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alter ego trust, Cases, constructive trusts, Illusory trust

Another tributary in the trickle of constructive trust cases

The decision in Judd v Hawkes Bay Trustee Company Limited represents another tributary in the trickle of constructive trust cases.  The facts are relatively straight-forward – trust settled after the end of the settlor’s marriage owns the family home, third wife (Ms Judd) aware of this, Ms Judd makes some direct and indirect contributions (40% was claimed, ultimate result equates to a finding of approximately 8%) and makes a constructive trust claim.  After 6 1/2 years the marriage fails. The decision follows the principles espoused in the Court of Appeal decision in Murrell v Hamilton.  See Do it right or don’t bother.  These can be expressed as:

  • a constructive trust can be found within an express trust
  • an (independent) trustee has abjured responsibility leaving all relevant decisions to the “spouse” trustee
  • accordingly the trustees have proceeded on the implied understanding that the spouse’s representations are binding on the trust
  • it would be unconscionable to deny the non-trustee spouse relief on account of her contributions to the trust property

This meant that the decision for the court in Judd v Hawkes Bay Trustee Company Limited was whether the independent trustee Mr Dine had abjured his trust responsibility to the spouse trustee Richard.   In this regard it is noted in the decision at [64]  and [65] that “[Mr] Dine was a far more hands-on professional trustee than was the case … in Murrell v Hamilton.  Mr Dine kept the trust cheque book in his offices and countersigned all the trusts cheques.  He and Richard met fortnightly and Mr Dine kept what might be called a “big picture” eye on the affairs of the trust. That said, Mr Dine well knew when he countersigned the purchase of Lane Road, that it would Richard’s home. Mr Dine accepted that all matters of maintenance and upkeep of Lane Road were left entirely to Richard to oversee and that any expenditure in that regard would, on provision of appropriate proof, be reimbursed from the trust’s accounts …” It was also noted that Mr Dine took no role in the decisions regarding the renovations. It is noted that $50,000 was advanced by Ms Judd for the renovations, effectively by way of bridging finance.  Different versions of events were put forward.  However, the court was satisfied that the money was repaid. Regardless, the grounds for a constructive trust were found to have ben made out, and despite what appears to have been a particularly well-run trust, the independent trustee was found to have abjured certain trustee responsibilities such that both trustees were liable for her expectations.  While the quantum of $65,000 is not large, given that 40% (approximately $330,000 was sought) the measurement was made not by reference to the property or direct financial or in-kind contributions  but rather to an annual rate of $10,000 per year of marriage.  Ergo, 6 1/2 years = $65,000. From a practical perspective the decision is disturbing as the trustees’ practices were good and it is difficult to sensibly expect more.  However, that approach won’t help, show can the outcome be avoided? Suggestions:

  • trustees require a trustee/beneficiary’s spouse or partner to be independently advised that no interest will be acknowledged
  • don’t live in a trust property when it is being renovated
  • don’t involve a trustee/beneficiary’s spouse or partner in any renovation decisions
  • record the terms of any advances and ensure the trustee/beneficiary’s spouse or partner is a party to any such records
  • ensure that the independent trustee is party to any renovation decisions.  This may add a layer of cost.  However, it would appear that the bench mark is $10,000 per year.

Food for thought. Of course on the other side of the equation the former third wife may well feel suitably aggrieved to leave a relationship without any interest in a home and the “rent-free” use of a “beautiful home” may have come at a higher price that was appreciated.

Editor’s note: the decision was upheld on appeal.

References:

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