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Cases, Common intention constructive trusts, constructive trusts, Trusts

Common intention constructive trust, or not …

The common intention constructive trust is the hot and hip new remedy in the arsenal of the savvy trust lawyer.  So perhaps it is not surprising that when A lister Sally Ridge fell out with her equally sociable partner that such a claim might be made.  The genesis of the claim derived from some restructuring whereby Ms Ridge’s trust would obtain full ownership of the family home and Mr Parore’s trust the income producing business assets.  All fun and games until somebody loses an eye.  As with many mirror trusts of old where similar structures lose their lustre after the death of one party, the Parore / Ridge structure proved equally unbalanced.  To redress this the argument was made that “the Sally Ridge Family Trust is entitled to 50 per cent of the shares in Small Business Accounting (NZ) Limited (SBA), a company owned by the Parore Family Trust. This claim is based on the assertion that the parties had a shared intention, despite the legal ownership, that all assets of either trust were held for the benefit of both trusts equally. The plaintiffs [the trustes of the Sally Ridge Family Trust] claim that a common intention constructive trust arises out of this shared intention.”

The revised structure had represented a departure from the initial trust structure whereby assets attributable to each party were held by un-related trusts.  While there were practical reasons for separating business and private, the funding required to support the private non-trading trust was such that the separation was partly illusory.  Although the judgment notes that Mr Parore took care to ensure that Ms Ridge understood the terms and nature of the restructure it is not clear from the decision whether Ms Ridge was independently advised.  What was made abundantly clear was that Ms Ridge had little interest in understanding.  Ms Ridge being quoted as saying “I don’t actually to be honest with you Zane really understand trusts. You could explain them to me and I used to say this to Adam a million times, “My brain doesn’t compute trusts,” I don’t get them, don’t understand them, never have and I most probably never will. It would be like trying to get me to do your job. Don’t understand being a lawyer, don’t understand trusts. Call me thick, I don’t mind, but I do not understand the ins and outs of a trust full stop, I just don’t.”

The question that springs to mind is how can a trustee acquit his or her duties if the trustee has no understanding of trusts?  While the judge noted a view that Ms Ridge “impressed as an intelligent and capable woman”, the concern to a third party is the observation that matters were sufficiently explained to her by her co-trustee and her partner.  Is this sufficient in a transaction where non-income producing and income-producing assets are being re-directed?

Trusts are complex, and not for everyone.  Raising my children I have often advised that you should never eat something bigger than your head.  Maybe in affairs of the world if you don’t understand, find someone independent who can explain it so you do, or don’t do it.

But on the the matter at hand.  Fast forward to the ugly stuff.  The relationship ended.  Each party thought that “their” trust was stiffed.

 Ms Ridge’s position was that actually although each trust owned different assets, what was really agreed (keeping in mind her position in court that she really did not understand trusts) was that each trust (or at least Mr Parore’s Trust) was holding half its assets for the other.  Or to use the legal term there was an alleged common purpose constructive trust.   The nature of such a trust is summarised nicely in the judgment as follows:

“[19] Common intention constructive trusts form a well-established part of the law of trusts in England and Australia. However, there have been few, if any, cases in which such a trust has been recognised in the New Zealand context.  In Harvey v Beveridge, Associate Judge Osborne helpfully reviewed the authorities and set out the essential features of such a trust.  The authorities establish that common intention constructive trusts are founded on proof of a subjective common intention, clearly and unequivocally established by words or conduct”.

The factual basis for the claim was that Ms Ridge and Mr Parore had an intention/agreement that, despite the legal ownership structure, the assets would be held 50/50 between the two trusts. That was a common intention from the 2007 restructuring and Mr Parore said it was discussed and agreed with Ms Ridge. The agreement gives rise to a common intention constructive trust.

This flew in the face of the need to establish an unequivocal intention and the clear facts surrounding the establishment of the new structure.

It was this structure that dashed the hopes of the hopeful.  The court noting that”it is clear that the assets of each trust were to be held by the trustees of that trust for the benefit of the beneficiaries of that particular trust as was required by the terms of the Trust Deeds. The concept of equal sharing between Mr Parore and Ms Ridge was to be achieved by the trustees exercising their discretion to treat them as equal beneficiaries under each trust, not by the trusts sharing ownership of the assets.”

The case is frustrating in some aspects as  greater consideration of the elements would have provided useful guidance.  There is also a lingering sense that while Ms Ridge’s position was destined to fail, did she set herself up for this by her refusal to independently investigate and determine whether the restructure was in her best interests or did she allow herself to be mislead.  And if so, who should shoulder that responsibility?

Editor’s note – see the costs award in High Cost of Failed Argument


  • Ridge v Parore [2014] NZHC 318
  • Harvey v Beveridge [2013] NZHC 1718
  • X v Y HC Auckland M100/95, 28 November 1995
  • LG v MER [2010] NZFLR 1001 (HC)
  • Boys v Calderwood HC Auckland CIV-2004-404-290, 14 June 2005
  • Clark v Clark [2012] NZHC 3159
  • Cossey v Bach [1992] 3 NZLR 612 (HC)



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