Todd Law of Contract in New Zealand (4th ed, LexisNexis, Wellington, 2012) at [18.2.1(e)] and [18.3].

[36] For those reasons it is my view the plaintiff must prove that both the first and second agreements are voidable for the purposes of this proceeding.

[37] An additional complication is that both agreements state that they are governed by the law of Fiji.¹⁰In supplementary submissions filed after the hearing at the Court’s request, Mr Finnigan provided an affidavit from Aman Ravindra- Singh, a barrister practising in that country. He deposes that notwithstanding Fiji’s declaration of independence from Great Britain in 1970, the Fijian courts still rely heavily upon decisions of the United Kingdom and its judiciary is regularly staffed

by New Zealand and Australian judges. For the present proceeding that means New Zealand and Fijian law in this area is broadly on the same footing in that it sprouts from the same equitable root and has developed in a similar manner throughout the twentieth century. An analysis of the Fijian case law provided in Mr Ravindra- Singh’s affidavit suggests that there is no difference between New Zealand and Fijian law in this area that is material to the determination of this appeal and it is on that basis that I now proceed.

[38] The contours of undue influence, duress and unconscionability are well settled. A brief summary of each should suffice.

indirectly, by the stronger party on the weaker party to the impugned transaction”.¹¹

It may be actual or presumed. It will be presumed in the context of certain types of relationship, such as that of parent and child. Once the presumption is raised, an evidential onus falls on the other party to rebut the presumption.

[40] Duress is made out where one party pressures or threatens another in an improper or illegitimate manner.¹²The claimant must show his or her will was

¹⁰Associate Judge Sargisson’s finding that New Zealand was the convenient forum does not

_{obviate the need to construe and apply the agreements on the basis of
Fijian law.}

¹¹_{Attorney-General for England and Wales v R [2002] 2
NZLR 91 (CA) at [70].}

overborne in that he or she was compelled to agree due to the pressure or threat. He or she must have had no reasonable alternative.¹³

[41] An agreement will be unconscionable when the claimant party has a serious disadvantage known to the stronger party in circumstances where exploitation of that disadvantage amounts to actual or equitable fraud. There is usually (but not necessarily) some aspect of procedural impropriety (established or presumed) attributable to the stronger party, and a substantial inequality of consideration.¹⁴

There is no need to establish a qualifying relationship or illegitimate pressure.

[42] I do not propose to consider the three heads separately. Indeed, in Attorney- General for England and Wales v R the Court of Appeal noted that it is neither logical nor desirable to distinguish between the three.¹⁵Instead, they are to be considered as a “consistent whole”. The “golden thread” that is said to unite them is the vulnerability of one party to the machinations of another.¹⁶

[43] Ms Vervoort filed evidence as to the circumstances in which she came to sign the first agreement. She said that on 12 November 2010 she moved out of the apartment she shared with Mr Duffy in Fiji after Mr Duffy assaulted her. Despite advice from her solicitor and counsel in New Zealand, she says she felt pressured to sign the first agreement and signed it in desperation to obtain some capital that would give her some security, to stop the continuing threats made by Mr Duffy to have her deported from Fiji (her residency-visa required her to be living with him), and to try and persuade him to give her back her personal effects. Although she signed the first agreement in front of a solicitor, she deposed that the solicitor did not advise her of the effects and implications of the agreement on her rights against Mr

¹³Pharmacy Care Systems Ltd v Attorney General [2004] NZCA 187; (2004) 2 NZCCLR 187 (CA) at [98]. But note that these are not elements but “legal propositions of relevance to duress”: McIntyre v Nemesis DBK Ltd [2009] NZCA 329, [2010] 1 NZLR 463 at [22].

¹⁷Unlike the second agreement, the first merely states that the parties understand their right to seek independent legal advice. It also expressly records an acknowledgement that the parties have entered into the agreement “without any duress or undue influence”.

[44] There is, as well, a telling email sent to Ms Vervoort by Mr Duffy shortly after the first agreement was executed on 27 November 2010, in which he warned her not to tell her New Zealand solicitors about the agreement. The email stated:

You have to be careful not to allow Finnigan or Romanuik to see that clause or even the agreement, BECAUSE they could place a ‘CAVIET’ [sic] against the funds when the funds are in his company account. That could and would allow F/R to get their fees from YOU. YOU will be the loser. Do not let anyone (including your MOTHER) to see that document or advise F/R about the agreement.

[45] Mr Herbert Romaniuk, (who is referred to in this email and was Ms Vervoort’s solicitor) has also deposed that, in his experience, when it comes to the negotiation of relationship property settlements, it is usual for proper disclosure of assets and values to be provided by each solicitor for the parties. Based on the documents which the plaintiff supplied him, it would appear that there was no exchange of information in this case.

5. Ms Vervoort called to my office on or about 6 April 2011. Ms Vervoort had with her a document headed Deed of Release. Ms Vervoort advised me that she had been asked by her de facto partner to sign it. In fact, Ms Vervoort advised me that her partner, Mr Duffy, was waiting outside in our office car park in his car for her.

6. Ms Vervoort instructed me that she was anxious to sign it as otherwise she would not receive any property payment. Ms Vervoort did not seek any legal advice from me as the efficacy of signing the Deed of Release. I advised her that if she signed it, she may not have any claim in the future.

[47] As well, there is voluminous affidavit evidence testifying to the physical and mental abuse that Ms Vervoort says she suffered at the hands of Mr Duffy. Although I have not had the benefit of hearing from Mr Duffy, he plainly had all the power in the relationship and was a dominant and domineering presence from Ms Vervoort’s perspective. And I have previously noted that, at the hearing in front of Associate Judge Sargisson, counsel for the defendants conceded that it was at least arguable that Ms Vervoort had been under inappropriate pressure to sign the second agreement.

[48] On the balance of probabilities, therefore, I consider that Mr Duffy did place undue pressure on Ms Vervoort to sign both the first and second agreements. The way in which the agreements themselves are phrased suggests that. Moreover Mr Duffy’s 27 November 2010 email suggests he was intent on ensuring she remained isolated and under his control, and my sense is that he was successful in that regard. And given the size and value of the assets controlled by Mr Duffy, the outcome of

[49] I am satisfied for present purposes that the two agreements can be regarded as unconscionable or have been entered into under undue influence or duress and that each is therefore prima facie voidable.

[50] Having reached that conclusion, however, there is a further issue as to whether, by accepting the money paid to her by Mr Duffy, Ms Vervoort has affirmed the agreements. But as the Court of Appeal noted in Haines v Carter, in the context of duress the courts will not regard as affirmation steps taken by the victim while still under the influence of pressure from the other party.¹⁹And in Ms Vervoort’s case there seems to be no doubt that Mr Duffy continued to exert such influence over her until the end of the relationship in July 2011.

[51] I am therefore satisfied that Ms Vervoort is not barred by the agreements from bringing her claims. Whether it is, in fact, in her interest to avoid them will depend on the findings in the remainder of this judgment.

[52] Mr Finnigan contended that Mr Duffy’s trust was a vehicle used by him for the purposes of shielding his assets from claims such as the present. He said that it is a sham trust, an alter ego of Mr Duffy, or is otherwise illusory; the property in trust is in fact controlled by Mr Duffy and, accordingly, that this Court should declare the

¹⁸In a sense such a finding in the present case begs what may be the ultimate question, namely whether some or all of the assets held by Mr Duffy’s trust can properly be regarded as assets in which Ms Vervoort can properly be said to have a relationship property interest.

[53] The first difficulty with this submission is that the trust was settled on 1

August 1994, some 5 years prior to the commencement of the parties’ relationship. The trust deed states that, at the time of settlement, the final beneficiaries of the trust are Mr Duffy and his son Edward and the discretionary beneficiaries are Mr Duffy, Edward, Henry Duffy and their spouses and pre-existing children. And in October

2011 Mr Duffy’s three other children were included as discretionary beneficiaries of

[54] There is, however, good evidence that Mr Duffy had, and continues to have, complete control of the trust. Mr Duffy is the settlor, co-trustee and final beneficiary. He has the power to appoint new trustees. Moreover, the former trustee, Mr Forrest, has filed an affidavit in which he deposes that he had little knowledge of the trust’s finances. He was never consulted or asked to approve cheque payments made by the trust. He never met the trust’s accountant, Ms Nye, and was (for example) unaware the trust had purchased 6 Marina Point and the Slainje yacht.

[55] As I have noted earlier, when Mr Forrest resigned on 6 December 2010 he was replaced as trustee by Mr Spears. On the same date, Mr Spears provided to Mr Duffy an irrevocable power of attorney, which authorised Mr Duffy to execute all documents on Mr Spears’ behalf for the purposes of the trust. It also authorised Mr Duffy irrevocably to transfer or assign the trust’s assets on Mr Spears’ behalf.

[56] It also seems that Mr Duffy may have used his name and the trust’s name interchangeably. For example, in the agreement for the purchase of the Orewa property in 2007, the named purchaser appears to be Mr Duffy personally, but the purchase was funded through trust funds and the property was placed in the trustees’ ownership.

[57] On the basis of the evidence summarised above, I would be prepared to accept that Mr Duffy used the trust as his alter ego. It is certainly arguable that Mr Forrest was and Mr Spears is delinquent in their trustee duties. But a finding that trust property is factually controlled by one person is not sufficient to void the trust.

It does not form an independent cause of action.²⁰Rather, such a finding comprises part of the body of evidence to be taken into account when determining whether the trust is a sham.

[58] A sham trust is one in which there is an intention to create an express trust in appearance only.²¹As the judgment of the plurality in Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue states:²²

In essence, a sham is a pretence. ... A document will be a sham when it does not evidence the true common intention of the parties. They either intend to create different rights and obligations from those evidenced by the document or they do not intend to create any rights or obligations, whether of the kind evidenced by the document or at all. A document which originally records the true common intention of the parties may become a sham if the parties later agree to change their arrangement but leave the original document standing and continue to represent it as an accurate reflection of their arrangement.

[59] In Clayton v Clayton the Court of Appeal recently considered whether proof of sham requires some kind of specific shamming intention to be established, or whether an absence of certainty in terms of the settlor’s intention suffices.²³The Court held that a subjectively assessed shamming intention is required.²⁴In order to succeed in her claim, therefore, Mrs Vervoort needs to prove that when Mr Duffy

settled the trust in 1994 he had no intention to create a valid trust instrument.

[60] The difficulty with labelling the present trust a sham is that there is no real evidence to suggest that Mr Duffy did not have an intention to create a valid trust in

1994. Counsel instead relies on later conduct that occurred during the period he was in a relationship with Ms Vervoort (1999-2011). It is said that as Mr Duffy treated the trust during that time as his alter ego, and the assets as his own, the inference can

_{be drawn that Mr Duffy had no intention to establish a real trust at the
outset.}

²⁰_{Official Assignee v Wilson [2008] NZCA 122, [2008]
3 NZLR 45 (CA) at [70].}

²²Ben Nevis Forestry Ventures Ltd v Commissioner of Inland Revenue [2008] NZSC 115, [2009] 2

[61] In my view the evidence of Mr Duffy’s more recent conduct does not suffice. An allegation of sham is not to be lightly made.²⁵Strong and cogent evidence is required before such an “extreme” conclusion is warranted.²⁶And the Court of Appeal’s recent confirmation that a trust will only be a sham if it is established that the settlor had a subjective intention to defraud or deceive serves only to underscore

[62] Due to the fissure in both time and context between Mr Duffy’s establishment

of his family trust in 1994 and the instigation of his relationship with Ms Vervoort in

1999 it not possible to discount the possibility that Mr Duffy’s treatment of the trust as his alter ego developed after the trust was established. Moreover, the conclusion that Mr Duffy did not have any intention to grant a beneficial interest to his children (to one as a final beneficiary, and to all as discretionary beneficiaries) seems at odds (for example) with a statement made in mid 2010 to Ms Vervoort in the context of settlement discussions between them. When she suggested to him that she receive a share in the proceeds of trust property he responded that any entitlement of hers would be “equal pro rata with [his] four other children already in the [trust]”.

[63] Mr Finnigan also invited me to draw the inference that the trust was a sham from Mr Duffy’s recent non-participation in the proceeding. But it seems to me that the more obvious inference to be drawn is that he has merely made a tactical decision to stay in Fiji and take his chances either that the Court will feel unable to look through the trust or that any judgment obtained by Ms Vervoort in this court will be difficult to enforce there.

[64] A possible alternative argument, not pursued in any depth at the hearing, is that the trust could be considered an emerging sham. Support for such an argument might be thought to be found in the latter part of the quotation from the judgment in Ben Nevis, set out at [58] above. But, in that case, the Court was concerned with a document that was said to evidence an insurance arrangement and there appears to be a conceptual difference between such a document and a trust. There has been no

_{suggestion that the Supreme Court’s dicta somehow alters the view
expressed in}

²⁵_{Ben Nevis Forestry Ventures Ltd v Commissioner of
Inland Revenue, above n 22, at [39].}

Official Assignee v Wilson, namely that unless the later appearance of a sham can be traced back to the creation of a trust, the trust remains valid.²⁸Although the Court of Appeal in Clayton did not directly consider the emerging sham issue, there is no evident intention that it intended to depart from the statements it previously made in Wilson.²⁹

[65] I have also considered whether the trust could be said to be a sham in relation to certain specific transfers to it of particular property.³⁰But neither does that assist on the facts of this case. That is because there is no evidence to suggest that there were any dispositions made to the trust of relationship property. Rather, my understanding is that all of the trust assets were purchased with the proceeds of (and can be traced back to) the sale of other assets previously owned by the trust in the period before Ms Vervoort and Mr Duffy commenced their relationship. It is, I think, telling in that respect that Ms Vervoort does not seek to rely on the trust

[66] The final, alternative, argument put forward by Mr Finnigan was that the trust is illusory. At the time of the formal proof hearing the concept of the illusory trust was also far from settled. However, that uncertainty has since been put to rest by the recent decision in Clayton where the Court of Appeal concluded:³¹

There is either a valid trust or there is not. There is no separate principle justifying the setting aside of a valid trust on the ground that it is “illusory”. In the absence of a finding of a sham or the existence of a statutory power to set aside a trust (as in the case of a tax avoidance arrangement), the court has no power to do so. In particular, there is no such power under the PRA. The court does have other powers under ss 44 and 44C of the PRA that may be exercised in the context of dispositions to trusts, but these powers do not enable the court to set aside the creation of the trust itself. As the Supreme Court has pointed out, subject to the relatively limited nature of the court’s powers under ss 44 and 44C, Parliament appears to have accepted that trusts will normally prevail over relationship property rights. The Law Commission has not yet recommended any change to this approach.

[67] For all the above reasons, I am not persuaded to the relevant standard that the inference of dishonesty that the Court would need to draw in order to find that Mr

Duffy’s trust was a sham is available on the evidence. Nor am I satisfied that the

[68] Ms Vervoort claims in the alternative that Mr Duffy holds half of his personal assets and half of the trust’s assets on constructive trust for her benefit. Mr Finnigan submitted that if a proprietary interest cannot be established, it is possible in the alternative to order that Mr Duffy pay equitable damages to Ms Vervoort, either on the basis of her identified interest or because of the representations he made regarding a “fair” settlement.

[70] The first difficulty with the constructive trust claim against the trust assets is that it has already been dismissed as not seriously arguable by Associate Judge Sargisson. She stated:³²

[32] On the evidence it is only in respect of the Coatesville property that an argument for contributions could be formed, the principal contribution being redecorating the sleep out. However it must be asked if the contributions to this property by Ms Vervoort manifestly exceeded the benefits she received. She must be able to show that Mr Duffy was enriched by her contributions and that in such circumstances that it would be unjust to allow him to retain the benefit of such contributions.

[33] Even if it can be shown that Ms Vervoort made direct or indirect contributions there is a real issue in respect of the two final points, that the expectation was reasonable and that the defendant should reasonably be expected to yield the claimant an interest. The property in this case involves trust property. In Genc v Genc, a case involving a claim against a trust, Potter J stated that no claim could arise under Lankow v Rose:

“ ... as she could not reasonably expect to have a claim to an interest in the trustees' property; nor could the trustees be reasonably expected to yield an interest to her. This is because any relationship which might give rise to such an expectation was with Mr Genc not the trustees.”

[34] This is supported by Boys v Calderwood which outlines that when claiming a constructive trust against trust property it must be established that

the trustees had a reasonable expectation that the claimant would share in the assets and that it is reasonable for them to yield such an interest. It is clear that such an intention cannot be expressed by one trustee without the other trustees' knowledge, as a trustee cannot delegate his or her duties or powers, not even to co-trustees. Trustees must act unanimously in all decisions they make, including expressing an intention to give away an interest in trust property. They cannot be bound by general delegation.

[35] There is no evidence of any agreements or discussions with the trustees in respect of Ms Vervoort obtaining an interest in the Coatesville property. In the circumstances there is nothing to suggest it may be reasonable to expect the trustees to yield such an interest. The only way in which this could be expected is if the Trust was a sham or merely the alter ego of Mr Duffy as per Prime v Hardie and Glass v Hughey. However, as aforementioned if this was the case any interest would have to be pursued under the Property (Relationships) Act, as it would be relationship or separate property, and not through a constructive trust.

[36] At best on the evidence as it stands, Ms Vervoort could assert a claim over Mr Duffy's beneficial interest in the Trust itself.

[37] Thus, it does not appear that Ms Vervoort could satisfy the four elements required for a constructive trust over Mr Duffy's property. I have not overlooked that discovery has not occurred, but I am far from satisfied that it would assist in this case as there is no suggestion in evidence that the trustees had any awareness of her expectation. Thus, I must conclude that there is no serious issue to be tried under this cause of action.

[71] There is a question whether Associate Judge Sargisson’s determination of this matter means that Ms Vervoort is estopped from now pursuing her constructive trust claim. The general rule is that she would be prevented from raising the issue again if Associate Judge Sargisson’s finding constitutes an essential and fundamental step in the logic of her judgment, without which it could not stand.³³Although as I understood it Mr Finnigan accepted that an estoppel might operate I am prepared to look at the issue again, both as a matter of fairness to Ms Vervoort, but also because there have arguably been some more recent, relevant legal developments.

[72] In Re The Motorola New Zealand Superannuation Fund McGechan J held that imposing a constructive trust over trust assets was a possibility, but one that could only be realised in an exceptional case.³⁴He came to that conclusion on the

_{basis that it will not usually be unconscionable for a trustee to
discharge the terms of}

³³_{Talyancich v Index Developments Ltd [1992] 3 NZLR
28, (1992) 4 PRNZ 509 (CA).}

an express trust; it would require something exceptional before the trustee could be

[73] There have been other decisions in this Court and the Court of Appeal that have proceeded on the basis that orthodox Lankow v Rose principles apply when determining whether a constructive trust arises over trust assets.³⁶But because a constructive trust will not arise over property unless it is reasonable for the property owner to yield an interest in it, it has been held necessary for a claimant to prove that all trustees agreed to acquiesce in that respect.³⁷And since trustees must act unanimously and may not delegate their trustee duties, the representations or conduct of one trustee cannot bind the trust as a whole and the other trustees cannot be bound by a general delegation.³⁸

[74] Consistent with those authorities Associate Judge Sargisson declined to find it would be reasonable for the trustees to yield an interest in trust property to Ms Vervoort because there was no evidence of any express discussions by the trustees in relation to her interest in the Coatesville property or any other trust property.³⁹

[75] That position may be up for reassessment in light of the Court of Appeal’s more recent decision in Murrell v Hamilton.⁴⁰In that case the parties had commenced their relationship in 2002. In 2004 the couple moved into a house being built by a company operated by Mr Hamilton. The property itself was owned by Mr Hamilton’s family trust. In 2009 the property was sold. After the parties separated in 2010, Ms Murrell claimed a constructive trust over some of the proceeds of the sale price in proportion to her contributions to the property.

[76] In the High Court, Panckhurst J held that although Ms Murrell had contributed to the property, no constructive trust could arise because the trust’s

_{independent trustee had done nothing to create an expectation in Ms
Murrell that she}

³⁶Lankow v Rose [1995] 1 NZLR 277, [1995] NZFLR 1. See generally Marshall v Bourneville

³⁷See, for example, Genc v Genc [2006] NZFLR 1119, (2006) 26 FRNZ 67 (HC); and Boys v

had an interest in the property.⁴¹On appeal, the Court of Appeal held that the independent trustee had allowed Mr Hamilton to bind the trustees in relation to matters concerning the house, and so Mr Hamilton’s actions were treated as the actions of both trustees. In that “unusual factual situation”, it was held to be unconscionable for the trustees to deny Ms Murrell’s claim.⁴²

[77] Mr Hamilton sought leave to appeal to the Supreme Court on the grounds (inter alia) that the Court of Appeal had over-looked the principles of unanimity and non-delegation in relation to trustees.⁴³Although leave was declined, the Court stated in a footnote that, on other facts, there may be an issue as to the appropriate test for constructive trusts in cases of this type.⁴⁴

[78] Murrell v Hamilton was recently considered by Joseph Williams J in Blumenthal v Stewart.⁴⁵There, his Honour noted that “[t]rustees will have different roles and, where there is evidence that a trustee was authorised by other trustees to make representations having constructive trust consequences, then such representations will necessarily bind all trustees”.⁴⁶But he ultimately found that there was no evidence that the professional trustee abjured responsibility for distribution of the trust’s asset.⁴⁷

[79] The Murrell approach appears to cast doubt over any blanket application of the unanimity principle and the rule against delegation when constructive trust claims are made against express trusts. But the facts in Murrell were described by the Court of Appeal as “somewhat peculiar”.⁴⁸There was clear evidence in that case that the independent trustee abjured his responsibility to Mr Hamilton in relation to the specific property that happened to be the subject of Ms Murrell’s claim. There may well have been a different outcome had Mr Hamilton known that the

_{independent trustee was unequivocally opposed to Ms Murrell having an
interest,}⁴⁹

Similarly, a distinction can be drawn between a decision to defer on account of greater expertise or experience and a decision to abstain from decision making in its entirety.⁵¹

[80] But the independent trustee’s decision in Murrell to abjure in that case is markedly different from Mr Forrest’s or Mr Spears’ wholesale abandonment of their trustee duties. There is no obvious nexus or connection between their delegation of responsibility to Mr Duffy and any specific property in which Ms Vervoort claims an interest. Nor is there any suggestion that there was a careful decision to defer in relation to a particular acquisition. Rather there seems to have been complete abstention from all decision-making in respect of all trust matters. The fact of that total abnegation of responsibility was, of course, recognised and relied on by Mr Finnigan in his submissions filed in support of his contention that the trust is a sham.

[81] For those reasons I do not consider these facts share the same peculiar qualities that led the Court of Appeal effectively to infer unanimity in Murrell. To do so would be to conflate the evidence that the trust is the alter ego of Mr Duffy with evidence that there was unanimity between trustees. That equation is untenable. In my view, any determination that it would be unconscionable for the trustees not to yield Ms Vervoort an interest in property held by the trust would squarely violate orthodox trust principles of unanimity and non-delegation, the importance of which

[82] Notwithstanding the more recent decision in Murrell, therefore, I agree with Associate Judge Sargisson’s conclusion that without evidence of some specific agreement or discussion between the trustees about Ms Vervoort obtaining an interest in the Coastesville property (or any other trust property), it cannot be concluded that it would be reasonable to expect them to yield her an interest in such property. Accordingly the claim for a constructive trust over the trust’s assets must

⁵²See, for example, Niak v Macdonald [2001] NZCA 123; [2001] 3 NZLR 334 (CA) at [16]; and Ponniah v Palmer

[83] Ms Vervoort claims, in the alternative, that Mr Duffy can be bound personally either as a constructive trustee or on the basis of promissory estoppel. Mr Finnigan relied on Gilbert J’s (strike out) decision in Burt v Yiannakis for the proposition that when a claim to a proprietary entitlement under the Act is barred because it concerns immovable property situated outside of New Zealand, it is still possible to determine a claim that a party has dealt inequitably with that property and enforce a personal

[84] In terms of any claim for some form of constructive trust personally against Mr Duffy, the difficulty is that there is no evidence that he personally owns any immoveable assets outside New Zealand; all such assets are owned by his trust. I put this claim to the side.

[85] As far as the promissory estoppel claim is concerned, the relevant promises allegedly made by Mr Duffy in April 2010 include that, in return for Ms Vervoort discontinuing her (2010) proceedings against him:

(b) he would provide her with a property settlement which would be fair and satisfy her rights under the Act. That is said to include an equal share in the 7 Marina Point Residence and its chattels;

[86] Ms Vervoort says that, in reliance on these representations, she moved to Fiji to live with Mr Duffy and instructed her New Zealand solicitor to discontinue the

[87] The elements required to establish promissory estoppel are well established. As recently summarised by the Court of Appeal, it must be shown that:⁵⁴

(a) a belief or expectation by the plaintiff has been created or encouraged by words or conduct of Mr Duffy;

(b) to the extent an express representation is relied upon, it is clear and unequivocal;

(d) it would be unconscionable for Mr Duffy to depart from the belief or expectation.

[89] First, the representations at [82](b) to (d) above seem to me to be equivocal. What does “fair” mean? What is “proper” maintenance? What were Ms Vervoort’s rights under the Act? Arguably she had none. How is Mr Duffy’s conduct to be assessed?

[90] Secondly, if (as I have found) Ms Vervoort’s claims could not succeed, it is difficult to see that her abandonment of them was to her detriment. In any event, she subsequently reactivated them. Nor do I consider that moving to Fiji can be said to be a relevant detriment; as I understand it, that is something that she wanted to do.

[91] And most fundamentally, the vast majority of the relevant assets are owned by Mr Duffy’s trust. I am unable to see how equity could require his trust to yield to Ms Vervoort an interest in its assets based on a representation made by Mr Duffy in

⁵⁴Wilson Parking New Zealand Ltd v Fanshawe 136 Ltd [2014] NZCA 407, [2014] 3 NZLR 567 at

[92] With the trust intact, there remain only small items of property that seem to be owned personally by Mr Duffy that might be considered to be relationship property, including a jet ski, two kayaks, a motor cycle, a BMW, and a Pajero. The evidence suggests that all these items were acquired during the relationship. It is unclear whether Mr Duffy acquired these items out of separate property or from

[93] In addition, it was suggested by Mr Finnigan that the chattels in the Lot 6

Marina Point property are not trust property, although he recognised that the chattels were included in the sale and purchase agreement and were paid for with trust money. On that basis, I am unable to take the argument further. There is also said to be a life insurance policy that provides $250,000 in coverage in the event of Mr Duffy’s death, although that policy’s present value is unclear and what proportion is attributable to their de facto relationship.⁵⁶

[94] Mr Finnigan’s principal submission is that the items to which I have referred in [89] above were acquired for the couple’s common use or benefit, and fall under s 8(ee) of the Act. He also submits that it is not necessary for Ms Vervoort to disprove the exceptions to s 8(ee), as the onus ought be on Mr Duffy to prove their application.

[95] I am prepared to accept that, on their face, none of the exceptions apply and that the items to which I have referred above were acquired for the parties’ common use or benefit. There are photographs before the Court that depict Ms Vervoort and Mr Duffy sharing the use of these assets on a quotidian basis. An inference that they are relationship property can fairly be drawn.

[96] But, even if that is the case, the money Ms Vervoort has indisputably received under the second agreement (approximately $327,000) dwarfs the value of these assets combined (and halved). If Ms Vervoort chose to exercise her option to avoid

_{the two agreements, she faces the prospect of being found to owe Mr
Duffy money.}

[97] Although I have concluded that the truly substantial items of property (real estate and shares, or the proceeds therefrom) are all owned by Mr Duffy’s trust, I note that even if the trust could be put aside, the issue of whether some or all of that property is relationship property is far from straightforward. To the extent that any of the property itself was acquired before the relationship then prima facie it would be separate property. To the extent that the property was acquired after the relationship but can be traced back to pre-relationship separate property, it remains separate unless any of the provisions in ss 8(1)(ee), 9A(3) or 10 apply. Under s 8(1)(ee) Ms Vervoort must prove that the property was acquired during the relationship for the common use or common benefit of both her and Mr Duffy. That provision is subject to a number of exceptions.

[98] Because of the conclusions I have reached about the validity of the trust I do not propose to engage in the complicated, hypothetical exercise that would be necessary to determine that issue. I mention that the really significant real estate (namely 6 Marina Point and the Hilton Denerau apartment) is, in any event, located in Fiji and s 7 makes it clear beyond doubt that the Act does not apply to immovable property that is situated outside New Zealand. Any relationship property claim against them must proceed in Fiji. I have already rejected the Burt v Yiannakis argument in that respect, above.

[99] Although Ms Vervoort also asked the Court to make maintenance orders in her favour the impediment to that is the second (and first) agreement, which expressly excludes such a claim. While I have held that those agreements are, at Ms Vervoort’s option, voidable, she has the problem to which I have referred at [93] above. I doubt that Ms Vervoort would wish, or be in any position, to repay the money she has already received pursuant to the agreements. I doubt as well that the benefit to her of receiving ongoing maintenance would outweigh the benefit she has already received or (at a rate of $1,400 per month) it would take a considerable time before it did so.

[100] It is over to her what action she chooses to take in relation to the agreements and leave is reserved to revert to the Court if specific orders are necessary.

[101] It is a matter of some regret that the outcome of this difficult case is as follows:

(c) the claim for a constructive trust over assets held by Mr Duffy’s trust is untenable because of the unanimity rule and the rule against delegation. The possible exception to those rules recently identified by the Court of Appeal in Murrell v Hamilton does not apply on the facts;

(d) there are a number of difficulties with a claim against Mr Duffy personally based on estoppel or constructive trust. The most significant is that all of the significant assets are owned by the trust, not Mr Duffy;

(e) while I am satisfied that Ms Vervoort has established a potential relationship property claim in relation to a number of relatively low value moveables that are not owned by the trust, such a claim:

(ii) if she chooses to avoid the agreements, would be worth considerably less than the payment she has already received under them;

(g) the really significant real estate that appears still to be owned by the trust in Fiji is not subject to the Act in any event.

[102] If Ms Vervoort wishes to avoid the agreements and to pursue her claim to the small number of assets I have accepted are relationship property and her claim for maintenance she is to advise the Court by way of memorandum so that the

_{appropriate orders may be made. In all other respects her claims are
dismissed.}

High Court of New Zealand Decisions

Vervoort v Spears [2015] NZHC 808 (23 April 2015)