Edmonds Judd

Trusts

Consumer Guarantees Act vs Fair Trading Act

Property, Relationships, Retirement, Social Media, Trusts
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The purpose of these two laws are often confused: the Consumer Guarantees Act 1993 (CGA) and the Fair Trading Act 1986 (FTA) both provide legislative protection for consumers. However, they both address different aspects of consumer rights and business conduct.

The Consumer Guarantees Act 1993: The CGA only applies to goods and services bought for personal, domestic or household use, and not to those purchased for business purposes. The CGA states that goods must be of acceptable quality, fit for purpose and match the description provided by the seller. You cannot contract out of the CGA when you are dealing with consumers, even if you want to do so. There is a limited ability to contract out in business-to-business transactions provided certain requirements are met.

The CGA is important in that it ensures that goods and services bought for domestic use meet certain standards  following their sale.

The Fair Trading Act 1986: In contrast, the FTA provides protection for consumers from misleading and deceptive conduct of sellers in trade. The FTA cannot be contracted out of, except where both parties are in trade.

The FTA also promotes fair practice and conduct in relation to the supply of goods and services, meaning businesses must compete effectively and fairly. The CGA ensures all businesses operate on a level playing field, particularly for smaller businesses that could be taken advantage of by larger corporations.

If you find yourself in a position where false claims have been made in respect of machinery, livestock or equipment, you may have a claim under the FTA.

In addition, there may be other forms of redress ensuring fair treatment of consumers and business owners.

Succession drama for Rupert Murdoch trust

Media, News, Trusts, Uncategorized
0

How would it play out in New Zealand?

The critically-acclaimed TV show Succession was loosely based on the trials and tribulations of the wealthy media mogul, Rupert Murdoch and his family. Rupert Murdoch controls Fox News and other influential news publications through the US-based Murdoch Family Trust, which he settled in 1999 after his divorce from his second wife, Anna.

 

 

Murdoch Family Trust

The Murdoch Family Trust is an irrevocable trust which owns large shareholdings in various media enterprises. Many American trusts are established as ‘revocable’ trusts, but this trust was settled as an ‘irrevocable’ trust, which means its terms are very difficult to change. They could only be changed by Rupert (the settlor) if he acted in good faith and if the changes were beneficial to the beneficiaries.

The trust’s beneficiaries are Rupert’s children. Different children were set to receive different rights on Rupert’s death. His oldest four children – Prudence, Lachlan, James and Elisabeth – would each receive 25% of the voting rights in relation to the media companies. Rupert’s youngest two children would receive equal shares of the value of the trust’s assets, but they would not have any voting rights.

Some years ago, Rupert became concerned at the different political views amongst his children. Lachlan most closely shared Rupert’s views, but Prudence, James and Elisabeth were thought to be more liberal. Rupert attempted to change the terms of the trust so that after his death, Lachlan, would have sole voting rights and, therefore, more control over the media entities.

The dispute went to court in the state of Nevada. Rupert and Lachlan argued that it was in the interests of family harmony that the terms of the trust be changed and Lachlan given control on Rupert’s death. Prudence, James and Elisabeth argued that it was not in their interests to lose control. The court found that the attempt to change the terms of the trust was not in the interests of the beneficiaries and that it was a ‘carefully crafted charade.’

Rupert and Lachlan say that they will appeal the decision but, for now, the terms of the trust remain in force.

 

 

What would this look like in New Zealand?

If something similar happened in New Zealand, this scenario would look very different from a trust law perspective.

Irrevocable trusts are not generally used in New Zealand; almost all trusts, once settled, exist from that point onward. However, our trusts are usually very flexible. Even if a trust cannot be revoked, it can usually be resettled, varied, or distributed early.

If Rupert Murdoch had settled a trust in New Zealand, it would probably give him discretionary powers to benefit his children during his lifetime. On his death, the trust assets would be divided between his children (or transferred to new trusts for each of them).

Many New Zealand trusts can be resettled onto a new trust with different terms (and sometimes with different beneficiaries). As long as the resettlement is genuinely for the benefit of at least one of the beneficiaries, it is often permitted, even if it is detrimental to others.

If Rupert wanted to significantly change the terms of the trust, and had a resettlement power, he may be able to move the trust assets to a new trust. However, tax problems often arise on resettlement, particularly with commercial assets, so resettlement may not be a good option.

Most New Zealand trusts can be varied, but variation powers are often limited to the terms of the trust relating to management and administration. They cannot usually be used to change the beneficiaries or their entitlements. A variation power might not help Rupert achieve his goals.

New Zealand trusts usually give trustees discretionary powers to distribute income and capital early. If Rupert was a trustee, he may try to transfer the voting rights to Lachlan early – before Rupert’s death. Many New Zealand trusts would allow this, although it would depend on the terms of the trust and how much discretion the trustees were given.

 

 

Conclusion

The New Zealand trust landscape is very different to that in America. Our trusts are often more flexible than an American-style irrevocable trust. If the Murdoch Family Trust  had been settled in New Zealand, Rupert might have found a way to make the changes he wanted. It is also, however, possible that the terms would not have permitted him to make changes at all.

New Zealand trusts can be used for many purposes and drafted with a great deal of flexibility, or very little flexibility. It depends on the terms of the trust used at the outset when the trust is settled. Each family’s needs will be different.

The Murdoch case illustrates how important it is to get things right from the outset to protect the beneficiaries from someone trying to make unexpected changes later.

 

 

 

 

DISCLAIMER: All the information published in Trust eSpeaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Trust eSpeaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Disinheriting your children

Estate, Kids, Property, Relationships, Trusts
0

Can it be done?

In New Zealand, people making wills have a great deal of freedom to dispose of their assets as they wish. If, however, a will-maker entirely excludes some close family members from their will, those people will often have claims against the will-maker’s estate.

In the recent case of what is known as the Alphabet case,[1] an abusive father tried to use a trust to disinherit his children on his death.

 

 

Family Protection Act 1955

The Family Protection Act 1955 is designed to protect family members who have been excluded from a will or left without adequate provision. It allows certain groups of people (including spouses, partners and children) to claim against an estate for further provision.

The court follows a two-step approach when evaluating claims under the Act. First, it must decide whether the will-maker owed a duty to the claimant and, if so, whether that duty has been breached. Second, the court must consider what is required to remedy the breach.

The court takes a conservative approach in making awards for further provision. It will do no more than the minimum that it believes is necessary to address any breach of duty. There is no presumption of equal sharing between children, and the court will not rewrite a will based on its own perception of fairness. There is no formula, however, for assessing what is required to remedy a breach; each case depends on its own facts.

Important factors will include the size of the estate, the claimant’s personal circumstances and other competing claims (such as from siblings or a parent/stepparent). In many cases, however, a financially stable adult child might expect to receive 10–15% of a parent’s estate. That could increase if a child is in poor circumstances or has suffered abuse at the hands of their parent.

 

 

Making a successful claim

When a successful claim is made under the Act, the award will be paid from the deceased’s estate. That necessarily means that claims are limited by the size of the estate. If a will-maker has gifted or transferred assets to a trust during their lifetime, or to other people, their estate may have little or nothing left in it. This has the effect of preventing estate claims because there is no estate available.

In the Alphabet case, an abusive father transferred his assets into a trust. His children wanted to bring claims against his estate, but there was nothing in it. They argued that they should effectively be able to unwind the transfer of assets to the trust, so that those assets went back into their father’s estate, and they could bring claims under the Act. This case went all the way to the Supreme Court.

 

 

Alphabet case

In the Alphabet case, the deceased father was referred to as Robert, and his children as Alice, Barry and Cliff. Alice, Barry and Cliff experienced egregious abuse at Robert’s hands and, understandably, did not have a relationship with him.

Robert took deliberate action during his lifetime to transfer most of his assets to a trust. None of his children were beneficiaries of that trust.

Alice, Barry and Cliff argued that Robert owed them fiduciary duties as a parent, and that he breached those duties when he abused them. They argued that the abuse created an ongoing fiduciary obligation which Robert breached when he transferred his assets into a trust. They argued that the transfer of assets could (and should) be unwound on this basis, and Robert’s assets returned to his estate; this would allow them to make claims under the Act.

Fiduciary duties are duties to put someone else’s interests before your own. They usually arise in relationships of particular trust and confidence. The Supreme Court acknowledged the existence of fiduciary duties between a parent and a minor child, but it found that these duties ended when the parent’s caregiving responsibilities ceased. It did not agree that there remained a fiduciary duty owing later on which would prevent Robert transferring his assets to a trust.

The court noted that the Act does not contain any mechanism to ‘claw back’ assets which have been put in a trust or transferred to another person in order to avoid estate claims. It noted that this might be the subject of future law reform but it was not existing law.

Robert’s three children therefore failed in their attempt to bring assets back into Robert’s estate, on which they could then have made Family Protection Act claims.

 

 

Law Commission

The Law Commission recently prepared a comprehensive review of succession law. It proposed that some form of anti-avoidance, or ‘claw back’ provision, be included in any law reform efforts that would address situations such as the Alphabet case.

While the government has considered the Law Commission’s report, it has not yet taken any steps to progress law reform efforts. For the time being, this means trusts may continue to be used in order to prevent some potential estate claims, particularly those brought by children.

[1] A, B and C v D and E Limited as Trustees of the Z Trust [2024] NZSC 161

 

 

DISCLAIMER: All the information published in Trust eSpeaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Trust eSpeaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Supreme Court – Mr Pinney’s trust powers not property for purposes of PRA

Media, News, Property, Trusts
0

Supreme Court Cooper v Pinney – Clayton distinguished – Mr Pinney’s trust powers not property for purposes of PRA

The Supreme Court’s decision in Cooper v Pinney[1] (Pinney) is an important clarification of the application of the principles established by Clayton v Clayton [Vaughan Road Property Trust][2] (Clayton) that a bundle of rights and powers held by an individual under a discretionary family trust can be so extensive as to amount to “property” under the Property (Relationships) Act 1976 (PRA), and the effect of the Trusts Act 2019 (2019 Act) on trust powers and rights.

The judgment is a compelling and well-reasoned analysis of the principles in Clayton and the importance of fiduciary obligations as constraints on trust powers.  The Court’s careful analysis leads to the clear conclusion that the trust deed in Pinney and the trust deed in Clayton “are not alike” and that Mr Pinney’s bundle of trust powers do not amount to property for the purposes of the PRA[3].  The emphasis on the requirement of unanimous decisions by a minimum of two trustees, the fiduciary nature of trust powers and judicial oversight provides valuable guidance for both trust and relationship property practitioners.

This analysis will begin by showing how the definitions of “property” and “owner” under the PRA have been expanded to encompass rights and powers under a trust deed. It will then provide an overview of the Clayton decision, followed by a summary of the Supreme Court’s decision in Pinney.  Finally, the analysis will conclude with a discussion on the application of the mandatory and default duties in the Trusts Act 2019.

 

Relevant PRA definitions

The starting point is the definition of “property” and “owner” in section 2 of the PRA.  The definition of “property” includes “any other right or interest”, and the definition of “owner” includes “the person who, …is the beneficial owner of the property under any enactment or rule of common law or equity”, together these definitions tie into the meaning of “relationship property” at section 8(1) PRA.

That a discretionary beneficiary does not have a beneficial interest in the income or capital of a discretionary trust is well supported by a long-standing line of authorities.[4]  The principle applied in the PRA context provides that discretionary beneficiaries do not have a beneficial interest amounting to property under the PRA, even where there is evidence of a long-standing intention by the trustees to exercise their discretion to favour a particular beneficiary.[5]

However, case law has broadened the definitions of property and ownership to apply to trust rights and powers through application of the purpose and principles of the PRA, it’s statutory context and the social context in which legislation such as the PRA is interpreted.  This “substance-over-form” approach was endorsed by the Supreme Court in Pinney.[6]

Clayton and the Vaughan Road Property Trust (Clayton Deed)

The Supreme Court agreed with the Court of Appeal[7] that a general power of appointment was tantamount to ownership[8].  Defining a general power of appointment as “a power to appoint property to anyone including themselves without considering the interests of anyone else”[9].

Clayton considered whether the bundle of rights comprised of powers and entitlements vested in Mr Clayton by the Clayton Deed gave him effective control, to such an extent that the bundle of rights was appropriately classified as property under the PRA.  Such an analysis must also consider restrictions on the exercise of powers, including how the rights of remaining beneficiaries can exert practical limitations on the exercise of trust powers.[10]

The relevant provisions of the Clayton Deed meant that Mr Clayton could:[11]

  1. apply all of the capital and income of the trust to himself as a discretionary beneficiary;
  2. bring forward the vesting day and appoint all trust capital to himself as a discretionary beneficiary; and
  3. resettle the trust capital on another trust of which he was a beneficiary.

The Supreme Court in Pinney clarified its findings in Clayton as:

… not whether powers or rights conferred by a trust deed actually amount to a general power of appointment.  That status does not necessarily define those powers constituting donee property.  Nor is that status definitive as to whether a power is property for the purposes of the RPA: in Clayton this Court did not find the trust deed actually created a general power of appointment, but rather recognised something analogous to one (which the Court said was property for the purposes of the PRA).[12]

Central to this finding was the “suite of provisions”[13] modifying or removing fiduciary duties. The Supreme Court found that there was no effective constraint on Mr Clayton’s exercise of powers in favour of himself.[14]

Pinney and the MRW Pinney Family Trust (Pinney Deed)

In Pinney the Supreme Court was asked to apply the principle in Clayton that a bundle of trust rights and powers such as those vested in Mr Clayton and unrestrained by fiduciary obligations, are together so extensive as to amount, in effect, to a general power of appointment, and therefore fall within the definition of property for the purposes of the PRA.[15]

Although the Supreme Court states that a finding that goes as far as saying that trust powers actually amount to a general power of appointment is not determinative of those powers being property for the purposes of the PRA.  It also goes on to say:

But a finding that one is dealing with powers amounting in effect to a general power of appointment may offer a short-cut: it tends to be conclusive as to effective ownership by the donee, and an inference can then be drawn that the power concerned is property for PRA purposes.[16][emphasis added]

Dealing with the law applying before the 2019 Act, the Supreme Court found that judicial oversight of trusts is a constraint that can be inconsistent with a finding that trust powers amount to effective ownership by the donee.  Noting that the more intrusive the scope for judicial oversight, the less likely that power is the property of the donee.[17]

Contrasting the terms of the Clayton Deed with those of the Pinney Deed, the Supreme Court found there were several significant differences that were sufficiently material to distinguish the Pinney Deed from the Clayton Deed.  That the power to appoint and remove trustees does not allow Mr Pinney to take sole control of the trust was found to be sufficient on its own to distinguish the Pinney Deed from the Clayton Deed.  The Supreme Court went on to state that even if unilateral control were possible, the powers to dispose of trust assets in Pinney were still constrained by fiduciary obligations.[18]

The Supreme Court framed its analysis under the following headings:[19]

  1. The deeds distinguished: The main similarity between the Clayton and Pinney deeds are the almost identically framed broad discretionary powers to distribute income and capital to discretionary beneficiaries.  But noting four significant differences:
    1. Appointment and removal of trustees: Both deeds confer a power to appoint and remove trustees, including to self appoint. However, the power contained in the Pinney Deed is subject to the requirement for a minimum of two trustees.  By contrast, the power contained in the Clayton Deed allows Mr Clayton to appoint himself sole trustee.[20]
    2. Unanimity: The Pinney Deed requirement for all trustee decisions to be unanimous, combined with the minimum of two trustees, meant that every decision “must be the product of a meeting of the minds of more than one trustee”.  Whereas the Clayton Deed allowed a sole trustee to act freely, only requiring unanimity where there is more than one trustee appointed.[21]
    3. Exclusion of fiduciary constraints: Both deeds have general clauses purporting to allow trustees to make decisions in their “absolute and uncontrolled discretion”.  The Pinney Deed went no further.  However, the Clayton Deed went on to expressly exclude obligations, such as the core obligation of a trustee to consider the interests of the beneficiaries.[22]
    4. Removal of beneficiaries: The Clayton Deed allowed Mr Clayton to remove all discretionary beneficiaries leaving himself the sole discretionary beneficiary, and to appoint all of the trust assets to himself before the vesting day, leaving nothing for the final beneficiaries.  There are no equivalent powers in the Pinney Deed.[23]
  2. The trustee appointment power remains fiduciary and constrained: Counsel for Ms Cooper argued that Mr Pinney could appoint himself and another trustee who would act on his direction, or a corporate trustee controlled by Mr Pinney, to then appoint all the trust assets to Mr Pinney.

The Supreme Court did not accept that argument.  Finding that exercise of the power of appointment with the intention of taking sole control of the trust would be a breach of the proper purpose rule and inconsistent with the fiduciary nature of the power of appointment and removal of trustees.[24]  By finding that the power as expressed in the Pinney Deed is fiduciary in nature, it follows that it must be exercised in good faith and in the interests of the beneficiaries, and not for any improper purpose.[25]

The Supreme Court felt that was sufficient to dispose of the case, but for completeness, went on to address the powers to dispose of trust capital and income.

  1. The remaining trustee powers likewise are fiduciary and constrained: Counsel for Ms Cooper also relied on provisions of the Pinney Deed allowing Mr Pinney to direct that the trustees appoint all trust assets to himself as a discretionary beneficiary to the exclusion of all others.[26]

In considering the argument for completeness, the Supreme Court noted the substantive difficulty with that argument is that the trust ownership arrangement is still subject to an “irreducible core” of duties owed by a trustee which are a fundamental trust concept: the duty to perform the trust honestly and in good faith for the benefit of the beneficiaries.[27]

  1. Mr Pinney’s powers are not his property for PRA purposes: The Supreme Court said it best, and I for one cannot do better.  So here it is in the words of Winkelmann CJ and Kόs J:[28]

[125] It will be clear by now that we consider the combination of powers reserved to Mr Pinney under the MRWT deed to be significantly different to those powers reserved to Mr Clayton in Clayton v Clayton.  A power analogous to a general power of appointment is not created.  Rather, the core power in cl 15 to appoint and remove trustees remains limited by the proper purpose rule and bound by the fiduciary obligations that it be exercised in good faith and in the interests of the beneficiaries.  So too are the dispositive powers in cls 4, 6 and 7 – powers which are moreover constrained by the two-trustee requirement and the requirement of unanimity.  The general discretion provision in cl 13 does not alter this analysis, and nor does the limited variation power in cl 12.  The distinctions between the VRPT deed in Clayton and the MRWT deed are therefore sufficiently material to warrant different classification in terms of the PRA definition of “property”.  The two cases are not alike.

[126] It follows that we do not consider Mr Pinney enjoys a personal property right in respect of the bundle of powers vested in him by the MRWT deed.

Application of the Trusts Act 2019

Although the 2019 Act came into force on 30 January 2021 and applies to all express trusts whether created before or after commencement, it was accepted that the 2019 Act did not directly apply to Pinney.  Because Pinney was commenced prior to the 2019 Act coming into force the proceedings were governed by the 1956 Act, due to the effect of sch 1 cl 8 of the 2019 Act and s 18 of the Interpretation Act 1999.

Despite this the Supreme Court highlights the intention of the 2019 Act to “restate and reform” the law of trusts in New Zealand by “setting out the core principles of the law relating to express trusts”[29]. Further emphasising that the mandatory duties – to know, and to act in accordance with, the terms of the trust; to act honestly and in good faith; to act for the benefit of the beneficiaries; and to exercise powers for a proper purpose – were “intended to restate and summarise the current legal position”[30].

The fiduciary obligations imposed on trustees and implied in all trust deeds by the mandatory and default duties contained in the 2019 Act, are likely to have a significant effect on the status of a bundle of trust rights and powers for the purposes of the definition of property under the PRA.

It seems that trusts will continue to provide some limited protection for beneficiaries in PRA proceedings, at least where the fiduciary obligations in the mandatory duties are combined with relevant default duties and a requirement for two-trustee unanimous decision making.

Will we ever see the like of Clayton again?  One certainly hopes not.

[1] Cooper v Pinney [2024] NZSC 181

[2] Clayton v Clayton [Vaughan Road Property Trust] [2016] NZSC 29, [2016] 1 NZLR 551.

[3] Cooper vi Pinney, above n 1 at [125]-[126].

[4] Cooper v Pinney, above n 1 at [90], citing Gartside v Inland Revenue Commissioners [1968] AC 553 (HL) at 607 per Lord Reid, Lord Morris of Broth-y-Gest and Lord Guest and 617-618 per Lord Hodson and Lord Wilberforce concurring.

[5] Cooper v Pinney, above n 1 at [91].

[6] Cooper v Pinney, above n 1, at [34]-[36].

[7] Clayton v Clayton [2015] NZCA 30 at [99] and [111].

[8] Clayton v Clayton, above n 2 at [60]-[61].

[9] Cooper v Pinney, above n 1 at [38].

[10] Clayton v Clayton, above n 2 at [50]; Cooper v Pinney, above n 1 at [40].

[11] Clayton v Clayton, above n 2 at [52]-[55]; Cooper v Pinney, above n 1 at [41].

[12] Cooper v Pinney, above n 1 at [93].

[13] Cooper v Pinney, above n 1 at [42].

[14] Clayton v Clayton, above n 2 at [67]; Cooper v Cooper, above n 1 at [42].

[15] Cooper v Pinney, above n 1 at [1] and [92].

[16] Cooper v Pinney, above n 1 at  [94]; See Australian Securities and Investments Commission v Carey (No 6) [2006] FCA 814, (2006) 153 FCR 509 at [19].

[17] Cooper v Pinney, above n 1 at [98].

[18] At [100].

[19] At [101]-[102].

[20] At [102(a)].

[21] At [102(b)].

[22] At [102(c)].

[23] At [102(d)].

[24] At [104]-

[25] At [115].

[26] At [116].

[27] At [116]-[118].

[28] At [125]-[126].

[29] Cooper v Pinney, above n 1 at [67]; Trusts Act 2019, s 3(a).  Among other maters: see paras (b)-(d).

[30] Cooper v Pinney, above n 1 at [67]; Trusts Act 2019, ss 23, 24, 25, 26 and 27; and Law Commission Te Aka Matua o te Ture Review of the Law of Trusts: A Trusts Act for New Zealand (NZLC R130, 2013) at 107.

Failure to return an employee’s personal information led to expensive results for an employer

Commercial, Employment, First Job, Latest news, Media, News, Online, Relationships, Social Media, Trusts
0

In a recent decision of the Human Rights Review Tribunal an employer has been ordered to pay an ex-employee damages of $60,000 for interfering with the employee’s privacy.

 

The CEO invited the employee out of the office for a coffee meeting. During that meeting, the CEO gave the employee a letter detailing concerns about the employee’s performance. While they were out of the office, a director of the employer took the employee’s work laptop, personal USB flash drive, and personal cell phone from the employee’s desk without the employee’s consent or knowledge.

 

About a week later, the employee’s employment was terminated.

 

The employer later returned the personal cell phone, but did not return the personal information that had been stored on the work laptop or the employee’s USB drive.

 

Despite several requests over a long period of time, the employer failed to return the employee’s personal information and USB drive. Instead, the employer effectively blocked the employee’s attempt to obtain the return of his information, engaging in a range of tactics that delayed the return of the information.

 

The Tribunal found that the employer had collected the employee’s personal information when uplifting the laptop, cell phone and USB. It went onto find that the employer had breached information privacy principles 1, 2, and 4 of the Privacy Act 1993 because the employer had not collected the personal information for a lawful purpose or directly from the employee, and the personal information was collected in circumstances that were unfair and constituted an unreasonable intrusion on the employee’s personal affairs.

 

The Tribunal went on to determine that the breaches were an interference with the employee’s privacy as they had caused significant humiliation, injury to feelings and loss of dignity to the employee. In support of this finding, evidence had been provided by the employee that three weeks after the collection of his information, he was formally diagnosed with acute anxiety and depression, prescribed antidepressants, and sleeping medication. The employee had also started attending counselling.

 

The employer argued that the health conditions were caused by the loss of work, not by breaches of the collection principles. However, the collection does not need to be the sole cause of the consequences suffered.

 

Emails and other correspondence in evidence showed that the health conditions were attributable to distress about the collection of the information, including the inability to retrieve it, and not knowing who had seen it, and who was using and sharing the personal information

 

The Tribunal also found that the collection had caused the employee loss and detriment when he couldn’t complete his tax return on time, leading to a penalty. It also negatively affected his interests as it impacted his health, his career prospects and removed access for him to a personal USB and he did not have access to all his personal information that had been on his laptop.

 

The Tribunal found that an award of damages of $60,000 appropriately reflected the significant level of humiliation, loss of dignity and injury to feelings experienced by the employee because of the wrongful collection of his personal information.

 

A prompt return of the personal information wrongly collected would have significantly reduced the humiliation, loss of dignity and injury to feelings experienced and therefore the amount of any award.

 

This claim was decided under the Privacy Act 1993 because the actions all occurred prior to that act being replaced by the Privacy Act 2020. However, it is still relevant to conduct under the 2020 Act – information privacy principles 1 – 4 and the test to show an interference with privacy has remained largely unchanged.

 

The decision is: BMN v Stonewood Group Ltd [2024] NZHRRT 64.

 

Joanne Dickson

Relationship Property Claims by a Partner – Part 1

Property, Relationships, Trusts
0

A Contracting Out Agreement (COA) is an estate planning necessity for blended families.

 

The relationship property landscape is changing, and some popular protection tools are becoming less effective. Trust busting cases like Clayton v Clayton show the court’s willingness to treat trust property as relationship property in the event of separation, especially where assets are transferred into a trust during a relationship.

 

A COA is the most effective tool to ensure a couple’s assets and liabilities are divided as they intended on separation or death.

 

If there is no COA, then couples in a marriage, de facto relationship or civil union are exposed to claims against potentially all of their assets and liabilities (even if in trust) on a 50/50 basis.

 

On death, the surviving partner can elect to either:

 

  • Apply for division of relationship property in accordance with the Property (Relationships) Act (the Act), the presumption being a 50/50 split; or

 

  • Accept the gift under their partner’s Will and retain any individually and jointly owned property.

 

A COA can prevent a surviving partner (or their children, as discussed in our next article) from making a claim for division of relationship property under the Act on death.

  Libby McDonnell.

Wait! Before you sign that pre-nup! Step 1 – Independent Lawyers

Relationships, Retirement, Trusts
0

In the first article of this series, we introduced the 3 key steps you must take before signing the contracting out agreement for it to be valid:

  1. Independent lawyers
  2. Disclosure
  3. Advice

 

In this article we will look more closely at Step 1 – Independent lawyers.

 

Does that mean we just get two different lawyers?

Not only does this mean you each need separate lawyers for the contracting out agreement, but those lawyers should also be at separate firms.  And it goes even further, the lawyer advising you should not have previously acted for your partner either.  This ensures that the lawyer who is advising you does not owe any ongoing duties to your partner as a client that would conflict with the lawyer’s duties to you as a client.  In some circumstances the lawyer may still be able to act for you, if you and your partner give fully informed consent.

 

So how does it benefit you?

The RPA states that the agreement is void unless you receive advice from an independent lawyer.

 

Your legal interests in protecting certain assets against a relationship property claim will often differ from your partner’s legal interests on separation.  Having an independent lawyer protects you and ensures the advice you receive is about how the agreement will affect your rights and what the implications are for you, independently of your partner’s interests in contracting out.  It can help ensure the agreement is future proofed, reducing your legal costs for updating the agreement as your relationship develops, and significantly reduces the risks of having the agreement overturned by a Court for being seriously unjust.

 

Next time Step 2 – Disclosure (and a hot tip on how to reduce your legal costs!)

 

Kerry Bowler, SolicitorKerry Bowler, solicitor

Contracting out agreements for relationships late in life

Estate, Property, Relationships, Trusts
0

A wise move as financial affairs are more complex

You may think that a ‘pre nup’ is most commonly used when a young couple begins a relationship and there is a significant difference in their financial position. However, these agreements, formally known as contracting out agreements (COAs), can be entered into at any time during a relationship. They are particularly useful for couples entering into a de facto relationship, or marrying later in life, as both parties are more likely to come to the relationship with more complex financial affairs.

 

 

Why have a COA?

One of the couple may have been through a previous separation or the loss of a spouse. They may have children – dependent or adult. They may also have trust or company structures that make their overall asset profile less straightforward from a relationship property perspective than younger couples who are just getting started with their lives together.

In these cases, a COA can give both parties (and their families) clarity about what will happen to their assets if one of them dies, or if they decide to separate.

A COA is a way of opting out of the default rules as to how the division of property is dealt with under the Property (Relationships) Act 1976 (PRA). Without a COA, the default approach would apply; this generally means that relationship property assets are divided 50:50. An equal split, however, is not always appropriate. In complex cases, parties can end up in protracted court cases trying to figure out how the PRA applies to their particular situation.

While the default rules are a helpful fallback position where people cannot agree how property will be divided, the PRA does not necessarily reflect what all couples would regard as ‘fairness.’ The legislation also does not take account of fact-specific or unusual cases. COAs allow couples to set in place clear and bespoke rules that apply to their particular circumstances, and their specific assets, in the event their relationship or marriage breaks down.

 

 

Opens up discussion

One of the benefits of considering a COA is that it opens up the discussion between a couple as to what they would like to happen to their property, or what they might consider fair, in the event that one of them dies or they separate. Often we find that couples have never had this conversation, but have made assumptions about what will happen or what their partner thinks should happen.

In particular, these assumptions can be harshly tested and shown to be wrong when a partner dies unexpectedly. The surviving partner may find that they have radically different expectations about what will happen compared with the deceased partner’s children and any other parties involved in such an estate.

The same issue can arise if a couple separates. Efforts to resolve relationship property issues may be made in circumstances where the partners’ perceptions of fairness have changed over time. There may have been unequal financial contributions made during the relationship or owing to events, such as infidelity, that have occurred during or which ended the relationship.

 

 

Complex finances

Where a couple has a complex financial situation, including trust and company structures, a COA should be supported by documents between the parties and the trusts or companies, so that no assets fall through the cracks or fail to be taken into consideration. It is important for couples to seek independent advice about the types of documents required, and their effect.

 

 

Review a COA regularly

It is also critical that couples review their COA as life changes. When properties are bought and sold, home improvements funded or other big changes happen, the COA may become out of date and difficult to apply. A new agreement, or an amendment to an existing agreement, can ensure that everyone has clarity about what the changes mean and what their effect will be if there is a death or separation.

A COA can only be enforced if both parties have received independent legal advice and both lawyers certify the agreement. This requirement ensures that both parties are fully informed about the effect of the agreement.

 

 

DISCLAIMER: All the information published in Trust eSpeaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Trust eSpeaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Do I still need a trust?

Commercial, Estate, House, Property, Retirement, Rural, Trusts, Your Own Business
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Thousands of Kiwis have, over the years, established family trusts for a variety of reasons. However, it’s well worth considering whether those reasons are still relevant today and evaluating whether your trust may have outlived its usefulness.

You may have established your family trust for:

  1. Avoiding estate duty: before 1992 it was common for high value assets (such as farms) to be transferred to a trust so your personal estate would not have to pay estate duty
  2. Eligibility for the residential care subsidy: trusts were often settled to increase the likelihood of being eligible for the residential care subsidy; the Ministry of Social Development (MSD) only considered assets you owned personally when considering eligibility for the subsidy
  3. Minimising tax: Fluctuating tax rates over the years have sometimes provided a lower tax rate for trusts than the highest rate of personal tax
  4. Creditor protection: Transferring your personal assets to trust ownership means that your personal creditors may have more difficulty accessing those assets to recover personal debts you owe
  5. Estate planning: Children may make claims against their parents’ estates where they believe their parents have made no, or inadequate, provision for them. Transferring assets to a trust during one’s lifetime leaves little or nothing for children to claim against on your death. Trusts also allow assets to be ring-fenced to help with the care of differently abled children
  6. Relationship property: settling a trust, either before your relationship is ‘in contemplation’ or afterwards (provided a contracting out agreement is also signed), is one way to help remove assets from the potential pool of relationship property that would be available for division if your relationship ends.

Things have changed

These days, however, estate (and gift) duty is no more, the top personal tax rates will soon be realigned with trust tax rates, and MSD takes a closer look at trusts when considering residential care subsidy applications. There has also been increasing court action on trusts where it is believed they may have been used to avoid creditors, claims by children and relationship property claims.

In addition, there are further consequences in settling trusts in New Zealand if you are an American citizen, from the UK (even though you may be tax resident in New Zealand), or if you are tax resident in Australia.

Notwithstanding the above, trusts are still very useful vehicles, particularly for creditor protection, estate planning and relationship property purposes.

Trust deeds, however, should be carefully drafted and have the correct documentation in place around them. Excellent legal, accounting and tax advice is needed to ensure that your trust will do the job you want it to.

If you have a family trust that may no longer be fit for purpose, or you think you need an asset protection plan, please talk with us about the options available to you.

DISCLAIMER: All the information published in Fineprint is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Fineprint may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Can your ex-spouse claim your property when you die?

Property, Relationships, Trusts
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Agreeing on a division of relationship property after you and your spouse separate can be fraught. Usually, emotions are highly charged.

When de facto couples separate, they can resolve their relationship property division immediately, and have no further financial involvement with each other. When married couples separate, however, they cannot divorce for two years and often divide their relationship property while still married. When a divorce does not take place immediately, this can mean the separated spouses still have rights – for example, to inherit if one of them dies. If the separated spouses do not intend this, their relationship property division must specifically address inheritance in order to prevent unintended consequences.

 

Relationship property agreement

A recent High Court decision[1] illustrates the type of problems that can arise. Alan O’Donoghue and Marc Comia married in 2016 and separated in 2019. The couple entered into a 2020 agreement about the division of their relationship property which was stated to be ‘in full and final settlement of all property claims each party has against the other, under any statutory enactment, in equity or in common law.’ The marriage was never formally dissolved. Alan died in 2021 without a will, so was ‘intestate.’

 

Separated spouse to benefit from intestacy?

Alan and Marc had no children. Alan was survived by his mother, but she gave up any interest in his estate. In those circumstances, unless the 2020 agreement was effective to resolve inheritance as well as relationship property matters, then Marc, as Alan’s husband (despite the separation) was entitled to the whole of Alan’s estate by virtue of section 77 of the Administration Act 1969, the legislation that sets out the shares in which surviving relatives are entitled to an intestate deceased’s estate.

Usually, unless there are special circumstances, the person with the highest beneficial interest in an estate will also be appointed administrator. Marc applied for letters of administration in Alan’s estate without disclosing the existence of the agreement. Marc knew that Alan’s brother, Russell, took the view that the agreement meant Marc was no longer entitled to inherit any of Alan’s property. If Marc had contracted out of any entitlements under s77 then Russell, rather than Marc, was entitled to his late brother’s estate and therefore entitled to letters of administration.

 

Contracting out of succession rights

The High Court had to grapple with the question of whether it was possible to contract out of a statutory entitlement to inherit on intestacy under s77. Cases considering this issue are rare because it is usual for a person who has separated and entered a relationship property settlement to make a new will.

Further, the issue only arises where a marriage has not been formally dissolved after a separation; de facto relationships come to an end when the relationship finishes. It is only a marriage which can subsist after separation, and until the parties formally divorce.

The High Court determined, following a 2013 case,[2] that, as a matter of policy, contracting out of an interest under s77 was possible. However, for the ‘contracting out’ to be effective, the agreement in which it is undertaken must comply with the safe-guarding conditions set out in the Property Relationships Act 1976 (PRA). These conditions include that each party to the agreement receives independent legal advice before signing and that a lawyer who witnesses a party’s signature must certify that the implications of the agreement have been explained to that party.

In Donoghue the agreement did not comply with these requirements. However, there is a procedure whereby a non-complying agreement can be declared to have effect anyway. Therefore, the court recalled the grant of letters of administration to Marc, appointed Russell as administrator of his brother’s estate and directed Russell to apply to the Family Court for a determination on the effectiveness of the agreement.

All these extra steps could have been avoided.

 

Lessons to be learned

It is very welcome that the High Court has confirmed that it is possible for separating spouses to contract out of their entitlements under the Administration Act 1969. Naturally for any such agreement to be effective, it must comply with requirements of the PRA. The situation in which Alan left his brother Russell could have been avoided entirely if Alan had made a new will at the same time the agreement was entered into in 2020, which should be usual practice, or if Alan and Marc had divorced after their separation.

If you are going through a separation, we strongly recommend you both make a new will immediately after the separation documentation is completed and/or you divorce as soon as practicable. It could save you and your family a great deal of time, money and emotion.

[1] O’Donoghue v Comia [2023] NZHC 2735.

[2] Warrender v Warrender [2013] NZHC 787.

 

 

 

DISCLAIMER: All the information published in Trust eSpeaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Trust eSpeaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650