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Millett LJ, 713: . . . there is an irreducible core of obligations owed by the trustees to the beneficiaries and enforceable by them which is fundamental to the concept of a trust. If the beneficiaries have no rights enforceable against the trustees there are no trusts.
- husband and wife move assets into discretionary trusts - trustee was company which they controlled - had power to change shareholdings in existing trustee - additionall power of appointment and removal of trustees
HELD: the intention of couple was to retain complete control over the use and joyment of the assets. @[22] There is no doubt that the terms of the deed appear on their face to separate the legal title from the beneficial interests. But that may not be the substantial effect of the arrangement. As a matter of substance the only significant change which appears to be effected by the deed in this case is that the husband’s shares in HWL, which he originally held personally, have fallen into the joint control of himself and his wife. The husband and wife are otherwise in the same position as they were before entering into the deed, inasmuch as they have postponed to the future whether or not the house or the shares or any other assets will pass to the benefit of their children or any other persons.
in clayton , discussing TMSF: @ [125] In TMSF, the Privy Council found that the settlor’s powers to revoke the trust were such that the settlor could be regarded as having rights tantamount to ownership. It made no finding about the status of the trust in the period before the revocation powers were exercised, because it was not required to do so in order to resolve the issue before it. However, there was nothing in the judgment to indicate that the trust was invalid in the period before the power to revoke it was exercised . . .
bennet 2020 discussinog 217 @[68] the Privy Council considered whether a power of revocation retained by a settlor could be regarded as a right that the settlor should be required to transfer to receivers. In effect the trust did not protect the settlor from claims against the property they had transferred to it, but the Board did not find that the trust was invalid.
- Wealthy Russian businessman - English assets held in NZ trusts - Owned Russian bank which became insolvent & collapsed, and was accused of misappropriating large $$ from it. Freezing orders were made on his assets worldwide - Pugachev and his family had assets settled in discretionary trusts (pugachv and family members as discretionary beneficiaries) - NZ trusts had companies as trustees. - significant feature across the trusts was Pugachevs powers as trust protector. Asserted he had so much power over the trusts and assets that it was in effect his rather than assets being held for beneficiaries (bennet (2020)
Bennet 2020: Case focuses more on whether a protectors powers MUST be fiduciary, or can be non-fiduciary in nature. The term "taking into account all relevant circumstances" is to be interpreted as not including the subjective intentions of the settlor, but DO include the role of the protector as settlor, trustee, and/or discretionary beneficiary and the powers conferred on the protector. Birss J found that when taking these relevant circumstances into account, the trust deeds true effect was to make Pugachev the beneficial owner
MY POV: it's interpreted as if a protector must have a fiduciary role, yet a beneficiary should have the right to act in their own interests, the two are at odds with each other; how can you be both at the same time?
Pugachev had powers to - add discretionary beneficiaries - add a new protector - add or remove trustees "with or without cause" - trustees needed his written consent before exercising a number of their powers and discretions: distribution of any income/capital, investment, removal of beneficiaries, variation of the deed, etc - pugachev had the right to reside in property - direct sale of regisdential property to some extent (Bennet 2020)
bennet pg218, @ [87] MR webb argued in his defence that: Mr Webb argued that exercising these powers for his own benefit would be a breach of his fiduciary duties as the trustee, 17 3 and that interpreting the deed in a way that would allow him to so benefit would be contrary to the trial court's finding that he intended to create valid trusts. 17 4 To this, the Board responded that "[a]cceptance that Mr Webb intended to create trusts does not in any way preclude a finding that he reserved such broad powers to himself as settlor and beneficiary that he failed to make an effective disposition of the relevant property." It also observed that Mr Webb's power to remove other beneficiaries was held as settlor, and not in his capacity as trustee or consultant of the trust, which meant they were: 176 ... amply sufficient for Mr Webb to arrange matters in such a way that he alone would hold the trust property on trust for himself and no-one else, with the consequence that the legal and beneficial interest in all of that property would vest in him. i.e., they bound his "bundle of rights" indistinguishable from ownership
Bennet 2020 - Case from the Cook Islands - Nature of dispute very similar to Clayton - Married couple separated, mr Webb claimed he held no matrimonial property as much of it was settled into trusts - Mrs webb argued the trusts were invalid and the assests in the trusts were matrimonial property, claiming limitation on beneficiary rights to information, and Mr Webss intention to retain control/ownership of trust property. - Lower court disregarded arguments, interpreting that Mrs webb asserting sham. Overturned by court of appeal, applying ratio from Clayton and Pugachev COURT OF APPEAL HELD THAT: after applying the beneficial ownership test, there was no trust
stated that the key question to ask was "whether, on an objective analysis of the powers reserved to Mr Webb in the trust deeds, Mr Webb had evinced an intention to irrevocably to relinquish his beneficial interest in the trust property.
@216 the test is wehether, despite the creation of the arrangement, the settlor can recover the property without the exercise of a power by a "truly independent person"
Mr webb as appointor, had the powers to: - remove beneficiaries - remove or replace trustees - could appoint himself to the office of 'consultant' (and did) giving capacity over investment, acceleration of vesting date, variation of trust deed - was trustee as well , and had powers of distribution at his absolute discretion
Bennet 2020 pg 215, discussing Webb [53] "[t]he key issue is whether, on an objective analysis of the powers reserved to the respondent in that deed, the settlor has evinced an intention to irrevocably relinquish a beneficial interest."
@[56]: The matter is best tested by asking what would have occurred if the respondent had attempted to recover the property which he ostensibly settled on the trust. If a critical step in such an attempt would have required the assent of a truly independent person, or would have been subject to an enforceable fiduciary duty on his part, it could not be said that the purported settlement on the trust was ineffective. Conversely if, on an objective view of the deed, the respondent had retained for himself the uncontrolled power to recover the property it could not be said that he had divested himself of his beneficial ownership of the property.
Probert 2017, calls it "the raison detre of problematic, contemporary trust usage"
Probert 2019 discussing HC judgement @[90] As Hansen J established in the High Court, the deed empowered Mr Clayton to use and invest the property in any way he wished.1 81 Mr Clayton could exercise any of his broad powers or discretions for his own benefit. 182 The trust is not illusory on this basis alone. If Mr Clayton appointed property to himself as beneficiary, he would be exercising a fiduciary power and would be subject to the traditional mechanisms used to control the exercise of that power. 183 However, the VRPT deed provided that Mr Clayton could exercise any of his broad powers or discretions for his own benefit, without regard for the other beneficiaries' interests, and notwithstanding any conflict of interest with the VRPT or other beneficiaries. 184 At this point, the trust deed in substance omits a fiduciary relationship in which the trustee holds or deals with trust property for the benefit of the beneficiaries. Mr Clayton can completely disregard all other interests in relation to the trust
It was argued in Clayton that a purported trust’s terms provided so much control of property to the trustee that no trust actually existed. Disagreement ensued. Two lower courts accepted this proposition, but the Court of Appeal rejected it. The Supreme Court decided the case on other grounds, but indicated that its members could not agree on the illusory trust issue.
high court agreed with the illusory trust concept though [2013] 3 NZLR 236 [78]–[80] (Clayton (High Court)). @ {51} Mr Clayton thus ‘effectively retained all the powers of ownership’27 and could use the trust property ‘just as he would if the trust had never been created’.28 The trust was illusory.
WHATEVS>>> WHAT YOU SHOULD REMEMBER IS Clayton is the authority for the proposition that property which is ostensible held on the trusts of a NZ discretionary trust may nevertheless be regarded as being in substance the property of a particular individual holding wide powers over the trust
Power to remove all other beneficiaries except for default benefeiciaries - change any term relationg th management and administration of trust - deed authorised a trustee who was also a beneficiary to exercise powers in his own favour, without considering the interests of all the beneficiaries.
@ [118] . . . the provisions of the [VRPT] give Mr Clayton unfettered power to distribute the income and the capital of the trust to himself if he wishes and to bring the trust to an end at any time he pleases. Mr Clayton effectively retained all the powers of ownership. What he has in fact done is neither here nor there, although it appears that, through his delegates, Mr Clayton exercises, in a practical sense, the powers of ownership. It is what he has the legal power to do that is important and that is basically to do whatever he wants with the trust property. Within a largely conventional framework the trust deed provides an appearance of separation. The reality is, however, that if he chooses to, Mr Clayton is able to deal with trust property just as he would if the trust had never been created.
HELD: mr Claytong was able to appoint the whole property to himself without being constrained in any practical sense by any fiduciary duty
Mr/mrs clayton undergo divorce proceedings. - mr clayton has large amount of property in discretionary trusts - sole settlor and trustee, as well as discretionary beneficiary - principal family member
Barkleys draft textbook excerpt: There is one key example in Aotearoa of a trust where the trustees’ duties were too weak to prevent someone having a property interest. This is the famous case of Clayton v Clayton [2015] NZCA 30. Mr Clayton was the settlor of a trust, but also made himself the only trustee as well as a discretionary beneficiary alongside his children. This meant that he undertook to hold the property on trust until he decided whether to give it back to himself or to his children. In the Court of Appeal, the Court accepted that Mr Clayton was bound by the mandatory duties to make distributions honestly and in good faith. The Court understood that these duties meant that Mr Clayton, as trustee, could not be recognised as free to distribute the property to himself because he owed distribution duties to his children. Mr Clayton’s duties of honesty and good faith meant that his trustee powers could not be recognised as a property interest, and neither could his status as discretionary beneficiary. The assessment changed in the Supreme Court. Here the Court found that while Mr Clayton might be a trustee, he did not owe duties to the beneficiaries that would in any way hinder his freedom to benefit himself. Therefore, because the other beneficiaries did not have rights that limited Mr Clayton’s powers, he had the power and freedom to take the trust property for himself. This power could be recognised as a beneficial property interest that he had to share with his ex-wife. Clayton is a rare case because it is unusual for a discretionary beneficiary to be the only trustee and authorised to exercise powers for his own benefit, which the trust deed explicitly stated. If Mr Clayton had a co-trustee it would have been much more difficult for the Supreme Court to say that the co-trustee’s duties were not strong enough to prevent Mr Clayton having a right to the property. Only if beneficiaries’ rights are so weak they are basically non-existent are the Aotearoa courts willing accept that anyone has a property interest in a discretionary trust.
barkley 2019 argument that the trust itself isn't valid settlor as trustee with power to distribute to class of discretionary beneficiaries including himself isn't a valid trust - equivalent to the clayton tr ust with included the express clause that he could act in his own best intrests at all times - he has therefore failed to create a valid trust and has retained absolute ownership of trust assets at all times. reasoning is that there is no objective intention to irrevocably relinquish his beneficial interest in the assets because the deet provided no impediment to the settlor recovering the entire trust fund. web v webb (cook islands case heard in nz) found this in particular because the deeds exclusion clause removed the fiduciary duties that the trustee would otherwise owe to the beneficiearies NZ court of appeal found that a fiduciary restriction on self benefit was essential for the creation of a trust (not no-benefit, just some sort of restriction rather than a free for all) this is particular to when the settlor is the trustee, and has the power to add/remove beneficiaries at discretion
clause "any trusdt wehich includes any beneficiary 1NZLR551 @[55] The VRPT deed also contains a very broad resettlement power. Under cl 8.1, the Trustee may resettle the Trust Fund upon the Trustees of any trust which includes any one or more of the Discretionary Beneficiaries (in this case, that class includes Mr Clayton himself). On the face of it, this would allow Mr Clayton to resettle the trust capital on the Trustee of a trust of which he was a (or the) beneficiary.
Bennet 2020 - pugachevs [162] case discussing Clayton v Clayton [119]: He observed that the Supreme Court's decision "illuminates some important principles" relevant to the illusory trust claim: The case shows that when considering what powers a person actually has as a result of a trust deed, the court is entitled to construe the powers and duties as a whole and work out what is going on, as a matter of substance. Even though the VRPT deed in that case named more than one Discretionary Beneficiary and named Final Beneficiaries which did not include Mr Clayton, when the deed is examined with care, what emerged is that in fact Mr Clayton had effectively retained the powers of ownership. Thus, the test for illusory trusts Birss J discerns from Clayton v Clayton is whether the rights and duties in the deed mean that in substance the settlor retains the powers of ownership.
Bennet, cvc@[133] discussing protectors: ... the unscrupulous person can prevent the trustees from distributing the money to anyone but himself (or herself) and can remove recalcitrant trustees who fail to do his or her bidding and replace them with trustees willing to do what the unscrupulous person wants. Viewed in that way, perhaps the discretionary trust is not really a discretionary trust at all; the unscrupulous person has retained effective control of the assets or at least can recover that control whenever they like.
the fact that the beneficiaries of a discretionary trust do not have absolute/indefeasible intrerests makes no difference; it is enough that they are currently the only persons entitled to due administration of the trust ~CPT custodian pty ltd v commissioner of state revenue 2005 hca 54 @ 44
to me, this is not a discretionary trust; it is a normal trust with a contingent remainder, which is different. The legal rights to property aren't teh same DISREGARD
REBUTTAL: The difference being the ownership of the property in the first place, and keeping the beneficial and legal ownership - the two never seems to stop coinciding in reality (if not on paper)
he does not beleive that it is an irrevocable fact that a trustee must have a fiduciary duty; noting bartlett clauses re: trustee obligations in overseeing performance of shares in trustee corporations "if one fiduciary duty can be eliminated by the trust deed because the settlor has chose that arrangement, why can the settlor not eliminate all such duties?"
Birss J in pugachev states that no clause is wide enough to completeley waive a trustees obligations to a beneficiary. if the trustee has no duty, are they a trustee? can you TRUST them?
property definition used in Clayton was for matrimonial law, and does not meet the definition for common law (fn6)
he probably wasn't however, UK court in Webb v Webb [2020] UKPC 22 (lord kitchin) states rights over trust property retained by a trust creator were inconsistent with stellemnt of the property on trust, and it "did not make any material difference", when the trust was created by a nominal settlor. this was because the person providing the trust assts plainly intended that the trust would 'operate as a vehicle into which he would at a later stage transfer matrimonial property'. In an equitable sense, the settlor and any person adding substantial property into a trust must be extended to mean the same role. i.e., if sigmund wasn't the settlor, it doesn't matter, he could still be seen as the beneficial owner of the trust.
Probert (2019) states that: Illusory trusts are also conceptually distinct from "alter ego trusts". The alter-ego concept involves viewing the trust as the alter ego of an external controller such as the settlor. 90 It is similar to a finding of a sham, in that the level of control relinquished by the trustee, to the controller, indicates that the trust structure is a fagade that can be disregarded. 9 1 Alter ego trusts are not considered in this article
French J had a different approach to Richstar. rather than seeing the trust as illusory almost to the point of void ab initio, he dtermined that where "the beneficiar effectively controls the trustees power of selection, then there is something akin to a proprietary interest in the beneficiary this idea being that the trust was an 'alter ego' for the beneficiary (wait... isn't this the Salomon argument all over again?) Discretionary trusts are meant to have an unknown scope of distribution (within the defined corners of the deed) seen as an "expectancy or mere possibility of distribution". in comparison, the beneficiary had a "contingent interest... a right of a proprietary character [that] will come into existence at a future time [if some event occurs].... because "it is good as certain that the beneficiary will receive the benefits of distributions of either income or capital or both"
bringing back the concept that there must be fiduciary obligations on the trustee in relation to the nominated beneficiaries. If someone holds non-fiduciary powers yet has the ability to make or prevent key decisions, it contradicts the very requirement of the doctrine.
REBUTTAL: The Justices in the cases have simply uses substantive instead of formative reasons to create a new rule in a divisive area of law that has only come to play in the last 75 years ~ Bennet 227
aren't the fundamental princples of something such as trust law formed from years upon years of common law doctrine compounded into rules though?
How else do we get our snail in a bottle? Salomon and Salomon? Agreement, acceptance, and Consideration...., equity doesn't assist a volunteer,
HECK, OUR TEXTBOOK DOESNT EVEN DISCUSS DISCRETIONARY TRUSTS AT ALL!!
requires checking that the two fundamental principles are met: 1)the fiduciary relationship of the trustee holding the trust property for the benefit of the beneficiaries and 2) trustee accountability - the enfoceable fiduciary obligations to the beneficiary
Subtopic
Look for sham: the true intent behind the forming of the trust. if it was formed for a purpose inherently different to what is listed by word in the deed
Enable a 'piercing the veil' style approach to trusts, looking beyond the form of the deed to true attribution of ownership. ~bennet akins this to looking to the true essence of property ownership in family law/ relationship disputes, where courts look beyond the firm statutory definitions of 'property' or 'financial resources' to ensure fair distribution between spouses (pg 205)
Child or Children of PRINCIPLE FAMILY MEMBER born or adopted before the vesting day OR if a final beneficiary has died, any issue of said final beneficiary
(a) the Principal Family Member; (b) the Final Beneficiaries; (c) the issue of any Final Beneficiary; (d) any wife, husband, widow, widower, former wife or former husband for the time being of any Beneficiary described in paragraphs (a) to (c) of this definition; (e) any trust ... which includes ... any Beneficiary; (f) any person appointed pursuant to cl 7.1(a), but does not include any person who has been removed from the class of Discretionary Beneficiaries pursuant to clause 7.1(b).
Sigmund Jung
additionally: holder of power of appointment of trustees may exercise that power in favour of themselves
