Trusts are a bit like plants – tend them and nourish them and you can reap the rewards for years. Leave them alone and even if once well tended to, the plant can bolt or fail. The story that became Murrell v Hamilton provides a sad example of what can happen when trustees fail to collectively manage matters.
The background facts are simple and common enough:
- Mr Hamilton and Ms Murrell, began a relationship in 2002, which ended in early 2010.
- During their relationship the (then) happy couple moved into a house that was being built by a building company operated by Mr Hamilton, who was himself a builder. However, the property was owned by the W E Hamilton Family Trust (the Trust), of which Mr Hamilton was a trustee along with a solicitor, Mr Mirkin.
- The relationship ended and the house was sold.
- Ms Murrell then claimed that some of the proceeds of the sale price were held by the Trust on constructive trust for her, this trust reflecting her contributions to the property – and the only way she could seek any recognition of her contributions. Note to the wise reader – before advancing money to a trust you are not a trustee of, get really good advice about how good an idea that is.
So off to court the parties went.
In the High Court, Pankhurst J accepted that Ms Murrell had contributed to the property, and held a reasonable expectation that she had an interest in it. The Judge identified the extent of the interest as being a 15 per cent interest, amount to $37,500. Although it was unconscionable for Mr Hamilton to deny that Ms Murrell had a reasonable expectation of an interest in the property, the property was owned by the Trust and while Mr Hamilton had created an expectation he was only one of the two trustees. The High Court found that other trustee, Mr Mirkin, had not created an expectation in Ms Murrell of an interest in the property. Accordingly Ms Murrell’s claim of a constructive trust in her favour failed.
However, Ms Murrell was not done and successfully appealed to the Court of Appeal who focussed on the evidence that Mr Mirkin had left everything to do with the building of the house to Mr Hamilton and allowed him to bind the trustees accordingly.
On this basis and perhaps what was described optimistically as an “unusual fact situation”, the Court of Appeal considered that it would be unconscionable for the trustees to deny Ms Murrell’s claim.
The trustees sought leave to appeal the Court of Appeal decision arguing that:
“the factual findings made by Panckhurst J did not support the Court of Appeal’s findings as to the extent of Mr Hamilton’s authority to act on behalf of the trustees. They submit that the Court of Appeal effectively found that the trust was a sham or an alter ego trust and this went beyond any conclusion that could legitimately be reached on the basis of Panckhurst J’s factual findings. The Court of Appeal had confused factual control of trust property with legal authority and had over-looked the principles of unanimity and non-delegation in relation to trustees.”
The Supreme Court was not moved and denied leave to appeal, finding that the case turned on its own facts and that there was no risk of a substantial miscarriage of justice.
Which, will bring the matter to an end. However, it does leave questions. While the decision provides more ammunition for disgruntled spouses and partners who are seemingly thwarted by the existence of a trust some take home notes:
- do not pay money for the construction of a house that you will not be an owner of – if called upon to do so – ask hard questions – such as – what happens if we split up? If you are advancing money to a trust – get it recorded as a debt – do not forgive the debt. While that may not guard against inflations losses – consider charging a suitable rate of interest
- if your trustee is really good and leaves you alone and doesn’t “waste your money” with made up trust administration – ask yourself how “your” trust will stand up to scrutiny when there is a claim from a creditor or disgruntled spouse or partner
- be fair. If your spouse or partner has contributed – don’t hide behind the trust – constructive trusts are real – or as real as concepts can be – and they are there to protect people who have been ripped off. One can only wonder at the costs award for this three court fight over $37,500.
- Murrell v Hamilton  NZHC 3241
- Murrell v Hamilton  NZCA 377
- Murrell v Hamilton  NZSC 162