Family Trust: McLaren v. McLaren

A no-holds-barred family dispute has broken out over the McLaren family’s Marlborough mussel farm with the High Court reversing actions by son Bruce who had removed his parents as beneficiaries of a trust controlling farm operations.

The McLaren family started mussel farming in the late 1970s.  After nearly thirty year’s operation the business was restructured into two separate family trusts: operating assets into the BDM Trust and capital assets to the MFT Trust.  David and Mary McLaren were appointed trustees of each Trust along with their only son Bruce.

Evidence was given that son Bruce fell out with his parents after hearing of their plans to sell off farming assets owned by the MFT Trust.  He retaliated by exercising a power of appointment granted him in the BDM Trust, removing his parents as discretionary beneficiaries of the BDM Trust and appointing two new trustees.  This increased the number of trustees to five ensuring a 3-2 voting split in Bruce’s favour if the new appointments voted with him against his parents as trustees.   

Justice Dobson said this is a sorry tale of what can occur when a family adopts an inappropriate form of trust deed without adequate advice or sufficient understanding of the legal effect of its terms.  Parents David and Mary McLaren had established the business but sold operating assets to a Trust giving son Bruce control through his power as an appointer.

Justice Dobson reversed the decision to remove parents David and Mary as beneficiaries.  He said son Bruce did not have unfettered power to decide who should be removed; the appointer’s power was governed by some basic fiduciary duties.  Circumstances in which the BDM Trust was established meant Bruce could only remove his parents as beneficiaries after acting in good faith bearing in mind the purposes of the Trust.  The likely inference is that Bruce was nominated as appointer to enable the business to keep operating after his parents retired or on their death, he said.  Given the shared aspirations of Bruce and his parents it was an expropriation of trust property to remove his parents as beneficiaries leaving Bruce and his immediate family as the only beneficiaries.  It was not a reasonable exercise of trustee powers when removing his parents and this was disproportionately punitive, he said.

Bruce’s appointment of two extra trustees to the BDM Trust was not overturned.

McLaren v. McLaren – High Court (15.02.17)

17.016

Torchlight: Carolan v. NZ Real Estate

Having lost trust and confidence in George Kerr’s management of Torchlight Fund LP, investors sued in the Cayman Islands to wind up the Fund.

Mr Kerr is managing director of listed company Pyne Gould Corporation. Allegations of irregular related party dealings between Mr Kerr and Torchlight triggered investor concerns, specifically Torchlight’s purchase of a Wanaka property from companies associated with Mr Kerr.

To gather evidence for the Cayman Islands winding up application, Millinium Asset Services Pty Ltd asked the High Court at Auckland to release documents and the record of evidence from a 2016 trial between Mr Kerr and former business associate, merchant banker Michael Carolan.  At this trial Mr Carolan was ordered to repay $1.1 million used to buy a Remuera home.  Confidential and commercially sensitive documents featured in evidence.  The trial judge supressed publication of some.

Refusing Millinium access to the 2016 court file, Justice Edwards said the Cayman Islands court has ordered Torchlight to disclose a wide range of documents as part of the winding up procedure.  Cayman is the better forum to determine what should be disclosed and how disclosure should be controlled, she said.      

Accident Compensation Corporation is among investors seeking to wind up Torchlight.  Torchlight has counter-sued, alleging investors are conspiring to quit the partnership by unlawful means.

Carolan v. NZ Real Estate – High Court (14.02.17)

17.017

Relationship Property: Zhang v. Li

The High Court heard evidence of Chinese custom before ruling $335,500 sent by parents from China to help their married daughter buy a family home was not a gift but a loan with details of the loan not yet finalised.  When the marriage failed her parents could recover their money.

Meng Li and Yi Ming Zhao married in 2007.  Ms Li had been in New Zealand since 2001, supported financially whilst a student by her parents in China.  They provided $335,500 of the cash needed by the newly married couple to buy a home in New Zealand.  Ms Li and Mr Zhao separated after five years.  The High Court was asked to decide whether Ms Li’s parents’ $335,500 was a gift (and relationship property since it was used to buy a family home) or a loan (repayable to the parents).

There was no documentary evidence supporting the transfer of funds to New Zealand.  Justice Simon France said intra-family money matters are often dealt with informally, particularly so in Chinese society where to do otherwise could be seen as disrespectful.  There was no prior agreement that the funds transfer was a loan: there was no agreement for payment of interest or for when the funds might be repayable.  Chinese custom is that Ms Li as an only child would care for her parents in their old age and that financial assistance in the purchase of a family home would be on the assumption her parents would at some point live with her in the house.  His Honour ruled the funds transfer amounted to an interest free loan repayable on demand.  He ordered the former family home sold with the net proceeds divided 50/50 between Ms Li and Mr Zhao after repayment to Ms Li’s parents of the $335,500 they advanced.

Zhang v. Li – High Court  (10.02.17)

17.015