JEF v GJO [2012] NZHC 1021 (15 May 2012)

Last Updated: 23 June 2012

NOTE: ANY REPORT OF THIS PROCEEDING MUST COMPLY WITH SS 11B TO 11D OF THE FAMILY COURTS ACT 1980. FOR FURTHER INFORMATION PLEASE SEE WWW.JUSTICE.GOVT.NZ/COURTS/FAMILY- COURT/ABOUT/MEDIA/GUIDELINES#FC9.

IN THE HIGH COURT OF NEW ZEALAND HAMILTON REGISTRY

CIV-2011-419-001529 [2012] NZHC 1021

IN THE MATTER OF an appeal pursuant to the District Courts

Act 1947, Section 72

BETWEEN J E F Appellant

AND G J O

First Respondent

AND G J O AND R M W AS TRUSTEES OF THE S FAMILY TRUST HAMILTON Second Respondents

Hearing: 17 April 2012

Counsel: D Hayes for the Appellant

R D Clark for the Respondent

Judgment: 15 May 2012

_{JUDGMENT OF DUFFY J}

This judgment was delivered by Justice Duffy on 15 May 2012 at 4.00 pm, pursuant to

r 11.5 of the High Court Rules

Registrar/Deputy Registrar

Date:

Counsel: D Hayes P O Box 9323 Waikato Mail Centre Hamilton 3240 for the Appellant

R D Clark P O Box 931 Waikato Mail Centre Hamilton 3240 for the

_Respondents

JEF v GJO and Ors HC HAM CIV-2011-419-001529 [15 May 2012]

[1] This is an appeal against a decision of the Family Court finding that certain property that was the subject of a claim under the Property (Relationships) Act 1976 (the Act) was not relationship property and, therefore, was unavailable to the appellant. The appeal is opposed by the only surviving respondent, W.

Background

[2] The appellant met the first respondent (now deceased) in mid-2004. At that time, the appellant had separated from her former husband with whom she had four children. She was an administrator at the University of Waikato. She was having a home built in Hamilton, which is now owned by the appellant’s family trust. The first respondent was still married and living with his wife on a property on Lee Road (the Lee Road property) with two teenage children. He was a builder.

[3] In mid-2004, the first respondent and his wife made arrangements to separate. They agreed that he would remain in the Lee Road property and together they would buy a property for the wife. A settlement of property was achieved, at least partly through the sale of an investment home. The wife moved out of the Lee Road property and into her new home on 14 July 2004.

[4] On 15 July 2004, the first respondent executed as settlor a deed of trust forming a discretionary family trust (the trust). The trustees were originally the first respondent and his accountant, W. They were joined in the Family Court proceeding and, therefore, in this appeal as second respondents.

[5] The Lee Road property was valued and then, in August 2004, a memorandum of transfer was executed recording the registered owners of the property as being the first respondent and W. At the same time, a deed of loan, deed of acknowledgement of debt and a deed of forgiveness of debt were executed. There was no sale and purchase agreement to pass the property to the trust.

[6] By August 2004, the appellant and the first respondent had been in a sexual relationship for two to three months. This relationship continued.

[7] On 11 August 2005, the appellant wrote to the first respondent asking him to consider living together at the Lee Road property. She and one of her children moved in at the end of October 2005. They were still living together in September

2007 when the first respondent went to stay for a planned three months in a remote lodge in Fiordland. The appellant denied that their relationship ended at that time. She joined the first respondent at the lodge at the end of three months. The first respondent said that the relationship began again at that point, while the appellant stated that it never ended.

[8] In 2008, the first respondent was diagnosed with cancer. Before his first operation, he executed a will, which would have resulted in the appellant receiving at least $500,000 from his estate, with the balance (more than $1M) to go to his sisters and his children.

[9] But later, in November 2008, the first respondent asked the appellant to leave the Lee Road property. She departed the property on 8 December 2008, physically handing the first respondent a notice of claim under the Act as she left.

[10] The first respondent executed a new will on 21 December 2010 directing that his children be appointed trustees of the trust and transferring his estate to the trust.

[11] The first respondent died on 20 February 2011.

Family Court decision

[12] On 3 October 2011, in the Family Court, Judge Brown delivered his decision on various claims raised by the plaintiff. In short, he found that the Lee Road property, which had been occupied by the appellant and the first respondent, was not relationship property and that the debt owed to the first respondent as a result of the transfer of the Lee Road property to himself and W was not relationship property.

Duration of de facto relationship

[13] Judge Brown first considered when the de facto relationship, in terms of the

Act, began and for how long it lasted. The appellant contended that the relationship

started when they first met, as the first respondent and she “spent a tremendous amount of time together; which included him staying over at [her] place, weekends away, social functions together”. The first respondent said that at this time, the relationship was a casual sexual relationship which the appellant had embellished.

[14] The Judge noted that the first respondent was not cross-examined (he had died by the time of the hearing) and so his evidence was not tested. Nevertheless, the Judge concluded that the evidence did not establish that the parties physically lived together until the appellant moved into the Lee Road property in October 2005.

[15] The Judge found that there was a general visible level of diffuse unreliability

in the appellant’s evidence. He gives these examples:

(a) The appellant said she paid $45 for lunch for her and the first respondent, when it turned out that $45 was paid for a plate of sandwiches to take away for a group of persons, including the first respondent, who were helping the appellant shift into her new house;

(b) The appellant stated that the first respondent would stay with her until “the small hours of the morning before he returned to Lee Road”, but never actually stated whether the first respondent had ever spent the whole night with her before he and his wife separated;

(c) Where it was utterly plain that it was the appellant who carefully asked the first respondent whether she could come to live with him, the appellant later states that the first respondent asked her to come live with him; and

(d) She referred to a joint business account as “our joint account”, when

the parties never operated a joint account in any ordinary sense.

[16] The Judge’s second reason for not finding a de facto relationship was that even though there were detailed accounts of social events, shared activities, holidays and meals at each other’s places, these do not assert that the parties were living

together. The Judge considered that all this evidence was consistent with a couple’s

developing relationship without it necessarily being a de facto relationship.

[17] The third reason for the Judge not accepting the appellant’s evidence on when a de facto relationship developed was that according to his findings, there was strong evidence showing that the appellant mis-described the essential situation:

(a) There is a letter that the appellant sent to her son about two months into the relationship where the appellant states that she was intensely interested in the relationship, but the first respondent “doesn’t want to push things”;

(b) The first respondent reacted negatively to the presentation by the appellant to him of some engraved goblets and champagne on the occasion of their first anniversary on 26 April 2005; and

(c) There is a letter that the appellant wrote to the first respondent where she pleads for him to allow her to move into the Lee Road property (at [28]). This illustrates that the relationship was at a lower pitch and an earlier stage than the appellant asserts and that they were not living together as a couple at the time, 11 August 2005.

[18] Further, there was no evidence that the appellant and the first respondent had merged their finances. In the Judge’s view, the evidence established that there was a sexual relationship of considerable affection, but there was no financial sharing or interdependence and no cohabitation from mid-2004 until October 2005 when the appellant moved into the first respondent’s home. It was only at that point that they were living in a de facto relationship.

[19] As to whether the de facto relationship ended when they had a serious argument and the first respondent moved to a lodge in Fiordland, Judge Brown preferred the appellant’s position that the relationship was not over then on the basis that the first respondent wrote her a letter on 22 October 2007 rich in intricate, fine detail of the first respondent’s time in Fiordland. This is also because, to prove her

position, the appellant said that the letter was brought to her by the first respondent’s parents, who could easily have been cross-examined and would not have been chosen as witnesses if the story was a fabrication.

[20] Judge Brown found that the de facto relationship began when the appellant moved into the Lee Road property in October 2005 and lasted for three years and two months.

The Lee Road property: separate or relationship property?

[21] The Judge’s finding as to when the de facto relationship commenced meant that the Lee Road property was no longer owned by the first respondent at the time when it became the family home of the appellant and the first respondent. This led the Judge to find that the property was not relationship property, and nor could its transfer to a trust be challenged under ss 44 and 44C of the Act.

Debt owed by the trust to the first respondent of $650,000

[22] The trust owed the first respondent a debt of $650,000. The debt in question arose out of the first respondent’s transfer of the Lee Road property to the trust. The Judge found that as the Lee Road property was not relationship property at the time it was transferred to the trust, it followed that the proceeds of the disposition (the debt) could not be characterised as relationship property and, therefore, the debt was separate property.

[23] The appellant contended that because the first respondent, in practical terms, left this debt to the appellant in the will that he revoked after they separated, the promise to bequeath something to her entitled the Court to treat the item as relationship property. The Judge rejected this argument, on the ground that separate property does not become relationship property simply because it is left by one party to another in a will.

Was the trust properly constituted?

[24] The appellant submits that the $100 the trust deed required to be paid had not in fact been paid, and, therefore, this invalidates the trust, as there is no certainty of subject matter. Judge Brown decided that this did not invalidate the trust, but the trustees are required before the termination of the trust to recover the $100 from the settlor (or his estate) as part of their duty to the beneficiaries.

Does the right to occupy the property have value?

[25] The appellant argued that the first respondent has had the right to occupy the property; Judge Brown rejected that this right existed according to the trust deed. The Judge found that the first respondent merely occupied the property within the trustees’ discretion to allow him to do so without payment of rental (as specified in the trust deed).

Does the right to appoint trustees have value?

[26] The appellant argued that the first respondent’s right to dismiss or appoint trustees was an asset that allowed the settlor to distribute the assets of the trust to himself. But the power of appointment of trustees was not sufficient to give the settlor control over the assets of the trust, because that control rested with the trustee, once appointed.

[27] The first respondent had purported to include the Lee Road property in his first will as a bequest to his family. But this was legally impossible, as the property had been transferred to the trust and was no longer his to give. The Judge stated that there was no authority presented to support the proposition that the first respondent’s treating the Lee Road property as his own property, separately or in combination, would avoid the trust on the basis that it was an “alter ego trust”. The Judge found that fact of an alter ego trust is merely evidence to show a sham trust, which was not pleaded.

[28] The Judge further found that the Family Court had no jurisdiction to make determinations on the validity of trusts, and that even if it had, the jurisdiction cannot exceed $200,000. So, even if there was an assertion that the trust was a fraud (which there was not), the Family Court had no jurisdiction to make any orders that the trust was invalid.

[29] The Judge held that as a discretionary beneficiary, the first respondent had no proprietary interest in the trust property and did not own it; so, the appellant could not claim a constructive trust interest in the Lee Road property.

[30] The appellant also submitted that the trustees held the Lee Road property on a bare trust. The Judge treated this as a repeat of the alter ego argument.

Is the appellant entitled to a constructive trust over the property because she worked on it?

[31] The appellant submitted that because she put energy and time into upgrading and making the Lee Road property acceptably presentable, the Court should declare that a percentage of the trust property is held on constructive trust for her. The Judge found that the financial cost of this redecoration was borne by the first respondent, and that while living in the Lee Road property rent-free, she was able to rent out her own property and retain the benefit of the proceeds. Therefore, it would be inequitable for her to have a constructive trust interest in the Lee Road property.

Other matters

[32] There are other matters the Judge decided that are not pertinent to this appeal. The Judge found that there was no payment of personal debts out of relationship property and that the s 11B order should not be exercised.

[33] The Judge also found that although there was an agreement between the parties that they would not merge or share their finances in any way, that did not satisfy the requirements of s 21. As he was not satisfied that non-compliance did not materially prejudice any party to the agreement, that agreement could not be upheld.

[34] The Judge then found that, under s 13, it would be extraordinary and repugnant to justice for the appellant to have had an equal share in the property after a relationship that was just over three years while she still retained her interest in the trust owning her own property.

[35] Finally, the Judge decided the relationship property value of the insurance policy that the appellant held over the first respondent and that a vehicle was relationship property.

Grounds of appeal

[36] The appellant raises two preliminary matters:

(i) Judge Brown failed to add the executors and trustees of the

first respondent’s estate; and

(ii) Judge Brown included as a party the first respondent, who had ceased to be trustee of the trust upon his death.

[37] None of these matters substantively affects the appeal.

[38] The appellant appeals to the High Court on two broad grounds:

(i) That the appellant’s credibility was impugned in circumstances where it was clear that the respondent had provided much false evidence, resulting in an erroneous characterisation of when the de facto relationship began; and

(ii) That the finding that the property at Lee Road was protected from relationship property claims by the trust was factually

and legally wrong. With regard to this ground of appeal, the appellant mounts several arguments:

(a) The trust was incompletely constituted because there was no certainty of intention or certainty of subject matter;

(b) The trust was a bare trust;

(c) The first respondent’s power to appoint trustees was

valuable;

(d) The debt owed by the trust to the first respondent was not separate property; and

(e) Sections 44 and 44C should apply.

[39] At the hearing, the appellant abandoned the challenge to the Judge’s findings on credibility. The appellant’s counsel accepted that there was no proper or reasonable basis for challenging those findings. This meant that any determination on the status of the Lee Road property must be approached on the basis that this property was transferred to the trust before the qualifying de facto relationship commenced. The appellant’s counsel accepted that once the appellant abandoned the challenge to the Judge’s factual findings, it necessarily followed that unless she could establish that the trust was invalidly constituted, the appeal must fail. Here, the appellant argued that a finding that the trust was not validly constituted would necessarily mean that the Lee Road property had never been legally transferred from the ownership of the first respondent and, therefore, she could properly claim that the property, in which they had lived together as de facto partners, was owned by the first respondent and so vulnerable to a claim that it was relationship property in which she was entitled to share. The focus of the appeal, therefore, came to rest on the legal argument regarding the validity of the trust.

Appellant’s submissions

Voidness of Trust

[40] The appellant submits that there was no certainty of subject matter for the trust to be established because the $100 that was settled as trust property cannot be identified, nor could it be specified where it was or when it was paid. These being absent, she contends that the trust is not perfected.

[41] The appellant also submits that there was no certainty of intention to settle the trust. This is based on the fact that the first respondent later attempted to leave the Lee Road property in his will to his family. The appellant contends that this demonstrates that even after the property was transferred to the trust, he continued to think of it as his own. The appellant asserts that proof the first respondent had no intention of relinquishing beneficial ownership can be seen from the fact that there was never a sale and purchase agreement signed to transfer the property to the trust; the trustees lacked control over the use of the property; there was no trust minute granting occupancy and use to the first respondent; the trust never paid the rates or insurance; no accounts were prepared for the trust and the price of the transfer did not appear to be full value. All of which, the appellant argues, point to the first respondent not intending that the Lee Road property be impressed with the trust.

Bare trust

[42] Even if the trust was perfected, the appellant submits that the trust was a bare trust, meaning that the settlor or beneficiary could direct the trustee to act in a particular way, such that the assets of the trust can still be seen to be beneficially owned by the settlor or beneficiary. Furthermore, she contends that as there was no legal instrument demonstrating that the transfer of the Lee Road property was to the trust, the transfer of the property into the name of W and the first respondent cannot be connected to the trust. Thus, she asserts, they held the Lee Road property on a bare trust for the first respondent.

[43] As the trust deed provided that the first respondent retained the right to appoint and dismiss the trustees, the appellant submits that the right had a value equal to the trust assets because the right effectively allowed the whole property to be returned to him. Alternatively, the right to appoint a trustee is a retention of what was already held by the first respondent. Either way, she says that this right is an asset that is relationship property, as the property was still under beneficial control of the first respondent and was being used as a family home.

Loan

[44] The appellant submits that the Judge was wrong to find that the debt of

$650,000 was intended as separate property, as he did not disclose it in his affidavit of assets and liabilities. The bequest of that debt to the appellant confirmed that the loan was intended for use as relationship property set aside for the benefit of the appellant.

W’s submissions

[45] W is the sole surviving trustee and in this capacity he has opposed the appellant’s case. The appellant argued that the first respondent should have been substituted as a party by his estate. I see no need for that to have occurred. Here, the opposition is based on the subject property being owned by a trust and, therefore, outside the scope of a relationship property claim. As a trustee of the trust property, it is proper for W to oppose the appeal. There is no need for the estate of the first respondent to be involved, as the entire thrust of the opposition is that the subject property is not the property of the first respondent.

[46] W submits that when the parties entered into a de facto relationship, the Lee Road property was not relationship property and the first respondent was only a discretionary beneficiary. Therefore, the first respondent had no proprietary interest in the trust property and, therefore, did not own it in terms of s 8 of the Act. W relies on the findings of Judge Brown.

[47] W contends that the argument that the trust was void was not pleaded by the appellant. Furthermore, W points to the fact that when the validity of the trust became an issue, the appellant was given the opportunity by Judge Brown of having the proceeding in the Family Court stayed while she brought a proceeding in this Court to determine the trust’s validity. But, having been given this opportunity, she elected not to take this course of action.

[48] W submits that in relation to the certainty of subject matter argument, the

$100 was included in the costs of establishing the trust and there is nothing in the process that would make the trust void. This is especially since the trustees proceeded on the basis that the trust was properly formed and that it was administered over the subsequent years.

[49] In relation to the alter ego and certainty of intention argument, W submits that the first respondent had several reasons for establishing the trust, based on his understanding with his former wife, family reasons and business reasons. So, the first respondent’s intention was clear that the trust was to have the ownership of the Lee Road property.

Bare trust

[50] W contends that for the same reasons as stated in [47]-[49] above, the trust was not a bare trust.

Right to appoint trustees has value

[51] W submits that since Judge Brown has made a clear finding that the de facto relationship did not commence until October 2005, some three months after the trust was formed, the right to appoint trustees was well in place before the de facto relationship commenced and cannot be relationship property.

Loan

[52] For the same reason that the loan arose out of a transaction that occurred before the relationship began, this debt is said to have no causal link with the relationship and, therefore, must be separate property.

Sections 44 and 44C

[53] W submits that the appellant did not have a claim or rights under the Act at the time the property was disposed to the trust because the relationship had not yet begun. Thus, there could not have been an intention to defeat the claim or rights of the appellant, as the claims or rights did not exist. Further, throughout the relationship, the parties kept their financial arrangements separate from each other. This is shown by the fact that the first respondent did not pursue a claim that the insurance policy was relationship property, even though he could have.

Section 13

[54] Should the Court find any of the property to be relationship property, W submits that s 13 would apply, as there were extraordinary circumstances that render equal sharing repugnant to justice, especially the fact that the appellant was able to maintain her own property and obtain income from that property during the relationship with the respondent.

Approach to appeal

[55] This is a general appeal and, therefore, it is subject to the principles expressed in Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103; [2008] 2 NZLR

141. The onus is on the appellant to show that the decision is wrong.

Voidness of trust

[56] For the reasons set out at [47]-[49] herein, W’s argument is that it is not open

to the appellant to challenge the validity of the trust.

[57] However, the appellant contends that her initial decision not to proceed in this way can be revisited, given later developments that occurred during the course of the hearing. Here, the appellant is referring to evidence given by W under cross- examination regarding payment of the $100 debt the settlor owed to the trust. However, it is not so much the evidence that W gave as the Judge’s finding that he did not accept W’s evidence on this issue, thereby concluding that no such payment was made, that has opened the way for the appellant to argue that the non-payment of the debt invalidates the trust.

[58] According to BD Inglis New Zealand Family Law in the 21st Century (Brookers, Wellington, 2007) at [10.4], “an appeal is not the occasion to attempt to recover ground lost at trial because of inadequate or incomplete preparation or presentation”. So, the Court should be wary of allowing new arguments that were not properly argued at first instance to succeed on appeal. However, in this case, the ability to raise the non-payment of the $100 as invalidating the trust has only become available as a result of the Judge’s factual finding on this topic. I consider that this ground should, therefore, be available for argument. However, here, the appellant has sought to raise other grounds of invalidity that go beyond this factual finding. So far as wider arguments based on the trust’s invalidity are raised now for the first time, I consider that they would offend against the principle referred to by BD Inglis and, for this reason, in principle, they should not be entertained. Nevertheless, I have, for completeness, dealt with all relevant issues on the merits.

Certainty of intention

[59] It is trite that three requirements must be met for a trust to be certain enough to be validly constituted: certainty of intention, certainty of subject matter and certainty of objects: Knight v Knight [1840] EngR 862; (1840) 3 Beav 148, 49 ER 58. The appellant argues that certainty of intention and certainty of subject matter are lacking here, such that the trust is void.

[60] Certainty of intention can be found where there has been a declaration of trust. According to Thexton v Thexton [2001] 1 NZLR 237 (HC) at [52]:

A declaration of trust does not require a technical form of expression, it is a question of construction whether the words used, taking into account the surrounding circumstances, amount to a clear declaration of trust.

Intention may also be discerned from conduct: see Thexton v Thexton at [52] and

Re Kayford Ltd (in liq) [1975] 1 WLR 279 (CA).

[61] Although, at a later stage, the first respondent mistakenly left the Lee Road property to his family under his will, which may indicate that he misunderstood the nature of the trust, it is not possible to argue that there was no certainty of intention to create the trust at the time he set it up. The very fact of drawing up a trust deed detailing the powers of the trustees is more than enough to be a declaration of trust that shows that a trust was intended. There is no other reason to draw up a trust deed, if the intention was not to set up a trust.

Sham trust

[62] The appellant does not specifically claim that there has been a sham trust. However, the evidence on which she relies to prove lack of certainty of intention is consistent with alleging that the trust was an alter ego or a sham trust from its initial creation. In any event, given that the settlor clearly had an objective intention to create a trust, the only way the appellant can argue that this trust is void for lack of intention is on the basis of an alter ego or sham trust argument.

[63] The idea of an “alter ego trust” is that control over the trust is actually exercised by someone other than the trustee, such that the trust is essentially the alter ego of that person. As Judge Brown noted, the Court of Appeal in Official Assignee v Wilson [2007] NZCA 122, [2008] 3 NZLR 45 at [70] found that the mere fact there was actual control exercised by the settlor over the trustees or the trust property did not provide justification for looking through or invalidating a trust. It is merely an indication that the settlor had an intention to create a sham trust.

[64] According to Lord Diplock in Snook v London and West Riding Investments

Ltd [1967] 2 QB 786 at 802, a sham means:

[A]cts done or documents executed by the parties to the “sham” which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create.

[65] The Court of Appeal in Official Assignee v Wilson discusses the sham intention in a trust context at [71] and [74]:

To establish a sham, the intention to mislead must be shown to have existed from the inception of the trust (or from the time when particular property was disposed to the trust). Evidence of effective control of the trust post settlement maybe used to infer the requisite intention. ... There must, however, be caution in the Courts too readily finding a sham and depriving beneficiaries of their legal entitlement.

[66] So, the threshold to succeed in alleging a sham trust is high. In Financial Markets Authority v Hotchin [2012] NZHC 323 at [49], Winkelmann J summarised the requirements for a sham to be established as follows:

(a) Documents are executed or created which are intended to generate a false or misleading appearance that certain rights and obligations have been created. The trust deed is effectively a mask, cloak, or facade for the true position between the parties.

(b) In a trust established by a bilateral transaction (such as a trust deed executed by both the settlor and by a separate trustee or trustees), the preponderance of authority suggests a requirement that there be a common intention to mislead, in the sense that both the settlor and the trustees so intend. In a unilateral transaction, such as where the trust is settled and managed (as trustee) by the same person, the requirement for common intention is not present. In Official Assignee v Wilson, the Court of Appeal held that for a self- declaratory trust dependent only on the settlor’s intention, it is only the settlor’s intention that will be relevant. Where a trust is created bilaterally between the settlor and a separate trustee, it is necessary to consider their shared intention.

(c) Consideration of whether a trust or transaction is a sham requires a departure from the general rule that contractual and legal documents are to be construed on the objective meaning that their terms would convey to a reasonable person. In examining whether an arrangement is a sham, it is inevitable that the parties’ subjective intentions must be considered. Therefore, evidence of a subjective sham intent is required.

(d) There will be no sham where the parties have merely chosen one form of transaction over another where either were equally available to the parties in the circumstances.

[67] W’s affidavit, dated 21 December 2009, at [5] shows that one of the first respondent’s concerns when setting up the trust was to ensure that his assets were protected, given the changes to building legislation giving builders a significant level of exposure to liability. This suggests the trust was created to protect the first respondent’s assets for the benefit of his children.

[68] This view is consistent with the evidence in the affidavit of the first respondent’s former wife, dated 23 December 2009. At [6], she said that at the end of the marriage, one of the understandings was that the first respondent would remain at the Lee Road property, but that the Lee Road property would be transferred to a trust so that the asset would be there for the “future benefit of our children”. This is to be seen in the background of the assertion that there was already an existing family trust, but that no assets were transferred to it because the parties were still together at the time. This evidence shows that transferral of the property to the trust was part of the property division of the first respondent and his former wife and was for the purpose of benefiting their children. There is no evidence to suggest that he was looking to avoid the relationship property claims of a third party, as indeed there was no such person at that time.

[69] The whole purpose here of a “sham” trust argument is to target the testator’s lack of intention to create the trust. But the evidence shows that a primary motive in doing so was the legitimate intention of providing for his children. I am satisfied that there was certainly an intention to create the trust and that it was not a sham trust.

Certainty of subject matter

[70] Uncertainty of subject matter arises where there has been a failure to identify the subject matter. In Re London Wine Co (Shippers) Ltd [1986] PCC 121, the company had bottles of wine in various warehouses that it sold to various customers. When the wine was purchased, it was intended that it would become the property of the customers and stored with the company at the customers’ expense. However, because the wine was never appropriated until physical delivery to the purchaser, the Court held that the subject matter was too uncertain for a trust to be created. This

was because although the bottles of wine may be of the same batch, each bottle may be of a different quality, so the actual bottles must be assigned to the trust before the trust property can be ascertained. This reasoning was affirmed in Re Goldcorp Exchange Ltd (in rec) [1994] 3 NZLR 385 (PC), which involved an unascertained mass of gold bullion.

[71] However, this reasoning does not apply with the same force to money, since the value of money does not lie in the individually identifiable notes and coins, but rather in its symbolic value. As Oliver J said in Re London Wine Co (Shippers) Ltd at 137:

I appreciate the point taken that the subject matter is part of a homogeneous mass so that specific identity is of little importance as it is, for instance, in the case of money.

[72] This was said in the context of distinguishing the situation of money with the situation of wine. It goes to show that money can be treated differently from property that has inherent value in itself.

[73] According to W, the $100 was included as part of the setting up fee of the trust. Because it is merely money, if the $100 could be located in the trust, it does not matter, in principle, where or when it was paid in; its specific identity does not matter as long as it exists. Here, Judge Brown found that the $100 had not been paid. However, I see no reason why the $100 cannot still be recovered from the first respondent’s estate. In this regard, the appellant accepted that the relevant limitation period under the Limitation Act 1950 had not expired.

[74] Insofar as the appellant sought to argue that the Lee Road property was not impressed by the terms of the trust, I consider the argument is specious. The registered ownership of this property was transferred from the first respondent solely to him and to W, who are the trustees of the trust. There are also the various deeds relating to the debt that arose from the transfer. The probable inference to draw from all this, on the balance of probabilities, is that the Lee Road property was transferred to them both in their role as trustees of the trust. The alternatives are that it was transferred to them absolutely, or to hold on some trust other than the trust created in

July 2004. But there is no logical basis for inferring that the first respondent intended to gift a half interest in the Lee Road property to W in his own right. Yet if the appellant’s argument is to be accepted, that is the inference to be drawn from the transfer to W and the first respondent. The other possibility as argued for by the appellant is that the first respondent’s transfer of the Lee Road property to himself and W created a bare trust of which the first respondent was the sole beneficiary. But there is no evidential basis for such a trust. Establishing the existence of this trust has greater difficulties in terms of the three certainties required of trusts that I examined to determine the validity of the express trust the first respondent created by deed in July 2004. I am satisfied, therefore, that the transfer of the Lee Road property to the first respondent and W was to them as trustees of the trust created by deed in July 2004 and so this property is impressed by the terms of that trust.

Bare trust

[75] The appellants argue in the alternative that the trust was a bare trust. In

Christie v Ovington (1875) Ch D 279 at 281, a bare trustee was defined as someone:

[T]o whose office no duties were originally attached, or who, although such duties were originally attached to his office, would, on the requisition of his cestuis que trust, be compellable in equity to convey the estate to them, or by their direction.

[76] The appellants cite Burns v Steel [2006] 1 NZLR 559 (HC) for the proposition that where there is a trust in which the settlor or beneficiary can direct the trustee to act in a particular way, there is a bare trust, and it means that the assets of the trust are beneficially owned by the settlor or beneficiary. The latter part is misleading. While that case did consider the definition of a bare trust, that argument was raised in the context of deciding whether the trustees were entitled to not follow the directions of the beneficiary in distributing the asset. The focus was on the content of the trustee’s duty, not on the ownership of the asset.

[77] In any case, the Court in Burns v Steel followed the Re Brockbank, Ward v Bates [1948] Ch 206 line of cases to state that even where the beneficiaries were entitled absolutely to the trust asset, they still could not usurp certain trustee duties (see discussion from [38]-[40]). Where the beneficiary was not absolutely entitled to

the trust asset and still subject to the discretion of the trustees, the position that the trustees are not bare trustees is even clearer (at [61]). As the Court noted, “if the beneficiaries wished to perform the role of trustee then the proper course was to terminate the trust” (at [49]).

[78] In this case, although the first respondent was trustee, as well as beneficiary, there is another trustee, W, who also had a right to control how the asset would be distributed. Further, as there were multiple beneficiaries entitled to the same house, it is unclear what portion (if any) each beneficiary would get. As such, although the first respondent had some control over how the asset was to be distributed, he was not “absolutely entitled” to the asset; it was still subject to the discretion of a joint decision between him and W. So, the trustees were not bare trustees.

[79] Even if the trustees were bare trustees, Burns v Steel is not authority to say that the person in control of the trustee’s discretion in a bare trust is a beneficial owner of the property. At best, the appellant could only argue that the first respondent, along with his children and grandchildren, all had a beneficial interest in the property. As such, the property does not count as a “family home” within s

8(1)(a) of the Act. As Allan J stated in B v M [2005] NZFLR 730 (HC) at [106]- [107]:

[T]he Act provides for the identification and division of property owned by the parties. It does not mandate the division of rights and interests owned, not by the parties, but by other entities. ... In summary, the interests of the parties as discretionary beneficiaries are limited. It is arguable that their rights and interests as discretionary beneficiaries may fall within the definition of the term “property” in the Act, but it is not necessary to decide that point for present purposes. There is no evidence of the value of those interests, nor of the interests of the parties as final beneficiaries. There is no warrant for simply treating the asset of the trusts as those of the parties and dividing it between the parties.

[80] This aspect of the judgment was considered on appeal and no criticism was made of it (M v B [2006] 3 NZLR 660 at [112]-[120]). So, it cannot simply be said that the first respondent is the beneficial owner of the Lee Road property as a family home. Even if his discretionary interest could be considered “property”, because his interest arose before the relationship commenced, it cannot be relationship property.

[81] As part of the appellant’s bare trust claim, she alleges that because there was no instrument showing that the transfer was to the trust, the transfer was actually to the first respondent and W as individuals. I have already dealt with this (see [74] herein).

Conclusion on voidness of trust and beneficial ownership

[82] I am satisfied that the trust is not void for uncertainty; nor is it a bare trust. The Lee Road property cannot have been beneficially “owned” by the first respondent; it is the trust’s property and the first respondent was merely a discretionary beneficiary. This entails no rights of ownership that the appellant can lay claim to under the Act.

Power of appointment has value

[83] As Judge Brown rightly noted, despite the Privy Council decision in Fonu v Merrill Lynch Bank [2011] UKPC 17 stating that the power to revoke a trust can be tantamount to ownership, Winkelmann J stated in Financial Markets Authority v Hotchin [2011] 2 NZLR 469 at [131] that:

Power of appointment of trustees, and even of discretionary beneficiaries, are not sufficient to give Mr Hotchin control over the assets of the Trusts, because that control rests, at law, with the trustee once appointed.

[84] Even if that power did have value, because the trust was formed before the de facto relationship began, this power existed as separate property, rather than relationship property. The fact that the appellant was living in the house that was trust property does not make the power of appointment relationship property.

Loan

[85] Similarly, since the commencement date of the relationship was after the first respondent made the loan to the trust, the appellant cannot claim that the loan is relationship property.

[86] The added complication is that according to the appellant, the first respondent had originally bequeathed part of the loan of $650,000 to her and subsequently revoked it. However, merely because someone bequeathed his separate property to his spouse for his spouse’s use after his death, such property does not thereby become relationship property during the life of the deceased.

Sections 44 and 44C

[87] These sections do not apply because the relationship commenced after the property was disposed to the trust.

Conclusion

[88] I am satisfied, therefore, that the appellant has failed to show that Judge Brown was wrong in the findings he reached. It follows that the appeal is dismissed. Because of the approach I have taken in this judgment, I see no reason to address the question of whether the Family Court has jurisdiction to determine the validity of trusts. It seems to me to be more appropriate to leave that question to be dealt with when the need for a determination is required.

[89] If it is necessary, the parties have leave to file memoranda on costs.

Duffy J