The decision in Judd v Hawkes Bay Trustee Company Limited (see Another tributary in the trickle of constructive trust cases) has been upheld on appeal.
By way of background Richard Hodgkinson and Michelle Judd were married for six and a half years. Over that period they lived in a property in Lane Road, Havelock North, which was owned by the Richard Hodgkinson Trust (the Trust). Following their separation MsJudd made a claim that the Trust held a share in the property on constructive trust for her, reflecting her contributions to the property. This was valued by the High Court as $10,000 per year totalling $65,000.
The trustees appealed on three issues:
- whether Ms Judd’s contributions came within the principles of Lankow v Rose
- whether Ms Judd had a reasonable expectation of a share in the property, and
- the impact on her claim of the property being held in trust.
Lankow v Rose
The principles in Lankow v Rose can be summarised as follows:
- contributions, direct or indirect, to the property in question.
- the expectation of an interest therein.
- that such expectation is a reasonable one.
- that the defendant should reasonably expect to yield the claimant in
Contributions may be to assist in maintenance or property value and contributions in the home may qualify as contributions to the home.
The Court of Appeal was satisfied (see  that the High Court judge “was right to treat Ms Judd’s efforts as an indirect contributions to the maintenance of the Trust’s property that qualified as contributions under Lankow v Rose. There is no question she expended considerable effort over a six and a half year period and contributed in this way to the preservation of the property. As Mr Hodgkinson accepted, Ms Judd was very good at what she did around the house and her efforts contributed to preventing the house from, as he accepted, “going to rack and ruin”. We agree with Williams J that proof of enhanced value is not always required. Rather, as the Judge said::
… the judgment of Tipping J [in Lankow v Rose] in particular is clear that contributions that directly or indirectly maintainproperty value will also generate entitlements, all other things being equal. Inaddition, contributions can relate to the maintenance not only of property value, but of the property itself. This means that even in a falling market and even in respect of an overcapitalised property, contributions can have proprietary effects. It is hardly surprising that, notwithstanding the unjust enrichment language sometimes used in these cases, equity would not approach division of property at the end of a relationship in this black and white way.
 A further argument was that the obligation to maintain was an obligation of those who occupied the property as tenants. Assuming there was such an obligation, we do not consider that obligation means that the contributions cannot have been contributions for the benefit of the Trust. The practical effect was to contribute to the maintenance of the Trust property.”
Upholding the matter of quantum the Court of Appeal rationalised the matter thus:
“ One means of cross-checking the approach is to note that the judgment sum amounts to an award of some $200 a week for the course of the marriage. If we assume that Ms Judd would have otherwise made rental payments of, say, $200 per week that means she has received overall a payment of $400 a week. We do not consider it is unreasonable or unrealistic to say that her contribution equated to about $400 a week.”
The Court of Appeal upheld the High Court’s view that Ms Judd was not denied a remedy because she knew the house was owned by a trust the Court of Appeal noting that “Ms Judd’s understanding of the situation that pertained to the Trust did not mean she expected she was to contribute in the way she did but, if the marriage broke up, receive nothing.”
Impact of Trust Ownership
The question as to whether a constructive trust can be made out against trustees of an express trust is relatively novel and remains contentious. For the contrary outcome see the contemporary Court of Appeal decision in Vervoort v Forrest, which is distinguished in Hawkes Bay Trustee Company Limited.
Referencing this at  and  onwards (references removed) the Court of Appeal notes that:
“ On the second submission, similar criticisms of Murrell were discussed by this Court in its recent decision in Vervoort v Forrest. The Court in Vervoort observed that the question of the application of a constructive trust to an asset, like the Lane Road property, itself owned by an express trust had arisen in a number of other cases. After discussion of that line of authority the Court observed that the Judge at first instance in Vervoort was correct to acknowledge the “traditional trust principles of unanimity and non-delegation” but said “those principles must bend to the practical realities when one trustee is in absolute control of all trust activities and the other trustees have effectively abdicated their trustee responsibilities”.
 Reflecting the reality recognised in Vervoort, Mr Hodgkinson treated the property as his own. He was the controlling trustee and as one among a number of family beneficiaries he enjoyed the benefit of an apparently indefinite right to occupy the trust property rent-free. This arrangement was inconsistent with a conventional arm’s-length transaction between trustees and a third party to invest or rent trust property to secure an economic return for the beneficiaries. The trustees owned and operated the property for Mr Hodgkinson’s primary benefit.
 We consider it can be said that in the present case the conscience of both trustees is affected. Mr Hodgkinson obviously had direct knowledge of the contributions being made by Ms Judd but, as the Judge found, Mr Dine had effectively given Mr Hodgkinson “carte blanche” to do as he wished with the assets of the Trust. The requirement for unanimity cannot be used as a shield in this situation where one trustee has abdicated responsibility and so enabled trust property to be improved without first resolving the basis of receipt. Further, although Mr Dine may not have known of these contributions earlier, he did at the time of trial. In all these circumstances, it would be unconscionable not to recognise the benefits freely accepted by the Trust.
 The concern about the impact of this approach on the property rights that form a key part of the trust concept is understandable.43 We make three points on this aspect. First, we agree with Mr Bates’ submission that Ms Judd’s successful claim simply reverses or disgorges the benefit of the defendants’ enrichment. This Court in Murrell made the same point. As the Court put it, the claim means “a part of the value of the Trust’s property which should not accrue to the Trust does not accrue to it”.
 Secondly, it was open to the trustees to take steps to preserve the position they now seek to maintain. They could have taken advice on the issue at the time of the marriage. Further, Mr Hodgkinson could have entered into a relationship property agreement with Ms Judd. Absent such an adjustment of her expectations, where the contributions are to the matrimonial home and the trustees have encouraged or permitted these contributions, it would be wrong to treat a contributor like Ms Judd as a volunteer.
 Finally … the question is not whether a party’s action is in breach of their trustee duties but, rather, the focus is on the reasonableness of a third party’s expectation of an interest in the property and the reasonableness of requiring the legal owners to yield an interest or to pay compensation in lieu.”
The decision raises complex issues regarding the mismatch that is trusts and relationship and puts the responsibility to avoid such a result as is the case here with the trustees, which it is suggested is appropriate.
- Judd v Hawkes Bay Trustee Company Limited  NZHC 3298
- Murrell v Hamilton  NZCA 377
- Hawkes Bay Trustee Company Limited v Judd  NZCA 397
- Lankow v Rose  1 NZLR 277
- Vervoot v Forrest  NZCA 375