Attention: Supreme Court

by Hannah Norton15 Jul 2015
A New Zealand trust law expert has written an open letter to the Supreme Court about the $28million divorce wrangle case, Clayton v Clayton.

Auckland lawyer Vicki Ammundsen, director of Vicki Ammundsen Trust Law Limited, was motivated to pen the letter after having questions about the Court of Appeal judgement.

Ammundsen told NZLawyer she was initially nervous about the letter, not wanting to appear disrespectful to the courts.

“I thought, ‘are we allowed to say things like that?’”

It includes ten questions she has about the case and judgements in the various courts, such as: “Is a power of appointment of beneficiaries only relationship property where the holder of the power is also the sole trustee of the trust?”

The case, between a Rotorua saw-milling magnate and his ex-wife, has attracted extensive media coverage and has been touted as reshaping the trust law and relationship property law space in New Zealand.

Leave to appeal aspects of the Court of Appeal decision to the Supreme Court was granted on 19 June.

The Court of Appeal decision found that the lower Courts were incorrect in their finding that the trust was illusory – “it’s either a trust or it’s not – there is no halfway house” – and that Mr Clayton’s power in the trust constituted a property right, which fell within the scope of the Property Relationship Act, Ammundsen said.

The court said that if a “settlor’s intentions [were] that a valid trust has been established and it’s not a sham it should not be able to be treated as non-existent.”

“The court [also] said that in their view the value of the right to the holder of the power in a case such as this – and it may be significant that they say ‘in a case such as this’ – will be the value of the property received in the event that the power was exercised,” she said.

“That is the net value of the assets of the trusts. So they’ve made this great big leap, and they’ve said, ‘even though he never exercised the power, he could, so therefore we will value the power as being worth the entire net value of the assets of the trust’.”

Ammundsen believed there’d been “some jumps in the logic in how they got to this right is worth the value of the assets of the trust”.

“I think some clarification around that would be helpful.”

The effects of Clayton v Clayton

Lots of people have said that, because of Clayton, trusts will be opened up to creditors, she said.

“I’m not sure that that is necessarily correct, because the court was very specific in its finding that this was based on the definition of property right under the Property Relationship Act.”

“It doesn’t necessarily mean it will be a right for other purposes. And also at what point would it be valued? When would a creditor be able to attack it?”

But, whatever the outcome, Ammundsen feels this case is significant.

“It is important because firstly, it shows people that when you are settling your trust, if that’s your intention at the time, it is going to be increasingly difficult to resile from that.

“It also means from a creditor perspective that to be able to say that the trust is a sham is going to actually be a lot harder, because we’ve have some really important consideration from the Court of Appeal where they’ve kind of rounded up the reasoning in a whole lot of cases.

“Whatever the outcome of this, I think we’ve got clearer guidance now in New Zealand as to what is a valid trust and it also mirrors the way that the approach that the Law Commission has taken in its review of the law of trusts, because they’ve said, ‘we don’t want to say what a sham is, we think it is more important to say what the characteristics are of a valid trust’.”