Supreme Court Archives | Edmonds Judd

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

January 31, 2025

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]

apply all of the capital and income of the trust to himself as a discretionary beneficiary;
bring forward the vesting day and appoint all trust capital to himself as a discretionary beneficiary; and
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]

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]
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.

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]

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.

Polyamorous relationships

September 11, 2023

Amanda Leahy

Property, Relationships

Supreme Court confirms that the Property (Relationships) Act can apply

In a split decision, the Supreme Court recently confirmed by 3:2 that polyamorous relationships (that is, relationships between three or more people) can be subdivided into two or more qualifying relationships, to which the provisions of the Property (Relationships) Act 1976 (which applies to relationships between two people) can apply.

Background

Brett and Lilach Paul married in 1993. In about 1999, Brett and Lilach met Fiona. The three formed a triangular relationship in 2002.

During their 15-year relationship, all three lived on a farm at Kumeu that was registered in Fiona’s name. Lilach separated from Fiona and Brett in 2017. Fiona and Brett separated a few months later in 2018.

Family Court

In 2019, Lilach brought an application in the Family Court, in which she sought orders determining the parties’ respective shares in relationship property, including the Kumeu farm.

Fiona objected to the court’s jurisdiction, on the basis that the parties were not in a qualifying relationship for the purposes of the Property (Relationships) Act 1976 (PRA).

The Family Court sought guidance from the High Court about its jurisdiction to hear the case.

High Court

In the High Court, Justice Hinton held that the Family Court did not have the jurisdiction to determine the property rights of three people in a polyamorous relationship, because the requirement, under section 2D of the PRA that the parties be living together as a couple, excluded a scenario where all three people are participating in a multi-partner relationship. Lilach appealed and the case went to the Court of Appeal.

Court of Appeal

The Court of Appeal disagreed with the High Court’s framing of the question put to it and found that jurisdiction could exist in the case of a polyamorous relationship.

The court agreed that the PRA was concerned with relationships between two people, meaning that polyamorous or multi-partner relationships are not qualifying relationships under the PRA. The court noted, however, that sections 52A and 52B of the PRA specifically provide for claims where a person is in multiple contemporaneous qualifying relationships. It found that the PRA does not require exclusive coupledom.

Within that context, the court held that the relationship between the parties could be viewed as three separate, but contemporaneous, qualifying relationships – a marriage between Brett and Lilach, a de facto relationship between Brett and Fiona and a de facto relationship between Lilach and Fiona.

Fiona appealed to the Supreme Court.

Supreme Court decision in June

In a decision released in June 2023,^[1] the Supreme Court (by a 3:2 majority) dismissed the appeal and confirmed that the PRA could apply to polyamorous relationships.

Specifically, the court held that:

A triangular (three-party) relationship cannot itself be a qualifying relationship, but
A triangular relationship can be subdivided into two or more qualifying relationships.

In reaching this conclusion, the three Supreme Court judges who were in the majority noted that it was not contentious that the PRA applied to what it referred to as ‘vee’ relationships. A vee relationship is one where party A is married to party B, and A is also in a consecutive or concurrent de facto relationship with C, but where parties B and C may not know about each other, and may or may not live in the same residence.

The question was then whether the ‘triangularity’ of the relationship (ie: the existence of a relationship between parties B and C) makes any difference to the analysis. The majority held that it did not.

As noted, the Supreme Court decision was spilt 3:2, with the minority indicating that they would have allowed the appeal.

Practical implications

Following this decision, there may be increased interest by parties in polyamorous relationships in having contracting out agreements put in place. There are also likely to be claims under the PRA following the breakdown of a relationship, or on the death of a party to the relationship.

As all the decisions to this point have dealt only with the question of jurisdiction, no decisions have been made yet about the division of property between Lilach, Fiona and Brett. That issue will be sent back to the Family Court.

^[1] Mead v Paul [2023] NZSC 70.

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Decision in ‘Alphabet case’ could change succession landscape

September 11, 2023

Amanda Leahy

Kids, Property, Relationships, Trusts

Significant issues raised

In June 2023, the Supreme Court heard the ‘Alphabet case.’ To understand the significance of what is at stake in this case, it is worth considering the facts that gave rise to the litigation and the High Court’s decision.

Abuse of A, B and C by Mr Z

Mr Z and Ms J married in 1958 and separated in 1981. They had four children: G (1960-2015), A (b 1961), B (b 1963) and C (b 1971).

Mr Z severely abused Ms J and the children physically, psychologically and sexually. A was repeatedly raped between the ages of seven and 13, but she did not disclose the abuse to anyone until 1983. She did not tell her mother until 1991. A was unable to face taking action against Mr Z.

Mr Z died in 2016 leaving an estate valued at $46,839. He had, however, settled a trust two years previously for the express purpose of preventing his family from “chasing” his assets, to which he had gifted his home and investments worth $700,000. The children were not beneficiaries of Mr Z’s estate or the trust; rather, the trust’s beneficiaries were the children of Mr Z’s former partner.

Children’s claims

That should have been the end of the matter because the Family Protection Act 1955 (FPA), that allows children to challenge their parents’ wills, only applies to assets a deceased owned in their personal names; it doesn’t apply to trust assets.

However, the children argued that their father owed them a fiduciary duty and, that because of the abuse, he continued to have obligations to them even after they became adults. They said that Mr Z had breached that duty when he gifted his home and shares to the trust in order to prevent his children from claiming against those assets under the FPA.

In the High Court

In the High Court,^[1] Justice Gwyn agreed with the children and said they could bring claims under the FPA against the assets that had been transferred to the trust.

The trustees of Mr Z’s estate and trust appealed to the Court of Appeal.

Court of Appeal divided over case

The Court of Appeal^[2] accepted that Mr Z owed a fiduciary duty to his children and that he breached that duty when he abused them. The issue was whether Mr Z continued to owe those fiduciary duties to his adult children at the time he gifted his assets to the trust.

The majority of the Court of Appeal judges disagreed; they said that the appropriate remedy for the breach of fiduciary duty was equitable compensation (and the children had run out of time to make that claim).

However, one judge said that in some circumstances the inherently fiduciary relationship between a parent and a child may continue after a child becomes an adult (for example, in the case of a severely disabled child).

The judge (who was in the minority, so their views don’t affect the final outcome) decided that A’s position, owing to the abuse she suffered, was analogous to that of a disabled child. Mr Z therefore had a continuing duty to take steps to remedy, as best he could, the enormous harm he inflicted on A, not only when she was living in his care, but also during her adult life. This meant he was required to protect her interests when considering gifting his principal assets to the trust, and failed to do so.

Decision awaited

The Supreme Court will tell us whether Mr Z owed a continuing fiduciary duty to A into her adult life because of the abuse he perpetrated on her. Many commentators believe that it is stretching the concept of a child/parent fiduciary duty too far.

If legal principles cannot evolve, however, a situation may emerge where extraordinarily meritorious claimants are left with no effective relief, simply because too much time has passed, and/or because their parent transferred their assets into a trust to prevent claims after they have died.

That raises two questions:

Should time count against people such as A, who have been so seriously abused by a parent?
Should parents be allowed to transfer their assets into a trust in order to prevent their children making claims after their death?

^[1] [2021] NZHC 2997.

^[2] [2022] NZCA 430.

Tikanga in the law of Aotearoa New Zealand

June 2, 2023

Amanda Leahy

Uncategorized

Role of tikanga in Peter Ellis’ conviction, death and exoneration

Late last year the Supreme Court quashed Peter Ellis’ multiple 1993 convictions of sexual offending against children who had attended the Christchurch crèche where he was a teacher^[1]. His 1994 and 1999 appeals to the Court of Appeal had been unsuccessful. In July 2019, the Supreme Court granted leave to appeal the Court of Appeal decisions giving an extension of time to do so.

However, Mr Ellis died in September 2019 before the Supreme Court heard his case. Usually, an appeal dies with an appellant.

The Supreme Court was therefore asked to deal with a fascinating question: should the appeal continue despite Mr Ellis’ death? Ultimately, the Supreme Court decided that the appeal should go ahead^[2]. It was necessary to hold two hearings on separate days to determine that issue. The second hearing concerned, exclusively, the relevance of tikanga Māori to the continuation of the appeal.

The nature of tikanga

Before the Supreme Court deliberated, it was provided with a ‘Statement of Tikanga’ prepared by recognised tikanga experts. The statement began with an explanation of the nature of tikanga. It said that tikanga is the Māori ‘common law’. It described tikanga as a system of law that is used to provide predictability; it is made up of templates and frameworks to guide actions and outcomes. The term ‘tika’ means ‘to be right’. Tikanga Māori therefore means the right way of doing things in Te Ao Māori. It is what Māori consider is just and correct. Tikanga Māori includes all the values, standards, principles or norms that Māori subscribe to, to determine appropriate behaviour.

Tikanga at the heart of New Zealand’s common law

The Supreme Court used the Ellis case to deal with the place of tikanga in the law of Aotearoa New Zealand more generally. While the Supreme Court was divided on the issue of whether it should allow Mr Ellis’ appeal to proceed after his death, it was unanimous that tikanga has been, and will continue to be, recognised in the development of this country’s common law in cases where it is relevant. Tikanga also forms part of New Zealand law as a result of being incorporated into statutes and regulations. It is incorporated in the policies and processes of public entities and it may be a relevant consideration in the exercise of discretions.

Ascertaining tikanga

A Supreme Court majority held that the colonial tests for incorporation of tikanga in the common law should no longer apply. Rather, the relationship between tikanga and the common law will evolve contextually and, as required, on a case-by-case basis.

The majority judges accepted that tikanga was the first law of Aotearoa New Zealand and it continues to shape and regulate the lives of Māori. Therefore, the courts must not exceed their function when engaging with tikanga. The opinion was expressed that care must be taken not to impair the operation of tikanga as a system of law and custom in its own right. Where tikanga is relevant to a given case, the appropriate method of ascertaining it will depend on the particular circumstances of that case.

Importance of tikanga not confined to Māoridom

The Supreme Court recognised that the Ellis case concerned a Pākehā appellant and, as far as it was aware, none of the complainants were Māori.

It was determined, however, that the principles developed on deciding whether an appeal should proceed after an appellant has died should be capable of meeting the needs of all New Zealanders, including Māori. The court stated that Māori values in relation to the interests of tūpuna or ancestors are different from what are often termed ‘Western values’ that primarily informed the development of the English common law and on which our legal system is primarily based.

Future developments

The Supreme Court’s decision in Ellis will have had an immediate and forceful impact on Mr Ellis’ family, as well as the complainants and their families. However, the examination of the place of tikanga in the law of Aotearoa New Zealand more generally, and the resulting findings, have the potential to place tikanga at the centre of this country’s legal system for all New Zealanders over the course of the next generation.

It can safely be said that when general principles need to be determined from a particular case, tikanga will be considered regardless of whether any of the parties are Māori. Once Māori values touch upon the general issue in question in a way which is distinct from ‘Western values’ it appears tikanga will have to be considered.

Notably the Law Commission, in its Review of Succession Law: Rights to a Person’s Property on Death which predated the Ellis decision, had already recommended numerous changes to New Zealand’s succession law which would mean a much greater recognition of tikanga within it.

^[1] Peter Ellis v R [2022] NZSC 115.

^[2] Peter Ellis v R [2022] NZSC 114.