A
Bay of Plenty timber milling entrepreneur with business interests valued at
$107.2 million and assets held through a structure of family trusts has seen a
key funding trust prised open by the Court of Appeal in a relationship property
claim because a general power of appointment in the trust deed potentially
enabled him to take sole ownership of all trust assets. The case has been referred back to the High
Court for a decision on the value of this power of appointment now categorised
as relationship property.
Mark Clayton established
various trusts to hold business and personal assets during his seventeen year
marriage. The court was told that when
the marriage came to an end in 2006 title to the family home in Banksia Place,
Rotorua was in his name, but most of the family’s assets including holiday
homes and motor vehicles were owned by interest associated with Mr Clayton. His business interests are owned and
controlled by a number of companies and trusts in New Zealand and the United States. His wife Melanie claimed she was entitled to
half the net value of the business and trust assets as relationship property: a
claim totalling $28.8 million.
At issue was whether Mark
Clayton’s business assets are relationship property.
Evidence was given that a key
component of his business is a trust set up in 1999 called the Vaughan Road Property
Trust. This trust is used as banker for
the business. Loans to the business are
channelled through the Trust and then advanced to companies and other trusts
within Mr Clayton’s business empire.
Legal advisers for Mrs Clayton
attacked the validity of this Trust, arguing it was a sham or illusory, being
Mr Clayton in disguise. The Court of
Appeal ruled the Trust was valid. It was
properly set up and operated for a valid business reason; to separate fixed
assets owned by the business from its operating assets. The general rule is that assets held within a
valid trust are safe from any relationship property claim. In an uncommon move, Court of Appeal judges
then invited the legal advisers to consider another line of attack: look at the
wide powers of appointment given to Mr Clayton in the trust deed.
After hearing legal argument
from lawyers for both Mr Clayton and Mrs Clayton the Court of Appeal ruled that
the power of appointment in the trust deed was so wide as to amount to
“property” in the Property (Relationships) Act.
The wording of the trust deed states that Mr Clayton has the role of
settlor, sole trustee and potential beneficiary. The deed also gives him power to appoint and
remove trustees and to appoint and remove beneficiaries. While he is a potential beneficiary, it is
within Mr Clayton’s power to ensure he is the only beneficiary. This power has considerable commercial
value. The case was referred back to the
High Court to assess this value, being the net value of Mr Clayton’s equity in
the Vaughan Road Trust. Mrs Clayton is
entitled to half the value.
The court also ruled that Mrs
Clayton was entitled to claim against a number of Mr Clayton’s trusts holding
real estate. This included trusts set up
after the couple separated. Relationship
property was transferred to trusts in which Mrs Clayton was not listed as a
potential beneficiary. The court ruled
these were dispositions of property made to defeat Mrs Clayton’s rights.
Clayton
v. Clayton – Court of Appeal (26.2.15)
15.017