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Pension v Forbes [2014] NZHC 2160 (8 September 2014)

Last Updated: 22 September 2014


IN THE HIGH COURT OF NEW ZEALAND DUNEDIN REGISTRY



CIV-2013-412-000469 [2014] NZHC 2160

BETWEEN
BRONWYN ELIZABETH PENSON
Plaintiff
AND
LYNLEA ELLEN FORBES and
EDWARD JOHN JACK First Defendant
AND
WEBB FARRY TRUSTEE SERVICES LIMITED
Second Defendant


Hearing:
8 September 2014
Appearances:
L A Andersen for First Defendants/First Applicants M E Parker for Second Defendant/Second Applicant D J More for Plaintiff/Respondent
Judgment:
8 September 2014




JUDGMENT OF ASSOCIATE JUDGE OSBORNE

on Strike Out Application




[1] The plaintiff (Ms Penson) is the daughter, and one of five children, of the late

Sylvia Jack (Mrs Jack) who died in October 2012.

[2] Mrs Jack in December 2006 had established the S I Jack Family Trust (the Trust). The discretionary beneficiaries of the Trust included Mrs Jack’s five children.

[3] The trustees of the Trust were Mrs Jack and the second defendant (the corporate trustee). In August 2012, Mrs Jack and the corporate trustee by deed

varied the Trust so as to exclude as beneficiaries Ms Penson and a deceased brother.





PENSON v FORBES [2014] NZHC 2160 [8 September 2014]

At the time she was excluded, Ms Penson had no vested interest. As a discretionary beneficiary she also had no contingent interest. She had a mere expectation.1

[4] On the same day as she signed the deed of variation, Mrs Jack made her last will. By that will she directed the trustees of her estate to transfer the residuary estate to the trustees of the Trust. She also directed the trustees of her estate to divide the residuary estate equally between such of her three children (being the three who were named beneficiaries of the Trust) as survived her. By her will she also exercised her power of appointment to appoint two of her children (the first defendants) as trustees of the Trust in her place.

[5] On the same day, she forgave the debt which the Trust owed her on the

Trust’s 2006 purchase of Mrs Jack’s house property.

[6] Mrs Jack subsequently died (in 2012).

[7] The Trust sold the house property and made distributions for the benefit of the three children-beneficiaries and for grandchildren.

[8] Ms Penson sues the current trustees.

[9] This judgment relates to the trustees’ application to strike out Ms Penson’s

claim.

Ms Penson’s four causes of action

[10] I summarise Ms Penson’s four causes of action in her Amended Statement of

Claim (the Statement of Claim):

(1) Breach of trust

Ms Penson alleges that Mrs Jack and the corporate trustee had a fiduciary duty which required them in relation to the power to exclude a beneficiary to:

• act honestly;

1 Foreman v Kingstone [2004] 1 NZLR 841 (HC) per Potter J at [48].

• act in good faith;

• not act capriciously;

• not act irrationally; and

• act even-handedly as between beneficiaries.

Ms Penson alleges that the decision to exclude her as beneficiary was made because of Mrs Jack’s personal dislike of Ms Penson and was in breach of fiduciary obligation. In the same cause of action but as what is effectively an alternative, Ms Penson says that the trustees had obligations not to put the interests of Mrs Jack as a trustee ahead of the interests of Ms Penson as beneficiary and to avoid any conflict of personal interest with a duty to Ms Penson as beneficiary. Ms Penson alleges that the trustees’ decision to exclude Ms Penson because of Mrs Jack’s personal dislike of her meant that the trustees put Mrs Jack’s interest as trustee ahead of Ms Penson’s interest as beneficiary.

(2) Fraud on the power

Ms Penson alleges that the decision to exclude her as a beneficiary was a fraud on the power to exclude because:

• there was no lawful justification for the decision; and

• the decision was made for an improper purpose. (3) Breach of trust

Ms Penson alleges that when the trustees made the decision to make distributions after Mrs Jack’s death the decision was in breach of trust because:

• the trustees failed to act even-handedly between all beneficiaries.

(4) Against the corporate trustee

The paragraphs referred to in the statement of claim as comprising the fourth cause of action are in fact in the nature of a prayer for damages against the corporate trustee, relying upon the same alleged breaches as pleaded earlier. Correctly analysed, there is not a separate fourth cause of action.

The issues for determination

[11] Ms Penson cannot successfully oppose this strike out application unless there is a tenable basis for her allegations as to breaches of duty or fraud on the power on the part of the defendants.

[12] The causes of action which call for some detailed consideration are the first and second causes of action. Mr More accepted in his oral submissions that the remaining causes of action fall away if the Court strikes out the first and second causes. As I have recorded, the so-called fourth cause of action is truly a prayer for damages and stands or falls with the earlier causes of action.

[13] The third cause of action (relating to the distributions made after Mrs Jack’s death) would become relevant only if the Court were to make an order which had the effect of restoring Ms Penson as a beneficiary. As matters stand at present, a failure by the trustees for the time-being to distribute to Ms Penson while she was not a beneficiary cannot constitute a breach of trust. To the contrary, a distribution to her would have amounted to a breach of trust. The critical causes of action to consider in this case are therefore those identified by Ms Penson as her first and second causes of action. I now examine the allegations in those causes of action.

Striking out a claim – the principles

[14] High Court Rule 15.1 makes provision for orders striking out all or part of a pleading. In this case the defendants/applicants invoke r 15.1(1)(a) (no reasonably arguable cause of action).

[15] I adopt the following as principles applicable to the consideration of this application:

(a) The Court is to assume that the facts pleaded are true (unless they are entirely speculative and without foundation).

(b) Before the Court may strike out proceedings the cause of action must be clearly untenable in the sense that the Court can be certain that it cannot succeed.

(c) The jurisdiction is to be exercised sparingly and only in clear cases.

(d) The jurisdiction is not excluded by the need to decide difficult questions of law, even if requiring extensive argument.

(e) The Court should be slow to rule on novel categories of duty of care at the strike out stage.2

The trustees’ powers

[16] By the trust deed, the trustees were given powers to add to and vary the Deed and to revoke trusts, powers or other provisions, discretions, alterations and variations. The express powers of amendment included the power to declare new beneficiaries and new classes of beneficiary.

[17] Clause 15 of the Deed expressly provided for the exclusion of a beneficiary. It provides:

15.1 The Trustees may, by a declaration in writing, declare that any person or class of people is/are to be excluded as a Beneficiary or a class of Beneficiaries for such period as the Trustees determine. A declaration under this clause can be made without prejudice to the accrued beneficial settlement (if any) of that person or persons at the date of such declaration.

15.2 ...



2 See Attorney-General v Prince [1998] 1 NZLR 262 (CA).

15.3 As from the date of such declaration the rights of that person must be modified accordingly.

[18] It is pleaded and common ground that the trustees in August 2012 excluded Ms Penson and her deceased brother as beneficiaries in reliance upon clause 15.1 of the Deed of Trust.

Rationality

[19] Although counsel did not expressly address me on the distinction between fiduciary and non-fiduciary powers, there clearly is such a distinction.3 As the power in this case has been given to the trustees, I treat it as a fiduciary power which accordingly has constraints of exercise which go beyond fraud on the power.

[20] In Equity and Trusts in New Zealand,4 Dr Andrew Butler uses a number of descriptions which may be given to what I will call the duty to act rationally. He says:5

A trustee must not exercise the trustee’s discretions in a manner which is irrational, perverse, arbitrary or capricious. An exercise of a discretion in this way will be void.

And he adds:

Often these flaws in the exercise of trustee discretions are dealt with under the head of bad faith. But it is better to deal with them separately because it is possible for a well meaning and honest trustee to act in these ways.

[21] One of the classic authorities in this area is the judgment of Templeman J (as he then was) in Re Manisty’s Settlement, Manisty v Manisty,6 in which his Lordship observed:7

The court may ... be persuaded to intervene if the trustees act “capriciously,” that is to say, act for reasons which I apprehend could be said to be irrational, perverse or irrelevant to any sensible expectation of the settlor; for example, if they chose a beneficiary by height or complexion or by the irrelevant fact that he was a resident of Greater London.

  1. See J McGhee QC (ed) Snell’s Equity (31st ed, Thomson Sweet & Maxwell, 2005), ch 9, especially at [9.02], n 15.

4 Equity and Trusts in New Zealand (2nd ed Thompson Lawyers, 2009) at 179-182 and 185.

5 At 179.

6 Re Manisty’s Settlement, Manisty v Manisty [1974] 1 Ch 17.

7 At 26.

[22] I adopt, as conveying accurately the relevant concept of “caprice”, the Oxford

English Dictionary definition8 of “unaccountable change of mind”.

[23] Because Ms Penson initially filed an unparticularised statement of claim, she was subsequently required to particularise her allegations. She provided in the amended statement of claim the following particulars of the alleged breach in this regard:

(a) For some time prior to 3 August 2012 the deceased had taken a dislike to the plaintiff. The plaintiff gave no cause to the deceased for her dislike of the plaintiff.

(b) The deceased’s dislike of the plaintiff was without justification and

irrational.

(c) The decision to exclude the plaintiff as a beneficiary was made as a result of the deceased’s personal dislike of the plaintiff. It was therefore in breach of the trustees’ obligation not to put the interests of the deceased, as a trustee, ahead of the interests of the plaintiff as a beneficiary.

(d) The decision to exclude the plaintiff as a beneficiary was made without good cause and was therefore capricious and/or irrational.

(e) The decision to exclude the plaintiff as a beneficiary was made because of the deceased’s personal dislike of the plaintiff and was made in bad faith.

[24] In his submissions for Ms Penson, Mr More dealt with the concepts of irrationality and good faith largely on a combined basis. To the extent that Mr More made submissions specifically towards irrationality or caprice, he stated:

The plaintiff was a discretionary beneficiary, and before deciding to remove her, the trustees were under an obligation to consider that decision. They

8 The New Zealand Oxford Dictionary (2005, Oxford University Press, Oxford) at 164.

were not entitled to act capriciously. They were not entitled to take into account irrelevant considerations, such as the deceased’s dislike of the plaintiff. The deceased put her own personal interests ahead of her obligation as a trustee. The trustees were required to consider the plaintiff’s personal situation including her financial circumstances. There is no evidence that the trustees gave any consideration to the plaintiff’s circumstances. See Turner v Turner [1984] 1 Ch 100.

[25] In relation to irrationality or caprice, Ms Penson’s claim is therefore put upon the basis that the trustees in exercising their power to remove Ms Penson as a beneficiary acted in breach of trust because the decision was taken as a result of Mrs Jack’s dislike of Ms Penson.

[26] Given that Ms Penson’s assertion of breach of trust is in this regard put in that

way, it is not tenable.

[27] To adopt Lord Templeman’s terminology in Re Manisty’s Settlement, the “sensible expectations of the settlor” plainly include expectations that those who remain in her affections may remain in the class of discretionary beneficiaries and that those who fall from her affections may be removed from that class. The power to remove in this case is express and is not limited in its terms. There is no reason to read down the power in such a way as would exclude from the consideration of the settlor her intervening disaffection for her daughter. To again adopt the observations in Re Manisty’s Settlement, the trustees’ decision to exclude Ms Penson was not based on a capricious or irrational concept such as height or complexion. Rather, it was on Ms Penson’s pleading based on the reason (or rationale) that one of the discretionary beneficiaries, who may have benefitted from this family trust, was no longer in the affection of her mother, the settlor of the family trust.

[28] The inability of the Court to invalidate the trustees’ decision in the present circumstances is reinforced by the observation that the Court is not an appellate body for trustees’ decisions.9 While particular Judges might have reached a different view if exercising the same discretion, that is insufficient. A Judge’s view cannot be

substituted for that of the trustees in whom the settlor imposed her trust.


9 Wong v Burt [2003] 3 NZLR 526 (HC), per Ronald Young J at [18]; appeal allowed in Wong v Burt [2004] NZCA 174; [2005] 1 NZLR 91 (CA) on the facts but without discussion of the quoted High Court observation.

[29] Towards the conclusion of the paragraph which I quoted from Mr More’s submissions,10 he submitted that the trustees were in breach of trust by failing to consider Ms Penson’s financial circumstances. Such a breach has not been separately pleaded but I will consider it under the heading of “irrationality” as presented. It takes Ms Penson’s case no further. The decision-making of the trustees in relation to the class of beneficiaries is not alleged to have been taking place in the

context of financial need. Rather, it is alleged to have been taking place because of disaffection. The financial circumstances of particular beneficiaries would have become a relevant consideration when distributions were made. The trustees were not at that point in August 2012.

[30] Ms Penson’s allegation that the trustees, in making the decision to exclude Ms Penson as a beneficiary, acted in breach of their duty of good faith rested on the same five particulars as the irrationality pleading. Put in the negative, it is an allegation of bad faith.

[31] I adopt the description of that concept by O’Regan J in Gailey v Gordon11

where his Honour said:

Bad faith in this context has been recognised as including a decision for an ulterior motive, taking into account of irrelevant considerations, and refusal to take into account relevant considerations and acting capriciously.

[32] The close relationship between bad faith and caprice understandably led counsel to rely on the same particulars for both pleadings.

[33] For similar reasons to those I have given in relation to the irrationality pleading, the bad faith pleading is untenable.

[34] Mr More addressed submissions to the bad faith pleading in this way:

The deceased had taken a dislike to her daughter, and that was the reason for excluding the plaintiff as a beneficiary. It is quite clear from the trust deed, that Mrs Jack’s intention was, that following her own death, the trust assets would be held for the benefit of her children and remoter issue. The exclusion of the plaintiff as a beneficiary was contrary to the purpose of the

10 Above at [24].

11 Gailey v Gordon [2003] 2 NZLR 192 at [89].

trust. Whilst as a mother, the late Mrs Jack might consider herself entitled to prefer her other children over the plaintiff, as a trustee she was not so entitled, without cause.

[35] There are at least two difficulties with Mr More’s submission. First, it misstates or incorrectly assumes the intention of the settlor as expressed through the trust deed. The classes of beneficiary identified upon the establishment of the trust deed were simply the beneficiaries or the classes of beneficiary for the time-being. They cannot be read without reference to the right reserved to the trustees to add to, or exclude from, those beneficiaries or those classes. It is thus incorrect to suggest that the trust assets would be held for the benefit of Mrs Jack’s children and remoter issue. The assets were to be held for the benefit of the beneficiaries as constituted from time to time.

[36] Secondly, the implicit assumption within Mr More’s submissions that an exclusion of Ms Penson occurred “without cause” is not justified by Ms Penson’s own pleading. The pleaded cause of exclusion was Mrs Jack’s dislike of the plaintiff. Ms Penson’s underlying pleading that she had given Mrs Jack no cause for dislike is directed to a different level of analysis and cannot alter the fact that Ms Penson’s allegation of irrational decision-making is untenable.

The duty of even-handedness between beneficiaries

[37] In his written submissions, Mr More did not direct specific submissions to the concept of even-handedness. He accepted in his oral submissions that the concept of even-handedness could not assist his client on the first and second causes of action. I therefore deal with it only briefly.

[38] This is a discretionary trust. I respectfully adopt what the Court of Appeal said of this type of trust in Kain v Hutton12 where Glazebrook J, delivering the judgment of that Court, said:13

... under a discretionary trust, there is no right to distributions but only a right to be considered – see Gartside at 295 and Hunt v Muollo at [111]. Any duty of impartiality must be viewed against the limited rights of

12 Kain v Hutton [2007] NZCA 199, [2007] 3 NZLR 349 affirmed on this point on appeal Kain v

Hutton [2008] NZSC 61; [2008] 3 NZLR 589.

13 At [243].

discretionary beneficiaries. The duty of impartiality does not preclude a trustee from making a discretionary decision that benefits one beneficiary and disadvantages other beneficiaries – see Dal Pont and Chalmers at [23.135] and Butler at [5.2.1(3)].

[39] The beneficiary’s right to be considered for distributions is not in play in this case. There must be limited scope, if any, for the application of a requirement of even-handedness in relation to the exercise of the trustees’ power to add to or exclude beneficiaries. The earlier duties which I have considered provide those within existing classes with protections against irrationality and bad faith. To impose on the trustees a concept of even-handedness when the power they have been expressly given, if exercised, will inherently discriminate against those who would cease to be beneficiaries would limit the scope of the power. Nothing in the trust deed indicates that the settlor intended that the scope of the power be so limited. It is not for this Court to limit a power beyond the limits recognised in the line of authority to which Re Manisty’s Settlement belongs.

Conflict of interest

[40] Mr More, in his written synopsis filed before the hearing, dealt with the first cause of action by reference only to what I will call the irrationality and bad faith grounds. He did not deal with that part of the pleading asserting breach of duty through conflict of interest. However in his oral submissions he sought to uphold the pleading in the statement of claim on that basis also.

[41] The pleadings of a conflict of duty is contained in the first cause of action

(breach of trust) and alleges that:

(a) Mrs Jack and the corporate trustee owed fiduciary obligations to the plaintiff including:

(i) a duty not to put the interests of the deceased, as a trustee, ahead of the interests of the plaintiff as a beneficiary; and

(ii) a duty to avoid any conflict between the personal interests of the deceased as a trustee, and their duty to the plaintiff as a beneficiary.

(b) The decision to exclude Ms Penson was as a result of Mrs Jack’s personal dislike of Ms Penson and was therefore in breach of the trustees’ obligation not to put the interests of the deceased, as a trustee, ahead of the interests of the plaintiff as a beneficiary.

[42] Mr More accepted that Ms Penson does not rest her allegations on any suggestion of a conflict of interest whereby the pecuniary interest of Mrs Jack was in conflict with that of Ms Penson. Rather, said Mr More, the allegation flowing from the pleading as to Mrs Jack’s personal dislike of Ms Penson is that Mrs Jack put her emotional interests ahead of Ms Penson’s interests. Mr More did not refer to authority to support the proposition that consideration of a trustee’s regard for his or her emotional interest, meaning their personal preferences or dislikes of individuals, has been dealt with as involving a relevant conflict of interest. The cases which deal with trustees’ conflict are sometimes gathered under the headings of the self-dealing

rule unauthorised profits or conflict of interest.14 The duty not to self-deal is directed

to precluding a trustee without authority through the trust instrument from trafficking with trust property and making a profit. There is no suggestion in Ms Penson’s pleading of Mrs Jack’s having made a profit. The pleading refers to Mrs Jack’s forgiving the debt owed to her personally by the trust and thereby avoiding obligations under the Family Protection Act. But, as Mr More conceded orally, the

decision and steps which Mrs Jack took in relation to her personal property including


14 See for instance John Mowbray QC & Ors Lewin on Trusts (18th ed, 2008, Thomson Sweet & Maxwell, 2008) ch 20. A classic statement of the principles involved was by Lord Herschell in Bray v Ford [1896] AC 44 (HL), at 51: “It is an inflexible rule of a Court of Equity that a person in a fiduciary position, such as the respondent’s, is not, unless otherwise expressly provided, entitled to make a profit; he is not allowed to put himself in a position where his interest and duty conflict. It does not appear to me that this rule is, as has been said, founded upon principles of morality. I regard it rather as based on the consideration that human nature being what it is, there is danger, in such circumstances, of the person holding a fiduciary position being swayed by interest rather than duty, and thus prejudicing those whom he was bound to protect. It has, therefore been deemed expedient to lay down this positive rule.”

Andrew Butler (in Equity and Trusts in New Zealand) above n 4, at 5.3(1)(6), refers to the “duty to act gratuitously” and explains it: “The rationale for the rule is that, first, a trustee is not allowed to derive a benefit from the trust property, and, secondly, the interest and the duty of the trustee must not conflict”, citing Bray v Ford.

the debt owed by the Trust involved no exercise of her powers and discretions qua

trustee.

[43] The proposition which Mr More was left with – that the decision to exclude was unlawful by reason of Mrs Jack’s conduct in the face of a conflict of interest – is also unsustainable. First, the trust deed expressly in clause 22 provided for “Personal Involvement of Trustee”:

22(1) Any Trustee shall be entitled to act under this Deed and exercise all of the powers conferred upon the Trustee even though the Trustee is or may become associated in any capacity with any third party with which the Trustees are dealing. The Trustee shall be entitled to act and exercise all of the powers of this Deed even though as a result of any other capacity the Trustee’s interest or duty in any particular matter or matters may conflict with the Trustee’s duty to the Trust Fund in any way.

[44] By clause 22 Mrs Jack was entitled to take a step which enriched her or others “in any capacity”, notwithstanding that step’s impact on the trust fund. Mrs Jack’s interest in the various financial decisions in August 2012 for either her personal position or the position of family members other than Ms Penson did not disqualify her from involvement as a trustee in one of those decisions.

[45] Secondly, the permissive nature of clause 22 recognises that the focus of the conflict of interest rules is upon the advancing of the trustee’s financial interest. Other rules exist which may preclude purely personal or emotional considerations but such considerations cannot be shoe-horned to fit into a duty that debars unauthorised profit. Among the other rules are those I have already considered in relation to rationality, bad faith and even-handedness (or impartiality). For the reasons I have given, a breach of those duties on the plaintiff’s pleadings is untenable. Equally so is a pleading of conflict of interest or breach of the self- dealing rule.

Fraud on the power

[46] To support the pleading in the second cause of action, Mr More invoked observations of the Court of Appeal in Kain v Hutton.15


15 Above n 12.

[47] In Kain v Hutton, the various Courts dealt with an appointment of trust land to one beneficiary (to the exclusion of others, being the parties referred to in that case as “the Kain children”).

[48] Mr More relied upon a passage in the judgment of Glazebrook J in which the concept of fraud on the power was discussed. Her Honour delivering the judgment of the Court of Appeal stated:

[35] The Kain children allege that the appointment was tainted by improper motives and thus that there was a fraud on the power of appointment. There are two basic elements in a fraudulent exercise of a power – see Thomas Powers (1998) at [9-02]:

(a) a disposition beyond the scope of the power by the donee, whose position is referable to the terms, express or implied, of the instrument creating the power; and

(b) a deliberate breach of the implied obligation not to exercise that power for an ulterior purpose (this is what distinguishes a fraudulent use of a power from an excessive use).

[36] There are three main grounds upon which an exercise of a power may be held to be fraudulent – see Thomas Powers at [9-20]:

(a) where the appointment is made pursuant to an antecedent agreement between the donee and the object whereby a non-object is to benefit;

(b) where the appointment is made for a corrupt purpose; or

(c) where the appointment is made for purposes foreign to the power.

[49] In the event, the Court of Appeal upheld the High Court judgment which in turn had upheld the exercise of the power of appointment.

[50] On further appeal, the Supreme Court upheld the judgments as to the fraud on the power in the courts below.16

[51] Mr More, for the principles in relation to the concept of fraud on the power, relied on the classic judgment of Lord Westbury LC in Duke of Portland v Lady

Topham,17 in which his Lordship stated:18


16 Above n 12.

17 Duke of Portland v Lady Topham [1864] EngR 339; [1864] 11 HL Cas 32, 54; [1864] EngR 339; 11 ER 1242, 1251.

18 At [54].

... the settled principles of the law upon this subject ... namely, that the donee, the appointor under the power, shall, at the time of the exercise of that power, and for any purpose for which it is used, act with good faith and sincerity, and with an entire and single view to the real purpose and object of the power, and not for the purpose of accomplishing or carrying into effect any bye or sinister object (I mean sinister in the sense of its being beyond the purpose and intent of the power) which he may desire to effect in the exercise of the power.

[52] Blanchard J, in delivering the judgment of the majority of the Supreme Court in Kain v Hutton,19 adopted Lord Westbury’s statement of principle.20 This was immediately after citing the famous remark of Lord Parker of Waddington in Vatcher v Paull,21 that the term “fraud” does not in this context denote any conduct on the part of the appointor amounting to fraud in the common sense of the term or conduct which could properly be termed dishonest or immoral. Lord Parker further observed:

It merely means that the power has been exercised for a purpose, or with an intention, beyond the scope of or not justified by the instrument creating the power. Perhaps the most common instance of this is where the exercise is due to some bargain between the appointor and appointee, whereby the appointor, or some other person not an object of the power, is to derive a benefit. But such a bargain is not essential. It is enough that the appointor’s purpose and intention is to secure a benefit for himself, or some other person not an object of the power. In such a case the appointment is invalid, unless the Court can clearly distinguish between the quantum of the benefit bona fide intended to be conferred on the appointee and the quantum of the benefit intended to be derived by the appointor or to be conferred on a stranger ...

[53] As these passages indicate, and as occurred in Kain v Hutton itself, the discussion and application of the concept of a fraud on the power has arisen in relation to certain types of power of appointment.22 One of the classic examples of a fraud on the power of appointment arises when the appointor with power to appoint trust property to the appointee exercises the power other than for the purpose and intention of benefitting the appointee.

[54] In Kain v Hutton Tipping J put the matter succinctly in his additional reasons for judgment:23


19 Kain v Hutton, above n 12.

20 At 599.

21 Vatcher v Paull [1915] AC 372 (PC) at 378.

22 Examples are given in Snell’s Equity, above n 3, at [9.13].

23 Kain v Hutton, above n 12, at [46].

The expression fraud on a power is historical language for when a power is misused in an ultra vires manner.

[55] His Honour went on to explain:24

The species of excessive execution known as a fraud on the power normally comes about when the appointment is in form to an object but in substance to a non-object.

[56] Mr More did not refer me to any case in which the concept of a fraud on the power has been discussed let alone applied in relation to a power in the trust instrument to exclude beneficiaries. As there is no appointment of property in that situation, the “ultra vires” purposes discussed in cases such as Kain v Hutton logically are unlikely to arise.

[57] The exercise of the power to exclude is conceptually aligned to a general power of appointment, identified by Tipping J in Kain v Hutton, which entitles the appointor to appoint to anyone at all. As Tipping J observed:25

There cannot therefore be excessive execution of, or a fraud on, such a power because it is logically impossible for the donee/appointor to exceed the donor’s mandate.

[58] I therefore doubt that the concept of a fraud on a power as applied in power of appointment cases lends itself to a power of exclusion. But I do not need to decide that point for the purposes of this application.

[59] The way in which Ms Penson’s second cause of action is pleaded is that the alleged fraud on a power is said to have occurred because the decision to remove Ms Penson was made for an improper purpose. This implicitly is a reference back to the particulars given in relation to bad faith and irrationality. But what the trustees did in exercising their power of exclusion in this case was precisely what they intended to do, namely to exclude Ms Penson. It is not suggested that the real outcome of that decision was intended to be some outcome other than simply the exclusion of that beneficiary. It is the intended outcome of the exercise of the power

that matters. In that regard both the form and the substance of the exercise of the


24 At [47].

25 At [47].

power are the same, namely the exclusion of the beneficiary. The trustees set out with one purpose, namely to exclude Ms Penson and her deceased brother, and in August 2012 they did so.

[60] The allegation that there has been a fraud on the power is untenable.


Third and fourth causes of action

[61] The third and fourth causes of action fall away once the first and second causes of action are found to be untenable.

Outcome

[62] The defendants have established that all causes of action in Ms Penson’s

statement of claim are untenable in the sense that I am certain they cannot succeed.


Costs

[63] Costs would normally follow the event on a 2B basis. The plaintiff is legally aided. Costs may not be awarded against the plaintiff unless the court is satisfied that there are exceptional circumstances.26 There are no exceptional circumstances. It is appropriate, pursuant to s 45(5) Legal Services Act 2011, to specify the order for costs which would have been made but for s 45 of the Act, and I do so in the order which follows.

Order

[64] I order:

(a) The plaintiff’s first amended statement of claim is struck out;


(b) I specify that but for the plaintiff ’s being legally aided, I would have ordered that the plaintiff pay the costs of the first defendants and the





26 Legal Services Act 2011, s 45(2).

second defendant on a 2B basis together with disbursements to be

fixed by the Registrar.



Solicitors:

A D Paterson, Solicitors, Dunedin (Counsel: L A Andersen, Barrister)

Parker Cowan, Queenstown (Counsel: M E Parker) Solomons, Dunedin (Counsel: D J More)

Associate Judge Osborne


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